CONFORMED
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                    FORM 10-Q


        [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934
                     For the quarterly period ended September 30, 1999
                             OR
        [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR
                     THE SECURITIES EXCHANGE ACT OF 1934
                                            (NO FEE REQUIRED)
                 For the Transition period from ________ to _________


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

                          Commission File Number 1-4393
                          ----------------------------



                            PUGET SOUND ENERGY, INC.
             (Exact name of registrant as specified in its charter)

Washington                                                            91-0374630
(State or other jurisdiction of                                    (IRS Employer
incorporation or organization)                               Identification No.)


                       411 - 108th Avenue N.E., Bellevue,
                        Washington 98004-5515 (Address of
                          principal executive offices)

                                 (425) 454-6363
              (Registrant's telephone number, including area code)


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

The number of shares of registrant's common stock outstanding at September 30,
1999 was 84,560,536.

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

                                       1
<PAGE>

                                Table of Contents

                                                                            Page
                                                                          Number

Part I.   Financial Information

  Item 1.        Financial Statements
     Consolidated Statements of Income -
            three month periods ended September 30, 1999 and 1998             3
     Consolidated Statements of Income -
            nine month periods ended September 30, 1999 and 1998              4
     Consolidated Statements of Comprehensive Income -
            three month and nine month periods ended
            September 30, 1999 and 1998                                       5
     Consolidated Balance Sheets - September 30, 1999 and December 31, 1998   6
     Consolidated Statements of Cash Flows -
            nine month periods ended September 30, 1999 and 1998              8
     Notes to Consolidated Financial Statements                               9

  Item 2.        Management's Discussion and Analysis of Financial Condition
                 and Results of Operations                                    12

  Item 3.        Quantitative & Qualitative Disclosures About Market Risk     21

Part II.  Other Information

  Item 1.        Legal Proceedings                                            22
  Item 6.        Exhibits and Reports on Form 8-K                             22

Signature                                                                     23


                                       2
<PAGE>

PART I        FINANCIAL INFORMATION
Item 1        Financial Statements
<TABLE>
                             PUGET SOUND ENERGY, INC
                        CONSOLIDATED STATEMENTS OF INCOME
                 For the Three Month Periods Ended September 30
                      (Thousands except per share amounts)
                                   (Unaudited)
<CAPTION>
                                                            1999           1998
                                                            ----           ----
<S>                                                       <C>         <C>
OPERATING REVENUES:
     Electric                                             $ 345,257   $ 375,398
     Gas                                                     57,705      49,955
     Other                                                    8,073       3,157
                                                          ---------   ---------
          Total operating revenues                          411,035     428,510
                                                          ---------   ---------
OPERATING EXPENSES:
Energy costs:
     Purchased electricity                                  178,815     211,226
     Purchased gas                                           22,185      17,174
     Electric generation fuel                                11,531      15,661
     Residential Exchange                                    (7,554)    (11,763)
Utility operations and maintenance                           60,538      51,077
Other operations and maintenance                              4,862       6,618
Depreciation and amortization                                43,191      41,988
Conservation amortization                                     1,684       1,136
Taxes other than federal income taxes                        36,434      33,146
Federal income taxes                                          7,901      11,413
                                                          ---------   ---------

          Total operating expenses                          359,587     377,676
                                                          ---------   ---------

OPERATING INCOME                                             51,448      50,834

OTHER INCOME - net                                            9,801       4,184
                                                          ---------   ---------

INCOME BEFORE INTEREST CHARGES                               61,249      55,018

INTEREST CHARGES, net of AFUDC                               36,337      33,927
                                                          ---------   ---------

NET INCOME                                                   24,912      21,091
Less:  Preferred stock dividends accrual                      2,800       3,226
                                                          ---------   ---------

INCOME FOR COMMON STOCK                                   $  22,112   $  17,865
                                                          =========   =========

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

BASIC & DILUTED EARNINGS PER COMMON SHARE:                $    0.26   $    0.21
                                                          =========   =========

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

                                       3
<PAGE>
<TABLE>

                             PUGET SOUND ENERGY, INC
                        CONSOLIDATED STATEMENTS OF INCOME
                  For the Nine Month Periods Ended September 30
                      (Thousands except per share amounts)
                                   (Unaudited)
<CAPTION>
                                                             1999          1998
                                                             ----          ----
<S>                                                   <C>           <C>
OPERATING REVENUES:
     Electric                                         $ 1,082,966   $ 1,030,907
     Gas                                                  322,722       274,529
     Other                                                 16,312        17,815
                                                      -----------    ----------
          Total operating revenues                      1,422,000     1,323,251
                                                      -----------    ----------
OPERATING EXPENSES:
Energy costs:
     Purchased electricity                                540,088       517,881
     Purchased gas                                        139,263       117,700
     Electric generation fuel                              32,586        36,402
     Residential Exchange                                 (27,869)      (39,333)
Utility operations and maintenance                        179,968       168,161
Other operations and maintenance                           18,247        19,161
Depreciation and amortization                             128,775       123,171
Conservation amortization                                   5,080         3,815
Taxes other than federal income taxes                     129,058       115,623
Federal income taxes                                       68,526        61,688
                                                      -----------    ----------
          Total operating expenses                      1,213,722     1,124,269
                                                      -----------    ----------

OPERATING INCOME                                          208,278       198,982

OTHER INCOME - net                                         26,648         9,650
                                                      -----------    ----------

INCOME BEFORE INTEREST CHARGES                            234,926       208,632

INTEREST CHARGES, net of AFUDC                            109,193       102,038
                                                      -----------    ----------

NET INCOME                                                125,733       106,594
Less:  Preferred stock dividends accrual                    8,689         9,784
                                                      -----------    ----------

INCOME FOR COMMON STOCK                               $   117,044    $   96,810
                                                      ===========    ==========

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

BASIC & DILUTED EARNINGS PER COMMON SHARE:            $      1.38    $     1.14
                                                      ===========    ==========

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

                                       4
<PAGE>
<TABLE>

                            PUGET SOUND ENERGY, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                       For the Three Month Periods Ended
                                  September 30
                             (Dollars in Thousands)
                                   (Unaudited)
<CAPTION>
                                                              1999         1998
                                                              ----         ----
<S>                                                      <C>          <C>
Net Income                                               $  24,912    $  21,091
                                                         ---------    ---------
Other comprehensive income, net of tax:
        Unrealized holding losses arising during period         --       (6,586)
        Reclassification adjustment for gains included
          in net income                                         --           --
                                                         ---------    ---------
          Other comprehensive income                            --       (6,586)
                                                         ---------    ---------
Comprehensive Income                                     $  24,912    $  14,505
                                                         =========    =========








