# Exhibit 10.86

# CHANGE OF CONTROL
AGREEMENT

AGREEMENT
by and between Puget Sound Energy, Inc., a Washington corporation (the
Company), and BERTRAND VALDMAN(the Executive), dated as of
the 28th day of November, 2003.

The
Board of Directors of the Company (the Board) has determined that it is in the
best interests of the Company and its shareholders to ensure that the Company will have
the continued dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined in Section 2) of the Company. The Board
believes that it is imperative to diminish the inevitable distraction of the Executive by
virtue of the personal uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executives full attention and dedication to the
Company currently and in the event of any threatened or pending Change of Control, and to
provide the Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive will be
satisfied, which are competitive with those of other corporations and which align the
Executives interests with those of the Companys shareholders. Therefore, in
order to accomplish these objectives, the Board has caused the Company to enter into this
Agreement.

NOW,
THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

# 1. Certain Definitions

(a)       
          Accrued Obligations is defined in Section 6(a)(i).

(b)       
          Affiliated Company means any company controlled by, controlling or
          under common control with the Company.

(c)       
          Annual Base Salary means an annual base salary at least equal to 12
          times the highest monthly base salary paid or payable to the Executive by the
          Company and its affiliated companies in respect to the 12-month period
          immediately preceding the month in which the Effective Date occurs.

(d)       
          Annual Bonus is defined in Section 4(b)(ii).

(e)       
          Business Combination means (i) a reorganization, exchange of
          securities, merger or consolidation of the Company or (ii) the sale or other
          disposition of all or substantially all the assets of the Company.

(f)       
          Change of Control is defined in Section 2.

(g)       
          The Change of Control Period means the period commencing on the date
          hereof and ending on the third anniversary of the date hereof; provided,
          however, that commencing on the first anniversary of the date hereof and on each
          successive anniversary (each a Renewal Date), the Change of Control
          Period shall be automatically extended so as to terminate three years from such
          Renewal Date, unless at least 60 days prior to the Renewal Date the Company
          gives notice to the Executive that the Change of Control Period shall not be so
          extended.

(h)       
          Code means the Internal Revenue Code of 1986, as amended.

(i)       
          Date of Termination is defined in Section 5(f).

(j)       
          Disability is defined in Section 5(a).

(k)       
          Disability Effective Date is defined in Section 5(a).

(l)       
          Effective Date means the first date during the Change of Control
          Period on which a Change of Control occurs. Anything in this Agreement to the
          contrary notwithstanding, if a Change of Control occurs and if the
          Executives employment with the Company is terminated prior to the date on
          which the Change of Control occurs, and if it is reasonably demonstrated by the
          Executive that such termination of employment (i) was at the request of a
          third party who has taken steps reasonably calculated to effect the Change of
          Control or (ii) otherwise arose in connection with or anticipation of the
          Change of Control, then for all purposes of this Agreement the Effective
          Date shall mean the date immediately prior to the date of such termination
          of employment.

(m)       
          Employment Period is defined in Section 3.

(n)       
          Exchange Act means the Securities Exchange Act of 1934, as amended.

(o)       
          Good Reason is defined in Section 5(d).

(p)       
          Incentive Plan means the Companys 1995 Long-Term Incentive
          Compensation Plan or any successor plan.

(q)       
          Incumbent Director means a member of the Board who has been either
          (i) nominated by a majority of the directors of the Company then in office
          or (ii) appointed by directors so nominated, but excluding, for this
          purpose, any such individual whose initial assumption of office occurs as a
          result of either an actual or threatened election contest (as such terms are
          used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
          Act) or other actual or threatened solicitation of proxies or consents by or on
          behalf of a Person other than the Board.

(r)       
          Notice of Termination is defined in Section 5(e).

(s)       
          Other Benefits is defined in Section 6(a)(iv).

(t)       
          Outstanding Company Common Stock means the shares of Common Stock of
          the Company (Common Stock) outstanding at the time of the
          determination.

(u)       
          Outstanding Company Voting Securities means the combined voting
          power of the outstanding voting securities of the Company entitled to vote
          generally in the election of directors at the time of the determination.

(v)       
          Person means any individual, entity or group (within the meaning of
          Section 13(d)(3) or 14(d) of the Exchange Act).

(w)       
          Retirement Plan means the Companys qualified pension plan or
          any successor plan thereto.

(x)       
          SERP means the Companys Supplemental Executive Retirement Plan
          or any other supplemental and/or excess retirement plan or agreement of the
          Company and its affiliated companies providing benefits for the Executive.

(y)       
          Welfare Benefit Continuation is defined in Section 6(a)(ii).

