exhibit107.htm


    Exhibit
10.7

     

    WANAPUM
POWER SALES CONTRACT

     

    Executed
by

     

    PUBLIC
UTILITY DISTRICT NO. 2

     

    OF GRANT
COUNTY, WASHINGTON

     

    and

     

    PUGET
SOUND POWER & LIGHT COMPANY

     

    INDEX TO
SECTIONS

     

    


    
      
        
          	
                  Section

                	 
      	 
      	 
      
	
                  1.

                	 
      	
                  Term
      of Contract

                	 
      
	
                  2.

                	 
      	
                  Definitions
      and Explanations of Terms

                	 
      
	
                  3.

                	 
      	
                  Amount
      of Energy and Power Sold

                	 
      
	
                  4.

                	 
      	
                  Annual
      Power Costs

                	 
      
	
                  5.

                	 
      	
                  Payment
      for Power Sold

                	 
      
	
                  6.

                	 
      	
                  Scheduling
      of Deliveries

                	 
      
	
                  7.

                	 
      	
                  Point
      of Delivery

                	 
      
	
                  8.

                	 
      	
                  Voltage
      Control and Reactive Deliveries

                	 
      
	
                  9.

                	 
      	
                  Character
      and Continuity of Service

                	 
      
	
                  10.

                	 
      	
                  Metering
      and Transmission Losses

                	 
      
	
                  11.

                	 
      	
                  Accounts

                	 
      
	
                  12.

                	 
      	
                  Information
      to be Made Available to the Purchaser

                	 
      
	
                  13.

                	 
      	
                  Advisory
      Committee - Arbitration

                	 
      


        

      

    

    
      
        	
                14.

              	 
      	
                Insurance

              	 
      
	
                15.

              	 
      	
                Operation
      and Maintenance

              	 
      
	
                16.

              	 
      	
                Board
      of Consulting Engineers on Construction Problems

              	 
      
	
                17.

              	 
      	
                Construction
      and Financing Contracts

              	 
      
	
                18.

              	 
      	
                Completion
      of Construction

              	 
      
	
                19.

              	 
      	
                Additional
      Facilities

              	 
      
	
                20.

              	 
      	
                Project
      Integration

              	 
      
	
                21.

              	 
      	
                Adjustment
      of Power Allocation

              	 
      
	
                22.

              	 
      	
                Liability
      of Parties

              	 
      
	
                23.

              	 
      	
                Waiver
      of Default

              	 
      
	
                24.

              	 
      	
                Notices
      and Computation of Time

              	 
      
	
                25.

              	 
      	
                Modification
      of Contract Terms

              	 
      
	
                26.

              	 
      	
                District's
      Bond Resolution and License

              	 
      
	
                27.

              	 
      	
                Conflict
      of Laws

              	 
      
	
                28.

              	 
      	
                Assignment
      of Contract

              	 
      
	
                29.

              	 
      	
                Uniformity
      of Power Sales Contract

              	 
      
	
                Exhibit
      "A"

              	 
      	
                Distribution
      of the Wanapum Development Output

              	 
      
	
                Exhibit
      "B"

              	 
      	
                Agreement
      of August 8, 1955, between Puget Sound Power & Light
      Company, Public Utility District of Chelan County and Public Utility
      District of Grant County

              	 
      
	
                Exhibit
      "C"

              	 
      	
                Escrow
      Instructions

              	 
      


      

    

     

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

    WANAPUM
POWER SALES CONTRACT

     

    Executed
by

     

    PUBLIC
UTILITY DISTRICT NO. 2

     

    OF GRANT
COUNTY, WASHINGTON

     

    and

     

    PUGET
SOUND POWER & LIGHT COMPANY

     

    


    This
contract, entered into as of the 22nd day of June, 1959, by Public Utility
District No. 2 of Grant County, Washington (hereinafter called "the
District"), a municipal corporation of the State of Washington, and Puget Sound
Power & Light Company (hereinafter called "the Purchaser"), a
corporation organized and existing under the laws of the State of
Massachusetts.

