Exhibit 10.1

PRIEST RAPIDS PROJECT
PRODUCT SALES CONTRACT
INDEX TO SECTIONS

INDEX TO SECTIONS

SECTION 1. TERM OF CONTRACT
SECTION 2. DEFINITIONS
SECTION 3. PRIEST RAPIDS PROJECT PRODUCT AND PURCHASER PRODUCT PERCENTAGES;
REGULATORY APPROVALS
SECTION 4. TREATMENT OF THE SALE OF THE REASONABLE PORTION
SECTION 5. DETERMINATION OF PRODUCT AVAILABILITY, DISTRICT RESERVED SHARE AND
RISK PREMIUM
SECTION 6. ANNUAL POWER COSTS
SECTION 7. PAYMENT FOR PRIEST RAPIDS PROJECT PRODUCTS AND RISK PREMIUM
SECTION 8. SUPPORT AND COOPERATION
SECTION 9. SCHEDULING OF DELIVERIES OF SURPLUS AND DISPLACEMENT PRODUCTS
SECTION 10. PAYMENT OF PROCEEDS FROM THE SALE OF DISPLACEMENT PRODUCT
SECTION 11. POINT OF DELIVERY
SECTION 12. METERING AND TRANSMISSION LOSSES
SECTION 13. INFORMATION TO BE MADE AVAILABLE TO THE PURCHASER
SECTION 14. INSURANCE
SECTION 15. ADDITIONAL FACILITIES AND PRODUCTS
SECTION 16. PROJECT INTEGRATION
SECTION 17. LIABILITY OF PARTIES
SECTION 18. NOTICES AND COMPUTATION OF TIME
SECTION 19. DISTRICT'S BOND RESOLUTIONS AND LICENSE
SECTION 20. GOVERNING LAW
SECTION 21. ASSIGNMENT OF CONTRACT
SECTION 22. REMEDIES ON DEFAULT
SECTION 23. VENUE AND ATTORNEY FEES
SECTION 24. COMPLIANCE WITH LAW
SECTION 25. HEADINGS
SECTION 26. ENTIRE AGREEMENT; MODIFICATION; CONFLICT IN PRECEDENCE
SECTION 27. NO PARTNERSHIP OR THIRD PARTY RIGHTS
SECTION 28. PURCHASERS' COMMITTEE; ARBITRATION
SECTION 29. REPRESENTATIONS AND WARRANTIES
SECTION 30. COUNTERPARTS

EXHIBITS
EXHIBIT A - MONTHLY AMOUNTS OF DISPLACEMENT RESOURCE
EXHIBIT B - BOND RESOLUTION SECTIONS
EXHIBIT C - AREAS SERVED OUTSIDE GRANT COUNTY

PRIEST RAPIDS PROJECT PRODUCT SALES CONTRACT

EXECUTED BY

PUBLIC UTILITY DISTR1CT NO. 2

OF GRANT COUNTY

AND

PUGET SOUND ENERGY, INC.

This contract is entered into as of December 13, 2001 between Public Utility
District No.2 of Grant County, Washington (the “District”), a municipal
corporation of the State of Washington, and PUGET SOUND ENERGY, INC. (the
“Purchaser”), a corporation organized and existing under the laws of the State
of Washington. The District and the Purchaser are referred to as a “Party” and
collectively as “Parties.”

SECTION 1. TERM OF CONTRACT.

(a) Except as otherwise provided herein, this contract shall be in full force
and effect from and after it has been executed by the District and the
Purchaser. Unless sooner terminated pursuant to other provisions, this contract
shall remain in effect until the earlier of expiration or termination of the New
FERC License or such time that the District no longer has authority to market
Priest Rapids Project Products. Except as otherwise provided herein, all
obligations accruing under this contract are preserved until satisfied.

(b) By executing this contract, the Purchaser has exercised all of the
Purchaser’s rights, and the District has fulfilled and satisfied all of the
District’s obligations under Section (l)(b) of the 1956 and 1959 Contracts. Upon
execution of this contract by the District and the Purchaser, Section 1(b) of
the 1956 and 1959 Contracts shall have no further force or effect; provided,
however, by executing this contract the Parties intend to preserve the right of
Purchaser to exercise the first right of refusal under Section 1(b) of the 1956
and 1959 Contracts against a successor licensee other than the District.

(c) Notwithstanding Section 1(a), the affirmative obligations of the Parties in
Sections 3(a), 3(b), 3(e) and 4 through 7, 9 through 14, 16, 17 and 28 (a) and
(b) (1-4) shall take effect on November 1, 2005.

(d) Parties to the 1956 Contract and the Idaho Cooperatives shall have until
October 31, 2005 to execute this contract. Parties to the 1959 Contract shall
have until October 31, 2009 to execute this contract.

SECTION 2. DEFINITIONS.

As used in this contract, the following terms when initially capitalized shall
have the following meanings:

“1956 Contract” shall mean the contract entered into by the District and various
parties during May 1956 for the sale of capacity and energy from the Priest
Rapids Development as supplemented and amended from time to time.

“1959 Contract” shall mean the contract entered into by the District and various
parties during June 1959 for the sale of capacity and energy from the Wanapum
Development as supplemented and amended from time to time.

"Annual FERC License" shall mean a license for the Priest Rapids Project issued
by FERC to the District for an interim period before a New FERC License.

“Bond Resolution” shall mean each and all of the resolutions adopted by the
District authorizing the issuance of outstanding Debt for the Priest Rapids
Project. “Contract Year” shall mean the 12 month period commencing at 12:01 a.m.
on January 1 of each year and ending at 12:01 a.m. on the following January 1;
provided, however, that the first Contract Year shall commence on November 1,
2005, and end the following January 1, 2006, and that the last Contract Year
shall end on the last day of the New FERC License, or such time that the
District no longer has authority to market Priest Rapids Project Products.

“Contract(s)” shall mean this contract and similar contracts between the
District and other Purchasers.

“Debt” shall mean any bonds, notes, or other debt obligations of the District,
including, but not limited to all bonds outstanding at the effective date of
this contract, a line of credit, installment purchase agreement, financing
lease, interfund loan, derivative securities or payment obligations and any
other obligation for borrowed money, the proceeds of which will be used for the
benefit of the Priest Rapids Project, including to finance betterments,
renewals, replacements and additions to the Priest Rapids Project, to refund
other debt, or any other lawful purpose related to the Priest Rapids Project.
Debt does not include the Columbia River-Priest Rapids Hydro-Electric Production
System Revenue Bonds, Series 1956, which have been paid, or the Wanapum
Hydroelectric Refunding Revenue Bonds, Series 1963, which are scheduled to be
repaid on or prior to January 1, 2004.

“Displacement Resource” means the monthly amounts of capacity and energy set
forth in Exhibit A to this contract. If the District obtains a Replacement
Contract, or if the District and the Purchaser mutually agree in writing to use
some other resource as a Displacement Resource, the District and the Purchaser
will revise Exhibit A to reflect the capacity and energy of such Replacement
Contract or resource.

“Electric System” shall mean the separate electric utility system of the
District, including all associated generation, transmission and distribution
facilities and any betterments, renewals, replacements and additions of such
system, but does not include the Priest Rapids Project or any other utility
properties designated as a separate utility system of the District.

"Eligible Purchasers" means the parties to the 1956 and 1959 Contracts, and the
Kootenai Electric Cooperative, Inc., Clearwater Power Company, Idaho County
Light and Power Cooperative Association, Inc., Northern Lights, Inc. and the
electric cooperative members of the Snake River Power Association, Inc.
(collectively, the "Idaho Cooperatives") as of October 31, 2000.

"FERC" shall mean the Federal Energy Regulatory Commission or its successor.

“FERC License” shall mean any license for the Priest Rapids Project issued by
FERC to the District.

“Market Price” shall mean the price (in dollars per megawatt-hour) on the
wholesale power market for firm power in amounts equal to the Surplus Product
and Displacement Product, respectively, forecast to be available to Purchaser
during the next Contract Year pursuant to Sections 5(d) and 5(h), multiplied by
such amounts of Surplus Product and Displacement Product.

“Marketing Plan” shall mean the plan for making available in a fair, equitable
and non-discriminatory manner pursuant to market-based principles and procedures
the Reasonable Portion as required by applicable law or PL 83-544 Orders.

“New FERC License” shall mean the license issued by FERC to the District
following the expiration of the Original FERC License for operation of the
Priest Rapids Project for a duration of 30 years or longer, not including any
subsequent annual or other license.

“Operating Agreements” shall mean any agreements to which the District is or may
become a party, which provide for operation of the Priest Rapids Project,
including but not limited to, the Pacific Northwest Coordination Agreement, the
Agreement for the Hourly Coordination of Projects on the Mid-Columbia River, the
Western Systems Coordinating Council Agreement, the Agreement Relating to
Wanapum Development Encroachment on the Rock Island Project and the Northwest
Power Pool, which is the voluntary association of utilities formed in the
Pacific Northwest for the purpose of ensuring the adequacy and reliability of
the electric power systems in the Pacific Northwest.

"Original FERC License" shall mean the Federal Power Commission License for the
Priest Rapids Project issued to the District on November 4, 1955, together with
amendments thereto.

“Pacific Northwest” shall have the meaning ascribed thereto in Section 3(14) of
the Regional Act.

“Priest Rapids Development” shall mean the separate utility system of the
District, including a dam at the Priest Rapids Development, all generation and
transmission facilities associated therewith, and all betterments, renewals,
replacements, and additions to such system, as further described in Section 2(f)
of Exhibit 1 of District Resolution No. 390 which is attached as Exhibit B, but
shall not include any additional generation, transmission and distribution
facilities hereafter constructed or acquired by the District as a part of the
Electric System or the Wanapum Development or any other utility properties of
the District acquired or constructed as a separate utility system.

"Priest Rapids Project" shall mean the hydroelectric project on the Columbia
River in the State of Washington designated by the Federal Power Commission as
Project No. 2114. The Priest Rapids Project consists of the Priest Rapids
Development and the Wanapum Development.

“Priest Rapids Project Output” shall mean the amount of capacity, energy (both
firm and non-firm), pondage, reactive power, ancillary services and any other
product from the Priest Rapids Development from November 1, 2005 to November 1,
2009 and from the Priest Rapids Project from November 1, 2009 through the term
of this contract under the operating conditions which exist during the term,
including periods when the Priest Rapid Project may be wholly or partially
inoperable for any reason, after correction for encroachment, Canadian
entitlement, station and project use, and depletions required by the FERC
License or other regulatory requirements.

"Priest Rapids Project Products" means those products that the District agrees
to sell to the Purchaser, and the Purchaser agrees to purchase as more
particularly described in Sections 3 and 5 hereof, and is limited to the Surplus
Product and the Displacement Product.

“Prudent Utility Practice” means those practices, methods and acts which: (i)
when engaged in are commonly used in prudent engineering and operations to
operate electric equipment and associated mechanical and civil facilities
lawfully and with safety, reliability, efficiency and expedition or (ii) in the
exercise of reasonable judgment considering the facts known when engaged in,
could have been reasonably expected to achieve the desired result consistent
with applicable law, safety, reliability, efficiency and expedition. Prudent
Utility Practice is not intended to be the optimum practice, method or act, to
the exclusion of all others, but rather to be a spectrum of commonly used
practices, methods or acts.

"Public Law 83-544" (or "PL 83-544") shall mean the legislation passed by the
83rd Congress authorizing the District to develop the Priest Rapids Project.

"Purchasers" shall mean the Purchaser and each person or entity that has entered
into a contract with the District substantially similar to this contract.

“Purchase Product Percentage” shall mean the fixed percentage (stated to the
second decimal point, e.g., 0.01 %) as set forth in Section 3 for each of the
individual Priest Rapids Project Products made available under this contract.
For parties to the 1956 and 1959 Contracts, Purchaser Product Percentage for
anyone Priest Rapids Project Product in this contract may not exceed twice the
average of their participation in the 1956 and 1959 Contracts except that for
those Purchasers that were parties to the 1956 Contracts but were not parties to
the 1959 Contracts their Purchaser Product Percentage for the period November 1,
2005 to October 31, 2009 may not exceed twice their participation in the 1956
Contract. For any individual Idaho Cooperative, Purchaser Product Percentage
shall not exceed the Purchaser Product Percentage of any individual party to the
1956 or 1959 Contract that is one of the Purchasers except when the provisions
of Section 3(c) are applied. Each of such fixed percentages is subject to
revision pursuant to Sections 3(c), (d), (e), (f) and 5(j).

