================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             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, 1999
                                                                       OR
                  [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR
                               THE SECURITIES EXCHANGE ACT OF 1934
                                (NO FEE REQUIRED)
                           For the Transition period from ________ to _________


                          ----------------------------

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



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

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


            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 June 30, 1999
was 84,560,539.

================================================================================
<PAGE>

                                Table of Contents
                                                                          Page
                                                                          Number

Part I.   Financial Information

          Item 1.     Financial Statements
              Consolidated Statements of Income - three month
                periods ended June 30, 1999 and 1998                           3
              Consolidated Statements of Income - six month
                periods ended June 30, 1999 and 1998                           4
              Consolidated Statements of Comprehensive Income -
                three month periods ended June 30, 1999 and 1998               5
              Consolidated Statements of Comprehensive Income -
                six month periods ended June 30, 1999 and 1998                 5
              Consolidated Balance Sheets - June 30, 1999
                and December 31, 1998                                          6
              Consolidated Statements of Cash Flows -
                six month periods ended June 30, 1999 and 1998                 8
              Notes to Consolidated Financial Statements                       9

          Item 2.     Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                     12

          Item 3.     Quantitative & Qualitative Disclosures About
                      Market Risk                                             20

Part II.  Other Information

          Item 1.     Legal Proceedings                                       22
          Item 4.     Submission of Matters to a Vote of Security Holders     22
          Item 6.     Exhibits and Reports on Form 8-K                        22

Signature                                                                     23


                                       2
<PAGE>


PART I        FINANCIAL INFORMATION
Item 1        Financial Statements
<TABLE>
                             PUGET SOUND ENERGY, INC
                        CONSOLIDATED STATEMENTS OF INCOME
                    For the Three Month Periods Ended June 30
                      (Thousands except per share amounts)
                                   (Unaudited)
<CAPTION>
                                                           1999            1998
                                                      ---------      ----------
<S>                                                   <C>            <C>
OPERATING REVENUES:
     Electric                                         $ 336,895      $  286,913
     Gas                                                 94,173          76,752
     Other                                                4,371           6,562
                                                      ---------      ----------
          Total operating revenues                     435,439          370,227
                                                      ---------      ----------
OPERATING EXPENSES:
Energy costs:
     Purchased electricity                              176,116         137,397
     Purchased gas                                       38,822          32,598
     Electric generation fuel                            11,178           9,500
     Residential Exchange                                (8,631)        (12,063)
Utility operations and maintenance                       60,297          59,229
Other operations and maintenance                          5,522           6,704
Depreciation and amortization                            42,899          40,446
Taxes other than federal income taxes                    41,982          36,877
Federal income taxes                                     12,357           9,850
                                                      ---------      ----------
          Total operating expenses                      380,542         320,538
                                                      ---------      ----------

OPERATING INCOME                                         54,897          49,689

OTHER INCOME                                             13,102           3,862
                                                      ---------      ----------

INCOME BEFORE INTEREST CHARGES                           67,999          53,551

INTEREST CHARGES, net of AFUDC                           36,934          34,009
                                                      ---------      ----------

NET INCOME                                               31,065          19,542
Less:  Preferred stock dividends accrual                  3,013           3,250
                                                      ---------      ----------

INCOME FOR COMMON STOCK                               $  28,052      $   16,292
                                                      =========      ==========

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

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

    The accompanying notes are an integral part of the financial statements.
</TABLE>
                                       3
<PAGE>
<TABLE>
                             PUGET SOUND ENERGY, INC
                        CONSOLIDATED STATEMENTS OF INCOME
                     For the Six Month Periods Ended June 30
                      (Thousands except per share amounts)
                                   (Unaudited)
<CAPTION>
                                                            1999           1998
                                                      ----------     ----------
<S>                                                   <C>            <C>
OPERATING REVENUES:
     Electric                                         $  737,709     $  655,509
     Gas                                                 265,017        224,574
     Other                                                               14,658
                                                      ----------     ----------
                                                           8,046
          Total operating revenues                     1,010,772        894,741
                                                      ----------     ----------
OPERATING EXPENSES:
Energy costs:
     Purchased electricity                               361,272        306,655
     Purchased gas                                       117,079        100,526
     Electric generation fuel                             21,055         20,741
     Residential Exchange                                (20,315)       (27,570)
Utility operations and maintenance                       122,847        119,763
Other operations and maintenance                          13,211         12,388
Depreciation and amortization                             85,520         81,182
Taxes other than federal income taxes                     92,598         82,475
Federal income taxes                                      60,678         50,211
                                                      ----------     ----------
          Total operating expenses                       853,945        746,371
                                                      ----------     ----------

OPERATING INCOME                                         156,827        148,370

OTHER INCOME                                              16,849          5,625
                                                      ----------     ----------

INCOME BEFORE INTEREST CHARGES                           173,676        153,995

INTEREST CHARGES, net of AFUDC                            72,855         68,449
                                                      ----------     ----------

NET INCOME                                               100,821         85,546
Less:  Preferred stock dividends accrual                   5,889          6,558
                                                     -----------     ----------

INCOME FOR COMMON STOCK                               $   94,932     $   78,988
                                                      ==========     ==========

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

BASIC & DILUTED EARNINGS PER COMMON SHARE:            $     1.12     $     0.93
                                                      ==========     ==========

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

                                       4
<PAGE>
<TABLE>

                            PUGET SOUND ENERGY, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                    For the Three Month Periods Ended June 30
                             (Dollars in Thousands)
                                   (Unaudited)
<CAPTION>
                                                                            1999             1998
                                                                       ---------        ---------
<S>                                                                    <C>              <C>
Net Income                                                             $  31,065        $  19,542
                                                                       ---------        ---------
Other comprehensive income, net of tax:
        Unrealized holding gains (losses) arising during period            4,262           (3,639)
        Reclassification adjustment for gains included in net income     (12,284)              --
                                                                       ---------
                                                                                        ---------
          Other comprehensive income                                      (8,022)          (3,639)
                                                                       ---------        ---------
Comprehensive Income                                                   $  23,043        $  15,903
                                                                       =========        =========