# 2. Change of Control

For
the purpose of this Agreement, a Change of Control means:

(a)       
          The acquisition by any Person of beneficial ownership (within the meaning of
          Rule 13d-3 promulgated under the Exchange Act) of (i) 20% or more of
          either (A) the Outstanding Company Common Stock or (B) the Outstanding
          Company Voting Securities; provided, however, that the following acquisitions of
          beneficial ownership shall not constitute a Change of Control: (x) any
          acquisition by the Company, (y) any acquisition by any employee benefit
          plan (or related trust) sponsored or maintained by the Company or any
          corporation controlled by the Company, or (z) any acquisition by any
          corporation pursuant to a Business Combination, if, following such Business
          Combination, the conditions described in clauses (i), (ii) and (iii) of
          subsection (c) of this Section 2 are satisfied; or

(b)       
          A Board Change which, for purposes of this Agreement, shall have
          occurred if a majority of the seats (other than vacant seats) on the Board are
          occupied by individuals who were neither (i) nominated by a majority of the
          Incumbent Directors nor (ii) appointed by directors so nominated; or

(c)       
          Approval by applicable regulatory agencies of a Business Combination unless
          immediately following such Business Combination, (i) more than 60% of the
          then outstanding shares of common stock of the corporation resulting from or
          effecting such Business Combination and the combined voting power of the then
          outstanding voting securities of such corporation entitled to vote generally in
          the election of directors is then beneficially owned, directly or indirectly, by
          all or substantially all the individuals and entities who were the beneficial
          owners of the Outstanding Company Common Stock and Outstanding Company Voting
          Securities, respectively, immediately prior to such Business Combination in
          substantially the same proportion as their ownership, immediately prior to such
          Business Combination, of the Outstanding Company Common Stock and Outstanding
          Company Voting Securities, as the case may be, (ii) no Person (excluding
          the Company, any employee benefit plan (or related trust) of the Company or the
          corporation resulting from or effecting such Business Combination and any Person
          beneficially owning, immediately prior to such Business Combination, directly or
          indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding
          Company Voting Securities, as the case may be) beneficially owns, directly or
          indirectly, 20% or more of, respectively, the then outstanding shares of common
          stock of the corporation resulting from or effecting such Business Combination
          or the combined voting power of the then outstanding voting securities of such
          corporation entitled to vote generally in the election of directors, and
          (iii) at least a majority of the members of the board of directors of the
          corporation resulting from or effecting such Business Combination were Incumbent
          Directors at the time of the execution of the initial agreement or action of the
          Board providing for such Business Combination.

# 3. Employment Period

The
Company hereby agrees to continue the Executive in its employ, and the Executive hereby
agrees to remain in the employ of the Company, in accordance with the terms and provisions
of this Agreement, for the period commencing on the Effective Date and ending on the
second anniversary of such date (the Employment Period), in the executive
capacity of Senior Vice President Finance and Chief Financial Officer or a substantially
comparable position of the Company, responsible for, among other things, serving as
financial advisor of the Company, counseling management on the financial implications of
all company activities and problems, providing financial and accounting services as
required to operate the Company in compliance with applicable laws and regulations,
representing the Company to the investment and financial community, and, subject to the
general supervision of the Board as required by the Washington Business Corporation Act,
such other duties and responsibilities as are not inconsistent with the express terms of
this Agreement. The Company agrees that it will not take any action, or make any demands
on the Executive, that may be deemed to arbitrarily, unreasonably or unnecessarily
interfere with the performance of the services to be rendered by the Executive hereunder.

# 4. Terms of Employment

(a)       
          Position and Duties.

| | (i)       
               During the Employment Period, (A) the Executives position (including
               status, offices, titles and reporting requirements), authority, duties and
               responsibilities shall be in accordance with Section 3 and (B) the
               Executives services shall be performed within the Seattle/Bellevue
               metropolitan area, except for required travel in the Companys business to
               the extent consistent with the Executives duties in Section 3.
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| | (ii)       
               During the Employment Period, and excluding any periods of paid time off to
               which the Executive is entitled, the Executive agrees to devote reasonable
               attention and time during normal business hours to the business and affairs of
               the Company and, to the extent necessary to discharge the responsibilities
               assigned to the Executive hereunder, to use the Executives reasonable best
               efforts to perform faithfully and efficiently such responsibilities. During the
               Employment Period it shall not be a violation of this Agreement for the
               Executive to (A) serve on corporate, civic or charitable boards or
               committees, (B) deliver lectures, fulfill speaking engagements or teach at
               educational institutions, or (C) manage personal investments, so long as
               such activities do not significantly interfere with the performance of the
               Executives responsibilities as an employee of the Company in accordance
               with this Agreement. It is expressly understood and agreed that to the extent
               that any such activities have been conducted by the Executive prior to the
               Effective Date, the continued conduct of such activities (or the conduct of
               activities similar in nature and scope thereto) subsequent to the Effective Date
               shall not thereafter be deemed to interfere with the performance of the
               Executives responsibilities to the Company.
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(b)        Compensation.

