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**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**
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For the quarterly period ended March 31, 2001
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OR
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**[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
**THE SECURITIES EXCHANGE ACT OF 1934**
For theTransition period from ________ to _________

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                 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

1-16305          **PUGET ENERGY, INC.**                                 91-1969407
                 A Washington Corporation
                 411 - 108th Avenue N.E.
                 Bellevue, Washington 98004-5515
                 (425) 454-6363

1-4393           **PUGET SOUND ENERGY, INC.**                            91-0374630
                 A Washington Corporation
                 411 - 108th Avenue N.E.
                 Bellevue, Washington 98004-5515
                 (425) 454-6363
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     Indicate   by  check   markwhether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) or the  Securities  Exchange  Act of 1934  during the  preceding  12months (or for such shorter  period that the registrant was required to file forsuch reports), and (2) has been subject to such filing requirements for the past90 days.   Yes X   No ____--------------------
     As of March 31, 2001, (i) thenumber of shares of Puget Energy, Inc.  (“Puget  Energy”) common stockoutstanding  was  86,167,199  ($.01 par value)  and (ii) all of the  outstandingshares of Puget Sound Energy, Inc.  (“PSE”)  common stock were held byPuget Energy.
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**Table of Contents**                                                                      Page-----------------                                                                    Number                                                                                     ------Filing Format                                                                             2Part I.   Financial InformationItem 1.   Financial Statements          Puget Energy, Inc.              Consolidated Statements of Income - 3 months ended March 31, 2001 and 2000   3              Consolidated Statements of Comprehensive Income - 3 months endedMarch 31, 2001 and 2000                                             4              Consolidated Balance Sheets - March 31, 2001 and December 31, 2000           5              Consolidated Statements of Cash Flows - 3 months endedMarch 31, 2001 and 2000                                             7          Puget Sound Energy, Inc.              Consolidated Statements of Income - 3 months ended March 31, 2001 and 2000   8              Consolidated Statements of Comprehensive Income - 3 months endedMarch 31, 2001 and 2000                                             9              Consolidated Balance Sheets - March 31, 2001 and December 31, 2000          10              Consolidated Statements of Cash Flows - 3 months endedMarch 31, 2001 and 2000                                            12          Notes to Consolidated Financial Statements                                      13Item 2.   Management's Discussion and Analysis of Financial Conditionand Results of Operations                                                       17Item 3.   Quantitative and Qualitative Disclosure About Market Risk                       23Part II.  Other InformationItem 1.   Legal Proceedings                                                              24Item 6.   Exhibits and Reports on Form 8-K                                                24Signature                                                                                 25
**Filing Format**

     This Quarterly Report on Form10-Q is a combined  quarterly  report being filed  separately  by two  differentregistrants:  Puget Energy and PSE. Puget Energy became the holding  company forPSE on January 1, 2001.  Any  references  in this report to the "Company" are toPuget  Energy  and PSE  collectively.  PSE  makes  no  representation  as to theinformation   contained  in  this  report  relating  to  Puget  Energy  and  thesubsidiaries of Puget Energy other than PSE and its subsidiaries.

