| | Puget Energy, Inc.Notice of Annual Meeting
May 14, 2001
Meydenbauer Center
11100 N.E. 6th Street
Bellevue, Washington
| | ---------------------------------------------------------------------------------------------------------------------

Dear Shareholder:

The   Annual   Meeting   of
Shareholders  of Puget  Energy,  Inc.  will be held at the  Meydenbauer  Center,
located at 11100 N.E. 6th Street, Bellevue, Washington on Tuesday, May 14, 2002,
at 10:00 a.m. for the following purposes:

1.    To elect five directors.

2.   To consider other matters properly presented at the meeting.

You  are entitled to vote if
you were a shareholder at the close of business on March 18, 2002.

To  make it easier for you to
vote your proxy, we have made Internet and telephone voting available.  You will
find  instructions  on the  enclosed  proxy  card.  If you choose not to use the
Internet or telephone voting,  please sign and date the proxy card and return it
in the envelope provided.

If your shares are registered
in the name of a brokerage firm or trustee and you plan to attend the meeting in
person,  please  bring a letter,  account  statement  or other  evidence of your
beneficial ownership to the meeting.

By Order of the Board of Directors



Annual Meeting Information

Who is entitled to vote?

What am I voting on?

What is a quorum?

How many votes do I have?

How many votes are required?

Can brokers vote on the election of directors?

How will my proxy be voted?

Who counts the votes?

Election of Directors

How many directors does Puget Energy have?

How many directors are elected each year?

Who are the nominees?

Who are the other directors?

Structure and Compensation of Board of Directors

Audit Committee

Director Affairs Committee

Compensation and Retirement Committee

Strategic Opportunities Committee

Board of Directors Meetings

Director Compensation

Audit Committee Report

Independent Accountants' Fees

Security Ownership of Directors and Executive Officers

Beneficial Ownership Table

Section 16(a) Beneficial Ownership Reporting Compliance

Executive Compensation

Joint Compensation and Retirement Committee Report

Stock Price Performance Graph

Summary Compensation Table

Option/SAR Exercises and Year-End Option/SAR Values

Long-Term Incentive Plan Awards in 2001

Retirement Benefits Statement

Employment Contracts, Termination of Employment and Change-in-Control Arrangements

Agreements

1995 Long-Term Incentive Compensation Plan

Stock Appreciation Rights

Certain Transactions

Additional Information About the Meeting and Shareholder Proposals

Independent Accountants

Shareholder Proposals

Solicitation of Proxies

Annual Report and 10-K

##### YOUR VOTE IS IMPORTANT

Regardless  of the number of
shares you own,  please vote your proxy either  through  Internet,  telephone or
complete and promptly return the enclosed proxy form, using the envelope we have
provided.

#### PROXY STATEMENT

Annual Meeting Information

This  proxy statement relates
to the Annual Meeting of Shareholders of Puget Energy, Inc. (Puget Energy) to be
held at 10:00 a.m. on May 14, 2002 at the Meydenbauer  Center,  which is located
at 11100  N.E.  6th  Street,  Bellevue,  Washington.  We will  mail  this  proxy
statement and our Annual Report for 2001 to shareholders on April 5, 2002.

The  mailing address of Puget
Energy's  principal  executive  offices is Puget Energy,  Inc.,  P.O. Box 97034,
Bellevue, Washington 98009-9734.

Puget Energy is a holding
company. All its operations are conducted through its subsidiaries. In addition
to Puget Sound Energy, Inc. (Puget Sound Energy), which was Puget Energys
predecessor company and is now Puget Energys principal operating
subsidiary, Puget Energy owns InfrastruX Group, Inc. (InfrastruX). Unless
otherwise specified, all historical information in this proxy statement
concerning dates prior to January 1, 2001 refers to Puget Sound Energy rather
than Puget Energy.

Who is entitled to vote?

Only  holders of common stock
may vote at the Annual Meeting.  Approximately 87 million shares of common stock
will be  outstanding  as of March  18,  2002,  the  record  date for the  Annual
Meeting.  Puget Energy will have approximately  48,700 shareholders of record as
of the record date.

What am I voting on?

You  are being asked to elect
five directors. We are not aware of any matter to be presented for action at the
Annual Meeting other than the election of directors.

What is a quorum?

The
holders of a majority of the shares of the common stock, present in person or by
proxy at the Annual Meeting, constitute a quorum for the transaction of
business. There must be a quorum for the meeting to be held.

How many votes do I have?

You  are entitled to one vote
for each share of common stock you held on the record date.  For the election of
directors,  you may not vote more shares for individual directors than the total
number of shares you held on the record date.

How many votes are required?

If a quorum is present at the
Annual  Meeting,  the five  nominees for  election as directors  who receive the
greatest  number of votes cast by the shares present in person or represented by
proxy at the Annual Meeting will be elected directors.

Can brokers vote on the
election of directors?

Because   brokers   have
discretion  to vote  shares  they hold on behalf of  beneficial  owners  for the
election of directors,  if they do not receive  instructions,  they may vote the
shares as they see fit.

How will my proxy be voted?

If we receive a proper proxy,
your shares will be voted as you direct.  If you do not provide any direction on
your proxy card, your shares will be voted as the Board of Directors recommends.
You may  revoke a proxy  card at any time  before  it is voted by  delivering  a
written notice to the Corporate  Secretary or by signing and delivering  another
proxy card that is dated later. If you attend the Annual Meeting in person,  you
may revoke the proxy by giving  notice of revocation to an inspector of election
at the Annual Meeting or by voting at the Annual Meeting.

Who counts the votes?

Mellon Investor Services, LLC
will  tabulate  the votes and will act as  inspector  of  election.  No one will
disclose the identity and vote of any shareholder  unless legally required to do
so.

Election of Directors

How many directors does
Puget Energy have?

The  number of  directors is
determined  by the Board of Directors,  but may be changed by the  shareholders.
The Board of  Directors  has fixed the current  number of  directors at ten. The
members of Puget Energy's  Board of Directors and Board  Committees are the same
as  the  members  of  Puget  Sound   Energy's   Board  of  Directors  and  Board
Committees.

How  many directors are
elected each year?

The  directors  are  divided
into three classes so that each year approximately one-third of the directors is
elected for a three-year term.  Directors are elected to hold office until their
successors  are elected and  qualified,  or until  resignation or removal in the
manner provided in our Bylaws.  At the Annual  Meeting,  the  shareholders  will
elect three Class II  directors  to serve for a term of three years  expiring on
the date of the 2005 Annual Meeting.  In addition,  the shareholders  will elect
two Class I directors to serve the remaining  term for Class I directors.  These
two Class I directors  were  appointed  by the Puget  Energy and the Puget Sound
Energy  Boards of Directors to fill  vacancies on the Boards  arising  after the
2001 Annual Meeting of Shareholders and,  therefore,  must stand for election at
this Annual Meeting.

Who     are     the
nominees?

Proxies  will be voted on the
following  nominees.  If any nominee becomes unavailable to serve as a director,
the  persons  named in the  enclosed  proxy  can vote for or  against  any other
nominee in accordance with their judgment.

