Exhibit 10.12

POWER CONTRACT - ROCK ISLAND JOINT SYSTEM
 

BETWEEN
 

PUBLIC UTILITY DISTRICT NO. 1
 
OF CHELAN COUNTY
 

and
 

PUGET SOUND POWER & LIGHT COMPANY
 
TABLE OF CONTENTS
 
POWER CONTRACT - ROCK ISLAND JOINT SYSTEM
 

Section
Number
Title
 
Recitals
 
2
Term of Contract
3
Construction of System II
4
Joint System Output, Joint System Peaking Capability
and Joint System Pondage
(A)           System I
(B)           System II
(C)           Joint System Pondage
 
5
Payments by Puget to the District
(A)           System I
(B)           System II - Period Prior to Initial Date of Delivery
(C)           System II - Initial Delivery Period
(D)           System II - Interim Delivery Period
(E)           System II - Commercial Operating Period
(F)           Allocation of Operating Expenses
(G)           Allocation of Taxes and Other Charges
(H)           Debt Service Payments
(I)           Adjustment of Contract Debt Service
(J)           Computations for Partial Contract Years
 
6
Exhibits
7
Withdrawal of Power by the District
(A) System I
(B) System II
(C) System II Surplus
 

8
Payments by District
(A)           System I
(B)           System II
 
9
Advance Payment for Power
 
10
Billings
 
11
Issuance of Additional Bonds
(A)           System I
(B)           System II
(C)           General
 
12
Establishment of Use of Funds
(A)           System I
(B)           System II
(C)           Investment
 
13
Books of Account and Auditing
 
14
Reactive Power
 
15
Operation, Maintenance, Engineering and Planning
(A)           Operation
(B)           Maintenance
(C)           Engineering and Planning
(D)           Inspection, Books and Records
 
16
Character of Service
 
17
Points of Delivery
(A)           System I
(B)           System II
 
18
Use of Rocky Reach Project Facilities
 
19
Scheduling
 
20
Metering
(A)           Generator Bus
(B)           Other Metering
(C)           Reading Meters
(D)           Testing
 
21
Losses
 
22
Electric Disturbances
 
23
Puget's Right to Use System I Facilities
 
24
District's Right to Use of Transmission Facilities
(A)           Original Facilities
(B)           Added Facilities
(C)           Limitations
(D)           Alternative Facilities
 
25
Rocky Reach Downstream Replacement Power
(A)           The District
(B)           Puget
(C)           System Responsibilities
(D)           Exchanges
 
26
Joint System Operations - Arbitration
(A)           Recommendations
(B)           Notices
(C)           Procedures
(D)           Matters to be Arbitrated
(E)           Divisibility
 
27
Notices
 
28
Benefited Parties
 
29
Amendment to Contract
 
30
District's Bond Resolution and License
 
31
Liabilities; Waiver of Subrogation
(A)           Releases
(B)           Charges
(C)           Waiver
 
32
Conflict of Laws
 
33
Waiver of Default
 
34
Insurance
35
Assignment of Contract
36
Force Majeure
 
37
Supersedence of June 8, 1962 Power Contract
 
 
Exhibits
 

POWER CONTRACT - ROCK ISLAND JOINT SYSTEM
 

THIS AGREEMENT made and entered into this 19th day of June 1974, by and between
PUBLIC UTILITY DISTRICT NO. 1 OF CHELAN COUNTY, WASHINGTON (hereinafter called
the "District"), a municipal corporation organized and existing under the laws
of the State of Washington, and PUGET SOUND POWER & LIGHT COMPANY (hereinafter
called "Puget"), a corporation organized and existing under the laws of the
State of Washington;

RECITALS:
 
1.           The District is authorized under the laws of the State of
Washington to own and operate an electric public utility system or systems for
the purpose of furnishing the District and the inhabitants thereof and any other
person, including public and private corporations within or without its limits,
with electric power and energy for all uses.
2.           The District on December 20, 1955, adopted Resolution No. 1137
which resolution (i) established a plan and system for the ownership and
operation of an electric utility system known as the Columbia River-Rock Island
Hydro-Electric System, to consist of the generation and transmission facilities
and related equipment to be acquired as a separate utility system pursuant to
said resolution, and all additions, betterments and improvements to and
extensions of said facilities added to said system by resolution of the
Commission
of the District through refunding of outstanding revenue bonds of the District
issued pursuant to District Resolution No. 292, adopted by the Commission of the
District on April 23, 1951, or constructed or acquired by the District and
(ii) provided for the issuance and sale of $31,830,000 principal amount of
Columbia River-Rock Island Hydro-Electric System Revenue Bonds, Issue of 1955,
First Series.
3.           Pursuant to Resolution No. 3443 adopted on May 24, 1962, the
District issued and sold $41,425,000 principal amount of Columbia River-Rock
Island Hydro-Electric System Revenue Bonds, Issue of 1955, Second Series, for
the purpose of refunding the District's Rock Island Hydro -Electric System
Electric Revenue Bonds, Series of 1951, and for the purpose of providing for the
cost of the Dryden Development and for expenses incurred and to be incurred in
connection with development of the hydroelectric power potential of Wenatchee
River upstream from the Dryden Plant.
4.           The District, by issuance and sale of said Second Series Bonds
pursuant to said Resolution No. 3443, effected consolidation into the System as
defined in Resolution No. 1137 of (i) the generation and transmission facilities
and related properties of the Rock Island Hydro-Electric Production System, as
defined in Resolution No. 292, (ii) the electric utility properties and assets
of the Columbia River-Rock Island Hydro-Electric System, acquired pursuant to
said Resolution No. 1137, and (iii) the electric utility properties and assets
constituting the Dryden Generating Plant theretofore comprising a part of the
District's Electric System.
5.           The District and Puget were parties to a certain Power Contract
(Rock Island) dated January 6, 1956, as amended, which contract was superseded
by that certain Power Contract between the District and Puget dated June 8,
1962, as amended.
6.           The District is aware of the serious long-range power shortage in
the Pacific Northwest with the result that the District will not have an
adequate power supply in the foreseeable future unless it develops additional
power sources.  In order to provide for the foreseeable future power needs of
the District, the District has determined that expansion of the Rock Island
Project on the Columbia River is the most feasible source of additional electric
power and energy available to the District.
7.           The District intends to expand the Rock Island Project which
expansion includes adding a second powerhouse containing eight 54-MVA turbine
generator units of horizontal shaft bulb type together with other equipment and
facilities, all as more particularly set forth in Exhibit A to this contract.
8.           The District has been granted an amendment to its license by the
Federal Power Commission to expand the Rock Island Project, which license
amendment was issued under date of March 29, 1974.
9.           The District is issuing its revenue bonds in the approximate amount
of $207,500,000 pursuant to District Resolution No. 4950 adopted the 19th day of
June 1974, in order to obtain the monies presently estimated to be necessary and
sufficient, together with other available monies, to pay all costs of acquiring
and constructing the proposed expansion of the Rock Island Project.  In the
event
such monies are not sufficient to place the expansion facilities in commercial
operation and complete such expansion, the District will use its best efforts to
issue additional revenue bonds necessary and and sufficient, for such purposes.
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements
herein contained and other good and valuable considerations, the parties hereto
mutually covenent and agree as follows:
Section 1.                                Definitions.                                As
used in this contract, the following words and phrases shall have the meanings
hereinafter set forth unless the context shall clearly indicate that another
meaning is intended.
(A)           "Added Facilities" shall mean the following transmission,
substation and related facilities of System I:
(1)           Squilchuck Substation and tap line.
(2)           Coles Corner tap line.
(3)           That part of the North Wenatchee Substation rated in excess of
33,000 kVA.
(4)           That part of the Wenatchee Substation rated in excess of 45,000
kVA.
(5)           Substation, tap lines and related facilities of System I
constructed subsequent to the effective date of this contract pursuant to
provisions of Section 24(B) hereof.
(B)           "Bond Resolution" shall mean all resolutions adopted by the
Commission of the District authorizing the issuance of outstanding System I
Bonds and System II Bonds, including Refunding Bonds, and providing for the
security therefor as such resolutions may be from time to time superseded,
amended, modified, or supplemented in accordance with provisions thereof.
(C)           "Bonneville" shall mean the United States of America, Department
of the Interior, acting by and through the Bonneville Power Administrator, or
any officer or agency succeeding to the powers and functions of the Bonneville
Power Administrator as may be hereafter provided by law.
(D)           "Contract Bonds Outstanding" for any series of Bonds shall mean
the amount of said Bonds that would have been outstanding as shown in the
computation of Contract Debt Service applicable to such series.
(E)           "Contract Debt Service" with respect to any series of System II
Bonds shall mean for any Contract Year an amount equal to the amount of annual
interest and principal payments including premiums, if any, that would have been
payable by the District on such series during said Contract Year computed on the
assumptions that:
(1)           An amount of principal, if any, equal to the amount of System II
Reserve Funds and System II Working Capital provided from the proceeds of such
series would mature on the date of final maturity of such series, with such
principal amount not amortized but bearing interest only prior to the date of
final maturity:
(2)           The remaining amount of principal is assumed to be amortized on an
essentially level annual debt service basis with the amortization period to be
that specified in this contract for such series;
(3)           The coupon rates used in the computation of Contract Debt Service
requirements for bonds computed to mature in any Contract Year shall be, as
nearly as practicable, the actual coupon rates for bonds of such series maturing
in such year; provided, however, that if in any year prior to the last year of
maturity of serial bonds of such series no bonds of such series actually mature,
the coupon rates applicable to such year used in the computation of Contract
Debt Service shall be determined by interpolation from actual coupon rates;
provided, further, if the actual maturities of bonds are different from the
assumed maturities and the actual coupon rates for any bonds are thereby
affected, the coupon rates to be used in the computations of Contract Debt
Service shall be those that would have been effective if actual maturities had
been equal to assumed maturities; provided, further, however, that the amount of
Contract Debt.  Service for any series of Refunding Bonds shall not exceed the
amount of the Contract Debt Service on the series of bonds being
refunded.  Contract Debt Service on any series shall be initially computed
within ten days after the issuance, and sale of such series and such computation
shall show for each Contract Year the amount of Bonds of such series that would
have been outstanding if actual maturities had had been equal to those assumed
in such computation.
(F)           "Contract Year" shall mean the twelve-month period commencing at
0001 hours Pacific Time on July 1 of each year during the term of this contract;
provided, however, that the first Contract Year shall commence on
July 1, 1974 and the last Contract Year shall end at 2400 hours Pacific Time on
the last day of the term of this contract.
(G)           "Date of Commercial Operation" of System II shall mean the date
the District notifies Puget that it is ready to deliver power and energy from
the last of eight (8) additional generating units to be installed in System II
after each of said eight (8) units has been installed and in the opinion of the
District has been placed or is available to be placed in normal continuous
operation at not less than 90% of the capability of each such generating unit
which the District, in its opinion, expects to achieve upon completion of
construction.
(H)           "Date of Initial Financing" shall mean July 1, 1974.
(I)           "District's Electric System" shall mean the District's
distribution and transmission system as described in District Resolution No. 870
and all additions and betterments thereto and extensions thereof which have been
made prior to the date of this contract and which are made in the future,
including, without limitation, generating facilities, transmission facilities,
distribution facilities, intangible plant and general plant facilities as those
terms are used in the Uniform System of Accounts.
(J)           "District's Other Power" shall mean the amount of the District's
power flowing over Original Facilities and Added Facilities that is in excess of
the District's Squilchuck Power.
(K)           "District's Squilchuck Power" shall mean the amount of power shown
on Exhibit D hereof and flowing over Original Facilities and Added Facilities.
(L)           "District's System I Share" shall mean for any Contract Year the
decimal fraction share of System I Output and System I Peaking Capability as set
forth in column 1 of Exhibit B hereof.
(M)           "District's System II Share" shall mean for any Contract Year the
decimal fraction share of System II Output and System II Peaking Capability
taken by the District in accordance with the provisions of Section 7(B) hereof.
(N)           "Generator Bus" shall mean the point or points on the low voltage
side of the Rock Island Project transformer banks at which Joint System Output
and Joint System Peaking Capability are determined.
(O)           "Initial Date of Delivery" shall mean 0001 hours Pacific Time on
the date the District first notifies Puget that it is ready to deliver power and
energy from one or more of the generating units which shall have been installed
in System II and, in the opinion of the District, are available to be scheduled
on a continuous operating basis.
(P)           "Initial Delivery Period" shall mean the period of time beginning
on the Initial Date of Delivery and ending 0001 hours Pacific Time on the date
which is five years after the Date of Initial Financing.
(Q)           "Interim Delivery Period" shall mean the period of time, if any,
beginning on the Initial Date of Delivery or the date which is five years after
the Date of Initial Financing, whichever is later, and ending on the Date of
Commercial Operation.
(R)           "Joint System" shall mean System I and System II.
(S)           "Joint System Output" shall mean for any period of time the sum of
the following:
(1)           The amount of electric energy and reactive power capable of being
produced by the Joint System from the inflow water supply to the Rock Island
Project during such period, including test power, adjusted for the losses to the
Generator Bus, under the operating conditions existing during such period, after
deducting the amount of electric energy required for station service use and
service to Rock Island suvisors' cottages and the amount of Rocky Reach
Encroachment Power during such period;
(2)           The amount of Joint System Wanapum Encroachment Power during such
period; and
(3)           The amount of Rocky Reach Downstream Replacement Power supplied by
Puget and the District to System II during such period in accordance with
Section 25 hereof.
(T)           "Joint System Peaking Capability" shall mean at anytime the sum of
the following:
(1)           The maximum generating capability of the Joint System under the
operating conditions existing at such time after deducting the amount of
electric capacity required for station service use and service to Rock Island
supervisors' cottages and the amount of Rocky Reach Encroachment Power at such
time;
(2)           The amount of Joint System Wanapum Encroachment Power at such
time; and
(3)           The amount of Rocky Reach Downstream Replacement Power supplied by
Puget and the District to System II at such time.
(U)           "Joint System Pondage" shall mean the total usable pondage of the
Joint System.
(V)           "Joint System Wampum Encroachment Power" shall mean the electric
capacity and energy required to be delivered to the Rock Island Project by
Public Utility District No. 2 of Grant County, Washington ("Grant") as
compensation for the encroachment of the Wanapum Reservoir on the tailwater of
the Rock Island Project.
(W)           "Operating Expenses" shall mean all expenses (excluding
depreciation expenses), less credits properly related thereto, chargeable to
Operation and Maintenance Expense Accounts under the Uniform System of Accounts
and shall include costs of renewals and replacements of Minor Items of Property
as such term is used in the Uniform System of Accounts; provided, however, that
in classification of such costs of renewals and replacements, the District shall
adhere to practices generally followed by electric utilities operating like
properties, including past practices of the District.  Operating Expenses shall
not include costs of improvements and extensions and costs for renewals and
replacements of Retirement Units as the latter term is used in the Uniform
System of Accounts.
(X)           "Original Facilities" shall mean the following transmission,
substation and related facilities of System I:
(1)           McKenzie-Rocky Reach-Chelan 115-kV transmission line.
(2)           McKenzie-North Wenatchee 115-kV transmission line.
(3)           McKenzie-Summit 115-kV transmission line.
(4)           Dryden-kV tap line.
(5)           That part of the North Wenatchee Substation rated at 33,000 kVA.
(6)           That part of the Wenatchee Substation rated at 45,000 kVA.
(7)           McKenzie 115-kV Switching Station.
(Y)           "outstanding" when used with reference to System I Bonds and
System II Bonds shall have the meaning set forth in District Resolution
No. 4950.
(Z)           "Puget's System I Share" shall mean for any Contract Year the
decimal fraction share of System I Output and System I Peaking Capability made
available to Puget during such year and shall be determined by subtracting the
District's System I Share from one (1.000).
(AA)                      "Puget's System II Share" shall mean for any Contract
Year the decimal fraction share of System II Output and System II Peaking
Capability made available to Puget during such year and shall be determined by
subtracting the District's System II Share from one (1.000).
(BB)                      "Refunding Bonds" shall mean the principal amount of
bonds issued and sold by the District to provide funds in amounts necessary (but
no greater amounts than necessary) to refund, in whole or in part at any time
any one or more series of outstanding System II Bonds including all costs and
expenses of such refunding.
(CC)                      "Rock Island Project" shall mean the works, plants and
facilities of the Columbia River-Rock Island Hydro-Electric System as defined in
Resolution Nos. 1137, 3443 and 4950.
(DD)                      "Rocky Reach Downstream Replacement Power" shall mean
the electric capacity and energy which would have been delivered to the Rock
Island Project by the Rocky Reach Project or to the Rocky Reach Project by the
Rock Island Project in accordance with provisions of Section 5A of the Rocky
Reach Power Sales Contracts entered into as of November 14, 1957 as amended by
Amendment entered into as of June 1, 1968, if System II had not been
constructed.  For the purpose of this contract, Rocky Reach Downstream
Replacement Power delivered to the Rock Island Project shall be considered to be
positive and Rocky Reach Downstream Replacement Power delivered to the Rocky
Reach Project shall be considered to be negative.
(EE)                      "Rocky Reach Encroachment Power" shall mean the
electric capacity and energy delivered to the Rocky Reach Project by the Rock
Island Project as compensation for losses resulting from raising the maximum
pool at the Rock Island Project above elevation (606.9 U.S.C. & G.S. Datum)
(608.0 U.S.G.S. Datum) in accordance with provisions of Section 5A of the Rocky
Reach Power Sales Contracts entered into as of November 14, 1957, as amended by
Amendment entered into as of June 1, 1968.
(FF)           "System I" shall mean:
(1)           The generation and transmission facilities and related equipment,
all properties real, personal and mixed, all other assets of the District's
Columbia River-Rock Island Hydro-Electric System acquired and established
pursuant to the District's Resolution Nos. 1137 and 3443 with proceeds of
Columbia River-Rock
Island Hydro-Electric System Revenue Bonds, Issue of 1955, First Series and
Second Series, and all additions, betterments and improvements thereto and
extensions thereof except System II; and
(2)           The electric utility properties and assets constituting the
District's Dryden Generating Plant located on the Wenatchee River near Dryden in
Chelan County, Washington.
(GG)                      "System I Bonds" shall mean the Columbia River-Rock
Island Hydro-Electric System Revenue Bonds, Issue of 1955, First Series and
Second Series issued pursuant to the District's Resolution Nos. 1137 and 3443,
at any time outstanding, and any additional bonds or other evidences of
indebtedness hereafter issued and outstanding in accordance with the provisions
of Section 11(A) hereof.
(HH)                      "System I Output" shall mean for any period of time
the sum of the following:
(1)           The amount of electric energy and reactive power capable of being
produced by System I during such period from the inflow water supply to the Rock
Island Project if System II had not been constructed, adjusted for losses to the
Generator Bus, under operating conditions existing during such period other than
those operating conditions caused by raising the maximum pool elevation from
606.9 U.S.C. & G.S. Datum, after deducting the amount of electric energy which
would have been required for station use and service to Rock Island supervisors'
cottages if System II had not been constructed and until the Initial Date of
Delivery
or June 1, 1977, whichever is earlier, the amount of Rocky Reach Encroachment
Power delivered during such period;
(2)           The amount of System I Wanapum Encroachment Power during such
period; and
(3)           The amount of Rocky Reach Downstream Replacement Power which would
have been delivered to the Rocky Reach Project and to the Rock Island Project
during such period if System II had not been constructed.
Provided, however, that until the Initial Date of Delivery or June 1, 1977,
whichever is earlier, System I Output shall be equal to Joint System Output.
(II)           "System I Peaking Capability" shall mean at any time the sum of
the following:
(1)           Maximum generating capability of System I, which would have
existed at such time if System II had not been constructed, under operating
conditions existing at such time other than those conditions caused by raising
the maximum forebay pool elevation from 606.9 U.S.C. & G.S. Datum, after
deducting the electric capacity which would have been required for station use
and Rock Island supervisors' cottages at such time;
(2)           The amount of System I Wanapum Encroachment Power at such time;
and
(3)           The amount of Rocky Reach Replacement Power that would have been
delivered to the Rocky Reach Project and to the Rock Island Project at such time
if System II had not been constructed.
(JJ)           "System I Pondage" shall mean at any time that portion of total
pondage of the Joint System that would have been available between forebay
elevations 602.9 and 606.9 U.S.C. & G.S. Datum and usable by System I if
System II had not been constructed.
(KK)                      "System I Wanapum Encroachment Power" for any period
shall mean the amount of Joint System Wanapum Encroachment Power that would have
been received by the Rock Island Project during such period if System II had not
been constructed, provided that the total of such amounts during any calendar
week shall not exceed the amount of Joint System Wanapum Encroachment Power
actually delivered to the Rock Island Project during such week.
(LL)                      "System II" shall mean the facilities described in
Exhibit A hereto and all additions, betterments and improvements thereto and
extensions thereof.
(MM)                      "System II Bonds" shall mean:
(1)           Any outstanding electric revenue bonds issued at one time or from
time to time by the District pursuant to the Bond Resolution for the purpose of
providing funds for the payment of (a) the Cost of Construction as such term is
defined in District Resolution No. 4950 and (b) amounts necessary to provide
System II Reserve Funds; and
(2)           Any outstanding electric revenue bonds or other evidences of
indebtedness issued by the District under the Bond Resolution and in accordance
with provisions of Section 11(B) hereof.
(NN)                      "System II Output" for any period of time shall mean
the amount of electric energy and reactive power obtained by subtracting
System I Output from the Joint System Output for such period of time.
(00)           "System II Peaking Capability" shall mean at any time the amount
of electric capacity in kilowatts obtained from subtracting System I Peaking
Capability from Joint System Peaking Capability at such time.
(PP)           "System II Pondage" shall mean the quantity obtained by
subtracting System I Pondage from Joint System Pondage.
(QQ)                      "System II Reserve Account" shall mean the account
created and established by the District pursuant to provisions of the Bond
Resolution for the purpose of providing a reserve for debt service.
(RR)                      "System II Reserve and Contingency Fund" shall mean
the Columbia River-Rock Island Hydro-Electric System Expansion Reserve and
Contingency Fund created and established by District Resolution No. 4950 as a
reserve to be used in accordance with the provisions thereof.
(SS)           "System II Reserve Funds" shall mean the System II Reserve
Account and the System II Reserve and Contingency Fund.
(TT)                      "System II Revenue Account" shall mean the Revenue
Account established by District Resolution No. 4950.
(UU)                      "System II Working Capital" shall mean the amount of
funds set aside by the District in the System II Revenue Account as working
capital pursuant to provisions of the Bond Resolution.
(VV)                      "Uncontrollable Forces" shall mean any cause
reasonably beyond the control of the District including but not limited to an
act of God, fire, flood,
explosion, strike, sabotage, an act of the public enemy, civil or military
authority including court orders, injunctions, and orders of governments,
failure of equipment, or inability to obtain or ship materials or equipment,
which Uncontrollable Forces, by exercise of due diligence, the District could
not reasonably have been expected to prevent or overcome.
(WW)                      "Uniform System of Accounts" shall mean the Uniform
System of Accounts prescribed by the Federal Power Commission for Class A Public
Utilities and Licensees in effect on January 1, 1973.
(XX)                      "Wenatchee River Properties" shall mean all property
and assets acquired by the District with funds deposited in the special account
provided for in Section 6.2(6) of District Resolution No. 3443, together with
rents, income and receipts derived therefrom, and the accumulated earnings from
investment of funds deposited in said special account, except the sum of
$7,111,000, and the earnings derived therefrom subsequent to the Initial Date of
Financing.