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PART I    FINANCIAL INFORMATIONItem 1.   Financial StatementsPUGET ENERGY, INC                       CONSOLIDATED STATEMENTS OF INCOME                      For the Three Months Ended March 31                      (Thousands except per share amounts)                                  (Unaudited)                                                                    2001              2000                                                            -------------      ------------Operating Revenues:     Electric                                                 $  765,007        $  438,356     Gas                                                         304,270           205,469     Other                                                        50,587             3,398                                                            -------------      ------------          Total operating revenue                              1,119,864           647,223                                                            -------------      ------------Operating Expenses:Energy costs:     Purchased electricity                                       390,216           196,203     Purchased gas                                               216,609           108,205     Electric generation fuel                                    102,384            20,749     Residential Exchange                                        (16,741)          (12,199)Utility operations and maintenance                                61,179            54,878Other operations and maintenance                                  30,140             3,775Depreciation and amortization                                     53,128            45,885Conservation amortization                                          1,601             2,619FAS-133 unrealized loss on derivative instruments                 26,466                 -Taxes other than federal income taxes                             70,081            58,485Federal income taxes                                              54,260            52,738                                                            -------------      ------------          Total operating expenses                               989,323           531,338                                                            -------------      ------------Operating Income                                                 130,541           115,885Other Income                                                       1,941             4,390                                                            -------------      ------------Income Before Interest Charges                                   132,482           120,275Interest Charges, Net of AFUDC                                    45,435            42,083                                                            -------------      ------------Income Before Cumulative Effect of Accounting Charge              87,047            78,192Cumulative Effect of Implementation of FAS-133 Derivative   Instruments and Hedging Activities (net of tax)                14,749                 -                                                            -------------      ------------Net Income                                                        72,298            78,192Less:  Preferred Stock Dividends Accrual                           2,157             2,303                                                            -------------      ------------Income for Common Stock                                       $   70,141         $  75,889                                                            =============      ============Common Shares Outstanding - Weighted Average                      86,036            85,074                                                            =============      ============Basic Earnings per Share Before Cumulative Effect    of Accounting Change                                      $     0.99         $    0.89Cumulative Effect of Accounting Change                             (0.17)                -                                                            =============      ============Basic Earnings Per Common Share                               $     0.82         $    0.89                                                            =============      ============Diluted Earnings per Share Before Cumulative    Effect of Accounting Change                               $     0.98         $    0.89Cumulative Effect of Accounting Change                             (0.17)                -                                                            =============      ============Diluted Earnings Per Common Share                             $     0.81         $    0.89                                                            =============      ============*The accompanying notes are an integral part of the financial statements.*
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PUGET ENERGY, INC.                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                       For the Three Months Ended March 31                             (Dollars in Thousands)                                   (Unaudited)                                                                           2001           2000                                                                     -----------    -----------Net Income                                                            $  72,298      $  78,192                                                                     -----------    -----------Other comprehensive income, net of tax:     Unrealized holding gains (losses) arising during period               (796)         3,845     Reclassification adjustment for gains included in net income             -           (683)     FAS-133 unrealized gains during period                             415,667              -     Reversal of FAS-133 unrealized gains settled during the period    (106,068)             -                                                                     -----------    -----------        Other comprehensive income                                      308,803          3,162                                                                     -----------    -----------Comprehensive Income                                                  $ 381,101      $  81,354                                                                     ===========    ===========*The accompanying notes are an integral part of the financial statements.*
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PUGET ENERGY, INC.                           CONSOLIDATED BALANCE SHEETS                             (Dollars in Thousands)                                   (Unaudited)                                     ASSETS                                                                  March 31,    December 31,                                                                  ---------    ------------                                                                       2001            2000                                                                       ----            ----Utility Plant: (at original cost, including constructionwork in progress of $161,965 and $164,221 respectively)     Electric                                                 $   4,112,836   $   4,054,551     Gas                                                          1,472,125       1,459,488     Common                                                         359,093         351,051     Less:  Accumulated depreciation and amortization            (2,066,637)     (2,026,681)                                                              --------------- ---------------          Net utility plant                                       3,877,417       3,838,409                                                              --------------  --------------Other Property and Investments                                      324,628         292,297                                                              --------------  --------------Current Assets:     Cash                                                            56,393          36,383     Accounts receivable                                            370,969         343,108     Unbilled revenue                                               146,384         211,784     Materials and supplies, at average cost                         61,713          99,001     Purchased gas receivable                                       144,049          96,050     Current portion of FAS-133 unrealized gain (net of tax)        216,378              -     Prepayments and other                                            9,273          11,607                                                              --------------  --------------          Total current assets                                    1,005,159         797,933                                                              --------------  --------------Long-Term Assets:     Regulatory asset for deferred income taxes                     201,722         207,350     Regulatory asset for PURPA buyout costs                        243,430         243,071     FAS-133 unrealized gain (net of tax)                            93,220              -     Other                                                          201,979         177,609                                                              --------------  --------------          Total long-term assets                                    740,351         628,030                                                              --------------  --------------Total Assets                                                  $   5,947,555   $   5,556,669                                                              ==============  ==============*The accompanying notes are an integral part of the financial statements.*
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                               PUGET ENERGY, INC.                           CONSOLIDATED BALANCE SHEETS                             (Dollars in Thousands)                                   (Unaudited)                         CAPITALIZATION AND LIABILITIES                                                                       2001            2000                                                                       ----            ----Capitalization:    Common shareholder's investment:       Common stock $0.01 par value, 250,000,000 shares       authorized, 86,167,199 shares outstanding at 3/31/01       and $10 stated value, 150,000,000 shares authorized,       85,903,791 shares outstanding at 12/31/00                 $      862       $  859,038    Additional paid-in capital                                    1,337,071          470,179    Earnings reinvested in the business                             123,121           92,673    Accumulated other comprehensive income                          313,553            4,750    Preferred stock not subject to      mandatory redemption                                           60,000           60,000    Preferred stock subject to      mandatory redemption                                           50,662           58,162    Corporation obligated, mandatorily redeemable      preferred securities of subsidiary      trust holding solely junior subordinated      debentures of the corporation                                 100,000          100,000    Long-term debt                                                2,160,801        2,170,797                                                             ---------------      -----------           Total capitalization                                   4,146,070        3,815,599                                                             ---------------      -----------Current Liabilities:    Accounts payable                                                242,722          410,619    Short-term debt                                                 449,448          378,316    Current maturities of long-term debt                             29,000           19,000    Accrued expenses:      Taxes                                                         155,810          103,996      Salaries and wages                                             17,309           17,445      Interest                                                       50,145           43,955    Other                                                           122,956           26,685                                                             ---------------      -----------          Total current liabilities                               1,067,390        1,000,016                                                             ---------------      -----------Deferred Income Taxes                                               591,760          608,185                                                             ---------------      -----------Other Deferred Credits                                              142,335          132,869                                                             ---------------      -----------Total Capitalization and Liabilities                          $   5,947,555       $5,556,669                                                             ===============      ===========*The accompanying notes are an integral part of the financial statements.*
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PUGET ENERGY, INC.                      CONSOLIDATED STATEMENTS OF CASH FLOWS                       For the Three Months Ended March 31                             (Dollars in Thousands)                                   (Unaudited)                                                                  2001            2000                                                                  ----            ----Net Income                                                   $  72,298       $  78,192Adjustments to reconcile net income  to net cash provided by operating activities:     Depreciation and amortization                              53,128          45,885     Deferred income taxes and tax credits - net               (10,797)          2,000     Other                                                      (1,293)         (7,249)     Change in certain assets and liabilities (Note 4)          15,166          71,625---------------------------------------------------------------------------------------          Net Cash Provided by Operating Activities            128,502         190,453---------------------------------------------------------------------------------------Investing Activities:---------------------     Construction expenditures - excluding equity AFUDC        (98,558)        (76,628)     Additions to energy conservation program                   (1,808)           (947)     Acquisition by InfrastruX                                 (32,987)               -     Other                                                      (3,358)           4,222----------------------------------------------------------------------------------------          Net Cash Used by Investing Activities               (136,711)        (73,353)----------------------------------------------------------------------------------------Financing Activities:---------------------     Change in short-term debt - net                            71,131        (183,599)     Dividends paid                                            (35,324)        (34,720)     Redemption of preferred stock                              (7,500)         (7,500)     Issuance of bonds                                               -         225,000     Redemption of bonds and notes                                   -        (115,980)     Other                                                         (88)           (959)----------------------------------------------------------------------------------------          Net Cash Provided (Used) by Financing Activities      28,219        (117,758)--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Net Increase (Decrease) in Cash                                 20,010            (658)Cash at Beginning of Year                                       36,383          65,707---------------------------------------------------------------------------------------Cash at End of Period                                        $  56,393       $  65,049=======================================================================================*The accompanying notes are an integral part of the financial statements.*
