Document:

<PAGE>

                                                                    Exhibit 4.27

                             CERTIFICATE OF TRUST

                                      OF

                      PUGET SOUND ENERGY CAPITAL TRUST II

     This Certificate of Trust is being executed as of October 3, 2000 for the
purposes of organizing a business trust pursuant to the Delaware Business Trust
Act, 12 Del C. (S)(S) 3801 et seq (the "Act")
        --- --             -- ---

     The undersigned hereby certifies as follows:

     1.   Name:  The name of the business trust is "Puget Sound Energy Capital
          ----
Trust II" (the "Trust").

     2.   Delaware Trustee.  The name and business address of the Delaware
          ----------------
resident trustee of the Trust meeting the requirements of Section 3807 of the
Act are as follows:

          Bank One Delaware, Inc.
          Three Christiana Center
          201 North Walnut Street
          Wilmington, Delaware 19801
          Attn:  Legal Dept./First USA

     3.   Effective.  This Certificate of Trust shall be effective immediately
          ---------
upon filing in the Office of the Secretary of State of the State of Delaware.
<PAGE>

     IN WITNESS WHEREOF, the undersigned, being all of the trustees of the
Trust, have duly executed this Certificate of Trust as of the day and year first
above written.

                                        BANK ONE DELAWARE, INC., as Delaware
                                        Trustee

                                        By: /s/  Sandra L. Caruba
                                            ---------------------
                                        Name: Sandra L. Caruba
                                        Title: Vice President

                                        BANK ONE TRUST COMPANY, NA, as Property
                                        Trustee

                                        By: /s/  Sandra L. Caruba
                                            ---------------------
                                        Name: Sandra L. Caruba
                                        Title: Vice President

                                        ADMINISTRATIVE TRUSTEE

                                        By: /s/ Richard L. Hawley
                                           ----------------------
                                            Richard L. Hawley

                                        ADMINISTRATIVE TRUSTEE

                                        By: /s/ Donald E. Gaines
                                           ---------------------
                                            Donald E. Gaines

                                      -2-<PAGE>

                                                                    Exhibit 4.28

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

                             DECLARATION OF TRUST

                      PUGET SOUND ENERGY CAPITAL TRUST II

                          Dated as of October 3, 2000

--------------------------------------------------------------------------------
<PAGE>

                                   CONTENTS

<TABLE>
<S>                                                                                  <C>
ARTICLE I DEFINITIONS..............................................................   1

ARTICLE II ORGANIZATION............................................................   3
     2.1     Name..................................................................   3
     2.2     Office................................................................   4
     2.3     Purpose...............................................................   4
     2.4     Authority.............................................................   4
     2.5     Title to Property of the Trust........................................   4
     2.6     Powers of the Trustees................................................   4
     2.7     Filing of Certificate of Trust........................................   5
     2.8     Duration of Trust.....................................................   5
     2.9     Responsibilities of the Sponsor.......................................   6
     2.10    Declaration Binding on Holders of Securities..........................   6

ARTICLE III TRUSTEES...............................................................   6
     3.1     Trustees..............................................................   6
     3.2     Delaware Trustee......................................................   7
     3.3     Execution of Documents................................................   7
     3.4     Not Responsible for Recitals or Sufficiency of Declaration............   7

ARTICLE IV LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS....   8
     4.1     Exculpation...........................................................   8
     4.2     Fiduciary Duty........................................................   8
     4.3     Indemnification.......................................................   9
     4.4     Outside Businesses....................................................  11

ARTICLE V AMENDMENTS, TERMINATION, MISCELLANEOUS...................................  12
     5.1     Amendments............................................................  12
     5.2     Termination of Trust..................................................  12
     5.3     Governing Law.........................................................  12
     5.4     Headings..............................................................  12
     5.5     Successors and Assigns................................................  13
     5.6     Partial Enforceability................................................  13
     5.7     Counterparts..........................................................  13
</TABLE>

                                       i
<PAGE>

                             DECLARATION OF TRUST

                                      OF

                      PUGET SOUND ENERGY CAPITAL TRUST II

                                October 3, 2000

     DECLARATION OF TRUST ("Declaration") dated and effective as of October 3,
2000 by the Trustees (as defined herein), the Sponsor (as defined herein), and
by the holders, from time to time, of undivided beneficial interests in the
Trust to be issued pursuant to this Declaration;