Section 2.    Term of Contract.  This contract shall become effective on the
date of delivery by the District of the first series of System II Bonds to, and
payment therefor by the initial purchasers thereof and shall continue in full
force and effect until 2400 hours Pacific Time on June 7, 2012 or until the
Columbia River-Rock Island Hydro-Electric System Revenue Bonds, Issue of 1955,
First Series, issued by the District pursuant to Resolution No. 1137 and the
Columbia River-Rock Island Hydro-Electric System Revenue Bonds, Issue of 1955,
Second Series issued by the District pursuant to Resolution No. 3443 are paid or
provision is made for retirement thereof in accordance with said resolutions,
whichever is later; provided, however, that any unpaid or undischarged
oblication of either party to the
other party, arising under the provisions and during the term hereof then due or
accrued at the time of such termination shall continue to be due and payable
until finally paid or discharged notwithstanding the termination thereof.

Section 3.    Construction of System II.  The District will use its best efforts
to finance on a timely basis all of the Cost of Construction as that term is
defined in District Resolution No. 4950 and will diligently proceed with the
construction of System II until it is completed.  The District estimates that
the Initial Date of Delivery will be approximately August 1, 1977 and the Date
of Commercial Operation will be approximately October 1, 1978.
The District will prepare or cause to be prepared and submit to Puget monthly
reports of progress during the period of construction of System II and quarterly
reports including data as to the date of expected completion of System II and a
comparison of estimated construction time and cost with estimates made prior to
commencing construction and shall promptly advise Puget of and consult with
Puget on any substantial engineering and construction problems as they arise.
At its option and expense, Puget may maintain observers at the Rock Island
Project who shall be given full access at reasonable times to the Project and to
all plans, records or other documents under control of the District relating to
the Project.

 
Section 4.    Joint System Output, Joint System Peaking Capability and Joint
System Pondage

 
(A)           System I.   The District shall make available to Puget for any
period during each Contract Year, Puget's System I Share of System I Output and
Puget's System I Share of System I Peaking Capability for such period.
(B)           System II.   The District shall make available to Puget for any
period during each Contract Year Puget's System II Share of System II Output and
Puget's System II Share of System II Peaking Capability for such period.
(C)           Joint System Pondage.
(1)           During any period Puget shall be entitled to use a portion of the
Joint System Pondage for regulation of Puget's System I Share of System I Output
and Puget's System II Share of System II Output to meet its hourly load
requirements during such period.  The portion of Joint System Pondage available
to Puget shall be equal to the sum of (i) System I Pondage multiplied by Puget's
System I Share and (ii) System II Pondage multiplied by Puget's System II Share.
(2)           During any period the District shall be entitled to use a portion
of the Joint System Pondage for regulation of the District's System I Share of
System I Output and the District's System II Share of System II Output to meet
its hourly load requirements during such period.  The portion of Joint System
Pondage available to the District shall be equal to the sum of (i) System I
Pondage multiplied by the District's System I Share and (ii) System II Pondage
multiplied by the District's System II Share.

