Exhibit 10.10
 

 
CONSTRUCTION AND OWNERSHIP
 
AGREEMENT
 
INDEX
 
TITLE
     
WITNESSETH
 
  1.
Definitions
 
  2.
Ownership of Project
 
  3.
Design, Engineering and Construction Management
 
  4.
Construction
 
  5.
Construction Cost
 
  6.
Payment of Cost of Project
 
  7.
Accounting and Reports
 
  8.
Licenses and Permits
 
  9.
Insurance
 
10.
Owners' Committee
 
11.
Damage to or Destruction of Project:  Disposition upon Abandonment
 
12.
Liabilities
 
13.
Defaults
 
14.
Uncontrollable Forces
 
15.
Waiver of Right to Partition
 
16.
Transfer and Assignments:  Secured Interests
 
17.
Obligations Are Several
 
18.
Successors and Assigns
 
19.
Notices
 
20.
Additional Documents
 
21.
Capital Additions and Retirements
 
22.
Construction of Additional Generating Units
 
23.
Regulatory Approval
 
24.
Arbitration
 
25.
Rule Against Perpetuities or Similar Or Related Rules
 
26.
Term
 

 

CONSTRUCTION AND OWNERSHIP
 
AGREEMENT
 

THIS AGREEMENT, made as of the 30th day of July 1971, by and between THE MONTANA
POWER COMPANY, a Montana corporation, hereinafter referred to as "Montana" and
PUGET SOUND POWER & LIGHT COMPANY, a Washington corporation, hereinafter
referred to as "Puget".
 
WITNESSETH:
 
WHEREAS, the parties desire to establish the terms and conditions relating to
their ownership, as tenants in common, and the planning, financing, acquisition,
construction, operation and maintenance of the Colstrip Steam Electric
Generating Project and related facilities, as hereinafter defined;
 
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements
herein stated and the performance thereof, all as hereinafter set forth, the
parties hereto mutually agree as follows:
 
1.           Definitions
 
(a)           "Project."  Project means the coal-fired thermal generating plant,
consisting of two units, each of 350 megawatt nominal rating and related
facilities as described in Exhibit "A" attached hereto and the necessary real
property, property rights, including access easements and appurtenances, as
described in Exhibit "B" hereto, located near Colstrip, Montana.
 
(b)           "Project Agreements" means this Agreement together with the
following agreements:
 
 
(i)
Agreement for the Operation and Maintenance of Colstrip Steam Electric
Generating Plant, hereinafter referred to as the "Operating Agreement";

 
 
(ii)
Coal Supply Agreement, Colstrip Steam Electric Generating Project, hereinafter
called the "Coal Agreement";

 
 
(iii)
Transmission Agreement.

 
(c)           "Owners" shall mean Montana and Puget or their successor or
assigns.
 
(d)           "Ownership Agreement" shall mean this Agreement.
 
2.           Ownership of Project
 
Subject to the terms and conditions hereinafter set forth, ownership of the
Project shall be as follows:
 
(a)           The Project other than coal shall be owned by the parties hereto
as tenants in common, with each party's respective undivided interests being in
the following percentages:
 
Montana - 50%
Puget      - 50%
 
Such percentages are hereafter referred to as the "Ownership Percentages".  Each
Owner shall be entitled to schedule and take an amount of generation up to but
not to exceed its Ownership Percentage of the Project's net generating
capability.
 
(b)           All of the respective covenants and agreements set forth and
contained in the Project Agreements are incorporated herein by this reference
and shall bind and shall be and become the respective obligations of each Owner,
its successors and assigns.  It is the specific intention of this provision
that, except for the parties' mutual Waiver of Right to Partition as set forth
in subsection 15(b) of this Ownership Agreement, all of the covenants and
conditions of all of the Project Agreements shall be personal to the parties and
not covenants running with the land and shall be binding upon any party which
acquires any rights, title or interest of any Owner of the Project in, to and
under the Project Agreements, pursuant to subsections (b) through (e) of
Section 16.
 
3.           Design, Engineering and Construction Management
 
Montana has entered into a Contract for Engineering, Procurement and
Construction with Bechtel Corporation, (hereinafter "Bechtel Contract") dated
January 23, 1970.  Puget became a party to said contract as of July 30,
1971.  Unless otherwise agreed, Montana and Puget will retain on a continuous
basis, the Bechtel Corporation or some other construction engineer or
engineering firm of national reputation recognized for knowledge, skill and
experience in the design and construction managements of electrical generating
facilities until the parties mutually agree that the Project has been completed.
 
