---

Exhibit 99.3

| |                                       
| | --------------------------------------
| | Puget Energy, Inc.                    
| | Notice of Annual Meeting              
| | May 13, 2003                          
| |                                       
| | Sheraton Tacoma Hotel                 
| | 1320 Broadway Plaza Tacoma, Washington

Dear Shareholder:

The
Annual Meeting of Shareholders of Puget Energy, Inc. will be held at the Sheraton Tacoma
Hotel, located at 1320 Broadway Plaza, Tacoma, Washington on Tuesday, May 13, 2003, at
10:00 a.m. for the following purposes:

| | 1.               To
elect three 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,
2003.

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

James W. EldredgeCorporate Secretary

March 13, 2003
Bellevue, Washington

---

CONTENTS

|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
| | ---------------

| | Governance
and Public Affairs Committee
| | ---------------------------------------

| | Compensation
and Leadership Development 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 Leadership Development Committee Report
| | --------------------------------------------------------------

|Stock Price Performance
Graph
|-----------------------------

|Five -Year Cumulative
Total Return
|----------------------------------

|Summary Compensation
Table
|--------------------------

|Option Grants in 2002
|---------------------

|Option
SAR/Exercises in Last Fiscal Year and fiscal Year-End Option/SAR Values
|------------------------------------------------------------------------------

|Long-Term Incentive Plan
Awards in 2002
|---------------------------------------

|Retirement Benefits Statements
|------------------------------

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

| | Arrangements
| | ------------

| | Agreements
| | ----------

|1995 Long-Term Incentive
Compensation Plan
|------------------------------------------

|Stock Appreciation Rights
|-------------------------

|Additional Information
About the Meeting and Shareholder Proposals
|------------------------------------------------------------------

| | Independent
Accountants
| | -----------------------

| | Solicitation
of Proxies
| | -----------------------

| | Annual
Report and Form 10-K
| | ---------------------------

|Appendix A - Audit
Committee Charter
|------------------------------------

|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 13, 2003 at the Sheraton Tacoma Hotel, which
is located at 1320 Broadway Plaza, Tacoma, Washington. We will mail this proxy statement
and our Annual Report for 2002 to shareholders on April 3, 2003. 
        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,
Puget Sound Energy, Inc. (Puget Sound Energy), which was Puget Energys predecessor
company and is now Puget Energys principal operating subsidiary, and InfrastruX
Group, Inc. (InfrastruX), a majority owned subsidiary. 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 Puget Energy common stock (the common stock) may vote at the Annual
Meeting. Approximately 94 million shares of common stock will be outstanding as of
March 18, 2003, the record date for the Annual Meeting. Puget Energy will have
approximately 45,200 shareholders of record as of the record date.

What am I voting on?

You
are being asked to elect three 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 three 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 nine.
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 III directors to serve for a term of three years expiring on the date of the
2006 Annual Meeting.

Who are the nominees?

Proxies
will be voted on the nominees listed below. 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 III Nominees
Standing for Election  Terms Expiring 2006

Douglas P. Beighle

Mr. Beighle
was appointed Chairman of the Boards of Directors of Puget Energy and Puget Sound Energy
in March 2002. Mr. Beighle served as Lead Director from April 2001 to March 2002. Mr.
Beighle, age 70, 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.,
and Simpson Investment Company (privately held). Mr. Beighle served as Senior Vice
President of The Boeing Company (aerospace manufacturing and sales) from 1986 until his
retirement on May 1, 1997.

Craig W. Cole

Mr. 
          Cole has been President and Chief Executive Officer of Brown & Cole Stores,
          LLC (retail grocery) since 1989. Mr. Cole, age 53, is a member of the
          Washington Roundtable and the Washington State Energy Strategy Advisor/Committee.
          He also serves on the boards of Associated Grocers, Inc. 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 66, 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.

Who are the other directors?

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

Continuing Directors

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, and as Executive Vice President and Manager from 1989 to 1992. Ms. Campbell,
age 51, 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,
Alaska Air Group, Inc., and Joshua Green Corporation (privately held). Ms. Campbell is a
Regent of Washington State University.

---

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. He is also Senior
Associate, National Center for Higher Education Management Systems. 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 65, was appointed to the Boards of Directors
of Puget Energy and Puget Sound Energy in July 2001.

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 55, also serves as a
          director of Oregon Steel Mills, Inc.

Class II 
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 69, 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 former 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 69, also serves as a director of Vycor
          Company, Software Revolution, Inc. and Power It.

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 57, has been a Director
of Puget Energy since its incorporation in 1999 and of Puget Sound Energy since 1989.

---

Structure and
Compensation of Board of Directors

The
Puget Energy and Puget Sound Energy Boards of Directors have identical Audit, Governance
and Public Affairs, and Compensation and Leadership Development 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 as
follows:

Audit Committee

The
Puget Energy and Puget Sound Energy Audit Committees currently include Charles W. Bingham
(Chair), Douglas P. Beighle, Tomio Moriguchi, Dr. Kenneth P. Mortimer and Sally G.
Narodick. All members served on the Audit Committees throughout 2002 except Ms. Narodick,
who joined the Audit Committees in September 2002. Each member of the Audit Committees is
an independent director as defined under the rules of the New York Stock Exchange.

The
Audit Committees assist the full Boards in oversight of:     The
integrity of the Companies financial statements.
     The
Companies compliance with legal and regulatory requirements. 
     The independent
auditors qualifications and independence.
    The
performance of the Companies internal and independent auditors.

In
addition, the Audit Committees have ultimate authority and responsibility to select,
evaluate and, where appropriate, replace the independent auditor.

The
Audit Committees met six times during 2002.

Governance and Public
Affairs Committee

The
Puget Energy and Puget Sound Energy Governance and Public Affairs Committees currently
include four independent directors; Craig W. Cole (Chair), Douglas P. Beighle,
Phyllis J. Campbell and Tomio Moriguchi. The purpose of the Governance and Public
Affairs Committee is to:     Identify
individuals qualified to become members of the Board.
    Select and recommend to the Board
director candidates.
    Develop, update as necessary and recommend to the Board corporate
governance principles and policies, including the Companies Corporate Governance
Guidelines.
     Monitor compliance with the corporate governance principles and policies.

    Oversee Puget Energys and Puget Sound Energys public affairs matters and
involvement with key constituencies.

---

The
Committees will consider the names and qualifications of any candidates submitted by
shareholders, provided that such shareholder nominations must be submitted in writing to
the Corporate Secretary in accordance with the procedures set forth in Section 3.3 of the
Companies bylaws. The Governance and Public Affairs Committees met two times in
2002.

