SECURITIES AND EXCHANGE COMMISSSION
                       Washington, D. C. 20549


                               FORM 10-Q


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

           For the quarterly period ended June 30, 1998

           OR

      / /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR
           THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)


                     -----------------------------
                     Commission File Number 1-4393
                     -----------------------------


                      PUGET SOUND ENERGY, INC.
         (Exact name of registrant as specified in its charter)

         Washington                                  91-0374630
         (State or other                          (IRS Employer
         jurisdiction of                    Identification No.)
         incorporation or
         organization)

       411 - 108th Avenue N.E., Bellevue, Washington 98004-5515
               (Address of principal executive offices)

                            (425) 454-6363
         (Registrant's telephone number, including area code)

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

                  Yes /X/                      No / /

The number of shares of registrant's common stock outstanding at July 31,
1998 was 84,560,585.

PAGE 1

PART I  -  FINANCIAL INFORMATION
Item 1  -  Financial Statements
<TABLE>
                               PUGET SOUND ENERGY, INC
                         CONSOLIDATED STATEMENTS OF INCOME
                  (Thousands except shares and per share amounts)
                                    (Unaudited)
<CAPTION>
Three Months Ended June 30                                      1998                 1997
-------------------------------------------            -------------        -------------
<S>                                                    <C>                  <C>

OPERATING REVENUES:
    Electric                                            $    286,913        $    269,977
    Gas                                                       76,752              71,930
    Other                                                      1,860              10,711
                                                       -------------        -------------
         Total operating revenue                             365,525             352,618
                                                       -------------        -------------

OPERATING EXPENSES:
Energy costs:
    Purchased electricity                                    137,397             125,598
    Purchased gas                                             32,598              29,384
    Electric generation fuel                                   9,500               8,333
    Residential Exchange                                     (12,063)            (14,274)
Utility operations and maintenance                            59,229              64,157
Other operations and maintenance                               1,204               5,904
Depreciation and amortization                                 40,446              38,131
Taxes other than federal income taxes                         36,877              35,328
Federal income taxes                                          10,325              14,824
                                                       -------------        -------------
         Total operating expenses                            315,513             307,385
                                                       -------------        -------------

OPERATING INCOME                                              50,012              45,233

OTHER INCOME                                                   3,512              17,804
                                                       -------------        -------------

INCOME BEFORE INTEREST CHARGES                                53,524              63,037

INTEREST CHARGES                                              33,982              29,597
                                                       -------------        -------------

NET INCOME                                                    19,542              33,440
Less:  Preferred stock dividends accrual                       3,250               5,415
                                                       -------------        -------------

INCOME FOR COMMON STOCK                                   $   16,292          $   28,025
                                                       =============        =============

BASIC COMMON SHARES OUTSTANDING - WEIGHTED AVERAGE            84,561              84,561
                                                       =============        =============

BASIC & DILUTED EARNINGS PER COMMON SHARE:                $     0.19          $     0.33
                                                       ==============       =============

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

</TABLE>

PAGE 2

<TABLE>

                          PUGET SOUND ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF INCOME
                (Thousands except shares and per share amounts)
                                  (Unaudited)

<CAPTION>
Six Months Ended June 30,                                  1998               1997
-------------------------------------------------    ----------         ----------
<S>                                                  <C>                <C>
OPERATING REVENUES:
  Electric                                           $  655,509         $  569,545
  Gas                                                   224,574            228,419
  Other                                                   7,511             18,070
                                                     ----------         ----------
    Total operating revenue                             887,594            816,034
                                                     ----------         ----------
OPERATING EXPENSES:
Energy costs:
  Purchased electricity                                 306,655            278,526
  Purchased gas                                         100,526            101,345
  Electric generation fuel                               20,741             17,405
  Residential Exchange                                  (27,570)           (36,882)
Utility operations and maintenance                      119,763            127,863
Other operations and maintenance                          2,766             11,745
Depreciation and amortization                            81,182             76,568
Merger and related costs                                     --             55,789
Taxes other than federal income taxes                    82,475             81,475
Federal income taxes                                     51,786                (81)
                                                     ----------         ----------
    Total operating expenses                            738,323            713,753
                                                     ----------         ----------

OPERATING INCOME                                        149,271            102,281

OTHER INCOME                                              4,671             22,707
                                                     ----------         ---------
INCOME BEFORE INTEREST CHARGES                          153,942            124,988

INTEREST CHARGES                                         68,396             58,940
                                                     ----------         ----------
INCOME FROM CONTINUING OPERATIONS                        85,546             66,048

DISCONTINUED OPERATIONS                                      --             (2,622)
                                                     ----------         ----------
NET INCOME                                               85,546             63,426
Less: Preferred stock dividends accrual                   6,558             10,963
                                                     ----------         ----------
INCOME FOR COMMON STOCK                              $   78,988         $   52,463
                                                     ==========         ==========
BASIC COMMON SHARES OUTSTANDING - WEIGHTED AVERAGE       84,561             84,560
                                                     ==========         ==========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
    From continuing operations                       $     0.93         $     0.65
    From discontinued operations                             --              (0.03)
                                                     ----------         ----------
BASIC AND DILUTED EARNINGS PER COMMON SHARE          $     0.93         $     0.62
                                                     ==========         ==========

The accompanying notes are an integral part of the financial statements.
</TABLE>

