---

#### UNITED STATES
                                             SECURITIES AND EXCHANGE COMMISSION
                                                   Washington, D.C. 20549

# FORM 10-Q

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

For the quarterly period ended June 30, 2003

       OR

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

For the transition period from __________ to __________

|            | Exact name of registrant as specified   | I.R.S.        
|----------- | --------------------------------------- | --------------
|            | in its charter, state of incorporation, | Employer      
|Commission  | address of principal executive offices, | Identification
|File Number | telephone number                        | Numbers       

|1-16305 | PUGET ENERGY, INC.              | 91-1969407
|------- | ------------------------------- | ----------
|        | A Washington Corporation.       |           
|        | 10885 N.E. 4th Street           |           
|        | Bellevue, Washington 98004-5515 |           
|        | (425) 454-6363                  |           

|1-4393 | PUGET SOUND ENERGY, INC.        | 91-0374630
|------ | ------------------------------- | ----------
|       | A Washington Corporation.       |           
|       | 10885 N.E. 4th Street           |           
|       | Bellevue, Washington 98004-5515 |           
|       | (425) 454-6363                  |           

Indicate by check mark whether the registrant  (1) has filed all reports  required to be filed by Section 13 or 15(d) of the Securities
Exchange  Act of 1934 during the  preceding  12 months (or for such shorter  period that the  registrant  was required to file for such
reports), and (2) has been subject to such filing requirements for the past 90 days.   
 Yes X       No ____

Indicate by check mark whether the  registrant is an  accelerated  filer (as defined in Rule 12b-2 of the Exchange Act).
Yes X       No ____

As of June 30, 2003, (i)
the number of shares of Puget Energy, Inc. (Puget Energy) common stock
outstanding was 94,031,408 ($.01 par value) and (ii) all of the outstanding
shares of Puget Sound Energy, Inc. (PSE) common stock were held by Puget Energy.

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|Table of Contents         
|--------------------------
|                          
|Filing Format             
|                          
|Forward-Looking Statements
|                          
|Part I.                   
|Item 1.                   
|                          
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|                          
|Item 2.                   
|                          
|                          
|Item 3.                   
|                          
|Item 4.                   
|                          
|Part II.                  
|Item 1.                   
|Item 4.                   
|Item 6.                   
|                          
|Signature                 
|Exhibit Index             
|                          

FILING FORMAT
        This
Quarterly Report on Form 10-Q is a combined quarterly report being filed separately by two
different registrants, Puget Energy and PSE. Any references in this report to the
Company are to Puget Energy and PSE collectively. PSE makes no representation
as to the information contained in this report relating to Puget Energy and the
subsidiaries of Puget Energy other than PSE and its subsidiaries.

# 

FORWARD-LOOKING
STATEMENTS
        Puget
Energy, Inc. (Puget Energy) and Puget Sound Energy, Inc. (PSE) are including the following
cautionary statement in this Form 10-Q to make applicable and to take advantage of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by or on behalf of Puget Energy or PSE. This report
includes forward-looking statements, which are statements of expectations, beliefs, plans,
objectives, assumptions of future events or performance. Words or phrases such as
anticipates, believes, estimates, expects,
intends, plans, predicts, projects,
will likely result, will continue or similar expressions identify
forward-looking statements.
        Forward-looking
statements involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed. Puget Energys and PSEs expectations,
beliefs and projections are expressed in good faith and are believed by Puget Energy and
PSE, as applicable, to have a reasonable basis, including without limitation,
managements examination of historical operating trends, data contained in records
and other data available from third parties, but there can be no assurance that Puget
Energys and PSEs expectations, beliefs or projections will be achieved or
accomplished. 
        In
addition to other factors and matters discussed elsewhere in this report, some important
factors that could cause actual results or outcomes for Puget Energy and PSE to differ
materially from those discussed in forward-looking statements include:

Risks
relating to the regulated utility business (PSE)

| | 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, financings, industry and rate
structures, transmission and generation business structures within PSE, acquisition and
disposal of assets and facilities, operation and construction of electric generating
facilities, distribution and transmission facilities, recovery of other capital
investments, recovery of power and gas costs and present or prospective wholesale and
retail competition;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | default
by counterparties in the wholesale natural gas and electricity markets that owe PSE money
or energy;
|- | ------------------------------------------------------------------------------------------------------------

| | deterioration
of liquidity in the forward markets in which PSE transacts hedges to manage its energy
portfolio risks  which can limit PSEs ability to enter into forward contracts and,
therefore, its ability to manage its portfolio risks;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | weather,
which can have a potentially serious impact on PSEs revenues and its ability to
procure adequate supplies of gas, fuel or purchased power to serve its customers and on
the cost of procuring such supplies;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | hydroelectric
 conditions,  which can have a potentially  serious impact on electric capacity and PSE's
ability to generate electricity;
|- | ----------------------------------------------------------------------------------------------------------------------------------------

| | the
stability and liquidity of wholesale energy markets generally, including the requirements
for PSE to post collateral to support its energy portfolio transactions and the effect of
price controls by FERC on the availability and price of wholesale energy purchases and
sales in the western United States;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the
effect of wholesale market structures  (including,  but not limited to, new market design
such as RTO West and Standard Market Design);
|- | -------------------------------------------------------------------------------------------------------------------------------------------

| | the
amount of collection, if any, of PSEs receivable from the California Independent
System Operator (CAISO) and the amount of refunds found to be due from PSE to the CAISO
or others;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | industrial,
commercial and residential growth and demographic patterns in the service territories of
PSE;
|- | ---------------------------------------------------------------------------------------------------------

| | general
economic conditions in the Pacific Northwest;
|- | -----------------------------------------------------

| | the
loss of significant customers or changes in the business of significant customers, which
may result in changes in  demand
for PSEs services;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------

| | plant
outages which can have an impact on PSE's expenses and its ability to procure  adequate
 supplies to replace the lost energy;
|- | -----------------------------------------------------------------------------------------------------------------------------------

| | the
failure of InfrastruX to service its obligations under its credit agreement, in which
case Puget Energy, as guarantor, may be required to satisfy these obligations, which
could have a negative impact on Puget Energys liquidity and access to capital;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the
inability to generate internal growth at InfrastruX, which could be affected by, among
other factors, InfrastruXs ability to expand the range of services offered to
customers, attract new customers, increase the number of projects performed for existing
customers, hire and retain employees and open additional facilities;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the
ability of InfrastruX to integrate acquired companies with existing operations without
substantial costs, delays or other operational or financial problems, which involves a
number of special risks;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the
effect of competition in the industry in which InfrastruX competes, including from
competitors that may have greater resources than InfrastruX, which may enable them to
develop expertise, experience and resources to provide services that are superior in both
price and quality;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the
extent to which existing electric power and gas companies or prospective customers will
continue to outsource services in the future, which may be impacted by, among other
things, regional and general economic conditions in the markets InfrastruX serves;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | delinquencies
associated with the financial conditions of InfrastruX's customers;
|- | ---------------------------------------------------------------------------------

| | the
impact of any goodwill impairments on the results of operations of InfrastruX arising
from its acquisitions, which could have a negative effect on the results of operations of
Puget Energy;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | the
impact of adverse weather conditions that negatively affect operating results;
|- | ----------------------------------------------------------------------------------

| | the
ability to obtain adequate bonding coverage and the cost of such bonding;
|- | -----------------------------------------------------------------------------

Risks
relating to both the regulated and non-regulated businesses

| | the
impact of acts of terrorism or similar significant events, such as the attack on
September 11, 2001;
|- | --------------------------------------------------------------------------------------------------------

| | the
ability of Puget Energy, PSE, and InfrastruX to access the capital markets to support
requirements for working capital, construction costs and the repayment of maturing debt;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | capital
market conditions, including changes in the availability of capital or interest rate
fluctuations;
|- | ----------------------------------------------------------------------------------------------------------

| | changes
in Puget Energys or PSEs credit ratings, which may have an adverse impact on
the availability and cost of capital for Puget Energy, PSE and InfrastruX;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | legal and regulatory proceedings;
|- | ---------------------------------

| | changes
in, and compliance with, environmental and endangered species laws, regulations,
decisions, and policies concerning the environment, natural resources, and fish and
wildlife (including the Endangered Species Act );
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | employee
workforce factors, including strikes, work stoppages, availability of qualified
employees, or the loss of a key executive; and
|- | ---------------------------------------------------------------------------------------------------------------------------------------

| | the
ability to obtain adequate insurance coverage and the cost of such insurance.
|- | ---------------------------------------------------------------------------------

Any
forward-looking statement speaks only as of the date on which such statement is made, and,
except as required by law, Puget Energy and PSE undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New factors emerge
from time to time and it is not possible for management to predict all such factors, nor
can it assess the impact of any such factor on the business or the extent to which any
factor, or combination of factors, may cause results to differ materially from those
contained in any forward-looking statement.

|PART I   FINANCIAL INFORMATION
|------------------------------

|Item 1. Financial
Statements
|----------------------------

PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME 
For the Three Months Ended June 30 
(Thousands except per share amounts) 
(Unaudited)

|                                                         | 2003 | 2002
|-------------------------------------------------------- | ---- | ----
|Operating Revenues:                                      |      |     
|Electric                                                 |      |     
|Gas                                                      |      |     
|Non-utility construction services                        |      |     
|Other                                                    |      |     
|                                                        
|Total operating revenues                                 |      |     
|                                                        
|Operating Expenses:                                      |      |     
|Energy costs:                                            |      |     
|Purchased electricity                                    |      |     
|Purchased gas                                            |      |     
|Electric generation fuel                                 |      |     
|Residential Exchange                                     |      |     
|Unrealized gain on derivative instruments                |      |     
|Utility operations and maintenance                       |      |     
|Other operations and maintenance                         |      |     
|Depreciation and amortization                            |      |     
|Conservation amortization                                |      |     
|Taxes other than income taxes                            |      |     
|Income taxes                                             |      |     
|                                                        
|Total operating expenses                                 |      |     
|                                                        
|Operating Income                                         |      |     
|Other income                                             |      |     
|                                                        
|Income Before Interest Charges and Minority Interest     |      |     
|Interest charges, net of AFUDC                           |      |     
|Minority interest in earnings of consolidated subsidiary |      |     
|                                                        
|Net Income                                               |      |     
|Less:  preferred stock dividends accrual                 |      |     
|                                                        
|Income for Common Stock                                  |      |     
|                                                        
|Basic common shares outstanding - weighted average       |      |     
|Diluted common shares outstanding - weighted average     |      |     
|                                                        
|Basic and diluted earnings per share                     |      |     
|                                                        

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

PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME 
For the Six Months Ended June 30 
(Thousands except per share amounts) 
(Unaudited)

|                                                                         | 2003 | 2002
|------------------------------------------------------------------------ | ---- | ----
|Operating Revenues:                                                      |      |     
|Electric                                                                 |      |     
|Gas                                                                      |      |     
|Non-utility construction services                                        |      |     
|Other                                                                    |      |     
|                                                                        
|Total operating revenues                                                 |      |     
|                                                                        
|Operating Expenses:                                                      |      |     
|Energy costs:                                                            |      |     
|Purchased electricity                                                    |      |     
|Purchased gas                                                            |      |     
|Electric generation fuel                                                 |      |     
|Residential Exchange                                                     |      |     
|Unrealized gain on derivative instruments                                |      |     
|Utility operations and maintenance                                       |      |     
|Other operations and maintenance                                         |      |     
|Depreciation and amortization                                            |      |     
|Conservation amortization                                                |      |     
|Taxes other than income taxes                                            |      |     
|Income taxes                                                             |      |     
|                                                                        
|Total operating expenses                                                 |      |     
|                                                                        
|Operating Income                                                         |      |     
|Other income                                                             |      |     
|                                                                        
|Income Before Interest Charges and Minority Interest                     |      |     
|Interest charges, net of AFUDC                                           |      |     
|Minority interest in earnings of consolidated subsidiary                 |      |     
|                                                                        
|Income Before Cumulative Effect of Accounting Change                     |      |     
|Cumulative effect of implementation of an accounting change, net of tax  |      |     
|                                                                        
|Net Income                                                               |      |     
|Less:  preferred stock dividends accrual                                 |      |     
|                                                                        
|Income for Common Stock                                                  |      |     
|                                                                        
|Basic common shares outstanding - weighted average                       |      |     
|Diluted common shares outstanding - weighted average                     |      |     
|                                                                        
|Basic earnings per share before cumulative effect of accounting change   |      |     
|Cumulative effect of accounting change                                   |      |     
|                                                                        
|Basic earnings per share                                                 |      |     
|                                                                        
|Diluted earnings per share before cumulative effect of accounting change |      |     
|Cumulative effect of accounting change                                   |      |     
|                                                                        
|Diluted earnings per share                                               |      |     
|                                                                        

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

PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended June 30 
(Dollars in Thousands) 
(Unaudited)

|                                                                           | 2003 | 2002
|-------------------------------------------------------------------------- | ---- | ----
|Net Income                                                                 |      |     
|                                                                          
|Other comprehensive income, net of tax:                                    |      |     
|Unrealized holding losses arising on marketable securities during the      |      |     
|period                                                                     |      |     
|Reclassification adjustment for realized gains on marketable securities    |      |     
|included in net income                                                     |      |     
|Foreign currency translation adjustment                                    |      |     
|Unrealized gains (losses) on derivative instruments during                 |      |     
|the period                                                                 |      |     
|Reversal of unrealized losses on derivative instruments settled during the |      |     
|period                                                                     |      |     
|                                                                          
|Other comprehensive income (loss)                                          |      |     
|                                                                          
|Comprehensive Income                                                       |      |     
|                                                                          

PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
For the Six Months Ended June 30 
(Dollars in Thousands) 
(Unaudited)

|                                                                           | 2003 | 2002
|-------------------------------------------------------------------------- | ---- | ----
|Net Income                                                                 |      |     
|                                                                          
|Other comprehensive income, net of tax:                                    |      |     
|Unrealized holding losses arising on marketable securities during the      |      |     
|period                                                                     |      |     
|Reclassification adjustment for realized gains on marketable securities    |      |     
|included in net income                                                     |      |     
|Foreign currency translation adjustment                                    |      |     
|Unrealized gains (losses) on derivative instruments during the period      |      |     
|Reversal of unrealized losses on derivative instruments settled during the |      |     
|period                                                                     |      |     
|                                                                          
|Other comprehensive income                                                 |      |     
|                                                                          
|Comprehensive Income                                                       |      |     
|                                                                          

