Exhibit 10.1

 
EXECUTION COPY

______________________________________________________________________________

RECEIVABLES SALE AGREEMENT

dated as of

December 20, 2005

between

PUGET SOUND ENERGY, INC.,
as Originator

AND

PSE FUNDING, INC.,
as Buyer

______________________________________________________________________________

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RECEIVABLES SALE AGREEMENT

THIS RECEIVABLES SALE AGREEMENT, dated as of December 20, 2005, is by and
between PUGET SOUND ENERGY, INC., a Washington corporation (“Originator”), and
PSE FUNDING, INC., a Washington corporation (“Buyer). Unless defined elsewhere
herein, capitalized terms used in this Agreement shall have the meanings
assigned to such terms in Exhibit I hereto (or, if not defined in Exhibit I
hereto, the meaning assigned to such term in the Loan Agreement).

PRELIMINARY STATEMENTS
 
WHEREAS, Originator now owns, and from time to time hereafter will own,
Receivables. Originator wishes to contribute and sell and assign to Buyer, and
Buyer wishes to accept as a contribution and purchase from Originator, all of
Originator's right, title and interest in and to such Receivables, together with
the Related Security and Collections with respect thereto.

WHEREAS, Originator and Buyer intend the transactions contemplated hereby to be
true sales of the Receivables from Originator to Buyer, providing Buyer with the
full benefits of ownership of the Receivables, and Originator and Buyer do not
intend these transactions to be, or for any purpose to be characterized as,
loans from Buyer to Originator.

WHEREAS, in order to finance its purchases of such Receivables, Related Security
and Collections from the Originator, Buyer has entered into that certain Loan
and Servicing Agreement dated as of the date hereof (as the same may from time
to time hereafter be amended, supplemented, restated or otherwise modified, the
“Loan Agreement”) by and among Buyer, as Borrower, Originator, as Servicer, the
commercial paper conduits from time to time party thereto as Conduit Lenders,
the entities from time to time party thereto as Committed Lenders, the financial
institutions from time to time party thereto as Managing Agents and JPMorgan
Chase Bank, N.A., as Program Agent.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:

ARTICLE I  
AMOUNTS AND TERMS OF THE PURCHASES
 
Section 1.1  Purchases of Receivables.
 
(a)  Effective on the date hereof, in consideration for the Purchase Price, in
the case of purchases hereunder, and upon the terms and subject to the
conditions set forth herein, Originator does hereby contribute, sell, assign,
transfer, set-over and otherwise convey to Buyer, without recourse (except to
the extent expressly provided herein), and Buyer does hereby accept as a
contribution or purchase, as applicable, from Originator, all of Originator's
right, title and interest in and to all Receivables existing as of the close of
business on the Business Day immediately prior to the date hereof and all
Receivables thereafter arising through and including the Termination Date,
together, in each case, with all Related Security relating thereto and all
Collections thereof. In accordance with the preceding sentence, on the date
hereof Originator shall contribute to Buyer, and Buyer shall acquire all of
Originator's right, title and interest in and to all Receivables existing as of
the close of business on the Business Day immediately prior to the date hereof
together with all Related Security and Collections related thereto. On each
Business Day after the date hereof, Originator shall sell and Buyer shall
acquire all of Originator’s right, title and interest in and to all Receivables
arising on the date hereof and thereafter arising through and including the
Termination Date, together with all Related Security relating thereto and all
Collections thereof. Buyer shall be obligated to pay the Purchase Price for the
Receivables purchased hereunder in accordance with Section 1.2. In connection
with the payment of the Purchase Price for any Receivables purchased hereunder,
Buyer may request that Originator deliver, and Originator shall deliver, such
approvals, opinions, information, reports or documents as Buyer may reasonably
request.
 
(b)  It is the intention of the parties hereto that each Purchase of Receivables
made hereunder shall constitute a sale or contribution, as applicable, which
sale or contribution is absolute and irrevocable and provides Buyer with the
full benefits of ownership of the Receivables. Except for the Purchase Price
Credits owed pursuant to Section 1.3, the sales and contributions of Receivables
hereunder are made without recourse to Originator; provided, however, that (i)
Originator shall be liable to Buyer for all representations, warranties,
covenants and indemnities made by Originator pursuant to the terms of the
Facility Documents to which Originator is a party, and (ii) such sale or
contribution does not constitute and is not intended to result in an assumption
by Buyer or any assignee thereof of any obligation of Originator or any other
Person arising in connection with the Receivables, the related Contracts and/or
other Related Security or any other obligations of Originator. In view of the
intention of the parties hereto that the Purchases of Receivables made hereunder
shall constitute sales or contributions of such Receivables rather than loans
secured thereby, Originator agrees that it will, on or prior to the date hereof
and in accordance with Section 4.1(e)(ii), mark its master data processing
records relating to the Receivables with a legend acceptable to Buyer and to the
Program Agent (as Buyer's assignee), evidencing that Buyer has purchased such
Receivables as provided in this Agreement and to note in its financial
statements that its Receivables have been sold to Buyer. Upon the request of
Buyer or the Program Agent (as Buyer's assignee), Originator will execute and/or
file such financing or continuation statements, or amendments thereto or
assignments thereof, and such other instruments or notices, as may be necessary
or appropriate to perfect and maintain the perfection of Buyer's ownership
interest in the Receivables and the Related Security and Collections with
respect thereto, or as Buyer or the Program Agent (as Buyer's assignee) may
reasonably request.
 
Section 1.2  Payment for the Purchases.
 
(a)  The Receivables in existence on the close of business on the Business Day
immediately preceding the date hereof (the “Initial Cutoff Date”) are hereby
contributed to Buyer by Originator on the date hereof.
 
Each Receivable coming into existence after the Initial Cutoff Date, shall be
sold to the Buyer on the Business Day occurring immediately after the day such
Receivable is originated and the Purchase Price for such Receivable shall be due
and owing in full by Buyer to Originator or its designee on such Business Day
(except that Buyer may, with respect to any such Purchase Price, offset against
such Purchase Price any amounts owed by Originator to Buyer hereunder and which
have become due but remain unpaid) and shall be paid to Originator in the manner
provided in the following paragraphs (b), (c) and (d).

(b)  With respect to any Receivables sold hereunder after the date hereof, on
the first Business Day after such Receivable is originated, such Receivable
shall be sold to Buyer and on such date of Purchase, Buyer shall pay the
Purchase Price therefor in accordance with Section 1.2(d) and in the following
manner:
 
(i)  first, by delivery of immediately available funds, to the extent of funds
available to Buyer from Borrowings under the Loan Agreement or other cash on
hand; and
 
(ii)  second, unless Originator has declared the Termination Date to have
occurred pursuant to Section 5.2, by accepting a contribution to its capital in
an amount equal to the remaining unpaid balance of such Purchase Price.
 
(c)  From and after the Termination Date, Originator shall not be obligated to
(but may, at its option) sell Receivables to Buyer unless Originator reasonably
determines that the Purchase Price therefor will be satisfied with funds
available to Buyer from Borrowings under the Loan Agreement, Collections, other
cash on hand or otherwise.
 
(d)  Although the Purchase Price for each Receivable coming into existence after
the Initial Cutoff Date shall be paid in full by Buyer to Originator on the date
such Receivable is purchased, a precise reconciliation of the Purchase Price
between Buyer and Originator shall be effected on a monthly basis no later than
each Settlement Date with respect to all Receivables sold during the same
Calculation Period most recently ended prior to such Settlement Date and based
on the information contained in the Monthly Report delivered by the Servicer
pursuant to Article VI of the Loan Agreement for such Calculation Period.
Although such reconciliation shall be effected no later than each Settlement
Date, any contribution of capital by Originator to Buyer made pursuant to
Section 1.2(b) shall be deemed to have occurred and shall be effective on the
date that the Purchase Price is paid.
 
(e)  Each contribution of a Receivable by Originator to Buyer shall be deemed to
be a Purchase of such Receivable by Buyer for all purposes of this Agreement.
Buyer hereby acknowledges that Originator shall have no obligations to make
further capital contributions to Buyer, in respect of Originator’s equity
interest in Buyer or otherwise, in order to provide funds to pay the Purchase
Price to Originator under this Agreement or for any other reason.
 
Section 1.3  Purchase Price Credit Adjustments.
 
(a)  If on any day the Outstanding Balance of a Receivable is:
 
(i)  reduced as a result of any defective or rejected or returned goods or
services, any discount or any adjustment or otherwise by Originator (other than
cash Collections on account of the Receivables),
 
(ii)  reduced or canceled as a result of a setoff in respect of any claim by any
Person (whether such claim arises out of the same or a related transaction or an
unrelated transaction), or
 
(b)  if any of the representations and warranties set forth in Article II are
not true with respect to any Receivable on the date of its Purchase hereunder,
 
then, in such event, Buyer shall be entitled to a credit (each, a “Purchase
Price Credit”) against the Purchase Price otherwise payable hereunder in an
amount equal to the amount of such reduction or cancellation in the case of
clause (a) or the Outstanding Balance of such Receivable in the case of clause
(b). If such Purchase Price Credit exceeds the Purchase Price for the
Receivables sold on such day, then Originator shall pay the remaining amount of
such Purchase Price Credit in cash within five (5) Business Days thereafter.

Section 1.4  Payments and Computations, Etc.   All amounts to be paid or
deposited by Buyer hereunder shall be paid or deposited in accordance with the
terms hereof on the day when due in immediately available funds to the account
of Originator designated from time to time by Originator or as otherwise
directed by Originator. In the event that any payment owed by any Person
hereunder becomes due on a day that is not a Business Day, then such payment
shall be made on the next succeeding Business Day. If any Person fails to pay
any amount hereunder when due, such Person agrees to pay, on demand, the Default
Fee in respect thereof until paid in full; provided, however, that such Default
Fee shall not at any time exceed the maximum rate permitted by applicable law.
All computations of interest payable hereunder shall be made on the basis of a
year of 360 days for the actual number of days (including the first but
excluding the last day) elapsed.
 
Section 1.5  Transfer of Records.
 