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

<CAPTION>
                                                              1999         1998
                                                              ----         ----
<S>                                                      <C>          <C>
Net Income                                               $ 125,733    $ 106,594
                                                         ---------    ---------
Other comprehensive income, net of tax:
        Unrealized holding gains (losses) arising
          during period                                      3,482       (5,806)
        Reclassification adjustment for gains included
          in net income                                    (12,284)          --
                                                         ---------    ---------
          Other comprehensive income                        (8,802)      (5,806)
                                                         ---------    ---------
Comprehensive Income                                     $ 116,931    $ 100,788
                                                         =========    =========

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

                                       5
<PAGE>
<TABLE>
                            PUGET SOUND ENERGY, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)
                                   (Unaudited)

                                     ASSETS
<CAPTION>
                                                September 30,       December 31,
                                                         1999               1998
                                                -------------       ------------
<S>                                             <C>                 <C>
UTILITY PLANT: (at original cost, including
               construction work in progress
               of $299,644 and $266,242
               respectively)
     Electric                                   $   3,710,981       $  3,694,593
     Gas                                            1,343,569          1,278,275
     Common                                           290,675            179,140
     Less:  Accumulated depreciation and
            amortization                            1,816,782          1,721,096
                                                -------------       ------------

          Net utility plant                         3,528,443          3,430,912
                                                -------------       ------------

OTHER PROPERTY AND INVESTMENTS                        253,273            260,087
                                                -------------       ------------

CURRENT ASSETS:
     Cash                                              72,160             28,216
     Accounts receivable                              147,017            189,638
     Unbilled revenue                                  66,973            126,740
     Materials and supplies, at average cost           69,154             58,534
     Purchased gas receivable                          33,995              5,492
     Prepayments and other                             20,497              7,990
                                                -------------       ------------

          Total current assets                        409,796            416,610
                                                -------------       ------------

LONG-TERM ASSETS:
     Regulatory asset for deferred income taxes       223,762            241,406
     Deferred PURPA power contract buydown costs      225,501            221,802
     Other                                            153,260            138,870
                                                -------------       ------------

          Total long-term assets                      602,523            602,078
                                                -------------       ------------

TOTAL ASSETS                                    $   4,794,035       $  4,709,687
                                                =============       ============

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


                                       6
<PAGE>
<TABLE>

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

                         CAPITALIZATION AND LIABILITIES
<CAPTION>
                                                September 30,       December 31,
                                                         1999               1998
                                                -------------       ------------
<S>                                             <C>                 <C>
CAPITALIZATION:
    Common shareholders' investment:
       Common stock, $10 stated value,
       150,000,000 shares authorized,
       84,560,536 and 84,560,561 shares
       outstanding                              $     845,605       $    845,606
    Additional paid-in capital                        450,837            450,724
    Earnings reinvested in the business                47,650             47,548
    Accumulated other comprehensive income                 --              8,802
    Preferred stock not subject to
      mandatory redemption                             60,000             95,075
    Preferred stock subject to
      mandatory redemption                             65,662             73,162
    Corporation obligated, mandatorily redeemable
      preferred securities of subsidiary
      trust holding solely junior subordinated
      debentures of the corporation                   100,000            100,000
    Long-term debt                                  1,689,770          1,475,106
                                                -------------       ------------
           Total capitalization                     3,259,524          3,096,023
                                                -------------       ------------

CURRENT LIABILITIES:
    Accounts Payable                                  138,660            163,141
    Short-term debt                                   413,878            450,905
    Current maturities of long-term debt               85,000            107,000
    Accrued expenses:
      Taxes                                            63,361             59,764
      Salaries and wages                               20,001             18,650
      Interest                                         36,765             39,062
    Other                                              21,169             23,150
                                                -------------       ------------
          Total current liabilities                   778,834            861,672
                                                -------------       ------------

DEFERRED INCOME TAXES                                 619,281            628,554
                                                -------------       ------------
OTHER DEFERRED CREDITS                                136,396            123,438
                                                -------------       ------------
TOTAL CAPITALIZATION AND LIABILITIES            $   4,794,035       $  4,709,687
                                                =============       ============

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

                                       7
<PAGE>
<TABLE>

                            PUGET SOUND ENERGY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the Nine Month Periods Ended
                                  September 30
                             (Dollars in Thousands)
                                   (Unaudited)
<CAPTION>
                                                              1999         1998
                                                              ----         ----
<S>                                                     <C>          <C>
OPERATING ACTIVITIES:
Net Income                                              $  125,733   $  106,594
Adjustments to reconcile net income
  to net cash provided by operating activities:
     Depreciation and amortization                         128,775      123,171
     Deferred income taxes and tax credits - net             8,371        2,223
     Gain from sale of investment in Cabot common stock    (18,899)          --
     Gain from sale of Homeguard Security Services         (11,659)          --
     Other                                                  21,143       50,023
     Change in certain current assets
       and liabilities (Note 3)                             26,947       (4,681)
--------------------------------------------------------------------------------
          Net Cash Provided by Operating Activities        280,411      277,330
--------------------------------------------------------------------------------

INVESTING ACTIVITIES:
Construction expenditures - excluding equity AFUDC        (244,754)    (230,744)
Additions to energy conservation program                    (4,111)      (4,730)
Loans to CellNet Data Services                             (25,800)          --
Proceeds from sale of investment in Cabot common stock      37,353           --
Proceeds from sale of Homeguard Security Services           13,399           --

Other                                                        1,951       (3,885)
--------------------------------------------------------------------------------
          Net Cash Used by Investing Activities           (221,962)    (239,359)
--------------------------------------------------------------------------------

FINANCING ACTIVITIES:
Change in short-term debt, net                             (37,027)     (13,797)
Dividends paid                                            (125,476)    (127,037)
Redemption of preferred stock                              (42,575)      (5,236)
Issuance of bonds                                          250,000      200,000
Redemption of bonds and notes                              (57,370)     (81,068)
Issue costs of bonds and stock                              (2,057)      (2,167)
--------------------------------------------------------------------------------
          Net Cash Used by Financing Activities            (14,505)     (29,305)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net Increase in cash                                        43,944        8,666
Cash at Beginning of year                                   28,216       10,729
================================================================================
Cash at End of Period                                   $   72,160   $   19,395
================================================================================


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

                                       8
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)      Summary of Consolidation Policy

     The consolidated  financial  statements include the accounts of Puget Sound
Energy,   Inc.  ("the  Company")  and  its  wholly-owned   subsidiaries,   after
elimination of all  significant  intercompany  items and  transactions.  Certain
amounts previously  reported have been reclassified to conform with current year
presentations with no effect on total equity or net income.