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

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

|                                                                             | June 30,
2003 | December 31,
2002
|---------------------------------------------------------------------------- | ------------- | -----------------
|Utility Plant: (at original cost, including construction work in progress of |               |                  
|$140,696 and $108,658 respectively)                                          |               |                  
|Electric                                                                     |               |                  
|Gas                                                                          |               |                  
|Common                                                                       |               |                  
|Less:  Accumulated depreciation and amortization                             |               |                  
|                                                                            
|Net utility plant                                                            |               |                  
|                                                                            
|Other Property and Investments:                                              |               |                  
|Goodwill, net                                                                |               |                  
|Intangibles, net                                                             |               |                  
|Non-utility                                                                  |               |                  
|Other assets                                                                 |               |                  
|                                                                            
|Total other property and investments                                         |               |                  
|                                                                            
|Current Assets:                                                              |               |                  
|Cash                                                                         |               |                  
|Restricted cash                                                              |               |                  
|Accounts receivable, net                                                     |               |                  
|Unbilled revenue                                                             |               |                  
|Materials and supplies, at average cost                                      |               |                  
|Current portion of unrealized gain on derivative instruments                 |               |                  
|Prepayments and other                                                        |               |                  
|                                                                            
|Total current assets                                                         |               |                  
|                                                                            
|Other Long-Term Assets:                                                      |               |                  
|Regulatory asset for deferred income taxes                                   |               |                  
|Regulatory asset for PURPA contract buyout costs                             |               |                  
|Unrealized gain on derivative instruments                                    |               |                  
|Power cost adjustment mechanism                                              |               |                  
|Other                                                                        |               |                  
|                                                                            
|Total other long-term assets                                                 |               |                  
|                                                                            
|Total Assets                                                                 |               |                  
|                                                                            

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

PUGET ENERGY, INC.
CONSOLIDATED BALANCE SHEETS 
(Dollars in Thousands) 
(Unaudited) CAPITALIZATION AND LIABILITIES

|                                                                      | June 30,
2003 | December 31,
2002
|--------------------------------------------------------------------- | ------------- | -----------------
|Capitalization:                                                       |               |                  
|Common shareholders' investment:                                      |               |                  
|Common stock $0.01 par value, 250,000,000 shares authorized,          |               |                  
|94,031,408 and 93,642,659 shares outstanding                          |               |                  
|Additional paid-in capital                                            |               |                  
|Earnings reinvested in the business                                   |               |                  
|Accumulated other comprehensive income                                |               |                  
|Preferred stock not subject to mandatory redemption                   |               |                  
|Preferred stock subject to mandatory redemption                       |               |                  
|Corporation obligated, mandatorily redeemable preferred securities of |               |                  
|subsidiary trust holding solely junior subordinated debentures of the |               |                  
|corporation                                                           |               |                  
|Long-term debt                                                        |               |                  
|                                                                     
|Total capitalization                                                  |               |                  
|                                                                     
|Minority interest in equity of a consolidated subsidiary              |               |                  
|                                                                     
|Current Liabilities:                                                  |               |                  
|Accounts payable                                                      |               |                  
|Short-term debt                                                       |               |                  
|Current maturities of long-term debt                                  |               |                  
|Purchased gas liability                                               |               |                  
|Accrued expenses:                                                     |               |                  
|Taxes                                                                 |               |                  
|Salaries and wages                                                    |               |                  
|Interest                                                              |               |                  
|Other                                                                 |               |                  
|                                                                     
|Total current liabilities                                             |               |                  
|                                                                     
|Long-Term Liabilities:                                                |               |                  
|Deferred income taxes                                                 |               |                  
|Other deferred credits                                                |               |                  
|                                                                     
|Total long-term liabilities                                           |               |                  
|                                                                     
|Total Capitalization and Liabilities                                  |               |                  
|                                                                     

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

PUGET ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS 
For the Six Months Ended June 30 (Dollars in Thousands) 
(Unaudited)

|                                                              | 2003 | 2002
|------------------------------------------------------------- | ---- | ----
|Operating Activities:                                         |      |     
|Net Income                                                    |      |     
|Adjustments to reconcile net income to net cash provided      |      |     
|by operating activities:                                      |      |     
|Depreciation and amortization                                 |      |     
|Deferred federal and state income taxes and tax credits - net |      |     
|Net unrealized gains on derivative instruments                |      |     
|Cash collateral received from energy supplier                 |      |     
|Gain on sale of securities                                    |      |     
|Other                                                         |      |     
|Change in certain current assets and current liabilities:     |      |     
|Accounts receivable and unbilled revenue                      |      |     
|Materials and supplies                                        |      |     
|Prepayments and other                                         |      |     
|Purchase gas receivable/liability                             |      |     
|Accounts payable                                              |      |     
|Taxes payable                                                 |      |     
|Accrued expenses and other                                    |      |     
|                                                             
|Net Cash Provided by Operating Activities                     |      |     
|                                                             
|Investing Activities:                                         |      |     
|Construction and capital expenditures-excluding equity AFUDC  |      |     
|Additions to energy conservation program                      |      |     
|Acquisitions by InfrastruX, net of cash acquired              |      |     
|Restricted cash                                               |      |     
|Cash received from sale of securities                         |      |     
|Investment in variable rate bonds                             |      |     
|Other                                                         |      |     
|                                                             
|Net Cash Used by Investing Activities                         |      |     
|                                                             
|Financing Activities:                                         |      |     
|Change in short-term debt - net                               |      |     
|Dividends paid                                                |      |     
|Issuance of common stock                                      |      |     
|Redemption of preferred stock                                 |      |     
|Redemption of trust preferred securities                      |      |     
|Issuance of bonds and long-term debt                          |      |     
|Redemption of bonds and long-term debt                        |      |     
|Issuance costs of bonds and other                             |      |     
|                                                             
|Net Cash Used by Financing Activities                         |      |     
|                                                             
|Net Decrease in Cash                                          |      |     
|Cash at Beginning of Year                                     |      |     
|                                                             
|Cash at End of Period                                         |      |     
|                                                             
|Supplemental Cash Flow Information:                           |      |     
|Cash payments for:                                            |      |     
|Interest (net of capitalized interest)                        |      |     
|Income taxes                                                  |      |     
|                                                             

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

PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME 
For the Three Months Ended June 30 
(Dollars in Thousands) 
(Unaudited)

|                                          | 2003 | 2002
|----------------------------------------- | ---- | ----
|Operating Revenues:                       |      |     
|Electric                                  |      |     
|Gas                                       |      |     
|Other                                     |      |     
|                                         
|Total operating revenues                  |      |     
|                                         
|Operating Expenses:                       |      |     
|Energy costs:                             |      |     
|Purchased electricity                     |      |     
|Purchased gas                             |      |     
|Electric generation fuel                  |      |     
|Residential Exchange                      |      |     
|Unrealized gain on derivative instruments |      |     
|Utility operations and maintenance        |      |     
|Other operations and maintenance          |      |     
|Depreciation and amortization             |      |     
|Conservation amortization                 |      |     
|Taxes other than income taxes             |      |     
|Income taxes                              |      |     
|                                         
|Total operating expenses                  |      |     
|                                         
|Operating Income                          |      |     
|Other income                              |      |     
|                                         
|Income Before Interest Charges            |      |     
|Interest charges, net of AFUDC            |      |     
|                                         
|Net Income                                |      |     
|Less: preferred stock dividends accrual   |      |     
|                                         
|Income for Common Stock                   |      |     
|                                         

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

PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME 
For the Six Months Ended June 30 
(Dollars in Thousands) 
(Unaudited)

|                                                                        | 2003 | 2002
|----------------------------------------------------------------------- | ---- | ----
|Operating Revenues:                                                     |      |     
|Electric                                                                |      |     
|Gas                                                                     |      |     
|Other                                                                   |      |     
|                                                                       
|Total operating revenues                                                |      |     
|                                                                       
|Operating Expenses:                                                     |      |     
|Energy costs:                                                           |      |     
|Purchased electricity                                                   |      |     
|Purchased gas                                                           |      |     
|Electric generation fuel                                                |      |     
|Residential Exchange                                                    |      |     
|Unrealized gain on derivative instruments                               |      |     
|Utility operations and maintenance                                      |      |     
|Other operations and maintenance                                        |      |     
|Depreciation and amortization                                           |      |     
|Conservation amortization                                               |      |     
|Taxes other than income taxes                                           |      |     
|Income taxes                                                            |      |     
|                                                                       
|Total operating expenses                                                |      |     
|                                                                       
|Operating Income                                                        |      |     
|Other income                                                            |      |     
|                                                                       
|Income Before Interest Charges                                          |      |     
|Interest charges, net of AFUDC                                          |      |     
|                                                                       
|Income Before Cumulative Effect of Accounting Change                    |      |     
|Cumulative effect of implementation of an accounting change, net of tax |      |     
|                                                                       
|Net Income                                                              |      |     
|Less: preferred stock dividends accrual                                 |      |     
|                                                                       
|Income for Common Stock                                                 |      |     
|                                                                       

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

PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
For the Three Months Ended June 30
(Dollars in Thousands) 
(Unaudited)

|                                                                      | 2003 | 2002
|--------------------------------------------------------------------- | ---- | ----
|Net Income                                                            |      |     
|                                                                     
|Other comprehensive income, net of tax:                               |      |     
|Unrealized holding losses on marketable securities arising            |      |     
|during the period                                                     |      |     
|Reclassification adjustment for realized gains on marketable          |      |     
|securities included in net income                                     |      |     
|Unrealized gains (losses) on derivative instruments during the period |      |     
|Reversal of unrealized losses on derivative instruments               |      |     
|settled during the period                                             |      |     
|                                                                     
|Other comprehensive income (loss)                                     |      |     
|                                                                     
|Comprehensive Income                                                  |      |     
|                                                                     

PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
For the Six Months Ended June 30 
(Dollars in Thousands)
(Unaudited)

|                                                                      | 2003 | 2002
|--------------------------------------------------------------------- | ---- | ----
|Net Income                                                            |      |     
|                                                                     
|Other comprehensive income, net of tax:                               |      |     
|Unrealized holding losses on marketable securities arising            |      |     
|during the period                                                     |      |     
|Reclassification adjustment for realized gains on marketable          |      |     
|securities included in net income                                     |      |     
|Unrealized gains (losses) on derivative instruments during the period |      |     
|Reversal of unrealized losses on derivative instruments               |      |     
|settled during the period                                             |      |     
|                                                                     
|Other comprehensive income                                            |      |     
|                                                                     
|Comprehensive Income                                                  |      |     
|                                                                     

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

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

|                                                                             | June 30,
2003 | December 31,
2002
|---------------------------------------------------------------------------- | ------------- | -----------------
|Utility Plant: (at original cost, including construction work in progress of |               |                  
|$140,696 and $108,658 respectively)                                          |               |                  
|Electric                                                                     |               |                  
|Gas                                                                          |               |                  
|Common                                                                       |               |                  
|Less:  Accumulated depreciation and amortization                             |               |                  
|                                                                            
|Net utility plant                                                            |               |                  
|                                                                            
|Other Property and Investments                                               |               |                  
|                                                                            
|Current Assets:                                                              |               |                  
|Cash                                                                         |               |                  
|Restricted cash                                                              |               |                  
|Accounts receivable, net                                                     |               |                  
|Unbilled revenue                                                             |               |                  
|Materials and supplies, at average cost                                      |               |                  
|Current portion of unrealized gain on derivative instruments                 |               |                  
|Prepayments and other                                                        |               |                  
|                                                                            
|Total current assets                                                         |               |                  
|                                                                            
|Other Long-Term Assets:                                                      |               |                  
|Regulatory asset for deferred income taxes                                   |               |                  
|Regulatory asset for PURPA contract buyout costs                             |               |                  
|Unrealized gain on derivative instruments                                    |               |                  
|Power cost adjustment mechanism                                              |               |                  
|Other                                                                        |               |                  
|                                                                            
|Total other long-term assets                                                 |               |                  
|                                                                            
|Total Assets                                                                 |               |                  
|                                                                            

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

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

|                                                        | June 30,
2003 | December 31,
2002
|------------------------------------------------------- | ------------- | -----------------
|Capitalization:                                         |               |                  
|Common shareholders' investment:                        |               |                  
|Common stock, $10 stated value, 150,000,000 shares      |               |                  
|authorized, 85,903,791 shares outstanding               |               |                  
|Additional paid-in capital                              |               |                  
|Earnings reinvested in the business                     |               |                  
|Accumulated other comprehensive income                  |               |                  
|Preferred stock not subject to mandatory redemption     |               |                  
|Preferred stock subject to mandatory redemption         |               |                  
|Corporation obligated, mandatorily redeemable preferred |               |                  
|securities of subsidiary trust holding solely junior    |               |                  
|subordinated debentures of the corporation              |               |                  
|Long-term debt                                          |               |                  
|                                                       
|Total capitalization                                    |               |                  
|                                                       
|Current Liabilities:                                    |               |                  
|Accounts payable                                        |               |                  
|Short-term debt                                         |               |                  
|Current maturities of long-term debt                    |               |                  
|Purchased gas liability                                 |               |                  
|Accrued expenses:                                       |               |                  
|Taxes                                                   |               |                  
|Salaries and wages                                      |               |                  
|Interest                                                |               |                  
|Other                                                   |               |                  
|                                                       
|Total current liabilities                               |               |                  
|                                                       
|Long-Term Liabilities:                                  |               |                  
|Deferred income taxes                                   |               |                  
|Other deferred credits                                  |               |                  
|                                                       
|Total long-term liabilities                             |               |                  
|                                                       
|Total Capitalization and Liabilities                    |               |                  
|                                                       