| | (i)              Base
Salary. During the Employment Period, the Executive shall receive an
               annual base salary (Annual Base Salary), which shall be paid
in                equal installments on a monthly basis, at least equal to 12 times
the                highest monthly base salary paid or payable to the Executive by the
Company and                its affiliated companies in respect of the 12-month period
immediately preceding                the month in which the Effective Date occurs. For
purposes of this Agreement,                Annual Base Salary shall not include any
payments by the Company on the                Executives behalf pursuant to any
incentive, savings or retirement plans,                any welfare benefit plans or any
fringe benefit plans, in each case, of the                Company or any affiliated
company, of the type identified in                paragraphs (iii) through (vii) of
this Section 4(b), or any reimbursement                of expenses by the Company or any
affiliated company in accordance with                paragraph (v) of this Section 4(b).
During the Employment Period, the                Annual Base Salary shall be reviewed at
least annually and shall be increased at                any time and from time to time as
shall be substantially consistent with                increases in base salary generally
awarded in the ordinary course of business to                other peer executives of the
Company and its affiliated companies. Any increase                in Annual Base Salary
shall not serve to limit or reduce any other obligation to                the Executive
under this Agreement. Annual Base Salary shall not be reduced                after any
such increase, and the term Annual Base Salary as utilized in this
               Agreement shall refer to Annual Base Salary as so increased.
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| | (ii)              Annual
Bonus. In addition to Annual Base Salary, the Executive shall be
               eligible to receive, for each fiscal year ending during the Employment
Period, a                target annual bonus (the Annual Bonus) in cash at
least equal to the                greater of (A) the Executives target annual bonus
in effect on the                Effective Date and (B) the average (annualized for any
fiscal year in which the                Executive has been employed by the Company for
less than 12 full months) target                bonus for which the Executive was
eligible in the three fiscal years immediately                preceding the fiscal year
in which the Effective Date occurs. Each such Annual                Bonus earned shall be
paid no later than the end of the third month of the                fiscal year next
following the fiscal year for which the Annual Bonus is earned                unless the
Executive shall elect to defer the receipt of such Annual Bonus.
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| | (iii)              Incentive,
Savings and Retirement Plans.
| | -----------------------------------------------------------

| | (A)                                    During
the Employment Period, the Executive shall be entitled to participate in
               all incentive, savings and retirement plans, practices, policies and
programs                applicable generally to other peer executives of the Company and
its affiliated                companies (including, without limitation, the plans in
effect on the date of                this Agreement or any successor plans), but in no
event shall such plans,                practices, policies and programs provide the
Executive with incentive                opportunities (measured with respect to both
regular and special incentive                opportunities, to the extent, if any, that
such distinction is applicable),                savings opportunities and retirement
benefit opportunities, in each case, that                are less favorable, in the
aggregate, than the most favorable of those provided                by the Company and
its affiliated companies for the Executive under such plans,                practices,
policies and programs as in effect at any time during the 90-day                period
immediately preceding the Effective Date or, if more favorable to the
               Executive, those provided generally at any time after the Effective Date
to                other executives of the Company and its affiliated companies.
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| | (B)                                    Upon
the Effective Date the Executive shall become vested under the                Companys
Supplemental Executive Retirement Plan (SERP) so that                the
Executive shall be entitled to receive a Retirement Benefit (as defined in
               the SERP) at age 62 or, at the election of the Executive, at any age
between 55                and 62 a Retirement Benefit reduced one-third percent (1/3%)
for each month that                benefits commence prior to the beginning of the month
coincident with or next                following the date the Executive would attain age
62.
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| | (iv)              Equity
Incentive Plans.
| | -----------------------------------------