Class I Nominees Standing for Election
- Terms Expiring 2004

Stephen P. Reynolds

Mr.   Reynolds   has   been
President  and Chief  Executive  Officer of Puget  Energy and Puget Sound Energy
since January 2002. Prior to that, he was President and Chief Executive  Officer
of Reynolds Energy  International  from 1998 to 2002, Chief Executive Officer of
PG&E Gas Transmission  Texas from 1997 to 1998 and President and Chief Executive
Officer of Pacific Gas Transmission  Company from 1987 to 1998. He was appointed
to the Boards of  Directors  of Puget  Energy and Puget Sound  Energy in January
2002.  Mr.  Reynolds,  age 54, also serves as a director of Oregon  Steel Mills,
Inc.

Dr. Kenneth P. Mortimer

Dr.  Mortimer  is  President
Emeritus, University of Hawaii, and Chancellor Emeritus, University of Hawaii at
Manoa. He was named president of University of Hawaii in 1993. Prior to that, he
served as president of Western  Washington  University from 1988 to 1993 (and is
President  Emeritus of that  institution),  and he served as Vice  President and
Vice Provost of  Pennsylvania  State  University from 1984 to 1988. Dr. Mortimer
holds a Ph.D.  degree from the  University  of California at Berkeley and an MBA
from the Wharton School of the University of Pennsylvania. Dr. Mortimer, age 64,
was  appointed to the Boards of Directors of Puget Energy and Puget Sound Energy
in July 2001.

Class II  Nominees  Standing  for  Election  - Terms
Expiring 2005

Charles W. Bingham

Mr.   Bingham   served   as
Executive Vice President of Weyerhaeuser Company (forest products industry) from
1981 until his  retirement  in July 1995. He has been a Director of Puget Energy
since its  incorporation  in 1999 and of Puget  Sound  Energy  since  1978.  Mr.
Bingham, age 68, also serves as a director of the Evergreen Forest Trust.

Robert L. Dryden

Mr.    Dryden   served   as
President, Chief Executive Officer and a Director of ConneXt, Inc. (a subsidiary
of Puget Sound  Energy) from 1999 until his  retirement  in September  2001.  He
served as Executive  Vice  President,  Airplane  Production,  Boeing  Commercial
Airplane  Group from 1990 until May 1998. He has been a Director of Puget Energy
since its  incorporation  in 1999 and of Puget  Sound  Energy  since  1991.  Mr.
Dryden, age 68, also is a director emeritus of U.S. Bancorp.

Sally G. Narodick

Ms.  Narodick is President of
Narodick Consulting, which specializes in strategic planning for the educational
technology  industry.  She retired as Chief  Executive  Officer and President of
Apex Learning Inc., a venture-backed  Internet  distance  learning  company,  in
October 2000.  Previously,  she served as a Consultant on Strategic Planning for
Educational  Technology  software for IBM Corporation and was Chairman and Chief
Executive Officer of Edmark Corporation from October 1989 to September 1996. She
also serves as a director of Penford Corporation,  click2learn, Inc. and Solutia
Inc.  Ms.  Narodick,  age 56,  has been a  Director  of Puget  Energy  since its
incorporation in 1999 and of Puget Sound Energy since 1989.

Who are the other directors?

The  directors  who  are not
standing for reelection at this time are:

Continuing Directors

Class III - Terms Expiring 2003

Douglas P. Beighle

Mr.  Beighle served as Senior
Vice President of The Boeing Company  (aerospace  manufacturing  and sales) from
1986 until his  retirement on May 1, 1997.  Mr.  Beighle,  age 69, was appointed
Chairman of the Boards of  Directors  of Puget  Energy and Puget Sound Energy in
March 2002.  He served as Lead  Director  from April 2001 to March 2002.  He has
been a Director of Puget  Energy  since its  incorporation  in 1999 and of Puget
Sound  Energy  since 1981.  He also serves as a director of  Washington  Mutual,
Inc., Simpson Investment Company (privately held) and InfrastruX.

Craig W. Cole

Mr.  Cole has been President
and Chief Executive  Officer of Brown & Cole Stores (retail grocery) since 1989.
Mr. Cole,  age 52, is also a member of the  Washington  Roundtable and serves on
the boards of  Associated  Grocers,  Inc.,  Washington  Food  Industry,  and the
National Food  Marketing  Institute.  Mr. Cole has served as a Director of Puget
Energy and Puget Sound Energy since December 1999.

Tomio Moriguchi

Mr.  Moriguchi has served as
Chairman and Chief  Executive  Officer of Uwajimaya,  Inc. (food and merchandise
distributor)  since  December  1994.  Previously,  he  served  as  President  of
Uwajimaya, Inc. from 1965 through December 1994. Mr. Moriguchi, age 65, has been
a Director of Puget  Energy since its  incorporation  in 1999 and of Puget Sound
Energy  since 1988.  He also serves as  President  and  Chairman of the Board of
North American Post Publishing Company.

Class I  Terms Expiring 2004

Phyllis J. Campbell

Ms.  Campbell has been Chair
of the Community Board of U.S. Bank,  Washington  since 2001. Prior to that, she
was President of U.S.  Bank,  Washington  (financial  institution)  from 1993 to
2001.  She  also  served  as  Area  President  of  U.S.  Bank,   Washington  for
Seattle-King County from 1992 to 1993, Executive Vice President and Manager from
1989 to 1992.  Ms.  Campbell,  age 50, has been a Director of Puget Energy since
its  incorporation  in 1999 and of Puget Sound Energy since 1993.  Ms.  Campbell
also serves as a director of SAFECO  Corporation and of Alaska Air Group,  Inc.,
and is a Regent of Washington State University.

John D. Durbin

Mr. Durbin has been President
and Chief Executive  Officer and a Director of InfrastruX since June 2000. Prior
to that, he was Executive Director of Emerge Corporation  (investment  banking),
and was a principal in Olympic Capital Partners,  Inc. (investment banking) from
1996 to 1999.  He served as  President  and Chief  Executive  Officer  of Hostar
International, Inc. from 1988 until his retirement in June 1995, and he has been
a General  Partner of John Durbin & Associates  since 1969. His prior  positions
include  Chairman and President of CEC  Equipment  Company from 1982 to 1987 and
Chairman of Spokane Truck Sales, Inc. from 1983 to 1987. Mr. Durbin, age 66, has
been a Director of Puget  Energy  since its  incorporation  in 1999 and of Puget
Sound Energy since 1984.

Structure and Compensation of Board of
Directors

The  Puget  Energy and Puget
Sound  Energy  Boards of  Directors  have  identical  Audit,  Director  Affairs,
Compensation and Retirement,  and Strategic  Opportunities  standing committees,
which meet in addition to regular Board of Directors meetings. The membership of
these committees and a brief statement of their principal  responsibilities  are
presented below.

Audit
   Committee

The  Puget  Energy and Puget
Sound Energy Audit  Committees  currently  include  Douglas P. Beighle  (Chair),
Charles W. Bingham,  Tomio  Moriguchi  and Dr.  Kenneth P.  Mortimer.  The Audit
Committees  meet with  management,  the internal  auditors  and the  independent
auditors to review and evaluate the companies' audited financial statements, the
internal  audit  function  and  external  audit  matters.  The Audit  Committees
recommend to the full Boards the retention of  independent  auditors.  The Audit
Committees, which until May 2001 were comprised of Mr. Beighle, Mr. Bingham, Mr.
Covey and Mr. Moriguchi, met four times during 2001.