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

PUGET SOUND ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS 
For the Six Months Ended June 30 
(Dollars in Thousands) 
(Unaudited)

|                                                          | 2003 | 2002
|--------------------------------------------------------- | ---- | ----
|Operating Activities:                                     |      |     
|Net Income                                                |      |     
|Adjustments to reconcile net income                       |      |     
|to net cash provided by operating activities:             |      |     
|Depreciation and amortization                             |      |     
|Deferred federal income taxes and tax credits - net       |      |     
|Net unrealized gains on derivative instruments            |      |     
|Cash collateral received from energy supplier             |      |     
|Gain on sale of securities                                |      |     
|Other                                                     |      |     
|Change in certain current assets and current liabilities: |      |     
|Accounts receivable and unbilled revenue                  |      |     
|Materials and supplies                                    |      |     
|Prepayments and other                                     |      |     
|Purchased gas receivable/liability                        |      |     
|Accounts payable                                          |      |     
|Taxes payable                                             |      |     
|Accrued expenses and other                                |      |     
|                                                         
|Net Cash Provided by Operating Activities                 |      |     
|                                                         
|Investing Activities:                                     |      |     
|Construction expenditures - excluding equity AFUDC        |      |     
|Additions to energy conservation program                  |      |     
|Restricted cash                                           |      |     
|Cash received from sale of securities                     |      |     
|Investment in variable rate bonds                         |      |     
|Other                                                     |      |     
|                                                         
|Net Cash Used by Investing Activities                     |      |     
|                                                         
|Financing Activities:                                     |      |     
|Change in short-term debt - net                           |      |     
|Dividends paid                                            |      |     
|Issuance of bonds                                         |      |     
|Redemption of preferred stock                             |      |     
|Redemption of trust preferred securities                  |      |     
|Redemption of bonds                                       |      |     
|Issuance cost of bonds and other                          |      |     
|                                                         
|Net Cash Used by Financing Activities                     |      |     
|                                                         
|Net Decrease in Cash                                      |      |     
|Cash at Beginning of Year                                 |      |     
|                                                         
|Cash at End of Period                                     |      |     
|                                                         
|Supplemental Cash Flow Information:                       |      |     
|Cash payments for:                                        |      |     
|Interest (net of capitalized interest)                    |      |     
|Income taxes (net of refunds)                             |      |     
|                                                         

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

# COMBINED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

(1)     Summary
of Consolidation Policy

BASIS OF PRESENTATION 
        Puget
Energy is an exempt public utility holding company under the Public Utility Holding
Company Act of 1935. Puget Energy owns Puget Sound Energy (PSE) and is a majority owner of
InfrastruX Group, Inc. (InfrastruX), a Washington corporation. 
        The
consolidated financial statements of Puget Energy include the accounts of Puget Energy and
its subsidiaries, PSE and InfrastruX. Puget Energy holds all the common shares of PSE and
holds a majority interest in InfrastruX. The results of PSE and InfrastruX are presented
on a consolidated basis. PSEs consolidated financial statements include the accounts
of PSE and its subsidiaries. Puget Energy and PSE are collectively referred to herein as
the Company. The consolidated financial statements are presented after
elimination of all significant intercompany items and transactions. Minority interests of
InfrastruXs operating results are reflected in Puget Energys consolidated
financial statements. Certain amounts previously reported have been reclassified to
conform with current year presentations with no effect on total equity or net income. 
        The
consolidated financial statements contained in this Form 10-Q are unaudited. In the
respective opinions of the managements of Puget Energy and PSE, all adjustments necessary
for a fair presentation of the results for the interim periods have been reflected and
were of a normal recurring nature. These condensed financial statements should be read in
conjunction with the audited financial statements (and the Combined Notes thereto)
included in the combined Puget Energy and PSE annual report on Form 10-K for the year
ended December 31, 2002, which is available at the Securities and Exchange Commission
website at www.sec.gov or at Puget Energys website at www.pse.com.

(2)    
          Earnings per Common Share(Puget Energy Only)

Puget
Energys basic earnings per common share have been computed based on weighted average
common shares outstanding of 93,928,000 and 93,833,000 for the three and six months ended
June 30, 2003, respectively, and 87,448,000 and 87,309,000 for the three and six months
ended June 30, 2002, respectively. 
        Puget
Energys diluted earnings per common share have been computed based on weighted
average common shares outstanding of 94,440,000 and 94,346,000 for the three and six
months ended June 30, 2003, respectively, and 87,646,000 and 87,508,000 for the three and
six months ended June 30, 2002, respectively. These shares include the dilutive effect of
securities related to employee and director equity plans.

(3)    
          Segment Information(Puget Energy Only)

Puget
Energy operates in primarily two business segments: Regulated Utility Operations, or PSE,
and Construction Services, or InfrastruX. Puget Energys regulated utility operation
generates, purchases, transports and sells electricity, and purchases, transports and
sells natural gas. The service territory of PSE covers approximately 6,000 square miles in
Washington State. InfrastruX specializes in contracting services to other gas and electric
utilities primarily in the Midwest, Texas and the eastern United States. 
        The
other principal non-utility line of business, which is a PSE subsidiary, is a real estate
investment and development company. Reconciling items between segments are not material.

Financial
data for business segments are as follows:

|(Dollars in Thousands)
Three Months Ended June 30, 2003 | PSE | InfrastruX  | Other | Total    
|------------------------------------------------------- | --- | ----------- | ----- | ---------
|                                                       
|Revenues                                                |     | $   464,943 |       | $  92,343
|Depreciation and amortization                           |     | 54,661      |       | 4,601    
|Income tax                                              |     | 2,290       |       | 2,568    
|Operating income                                        |     | 61,958      |       | 4,325    
|Interest charges, net of AFUDC                          |     | 44,814      |       | 1,148    
|Net income                                              |     | 17,562      |       | 2,833    
|Goodwill, net                                           |     | --          |       | 132,162  
|Total assets                                            |     | 5,154,879   |       | 343,562  
|                                                       

|Three Months Ended June 30, 2002 | PSE | InfrastruX | Other | Total  
|-------------------------------- | --- | ---------- | ----- | -------
|                                
|Revenues                         |     | $460,506   |       | $76,122
|Depreciation and amortization    |     | 54,000     |       | 3,253  
|Income tax                       |     | 9,874      |       | 2,315  
|Operating income                 |     | 70,547     |       | 4,177  
|Interest charges, net of AFUDC   |     | 47,340     |       | 1,342  
|Net income                       |     | 26,662     |       | 2,598  
|                                

|Six Months Ended June 30, 2003 | PSE | InfrastruX | Other | Total    
|------------------------------ | --- | ---------- | ----- | ---------
|                              
|Revenues                       |     | $1,069,729 |       | $ 163,020
|Depreciation and amortization  |     | 109,194    |       | 7,960    
|Income tax                     |     | 36,787     |       | (528     
|Operating income               |     | 155,773    |       | 1,846    
|Interest charges, net of AFUDC |     | 91,170     |       | 2,457    
|Net income                     |     | 65,543     |       | (609     
|                              

|Six Months Ended June 30, 2002 | PSE | InfrastruX | Other | Total   
|------------------------------ | --- | ---------- | ----- | --------
|                              
|Revenues                       |     | $1,138,246 |       | $136,883
|Depreciation and amortization  |     | 107,673    |       | 5,525   
|Income tax                     |     | 29,963     |       | 2,950   
|Operating income               |     | 145,021    |       | 6,162   
|Interest charges, net of AFUDC |     | 96,683     |       | 2,397   
|Net income                     |     | 52,280     |       | 3,524   
|                              

|At December 31, 2002 | PSE | InfrastruX        | Other | Total   
|-------------------- | --- | ----------------- | ----- | --------
|                    
|Goodwill, net        |     | $              -- |       | $125,555
|Total assets         |     | 5,208,487         |       | 319,248 
|                    

(4)     Accounting
for Derivative Instruments and Hedging Activities

The
Company has adopted Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS No. 138. SFAS No. 133 requires that all contracts considered to be derivative
instruments be recorded on the balance sheet at their fair value. The Company enters into
both physical and financial contracts to manage its energy resource portfolio including
forward physical and financial contracts, option contracts and swaps. The majority of
these contracts qualify for the normal purchase and normal sale exception.
        During
the three months ended June 30, 2003 and 2002, the Company recorded an increase in
earnings for the change in the market value of derivative instruments not meeting cash
flow hedge criteria of approximately $44 thousand pre-tax ($29 thousand after-tax) and
$0.3 million pre-tax ($0.2 million after-tax), respectively. During the six months ended
June 30, 2003 and 2002, the Company recorded an increase in earnings of approximately $0.5
million pre-tax ($0.3 million after-tax) and $11.7 million pre-tax ($7.6 million
after-tax), respectively. The $11.7 million pre-tax gain in 2002 represented the reversal
of unrealized losses on gas hedge contracts that were de-designated in the fourth quarter
of 2001 and the reversal of the mark-to-market unrealized loss on physical electric
contracts at December 31, 2001 that were settled in 2002.

        The
Company has two contracts outstanding with a counterparty whose senior unsecured debt
ratings are below investment grade. The first contract is a fixed for floating price
natural gas swap contract for which the Company has collected a collateral deposit in the
amount of $30.7 million from the counterparty to guarantee performance. The financial
contract will expire in June 2008 and is accounted for as a cash flow hedge under SFAS No.
133. The second is a physical gas supply contract expiring in December 2008, which has
been designated as a normal purchase under SFAS No. 133. The counterparty has continuously
performed on both contracts since the contracts were entered into in 2000 and the Company
believes it is probable that the counterparty will continue to perform.  The Company will
continue to monitor the performance of the counterparty.

(5)    
          Intangibles(Puget Energy Only)

Identifiable
intangible assets acquired as a result of acquisitions of companies are amortized over the
expected useful lives of the assets, which range from five to 20 years. In the second
quarter of 2003 a total of $0.5 million was added to intangible assets as a result of an
acquisition by InfrastruX during the quarter. InfrastruX assigned $0.2 million to
contractual customer relationships with an amortization period of approximately eight
years and $0.3 million to covenant not to compete with an amortization period of five
years. The total weighted average amortization period for the second quarter 2003
additions is approximately six years. Identifiable intangible assets are as follows:

|                                        |                  
|--------------------------------------- | -----------------
|At June 30, 2003
(Dollars in thousands) | Gross
Intangibles
|Covenant not to compete                 |                  
|Developed technology                    |                  
|Contractual customer relationships      |                  
|Patents                                 |                  
|                                       
|Total                                   |                  
|                                        |                  

|                                            |                  
|------------------------------------------- | -----------------
|At December 31, 2002
(Dollars in thousands) | Gross
Intangibles
|Covenant not to compete                     |                  
|Developed technology                        |                  
|Contractual customer relationships          |                  
|Patents                                     |                  
|                                           
|Total                                       |                  
|                                            |                  

The
identifiable intangible asset amortization expense for the three and six months ended June
30, 2003 was $0.5 million and $1.0 million, respectively, compared to $0.4 million and
$0.7 million for the same periods of 2002. The identifiable intangible assets amortization
for future periods based on the current acquisitions will be:

|(Dollars in thousands)         | 2003 | 2004 | 2005 | 2006 | 2007 | 2008
|------------------------------ | ---- | ---- | ---- | ---- | ---- | ----
|Future Intangible Amortization |      |      | $    | 920  |      | $   

(6)     Asset
Retirement Obligation

On
January 1, 2003 the Company adopted SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires legal obligations associated with the retirement
of long-lived assets to be recognized at their fair value at the time that the obligations
are incurred. Upon initial recognition of a liability, that cost is capitalized as part of
the related long-lived asset and allocated to expense over the useful life of the asset.
The Company recorded an after-tax charge to income of $0.2 million in the first quarter of
2003 for the cumulative effect of the accounting change. 
        The
Company identified various asset retirement obligations at January 1, 2003 which were
included in the cumulative effect of the accounting change. The Company has an obligation
(1) to dismantle two leased electric generation turbine units and deliver the turbines to
the nearest railhead at the termination of the lease in 2009; (2) to remove certain
structures as a result of re-negotiations with the Department of Natural Resources of a
now expired lease; (3) to replace or line all cast iron pipes in its service territory by
2007 as a result of a 1992 Washington Commission order; and (4) to restore ash holding
ponds at a jointly-owned coal-fired electric generating facility in Montana. 
        The
following table describes all changes to the Companys asset retirement obligation
liability during 2003:

|(Dollars in thousands)
At June 30, 2003          | Amount
|------------------------------------------------ | ------
|Asset retirement obligation at December 31, 2002 |       
|Liability recognized in transition               |       
|Accretion expense                                |       
|                                                
|Asset retirement obligation at June 30, 2003     |       
|                                                

The
pro forma asset retirement obligation liability balances as if SFAS No. 143 had been
adopted on January 1, 1999 (rather than January 1, 2003) are as follows:

|                                                                                   
|-----------------------------------------------------------------------------------
|Pro forma amounts of liability for asset retirement obligation at December 31, 1999
|Pro forma amounts of liability for asset retirement obligation at December 31, 2000
|Pro forma amounts of liability for asset retirement obligation at December 31, 2001
|Pro forma amounts of liability for asset retirement obligation at December 31, 2002

The
pro forma income statement effect as if SFAS No. 143 had been adopted on January
1, 1999
(rather than January 1, 2003) is as follows:

|                                               | Three Months Ended
June 30 | Six Months Ended
June 30
|---------------------------------------------- | -------------------------- | ------------------------
|(Dollars in thousands, except per share)       | 2003                       | 2002                    
|Income for common stock, as reported           |                            |                         
|Add: FAS 143 transition adjustment, net of tax |                            |                         
|Less: Pro forma accretion expense, net of tax  |                            |                         
|                                              
|Pro forma income for common stock              |                            |                         
|                                              
|Earnings per share:                            |                            |                         
|Basic as reported                              |                            |                         
|Diluted as reported                            |                            |                         
|Basic pro forma                                |                            |                         
|Diluted pro forma                              |                            |                         

(7)     Stock
Compensation

The
Company has various stock compensation plans which, as allowed by SFAS No. 123,
Accounting for Stock-Based Compensation, are accounted for in accordance with
APB No. 25, Accounting for Stock Issued to Employees, and related
interpretations. The exercise price of stock option grants outstanding was the market
value of the stock on the date of grant, so no compensation expense was recorded in the
income statement for the options. There was, however, compensation expense related to
other stock compensation plans. Had the Company used the fair value method of accounting
specified by SFAS No. 123, net income and earnings per share would have been as follows:

|                                                          | Three Months Ended
June 30 | Six Months Ended
June 30
|--------------------------------------------------------- | -------------------------- | ------------------------
|(Dollars in thousands, except per share)                  | 2003                       | 2002                    
|Income for common stock, as reported                      |                            |                         
|Add: Total stock-based employee compensation expense      |                            |                         
|included in net income, net of tax                        |                            |                         
|Less: Total stock-based employee compensation expense per |                            |                         
|the fair value method of SFAS 123, net of tax             |                            |                         
|                                                         
|Pro forma income for common stock                         |                            |                         
|                                                         
|Earnings per share:                                       |                            |                         
|Basic as reported                                         |                            |                         
|Diluted as reported                                       |                            |                         
|Basic pro forma                                           |                            |                         
|Diluted pro forma                                         |                            |                         