Section 5.   Payments by Puget to the District.
(A)           System I.   Puget agrees to pay to the District, in monthly
installments, for Puget's System I Share of System I Output and System I Peaking
Capability made available to Puget pursuant to the provisions of Section 4(A)
hereof, annual amounts for each Contract Year equal to the sum of the following
items of cost incurred or paid by the District for such contract year in
connection with System I whether or not the operation of System I is
interrupted, suspended, or interfered with in whole or in part for any cause
whatsoever during the term of this contract or during any portion of said time,
to wit:
(1)           That portion, allocated to System I pursuant to provisions of
Section 5(F) hereof, of Operating Expenses of the Joint System;
(2)           That portion, allocated to System I pursuant to the provisions of
Section 5(G) hereof, of (i) governmental taxes, assessments or other similar
charges, or payments in lieu thereof, lawfully imposed upon the District due to
the District's ownership, operation or sale of power from the Joint System and
(ii) any amounts paid by the District to any governmental agency for fire
protection for the Joint System;
(3)           An amount equal to the amount annually required to pay principal
of and interest on, and premiums, if any, which are required to be paid on
System I Bonds;
(4)           The amount of the bonds issued to the Fiscal Agent of the District
pursuant to District Resolution No. 1138 that mature during such Contract Year;
(5)           An amount equal to 11.675% of the payments specified in
paragraph (3) of this Section 5(A) to be paid into the System I Reserve and
Contingency Fund;
(6)           The amounts required, if any, for necessary renewals and
replacements to System I which are in excess of monies available in the System I
Reserve and Contingency Fund plus proceeds from any applicable insurance and
plus proceeds from sale of additional bonds or proceeds of other financing or
both as provided in Section 11(A) hereof.
(7)           An amount equal to $31,250 annually for the period ending at
2400 hours Pacific Time on January 5, 2004;
(8)           All other costs, less credits properly related thereto, not
included in the foregoing paragraphs (1) through (7) of this Section 5(A)
associated with the ownership, operation and maintenance of and renewals and
replacements to System I, including those essential and necessary to effect
delivery of System I Output and System I Peaking Capability to the Points of
Delivery to Puget and the Points of Delivery to the District as herein
specified;
(9)           Such additional amounts, if any, as shall be mutually agreed upon
between the parties.
(B)           System II - Period Prior to Initial Date of Delivery.  All
System II costs prior to the Initial Date of Delivery shall be charged to cost
of construction of System II.
(C)           System II - Initial Delivery Period.  During the Initial Delivery
Period, Puget agrees to pay to the District, in monthly installments, for
Puget's System II Share of System II Output and System II Peaking Capability
made available to Puget pursuant to the provisions of Section 4(B) of this
contract, annual amounts for each Contract Year equal to the sum of the
following amounts for such Contract Year applicable to System II:
(1)           That portion of the amount of Operating Expenses of the Joint
System which is in excess of the amount of Operating Expenses that System I
would have incurred had System II not been constructed.
(2)           That portion, allocated to System II pursuant to provisions of
Section 5(G) hereof, of (i) governmental taxes, assessments or other similar
charges or payments in lieu thereof, lawfully imposed upon the District due to
the District's ownership, operation or sale of power from the Joint System, and
(ii) any amounts paid by the District to any governmental agency for fire
protection for the Joint System;
(3)           Such additional amounts, if any, applicable to System II as shall
be mutually agreed upon between the parties hereto.
(D)           System II - Interim Delivery Period.  During the Interim Delivery
Period, Puget agrees to pay to the District in monthly installments, for Puget's
System II Share of System II Output and System II Peaking Capability made
available to Puget pursuant to the provisions of Section 4(B) of this contract,
annual amounts for each Contract Year equal to the sum of the following amounts
for such Contract Year applicable to System II multiplied by Puget's System II
Share:
(1)           That portion of the amount of Operating Expenses of the Joint
System which is in excess of the amount of Operating Expenses that System I
would have incurred had System II not been constructed.
(2)           That portion, allocated to System II pursuant to provisions of
Section 5(G) hereof, of (i) governmental taxes, assessments or other similar
charges or payments in lieu thereof, lawfully imposed upon the District due to
the District's ownership, operation or sale of power from the Joint System and
(ii) any amounts paid by the District to any governmental agency for fire
protection for the Joint System;
(3)           The amount obtained by multiplying the following costs by the
lesser of one (1) or the decimal fraction determined by dividing System II
Peaking Capability of the generating units of System II that are, in the opinion
of the District, ready and available to be scheduled on a continuous operating
basis, by 414,000 kilowatts.  For the purpose of this paragraph (3) the
System II Peaking Capability shall be computed on the assumption that (i) all
System I generating units are in full operation, (ii) inflow is 225,000 cubic
feet
per second, (iii) the Rock Island forebay pool elevation is 613.0 feet above
mean sea level U.S.C. & G.S. Datum, (iv) the Wanapum forebay pool elevation is
571.5 feet above mean sea level U.S.C.& G.S. Datum, (v) Rocky Reach releases
total 225,000 cubic feet per second and (vi) the generating units of System II
that are available for operation are operating at 0.95 power factor.
(a)           For each series of System II Bonds issued prior to the date the
Construction Engineer files the report pursuant to the provisions of Section 8.6
of District Resolution No. 4950, an amount equal to Contract Debt Service for
such series less an amount equal to the product of the amount of System II
Reserve Funds funded from proceeds of such series multiplied by the interest
rate assumed for such System II Reserve Funds in such Contract Debt
Service.  The amortization period of such series for such Contract Debt Service
shall be the lesser of 50 years or the number of years from the date of delivery
of and payment for such series to the date which is 55 years after the Date of
Initial Financing;
(b)           For each series of System II Bonds issued to finance renewals,
replacements and additions to System II in accordance with paragraph (1) of
Section 11(B) hereof, an amount equal to the Contract Debt Service for such
series less an amount equal to the product of the amount of System II Reserve
Funds funded from proceeds of such series multiplied by the interest rate
assumed for such System II Reserve Funds in such Contract Debt Service.  The
amortization period of each series to be used in computing such Contract Debt
Service shall be the number of years equal to the lesser of 50 years or the
estimated service life of the facility which is acquired or constructed from
proceeds of such series;
(c)           In the event any of the series of bonds referred to in the
foregoing subparagraphs (a) and (b) of this paragraph (3) or this
subparagraph (c) are refunded in accordance with paragraph (2) of Section 11(B)
hereof, the annual amounts applicable to each such series of Refunding Bonds
shall be equal to the lesser of the Contract Debt Service applicable to the
bonds being refunded or the Contract Debt Service applicable to such series,
less in each case an amount equal to the product of the amount of System II
Reserve Funds funded from proceeds of such series multiplied by the interest
rate assumed for such System II Reserve Funds in such Contract Debt
Service.  The amortization period of such series to be used in computing such
Contract Debt Service shall be the amortization period for the bond issue being
refunded by such series less the number of years between the date of delivery of
and payment for such series of Refunding Bonds and the later of the date of
delivery of and payment for such bonds being refunded or the date which is five
years after the Date of Initial Financing.
(4)           Such additional amounts, if any, applicable to System II, as shall
be mutually agreed upon between the parties hereto;
(5)           From the aggregate of the foregoing amounts there shall be
deducted any credits applicable to System II not credited to the Construction
Fund pursuant to the provisions of District Resolution No. 4950 or not deducted
pursuant to paragraph (1) of this Section 4(D) by reason of receipt of any
revenues and other income applicable to System II and derived from sources other
than direct sale of power from System II.
(6)           For the purpose of the foregoing paragraph (3) of this
Section 4(D) costs and payments shall be calculated and charged as if they had
accrued on a daily basis.
(E)           System II - Commercial Operating Period.  Beginning on the later
of the end of the Initial Delivery Period or the Date of Commercial Operation
Puget agrees to pay to the District in monthly installments for Puget's
System II Share of System II Output and System II Peaking Capability made
available to Puget pursuant to the provisions of Section 4(B) of this contract
annual amounts for each Contract Year equal to the sum of the following amounts
for such Contract Year applicable to System II multiplied by Puget's System II
Share, whether or not operation of System II is interrupted, suspended or
interfered with in while or in part for any cause whatsoever during such
Contract Year.
(1)           That portion allocated to System II pursuant to provisions of
Section 5(F) hereof of Operating Expenses of the Joint System;
(2)           That portion allocated to System II pursuant to provisions of
Section 5(G) hereof, of (i) governmental taxes, assessments or other similar
charges or payments in lieu thereof lawfully imposed upon the District due to
the District's ownership, operation or sale of power from the Joint System and
(ii) any amounts paid by the District to any governmental agency for fire
protection for the Joint System;
(3)           For each series of outstanding System II Bonds issued prior to the
date the Construction Engineer files the report pursuant to the provisions of
Section 8.6 of District Resolution No. 4950 an amount equal to the Contract Debt
Service for such series.  The amortization period of such
series to be used in computing such Contract Debt Service shall be the lesser of
50 years or the number of years from the date of delivery of and payment for
such series to the date which is 55 years after the Date of Initial Financing.
(4)           For each series of outstanding System II Bonds issued to finance
renewals, replacements and additions to System II in accordance with provisions
of paragraph (1) of Section 11(B) hereof, an amount equal to Contract Debt
Service for such series.  The amortization period of such series to be used in
computing such Contract Debt Service shall be the lesser of 50 years or the
estimated service life of the facility which is acquired or constructed from
proceeds of such series.
(5)           In the event any of the series of outstanding bonds referred to in
paragraphs (3) or (4) of this Section 5(E) or this paragraph (5) are refunded in
accordance with paragraphs (2) and (3) of Section 11(B) hereof, the annual
amounts applicable to each such series of Refunding Bonds shall be equal to the
lesser of Contract Debt Service applicable to the bonds being refunded or
Contract Debt Service applicable to such series.  The amortization period of
such series to be used in computing such Contract Debt Service shall be the
amortization period for the bond issue being refunded by such series less the
number of years between the date of delivery of and payment for such series of
Refunding Bonds and the later of the date of delivery of and payment for such
bonds being refunded or the date which is five years after the Date of Initial
Financing.
(6)           An amount equal to 10% of the amounts specified in paragraphs (3),
(4) and (5) of this Section 5(E);
(7)           Amounts required, if any, for necessary renewals and replacements
which are in excess of monies available in the System II Reserve and Contingency
Fund plus proceeds from any applicable insurance and plus proceeds from the sale
of additional System II Bonds or proceeds of additional financing or both in
accordance with paragraph (1) of Section 11(B) hereof;
(8)           All other costs, less credits properly related thereto and
excluding debt service costs on System II Bonds, not included in the foregoing
paragraphs (1), (2), (6) and (7) of this Section 5(E) associated with ownership,
operation and maintenance of System II and renewals and replacements to
System II, including those essential and necessary to effect delivery of
System II Output to System II Points of Delivery as herein specified;
(9)           Such additional amounts, if any, applicable to System II as shall
be mutually agreed upon between the parties hereto; and
(10)           From the aggregate of the foregoing amounts, there shall be
deducted any revenue or income of System II properly creditable to Account
Nos. 451, 453, 454, 455 and 456 and 415, 416, 417, 418, 419 and 421 of the
Uniform System of Accounts excluding (i) amounts properly credited to the
Construction Fund pursuant to the provisions of District
Resolution No. 4950 and (ii) gain on purchase of System II Bonds.
(F)           Allocation of Operating Expenses.  For the purpose of determining
the Operating Expenses of System I and System II to be included in costs
pursuant to paragraph (1) of Section 5(A) and paragraph (1) of Section 5(E), the
following shall apply:
(1)           For the period beginning on the Date of Commercial Operation and
ending on the date of termination of this contract (i) 89% of the Operating
Expenses of the Joint System chargeable to Account Nos. 535, 537, 538 and 539 of
the Uniform System of Accounts shall be charged to System I and 11% shall be
charged to System II, and (ii) all other Operating Expenses of the Joint System
shall be charged to the System for which the expense was incurred;
(2)           It is the intent of this Section 5(F) that Operating Expenses of
the Joint System chargeable to System I be in the same amount as the Operating
Expenses of System I would have been if System II had not been constructed.  The
allocation of charges provided for in this Section 5(F) shall be reviewed at the
request of either party to the other not more frequently than once each Contract
Year, and, adjusted, if necessary, to conform to this intent.  Unless otherwise
agreed by the parties to this contract, no such changes shall be effective for
any period more than 6 months prior to the date on which the review request was
made.
(G)           Allocation of Taxes and Other Charges.  For the purpose of
determining costs of System I and System II pursuant to paragraph (2) of
Sections 5(A),
5(C), 5(D) and 5(E), the portion of governmental taxes, assessments or other
similar charges, or payments in lieu thereof lawfully imposed upon the District
due to the District's ownership, operation or sale of power from the Joint
System and any amounts paid by the District to any governmental agency for fire
protection for the Joint System that is allocated to System II shall be that
portion which will result in the amount of such costs of System I being the same
as it would have been if System II had not been constructed.  The balance of
such costs of the Joint System shall be charged to System I.  All such costs
properly chargeable to Construction Costs of System II as defined in District
Resolution No. 4950 shall not be charged to taxes and other charges of the Joint
System for the purpose of computing Puget's annual payments hereunder
(H)           Debt Service Payments.
(1)           That portion of the amounts payable by Puget to the District for
each Contract Year attributable to the amounts specified in paragraph (3) of
Section 5(A) and paragraphs (3), (4) and (5) of Section 5(E) shall be paid in
substantially equal monthly installments on or before the 20th day of each
calendar month prior to billing for such month as advance payments on account of
the bills to be submitted by the District pursuant to Section 10 hereof.  That
portion of the amounts payable by Puget to the District attributable to the
amounts specified in paragraph (3) of Section 5(D) shall be paid on or before
the 20th day of each calendar month prior to billing for such month as similar
advance payments.
(2)           In the event in any Contract Year that portion of the amounts
payable by Puget to the District for such Contract Year attributable to the
amounts specified in paragraphs (3) and (4) of Section 5(E) hereof ("First
Amount") is less than the product obtained by multiplying Puget's System II
Share by the District's actual payments for principal and interest for System II
Bonds for such Contract Year ("Second Amount") then Puget agrees to pay the
District the difference between the First Amount and the Second Amount.
(3)           Notwithstanding any other provision of this contract, it is not
intended that Puget by this contract assumes any obligation or liability as
guarantor, endorser, surety or otherwise with respect to System I Bonds,
System II Bonds or other securities issued by the District; provided, however,
that Puget agrees that it will not sell, dispose of or otherwise utilize the
Joint System Output and Joint System Peaking Capability in any way that would
jeopardize the federal tax exempt status, pursuant to Internal Revenue Service
Tax Ruling T:I:I:2:3 dated July 7, 1972, of those System II Bonds issued prior
to the date that the Construction Engineer files the report pursuant to the
provisions of Section 8.6 of District Resolution No. 4950, or, that would in any
way jeopardize the federal tax exempt status of any other series of System II
Bonds under federal laws and regulations that are not more restrictive with
respect to the sale, disposition or utilization of Joint System Output and Joint
System Peaking Capability than those existing on July 7, 1972.
(I)           Adjustment of Contract Debt Service.  Notwithstanding the
provisions of Sections 5(D) and 5(E), if the proceeds from the issuance of any
series of Bonds exceeds the amounts required for the purposes for which such
series was issued, the amount of such excess shall be used to retire, by
purchase or call, Bonds in advance of maturity and Contract Debt Service and
Contract Bonds Outstanding applicable to such series shall be reduced to reflect
such retirement.
In the event that any Bonds are purchased by the District at a discount either
from the Sinking Fund established in the Bond Resolution or otherwise the amount
of Contract Debt Service and Contract Bonds Outstanding shall be appropriately
reduced to reflect such discount.
(J)           Computations for Partial Contract Years.  For the purposes of
determining the amounts described in Section 5(D) and Section 5(E) hereof until
the end of the Contract Year in which the Date of Commercial Operation occurs
and for the last Contract Year hereof such amounts shall be deemed to have
accrued on a daily basis and with respect to the amounts described in
Section 5(D) hereof the applicable proportion thereof shall be determined from
time to time as additional generating units are, in the opinion of the District,
ready and available to be scheduled on a continuous operating basis.

Section 6.   Exhibits.  Exhibits A, B, C, D and E are by this reference
incorporated herein and made a part of this contract as fully as though set
forth verbatim in the body of this contract.

Section 7.   Withdrawal of Power by the District.
(A)           System I.   The District shall take from System I the District's
System I Share of System I Output and System I Peaking Capability during each
Contract Year.
(B)           System II.   The District reserves the right to withdraw from
System II during each Contract Year up to fifty percent (50%) of System II
Output and System II Peaking Capability for the purpose of furnishing the
District and the inhabitants of Chelan County, including public and private
corporations, with electric current for all uses for ultimate utilization
therein, and for supplying electric current for ultimate use in Townships 26 and
27 North, Range 23 E.W.M., Douglas County, Washington, and in the vicinity of
Stevens Pass in King County, Washington and in the vicinity of Colockum Pass in
Kittitas County, Washington and In the Antoine Valley in Okanogan County,
Washington; provided, that (i) the District shall give five years advance
written notice of such withdrawal, (ii) no such notice shall be given which will
provide for withdrawal of System II Output and System II Peaking Capability
prior to the Contract Year commencing July 1, 2000, (iii) the amounts withdrawn
pursuant to the first such notice shall not exceed ten percent (10%) of
System II Output and System II Peaking Capability, (iv) no such notice shall be
given pursuant to which the amounts withdrawn by the District for any Contract
Year will exceed the amounts withdrawn by the District for the immediately
preceding Contract Year by more than ten percent (10%) of System II Output and
System II Peaking Capability, and (v) each withdrawal by the District of a share
of System II Output shall be accompanied by an equal withdrawal of System II
Peaking Capability.
(C)           System II Surplus.  Any portion of System II Output and System II
Peaking Capability withdrawn by the District pursuant to Section 7(B) which is
surplus to the requirements of the District for the purposes described in
Section 7(B), shall first be offered for sale to Puget at the same cost as Puget
would have been required to pay for such portion of System II Output and
System II Peaking Capability if it had not been withdrawn and if not so
purchased by Puget may be disposed of as the District shall determine,
notwithstanding the provisions of Section 7(B) above.