(a)  In connection with the Purchases of Receivables hereunder, Originator
hereby sells, transfers, assigns and otherwise conveys to Buyer all of
Originator's right and title to and interest in the Records relating to all
Receivables sold hereunder, without the need for any further documentation in
connection with the Purchases. In connection with such transfer, Originator
hereby grants to each of Buyer, the Program Agent and the Servicer an
irrevocable, non-exclusive license to use, without royalty or payment of any
kind, all software used by Originator to account for the Receivables, to the
extent necessary to administer the Receivables, whether such software is owned
by Originator or is owned by others and used by Originator under license
agreements with respect thereto, provided that should the consent of any
licensor of such software be required for the grant of the license described
herein, to be effective, Originator hereby agrees that upon the request of Buyer
(or Buyer's assignee), Originator will use its reasonable efforts to obtain the
consent of such third-party licensor. The license granted hereby shall be
irrevocable until the indefeasible payment in full of the Borrower Obligations,
and shall terminate on the date this Agreement terminates in accordance with its
terms.
 
(b)  Originator (i) shall take such action requested by Buyer and/or the Program
Agent (as Buyer's assignee), from time to time hereafter, that may be necessary
or appropriate to ensure that Buyer and its assigns under the Loan Agreement
have an enforceable ownership interest in the Records relating to the
Receivables purchased from Originator hereunder, and (ii) shall use its
reasonable efforts to ensure that Buyer, the Program Agent and the Servicer each
has an enforceable right (whether by license or sublicense or otherwise) to use
all of the computer software used to account for the Receivables and/or to
recreate such Records.
 
Section 1.6  Characterization.   If, notwithstanding the intention of the
parties expressed in Section 1.1(b), the sale or contribution by Originator to
Buyer of Receivables hereunder shall be characterized as a secured loan and not
a sale or such sale shall for any reason be ineffective or unenforceable, then
this Agreement shall be deemed to constitute a security agreement under the UCC
and other applicable law. For this purpose and without being in derogation of
the parties' intention that the sale of Receivables hereunder shall constitute a
true sale thereof, Originator hereby grants to Buyer a duly perfected security
interest in all of Originator's right, title and interest in, to and under all
Receivables now existing and hereafter arising, all Collections and Related
Security with respect thereto, each Lock-Box and Deposit Account, all other
rights and payments relating to the Receivables and all proceeds of the
foregoing to secure the prompt and complete payment of a loan deemed to have
been made in an amount equal to the Purchase Price of the Receivables together
with all other obligations of Originator hereunder, which security interest
shall be prior to all other Adverse Claims thereto. Buyer and its assigns shall
have, in addition to the rights and remedies which they may have under this
Agreement, all other rights and remedies provided to a secured creditor under
the UCC and other applicable law, which rights and remedies shall be cumulative.
 
Section 1.7  Additional Grant of Security Interest. As security for the
obligations of the Originator under this Agreement (including, without
limitation, those described in Section 1.3 herein), the Originator hereby grants
to the Buyer, a duly perfected first priority security interest in all of the
Originator’s right, title and interest in, to and under all Receivables, Related
Security with respect to such Receivables, the Deposit Accounts, the Lock-Boxes
and all proceeds of the foregoing, including without limitation, all Collections
of such Receivables, that arise after the Termination Date.
 

ARTICLE II  
REPRESENTATIONS AND WARRANTIES
 
Section 2.1  Representations and Warranties of Originator
 
. Originator hereby represents and warrants to Buyer on the date hereof, and on
the date of each Purchase hereunder that:
 
(a)  Corporate Existence and Power. Originator is (a) a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) has all requisite corporate power, and
has all material governmental licenses, authorizations, consents and approvals
necessary to own its property and carry on its business as now being conducted;
and (c) is qualified to do business in all jurisdictions in which the nature of
the business conducted by it makes such qualification necessary and where
failure so to qualify could reasonably be expected to have a Material Adverse
Effect.
 
(b)  Power and Authority; Due Authorization, Execution and Delivery. Originator
has all necessary corporate power and authority to execute and deliver this
Agreement and each other Facility Document to which it is a party, and to
perform its obligations hereunder and thereunder and to use the proceeds of the
Purchases made hereunder. The execution and delivery by Originator of this
Agreement and each other Facility Document to which it is a party, and the
performance of its obligations hereunder and thereunder and use of the proceeds
of the Purchases made hereunder have been duly authorized by all necessary
corporate action on its part. This Agreement and each other Facility Document to
which Originator is a party has been duly and validly executed and delivered by
Originator.
 
(c)  No Conflict. None of the execution and delivery by Originator of this
Agreement and each other Facility Document to which it is a party, nor the
performance of its obligations hereunder and thereunder will conflict with or
result in a breach of, or a default under, or require any consent under, (i) its
certificate or articles of incorporation or by-laws, (ii) any law, rule or
regulation applicable to it, (iii) any agreement or instrument to which it is a
party or by which it or any of its property is bound or subject, or (iv) any
order, writ, judgment, injunction or decree of any court or governmental
authority or agency binding on or affecting it or its property, and will not
result in or require the creation or imposition of any Adverse Claim upon any of
the revenues or on assets of Originator or its Subsidiaries (except as created
hereunder); and no transaction contemplated hereby requires compliance with any
bulk sales act or similar law.
 
(d)  Governmental Authorization. Other than the filing of the financing
statements required hereunder and the notice to the Washington Utilities and
Transportation Commission (which Originator has filed), no authorizations,
approvals or consents of, and no notices to, or filings or registrations with,
any governmental authority or regulatory authority or agency (other than
informational filings) are necessary for the execution and delivery by
Originator of this Agreement and each other Facility Document to which it is a
party and the performance of its obligations hereunder and thereunder or for the
validity or enforceability hereof or thereof.
 
(e)  Actions, Suits. There are not, in any court or before any arbitrator of any
kind or before or by any governmental body, any actions, suits or proceedings
pending or, to Originator's knowledge, threatened against or affecting
Originator or any of its businesses or properties (i) except for actions, suits
or proceedings (A) that exist as of the date of this Agreement and are disclosed
in PSE’s Annual Report on Form 10-K for the year ended December 31, 2004, PSE’s
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, June 30,
2005 or September 30, 2005 or (B) which, singly or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect or (ii) which affect in
any adverse manner the binding nature, validity or enforceability of any
Facility Document. Originator is not in default with respect to any order of any
court, arbitrator or governmental body, which default could reasonably be
expected to have a Material Adverse Effect.
 
(f)  Binding Effect. This Agreement and each other Facility Document to which
Originator is a party constitute the legal, valid and binding obligations of
Originator enforceable against Originator in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or limiting
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
 
(g)  Accuracy of Information. No information, exhibit or report furnished by
Originator or any of its Affiliates to Buyer (or its assigns) in connection with
the negotiation of, or compliance with, this Agreement (including any Monthly
Report, Weekly Report or Daily Report) or any of the other Facility Documents
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statements contained therein not misleading.
 
(h)  Use of Proceeds. Originator is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying margin stock,
as defined in Regulation U promulgated by the Board of Governors of the Federal
Reserve System from time to time, and no part of the proceeds of any purchase
hereunder will be used to buy or carry any margin stock.
 
(i)  Good Title. Immediately prior to each Purchase hereunder, Originator (i) is
the legal and beneficial owner of the Receivables and (ii) is the legal and
beneficial owner of the Related Security with respect thereto, in each case free
and clear of any Adverse Claim, except as created by the Facility Documents.
There have been duly filed all financing statements or other similar instruments
or documents necessary under the UCC (or any comparable law) of all appropriate
jurisdictions to perfect Originator’s ownership interest in each Receivable, its
Collections and the Related Security.
 
(j)  Perfection. This Agreement, together with the filing of the financing
statements contemplated hereby, is effective to, and shall, upon each purchase
hereunder, transfer to Buyer (and Buyer shall acquire from Originator) (i) legal
and equitable title to, with the right to sell and encumber each Receivable
existing and hereafter arising, together with the Collections with respect
thereto, and (ii) all of Originator's right, title and interest in the Related
Security and Collections associated with each Receivable, in each case, free and
clear of any Adverse Claim, except as created by the Facility Documents. There
have been duly filed all financing statements or other similar instruments or
documents necessary under the UCC (or any comparable law) of all appropriate
jurisdictions to perfect Buyer's ownership interest in the Receivables, the
Related Security and the Collections.
 
(k)  Jurisdiction of Organization; Places of Business, and Location of Records.
The jurisdiction of organization, principal places of business and chief
executive office of Originator and the offices where it keeps all of its Records
are located at the address(es) listed on Exhibit II or such other locations of
which Buyer has been notified in accordance with Section 4.2(a) in jurisdictions
where all action required by Section 4.1(g) and/or Section 7.3(a) has been taken
and completed. Originator's organizational number assigned to it by its
jurisdiction of organization and its Federal Employer’s Identification Number
are correctly set forth on Exhibit II. Originator has not, within a period of
one year prior to the date hereof, (i) changed the location of its principal
place of business or chief executive office or its organizational structure,
(ii) changed its legal name, (iii) changed its “location” (within the meaning of
Section 9-307 of the UCC as in effect in all applicable jurisdictions), or (iv)
become a “new debtor” (as defined in Section 9-102(a)(56) of the UCC as in
effect in all applicable jurisdictions) with respect to a currently effective
security agreement previously entered into by any other Person. Originator has
not changed its jurisdiction of organization. Originator is a Washington
corporation and is a “registered organization” (within the meaning of Section
9-102 of the UCC as in effect in the State of Washington).
 