4.           Construction
 
(a)           The Project shall be constructed at the lowest reasonable cost and
in a prudent and skillful manner in accord both with standards prevailing in the
utility industry for projects of a similar size and nature and with applicable
laws and final orders or regulations of regulatory agencies having jurisdiction
and substantially in accordance with the description set forth in the attached
Exhibit "A".  The Project shall substantially conform to designs, plans,
specifications and construction schedules which have been or will be made
available to the parties as such are available.  It is intended that the
contracts for purchase of equipment and construction of the Project shall be
scheduled so as to provide for a date of initial test and operation of the
Project, presently scheduled for May 1, 1975, for the first unit and May 1,
1976, for the second unit and for the commercial operation of the first unit of
the Project not later than July 1, 1975, and for the completion and commercial
operation of the second unit of the Project not later than July 1, 1976.
 
(b)           Any agreements, purchase contracts and orders entered into by
Montana in its own name providing for the purchase of materials, equipment and
services for the Project are hereby dedicated to the Project and ratified by
Puget.  Montana, with reasonable expedition as agent for itself and Puget, shall
enter into additional contracts for such purposes as well as contracts for the
construction of the Project; Montana will continue as agent for itself and Puget
to incur obligations and make expenditures relating to the engineering and other
services necessary for continued Project planning and engineering.
 
(c)           With the assistance of Puget, Montana on its own behalf as to its
own interest and as agent for Puget shall supervise and perform engineering and
other services in connection with the engineering and construction of the
Project.  Montana shall consult with Puget prior to making major decisions
involving the design and other engineering, purchasing, subcontracting and
construction of the Project.
 
(d)           As soon as practical after the execution of this Agreement,
Montana shall submit to Puget an estimate of total cost and a schedule setting
forth the estimated costs of constructing and completing the Project separately
by months.  Montana shall thereafter submit quarterly revisions of such schedule
to Puget, together with a summary report of the Construction Costs accumulated
to date and other pertinent data including, when requested, copies of
construction contracts, purchase orders and other agreements relating to
construction progress.
 
(e)           Montana will maintain, or cause to be maintained separately,
appropriate documentation and records of all Project expenditures and charges
made and incurred by Montana, together with all other charges, payments and any
expenses or receipts relating to Project construction.  Such records of Montana
shall be made available for inspection by Puget at all reasonable times.
 
(f)           Puget authorizes and directs Montana to schedule deliveries of
appropriate quantities of coal and other fuel to permit testing of the first and
second units of the Project as each said unit becomes ready therefor.  Montana
shall appropriately record coal and other fuel used for such purposes and
furnish a copy of such record to Puget.  Montana will schedule generation from
testing to the Owners according to their respective Ownership Percentages.
 
(g)           Surplus commodities, materials, equipment and the other personal
property resulting from construction of the Project shall be disposed of in
accordance with Section XVI(b) of the Operating Agreement.
 
5.           Construction Cost
 
Construction Cost of the Project shall consist of payments made and obligations
incurred by either party in connection with the construction, installation and
acquisition of the Project, other than interest during construction, for:
 
(a)           All costs of preliminary investigation in the Colstrip-Nichols
area, land and land acquisition, water development, development labor and other
costs, design, engineering, contractors' fees, construction labor, materials and
supplies, operator and other personnel training, testing, preparation of
Operation and Maintenance Manuals, and all other costs properly allocable to
Construction Costs.  Any net receipts relating to construction shall be credited
against Construction Costs;
 
(b)           All costs of insurance obtained pursuant to paragraph 9 hereof,
and applicable to the period of construction;
 
(c)           All costs relating to injuries and damage claims which may be
payable and paid arising out of the construction of the Project less proceeds of
insurance maintained under paragraph 9 hereof or under the Bechtel Contract;
 
(d)           All federal, state or local taxes imposed upon the Project during
the construction period but excluding state and federal net income taxes levied
upon income derived by the Owners during said period;
 
(e)           The cost of all services performed and materials furnished by
Montana and Puget directly applicable to Project construction including:
 
 
(i)
Payroll of employees, including principal department heads and officers based
upon an actual time or other agreeable basis, including all normal and usual
related employee benefit costs such as Social Security taxes, unemployment
insurance expense, group life insurance, group hospitalization and medical
insurance, pension funding expense, workmen's compensation, long-term disability
and other insurance, vacations, holidays, sick leave, etc.;

 
 
(ii)
Materials and supplies, including related purchasing and handling costs;

 
 
(iii)
Travel expenses, including use of Owners' transportation equipment;

 
 
(iv)
Construction power costs;

 
 
(v)
Other miscellaneous costs.