Compensation
and Leadership Development Committee

The
Puget Energy and Puget Sound Energy Compensation and Leadership Development Committees,
currently includes five independent directors: Phyllis J. Campbell (Chair),
Douglas P. Beighle, Charles W. Bingham, Dr. Kenneth P. Mortimer and Sally G.
Narodick. The purpose of the Compensation and Leadership Development Committee is to:     Discharge
the responsibilities of the Board relating to compensation of the Companies' officers.
     Approve
and evaluate officer compensation plans, policies and programs of the Companies.
     Oversee
long-range  planning for executive  development and succession,  and the design,
 administration and performance of employee retirement and savings plans.

The Compensation and Leadership
Development Committees met six times during 2002.

Board of Directors Meetings

The
Puget Energy and Puget Sound Energy Boards of Directors met nine times during 2002. 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 99% of all board and committee
meetings during 2002.

Director Compensation

Puget
Energy and Puget Sound Energy pay all directors other than directors who are also
employees of the Companies a quarterly retainer of $10,000 plus $1,250 in fees for each
board and committee meeting the director attends. Meeting fees are reduced by 50% if the
meeting is scheduled as a telephonic meeting and lasts less than 60 minutes. The Chairman
of the Boards receives an additional quarterly retainer of $10,000. The Chair of the Audit
Committees is paid an additional quarterly retainer of $2,500 and other members of the
Audit Committees are paid an additional quarterly retainer of $1,000. Chairs of the
Governance and Public Affairs and Compensation and Leadership Development Committees are
paid additional quarterly retainers of $1,500. 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. Beginning January 1, 2003, each director receives a
minimum of 50% of his or her quarterly retainer payments in Puget Energy stock, except
that 100% of quarterly retainers are paid in Puget Energy stock until the director holds a
number of shares of Puget Energy stock equal in value to two years of quarterly retainer
payments. Directors can elect to receive 100% of their quarterly retainer payments in
Puget Energy common stock, or to defer receipt of shares under the Puget Energy
Directors Stock Plan.

---

Audit Committee Report

The
Audit Committees of the Puget Energy and Puget Sound Energy Boards of Directors are
composed of five directors who are independent directors as defined under the rules of the
New York Stock Exchange. The Committees operate under a written charter approved by the
Boards of Directors, a copy of which is provided with this proxy statement as Appendix A.

The
primary purpose of the Audit Committees is to assist the Boards of Directors of Puget
Energy and Puget Sound Energy in oversight of their respective Companies financial
reporting processes. As stated in the Audit Committee Charter, it is not the
responsibility of the Audit Committees to plan or conduct audits or to verify whether the
Companies financial statements are complete and accurate or in accordance with
generally accepted accounting principles. 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.

Consistent
with their oversight responsibilities, 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. 90 (Audit Committee Communications). 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, 2002 for filing with
the Securities and Exchange Commission.

| | Audit Committees of Puget Energy, Inc.
and Puget Sound Energy, Inc.
Charles W. Bingham, Chair
Douglas P. Beighle
Tomio Moriguchi
Dr. Kenneth P. Mortimer
Sally G. Narodick
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

Independent
Accountants Fees

The
aggregate fees billed by PricewaterhouseCoopers LLP, Puget Energys independent
accountants, in fiscal year 2002 and 2001 were as follows:

| |                        | 
| | ---------------------- | 
| |                        | 
| | Audit Fees (1)         | 
| | Audit related Fees (2) | 
| | Tax Fees (3)           | 
| | All other Fees (4)     | 
| |                        | 
| | Total                  | 
| |                        | 

|(1) | For
professional services rendered for the audit of Puget Energys and
               Puget Sound Energys annual financial statements, reviews of
financial                statements included in the Companies Forms 10-Q, and
consents and                reviews of documents filed with the Securities and Exchange
Commission. The 2002                fees are estimated and include an aggregate amount of
approximately $397,000                that has been billed to Puget Energy through
December 31, 2002. The 2001 fees                included an aggregate amount of $549,000
billed to Puget Energy through December                31, 2001.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Consists
of employee benefit plan audits and due diligence reviews of Infrastrux
               acquisition targets.
|--- | --------------------------------------------------------------------------------------------------------------------

|(3) | Consists
of tax planning, consulting and tax return reviews.
|--- | ------------------------------------------------------------

|(4) | For
2001, other fees consisted of: (a) financial information systems design and
               implementation fees totaling $2,191,000 relating to Puget Sound Energys
               successful implementation of its ConsumerLinX customer information system,
on                which PricewaterhouseCoopers management consulting group provided
               information system integration services; (b) consulting services in
connection                of strategic alternatives for a subsidiary of Puget Sound
Energy and for                regulatory matters totaling $325,000. For 2002, other fees
consisted of                financial information systems design and implementation fees
relating to the                final portion of work on the implementation of Puget Sound
Energys                ConsumerLinX customer information system, initiated in 2001
and completed in                February 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Audit Committees of Puget Energy and Puget Sound Energy have 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 February
19, 2003 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.

---

|Name                                            | Number of BeneficiallyOwned Shares | Number of Share Inerests Held
|----------------------------------------------- | ---------------------------------- | -----------------------------
|Douglas P. Beighle                              |                                    | 4,942                        
|Charles W. Bingham                              |                                    | 6,687                        
|Phyllis J. Campbell                             |                                    | 1,000                        
|Craig W. Cole                                   |                                    | 200                          
|Robert L. Dryden                                |                                    | 5,456                        
|Tomio Moriguchi                                 |                                    | 1,325                        
|Kenneth P. Mortimer                             |                                    | 0                            
|Sally G. Narodick                               |                                    | 258                          
|Stephen P. Reynolds                             |                                    | 107,500                      
|John D. Durbin                                  |                                    | 4,216                        
|Timothy J. Hogan                                |                                    | 8,327                        
|Stephen A. McKeon                               |                                    | 17,124                       
|Julia M. Ryan                                   |                                    | 4,500                        
|Gary B. Swofford                                |                                    | 23,138                       
|William S. Weaver                               |                                    | 0                            
|All directors and executive officers as a group |                                    | 262,142                      

---

|(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 February 19, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------

|(3) | Includes
40,000 shares of restricted stock. Also includes 67,500 shares of
                    common stock subject to stock options that are currently exercisable.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Mr.
Durbin also holds stock options to purchase 1,287,500 shares of InfrastruX
                    common stock.
|--- | ----------------------------------------------------------------------------------------------------------------

|(5) | Includes
shares held under the Puget Sound Energy Investment Plan for Employees
                    through February 19, 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes
11,281 shares of common stock subject to currently exercisable 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 2002 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 2002 except Ms. Harris, who filed a late Form 3, and Mr.
Durbin, who did not report the correct number of shares purchased during 2001 in the
Deferred Compensation Plan on a Form 5 filed in February 2002. Mr. Durbin reported the
correct number of shares on a Form 4 in December 2002.

---

Executive Compensation

Joint Compensation and
Leadership Development Committee Report

The
Boards of Directors of Puget Energy and Puget Sound Energy delegate responsibility for
executive compensation to the Compensation and Leadership Development Committees (formerly
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 Puget Sound 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
the long-term incentive compensation component of Chief Executive Officer and executive
compensation to Company performance and increased value to shareholders.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
making compensation decisions, the Committees review appropriate market compensation
indices. The principal source of this data is a selection of comparable companies that are
most similar in scope and size to Puget Energy 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 12.