(l)  Collections. The conditions and requirements set forth in Section 4.1(i)
have at all times been satisfied and duly performed. The names and addresses of
all Deposit Account Banks, together with the account numbers of the Deposit
Accounts at each Deposit Account Bank and the post office box number of each
Lock-Box, are listed on Exhibit III. Originator has not granted any Person,
other than Buyer (and its assigns) dominion and control or "control" (within the
meaning of Section 9-104 of the UCC of all applicable jurisdictions) of any
Lock-Box or Deposit Account, or the right to take dominion and control or
“control” (within the meaning of Section 9-104 of the UCC of all applicable
jurisdictions) of any such Lock-Box or Deposit Account at a future time or upon
the occurrence of a future event. On and after the date which is 60 days after
the date hereof, Originator has taken all steps necessary to ensure that Buyer
has “control” (within the meaning of Section 9-104 of the UCC of all applicable
jurisdictions) over all Deposit Accounts. Originator has the ability to
identify, within one (1) Business Day of receipt or deposit, all amounts that
are received in any Lock-Box or deposited to any Deposit Account as constituting
Collections or non-Collections. Except for proceeds of Excluded Receivables
(which shall be electronically swept or otherwise transferred out of such
Deposit Account within one (1) Business Day of being deposited therein in
accordance with Section 4.1(i)), no funds other than the proceeds of Receivables
are deposited to any Deposit Account. All Alternate Payment Locations are listed
on Exhibit III.
 
(m)  Material Adverse Effect. As of the date of this Agreement, since December
31, 2004, no event has occurred that would have a material adverse effect on the
financial condition or operations of Originator and its Subsidiaries. Since
December 31, 2004, no event has occurred that would have a material adverse
effect on (x) the ability of Originator to perform its obligations under this
Agreement or any other Facility Document to which it is a party, or (y) the
collectibility of the Receivables generally or any material portion of the
Receivables.
 
(n)  Names. In the past five (5) years, Originator has not used any corporate or
other names, trade names or assumed names other than the name in which it has
executed this Agreement.
 
(o)  Ownership of Buyer. Originator owns, directly or indirectly, 100% of the
issued and outstanding capital stock of Buyer, free and clear of any Adverse
Claim. Such capital stock is validly issued, fully paid and nonassessable, and
there are no options, warrants or other rights to acquire securities of Buyer.
 
(p)  PUHCA Investment Company Act. Puget Energy, Inc., a public utility holding
company under the Public Utility Holding Company Act of 1935, as amended
(“PUHCA”), which is exempt from regulation under PUHCA and the Securities and
Exchange Commission’s (“SEC”) rules thereunder (except for regulation under
Section 9(a)(2) of PUHCA) pursuant to Section 3(a)(1) and SEC Rule 2 under
PUHCA, owns all of the issued and outstanding common stock of Originator.
Originator is not, and after giving effect to the transactions contemplated
hereby, will not be required to register as, an “investment company” within the
meaning of the Investment Company Act of 1940, as amended, or any successor
statute.
 
(q)  Compliance with Law. Originator has complied in all material respects with
all applicable statutes, rules, regulations, orders and restrictions of any
domestic or foreign government or any instrumentality or agency thereof having
jurisdiction over the conduct of its businesses or the ownership of its
property, except for any failure to comply with any of the foregoing that could
not reasonably be expected to have a Material Adverse Effect. Each Receivable,
together with the Contract related thereto, does not contravene any laws, rules
or regulations applicable thereto (including, without limitation, laws, rules
and regulations relating to truth in lending, fair credit billing, fair credit
reporting, equal credit opportunity, fair debt collection practices or privacy),
and no part of such Contract is in violation of any such law, rule or
regulation.
 
(r)  Compliance with Credit and Collection Policy. Originator has complied in
all material respects with the Credit and Collection Policy with regard to each
Receivable and the related Contract, and has not made any change to such Credit
and Collection Policy, except as permitted under Section 4.2(c) and as to which
Buyer (or its assigns) has been notified, and if applicable, as to which Buyer
(or its assigns) has consented, in each case, in accordance with Section
4.1(a)(vii).
 
(s)  Payments to Originator. With respect to each Receivable transferred to
Buyer hereunder, the Purchase Price received by Originator constitutes
reasonably equivalent value in consideration therefor and such transfer was not
made for or on account of an antecedent debt. No transfer by Originator of any
Receivable hereunder is or may be voidable under any section of the Federal
Bankruptcy Code.
 
(t)  Enforceability of Contracts. Each Contract with respect to each Receivable
is effective to create, and has created, a legal, valid and binding obligation
of the related Obligor to pay the Outstanding Balance of the Receivable created
thereunder and any accrued interest thereon, enforceable against the Obligor in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to or limiting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
 
(u)  Eligible Receivables. Each Receivable included in the Net Receivables Pool
Balance as an Eligible Receivable on the date of Purchase hereunder was an
Eligible Receivable on such date.
 
(v)  Accounting. The manner in which Originator accounts for the transactions
contemplated by this Agreement does not jeopardize the characterization of the
transactions contemplated herein as being true sales.
 
(w)  Identification of Receivables. Originator identifies the receivables sold
(or purported to be sold) to Buyer hereunder and which are included in the Net
Receivables Pool Balance on its books and records (including any accounting
system) with the account code “FERC 142 Account Receivable.”
 
(x)  Nature of Receivables. No Receivables arises from the sale of minerals or
the like, including oil and gas, at the wellhead or the minehead.
 
(y)  ERISA. PSE and any other Person which is under common control (within the
meaning of Section 414(b) or (c) of the IRC) with PSE have fulfilled their
obligations (if any) under the minimum funding standards of ERISA and the IRC
for each ERISA Plan in compliance in all material respects with the currently
applicable provisions of ERISA and the IRC and have not incurred any liability
to the PBGC or an ERISA Plan under Title IV of ERISA (other than liability for
premiums due in the ordinary course). Assuming that the credit extended hereby
does not involve the assets of any employee benefit plan subject to ERISA or any
plan subject to Section 4975 of the IRC, neither the execution of this Agreement
nor the consummation of the transactions contemplated hereby will involve a
Prohibited Transaction.
 
(z)  Springing Lien Indentures. No “default” or other event which, with the
giving of notice or the passage of time or both, would constitute a “default”
has occurred under any Springing Lien Indenture. No Adverse Claim has been
created, and no event has occurred which, with the giving of notice or the
passage of time or both, would result in, or with the further action by a third
party would result in, the creation of any Adverse Claim, on the Receivables,
Related Security or the Collections pursuant to any Springing Lien Indenture or
any other indenture, agreement, instrument or filing other than as contemplated
by the Facility Documents.
 
ARTICLE III  
CONDITIONS OF PURCHASE
 
Section 3.1  Conditions Precedent to Initial Purchase.   The initial Purchase
under this Agreement is subject to the conditions precedent that (a) Buyer shall
have received on or before the date of such purchase those documents listed on
Schedule A, (b) all of the conditions to the Initial Borrowing under the Loan
Agreement shall have been satisfied or waived in accordance with the terms
thereof and (c) Originator shall have marked its books and records with a legend
satisfactory to Buyer (and its assigns) identifying Buyer's ownership interest
in the Receivables, Related Security and Collections.
 
Section 3.2  Conditions Precedent to Subsequent Purchases.   Buyer's obligation
to pay for Receivables coming into existence after the Initial Cutoff Date shall
be subject to the further conditions precedent that (a) the Facility Termination
Date shall not have occurred; (b) Buyer (or its assigns) shall have received
such other approvals, opinions or documents as it may reasonably request; and
(c) on the date such Receivable came into existence, the following statements
shall be true (and acceptance of the proceeds of any payment for such Receivable
shall be deemed a representation and warranty by Originator that such statements
are then true):
 
(a)  the representations and warranties set forth in Article II are true and
correct on and as of the date such Receivable came into existence as though made
on and as of such date unless such representations and warranties by their terms
refer to an earlier date, in which case they shall be correct on and as of such
earlier date; and
 
(b)  no event has occurred and is continuing that will constitute a Termination
Event or a Potential Termination Event.
 
Notwithstanding the foregoing conditions precedent, upon payment of the Purchase
Price for any Receivable (whether by payment of cash, by offset of amounts owed
to Buyer and/or by capital contributions), title to such Receivable and the
Related Security and Collections with respect thereto shall vest in Buyer,
whether or not the conditions precedent to Buyer's obligation to pay for such
Receivable were in fact satisfied. The failure of Originator to satisfy any of
the foregoing conditions precedent, however, shall give rise to a right of Buyer
to rescind the related Purchase and direct Originator to pay to Buyer an amount
equal to the Purchase Price payment that shall have been made with respect to
any Receivables related thereto.

ARTICLE IV 
COVENANTS
 
Section 4.1  Affirmative Covenants of Originator.  Until the date on which this
Agreement terminates in accordance with its terms, Originator hereby covenants
as set forth below:
 
(a)  Financial Reporting. Originator will maintain, for itself and each of its
Subsidiaries, a system of accounting established and administered in accordance
with GAAP, and furnish to Buyer (or its assigns):
 
(i)  Annual Reporting. As soon as available and in any event within 120 days
after the end of each fiscal year of Originator, a copy of the Annual Report on
Form 10-K (or any successor form) for Originator for such year, together with a
copy of the accompanying report of Originator's independent certified public
accounting firm.
 
(ii)  Quarterly Reporting. As soon as available and in any event within 60 days
after the close of each of the first three quarterly accounting periods in each
fiscal year of Originator, a copy of the Quarterly Report on Form 10-Q (or any
successor form) for Originator for such quarter.
 
(iii)  Compliance Certificate. Together with the financial statements required
hereunder, a compliance certificate in substantially the form of Exhibit IV
signed by Originator's Authorized Officer and dated the date of such annual
financial statement or such quarterly financial statement, as the case may be.
 
(iv)  [Reserved.]
 
(v)  S.E.C. Filings. Promptly upon the filing thereof, copies of all annual,
quarterly, monthly or other regular reports, and promptly upon the request of
Buyer (or its assigns), copies of all registration statements, in each case,
which Originator or any of its Subsidiaries files with the Securities and
Exchange Commission.
 
(vi)  Copies of Notices. Promptly upon its receipt of any notice, request for
consent, financial statements, certification, report or other communication
under or in connection with any Facility Document from any Person other than
Buyer, the Program Agent, any Managing Agent or any Lender, copies of the same.
 