     

    WITNESSETH:

     

    WHEREAS
the District is a municipal corporation organized under the laws of the State of
Washington and authorized to construct and operate electric generating plants
and transmission lines and to supply electric energy to other electric utilities
and, as specifically authorized by Public Law 544 - 83rd Congress, to develop
the Priest Rapids Hydroelectric Project on the Columbia River; and

    WHEREAS
the District has been granted a license by the Federal Power Commission for the
construction, operation and maintenance of Project No. 2114, consisting of
the Priest Rapids Development and the Wanapum Development, with the structures,
fixtures, equipment and facilities used, or useful, in the maintenance and
operation of the Project; and which license, together with all amendments
thereto, are hereinafter referred to collectively as the "Federal Power
Commission License;" and

    WHEREAS
the Purchaser desires to purchase power and energy from the District and the
District desires to sell power and energy from said Project; and

    WHEREAS
the District has the responsibility and authority for the financing,
construction and operation of said Priest Rapids Development and said Wanapum
Development; and

    WHEREAS
said Public Law 544 and the said Federal Power Commission License provide
that the District shall offer a reasonable portion of the power and energy from
the said Project for sale in neighboring states: that a reasonable portion of
the power has been offered for sale.

    NOW,
THEREFORE, the parties hereto, for and in consideration of the mutual covenants
and agreements herein contained, hereby agree as follows:

     

    
      	
               
      

            	
              SECTION
      1.

            	
              TERM OF
      CONTRACT

            


    

     

    (a)           This
contract shall be in full force and effect from the date of its execution and
until midnight of October 31, 2009.

    (b)           After
October 31, 2009, the Purchaser shall have the right of first refusal to
purchase that proportionate part of the Wanapum Development Output which is then
in excess of the actual and prospective needs of the District for service to
ultimate consumers within the service area of the District, which the
Purchaser's Power Allocation as of October, 2009 shall bear to the total power
allocations of all of the Purchasers; provided, however, that nothing herein
contained shall be construed to limit or waive any rights which the agencies in
neighboring states would have had to purchase power after October 31, 2009,
in the absence of this subsection (b) of Section 1.  In the
event this subsection 1(b), or any sentence, clause or phrase thereof shall
be adjudicated by a court of last resort and of competent jurisdiction to be
invalid or illegal, the remainder of this contract shall be unaffected by such
adjudication, and all other provisions of this contract shall remain in full
force and effect as though this section or such part thereof so adjudicated to
be invalid had not been included herein.

     

    
      	
               
      

            	
              SECTION
      2.

            	
              DEFINITIONS AND
      EXPLANATIONS OF TERMS

            


    

     

    (as used
herein)

    (a)           "Contract
Year" is a term used herein to define fiscal periods under this contract from
and after "Completion of Construction."  "Contract Year" shall mean,
generally, a twelve month period commencing at 12:01 A.M. on
September 1 of each year except, however, that the first Contract Year
hereunder shall commence on the date of Completion of Construction and shall end
at 12:01 A.M. on the following September 1.

    (b)           "Priest
Rapids Development" shall mean those properties and facilities consisting of the
Priest Rapids dam, site, reservoir, switchyard (if constructed) 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 associated transmission facilities
consisting of three 230 KV transmission lines and terminal facilities
interconnecting the Priest Rapids power plant and the Bonneville Power
Administration's Midway Substation and an undivided one-half (1/2) interest in
any District-owned interconnecting facilities between the Priest Rapids power
plant or switchyard (if constructed) and the Wanapum switchyard.

    (c)           "Wanapum
Development" shall mean those properties and facilities consisting of the
Wanapum dam, site, reservoir, switchyard and power plant, including all
generating facilities associated therewith, up to and including ten (10) main
turbine generator units each with a nameplate rating of
approximately 83, 125 kilowatts, and transmission facilities as may be required
to fully integrate with the Priest Rapids Development, and to deliver power in
accordance with Section 7 hereof, and any interconnecting transmission
facilities to connect with the Bonneville Power Administration facilities in the
vicinity of the Project.

    (d)           "Project"
shall mean those properties and facilities known as the Priest Rapids
Development, the Wanapum Development, and all associated transmission facilities
owned by the District interconnecting the Priest Rapids and Wanapum Developments
and the transmission facilities which interconnect the Priest Rapids and Wanapum
Developments with the electric utility facilities of Purchasers and the
Bonneville Power Administration in the vicinity of the Priest Rapids and Wanapum
Developments.

    (e)           "Priest
Rapids Development Output" shall mean the amount of power and energy produced by
the Priest Rapids Development during the term of the Priest Rapids contract
under the operating conditions which exist during said term, including periods
when the Priest Rapids Development may be inoperable, after corrections for
encroachment, station and Project use, and depletions required by said Federal
Power Commission License.