Director Affairs
   Committee

The  Puget  Energy and Puget
Sound  Energy  Director  Affairs  Committees  currently  include  John D. Durbin
(Chair),  Phyllis J. Campbell,  Craig W. Cole and Tomio Moriguchi.  The Director
Affairs Committees act and make recommendations  regarding selection of director
candidates,  director tenure,  committee assignments and director  compensation.
Shareholders  may nominate  candidates for election to the Puget Energy Board of
Directors by notifying the Corporate Secretary prior to each annual meeting. The
committees seek director candidates with recognized  achievements and skills and
experience  that will  enhance the Boards of  Directors.  The  Director  Affairs
Committees,  which until May 2001 were comprised of Ms. Campbell, Mr. Covey, and
Mr. Durbin, met two times during 2001.

Compensation
   and Retirement Committee

The  Puget  Energy and Puget
Sound Energy Compensation and Retirement Committees currently include Phyllis J.
Campbell  (Chair),  Douglas P.  Beighle,  Charles  W.  Bingham,  Dr.  Kenneth P.
Mortimer and Sally G. Narodick.  The Compensation and Retirement  Committees act
and make  recommendations  to the Boards of Directors  with respect to executive
compensation,  the retirement  plan and other benefit plans for  employees.  The
Compensation and Retirement  Committees,  which until May 2001 were comprised of
Mr. Beighle,  Ms.  Campbell,  Mr. Covey and Ms.  Narodick,  met six times during
2001.

Strategic
   Opportunities Committee

The  Puget  Energy and Puget
Sound Energy Strategic Opportunities  Committees currently include Craig W. Cole
(Chair),  Douglas P. Beighle,  Robert L. Dryden,  John D. Durbin, Dr. Kenneth P.
Mortimer and Sally G. Narodick. The Strategic  Opportunities  Committees act and
make  recommendations  to the Boards of  Directors  with respect to new business
development matters.  The Strategic  Opportunities  Committees,  which until May
2001 were comprised of Mr. Beighle,  Mr. Cole, Mr. Dryden, Mr. Durbin, Mr. Ellis
and Ms. Narodick, met three times during 2001.

Board
   of Directors Meetings

The  Puget  Energy  Board of
Directors  met eight times during 2001.  Each director has attended at least 75%
of these  meetings  and the  meetings of  committees  on which he or she served.
Directors on average  attended 96% of all board and  committee  meetings  during
2001.

The Puget Sound Energy
Board of Directors met nine times during 2001. Each director has attended at
least 75% of these meetings and the meetings of committees on which he or she
served. Directors on average attended 96% of all board and committee meetings
during 2001.

Director
   Compensation

Puget  Energy and Puget Sound
Energy pay all directors  other than the Companies'  Chief  Executive  Officer a
quarterly  retainer of $7,500 plus $1,100 for each board and  committee  meeting
the  director  attends.  In  addition,  the  Chairman of the Boards  receives an
additional  quarterly  retainer of $7,500. At least 40% of retainer payments are
made in Puget  Energy  common  stock.  No director  who serves on both the Puget
Energy and Puget Sound Energy  Boards and the  corresponding  committees is paid
additional  compensation for concurrent service.  Directors can elect to receive
100% of their  retainer  payments  in Puget  Energy  common  stock,  or to defer
receipt of shares under the Puget Energy  Directors'  Stock Plan.  Chairs of the
Audit,   Director   Affairs,   Compensation   and   Retirement,   and  Strategic
Opportunities  Committees are also paid additional  quarterly  retainers of $500
each.

Audit Committee Report

The  Audit Committees of the
Puget  Energy and Puget Sound Energy  Boards of  Directors  are composed of four
directors  who are  independent  directors as defined under the rules of the New
York  Stock  Exchange.  The Audit  Committees  operate  under a written  charter
approved by the Boards of Directors in 2001.

The  purpose  of  the  Audit
Committees  is to assist the Boards of Directors of Puget Energy and Puget Sound
Energy in their general  oversight of their  respective  companies.  The primary
responsibilities  of the Audit  Committees  are to review and  evaluate  audited
financial  statements  and to monitor and oversee Puget Energy's and Puget Sound
Energy's  internal  control systems,  their  accounting and financial  reporting
processes, their independent audit function and their compliance with applicable
laws and regulations. The respective managements of Puget Energy and Puget Sound
Energy are responsible for the preparation,  presentation and integrity of their
respective companies' financial  statements,  accounting and financial reporting
principles,  internal controls and procedures designed to assure compliance with
accounting  standards,  applicable laws and regulations.  PricewaterhouseCoopers
LLP is  responsible  for  performing  an  independent  audit  of  the  financial
statements of Puget Energy and Puget Sound Energy in accordance  with  generally
accepted auditing standards.

The  members  of  the  Audit
Committees are not professional accountants or auditors, and are not responsible
for conducting reviews of auditing or accounting  procedures,  nor can the Audit
Committees  certify  that  PricewaterhouseCoopers  LLP  is  "independent"  under
applicable  rules. The Audit  Committees  serve a board-level  oversight role in
which  they  provide  advice,  counsel  and  direction  to  management  and  the
independent  auditors on the basis of the information they receive,  discussions
with the  independent  auditors  and the  experience  of the  Audit  Committees'
members in business, financial, and accounting matters.

The Audit Committees reviewed
and discussed the audited financial  statements with managements of Puget Energy
and Puget Sound Energy and  representatives of  PricewaterhouseCoopers  LLP. The
discussions with  PricewaterhouseCoopers LLP included the matters required to be
discussed by Statement on Auditing  Standards No. 61  (Communication  with Audit
Committees).  In addition, the Audit Committees received the written disclosures
and  the  letter  regarding  independence  from  PricewaterhouseCoopers  LLP  as
required  by   Independence   Standards   Board  Standard  No.  1  (Independence
Discussions with Audit Committees) and discussed with PricewaterhouseCoopers LLP
their independence.

Based    upon   the   Audit
Committees'  discussions  with  management and the  independent  accountants and
their  review  of  the   representations   of  management   and  the  report  of
PricewaterhouseCoopers  LLP  to  the  Audit  Committees,  the  Audit  Committees
recommended to the Boards of Directors that the audited financial  statements be
included in the Annual  Report on Form 10-K for the fiscal  year ended  December
31, 2001 for filing with the Securities and Exchange Commission.



Independent    Accountants
Fees

Fees      billed      by
PricewaterhouseCoopers LLP, Puget Energy's independent accountants, in 2001 were
as follows:

Audit  Fees - Audit  fees of
PricewaterhouseCoopers LLP during 2001 for the audit of Puget Energy's and Puget
Sound Energy's  annual  financial  statements and the review of those  financial
statements  included  in  quarterly  reports on Forms 10-Q are  estimated  to be
$771,000,  of which an  aggregate  amount of  $494,000  has been billed to Puget
Sound Energy through December 31, 2001.

Financial    Information
Systems  Design  and   Implementation   Fees  -  Aggregate  fees  billed  by
PricewaterhouseCoopers  LLP during 2001 for financial information systems design
and implementation services totaled $2,191,000.  These fees were billed to Puget
Sound Energy and relate to Puget Sound Energy's successful implementation of its
ConsumerLinX     customer    information    system    in    2001,    on    which
PricewaterhouseCoopers'  management  consulting  services group provided  system
integration services to Puget Sound Energy.