     The  consolidated  financial  statements  contained  in this  Form 10-Q are
unaudited.  In the opinion of management,  all adjustments  necessary for a fair
presentation of the results for the interim periods have been reflected and were
of a normal recurring  nature.  These condensed  financial  statements should be
read in conjunction with the Company's annual report on Form 10-K.

(2)      Earnings per Common Share

     Basic  earnings  per common  share  have been  computed  based on  weighted
average  common shares  outstanding  of 84,561,000 for the three and nine months
ended September 30, 1999 and 1998.

     Diluted  earnings  per common  share have been  computed  based on weighted
average common shares outstanding of 84,764,000 and 84,763,000 for the three and
nine months ended  September 30, 1999,  and  84,696,000  and  84,680,000 for the
three and nine months  ended  September  30,  1998,  respectively.  These shares
include  the  dilutive  effect  of  securities  related  to  long-term  employee
compensation plans approved by shareholders.

(3)      Consolidated Statements of Cash Flows

     The  following  provides  additional   information   concerning  cash  flow
activities:
<TABLE>
<CAPTION>

Nine Months Ended September 30                                1999          1998
------------------------------                                ----          ----
<S>                                                     <C>          <C>
Changes in current asset and current liabilities:
  Accounts receivable and unbilled revenue              $ 102,388    $  (17,807)
  Materials and supplies                                  (10,620)       (7,090)
  Prepayments and Other                                   (12,507)       (6,285)
  Purchased gas receivable                                (28,503)        2,094
  Accounts payable                                        (24,481)       48,750
  Accrued expenses and Other                                  670       (24,343)
==================================================================   ===========
Net change in current assets and current liabilities    $  26,947    $   (4,681)
==================================================================   ===========
Cash payments:
  Interest (net of capitalized interest)                $ 116,472    $  103,495
  Income taxes                                          $  47,750    $   66,360
------------------------------------------------------------------   -----------
</TABLE>

                                       9
<PAGE>

(4)      Segment Information

     The Company primarily  operates in one business segment,  Regulated Utility
Operations.  The Company's  regulated  utility operation  generates,  purchases,
transports and sells  electricity  and  purchases,  transports and sells natural
gas. The Company's service territory covers  approximately 6,000 square miles in
the state of Washington.

     Principal  non-utility lines of business include real estate investment and
development,   small  hydro-electric   project  development  and  energy-related
services. Reconciling items between segments are not material.

       Financial data for business segments are as follows:
<TABLE>
<CAPTION>
  (Dollars in Thousands)                  Regulated
  Three Months Ended September 30, 1999     Utility       Other            Total
-------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>
  Revenues                               $  402,962    $  8,073       $  411,035
  Net Income                                 18,136       6,776           24,912
  Total Assets                            4,670,657     123,378        4,794,035
-------------------------------------------------------------------------------------------------------------------

                                         Regulated
  Three Months Ended September 30, 1998     Utility       Other            Total
-------------------------------------------------------------------------------------------------------------------
  Revenues                               $  425,353      $3,157       $  428,510
  Net Income                                 23,829      (2,738)          21,091
  Total Assets                            4,525,054      109,786       4,634,840
-------------------------------------------------------------------------------------------------------------------


  (Dollars in Thousands)                 Regulated
  Nine Months Ended September 30, 1999      Utility       Other            Total
-------------------------------------------------------------------------------------------------------------------
  Revenues                               $1,405,688    $ 16,312       $1,422,000
  Net Income                                113,052      12,681          125,733
  Total Assets                            4,670,657     123,378        4,794,035
-------------------------------------------------------------------------------------------------------------------

                                         Regulated
  Nine Months Ended September 30, 1998      Utility       Other            Total
-------------------------------------------------------------------------------------------------------------------
  Revenues                               $1,305,436    $ 17,815       $1,323,251
  Net Income                                108,995      (2,401)         106,594
  Total Assets                            4,525,054     109,786        4,634,840
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(5)      Other

     In September  1998, the Company filed a  shelf-registration  statement with
the  Securities  and  Exchange  Commission  for the  offering,  on a delayed  or
continuous basis, of up to $500 million principal amount of Senior Notes secured
by a pledge of First Mortgage  Bonds.  On March 9, 1999, the Company issued $250
million principal amount of Senior Medium-Term Notes,  Series B, which consisted
of $150 million principal amount due March 9, 2009, at an interest rate of 6.46%
and $100  million  principal  amount due March 9, 2029,  at an interest  rate of
7.0%.

                                       10
<PAGE>

     In March 1998,  the Company  entered  into an  agreement  with CellNet Data
Services Inc.  ("CellNet")  under which the Company would lend CellNet up to $40
million in the form of multiple  draws so that  CellNet can finance an Automated
Meter  Reading  (AMR)  network  system to be deployed in the  Company's  service
territory.  The  Company's  promissory  note with CellNet  calls for the network
system to serve as collateral  for the loan.  The term of the loan is five years
after the first loan under the agreement is made to CellNet.. The loan agreement
provides  for  interest  only  payments  during  the five  year  term,  with the
principal  due at the end of the five year term.  On June 30, 1999,  the Company
made the first loan under the loan agreement and as of September 30, 1999, there
were  loans  outstanding  of $25.8  million.  In  September  1999,  the  Company
announced  it was  expanding  its AMR  network  system  from  800,000  meters to
1,325,000  meters and as a result  increased  the loan  agreement  amount to $72
million.

     During  the  first  quarter  of 1999,  the  Company  adopted  Issue  98-10,
"Accounting  for  Contracts  Involved  in  Energy  Trading  and Risk  Management
Activities"  ("EITF  98-10")  issued by the  Emerging  Issues  Task Force of the
Financial Accounting  Standards Board ("FASB").  EITF 98-10 addresses accounting
for the  purchase and sale of energy  trading  contracts  and is  effective  for
fiscal years  beginning  after December 15, 1998. The conclusion  reached by the
EITF was that such contracts  should be recorded at fair value when entered into
for  trading  activities  with the  mark-to-market  gains or losses  recorded in
current earnings.  The Company does not consider its current  operations to meet
the  definition of trading  activities as described by EITF 98-10.  Accordingly,
the  adoption  of EITF 98-10 did not have an impact on the  Company's  financial
position or results of operations.

