AUTHENTICATED Bonneville Contract No. 96MS-95129

Reclamation Contract No. 1425-6-AA-10-01150

12/06/96

MEMORANDUM OF AGREEMENT

executed by the

UNITED STATES OF AMERICA

DEPARTMENT OF ENERGY

acting by and through the

BONNEVILLE POWER ADMINISTRATION

and the

UNITED STATES OF AMERICA

dEPARTMENT OF THE INTERIOR

acting by and through the

BUREAU OF RECLAMATION

(Direct Funding of Power\
Operations and Maintenance Costs\
at Reclamation Projects)

Index to Sections

**Section Page**

1\. Term, Termination, and Extension 3

2\. Definitions 5

3\. Exhibits; Interpretation 7

4\. Five-Year Power Budget 7

5\. Annual Power Budget 8

6\. Performance Indicators and Performance Incentives 9

7\. Joint Operating Committee Responsibilities 10

8\. Transfer of Funds to Reclamation 11

9\. Comparison of Actual O&M Power Costs to Annual Power Budget\
Following Each Fiscal Year 12

10\. Dispute Resolution 14

11\. Audits 15

12\. Agreement Revisions 16

13\. Assignment 16

14\. Hold Harmless 17

15\. No Third-Party Beneficiaries 17

Index to Sections

**Section Page**

16\. Notices 16

Exhibit A (Five-Year Power Budget) 7

Exhibit B (Annual Power Budget) 7

Exhibit C (Performance Indicators and Performance Incentives) 7

This MEMORANDUM OF AGREEMENT (Agreement), executed [December
6]{.underline} ,\
19 [96]{.underline} , between the BONNEVILLE POWER ADMINISTRATION
(Bonneville), acting by and through the Administrator of Bonneville, and
the Secretary of the Department of the Interior, acting by and through
the BUREAU OF RECLAMATION (Reclamation), each sometimes hereinafter
referred to individually as "Party" and jointly as "Parties."

W I T N E S S E T H :

WHEREAS Reclamation operates and maintains hydroelectric power
generation facilities in the Pacific Northwest, and Bonneville markets
and transmits the hydropower output which is surplus to Reclamation
project requirements; and

WHEREAS a portion of Reclamation's budget will continue to be provided
through appropriations by the U.S. Congress; and

WHEREAS Bonneville currently makes U.S. Treasury payments equal to
Reclamation's annual operations and maintenance (O&M) Power Costs
allocated to power, and such O&M Power Costs include interest on, and
amortization of Reclamation's capital investments allocated to power in
the Pacific Northwest; and

WHEREAS under this Agreement, Bonneville will directly fund annual O&M
Power Costs pursuant to the terms and conditions contained herein; and

WHEREAS Reclamation and Bonneville are seeking to establish procedures
whereby the O&M Power Costs are reliably and adequately funded in a
manner that is mutually beneficial to both Parties; and

WHEREAS for the purposes of this Agreement, Reclamation's Five‑Year
Power Budgets and Annual Power Budgets are based on obligations that
assume 100 percent accrued expenditures; and

WHEREAS Reclamation has the authority to incur obligations to the extent
reflected in this Agreement; and

WHEREAS this Agreement is entered into pursuant to the authority
contained in the Energy Policy Act of 1992, Public Law 102‑486,
Section 2406; and

WHEREAS the Secretary of Interior retains the right and authority to
interpret and implement Reclamation law and any other statutory
authority vested in the Secretary as to its application to Reclamation
Project facilities; and

WHEREAS Bonneville is authorized pursuant to law to market electric
power and energy generated at various Federal hydroelectric projects in
the Pacific Northwest or acquired from other resources, to construct and
operate transmission facilities, to provide transmission and other
services, and to enter into agreements to carry out such authority;

NOW, THEREFORE, the Parties hereto mutually agree as follows:

**1. TERM, TERMINATION, AND EXTENSION**

> \(a\) **Term of Agreement**
>
> This Agreement, when executed by the Parties, shall be in effect at
> 2400 hours on September 30, 1996 (Effective Date) and shall continue
> in effect until 2400 hours on September 30, 2006, unless terminated
> earlier as provided in section 1(b), or extended as provided for in
> section 1(c). The Parties understand and agree that, although the date
> of execution of this Agreement is subsequent to the Effective Date,
> all terms and conditions of this Agreement become effective on the
> Effective Date. All liabilities incurred hereunder are preserved until
> satisfied.
>
> \(b\) **Termination of Agreement**
>
> \(1\) **Unilateral Termination Right by Either Party**
>
> Either Party may terminate this Agreement upon written notice to the
> other Party; **provided, however,** that any such written notice shall
> specify a termination date that is at least 2 Fiscal Years subsequent
> to the date shown on the notice.
>
> \(2\) **Termination Option Following Third‑Year Review**
>
> Within 180 days following the end of the third Fiscal Year of this
> Agreement, the JOC shall compile information, prepare, and submit a
> report to the Bonneville Administrator and the Reclamation Pacific
> Northwest Regional Director. Such report shall provide an in‑depth
> analysis of the cost effectiveness and efficacy of performance under
> this Agreement. Such report shall be provided to the Office of
> Management and Budget. If, within 30 days following receipt of such
> report, either Bonneville or Reclamation determines that this
> Agreement is not achieving the benefits anticipated, then Bonneville
> or Reclamation may provide notice to terminate this Agreement in
> accordance with section 1(b)(1).
>
> \(c\) **Extension of Agreement**
>
> During the Fiscal Year that begins October 1, 2000, the Parties may,
> if mutually agreeable, extend the term of this Agreement by an
> additional 5 Fiscal Years, until September 30, 2011 (a ten year term).
> In this event, the Parties shall prepare and execute an amendment to
> this Agreement to accomplish such extension. The term of this
> agreement may be extended in 5 year increments past the year 2011.
> Notice of such extensions shall be given by the end of the fifth
> Fiscal Year, of any subsequent ten year term.

