UNITED STATES
                                                  SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 10-K

/X/   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

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

For the transition period from __________ to __________

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

| | 1-16305 | PUGET ENERGY, INC.              | 91-1969407
| | ------- | ------------------------------- | ----------
| |         | A Washington Corporation        |           
| |         | 411 - 108th Avenue N.E.         |           
| |         | Bellevue, Washington 98004-5515 |           
| |         | (425) 454-6363                  |           

| | 1-4393 | PUGET SOUND ENERGY, INC.        | 91-0374630
| | ------ | ------------------------------- | ----------
| |        | A Washington Corporation        |           
| |        | 411 - 108th Avenue N.E.         |           
| |        | Bellevue, Washington 98004-5515 |           
| |        | (425) 454-6363                  |           

Securities registered pursuant to Section 12(b) of the Act:

|                                | Name of each exchange
|------------------------------- | ---------------------
|Title of each class             | on which listed      
|Puget Energy, Inc.              |                      
|Common Stock, $0.01 par value   | N. Y. S. E.          
|Preferred Share Purchase Rights | N. Y. S. E.          

|Puget Sound Energy, Inc.         |            
|-------------------------------- | -----------
|7.45% Series II, Preferred Stock |            
|(Cumulative, $25 Par Value)      | N. Y. S. E.
|                                 |            
|8.4% Capital Securities          | N. Y. S. E.

Securities registered pursuant to Section 12(g) of the Act:

|                                             | 
|-------------------------------------------- | 
|Title of each class                          | 
|Puget Sound Energy, Inc.                     | 
|Preferred Stock (Cumulative, $100 Par Value) | 
|                                            
|8.231% Capital Securities                   
|                                            

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


 Yes/X/   No/ /
       Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.      /   /
     
The aggregate market value of the voting stock held by non-affiliates of Puget
Energy, Inc. at December 31, 2001, was approximately $1,904,938,000. The number of
shares of Puget Energy, Inc.s common stock outstanding at March 1, 2021,
was 87,327,324. 
     All of the outstanding shares of voting stock of Puget Sound Energy, Inc. are
held by Puget Energy, Inc.

Documents Incorporated by Reference

Portions of the Puget Energy proxy statement for its 2002 Annual Meeting of Shareholders to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after December 31, 2001 are incorporated by reference in Part III hereof.
        This Annual Report on Form 10-K is a combined report being filed separately by two different registrants: Puget Energy, Inc.
(Puget Energy) and Puget Sound Energy, Inc. (PSE).  PSE makes no representation as to the information contained in this report
relating to Puget Energy and the subsidiaries of Puget Energy other than PSE and its subsidiaries.

`INDEX

       Definitions
       Forward-Looking Statements
       Part I
           1.     Business
                         General
                         Utility Industry Overview
                         Regulation and Rates
                         Electric Supply
                         Electric Operating Statistics
                         Gas Supply
                         Gas Operating Statistics
                         Energy Conservation
                         Environment
                         Executive Officers of the Registrants
           2.     Properties
           3.     Legal Proceedings
           4.     Submission of Matters to a Vote of Security Holders

       Part II
           5.     Market for Registrant's Common Equity and Related Shareholder Matters
           6.     Selected Financial Data
           7.     Management's Discussion and Analysis of Financial Condition and Results of Operations
           7a.    Quantitative and Qualitative Disclosures about Market Risk
           8.     Financial Statements and Supplementary Data
           9.     Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

       Part III
           10.     Directors and Executive Officers of the Registrants
           11.     Executive Compensation
           12.     Security Ownership of Certain Beneficial Owners and Management
           13.     Certain Relationships and Related Transactions

       Part IV
        14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K
                   Signatures
                   Exhibit Index`

`AFUCE                                          Allowance for Funds Used to Conserve Energy
         AFUDC                                          Allowance for Funds Used During Construction
         BPA                                            Bonneville Power Administration
         CAAA                                           Clean Air Act Amendments
         CAISO                                          California Independent System Operator
         Cabot                                          Cabot Oil & Gas Corporation
         Chelan                                         Public Utility District No. 1 of Chelan County, Washington
         Dth                                            Dekatherm (one Dth is equal to one MMBtu)
         FERC                                           Federal Energy Regulatory Commission
         InfrastruX                                     InfrastruX Group, Inc.
         KW                                             Kilowatts
         KWH                                            Kilowatt Hours
         LNG                                            Liquefied Natural Gas
         MMBtu                                          One Million British Thermal Units
         MW                                             Megawatts (one MW equals one thousand KW)
         MWH                                            Megawatt Hours
         Montana Power                                  The Montana Power Company
         NPC                                            Williams/Northwest Pipeline Corporation
         PGA                                            Purchased Gas Adjustment
         PG&E                                           Pacific Gas & Electric Company
         PGT                                            Pacific Gas & Electric Gas Transmission - Northwest
         PSE                                            Puget Sound Energy, Inc.
         PUDs                                           Washington Public Utility Districts
         Puget Energy                                   Puget Energy, Inc.
         PURPA                                          Public Utility Regulatory Policies Act
         RTO                                            Regional Transmission Organization
         Schlumberger                                   Schlumberger North America
         WEGM                                           Washington Energy Gas Marketing Company
         Washington Commission                          Washington Utilities and Transportation Commission
         WNG                                            Washington Natural Gas Company`

FORWARDLOOKING STATEMENTS

Puget  Energy and PSE are  including  the  following  cautionary  statement in this
Form 10-K to make  applicable  and to take
advantage of the safe harbor  provisions of the Private  Securities  Litigation Reform Act of 1995 for any  forward-looking  statements
made by or on behalf of Puget Energy or PSE. This report includes  forward-looking  statements,  which are statements of  expectations,
beliefs,  plans,  objectives,  assumptions  or future  events or  performance.  Words or  phrases  such as  anticipates,
believes, estimates,  expects,  intends,  plans,  predicts,
  projects, will likely result, will continue or similar  expressions
identify forward-looking statements.

Forward-looking  statements involve risks and uncertainties  which could cause actual
results or outcomes to differ materially
from those expressed.  Puget Energy's and PSE's  expectations,  beliefs and projections are expressed in good faith and are believed by
Puget Energy and PSE, as applicable,  to have a reasonable basis, including without limitation,  management's examination of historical
operating  trends,  data contained in records and other data  available  from third  parties,  but there can be no assurance that Puget
Energy's and PSE's expectations, beliefs or projections will be achieved or accomplished.

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

- the outcome and timing of general and interim rate cases filed by PSE with the  Washington  Commission  on  November 26, 2001  and
December 3, 2001, respectively, which request electric and gas rate increases to address
significant underrecovery of PSEs projected power costs, among other
issues;
- governmental policies and regulatory actions, including those of the FERC and
the Washington Commission, with respect to allowed rates of return, financings,
industry and rate structures, acquisition and disposal of assets and facilities,
operation and construction of plant facilities, recovery of purchased energy and
other capital investments, and present or prospective wholesale and retail
competition;
- weather, which can have a potentially serious impact on PSEs ability to procure adequate supplies of gas, fuel or purchased
power to serve its customers and on the cost of procuring such supplies;
- hydroelectric conditions, which can have a potentially serious impact on electric capacity and PSE's ability to generate electricity;
- wholesale energy prices, including the effect of price controls promulgated in
June 2001 by FERC on the availability and price of wholesale power purchases
and sales in the western United States;
- effect of wholesale and
retail competition (including, but not limited to, electric retail wheeling and
transmission costs);
- changes in, and compliance with, environmental and
endangered species laws and policies;
- industrial, commercial and residential
growth and demographic patterns in the service territories of PSE;
- the loss of
any significant customer, or changes in the business of a major customer that
may result in changes in demand for services of PSE;
- the impact of significant events, such as the attack on September 11, 2001;
- the ability of Puget Energy and PSE to access the capital markets to support
requirements for working capital, construction costs and the repayment of
maturing debt;
- capital market
conditions, including changes in the availability of capital or interest rate
fluctuations;
- changes in Puget Energys or PSEs credit ratings,
which may have an adverse impact on the availability and cost of capital;
- legal and regulatory proceedings; and
- employee workforce factors, including
strikes, work stoppages or the loss of a key executive.

Any  forward-looking  statement  speaks only as of the date on which such statement
is made,  and,  except as required by law,
Puget Energy and PSE undertake no obligation  to update any  forward-looking  statement to reflect  events or  circumstances  after the
date on which such statement is made or to reflect the  occurrence of  unanticipated  events.  New factors emerge from time to time and
it is not possible for  management to predict all such factors,  nor can it assess the impact of any such factor on the business or the
extent  to which any  factor,  or  combination  of  factors,  may cause  results  to differ  materially  from  those  contained  in any
forward-looking statement.

### PART I

ITEM 1. BUSINESS

GENERAL
        On January 1, 2001, Puget Sound Energy, Inc. (PSE) reorganized into a holding company structure.  This  reorganization  resulted
in the creation of a new holding company,  Puget Energy, Inc. (Puget Energy).  Pursuant to the reorganization,  Puget Energy became the
owner of all PSE's  outstanding  common stock.  Holders of PSE's existing  common stock  exchanged  their common stock on a one-for-one
basis for common stock of Puget Energy.

        Puget Energy is an energy services  holding  company  incorporated in the State of Washington in 1999. All of its operations are
conducted  through its  subsidiaries.  Subject to limited  exceptions,  Puget  Energy is exempt  from  regulation  as a public  utility
holding company pursuant to Section 3(a)(1) of the Public Utility Holding Company Act of 1935.

Puget Sound Energy, Inc.

        PSE is a public  utility  incorporated  in the State of  Washington.  PSE  furnishes  electric  and gas  service in a  territory
covering approximately 6,000 square miles, principally in the Puget Sound region of Washington state.

        At December 31, 2001, PSE had approximately 940,600 electric customers,  consisting of 834,200 residential,  100,600 commercial,
4,000  industrial and 1,800 other  customers;  and  approximately  606,000 gas  customers,  consisting of 556,000  residential,  47,100
commercial,  2,800 industrial and 100 other customers.  At December 31, 2001,  approximately  298,600 customers purchased both forms of
energy from PSE.  For the year 2001,  PSE added  approximately  17,000  electric  customers  and  approximately  15,200 gas  customers,
representing  annualized growth rates of 1.8% and 2.6%,  respectively.  During 2001, PSE's billed retail revenues from electric utility
operations were derived 42% from  residential  customers,  36% from  commercial  customers,  20% from industrial  customers and 2% from
other customers.  PSE's retail revenues from gas utility  operations were derived 60% from residential  customers,  32% from commercial
customers,  6% from industrial  customers and 2% from  transportation  and other customers.  During this period, the largest customer
accounted for 3.4% of PSE's operating revenues.

        PSE is affected by various  seasonal  weather  patterns  throughout  the year and,  therefore,  utility  revenues and associated
expenses are not generated  evenly during the year.  Variations in energy usage by consumers occur from season to season and from month
to month within a season,  primarily as a result of weather  conditions.  PSE normally  experiences  its highest retail energy sales in
the first and fourth  quarters of the year.  Sales of  electricity  to wholesale  customers  also vary by quarters and years  depending
principally  upon streamflow  conditions for the generation of surplus  hydro-electric  power,  customer usage and the market demand by
wholesale  customers.  Earnings can be  significantly  influenced by surplus  electric  sales,  regional  energy prices,  variations in
weather,  hydro  conditions  and market  demand.  PSE has a Purchased  Gas  Adjustment  mechanism  (PGA) in retail gas rates to recover
variations in gas supply and transportation costs. PSE continues to operate without an electric rate adjustment mechanism.

        During the period  from  January 1, 1997  through  December  31,  2001,  PSE made gross  electric  utility  plant  additions  of
$913 million  and  retirements  of $161 million.  In the  five-year  period ended  December 31, 2001,  PSE made gross gas utility plant
additions of $537 million and retirements of $63 million.  In the same five-year period,  PSE made gross common utility plant additions
of $311 million and  retirements of  $30 million.  Gross electric  utility plant at December 31, 2001 was  approximately  $4.2 billion,
which  consisted of 58%  distribution,  27%  generation,  6%  transmission  and 9% general plant and other.  Gross gas utility plant at
December 31, 2001 was  approximately  $1.6 billion,  which  consisted of 85%  distribution,  6%  transmission  and 9% general plant and
other. Gross common utility general plant at December 31, 2001 was approximately $363 million.
     At year-end PSE had 2,480 aggregate full-time equivalent employees.


        InfrastruX Group, Inc.

        InfrastruX  Group,  Inc.  (InfrastruX) was incorporated in the State of Washington in 2000
 as a holding company for nonregulated
businesses  that provide  design,  construction,  engineering  and other  infrastructure  services to the utility  industry.  Since its
formation,  InfrastruX  has acquired nine  companies  engaged in some or all of the  following  services in their  respective  regions,
primarily the Mid-West, Texas and the Eastern United States:

- installing, replacing and
restoring underground cables and pipes for utilities and telecommunication
providers;
- pipeline construction, maintenance and rehabilitation services for
the natural gas and petroleum industries, including directional drilling and vacuum excavation; and
- distribution and transmission overhead electric construction services to electric utilities and
cooperatives.

At year-end, InfrastruX and its subsidiaries had 1,492 aggregate full-time equivalent
employees.

UTILITY INDUSTRY OVERVIEW
        In 1996 and 1997, the Federal Energy Regulatory  Commission (FERC) issued orders that require utilities,  including PSE, to file
open access transmission  tariffs that will make utilities' electric  transmission systems available to wholesale sellers and buyers on
a  nondiscriminatory  basis. A number of states,  including  California,  have restructured  their electric  industries to separate or
"unbundle" power generation,  transmission and distribution in order to permit new competitors to enter the marketplace.  However,  due
to the extreme  price  volatility,  energy  shortages  and financial  collapse of utilities  that occurred in California  during 2000,
several states are reviewing their policies on open access. To date,  Washington state has not provided a statutory  regulatory framework
for retail competition with respect to customers of investor-owned  utilities.  On April 15, 2001,  however,  the Washington  Utilities
and  Transportation  Commission  (Washington  Commission)  issued an order allowing PSE's large industrial  customers whose
rates were linked to a market index to choose their supplier of electricity or to self-generate.  If an industrial  customer
chooses an alternate supplier,  PSE will provide the transportation of electricity to the customer's  premise and charge that customer for
the service. In 2001, 13 commercial and industrial customers chose such service.

        Beginning in mid-2000 through June 2001,  the West Coast energy market was
experiencing  extraordinary  market  conditions.
Wholesale energy prices had greatly exceeded  historical  norms,  reflecting  unfavorable  hydro conditions and unscheduled  outages of
generating  facilities in the West,  among other factors.  Supply  constraints led to rolling  blackouts in certain areas of California
during 2000. The region's  turbulence and the financial  troubles of the  California  energy market are drawing  attention from various
state and federal  regulatory and political  authorities.  Numerous changes have been proposed to address the region's issues.  On June
19, 2001, FERC  implemented  price controls on wholesale  electricity  sales in the western states and a dramatic  decline in wholesale
electric  prices  occurred by the end of the second quarter of 2001.  This decline has  diminished  the value of PSE's excess  electric
energy during that period and into the foreseeable future.

        On December  20, 1999,  FERC issued Order 2000 to advance the  formation of Regional
Transmission  Organizations  (RTOs).  This
regulation  required  each public  utility  that owns,  operates or controls  facilities  for the  transmission  of electric  energy in
interstate  commerce to file with FERC by October 15, 2000 plans for  forming and  participating  in an RTO.  FERC's goal is to promote
efficiency in wholesale  electricity  markets and to reduce  prices  electricity  consumers pay to the lowest price  possible for reliable
service.  On October 16, 2000, PSE and five other  utilities  filed with FERC their proposal for an independent  transmission  company,
which  would  serve  six  states.  The  independent  transmission  company  would  be a member  of the  planned  regional  transmission
organization. Any final proposal that emerges is subject to approval by FERC and relevant state public utility commissions.

        Since 1986, PSE has been offering gas transportation as a separate service to industrial
and commercial customers who choose to
purchase their gas supply  directly from producers and gas marketers.  The continued  evolution of the natural gas industry,  resulting
primarily  from FERC Orders 436,  500 and 636, has served to increase the ability of large gas  end-users to  independently  obtain gas
supply and  transportation  services.  Although PSE has not lost any  substantial  industrial  or  commercial  load as a result of such
activities,  in certain years up to 160 customers  annually have taken  advantage of unbundled  transportation  service;  in 2001,  112
commercial and industrial  customers,  on average,  chose to use such service.  The shifting of customers from sales to  transportation
does not  materially  impact  utility  margin,  as PSE earns  similar  margins on  transportation  service as it does on large  volume,
interruptible gas sales.

REGULATION AND RATES
        PSE is subject to the  regulatory  authority of (1) the  Washington  Commission  as to
retail  utility rates,  accounting,  the
issuance of securities and certain other matters and (2) FERC with respect to the  transmission of electric  energy,  the resale of
electric energy at wholesale,  accounting and certain other matters.  (See "Management's  Discussion and Analysis of Financial Condition
and Results of Operations - Rate Matters".)

ELECTRIC SUPPLY
        At December 31, 2001,  PSE's peak electric  power  resources  were  approximately
4,970,035 KW. PSE's historical  peak load of approximately 4,847,000 KW occurred on December 21, 1998.

        During 2001, PSE's total electric energy production was supplied 33.9% by its own resources,
14.8% through long-term  contracts with several of the Washington  Public Utility  Districts  (PUDs) that own  hydroelectric  projects on the Columbia
River,  26.8% from other firm purchases and 24.5% from non-firm purchases.

        The following table shows PSE's electric energy supply resources at December 31, 2001,
and energy production during the year:

`Peak Power Resources
                                               at December 31, 2001                   2001 Energy Production
                                     ---------------------------------------- --------------------------------------
                                                                                     Kilowatt-Hours
                                                  Kilowatts                %            (Thousands)               %
--------------------------------------- --------------------- ----------------- ---------------------- --------------
  Purchased resources:
    Columbia River
    PUD contracts (hydro)                          1,431,900             28.8%              4,230,574          14.8%
    Other hydro1                                     535,660             10.8%                964,628           3.4%
    Other  producers1                              1,211,675             24.4%              6,706,560          23.4%
    Non-firm energy purchases                            N/A               N/A              6,987,319          24.5%
--------------------------------------- --------------------- ----------------- ---------------------- --------------
--------------------------------------- --------------------- ----------------- ---------------------- --------------
  Total purchased                                  3,179,235             64.0%             18,889,081          66.1%
--------------------------------------- --------------------- ----------------- ---------------------- --------------
  Company-controlled resources:
    Hydro                                            300,000              6.0%              1,101,373           3.9%
    Coal                                             700,000             14.1%              5,038,834          17.6%
    Natural gas/oil                                  790,800             15.9%              3,543,880          12.4%
--------------------------------------- --------------------- ----------------- ---------------------- --------------
  Total Company controlled                         1,790,800             36.0%              9,684,087          33.9%
--------------------------------------- --------------------- ----------------- ---------------------- --------------
  Total                                            4,970,035            100.0%             28,573,168         100.0%
--------------------------------------- --------------------- ----------------- ---------------------- --------------`

1 Power received from other
utilities is classified between hydro and other producers based on the character
of the utility system used to supply the power or, if the power is supplied from
a particular resource, the character of that resource.

COMPANY-CONTROLLED ELECTRIC GENERATION RESOURCES
        PSE and other utilities are joint owners of four mine-mouth,  coal-fired,  steam-electric
generating units at Colstrip, Montana,
approximately  100 miles east of Billings,  Montana.  PSE owns a 50% interest (330,000 KW) in Units 1 and 2 and a 25% interest (370,000
KW) in Units 3 and 4. The owners of the Colstrip  Units  purchase  coal for the Units from Western  Energy  Company  (Western  Energy),
under the terms of long-term coal supply  agreements.  The coal supply agreements for Colstrip 1 and 2 and Colstrip 3 and 4 will expire
in 2009 and 2019, respectively. PSE also has the following plants with an aggregate net generating capability of 1,090,750 KW:

`Plant Name                      Plant Type                          Total KW     Year Installed
Upper Baker River               Hydro                                    91,000  1959
Lower Baker River               Hydro                                    71,000  Reconstructed 1960
                                                                                 Upgraded 2001
White River                     Hydro                                    70,000  1911
Snoqualmie Falls                Hydro                                    42,000  1898 to 1911 and 1957
Electron                        Hydro                                    26,000  1904 to 1929
Fredonia 1 & 2                  Dual fuel combustion turbines           210,000  1981
Fredrickson Units 2 & 3         Dual fuel combustion turbines           150,000  1981
Whitehorn Units 2 & 3           Dual fuel combustion turbines           150,000  1984
Fredonia 3 & 4                  Dual fuel combustion turbines           108,000  2001
Encogen                         Natural gas cogeneration                170,000  1999
Crystal Mountain                Internal combustion                       2,750  1969`

All of these generating facilities, except the Colstrip, Montana plants, are located
in PSEs service territory.
        On December 19, 1997, PSE was issued a 50-year license by FERC for its existing and
operating White River project which includes authorization to install an additional 14,000 KW generating unit. PSE has filed for a
rehearing with FERC on conditions of the license related to measures designed to enhance salmon runs on the White River, because those
conditions may make the plant uneconomic to operate. On June 30, 1999, FERC issued a stay in the license proceeding. This additional time
allows PSE, state agencies, local governments and public interest groups to resolve common issues relating to the plants continued
operation and economics. The licensing proceeding is ongoing. The initial license for the existing and operating Snoqualmie Falls project
expired in December 1993, and PSE continues to operate this project under a temporary license. PSE is continuing the FERC application process
to relicense this project.

COLUMBIA RIVER ELECTRIC ENERGY SUPPLY CONTRACTS
        During 2001,  approximately  14.8% of PSEs energy  output was  obtained at an average cost
of  approximately  17.98 mills per KWH through long-term contracts with several of the Washington PUDs that own and operate hydroelectric
projects on the Columbia River.

        PSEs  purchases  of power from the Columbia  River  projects  are  generally on a cost
of service  basis under which PSE pays a proportionate  share of the annual debt service and operating and  maintenance  costs of each
project in proportion to the  contractual shares that PSE has rights to from such project.  Such payments are not contingent  upon the
projects being  operable,  which means PSE is required to make the payments even if power is not being  delivered.  These projects are
financed through  substantially  level debt service  payments,  and their annual  costs may vary over the term of the  contracts  as
additional  financing is required to meet the costs of major maintenance, repairs or replacements or license requirements.

        PSE has  contracted to purchase from Chelan County PUD (Chelan) a 50% share of the output
of the original units of the Rock Island Project,  which  percentage  will remain  unchanged for the duration of the contract that expires
in 2012.  PSE has also  contracted to purchase  the output of the  additional  Rock Island  units for the duration of the  contract.
As of December 31, 2001,  PSE's aggregate  annual  capacity  from all units of the Rock Island  Project was 495,900 KW.  PSE's share of
output of the  additional  Rock Island units may be reduced by up to 10% per year which began July 1, 2000,  subject to a maximum aggregate
reduction of 50%, upon the exercise  of rights of  withdrawal  by Chelan  for use in its local  service  area.  The  schedule  of
withdrawals  by Chelan  for the additional Rock Island units is as follows:

`Date of Withdrawal                Withdrawal Percentage            PSE Capacity after Withdrawal
        July 1, 2000                                5%                                  95%
        July 1, 2002                               10%                                  85%
        July 1, 2003                               10%                                  75%
        February 1, 2005                           10%                                  65%
        July 1, 2005                               10%                                  55%
        November 1, 2006                            5%                                  50%`

PSE has  contracted to purchase  from Chelan 38.9%  (505,000 KW as of December 31, 2001)
of the annual output of the Rocky Reach Project,  which  percentage  remains  unchanged for the remainder of the contract which expires in
2011. PSE has contracted to purchase from Douglas County PUD 31.3%  (261,000 KW as of December 31, 2001) of the annual output of the Wells
Project,  the percentage of which remains  unchanged for the remainder of the contract  which expires in 2018.  PSE has contracted to
purchase from Grant County PUD 8.0% (72,000 KW as of December 31,  2001) of the annual  output of the Priest  Rapids  Development  and 10.8%
(98,000 KW as of December 31, 2001) of the annual output of the Wanapum  Development,  which  percentages  remain  unchanged for the remainder
 of the contracts which expire in 2005 and 2009, respectively.

        On December 28, 2001,  PSE signed a contract  offer for new  contracts  for the Priest
Rapids and Wanapum  Developments.  Under terms of these  contracts,  PSE will  continue  to obtain  capacity  and energy for the term of
any new license to be obtained by Grant County PUD for these Developments.  The terms and conditions of these contracts are being finalized.

ELECTRIC ENERGY SUPPLY CONTRACTS AND AGREEMENTS WITH OTHER UTILITIES
        PSE has entered  into  long-term  firm  purchased  power  contracts  with other  utilities
in the region.  PSE is generally  not obligated to make payments under these contracts unless power is delivered.

        Under a 1985 settlement  agreement relating to Washington Public Power Supply System
Nuclear Project No. 3, in which PSE had a 5%  interest,  PSE is  entitled to receive  from BPA  beginning  January 1, 1987,  electric  power
during the months of November through  April.  Under the  contract,  PSE is  guaranteed  to receive  not less than  191,667 MWH in each
contract  year until PSE has received  total  deliveries of 5,833,333  MWH. PSE expects the contract to be in effect until at least June
2008.  Also pursuant to the 1985  settlement  agreement,  BPA has an option to request that PSE deliver up to 67 MW of exchange  energy to
BPA in all months except May, July and August through the remaining  term of the agreement  which is no earlier than June 2008. BPA exercised
its option for the period January through April 2001 and PSE delivered 59 MW of exchange energy in each month.

        On April 4, 1988,  PSE executed a 15-year  contract,  with  provisions  for early  termination
by PSE, for the purchase of firm energy supply from Avista  Corporation  (formerly  Washington Water Power Company).  This agreement calls
for the delivery of 100 MW of capacity and 657,000 MWH of energy from the Avista  system  annually (75 annual  average MW).  Minimum and
maximum  delivery  rates are prescribed.  Under this agreement,  the energy is to be priced at Avista's average generation and transmission
cost, subject to certain price ceilings. This contract expires on December 31, 2002.

        On October 27, 1988,  PSE  executed a 15-year  contract  for the  purchase of firm power and
energy from  PacifiCorp.  Under the terms of the agreement, PSE receives 120 average MW of energy and 200 MW of peak capacity. This contract
expires on October 31, 2003.

        On October 1, 1989,  PSE signed a contract with The Montana  Power  Company  under which
Montana  Power  provides PSE, from its share of Colstrip  Unit 4, 71 average MW of energy (97 MW of peak  capacity)  over a 21-year  period.
This contract  expires  December 2010.

        PSE executed an exchange  agreement with Pacific Gas & Electric  Company (PG&E) which became
effective on January 1, 1992. Under the agreement,  300 MW of capacity  together with 413,000 MWH of energy are exchanged  seasonally  every
year on a unit for unit basis. No payments  are made under this  agreement.  PG&E is a summer  peaking  utility and will  provide  power
during the months of November through February.  PSE is a winter peaking utility and will provide power during the months of June through
September.  Each party may terminate the contract for various reasons.  In January 2001, PG&E did not meet all of its exchange delivery
obligations to PSE due to resource  shortfalls  on the PG&E  electrical  system.  On December 20, 2001,  PSE gave notice to PG&E of
termination  of the exchange agreement under the five-year notice provision of the contract.

        In October 1997, a 10-year  power  exchange  agreement  between PSE and Powerex (a  subsidiary
of a British  Columbia  utility) became  effective.  Under this  agreement  Powerex pays PSE for the right to deliver  power up to 1,500,000
MWH annually to PSE at the Canadian border in exchange for PSE delivering power to Powerex at various locations in the United States.

ELECTRIC ENERGY SUPPLY CONTRACTS AND AGREEMENTS WITH NON-UTILITIES
        As required by the federal  Public Utility  Regulatory  Policies Act (PURPA),  PSE entered
into  long-term firm purchased  power contracts  with  non-utility  generators.  The most  significant of these are the contracts  described
below which PSE entered into in 1989, 1990 and 1991 with operators of natural gas-fired  cogeneration  projects. PSE purchases the net
electrical output of these three projects at fixed and annually  escalating prices which were intended to approximate PSE's avoided cost of
new generation  projected at the time these agreements were made. PSE's estimated  payments under these three contracts are $209.0 million
for 2002,  $208.0 million for 2003,  $222.0 million for 2004,  $225.0 million for 2005,  $231.0  million for 2006 and in the aggregate,
$1.3 billion  thereafter through 2012.

        On June 29, 1989, PSE executed a 20-year contract to purchase 70 average MW of energy and 80
MW of capacity,  beginning  October 11, 1991, from the March Point Cogeneration  Company (March Point), which owns and operates a natural
gas-fired  cogeneration  facility known as March Point Phase I, located at the Equilon  refinery in Anacortes,  Washington.  On December 27,
1990, PSE executed a second contract  (having a term  coextensive with the first contract) to purchase an additional 53 average MW of energy
and 60 MW of capacity, beginning in January 1993, from another natural gas-fired  cogeneration  facility owned and operated by March Point,
which facility is known as March Point Phase II and is located at the Equilon refinery in Anacortes, Washington.

        On February 24, 1989, PSE executed a 20-year contract to purchase 108 average MW of energy
and 123 MW of capacity,  beginning in April 1993, from Sumas Cogeneration Company,  L.P., which owns and operates a natural gas-fired
cogeneration project located in Sumas, Washington.

        In December 1999, PSE bought out the remaining 8.5 years of one of the natural gas supply
contracts  serving Encogen from Cabot Oil & Gas  Corporation (Cabot) which provided  approximately  60% of the plants  natural gas  requirements.
PSE became the  replacement  gas supplier  to the  project for 60% of the supply  under the terms of the Cabot  Agreement.  The  Washington
Commission  issued an order creating a regulatory  asset relating to the $12 million payment that requires PSE to accrue carrying costs on
the unamortized  balance over the first three years.

        On March 20,  1991,  PSE executed a 20-year  contract to purchase 216 average MW of energy
and 245 MW of capacity,  beginning in April 1994, from Tenaska  Washington  Partners,  L.P., which owns and operates a natural  gas-fired
cogeneration  project located near Ferndale,  Washington.  In December 1997 and January 1998, PSE and Tenaska Washington Partners entered
into revised agreements in which PSE became the  principal  natural gas supplier to the project and power  purchase  prices under the Tenaska
contract  were revised to reflect  market-based  prices for the natural gas supply.  PSE obtained an order from the Washington  Commission
creating a regulatory asset related to the $215 million restructuring  payment. In addition,  PSE is responsible for any potential tax
indemnification to the seller imposed by the Internal  Revenue Service up to a maximum of $30 million.  Under terms of the order,  PSE is
allowed to accrue as an additional regulatory asset one-half the carrying costs of the deferred balance over the first five years.

ELECTRIC RATES AND REGULATION
        The order  approving the merger of Puget Sound Power & Light  Company,  Washington  Energy
Company and  Washington  Natural Gas Company  (Merger),  issued by the  Washington  Commission  on February 5, 1997,  contained a rate plan
designed to provide a five-year period of rate  certainty for customers and to provide PSE with an opportunity  to achieve a reasonable
return on investment.  General electric tariff rates were stipulated to increase  annually  between 1.0% and 1.5% depending on rate class on
January 1 of 1998 through 2001.  PSE has had no electric rate  adjustment  mechanism  during the rate stability  period to adjust for changes
in electric  energy supply costs or fuel costs. These variances may now significantly  influence earnings.  The rate stabilization period
ended on December 31, 2001.

        On November 26, 2001,  PSE filed a petition  with the  Washington  Commission  requesting
an electric  rate  increase of $228.3 million.  The  Washington  Commission  is expected to make a decision on the general  rate  increase by
no later than October 25, 2002. Also, on December 3, 2001, PSE filed a petition with the Washington  Commission  requesting an electric
interim rate increase of $170.7 million to be collected by the end of October  2002.  The interim  filing  requested  deferral of excess
power costs and an increase in rates to recover  the  underrecovered  power  costs  until  long-term  rates are  authorized.  On December
28,  2001,  the  Washington Commission  issued an order  authorizing  PSE to defer  certain  excess  power costs from  January 1, 2002
through  March 31, 2002 for consideration  of recovery in the interim and general rate cases.  On February  11, 2002,  PSE filed  rebuttal
testimony  revising the collection  period for the requested $170.7 million  interim request as follows:  collection of $136.2 million over
the period March 15, 2002 through  October 31, 2002 with the remaining  deferral of $34.5 million over the period November 1, 2002 through
October 31, 2003. A decision on the requested interim relief will be made by the Washington Commission before March 31, 2002.

        On April 25, 2001, the Washington  Commission  approved  "time-of-day"  rates for
approximately  300,000  residential  electric customers for the period May 1, 2001 through  September  30, 2001. On September 26, 2001,
the  Washington  Commission  authorized  the extension of the "time-of-day"  rates pilot program for residential  customers through May 31,
2002 to allow  approximately  20,000 business  customers to participate in a "time-of-day"  rates program from October 1, 2001 through
September 30, 2002. In the order, if the cumulative  revenues  collected  under the  "time-of-day"  tariffs  during the beginning  through
the end of the program exceed the revenues that would have been collected under the original tariffs,  PSE must defer any  overcollection
and refund it to participating customers.  Through  December 31, 2001,  revenues billed under the  "time-of-day"  tariff have been slightly
less than original tariffs by an immaterial  amount,  thus no deferred  liability was  established at December 31, 2001.  Personal Energy
Management  consumption information  is available to all classes of  customers.  Customers are able to monitor their energy usage and shift
usage to low-demand off-peak  periods.  This  program is  intended to reduce the demand for peak power  generation  and provide  customers
information  to effectively manage energy usage.

        On April 25, 2001, the Washington  Commission  authorized PSE to provide a conservation
incentive credit to its retail electric customers.  The conservation  incentive  credit was to reduce  customers' bills by $.05 per kWh for
each kWh reduction in excess of 10% from the same billing  period in the prior year through  December 31, 2001. On November 7, 2001,  the
Washington  Commission  approved PSE's request to terminate the conservation  incentive credit program effective November 8, 2001. During
2001,  conservation  incentive credit decreased revenues by $19.5 million due to the reduction in customers' kWh usage above 10%.

        On April 15, 2001, the Washington Commission issued an order allowing
PSE's large industrial  customers whose rates were linked to a market index to choose their supplier of electricity or to self-
generate.  If an industrial  customer chooses an alternate supplier,  PSE will provide the transportation of electricity to the
customer's  premise and charge that customer for the service.

        On June 13, 2001, the Washington  Commission  approved an amended  Residential  Purchase and
Sale Agreement  between PSE and the BPA, under which PSE's  residential  and small farm customers would continue to receive  benefits of
federal power.  Completion of this agreement  enabled PSE to continue to  provide,  and in fact  increase,  effective  January 1, 2002,  the
Residential  and Farm Energy Exchange  Credit to residential  and small farm  customers.  The amended  settlement  agreement  provides that,
for its residential and small farm  customers,  (a) PSE will receive cash payment  benefits  during the period July 1, 2001 through  September
30, 2006 and (b) benefits in the form of power or cash payments during the period October 1, 2006 through  September 30, 2011. Any such benefits
may vary, depending on the outcome of regulatory  and legal  proceedings  and reviews.  For example,  a number of parties are  challenging in
the Ninth Circuit Court of Appeals BPA's authority to enter into or perform the amended  Residential  Purchase and Sale Agreement between PSE and
BPA. For calendar year 2001,  the benefits of the  Residential  and Farm Energy  Exchange  credited to customers were $103.1 million as
compared to an offsetting  reduction in Purchased  Electricity  Expense of $75.9 million.  PSE expects payments from BPA (recorded as a
reduction in Purchased  Electricity  Expense) in the amount of $127.3  million for the period  January 2002 through  September 2002 and
$702.2 million for the period October 2002 through  September  2006.  Eligible  residential  and farm customers will receive credits to
their bills in the same amounts.