    (f)           "Wanapum
Development Output" shall mean the amount of power and energy produced by, or
received for the account of, the Wanapum Development during the term of this
contract under the operating conditions

    which
exist during said term, including periods when the Wanapum Development may be
inoperable, after corrections for encroachment, station and Project use, and
depletions required by said Federal Power Commission License.

    (g)           "Month"
shall mean a calendar month.

    (h)           "Purchaser's
Power Allocation" shall mean the percentage of the Wanapum Development Output
purchased and sold under this contract as set forth in Section 3 hereof and
as adjusted in accordance with Section 21 hereof.

    (i)           "Debt
Service" shall mean with respect to any period the amount to be paid or accrued
during said period to retire the principal of and pay the interest and premium,
if any, on all Revenue Bonds or other evidences of indebtedness issued at any
time by the District for the purpose of paying the Cost of Acquisition and
Construction and on all bonds issued pursuant to the Bond Resolution in the
manner provided in said Resolution.

    (j)           "Uncontrollable
Forces" shall mean any cause beyond the control of the District, and which by
the exercise of due diligence the District is unable to prevent or overcome,
including but not limited to an act of God, fire, flood, explosion, strike,
sabotage, an act of the public enemy, civil or military authority, including
court orders, injunctions, and orders of government agencies with proper
jurisdiction, insurrection or riot, an act of the elements, failure of
equipment, or inability to obtain or ship materials or
equipment because of the effect of similar causes on suppliers or
carriers.

    (k)           "Purchasers"
shall mean the Purchaser and other agencies or companies which enter into
contracts with the District to buy a percentage share of the Wanapum Development
Output, all as listed under the heading "Purchasers" in Exhibit "A",
entitled "Distribution of the Wanapum Development Output," attached hereto and
made a part hereof.

    (l)           "Revenue
Bonds" shall mean the bonds issued by the District to obtain funds to pay the
cost of Acquisition and Construction and for other purposes in connection with
the Wanapum Development, all as authorized by the Bond Resolution.

    (m)           "Cost
of Acquisition and Construction" shall mean all costs of acquisition,
construction and financing of the Wanapum Development, heretofore or hereafter
paid or accrued, including but not limited to:

    (1)           Working
capital in the amount of one million five hundred thousand dollars ($1,500,000);
provided, that if it shall at any time appear to the District that the amount of
working capital on hand is in excess of that which is necessary or in excess of
anticipated requirements in the future, the District may transfer all or any of
such excess to the Reserve Account of the Bond Fund established by the Bond
Resolution;

    (2)           Establishing
the Reserve Account in the Bond Fund pursuant to the Bond
Resolution;

    (3)           Interest
accruing on Revenue Bonds prior to and during construction of the Wanapum
Development;

    (4)           All
fees and expenses properly paid or incurred in connection with the Wanapum
Development;

    (5)           The
cost of preliminary surveys, investigations, engineering and other fees and
expenses properly incurred for the Wanapum Development;

    (6)           The
cost of all facilities included explicitly or implicitly in the Wanapum
Development by the definition in subsection 2(c) hereof, whenever
constructed or installed; and

    (7)           Establishing
the Reserve and Contingency Fund by depositing the initial two million dollars
($2,000,000) in such fund pursuant to the Bond Resolution.

    (n)           "Uniform
System of Accounts" shall mean the Uniform System of Accounts prescribed by the
Federal Power Commission for Electric Utilities and Licensees in effect at the
time this agreement is executed.

    (o)           "Bond
Resolution" shall mean the resolution adopted by the District authorizing the
sale of Revenue Bonds to provide funds to pay the Cost of Acquisition and
Construction and other purposes in connection with the Wanapum Development, and
providing the terms and conditions thereof, a certified copy of which has been
delivered to the Purchaser.

    (p)           "Initial
Date of Delivery" shall mean 12:01 A.M. of the day the District is ready to
deliver power and energy hereunder from one or more generating units which shall
have been installed, successfully tested as required by the plans and
specifications, and, in the opinion of the District, are ready for continuous
operation as provided in Section 9 hereof.

    (q)           "Completion
of Construction" shall mean the date the last of the ten (10) initial generating
units of the Wanapum Development shall have been installed, successfully tested
as required by the plans and specifications, and, in the opinion of the
District, made ready for continuous operation as provided in Section 9
hereof.

