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

                                  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 MARCH 31, 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 March 31, 1999
was 84,560,545.

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

                                       1
<PAGE>

                                TABLE OF CONTENTS

                                                                           Page
                                                                         Number

PART I.   FINANCIAL INFORMATION

          Item 1.     Financial Statements

              Consolidated Statements of Income - 3 month periods ended 
                March 31, 1999 and 1998                                      3
              Consolidated Statements of Comprehensive Income - 3 month 
                periods ended March 31, 1999 and 1998                        4
              Consolidated Balance Sheets - March 31, 1999 and 
                December 31, 1998                                            5
              Consolidated Statements of Cash Flows - 3 month periods 
                ended March 31, 1999 and 1998                                7
              Notes to Consolidated Financial Statements                     8

          Item 2.     Management's Discussion and Analysis of Financial 
                        Condition and Results of Operations                  10

PART II.  OTHER INFORMATION

          Item 1.     Legal Proceedings                                      19
          Item 6.     Exhibits and Reports on Form 8-K                       19

SIGNATURE                                                                    20




                                       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 March 31
                      (Thousands except per share amounts)
                                   (Unaudited)
<CAPTION>
                                                         1999              1998
                                                    ---------         ---------
<S>                                                 <C>              <C>
OPERATING REVENUES:
     Electric                                       $ 400,814         $ 368,596
     Gas                                              170,843           147,822
     Other                                              3,675             8,096
                                                    ---------         ---------
          Total operating revenue                     575,332           524,514
                                                    ---------         ---------
OPERATING EXPENSES:
Energy costs:
     Purchased electricity                            185,156           169,258
     Purchased gas                                     78,256            67,928
     Electric generation fuel                           9,877            11,241
     Residential Exchange                             (11,684)          (15,507)
Utility operations and maintenance                     62,552            60,217
Other operations and maintenance                        7,689             5,683
Depreciation and amortization                          42,621            40,736
Taxes other than federal income taxes                  50,614            45,916
Federal income taxes                                   48,321            40,361
                                                    ---------         ---------
          Total operating expenses                    473,402           425,833
                                                    ---------         ---------

OPERATING INCOME                                      101,930            98,681

OTHER INCOME                                            3,747             1,764
                                                    ---------         ---------

INCOME BEFORE INTEREST CHARGES                        105,677           100,445

INTEREST CHARGES, net of AFUDC                         35,922            34,442
                                                    ---------         ---------

NET INCOME                                             69,755            66,003
Less:  Preferred stock dividends accrual                2,876             3,309

INCOME FOR COMMON STOCK                             $  66,879         $  62,694
                                                    =========         =========

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

BASIC & DILUTED EARNINGS PER COMMON SHARE:          $    0.79         $    0.74
                                                    =========         =========

    The accompanying notes are an integral part of the financial statements.
</TABLE>
                                       3
<PAGE>

<TABLE>
                            PUGET SOUND ENERGY, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                   For the Three Month Periods Ended March 31
                             (Dollars in Thousands)
                                   (Unaudited)
<CAPTION>
                                                         1999              1998
                                                    ---------        ----------
<S>                                                 <C>               <C>
Net Income                                          $  69,755        $   66,003
Other comprehensive income, net of tax:
     Unrealized holding gains (losses) on 
       available for sale securities                     (780)            4,419
                                                    ---------        ----------

Comprehensive Income                                $  68,975        $   70,422
                                                    =========        ==========

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

                                       4
<PAGE>

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

                                                             MARCH 31,      DECEMBER 31,
                                                                  1999              1998
                                                             ---------      ------------
<S>                                                        <C>               <C>        
UTILITY PLANT:
Electric                                                   $ 3,734,778       $ 3,694,593
     Gas                                                     1,303,571         1,278,275
     Common                                                    176,999           179,140
     Less:  Accumulated depreciation and amortization        1,752,994         1,721,096
                                                           -----------       -----------

          Net utility plant                                  3,462,354         3,430,912
                                                           -----------       -----------

OTHER PROPERTY AND INVESTMENTS                                 264,756           260,087
                                                           -----------       -----------