(vii)  Change in Credit and Collection Policy. At least thirty (30) days prior
to the effectiveness of any material change in or material amendment to the
Credit and Collection Policy, a copy of the Credit and Collection Policy then in
effect and a notice (A) indicating such change or amendment, and (B) if such
proposed change or amendment would be reasonably likely to adversely affect the
collectibility of the Receivables or decrease the credit quality of any newly
created Receivables, requesting Buyer's consent thereto.
 
(viii)  Other Information. Promptly, from time to time, such other information,
documents, records or reports relating to the Receivables or the condition or
operations, financial or otherwise, of Originator as Buyer (or its assigns) may
from time to time reasonably request in order to protect the interests of Buyer
(and its assigns) under or as contemplated by this Agreement.
 
(b)  Notices. Originator will notify the Buyer and the Program Agent in writing
of any of the following promptly upon learning of the occurrence thereof,
describing the same and, if applicable, the steps being taken with respect
thereto:
 
(i)  Termination Events or Potential Termination Events. The occurrence of each
Termination Event and each Potential Termination Event, by a statement of an
Authorized Officer of Originator.
 
(ii)  Judgment and Proceedings. (A) The entry of any judgment or decree against
Originator or any of its Subsidiaries if the aggregate amount of all judgments
and decrees then outstanding against Originator and its Subsidiaries exceeds
$25,000,000, (B) the institution of any litigation, arbitration proceeding,
investigation or governmental proceeding against Originator which, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect and (C) any material development in any previously disclosed litigation,
arbitration proceeding, investigation or governmental proceeding.
 
(iii)  Material Adverse Effect. The occurrence of any event or condition that
has had, or could reasonably be expected to have, a Material Adverse Effect.
 
(iv)  Defaults Under Other Agreements. The occurrence of (A) any “default” or
other event which, with the giving of notice or the passage of time or both,
would constitute a “default” under any Springing Lien Indenture or any other
material financing arrangement pursuant to which the Originator is a debtor or
an obligor, (B) the creation of any Adverse Claim on, or the occurrence of any
event which, with the giving of notice or passage of time or both, would result
in, or with further action by any third party would result in, the creation of
any Adverse Claim on the Receivables, the Related Security or the Collections
pursuant to any Springing Lien Indenture or any other indenture, agreement,
instrument or filing, or (C) a default or an event of default under any other
financing arrangement in excess of $25,000,000, pursuant to which Originator is
a debtor or an obligor.
 
(v)  Downgrade of the Originator. Any downgrade in the rating of any
Indebtedness of Originator by S&P or by Moody's, setting forth the Indebtedness
affected and the nature of such change.
 
(vi)  Modification of Springing Lien Indentures. Any amendment, restatement,
supplement or modification, or any proposed amendment, restatement, supplement
or modification, of any provision of any Springing Lien Indenture which (A) is
related to the accounts receivable exception to the lien or security interest
granted thereunder or the circumstances under which such exceptions will cease
to exist or the events which could cause such exceptions to cease to exist or
(B) in any way could impair the Program Agent’s security interest in the
Receivables, Related Security and Collections or its rights under the Facility
Documents.
 
(c)  Compliance with Laws and Preservation of Corporate Existence.
 
(i)  Originator will comply with the requirements of all applicable laws, rules,
regulations and governmental approvals, and all orders, writs, injunctions and
decrees of any court or governmental authority or agency, if failure to comply
with such requirements could reasonably be expected to have a Material Adverse
Effect.
 
(ii)  Originator will (A) preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation and (B)
qualify and remain qualified in good standing as a foreign corporation in each
jurisdiction where its business is conducted, except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect.
 
(d)  Audits. Originator will furnish to Buyer (or its assigns) from time to time
such information with respect to it and the Receivables as Buyer (or its
assigns) may reasonably request. Originator will, from time to time during
regular business hours as requested by Buyer (or its assigns), upon reasonable
notice and at the sole cost of Originator, permit Buyer (or its assigns) or
their respective agents or representatives, (i) to examine and make copies of
and abstracts from all Records in the possession or under the control of
Originator relating to the Receivables and the Related Security, including,
without limitation, the related Contracts, and (ii) to visit the offices and
properties of Originator for the purpose of examining such materials described
in clause (i) above, and to discuss matters relating to Originator's financial
condition or the Receivables and the Related Security or Originator's
performance under any of the Facility Documents or Originator's performance
under the Contracts and, in each case, with any of the Authorized Officers of
Originator having knowledge of such matters (the activities referred to in the
preceding clauses (i) and (ii), collectively, an “Audit”). Notwithstanding the
foregoing, (i) unless an Event of Termination shall have occurred and be
continuing or a Daily Reporting Period shall be in effect, Originator shall not
be responsible for the costs of more than (A) during a Level 1 Ratings Period,
one Audit performed during any consecutive 12-month period and (B) during any
other Ratings Period, two Audits performed during any consecutive 12-month
period and (ii) the Originator agrees that it will cooperate with the Program
Agent in connection with the performance of an Audit to be completed within
sixty (60) days after the date hereof.
 
(e)  Keeping and Marking of Records and Books.
 
(i)  Originator will maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate records
evidencing Receivables in the event of the destruction of the originals
thereof), and keep and maintain all documents, books, records and other
information reasonably necessary or advisable for the collection of all
Receivables (including, without limitation, records adequate to permit the
immediate identification of each new Receivable and all Collections of and
adjustments to each existing Receivable). Originator will give Buyer (or its
assigns) notice of any material change in the administrative and operating
procedures referred to in the previous sentence.
 
(ii)  Originator will (A) on or prior to the date hereof, mark its master data
processing records and other books and records relating to the Receivables with
a legend, acceptable to Buyer (or its assigns), describing Buyer's ownership
interests in the Receivables and further describing the interests of the Program
Agent (on behalf of the Secured Parties) under the Loan Agreement and (B) upon
the request of Buyer (or its assigns), (x) mark each Contract with a legend
describing Buyer's ownership interests in the Receivables and further describing
the interests of the Program Agent (on behalf of the Secured Parties) and (y)
deliver to Buyer (or its assigns) all Contracts (including, without limitation,
all multiple originals of any such Contract) relating to the Receivables.
 
(f)  Compliance with Contracts and Credit and Collection Policy. Originator will
timely (i) fully perform and comply with all provisions, covenants and other
promises required to be observed by it under the Contracts related to the
Receivables, and (ii) comply in all material respects with the Credit and
Collection Policy in regard to each Receivable and the related Contract.
 
(g)  Ownership. Originator will take all necessary action to establish and
maintain, irrevocably in Buyer, (A) legal and equitable title to the
Receivables, the Related Security and the Collections and (B) all of
Originator’s right, title and interest in the Related Security associated with
the Receivables, in each case free and clear of any Adverse Claims other than
Adverse Claims in favor of Buyer (and its assigns) (including, without
limitation, the filing of all financing statements or other similar instruments
or documents necessary under the UCC (or any comparable law) of all appropriate
jurisdictions to perfect Buyer's interest in such Receivables, Related Security
and Collections and such other action to perfect, protect or more fully evidence
the interest of Buyer as Buyer (or its assigns) may reasonably request).
 
(h)  Lenders' Reliance. Originator acknowledges that the Program Agent and the
Lenders are entering into the transactions contemplated by the Loan Agreement in
reliance upon Buyer's identity as a legal entity that is separate from
Originator and any Affiliates thereof. Therefore, from and after the date of
execution and delivery of this Agreement, Originator will take all reasonable
steps including, without limitation, all steps that Buyer or any assignee of
Buyer may from time to time reasonably request to maintain Buyer's identity as a
separate legal entity and to make it manifest to third parties that Buyer is an
entity with assets and liabilities distinct from those of each Related Entity
and not just a division of any Related Entity. Without limiting the generality
of the foregoing and in addition to the other covenants set forth herein,
Originator will:
 
(i)  not hold itself out to third parties as liable for the debts of Buyer nor
purport to own the Receivables and other assets acquired by Buyer,
 
(ii)  take all other actions necessary on its part to ensure that Buyer is at
all times in compliance with the covenants set forth in Section 5.01(i) of the
Loan Agreement, and
 
(iii)  cause all tax liabilities arising in connection with the transactions
contemplated herein or otherwise to be allocated between Originator and Buyer on
an arm's-length basis and in a manner consistent with the procedures set forth
in U.S. Treasury Regulations §§1.1502-33(d) and 1.1552-1.
 
(i)  Collections. Originator will instruct all Obligors to remit all Collections
directly to a Lock-Box, an Alternate Payment Location or Deposit Account.
Originator will cause (1) all items from all Lock-Boxes and all items received
from all Alternate Payment Locations to be processed and deposited into a
Deposit Account within one (1) Business Day after such receipt or to be directly
deposited by a Deposit Account Bank into a Deposit Account, (2) all
non-Collection amounts deposited to any Deposit Account to be electronically
swept or otherwise transferred out of such Deposit Account within one (1)
Business Day of being deposited therein and (3) each Lock-Box and Deposit
Account to be subject at all times on and after the date which is 60 days after
the date hereof to a Blocked Account Agreement that is in full force and effect.
In the event any payments relating to Receivables are remitted directly to
Originator or any Affiliate of Originator, Originator will remit (or will cause
all such payments to be remitted) directly to a Deposit Account Bank and
deposited into a Deposit Account within two (2) Business Days following receipt
thereof, and, at all times prior to such remittance, Originator will itself hold
or, if applicable, will cause such payments to be held in trust for the
exclusive benefit of Buyer and its assigns. Originator will transfer exclusive
ownership, dominion and control and "control" (within the meaning of Section
9-104 of the UCC of all applicable jurisdictions), subject to this Agreement, of
each Lock-Box and Deposit Account to Buyer and, will not grant the right to take
dominion and control or "control" (within the meaning of Section 9-104 of the
UCC of all applicable jurisdictions) of any Lock-Box or Deposit Account at a
future time or upon the occurrence of a future event to any Person, except to
Buyer (or its assigns) as contemplated by this Agreement and the Loan Agreement.
With respect to each Deposit Account, Originator shall take all steps necessary
to ensure that Buyer (and its assigns) has “control” (within the meaning of
Section 9-104 of the UCC of all applicable jurisdictions) over each such Deposit
Account on and after the date which is 60 days after the date hereof.
 