</TABLE>




<TABLE>
                            PUGET SOUND ENERGY, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                     For the Six Month Periods Ended June 30
                             (Dollars in Thousands)
                                   (Unaudited)

<CAPTION>
                                                                            1999             1998
                                                                      ----------        ---------
<S>                                                                   <C>               <C>
Net Income                                                            $  100,821        $  85,546
                                                                      ----------        ---------
Other comprehensive income, net of tax:
        Unrealized holding gains arising during period                     3,482              780
        Reclassification adjustment for gains included in net income     (12,284)              --
                                                                      ----------
                                                                                        ---------
          Other comprehensive income                                      (8,802)             780
                                                                      ----------        ---------
Comprehensive Income                                                  $   92,019        $  86,326
                                                                      ==========        =========


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

                                       5
<PAGE>

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

                                     ASSETS
<CAPTION>
                                                              June 30,           December 31,
                                                                  1999                   1998
                                                         -------------          -------------
<S>                                                      <C>                    <C>
UTILITY PLANT:
     Electric                                            $   3,763,973          $   3,694,593
     Gas                                                     1,324,628              1,278,275
     Common                                                    188,789                179,140
     Less:  Accumulated depreciation and amortization        1,788,752              1,721,096
                                                         -------------          -------------

          Net utility plant                                  3,488,638              3,430,912
                                                         -------------          -------------

OTHER PROPERTY AND INVESTMENTS                                 262,712                260,087
                                                         -------------          -------------

CURRENT ASSETS:
     Cash                                                       43,483                 28,216
     Accounts receivable                                       182,706                189,638
     Unbilled revenue                                           62,801                126,740
     Materials and supplies, at average cost                    51,777                 58,534
     Purchased gas receivable                                   16,164                  5,492
     Prepayments and other                                                              7,990
                                                         -------------          -------------
                                                                 9,168

          Total current assets                                 366,099                416,610
                                                         -------------          -------------

LONG-TERM ASSETS:
     Regulatory asset for deferred income taxes                231,833                241,406
     Deferred PURPA power contract buydown costs               224,268                221,802
     Other                                                     150,239                138,870
                                                         -------------          -------------

          Total long-term assets                               606,340                602,078
                                                         -------------          -------------

TOTAL ASSETS                                             $   4,723,789          $   4,709,687
                                                         =============          =============

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

</TABLE>
                                       6
<PAGE>
<TABLE>
                            PUGET SOUND ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
                                   (Unaudited)

                         CAPITALIZATION AND LIABILITIES
<CAPTION>
                                                              June 30,           December 31,
                                                                  1999                   1998
                                                         -------------          -------------
<S>                                                      <C>                    <C>
CAPITALIZATION:
    Common shareholders' investment:
       Common stock, $10 stated value,
       150,000,000 shares authorized,
       84,560,539 and 84,560,561 shares outstanding      $     845,605          $     845,606
    Additional paid-in capital                                 450,836                450,724
    Earnings reinvested in the business                         64,441                 47,548
    Accumulated other comprehensive income                          --                  8,802
    Preferred stock not subject to
      mandatory redemption                                      90,000                 95,075
    Preferred stock subject to
      mandatory redemption                                      65,662                 73,162
    Corporation obligated, mandatorily redeemable
      preferred securities of subsidiary
      trust holding solely junior subordinated
      debentures of the corporation                            100,000                100,000
    Long-term debt                                           1,714,770              1,475,106
                                                         -------------          -------------
           Total capitalization                              3,331,314              3,096,023
                                                         -------------          -------------

CURRENT LIABILITIES:
    Accounts Payable                                           131,231                163,141
    Short-term debt                                            236,493                450,905
    Current maturities of long-term debt                       107,000                107,000
    Accrued expenses:
      Taxes                                                     79,272                 59,764
      Salaries and wages                                        19,536                 18,650
      Interest                                                  42,704                 39,062
    Other                                                                              23,150
                                                                22,567
          Total current liabilities                            638,803                861,672
                                                         -------------          -------------

DEFERRED INCOME TAXES                                          626,034                628,554
                                                         -------------          -------------
OTHER DEFERRED CREDITS                                         127,638                123,438
                                                         -------------          -------------
TOTAL CAPITALIZATION AND LIABILITIES                     $   4,723,789          $   4,709,687
                                                         =============          =============

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

                                       7
<PAGE>
<TABLE>
                            PUGET SOUND ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     For the Six Month Periods Ended June 30
                             (Dollars in Thousands)
                                   (Unaudited)
<CAPTION>
                                                              1999         1998
                                                        ----------   ----------

<S>                                                     <C>          <C>
OPERATING ACTIVITIES:
Net Income                                              $  100,821   $   85,546
Adjustments to reconcile net income
  to net cash provided by operating activities:
     Depreciation and amortization                          85,520       81,182
     Deferred income taxes and tax credits - net             7,053          405
     Gain from sale of investment in Cabot common stock    (18,899)          --
     Other                                                     363       26,265
     Change in certain current assets
       and liabilities (Note 3)                             57,321       39,327
--------------------------------------------------------------------------------
          Net Cash Provided by Operating Activities        232,179      232,725
--------------------------------------------------------------------------------

INVESTING ACTIVITIES:
Construction expenditures - excluding equity AFUDC        (163,013)    (141,489)
Additions to energy conservation program                    (2,755)      (2,301)
Proceeds from sale of investment in Cabot common stock      37,353           --
Loans to CellNet Data Services                             (20,500)          --
Other                                                        5,170        1,601
--------------------------------------------------------------------------------
          Net Cash Used by Investing Activities           (143,745)    (142,189)
--------------------------------------------------------------------------------