        To implement this agreement for rate purposes,  the Washington  Commission  approved tariff
revisions (a) that were intended to transfer the  Residential  and Farm Energy  Exchange  credit in effect  since  October 1, 1995 in the
amount of 1.085 cents per kWh, to general rates effective July 1, 2001 and (b) to provide a supplemental  Residential  and Farm Exchange
credit for eligible  residential and small farm customers.  This  Residential and Farm Exchange  Benefit  Supplemental  Rider will be a credit
of .265 cents per kWh for the period  January 1, 2002  through  September  30, 2002,  .600 cents per kWh for the period  October 1, 2002
through May 31, 2006 and 1.050  cents  per kWh for the  period  June 1, 2006  through  September  30,  2006.  The  approval  of the  tariffs
by the  Washington Commission,  effective  July 1, 2001,  was without  predetermining  or  prejudicing  any argument as to whether or how the
terms of the Washington  Commission's  order dated  February 5, 1997,  regarding the merger of Washington  Natural Gas Company and Puget Sound
Power and Light Company into Puget Sound Energy,  "have been  fulfilled,  or as of what  effective date any relief,  if warranted,  should be
granted".  On October 17, 2001, the Public Counsel  Section of the Washington  State Attorney  General's  Office filed a complaint with
the  Washington  Commission alleging that PSE has violated  the  Washington  Commission's  1997 merger  order.  The Public  Counsel's  complaint is that
PSE's  residential  and small farm customers  should receive both the reduction in rates equal to the  residential  exchange  credit in
place prior to July 1, 2001, and in addition,  the benefits of the amended  agreement for residential and small benefits received from
BPA.  If Public  Counsel's  position  were  upheld,  PSE's  electric  revenues  for the last six  months of 2001  would be  reduced  by
approximately  $51.1  million.  While PSE  believes  this  complaint  is without  merit,  PSE is unable to predict  the outcome of this
proceeding.  A decision in the proceeding is expected in 2002.

ELECTRIC OPERATING STATISTICS

`Twelve Months Ended December 31                                     2001                  2000                 1999
----------------------------------------------------- --------------------- --------------------- --------------------
  Operating revenues by classes (thousands):
----------------------------------------------------- --------------------- --------------------- --------------------
    Residential                                                  $ 583,714             $ 587,780            $ 586,416
    Commercial                                                     509,134               476,052              457,339
    Industrial                                                     281,161               292,975              169,508
    Other consumers                                                 25,351                98,888               35,919
----------------------------------------------------- --------------------- --------------------- --------------------
    Operating revenues billed to consumers (1)                   1,399,360             1,455,695            1,249,182
    Unbilled revenues - net increase (decrease)                    (70,615)               66,700              (9,541)
----------------------------------------------------- --------------------- --------------------- --------------------
      Total operating revenues from consumers                    1,328,745             1,522,395            1,239,641
    Transportation                                                   2,537                     6                1,643
    Sales to other utilities and marketers                       1,021,376             1,249,294              316,728
----------------------------------------------------- --------------------- --------------------- --------------------
      Total operating revenues                                  $2,352,658            $2,771,695           $1,558,012
----------------------------------------------------- --------------------- --------------------- --------------------
  Number of customers (average):
    Residential                                                    826,187               811,443              797,421
    Commercial                                                     100,015                98,758               96,756
    Industrial                                                       4,012                 4,111                4,222
    Other                                                            1,758                 1,548                1,497
    Transportation                                                       5                    --                   15
----------------------------------------------------- --------------------- --------------------- --------------------
      Total customers (average)                                    931,977               915,860              899,911
----------------------------------------------------- --------------------- --------------------- --------------------
  KWH generated, purchased and interchanged (thousands):
    Company generated                                            9,684,087             9,502,386            7,941,632
    Purchased power                                             18,758,449            28,907,317           26,716,328
    Interchanged power (net)                                       130,632               118,586               19,650
----------------------------------------------------- --------------------- --------------------- --------------------
      Total energy output                                       28,573,168            38,528,289           34,677,610
    Losses and company use                                      (1,152,840)            (1,582,446)         (1,512,571)
----------------------------------------------------- --------------------- --------------------- --------------------
      Total energy sales                                        27,420,328            36,945,843           33,165,039
----------------------------------------------------- --------------------- --------------------- --------------------


  Twelve Months Ended December 31                                    2001                   2000                1999
---------------------------------------------------------- --------------- ---------------------- -------------------
  Electric energy sales, KWH (thousands):
---------------------------------------------------------- --------------- ---------------------- -------------------
    Residential                                                 9,555,264              9,810,393           9,861,791
    Commercial                                                  7,953,165              7,677,032           7,482,280
    Industrial                                                  2,540,722              4,026,344           3,980,246
    Other consumers                                               154,749                219,435             262,238
---------------------------------------------------------- --------------- ---------------------- -------------------
       Total energy billed to consumers                        20,203,900             21,733,204          21,586,555
    Unbilled energy sales - net increase (decrease)             (278,392)                118,908            (155,023)
---------------------------------------------------------- --------------- ---------------------- -------------------
       Total energy sales to consumers                         19,925,508             21,852,112          21,431,532
    Sales to other utilities and marketers                      7,494,820             15,093,731          11,733,507
---------------------------------------------------------- --------------- ---------------------- -------------------
       Total energy sales                                      27,420,328             36,945,843          33,165,039
---------------------------------------------------------- --------------- ---------------------- -------------------
  Per residential customer:
    Annual use (KWH)                                               11,565                 12,090              12,367
    Annual billed revenue                                        $ 725.75               $ 745.44            $ 762.78
    Billed revenue per KWH                                       $ 0.0628               $ 0.0617            $ 0.0617
  Company-owned generation capability  KW:
    Hydro                                                         300,000                310,700             310,700
    Steam                                                         700,000                680,000             771,900
    Natural gas/oil                                               790,800                745,550             813,050
---------------------------------------------------------- --------------- ---------------------- -------------------
       Total                                                    1,790,800              1,736,250           1,895,650
---------------------------------------------------------- --------------- ---------------------- -------------------
  Heating degree days                                               4,993                  4,970               4,956
  Percent of normal of 30-year average                             101.7%                 100.9%              101.0%
  Load factor                                                       59.8%                  62.2%               62.6%`

1 Operating revenues in
2001, 2000 and 1999 were reduced by $31.0 million, $35.4 million and $43.8
million, respectively, as a result of PSEs sale of $237.7 million of its
investment in customer-owned conservation measures. (See Operating
Revenues - Electric in Managements Discussion and Analysis and Note
1 to the Consolidated Financial Statements.)

GAS SUPPLY
        PSE currently  purchases a blended portfolio of long-term firm,  short-term firm and non-firm
gas supplies from a diverse group of major and  independent  producers  and gas  marketers in the United  States and Canada.  PSE also enters
into  short-term  physical and financial derivative  instruments to hedge the cost of gas to service its customers.  All of PSE's gas supply
is ultimately transported through  facilities of  Williams/Northwest  Pipeline  Corporation  (NPC),  the sole interstate  pipeline  delivering
directly into the Western Washington area.

`Peak Firm Gas Supply at December 31, 2001                            Dth per Day                %
--------------------------------------------------------------- ------------------- ----------------
  Purchased gas supply:
     British Columbia                                                      181,800             22.5
     Alberta                                                                65,800              8.1
     United States                                                          51,400              6.4
--------------------------------------------------------------- ------------------- ----------------
  Total purchased gas supply                                               299,000             37.0
--------------------------------------------------------------- ------------------- ----------------
  Purchased storage capacity:
     Clay Basin                                                             96,600             11.9
     Jackson Prairie                                                        47,500              5.9
     LNG                                                                    70,700              8.7
--------------------------------------------------------------- ------------------- ----------------
  Total purchased storage capacity                                         214,800             26.5
--------------------------------------------------------------- ------------------- ----------------
  Owned storage capacity:
     Jackson Prairie                                                       265,000             32.8
     Propane-air injection                                                  30,000              3.7
--------------------------------------------------------------- ------------------- ----------------
  Total owned storage capacity                                             295,000             36.5
--------------------------------------------------------------- ------------------- ----------------
  Total peak firm gas supply                                               808,800            100.0
--------------------------------------------------------------- ------------------- ----------------
All peak firm gas supplies and storage are connected to PSE's market with firm transportation capacity.`

GAS OPERATING STATISTICS

`Twelve Months Ended December 31                                    2001                  2000                   1999
----------------------------------------------------- -------------------- --------------------- ----------------------
  Operating revenues by classes (thousands):
  Regulated utility sales:
    Residential sales                                           $ 486,761             $ 372,900              $ 296,032
    Commercial firm sales                                         196,904               144,046                113,058
    Industrial firm sales                                          37,411                27,832                 21,724
    Interruptible sales                                            71,997                44,485                 30,404
----------------------------------------------------- -------------------- --------------------- ----------------------
      Total gas sales                                             793,073               589,263                461,218
    Transportation services                                        11,780                12,137                 13,117
    Other                                                          10,218                10,911                 11,153
----------------------------------------------------- -------------------- --------------------- ----------------------
      Total gas operating revenues                              $ 815,071             $ 612,311              $ 485,488
----------------------------------------------------- -------------------- --------------------- ----------------------
  Customers, average number served:
    Residential                                                   548,497               532,333                509,384
    Commercial firm                                                45,998                44,817                 43,567
    Industrial firm                                                 2,789                 2,863                  2,879
    Interruptible                                                     833                   835                    873
    Transportation                                                    112                    98                    103
----------------------------------------------------- -------------------- --------------------- ----------------------
      Total customers (average)                                   598,229               580,946                556,806
----------------------------------------------------- -------------------- --------------------- ----------------------
  Gas volumes (thousands of therms):
    Residential sales                                             494,648               517,561                507,978
    Commercial firm sales                                         214,713               221,170                221,804
    Industrial firm sales                                          42,287                48,348                 48,422
    Interruptible sales                                            98,733               103,446                 93,791
----------------------------------------------------- -------------------- --------------------- ----------------------
      Total gas volumes                                           850,381               890,525                871,995
    Transportation volumes                                        188,196               204,035                236,704
----------------------------------------------------- -------------------- --------------------- ----------------------
      Total volumes                                             1,038,577             1,094,560              1,108,699
----------------------------------------------------- -------------------- --------------------- ----------------------
  Working-gas volumes in storage at year end  (thousands of therms):
      Jackson Prairie                                              59,537                67,827                 60,673
      Clay Basin                                                   73,800                28,275                 37,281
----------------------------------------------------- -------------------- --------------------- ----------------------
  Average use per customer (therms):
    Residential                                                       902                   972                    997
    Commercial firm                                                 4,668                 4,935                  5,091
    Industrial firm                                                15,162                16,887                 16,819
    Interruptible                                                 118,527               123,888                107,435
    Transportation                                              1,680,321             2,081,989              2,298,097
----------------------------------------------------- -------------------- --------------------- ----------------------
----------------------------------------------------- -------------------- --------------------- ----------------------
  Average revenue per customer:
    Residential                                                     $ 887                 $ 701                  $ 581
    Commercial firm                                                 4,281                 3,214                  2,595
    Industrial firm                                                13,414                 9,721                  7,546
    Interruptible                                                  86,431                53,275                 34,827
    Transportation                                                105,179               123,846                127,350
----------------------------------------------------- -------------------- --------------------- ----------------------
  Average revenue per therm (cents):
    Residential                                                      98.4                  72.0                   58.3
    Commercial firm                                                  91.7                  65.1                   51.0
    Industrial firm                                                  88.5                  57.6                   44.9
    Interruptible                                                    72.9                  43.0                   32.4
      Average sales to gas customers                                 93.3                  66.2                   52.9
    Transportation                                                    6.3                   5.9                    5.5
----------------------------------------------------- -------------------- --------------------- ----------------------`

ENERGY CONSERVATION
        Beginning  in December  2000,  PSE began  providing  Personal  Energy  ManagementTM  consumption  information  to all classes of
customers.  Customers are able to monitor their energy usage during the day and shift their usage to low-demand off-peak periods.  This
program  helps to minimize  energy  purchases  at peak times when  electric  energy is most costly.  Overall,  this program has reduced
consumption by customers.

        PSE offers  programs  designed to help new and existing  customers use energy  efficiently.  The primary  emphasis is to provide
information and technical  services to enable customers to make  energy-efficient  choices with respect to building  design,  equipment
and building systems, appliance purchases and operating practices.

        Since May 1997,  PSE has  recovered  electric  energy  conservation  expenditures  through a tariff rider  mechanism.  The rider
mechanism  allows  PSE to  defer  the  conservation  expenditures  and  amortize  them to  expense  as PSE  concurrently  collects  the
conservation expenditures in rates over a one-year period. As a result of the rider, there is no effect on earnings per share.

        Since 1995, PSE has been authorized by the Washington Commission to defer gas energy conservation  expenditures and recover them
through a tariff tracker  mechanism.  The tracker  mechanism  allows PSE to defer  conservation  expenditures and recover them in rates
over the subsequent  year. The tracker  mechanism also allows PSE to recover an Allowance for Funds Used to Conserve  Energy (AFUCE) on
any outstanding balance that is not being recovered in rates.ENVIRONMENT
        Puget Energy's operations are subject to environmental  regulation by federal, state and local authorities.  Due to the inherent
uncertainties  surrounding  the development of federal and state  environmental  and energy laws and  regulations,  Puget Energy cannot
determine the impact such laws may have on its existing and future facilities.  (See Note 17 to the Consolidated  Financial  Statements
for further discussion of environmental sites.)FEDERAL CLEAN AIR ACT AMENDMENTS OF 1990
        PSE has an ownership interest in coal-fired,  steam-electric  generating plants at Colstrip,  Montana,  which are subject to the
federal Clean Air Act Amendments of 1990 (CAAA) and other regulatory requirements.

        The  Colstrip  Projects met the sulfur  dioxide  limits of the CAAA in Phase I (1995).  All four units at the Colstrip  Project,
operated by PPL Global,  LLC, meet Phase II emission  limits.  PSE owns  combustion  turbine units,  most of which are capable of being
fueled by natural gas or oil. The nature of these units provides operational flexibility in meeting air emission standards.

        There is no assurance that in the future environmental  regulations affecting sulfur dioxide or nitrogen oxide emissions may not
be further restricted, or that restrictions on emissions of carbon dioxide or other combustion byproducts may not be imposed.FEDERAL ENDANGERED SPECIES ACT
        Since the 1991 listings,  one more species of salmon has been listed and two more have been proposed which may further influence
operations.  Upper Columbia River Steelhead was listed by National Marine Fisheries Service in August 1997.  Anticipating the Steelhead
listing,   the  Mid-Columbia  PUDs  initiated   consultation  with  the  federal  and  state  agencies,   Native  American  tribes  and
non-governmental  organizations to secure  operational  protection through a long-term  settlement and habitat  conservation plan which
includes fish  protection and  enhancement  measurement  for the next 50 years.  The  negotiations  have concluded among the Chelan and
Douglas County PUDs and various  fishery  agencies,  and final agreement is subject to a National  Environmental  Policy Act review and
power purchaser  approval.  Generally,  the agreement obligates the PUDs to achieve certain levels of passage efficiency for downstream
migrants at their  hydroelectric  facilities  and to fund certain  habitat  conservation  measures.  Grant County PUD has yet to reach
agreement on these issues.

        The proposed listing of the Snake River Sockeye salmon as an endangered species,
of Puget Sound Chinook  salmon and spring  Chinook  salmon for the upper  Columbia River were approved in
March 1999. The listing of spring Chinook  salmon for the upper Columbia River should not result in markedly  differing  conditions for
operations from previous listings in the area.  However,  Puget Sound has not experienced  Endangered  Species Act listing to date, and
listing of Puget Sound Chinook salmon is causing a number of changes to operations of  governmental  agencies and private  entities in
the region,  including PSE. These changes may adversely affect hydro plant operations and permit issuance for facilities  construction,
and increase costs for process and facilities.  Because PSE relies  substantially  less on  hydroelectric  energy from the Puget Sound
area than from the  Mid-Columbia  River and  because  the  impact on PSE  operations  in the Puget  Sound  area is not likely to impair
significant  generating  resources,  the impact of listing for Puget Sound Chinook salmon and Bull Trout should be proportionately less
than the Columbia River listings.  PSE is actively  engaging the federal  agencies to address  Endangered  Species Act issues for PSE's
generating plants. The consultation with the federal agencies is ongoing.EXECUTIVE OFFICERS OF THE REGISTRANTS

        The executive  officers of Puget Energy as of March 8, 2002, are listed below.  For their business  experience  during the past
five years,  please refer to the table below regarding Puget Sound Energy's  executive  officers.  Officers of Puget Energy are elected
for one-year terms.

`Name                        Age      Offices
--------------------------- -------- --------------------------------------------------------------------------------
  S. P. Reynolds              54       President and Chief Executive Officer since January 2002. Director since
                                       January 2002.

  J. W. Eldredge              51       Corporate Secretary and Chief Accounting Officer since April 1999.

  D. E. Gaines                44       Vice President Finance and Treasurer since March 2002.

  S. A. McKeon                55       Senior Vice President Finance and Legal (Chief Financial Officer) since March
                                       2002; Vice President and General Counsel, 1999 - 2002.`

The executive officers of Puget Sound Energy as of March 8, 2002, are listed below along with their business experience during the
past five years. Officers of Puget Sound Energy are elected for one-year terms.

`Name                        Age      Offices
--------------------------- -------- --------------------------------------------------------------------------------

  S. P. Reynolds              54       President and Chief  Executive  Officer  since  January  2002;  President and
                                       Chief Executive Officer of Reynolds Energy International,  1998 - 2002; Chief
                                       Executive Officer of PG&E Gas Transmission Texas, 1997 - 1998;  President and
                                       Chief Executive  Officer of Pacific Gas  Transmission  Company,  1987 - 1998.
                                       Director since January 2002.

  J. W. Eldredge              51       Vice President, Corporate Secretary,  Controller and Chief Accounting Officer
                                       since  May  2001;  Corporate  Secretary,  Controller,  and  Chief  Accounting
                                       Officer, 1993 - 2001.

  D. E. Gaines                44       Vice President Finance and Treasurer since March 2002; Vice  President and Treasurer
                                       2001 - 2002;  Treasurer,  1994 - 2001.  Mr. Gaines is the brother of W. A. Gaines,
                                       Vice President Energy Supply.

  W. A. Gaines                46       Vice President Energy Supply since February 1997;  Manager Power  Management,
                                       1996 - 1997.  Mr. Gaines is the brother of D. E. Gaines,  Vice  President and
                                       Treasurer.

  D. A. Graham                61       Vice President Human Resources  since April 1998;  Director Human  Resources,
                                       1989 - 1998.

  P. J. Gullekson             55       Vice  President  Customer  Services  since March  2000;  Director of Customer
                                       Service, 1998 - 2000; Manager Customer Service, 1997 - 1998.

  K. J. Harris                37       Vice President Regulatory Affairs since March 2002; Director Load Resource
                                       Strategies and Associate General Counsel, 2001 - 2002; Associate General Counsel,
                                       1990 - 2001. For more than four years prior to that time, she was an attorney
                                       with the law firm of Perkins Coie LLP.

  T. J. Hogan                 50       Senior Vice President External Affairs since March 2002; Vice President External
                                       Affairs, 2000 - 2002; Vice President  Systems Operations, 1997 - 2000.

  S. A. McKeon                55       Senior Vice President Finance and Legal (Chief Financial Officer) since
                                       March 2002; Vice President and General Counsel, 1997 - 2002.

  S. McLain                   45       Vice  President  Operations  -  Delivery  since  June  1999;  Vice  President
                                       Corporate  Performance,  1997 - 1999;  Director  Planning and Work Practices,
                                       1997.

  J. M. Ryan                  40       Vice President  Energy  Portfolio  Management  since December 2001;  Managing
                                       Director  of North  American  Marketing  of  TransAlta  USA,  2001;  Managing
                                       Director  Origination of Merchant Energy Group of the Americas,  Inc., 1997 -
                                       2001.

  G. B. Swofford              60       Senior Vice President and Chief Operating Officer since March 2002; Vice President
                                       and Chief  Operating  Officer - Delivery, 1999 - 2002; Vice President Customer
                                       Operations, 1997 - 1999.

  P. M. Wiegand               49       Vice President Risk  Management and Strategic  Planning since September 2000;
                                       Director  of Budgets and  Performance  Management,  1999 - 2000;  Director of
                                       Information Technology, 1997 - 1999.`

ITEM 2. PROPERTIES

The principal  electric  generating  plants and  underground  gas storage  facilities  owned by PSE are described under Item 1 -
Business - Electric Utility Operations and Gas Utility  Operations.  PSE owns its transmission and distribution  facilities and various
other properties. Substantially all properties of PSE are subject to the liens of PSE's Mortgage Indentures.

ITEM 3. LEGAL PROCEEDINGS

See "Litigation" in Note 17 to the Consolidated
Financial Statements.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
         OF SECURITY HOLDERS

None.

### PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS

Puget  Energy's  common stock,  the only class of common equity of Puget Energy,  is traded on the New York Stock Exchange under
the symbol PSD. As of December 31, 2001,  there were approximately 48,700 holders of record of Puget Energy's common stock.  The  outstanding  shares
of PSE's common stock, the only class of common equity of PSE, are held by Puget Energy and are not traded.

        The  following  table shows the market price range of, and  dividends  paid on, Puget  Energy's  common stock during the periods
indicated in 2001,  and PSE's common stock  during the periods  indicated in 2000.  Puget Energy and PSE have paid  dividends on common
stock each year since 1943 when such stock first became publicly held.

`2001                                        2000
------------------------- ------------------------- ----------------- ------------------------- -----------------
                                 Price Range            Dividends            Price Range           Dividends
  Quarter Ended             High         Low              Paid            High          Low            Paid
------------------------- ------------ ------------ ----------------- ------------ ------------ -----------------
  March 31                 $27.75       $20.63             $.46        $24 1/8      $18 15/16          $.46
  June 30                   26.24        22.54              .46         24 13/16     21 5/16            .46
  September 30              26.95        20.50              .46         26 3/16      21 7/8             .46
  December 31               23.11        18.51              .46         28           23 1/8             .46`

Dividends on Puget  Energy's  common stock will depend  primarily on the  dividends and other  distributions  that PSE and other
subsidiaries will pay to Puget Energy and the capital requirements of Puget Energy and its subsidiaries.

        PSE's  payment of common stock  dividends  to Puget Energy is  restricted  by  provisions  of certain  covenants  applicable  to
preferred stock and long-term debt contained in PSE's Articles of  Incorporation  and electric and gas mortgage  indentures.  Under the
most  restrictive  covenants,  earnings  reinvested in the business  unrestricted  as to payment of cash dividends  were  approximately
$191.0  million at December 31, 2001. If PSE is not granted  interim rate relief from the Washington  Commission,  PSE's ability to pay
dividends to Puget Energy would be adversely impacted. (See Note 7 to the Consolidated Financial Statements.)

ITEM 6.  SELECTED FINANCIAL DATA

The following  tables show selected  financial data. Puget Energy became the holding company for PSE on January 1, 2001 pursuant
to a plan of exchange in which each share of PSE common stock was exchanged on a one-for-one basis for Puget Energy common stock.

`Puget Energy
Summary of Operations
(Dollars in thousands except per share data)

  Year ended December 31                           2001            2000             1999             1998             1997
---------------------------------------- --------------- --------------- ---------------- ---------------- ----------------
Operating revenue                           $ 3,373,991     $ 3,441,672      $ 2,067,944      $ 1,923,856      $ 1,681,528
Operating income                                297,121         363,872          307,816          295,098          210,638
Income before cumulative effect of
    accounting change                           121,588         193,831          185,567          169,612          125,698
Income for common stock from
    continuing operations                        98,426         184,837          174,502          156,609          108,363
Basic and diluted earnings
    per common share from
    continuing operations (Note 1 to               1.14            2.16             2.06             1.85             1.28
    the financial statements)
Dividends per common share                         1.84            1.84             1.84             1.84             1.78
Book value per common share                       15.66           16.61            16.24            16.00            16.06
---------------------------------------- --------------- --------------- ---------------- ---------------- ----------------
Total assets at year-end                     $5,546,977      $ 5,556,669     $ 5,145,606      $ 4,709,687      $ 4,493,306
Long-term obligations                         2,127,054       2,170,797        1,783,139        1,475,106        1,412,153
Redeemable preferred stock                       50,662          58,162           65,662           73,162           78,134
Corporation obligated, mandatorily
    redeemable preferred securities
    of subsidiary trust holding solely
    junior subordinated debentures
    of the corporation                          300,000         100,000          100,000          100,000          100,000
---------------------------------------- --------------- --------------- ---------------- ---------------- ----------------


Puget Sound Energy
Summary of Operations
(Dollars in thousands)

  Year ended December 31                           2001            2000             1999             1998             1997
---------------------------------------- --------------- --------------- ---------------- ---------------- ----------------
Operating revenue                           $ 3,200,205     $ 3,441,672      $ 2,067,944      $ 1,923,856      $ 1,681,528
Operating income                                288,480         363,872          307,816          295,098          210,638
Income before cumulative effect of
    accounting change                           119,130         193,831          185,567          169,612          125,698
Income for common stock from
    continuing operations                        95,968         184,837          174,502          156,609          108,363

---------------------------------------- --------------- --------------- ---------------- ---------------- ----------------
Total assets at year-end                    $ 5,317,750     $ 5,556,669      $ 5,145,606      $ 4,709,687      $ 4,493,306
Long-term obligations                         2,053,815       2,170,797        1,783,139        1,475,106        1,412,153
Redeemable preferred stock                       50,662          58,162           65,662           73,162           78,134
Corporation obligated, mandatorily
    redeemable preferred securities
    of subsidiary trust holding solely
    junior subordinated debentures
    of the corporation                          300,000         100,000          100,000          100,000          100,000
---------------------------------------- --------------- --------------- ---------------- ---------------- ----------------`

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
         OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following  discussion  and analysis  should be read in conjunction  with the financial
statements and related notes thereto included  elsewhere in this annual report on Form 10-K.  The  discussion  contains  forward-looking
statements  that involve risks and uncertainties,  such as Puget  Energy's and PSE's  objectives,  expectations  and  intentions.  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.  Words or phrases such as anticipates, believes,
estimates, expects, plans, predicts, projects, 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. Except as required by law, neither Puget Energy nor
PSE undertakes an 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 Securities and Exchange  Commission  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.

FINANCIAL CONDITION AND RESULTS OF OPERATIONS
        Net income in 2001 was $106.8 million on operating  revenues of $3.4 billion,  compared to $193.8 million on operating  revenues
of $3.4 billion in 2000 and $185.6  million on operating  revenues of $2.1 billion in 1999.  Income for common stock was $98.4  million
in 2001, compared to $184.8 million in 2000 and $174.5 million in 1999.

        Basic and diluted earnings per share in 2001 were $1.14 on 86.4 million weighted average common shares  outstanding  compared to
$2.16 on 85.4 million  weighted  average  common shares  outstanding in 2000 and $2.06 on 84.6 million  weighted  average common shares
outstanding in 1999.

        Net income in 2001 was  negatively  impacted by a decrease in utility net income of $124.6  million  from 2000 due  primarily to
decreased electric margins.  Net income in 2001 was positively  impacted by an increase in non-utility net income of $37.6 million from
2000 which  includes  net gains of  approximately  $8.0  million or $0.09 per share from  non-utility  operations.  The $0.09 per share
included gains from the sale of the assets of ConneXt, net of ConneXt's operating loss of approximately $0.01 per share.

        Total  kilowatt-hour  energy sales to retail  consumers in 2001 were 19.9  billion  compared  with 21.9 billion in 2000 and 21.4
billion in 1999.  Kilowatt-hour  sales to wholesale  customers were 7.5 billion in 2001, 15.1 billion in 2000 and 11.7 billion in 1999.
Kilowatt-hours transported to transportation  customers under a new tariff established in 2001 were 308 million in 2001. Kilowatt-hours
transported to transportation customers under a terminated pilot program were 164 thousand in 2000 and 48 million in 1999.

        Total gas sales to retail  consumers in 2001 were 850.4 million  therms  compared  with 890.5  million  therms in 2000 and 872.0
million  therms in 1999.  Total gas sales to  transportation  customers in 2001 were 188.2 million  therms  compared with 204.0 million
therms in 2000 and 236.7 million therms in 1999.

`Results of Operation of Puget Energy

         Increase (Decrease) Over Preceding Year
         Years Ended December 31                                                 2001                2000
         (Dollars in Millions)
       ------------------------------------------------------------ ------------------ -------------------
         Operating revenue changes:
           General rate increases                                              $ 12.5              $ 16.9
           BPA residential purchase and sale agreement                           11.2                (3.3)
           Electric sales to other utilities and marketers                     (227.9)              932.6
           Electric revenue sold at index rates to retail customers             (82.4)              184.9
           Electric revenue sold to conservation trust                            4.4                 8.4
           Electric conservation incentive credit                               (19.5)                 --
           Electric load and other                                             (117.3)               74.2
           Gas revenue                                                          202.7               126.8
           InfrastruX revenue                                                   128.8                45.0
           Other revenue                                                         19.8               (11.8)
       ------------------------------------------------------------ ------------------- ------------------
              Total operating revenue change                                    (67.7)            1,373.7
       ------------------------------------------------------------ ------------------- ------------------
         Operating expense changes:
           Energy costs:
             Purchased electricity                                             (360.5)              986.5
             Residential exchange credit                                        (34.8)              (2.0)
             Purchased gas                                                      204.5               112.9
             Electric generation fuel                                            98.4               123.6
             FAS-133 unrealized gain                                            (11.2)                --
           Utility operations and maintenance:
             Production operations and maintenance                                2.8                 8.4
             Personal energy management                                          11.1                 1.4
             Other utility operations and maintenance                            11.8               (10.4)
           InfrastruX operations and maintenance                                106.6                41.4
           Other operations and maintenance                                     (10.5)              (8.0)
           Depreciation and amortization                                         21.0                20.8
           Conservation amortization                                             (0.3)              (1.0)
           Taxes other than federal income taxes                                 11.2                23.1
           Federal income taxes                                                 (51.0)               21.0
       ------------------------------------------------------------ ------------------- ------------------
              Total operating expense change                                     (0.9)            1,317.7
       ------------------------------------------------------------ ------------------- ------------------
         Other income change (net of tax)                                         9.5               (23.0)
         Interest charges                                                        15.0                24.7
         FAS-133 transition adjustment loss (net of tax)                         14.7                  --
       ------------------------------------------------------------ ------------------ -------------------
         Net income change                                                    $ (87.0)              $ 8.3
       ------------------------------------------------------------ ------------------- ------------------`

The following information pertains to the changes outlined in the table above:

OPERATING REVENUES - ELECTRIC
        Electric  operating  revenues  increased  $12.5 million and $16.9 million in 2001 and 2000,  respectively,  when compared to the
prior years due to overall average 0.9% and 1.2% general rate increases effective January 1, 2001 and January 1, 2000.

        Sales to other  utilities  and marketers  decreased  $227.9  million in 2001  compared to an increase of $932.6  million in 2000
compared to the prior years due primarily to volatility in wholesale power prices.

        Electric  revenues in 2001 decreased due to decreased prices and  kilowatt-hours  sold related to electric energy sales to other
utilities and marketers and sales to customers  whose rates were tied to a market index.  These  customers can choose another  supplier
or self-generate their energy needs.  Several index rate customers have switched to transportation  rate tariffs beginning in July 2001
as allowed by a Washington  Commission order dated April 5, 2001 authorizing the establishment of a transportation  tariff. On June 19,
2001,  FERC  implemented  price  controls on wholesale  electricity  in the western  states.  Several  factors have  contributed to the
dramatic  decline in wholesale  electric prices by the end of the second quarter of 2001 and,  therefore,  have greatly  diminished the
value of PSEs excess  electric  energy during that period and into the foreseeable  future.  PSE and other western  utilities filed an
appeal asking FERC to review its June 19, 2001 order and make  modifications  to the price  controls to stabilize  wholesale  prices in
California  and  prevent  the  energy  problems  from  spreading  to other  states.  On  December  19,  2001,  FERC  issued an order on
clarification  and rehearing  addressing,  in part,  the Companys  petition for rehearing on the June 19, 2001 order.  The Company and
other entities have sought further  rehearing and  clarification  of the December 19, 2001 order.  PSE continues to operate  without an
electric rate adjustment mechanism.

        Electric  revenues were reduced by  approximately  $19.5  million in 2001 related to a customer  conservation  incentive  credit
which was approved by the Washington  Commission on April 25, 2001. The conservation  incentive  credit was to reduce  customers bills
by $0.05 per kWh for each kWh reduction in excess of 10% from the same billing  period in the prior year through  December 31, 2001. On
November 7, 2001, the Washington  Commission  approved PSEs request to terminate the conservation  incentive credit program  effective
November 8, 2001.

        On April 25, 2001, the Washington  Commission  approved  time-of-day rates for  approximately  300,000  residential  electric
customers for the period May 1, 2001 through  September  30, 2001. On September 26, 2001,  the  Washington  Commission  authorized  the
extension of the time-of-day rates pilot program for residential  customers through May 31, 2002 to allow  approximately  20,000
business  customers to participate in a time-of-day rates program from October 1, 2001 through  September 30, 2002. In the order, if
the  cumulative  revenues  collected  under  time-of-day tariffs  during the  beginning  through the end of the programs  exceed the
revenues that would have been collected under the original tariffs,  PSE must defer any  overcollection  and refund it to participating
customers.  Through  December 31, 2001,  revenues billed under the  time-of-day tariff have been slightly less than original tariffs
by an immaterial amount,  thus no deferred  liability was established at December 31, 2001.  Personal Energy  ManagementTM  consumption
information  is available to all classes of  customers.  Customers are able to monitor their energy usage and shift usage to low-demand
off-peak periods. This program reduces the demand for peak power generation.

        Revenues  from  electric  customers in 2001 and 2000 were reduced by a  Residential  and Farm Energy  Exchange  credit tariff in
place since  October 1, 1995.  Under the rate plan  approved  by the  Washington  Commission  in its merger  order,  PSE  reflected  in
customers'  bills the level of  Residential  Exchange  benefits in place at the time of the merger with  Washington  Energy  Company in
1997. On January 29, 1997, PSE and Bonneville  Power  Administration  (BPA) signed an agreement under which PSE received  payments from
BPA of  approximately  $235 million over an  approximate  five-year  period that ended June 2001.  These  payments  were  recorded as a
reduction of purchased  electricity  expenses.  As a result of lower usage by residential and farm customers in 2001, the residential
and farm exchange credit decreased by $11.2 million as compared to 2000 and increased in 2000 by $3.3 million as compared to 1999.

        On June 13, 2001, the Washington  Commission  approved an amended  Residential  Purchase and Sale Agreement between PSE and BPA,
under which PSE's  residential and small farm customers would receive benefits of federal power.  Completion of this agreement  enables
PSE to continue to provide,  and in fact  increase,  effective  January 1, 2002, the  Residential  and Farm Energy  Exchange  credit to
residential and small farm customers.  The amended  settlement  agreement  provides that PSE will receive for its residential and small
farm customers (a) cash payment  benefits  during the period July 1, 2001 through  September 30, 2006 and (b) benefits in the form of
power or cash  payments  during the period  October 1, 2006 through  September 30, 2011.  Any such benefits may vary,  depending on the
outcome of regulatory and legal  proceedings  and reviews.  For example a number of parties are  challenging in the Ninth Circuit Court
of Appeals  BPA's  authority  to enter into or perform the amended  Residential  Purchase and Sale  Agreement  between PSE and BPA. For
calendar  2001, the benefits of the  Residential  and Farm Energy  Exchange  credited to customers was $103.1 million as compared to an
offsetting  reduction in Purchased  Electricity  Expense of $75.9  million.  PSE expects  payments from BPA (recorded as a reduction in
Purchased  Electricity  Expense) in the amount of $127.3 million for the period January 2002 through  September 2002 and $702.2 million
for the period October 2002 through  September  2006.  Eligible  residential  and small farm  customers  will receive  credits to their
bills in the same amount.  On October 17, 2001, the Public Counsel Section of the Washington  State Attorney  General's  Office filed a
complaint  with the  Washington  Commission alleging that PSE has violated the  Washington  Commission's  1997 merger order.  The Public Counsel's  complaint
is that PSE's  residential  and small farm  customers  should  receive both the  reduction in rates equal to the  residential  exchange
credit in place prior to July 1,  2001,  and in  addition,  the  benefits  of the amended  agreement  for  residential  and small farm
benefits  received from BPA. If Public Counsel's  position were upheld,  PSE's electric  revenues for the last six months of 2001 would
be reduced by  approximately  $51.1 million.  While PSE believes this complaint is without merit,  PSE is unable to predict the outcome
of this proceeding.  A decision in the proceeding is expected in 2002.

        PSE  operates  within the  western  wholesale  market and has made sales into the  California  energy  market.  During the first
quarter of 2001, PSE received partial  payments for sales made in the fourth quarter of 2000. At December 31, 2000,  PSE's  receivables
from the California  Independent System Operator (CAISO) and other counter-parties,  net of reserves,  were $41.8 million. At December
31, 2001, such receivables, net of reserves, were approximately $26.6 million.

        In 2001 and 2000, PSE collected and remitted to two grantor trusts, $31.0 million and $35.4 million,  respectively,
as a result of PSE's sale of future electric revenues  associated with $237.7 million of its investment in conservation  assets in its electric
general rate tariff. The impact of the sale of revenue, was offset by reductions in conservation  amortization and interest expenses.  The
principal amounts owed by the trusts to its bondholders were $31.8 million and $61.9 million at December 31, 2001 and 2000, respectively.