"Reasonable Portion" shall mean that 30% portion of the Priest Rapids Project
Output required by FERC pursuant to Public Law 83-544 to be offered for sale by
the District.

“Regional Act” shall mean Public Law 96-501, the Pacific Northwest Electric
Power Planning and Conservation Act.

“Risk Premium” shall mean the sum of the following: (i) for the Surplus Product,
the positive difference for a year determined by subtracting from the Market
Price of the Surplus Product the cost to the Purchaser of the Surplus Product
during each year pursuant to Section 7(a)(3); and (ii) for the Displacement
Product, the positive difference for a year determined by subtracting from the
Market Price of the Displacement Product the cost to the Purchaser of the
Displacement Product during each year pursuant to Section 7(a)(4).

“Risk Premium Revenues” shall mean the payments received by the District from
all Purchasers pursuant to Section 7(a)(5).

“Uncontrollable Forces” shall mean any cause reasonably beyond the control of
the Party and which the Party subject thereto has made reasonable efforts to
avoid, remove or mitigate, including but not limited to acts of God, fire,
flood, explosion, strike, sabotage, act of the public enemy, civil or military
authority, including court orders, injunctions, and orders of government
agencies with proper jurisdiction, insurrection or riot, an act of the elements,
failure of equipment or contractors, or inability to obtain or ship materials or
equipment because of the affect of similar causes on suppliers or carriers;
provided, however, that in no event shall an Uncontrollable Force excuse the
Purchaser from the obligation to pay any amount when due and owing under this
contract.

“Wanapum Development” shall mean the second stage of the Priest Rapids Project
as more fully described in Section 2.2 of District Resolution No.474, which is
attached as Exhibit B, but shall not include any generation, transmission and
distribution facilities hereafter constructed or acquired by the District as a
part of the Electric System or the Priest Rapids Development, or any other
utility properties of the District acquired or constructed as a separate utility
system.

The following terms are defined in the cited sections of this contract:

"Act of Default" at Section 22(a).
"Annual Power Costs" at Section 6(a).
"Committee" at Section 28.
"Coverage Requirement" at Section 6(a)(9).
"Displacement Product" at Section 3(b).
"District Reserved Share" at Section 5(b)(3).
"Estimated District Loads" at Section 5 (b)(1).
"Estimated Unmet District Load" at Section 5(f).
"Excess Costs" at Section 7(g).
"Financing Costs" at Section 6(a)(3).
"Idaho Cooperatives" at "Eligible Purchasers.
"Improvements" at Section 5(j)(4).
"New FERC License Costs" at Section 6(a)(6).
"Party" and "Parties" at the Preamble.
"PL 83-544 Orders" at Section 3(f).
"Purchaser Actual Cost" at Section 7(g).
"Purchaser Allocation of Pondage" at Section 9(d)(5).
"Purchaser Estimated Cost" at Section 7(a)(8).
"Purchaser Power Allocation" at Section 5(b)(4).
"Purchaser Product Percentage of Displacement Product" at Section 3(b).
"Purchaser Product Percentage of Surplus Product" at Section 3(a).
"Purchaser Risk Premium" at Section 7(a)(5).
"Refund Costs" at Section 7(g).
"Replacement Contract" at Section 3(b).
"Rock Island Hydroelectric Project" at Section 16(b).
"Supplemental Displacement Product Agreement" at Section 3(b).
"Surplus Product" at Section 3(a).

SECTION 3.  PRIEST RAPIDS PROJECT PRODUCTS AND PURCHASER PRODUCT PERCENTAGES;
REGULATORY APPROVALS.

Upon execution of this contract, Purchaser shall select a Purchaser Product
Percentage for each of the Priest Rapids Project Products described below;
provided, however, that Purchaser must select a Purchaser Product Percentage of
Surplus Product other than zero in order to select Purchaser Product Percentage
for Displacement Product. Each of the Purchaser Product Percentages selected may
be a different percentage, and the Purchaser Product Percentages for
Displacement Product may be zero.

(a) SURPLUS PRODUCT. The District desires to market Priest Rapids Project Output
that is surplus to its needs. To minimize the volatility of such marketing and
in order to achieve stable retail rates, the District desires to market this
surplus in a manner that the Purchaser assumes the uncertainty of future Priest
Rapids Project Output, costs and market prices. To accomplish these objectives
the District believes that the price for the Surplus Product should be at cost.

  The District shall sell to the Purchaser and the Purchaser shall purchase 18.8
percent of Surplus Product (“Purchaser Product Percentage of Surplus Product”).
The amount and cost of the Surplus Product is defined in Sections 5 and 6,
respectively.

(b) DISPLACEMENT PRODUCT. The District desires to enhance its success in
obtaining a New FERC License by making available to other electric utilities in
the Pacific Northwest benefits that would not otherwise be possible but for the
Priest Rapids Project. For this purpose, the District may, pursuant to this
contract, offer tile Purchaser Priest Rapids Project Output that otherwise would
be used by the District to meet Estimated District Loads but for capacity and
energy acquired by the District from Displacement Resources.

  The District shall sell to the Purchaser and the Purchaser shall purchase 18.8
percent of Displacement Product (“Purchaser Product Percentage of Displacement
Product”). The amount and cost of Displacement Product is defined in Sections 5
and 6, respectively. The Displacement Product does not entail the resale of
federal power available to the District.

  By notification to the District by October 1, 2005, the Purchaser may elect to
have the District market the Purchaser Product Percentage of the Displacement
Product pursuant to a supplementary agreement between the Purchaser and the
District. The District will assign to the Purchaser the cost incurred by the
District in marketing such Displacement Product. The District may at its
discretion seek a resource to extend the availability of the capacity and energy
identified in Exhibit A beyond 2011 (“Replacement Contract”). If the District
has determined to not seek a Replacement Contract, nevertheless upon the request
of the Purchaser and after execution of an agreement or agreements
(“Supplemental Displacement Product Agreement”) by the District and all
requesting Purchasers setting forth the term of the Replacement Contract, the
product to be purchased, and the obligation of requesting Purchasers to pay the
District an amount equal to any and all costs, charges, surcharges and penalties
payable under such Replacement Contract, the District will use reasonable
efforts to obtain a Replacement Contract. If such a Replacement Contact is
obtained, an amount equal to the capacity and energy available thereunder will
be offered to the Purchaser pursuant to the terms of this contract as the
Displacement Product, subject to the terms of any Supplemental Displacement
Product Agreement.

(c) REALLOCATION. If collectively Purchasers subscribe to Purchaser Product
Percentages for any Priest Rapids Project Product that total more than 100%
either initially or at any time before the time limits set forth in Section
l(d), then Purchaser Product Percentages for such Priest Rapids Project Product
will be determined as follows; provided, however, that the application of the
following formula shall not result in the Purchaser being assigned a Purchaser
Product Percentage larger than that included in this contract on the date of
execution:

(1) Step 1. Each such Priest Rapids Project Product will be divided between
parties to the 1956 and 1959 Contracts, as a group, and the Idaho Cooperatives,
as a group, in proportion to the number of retail electric customers located in
the Pacific Northwest (determined by the number of retail meters) served by each
group as of October 31, 2000.

(2) Step 2. Each Purchaser Product Percentage of such Priest Rapids Project
Product will be determined as follows:

(A)    For parties to the 1956 and 1959 Contracts, the proportion of such Priest
Rapids Project Product from Step 1 above will be distributed to individual
Purchasers as follows:

  (i) For November 1, 2005 through October 31, 2009 the Surplus Product shall be
distributed in proportion to participation in the 1956 Contract and the
Displacement Product shall be distributed in proportion to participation in the
1956 Contract and 1959 Contract weighted 25% and 75% respectively.

  (ii) For the period after November 1, 2009 the Surplus Product and
Displacement Product shall be distributed in proportion to the sum of
participation in the 1956 Contract and 1959 Contract divided by two.

  (iii) Notwithstanding any other provision of this contract, for those Eligible
Purchasers that sign this contract after December 31, 2001, the Purchaser
Product Percentage for the Surplus Product and the Displacement Product may not
exceed the average of the Purchasers Power Allocations, as those terms are
defined in the 1956 and 1959 Contracts, divided by 63.5 percent.

  (iv) Notwithstanding any other provision of this contract, for those Eligible
Purchasers that sign this contract after October 31, 2005 their participation in
the Priest Rapids Development shall be deemed to be zero for purposes of
determining their Purchaser Product Percentage for the Surplus Product and the
Displacement Product under this contract.

(B)    For the Idaho Cooperatives, the proportion of such Priest Rapids Project
Product from Step 1 will be distributed to individual cooperatives in proportion
to the number of retail electric customers located in the Pacific Northwest
(determined by number of retail meters) each cooperative served as of October
31, 2000.

(d) If the reallocation procedure of Section 3(c) is implemented, then for the
period November 1, 2005 through October 31, 2009, the following shall apply to
those Purchasers who were parties to the 1956 Contracts but were not parties to
the 1959 Contracts:

(1) The Purchaser Product Percentage of Displacement Product shall be adjusted
to be in proportion to participation in the 1956 Contract (the Purchaser’s
percent participation in the 1956 Contract divided by 63.5%).

(2) The District shall be obligated to provide the Displacement Product pursuant
to Section 5 using the Purchaser Product Percentage of Displacement Product as
calculated pursuant to Section 3(d)(1), and the Purchaser shall be obligated to
make payments for the Displacement Product pursuant to Sections 6 and 7 using
such Purchaser Product Percentage of Displacement Product.

  The adjustments to Purchaser Product Percentage of Displacement Product will
have no effect on the Purchaser Product Percentage of any other Product
hereunder, nor on the Purchaser Product Percentage of any other Purchaser.

(e) If a Contract with one of the Purchasers is terminated pursuant to Section
22 as a result of such Purchaser’s Act of Default, the District shall give the
non-defaulting Purchasers notice of such default. Beginning with the first month
that is at least 30 days following such notice, the Purchaser Product
Percentages of Surplus and Displacement Products (other than zero) of
non-defaulting Purchase shall be increased pro rata until either: (i) the
Purchaser Product Percentages of Surplus and Displacement Products of the
defaulting Purchaser have been fully allocated or (ii) a further pro rata
increase to the Purchaser Product Percentages of Surplus and Displacement
Products of the non-defaulting Purchasers would adversely affect the tax-exempt
status of any outstanding Debt. In the event of (ii), the portion of the
Purchaser Product Percentages of Surplus and Displacement Products of the
defaulting Purchaser not yet allocated will be offered to all Purchasers that
can accept such allocation without adversely affecting the tax-exempt status of
any outstanding Debt. If after such offer there remains some portion of the
Purchaser Product Percentages of Surplus and Displacement Products of the
defaulting Purchaser not yet allocated, the District at its discretion may elect
to accept such unallocated portion. If after all of the foregoing there remains
unallocated Purchaser Product Percentages of Surplus and Displacement Products
of the defaulting Purchaser, the Purchaser Product Percentages of Surplus and
Displacement Products (other than zero) of non-defaulting Purchasers shall be
increased pro rata based on each such non-defaulting Purchaser’s Purchaser
Product Percentages of Surplus and Displacement Products before any allocation
under this Section 3(e). In the event that the allocation described in the
immediately preceding sentence adversely affects the tax-exempt status of Debt,
any increased costs resulting therefrom will be included in Annual Power Costs.
Nothing in this subsection is intended to limit any claims the non-defaulting
Purchasers may assert against the defaulting Purchaser.

(f) REGULATORY APPROVALS. The District and the Purchaser believe that this
contract fully complies with the requirements of Public Law 83-544. FERC has
ordered that a Reasonable Portion of the Priest Rapids Project Output be offered
for sale based on market principles and that Eligible Purchasers are to receive
a meaningful priority. Additionally, FERC has stated that the District may
negotiate power contracts as part of the license application process provided
that implementation of such contracts is contingent on receipt of license
authority. The District and the Purchaser agree that nothing this contract
limits in any way the District’s ability to conform to these FERC requirements.
Nothing in this contract, other than Section 8, limits the ability of the
Purchaser from participating in any FERC or court proceedings that may address
Public Law 83-544.