FINANCING ACTIVITIES:
Change in short-term debt, net                            (214,412)    (156,038)
Dividends paid                                             (83,777)     (84,422)
Redemption of preferred stock                              (12,575)      (5,054)
Issuance of bonds                                          250,000      200,000
Redemption of bonds and notes                              (10,358)     (45,044)
Issue costs of bonds and stock                              (2,045)      (1,906)
--------------------------------------------------------------------------------
          Net Cash Used by Financing Activities            (73,167)     (92,464)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net Increase (Decrease) in cash                             15,267       (1,928)
Cash at Beginning of year                                   28,216       10,729
================================================================================
Cash at End of Period                                   $   43,483    $   8,801
================================================================================


    The accompanying notes are an integral part of the financial statements.
</TABLE>
                                       8
<PAGE>


                   NOTES TO CONSOLIDATED 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.  Certain
amounts previously  reported have been reclassified to conform with current year
presentations with no effect on total equity or net income.

         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.  These condensed  financial  statements should be
read in conjunction with the Company's annual report on Form 10-K.

(2)      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, 1999 and 1998.

         Diluted  earnings per common share have been computed based on weighted
average common shares outstanding of 84,813,000 and 84,815,000 for the three and
six months ended June 30, 1999,  and 84,675,000 and 84,670,000 for the three and
six months ended June 30, 1998, respectively.  These shares include the dilutive
effect of securities related to long-term  employee  compensation plans approved
by shareholders.

(3)      Consolidated Statements of Cash Flows

         The following  provides  additional  information  concerning  cash flow
activities:
<TABLE>
<CAPTION>
Six Months Ended June 30                                    1999           1998
------------------------                                    ----           ----
<S>                                                     <C>            <C>
Changes in current asset and current liabilities:
  Accounts receivable and unbilled revenue              $ 70,871       $ 70,737
  Materials and supplies                                   6,757          2,972
  Prepayments and Other                                   (1,178)        (1,221)
  Purchased gas receivable                               (10,672)        10,647
  Accounts payable                                       (31,910)       (41,997)
  Accrued expenses and Other                              23,453         (1,811)
====================================================  ===========   ============
Net change in current assets and current liabilities    $ 57,321       $ 39,327
====================================================  ===========   ============
Cash payments:
  Interest (net of capitalized interest)                $ 71,987       $ 60,348
  Income taxes                                          $ 39,750       $ 50,743
----------------------------------------------------  -----------   ------------
</TABLE>

                                       9
<PAGE>


(4)      Segment Information

       The Company primarily operates in one business segment, Regulated Utility
Operations.  The Company's  regulated  utility operation  generates,  purchases,
transports and sells  electricity  and  purchases,  transports and sells natural
gas. The Company's service territory covers  approximately 6,000 square miles in
the state of Washington.

       Principal  non-utility  lines of business include real estate  investment
and  development,   home  security  services,   small   hydro-electric   project
development and energy-related services.  Reconciling items between segments are
not material.

       Financial data for business segments are as follows:
<TABLE>
<CAPTION>
  (Dollars in Thousands)                       Regulated
         Three Months Ended June 30, 1999        Utility      Other        Total
--------------------------------------------------------------------------------
<S>                                             <C>           <C>       <C>
  Revenues                                      $431,068      4,371     $435,439
  Net Income                                      22,357      8,708       31,065
  Total Assets                                 4,611,971    111,818    4,723,789
--------------------------------------------------------------------------------

                                               Regulated
         Three Months Ended June 30, 1998        Utility      Other        Total
--------------------------------------------------------------------------------
  Revenues                                     $ 363,665      6,562    $ 370,227
  Net Income                                      20,460       (918)      19,542
  Total Assets                                 4,349,775    106,093    4,455,868
--------------------------------------------------------------------------------


  (Dollars in Thousands)                       Regulated
          Six Months Ended June 30, 1999         Utility      Other        Total
--------------------------------------------------------------------------------
  Revenues                                   $ 1,002,726      8,046  $ 1,010,772
  Net Income                                      94,917      5,904      100,821
  Total Assets                                 4,611,971    111,818    4,723,789
--------------------------------------------------------------------------------

                                               Regulated
          Six Months Ended June 30, 1998         Utility      Other        Total
--------------------------------------------------------------------------------
  Revenues                                     $ 880,083     14,658     $894,741
  Net Income                                      84,895        651       85,546
  Total Assets                                 4,349,775    106,093    4,455,868
--------------------------------------------------------------------------------
</TABLE>

(5)      Other

       In September 1998, the Company filed a shelf-registration  statement with
the  Securities  and  Exchange  Commission  for the  offering,  on a delayed  or
continuous basis, of up to $500 million principal amount of Senior Notes secured
by a pledge of First Mortgage  Bonds.  On March 9, 1999, the Company issued $250
million principal amount of Senior Medium-Term Notes,  Series B, which consisted
of $150 million principal amount due March 9, 2009, at an interest rate of 6.46%
and $100  million  principal  amount due March 9, 2029,  at an interest  rate of
7.0%.

                                       10
<PAGE>

       In March 1998,  the Company  entered into an agreement  with CellNet Data
Services  Inc.  ("CellNet")  under which the Company will lend CellNet up to $40
million in the form of multiple  draws so that  CellNet can finance an Automated
Meter  Reading  (AMR)  network  system to be deployed in the  Company's  service
territory.  The  Company's  promissory  note with CellNet  calls for the network
system to serve as collateral  for the loan.  The term of the loan is five years
after the first loan under the  agreement is made to CellNet.  On June 30, 1999,
the Company made the first loan under the loan  agreement in the amount of $20.5
million.  The loan agreement provides for interest only payments during the five
year term, with the principal due at the end of the five year term.