(8)     New
Accounting Pronouncements

In
January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46
 Consolidation of Variable Interest Entities (FIN 46). FIN 46 clarifies
the application of Accounting Research Bulletin No. 51  Consolidated Financial
Statements to certain entities in which equity investors do not have controlling
interest or sufficient equity at risk for the entity to finance its activities without
additional financial support. This Interpretation requires that if a business entity has a
controlling financial interest in a variable interest entity the financial statements must
be included in the consolidated financial statements of the business entity. The adoption
of this Interpretation for all interests in variable interest entities created after
January 31, 2003 was effective on that date. For variable interest entities created before
February 1, 2003, it is effective with the first fiscal year or interim period beginning
after June 15, 2003. The Company has evaluated its contractual arrangements and determined
PSEs 1995 conservation trust off-balance sheet financing transaction meets this
guidance. This transaction will increase the balance sheet assets and liabilities of Puget
Energy and PSE by approximately $11.6 million beginning July 2003 with no impact on
earnings. 
        In
May 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 150
 Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. SFAS 150 establishes the requirements for classifying and
measuring as liabilities certain financial instruments that embody obligations to redeem
the financial instrument by the issuer. The adoption of SFAS 150 is effective with the
first fiscal year or interim period beginning after June 15, 2003, however, prior periods
will not be restated for the new presentation. 
        SFAS 150 will require the Company to classify its
mandatorily redeemable preferred stock and
the corporation obligated, mandatorily redeemable preferred securities of subsidiary trust
holding solely junior subordinated debentures of the corporation (trust preferred
securities) as liabilities. As a result, the corresponding dividends on the mandatorily
redeemable preferred stock will be classified as interest expense on the income statement.
The Company currently classifies the dividends associated with the trust preferred
securities as interest expense. 
        In
April 2003, the FASB issued SFAS No. 149, Amendment on Statement 133 on Derivative
Instruments and Hedging Activities, which is effective for all contracts entered
into or modified after June 30, 2003 except for certain hedging relationships designated
after June 30, 2003. SFAS No. 149 clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in contracts and
for hedging activities under SFAS No. 133. The Company does not expect that SFAS No. 149
will have any significant impact on its financial statements. 
        The
Emerging Issues Task Force of the Financial Accounting Standards Board (EITF or Task
Force) at its June 2002 meeting came to a consensus on one of three items included in EITF
Issue 02-3 Accounting for Contracts Involved in Energy Trading and Risk Management
Activities. The Task Force has agreed that all mark-to-market gains and losses on
energy trading contracts whether realized or unrealized will be shown net in the income
statement (costs offset against revenues), irrespective of whether the contract is
physically settled. The presentation is applicable to financial statements for periods
ending after July 15, 2002. The Company performs risk management activities to optimize
the value of energy supply and transmission assets and to ensure that physical energy
supply is available to meet the customer demand loads. The Company also purchases energy
when demand exceeds available supplies in its portfolio; likewise the Company makes sales
to other utilities and marketers when surplus energy is available. These transactions are
part of the Companys normal operations to meet retail load. The Company has
reclassified all settled transactions that meet the definition of optimization (trading
transactions that optimize hydro resources, and purchases and sales between trading
points) net in the income statement to conform to the new presentation required under EITF
02-3. The Company previously reported these transactions when settled in a gross manner in
the income statement in electric operating revenue and purchased electricity expense.
Unrealized gains or losses on derivative instruments that are required to be
marked-to-market remain reflected in unrealized (gain) loss on derivative instruments on
Puget Energys and PSEs income statement as required by SFAS No. 133. The
adoption of EITF 02-3 does not have any impact on the previously reported net income of
the Company.

(9)     Other

On
May 27, 2003, Puget Energy entered into a $15 million, three-year credit agreement with a
bank. Under the terms of the agreement, Puget Energy will pay a floating interest rate on
borrowings based on the London inter-bank offered rate (LIBOR). The interest rate is set
for one, two, or three month periods at the option of Puget Energy with interest due at
the end of each period. Puget Energy will also pay a commitment fee on any unused portion
of the credit facility. On May 30, 2003, Puget Energy borrowed $5 million under the credit
agreement. The proceeds of the loan were invested in InfrastruX, which used the proceeds
to acquire a construction services company in New Mexico. 
        On
April 9, 2003, the Washington Commission approved an increase in the Purchased Gas
Adjusment (PGA) gas rates of approximately $103.6 million annually or 20.1%. The PGA
mechanism passes through to customers increases or decreases in the gas supply portion of
the natural gas service rates based upon changes in gas prices. PSEs gas margin and
net income is not affected by the change in the PGA rates. The PGA increase became
effective April 10, 2003.

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

The
following discussion of the Companys financial condition and results of operations
contains forward-looking statements that involve risks and uncertainties, such as
statements of the Companys plans, objectives, expectations and intentions. Words
such as anticipate, believe, expect,
future and intend and similar expressions are used to identify
forward-looking statements. However, these words are not the exclusive means of
identifying such statements. In addition, any statements that refer to expectations,
projections or other characterizations of future events or circumstances are
forward-looking statements. The Companys actual results could differ materially from
those anticipated in these forward-looking statements for many reasons, including the
factors described below and under the caption Forward-Looking Statements at
the beginning of this report. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Form 10-Q.

# Results of Operations

Puget Energy
        All
of the operations of Puget Energy are conducted through its subsidiaries, PSE and
InfrastruX. Puget Energys net income for the three months ended June 30, 2003 was
$22.4 million on operating revenues of $557.9 million, compared with net income of $31.4
million on operating revenues of $540.8 million for the same period in 2002. Net income
for common stock was $20.6 million for the second quarter of 2003 compared to $29.4
million for the second quarter of 2002. Basic and diluted earnings per share were $0.22
for the second quarter of 2003 compared to $0.34 for the second quarter of 2002. 

        For
the first six months of 2003, net income was $67.0 million on operating revenues of $1.2
billion, compared to net income of $57.8 million on operating revenues of $1.3 billion for
the corresponding period in 2002. Income for common stock was $63.3 million for the first
half of 2003 and $53.9 million for the same period in 2002. Basic and diluted earnings per
common share were $0.68 and $0.67, respectively, for the six months ended June 30, 2003
and $0.62 for the same period in 2002. 

        Net
income for common stock was negatively impacted by a decrease in PSEs net income for
common stock of $9.1 million for the three months ended June 30, 2003 compared to the same
period in 2002 due primarily to the impact of $25 million of interim electric tariff rate
increases effective April 1, 2002 through June 30, 2002 not recurring in 2003, offset by
the favorable impact of general tariff rate increases that became effective on July 1,
2002 for PSEs electric customers and September 1, 2002 for PSEs gas customers.
Net income for common stock was positively impacted by an increase in InfrastruXs
net income for common stock (net of minority interest) of $0.2 million for the three
months ended June 30, 2003 compared to the same period in 2002 due to increased revenue
from acquired companies in the second quarter of 2003 which were not part of InfrastruX
during the entire second quarter of 2002. 

        Net
income for common stock was positively impacted by an increase in PSEs net income
for common stock of $13.5 million for the six months ended June 30, 2003 compared to the
same period in 2002, due primarily to the favorable impact of general tariff rate
increases that became effective on July 1, 2002 for PSEs electric customers and
September 1, 2002 for PSEs gas customers. Net income for common stock was negatively
impacted by a decrease in InfrastruXs net income for common stock (net of minority
interest) of $4.1 million for the six months ended June 30, 2003 compared to the same
period in 2002 due to unusually severe weather which affected the first half of 2003
productivity and competitive pressures on profit margins.

Puget Sound Energy
        The
table below sets forth changes in the results of operations for Puget Sound Energy and its
subsidiaries.

Comparative Three and
Six Months Ended 
June 30, 2003 vs. June 30, 2002 
Increase (Decrease) 
(Dollars in Millions)

|                                                       | Three Month
Period | Six Month
Period
|------------------------------------------------------ | ------------------ | ----------------
|Operating revenue changes:                             |                    |                 
|Electric interim and general rate increase             |                    |                 
|BPA Residential Exchange Credit                        |                    |                 
|Electric sales to other utilities and marketers        |                    |                 
|Electric conservation trust credit                     |                    |                 
|Electric transportation revenue                        |                    |                 
|Electric load and other                                |                    |                 
|                                                      
|Total electric operating change                        |                    |                 
|                                                      
|Gas PGA rate and load change                           |                    |                 
|Gas general rate increase in base rates                |                    |                 
|Gas transportation revenue and other                   |                    |                 
|                                                      
|Total gas operating change                             |                    |                 
|                                                      
|Other operating revenue change                         |                    |                 
|                                                      
|Total operating revenue change                         |                    |                 
|                                                      
|Operating expense changes:                             |                    |                 
|Energy costs:                                          |                    |                 
|Purchased electricity                                  |                    |                 
|Purchased gas                                          |                    |                 
|Electric generation fuel                               |                    |                 
|Residential exchange power cost credit                 |                    |                 
|Unrealized (gain) loss on derivative instruments       |                    |                 
|Utility operations and maintenance:                    |                    |                 
|Production operations and maintenance                  |                    |                 
|Personal energy management expenses                    |                    |                 
|Low income program pass through expenses               |                    |                 
|Other utility operations and maintenance               |                    |                 
|Other operations and maintenance                       |                    |                 
|Depreciation and amortization                          |                    |                 
|Conservation amortization                              |                    |                 
|Taxes other than income taxes                          |                    |                 
|Income taxes                                           |                    |                 
|                                                      
|Total operating expense change                         |                    |                 
|                                                      
|Other income change (net of tax)                       |                    |                 
|Interest charges change                                |                    |                 
|Cumulative effect of an accounting change (net of tax) |                    |                 
|                                                      
|Net income change                                      |                    |                 
|                                                      

PSEs
operating revenues and associated expenses are not generated evenly during the year.
Variations in energy usage by consumers occur from season to season and from month to
month within a season, primarily as a result of weather conditions. PSE normally
experiences its highest retail energy sales in the first and fourth quarters of the year.
Varying wholesale electric prices and the amount of hydroelectric energy supplies
available to PSE also make quarter-to-quarter comparisons difficult. The following is
additional information pertaining to the changes outlined in the above table. 

        Electric
margin decreased $25.6 million for the three months ended June 30, 2003 compared to the
same period in 2002 primarily as a result of $25.0 million of rate relief in effect only
during the interim period of April 1, 2002 through June 30, 2002 and an increase in power
costs of $20.8 million which includes the Companys portion of underrecovered power
costs of $7.3 million, and lower margins due to warmer temperatures. These decreases were
partially offset by an increase of $17.9 million resulting from the general tariff rate
increase effective July 1, 2002. Electric margin increased $22.8 million for the six
months ended June 30, 2003 compared to the same period in 2002 primarily due to $27.3
million resulting from the general tariff rate increase effective July 1, 2002 offset by
the Companys portion of underrecovered power costs of $18.9 million. Electric margin
is electric sales to retail and transportation customers less pass-through tariff items,
revenue sensitive taxes, and the cost of generating and purchasing electric energy sold to
customers including transmission costs, to bring electric energy to PSEs service
territory. 

        Electric
margin for the three and six months ended June 30, 2003 and June 30 2002 is detailed
further as follows:

Electric Margin for the Three and Six Months Ended 
June 30, 2003 and June 30 2002 
(Dollars in Millions)

|                                             | Three Months Ended
June 30 | Six Months Ended
June 30
|-------------------------------------------- | -------------------------- | ------------------------
|                                             | 2003                       | 2002                    
|Electric retail sales revenue                |                            |                         
|Electric transportation revenue              |                            |                         
|Other electric revenue-gas supply resale     |                            |                         
|                                            
|Total electric revenue for margin            |                            |                         
|Adjustments for amounts included in revenue: |                            |                         
|Pass-through tariff items                    |                            |                         
|Pass-through revenue-sensitive taxes         |                            |                         
|Residential Exchange Credit                  |                            |                         
|                                            
|Net electric revenue for margin              |                            |                         
|Minus Power Costs:                           |                            |                         
|Fuel                                         |                            |                         
|Purchased electricity, net of sales to other |                            |                         
|utilities and marketers                      |                            |                         
|                                            
|Total electric power costs                   |                            |                         
|                                            
|Electric Margin                              |                            |                         
|                                            

Gas
margin increased $6.2 million for the three months ended June 30, 2003 compared to the
same period in 2002 due primarily to an increase of $7.5 million resulting from the 5.8%
general gas tariff rate increase effective September 1, 2002. Gas margin increased $5.5
million for the six months ended June 30, 2003 compared to the same period in 2002 due
primarily to an increase of $20.7 million resulting from the 5.8% general gas tariff rate
increase effective September 1, 2002 offset by gas therm sales declining 9.9% due to
warmer weather. Gas margin is gas sales to retail and transportation customers less
pass-through tariff items and revenue sensitive taxes, and the cost of gas purchased,
including gas transportation costs to bring gas to PSEs service territory.