CURRENT ASSETS:

     Cash                                                       48,719            28,216
     Accounts receivable                                       183,039           189,638
     Unbilled revenue                                           93,940           126,740
     Materials and supplies, at average cost                    46,792            58,534
     Purchased gas receivable                                    5,591             5,492
     Prepayments and other                                      11,650             7,990
                                                           -----------       -----------

          Total current assets                                 389,731           416,610
                                                           -----------       -----------

LONG-TERM ASSETS:

     Regulatory asset for deferred income taxes                237,813           241,406
     PURPA buyout costs                                        223,035           221,802
     Other                                                     143,421           138,870
                                                           -----------       -----------

          Total long-term assets                               604,269           602,078
                                                           -----------       -----------

TOTAL ASSETS                                               $ 4,721,110       $ 4,709,687
                                                           ===========       ===========

  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)
                         CAPITALIZATION AND LIABILITIES
<CAPTION>
                                                             MARCH 31,      DECEMBER 31,
                                                                  1999              1998
                                                             ---------      ------------
<S>                                                          <C>            <C>   

CAPITALIZATION:
    Common shareholders' investment:
       Common stock, $10 stated value,
       150,000,000 shares authorized,
       84,560,545 and 84,560,561 shares outstanding        $   845,605       $   845,606
    Additional paid-in capital                                 450,724           450,724
    Earnings reinvested in the business                         75,555            47,548
    Accumulated other comprehensive income                       8,022             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                                           1,714,759         1,475,106
                                                           -----------       -----------
           Total capitalization                              3,350,327         3,096,023
                                                           -----------       -----------

CURRENT LIABILITIES:
    Accounts Payable                                            94,589           163,141
    Short-term debt                                            225,943           450,905
    Current maturities of long-term debt                       107,000           107,000
    Accrued expenses:
      Taxes                                                    115,177            59,764
      Salaries and wages                                        20,112            18,650
      Interest                                                  31,632            39,062
    Other                                                       24,443            23,150
                                                           -----------       -----------
          Total current liabilities                            618,896           861,672
                                                           -----------       -----------

DEFERRED INCOME TAXES                                          630,451           628,554
                                                           -----------       -----------
OTHER DEFERRED CREDITS                                         121,436           123,438
                                                           -----------
TOTAL CAPITALIZATION AND LIABILITIES                       $ 4,721,110       $ 4,709,687
                                                           ===========       ===========

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

                                       6
<PAGE>

<TABLE>
                            PUGET SOUND ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   For the Three Month Periods Ended March 31
                             (Dollars in Thousands)
                                   (Unaudited)
<CAPTION>
                                                         1999              1998
                                                    ---------         ---------
<S>                                                 <C>              <C>  
OPERATING ACTIVITIES:

Net Income                                          $  69,755         $  66,003
Adjustments to reconcile net income
  to net cash provided by operating activities:

     Depreciation and amortization                     42,621            40,736
     Deferred income taxes and tax credits - net        5,490             4,744
     Other                                              4,763            (4,108)
     Change in certain current assets
       and liabilities (Note 3)                        29,568            55,154
-------------------------------------------------------------------------------
          Net Cash Provided by Operating Activities   152,197           162,529
-------------------------------------------------------------------------------

INVESTING ACTIVITIES:
Construction expenditures - excluding equity AFUDC    (92,114)          (67,864)
Additions to energy conservation program                 (678)             (888)
Other                                                   2,620             4,585
-------------------------------------------------------------------------------
          Net Cash Used by Investing Activities       (90,172)          (64,167)
-------------------------------------------------------------------------------

FINANCING ACTIVITIES:
Change in short-term debt, net                       (224,962)          (31,106)
Dividends paid                                        (41,746)          (42,225)
Redemption of preferred stock                         (12,578)           (1,293)
Issuance of bonds                                     250,000                --
Redemption of bonds and notes                         (10,358)          (15,022)
Issue costs of bonds and stock                         (1,878)             (233)
-------------------------------------------------------------------------------
          Net Cash Used by Financing Activities       (41,522)          (89,879)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Net Increase in cash                                   20,503             8,483
Cash at Beginning of year                              28,216            10,729
===============================================================================
Cash at End of Period                               $  48,719         $  19,212
===============================================================================

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

                                       7
<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 months ended March
31, 1999 and 1998.