         During the first  quarter of 1999,  the Company  adopted  Issue  98-10,
"Accounting  for  Contracts  Involved  in  Energy  Trading  and Risk  Management
Activities"  ("EITF  98-10")  issued by the  Emerging  Issues  Task Force of the
Financial Accounting  Standards Board ("FASB").  EITF 98-10 addresses accounting
for the  purchase and sale of energy  trading  contracts  and is  effective  for
fiscal years  beginning  after December 15, 1998. The conclusion  reached by the
EITF was that such contracts  should be recorded at fair value when entered into
for  trading  activities  with the  mark-to-market  gains or losses  recorded in
current earnings.  The Company does not consider its current  operations to meet
the  definition of trading  activities as described by EITF 98-10.  Accordingly,
the  adoption  of EITF 98-10 did not have an impact on the  Company's  financial
position or results of operations.

     In June 1998, the FASB issued Statement of Financial  Accounting  Standards
No.  133,  "Accounting  for  Derivative   Instruments  and  Hedging  Activities"
("Statement  No.  133").  In July 1999,  the FASB issued  Statement of Financial
Accounting  Standards No. 137 which delayed the effective  date of Statement No.
133 for one year, to fiscal years beginning  after June 15, 2000.  Statement No.
133 requires that all derivative instruments be recorded on the balance sheet at
their fair value.  Changes in the fair value of  derivatives  are recorded  each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge  transaction and, if it is, the type
of hedge  transaction.  The Company has not yet  determined  the impact that the
adoption of Statement No. 133 will have on its financial statements.


                                       11
<PAGE>


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, 1999, was $31.1 million on
operating revenues of $435.4 million,  compared with net income of $19.5 million
on operating  revenues of $370.2 million for the same period in 1998. Income for
common stock was $28.1 million for the second  quarter of 1999 and $16.3 million
for the second quarter of 1998. Basic and Diluted earnings per common share were
$0.33 for the second quarter of 1999 compared to $0.19 for the second quarter of
1998.

       For the first six  months of 1999,  net  income  was  $100.8  million  on
operating revenues of $1,011 million,  compared with net income of $85.5 million
on operating  revenues of $894.7 million for the  corresponding  period in 1998.
Income for common  stock was $94.9  million for the first half of 1999 and $79.0
million for the same period in 1998. Basic and diluted earnings per common share
were $1.12 for the six months ended June 30, 1999, and $0.93 for the same period
in 1998.

       Results from  non-utility  operations for the three months ended June 30,
1999, were positively impacted by approximately $0.10 per share, the result of a
gain from the sale of the  Company's  investment  in common stock of Cabot Oil &
Gas  Corporation,  offset  in part by the  cost of a  wholly-owned  subsidiary's
exiting certain product lines. The increase in net income and earnings per share
for the three and six months ended June 30,  1999,  compared to the same periods
in 1998 are also the result of continued  customer  growth,  cooler weather than
the  same  period  last  year  and  the  positive   contribution   of  favorable
hydroelectric conditions to electric margins.

       Total  kilowatt-hour  sales were 7.6  billion,  including  2.7 billion in
sales to other  utilities,  for the  second  quarter  of 1999,  compared  to 6.3
billion,  including  1.5  billion  in sales to other  utilities,  for the second
quarter of 1998.  For the six month periods ended June 30, 1999 and 1998,  total
kilowatt-hour  sales were 16.3 billion,  including 5.4 billion in sales to other
utilities, and 13.9 billion,  including 3.3 billion in sales to other utilities,
respectively.

       Total gas volumes  were 228.2  million  therms,  including  57.4  million
therms in  transportation  volumes  for the three  months  ended June 30,  1999,
compared  to  199.0   million   therms,   including   63.1  million   therms  of
transportation,  for the same period in 1998.  For the six months ended June 30,
1999,  total gas volumes were 620.4  million  therms,  including  126.5  million
therms of  transportation,  compared to 551.0 million  therms,  including  138.9
million therms of transportation, for the same period in 1998.

                                       12
<PAGE>

       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.
<TABLE>

                              Results of Operations
                  Comparative Three and Six Month Periods Ended
                         June 30, 1999 vs. June 30, 1998
                               Increase (Decrease)
<CAPTION>
                                            Three Month Period  Six Month Period
                                            ------------------  ----------------
                                                         (In Millions)
<S>                                                  <C>              <C>
Operating revenue changes
  General rate increase - electric                    $    3.9         $    7.8
  BPA Residential Purchase & Sale Agreement               (1.5)            (3.6)
  Sales to other utilities and marketers                  38.8             53.9
  Electric load and other changes                          8.8             24.1
  Gas revenue change                                      17.4             40.4
  Other revenue changes                                   (2.2)            (6.6)
                                                      --------         --------
          Total operating revenue change                  65.2             16.0
                                                      --------         --------

Operating expense changes Energy costs:
          Purchased electricity                           38.7             54.6
          Purchased gas                                    6.2             16.6
          Electric generation fuel                         1.7              0.3
          Residential exchange credit                      3.4              7.2
  Utility operations and maintenance                       1.1              3.1
  Other operations and maintenance                        (1.2)             0.8
  Depreciation and amortization                            2.5              4.3
  Taxes other than federal income taxes                    5.1             10.1
  Federal income taxes                                     2.5             10.5
                                                      --------         --------
           Total operating expense change                 60.0             07.5
                                                      --------         --------

Other income                                               9.2             11.2

Interest charges                                           2.9              4.4

                                                      ========         ========
          Net income change                           $   11.5         $  15.3
                                                      ========         ========

         The  following  is  additional  information  pertaining  to the changes
outlined in the above table.
</TABLE>

                                       13
<PAGE>

         Operating Revenues - Electric

       Electric  revenues  for the  quarter  ended June 30,  1999,  were  $336.9
million, up $50.0 million or 17.4% over the same period in 1998. Revenues in the
second quarter of 1999 increased $3.9 million  compared to the second quarter of
1998 due to a general  electric  rate  increase  that  averaged  1.2%  effective
January 1, 1999.