Gas
margin for the three and six months ended June 30, 2003 and June 30, 2002 is detailed
further as follows:

Gas Margin for the Three and Six Months Ended 
June 30, 2003 and June 30 2002 
(Dollars in Millions)

|                                             | Three Months Ended
June 30 | Six Months Ended
June 30
|-------------------------------------------- | -------------------------- | ------------------------
|                                             | 2003                       | 2002                    
|Gas retail revenue                           |                            |                         
|Gas transportation revenue                   |                            |                         
|                                            
|Total gas revenue for margin                 |                            |                         
|Adjustments for amounts included in revenue: |                            |                         
|Gas revenue hedge                            |                            |                         
|Pass-through tariff items                    |                            |                         
|Pass-through revenue-sensitive taxes         |                            |                         
|                                            
|Net gas revenue for margin                   |                            |                         
|Minus Purchased Gas Costs                    |                            |                         
|                                            
|Gas Margin                                   |                            |                         
|                                            

Operating Revenues
 Electric
        Electric
operating revenues for the three months ended June 30, 2003 were $348.2 million, an
increase of $32.1 million compared to the same period in 2002 due primarily to wholesale
electric sales to other utilities and marketers which increased $40.2 million due to
greater surplus volumes due in part to hedging expected hydro shortfall in energy
production and higher prices in the wholesale electricity market. In February 2003, the
National Rivers Forecast Center predicted streamflows in the Columbia River Basin would be
approximately 76% of normal while actual streamflows were approximately 89% for the six
months ended June 30, 2003, resulting in additional hydro production. Wholesale sales
volumes increased by 1.0 billion kWh or 129.2% to 1.8 billion kWh as a result of warmer
temperatures compared to the same period in 2002 in the Pacific Northwest which provided
excess electric energy supplies for sales to the wholesale market as a result of a
reduction in retail sales and additional hydro production creating excess energy supply.
Temperatures based on heating-degree-days measured at Seattle-Tacoma airport during the
three month period ended June 30, 2003 were about normal, while second quarter 2002
temperatures were 12% colder than normal. Retail sales revenue decreased $7.7 million due
primarily to $25 million of interim rate relief ended June 30, 2002 offset by the effect
of a 4.6% electric general rate increase effective July 1, 2002 that increased electric
revenue by approximately $17.9 million in 2003. Retail sales volume increased 1.7% to 4.5
billion kWh from 4.4 billion kWh for the same period in 2002. 

        Electric
operating revenues for the six months ended June 30, 2003 were $765.2 million, an increase
of $85.8 million compared to the same period in 2002 due primarily to wholesale electric
sales to other utilities and marketers which increased $80.4 million due to greater
surplus volumes due in part to hedging expected hydro shortfall in energy production and
higher prices in the wholesale electricity market. Wholesale sales volumes increased by
1.7 billion kWh or 127.6% to 3.1 billion kWh as a result of warmer-than-normal
temperatures in the Pacific Northwest which provided excess electric energy supplies for
sales to the wholesale market as a result of a reduction in retail sales and additional
hydro production creating excess energy supply. Temperatures based on heating-degree-days
measured at Seattle-Tacoma airport during the six month period ended June 30, 2003 were
4.7% warmer than normal as compared to heating-degree-days being 9.2% cooler than normal
during the six month period ended June 30, 2002. Retail sales revenue decreased $14.8
million due primarily to $25 million of interim rate relief ended June 30, 2002 and warmer
temperatures in 2003 offset by the effect of a 4.6% electric general rate increase
effective July 1, 2002 that increased electric revenue by approximately $27.3 million in
2003. Retail sales volume decreased 0.8% to 9.8 billion kWh from 9.9 billion kWh for the
same period in 2002. 

        On
June 20, 2002, the Washington Commission approved and adopted the settlement stipulation
in the general rate case, putting new rates into effect on July 1, 2002. PSE established a
Power Cost Adjustment (PCA) mechanism in the rate case settlement. The PCA mechanism will
account for differences in PSEs modified actual power costs relative to a power cost
baseline. The mechanism will account for a sharing of costs and benefits that are
graduated over four levels of power cost variances, with an overall cap of $40 million
(+/-) over the four year period July 1, 2002 through June 30, 2006 plus 1% of the excess
over $40 million. PSEs share of the cost through June 30, 2003 was $24.1 million,
$18.9 million of which was incurred in the first six months of 2003. Utility
customers share of the costs, which were deferred for later recovery, through June
30, 2003 was $4.1 million, all of which was incurred in the second quarter of 2003. The
factors influencing the variability of power costs included in the proposal are primarily
weather and market related. 

        On
June 11, 2001, PSE and BPA entered into an amended settlement agreement regarding the
Residential Purchase and Sale Program, under which PSEs residential and small farm
customers would continue to receive benefits of federal power. Completion of this
agreement enabled PSE to continue to provide a Residential and Farm Energy Exchange Credit
to residential and small farm customers. The amended settlement agreement provides that,
for its residential and small farm customers, PSE will receive (a) cash payment benefits
during the period July 1, 2001 through September 30, 2006 and (b) benefits in the form of
power or cash payments during the period October 1, 2006 through September 30, 2011. 

        Under
the Residential Purchase and Sale Program, PSE reduces residential and small farm
customers revenue on a per kWh basis through the Residential and Farm Energy Exchange
Credit. The credit has no impact on PSEs electric margin or net income as a
corresponding reduction is included in purchased electricity expenses. The Residential
Purchase and Sale Program provides PSEs residential and small farm customers
benefits of lower-cost federal power. 

        On
June 17, 2002, PSE entered into an agreement with BPA which amended the payment provisions
of the amended settlement agreement to provide for conditional deferral of payment by BPA
of certain amounts to be paid under the original agreement. Under the modified agreement,
BPA will defer paying a portion of the benefits it would have otherwise paid. The amount
of benefits deferred will be $3.5 million each month for the eight-month period beginning
February 2003, for a total deferral of $27.7 million. Contemporaneously with entering into
this agreement with PSE, BPA is entering into other agreements similar to the agreement
with PSE through which other investor-owned utilities and BPA are agreeing to BPAs
deferral of payments in their fiscal year 2003. The total cumulative amount to be deferred
under the agreement with PSE and other such agreements equals $55 million, an amount that
will help BPA address its current financial difficulties. Absent certain adjustments, BPA
will begin paying back the amount deferred with interest over the sixty-month period
beginning October 2006. In January 2003, PSE filed revised tariff sheets with the
Washington Commission to reflect this modification to the agreement between PSE and the
BPA. The Washington Commission accepted the tariff changes and the BPA credit was changed
to $0.01740 per kWh, from $0.01817 per kWh, for the period February 15, 2003 through
September 30, 2006. On June 30, 2003, BPA adopted its final Record of Decision in the
February 2003 rate case, which established a formula for adjusting the rate which will
affect the level of residential exchange benefits for PSEs customers. However, the
actual rate level adjustment BPA expects to put into effect October 1, 2003 has not yet
been established. 

        For
the three and six months ended June 30, 2003, the benefits of the Residential and Farm
Energy Exchange credited to customers were $38.7 million and $93.8 million, respectively,
with a related offset to power costs. PSE received payments from BPA in the amount of
$33.5 million and $70.5 million during the three and six months ended June 30, 2003,
respectively. The difference between the customers credit and the amount received
from BPA reduces the previously deferred amount owed to customers. The aggregated deferred
amount is recorded on PSEs balance sheet as restricted cash. Absent certain
adjustments, the modified amended settlement agreement will provide for payments from BPA
in the amount of $630.6 million for the period January 2003 through September 2006 and for
pass-through of the same amount to eligible residential and farm customers. 

        There
are several actions in the U.S. Ninth Circuit Court of Appeals against BPA, in which the
petitioners assert that BPA acted contrary to law or without authority in deciding to
enter into, or in entering into or performing, a number of contracts, including the
contract between BPA and PSE. BPA rates used in such contract between BPA and PSE for
determining the amounts of money to be paid to PSE as residential exchange benefits during
the period October 1, 2001 through September 30, 2006 have been confirmed,
approved and allowed to go into effect by FERC on an interim basis, subject to refund with
interest. It is not clear what impact, if any, review of such rates and the
above-described U.S. Ninth Circuit Court of Appeals actions may have on PSE. PSE and other
investor owned utilities are presently negotiating a potential settlement of the U.S.
Ninth Circuit actions, whereby the litigation would be dismissed and BPAs discretion
over the level of 2007-2011 benefits would be reduced in consideration of a reduction in
current period benefits. PSE cannot presently predict the outcome of the settlement
negotiations. 

        To
meet customer demand, PSE dispatches resources in its power supply portfolio such as
fossil-fuel generation, owned and contracted hydro capacity and energy, and long-term
contracted power. However, depending principally upon availability of hydroelectric
energy, plant availability, fuel prices and/or changing load as a result of weather, PSE
may sell surplus power or purchase deficit power in the wholesale market. PSE manages its
core energy portfolio through short and intermediate-term off-system physical purchases
and sales, and through other risk management techniques. A PSE Risk Management Committee
oversees energy portfolio exposures. 

        During
the three and six months ended June 30, 2003, PSE collected in its electric general rate
tariff and remitted to a grantor trust $3.8 million and $7.7 million as compared to $2.7
million and $5.8 million for the same periods in 2002 as a result of PSEs 1995 sale
of future electric revenues associated with its investment in conservation assets. The
impact of the sale of revenue was offset by reductions in conservation amortization and
interest expenses. The principal amount owed by the trust to its bondholders was $11.6
million at June 30, 2003. 

        PSE
operates within the western wholesale market and has made sales into the California energy
market. During the fourth quarter of 2000, PSE made such sales to the California energy
market on which the receivable amount is still outstanding. PSE received a payment of
approximately $1.3 million on the amount owed in the second quarter of 2003. At June 30,
2003, PSEs receivable from the California Independent System Operators (CAISO) and
other counter-parties, net of reserves, was $24.1 million.

Operating Revenues
 Gas
        Retail
gas revenue for the three and six month periods ended June 30, 2003 decreased by $27.9
million and $154.3 million from the same periods in 2002, respectively, which included the
effect of a 5.8% gas general rate increase effective September 1, 2002 that increased gas
revenue by approximately $7.5 million and $20.7 million for the three and six month
periods ended June 30, 2003, respectively. Retail gas sales volumes decreased 7.4% from
158.5 million therms for the three months ended June 30, 2002 to 146.8 million therms for
the three months ended June 30, 2003 and decreased 13.0% from 505.5 million therms for the
six months ended June 30, 2002 to 440.0 million therms for the six months ended June 30,
2003 due primarily to warmer temperatures in the Pacific Northwest. 

        Purchased
Gas Adjustment (PGA) rates charged to customers were lower in the three and six month
periods ended June 30, 2003 compared to the same periods in 2002 as a result of rate
decreases of 7.3% and 12.5% which took effect September 1, 2002 and November 1, 2002,
respectively, offset by a rate increase of 20.1% which took effect April 10, 2003. Gas
supply costs are passed through to customers in the PGA. The PGA mechanism passes through
to customers increases or decreases in the gas supply portion of the natural gas service
rates based upon changes in the price of natural gas purchased from producers and
wholesale marketers or changes in gas pipeline transportation costs. 

        PSEs
gas margin (gas sales to retail and transportation customers less pass-through tariff items and revenue sensitive taxes, and
 the cost of gas
purchased, including gas transportation costs to bring gas to PSEs service
territory) and net income are not affected by changes under the PGA.

# 

Operating Expenses
        Purchased
electricityexpenses increased $63.7 million and $122.1 million for the three and six
month periods ended June 30, 2003 compared to the same periods in 2002. PSEs
hydroelectric production and related power costs in 2003 have been negatively impacted by
below normal winter precipitation and snow pack in the Pacific Northwest region associated
with an El Nino weather condition. The July 9, 2003 seasonal water supply forecast
published by the National Weather Service indicated that the total forecast runoff into
the Grand Coulee reservoir for the period January through July 2003 would be 89% of
normal. This compares to 108% of normal for the same period in 2002. The National Weather
Service forecast runoff into the Grand Coulee reservoir for the later period of April
through September 2003 is similar to the January through July 2003 period and is expected
to be 88% of normal. Primarily due to adverse hydro conditions in 2003, the Company
anticipates reaching the $40 million cumulative cap under the PCA mechanism by the end of
2003. Under the PCA mechanism, further increases in variable power costs through June 30,
2006 would be apportioned 99% to customers and 1% to PSE. PSEs share of power costs,
in excess of those set in rates, through June 30, 2003 was $24.1 million. 

        Purchased
gas expenses decreased $31.1 million and $149.0 million for the three and six month
periods ended June 30, 2003 compared to the same periods in 2002. The decrease was due to
lower consumption volumes as a result of warmer than normal temperatures and the impact of
decreased gas costs, which are passed through to customers through the PGA mechanism. The
PGA allows PSE to recover expected gas costs. PSE defers, as a receivable or liability,
any gas costs that exceed or fall short of the amount in PGA rates and accrues interest
under the PGA. The PGA balance was a liability at June 30, 2002 of $91.4 million compared
to a liability balance at June 30, 2003 of $14.3 million. 

        Electric
generation fuel expense decreased $3.6 million and $53.7 million for the three and six
month periods ended June 30, 2003 compared to the same periods in 2002 due to lower fuel
costs for PSE controlled gas-fired generation facilities related to economic dispatch of
those facilities. 

        Residential
exchange credits associated with the Residential Purchase and Sale Agreement with BPA
increased $6.0 million and $15.9 million for the three and six month periods ended June
30, 2003 when compared to the same periods in 2002, due to an increase in the Residential and Farm Energy
Exchange credit rate in 2002. For further details, see the amended Residential
Purchase and Sale Agreement between PSE and BPA discussion in Operating Revenues 
Electric. 

        Unrealized
gains on derivative instruments decreased $0.2 million and $11.2 million for the three
and six month periods ended June 30, 2003 compared to the same periods in 2002 due to changes in the market
value of derivative instruments. During the three months ended June 30, 2003 and 2002, the
Company recorded an increase in earnings for the change in the market value of derivative
instruments not meeting cash flow hedge criteria of approximately $44 thousand pre-tax
($29 thousand after-tax) and $0.3 million pre-tax ($0.2 million after-tax), respectively.
During the six months ended June 30, 2003 and 2002, the Company recorded an increase in
earnings of approximately $0.5 million pre-tax ($0.3 million after-tax) and $11.7 million
pre-tax ($7.6 million after-tax), respectively. The $11.7 million pre-tax gain in 2002
represented the reversal of unrealized losses on gas hedge contracts that were
de-designated in the fourth quarter of 2001 and the reversal of the mark-to-market
unrealized loss on physical electric contracts at December 31, 2001 that were settled in
2002. 