PAGE 3

<TABLE>
                               PUGET SOUND ENERGY, INC.
                   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                               (Dollars in Thousands)
                                    (Unaudited)


<CAPTION>
Three Months Ended June 30                                      1998                 1997
----------------------------------------               -------------        -------------
<S>                                                    <C>                  <C>

Net Income                                                $   19,542           $   33,440
Other comprehensive income, net of tax:
  Unrealized holding losses on available
     for sale securities                                      (3,639)                  --
                                                       -------------        -------------

Comprehensive Income                                      $   15,903           $   33,440
                                                       =============        =============


</TABLE>






<TABLE>

                               PUGET SOUND ENERGY, INC.
                   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                               (Dollars in Thousands)
                                    (Unaudited)


<CAPTION>
Six Months Ended June 30                                        1998                 1997
----------------------------------------               -------------        -------------
<S>                                                    <C>                  <C>

Net Income                                                $   85,546           $   63,426
Other comprehensive income, net of tax:
  Unrealized holding gains on available
     for sale securities                                         780                   --
                                                       -------------        -------------

Comprehensive Income                                      $   86,326           $   63,426
                                                       =============        =============

</TABLE>





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

PAGE 4

<TABLE>
                               PUGET SOUND ENERGY, INC.
                             CONSOLIDATED BALANCE SHEETS
                                (Dollars in Thousands)
                                      (Unaudited)

                                        ASSETS

<CAPTION>
                                                             June 30          December 31
                                                                1998                 1997
----------------------------------------------         -------------        -------------
<S>                                                    <C>                  <C>
UTILITY PLANT:
  Electric                                                $3,704,621           $3,632,652
  Gas                                                      1,266,903            1,231,109
  Less:  Accumulated depreciation and amortization        (1,660,209)          (1,613,300)
                                                        ------------        -------------
      Net utility plant                                    3,311,315            3,250,461
                                                        ------------        ------------


OTHER PROPERTY AND INVESTMENTS                               279,305              279,644
                                                        ------------        ------------

CURRENT ASSETS:
  Cash                                                         3,582                7,759
  Accounts receivable                                        207,109              280,787
  Materials and supplies, at average cost                     51,451               54,423
  Prepayments and other                                        6,111                5,420
                                                        ------------        ------------
      Total current assets                                   268,253              348,389
                                                        ------------        ------------


LONG-TERM ASSETS:
  Regulatory asset for deferred income taxes                 257,746              258,430
  Unamortized energy conservation charges                      6,083                6,867
  Tenaska regulatory asset                                   218,401              215,000
  Other                                                      127,862              134,579
                                                        ------------        ------------
      Total long-term assets                                 610,092              614,876
                                                        ------------        ------------
TOTAL ASSETS                                              $4,468,965           $4,493,370
                                                        ============        ============
</TABLE>
The accompanying notes are an integral part of the financial statements.

PAGE 5

<TABLE>
                               PUGET SOUND ENERGY, INC.
                             CONSOLIDATED BALANCE SHEETS
                                (Dollars in Thousands)
                                      (Unaudited)

                            CAPITALIZATION AND LIABILITIES
<CAPTION>
                                                             June 30          December 31
                                                                1998                 1997
----------------------------------------------         -------------        -------------
<S>                                                    <C>                  <C> 
CAPITALIZATION:
  Common shareholders' investment:
    Common stock, $10 stated value,
    150,000,000 shares authorized,
    84,560,585 and 84,560,645 shares outstanding          $  845,606           $  845,606
  Additional paid-in capital                                 450,764              450,845
  Earnings reinvested in the business                         47,746               46,672
  Accumulated other comprehensive income                      15,734               14,954
                                                        ------------        -------------
                                                           1,359,850            1,358,077
  Preferred stock not subject to
    mandatory redemption                                      95,488               95,488
  Preferred stock subject to
    mandatory redemption                                      73,162               78,134
  Corporation obligated, mandatorily redeemable
    preferred securities of subsidiary
    trust holding solely junior subordinated
    debentures of the corporation                            100,000              100,000
  Long-term debt                                           1,571,728            1,411,707
                                                        ------------        ------------
      Total capitalization                                 3,200,228            3,043,406
                                                        ------------        ------------
CURRENT LIABILITIES:
  Accounts Payable                                            76,640              116,548
  Short-term debt                                            216,500              372,538
  Current maturities of long-term debt                        46,000               51,000
  Purchased gas liability                                     11,523                  876
  Accrued expenses:
     Taxes                                                    67,913               73,636
     Salaries and wages                                       21,445               15,326
     Interest                                                 36,623               27,704
     Other                                                    22,992               33,198
                                                        ------------        ------------
      Total current liabilities                              499,636              690,826
                                                        ------------        ------------
DEFERRED INCOME TAXES                                        628,739              629,018
                                                        ------------        ------------
OTHER DEFERRED CREDITS                                       140,362              130,120
                                                        ------------        ------------
TOTAL CAPITALIZATION AND LIABILITIES                      $4,468,965           $4,493,370
                                                       =============        ============
</TABLE>
The accompanying notes are an integral part of the financial statements.