(j)  Taxes. Originator will file all tax returns and reports required by law to
be filed by it and will promptly pay and discharge, before the same shall become
delinquent, all taxes, assessments and governmental charges or levies imposed
upon it or upon its property, except any such taxes, assessments, charges or
levies (i) that are being diligently contested in good faith by appropriate
proceedings or (ii) subject to the last sentence of this subsection (k), the
non-payment of which could not reasonably be expected to have a Material Adverse
Effect. Originator will pay when due any taxes payable in connection with the
Receivables, exclusive of taxes on or measured by income or gross receipts of
Buyer or its assigns.
 
(k)  Insurance. Originator will maintain with responsible insurance companies or
through its program of self-insurance, insurance against at least such risks and
in at least such amounts as is customarily maintained by similar businesses, or
as may be required by any applicable law, rule or regulation, any governmental
approval, or any order, writ, injunction or decree of any court or governmental
authority or agency.
 
(l)  Identification of Receivables. Originator shall at all times identify
receivables sold (or purported to be sold) to Buyer hereunder on its books and
records (including its accounting system) with the account code “FERC 142
Account Receivable.”
 
(m)  Frequency of Billing. Originator will prepare and mail invoices with
respect to all Receivables no less frequently than monthly.
 
Section 4.2  Negative Covenants of Originator.   Until the date on which this
Agreement terminates in accordance with its terms, Originator hereby covenants
that:
 
(a)  Name and Jurisdiction Change, Offices and Records. Originator will not
change its name, jurisdiction of organization, identity or corporate structure
(within the meaning of Sections 9-503 and/or 9-507 of the UCC of all applicable
jurisdictions), become a “new debtor” (as defined in Section 9-102(a)(56) of the
UCC of all applicable jurisdictions) with respect to a currently effective
security agreement previously entered into by any other Person, change its
“location” (within the meaning of Section 9-307 of the UCC of all applicable
jurisdictions) or relocate its chief executive office, principal place of
business or any office where Records are kept unless it shall have: (i) given
Buyer (or its assigns) at least forty-five (45) days' prior written notice
thereof and (ii) delivered to Buyer (or its assigns) all financing statements,
instruments and other documents requested by Buyer (or its assigns) in
connection with such change, event or relocation.
 
(b)  Change in Payment Instructions to Obligors. Originator will not add or
terminate any bank as a Deposit Account Bank, or make any change in the
instructions to Obligors regarding payments to be made to any Lock-Box or
Deposit Account, unless Buyer (or its assigns) shall have received, at least ten
(10) days before the proposed effective date therefor, (i) written notice of
such addition, termination or change and (ii) with respect to the addition of a
Deposit Account Bank or a Deposit Account or Lock-Box, an executed Blocked
Account Agreement and Lock-Box Transfer Notice, as applicable with respect to
the new Deposit Account or Lock-Box; provided, however, that Originator may make
changes in instructions to Obligors regarding payments if such new instructions
require such Obligor to make payments to another existing Deposit Account or
Lock-Box.
 
(c)  Modifications to Contracts and Credit and Collection Policy. Originator
will not make any change to the Credit and Collection Policy that could
adversely affect the collectibility of the Receivables or decrease the credit
quality of any newly created Receivables. Except as otherwise permitted in its
capacity as Servicer pursuant to Section 6.02(d) of the Loan Agreement,
Originator will not extend, amend or otherwise modify the terms of any
Receivable or any Contract related thereto other than in accordance with the
Credit and Collection Policy.
 
(d)  Sales, Liens. Originator will not sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to, or
create or suffer to exist any Adverse Claim upon (including, without limitation,
the filing of any financing statement) or with respect to, any Receivable,
Related Security or Collections, or upon or with respect to any Contract under
which any Receivable arises, or any Lock-Box or Deposit Account, or assign any
right to receive income with respect thereto (other than, in each case, the
creation of the interests therein in favor of Buyer provided for herein), and
Originator will defend the right, title and interest of Buyer in, to and under
any of the foregoing property, against all claims of third parties claiming
through or under Originator. Originator shall not create or suffer to exist any
mortgage, pledge, security interest, encumbrance, lien, charge or other similar
arrangement on any of its inventory, the sale of which results in a “FERC 142
Account Receivable”.
 
(e)  Accounting for Purchase. Originator will not, and will not permit any
Affiliate to, account for or treat (whether in financial statements or
otherwise) the transactions contemplated hereby in any manner other than the
sale of the Receivables and the Related Security by Originator to Buyer or in
any other respect account for or treat the transactions contemplated hereby in
any manner other than as a sale of the Receivables and the Related Security by
Originator to Buyer except to the extent that such transactions are not
recognized on account of consolidated financial reporting in accordance with
generally accepted accounting principles.
 
(f)  Collections. Except for proceeds of Excluded Receivables (which shall be
electronically swept or otherwise transferred out of such Deposit Account within
one (1) Business Day of being deposited therein in accordance with Section
4.1(i)), Originator will not deposit or otherwise credit, or cause or permit to
be so deposited or credited, to any Deposit Account cash or cash proceeds other
than Collections. Except as may be required by the Program Agent pursuant to the
last sentence of Section 6.02(b) of the Loan Agreement, Originator will not
deposit or otherwise credit, or cause or permit to be so deposited or credited,
any Collections or proceeds thereof to any lock-box account or to any other
account not covered by a Blocked Account Agreement.
 
ARTICLE V  
TERMINATION EVENTS
 
Section 5.1  Termination Events.   The occurrence of any one or more of the
following events shall constitute a “Termination Event”:
 
(a)  Originator shall fail:
 
(i)  to make any payment or deposit required hereunder when due and such failure
continues for two (2) Business Days, or to perform or observe any term, covenant
or agreement set forth in Section 4.1(c)(ii)(A), (i) or (l) or Section 4.2,
 
(ii)  to perform or observe any term, covenant or agreement set forth in Section
4.1(d), (g) or (h) and such failure shall continue for five (5) consecutive
Business Days after the earlier of (A) Originator obtaining knowledge thereof or
(B) Buyer (or its assigns) delivers written notice thereof, or
 
(iii)  to perform or observe any term, covenant or agreement hereunder (other
than as referred to in clauses (i) and (ii) of this subsection (a)) or any other
Facility Document to which it is a party and such failure shall continue for
thirty (30) consecutive days after the earlier of (A) Originator obtaining
knowledge thereof or (B) Buyer (or its assigns) delivers written notice thereof.
 
(b)  Any representation, warranty, certification or statement made by Originator
in this Agreement, any other Facility Document or in any other document
delivered pursuant hereto or thereto shall prove to have been materially false
on the date as of which made or deemed made.
 
(c)  Failure of Originator to pay any Indebtedness when due in excess of
$25,000,000 in the aggregate; or the default by Originator in the performance of
any term, provision or condition contained in any agreement under which any such
Indebtedness was created or is governed, the effect of which is to cause, or to
permit the holder or holders of such Indebtedness to cause, such Indebtedness to
become due prior to its stated maturity; or any such Indebtedness of Originator
shall be declared to be due and payable or required to be prepaid (other than by
a regularly scheduled payment) prior to the date of maturity thereof.
 
(d)  (i) Originator or any of its Significant Subsidiaries shall generally not
pay its debts as such debts become due or shall admit in writing its inability
to pay its debts generally or shall make a general assignment for the benefit of
creditors; or (ii) any proceeding shall be instituted by Originator or any of
its Significant Subsidiaries seeking to adjudicate it bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for it or any substantial part of its property; (iii) any
proceeding shall be instituted against Originator or any of its Significant
Subsidiaries seeking to adjudicate it bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee or other similar
official for it or any substantial part of its property and such proceeding
continues undismissed or unstayed for a period of 60 consecutive days; or (iv)
Originator or any of its Significant Subsidiaries shall take any corporate
action to authorize any of the actions set forth in the foregoing clauses (i),
(ii) or (iii) of this subsection (d).
 
(e)  A Change of Control shall occur.
 
(f)  One or more final judgments for the payment of money in an amount in excess
of $25,000,000, individually or in the aggregate, shall be entered against
Originator on claims not covered by insurance or as to which the insurance
carrier has denied its responsibility, and such judgment shall continue
unsatisfied and in effect for sixty (60) days without a stay of execution or
otherwise being appropriately contested in good faith.
 
(g)  Any event which constitutes a “default” (after the expiration of any
applicable cure period) under any Springing Lien Indenture, shall have occurred.
 
Section 5.2  Remedies.   Upon the occurrence and during the continuation of a
Termination Event, Buyer may take any of the following actions: (i) declare the
Termination Date to have occurred, whereupon the Termination Date shall
forthwith occur, without demand, protest or further notice of any kind, all of
which are hereby expressly waived by Originator; provided, however, that upon
the occurrence of a Termination Event described in Section 5.1(d), or of an
actual or deemed entry of an order for relief with respect to Originator under
the Federal Bankruptcy Code or under any other applicable bankruptcy,
insolvency, arrangement, moratorium or similar laws of any other jurisdiction
(foreign or domestic), the Termination Date shall automatically occur, without
demand, protest or any notice of any kind, all of which are hereby expressly
waived by Originator and (ii) to the fullest extent permitted by applicable law,
declare that the Default Fee shall accrue with respect to any amounts then due
and owing by Originator to Buyer. The aforementioned rights and remedies shall
be without limitation and shall be in addition to all other rights and remedies
of Buyer and its assigns otherwise available under any other provision of this
Agreement or any other Facility Document, by operation of law, at equity or
otherwise, all of which are hereby expressly preserved, including, without
limitation, all rights and remedies provided under the UCC in effect in any
jurisdiction, all of which rights shall be cumulative.
 