  The Parties understand that FERC’s orders of February 11, 1998 and June 12,
1998 in Docket No. EL95-35 (the “PL 83-544 Orders”) require the District, as
part of its application for a New FERC License, to file the Marketing Plan for
making available the Reasonable Portion in a fair, equitable and
non-discriminatory manner pursuant to market-based principles and procedures.
The Parties further understand and agree that nothing in this contract is
intended to affect or limit in any way the right of the District to develop and
file the Marketing Plan which it determines is consistent with the PL 83-544
Orders.

  In the event that FERC or a court of competent jurisdiction shall by order
determine that any provision of this contract violates a requirement of either
PL 83-544 or of any of the PL 83- 544 Orders, the Parties shall, within 30 days
of the entry of such an order commence negotiations for the purpose of reaching
agreement on such amendments to this contract, if any, as may be needed for the
purpose of complying with that order and for the purpose of preserving the basic
benefits and obligations of the Parties. If, within 90 days of commencement of
negotiations, the Parties are not able to resolve their differences and to agree
upon any necessary amendments, either Party may, after notice to the other
Party, cause the matter to be submitted to binding arbitration as provided in
Section 28.

  If following the issuance of the arbitration decision, a Party reasonably
determines that acceptance of such amendments will result in materially
decreased benefits or materially increased obligations when compared to this
contract, the Party may by notice to the other Party explain its reasons for the
determination and, if given within 10 days of the arbitration decision,
terminate this contract.

SECTION 4. TREATMENT OF THE SALE OF THE REASONABLE PORTION.

Pursuant to the PL 83-544 Orders, the Reasonable Portion must be offered for
sale. Purchaser has no claim or right under this contract to receive any of the
Reasonable Portion, or any proceeds from the sale thereof; provided, however,
that nothing in this contract shall be interpreted as prohibiting the District
and the Purchaser from entering one or more separate agreements regarding the
Reasonable Portion and the disposition of the proceeds of the sale of the
Reasonable Portion.

SECTION 5. DETERMINATION OF PRODUCT AVAILABILITY, DISTRICT RESERVED SHARE AND
RISK PREMIUM.

(a) The Priest Rapids Project Products available to Purchaser during each
Contract Year will be determined by the sequential application of the following
provisions of this Section 5 (i.e., Section 5(b), then Section 5(c), then
Section 5(d), etc.).

(b) For the purpose of determining the estimated amount of Surplus Product to be
made available to the Purchaser, on or before 30 days prior to the beginning of
each Contract Year, the District shall prepare and mail to the Purchaser a pro
forma statement showing for the next Contract Year:

(1) “Estimated District Loads,” which shall mean all projected retail electric
energy loads for, the next Contract Year based on average weather conditions,
plus aggregated losses, projected to be used at locations served by the District
during the next Contract Year with the exception of (i) locations outside of the
geographic boundaries shown on Exhibit C and (ii) that portion of loads of
individual retail customers that during a consecutive 12 month period after 2000
exceed by ten average megawatts or more the energy load of such customer for the
immediately preceding consecutive 12 month period. Once load at a location is
included in Estimated District Load, loads at such location shall continue to be
included in full in future Contract Years without regard to the source of supply
for such load. For example, if a load is expected to be served in all or part by
an entity other than the District during the next Contract Year, the entire load
shall continue to be included in Estimated District Loads. If a new load or
increased load of one average megawatt or more at a single retail customer has
been included in Estimated District Loads in the current Contract Year, and less
than 90% of such new or increased load was actually measured in the current
year, then Estimated District Loads shall be reduced for the next Contract Year
by the difference between the amount included the current Contract Year and the
amount measured. If there are more than one such new or increased loads for the
current Contract Year, they shall be combined for determining both the 90% and
the amount of any reduction. If in the current Contract Year a load of one
average megawatt or more is placed on the District which was not included in the
current Contract Year’s Estimated District Loads, then the next Contract Year’s
Estimated District Loads shall be increased by the amount of such load measured
in the current Contract Year. Except for such load correction calculations,
Estimated District Loads for the next Contract Year shall be not less than the
current Contract Year’s Estimated District Loads.

(2) Estimated Amount of firm energy from the Priest Rapids Project for the next
Contract Year based on critical water planning using the procedures of Operating
Agreements in effect on October 31, 2000, unless the District and Purchasers
whose Purchaser Product Percentages of Surplus Product total 66% or more
mutually agree to use procedures from a subsequent Operating Agreement.

(3) The “District Reserved Share” for the next Contract Year shall be: (A) prior
to November 1, 2009, the smaller of: (i) the ratio of Estimated District Loads
from Section 5(b)(1) less the District’s 36.5% of the estimated firm energy
output of the Wanapum Development, to the estimated firm energy output of the
Priest Rapids Development from Section 5(b)(2), expressed as a percentage or
(ii) 100% minus the Reasonable Portion; and (B) on and after November 1, 2009,
the smaller of: (i) the ratio of Estimated District Loads from Section 5(b)(1)
to the estimated firm energy output of the Priest Rapids Project from Section
5(b)(2), expressed as a percentage or (ii) 100% minus the Reasonable Portion.

(4) The “Purchaser Power Allocation” shall be the product of: (i) 100% minus the
sum of the District Reserved Share as determined in Section 5(b)(3) and the
Reasonable Portion and (ii) the Purchaser Product Percentage of the Surplus
Product.

(c) During each Contract Year, the District shall have available for its use and
shall take the District Reserved Share multiplied by the actual Priest Rapids
Project Output. The District shall have the unilateral right, without obligation
to the Purchaser, to use Priest Rapids Project Output resulting from the
District Reserved Share for any purpose. In no event shall the Purchaser have
any right under this contract to any portion of the District Reserved Share of
Priest Rapids Project Output or the associated revenues. The District may use
the District Reserved Share of the non-firm portion of the actual output of the
Priest Rapids Project in any manner the District deems appropriate, and shall
have no obligation to use such non-firm portion to serve the District’s retail
loads during any Contract Year.

(d) The Surplus Product available to the Purchaser in each Contact Year shall be
the actual Priest Rapids Project Output multiplied by the Purchaser Power
Allocation from Section 5(b)(4).

(e) For the purpose of determining the estimated amount of Displacement Product
to be made available to the Purchaser, on or before 30 days prior to the
beginning of each Contract Year, the District shall prepare and mail the
Purchaser a pro forma statement showing for the next Contract Year the estimated
amount of capacity and energy from Displacement Product.

(f) The monthly amount of “Estimated Unmet District Load” shall be determined as
the Estimated District Load as calculated in Section 5(b)(1), less the estimated
firm Priest Rapids Project Output from Section 5(b)(2). The difference so
determined will be shaped on a monthly basis using the District’s historic load
patterns.

(g) In those Contract Years when there is Estimated Unmet District Load
forecasted pursuant to Section 5(f), the District shall be entitled to take and
shall take from the Displacement Product that is not subject to a Supplemental
Displacement Product Agreement pursuant to Section 3(b) an amount equal to the
Estimated Unmet District Load from Section 5(f).

(h) The Purchaser shall have available for its use and shall take Displacement
Product equal to the actual Displacement Resource available during the Contract
Year minus the amount of Displacement Resource used by the District in such
Contract Year as determined in Section 5(g), multiplied by the Purchaser Product
Percentage of Displacement Product; provided, however, if the Purchaser has
elected to have the District make sales pursuant to Section 3(b), then Purchaser
will receive proceeds from such sales as set forth in Section 10 in lieu of the
amounts of capacity and energy described in this Section 5(h).

(i) On or before 30 days prior to the beginning of each Contract Year, the
District shall prepare and mail the Purchaser a pro forma statement showing for
the next Contract Year an estimate of the Purchaser Risk Premium to be paid by
the Purchaser, using a Risk Premium calculated with a Market Price determined by
the District not more than 60 days prior to the start of the next Contract Year
by reference to published future price data for the next Contract Year, and the
applicable percentage from Section 7(a)(5).

(j) Deliveries of Priest Rapids Project Products may be reduced if the District
does not obtain an Annual FERC License or New FERC License, or under any of the
following conditions as determined by the District:

(1) Pursuant to Sections 5 or 9.

(2) If the District is unable to deliver Priest Rapids Project Products to the
Purchaser due to Uncontrollable Forces.

(3) If failure to reduce deliveries, together with deliveries to all other
Purchasers and deliveries to the District, would result in exceeding the
capability of the Priest Rapids Project or subject it or its operation to undue
hazard or violate the FERC License, any applicable law, regulation, or Operating
Agreement.

(4) In case of emergencies or in order to install equipment in, make repairs to,
make betterments, renewals, replacements, and additions to (“Improvements”),
investigation and inspections of, or perform other maintenance work on the
Priest Rapids Project.

  The District will use its reasonable efforts to give advance notice to the
Purchaser regarding any planned interruption or reduction, giving the reason
therefor and stating the probable duration thereof.

(k) Notwithstanding any other Section of this contract, if the Priest Rapids
Project is capable of producing Priest Rapids Project Output, but the amount of
each Priest Rapids Project Product to be made available to the Purchaser is
projected to be zero for a Contract Year, the Purchaser may give the District
written notice, no later than 100 days after the start of the Contract Year,
that the Purchaser elects to terminate this contract. In such event, this
contract shall terminate effective upon receipt of such written notice by the
District.

SECTION 6. ANNUAL POWER COSTS.

(a) “Annual Power Costs” as used in this contract shall include, for the Priest
Rapids Development beginning November 1, 2005 and for the Priest Rapids Project
beginning November 1, 2009, all of the District’s costs and expenses of every
type, both direct and indirect, resulting from the ownership, operation,
maintenance of and Improvements that are incurred or paid by the District during
each Contract Year and that are incurred consistent with Prudent Utility
Practice. Such costs and expenses shall for any Contract Year include, but not
be limited to the following, in each case without duplication:

(1) All operations costs, maintenance costs, administrative costs, taxes, in
lieu of tax payments relating to production and delivery of Priest Rapids
Project Output (excluding depreciation) including, but not limited to, those
specified in the Uniform System of Accounts as prescribed by the FERC for
electric utilities and licensees.

(2) Amounts that the District determines are needed to pay for the prevention or
correction of any loss or damage and for Improvements to keep the Priest Rapids
Project in good operating condition. Subject to Section 28, the Purchaser agrees
that the District shall have the sole right to determine what costs and expenses
shall be incurred in connection with the ownership, operation, and maintenance
of and Improvements to the Priest Rapids Project.

(3) Subject to Section 6(e), interest that accrues and is payable into the debt
service fund with respect to outstanding Debt; principal that accrues and is
payable into the debt service fund with respect to outstanding Debt, whether at
maturity or by reason of redemption (including premiums for redeeming Debt prior
to its scheduled maturity) amounts required to restore any reserve accounts
maintained to secure Debt to the level required by the resolution authorizing
the Debt and Financing Costs. “Financing Costs” include, but are not limited to,
discounts, insurance premiums, letter of credit fees, costs of hedging interest
rates, costs of compliance with disclosure requirements, legal and bond counsel
fees, independent auditors, printing, financial advisor, bond registrar and
trustee costs.

(4) Subject to Section 6(e), costs of creating and replenishing any reserve or
contingency fund required to be maintained by any Bond Resolutions and working
capital funds.

(5) Any liability or cost, including settlements and judgments, incurred as a
result of or related to the ownership, operation or maintenance of the Priest
Rapids Project and not covered by insurance.

(6) Costs incurred by the District in applying for a New FERC License as
recorded on the District’s books of account for the Priest Rapids Project
(account number 183090), including but not limited to those costs and interest
expenses incurred before November 1, 2005 (‘“New FERC License Costs”). New FERC
License Costs incurred prior to November 1, 2005 will be recovered uniformly
over a 15-year amortization period commencing with the Contract Year starting on
January 1, 2006. The estimated New FERC License Costs incurred by the District
after November 1, 2005 will be included in Annual Power Costs. In the event of
termination of this contract for any reason subsequent to the effective date of
the New FERC License, the Purchaser shall pay the District an amount equal to
the unrecovered New FERC License Costs multiplied by the Purchaser Power
Allocation at the time of termination. In the event of termination of this
contract for any reason prior to the effective date of the New FERC License,
Purchaser shall have no liability for unrecovered New FERC License Costs.