| | (A)                                                  Any
outstanding stock options or stock appreciation rights issued to the
               Executive under the Companys existing plans or any successor plan
shall                become fully vested and exercisable on the Effective Date. All
restrictions on                shares of restricted stock issued to the Executive shall
lapse.
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| | (B)       
               with respect to all performance awards granted to the Executive pursuant to the
               Incentive Plan or any successor plan that are outstanding immediately prior to
               the Effective Date, the Company shall issue to the Executive within 30 days
               after the Effective Date:
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| | (i)                             if
the Change of Control is not being accounted for as a pooling of interests,
               cash equal to the higher of (1) the average of the last sale prices
of the                Companys (or its successors) Common Stock on the New
York Stock                Exchange in each of the twenty business days preceding the
Effective Date or                (2) the highest price per share actually paid for
any of the Company Common                Stock in connection with the Change in Control,
multiplied by an aggregate                number of shares of the Companys Common
Stock (or, if the event that                triggered the Effective Date is a Business
Combination, the equivalent number of                shares of the then outstanding
common stock of the corporation resulting from or                effecting such Business
Combination into which such shares of Common Stock have                been converted)
equal to the greater of (x) the total number of the shares                payable at the
target award level upon full vesting of each such performance                award and
(y) such higher number of shares payable upon full vesting of each                such
award if the Company achieved for each four-year award cycle the percentile
               ranking against the comparable universe of EEI companies which the Company
had                achieved for the applicable cycle during the period commencing upon
the starting                year of such cycle and ending with the fiscal quarter
immediately preceding the                Effective Date; or
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| | (ii)                             if
the Change of Control is being accounted for as a pooling of interests, an
               aggregate number of shares of the Companys Common Stock (or, if the
event                that triggered the Effective Date is a Business Combination, the
equivalent                number of shares of the then outstanding common stock of the
corporation                resulting from or effecting such Business Combination into
which such shares of                Common Stock have been converted) equal to the
greater of (x) the total number                of the shares payable at the target award
level upon full vesting of each such                performance award and (y) such higher
number of shares payable upon full vesting                of each such award if the
Company achieved for each four-year award cycle the                percentile ranking
against the comparable universe of EEI companies which the                Company had
achieved for the applicable cycle during the period commencing upon                the
starting year of such cycle and ending with the fiscal quarter immediately
               preceding the Effective Date; and
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| | (iii)                             cash
equal to the amount of the dividend equivalents associated with the number
               of shares determined under subparagraph (i) or (ii) above, in accordance
with                the Incentive Plan.
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| | (v)              Welfare
Benefit Plans. During the Employment Period, the Executive and/or                the
Executives family, as the case may be, shall be eligible for
               participation in and shall receive all benefits under welfare benefit
plans,                practices, policies and programs provided by the Company and its
affiliated                companies (including, without limitation, medical, dental,
disability, salary                continuance, life, group life, accidental death and
travel accident insurance                plans and programs) to the extent applicable
generally to other peer executives                of the Company and its affiliated
companies, but in no event shall such plans,                practices, policies and
programs provide the Executive with benefits that are                less favorable, in
the aggregate, than the most favorable of such plans,                practices, policies
and programs in effect for the Executive at any time during                the 90-day
period immediately preceding the Effective Date or, if more favorable                to
the Executive, those provided generally at any time after the Effective Date
               to other peer executives of the Company and its affiliated companies.
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| | (vi)              Expenses.
During the Employment Period, the Executive shall be entitled                to receive
prompt reimbursement for all reasonable business expenses incurred by                the
Executive in accordance with the most favorable policies, practices and
               procedures of the Company and its affiliated companies in effect for the
               Executive at any time during the 90-day period immediately preceding the
               Effective Date or, if more favorable to the Executive, as in effect
generally at                any time thereafter with respect to other peer executives of
the Company and its                affiliated companies.
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| | (vii)              Fringe
Benefits. During the Employment Period, the Executive shall be
               entitled to fringe benefits in accordance with the most favorable plans,
               practices, programs and policies of the Company and its affiliated
companies in                effect for the Executive at any time during the 90-day period
immediately                preceding the Effective Date or, if more favorable to the
Executive, as in                effect generally at any time thereafter with respect to
other peer executives of                the Company and its affiliated companies.
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| | (viii)              Office
and Support Staff. During the Employment Period, the Executive                shall
be entitled to an office or offices of a size and with furnishings and
               other appointments, and to personal secretarial and other assistance, at
least                equal to the most favorable of the foregoing provided to the
Executive by the                Company and its affiliated companies at any time during
the 90-day period                immediately preceding the Effective Date or, if more
favorable to the Executive,                as provided generally at any time thereafter
with respect to other peer                executives of the Company and its affiliated
companies.
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| | (ix)              Vacation.
During the Employment Period, the Executive shall be entitled                to paid
vacation in accordance with the most favorable plans, policies, programs
               and practices of the Company and its affiliated companies as in effect for
the                Executive at any time during the 90-day period immediately preceding
the                Effective Date or, if more favorable to the Executive, as in effect
generally at                any time thereafter with respect to other peer executives of
the Company and its                affiliated companies.
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# 5. Termination of
Employment

(a)       
          Death or Disability. The Executives employment shall terminate
          automatically upon the Executives death during the Employment Period. If
          the Company determines in good faith that the Disability of the Executive has
          occurred during the Employment Period (pursuant to the definition of Disability
          set forth below), it may give to the Executive written notice in accordance with
          Section 12(b) of its intention to terminate the Executives
          employment. In such event, the Executives employment with the Company
          shall terminate effective on the 30th day after receipt of such
          notice by the Executive (the Disability Effective Date), provided
          that, within the 30 days after such receipt, the Executive shall not have
          returned to full-time performance of the Executives duties. For purposes
          of this Agreement, Disability shall mean the absence of the
          Executive from the Executives duties with the Company on a full-time basis
          for 120 consecutive business days as a result of incapacity due to mental or
          physical illness which is determined to be total and permanent by a physician
          selected by the Company or its insurers and acceptable to the Executive or the
          Executives legal representative (such agreement as to acceptability not to
          be unreasonably withheld).