         Diluted  earnings per common share have been computed based on weighted
average  common shares  outstanding  of 84,829,000  and 84,661,000 for the three
months ended March 31, 1999 and 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>
THREE MONTHS ENDED MARCH 31                              1999              1998
---------------------------                              ----              ----
<S>                                                  <C>               <C>    
Changes in current asset and current liabilities:

  Accounts receivable and unbilled revenue           $ 39,399          $ 17,664
  Materials and supplies                               11,742            10,370
  Prepayments and Other                                (3,660)              258
  Purchased gas receivable                                (99)           11,470
  Accounts payable                                    (68,552)          (24,928)
  Accrued expenses and Other                           50,738            40,320
==================================================== ========          ========
Net change in current assets and current liabilities $ 29,568          $ 55,154
==================================================== ========          ========
Cash payments:

  Interest (net of capitalized interest)             $ 44,641          $ 31,158
  Income taxes                                             --          $  5,003
---------------------------------------------------- --------          --------
</TABLE>
                                       8
<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 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 March 31, 1999      Utility          Other            Total
--------------------------------------------------------------------------------
<S>                                   <C>              <C>            <C>   
  Revenues                            $  571,657       $  3,675       $  575,332
  Net Income                              72,559         (2,804)          69,755
  Total Assets                         4,605,932        115,178        4,721,110
--------------------------------------------------------------------------------

                                       Regulated
  Three Months Ended March 31, 1998      Utility          Other            Total
--------------------------------------------------------------------------------
  Revenues                            $  516,418       $  8,096       $  524,514
  Net Income                              64,434          1,569           66,003
  Total Assets                         4,382,097         97,752        4,479,849
--------------------------------------------------------------------------------
</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%.

         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. 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 April 1998,  the Accounting  Standards  Executive  Committee  issued
Statement  of Position  98-5,  "Reporting  on the Costs of Start-Up  Activities"
("SOP 98-5"). SOP 98-5 provides guidance on the financial  reporting of start-up
costs and  organization  costs.  It requires  costs of start-up  activities  and
organization  costs to be expensed as incurred and is effective for fiscal years
beginning after December 15, 1998.  Adoption of SOP 98-5 did not have a material
impact on the Company's financial position or results of operations.

                                       9
<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 March 31, 1999, was $69.8 million
on  operating  revenues  of $575.3  million,  compared  with net income of $66.0
million on  operating  revenues  of $524.5  million for the same period in 1998.
Income for common stock was $66.9 million for the first quarter of 1999 compared
to $62.7 million for the first quarter of 1998.  Basic and diluted  earnings per
share were $0.79 for the first  quarter of 1999  compared to $0.74 for the first
quarter of 1998.

         The increase in net income and earnings per share in the first  quarter
of 1999  compared to the first  quarter of 1998 is  primarily  due to  increased
energy sales  during a period of near normal  winter  temperatures,  compared to
warmer-than-normal  weather  in the first  quarter  last year.  Also,  favorable
hydroelectric conditions in the region during the first quarter of 1999 resulted
in improved electric margins.  These benefits were partially offset by the added
utility operations and maintenance costs of restoring electric service following
a number of winter storms in the first quarter of 1999.

         Total  kilowatt-hour  sales were 8.7 billion,  including 2.7 billion in
sales to other utilities and marketers,  for the first quarter of 1999, compared
to 7.6 billion, including 1.9 billion in sales to other utilities and marketers,
for the first quarter of 1998.

         Total gas volumes were 392.3  million  therms,  including  69.1 million
therms in  transportation  volumes for the three  months  ended March 31,  1999,
compared  to  351.9   million   therms,   including   75.7  million   therms  of
transportation, for the same period in 1998.

         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.  Electric  sales to
other   utilities  and  marketers  also  vary  by  quarter  and  year  depending
principally  upon water  conditions for the generation of  hydroelectric  power,
retail customer usage and the energy requirements of other utilities.