(7) Obligations entered into by the District as part of its effort to obtain a
New FERC License, including but not limited to the cost of replacing Priest
Rapids Project Products that may be committed in such obligations.

(8) Costs incurred by the District to fulfill obligations, if any, to parties to
the 1956 and 1959 Contracts who do not sign this contract, as such costs are
required or approved by a court, or reasonably approved by the District after
notice to the Purchaser.

(9) An amount equal to 15% of debt service in that Contract Year or such higher
amount as may be required by a Bond Resolution (“Coverage Requirement”).

(b) The District shall credit against Annual Power Costs the following:

(1) Any insurance or other proceeds received by the District as reimbursement
for damages, losses, costs or expenses included in the Annual Power Costs, and
any insurance or other proceeds received as a result of the interruption or
reduction of Priest Rapids Project Output.

(2) Revenue, if any, received from obligations entered into by the District as
part of its effort to obtain a New FERC License.

(3) Revenue, if any, received as a result of the District fulfilling obligations
to parties to the 1956 or 1959 Contracts that do not sign this contract,
pursuant to Section (1)(b) of those contracts, excluding revenue required to be
paid pursuant to the 1959 Contract.

(4) The Coverage Requirement, to the extent that it is not expended during a
Contract Year for capital or other costs of the Priest Rapids Project (the
amount not spent shall be credited against Annual Power Costs for the following
Contract Year).

(5) Interest earnings on funds of the Priest Rapids Project that are not
required to be retained by such fund by a Bond Resolution.

(6) An estimate of the cost of the Reasonable Portion, which shall be an amount
equal to the product of the Reasonable Portion and the Annual Power Costs.

(c) Costs directly or indirectly associated with the District’s Electric System
or any other separate system of the District shall not be part of Annual Power
Costs other than the payment of Debt held by the Electric System.

(d) Any payment received by the District as a result of the taking of the whole
or any portion of the Priest Rapids Project Output by any state or federal
government agency shall be used by the District to credit Annual Power Costs or
to retire, at or prior to maturity, Debt, whichever shall be proper under the
circumstances existing at the time of the taking.

(e) The Purchaser agrees that the District shall have the sole discretion to
determine what portion, if any, of the Priest Rapid Project financing will be
accomplished by issuance of Debt and the terms and covenants of any Debt.

(1) To the extent that the District makes Improvements to the Priest Rapids
Project that are not financed by Debt proceeds, Annual Power Costs will include
a cost as determined by the following: the District shall determine all of the
Improvements anticipated for the Priest Rapids Project for the Contract Year and
the District shall estimate the weighted average economic service life of the
Improvements, and shall calculate a weighted average market interest rate
assuming the District were to issue Debt to finance such Improvements, both as
reasonably determined by the District. Based on such calculations the District
shall include in Annual Power Costs an amount sufficient to amortize the costs
(including both interest and principal pursuant to this Section 6(e)(1)) of such
Improvements on a level basis over a period equal to the estimated weighted
average economic service life of the Improvements. The amortization period for
any Improvements shall not exceed 30 years and land shall be deemed to have a
service life of 30 years. The District may adjust prospectively the amortization
of any Improvements to reflect the actual costs of such Improvements, to correct
any error in computation or to reflect a material change in the District’s
estimate of the average economic life of the Improvements. The District shall
not be required to amortize capital expenditures that are estimated to cost
below the amount that in accordance with the District’s capitalization policy
are not required to be capitalized and may include such costs in Annual Power
Costs.

(2) To the extent that the District issues Debt (i) with a final maturity that
is not earlier than the expiration of the estimated weighted average service
life of the Improvements, to be financed with the Debt and (ii) the total annual
amounts required for the payment of interest, principal and sinking fund
requirements of such Debt when due in a Contract Year do not vary by more than
10% from those required in any other Contract Year, then Annual Power Costs
shall include the actual principal and sinking fund requirements that accrues
and is payable into the debt service fund for that Debt for the Contract Year.
To the extent that the District issues Debt that does not meet the requirements
of (i) and (ii) in the prior sentence, then Annual Power Costs will include,
with respect to such Debt, an amount as determined by the District as of the
date of issuance of the Debt, sufficient to amortize the original principal
amount of such Debt on a level debt service basis over a period equal to the
estimated weighted average economic service life of the Improvements financed or
refinanced by such Debt commencing on the later of (a) the date of issuance of
the Debt or (b) the in service date of such Improvements, and based on an
interest rate equal to, at the election of the District, either (i) the weighted
average interest rate of the Debt or (ii) the weighted average market rate at
the time of issuance of the Debt for debt with similar terms and borrowers
similar to the District, as reasonably determined by the District. The
amortization period for any Debt shall not exceed 30 years, land shall be deemed
to have an economic useful life of 30 years, and any Debt proceeds deposited
into a reserve account shall be credited against Annual Power Cost in the final
year of the Debt. The District may adjust prospectively the amortization of the
principal amount of any Debt to correct any error in computation or to reflect a
material change in the District's reasonable estimate of the in service date or
the average economic life of the Improvements

(3) To the extent that the District creates or replenishes reserve and
contingency funds required by Bond Resolutions or working capital funds that are
not financed by Debt proceeds, Annual Power Costs will include a cost determined
in a manner analogous to the calculation in Section 6(e)(2) with such amounts
amortized over 15 years. Upon termination of this contract, any such funds will
belong to the District.

(f) On or prior to July 31st of each year, for budgetary purposes only and not
for determining Priest Rapids Project Products or Purchaser’s payment
obligations under this contract the District shall provide the Purchaser a pro
forma budget showing an estimate of Annual Power Costs, Priest Rapids Project
Output, and Estimated District Loads for the following Contract Year.

SECTION 7. PAYMENT FOR PRIEST RAPIDS PROJECT PRODUCTS AND RISK PREMIUM.

(a) On or before 30 days prior to the beginning of each Contract Year beginning
in 2005, the District shall prepare and mail the Purchaser a pro forma statement
for the next Contract Year showing:

(1) An estimate of Annual Power Costs specifically assigned to the Purchaser.
Specific assignment shall occur whenever a Purchaser or a group of Purchasers
cause identifiable costs to be placed on the Priest Rapids Project, including
but not limited to increased interest costs of Debt that can not be issued as
tax-exempt because of the Purchaser’s expected use of any Priest Rapids Project
Product or violation of Section 24(b).

(2) A detailed estimate of the Annual Power Costs, less those costs specifically
assigned in Section 7(a)(1), for the Contract Year.

(3) An estimate of the cost to the Purchaser of the Surplus Product, which shall
be an amount obtained by multiplying the estimate Annual Power Costs from
Section 7(a)(2) by the Purchaser Power Allocation calculated in Section 5(b)(4).

(4) An estimate of the cost to the Purchaser of the Displacement Product, which
shall be the cost, including the costs of transmission and necessary services,
to the District of acquiring Displacement Resources multiplied by the ratio of
the Displacement Product available to Purchaser determined pursuant to Section
5(h) and the total Displacement Resource determined pursuant to Section 5(h).

(5) An estimate of the “Purchaser Risk Premium” to be paid by Purchaser equal to
the product of the Risk Premium determined pursuant to Section 5(i) and the
applicable percentage determined as follows:

(A)     The applicable percentage is zero if the Purchaser has executed this
contract on or before December 31, 2001 or in the case of the City of Forest
Grove, McMinnville, Milton-Freewater or Seattle City Light, has provided to the
District written assurances on or before December 31, 2001 that the
superintendent or city manager supports this contract and will so recommend to
its respective city council and this contract is executed on or before March 31,
2002 in the case of Seattle City Light, and on or before February 1, 2002, in
the case of Forest Grove, McMinnville or Milton-Freewater.

(B)     If Purchaser executed this contract after December 31, 2001, but on or
before December 31, 2002, the applicable percentage is 25 percent.

(C)     If Purchaser executed this contract after December 31, 2002, but on or
before December 31, 2003, the applicable percentage is 50 percent.

(D)     If Purchaser executed this contract after December 31, 2003, but on or
before December 31, 2004, the applicable percentage is 75 percent.

(E)     If Purchaser executed this contract after December 31, 2004, but on or
before December 31, 2009, the applicable percentage is 100 percent.

(F)    If Purchaser has violated any provision of Section 8, the applicable
percentage is 100 percent.

(6) If the percentage of Risk Premium applicable to Purchaser, pursuant to
Section 7(a)(5), is zero, Purchaser shall be entitled to a credit against
Purchaser Estimated Cost equal to the sum of:

(A)     The product of the Purchaser Product Percentage of Surplus Product as
set forth in Section 3(a) (or as reallocated pursuant to Section 3(c) or (d)
among Purchasers with a Risk Premium percentage of zero) and the Risk Premium
Revenues from the Surplus Product.

(B)     The product of the Purchaser Product Percentage of the Displacement
Product as set forth in Section 3(b) (or as reallocated pursuant to Section 3(c)
or (d) among Purchasers with a Risk Premium percentage of zero) and the Risk
Premium Revenues from the Displacement Product.

  The District shall retain for its own use any Risk Premium Revenues that are
not allocated pursuant to Section 7(a)(6).

(7) An estimate of the cost to the District of selling capacity and energy using
the Displacement Product, as elected by the Purchaser pursuant to Section 3 (b)

(8) The sum of amounts (expressed in dollars) calculated pursuant to Sections
7(a)(1), (3), (4), (5) and (6), hereinafter referred to as the ‘Purchaser
Estimated Cost.”

(9) The amount of the monthly payments to be made by the Purchaser to pay the
Purchaser Estimated Cost during the next Contract Year,

(b) The pro forma statement provided pursuant to Section 7(a) shall be in lieu
of the issuance of monthly bills to the Purchaser by the District, and the
Purchaser shall be obligated to pay the monthly amounts contained therein in
accordance with this Section 7.

(c) In the event of receipts or payments substantially affecting the Annual
Power Costs during any Contract Year, the District shall prepare and mail to the
Purchaser a revised statement of estimated Annual Power Costs and Purchaser
Estimated Cost, which revised statement shall supersede any previous statement
or revised statement, and the Purchaser shall be obligated to make monthly
payments set forth on such revised statement for the balance of the Contract
Year.

(d) Purchaser Estimated Cost shall continue to accrue and the Purchaser shall
make payment for the same up to the time of termination of this contract for
whatever reason, irrespective of the condition of the Priest Rapids Project and
whether or not it is capable of producing Priest Rapids Project Products. If the
Priest Rapids Project is not capable of producing Priest Rapids Project
Products, then the Purchaser Estimated Cost will be based on Priest Rapids
Project Output in the last full year of operation. In this event, at the request
of the Purchaser, the District will make its reasonable best efforts to acquire
replacement Priest Rapids Products the cost of which will be added to the
Purchaser Estimated Cost.

(e) The monthly payments of Purchaser Estimated Costs set forth in the statement
or revised statement shall be due and payable by electronic funds transfer to
the District’s account, designated in writing by the District, on the 20th
calendar day of each month.

(f) If payment in full of any monthly payment amount set forth on a statement or
revised statement is not received by the District on or before the close of
business on the 20th day of the month, a delayed payment charge of 2% of the
unpaid amount due will be made. Any bill which remains unpaid for more than 30
days after the due date shall, in addition to the delayed payment charge, accrue
interest at the lesser of 1.5% per month or the maximum rate allowed by law. If
the 20th calendar day of the month is a Saturday, Sunday or a District
recognized holiday, the next following business day shall be the last day on
which payment may be received without the addition of the delayed-payment
charge. Additionally, if payment due to the District under this Section 7
remains unpaid 30 days after the due date, the District may thereafter suspend
delivery of Priest Rapids Project Products to the Purchaser which would
otherwise occur until payment in full of all amounts due and owing (including
any interest and delay charges) is received by the District.