        On April 15, 2001, the Washington Commission issued an order allowing PSE's large
industrial  customers whose rates were linked to a market index to choose their supplier of electricity or to self-generate.
If an industrial  customer chooses an alternate supplier, PSE will provide the transportation of electricity to the customer's
premises and charge that customer for the service.

        To meet  customer  demand,  PSE's power supply  portfolio  includes net  purchases of power under  long-term  supply  contracts.
However,  depending  principally upon streamflow  available for hydroelectric  generation and weather effects on customer demand,  from
time to time,  PSE may have surplus power  available for sale to wholesale  customers.  PSE manages its core energy  portfolio  through
short and  intermediate-term  purchases,  sales,  arbitrage and other risk  management  techniques.  PSE also  operates its  combustion
turbine  plants  located in Western  Washington  when it is  cost-effective  to do so.  During the first nine  months of 2001,  PSE has
operated its combustion turbine plants extensively to meet retail load  requirements.  PSE's Risk Management  Committee oversees energy
price risk matters.

OPERATING REVENUES - GAS
        Regulated  gas  utility  revenues  in 2001  increased  by $202.7  million  from the prior  year.  Total gas  volumes,  including
transported  gas,  decreased 5.1% in 2001 from 2000. The primary reason for the increase in gas sales was the higher natural gas prices
which are passed through to customers in the Purchased Gas Adjustment  (PGA). Gas rates to all sales customers  increased by an average
of 30.2% on August 1, 2000 and 26.4% on January 12, 2001,  offset by an 8.9%  decrease in gas rates under the PGA  effective  September
1, 2001.  Higher  priced  firm gas sales  comprised  a larger  percentage  of total  therm  sales in 2001  compared  to 2000 which also
contributed  to increased  revenues.  Utility gas margin (the  difference  between gas revenues and gas  purchases)  decreased by $17.0
million, or 7.6%, in 2001 over 2000.

        Regulated gas utility sales  revenue in 2000  increased by $126.8  million from the prior year on a 2.1% increase in gas volumes
sold. Total gas volumes, including transported gas, decreased 1.3% in 2000 from 1999.OTHER REVENUES
        InfrastruX total operating  revenues  increased $128.8 million in 2001 compared to 2000 from the acquisitions  made in the third
quarter of 2000 and throughout 2001.  PSE's other revenues  increased $19.8 million in 2001 compared to 2000 primarily due to increased
revenues at PSE's real estate  investment and development  subsidiary,  Puget Western,  Inc. Other revenues  decreased $11.8 million in
2000 compared to 1999 due primarily to decreased revenues at Puget Western, Inc. and the sale of a wholly-owned  subsidiary,  Homeguard
Security Services, Inc. in 1999.OPERATING EXPENSES
        Purchased  electricity  expenses  decreased  $360.5  million in 2001 when compared to 2000 and increased  $986.5 million in 2000
when  compared to 1999.  The decrease in 2001 was due  primarily to lower  volumes and  significantly  lower prices for non-firm  power
purchases  from other  utilities and marketers due to declining  prices in the West Coast power market  beginning in the second half of
2001.  The  increase in 2000 as compared to 1999 was due  primarily to greater  volumes and  significantly  higher  prices for non-firm
power  purchases  from other  utilities and marketers  during the last seven months of 2000 due to increasing  prices in the West Coast
power market.

        Residential  exchange  credits  associated with the Residential  Purchase and Sale Agreement with BPA increased $34.8 million in
2001 when compared to 2000, due to the terms set out in the 1997 Residential  Exchange  Termination  Agreement and the 2001 Residential
Purchase and Sale  Agreement  between PSE and BPA discussed in Operating  Revenues - Electric.  Beginning  July 2001,  all  residential
exchange credits are passed through to eligible residential and small farm customers by a corresponding reduction in revenues.

        Purchased gas expenses  increased  $204.5  million in 2001 compared to 2000  primarily due to the impact of increased gas costs,
which are passed  through to customers  through the PGA mechanism,  offset by a 5.1% decrease in sales volumes.  Purchased gas expenses
increased  $112.9  million in 2000  compared to 1999 due to the impact of increased  gas costs,  which are passed  through to customers
through the PGA mechanism and a 2.1% increase in sales  volumes.  The PGA allows PSE to recover  expected  increases in gas costs.  PSE
defers,  as a receivable,  any gas costs that exceed the amount in PGA rates and accrues interest under the PGA. The balance of the PGA
receivable was $37.2 million and $96.1 million for December 31, 2001 and 2000, respectively.

        Electric generation fuel expense increased $98.4 million in 2001 compared to 2000, compared to an increase of $123.6 million in
2000 compared to1999,  as a result of increased  generation and higher fuel costs at combustion  turbine  facilities.  These facilities
operated at much higher levels in 2001 compared to the same period in 2000 due to adverse hydroelectric conditions.

        Financial  Accounting  Standards  Board  Statement No. 133 (Statement  No. 133) was adopted on January 1, 2001.  During 2001, an
increase to current  earnings of  approximately  $11.2 million  pre-tax ($7.3 million  after-tax) was  recognized for unrealized  gains
associated with electric  derivative  transactions and a $14.7 million  after-tax  transition  adjustment loss was recorded during 2001
resulting from recognizing the cumulative effect of this change in accounting principle. (For further discussion see Note 18).

        Production  operations and maintenance costs increased $2.8 million in 2001 compared to 2000 due primarily to an  approximately  $2.1
million  increase in lease costs associated with the new Fredonia 3 and 4 units,  offset by reduced  operating costs resulting from the
sale of the Centralia  generating station in May 2000, and a net cost of $2.9 million after estimated  insurance recovery to repair the
PSE-owned  Fredonia  combustion turbine unit #1, which was out of service from February 21, 2001 through May 14, 2001. PSE has received
partial  payments of $7.7 million  associated with an amended $12.6 million  insurance claim and is awaiting  payment on the remainder.
Production  operations and  maintenance  costs increased $8.4 million in 2000 compared to 1999 due to increased  energy  production and
maintenance  work at  company-owned  combustion  turbine  plants,  inventory  write-downs  at  Colstrip  and 12 full  months of Encogen
generating station costs versus 2 months in 1999.

        PSE's Personal Energy Management energy-efficiency  program costs increased $11.1 million in 2001,  reflecting a full year of
implementation  compared to 2000. PSE began  providing  Personal  Energy  Management  billing  information  to electric  customers in
December 2000 which resulted in a $1.4 million  increase in costs in 2000 compared to 1999. The Personal  Energy  ManagementTM  program
helps to minimize energy purchases at peak times when electric energy is most costly.

        Other utility  operations and  maintenance costs increased $11.8 million in 2001 compared to 2000 due primarily to repair costs
associated  with storm and earthquake  damage in 2001,  increased  meter reading  expenses  associated  with providing  Personal Energy
ManagementTM,  and a one-time  insurance  recovery  received in 2000.  Other utility  operations and maintenance  costs decreased $10.4
million in 2000  compared to 1999 due primarily to high 1999 costs  related to Year 2000  remediation  expenses in 1999 not incurred in
2000 and the reduction in 2000 of electric service restoration costs that followed a number of storms which occurred in early 1999.

        InfrastruX  operation  and  maintenance expenses  increased  $106.6  million in 2001  compared to 2000 due to its  acquisitions
beginning in 2000.  PSE's other operations and maintenance  expenses  decreased $10.5 million in 2001 compared to 2000 primarily due to
a decrease  in  operating  expenses  at  ConneXt,  the assets of which were sold in the third  quarter of 2001.  Other  operations  and
maintenance  expenses  decreased $8.0 million in 2000 compared to 1999 primarily due to a decrease in operating expenses at ConneXt and
from the sale of Homeguard Security Services, Inc. in 1999.

        Depreciation and amortization expenses  increased $21.0 million in 2001 compared to 2000 due to the effects of new plant placed
into service during 2001,  including  ConsumerLinX,  a customer information and billing system, which was placed into service in phases
through  late 2000 and early  2001.  Depreciation  and  amortization  expense  increased  $20.8  million in 2000  compared  to 1999 due
primarily to the effects of new plant placed into service during 2000.

        Taxes other than federal  income taxes increased  $11.2  million in 2001 compared to 2000 and $23.1 million in 2000 compared to
1999 due primarily to increases in municipal  taxes and state excise taxes that are revenue based.  Federal  income taxes  decreased by
$51.0 million in 2001  compared to 2000,  and  increased  $21.0  million in 2000  compared to 1999  primarily due to changes in pre-tax
operating income for the periods.OTHER INCOME
        Other  income,  net of federal  income tax,  increased  $9.5 million in 2001  compared to 2000 due primarily to $11.8 million of
reserves  established in 2000 for a write-down to the fair values of certain assets held for sale by Hydro Energy  Development Corp. to
their net  realizable  values not recurring in 2001,  $4.8 million of other income  realized by Puget  Western,  Inc. on investments in
2000 not  recurring  in 2001,  $7.4 million of increase in other income of ConneXt  primarily  from sales of assets in 2001,  offset by
reductions  in other income in 2001 for  additional  amortization  of goodwill  from  acquisitions  by  InfrastruX,  officer  incentive
compensation  accruals,  and decreased other interest and dividend  income.  Other income,  net of federal income tax,  decreased $23.0
million  in 2000  compared  to 1999 due  primarily  to an  after-tax  gain in 1999 of  $12.3  million  on the  sale of Cabot common
stock in the second  quarter  of 1999,  and an  after-tax  gain of $3.6  million  related to the sale and
assignment of certain non-core assets and supply  transportation  contracts in 1999. The decrease is also related to the  establishment
in 2000 of an after-tax  reserve of $11.8 million for a write-down  to the fair values of certain  assets held for sale by Hydro Energy
Development  Corp. to their net realizable  values.  The decrease in 2000 was partially  offset by the after-tax gain of  approximately
$1.6 million related to the sale of the Centralia generating plant.INTEREST CHARGES
        Interest  charges,  which consist of interest and amortization on long-term debt and other interest,  increased $15.0 million in
2001 compared to 2000 as a result of the issuance of $25 million  7.61% Senior  Medium-Term  Notes,  Series B, in September  2000,  the
issuance of $260 million  7.69%  Senior  Medium-Term  Notes,  Series C, in November  2000,  and the issuance of $200 million 8.4% Trust
Preferred  Securities in May 2001. In addition,  InfrastruX  borrowings  increased interest charges by $3.5 million in 2001 compared to
2000.  Other interest  expense  decreased $16.9 million compared to 2000 as a result of lower weighted average interest rates and lower
average daily short-term borrowings.

        Interest  charges  increased  $24.7  million in 2000  compared to 1999 as a result of the issuance of $225 million  7.96% Senior
Medium-Term  Notes,  Series B, in February 2000,  the issuance of $25 million 7.61% Senior  Medium-Term  Notes,  Series B, in September
2000,  and the issuance of $260 million 7.69% Senior  Medium-Term  Notes,  Series C, in November 2000.  These  increases were partially
offset by the  repayment  of $132  million in Secured  Medium-Term  Notes since  September  1999 and $105.6  million of Encogen debt in
February 2000.  Other interest  expense  increased $9.1 million  compared to 1999 as a result of higher weighted average interest rates
and higher average daily short-term borrowings.CAPITAL RESOURCES AND LIQUIDITYCapital RequirementsContractual Obligations and Commercial Commitments
        Puget Energy. The following are Puget Energy's  aggregate  consolidated  (including PSE) contractual and commercial  commitments
as of December 31, 2001:

`Payments Due Per Period
Puget Energy                                                 ------------------------------------------------------
Contractual Obligations                           Total         2002      2003-2004     2005-2006      2007 and
(in millions)                                                                                         Thereafter
---------------------------------------------- ------------- ----------- ------------- ------------- --------------

Long-term debt                                     $2,246.6      $119.5        $243.7        $112.0       $1,771.4
Short-term debt                                       348.6       348.6            --            --             --
Trust preferred securities (1)                        300.0          --            --            --          300.0
Preferred dividends (2)                                 1.1         1.1            --            --             --
Service contract obligations                          215.3        19.3          40.5          43.2          112.3
Capital lease obligations                               3.2         1.2           1.4           0.6              -
Non-cancelable operating leases                        59.7        17.5          26.4          10.6            5.2
Fredonia combustion turbines lease (3)                 77.3         4.9           9.5           9.1           53.8
Energy purchase obligations                         4,721.1       533.8         983.0         842.7        2,361.6
Financial hedge obligations                            56.3         8.1          16.7          17.6           13.9
                                               ------------- ----------- ------------- ------------- --------------
   Total contractual cash obligations              $8,029.2    $1,054.0      $1,321.2      $1,035.8       $4,618.2

                                                                            Amount of Commitment
                                                                           Expiration Per Period
                                                           -------------------------------------------------------
Commercial Commitments                           Total       2002     2003-2004      2005-2006       2007 and
(in millions)                                                                                       Thereafter
---------------------------------------------- ----------- --------- ------------- -------------- ----------------

Guarantees (4)                                      $71.5        --         $71.5             --               --
Lines of credit  available (5)                     125.4       9.6         115.8
                                               ----------- --------- ------------- -------------- ----------------
   Total commercial commitments                    $196.9      $9.6        $187.3             --               --`

1. In 1997 and 2001,  PSE formed Puget Sound Energy Capital Trust I and Puget Sound Energy  Capital Trust II,  respectively,  for
     the sole  purpose of issuing and selling  preferred  securities  (Trust  Securities)  and issuing  common  securities  to PSE. The
     proceeds from the sale of Trust Securities were used by the Trusts to purchase Junior  Subordinated  Debentures  (Debentures) from
     PSE. The Debentures are the sole assets of the Trusts and PSE owns all common securities of the Trusts.
2. On October  9, 2001,  the Board of  Directors  of PSE  declared  a  dividend  payable on January 1, 2002 for  preferred  stock
     outstanding on December 14, 2001.
3. In April 2000,  PSE entered  into a lease line of up to $70 million with a financial  institution,  under which PSE leases two
     combustion  turbines for its Fredonia 3 and 4 electric  generation  facility.  The lease has a term  expiring in 2011,  but can be
     cancelled by PSE after three years.  Lease  payments and  amortization  under the lease include  interest equal to 1.20% above the
     London inter-bank  offered rate (LIBOR).  At December 31, 2001, PSE's outstanding  balance under the lease was $58.8 million.  For
     purposes of the table,  lease payments assume a LIBOR of 2.14%.  The expected  residual value under the lease is the lesser of $36
     million or 60% of the cost of the  equipment.  In the event the equipment is sold to a third party upon  termination  of the lease
     and the aggregate  sales proceeds are less than 87% of the  unamortized  value of the  equipment,  PSE would be required to pay
     the lessor an amount equal to the deficiency.
4. In June 2001,  InfrastruX  signed a credit  agreement  with several banks to provide up to $150 million in  financing.  Under
     the credit agreement, Puget Energy is the guarantor of the line of credit.
5. At December  31, 2001,  PSE had $375 million in lines of credit with various  banks,  which  provide credit  support for the
     outstanding bank loans and commercial paper of $338.2 million,  effectively reducing the available borrowing capacity under these
     lines of credit to $36.8  million.  InfrastruX  had $170.5  million in lines of credits  with  various  banks,  which fund capital
     requirements  of InfrastruX  and its  subsidiaries.  InfrastruX  and its  subsidiaries  had  outstanding  loans of $81.9  million,
     effectively reducing the available borrowing capacity under these lines of credit to $88.6 million.

Puget Sound Energy. The following are PSE's aggregate contractual and commercial
commitments as of December 31, 2001:

`Payments Due Per Period
Puget Sound Energy                                           -------------------------------------------------------
Contractual Obligations                           Total         2002      2003-2004     2005-2006       2007 and
(in Millions)                                                                                          Thereafter
---------------------------------------------- ------------- ----------- ------------- ------------- ---------------

Long-term debt                                     $2,170.9      $117.0        $170.5        $112.0        $1,771.4
Short-term debt                                       338.2       338.2            --            --              --
Trust preferred securities (1)                        300.0          --            --            --           300.0
Preferred dividends (2)                                 1.1         1.1            --            --              --
Service contract obligations                          215.3        19.3          40.5          43.2           112.3
Non-cancelable operating leases                        46.5        13.0          20.2           8.2             5.1
Fredonia combustion turbines lease (3)                 77.3         4.9           9.5           9.1            53.8
Energy purchase obligations                         4,721.1       533.8         983.0         842.7         2,361.6
Financial hedge obligations                            56.3         8.1          16.7          17.6            13.9
                                               ------------- ----------- ------------- ------------- ---------------
   Total contractual cash obligations              $7,926.7    $1,035.4      $1,240.4      $1,032.8        $4,618.1

                                                                            Amount of Commitment
Puget Sound Energy                                                         Expiration Per Period
                                                           -------------------------------------------------------
Commercial Commitments                           Total       2002       2003-2004      2005-2006      2007 and
(in Millions)                                                                                        Thereafter
---------------------------------------------- ----------- ---------- -------------- -------------- --------------

Lines of credit  available (4)                  $36.8         --          $36.8             --             --`

1. See note (1) above.
2. See note (2) above.
3. See note (3) above.
4. See note (5) above with respect to PSE.

PSE has sold a stream of future electric  revenues  associated with $237.7 million of its
investment in conservation assets in its electric  general rate tariff to two grantor trusts.  As a result of this sale, PSE collects these
revenues from its electric customers and remits them to the trusts. During  2001, PSE collected and remitted $31.0 million to the trusts.
Additional  principle amounts expected to be collected on behalf of the trusts are $31.8 million at December 31, 2001.UTILITY CONSTRUCTION PROGRAM
        Current  utility  construction  expenditures  for  generation,  transmission  and  distribution  are designed to meet continuing
customer growth and to improve  efficiencies of PSEs energy delivery systems.  Construction  expenditures,  excluding equity Allowance
for Funds Used During Construction  (AFUDC),  were $247.4 million in 2001. PSE expects construction  expenditures will be approximately
$227 million in 2002.  PSE has not projected the level of  construction  expenditures  for periods  beyond 2002 as such amounts will be
dependent upon the outcomes of PSEs interim and general rate case filings  described  below.  Construction  expenditure  estimates are
subject to periodic review and adjustment in light of changing economic, regulatory, environmental and conservation factors.OTHER ADDITIONS
        Other property,  plant and equipment additions were $5.2 million in 2001. Puget Energy expects  InfrastruXs  capital additions
to be $11.5  million in 2002.  InfrastruX  will continue to acquire  companies  related to utility  infrastructure  services with their
available line of credit and cash.CAPITAL RESOURCESCASH FROM OPERATIONS
        Cash generated from  operations  (net of dividends and AFUDC) totaled $468.2 million for the three-year  period  1999-2001,  and
provided  53.0% of the  $883.9  million  of utility  construction  expenditures  (net of AFUDC) other  capital
expenditure  requirements  for that period.  Internal  cash  generation  (net of dividends and AFUDC)  provided  61.5% of total capital
expenditure requirements in 2001, 57.5% in 2000 and 43.0% in 1999.

        If PSEs requested interim and general rate increases are denied,  cash from operations (net of dividends and AFUDC) during 2002
is  projected  to be  approximately 82.3% of estimated  construction  expenditures  (excluding  AFUDC) and other  capital  expenditure
requirements.  Assuming  PSE's  requested  interim and general  rate  increases  are  approved in full,  cash from  operations  (net of
dividends and AFUDC) during 2002 would be approximately  136.7% of estimated utility  construction  expenditures  (excluding AFUDC) and
other  capital  expenditure  requirements  during 2002.  Puget  Energy and PSE expect to continue  financing  the utility  construction
program and other capital expenditure requirements with internally generated funds and externally financed capital.FINANCING PROGRAM
        Financing utility construction  requirements and operational needs is dependent upon the cost and availability of external funds
through  capital  markets  and from  financial  institutions.  Access to funds is  dependent  upon  factors  such as  general  economic
conditions, regulatory authorizations and policies, and Puget Energy's and PSE's credit ratings.RESTRICTIVE COVENANTS
        In determining the type and amount of future  financing,  PSE may be limited by  restrictions  contained in its electric and gas
mortgage  indentures,  articles of incorporation and certain loan agreements.  Under the most restrictive  tests, at December 31, 2001,
PSE could issue:

- approximately  $382 million of additional  first mortgage  bonds, at an assumed  interest rate of 8.08% (however,  see general
           and interim rate proceedings sections below);
- approximately $99 million of additional preferred stock at an assumed dividend rate of 7.75%; and
- approximately $232.4 million of unsecured long-term debt.

CREDIT RATINGS
        Neither  Puget  Energy nor PSE has any rating  downgrade  triggers  that would  accelerate  the  maturity  dates of their  debt.
However,  a downgrade in the senior secured credit ratings could adversely affect the companies'  ability to renew existing,  or obtain
access to new, credit  facilities and could increase the cost of such facilities.  For example,  under PSE's revolving credit facility,
the spreads over the index and  commitment  fee increase as PSE's  secured long term debt ratings  decline.  A downgrade in  commercial
paper ratings could preclude PSE's ability to issue  commercial  paper under its current  programs.  In addition,  any downgrade  below
investment  grade of the senior  secured  debt could allow  counterparties  in the  wholesale  electric,  wholesale  gas and  financial
derivative markets to require PSE to post a letter of credit or other collateral,  make cash prepayments,  obtain a guarantee agreement
or provide other mutually agreeable security.

        On October  8, 2001,  Standard & Poors  lowered  its  long-term  ratings  on Puget  Energy  and PSE  following  the  Washington
Commissions  order of October 4, 2001  denying  PSEs  request of August 21,  2001 for a power cost  recovery  mechanism  and  interim
electric  rate  relief.  On October 30,  2001,  Standard & Poors  further  downgraded  its  long-term  ratings of Puget Energy and PSE
following the Washington  Commissions  order of October 24, 2001,  denying PSEs petition that the  Washington  Commission  reconsider
their October 4, 2001 decision.

        On October 9, 2001,  Moodys  Investors  Service  placed the rating of Puget Energy and PSE under review for possible  downgrade
following  the  Washington  Commissions  order of  October 4,  2001.  On October  26,  2001,  Moodys  issued a report  stating it was
continuing their review for possible  downgrade of its long-term ratings of Puget Energy and PSE until the Washington Commission acted
on PSEs December 3, 2001 filing for interim electric rate relief.

        The current ratings of Puget Energy and Puget Sound Energy, as of February 28, 2002, are:

`Puget Energy                                Standard & Poors Ratings       Moodys Ratings
   Corporate credit rating                            BBB-                       Baa3
   Senior secured debt                                BBB-                        *
Puget Sound Energy
   Corporate credit rating                            BBB-                       Baa2
   Senior secured debt                                BBB                        Baa1
   Shelf debt senior secured                          BBB                         *
   Senior unsecured                                   BB+                        Baa2
   Preferred stock                                    BB                         Ba1
   Commercial paper                                   A-3                        P-2
   Subordinate                                         *                         Baa3
       _______________
       * No rating provided.`

SHELF REGISTRATIONS
        In October 2000, PSE filed a  shelf-registration  statement with the Securities and Exchange  Commission for the offering,  on a
delayed or  continuous  basis,  of up to $500  million  principal  amount of senior notes  secured by a pledge of PSE's first  mortgage
bonds,  unsecured  debentures or trust preferred  securities.  On November 9, 2000, PSE issued $260 million  principal  amount of 7.69%
Senior  Medium-Term  Notes,  Series C, due February 1, 2011. On May 24, 2001,  PSE issued $200 million  principal  amount of 8.4% trust
preferred  securities  due June 30, 2041.  On January 16, 2002,  PSE issued $40 million  principal  amount of 6.25% Senior  Medium-Term
Notes, Series C, due January 16, 2004, which completed the shelf registration.
        In February 2002, Puget Energy and PSE filed a shelf registration  statement with the Securities and Exchange Commission for the
offering, on a delayed or continuous basis, of up to $500 million principal amount of:

- common stock of Puget Energy,
- senior notes of PSE, secured by a pledge of PSE's first mortgage bonds,
- unsecured debentures of PSE, and
- trust preferred securities of Puget Sound Energy Capital Trust III.

As of February 28, 2002, no securities had been issued under this shelf registration statement.SHORTTERM BORROWINGS AND COMMERCIAL PAPER
        PSEs  short-term  borrowings  from banks and the sale of commercial  paper are used to provide  working capital for the utility
construction  program.  At December 31, 2001,  PSE had  available  $375 million in lines of credit with various  banks,  which  provide
credit support for outstanding  commercial paper of $123.2 million and $215 million of outstanding  short-term  borrowing,  effectively
reducing the available borrowing capacity under these lines of credit to $36.8 million.

        In June 2001,  InfrastruX signed a credit agreement with several banks to provide up to $150 million in financing.  Puget Energy
is the  guarantor of the line of credit.  In addition,  InfrastruXs  subsidiaries  have $20.5 million in lines of credits with various
banks.  Short-term  borrowings  available for InfrastruX are used to fund capital  requirements of InfrastruX and its subsidiaries.  On
December 31, 2001,  InfrastruX  and its  subsidiaries  had  outstanding  loans of $81.9  million,  effectively  reducing the  available
borrowing capacity under these lines of credit to $88.6 million.STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN
        Puget Energy has a stock purchase and dividend  reinvestment  plan pursuant to which existing  shareholders and residents of the
state of Washington  may invest cash and cash  dividends in shares of Puget  Energy's  common  stock.  Since new shares of common stock
may be purchased  directly  from Puget  Energy,  Puget Energy may receive  funds for general  corporate  purposes  through the program.
Puget Energy has  registered  5,000,000  shares of common stock for sale  pursuant to the plan in 2001.  In 2001 and 2000,  Puget Energy issued
1,119,568 shares and 981,549 shares,  respectively,  resulting in proceeds of $25.6 million  and  $23.1 million.  At December 31, 2001,
3,880,432 shares remained available for issuance under the plan.GENERAL AND INTERIM RATE PROCEEDINGS
        On November 26, 2001,  PSE filed both an electric and gas general rate  increase  request with the  Washington  Commission.  The
request is for a $228.3 million  increase in electric  revenues and a $85.9 million  increase in base natural gas  revenues.  By statute,
the general rate case proceedings can take up to 11 months from the time of the filing.

        On December 3, 2001,  PSE filed  petitions  for an interim  electric rate increase  with the  Washington  Commission.  The interim
filing is comprised  of two parts:  a request for deferral of  projected  underrecovered  power costs for the period  January 1 through
February 28, 2002 (approximately  $66.4 million) and a surcharge to rates to collect in rates projected  underrecovered power costs for
the period March 1 through October 31, 2002 (approximately $104.3 million) and the deferred amount.

        On December  20, 2001,  the  Washington  Commission  authorized  PSE to defer excess power costs for the period  January 1, 2002
through  March 31,  2002.  PSE  projects  the  excess  power  costs for the  period  will be  approximately  $89.2  million.  The final
accounting  order issued by the  Washington  Commission  on December  28, 2001 stated that the deferred  costs would be examined in the
context of PSE's  interim and  general  rate case.  PSE will bear the burden of proof to show such costs were  prudently  incurred  and
that deferred  costs should be recovered in customer  rates.  PSE presently  anticipates  the Washington  Commission  will act on PSE's
interim  request to approve the surcharge to electric rates before March 31, 2002. On February 11, 2002,  PSE filed rebuttal  testimony
revising the collection  period for the $170.7 million interim  request as follows:  collection of $136.2 million over the period March
15, 2002 through  October 31, 2002 with the remaining  deferral of $34.5  million  collected  over the period  November 1, 2002 through
October 31, 2003.

        Neither  PSE nor Puget  Energy can  predict  the  outcome of the  interim  and  general  rate  cases.  Denial by the  Washington
Commission,  in whole or in substantial  part, of PSE's petitions for the interim electric rate increase and the general electric
and gas rate increases,  would have a material  adverse impact on cash flows and earnings.  In particular,  absent an adequate  interim
electric rate increase:

- PSE projects that earnings  available for interest would fall below two times annual  interest  charges on  outstanding  first
           mortgage bonds as early as April 2002,  prohibiting the issuance of additional first mortgage bonds and,  therefore,  senior
           notes secured by a pledge of first mortgage bonds;
- PSE's and Puget Energy's credit ratings could be adjusted downward by Standard & Poors and Moodys  Investors  Service upon
           their review of rate decisions of the Washington Commission, adversely affecting the cost and availability of capital;
- Puget  Energy's  ability  to sell its  common  stock,  and the price at which such  stock  could be sold,  could be  adversely
         impaired; and
- PSE projects that it will exceed its short-term borrowing limits available under existing credit lines in the latter part of 2002.

If rate  relief is not  granted  and Puget  Energy  and PSE are unable to issue  additional  securities  to finance  operations,
construction  programs and other capital  expenditures,  the companies will fund  operations and capital  requirements  through 2002 by
taking extraordinary cash conservation measures. These measures may include:

- deferral of PSEs construction expenditures and a reduction in operations and maintenance expenditures; and
- reduction in, or suspension of, dividends on Puget Energys common stock.

RATE MATTERS  ELECTRIC
        The order  approving  the Merger,  issued by the  Washington  Commission  on February 5, 1997,  contained a rate plan  designed to
provide  a  five-year  period of rate  certainty  for  customers  and to  provide  PSE with an  opportunity  to  achieve  a  reasonable
return on  investment.  General  electric  tariff rates were  stipulated to increase  annually  between 1.0% and 1.5% depending on rate
class  on  January  1  of  1998  through  2001.  PSE  has  had  no  electric  rate  adjustment  mechanism  during  the  rate  stability
period to adjust  for  changes in  electric  energy  supply  costs or fuel  costs.  These  variances  may now  significantly  influence
earnings. The rate stabilization period ended on December 31, 2001.RATE MATTERS  GAS
        As a result  of sharp  increases  in gas costs  during  2000,  PSE filed two PGA and  deferral
amortization  filings with the Washington  Commission which were approved.  The PGA filings allow PSE to recover expected  increases in
annual gas costs and deferral amortization filings allow PSE to recover prior period gas cost undercollections.

        As a result,  gas rates to all sales customers  increased by an average of 30.2% on August 1, 2000, and 26.4% again on January 12,
2001.  Subsequent  declines  in gas costs led to PSE  obtaining  approval  of  another  PGA and  deferral  amortization  filing in 2001
resulting in an average 8.9% reduction in gas sales rates on September 1, 2001. (See Note 1 to the  Consolidated  Financial  Statements
for a description of the PGA mechanism.)OTHER
        In the second quarter of 2000, PSE sold all of its redeemable 6% convertible  preferred stock of Cabot for
$51.4 million. There was no significant gain or loss on the transaction.

        On July 25, 2001, FERC ordered an evidentiary  hearing to determine what refunds
California energy buyers are due for purchases in the spot markets operated by the CAISO
or the California Power Exchange  Corporation  covering the period October 2, 2000 through June 20, 2001. The presiding  Administrative
Law Judge in this  proceeding has set trial  schedules  during 2002 after which the presiding  Administrative  Law Judge is expected to
issue his finding of fact and record on the matter in August 2002.  PSE entered  into  transactions  that may be subject to refund in
this proceeding and is unable to predict the outcome of this FERC proceeding or any judicial proceeding arising therefrom.

        On July 25, 2001,  FERC also  established a separate  preliminary  evidentiary  proceeding for the purpose of exploring  whether
there have been  excessive  charges for spot market sales in the Pacific  Northwest  for the period  December 25, 2000 through June 20,
2001.  The  presiding  Administrative  Law Judge in the Pacific  Northwest  proceeding  has issued a  recommendation  that refunds with
respect to such charges  during such period were not warranted.  FERC is reviewing  this  recommendation.  PSE made  transactions  that
may be  subject  to refund in this  proceeding.  PSE is unable  to  predict  the  outcomes  of this  FERC  proceeding  or any  judicial
proceeding arising therefrom.

        In March 1998, PSE entered into an agreement with  Schlumberger  North America  (Schlumberger)  (formerly  known as CellNet Data
Services  Inc.) under which PSE would lend  Schlumberger  up to $35 million in the form of multiple  draws so that  Schlumberger could
finance an Automated  Meter Reading (AMR) network system to be deployed in PSE's service  territory.  In September  1999, PSE announced
it was expanding its AMR network system from 800,000 meters to 1,325,000  meters and as a result  increased the authorized  loan amount
to $72  million.  As of  December  31,  2000, the outstanding loan balance was  $51.9  million.  In  August  2001,  Schlumberger  paid off
its outstanding loan balance of $64.1 million.CRITICAL ACCOUNTING POLICIES

        The  preparation of financial  statements in conformity with Generally  Accepted  Accounting  Principles  requires that management
apply  accounting  policies and make estimates and assumptions that affect results of operations and the reported amounts of assets and
liabilities in the financial  statements.  The following areas represent those that management  believes are particularly  important to
the financial statements and that require the use of estimates and assumptions to describe matters that are inherently uncertain:FERC ACCOUNTING
        Puget Energys  regulated  subsidiary,  PSE, prepares its financial  statements in accordance with generally  accepted  accounting
principles and in conformity with the FERCs  uniform system of accounts.  The Washington  Commission
also requires PSE to use FERCs uniform system of accounts.COST BASIS REGULATION
        Puget  Energys  regulated  subsidiary,  PSE, is subject to regulation by the  Washington  Commission and FERC. The rates that are
charged by PSE to its customers  are based upon cost basis  regulation  reviewed and approved by these  regulatory  commissions.  Under
the authority of these  commissions,  PSE has recorded certain  regulatory assets and liabilities in the amount of $637.9 million as of
December 31, 2001.  If PSEs rates were no longer based upon cost basis or the probability of future collection in rates, regulation,
the assets and  liabilities  would be written off to earnings.DERIVATIVES
        Puget Energy uses derivative  financial  instruments  primarily to manage its commodity price
risks.  Derivative financial  instruments  are  accounted  for under  Statement No. 133 
Accounting  for  Derivative Instruments and Hedging  Activities, as amended by Statement No. 138.  Accounting for derivatives
continues to evolve through guidance issued by the Derivatives  Implementation  Group (DIG) of the Financial  Accounting  Standards Board.
To the extent that changes by the DIG modify current guidance,  including the normal purchases and normal sales  determination,  the
accounting treatment for derivatives may change.

        To manage its utilization of generation supply,  Puget Energy enters into contracts to
purchase or sell electricity and gas. These contracts are considered  derivatives  under Statement No. 133 unless a
determination  is made that they qualify for normal purchases and normal sales exclusion.  If the exclusion applies,  those contracts are
not marked-to-market and are not reflected in the financial statements until delivery occurs.

        The availability of the normal purchases and normal sales exclusion to specific  contracts is based on a determination that excess
generation is available for a forward sale and similarly a determination  that at certain times generation  supply will be insufficient
to serve load. This  determination is based on internal models that forecast customer demand and generation  supply. The models include
assumptions  regarding customer load growth rates, which are influenced by the economy,  weather and the impact of customer choice, and
generating unit  availability.  The critical  assumptions used in the determination of normal purchases and normal sales are consistent
with assumptions used in the general planning process.

        Energy contracts that are considered  derivatives may be eligible for designation as cash flow hedges. If a contract is designated
as a cash flow hedge,  the change in its market value is  generally  deferred as a component  of other  comprehensive  income until the
transaction it is hedging is completed.  Conversely,  the change in the market value of derivatives  not designated as cash flow hedges
is recorded in current period earnings.

        When external quoted market prices are not available for derivative contracts,  Puget uses a
valuation model which uses volatility  assumptions relating to future energy prices based on specific energy markets and utilizes externally
available forward market price curves.DEFINED PENSION PLAN
        Puget Energy has a defined  benefit plan covering  substantially  all employees of PSE. For 2001,  2000 and 1999 pension income of
$15.4 million, $12.9 million and $3.5 million,  respectively,  has been recorded in the financial statements.  Changes in market values
of stocks or  interest  rates will  affect the amount of income  that Puget  Energy can record in its  financial  statements  in future
years.  As the market values of stocks decline, it is anticipated that the amount of pension income will be reduced.

        During  2002,  PSE will be  transitioning  481 service jobs that had  previously  been held by PSE  employees  to outside  service
providers.  Under  Statement of Financial  Accounting  Standards No. 88 Employers  Accounting for  Settlements  and  Curtailments  of
Defined Benefit Pension Plans and for Termination Benefits, PSE will be recognizing a curtailment gain of approximately $0.7 million.CALIFORNIA INDEPENDENT SYSTEM OPERATOR RESERVE
        PSE  operates  within the  western  wholesale  market and has made sales into the  California  energy  market.  During the first
quarter of 2001, PSE received partial  payments for sales made in the fourth quarter of 2000. At December 31, 2000,  PSE's  receivables
from the CAISO and other counter-parties,  net of reserves,  were $41.8 million. At December
31, 2001, such receivables, net of reserves, were approximately $26.6 million. The Company made the reserve based upon estimated credit quality
and collection from the CAISO at December 31, 2000.NEW ACCOUNTING PRONOUNCEMENTS
        On January 1, 2002,  Statement of Financial  Accounting Standards No. 142, Goodwill and Other Intangible Assets became effective
and as a result,  Puget Energy will cease  amortization  of  goodwill.  During 2001,  Puget  Energy had  approximately  $2.4 million of
amortization.  In lieu of the  amortization,  Puget  Energy  will  perform  an  initial  impairment  review of  goodwill  and an annual
impairment  review  thereafter.  The initial review will be completed  during the first half of 2002 and it is  anticipated  that Puget
Energy will not record an impairment charge upon completion of the initial impairment review.