ARTICLE VI  
INDEMNIFICATION
 
Section 6.1  Indemnities by Originator.   Without limiting any other rights that
Buyer may have hereunder or under applicable law, Originator hereby agrees to
indemnify (and pay upon demand to) Buyer and its assigns, successors officers,
directors, agents, employees and Affiliates (each an “Indemnified Party”) from
and against any and all damages, losses, claims, taxes, liabilities, costs,
expenses and for all other amounts payable, including reasonable attorneys' fees
(which attorneys may be employees of Buyer or any such assign) and disbursements
(all of the foregoing being collectively referred to as “Indemnified Amounts”)
awarded against or incurred by any of them arising out of or as a result of this
Agreement or the acquisition, either directly or indirectly, by Buyer of an
interest in the Receivables, Contracts or Related Security, excluding, however:
 
(a)  Indemnified Amounts to the extent a final judgment of a court of competent
jurisdiction holds that such Indemnified Amounts resulted from gross negligence
or willful misconduct on the part of the Indemnified Party seeking
indemnification;
 
(b)  Indemnified Amounts to the extent the same includes losses in respect of
Receivables that are uncollectible on account of the insolvency, bankruptcy or
lack of creditworthiness of the related Obligor; or
 
(c)  taxes imposed by the United States federal government or the jurisdiction
in which such Indemnified Party's principal executive office is located, on or
measured by the overall net or gross income of such Indemnified Party;
 
provided, however, that nothing contained in this sentence shall limit the
liability of Originator or limit the recourse of the Indemnified Parties to
Originator for amounts otherwise specifically provided to be paid by Originator
under the terms of this Agreement or any other Facility Document. Without
limiting the generality of the foregoing indemnification, Originator shall
indemnify each Indemnified Party for Indemnified Amounts (including, without
limitation, losses in respect of uncollectible receivables, regardless of
whether reimbursement therefor would constitute recourse to Originator) relating
to or resulting from:

(i)  any representation or warranty made by Originator (or any officers of
Originator) under or in connection with this Agreement, any other Facility
Document or any other information or report delivered by Originator pursuant
hereto or thereto that shall have been false or incorrect when made or deemed
made;
 
(ii)  the failure by Originator, to comply with any applicable law, rule or
regulation with respect to any Receivable or Contract related thereto, or the
nonconformity of any Receivable or Contract included therein with any such
applicable law, rule or regulation or any failure of Originator to keep or
perform any of its obligations, express or implied, with respect to any
Contract;
 
(iii)  any failure of Originator to perform its duties, covenants or other
obligations in accordance with the provisions of this Agreement or any other
Facility Document;
 
(iv)  any products liability, personal injury or damage suit, or other similar
claim arising out of or in connection with merchandise, insurance or services
that are the subject of any Contract or any Receivable;
 
(v)  any dispute, claim, offset or defense (other than discharge in bankruptcy
of the Obligor) of the Obligor to the payment of any Receivable (including,
without limitation, a defense based on such Receivable or the related Contract
not being a legal, valid and binding obligation of such Obligor enforceable
against it in accordance with its terms), or any other claim resulting from the
sale of the merchandise or service related to such Receivable or the furnishing
or failure to furnish such merchandise or services;
 
(vi)  the commingling of Collections of Receivables at any time with other
funds;
 
(vii)  any investigation, litigation or proceeding related to or arising from
this Agreement or any other Facility Document, the transactions contemplated
hereby or thereby, the use of the proceeds of any Purchase Price payment, the
ownership of the Receivables, any lien on accounts receivable under any
Springing Lien Indenture or any other investigation, litigation or proceeding
relating to Originator in which any Indemnified Party becomes involved as a
result of any of the transactions contemplated hereby or by any other Facility
Document;
 
(viii)  any inability to litigate any claim against any Obligor in respect of
any Receivable as a result of such Obligor being immune from civil and
commercial law and suit on the grounds of sovereignty or otherwise from any
legal action, suit or proceeding;
 
(ix)  any Termination Event or Potential Termination Event described in Section
5.1(d);
 

(x)  any failure to vest and maintain vested in Buyer, or to transfer to Buyer,
legal and equitable title to, and ownership of, the Receivables and the
Collections, and all of Originator's right, title and interest in the Related
Security associated with the Receivables, in each case, free and clear of any
Adverse Claim (except as created by the Facility Documents);
 
(xi)  the failure to have filed, or any delay in filing, financing statements or
other similar instruments or documents under the UCC of any applicable
jurisdiction or other applicable laws with respect to any Receivable, the
Related Security and Collections with respect thereto, and the proceeds of any
thereof, whether at the time of the Purchase or at any subsequent time;
 
(xii)  any action or omission by Originator which reduces or impairs the rights
of Buyer with respect to any Receivable or the value of any such Receivable;
 
(xiii)  any attempt by any Person to void any Purchase hereunder under statutory
provisions or common law or equitable action; and
 
(xiv)  the failure of any Receivable included in the calculation of the Net
Receivables Pool Balance as an Eligible Receivable to be an Eligible Receivable
at the time so included.
 
(xv)  the failure of (i) any Deposit Account Bank to remit any amounts or items
of payment held in a Deposit Account or in a Lock-Box pursuant to the
instructions of the Program Agent given in accordance with this Agreement, the
applicable Blocked Account Agreement or the other Facility Documents, whether by
reason of the exercise of setoff rights or otherwise, (ii) any sub-servicer or
any other third party with a contractual relationship with the Originator for
the acceptance or processing of Collections, to remit any Collections received
by it to a Lock-Box or a Deposit Account.
 
Section 6.2  Other Costs and Expenses.   Originator shall reimburse Buyer on
demand for all reasonable costs and out-of-pocket expenses in connection with
the preparation, negotiation, arrangement, execution, delivery and
administration of this Agreement, the transactions contemplated hereby and the
other documents to be delivered hereunder. Originator shall reimburse Buyer on
demand for any and all costs and expenses of Buyer, if any, including reasonable
counsel fees and expenses in connection with the enforcement of this Agreement
and the other documents delivered hereunder and in connection with any
restructuring or workout of this Agreement or such documents, or the
administration of this Agreement following a Termination Event.
 
ARTICLE VII 
MISCELLANEOUS
 
Section 7.1  Waivers and Amendments.
 
(a)  No failure or delay on the part of Buyer (or its assigns) in exercising any
power, right or remedy under this Agreement shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right or remedy
preclude any other further exercise thereof or the exercise of any other power,
right or remedy. The rights and remedies herein provided shall be cumulative and
nonexclusive of any rights or remedies provided by law. Any waiver of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which given.
 
(b)  No provision of this Agreement may be amended, supplemented, modified or
waived except in writing signed by Originator and Buyer and, to the extent
required under the Loan Agreement and the Managing Agents.
 
Section 7.2  Notices
 
. All communications and notices provided for hereunder shall be in writing
(including bank wire, telecopy or electronic facsimile transmission or similar
writing) and shall be given to the other parties hereto at their respective
addresses or telecopy numbers set forth on the signature pages hereof or at such
other address or telecopy number as such Person may hereafter specify for the
purpose of notice to each of the other parties hereto. Each such notice or other
communication shall be effective (i) if given by telecopy, upon the receipt
thereof, (ii) if given by mail, three (3) Business Days after the time such
communication is deposited in the mail with first class postage prepaid or (iii)
if given by any other means, when received at the address specified in this
Section 7.2.
 
Section 7.3  Protection of Ownership Interests of Buyer.
 
(a)  Originator agrees that from time to time, at its expense, it will promptly
execute and deliver all instruments and documents, and take all actions, that
may be necessary or desirable, or that Buyer (or its assigns) may reasonably
request, to perfect, protect or more fully evidence the interest of Buyer
hereunder and the interests of the Secured Parties, or to enable Buyer (or its
assigns) to exercise and enforce their rights and remedies hereunder. Without
limiting the foregoing, Originator will, upon the request of Buyer (or its
assigns), file such financing or continuation statements, or amendments thereto
or assignments thereof, and execute and file such other instruments and
documents, that may be necessary or desirable, or that Buyer (or its assigns)
may reasonably request, to perfect, protect or evidence such interests. At any
time after the occurrence and during the continuation of an Event of
Termination, Buyer (or its assigns) may, at Originator's sole cost and expense,
direct Originator to notify the Obligors of Receivables of the ownership
interests of Buyer under this Agreement and may also direct that payments of all
amounts due or that become due under any or all Receivables be made directly to
Buyer or its designee.
 
(b)  If Originator fails to perform any of its obligations hereunder, Buyer (or
its assigns) may (but shall not be required to) perform, or cause performance
of, such obligations, and Buyer's (or such assigns') costs and expenses incurred
in connection therewith shall be payable by Originator as provided in Section
6.2. Originator irrevocably authorizes Buyer (and its assigns) at any time and
from time to time in the sole and absolute discretion of Buyer (or its assigns),
and appoints Buyer (and its assigns) as its attorney(ies)-in-fact, to act on
behalf of Originator (i) to authorize and/or execute on behalf of Originator as
debtor and to file financing or continuation statements (and amendments thereto
and assignments thereof) necessary or desirable in Buyer's (or its assigns')
sole and absolute discretion to perfect and to maintain the perfection and
priority of the interest of Buyer in the Receivables and (ii) to file a carbon,
photographic or other reproduction of this Agreement or any financing statement
with respect to the Receivables, the Related Security and the Collections as a
financing statement in such jurisdictions and in such offices as Buyer (or its
assigns) in their sole and absolute discretion deem necessary or desirable to
perfect and to maintain the perfection and priority of Buyer's interests in the
Receivables, the Related Security and the Collections. This appointment is
coupled with an interest and is irrevocable. The authorization by Originator set
forth in the second sentence of this Section 7.3(b) is intended to meet all
requirements for authorization by a debtor under Article 9 of any applicable
enactment of the UCC, including, without limitation, Section 9-509 thereof.
 
Section 7.4  Reserved.
 
Section 7.5  Bankruptcy Petition.
 
(a)  Originator and Buyer each hereby covenants and agrees that, prior to the
date that is one year and one day after the payment in full of all outstanding
senior indebtedness of any Conduit Lender, it will not institute against, or
join any other Person in instituting against, any Conduit Lender any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceeding under the laws of the United States or any state of the
United States.
 
