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

                                  UNITED STATES

                       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 September 30, 2000

                                       OR

                  [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR
                               THE SECURITIES EXCHANGE ACT OF 1934


              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 September
30, 2000 was 85,638,843.

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

                                       1
<PAGE>



                                Table of Contents

                                                                            Page
                                                                          Number

Part I.   Financial Information

          Item 1.     Financial Statements
              Consolidated Statements of Income -
                      3 month periods ended September 30, 2000 and 1999        3
              Consolidated Statements of Income -
                      9 month periods ended September 30, 2000 and 1999        4
              Consolidated Statements of Comprehensive Income -
                      3 month periods ended September 30, 2000 and 1999        5
              Consolidated Statements of Comprehensive Income -
                      9 month periods ended September 30, 2000 and 1999        5
              Consolidated Balance Sheets -
                      September 30, 2000 and December 31, 1999                 6
              Consolidated Statements of Cash Flows -
                      9 month periods ended September 30, 2000 and 1999        8
              Notes to Consolidated Financial Statements                       9

          Item 2.     Management's Discussion and Analysis of
                        Financial Condition and Results of Operations         13

          Item 3.     Quantitative and Qualitative Disclosure
                        About Market Risk                                     20

Part II.  Other Information

          Item 1.     Legal Proceedings                                       21
          Item 4.     Submission of Matters to a Vote of Security Holders     21
          Item 6.     Exhibits and Reports on Form 8-K                        21

Signature                                                                     22

                                       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 September 30
                      (Thousands except per share amounts)
                                   (Unaudited)
<CAPTION>

                                                                  2000                    1999
                                                   --------------------      ------------------
<S>                                                        <C>                     <C>
OPERATING REVENUES:
     Electric                                              $   886,696             $   345,257
     Gas                                                        72,798                  57,705
     Other                                                      19,487                   8,429
                                                   --------------------      ------------------
          Total operating revenue                              978,981                 411,391
                                                   --------------------      ------------------
OPERATING EXPENSES:
Energy costs:
     Purchased electricity                                     660,249                 178,815
     Purchased gas                                              35,885                  22,185
     Electric generation fuel                                   55,381                  11,531
     Residential Exchange                                       (7,983)                 (7,554)
Utility operations and maintenance                              55,947                  60,407
Other operations and maintenance                                19,393                   5,218
Depreciation and amortization                                   49,677                  43,191
Conservation amortization                                        1,188                   1,814
Taxes other than federal income taxes                           42,556                  36,434
Federal income taxes                                             9,090                   7,906
                                                   --------------------      ------------------
          Total operating expenses                             921,383                 359,947
                                                   --------------------      ------------------

OPERATING INCOME                                                57,598                  51,444

OTHER INCOME                                                     5,273                   9,805
                                                   --------------------      ------------------

INCOME BEFORE INTEREST CHARGES                                  62,871                  61,249

INTEREST CHARGES, net of AFUDC                                  43,876                  36,337
                                                   --------------------      ------------------

NET INCOME                                                      18,995                  24,912
Less:  Preferred stock dividends accrual                         2,229                   2,800
                                                   --------------------      ------------------

INCOME FOR COMMON STOCK                                    $    16,766              $   22,112
                                                   ====================      ==================

COMMON SHARES OUTSTANDING - WEIGHTED AVERAGE                    85,502                  84,561
                                                   ====================      ==================

BASIC & DILUTED EARNINGS PER COMMON SHARE                   $     0.20              $     0.26
                                                   ====================      ==================

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

                                       3
<PAGE>



                             PUGET SOUND ENERGY, INC
                        CONSOLIDATED STATEMENTS OF INCOME
                  For the Nine Month Periods Ended September 30
                      (Thousands except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                   2000                    1999
                                                    --------------------      ------------------
<S>                                                        <C>                     <C>
OPERATING REVENUES:
     Electric                                              $  1,762,543            $  1,082,966
     Gas                                                        376,284                 322,722
     Other                                                       26,177                  17,346
                                                    --------------------      ------------------
          Total operating revenue                             2,165,004               1,423,034
                                                    --------------------      ------------------
OPERATING EXPENSES:
Energy costs:
     Purchased electricity                                    1,094,557                 540,088
     Purchased gas                                              190,273                 139,263
     Electric generation fuel                                   106,034                  32,586
     Residential Exchange                                       (29,255)                (27,869)
Utility operations and maintenance                              169,192                 179,579
Other operations and maintenance                                 27,213                  22,766
Depreciation and amortization                                   144,878                 128,775
Conservation amortization                                         5,187                   5,469
Taxes other than federal income taxes                           144,984                 129,058
Federal income taxes                                             75,339                  67,356
                                                    --------------------      ------------------
          Total operating expenses                            1,928,402               1,217,071
                                                    --------------------      ------------------

OPERATING INCOME                                                236,602                 205,963

OTHER INCOME                                                     16,541                  28,963
                                                    --------------------      ------------------

INCOME BEFORE INTEREST CHARGES                                  253,143                 234,926

INTEREST CHARGES, net of AFUDC                                  128,587                 109,193
                                                    --------------------      ------------------

NET INCOME                                                      124,556                 125,733
Less:  Preferred stock dividends accrual                          6,761                   8,689
                                                    --------------------      ------------------

INCOME FOR COMMON STOCK                                     $   117,795             $   117,044
                                                    ====================      ==================

COMMON SHARES OUTSTANDING - WEIGHTED AVERAGE                     85,289                  84,561
                                                    ====================      ==================