       Electric  revenues for the six months  ended June 30,  1999,  were $737.7
million, up $82.2 million or 12.5% over the same period in 1998. Revenues in the
first half of 1999 increased $7.8 million compared to the first half of 1998 due
to a general  electric rate increase  that  averaged 1.2%  effective  January 1,
1999.

       Revenues  in 1999 and 1998 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 Termination  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 an  approximately  five-year period ending June
2001.  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 1999 through June 2001, it is projected
that the Company will credit customers approximately $132.1 million more than it
will receive from BPA during the following periods:
<TABLE>
<CAPTION>
                                                        Dollars in
                                 Period                   Millions
                                 ------                 ----------
                                  <S>                       <C>
                          July- December 1999                $26.9
                        January - December 2000               68.3
                          January - June 2001                 36.9
                                                              ----
                                                            $132.1
</TABLE>

       Electric sales to other  utilities and marketers  increased $38.8 million
and  $53.9  million  in  the  quarter  and  six  months  ended  June  30,  1999,
respectively, over the same periods in 1998 as wholesale sales to marketers have
increased.  Related  power cost  expenses for the periods also  increased as the
Company generated and purchased more power for these sales.

       Also  contributing to the increase in electric  revenues in the three and
six months ended June 30, 1999,  when  compared to the previous year were colder
temperatures during the 1999 periods and a 2% increase in the number of electric
customers.  Temperatures  during the six months  ended June 30,  1999,  averaged
slightly colder than normal.

Operating Revenues - Gas

       Gas  operating  revenues for the quarter  ended June  30,1999,  increased
$17.4 million or 22.7% from the prior year quarter.  Total gas volumes increased
14.6% from 199.0 million therms to 228.2 million therms.  Gas margin  (regulated
utility  sales less the cost of gas sold) also  increased by $11.1  million,  or
26.9% in the second  quarter of 1999  compared to the same  period in 1998.  The
primary  reasons for the  increase in gas sales  volume,  gas sales  revenue and
margin  in the  quarter  ended  June  30,  1999,  was the 4.5%  increase  in gas
customers and cooler  temperatures  than the prior year. A larger  percentage of
firm gas sales with higher prices and less transportation  sales volumes in 1999
when compared to last year also contributed to increased revenues.

                                       14
<PAGE>

       For the six months ended June 30, 1999, gas operating  revenues increased
$40.4  million or 18.0%  from  $224.6  million in the six months  ended June 30,
1998, to $265.0 million while total gas volumes increased 12.6%. The increase in
the period was  primarily due to a 4.4% increase in gas customers and the impact
of cooler  weather  on the  Company's  gas  heating  load  during  the first two
quarters of 1999  compared to 1998. A larger  percentage  of firm gas sales with
higher  prices and less  transportation  sales  volumes in 1999 when compared to
last year also contributed to increased  revenues.  Gas margin in the six months
ended June 30, 1999, also increased $23.8 million or 20.1%.

       Other  revenues  decreased  $2.2  million  and $6.6  million in the three
months and six months ended June 30, 1999, respectively, as compared to the same
periods in 1998 due to decreased revenues at the Company's subsidiaries.

Operating Expenses

       Purchased  electricity expenses increased $38.7 million and $54.6 million
for the three and six month periods ended June 30, 1999, respectively,  compared
to the same  periods in 1998.  The  increases  were due  primarily  to increased
secondary power purchases to support  wholesale sales and the increased load due
to cooler  temperatures  than in the prior year and a greater number of electric
customers in 1999.

       Purchased gas expenses  increased  $6.2 million and $16.6 million for the
three and six month  periods  ended  June 30,  1999,  respectively,  due to both
increased  volumes  of  purchases  as a result  of higher  heating  load and the
increase in gas service customers.

       Fuel  expense  increased  $1.7  million  in the  second  quarter  of 1999
compared  to  the  same  period  in  1998  due to the  Company  generating  more
electricity at Company-owned combustion turbines.

       Residential exchange credits associated with the Residential Purchase and
Sale Agreement with BPA decreased $3.4 million and $7.2 million in the three and
six month  periods  ended June 30,  1999,  compared  to the prior year  periods,
primarily as a result of the 1997  Residential  Exchange  Termination  Agreement
discussed in "Operating Revenues - Electric."

       Utility  operations and maintenance  expenses  increased slightly for the
three and six month periods ended June 30, 1999, compared to the same periods in
1998 due primarily to an increase in storm-repair  costs of  approximately  $6.2
million in the six-month period ended June 30, 1999, compared to the same period
in 1998.  The  increase  in storm  restoration  costs  was  partially  offset by
decreases in vegetation  management  expenses of $.9 million and $3.4 million in
the  three and six month  periods  ended  June 30,  1999,  compared  to the same
periods in 1998.  The Company  performed the majority of  vegetation  management
work in 1998 during the first six months of the year due to the  availability of
contractors, favorable weather conditions and in anticipation of beginning a new
"Tree  Watch"  program  under which trees are removed  outside of the  Company's
right of ways  after  obtaining  customer  permission.  Utility  operations  and
maintenance  expenditures  in 1999 also  include  costs of $5.3 million for Year
2000 remediation efforts.





                                       15
<PAGE>

       Depreciation  and  amortization  expense  increased $2.5 million and $4.3
million for the three and six month  periods June 30, 1999,  respectively,  from
the same  periods in 1998 due  primarily to the effects of new plant placed into
service during the past year.

       Taxes other than federal  income taxes  increased  $5.1 million and $10.1
million for the three and six month periods ended June 30, 1999, compared to the
same periods in 1998 due  primarily  to increases in municipal  and state excise
taxes which are revenue based and increased state property taxes.

       Federal  income taxes  increased  $2.5 million and $10.5  million for the
three month and six month periods  ended June 30, 1999,  primarily due to higher
pre-tax operating income for the periods.

