----

| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934 |
|-----|----------------------------------------------------------------------------------------|

|   | For the quarterly period ended June 30, 2009 OR |
|--------|------------------------------------------------------|

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

|   | For the Transition period from ________ to _________ |
|--------|------------------------------------------------------|

|   CommissionFile Number | Exact name of registrant as specifiedin its charter, state of incorporation,address of principal executive offices,telephone number | I.R.S.EmployerIdentificationNumber |
|-----------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|------------------------------------|

| 1-4393 | PUGET SOUND ENERGY, INC.A Washington Corporation10885 NE 4th Street, Suite 1200Bellevue, Washington 98004-5591(425) 454-6363 | 91-0374630 |
|--------|------------------------------------------------------------------------------------------------------------------------------|------------|

| Yes | /X/ | No | /  / |
|-----|-----|----|----------------|

| Yes | /   / | No | /  / |
|-----|----------------------|----|----------------|

| Large accelerated filer | /  / | Accelerated filer | /  / | Non-accelerated filer | /X/ | Smaller reporting company | /  / |
|-------------------------|----------------|-------------------|----------------|-----------------------|-----|---------------------------|----------------|

| Yes | /  / | No | /X/ |
|-----|----------------|----|-----|

|                       |                                                                                                     |
|----------------------------|----------------------------------------------------------------------------------------------------------|
|                       |
| Definitions                |
|                       |                                                                                                     |
| Forward Looking Statements |
|                       |                                                                                                     |
| Part I.                    | Financial Information                                                                                    |
| Item 1.                    | Financial Statements                                                                                     |
|                       |                                                                                                     |
|                       | Puget Sound Energy, Inc.                                                                                 |
|                       | Consolidated Statements of Income – Three and Six Months Ended June 30, 2009 and 2008              |
|                       | Consolidated Statements of Comprehensive Income – Three and Six Months EndedJune 30, 2009 and 2008 |
|                       | Consolidated Balance Sheets – June 30, 2009 and December 31, 2008                                  |
|                       | Consolidated Statement of Common Shareholder’s Equity – June 30, 2009and December 31, 2008   |
|                       | Consolidated Statements of Cash Flows –Six Months Ended June 30, 2009 and 2008                     |
|                       |                                                                                                     |
|                       | Notes                                                                                                    |
|                       | Notes to Consolidated Financial Statements                                                               |
|                       |                                                                                                     |
| Item 2.                    | Management’s Discussion and Analysis of Financial Conditionand Results of Operations               |
|                       |                                                                                                     |
| Item 3.                    | Quantitative and Qualitative Disclosure About Market Risk                                                |
|                       |                                                                                                     |
| Item 4.                    | Controls and Procedures                                                                                  |
|                       |                                                                                                     |
| Part II.                   | Other Information                                                                                        |
|                       |                                                                                                     |
| Item 1.                    | Legal Proceedings                                                                                        |
|                       |                                                                                                     |
| Item 1A.                   | Risk Factors                                                                                             |
|                       |                                                                                                     |
| Item 6.                    | Exhibits                                                                                                 |
|                       |                                                                                                     |
| Signatures                 |
|                       |
| Exhibit Index              |

DEFINITIONS

| AFUDC                 | Allowance for Funds Used During Construction         |
|-----------------------|------------------------------------------------------|
| ASC                   | Average System Cost                                  |
| BPA                   | Bonneville Power Administration                      |
| FASB                  | Financial Accounting Standards Board                 |
| FERC                  | Federal Energy Regulatory Commission                 |
| FIN                   | Financial Accounting Standards Board Interpretation  |
| FSP                   | FASB Staff Position                                  |
| GAAP                  | Generally Accepted Accounting Principles             |
| ISDA                  | International Swaps and Derivatives Association      |
| kW                    | Kilowatt                                             |
| kWh                   | Kilowatt Hour                                        |
| LIBOR                 | London Interbank Offered Rate                        |
| MMBtus                | One Million British Thermal Units                    |
| MW                    | Megawatt (one MW equals one thousand kW)             |
| MWh                   | Megawatt Hour (one MWh equals one thousand kWh)      |
| NAESB                 | North American Energy Standards Board                |
| NERC                  | North American Electric Reliability Corporation      |
| Ninth Circuit         | United States Court of Appeals for the Ninth Circuit |
| NPNS                  | Normal Purchase Normal Sale                          |
| OCI                   | Other Comprehensive Income                           |
| PCA                   | Power Cost Adjustment                                |
| PCORC                 | Power Cost Only Rate Case                            |
| PF                    | BPA Priority Firm Exchange Rate                      |
| PGA                   | Purchased Gas Adjustment                             |
| PSE                   | Puget Sound Energy, Inc.                             |
| Puget Energy          | Puget Energy, Inc.                                   |
| Puget Holdings        | Puget Holdings LLC                                   |
| PURPA                 | Public Utility Regulatory Policies Act               |
| REP                   | Residential Exchange Program                         |
| RPSA                  | Residential Purchase and Sale Agreement              |
| SFAS                  | Statement of Financial Accounting Standards          |
| VIE                   | Variable Interest Entity                             |
| Washington Commission | Washington Utilities and Transportation Commission   |
| WSPP                  | Western Systems Power Pool                           |

FORWARD-LOOKING STATEMENTS

| ·  | Governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC) and the Washington Utilities and Transportation Commission (Washington Commission), with respect to allowed rates of return, cost recovery, financing, industry and rate structures, transmission and generationbusiness structures within PSE, acquisition and disposal of assets and facilities, operation, maintenance and construction of electric generating facilities, maintenance, construction and operation of natural gas and electric distribution and transmission facilities (natural gas and electric), licensing of hydroelectric operations and natural gas storage facilities, recovery of other capital investments, recovery of power and natural gas costs, recovery of regulatory assets and present or prospective wholesaleand retail competition; |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·  | Failure to comply with FERC or Washington Commission standards and/or rules, which could result in penalties based on the discretion of either commission;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ·  | Failure to comply with electric reliability standards developed by the North American Electric Reliability Corporation (NERC) for users, owners and operators of the power system, which could result in penalties of up to $1.0 million per day per violation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ·  | Changes in, adoption of, and compliance with laws and regulations, including decisions and policies concerning the environment, climate change, emissions, natural resources and fish and wildlife (including the Endangered Species Act);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ·  | The ability to recover costs arising from changes in enacted federal, state or local tax laws through revenue in a timely manner;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ·  | Changes in tax law, related regulations, or differing interpretation or enforcement of applicable law by the Internal Revenue Service or other taxing jurisdiction;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·  | Accidents or natural disasters, such as hurricanes, windstorms, earthquakes, floods, fires and landslides, which can interrupt service and/or cause temporary supply disruptions and/or price spikes in the cost of fuel and raw materials and impose extraordinary costs;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ·  | Commodity price risks associated with procuring natural gas and power in wholesale markets;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| ·  | Wholesale market disruption, which may result in a deterioration of market liquidity, increase the risk of counterparty default, affect the regulatory and legislative process in unpredictable ways, negatively affect wholesale energy prices and/or impede PSE’s ability to manage its energy portfolio risks and procureenergy supply, affect the availability and access to capital and credit markets and/or impact delivery of energy to PSE from its suppliers;                                                                                                                                                                                                                                                                                                                                                                                                               |
| ·  | Financial difficulties of other energy companies and related events, which may affect the regulatory and legislative process in unpredictable ways and also adversely affect the availability of and access to capital and credit markets and/or impact delivery of energy to PSE from its suppliers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| ·  | The effect of wholesale market structures (including, but not limited to, regional market designs or transmission organizations) or other related federal initiatives;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ·  | PSE electric or natural gas distribution system failure, which may impact PSE’s ability to deliver energy supply to its customers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ·  | Changes in weather conditions in the Pacific Northwest, which could have effects on customer usage and PSE’s revenues;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ·  | Weather, which can have a potentially serious impact on PSE’s ability to procure adequate supplies of natural gas, fuel or purchased power to serve its customers and the cost of procuring such supplies;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ·  | Variable hydro conditions, which can impact streamflow and PSE’s ability to generate electricity from hydroelectric facilities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| ·  | Electric plant generation and transmission system outages, which can have an adverse impact on PSE’s expenses with respect to repair costs, added costs to replace energy or higher costs associated with dispatching a more expensive resource;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ·  | The ability of natural gas or electric plant to operate as intended;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| ·  | The ability to renew contracts for electric and natural gas supply and the price of renewal;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ·  | Blackouts or large curtailments of transmission systems, whether PSE’s or others’, which can affect PSE’s ability to deliver power or natural gas to its customers and generating facilities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ·  | The ability to restart electric generation facilities following a regional transmission disruption;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ·  | The failure of the interstate natural gas pipeline to deliver gas to PSE’s system, which may impact PSE’s ability to adequately deliver natural gas supply or electric power to its customers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ·  | Industrial, commercial and residential growth and demographic patterns in the service territories of PSE;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| ·  | General economic conditions in the Pacific Northwest, which might impact customer consumption or affect PSE’s accounts receivable;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ·  | The loss of significant customers, changes in the business of significant customers or the condemnation of PSE’s facilities, which may result in changes in demand for PSE’s services;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ·  | The failure of information systems or the failure to secure information system data which may impact the operations and cost of PSE’s customer service, generation, distribution and transmission;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ·  | The impact of acts of God, terrorism, flu pandemic or similar significant events;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ·  | Capital market conditions, including changes in the availability of capital and interest rate fluctuations;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| ·  | Employee workforce factors including strikes, work stoppages, availability of qualified employees or the loss of a key executive;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ·  | The ability to obtain insurance coverage and the cost of such insurance;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ·  | The ability to maintain effective internal controls over financial reporting and operational processes;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ·  | Changes in PSE’s credit ratings, which may have an adverse impact on the availability and cost of capital for PSE;  and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ·  | Deteriorating values of the equity, fixed income and other markets which could significantly impact the value of investments of PSE’s retirement plan and postretirement medical benefit plan trusts and the funding of obligations thereunder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