        Effective January 1, 2003, Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligation will
become effective for Puget Energy. Statement No. 143 will require Puget Energy to record the fair value of liabilities associated
with an asset retirement obligation in the period in which the obligation is incurred. Puget Energy is determining its retirement
obligations and will record on January 1, 2003 an initial liability as a capitalized cost as part of the assets carrying value and
expense the retirement obligation over the assets useful life. The impact of this statement has not been determined.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Puget Energy is exposed to market risks, including changes in commodity prices and
interest rates.COMMODITY PRICE RISK
        Puget Energy's energy related  businesses are exposed to risks related to changes in commodity  prices. As part of its business,
Puget Energy markets power to wholesale  customers by entering into contracts to purchase or supply  electric  energy or natural gas at
specified  delivery  points and at specified  future  delivery dates.  Puget Energy's  energy risk  management  function  manages Puget
Energy's core electric and gas supply portfolios.

        Puget Energy manages its energy supply portfolio to achieve three primary objectives:

1. Ensure that physical energy supplies are available to serve retail customer requirements;
2. Manage portfolio risks to limit undesired impacts on PSE financial results; and
3. Optimize the value of Puget Energy's energy supply assets.

The portfolio is subject to major sources of  variability  (e.g.,  hydro  generation,  temperature-sensitive  retail sales,  and
market prices for gas and power supplies).  At certain times, these sources of variability can mitigate portfolio imbalances;  at other
times they can exacerbate portfolio imbalances.

        Hedging strategies for Puget Energy's energy supply portfolio interact with portfolio optimization  activities.  Some hedges can
be  implemented  in ways that retain Puget  Energy's  ability to use its energy supply  portfolio to produce  additional  value;  other
hedges can only be achieved by forgoing optimization opportunities.

        The prices of energy commodities are subject to fluctuations due to unpredictable factors including weather,  generation outages
and other  factors which impact  supply and demand.  This  commodity  price risk is a  consequence  of  purchasing  energy at fixed and
variable prices and providing  deliveries at different  tariff and variable  prices.  Costs  associated with ownership and operation of
production  facilities are another component of this risk. PSE may use forward delivery agreements,  swaps and option contracts for the
purpose of hedging  commodity  price risk. Some of these contracts are considered derivatives under Statement No. 133 unless a determination is made that they qualify for
normal purchase and normal sales exclusion. If the exclusion applies, those contracts are not marked-to-market and are not reflected
in the financial statement until delivery occurs. During fiscal year 2000,  unrealized  changes in the market value of these  derivatives were
deferred  and  recognized  upon  settlement  along with the  underlying  hedged  transaction.  Effective  January 1, 2001,  pursuant to
Statement No. 133,  which requires that all  derivative  instruments  be recorded on the balance sheet at their fair value,  changes in
the fair  value of Puget  Energy's  derivatives  will be  recorded  each  period in current  earnings  or other  comprehensive  income,
depending  on  whether  the  derivative  is  designated  as  qualifying  hedge  under the  statement  and,  if it is, the type of hedge
transaction.  Puget Energy does not consider its current  operations to meet the  definition of trading  activities as described by the
Emerging  Issues Task Force of the Financial  Accounting  Standards  Issue No.  98-10,  "Accounting  for  Contracts  involved in Energy
Trading and Risk Management Activities".

        At December 31, 2001, Puget Energy had an after-tax net liability of approximately $27.1 million of energy contracts  designated
as qualifying cash flow hedges and a corresponding  amount in other comprehensive  income.  Puget Energy also had energy contracts that
were  marked-to-market  through  current  earnings for 2001 of $7.5 million  after-tax  which includes $14.7 million for the cumulative
effect of the accounting  change in the first quarter.  A hypothetical 10% increase in the market prices of natural gas and electricity
prices would increase the fair value of qualifying cash flow hedges by  approximately  $4.7 million  after-tax and would reduce current
earnings for those  contracts  marked-to-market  in earnings by $2.5  million  after-tax.  In  addition,  PSE believes its current rate
design,  including its Optional  Large Power Sales Rate,  various  special  contracts and the PGA mechanism  mitigate a portion of this
risk.

        Market risk is managed subject to parameters  established by the Board of Directors.  A Risk Management  Committee separate from
the units that manage these risks monitors  compliance  with PSE's policies and procedures.  In addition,  the Audit Committee of PSE's
Board of Directors has oversight of the Risk Management Committee.

        The fair value of energy  contracts  that are recorded in the balance sheet of Puget Energy are comprised of the following  (net
of tax):

`Puget Energy
Derivative Contracts (in millions)
 Fair value of contracts outstanding at transition date of January 1, 2001                    $276.6
 Contracts realized or otherwise settled during 2001                                          (112.2)
 Changes in fair values of derivatives                                                        (199.8)
                                                                                              -------
 Fair value of contracts outstanding at December 31, 2001                                     $(35.4)

                                                 Fair Value of Contracts with Settlement during Year
            Source of Fair Value                             2003 -      2005 -    2007 and    Total fair
                (In Millions)                   2002         2004        2006     Thereafter     value
----------------------------------------------------------------------------------------------------------
 Prices based on models and other
 valuation methods                            $(45.2)        $3.6        $4.1        $2.1       $(35.4)`

INTEREST RATE RISK
        Puget Energy believes  interest rate risk of Puget Energy  primarily  relates to the use of short-term debt  instruments and new
long-term  debt  financing  needed to fund capital  requirements.  Puget Energy  manages its interest rate risk through the issuance of
mostly  fixed-rate  debt of various  maturities.  Puget  Energy  does  utilize  bank  borrowings,  commercial  paper and line of credit
facilities to meet short-term cash requirements.  These short-term  obligations are commonly  refinanced with fixed-rate bonds or notes
when needed and when interest  rates are  considered  favorable.  Puget Energy may enter into swap  instruments  to manage the interest
rate risk  associated  with these  debts.  Puget Energy did not have any swap  instruments  outstanding  as of December  31, 2001.  The
carrying amounts and fair values of Puget Energy's fixed-rate debt instruments are:

`2001              2001             2000              2000
                                                      Carrying              Fair         Carrying              Fair
          (In Millions)                                 Amount             Value           Amount             Value
--------------------------------------------- ----------------- ----------------- ---------------- -----------------
  Financial Liabilities:
    Short-term debt                                    $ 348.6           $ 348.6          $ 378.3           $ 378.3
    Long-term debt                                     2,246.7           2,131.2          2,189.8           2,183.0
--------------------------------------------- ----------------- ----------------- ---------------- -----------------`

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See index.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

### PART III

The information  required by Part III with respect to Puget Energy is  incorporated  herein by reference to Puget Energy's proxy
statement  for its 2002 Annual  Meeting of  Shareholders (Commission  File No.  1-16305).  Reference is also made to the  information
regarding Puget Energy's executive officers set forth in Part I of this report.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

The information required by this item with respect to PSE is incorporated herein by reference  to the material
under  "Election of  Directors"  and  "Security  Ownership of Directors  and Executive  Officers--Section  16(a)  Beneficial  Ownership
Reporting  Compliance" in Puget Energy's proxy statement for its 2002 Annual Meeting of  Shareholders (Commission  File No. 1-16305),
which is filed as Exhibit 99.1 to this report.  Reference is also made to the  information  regarding  Puget Sound  Energy's  executive
officers set forth in Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item with respect to PSE is incorporated herein by reference  to the material
under "Structure and Compensation of Board of Directors--Director  Compensation,"  "Executive  Compensation" and "Employment  Contracts,
Termination  of Employment  and  Change-In-Control  Arrangements"  in Puget  Energy's  proxy  statement for its 2002 Annual  Meeting of
Shareholders (Commission File No. 1-16305), which is filed as Exhibit 99.1 to this report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of December 31, 2001, all of the issued and outstanding shares of Puget Sound Energy's
common stock were held beneficially and of record by Puget Energy.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information  required by this item with respect to Puget Sound Energy is incorporated  herein by reference,  to the material
under "Certain  Transactions"  in Puget Energy's proxy  statement for its 2002 Annual  Meeting of  Shareholders,  (Commission  File No.
1-16305), which is filed as Exhibit 99.1 to this report.

### PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

1. Documents filed as part of this report:
        Financial statement schedules - see indexExhibits - see index
2. Financial statement schedules - see index
3. Exhibits - see index
4. Reports on Form 8-K:Puget Energy and Puget Sound Energy
        Form 8-K filed by Puget Energy and PSE on October 15, 2001  Item 5 Other
Events, related to denial of PSEs interim rate relief by the Washington
Commission.Form 8-K filed by Puget Energy and PSE on November 28, 2001  Item 5 Other
Events, related to PSE filing for electric and gas general rate increase with
the Washington Commission.Form 8-K filed by Puget Energy and PSE on December 3, 2001 (as amended by Form
8-K/A filed on December 4, 2001)  Item 5 Other Events, related to
PSEs petition filed for interim electric-rate increase with the Washington
Commission.Form 8-K filed by Puget Energy and PSE on December 24, 2001  Item 5 Other
Events, related to the approval by the Washington Commission to defer PSEs
excess power costs.Puget EnergyForm 8-K filed by Puget Energy on October 24, 2001  Item 5 Other Events,
related to Puget Energy, Inc. third-quarter results of operation.
5. Form 8-K filed by Puget Energy and PSE on October 15, 2001  Item 5 Other
Events, related to denial of PSEs interim rate relief by the Washington
Commission.
6. Form 8-K filed by Puget Energy and PSE on November 28, 2001  Item 5 Other
Events, related to PSE filing for electric and gas general rate increase with
the Washington Commission.
7. Form 8-K filed by Puget Energy and PSE on December 3, 2001 (as amended by Form
8-K/A filed on December 4, 2001)  Item 5 Other Events, related to
PSEs petition filed for interim electric-rate increase with the Washington
Commission.
8. Form 8-K filed by Puget Energy and PSE on December 24, 2001  Item 5 Other
Events, related to the approval by the Washington Commission to defer PSEs
excess power costs.Puget Energy
9. Form 8-K filed by Puget Energy on October 24, 2001  Item 5 Other Events,
related to Puget Energy, Inc. third-quarter results of operation.

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|PUGET ENERGY, INC.                                                            |  | PUGET SOUND ENERGY, INC.                                                     
|----------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------
|Stephen P. Reynolds                                                           |  | Stephen P. Reynolds                                                          
|Stephen P. ReynoldsPresident and Chief Executive Officer
Date:  March 7, 2002 |  | Stephen P. ReynoldsPresident and Chief Executive Officer
Date:  March 7, 2002

Pursuant to the  requirements  of the  Securities  Exchange  Act of 1934,  this report has been  signed  below by the  following
persons on behalf of each registrant and in the capacities and on the dates indicated.

|SIGNATURE | TITLE(PUGET ENERGY AND PSE UNLESS OTHERWISE NOTED) | DATE
|--------- | -------------------------------------------------- | ----

|/s/ Douglas P. Beighle
        
        (Douglas P. Beighle)         | Chairman of the Board                                             | March 7, 2002
|-------------------------------------------------------------------- | ----------------------------------------------------------------- | -------------
|/s/ Stephen P. Reynolds
       
        (Stephen P. Reynolds)        | President, Chief Executive Officer and Director                   |              
|/s/ Stephen A. McKeon
      
        (Stephen A. McKeon)             | Senior Vice President Finance and Legal (Chief Financial Officer) |              
|/s/ James W. Eldredge
        
        (James W. Eldredge)           | Corporate Secretary and Chief Accounting Officer                  |              
|/s/ Charles W. Bingham
        
         (Charles W. Bingham)        | Director                                                          |              
|/s/ Phyllis J. Campbell
        
           (Phyllis J. Campbell)    | Director                                                          |              
|/s/ Craig W. Cole
        
            (Craig W. Cole)               | Director                                                          |              
|/s/ Robert L. Dryden
        
             (Robert L. Dryden)        | Director                                                          |              
|/s/ John D. Durbin
        
             (John D. Durbin)            | Director                                                          |              
|/s/ Tomio Moriguchi
        
            (Tomio Moriguchi)           | Director                                                          |              
|/s/ Kenneth P. Mortimer
        
              (Kenneth P. Mortimer) | Director                                                          |              
|/s/ Sally G. Narodick
        
             (Sally G. Narodick)      | Director                                                          |              

REPORT OF MANAGEMENT
PUGET ENERGY, INC.
        and
PUGET SOUND ENERGY, INC.

        The accompanying  consolidated  financial statements of Puget Energy, Inc. and Puget Sound Energy, Inc. have been prepared under
the  direction of  management,  which is  responsible  for their  integrity  and  objectivity.  The  statements  have been  prepared in
accordance  with generally  accepted  accounting  principles and include  amounts based on judgments and estimates by management  where
necessary.  Management  also prepared the other  information in the Annual Report on Form 10-K and is responsible  for its accuracy and
consistency with the financial statements.

        Puget Energy and Puget Sound Energy maintain a system of internal control which, in management's  opinion,  provides  reasonable
assurance  that assets are properly  safeguarded  and  transactions  are executed in accordance  with  management's  authorization  and
properly recorded to produce reliable financial records and reports.  The system of internal control provides for appropriate  division
of  responsibility  and is documented by written policy and updated as necessary.  Puget Sound  Energy's  internal audit staff assesses
the  effectiveness and adequacy of the internal  controls on a regular basis and recommends  improvements when appropriate.  Management
considers  the internal  auditor's  and  independent  auditor's  recommendations  concerning  Puget  Energy's and Puget Sound  Energy's
internal controls and takes steps to implement those that they believe are appropriate in the circumstances.

        In addition,  PricewaterhouseCoopers  LLP, the independent  accountants,  have performed audit procedures deemed  appropriate to
obtain reasonable assurance about whether the financial statements are free of material misstatement.

        The Board of Directors pursues its oversight role for the financial  statements  through the audit committee,  which is composed
solely of outside Directors.  The audit committee meets regularly with management,  the internal auditors and the independent auditors,
jointly and separately,  to review management's  process of implementation and maintenance of internal accounting controls and auditing
and financial reporting matters. The internal and independent auditors have unrestricted access to the audit committee.

`/s/ Stephen P. Reynolds                        /s/ Stephen A. McKeon                  /s/ James W. Eldredge
-------------------------------------------    -----------------------------------    -------------------------------------
Stephen P. Reynolds                            Stephen A. McKeon                      James W. Eldredge
President and Chief Executive Officer          Senior Vice President Finance and      Corporate Secretary and
                                               Legal (Chief Financial Officer)        Chief Accounting Officer`

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of Puget Energy, Inc.:

        In our opinion,  the consolidated  financial statements on page 44 of this Annual Report on Form 10-K present fairly, in
all material  respects,  the financial  position of Puget Energy,  Inc.  (formerly Puget Sound Energy,  Inc.) and its  subsidiaries at
December  31, 2001 and 2000,  and the  results of its  operations  and its cash flows for each of the three years in the period  ended
December 31, 2001 in conformity with accounting  principles  generally accepted in the United States of America.  In addition,  in our
opinion,  the  financial  statement  schedule  listed on page 84 of the  document  presents  fairly,  in all  material  respects,  the
information  set  forth  therein  when read in  conjunction  with the  related  consolidated  financial  statements.  These  financial
statements and financial  statement schedule are the responsibility of the Company's  management;  our responsibility is to express an
opinion on these  financial  statements  and  financial  statement  schedule  based on our audits.  We  conducted  our audits of these
statements in accordance with auditing standards  generally  accepted in the United States of America,  which require that we plan and
perform the audit to obtain reasonable  assurance about whether the financial statements are free of material  misstatement.  An audit
includes  examining,  on a test basis,  evidence  supporting the amounts and  disclosures in the financial  statements,  assessing the
accounting  principles  used  and  significant  estimates  made  by  management,   and  evaluating  the  overall  financial  statement
presentation.  We believe that our audits provide a reasonable basis for our opinion.
        As described in Note 18 to the consolidated  financial statements,  effective January 1, 2001, the Company changed its method of
accounting  for  derivative  instruments  and hedging  activities as required by Statement of Financial  Accounting  Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities."


PricewaterhouseCoopers LLP
Seattle, Washington
February 8, 2002

To the Shareholder of Puget Sound Energy, Inc.:

        In our opinion,  the consolidated  financial statements listed on page 44 of this Annual Report on Form 10-K present fairly, in
all material  respects,  the financial  position of Puget Sound Energy,  Inc. and its  subsidiaries at December 31, 2001 and 2000, and
the results of its  operations  and its cash flows for each of the three years in the period  ended  December  31, 2001 in  conformity
with accounting  principles  generally accepted in the United States of America. In addition,  in our opinion, the financial statement
schedule listed on page 84 of the document presents fairly, in all material  respects,  the information set forth therein when read in
conjunction with the related consolidated  financial  statements.  These financial statements and financial statement schedule are the
responsibility of the Company's  management;  our responsibility is to express an opinion on these financial  statements and financial
statement  schedule based on our audits. We conducted our audits of these statements in accordance with auditing  standards  generally
accepted in the United  States of America,  which  require  that we plan and perform the audit to obtain  reasonable  assurance  about
whether  the  financial  statements  are free of  material  misstatement.  An audit  includes  examining,  on a test  basis,  evidence
supporting  the amounts and  disclosures  in the  financial  statements,  assessing the  accounting  principles  used and  significant
estimates  made by  management,  and evaluating the overall  financial  statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.
        As described in Note 18 to the consolidated  financial statements,  effective January 1, 2001, the Company changed its method of
accounting  for  derivative  instruments  and hedging  activities as required by Statement of Financial  Accounting  Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities."

PricewaterhouseCoopers LLP
Seattle, Washington
February 8, 2002Consolidated  Financial Statements, Financial Statement Schedule Covered by the Foregoing Report of Independent  Accountants
and Exhibits

Consolidated Financial Statements:

PUGET ENERGY:

Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999

Consolidated Balance Sheets, December 31, 2001 and 2000

Consolidated Statements of Capitalization, December 31, 2001 and 2000

Consolidated Statements of Earnings Reinvested in the Business for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Comprehensive Income for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

PUGET SOUND ENERGY:

Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999

Consolidated Balance Sheets, December 31, 2001 and 2000

Consolidated Statements of Capitalization, December 31, 2001 and 2000

Consolidated Statements of Earnings Reinvested in the Business for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Comprehensive Income for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

Combined Puget Energy and Puget Sound Energy Notes to Consolidated Financial Statements

Schedule:

II.  Valuation and Qualifying Accounts and Reserves for the
              years ended December 31, 2001, 2000 and 1999

All other schedules have been omitted because of the absence of the conditions under which they are required, or
         because the information required is included in the financial statements or the notes thereto.

Financial statements of PSE's subsidiaries are not filed herewith inasmuch as the assets, revenues, earnings and
         earnings reinvested in the business of the subsidiaries are not material in relation to those of PSE.

Exhibits:

Exhibit Index

`Puget Energy Consolidated Statements of
         INCOME
  (dollars in thousands, except per share amounts)
  For Years Ended December 31                                                   2001                2000               1999
---------------------------------------------------------------- -------------------- ------------------- ------------------
  Operating revenues:
  Electric                                                               $ 2,352,658         $ 2,771,695        $ 1,558,012
  Gas                                                                        815,071             612,311            485,488
  Other                                                                      206,262              57,666             24,444
---------------------------------------------------------------- -------------------- ------------------- ------------------
       Total operating revenues                                            3,373,991           3,441,672          2,067,944
---------------------------------------------------------------- -------------------- ------------------- ------------------
  Operating expenses:
  Energy costs:
    Purchased electricity                                                  1,406,107           1,766,625            780,162
    Residential exchange                                                     (75,864)            (41,000)           (39,000)
    Purchased gas                                                            537,431             332,927            220,009
    Fuel                                                                     281,405             182,978             59,439
    FAS-133 unrealized gain                                                  (11,182)                --                --
  Utility operations and maintenance                                         265,789             240,094            240,645
  Other operations and maintenance                                           156,731              60,612             27,179
  Depreciation and amortization                                              217,540             196,513            175,710
  Conservation amortization                                                    6,493               6,830              7,841
  Taxes other than federal income taxes                                      214,414             203,230            180,141
  Federal income taxes                                                        78,006             128,991            108,002
---------------------------------------------------------------- -------------------- ------------------- ------------------
       Total operating expenses                                            3,076,870           3,077,800          1,760,128
---------------------------------------------------------------- -------------------- ------------------- ------------------
  Operating income                                                           297,121             363,872            307,816
  Other income                                                                14,526               5,061             28,135
---------------------------------------------------------------- -------------------- ------------------- ------------------
  Income before interest charges                                             311,647             368,933            335,951
---------------------------------------------------------------- -------------------- ------------------- ------------------
  Interest charges:
    AFUDC                                                                     (4,446)             (9,303)           (10,582)
    Interest expense                                                         194,505             184,405            160,966
---------------------------------------------------------------- -------------------- ------------------- ------------------
       Total interest charges                                                190,059             175,102            150,384
---------------------------------------------------------------- -------------------- ------------------- ------------------
  Net income before cumulative effect of accounting change                   121,588             193,831            185,567
  FAS-133 transition adjustment loss (net of tax)                             14,749                  --                --
---------------------------------------------------------------- -------------------- ------------------- ------------------
  Net income                                                                 106,839             193,831            185,567
  Less preferred stock dividends accrual                                       8,413               8,994             11,065
---------------------------------------------------------------- -------------------- ------------------- ------------------
  Income for common stock                                                   $ 98,426           $ 184,837          $ 174,502
---------------------------------------------------------------- -------------------- ------------------- ------------------
  Common shares outstanding weighted average                                  86,445              85,411             84,613
---------------------------------------------------------------- -------------------- ------------------- ------------------
---------------------------------------------------------------- -------------------- ------------------- ------------------
  Basic and diluted earnings per common share before
    cumulative effect of accounting change                                    $ 1.31              $ 2.16             $ 2.06
  Basic and diluted for cumulative effect of accounting change
                                                                               (0.17)                 --                --
---------------------------------------------------------------- --------------------- ------------------ -----------------
  Basic and diluted earnings per common share                                 $ 1.14              $ 2.16             $ 2.06
---------------------------------------------------------------- -------------------- ------------------- ------------------

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


Puget Energy Consolidated Balance Sheets
         ASSETS
  (dollars in thousands)
  At December 31                                                                          2001                         2000
------------------------------------------------------------------ ---------------------------- ----------------------------
  Utility plant:
    Electric plant                                                                 $ 4,167,920                  $ 4,054,551
    Gas plant                                                                        1,551,439                    1,459,488
    Common plant                                                                       362,670                      351,051
    Less: Accumulated depreciation and amortization                                 (2,194,048)                  (2,026,681)
------------------------------------------------------------------ ---------------------------- ----------------------------
        Net utility plant                                                            3,887,981                    3,838,409
------------------------------------------------------------------ ---------------------------- ----------------------------
  Other property and investments:
    Investment in Bonneville Exchange Power Contract                                    54,663                       58,189
    Goodwill, net                                                                       96,925
                                                                                                                     45,655
    Other                                                                              165,661                      188,453
------------------------------------------------------------------ ---------------------------- ----------------------------
        Total other property and investments                                           317,249                      292,297
------------------------------------------------------------------ ---------------------------- ----------------------------
  Current assets:
    Cash                                                                                92,356                       36,383
    Accounts receivable, net of allowance for doubtful accounts                        279,321                      343,108
    Unbilled revenues                                                                  147,008                      211,784
    Purchased gas receivable                                                            37,228                       96,050
    Materials and supplies, at average cost                                             90,333                       99,001
    Current portion of FAS-133 unrealized gain                                           3,315                           --
    Prepayments and other                                                               11,277                       11,607
------------------------------------------------------------------ ---------------------------- ----------------------------
        Total current assets                                                           660,838                      797,933
------------------------------------------------------------------ ---------------------------- ----------------------------
  Other long-term assets:
    Regulatory asset for deferred income taxes                                         193,016                      207,350
    Regulatory asset for PURPA buyout costs                                            244,635                      243,071
    FAS-133 unrealized gain                                                              3,317                           --
    Other                                                                              239,941                      177,609
------------------------------------------------------------------ ---------------------------- ----------------------------
  Total other long-term assets                                                         680,909                      628,030
------------------------------------------------------------------ ---------------------------- ----------------------------
  Total assets                                                                     $ 5,546,977                  $ 5,556,669
================================================================== ============================ ============================

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


Puget Energy Consolidated Balance Sheets
         CAPITALIZATION AND LIABILITIES

  (dollars in thousands)
  At December 31                                                                       2001                     2000
------------------------------------------------------------------ ------------------------- ------------------------
  Capitalization:
  (See Consolidated Statements of Capitalization):
     Common equity                                                              $ 1,362,724              $ 1,426,640
     Preferred stock not subject to mandatory redemption                             60,000                   60,000
     Preferred stock subject to mandatory redemption                                 50,662                   58,162
     Corporation obligated, mandatorily redeemable preferred
       securities of subsidiary trust holding solely junior
       subordinated debentures of the corporation                                   300,000                  100,000
     Long-term debt                                                               2,127,054                2,170,797
------------------------------------------------------------------ ------------------------- ------------------------
       Total capitalization                                                       3,900,440                3,815,599
------------------------------------------------------------------ ------------------------- ------------------------
  Current liabilities:
     Accounts payable                                                               167,426                  410,619
     Short-term debt                                                                348,577                  378,316
     Current maturities of long-term debt                                           119,523                   19,000
     Accrued expenses:
       Taxes                                                                         70,708                  103,996
       Salaries and wages                                                            14,746                   17,445
       Interest                                                                      42,505                   43,955
     Current portion of FAS-133 unrealized loss                                      35,145                       --
     Other                                                                           46,178                   26,685
------------------------------------------------------------------ ------------------------- ------------------------
       Total current liabilities                                                    844,808                1,000,016
------------------------------------------------------------------ ------------------------- ------------------------
  Deferred income taxes                                                             605,315                  608,185
------------------------------------------------------------------ ------------------------- ------------------------
  FAS-133 unrealized loss                                                                75                       --
------------------------------------------------------------------ ------------------------- ------------------------
  Other deferred credits                                                            196,339                  132,869
------------------------------------------------------------------ ------------------------- ------------------------
  Commitments and contingencies                                                          --                       --
------------------------------------------------------------------ ------------------------- ------------------------
  Total capitalization and liabilities                                          $ 5,546,977              $ 5,556,669
================================================================== ========================= ========================

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



Puget Energy Consolidated Statements of
         CAPITALIZATION
  (dollars in thousands)
  At December 31                                                                                 2001            2000
------------------------------------------------------------------------------------- ---------------- ---------------
  Common equity:
    Common stock $0.01 par value, 250,000,000 shares authorized,
    87,023,210 shares outstanding at December 31, 2001 and $10
    stated value, 150,000,000 shares authorized, 85,903,791                                     $ 870       $ 859,038
    shares outstanding at December 31, 2000.
    Additional paid-in capital                                                              1,358,946         470,179
    Earnings reinvested in the business                                                        32,229          92,673
    Accumulated other comprehensive income (loss) - net                                       (29,321)          4,750
------------------------------------------------------------------------------------- ---------------- ---------------
       Total common equity                                                                  1,362,724       1,426,640
------------------------------------------------------------------------------------- ---------------- ---------------
  Preferred stock not subject to mandatory
    redemption - cumulative  - $25 par value: *
    7.45% series II - 2,400,000 shares authorized and outstanding                              60,000          60,000
------------------------------------------------------------------------------------- ---------------- ---------------
       Total preferred stock not subject to mandatory redemption                               60,000          60,000
------------------------------------------------------------------------------------- ---------------- ---------------
  Preferred stock subject to mandatory redemption - cumulative
    $100 par value: *
      4.84% series - 150,000 shares authorized,
         14,808 shares outstanding                                                              1,481           1,481
      4.70% series - 150,000 shares authorized,
         4,311 shares outstanding                                                                 431             431
      7.75% series - 750,000 shares authorized, 487,500 and 562,500
        shares outstanding                                                                     48,750          56,250
------------------------------------------------------------------------------------- ---------------- ---------------
       Total preferred stock subject to mandatory redemption                                   50,662          58,162
------------------------------------------------------------------------------------- ---------------- ---------------
  Corporation obligated, mandatorily redeemable preferred
    securities of subsidiary trust holding solely junior
    subordinated debentures of the corporation                                                300,000         100,000
------------------------------------------------------------------------------------- ---------------- ---------------
  Long-term debt:
    First mortgage bonds and senior notes                                                   2,009,000       2,028,000
    Pollution control revenue bonds:
      Revenue refunding 1991 series, due 2021                                                  50,900          50,900
      Revenue refunding 1992 series, due 2022                                                  87,500          87,500
      Revenue refunding 1993 series, due 2020                                                  23,460          23,460
    Other notes                                                                                75,762              --
    Unamortized discount - net of premium                                                         (45)            (63)
    Long-term debt due within one year                                                       (119,523)        (19,000)
------------------------------------------------------------------------------------- --------------- ----------------
      Total long-term debt excluding current maturities                                    2,127,054        2,170,797
------------------------------------------------------------------------------------- --------------- ----------------
  Total capitalization                                                                   $ 3,900,440      $ 3,815,599
------------------------------------------------------------------------------------- --------------- ----------------

* Puget Energy has 50,000,000 shares authorized for $0.01 par value preferred stock. PSE has 13,000,000 shares
authorized for $25 par value preferred stock and 3,000,000 shares authorized for $100 par value preferred stock.

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


Puget Energy Consolidated Statements of
         EARNINGS REINVESTED

  (dollars in thousands, except per share amounts)
  For Years Ended December 31                                                       2001            2000           1999
------------------------------------------------------------------------- --------------- --------------- --------------
  Balance at beginning of year                                                  $ 92,673        $ 66,019        $ 47,548
  Net income                                                                     106,839         193,831         185,567
------------------------------------------------------------------------- --------------- --------------- ---------------
       Total                                                                     199,512         259,850         233,115
------------------------------------------------------------------------- --------------- --------------- ---------------
  Deductions:
       Dividends declared:
          Preferred stock:
            Adjustable rate series B                                                  --              --             38
            $1.86 per share on 7.45% series II                                     4,470           4,470          4,470
            $2.13 per share on 8.50% series III                                       --              --          1,700
            $4.84 per share on 4.84% series                                           72              72             72
            $4.70 per share on 4.70% series                                           20              20             20
            $7.75 per share on 7.75% series                                        3,923           4,505          5,086
         Common stock                                                            158,798         156,929        155,591
       Loss on preferred stock redemptions                                            --           1,181            119
------------------------------------------------------------------------- --------------- --------------- --------------
         Total deductions                                                        167,283         167,177        167,096
------------------------------------------------------------------------- --------------- --------------- --------------
  Balance at end of year                                                        $ 32,229        $ 92,673       $ 66,019
------------------------------------------------------------------------- --------------- --------------- --------------
  Dividends declared per common share                                             $ 1.84          $ 1.84         $ 1.84
------------------------------------------------------------------------- --------------- --------------- --------------




Puget Energy Consolidated Statements of
         COMPREHENSIVE INCOME
  (dollars in thousands)
  For Years Ended December 31                                                        2001         2000            1999
--------------------------------------------------------------------------- ------------ -------------- ---------------
  Net income                                                                   $106,839      $ 193,831       $ 185,567
--------------------------------------------------------------------------- ------------ -------------- ---------------
  Other comprehensive income, net of tax:
     Unrealized holding gains (losses) on available for sale securities           (1,823)        (938)          12,330
     Reclassification adjustment for gains on available for sale                      (5)      (3,160)         (12,284)
       securities included in net income
     Minimum pension liability adjustment                                         (5,148)           --              --
     FAS-133 transition adjustment                                               286,928            --              --
     FAS-133 unrealized losses during period                                    (131,420)           --              --
     Reversal of FAS-133 unrealized gains settled during period                 (182,603)           --              --
--------------------------------------------------------------------------- -------------- ------------ ---------------
      Other comprehensive income (loss)                                          (34,071)      (4,098)              46
--------------------------------------------------------------------------- -------------- ------------ ---------------
  Comprehensive income                                                         $  72,768     $ 189,733        $ 185,613
--------------------------------------------------------------------------- ------------ ------------- ----------------

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


Puget Energy Consolidated Statements of
         CASH FLOWS
  (dollars in thousands)
  For Years Ended December 31                                                         2001           2000            1999
---------------------------------------------------------------------------- -------------- -------------- ---------------
  Operating activities:
     Net income                                                                  $ 106,839      $ 193,831       $ 185,567
     Adjustments to reconcile net income to net cash
        provided by operating activities:
          Depreciation and amortization                                            217,540        196,513         175,710
          Deferred federal income taxes and tax credits - net                        9,056         (7,446)        21,133
        Deferred state income taxes - net                                            2,408             --               --
          Gain from sale of investment in Cabot common stock                            --             --         (18,899)
          Gain from sale of investment in Homeguard Security Services                   --             --         (11,659)
          Gain from sale of securities                                                  --          (6,476)           --
          Other (including conservation amortization)                                  189         (7,276)        (3,708)
     Cash received from contract initiation                                         16,870             --              --
     PURPA buyout costs                                                                 --              --        (12,000)
     Change in certain current assets and liabilities                              (54,614)       (48,863)        (25,446)
------------------------------------------------------------------------------ ------------ -------------- ---------------
            Net cash provided by operating activities                              298,288        320,283         310,698
------------------------------------------------------------------------------ ------------ -------------- ---------------
  Investing activities:
     Construction expenditures - excluding equity AFUDC                           (247,435)     (296,480)        (330,976)
     Additions to other property, plant and equipment                               (5,193)            --               --
     Energy conservation expenditures                                              (15,591)       (6,931)          (5,583)
     Proceeds from sale of investment in Cabot common stock                             --             --          37,353
     Proceeds from sale of investment in Cabot preferred stock                          --         51,463              --
     Proceeds from sale of Homeguard Security Services                                  --             --          13,399
     Proceeds from sale of Centralia plant                                              --         37,449              --
     Proceeds from sale of securities                                                   --          6,757              --
     Purchase of Encogen                                                                --             --         (55,000)
     Investments by InfrastruX                                                     (75,591)        (85,506)            --
     Repayment from/(loans to) Schlumberger                                         51,948         (20,874)       (31,075)
     Other                                                                         (16,446)        (14,138)         9,001
---------------------------------------------------------------------------- --------------- --------------- --------------
            Net cash used by investing activities                                 (308,308)       (328,260)      (362,881)
---------------------------------------------------------------------------- --------------- --------------- --------------
  Financing activities:
     Increase (decrease) in short-term debt - net                                  (32,406)       (226,395)       153,807
     Dividends paid                                                               (141,709)       (142,886)      (160,067)
     Issuance of common stock                                                           --             --           1,136
     Issuance of trust preferred stock                                             200,000            --              --
     Redemption of preferred stock                                                  (7,500)         (7,503)       (42,575)
     Issuance of bonds and long term debt                                           70,250        510,000        250,000
     Redemption of bonds and notes                                                 (19,000)       (150,980)      (110,370)
     Other                                                                          (3,642)         (3,583)        (2,257)
------------------------------------------------------------------------------ ------------ ---------------- -------------
            Net cash provided (used) by financing activities                        65,993         (21,347)        89,674
------------------------------------------------------------------------------ ------------ ---------------- -------------
  Increase (decrease) in cash from net income                                       55,973         (29,324)        37,491
  Cash at beginning of year                                                         36,383          65,707         28,216
---------------------------------------------------------------------------- -------------- -------------- ---------------
  Cash at end of year                                                             $ 92,356       $ 36,383        $ 65,707
---------------------------------------------------------------------------- -------------- -------------- ---------------