         Temperatures  based on  heating-degree-days  measured at Seattle-Tacoma
airport  during the three  months ended March 31, 1999,  were  essentially  near
normal and 10% colder than the same period in 1998.

                                       10
<PAGE>
<TABLE>

                              Results of Operations
                     Comparative Three Month Periods Ending
                        March 31, 1999 vs. March 31, 1998
                               Increase (Decrease)
<CAPTION>
                                                             THREE MONTH PERIOD
                                                                  (In Millions)
<S>                                                                   <C>
Operating revenue changes

  General rate increase - electric                                         $3.9
  BPA Residential Purchase & Sale Agreement                                (2.2)
  Sales to other utilities and marketers                                   15.1
  Electric load and other changes                                          15.4
  Gas revenue change                                                       23.0
  Other revenue changes                                                    (4.4)
                                                                      ---------
          Total operating revenue change                                   50.8
                                                                      ---------

Operating expense changes 
  Energy costs:
          Purchased electricity                                            15.9
          Purchased gas                                                    10.3
          Electric generation fuel                                         (1.4)
          Residential exchange credit                                       3.8
  Utility operations and maintenance                                        2.3
  Other operations and maintenance                                          2.0
  Depreciation and amortization                                             1.9
  Taxes other than federal income taxes                                     4.7
  Federal income taxes                                                      8.0
                                                                      ---------
          Total operating expense change                                   47.5
                                                                      ---------

Other income                                                                2.0

Interest charges                                                            1.5

                                                                      =========
          Net income change                                                $3.8
                                                                      =========
</TABLE>
   The  following  is  additional  information  pertaining  to the changes
outlined in the above table.

                                       11
<PAGE>

         OPERATING REVENUES - ELECTRIC

         Electric  revenues  for the  quarter  ended  March 31, 1999 were $400.8
million,  up $32.2 million or 8.7% over the same period in 1998. Revenues in the
first quarter of 1999  increased  $3.9 million  compared to the first quarter of
1998 due to a 1%  general  electric  rate  increase  effective  January 1, 1999.
Nearly  normal  temperatures  in the quarter  ended  March 31, 1999  compared to
warmer-than-normal  weather in the first  quarter last year and a 2% increase in
the number of electric customers also contributed to the increase in revenues.

         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. A related  reduction is included in purchased power expenses.  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. Under the rate plan approved by
the  Washington  Commission  in its merger  order,  the Company will continue to
reflect through the rate stability period in customers' bills, the current level
of Residential Exchange benefits. Over the remainder of the Residential Exchange
Termination  Agreement  from April 1999 through June 2001, it is projected  that
the Company will credit customers approximately $148.1 million more than it will
receive from BPA during the following periods:

                                             Dollars in
                    Period                     Millions
                    ------                   ----------
              April- December 1999               $ 42.9
            January - December 2000                68.3
              January - June 2001                  36.9
                                             ----------
                                                 $148.1

         Electric sales to other utilities and marketers in the first quarter of
1999  increased  $15.1  million  or 47 percent  over the same  period 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.

OPERATING REVENUES - GAS

         Gas operating  revenues for the quarter ended March 31, 1999  increased
by $23.0 million from the prior year quarter.  Total gas volumes increased 11.5%
from 351.9 million therms to 392.3 million therms. Gas margin increased by $12.7
million,  or 16.4% in the first quarter of 1999 as compared to the first quarter
of 1998. The primary  reasons for the increase in gas sales  volumes,  gas sales
revenues and margin in the quarter  ended March 31, 1999 were the 4% increase in
gas  customers and near normal first  quarter 1999 average  temperatures  in the
Pacific  Northwest  as compared to the warmer than  normal  first  quarter  1998
period.

         Other  revenues  for the quarter  ended March 31, 1999  decreased  $4.4
million  compared  to the same period in 1998 due to  decreased  revenues at the
Company's subsidiaries.

                                       12
<PAGE>

OPERATING EXPENSES

         Purchased  electricity  expenses  increased $15.9 million for the first
quarter  of 1999  compared  to the same  period in 1998.  The  increase  was due
primarily to increased sales of electricity  partially  offset by more favorable
hydroelectric conditions.