     WHEREAS, the Trustees and the Sponsor desire to establish a trust (the
"Trust") pursuant to the Business Trust Act (as defined herein) for the sole
purpose of (i) issuing and selling certain securities representing undivided
beneficial interests in the assets of the Trust, (ii) holding certain Debentures
of the Debenture Issuer (each as defined herein) and (iii) engaging in only
those other activities necessary, advisable or incidental thereto;

     NOW, THEREFORE, it being the intention of the parties hereto that the Trust
constitute a business trust under the Business Trust Act and that this
Declaration constitutes the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.

                                   ARTICLE I
                                  DEFINITIONS

     1.1  Definitions

     Unless the context otherwise requires:

     (a)  Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;

     (b)  a term defined anywhere in this Declaration has the same meaning
throughout;

     (c)  all references to "the Declaration" or "this Declaration" are to this
Declaration of Trust as modified, supplemented or amended from time to time;

     (d)  all references in this Declaration to Articles and Sections are to
Articles and Sections of this Declaration unless otherwise specified;

     (e)  a reference to the singular includes the plural and vice versa;
<PAGE>

     (f)  a reference to any Person shall include its successors and assigns;

     (g)  a reference to any agreement or instrument shall mean such agreement
or instrument as supplemented, modified, amended and restated and in effect from
time to time; and

     (h)  a reference to any statute, law, rule or regulation, shall include any
amendments thereto and any successor, statute, law, rule or regulation.

     "Administrative Trustee" means any Trustee other than the Delaware Trustee
      ----------------------
and Property Trustee.

     "Affiliate" has the same meaning as given to that term in Rule 405 of the
      ---------
Securities Act or any successor rule thereunder.

     "Business Day" means any day other than a day on which banking institutions
      ------------
in New York, New York, Chicago, Illinois or Seattle, Washington are authorized
or required by any applicable law or executive order to close.

     "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
      ------------------
Del. C. (S)(S) 3801 et seq., as it may be amended from time to time, or any
---  -              -- ---
successor legislation.

     "Capital Security" means a security representing an undivided interest in
      ----------------
the assets of the Trust with such terms as may be set out in any amendment to
this Declaration.

     "Commission" means the Securities and Exchange Commission.
      ----------

     "Common Security" means a security representing an undivided beneficial
      ---------------
interest in the assets of the Trust with such terms as may be set out in any
amendment to this Declaration.

     "Company Indemnified Person" means (a) any Administrative Trustee; (b) any
      --------------------------
Affiliate of any Administrative Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Administrative Trustee; or (d) any employee or agent of the Trust or its
Affiliates.

     "Covered Person" means any officer, director, shareholder, partner, member,
      --------------
representative, employee or agent of the Trust or the Trust's Affiliates.

     "Debenture Issuer" means Puget in its capacity as the issuer of the
      ----------------
Debentures under the Indenture.

     "Debentures" means Debentures to be issued by the Debenture Issuer and
      ----------
acquired by the Trust.

     "Debenture Trustee" means the original trustee under the Indenture until a
      -----------------
successor is appointed thereunder, and thereafter means any such successor
trustee.

     "Delaware Trustee" has the meaning set forth in Section 3.1.
      ----------------

                                      -2-
<PAGE>

     "Exchange Act" means the Securities Exchange Act of 1934, as amended from
      ------------
time to time, or any successor legislation.

     "Fiduciary Indemnified Person" has the meaning set forth in Section 4.3(b).
      ----------------------------

     "Indemnified Person" means a Company Indemnified Person or a Fiduciary
      ------------------
Indemnified Person.

     "1933 Act Registration Statement" means a registration statement on Form S-
      -------------------------------
3.

     "1934 Act Registration Statement" means a registration statement on Form 8-
      -------------------------------
A.

     "Indenture" means the indenture to be entered into between Puget and the
      ---------
Debenture Trustee pursuant to which the Debentures are to be issued.

     "Puget" means Puget Sound Energy, Inc., a Washington corporation, or any
      -----
successor entity in a merger.

     "Person" means a legal person, including any individual, corporation,
      ------
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.