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.

---

Chief Executive Officer Compensation

Mr.  Reynolds
was elected President and Chief Executive Officer on January 7, 2002.
          His compensation as defined by his employment agreement (described on page 18)
          was determined by the Committees considering the factors described above and
          after reviewing the market competitive information for Chief Executive Officers
          in the comparator group companies that are most similar in size and scope to the
          Company.

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.

Annual Incentive Compensation

All
executive officers of Puget Sound Energy participate in its 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 2002, the targeted opportunity for awards from this plan
varied by executive officer: Mr. Reynolds target, pursuant to his employment
agreement, was 55% of base salary. The target for Messrs. Hogan, McKeon and Swofford was
45% of base salary and the target for Ms. Ryan was 50% of base salary. Mr. Durbin, who is
a named executive officer of Puget Energy because of his role as Chairman and Chief
Executive Officer of InfrastruX, a majority owned subsidiary of Puget Energy, participates
in the InfrastruX annual incentive compensation program, and has a target
award of 50% of base salary.

For
2002, 100% of the award for the named executives of Puget Sound Energy other than Ms. Ryan
was based on EPS performance. EPS results were achieved at the minimum funding level.
Because the earnings per share results were achieved below the targeted opportunity, the
awards for Messrs. Hogan, McKeon and Swofford were paid at 22.5% of base salary. Mr.
Reynolds was paid at 50% of his base salary in accordance with the terms of his employment
agreement, which provided that for 2002 only he would be paid a minimum annual incentive
award of $325,000. Ms. Ryans award was based 50% on EPS performance and 50% on
specified operational goals. Based on year-end results for these goals, Ms. Ryans
award was paid at 53% of base salary. Mr. Durbin did not receive an award payment under
the InfrastruX plan.

---

Long-Term Incentive
Compensation

The
1995 Long-Term Incentive Compensation Plan (the 1995 Plan), approved by
shareholders in 1995, links compensation to the relative total shareholder return of Puget
Energy. Under the 1995 Plan, the Puget Energy and Puget Sound Energy Compensation
Committees have 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 (LTIP Awards). 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 2002 table on page 16 lists the grants made in 2002 to
the named executive officers for the four-year performance cycle ending December 31, 2005.
Pursuant to the terms of his employment agreement, the Committee granted Mr. Reynolds LTIP
Awards for the four-year performance cycle ending December 31, 2005 valued at 150% of his
base salary at the time of hire. The Summary Compensation Table on page 12 shows the
payout for the four-year cycle ended December 31, 2002. Based on 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 results were achieved at the
55th percentile, which generated payout at the 100% funding level.

The
Puget Energy and Puget Sound Energy Compensation Committees also consider grants of stock
options and restricted stock under the 1995 Plan on a selective basis for purposes of
attracting key executives to the organization. Pursuant to the terms of his employment
agreement, Mr. Reynolds was awarded options to purchase 300,000 shares of Common Stock,
half of which vests over a four-year period and half of which vests over a five-year
period, and 50,000 shares of restricted stock, which vest over five years. A portion of
these stock options and restricted stock awards was made by the Board of Directors of
Puget Energy upon the recommendation of the Committees as non-plan grants because of grant
size limitations in the 1995 Plan. As Chairman and Chief Executive Officer of InfrastruX,
Mr. Durbin does not participate in the Puget Energy long-term equity incentive programs.
However, pursuant to the InfrastruX Group, Inc. 2000 Stock Incentive Plan, the InfrastruX
board of directors in 2001 granted Mr. Durbin options to purchase 1,287,500 shares of
InfrastruX common stock.

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 1999, or at time
of hire whichever is later, for officers and key managers that range from 50% of base
salary to two times base salary for the named executive officers.

---

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 deductibility under Section 162(m)
while preserving flexibility in compensation program design to achieve corporate
objectives. The Company has a salary and incentive award deferral plan that permits
compensation deferred under the plan by the named executive officers to be exempt from the
Section 162(m) limit on tax deductibility.

| | Compensation and Leadership
Development Committees
of Puget Energy, Inc. and
Puget Sound Energy, Inc.
Phyllis J. Campbell, Chair
Douglas P. Beighle
Charles W. Bingham
Dr. Kenneth P. Mortimer
Sally G. Narodick
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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.

|                         |  |      |      |       |      |       |      |      |     |       |     |       |    
|------------------------ |  | ---- | ---- | ----- | ---- | ----- | ---- | ---- | --- | ----- | --- | ----- | ---
|                         |  | 1997 | 1998 | 1999  | 2000 | 2001  | 2002
|PSD                      |  | $100 | .00  | $  98 | .64  | $  74 | .45  | $115 | .32 | $  98 | .25 | $104  | .82
|EEI Gas & Electric Index |  | $100 | .00  | $116  | .19  | $  94 | .43  | $140 | .56 | $126  | .96 | $102  | .67
|S&P 500 Index            |  | $100 | .00  | $128  | .58  | $155  | .63  | $141 | .47 | $124  | .65 | $  97 | .10

Five-Year Cumulative
Total Return

This
comparison assumes $100 was invested on December 31, 1997, 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 Leadership Development 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, 2002, 2001, and 2000
with respect to Puget Energys and Puget Sound Energys President and Chief
Executive Officer and each of the four other most highly compensated executive officers of
Puget Energy and Puget Sound Energy during 2002, and Puget Energys and Puget Sound
Energys former Chairman and Executive Officer. The positions and offices below are
at Puget Energy and Puget Sound Energy, except that Mr. Hogan, Ms. Ryan, and Mr. Swofford
are officers of Puget Sound Energy only and Mr. Durbin is Chairman and Chief Executive
Officer of InfrastruX, a majority owned subsidiary of Puget Energy. Annual compensation
includes amounts deferred at the officers election.

|Annual Compensation | Long-Term Compensation
|------------------- | ----------------------
|
|                   
|S. Reynolds (1)     |                       
|President and       |                       
|Chief Executive     |                       
|Officer             |                       
|                   
|J. Durbin (2)       |                       
|InfrastruX          |                       
|Chairman and        |                       
|Chief Executive     |                       
|Officer             |                       
|                   
|T. Hogan            |                       
|Senior Vice         |                       
|President           |                       
|Regional            |                       
|Sercices            |                       
|                   
|S. McKeon           |                       
|Senior Vice         |                       
|President           |                       
|Finance and         |                       
|Chief Financial     |                       
|Officer             |                       
|                   
|J. Ryan (3)         |                       
|Vice President      |                       
|Energy Portfolio    |                       
|Management          |                       
|                   
|G. Swofford         |                       
|Senior Vice         |                       
|President and       |                       
|Chief Operating     |                       
|Officer             |                       
|                   
|W. Weaver (4)       |                       
|President and       |                       
|Chief Executive     |                       
|Officer             |                       