**2. DEFINITIONS**

\(a\) "Annual Power Budget" means an annual budget prepared by
Reclamation that specifies O&M Power Costs categorized by major line
items for each Project for the upcoming Fiscal Year. The Annual Power
Budget shall include a separate line item that specifies the amount of
the Performance Incentives. Reclamation shall separately identify the
power portion of any items that are multipurpose that Reclamation will
seek an appropriation for, and which Bonneville is expected to reimburse
the power portion of these items to Treasury at the end of each Fiscal
Year. Each Annual Power Budget shall be attached hereto as Exhibit B.

\(b\) "Authorized Representative" means one representative appointed by
Bonneville and one representative appointed by Reclamation that serve as
lead representatives on the Joint Operating Committee.

\(c\) "Fiscal Year" means each year that begins on October 1 and ends on
the following September 30; **provided, however,** that the initial
Fiscal Year shall begin on the Effective Date and terminate on
September 30, 1997.

\(d\) "Five‑Year Power Budget" means the maximum estimated amounts of
the Annual Power Budgets for five consecutive Fiscal Years that
Bonneville will directly fund under this Agreement. Reclamation shall
separately identify the power portion of any items that are multipurpose
that Reclamation will seek an appropriation for, and which Bonneville is
expected to reimburse the power portion of these items to Treasury at
the end of each Fiscal Year. Each Five-Year Power Budget shall be
attached hereto as Exhibit A.

\(e\) "Generation Additions, Improvements, and Replacements" means the
design and construction of capital additions, improvements, or
replacements that are funded under this Agreement and are included in
each Five‑Year Power Budget.

\(f\) "Joint Operating Committee" or "JOC" means a committee comprised
of the Authorized Representatives and other participants appointed by
such Authorized Representatives.

\(g\) "O&M Power Costs" means, for activities performed at Reclamation
Projects, (1) power operations and maintenance expense costs incurred by
Reclamation, which include direct power costs and joint power cost
allocations, (2) the cost of O&M Power Equipment, and (3) the cost of
design and construction of Generation Additions, Improvements, and
Replacements.

\(h\) "O&M Power Equipment" means various items that include tools and
electrical and mechanical equipment (unit breakers, excitation
equipment, relays, etc.) that are necessary for day-to-day power
operations and maintenance at Reclamation Projects.

\(i\) "Performance Incentives" means, for each Annual Power Budget, an
amount of money available to Reclamation if Reclamation successfully
achieves the Performance Indicators for each such Annual Power Budget.

\(j\) "Performance Indicators" means specific operational or budgetary
indicators established by the JOC for each Fiscal Year, which shall
consider the historical operations and prospective operations at
Reclamation Projects, based on the amount of water expected to be
available for power generation. Performance Indicators may include, but
shall not be limited to, the number of units to be available at
particular times of the year, the number of forced outages acceptable
within particular times of the year, and the accomplishment of specific
activities. Performance Indicators shall be attached hereto as
Exhibit C.

\(k\) "Reclamation Project" means each of Reclamation's facilities
associated with hydroelectric power generation facilities, either new or
existing, located in the Pacific Northwest.

**3. EXHIBITS; INTERPRETATION**

Five-Year Power Budget (Exhibit A), Annual Power Budget (Exhibit B), and
Performance Indicators and Performance Incentives (Exhibit C) are
attached hereto and hereby made a part of this Agreement. If there is a
conflict between the body of this Agreement and the exhibits attached
hereto, then the body of this Agreement shall prevail.