PAGE 6
<TABLE>
                               PUGET SOUND ENERGY, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (Dollars in Thousands)
                                    (Unaudited)

<CAPTION>
Six Months Ended June 30                                        1998                 1997
                                                       -------------        -------------
<S>                                                    <C>                  <C>
OPERATING ACTIVITIES:
----------------------------------
Income from continuing operations                           $ 85,546             $ 66,048
Adjustments to reconcile income from
  continuing operations to net cash
  provided by operating activities:
    Depreciation and amortization                             81,182               76,568
    Deferred income taxes and tax credits - net                  405                1,845
    PRAM accrued revenues                                         --               40,737
    Pre-tax loss on write-down of coal properties                 --                4,044
    Other                                                     17,493               88,489
    Change in certain current assets
      and liabilities (Note 5)                                45,807               21,953
-----------------------------------------------------------------------------------------
         Net Cash Provided by Operating Activities           230,433              299,684
-----------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
----------------------------------
Construction expenditures - excluding equity AFUDC          (141,489)            (115,742)
Additions to energy conservation program                      (2,301)                (508)
Other                                                          1,601               15,975
-----------------------------------------------------------------------------------------
         Net Cash Used by Investing Activities              (142,189)            (100,275)
-----------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
----------------------------------
Decrease in short-term debt                                 (156,038)            (181,890)
Dividends paid                                               (84,422)             (83,907)
Issuance of common and preferred securities                       --              100,070
Issuance of Bonds                                            200,000                   --
Redemption of bonds and notes                                (45,001)                  --
Redemption of common and preferred stock                      (5,054)             (15,788)
Issue costs of bonds and stock                                (1,906)                (748)
-----------------------------------------------------------------------------------------
         Net Cash Used by Financing Activities               (92,421)            (182,263)
-----------------------------------------------------------------------------------------
Increase (Decrease) in cash from continuing operations        (4,177)              17,146
Decrease in cash from discontinued operations:
  Investing activities                                            --               (2,622)
-----------------------------------------------------------------------------------------
Net Increase (Decrease) in cash                               (4,177)              14,524
Cash at Beginning of year                                      7,759                4,335
Adjustment to conform fiscal year of WECo                         --                   39
-----------------------------------------------------------------------------------------
Cash at End of Period                                       $  3,582              $18,898
=========================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.

PAGE 7

NOTES TO FINANCIAL STATEMENTS

1)   SUMMARY OF CONSOLIDATION POLICY

The consolidated financial statements include the accounts of Puget Sound
Energy, Inc. ("the Company") and its wholly-owned subsidiaries, after
elimination of all significant intercompany items and transactions.

The consolidated financial statements contained in this Form 10-Q are
unaudited.  In the opinion of management, all adjustments necessary for a
fair presentation of the results for the interim periods have been reflected
and were of a normal recurring nature other than as described in footnotes 2
and 4.  These condensed financial statements should be read in conjunction
with the Company's annual report on Form 10-K.

On February 10, 1997, the Company consummated its merger with Washington
Energy Company ("WECo").  The merger has been accounted for as a pooling of
interests.  Accordingly, the consolidated financial statements have been
retroactively restated to include the results of operations, financial
position and cash flows of WECo for all periods prior to consummation of the
merger.

Effective with the merger, WECo's 1996 fiscal year-end was changed from
September 30 to December 31 to conform to the Company's year-end.
Accordingly, WECo's operations for the three months ended December 31, 1996,
have been reported as an adjustment of $10.8 million to consolidated retained
earnings in the first quarter of 1997.  WECo's revenues for the three months
ended December 31, 1996, were $148.6 million, net income was $16.9 million,
common stock issued was $1.0 million and common stock dividends declared were
$6.1 million for the same period.

2)   MERGER WITH WASHINGTON ENERGY COMPANY

Effective February 10, 1997, WECo and its wholly-owned subsidiary, Washington
Natural Gas Company, ("WNG") were merged into the Company, formerly Puget
Sound Power & Light Company ("PSPL"), which then changed its name to Puget
Sound Energy, Inc.

In connection with the merger, the Company recognized direct and indirect pre-
tax merger-related expenses of $55.8 million during the first quarter of
1997.  The charge consisted primarily of severance costs of $15.5 million,
benefit-related curtailment costs of $9.1 million, transaction costs of $13.7
million and systems and facilities integration costs of $7.2 million.  The
nonrecurring charge reduced net income by approximately $36.3 million or
$0.43 per share.  In addition, pre-tax merger-related costs of $4.8 million
or $0.04 per share were recognized in the fourth quarter of 1996 by PSPL.

PAGE 8

The order approving the merger, issued by the Washington Commission, contains
a rate plan that is designed to provide a five-year period of rate certainty
for customers and provide the Company with an opportunity to achieve a
reasonable return on investment.  As required under the merger order, the
Company filed tariffs, effective February 8, 1997, that resulted in an
average electric rate decrease of 5.6% related to the termination of the
Periodic Rate Adjustment Mechanism ("PRAM"), and an increase in electric
general rates of between 1.0% and 2.5%, depending on rate class.  The general
tariff rate increase had a positive impact on earnings while the decrease
related to the PRAM did not affect earnings because all previously accrued
PRAM revenues were fully collected.  The net impact on customer rates was an
average rate decrease of 3.7%, including a decrease in residential rates of
3.2%.  General electric tariff rates were stipulated to  increase between
1.0% to 1.5% depending on rate class on January 1 of each of the three
following years, while those for certain customers will increase by 1.5% in
the fourth year.  General rates for all classes of natural gas customers will
remain unchanged until January 1, 1999, when they will decrease sufficiently
to reduce utility margin by 1 percent.