All   Other  Fees  -
Aggregate fees billed to the companies by PricewaterhouseCoopers LLP during 2001
for all other services totaled $1,571,000. These other fees relate to:

- consulting  services in consideration  of strategic  alternatives for a
subsidiary of Puget Sound Energy and for regulatory matters - $325,000;
- due diligence reviews of InfrastruX acquisition targets - $363,000;
- tax planning, consulting and tax return reviews - $781,000; and
- employee benefit plan audits, fees relating to registration statements and other - $102,000.

The  Audit  Committee  of
Puget  Energy has  considered  the  compatibility  of  non-audit  services  with
maintaining PricewaterhouseCoopers LLP's independence.

Security  Ownership of Directors  and
Executive Officers

Beneficial Ownership Table

The following table shows the
number of shares of common stock  beneficially owned on January 31, 2002 by each
director  and  nominee,   by  each  executive   officer  named  in  the  Summary
Compensation  Table and by the directors and executive  officers of Puget Energy
and Puget Sound Energy as a group.  No director or  executive  officer owns more
than 1% of the  outstanding  shares  of  common  stock.  We are not aware of any
person who beneficially owns 5% or more of the common stock.

`Number of Beneficially   Number of Share
                        Name               Owned Shares        Interests Held
                        ----               -------------       --------------
Douglas P. Beighle..................           4,609                 2,057(1)
Charles W. Bingham..................           5,551                   471(1)
Phyllis J. Campbell.................           1,000                 2,706(1)
Craig W. Cole.......................             200                 2,685(1)
Robert L. Dryden....................           5,088                 3,453(1)
John D. Durbin......................           3,291                 4,254(1)(2)
Tomio Moriguchi.....................           1,253                 6,457(1)(2)
Kenneth P. Mortimer.................               0                 1,205(1)(2)
Sally G. Narodick...................             258                 4,147(1)
Stephen P. Reynolds.................          50,000(3)                  0
William S. Weaver...................          33,718(4)             37,822(2)
Richard L. Hawley...................          14,144(4)             11,004(2)
Timothy J. Hogan....................           8,039(4)             19,559(2)(5)
Stephen A. McKeon...................          15,971(4)             10,183(2)
Gary B. Swofford....................          11,083(4)             14,188(2)
All Directors and Executive Officers         196,073(4)            136,957`

1. Includes stock units held
in the Puget Energy Directors' Stock Plan.
2. Includes stock units held
     in the Puget Sound Energy Deferred  Compensation  Plan through December 31, 2001.
3. Consists of 50,000
shares of  restricted  stock  granted  by the Puget  Energy  Board of  Directors
effective January 8, 2002 in connection with Mr. Reynolds' election as President
and Chief Executive Officer.  The restricted stock vests over a five-year period
from the date of grant.  Mr.  Reynolds  was also  granted  options  to  purchase
300,000  shares of Puget Energy common  stock.  The stock options have a term of
ten years, an exercise price equal to the fair market value on the date of grant
and vest as  follows:  options to  purchase  150,000  of the shares  vest over a
four-year  period  from  January 1, 2002 at 25% per year and options to purchase
150,000  shares  vest over a five-year  period  from  January 1, 2002 at 20% per
year.
4. Includes shares held
under the Puget Sound Energy  Investment Plan for Employees through December 31,
2001.
5. Includes  12,829
shares subject to unexercised stock options granted by Washington Energy Company
prior to the Puget Sound Power & Light Company/Washington Energy Company merger,
which  were  converted  into  options  to  purchase  common  stock at the merger
exchange ratio of .86 to 1.

Section 16(a) Beneficial Ownership Reporting Compliance

Section    16(a)   of   the
Securities  Exchange Act of 1934  requires the  directors  and officers of Puget
Energy to file reports of ownership and changes in ownership with respect to the
equity securities of the companies with the Securities and Exchange  Commission.
To our knowledge,  based on our review of the reports  furnished to Puget Energy
in 2001 and written  representations  that no other reports were  required,  all
directors  and  officers  of Puget  Energy  who are  subject  to the  Section 16
reporting requirements filed the required reports on a timely basis in 2001.

Executive Compensation

Joint Compensation and Retirement Committee Report

The  Boards of  Directors of
Puget  Energy and Puget  Sound  Energy  delegate  responsibility  for  executive
compensation  to the  Compensation  and Retirement  Committees.  The Committees'
members are Phyllis J. Campbell (Chair), Douglas P. Beighle, Charles W. Bingham,
Dr. Kenneth P. Mortimer,  and Sally G. Narodick,  none of whom is an employee of
Puget Energy or participates  in the  compensation  programs  described here for
executives.  The Committees  establish  compensation for the President and Chief
Executive  Officer  and review and  approve the  President  and Chief  Executive
Officer's   recommendations   regarding  compensation  of  the  other  executive
officers.

In   determining  executive
compensation,  the Committees consider the pay practices in comparable companies
in the  electric  and  combination  gas and  electric  utility  industries.  The
Committees   believe  that  executive   compensation   packages  should  do  the
following:

- Attract  and retain  outstanding  executives by providing  compensation
opportunities  consistent with those offered by the electric and combination gas
and electric utility industries for similar positions;
- Place a significant  portion of each  executive's  total pay at risk to
motivate executives to achieve company and individual performance goals;
- Be aligned with annual operating goals that support continued  emphasis
on low cost, reliable service to customers; and
- Tie long-term incentive compensation to increasing value to the shareholders.

In    making   compensation
decisions,  the Committees review appropriate market compensation  indices.  The
principal  source of this data is a selection  of  comparable  companies  from a
comprehensive,  industry-wide  annual  survey of  management  pay  prepared by a
national  compensation  consulting  firm.  All are part of the  Edison  Electric
Institute  (EEI)  Investor-Owned  Utilities  Index and most are gas and electric
combination  companies  which  comprise  the  EEI  Combination  Gas  &  Electric
Investor-Owned Utilities Index presented in the Stock Price Performance Graph on
page 13.

The  Committees' compensation
policies  encompass  a mix of base  salary and annual  and  long-term  incentive
compensation  programs.  The  Committees  design  the total  package  to provide
participants  with  appropriate   incentives  to  achieve  current   operational
performance  and customer  service goals as well as the  long-term  objective of
enhancing  shareholder value.  Long-term incentives are designed to comprise the
largest portion of each  executive's  incentive pay. Total cash  compensation is
targeted at the 50th percentile of total  compensation  for the comparator group
if annual  performance goals are achieved.  If performance goals are achieved at
the highest level,  total cash  compensation will be leveraged to reach the 60th
percentile or higher.

Base Salary

Generally,  base salaries for
executives are administered on a subjective,  individual basis by the Committees
using as a guideline  median  salary  levels of a select  group of electric  and
combination gas and electric  companies from the industry survey described above
that are most similar in scope and size to Puget Energy.

Annual     Incentive
Compensation

All    executive   officers
participate  in the annual Goals and  Incentive  Plan.  This plan is designed to
provide  financial   incentives  to  executives  for  achieving  desired  annual
operating  results  while meeting the Company's  service  quality  commitment to
customers.  For 2001, the targeted  opportunity for awards from this plan varied
by executive officer: Mr. Weaver's target was 55% of base salary; the target for
Messrs. Hawley, Hogan, McKeon and Swofford was 45% of base salary.