 
(f)           No administration and general expenses will be allocated to the
Project during construction as all applicable overhead costs will be included
with the direct costs charged to the Project under subsection (e) above.
 
6.           Payment of Cost of Project
 
(a)           Montana and Puget shall share Construction Costs according to
their respective Ownership Percentages.  Notwithstanding completion of the
Project, each Owner shall remain liable for any claims arising out of the
construction of the Project and shall be entitled to any refunds, repayments,
settlements or other credits with such claims and credits divided according to
their respective Ownership Percentage share.
 
(b)           Montana shall submit to Puget a detailed accounting of all
Construction Costs and receipts through June 30, 1972 and Puget shall submit
such an accounting to Montana.  Within fifteen (15) days after receipt of
Montana's accounting, Puget shall make an initial advance to Montana equal to
one-half (1/2) of the difference between Montana's statement and Puget's
statement, subject to later verification and acceptance of said
accountings.  Montana's accounting shall include such carrying costs as are
mutually agreed by the Owners.
 
(c)           From and after the date hereof, not later than the 20th day of
each month, Montana will notify Puget of the estimated sums required for
disbursements on account of the construction of the Project during the
succeeding calendar month.
 
(d)           Montana will continue to process and pay Construction Costs on the
Project in its usual manner.  Montana and Puget will establish a system of
advances mutually agreeable to both parties to provide Montana with funds to
cover Puget's share of Project's cost.
 
7.           Accounting and Reports
 
(a)           Montana shall at all times maintain and appropriately preserve
separate books of account containing detailed entries of all items of cost and
receipts applicable to the construction of the Project.  Accounting for all of
such costs shall be in accordance with customary practices in the electric
utility industry and the basic records and documents shall be made available to
Puget for inspection at all reasonable times.  Montana shall furnish to Puget
upon request, photocopies of all construction contracts and purchase orders and
of all accounting entries and vouchers in such detail as may be necessary in
order that each Owner may properly record its percentage of the Construction
Cost of the Project on such Owner's own books and records.
 
(b)           Montana shall furnish to Puget monthly Construction Costs and
progress reports and such other reports as may from time to time reasonably be
requested by Puget.  At the request of Puget, Montana shall provide certificates
signed by a responsible officer of Montana or an individual designated by him
for such signature setting forth the status of Project Construction costs and
application of funds.  The certificate shall be in such form and contain such
information as is reasonably requested by Puget.
 
(c)           Montana's books and records relating to Project Construction Costs
shall be open to inspection by Puget or any independent auditors nominated by
them.  Either party may request an independent audit of such Project costs at
any time during construction and at the completion thereof, the cost of which
shall be a Construction Cost.  The records shall also be made available on
written request by any of the companies to independent auditors and
representatives of any regulatory body or taxing authority having jurisdiction
for inspection, copying, audit or other proper business requirements.
 
8.           Licenses and Permits
 
Upon the expiration of any licenses or permits required for the ownership,
construction, maintenance, or operation of the Project or in the event new such
licenses or permits shall be required, the Owners as tenants in common agree to
file timely applications for the same as may be necessary or appropriate, such
licenses or permits to be held as tenants in common in accord with each parties'
respective Ownership Percentage.
 
9.           Insurance
 
(a)           The Owners shall procure at the earliest practicable time and
thereafter maintain in effect at all times hereinafter provided, to the extent
available at reasonable cost and in accord with standards prevailing in the
utility industry for projects of similar size and nature, adequate insurance
coverage of the Project with responsible insurers, with each Owner as a named
assured and with losses payable to the respective Owners for their benefit as
their respective interests may appear, to protect and insure against:
Workmen's Compensation and Employer's Liability, public liability for bodily
injury and property damage, all risks of physical damage to property or
equipment, including transportation and installation perils, and such other
insurance as the Owners deem necessary, with reasonable limits and subject to
appropriate exclusions and deductibles.  Self insurance under the State of
Montana's Workmen's Compensation laws may be substituted for the referenced
Workmen's Compensation and Employee's Liability insurance and the Owners agree
to cooperate to establish a procedure whereby the cost of such self insurance
shall be levelized over a three to five year period.
 