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PUGET SOUND ENERGY, INC                        CONSOLIDATED STATEMENTS OF INCOME                       For the Three Months Ended March 31                             (Dollars in Thousands)                                   (Unaudited)                                                                     2001              2000                                                           ---------------    --------------Operating Revenues:     Electric                                                 $   765,007       $   438,356     Gas                                                          304,270           205,469     Other                                                         22,047             3,398                                                           ---------------    --------------          Total operating revenue                               1,091,324           647,223                                                           ---------------    --------------Operating Expenses:Energy costs:     Purchased electricity                                        390,216           196,203     Purchased gas                                                216,609           108,205     Electric generation fuel                                     102,384            20,749     Residential Exchange                                         (16,741)          (12,199)Utility operations and maintenance                                 61,179            54,878Other operations and maintenance                                    3,122             3,775Depreciation and amortization                                      51,485            45,885Conservation amortization                                           1,601             2,619FAS-133 unrealized loss on derivative instruments                  26,466                 -Taxes other than federal income taxes                              70,081            58,485Federal income taxes                                               54,811            52,738                                                           ---------------    --------------          Total operating expenses                                961,213           531,338                                                           ---------------    --------------Operating Income                                                  130,111           115,885Other Income                                                        2,843             4,390                                                           ---------------    --------------Income Before Interest Charges                                    132,954           120,275Interest Charges, Net of AFUDC                                     45,326            42,083                                                           ---------------    --------------Income Before Cumulative Effect of Accounting Change               87,628            78,192Cumulative Effect of Implementation of FAS-133 Derivative   Instruments and Hedging Activities (net of tax)                 14,749                 -                                                           ---------------    --------------Net Income                                                         72,879            78,192Less:  Preferred Stock Dividends Accrual                            2,157             2,303                                                           ---------------    --------------Income for Common Stock                                       $    70,722        $   75,889                                                           ===============    ==============*The accompanying notes are an integral part of the financial statements.*
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PUGET SOUND ENERGY, INC.                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                       For the Three Months Ended March 31                             (Dollars in Thousands)                                   (Unaudited)                                                                           2001          2000                                                                    ------------   -----------Net Income                                                            $  72,879     $  78,192Other comprehensive income net of tax:     Unrealized holding gains (losses) arising during period               (796)        3,845     Reclassification adjustment for gains included in net income             -          (683)     FAS-133 unrealized gains during period                             415,667             -     Reversal of FAS-133 unrealized gains settled during the period    (106,068)            -                                                                    ------------   -----------        Other comprehensive income                                      308,803         3,162                                                                    ------------   -----------Comprehensive Income                                                  $ 381,682     $  81,354                                                                    ============   ===========*The accompanying notes are an integral part of the financial statements.*
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PUGET SOUND ENERGY, INC.                           CONSOLIDATED BALANCE SHEETS                             (Dollars in Thousands)                                   (Unaudited)                                     ASSETS                                                                    March 31,       December 31,                                                                    ---------       ------------                                                                         2001               2000                                                                         ----               ----Utility Plant: (at original cost, including construction    work in progress of $161,965 and $164,221 respectively)     Electric                                                   $   4,112,836      $   4,054,551     Gas                                                            1,472,125          1,459,488     Common                                                           359,093            351,051     Less:  Accumulated depreciation and amortization              (2,066,637)        (2,026,681)                                                             -----------------   ----------------          Net utility plant                                         3,877,417          3,838,409                                                             -----------------   ----------------Other Property and Investments                                        213,838            292,297                                                             -----------------   ----------------Current Assets:     Cash                                                              51,936             36,383     Accounts receivable                                              338,391            343,108     Unbilled revenue                                                 146,384            211,784     Materials and supplies, at average cost                           56,204             99,001     Purchased gas receivable                                         144,049             96,050     Current portion of FAS-133 unrealized gain (net of  tax)         216,378                  -     Prepayments and other                                              7,689             11,607                                                             -----------------   ----------------          Total current assets                                        961,031            797,933                                                             -----------------   ----------------Long-Term Assets:     Regulatory asset for deferred income taxes                       201,722            207,350     Regulatory asset for PURPA buyout costs                          243,430            243,071     FAS-133 unrealized gain (net of tax)                              93,220             -     Other                                                            201,979            177,609                                                             -----------------   ----------------          Total long-term assets                                      740,351            628,030                                                             -----------------   ----------------Total Assets                                                    $   5,792,637      $   5,556,669                                                             =================   ================*The accompanying notes are an integral part of the financial statements.*
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                            PUGET SOUND ENERGY, INC.                           CONSOLIDATED BALANCE SHEETS                             (Dollars in Thousands)                                   (Unaudited)                         CAPITALIZATION AND LIABILITIES                                                          March 31,      December 31,                                                          ---------      ------------                                                               2001             2000                                                               ----             ----Capitalization:    Common shareholder's investment:       Common stock, $10 stated value,       150,000,000 shares authorized,       85,903,791 shares outstanding                   $    859,038      $    859,038    Additional paid-in capital                              382,584           470,179    Earnings reinvested in the business                     130,228            92,673    Accumulated other comprehensive income                  313,553             4,750    Preferred stock not subject to      mandatory redemption                                   60,000            60,000    Preferred stock subject to      mandatory redemption                                   50,662            58,162    Corporation obligated, mandatorily redeemable      preferred securities of subsidiary      trust holding solely junior subordinated      debentures of the corporation                         100,000           100,000    Long-term debt                                        2,160,801         2,170,797                                                     ---------------   ---------------           Total capitalization                           4,056,866         3,815,599                                                     ---------------   ---------------Current Liabilities:    Accounts payable                                        234,241           410,619    Short-term debt                                         410,898           378,316    Current maturities of long-term debt                     29,000            19,000    Accrued expenses:      Taxes                                                 155,469           103,996      Salaries and wages                                     17,309            17,445      Interest                                               50,145            43,955    Other                                                   112,927            26,685                                                     ---------------   ---------------          Total current liabilities                       1,009,989         1,000,016                                                     ---------------   ---------------Deferred Income Taxes                                       591,760           608,185                                                     ---------------   ---------------Other Deferred Credits                                      134,022           132,869                                                     ---------------   ---------------Total Capitalization and Liabilities                  $   5,792,637     $   5,556,669                                                     ===============   ===============*The accompanying notes are an integral part of the financial statements.*
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PUGET SOUND ENERGY, INC.                      CONSOLIDATED STATEMENTS OF CASH FLOWS                       For the Three Months Ended March 31                             (Dollars in Thousands)                                   (Unaudited)                                                                2001          2000                                                                ----          ----Operating Activities:---------------------Net Income                                                 $  72,879     $  78,192Adjustments to reconcile net income  to net cash provided by operating activities:     Depreciation and amortization                            51,485        45,885     Deferred income taxes and tax credits - net             (10,797)        2,000     Other                                                   (19,678)       (7,249)     Change in certain current assets       and liabilities (Note 4)                               35,418        71,625-----------------------------------------------------------------------------------          Net Cash Provided by Operating Activities          129,307       190,453-----------------------------------------------------------------------------------Investing Activities:---------------------     Construction expenditures - excluding equity AFUDC      (98,558)      (76,628)     Additions to energy conservation program                 (1,808)         (947)     Other                                                    (3,358)        4,222-----------------------------------------------------------------------------------          Net Cash Used by Investing Activities             (103,724)      (73,353)-----------------------------------------------------------------------------------Financing Activities:---------------------     Change in short-term debt - net                          32,581      (183,599)     Dividends paid                                          (35,324)      (34,720)     Redemption of preferred stock                            (7,500)       (7,500)     Issuance of bonds                                             -       225,000     Redemption of bonds and notes                                 -      (115,980)     Issue costs of bonds and stock                              (27)         (959)     Other                                                       240             ------------------------------------------------------------------------------------          Net Cash Used by Financing Activities              (10,030)     (117,758)-----------------------------------------------------------------------------------Net Increase (Decrease) in Cash                               15,553          (658)Cash at Beginning of Year                                     36,383        65,707-----------------------------------------------------------------------------------Cash at End of Period                                      $  51,936     $  65,049===================================================================================*The accompanying notes are an integral part of the financial statements.*
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(1) General
     On   January  1,  2001,  PSEreorganized into a holding company structure.  This  reorganization  resulted inthe  creation  of  a  new  holding  company,  Puget  Energy.  Puget  Energy  wasincorporated  in the State of Washington  and all of it operations are conductedthrough its subsidiaries.

