SEPARATION AGREEMENT, RELEASE AND WAIVER OF CLAIMS

         This Separation Agreement, Release, and Waiver of Claims ("Agreement")
is made and entered into by and between Energy West, Incorporated (hereinafter
"Energy West") and Executive Edward J. Bernica (hereinafter "Executive")
(collectively, "the parties").

          WHEREAS, the parties wish to terminate Executive's employment with
Energy West; and

         WHEREAS, the parties wish to resolve any claims, disputes, and/or
causes of action ("claims") that Executive has, may have had, or may have
against Energy West regarding his employment therewith and/or the termination of
that employment;

         NOW THEREFORE, the parties agree as follows:

         1. Energy West's Covenants: In consideration of, among other things,
the promises, agreements, and covenants contained in this Agreement, the
adequacy and sufficiency of which is hereby acknowledged, Energy West agrees as
follows:

                  (a) In full and complete satisfaction of Executive's rights to
any severance payments, vacation and/or sick pay, incentive compensation, bonus,
and/or any other compensation and benefits to which Executive may be entitled,
Energy West shall make thirty (30) equal semi-monthly payments, each in the
amount of SIX THOUSAND ONE HUNDRED EIGHTY-SEVEN DOLLARS and 50/100 ($6,187.50),
less applicable deductions and withholdings, with the first such payment to
occur in the first normal payroll period of the Energy West immediately
succeeding the effective date of this Agreement; provided, however, that Energy
West's obligation to make payments under this Paragraph shall cease immediately
upon Executive's breach--in Energy West's good faith belief--of any of the
covenants set forth in Paragraph 2 hereinafter, including but not limited to the
Restrictive Covenants in Paragraph 2(c).

                  (b) In accordance with applicable law, Energy West will
provide Executive medical benefits required by COBRA. Executive acknowledges and
agrees he is solely responsible for the amounts due with respect to continuation
of his medical insurance under COBRA.

         2. Executive's Covenants: In consideration of, among other things, the
promises, agreements, and covenants contained in this Agreement, the adequacy
and sufficiency of which is hereby acknowledged, Executive agrees as follows:

          (a) Full and General Release of Liability: Executive (on
     behalf of himself and anyone claiming through or on behalf of Executive)
     hereby forever WAIVES, RELEASES, AND DISCHARGES--to the maximum
     extent permitted by law--Energy West and all of its current and former
     insurers, attorneys, fiduciaries, employees, directors, agents, successors,
     assigns, subsidiary and parent companies, and all other entities affiliated
     with or related to it, without limitation, exception, or reservation
     ("Affiliates") from any and all claims that Executive may have had,
     currently has, or in the future may have, in connection with or arising out
     of his employment with Energy West through the effective date of this
     Agreement, other than for breach of this Agreement. Executive acknowledges
     and agrees that his waiver, release, and

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     discharge of claims herein applies to any and all civil claims, whether
     known or unknown, suspected or unsuspected, for damages, attorneys' fees,
     or equitable relief that Executive has or at any time could have had
     against Energy West, whether arising under contract or any under federal,
     state, or local statutory or common (including civil tort) law, including
     but not limited to any and all claims for attorney's fees; claims for
     breach of contract; claims sounding in tort; claims for violation of any
     public policy; claims for workers' compensation benefits, discrimination,
     and/or retaliation; claims of discrimination, harassment, and/or
     retaliation under any federal, state, or local law, including but not
     limited to Title VII of the Civil Rights Act of 1964 (as amended), the
     Civil Rights Act of 1991, 42 U.S.C. ss. 1981, the Age Discrimination in
     Employment Act, the Americans with Disabilities Act, the Rehabilitation
     Act, and/or the Montana Human Rights Act; claims for unpaid wages under any
     and all applicable state wage payment statutes; claims under the Family and
     Medical Leave Act; claims under the Fair Labor Standards Act; claims under
     the Equal Pay Act; claims under the Occupational Safety and Health Act;
     claims under the Employment Retirement Income Security Act ("ERISA");
     claims under the Consolidated Omnibus Budget Reconciliation Act ("COBRA");
     claims under 42 U.S.C. ss. 1983 and 42 U.S.C. ss. 1988; and claims under
     any and all policies of Energy West. Notwithstanding the foregoing, nothing
     in this Agreement shall modify the rights and obligations of the parties
     with respect to fully vested stock options, in existence as of the last day
     of Executive's employment, previously issued to Executive, in accordance
     with the terms of Energy West's plan.