         Purchased gas expenses increased $10.3 million for the first quarter of
1999 compared to the first quarter of 1998 primarily due to increased volumes of
purchases as a result of higher heating load.

         Fuel  expense  decreased  $1.4  million  in the first  quarter  of 1999
compared  to the same  period in 1998  primarily  as a result of a refund from a
coal supplier received in the first quarter of 1999.

         Residential  exchange credits associated with the Residential  Purchase
and Sale  Agreement  with BPA  decreased  $3.8 million in the three months ended
March 31, 1999 when compared to the same period in 1998.  The primary reason for
the decrease was the  Residential  Exchange  Termination  Agreement  between the
Company and BPA in January 1997 discussed in "Operating Revenues - Electric".

         Utility  operations and maintenance  expenses increased $2.3 million in
the first quarter of 1999  compared to the same period in 1998  primarily due to
costs associated with restoring  electric  service  following a number of fierce
winter storms. Storm restoration costs were approximately $6.0 million higher in
the first quarter of 1999 compared to the same period in 1998. This increase was
partially offset by a $2.6 million decrease in vegetation  management expense in
the first  quarter of 1999  compared  to the same  period in 1998.  The  Company
performed  the majority of planned  annual  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 the Company's  rights of way after
obtaining customer permission.

         Other operations and maintenance expenses increased $2.0 million in the
first  quarter of 1999  compared to the first  quarter of 1998  primarily due to
increased sales expenses at one of the Company's subsidiaries.

         Depreciation  and amortization  expense  increased $1.9 million for the
first  quarter of 1999 from the same period in 1998 due primarily to the effects
of new plant placed into service during the past year.

         Taxes other than  federal  income taxes  increased  $4.7 million in the
first  quarter of 1999  compared to the first  quarter of 1998  primarily due to
increases  in  municipal  and state  excise  taxes which are  revenue  based and
increased property taxes.

         Federal  income taxes  increased  $8.0 million for the first quarter of
1999 from the same period in 1998,  primarily  due to higher  pre-tax  operating
income for the quarter.

OTHER INCOME

         Other income,  net of federal income tax, increased $2.0 million in the
first  quarter of 1999  compared  to the same  period in 1998 due  primarily  to
decreases in non-utility expenses.

                                       13
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INTEREST CHARGES

         Interest  charges,  which  consist  of  interest  and  amortization  on
long-term debt and other interest,  increased $1.5 million for the first quarter
of 1999  compared  to the same  period  in 1998  primarily  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.

                  CONSTRUCTION, CAPITAL RESOURCES AND LIQUIDITY

         Construction    expenditures   which   include   energy    conservation
expenditures and exclude AFUDC for the first quarter of 1999 were $90.2 million,
including $0.7 million of energy  conservation  expenditures,  compared to $67.2
million,  including $0.9 million of energy  conservation  expenditures,  for the
first quarter of 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)  were 120% and 177% for the first  quarters of 1999 and 1998,
respectively.  Construction expenditure estimates are subject to periodic review
and adjustment.

         On March 31, 1999,  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 $36 million,  effectively  reducing the available
borrowing capacity under these lines of credit to $339 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 $190 million outstanding
under these arrangements at March 31, 1999.

                              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  expects  to be Year 2000  ready  which  means  that all
mission-critical systems, devices,  applications and business relationships have
been evaluated and are suitable for continued use into and beyond the Year 2000,
or contingency plans are in place.

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,   planning/prioritizing,
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 and
assessment  phases.  Remediation,  testing and  implementation  for all business
units,  is scheduled to be completed  during the second quarter of 1999 with the
exception of the Company's Customer Information System ("CIS") discussed below.

                                       14
<PAGE>

       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.  The remainder of applications and operating  environments  excluding
the CIS are in the  remediation/testing  phase.  Full  implementation  of  those
applications and components of the Company's  internal systems are scheduled for
completion by mid-year 1999.