(b)           The premium costs for insurance coverages until the completion of
construction shall be a Construction Cost of the Project, and shall thereafter
be an operating expense and shall be borne by the Owners in their respective
percentage interests.
 
(c)           To the extent permitted by its insurance policies, each Owner
waives any rights of subrogation against the other Owner, its agents and
employees, for losses, costs, damages or expenses arising out of the
construction, operation, maintenance, reconstruction or repair of the Project.
 
10.           Owners' Committee
 
(a)           As a means of securing effective cooperation, interchange of
information and management of the property owned as tenants in common, on a
prompt and orderly basis in connection with various administrative and technical
problems which may arise from time to time under the terms and conditions of the
Project Agreements, the Owners hereby establish an Owner's Committee.
 
(b)           Each Owner shall notify the other Owner promptly of the
designation of its representative on the Owners' Committee and of any subsequent
change in its designation.  Either of the Owners may, by written notice to the
other Owner, designate an alternate or substitute to act as its representative,
to act on the Committee in the absence of the regular member of the Committee,
or to act on specified occasions or with respect to specified matters.
 
(c)           The Owners' Committee shall have no authority to modify any of the
provisions of this Agreement.
 
(d)           The Owners' Committee shall meet at such times and places as
agreed upon by the members or when requested by either Owner upon 10 days'
notice in writing.
 
(e)           Each Owner shall have the right through its officers, employees or
agents to inspect the Project and Project records at any reasonable time and to
require that the Project be constructed in accordance with the standards
provided in paragraph 4.
 
11.           Damage to or Destruction of Project:  Disposition upon Abandonment
 
(a)           If all or substantially all of the project be destroyed or damaged
beyond repair or damaged to the extent that the cost of repair substantially
exceeds the proceeds of insurance available for reconstruction or repair and the
Owners do not agree to reconstruct or repair the Project, or if for any reason
the Owners determine to abandon the Project, the salvageable portion of the
Project and the plant site shall be disposed of in accordance with a procedure
agreed upon by the Owners; the proceeds from such disposition shall be
distributed to the Owners in accordance with their respective percentages; any
demolition, removal and cleanup costs shall be charged against and borne by the
Owners in accordance with their respective percentages; provided, however, that
if either of the Owners of the Project elect to reconstruct the Project, the
value of the Project shall be appraised by independent appraisers and an amount
of money equal to such value multiplied by the percentage of such Owner not so
electing shall be paid by the Owner so electing; such Owner so receiving payment
shall convey its interest in the Project to the Owner so electing to
reconstruct.
 
(b)           In the event that less than substantially all of the Project shall
be destroyed or damaged, and the cost of repair, restoration or reconstruction
does not substantially exceed the proceeds of applicable insurance, unless
otherwise agreed by Owners the Project shall be repaired, restored, or
reconstructed by the Owners in such manner as to restore the Project to
substantially the same general character and use as the original project.
 
12.           Liabilities
 
(a)           Each of the Owners releases the other Owner, its agents and
employees, for any consequential losses or damages arising out of the
construction, operation, maintenance, reconstruction and repair of the Project,
including but not limited to loss of use and loss of profit.
 
(b)           Any loss, cost, liability, damage and expense to the Owners or any
Owner, other than damages to Owners resulting from loss of use and occupancy of
the Project or any part thereof, resulting from the construction, operation,
maintenance, reconstruction or repair of the Project and based upon injury to or
death of persons or damage to or loss of property including the Project and
other property of Owners or other parties, to the extent not covered by
collectible insurance, shall be charged to Project Construction Costs or Project
Operating Expenses, whichever may be appropriate.
 
13.           Defaults
 
(a)           Each Owner hereby agrees that it will make all payments and
perform all other obligations by it to be made or performed pursuant to all of
the terms, covenants and conditions contained in the several Project Agreements
and that a default of any of the terms, covenants and conditions contained in
any of the Project Agreements shall be an act of default under this Agreement.
 
(b)           In the event either Owner shall dispute an asserted default by it,
then such Owner shall make payment of any sums in dispute or perform the
obligation in dispute but may do so under protest.  Such protest shall be in
writing and shall specify the reasons upon which the protest is based by copies
thereof being mailed to the other Owner.  Upon resolution of such dispute, then
the payments advanced or made between Owners, as in this paragraph provided,
shall be adjusted appropriately.
 