     Pursuant      to     thereorganization,  Puget Energy became the owner of all PSE's  outstanding  commonstock.  Holders  of PSE's  existing  common  stock  exchanged  their  stock on aone-for-one  basis for common  stock of Puget  Energy.  Puget Energy is a publicutility holding company under the Public Utility Holding Company Act of 1935 butis exempt from regulation under such Act.
(2) Summary ofConsolidation Policy
     The  consolidated  financialstatements  of  Puget  Energy  include  the  accounts  of Puget  Energy  and itssubsidiaries, including PSE. PSE's consolidated financial statements include theaccounts of PSE and its subsidiaries.  The consolidated financial statements arepresented  after   elimination  of  all  significant   intercompany   items  andtransactions.  Certain  amounts  previously  reported have been  reclassified toconform with current  year  presentations  with no effect on total equity or netincome.

     The  consolidated  financialstatements contained in this Form 10-Q are unaudited. In the respective opinionsof the managements of Puget Energy and PSE, all adjustments necessary for a fairpresentation of the results for the interim periods have been reflected and wereof a normal recurring  nature.  These condensed  financial  statements should beread in conjunction  with the audited  financial  statements (and Notes thereto)included in the combined Puget Energy and PSE annual report on Form 10-K for theyear ended December 31, 2000.
(3) Earningsper Common Share
     Puget Energy's basic earningsper common share have been  computed  based on weighted  average  common  sharesoutstanding  of 86,036,000  and  85,074,000 for the three months ended March 31,2001 and 2000.

     Puget    Energy's   dilutedearnings per common share have been computed  based on weighted  average  commonshares outstanding of 86,417,000 and 85,291,000 for the three months ended March31, 2001, and 2000,  respectively.  These shares include the dilutive  effect ofsecurities related to employee and director equity plans.

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(4)Consolidated Statements of Cash Flows
     The    following   providesadditional information concerning cash flow activities:PUGET ENERGYThree Months Ended March 31                                     2001          2000---------------------------                                     ----          ----Changes in current asset and current liabilities:  Accounts receivable and unbilled revenue                 $  37,539    $   27,610  Materials and supplies                                      37,288        19,498  Prepayments and other                                        2,334          (744)  Purchased gas receivable                                   (47,999)       12,702  Accounts payable                                          (167,897)      (47,552)  FAS-133 unrealized loss                                     49,157             -  Accrued expenses and other                                 104,744        60,111--------------------------------------------------------------------- -------------Net change in current assets and current liabilities       $  15,166    $   71,625--------------------------------------------------------------------- -------------Cash payments:  Interest (net of capitalized interest)                   $  38,125    $   52,917  Income taxes                                               128,600             ---------------------------------------------------------------------- -------------PUGET SOUND ENERGYThree Months Ended March 31                                     2001         2000---------------------------                                     ----         ----Changes in current asset and current liabilities:  Accounts receivable and unbilled revenue                 $  70,117    $  27,610  Materials and supplies                                      42,797       19,498  Prepayments and other                                        3,352         (744)  Purchased gas receivable                                   (47,999)      12,702  Accounts payable                                          (176,378)     (47,552)  FAS-133 unrealized loss                                     49,157            -  Accrued expenses and other                                  94,372       60,111--------------------------------------------------------------------- ------------Net change in current assets and current liabilities       $  35,418    $  71,625--------------------------------------------------------------------- ------------Cash payments:  Interest (net of capitalized interest)                   $  38,125    $  52,917  Income taxes                                               128,600            ---------------------------------------------------------------------- ------------(5) SegmentInformation
     The    Company    operatesprimarily in one business segment,  Regulated Utility Operations.  The Company'sregulated  utility  operation  generates,  purchases and sells  electricity  andpurchases,  transports  and sells natural gas. The Company's  service  territorycovers approximately 6,000 square miles in the state of Washington.

     The other business segment is     non-utility  lines of business which include  development  and marketing ofcustomer  information  and  billing  system  software,  specialized  contractingservices to utilities  and  telecommunications  companies (SeeNote  7) and real  estate  investment  and  development.  Reconciling  itemsbetween segments are not material.

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     Financial  data for businesssegments are as follows:  (Dollars in Thousands)                 Regulated    Three Months Ended March 31, 2001      Utility        Other          Total-------------------------------------------------------------------------------  Revenues                              $1,069,277       50,587     $1,119,864  Net Income                                60,419       11,879         72,298  Total Assets                           5,655,739      291,816      5,947,555-------------------------------------------------------------------------------                                         Regulated    Three Months Ended March 31, 2000      Utility        Other          Total-------------------------------------------------------------------------------  Revenues                                $643,827       $3,396       $647,223  Net Income                                76,357        1,835         78,192  Total Assets                           4,965,512      152,402      5,117,914-------------------------------------------------------------------------------(6)    Accounting   for   Derivative    Instruments   and   HedgingActivities
     On  January 1,  2001,  Puget     Energy  adopted  Financial  Accounting  Standards  Board  Statement No. 133"Accounting for Derivative  Instruments and Hedging  Activities"  (Statement No.133),  as amended by Statement  No. 138.  Statement  No. 133  requires  that allderivative  instruments  be recorded  on the balance  sheet at their fair value.Puget Energy  enters into both  physical and  financial  contracts to manage itsenergy  resource  portfolio.  Certain  of  these  contracts  met the  derivativeclassification  requirements  of the statement and are reported at fair value inthe balance  sheet.  Beginning  with the  implementation  of Statement  No. 133,changes in the fair value of  derivatives  are  recorded  each period in currentearnings or other  comprehensive  income,  depending on whether a derivative  isdesignated  as a qualifying  cash flow hedge under the  statement.  Puget Energyrecognized  the  cumulative  effect of this change in  accounting  principle  byrecording  an  after-tax  decrease to current  earnings of  approximately  $14.7million and a  corresponding  liability.  In  addition,  Puget  Energy  recordedapproximately  $26.5  million,  pre-tax,  decrease  to  current  earnings  and acorresponding   liability  for  the   mark-to-market   of  electric   derivativetransactions for the quarter.  When the underlying  contracts giving rise to theincome statement charges are fulfilled in 2001 and the liabilities  (included inother current liabilities on the balance sheets) established under Statement No.133 will be reversed.

     Puget  Energy also recorded adeferred asset for electric energy contracts  designated as qualifying cash flowhedges  of  approximately  $309.6  million  after-tax  at March  31,  2001 and acorresponding  increase of approximately  $309.6 million in other  comprehensiveincome.  Puget Energy  anticipates  approximately  $216.4  million of the $309.6million  will  reverse  over  the  following  twelve  months  as the  underlyingcontracts are settled and will, as a result, report a corresponding  decrease tothe deferred  asset and to other  comprehensive  income for this  reversal.  Thedecrease in the deferred  asset and in other  comprehensive  income will have nonet effect on current earnings and the economic effects of the transactions willbe recorded upon  settlement.  These estimates are based upon the forward marketprices for energy at March 31, 2001. Retail gas related derivative  transactionsare  deferred  under Puget  Energy's  Purchased  Gas  Adjustment  Mechanism  andrecorded in earnings as the  transactions  are executed  under the PGA IncentiveMechanism.
(7)Acquisitions
     On August 1, 2000, InfrastruXGroup Inc. ("InfrastruX"),  a wholly-owned subsidiary of Puget Energy, purchased88% of the outstanding shares of Utilx Corporation  ("Utilx") pursuant to a cashtender offer. The remaining shares were acquired on September 15, 2000. Utilx isa  provider  of   infrastructure   construction   services  to   utilities   andtelecommunications  providers  in the United  States  and around the world.  Itsprimary business is installing,  replacing and restoring  underground cables andpipes.  On September 28, 2000,  InfrastruX  completed the  acquisition of LinealIndustries  ("Lineal"),  a privately held pipeline  infrastructure  constructioncompany.  Lineal provides pipeline construction,  maintenance and rehabilitationservices  primarily for the natural gas and petroleum  industries  and currentlyoperates in seven states.  These acquisitions mark Puget Energy's entry into thebusiness of  providing  design,  construction  and  engineering  services to theutility  industry.  The  total  purchase  price  of  the  two  acquisitions  wasapproximately $87.1 million.