    (r)           "Initial
Delivery Period" shall mean the period of time commencing on the Initial Date of
Delivery and ending at 12:01 A.M. on January 1, 1965.

    (s)           "Interim
Delivery Period" shall mean the period of time commencing at 12:01 A.M. on
January 1, 1965 and ending on the date of Completion of Construction (which
date coincides with the date of commencement of the first Contract Year
hereunder).

     

    
      	
               
      

            	
              SECTION
      3.

            	
              AMOUNT OF ENERGY AND
      POWER SOLD

            


    

     

    (a)           The
District agrees to sell to the Purchaser and the Purchaser agrees to purchase,
solely from the gross revenues of the Purchaser's light and power system, for
the benefit of consumers in the State of Washington, subject to adjustment in
accordance with Section 21 hereof, ten and
eight-tenths percent (10.8%) of the Wanapum Development
Output.  Deliveries will be made insofar as possible as requested by
the Purchaser, all as provided in Section 6 hereof; provided, that such
deliveries, together with deliveries requested by all other Purchasers
(including deliveries to the District pursuant to its reservation under
subsection (b) of Section 3 hereof):

    (1)           Will
be possible of fulfillment under the terms of said Federal Power Commission
License; and

    (2)           Will
not exceed the capability of the Development or subject it or its operation to
undue hazard.

    (b)           The
District reserves thirty six and one-half percent (36-1/2%) of the said Wanapum
Development Output and shall be entitled to the power and energy thus reserved
and to the rights and privileges associated therewith and subject to the same
obligations, including those provided in Section 21 hereof, but excepting
those recited in Section 13 hereof, as it would have if the District were
one of the Purchasers and had rights, privileges and obligations similar to
those of the Purchasers.  The District covenants and agrees that it
will establish, maintain and collect rates or charges for the power and energy
reserved by it from the Wanapum Development as provided in subsection 3(b)
hereof, which shall be fair and nondiscriminatory and adequate to provide
revenues sufficient to enable the District to pay its pro-rata share of the
Annual Power Costs.  All revenues derived by the District
from the sale of the Wanapum Development Output to the Purchasers, together with
payments by the District for power and energy reserved by it from the
Development, and all revenues from the Wanapum Development from sources other
than the sale of power, shall be segregated, deposited and held separate and
apart from all other revenues of the District, and shall be devoted to the
payments provided for in the Bond Resolution.

     

    
      	
               
      

            	
              SECTION
      4.

            	
              ANNUAL POWER
      COSTS

            


    

     

    (a)           "Annual
Power Costs" as used in this contract shall be deemed to mean all of the
District's costs resulting from the ownership, operation, maintenance of and
renewals and replacements to the Wanapum Development, including, but not limited
to, the items of cost hereinafter mentioned in this Section 4 that are
incurred or paid by the District during each Contract Year in connection with
the Wanapum Development, to-wit:

    (1)           Amounts
required to be set aside by the District for the payment of Debt Service as
required by the Bond Resolution;

    (2)           An
amount not to exceed six hundred thousand dollars ($600,000) per annum to be
placed in the Reserve and Contingency Fund established under the Bond Resolution
until the sum of six million dollars ($6,000,000) in principal amount has been
accumulated.  The moneys in such Reserve and Contingency Fund shall be
used for the purpose
of:

    (i)           Making
up any deficiency in the Reserve Account in the Bond Fund as established in the
Bond Resolution;

    (ii)           Pay
cost of contingencies, including the prevention or correction of any unusual
loss or damage, renewals and replacements; and

    (iii)           Pay
the cost of construction of any additional transmission and switching facilities
for the delivery of power as required by Section 7 herein.