BASIC & DILUTED EARNINGS PER COMMON SHARE                    $     1.38              $     1.38
                                                    ====================      ==================

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

                                       4
<PAGE>



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

                                                                                 2000                 1999
                                                                     -----------------      --------------
<S>                                                                        <C>                  <C>
Net Income                                                                 $   18,995           $   24,912
Other comprehensive income (loss), net of tax:
     Unrealized holding gains (losses) arising during period                   (1,053)                 --
     Reclassification adjustment for gains included in net income                   --                 --
                                                                     -----------------      --------------
        Other comprehensive income (loss)                                      (1,053)                 --
                                                                     -----------------      --------------
Comprehensive Income                                                       $   17,942           $   24,912
                                                                     =================      ==============
</TABLE>







                            PUGET SOUND ENERGY, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                  For the Nine Month Periods Ended September 30
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
                                                                                 2000                 1999
                                                                     -----------------      ---------------
<S>                                                                        <C>                  <C>
Net Income                                                                 $  124,556           $  125,733
Other comprehensive income (loss), net of tax:
     Unrealized holding gains arising during period                             1,212               3,482
     Reclassification adjustment for gains included in net income              (3,160)            (12,284)
                                                                     ------------------     ---------------
        Other comprehensive income (loss)                                      (1,948)             (8,802)
                                                                     -----------------      ---------------
Comprehensive Income                                                       $  122,608           $  116,931
                                                                     =================      ===============

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


                                       5
<PAGE>



                            PUGET SOUND ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
                                   (Unaudited)
                                     ASSETS
<TABLE>
<CAPTION>
                                                         September 30,         December 31,
                                                         -------------         ------------
                                                                  2000                 1999
                                                                  ----                 ----
<S>                                                      <C>                  <C>
UTILITY PLANT: (at original cost, including
construction work in progress
of $212,919 and $311,317 respectively)
     Electric                                            $   4,016,770        $   3,966,220
     Gas                                                     1,434,343            1,371,589
     Common                                                    355,332              314,770
     Less:  Accumulated depreciation and amortization        1,992,062            1,901,658
                                                       ----------------    -----------------
          Net utility plant                                  3,814,383            3,750,921
                                                       ----------------    -----------------

OTHER PROPERTY AND INVESTMENTS                                 216,187              264,160
                                                       ----------------    -----------------

CURRENT ASSETS:
     Cash                                                       37,280               65,707
     Accounts receivable                                       231,798              213,020
     Unbilled revenue                                           92,551              121,303
     Materials and supplies, at average cost                    91,021               69,241
     Purchased gas receivable                                   42,870               33,700
     Prepayments and other                                      16,326                9,866
                                                       ----------------    -----------------

          Total current assets                                 511,846              512,837
                                                       ----------------    -----------------

LONG-TERM ASSETS:
     Regulatory asset for deferred income taxes                217,276              228,454
     Regulatory asset for PURPA buyout costs                   242,134              238,734
     Other                                                     222,750              150,500
                                                       ----------------    -----------------

          Total long-term assets                               682,160              617,688
                                                       ----------------    -----------------
TOTAL ASSETS                                             $   5,224,576      $     5,145,606
                                                       ================    =================
</TABLE>

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

                                       6
<PAGE>


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

                         CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
                                                          September 30,            December 31,
                                                          -------------            ------------
                                                                   2000                    1999
                                                                  -----                    ----
<S>                                                       <C>                     <C>
CAPITALIZATION:
    Common shareholders' investment:
       Common stock, $10 stated value,
       150,000,000 shares authorized,
       85,638,844 and 84,922,405 shares outstanding        $    856,388            $    849,224

    Additional paid-in capital                                  465,430                 454,982
    Earnings reinvested in the business                          65,023                  66,019
    Accumulated other comprehensive income                        6,900                   8,848
    Preferred stock not subject to
      mandatory redemption                                       60,000                  60,000
    Preferred stock subject to
      mandatory redemption                                       58,162                  65,662
    Corporation obligated, mandatorily redeemable
      preferred securities of subsidiary
      trust holding solely junior subordinated
      debentures of the corporation                             100,000                 100,000
    Long-term debt                                            1,920,792               1,783,139
                                                       -----------------      ------------------
           Total capitalization                               3,532,695               3,387,874
                                                       -----------------      ------------------

CURRENT LIABILITIES:
    Accounts Payable                                            192,259                 178,218
    Short-term debt                                             545,009                 604,712
    Current maturities of long-term debt                         19,000                  47,620
    Accrued expenses:
      Taxes                                                      70,029                  72,688
      Salaries and wages                                         18,948                  18,023
      Interest                                                   41,921                  43,955
    Other                                                        25,656                  24,259
                                                       -----------------      ------------------
          Total current liabilities                             912,822                 989,475
                                                       -----------------      ------------------

DEFERRED INCOME TAXES                                           621,384                 636,735
                                                       -----------------
                                                                              ------------------
OTHER DEFERRED CREDITS                                          157,675                 131,522
                                                       -----------------      ------------------
TOTAL CAPITALIZATION AND LIABILITIES                      $   5,224,576           $   5,145,606
                                                       =================      ==================
</TABLE>

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


                                       7
<PAGE>


                            PUGET SOUND ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  For the Nine Month Periods Ended September 30
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                             2000            1999
                                                             ----            ----
<S>                                                    <C>             <C>
OPERATING ACTIVITIES:

Net Income                                             $  124,556      $  125,733
Adjustments to reconcile net income
  to net cash provided by operating activities:
     Depreciation and amortization                        144,878         128,775
     Deferred income taxes and tax credits - net           (4,173)          8,371
     Gain from sale of investment in Cabot stock               --         (18,899)
     Gain from sale of Homeguard Security Services             --         (11,659)
     Gain from sale of securities                          (6,476)             --
     Other                                                 24,704          21,143
     Change in certain current assets
       and liabilities (Note 3)                           (15,766)         26,947
----------------------------------------------------------------------------------
          Net Cash Provided by Operating Activities       267,723         280,411
----------------------------------------------------------------------------------

INVESTING ACTIVITIES:

Construction expenditures - excluding equity AFUDC       (223,153)       (244,754)
Additions to energy conservation program                   (4,325)         (4,111)
Proceeds from sale of Centralia Plant                      30,128              --
Proceeds from sale of investment in Cabot stock            51,463          37,353
Loans to Cellnet Data Services                             (1,325)        (25,800)
Proceeds from sale of securities                            6,757          13,399
Purchase of Utilx and Lineal                              (80,587)             --
Other                                                      (7,452)          1,951
----------------------------------------------------------------------------------
          Net Cash Used by Investing Activities          (228,494)       (221,962)
----------------------------------------------------------------------------------

FINANCING ACTIVITIES:

Change in short-term debt, net                            (59,702)        (37,027)
Dividends paid                                           (107,764)       (125,476)
Redemption of preferred stock                              (7,501)        (42,575)
Issuance of bonds                                         250,000         250,000
Redemption of bonds and notes                            (140,980)        (57,370)
Issue costs of bonds and stock                             (1,709)         (2,057)
----------------------------------------------------------------------------------
          Net Cash Used by Financing Activities           (67,656)        (14,505)
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Net Increase (decrease) in cash                           (28,427)         43,944
Cash at Beginning of year                                  65,707          28,216
----------------------------------------------------------------------------------
Cash at End of Period                                  $   37,280      $   72,160
==================================================================================
</TABLE>

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


                                       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 85,502,000 and 85,289,000 for the three and
nine  months  ended  September  30, 2000 and  84,561,000  for the three and nine
months ended September 30, 1999.

         Diluted  earnings per common share have been computed based on weighted
average common shares outstanding of 85,700,000 and 85,483,000 for the three and
nine months ended  September 30, 2000,  and  84,764,000  and  84,763,000 for the
three and nine months  ended  September  30,  1999,  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>
Nine Months Ended September 30                           2000         1999
------------------------------                           ----         ----
<S>                                                   <C>        <C>
Changes in current asset and current liabilities:
  Accounts receivable and unbilled revenue            $ 9,974    $ 102,388
  Materials and supplies                              (21,780)     (10,620)
  Prepayments and other                                (6,460)     (12,507)
  Purchased gas receivable                             (9,170)     (28,503)
  Accounts payable                                     14,041      (24,481)
  Accrued expenses and Other                           (2,371)         670
---------------------------------------------------------------------------
Net change in current assets and current liabilities  $(15,766)   $ 26,947
===========================================================================
Cash payments:
  Interest (net of capitalized interest)              $ 135,284   $116,472
  Income taxes                                        $ 77,100    $ 47,750
---------------------------------------------------------------------------
</TABLE>


                                       9
<PAGE>


(4)      Segment Information

     The Company operates  primarily in one business segment,  Regulated Utility
Operations.  The Company's regulated utility operation generates,  purchases 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  development and marketing
of customer  information and billing system  software,  specialized  contracting
services to utilities and  telecommunications  companies  (See  "Acquisition  of
Utilx and Lineal"  below),  real estate  investment  and  development  and small
hydro-electric  project development.  Reconciling items between segments are not
material.

       Financial data for business segments are as follows:
<TABLE>
<CAPTION>

  (Dollars in Thousands)                           Regulated
  Three Months Ended September 30, 2000              Utility         Other             Total
---------------------------------------------------------------------------------------------
<S>                                                <C>            <C>              <C>
  Revenues                                         $ 959,494      $ 19,487         $ 978,981
  Net Income                                          20,233       (1,238)            18,995
  Total Assets                                     4,988,882       235,694         5,224,576
---------------------------------------------------------------------------------------------

                                                   Regulated
  Three Months Ended September 30, 1999              Utility         Other             Total
---------------------------------------------------------------------------------------------
  Revenues                                         $ 402,962       $ 8,429          $411,391
  Net Income                                          18,136         6,776            24,912
  Total Assets                                     4,670,657       123,378         4,794,035
---------------------------------------------------------------------------------------------

  (Dollars in Thousands)                         Regulated
  Nine Months Ended September 30, 2000             Utility         Other             Total
-------------------------------------------------------------------------------------------
  Revenues                                      $2,138,827       $26,177        $2,165,004
  Net Income                                       123,704           852           124,556
  Total Assets                                   4,988,882       235,694         5,224,576
-------------------------------------------------------------------------------------------

                                                 Regulated
  Nine Months Ended September 30, 1999             Utility         Other             Total
-------------------------------------------------------------------------------------------
  Revenues                                      $1,405,688       $17,346        $1,423,034
  Net Income                                       113,052        12,681           125,733
  Total Assets                                   4,670,657       123,378         4,794,035
-------------------------------------------------------------------------------------------
</TABLE>

(5)      Other Investments

     In the second quarter of 2000, the Company sold all of its 1,134,000 shares
of 6% convertible  redeemable preferred stock in Cabot Oil & Gas Corporation for
$51.4 million,  after expenses. The sale resulted in approximately $40.8 million
in  after-tax  cash  proceeds.  There  was no  significant  gain  or loss on the
transaction.  In the  second  quarter  of  1999,  the  Company  sold  all of its
investment  in common stock of Cabot Oil & Gas  Corporation  for $37.4  million,
resulting in a one-time  after tax gain of $12.3  million.  As a result of these
two transactions,  the Company no longer holds any securities of Cabot Oil & Gas
which were obtained by the Company in 1997 when  Washington  Energy  Company was
merged into the Company.