Section 8.   Payments by District.
(A)           System I.
(1)           The District agrees to pay to Puget monthly installments, for
System I Output and System I Peaking Capability made available to the District,
annual amounts for each Contract Year calculated by multiplying the decimal
fraction shown on Column 1 of Exhibit C for each Contract Year by the total of
the following:  (i) the total amount of the annual cost of System I chargeable
to Puget in accordance with Section 5(A) hereof (without reducing such amount
for any credit pursuant to the provisions of Section 9 hereof), (ii) less the
amount specified in paragraph (7) of Section 5(A) and (iii) less the amount of
payment to Puget by the District in accordance with paragraph (3) of this
Section 8(A), whether or not the operation of System I is interrupted, suspended
or interfered with in whole or in part for any cause whatsoever during the term
of this Contract or during any portion of said term.
(2)           Puget shall have no right, interest or claim to the Wenatchee
River Properties or to the rents, income, receipts or proceeds of any sale or
disposition thereof.  In the event monies derived from the Wenatchee River
Properties are used to pay any portion of System I costs or are deposited in or
used in connection with any fund maintained for System I, thereby reducing
System I costs, the full benefit thereof shall be reflected in a reduction in
the District's share of System I costs.
(3)           The District also agrees to pay to Puget each Contract Year in
monthly installments an amount equal to the sum of the following amounts for
such Contract Year:
(a)           Revenues or income of System I properly creditable to Accounts
451, 453, 454, 455 and 456, inclusive, or to Accounts 415, 416, 417, 418, 419
and 421, inclusive, of the Uniform System of Accounts, excluding (i) revenues
from investment of monies in the Bond Fund and in the Reserve and Contingency
Fund established pursuant to District Resolution Nos: 1137 and 3443, (ii) rents,
income and receipts of Wenatchee River Properties and (iii) gain on purchase of
System I Bonds;
(b)           Revenues received by the District from sales of power and energy
to serve Rock Island Project supervisors' cottages;
(c)           All costs and expenses of the Wenatchee River Properties including
renewals and replacements, if any, or such properties; and
(d)           Governmental taxes, assessments or other similar charges or
payments in lieu thereof lawfully imposed upon the District due to District's
ownership or operation of the Wenatchee River Properties and any amounts paid by
the District to any governmental agency for fire protection for the Wenatchee
River Properties.
(4)           Should the District from time to time require, from one or more of
the District's Points of Delivery connected to that portion of the Joint
System's 115-kV transmission facilities extending from the District's McKenzie
switching station to Stevens Pass Summit, delivery of Squilchuck Power in excess
of 20,000 kilowatts of coincidental clock-hour integrated demand, the District
shall:
(a)           Pay to Puget from funds other than funds of the Joint System the
amount of any increased cost to Puget relating to transmission of power and
energy from the Joint System caused by the District's taking in excess of said
20,000 kilowatts;
(b)           Give Puget not less than eighteen (18) months prior written notice
of the District's intention to take in excess of said 20,000 kilowatts; and
(c)           Consult with Puget in advance on any changes in transmission
system operating arrangements that may be thereby required in order to minimize
the effect on Puget's system of the District's taking of such excess power and
energy.
(5)           For use by the District of each Added Facility, the District also
agrees to pay to Puget in monthly installments annual amounts for each Contract
Year equal to the product of the following:
(a)           The amount of the District's Other Power at the time of the
District's Electric System peak, divided by the total of (i) the amount of the
District's Squilchuck Power and (ii) the amount of the District's Other Power;
and
(b)           An amount determined by multiplying the total investment of
System I in each Added Facility by 0.085.
(6)           The District covenants and agrees that it will establish, maintain
and collect rates or charges for power and energy taken by the District from
System I and sold or delivered to customers of the District other than Puget,
including other systems of the District, which shall be adequate to provide
revenues sufficient to enable the District to pay all amounts payable by the
District to Puget as provided in this Section 8(A) and any other obligations
payable from said revenues as the same severally become due and payable, and
that all such revenues will be segregated, deposited and held separate and apart
from all other revenues of the District arising out of the ownership of electric
public utility properties other than System I and used only for System I
purposes.
(B)           System II.  The District agrees to pay into the Revenue Fund to
the credit of the System II Revenue Account in monthly installments, annual
amounts equal to all of the District's annual costs associated with ownership,
operation and maintenance of, and renewals and replacements to System II,
including those essential and necessary to effect delivery of System II Output
and System II Peaking Capability to the System II Points of Delivery as herein
specified, not required to be paid by Puget under the provisions of Section 5 of
this contract, including in such annual cost an amount to be paid into the
System II Reserve and Contingency Fund equal to payments required to be made by
Puget in accordance with provisions of paragraphs (6) and (7) of Section 5(E)
hereof multiplied by the decimal fraction determined by dividing the District's
System II Share by Puget's System II Share, whether or not operation of
System II is interrupted, suspended or interferred with in whole or in part for
any cause whatsoever during such Contract Year.

Section 9.   Advance Payment for Power.  The amount of advance payment by Puget
for purchase of power credited to Puget on the District's books as of the
effective date of this contract in accordance with Section 8 of the Power
Contract dated June 8, 1962 between the District and Puget, will be carried
forward on said books.  The District agrees to credit against the amount
annually payable by Puget as provided in Section 5(A) hereof an amount annually
equal to $31,250 computed and credited monthly until 2400 hours Pacific Time
January 5, 2004, or until such time as the credit for advance payment for power
has been reduced to zero.

Section 10.   Billings.  Billing for sums due the District from Puget in
accordance with provisions of this contract shall be rendered monthly by the
District upon an estimated basis for the preceding month and shall be paid by
Puget at the office of the District in Wenatchee, Washington within twelve
(12) days after the date of the bill.  For practical purposes, but without
changing any obligations of the parties hereto under this contract, the District
will render net bills to Puget in order to facilitate settlement under Sections
5 and 8 of this contract, and amounts due Puget from the District in accordance
with the provisions of this contract shall be computed monthly upon an estimated
basis for the preceding month and shall be offset against amounts due to the
District from Puget.
Each party shall submit to the other party such supporting data with regard to
all bills under this contract as are reasonably necessary to enable the auditor
or financial officer of such other party to effect proper accounting thereof.
A final accounting of all transactions in each calendar year shall be rendered
to Puget by the District, and to the District by Puget, on or before May 15 of
the succeeding year.  Any balance due by either party to the other shall be paid
within thirty (30) days from said May 15.
If payment of any bill rendered by either party to the other is not made in full
on or before the close of business on the thirtieth (30th) day after the date of
the bill, or if payment of any sum due in advance of billing is not paid when
due as provided in this contract, a delayed-payment charge of two percent (2%),
which shall be in addition to interest automatically accruing at the rate of six
percent (6%) per annum of the unpaid amount of the bill, will be made (except
that in case of a bona fide dispute as to the correct amount of the bill, the
delayed-payment charge shall be applicable only to the portion thereof
admittedly due and not paid), provided, however, that such late payment charge
shall not be assessed unless payment is not received on the first banking day
following the date the District has notified Puget by telephone that payment
when due has not been received.
Whenever a bill by either party to the other remains unpaid subsequent to the
sixtieth (60th) day after the date of the bill (except as to such portion
thereof which may in good faith be disputed), or whenever any amounts payable in
advance of billing shall remain unpaid subsequent to the sixtieth (60th) day
after such amount is due and payable as provided in this contract, the party to
whom such bill or amount is payable may, thereafter upon giving thirty (30) days
advance notice in writing, discontinue service to the other party until such
bill is paid.
No such discontinuance of service shall affect either party's liability for any
amounts accrued prior thereto, nor be deemed to waive any right to damages.  If
at any time service is discontinued to Puget as provided in this Section 10,
Puget agrees that it will nevertheless continue to make the payments required to
be paid by it to the District as though service had not been discontinued.  In
any suit or action by either party against the other, for breach of this
contract or for recovery of any sums payable to the other party under this
contract, the prevailing party shall be entitled to recover reasonable
attorney's fees to be fixed by the Court.
Remittances received by mail will be accepted without assessment of the two
percent (2%) delayed-payment charge or interest, provided the postmark indicates
payment was mailed on or before the thirtieth (30th) day after
the date of the bill or the due date of sums payable in advance of billing.  If
the thirtieth (30th) day after the date of the bill or the due date of sums
payable in advance of billing is a Sunday or a Holiday, the next following
business day shall be the last day on which payment can be made without addition
of interest and the delayed-payment charge.
If a bill from the District to Puget remains unpaid subsequent to the 150th day
after the date of the bill (except as to such portion which may in good faith be
disputed), or whenever any amounts payable in advance of billing remain unpaid
subsequent to the 150th day after such amount is due and payable as provided in
this contract the District may, upon giving 30 days advance notice in writing,
terminate this contract and Puget's rights hereunder unless Puget pays the bill
or amounts payable in advance specified in such notice within said 30-day
period.
If Puget fails to perform any of its obligations under this contract other than
its obligations to make payments when due, the District may, upon giving 30 days
advance notice in writing of such default, terminate this contract and Puget's
rights hereunder unless Puget corrects such default within the 30-day period, or
if the default is such that is cannot be corrected within 30 days, corrects such
default within a reasonable period of time.
For the purpose of this Section 10, the "date of the bill" shall mean the date
the bill was mailed, or if delivered by any other method, the date actually
delivered.

Section 11.                                Issuance of Additional Bonds.
(A)           System I.
(1)           The District agrees that should the cost to the District in
connection with any major loss or damage or major renewals of or replacements to
System I or any major additions, improvements and betterments or modifications
required by any governmental agency having jurisdiction to System I be in excess
of monies then in System I Reserve and Contingency Fund plus proceeds of
insurance policies, if any, covering such loss or damage, the District will,
unless an alternative method of financing is mutually agreed upon, issue and
sell additional bonds payable from the revenues of System I to pay that portion
of such costs, including necessary reserves, which exceed the sum of
(a) proceeds, if any, of insurance policies and (b) monies then in the System I
Reserve and Contingency Fund, provided that the District can then legally issue
such bonds and that such bonds can be marketed.  If it is necessary to issue and
sell additional bonds under the above described circumstances, the District
shall take all reasonable steps to establish the legality of and to sell such
bonds payable from the revenues of System I and on a parity with System II
Bonds.  The District shall fix the maturities of such bonds in such amounts and
at such times that will result in total annual payments for interest and
principal being approximately equal during the amortization period of the
bonds.  For the purpose of this Section 11(A), monies in System I Reserve and
Contingency Fund shall not include amounts transferable from the Reserve Account
in the System I Bond
Fund.  As used in this Section 11(A) and in Section 11(B) hereof the term "bond"
or "bonds" shall mean bonds or other evidences of indebtedness or both.
(2)           Puget agrees that the District shall have the right in the future
to refund System I Bonds in order to effect cost savings and other policy
objectives of the District, and agrees that it will negotiate in good faith
necessary modifications to this contract in order to accomplish such refunding;
provided that the refunding does not (i) result in an increase in the net annual
payments required to be made by Puget under this contract, or (ii) result in an
increase in the cost of power and energy to Puget from System I or
(iii) prejudice Puget's right and interests with respect to the System I Revenue
Fund, Bond Fund and Reserve and Contingency Fund as established pursuant to
Resolution Nos. 1137 and 3443.
(B)           System II.
(1)           The District agrees that should the cost to the District in
connection with any major loss or damage or major renewals of or replacements to
System II or any major additions, improvements and betterments or modifications
required by order of any governmental agency having jurisdiction to System II be
in excess of monies then in System II Reserve and Contingency Fund plus the
proceeds from insurance policies, if any, covering such loss or damage, the
District will, unless an alternative method of financing is mutually agreed
upon, issue additional bonds, payable from the revenues of System II on a parity
with
the System II Bonds, to pay that portion of such costs, including necessary
reserves, which exceed the proceeds, if any, of insurance policies, provided
that the District can then legally issue such bonds and that such bonds can be
marketed.  The District shall take all reasonable steps to establish the
legality of and to sell such bonds.
(2)           The District agrees that it will use its best efforts to issue and
sell during the term of this contract one or more series of Refunding Bonds to
refund or Advance Refund in whole or in part any one or more series of System II
Bonds in order to obtain the optimum amounts of reductions in Contract Debt
Service and in cost to the District and Puget for System II Output and System II
Peaking Capability to the extent feasible and practicable.
If the District shall Advance Refund in whole or in part any series of System II
Bonds, the District shall prepare a table similar to the table of Contract Bonds
Outstanding applicable to the Advance Refunding Bonds but based on the
assumption that the District would not Advance Refund such Bonds but would
refund them on the first call date of such series at the same interest rate and
costs of refunding as the interest rate and costs of refunding applicable to the
Advance Refunding Bonds.  Puget's payments under Section 5(B) hereof during the
Contract Year beginning July 1, 2000 and each Contract Year thereafter during
the remainder of
the term of this Contract shall be increased by an amount equal to the amount
required to pay interest and principal on an amount of bonds equal to the
difference between the computed amount of bonds that would be outstanding on
June 30, 2012 as shown in such table and Contract Bonds Outstanding on June 30,
2012 for such series.  Such increased amount shall be computed based on the
following assumptions:
(a)           The interest rate on the bonds shall be the average interest rate
of the Advance Refunding Bonds.
(b)           The bonds shall be retired over a 12-year period.
(c)           The sum of interest and principal payments for each year during
such 12-year period shall be approximately equal.
For the purpose of this paragraph (2) the term Advance Refund shall mean the
proceedings adopted and action taken to refund in whole or in part any one or
more series of System II Bonds in advance of the first call date of such
System II Bonds by defeasing such System II Bonds at the time of such advance
refunding through the issuance of Refunding Bonds.  The Refunding Bonds so
issued are referred to in this paragraph (2) and paragraph (3) as Advance
Refunding Bonds.
If the District shall refund or Advance Refund less than the whole amount of any
series of System II Bonds, an appropriate adjustment shall be made in the amount
of Contract Debt Service and Contract Bonds Outstanding applicable to the series
of Bonds being partially refunded to reflect the effect of such refunding.
(3)           Notwithstanding the other provisions of this Section 11(B) the
District reserves the right to issue Refunding Bonds other than Advance
Refunding Bonds to refund in whole any one or more of the series of System II
Bonds at any time prior to maturity thereof, provided that such refunding shall
not result in (i) an increase in any Contract Year in the net annual payments
required to be made by Puget under this contract, or (ii) an increase in the
cost of power and energy to Puget from System II.  For the purposes of computing
Contract Debt Service on each series of such Refunding Bonds, the amount of
Bonds in such series shall not exceed the amount of Contract Bonds Outstanding
applicable to each series of Bonds being refunded, plus the costs of such
refunding, including in such costs the discount, if any, and deducting from such
costs the premium, if any, on the Refunding Bonds.
(C)           General.  The District, in issuing Refunding Bonds shall act
prudently and shall use its best efforts to issue such bonds at the lowest
practicable costs consistent with the District's policy objectives sought to be
achieved by such refunding.