        
The Company has two contracts outstanding with a counterparty whose senior unsecured debt
ratings are below investment grade. The first contract is a fixed for floating price
natural gas swap contract for which the Company has collected a collateral deposit in the
amount of $30.7 million from the counterparty to guarantee performance. The financial
contract will expire in June 2008 and is accounted for as a cash flow hedge under SFAS No.
133. The second is a physical gas supply contract expiring in December 2008, which has
been designated as a normal purchase under SFAS No. 133. The counterparty has continuously
performed on both contracts since the contracts were entered into in 2000 and the Company
believes it is probable that the counterparty will continue to perform.
The Company will continue to monitor the performance of the counterparty. 

        Production
operations and maintenance cost decreased $2.9 million and $2.7 million for the three
and six month periods ended June 30, 2003 compared to the same periods in 2002 due
primarily to a $4.0 million pre-tax charge in the second quarter of 2002 related to an
industrial accident at Colstrip units 1 and 2 (of which PSE is a 50% owner) which did not
recur in 2003. 

        PSEs
Personal Energy ManagementTM energy-efficiency program costs
decreased $1.5 million and $3.8 million for the three and six month periods ended June 30,
2003 compared to the same periods in 2002, reflecting a decreased emphasis on the program
in light of relatively moderate energy prices and cancellation of the Time of Use program
in November 2002. 

        A
new Low-income Program approved by the Washington Commission in the general rate
case settlement began in July 2002 which resulted in increased costs of $1.8 million and
$4.6 million for the three and six months ended June 30, 2003 compared to the same periods
in 2002. These costs are fully recovered in retail rates beginning at the programs
inception on July 1, 2002 for electric and September 1, 2002 for gas. 

        Other
utility operations and maintenance costs increased $2.9 million for the three months
ended June 30, 2003 compared to the same period in 2002 due primarily to an increase of
$1.7 million of energy resources strategic planning and acquisition costs, $1.6 million in
administrative and general costs, and $1.1 million of customer accounts and sales
expenses, offset by a decrease of $2.5 million related to outsourcing certain operation
work which did not recur in 2003. Other utility operations and maintenance costs increased
$6.3 million for the six months ended June 30, 2003 compared to the same period in 2002
due primarily to an increase of $2.5 million of electric and gas system operations and
maintenance costs, $2.2 million of energy resources strategic planning and acquisition
costs, $3.5 million in administrative and general costs, and $2.4 million of customer
accounts and sales expenses, offset by a decrease of $4.5 million of severance and
benefits costs related to outsourcing certain operation work which did not recur in 2003. 

        Depreciation
and amortizationexpense for PSE increased $0.6 million and $1.5 million for the three
and six months ended June 30, 2003 compared to the same periods in 2002 due primarily to
the effects of new plant placed into service during the past year. 

        Conservation
amortization expense increased $2.7 million and $8.2 million for the three and six
months ended June 30, 2003 compared to the same periods in 2002 due to increased
conservation expenditures. These costs are recovered in an electric conservation rider and
a gas conservation tracker mechanism with no impact to earnings. 

        Taxes
other than income taxes decreased $6.1 million and $14.4 million for the three and six
months ended June 30, 2003 compared to the same periods in 2002 primarily due to lower
municipal and state excise taxes which are revenue based. In addition, PSE reached a
settlement with the Oregon State Department of Revenue related to a property tax dispute
resulting in a reduction recorded in the second quarter of 2003 of $1.4 million of amounts
previously accrued as expense. 

        Income
taxes decreased $9.1 million for the three months ended June 30, 2003 compared to the
same period in 2002 as a result of lower pre-tax operating income and a one-time $6.2
million tax benefit related to a favorable resolution of a federal income tax matter from
1997 to 2002. Income taxes increased $5.1 million for the six months ended June 30, 2003
compared to the same period in 2002 as a result of higher pre-tax operating income, offset
by the $6.2 million reduction described above.

Interest Charges
        Interest
charges decreased $2.5 million for the three months ended and $5.5 million for the six
months ended June 30, 2003 compared to the same periods in 2002. Interest on long-term
debt decreased $4.1 million for the three months ended and $6.2 million for the six months
ended June 30, 2003, compared to the same periods in 2002. This is primarily a result of
the maturity of $107 million of Medium Term Notes with interest rates ranging from 7.07%
to 7.91% during the third and fourth quarter of 2002 and the redemption of $19.7 million
of 8.231% Capital Trust I Preferred Securities in February 2003, and $60 million in Medium
Term Notes with interest rates ranging from 8.2% to 8.59% in May 2003.

InfrastruX
        The
table below sets forth changes in the results of operations for InfrastruX, net of
minority interest.

Comparative Three and
Six Months Ended 
June 30, 2003 vs. June 30, 2002 
Increase (Decrease) 
(Dollars in Millions)

|                                 | Three Month
Period | Six Month
Period
|-------------------------------- | ------------------ | ----------------
|Operating revenue change:        |                    |                 
|Other operating revenue          |                    |                 
|                                
|Operating expense changes:       |                    |                 
|Other operations and maintenance |                    |                 
|Depreciation and amortization    |                    |                 
|Taxes other than income taxes    |                    |                 
|Income taxes                     |                    |                 
|                                
|Total operating expense change   |                    |                 
|Other Income (net of tax) change |                    |                 
|Interest charges change          |                    |                 
|Minority interest change         |                    |                 
|                                
|Net income change                |                    |                 
|                                

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

InfrastruX
revenueincreased $16.2 million and $26.1 million for the three and six month periods
ended June 30, 2003 compared to the same periods in 2002 due primarily to acquisitions of
several companies during 2002 and 2003, which contributed an increase of $11.8 million and
$24.8 million, respectively. Existing company revenues increased for the six month period
ended June 30, 2003, but were adversely impacted by severe winter weather and snow
accumulation in the Northeast and Midwest and by extremely wet winter conditions in the
South, resulting in a significant slowdown in utility construction work. InfrastruX
operations are seasonal, with its highest revenues typically in the second and third
quarters of the year. 

        InfrastruX
operation and maintenance expenses increased $15.2 million and $31.4 million for the
three and six month periods ended June 30, 2003 compared to the same periods in 2002 due
to the additional costs related to acquired companies and weather-related problems in the
first half of 2003 that impacted efficiency and productivity. 

        Depreciation
and amortization expense increased by $1.3 million and $2.4 million for the three and
six month periods ended June 30, 2003 compared to the same periods in 2002 due to
acquisitions during 2002 and additional assets placed in service to support growth. 

        Income
taxes increased $0.3 million the three month period ended June 30, 2003 compared to
the same period in 2002 due primarily to operating income contributed from acquired
companies. Income taxes decreased $3.5 million for the six month period ended June 30,
2003 compared to the same period in 2002 due primarily to the tax benefit associated with
the first quarter 2003 net loss.

# Capital Expenditures,
Capital Resources and Liquidity

# 

# 

Capital Requirements
Contractual Obligations
and Commercial Commitments
        Puget Energy.The following are Puget Energy's aggregate consolidated (including PSE) contractual obligations and
commercial commitments as of June 30, 2003:

|Payments Due Per Period                      
|---------------------------------------------
|Contractual Obligations
(Dollars in millions)
|Long-term debt (1)                           
|Short-term debt                              
|Trust preferred securities (2)               
|Mandatorily redeemable preferred stock (3)   
|Preferred dividends (4)                      
|Service contract obligations                 
|Capital lease obligations                    
|Non-cancelable operating leases              
|Fredonia combustion turbines lease (5)       
|Energy purchase obligations                  
|Financial hedge obligations                  
|                                             
|Total contractual cash obligations           

|                                             | Amount of Commitment
Expiration Per Period
|-------------------------------------------- | ------------------------------------------
|Commercial Commitments
(Dollars in millions) | Total                                     
|Guarantees (6)                               |                                           
|Liquidity facilities - available (7)         |                                           
|Lines of credit - available (8)              |                                           
|Energy operations letter of credit (9)       |                                           
|                                            
|Total commercial commitments                 |                                           

---

|(1) | The
2003 long-term debt includes $3 million in first mortgage bonds that had a
                    maturity date in 2023, which were called for redemption by PSE in
April 2003.                     The redemption date is scheduled for August 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In
1997 and 2001, PSE formed Puget Sound Energy Capital Trust I and Puget Sound
                    Energy Capital Trust II, respectively, for the sole purpose of
issuing and                     selling preferred securities (Trust Securities) and
issuing common securities to                     PSE. The proceeds from the sale of Trust
Securities were used by the Trusts to                     purchase Junior Subordinated
Debentures (Debentures) from PSE. The Debentures                     are the sole assets
of the Trusts and PSE owns all common securities of the                     Trusts.
During the first quarter of 2003, PSE repurchased $19.7 million of the
                    Trust Securities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | On
July 14, 2003, PSE called outstanding shares of the mandatorily redeemable
                    7.75% Series Cumulative Preferred Stock, which will be redeemed on
August 15,                     2003. The redemption price will be $102.07 per share plus
accrued dividends.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | On
April 4, 2003, the Board of Directors of PSE declared a dividend payable on
                    July 1, 2003 for preferred stock outstanding on June 13, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | See
Fredonia 3 and 4 Operating Lease under Off-Balance Sheet
                    Arrangements below.
|--- | --------------------------------------------------------------------------------------------------------

|(6) | In
June 2001, InfrastruX signed a credit agreement with several banks to provide
                    up to $150 million in financing. Under the credit agreement, Puget
Energy is the                     guarantor of the line of credit.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | At
June 30, 2003, PSE had available a $250 million unsecured 364-day credit
                    agreement and $81.4 million in a receivable securization facility
which provides                     credit support for outstanding commercial paper
totaling $40 million and an                     outstanding letter of credit totaling
$0.5 million, thereby effectively reducing                     the available borrowing
capacity under this liquidity facility to $290.9                     million. At June 30,
2003, the Company had available $81.4 million of                     receivables for sale
under its three year $150.0 million receivables                     securitization
facility. See Accounts Receivable Securitization                     Program under
Off-Balance Sheet Arrangements below.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Puget
Energy has a $15 million line of credit with a bank. Currently, $5 million
                    is outstanding, reducing the available borrowing capacity under this
line of                     credit to $10 million. InfrastruX has $179.1 million in lines
of credit with                     various banks, including the $150 million line of
credit guaranteed by Puget                     Energy, which fund capital requirements of
InfrastruX and its subsidiaries.                     InfrastruX and its subsidiaries had
outstanding loans of $155.4 million and                     letters of credit of $4.1
million, effectively reducing the available borrowing                     capacity under
these lines of credit to $19.6 million.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | In
May 2002, PSE provided an energy trading counterparty a letter of credit in
                    the amount of $0.5 million to satisfy the counterpartys credit
                    requirements following PSEs senior unsecured debt downgrade in
October                     2001. The letter of credit has been renewed and expires on
March 15, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Puget
Sound Energy. The following are PSEs aggregate contractual obligations and
commercial commitments as of June 30, 2003:

|Payments
Due Per Period                      
|---------------------------------------------
|Contractual Obligations
(Dollars in millions)
|Long-term debt (1)                           
|Short-term debt                              
|Trust preferred securities (2)               
|Mandatorily redeemable preferred stock (3)   
|Preferred dividends (4)                      
|Service contract obligations                 
|Non-cancelable operating leases              
|Fredonia combustion turbines lease (5)       
|Energy purchase obligations                  
|Financial hedge obligations                  
|                                             
|Total contractual cash obligations           

|                                             | Amount of Commitment
Expiration Per Period
|-------------------------------------------- | ------------------------------------------
|Commercial Commitments
(Dollars in millions) | Total                                     
|                                            
|Liquidity facilities - available (6)         |                                           
|Energy operations letter of credit (7)       |                                           
|                                            
|Total commercial commitments                 |                                           

---

(1) See note (1) above.
 (2) See note (2) above.
 (3) See note (3) above.
 (4) See note (4) above. 
 (5) See note (5) above.
 (6) See note (7) above. 
 (7) See note (9) above.

Off-Balance Sheet ArrangementsConservation Trust.In
1995, PSE sold a stream of future electric revenues associated with $202.3 million of its
investment in conservation assets in its electric general rate tariff to a grantor trust
in order to obtain financing at rates superior to those otherwise available. As a result
of this sale, PSE collects these revenues from its electric customers and remits them to
the trust. During the three months ended June 30, 2003, PSE collected and remitted to the
grantor trust $3.8 million as compared to $2.7 million for the same period in 2002. The
impact of the sale of revenue was offset by reductions in conservation amortization and
interest expenses. The principal amount owed by the trust to its bondholders was $11.6
million at June 30, 2003. Under Financial Accounting Standards Board Interpretation Number
46, Consolidation of Variable Interest Entities, PSE will begin consolidating
the Conservation Trust in July 2003.

Accounts Receivable
Securitization Program.In order to provide a source of liquidity for PSE at
attractive cost of capital rates, in December 2002, PSE entered into a Receivables Sales
Agreement with Rainier Receivables, Inc., a wholly owned subsidiary of PSE, pursuant to
which PSE sold all of its utility customers accounts receivable and unbilled utility
revenues to Rainier Receivables. Concurrently with entering into the Receivables Sales
Agreement, Rainier Receivables entered into a Receivables Purchase Agreement with PSE and
several financial institutions. The Receivables Purchase Agreement allows Rainier
Receivables to sell the receivables purchased from PSE to the financial institutions. The
amount of receivables sold by Rainier Receivables is not permitted to exceed
$150 million at any time. 
        The
receivables securitization facility is the functional equivalent of a secured revolving
line of credit. In the event Rainier Receivables elects to sell receivables under the
Receivables Purchase Agreement, Rainier Receivables is required to pay the purchasers of
the receivables fees that are analogous to interest on a revolving line of credit. As
receivables are collected by PSE as agent for the receivables purchasers, the outstanding
amount of receivables purchased by the purchasers declines until Rainier Receivables
elects to sell additional receivables to the purchasers. 
        The
receivables securitization facility has a three year term, but is terminable by PSE and
Rainier Receivables upon notice to the receivables purchasers. At June 30, 2003 there were
no amounts outstanding under the accounts receivable securitization facility and the
maximum receivables available for sale was $81.4 million.

Fredonia 3 and 4 Operating
Lease.PSE leases two combustion turbines for its Fredonia 3 and 4 electric
generation facility pursuant to a master lease that was amended for this purpose in April
2001. The lease has a term expiring in 2011, but can be canceled by PSE after three years.
Payments under the lease vary with changes in the London inter-bank offered rate (LIBOR).
At June 30, 2003, PSEs outstanding balance under the lease was $60.2 million. The
expected residual value under the lease is the lesser of $37.4 million or 60% of the cost
of the equipment. In the event the equipment is sold to a third party upon termination of
the lease and the aggregate sales proceeds are less than the unamortized value of the
equipment, PSE would be required to pay the lessor contingent rent in an amount equal to
the deficiency up to a maximum of 87% of the unamortized value of the equipment.