                                       10
<PAGE>

(6)      Acquisition of Utilx and Lineal

     On August 1, 2000, InfrastruX Group Inc., a wholly-owned  subsidiary of the
Company,  purchased 88% of the outstanding shares of Utilx Corporation  pursuant
to a cash tender  offer.  The  remaining  shares were  acquired on September 15,
2000. Utilx is a provider of infrastructure  construction  services to utilities
and telecommunications  providers in the United States and around the world. Its
primary business is installing,  replacing and restoring  underground cables and
pipes. On September 28, 2000, InfrastruX Group Inc. completed the acquisition of
Lineal  Industries,  a  privately  held  pipeline  infrastructure   construction
company.  Lineal provides pipeline construction,  maintenance and rehabilitation
services  primarily for the natural gas and petroleum  industries  and currently
operates in seven states.  These  acquisitions mark the Company's entry into the
business of  providing  design,  construction  and  engineering  services to the
utility  industry.  The  total  purchase  price  of  the  two  acquisitions  was
approximately $81 million.

     The  acquisitions  of Utilx and Lineal  have been  accounted  for using the
purchase method of accounting and,  accordingly,  the operating results of Utilx
and Lineal have been included in the Company's consolidated financial statements
since the date of acquisition. Goodwill representing the excess of cost over the
net tangible and identifiable  intangible assets of the acquired  businesses was
approximately $33 million.  Goodwill is being amortized on a straight-line basis
over the  estimated  future  periods  to be  benefited.  The pro forma  combined
revenues,  net income,  and earnings  per common share of the Company  presented
below give effect to the acquisitions as if they had occurred on January 1, 2000
and 1999, respectively. This pro forma information is not necessarily indicative
of the results of operations that would have occurred had the  acquisition  been
consummated for the period for which it is being given effect.

<TABLE>
<CAPTION>
  (Thousands, except per share amounts)
  For the nine months ending:               September 30, 2000   September 30, 1999
------------------------------------------------------------------------------------
<S>                                                 <C>                  <C>
  Operating Revenues                                $2,242,666           $1,505,303
  Net Income                                           121,589              122,737
  Basic & Diluted Earnings per Common Share           $   1.35             $   1.35
</TABLE>

(7)      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%.
On February 22, 2000, the Company issued $225 million  principal amount of 7.96%
Senior Medium-Term Notes,  Series B due February 22, 2010. Proceeds were used to
redeem the Encogen  project debt of  approximately  $112 million  assumed by the
Company on  November 1, 1999 upon the  purchase  of the Encogen  project and pay
down a portion of the Company's  short-term debt.  Premiums and related expenses
of approximately $4.7 million associated with the redemption of the Encogen debt
were  capitalized  and will be amortized over nine years in conformance  with an
order issued by the  Washington  Commission.  On September 8, 2000,  the Company
issued the remaining $25 million principal amount of Senior Notes from the shelf
registration.  The 7.61% Senior Medium Term Notes, Series B are due September 8,
2008.


                                       11
<PAGE>


     On October 4, 2000, the Company filed a shelf  registration  statement with
the Securities and Exchange Commission, which became effective October 30, 2000,
for the  offering  on a  delayed  or  continuous  basis  of up to  $500  million
principal  amount of Senior Notes,  Subordinated  Debentures or Trust  Preferred
Securities.  On November  9, 2000,  the Company  issued $260  million  principal
amount of Senior Medium-Term Notes, Series C. The Notes are due February 1, 2011
at an interest rate of 7.69%.

     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 organized a project team for implementing
Statement No. 133. The team has substantially  completed the Company's inventory
of financial  instruments,  commodity  contracts and other  commitments  for the
purpose of identifying and assessing all of the Company's derivatives.  The team
is in the process of estimating the fair value of the  derivatives,  designating
certain   derivatives  as  hedges  and  assessing  the  effectiveness  of  those
derivatives as hedges.  Until the Company  finishes the above procedures and can
better  project  actual  amounts at  year-end,  the impact that the  adoption of
Statement No. 133 will have on its financial statements is not known.


                                       12
<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 uncertainties.  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 September 30, 2000, was $19.0 million
on  operating  revenues  of $979.0  million,  compared  with net income of $24.9
million on  operating  revenues  of $411.4  million for the same period in 1999.
Income for common stock was $16.8 million for the third quarter of 2000 compared
to $22.1 million for the third quarter of 1999.  Basic and diluted  earnings per
share were $0.20 for the third  quarter of 2000  compared to $0.26 for the third
quarter of 1999.

     For the first  nine  months of 2000,  net  income  was  $124.6  million  on
operating revenues of $2.165 billion, compared with net income of $125.7 million
on operating  revenues of $1.423 billion for the  corresponding  period in 1999.
Income for common stock was $117.8 million for the first nine months of 2000 and
$117.0  million for the same  period in 1999.  Basic and  diluted  earnings  per
common share were $1.38 in both the nine months ended  September  30, 2000,  and
the same period in 1999.