The  primary measure for the
named executive  officers was earnings per share.  For Messrs.  Weaver,  Hawley,
McKeon and  Swofford,  100% of the award was based on EPS  performance.  For Mr.
Hogan, 50% was based on EPS with the remaining 50% divided among five additional
goals related to his area of responsibility.  EPS results were not achieved at a
level that generated funding of this goal at any level. For Mr. Hogan,  three of
the additional goals that comprise 50% of his award achieved funding status.

Long-Term   Incentive
Compensation

The  1995 Long-Term Incentive
Compensation  Plan,  approved by shareholders in 1995, links compensation to the
relative total  shareholder  return.  Under this plan, the committee has awarded
contingent grants of common stock to executives and key employees that generally
pay in  stock  at  the  end of a  four-year  period,  based  on  Puget  Energy's
cumulative  four-year total  shareholder  return relative to the EEI Combination
Gas & Electric Investor-Owned  Utilities Index during that period. The number of
shares  delivered at the end of the four-year cycle will range from zero to 175%
of the contingent grant. Dividend equivalents are accrued during the performance
period  and paid out in cash  when and to the  extent  the  related  performance
shares are paid.  The Long-Term  Incentive  Plan Awards in 2001 table on page 16
lists the awards made in 2001 to the named executive  officers for the four-year
performance  cycle  ending  December  31,  2004.  As  indicated  on the  Summary
Compensation  Table on page 14,  there  was no payout  of share  awards  for the
four-year cycle ended December 31, 2001 because the four-year  cumulative  total
shareholder  return for Puget  Energy  compared to that of  companies in the EEI
Combination  Gas &  Electric  Investor-Owned  Utilities  Index  did not  produce
results that generated payout above the minimum funding level.

The   Committees  will  also
consider  grants of stock options and restricted  stock on a selective basis for
purposes of attracting key executives to the organization, as it did in the case
of Mr. Stephen  Reynolds,  Puget Energy's and Puget Sound Energy's new President
and Chief Executive Officer.

As  part  of  its  Long-Term
Incentive  Program,   the  Committees  have  also  established  stock  ownership
guidelines  to be  achieved  over a  five-year  period  commencing  in 1998  for
officers and key  managers  that range from 50% of base salary to two times base
salary for the named executive officers.

Chief Executive Officer
Compensation

In  March 2001, Mr. Weaver's
base salary as Chief Executive  Officer was adjusted from $600,000 to the market
median  salary of CEO's in comparable  companies in the EEI survey,  to $630,000
per year.

Under     Mr.    Weaver's
leadership, the outstanding achievements of Puget Sound Energy received national
recognition by receiving the Edison  Electric  Institute's  highest  award,  the
Edison Award, and the Electric Light and Power Magazine award as  investor-owned
Utility of the Year.  These awards were for Puget Sound Energy's  innovation and
technology    leadership    as    demonstrated    in   the    Personal    Energy
Management(TM)program.   However,   in  spite  of  these  achievements  and  the
significant  progress in meeting operational goals,  improved levels of customer
service and other  efficiencies,  the  volatility of the energy  markets and the
regulatory  pressures associated with recovery of increased power costs resulted
in  earnings  per share  being  below  expectations  and at a level that did not
result  in an  annual  incentive  payment  to Mr.  Weaver.  Because  the  annual
incentive and the Long-Term  Incentive  Compensation Plan awards granted in 1998
were not paid, Mr. Weaver's total cash  compensation for 2001 was  significantly
below the 50th percentile for chief executive  officers of comparable  companies
in the EEI survey.

Additional
Information

Section   162(m)   of   the
Internal Revenue Code of 1986, as amended,  generally  disallows a tax deduction
to public companies for  compensation  over $1 million paid to a company's chief
executive  officer and four other most highly  compensated  executive  officers,
unless that  compensation  is deferred or is considered  performance-based.  Our
policy  is to  structure  executive  officer  compensation  to  achieve  maximum
deductibility  under Section 162(m) with minimal  sacrifices in flexibility  and
corporate objectives.



Stock Price Performance Graph

The  chart below compares the
five-year  cumulative total  shareholder  return (share price  appreciation plus
reinvested  dividends)  on Puget  Energy  common stock to the  cumulative  total
return  of the  Standard  & Poor's  500  Stock  Index  and the  Edison  Electric
Institute (EEI) Combination Gas& Electric Investor-Owned Utilities Index.

Five-Year Cumulative Total Return

This  comparison assumes $100
was invested on December 31, 1996, in (a) Puget Energy common stock, (b) the S&P
500 Stock  Index,  and (c) the EEI  Combination  Gas &  Electric  Investor-Owned
Utilities Index.  The graph then observes,  in each case, stock price growth and
dividends paid (assuming dividends were reinvested) over five years.

The  Puget  Energy  Board of
Directors and its  Compensation  and  Retirement  Committee  recognize that many
factors   influence  the  market  price  of  stock,  one  of  which  is  company
performance.  The returns shown on the graph do not  necessarily  predict future
performance.

Summary Compensation Table

The  following information is
furnished for the years ended  December 31, 2001,  2000 and 1999 with respect to
Puget Energy's and Puget Sound Energy's Chief Executive Officer, and each of the
four other most highly compensated  executive officers of Puget Energy and Puget
Sound Energy during 2001, each of whose salary and bonus exceeded  $100,000 (the
"named executive  officers").  Annual compensation  includes amounts deferred at
the officer's election.  Unless otherwise  indicated,  all positions and offices
are at Puget Energy and Puget Sound Energy.

`Long-Term
                                                                                   Compensation
                                                          Annual Compensation      ------------      All Other
Name and Principal                                        -------------------          LTIP        Compensation
Position in 2001                           Year            Salary ($)    Bonus ($)    Payouts ($)        ($)
----------------                           -----------------------------------------------------------------

W. Weaver (1)                               2001           623,876             0            0 (4)     71,195 (7)
Chairman, President and                     2000           594,841       540,000      211,598 (5)     63,852
Chief Executive Officer                     1999           570,208       517,500       38,933 (6)     44,198

R. Hawley (2)                               2001           352,532             0       50,000 (4)     37,687 (8)
Vice President and                          2000           335,079       237,300      123,807 (5)     36,188
Chief Financial Officer                     1999           316,167       224,000       20,964 (6)     53,462

T. Hogan                                    2001           223,761        51,982            0 (4)     19,940 (9)
Vice President External                     2000           210,460        90,300       77,380 (5)     17,241
Affairs of Puget Sound Energy               1999           191,888        57,900       14,488 (6)     14,546

S. McKeon (3)                               2001           352,532             0       50,000 (4)     37,861 (10)
Vice President and                          2000           335,079       237,300      147,443 (5)     34,802
General Counsel                             1999           316,167       224,000       25,142 (6)     22,588

G. Swofford                                 2001           275,349             0            0 (4)     25,269 (11)
Vice President and Chief                    2000           261,905       115,937       77,380 (5)     22,061
Operating Officer-Delivery of Puget Sound   1999           238,960        87,500       19,841 (6)     17,300
Energy`