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     The acquisitions of Utilx andLineal have been  accounted  for using the purchase  method of  accounting  and,accordingly, the operating results of Utilx and Lineal have been included in theconsolidated  financial  statements  since  the  date of  acquisition.  Goodwillrepresenting  the  excess  of  cost  over  the  net  tangible  and  identifiableintangible assets of the acquired  businesses was  approximately  $40.7 million.Goodwill is being  amortized on a  straight-line  basis up to 30 years.  The proforma  combined  revenues,  net income,  and  earnings per common share of PugetEnergy  presented below give effect to the  acquisitions as if they had occurredon January 1, 2000. This pro forma information is not necessarily  indicative ofthe results of  operations  that would have  occurred had the  acquisition  beenconsummated for the period for which it is being given effect.
  Unaudited  (Thousands, except per share amounts)  For the three months ending:           March 31, 2000--------------------------------------------------------  Operating Revenues                          $ 679,854  Net Income                                     76,294  Basic Earnings per Common Share               $   .90  Diluted Earnings per Common Share             $   .89
     On March 30, 2001, InfrastruXcompleted  the  acquisition  of  InterCon  Construction,  Inc.  ("InterCon"),  aprivately  held  infrastructure  construction  company  with annual  revenues ofapproximately $47 million.  InterCon provides  construction services for naturalgas,  electric,  telecommunication  and cable  industries in the Midwest  UnitedStates.  InterCon also provides  directional  drilling  services  throughout theUnited States.

     The  acquisition of InterConhas been accounted for using the purchase method of accounting and, accordingly,the  operating  results  of  InterCon  have  been  included  in  Puget  Energy'sconsolidated financial statements, since the acquisition.  Goodwill representingthe excess of cost over the net tangible and identifiable  intangible  assets ofthe business was approximately  $26.1 million.  Goodwill is being amortized on astraight-line basis over 30 years. The pro forma combined revenues,  net income,and earnings per common share of Puget Energy presented below give effect to theacquisitions  as if they had  occurred  on  January  1,  2000.  This  pro  formainformation  includes the effect of the  acquisitions of Utilx and Lineal and isnot necessarily indicative of the results of operations that would have occurredhad the acquisition of InterCon been  consummated for the period for which it isbeing given effect.
Unaudited(Thousands, except per share amounts)For the three months ending:                 March 31, 2001  March 31, 2000----------------------------------------------------------------------------Operating Revenues                               $1,126,213       $ 687,620Net Income                                           69,656          76,058Basic and Diluted Earnings per Common Share          $  .81         $   .89
     On April 18, 2001, InfrastruXcompleted the  acquisition of Trafford  Corporation a privately held  Pittsburghbased  natural  gas  pipeline  construction  company  with  annual  revenues  ofapproximately $25 million.

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(8)Other
     In  February 2001, PSE signedan unsecured  revolving credit agreement with an investment bank for a period offour months of up to $125  million.  At March 31, 2001,  PSE had $125 million ofborrowings outstanding under the agreement.

     In  March  2001,  InfrastruXsigned a six-month  revolving  credit agreement with several banks for up to $75million. At March 31, 2001, InfrastruX had $33 million of borrowings outstandingunder the agreement.

     On   April  5,  2001,   theWashington Utilities and Transportation Commission approved an agreement betweenPSE and its 12 largest  industrial  customers tied to a market-based rate index.Under the agreement,  PSE's six largest  industrial  customers - with a combinedload of about 250 average megawatts - now can purchase  electricity  directly orthrough PSE, from other suppliers at negotiated prices or, if they choose,  theycan  self-generate  their  electricity.   Certain  small  industrial  customers,representing   a  small  portion  of  the  current  market  index  load  of  PSE(approximately 25 average  megawatts) will be allowed to transfer to other fixedrate plans under the settlement.
Item 2. Management's Discussion and Analysis of Financial Condition andResults of Operations
     The  following discussion ofthe Company's  business  includes some  forward-looking  statements that involverisks and uncertainties.  Words such as "estimates,"  "expects,"  "anticipates,""plans," and similar expressions identify  forward-looking  statements involvingrisks and  uncertainties.  Those risks and  uncertainties  include,  but are notlimited to, the ongoing restructuring of the electric and gas industries and theoutcome of regulatory  proceedings related to that  restructuring.  The ultimateimpacts of both increased competition and the changing regulatory environment onfuture results are uncertain,  but are expected to fundamentally  change how theCompany  conducts its  business.  The outcome of these changes and other mattersdiscussed  below may cause future  results to differ  materially  from  historicresults,  or from  results  or  outcomes  currently  expected  or  sought by theCompany.
Results of Operations
     Puget Energy's net income forthe three months ended March 31, 2001,  was $72.3 million on operating  revenuesof $1.1 billion, compared with net income of $78.2 million on operating revenuesof $647.2 million for the same period in 2000. Income for common stock was $70.1million for the first  quarter of 2001  compared to $75.9  million for the firstquarter of 2000.  Basic  earnings per share were $0.82 for the first  quarter of2001 compared to $0.89 for the first quarter of 2000. Diluted earnings per sharewere $0.81 for the first quarter of 2001 compared to $0.89 for the first quarterof 2000. First quarter results for 2001 are net of a charge to earnings of $0.17per basic and  diluted  share  associated  with the  adoption  of  Statement  ofFinancial  Accounting  Standards 133 "Accounting for Derivative  Instruments andHedging Activities".

     Total  kilowatt-hour electricsales were 7.5 billion,  including  1.8 billion in sales to other  utilities andmarketers, for the first quarter of 2001, compared to 8.5 billion, including 2.4billion in sales to other  utilities  and  marketers,  for the first  quarter of2000.

     Total  gas volumes were 369.4million therms,  including 49.0 million therms in transportation volumes for thethree months ended March 31, 2001,  compared to 402.5 million therms,  including58.6 million therms of transportation, for the same period in 2000.

     PSE's  operating revenues andassociated  expenses are not  generated  evenly  during the year.  Variations inenergy usage by consumers do occur from season to season and from month to monthwithin a season,  primarily  as a result of  weather  conditions.  PSE  normallyexperiences  its highest  energy  sales in the first and fourth  quarters of theyear.