PART I              FINANCIAL INFORMATION

Item 1.              Financial Statements

PUGET SOUND ENERGY, INC.

|                                          |   | Three Months EndedJune 30, |    |   | Six Months EndedJune 30, |   |
|-----------------------------------------------|--------|----------------------------|---------|--------|--------------------------|--------|
|                                          |   | 2009                       |    |   | 2008                     |   |   | 2009 |   |   | 2008 |   |
| Operating revenues:                           |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Electric                                      |   | $                          | 456,754 |   |                     | $      | 478,038 |   |   | $ | 1,056,984 |   |   | $ | 1,084,172 |   |
| Gas                                           |   |                       | 226,922 |   |                     |   | 233,840 |   |   |   | 733,357 |   |   |   | 677,077 |   |
| Other                                         |   |                       | 2,604   |   |                     |   | 526 |   |   |   | 3,493 |   |   |   | 2,088 |   |
| Total operating revenues                      |   |                       | 686,280 |   |                     |   | 712,404 |   |   |   | 1,793,834 |   |   |   | 1,763,337 |   |
| Operating expenses:                           |   |                       |    |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Energy costs:                                 |   |                       |    |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Purchased electricity                         |   |                       | 188,918 |   |                     |   | 198,886 |   |   |   | 449,167 |   |   |   | 471,718 |   |
| Electric generation fuel                      |   |                       | 17,832  |   |                     |   | 32,687 |   |   |   | 65,960 |   |   |   | 79,701 |   |
| Residential exchange                          |   |                       | (20,929 | )      |                     |   | (20,298 | ) |   |   | (53,333 | ) |   |   | (20,305 | ) |
| Purchased gas                                 |   |                       | 132,140 |   |                     |   | 137,718 |   |   |   | 452,203 |   |   |   | 413,913 |   |
| Net unrealized gain on derivative instruments |   |                       | (9,920  | )      |                     |   | (2,364 | ) |   |   | (7,590 | ) |   |   | (2,277 | ) |
| Utility operations and maintenance            |   |                       | 122,107 |   |                     |   | 116,449 |   |   |   | 237,000 |   |   |   | 228,608 |   |
| Non-utility expense and other                 |   |                       | 2,088   |   |                     |   | 1,657 |   |   |   | 3,395 |   |   |   | 1,713 |   |
| Merger and related costs                      |   |                       | (3,655  | )      |                     |   | -- |   |   |   | 23,908 |   |   |   | -- |   |
| Depreciation and amortization                 |   |                       | 82,385  |   |                     |   | 76,322 |   |   |   | 163,746 |   |   |   | 151,688 |   |
| Conservation amortization                     |   |                       | 13,730  |   |                     |   | 15,525 |   |   |   | 34,559 |   |   |   | 28,891 |   |
| Taxes other than income taxes                 |   |                       | 66,697  |   |                     |   | 63,674 |   |   |   | 168,039 |   |   |   | 157,947 |   |
| Total operating expenses                      |   |                       | 591,393 |   |                     |   | 620,256 |   |   |   | 1,537,054 |   |   |   | 1,511,597 |   |
| Operating income                              |   |                       | 94,887  |   |                     |   | 92,148 |   |   |   | 256,780 |   |   |   | 251,740 |   |
| Other income (deductions):                    |   |                       |    |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Other income                                  |   |                       | 12,387  |   |                     |   | 8,068 |   |   |   | 22,319 |   |   |   | 14,878 |   |
| Other expense                                 |   |                       | (1,691  | )      |                     |   | (841 | ) |   |   | (4,134 | ) |   |   | (1,818 | ) |
| Interest charges:                             |   |                       |    |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| AFUDC                                         |   |                       | 2,218   |   |                     |   | 1,782 |   |   |   | 3,900 |   |   |   | 4,211 |   |
| Interest expense                              |   |                       | (50,428 | )      |                     |   | (48,543 | ) |   |   | (103,004 | ) |   |   | (99,591 | ) |
| Interest expense on Puget Energy note         |   |                       | (68     | )      |                     |   | (209 | ) |   |   | (142 | ) |   |   | (446 | ) |
| Income before income taxes                    |   |                       | 57,305  |   |                     |   | 52,405 |   |   |   | 175,719 |   |   |   | 168,974 |   |
| Income tax expense                            |   |                       | 13,528  |   |                     |   | 13,295 |   |   |   | 46,965 |   |   |   | 48,960 |   |
| Net income                                    |   | $                          | 43,777  |   |                     | $      | 39,110 |   |   | $ | 128,754 |   |   | $ | 120,014 |   |

PUGET SOUND ENERGY, INC.

|                                                                                                                                                                        |   | Three Months EndedJune 30, |   |   | Six Months EndedJune 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
|                                                                                                                                                                        |   | 2009                       |   |   | 2008                     |   |   | 2009 |   |   | 2008 |   |
| Net income                                                                                                                                                                  |   | $                          | 43,777 |   |                     | $      | 39,110 |   |   | $ | 128,754 |   |   | $ | 120,014 |   |
| Other comprehensive income:                                                                                                                                                 |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized gain (loss) from pension and postretirement plans, net of tax of $(741), $277, $(232) and $322, respectively                                                     |   |                       | (1,376 | )      |                     |   | 422 |   |   |   | (431 | ) |   |   | 598 |   |
| Net unrealized gain (loss) on energy derivative instruments during the period, net of tax of $3,202, $60,710, $(33,709) and $86,167, respectively                           |   |                       | 5,946  |   |                     |   | 112,747 |   |   |   | (62,603 | ) |   |   | 160,024 |   |
| Reclassification of net unrealized gain (loss) on energy derivative instruments settled during the period, net of tax of $4,418, $(1,802), $11,938 and $(845), respectively |   |                       | 8,204  |   |                     |   | (3,347 | ) |   |   | 22,171 |   |   |   | (1,569 | ) |
| Amortization of financing cash flow hedge contracts to earnings, net of tax of $43, $43, $86 and $86, respectively                                                          |   |                       | 79     |   |                     |   | 79 |   |   |   | 159 |   |   |   | 159 |   |
| Other comprehensive income (loss)                                                                                                                                           |   |                       | 12,853 |   |                     |   | 109,901 |   |   |   | (40,704 | ) |   |   | 159,212 |   |
| Comprehensive income                                                                                                                                                        |   | $                          | 56,630 |   |                     | $      | 149,011 |   |   | $ | 88,050 |   |   | $ | 279,226 |   |

PUGET SOUND ENERGY, INC.

|                                                                                                              |   | June 30,2009(Unaudited) |       |   | December 31,2008 |   |
|-------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|--------|------------------|--------|
| Utility plant: (at original cost, including construction work in progress of $335,620 and $255,214, respectively) |   |                    |       |   |             |   |
| Electric plant                                                                                                    |   | $                       | 6,825,902  |   |             | $      | 6,596,359 |   |
| Gas plant                                                                                                         |   |                    | 2,579,551  |   |             |   | 2,500,236 |   |
| Common plant                                                                                                      |   |                    | 587,213    |   |             |   | 550,368 |   |
| Less:  Accumulated depreciation and amortization                                                        |   |                    | (3,511,142 | )      |             |   | (3,358,816 | ) |
| Net utility plant                                                                                                 |   |                    | 6,481,524  |   |             |   | 6,288,147 |   |
| Other property and investments:                                                                                   |   |                    |       |   |             |   |   |   |
| Investment in Bonneville Exchange Power contract                                                                  |   |                    | 28,213     |   |             |   | 29,976 |   |
| Other property and investments                                                                                    |   |                    | 115,317    |   |             |   | 118,039 |   |
| Total other property and investments                                                                              |   |                    | 143,530    |   |             |   | 148,015 |   |
| Current assets:                                                                                                   |   |                    |       |   |             |   |   |   |
| Cash                                                                                                              |   |                    | 43,457     |   |             |   | 38,470 |   |
| Restricted cash                                                                                                   |   |                    | 15,760     |   |             |   | 18,889 |   |
| Accounts receivable, net of allowance for doubtful accounts                                                       |   |                    | 229,110    |   |             |   | 207,776 |   |
| Secured pledged accounts receivable                                                                               |   |                    | --         |   |             |   | 158,000 |   |
| Unbilled revenues                                                                                                 |   |                    | 84,084     |   |             |   | 248,649 |   |
| Materials and supplies, at average cost                                                                           |   |                    | 70,579     |   |             |   | 62,024 |   |
| Fuel and gas inventory, at average cost                                                                           |   |                    | 98,215     |   |             |   | 120,205 |   |
| Unrealized gain on derivative instruments                                                                         |   |                    | 13,765     |   |             |   | 15,618 |   |
| Prepaid income taxes                                                                                              |   |                    | 38,988     |   |             |   | 17,317 |   |
| Prepaid expenses and other                                                                                        |   |                    | 10,877     |   |             |   | 14,420 |   |
| Deferred income taxes                                                                                             |   |                    | 41,341     |   |             |   | 9,439 |   |
| Total current assets                                                                                              |   |                    | 646,176    |   |             |   | 910,807 |   |
| Other long-term and regulatory assets:                                                                            |   |                    |       |   |             |   |   |   |
| Regulatory asset for deferred income taxes                                                                        |   |                    | 90,562     |   |             |   | 95,417 |   |
| Regulatory asset for PURPA buyout costs                                                                           |   |                    | 94,500     |   |             |   | 110,838 |   |
| Power cost adjustment mechanism                                                                                   |   |                    | 2,733      |   |             |   | 3,126 |   |
| Other regulatory assets                                                                                           |   |                    | 715,758    |   |             |   | 766,732 |   |
| Unrealized gain on derivative instruments                                                                         |   |                    | 10,479     |   |             |   | 6,712 |   |
| Other                                                                                                             |   |                    | 103,753    |   |             |   | 40,365 |   |
| Total other long-term and regulatory assets                                                                       |   |                    | 1,017,785  |   |             |   | 1,023,190 |   |
| Total assets                                                                                                      |   | $                       | 8,289,015  |   |             | $      | 8,370,159 |   |