Section 12.   Establishment and Use of Funds.
(A)           System I.
(1)           The District agrees that it will maintain during the term of this
contract the Revenue Fund created and established by District Resolution
No. 1137 and the provisions of said Resolution 1137 applicable to the Revenue
Fund are incorporated herein by reference.  The District further agrees that it
will pay into the Revenue Fund as promptly as practicable after receipt thereof,
all income, revenues, receipts and profits derived by the District through the
ownership and operation of the Joint System, including all amounts received from
Puget and the District pursuant to the provisions of Sections 5 and 8 hereof,
and all other monies required to be deposited in the Revenue Fund pursuant to
District Resolution No. 1137 and the Bond Resolution, other than the amounts
expressly required or permitted by District Resolution Nos. 1137 and 3443 and
the Bond Resolution to be deposited in any other fund.
(2)           The District agrees that it will maintain the System I Bond Fund
created and established by Resolution No. 1137, so long as the System I Bonds
are outstanding and unpaid, and that it will transfer monthly from the Revenue
Fund to said Fund the amounts received from Puget pursuant to the provisions of
paragraph (3) of Section 5(A) hereof.
(3)           The District agrees that it will maintain during the term of this
contract the System I Reserve and Contingency Fund created and established by
Resolution No. 1137, into which will be transferred from the proceeds of the
issuance of the first series of System II Bonds an
amount sufficient as of the Date of Initial Financing to increase said Fund to
$2,928,735.  The District agrees that it will transfer monthly from the Revenue
Fund to the System I Reserve and Contingency Fund the amounts received from
Puget pursuant to the provisions of paragraphs (5) and (6) of Section 5(A)
hereof.  Monies in the System I Reserve and Contingency Fund may be used solely
for the purposes of:
(a)           Making up any deficiency which may occur in the Bond Fund of
System I;
(b)           Paying the cost of renewals to and replacements of System I;
(c)           Paying extraordinary operation and maintenance costs of System I;
(d)           Paying the cost of extensions of and betterments to the System to
the extent of not more than $25,000 in any calendar year, except for the
acquisition and construction of extensions of and betterments to System I as
provided for in Sections 23 and 24(B) of this contract, without the mutual
agreement of the parties, and to any extent with such agreement, and
(e)           Paying the cost of renewals to, replacements of, extensions of and
betterments to System II to the extent that proceeds from sale of System II
surplus property or salvage are deposited in the System I Reserve and
Contingency Fund.
Whenever the value of cash and investments in the System I Reserve and
Contingency Fund exceeds 3.998% of the total amount of System I Bonds, the
amount of such excess shall be withdrawn at least annually for the purchase or
redemption of System I Bonds, so long as any System I Bonds are outstanding and
unpaid.
The District agrees that it will not expend monies in the System I Reserve and
Contingency Fund for extensions of or betterments to System I which are not
reasonably necessary to the conduct of the business of such System, or which are
uneconomical.
Monies in the System I Reserve and Contingency Fund shall be invested and
reinvested by the District to the fullest extent practicable.  All monies earned
as a result of any such investment or reinvestment shall accrue to and be
deposited in such Fund.
(4)           The District agrees that it will maintain during the term of this
Contract the Wenatchee River Development Fund, created and established in
accordance with the provisions of Section 6.2(6) of Resolution No. 3443, and two
accounts within such fund as follows:
(a)           A Rock Island Expansion Account into which will be transferred
$7,111,000 as of the Date of Initial Financing. Said monies shall be set aside
and paid from time to time as may be necessary to the System II Construction
Fund Trustee for deposit to the System II Construction Fund.  Prior to the
payment of said sum to said Trustee it shall be invested by the District and the
earnings from the investments thereof shall be retained in said Account.
From said investment earnings there shall be paid into the Revenue Fund as a
credit to System I costs the amount of said earnings to the extent of $17,666.67
per month, plus all Operating Expenses in connection with the Dryden property
(dam, headworks, irrigation canals and flumes).  The transfers to the
Construction Fund Trustee of the principal balance in said Account together with
investment earnings shall be scheduled in a manner consistent with the cash flow
requirements of construction of System II and shall be completed on the later of
the date which is five years after Date of Initial Financing or the Date of
Commercial Operation.  In scheduling such transfers the District shall use its
best efforts to maximize the amount of investment earnings in order to avoid, to
the extent possible, any increase in costs to the District and Puget associated
with System I prior to the Date of Commercial Operation of System II.
(b)           A Wenatchee River Properties Account into which will be
transferred the Wenatchee River Properties and all rent, income and receipts or
proceeds of any sale or other disposition of the Wentachee River
Properties.  Earnings from the investment of such monies may at the option of
the District be retained in said Account and used for the purposes for which
other monies in said Account may be used or may be paid into the Revenue Fund as
directed by the District.  Puget shall have no right, interest or
claim to any monies in said Account or to earnings from investments of money
therein or to any additions, improvements, facilities, properties or other
assets acquired with monies from said Account.  Notwithstanding the provisions
of Sections 5 and 8 hereof any monies transferred from this Account into the
Revenue Fund shall not be considered as credits, operating revenues or income of
System I but may be used by the District to offset payments to Puget pursuant to
the provisions of Section 8(A) hereof.
(5)           Such other special funds and accounts of System I as may be
required pursuant to provisions of System I Bond Resolution.
(B)           System II.
(1)           The District agrees that it will create and maintain during the
term of this contract a separate account within the Revenue Fund to be known as
the System II Revenue Account.  All income, revenues, receipts and profits
derived by the District through the ownership and operation of System II shall
be credited to such Account.  All costs to the District of the ownership and
operation of System II shall be charged to said Account.  Said account shall be
established in the initial amount of $750,000 from the proceeds of the sale of
System II Bonds to be used as Working Capital.
After making all payments required to be made from the Revenue Fund pursuant to
the provisions of the Bond Resolution, there may be transferred to the District
from the Revenue Fund each Contract Year after the Date of Commercial Operation
the amount, if any, by
which that portion of the amounts payable by Puget to the District for such
Contract year attributable to the amounts specified in paragraphs (3), (4) and
(5) of Section 5(E) hereof, exceed the sum of (i) payments made by the District
for interest, principal and premium, if any, of Sys-II Bonds for such year and
(ii) investment earnings on the Principal Account, Interest Account and Bond
Retirement Account and any other account established for the purpose of
retirement of System II Bonds by the Bond Resolution to the extent that such
earnings reduce the payments in the foregoing clause (i) which would have been
made by the District if there were no such earnings.
For purposes of this Section 12(B), principal payments shall be deemed to
include payments into any account established pursuant to the provisions of the
Bond Resolution authorizing System II Bonds for the purpose of retiring
System II Bonds.
The District shall fix maturities and sinking fund requirements for System II
Bonds in such amounts and at such times that the product obtained by multiplying
the District's payments for principal and interest on all System II Bonds by
Puget's System II Share shall not for any Contract Year exceed that portion of
the amounts payable by Puget to the District for such Contract Year attributable
to the amounts specified in paragraphs (3), (4) and (5) of Section 5(E)
hereof.  In the event Puget makes any payment pursuant to the provisions of
Section 5(H)(2) hereof then the District shall concurrently reimburse Puget from
other revenues of the District for the amount of any such payments.
(2)           The District agrees that it will create and maintain during the
term of this contract, System II Bond Funds pursuant to the provisions of the
Bond Resolution, said Funds to be used solely for the purpose of paying the
principal of, premium, if any, and interest on the System II Bonds and
additional bonds issued on a parity therewith, and of retiring the System II
Bonds and additional bonds issued on a parity therewith, prior to maturity.  The
District will transfer monthly from the Revenue Fund to said Funds the amounts
required by the Bond Resolution.
(3)           The District agrees that it will create and maintain during the
term of this contract an Expansion Reserve and Contingency Fund (herein referred
to as the System II Reserve and Contingency Fund) as a reserve to be used as
provided in Section 6.4 of District Resolution No. 4950, provided, however, that
except as otherwise specifically provided in this contract payment for the costs
of extensions of and betterments to System II in excess of a cumulative amount
of $25,000 in any calendar year shall be made only with the consent of Puget;
and, provided further, that any amount of the System II Reserve and Contingency
Fund monies deposited in the System I Reserve Account, as that account is
defined in Resolution Nos. 1137 and 3443, shall be reimbursed to the System II
Reserve and Contingency Fund from the first revenues available for such purposes
from System I.
Monies in the System II Reserve and Contingency Fund shall be invested and
reinvested by the District to the fullest extent practicable
in accordance with the provisions of District Resolution No. 4950.  All monies
earned as a result of any such investment or reinvestment prior to the Date of
Commercial Operation shall accrue to and be deposited in the Construction Fund
established by the District in Resolution No. 4950.  After the Date of
Commercial Operation, all monies earned as a result of any such investment or
reinvestment shall accrue to and be deposited in the Revenue Fund.
The District agrees that it will not expend monies in the System II Reserve and
Contingency Fund for extensions of or betterments to System II which are not
reasonably necessary to the conduct of the business of such System or which are
uneconomical.
The System II Reserve and Contingency Fund shall be established in the initial
amount of $3,000,000 from proceeds of issuance of System II Bonds and, subject
to the provisions of Section 6.4 of District Resolution No. 4950, shall be
maintained at said amount until the Date of Commercial Operation.  If the amount
in said Fund is less than $3,000,000 on the Date of Commercial Operation, the
District will transfer into said Fund, from the proceeds of the issuance of the
first series of System II Bonds issued after the Date of Commercial Operation an
amount equal to the difference between $3,000,000 and the amount actually in
said Fund on the Date of Commercial Operation.  In addition to payments required
to be made into such Fund by the District in accordance with provisions of
Section 8(B) hereof, all payments by Puget pursuant to provisions of
paragraph (6) of Section 5(E) hereof shall be
deposited in such Fund.  An amount equal to the excess in such Fund, at the end
of any month after taking into account commitments or obligations of the
District chargeable against such fund and which are expected to become due and
payable within 90 days after the end of such month, over $3,000,000 multiplied
by Puget's System II Share for such month shall be credited against payments to
be made by Puget pursuant to the provisions of Section 5(E) during the following
month and the balance of such excess shall be credited to the District against
payments to be made by the District pursuant to provisions of Section 8(B)
during the following month.
(4)           Such other special funds and accounts of System II as may be
required pursuant to the provisions of System II Bond Resolution.
(5)           The District will carry out the provisions of the following
sections of District Resolution No. 4950 authorizing the issuance and sale of
the first series of System II Bonds, and such sections are attached hereto as
Exhibit E.
Section 6.6                                Construction Fund
Section 6.7                                Investment of Monies in Construction
Fund
Section 6.8                                Cost of Construction
Section 6.10                                Distribution of Monies in
Construction Fund
Section 6.11                                Monies in Construction Fund pending
application thereof.
(C)           Investment.  The District agrees that, to the extent authorized by
the Bond Resolution and all applicable laws, rules and regulations of
governmental authorities, it will use its best efforts to invest and keep
invested available funds of System I and System II to maximize interest earnings
therefrom consistent with prudent investment practice and System I and System II
needs.

Section 13.   Books of Account and Auditing.  The District shall cause proper
books of account to be kept for the District showing as a separate utility
system the accounts of the Joint System segregated to show separately the
accounts of System I and System II in accordance with the rules and regulations
prescribed by any governmental agency authorized to prescribe such rules,
including the Division of Municipal Corporations of the State Auditor's Office
of the State of Washington, or other State department or agency succeeding to
such duties of the State Auditor's Office, and in accordance with the Uniform
System of Accounts prescribed by the Federal Power Commission or other Federal
agency having jurisdiction over electric public utility companies owning and
operating properties similar to the electric properties operated by the
District, whether or not the District is required by law to use such system of
accounts, and such accounting records shall be available for inspection and
utilization by the duly authorized representatives of Puget at all reasonable
times.  The District shall supply monthly to Puget such reports of the operation
and maintenance of the Joint System and of System I and System II as Puget may
from time to time reasonably request.  The District shall cause such books of
account to be audited
by independent certified public accountants, experienced in electric utility
accounting and of national reputation, to be employed by the District.  The
audits to be made by such independent certified public accountants, shall be
made annually and shall cover each calendar year during the term of this
contract shall be completed within one hundred twenty (120) days following the
end of each such calendar year.  A copy of each such annual audit, including any
recommendations of the accountants with respect thereto, shall be made available
by the District to Puget.

Section 14.   Reactive Power.  The parties recognize that voltage levels of the
District's power system and other interconnected systems are affected by the
amounts of reactive power supplied from the Joint System as well as from other
sources.  The District will operate the Joint System to provide reactive power
necessary together with other reactive power made available to maintain proper
voltage levels at the Points of Delivery.  If it is determined by the parties
hereto that the reactive power requirements of the loads of either the District
or Puget are resulting in a reduction in kilowatt-hour output of the Joint
System, the party responsible for such reactive power requirements shall at its
own expense limit such reactive power requirements to a point that such
kilowatt-hour output shall not be thereby reduced.

Section 15.   Operation, Maintenance, Engineering and Planning.
(A)           Operation.  The parties hereto agree to cooperate on matters
relating to operation, maintenance and repair of the Joint System.  It is the
intent of the parties hereto that the Joint System shall be operated to assure
optimum availability of usable Joint System Output coordinated to the load
requirements of Puget and the District and that capacity and energy made
available hereunder to Puget and the District shall be fully coordinated with
other resources available to the parties and with the Northwest Power Pool;
provided, however, operation of the Joint System shall be subject to provisions
of the Federal Power Commission License No. 943-Washington as now or hereafter
amended or reissued and that certain agreement between the Great Northern
Railway and the Washington Electric Company dated April 15, 1931 as now or
hereafter amended.
(B)           Maintenance.  The District will use its best efforts to operate
and maintain the Joint System In good operating condition at all times in an
efficient, economical and workmanlike manner and consistent with good business
and operating practices followed by other electric utilities in the Pacific
Northwest, and will make renewals and replacements thereof as
needed.  Maintenance, repairs, renewals and replacements shall be scheduled and
performed by the District with the intent of obtaining the optimum operation of
the Joint System as required to meet the respective requirements of the parties
hereto.  The District, in order to prevent injury to persons or to avoid damage
to property or equipment may in an emergency without consultation with Puget
temporarily interrupt or reduce deliveries of electric energy hereunder but only
for as long as such
emergency shall exist.  In the event of any failure of or damage whatsoever to
facilities of the Joint System, or any reduction in the delivery of power and
energy therefrom from causes other than water conditions, the District agrees
that it will, with due diligence, expedite repair or replacement of said
facilities or remedy the condition causing such reduction to the end that
delivery of power and energy will be re-established as soon as reasonably
possible.
(C)           Engineering and Planning.  The District shall advise and consult
with Puget from time to time on matters relating to engineering studies,
planing, operation of the Joint System and maintenance and repair thereof.  Such
matters shall include engineering studies as required to maintain or increase
usable power and energy, exchange of operating information and data, cooperation
with respect to unresolved problems, contractual arrangements with other
utilities for storage and wheeling requirements, system operating studies and
other related problems.
(D)           Inspection, Books and Records. Authorized representatives of Puget
shall at all reasonable times have access to the Joint System for the purpose of
inspection, and all books and records pertaining to operation and maintenance of
the Joint System shall be made available to Puget by the District at all
reasonable times.

Section 16.   Character of Service.  Power and energy made available hereunder
shall be in the form of three-phase current alternating at a frequency of
approximately sixty (60) Hertz and deliveries thereof shall be at Points
of Delivery to Puget and the District and at delivery voltages hereinafter
specified.