1. Mr. Weaver served as President and Chief Executive  Officer  throughout 2001 and until January 7, 2002, when Stephen P.
      Reynolds was elected  President  and Chief  Executive  Officer.  Mr. Weaver  retired as President  and Chief  Executive
      Officer on January 7, 2002 and retired as Chairman of the Board on February 13, 2002.
2. Mr. Hawley served as Vice President and Chief Financial Officer throughout 2001 and until March 7, 2002.
3. Mr. McKeon served as Vice  President and General  Counsel  throughout  2001 and until March 7, 2002 when he was elected
      Senior Vice President Finance and Legal (Chief Financial Officer).
4. The amounts for 2001 reflect that no share awards were made in payment of the  Long-Term  Incentive  Compensation  Plan
      (LTIP) for the four-year  performance cycle ended on December 31, 2001, since the performance  threshold for that cycle
      was not met.  Payments for Mr.  Hawley and Mr.  McKeon  represent  minimum LTIP cash  payments as  stipulated  by their
      employment agreements.
5. The amounts for 2000  represent  payment of LTIP awards for the four-year  performance  cycle ended  December 31, 2000,
      which  consist of (a)  unrestricted  shares  valued as of the December 31, 2000 closing  price of $27.8125,  plus (b) a
      total  dividend  amount of $7.36 per share during the four-year  performance  period  multiplied by the total number of
      unrestricted  shares.  The number and value of  unrestricted  shares for each of the named  executive  officers  are as
      follows:

Unrestricted Shares
                                                             -------------------
           Name                                            Number               Value
           ----                                            ------               -----
           W. Weaver......................                 6,016             $167,320
           R. Hawley.......................                3,520               97,900(a)
           T. Hogan........................                2,200               61,188
           S. McKeon......................                 4,192              116,590
           G. Swofford.....................                2,200               61,188
 (a)   Mr. Hawley received $50,000 of his share award in the form of cash and the remainder in the form of 1,530 Puget Energy
                 shares.
6. The amounts for 1999  represent  payment of LTIP awards for the four-year  performance  cycle ended  December 31, 1999,
      which consist of (a)  unrestricted  shares and restricted  shares,  valued as of the December 31, 1999 closing price of
      $19.38,  plus (b) a total dividend amount of $7.36 per share during the four-year  performance period multiplied by the
      total number of restricted and  unrestricted  shares.  The number and value of restricted and  unrestricted  shares for
      each of the named executive officers is as follows:
Unrestricted Shares         Restricted Shares
                                                  -------------------         -----------------
           Name                                   Number         Value       Number        Value
           ----                                   ------      --------       ------      -------
           W. Weaver..................            728         $14,109        728         $14,109
           R. Hawley..................            392           7,597        392           7,597
           T. Hogan...................            271           5,250        271           5,250
           S. McKeon..................            470           9,111        470           9,111
           G. Swofford................            371           7,190        371           7,190
7. Represents $8,500 match under Investment Plan for Employees; $56,658 match under the Investment Plan make-up; and
      $6,037 imputed income on life insurance.
8. Represents $9,370 match under Investment Plan for Employees; $26,020 match under the Investment Plan make-up; and
      $2,297 imputed income on life insurance.
9. Represents $3,966 match under Investment Plan for Employees; $14,878 match under the Investment Plan make-up; and
      $1,096 imputed income on life insurance.
10. Represents $8,650 match under Investment Plan for Employees; $26,740 match under the Investment Plan make-up; and
      $2,471 imputed income on life insurance.
11. Represents $6,889 match under Investment Plan for Employees; $16,588 match under the Investment Plan make-up; and
      $1,792 imputed income on life insurance.

Option/SAR Exercises and Year-End Option/SAR Values

The following table shows the
number of stock options or stock  appreciation  rights (SARs)  exercised in 2001
and the number and value of outstanding unexercised options and SARs held by the
participating named executive officers at the end of 2001.

`Number of Shares                           Number of Shares Underlying      Value of Unexercised
                       Underlying              Value of        Unexercised Options/SARs at   In-the-Money Options/ SARs
                 Options/SARs Exercised      Options/SARs         Fiscal Year-End (#)          at Fiscal Year-End ($)
      Name               in 2001          Exercised in 2001            Exercisable                 Exercisable(2)
      ----               -------          -----------------            -----------                 --------------

W. Weaver                   -                     -                       7,300                          $2,555
R. Hawley                   -                     -                           -                            -
T. Hogan                  1,548               $2,841(1)                  12,828                         $44,280
S. McKeon                   -                     -                           -                            -
G. Swofford                 -                     -                       5,600                          $3,856`

Before 1995, participants
in Puget Energys Long-Term Incentive Program for Senior Management could
receive SARs, which are payable only in cash. No options have been granted since
1996 and no SARs have been granted since 1994.

1. Amount represents an
option exercise on July 11, 2001 for a total of 1,548 shares from a grant made
October 8, 1991.
2. Amounts  are the number of options or SARs multiplied by the difference
between the closing price of the common stock on December 31, 2001 of $21.89 per
share,  minus the base price for that option or SAR.  There is no guarantee that
these options or SARs will have this value when and if they are exercised.

Long-Term Incentive Plan Awards in 2001

The  following table presents
grants made to the named executive  officers under the 1995 Long-Term  Incentive
Compensation Plan during 2001.

`Number of        Period Until           Estimated Future Share Payouts
                                  Shares         Maturation or       Threshold     Target       Maximum
            Name                   (#)(1)            Payout              (#)          (#)          (#)
            ----                   ------            ------              ---          ---          ---

W. Weaver.............             37,807            4 years              0         37,807        66,162

R. Hawley..............            18,451            4 years              0         18,451        32,289

T. Hogan...............            11,713            4 years              0         11,713        20,498

S. McKeon.............             18,451            4 years              0         18,451        32,289

G. Swofford............            14,408            4 years              0         14,408        25,214`

1. Awards are contingent grants of Puget Energy common stock. The number of shares
delivered at the end of the four-year cycle will range from zero to 175% of the
contingent grant. The actual payout depends on Puget Energys four-year
total shareholder return compared to the returns reported in the EEI Combination
Gas & Electric Investor-Owned Utilities Index. To receive 100% of the grant,
Puget Energy must perform at the 55th percentile among EEI companies.
To receive 175% of the grant, Puget Energy must perform at or above the
85th percentile ranking. Dividend equivalents are accrued during the
performance period and paid out in cash when and to the extent the performance
shares are paid.

Retirement Benefits Statement

The   table  below  presents
estimated  retirement  benefits  for  the  named  executive  officers,  assuming
retirement on January 1, 2002 at age 62 after selected  periods of service.  The
table  lists the  estimated  aggregate  values  under our funded  pension  plan,
Supplemental  Executive  Retirement  Plan,  Washington  Natural Gas Nonqualified
Retirement  Plan benefits,  the  Supplemental  Executive  Retirement Plan (SERP)
pension-type  rollover  accounts in the Deferred  Compensation Plan and the Cash
Balance  Restoration  Matching  Account within the Deferred  Compensation  Plan.
Social  Security  benefits  will not be deducted  from the amounts  shown in the
table.