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


Puget Sound Energy Consolidated Statements of
         INCOME
  (dollars in thousands)
  For Years Ended December 31                                                  2001                 2000               1999
---------------------------------------------------------------- ------------------- -------------------- ------------------
  Operating revenues:
  Electric                                                              $ 2,352,658          $ 2,771,695        $ 1,558,012
  Gas                                                                       815,071              612,311            485,488
  Other                                                                      32,476               57,666             24,444
---------------------------------------------------------------- ------------------- -------------------- ------------------
       Total operating revenues                                           3,200,205            3,441,672          2,067,944
---------------------------------------------------------------- ------------------- -------------------- ------------------
  Operating expenses:
  Energy costs:
    Purchased electricity                                                 1,406,107            1,766,625            780,162
    Residential exchange                                                   (75,864)             (41,000)           (39,000)
    Purchased gas                                                           537,431              332,927            220,009
    Fuel                                                                    281,405              182,978             59,439
  FAS-133 unrealized gain                                                  (11,182)                   --                --
  Utility operations and maintenance                                        265,789              240,094            240,645
  Other operations and maintenance                                            8,546               60,612             27,179
  Depreciation and amortization                                             208,720              196,513            175,710
  Conservation amortization                                                   6,493                6,830              7,841
  Taxes other than federal income taxes                                     208,597              203,230            180,141
  Federal income taxes                                                       75,683              128,991            108,002
---------------------------------------------------------------- ------------------- -------------------- ------------------
       Total operating expenses                                           2,911,725            3,077,800          1,760,128
---------------------------------------------------------------- ------------------- -------------------- ------------------
  Operating income                                                          288,480              363,872            307,816
  Other income                                                               17,053                5,061             28,135
---------------------------------------------------------------- ------------------- -------------------- ------------------
  Income before interest charges                                            305,533              368,933            335,951
---------------------------------------------------------------- ------------------- -------------------- ------------------
  Interest charges:
    AFUDC                                                                    (4,446)             (9,303)           (10,582)
    Interest expense                                                        190,849              184,405            160,966
---------------------------------------------------------------- ------------------- -------------------- ------------------
       Total interest charges                                               186,403              175,102            150,384
---------------------------------------------------------------- ------------------- -------------------- ------------------
  Net income before cumulative effect of accounting change                  119,130              193,831            185,567
  FAS-133 transition adjustment loss (net of tax)                            14,749                   --                 --
---------------------------------------------------------------- ------------------- -------------------- ------------------
  Net income                                                                104,381              193,831            185,567
  Less preferred stock dividends accrual                                      8,413                8,994             11,065
---------------------------------------------------------------- ------------------- -------------------- ------------------
  Income for common stock                                                  $ 95,968            $ 184,837          $ 174,502
---------------------------------------------------------------- ------------------- -------------------- ------------------

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


Puget Sound Energy Consolidated Balance Sheets
         ASSETS

  (dollars in thousands)
  At December 31                                                                          2001                         2000
------------------------------------------------------------------ ---------------------------- ----------------------------
  Utility plant:
    Electric plant                                                                 $ 4,167,920                  $ 4,054,551
    Gas plant                                                                        1,551,439                    1,459,488
    Common plant                                                                       362,670                      351,051
    Less: Accumulated depreciation and amortization                                 (2,194,048)                 (2,026,681)
------------------------------------------------------------------ ---------------------------- ----------------------------
        Net utility plant                                                            3,887,981                    3,838,409
------------------------------------------------------------------ ---------------------------- ----------------------------
  Other property and investments:
    Investment in Bonneville Exchange Power Contract                                    54,663                       58,189
    Goodwill, net                                                                           --                       45,655
    Other                                                                               95,867                      188,453
------------------------------------------------------------------ ---------------------------- ----------------------------
        Total other property and investments                                           150,530                      292,297
------------------------------------------------------------------ ---------------------------- ----------------------------
  Current assets:
    Cash                                                                                82,708                       36,383
    Accounts receivable, net of allowance for doubtful accounts                        235,348                      343,108
    Unbilled revenues                                                                  147,008                      211,784
    Purchased gas receivable                                                            37,228                       96,050
    Materials and supplies, at average cost                                             85,318                       99,001
    Current portion of FAS-133 unrealized gain                                           3,315                           --
    Prepayments and other                                                                7,405                       11,607
------------------------------------------------------------------ ---------------------------- ----------------------------
        Total current assets                                                           598,330                      797,933
------------------------------------------------------------------ ---------------------------- ----------------------------
  Other long-term assets:
    Regulatory asset for deferred income taxes                                         193,016                      207,350
    Regulatory asset for PURPA buyout costs                                            244,635                      243,071
    FAS-133 unrealized gain                                                              3,317                           --
    Other                                                                              239,941                      177,609
------------------------------------------------------------------ ---------------------------- ----------------------------
  Total other long-term assets                                                         680,909                      628,030
------------------------------------------------------------------ ---------------------------- ----------------------------
  Total assets                                                                     $ 5,317,750                  $ 5,556,669
================================================================== ============================ ============================

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


Puget Sound Energy Consolidated Balance Sheets
         CAPITALIZATION AND LIABILITIES

  (dollars in thousands)
  At December 31                                                                       2001                     2000
------------------------------------------------------------------ ------------------------- ------------------------
  Capitalization:
  (See Consolidated Statements of Capitalization):
     Common equity                                                              $ 1,267,654              $ 1,426,640
     Preferred stock not subject to mandatory redemption                             60,000                   60,000
     Preferred stock subject to mandatory redemption                                 50,662                   58,162
     Corporation obligated, mandatorily redeemable preferred
       securities of subsidiary trust holding solely junior
       subordinated debentures of the corporation                                   300,000                  100,000
     Long-term debt                                                               2,053,815                2,170,797
------------------------------------------------------------------ ------------------------- ------------------------
       Total capitalization                                                       3,732,131                3,815,599
------------------------------------------------------------------ ------------------------- ------------------------
  Current liabilities:
     Accounts payable                                                               154,600                  410,619
     Short-term debt                                                                338,168                  378,316
     Current maturities of long-term debt                                           117,000                   19,000
     Accrued expenses:
       Taxes                                                                         70,210                  103,996
       Salaries and wages                                                            14,746                   17,445
       Interest                                                                      42,505                   43,955
     Current portion of FAS-133 unrealized loss                                      35,145                       --
     Other                                                                           25,178                   26,685
------------------------------------------------------------------ ------------------------- ------------------------
       Total current liabilities                                                    797,552                1,000,016
------------------------------------------------------------------ ------------------------- ------------------------
  Deferred income taxes                                                             601,001                  608,185
------------------------------------------------------------------ ------------------------- ------------------------
  FAS-133 unrealized loss                                                                75                       --
------------------------------------------------------------------ ------------------------- ------------------------
  Other deferred credits                                                            186,991                  132,869
------------------------------------------------------------------ ------------------------- ------------------------
  Commitments and contingencies                                                          --                       --
------------------------------------------------------------------ ------------------------- ------------------------
  Total capitalization and liabilities                                          $ 5,317,750              $ 5,556,669
================================================================== ========================= ========================

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



Puget Sound Energy Consolidated Statements of
         CAPITALIZATION
  (dollars in thousands)
  At December 31                                                                                 2001            2000
------------------------------------------------------------------------------------- ---------------- ---------------
  Common equity:
    Common stock ($10 stated value) - 150,000,000 shares
      authorized, 85,903,791 shares outstanding                                             $ 859,038       $ 859,038
    Additional paid-in capital                                                                382,592         470,179
    Earnings reinvested in the business                                                        55,345          92,673
    Accumulated other comprehensive income (loss) - net                                       (29,321)           4,750
------------------------------------------------------------------------------------- ---------------- ---------------
       Total common equity                                                                  1,267,654       1,426,640
------------------------------------------------------------------------------------- ---------------- ---------------
  Preferred stock not subject to mandatory
    redemption - cumulative  - $25 par value:*
    7.45% series II - 2,400,000 shares authorized and outstanding                              60,000          60,000
------------------------------------------------------------------------------------- ---------------- ---------------
       Total preferred stock not subject to mandatory redemption                               60,000          60,000
------------------------------------------------------------------------------------- ---------------- ---------------
  Preferred stock subject to mandatory redemption - cumulative
    $100 par value:*
      4.84% series - 150,000 shares authorized,
         14,808 shares outstanding                                                              1,481           1,481
      4.70% series - 150,000 shares authorized,
         4,311 shares outstanding                                                                 431             431
      7.75% series - 750,000 shares authorized 487,500 and 562,500
        shares outstanding                                                                     48,750          56,250
------------------------------------------------------------------------------------- ---------------- ---------------
       Total preferred stock subject to mandatory redemption                                   50,662          58,162
------------------------------------------------------------------------------------- ---------------- ---------------
  Corporation obligated, mandatorily redeemable preferred
    securities of subsidiary trust holding solely junior
    subordinated debentures of the corporation                                                300,000         100,000
------------------------------------------------------------------------------------- ---------------- ---------------
  Long-term debt:
    First mortgage bonds and senior notes                                                   2,009,000       2,028,000
    Pollution control revenue bonds:
      Revenue refunding 1991 series, due 2021                                                  50,900          50,900
      Revenue refunding 1992 series, due 2022                                                  87,500          87,500
      Revenue refunding 1993 series, due 2020                                                  23,460          23,460
    Unamortized discount - net of premium                                                         (45)             (63)
    Long-term debt due within one year                                                       (117,000)         (19,000)
------------------------------------------------------------------------------------- ---------------- ---------------
      Total long-term debt excluding current maturities                                     2,053,815       2,170,797
------------------------------------------------------------------------------------- ---------------- ---------------
  Total capitalization                                                                    $ 3,732,131     $ 3,815,599
------------------------------------------------------------------------------------- ---------------- ---------------

* 13,000,000 shares authorized for $25 par value preferred stock and 3,000,000 shares authorized for $100 par value preferred stock.
The accompanying notes are an integral part of the consolidated financial statements.


Puget Sound Energy Consolidated Statements of
         EARNINGS REINVESTED

  (dollars in thousands)
  For Years Ended December 31                                                       2001            2000           1999
------------------------------------------------------------------------- --------------- --------------- --------------
  Balance at beginning of year                                                  $ 92,673        $ 66,019       $ 47,548
  Net income                                                                     104,381         193,831        185,567
------------------------------------------------------------------------- --------------- --------------- --------------
       Total                                                                     197,054         259,850        233,115
------------------------------------------------------------------------- --------------- --------------- --------------
  Deductions:
       Dividends declared:
          Preferred stock:
            Adjustable rate series B                                                  --              --             38
            $1.86 per share on 7.45% series II                                     4,470           4,470          4,470
            $2.13 per share on 8.50% series III                                       --              --          1,700
            $4.84 per share on 4.84% series                                           72              72             72
            $4.70 per share on 4.70% series                                           20              20             20
            $7.75 per share on 7.75% series                                        3,923           4,505          5,086
         Common stock                                                            133,224         156,929        155,591
       Loss on preferred stock redemptions                                            --           1,181            119
------------------------------------------------------------------------- --------------- --------------- --------------
         Total deductions                                                        141,709         167,177        167,096
------------------------------------------------------------------------- --------------- --------------- --------------
  Balance at end of year                                                        $ 55,345        $ 92,673       $ 66,019
------------------------------------------------------------------------- --------------- --------------- --------------




Puget Sound Energy Consolidated Statements of
         COMPREHENSIVE INCOME
  (dollars in thousands)
  For Years Ended December 31                                                      2001           2000            1999
-------------------------------------------------------------------------- ------------- -------------- ---------------
  Net income                                                                  $ 104,381      $ 193,831       $ 185,567
-------------------------------------------------------------------------- ------------- -------------- ---------------
  Other comprehensive income, net of tax:
     Unrealized holding gains (losses) on available for sale securities          (1,823)         (938)          12,330
     Reclassification adjustment for gains on available for sale                     (5)       (3,160)        (12,284)
      securities included in net income
     Minimum pension liability adjustment                                        (5,148)            --              --
     FAS-133 transition adjustment                                              286,928             --              --
     FAS-133 unrealized losses during period                                   (131,420)            --              --
     Reversal of FAS-133 unrealized gains settled during period                (182,603)            --              --
-------------------------------------------------------------------------- -------------- ------------- ---------------
      Other comprehensive income (loss)                                         (34,071)       (4,098)              46
-------------------------------------------------------------------------- -------------- ------------- ---------------
  Comprehensive income                                                         $ 70,310      $ 189,733       $ 185,613
-------------------------------------------------------------------------- ------------- -------------- ---------------

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


Puget Sound Energy Consolidated Statements of
         CASH FLOWS
  (dollars in thousands)
  For Years Ended December 31                                                             2001           2000          1999
--------------------------------------------------------------------------------- ------------- -------------- -------------
  Operating activities:
     Net income                                                                      $ 104,381      $ 193,831     $ 185,567
     Adjustments to reconcile net income
       to net cash provided by operating activities:
          Depreciation and amortization                                                208,720        196,513       175,710
          Deferred federal income taxes and tax credits - net                            7,151         (7,446)       21,133
          Gain from sale of investment in Cabot common stock                                --             --       (18,899)
          Gain from sale of investment in Homeguard Security Services                       --             --       (11,659)
          Gain from sale of securities                                                      --         (6,476)           --
          Other (including conservation amortization)                                    7,029         (7,276)       (3,708)
      Cash received from contract initiation                                            16,870             --            --
      PURPA buyout costs                                                                    --              --      (12,000)
      Change in certain current assets and liabilities                                  (59,539)      (48,863)      (25,446)
--------------------------------------------------------------------------------- ------------- -------------- -------------
            Net cash provided by operating activities                                  284,612        320,283       310,698
--------------------------------------------------------------------------------- ------------- -------------- -------------
  Investing activities:
     Construction expenditures - excluding equity AFUDC                                (247,435)      (296,480)    (330,976)
     Energy conservation expenditures                                                   (15,591)       (6,931)       (5,583)
     Proceeds from sale of investment in Cabot common stock                                 --             --        37,353
     Proceeds from sale of investment in Cabot preferred stock                              --         51,463            --
     Proceeds from sale of Homeguard Security Services                                      --             --        13,399
     Proceeds from sale of Centralia plant                                                  --         37,449            --
     Proceeds from sale of securities                                                       --          6,757            --
     Purchase of Encogen                                                                    --             --       (55,000)
     Investment by InfrastruX                                                               --        (85,506)           --
     Repayment from/(loans to) Schlumberger                                              51,948        (20,874)      (31,075)
     Other                                                                              (16,446)      (14,138)        9,001
--------------------------------------------------------------------------------- --------------- ------------- -------------
            Net cash used by investing activities                                      (227,524)     (328,260)     (362,881)
--------------------------------------------------------------------------------- --------------- ------------- -------------
  Financing activities:
     Increase (decrease) in short-term debt - net                                       (38,845)     (226,395)      153,807
     Dividends paid                                                                    (141,709)     (142,886)     (160,067)
     Issuance of common stock                                                                --             --         1,136
     Issuance of trust preferred stock                                                  200,000             --            --
     Redemption of preferred stock                                                       (7,500)       (7,503)      (42,575)
     Issuance of bonds                                                                       --        510,000       250,000
     Redemption of bonds and notes                                                      (19,000)     (150,980)     (110,370)
     Other                                                                               (3,709)       (3,583)       (2,257)
--------------------------------------------------------------------------------- --------------- ------------- ------------
            Net cash provided (used) by financing activities                            (10,763)      (21,347)       89,674
--------------------------------------------------------------------------------- --------------- ------------- ------------
  Increase (decrease) in cash from net income                                            46,325        (29,324)       37,491
  Cash at beginning of year                                                              36,383         65,707        28,216
--------------------------------------------------------------------------------- ------------- -------------- -------------
  Cash at end of year                                                                 $ 82,708       $ 36,383      $ 65,707
--------------------------------------------------------------------------------- ------------- -------------- -------------

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

NOTES
        To Consolidated Financial Statements of Puget Energy and Puget Sound EnergyNOTE 1.
        Summary of Significant Accounting PoliciesBASIS OF PRESENTATION
        On January 1, 2001, Puget Sound Energy, Inc. (PSE) reorganized into a holding company structure.  This reorganization  resulted in
the creation of a new holding  company,  Puget Energy,  Inc. (Puget Energy).  Puget Energy was  incorporated in the State of Washington
and all of its operations are conducted  through its  subsidiaries.  Puget Energy and PSE are  collectively  referred to herein as the
Company.

        Puget  Energy is a public  utility  holding  company  under the Public  Utility  Holding  Company  Act of 1935 but is exempt  from
regulation  under such Act. In addition to its  ownership of PSE,  Puget Energy also owns  InfrastruX  Group,  Inc.  (InfrastruX),  a
Washington corporation.

        Pursuant to the  reorganization,  Puget Energy became the owner of all PSEs outstanding  common stock.  Holders of PSEs existing
common stock exchanged their stock on a one-for-one basis for common stock of Puget Energy.
Additionally,  PSE transferred  its ownership in InfrastruX to Puget Energy through a capital  dividend for the net book value of PSEs
investment in InfrastruX of $86.0 million.

        The  consolidated  financial  statements  include  the  accounts  of  Puget  Energy  and  all  its  subsidiaries  and  PSE and its
subsidiaries.  Significant intercompany  transactions have been eliminated.  Certain reclassifications have been made to the prior year's
financial  statements to conform to the current year's  presentation  with no material effect on consolidated net income,  total assets
or common equity.

        The preparation of financial  statements in conformity with generally accepted  accounting  principles requires management to make
estimates  and  assumptions  that affect the  reported  amounts of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements  and the reported  amounts of revenues and expenses  during the reporting  period.
Actual results could differ from those estimates.UTILITY PLANT
        The costs of additions to utility plant,  including  renewals and  betterments,  are  capitalized at original cost.  Costs include
indirect costs such as  engineering,  supervision,  certain taxes and pension and other employee  benefits,  and an allowance for funds
used during  construction.  Replacements of minor items of property are included in maintenance expense. The original cost of operating
property  together with removal cost,  less salvage,  is charged to accumulated  depreciation  when the property is retired and removed
from service.NON-UTILITY PROPERTY, PLANT AND EQUIPMENT
        The costs of other  property,  plant and  equipment  are  stated  at cost in Other  Property  and  Investments.  Expenditures  for
refurbishment  and  improvements  that  significantly  add to productive  capacity or extend  useful life of an asset are  capitalized.
Replacement of minor items is expensed, on a current basis. Gains and losses on assets sold or retired are reflected in earnings.ACCOUNTING FOR THE IMPAIRMENT OF LONGLIVED ASSETS
        The Company prepares its financial  statements in accordance with Statement of Financial Accounting Standards No. 121 (Statement
No.  121),  Accounting  for the  Impairment  of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed  Of. Statement No 121
establishes  accounting  standards for determining if long-lived assets are impaired and how losses, if any, should be recognized.  The
Company believes that the net cash flows are sufficient to cover the carrying value of the assets.

REGULATORY ASSETS AND AGREEMENTS
        The Company  accounts for its regulated  operations  in  accordance  with  Statement of Financial  Accounting  Standards No. 71,
Accounting  for the Effects of Certain  Types of  Regulation (Statement  No.  71).  Statement  No. 71 requires  the Company to defer
certain  costs that would  otherwise be charged to expense,  if it is probable  that future  rates will permit  recovery of such costs.
Accounting  under  Statement  No. 71 is  appropriate  as long as:  rates are  established  by or subject to  approval  by  independent,
third-party  regulators;  rates are designed to recover the specific enterprise's  cost-of-service;  and in view of demand for service,
it is  reasonable  to assume  that rates set at levels that will  recover  costs can be charged to and  collected  from  customers.  In
applying  Statement  No. 71, the  Company  must give  consideration  to changes in the level of demand or  competition  during the cost
recovery period.  In accordance with Statement No. 71, the Company  capitalizes  certain costs in accordance with regulatory  authority
whereby those costs will be expensed and recovered in future periods.

        Net regulatory assets and liabilities at December 31, 2001 and 2000, included the following:

`(Dollars in Millions)                                                           2001                 2000
------------------------------------------------------------------ -------------------- --------------------
  Deferred income taxes                                                        $ 193.0              $ 207.4
  PURPA electric energy supply contract buyout costs                             244.6                243.1
  Investment in BEP Exchange Contract                                             54.7                 58.1
  Unamortized energy conservation charges                                         15.2                  6.3
  Storm damage costs - electric                                                   26.6                 30.1
  Purchased gas receivable                                                        37.2                 96.1
  Deferred AFUDC                                                                  28.5                 26.8
  Various other costs                                                             62.1                 56.2
  Deferred gains on property sales                                               (17.3)               (17.9)
  Various other liabilities                                                       (6.7)               (13.0)
------------------------------------------------------------------ -------------------- --------------------
  Net regulatory assets and liabilities                                        $ 637.9              $ 693.2
------------------------------------------------------------------ -------------------- --------------------`

If the  Company,  at some point in the future,  determines  that all or a portion of the utility  operations  no longer meet the
criteria  for  continued  application  of  Statement  No. 71, the Company  would be required to adopt the  provisions  of  Statement of
Financial  Accounting  Standards No. 101, "Regulated  Enterprises - Accounting for the Discontinuation of Application of FASB Statement
No. 71"  (Statement  No.  101).  Adoption  of  Statement  No. 101 would  require  the  Company to write off the  regulatory  assets and
liabilities  related to those operations not meeting  Statement No. 71 requirements.  Discontinuation  of Statement No. 71 could have a
material impact on the Company's financial statements.

        The Company,  in prior years,  incurred costs associated with its 5% interest in a  now-terminated  nuclear  generating  project
(identified herein as Investment in Bonneville Exchange Power (BEP)).  Under terms of a settlement  agreement with the Bonneville Power
Administration  (BPA),  which settled claims of the Company relating to construction  delays associated with that project,  the Company
is receiving power from the federal power system resources  marketed by BPA.  Approximately  two-thirds of the Company's  investment in
BEP is  included  in rate base and  amortized  on a  straight-line  basis over the life of the settlement agreement (amortization  is included in
purchased and interchanged  power). The remainder of the Company's  investment was recovered in rates over the ten years ended December
31, 1999,  without a return  during the  recovery  period (the  related  amortization  is included in  Depreciation  and  Amortization,
pursuant to a FERC accounting order).

        The Company has  regulatory  assets of  approximately  $244.6  million  related to the buyout of  purchased  power and gas sales
contracts of two non-utility  generation  projects.  Washington  Commission  accounting orders have approved payments pursuant to these
contracts for deferral and collection in rates over the remaining life of the energy supply contracts.  Under terms of the orders,  the
Company is allowed to accrue as an additional regulatory asset certain carrying costs of the deferred balances.OPERATING REVENUES
        Operating  utility  revenues  are  recorded  on the basis of  service  rendered,  which  includes  estimated  unbilled  revenue.
Non-utility subsidiaries recognize revenue when services are performed or upon the sale of assets.ALLOWANCE FOR DOUBTFUL ACCOUNTS
        Allowance for doubtful accounts is calculated based upon historical  write-offs as compared to operating  revenues.  The Company
has also provided for a reserve on sales transactions  related to the California  Independent System Operator and counterparties  based
upon probability of collection.  Puget Energy's  allowance for doubtful accounts for 2001 and 2000 was $47.0 million and $43.0 million,
respectively. PSE's allowance for doubtful accounts for 2001 and 2000 was $45.2 million and $43.0 million, respectively.ENERGY CONSERVATION
        The Company offers  programs  designed to help new and existing  customers use energy  efficiently.  The primary  emphasis is to
provide  information  and technical  services to enable  customers to make  energy-efficient  choices with respect to building  design,
equipment and building systems, appliance purchases and operating practices.

        Since May 1997, the Company has recovered electric energy conservation  expenditures through a tariff rider mechanism. The rider
mechanism  allows the Company to defer the  conservation  expenditures  and amortize them to expense as PSE  concurrently  collects the
conservation expenditures in rates over a one-year period. As a result of the rider, there is no effect on earnings per share.

        Since 1995,  the Company has been  authorized by the Washington  Commission to defer gas energy  conservation  expenditures  and
recover them through a tariff tracker  mechanism.  The tracker  mechanism  allows the Company to defer  conservation  expenditures  and
recover them in rates over the subsequent  year.  The tracker  mechanism also allows the Company to recover an Allowance for Funds Used
to Conserve Energy (AFUCE) on any outstanding balance that is not being recovered in rates.SELFINSURANCE
        The Company  currently has no insurance  coverage for storm damage and is self-insured for a portion of the risk associated with
comprehensive  liability,  industrial  accidents and catastrophic  property  losses.  With approval of the Washington  Commission,  the
Company is able to defer for collection in future rates certain uninsured storm damage costs associated with major storms.DEPRECIATION AND AMORTIZATION
        For financial  statement  purposes,  the Company provides for depreciation on a straight-line  basis.  Amortization is also on a
straight-line  basis and is  comprised  of  software,  small tools and office  equipment.  The  depreciation  of  automobiles,  trucks,
power-operated  equipment  and tools is allocated  to asset and expense  accounts  based on usage.  The annual  depreciation  provision
stated as a percent of average  original  cost of  depreciable  electric  utility  plant was 3.0% in 2001,  2.9% in 2000 and 3.0% 1999;
depreciable gas utility plant was 3.5% in 2001,  3.3% in 2000 and 3.4% in 1999; and depreciable  common utility plant was 3.1% in 2001,
1.9% in 2000 and 2.3% in 1999.  Depreciation on other property,  plant and equipment is calculated  primarily on a straight-line  basis
over the useful lives of the assets ranging from 3 to 50 years.FEDERAL INCOME TAXES
        The Company  normalizes,  with the approval of the Washington  Commission,  certain items.  Deferred taxes have been  determined
under  Statement of Financial  Accounting  Standards No. 109.  Investment  tax credits are deferred and amortized  based on the average
useful life of the related property in accordance with regulatory and income tax requirements. (See Note 13).ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
        The Allowance for Funds Used During  Construction  (AFUDC) represents the cost of both the debt and equity funds used to finance
utility plant  additions  during the  construction  period.  The amount of AFUDC recorded in each  accounting  period varies  depending
principally  upon the level of  construction  work in progress and the AFUDC rate used.  AFUDC is  capitalized as a part of the cost of
utility  plant and is credited as a non-cash item to other income and interest  charges  currently.  Cash inflow  related to AFUDC does
not occur until these charges are reflected in rates.

        The AFUDC rate allowed by the  Washington  Commission  for gas utility  plant  additions was 9.15% in 2001,  2000 and 1999.  The
allowed  AFUDC rate on electric  utility  plant was 8.94%  during the same period.  To the extent  amounts  calculated  using this rate
exceed the AFUDC calculated rate using the Federal Energy Regulatory  Commission (FERC) formula,  the Company capitalizes the excess as
a deferred asset,  crediting  miscellaneous  income.  The amounts  included in income were $2.7 million for 2001, $2.8 million for 2000
and $4.3 million for 1999. The deferred asset is being  amortized  over the average useful life of Puget Energy's  non-project  utility
plant.RATE ADJUSTMENT MECHANISM
        The Company does not have an electric power cost or fuel adjustment  mechanism to adjust for changes in energy and fuel costs or
variances in hydro and weather conditions.

        The  differences  between the actual cost of the Company's  gas supplies and gas  transportation  contracts  and that  currently
allowed by the Washington Commission are deferred and recovered or repaid through the purchased gas adjustment (PGA) mechanism.

        On June 25, 1998, the Company received approval from the Washington  Commission to begin a new  performance-based  mechanism for
strengthening  its gas-supply  purchasing and gas-storage  practices.  The PGA Incentive  Mechanism,  which encourages  competitive gas
purchasing  and  management  of pipeline and storage  capacity,  was  effective  for the period July 1, 1998 through  October 31, 2001.
Incentive  gains and losses from the program were shared between  customers and  shareholders.  After the first $0.5 million,  which was
allocated to  customers,  gains and  (losses) were shared  40%/60%  between the Company and  customers up to $26.5  million and 33%/67%
thereafter.  Gains or losses were  determined  relative  to a  weighted  average  index  which was reflective  of PSE's gas  supply and
transportation  contract costs.  The Company's  share of incentive  gains and (losses) under the PGA Incentive  Mechanism in 2001, 2000
and 1999 was approximately $(3.9) million, $7.5 million and $7.2 million,  respectively,  while customers received approximately $(6.2)
million, $11.7 million and $11.3 million in benefits, respectively.OFFSYSTEM SALES AND CAPACITY RELEASE
        The Company sells excess gas supplies,  enters into gas supply exchanges with third parties outside of its  distribution  area and
releases to third parties excess  interstate gas pipeline  capacity and gas storage rights on a short-term basis. The Company contracts
for firm gas supplies and holds firm  transportation  and storage  capacity  sufficient to meet the expected peak winter demand for gas
for space heating by its firm customers.  Due to the variability in weather and other factors,  however,  the Company holds contractual
rights to gas supplies and transportation  and storage capacity in excess of its immediate  requirements to serve firm customers on its
distribution system for much of the year which,  therefore,  are available for third-party gas sales,  exchanges and capacity releases.
The  proceeds,  net of  transactional  costs,  from such  activities  are  accounted for as reductions in the cost of purchased gas and
passed on to  customers  through the PGA  mechanism,  with no direct  impact on net income.  As a result,  the Company does not reflect
sales revenue or associated cost of sales for these transactions in its income statement.ENERGY RISK MANAGEMENT
        The Company's energy related businesses are exposed to risks related to changes in commodity prices. As part of its business,  the
Company  markets  power to wholesale  customers by entering  into  contracts  to purchase or supply  electric  energy or natural gas at
specified  delivery points and at specified future delivery dates. The Company's energy risk management  function manages the Company's
core electric and gas supply portfolios.
        The Company manages its energy supply portfolio to achieve three primary objectives:

1. Ensure that physical energy supplies are available to serve retail customer requirements;
2. Manage portfolio risks to limit undesired impacts on financial results; and
3. Optimize the value of energy supply assets.

The Company enters into physical and financial  instruments for the purpose of hedging  commodity price risk. Gains or losses on
these  derivatives  are accounted for pursuant to Financial  Accounting  Standards  Board  Statement No. 133 "Accounting for Derivative
Instruments  and  Hedging  Activities"  as amended by  Statement  No.  138.  (See Note 18 for  further  discussion.)  The  Company  has
established  policies and  procedures  to manage these risks.  A Risk  Management  Committee  separate from the units that create these
risks monitors  compliance  with policies and  procedures.  In addition,  the Audit  Committee of the Company's  Board of Directors has
oversight of the Risk Management Committee.ACCOUNTING FOR DERIVATIVES
        On January 1, 2001, Puget Energy adopted Statement No. 133, "Accounting for Derivative  Instruments and Hedging Activities",  as
amended by Statement No. 138.  Statement No. 133 requires that all  contracts  considered to be derivative  instruments  be recorded on
the  balance  sheet at their fair  value.  Certain  contracts  that would  otherwise  be  considered  derivatives  are exempt from this
Statement if they  qualify for a normal  purchase  and normal sale  exception.  The Company  enters into both  physical  and  financial
contracts to manage its energy  resource  portfolio.  The majority of these  contracts  qualify for the normal purchase and normal sale
exception.  However,  certain of these  contracts  are  derivatives  and  pursuant  to Statement No. 133 are  reported at their fair value in the
balance sheet.  Changes in their fair value are reported in earnings  unless they meet specific  hedge  accounting  criteria,  in which
case  changes in their fair market  value are  recorded  in  comprehensive  income  until the time when the  transaction  that they are
hedging is recorded as income.  The Company  designates  derivative  instruments as a qualifying cash flow hedge if the change in the
fair value of the  derivative is highly  effective at offsetting  the changes in the fair value of an asset,  liability or a forecasted
transaction.  To the extent  that a portion of a  derivative  designated  as a hedge is  ineffective,  changes in the fair value of the
ineffective  portion of that  derivative  are  recognized  currently in earnings.  Finally,  changes in the market value of  derivative
transactions  related to obtaining gas for the  Company's  retail gas business are deferred as regulatory  assets or  liabilities  as a
result of the Company's Purchased Gas Adjustment mechanism and recorded in earnings as the transactions are executed.OTHER
        Debt premium,  discount and expenses are amortized  over the life of the related debt.  The premiums and costs  associated  with
reacquired debt are deferred and amortized over the life of the related new issuance, in accordance with ratemaking treatment.GOODWILL AND INTANGIBLES (PUGET ENERGY ONLY)
        Goodwill and intangibles are amortized on a straight-line  basis over the expected periods to be benefited,  up to 30 years, for
all  acquisitions  prior to July 2001.  For those  acquisitions  occurring  subsequent to June 30, 2001,  there is no  amortization  of
goodwill.  The goodwill and intangibles are the result of InfrastruX  acquiring  companies  during 2000 and 2001. Puget Energy assesses
the  recoverability  by determining  whether the  amortization of the goodwill and  intangibles  balance over its remaining life can be
recovered through discounted future operating cash flows of the acquired operation.EARNINGS PER COMMON SHARE (PUGET ENERGY ONLY)
        Basic  earnings  per common  share have been  computed  based on weighted  average  common  shares  outstanding  of  86,445,000,
85,411,000  and  84,613,000  for 2001,  2000 and 1999,  respectively.  Diluted  earnings per common share have been  computed  based on
weighted  average common shares  outstanding of 86,703,000,  85,690,000  and  84,847,000 for 2001,  2000 and 1999  respectively,  which
include the dilutive effect of securities related to employee stock-based compensation plans.NEW ACCOUNTING PRONOUNCEMENTS
        In July 2001, the Financial Accounting Standards Board issued Statement No. 141 - "Business  Combinations"  (Statement No. 141).
Statement No. 141  establishes  accounting and reporting  standards for business  combinations  and requires all business  combinations
initiated  after June 30,  2001 to be  accounted  for using the  purchase  method of  accounting.  While this  statement  may result in
additional disclosures for material acquisitions, it will not impact the Company's financial position or results of operations.

        In July 2001,  the Financial  Accounting  Standards  Board issued  Statement No. 142 - "Goodwill  and Other  Intangible  Assets"
(Statement No. 142).  Statement No. 142 establishes  accounting and reporting  standards for goodwill and other  intangible  assets for
fiscal years beginning after December 15, 2001 recognized in the Company's  financial  statements after this date.  Certain  provisions
of Statement No. 142 will be applied to goodwill and other  intangible  assets acquired after June 30, 2001. Upon adoption of Statement
No. 142, the Company will discontinue  amortizing  goodwill and, instead,  perform  impairment tests to determine if goodwill should be
written down. The Company does not expect any impairment at this time.

        In August  2001,  the  Financial  Accounting  Standards  Board  issued  Statement  No. 143 -  "Accounting  for Asset  Retirement
Obligations"  (Statement  No.  143).  Statement  No.  143  requires  companies  to record the fair  value of a  liability  for an asset
retirement  obligation in the period in which the obligation is incurred.  When the liability is initially  recorded,  the company will
capitalize  the cost as part of the asset's  carrying  amount and expense the retirement  obligation  over the asset's useful life. The
adoption of this statement is for fiscal years  beginning after June 15, 2002,  although  earlier  adoption is encouraged.  The Company
is in the process of determining the impacts of this statement.

        In October  2001,  the Financial  Accounting  Standards  Board issued  Statement  No. 144 -  "Accounting  for the  Impairment or
Disposal of  Long-Lived  Assets"  (Statement  No. 144).  Statement  No. 144  supersedes  the  Financial  Accounting  Standards  Board's
Statement No. 121 - "Accounting  for the  Impairment of Long-Lived  Assets and for Long-lived  Assets to Be Disposed Of" and APB 30 - "Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Trasactions". Statement No.
144 establishes a single  accounting  method for  valuation of  long-lived  assets to be disposed of by sale.  Statement  No. 144 is effective
for fiscal years  beginning  after December 15, 2001. The adoption of this statement is not expected to have an impact on the Company's
financial position or results of operations.NOTE 2.
        Utility and Non-Utility Plant

        Utility plant at December 31, 2001 and 2000 included the following:

`(Dollars in Thousands)                                                                 2001                    2000
  December 31
---------------------------------------------------------------------- ----------------------- -----------------------
Electric, gas and common utility plant classified by Prescribed accounts at original cost:

    Distribution plant                                                            $ 3,736,590             $ 3,177,277
    Production plant                                                                1,117,099               1,097,953
    Transmission plant                                                                361,662                 694,053
    General plant                                                                     376,119                 375,457
    Construction work in progress                                                     123,307                 164,221
    Plant acquisition adjustment                                                       76,623                  76,623
    Intangible plant (including capitalized software)                                 255,619                 243,904
    Underground storage                                                                21,872                  22,570
    Plant held for future use                                                           8,331                   8,225
    Other                                                                               4,807                   4,807
    Less accumulated provision for depreciation                                     2,194,048               2,026,681
---------------------------------------------------------------------- ----------------------- -----------------------
       Net utility plant                                                          $ 3,887,981             $ 3,838,409
---------------------------------------------------------------------- ----------------------- -----------------------`

On March 6, 2000,  the  Washington  Commission  authorized  PSE to sell its 7% ownership  interest in the  coal-fired  Centralia
Electric  Generating  plant  located in southwest  Washington  State.  On May 4, 2000,  the plant was sold to TECWA Power,  Inc. Of the
resulting pre-tax gain, $21 million was allocated to customers and $2.5 million to the Company in accordance with the order.

        As a result of PSE's review of its transmission system and by applying FERC order 888, PSE determined that all but one of its
115 KV and below transmission facilities should be reclassified as distribution facilities. These facilities serve local loads and
rarely, if ever, serve to transfer power to other markets. In April 2001, the Washington Commission issued Docket No. UE-010010
allowing PSE to reclassify those transmission facilities. As a result, PSE reclassified assets with a book value of approximately
$346 million from transmission plant to distribution plant.