Section 17.   Points of Delivery.
(A)           System I.  The District will use the facilities of System I and
System II as such facilities may from time to time exist to deliver System I
Output and System I Peaking Capability to the System I Points of Delivery
hereinafter specified:
(1)           To Puget:  The System I Output and System I Peaking Capability
made available to Puget pursuant to the provisions of Section 4(A) hereof, less
transmission and transformation losses between the Generator Bus and Points of
Delivery determined in accordance with the provisions of Section 21 hereof,
shall be delivered at the following System I Points of Delivery and at the
voltages specified:
(a)           Summit Point of Delivery:
Location - At the point of connection with Puget on the 115-kV transmission
facilities of System I.
Delivery Voltage - Approximately 115 kV.
(b)           Rocky Reach Points of Delivery:
Location - At the point or points of connection between the 230-kV bus at the
District's Rocky Reach 230-kV switchyard and transmission facilities which are
or may be available to Puget.
Delivery Voltage - Approximately 230 kV.
(c)           McKenzie Point of Delivery:
Location - At the point of connection between the 115-kV bus at the District's
McKenzie Switching Station and facilities which are or may be available to
Puget.
Delivery Voltage - Approximately 115 kV.
(d)           Chelan Interconnection Point of Delivery:
Location - At the point of connection between System I Rocky Reach-Chelan 115-kV
transmission line and the District's Lake Chelan Hydro -Electric System.
Delivery Voltage - Approximately 115 kV.
(e)           Valhalla Points of Delivery:
Location - At the points of connection between the faciliites of System I and
Bonneville's Valhalla Substation and the facilities of System II and
Bonneville's Vahalla Substation.
Delivery Voltage - Approximtely 115 kV.
(f)           Other Points of Delivery:
At such other Points of Delivery and at such Delivery Voltages as the parties
hereto may mutually agree upon from time to time.
(2)           To the District: System I Output and System I Peaking Capability
taken by the District pursuant to the provisions of Section 7(A) hereof, less
transmission and transformation losses between the Generator
Bus and Points of Delivery, shall be delivered at the following Points of
Delivery and at delivery voltages specified:
(a)           Wenatchee-North Wenatchee Points of Delivery:
Locations - At the low voltage side of the Wenatchee and North Wenatchee
substations of System I.
Delivery Voltage - Approximately 34.5 kV.
(b)           Dryden Point of Delivery:
Location - At the point of connection between the facilities of the District's
Electric System and the facilities of System I in the vicinity of the Town of
Dryden.
Delivery Voltage - Approximately 115 kV.
(c)           Summit Point of Delivery:
Location - At the point of connection between the facilities of the District's
Electric System and the facilities of System I at the Stevens Pass Summit.
Delivery Voltage - Approximately 115 kV.
(d)           Berne Point of Delivery:
Location - At the point of connection between facilities of the District's
Electric System and facilities of System I at the District's Berne Substation.
Delivery Voltage - Approximately 115 kV.
(e)           McKenzie Points of Delivery:
Location - At the points of connection between the 115-kV bus at the District's
McKenzie Switching Station and facilities which are or may be available to the
District.
Delivery Voltage - Approximately 115 kV.
(f)           Valhalla Point of Delivery:
Location - At the point of connection between facilities
of System II and Bonneville's Valhalla Substation.
Delivery Voltage - Approximately 115 kV.
(g)           Squilchuck Point of Delivery:
Location - At the low voltage side of the Squilchuck Substation of System I.
Delivery Voltage - Approximately 12.5 kV.
(h)           Coles Corner Point of Delivery:
Location - At the point of connection between facilities of the District's
Electric System and System I at the District's Coles Corner Substation.
Delivery Voltage - Approximately 115 kV.
(i)           College Point of Delivery:
Location - At the point of connection between facilities of the District's
Electric System and the facilities of System I in the vicinity of the District's
College Substation.
Delivery Voltage - Approximately 115 kV.
(j)           Leavenworth Point of Delivery:
Location - At the point of connection between facilities of the District's
Electric System and the facilities of System I in the vicinity of the Town of
Leavenworth.
Delivery Voltage - Approximately 115 kV.
(k)           Other Rock Island-North Wenatchee Points of Delivery:
Location - At such other points on the 115-kV transmission lines of System I
between the District's McKenzie Switching Station and the North Wenatchee
Substation as the District directs.
Delivery Voltage - As the District determines.
(l)           Other Points of Delivery:
Location - At such other points on the 115-kV transmission lines of System I as
the District directs between the District's McKenzie Switching Station and the
Stevens Pass Summit and between the McKenzie Switching Station and the point of
interconnection between the Rock Island-Rock Reach-Chelan transmission line and
the District's Lake Chelan Hydro-Electric System.
Delivery Voltage - As the District determines.
(B)           System II. The District will use the facilities of System I and
System II as such facilities may from time to time exist to deliver System II
Output and System II Peaking Capability to the System II Points of Delivery
hereinafter specified:
(1)           To Puget:  The System II Output and System II Peaking Capability
made available to Puget pursuant to the provisions of Section 4(b) hereof, less
transmission and transformation losses between the Generator Bus and System II
Points of Delivery determined in accordance with provisions of Section 21
hereof, shall be delivered at the following System II Points of Delivery and
delivery voltages:
(a)           McKenzie Point of Delivery:
Location - At the point of connection between the 115-kV bus at the District's
McKenzie Switching Station and facilities which are or may be available to
Puget.
Delivery Voltage - Approximately 115 kV.
(b)           Valhalla Points of Delivery:
Location - At the points of connection between facilities of System I and
Bonneville's Valhalla Substation and the facilities of System II and
Bonneville's Valhalla Substation.
Delivery Voltage - Approximately 115 kV.
(c)           Other Points of Delivery:
At such other Points of Delivery and at such Delivery Voltages as the parties
hereto may mutually agree upon from time to time.
(2)           To the District:  System II Output and System II Peaking
Capability made available to the District pursuant to the provisions of
Section 7(B) hereof, less transmission and transformation losses between the
Generator Bus and System II Points of Delivery shall be delivered at the
following System II Points of Delivery voltages:
(a)           McKenzie Point of Delivery:
Location - At the point of connection between the 115-kV bus of the District's
McKenzie Switching Station and facilities which are or may be available to the
District.
Delivery Voltage - Approximately 115 kV.
(b)           Valhalla Point of Delivery:
Location - At the point of connection between facilities of System II and
Bonneville's Valhalla Substation.
Delivery Voltage - Approximately 115 kV.
(c)           Other Points of Delivery:
At such other Points of Delivery and at such Delivery Voltages as the parties
hereto may mutually agree upon from time to time.

Section 18.   Use of Rocky Reach Project Facilities.  The District will use the
transmission facilities of the Rocky Reach Project as such facilities may from
time to time exist to deliver System I Output and System I Peaking Capability to
System I Points of Delivery; provided, however, that the use of such facilities
to deliver power and energy to Puget pursuant to provisions of this contract
shall be limited to the remaining capacity thereof (including capacity made
available by opposed power flows) after first use by the District to deliver
power and energy to the District's loads within Chelan and Douglas Counties and
for deliveries of Rocky Reach Project power and energy and shall at all times be
subject to provisions of the District's Bond Resolutions No. 1412, No. 1860 and
No. 4198 and to the provisions of the license issued by the Federal Power
Commission for Rocky Reach Project No. 2145 and to the provisions of all
contracts entered into by the District for sale of power and energy produced by
the Rocky Reach Project; and provided further, however, that if said use of
facilities of the Rocky Reach Project to deliver System I Output and System I
Peaking Capability to Puget hereunder should at any time result in increased
cost or expanse to the District or to the Rocky Reach Project or both, Puget
shall reimburse the District for such increased cost or expense.

Section 19.   Scheduling.  Prior to 1600 hours of each work day, Puget shall
make available to the District an hourly estimate of requested total energy
deliveries from System I and from System II for the following day or days to and
including the next work day.  Such estimated schedule including revisions
thereof and deliveries thereunder shall not exceed the sum of (i) Puget's
System I Share of System I Output; (ii) the amount of energy in Puget's System I
Share of System I Pondage available to Puget during such period; (iii) Puget's
System II Share of System II Output; and (iv) the amount of energy in Puget's
System II Share of System II Pondage available to Puget during such period.  At
no time shall the scheduled rate of such deliveries exceed the sum of
(i) Puget's System I Share of System I Peaking Capability and (ii) Puget's
System II Share of System
II Peaking Capability.  Revisions in such schedules for any day may be made by
Puget (i) at any time on request to the District or (ii) continuously through
appropriate use of automatic load control equipment or otherwise.
The District may schedule energy deliveries from System I and System II up to
the sum of (i) the District's System I Share of System I Output; (ii) the amount
of energy in the District's System I Share of System I Pondage available to the
District during such period; (iii) the District's System II Share of System II
Output; and (iv) the amount of energy in the District's System II Share of
System II Pondage available to the District during such period.  At no time
shall the scheduled rate of such deliveries exceed the sum of (i) the District's
System I Share of System I Peaking Capability and (ii) the District's System II
Share of System II Peaking Capability.

Section 20.   Metering.  Unless otherwise agreed by the parties hereto metering
shall be maintained by the District as follows:
(A)           Generator Bus.  The District shall provide and maintain suitable
watt-hour, var-hour and recording demand meters on the Generator Bus at the
power plants of System I and System II.
(B)           Other Metering.  The District shall provide and maintain suitable
meters at the Summit Point of Delivery and at other points as may be necessary
to carry out the terms of this contract.
(C)           Reading Meters.  The District shall read its meters mentioned in
this contract at appropriate intervals so as to maintain a record of energy
transactions under this contract.
(D)           Testing.  The District will test its metering equipment mentioned
in this contract at least once every two (2) years and, if requested to do so by
Puget, it will make additional tests or inspections of such metering equipment,
the expense of which will be paid by Puget unless such additional tests or
inspections show such metering equipment to be inaccurate as specified
below.  The District will give reasonable notice to Puget of the time when any
such test or inspection is to be made.  If any meter mentioned in this contract
fails to register or if the measurement made by such meter during a test made,
as provided above, varies by more than one per cent (1%) from the measurement
made by the standard meter used in such test, adjustment shall be made
correcting all measurements made by such inaccurate meter for (1) the actual
period during which such inaccurate measurement was made, if such period can be
determined, or (2) if not, the period immediately preceding the test of such
meter which is equal to one-half the time from the date of the last preceding
test of such meter; provided, however, that the period during which such
correction is to be made shall not exceed six (6) months.

Section 21.   Losses.  The amounts of power and energy delivered to Puget at
Puget's System I and System II Points of Delivery shall be adjusted for computed
transmission and transformation losses between the Generator Bus and said Points
of Delivery in accordance with the following:
(1)           For deliveries at the Summit Point of Delivery an amount equal to
the metered quantities at said Point of Delivery multiplied by the appropriate
loss factor:
(2)           For deliveries at the McKenzie Point of Delivery an amount equal
to the scheduled quantities multiplied by appropriate loss factors.
(3)           For all deliveries not included in the foregoing paragraphs (1)
and (2) no adjustment will be made.
In developing said loss factors reverse flow shall be considered.

Section 22.   Electric Disturbances.  In the use of peaking capacity and energy
delivered under this contract, the parties hereto agree that they will exert
every effort to avoid causing electric disturbances which may be reasonably
expected to result in damage to or impair service from the Joint System or
electric facilities of the other party.  In the event such disturbance shall
occur, the party responsible will, at its own expense, install such equipment as
is necessary to prevent or eliminate such disturbances.

Section 23.   Puget's Right to Use System I Facilities.  The District hereby
grants to Puget for the term of this contract the right to use transmission
facilities of System I for the purpose of continuing the coordination and
integration of its operations with other utilities to the full extent that
capacity is available therefor after delivering power and energy to the District
and Puget pursuant to the provisions of Sections 17 and 24(A), 24(B) and 24(C)
hereof; provided, however, that notwithstanding the provisions of Sections 17
and 24(A), 24(B) and 24(C) hereof, use by the District of the Rock Island-Rocky
Reach-Chelan 115-kV transmission line of System I,
for the purposes of delivering power and energy to the District and Puget
pursuant to other provisions of this contract, shall not, at any time during the
term hereof, reduce the thermal capacity of said line available for use by Puget
pursuant to this Section 23 to an amount less than 80,000 kilovoltamperes; and
provided further, that at the request of Puget the District will make such
modifications to the Rocky Reach-Chelan section of said lines as are necessary
to increase the thermal capacity thereof available to Puget for the purposes
described in this Section 23 to an amount not less than 108,000 kilovoltamperes
if sufficient funds are available for that purpose in the Reserve and
Contingency Fund of System I and in accordance with the District's Resolution
No. 1137 can be used for such purposes.

Section 24.                                District's Right to Use of
Transmission Facilities.
(A)           Original Facilities.  Except as limited in Section 24(C) hereof,
the District shall have the right to use at no additional cost to the District,
the Original Facilities for the purpose of transmitting power and energy to the
District and to and for the account of other systems of the District to the full
extent that capacity is available therefor after delivering Joint System Output
and Joint System Peaking Capability to the District and Puget pursuant to the
other provisions of this contract.
(B)           Added Facilities.  The District shall have the right to use the
Added Facilities for the purpose of transmitting power and energy to the
District and to and for the account of other systems of the District to the full
extent that capacity is available therefor after delivering Joint System Output
and Joint System Peaking Capability to the District and Puget pursuant to the
other provisions
of this contract.  The District may construct additional substation capacity and
associated tap lines as Added Facilities; provided that each tap line shall not
exceed one mile in length; and provided further, that the total amount of
substation capacity included as Original Facilities and Added Facilities shall
not exceed 200,000 kilovoltamperes of transformer maximum nameplate rating.
(C)           Limitations.  The District's right to the use of transmission
facilities of System I shall be subject to the following limitations:
(1)           The District's right to use of the McKenzie-Summit 115-kV
transmission facilities existing on the date of this contract for purposes set
forth in the foregoing Section 24(A) shall be limited to transmission of a
maximum of 20,000 kilowatts of coincidental clock-hour integrated demand less
the amount of the District's Squilchuck Power taken coincidentally by the
District at the District's Points of Delivery connected to said transmission
facilities; provided that during any time transmission capacity available to
Puget pursuant to Section 23 hereof is not used by Puget, including any
transmission capacity made available by opposed power flow, such capacity shall
be available for use by the District.
(2)           The District's right to use of the Rocky Reach-Chelan section of
the Rock Island-Rocky Reach-Chelan 115-kV transmission facilities existing on
the date of this contract for purposes set forth in the foregoing Section 24(A)
shall be limited to transmission of a maximum of 28,000 kilowatts of
coincidental clock-hour integrated demand less the amount of the District's
Squilchuck power taken coincidentally by the District at the
District's Points of Delivery connected to said Rocky Reach-Chelan section of
transmission line and shall be increased to not more than 37,000 kilowatts less
the amount of the District's Squilchuck power taken coincidentally by the
District at the District's Points of Delivery connected to said Rocky
Reach-Chelan section of transmission line at such time as capacity available to
Puget is increased to 108,000 kilovoltamperes as provided in Section 23 hereof,
provided, however, that during any time the transmission capacity available to
Puget pursuant to Section 23 hereof is not used by Puget, including any
transmission capacity made available by opposed power flow, such capacity shall
be available for use by the District.
(D)           Alternative Facilities.  Other systems of the District may
construct additional facilities within the District's Electric System providing
additional capacity for transmitting power to the Summit Point of Delivery to
Puget and to the Chelan Interconnection Point of Delivery to Puget.  In such an
event, the District may use the transmission capacity of the McKenzie-Summit
115-kV transmission line and the Rocky Reach-Chelan section of the
McKenzie-Rocky Reach-Chelan 115-kV transmission line in excess of amounts
provided in Section 24(C) as limited by Section 23; provided, however, that
Puget's transmission rights and capability over the McKenzie-Summit
115-kV transmission line and over such additional facilities after such
construction shall be equivalent to Puget's transmission rights and capability
over the McKenzie-Summit 115-kV transmission line prior to such construction and
Puget's transmission rights and
capability over the Rocky Reach-Chelan section of the McKenzie-Rocky
Reach-Chelan 115-kV transmission line and over such additional facilities after
such construction shall be equivalent to Puget's transmission rights and
capability over such Rocky Reach-Chelan section prior to such construction.
Section 25.   Rocky Reach Downstream Replacement Power.
(A)           The District.  The District shall make available to System II or
System II shall make available to the District, as appropriate, each hour during
the term hereof an amount of energy equal to the amount of Rocky Reach
Downstream Replacement Power for such hour, if any, multiplied by the District's
percentage withdrawal of the output of the District's Rocky Reach Project after
deducting from such percentage the percentage of such output equivalent to the
amount of power sold to the Public Utility District No. 1 of Douglas County,
Washington (Douglas) pursuant to the provisions of the contract between the
District and Douglas dated October 30, 1957, as amended, relating to the sale of
such output.
(B)           Puget.  Puget shall make available to System II or System II shall
make available to Puget, as appropriate, each hour during the term hereof an
amount of energy equal to the amount of Rocky Reach Downstream Replacement Power
for such hour, if any, multiplied by Puget's percentage purchase of the output
of the Rocky Reach Project which percentage shall not include output assigned to
Puget by any other Rocky Reach purchaser.
(C)           System Responsibilities.  System II shall make available to
System I or System I shall make available to System II, as appropriate, each
hour during
the term hereof an amount of energy equal to the amount of Rocky Reach
Downstream Replacement Power for such hour, if any.
(D)           Exchanges.  During each hour that System II Output is less than
the total of Rocky Reach Downstream Replacement Power plus the amount of Rocky
Reach Encroachment Power for such hour, the District shall supply to System II
an additional amount of energy equal to such difference multiplied by the
District's System II Percentage and Puget shall supply to System II an
additional amount of energy equal to such difference multiplied by Puget's
System II Percentage.  The amount of energy supplied to System II by each Party
shall be returned to such Party from the first energy available from System II
Output.