3)   EARNINGS PER COMMON SHARE

Basic earnings per common share have been computed based on weighted average
common shares outstanding of 84,561,000 for the three and six months ended
June 30, 1998 and 84,561,000 and 84,560,000 for the three and six months
ended June 30, 1997, respectively.

Diluted earnings per common share have been computed based on weighted
average common shares outstanding of 84,675,000 and 84,670,000 for the three
and six months ended June 30, 1998 and 84,619,000 and 84,612,000 for the
three and six months ended June 30, 1997, respectively.  These shares include
the dilutive effect of securities related to long-term employee compensation
plans approved by shareholders.

4)   DISCONTINUED OPERATIONS

On March 5, 1997, the Company conveyed its interests in undeveloped coal
properties through its wholly-owned subsidiary Thermal Energy, Inc. to Wesco
Resources, Inc. effective February 1, 1997.  The Company's remaining $4.0
million investment in Thermal Energy, Inc. was written off to expense and
appears in the consolidated financial statement as discontinued operations.

PAGE 9

5)   CONSOLIDATED STATEMENTS OF CASH FLOWS

The following provides additional information concerning cash flow
activities:

Six Months Ended June 30                                    1998        1997
----------------------------------------------------------------------------
Changes in current asset and current liabilities:
   Accounts receivable                                  $ 73,678    $ 69,993
   Materials and supplies                                  2,972          40
   Prepayments and Other                                    (691)      6,567
   Purchased gas liability                                10,647     (19,168)
   Accounts payable                                      (39,908)    (40,635)
   Accrued expenses and Other                               (891)      5,156
----------------------------------------------------------------------------
Net change in current assets and current liabilities    $ 45,807    $ 21,953
============================================================================
Cash payments:
   Interest (net of capitalized interest)               $ 60,348    $ 56,595
   Income taxes                                         $ 50,743    $(48,684)
----------------------------------------------------------------------------

6)   OTHER

On June 15, 1998 the Company issued $200 million principal amount of Senior
Medium-Term Notes, Series A.  The Notes are due June 15, 2018 with an
interest rate of 6.74%.

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement No. 131"), which establishes requirements that companies report
certain information about operating segments.  Statement No. 131 is effective
for fiscal years beginning after December 15, 1997.  While this statement may
result in additional financial disclosures, it will not impact the Company's
financial position or results of operations.

In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers Disclosures about Pensions and Other Postretirement
Benefits" ("Statement No. 132"), which standardizes the disclosure
requirements for pensions and other postretirement benefits.  Statement No.
132 is effective for fiscal years beginning after December 15, 1997.  While
this statement may result in additional financial disclosures, it will not
impact the Company's financial position or results of operations.

PAGE 10

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities"
("Statement No. 133") which establishes accounting and reporting standards
for derivative instruments and hedging activities.  Statement No. 133 is
effective for all fiscal years beginning after June 15, 1999.  The Company
has not yet determined the effect Statement No. 133 will have on its
financial statements or the timing of adoption.

PAGE 11

Item  2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

The following discussion of the Company's business includes some forward-
looking statements that involve risks and uncertainties.  Words such as
"estimates," "expects," "anticipates," "plans," and similar expressions
identify forward-looking statements involving risks and uncertainty.  Those
risks and uncertainties include, but are not limited to, the ongoing
restructuring of the electric and gas industries and the outcome of
regulatory proceedings related to that restructuring.  The ultimate impacts
of both increased competition and the changing regulatory environment on
future results are uncertain, but are expected to fundamentally change how
the Company conducts its business.  The outcome of these changes and other
matters discussed below may cause future results to differ materially from
historic results, or from results or outcomes currently expected or sought
by the Company.

RESULTS OF OPERATIONS

Net income for the three months ended June 30, 1998, was $19.5 million on
operating revenues of $365.5  million, compared with net income of $33.4
million on operating revenues of $352.6 million for the same period in 1997.
Income for common stock was $16.3 million for the second quarter of 1998 and
$28.0 million for the second quarter of 1997.  Basic and Diluted earnings per
common share were $0.19 for the second quarter of 1998 compared to $0.33 for
the second quarter of 1997.

Net income and earnings per share for the three months ended June 30, 1997,
included after-tax interest income of $13.6 million (16 cents per share)
associated with income tax refunds on amended tax returns for prior years.
Excluding the interest income related  to the tax refunds, income for common
stock was $14.4 million (17 cents per share) for the second quarter of 1997.

For the first six months of 1998, net income was $85.5 million on operating
revenues of $887.6 million, compared with net income of $63.4 million on
operating revenues of $816.0 million for the corresponding period in 1997.
Income for common stock was $79.0 million for the first half of 1998 and
$52.5 million for the same period in 1997.  Basic and diluted earnings per
common share were $0.93 for the six months ended June 30, 1998 and $0.62 for
the same period in 1997.

The increase in net income and earnings per share for the first six months of
1998 compared to the first six months of 1997 is primarily the result of the
absence of the after-tax charge of $36.3 million (43 cents per share) for
costs related to the merger which was recorded in the first quarter of 1997.
Net income for the first six months of 1997 also included an after-tax charge
of $2.6 million (3 cents per share), related to a write off of the Company's
remaining investment in undeveloped coal reserves and related activities in
southeastern Montana. These charges in the first six months of 1997 were
partially offset by the interest income related to income tax refunds.
Excluding the impact of these charges and credits to income, continuing
operations for the first six months of 1998 produced earnings of $0.93 per
share compared to $0.92 in the first six months of 1997.