        Non-utility plant at December 31, 2001 and 2000 included the following:

`(Dollars in Thousands)                                                                 2001                    2000
  December 31
---------------------------------------------------------------------- ----------------------- -----------------------
  Non-utility plant                                                                   $58,832                 $19,064
  Intangible plant                                                                      1,047                   1,063
  Less accumulated depreciation and amortization                                       10,971                   2,202
---------------------------------------------------------------------- ----------------------- -----------------------
       Net non-utility plant                                                          $48,908                 $17,925
---------------------------------------------------------------------- ----------------------- -----------------------`

NOTE 3.
        Capital Stock

`The Company                    Puget Energy
                                                    ---------------------------------------------- ---------------------
                                                                    Preferred Stock                  Common Stock
                                                    ---------------------------------------------- ---------------------
                                                         Not Subject to          Subject to
                                                      Mandatory Redemption       Mandatory
                                                                                 Redemption            Par Value
                                                         $25 Par Value         $100 Par Value             $0.01
--------------------------------------------------- ----------------------- ------------------- ------------------------
  Shares outstanding January 1, 1999                             3,803,006             731,619               84,560,561
--------------------------------------------------- ----------------------- ------------------- ------------------------
  Issued to shareholders under the Stock Purchase
  and Dividend Reinvestment Plan:
       1999                                                             --                  --                  361,944
       2000                                                             --                  --                  981,549
       2001                                                             --                  --                1,119,568
--------------------------------------------------- ----------------------- ------------------- ------------------------
  Acquired for sinking fund:
       1999                                                             --            (75,000)                       --
       2000                                                             --            (75,000)                       --
       2001                                                             --            (75,000)                       --
--------------------------------------------------- ----------------------- ------------------- ------------------------
  Called for redemption or reacquired and
  canceled:
       1999                                                    (1,403,006)                  --                       --
       2000                                                             --                  --                       --
       2001                                                             --                  --                       --
--------------------------------------------------- ----------------------- ------------------- ------------------------
  Fractional share redemptions in connection with
  merger exchange:
       1999                                                            --                   --                    (100)
       2000                                                            --                   --                    (163)
       2001                                                            --                   --                    (149)
--------------------------------------------------- ---------------------- -------------------- ------------------------
  Shares outstanding December 31, 2001                          2,400,000              506,619               87,023,210
--------------------------------------------------- ---------------------- -------------------- ------------------------
See "Consolidated Statements of Capitalization" for details on specific series.`

On October 23,  2000,  the Board of  Directors  declared a dividend of one  preferred  share  purchase  right (a Right) for each
outstanding  common share of Puget  Energy.  The dividend was paid on December  29, 2000 to  shareholders  of record on that date.  The
Rights will become  exercisable  only if a person or group  acquires 10% or more of Puget Energy's  outstanding  common stock or
announces  a tender  offer  which,  if  consummated,  would  result  in  ownership  by a person or group of 10% or more of the
outstanding  common stock.  Each right will entitle the holder to purchase from Puget Energy one  one-hundredth of a share of preferred
stock with  economic  terms  similar to that of one share of Puget  Energy's  common stock at a purchase  price of $65,  subject to
adjustments. The Rights expire on December 21, 2010, unless earlier redeemed or exchanged by Puget Energy.

        The weighted  average  dividend rate for the Adjustable  Rate Cumulative  Preferred  Stock (ARPS),  Series B ($25 par value) was
4.23% for 1999.  The Company  redeemed  203,006  shares of the  remaining  ARPS  Series B on  February 2, 1999 at $25 par plus  accrued
dividends  through  February 2, 1999.  The Company  redeemed  1,200,000  shares of the  remaining  8.50%  Series  Preferred at par plus
accrued dividends on September 1, 1999. The 7.45% Series Preferred may be redeemed at par on or after November 1, 2003.NOTE 4.
        Preferred Stock Subject to Mandatory Redemption

        The Company is required to deposit funds annually in a sinking fund sufficient to redeem the following  number of shares of each
series of  preferred  stock at $100 per share plus  accrued  dividends:  4.70%  Series and 4.84%  Series,  3,000  shares each and 7.75%
Series,  37,500 shares.  All previous sinking fund requirements have been satisfied.  At December 31, 2001, there were 43,689 shares of
the 4.70% Series and 27,192  shares of the 4.84% Series  acquired by the Company and available  for future  sinking fund  requirements.
Upon involuntary liquidation, all preferred shares are entitled to their par value plus accrued dividends.

        The preferred stock subject to mandatory  redemption may also be redeemed by the Company at the following  redemption prices per
share plus accrued dividends:  4.70% Series, $101 and 4.84% Series,  $102. The 7.75% Series may be redeemed by the Company,  subject to
certain  restrictions,  at $103.10 per share plus accrued  dividends  through February 15, 2002, and at per share amounts which decline
annually to a price of $100 after February 15, 2007.NOTE 5.
        Company-Obligated, Mandatorily Redeemable Preferred Securities

        In 1997 and 2001, the Company  formed Puget Sound Energy Capital Trust I and Puget Sound Energy Capital Trust II,  respectively,
for the sole purpose of issuing and selling common and preferred  securities  (Trust  Securities).  The proceeds from the sale of Trust
Securities were used to purchase Junior Subordinated  Debentures  (Debentures) from the Company.  The Debentures are the sole assets of
the Trusts and the Company owns all common securities of the Trusts.

        The Debentures of Trust I and Trust II have an interest rate of 8.231% and 8.40%,  respectively,  and a stated  maturity date of
June 1, 2027 and June 30, 2041,  respectively.  The Trust Securities are subject to mandatory  redemption at par on the stated maturity
date of the Debentures.  The Trust Securities in the Capital Trust I may be redeemed earlier,  under certain conditions,  at the option
of the  Company.  The  Capital  Trust II  Securities  may be  redeemed  at any time on or after  June 30,  2006 at par,  under  certain
conditions, at the option of the Company. Dividends relating to preferred securities are included in interest expense.NOTE 6.
        Additional Paid-in Capital

        The changes in Additional Paid-in Capital are as follows:

`Puget Energy
  (Dollars in Thousands)                                                    2001              2000              1999
-------------------------------------------------------------- ------------------ ----------------- -----------------
  Balance at beginning of year                                         $ 470,179         $ 454,982         $ 450,724
  Excess of proceeds over stated values of common
   stock issued                                                           25,551            13,295             4,198
  Change in par value of common stock                                    858,179                --                --
  Retained earnings adjustment for preferred redemption                       --             1,181               150
  Issue costs and other expenses                                           (463)              (309)             (90)
  Issuance of preferred and common stock of subsidiary                     5,500             1,030                --
-------------------------------------------------------------- ------------------ ----------------- -----------------
  Balance at end of year                                             $ 1,358,946         $ 470,179         $ 454,982
-------------------------------------------------------------- ------------------ ----------------- -----------------

Puget Sound Energy
  (Dollars in Thousands)                                                    2001              2000              1999
-------------------------------------------------------------- ------------------ ----------------- -----------------
  Balance at beginning of year                                         $ 470,179         $ 454,982         $ 450,724
  Excess of proceeds over stated values of
   common stock issued                                                                      13,295             4,198
  Retained earnings adjustment for
   preferred redemption                                                       --             1,181               150
  Issue costs and other expenses                                              (2)             (309)              (90)
  Issuance of preferred stock of subsidiary                                   --             1,030                --
  Return of capital to Puget Energy                                      (87,585)               --                --
-------------------------------------------------------------- ----------------- ------------------ -----------------
  Balance at end of year                                               $ 382,592         $ 470,179         $ 454,982
-------------------------------------------------------------- ----------------- ------------------ -----------------`

On January 1, 2001 PSE reorganized into a holding company structure. As a result, PSE
transferred its ownership in InfrastruX through a capital dividend. Puget Energy was provided a return of capital in the amount of $86.0
million. In addition, PSE transferred as a return of capital, $0.6 million for prepaid SEC fees and plus $1.0 million of preferred stock
issued by InfrastruX to other parties. InfrastruXs revenue was $45.0 million, net loss was $0.5 million and total
assets were $106.5 million for the year ended December 31, 2000.NOTE 7.
        Earnings Reinvested in the Business

        The payment of dividends on
common stock is restricted by provisions of certain covenants applicable to
preferred stock and long-term debt contained in the Companys Articles of
Incorporation and Mortgage Indentures. Under the most restrictive covenants of
PSE, earnings reinvested in the business unrestricted as to payment of cash
dividends were approximately $191 million at December 31, 2001. If PSE is not
granted interim rate relief from the Washington Commission, PSEs ability
to pay dividends to Puget Energy and, therefore, Puget Energys ability to
pay dividends on its common stock, would be adversely impacted.NOTE 8.
        Long-Term Debt

`First Mortgage Bonds and Senior Notes
  At December 31 (dollars in thousands)

     Series         Due            2001           2000              Series         Due              2001           2000
      8.51%         2001       $     --         $7,000               7.04%         2007          $5,000         $5,000
      8.52%         2001             --          3,000               8.40%         2007          10,000         10,000
      8.54%         2001             --          8,000               6.51%         2008           1,000          1,000
      8.55%         2001             --          1,000               6.53%         2008           3,500          3,500
      7.07%         2002         27,000         27,000               7.61%         2008          25,000         25,000
      7.15%         2002          5,000          5,000               6.46%         2009         150,000        150,000
      7.53%         2002         10,000         10,000               6.61%         2009           3,000          3,000
     7.625%         2002         25,000         25,000               6.62%         2009           5,000          5,000
      7.85%         2002         30,000         30,000               7.12%         2010           7,000          7,000
      7.91%         2002         20,000         20,000               7.96%         2010         225,000        225,000
      6.20%         2003          3,000          3,000               7.69%         2011         260,000        260,000
      6.23%         2003          1,500          1,500               8.20%         2012          30,000         30,000
      6.24%         2003          1,500          1,500               8.59%         2012           5,000          5,000
      6.30%         2003         20,000         20,000               6.83%         2013           3,000          3,000
      6.31%         2003          5,000          5,000               6.90%         2013          10,000         10,000
      6.40%         2003         11,000         11,000               7.35%         2015          10,000         10,000
      7.02%         2003         30,000         30,000               7.36%         2015           2,000          2,000
      6.07%         2004         10,000         10,000               6.74%         2018         200,000        200,000
      6.10%         2004          8,500          8,500               9.57%         2020          25,000         25,000
      7.70%         2004         50,000         50,000               8.25%         2022          25,000         25,000
      7.80%         2004         30,000         30,000               8.39%         2022           7,000          7,000
      6.92%         2005         11,000         11,000               8.40%         2022           3,000          3,000
      6.93%         2005         20,000         20,000               7.19%         2023           3,000          3,000
      6.58%         2006         10,000         10,000               7.35%         2024          55,000         55,000
      8.06%         2006         46,000         46,000               7.15%         2025          15,000         15,000
      8.14%         2006         25,000         25,000               7.20%         2025           2,000          2,000
      7.02%         2007         20,000         20,000               7.02%         2027         300,000        300,000
      7.75%         2007        100,000        100,000               7.00%         2029         100,000        100,000
                                                                                           ------------- --------------
                                                                     Total                   $2,009,000     $2,028,000`

In September 1998, the Company filed a shelf-registration  statement with the Securities and Exchange Commission for the offering,
on a delayed or continuous  basis, of up to $500 million  principal amount of Senior Notes secured by a pledge of First Mortgage Bonds.
On March 9, 1999, the Company issued $250 million  principal  amount of Senior  Medium-Term  Notes,  Series B, which  consisted of $150 million
principal  amount due March 9, 2009, at an interest rate of 6.46% and $100 million  principal  amount due March 9, 2029, at an interest
rate of 7.0%. On February 22, 2000, the Company issued $225 million principal amount of 7.96% Senior  Medium-Term  Notes,  Series B due
February 22, 2010. On September 8, 2000, the Company issued the remaining $25 million  principal  amount of Senior Notes from the shelf
registration. The 7.61% Senior Medium-Term Notes, Series B are due September 8, 2008.

        In October 2000, the Company filed a  shelf-registration  statement with the Securities and Exchange  Commission for the offering,
on a delayed or continuous  basis, of up to $500 million  principal amount of Senior Notes secured by a pledge of First Mortgage Bonds,
Subordinated  Debentures or Trust Preferred Securities.  On November 9, 2000, the Company issued $260 million principal amount of 7.69%
Senior  Medium-Term  Notes,  Series C. The Notes are due February 1, 2011. On May 24, 2001, the Company  issued $200 million  principal
amount of 8.40% Trust  Preferred  Securities due June 30, 2041. On January 16, 2002, the Company  issued $40 million  principal  amount
of 6.25% Senior Medium-Term Notes, Series C, due January 16, 2004, which completed the shelf registration.

        In February 2002, the Company filed a  shelf-registration  statement with the Securities and Exchange  Commission for the offering
on a delayed or  continuous  basis,  of up to $500 million of any  combination  of common stock of Puget  Energy,  principal  amount of
Senior Notes secured by a pledge of First Mortgage Bonds, Unsecured Debentures or Trust Preferred Securities.

        Substantially  all utility  properties  owned by the Company are subject to the lien of the  Company's  electric  and gas mortgage
indentures.  To issue additional first mortgage bonds under these  indentures,  PSE's earnings  available for interest must be at least
twice the annual interest charges on outstanding  first mortgage bonds. At December 31, 2001, the earnings  available for interest were
2.39 times the annual interest charges.POLLUTION CONTROL BONDS
        The Company has outstanding three series of Pollution Control Bonds.  Amounts  outstanding were borrowed from the City of Forsyth,
Montana (the City).  The City  obtained  the funds from the sale of  Customized  Pollution  Control  Refunding  Bonds issued to finance
pollution control facilities at Colstrip Units 3 and 4.

        Each series of bonds is  collateralized by a pledge of PSE's First Mortgage Bonds, the terms of which match those of the Pollution
Control  Bonds.  No  payment  is due with  respect  to the  related  series of First  Mortgage  Bonds so long as payment is made on the
Pollution Control Bonds.

`(At December 31; Dollars in Thousands)
                Series                     Due                    2001                      2000
   ------------------------------- ------------------- -------------------------- -----------------------

   1993 Series - 5.875%                   2020                  $23,460                  $23,460
   1991 Series - 7.05%                    2021                   27,500                   27,500
   1991 Series - 7.25%                    2021                   23,400                   23,400
   1992 Series - 6.80%                    2022                   87,500                   87,500
   ------------------------------- ------------------- -------------------------- -----------------------
               Total                                           $161,860                 $161,860
   ------------------------------- ------------------- -------------------------- -----------------------`

LONG TERM REVOLVING CREDIT FACILITY (PUGET ENERGY ONLY)
        In June 2001,  InfrastruX  and its  subsidiaries  signed credit  agreements  with several  banks for up to $170.5  million which
expire in 2004.  Under the  InfrastruX  credit  agreement,  Puget  Energy  is the  guarantor  of $150  million  of the line of  credit.
InfrastruX has borrowed $81.9 million at a weighted average interest rate of 3.37%,  leaving a balance of $88.6 million  available under the lines
of credit at December 31, 2001.LONGTERM DEBT MATURITIES
        The principal amounts of long-term debt maturities for the next five years and thereafter are
as follows:

`Puget Energy
 (Dollars in Thousands)                  2002           2003          2004            2005           2006       Thereafter
  Maturities of:
    Long-term debt                  $ 119,523        $72,000     $ 171,739        $ 31,000       $ 81,000      $1,771,360



  Puget Sound Energy
 (Dollars in Thousands)                  2002           2003          2004            2005           2006       Thereafter
  Maturities of:
    Long-term debt                  $ 117,000        $72,000      $ 98,500        $ 31,000       $ 81,000      $1,771,360`

NOTE 9

        Short-Term Debt and Other Financing Arrangements

        At December 31, 2001,  PSE had  short-term  borrowing  arrangements  which  included a $375 million line of credit with thirteen
banks which  expires on February 13, 2003.  The  agreement  provides PSE with the ability to borrow at different  interest rate options
and  includes  variable fee levels.  The options  are: (1) the higher of the prime rate or the Federal  Funds rate plus .50% or (2) the
Eurodollar rate plus .25%. The current availability fee is .08% per annum on the unused loan commitment.

        In addition,  PSE has  agreements  with several banks to borrow on an  uncommitted,  as available  basis at  money-market  rates
quoted by the banks.  There are no costs,  other than interest,  for these  arrangements.  PSE also uses  commercial  paper to fund its
short-term borrowing requirements.

`(Dollars in Thousands)
------------------------------------------------------------  ------------------  -----------------  ------------------
  At December 31                                                            2001               2000                1999
  Short-term borrowings outstanding:
    Commercial paper notes                                             $ 123,168          $ 204,019           $ 105,712
    Bank line of credit borrowings                                       215,000                 --                  --
    Uncommitted bank borrowings                                               --            171,750             499,000
    Notes Payable                                                             --                170                  --
    Puget Energy bank line of credit borrowings                           10,409              2,377                  --
    Weighted average interest rate                                         2.72%              7.33%               6.59%
  Puget Energy revolving credit facility(1)                              170,500             12,000                  --
  Credit availability(2)                                                 375,000            375,000             375,000`

1 The revolving credit facility requires InfrastruX
and its subsidiaries to maintain certain financial covenants, including
requirements to maintain certain levels of net worth and debt coverage. The
agreement also places certain restrictions on expenditures, other indebtedness
and executive compensation.2 Provides liquidity support for PSEs outstanding commercial paper and borrowing from credit
line banks in the amount of $338.2 million, $204.0 million and $105.7 million
for 2001, 2000 and 1999, respectively, effectively reducing the available
borrowing capacity under these credit lines to $36.8 million, $171.0 million
and $269.3 million, respectively.

The Company has, on occasion, entered into interest rate swap agreements to reduce the impact of changes in interest rates on
portions of its floating-rate debt. There were no such agreements outstanding at December 31, 2001.NOTE 10.
        Estimated Fair Value of Financial Instruments

        The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December
31, 2001 and 2000:

`2001           2001          2000            2000
                                                  Carrying         Fair        Carrying          Fair
    (Dollars in Millions)                          Amount          Value        Amount          Value
  ------------------------------------------- ---------------- ------------ -------------- ---------------
    Financial assets:
      Cash                                            $ 92.3       $ 92.3         $ 36.4          $ 36.4
      Equity securities(1)                              12.8         12.8            7.5             7.5
      Notes receivable                                  40.0         40.0           86.0            86.0
      Energy derivatives                                 6.6          6.6             --              --

    Financial liabilities:
      Short-term debt                                  348.6        348.6          378.3           378.3
      Preferred stock subject to
         mandatory redemption                           50.7         49.3           58.2            58.5
      Corporation obligated, mandatorily
         redeemable preferred securities of
         subsidiary trust holding solely
         junior subordinated debentures of
         the corporation                               300.0        301.8          100.0           102.4
      Long-term debt(2)                              2,246.7      2,131.2        2,189.8         2,183.0
      Energy derivatives                                35.2         35.2             --              --`

1 The 2001 carrying amount includes an adjustment of $4.5 million to report the
available-for-sale securities at market value. This amount (or unrealized gain)
has been included as a component of other comprehensive income net of deferred
taxes of $1.6 million.2 PSEs carrying and fair value of long-term debt
for 2001 was $2,170.9 million and $2,055.4 million, respectively.

The fair value of outstanding bonds including current maturities is estimated based
on quoted market prices.

        The preferred stock subject to mandatory redemption and corporation obligated, mandatorily
redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures of the
corporation is estimated based on dealer quotes.

        The carrying  value of  short-term  debt and notes  receivable  are  considered to be a
reasonable  estimate of fair value.  The carrying amount of cash, which includes temporary investments with original maturities of three
months or less, is also considered to be a reasonable estimate of fair value.

        Derivative instruments have been used by the Company on a limited basis and are recorded at
fair value. The Company has a policy that financial derivatives are to be used only to mitigate business risk and not for speculative
purposes.NOTE 11.
        Supplementary Income Statement Information

`Puget Energy               PSE         Puget Energy and PSE
  (Dollars in Thousands)                                 2001              2001       2000           1999
--------------------------------------------- ---------------- ----------------- -------------- -------------
  Taxes other than federal:
    Real estate and personal property                $ 41,858          $ 41,588       $ 47,357      $ 48,036
    State business                                     85,335            84,735         83,485        70,047
    Municipal and occupational                         71,819            71,819         65,155        52,739
    Other                                              35,263            30,316         30,905        19,445
--------------------------------------------- ---------------- ----------------- -------------- -------------
  Total taxes other than federal                    $ 234,275         $ 228,458      $ 226,902     $ 190,267
--------------------------------------------- ---------------- ----------------- -------------- -------------
  Charged to:
    Operating expense                               $ 214,414         $ 208,597      $ 203,230     $ 180,141
    Other accounts, including
      construction work in progress                    19,861            19,861         23,672        10,126
--------------------------------------------- ---------------- ----------------- -------------- -------------
  Total taxes other than federal                    $ 234,275         $ 228,458      $ 226,902     $ 190,267
--------------------------------------------- ---------------- ----------------- -------------- -------------`

Advertising,  research and development expenses and amortization of intangibles are not significant. Puget Energy pays a royalty
for the exclusive right of a product produced by Dow Chemical.NOTE 12.
        Leases

        The Company  treats all leases for PSE as operating  leases for ratemaking  purposes as
required by the  Washington  Commission. Certain leases contain purchase options, renewal and escalation provisions.

        Operating and capital lease payments net of sublease receipts were:

`(Dollars in thousands)                              Puget Energy                    PSE
              At December 31                             Operating        Capital              Operating
                2001                                       $25,373         $1,966               $20,135
                2000                                        18,239            653                18,239
                1999                                        16,859             --                16,859`

Payments  received,  for the sublease of properties  were  approximately  $2.5 million,  $2.4 million,  and $2.3 million for the
years ended December 31, 2001, 2000 and 1999, respectively.
        Future minimum lease payments for noncancelable leases net of sublease receipts are:

`(Dollars in thousands)                               Puget Energy                      PSE
            At December 31                               Operating        Capital              Operating
             2002                                          $17,529         $1,198               $13,026
             2003                                           14,861            924                11,375
             2004                                           11,496            497                 8,793
             2005                                            5,946            251                 4,186
             2006                                            4,667            354                 3,999
             Thereafter                                      5,210             --                 5,121
             ----------------------------------- ------------------ -------------- ---------------------
             Total minimum lease payments                  $59,709         $3,224               $46,500
             ----------------------------------- ------------------ -------------- ---------------------`

Future minimum sublease receipts for noncancelable subleases are $2.0 million for 2002,
and $1.2 million for 2003.NOTE 13.
        Federal Income Taxes

        The details of federal income taxes (FIT) are as follows:

`Puget Energy              PSE       Puget Energy and PSE
  (Dollars in Thousands)                                             2001             2001           2000           1999
---------------------------------------------------------- --------------- ---------------- -------------- --------------
  Charged to operating expense:
  Current                                                        $ 58,749         $ 58,331      $ 128,138       $ 93,354
  Deferred - net                                                   19,945           18,040          1,557         15,373
  Deferred investment tax credits                                   (688)            (688)           (704)         (725)
---------------------------------------------------- --------------------- ---------------- -------------- --------------
  Total FIT charged to operations                                  78,006           75,683        128,991        108,002
---------------------------------------------------- --------------------- ---------------- -------------- --------------
  Charged to miscellaneous income:
  Current                                                           6,272            6,272          7,843          (503)
  Deferred - net                                                  (2,259)          (2,259)         (10,150)        4,574
---------------------------------------------------- -------------------- ----------------- ---------------- ------------
  Total FIT charged to miscellaneous income                        4,013             4,013          (2,307)        4,071
---------------------------------------------------- -------------------- ----------------- ---------------- ------------
---------------------------------------------------- ---------------------- ---------------- ------------- -------------
  Cumulative effect of accounting change                          (7,942)           (7,942)            --            --
---------------------------------------------------- ---------------------- ---------------- ------------- -------------
---------------------------------------------------- -------------------- ----------------- -------------- --------------
  Total FIT                                                     $ 74,077          $ 71,754      $ 126,684      $ 112,073
---------------------------------------------------- -------------------- ----------------- -------------- --------------`

The following is a  reconciliation  of the difference  between the amount of FIT computed
by multiplying  pre-tax book income by the statutory tax rate and the amount of FIT in the Consolidated Statements of Income for the Company:

`Puget Energy              PSE           Puget Energy and PSE
  (Dollars in Thousands)                                    2001             2001               2000               1999
----------------------------------------------- ----------------- ---------------- ------------------ ------------------
  FIT at the statutory rate                             $ 63,321         $ 61,648          $ 112,180          $ 104,174
----------------------------------------------- ----------------- ---------------- ------------------ ------------------
  Increase (decrease):
    Depreciation expense deducted in the
      financial statements in excess of tax
      depreciation, net of depreciation
      treated as a temporary difference                   11,726           11,726             10,807              8,678
    AFUDC included in income in the financial
      statements but excluded from taxable income         (2,126)          (2,126)            (3,274)            (4,345)
    Accelerated benefit on early retirement
      of depreciable assets                                 (319)            (319)              (834)              (812)
    Investment tax credit amortization                      (689)            (689)              (704)              (725)
    Energy conservation expenditures - net                 6,859            6,859             10,634             13,434
    Other - net                                           (4,695)          (5,345)            (2,125)            (8,331)
----------------------------------------------- ----------------- ---------------- ------------------ ------------------
  Total FIT                                             $ 74,077         $ 71,754           $126,684          $ 112,073
----------------------------------------------- ----------------- ---------------- ------------------ ------------------
  Effective tax rate                                       40.9%            40.7%              39.5%              37.7%
----------------------------------------------- ----------------- ---------------- ------------------ ------------------`

The following are the principal components of FIT as reported:

`Puget Energy            PSE        Puget Energy and PSE
  (Dollars in Thousands)                                           2001           2001             2000            1999
------------------------------------------------------- ---------------- -------------- --------------- ----------------
  Current FIT                                                  $ 65,021       $ 64,603       $ 135,981         $ 92,851
------------------------------------------------------- ---------------- -------------- --------------- ----------------
  Deferred FIT:
    Conservation tax settlement                                     963            963           1,776            2,927
    Deferred FAS-133                                             (4,028)        (4,028)             --               --
    Cabot preferred stock sale                                       --             --         (10,635)              --
    Deferred taxes related to insurance reserves                 (1,225)       (1,225)           (384)           (1,225)
    Reversal of Statement No. 90 present
      value adjustments                                              --             --              --               92
    Residential Purchase and Sale Agreement - net                 3,390          3,390           2,226               --
    Normalized tax benefits of the
      accelerated cost recovery system                           11,423         11,423          10,931           14,452
    Energy conservation program                                  (1,337)        (1,337)         (1,666)            (983)
    Environmental remediation                                     1,326          1,326             721              947
    WNP 3 tax settlement                                         (1,126)        (1,126)         (1,126)            (826)
    Merger costs                                                     --             --              --              409
    Demand charges                                                  (98)           (98)            (79)              14
    Deferred revenue                                             (5,904)        (5,904)             --               --
    Allowance for doubtful accounts                                  --             --         (13,821)              --
    Other                                                         6,360          4,455           3,464            4,140
------------------------------------------------------- ---------------- -------------- --------------- ----------------
  Total deferred FIT                                              9,744          7,839          (8,593)          19,947
------------------------------------------------------- ---------------- -------------- ---------------- ---------------
  Deferred investment tax credits -
    net of amortization                                            (688)          (688)           (704)            (725)
------------------------------------------------------- ---------------- -------------- --------------- ----------------
  Total FIT                                                    $ 74,077       $ 71,754       $ 126,684        $ 112,073
------------------------------------------------------- ---------------- -------------- --------------- ----------------`

The  Company's  deferred tax liability at December 31, 2001 and 2000 is comprised of
amounts  related to the following  types of temporary differences:

`(Dollars in Thousands)                                   Puget Energy                PSE        Puget Energy
                                                                                                                 and PSE
                                                                             2001               2001                2000
          --------------------------------------------- -------------------------- ------------------ -------------------
            Utility plant                                               $ 570,982          $ 570,982            $571,772
            Energy conservation charges                                    23,782             23,782              31,212
            Contributions in aid of construction                          (36,044)           (36,044)            (37,275)
            Bonneville Exchange Power                                      17,897             17,897              20,258
            Cabot gas contract purchase                                     4,477              4,477               4,533
            Deferred revenue                                               (5,904)            (5,904)                 --
            Other                                                          30,125             25,811              17,685
          --------------------------------------------- -------------------------- ------------------ -------------------
            Total                                                       $ 605,315          $ 601,001           $ 608,185
          --------------------------------------------- -------------------------- ------------------ -------------------`

Puget  Energy's  totals of $605.3  million and $608.2  million for 2001 and 2000 consist of deferred tax  liabilities  of $713.8
million and $706.8 million net of deferred tax assets of $108.5 million and $98.6 million, respectively.

        PSE's totals of $601.0  million and $608.2  million for 2001 and 2000 consist of deferred tax  liabilities of $707.4 million and
$706.8 million net of deferred tax assets of $106.4 million and $98.6 million, respectively.

        Deferred tax amounts shown above result from  temporary  differences  for tax and  financial  statement  purposes.  Deferred tax
provisions are not recorded in the income statement for certain  temporary  differences  between tax and financial  statement  purposes
because they are not allowed for ratemaking purposes.

        PSE calculates its deferred tax assets and liabilities under Statement of Financial  Accounting  Standards No. 109,  "Accounting
for Income Taxes" (Statement No. 109).  Statement No. 109 requires recording deferred tax balances,  at the currently enacted tax rate,
for all temporary  differences between the book and tax bases of assets and liabilities,  including temporary  differences for which no
deferred taxes had been previously  provided  because of use of flow-through tax accounting for ratemaking  purposes.  Because of prior
and expected  future  ratemaking  treatment for temporary  differences  for which  flow-through  tax accounting  has been  utilized,  a
regulatory  asset for income taxes  recoverable  through  future  rates  related to those  differences  has also been  established.  At
December 31, 2001, the balance of this asset is $193.0 million.NOTE 14.
        Retirement Benefits

        The Company has a defined benefit pension plan covering  substantially all of its utility employees.  Benefits are a function of
both age and salary.  Additionally,  Puget  Energy  maintains a  non-qualified  supplemental  retirement  plan for officers and certain
director-level employees.

        In addition to providing  pension  benefits,  the Company provides  certain health care and life insurance  benefits for retired
employees.  These benefits are provided  principally  through an insurance company whose premiums are based on the benefits paid during
the year.

`(Dollars in Thousands)                                    Pension Benefits                 Other Benefits
                                                                    2001         2000              2001         2000
     ----------------------------------------------------------------------------------------------------------------
       Change in benefit obligation:
       Benefit obligation at beginning of year                  $366,482    $ 349,160          $ 27,568     $ 26,003
       Service cost                                                9,862        9,005               243          224
       Interest cost                                              26,734       25,500             2,022        1,965
       Amendments(1)                                               3,984           77                --           --
       Actuarial loss                                             15,417        4,058             1,101        1,187
       Benefits paid                                             (22,018)     (21,318)          (1,819)       (1,811)
---------------------------------------------------------------------------------------------------------------------
       Benefit obligation at end of year                        $400,461    $ 366,482          $ 29,115     $ 27,568
---------------------------------------------------------------------------------------------------------------------
       Change in plan assets:
       Fair value of plan assets at beginning of year          $ 496,468    $ 524,827          $ 15,661     $ 14,738
       Actual return on plan assets                              (32,025)      (8,151)              595          910
       Employer contribution                                       1,087        1,110             1,541        1,824
       Benefits paid                                             (22,018)     (21,318)          (1,819)      (1,811)
---------------------------------------------------------------------------------------------------------------------
       Fair value of plan assets at end of year                $ 443,512    $ 496,468           $15,978     $ 15,661
---------------------------------------------------------------------------------------------------------------------

       Funded status                                            $ 43,051    $ 129,986        $ (13,137)    $ (11,907)
       Unrecognized actuarial gain                               (27,035)   (128,268)           (1,944)      (3,506)
       Unrecognized prior service cost                            20,250       19,333             (361)        (395)
       Unrecognized net initial (asset)/obligation               (3,873)       (5,103)          6,894          7,521
----------------------------------------------------------------------------------------------------------------------
       Net amount recognized                                    $ 32,393     $ 15,948         $ (8,548)    $ (8,287)
----------------------------------------------------------------------------------------------------------------------
       Amounts recognized on statement of
         financial position consist of:
       Prepaid benefit cost                                     $ 54,335     $ 34,326         $ (8,548)    $ (8,287)
       Accrued benefit liability                                 (37,002)     (25,861)               --           --
       Intangible asset                                            9,912        7,483                --           --
       Accumulated other comprehensive income                      5,148           --                --           --
---------------------------------------------------------------------------------------------------------------------
       Net amount recognized                                    $ 32,393     $ 15,948         $ (8,548)    $ (8,287)
---------------------------------------------------------------------------------------------------------------------`

1In 2001, the Company had $4.0 million in plan amendments due to the addition of new plans, changes in employment contracts and the
     addition of three new entrants to the plan.

In accounting for pension and other benefits costs under the plans, the following  weighted average  actuarial  assumptions were
used:

`Pension Benefits                        Other Benefits
                                               2001        2000           1999         2001         2000         1999
---------------------------------------- ----------- ----------- -------------- - ---------- ------------ ------------
  Discount rate                               7.25%        7.5%           7.5%        7.25%         7.5%         7.5%
  Return on plan assets                       9.50%       9.75%          9.75%      6-8.25%       6-8.5%       6-8.5%
  Rate of compensation increase                5.0%        5.0%           5.0%           --           --           --
  Medical trend rate                             --          --             --         6.5%         7.0%         7.0%
---------------------------------------- ----------- ----------- -------------- - ---------- ------------ ------------

                                                    Pension Benefits                        Other Benefits
  (Dollars in Thousands)                       2001         2000          1999        2001          2000         1999
---------------------------------------- ----------- ------------ ------------- - --------- ------------- ------------
  Components of net periodic benefit cost:
  Service cost                               $ 9,862      $9,005       $9,259          $ 243        $224        $245
  Interest cost                               26,734      25,500       24,180          2,022       1,965       1,868
  Expected return on plan assets             (46,222)    (42,280)      (37,310)         (947)       (892)       (857)
  Amortization of prior service cost           2,960       2,884         3,330           (34)        (34)        (34)
  Recognized net actuarial gain               (7,570)     (6,851)       (3,117)         (109)       (195)       (145)
  Amortization of transition
  (asset)/obligation                          (1,230)     (1,230)       (1,230)          627         627         627
  Special recognition of prior service costs     108          77           462             --         --          --
--------------------------------------- -------------- ----------- ------------- -- ---------- ---------- -----------
  Net pension benefit cost                   (15,358)    (12,895)       (4,426)         1,802      1,695       1,704
  Regulatory adjustment                          --           --           932             --         --          --
--------------------------------------- -------------- ------------- ----------- -- ---------- ---------- -----------
  Net periodic benefit cost                $ (15,358)    $( 12,895)   $ (3,494)       $ 1,802    $ 1,695     $ 1,704
--------------------------------------- -------------- ------------- ----------- -- ---------- ---------- -----------`

The projected  benefit  obligation,  accumulated  benefit  obligation and fair value of plan assets for the pension plans with
accumulated benefit obligations in excess of plan assets were $42.6 million,  $37.0 million, and $0,  respectively,  as of December 31,
2001.
        The assumed medical inflation rate is 6.5% in 2001 decreasing to 6.0% in 2003 and thereafter. A 1% change in the assumed
medical inflation rate would have the following effects:

`2001                                2000
                                                    1%                1%                  1%                1%
  (Dollars in Thousands)                         increase          decrease              increase        decrease
----------------------------------------------------------------------------------------------------------------------
  Effect on service and interest cost components     $ 625         $ (558)                $ 661          $ (583)
  Effect on post retirement benefit obligation          47            (42)                   49             (42)`

During 2002,  PSE will be  transitioning  481 service jobs that had  previously  been held by PSE  employees to outside  service
providers.  Under  Statement of Financial  Accounting  Standards No. 88 "Employers'  Accounting for  Settlements  and  Curtailments  of
Defined Benefit Pension Plans and for Termination  Benefits," the Company will be recognizing a net curtailment  gain of  approximately
$0.7 million.NOTE 15.
        Employee Investment Plans and Employee Stock Purchase Plan

        The Company has qualified Employee Investment Plans under which employee salary deferrals and after-tax  contributions are used to
purchase several different investment fund options.

        Puget  Energy's  contributions  to the Employee  Investment  Plans were $8.0 million,  $7.2 million and $7.1 million for the years
2001, 2000 and 1999, respectively.

        PSE's  contributions to the Employee  Investment Plan were $6.8 million,  $7.2 million,  and $7.1 million for the years 2001, 2000
and 1999,  respectively.  The  shareholders  have authorized the issuance of up to 2,000,000 shares of common stock under the PSE plan,
of which 959,142 were issued through  December 31, 2001. The Employee  Investment Plan  eligibility  requirements  are set forth in the
plan documents.