       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  phase
and is  currently  conducting  assessment  and  remediation  activities  for the
existing system.  The Company  completed the assessment phase of this project in
April of 1999.  Remediation and testing  activities 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  and  assessment  phases of the project are  complete.  Although  some
remediation  planning is still in process,  significant  remediation efforts are
underway and proceeding  according to schedule.  Testing and  implementation are
scheduled to be completed by the end of the second quarter of 1999.  Contingency
planning  specific to the Year 2000 issue began in  November  1998,  and initial
reports  were  submitted to the  Washington  Commission  and the North  American
Electric  Reliability Council ("NERC").  These plans will be refined and updated
as remediation and test results are analyzed, and are scheduled for finalization
in the third quarter of 1999.

       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.
Approximately  99% of vendors and  suppliers  have been  contacted to date.  All
third party  assessment is scheduled to be completed in May 1999. If the Company
identifies concerns, it follows up with third parties by telephone. In addition,
the Company schedules meetings with critical vendors described below in order to
assess and monitor compliance measures.  Virtually all the vendors and suppliers
who have  responded to the  Company's  written  requests and follow up telephone
calls  have  indicated  either  that they are Year 2000  compliant  or that they
expect  to be  compliant  later in 1999.  Approximately  5% of the  vendors  and
suppliers  have not yet  responded to inquiries  from the Company.  Company line
managers  are  seeking  to  obtain  responses  from  them as well as to  develop
alternate  sources or other  contingency  plans for  vendors and  suppliers  who
either do not respond or who indicate that they do not expect to be compliant.

       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.

                                       15
<PAGE>

       In  addition,  the  Company  is  working  with  various  industry  groups
including the 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 has expended  approximately  $5.7 million through
March 31, 1999, on Year 2000  remediation  efforts,  exclusive of internal labor
costs. Most of the expenditures  through 1998 were for costs associated with the
inventory  and  assessment  phases  of the Year  2000  project.  Although  it is
difficult to determine the total remaining  costs of implementing  the Year 2000
plan, the Company's current estimate is approximately $11 million, most of which
will be expended  for the  remediation  phase.  Approximately  $2 million of the
remaining expenditures related to replacements of capital assets are expected to
be capitalized.

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.

       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.

                                       16
<PAGE>

       As discussed  above,  elements of the Company's  current CIS are not Year
2000 compliant.  If the current CIS remediation activities are not successful by
the year 2000,  certain normal business  activities such as customer billing and
collections could be adversely affected by interruptions.

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  will  develop  contingency  plans  and  update  existing
emergency  preparedness  plans to identify  and address risk  scenarios  for the
Company. Contingency planning is scheduled to continue through the third quarter
of 1999.

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

       In May 1999, the Company sold its investment in the common stock of Cabot
Oil and Gas  Company.  The Company  also  determined  that it would  refocus the
business of one of its wholly-owned subsidiaries and exit two product lines. The
gain  from the sale of its  investment  will  exceed  the costs of  exiting  the
product  lines by  approximately  $9 million  (before  consideration  of amounts
received from sales of the product lines).

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

       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. If the Washington Commission finds that the
Company  used an  incorrect  index,  the Company  would owe  approximately  $2.8
million in refunds. However,  management believes the proper index has been used
and expects the Company will prevail on this issue.

                                       17
<PAGE>

                                  MARKET RISKS

       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.

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 March 31, 1999.

                                       18
<PAGE>

PART II       OTHER INFORMATION

Item 1        LEGAL PROCEEDINGS

         Contingencies  arising  out  of the  normal  course  of  the  Company's
business,  exist at March 31, 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 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 (1994 through 1998 and 12 months ended 
                     March 31, 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 March 31, 1999)

              27     Financial Data Schedule

      (b)     Reports on Form 8-K

              Form 8-K dated March 4, 1999,  Item 5 - Other  Events and Item 7 -
              Exhibits,  related to a Distribution Agreement entered into by the
              Company for the  issuance  and sale of Senior  Medium-Term  Notes,
              Series B.

                                       19
<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: May 14, 1999                            Chief accounting officer and 
                                              officer duly authorized to sign 
                                              this report on behalf of the 
                                              registrant


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