PAGE 12

Total kilowatt-hour sales were 6.3 billion, including 1.5 billion in sales to
other utilities, for the second quarter of 1998, compared to 6.0 billion,
including 1.3 billion in sales to other utilities, for the second quarter of
1997. For the six month periods ended June 30, 1998 and 1997, total kilowatt-
hour sales were 13.9 billion, including 3.3 billion in sales to other
utilities, and 12.8 billion, including 2.4 billion in sales to other
utilities, respectively.

Total gas sales in the second quarter were $76.8 million compared to $71.9
million in the second quarter of 1997, an increase of 6.7% on a 6.4% increase
in gas volumes sold and transported. Total gas sales for the six months ended
June 30, 1998, were $224.6 million compared to $228.4 million in the six
months ended June 30, 1997, a decrease of 1.7% on a 1.1% decrease in gas
volumes sold and transported.

The Company's operating revenues and associated expenses are not generated
evenly during the year.  Variations in energy usage by customers occur from
season to season and from month to month within a season, primarily as a
result of changing weather conditions.  The Company normally experiences its
highest energy sales in the first and fourth quarters of the year. Electric
sales to other utilities also vary by quarter and year depending principally
upon water conditions for the generation of hydroelectric power, customer
usage and the energy requirements of other utilities.

PAGE 13

<TABLE>
                                Results of Operations
                         Comparative Periods Ending
                            June 30, 1998 vs. June 30, 1997
                                  Increase (Decrease)

<CAPTION>
                                                            Three               Six
                                                            Month             Month
                                                           Period            Period
                                                           ________________________
                                                                 (In Millions)
<S>                                                        <C>               <C>  
Operating revenue changes
   General rate increases (effective 2/10/97 and 1/1/98)   $  3.7            $ 11.0
   PRAM revenues                                               --              44.8
   BPA Residential Purchase & Sale Agreement                 (0.5)              0.6
   Sales to other utilities                                   5.2              20.9
   Electric load and other changes                            8.5               8.7
   Gas revenue change                                         4.8              (3.8)
   Other revenue changes                                     (8.8)            (10.6)
                                                           ------            ------
        Total operating revenue change                       12.9              71.6
                                                           ------            ------
Operating expense changes
   Energy costs:
        Purchased electricity                                11.8              28.1
        Purchased gas                                         3.2              (0.8)
        Electric generation fuel                              1.2               3.4
        Residential exchange credit                           2.2               9.3
   Utility operations and maintenance                        (4.9)             (8.1)
   Other operations and maintenance                          (4.7)             (9.0)
   Depreciation and amortization                              2.3               4.6
   Merger costs                                                --             (55.8)
   Taxes other than federal income taxes                      1.5               1.0
   Federal income taxes                                      (4.5)             51.9
                                                           ------            ------

        Total operating expense change                        8.1              24.6
                                                           ------            ------

Other income                                                (14.3)            (18.0)

Interest charges                                              4.4               9.5
                                                           ------            ------

        Income from continuing operations                  $(13.9)           $ 19.5

Discontinued operations, after tax                             --              (2.6)
                                                           ------            ------

        Net income change                                  $(13.9)           $ 22.1
                                                           ======            ======

</TABLE>

The following is additional information pertaining to the changes outlined
in the above table.

PAGE 14

Operating Revenues

Electric operating revenues for both the three and six month periods ended
June 30, 1998, increased compared to the same periods in 1997 due to an
overall average 1.8% general rate increase effective February 8, 1997 and an
overall average 1.2% general rate increase on January 1, 1998.

Electric operating revenues for the six months ended June 30, 1998, increased
$86.0 million compared to the same period in 1997 partially as a result of a
$48.6 million PRAM revenue reduction in the first quarter of 1997 associated
with an IRS 1991-1994 Conservation tax refund and related interest income.
Based on the Company's agreement with the Washington Commission, the benefit
of the tax refund was passed on to retail customers as a reduction of the
PRAM accrued revenue balance. The $48.6 million revenue reduction in the six
month period ended June 30, 1997  was offset by a decrease in federal, state
and local taxes as well as a decrease in interest expense and a recognition
of interest income.

Revenues in 1998 and 1997 were reduced because of the credit that the
Company received through the Residential Purchase and Sale Agreement with
the Bonneville Power Administration ("BPA").  The agreement enables the
Company's residential and small farm customers to receive the benefits of
lower-cost federal power.  On January 29, 1997, the Company and BPA signed a
Residential Exchange Termination Agreement.  The Agreement ends the
Company's participation in the Residential Purchase and Sale agreement with
BPA.  As part of the Termination Agreement, the Company will receive
payments by the BPA of approximately $235 million over five years.  Under
the rate plan approved by the Washington Commission in its merger order, the
Company will continue to reflect, in customers' bills, the current level of
Residential Exchange benefits.  Over the remainder of the Residential
Exchange Termination Agreement from July 1998 through June 2001, it is
projected that the Company will credit customers approximately $200.5
million more than it will receive from BPA during the following periods:

                                                Dollars in
                   Period                         Millions
                   --------------------         ----------
                   July - December 1998             $ 16.7
                   January - December 1999            71.6
                   January - December 2000            71.8
                   January - June 2001                40.4
                                                 ---------
                                                    $200.5

Electric sales to other utilities increased $5.2 million and $20.9 million
in the quarter and six months ended June 30, 1998, respectively, over the
same period in 1997 as the Company has increased its energy marketing and
trading activities.  (See discussion of agreement with Duke Energy Trading
and Marketing under "Other".)