|                                                                                           |   | June 30,2009(Unaudited) |      |   | December 31,2008 |   |
|------------------------------------------------------------------------------------------------|--------|-------------------------|-----------|--------|------------------|--------|
| Capitalization:                                                                                |   |                    |      |   |             |   |
| Common shareholder’s investment:                                                         |   |                    |      |   |             |   |
| Common stock ($10 stated value) - 150,000,000 shares authorized, 85,903,791 shares outstanding |   | $                       | --        |   |             | $      | 859,038 |   |
| Common stock ($0.01 par value) - 150,000,000 shares authorized, 85,903,791 shares outstanding  |   |                    | 859       |   |             |   |  -- |   |
| Additional paid-in capital                                                                     |   |                    | 2,959,205 |   |             |   | 1,296,005 |   |
| Earnings reinvested in the business                                                            |   |                    | 339,279   |   |             |   | 356,947 |   |
| Accumulated other comprehensive loss, net of tax                                               |   |                    | (303,508  | )      |             |   | (262,804 | ) |
| Total shareholder’s equity                                                               |   |                    | 2,995,835 |   |             |   | 2,249,186 |   |
| Redeemable securities and long-term debt:                                                      |   |                    |      |   |             |   |   |   |
| Preferred stock subject to mandatory redemption                                                |   |                    | --        |   |             |   | 1,889 |   |
| Junior subordinated notes                                                                      |   |                    | 250,000   |   |             |   | 250,000 |   |
| Long-term debt                                                                                 |   |                    | 2,295,860 |   |             |   | 2,270,860 |   |
| Total redeemable securities and long-term debt                                                 |   |                    | 2,545,860 |   |             |   | 2,522,749 |   |
| Total capitalization                                                                           |   |                    | 5,541,695 |   |             |   | 4,771,935 |   |
| Current liabilities:                                                                           |   |                    |      |   |             |   |   |   |
| Accounts payable                                                                               |   |                    | 167,867   |   |             |   | 341,255 |   |
| Short-term debt                                                                                |   |                    | 125,000   |   |             |   | 964,700 |   |
| Short-term note owed to parent                                                                 |   |                    | 22,852    |   |             |   | 26,053 |   |
| Current maturities of long-term debt                                                           |   |                    | 233,000   |   |             |   | 158,000 |   |
| Accrued expenses:                                                                              |   |                    |      |   |             |   |   |   |
| Purchased gas liability                                                                        |   |                    | 62,897    |   |             |   | 8,892 |   |
| Taxes                                                                                          |   |                    | 65,449    |   |             |   | 85,068 |   |
| Salaries and wages                                                                             |   |                    | 22,045    |   |             |   | 35,280 |   |
| Interest                                                                                       |   |                    | 40,032    |   |             |   | 36,112 |   |
| Unrealized loss on derivative instruments                                                      |   |                    | 275,419   |   |             |   | 236,866 |   |
| Other                                                                                          |   |                    | 111,648   |   |             |   | 117,223 |   |
| Total current liabilities                                                                      |   |                    | 1,126,209 |   |             |   | 2,009,449 |   |
| Long-term liabilities and regulatory liabilities:                                              |   |                    |      |   |             |   |   |   |
| Deferred income taxes                                                                          |   |                    | 824,249   |   |             |   | 750,440 |   |
| Unrealized loss on derivative instruments                                                      |   |                    | 123,217   |   |             |   | 158,423 |   |
| Regulatory liabilities                                                                         |   |                    | 223,188   |   |             |   | 219,221 |   |
| Other deferred credits                                                                         |   |                    | 450,457   |   |             |   | 460,691 |   |
| Total long-term liabilities and regulatory liabilities                                         |   |                    | 1,621,111 |   |             |   | 1,588,775 |   |
| Total capitalization and liabilities                                                           |   | $                       | 8,289,015 |   |             | $      | 8,370,159 |   |

PUGET SOUND ENERGY, INC.

|                                                       |   | Common Stock |       |   | Additional |   |     |           |   |   | AccumulatedOther |   |   |                    |     |
|------------------------------------------------------------|--------|--------------|------------|--------|------------|--------|----------|----------------|--------|--------|------------------|--------|--------|-------------------------|----------|
| For Six Months EndedJune 30, 2009                          |   | Shares       |       |   | Amount     |   |     | Paid-inCapital |   |   | RetainedEarnings |   |   | Comprehensive Loss |     |   | Total Amount |   |
| Balance at December 31, 2008                               |   |         | 85,903,791 |   |       | $      | 859,038  |           |   | $      | 1,296,005        |   |   | $                       | 356,947  |   |   | $ | (262,804 | ) |   | $ | 2,249,186 |   |
| Net income                                                 |   |         | --         |   |       |   | --       |           |   |   | --               |   |   |                    | 128,754  |   |   |   | -- |   |   |   | 128,754 |   |
| Common stock dividend declared                             |   |         | --         |   |       |   | --       |           |   |   | --               |   |   |                    | (146,422 | ) |   |   | -- |   |   |   | (146,422 | ) |
| Change in par value                                        |   |         | --         |   |       |   | (858,179 | )              |   |   | 858,179          |   |   |                    | --       |   |   |   | -- |   |   |   | -- |   |
| Other comprehensive income                                 |   |         | --         |   |       |   | --       |           |   |   | --               |   |   |                    | --       |   |   |   | (40,704 | ) |   |   | (40,704 | ) |
| Investment from Parent                                     |   |         | --         |   |       |   | --       |           |   |   | 805,283          |   |   |                    | --       |   |   |   | -- |   |   |   | 805,283 |   |
| Employee common stock award transferred to liability award |   |         | --         |   |       |   | --       |           |   |   | (690             | )      |   |                    | --       |   |   |   | -- |   |   |   | (690 | ) |
| Tax windfall                                               |   |         | --         |   |       |   | --       |           |   |   | 428              |   |   |                    | --       |   |   |   | -- |   |   |   | 428 |   |
| Balance at June 30, 2009                                   |   |         | 85,903,791 |   |       | $      | 859      |           |   | $      | 2,959,205        |   |   | $                       | 339,279  |   |   | $ | (303,508 | ) |   | $ | 2,995,835 |   |

PUGET SOUND ENERGY, INC.

|                                                                              |   | Six Months EndedJune 30, |     |
|-----------------------------------------------------------------------------------|--------|--------------------------|----------|
|                                                                              |   | 2009                     |     |   | 2008 |   |
| Operating activities:                                                             |   |                     |     |   |   |   |
| Net income                                                                        |   | $                        | 128,754  |   |   | $ | 120,014 |   |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |                     |     |   |   |   |   |   |
| Depreciation and amortization                                                     |   |                     | 163,746  |   |   |   | 151,688 |   |
| Conservation amortization                                                         |   |                     | 34,559   |   |   |   | 28,891 |   |
| Deferred income taxes and tax credits, net                                        |   |                     | 68,695   |   |   |   | 39,037 |   |
| Amortization of gas pipeline capacity assignment                                  |   |                     | (4,651   | ) |   |   | (5,257 | ) |
| Non cash return on regulatory assets                                              |   |                     | (4,793   | ) |   |   | (4,972 | ) |
| Net unrealized loss on derivative instruments                                     |   |                     | (7,590   | ) |   |   | (2,277 | ) |
| Mint Farm deferred costs                                                          |   |                     | (14,125  | ) |   |   | -- |   |
| Pension funding                                                                   |   |                     | (6,000   | ) |   |   | -- |   |
| Change in residential exchange program                                            |   |                     | 1,666    |   |   |   | 32,473 |   |
| Other                                                                             |   |                     | (250     | ) |   |   | 12,977 |   |
| Change in certain current assets and liabilities:                                 |   |                     |     |   |   |   |   |   |
| Accounts receivable and unbilled revenue                                          |   |                     | 280,168  |   |   |   | 196,963 |   |
| Materials and supplies                                                            |   |                     | (8,554   | ) |   |   | (642 | ) |
| Fuel and gas inventory                                                            |   |                     | 21,990   |   |   |   | 14,119 |   |
| Prepaid income taxes                                                              |   |                     | (21,670  | ) |   |   | 41,540 |   |
| Prepayments and other                                                             |   |                     | 3,543    |   |   |   | 1,583 |   |
| Purchased gas receivable/payable                                                  |   |                     | 54,005   |   |   |   | (51,100 | ) |
| Accounts payable                                                                  |   |                     | (151,137 | ) |   |   | (46,780 | ) |
| Taxes payable                                                                     |   |                     | (19,192  | ) |   |   | (7,909 | ) |
| Accrued expenses and other                                                        |   |                     | (8,147   | ) |   |   | (1,757 | ) |
| Net cash provided by operating activities                                         |   |                     | 511,017  |   |   |   | 518,591 |   |
| Investing activities:                                                             |   |                     |     |   |   |   |   |   |
| Construction expenditures - excluding equity AFUDC                                |   |                     | (363,514 | ) |   |   | (255,776 | ) |
| Energy efficiency expenditures                                                    |   |                     | (37,548  | ) |   |   | (26,963 | ) |
| Restricted cash                                                                   |   |                     | 3,128    |   |   |   | (12,216 | ) |
| Other                                                                             |   |                     | 9,061    |   |   |   | 2,486 |   |
| Net cash used by investing activities                                             |   |                     | (388,873 | ) |   |   | (292,469 | ) |
| Financing activities:                                                             |   |                     |     |   |   |   |   |   |
| Change in short-term debt, net                                                    |   |                     | (87,991  | ) |   |   | 26,080 |   |
| Dividends paid                                                                    |   |                     | (146,422 | ) |   |   | (81,001 | ) |
| Loan from (payment to) parent                                                     |   |                     | (3,202   | ) |   |   | 9,260 |   |
| Long term bond issued                                                             |   |                     | 250,000  |   |   |   | -- |   |
| Redemption of trust preferred stock                                               |   |                     | (1,889   | ) |   |   | -- |   |
| Redemption of bonds and notes                                                     |   |                     | (150,000 | ) |   |   | (150,000 | ) |
| Investment from parent                                                            |   |                     | 25,960   |   |   |   | -- |   |
| Issuance cost of bonds and other                                                  |   |                     | (3,613   | ) |   |   | (2,255 | ) |
| Net cash used by financing activities                                             |   |                     | (117,157 | ) |   |   | (197,916 | ) |
| Net increase in cash                                                              |   |                     | 4,987    |   |   |   | 28,206 |   |
| Cash at beginning of year                                                         |   |                     | 38,470   |   |   |   | 40,773 |   |
| Cash at end of period                                                             |   | $                        | 43,457   |   |   | $ | 68,979 |   |
| Supplemental cash flow information:                                               |   |                     |     |   |   |   |   |   |
| Cash payments for interest (net of capitalized interest)                          |   | $                        | 93,553   |   |   | $ | 101,286 |   |
| Cash refunds from income taxes                                                    |   |                     | 129      |   |   |   | (39,730 | ) |