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     PSE   meets  its  forecastedelectric supply needs throughout the year through PSE-owned electric  generationand by  obtaining  power  through  long-term  contracts,  annual  contracts  andshort-term markets. PSE meets its forecasted natural gas supply needs throughoutthe year through  PSE-owned gas storage and by purchasing  gas supplies  throughlong-term contracts,  annual contracts and short-term markets. PSE also performsrisk  management   activities  to  optimize  the  value  of  energy  supply  andtransmission  assets and to ensure that  physical  energy supply is available tomeet the customer  demand loads.  PSE also purchases  energy when demand exceedsavailable supplies in its portfolio; likewise PSE makes sales to other utilitiesand marketers when surplus energy is available.  These  transactions are part ofPSE's normal  operations to meet retail load.  Electric sales to other utilitiesand  marketers  vary by  quarter  and  year  depending  principally  upon  waterconditions for the generation of hydro-electric power, retail customer usage, theenergy  requirements  of other  utilities  and energy  market  conditions in thePacific Northwest.  The April 19, 2001, seasonal water supply forecast publishedby the National Weather Service  indicated that the total forecasted runoff intothe Grand Coulee reservoir for the period April through  September 2001 would be63% of average.  PSE,  therefore,  expects the total annual  generation from theMid-Columbia projects and PSE-owned hydro-electric projects will be below normalin 2001.

     Beginning in the second halfof 2000, the West Coast wholesale energy market began experiencing energy pricesthat greatly exceeded historical norms,  reflecting unfavorable hydro conditionsand increased consumer demand in California,  among other factors.  As a result,certain of PSE's  industrial  index-rate  electric  customers have been reducingtheir  usage due to these high  prices.  Other  customers'  usage in general hasdeclined slightly due to energy conservation measures by PSE's customers. To theextent electric retail load is reduced,  PSE, when in a surplus power situation,has more  power to sell into the  wholesale  market  or when in a deficit  powersituation,  has to  purchase  less  power in the  wholesale  market  to meet itselectric retail load.

     Temperatures    based   onheating-degree-days  measured at Seattle-Tacoma  airport during the three monthsended March 31, 2001 and March 31, 2000 were near normal.

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                              Results of Operations                         Comparative Three Months Ended                        March 31, 2001 vs. March 31, 2000                               Increase (Decrease)                                                            Amount                                                            ------                                                         (In Millions)Operating revenue changes General rate increases                                      $ 4.1 BPA Residential Purchase & Sale Agreement                     2.6 Electric sales to other utilities and marketers             275.0 Electric revenue sold at index rates                        132.0 Electric revenue sold to conservation trust                   0.7 Electric load and other changes                             (87.7) Gas revenue change                                           98.8 InfrastruX revenues                                          28.5 Other revenue changes                                        18.6                                                         ----------     Total operating revenue change                          472.6Operating expense changes Energy costs:     Purchased electricity                                   194.0     Purchased gas                                           108.4     Electric generation fuel                                 81.6     Residential exchange credit                              (4.5) Utility operations and maintenance                            6.3 InfrastruX operations and maintenance                        27.0 Other operations and maintenance                             (0.6) Depreciation and amortization                                 7.2 Conservation amortization                                    (1.0) FAS-133 unrealized loss                                      26.5 Taxes other than federal income taxes                        11.6 Federal income taxes                                          1.5                                                         ----------     Total operating expense change                          458.0                                                         ----------Other income (net of tax)                                     (2.4)Interest charges                                               3.4FAS-133 transition adjustment loss (net of tax)               14.7                                                         -----------     Net income change                                      $ (5.9)                                                         ===========
     The  following is additionalinformation pertaining to the changes outlined in the above table.
OperatingRevenues - Electric
     Electric  revenues  for  thethree months ended March 31, 2001 increased  $326.7 million compared to the sameperiod in 2000. Electric sales to other utilities and marketers increased $275.0million in the three months ended March 31, 2001  compared to the same period in2000 due to increased prices in the wholesale electricity market while wholesalesales volumes declined by 536.5 million kWh or 22.7% as compared to 2000. Retailsales  volumes  declined 8.0% from 6.1 billion kWh in 2000 to 5.7 billion kWh in2001.  Retail  sales  revenue  increased  as a result  of higher  rates  paid byindustrial customers on index rate tariffs and contracts.

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     Electric   revenues  in  thefirst quarter of 2001 increased significantly due to increased prices related toelectric  energy sales to other  utilities  and marketers and sales to customerswhose rates are tied to a market index. Several factors,  including  unfavorablehydro  conditions  and  increased  consumer  demand in  California  have  raisedwholesale market prices on the West Coast.  PSE, to date, has protected its corecustomers  from the  negative  impact of the volatile  West Coast power  marketsthrough  its  effective  management  of its  energy  supply  resources  and  itsefficient operation of its distribution system. PSE continues to operate withoutan electric rate adjustment mechanism.

     Revenues  in 2001  and  2000were  reduced  because of the credit that PSE received  through the  ResidentialPurchase and Sale Agreement with the Bonneville  Power  Administration  ("BPA").The agreement  enables PSE's residential and small farm customers to receive thebenefits of lower-cost  federal power. On January 29, 1997, PSE and BPA signed aResidential   Exchange   Termination   Agreement.   The  Agreement   ends  PSE'sparticipation  in the Residential  Purchase and Sale agreement with BPA. As partof  the  Termination  Agreement,  PSE  will  receive  payments  by  the  BPA  ofapproximately  $235 million over an  approximately  five-year period ending June2001.  These  payments  are  recorded as a reduction  of  purchased  electricityexpenses.  Under the rate plan  approved  by the  Washington  Commission  in itsmerger order,  PSE will continue to reflect in  customers'  bills,  the level ofResidential Exchange benefits in place at the time of the merger with WashingtonEnergy  Company  in  1997.  Over  the  remainder  of  the  Residential  ExchangeTermination  Agreement  from April 2001 through June 2001, it is projected  thatPSE will credit customers  approximately $13.5 million more than it will receivefrom BPA.

     The   allocation  of  futurebenefits of low-cost  federal power, for the five-year BPA rate plan period 2001to 2006,  will be  decided  at least in part as part of a current  BPA rate caseprocess.  In May 2000,  the BPA  published an initial  Record of Decision in itsSubscription  process.  BPA allocated benefits intended to be equivalent to 1900average  MW of  cost-based  federal  power to the  residential  and  small  farmcustomers  of the  Pacific  Northwest  investor-owned  utilities  ("IOUs").  Theregional  Public Utility  Commissions  in turn  recommended an allocation of thebenefits among the IOUs for their  residential  and small farm  customers,  withPSE's  proposed  annual share equal to about 700 average MW of benefits over thefive-year  period October 2001 through  September  2006. In August 2000, the BPAdetermined  that  certain  aspects of its initial  Record of  Decision  would berevisited in its power rate case that is expected to continue  through May 2001.On October 30, 2000,  PSE signed a five-year  contract with the BPA (as requiredby BPA's  Subscription  timeline)  for  receipt of the  federal  power  benefitsallocated by the Subscription and Commission  processes.  The contract describesthe form (power and cash) of the about 700  average MW benefits to be  provided,and provides PSE a right to terminate the contract upon completion of BPA's ratecase.  The  results of the case and  regulatory  and  judicial  reviews of BPA'sactions will determine and affect any benefits  actually  received and the valueof any  benefits  actually  received by PSE and other  Northwest  IOUs for theirresidential and small farm customers from the Subscription  benefits  allocationprocess.