     In June 1998, the FASB issued Statement of Financial  Accounting  Standards
No.  133,  "Accounting  for  Derivative   Instruments  and  Hedging  Activities"
("Statement  No.  133").  In July 1999,  the FASB issued  Statement of Financial
Accounting  Standards No. 137 which delayed the effective  date of Statement No.
133 for one year, to fiscal years beginning  after June 15, 2000.  Statement No.
133 requires that all derivative instruments be recorded on the balance sheet at
their fair value.  Changes in the fair value of  derivatives  are recorded  each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge  transaction and, if it is, the type
of hedge  transaction.  The Company has not yet  determined  the impact that the
adoption of Statement No. 133 will have on its financial statements.

     On September 30, 1999, the Company announced an agreement to purchase a 160
megawatt natural gas-fired co-generation plant near Bellingham,  Washington from
Encogen Northwest L.P. for $164 million.  Under a power purchase contract signed
in 1990  pursuant to the Public  Utility  Regulatory  Policies Act of 1978,  the
Company was  obligated  to purchase  the net output of the plant at prices above
current and  projected  future  market  prices.  The contract had  obligated the
Company to pay Encogen fixed and escalating fees through mid-2008 for the output
of the  co-generation  plant.  Pursuant  to an October  27,  1999 order from the
Washington  Commission  approving the purchase,  the Company will depreciate the
original  owner's net book value of the plant over the  remaining 23 year useful
life of the project.  The difference between the purchase price and the net book
value of the plant  (approximately $71.1 million) will be amortized over 9 years
(the remaining term of the power purchase contract). The purchase is expected to
reduce the net cost of power from the co-generation project by approximately 17%
annually compared to existing contract prices.

     In the third quarter of 1999, the Company sold the assets,  liabilities and
trade name of its wholly-owned subsidiary, Homeguard Security Services, Inc. The
Company also sold in the third quarter of 1999,  certain non-core assets and the
majority  of the  gas  pipeline  capacity  rights  and  gas  storage  rights  of
Washington  Energy Gas Marketing  ("WEGM",  a wholly-owned  subsidiary),  in the
United States and the Province of Alberta, Canada. The Company recorded an after
tax gain of approximately $3.6 million related to the sale of non-core assets in
the quarter.

                                       11
<PAGE>

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

     The  following   discussion  of  the  Company's   business   includes  some
forward-looking  statements that involve risks and uncertainties.  Words such as
"estimates," "expects," "anticipates," "plans," and similar expressions identify
forward-looking  statements  involving  risks and  uncertainty.  Those risks and
uncertainties  include, but are not limited to, the ongoing restructuring of the
electric and gas industries and the outcome of regulatory proceedings related to
that restructuring.  The ultimate impacts of both increased  competition and the
changing  regulatory  environment  on  future  results  are  uncertain,  but are
expected to  fundamentally  change how the Company  conducts its  business.  The
outcome of these  changes and other  matters  discussed  below may cause  future
results to differ materially from historic results,  or from results or outcomes
currently expected or sought by the Company.

                              Results of Operations

     Net income for the three months ended September 30, 1999, was $24.9 million
on  operating  revenues  of $411.0  million,  compared  with net income of $21.1
million on  operating  revenues  of $428.5  million for the same period in 1998.
Income  for common  stock was $22.1  million  for the third  quarter of 1999 and
$17.9  million for the third  quarter of 1998.  Basic and diluted  earnings  per
common share were $0.26 for the third  quarter of 1999 compared to $0.21 for the
third quarter of 1998.

     For the first  nine  months of 1999,  net  income  was  $125.7  million  on
operating  revenues  of  $1,422.0  million,  compared  with net income of $106.6
million on operating  revenues of $1,323.3 million for the corresponding  period
in 1998. Income for common stock was $117.0 million for the first nine months of
1999 and $96.8 million for the same period in 1998.  Basic and diluted  earnings
per common share were $1.38 for the nine months ended  September  30, 1999,  and
$1.14 for the same period in 1998.

     Results  from  non-utility  operations  for the third  quarter of 1999 were
positively  impacted by the sale and assignment of certain  non-core  assets and
gas supply  transportation  contracts  which  resulted in an  after-tax  gain of
approximately  $3.6 million.  Results from  non-utility  operations for the nine
months ended September 30, 1999, were also positively  impacted by approximately
$0.10 per share recorded in the second quarter of 1999 which was the result of a
gain from the sale of the  Company's  investment  in common stock of Cabot Oil &
Gas  Corporation,  offset  in part by the  cost of a  wholly-owned  subsidiary's
exiting certain product lines.

     The  increases  in net income and earnings per share for the three and nine
months ended  September 30, 1999,  compared to the same periods in 1998 are also
the result of continued customer growth,  temperatures that averaged near normal
as  compared  to warmer  than  normal  during the same  period last year and the
positive contribution of favorable hydroelectric conditions to electric margins.

     Total kilowatt-hour sales were 7.6 billion,  including 2.9 billion in sales
to wholesale customers,  for the third quarter of 1999, compared to 7.9 billion,
including 3.3 billion in sales to wholesale customers,  for the third quarter of
1998.  For the nine month  periods  ended  September  30,  1999 and 1998,  total
kilowatt-hour  sales  were  23.9  billion,  including  8.3  billion  in sales to
wholesale  customers,  and  21.8  billion,  including  6.6  billion  in sales to
wholesale customers, respectively.

                                       12
<PAGE>

     Total gas volumes were 149.3 million therms,  including 50.8 million therms
in  transportation  volumes  for the three  months  ended  September  30,  1999,
compared  to  127.7   million   therms,   including   53.5  million   therms  of
transportation, for the same period in 1998. For the nine months ended September
30, 1999,  total gas volumes were 769.7 million therms,  including 177.3 million
therms of  transportation,  compared to 678.6 million  therms,  including  192.3
million therms of transportation, for the same period in 1998.