**4. FIVE-YEAR POWER BUDGET**

> \(a\) **Initial Five-Year Power Budget**
>
> The initial Five-Year Power Budget shall become effective at
> 2400 hours on September 30, 1996, and shall be attached hereto as
> Exhibit A prior to or at the time this Agreement is executed by the
> Parties.
>
> \(b\) **Subsequent Five-Year Power Budgets**
>
> No later than June 15 of the fourth Fiscal Year during a Five-Year
> Power Budget, Reclamation shall prepare and submit to Bonneville a
> revised Five-Year Power Budget to become effective at 2400 hours on
> September 30 of the fifth Fiscal Year. The June 15 submittal shall be
> coordinated with Bonneville's annual budget call letter. Any
> subsequent Five‑Year Power Budget shall not become effective unless
> approved by Bonneville. If Bonneville does not approve a Five‑Year
> Power Budget, Bonneville shall provide written notice to Reclamation,
> stating its reasons for doing so. The Parties shall then use
> reasonable efforts to agree on a Five‑Year Power Budget. Following
> agreement by the Parties, the Parties shall prepare and execute a
> revision to Exhibit A for the subsequent 5‑year period.
>
> \(c\) **Revision of a Five-Year Power Budget Prior to its Expiration**
>
> Any proposed revision to a Five-Year Power Budget shall not become
> effective prior to its expiration unless approved by Bonneville. If
> Bonneville does not approve a proposed revision to a Five‑Year Power
> Budget, Bonneville shall provide written notice to Reclamation,
> stating the reasons for doing so. Following agreement by the Parties,
> the Parties shall prepare and execute a revision to Exhibit A for the
> remaining period of such revised Five-Year Power Budget.
>
> \(d\) If the Parties cannot agree to a new Five‑Year Power Budget
> prior to expiration of the existing Five‑Year Power Budget then this
> Agreement shall be extended in 1‑year increments. Each subsequent
> year's Annual Power Budget shall be equal to the most recently
> executed Annual Power Budget, including budgets for any deferrals,
> undelivered orders, or savings in accordance with section 9, for
> operating Reclamation Projects covered by the then‑current Annual
> Power Budget until a new Five‑Year Power Budget is agreed to or
> established in accordance with section 10 of this Agreement.

**5. ANNUAL POWER BUDGET**

> \(a\) **Initial Annual Power Budget**
>
> The initial Annual Power Budget shall become effective at 2400 hours
> on September 30, 1996, and shall be attached hereto as Exhibit B prior
> to or at the time this Agreement is executed by the Parties.
>
> \(b\) **Subsequent Annual Power Budgets**
>
> No later than June 15 of each Fiscal Year, the JOC shall meet to
> review and approve any revisions to the next year's Annual Power
> Budget to become effective at 2400 hours on the following
> September 30. Each Annual Power Budget shall be consistent with the
> total amount of the Five‑Year Power Budget, unless otherwise agreed to
> by the JOC. The Authorized Representatives shall prepare and execute a
> revised Exhibit B for the next Fiscal Year. Each June 15 submittal
> shall be coordinated with Bonneville's annual budget call letter.
>
> \(c\) **Revision of Annual Power Budget**
>
> An Annual Power Budget shall not be revised prior to its expiration
> unless approved by the JOC. If approved by the JOC, the Authorized
> Representatives shall prepare and execute a revision to Exhibit B for
> the remaining period of the Fiscal Year.

**6. PERFORMANCE INDICATORS AND PERFORMANCE INCENTIVES**

> \(a\) Performance Indicators shall be used to establish a basis for
> providing Performance Incentives to Reclamation.
>
> \(b\) **Initial Performance Indicators and Initial Performance
> Incentives**
>
> The initial Performance Indicators and Performance Incentives shall
> become effective at 2400 hours on September 30, 1996, and shall be
> attached hereto as Exhibit C prior to or at the time this Agreement is
> executed.
>
> \(c\) **Subsequent Performance Indicators and Performance Incentives**
>
> No later than June 15 of each Fiscal Year the JOC shall prepare a new
> Exhibit C to become effective on the following October 1. The
> Authorized Representatives shall prepare and execute a new Exhibit C
> for the next Fiscal Year.
>
> \(d\) If Performance Incentives are not achieved for any Fiscal Year,
> then unearned monies will not accumulate or be available for any
> subsequent Fiscal Year.

**7. JOINT OPERATING COMMITTEE RESPONSIBILITIES**

> \(a\) The JOC shall consist of members from both Parties, with
> consistent representation from Bonneville's Generation Supply and
> Accounting Operations, and from Reclamation's Facility Operation and
> Maintenance, Power Management, Financial Management, and
> representatives from the Reclamation Projects familiar with the
> day‑to‑day operations.
>
> \(b\) Each Party's Authorized Representative shall have one vote and
> shall be the only voting member of the JOC for that Party.
>
> \(c\) The JOC shall review Five‑Year Power Budgets and shall review
> and approve any revisions to the Annual Power Budgets, if necessary.
>
> \(d\) The JOC will compare the actual O&M Power Costs incurred by
> Reclamation to the Annual Power Budget following each Fiscal Year.
>
> \(e\) The JOC will establish and review Performance Indicators and
> Performance Incentives, and determine if Reclamation is eligible for
> Performance Incentives.
>
> \(f\) If it is determined by the JOC, pursuant to section 7(d), that
> Reclamation is eligible for Performance Incentives, then the JOC shall
> determine the amount of and approve such Performance Incentives
> following the end of each Fiscal Year.
>
> \(g\) The JOC, at its discretion, may designate subgroups, as
> required, for technical work assignments only, and these subgroups
> shall not have any of the authorities of the JOC.
>
> \(h\) The JOC will serve as a forum to discuss the coordination of
> Reclamation's and Bonneville's O&M schedules and outage schedules.
>
> \(i\) The Reclamation Authorized Representative shall notify the
> Bonneville Authorized Representative as soon as possible of any
> unforeseen event at a Reclamation Project that may significantly
> impact power generation.
>
> \(j\) The Bonneville Authorized Representative shall notify the
> Reclamation Authorized Representative as soon as possible of any
> unforeseen event that may prevent the transfer of funds to
> Reclamation.
>
> \(k\) The JOC shall operate in a manner that is consistent with the
> missions, operating plans, and legal authorities of the Parties.