    In the
event of withdrawals from the Reserve and Contingency Fund, the funds withdrawn
shall be replaced at the rate of not to exceed six hundred thousand dollars
($600,000) in any one year;

    (3)           Amounts
which may be required to pay for the prevention or correction of any unusual
loss or damage, and for major replacements, to keep the Wanapum Development in
good operating condition to the extent that such costs are not covered by
insurance and the Reserve and Contingency Fund.  In the event of any
such unusual loss or damage or major replacement which will cost in excess of
the amount

    of money
then in said fund, plus insurance proceeds, and plus two million dollars
($2,000,000), the District shall issue equal lien (pari passu) bonds payable
from the revenues of the Wanapum Development to pay the portion of such costs
which shall exceed insurance proceeds, if any; provided, that such bonds can
then be legally issued and can be sold;

    (4)           An
amount which when added to the Annual Power Costs itemized in
subsection 4(a)(2) and 4(a)(3) hereof will equal fifteen percent (15%) of
the annual Debt Service during the applicable Contract Year.  Such
amount shall be used by the District; first, for the purpose of making up any
deficiency in the Bond Fund as established by the Bond Resolution; second, to
supplement the six hundred thousand dollar ($600,000) payment into the Reserve
and Contingency Fund provided for in subsection 4(a)(2) to the extent that
withdrawals from said fund in the previous Contract Year exceeded six hundred
thousand dollars ($600,000); and, third, to retire, prior to maturity, bonds
issued pursuant to the Bond Resolution; and

    (5)           All
costs of producing and delivering power and energy from the Wanapum Development
(excluding depreciation)
not accounted for by the payments out of funds and reserves specified in the
foregoing subsections of this Section 4 and properly chargeable to said
Wanapum Development in accordance with the Uniform System of Accounts, less any
credits against the said costs by reason of net revenues from other sources than
the direct sale of power, and also less any credits for interest charged during
construction, all as provided for in said Uniform System of Accounts; provided,
however, that investment income shall be applied as provided for in the Bond
Resolution.

    (b)           Any
payment received by the District as a result of the taking of the whole or any
portion of the output of the Wanapum Development by any state or federal
government agency shall be used by the District to reduce the Annual Power Costs
or to retire, prior to maturity, bonds issued pursuant to the Bond Resolution,
whichever shall be proper under the circumstance existing at the time of said
taking.  It is the intention of the parties hereto that insofar as
possible the Annual Power Costs paid by the Purchaser shall be reduced in
proportion to the loss of availability of power and energy as a result of such
taking.

    (c)           Should
any amount remain in any of the funds established in connection with the Wanapum
Development, including working capital and all reserves in excess of outstanding
obligations against such funds at the expiration
of this contract, there shall be refunded to the Purchaser, as excess payment
for power and energy theretofore purchased, a share of such remainders
determined by multiplying the total thereof by the percentage of the Wanapum
Development Output to which the Purchaser is entitled on October 31,
2009.

     

    
      	
               
      

            	
              SECTION
      5.

            	
              PAYMENT FOR POWER
      SOLD

            


    

     

    (a)           On
or before one hundred twenty (120) days prior to the estimated date of
Completion of Construction, and on or before one hundred twenty (120) days
prior to the beginning of each Contract Year thereafter, the District shall
prepare and mail the Purchaser a pro forma statement showing:

    (1)           The
estimated date of Completion of Construction of the Wanapum
Development.  This need not be shown after the first statement;
provided, that the District shall keep the Purchaser advised at all times of
changes in such estimated date, as well as of the actual date of Completion of
Construction when this occurs;

    (2)           A
detailed estimate of the Annual Power Costs of the Wanapum Development for the
following Contract Year;

    (3)           An
amount obtained by multiplying the estimated Annual Power Costs by the
Purchaser's Power Allocation.  This amount (expressed in dollars) is
hereinafter referred to as the
"Purchaser's Estimated Cost;" and

    (4)           The
amount of the equal monthly payments to be made by the Purchaser to pay said
Purchaser's Estimated Cost during said Contract Year.

    Said
statement shall be in lieu of the issuance of monthly bills to the Purchaser by
the District.

    (b)           In
the event of the interruption or reduction of power and energy production of the
Wanapum Development, resulting in the collection by the District of insurance or
other proceeds as indemnity for such interruption or reduction, the District
shall credit the Purchaser's pro-rata share of such proceeds to the Purchaser's
account to be applied toward the reduction of the Purchaser's monthly
payments.

    (c)           In
the event of extraordinary receipts or payments of unusual costs substantially
affecting the Annual Power Costs during any Contract Year, the District shall
prepare and mail to the Purchaser a revised estimate of Annual Power Costs which
shall supersede the previous estimate of Annual Power Costs as a basis for the
Purchaser's monthly payments for the balance of that Contract Year.