     The Company's  operating revenues and associated expenses are not generated
evenly  during the year.  Variations  in energy  usage by  customers  occur from
season to season and from month to month within a season,  primarily as a result
of changing weather  conditions.  The Company  normally  experiences its highest
energy  sales in the first and fourth  quarters of the year.  Electric  sales to
wholesale  customers  also vary by quarter and year depending  principally  upon
water conditions for the generation of hydroelectric  power,  customer usage and
the energy requirements of other utilities.
<TABLE>

                              Results of Operations
                 Comparative Three and Nine Month Periods Ended
                    September 30, 1999 vs. September 30, 1998
                               Increase (Decrease)
<CAPTION>

                                                     Three Month      Nine Month
                                                     Period           Period
                                                            (In Millions)
                                                     ----------       ----------
<S>                                                  <C>              <C>
Operating revenue changes
  General rate increase - electric                         $3.3           $11.0
  Residential Exchange credits provided to customers       (1.1)           (4.7)
  Sales to wholesale customers                            (32.1)           21.8
  Electric load and other changes                          (0.3)           23.9
  Gas revenue change                                        7.8            48.2
  Other revenue changes                                     4.9            (1.5)
                                                     ----------       ----------
          Total operating revenue change                  (17.5)           98.7
                                                     ----------       ----------

Operating expense changes Energy costs:
          Purchased electricity                           (32.4)           22.2
          Purchased gas                                     5.0            21.6
          Electric generation fuel                         (4.1)           (3.8)
          Residential exchange credit                       4.2            11.5
  Utility operations and maintenance                        9.5            11.7
  Other operations and maintenance                         (1.8)           (0.9)
  Depreciation and amortization                             1.2             5.6
  Conservation amortization                                 0.5             1.3
  Taxes other than federal income taxes                     3.3            13.4
  Federal income taxes                                     (3.5)            6.8
                                                     ----------       ----------
          Total operating expense change                  (18.1)           89.4
                                                     ----------       ----------

Other income                                                5.6            17.0

Interest charges                                            2.4             7.2

                                                     ==========       ==========
          Net income change                                $3.8           $19.1
                                                     ==========       ==========
</TABLE>

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

                                       13
<PAGE>

         Operating Revenues - Electric

     Electric  revenues were increased by $3.3 million and $11.0 million for the
three and nine months ended  September 30, 1999,  respectively,  compared to the
same periods in 1998 due to a general  electric rate increase that averaged 1.2%
effective January 1, 1999.

     Revenues  in 1999 and 1998 were  reduced  because  of the  credit  that the
Company  gives  to  customers  related  to the  Residential  Purchase  and  Sale
Agreement  with the  Bonneville  Power  Administration  ("BPA").  The  agreement
enables  the  Company's  residential  and small farm  customers  to receive  the
benefits of lower-cost  federal power.  On January 29, 1997, the Company and BPA
signed a Residential Exchange Termination  Agreement.  The Termination Agreement
ends the Company's  participation in the Residential Purchase and Sale agreement
with  BPA.  As part of the  Termination  Agreement,  the  Company  will  receive
payments from BPA of approximately $235 million over an approximately  five-year
period ending June 2001. These payments are recorded as a reduction of purchased
electricity expenses.  Under the rate plan approved by the Washington Commission
in its merger order, the Company will continue to reflect,  in customers' bills,
the level of Residential  Exchange benefits in place at time of the merger. Over
the remainder of the  Residential  Exchange  Termination  Agreement from October
1999 through June 2001, it is projected  that the Company will credit  customers
approximately  $120.6  million  more than it will  receive  from BPA  during the
following periods:

                                         Dollars in
                   Period                Millions
                   ------                ----------
          October - December 1999           $15.3
          January - December 2000            68.4
            January - June 2001              36.9
                                           ------
                                           $120.6
                                           ======

     The  allocation  of future  benefits of  low-cost  federal  power,  for the
five-year  BPA rate  plan  period  2002 to 2006 will be  decided  as part of the
current  BPA  rate  case  process.  As  part  of its  rate  case,  the BPA has a
"subscription  plan" that spells out how the agency  proposes  to  allocate  the
low-cost  federal  power,  or in some  cases,  the power's  equivalent  monetary
benefits.  Following  a public  rate-hearing  process,  the BPA is  expected  to
publish a record of  decision on final  power  rates and  allocations  in spring
2000.

     Electric  sales to  wholesale  customers  decreased  $32.1  million  in the
quarter ended  September 30, 1999,  compared to the quarter ended  September 30,
1998,  primarily as a result of the  termination  of the power supply  operating
alliance  between the Company and Duke  Energy  Trading and  Marketing  ("DETM")
effective May 31, 1999 (See MD&A - Other).

     Electric  sales to  wholesale  customers  increased  $21.8  million  in the
nine-month period ended September 30, 1999,  compared to the same period in 1998
due to  activities  pursuant  to the  agreement  with DETM.  Related  power cost
expenses for the nine-month  period also increased as the Company  generated and
purchased more power for these sales.

                                       14
<PAGE>

     Electric  revenues  were  positively  impacted in the three and nine months
ended September 30, 1999, by  temperatures  that averaged near normal during the
1999  periods as compared to warmer than normal 1998  periods and an increase of
approximately 2% in the number of electric customers.

     Revenues in the three and nine months  ended  September  30, 1999 were also
reduced  by the  accrual of  approximately  $4.3  million in refunds  related to
disputes  with  industrial  customers  under  certain  special  contracts and an
Optional Large Power Sales Rate. (See discussion in "Other")

Operating Revenues - Gas

     Gas operating revenues for the quarter ended September  30,1999,  increased
$7.8 million or 15.5% from the prior year quarter.  Total gas volumes  increased
16.9% from 127.7 million therms to 149.3 million therms. The primary reasons for
the  increase in gas sales  volume and gas sales  revenue in the  quarter  ended
September 30, 1999, was the 4.6% increase in gas customers and temperatures that
averaged near normal as compared  warmer than normal in the prior year. A larger
percentage  of firm gas sales with higher prices and less  transportation  sales
volumes  in 1999  when  compared  to last  year also  contributed  to  increased
revenues.  Gas margin  (regulated  utility sales less the cost of gas sold) also
increased by $3.9  million,  or 13.4 % in the third  quarter of 1999 compared to
the same period in 1998.  The  increase in gas margin was due  primarily  to the
increase in gas  customers  and the  recognition  of  incentive  gains under the
Purchased Gas Adjustment ("PGA") Incentive  Mechanism approved by the Washington
Commission in June 1998.

     For the nine months  ended  September  30,  1999,  gas  operating  revenues
increased  $48.2  million or 17.6% from $274.5  million in the nine months ended
September 30, 1998, to $322.7 million while total gas volumes  increased 13.4 %.
The  increases  in the  period  were  primarily  due to a 4.4%  increase  in gas
customers and the impact  temperatures  that averaged near normal as compared to
warmer than normal in the prior year. A larger percentage of firm gas sales with
higher  prices and less  transportation  sales  volumes in 1999 when compared to
last year also contributed to increased revenues.  Gas margin in the nine months
ended  September 30, 1999, also increased $27.7 million or 18.8% compared to the
same  period in 1998.  The  increase  in gas  margin  was due  primarily  to the
increase in gas customers and the  recognition of incentive  gains under the PGA
Incentive Mechanism approved by the Washington Commission in June 1998.