---

|(1) | Mr.
Reynolds became President and Chief Executive Officer on January 7, 2002.
|--- | -----------------------------------------------------------------------------

|(2) | Mr.
Durbin has served as Chief Executive Officer of InfrastruX since March 2000.
                    InfrastruX became a significant subsidiary of Puget Energy in 2002.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Ms.
Ryan became Vice President Energy Portfolio Management on December 1, 2001.
|--- | -------------------------------------------------------------------------------

|(4) | Mr.
Weaver served as President and Chief Executive Officer until January 7,
                    2002, when Stephen P. Reynolds was elected President and Chief
Executive                     Officer. Mr. Weaver retired as Chairman of the Board on
February 13, 2002.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Represents
relocation expenses and related tax gross-up payments of $124,796 and
                    tax consulting service expense of $2,000.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Represents
relocation expenses and related tax gross-up payments.
|--- | -----------------------------------------------------------------

|(7) | The
amounts reported in the Restricted Stock column reflect the value of
                    restricted stock awards granted to Messrs. Reynolds and Swofford in
2002. The                     dollar amounts in this column are determined by multiplying
the number of shares                     covered by the award by the closing price of the
Common Stock on the grant date.                     These awards have vesting provisions
based on length of service.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The number
and value of the aggregate restricted stock holdings of Messrs. Reynolds and Swofford as
of the close of trading on December 31, 2002 are 50,000 and 18,000 shares, respectively,
with value of $1,102,500 and $396,900, respectively, based on the closing price of the
Common Stock on that date of $22.05.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | The
numbers reported in the Options column reflect the number of options
                    granted. For Mr. Reynolds these are options for shares of Puget
Energy common                     stock.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | In
2001, the InfrastruX Board of directors granted Mr. Durbin options to
                    purchase 1,287,500 shares of InfrastruX common stock.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | The
amounts for 2002 represent payment of Long-Term Incentive Compensation Plan
                    (LTIP) awards for the four-year performance cycle ended December 31,
2002, which                     consist of (a) shares valued as of the December 31, 2002
closing price of                     $22.05, plus (b) a total dividend amount of $6.73
per share during the four-year                     performance period multiplied by the
total number of shares. The number and                     value of shares for each of
the named executive officers, except Mr. Weaver, are                     as set forth
below.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|            | Shares
|----------- | ------
|Name        |       
|S. Reynolds |       
|J. Durbin   |       
|T. Hogan    |       
|S. McKeon   |       
|J. Ryan     |       
|G. Swofford |       

---

| | The payment
for Mr. Weaver represents a payment for pro-rata shares from his outstanding LTIP awards,
calculated as stipulated by the LTIP plan and his employment agreement, and paid in cash
as stipulated by his employment agreement.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | The
amounts for 2001 reflect that no share awards were made in payment of LTIP
          awards for the four-year performance cycle ended on December 31, 2001, since
the           performance threshold for that cycle was not met. Payment for Mr. McKeon
          represents minimum LTIP cash payment as stipulated by his employment agreement.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | The
amounts for 2000 represent payment of LTIP awards for the four-year           performance
cycle ended December 31, 2000, which consist of (a) 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 shares. The number and value of shares for each of the named
          executive officers are as follows:
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|            | Shares
|----------- | ------
|Name        | Number
|S. Reynolds | 0     
|J. Durbin   | 0     
|T. Hogan    | 2,200 
|S. McKeon   | 4,192 
|J. Ryan     | 0     
|G. Swofford | 2,200 
|W. Weaver   | 6,016 

|(13) | Represents
$8,750 match under Investment Plan for Employees; $23,750 match under           the
Investment Plan make-up; $1,452 imputed income on life insurance, and,           $23,000
in dividends paid on Restricted stock prior to share certification.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Represents
$1,510 match under the InfrastruXs 401(k) Plan and $3,810           imputed income
from life insurance.
|---- | -------------------------------------------------------------------------------------------------------------------

|(15) | Represents
$4,176 match under Investment Plan for Employees; $13,526 match under           the
Investment Plan make-up; and $536 imputed income on life insurance.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(16) | Represents
$8,449 match under Investment Plan for Employees; $14,065 match under           the
Investment Plan make-up; and $1,609 imputed income on life insurance.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(17) | Represents
$ 1,880 match under Investment Plan for Employees, $7,520 match under           the
Investment Plan make-up, and $222 imputed income on life insurance.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(18) | Represents
$25,000 signing bonus and $8 imputed income on life insurance.
|---- | -------------------------------------------------------------------------

|(19) | Represents
$5,305 match under Investment Plan for Employees; $13,165 match under           the
Investment Plan make-up; $4,500 in dividends paid on Restricted stock prior           to
share certification, and $2,057 imputed income on life insurance.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(20) | Represents
$8,500 match under Investment Plan for Employees; $563 match under           the
Investment Plan make-up; $1,484 imputed income on life insurance; $2,628 for
          exercise of SARS, and payments pursuant to employment agreement of $5,169,906.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

Option Grants in 2002

The
following table presents information regarding stock options granted to the participating
named executive officer in 2002.

|Individual Grants |                                                                                                                                                                                                                                                        
|----------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name              | Number of Shares
                                                              Underlying Options
                                                                 Granted (#)
                                                                     (1)
|S. Reynolds       | 150,000                                                                                                                                                                                                                                                
|                  | 150,000                                                                                                                                                                                                                                                
|J. Durbin         | 0                                                                                                                                                                                                                                                      
|T. Hogan          | 0                                                                                                                                                                                                                                                      
|S. McKeon         | 0                                                                                                                                                                                                                                                      
|J. Ryan           | 0                                                                                                                                                                                                                                                      
|G. Swofford       | 0                                                                                                                                                                                                                                                      
|W. Weaver         | 0                                                                                                                                                                                                                                                      

|(1) | The
per share exercise price is the fair market value of the common stock on the
                    date of grant, and the term of these options is ten years, subject to
earlier                     termination in the event of termination of employment. One
option for 150,000                     shares vests in four equal annual installments
beginning one year after the date                     of grant and the other option for
150,000 shares vests in five equal annual                     installments beginning one
year after the date of grant. The schedule on which                     options become
exercisable is subject to acceleration in the event of a change                     in
control.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The
Grant Date Present Value of the options in this table was estimated using
                    the Black-Scholes option pricing model, in accordance with Securities
and                     Exchange Commission regulations. Our use of this model should not
be construed                     as an endorsement of its accuracy. All stock option
valuation models, including                     the Black-Scholes model, require various
assumptions, including a prediction                     about the future movement of the
stock price.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The
following assumptions were made for purposes of calculating the Grant Date
                    Present Value: a holding period of 4 years, volatility of 24.27%, a
dividend                     yield of 5%, a forfeiture rate of 0% and interest rate of
4.25%.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The
following assumptions were made for purposes of calculating the Grant Date
                    Present Value: a holding period of 5 years, volatility of 22.23%, a
dividend                     yield of 5%, a forfeiture rate of 0% and interest rate of
4.60%.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