     Earnings per share for the three months and nine months ended September 30,
1999,  were  positively  impacted by a net gain of 4 cents per share  related to
sale and  assignment of certain  non-core  assets and gas supply  transportation
contracts.  Results  from  non-utility  operations  for the  nine  months  ended
September 30, 1999, were also positively  impacted by approximately 10 cents per
share which was the result of a gain from the sale of the  Company's  investment
in common stock of Cabot Oil & Gas  Corporation,  which was partially  offset by
the cost of a wholly-owned subsidiary's exiting certain product lines.

     Total kilowatt-hour electric sales were 10.3 billion, including 5.5 billion
in sales to other  utilities  and  marketers,  for the  third  quarter  of 2000,
compared to 7.6 billion,  including 2.9 billion in sales to other  utilities and
marketers,  for the third  quarter  of 1999.  For the nine month  periods  ended
September  30,  2000 and 1999,  total  kilowatt-hour  sales  were 26.5  billion,
including 10.7 billion in sales to other utilities, and 23.9 billion,  including
8.3 billion in sales to other utilities, respectively.

     Total gas volumes were 136.2 million therms,  including 46.7 million therms
in  transportation  volumes  for the three  months  ended  September  30,  2000,
compared  to  149.3   million   therms,   including   50.8  million   therms  of
transportation, for the same period in 1999. For the nine months ended September
30, 2000,  total gas volumes were 742.8 million therms,  including 154.7 million
therms of  transportation,  compared to 769.7 million  therms,  including  177.3
million therms of transportation, for the same period in 1999.

     The Company's  operating revenues and associated expenses are not generated
evenly  during the year.  Variations  in energy usage by consumers do occur from
season to season and from month to month within a season,  primarily as a result
of weather conditions. The Company normally experiences its highest energy sales
in the first and fourth quarters of the year.

                                       13
<PAGE>

     The Company meets its forecasted  electric supply needs throughout the year
through  Company-owned  electric  generation  and  by  obtaining  power  through
long-term contracts,  annual contracts and short-term markets. The Company meets
its   forecasted   natural  gas  supply  needs   throughout   the  year  through
Company-owned  gas storage and by  purchasing  gas  supplies  through  long-term
contracts,  annual contracts and short-term  markets.  The Company also performs
risk  management   activities  to  optimize  the  value  of  energy  supply  and
transmission  assets and to ensure that  physical  energy supply is available to
meet the customer  demand loads.  The Company also purchases  energy when demand
exceeds available supplies in its portfolio; likewise the Company makes sales to
other   utilities  and  marketers  when  surplus  energy  is  available.   These
transactions  are part of the Company's  normal  operations to meet retail load.
Electric  sales  to other  utilities  and  marketers  vary by  quarter  and year
depending  principally upon water conditions for the generation of hydroelectric
power,  retail  customer usage,  the energy  requirements of other utilities and
energy market conditions in the Pacific Northwest.

     Temperatures  based  on  heating-degree-days   measured  at  Seattle-Tacoma
airport  during the three and nine month periods  ended  September 30, 2000 were
near normal and 5% warmer than both comparable periods in the prior year.


                                       14
<PAGE>

<TABLE>

                              Results of Operations
                  Comparative Three & Nine Month Periods Ending
                    September 30, 2000 vs. September 30, 1999
                               Increase (Decrease)
<CAPTION>

                                         Three Month Period    Nine Month Period
                                         ------------------    -----------------
                                                     (In Millions)
Operating revenue changes
<S>                                                   <C>                 <C>
  General rate tariff increase - electric              $3.5               $12.4
  BPA Residential Purchase & Sale Agreement            (0.5)               (1.0)
  Electric sales to wholesale customers               454.4               542.8
  Electric load and other changes                      84.0               125.4
  Gas revenue change                                   15.1                53.6
  Other revenue changes                                11.1                 8.8
                                                   ---------           ---------
          Total operating revenue change              567.6               742.0
                                                   ---------           ---------

Operating expense changes Energy costs:

          Purchased electricity                       481.4               554.5
          Purchased gas                                13.7                51.0
          Electric generation fuel                     43.9                73.5
          Residential exchange credit                  (0.4)               (1.4)
  Utility operations and maintenance                   (4.5)              (10.4)
  Other operations and maintenance                     14.2                 4.4
  Depreciation and amortization                         6.5                16.1
  Conservation amortization                            (0.6)               (0.3)
  Taxes other than federal income taxes                 6.1                15.9
  Federal income taxes                                  1.2                 8.0
                                                   ---------          ----------
          Total operating expense change              561.5               711.3
                                                   ---------          ----------

Other income                                           (4.5)              (12.5)

Interest charges                                        7.5                19.4

                                                   ----------         ----------
          Net income change                           ($5.9)              ($1.2)
                                                   ==========         ==========
</TABLE>
     The following is additional  information pertaining to the changes outlined
in the above table.

Operating Revenues - Electric

     Electric  revenues for the three months and nine months ended September 30,
2000 increased $541.4 million and $679.6 million, respectfully,  compared to the
same periods in 1999.  Electric sales to other utilities and marketers increased
$454.4 million and $542.8  million in the three and nine months ended  September
30,  2000,  respectfully,  compared to the prior year  periods due to  increased
volumes and prices in the wholesale  electricity market. During this period, the
Company  benefited from being relatively long on resources in a time of volatile
energy  markets.  Electric  margin was up $6.0 million and $17.8  million in the
three and nine months ended  September 30, 2000,  respectfully,  compared to the
prior year periods.