          (b) Return of Property: Executive hereby represents and warrants that,
     as of the date of his signature on this Agreement, he has returned all of
     Energy West's and/or any Affiliates' files, records, documents, plans,
     drawings, equipment, software, videotapes, or any property or other items
     of Energy West and/or any its Affiliates in Executive's possession or
     concerning the business of Energy West and/or its Affiliates, whether
     prepared by Executive or otherwise coming into his possession or control.

          (c) Restrictive Covenants: Executive hereby agrees that, during the
     fifteen months during which he is receiving the payments referenced in
     Paragraph 1 hereinabove, he shall not, without the prior written consent of
     Energy West, do any of the following:

               (i) directly or indirectly compete with Energy West in any way,
          including but not limited to, that he shall not as an employee,
          employer, consultant, agent, principal, partner, shareholder,
          corporate officer, director, or through any other kind of ownership
          (other than ownership of securities of publicly held corporations of
          which he owns less than five percent 5% of any class of outstanding
          securities) or in any other representative or individual capacity,
          engage in or render any services to any person and/or business that
          provides, sells, distributes, or markets any products or services that
          compete with Energy West within any part of the states of Montana,
          Wyoming and/or Arizona (it being understood that for purposes of this
          paragraph "directly or indirectly compete with" shall include
          activities promoting, selling, marketing, or providing services
          supporting or relating to the marketing or sale of, (x) products or
          services of the type offered and sold by Energy West or any Affiliate
          of Energy West during Executive's employment with Energy West (the
          "Products or Services"), or (y) that are competitive with or are
          functional replacements for the Products or Services) (unless
          otherwise clearly indicated

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          by the context, references in this paragraph (c) to Energy West shall
          be deemed to include the Affiliates of Energy West);

               (ii) engage in the following acts of "Solicitation": (A) directly
          or indirectly, whether as an individual for his own account, or on
          behalf of any other person, firm, corporation, partnership, joint
          venture, or entity whatsoever, hire, solicit, or endeavor to entice
          away from Energy West any employee who is employed by Energy West (or
          attempt any of the foregoing); (B) directly or indirectly through any
          other individual or entity, solicit, entice, persuade, or induce any
          individual or entity to terminate, reduce, or refrain from forming,
          renewing, or extending its relationship, whether actual or
          prospective, with Energy West (or attempt any of the foregoing); or
          (C) directly or indirectly through any other individual or entity,
          solicit, entice, persuade, or induce any customer of Energy West to do
          business with any individual or entity with respect to matters that
          the Energy West did business or was attempting to do business either
          during the term of Executive's employment with Energy West or during
          the term of this solicitation prohibition (or attempt any of the
          foregoing).

     Executive further specifically acknowledges and agrees that the foregoing
     covenants are reasonable in content and scope and are given knowingly,
     willingly, voluntarily, and for adequate and valid consideration; provided,
     however, that if any court of competent jurisdiction or other appropriate
     authority disagrees with the parties' foregoing agreement as to
     reasonableness, then such court or other authority shall reform or
     otherwise modify the foregoing covenants only so far as necessary to be
     enforceable as reasonable, notwithstanding and regardless of any law or
     authority to the contrary. Executive further specifically acknowledges and
     agrees that the existence of any claim or cause of action by Executive
     against Energy West shall not constitute a defense to the enforcement by
     Energy West of any or all such covenants. Executive expressly agrees that
     the remedy at law for the breach of any such covenant is inadequate, that
     Executive shall not defend against any claim by Energy West on the basis of
     an adequate remedy of law, that injunctive relief and specific performance
     shall be available to prevent the breach or any threatened breach thereof,
     that the party bringing the claim shall not be required to post bond in
     pursuit of such claim, and that the prevailing party shall on any such
     claim be entitled to recover attorneys' fees, expert witness fees, and
     costs incurred in pursuit of such claim, notwithstanding and regardless of
     any law or authority to the contrary.

          (d) Duty to Protect Confidential and Proprietary Information:
     Executive hereby agrees that he shall not at any time, unless authorized in
     writing by the then Chief Executive Officer of Energy West or his
     authorized designee (or in the event of litigation where such matters are
     material and where Executive is required to disclose such matters),
     communicate, divulge, or use, for his own benefit or for the benefit of any
     other person, firm, or corporation, any confidential or proprietary
     information concerning Energy West's and/or its Affiliates' business,
     including but not limited to Energy West's and its Affiliates' operations,
     services, materials, policies, and the manner in which they are developed,
     marketed, and provided, and such other information regarded as trade
     secrets or confidential or proprietary information regarded as trade
     secrets or confidential or proprietary information under any applicable
     law, including without limitation information that is attorney work product
     or attorney-client privileged.