     "Property Trustee" has the meaning set forth in Section 3.1.
      ----------------

     "Securities" means collectively the Common Securities and the Capital
      ----------
Securities.

     "Securities Act" means the Securities Act of 1933, as amended from time to
      --------------
time, or any successor legislation.

     "Sponsor" means Puget in its capacity as sponsor of the Trust.
      -------

     "Trustee" or "Trustees" means each Person who has signed this Declaration
      -------      --------
as a trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who may from time to time be duly
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.

                                  ARTICLE II
                                 ORGANIZATION

2.1  Name

     The Trust created by this Declaration is named "Puget Sound Energy Capital
Trust II". The Trust's activities may be conducted under the name of the Trust
or any other name deemed advisable by the Administrative Trustees.

                                      -3-
<PAGE>

2.2  Office

     The address of the principal office of the Trust is c/o Puget Sound Energy,
Inc., 411-108th Avenue N.E., Bellevue, Washington 98004-5515, Attention:
Richard L. Hawley, Administrative Trustee.  On ten Business Days written notice
to the holders of Securities, the Administrative Trustees may designate another
principal office.

2.3  Purpose

     The exclusive purposes and functions of the Trust are (a) to issue and sell
Securities, (b) purchase and hold certain Debentures of the Debenture Issuer and
(c) engage in only those other activities necessary, advisable or incidental
thereto.  The Trust shall not borrow money, issue debt or reinvest proceeds
derived from investments, pledge any of its assets, or otherwise undertake (or
permit to be undertaken) any activity that would cause the Trust not to be
classified for United States federal income tax purposes as a grantor Trust.

2.4  Authority

     Subject to the limitations provided in this Declaration, the Administrative
Trustees shall have exclusive and complete authority to carry out the purposes
of the Trust.  An action taken by the Administrative Trustees in accordance with
their powers shall constitute the act of and serve to bind the Trust.  In
dealing with the Administrative Trustees acting on behalf of the Trust, no
person shall be required to inquire into the authority of the Administrative
Trustees to bind the Trust.  Persons dealing with the Trust are entitled to rely
conclusively on the power and authority of the Administrative Trustees as set
forth in this Declaration.

2.5  Title to Property of the Trust

     Legal title to all assets of the Trust shall be vested in the Trust.

2.6  Powers of the Trustees

     The Administrative Trustees shall have the exclusive power and authority to
cause the Trust to engage in the following activities:

          (a)  to issue and sell the Capital Securities and the Common
Securities in accordance with this Declaration; provided, however, that the
                                                --------  -------
Trust may issue no more than one series of Capital Securities and no more than
one series of Common Securities, and, provided further, that there shall be no
                                      -------- -------
interests in the Trust other than the Securities;

          (b)  in connection with the issue and sale of the Capital Securities,
at the direction of the Sponsor, to:

               (i)  file with the Commission and execute, in each case on behalf
of the Trust, (A) a 1933 Act Registration Statement, including any pre-effective
or post-effective amendments to the 1933 Act Registration Statement, relating to
the registration under the

                                      -4-
<PAGE>

Securities Act of the Capital Securities and (B) a 1934 Act Registration
Statement including all pre-effective and post-effective amendments thereto,
relating to the registration of the Capital Securities under Section 12(b) of
the Exchange Act;

               (ii)  file with the New York Stock Exchange and execute on behalf
of the Trust a listing application and all other applications, statements,
certificates, agreements and other instruments as shall be necessary or
desirable to cause the Capital Securities to be listed on the New York Stock
Exchange;

               (iii) execute and file any documents prepared by the Sponsor, or
take any acts as determined by the Sponsor to be necessary in order to qualify
or register all or part of the Capital Securities in any State or foreign
jurisdiction in which the Sponsor has determined to qualify or register such
Capital Securities for sale;

               (iv)  execute and deliver letters, documents, or instruments with
The Depository Trust Company relating to the Capital Securities;

               (v)   execute and enter into subscription agreements, purchase
agreements and other related agreements providing for the sale of the Common
Securities and the Capital Securities;

          (c)  to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and provide for reasonable compensation for such services;

          (d)  to incur expenses that are necessary or incidental to carry out
any of the purposes of this Declaration, which expenses shall be paid for by the
Sponsor in all respects; and

          (e)  to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing.