     To   meet  customer  demand,PSE's power supply  portfolio  includes net  purchases of power under  long-termsupply contracts.  However,  depending principally upon streamflow available forhydro-electric  generation and weather effects on customer demand,  from time totime, PSE may have surplus power available for sale to wholesale  customers.  Inaddition,   PSE   manages   its  core  energy   portfolio   through   short  andintermediate-term   purchases,   sales,  arbitrage  and  other  risk  managementtechniques.  PSE has a Risk Management Committee that oversees energy price riskmatters.

20

     PSE   operates  within  thewestern  wholesale market and has made sales into the California  energy market.During the first quarter of 2001, PSE received  partial  payments for sales madein the fourth quarter of 2000. At December 31, 2000, PSE's  receivables from theCalifornia Independent System Operators (CAISO) and other  counter-parties,  netof reserves,  were $41.8 million and at March 31, 2001,  such  receivables  werereduced to approximately $26.6 million.
OperatingRevenues - Gas
     Gas  operating  revenues forthe three months ended March 31, 2001  increased by $98.8  million from the sameperiod in 2000. Total gas sales volumes decreased 8.2% from 402.5 million thermsin 2000 to 369.4 million  therms in 2001. The primary reason for the increase ingas sales  revenue  was higher  natural  gas prices  that are passed  through tocustomers in the Purchased Gas Adjustment  (PGA).  Increases  under the PGA wereeffective August 1, 2000 and January 12, 2001. As a result of the PGA increases,gas rates to all sales  customers  increased by an average of 30.2% on August 1,2000 and 26.4% on January 12, 2001.
OperatingRevenues - Other
      Other operating revenues forthe three months ended March 31, 2001 increased by $47.1 from the same period in2000. The primary reason for the increase in other operating revenues was due to$28.5 million of  InfrastruX's  two  subsidiaries,  Utilx and Lineal,  that wereacquired  in the third  quarter  of 2000 and an  increase  of $18.6  million  inproperty sales by PSE's subsidiary, Puget Western, Inc.
OperatingExpenses
     Purchased     electricityexpenses  increased  $194.0  million for the three month  period ended March 31,2001  compared to the same period in 2000.  The  increase  was due  primarily toincreased  prices for non-firm  power from other  utilities and marketers in theWest Coast power market.

     Purchased    gas   expensesincreased  $108.4  million  for the three  month  period  ended  March 31,  2001compared to the same  period in 2000.  The  increase  was due  primarily  to theimpact of increased gas costs, which are passed through to customers through thePGA  mechanism.  During the three month  period  ended March 31,  2001,  PSE hasdeferred $48.0 million of  under-recovered  purchased gas costs,  which includescarrying costs allowed through the PGA mechanism.

     Fuel  expense increased $81.6million for the three  month  period  ended March 31, 2001  compared to the sameperiod in 2000 as a result of  increased  generation  and  higher  fuel costs atPSE-owned combustion turbine facilities.

     Utility    operations   andmaintenance  increased  $6.3  million for the three  months ended March 31, 2001compared  to the same  period  in  2000.  This  increase  was  primarily  due toincreased  costs of $2.3  million  related  to the  Personal  Energy  Managementenergy-efficiency  program,  charges of $1.1 million to restore electric servicefollowing a February,  2001 snow storm,  $0.7 million of repair costs related tothe  February  28, 2001  earthquake  in the Puget Sound region and costs of $1.0million net of estimated  insurance  recoveries to repair the PSE-owned Fredoniacombustion turbine plant which went out of service on February 21, 2001 and willreturn to service in early May 2001.

     InfrastruX's  operations andmaintenance  expenses  for the three  months  ended  March 31,  2001 were  $27.0million due to the activities of its two  subsidiaries,  Utilx and Lineal,  thatwere acquired during the third quarter of 2000.

21

     Depreciation and amortizationexpense  increased  $7.2 million for the three month period ended March 31, 2001compared  to the same period in 2000 due  primarily  to the effects of new plantplaced  into  service  during the past year,  including  PSE's  ConsumerLinX(TM)customer information and billing system in 2000.

     Financial      AccountingStandards  Board  Statement  No. 133 (FAS-133) was adopted on January 1, 2001. Adecrease to current earnings of  approximately  $26.5 million was recognized forunrealized losses associated with electric  derivative  transactions  during thequarter and a $14.7 million,  after-tax,  transition  adjustment  loss resultingfrom recognizing the cumulative  effect of this change in accounting  principle.(For further discussion see Note 6).

     Taxes   other  than  federalincome taxes  increased $11.6 million for the three month period ended March 31,2001 compared to the same period in 2000 primarily due to increases in municipaland state excise taxes which are revenue based.
OtherIncome
     Other  income, net of federalincome tax,  decreased  $2.4  million for the three month period ended March 31,2001  compared to the same period in 2000,  due  primarily  to the  reduction ofdividends from certain non-core assets.
InterestCharges
     Interest   charges,   whichconsist of interest  and  amortization  on  long-term  debt and other  interest,increased  $3.4 million for the three month period ended March 31, 2001 comparedto the same period in 2000. Interest on long-term debt increased $7.2 million inthe three month period ended March 31, 2001  compared to the same period in 2000as a result of the issuance of $225  million  7.96%  Senior  Medium-Term  Notes,Series B, in February 2000, the issuance of $25 million 7.61% Senior Medium-TermNotes,  Series B, in September  2000,  and the  issuance of $260  million  7.69%Senior  Medium-Term  Notes,  Series C, in November 2000.  Other Interest Expensedecreased  $4.2 million in the three month period ended March 31, 2001  comparedto the same period in 2000 due primarily to interest offset related to the PGA.
Capital Expenditures, Capital Resources and Liquidity
     Current      constructionexpenditures for generation,  transmission and distribution are designed to meetcontinuing customer growth and to improve  efficiencies of PSE's energy deliverysystems.  Construction expenditures,  excluding equity AFUDC, were $98.6 millionfor the three months ended March 31, 2001. Capital expenditures for the year areexpected to be $247 million.

     Puget  Energy  issued commonstock for the Company's  Stock Purchase and Dividend  Reinvestment  Plan of $6.4million  (263,462  shares) in the three months ended March 31, 2001  compared to$6.7 million (302,891 shares) for the same period in 2000.

     On  March 31, 2001,  PSE hadavailable  $375 million in lines of credit with  various  banks,  which  providecredit  support  for  outstanding  bank  loans  and  commercial  paper of $267.2million, effectively reducing the available borrowing capacity under these linesof credit to $107.8 million. In addition,  PSE has agreements with several banksto borrow on an uncommitted, as available, basis at money-market rates quoted bythe banks.  There are no costs,  other than  interest,  for these  arrangements.There was $18.5 million outstanding under these arrangements at March 31, 2001.

22

     In  February 2001, PSE signedan unsecured  revolving credit agreement with an investment bank for a period offour months of up to $125  million.  At March 31, 2001,  PSE had $125 million ofborrowings outstanding under the agreement.