**8. TRANSFER OF FUNDS TO RECLAMATION**

> \(a\) Bonneville agrees to make payments to Reclamation for O&M Power
> Costs and any applicable Performance Incentives. Such payments shall
> only be made out of net proceeds as defined in 16 U.S.C. 838k(b).
>
> \(b\) Bonneville shall transfer cash to the transfer (allocation)
> account in the U.S. Treasury on a monthly basis or more frequently as
> needed, for Reclamation to achieve its disbursement requirements.
>
> \(c\) Bonneville agrees to Reclamation's use of Online Payment and
> Collection (OPAC) or some other mutually agreed-upon electronic
> transfer method for the transfer of such funds to Reclamation.
>
> \(d\) Bonneville payments to Reclamation under this Agreement will
> only be made for O&M Power Cost items, as detailed in this Agreement
> or its exhibits.
>
> \(e\) The estimated cost of a single piece of O&M Power Equipment
> shall not exceed \$250,000 for Grand Coulee, or \$100,000 for any
> other Reclamation Project. Any piece of O&M Power Equipment costing
> more than these amounts will not be funded under this Agreement,
> unless approved by the JOC.
>
> \(f\) The estimated cost of any Generation Additions, Improvements,
> and Replacements shall not exceed \$250,000 for Grand Coulee, or
> \$100,000 for any other Reclamation Project. Any Generation Additions,
> Improvements, and Replacements costing more than these amounts will
> not be funded under this Agreement, unless approved by the JOC.
>
> \(g\) For any interests, rights or obligations that Reclamation sells,
> assigns, or transfers in accordance with section 13 of this Agreement,
> the Parties shall agree upon the associated amount of O&M Power Costs
> to be deleted from this Agreement.
>
> \(h\) Any O&M Power Cost items that are funded through methods other
> than this Agreement will not be reimbursed under this Agreement by
> Bonneville.

**9. COMPARISON OF ACTUAL O&M POWER COSTS TO ANNUAL POWER BUDGET
FOLLOWING EACH FISCAL YEAR**

> \(a\) **Review by JOC**
>
> Within 90 days following the end of each Fiscal Year, Reclamation
> shall provide an accounting of the actual O&M Power Costs incurred to
> the Authorized Representatives, and the JOC shall convene to compare
> such actual O&M Power Costs incurred by Reclamation to the Annual
> Power Budget amount. Each such comparison shall exclude the amount of
> the Performance Incentives in the Annual Power Budget, and shall also
> exclude any amounts earned under section 9(b)(2) from a previous year
> or years.
>
> \(b\) **Actual O&M Power Costs Less Than Annual Power Budget**
>
> \(1\) If actual O&M Power Costs were less than anticipated due to
> program deferrals or undelivered orders, the total amount of such
> deferrals or undelivered orders shall be available for use in a future
> Fiscal Year.
>
> \(2\) If actual O&M Power Costs were less than anticipated due to a
> savings that is not expected to be occurring at a future date
> (i.e., efficiency gains, staff reductions, or changes in maintenance
> practices), these savings will be shared equally between the Parties;
> 50 percent of the savings shall remain with Bonneville and shall not
> be available for use by Reclamation during any future Fiscal Year
> after such time that a savings has been determined. Reclamation's
> share of the savings shall be available for use for Reclamation
> Projects in a future Fiscal Year, for items described under O&M Power
> Costs that are necessary for unplanned work that is not included in
> the Annual Power Budget, and is mutually beneficial to the Parties.
>
> \(3\) In the event that there are any amounts pursuant to
> section 9(b)(1) or section 9(b)(2) during a Fiscal Year, these amounts
> shall be available for Reclamation's use in a future Fiscal Year for
> O&M Power Cost items. Such amounts shall be held by Bonneville in a
> separate budget item, and shall be available for use by Reclamation;
> **provided, however,** that the total amount used during any Fiscal
> Year shall not exceed \$3 million, unless approved by the JOC prior to
> expenditure. To the extent possible, Reclamation shall either
> (A) provide to the JOC a revised Five‑Year Power Budget that
> incorporates such amounts; or (B) provide the JOC with an estimate of
> when such amounts would be spent in a subsequent Five‑Year Power
> Budget. Revisions to any current Five‑Year Power Budget shall be made
> in accordance with section 4(c) of this Agreement. The cumulative
> amounts in this budget item shall not exceed ten million dollars
> (\$10 million), unless otherwise agreed to in writing by Bonneville.
> Amounts remaining in this budget item can be extended beyond the
> current Five‑Year Power Budget.
>
> \(c\) **Actual O&M Power Costs Greater Than Annual Power Budget**
>
> If the actual O&M Power Costs are greater than the Annual Power
> Budget, then the remaining Fiscal Year(s) in the Five‑Year Power
> Budget shall be reduced by the amount of such excess, such that the
> Five‑Year Power Budget total remains unchanged. The Parties shall
> prepare and execute a revision to Exhibit A to reflect such reduced
> amounts.