Other Income

       Other income, net of federal income tax, increased $9.2 million and $11.2
million  for the  three  month  and six  month  periods  ending  June 30,  1999,
respectively,  compared  to the same  periods  in 1998.  The  increases  in both
periods  were due  primarily  to the net  after-tax  gain of $12.3  million as a
result of the sale of the Company's  investment in the common stock of Cabot Oil
and Gas  Corporation  in May  1999,  offset  in part by the cost of  ConnexT,  a
wholly-owned subsidiary, exiting certain product lines.

Interest Charges

       Interest charges, which consist of interest and amortization on long-term
debt and other  interest,  increased $2.9 million and $4.4 million for the three
and six month  periods ended June 30, 1999,  respectively,  compared to the same
periods  in 1998 as a  result  of the  issuance  of $200  million  6.74%  Senior
Medium-Term  Notes,  Series A, in June 1998 and $250 million Senior  Medium-Term
Notes,  Series B, in March 1999.  These  increases were partially  offset by the
repayment of $61 million in Secured  Medium-Term  Notes since  February 1999 and
the redemption of $30 million 9.14% Secured Medium-Term Notes, Series A, in June
1998. Other interest expense decreased $1.9 million for the three and six months
ended June 30,  1999,  compared to the same periods in 1998 as a result of lower
weighted average interest rates and lower average daily short-term borrowings.

                  Construction, Capital Resources and Liquidity

       Construction expenditures, which include energy conservation expenditures
and exclude AFUDC, for the second quarter of 1999 were $70.8 million compared to
$73.2  million  for  the  second  quarter  of  1998.  Year-to-date  construction
expenditures  totaled  $161.1  million  compared to $140.4  million for the same
period in 1998.  Construction  expenditures for 1999 and 2000 are expected to be
$303 million and $259 million, respectively. Cash provided by operations (net of
dividends and AFUDC) as a percentage  of  construction  expenditures  (excluding
AFUDC) was 51% and 32% for the second  quarters of 1999 and 1998,  respectively.
Cash  provided by  operations  (net of dividends  and AFUDC) as a percentage  of
construction  expenditures  (excluding AFUDC) was 89% and 103% for the six month
periods  ended June 30, 1999 and 1998,  respectively.  Construction  expenditure
estimates are subject to periodic review and adjustment.

       On June 30, 1999,  the Company had available  $375.0  million in lines of
credit  with  various  banks,  which  provide  credit  support  for  outstanding
commercial  paper borrowing of $62.5 million,  reducing the available  borrowing
capacity under these lines of credit to $312.5 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.

                                       16
<PAGE>

                              Year 2000 Conversion
Background

     The Year 2000 issue  results  from the use of two digits  rather  than four
digits in computer  hardware and software to define the applicable  year. If not
corrected  on computer  systems  that must  process  dates both before and after
January 1, 2000,  two-digit year fields may create  processing  errors or system
failures. The Company believes that all mission-critical operational systems, as
defined by the North American Electric  Reliability  Council ("NERC"),  are Year
2000 ready.  Project work,  including  remediation and testing is  substantially
complete for the Company's  other  priority  business  systems.  Follow-up for a
limited number of  non-critical  systems and certain  vendors will continue into
the third quarter.

Project Approach and Progress

       The  number of people  working  full time and part time on the  Company's
Year 2000 project  fluctuates between 125 and 150. The Company has established a
central  project team to  coordinate  all Year 2000  activities  and  identified
exposure in three categories:  information technology; embedded chip technology;
and external  non-compliance  by customers  and  suppliers.  The project team is
taking a phased  approach in  conducting  the Year 2000 project for its internal
systems.  The  phases  include  inventory,  assessment,   remediation,  testing,
implementation and contingency  planning.  In addition,  the Company has engaged
outside  consultants and technicians to aid in formulating and  implementing its
plan. All business units have completed the inventory, assessment,  remediation,
testing and  implementation  phases with the exception of the Company's Customer
Information System ("CIS") discussed below.

       The Company has been upgrading  mainframe and client server financial and
business  applications  since 1997 and replacing many of its business systems as
part of its business plans  following its merger in 1997. In September 1998, the
Company implemented a Systems, Applications, Products in Data Processing ("SAP")
business  system  which  includes  essentially  all  of the  Company's  business
applications  with the  exception  of its  CIS.  This SAP  system  is Year  2000
compliant.

       A new CIS,  which is designed  to be Year 2000  compliant,  is  currently
being developed by the Company. Development is expected to continue in 1999. The
Company has also begun implementation  activities with respect to the new system
which will  continue  during  1999.  The Company has also  elected to  remediate
critical  elements of its existing CIS for Year 2000  compliance  purposes.  The
Company  has  formed a  specialized  team  which has  completed  the  inventory,
assessment  and  remediation  activities  for the existing  system.  Testing and
implementation  activities for the existing  system are expected to be completed
in the third quarter of 1999.

       A  specialized  embedded  systems  team has been formed by the Company to
inventory,  assess and remediate  microprocessor  technology in its  generation,
transmission and distribution systems for both gas and electric operations.  The
inventory,  assessment,  remediation,  testing and implementation phases for all
mission critical embedded systems are complete. Contingency planning specific to
the Year 2000 issue began in November 1998, and contingency plans were submitted
on June 30, 1999, to the  Washington  Commission  and NERC.  These plans will be
refined and updated as remediation and test results are analyzed.

       The Company sent letters to its  suppliers,  financial  institutions  and
other  business  partners to coordinate  Year 2000  conversion and determine the
extent to which the Company is exposed to third party compliance  failures.  All
significant  vendors and suppliers  have been contacted to date. All third party
assessment was completed in June 1999. If the Company  identified  concerns,  it
followed up with third  parties by  telephone.  In  addition,  the Company  held
meetings with critical  vendors  described  below in order to assess and monitor
compliance  measures.  All critical  vendors and suppliers have responded to the
Company's  written requests and follow up telephone  calls.  They have indicated
either that they are Year 2000  compliant  or that they  expect to be  compliant
later in 1999. Where appropriate  company line managers have developed alternate
sources or other contingency plans for critical vendors and suppliers.