        The Company also has an Employee  Stock  Purchase Plan which was approved by  shareholders  on May 19, 1997, and commenced July 1,
1997,  under which options are granted to eligible  employees who elect to  participate in the plan on January 1st and July 1st of each
year.  Participants  are allowed to  exercise  those  options six months  later to the extent of payroll  deductions  or cash  payments
accumulated  during that six-month  period.  The option price under the plan during 2001 was 85% of either the fair market value of the
common stock at the grant date or the fair market value at the exercise  date,  whichever is less. The Company's  contributions  to the
Plan were $168,645, $301,610 and $88,900 for 2001, 2000 and 1999, respectively.

        On February 1, 1998,  the Company  granted 50 performance  shares to 2,800  eligible  employees in recognition of their efforts to
implement the Company's  strategies.  On February 1, 2000, those performance  shares and dividend  equivalents were converted to common
stock.  Total cost of the  performance  share grant program was $4.1 million,  which was  recognized as an accounting  expense over the
two-year vesting period.NOTE 16.
        Other Investments

        In May 1994, the Company merged its oil and gas  exploration  and  production  subsidiary,  Washington  Energy  Resources
Company,  with a  wholly-owned  subsidiary  of Cabot Oil and Gas  Corporation  (Cabot) in a tax-free  exchange in which the Company
received  common and preferred  stock of Cabot.  The investment in Cabot stock was classified as  available-for-sale.  In May 1999, PSE
sold the  2,133,000  shares of Cabot  common stock and recorded an  after-tax  gain of $12.3  million.  At the time of the common stock
sale, the fair value of the stock was $37.4 million and an unrealized  gain of $12.3  million,  net of tax, was included as a component
of other  comprehensive  income. The $12.3 million unrealized gain on the sale was reclassified out of accumulated other  comprehensive
income at the time of the sale.  In May 2000,  the Company sold all of its  1,134,000  shares of 6%  convertible  redeemable  preferred
stock in Cabot for $51.4 million,  after expenses.  The sale resulted in approximately $40.8 million in after-tax cash proceeds.  There
was no significant gain or loss on the transaction.  As a result of these two transactions,  the Company no longer holds any securities
of Cabot.

        In March 1998, the Company entered into an agreement with  Schlumberger  North America  (Schlumberger)  (formerly known as CellNet
Data  Services  Inc.),  under  which the  Company  would lend  Schlumberger  up to $35  million in the form of  multiple  draws so that
Schlumberger could finance an Automated  Meter Reading  (AMR)  network  system to be deployed in the  Company's  service  territory.  In
September 1999, the Company  announced it was expanding its AMR network system from 800,000 meters to 1,325,000  meters and as a result
increased the authorized  loan amount to $72 million.  As of December 31, 2000, the outstanding loan balance was $51.9  million.  In August
2001, Schlumberger paid off its outstanding loan balance of $64.1 million.NOTE 17.
        Commitments and ContingenciesCOMMITMENTS  ELECTRIC
        For the twelve months ended December 31, 2001,  approximately 14.8% of the Company's energy output was obtained at an average cost
of  approximately  17.98 mills per kWh through  long-term  contracts with several of the Washington  public  utility  districts  (PUDs)
owning hydro-electric projects on the Columbia River.

        The purchase of power from the Columbia  River projects is generally on a  "cost-of-service"  basis under which the Company pays a
proportionate  share of the annual cost of each project in direct  proportion to the amount of power annually  purchased by the Company
from such  project.  Such  payments  are not  contingent  upon the  projects  being  operable.  These  projects  are  financed  through
substantially  level debt service payments,  and their annual costs should not vary significantly over the term of the contracts unless
additional  financing  is  required  to meet the costs of major  maintenance,  repairs or  replacements  or license  requirements.  The
Company's  share of the costs and the output of the projects is subject to reduction due to various  withdrawal  rights of the PUDs and
others over the lives of the contracts.

        As of December 31, 2001,  the Company was entitled to purchase  portions of the power output of the PUDs' projects as set forth in
the following tabulation:

`Bonds                    Company's Annual Amount
                                                             Outstanding                Purchasable (Approximate)
                                                                            ------------------------------------------------
                            Contract (1)    License (2)     12/31/01 (3)         % of            Megawatt        Costs (4)
  Project                    Exp. Date       Exp. Date       (Millions)         Output           Capacity       (Millions)
------------------------- --------------- -------------- ----------------- ---------------- ----------------- --------------
  Rock Island
     Original units                 2012           2029            $ 84.6             50.0  }            496          $39.0
     Additional units               2012           2029             331.2             95.0                --             --
  Rocky Reach                       2011           2006             363.8             38.9               505           23.0
  Wells                             2018           2012             170.2             31.3               261            9.6
  Priest Rapids                     2005           2005             162.2              8.0                72            2.4
  Wanapum                           2009           2005             159.8             10.8                98            3.7
------------------------- --------------- -------------- ----------------- ---------------- ----------------- --------------
  Total                                                          $1,271.8                              1,432          $77.7
------------------------- --------------- -------------- ----------------- ---------------- ----------------- --------------`

1
The Company, on December 28, 2001, signed a contract offer for new contracts for
the Priest Rapids and Wanapum Developments. Under terms of these contracts,
the Company will continue to obtain capacity and energy for the term of any new
license to be obtained by Grant County PUD for these Developments. The terms and conditions of these contracts are being finalized.
2
The Company is unable to predict whether the licenses under the Federal Power
Act will be renewed to the current licensees. The FERC has issued orders for the
Rocky Reach, Wells and Priest Rapids/Wanapum projects under Section 22 of the
Federal Power Act, which affirm Puget Energys contractual rights to
receive power under existing terms and conditions even if a new licensee is
granted a license prior to expiration of the contract term.
3
The contracts for purchases initially were generally coextensive with the term
of the PUD bonds associated with the project. Under the terms of some financings
and refinancings, however, long-term bonds were sold to finance certain assets
whose estimated useful lives extend beyond the expiration date of the power
sales contracts. Of the total outstanding bonds sold for each project, the
percentage of principal amount of bonds which mature beyond the contract
expiration date are: 40.5% at Rock Island; 52.0% at Rocky Reach; 88.3% at Priest Rapids; 61.6% at Wanapum; and 5.5% at Wells.
4
The components of 2001 costs associated with the interest portion of debt
service are: Rock Island, $25.2 million for all units; Rocky Reach, $7.7
million; Wells, $2.7 million; Priest Rapids, $0.7 million; and Wanapum, $0.9
million.

The  Company's  estimated  payments for power  purchases  from the Columbia  River  projects are $87.0  million for 2002,  $85.4
million for 2003,  $88.1  million for 2004,  $87.8  million for 2005,  $83.0  million  for 2006 and in the  aggregate,  $533.0  million
thereafter through 2018.

        The Company also has numerous  long-term  firm purchased  power  contracts  with other  utilities in the region.  The Company is
generally not obligated to make payments under these contracts  unless power is delivered.  The Company's  estimated  payments for firm
power  purchases from other  utilities,  excluding the Columbia River projects,  are $135.0 million for 2002,  $124.0 million for 2003,
$77.0 million for 2004, $68.0 million for 2005, $69.0 million for 2006 and in the aggregate,  $392.0 million  thereafter  through 2037.
These contracts have varying terms and may include escalation and termination provisions.

        As required by the federal  Public Utility  Regulatory  Policies Act (PURPA),  PSE entered into  long-term firm purchased  power
contracts with  non-utility  generators.  The Company  purchases the net electrical  output of four  significant  projects at fixed and
annually  escalating  prices,  which were intended to approximate  the Company's  avoided cost of new generation  projected at the time
these agreements were made. The Company's  estimated  payments under these three contracts are $209.0 million for 2002,  $208.0 million
for 2003,  $222.0 million for 2004,  $225.0 million for 2005,  $231.0  million for 2006 and in the aggregate,  $1.3 billion  thereafter
through 2012.

        The following table summarizes The Company's obligations for future power purchases:

`2007 &
                                                                                                     There-
(In Millions)                         2002          2003         2004         2005         2006       after       Total
------------------------------- ----------- ------------- ------------ ------------ ------------ ----------- -----------
  Columbia River Projects             $ 87          $ 85         $ 88         $ 88         $ 83       $ 533       $ 964
  Other utilities                      135           124           77           68           69         392         865
  Non-Utility Generators               209           208          222          225          231       1,259       2,354
------------------------------- ----------- ------------- ------------ ------------ ------------ ----------- -----------
      Total                          $ 431         $ 417        $ 387        $ 381        $ 383     $ 2,184     $ 4,183
------------------------------- ----------- ------------- ------------ ------------ ------------ ----------- -----------`

Total purchased power contracts provided the Company with approximately 11.9 million,  15.1 million and 16.1 million MWH of firm
energy at a cost of approximately $496.3 million, $506.5 million and $487.4 million for the years 2001, 2000 and 1999, respectively.

        As part of its electric  operations and in connection with the 1997 restructuring of the Tenaska Power Purchase  Agreement,  PSE
is obligated to deliver to Tenaska up to 48,000 MMBtu per day of natural gas for  operation of Tenaska's  cogeneration  facility.  This
obligation  continues for the remaining  term of the agreement,  provided that no deliveries are required  during the month of May. The
price paid by Tenaska for this gas is reflective of the daily price of gas at the United States/Canada border near Sumas, Washington.

        The following table indicates the Company's  percentage  ownership and the extent of the Company's  investment in  jointly-owned
generating plants in service at December 31, 2001:

`Company's Share
                                                                    ------------------------------------------------
                               Energy              Company's           Plant in Service           Accumulated
                            Source (Fuel)     Ownership Share (%)     At Cost (Millions)    Depreciation (Millions)
         Project
------------------------- ---------------- ------------------------ --------------------- --------------------------
  Colstrip 1 and 2              Coal                  50%                        $ 195                    $ 122
  Colstrip 3 and 4              Coal                  25%                          459                      217`

Financing for a  participant's  ownership  share in the projects is provided for by such  participant.  The  Company's  share of
related operating and maintenance expenses is included in corresponding accounts in the Consolidated Statements of Income.

        On May 5, 2000, the Company sold its 7% interest in the 1,340-megawatt  Centralia coal-fired  generating project to TECWA Power,
Inc., a subsidiary of TransAlta  Corporation of Calgary,  Canada. The sales price of approximately  $37.4 million resulted in a pre-tax
gain of  approximately  $23.5 million.  Under the order issued by the Washington  Commission,  approximately  $2.5 million of this gain
($1.6 million  after-tax) goes to Company  shareholders  and $21.0 million was deferred for pass through to electric  customers in
the form of a one-time  refund to electric  customers,  based on electric  consumption  during the month of  November  2000. The final
true-up of the gain was collected through PSE's conservation rider.

        As part of its electric  operations and in connection with the 1999 buy-out of the Cabot gas supply  contract,  PSE is obligated
to deliver to Encogen up to 21,800 MMBtu per day of natural gas for operation of the Encogen  cogeneration  facility.  This  obligation
continues for the remaining term of the original Cabot agreement.  The Company entered into a financial  arrangement to hedge a portion
of future gas supply costs associated with this obligation,  10,000 MMBtu per day for the remaining term of the agreement.  The Company
has a maximum  financial  obligation  under this hedge  agreement of $8.1 million in 2002,  $8.2 million in 2003, $8.5 million in 2004,
$8.7 million in 2005,  $8.9  million in 2006 and $13.9  million  thereafter.  Depending on actual  market  prices,  these costs will be
partially,  or perhaps  entirely,  offset by floating price payments received under the hedge  arrangement.  Encogen has two gas supply
agreements that comprise 40% of the plant's  requirements  with remaining terms of 6.5 years. The obligations under these contracts are
$12.8 million in 2002,  $13.5 million in 2003,  $14.2 million in 2004,  $14.9 million in 2005,  $15.6 million in 2006 and $25.0 million
in the aggregate thereafter.GAS SUPPLY
        The Company has also entered into various firm supply,  transportation and storage service contracts in order to assure adequate
availability of gas supply for its firm customers.  Many of these  contracts,  which have remaining terms from less than one year to 22
years,  provide that the Company must pay a fixed  demand  charge each month,  regardless  of actual  usage.  Certain of PSE's firm gas
supply agreements also obligate the Company to purchase a minimum annual quantity at market-based  contract prices.  Generally,  if the
minimum  volumes are not  purchased  and taken  during the year,  the Company is  obligated  to either:  1) pay a monthly or annual gas
inventory charge  calculated as a percentage of the then-current  contract  commodity price times the minimum quantity not taken; or 2)
pay for gas not  taken.  Alternatively,  under some of the  contracts,  the  supplier  may  exercise  a right to reduce its  subsequent
obligation to provide firm gas to the Company.  The Company  incurred demand charges in 2001 for firm gas supply,  firm  transportation
service and firm storage and peaking service of $29.6 million, $50.0 million and $7.7 million, respectively.

        The following  tables  summarize the Companys  obligations  for future demand charges through the primary terms of its existing
contracts and the minimum annual take requirements  under the gas supply  agreements.  The quantified  obligations are based on current
contract prices and FERC authorized rates, which are subject to change.

`Demand Charge Obligations
                                                                                                           2007 &
                                                                                                           There-
(In Millions)                                2002         2003        2004        2005         2006         after          Total
-------------------------------------- ----------- ------------ ----------- ----------- ------------ ------------- --------------
  Firm gas supply                          $ 28.7       $ 22.9      $ 12.2       $ 0.6        $ 0.6         $ 3.1         $ 68.1
  Firm transportation service                52.1         52.1        46.0        15.8         15.8          86.0          267.8
  Firm storage service                        9.2          9.2         8.9         7.7          7.7          63.5          106.2
-------------------------------------- ----------- ------------ ----------- ----------- ------------ ------------- --------------
      Total                                $ 90.0       $ 84.2      $ 67.1      $ 24.1       $ 24.1       $ 152.6        $ 442.1
-------------------------------------- ----------- ------------ ----------- ----------- ------------ ------------- --------------

  Minimum Annual Take Obligations
                                                                                                           2007 &
                                                                                                           There-
(In thousands of therms)                     2002         2003        2004        2005         2006         after          Total
-------------------------------------- ----------- ------------ ----------- ----------- ------------ ------------- --------------
  Firm gas supply                         753,515      449,427     219,898         680           --            --      1,423,520`

The Company  believes that all demand  charges will be  recoverable  in rates  charged to its  customers.  Further,  pursuant to
implementation  of FERC Order No. 636,  the Company  has the right to resell or release to others any of its  unutilized  gas supply or
transportation and storage capacity.

        The Company does not  anticipate  any  difficulty  in  achieving  the minimum  annual take  obligations  shown,  as such volumes
represent less than 74% of expected annual sales for 2002 and less than 43% of expected sales in subsequent years.

        The Company's current firm gas supply contracts obligate the suppliers to provide, in the aggregate,  annual volumes up to those
shown below:

`Maximum Supply Available under Current Firm Supply Contracts
                                                                                                         2007 &
                                                                                                           There-
(In thousands of therms)                     2002         2003        2004        2005         2006         after          Total
-------------------------------------- ----------- ------------ ----------- ----------- ------------ ------------- --------------
  Firm gas supply                         861,731      497,438     249,572       6,680        6,000        30,033      1,651,454`

Washington Energy Gas Marketing Company (WEGM), a wholly-owned subsidiary,  held firm transportation rights to transport natural
gas through  various  pipelines from Alberta,  Canada to the northern border of Idaho, as well as certain gas storage rights in Alberta
and  Washington  state.  During 2001 and 2000,  WEGM assigned all of the rights and  obligations  with the  transportation  and storage
services to various third parties.  WEGMs reserve for future losses  associated  with the remaining  contractual  obligations in 2001,
2000 and 1999 was approximately $0.1 million, $1.7 million and $1.8 million, respectively.SERVICE CONTRACT
        On August 30, 2001,  PSE and Alliance  Data  Systems  Corp.  announced a contract  under which  Alliance  Data will provide data
processing  and  billing  services  for PSE.  In  providing  services  to PSE  under  the  10-year  agreement,  Alliance  Data will use
ConsumerLinX software, PSE's  customer-information  software developed by its ConneXt subsidiary.  Alliance Data acquired the assets of
ConneXt,  including  the exclusive use of the  ConsumerLinX  software  for 5 years with an option for renewal.  Alliance  Data  will  offer  ConsumerLinX  as part of its
integrated,  single-source customer relationship management solution for large-scale,  regulated utility clients. The obligations under
the contract are $19.3 million in 2002,  $19.9 million in 2003,  $20.6  million in 2004,  $21.2 million in 2005,  $21.9 million in 2006
and $112.3 million in the aggregate thereafter.SURETY BOND
        The  Company  has a  self-insurance  surety  bond in the amount of $6.6  million  guaranteeing  compliance  with the  Industrial
Insurance Act (workers' compensation) and nine self-insurer's pension bonds totaling $1.5 million.CONTINGENCIES
        The  Company is subject to  environmental  regulation  by  federal,  state and local  authorities.  The Company has been named a
Potentially  Responsible Party by the Environmental  Protection Agency (EPA) at several  contaminated  sites and manufactured gas plant
sites. PSE has implemented an ongoing program to test, replace and remediate certain  underground  storage tanks as required by federal
and state laws and this process is nearing  completion.  Remediation  and testing of Company  vehicle  service  facilities  and storage
yards is also continuing.

        During 1992, the Washington  Commission issued orders regarding the treatment of costs incurred by the Company for certain sites
under its  environmental  remediation  program.  The orders  authorize the Company to accumulate and defer prudently  incurred  cleanup
costs paid to third parties for recovery in rates  established in future rate proceedings.  The Company believes a significant  portion
of its past and future  environmental  remediation  costs are recoverable from either insurance  companies,  third parties or under the
Washington Commission's order.

        The information presented here as it relates to estimates of future liability is as of
December 31, 2001.ELECTRIC SITES
        The  Company  has  expended  approximately  $17.5  million  related to the  remediation  activities  covered  by the  Washington
Commission's  order and has  accrued  approximately  $1.5  million  as a  liability  for future  remediation  costs for these and other
remediation activities. To date, the Company has recovered approximately $16.5 million from insurance carriers.GAS SITES
        Several  former WNG or  predecessor  companies  manufactured  gas plant sites are  currently  undergoing  investigation,
remediation  activities or monitoring actions relating to environmental  contamination.  Legal and remediation  activities  incurred to
date total  approximately  $68.9 million and  approximately  $21.2 million has been accrued for future  remediation costs for these and
other  remediation  sites.  To date,  the Company has recovered  approximately  $57.7 million from  insurance  carriers and other third
parties.

        Based on all known facts and analyses, the Company believes it is not likely that the identified environmental  liabilities will
result in a material adverse impact on the Company's financial position, operating results or cash flow trends.LITIGATION
        In October of 2001 the Public Counsel  Section of the  Washington  State  Attorney  General's  Office filed a complaint with the
Washington Commission  regarding the Residential and Farm Energy Exchange credit under which residential
and small farm customers  receive benefits of federal power. The Washington Commission  approved an amended  agreement  between PSE and Bonneville
Power  Administration  (BPA) in June of 2001.  Public Counsel contends that the Company's  customers should receive the benefits of the
agreement  that was in place  prior to July 1, 2001,  as well as the  benefits  of the  amended  agreement.  The  Company is  receiving
payments from BPA for amounts under the amended  agreement only so if Public  Counsel's  position were upheld,  the Company's  electric
revenues  for the last six months of 2001 would be reduced by  approximately  $51.1  million.  The Company  believes  the  complaint is
without merit but is unable to predict the outcome of the proceeding. A decision in the proceeding is expected in 2002.
        Other  contingencies,  arising out of the normal  course of the  Company's  business,  exist at December 31, 2001.  The ultimate
resolution  of these issues is not expected to have a material  adverse  impact on the  financial  condition,  results of operations or
liquidity of the Company.NOTE 18.
        Accounting for Derivative Instruments and Hedging Activities

        On January 1, 2001, Puget Energy adopted Statement No. 133, "Accounting for Derivative  Instruments and Hedging Activities",  as
amended by Statement No. 138.  Statement No. 133 requires that all  contracts  considered to be derivative  instruments  be recorded on
the balance sheet at their fair value.  The Company  enters into both physical and  financial  contracts to manage its energy  resource
portfolio including forward physical and financial  contracts,  option contracts and swaps. The majority of these contracts qualify for
the normal purchase and normal sale exception.

        On January 1, 2001, the Company  recognized the cumulative  effect of adopting  Statement No. 133 by recording a liability and an
offsetting  after-tax decrease to current earnings of approximately $14.7 million for the fair of value electric  derivatives that did not
meet hedge  criteria.  The Company also recorded an asset and an offsetting  increase to other  comprehensive  income of  approximately
$286.9 million for the fair value of derivative instruments which did meet hedge criteria on the implementation date.

        During the year ended  December 31, 2001 the Company  recorded an additional net increase to current  earnings of  approximately
$11.2 million pre-tax ($7.2 million  after-tax) to record the change in market value of outstanding  derivative  instruments not meeting cash
flow hedge criteria.  When the underlying  contracts giving rise to the income statement  losses are fulfilled over the next 12 months, the
liabilities  (included in other property and investments and current liabilities on the balance sheets) established under Statement No. 133
will be reversed.

        At October 15, 2001, the Company had recorded a deferred  liability of approximately  $26.9 million  after-tax for financial gas
contracts to be used for electric production contracts that until October 15, 2001 were previously  designated as qualifying
cash flow hedges.  Changes in the market values of these  contracts  subsequent to their  de-designation  as hedges of $7.8 million ($5.1
million  after-tax) have been recorded as a charge to earnings. However, the net changes in the market value of these contracts from their
inception  until  October 15, 2001 of $26.9 million will continue to be recorded as a reduction of other comprehensive income and will be
charged to earnings upon the  settlement of the underlying transactions  being  hedged.  The Company  anticipates this amount will reverse
during 2002 when the Company  will report a decrease to the  deferred  liability  and an increase to other  comprehensive  income for this
reversal. These estimates are based upon the forward market prices for energy at December 31, 2001.

        During 2001, the Financial  Accounting  Standards Board's Derivative  Implementation Group for Statement No. 133 issued guidance
under Issue C16 - "Applying  the Normal  Purchases  and Normal  Sales  Exception to  Contracts  that  Combine a Forward  Contract and a
Purchased  Option  Contract".  Issue C16 indicates that fuel supply  contracts that combine a forward  contract and a purchased  option
cannot  qualify for the normal  purchase and normal sales  exception  because of the  optionality  regarding the quantity of fuel to be
delivered  under the  contract.  Issue C16 is  effective  April 1, 2002 for PSE. As a result,  these  contracts  will be required to be
marked-to-market  through  earnings.  The Company will be reviewing its fuel supply contracts to determine which contracts will no longer qualify
as normal purchase and normal sales contracts.NOTE 19.
        Supplemental Quarterly Financial Data (Unaudited)

        The  following  unaudited  amounts,  in the opinion of the Company,  include all  adjustments  (consisting  of normal  recurring
adjustments)  necessary for a fair  presentation of the results of operations for the interim  periods.  Quarterly  amounts vary during
the year due to the seasonal nature of the utility business.

`Puget Energy
  (Unaudited; dollars in thousands except per-share amounts)
-------------------------------------- ------------- ------------- ------------- ------------ ----------- -----------
                                                                                     Second
  2001 Quarter                             First         Second     Restatement     Restated    Third      Fourth
-------------------------------------- ------------- ------------- ------------- ------------ ----------- -----------
Operating revenues                     $1,119,864       $ 935,419    $     --       $935,419    $619,670    $699,038
Operating income                          130,541          71,578       (5,507)       66,071      45,756      54,754
Other income                                1,941           1,568          --          1,568       7,892       3,123
Net income                                 72,298          24,972       (5,507)       19,465       6,809       8,266
Basic earnings per common share            $0.815         $ 0.265     $ (0.064)      $ 0.201     $ 0.055     $ 0.071
Diluted earnings per common share          $0.812         $ 0.264     $ (0.063)      $ 0.201     $ 0.054     $ 0.071


(Unaudited; dollars in thousands except per-share amounts)
----------------------------------------- ----------------- ------------------- ---------------- ----------------
  2000 Quarter                                       First              Second            Third           Fourth
----------------------------------------- ----------------- ------------------- ---------------- ----------------
  Operating revenues                             $ 647,223           $ 538,801        $ 978,981      $ 1,276,667
  Operating income                                 115,885              63,119           57,598          127,270
  Other income                                       4,390               6,878            5,273          (11,480)
  Net income                                        78,192              27,369           18,995           69,275
  Basic earnings per common share                  $ 0.892             $ 0.295          $ 0.196          $ 0.782
  Diluted earnings per common share                $ 0.890             $ 0.294          $ 0.196          $ 0.779

   Puget Sound Energy
  (Unaudited; dollars in thousands)
-------------------------------------- ------------- ------------- ------------- ------------ ----------- -----------
                                                                                    Second
  2001 Quarter                             First         Second     Restatement    Restated      Third     Fourth
-------------------------------------- ------------- ------------- ------------- ------------ ----------- -----------
Operating revenues                     $1,091,324       $ 889,950      $   --       $889,950   $566,899    $652,032
Operating income                          130,111          67,136       (5,507)       61,629     42,360      54,383
Other income                                2,843           2,485          --          2,485      8,885       2,839
Net income                                 72,879          22,782       (5,507)       17,275      5,474       8,754


   (Unaudited; dollars in thousands)
----------------------------------------- ----------------- ------------------- ---------------- ----------------
  2000 Quarter                                       First              Second            Third           Fourth
----------------------------------------- ----------------- ------------------- ---------------- ----------------
  Operating revenues                             $ 647,223           $ 538,801        $ 978,981      $ 1,276,667
  Operating income                                 115,885              63,119           57,598          127,270
  Other income                                       4,390               6,878            5,273         (11,480)
  Net income                                        78,192              27,369           18,995           69,275`

In October 2001, the Company  filed a Form 10-Q/A to restate the  quarterly  consolidated  financial  statements  of Puget Energy and
PSE for the quarter and six months ended June 30, 2001. The restatement  relates to the accounting  treatment of certain
purchase gas financial  contracts.  The contracts,  entered into as a part of the Company's plan to secure fixed price gas supplies for
winter  electric  generation  purposes,  were not matched  with  purchase  of  physical  gas as of June 30,  2001.  As a result,  under
Statement No. 133, the financial gas purchase  contracts do not qualify as hedge  instruments at June
30,  2001.  Therefore,  the change in market value of these  contracts  should have been  recorded in operating  income for the quarter
ended June 30, 2001, but were not reflected in that manner in the Company's initial filing as of June 30, 2001.

Note 20.
        Consolidated Statement of Cash Flows

For purposes of the Statement of Cash Flows,  the Company  considers all temporary  investments  to be cash  equivalents.  These
temporary cash  investments  are  securities  held for cash  management  purposes,  having  maturities of three months or less. The net
change in current  assets and current  liabilities  for purposes of the Statement of Cash Flows  excludes  short-term  debt and current
maturities of long-term  debt. At December 31, 2001,  2000 and 1999,  book  overdrafts of $3.1 million,  $0.3 million and $22.2 million, respectively
were included in accounts  payable.  Non-cash  transactions  in 2001,  2000 and 1999 included the issuance of $25.6,  $23.1 million and
$7.8 million, respectively of common stock for Puget Energy's  Dividend  Reinvestment Plan and the assumption in 1999 of $109.0 million in long-term
debt as part of the purchase of the Encogen partnership which was paid off in 2000.


        The following provides additional information concerning cash flow activities:

`------------------------------------------------------------ ------------------ -------------- --------------------------------
                                                                  Puget Energy            PSE
  Year Ended December 31 (dollars in thousands)                           2001           2001        Puget Energy and PSE
                                                                                                         2000             1999
------------------------------------------------------------ ------------------ -------------- --------------- ----------------
  Changes in certain current assets and current
  liabilities,
    net of effects of acquisitions by InfrastruX:
      Accounts receivable                                            $82,799         $ 83,617     $ (130,088)       $ (23,382)
      Unbilled revenue                                                64,776           64,776        (90,480)            5,437
      Materials and supplies                                          10,611            8,460        (29,760)         (10,707)
      Prepayments and other                                            4,251            5,822         (1,742)          (1,832)
      FAS 133 unrealized gain                                         (3,315)          (3,315)            --                --
      Purchased gas receivable                                        58,822           58,822        (62,350)          (28,208)
      Accounts payable                                              (254,944)        (247,931)       232,402            15,077
      FAS 133 unrealized loss                                         35,145           35,145             --                --
      Accrued expenses and other                                     (52,759)         (64,935)        33,155            18,169
------------------------------------------------------------ ------------------ --------------- -------------- -----------------
  Net change in certain current assets
    and current liabilities                                         $(54,614)        $(59,539)     $ (48,863)        $ (25,446)
------------------------------------------------------------ ------------------ --------------- -------------- -----------------
  Cash payments:
      Interest (net of capitalized interest)                       $ 191,004        $ 187,347      $ 176,895         $ 153,093
      Income taxes                                                    87,470           87,020        114,100            99,959
------------------------------------------------------------ ------------------ --------------- -------------- -----------------`

NOTE 21.
        Acquisitions

        During  2000,  InfrastruX  Group  Inc.  (InfrastruX),   a  wholly-owned   subsidiary  of  Puget  Energy,  acquired  two  utility
infrastructure  construction  companies for a total price of $87.7 million.  During 2001,  InfrastruX acquired six additional companies
for a total price of $83.6 million. All purchases have been funded in the form of cash and preferred and common stock.

        These companies provide utility infrastructure services such as: installing,  replacing and restoring underground cables and pipes
for utilities and telecommunication providers;  pipeline construction,  maintenance and rehabilitation services for the natural gas and
petroleum industries,  including directional drilling and vacuum excavation;  and distribution-oriented  overhead electric construction
services to electric utilities and cooperatives.  In February 2002, InfrastruX acquired another utility  infrastructure  company, which
provides design and electrical construction and maintenance.

        The acquisitions have been accounted for using the purchase method of accounting and, accordingly,  the operating results of these
companies have been included in Puget Energy's  consolidated  financial statements since their acquisition dates. Goodwill representing
the excess of cost over the net  tangible  and  identifiable  intangible  assets of the business  was  approximately  $99.7  million at
December  31,  2001.  During  2001,  goodwill  was  amortized  on a  straight-line  basis using a 30-year  life except for  goodwill on
acquisitions  occurring  after June 30,  2001,  which is not  amortized  per  Statement  of Financial  Accounting  Standards  No. 142 -
"Goodwill and Other  Intangible  Assets"  (Statement  No. 142).  With the  implementation  of Statement No. 142 in January 2002,  Puget
Energy  will  discontinue  amortizing  all  goodwill  and,  instead,  perform  impairment  tests to  determine  if  goodwill  should be
written-down.  Goodwill amortization for 2001 and 2000 was approximately $2.4 million and $0.3 million,  respectively. The total amount
of intangibles assigned at December 31, 2001 and 2000 was $23.9 million and $21.1 million, respectively, as shown below.

`2001                                          2000
                                 Intangibles          Weighted Avg             Intangibles          Weighted Avg
                               Assigned Amount     Amort Period (Yrs)        Assigned Amount     Amort Period (Yrs)
                            -------------------------------------------   -------------------------------------------
Covenant not to compete             $ 2,768,250            0.58                   $        --            0.00
In process R&D                          260,000            0.00                       260,000            0.00
Workforce                             3,400,000            0.71                     3,400,000            0.81
Customer relationships                3,250,000            1.36                     3,250,000            1.54
Developed technology                 14,190,000           11.89                    14,190,000           13.45
                            -------------------------------------------   -------------------------------------------
      Total                         $23,868,250           14.54                   $21,100,000           15.80`

The pro forma combined  revenues,  net income,  and earnings per common share of Puget Energy  presented  below give effect to the
acquisitions  as if they had occurred on January 1, 2000.  These  results are not  necessarily  indicative of the results of operations
that would have  occurred  had the  acquisitions  of these  companies  been  consummated  for the period for which they are being given
effect.

`(Thousands, except per share amounts)
          (Unaudited)
          For the twelve months ended  December 31,                          2001                  2000
          Operating revenues                                          $ 3,414,755           $ 3,659,790
          Net income                                                       99,413               195,415
          Basic earnings per common share                                  $ 1.15                $ 2.29
          Diluted earnings per common share                                $ 1.15                $ 2.28`

NOTE 22.
        Segment Information

        Puget Energy operates in
primarily two business segments: the Regulated Utility Operations, or PSE, and
Utility Support, or InfrastruX, which was incorporated in the year 2000. Puget
Energys regulated utility operation generates, purchases and sells
electricity and purchases, transports and sells natural gas. The service
territory of PSE covers approximately 6,000 square miles in Washington state. InfrastruX specializes in contracting services to other gas and
electric utilities primarily in the Mid-West, Texas and the Eastern United States.

        The other  principal  non-utility  line of business,  which is a PSE  subsidiary,  is a real estate  investment and  development
company.  Reconciling items between segments is not material.

        The assets of ConneXt,  the development and marketing of customer  information  and billing system software  segment,  were sold
during the third  quarter of 2001.  The third  quarter  results of 2001  include  $8.0  million  after-tax  gain related to the ConneXt
sale.  Reconciling items between segments is not material.

        Financial data for business segments are as follows:

`(dollars  in thousands)                                 Regulated                                        Puget Energy
----------------------------------------------
                     2001                                   Utility            Other        InfrastruX            Total
------------------------------------------------------------------------------------------------------------------------
  Revenues                                              $ 3,167,729         $ 32,476         $ 173,786      $ 3,373,991
  Depreciation and amortization                             208,705               15             8,820          217,540
  Federal income tax                                         66,773            8,877             2,356           78,006
  Operating income                                          273,752           14,667             8,702          297,121
  Interest charges, net of AFUDC                            186,403               --             3,656          190,059
  Net income                                                 80,150           24,171             2,518          106,839
  Total assets                                            5,178,601          139,251           229,125        5,546,977
  Construction expenditures - excluding equity AFUDC        247,435               --                --          247,435
  Additions to other property, plant and equipment               --               --             5,193            5,193
------------------------------------------------------------------------------------------------------------------------

                                                          Regulated                                        Puget Energy
                     2000                                   Utility            Other        InfrastruX            Total
------------------------------------------------------------------------------------------------------------------------
  Revenues                                              $ 3,384,006           12,667          $ 44,999      $ 3,441,672
  Depreciation and amortization                             194,228               17             2,268          196,513
  Federal income tax                                        130,430           (1,854)              415          128,991
  Operating income                                          363,559             (552)              865          363,872
  Interest charges, net of AFUDC                            174,914               --               188          175,102
  Net income                                                204,720          (10,346)             (543)         193,831
  Total assets                                            5,339,669          110,480           106,520        5,556,669
  Construction expenditures - excluding equity AFUDC        296,480               --                --          296,480
------------------------------------------------------------------------------------------------------------------------


                                                          Regulated                       Puget Energy
                       1999                                 Utility            Other             Total
-------------------------------------------------------------------------------------------------------
  Revenues                                              $ 2,043,500         $ 24,444       $ 2,067,944
  Depreciation and amortization                             175,610              100           175,710
  Federal income tax                                        110,026           (2,024)          108,002
  Operating income                                          309,006           (1,190)          307,816
  Interest charges, net of AFUDC                            150,384               --           150,384
  Net income                                                174,914           10,653           185,567
  Total assets                                            4,999,020          146,586         5,145,606
  Construction expenditures - excluding equity AFUDC        330,976               --           330,976
-------------------------------------------------------------------------------------------------------`

NOTE 23.
        Impairment of Long-Lived Assets

        In the fourth quarter of 2000 Hydro Energy  Development  Corp., a wholly-owned  subsidiary of PSE, recorded an after-tax loss of
approximately  $11.8 million in Other Income of the  non-regulated  business  segment.  The loss  provision  represents  the difference
between the carrying value of 13 small  hydroelectric  generating  projects  Hydro Energy  Development  Corp.  was seeking  approval to
develop in western  Washington state and management's  estimate of their net realizable  value.  Federal and state regulatory  agencies
that have  jurisdiction  over the construction and operation of the proposed  projects have made it increasingly  difficult to complete
and operate the projects in an economic  manner.  Hydro Energy  Development  Corp.  owns and operates a 3.7 MWH hydroelectric  project
located in western Washington state.