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          (e) Confidentiality: Executive hereby agrees this Agreement and the
     circumstances and/or the discussions leading to this Agreement are
     confidential and, as such, (i) he will not communicate the contents of this
     Agreement or the circumstances or the discussions leading to this Agreement
     ("Confidential Information") other than to his immediate family members,
     his attorney, his accountant, to governmental taxing authorities, or if
     compelled by a court of competent jurisdiction or otherwise required by law
     ("Authorized Persons"); (ii) before he discloses any Confidential
     Information to any Authorized Persons, he must inform them that the matter
     is confidential, that compliance with this confidentiality provision is a
     material condition of this Agreement, and that any disclosure of such
     Confidential Information to persons or entities not authorized to receive
     it is a material breach of this Agreement; and (iii) if he is compelled to
     disclose any Confidential Information by a court of competent jurisdiction
     or otherwise, then he will give Energy West as much notice as is reasonably
     practicable before such disclosure in the event Energy West wishes to
     intervene to protect its rights under this Agreement.

          (f) Agreement Not to Reapply: Executive hereby agrees he will not
     hereafter apply for or otherwise seek employment with Energy West and/or
     its Affiliates. Executive acknowledges that, if he applies for any position
     with Energy West and/or its Affiliates, Energy West and/or the applicable
     Affiliate is under no obligation to consider his application. Executive
     further acknowledges that, if he hereafter obtains employment with Energy
     West and/or any Affiliates, then such employment may be terminated on the
     basis of this subparagraph (c), without recourse by Executive against
     Energy West and/or any Affiliates, it being Executive's intent hereby to
     waive any claims he may have with respect to such application/employment.

          (g) Tax Issues and Indemnification Agreement: Executive hereby
     expressly acknowledges that no oral or written representation of fact or
     opinion has been made to him by Energy West and/or any Affiliates or their
     attorneys regarding the tax treatment or consequences of any payment made
     under this Agreement. It is expressly understood that, to the extent any
     liability or responsibility exists for Executive's portion of any federal,
     state, and local income or other taxes, such liability or responsibility
     rests solely with Executive. Executive further agrees to indemnify and to
     hold harmless Energy West and/or its Affiliates in connection with any
     liability incurred in connection with any tax or taxes for which Executive
     is responsible.

          (h) Voluntary Nature of Agreement: Executive hereby acknowledges he
     has read this Agreement, understands its terms, and signs the Agreement
     voluntarily of his own free will, without coercion or duress, and with full
     understanding of the significance and binding effect of the Agreement.

          (i) Invalidity: Executive hereby agrees that if he and/or anyone
     acting on his behalf files any claim against Energy West and/or any
     Affiliate or any person or entity released under this Agreement relating to
     or concerning any matter released by this Agreement, or if one or more
     provisions of this Agreement is ever determined by a court of proper
     jurisdiction to be unenforceable at Executive's request, then he shall
     repay to Energy West any and all consideration he received under this
     Agreement, notwithstanding any law or authority to the contrary.

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          (j) Cooperation: Following the date hereof, Executive agrees to
     cooperate with Energy West as reasonably requested in connection with any
     matters with which Executive was previously involved or with respect to
     which Executive is familiar.

          (k) Board Service: Executive hereby acknowledges that he has been
     fully compensated for his service as a member of the Board of Directors of
     Energy West. Executive further agrees that the amounts to be paid to him
     pursuant to this Agreement are in full compensation of all amounts due him
     from Energy West, and he agrees that he will not be entitled to any
     compensation of any nature (whether present, deferred, or contingent) with
     respect to his service as a Director of Energy West for any and all periods
     through the expiration of his current term as a Director.

          (l) Resignation From Board: Executive hereby acknowledges his
     resignation as a Director of Energy West.

          3. General Provisions: In addition to the foregoing covenants, the
parties further agree as follows:

          (a) No Admission: Neither the existence nor the execution of this
     Agreement shall constitute an acknowledgment or admission by either of the
     parties or its or his affiliates of any liability to the other party or its
     or his affiliates, and each party expressly denies any such liability.

          (b) Governing Law and Consent to Jurisdiction: This Agreement and all
     disputes relating to its interpretation and/or enforcement shall be subject
     to, governed by, and construed in accordance with the laws of the State of
     Montana, irrespective of any choice of law and/or of the fact that one or
     both of the parties now is or may become a resident of a different state.
     Executive hereby expressly submits and consents to the exclusive personal
     jurisdiction and exclusive venue of the federal and state courts of
     competent jurisdiction in the State of Montana, notwithstanding any
     applicable law or authority to the contrary.