14.           Uncontrollable Forces

 
No Owner shall be considered to be in default in the performance of any of the
obligations hereunder; other than obligations of either Owner to pay costs and
expenses, if failure of performance shall be due to uncontrollable forces.  The
term "uncontrollable forces" shall mean any cause beyond the control of the
Owner affected and which, by the exercise of reasonable diligence, the party is
unable to overcome, and shall include but not be limited to an act of God, fire,
flood, explosion, strikes, labor disputes, labor or material shortages,
sabotage, an act of the public enemy, civil or military authority, including
court orders, injunctions, and orders of government agencies with proper
jurisdiction prohibiting acts necessary to performance hereunder or permitting
any such act only subject to unreasonable conditions, insurrection or riot, an
act of the elements, failure of equipment, or inability to obtain or ship
materials or equipment because of the effect of similar causes on suppliers or
carriers.  Nothing contained herein shall be construed so as to require an Owner
to settle any strike or labor dispute in which it may be involved.  Any party
rendered unable to fulfill any obligation by reason of uncontrollable forces
shall exercise due diligence to remove such inability with all reasonable
dispatch.
 
15.           Waiver of Right to Partition
 
(a)           The Owners and each of them shall accept title to the Project, as
tenants in common, and agree that their interests therein shall be held in such
tenancy in common.
 
(b)           So long as the Project or any part thereof as originally
constructed, reconstructed or added to is used or useful for the generation of
electric power and energy, or to the end of the period permitted by applicable
law, whichever first occurs, the Owners waive the right to partition whether by
partition in kind or sale and division of the proceeds thereof, and agree that
they will not resort to any action at law or in equity to partition and further
waive the benefit of all laws that may now or hereafter authorize such partition
of the properties comprising the Project.  It is agreed this covenant shall be
deemed to run with the land.
 
16.           Transfer and Assignments:  Secured Interests
 
The undivided interest of either Owner in the Project, and all or any part
thereof, and in the Project Agreements, may be transferred and assigned as
follows but not otherwise:
 
(a)           To any mortgagee, trustee, or secured party, as security for bonds
or other indebtedness of such Owner, present or future; and such mortgagee,
trustee or secured party may realize upon such security in foreclosure or other
suitable proceedings, and succeed to all right, title and interests of such
Owner;
 
(b)           To any investor-owned corporation or entity in the utility
business into which or with which the Owner making the transfer may be merged or
consolidated;
 
(c)           To any corporation or entity the stock or ownership of which is
wholly owned by the Owner making the transfer;
 
(d)           To any other person; provided that the Owner shall first offer to
transfer its interest or any part thereof to the other Owner, at the amount of,
and on terms not less advantageous than, those of a bona fide offer from a buyer
able and willing to purchase such Owner's interest.  The offer shall remain open
for the period specified by the Owner but not less than six (6) months;
 
(e)           To any other person where the Owners consent to such transfer in
advance in writing.
 
No transfer or assignment of any interest in the Project or any Project
Agreement pursuant to subparagraphs (b) through (e) above may be made unless
simultaneously the Owner's interest or part thereof in all other Project
Agreements is similarly transferred or assigned to the same person or persons,
and such person or persons have assumed in writing all the duties and
obligations of the Owner transferring or assigning under this Agreement and
under all other Project Agreements.  Transfers or assignments shall not relieve
an Owner of any obligation hereunder, except to the extent agreed in writing by
all other Owners.
 
17.           Obligations are Several
 
The duties, obligations and liabilities of Montana and Puget hereunder are
intended to be several and not joint or collective and neither shall be jointly
or severally liable for the acts, ommission, or obligations of the
other.  Nothing herein contained shall be construed to create an association,
joint venture, partnership, or impose a partnership duty, obligation or
liability, between Montana and Puget.  Neither party shall have a right or power
to bind the other party without its express written consent, except as expressly
provided in this Agreement.  This Agreement shall be construed in accordance
with the laws of the State of Montana.
 
18.           Successors and Assigns
 
Subject to the restrictions on transfer and assignment herein provided, all of
the respective covenants and obligations of each of the Owners shall be and
become the respective obligations of the successors and assigns of each such
Owner.  It is the specific intention of this provision that all such covenants
and obligations shall be binding upon any party which acquires any of the right,
title or interest of either of the Owners in the Project pursuant to
subsections (b) through (e) of Section 16.
 