**10. DISPUTE RESOLUTION**

> \(a\) If a dispute arises between the Parties regarding the terms,
> conditions, or performance of obligations under this Agreement, then
> the Parties shall continue performance under this Agreement pending
> resolution of such dispute. Parties shall first seek to resolve any
> dispute by negotiations between the management of the Parties prior to
> giving notice of initiation of mediation under this Agreement.
>
> \(b\) Upon the written notice from either Party to the other Party,
> any and all disputes arising under the terms of this Agreement or out
> of performance under this Agreement are subject to mediation on any
> issue, including without limitation, issues of fact, any law relating
> to performance under this Agreement, and contract interpretation.
>
> \(c\) Reclamation and Bonneville shall agree upon a mediator and a set
> of procedures for the conduct of any mediation. In the event
> Reclamation and Bonneville have not agreed to a set of procedures
> prior to a notice of dispute under this section 10, then the mediator
> chosen above shall establish such procedures.
>
> \(d\) If the mediation process above does not result in a settlement,
> then upon written notice, either Party may propose for agreement by
> the other Party, arbitration on any issue, including without
> limitation, issues of fact, any law relating to performance under this
> Agreement, and contract interpretation.
>
> \(e\) Reclamation and Bonneville may agree to a set of procedures for
> the conduct of any arbitration under this section 10. In the event
> Reclamation and Bonneville do not develop a set of procedures prior to
> commencing arbitration of a dispute under this section 10, then the
> Commercial Arbitration Rules, except those pertaining to court
> enforcement of a decision, of the American Arbitration Association
> would be used for that dispute.

**11. AUDITS**

> \(a\) Each Party shall reserve the right to audit and to examine any
> cost, payment, settlement, or supporting documentation, including, but
> not limited to, audit reports resulting from any items set forth in
> this Agreement. Any audit(s) shall be undertaken by either Party's
> representative(s) upon reasonable notice to the other Party and at
> reasonable times and in conformance with generally-accepted auditing
> standards. The right to conduct audits shall include Project sites and
> facilities. The Party being audited agrees to cooperate fully with any
> such audit(s). The right to audit a cost shall extend for a period of
> 3 years following the last day of the Fiscal Year in which such cost
> was incurred under this Agreement. The Parties agree to retain all
> records and documentation related to this Agreement prepared in the
> normal course of business for the entire length of this audit period.
> The Parties agree that all accounting and records shall be maintained
> in accordance with generally-accepted accounting principles.
>
> \(b\) The Party being audited shall be notified in writing of any
> exception taken as a result of an audit promptly after completion of
> the audit. The Party being audited shall have 30 days to review the
> notice of exception.

**12. AGREEMENT REVISIONS**

Except as otherwise expressly provided to the contrary in this
Agreement, the provisions of the body of this Agreement and Exhibit A
may be amended only by mutual written agreement of the Parties.
Exhibits B and C may be revised following written agreement by each
Party's Authorized Representative.

**13. ASSIGNMENT**

> \(a\) Rights shall not be assigned, and obligations shall not be
> delegated under this Agreement.
>
> \(b\) In the event of such assignment or transfer, Reclamation shall
> provide Bonneville with notice of the assignment or transfer, together
> with a true copy of the instrument of assignment or transfer not less
> than 10 days prior to the intended date of execution.
>
> \(c\) This Agreement shall not be to the benefit of and binding upon
> the respective successors and assigns of the Parties.

**14. HOLD HARMLESS**

> \(a\) **Reclamation Obligation to Hold Bonneville Harmless**
>
> Reclamation shall hold Bonneville harmless from all claims, damages,
> losses, liability and expenses arising from negligent or other
> tortious acts or omissions of Reclamation, its employees, agents, or
> contractors arising under this Agreement, to the extent permitted by
> the Federal Tort Claims Act.
>
> \(b\) **Bonneville Obligation to Hold Reclamation Harmless**
>
> Bonneville shall hold Reclamation harmless from all claims, damages,
> losses, liability and expenses arising from negligent or other
> tortious acts or omissions of Bonneville, its employees, agents, or
> contractors arising under this Agreement, to the extent permitted by
> the Federal Tort Claims Act.

**15. NO THIRD-PARTY BENEFICIARIES**

There are no third-party beneficiaries of this Agreement.

**16. NOTICES**

Unless the Agreement requires otherwise, any notice, demand, or request
provided for in this Agreement, or served, given, or made in connection
with it, shall be in writing and shall be deemed properly served, given,
or made if delivered in person or sent by electronic transfer, or by
acknowledged delivery, or sent by registered or certified mail, postage
prepaid, to the persons specified below:

> To Bonneville: United States Department of Energy
>
> Bonneville Power Administration
>
> 905 NE. 11th Avenue (97232)
>
> P.O. Box 3621
>
> Portland, OR 97208-3621
>
> Attn: Manager, Federal Hydro Projects - MGC
>
> To Reclamation: United States Department of the Interior
>
> Bureau of Reclamation
>
> 1150 N. Curtis
>
> Boise, ID 83706-1234
>
> Attn: Regional Finance Manager - PN-1800
>
> Program Manager, Facility O&M - PN-3200

Any Party may, by written notice to the other Parties, change the
designation or address of the person so specified as the one to receive
notices pursuant to this Agreement.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in
several counterparts.