Option/SAR Exercises in
Last Fiscal Year and Fiscal Year-End Option/SAR Values

The
following table presents information regarding the number of stock appreciation rights
(SARs) exercised in 2002 and the number and value of outstanding unexercised
options and SARs held by the participating named executive officers at the end of 2002.

|                      | Number ofSharesUnderlyingOptions/SARsExercised in2002 | Value ofOptions/SARsExercised in 2002 | Number of SecuritiesUnderlying Unexercised
                                                                            Options/SARs at FiscalYear-End (#) | Value of UnexercisedIn-the-Money Options/SARs atFiscal Year-End (2) |                |                 
|--------------------- | ----------------------------------------------------- | ------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | -------------- | ----------------
|                     
|Puget Energy Options: |                                                       |                                       | Exercisable                                                                                                                                               | Unexercisable                                                       | Exercisable($) | Unexercisable($)
|S. Reynolds           | 0                                                     | $0                                    | 0                                                                                                                                                         | 300,000                                                             | $0             | $0              
|T. Hogan              | 0                                                     | $0                                    | 11,281                                                                                                                                                    | 0                                                                   | $45,966        | 0               
|S. McKeon             | -                                                     | -                                     | -                                                                                                                                                         | -                                                                   | -              | -               
|J. Ryan               | -                                                     | -                                     | -                                                                                                                                                         | -                                                                   | -              | -               
|G. Swofford           | 0                                                     | $0                                    | 5,600                                                                                                                                                     | 0                                                                   | $3,120         | 0               
|W. Weaver             | 7,300                                                 | $2,628 (1)                            | 0                                                                                                                                                         | 0                                                                   | $0             | 0               
|InfrastruX Options:   |                                                       |                                       |                                                                                                                                                           |                                                                     |                |                 
|J. Durbin             | 0                                                     | $0                                    | 965,625                                                                                                                                                   | 321,875                                                             | $956,625       | $321,875        

Before
1995, participants in the Companys Long-Term Incentive Program for Senior
Management could receive stock appreciation rights, which are payable only in cash. The
Company has granted no SARS since 1994.

|(1) | The
value realized is the difference between the closing price of the common
                    stock at the time of the SAR exercise on April 6, 2002 and the base
price of the                     SAR.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Puget
Energy Options:Amounts are the number of options and SARs for Puget
Energy common stock multiplied by the difference between the closing
price of Puget Energy common stock on December 31, 2002 of $22.05 per
share, minus the exercise or base price for that option or SAR.
InfrastruX Options: The amounts for Mr. Durbin are the number of
options for InfrastruX common stock multiplied by $1.00, which is the
difference in the fair market value of the InfrastruX common stock on
December 31, 2002 as determined by the InfrastruX Board of Directors
and the exercise price for these options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There
is no guarantee that these Puget Energy or InfrastruX options and SARs will have this
value when and if they are exercised.

---

Long-Term Incentive Plan
Awards in 2002

The
following table presents information regarding grants made to the named executive officers
under the 1995 Long-Term Incentive Compensation Plan in 2002.

|            |                     |                                 
|----------- | ------------------- | --------------------------------
|            |                     |                                 
|Name        | Number ofShares (#) | Period UntilMaturation or Payout
|           
|S. Reynolds | 69,247              | 4 years                         
|J. Durbin   | N/A                 | N/A                             
|T. Hogan    | 15,249              | 4 years                         
|S. McKeon   | 24,020              | 4 years                         
|J. Ryan     | 15,856              | 4 years                         
|G. Swofford | 18,757              | 4 years                         
|W. Weaver   | 0                   | N/A                             

|(1) | Awards
are contingent grants of 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 our four-year total
shareholder return                compared to the returns reported in the Edison Electric
Institutes                Combination Gas & Electric Investor-Owned Utilities
Index. To receive 100%                of the grant, Puget Energy must perform at the 55th
percentile among Edison                Electric Institutes Gas & Electric
companies. To receive 175% of the                grant, we 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, 2003 at age 62 after selected periods of service.
The table lists the estimated aggregate values under our funded pension plan, the
Supplemental Executive Retirement Plan, the Washington Natural Gas Nonqualified
Retirement Plan, the 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
|--------------------------------------------------
|
|                                                  
|$   300,000                                       
|400,000                                           
|500,000                                           
|600,000                                           
|700,000                                           
|800,000                                           
|900,000                                           
|1,000,000                                         
|1,100,000                                         
|1,200,000                                         

---

The
following  named executive  officers have the indicated years of credited  service as of
December 31, 2002:  T. Hogan, 26.33; S. McKeon, 15.58; J. Ryan, 3.08 and G. Swofford,
35.42.

The
three-year averages (thirteen consecutive months average for Ms. Ryan) as of December 31, 2002 for the following named executive
officers were: $292,484 for T. Hogan; $536,610 for S. McKeon; $225,531 for J.
Ryan; and $349,509 for G. Swofford.

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
S. McKeons and J. Ryans benefits are based on the annual average of his or her
highest 36 consecutive months of salary paid or payable plus the average of their highest
three annual bonuses paid or payable. Also, $50,000 of S. McKeons LTIP-related
payouts are treated as salary, and the value of restricted stock awarded to G.Swofford in 2002,
measured at the time the restricted stock vests, will be treated as salary in his final calendar
year of employment. The Average Annual Compensation of any named executive
officer who has worked for the Company for less than three full calendar years (or less
than 36 consecutive months, as applicable), is determined by averaging the officers
compensation for all months during which the officer had compensation. Pursuant to his
employment agreement, Mr. Weavers annual retirement benefit upon his retirement in
April 2002 is $567,919.