     Other revenues  increased $4.9 million in the three months ended  September
30, 1999 compared to the three months ended September 30, 1998, due primarily to
increased property sales at the Company's real estate subsidiary. Other revenues
decreased $1.5 million in the nine months ended  September 30, 1999, as compared
to  the  same  period  in  1998  due to  decreased  revenues  at  the  Company's
subsidiaries.

Operating Expenses

     Purchased electricity expenses decreased $32.4 million for the three-months
ended September 30, 1999, compared to the three-months ended September 30, 1998,
primarily  as a result of the  aforementioned  termination  of the power  supply
operating  alliance  between  the  Company  and  DETM  effective  May 31,  1999.
Purchased electricity expenses increased $22.2 million for the nine-months ended
September 30, 1999,  compared to the  nine-months  ended September 30, 1998. The
increase  during this period was due  primarily  to  increased  secondary  power
purchases to support  wholesale sales and the increased load due to temperatures
that  averaged  near  normal as  compared  to warmer  than  normal in 1998 and a
greater number of electric customers in 1999 compared to 1998.

                                       15
<PAGE>

     Purchased  gas expenses  increased  $5.0 million and $21.6  million for the
three and nine month periods ended September 30, 1999, respectively, as compared
to the same  periods in 1998 due to both  increased  volumes of  purchases  as a
result of higher heating load and the increase in gas service customers.

     Fuel expense decreased $4.1 million and $3.8 million for the three and nine
month  periods  ended  September  30, 1999,  respectively,  compared to the same
periods in 1998 due  primarily to the Company  generating  less  electricity  at
Company-owned combustion turbines.

     Residential  exchange credits associated with the Residential  Purchase and
Sale  Agreement  with BPA decreased  $4.2 million and $11.5 million in the three
and nine month  periods  ended  September  30, 1999,  compared to the prior year
periods,  primarily  as a result of the 1997  Residential  Exchange  Termination
Agreement discussed in "Operating Revenues - Electric."

     Utility  operations  and  maintenance  expenses  increased $9.5 million and
$11.7  million for the three and nine month  periods  ended  September 30, 1999,
respectively,  compared to the same periods in 1998. The primary reasons for the
nine month period increase were increased storm-repair costs of $8.6 million and
increased  expenditures  for Year  2000  remediation  efforts  of $5.4  million.
Increased storm repair costs and expenditures for Year 2000 remediation  efforts
also  contributed  to the three month period  increase as well as a $2.1 million
increase  in coal plant  non-fuel  expense as a result of the major  overhaul of
Colstrip Unit 1.

     Depreciation and amortization expense increased $1.2 million and $5.6
million for the three and nine month periods September 30, 1999, respectively,
from the same periods in 1998 due primarily to the effects of new plant placed
into service during the past year.

     Taxes other than  federal  income  taxes  increased  $3.3 million and $13.4
million for the three and nine month periods ended September 30, 1999,  compared
to the same periods in 1998 due primarily to increases in municipal taxes, state
excise taxes and state property taxes.

     Federal  income  taxes  decreased  $3.5  million for the three month period
ended  September 30, 1999,  compared to the same period in 1998 as a result of a
$2.4 million  true-up which resulted in lower federal income tax and an increase
in interest  expense  during the period.  Federal  income taxes  increased  $6.8
million for the nine-month period ended September 30, 1999, from the same period
in 1998 primarily due to higher pre-tax operating income for the period.

Other Income

     Other income,  net of federal  income tax,  increased  $5.6 million for the
three month period  ending  September  30, 1999,  compared to the same period in
1998.  The  increase  was  primarily  the result of the sale and  assignment  of
certain non-core assets and gas supply  transportation  contracts which resulted
in an after-tax gain of approximately $3.6 million.

     Other income for the nine month period ended September 30, 1999,  increased
$17.0  million  when  compared to the same period in 1998 due  primarily  to the
after-tax  gain of  $12.3  million  as a  result  of the  sale of the  Company's
investment  in the common  stock of Cabot Oil and Gas  Corporation  in May 1999,
offset  in part by the  cost of  ConnexT,  a  wholly-owned  subsidiary,  exiting
certain product lines as well as the aforementioned  gain of $3.6 million in the
third quarter of 1999.

                                       16
<PAGE>

Interest Charges

     Interest  charges,  which consist of interest and amortization on long-term
debt and other  interest,  increased $2.4 million and $7.2 million for the three
and nine month periods ended September 30, 1999,  respectively,  compared to the
same periods in 1998 as a result of the  issuance of $200  million  6.74% Senior
Medium-Term  Notes,  Series A, in June 1998 and $250 million Senior  Medium-Term
Notes,  Series B, in March 1999.  These  increases were partially  offset by the
repayment of $108 million in Secured  Medium-Term  Notes since February 1998 and
the redemption of $30 million 9.14% Secured Medium-Term Notes, Series A, in June
1998.  Other  interest  expense  decreased $1.1 million and $3.0 million for the
three and nine months ended  September 30, 1999,  respectively,  compared to the
same periods in 1998 as a result of lower weighted average interest rates.

              Capital Expenditures, Capital Resources and Liquidity

     Capital  expenditures,  which include energy conservation  expenditures and
exclude  AFUDC,  for the third  quarter of 1999 were $80.3  million  compared to
$89.3 million for the third quarter of 1998.  Year-to-date  capital expenditures
totaled $241.4  million  compared to $229.7 million for the same period in 1998.
Capital  expenditures for 1999 and 2000 are expected to be $303 million and $259
million, respectively.  Cash provided by operations (net of dividends and AFUDC)
as a percentage of capital expenditures  (excluding AFUDC) was 5% and 0% for the
third quarters of 1999 and 1998, respectively.  Cash provided by operations (net
of  dividends  and AFUDC) as a  percentage  of capital  expenditures  (excluding
AFUDC) was 61% and 63% for the nine month periods  ended  September 30, 1999 and
1998, respectively. Capital expenditure estimates are subject to periodic review
and adjustment.

     On September 30, 1999, the Company had available $375.0 million in lines of
credit  with  various  banks,  which  provide  credit  support  for  outstanding
commercial paper borrowing of $162.3 million,  reducing the available  borrowing
capacity under these lines of credit to $212.7 million. In addition, the Company
has  agreements  with several banks to borrow on an  uncommitted,  as available,
basis at money-market  rates quoted by the banks. There are no costs, other than
interest, for these arrangements.

