SEPARATION AGREEMENT

         THIS SEPARATION AGREEMENT (the "Separation  Agreement") is entered into
by  JOE  QUINTANA  ("Mr.  Quintana")  and  PUGET  SOUND  ENERGY,  INC.  ("PSE"or
"Company").

                                    RECITALS

     A. Mr. Quintana has been employed by PSE as Vice President External Affairs
pursuant to an Agreement dated March 20, 1998 (the "Employment Agreement").

     B.  Having had a  productive  employment  relationship  and  because of Mr.
Quintana's  desire to engage in a consulting  business,  the parties now wish to
end their  employment  relationship on amicable  grounds and mutually  agreeable
terms.  To accomplish  this change in a positive  manner,  Mr.  Quintana and PSE
further  wish to clarify  and  resolve  all issues  relating  to Mr.  Quintana's
employment with PSE.

                                   AGREEMENTS

         NOW,  THEREFORE,  in  consideration  of the foregoing  recitals and the
mutual promises  contained below,  good and adequate  consideration for which is
mutually acknowledged, PSE and Mr. Quintana agree as follows:

1.       CONCLUSION OF EMPLOYMENT RELATIONSHIP

         Mr. Quintana's employment as vice president, external affairs, will end
effective  December 31, 1999. PSE will  immediately take all steps to remove Mr.
Quintana as an officer and/or signatory from all relevant places,  and will take
any requisite action to inform appropriate government and/or regulatory entities
who require notice of such change.  The parties agree that they will arrive at a
mutually satisfactory statement for use in describing this transition to others.

2.       SEVERANCE BENEFIT

         PSE agrees that it will provide Mr. Quintana with a benefit in the form
of a severance payment representing salary and health insurance benefit premiums
for the period through  September 30, 2000, at the same base salary level he was
receiving in December  1999 and for health  insurance  benefits  obtained  under
COBRA.  The  severance  payment  shall  be made in one lump  sum  payment,  less
required withholding, following the effective date of this Agreement and as soon
as  administratively  possible  after  January 1, 2000.  PSE agrees that,  as of
December  31,  1999,  Mr.  Quintana  will  and  shall  have a  vested  right  to
thirty-five per cent (35%) of a normal full  retirement  benefit at age 62 under
the PSE  Supplemental  Executive  Retirement  Plan  effective  June 1,  1997 and
amended  through  February 24, 1999 (the  "SERP").  PSE further  agrees that Mr.
Quintana may keep as his own property the personal  computer and laptop computer
that have been assigned to him by PSE.

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3.       ADDITIONAL PAYMENTS

         Following  the  effective  date of this  Agreement and at the time that
other officers of the Company receive their similar  Incentive Award, PSE agrees
to pay Mr.  Quintana's 1999 Annual Incentive Plan award, as determined under the
Annual Incentive Plan goals for 1999 by the Compensation  Committee of the Board
of  Directors in the  ordinary  course.  Following  the  effective  date of this
Agreement  and as soon as is  administratively  possible,  PSE agrees to pay Mr.
Quintana $45,432,  less required  withholding,  representing payment for the pro
rata  portion  (based on the portion of each award cycle  elapsed as of December
31,  1999,  and the  performance  of the Company  against the target  benchmarks
during the period ended  October 31, 1999) of Mr.  Quintana's  four  outstanding
target awards under the PSE Long Term Incentive Plan (the "LTIP").  Mr. Quintana
shall be paid his 1999 base salary,  less  required  withholding,  in the normal
course for the period ended December 31, 1999.

4.       GENERAL RELEASE OF CLAIMS

         Subject to the exclusion herein,  PSE and Mr. Quintana  expressly waive
any  claims  against  one  another  and  release  one  another   (including  PSE
subsidiaries  and affiliates and each of their respective  officers,  directors,
stockholders,  managers,  employees, agents and representatives) from any claims
that either of them may have in any way connected with Mr. Quintana's employment
with  PSE and the  termination  thereof.  It is  understood  that  this  release
includes,  but is not  limited  to, any claims  for wages,  bonuses,  employment
benefits,  or damages of any kind whatsoever,  including without  limitation any
claims arising out of any contracts,  expressed or implied, any covenant of good
faith  and  fair  dealing,   expressed  or  implied,   any  theory  of  wrongful
constructive  discharge,  or any federal, state or other governmental statute or
ordinance,  including,  without limitation, Title VII of the Civil Rights Act of
1964,  the federal Age  Discrimination  in Employment  Act, the  Americans  with
Disabilities  Act, the Family and Medical Leave Act, the  Washington Law Against
Discrimination,  or any other legal  limitation on the employment  relationship.
Excluded from this release are claims Mr.  Quintana may have related to his SERP
or LTIP under the official plan  documents  adopted by the Board of Directors or
Board Compensation Committee for those plans as such documents exist on the date
of this  Agreement,  his 1999 bonus as  determined  in  accordance  with the PSE
Annual  Incentive Plan, or other claims that an employee may have with regard to
vested benefits under Employee  Retirement Income Security Act, claims under the
Washington Industrial Insurance Act or any other claim which may not be released
in accordance with law.

         The  parties  represent  and  warrant  that  they  have not  filed  any
complaints, charges or lawsuits against one another with any governmental agency
or any court,  and agrees that they will not  initiate,  assist or encourage any
such actions.

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         Nothing in this waiver and release  shall  preclude  either  party from
enforcing his/its rights hereunder.

5.       REVIEW AND REVOCATION PERIOD; EFFECTIVE DATE

         Mr. Quintana and PSE agree that he has had up to 21 days to review this
Agreement and consult legal counsel before executing the Agreement, during which
time the proposed  terms of this  Agreement  have not been amended,  modified or
revoked by PSE. Mr.  Quintana may revoke this Agreement after executing it if he
so chooses by providing  notice of his  decision to revoke the  Agreement to PSE
(Attn:  Dorothy  Graham)  within  seven  days  following  the date he signs this
Agreement. This Agreement shall become effective and enforceable upon expiration
of this seven-day revocation period.