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| (1)   | Summary of Consolidation Policy |
|-----------------|---------------------------------|

| (2)   | Merger |
|-----------------|--------|

| (3)   | Accounting for Derivative Instruments and Hedging Activities |
|-----------------|--------------------------------------------------------------|

| Derivatives Designated as Hedging Instruments |   |
|----------------------------------------------------|--------|
|                                               |   | At June 30, 2009 |   |   | At December 31, 2008 |   |
| (Dollars in Millions)                              |   | Asset Derivatives1 |   |   | Liability Derivatives2 |   |   | Asset Derivatives1 |   |   | Liability Derivatives2 |   |
| Electric portfolio:                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                            |   | $ | -- |   |   | $ | 99.2 |   |   | $ | 0.1 |   |   | $ | 85.3 |   |
| Long-term                                          |   |   | 0.5 |   |   |   | 60.6 |   |   |   | 0.4 |   |   |   | 93.1 |   |
| Total derivatives                                  |   | $ | 0.5 |   |   | $ | 159.8 |   |   | $ | 0.5 |   |   | $ | 178.4 |   |

| 1 | Balance sheet location: Unrealized gain on derivative instruments. |
|---|--------------------------------------------------------------------|
| 2 | Balance sheet location: Unrealized loss on derivative instruments. |

| Derivatives Not Designated as Hedging Instruments |   |
|--------------------------------------------------------|--------|
|                                                   |   | At June 30, 2009 |   |   | At December 31, 2008 |   |
| (Dollars in Millions)                                  |   | AssetDerivatives1 |   |   | LiabilityDerivatives2 |   |   | AssetDerivatives1 |   |   | LiabilityDerivatives2 |   |
| Electric portfolio:                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                |   | $ | 1.0 |   |   | $ | 53.8 |   |   | $ | 0.3 |   |   | $ | 5.3 |   |
| Long-term                                              |   |   | 2.8 |   |   |   | 31.1 |   |   |   | 0.1 |   |   |   | 3.0 |   |
| Gas portfolio:                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                |   |   | 12.7 |   |   |   | 122.4 |   |   |   | 15.2 |   |   |   | 146.3 |   |
| Long-term                                              |   |   | 7.2 |   |   |   | 31.5 |   |   |   | 6.2 |   |   |   | 62.3 |   |
| Total derivatives                                      |   | $ | 23.7 |   |   | $ | 238.8 |   |   | $ | 21.8 |   |   | $ | 216.9 |   |

| 1 | Balance sheet location: Unrealized gain on derivative instruments. |
|---|--------------------------------------------------------------------|
| 2 | Balance sheet location: Unrealized loss on derivative instruments. |

| (Dollars in Millions)Three Months EndedJune 30, 2009                   | Amount ofGain Recognized in OCI on Derivatives      | Location of Loss Reclassified from Accumulated OCI into Income | Amount of Loss Reclassified fromAccumulated OCI into Income             | Location ofGainRecognized in Income on Derivatives | Amount ofGain Recognized in Income on Derivatives |
|------------------------------------------------------------------------|-----------------------------------------------------|----------------------------------------------------------------|-------------------------------------------------------------------------|----------------------------------------------------|---------------------------------------------------|
| Derivatives in SFAS No. 133 Cash Flow Hedging  Relationships | Effective Portion 1                                 | Effective Portion 2                                            | Ineffective Portion and Amount Excluded from Effectiveness Testing 2, 3 |
| Interest rate contracts:                                               | $       --  | Interest expense                                               | $      0.1                           |                                               | $      --           |
| Commodity contracts:Electric derivatives                               | 1.3                                            | Electric generation fuel                                       | 5.5                                                                | Net unrealized gain on derivative instruments      | --                                                |
| Electric derivatives                                                   | 12.8                                           | Purchased electricity                                          | 7.2                                                                     | Net unrealized gain on derivative instruments      | 0.5                                          |
| Gas derivatives                                                        | --                                             | Purchased gas                                                  | --                                                                      | Net unrealized gain on derivative instruments      | --                                                |
| Total                                                                  | $    14.1                            |                                                           | $    12.8                                           |                                               | $    0.5                           |

| 1 | Changes in OCI are reported in after tax dollars.                                                                                         |
|---|-------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | A reclassification of a loss in OCI increases Accumulated OCI and decreases earnings.  Amounts reported are in pre-tax dollars. |
| 3 | Ineffective portion of long-term power supply contracts that are designated as cash flow hedges.                                          |

| (Dollars in Millions)Six Months EndedJune 30, 2009                     | Amount of Loss Recognized in OCI on Derivatives     | Location of Loss Reclassified from Accumulated OCI into Income | Amount of Loss Reclassifiedfrom Accumulated OCI into Income             | Location ofLossRecognized in Income on Derivatives | Amount of Loss Recognized in Income on Derivatives |
|------------------------------------------------------------------------|-----------------------------------------------------|----------------------------------------------------------------|-------------------------------------------------------------------------|----------------------------------------------------|----------------------------------------------------|
| Derivatives in SFAS No. 133 Cash Flow Hedging  Relationships | Effective Portion 1                                 | Effective Portion 2                                            | Ineffective Portion and Amount Excluded from Effectiveness Testing 2, 3 |
| Interest rate contracts:                                               | $        -- | Interest expense                                               | $      0.2                                |                                               | $      --            |
| Commodity contracts:Electric derivatives                               | (38.1)                                              | Electric generation fuel                                       | 19.4                                                                    | Net unrealized loss on derivative instruments      | --                                                 |
| Electric derivatives                                                   | (1.7)                                               | Purchased electricity                                          | 14.7                                                                    | Net unrealized loss on derivative instruments      | (2.7)                                              |
| Gas derivatives                                                        | --                                                  | Purchased gas                                                  | --                                                                      | Net unrealized loss on derivative instruments      | --                                                 |
| Total                                                                  | $  (39.8)                                 |                                                           | $    34.3                                           |                                               | $  (2.7)                                 |

| 1 | Changes in OCI are reported in after tax dollars.                                                                                         |
|---|-------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | A reclassification of a loss in OCI increases Accumulated OCI and decreases earnings.  Amounts reported are in pre-tax dollars. |
| 3 | Ineffective portion of long-term power supply contracts that are designated as cash flow hedges.                                          |

| (Dollars in Millions)                    | Location of Gain/(Loss)in Income on Derivatives |   | Three Months Ended June 30, 2009 Amount ofGain/(Loss)Recognized inIncome onDerivatives |   |   | Six Months Ended June 30, 2009Amount of Gain/(Loss) Recognized in Income on Derivatives |   |
|------------------------------------------|-------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------|--------|
| Commodity contracts:Electric derivatives | Net unrealized gain on derivative instruments   |   | $                                                                                           | 9.4    |   |                                                                                    | $      | 10.3 |   |
|                                     | Electric generation fuel                        |   |                                                                                        | (5.0   | )      |                                                                                    |   | (12.0 | ) |
|                                     | Purchased electricity                           |   |                                                                                        | (0.1   | )      |                                                                                    |   | (0.6 | ) |
| Gas derivatives1                         | Net unrealized gain on derivative instruments   |   |                                                                                        | --     |   |                                                                                    |   | -- |   |
| Total                                    |                                            |   | $                                                                                           | 4.3    |   |                                                                                    | $      | (2.3 | ) |

| 1 | Gas derivatives are deferred in accordance with SFAS No. 71. |
|---|--------------------------------------------------------------|

|                                               |                                                                  Numberof Units |
|----------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Six Months Ended June 30, 2009                     |
| Derivatives designated as hedging instruments:     |
|   Electric generation fuel               | 27,645,000 MMBtus                                                                                                                                                                                                                                                                                                                                                                                                    |
|   Purchased electricity                  |  4,648,500 MWh                                                                                                                                                                                                                                                                                                                                                                                                  |
| Derivatives not designated as hedging instruments: |
|   Gas derivatives1                       | 86,088,661 MMBtus                                                                                                                                                                                                                                                                                                                                                                                                    |
|   Electric generation fuel               | 58,295,000 MMBtus                                                                                                                                                                                                                                                                                                                                                                                                    |
|   Purchased electricity                  |  2,417,000 MWh                                                                                                                                                                                                                                                                                                                                                                                                  |

| 1 | Gas derivatives are deferred in accordance with SFAS No. 71. |
|---|--------------------------------------------------------------|