(g) On or before 150 days after the end of each Contract Year, the District will
submit to the Purchaser a detailed statement of the Purchaser Estimated Cost and
the Purchaser Actual Cost for the Contract Year. “Purchaser Actual Cost” on such
statement shall be calculated in the same manner as Purchaser Estimated Cost as
set forth in Sections 7(a)(1)-(7) but using the actual costs incurred by the
District in the preceding Contract Year; provided, however, that the estimated
values calculated pursuant to Sections 5(b)(1 )-(2) shall not be modified. If
the Purchaser Actual Costs exceed the Purchaser Estimated Costs on such
statement (“Excess Costs”), the District shall bill the Purchaser for an amount
equal to such Excess Costs, and the Purchaser shall pay such bill within 30 days
or be subject to the delayed-payment and interest charges as provided in Section
7(f). If the Purchaser Actual Costs are less than the Purchaser Estimated Costs,
or if credits are due pursuant to Section 6(b)(1)-(5) or both (“Refund Costs”),
the District shall give credit to the Purchaser against the Purchaser Estimated
Costs for the current Contract Year in an amount equal to such Refund Costs;
provided that if Refund Costs are due to Purchaser following the expiration of
this contract, the District shall make a cash refund of such amount to the
Purchaser.

(h) The District may use any payments received from the Purchaser under this
contract in any manner that the District, in its sole discretion, shall
determine. The District agrees to pay or cause to be paid for the Priest Rapids
Project from lawfully available money of the District, including payments from
the Purchaser and other Purchasers, all the operating costs, taxes and
assessments, capital expenditures, payments required for Debt and other costs of
the Priest Rapids Project. If the District issues tax-exempt Debt based on the
governmental use of the Priest Rapids Project Output by the Purchaser, the
Purchaser covenants that it shall not use any Priest Rapids Project Output in a
manner, or take any other action, that will or is likely to adversely affect the
tax-exempt status of any Debt.

SECTION 8. SUPPORT AND COOPERATION.

(a) The District shall make application and use reasonable efforts to obtain a
New FERC License and obtain FERC approval of this contract if required. The
District reserves the right to determine when such applications should be made.

(b) In accordance with FERC direction contained in the PL 83-544 Orders, the
District commits to providing the Eligible Purchasers with a meaningful priority
in the sale of the Reasonable Portion.

(c) Purchasers may also participate in the development by the District of a
proposed Marketing Plan. This Marketing Plan will be submitted to FERC for
approval as part of the relicensing process application; provided, however, that
nothing in this Section shall be construed as compelling the Purchaser to
comment on or refrain from commenting on the Marketing Plan.

(d) Purchaser covenants that it shall provide reasonable support, cooperation
and assistance to the District in the District’s acquisition of a New and Annual
FERC License, any necessary federal, state or local permits relating to the
Priest Rapids Project, FERC approval of this contract, if FERC approval is
requested by the District; provided, however, that nothing in this contract
shall preclude the Purchaser from filing comments with FERC to protect the
Purchaser’s economic benefits provided by this contract.

(e) In the event that the District believes that the Purchaser has violated any
of the above covenants of Section 8(d) the District may by written notice to the
Purchaser describe the alleged violation in reasonable detail and give the
Purchaser no less than 10 business days within which to cease the activity in
question or to provide to the District a written explanation as to why the
Purchaser believes the activity does not constitute a violation of any of the
aforementioned covenants. If the Purchaser does not cure the alleged default and
the District continues to consider the action to be in breach of the covenants,
the matter shall be resolved pursuant to arbitration conducted under Section 28.
If the Purchaser is determined to be in breach of the covenants, the District
shall have the right to terminate this contract effective immediately upon
written notice to the Purchaser, without any liability or further obligation on
the part of the District. In the event of such termination, the District shall
have the right to use or sell, in any manner the District determines, any Priest
Rapids Project Product the Purchaser would have been otherwise entitled to under
this contract.

(f) Purchaser covenants that it shall refrain from filing or supporting any FERC
license application for the Priest Rapids Project other than that filed by the
District and refrain from filing or supporting any effort that would lead to
modification of the FERC decisions on Public Law 83-544 contained in the “PL
83-544 Orders” unless such a request or petition is filed by the District and
the Purchaser agrees with that request or petition. For purposes of this Section
8(f), “refrain from supporting” means prepare no documents, sign no other
agreement or contract other than this contract for Priest Rapids Project Output
or for other products or that is contingent upon an entity other than the
District receiving a license from FERC to operate the Priest Rapids Project,
submit no testimony, engage in no lobbying and provide no funding.

(g) The Purchaser covenants that it will not take any action which, in the
opinion of a neutral third party, would likely be construed as: (i) having a
material adverse effect on the District’s ability to obtain an Annual FERC
License or a New FERC License or the anticipated economic benefits of this
contract or (ii) constituting a judicial challenge to the authority of the
District or the Purchaser to enter into and implement the provisions of this
contract. This covenant does not apply to anticipated economic benefits under
other agreements between the District and third parties, such as with the
Bonneville Power Administration.

(h) In the event that the District believes that the Purchaser has violated any
of the above covenants of Section 8(f) or (g), the District may by written
notice to the Purchaser describe the alleged violation in reasonable detail and
give the Purchaser no less than 4 business days after receipt of such written
notice by Purchaser within which to cease the activity in question or to provide
to the District a written explanation as to why the Purchaser believes the
activity does not constitute a violation of any of the aforementioned covenants.
If the Purchaser does not cure the alleged default and the District continues to
reasonably consider the action to be in breach of the covenants, the District
shall have the right to terminate this contract and the 1956 and 1959 Contracts,
effective immediately upon written notice to the Purchaser, without any
liability or further obligation on the part of the District. In the event of
such termination, the District shall have the right to use or sell, in any
manner the District determines, any Priest Rapids Project Product the Purchaser
would have been otherwise entitled to under this contract and any output from
the Priest Rapids Project under the 1956 or 1959 Contracts.

SECTION 9. SCHEDULING OF DELIVERIES OF SURPLUS AND DISPLACEMENT PRODUCTS.

(a) This Section 9 shall apply only to the scheduling of the Surplus and
Displacement Products.

(b) It is the intent of the Parties that Priest Rapids Project Output shall be
fully coordinated with other resources available to the Purchaser and with the
resources of other Purchasers and that the operation of the Priest Rapids
Project shall be consistent with existing Operating Agreements unless mutually
agreed to by the Parties. If provisions of this Section 9 conflict with the
provisions of any Operating Agreement to which both the District and the
Purchaser are parties, the conflicting provisions of such Operating Agreement
shall prevail. Scheduling of Priest Rapids Project Output shall be as requested
by the Purchaser, acting singly or as a member of a group of Purchasers, subject
to the limitations set forth in this contract.

(c) The Purchaser, acting singly or as a member or a group of Purchasers, shall
make available to the District each normal working day, in conformance with then
prevailing scheduling procedures for scheduling Pacific Northwest generating
resources, hourly schedules of desired Surplus Product deliveries for the
following day or days. The schedules will be completed in a time frame
consistent with standard industry practices in the Pacific Northwest. Such
schedule shall be based upon the probable water supply to the Priest Rapids
Project (inflows) and the resulting probable output. Revisions in the schedule
may be made at my time upon the request of the Purchaser if required by changes
in estimated river flows or system loads. Deviations from schedules shall be
held to a minimum by the District and corrected for as promptly as practicable
on an hourly basis under conditions as nearly equivalent as practicable to those
occurring when the deviations occurred. Alternatively, the Purchaser may provide
scheduling information via a dynamic electronic signal.

(d) The schedules for Surplus Product requested by the Purchaser shall be in
accordance with the following:

(1) The net hourly schedule for delivery or spill shall be within the
limitations of the Purchaser Power Allocation and the Purchaser Power Allocation
of the minimum discharge determined by the District.

(2) The District shall make all determinations concerning the Priest Rapids
Project maximum output and minimum discharge; the District shall have the
unilateral right to determine the maximum allowable amount of change in Priest
Rapids Project Output during any time period and the maximum number of unit
starts and stops allowable during any time period. Such operating guidelines
will be reviewed annually with the Purchaser. The District will consider
suggestions by the Purchaser, then make its final determination consistent with
Prudent Utility Practice. The Purchaser shall schedule Priest Rapids Project
Output requests within such guidelines.

(3) Each Purchaser’s schedule shall not be less than the Purchaser Power
Allocation of the minimum operating capability of the Priest Rapids Project;
provided, however, that if at times one or more Purchasers schedule more than
their Purchaser Power Allocation of the minimum operating capability of the
Priest Rapids Project, the Purchasers that have scheduled their Purchaser Power
Allocation of such minimum operating capability may reduce their schedules
during such times subject to meet the minimum operating requirements of the
Priest Rapids Project.

(4) Subject to Section 5(j), the Purchaser shall be entitled to a share of the
Priest Rapids Project Output each hour, determined by multiplying the total
Priest Rapids Project inflows by the Purchaser Power Allocation.

(5) In addition to Priest Rapids Project Output available under Section 9(d)(4),
the Purchaser shall be entitled to a share of the pondage available at the
Priest Rapids Project (the “Purchaser Allocation of Pondage”), determined by
multiplying the total of the pondage available by the Purchaser Power
Allocation. The Pondage available at the Priest Rapids Project shall be
determined by the District as the volume of water that can be stored between the
then current maximum forebay elevation and the then current minimum forebay
elevation.

(6) The District will establish and maintain for Purchaser a pondage account
that will reflect the use of pondage by the Purchaser. The Purchaser may
schedule more or less than its share of the Priest Rapids Project inflows
determined in accordance with Section 9(c) by scheduling from or to such pondage
account. The aggregate amount of the energy scheduled from the pondage account
shall not exceed the Purchaser Allocation of Pondage determined in accordance
with Section 9(d)(5) and scheduling by the Purchaser to its pondage account
shall be only against its prior accumulated pondage draft.

(7) During any hour that spill is occurring at the Priest Rapids Project in
order to control the forebay elevation, the spill shall first reduce the inflow
of each of the Purchasers whose pondage account is overfull proportionate to the
amount of the overfill, but not exceeding the amount of the overfill. If
unallocated spill remains, it shall next be allocated to reduce the inflow of
each of the Purchasers whose request for generation is less than its entitlement
during the hour, in proportion to the amount by which its request is less than
its entitlement. Any remaining unallocated spill shall be allocated to reduce
the inflow of all Purchasers in proportion to each Purchase Power Allocation.

(8) During any hour that spill is occurring at the Priest Rapids Project for
fish or any other non-power purpose determined necessary or desirable by the
District, the spill shall be allocated to reduce the inflow of all Purchasers in
proportion to each Purchaser Power Allocation.

(9) The District has the right to operate the Priest Rapids Project in such
manner as it deems to be in its best interests so long as the same is consistent
with the FERC License, applicable, laws and regulations, Prudent Utility
Practiced this contract.

(10) The District shall have the unilateral right to restrict deliveries
hereunder as may be necessary to fulfill any non-power regulatory or other legal
requirements and shall have the unilateral right to determine the amounts of
spill required at the Priest Rapids Project.

(e) The Displacement Product shall be scheduled to the Purchaser by the District
from the Priest Rapids Project on the same basis that the capacity and energy
from the Displacement Resource is scheduled to the District. The Purchaser may
request an alternative schedule for the delivery of the Displacement Product,
and the District will agree to such request if the District reasonably
determines that doing so will not result in financial loss or operational harm
to the District.

SECTION 10. PAYMENT OF PROCEEDS FROM THE SALE OF DISPLACEMENT PRODUCT.

  If the Purchaser has elected to have the District market Purchaser Percentage
of Displacement Product, then the proceeds from the sale of such portion of the
Displacement Product, less any costs incurred by the District in making such
sale, will be paid monthly to the Purchaser, in the month following receipt of
such proceeds by the District.

SECTION 11. POINT OF DELIVERY.

(a) Priest Rapids Project Output supplied hereunder shall be approximately 230
kV, three-phase, alternating current, at approximately 60 hertz.

(b) The Surplus Product and the Displacement Product to be delivered hereunder
shall be made available to the Purchaser, at its option, exercisable from time
to time, at any one or more of the following points:

(1)     The 230 kV bus of the Bonneville Power Administration's Midway
Substation;

(2)     The 230 kV bus of the switchyard of the Wanapum Development;

(3)     The 230 kV bus of the Vantage Substation; or

(4)     At any other location mutually agreed to by the District and Purchaser.