Under
the cash balance formula of our qualified pension plan (the Cash Balance
Plan), each eligible participant annually receives a benefit accrual based on
additions during such year to a hypothetical account (a Cash Balance Account)
established for such participant. Each year a participants Cash Balance Account is
credited with compensation credits and interest credits. The compensation- crediting rate
for each year is based on the participants age as of the last day of that year. For
participants who are less than 30 years old, the compensation credit is 3%; for
participants who are at least 30 years old, but less than 40 years old, the compensation
credit is 4%; for participants who are at least 40 years old, but less than 50 years old,
the compensation credit is 5%; for participants who are at least 50 years old, but less
than 55 years old, the compensation credit is 6%; for participants who are at least 55
years old, but less than 60 years old, the compensation credit is 7%; and for participants
who are at least 60 years old, the compensation credit is 8%. Eligible cash compensation
includes base wage or salary (prior to any payroll deductions under the Puget Sound Energy
401(k) or cafeteria plans), overtime, differentials and bonuses (other than bonuses
payable under the Puget Sound Energy Long Term Incentive Program for Senior Management,
signing, retention and similar bonuses, and bonuses paid after the last day of the year in
which the participants employment terminates), up to the limit imposed by the
Internal Revenue Code ($200,000 for 2003). The interest-crediting rate for a calendar year
is 4.0%, or such higher amount as Puget Sound Energy may determine. Compensation credits
are made as of the last day of each calendar year. Interest credits are made as of the
last day of each calendar year quarter, based on the balance in the participants
Cash Balance Account as of the beginning of that quarter. The interest credit rate for
2002 was 4.0%. A participant may elect to receive, at the time of termination, a lump sum
distribution of not less than the vested balance in his or her Cash Balance Account or
annuitized payments from the Cash Balance Plans trust fund. In general, all salaried
employees and certain union-represented employees become eligible to participate in the
Cash Balance Plan on their date of hire. An employees benefit under the Cash Balance
Plan becomes vested after five years of active service (or, if earlier, upon attaining
normal retirement age (age 65) while employed by Puget Sound Energy or its affiliates).
There are no employee contributions to the Cash Balance Plan.

---

Mr.           Reynolds
is covered only by the Cash Balance Plan and his estimated annual           benefit
payable from the Cash Balance Plan at normal retirement age is $21,948.           This is
based on the assumptions that his eligible compensation will be $200,000           each
year (the current legal maximum) and the interest-crediting rate will be           4.0%
each year and is not subject to any deduction for Social Security or other
          offset amounts.

Mr.           Durbin
is not a participant in the pension programs covered in this section.

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

Agreements

Mr. Reynolds.As of January 1, 2002, Puget Energy and Puget Sound Energy (the Companies)
entered into an employment agreement with Mr. Reynolds to secure his services as Chief
Executive Officer and President. The agreement has an initial term of three years after
which time it will be automatically renewed for one-year terms unless notice of
termination is given by either party at least 180 days prior to the expiration of the
then current term. Pursuant to the agreement, Mr. Reynolds was appointed to the Board of
Directors and the board will recommend him for reelection during the term of the
agreement.

Mr.           Reynolds
will receive a base salary of $650,000, which will be reviewed annually           and may
be increased at the discretion of the board. He will participate in the
          Companies annual incentive bonus program with a target bonus of 55% of
          base salary and a maximum bonus of 110% of base salary, except that his annual
          incentive bonus for 2002 will be at least $325,000.

Mr.           Reynolds
will also participate in the Puget Energy 1995 Long-Term Incentive           Compensation
Plan, under which he will be granted annual performance awards           (LTIP
awards) valued at not less than 150% of his base salary. Each           LTIP Award
may be funded from 0% to 175% of the award at the end of each           four-year
performance cycle, depending on the Companies performance. If           the
Companies adopt new annual incentive bonus plans or new equity-based           incentive
compensation plans or programs in substitution for the LTIP awards,           Mr.
Reynolds will be granted awards of comparable value under such plans or
          programs.

As
an inducement to his employment, the agreement provides that Mr. Reynolds will be granted
a non-qualified option to purchase 150,000 shares of the common stock with an exercise
price equal to the fair market value of the common stock on the date of grant. The option
will have a term of ten years and will vest over four years from January 1, 2002, at a
rate of 25% per year.

---

As
a further inducement to his employment and in lieu of participation in the Companies
Supplemental Executive Retirement Plan, the agreement provides that Mr. Reynolds will
receive the following grants:

|a) |  | non-qualified
option to purchase 150,000 shares of the common stock with an                exercise
price equal to the fair market value of the common stock on the date of
               grant. The option will have a term of ten years and will vest over a
period of                five years from January 1, 2002, at a rate of 20% per year;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | 50,000
restricted shares of the common stock, with the restrictions on the                shares
lapsing over five years from January 1, 2002, at 20% per year; and
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | performance-based
stock equivalents that will be credited to a deferred                compensation account
under the Companies deferred compensation plan (the                Retirement
Equivalent Stock Account) each January commencing on                January 1,
2003, calculated as the number of shares obtained by taking 15% of                Mr.
Reynolds base salary and incentive bonus for the preceding year and
               dividing that amount by the average per-share closing price of the common
stock                on the last day of October, November and December of the preceding
year. These                stock equivalents will be entitled to all dividends declared
on the common                stock. Any such dividends will be reinvested in the common
stock and credited to                Mr. Reynolds Retirement Equivalent Stock
Account. The stock equivalents                will vest over seven years from January 1,
2002 at 15% per year for the first                six years, with the balance vesting in
the seventh year.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If
at any time the Companies terminate Mr. Reynolds employment without cause, or Mr.
Reynolds terminates his employment with good reason (as the terms cause and
good reason are defined in the agreement), the Companies will pay Mr. Reynolds
a severance benefit equal to two times his then current annual base salary and target
annual incentive bonus, accelerate two years vesting of his performance-based stock
equivalent grants, and accelerate vesting under his stock option grants to the date of
termination. If Mr. Reynolds is terminated for cause, he will be entitled to receive any
base salary, annual incentive bonuses or stock equivalent grants due to him through the
date of his termination, and he will retain the vested portion of his Retirement
Equivalent Stock Account and any vested stock options or restricted stock grants.

If
a change of control occurs during the term of Mr. Reynolds employment with the
Companies, the Companies will pay him an amount equal to three times his then current base
salary and target annual incentive bonus and accelerate the vesting of the equity awards
described above. In addition, Mr. Reynolds will retain existing medical, dental and
insurance benefits for a period of three years or until he obtains similar coverage
through another employer.

Mr.    Reynolds
will also receive a cash payment equal to any excise taxes payable by           him due
to payments received under the agreement or any other payment or benefit           from
the company, plus the tax expense to him resulting from this payment.

---

Mr. McKeon.As of July 1, 2001, Puget Energy and Puget Sound Energy entered into an employment
agreement with Mr. McKeon, which superseded the agreement between Puget Sound Energy and
Mr. McKeon effective June 2, 1997.

Pursuant
to the agreement, Mr. McKeon 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. He will also be
guaranteed a $50,000 minimum annual cash payment as part of each award under the Puget
Energy Long-Term Incentive Compensation Plan (base salary and the $50,000 payment
constitute total salary).

Mr.           McKeon
also will participate in the Companies annual incentive bonus           program
with a target award of at least 45% of base salary and a maximum           potential
bonus of at least 90% of base salary. He will participate in the LTIP           Award
program under the Puget Energy 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, Mr. McKeon will be
          granted awards of comparable value under such plans or programs.

The
agreement provides that if Mr. McKeon 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 agreement provides that as of the date of the agreement Mr. McKeon will be
deemed to have completed 14 years of service under the SERP. The agreement also
provides that Mr. McKeons benefits under the SERP will be based on the sum of the
annual average of (a) his 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. He 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
Mr. McKeons employment without cause or he terminates the agreement with good
reason, or if he 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), he will receive:

|a) |  | annual
total salary and accrued benefits earned through termination, plus a
               pro-rata 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 for 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 Mr. McKeon. If the change in control occurs after the expiration of such
three-year period, he will be entitled to receive the higher of the Incentives or the
benefits described in (a) through (e) above, except that if he 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.