(b)  Originator covenants and agrees that, prior to the date that is one year
and one day after the payment in full of all outstanding obligations of Buyer
under the Loan Agreement, it will not institute against, or join any other
Person in instituting against, Buyer any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar proceeding
under the laws of the United States or any state of the United States.
 
Section 7.6  Limitation of Liability.   Except with respect to any claim arising
out of the willful misconduct or gross negligence of any Lender, the Program
Agent or any Managing Agent, no claim may be made by Originator or any other
Person against any Lender, the Program Agent or any Managing Agent or their
respective Affiliates, directors, officers, employees, attorneys or agents for
any special, indirect, consequential or punitive damages in respect of any claim
for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement, or any act, omission
or event occurring in connection therewith; and Originator hereby waives,
releases, and agrees not to sue upon any claim for any such damages, whether or
not accrued and whether or not known or suspected to exist in its favor.
 
Section 7.7  CHOICE OF LAW.   THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
 
Section 7.8  CONSENT TO JURISDICTION.   Originator hereby irrevocably submits to
the non-exclusive jurisdiction of any New York State or Federal court sitting in
New York City in any action or proceeding arising out of or relating to this
Agreement, and each party hereto hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined in such New
York State court or, to the extent permitted by law, in such Federal court. The
parties hereto hereby irrevocably waive, to the fullest extent they may
effectively do so, the defense of an inconvenient forum to the maintenance of
such action or proceeding. The parties hereto agree that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Originator consents to the service of any and all process in any such action or
proceeding by the mailing of copies of such process to it at its address
specified in Section 7.2. Nothing in this Section 7.8 shall affect the right of
Buyer or its assigns to serve legal process in any other manner permitted by
law.
 
Section 7.9  WAIVER OF JURY TRIAL.   EACH PARTY HERETO HEREBY WAIVES TRIAL BY
JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY
ORIGINATOR PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER
OR THEREUNDER.
 
Section 7.10  Integration; Binding Effect; Survival of Terms.
 
(a)  This Agreement and each other Facility Document contain the final and
complete integration of all prior expressions by the parties hereto with respect
to the subject matter hereof and shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof superseding all prior
oral or written understandings.
 
(b)  This Agreement shall be binding upon and inure to the benefit of
Originator, Buyer and their respective successors and permitted assigns
(including any trustee in bankruptcy). Originator may not assign any of its
rights and obligations hereunder or any interest herein without the prior
written consent of Buyer. Buyer may assign at any time its rights and
obligations hereunder and interests herein to any other Person without the
consent of Originator. Without limiting the foregoing, Originator acknowledges
that Buyer, pursuant to the Loan Agreement, may assign to the Program Agent, for
the benefit of the Lenders, its rights, remedies, powers and privileges
here-under and that the Program Agent may further assign such rights, remedies,
powers and privileges to the extent permitted in the Loan Agreement. Originator
agrees that the Program Agent, as the assignee of Buyer, shall, subject to the
terms of the Loan Agreement, have the right to enforce this Agreement and to
exercise directly all of Buyer's rights and remedies under this Agreement
(including, without limitation, the right to give or withhold any consents or
approvals of Buyer to be given or withheld hereunder) and Originator agrees to
cooperate fully with the Program Agent in the exercise of such rights and
remedies. This Agreement shall create and constitute the continuing obligations
of the parties hereto in accordance with its terms and shall remain in full
force and effect until terminated in accordance with its terms; provided,
however, that the rights and remedies with respect to (i) any breach of any
representation and warranty made by Originator pursuant to Article II; (ii) the
indemnification and payment provisions of Article VI; and (iii) Section 7.5
shall be continuing and shall survive any termination of this Agreement.
 
Section 7.11  Counterparts; Severability; Section References.  This Agreement
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Unless otherwise expressly indicated, all references herein
to "Article," "Section," "Schedule" or "Exhibit" shall mean articles and
sections of, and schedules and exhibits to, this Agreement.
 
Section 7.12  Subordination.  Originator shall have the right to receive, and
Buyer shall make, any and all payments relating to any indebtedness, obligation
or claim, Originator may from time to time hold or otherwise have against Buyer
or any assets or properties of Buyer, whether arising hereunder or otherwise
existing, provided that, after giving effect to any such payment, the aggregate
Outstanding Balance of Receivables owned by Buyer at such time exceeds the sum
of the Borrower Obligations under the Loan Agreement. Originator hereby agrees
that at any time during which the condition set forth in the proviso of the
immediately preceding sentence shall not be satisfied, Originator shall be
subordinate in right of payment to the prior payment of any indebtedness or
obligation of Buyer owing to the Program Agent, any Managing Agent or any Lender
under the Loan Agreement.
 

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered by their duly authorized officers as of the date hereof.

PUGET SOUND ENERGY, INC.

By: /s/ Donald E. Gaines
Name: Donald E. Gaines
Title: Vice President Finance & Treasurer

Address:

10885 NE 4th Street, PSE-08N
Bellevue, WA 98004-5591

Mailing Address for Notices:

P.O. Box 97034
Bellevue, WA 98009-9734
Attention: Lisa Rice, Assistant Treasurer
Telephone: (425) 462-3752
Facsimile: (425) 462-3490

PSE FUNDING, INC.

By: /s/ Donald E. Gaines
Name: Donald E. Gaines
Title: President and Treasurer

Address:

10885 NE 4th Street
Bellevue, WA 98004-5591

Mailing Address for Notices:

P.O. Box 97034
Bellevue, WA 98009-9734
Attention: Lisa Rice, Assistant Treasurer
Telephone: (425) 462-3752
Facsimile: (425) 462-3490

 

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Exhibit I

Definitions

As used in this Agreement and the Exhibits, Schedules and Annexes thereto,
capitalized terms have the meanings set forth in this Exhibit I (such meanings
to be equally applicable to the singular and plural forms thereof). If a
capitalized term is used in this Agreement, or any Exhibit, Schedule or Annex
thereto, and not otherwise defined therein or in this Exhibit I, such term shall
have the meaning assigned thereto in the Loan Agreement.

“Agreement” means this Receivables Sale Agreement, dated as of December 20,
2005, between Originator and Buyer, as the same may be amended, restated,
supplemented or otherwise modified from time to time.

“Buyer” has the meaning set forth in the preamble to this Agreement.

“Calculation Period” means each calendar month or portion thereof which elapses
during the term of this Agreement. The first Calculation Period shall commence
on the date of the initial Purchase of Receivables hereunder and the final
Calculation Period shall terminate on the Termination Date.

“Change of Control” means the acquisition by any Person, or two or more Persons
acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange Act of
1934) of 20% or more (by number of votes) of the outstanding shares of voting
stock of Originator.

“Credit and Collection Policy” means Originator's credit and collection policies
and practices relating to Contracts and Receivables existing on the date hereof
and summarized in Exhibit V, as modified from time to time in accordance with
this Agreement.

“Default Fee” means a per annum rate of interest equal to the sum of (i) the
Prime Rate, plus (ii) 2% per annum.

“Dilutions” means, at any time, the aggregate amount of reductions or
cancellations described in Section 1.3(a) of this Agreement.

“Discount Factor” means a percentage calculated to provide Buyer with a
reasonable return on its investment in the Receivables after taking account of
(i) the time value of money based upon the anticipated dates of collection of
the Receivables and the cost to Buyer of financing its investment in the
Receivables during such period and (ii) the risk of nonpayment by the Obligors.
Originator and Buyer may agree from time to time to change the Discount Factor
based on changes in one or more of the items affecting the calculation thereof,
provided that any change to the Discount Factor shall take effect as of the
commencement of a Calculation Period, shall apply only prospectively and shall
not affect the Purchase Price payment made prior to the Calculation Period
during which Originator and Buyer agree to make such change.

“Facility Documents” means, collectively, this Agreement, each Blocked Account
Agreement and all other instruments, documents and agreements executed and
delivered in connection herewith.

“Facility Termination Date” means the “Termination Date” as defined in the Loan
Agreement.

“Initial Cutoff Date” has the meaning set forth in Section 1.2(a) of this
Agreement.

“Loan Agreement” shall have the meaning set forth in the Preliminary Statements
hereto.

“Material Adverse Effect” means a material adverse effect on (i) the financial
condition, operations or prospects of Originator and its Subsidiaries, (ii) the
ability of Originator to perform its obligations under this Agreement or any
other Facility Document, (iii) the legality, validity or enforceability of this
Agreement or any other Facility Document, (iv) Originator's, Buyer's, the
Program Agent's or any Secured Party's interest in the Receivables generally or
in any significant portion of the Receivables, the Related Security or
Collections with respect thereto, or (v) the collectibility of the Receivables
generally or of any material portion of the Receivables.

“Net Value” means, as of any date of determination, an amount equal to the sum
of (i) the aggregate Outstanding Balance of the Receivables at such time, minus
(ii) the sum of (A) the Aggregate Principal Balance outstanding at such time,
plus (B) the Required Reserves at such time.

“Net Worth” means as of the last Business Day of each Calculation Period
preceding any date of determination, the excess, if any, of (a) the aggregate
Outstanding Balance of the Receivables at such time, over (b) the Aggregate
Principal Balance outstanding at such time.

“Original Balance” means, with respect to any Receivable coming into existence
after the Initial Cutoff Date, the Outstanding Balance of such Receivable on the
date it was created.

“Originator” has the meaning set forth in the preamble hereto.

“Potential Termination Event” means an event which, with the passage of time or
the giving of notice, or both, would constitute a Termination Event.

“Program Agent” has the meaning set forth in the Preliminary Statements hereto.

“Purchase” means each purchase or contribution pursuant to Section 1.1 of this
Agreement by Buyer from Originator of the Receivables and the Related Security
and Collections related thereto, together with all related rights in connection
therewith.

“Purchase Price” means, with respect to each Purchase, the aggregate price to be
paid by Buyer to Originator for such Purchase in accordance with Section 1.2 of
this Agreement for the Receivables, Collections and Related Security being sold
to Buyer, which price shall equal on any date (i) the product of (x) the
Outstanding Balance of such Receivables on such date, multiplied by (y) one
minus the Discount Factor in effect on such date, minus (ii) any Purchase Price
Credits to be credited against the Purchase Price otherwise payable in
accordance with Section 1.3 of this Agreement.