SECTION 12. METERING AND TRANSMISSION LOSSES.

(a) The District shall provide and maintain suitable meters in the generator
leads of the Priest Rapids Project to indicate and record the Priest Rapids
Project Output. The actual Priest Rapids Project Output shall be determined from
totaled readings from the meters. The District shall also arrange for suitable
metering at the point of delivery specified in Section 11 or at other points as
agreed upon. The District or an agent of the District shall read meters and
records thereof shall be made available to the Purchaser as may be reasonably
requested.

(b) All losses of Purchaser Percentage of Surplus and Displacement Products
purchased hereunder resulting from transformation and transmission shall be
borne by the Purchaser.

SECTION 13. INFORMATION TO BE MADE AVAILABLE TO THE PURCHASER.

(a) The District agrees to keep records of the Priest Rapids Project in
accordance with the Uniform System of Accounts as prescribed by FERC for
electric utilities and licensees; provided, if there are inconsistencies between
the Uniform System of Accounts and this contract, this contract shall control.
The Purchaser, upon at least 30 days advance written notice to the District,
shall have the right to audit or examine operating and financial records
relating to the Priest Rapids Project during the District’s normal business
hours. To the extent practicable, the Purchasers shall conduct any such audit or
examination jointly to minimize the disruption to “the District’s business
operations. All costs incurred by the District associated with such audit,
including, but not limited to, District labor, materials and reproduction
services shall be billed to the Purchaser, and shall be promptly reimbursed by
the Purchaser in accordance with Section 7(e).

(b) Upon request, any audit reports of the Priest Rapids Project by a firm of
certified public accountants employed by the District or by the State Auditor’s
Office of the State of Washington will be provided to the Purchaser.

(c) Policies of insurance carried by the District pursuant to Section 14 shall
be available at the office of the District for inspection by the Purchaser.

(d) The Purchaser’s representatives shall at all times be given reasonable
access to the Priest Rapids Project, subject to the District’s applicable safety
rules and regulations.

(e) Upon request, the Purchaser may obtain information to document the
capability of the Priest Rapids Project to produce Priest Rapids Project Output

SECTION 14.INSURANCE.

  The District shall have the right to self-insure and/or obtain and maintain
insurance with policies payable to the District for the following coverage:

(a) Obligations of the District under any state or federal Workmen's
Compensation laws or other employer’s liability;

(b) Public liability for bodily injury and property damage;

(c) Physical loss or damage to the Priest Rapids Project on a replacement cost
basis; and

(d) Any other insurance determined to be necessary.

SECTION 15. ADDITIONAL FACILITIES AND PRODUCTS.

(a) From time to time during the term of this contract the District may decide
in its sole discretion, and in the absence of any requirement by FERC or any
state or federal agency, to take actions to increase the Priest Rapids Project
Output, including but not limited to installation of additional generating
facilities or raising the forebay elevation. Whenever the District proposes to
so increase the Priest Rapids Project Output, it shall give notice in writing of
such intent to the Purchaser stating:

(1)     The estimated additional Priest Rapids Project Output that is expected
to be available as a result of the installation of the proposed changes;

(2)     The estimated incremental cost (i.e. the costs which will be incurred as
a result of installing the proposed changes which costs would not be incurred
were such proposed additional facilities not installed) of the additional Priest
Rapids Project Output on an annual basis;

(3)    The estimated construction period for the installation of the proposed
changes; and

(4)     Other available pertinent information.

(b) Following the issuance of notice of a proposal as provided in Section 15(a),
the Purchaser shall have the following options: (i) Purchaser may terminate this
contract effective one year after the date of the issuance of a FERC order
approving the changes to the Priest Rapids Project or (ii) Purchaser may elect
not to participate in the proposed increase in the Priest Rapids Project Output
and to retain this contract, in which case the Parties shall attempt in good
faith to negotiate a mutually acceptable agreement setting out, among other
matters, any adjustments to Purchaser Product Percentages of Priest Rapids
Project Products and Purchaser’s responsibility for the Annual Power Costs. Such
options shall be exercised by giving written notice to the District of
Purchaser’s election on or before the expiration of 90 days from the date of
receipt of the written notice issued pursuant to Section l5(a). In the event
that Purchaser has elected option (ii) above and the Parties fail to negotiate a
mutually acceptable agreement, Purchaser may elect to terminate this contract
pursuant to option (i) so long as the written notice of termination is received
by the District on or before the expiration of 180 days from the date of receipt
of the written notice issued pursuant to Section 15(a). If the Purchaser does
not exercise either of its options pursuant to this Section 15(b) or if the
Parties fail to negotiate a mutually acceptable agreement and the Purchaser does
not timely provide the District with a notice of termination, then the Purchaser
shall be obligated to pay its proportionate share of the costs and expenses
related to the additional generating capability as provided in Sections 6 and 7,
and shall be entitled to receive a percentage of such additional Priest Rapids
Project Output determined on the basis of the Purchaser Power Allocation.

(c) If at any time the District determines that it is not desirable for it to
proceed with the changes as proposed pursuant to Section 15(a), the District
shall be under no obligation to proceed with such changes and shall so notify
the Purchaser in writing of such determination not to proceed. If the Purchaser
has exercised its option to terminate this contract pursuant to Section 15(b),
such termination shall be cancelled upon the issuance of the written
notification by the District pursuant to this Section 15 (c), but only if such
written notification by the District is issued within one year of the date of
the issuance of a FERC order approving the changes.

(d) All costs of studies, engineering, and administrative activities necessary
to apply for and receive FERC approval of the proposed changes to the Priest
Rapids Project shall be included as Annual Power Costs and the Purchaser shall
pay its share of such costs pursuant to Section 7; provided, however, if the
Purchaser has given notice of termination of this contract in accordance with
Section l5(b) and such termination has not been cancelled pursuant to Section
15(c), then the Purchaser shall not be liable for any such costs.

(e) Not withstanding any other provisions of this Section 15, whenever the
District determines that it is necessary or in its best interest to modify the
Priest Rapids Project in any way or to install additional facilities at or in
the Priest Rapids Project to comply with any law, rule, regulation, or order of
FERC or any state or federal agency with. authority to issue or make and enforce
such an order, rule, regulation or decision, the Purchaser shall share the
benefits and costs resulting from the modification or installation of the
additional facilities in the same manner and to the same extent as provided
above, except that the Purchaser shall not have the option to terminate or
adjust its interest and participation in this contract as provided in Section
15(b).

(f) At any time a Purchaser may request the District to modify the Priest Rapids
Project or propose conservation projects within Grant County. The District
commits to consider such requests in good faith; however, the District is under
no obligation to agree to implement such requests.

SECTION 16. PROJECT INTEGRATION.

(a) It is the intention of the Parties hereto that the operation of the Priest
Rapids Project shall be integrated and that all benefits accruing as a result of
such integration shall be shared equally by the Priest Rapids and Wanapum
Developments. It is also agreed that before November 1, 2009 and after such date
if required by any Bond Resolution, all joint costs of the Priest Rapids and
Wanapum Developments shall be equitably allocated between them as determined by
the District.

(b) The Parties agree that any compensation (whether energy or money) due or
which may become due the owner of the Rock Island Hydroelectric Project because
of encroachment by the Priest Rapids Project after November 1, 2009 on the Rock
Island Hydroelectric Project will either proportionately reduce the amount of
Priest Rapids Project Output or be included in Annual Power Costs, as
appropriate, but shall not reduce the amount required to be paid by the
Purchaser under Sections 6 and 7. “Rock Island Hydroelectric Project” shall mean
the FERC Hydroelectric Project No. 943 currently operated by Public Utility
District No. 1 of Chelan County, Washington.

SECTION 17. LIABILITY OF PARTIES.

(a) Except as otherwise provided in this contract, each Party hereby releases
the other Party and its commissioners, officers, directors, agents and employees
from any claim for loss or damage arising out of the ownership, operation, and
maintenance of the Priest Rapids Project including any loss of profits or
revenues, loss of use of power system, cost of capital, cost of purchased or
replacement power, other substantially similar liability or other direct or
indirect consequential loss or damage, except as provided in the Agreement
Limiting Liability Among Western Interconnected Systems for parties to that
agreement. This release shall not include any claim by the Purchaser for refund
for over-payments made to the District nor any claim for specific performance of
the District’s obligation to deliver to the Purchaser during the term of this
contract the Priest Rapids Project Products to which the Purchaser is entitled
under this contract.

(b) The Purchaser shall have no claim of any type or right of action against the
District: (i) as a result of a FERC or court order or amendment described in
Section 3(f); (ii) as a result of the failure to receive an Annual FERC License
or a New FERC license or the adjustment of delivery of Priest Rapids Products
pursuant to Section 5(j) whether arising under the terms of this contract or
otherwise; or (iii) as a result of the District’s purchasing or selling power or
energy on behalf of the Purchaser pursuant to Section 3(b), and the Purchaser
hereby releases the District and its commissioners, officers, agents and
employees from any claim for loss or damage arising out of the events described
in this paragraph.

SECTION 18.NOTICES AND COMPUTATION OF TIME.

  Any notice or demand, except those provided for in Section 7, by the Purchaser
under this contract to the District shall be deemed properly given if mailed
postage prepaid and addressed to Manager, Public Utility District No. 2 of Grant
County, Box 878, Ephrata Washington 98823; any notice or demand by the District
to the Purchaser under this contract shall be deemed properly given if mailed
postage prepaid and addressed to Purchaser:

  PUGET SOUND ENERGY, INC.
ATTENTION, VICE PRESIDENT, ENERGY SUPPLY
ONE BELLEVUE CENTER BUILDING
411 108TH AVENUE, 15TH FLOOR
BELLEVUE, WA 98004-5515

  In computing any period of time from such notice, such period shall commence
at 12:00 A.M. (midnight) on the date mailed. The designations of the name and
address to which any such notice or demand is directed may be changed at any
time by either Party giving notice as provided above.

SECTION 19. DISTRICT’S BOND RESOLUTIONS AND LICENSE.

  It is recognized by the Parties that the District, in its operation of the
Priest Rapids Project, must comply with the requirements of the Bond Resolution
and with the FERC License together with amendments thereof from time to time
made, and the District is hereby authorized to take such actions as the District
determines are necessary and appropriate to comply with such Bond Resolution and
FERC License.

SECTION 20. GOVERNING LAW.

  The Parties agree that the laws of the State of Washington shall govern this
contract.

SECTION 21. ASSIGNMENT OF CONTRACT.

  Neither the Purchaser nor the District shall by contract, operation of law or
otherwise, assign this contract or any right or interest in this contract
without the prior written consent of the other Party, which shall not be
unreasonably withheld; provided, however, a Party may, without the consent of
the other party (and without relieving itself from liability hereunder): (i)
transfer or assign this contract to an affiliate of the party provided that the
affiliate’s creditworthiness is equal or higher than that of the Party; or (ii)
transfer or assign this contract to any person or entity succeeding to all or
substantially all of the distribution and generating facilities of the Party
whose creditworthiness is equal or higher than that of the Party; provided,
however, that in each such case, any such assignee shall agree in writing to be
bound by the terms and conditions in this contract and the transferring Party
shall deliver such tax and enforceability assurance as the other Party may
reasonably request.

SECTION 22. REMEDIES ON DEFAULT.

(a) "Act of Default" shall mean: "

(1) The failure of a Party to make, when due, any payment required under this
contract if such failure is not remedied within three days after written notice,
provided that the payment is not the subject of a good faith dispute pursuant to
Section 28. If requested by the District, the Purchaser shall deposit the
disputed amount in escrow with a bank acceptable to the Parties.

(2) Any representation or warranty in this contract is false or misleading in
any material respect when made or ceases to remain true during the term of this
contract.

(3) The failure of the Purchaser, after Section 8 or any provision thereof has
been found by a court to be void, unlawful or unenforceable, to perform in
accordance with the provisions of Section 8, including without limitation any
provision or provisions found to be void, unlawful or unenforceable.