| Contingent Feature (Dollars in Millions)    |   | Fair Value 4 Liability |   |   | PostedCollateral |   |   | Contingent Collateral |   |
|---------------------------------------------|--------|-----------------------------|--------|--------|------------------|--------|--------|-----------------------|--------|
| Credit rating 1                             |   | $                           | (3.5   | )      |             | $      | --     |                  |   | $ | 3.5 |   |
| Reasonable grounds for adequate assurance 2 |   |                        | (115.6 | )      |             |   | --     |                  |   |   | -- |   |
| Forward value of contract 3                 |   |                        | (46.1  | )      |             |   | 20.0   |                  |   |   | N/A |   |
| Total                                       |   | $                           | (165.2 | )      |             | $      | 20.0   |                  |   | $ | 3.5 |   |

| 1 | PSE is required to maintain an investment grade credit rating from each of the major credit rating agencies.                                                                                                                       |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | A counterparty with reasonable grounds for insecurity regarding performance of an obligation may request adequate assurance of performance.                                                                                        |
| 3 | Collateral requirements may vary, based on changes in forward value of underlying transactions.                                                                                                                                    |
| 4 | Represents derivative fair values of contracts with contingent features for counterparties in net derivative liability positions at June 30, 2009.  Excludes NPNS and accounts payable and accounts receivable activity. |

| (4)   | Fair Value Measurements |
|-----------------|-------------------------|

| Recurring Fair Value Measures |   | At Fair Value as of June 30, 2009 |   |   | At Fair Value as of December 31, 2008 |   |
|-------------------------------|--------|-----------------------------------|--------|--------|---------------------------------------|--------|
| (Dollars in Millions)         |   | Level 1                           |   |   | Level 2                               |   |   | Level 3 |   |   | Total |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Assets:                       |   |                              |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Energy derivative instruments |   | $                                 | --     |   |                                  | $      | 20.9 |   |   | $ | 3.3 |   |   | $ | 24.2 |   |   | $ | -- |   |   | $ | 21.8 |   |   | $ | 0.5 |   |   | $ | 22.3 |   |
| Money market accounts         |   |                              | 19.5   |   |                                  |   | 5.7 |   |   |   | -- |   |   |   | 25.2 |   |   |   | 24.7 |   |   |   | -- |   |   |   | 1.4 |   |   |   | 26.1 |   |
| Total assets                  |   | $                                 | 19.5   |   |                                  | $      | 26.6 |   |   | $ | 3.3 |   |   | $ | 49.4 |   |   | $ | 24.7 |   |   | $ | 21.8 |   |   | $ | 1.9 |   |   | $ | 48.4 |   |
| Liabilities:                  |   |                              |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Energy derivative instruments |   | $                                 | --     |   |                                  | $      | 258.6 |   |   | $ | 140.0 |   |   | $ | 398.6 |   |   | $ | -- |   |   | $ | 261.2 |   |   | $ | 134.1 |   |   | $ | 395.3 |   |
| Other financial items         |   |                              | --     |   |                                  |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
| Total liabilities             |   | $                                 | --     |   |                                  | $      | 258.6 |   |   | $ | 140.0 |   |   | $ | 398.6 |   |   | $ | -- |   |   | $ | 261.2 |   |   | $ | 134.1 |   |   | $ | 395.3 |   |

|  (Dollars in Millions)                                                          |   | Three MonthsEndedJUNE 30, 2009 |   |   | Three MonthsEnded JUNE 30, 2008 |   |   | Six Months EndedJUNE 30, 2009 |   |   | Six Months EndedJUNE 30, 2008 |   |
|--------------------------------------------------------------------------------------|--------|--------------------------------|--------|--------|--------------------------------------|--------|--------|-------------------------------|--------|--------|-------------------------------|--------|
| Balance at beginning of period  (net credit reserve on energy derivatives) |   | $                              | (176.2 | )      |                                 | $      | 17.2   |                          |   | $      | (132.2                        | )      |   | $ | (7.3 | ) |
| Changes during period :                                                              |   |                           |   |   |                                 |   |   |                          |   |   |                          |   |   |   |   |   |
| Realized and unrealized energy derivatives                                           |   |                           |   |   |                                 |   |   |                          |   |   |                          |   |   |   |   |   |
| - included in earnings                                                               |   |                           | 6.6    |   |                                 |   | 3.5    |                          |   |   | 4.2                           |   |   |   | 1.9 |   |
| - included in other comprehensive income                                             |   |                           | 15.1   |   |                                 |   | 116.3  |                          |   |   | (38.0                         | )      |   |   | 145.0 |   |
| - included in regulatory assets/liabilities                                          |   |                           | 1.5    |   |                                 |   | 3.0    |                          |   |   | (5.9                          | )      |   |   | 3.0 |   |
| Purchases, issuances, and settlements                                                |   |                           | 8.0    |   |                                 |   | 7.7    |                          |   |   | 16.1                          |   |   |   | 5.9 |   |
| Energy derivatives transferred in/(out) of Level 3                                   |   |                           | 8.3    |   |                                 |   | (0.3   | )                             |   |   | 19.1                          |   |   |   | (1.1 | ) |
| Balance at end of period (net credit reserve on energy derivatives)                  |   | $                              | (136.7 | )      |                                 | $      | 147.4  |                          |   | $      | (136.7                        | )      |   | $ | 147.4 |   |

| (5)   | Estimated Fair Value of Financial Instruments |
|-----------------|-----------------------------------------------|

|                                                                 |   | June 30, 2009   |    |   | December 31, 2008 |   |
|----------------------------------------------------------------------|--------|-----------------|---------|--------|-------------------|--------|
| (Dollars in Millions)                                                |   | Carrying Amount |    |   | FairValue         |   |   | Carrying Amount |   |   | FairValue |   |
| Financial assets:                                                    |   |            |    |   |              |   |   |   |   |   |   |   |
| Cash                                                                 |   | $               | 43.5    |   |              | $      | 43.5 |   |   | $ | 38.5 |   |   | $ | 38.5 |   |
| Restricted cash                                                      |   |            | 15.8    |   |              |   | 15.8 |   |   |   | 18.9 |   |   |   | 18.9 |   |
| Notes receivable and other                                           |   |            | 72.8    |   |              |   | 72.8 |   |   |   | 71.8 |   |   |   | 71.8 |   |
| Energy derivatives                                                   |   |            | 24.2    |   |              |   | 24.2 |   |   |   | 22.3 |   |   |   | 22.3 |   |
| Financial liabilities:                                               |   |            |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Short-term debt                                                      |   | $               | 125.0   |   |              | $      | 125.0 |   |   | $ | 964.7 |   |   | $ | 964.7 |   |
| Short-term debt owed by PSE to Puget Energy                          |   |            | 22.9    |   |              |   | 22.9 |   |   |   | 26.1 |   |   |   | 26.1 |   |
| Preferred stock subject to mandatory redemption                      |   |            | --      |   |              |   | -- |   |   |   | 1.9 |   |   |   | 1.9 |   |
| Junior subordinated notes                                            |   |            | 250.0   |   |              |   | 176.5 |   |   |   | 250.0 |   |   |   | 112.5 |   |
|     Current maturities of long-term debt (fixed-rate) |   |            | 233.0   |   |              |   | 241.0 |   |   |   | 158.0 |   |   |   | 158.0 |   |
| Non-current maturities of long-term debt (fixed-rate)                |   |            | 2,295.9 |   |              |   | 2,303.6 |   |   |   | 2,270.9 |   |   |   | 1,951.0 |   |
| Energy derivatives                                                   |   |            | 398.6   |   |              |   | 398.6 |   |   |   | 395.3 |   |   |   | 395.3 |   |

| (6)   | Retirement Benefits |
|-----------------|---------------------|

|                                     |   | QualifiedPension Benefits |    |   | SERPPension Benefits |   |    | OtherBenefits |   |
|------------------------------------------|--------|---------------------------|---------|--------|----------------------|--------|---------|---------------|--------|
| (Dollars in Thousands)                   |   | 2009                      |    |   | 2008                 |   |    | 2009          |   |   | 2008 |   |   | 2009 |   |   | 2008 |   |
| Components of net periodic benefit cost: |   |                      |    |   |                 |   |    |          |   |   |   |   |   |   |   |   |   |   |
| Service cost                             |   | $                         | 3,800   |   |                 | $      | 3,321   |          |   | $ | 267 |   |   | $ | 234 |   |   | $ | 30 |   |   | $ | 43 |   |
| Interest cost                            |   |                      | 6,962   |   |                 |   | 6,805   |          |   |   | 579 |   |   |   | 553 |   |   |   | 214 |   |   |   | 283 |   |
| Expected return on plan assets           |   |                      | (10,972 | )      |                 |   | (10,327 | )             |   |   | -- |   |   |   | -- |   |   |   | (116 | ) |   |   | (197 | ) |
| Amortization of net loss (gain)          |   |                      | 1,043   |   |                 |   | 472     |          |   |   | 221 |   |   |   | 183 |   |   |   | (184 | ) |   |   | (199 | ) |
| Amortization of prior service cost       |   |                      | 284     |   |                 |   | 162     |          |   |   | 154 |   |   |   | 154 |   |   |   | 21 |   |   |   | 21 |   |
| Amortization of transition obligation    |   |                      | --      |   |                 |   | --      |          |   |   | -- |   |   |   | -- |   |   |   | 12 |   |   |   | 13 |   |
| Net periodic benefit cost (income)       |   | $                         | 1,117   |   |                 | $      | 433     |          |   | $ | 1,221 |   |   | $ | 1,124 |   |   | $ | (23 | ) |   | $ | (36 | ) |