19.           Notices
 
Any notice, demand or request provided for in this Agreement served, given or
made in connection therewith shall be deemed properly served, given or made if
given in person or sent by registered or certified mail, postage prepaid,
addressed to the party or parties at its or their principal place or places of
business to the attention of the president or chief executive officer of Montana
or Puget.  Either party may at any time, and from time to time, change its
designation of the person to whom notice shall be given by giving notice to the
other party as hereinabove provided.
 
20.           Additional Documents
 
Each Owner, upon request by the other Owner, shall make, execute and deliver any
and all documents reasonably required to implement the terms of this Agreement.
 
21.           Capital Additions and Retirements
 
Capital improvements, betterments, replacements and additions shall be made and
accounted for as provided in Article XII of the Operating Agreement.  Capital
retirements shall be made as mutually agreed by the Owners.
 
22.           Construction of Additional Generating Units and Provisions For
Additional Facilities
 
(a)           Each Owner shall have the right to install and operate on the
Project land such facilities as are reasonably required to enable it to deliver
to its own system the power to which it is entitled under the Project
Agreements, and to establish interconnections between its system and that of the
other Owner; provided, however, that the facilities of either Owner shall be so
installed and operated as not to burden or unreasonably interfere with those of
the other Owner or the Project, the construction on the Project land of
generating units in addition to the first two units, or the ultimate full
utilization of the land.  In the event that an Owner proposes to install or
operate facilities which would require the relocation of previously installed
facilities of the other Owner, or of the Project, but would otherwise meet the
requirements of the preceding sentence, the Owner desiring to install or operate
such facilities shall have the right to call for such relocation if it bears the
cost thereof.
 
(b)           Montana either individually or jointly with other parties shall
have the right to construct and operate on Project real property (subject to the
provisions of subparagraph (c) giving Puget a right to participate therein)
additional generating units and necessary appurtenances thereto; provided,
however, that no unit with a planned net capability less than 180 MW shall be so
constructed and operated without the consent of Puget and that any additional
generating units and related appurtenances shall be so installed and operated as
not to burden or unreasonably interfere with the facilities of Puget, the
Project, or the ultimate full utilization of the Project Site for electric power
generation.  In the event Montana individually or jointly with any other party
decides to construct and operate an additional generating unit or units and
appurtenances which would require the relocation of previously installed
facilities of Puget or the Project, it shall have the right to call for or
accomplish such relocation, as the case may be, if it bears the cost
thereof.  In connection with any such additional units Montana individually or
jointly with other parties shall have the right to use any facilities installed
as part of the Project and to modify such facilities for use in connection with
the installation or operation of such additional generating units and
appurtenances; provided, however, that such use of Project facilities shall not
burden or unreasonably interfere with the Project, that the cost of any
modification shall be borne by Montana, and that Montana shall pay to the
Project Owners a reasonable monthly facilities' charge based on the portion of
the Project facilities devoted to the use of the additional units as compared to
the portion devoted to the generating units of the Project, which charge shall
take into account such costs as capital and other carrying charges,
depreciation, O & M, taxes, insurance and return on investment.
 
(c)           To the extent Montana individually or jointly with any other party
decides to construct and operate additional steam electric generating units at
the Project Site, Puget shall have the right to participate in the ownership of
such units to the extent it elects, but not to exceed fifty percent (50%) of the
total ownership of each unit, under terms and conditions substantially similar
to these Project Agreements taking into account intervening changes in
construction, ownership and operating costs and conditions.  Such right shall be
exercised with respect to each individual additional generating unit at the time
that Montana makes a firm decision to construct said additional unit and may not
be cumulated for application against later generating units.
 
(d)           In the event any or all of the next 1400 MW of such additional
generation, not including generation from units agreed to be constructed under
the Project Agreements, is not constructed on the Project Site but is
constructed elsewhere in Montana by Montana using Colstrip coal, Puget shall
have the right to participate in the ownership of such plants to the extent it
elects but not to exceed fifty percent (50%) of the total ownership of each unit
under terms and conditions substantially similar to these Project Agreements
taking into account intervening changes in construction, ownership and operating
costs and conditions.  Such right to participate in off-site generation shall
not extend, however to generating facilities owned in whole or in part by
Montana constructed to serve a specific industrial load, generation developed or
utilized as a by-product of an industrial process, generation undertaken jointly
with another Montana utility, or generation undertaken jointly with a public or
quasi public agency and any such generation in which Puget does not have a right
to participate shall not reduce Puget's entitlement to participate in the
aforementioned 1400 MW of additional generation; provided, however, that to the
extent Puget has a right to participate in future generation under this
subsection (d) it must exercise such right with respect to each individual
additional generating unit at the time that Montana makes a firm decision to
construct said additional unit and such right to participate may not be
cumulated for application against later generating units.
 