                                       17
<PAGE>

       The Company  depends upon third parties for a significant  portion of its
energy supply and transportation.  The majority of the high voltage transmission
facilities  used by the  Company  are owned and  operated  by  Bonneville  Power
Administration  and the Company's  natural gas supplies are  transported  to its
service area by natural gas  pipelines in the western  United States and Canada.
The Company  purchases 100% of its natural gas supplies and approximately 75% of
its  electric  power  supplies.  Major energy  suppliers  and  transporters  are
considered critical vendors because their failure to supply or deliver energy to
the Company could adversely affect the reliability of the Company's  electric or
gas service to its customers.

       In  addition,  the  Company  is  working  with  various  industry  groups
including  NERC  and the  regional  reliability  council,  the  Western  Systems
Coordinating  Council  ("WSCC")  during the  millennium  transition.  The United
States  Department  of Energy  has asked  NERC to  assume a  leadership  role in
preparing the U.S. electric industry for the transition to the Year 2000.

Costs

     While the replacement of business systems under business plans developed as
a result of the Merger are not  included  in the  Company's  Year 2000  project,
those  replacements   substantially  reduce  the  number  of  internal  business
applications that require remediation. In addition to the costs of replacing new
business systems,  the Company estimates that total Year 2000 project costs will
approximate  $14  million,  exclusive  of internal  labor  costs,  of which $9.7
million has been expended through June 30, 1999.

Risk Assessment

       The electric  power supply  systems of North America are  connected  into
three major  interconnections  called grids. The western grid covers the western
third of the U.S.,  western  Canada and parts of Mexico.  The BPA is the largest
supplier  of  transmission  services  in the Pacific  Northwest.  The  Company's
reasonably likely worst case scenario is that operational  component failures of
any entity  connected to the grid could cause other failures in that grid.  Such
failures  would  adversely  affect the  Company's  ability  to provide  reliable
service to its customers and correspondingly  reduce revenues.  The Company will
need to continue to assess this risk as the  millennium  approaches  to evaluate
the likelihood of power failures and develop  approaches for mitigating the risk
of failures.

       Much of the natural gas and electric  distribution  systems are comprised
of wires, poles and pipes containing no embedded chips.  However,  these systems
do employ  some  computer  components  that could be  affected  by the Year 2000
transition.  Since many of the components  used by the Company exist in multiple
sub-station  locations,  there is a risk that a  component  could be  missed,  a
component  manufacturer  could provide erroneous  information,  or the component
(while deemed and tested compliant) could fail in a specific configuration found
at the Company. The Company has formed a special  team to handle these types of
components (embedded systems), and has retained an independent  engineering firm
with specific utility experience to assist in the effort.  Results of assessment
to date reveal that there are fewer components that are not Year 2000 ready than
initially  thought.  This is consistent with industry findings  published in the
NERC report to the Department of Energy dated January 11, 1999.

                                       18
<PAGE>

       The failure to correct a material  Year 2000  problem  could result in an
interruption  in, or a failure of,  Company  business  activities or operations.
Such failures  could  materially and adversely  affect the Company's  results of
operations,  liquidity and financial  condition.  Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000  readiness of  third-party  suppliers  and  customers,  the Company is
unable to determine at this time whether the  consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial  condition.  The Year 2000 project is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problem and the Year 2000
readiness  of  its  material  vendors.  The  Company  believes  that,  with  the
implementation  of  new  business  systems  and  completion  of the  project  as
scheduled,  the possibility of significant  interruptions  of normal  operations
should be reduced.

Contingency Plans

       The  Company is  identifying  various  scenarios  that could occur in the
event that Year 2000 issues are not resolved in a timely  manner.  These efforts
will build upon the work in scenario  development and contingency  planning that
is being done by the WSCC  contingency  planning task force. A specialized  team
has been  formed  that has  developed  contingency  plans and  updated  existing
emergency  preparedness  plans to identify  and address risk  scenarios  for the
Company.  Contingency  plans were sent to the Washington  Commission and NERC on
June 30, 1999.  These plans will be refined and updated as remediation  and test
results are analyzed.

Forward Looking Statements

       Readers are cautioned that  forward-looking  statements  contained in the
Year 2000 update are based on management's  best estimates and may be influenced
by  factors  that could  cause  actual  outcomes  and  results to be  materially
different than projected.  Specific factors that might cause differences between
the  estimates  and  actual  results  include,  but  are  not  limited  to,  the
availability and cost of personnel trained in these areas, the ability to locate
and correct all relevant  computer code,  timely responses to and corrections by
third-parties  and  suppliers,  the ability to implement new systems in a timely
manner,  the  ability to  implement  interfaces  between the new systems and the
systems  not being  replaced,  and  similar  uncertainties.  Due to the  general
uncertainty  inherent  in the Year  2000  problem,  resulting  in part  from the
uncertainty of the Year 2000 readiness of third-parties and the  interconnection
of global  businesses,  the  Company  cannot  ensure  its  ability to timely and
cost-effectively  resolve  problems  associated  with Year 2000  issues that may
affect its operations and business, or expose it to third-party liability.

                                      Other

       On April  30,  1999,  the  Company  filed a  registration  statement  and
prospectus for the formation of a holding company structure. The holding company
proposal was approved by  shareholders  at the Company's  annual meeting on June
23, 1999. The proposed  holding company  structure is also subject to regulatory
approval by the  Washington  Utilities  and  Transportation  Commission  and the
Federal Energy Regulatory Commission.