(b)       
          Cause. The Company may terminate the Executives employment during
          the Employment Period for Cause. For purposes of this Agreement,
          Cause shall mean (i) the willful and continued failure by
          Employee to substantially perform his duties with the Company (other than any
          such failure resulting from incapacity due to physical or mental illness), for a
          period of 30 days after written notice of demand for substantial performance has
          been delivered to Employee by the Board of Directors which specifically
          identifies the manner in which the Board believes that Employee has not
          substantially performed his duties, or (ii) the willful engaging by
          Employee in gross misconduct materially and demonstrably injurious to the
          Company, as determined by the Board of Directors after notice to Employee and an
          opportunity for a hearing. No act, nor failure to act, on Employees part
          shall be considered willful unless he has acted or failed to act
          with an absence of good faith and without a reasonable belief that his action or
          failure to act was in the best interests of the Company.

(c)       
          Without Cause. The Company may terminate the Executives employment
          at any time during the Employment Period without Cause.

(d)       
          Good Reason. The Executives employment may be terminated during the
          Employment Period by the Executive for Good Reason. For purposes of this
          Agreement, Good Reason shall mean

| | (i)                             the
assignment to the Executive of any duties inconsistent with the                Executives
position (including status, offices, titles and reporting                requirements),
authority, duties or responsibility as contemplated by                Sections 3 and
4(a) or any other action by the Company which results in a                diminution in
such position, authority, duties or responsibilities, excluding                for this
purpose an isolated, insubstantial and inadvertent action not taken in                bad
faith and which is remedied by the Company promptly after receipt of notice
               thereof given by the Executive;
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| | (ii)                             any
failure by the Company to comply with any of the provisions of Section 4(b),
               other than an isolated, insubstantial and inadvertent failure not taken in
bad                faith and which is remedied by the Company promptly after receipt of
notice                thereof given by the Executive;
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| | (iii)                             the
Companys requiring to be based at any location other than that
               described in Section 4(a)(i)(B);
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| | (iv)                             any
purported termination by the Company of the Executives employment
               otherwise than as expressly permitted by this Agreement; or
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (v)                             any
failure by the Company to comply with and satisfy Section 11(c),
               provided that such successor has received at least ten days prior
written                notice from the Company or the Executive of the requirements of
               Section 11(c).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For
purposes of this Section 5(c), any good faith determination of Good Reason made by
the Executive shall be conclusive.

(e)       
          Notice of Termination. Any termination by the Company for Cause or
          without Cause or by the Employee for Good Reason shall be communicated by Notice
          of Termination to the other party hereto given in accordance with
          Section 12(b). For purposes of this Agreement, a Notice of
          Termination means a written notice which (i) indicates the specific
          termination provision in this Agreement relied upon, (ii) to the extent
          applicable, sets forth in reasonable detail the facts and circumstances claimed
          to provide a basis for termination of the Executives employment under the
          provision so indicated and (iii) if the Date of Termination (as defined
          below) is other than the date of receipt of such notice, specifies the
          termination date (which date shall be not more than 15 days after the
          giving of such notice). The failure by the Executive or the Company to set forth
          in the Notice of Termination any fact or circumstance which contributes to a
          showing of Good Reason or Cause shall not waive any right of the Executive or
          the Company hereunder or preclude the Executive or the Company from asserting
          such fact or circumstance in enforcing the Executives or the
          Companys rights hereunder.

(f)       
          Date of Termination. Date of Termination means (i) if
          the Executives employment is terminated by the Company, whether for Cause
          or without Cause, or by the Executive for Good Reason, the date of receipt of
          the Notice of Termination or any later date specified therein, as the case may
          be, and (ii) if the Executives employment is terminated by reason of
          death or Disability, the Date of Termination shall be the date of death of the
          Executive or the Disability Effective Date, as the case may be.