PAGE 15

Electric revenues increased $8.5 million and $8.7 million for the quarter
and six months ended June 30, 1998 compared to the same periods in 1997
primarily as a result of 2% growth in the number of electric customers
served.

Gas operating revenues for the quarter ended June 30,1998 increased $4.8
million or 6.7% from the prior year quarter. Total gas volumes increased
6.4% from 187.0 million therms to 199.0 million therms. Gas sales margin
(regulated utility sales less the cost of gas sold) also increased by $1.7
million, or 4.3% in the second quarter of 1998 compared to the same period
in 1997. The primary reason for the increase in gas sales volume and gas
sales revenue in the quarter ended June 30, 1998 was the 4.5% increase in
natural gas customers.

For the six months ended June 30, 1998, gas operating revenues decreased
$3.8 million or 1.7% from $228.4 million in the six months ended June 30,
1997 to $224.6 million while total gas volumes decreased 1.1%. In this
period, a 4.4% increase in gas customers was overshadowed by the negative
impact of warmer weather on the company's gas heating load in the first
quarter of 1998 compared to 1997. Gas margin in the six months ended June
30, 1998 also decreased $2.8 million or 2.3%.

Other revenues decreased in both the three months and six months ended June
30, 1998 as compared to the same periods in 1997 due primarily to the sale
of an unregulated subsidiary (Washington Energy Services Company) in October
1997.

Operating Expenses

Purchased electricity expenses increased $11.8 million and $28.1 million for
the three and six month periods ended June 30, 1998, respectively, compared
to the same periods in 1997. The increase was due primarily to increased
secondary power purchases from other utilities.

Purchased gas expenses increased $3.2 million for the three months ended
June 30, 1998, due to the aforementioned increase in gas service customers.

Fuel expense increased $1.2 million and $3.4 million in the three and six
months ended June 30, 1998 as compared to the same periods in 1997 due to
the Company generating more electricity at Company-owned coal plants.

Residential exchange credits associated with the Residential Purchase and
Sale Agreement with BPA decreased $2.2 million and $9.3 million in the three
and six months ended June 30, 1998 when compared to the same periods in
1997.  The primary reason for the decrease was the Residential Exchange
Termination Agreement between the Company and BPA in January 1997.

Utility Operations and maintenance expenses decreased $4.9 million and $8.1
million for the three and six month periods ended June 30, 1998,
respectively, compared to the same periods in 1997. The decreases are the
result of improved operating efficiencies as a result of the merger in 1997.

PAGE 16

Other operations and maintenance expenses decreased $4.7 million and $9.0
million for the three and six month periods ended June 30, 1998,
respectively, compared to the same periods in 1997.  The decreases are
primarily the result of the sale of the Company's unregulated subsidiary
Washington Energy Services Company in October 1997.

Depreciation and amortization expense increased $2.3 million and $4.6
million for the three and six month periods June 30, 1998, respectively,
from the same periods in 1997 due to the effects of new plant placed into
service during the past year.

Merger related costs recorded in the six months ended June 30, 1997, were
$55.8 million including amounts related to transaction expenses, employee
separation and systems and facilities integration. On an after-tax basis the
charge was $36.3 million or 43 cents per share during the first six months
of 1997.  (See Footnote 2 to the Consolidated Financial Statements.)

Federal income taxes decreased $4.5 million for the three months ended June
30, 1998, primarily due to lower pre-tax operating income from continuing
operations for the quarter.

Federal income taxes increased $51.9 million for the six months ended June
30, 1998 from the same period in 1997 due to a number of factors.  An IRS
tax refund related to the method of accounting for taxes on conservation
expenditures during the first quarter of 1997 decreased federal income taxes
by $26.5 million.  In addition, there was a $17.0 million reduction
associated with a decrease in PRAM revenues of $48.6 million.  Merger costs
expensed in the first quarter of 1997 further reduced federal income taxes
by $19.3 million.

Other Income

Other income, net of federal income tax, decreased $14.3 million and $18.0
million for the three months and six months periods ending June 30, 1998,
respectively, compared to the same periods in 1997. The decreases in both
periods were due primarily to the receipt of interest income in 1997 from
the IRS on tax refunds for prior years in connection with a plant
abandonment loss, conservation tax refunds and certain additional research
and experimental credits claimed for tax purposes which was partially offset
by interest income on regulatory assets of $2.2 million in the three months
ended June 1998 and $4.4 million in the six month period ended June 1998.

Interest Charges

Interest charges, which consist of interest and amortization on long-term
debt and other interest, increased $4.4 million and $9.5 million for the
three and six month periods ended June 30, 1998, respectively, compared to
like periods in 1997 as a result of the issuance of $300 million 7.02%
Senior Medium-Term Notes, Series A, in December 1997, the issuance of $100
million 8.231% Capital Trust Debentures in June 1997 and the issuance of
$200 million 6.74% Senior Medium-Term Notes, Series A in mid-June 1998.
These increases were partially offset by the maturity of $100 million
Secured Medium-Term Notes, Series A in October 1997, $10 million Secured
Medium-Term Notes, Series B in February 1998 and $5 million Secured Medium-
Term Notes, Series B in March 1998.