UNITED STATES OF AMERICA

Department of Energy

Bonneville Power Administration

By **[/S/ RANDALL W. HARDY]{.underline}**

Administrator and

  Chief Executive Officer

Name [Randall W. Hardy]{.underline}

*(Print/Type)*

Date [December 6, 1996]{.underline}

UNITED STATES OF AMERICA

Department of the Interior

Bureau of Reclamation

By **[/S/ ELUID L. MARTINEZ]{.underline}**

Name [Eluid L. Martinez]{.underline}

*(Print/Type)*

Title [Commissioner]{.underline}

Date [December 11, 1996]{.underline}

(MCPLAN-MPSD-W:\\MPSD\\CT\\95129.DOC)

**FIVE-YEAR POWER BUDGET**

**Power Budget for FY 1997 (\$000)**

  ------------------- ------------- ------------------- ------------------ ------------ ------------------
                      **FY 1997**                       **Replacements**   **O&M**      **Appropriated**

                      **Base**      **Extraordinary**   **and**            **Power      **Multipurpose**
                                                                           Costs**      

  **Major Line        **Request**   **Maintenance**     **Additions**      **FY 1997**  **Items**
  Items**                                                                               

                                                                                        

  General             506                                                  506          
  Coordination                                                                          

  Boise               2,589         30                  469                3,088        140

  Columbia Basin      27,705        10                  2,463              30,178       500

  Leavenworth Fish    1,594                                                1,594        
  Hatchery                                                                              

  Intertie            250                                                  250          
  Development                                                                           
  Cultural Resource                                                                     
  Activities                                                                            

  National Historic   470                                                  470          
  Preservation Act                                                                      
  Compliance                                                                            

  Hungry Horse        1,893         45                  112                2,050        180

  Minidoka            4,402         125                 2,275              6,802        40

  Yakima              1,715         155                 315                2,185        

  **FY 1997 TOTALS    **41,124**    **365**             **5,634**          **47,123**   **860**
  FOR REGION**                                                                          

  Performance         0                                                                 
  Incentive                                                                             
  ------------------- ------------- ------------------- ------------------ ------------ ------------------

**Power Budget for FY 1998 (\$000)**

  ------------------- ------------- ------------------- ------------------ ------------ ------------------
                      **FY 1998**                       **Replacements**   **O&M**      **Appropriated**

                      **Base**      **Extraordinary**   **and**            **Power      **Multipurpose**
                                                                           Costs**      

  **Major Line        **Request**   **Maintenance**     **Additions**      **FY 1998**  **Items**
  Items**                                                                               

                                                                                        

  General             521                                                  521          
  Coordination                                                                          

  Boise               2,737         370                 150                3,257        395

  Columbia Basin      28,530        285                 3,159              31,974       2,191

  Leavenworth Fish    1,559                                                1,559        
  Hatchery                                                                              

  Intertie            350                                                  350          
  Development                                                                           
  Cultural Resource                                                                     
  Activities                                                                            

  National Historic   470                                                  470          
  Preservation Act                                                                      
  Compliance                                                                            

  Hungry Horse        1,903         497                 435                2,835        251

  Minidoka            3,911         435                 407                4,753        150

  Yakima              1,799         300                 260                2,359        

  **FY 1998 TOTALS    **41,780**    **1,887**           **4,411**          **48,078**   **2,987**
  FOR REGION**                                                                          

  Performance         382                                                               
  Incentive                                                                             
  ------------------- ------------- ------------------- ------------------ ------------ ------------------

**Power Budget for FY 1999 (\$000)**

  ------------------- ------------- ------------------- ------------------ ------------ ------------------
                      **FY 1999**                       **Replacements**   **O&M**      **Appropriated**

                      **Base**      **Extraordinary**   **and**            **Power      **Multipurpose**
                                                                           Costs**      

  **Major Line        **Request**   **Maintenance**     **Additions**      **FY 1999**  **Items**
  Items**                                                                               

                                                                                        

  General             537                                                  537          
  Coordination                                                                          

  Boise               2,820         109                 410                3,339        710

  Columbia Basin      29,664        80                  4,403              34,147       2,958

  Leavenworth Fish    1,805                                                1,805        
  Hatchery                                                                              

  Intertie            350                                                  350          
  Development                                                                           
  Cultural Resource                                                                     
  Activities                                                                            

  National Historic                                                                     
  Preservation Act                                                                      
  Compliance                                                                            

  Hungry Horse        1,734         282                 130                2,146        777

  Minidoka            4,094         50                  395                4,539        459

  Yakima              1,852         400                 144                2,396        445

  **FY 1999 TOTALS    **42,856**    **921**             **5,482**          **49,259**   **5,349**
  FOR REGION**                                                                          

  Performance         377                                                               
  Incentive                                                                             
  ------------------- ------------- ------------------- ------------------ ------------ ------------------