|                                     |   | QualifiedPension Benefits |    |   | SERPPension Benefits |   |    | OtherBenefits |   |
|------------------------------------------|--------|---------------------------|---------|--------|----------------------|--------|---------|---------------|--------|
| (Dollars in Thousands)                   |   | 2009                      |    |   | 2008                 |   |    | 2009          |   |   | 2008 |   |   | 2009 |   |   | 2008 |   |
| Components of net periodic benefit cost: |   |                      |    |   |                 |   |    |          |   |   |   |   |   |   |   |   |   |   |
| Service cost                             |   | $                         | 7,071   |   |                 | $      | 6,375   |          |   | $ | 534 |   |   | $ | 468 |   |   | $ | 62 |   |   | $ | 87 |   |
| Interest cost                            |   |                      | 13,867  |   |                 |   | 13,304  |          |   |   | 1,157 |   |   |   | 1,105 |   |   |   | 480 |   |   |   | 566 |   |
| Expected return on plan assets           |   |                      | (21,727 | )      |                 |   | (20,782 | )             |   |   | -- |   |   |   | -- |   |   |   | (227 | ) |   |   | (394 | ) |
| Amortization of net loss (gain)          |   |                      | 1,851   |   |                 |   | 472     |          |   |   | 443 |   |   |   | 366 |   |   |   | (230 | ) |   |   | (398 | ) |
| Amortization of prior service cost       |   |                      | 567     |   |                 |   | 323     |          |   |   | 308 |   |   |   | 308 |   |   |   | 41 |   |   |   | 42 |   |
| Amortization of transition obligation    |   |                      | --      |   |                 |   | --      |          |   |   | -- |   |   |   | -- |   |   |   | 25 |   |   |   | 25 |   |
| Net periodic benefit cost (income)       |   | $                         | 1,629   |   |                 | $      | (308    | )             |   | $ | 2,442 |   |   | $ | 2,247 |   |   | $ | 151 |   |   | $ | (72 | ) |

| (7)   | Regulation and Rates |
|-----------------|----------------------|

| (8)   | Litigation |
|-----------------|------------|

| (9)   | Related Party Transactions |
|-----------------|----------------------------|

| (10)   | Other |
|------------------|-------|

| (Dollars in Millions)                             | Variable Interests in Power Purchase AgreementsFor the Quarter Ended June 30, 2009 |   |
|---------------------------------------------------|------------------------------------------------------------------------------------|--------|
| Nature of Variable Interest                       | Longest Contract Tenor                                                             |   | Number of Counterparties |   |   | Aggregate Carrying ValueLiability 2 |   |   | Level of Activity - 2009 Expenses 2 |   |
| Electric-combustion turbine co-generation plant 1 | 2011                                                                               |   |   | 2 |   |   | $ | (9.4 | ) |   | $ | 79.1 |   |
| Electric-hydro                                    | 2037                                                                               |   |   | 7 |   |   |   | (1.6 | ) |   |   | 6.4 |   |
| Other                                             | 2011                                                                               |   |   | 2 |   |   |   | -- |   |   |   | 0.2 |   |
| Total                                             |                                                                               |   |   | 11 |   |   | $ | (11.0 | ) |   | $ | 85.7 |   |

| 1 | Variable interests may be significant.                                                                                                                |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | Carrying values are classified in the balance sheet in accounts payable and expenses are classified on the income statement in purchased electricity. |

| (11)   | New Accounting Pronouncements |
|------------------|-------------------------------|

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

|                                                    |   | Electric Margin |   |
|---------------------------------------------------------|--------|-----------------|--------|
| (Dollars in Millions)Three Months Ended June 30,        |   | 2009            |   |   | 2008 |   |   | Change |   |   | PercentChange |   |
| Electric operating revenue1                             |   | $               | 456.8  |   |   | $ | 478.0 |   |   | $ | (21.2 | ) |   |   | (4.4 | ) % |
| Less: Other electric operating revenue                  |   |            | (6.9   | ) |   |   | (20.3 | ) |   |   | 13.4 |   |   |   | 66.0 |   |
| Add: Other electric operating revenue-gas supply resale |   |            | (5.0   | ) |   |   | 8.3 |   |   |   | (13.3 | ) |   |   | * |   |
| Total electric revenue for margin                       |   |            | 444.9  |   |   |   | 466.0 |   |   |   | (21.1 | ) |   |   | (4.5 | ) |
| Adjustments for amounts included in revenue:            |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass-through tariff items                               |   |            | (14.9  | ) |   |   | (16.2 | ) |   |   | 1.3 |   |   |   | 8.0 |   |
| Pass-through revenue-sensitive taxes                    |   |            | (33.6  | ) |   |   | (32.9 | ) |   |   | (0.7 | ) |   |   | (2.1 | ) |
| Net electric revenue for margin                         |   |            | 396.4  |   |   |   | 416.9 |   |   |   | (20.5 | ) |   |   | (4.9 | ) |
| Minus power costs:                                      |   |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchased electricity1                                  |   |            | (188.9 | ) |   |   | (198.9 | ) |   |   | 10.0 |   |   |   | 5.0 |   |
| Electric generation fuel1                               |   |            | (17.8  | ) |   |   | (32.7 | ) |   |   | 14.9 |   |   |   | 45.6 |   |
| Residential exchange1                                   |   |            | 20.9   |   |   |   | 20.3 |   |   |   | 0.6 |   |   |   | 3.0 |   |
| Total electric power costs                              |   |            | (185.8 | ) |   |   | (211.3 | ) |   |   | 25.5 |   |   |   | 12.0 |   |
| Electric margin2                                        |   | $               | 210.6  |   |   | $ | 205.6 |   |   | $ | 5.0 |   |   |   | 2.4 | % |

| 1 | As reported on PSE’s Consolidated Statement of Income.                                                                                    |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | Electric margin does not include any allocation for amortization/depreciation expense or electric generation operation and maintenance expense. |
| * | Percent change not applicable or meaningful.                                                                                                    |

|                                                    |   | Electric Margin |    |
|---------------------------------------------------------|--------|-----------------|---------|
| (Dollars in Millions)Six Months Ended June 30,          |   | 2009            |    |   | 2008 |   |   | Change |   |   | PercentChange |   |
| Electric operating revenue1                             |   | $               | 1,057.0 |   |   | $ | 1,084.2 |   |   | $ | (27.2 | ) |   |   | (2.5 | ) % |
| Less: Other electric operating revenue                  |   |            | (7.8    | ) |   |   | (32.5 | ) |   |   | 24.7 |   |   |   | 76.0 |   |
| Add: Other electric operating revenue-gas supply resale |   |            | (13.8   | ) |   |   | 11.0 |   |   |   | (24.8 | ) |   |   | * |   |
| Total electric revenue for margin                       |   |            | 1,035.4 |   |   |   | 1,062.7 |   |   |   | (27.3 | ) |   |   | (2.6 | ) |
| Adjustments for amounts included in revenue:            |   |            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass-through tariff items                               |   |            | (36.6   | ) |   |   | (29.1 | ) |   |   | (7.5 | ) |   |   | (25.8 | ) |
| Pass-through revenue-sensitive taxes                    |   |            | (77.9   | ) |   |   | (74.6 | ) |   |   | (3.3 | ) |   |   | (4.4 | ) |
| Net electric revenue for margin                         |   |            | 920.9   |   |   |   | 959.0 |   |   |   | (38.1 | ) |   |   | (4.0 | ) |
| Minus power costs:                                      |   |            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchased electricity1                                  |   |            | (449.2  | ) |   |   | (471.7 | ) |   |   | 22.5 |   |   |   | 4.8 |   |
| Electric generation fuel1                               |   |            | (66.0   | ) |   |   | (79.7 | ) |   |   | 13.7 |   |   |   | 17.2 |   |
| Residential exchange1                                   |   |            | 53.3    |   |   |   | 20.3 |   |   |   | 33.0 |   |   |   | * |   |
| Total electric power costs                              |   |            | (461.9  | ) |   |   | (531.1 | ) |   |   | 69.2 |   |   |   | 13.0 |   |
| Electric margin2                                        |   | $               | 459.0   |   |   | $ | 427.9 |   |   | $ | 31.1 |   |   |   | 7.3 | % |

| 1 | As reported on PSE’s Consolidated Statement of Income.                                                                                    |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | Electric margin does not include any allocation for amortization/depreciation expense or electric generation operation and maintenance expense. |
| * | Percent change not applicable or meaningful.                                                                                                    |

|                                             |   | Gas Margin |   |
|--------------------------------------------------|--------|------------|--------|
| (Dollars in Millions)Three Months Ended June 30, |   | 2009       |   |   | 2008 |   |   | Change |   |   | Percent Change |   |
| Gas operating revenue1                           |   | $          | 226.9  |   |   | $ | 233.8 |   |   | $ | (6.9 | ) |   |   | (3.0 | ) % |
| Less: Other gas operating revenue                |   |       | (5.2   | ) |   |   | (4.2 | ) |   |   | (1.0 | ) |   |   | (23.8 | ) |
| Total gas revenue for margin                     |   |       | 221.7  |   |   |   | 229.6 |   |   |   | (7.9 | ) |   |   | (3.4 | ) |
| Adjustments for amounts included in revenue:     |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass-through tariff items                        |   |       | (2.5   | ) |   |   | (2.3 | ) |   |   | (0.2 | ) |   |   | (8.7 | ) |
| Pass-through revenue-sensitive taxes             |   |       | (20.1  | ) |   |   | (20.3 | ) |   |   | 0.2 |   |   |   | 0.1 |   |
| Net gas revenue for margin                       |   |       | 199.1  |   |   |   | 207.0 |   |   |   | (7.9 | ) |   |   | (3.8 | ) |
| Minus purchased gas costs1                       |   |       | (132.1 | ) |   |   | (137.7 | ) |   |   | 5.6 |   |   |   | 4.1 |   |
| Gas margin2                                      |   | $          | 67.0   |   |   | $ | 69.3 |   |   | $ | (2.3 | ) |   |   | (3.3 | )% |