6.       CONFIDENTIAL INFORMATION; NONDISPARAGEMENT

         6.1      Safeguarding of Confidential Information

         Mr.  Quintana  acknowledges  that in the course of his employment as an
officer of PSE he has obtained access to confidential  information  that relates
to the business and affairs of PSE,  including but not limited to PSE's business
plans and strategies,  financial  plans,  legislative and  governmental  affairs
plans and strategies,  regulatory  plans and strategies,  budgets and forecasts,
legal and regulatory affairs,  competitive position,  and other similar matters.
Mr.  Quintana  agrees  that he  shall  safeguard  all  confidential  information
regarding PSE, shall not disclose it to any other party and shall not use it for
any purpose other than as directed by PSE.

         6.2      Nondisparagement

         Mr. Quintana and PSE and its officers and directors  further agree that
they will not make  disparaging  or  derogatory  statements  about one  another,
affiliates,  officers, managers, employees and/or agents, or knowingly engage in
conduct detrimental to one another's business or reputation.

7.       ARBITRATION OF DISPUTES

         Any dispute  between PSE and Mr.  Quintana  with  respect to any of the
matters set forth herein shall be  submitted to binding  arbitration  in city of
Seattle,  state of  Washington.  Either PSE or Mr.  Quintana  may  commence  the
arbitration by delivery of a written  notice to the other,  describing the issue
in  dispute  and  its/his  position  with  regard to the  issue.  If PSE and Mr.
Quintana are unable to agree on an arbitrator within 30 days following  delivery
of such  notice,  the  arbitrator  shall be selected by a Judge of the  Superior
Court of the State of  Washington  for King  County  upon  three  days'  notice.
Discovery shall be allowed in connection  with any such  arbitration to the same
extent permitted by the Washington Rules of Civil Procedure but either party may
petition the arbitrator to limit the scope of such discovery, in which event the
arbitrator shall determine the extent of discovery  allowable in connection with

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the dispute in question.  Except as otherwise  provided herein,  the arbitration
shall be conducted  in  accordance  with the rules of the  American  Arbitration
Association  then  in  effect  for  expedited  proceedings.  The  award  of  the
arbitrator shall be final and binding, and judgment upon an award may be entered
in any court of competent jurisdiction.  The arbitrator shall hold a hearing, at
which the parties may present  evidence and  argument,  within 30 days of his or
her  appointment,  and shall  issue an award  within 15 days of the close of the
hearing.

8.       COVENANT OF GOOD FAITH

         The parties agree that this Agreement  contains an implied  covenant of
good faith and fair dealing.

9.       SEVERABILITY

         The provisions of this  Agreement are severable,  and if any part of it
is found to be unlawful or unenforceable, the other provisions of this Agreement
shall remain fully valid and  enforceable to the maximum extent  consistent with
applicable law.

10.      KNOWING AND VOLUNTARY AGREEMENT

         Mr.  Quintana  represents  and agrees that he has read this  Agreement,
understands  its terms and the fact that it  releases  any  claims he might have
against PSE and its agents, understands that he has the right to consult counsel
of his choice and has done so, and enters into this Agreement  without duress or
coercion from any source.  Mr. Quintana  acknowledges  and that PSE has provided
him  reasonable  time to consider  its offer and to seek legal  assistance.  Mr.
Quintana  has  consulted  an attorney of his choice and  understands  that he is
waiving all potential claims against PSE, other than those reserved herein.

11.      ENTIRE AGREEMENT

         This Agreement sets forth the entire  understanding of the parties with
regard to the termination of Mr. Quintana's  employment with PSE, and supercedes
the  Employment  Agreement  and any  prior  or  contemporaneous  agreements  and
understandings,   written  or  oral,  express  or  implied,  pertaining  to  the
employment   relationship  between  Mr.  Quintana  and  PSE.  The  headings  and
subheadings  in this  Agreement  are for  convenience  of reference  and are not
intended to add substance to the terms of the Agreement.  The parties  expressly
acknowledge  that,  except as  expressly  provided  herein  with  respect to Mr.
Quintana's SERP benefits vesting and with respect to payout of LTIP benefits (in
the case of both of which this Agreement  provides  benefits to Mr.  Quintana in
excess of those set forth in the SERP and LTIP official Plan Documents), nothing
herein supercedes,  modifies, or extinguishes any official Plan Document adopted
by the PSE Board of Directors or Compensation  Committee  relating to the rights
and obligations of the parties under the LTIP or the SERP. The parties agree and
acknowledge  that  in  order  to be  enforceable,  any  modifications,  changes,
additions or deletions to this  Agreement  must be in writing and signed by both
parties.

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12.      AUTHORITY TO ENTER AGREEMENT

         PSE and Mr.  Quintana  agree and warrant  that PSE for itself,  and Mr.
Quintana  for  himself,  have  the  authority  to  enter  into  this  Separation
Agreement.  The individual  signing this  Separation  Agreement on behalf of PSE
warrants  and  represents  that he is duly  authorized  to do so,  has the legal
capacity to do so, and that all  corporate  actions  necessary to authorize  the
execution,  delivery and performance of this Separation Agreement have been duly
and validly taken prior to the date hereof.

         IN WITNESS WHEREOF,  the parties have executed this Agreement as of the
dates indicated below.

Puget Sound Energy, Inc.                       Joe Quintana

By: William S. Weaver                          Joe Quintana
------------------------------                 ------------------------------
Its: President & Chief                         Dated:12/29/99
     Executive Officer

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