# 6.       Obligations
of the Company Upon Termination

(a)       
          Good Reason; Without Cause; Death or Disability. If, during the
          Employment Period, the Company shall terminate the Executives employment
          without Cause or for Death or Disability or the Executive shall terminate
          employment for Good Reason:

| | (i)                             the
Company shall pay to the Executive in a lump sum in cash within 30 days
               after the Date of Termination the aggregate of the following amounts:
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| | (A)                             the
sum of (1) the Executives Annual Base Salary through the Date of
               Termination, (2) a pro rata portion of the Executives Annual Bonus
for the                year in which the Date of Termination occurs, based on the number
of days of                employment that year up to the Date of Termination divided by
365 days,) and (3)                any accrued paid time off pay, in each case to the
extent not theretofore paid                (the sum of the amounts described in clauses (1),
(2) and (3) shall be                hereinafter referred to as the Accrued
Obligations); and
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| | (B)                             the
amount equal to the sum of (x) Annual Base Salary and (y) the Annual Bonus
               for which the Executive was eligible for the year in which the Date of
               Termination occurs; and
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| | (C)                             if
Executive executes a release of in the form set forth in Exhibit I attached
               hereto, and said release of claims becomes effective by its terms, the
               additional amount equal to two times the sum of (x) Annual Base Salary and
(y)                the Annual Bonus for which the Executive was eligible for the year in
which the                Date of Termination occurs; and
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| | (D)                             a
separate lump-sum supplemental retirement benefit equal to the difference
               between (1) the actuarial equivalent (utilizing for this purpose the
               actuarial assumptions utilized with respect to the Retirement Plan during
the                90-day period immediately preceding the Effective Date) of the benefit
payable                under the Retirement Plan and any SERP providing benefits for the
Executive that                the Executive would receive if the Executives
employment continued at the                compensation level provided for in Sections 4(b)(i)
and (ii) for the                remainder of the Employment Period, assuming for this
purpose that all accrued                normal and early retirement benefits are fully
vested and that benefit accrual                formulas are no less advantageous to the
Executive than those in effect during                the 90-day period immediately
preceding the Effective Date, and (2) the                actuarial equivalent
(utilizing for this purpose the actuarial assumptions                utilized with
respect to the Retirement Plan during the 90-day period                immediately
preceding the Effective Date) of the Executives actual benefit                (paid
or payable), if any, under the Retirement Plan and the SERP; and
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| | (ii)       
               for the remainder of the Employment Period, or such longer period as any plan,
               program, practice or policy may provide, the Company shall continue benefits to
               the Executive and/or the Executives family at least equal to those that
               would have been provided to them in accordance with the plans, programs,
               practices and policies described in Sections 4(b)(v) and 4(b)(vii) if the
               Executives employment had not been terminated in accordance with the most
               favorable plans, practices, programs or policies of the Company and its
               affiliated companies as in effect and applicable generally to other executives
               and their families during the 90-day period immediately preceding the Effective
               Date or, if more favorable to the Executive, as in effect generally at any time
               thereafter with respect to other peer executives of the Company and its
               affiliated companies and their families; provided, however, that if the
               Executive becomes re-employed with another employer and is eligible to receive
               medical or other welfare benefits under another employer-provided plan, the
               medical and other welfare benefits described herein shall be secondary to those
               provided under such other plan during such applicable period of eligibility
               (such continuation of such benefits for the applicable period herein set forth
               shall be hereinafter referred to as Welfare Benefit Continuation)
               and the Executive shall no longer be entitled to receive fringe benefits from
               the Company. For purposes of determining eligibility of the Executive for
               retiree benefits pursuant to such plans, practices, programs and policies, the
               Executive shall be considered to have remained employed until the end of the
               Employment Period and to have retired on the last day of such period; provided,
               however, that the Executive shall be entitled to the more favorable of the
               retiree benefits in effect on the Date of Termination or the retiree benefits in
               effect on the date that would have been the last date of the Employment Period
               if the Executive had remained employed; and
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii)       
               to the extent not theretofore paid or provided, the Company shall timely pay or
               provide to the Executive and/or the Executives family any other amounts or
               benefits required to be paid or provided or which the Executive and/or the
               Executives family is eligible to receive pursuant to this Agreement and
               under any plan, program, policy or practice or contract or agreement of the
               Company and its affiliated companies as in effect and applicable generally to
               other peer executives and their families during the 90-day period immediately
               preceding the Effective Date or, if more favorable to the Executive, as in
               effect generally thereafter with respect to other peer executives of the Company
               and its affiliated companies and their families (such other amounts and benefits
               shall be hereinafter referred to as the Other Benefits); and
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iv)       
               if the Executive is age 55 or older, in lieu of receiving monthly benefits under
               the SERP the Executive may elect, by giving at least 120 days written
               notice to the Company, to receive the Actuarial Equivalent (as defined in the
               SERP) lump sum value of the normal form of payment of SERP benefits based upon
               the retirement benefit payable under the SERP at Executives age upon the
               Date of Termination, or to have such Actuarial Equivalent lump sum value
               transferred to the Companys Deferred Compensation Plan or any successor
               deferred compensation plan. If the Executive is younger than the minimum age for
               eligibility for payment of SERP benefits, the Executive may elect to receive the
               discounted present value, using a seven percent discount rate, of the Actuarial
               Equivalent lump sum value of the SERP benefits to which the Executive would be
               entitled at the minimum age.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)       
          Death. If the Executives employment is terminated by reason of the
          Executives death during the Employment Period, this Agreement shall
          terminate without further obligations to the Executives legal
          representatives under this Agreement, other than for payment of Accrued
          Obligations (which shall be paid to Executives estate or beneficiary, as
          applicable, in a lump sum in cash within 30 days of the Date of
          Termination) and the timely payment or provision of the Welfare Benefit
          Continuation and Other Benefits.