**Power Budget for FY 2000 (\$000)**

  ------------------- ------------- ------------------- ------------------ ------------ ------------------
                      **FY 2000**                       **Replacements**   **O&M**      **Appropriated**

                      **Base**      **Extraordinary**   **and**            **Power      **Multipurpose**
                                                                           Costs**      

  **Major Line        **Request**   **Maintenance**     **Additions**      **FY 2000**  **Items**
  Items**                                                                               

                                                                                        

  General             553                                                  553          
  Coordination                                                                          

  Boise               2,900                             605                3,505        770

  Columbia Basin      30,625        80                  3,389              34,094       4,540

  Leavenworth Fish    1,805                                                1,805        
  Hatchery                                                                              

  Intertie            350                                                  350          
  Development                                                                           
  Cultural Resource                                                                     
  Activities                                                                            

  National Historic                                                                     
  Preservation Act                                                                      
  Compliance                                                                            

  Hungry Horse        1,785                             517                2,302        318

  Minidoka            4,150                             290                4,440        80

  Yakima              1,907                             100                2,007        

  **FY 2000 TOTALS    **44,075**    **80**              **4,901**          **49,056**   **5,708**
  FOR REGION**                                                                          

  Performance         387                                                               
  Incentive                                                                             
  ------------------- ------------- ------------------- ------------------ ------------ ------------------

**Power Budget for FY 2001 (\$000)**

  ------------------- ------------- ------------------- ------------------ ------------ ------------------
                      **FY 2001**                       **Replacements**   **O&M**      **Appropriated**

                      **Base**      **Extraordinary**   **and**            **Power      **Multipurpose**
                                                                           Costs**      

  **Major Line        **Request**   **Maintenance**     **Additions**      **FY 2001**  **Items**
  Items**                                                                               

                                                                                        

  General             570                                                  570          
  Coordination                                                                          

  Boise               2,934         145                 475                3,554        580

  Columbia Basin      31,606        80                  3,065              34,751       3,201

  Leavenworth Fish    1,813                                                1,813        
  Hatchery                                                                              

  Intertie            350                                                  350          
  Development                                                                           
  Cultural Resource                                                                     
  Activities                                                                            

  National Historic                                                                     
  Preservation Act                                                                      
  Compliance                                                                            

  Hungry Horse        1,837                             450                2,287        311

  Minidoka            4,270                             250                4,520        80

  Yakima              1,958                             100                2,058        

  **FY 2001 TOTALS    **45,338**    **225**             **4,340**          **49,903**   **4,172**
  FOR REGION**                                                                          

  Performance         394                                                               
  Incentive                                                                             
  ------------------- ------------- ------------------- ------------------ ------------ ------------------

(MCPLAN-MPSD-W:\\MPSD\\CT\\95129.DOC)

**ANNUAL POWER BUDGET**

**Power Budget for Fiscal Year 1997 (\$000)**

  ------------------- ------------- ------------------- ------------------ ------------ ------------------
                      **FY 1997**                       **Replacements**   **O&M**      **Appropriated**

                      **Base**      **Extraordinary**   **and**            **Power      **Multipurpose**
                                                                           Costs**      

  **Major Line        **Request**   **Maintenance**     **Additions**      **FY 1997**  **Items**
  Items**                                                                               

                                                                                        

  General             506                                                  506          
  Coordination                                                                          

  Boise               2,589         30                  469                3,088        140

  Columbia Basin      27,705        10                  2,463              30,178       500

  Leavenworth Fish    1,594                                                1,594        
  Hatchery                                                                              

  Intertie            250                                                  250          
  Development                                                                           
  Cultural Resource                                                                     
  Activities                                                                            

  National Historic   470                                                  470          
  Preservation Act                                                                      
  Compliance                                                                            

  Hungry Horse        1,893         45                  112                2,050        180

  Minidoka            4,402         125                 2,275              6,802        40

  Yakima              1,715         155                 315                2,185        

  **FY 1997 TOTALS    **41,124**    **365**             **5,634**          **47,123**   **860**
  FOR REGION**                                                                          

  Performance         0                                                                 
  Incentive                                                                             
  ------------------- ------------- ------------------- ------------------ ------------ ------------------

(MCPLAN-MPSD-W:\\MPSD\\CT\\95129.DOC)

**PERFORMANCE INDICATORS AND PERFORMANCE INCENTIVES**

**1. PERFORMANCE OBJECTIVES**

> \(a\) **Operational Objectives -** In accordance with standard utility
> practice (Federal Energy Regulatory Commission, Western Systems
> Coordination Council, Northwest Power Pool) the generating projects
> were operated to meet the overall system operating requirements and to
> practice effective water management to the generating system. This
> takes into consideration reserve allocations, adherence to voltage
> control schedules, switching reliability, communication links between
> Bonneville and Reclamation, and water availability.
>
> \(b\) **Maintenance Objectives -** Generation availability targets are
> met or exceeded based on a month-by-month equivalent availability
> which takes into consideration the planned outages, forced outages,
> and any unit deratings. Transmission switchyard maintenance is
> accomplished as scheduled and there are no inadvertent power system
> disruptions. The generation and transmission availability will be
> based on the maintenance and outage schedule that is agreed to by
> Bonneville and Reclamation. Bonneville and Reclamation shall
> coordinate maintenance activities to make the best use of crews,
> contractors, and equipment.
>
> \(c\) **Budgetary Objectives -** The Joint Operating Committee (JOC)
> shall establish the Annual Power Budget. The Annual Power Budget shall
> not be exceeded unless there has been some unforeseen event which the
> JOC has been notified of, or there has been direction from Bonneville
> and agreement between the Parties that causes the Annual Power Budget
> to be exceeded.