          (c) Assignability: This Agreement shall be binding upon and inure to
     the benefit of Energy West, its respective successors, heirs, and assigns.
     Except as expressly set forth herein, this Agreement may not be assigned by
     Executive without the express written consent of Energy West.

          (d) Invalid Provisions: Except as set forth in Paragraph 2(i), if any
     provision of this Agreement is determined to be illegal, invalid, or
     unenforceable, then such provision shall be fully severable, and this
     Agreement shall be construed and enforced as if such illegal, invalid, or
     unenforceable provision had never comprised a part hereof and the remaining
     provisions hereof shall remain in full force and effect and shall not be
     affected by the illegal, invalid, or unenforceable provision or by its
     severance herefrom. Furthermore, in lieu of such illegal, invalid, or
     unenforceable provision, there shall be added automatically as a part of
     this Agreement a provision as similar in terms to such illegal, invalid, or
     unenforceable provision as may be possible and still be legal, valid, or
     enforceable.

          (e) Construction of Agreement: This Agreement sets forth the entire
     understanding of the parties and supersedes all prior agreements or
     understandings, whether

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     written or oral, with respect to the subject matter hereof. No terms,
     conditions, warranties, other than those contained herein, and no
     amendments or modifications hereto shall be binding unless made in writing
     and signed by the parties hereto. This Agreement shall not be strictly
     construed against either party.

          (f) Waiver: The waiver by either party hereto of a breach of any term
     or provision of this Agreement shall not operate or be construed as a
     waiver of a subsequent breach of the same provision by any party or of the
     breach of any other term or provision of this Agreement.

          (g) Titles: Titles of the paragraphs herein are used solely for
     convenience and shall not be used for interpretation or construing any
     work, clause, paragraph, or provision of this Agreement.

          (h) Counterparts: This Agreement may be executed in two or more
     counterparts, each of which shall be deemed an original, but which together
     shall constitute one and the same instrument.

          (i) Further Assurances: Each of the parties agrees to take such
     actions as may be reasonably necessary to carry out the effect and purposes
     of this Agreement.

         4. Right to Consider/Revoke: The parties hereby agree (i) Executive
has/had twenty-one (21) calendar days from the date he received this Agreement
to consider it, although he could elect to sign it sooner if he wished; (ii)
Executive has been advised/is hereby advised to consult with independent legal
counsel before signing this Agreement; (iii) Executive may revoke this Agreement
after he signs it by delivering a written notice of revocation via telecopier
((406) 791-7560) and certified mail to Energy West (to the attention of John C.
Allen) within seven (7) calendar days after he signs this Agreement; and (iv)
absent revocation, this Agreement will become effective and enforceable on the
eighth (8th) calendar day following the date he signs it.

[Signature Page Immediately Follows This Page]

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                               /s/ Edward J. Bernica
                               ------------------------------------------
                               Edward J. Bernica

STATE OF MONTANA )
                 )ss
COUNTY OF CASCADE)

         On this 24th day of October, 2003, before me the undersigned, a
notary public, in and for the county and state aforesaid, personally appeared
Edward J. Bernica, to me known to be the person described in and who executed
the foregoing Separation Agreement, Release and Waiver of Claims, and
acknowledged that he executed the same as his free act and deed.

         IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in Cascade County, the day and year first above written.

                                  /s/ Colleen R. Gordon
                                  -------------------------------------
                                  Notary Public
                                  Colleen R. Gordon

My Commission Expires:

7/27/2006
---------------------

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                                      ENERGY WEST, INCORPORATED

                                      /s/ John C. Allen
                                      ------------------------------------------
                                      Name:  John C. Allen
                                      Title: Interim President & CEO

STATE OF MONTANA )
                 )ss
COUNTY OF CASCADE)

     On this 24th day of October, 2003, before me the undersigned, a
notary public, in and for the county and state aforesaid, personally appeared
John Allen, to me known to be the person described in and who executed the
foregoing Separation Agreement, Release and Waiver of Claims, and acknowledged
that he executed the same on behalf of Energy West, Incorporated in his capacity
as Interim President, Energy West, Incorporated.

         IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in Cascade County, the day and year first above written.

                                  /s/ Cheryl Johnson
                                  ---------------------------------------
                                  Notary Public

My Commission Expires:

Notary Public for the State of Montana
Residing at Great Falls, Montana
My Commission Expires Febuary 21, 2006

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