(4) A Party shall make an assignment or any general arrangement for the benefit
of creditors; file a petition or otherwise commence or acquiesce in the
commencement of a proceeding under any bankruptcy or similar law for the
protection of creditors; or otherwise becomes bankrupt or insolvent or unable to
pay its debts as they fall due.

(b) If a party commits an Act of Default during the term of this contract, the
non-defaulting Party may take any one or more of the following remedial steps:

(1) Take any action or exercise any remedy provided to the Party under the
provisions of Sections 7 or 8.

(2) Except where a different time period is set forth herein, if the defaulting
Party fails to remedy an Act of Default within ten days after receiving written
notification of the default, then the non-defaulting Party may give a written
notice of termination of this contract on a date specified in such notice, which
date shall be not less than 30 days after the date of such notice. If the
Purchaser is given written notice as provided herein, this contract shall
terminate upon the date specified in such notice, the Purchaser thereafter shall
have no right, title, or interest in, to, or with respect to the Priest Rapids
Project, or any Priest Rapids Project Product, or any Priest Rapids Project
Output, but the Purchaser shall remain liable for all amounts due the District
which have accrued prior to the date of termination.

(3) The District may, prior to the termination of this contract pursuant to
Section 22(b)(2), at any time suspend any and all rights of the Purchaser to the
Priest Rapids Project Products upon not less than five days’ notice to the
Purchaser. The District may, without further notice to the Purchaser, grant any
or all of such suspended rights to any person or entity for the duration of the
suspension. In such event, the Purchaser shall, in addition to its other
obligations under this contract, upon demand, pay to the District all expenses
and any losses incurred in connection with such suspension and any grant of the
suspended rights to another person or entity. No suspension of any or all of the
rights of the Purchaser to Priest Rapids Project Products shall be construed as
an election to terminate the interests of the Purchaser in, to, and under this
contract unless a written notice of termination is given to the Purchaser
pursuant to this contract or unless such termination be decreed by a court of
competent jurisdiction.

(4) The non-defaulting Party may begin and maintain successive proceedings
against the defaulting Party for the recovery of damages or for a sum equal to
any and all payments required to be made pursuant to this contract.

(5) A Party may take whatever action at law or in, equity as may appear
necessary or desirable to collect the amounts payable by the defaulting Party
under this contract then due and thereafter to become due or to enforce
performance and observation of any obligation, agreement or covenant of the
defaulting Party under this contract.

(6) No right or remedy conferred upon or reserved to a Party is intended to be
exclusive of any other right or remedy, and each and every right and remedy
shall be cumulative and in addition to any other right or remedy given
hereunder, or now or hereafter legally existing, upon the occurrence of any Act
of Default. Failure of the District to insist at any time on the strict
observance or performance by the Purchaser of any of the provisions of this
contract, or to exercise any right or remedy provided for in this contract shall
not impair any such right or remedy nor be construed as a waiver or
relinquishment thereof for the future. Receipt by the District of any payment
required to be made hereunder with knowledge of the breach of any provisions of
this contract shall not be deemed a waiver of such breach. In addition to all
other remedies provided in this contract, the District shall be entitled, to the
extent permitted by applicable law, to injunctive relief in case of the
violation or attempted or threatened violation, of any of the provisions of this
contract, or to a decree requiring performance of any of the provisions of this
contract or to any other remedy legally allowed to the District.

(7) The District shall not have the right to accelerate future payment
obligations of the Purchaser in the event of default under this contract.

SECTION 23. VENUE AND ATTORNEY FEES. .

  Venue of any action filed to enforce or interpret the provisions of this
contract shall be exclusively in the United States District Court for the
Eastern District of Washington or the Superior Court of, the State of Washington
for Grant County and the Parties irrevocably submit to the jurisdiction of any
such court. In the event of litigation to enforce the provisions of this
contract, the prevailing Party shall be entitled to reasonable attorney’s fees
in addition to any other relief allowed.

SECTION 24. COMPLIANCE WITH LAW.

(a) The Parties shall conform to and comply with all laws, rules, regulations,
license conditions or restrictions promulgated by the FERC or any other
governmental agency or entity having jurisdiction over the Priest Rapids
Project. The Purchaser shall cooperate and take whatever action is necessary to
cooperate fully with the District in meeting such requirements. Obligations of
the District contained in this contract are hereby expressly made subordinate
and subject to such compliance.

(b) The Purchaser shall ensure that Priest Rapids Project Products available to
Purchaser under this contract are not sold, resold, distributed for use or used
outside the Pacific Northwest in violation of the Bonneville Project Act, Public
Law 75-329, the Pacific Northwest Consumer Power Preference Act, Public Law
88-552, the Regional Act or in contravention of any applicable state or federal
law, order, regulation, or policy. If such sales occur in violation of the
foregoing, the Purchaser shall reimburse the District for any penalties imposed
on and costs incurred by the District as a consequence of such violation.

SECTION 25. HEADINGS.

  The headings of sections and paragraphs of this contract are for convenience
of reference only and are not intended to restrict, affect or be of any weight
in the interpretation or construction of the provisions of such sections and
paragraphs.

SECTION 26. ENTIRE AGREEMENT; MODIFICATION; CONFLICT IN PRECEDENCE.

  This contract does not modify the terms and conditions contained in the 1956
and 1959 Contracts except as provided in Sections 1(b) and 8. This contract
constitutes the entire agreement between the Parties with respect to the subject
matter of this contract, and supersedes all previous communications between the
Parties, either verbal or written, with respect to such matter. No modifications
of this contract shall be binding upon the Parties unless such modifications are
in writing signed by each Party. To the extent there are any conflicting
provisions between this contract and the 1956 Contract, or this contract and the
1959 Contract after November 1, 2009, the terms an conditions in this contract
shall take precedence and be controlling and the 1956 and 1959 Contracts are
hereby amended accordingly.

SECTION 27. NO PARTNERSHIP OR THIRD PARTY RIGHTS

(a) This contract shall not be interpreted or construed to create an
association, joint venture or partnership between the Parties, or to impose any
partnership obligations or liability upon any Party. Without limiting the
foregoing, Purchaser shall not be liable for, and the District hereby releases
the Purchaser from, the payment of Debt except as provided in Sections 6 and 7.

(b) This contract shall not be construed to create rights in or grant remedies
to any third party as a beneficiary of this contract.

SECTION 28. PURCHASERS’ COMMITTEE; ARBITRATION.

  There is hereby established a Purchasers’ committee (the “Committee”). Each
Purchaser may appoint one representative (and one alternate) as a Committee
member to attend Committee meetings. The members of the Committee shall elect a
chair, and may adopt such rules for the conduct of business as it deems
appropriate. Meetings between the District and Purchasers shall be held
routinely, but not more frequently than once a quarter, provided, however, that
such meetings may be held more frequently than once each quarter at the request
of the District or upon the request of members of the Committee whose Purchaser
Product Percentage of Surplus Products totals 66% or more. All meetings between
the District and Purchaser will be held in Grant County, Washington, unless the
District and the Purchasers agree to another location.

(b) In addition to other matters subject to arbitration pursuant to other
provisions of this contract, if approved by members of the Committee whose
Purchaser Product Percentage of Surplus Product totals 66% or more, the
Committee may submit to binding arbitration the following issues:

(1) Have the Estimated District Loads been forecast in accordance with Prudent
Utility Practice and, if not, what is the appropriate Estimated District Loads
in accordance with Prudent Utility Practice for the Contract Year?

(2) Have the Annual Power Costs been determined by the District in accordance
with Prudent Utility Practice and have such costs been incurred for the benefit
of Priest Rapids Project Output and, if not, what are the appropriate Annual
Power Costs in accordance with Prudent Utility Practice for the Contract Year;
provided that nothing in this Section shall be interpreted to limit the ability
of the District to meet its payment obligations under a Bond Resolution?

(3) Are discretionary outages that would reduce Priest Rapids Project Output by
more than 25% scheduled so as to be fair to both the District and Purchasers
given that the benefit of the Priest Rapids Project to the Purchasers declines
over time and, if not, what should be the appropriate schedule for outages?
Current or future market conditions for electricity will not be a factor in
arbitrating this issue. If failure to perform the proposed outage would
reasonably reduce Priest Rapids Project Output or conflict with Section 18, the
outage will not be subject to arbitration.

(4) What modifications to this contract, pursuant to Section 3(f), are necessary
to comply with FERC or court orders and to preserve the basic benefits and
obligations of the Parties?

(5) Has the Purchaser violated the covenants in Section 8(e)?

(c) The board of arbitrators shall be composed of three persons, one of whom
shall be appointed by the District, one of whom shall be appointed by majority
vote of the Committee, and the third person to be appointed by the two persons
so appointed, The District and the Committee shall appoint their arbitrator
within 15 days after notification of the Committee’s vote to submit a matter to
binding arbitration. In the event the two members cannot agree upon the
appointment of a third person within l0 days, then such third person shall, be
appointed by the presiding judge of the Superior Court of Kittitas County,
Washington. The arbitration shall be conducted jointly by the participating
Purchasers, and under rules as may be determined by the arbitrators; provided,
however, that all parties shall be afforded discovery consistent with the
Federal Rules of Civil Procedure; and, provided further, if the arbitrators do
not unanimously agree on the rules governing the arbitration, the arbitration
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The board so designated shall conduct a
hearing within 30 days of completion of their selection, and within 15 days
after the hearing (unless such time is extended by agreement of the Parties)
shall notify the Parties of their decision in writing, stating the reasons
therefore and separately listing their findings of fact, conclusions of law and
order. Insofar as the Parties hereto may legally do so, they agree to abide by
the decision of the board. All factual determinations made by the board shall be
conclusive and binding on the Parties and not subject to judicial review. Any
conclusions of law made by the board shall be subject to review by a court
specified in Section 23; provided, that the order issued by the board shall be
effective unless and until a stay is issued by the board or such court suspends
the effectiveness of the order.

SECTION 29. REPRESENTATIONS AND WARRANTIES.

  Each Party represents and warrants to the other Party that;

(a) It is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation.

(b) The execution, delivery and performance of this contract are within its
powers, have been duly authorized by all necessary action and do not violate any
of the terms and conditions in its governing documents, any contracts to which
it is a party or any law, rule, regulation, or order applicable to it.

(c) This contract constitutes a legally valid and binding obligation enforceable
against it in accordance with its terms, subject to equitable defenses and
applicable bankruptcy, insolvency and similar laws affecting creditors’ rights
generally.

  The District hereby represents and warrants to the Purchaser that during the
term of this contract, the District will not waive, reduce or otherwise forego
the collection of the Risk Premium pursuant to Section 7 of this and all other
Contracts.

SECTION 30. COUNTERPARTS.

  This contract may be executed in counterparts, each of which shall be an
original and all of which shall constitute the same contract.

  PUBLIC UTILITY DISTRICT NO. 2
OF GRANT COUNTY, WASHINGTON

  By:

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

  Mike Conley

(SEAL) President, Board of Commissioners

  ATTEST:

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

  Thomas W. Flint

  Secretary, Board of Commissioners

  Date:

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

  PUGET SOUND ENERGY, INC.

  By:

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

  William A. Gaines

(SEAL) Title: Vice President, Energy Supply

EXHIBITS

EXHIBIT A

MONTHLY AMOUNT OF DISPLACEMENT RESOURCE

A. For the period November 1, 2005 through September 30, 2006:

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Capacity
(MW) 123 123 121 197 249 252 219 151 138 n/a 123 124 Energy
(MWh) 91,512 82,656 90,024 141,643 185,256 181,440 162,936 112,344 99,360 n/a
88,560 92,256

B. For the period October 1, 2006 through September 30, 2011:

  Jan Feb1 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Capacity
(MW) 148 149 150 222 270 268 234 167 161 159 163 163 Energy
(MWh) 110,112 100,128 111,600 159,618 200,880 192,960 174,096 124,248 115,920
118,455 117,360 121,272

1.  MWH in February 2008 are 103,704

EXHIBIT B

DEFINITIONS OF PRIEST RAPIDS DEVELOPMENT
AND WANAPUM DEVELOPMENT

RESOLUTION NO. 390 - DEFINITION OF PRIEST RAPIDS DEVELOPMENT

  Section 2(f) of Exhibit 1.“Priest Rapids Development” shall mean those
properties and facilities consisting of the Priest Rapids dam, site, reservoir,
switchyard and power plant, including all generating facilities associated
therewith up to and including the first ten (10) main turbine generator units
each with a nameplate rating of approximately 78,850 kilowatts and any
additional generating facilities which may be installed as provided for in
Section 19 of the Original Power Sales Contract, together with the associated
transmission facilities consisting of two 230 KV transmission lines and terminal
facilities interconnecting the Priest Rapids switchyard and the Bonneville Power
Administration’s Midway Substation and an undivided one-half (1/2) interest in
the interconnecting facilities between the Priest Rapids switchyard and the
Wanapum switchyard.