Utility Construction Program.Current utility construction expenditures for generation, transmission and
distribution are designed to meet continuing customer growth and to improve efficiencies
of PSEs energy delivery systems. Construction expenditures, excluding equity
Allowance for Funds Used During Construction (AFUDC), were $134.6 million for the six
months ended June 30, 2003. PSE expects construction expenditures will be approximately
$272 million, $325 million and $280 million in 2003, 2004 and 2005, respectively. In
addition, PSE anticipates spending up to $250 million for new generating resources in
2004, subject to regulatory approval of the resources and related new revenue
requirements. The purchase of any generating resource would be funded through the issuance
of long-term debt and equity. PSE may arrange short-term bridge financing for the
resources pending the sale of equity and long-term debt. Construction expenditure
estimates are subject to periodic review and adjustment in light of changing economic,
regulatory, environmental and conservation factors.

Other Additions.Other
property, plant and equipment additions were $6.8 million for the six months ended June
30, 2003. Puget Energy expects InfrastruXs capital additions to be $16.6 million in
2003. Construction expenditure estimates are subject to periodic review and adjustment in
light of changing economic, regulatory, environmental, and conservation factors.

Refinancings.PSE
refinanced $138.5 million of its outstanding 5.875% to 7.25% series of
          Pollution Control Bonds on March 11, 2003. The remaining $23.4 million of
          outstanding 5.875% series Pollution Control bonds was refinanced on April 1,
          2003. These outstanding Pollution Control Bonds were refinanced with the
          proceeds from the issuance of two new series of Pollution Control Bonds: (1)
          $138.5 million 5.00% series and (2) $23.4 million 5.10% series. Each of these
          new series of Pollution Control Bonds matures on March 1, 2031.

Capital ResourcesCash From Operations.Cash
generated from operations for the six month period ended June 30, 2003 was $154.5 million.
During the period, $44.9 million in cash was used for AFUDC and payment of dividends.
Consequently, cash available for utility construction expenditures and other capital
expenditures was $109.6 million or 73.3% of the $149.5 million in construction
expenditures (net of AFUDC) and other capital expenditure requirements for the period. For
the same period in 2002, cash generated from operations was $436.0 million, $57.0 million
of which was used for AFUDC and payment of dividends. Therefore, cash available for
utility construction expenditures and other capital expenditures for the six month period
ended June 30, 2002 was $379.0 million. The reduction in cash generated from operations from 2002
is primarily due to refunds reducing the PGA balance. In the six months ended June 30,
2002, PSE received $128.6 million in excess of actual gas costs from customers through the
PGA mechanism compared to refunds to customers through the PGA mechanism of $69.5 million
for the six months ended June 30, 2003. In addition, cash outflows increased $7.9 million
in 2003 due to injection of gas into storage facilities as compared to cash inflows of
$29.0 million in 2002 due to withdrawals of gas from storage facilities for a total
decrease in cash flow of $36.9 million. Cash from accounts receivables and unbilled revenues
decreased by $17.3
million due primarily to 9.2% colder than normal temperatures in the six months ended June 30, 2002 compared to near
normal temperatures in 2003. 

        Puget
Energy and PSE expect to continue financing the utility construction program and other
capital expenditure requirements with internally generated funds and externally financed
capital.

Financing Program.Financing
utility construction requirements and operational needs is dependent upon the cost and
availability of external funds through capital markets and from financial institutions.
Access to funds is dependent upon factors such as general economic conditions, regulatory
authorizations and policies, and Puget Energys and PSEs credit ratings. The
Company expects to meet capital and operational needs for the balance of 2003 with cash
generated from operations and borrowings under its liquidity facilities.

Restrictive Covenants.In
determining the type and amount of future financing, PSE may be limited by restrictions
contained in its electric and gas mortgage indentures, articles of incorporation and
certain loan agreements. Under the most restrictive tests, at June 30, 2003, PSE could
issue:

| | approximately
$774.2 million of first mortgage bonds, as PSE has approximately $1.3 billion of electric
and gas bondable property available for use, subject to the interest coverage ratio
limitation of 2.0 times net earnings available for interest. PSEs interest coverage
ratio at June 30, 2003 was 2.7 times net earnings available for interest which would
allow issuance of approximately $855.4 million of additional first mortgage bonds, at an
assumed interest rate of approximately 6% on a ten-year first mortgage bond;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | approximately
$342.2 million of additional preferred stock at an assumed dividend rate of 7.75%; and
|- | ----------------------------------------------------------------------------------------------------

| | approximately
$272.9 million of unsecured long-term debt.
|- | ---------------------------------------------------------

Credit Ratings.Neither Puget
Energy nor PSE has any rating downgrade triggers that would accelerate the maturity dates
of outstanding debt. However, a downgrade in the credit ratings could adversely affect the
Companies ability to renew existing, or obtain access to new credit facilities and
could increase the cost of such facilities. For example, under PSEs revolving credit
facility, the spreads over the index and commitment fee increase as PSEs secured
long-term debt ratings decline. A downgrade in commercial paper ratings could preclude
PSEs ability to issue commercial paper under its current programs. The marketability
of PSE commercial paper is currently limited by the A-3/P-2 ratings by Standard &
Poors and Moodys Investors Service. A further downgrade in commercial paper
ratings could preclude entirely PSEs ability to issue commercial paper. In addition,
downgrades in any or a combination of PSEs debt ratings may allow counterparties on
a contract by contract basis in the wholesale electric, wholesale gas and financial
derivative markets to require PSE to post a letter of credit or other collateral, make
cash prepayments, obtain a guarantee agreement or provide other mutually agreeable
security.The
ratings of Puget Energy and PSE as of August 7, 2003 were:

|                               | Ratings          
|------------------------------ | -----------------
|                               | Standard & Poor's
|Puget Sound Energy             |                  
|Corporate credit/issuer rating | BBB-             
|Senior secured debt            | BBB              
|Shelf debt senior secured      | BBB              
|Senior unsecured               | *                
|Preferred stock                | BB               
|Commercial paper               | A-3              
|Subordinate                    | **               
|Revolving credit facility      | **               
|Ratings outlook                | Stable           
|Puget Energy                  
|Corporate credit/issuer rating | BBB-             

| | * | No
ratings provided. S&P and Moodys have placed an indicative rating of BB+ and
Baa3, respectively, on senior unsecured debt were the Company to issue any pursuant to
the $500 million shelf registration filed in February 2002. To date, the Company has not
issued any senior unsecured debt.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ** | No
ratings provided.
| | -- | --------------------

Moodys
Investors Service has stated that its negative outlook is based upon uncertainty about the
outcome of investigations by FERC of the Western power markets.

Shelf Registrations. In
February 2002, Puget Energy and PSE filed a shelf registration statement with the
Securities and Exchange Commission for the offering, on a delayed or continuous basis, of
up to $500 million of:

| | common
stock of Puget Energy,
|- | -----------------------------

| | senior
notes of PSE, secured by a pledge of PSEs first mortgage bonds,
|- | -----------------------------------------------------------------------

| | unsecured
debentures of PSE, and
|- | --------------------------------

| | trust
preferred securities of Puget Sound Energy Capital Trust III.
|- | -------------------------------------------------------------------

On
November 5, 2002, Puget Energy sold 5.75 million shares of common stock in a public
offering. The net proceeds of approximately $114.6 million were invested in PSE to reduce
its debt. On June 4, 2003, PSE issued $150 million of 3.363% Senior Notes, which have a
maturity date of June 1, 2008. Proceeds were used to retire long term debt. Approximately
$230 million of securities remain available for issuance under the shelf registration as
of June 30, 2003.

Liquidity Facilities and Commercial Paper.PSEs short-term borrowings and sales
of commercial paper are used to provide working capital and funding of utility
construction programs. 

        On
December 23, 2002, PSE entered into a $250 million unsecured 364-day credit agreement with
various banks and a $150 million 3-year receivables securitization program. At June 30,
2003, PSE had available $250 million in the unsecured credit agreement and $81.4 million
in the receivable securitization facility, which provide credit support for outstanding
commercial paper of $40 million and outstanding letters of credit of $0.5 million,
effectively reducing the available borrowing capacity under the liquidity facilities to
$290.9 million. 

        In
June 2001, InfrastruX signed a three-year credit agreement with several banks to provide
up to $150 million in financing. Puget Energy is the guarantor of the line of credit. In
addition, InfrastruXs subsidiaries have an additional $29.1 million in lines of
credit with various banks. Borrowings available for InfrastruX are used to fund
acquisitions and working capital requirements of InfrastruX and its subsidiaries. At June
30, 2003, InfrastruX and its subsidiaries had outstanding loans of $155.4 million and
letters of credit of $4.1 million, effectively reducing the available borrowing capacity
under these lines of credit to $19.6 million. 

        On
May 27, 2003, Puget Energy entered into a $15 million, three-year credit agreement with a
bank. Under the terms of the agreement, Puget Energy will pay a floating interest rate on
borrowings based on the London inter-bank offered rate (LIBOR). The interest rate is set
for one, two, or three month periods at the option of Puget Energy with interest due at
the end of each period. Puget Energy will also pay a commitment fee on any unused portion
of the credit facility. 

        On
May 30, 2003, Puget Energy borrowed $5 million under the credit agreement. The proceeds of
the loan were invested in InfrastruX, which used the proceeds to acquire a construction
services company in New Mexico.

Stock Purchase and Dividend
Reinvestment Plan.Puget Energy has a stock purchase and dividend reinvestment plan
pursuant to which shareholders and other interested investors may invest cash and cash
dividends in shares of Puget Energys common stock. Since new shares of common stock
may be purchased directly from Puget Energy, funds received may be used for general
corporate purposes. Puget Energy issued common stock from the Stock Purchase and Dividend
Reinvestment Plan of $3.9 million (176,806 shares) and $7.6 million (369,571 shares) for
the three and six months ended June 30, 2003 compared to $3.3 million (165,996 shares) and
$9.8 million (470,110 shares) for the same period in 2002. The decrease in the shares
issued under the Stock Purchase and Dividend Reinvestment Plan from the six month period
ended June 30, 2002 compared to the six month period ended June 30, 2003 was largely
attributable to the reduction of the common stock dividend on May 15, 2002 to a quarterly
dividend of $0.25 per share.

Common Stock Offering
Programs. To provide additional financing options, Puget Energy entered into
agreements on July 10, 2003 with two financial institutions under which Puget Energy may
offer and sell shares of its common stock from time to time through these institutions as
sales agents, or as principals. Sales of the common stock, if any, may be made by means of
negotiated transactions or in transactions that may be deemed to be
at-the-market offerings as defined in Rule 415 promulgated under the
Securities Act of 1933, including in ordinary brokers transactions on the New York
Stock Exchange at market prices. No shares have been issued under the agreements as of the
filing date of this report.

# 

Proceedings Relating to the Western Power Market 
California Independent System Operator (CAISO) Receivable and California Proceedings
        Puget
Energys and PSEs Annual Report on Form 10-K for the year ended December 31,
2002 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 include
summaries of the Western power market proceedings described below. This shortened
discussion is intended to enhance readability and understanding by providing a summary of
material developments in these proceedings that occurred during the period covered by this
report and of any material new proceedings instituted during the last quarter.  

        While
PSE cannot predict the outcome of any of the individual ongoing proceedings relating to
the Western power markets, PSE generally is pleased that FERC appears to be narrowing the
issues under review in the cases pending before it. The narrowing of issues allows PSE to
compare the allegations in the various proceedings with PSEs relevant records and to
better anticipate the likely outcome of each case. In the aggregate, PSE does not expect
the ultimate resolution of the issues and cases discussed below to have a material adverse
impact on the financial condition, results of operations or liquidity of the Company.