PAGE 17

CONSTRUCTION, CAPITAL RESOURCES AND LIQUIDITY

Construction expenditures (excluding AFUDC) for the second quarter of 1998
were $73.2 million, including  $1.4 million of conservation expenditures,
compared to $50.8 million, including $.1 million of conservation
expenditures, for the second quarter of 1997.  Year-to-date construction
expenditures (excluding AFUDC) totaled $140.4 million, including $2.3 million
of conservation expenditures, compared to $113.9 million, including $.5
million of conservation expenditures, for the same period in 1997.
Construction expenditures (excluding AFUDC) for 1998 and 1999 are expected to
be $311 million and $274 million, respectively.

Cash provided by operations (net of dividends and AFUDC) as a percentage of
construction expenditures (excluding AFUDC) was 32% and 251% for the second
quarters of 1998 and 1997, respectively.  Cash provided by operations (net of
dividends and AFUDC) as a percentage of construction expenditures (excluding
AFUDC) was 102% and 188% for the six month periods ended June 30, 1998 and
1997, respectively.  Construction expenditure estimates are subject to
periodic review and adjustment.

On June 30, 1998, the Company had available $375.0 million in lines of
credit with various banks, which provide credit support for outstanding
commercial paper borrowing of $1.5 million, reducing the available borrowing
capacity under these lines of credit to $373.5 million.  In addition, the
Company has agreements with several banks to borrow on an uncommitted, as
available, basis at money-market rates quoted by the banks.  There are no
costs, other than interest, for these arrangements.

YEAR 2000 CONVERSION

The Company  has established a project team to coordinate the identification
and implementation  of changes to financial and operational systems and
applications necessary to achieve a year 2000 date conversion with no affect
on customers or disruption to operations.  The Company has established
processes for evaluating and managing the risks and costs associated with
this problem.  Major areas of  potential business impact have been identified
and initial conversion efforts are underway.  The Company is also
communicating with suppliers, financial institutions and others with which it
does business to coordinate year 2000 conversion.

The Company is currently replacing many of its business and operating
computer systems based on vendor supplied software.  These are scheduled for
implementation  beginning in July 1998.  The new systems and software are
year 2000 compatible, thus handling a portion of the Company's year 2000
conversion requirements.  The costs of changing the remaining systems to make
them year 2000 compliant are estimated at $5.6 million.  The project is
currently performing inventory and assessment analysis for embedded systems, 
applications, and third party relationships.  Contingency plans, if necessary,
will be developed upon completion of the assessment phase.


PAGE 18

OTHER

On March 20, 1991, the Company executed a 20-year contract to purchase energy
and capacity, beginning in April 1994, from Tenaska Washington Partners,
L.P., which owns and operates a natural-gas fired cogeneration project
located near Ferndale, Washington.  In December 1997 and January 1998, the
Company and Tenaska Washington Partners entered into revised agreements which
have lowered purchased power costs from the Tenaska project by restructuring
its natural gas supply.  The project's original long-term gas supply
contracts contained fixed and escalating gas prices that were well above the
current and projected future market prices for natural gas.  As a result of
the restructuring, the Company is now the principal natural gas supplier to
the project and power purchase prices under the Tenaska contract were revised
to reflect market-based prices for the natural gas supply.  The Company
obtained an order from the Washington Commission creating a regulatory asset
related to the $215 million restructuring payment.  Under terms of the order,
the Company is allowed to accrue as an additional regulatory asset one-half
the carrying costs of the deferred balance over the first five years.
Amortization of the regulatory assets commenced January 1, 1998 and extends
over the remaining 14 year life of the contract.  Purchased electricity
expense savings from this contract restructuring during the first six months
of 1998 were approximately $7.5 million.

On April 1, 1998 the Company and Duke Energy Trading and Marketing (DETM) of
Houston, a unit of Duke Energy Corp., signed an agreement relating to energy-
marketing and trading activities in 14 western States and British Columbia.
The purpose of this agreement is to coordinate the two companies' activities
in serving Puget Sound Energy's native power load with DETM's Western power
and natural gas marketing and trading operations.  The companies share the
benefits of this coordination proportionally up to certain stipulated amounts
intended to be reflective of the value the companies would have realized from
their respective operations in the absence of the agreement.  The companies
share equally any benefits created above the stipulated amounts.

PAGE 19

Under the terms of the agreement, DETM will perform the forward electric
energy trading function.  As a result, the Company's future wholesale "sales
to other utilities" revenues and related "secondary purchase" power expenses,
which previously have reflected trading activity by the Company, will be
lower than during comparable periods prior to the agreement.  During the
second quarter of 1998, the Company continued to execute in its own name
transactions in which electric energy is delivered within the next thirty
days.  These types of transactions will be assumed by DETM by the fourth
quarter of 1998.  However, during this interim period, the Company's results
will include these transactions.  When fully implemented, the Company will
only record as "sales to other utilities" or "secondary purchases" sales to
or purchases from DETM reflecting the Company's net energy surplus or
deficiency over the reporting period.  The Company will also record its share
of the benefits that result from the agreement.  The agreement provides that
forward trading activities will be conducted according to DETM's energy price
risk and credit policies, and that the Company is not responsible for any
losses caused by deviation from these policies.