                                       15
<PAGE>

     Electric  revenues in the three and nine months  ended  September  30, 2000
increased  $3.4 million and $11.2  million,  respectively,  compared to the same
periods in 1999 due to a January 1, 2000 general  electric  rate  increase  that
averaged 1.2%. The number of electric  customers  served increased 1.7% and 1.8%
in the three and nine months ended September 30, 2000, respectively, compared to
the prior year.

     Revenues  in 2000 and 1999 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 an  approximately  five-year period ending June
2001.  These  payments  are  recorded as a reduction  of  purchased  electricity
expenses.  Under the rate plan  approved  by the  Washington  Commission  in its
merger  order,  the Company will continue to reflect in  customers'  bills,  the
level of Residential  Exchange  benefits in place at the time of the merger with
Washington  Energy  Company  in 1997.  Over  the  remainder  of the  Residential
Exchange  Termination  Agreement  from October  2000  through  June 2001,  it is
projected that the Company will credit customers  approximately $53 million more
than it will receive from BPA during the following periods:
<TABLE>
<CAPTION>
                          Credit to       Received from     Excess
                          Customers                 BPA     Credits
                              Period (in Millions)
-----------------------   ---------      --------------     -------
<S>                           <C>                 <C>         <C>
October - December 2000       $28.1               $11.7       $16.4
January - June 2001            63.6                27.0        36.6
                          ---------      --------------     -------
                              $91.7               $38.7       $53.0
</TABLE>

     The value of benefits of low-cost  federal  power  allocated to the Company
subsequent to June 2001 will be  established in BPA's  Subscription  process and
related  power rate case. In May 2000,  the BPA  published an initial  Record of
Decision in its  Subscription  process.  BPA allocated  benefits  intended to be
equivalent to 1900 average MW of cost-based federal power to the residential and
small farm customers of the Pacific Northwest  investor-owned utilities (IOU's).
The regional Public Utility Commissions in turn recommended an allocation of the
benefits among the IOU's, with the Company's  proposed annual share equal to 700
average MW of benefits over the five-year period October 2001 through  September
2006. In August 2000, BPA determined  that certain aspects of its initial Record
of  Decision  would be  revisited  in its power  rate case that is  expected  to
continue  through May 2001.  On October 30, 2000 the Company  signed a five year
contract  with BPA (as required by BPA's  Subscription  timeline) for receipt of
the  federal  power  benefits  allocated  by  the  Subscription  and  Commission
processes.  The contract  describes the form (power and cash) of the 700 average
MW benefits to be provided,  and  provides the Company a right to terminate  the
contract upon  completion of BPA's rate case.  The results of the rate case will
affect  the  value of  benefits  actually  received  by the  Company  and  other
Northwest IOU's from the Subscription benefits allocation process.

                                       16
<PAGE>

Operating Revenues - Gas

     Gas operating  revenues for the quarter ended  September 30, 2000 increased
by $15.1 million from the prior year quarter.  Total gas volumes  decreased 8.7%
from 149.3 million  therms in 1999 to 136.2 million  therms in 2000.  Gas margin
increased by $0.5  million,  or 1.8% in the third quarter of 2000 as compared to
the third  quarter of 1999.  The  primary  reason for the  increase in gas sales
revenue was higher  natural gas prices which are passed  through to customers in
the Purchased  Gas  Adjustment  (PGA).  Increases  under the PGA were  effective
November 1, 1999 and August 1, 2000. As a result of the PGA increases, gas rates
to all sales  customers  increased by an average of 16 % on November 1, 1999 and
28% on  August 1,  2000.  Rates for gas  transportation  service  as well as gas
margins remained  unchanged.  Partially  offsetting the increase in revenue from
higher gas prices were lower sales  volumes  due to warmer  temperatures  in the
three months ended September 30, 2000,  compared to the three month period ended
September 30, 1999.

     For the nine months  ended  September  30,  2000,  gas  operating  revenues
increased  $53.6  million or 16.6% from $322.7  million in the nine months ended
September  30, 1999,  to $376.3  million in the nine months ended  September 30,
2000,  while total gas volumes  decreased  3.5%. The increase in revenues in the
period  was  primarily  due to higher  natural  gas  prices  passed  through  to
customers  in the PGA as  previously  mentioned.  Gas margin  decreased  by $1.3
million,  or 0.9% in the nine months ended September 30, 2000 as compared to the
same period in 1999.

Operating Expenses

     Purchased  electricity expenses increased $481.4 million and $554.5 million
for the three and nine month  periods  ended  September 30, 2000 compared to the
same periods in 1999.  The increases  were due primarily to greater  volumes and
higher prices for non-firm power  purchases from other  utilities and marketers.
The  increases  were  partially  offset by a reduction in purchased  electricity
expenses  related  to  the  purchase  of  the   160-megawatt   Encogen  electric
cogeneration  plant in November 1999.  This  reduction in purchased  electricity
expenses was offset in part by increases in fuel,  operations  and  maintenance,
depreciation and interest  expenses  related to Encogen.  Prior to the purchase,
the Company was  obligated  to purchase the net output of the plant under a 1990
power purchase contract.

     The Colstrip Unit 4 generating plant, located in eastern Montana,  went out
of service on September 3, 2000,  because of cracks  discovered in the generator
shaft.  The unit,  which the  Company  owns in part and buys power from in part,
provides 225 MW of capacity and energy. It went back into service the weekend of
October 21, 2000.  Loss of power from this unit  increased the Company's cost of
power and reduced energy margins.