RESOLUTION NO. 474 - DEFINITION OF WANAPUM DEVELOPMENT

  Section 2.2. The District specifies and adopts the plan and system hereinafter
set forth for the acquisition, by purchase or condemnation and construction of
the following generation and transmission facilities as a separate utility
system of the District constituting the Wanapum Development of the District, to
wit:

A.     The District shall construct an e1ectric generating plant and associated
facilities on the Columbia River at approximately river mile 415 from the mouth
of said river at the Wanapum site on said river, in Grant and Kittitas Counties,
Washington, as authorized by the Federal Power Commission License for Project
No. 2114, originally issued November 4, 1955, and all amendments thereto; said
generating plant to have an installed nameplate rating of approximately 831,250
kilowatts, and said generating plant and associated facilities to include, but
not limited to, a concrete gravity dam, a fully enclosed reinforced concrete
powerhouse containing ten (10) turbo-generating units with provisions in the
intake structure for the installation of six (6) additional turbo-generating
units, a reservoir, waterways, fish ladders and other fish protective devices;
provisions for future installation of navigation locks; transforming facilities;
a switchyard; transmission facilities necessary to connect the powerhouse to the
existing transmission facilities of the Priest Rapids Development and to the
transmission facilities of the Bonneville Power Administration in the vicinity
of said Project; railroad siding, shops, warehouses, construction camp, offices,
and dwellings; and all other structures, fixtures, equipment or facilities used
or useful in the construction, maintenance and operation of the Wanapum
Development and all necessary water rights, development rights, permits and
licenses, easements, rights-of-way, flowage rights and rights permitting the
storage of water, riparian rights and shore rights.

Exhibit C
Grant County PUD
Service Area

AMENDMENT NO. 1 TO THE
PRIEST RAPIDS PROJECT PRODUCT SALES CONTRACT

The Public Utility District No. 2 of Grant County, Washington, (“District”), and
Puget Sound Energy, Inc.(“Purchaser”), hereby agree to this Amendment No.1 to
the Priest Rapids Project Product Sales Contract dated December 13, 2001 (the
“Product Contract”). Unless otherwise defined herein, all capitalized terms
defined in the Product Contract shall have the meanings set forth therein when
used in this Amendment.

1. Term of Amendment No. 1

  This Amendment No.1 shall take effect on upon the execution by the District
and Purchaser, and shall expire on the earlier of the expiration or termination
date of the Product Contract.

2. Amendments to Provisions of the Product Contract

Purchaser and the District agree that the Product Contract is hereby amended as
follows:

2.1 The definition of the term Priest Rapids Project Output set forth in Section
2 is deleted in its entirety and replace with the following:

  “Priest Rapids Project Output” shall mean the amount of capacity, energy (both
firm and non-firm), pondage, reactive power, ancillary services (including
dynamic load following services) and any other product from the Priest Rapids
Development from November 1, 2005 to November 1, 2009 and from the Priest Rapids
Project from November 1, 2009 through the term of this contract under the
operating conditions which exist during the term, including periods when the
Priest Rapid Project may be wholly or partially inoperable for any reason, after
correction for encroachment, Canadian entitlement, station and project use, and
depletions required by the FERC License or other regulatory requirements.

2.2 Section 6(b)(6) is deleted in its entirety.

2.3 Section 7(a)(4) is deleted in its entirety and replaced with the following:

  An estimate of the cost to the Purchaser of the Displacement Product, which
shall be the Purchaser Product Percentage of (i) the cost, including the costs
of transmission and necessary services, to the District of acquiring
Displacement Resources, (ii) less the cost, including the costs of transmission
and necessary services, of that portion of the total Displacement Resources
reserved by the District pursuant to Section 5(b).

2.4 Section 8(h) is deleted in its entirety and replaced with the following:

  In the event that the District believes that the Purchaser has violated any of
the above covenants of Section 8(f) or (g), the District may by written notice
to the Purchaser describe the alleged violation in reasonable detail and give
the Purchaser no less than 4 business days after receipt of such written notice
by Purchaser within which to cease the activity in question or to provide to the
District a written explanation as to why the Purchaser believes the activity
does not constitute a violation of any of the aforementioned covenants. If the
Purchaser does not cure the alleged default and the District continues to
reasonably consider the action to be in breach of the covenants, the District
shall have the right to terminate this contract, effective immediately upon
written notice to the Purchaser, without any liability or further obligation on
the part of the District. In the event of such termination, the District shall
have the right to use or sell, in any manner the District determines, any Priest
Rapids Project Product the Purchaser would have been otherwise entitled to under
this contract.

2.5 Section 9(d)(8) of the Product Contract is amended by adding at the end of
such Section 9(d)(8) the following sentence:

  For purposes of Sections 9(d)(7) and (8), spill shall mean the product of the
spill occurring at the Priest Rapids Project during any hour and the sum of the
Purchaser Power Allocations of all Purchasers. Any actual spill that is not
allocated to Purchasers pursuant to such sections shall be allocated to the
District.

2.6 The Product Contract is amended by adding a new Exhibit D, Purchasers
Product Percentage Allocations, which is attached hereto.

In Witness Whereof, Purchaser and the District have caused this Amendment No. 1
to be executed in their respective names by their duly authorized officers.

Purchaser
PUGET SOUND ENERGY, INC. PUBLIC UTILITY DISTRICT NO. 2 OF
GRANT COUNTY, WASHINGTON

By:

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

  By:

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         William A. Gaines            Mike Conley

Title: Vice President, Energy Supply

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

  Title: President, Board of Commissioners

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Date Signed:    4/03/2002

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  Date Signed:    4/15/2002

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  By:

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             Thomas W. Flint

             Secretary, Board of Commissioners

  Date Signed:   4/15/2002

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EXHIBIT A, AMENDMENT 1

Purchasers Product Percentage Allocations

    Requested Number of Section 3c/e Section 3c/d Step 2 Allocation1 Adjustment
for 2005-2009

  Historical Shares Purchaser Customers Step 1     Reasonable Added   Displace
Reasonable Added

Purchasers Name 1956 1959 Product % 2000 Allocation Surplus Displace Portion
Products7 Surplus2 3 Portion 4 Products7

A. 1956/1959 Purchasers                          

  PacifiCorp 13.9% 18.7% 32.6% 778,446   25.03% 25.03% 25.03% 25.67% 21.34%
26.87% 23.19% 21.89%

  Portland General 13.9% 18.7% 32.6% 726,039   25.03% 25.03% 25.03% 25.67%
21.34% 26.87% 23.19% 21.89%

  Puget Sound Energy 8.0% 10.8% 18.8% 915,851   14.43% 14.43% 14.43% 14.80%
12.28% 15.51% 13.36% 12.60%

  Avista Utilities 6.1% 8.2% 25.0% 309,986   10.98% 10.98% 10.98% 11.26% 9.37%
11.79% 10.17% 9.61%

  Cowlitz PUD 2.0% 2.7% 4.7% 44,361   3.61% 3.61% 3.61% 3.70% 3.07% 3.88% 3.34%
3.15%

  Eugene Water & Elec 1.7% 2.3% 4.0% 80,097   3.07% 3.07% 3.07% 3.15% 2.61%
3.30% 2.84% 2.68%

  City of Forest Grove 0.5% 0.7% (5)% 8,592   0.92% 0.92% 0.92% 0.94% 0.77%
1.00% 0.84% 0.79%

  City of McMinnville 0.5% 0.7% (5) 13,973   0.92% 0.92% 0.92% 0.94% 0.77% 1.00%
0.84% 0.79%

  City of Milton-Freewater 0.5% 0.7% (5) 4,581   0.92% 0.92% 0.92% 0.94% 0.77%
1.00% 0.84% 0.79%

B. 1956 Only Purchasers2                          

  Seattle City Light 8.0% n/a (5) 349,557   6.14% 6.14% 6.14% 6.30% 12.28%
12.28% 12.28% 12.60%

  Tacoma Power 8.0% n/a 16.0% 147,819   6.14% 6.14% 6.14% 6.30% 12.28% 12.28%
12.28% 12.60%

  Kittitas PUD 0.4% n/a   3,078

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  0.31%

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0.31%

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

0.31%

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

0.31%

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

0.61%

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

0.61%

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

0.61% 0.63%

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

      Total A+B       3,392,380 97.51% 97.51% 97.51% 97.51% 100.00% 97.51%%
116.40% 103.81% 100.00%

C. No. Idaho Purchasers                          

  Clearwater n/a n/a 10.43% 9,314   0.27% 0.27% 0.27% n/a 0.27% 0.27% 0.27% n/a

  Idaho Co. Light & Power n/a n/a 2.41% 3,007   0.09% 0.09% 0.09% n/a 0.09%
0.09% 0.09% n/a

  Kootenai n/a n/a 16.28% 16,244   0.47% 0.47% 0.47% n/a 0.47% 0.47% 0.47% n/a

  Northern Lights n/a n/a 12.30% 14,541   0.42% 0.42% 0.42% n/a 0.42% 0.42%
0.42% n/a

D. Snake River Purchasers                          

  Fall River Rural Elec. n/a n/a (6) 10,992   0.32% 0.32% 0.32% n/a 0.32% 0.32%
0.32% n/a

  Lost River Electric n/a n/a (6) 2,327   0.07% 0.07% 0.07% n/a 0.07% 0.07%
0.07% n/a

  Lower Valley Electric n/a n/a (6) 19,182   0.55% 0.55% 0.55% n/a 0.55% 0.55%
0.55% n/a

  Raft River Rural Elec. n/a n/a (6) 2,927   0.08% 0.08% 0.08% n/a 0.08% 0.08%
0.08% n/a

  Salmon River Electric n/a n/a (6) 2,570   0.07% 0.07% 0.07% n/a 0.07% 0.07%
0.07% n/a

  United Electric n/a n/a (6)

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5,515

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0.16%

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

0.16%

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

0.16%

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

n/a

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

0.16%

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

0.16%

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

0.16%

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

n/a

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

     Associated Total     1.24% 43,513

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

 

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

1.25%

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

1.25%

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

1.25%

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

n/a

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

1.25%

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

1.25%

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

1.25%

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

n/a

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

      Total C+D       86,619 2.49%

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

2.49%

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

2.49%

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

2.49%

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

n/a

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

2.49%

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

2.49%

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

2.49%

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

n/a

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

Total 63.5% 63.5%     100.00%

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

100.00%

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

100.00%

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

100.00%

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

100.00

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

100.00%

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

118.89%

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

106.30%

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

100.00%

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  NOTES: (1)   Allocated per average of 1956 and 1956 Shares or, for Idaho
Purchasers, per number of customers.

    (2)   Allocated per 1956 Shares Surplus Product and, for Idaho Purchasers,
per number of customers.

    (3)   Allocated per 25% of 1956 Shares and 75% of 1959 Shares for 1956/1959
Purchasers, per 1956 Shares for the Only 1956 Purchaser, and number of customers
for No. Idaho and Snake River Purchasers.

    (4)   Allocated per 75% of 1956 Shares and 25% of 1959 Shares for 1956/1959
Purchasers, per 1956 Shares for the Only 1956 Purchaser, and number of customers
for No. Idaho and Snake River Purchasers.

    (5)   Have Intent to Sign Contract Letter without Requested Purchaser
Product Percent.

    (6)   Snake River Purchaser's Contract with the Association.

    (7)   Allocated only to the 1956/1959 and Only 1956 Purchasers per 1956
Shares for 2005-2009, then average of 1956 and 1959 Shares post-2009.