2.7  Filing of Certificate of Trust

     On or after the date of execution of this Declaration, the Trustees shall
cause the filing of the Certificate of Trust for the Trust in the form attached
hereto as Exhibit A with the Secretary of State of the State of Delaware.

2.8  Duration of Trust

     The Trust, absent termination pursuant to the provisions of Section 5.2,
shall have existence for thirty-one (31) years from the date hereof.

                                      -5-
<PAGE>

2.9  Responsibilities of the Sponsor

     In connection with the issue and sale of the Capital Securities, the
Sponsor shall have the exclusive right and responsibility to engage in the
following activities:

          (a)  to prepare the 1933 Act Registration Statement and the 1934 Act
Registration Statement, including any amendments or supplements thereto;

          (b)  to determine the States and foreign jurisdictions in which to
take appropriate action to qualify or register for sale all or part of the
Capital Securities and to do any and all such acts, other than actions which
must be taken by the Trust, and advise the Trust of actions it must take, and
prepare for execution and filing any documents to be executed and filed by the
Trust, as the Sponsor deems necessary or advisable in order to comply with the
applicable laws of any such States and foreign jurisdictions; and

          (c)  to negotiate the terms of subscription agreements, purchase
agreements and other related agreements providing for the sale of the Common
Securities and Capital Securities.

2.10 Declaration Binding on Holders of Securities

     Every Person by virtue of having become a holder of a Security or any
interest therein in accordance with the terms  of this Declaration, shall be
deemed to have expressly assented and agreed to the terms of, and shall be bound
by, this Declaration.

                                  ARTICLE III
                                   TRUSTEES

3.1  Trustees

     The number of Trustees initially shall be four (4), and thereafter the
number of Trustees shall be such number as shall be fixed from time to time by a
written instrument signed by the Sponsor.  The Sponsor is entitled to appoint or
remove without cause any Trustee at any time; provided, however that the number
                                              --------  -------
of Trustees shall in no event be less than two (2); provided further that (a)
                                                    -------- -------
one (1) Trustee, in the case of a natural person, shall be a person who is a
resident of the State of Delaware or which, if not a natural person, is an
entity which has its principal place of business in the State of Delaware (the
"Delaware Trustee") and (b) there shall be at least one (1) Administrative
Trustee who is an employee or officer of, or is affiliated with, the Sponsor.

     Except as expressly set forth in this Declaration, if there are more than
two (2) Administrative Trustees, any power of such Administrative Trustees may
be exercised by, or with the consent of, a majority of such Administrative
Trustees; provided that if there are two (2) Administrative Trustees, any power
          --------
of such Administrative Trustees shall be exercised by both Administrative
Trustees; provided further that if there is only one Administrative Trustee, all
          -------- -------
powers of the Administrative Trustees shall be exercised by such one
Administrative Trustee.

                                      -6-
<PAGE>

     The initial Administrative Trustee(s) shall be:

               Richard L. Hawley
               Donald E. Gaines

     The initial Delaware Trustee shall be:

               Bank One Delaware, Inc.

     The initial property trustee (the "Property Trustee"), meeting the
requirements of the Trust Indenture Act of 1939, as amended, shall be:

               Bank One Trust Company, NA

3.2  Delaware Trustee

     Notwithstanding any other provision of this Declaration, the Delaware
Trustee shall not be entitled to exercise any of the powers, nor shall the
Delaware Trustee have any of the duties and responsibilities, of the Trustees
described in this Declaration (except as required under the Business Trust Act).
The Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the requirements of Section 3807 of the Business Trust Act.
Notwithstanding anything herein to the contrary, the Delaware Trustee shall not
be liable for the acts or omissions to act of the Trust or of the Administrative
Trustees except such acts as the Delaware Trustee is expressly obligated or
authorized to undertake under this Declaration or the Business Trust  Act and
except for the negligence or willful misconduct of the Delaware Trustee.