                              Year 2000 Conversion
Background

     The Year 2000 issue  results  from the use of two digits  rather  than four
digits in computer  hardware and software to define the applicable  year. If not
corrected  on computer  systems  that must  process  dates both before and after
January 1, 2000,  two-digit year fields may create  processing  errors or system
failures. The Company believes that all mission-critical operational systems, as
defined by the North American Electric  Reliability  Council ("NERC"),  are Year
2000 ready. Project work, including  remediation and testing is complete for the
Company's  other priority  business  systems.  Follow-up for a limited number of
non-critical systems and certain vendors will continue into the fourth quarter.

Project Approach and Progress

     The number of people  working full time and part time on the Company's Year
2000  project has  fluctuated  between 125 and 150.  The Company  established  a
central  project team to  coordinate  all Year 2000  activities  and  identified
exposure in three categories:  information technology; embedded chip technology;
and external non-compliance by customers and suppliers.  The project team took a
phased  approach in conducting  the Year 2000 project for its internal  systems.
The phases include inventory, assessment,  remediation,  testing, implementation
and contingency planning.  In addition,  the Company engaged outside consultants
and  technicians to aid in formulating and  implementing  its plan. All business
units  have  completed  the   inventory,   assessment,   remediation,   testing,
implementation and contingency planning phases.

                                       17
<PAGE>

     The Company has been  upgrading  mainframe and client server  financial and
business  applications  since 1997 and replacing many of its business systems as
part of its business plans  following its merger in 1997. In September 1998, the
Company implemented a Systems, Applications, Products in Data Processing ("SAP")
business  system  which  includes  essentially  all  of the  Company's  business
applications with the exception of its Customer  Information System ("CIS"). The
SAP system is Year 2000 compliant.

     A new CIS, which is designed to be Year 2000 compliant,  is currently being
developed by the Company.  The Company has also remediated  critical elements of
its existing CIS for Year 2000 compliance purposes.

     A specialized embedded systems team was formed by the Company to inventory,
assess and remediate microprocessor  technology in its generation,  transmission
and distribution  systems for both gas and electric  operations.  The inventory,
assessment,  remediation,  testing  and  implementation  phases for all  mission
critical  embedded systems are complete.  Contingency  planning  specific to the
Year 2000 issue began in November 1998, and contingency  plans were submitted on
June 30,  1999,  to the  Washington  Commission  and NERC.  These  plans will be
refined and updated as remediation and test results are analyzed.

     The Company sent letters to its suppliers, financial institutions and other
business partners to coordinate Year 2000 conversion and determine the extent to
which the Company is exposed to third party compliance failures. All significant
vendors  and  suppliers  have been  contacted.  All third party  assessment  was
completed in June 1999.  When the Company  identified  concerns,  it followed up
with third  parties by  telephone.  In addition,  the Company held meetings with
critical  vendors  described  below in order to assess  and  monitor  compliance
measures.  All critical  vendors and suppliers  have  responded to the Company's
written requests and follow up telephone calls.  They have indicated either that
they are Year 2000  compliant or where  appropriate  company line  managers have
developed alternate sources or other contingency plans.

     The Company  depends upon third  parties for a  significant  portion of its
energy supply and transportation.  The majority of the high voltage transmission
facilities  used by the Company are owned and operated by BPA and the  Company's
natural  gas  supplies  are  transported  to its  service  area by  natural  gas
pipelines in the western United States and Canada. The Company purchases 100% of
its natural gas supplies and  approximately  75% of its electric power supplies.
Major energy suppliers and transporters are considered  critical vendors because
their failure to supply or deliver energy to the Company could adversely  affect
the reliability of the Company's electric or gas service to its customers.

     In addition,  the Company is working with various industry groups including
NERC and the regional  reliability  council,  the Western  Systems  Coordinating
Council ("WSCC") during the millennium transition.  The United States Department
of Energy  has asked  NERC to assume a  leadership  role in  preparing  the U.S.
electric industry for the transition to the Year 2000.

Costs

     While the replacement of business systems under business plans developed as
a result of the merger are not  included  in the  Company's  Year 2000  project,
those  replacements  substantially  reduced  the  number  of  internal  business
applications that require remediation. In addition to the costs of replacing new
business systems,  the Company estimates that total Year 2000 project costs will
approximate   $14  million,   exclusive  of  internal  labor  costs,   of  which
approximately  $0.5  million  related  to  contingency  planning  has  yet to be
expended.

                                       18
<PAGE>

Risk Assessment

     The electric power supply systems of North America are connected into three
major  interconnections  called grids. The western grid covers the western third
of the U.S., western Canada and parts of Mexico. The BPA is the largest supplier
of  transmission  services in the Pacific  Northwest.  The Company's  reasonably
likely worst case scenario is that operational  component failures of any entity
connected  to the grid could cause other  failures in that grid.  Such  failures
would adversely affect the Company's  ability to provide reliable service to its
customers  and  correspondingly  reduce  revenues.  The Company has continued to
assess this risk as the  millennium  approaches  and evaluated the likelihood of
power  failures and continues to develop  approaches  for mitigating the risk of
failures.

     Much of the natural gas and electric  distribution systems are comprised of
wires, poles and pipes containing no embedded chips.  However,  these systems do
employ  some  computer  components  that  could be  affected  by the  Year  2000
transition.  Since many of the components  used by the Company exist in multiple
sub-station  locations,  there is a risk that a  component  could be  missed,  a
component  manufacturer  could provide erroneous  information,  or the component
(while deemed and tested compliant) could fail in a specific configuration found
at the  Company. The  Company  formed a special  team to handle  these types of
components (embedded systems), and retained an independent engineering firm with
specific  utility  experience  to assist in the  effort.  Results of  assessment
revealed  that  there are fewer  components  that are not Year 2000  ready  than
initially  thought.  This is consistent with industry findings  published in the
NERC report to the Department of Energy dated January 11, 1999.

     The  failure to correct a material  Year 2000  problem  could  result in an
interruption  in, or a failure of,  Company  business  activities or operations.
Such failures  could  materially and adversely  affect the Company's  results of
operations,  liquidity and financial  condition.  Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000  readiness of  third-party  suppliers  and  customers,  the Company is
unable to determine at this time whether the  consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial  condition.  The Year  2000  project  has  significantly  reduced  the
Company's  level of  uncertainty  about the Year 2000  problem and the Year 2000
readiness  of  its  material  vendors.  The  Company  believes  that,  with  the
implementation  of  new  business  systems  and  completion  of the  project  as
scheduled, the possibility of significant interruptions of normal operations has
been reduced.