(e)           After Montana has offered to Puget the opportunity to participate
in 1400 MW of additional generation under paragraphs (c) or (d) above, Puget
shall have the right to participate in the ownership of any steam electric
generation undertaken by Montana which uses Colstrip area coal to the extent it
elects but not to exceed twenty-five percent (25%) of the total ownership in any
such generation plant.  Puget's right to participate shall be upon a right of
first refusal basis whereby Montana will offer such right to Puget at the time
that Montana makes a firm decision to construct an additional unit upon terms
and conditions not less favorable to Puget than would be offered to any other
bona fide proposed participant.  Such right shall not extend, however, to
generating facilities owned in whole or part by Montana constructed to serve a
specific industrial load, generation developed as a by-product of an industrial
process, generation undertaken jointly with another Montana utility, generation
undertaken jointly with a public or quasi public agency or to generating
facilities owned and operated solely by Montana.
 
(f)           All of the rights of Puget described in paragraphs (d) and (e)
above shall be subject to the following limitations:
 
(1)           Such rights to participate shall terminate to the extent not
previously exercised on June 1, 1992;
 
(2)           If Puget elects to participate pursuant to subsections (c), (d),
or (e) above, it will so advise Montana in writing within ninety (90) days of
the receipt by it of written notice from Montana that it has made a firm
decision.  Prior to sending such notice, Montana shall make available to Puget
any relevant information it has concerning the proposed plant;
 
(3)           Such rights are not assignable by Puget to any other entity
without the consent of Montana except to a corporation whose stock or other
ownership is wholly owned by Puget or except to a successor corporation to Puget
resulting from a corporate reorganization in which there is no substantial
change in beneficial ownership;
 
(4)           Such rights to the extent not previously exercised, may be
withdrawn by Montana with respect to a proposed plant upon a sufficient showing
of unsound financial or other adverse operating condition of Puget which has or
may have a significant material bearing upon Puget's ability to perform its
obligations and discharge its liabilities under agreements reasonably necessary
to construct, own and operate such additional generating units;
 
(5)           Montana, unless otherwise mutually agreed, shall be the Operator
of any steam electric generating plants constructed under the terms of this
Section 22; and
 
(6)           Nothing contained in this Section 22 shall be construed to
constitute a dedication of coal reserves owned by Western Energy Company, a
subsidiary of Montana, nor an agreement to dedicate such reserves.
 
 
(g)
(1)
"Colstrip Area Coal" or "Colstrip Coal" as used in this Section 22 means those
coal reserves now or hereafter owned or controlled by Western Energy Company, a
Montana corporation, within the sections shown on Exhibit "C" attached;

 
(2)           "Project Site" as used herein shall include the real property,
property rights, easements and appurtenances described in Exhibit B.
 
23.           Regulatory Approval
 
It is understood that transfers of property under this Agreement to another
party hereto may be subject to the jurisdiction of state or federal regulatory
agencies and this Agreement shall not be effective as to such transfers until
approved by all regulatory authorities having jurisdiction.
 
24.           Arbitration
 
Any controversies arising out of or relating to any of the Project Agreements
other than the "Coal Agreement" including any failure of the Owners to agree
with respect to any matter requiring Owners' agreements hereunder, which cannot
be resolved through negotiations between the parties hereto within thirty
(30) days after inception of the matter in dispute, shall be submitted to an
Arbitrator, competent and experienced in electric utility industry accounting
and operations.  If the parties cannot mutually agree upon such Arbitrator, then
upon petition of either party, such Arbitrator shall be appointed by the senior
United States District Judge for the District of Montana.  The arbitration shall
be conducted under the rules of the American Arbitration Association.  The
Arbitrator shall render his decision in writing not later than thirty (30) days
after the matter has been submitted to him, and such decision shall be
conclusive and binding upon the parties.  The costs incurred by any arbitration
proceedings shall be borne equally by the Owners.
 