     On March 31, 2001, InfrastruXand its  subsidiaries  had available $87 million in lines of credit with variousbanks, which provide credit support for outstanding bank loans of $38.6 million,effectively  reducing  the  available  borrowing  capacity  under these lines ofcredit to $48.4 million.
Other
     On  December  8,  2000,  PSEfiled a request with the Washington  Commission to pass through the rising costsof natural gas  purchased  for  customers  under  terms of the long  establishedpurchased gas adjustment  (PGA)  mechanism.  The PGA mechanism passes through tocustomers  increases or  decreases in the gas supply  portion of the natural gasservice  rates  based upon  changes in the price of natural gas  purchased  fromproducers  and  wholesale  marketers or changes in gas  pipeline  transportationcosts.  PSE does not profit from changes under the PGA. The PGA is separate fromPSE's general gas service rates that have been under a rate stability plan since1997. On January 11, 2001, the Washington  Commission  approved PSE's request toincrease  rates by an overall  average  of 26.4% to all  natural  gas  customerseffective January 12, 2001.
Item  3.   Quantitative and Qualitative Disclosure AboutMarket Risk
     Puget  Energy is  exposed tomarket risks, including changes in commodity prices and interest rates.
CommodityPrice Risk
     PSE's    energy    relatedbusinesses are exposed to risks related to changes in commodity  prices. As partof its  business,  PSE markets  power to wholesale  customers  by entering  intocontracts  to purchase  or supply  electric  energy or natural gas at  specifieddelivery  points and at  specified  future  delivery  dates.  PSE's  energy riskmanagement function manages PSE's core electric and gas supply portfolio.

     PSE manages its energy supplyportfolio 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 PSE financial results; and(iii)         Optimize the value of PSE's energy supply assets.
     The  portfolio is subject tomajor sources of  variability  (e.g.,  hydro  generation,  temperature-sensitiveretail sales,  and market  prices for gas and power).  At certain  times,  thesesources of variability can mitigate  portfolio  imbalances;  at other times theycan exacerbate portfolio imbalances.

     Hedging  strategies for PSE'senergy supply portfolio interact with portfolio  optimization  activities.  Somehedges can be  implemented  in ways that retain PSE's  ability to use its energysupply portfolio to produce  additional value; other hedges can only be achievedby forgoing optimization opportunities.

     The    prices   of   energycommodities are subject to fluctuations due to unpredictable  factors  includingweather,  generation  outages and other  factors that impact  supply and demand.This  commodity  price risk is a consequence  of purchasing  energy at fixed andvariable  prices and  providing  deliveries  at  different  tariff and  variableprices.  Costs associated with ownership and operation of production  facilitiesare another  component of this risk.  PSE may use forward  delivery  agreements,swaps and option  contracts  for the  purpose of hedging  commodity  price risk.Unrealized  changes  in the  market  value of these  derivatives  are  generallydeferred  and  recognized  upon  settlement  along  with the  underlying  hedgedtransaction.  Effective  January  1,  2001,  pursuant  to  Financial  AccountingStandards  Board Statement No. 133,  "Accounting for Derivative  Instruments andHedging Activities", which requires all derivative instruments to be recorded onthe balance sheet at fair value,  changes in the fair value of PSE's derivativeswill be recorded each period in current earnings or other comprehensive  income,depending on whether the  derivative is  designated as a qualifying  hedge underthe  statement.  PSE  does  not  consider  its  current  operation  to meet  thedefinition of trading  activities as described by the Emerging Issues Task Forceof the Financial Accounting Standards Issue No. 98-10, "Accounting for Contractsinvolved in Energy Trading and Risk Management Activities".

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     At March 31, 2001, PSE had anafter-tax asset of approximately  $309.6 million of energy contracts  designatedas  qualifying  as  cash  flow  hedges  and  a  corresponding  amount  in  othercomprehensive  income. PSE also had energy contracts that were  marked-to-marketthrough  current  earnings  during the first  quarter  of 2001 of $31.9  millionafter-tax  which  includes  $14.7  million  for  the  cumulative  effect  of theaccounting  change.  A hypothetical 10% increase in the market prices of naturalgas and electricity prices would increase the fair value of qualifying cash flowhedges by  appropriately  $52.8  million  after-tax and would  decrease  currentearnings for those contracts  marked-to-market in earnings by approximately $6.1million after-tax.

     In addition, PSE believes itscurrent rate design,  including  its  Optional  Large Power Sales Rate,  variousspecial contracts and the PGA mechanism mitigate a portion of this risk.

     Market   risk  is   managedsubject to parameters  established by the Board of Directors.  A Risk ManagementCommittee  separate from the units that manage these risks  monitors  compliancewith PSE's policies and  procedures.  In addition,  the Audit Committee of PSE'sBoard of Directors has oversight of the Risk Management Committee.
Interest raterisk
     The Company believes interestrate  risk  of the  Company  primarily  relates  to the use of  short-term  debtinstruments   and  new  long-term   debt   financing   needed  to  fund  capitalrequirements. The Company manages its interest rate risk through the issuance ofmostly  fixed-rate  debt of various  maturities.  The Company  does utilize bankborrowings,  commercial  paper and line of credit  facilities to meet short-termcash  requirements.  These short-term  obligations are commonly  refinanced withfixed rate bonds or notes when  needed and when  interest  rates are  consideredfavorable.  The Company may enter into swap  instruments  to manage the interestrate risk associated with these debts.
PART II OTHER INFORMATIONItem 1. Legal Proceedings
     Contingencies  arising out ofthe  normal  course  of the  Company's  business  exist at March 31,  2001.  Theultimate  resolution of these issues is not expected to have a material  adverseimpact on the  financial  condition,  results of  operations or liquidity of theCompany.
Item 6.   Exhibits and Reports on Form 8-K      (a)     The following exhibits are filed herewith:              12-1   Statement  setting  forth  computation  of ratios of earnings to                     fixed  charges  (1996  through 2000 and 12 months ended                     March 31, 2001) for Puget Energy
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              12-2   Statement  setting  forth  computation  of ratios of earnings  to                    combined  fixed  charges (1996 through 2000 and 12 months ended                     March 31, 2001) for PSE      (b)     Reports on Form 8-K
**Filed by Puget Energy:**

Form 8-K dated April 17, 2001, Item 5 - Other Events, related to releaseof first quarter earnings.

Form  8-K filed  January 10,  2001,  Item 5 - Other  Events,  related toDeclaring Dividends.

Form  8-K filed  January  2,  2001,  Item 5 - Other  Events,  related toFormation of Holding Company.

**Filed by Puget Energy & Puget Sound Energy:**

Form 8-K dated April 6, 2001,  Item 5 - Other  Events,  related to PugetSound Energy Announces Constructive Settlement with Industrial Customers.

Form 8-K filed March 13, 2001,  Item 5 - Other Events,  related to PugetSound Energy, Industrial Customers Agree on New Power Arrangement.

Form  8-K filed  January 29,  2001,  Item 5 - Other  Events,  related toProposal Threatens Puget Sound Energy's Ability to Serve Customers.
SIGNATURE
     Pursuant to the requirementsof the  Securities  Exchange Act of 1934,  each  registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
PUGET ENERGY, INC.PUGET SOUND ENERGY, INC.
James W. Eldredge 

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James W. EldredgeCorporate Secretary and Chief Accounting Officer
Date: May 9, 2001

     Chief  accounting officer andofficer duly authorized to sign this report on behalf of each registrant