`Schedule II.
         Valuation and Qualifying Accounts and Reserves

                                                                        Additions
                                                     Balance at         Charged to                          Balance
                                                     Beginning          Costs and                           at End
  (Dollars in Thousands)                             of Period          Expenses         Deductions         of Period
-------------------------------------------------- ------------------ ---------------- ------------------ ----------------
  Puget Energy
  Year Ended December 31, 2001
--------------------------------------------------
  Accounts deducted from assets
    on balance sheet:
   Allowance for doubtful accounts receivable                $ 1,538         $ 13,458            $ 9,508          $ 5,488
   Reserve on wholesale sales                                 41,488               --                 --           41,488
   Gas transportation contracts reserve                        1,657               32              1,550              139

-------------------------------------------------- ------------------ ---------------- ------------------ ----------------
  Puget Sound Energy
  Year Ended December 31, 2001
--------------------------------------------------
  Accounts deducted from assets
    on balance sheet:
   Allowance for doubtful accounts receivable                $ 1,538         $ 11,636            $ 9,508          $ 3,666
   Reserve on wholesale sales                                 41,488               --                 --           41,488
   Gas transportation contracts reserve                        1,657               32              1,550              139


---------------------------------------------------- ---------------- ---------------- ------------------ ----------------
  Puget Energy and Puget Sound Energy
-------------------------------------------------- ------------------ ---------------- ------------------ ----------------
  Year Ended December 31, 2000
--------------------------------------------------
  Accounts deducted from assets
    on balance sheet:
   Allowance for doubtful accounts receivable                $ 1,503          $ 7,552            $ 7,517           $1,538
   Reserve on wholesale sales                                     --           41,488                 --           41,488
   Gas transportation contracts reserve                        1,780              660                783            1,657

-------------------------------------------------- ------------------ ---------------- ------------------ ----------------
  Year Ended December 31, 1999
--------------------------------------------------
  Accounts deducted from assets
    on balance sheet:
  Allowance for doubtful accounts receivable                 $ 1,020          $ 6,885            $ 6,402          $ 1,503
    Gas transportation contracts reserve                       4,611            5,598              8,429            1,780`

EXHIBIT INDEX

Certain of the following  exhibits are filed herewith.  Certain other of the following  exhibits have heretofore been filed with
the Securities and Commission and are incorporated herein by reference.

        3(i).1        Restated  Articles of  Incorporation
of Puget Energy  (Incorporated  by reference to Exhibit  99.2,  Puget  Energy's
Current Report on Form 8-K filed January 2, 2001, Commission File No. 333-77491).

        3(i).2        Restated  Articles  of  Incorporation
of PSE  (included  as Annex F to the Joint  Proxy  Statement/Prospectus  filed
February 1, 1996, Registration No. 333-617).

        3(ii).1        Bylaws of Puget Energy  (incorporated
by reference to Exhibit 3.2 to the Registration  Statement on Form S-4 of Puget Energy (No. 333-77491)).

        3(ii).2        Restated  Bylaws of PSE  (Exhibit 3 to
PSE's  Quarterly  Report on Form 10-Q for the  quarter  ended  June 30,  1997, Commission File No. 1-4393).

        4.1        Fortieth through Seventy-eighth
Supplemental Indentures defining the rights of the holders of PSE's First Mortgage Bonds (Exhibit
2-d to Registration No. 2-60200;  Exhibit 4-c to Registration  No. 2-13347;  Exhibits 2-e through and including 2-k to Registration No.
2-60200; Exhibit 4-h to Registration No. 2-17465;  Exhibits 2-l, 2-m and 2-n to Registration No. 2-60200;  Exhibits 2-m to Registration
No. 2-37645;  Exhibit 2-o through and including 2-s to Registration No. 2-60200;  Exhibit 5-b to Registration No. 2-62883;  Exhibit 2-h
to Registration No. 2-65831;  Exhibit (4)-j-1 to Registration No. 2-72061;  Exhibit (4)-a to Registration No. 2-91516; Exhibit (4)-b to
Annual  Report on Form 10-K for the fiscal year ended  December 31,  1985,  Commission  File No.  1-4393;  Exhibits  (4)-b and (4)-c to
Registration No.  33-45916;  Exhibit (4)-c to Registration  No.  33-50788;  Exhibit (4)-a to Registration No. 33-53056;  Exhibit 4.3 to
Registration  No.  33-63278;  Exhibit 4.25 to  Registration  No.  333-41181;  Exhibit 4.27 to Current Report on Form 8-K dated March 5,
1999; and Exhibit 4.2 to Current Report on Form 8-K dated November 2, 2000).

        4.2        Indenture defining the rights of the
holders of PSE's senior notes (incorporated herein by reference to Exhibit 4-a
to PSE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, Commission File No. 1-4393).

        4.3        First  Supplemental  Indenture  defining
the rights of the holders of PSE's  Senior  Notes,  Series A (incorporated herein by reference to Exhibit 4-b to PSE's  Quarterly  Report
on Form 10-Q for the quarter  ended June 30, 1998,  Commission  File No. 1-4393).

        4.4        Second  Supplemental  Indenture  defining
the rights of the holders of PSE's Senior  Notes,  Series B (incorporated herein be reference to Exhibit 4.6 to PSE's Current Report on
Form 8-K, dated March 5, 1999, Commission File No. 1-4393).

        4.5        Third  Supplemental  Indenture  defining
the rights of the holders of PSE's  Senior  Notes,  Series C (incorporated
herein by reference to Exhibit 4.1 to PSE's Current Report on Form 8-K, dated November 2, 2000, Commission File No. 1-4393).

        4.6        Rights  Agreement  dated as of December 21,
2000 between Puget Energy and Mellon  Investor  Services LLC, as Rights Agent (incorporated herein by reference to Exhibit 2.1 to PSE's
Registration Statement on Form 8-A, dated  January 2, 2001,  Commission File No. 1-16305).

        4.7        Indenture between PSE and the First
National Bank of Chicago dated June 6, 1997  (incorporated herein by reference to Exhibit 4.1 of PSE's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, Commission File No. 1-4393).

        4.8        Amended and Restated  Declaration  of Trust
between Puget Sound Energy  Capital Trust and the First  National Bank of Chicago dated June 6, 1997 (incorporated  herein by reference
to Exhibit 4.2 of PSE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, Commission File No. 1-4393).

        4.9        Series A Capital  Securities  Guarantee
Agreement between PSE and the First National Bank of Chicago dated June 6, 1997 (incorporated  herein by reference to Exhibit 4.3 of PSE's
Quarterly  Report on Form 10-Q for the quarter  ended June 30, 1997, Commission File No. 1-4393).

        4.10        Pledge Agreement dated August 1, 1991
between PSE and The First National Bank of Chicago,  as Trustee (Exhibit (4)-j to Registration No. 33-45916).

        4.11        Loan Agreement dated August 1, 1991
between the City of Forsyth,  Rosebud County,  Montana and PSE (Exhibit (4)-k to Registration No. 33-45916).

        4.12        Pledge  Agreement dated as of March 1,
1992 by and between PSE and  Chemical  Bank  relating to a series of first
mortgage bonds (Exhibit 4.15 to Annual Report on Form 10-K for the fiscal year ended December 31, 1993, Commission File No. 1-4393).

        4.13        Pledge  Agreement,  dated as of April 1,
1993, by and between PSE and The First National Bank of Chicago,  relating to a series of first  mortgage  bonds.  (Exhibit 4.16 to Annual
Report on Form 10-K for the fiscal year ended December 31, 1993,  Commission  File No. 1-4393).

        4.14        Indenture of First Mortgage dated as of
April 1, 1957 (Exhibit 4-B, Registration No. 2-14307).

        4.15        First Supplemental Indenture dated as of
October 1, 1959 (Exhibit 4-D to Registration No. 2-17876).

        4.16        Sixth Supplemental Indenture dated as of
August 1, 1966 (Exhibit to Form 8-K for month of August 1966, File No. 0-951).

        4.17        Seventh Supplemental Indenture dated as
of February 1, 1967 (Exhibit 4-M, Registration No. 2-27038).

        4.18        Sixteenth Supplemental Indenture dated as
of June 1, 1977 (Exhibit 6-05 to Registration No. 2-60352).

        4.19        Seventeenth Supplemental Indenture dated
as of August 9, 1978 (Exhibit 5-K.18 to Registration No. 2-64428).

        4.20        Twenty-second  Supplemental  Indenture
dated as of July 15, 1986  (Exhibit  4-B.20 to Form 10-K for the year ended  September 30, 1986, File No. 0-951).

        4.21        Twenty-seventh  Supplemental Indenture
dated as of September 1, 1990 (Exhibit 4-B.20, Form 10-K for the year ended September 30, 1998, File No. 10-951).

        4.22        Twenty-eighth  Supplemental Indenture
dated as of July 31, 1991 (Exhibit 4-A, Form 10-Q for the quarter ended March 31, 1993, File No. 0-951).

        4.23        Twenty-ninth Supplemental Indenture dated
as of June 1, 1993 (Exhibit 4-A to Registration No. 33-49599).

        4.24        Thirtieth Supplemental Indenture dated as
of August 15, 1995  (incorporated  herein by reference  to Exhibit 4-A of  Washington Natural Gas Company's S-3 Registration Statement,
Registration No. 33-61859).

        4.25        Statement of Relative Rights and
Preferences for the 7 3/4% Series  Preferred Stock  Cumulative,  $100 Par Value.  (Exhibit 1.6 to
Registration Statement on Form 8-A filed February 14, 1994, Commission File No. 1-4393).

        4.26        Unsecured Debt
Indenture between Puget Sound Energy and Bank One Trust Company, N.A. dated as
of May 18, 2001 defining the rights of the holders of Puget Sound Energys
unsecured debentures (incorporated herein by reference to Exhibit 4.3 to Puget
Sound Energys Current Report on Form 8-K, filed May 22, 2001, Commission
File No. 1-4393).

        4.27        First Supplemental
Indenture to the Unsecured Debt Indenture dated as of May 18, 2001 defining
the rights of 8.40% Subordinated Deferrable Interest Debentures due June 30,
2041 (incorporated herein by reference to Exhibit 4.4 to Puget Sound
Energys Current Report on Form 8-K, filed May 22, 2001, Commission File
No. 1-4393).

        4.28        Amended and Restated
Declaration of Trust of Puget Sound Energy Trust II dated as of May 18, 2001
(incorporated herein by reference to Exhibit 4.2 to Puget Sound Energys
Current Report on Form 8-K, filed May 22, 2001, Commission File No. 1-4393).

        4.29        Preferred Securities Guarantee Agreement, dated May 18, 2001 between Puget
Sound Energy and Bank One Trust Company, N.A. for the benefit of the holders of
the trust preferred securities of the Puget Sound Energy Trust II (incorporated
herein by reference to Exhibit 4.5 to Puget Sound Energys Current Report
on Form 8-K, filed May 22, 2001, Commission File No. 1-4393).

        10.1        Assignment
and Agreement dated as of August 13, 1964 between Public Utility District No.
1 of Chelan County, Washington and PSE, relating to the Rock Island Project
(Exhibit 13-b to Registration No. 2-24262).

        10.2        First  Amendment dated as of October 4,
1961 to Power Sales  Contract  between  Public  Utility  District No. 1 of
Chelan County, Washington and PSE, relating to the Rocky Reach Project (Exhibit 13-d to Registration No. 2-24252).

        10.3        Assignment  and  Agreement dated as of
August 13, 1964  between  Public  Utility  District No. 1 of Chelan County,
Washington and PSE, relating to the Rocky Reach Project (Exhibit 13-e to Registration No. 2-24252).

        10.4        Assignment  and  Agreement dated as of
August 13, 1964  between  Public  Utility  District No. 2 of Grant  County,
Washington and PSE, relating to the Priest Rapids Development (Exhibit 13-j to Registration No. 2-24252).

        10.5        Assignment  and  Agreement dated as of
August 13, 1964 between  Public  Utility  District
No. 2 of Grant  County, Washington and PSE, relating to the Wanapum Development (Exhibit 13-n to Registration No. 2-24252).

        10.6        First  Amendment dated February 9, 1965
to Power Sales Contract  between Public Utility
District No. 1 of Douglas County, Washington and PSE, relating to the Wells Development (Exhibit 13-p to Registration No. 2-24252).

        10.7        First  Amendment executed as of February
9, 1965 to Reserved  Share Power Sales  Contract  between  Public Utility
District No. 1 of Douglas County, Washington and PSE, relating to the Wells Development (Exhibit 13-r to Registration No. 2-24252).

        10.8        Assignment and Agreement dated as of
August 13, 1964 between  Public  Utility  District No. 1 of Douglas  County,
Washington and PSE, relating to the Wells Development (Exhibit 13-u to Registration No. 2-24252).

        10.9        Pacific Northwest Coordination Agreement
executed as of September 15, 1964 among the United States of America, PSE
and most of the other major electrical utilities in the Pacific Northwest (Exhibit 13-gg to Registration No. 2-24252).

        10.10        Contract  dated  November 14, 1957
between  Public  Utility  District No. 1 of Chelan  County,  Washington and PSE,
relating to the Rocky Reach Project (Exhibit 4-1-a to Registration No. 2-13979).

        10.11        Power Sales  Contract dated as of
November 14,  1957 between  Public  Utility  District  No. 1 of Chelan  County,
Washington and PSE, relating to the Rocky Reach Project (Exhibit 4-c-1 to Registration No. 2-13979).

        10.12        Power Sales Contract dated May 21, 1956
between Public Utility District No. 2 of Grant County,  Washington and PSE,
relating to the Priest Rapids Project (Exhibit 4-d to Registration No. 2-13347).

        10.13        First Amendment to Power Sales Contract
dated as of August 5, 1958 between PSE and Public Utility District No. 2 of
Grant County, Washington, relating to the Priest Rapids Development (Exhibit 13-h to Registration No. 2-15618).

        10.14        Power Sales Contract dated June 22, 1959
between Public Utility District No. 2 of Grant County,  Washington and PSE,
relating to the Wanapum Development (Exhibit 13-j to Registration No. 2-15618).

        10.15        Reserve  Share Power Sales  Contract
dated June 22, 1959 between  Public  Utility  District No. 2 of Grant County,
Washington and PSE, relating to the Priest Rapids Project (Exhibit 13-k to Registration No. 2-15618).

        10.16        Agreement to Amend Power Sales Contracts
dated July 30, 1963 between Public Utility District No. 2 of Grant County,
Washington and PSE, relating to the Wanapum Development (Exhibit 13-1 to Registration No. 2-21824).

        10.17        Power Sales Contract  executed as of
September 18, 1963 between Public  Utility  District No. 1 of Douglas  County,
Washington and PSE, relating to the Wells Development (Exhibit 13-r to Registration No. 2-21824).

        10.18        Reserved Share Power Sales  Contract
executed as of September 18, 1963 between  Public  Utility  District No. 1 of
Douglas County, Washington and PSE, relating to the Wells Development (Exhibit 13-s to Registration No. 2-21824).

        10.19        Construction  and Ownership  Agreement
dated as of July 30, 1971 between The Montana Power Company and PSE (Exhibit
5-b to Registration No. 2-45702).

        10.20        Operation and Maintenance Agreement dated
as of July 30, 1971 between The Montana Power Company and PSE (Exhibit
5-c to Registration No. 2-45702).

        10.21        Coal Supply  Agreement dated as of July
30, 1971 among The Montana Power Company,  PSE and Western Energy Company
(Exhibit 5-d to Registration No. 2-45702).

        10.22        Contract dated June 19, 1974, between
PSE and P.U.D No. 1 of Chelan  County  (Exhibit D to Form 8-K dated July 5, 1974).

        10.23        Exchange Agreement  executed August 13,
1964 between the United States of America,  Columbia Storage Power Exchange
and PSE, relating to Canadian Entitlement (Exhibit 13-ff to Registration No. 2-24252).

        10.24        Loan Agreement dated as of December 1,
1980 and related documents  pertaining to Whitehorn turbine construction trust
financing (Exhibit 10.52 to Annual Report on Form 10-K for the fiscal year ended December 31, 1980, Commission File No. 1-4393).

        10.25        Letter Agreement dated March 31, 1980,
between PSE and Manufacturers  Hanover Leasing  Corporation  (Exhibit b-8 to
Registration No. 2-68498).

        10.26        Coal Transportation Agreement dated as of
July 10, 1981  (Exhibit  20-a to  Quarterly  Report on Form 10-Q for the quarter ended September 30, 1981, Commission File No. 1-4393).

        10.27        Settlement Agreement and Covenant Not to
Sue  executed by the United  States  Department  of Energy  acting by and through the Bonneville  Power  Administration  and PSE dated
September 17, 1985 (Exhibit  (10)-49 to Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File No. 1-4393).

        10.28        Agreement to Dismiss Claims and Covenant
Not to Sue dated September 17, 1985 between  Washington  Public Power Supply
System  (Energy  Northwest)  and PSE  (Exhibit  (10)-50 to Annual  Report on Form 10-K for the fiscal  year ended  December  31,  1985,
Commission File No. 1-4393).

        10.29        Irrevocable  Offer of Washington Public
Power Supply System (Energy  Northwest)  Nuclear Project No. 3 Capability for
Acquisition  executed by PSE dated  September 17, 1985 (Exhibit A of Exhibit (10)-50 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1985, Commission File No. 1-4393).

        10.30        Settlement  Exchange  Agreement
(Bonneville  Exchange  Power  Contract)  executed  by the  United  States of America
Department  of Energy  acting by and through the  Bonneville  Power  Administration  and PSE dated  September  17, 1985 (Exhibit B of
Exhibit (10)-50 to Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File No. 1-4393).

        10.31        Settlement Agreement and Covenant Not to
Sue between PSE and Northern Wasco County People's Utility District dated October 16, 1985 (Exhibit  (10)-53 to Annual  Report on Form 10-K
for the fiscal year ended  December  31, 1985,  Commission  File No. 1-4393).

        10.32        Settlement Agreement and Covenant Not to
Sue between PSE and Tillamook People's Utility District dated October 16,
1985 (Exhibit (10)-54 to Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File No. 1-4393).

        10.33        Settlement Agreement and Covenant Not to
Sue between PSE and Clatskanie  People's Utility District,  dated September
30, 1985 (Exhibit (10)-55 to Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File No. 1-4393).

        10.34        Stipulation and Settlement  Agreement
between PSE and Muckleshoot Tribe of the Muckleshoot Indian Reservation,  dated October 31, 1986  (Exhibit  (10)-55 to Annual  Report on Form
10-K for the fiscal year ended  December  31, 1986,  Commission  File No. 1-4393).

        10.35        Transmission  Agreement dated April 17,
1981 between the Bonneville Power  Administration and PSE (Colstrip Project)
(Exhibit (10)-55 to Annual Report on Form 10-K for the fiscal year ended December 31, 1987, Commission File No. 1-4393).

        10.36        Transmission  Agreement dated April 17,
1981 between the Bonneville Power  Administration and Montana Intertie Users (Colstrip  Project)  (Exhibit  (10)-56 to Annual Report on Form
10-K for the fiscal year ended December 31, 1987,  Commission  File No. 1-4393).

        10.37        Ownership and  Operation  Agreement
dated as of May 6,  1981 between PSE and other Owners of the Colstrip  Project (Colstrip 3 and 4) (Exhibit  (10)-57 to Annual  Report on
Form 10-K for the fiscal year ended  December 31, 1987,  Commission  File No. 1-4393).

        10.38        Colstrip Project Transmission Agreement
dated as of May 6, 1981 between PSE and Owners of the Colstrip  Project
(Exhibit (10)-58 to Annual Report on Form 10-K for the fiscal year ended December 31, 1987, Commission File No. 1-4393).

        10.39        Common Facilities Agreement dated as of
May 6,  1981 between  PSE and  Owners of  Colstrip  1 and 2, and 3 and 4
(Exhibit (10)-59 to Annual Report on Form 10-K for the fiscal year ended December 31, 1987, Commission File No. 1-4393).

        10.40        Agreement for the Purchase of Power
dated as of October 29, 1984 between South  Fork II,  Inc. and PSE (Weeks Falls Hydro-electric  Project) (Exhibit  (10)-60 to Annual Report
on Form 10-K for the fiscal year ended December 31, 1987,  Commission File No. 1-4393).

        10.41        Agreement for the Purchase of Power
dated as of October 29, 1984 between South Fork  Resources,  Inc. and PSE (Twin Falls  Hydro-electric  Project) (Exhibit (10)-61 to Annual
Report on Form 10-K for the fiscal year ended December 31, 1987,  Commission File No. 1-4393).

        10.42        Agreement for Firm Purchase Power dated
as of January 4, 1988 between the City of  Spokane,  Washington  and PSE (Spokane  Waste  Combustion  Project) (Exhibit (10)-62 to Annual
Report on Form 10-K for the fiscal year ended  December  31,  1987, Commission File No. 1-4393).

        10.43        Agreement for  Evaluating,  Planning and
Licensing  dated as of February 21, 1985 and Agreement for Purchase of Power
dated as of February 21, 1985 between Pacific Hydropower Associates and PSE (Koma Kulshan  Hydro-electric  Project) (Exhibit (10)-63 to
Annual Report on Form 10-K for the fiscal year ended December 31, 1987, Commission File No. 1-4393).

        10.44        Amendment  dated as of June 1, 1968,  to
Power Sales  Contract  between  Public  Utility  District  No. 1 of Chelan County, Washington and PSE (Rocky Reach  Project) (Exhibit (10)-66
to Annual Report on Form 10-K for the fiscal year ended December 31, 1987, Commission File No. 1-4393).

        10.45        Transmission  Agreement  dated as of
December 30, 1987 between the Bonneville Power Administration and PSE (Rock Island  Project) (Exhibit (10)-74 to Annual  Report on Form 10-K
for the fiscal year ended  December  31, 1988,  Commission  File No. 1-4393).

        10.46        Agreement for Purchase and Sale of Firm
Capacity and Energy between The Washington  Water Power Company and PSE dated as of January 1, 1988  (Exhibit  (10)-1 to Quarterly Report on
Form 10-Q for the quarter  ended March 31, 1988,  Commission  File No. 1-4393).

        10.47        Amendment dated as of August 10, 1988 to
Agreement for Firm  Purchase  Power dated as of January 4, 1988 between the City of Spokane,  Washington and PSE (Spokane Waste  Combustion
Project) (Exhibit  (10)-76 to Annual Report on Form 10-K for the fiscal year ended December 31, 1988, Commission File No. 1-4393).

        10.48        Agreement for Firm Power Purchase dated
October 24, 1988 between  Northern  Wasco People's  Utility  District and PSE
(The Dalles Dam North Fishway)  (Exhibit (10)-77 to Annual Report on Form 10-K for the fiscal year ended December 31, 1988,  Commission
File No. 1-4393).

        10.49        Agreement for the Purchase of Power dated
as of October 27, 1988 between  Pacific Power & Light Company  (PacifiCorp)
and PSE (Exhibit (10)-78 to Annual Report on Form 10-K for the fiscal year ended December 31, 1988, Commission File No. 1-4393).

        10.50        Agreement  for Sale  and  Exchange  of
Firm  Power  dated as of  November  23,  1988  between  the  Bonneville  Power Administration  and PSE (Exhibit  (10)-79 to Annual Report on
Form 10-K for the fiscal year ended  December 31, 1988,  Commission  File No. 1-4393).

        10.51        Agreement for Firm Power Purchase dated
as of February 24, 1989 between Sumas Energy,  Inc. and PSE (Exhibit (10)-1
to Quarterly Report on Form 10-Q for the quarter ended March 31, 1989, Commission File No. 1-4393).

        10.52        Settlement Agreement dated as of April
27,  1989  between  Public  Utility  District  No.  1 of  Douglas  County,
Washington,  Portland  General  Electric  Company  (Enron),  PacifiCorp,  The Washington  Water Power Company (Avista) and PSE (Exhibit
(10)-1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1989, Commission File No. 1-4393).

        10.53        Agreement for Firm Power Purchase
(Thermal  Project) dated as of June 29, 1989 between San Juan Energy Company and
PSE (Exhibit (10)-2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1989, Commission File No. 1-4393).

        10.54        Agreement for Verification of Transfer,
Assignment and Assumption dated as of September 15, 1989 between San Juan Energy  Company,  March Point  Cogeneration  Company and PSE
(Exhibit  (10)-3 to Quarterly  Report on Form 10-Q for the quarter  ended September 30, 1989, Commission File No. 1-4393).

        10.55        Power Sales Agreement between The Montana
Power Company and PSE dated as of October 1, 1989  (Exhibit  (10)-4 to
Quarterly Report on Form 10-Q for the quarter ended September 30, 1989, Commission File No. 1-4393).

        10.56        Conservation Power Sales Agreement dated
as of December 11, 1989 between Public Utility  District No. 1 of Snohomish County and PSE  (Exhibit  (10)-87 to Annual  Report on Form 10-K
for the fiscal  year ended  December  31,  1989,  Commission  File No. 1-4393).

        10.57        Amendment No. 1 to the Colstrip Project
Transmission  Agreement dated as of February 14, 1990 among the Montana Power
Company,  The Washington Water Power Company (Avista),  Portland General Electric Company (Enron),  PacifiCorp and PSE (Exhibit (10)-91
to Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File No. 1-4393).

        10.58        Amendment No. 1 to the Fifteen-Year Power
Sales  Agreement  dated as of April 18, 1990 between  PacifiCorp  and PSE
(Exhibit (10)-93 to Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File No. 1-4393).

        10.59        Settlement Agreement dated as of October
1, 1990 among Public Utility District No. 1 of Douglas County,  Washington,
PSE,  Pacific Power and Light Company  (PacifiCorp),  The Washington  Water Power Company  (Avista),  Portland General Electric Company
(Enron), the Washington  Department of Fisheries,  the Washington  Department of Wildlife,  the Oregon Department of Fish and Wildlife,
the National Marine Fisheries  Service,  the U.S. Fish and Wildlife  Service,  the  Confederated  Tribes and Bands of the Yakima Indian
Nation, the Confederated Tribes of the Umatilla  Reservation,  and the Confederated Tribes of the Colville Reservation (Exhibit (10)-95
to Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Commission File No. 1-4393).

        10.60        Agreement for Firm Power Purchase
(Thermal Project) dated December 27, 1990 among March Point  Cogeneration  Company,
a California general partnership comprising San Juan Energy Company, a California  corporation;  Texas-Anacortes  Cogeneration Company,
a Delaware  corporation;  and PSE (Exhibit  (10)-4 to Quarterly  Report on Form 10-Q for the quarter  ended March 31, 1991,  Commission
File No. 1-4393).

        10.61        Agreement for Firm Power Purchase dated
March 20, 1991 between Tenaska Washington,  Inc., a Delaware corporation, and
PSE (Exhibit (10)-1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, Commission File No. 1-4393).

        10.62        Letter  Agreement  dated April 25, 1991
between  Sumas  Energy,  Inc. and PSE, to amend the  Agreement for Firm Power Purchase  dated as of  February  24,  1989 (Exhibit (10)-2 to
Quarterly  Report on Form 10-Q for the  quarter  ended June 30,  1991, Commission File No. 1-4393).

        10.63        Amendment dated June 7, 1991 to Letter
Agreement  dated April 25, 1991 between Sumas Energy,  Inc. and PSE (Exhibit
(10)-3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, Commission File No. 1-4393).

        10.64        Amendatory Agreement No. 3 dated August
1, 1991 to the Pacific Northwest Coordination Agreement executed September
15, 1964 among the United States of America,  PSE and most of the other major electrical  utilities in the Pacific  Northwest  (Exhibit
(10)-4 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, Commission File No. 1-4393).

        10.65        Agreement between the 40 parties to the
Western  Systems  Power  Pool (PSE  being one party)  dated July 27,  1991
(Exhibit (10)-2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1991, Commission File No. 1-4393).

        10.66        Memorandum of  Understanding  between
PSE and the Bonneville Power  Administration  dated September 18, 1991 (Exhibit
(10)-3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1991, Commission File No. 1-4393).

        10.67        Amendment of Seasonal  Exchange
Agreement,  dated December 4, 1991 between Pacific Gas and Electric  Company and PSE
(Exhibit (10)-107 to Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File No. 1-4393).

        10.68        Capacity and Energy Exchange Agreement,
dated as of October 4, 1991 between Pacific Gas and Electric Company and PSE
(Exhibit (10)-108 to Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File No. 1-4393).

        10.69        Intertie and Network Transmission
Agreement,  dated as of October 4, 1991 between Bonneville Power Administration and
PSE (Exhibit (10)-109 to Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File No. 1-4393).

        10.70        Amendment to Agreement for Firm Power
Purchase dated as of September  30, 1991 between Sumas Energy,  Inc. and PSE
(Exhibit (10)-112 to Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File No. 1-4393).

        10.71        Letter Agreement dated October 12, 1992
between Tenaska Washington Partners,  L.P. and PSE regarding clarification of
issues under the Agreement for Firm Power Purchase  (Exhibit  (10)-121 to Annual Report on Form 10-K for the fiscal year ended December
31, 1992, Commission File No. 1-4393).

        10.72        Consent and  Agreement dated October 12,
1992 between PSE and The Chase  Manhattan  Bank,  N.A.,  as agent  (Exhibit
(10)-122 to Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File No. 1-4393).

        10.73        General Transmission  Agreement dated as
of December 1, 1994 between the Bonneville Power Administration and PSE (BPA
Contract No.  DE-MS79-94BP93947)  (Exhibit 10.115 to Annual Report on Form 10-K for the fiscal year ended December 31, 1994, Commission
File No. 1-4393).

        10.74        PNW AC Intertie Capacity  Ownership
Agreement dated as of October 11, 1994 between the Bonneville Power  Administration
and PSE (BPA  Contract No.  DE-MS79-94BP94521)  (Exhibit  10.116 to Annual  Report on Form 10-K for the fiscal year ended  December 31,
1994, Commission File No. 1-4393).

        10.75        Power Exchange  Agreement dated as of
September 27, 1995 between British Columbia Power Exchange  Corporation and PSE
(Exhibit 10.117 to Annual Report on Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-4393).

        10.76        Contract with W. S. Weaver dated October
18, 1996 (Exhibit 10.118 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, Commission File No. 1-4393).

        10.77        Contract with G. B. Swofford,  Senior
Vice President Customer  Operations,  dated October 18, 1996 (Exhibit 10.120 to
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-4393).

        10.78        Service  Agreement dated April 14, 1993
between Questar Pipeline  Corporation and Washington  Natural Gas Company for
FSS-1 firm storage service at Clay Basin (Exhibit 10-B Form 10-K for the year ended September 30, 1994, File No. 11271).

        10.79        Service  Agreement  dated November 1,
1989 with Northwest  Pipeline  Corporation  covering  liquefaction  storage gas
service filed under cover of Form SE dated December 27, 1989.

        10.80        Firm  Transportation  Service Agreement
dated October 1, 1990 between Northwest  Pipeline  Corporation and Washington
Natural Gas Company (Exhibit 10-D to Form 10-K for the year ended September 30, 1994, File No. 11271).

        10.81        Gas  Transportation  Service  Contract
dated June 29, 1990  between  Washington  Natural  Gas Company and  Northwest
Pipeline Corporation (Exhibit 4-A to Form 10-Q for the quarter ended March 31, 1993, File No. 0-951).

        10.82        Gas  Transportation  Service  Contract
dated July 31, 1991  between  Washington  Natural  Gas Company and  Northwest
Pipeline Corporation (Exhibit 4-A to Form 10-Q for the quarter ended March 31, 1993, File No. 0-951).

        10.83        Amendment to Gas  Transportation  Service
 Contract  dated July 31, 1991 between  Washington  Natural Gas Company and
Northwest Pipeline Corporation (Exhibit 10-E.2 to Form 10-K for the year ended September 30, 1995, File No. 11271).

        10.84        Gas  Transportation  Service  Contract
dated July 15, 1994  between  Washington  Natural  Gas Company and  Northwest
Pipeline Corporation (Exhibit 10-E.3 to Form 10-K for the year ended September 30, 1995, File No. 11271).

        10.85        Amendment to Gas  Transportation  Service
 Contract dated August 15, 1994 between  Washington  Natural Gas Company and
Northwest Pipeline Corporation (Exhibit 10-E.4 to Form 10-K for the year ended September 30, 1995, File No. 11271).

        10.86        Firm  Transportation  Service  Agreement
dated March 1, 1992 between  Northwest  Pipeline  Corporation and Washington
Natural Gas Company (Exhibit 10-O to Form 10-K for the year ended September 30, 1994, File No. 1-11271).

        10.87        Firm  Transportation  Service Agreement
dated January 12, 1994 between Northwest Pipeline  Corporation and Washington
Natural Gas Company for firm  transportation  service from Jackson  Prairie  (Exhibit 10-P to Form 10-K for the year ended September 30,
1994, File No. 1-11271).

        10.88        Firm  Transportation  Service Agreement
dated January 12, 1994 between Northwest Pipeline  Corporation and Washington
Natural Gas Company for firm  transportation  service from Jackson  Prairie  (Exhibit 10-Q to Form 10-K for the year ended September 30,
1994, File No. 1-11271).

        10.89        Firm  Transportation  Service Agreement
dated January 12, 1994 between Northwest Pipeline  Corporation and Washington
Natural Gas Company for firm  transportation  service from  Plymouth,  LNG (Exhibit  10-R to Form 10-K for the year ended  September 30,
1994, File No. 1-11271).

        10.90        Service  Agreement  dated July 9, 1991
with Northwest  Pipeline  Corporation  for SGS-2F Storage  Service filed under
cover of Form SE dated December 23, 1991 (Exhibit 10-S to Form 10-K for the year ended September 30, 1994, File No. 1-11271).

        10.91        Firm Transportation  Agreement dated
October 27, 1993 between Pacific Gas Transmission Company and Washington Natural
Gas Company for firm  transportation  service from Kingsgate  (Exhibit 10-T to Form 10-K for the year ended September 30, 1994, File No.
1-11271).

        10.92        Firm Storage Service  Agreement and
Amendment dated April 30, 1991 between  Questar  Pipeline  Company and Washington
Natural Gas Company for firm storage service at Clay Basin filed under cover of Form SE dated December 23, 1991.

        10.93        Change in control  agreement  with T. J.
Hogan dated August 17, 1995 (Exhibit  10.152 to Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, Commission File No. 1-4393).

        10.94        Employment  agreement with S. A. McKeon,
Vice President and General  Counsel,  dated May 27, 1997 (Exhibit 10.152 to
Annual Report on Form 10-K for the fiscal year ended December 31, 1998, Commission File No. 1-4393).

        10.95        Employment  agreement with R. L. Hawley
dated March 16, 1998 (Exhibit 10.153 to Annual Report on Form 10-K for the fiscal year ended December 31, 1998, Commission File No. 1-4393).

        10.96        Puget  Energy,  Inc.  Nonemployee
Director  Stock Plan.  (incorporated  herein by reference to Exhibit 99.1 to Puget
Energy's Post Effective Amendment No. 1 to Form S-8 Registration Statement, dated January 2, 2001, Commission File No.  333-41157-99).

        10.97        Puget Energy, Inc. Employee Stock
Purchase Plan.  (incorporated herein by reference to Exhibit 99.1 to Puget Energys
Post Effective Amendment No. 1 to Form S-8 Registration Statement, dated January 2, 2001, Commission File No.  333-41113-99).

        10.98        1995 Long-Term  Incentive  Compensation
Plan. (Exhibit 10.108 to Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, Commission File No. 1-4393 and 1-16305).

        10.99        1995  Long-Term  Incentive  Compensation
Plan (incorporated  herein by reference to Exhibit 99.1 to Puget Energys
Post Effective Amendment No. 1 to Form S-8 Registration Statement, dated January 2, 2001, Commission File No.  333-61851-99).

        10.100        Credit  Agreement  dated  December 18,
1996 among PSE and various banks named  therein,  Bank of America NW, NA. as
Administrative  Agent.  (Exhibit 10.110 to Annual Report on Form 10-K for the fiscal year ended December 31, 2000,  Commission File No.
1-4393 and 1-16305).

        10.101        Supplemental  agreement of the October
1996  employment  contract with W.S.  Weaver,  President  and Chief  Executive
Officer,  dated  November  14,  2000.  (Exhibit  10.111 to Annual  Report on Form 10-K for the fiscal  year ended  December  31,  2000,
Commission File No. 1-4393 and 1-16305).

        *10.102        Retention Agreement with R.L. Hawley
dated July 1, 2001.

        *10.103        Retention Agreement with S.A. McKeon,
Vice President & General Counsel, dated July 1, 2001.

        *10.104        Employment agreement with S.P.
Reynolds, Chief Executive Officer and President, dated January 7, 2002.

        10.105        Credit Agreement dated June 29, 2001,
among InfrastruX Group, Inc. and various Banks named therein, BankOne, NA as Administrative Agent.  (Exhibit 10-1, Form 10-Q for the quarterly
period ended June 30, 2001, Commission File No. 1-4393 and 1-16305).

        *12-1        Statement setting forth computation of
ratios of earnings to fixed charges (1997 through 2001).

        *12-2        Statement setting forth computation of
ratios of earnings to fixed charges of Puget Sound Energy (1997 through 2001).

        *21.1        Subsidiaries of Puget Energy.

        *21.2        Subsidiaries of PSE.

        *23.1        Consent of PricewaterhouseCoopers LLP.
        *99.1        Puget Energy proxy statement for 2002
Annual Meeting of Shareholders (Commission File No. 1-16305).

        _________________________________
        *Filed herewith.