Section 26.   Joint System Operations - Arbitration.
(A)           Recommendations.  Puget may make recommendations to the District
with reference to matters concerning the Joint System.
The District will give due consideration to recommendations of Puget.  In
considering such recommendations, the District shall give due regard to the
objective of achieving the optimum electric power availability from the Joint
System consistent with economy, reliability and facility of operation and the
District's statutory duties.  If, in the opinion of Puget, the District has
given inadequate consideration to its informal recommendations, written
recommendations may be made to the District by Puget.  Such written
recommendations shall be forwarded to the District with appropriate supporting
data.  The District shall take action on such recommendations within a
reasonable time by adopting, modifying or rejecting such recommendations.  If
the District modifies or rejects said recommendations, it shall notify Puget of
its action in writing giving reasons therefor.
(B)           Notices.  The District shall give Puget reasonable notice, in no
case less than thirty (30) days except in the event of an emergency requiring
immediate action, whenever it proposes:  (i) to replace items of major equipment
in the Joint System, or (ii) to enter into new or special contractual
arrangements relating to the Joint System and substantially modifying the
operation of the Joint System or the cost of power therefrom, or (iii) to apply
for or consent to an amendment, modification or change of the license for the
Rock Island Project if such amendment, modification or change would materially
modify the operation of the Joint System or increase the cost of power
therefrom.
(C)           Procedures.  If the District modifies or rejects a written
recommendation from Puget dealing with matters which may be arbitrated as set
forth in Section 26(D) hereof, and made in accordance with the procedure set
forth in Section 26(B) hereof, Puget may submit the recommendation to a Board of
Arbitrators within 15 days of the date on which Puget receives written notice
from the District of such modification or rejection.  If Puget shall fail to
seek arbitration within the aforesaid 15-day period its rights to arbitration
hereunder shall be waived.  The Board of Arbitrators shall be composed of three
(3) persons, one of whom shall be appointed by the District, one of whom shall
be appointed by Puget, and the third person shall be appointed by the two
persons so appointed.  In the event said two members do not agree upon the
appointment of a third person, then such third person shall be appointed by the
Chief Justice of the Supreme Court of the State of Washington.  The procedure
for arbitration shall be governed by the laws of the State of
Washington.  Insofar as the parties hereto may legally do so, they agree to
abide by the decision of said Board; provided, that the
District shall not be bound by any decision of the Board of Arbitration to the
extent that such decision is retroactive beyond the date when the matter
arbitrated was made the subject of written recommendation of Puget.
(D)           Matters to be Arbitrated.  Matters which may be arbitrated in
accordance with the preceding Section 26(C) shall consist of all matters
pertaining to the construction of, the maintenance and operation of, additions
or betterments to, extensions of, replacements or renewals to the Joint System,
insurance to be carried on said Joint System (which in no event shall be less
than that required under the terms of the Bond Resolution), computation of
Contract Debt Service and Contract Bonds Outstanding, amounts to be charged to
the cost of operating the Joint System as a result of voluntary payments in lieu
of taxes, amendment, modification or change of the Federal Power Commission
license for the Rock Island Project and all other matters materially affecting
the cost of power to Puget, except such of the matters hereinabove described in
this paragraph as are by law vested exclusively in the discretion of the
District.
(E)           Divisibility.  In the event this Section 26, or any paragraph,
sentence, clause or phrase thereof, or Section 11(B) hereof or any paragraph,
sentence, clause or phrase thereof, or any parts or all of both, shall be
finally adjudicated by a court of competent jurisdiction to be invalid or
illegal, the remainder of this contract shall remain in full force and effect as
though such section or sections, or parts thereof so adjudicated to be invalid
had not been included herein.

Section 27.   Notices.  Any notice, recommendation or demand by Puget under this
contract shall be deemed properly given if given by registered mail, postage
prepared, addressed to Public Utility District No. 1 of Chelan County,
327 North Wenatchee Avenue, Wenatchee, Washington 98801, and any notice,
recommendation or demand by the District under this contract shall be deemed
properly given if given by registered mail, postage prepaid, addressed to Puget
Sound Power & Light Company, Puget Power Building, Bellevue, Washington
98009.  The designation of the name and address to which any such notice,
recommendation or demand is to be directed may be changed at any time and from
time to time by either party by similar notice.

Section 28.   Benefited Parties.  This contract shall be binding upon and inure
to the parties hereto, and their successors and assigns, and is not intended to
and shall not confer upon any third party any rights or benefits
hereunder.  Nothing herein contained is intended to adversely affect any rights
or benefits inuring to the holders from time to time of bonds of the District
payable from the revenue of the System.

Section 29.   Amendment of Contract.  It is agreed by the parties hereto that no
provision of this contract constitutes an amendment to or other action that will
reduce the payments or extend the time of making payments that were provided for
in that certain Power Contract (Rock Island) between the District and Puget
dated January 6, 1956 (which contract was superseded by that certain Power
Contract between the District and Puget dated June 8, 1962,which is in turn
superseded by this contract on the date of delivery of and payment for System II
Bonds, except for accrued and undischarged obligations of the parties
thereunder), or otherwise impairs or adversely affects the rights of holders
from time to time of the District's Columbia River-Rock Island Hydro-Electric
System Revenue Bonds, Issue of 1955, First Series.
It is further agreed by the parties hereto that no provision of this contract
consistutes an amendment to or other action in connection with the June 8, 1962
Power Contract which in any manner adversely affects the security of the
District's Columbia River-Rock Island Hydro-Electric System Revenue Bonds, Issue
of 1955 First Series and Second Series upon which holders from time to time of
such bonds have relied as an inducement to purchase and hold said bonds.
The District and Puget agree that this contract shall not be amended, modified
or otherwise altered by agreement of the parties in any manner that will
adversely affect the security for System I Bonds afforded by the provisions of
this contract covering the purchase and sale of power hereunder upon which the
holders from time to time of said bonds have relied as an inducement to purchase
and hold said bonds.  The District and Puget agree that so long as any System II
Bonds are outstanding, this contract shall not be amended, modified or otherwise
altered by agreement of the parties in any manner which will reduce the payments
or extend the time of payments provided herein or which will in any manner
impair or adversely affect the rights of the holders from time to time of the
System II Bonds.

Section 30.   District's Bond Resolution and License.  It is recognized by the
parties hereto that the District in its operation of the Joint System and in
delivery of power and energy hereunder to Puget and to the District, must comply
with (i) requirements of Resolution Nos. 1137 and 3443 so long as any of the
Columbia River-Rock Island Hydro-Electric System Revenue Bonds, Issue of 1955,
First Series and Second Series are outstanding, (ii) the requirements
of Resolution No. 4950 during the time that any of the Columbia River-Rock
Island Hydro-Electric System Revenue Bonds, Series of 1974 are outstanding,
(iii) the requirements of any of the District's Resolutions authorizing any
other System I Bonds and System II Bonds during the period that any such bonds
are outstanding, and (iv) the license for the construction and operation of
Federal Power Commission License Project No. 943-Washington and amendments
thereof from time to time made and with the provisions contained in renewals or
reissuance of said license, and it is therefore accordingly agreed that this
contract is made subject to terms and provisions of (i) each of said
resolutions, during the time any bond issued pursuant to the provisions of such
resolution are outstanding and (ii) said license, including renewals or reissue
of said license. At the appropriate time the District shall make due and proper
application for a renewal or reissuance of said license and make a diligent
effort to obtain a renewal or reissuance of said license.
If, upon relicensing, Project No. 943-Washington is licensed to a licensee other
than the District, and the new licensee is not required to assume and fulfill
this contract, then this contract shall terminate on the date that the District
ceases to operate the Rock Island Project and to make available from such
project to Puget, Puget's System I Share of System I Output and System I Peaking
Capability and Puget's System II Share of System II Output and System II Peaking
Capability.

Section 31.   Liabilities; Waiver of Subrogation.
(A)           Releases.  The District and Puget release each other, their agents
and employees from any claim for loss or damage, arising out of the
construction,
operation, maintenance, reconstruction and repair of the Joint System due to
negligence, including gross negligence, including any loss of profits or
revenues, loss of use of power system, cost of capital, cost of purchased or
replacement power, other substantially similar liability or other consequential
loss or damage, but not any claim for loss or damage resulting from breach of
any contract relating to the Joint System, including this contract, or for
willful or wanton misconduct.
(B)           Charges.  Any loss, cost liability, damage and expense to the
District or Puget or both, other than damages to either resulting from loss of
use and occupancy of the Joint System or any part thereof, resulting from the
construction, operation, maintenance, reconstruction or repair of the Joint
System and based upon injury to or death of persons, or damage to or loss of
property of others, to the extent not covered by collectible insurance, shall be
charged to Cost of Construction, as defined in District Resolution No. 4950, or
annual costs, whichever may be appropriate.
(C)           Waiver.  The District and Puget shall cause its insurers to waive
any rights of subrogation against each other, their agents and employees for
losses, costs, damages or expenses arising out of the construction, operation,
maintenance, reconstruction or repair of the Joint System.

Section 32.   Conflict of Laws.  The parties hereto agree that this contract
shall be governed by the laws of the State of Washington.

Section 33.   Waiver of Default.  Any waiver at any time by either party hereto
of its rights with respect to the other party or with respect to any other
matter arising in connection with this contract shall not be considered a waiver
with respect to any subsequent default or matter.

Section 34.   Insurance.  The District agrees that it will, to the extent
available at reasonable cost with responsible insurers and at least to the
extent that similar insurance is usually carried by electric utilities operating
like properties, keep or cause to be kept the works, plants and facilities
comprising the properties of the Joint System and the operation thereof insured,
with policies payable to the District for the benefit of the Joint System and
Puget as their interest may appear, against risks of direct physical loss,
damage to or destruction of the Joint System, against loss caused by suspension
or interruption of generation or transmission of power and energy caused by such
loss, damage or destruction and, against accidents, casualties, or negligence,
which insurance shall include liability insurance and employers liability.
In the event of any loss or damage to properties of the Joint System covered by
such insurance, (i) prior to the Date of Commercial Operation of System II, the
District will transfer insurance proceeds received by the District covering
damage or loss to System II to the System II Construction Fund; (ii) after the
Date of Commercial Operation of System II, the District will transfer insurance
proceeds received by the District covering loss or damage to System II to the
System I Reserve and Contingency Fund and such proceeds, to the extent required,
shall be applied to the cost of replacing such loss or reparing such damage and
(iii) the District will transfer insurance proceeds received by the District
covering loss or damage to System I to the System I
Reserve and Contingency Fund.  In case of loss of revenue covered by insurance,
proceeds received by the District from any insurance policy or policies covering
such loss of revenue shall be paid into the Revenue Fund to the credit of
System I or System II costs, as appropriate.

Section 35.   Assignment of Contract.  This contract shall inure to the benefit
of, and shall be binding upon the respective successors and assigns of the
parties to this contract.  No assignment or transfer of this contract shall
relieve the parties hereto of any obligation incurred hereunder.  Subject to the
foregoing sentence, the interest of Puget under this contract may be assigned
and transferred as set forth below, but not otherwise:
(A)           To any mortgagee, trustee, or secured party, as security for bonds
or other indebtedness of Puget, present or future, and such mortgagee, trustee
or secured party may realize upon such security in foreclosure or other suitable
proceedings and succeed to all right, title and interests of Puget;
(B)           To any corporation or other entity acquiring all or substantially
all the property of Puget;
(C)           To any corporation or entity into which or with which Puget may be
merged or consolidated;
(D)           To any corporation or entity, the stock or ownership of which is
wholly owned by Puget; and
(E)           To any other person or entity with the prior written approval of
the District.

Section 36.   Force Majeure.  The District shall not be liable for any default
in the performance of its obligations under this contract, other than its
obligations to make when due all payments required hereunder, due to
Uncontrollable Forces.  If the District is rendered unable to fulfill any
obligations by reason of uncontrollable forces it shall exercise due diligence
to remove such inability with all reasonable dispatch.  Nothing contained herein
shall be construed so as to require the District to settle any strike or labor
dispute in which it may be involved.

Section 37.   Supersedence of June 8, 1962 Power Contract.  The June 8, 1962
Power Contract between the District and Puget relating to the Rock Island
Project is superseded by this contract between Puget and the District and said
June 8, 1962 Power Contract shall terminate on the effective date of this
contract, provided, however, that all of the provisions of the June 8, 1962
Power Contract with respect to System I will remain in full force and effect
until commencement of the first Contract Year under this contract, except that
from and after 0001 hours on the Date of Initial Financing the District shall be
relieved and release from the obligation to pay to Puget the sum of $212,000
annually, or any part thereof, as provided in Section 7(b)(6) of the June 8,
1962 Power Contract, and any costs in connection with the Dryden property (dam,
headworks, irrigation canals, flume).
 
 

IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
by their proper officers respectively, being thereunto duly authorized and their
respective corporate seals be hereto affixed the day and year first above
written.
 
 
 
 
(Seal)
 
PUBLIC UTILITY DISTRICT NO. 1
OF CHELAN COUNTY, WASHINGTON
 
 
By    /s/ [Signature Illegible]
                President
 
 
 
Attest
 
 
 
By    /s/ Robert McDougall   
               Vice President
     
/s/ Kirby Billingsly   
   
       Secretary
             
PUGET SOUND POWER & LIGHT COMPANY
 
 
By    /s/ John W. Ellis   
Executive Vice President
(Seal)
               
Attest:
         
/s/ W. Watson    
      Secretary
   

EXHIBIT A
 
SYSTEM II FACILITIES
 

The facilities of System II shall include, but not be limited to, the following:
 
1.
A second powerhouse in the location of the nonoverflow section, the spillway
bays 33 through 37 and the right bank fish ladder containing eight 54-MVA
turbine generator units of the horizontal shaft bulb type with generators housed
in watertight encpubmerged in the water passages, together with necessary
auxiliary equipment, controls, and appurtenances for the complete operation of
these machines and two step-up power transformers each rated at 210 MVA.  The
powerhouse structure will be of the semi-outdoor type, having dimensions of
approximately 470 x 130 feet exclusive of the erection area, with the draft tube
extending an additional 70 feet downstream.

 
2.
Two single-circuit, 115-kV, 3-phase transmission lines from the powerhouse for a
distance of approximately two miles to the District's existing McKenzie
switchyard, and Bonneville Power Administration's Valhalla Substation and any
other necessary transmission line.

 
3.
A new fish passage facility which will have inlets above the draft tubes at both
ends of the second powerhouse and an inlet at the right abutment downstream of
the draft tubes.  All of the entrances

will lead into a ladder located on the right side of the powerhouse with exit in
the forebay along the right riverbank.
 
4.
Additional spillway crest gate sections and reinforced spillway structures with
post-tensioned foundation anchors so that the forebay elevation may be raised to
elevation 613.0 (USC &GS)

 
5.
Necessary changes in the left bank and middle fish facilities upstream for their
proper functioning at the raised forebay level.

 
6.
Necessary modifications to the left bank retaining walls and other structures to
accommodate the raised forebay level.

 
7.
Necessary modifications to spillway regulating gates and emergency gates, and
the hoisting equipment resulting from raising of the forebay level and removal
of spillway bays 33 through 37.

 
8.
Any additional parcels of land or rights to lands in the vicinity of the forebay
as required for the higher reservoir elevation.