|   | ____________________ |
|--------|----------------------|

| 1 | As reported on PSE’s Consolidated Statement of Income.                                                                                |
|---|---------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | Gas margin does not include any allocation for amortization/depreciation expense or electric generation operations and maintenance expense. |

|                                           |   | Gas Margin |   |
|------------------------------------------------|--------|------------|--------|
| (Dollars in Millions)Six Months Ended June 30, |   | 2009       |   |   | 2008 |   |   | Change |   |   | Percent Change |   |
| Gas operating revenue1                         |   | $          | 733.4  |   |   | $ | 677.1 |   |   | $ | 56.3 |   |   |   | 8.3 | % |
| Less: Other gas operating revenue              |   |       | (10.2  | ) |   |   | (8.9 | ) |   |   | (1.3 | ) |   |   | (14.6 | ) |
| Total gas revenue for margin                   |   |       | 723.2  |   |   |   | 668.2 |   |   |   | 55.0 |   |   |   | 8.2 |   |
| Adjustments for amounts included in revenue:   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass-through tariff items                      |   |       | (7.2   | ) |   |   | (6.7 | ) |   |   | (0.5 | ) |   |   | (7.5 | ) |
| Pass-through revenue-sensitive taxes           |   |       | (61.7  | ) |   |   | (55.4 | ) |   |   | (6.3 | ) |   |   | (11.4 | ) |
| Net gas revenue for margin                     |   |       | 654.3  |   |   |   | 606.1 |   |   |   | 48.2 |   |   |   | 8.0 |   |
| Minus purchased gas costs1                     |   |       | (452.2 | ) |   |   | (413.9 | ) |   |   | (38.3 | ) |   |   | (9.3 | ) |
| Gas margin2                                    |   | $          | 202.1  |   |   | $ | 192.2 |   |   | $ | 9.9 |   |   |   | 5.2 | % |

|   | ____________________ |
|--------|----------------------|

| 1 | As reported on PSE’s Consolidated Statement of Income.                                                                                |
|---|---------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | Gas margin does not include any allocation for amortization/depreciation expense or electric generation operations and maintenance expense. |

| (Dollars in Millions)Three Months Ended June 30, |   | 2009   |   |   | 2008   |   |   | Change |   |   | Percent Change |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------------|--------|
| Electric operating revenues:                     |   |   |   |   |   |   |   |   |   |   |           |   |
| Residential sales                                |   | $      | 240.4  |   |   | $      | 237.1  |   |   | $      | 3.3            |   |   |   | 1.4 | % |
| Commercial sales                                 |   |   | 198.0  |   |   |   | 189.4  |   |   |   | 8.6            |   |   |   | 4.5 |   |
| Industrial sales                                 |   |   | 23.9   |   |   |   | 26.1   |   |   |   | (2.2           | )      |   |   | (8.4 | ) |
| Other retail sales, including unbilled revenue   |   |   | (25.7  | )      |   |   | (20.7  | )      |   |   | (5.0           | )      |   |   | (24.2 | ) |
| Total retail sales                               |   |   | 436.6  |   |   |   | 431.9  |   |   |   | 4.7            |   |   |   | 1.1 |   |
| Transportation sales                             |   |   | 2.3    |   |   |   | 1.4    |   |   |   | 0.9            |   |   |   | 64.3 |   |
| Sales to other utilities and marketers           |   |   | 10.9   |   |   |   | 24.4   |   |   |   | (13.5          | )      |   |   | (55.3 | ) |
| Other                                            |   |   | 7.0    |   |   |   | 20.3   |   |   |   | (13.3          | )      |   |   | (65.5 | ) |
| Total electric operating revenues                |   | $      | 456.8  |   |   | $      | 478.0  |   |   | $      | (21.2          | )      |   |   | (4.4 | )% |

| (Dollars in Millions)Six Months Ended June 30, |   | 2009   |    |   | 2008   |   |    | Change |   |   | Percent Change |   |
|------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|----------------|--------|
| Electric operating revenues:                   |   |   |    |   |   |   |    |   |   |   |           |   |
| Residential sales                              |   | $      | 599.2   |   |   | $      | 583.7   |   |   | $      | 15.5           |   |   |   | 2.7 | % |
| Commercial sales                               |   |   | 429.5   |   |   |   | 401.5   |   |   |   | 28.0           |   |   |   | 7.0 |   |
| Industrial sales                               |   |   | 50.5    |   |   |   | 53.5    |   |   |   | (3.0           | )      |   |   | (5.6 | ) |
| Other retail sales, including unbilled revenue |   |   | (55.1   | )      |   |   | (32.3   | )      |   |   | (22.8          | )      |   |   | (70.6 | ) |
| Total retail sales                             |   |   | 1,024.1 |   |   |   | 1,006.4 |   |   |   | 17.7           |   |   |   | 1.8 |   |
| Transportation sales                           |   |   | 4.8     |   |   |   | 2.9     |   |   |   | 1.9            |   |   |   | 65.5 |   |
| Sales to other utilities and marketers         |   |   | 20.3    |   |   |   | 42.4    |   |   |   | (22.1          | )      |   |   | (52.1 | ) |
| Other                                          |   |   | 7.8     |   |   |   | 32.5    |   |   |   | (24.7          | )      |   |   | (76.0 | ) |
| Total electric operating revenues              |   | $      | 1,057.0 |   |   | $      | 1,084.2 |   |   | $      | (27.2          | )      |   |   | (2.5 | )% |

| Type of RateAdjustment     | Effective Date    | AveragePercentageIncrease (Decrease)in Rates |   |   | AnnualIncrease (Decrease) in Revenues(Dollars in Millions) |   |
|----------------------------|-------------------|----------------------------------------------|--------|--------|-----------------------------------------------------------------|--------|
| Electric General Rate Case | November 1, 2008  |                                         | 7.1    | %      |                                                            | $      | 130.2 |   |
| Merger Rate Credit         | February 13, 2009 |                                         | (0.4   | )%     |                                                            |   | (6.7 | ) |

| (Dollars in Millions)Three Months Ended June 30, |   | 2009   |   |   | 2008   |   |   | Change |   |   | PercentChange |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------------|--------|
| Gas operating revenues:                          |   |   |   |   |   |   |   |   |   |   |          |   |
| Residential sales                                |   | $      | 142.1  |   |   | $      | 144.3  |   |   | $      | (2.2          | )      |   |   | (1.5 | ) % |
| Commercial sales                                 |   |   | 68.1   |   |   |   | 72.1   |   |   |   | (4.0          | )      |   |   | (5.5 | ) |
| Industrial sales                                 |   |   | 8.3    |   |   |   | 9.7    |   |   |   | (1.4          | )      |   |   | (14.4 | ) |
| Total retail sales                               |   |   | 218.5  |   |   |   | 226.1  |   |   |   | (7.6          | )      |   |   | (3.4 | ) |
| Transportation sales                             |   |   | 3.1    |   |   |   | 3.4    |   |   |   | (0.3          | )      |   |   | (8.8 | ) |
| Other                                            |   |   | 5.3    |   |   |   | 4.3    |   |   |   | 1.0           |   |   |   | 23.3 |   |
| Total gas operating revenues                     |   | $      | 226.9  |   |   | $      | 233.8  |   |   | $      | (6.9          | )      |   |   | (3.0 | ) % |

| (Dollars in Millions)Six Months Ended June 30, |   | 2009   |   |   | 2008   |   |   | Change |   |   | PercentChange |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------------|--------|
| Gas operating revenues:                        |   |   |   |   |   |   |   |   |   |   |          |   |
| Residential sales                              |   | $      | 486.3  |   |   | $      | 438.5  |   |   | $      | 47.8          |   |   |   | 10.9 | % |
| Commercial sales                               |   |   | 207.6  |   |   |   | 200.0  |   |   |   | 7.6           |   |   |   | 3.8 |   |
| Industrial sales                               |   |   | 23.0   |   |   |   | 22.5   |   |   |   | 0.5           |   |   |   | 2.2 |   |
| Total retail sales                             |   |   | 716.9  |   |   |   | 661.0  |   |   |   | 55.9          |   |   |   | 8.5 |   |
| Transportation sales                           |   |   | 6.3    |   |   |   | 7.2    |   |   |   | (0.9          | )      |   |   | (12.5 | ) |
| Other                                          |   |   | 10.2   |   |   |   | 8.9    |   |   |   | 1.3           |   |   |   | 14.6 |   |
| Total gas operating revenues                   |   | $      | 733.4  |   |   | $      | 677.1  |   |   | $      | 56.3          |   |   |   | 8.3 | % |

| Type of RateAdjustment   | Effective Date    | AveragePercentageIncrease (Decrease)in Rates |   |   | AnnualIncrease (Decrease) in Revenues(Dollars in Millions) |   |
|--------------------------|-------------------|----------------------------------------------|--------|--------|-----------------------------------------------------------------|--------|
| Purchased Gas Adjustment | October 1, 2008   |                                         | 11.1   | %      |                                                            | $      | 108.8 |   |
| General Rate Case        | November 1, 2008  |                                         | 4.3    | %      |                                                            |   | 49.2 |   |
| Merger Rate Credit       | February 13, 2009 |                                         | (0.4   | )%     |                                                            |   | (3.6 | ) |
| Purchased Gas Adjustment | June 1, 2009      |                                         | (1.7   | )%     |                                                            |   | (21.2 | ) |

| (Dollars in Millions)Three Months Ended June 30, |   | 2009 |   | 2008   |   | Change |   | PercentChange |
|--------------------------------------------------|--------|------|--------|--------|--------|--------|--------|---------------|
| Non-utility operating revenue                    |   | $    | 2.6    |   | $      | 0.5    |   | $             | 2.1 |   | * |

| * | Percent change not applicable or meaningful. |
|---|----------------------------------------------|