25.           Rule Against Perpetuities Or Similar Or Related Rules
 
If the duration of any term or condition of the Project Agreements shall be
subject to the rule against perpetuities or a similar or related rule then the
effectiveness of such term or condition shall not extend beyond (i) the maximum
period of time permitted under such rule, or (ii) the specific applicable period
of time expressed in this Agreement, whichever is shorter.  For purposes of
applying the rule against perpetuities or a similar or related rule the
measuring lives in being shall be those of the officers of Montana listed by
name on page 104, Schedule of Officers, of the annual report, FPC Form 1, filed
by Montana with the Federal Power Commission for the year ended on December 31,
1971, and the officers of Puget listed by name on page 104, Schedule of
Officers, of the annual report, FPC Form 1, filed by Puget with the Federal
Power Commission for the year ended on December 31, 1971, together with all
those officers' children that are living on the date of execution of the Project
Agreements.  As used in this paragraph the word "children" shall have its
primary and generally accepted meaning of descendants of the first degree.
 
26.           Term
 
This Agreement shall continue for so long as the Project or any part thereof as
originally constructed, reconstructed or added to is used or useful for the
generation of electric power and energy, or to the end of the period permitted
by applicable laws, whichever first occurs.
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in several
counterparts.
 
 
 
 
 
ATTEST:
 
/s/ W. Watson                                               
                                                         Secretary
 
 
PUGET SOUND POWER & LIGHT COMPANY
 
 
By  /s/ Ralph M. Davis                                               
                                                                        President
 
 
 
 
ATTEST:
 
/s/ John C. Hauck                                              
                                                            Secretary
 
THE MONTANA POWER COMPANY
 
 
By  [Signature Illegible]                                              
                                                                       President

STATE OF WASHINGTON                         )
                                                                        )
COUNTY OF KING                                      )
 
ss
 

On this 1st day of Sept, 1972, before me, the undersigned, a Notary Public in
and for the State of Washington, personally appeared Ralph M Davis, known to me
to be president of PUGET SOUND POWER & LIGHT COMPANY and acknowledged to me that
he executed the within instrument on behalf of that corporation.
 
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial Seal the
day and year in this certificate first above written.
 

   
 
[Signature Illegible]                                           
Notary Public for the State of Washington
Residing at Bellevue
My Commission expires:  5/3/73

STATE OF MONTANA                               )
                                                                       )
COUNTY OF SILVER BOW                       )
 
ss
 

On this 11th day of September, 1972, before me, the undersigned, a Notary Public
in and for the State of Montana, personally appeared Geo. W. O'Connor, known to
me to be the President of THE MONTANA POWER COMPANY and acknowledged to me that
he executed the within instrument on behalf of that corporation.
 
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial Seal the
day and year in this certificate first above written.
 

   
 
[Signature Illegible]                                     
Notary Public for the State of Montana
Residing at Butte, Montana
My Commission expires:  July 17, 1974

EXHIBIT A
 
Construction and Ownership Agreement
 
Colstrip Units #1 and #2
 

DESCRIPTION OF PROJECT
 
The Project, located in Rosebud County, Montana, a coal-fired electric power
plant, will consist of two 350 MW nominally rated units, each with a
turbine-generator, coal-fired steam generator, condenser, pumps, motors,
feedwater heaters, cooling tower, pollution control system, and main and
auxiliary power systems; and facilities common to the two units, such as coal
receiving and coal storage systems, water treating systems, water pipeline,
intake and pumping system from the Yellowstone River, water storage facilities,
ash handling and disposal systems, waste water disposal systems, roads, utility
systems and other site development, offices, warehouses and machine shops,
laboratory and all other appurtenances and structures required for the efficient
and reliable operation of a modern steam-electric power plant up to and
including the high voltage terminals of the main power transformers.  The
Project shall include trucks, automobiles, mobile equipment, machine shop
equipment, laboratory equipment, spare parts and other miscellaneous personal
property required for the efficient and reliable operation of a modern
steam-electric power plant.  The Project shall also include the Project lands
described in Exhibit B, together with appurtenances, but excluding The Montana
Power Company substation site shown thereon.  The easements or other real
property rights for the pipeline, intake and pumping station from the
Yellowstone River shall be part of the Project and shall be described in a
supplement to Exhibit B at the time acquired.  Any necessary related facilities
located off the Project lands described in Exhibit B, together with related real
property rights, to the extent mutually agreed upon shall be a part of the
Project and shall be described in a supplement to Exhibit B at the time
acquired.