(c)       
          Disability. If the Executives employment is terminated by reason of
          the Executives Disability during the Employment Period, this Agreement
          shall terminate without further obligations to the Executive, other than for
          payment of Accrued Obligations (which shall be paid to Executive in a lump sum
          in cash within 30 days of the Date of Termination) and the timely payment
          or provision of the Welfare Benefit Continuation and Other Benefits.

(d)       
          Cause; Other Than for Good Reason. If the Executives employment
          shall be terminated for Cause during the Employment Period, this Agreement shall
          terminate without further obligations to the Executive other than the obligation
          to pay the Executives Annual Base Salary through the Date of Termination,
          plus the amount of any compensation previously deferred by the Executive, in
          each case to the extent theretofore unpaid. If the Executive terminates
          employment during the Employment Period other than for Good Reason, this
          Agreement shall terminate without further obligations to the Executive other
          than for Accrued Obligations and the timely payment or provision of Other
          Benefits. In such case all Accrued Obligations shall be paid to the Executive in
          a lump sum in cash within 30 days of the Date of Termination.

# 7. Nonexclusivity of
Rights

Nothing
in this Agreement shall prevent or limit the Executives continuing or future
participation in any written plan provided by the Company or any of its affiliated
companies for executives generally and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the Executive may have under any
written contract with the Company or any of its affiliated companies. Amounts that are
vested benefits or that the Executive is otherwise entitled to receive under any such plan
or contract with the Company or any of its affiliated companies at or subsequent to the
Date of Termination shall be payable in accordance with such plan or contract or agreement
except as explicitly modified by this Agreement.

# 8. Full Settlement;
Resolution of Disputes

(a)       
          The Companys obligation to make the payments provided for in this
          Agreement and otherwise to perform its obligations hereunder shall not be
          affected by any set-off, counterclaim, recoupment, defense or other claim, right
          or action that the Company may have against the Executive or others. In no event
          shall the Executive be obligated to seek other employment or take any other
          action by way of mitigation of the amounts payable to the Executive under any of
          the provisions of this Agreement, and, except as provided in Section 6(b),
          such amounts shall not be reduced whether or not the Executive obtains other
          employment. The Company agrees to pay promptly upon invoice, to the full extent
          permitted by law, all legal fees and expenses that the Executive may incur as a
          result of any contest (regardless of the outcome thereof) by the Company, the
          Executive or others of the validity or enforceability of, or liability under,
          any provision of this Agreement or any guarantee of performance thereof
          (including as a result of any contest by the Executive about the amount of any
          payment pursuant to this Agreement).

(b)       
          If there shall be any dispute between the Company and the Executive (i) in
          the event of any termination of the Executives employment by the Company,
          whether such termination was (A) in connection with or in anticipation of a
          Change of Control under clauses (i) or (ii) of Section 1(l), or (B)
          for Cause, or (ii) in the event of any termination of employment by the
          Executive, whether Good Reason existed, then, unless and until there is a final,
          nonappealable judgment by a court of competent jurisdiction declaring that such
          termination was not in connection with or in anticipation of a Change of Control
          or for Cause or that the determination by the Executive of the existence of Good
          Reason was not made in good faith, the Company shall pay all amounts, and
          provide all benefits, to the Executive and/or the Executives family or
          other beneficiaries, as the case may be, that the Company would be required to
          pay or provide pursuant to Section 6(a) as though such termination were by
          the Company without Cause or by the Executive with Good Reason; provided,
          however, that the Company shall not be required to pay any disputed amounts
          pursuant to this paragraph except upon receipt of an undertaking by or on behalf
          of the Executive to repay all such amounts to which the Executive is ultimately
          adjudged by such court not to be entitled.