On June 25, 1998, the Company received approval from the Washington
Commission to begin a new performance-based mechanism for strengthening its
gas-supply purchasing and gas-storage practices.  The Purchase Gas Adjustment
(PGA) Incentive Mechanism, which encourages competitive gas purchasing and
management of pipeline and storage-capacity was effective July 1, 1998.
Incentive gains and losses from the three-year experimental program will be
shared between customers and shareholders.  Currently, the Company manages
more than 40 natural gas supply and pipeline contracts, making sure that
supplies arrive in sufficient quantities through pipeline capacity contracts.
It purchases natural gas supplies from producers primarily in western Canada
and the U.S. Rocky Mountains.  The Company's supply portfolio includes low-
cost natural gas purchased during the summer and stored for winter use.  The
Company expects the PGA Incentive Mechanism to produce modest increases in
gas margin.

On July 8, 1998, the Washington Commission approved the Company's requested
accounting treatment for its program to reduce costly tree-caused power
outages.  The Tree Watch program, which focuses on controlling vegetation
outside the Company's rights-of-way, should improve service reliability for
its customers and result in future savings in outage recovery costs.  The
five-year $43 million program will be treated as an investment that will be
amortized over 10 years.  The Company expects the Tree Watch investment to be
offset by savings from lower outage restoration and storm damage costs over
the same period.

On July 15, 1998 the Company announced it will join Montana Power Company's
generation asset sale, offering its 735-megawatt (MW) interest in the four
coal-fired eastern Montana Colstrip plants and related transmission and power
supply facilities and contracts.  The Company owns a 50 percent interest in
the twin 333-MW Colstrip Units 1 and 2, and a 25 percent interest in the twin
805-MW Units 3 and 4.  The Company has also agreed to join with the other
owners of the coal-fired generating plant at Centralia, Washington by
offering for sale its 92 megawatt ownership interest in the facility.  If
acceptable bids are received for the sale of each of these generating assets,
the Company would still need to obtain approval for the sale from the
Washington Commission and its Board of Directors.

For a discussion of FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information", see Note 6 to the Consolidated Financial
Statements.

For a discussion of FASB Statement No. 132, "Employers Disclosures about
Pensions and Other Postretirement Benefits", see Note 6 to the Consolidated
Financial Statements.

PAGE 20

For a discussion of FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", see Note 6 to the Consolidated Financial
Statements.

PAGE 21

PART II - OTHER INFORMATION
Item 1  - Legal Proceedings

Contingencies arising out of the normal course of the Company's business,
exist at June 30, 1998.  The ultimate resolution of these issues is not
expected to have a material adverse impact on the financial condition,
results of operations or liquidity of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

At the meeting of shareholders held on May 12, 1998, the shareholders
reelected the following four nominees to serve as directors until the annual
meeting of shareholders in 2001, or until their successors are duly elected
and qualified, as follows:

                                                 Votes Against
Director                      Votes For          or Withheld
--------                      ---------          -------------
Douglas P. Beighle            66,453,427         1,052,284
Phyllis J. Campbell           66,421,785         1,083,926
Donald J. Covey               66,425,869         1,079,842
William S. Weaver             66,457,028         1,048,683

Abstentions and broker non-votes were not readily available.

In accordance with the Company's Bylaws, a shareholder proposing to transact
business at the Company's annual meeting must provide written notice of such
proposal, in the manner required by the Company's Bylaws, no later than 120
days prior to the date of such annual meeting (or, if the Company provides
less than 120 days' notice of such meeting, no later than 10 days after the
date of the Company's notice).  For a shareholder proposal to be considered
for inclusion in the Company's proxy materials relating to its 1999 Annual
Meeting of Shareholders, such proposal must be received at the principal
executive office of the Company no later than December 1, 1998.  In addition,
if the Company receives notice of a shareholder proposal after February 15,
1999, the persons named as proxies in the Company's proxy materials will have
discretionary authority to vote on such shareholder proposal.

Item 6.  Exhibits and Reports on Form 8-K

    (a)  The following exhibits are filed herewith:

          4-a  Indenture between the Company and State Street Bank and Trust
         Company defining the rights of the holders of the Company's Senior
         Notes.

          4-b  First Supplemental Indenture between the Company and State
         Street Bank and Trust Company defining the rights of the holders of
         the Company's Senior Notes.

          4-c  Seventy-Sixth Supplemental Indenture between the Company and
         State Street Bank and Trust Company defining the rights of the
         holders of the Company's First Mortgage Bonds.

PAGE 22

         12-a  Statement setting forth computation of ratios of earnings to
         fixed charges (1993 through 1997 and 12 months ended June 30, 1998)

         12-b  Statement setting forth computation of ratios of earnings to
         combined fixed charges and preferred stock dividends (1993 through
         1997 and 12 months ended June 30, 1998)

         27    Financial Data Schedule

    (b)  Reports on Form 8-K

         None

PAGE 23

                              SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                           PUGET SOUND ENERGY, INC.


                                           James W. Eldredge
                                      ___________________________________
                                           James W. Eldredge
                                      Corporate Secretary and Controller

Date: August 14, 1998                 Chief accounting officer and officer
                                      duly authorized to sign this report
                                      on behalf of the registrant

PAGE 24