       The power supply  operating  alliance between the Company and Duke Energy
Trading and Marketing ("DETM"),  whereby the Company participated in the Western
market  activities of DETM, was terminated as of May 31, 1999. Going forward the
Company will perform the functions of minimizing the cost of, and optimizing the
value inherent in, its core power supply portfolio. The Company will overlay its
traditional  supply  management  activities  with an energy  price risk  hedging
capability.  Termination  of the  agreement  may  result in a  reduction  in the
Company's volume of nonfirm and short term firm wholesale sales.

                                       19
<PAGE>

       On July 1, 1999, the Company called for redemption all outstanding shares
of its 8.5%  Preferred  Stock,  Series  III.  The  shares  will be  redeemed  on
September  1,  1999,  at the  redemption  price of $25 per  share  plus  accrued
dividends.

     On July 29,  1999,  the  Company  was served a lawsuit by Tacoma  Power,  a
Washington municipal  corporation.  The anti-trust claim seeks modification of a
service area agreement for electrical power and unspecified damages. The Company
is currently evaluating the claim.

     The  Company has an  Optional  Large Power Sales Rate and certain  "special
contracts"  for its largest  customers.  Customers who elect the Optional  Large
Power Sales Rate are no longer considered  "core" customers,  and the Company no
longer has an obligation to plan for future  resources to serve their needs. The
non-core  customers  receive access to electric energy that is priced at current
market  cost  and pay a charge  for  energy  delivery  (including  a charge  for
conservation  programs) and a transition  charge  (representing  the  difference
between  the  Company's  present  cost and the  current  market cost of electric
energy and capacity). The transition charge will be phased out before the end of
the year 2000.  Non-core customers also take on the risk that market costs could
become volatile and that electricity could be unavailable on the open market. In
November  1998,  a number of  industrial  customers  filed a complaint  with the
Washington  Commission that the Company was incorrectly billing for energy under
the Optional Large Power Sales Rate. On August 3, 1999, the Company  received an
order  from  the   Washington   Commission   requiring  the  Company  to  refund
approximately  $2.8 million to five  customers.  This amount  includes  disputed
amounts back to June 1, 1998,  plus  interest.  The Company is  considering  its
options  with  respect to the  order,  including  appeal and has not  recorded a
reserve for this amount.

Item 3  Quantitative and Qualitative Disclosures About Market Risk

       The Company is exposed to market  risks,  including  changes in commodity
prices and interest rates.

Commodity Price Risk

       The prices of energy commodities and transportation  services are subject
to fluctuations due to unpredictable  factors including weather,  transportation
congestion  and other  factors which impact  supply and demand.  This  commodity
price risk is a consequence  of purchasing  energy at fixed and variable  prices
and  providing  deliveries  at  different  tariff  and  variable  prices.  Costs
associated  with  ownership and operation of production  facilities  are another
component  of this risk.  The Company may use forward  delivery  agreements  and
option  contracts for the purpose of hedging  commodity  price risk.  Unrealized
changes in the market value of these  derivatives  are  deferred and  recognized
upon settlement along with the underlying hedged transaction.  In addition,  the
Company  believes its current rate design,  including  its Optional  Large Power
Sales Rate,  various special contracts and the PGA mechanism  mitigate a portion
of this risk.

       Market risk is managed subject to parameters  established by the Board of
Directors. A Risk Management Committee separate from the units that create these
risks  monitors  compliance  with the  Company's  policies  and  procedures.  In
addition,  the Audit Committee of the Company's Board of Directors has oversight
of the Risk Management Committee.

                                       20
<PAGE>

Interest rate risk

       The Company believes  interest rate risks of the Company primarily relate
to the use of  short-term  debt  instruments  and new long-term  debt  financing
needed to fund capital requirements.  The Company manages its interest rate risk
through  the  issuance  of mostly  fixed-rate  debt of various  maturities.  The
Company  does  utilize  bank  borrowings,  commercial  paper  and line of credit
facilities to meet short-term cash  requirements.  These short-term  obligations
are  commonly  refinanced  with fixed  rate bonds or notes when  needed and when
interest  rates are  considered  favorable.  The  Company  may  enter  into swap
instruments to manage the interest rate risk  associated  with these debts,  and
one interest rate swap was outstanding as of June 30, 1999.


                                       21
<PAGE>

PART II  OTHER INFORMATION
Item 1        Legal Proceedings

         Contingencies  arising  out  of the  normal  course  of  the  Company's
business exist at June 30, 1999. 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  annual  meeting  of  shareholders  held on  June  23,  1999,  the
following proposals were adopted by the margins indicated:

      (a)  Approve  a  proposal  to adopt a  holding  company  structure,  to be
implemented through a plan of exchange whereby each share of Puget Sound Energy,
Inc. Common stock will be automatically exchanged for one share of Puget Energy,
Inc. Common stock.

              For                   56,442,280
              Against               6,734,870
              Abstain               1,580,486

      (b) To elect four  directors  to hold office  until the annual  meeting of
shareholders in 2002, or until their successors are elected and qualified.

                                                         Number of Shares
                                                     For                Withheld
              Charles W. Bingham                     75,699,485        1,321,248
              Robert L. Dryden                       75,653,121        1,367,611
              John D. Durbin                         75,706,964        1,313,769
              Sally G. Narodick                      75,538,299        1,482,434
              Broker non-votes were not readily available.

Item 6        Exhibits and Reports on Form 8-K

      (a)     Exhibits
              The following exhibits are filed herewith:

              12-a   Statement  setting forth  computation of ratios of earnings
                     to fixed charges (1994 through 1998 and 12 months ended
                     June 30, 1999)

              12-b   Statement  setting forth  computation of ratios of earnings
                     to combined  fixed  charges and preferred  stock  dividends
                     (1994 through 1998 and 12 months ended June 30, 1999)

              27     Financial Data Schedule

      (b)     Reports of Form 8-K

              The  Company  did not file any  reports  on Form  8-K  during  the
              quarter ended June 30, 1999.

                                       22
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                                   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 13, 1999                       Chief accounting officer and officer
                                            duly authorized to sign this report
                                            on behalf of the registrant

                                       23
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