# 9. Excise Taxes

Notwithstanding
any other provisions of this Agreement, if any payments or distributions in the nature of
compensation are made to or for the benefit of the Executive, whether paid or payable
pursuant to this Agreement or otherwise (including the vesting of stock options, the lapse
of restrictions on restricted stock and any other events that result in a payment in
the nature of compensation within the meaning of Section 280G of the Code) are
characterized as Excess Parachute Payments within the meaning of Section 280G of the
Code or any successor provision, then the Company shall pay to the Executive an additional
amount equal to the excise taxes imposed by Section 4999 of the Code or any successor
provision on the Executives Excess Parachute Payments, plus an amount equal to the
federal and (if applicable) state income and excise taxes, including without limitation
FICA and Medicare taxes or other taxes which will be payable by Employee as a result of
this additional payment.

# 10. Confidential
Information

The
Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, that shall have been obtained by
the Executive during the Executives employment by the Company or any of its
affiliated companies and that shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executives employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be required by
law or legal process, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this Agreement.

# 11. Successors

(a)       
          This Agreement is personal to the Executive and without the prior written
          consent of the Company shall not be assignable by the Executive otherwise than
          by will or the laws of descent and distribution. This Agreement shall inure to
          the benefit of and be enforceable by the Executives legal representatives.

(b)       
          This Agreement shall inure to the benefit of and be binding on the Company and
          its successors and assigns.

(c)       
          The Company will require any successor (whether direct or indirect, by purchase,
          merger, consolidation or otherwise) to all or substantially all the business
          and/or assets of the Company to assume expressly and agree to perform this
          Agreement in the same manner and to the same extent that the Company would be
          required to perform it if no such succession had taken place. As used in this
          Agreement, Company shall mean the Company as hereinbefore defined and any
          successor to its business and/or assets as aforesaid that assumes and agrees to
          perform this Agreement by operation of law, or otherwise.

# 12. Miscellaneous

(a)       
          This Agreement shall be governed by and construed in accordance with the laws of
          the state of Washington, without reference to principles of conflict of laws.
          The captions of this Agreement are not part of the provisions hereof and shall
          have no force or effect. This Agreement may not be amended or modified otherwise
          than by a written agreement executed by the parties hereto or their respective
          successors and legal representatives.

(b)       
          All notices and other communications hereunder shall be in writing and shall be
          given by hand delivered to the other party or by registered or certified mail,
          return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

| | Bertrand Valdman                                                      
| | ----------------------------------------------------------------------
| | Vice President, Senior Vice President Finance, Chief Financial Officer
| | Puget Sound Energy                                                    
| | P.O. Box 97034                                                        
| | Bellevue, WA 98009-9734                                               

If to the Company:

| | Puget Sound Energy, Inc.
| | ------------------------
| | P. O. Box 97034         
| | Bellevue, WA  98009-9734

or to such other address as either
party shall have furnished to the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the addressee.

(c)       
          The invalidity or unenforceability of any provision of this Agreement shall not
          affect the validity or enforceability of any other provision of this Agreement.

(d)       
          The Company may withhold from any amounts payable under this Agreement such
          federal, state or local taxes as shall be required to be withheld pursuant to
          any applicable law or regulation.

(e)       
          The Executives or the Companys failure to insist on strict
          compliance with any provision hereof or any other provision of this Agreement or
          the failure to assert any right the Executive or the Company may have hereunder,
          including without limitation the right of the Executive to terminate employment
          for Good Reason pursuant to Section 5(c)(i)-(v), shall not be deemed to be
          a waiver of such provision or right or any other provision or right of this
          Agreement.

(f)       
          The Executive and the Company acknowledge that, except as may otherwise be
          provided under any other written agreement between the Executive and the
          Company, the employment of the Executive by the Company is at will
          and, prior to the Effective Date, may be terminated by either the Executive or
          the Company at any time. Moreover, if prior to the Effective Date, the
          Executives employment with the Company terminates, then the Executive
          shall have no further rights under this Agreement.

(g)       
          This Agreement may be executed in counterparts, each of which counterparts shall
          be deemed an original, but all of which together shall constitute one and the
          same instrument.

IN
WITNESS WHEREOF, the Executive has hereunto set the Executives hand and, pursuant to
authorization from the Board, the Company has caused this Agreement to be executed in its
name and on its behalf, all as of the day and year first above written.

| | PUGET SOUND ENERGY, INC.                 
| | -----------------------------------------
| |                                          
| |                                          
| | /s/ Stephen P. Reynolds                  
| |                                          
| | By: Stephen P. Reynolds                  
| | Its President and Chief Executive Officer
| |                                          
| |                                          
| |                                          
| |                                          
| | /s/ Bertrand Valdman                     
| |                                          
| | Bertrand Valdman