3.3  Execution of Documents

          (a)  Unless otherwise determined by the Administrative Trustees, and
except as otherwise required by the Business Trust Act, any Administrative
Trustee is, or if there are more than two (2) Administrative Trustees, any two
(2) Administrative Trustees are, authorized to execute on behalf of the Trust
any documents which the Administrative Trustees have the power and authority to
cause the Trust to execute pursuant to Section 2.6; and

          (b)  an Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purposes of signing any documents which the Administrative
Trustees have power and authority to cause the Trust to execute pursuant to
Section 2.6.

3.4  Not Responsible for Recitals or Sufficiency of Declaration

     The recitals contained in this Declaration shall be taken as the statements
of the Sponsor, and the Trustees do not assume any responsibility for their
correctness.  The Trustees make no representations as to the value or condition
of the property of the Trust or any part thereof.  The Trustees make no
representations as to the validity or sufficiency of this Declaration.

                                      -7-
<PAGE>

                                  ARTICLE IV
               LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES,
                              TRUSTEES OR OTHERS

4.1  Exculpation

          (a)  No Indemnified Person shall be liable, responsible or accountable
for damages or otherwise to the Trust or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's negligence or willful misconduct
with respect to such acts or omissions; and

          (b)  an Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which distributions to
holders of Securities might properly be paid.

4.2  Fiduciary Duty

          (a)  To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity, are agreed by the
parties hereto to replace such other duties and liabilities of such Indemnified
Person;

          (b)  unless otherwise expressly provided herein:

               (i)  whenever a conflict of interest exists or arises between
Covered Persons; or

               (ii) whenever this Declaration or any other agreement
contemplated herein provides that an Indemnified Person shall act in a manner
that is, or provides terms that are, fair and reasonable to the Trust or any
holder of Securities,

the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted

                                      -8-
<PAGE>

accounting practices or principles. In the absence of bad faith by the
Indemnified Person, the resolution, action or term so made, taken or provided by
the Indemnified Person shall not constitute a breach of this Declaration or any
other agreement contemplated herein or of any duty or obligation of the
Indemnified Person at law or in equity or otherwise; and

               (c)  whenever in this Declaration an Indemnified Person is
permitted or required to make a decision:

                    (i)  in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled to consider such interests
and factors as it desires, including its own interests, and shall have no duty
or obligation to give any consideration to any interest of or factors affecting
the Trust or any other Person; or

                    (ii) in its "good faith" or under another express standard,
the Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Declaration or by
applicable law.

4.3    Indemnification

               (a)  (i)  The Sponsor shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Company Indemnified Person against expenses (including
reasonable attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the Company
Indemnified Person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Trust, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.

                    (ii) The Sponsor shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Trust to procure a judgment in its favor by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including reasonable attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust, except that no such indemnification
shall be made in respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to the Trust unless and
only to the extent that the Court of Chancery of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of

                                      -9-
<PAGE>

all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which such Court of Chancery or such other court
shall deem proper.

               (iii)     Any indemnification under paragraphs (i) and (ii) of
this Section 4.3(a) (unless ordered by a court) shall be made by the Debenture
Issuer only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the circumstances
because the Company Indemnified Person has met the applicable standard of
conduct set forth in paragraphs (i) and (ii). Such determination shall be made
(1) by the Administrative Trustees by a majority vote of a quorum consisting of
such Administrative Trustees who were not parties to such action, suit or
proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, if a
quorum of disinterested Administrative Trustees so directs, by independent legal
counsel in a written opinion, or (3) by the Common Security Holder of the Trust.

               (iv)      Expenses (including reasonable attorneys' fees)
incurred by a Company Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 4.3(a) shall be paid by the Debenture
Issuer in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such Company Indemnified
Person to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Debenture Issuer as authorized in this Section
4.3(a). Notwithstanding the foregoing, no advance shall be made by the Debenture
Issuer if a determination is reasonably and promptly made (i) by the
Administrative Trustees by a majority vote of a quorum of disinterested
Administrative Trustees, (ii) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Administrative Trustees so directs, by
independent legal counsel in a written opinion or (iii) by the Common Security
Holder of the Trust, that, based upon the facts known to such Administrative
Trustees, counsel or the Common Security Holder at the time such determination
is made, such Company Indemnified Person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
Trust, or, with respect to any criminal proceeding, that such Company
Indemnified Person believed or had reasonable cause to believe his conduct was
unlawful. In no event shall any advance be made in instances where the
Administrative Trustees, independent legal counsel or Common Security Holder
reasonably determine that such person deliberately breached his duty to the
Trust or the Common Security or Capital Security Holders.