---

Mr.           McKeon
will also receive a cash payment equal to any excise taxes payable by him           due
to payments under the agreement or any other payment or benefit from the
          company, plus the tax expense to him resulting from this payment.

Ms.           Ryan. On
November 30, 2001, Puget Sound Energy entered into an employment           agreement with
Ms. Ryan to secure her services as Vice President Energy           Portfolio Management.
The agreement terminates on December 31, 2006 unless           extended prior to that
date by written agreement. Pursuant to the agreement, Ms.           Ryan will receive a
minimum annual base salary of $235,000 until 2003, and           thereafter will be
eligible for adjustments in accordance with annual salary           reviews.

Ms.           Ryan
will also participate in Puget Sound Energys annual incentive bonus
          program with a target bonus of 50% of base salary and a maximum bonus of 100%
of           base salary. She will also participate in the LTIP Award program under the
Puget           Energy 1995 Long-Term Incentive Compensation Plan, under which she will
be           granted (a) annual LTIP awards beginning with the 2002 award cycle equal to
not           less than 95% of her base salary divided by the preceding years
average           fourth quarter share price divided by 0.70, and (b) grants of LTIP
awards of           3,095 shares for the 1999-2002 cycle, 8,185 shares for the 2000-2003
cycle and           9,135 shares for the 2001-2004 cycle.

Ms.           Ryans
agreement also provides that if she will be credited with three           years of
service under the SERP for each year of employment with the company           commencing
December 1, 2001. If she completes more than five years service, she           will be
entitled to monthly benefits equal to the sum of one-twelfth of 50% of           (a) the
annual average of her highest 36 consecutive months of salary paid or           payable
and (b) the average of her highest three annual bonuses paid or payable
          (collectively, her Earnings). If prior to her completion of five
          years service, her employment terminates for any reason other than by Puget
          Sound Energy without cause or by her with good reason, her benefits under the
          SERP will vest at a rate of 20% for each full 12-month period of employment
          commencing with December 1, 2001, and if such termination occurs prior to her
          completion of three years of service, her Earnings will be determined based on
          the period of time she has actually served. If a change of control occurs at
any           time, Ms. Ryan will be credited with 15 years of service under SERP and her
          benefits will immediately become 100% vested.

If
prior to her completion of seven years service, Puget Sound Energy terminates Ms.
Ryans employment without cause, or Ms. Ryan terminates her employment with good
reason (as the terms cause and good reason are defined in the
agreement), she will receive: (a) her annual total salary and accrued benefits earned
through termination plus a pro rata share of the annual target bonus at the rates in
effect as of the date of termination; (b) a pro rata portion of all outstanding LTIP
awards; (c) continuation of her base salary for two years; and (d) crediting of six years
service for purposes of the SERP.

---

Puget
Sound Energy also entered into a change of control agreement with Ms. Ryan on November 30,
2001, pursuant to which she will continue to be employed as Vice President Energy
Portfolio Management or a comparable position for a period of two years after a change of
control. During that period she will be entitled to continued compensation and benefits at
comparable levels, full vesting of any stock options, stock appreciation rights or
restricted stock, and a cash payment equal to the value of the number of shares payable
upon full vesting of all outstanding LTIP awards, calculated in the manner described for
Mr. McKeon.

If
within two years following the change of control Puget Sound Energy terminates Ms.
Ryans employment without cause, or Ms. Ryan terminates her employment with good
reason, she will receive the same type of payments and benefits described below for Mr.
Weaver except that the payments in (c) and (d) are based on two rather than three years.

Mr. Swofford.
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 a control agreement with Mr. Swofford that
provided for the same type of payments and benefits described below for Mr. Weaver in the
event that his employment is terminated by Puget Sound Energy without cause or by him 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.

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 received 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 are based
on his average compensation for his highest 24 consecutive months of service.

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.

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 2004
Annual Meeting of Shareholders must submit the proposal at our principal executive office
no later than December 8, 2003.

In
accordance with Puget Energys Bylaws, shareholders who intend to present a proposal
at the 2004 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, 2004 and no later than February 13, 2004. 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 2002 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

Stephen P. ReynoldsPresident and Chief Executive Officer

March 13, 2003
Bellevue, Washington

---

Appendix A

PUGET ENERGY, INC.Audit Committee Charter

PUGET SOUND ENERGY, INC.
Audit Committee Charter

Purpose and Authority:
The
Audit Committee (the Committee) shall assist the Board in oversight of (1) the
integrity of the Companys financial statements, (2) the Companys compliance
with legal and regulatory requirements, (3) the independent auditors qualifications
and independence, and (4) the performance of the Companys internal and independent
auditors. In addition, the Committee shall have the ultimate authority and responsibility
to select, evaluate and, where appropriate, replace the independent auditor. The Committee
shall also have all authority necessary to fulfill the duties and responsibilities
assigned to the Committee in this Charter or otherwise assigned to it by the Board.

Limitation of Audit
Committees Role         It
is not the responsibility of the Committee to plan or conduct audits or to verify whether
the Companys financial statements are complete and accurate or in accordance with
generally accepted accounting principles.

Advisors and Delegation
        As
the Committee deems appropriate, it may retain independent counsel, accounting and other
professionals to assist the Committee without seeking Board approval with respect to the
selection, fees or terms of engagement of any such advisors.

The
Committee when appropriate may form and delegate authority to subcommittees and may
delegate authority to one or more designated members of the Committee.

Composition:
        Independence
        The
Committee shall be composed of three or more directors, as determined by the Board, each
of whom shall meet the independence requirements in the Companys Corporate
Governance Guidelines.

Financial
Literacy/Expertise         The
Board shall determine in its business judgment whether Committee members are financially
literate and whether any Committee member meets the definition of financial
expert under regulations applicable to the Company from time to time, and shall take
appropriate action in accordance with such regulations.

---

Service on Other Public
Company Audit Committees         Generally,
no member of the Committee shall serve on more than two audit committees of publicly
traded companies, other than the audit committees of Puget Energy, Inc. and Puget Sound
Energy, Inc., at the same time such member serves on either such Companys audit
committee; provided, however, that service on audit committees of substantially owned
subsidiaries shall not count so long as the member serves on the audit committee of the
parent company of such subsidiary.

Appointment and Removal
of Members        The
members of the Committee shall be appointed by the Board on the recommendation of the
Governance and Public Affairs Committee. The Board may remove any member from the
Committee at any time with or without cause.