`Estimated Annual Benefit Upon Retirement at Age 62
Final Average
 Compensation                 Years of Credited Service
                         5               10                 15+
                         -               --                 ---
   $ 300,000         $ 50,000         $ 100,000           $ 150,000
     400,000           66,667           133,333             200,000
     500,000           83,333           166,667             250,000
     600,000          100,000           200,000             300,000
     700,000          116,667           233,333             350,000
     800,000          133,333           266,667             400,000
     900,000          150,000           300,000             450,000
   1,000,000          166,667           333,333             500,000
   1,100,000          183,333           366,667             550,000
   1,200,000          200,000           400,000             600,000`

The  named executive officers
have the following years of credited service as of December 31, 2001: W. Weaver,
33.5; R. Hawley,  14.75;  T. Hogan,  25.33; S. McKeon,  14.75;  and G. Swofford,
34.42.

Estimated  aggregate benefits
are based on the following formula: 3-1/3% times years of credited service times
average annual  compensation  (salary plus bonus) for the highest three calendar
years in the last five complete calendar years prior to retirement,  except that
Mr.  Weaver's  benefits  are based on the average of his highest 24  consecutive
months of compensation  and each of Mr.  Hawley's and Mr.  McKeon's  benefits is
based on the annual average of his (i) highest 36 consecutive  months of salary;
(ii)  highest  three  annual  bonuses;  and (iii) first  $50,000 in value of his
highest  three  LTIP  awards.  See the  section  called  "Employment  Contracts,
Termination of Employment and Change-in-Control Arrangements" below.

The   three-year   averages
(24-consecutive-month  average for Mr. Weaver) for the named executive  officers
were:  $1,138,108  for Mr.  Weaver;  $538,359 for Mr.  Hawley;  $258,103 for Mr.
Hogan; $513,626 for Mr. McKeon; and $326,550 for Mr. Swofford.

Employment Contracts,
Termination of Employment and Change-In-Control Arrangements

Agreements

Mr.  Weaver.  On  January 7,
2002, Mr. Weaver  retired as Puget  Energy's and Puget Sound Energy's  President
and Chief  Executive  Officer and he retired  from the Board of Directors of the
companies on February 13, 2002. Pursuant to an October 1996 agreement with Puget
Sound Energy, Mr. Weaver will receive the following payments and benefits:

a.
annual base salary and accrued benefits earned through termination, plus a pro
rata share of any incentive compensation accrued through the date of
termination, regardless of whether such amounts are vested or payable on that
date;

b.   an
amount equal to three times annual base salary and bonus;

c.
continued  participation  for three years in employee benefit plans or provision
for substantially similar benefits;

d.    a
cash  payment  of  the  actuarial   equivalent  of  the  additional   retirement
compensation  he would  have  earned  had  employment  continued  for three more
years;

e.    a
payment equal to the value of the number of shares  payable upon full vesting of
all outstanding  performance awards,  whether or not such awards were then fully
vested or payable; and

f.    a
cash payment  equal to any excise taxes  payable by him due to excess  parachute
payments, plus the tax expense to him resulting from this payment.

In  addition,  Mr.  Weaver's
agreement provides that his benefits under the SERP will be based on his average
compensation  for his highest 24  consecutive  months of service.  Pursuant to a
November 2000 supplement to his October 1996 agreement, Mr. Weaver agreed not to
voluntarily  terminate  his  employment  with  Puget  Sound  Energy as its Chief
Executive  Officer any earlier than  December  31, 2001,  and Puget Sound Energy
agreed that the various payments due Mr. Weaver under the October 1996 agreement
will  be  calculated  based  on  the  actual  termination  date  or  an  assumed
termination  date of December 31, 2000,  whichever  produces the higher  payment
under each payment provision.

Mr.   Hawley   and   Mr.
McKeon.  As of July 1,  2001,  Puget  Energy  and Puget  Sound  Energy  (the
"companies")  entered into employment  agreements with Mr. Hawley and Mr. McKeon
to secure  their  continued  services  as Vice  President  and  Chief  Financial
Officer, and Vice President and General Counsel, respectively.  These agreements
supersede  the agreement  between  Puget Sound Energy and Mr.  Hawley  effective
March 16,  1998 and the  agreement  between  Puget Sound  Energy and Mr.  McKeon
effective  June 2, 1997.  Mr. Hawley and Mr. McKeon are each referred to in this
section as "the executive."

The  executive will receive a
minimum  annual base salary of $356,000  that will be  increased in an amount at
least  equal to the  lower  of 4%  annually  or the  average  annual  percentage
increase applicable to other officers of the companies.  The executive will also
be guaranteed a $50,000  minimum annual cash payment as part of each award under
the  companies'  LTIP (base  salary and the $50,000  payment  constitute  "total
salary").

The   executive  also  will
participate in the companies' Pay at Risk Plan,  with a target award of at least
45% of base salary and a maximum potential bonus of at least 90% of base salary.
The  executive  will  participate  in Puget  Energy's 1995  Long-Term  Incentive
Compensation  Plan,  with a  target  of at  least  95% of  base  salary.  If the
companies adopt new annual incentive bonus plans or programs or new equity-based
incentive  compensation  plans or programs in substitution  for the LTIP awards,
the executive  will be granted  awards of  comparable  value under such plans or
programs.

The  agreements provide that
if the executive completes one, two or three years of service from April 1, 2001
and his  employment  then  terminates for any reason other than by the companies
without  cause  or by him  with  good  reason,  he will  receive  the  following
incentives (the "Incentives"):

a.  One
Year:  (i) all  unvested  LTIP  awards will vest pro rata and be paid at target;
(ii) 18 months will be added to his age for  purposes of  calculating  the early
retirement  discount  under the  SERP;  and  (iii) he will  receive a  severance
payment  equal to one times his  total  salary  and  one-half  times his  target
bonus;

b.
Two Years: in addition to the above, (i) one year of extra vesting for each
prorated LTIP award; (ii) a second additional 18 months for purposes of
calculating the early retirement discount under the SERP; and (iii) in lieu of
the severance payment in (a) above, a severance payment equal to one and
one-half times his total salary and one times his target bonus;

c.
Three Years: in addition to the above, (i) a second year of extra vesting for
each prorated LTIP award; (ii) a third additional 18 months for purposes of
calculating the early retirement discount under the SERP; and (iii) in lieu of
the severance payment in (a) and (b) above, a severance payment equal to two
times his total salary and one and one-half times his target bonus.

All   dividend  equivalents
associated  with the LTIP award payments  described  above will be paid in cash.
The  Incentives  accruing  under the  provisions  above will accrue on a monthly
basis.

In  addition, the agreements
provide that as of the date of the  agreements  the executive  will be deemed to
have completed 14 years of service under the SERP.  The agreements  also provide
that the  executive's  benefits  under  the SERP will be based on the sum of the
annual  average of (a) the  executive's  highest 36  consecutive  months of base
salary; (b) his highest three annual bonuses; and (c) the first $50,000 in value
of his highest three LTIP award payments.  The executive may elect to take early
commencement of SERP retirement benefits prior to age 62.