               (v)       The indemnification and advancement of expenses
provided by, or granted pursuant to, the other paragraphs of this Section 4.3(a)
shall not be deemed exclusive of any other rights to which a person seeking
indemnification and advancement of expenses may be entitled under any agreement,
vote of shareholders or disinterested directors of the Debenture Issuer or
Capital Security Holders of the Trust or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office. All rights to indemnification under this Section 4.3(a) shall be
deemed to be provided by a contract between the Debenture Issuer and each
Company Indemnified Person who serves in such capacity at any time while this
Section 4.3(a) is in effect. Any repeal or modification of this Section 4.3(a)
shall not affect any rights or obligations then existing.

                                     -10-
<PAGE>

               (vi)      The Sponsor or the Trust may purchase and maintain
insurance on behalf of any person who is or was a Company Indemnified Person
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Debenture
Issuer would have the power to indemnify him against such liability under the
provisions of this Section 4.3(a).

               (vii)     For purposes of this Section 4.3(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity, any
constituent entity (including any constituent of a constituent) absorbed in a
consolidation or merger, so that any person who is or was a director, trustee,
officer or employee of such constituent entity, or is or was serving at the
request of such constituent entity as a director, trustee, officer, employee or
agent of another entity, shall stand in the same position under the provisions
of this Section 4.3(a) with respect to the resulting or surviving entity as he
would have with respect to such constituent entity if its separate existence had
continued.

               (viii)    The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 4.3(a) shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a Company Indemnified Person and shall inure to the benefit of the heirs,
executors and administrators of such a person.

          (b)  The Sponsor agrees to indemnify the (i) the Property Trustee and
the Delaware Trustee, (ii) any Affiliate of the Property Trustee or the Delaware
Trustee, and (iii) any officers, directors, shareholders, members, partners,
employees, representatives, nominees, custodians or agents of the Property
Trustee or the Delaware Trustee (each of the Persons in (i) through (iii) being
referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary
Indemnified Person harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the trust or trusts hereunder,
including the costs and expenses (including reasonable legal fees and expenses)
of defending itself against, or investigating, any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder.  The provisions of this Section 4.3(b) shall survive the termination
of this Declaration or the resignation or removal of the Property Trustee and
the Delaware Trustee.

4.4  Outside Businesses

     Any Covered Person, the Sponsor and the Delaware Trustee may engage in or
possess an interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business of the
Trust, and the Trust and the holders of Securities shall have no rights by
virtue of this Declaration in and to such independent ventures or the income or
profits derived therefrom and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper.  No Covered Person, the Sponsor or the Delaware Trustee shall be
obligated to present any particular investment or other opportunity to the Trust
even if such opportunity is of a character that, if presented to the Trust,
could be taken by the Trust, and any Covered Person, the Sponsor and the
Delaware Trustee shall have the right to take for its own account (individually
or as a partner or fiduciary) or to

                                     -11-
<PAGE>

recommend to others any such particular investment or other opportunity. Any
Covered Person and the Delaware Trustee may engage or be interested in any
financial or other transaction with the Sponsor or any Affiliate of the Sponsor,
or may act as depositary for, trustee or agent for or may act on any committee
or body of holders of, securities or other obligations of the Sponsor or its
Affiliates.

                                   ARTICLE V
                     AMENDMENTS, TERMINATION, MISCELLANEOUS

5.1  Amendments

     At any time before the issue of any Securities, this Declaration may be
amended by, and only by, a written instrument executed by all of the
Administrative Trustees and the Sponsor.

5.2  Termination of Trust

          (a)  The Trust shall terminate and be of no further force or effect:

               (i)    upon the bankruptcy of the Sponsor;

               (ii)   upon the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor or the revocation of the Sponsor's
charter or of the Trust's certificate of trust;

               (iii)  upon the entry of a decree of judicial dissolution of the
Sponsor or the Trust; and

               (iv)   before the issuance of any Securities, with the consent of
all of the Administrative Trustees and the Sponsor.