     Purchased  gas expenses  increased  $13.7 million and $51.0 million for the
three and nine month periods ending September 30, 2000,  respectively,  compared
to the same periods in 1999.  The increases  were due primarily to the impact of
increased gas costs which are passed through to customers through the PGA.

     Fuel expense  increased  $43.9  million and $73.5 million for the three and
nine month periods ending September 30, 2000, respectively, compared to the same
period in 1999 as a result of Encogen fuel expenses of $9.4 million in the third
quarter of 2000 and $27.7  million in the nine month period ended  September 30,
2000. The Company's  acquisition of the 160 megawatt  Encogen natural  gas-fired
cogeneration plant was completed on November 1, 1999. In addition, fuel expenses
in the three months and nine months ended September 30, 2000 were  approximately
$36.8 million and $46.7 million higher than the  comparable  periods in 1999 due
to  the  Company   generating   more   electricity  and  higher  gas  prices  at
Company-owned combustion turbines.

                                       17
<PAGE>

     Utility  operations  and  maintenance  expenses  decreased $4.5 million and
$10.4  million for the three and nine month periods  ending  September 30, 2000,
respectively,  compared to the same periods in 1999.  These  decreases  were due
primarily to higher 1999 costs  related to Y2K  readiness  and electric  service
restoration following a number of storms which occurred early in 1999.

     Other operations and maintenance  expenses increased $14.2 million and $4.4
million in the three and nine month periods ended September 30, 2000,  primarily
as a  result  of  the  acquisition  of  Utilx  by  our  unregulated  subsidiary,
InfrastruX.  Also, a wholly-owned subsidiary exited certain product lines in the
second quarter of 1999, thereby eliminating  operations and maintenance expenses
related to these activities.

     Depreciation  and  amortization  expense  increased  $6.5 million and $16.1
million for the three and nine month periods ended September 30, 2000,  compared
to the same periods  last year due  primarily to the effects of new plant placed
into service  during the past year,  including  the Encogen  plant  purchased in
November  1999,  and the Company's  ConsumerlinX(TM)  customer  information  and
billing system in April 2000.

     Taxes other than  federal  income  taxes  increased  $6.1 million and $15.9
million  for the  three  and  nine  month  periods  ended  September  30,  2000,
respectively,  compared to the same periods last year primarily due to increases
in municipal and state excise taxes which are revenue based.

     Federal income taxes  increased $1.2 million and $8.0 million for the three
and nine month periods ended September 30, 2000, respectively,  primarily due to
higher pre-tax operating income for the periods.

Other Income

     Other  income,  net of federal  income tax,  decreased  $4.5 million in the
quarter  ended  September  30,  2000  compared  to the same period in 1999 which
included a net gain of $3.6 million  related to sale and  assignment  of certain
non-core assets and gas supply  transportation  contracts.  Other income, net of
federal  income tax,  decreased  $12.4  million in the nine month  period  ended
September  30,  2000  compared  to the  same  period  in 1999  due to the  $12.3
after-tax  gain  from the sale of Cabot  common  stock  reported  in the  second
quarter  of  1999  which  was  partially  offset  by  costs  associated  with  a
wholly-owned   subsidiary's  exiting  certain  product  lines  as  well  as  the
aforementioned  gain of $3.6 million in the third  quarter of 1999. In the third
quarter of 2000, the Company  recorded an after-tax gain of  approximately  $1.6
million  related to the sale of its interest in the Centralia  generating  plant
(see discussion in "Other").

Interest Charges

     Interest  charges,  which consist of interest and amortization on long-term
debt and other interest,  increased $7.5 million and $19.4 million for the three
and nine month periods ended  September 30, 2000 compared to the same periods in
1999.  Interest on long-term debt increased $2.8 million and $8.7 million in the
three and nine month  periods  ending  September  30, 2000 compared to the prior
year  periods as a result of the  issuance of $225  million  Senior  Medium-Term
Notes,  Series  B, in  February  2000 and the  issuance  of $25  million  Senior
Medium-Term  Notes,  Series B, in September 2000. These increases were partially
offset by the  repayment  of $132  million in Secured  Medium-Term  Notes  since
September 1999. Other interest expense  increased $4.5 million and $10.4 million
for the three and nine month  periods  ended  September 30, 2000 compared to the
same periods in 1999 as a result of higher weighted  average  interest rates and
higher average daily short-term borrowings.

                                       18
<PAGE>

              Capital Expenditures, Capital Resources and Liquidity

     Capital  expenditures  which include energy  conservation  expenditures and
exclude  AFUDC for the third  quarter of 2000 were $70.8  million,  compared  to
$80.3 million,  for the third quarter of 1999. Year to date capital expenditures
were  $219.4  million  compared  to $241.4  million for the same period in 1999.
Capital  expenditures for 2000 and 2001 are expected to be $269 million and $250
million, respectively.  Cash provided by operations (net of dividends and AFUDC)
as a percentage of capital expenditures (excluding AFUDC) was (123) % and 5% for
the third quarters of 2000 and 1999,  respectively.  Cash provided by operations
(net of dividends and AFUDC) as a percentage of capital expenditures  (excluding
AFUDC) was 33% and 61% for the nine month periods  ended  September 30, 2000 and
1999, respectively. Capital expenditure estimates are subject to periodic review
and adjustment.