If  within  the first  three
years  following  the  date  of  the  agreement  the  companies   terminate  the
executive's  employment  without cause or he terminates  the agreement with good
reason, or if the executive is terminated for any reason within three years of a
change in  control of Puget  Energy (as the terms  "cause,"  "good  reason"  and
"change  in  control"  are  defined  in  the  agreements),  the  executive  will
receive:

a.    annual  total salary and accrued  benefits  earned  through  termination,  plus a prorata  share of the annual
     target bonus for the year of termination;

b.    a severance  amount equal to three times the sum of his annual total salary and his annual target bonus at the
         rates in effect as of the date of termination;

c.    the SERP  benefits  described  above except that he shall be deemed to have  completed 15 years of service and
         five years will be added to his age at retirement of purposes of calculating the early retirement discount;

d.
with respect to all outstanding LTIP awards, a cash payment equal to the higher
of (i) the average of the last sale prices of Puget Energy or its
successors common stock during the 20 business days preceding the date of
termination and (ii) the highest price per share paid for any Puget Energy
common stock in connection with the change in control, multiplied by the
aggregate number of shares of common stock of Puget Energy or its successor
company equal to the greater of (x) the total number of shares payable at the
target award level upon full vesting of each such LTIP award and (y) the number
of shares payable upon full vesting of each such award if Puget Energy achieved
for each four-year award cycle the percentile ranking against the comparable
universe of companies that Puget Energy had achieved for the applicable cycle
during the period commencing on the starting year of such cycle and ending with
the fiscal quarter immediately preceding the date of termination; and

e.    cash equal to the amount of the  dividend  equivalents  associated  with the shares  issuable  under such LTIP
         awards.

If a change in control occurs
during the first three years following the date of the agreements,  the benefits
described in (a) through (e) above will be in lieu of any  Incentives due to the
executive.  If the  change  in  control  occurs  after  the  expiration  of such
three-year  period,  the executive will be entitled to receive the higher of the
Incentives  or the benefits  described in (a) through (e) above,  except that if
the executive is employed by the companies at the time of the change in control,
he will be  entitled  to the  benefits  described  in (a) through (e) above less
Incentive payments received.

The   executive  will  also
receive a cash payment  equal to any excise  taxes  payable by him due to excess
parachute payments, plus the tax expense to him resulting from this payment.

Mr.    Hogan   and   Mr.
Swofford.  Mr. Hogan  entered  into an agreement  effective as of August 17,
1995 with the  Washington  Energy  Company  that Puget Sound Energy has assumed.
Under that  agreement,  as amended on June 30, 1999,  if prior to the earlier of
June 30, 2002 or a change in control of Puget Sound Energy, Mr. Hogan terminates
his employment  for good reason or Puget Sound Energy  terminates his employment
without  cause,  he will  receive  the same type of  payments  and  benefits  as
described above for Mr. Weaver.

In  October 1996, Puget Sound
Energy entered into an agreement with Mr. Swofford under which he will be paid a
retention incentive benefit based on continued  employment  following the merger
of Puget Sound Energy and the Washington  Energy Company in February 1997, equal
to three times his annual base salary in 1996,  plus the bonus paid in 1996. The
incentive benefit vests in three equal  installments after one year, three years
and five years of continued  employment after the merger.  The vested portion of
the  incentive  benefit  will be  paid  in  equal  monthly  installments  over a
three-year period beginning on the date his employment terminates.

In  1999 Puget Sound  Energy
entered into change in control  agreements  with Mr. Swofford and Mr. Hogan that
provided  for the same type of payments  and  benefits  described  above for Mr.
Weaver in the event that their  employment  is  terminated by Puget Sound Energy
without  cause or by the employee for good reason  within two years  following a
change in control of Puget Sound  Energy,  except that the  payments in sections
(c) and (d) are based on two rather than three years.

1995 Long-Term Incentive Compensation Plan

Under  the Puget Energy 1995
Long-Term  Incentive  Compensation  Plan, in the event of a change in control of
Puget  Energy,   each  stock  award  that  is  at  the  time   outstanding  will
automatically  accelerate and become 100% vested. The plan administrator may, at
any time before a corporate transaction,  take further action to ensure fair and
equitable treatment of awards.

Stock
Appreciation Rights

Upon  a change in control of
Puget Energy, all SARs will terminate.  Each holder may exercise his or her SARs
immediately prior to the transaction, whether or not the SARs have vested.

Certain Transactions

Mr.  Dryden,  a Director  of
Puget Energy and Puget Sound  Energy,  served as President  and Chief  Executive
Officer and a Director  of ConneXt,  Inc.  from 1999 until his  retirement  from
ConneXt in September  2001. His  compensation  paid for such service in 2001 was
$283,300 salary,  $153,000  incentive pay for 2000  performance,  $16,500 401(k)
restoration and $267,000 severance pay.

Mr.  Durbin,  a Director  of
Puget Energy and Puget Sound Energy, has served as President and Chief Executive
Officer of InfrastruX since 2000. His compensation paid for such service in 2001
was  $339,800  salary  and  $200,000  incentive  pay for  2000  performance.  In
addition, he received in 2002 $105,000 incentive pay for 2001 performance.

Additional
Information About The Meeting And Shareholder Proposals

Independent
Accountants

The       firm       of
PricewaterhouseCoopers  LLP has audited  our  financial  statements  since 1933.
Representatives of the firm will attend the Annual Meeting, with the opportunity
to make a statement and answer appropriate shareholder questions.

Shareholder Proposals

Shareholders  who  intend to
have a proposal  considered  for  inclusion in our proxy  materials for the 2003
Annual  Meeting of  Shareholders  must  submit  the  proposal  at our  principal
executive office no later than December 6, 2002.

In   accordance  with  Puget
Energy's  Bylaws,  shareholders  who intend to  present a  proposal  at the 2003
Annual  Meeting  without  inclusion of the proposal in our proxy  materials must
provide  written  notice  of such  proposal,  in the  manner  required  by Puget
Energy's Bylaws, no earlier than January 14, 2003 and no later than February 13,
2003.  For such  proposals  that are not  timely  filed,  Puget  Energy  retains
discretion  to vote  proxies it  receives.  For such  proposals  that are timely
filed, Puget Energy retains discretion to vote proxies it receives provided that
(1) the  Company  includes  in its proxy  statement  advice on the nature of the
proposal  and how it  intends to  exercise  its  voting  discretion  and (2) the
proponent does not issue a proxy statement.

Solicitation
of Proxies

The  Puget  Energy  Board of
Directors is soliciting  the proxies in the form  enclosed.  Stephen P. Reynolds
and James W. Eldredge,  and each or either of them, are named as proxies. We may
solicit  your proxy by mail,  personal  interview,  telephone  and fax.  We will
request  that  banks,  brokerage  houses  and  other  custodians,   nominees  or
fiduciaries  forward  soliciting   materials  to  their  principals  and  obtain
authorization  for the execution of proxies.  We will  reimburse  them for their
expenses  in  forwarding  and  collecting  proxies.  Our  officers,   directors,
employees and other agents may solicit proxies without compensation,  except for
reimbursement  of expenses.  Puget Energy will pay all costs of  solicitation of
proxies.

Annual Report
and Form 10-K

Puget  Energy's  2001 Annual
Report  (the  "Annual  Report")  was  mailed to  shareholders  with  this  proxy
statement.  Upon request,  the Company will furnish without charge a copy of the
Company's Annual Report on Form 10-K. The Form 10-K has been filed with the SEC.
Shareholders  may  receive  a copy of the  Form  10-K  by  writing  to  Investor
Services,  Puget  Energy,  P.O. Box 97034  OBC-03S,  Bellevue,  WA 98009-9734 or
calling (425) 462-3898.

By Order of the Board of Directors