Duties and
Responsibilities:         The
Committee shall have the following duties and responsibilities, in addition to any duties
and responsibilities assigned to the Committee from time to time by the Board.

|  | Engagement of Independent Auditor                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Select
and retain the independent auditor; determine and approve compensation of the independent
auditor; resolve disagreements between management and the independent auditor; oversee
and evaluate the independent auditor and, where appropriate, replace the independent
auditor, with the understanding that the independent auditor shall report directly to the
Committee and shall be ultimately accountable to the Committee and to the Board.

| | Pre-approve
the retention of the independent auditor for all audit and such non-audit services as the
independent auditor is permitted to provide the Company and the fees for such services.
Pre-approval of non-audit services may not be delegated to management, but may be
delegated to one or more members of the Committee so long as that member or members
report their decision to the Committee at all regularly scheduled meetings. Ensure that
the Committees approval of any non-audit services is publicly disclosed pursuant to
applicable laws, rules and regulations.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|  | Evaluate Independent
Auditors Qualifications, Performance and Independence                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------
| | At
least annually, evaluate the independent auditors qualifications, performance and
independence, including that of the lead partner.

| | At
least annually, obtain and review a report by the independent auditor describing the firms
internal quality control procedures; any material issues raised by the most recent
internal quality control review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities, within the preceding five
years, relating to one or more audits carried out by the firm and any steps taken to deal
with any such issues; and (in order to assess the auditors independence) all
relationships between the independent auditor and the Company.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Discuss
with the independent auditor the matters required to be discussed by Statement on
Auditing Standards (SAS) No. 61, Communications with Audit Committee, SAS No.
89, Audit Adjustments, and SAS No. 90, Audit Committee Communications, all as amended
from time to time, together with any independence matters as may be required for public
disclosure or otherwise under applicable laws, rules and regulations.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | Ensure
that the independent auditors lead partner and reviewing partner are replaced
periodically as required by the New York Stock Exchange listing standards or other
applicable laws or regulations. Consider, from time to time, whether a rotation of the
independent auditing firm would be in the best interests of the Company and its
shareholders.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Present
the Committees conclusions regarding the performance, qualifications and
independence of the independent auditor to the full Board.
|- | --------------------------------------------------------------------------------------------------------------------------------------------

|  | Review Financial
Statements and Financial Disclosure                                                                                                                                                                                                                                 
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Meet
with management and the independent auditor to review and discuss the annual audited
financial statements and quarterly financial statements, including the Companys
disclosures under Managements Discussion and Analysis of Financial Condition
and Results of Operations.

| | Review
with the independent auditor any audit problems or difficulties and managements
response, including significant disagreements with management, adjustments noted by the
independent auditor but not taken by management, communications between the audit team
and the national office, and any management or internal control letters issued or
proposed to be issued. Review and discuss with the independent auditor the
responsibilities, budget and staffing of the Companys internal audit function.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If
so determined by the Committee, recommend to the Board that the audited financial
statements be included in the Companys annual report on Form 10-K.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | Discuss
earnings press releases, as well as the financial information and earnings guidance
provided to analysts and rating agencies. This may be done generally and does not require
the Committee to discuss in advance each earnings release or each instance in which the
Company may provide earnings guidance.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|  | Periodic Assessment
of Accounting Practices and Policies and Risk and Risk Management                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Obtain and review
timely reports from the independent auditor regarding (1) all critical accounting policies to be used,
(2) all alternative treatments of financial information within Generally
Accepted Accounting Principles that have been discussed with management, ramifications of
the use of such alternatives, and the treatment preferred by the independent auditor, and
(3) other material written communications between the independent auditor and management,
such as any management letter or schedule of unadjusted differences.

---

| | Review
with management and the independent auditor the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures on the financial statements of the
Company.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Review
changes in promulgated accounting and auditing standards that may materially affect the
Companys financial reporting practices.
|- | ---------------------------------------------------------------------------------------------------------------------------------------

| | Discuss
policies with respect to risk assessment and risk management, including the Companys
major financial risk exposures and the steps management has taken to monitor and control
such exposures.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Review
any reports by management regarding the effectiveness of, or any deficiencies in, the
design or operation of internal controls and any fraud, whether or not material, that
involves management or other employees who have a significant role in the Companys
internal controls. Review any report issued by the Companys independent auditor
regarding managements assessment of the Companys internal controls.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|  | Internal Audit Review                                                                                                                                                                   
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Review
the responsibilities, functions and performance of the Companys internal audit
department, including internal audit plans, budget, and the scope and results of internal
audits.

|  | Proxy Statement Report
of Audit Committee                                                                                                 
|- | ------------------------------------------------------------------------------------------------------------------------------------------
| | Prepare
the report required by the rules of the Securities and Exchange Commission to be included
in the Companys annual proxy statement.

|  | Hiring Policies                                                                                                                                                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Set
clear hiring policies for the Companys hiring of employees or former employees of
the independent auditor who were engaged on the Companys account, and ensure that
such policies comply with any regulations applicable to the Company from time to time.

|  | Business Conduct and
Ethics                                                                                                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In
conjunction with the Corporate Governance and Public Affairs Committee, develop and
monitor compliance with a code of ethics for senior financial officers pursuant to and to
the extent required by regulations applicable to the Company from time to time.

| | In
conjunction with the Corporate Governance and Public Affairs Committee, develop and
monitor compliance with a code of business conduct and ethics applicable to the Companys
directors, officers and employees, pursuant to and to the extent required by regulations
applicable to the Company from time to time.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Establish,
after consultation with the Corporate Governance and Public Affairs Committee, procedures
for the receipt, retention and treatment of complaints regarding accounting, internal
accounting controls or auditing matters.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Establish,
after consultation with the Corporate Governance and Public Affairs Committee, procedures
for the confidential, anonymous submission by employees of concerns regarding
questionable accounting or auditing matters.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|  | Reports to Board                                                                                                                                                                                                                                                                  
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Report
regularly to the Board any issues that arise with respect to the quality and integrity of
the Companys financial statements, the Companys compliance with legal or
regulatory requirements and the performance and independence of the internal and
independent auditors.

| | Provide
minutes of Committee meetings to the Board and report to the Board on any significant
matters arising from the Committees work.
|- | ----------------------------------------------------------------------------------------------------------------------------------------

|  | Executive Session                                                                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Meet
periodically in separate executive sessions with management, internal audit and the
independent auditor to discuss matters that the Committee or the other groups believe
warrant Committee attention.

Meetings: 
        The
Committee shall establish a meeting calendar annually. The Committee may hold such other
meetings as are necessary or appropriate in order for the Committee to fulfill its
responsibilities. In the absence of a member designated by the Board to serve as chair,
the members of the Committee may appoint from among their number a person to preside at
their meetings. When appropriate, the Puget Energy, Inc. Committee and the Puget Sound
Energy, Inc. Committee shall meet separately.

Evaluation: 
        The
Committee shall review and reassess this Charter at least annually and, if appropriate,
propose changes to the Board.

The
Committee shall obtain or perform an annual evaluation of the Committees performance
and make applicable recommendations for improvement.