     The Company  issued  common  stock for the  Company's  Stock  Purchase  and
Dividend  Reinvestment  Plan  of  $6,562,000  (274,498  shares)and   $16,607,000
(716,467  shares)  in the  three  and nine  months  ended  September  30,  2000,
respectively. No new Company stock was issued for the Dividend Reinvestment Plan
for the comparable periods in 1999.

     On September 30, 2000,  the Company had available  $375 million in lines of
credit with various banks,  which provide credit  support for  outstanding  bank
loans and commercial paper of $283.8 million, effectively reducing the available
borrowing  capacity under these lines of credit to $91.2  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.   There  was  $261.2  million
outstanding under these arrangements at September 30, 2000.

                                      Other

     On May 5, 2000,  the Company sold its 7% interest in the 1,340 MW Centralia
coal-fired  generating  project to TECWA Power,  Inc., a subsidiary of TransAlta
Corporation of Calgary,  Canada. The sales price of approximately  $37.4 million
resulted  in a pre-tax  gain of  approximately  $23.5  million.  Under the order
issued by the  Washington  Commission,  approximately  $2.5 million of this gain
($1.6 million after-tax) goes to Company shareholders and $21.0 million has been
deferred for pass through to electric customers in the form of a one-time refund
to  electric  customers,  based on  electric  consumption  during  the  month of
November  2000.  Any final  true-up of the gain will be  collected  or  refunded
through the Company's conservation rider.

     On July 20, 2000,  the Company and PPL Global,  LLC (formerly  PP&L Global,
Inc.) terminated an Asset Purchase Agreement dated as of November 1, 1998, under
which PPL  Global,  LLC had  proposed  purchasing  the  Company's  735  megawatt
interest in the  four-unit  Colstrip  power plants and  associated  transmission
capacity  across  Montana.  As a result,  the Company will retain its 50 percent
interest in Colstrip  Units 1 & 2 and 25 percent  interest in Colstrip Units 3 &
4.

     On  June  28,  2000,  the  Company  filed a  request  with  the  Washington
Commission  to pass  through  the rising  costs of  natural  gas  purchased  for
customers  under terms of the long  established  purchased gas adjustment  (PGA)
mechanism.  The PGA mechanism passes through to customers increases or decreases
in the gas supply portion of the natural gas service rates based upon changes in
the price of natural gas purchased  from  producers  and wholesale  marketers or
changes in gas pipeline  transportation  costs. The Company does not profit from
changes  under the PGA.  The PGA is  separate  from the  Company's  general  gas
service rates that have been under a rate stability plan since 1997. On July 31,
2000, the Washington Commission approved the Company's request to increase rates
by an overall  average of 28% to all natural gas customers  effective  August 1,
2000.

     The Company's Board of Directors has given final approval to formation of a
holding  company,  Puget  Energy,  Inc.,  to be effective  January 1, 2001.  The
holding  company  formation was initially  approved by the Board of Directors on
April 23, 1999 and approved by the Company's  shareholders on June 23, 1999. All
necessary  regulatory  approvals  related to the holding company  formation have
been secured.

                                       19
<PAGE>

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

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

Commodity Price Risk

     The Company  manages its energy  supply  portfolio to achieve three primary
objectives:

     (i) Ensure that  physical  energy  supplies  are  available to serve retail
customer requirements;

     (ii) Manage portfolio risks to limit undesired impacts on Company financial
results; and

     (iii) Optimize the value of the Company's energy supply assets.

     The  portfolio  is subject to major  sources of  variability  (e.g.,  hydro
generation,  temperature-sensitive  retail sales,  and market prices for gas and
power).  At certain times,  these sources of variability can mitigate  portfolio
imbalances; at other times they can exacerbate portfolio imbalances.

     Hedging  strategies for the Company's energy supply portfolio interact with
portfolio optimization  activities.  Some hedges can be implemented in ways that
retain  the  Company's  ability to use its energy  supply  portfolio  to produce
additional  value;  other  hedges can only be achieved by forgoing  optimization
opportunities.

     The  prices  of energy  commodities  are  subject  to  fluctuations  due to
unpredictable  factors including  weather,  generation outages 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,  swaps and option contracts for the
purpose of hedging commodity price risk.  Unrealized changes in the market value
of these derivatives are generally 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 manage 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.

Interest rate risk

     The Company believes interest rate risk of the Company primarily relates 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.


                                       20
<PAGE>


PART II       OTHER INFORMATION

Item 1        Legal Proceedings

     Contingencies  arising out of the normal course of the  Company's  business
exist at September  30, 2000.  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

       None.

Item 6        Exhibits and Reports on Form 8-K

      (a)     The following exhibits are filed herewith:

              12-a  Statement  setting forth  computation  of ratios of earnings
              to fixed charges (1995 through 1999 and 12 months ended September
              30, 2000)

              12-b Statement  setting forth computation of ratios of earnings to
              combined fixed charges and  preferred  stock  dividends  (1995
              through 1999 and 12 months ended September 30, 2000)

              27     Financial Data Schedule

      (b)     Reports on Form 8-K

              Form 8-K dated July 21, 2000,  Item 5 - Other  Events,  related to
release of second quarter earnings.

              Form 8-K filed July 3, 2000, Item 5 - Other Events, related to
InfrastruX, a wholly-owned subsidiary of the Company, acquiring Utilx
Corporation.

                                       21
<PAGE>


                                   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: November 9, 2000            Chief accounting officer and officer duly
                                  authorized to sign this report
                                  on behalf of the registrant


                                       22
<PAGE>