 
9.
Any other modifications for construction of the new powerhouse and adjacent
areas in the forebay and tailrace as necessary for satisfactory operations.

 

EXHIBIT B
 
DISTRICT'S SYSTEM I SHARE
 

   
 
Column 1
 
 
Contract Year
   
 
District's System I Share
     
July 1, 1974 – June 30,
1975                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.129
July 1, 1975– June 30,
1976                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.129
July 1, 1976– June 30,
1977                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.129
July 1, 1977– June 30,
1978                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.129
July 1, 1978 – June 30,
1979                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.129
July 1, 1979 – June 30,
1980                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.129
July 1, 1980 – June 30,
1981                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.129
July 1, 1981 – June 30,
1982                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.129
July 1, 1982 – June 30,
1983                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.129
July 1, 1983 – June 30,
1984                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.150
July 1, 1984 – June 30,
1985                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.172
July 1, 1985 – June 30,
1986                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.193
July 1, 1986 – June 30,
1987                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.215
July 1, 1987 – June 30,
1988                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.236
July 1, 1988 – June 30,
1989                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.258
July 1, 1989 – June 30,
1990                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.279
July 1, 1990 – June 30,
1991                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.300
July 1, 1991 – June 30,
1992                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.322
July 1, 1992 – June 30,
1993                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.343
July 1, 1993 – June 30,
1994                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.365
July 1, 1994 – June 30,
1995                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.386
July 1, 1995 – June 30,
1996                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.408
July 1, 1996 – June 30,
1997                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.429
July 1, 1997 – June 30,
1998                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.451
July 1, 1998 – June 30,
1999                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.472
July 1, 1999 – June 30, 2000 and thereafter
 
0.500

 

EXHIBIT C
 

 
 
Contract Year
   
 
Column 1
     
July 1, 1974 – June 30,
1975                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.086
July 1, 1975– June 30,
1976                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.086
July 1, 1976– June 30,
1977                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.086
July 1, 1977– June 30,
1978                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.086
July 1, 1978 – June 30,
1979                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.086
July 1, 1979 – June 30,
1980                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.021
July 1, 1980 – June 30,
1981                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.021
July 1, 1981 – June 30,
1982                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.021
July 1, 1982 – June 30,
1983                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.021
July 1, 1983 – June 30,
1984                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.043
July 1, 1984 – June 30,
1985                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.043
July 1, 1985 – June 30,
1986                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.043
July 1, 1986 – June 30,
1987                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.043
July 1, 1987 – June 30,
1988                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.043
July 1, 1988 – June 30,
1989                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.043
July 1, 1989 – June 30,
1990                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.064
July 1, 1990 – June 30,
1991                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.086
July 1, 1991 – June 30,
1992                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.107
July 1, 1992 – June 30,
1993                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.129
July 1, 1993 – June 30,
1994                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.172
July 1, 1994 – June 30,
1995                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.236
July 1, 1995 – June 30,
1996                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.300
July 1, 1996 – June 30,
1997                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.365
July 1, 1997 – June 30,
1998                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.408
July 1, 1998 – June 30,
1999                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
0.451
July 1, 1999 – June 30, 2000 and thereafter
 
0.500

 

EXHIBIT D
 
DISTRICT'S SQUILCHUCK POWER
 

 
 
Contract Year
   
 
District's Squilchuck Power MW
     
July 1, 1974 – June 30,
1975                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
48
July 1, 1975– June 30,
1976                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
51
July 1, 1976– June 30,
1977                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
55
July 1, 1977– June 30,
1978                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
58
July 1, 1978 – June 30,
1979                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
62
July 1, 1979 – June 30,
1980                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
65
July 1, 1980 – June 30,
1981                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
72
July 1, 1981 – June 30,
1982                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
80
July 1, 1982 – June 30,
1983                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
87
July 1, 1983 – June 30,
1984                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
95
July 1, 1984 – June 30,
1985                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
102
July 1, 1985 – June 30,
1986                                                                 . . . . . .
. . . . . . . . . . . . . . . . . .
 
109
July 1, 1986 – June 30, 1987 and Thereafter
 
116

 

EXHIBIT E
 
SECTIONS OF DISTRICT RESOLUTION NO. 4950
 

SECTION 6.6.   Construction Fund.  There is hereby created a special fund of the
District to be known as the "Columbia River-Rock Island Hydro-Electric System
Expansion Construction Fund" (hereinafter referred to as the "Construction
Fund") which shall be held in trust by the Construction Fund Trustee for the
benefit of the District and the holders of the Bonds, as their interests may
appear.  There is also hereby created in the Construction Fund a special account
to be known as the "Construction Interest Account"
A.           Immediately upon the issuance and delivery of any Series of Bonds,
there shall be paid into the Construction Fund such amount of the proceeds
derived from the sale of such Series of Bonds as is to be applied to the payment
of the Cost of Construction.  The amount of said proceeds to be applied to the
payment of interest on the Bonds shall be credited to the Construction Interest
Account.
B.           From the proceeds derived from the 1974 Bonds there shall be
deposited:
1.           With the Construction Fund Trustee for credit to the Construction
Interest Account an amount equal to the accrued interest on said Bonds paid as
part of the purchase price thereof;
2.           With the Construction Fund Trustee for credit to the Construction
Interest Account an amount equal to the interest to accrue on said Bonds from
the date thereof to July 1, 1979,
less the amount of the accrued interest paid into said Account pursuant to
subparagraph 1 above, which shall be used to pay interest on said Bonds during
such period;
3.           With the Bond Fund Trustee for credit to the Reserve Account in the
Expansion Bond Fund an amount equal to the Reserve Account Requirement;
4.           Into the Expansion Reserve and Contingency Fund the sum of Three
Million Dollars ($3,000,000);
5.           Into the Original Reserve Fund an amount sufficient as of the date
of delivery of and payment for the 1974 Bonds to increase said Fund to the
amount required to be on deposit therein pursuant to the Basic Resolution, but
only to the extent that moneys have theretofore been expended therefrom in
connection with the Second Powerhouse.
6.           Into the Revenue Fund the sum of Seven Hundred Fifty Thousand
Dollars ($750,000) to be used for working capital; and
7.           With the Construction Fund Trustee for credit to the Construction
Fund the balance of such Bond proceeds, which shall be applied to the Cost of
Construction.
C.           From the proceeds derived from each Series of Bonds other than the
1974 Bonds, there shall be deposited:
1.           With the Construction Fund Trustee for credit to the Construction
Interest Account an amount equal to the accrued interest on said Bonds paid as a
part of the purchase price thereof;
2.           With the Construction Fund Trustee for credit to the Construction
Interest Account an amount which, together with amounts then in such Account,
shall be equal to the interest to accrue on said Bonds and all other Bonds, if
any, then outstanding, to July 1, 1979, or to the then estimated Date of
Commercial Operation, whichever is later, less the amount of the accrued
interest paid into said Account pursuant to subparagraph 1 above, which shall be
used to pay interest on said Bonds during such period;
3.           With the Bond Fund Trustee for credit to the Reserve Account in the
Expansion Bond Fund an amount equal to the Reserve Account Requirement; and
4.           With the Construction Fund Trustee for credit to the Construction
Fund the balance of such Bond proceeds, which shall be applied to the Cost of
Construction.
D.           Moneys in the Construction Interest Account shall be used for the
purpose of paying interest on the Bonds.  On or before the 25th day of the month
next preceding the maturity of an installment of interest on the Bonds the
Construction Fund Trustee shall transfer from the Construction Interest Account
to the Bond Fund Trustee for deposit in the Interest Account in the Expansion
Bond Fund an amount which, together with any moneys theretofore received or held
by the Bond Fund Trustee for that purpose, shall be sufficient to pay such next
maturing installment of interest on said Bonds.  If at any time
moneys in the Construction Interest Account and other available moneys are
inadequate for such purpose, the Construction Fund Trustee shall transfer from
the Construction Fund to the Construction Interest Account such amount of moneys
as is required to permit such transfer to the Bond Fund Trustee.
E.           All moneys received by the District by reason of the breach of
default of contractors in connection with the construction of the Second
Powerhouse shall be paid to the Construction Fund Trustee for deposit in the
Construction Fund.
SECTION 6.7.   Investment of Moneys in Construction Fund.  The Construction Fund
Trustee may, and at the direction of the District shall, invest the moneys in
the Construction Fund from time to time in Investment Securities, which
Investment Securities shall mature, or which shall be subject to redemption at
the option of the holder thereof, in not more than five (5) years from the date
of purchase.  Any investment made by the Construction Fund Trustee and any
direction given by the District shall be made or given with due regard to the
latest estimate of the Construction Engineer filed with or certified to the
Construction Fund Trustee pursuant to Section 8.3 and Section 8.6 of this
Resolution with respect to the amounts needed from time to time to pay Cost of
Construction and the estimated dates of such payments.  All interest earned by
reason of such investments shall accrue to the Construction Fund. In the event
moneys so invested are needed in the Construction Fund to meet obligations
thereof for which funds are not otherwise available, then the Construction Fund
Trustee shall sell, or present for redemption, said investments to the extent
required to provide for such purpose.  The Construction Fund Trustee shall not
be liable for any depreciation in the value of any of such investments or
deposits made at the direction of the District.
SECTION 6.8.   Cost of Construction.  Payment of the Cost of Construction shall
be made from the moneys in the Construction Fund and from moneys made available
therefor from the special account provided for by Section 6.2.6 of Resolution
No. 3443 of the District adopted by the Commission of the District on May 24,
1962.  For the purpose of this Resolution, the Cost of Construction shall
include all costs of constructing, acquiring and installing the Second
Powerhouse as generally described in Section 2.2 hereof and shall include, but
not be limited to, the following:
A.           Paying or reimbursing the cost of preliminary surveys,
investigations, engineering and other expenses and fees properly incurred for
the Second Powerhouse.
B.           Paying the cost of obtaining any and all permits and licenses
required by any governmental agency or authority having jurisdiction and any
other licenses, permits, approvals or legal rights of any kind required for, or
used or useful in the construction, acquisition and installation of the Second
Powerhouse.
C.           Paying obligations incurred for labor and materials and to
contractors, builders and to material suppliers in connection with the
construction, acquisition and installation of the Second Powerhouse, for
machinery and equipment, for the restoration and relocation of property damaged
or destroyed in connection with such construction, for the removal or relocation
of structures and for the clearing of lands.
D.           Paying the cost of acquiring by purchase, if such purchase shall be
deemed expedient, and the amount of any deposit in court or award or final
judgment in or any settlement or compromise of any proceeding to acquire by
condemnation or by the exercise of the power of eminent domain such lands,
property, rights of way, franchises, easements, or other interests in land as
may be deemed by the District to be used or useful for the construction,
acquisition, installation, maintenance and operation of the Second Power house,
options and partial payments thereon, the amounts of any damages incident to or
consequent upon the construction, acquisition, installation, maintenance and
operation of the Second Powerhouse, options and partial payments thereon, the
amounts of any damages incident to or consequent upon the construction,
acquisition, installation and operation of the Second Powerhouse.
E.           Paying interest on the Bonds accruing until July 1, 1979, or the
Date of Commercial Operation, whichever is later.
F.           Paying the fees and expenses of the Construction Fund Truste for
all services rendered under this Resolution during the Period of Construction,
and of the Bond Fund Trustee and of the Paying Agents for all services rendered
under this Resolution until July 1, 1979 or the Date of Commercial Operation,
whichever is later; taxes or other municipal or governmental charges lawfully
levied or assessed against the Second Powerhouse and any taxes levied against
property acquired therefor or payments required in lieu thereof, in each case to
the Date of Commercial Operation, and premiums on insurance in connection with
the construction of the Second Powerhouse during the Period of Construction.
G.           Paying the cost to the District of the performance of the duties of
the Construction Engineer and the Consulting Engineer and other engineering and
professional services rendered to the District in connection with the
acquisition and construction of the Second Powerhouse and the placing of the
Second Powerhouse in operation, or the issuance of Bonds therefor.
H.           Paying or reimbursing the District for expenses incident and
properly allocable to the acquisition and construction of the Second Powerhouse
and the placing of the same in operation, including per diem compensation or
salaries of the Commission, legal, engineering, financing, accounting and other
professional expenses and fees, costs of printing and preparing and issuing the
Bonds, wages of office and clerical employees, administrative management
expenses, pension requirements, health and hospitalization insurance and all
other items of expense not specified elsewhere in this Section which are
incident and properly allocable to the acquisition and construction of the
Second Powerhouse and placing the same in operation (including the premiums on
any insurance and fidelity bonds required or obtained during construction),
including miscellaneous fees and costs in connection with the acquisition of
lands, rights of way, property rights, franchises, easements, costs of abstracts
of title, title insurance, cost of surveys and appraisals.
I.           Paying into the Expansion Reserve and Contingency Fund the amounts
necessary to maintain said Fund at Three Million Dollars ($3,000,000) on or
prior to the Date of Commercial Operation.
Notwithstanding any other provision of this Resolution, prior to July 1, 1979,
or the Date of Commercial Operation, whichever is later, the costs and expenses,
including taxes of the District in connection with the operation and maintenance
of the Second Powerhouse, and the cost of all repairs, renewals and replacements
to the Second Powerhouse, shall be paid from the Construction Fund. Prior to
July 1, 1979, or the Date of Commercial Operation, whichever is later, all
revenues, income, receipts and other moneys derived from the operation of the
Second Powerhouse shall be deposited in the Construction Fund.
In any event, amounts in the Construction Fund shall be applied to the payment
when due of principal of and interest on the Bonds to the extent that other
moneys are not available therefor and such amounts are hereby pledged as
additional, payments to the Expansion Bond Fund to the extent required for any
such deficiency.
SECTION 6.10.   Distribution of Moneys in Construction Fund.  As soon as
practicable after the Construction Engineer shall have filed the report required
by Section 8.4 hereof, any balance then remaining in the Construction Fund shall
be used and applied by the Construction Fund Trustee as follows in the following
order:
First, to pay to the Bond Fund Trustee for credit to the Interest Account in the
Expansion Bond Fund that amount, if any, of the interest to accrue on the Bonds
to July 1, 1979; and to the extent of any remainder of such balance,
Second, to set aside in the Construction Fund the amounts specified in such
report pursuant to clauses (c), (d), (e), and (f) of Section 8.4 hereof, and to
apply the same to the payment of the Cost of Construction in accordance with the
provisions of Section 6.9 hereof; and to the extent of any remainder of such
balance,
Third, to pay to the Bond Fund Trustee for deposit in the Reserve Account the
amount of any deficiency in such Account; and to the extent of the remainder of
such balance,
Fourth, to pay to the Bond Fund Trustee such remainder for credit to the Bond
Retirement Account.
As soon as practicable after the Construction Engineer shall have led the report
required by Section 8.5 hereof, the Construction Fund Trustee shall pay to the
Bond Fund Trustee the amount specified in such report
pursuant to clause (b) of such Section for deposit in the Reserve Account to the
extent of any deficiency in such Account, and to the extent of any remainder of
such amount the Construction Fund Trustee shall pay to the Bond Fund Trustee
such remainder for credit to the Bond Retirement Account.
SECTION 6.11.   Moneys in Construction Fund Pending the Application
Thereof.  The moneys in the Construction Fund and in the Construction Interest
Account therein, pending their application as provided in this Resolution, shall
be held in trust and shall be subject to a prior and paramount lien and charge
in favor of the holders of the Bonds, and the holders of the Bonds shall have a
valid claim on such moneys for the further security of said Bonds until paid out
or transferred as herein provided.