| (Dollars in Millions)Six Months Ended June 30, |   | 2009 |   | 2008   |   | Change |   | PercentChange |
|------------------------------------------------|--------|------|--------|--------|--------|--------|--------|---------------|
| Non-utility operating revenue                  |   | $    | 3.5    |   |   | $      | 2.1    |          |   | $ | 1.4 |   |   |   | 66.7 | % |

| (Dollars in Millions)Three Months Ended June 30, |   | 2009   |   |   | 2008   |   |   | Change |   |   | PercentChange |   |
|--------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------------|--------|
| Purchased electricity                            |   | $      | 188.9  |   |   | $      | 198.9  |   |   | $      | (10.0         | )      |   |   | (5.0 | ) % |
| Electric generation fuel                         |   |   | 17.8   |   |   |   | 32.7   |   |   |   | (14.9         | )      |   |   | (45.6 | ) |
| Purchased gas                                    |   |   | 132.1  |   |   |   | 137.7  |   |   |   | (5.6          | )      |   |   | (4.1 | ) |
| Unrealized gain on derivative instruments        |   |   | (9.9   | )      |   |   | (2.4   | )      |   |   | (7.5          | )      |   |   | * |   |
| Utility operations and maintenance               |   |   | 122.1  |   |   |   | 116.5  |   |   |   | 5.6           |   |   |   | 4.8 |   |
| Merger and related costs                         |   |   | (3.7   | )      |   |   | --     |   |   |   | (3.7          | )      |   |   | * |   |
| Depreciation and amortization                    |   |   | 82.4   |   |   |   | 76.3   |   |   |   | 6.1           |   |   |   | 8.0 |   |
| Taxes other than income taxes                    |   |   | 66.7   |   |   |   | 63.7   |   |   |   | 3.0           |   |   |   | 4.7 |   |

| * | Percent change not applicable or meaningful. |
|---|----------------------------------------------|

| (Dollars in Millions)Six Months Ended June 30, |   | 2009   |   |   | 2008   |   |   | Change |   |   | PercentChange |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------------|--------|
| Purchased electricity                          |   | $      | 449.2  |   |   | $      | 471.7  |   |   | $      | (22.5         | )      |   |   | (4.8 | ) % |
| Electric generation fuel                       |   |   | 66.0   |   |   |   | 79.7   |   |   |   | (13.7         | )      |   |   | (17.2 | ) |
| Residential exchange                           |   |   | (53.3  | )      |   |   | (20.3  | )      |   |   | (33.0         | )      |   |   | * |   |
| Purchased gas                                  |   |   | 452.2  |   |   |   | 413.9  |   |   |   | 38.3          |   |   |   | 9.3 |   |
| Unrealized gain on derivative instruments      |   |   | (7.6   | )      |   |   | (2.3   | )      |   |   | (5.3          | )      |   |   | * |   |
| Utility operations and maintenance             |   |   | 237.0  |   |   |   | 228.6  |   |   |   | 8.4           |   |   |   | 3.7 |   |
| Merger and related costs                       |   |   | 23.9   |   |   |   | --     |   |   |   | 23.9          |   |   |   | * |   |
| Depreciation and amortization                  |   |   | 163.7  |   |   |   | 151.7  |   |   |   | 12.0          |   |   |   | 7.9 |   |
| Conservation amortization                      |   |   | 34.6   |   |   |   | 28.9   |   |   |   | 5.7           |   |   |   | 19.7 |   |
| Taxes other than income taxes                  |   |   | 168.0  |   |   |   | 158.0  |   |   |   | 10.0          |   |   |   | 6.3 |   |

| * | Percent change not applicable or meaningful. |
|---|----------------------------------------------|

| (Dollars in Millions)Three Months Ended June 30, |   | 2009 |   |   | 2008   |   |   | Change |   |   | PercentChange |
|--------------------------------------------------|--------|------|--------|--------|--------|--------|--------|--------|--------|--------|---------------|
| Other income / expense (net)                     |   | $    | 10.7   |   |   | $      | 7.2    |   |   | $      | 3.5           |   |   |   | 48.6 | % |

| (Dollars in Millions)Six Months Ended June 30, |   | 2009   |   |   | 2008   |   |   | Change |   |   | PercentChange |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------------|--------|
| Other income / expense (net)                   |   | $      | 18.2   |   |   | $      | 13.1   |   |   | $      | 5.1           |   |   |   | 38.9 | % |
| Interest expense                               |   |   | 99.2   |   |   |   | 95.8   |   |   |   | 3.4           |   |   |   | 3.5 |   |

|                                        |   |   |    |   | Amount of CommitmentExpiration Per Period |   |
|---------------------------------------------|--------|--------|---------|--------|-------------------------------------------|--------|
| Commercial commitments(Dollars in Millions) |   | Total  |    |   | 2009                                      |   |   |   | 2010-2011 |   |   |   | 2012-2013 |   |   | 2014 & Thereafter |   |
| Working capital facility                    |   | $      | 275.0   |   |                                      | $      | -- |   |   | $ | -- |   |   | $ | -- |   |   | $ | 275.0 |   |
| Capital expenditure facility                |   |   | 400.0   |   |                                      |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 400.0 |   |
| Energy hedging facility                     |   |   | 330.0   |   |                                      |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 330.0 |   |
| Energy hedging letter of credit             |   |   | 6.1     |   |                                      |   | -- |   |   |   | 6.1 |   |   |   | -- |   |   |   | -- |   |
| Total commercial commitments                |   | $      | 1,011.1 |   |                                      | $      | -- |   |   | $ | 6.1 |   |   | $ | -- |   |   | $ | 1,005.0 |   |

| Capital Expenditure Estimates(Dollars in Millions) |   | 2009   |   |   | 2010   |   |   | 2011   |   |
|----------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Energy delivery, technology and facilities         |   | $      | 687    |   |   | $      | 840    |   |   | $ | 786 |   |
| New supply resources                               |   |   | 234    |   |   |   | 621    |   |   |   | 346 |   |
| Total expenditures                                 |   | $      | 921    |   |   | $      | 1,461  |   |   | $ | 1,132 |   |

| ·   | approximately $1.0 billion of additional first mortgage bonds under PSE’s electric mortgage indenture based on approximately $1.7 billion of electric bondable property available for issuance, subject to an interest coverage ratio limitation of 2.0 times net earnings available for interest (as defined in the electric utility mortgage), which PSE exceededat June 30, 2009; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | approximately $652.0 million of additional first mortgage bonds under PSE’s natural gas mortgage indenture based on approximately $1.1 billion of gas bondable property available for issuance, subject to interest coverage ratio limitations of 1.75 times and 2.0 times net earnings available for interest (as defined in the natural gas utility mortgage),which PSE exceeded at June 30, 2009; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           | Ratings  |
|--------------------------------|----------|
|                           | S&P1 | Moody’s2 |
| Puget Sound Energy, Inc.       |     |   |
| Corporate credit/issuer rating | BBB      | Baa3 |
| Senior secured debt            | A-       | Baa2 |
| Junior subordinated notes      | BB+      | Ba1 |
| Preferred stock                | BB+      | Ba2 |
| Commercial paper               | A-2      | P-3 |
| Bank facilities                | BBB      | Baa3 |
| Ratings outlook                | Stable   | Stable |

| 1 | On January 16, 2009, S&P upgraded PSE’s corporate and other credit ratings.  It also removed all the ratings from negative watch, citing a stable outlook. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | On February 2, 2009, Moody’s affirmed the long-term ratings of PSE.                                                                                                      |

|   | Item 3.            Quantitative and Qualitative Disclosure About Market Risk |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|

| · ensure physical energy supplies are available to reliably and cost-effectively serve retail load;                                                       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · manage the energy portfolio prudently to serve retail load at overall least cost and limit undesired impacts on PSE’s customers and shareholders; |
| · reduce power costs by extracting the value of PSE’s assets; and                                                                                   |
| · meet the credit, liquidity, financing, tax and accounting requirements of PSE.                                                                          |

| Derivative Portfolio(Dollars in Millions) |   | June 30,2009 |   |   | December 31, 2008 |   |
|-------------------------------------------|--------|--------------|--------|--------|-------------------|--------|
| Current asset                             |   | $            | 13.7   |   |              | $      | 15.6 |   |
| Long-term asset                           |   |         | 10.5   |   |              |   | 6.7 |   |
| Total assets                              |   | $            | 24.2   |   |              | $      | 22.3 |   |
|                                      |   |         |   |   |              |   |   |   |
| Current liability                         |   | $            | 275.4  |   |              | $      | 236.9 |   |
| Long-term liability                       |   |         | 123.2  |   |              |   | 158.4 |   |
| Total liabilities                         |   | $            | 398.6  |   |              | $      | 395.3 |   |

Item 4.              Controls and Procedures

PART II                      OTHER INFORMATION

Item 1.              Legal Proceedings

Item 1A.           Risk Factors

Item 6.              Exhibits

SIGNATURES

|                           | PUGET SOUND ENERGY, INC.                                                                         |   |
|--------------------------------|--------------------------------------------------------------------------------------------------|--------|
|                           |                                                                                             |   |
|                           | /s/ James W. Eldredge                                                                            |   |
|                           | James W. Eldredge                                                                                |   |
|                           | Vice President, Controller and Chief Accounting Officer                                          |   |
|                           |                                                                                             |   |
| Date:  July 28, 2009 |                                                                                             |   |
|                           | Chief accounting officer and officer duly authorized to sign this report on behalf of registrant |

EXHIBIT INDEX

| 12.1 | Statement setting forth computation of ratios of earnings to fixed charges (2004 through 2008 and 12 months ended June 30, 2009) for PSE.                             |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1 | Chief Executive Officer certification of Puget Sound Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Chief Financial Officer certification of Puget Sound Energy pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                       |
| 32.2 | Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                       |