|1. | California
Independent System Operator (CAISO) Receivable.In 2001,           PG&E and
Southern California Edison defaulted on payment obligations owed to           various
energy suppliers, including the CAISO. The CAISO in turn defaulted on           its
payment obligations to various energy suppliers, including obligations to PSE
          relating to sales made by PSE into the California energy market during the
          fourth quarter of 2000 through the CAISO. After deducting a bad debt reserve
and           a transaction fee reserve totaling $41.5 million, PSE has a net
receivable           from the CAISO at June 30, 2003 of $24.1 million. PSE received $1.3
million in           the second quarter of 2003 relating to CAISO transactions. As
previously           described, the March 26, 2003, FERC Order on Proposed Findings on
Refund           Liability in Docket EL00-95 was silent as to the stipulation regarding
two PSE           non-spot-market transactions. The total gross revenue
associated           with the transactions is approximately $26 million. On April 25,
2003, PSE           requested clarification and/or rehearing to confirm those
transactions are not           subject to refund. No party has resisted PSEs
request. Based upon the           order, PSE has estimated a range related to the net
CAISO receivable to be           between $24.1 million and $25.6 million, including
interest on past due amounts.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | California
Refund Proceeding.On July 25, 2001, FERC ordered an           evidentiary hearing
(Docket No. EL00-95) to determine the amount of refunds due           to California
energy buyers, including the CAISO, for purchases made in the spot           markets
operated by the CAISO during the period October 2, 2000           through June 20, 2001.  
        On
March 26, 2003, FERC issued an Order on Proposed Findings on Refund Liability in Docket
EL00-95 that substantially adopted the recommendations made by the Administrative Law
Judge on December 12, 2002, except that the Order also substantially adopts the FERC Staff
gas price recommendation from the Staffs August 2002 report. Rehearing of that Order
is pending. The March 26 Order also permitted generators that wished to recover fuel costs
above the amount set using the Staff methodology to submit their actual cost
data by May 12, 2003. On May 12, 2003, PSE filed documents to support recovery
of its actual fuel costs above the amount set using the Staff methodology. On
May 21, 2003, the California parties filed a motion to reject all fuel cost
adjustment filings, including the filing made by PSE.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Pacific
Northwest Refund Proceeding.On June 25, 2003, FERC issued an           order
terminating the Pacific Northwest refund proceeding, Docket EL01-10,           largely on
procedural, jurisdictional and equitable grounds. Various parties           filed
rehearing requests on July 25, 2003. Based upon public statements by some           of
the refund claimants, it is likely they will ultimately appeal that order.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | Orders
to Show Cause.On June 25, 2003, FERC issued two show cause orders
          pertaining to its Western market investigations that commenced individual
          proceedings against many sellers. One show cause proceeding seeks to
investigate           approximately 26 entities that allegedly had potential partnerships          with
Enron. PSE is not named in that show cause order, though the order states
          additional parties may be added. The second show cause proceeding seeks to
          investigate approximately 55 entities that allegedly had engaged in potential
          gaming practices in the CAISO and California PX markets. PSE is one
          of the entities named in the gaming show cause order. On July 16,
          2003, CAISO provided data to FERC in connection with the gaming show cause
order           that indicates that, under the standards adopted by FERC in the June 25
orders,           CAISOs previously reported claims against PSE as to ricochet          transactions
completely disappear. PSE believes the remaining claims           (paper trading and
cut schedules) pose minimum exposure           for PSE. PSE is to respond to
the CAISO filing on or before September 2, 2003.           The two show cause orders also
expressly encourage the parties to settle the           cases with FERC staff. PSE
expects to explore that opportunity. PSE does not           believe that the orders to
show cause raise new issues or concerns or will have           a material adverse impact
on the financial condition, results of operation or           liquidity of the Company.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | Anomalous
Bidding Investigation. On June 25, 2003, FERC issued an order           commencing a
new investigatory proceeding, Docket No. IN03-10, to be conducted           through its
Office of Market Oversight and Investigations (OMOI). That docket is           to review
each sellers bids into the CAISO or California PX markets that           exceeded
$250/MWh during the period of May 1, 2000 to October 1, 2000. The OMOI           is to
determine if each such entitys bids show a pattern or an effort to
          manipulate the market, and if they do, to consider whether the entity should be
          required to disgorge any improper profits earned as a result of such patterns
or           efforts. PSE received a data request from the OMOI in this proceeding about
its           bids and responded on July 24, 2003. There is no established timetable
for           this proceeding, but FERC expects to work diligently to review the
practices of           each seller and to resolve the matter expeditiously. PSE does not
expect any           material adverse impacts on the financial condition of the Company
from this           FERC investigation.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Port
of Seattle Suit.On May 21, 2003, the Port of Seattle commenced suit           in
federal court in Seattle against 22 energy sellers into the California           market,
alleging that the conduct of those sellers during 2000 and 2001           constituted
market manipulation, violated antitrust laws, and damaged the Port           of Seattle,
which had a contract to purchase its complete energy supply from PSE           at the
time. The Ports contract with PSE linked the price of the energy           sold to
the Port to an index price for energy sold at wholesale at the           Mid-Columbia
trading hub. The Port alleged that the Mid-Columbia price was           intentionally
affected improperly by the defendants, including PSE. PSE has           moved to dismiss
this case; other defendants have moved to transfer the matter           to a
multi-district litigation panel in California. A conditional transfer order           was
issued in July 2003. PSEs motion to dismiss remains on the docket for
          hearing in September 2003.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Washington
and Oregon Class Action Cases Regarding Market Manipulation.          In December
2002, PSE was named as one of more than 30 defendants in two class           actions, one
filed in the federal district court in Seattle and the other in           Multnomah
County Circuit Court in Oregon. The complaints alleged that they were           brought
on behalf of all retail customers in Washington and Oregon,           respectively, and
seek relief against the defendants (each of which is a seller           of electric
energy at wholesale in certain markets) for unfair or           deceptive acts,
fraud by concealment, negligence and for an           accounting. No specific
amount of damages was pled in the complaints. In May           2003, the plaintiffs in
both cases filed motions for voluntary dismissal, which           were granted later that
same month by both courts. Although the motions           expressly reserved the right to
refile the complaints, no new case by those           plaintiffs or law firms has named
PSE.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other        On
March 31, 2003, PSE released for public comment its least-cost plan for meeting
customers energy needs through a diversified mix of energy supplies. The plan was
open for 30 days of public comment before review by the Washington Commission. After
incorporating the comments from the Washington Commission staff, key stakeholder groups,
and the public, PSEs plan was filed with the Washington Commission on April 30, 2003
and will be revised in August 2003 to incorporate forthcoming energy-efficiency data. PSE
is actively reviewing new generating resources alternatives.
        On
July 31, 2002, FERC issued its Notice of Proposed Rulemaking on Remedying Undue
Discrimination through Open Access Transmission Service and Standard Electricity Market
Design (SMD NOPR). The SMD NOPR would have major implications for the delivery of
electric energy throughout the U.S if enacted in its proposed form. Major elements of FERCs
proposal include: (a) the use of Network Access Service to replace the existing network
and point-to-point services. All customers, including load-serving entities on behalf of
bundled retail load, would be required to take network service under a new pro forma
tariff; (b) Vertically integrated utilities would be required to retain Independent
Transmission Providers to administer the new tariff and functionally operate transmission
systems; (c) The formation of Regional State Advisory Committees and other regional
entities to coordinate the planning, certification and siting of new transmission
facilities in cooperation with states. State regulators and industry representatives have
pointed out that the western North American electricity market has unique characteristics
that may not readily lend itself to the Standard Market Design proposed by FERC. FERC has
expressed its willingness to offer regional flexibility in its order on RTO West, Docket
Nos. RT01-35-005 and RT01-35-007, issued September 18, 2002. In April 2003, FERC issued a
white paper responding to concerns of state regulators regarding the impact of the SMD
proposal on the western market. PSE cannot predict the outcome of the SMD NOPR or whether
the ultimate resolution will have a material impact on the financial condition, results
of operations or liquidity of the Company.

Item 3.    Quantitative and
Qualitative Disclosure About Market Risk

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

Portfolio Management.The
nature of serving regulated electric customers with its wholesale portfolio of owned and
contracted resources does expose the Company to some volumetric and commodity price risks
within the sharing mechanism of the PCA. The Companys energy risk management
function monitors and manages these risks using analytical models and tools. The Company
manages its energy supply portfolio to achieve three primary objectives:
       (i)     
          Ensure that physical energy supplies are available to serve retail customer
          requirements;
       (ii)     Manage portfolio risks to limit undesired impacts on the
          Companys financial results and to stabilize
                 earnings; and 
       (iii)    Optimize the value of the Companys energy supply assets.

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

        The
Companys energy risk management staff develops hedging strategies for the
Companys energy supply portfolio. The first priority is to protect against unwanted
risk exposure. The second priority is to optimize excess capacity or flexibility within
the wholesale portfolio. Most hedges can be implemented in ways that retain the
Companys ability to use its energy supply optimization opportunities. Still other
hedges are structured similarly to insurance instruments, where PSE pays an insurance
premium to protect against certain extreme conditions. 

        Portfolio
exposure is managed in accordance with Company polices and procedures. The Risk Management
Committee, which is composed of Company officers, provides policy level and strategic
direction for management of the energy portfolio. The Audit Committee of the
Companys Board of Directors has oversight of the Risk Management Committee.


        The
prices of energy commodities are subject to fluctuations due to unpredictable factors
including weather, generation outages and other factors which impact supply and demand.
The volumetric and commodity price risk is a consequence of purchasing energy at fixed and
variable prices and providing deliveries at different tariff and variable prices. Costs
associated with ownership and operation of production facilities are another component of
this risk. The Company may use forward delivery agreements, swaps and option contracts for
the purpose of hedging commodity price risk. Without jeopardizing the security of supply
within its portfolio, the Company will also engage in optimizing the portfolio.
Optimization may take the form of utilizing excess capacity, shaping flexible resources to
capture their highest value, utilizing transmission capacity or capitalizing on market
price movement. As a result, portions of the Companys energy portfolio are monetized
through use of forward price instruments. 

        The
regulatory mechanisms of the PGA and the PCA mitigate the impact of commodity price
volatility upon the Company. The PGA mechanism passes through to customers increases and
decreases in the cost of natural gas supply. The PCA mechanism provides for a sharing of
costs and benefits that are graduated over four levels of power cost variances with an
overall cap of $40 million (+/-) plus 1% of the excess over the $40 million cap over the
four year period ending June 30, 2006. 

        Transactions
that qualify as hedge transactions under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, are recorded on the balance sheet at fair value.
Changes in fair value of the Companys derivatives are recorded each period in
current earnings or other comprehensive income. Short-term derivative contracts for the
purchase and sale of electricity are valued based upon daily quoted prices from an
independent energy brokerage service. Values for short-term and medium-term natural gas
swap contracts are derived from a combination of quotes from several independent energy
brokers and are updated daily. Long-term gas swap contracts are valued based on published
pricing from a combination of independent brokerage services and are updated monthly.
Option contracts are valued using market quotes and a Monte Carlo simulation-based model
approach. 

        At
June 30, 2003, the Company had an after-tax net asset of approximately $15.9 million of
energy contracts designated as qualifying cash flow hedges and a corresponding unrealized
gain amount in other comprehensive income. The Company also had energy contracts that were
marked-to-market through current earnings for the second quarter of 2003 of $0.4 million
after-tax. A hypothetical 10% increase in the market prices of natural gas and electricity
would increase the fair value of qualifying cash flow hedges by approximately $7.1 million
after-tax and would increase current earnings for those contracts marked-to-market in
earnings by an immaterial amount.

Interest Rate Risk.The
Company believes its interest rate risk primarily relates to the use of short-term debt
instruments, variable rate leases and long-term debt financing needed to fund capital
requirements. The Company manages its interest rate risk through the issuance of mostly
fixed-rate debt of various maturities. The Company does utilize bank borrowings,
commercial paper and line of credit facilities to meet short-term cash requirements. These
short-term obligations are commonly refinanced with fixed-rate bonds or notes when needed
and when interest rates are considered favorable. The Company may enter into swap
instruments to manage the interest rate risk associated with these debts and did not have
any swap instruments outstanding as of June 30, 2003.

Item 4.    Controls and Procedures

Evaluation of disclosure controls
and procedures. Under the supervision and with the participation of Puget
Energys and PSEs management, including the Companies Chief Executive
Officer and Chief Financial Officer, Puget Energy and PSE have evaluated the effectiveness
of the Companies disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934) as of the end of the fiscal quarter covered by
this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer of Puget Energy and PSE concluded that these disclosure controls and procedures
are effective as of the end of the quarter.

Changes in internal controls over
financial reporting.There have been no significant changes in Puget Energys or
PSEs internal control over financial reporting during the quarter covered by this
report that have materially affected, or are reasonably likely to materially affect, Puget
Energys or Puget Sound Energys internal control over financial reporting.

# PART II  OTHER INFORMATION

Item 1. Legal Proceedings

See
the section titled Proceedings Relating to the Western Power Market under Item
2 Managements Discussion and Analysis of Financial Conditions and Results of
Operations of this Quarterly Report on Form 10-Q. 

        Contingencies
arising out of the normal course of the Companys business exist at June 30, 2003.
The ultimate resolution of these issues in part or in the aggregate is not expected to
have a material adverse impact on the financial condition, results of operations or
liquidity of the Company.

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

Puget
Energys annual meeting of shareholders was held on May 13, 2003. At the annual
meeting, the shareholders elected three directors to hold office until the annual meeting
of shareholders in 2006 or until their successors are elected and qualified. The vote was
as follows:

|                   | Number of Shares
|------------------ | ----------------
|
|TERM EXPIRING 2006 |                 
|Douglas P. Beighle | 77,926,652      
|Craig W. Cole      | 78,640,366      
|Tomio Moriguchi    | 77,983,759      

There
were no broker non-votes.

The
terms of the following directors continued after the annual meeting:

Charles W. Bingham
               Phyllis J. Campbell
               Robert Dryden
               Kenneth P. Mortimer
               Sally G. Narodick
               Stephen P. Reynolds

|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------

|(a) |  | See
Exhibit Index for list of exhibits.
|--- |  | ---------------------------------------

|(b) |  | Reports
on Form 8-K
|--- |  | -------------------

| |  | Filed by
Puget Energy & Puget Sound Energy:
| |  | -------------------------------------------

| |  | Form 8-K
dated April 23, 2003, Item 9  Regulation FD Disclosure, related to the release of
the first quarter earnings.
| |  | -----------------------------------------------------------------------------------------------------------------------

| |  | Filed by
Puget Sound Energy:
| |  | ----------------------------

| |  | Form 8-K
dated June 6, 2003, Item 5  Other Events, related to filing Form S-3 for the
issuance of $150,000,000 Senior Notes.
| |  | -----------------------------------------------------------------------------------------------------------------------------

# SIGNATURES

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

|                     | PUGET ENERGY, INC.
PUGET SOUND ENERGY, INC.                                                                                                                        
|-------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                     | /S/ JAMES W. ELDREDGE                                                                                                                                              
|                     | James W. Eldredge
Corporate Secretary and Chief Accounting Officer                                                                                                 
|                     |                                                                                                                                                                    
|Date: August 8, 2003 | Chief accounting officer and officer duly authorized to sign this
                                                              report on behalf of each registrant

# EXHIBIT INDEX

The following exhibits are filed
herewith:

| | 4.1 | Pledge
Agreement dated March 11, 2003 between Puget Sound Energy and Wells Fargo Bank Northwest,
National Association, as Trustee (incorporated herein by reference to Exhibit 4.24 to the
Companys Post-Effective Amendment No. 1 to Registration Statement on Form S-3 dated
July 11, 2003, Commission File No. 333-82940-02)
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2 | Loan
Agreement dated as of March 1, 2003, between the City of Forsyth, Rosebud County, Montana
and Puget Sound Energy (incorporated herein by reference to Exhibit 4.25 to the Companys
Post-Effective Amendment No.1 to Registration Statement on Form S-3, dated July 11, 2003,
Commission file No. 333-82490-02).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 12.1 | Statement
setting forth computation of ratios of earnings to fixed charges (1998 through 2002 and
12 months ended June 30, 2003) for Puget Energy.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 12.2 | Statement
setting forth computation of ratios of earnings to fixed charges (1998 through 2002 and
12 months ended June 30, 2003) for PSE.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------

| | 31.1 | Chief
Executive Officer certification of Puget 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 Energy pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 31.3 | 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.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 31.4 | 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.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------