**2. PERFORMANCE INDICATORS**

Any unforeseen events or agreed-to changes that have an impact on the
Performance Indicators shall be taken into consideration in the
measurement of performance.

\(a\) **Operational Standards and Indicators**

> \(1\) STANDARD - In accordance with standard utility practices;
> maintain adherence to established voltage schedules, maintain
> communication between Bonneville dispatchers and the generating
> facilities to assure reserves are kept to proper or requested levels,
> and assure that there are no inadvertent power system equipment trips.
>
> INDICATOR - There are no breakdowns in communication systems, AGC
> links are maintained and there are no major system disruptions due to
> inadvertent power system trips.
>
> \(2\) STANDARD - Generating facilities are responsive to Bonneville
> requests for system support needs; i.e., remedial action scheme
> requests, deviation responses, thermal line overloads requiring
> reduced generation.
>
> INDICATOR - Generating facilities respond in a manner to Bonneville
> requests that are no major system disruptions. Area control error
> deviations are returned to zero within 10 minutes.
>
> \(3\) STANDARD - Generating facilities are operated to meet the
> overall system needs (i.e., Federal Columbia River Power System
> operating requirements).
>
> INDICATOR - A subgroup of the JOC is established and meets on a
> regular basis, at least twice per Fiscal Year, to discuss and
> implement ways in which the system can operate as efficiently as
> possible.

\(b\) **Maintenance Standards and Indicators**

> \(1\) STANDARD - A maintenance and outage schedule is agreed to among
> the JOC and put in place by September 1 preceding the Fiscal Year
> start. Any changes to this are coordinated through the JOC.
>
> INDICATOR - A maintenance and outage schedule is in place by October
> 1.
>
> \(2\) STANDARD - The agreed-to maintenance and outage schedule is
> adhered to, with the exception of any unforeseen events or agreed-to
> changes.
>
> INDICATOR - Any changes to the maintenance and outage schedule is
> coordinated in advance of the outage. Bonneville is notified in a
> timely manner of any changes required due to unforeseen circumstances.
>
> \(3\) STANDARD - The actual equivalent unit availability is met or
> exceeded when compared to what had been planned and agreed to at
>
> the beginning of the year with the maintenance and outage schedule.
> The equivalent unit availability takes into consideration planned
> outages, forced outages, and any unit deratings.
>
> INDICATOR - The actual equivalent unit availability is greater than
> the planned.
>
> \(4\) STANDARD - Bonneville and Reclamation maintenance activities are
> coordinated to make the best use of crews, contractors, and equipment.
>
> INDICATOR - Bonneville and Reclamation meet at least every 6 months to
> coordinate maintenance activities.

\(c\) **Budgetary Standard and Indicator**

> STANDARD - Total Annual Power Budget, Exhibit B, is not exceeded.
>
> INDICATOR - Actual expenditures for the Total Annual Power Budget,
> Exhibit B, is compared to the beginning-of-year estimates or agreed-to
> changes at the end of the year to assure that it is not exceeded.

**3. PERFORMANCE INCENTIVES**

> \(a\) A Performance Incentive shall be available to Reclamation in the
> maximum amount of 1 percent of the base salary level for Reclamation
> personnel in the Annual Power Budget.
>
> \(b\) Each Annual Power Budget shall contain a line item for the
> annual Performance Incentive. The Performance Incentive for a specific
> year shall be included in the following year's Annual Power Budget.
> The final year's Performance incentive within a Five-Year Power Budget
> period shall be included in the first year of the next Five-Year Power
> Budget period.
>
> \(c\) Within 60 days of the completion of each Fiscal Year,
> Reclamation will prepare and submit to the JOC information relating to
> the Performance Indicators.
>
> \(d\) The JOC will review this information and any other relevant
> material to determine to what extent the Performance Objectives have
> been achieved.
>
> \(e\) If eight or more of the Performance Indicators are achieved, the
> maximum amount of the Performance Incentive shall be paid to
> Reclamation.
>
> \(f\) If five to seven of the Performance Indicators are achieved,
> 70 percent of the maximum amount of the Performance Incentive shall be
> paid to Reclamation.
>
> \(g\) However, if the Budgetary Performance Indicator in section 2(c)
> above is exceeded by more than five (5) percent, no Performance
> Incentive shall be paid.
>
> \(h\) If an incentive has been achieved, as determined by the JOC,
> Reclamation shall invoice Bonneville the amount recommended by the
> JOC.
>
> \(i\) Reclamation shall maintain records of its performance incentive
> activities adequate for Office of Personnel Management review.

(MCPLAN-MPSD-W:\\MPSD\\CT\\95129.DOC)