Contingency Plans

     A specialized team was formed that developed  contingency plans and updated
existing emergency preparedness plans to identify and address risk scenarios for
the  Company.  Contingency  planning  specific  to the Year 2000 issue  began in
November  1998,  and  contingency  plans were submitted on June 30, 1999, to the
Washington  Commission  and NERC.  Contingency  plans were  successfully  tested
during the NERC September 8th and 9th 1999 drill. Additional internal drills are
planned during the last two months of 1999.

                                       19
<PAGE>

Forward Looking Statements

     Readers are cautioned that forward-looking statements contained in the Year
2000 update are based on  management's  best  estimates and may be influenced by
factors that could cause actual outcomes and results to be materially  different
than  projected.  Specific  factors  that might  cause  differences  between the
estimates and actual results  include,  but are not limited to, the availability
and cost of personnel  trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by third-parties
and  suppliers,  the ability to implement  new systems in a timely  manner,  the
ability to  implement  interfaces  between  the new  systems and the systems not
being  replaced,  and  similar  uncertainties.  Due to the  general  uncertainty
inherent in the Year 2000 problem,  resulting in part from the reliance upon the
Year  2000  readiness  of  third-parties  and  the   interconnection  of  global
businesses, the Company cannot ensure its ability to timely and cost-effectively
resolve problems associated with Year 2000 issues that may affect its operations
and business, or expose it to third-party liability.

                                      Other

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

     A power  supply  operating  alliance  between  the  Company and Duke Energy
Trading and Marketing ("DETM"),  whereby the Company participated in the Western
market activities of DETM, was terminated  effective May 31, 1999. Going forward
the Company will perform the functions of minimizing the cost of, and optimizing
the value inherent in, its core power supply portfolio. The Company will overlay
its traditional  supply management  activities with an energy price risk hedging
capability.

     On September 1, 1999, the Company  redeemed all  outstanding  shares of its
8.5% Preferred Stock,  Series III, at the redemption price of $25 per share plus
accrued dividends.

     The  Company has an  Optional  Large Power Sales Rate and certain  "special
contracts" for its largest customers.  The Company has been involved in disputes
with a number of industrial  customers  regarding  their claims that the Company
was incorrectly billing for energy under the Optional Large Power Sales Rate and
special contracts.  In the third quarter of 1999, the Company accrued refunds of
approximately  $4.3 million  related to these  disputes.  In November  1999, the
disputes  with  industrial  customers  with respect to the Optional  Large Power
Sales Rate were resolved.

     In the third quarter of 1999, the Company sold the assets,  liabilities and
trade name of its wholly-owned subsidiary, Homeguard Security Services, Inc. The
Company also sold in the third quarter of 1999,  certain non-core assets and the
majority  of the  gas  pipeline  capacity  rights  and  gas  storage  rights  of
Washington  Energy Gas Marketing  ("WEGM",  a wholly-owned  subsidiary),  in the
United States and the Province of Alberta, Canada. The Company recorded an after
tax gain of approximately $3.6 million related to the sale of non-core assets in
the quarter.

     For a  discussion  of the  purchase  of a 160  megawatt  natural  gas-fired
co-generation  plant from Encogen  Northwest L.P. see Note 5 to the Consolidated
Financial Statements.

     On October 27, 1999, the Washington  Commission  approved the Company's PGA
and deferral amortization  (true-up) filings effective November 1, 1999. The PGA
filing  allows the Company to recover an  expected  increase in annual gas costs
and the deferral  amortization filing allows the Company to recover prior period
gas  cost   undercollections.   The  filings   replaced  the  PGA  and  deferral
amortization  refund that had been  effective  since April 1, 1998. The combined
filings increased gas rates to all sales customers by an average of 16.3%.

                                       20
<PAGE>

Item 3  Quantitative and Qualitative Disclosures About Market Risk

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

Commodity Price Risk

     The prices of energy commodities and transportation services are subject to
fluctuations  due to unpredictable  factors  including  weather,  transportation
congestion  and other  factors which impact  supply and demand.  This  commodity
price risk is a consequence  of purchasing  energy at fixed and variable  prices
and  providing  deliveries  at  different  tariff  and  variable  prices.  Costs
associated  with  ownership and operation of production  facilities  are another
component  of this risk.  The Company may use forward  delivery  agreements  and
option  contracts for the purpose of hedging  commodity  price risk.  Unrealized
changes in the market value of these  derivatives  are  deferred and  recognized
upon settlement along with the underlying hedged transaction.  In addition,  the
Company  believes its current rate design,  including  its Optional  Large Power
Sales Rate,  various special contracts and the PGA mechanism  mitigate a portion
of this risk.

     Market risk is managed  subject to parameters  established  by the Board of
Directors. A Risk Management Committee separate from the units that create these
risks  monitors  compliance  with the  Company's  policies  and  procedures.  In
addition,  the Audit Committee of the Company's Board of Directors has oversight
of the Risk Management Committee.

Interest rate risk

     The Company believes interest rate risks of the Company primarily relate to
the use of short-term debt  instruments and new long-term debt financing  needed
to fund capital requirements. The Company manages its interest rate risk through
the issuance of mostly fixed-rate debt of various  maturities.  The Company does
utilize bank borrowings,  commercial paper and line of credit facilities to meet
short-term  cash  requirements.   These  short-term   obligations  are  commonly
refinanced  with fixed rate bonds or notes when needed and when  interest  rates
are considered favorable.  The Company may enter into swap instruments to manage
the interest rate risk associated  with these debts,  and one interest rate swap
was outstanding as of September 30, 1999.

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PART II  OTHER INFORMATION
Item 1        Legal Proceedings

     Contingencies  arising out of the normal course of the  Company's  business
exist at September  30, 1999.  The  ultimate  resolution  of these issues is not
expected to have a material adverse impact on the financial  condition,  results
of operations or liquidity of the Company.

Item 6        Exhibits and Reports on Form 8-K

      (a)     Exhibits
              The following exhibits are filed herewith:

              12-a  Statement  setting forth  computation  of ratios of earnings
                    to fixed charges (1994 through 1998 and 12 months ended
                    September 30, 1999)

              12-b   Statement setting forth computation of ratios of earnings
                     to combined fixed charges and preferred stock dividends
                     (1994 through 1998 and 12 months ended September 30, 1999)

              27     Financial Data Schedule

      (b)     Reports of Form 8-K

     The Company  did not file any reports on Form 8-K during the quarter  ended
September 30, 1999.

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                                   SIGNATURES

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


                                       PUGET SOUND ENERGY, INC.

                                       /s/ James W. Eldredge
                                       ---------------------
                                       James W. Eldredge
                                       Corporate Secretary and Controller

Date: November 12, 1999                Chief accounting officer and officer duly
                                       authorized to sign this report on behalf
                                       of the registrant


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