          (b)  As soon as is practicable after the occurrence of an event
referred to in Section 5.2(a), the Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.

5.3  Governing Law

     THIS DECLARATION AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE GOVERNED
BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND ALL
RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO ITS
PRINCIPLES OF CONFLICT OF LAWS.

5.4  Headings

     Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.

                                     -12-
<PAGE>

5.5  Successors and Assigns

     Whenever in this Declaration any of the parties hereto is named or referred
to, the successors and assigns of such party shall be deemed to be included, and
all covenants and agreements in this Declaration by the Sponsor and the Trustees
shall bind and inure to the benefit of the respective successors and assigns of
such parties, whether so expressed.

5.6  Partial Enforceability

     If any provision of this Declaration, or the application of such provision
to any Person or circumstance, shall be held invalid, the remainder of this
Declaration, or the application of such provision to persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.

5.7  Counterparts

     This Declaration may contain more than one counterpart of the signature
page and this Declaration may be executed by the affixing of the signature of
each of the Trustees to one of such counterpart signature pages.  All of such
counterpart signature pages shall be read as though one, and they shall have the
same force and effect as though all of the signers had signed a single signature
page.

               [Remainder of this page intentionally left blank.]

                                     -13-
<PAGE>

     IN WITNESS WHEREOF, the undersigned have caused this Declaration to be
executed as of the day and year first above written.

                                    /s/ Richard L. Hawley
                                    ---------------------
                                    Richard L. Hawley
                                    As Administrative Trustee

                                    /s/ Donald E. Gaines
                                    --------------------
                                    Donald E. Gaines
                                    As Administrative Trustee

                                    BANK ONE DELAWARE, INC., as
                                    Delaware Trustee

                                    By:   /s/  Sandra L. Caruba
                                    ---------------------------
                                    Name: Sandra L. Caruba
                                    Title:  Vice President

                                    BANK ONE TRUST COMPANY, NA, as
                                    Property Trustee

                                    By:   /s/  Sandra L. Caruba
                                    ---------------------------
                                    Name: Sandra L. Caruba
                                    Title:  Vice President

                                     -14-
<PAGE>

                                    PUGET SOUND ENERGY, INC., as Sponsor

                                    By:    /s/  Tommy G. Leong
                                    ------------------------------
                                       Name: Tommy G. Leong
                                       Title:   Assistant Treaurer

                                     -15-
<PAGE>

                                   EXHIBIT A

                              CERTIFICATE OF TRUST

                           (Please see the attached)
<PAGE>

                              CERTIFICATE OF TRUST

                                       OF

                      PUGET SOUND ENERGY CAPITAL TRUST II

     This Certificate of Trust is being executed as of October 3, 2000 for the
purposes of organizing a business trust pursuant to the Delaware Business Trust
Act, 12 Del C. (S)(S) 3801 et seq (the "Act")
        --- --             -- ---

     The undersigned hereby certifies as follows:

     1.  Name:  The name of the business trust is "Puget Sound Energy Capital
         ----
Trust II" (the "Trust").

     2.  Delaware Trustee.  The name and business address of the Delaware
         ----------------
resident trustee of the Trust meeting the requirements of Section 3807 of the
Act are as follows:

         Bank One Delaware, Inc.
         Three Christiana Center
         201 North Walnut Street
         Wilmington, Delaware 19801
         Attn:  Legal Dept./First USA

     3.  Effective.  This Certificate of Trust shall be effective immediately
         ---------
upon filing in the Office of the Secretary of State of the State of Delaware.
<PAGE>

     IN WITNESS WHEREOF, the undersigned, being all of the trustees of the
Trust, have duly executed this Certificate of Trust as of the day and year first
above written.

                              BANK ONE DELAWARE, INC., as
                              Delaware Trustee

                              By:  _____________________________
                              Name:  ______________________________
                              Title: ______________________________

                              BANK ONE TRUST COMPANY, NA, as
                              Property Trustee

                              By:  ______________________________
                              Name:  ______________________________
                              Title:    ___________________________

                              ADMINISTRATIVE TRUSTEE

                              By:  ______________________________
                                       Richard L. Hawley

                              ADMINISTRATIVE TRUSTEE

                              By:______________________________
                                       Donald E. Gaines

                                     -2-

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