“Purchase Price Credit” has the meaning set forth in Section 1.3 of this
Agreement.

“Receivable” means all indebtedness and other obligations arising in connection
with the sale of goods or the rendering of services by Originator and owed to
Originator (at the times it arises, and before giving effect to any transfer or
conveyance under this Agreement) or Buyer (after giving effect to the transfers
under this Agreement) or in which Originator or Buyer has a security interest or
other interest, including, without limitation, any indebtedness, obligation or
interest constituting an account, chattel paper, instrument or general
intangible, and which are identified on the books and records of Originator or
Buyer (including its accounting system) with the account code “FERC 142 Account
Receivable,” interest, finance charges, sales taxes and other taxes with respect
thereto and including with respect to Unbilled Receivables existing on the
Termination Date, 100% of the amount thereafter invoiced to any related Obligor
after the Termination Date, and further includes, without limitation, the
obligation to pay any Finance Charges with respect thereto. Indebtedness and
other rights and obligations arising from any one transaction, including,
without limitation, indebtedness and other rights and obligations represented by
an individual invoice, shall constitute a Receivable separate from a Receivable
consisting of the indebtedness and other rights and obligations arising from any
other transaction; provided, that any indebtedness, rights or obligations
referred to in the immediately preceding sentence shall be a Receivable
regardless or whether the account debtor or Originator treats such indebtedness,
rights or obligations as a separate payment obligation.

“Related Security” means, with respect to any Receivable:

(i)  all of Originator's interest in the inventory and goods (including returned
or repossessed inventory or goods), if any, the sale, licensing, financing or
lease of which by Originator gave rise to such Receivable, and all insurance
contracts with respect thereto,
 
(ii)  all other security interests or liens and property subject thereto from
time to time, if any, purporting to secure payment of such Receivable, whether
pursuant to the Contract related to such Receivable or otherwise, together with
all financing statements and security agreements describing any collateral
securing such Receivable,
 
(iii)  all guaranties, letters of credit, insurance, “supporting obligations”
(within the meaning of Section 9-102(a) of the UCC of all applicable
jurisdictions) and other agreements or arrangements of whatever character from
time to time supporting or securing payment of such Receivable whether pursuant
to the Contract related to such Receivable or otherwise,
 
(iv)  all service contracts and other contracts and agreements associated with
such Receivable,
 
(v)  all Records related to such Receivable,
 
(vi)  all of Originator's right, title and interest in and to each Lock-Box and
each Deposit Account and any and all agreements related thereto, and
 
(vii)  all proceeds of any of the foregoing.
 
“Required Capital Amount” means, as of any date of determination, an amount
equal to the product of (i) 10% multiplied by (ii) the aggregate Outstanding
Balance of all Receivables at such time.

“Settlement Date” means, with respect to each Calculation Period, the date that
two (2) Business Days after a Monthly Report is due.

“Termination Date” means the earliest to occur of (i) the Facility Termination
Date, (ii) the Business Day immediately prior to the occurrence of a Termination
Event set forth in Section 5.1(d), (iii) the Business Day specified in a written
notice from Buyer to Originator following the occurrence of any other
Termination Event, and (iv) the date which is 5 Business Days after Buyer's
receipt of written notice from Originator that it wishes to terminate the
facility evidenced by this Agreement.

“Termination Event” has the meaning set forth in Section 5.1 of this Agreement.

All accounting terms not specifically defined herein shall be construed in
accordance with GAAP. All terms used in Article 9 of the UCC in the State of
Illinois, and not specifically defined herein, are used herein as defined in
such Article 9.

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

Exhibit II

Principal Place of Business; Location(s) of Records; Federal Employer
Identification Number; Other Names; List of Alternate Payment Locations

Jurisdiction of Organization
·  WA
 
Chief Executive Office/Principal Place of Business
·  10885 NE 4th Street, Bellevue, WA 98004
 
Location(s) of Records
·  10885 NE 4th Street, Bellevue, WA 98004
·  19900 North Creek Parkway Bothell, WA 98012
 
Organizational Number
·  179 010 055
 
Federal Employer's Identification Number
·  91-0374630
 
Other Names
·  Puget Sound Power & Light Company, Washington Energy Company,
Washington Natural Gas Company, Puget Energy, Inc.

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Exhibit III

Lock-boxes; Deposit Accounts; Deposit Account Banks

Lock-Box
Related Deposit Account
P.O. Box No. 91269 at the U.S. Post Office branch located at 103rd Avenue NE,
Bellevue, WA 98004
Union Bank of California Account no. 4430000808 for receipts from Payment
Processing
N/A
Union Bank of California Account no. 4430000816 for receipts from Bill Payment
Consolidator
N/A
Key Bank Account no. 479681024614 for Government Electronic Receipts, APS
Receipts and Business Office Deposits
N/A
Key Bank Account no. 479681024655 for receipts from Customer Internet Payments
N/A
Key Bank Account no. 479681052383 for receipts from Checkfree
N/A
Key Bank Account no. 479681024663 for receipts from Customer Credit Card
Payments
N/A
Citibank Account no. 30599544 for receipts from Customer Direct Debits
N/A
U.S. Bank Account no. 153501775586 for receipts from Port Townsend Business
Office

List of Alternate Payment Locations

1. Internet via PSE’s customer website found at:
http://www.pse.com/account/paying/ebill.html
2. PSE Pay Station locations listed on PSE’s customer website found at:
http://www.pse.com/account/paystations/paystations.html.
3. Automatic Funds Transfer via a debit by PSE’s collection bank of the
Customer’s bank account and a credit to the Collection Account
4. Credit card Payments via Payment-by-Phone

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

 

Exhibit IV

Form of Compliance Certificate

This Compliance Certificate is furnished pursuant to that certain Amended and
Restated Receivables Sale Agreement dated as of December 20, 2005, between Puget
Sound Energy, Inc. (“Originator”) and PSE Funding, Inc. (as amended, restated,
supplemented or otherwise modified from time to time, the “Agreement”).
Capitalized terms used and not otherwise defined herein are used with the
meanings attributed thereto in this Agreement.

THE UNDERSIGNED HEREBY CERTIFIES THAT:

1. I am the duly elected ______________ of Originator.

2. I have reviewed the terms of the Agreement and I have made, or have caused to
be made under my supervision, a detailed review of the transactions and
conditions of Originator and its Subsidiaries during the accounting period
covered by the attached financial statements.

3. The examinations described in paragraph 2 above did not disclose, and I have
no knowledge of, the existence of any condition or event which constitutes a
Termination Event or a Potential Termination Event during or at the end of the
accounting period covered by the attached financial statements or as of the date
of this Certificate, except as set forth below.

4. Described below are the exceptions, if any, to paragraph 3 above by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which Originator has taken, is taking, or proposes to
take with respect to each such condition or event:

______________________________________________________

______________________________________________________

______________________________________________________

5. As of the date hereof, the jurisdiction of organization of Originator is
[insert state] and Originator is a "registered organization" (within the meaning
of Section 9-102 of the UCC in effect in such applicable jurisdiction) and
Originator has not changed its jurisdiction of organization since the date of
the Agreement.

The foregoing certifications and the financial statements delivered with this
Certificate in support hereof, are made and delivered this day of , 20__.

______________________________
[Name]

 

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Exhibit V

Credit and Collection Policy

Attached

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Schedule A

DOCUMENTS TO BE DELIVERED TO BUYER
ON OR PRIOR TO THE PURCHASE

SEE EXHIBIT G TO THE LOAN AGREEMENT.

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TABLE OF CONTENTS

ARTICLE I AMOUNTS AND TERMS OF THE PURCHASES
 
Section 1.1     Purchases of Receivables.
 
Section 1.2     Payment for the Purchases.
 
Section 1.3     Purchase Price Credit Adjustments
 
Section 1.4     Payments and Computations, Etc.
 
Section 1.5     Transfer of Records.
 
Section 1.6     Characterization
 
Section 1.7     Additional Grant of Security Interest.
                ARTICLE II REPRESENTATIONS AND WARRANTIES
 
Section 2.1     Representations and Warranties of Originator
    ARTICLE III CONDITIONS OF PURCHASE
 
Section 3.1     Conditions Precedent to Initial Purchase
 
Section 3.2     Conditions Precedent to Subsequent Purchases
                ARTICLE IV COVENANTS
 
Section 4.1     Affirmative Covenants of Originator
 
Section 4.2     Negative Covenants of Originator
                ARTICLE V TERMINATION EVENTS
 
Section 5.1     Termination Events
 
Section 5.2     Remedies
                ARTICLE VI INDEMNIFICATION
 
Section 6.1     Indemnities by Originator
 
Section 6.2     Other Costs and Expenses
            ARTICLE VII MISCELLANEOUS
 
Section 7.1     Waivers and Amendments.
 
Section 7.2     Notices
 
Section 7.3     Protection of Ownership Interests of Buyer.
 
Section 7.4     Reserved.
 
Section 7.5     Bankruptcy Petition.
 
Section 7.6     Limitation of Liability
 
Section 7.7     CHOICE OF LAW
 
Section 7.8     CONSENT TO JURISDICTION
 
Section 7.9     WAIVER OF JURY TRIAL
 
Section 7.10     Integration; Binding Effect; Survival of Terms.
 
Section 7.11     Counterparts; Severability; Section References
 
Section 7.12     Subordination
 

Exhibits and Schedules

Exhibit I     -     Definitions

Exhibit II     -     Principal Place of Business; Location(s) of Records;
Federal Employer Identification Number; Other Names

Exhibit III    -     Lock-Boxes; Deposit Accounts; Deposit Account Banks; List
of Alternate Payment Locations

Exhibit IV    -    Form of Compliance Certificate

Exhibit V    -      Credit and Collection Policy

Schedule A    List of Documents to Be Delivered to Buyer Prior to the Purchase