    (d)           Said
monthly payments shall be due and payable at the office of the District at
Ephrata, Washington, on the twentieth day of the month in which the date of
Completion of Construction occurs, and the twentieth day of each month
thereafter, whether or not the Wanapum Development is then
operating; provided, that for the first month in which payment is due, the
Purchaser may reduce said payment to an amount equal to the Purchaser's
Estimated Cost divided by the number of days in the first Contract Year and
multiplied by the number of days in such first month included within said
Contract Year.

    (e)           If
payment in full is not made on or before the close of business on the twentieth
day of the month, a delayed-payment charge of two percent (2%) of the unpaid
amount due will be made.  Remittances received by mail will be
accepted without assessment of the two percent (2%) delayed-payment charge if
the postmark indicates the payment was mailed on or before the twentieth day of
the month.  If the twentieth day of the month is a Sunday or a
holiday, the next following business day shall be the last day on which payment
may be made without the addition of the delayed-payment
charge.  Except as to any portion of a monthly payment which may in
good faith be disputed by the Purchaser, the District may, whenever any amount
due remains unpaid subsequent to the thirtieth day after the due date and after
giving thirty (30) days' advance notice in writing, discontinue deliveries
to the Purchaser until such bill and any subsequent payments which have become
due are paid.  No such discontinuance shall relieve the Purchaser from
any of its obligations under this contract; provided, that until the power
allocation of the Purchaser has been reallocated under the provisions of
Section 21 hereof, the District shall use its best efforts to sell the
power and energy made available by such discontinuance for the account of the
Purchaser.

    (f)           On
or before one hundred twenty (120) days after the end of each Contract Year
the District will submit to the Purchaser a detailed statement of the actual
Annual Power Costs for said Contract Year, based on the annual audit of the
accounts of the Wanapum Development provided for in Section 11 hereof, and
will compare said actual Annual Power Costs with the estimated Annual Power
Costs for said Contract Year.  If said actual costs exceed said
estimated costs, the District shall bill the Purchaser for an amount equal to
such excess multiplied by the Purchaser's Power Allocation for said Contract
Year, and the Purchaser agrees to pay said bill promptly.  If said
actual costs are less than said estimated costs, the District shall give credit
to the Purchaser against the current charges for power of an amount equal to
such difference between said actual costs and said estimated costs multiplied by
the Purchaser's Power Allocation for said Contract Year; provided, that if said
comparison is made following the expiration of this contract, the District shall
make a cash refund of such amount to the Purchaser.

    (g)           The
District shall pay into the Revenue Fund established by the Bond Resolution that
share of the Annual Power Costs of the Wanapum Development determined by
multiplying said Annual Power Costs by the percentage of the Wanapum Development
Output reserved by the District in accordance with subsection 3(b)
hereof.  Payments by the District as specified in this
subsection 5(g) shall be made by the District out of revenues from the
sale of its reserved share of the Wanapum Development Output specified in
subsection 3(b) hereof.

    (h)           For
purposes of payment for power and energy from the Wanapum Development during the
Interim Delivery Period, the said Interim Delivery Period shall be considered
and treated the same as if it were a Contract Year (without regard to the actual
length of the period) subject to the conditions and provisions contained in this
subsection 5(h); provided, that with respect to the Interim Delivery Period
the estimated Annual Power Costs from which the Purchaser's monthly power
payments are computed and the actual Annual Power Costs from which adjustments
specified in subsections 5(d) and 5(f) hereof are computed shall be
determined by adding together the following components:

    (1)           All
of the costs included in subsections (a)(3) and (a)(5) of Section 4 not
properly chargeable to Cost of Acquisition and Construction of the Wanapum
Development; and

    (2)           That
proportion of the amount required to pay those costs included in
subsections (a)(1), (a)(2) and (a)(4) of Section 4, that the number of
generating units completed, installed, successfully tested as required by the
plans and specifications, and placed in continuous operation as provided in
Section 9 hereof bears to the number ten (10).

    The pro
forma statement to be prepared and delivered to the Purchaser under
subsection 5(a) hereof shall, in this case, relate to the whole of the
Interim Delivery Period, and shall be furnished to the Purchaser not less than
thirty (30) days nor more than sixty (60) days prior to
January 1, 1965.  The District shall prepare and mail the
Purchaser a revised statement and estimate of Annual Power Costs for the Interim
Delivery Period, which shall supersede any prior estimate thereof as a basis for
the Purchaser's monthly payments for the balance of such delivery period if and
when any of the following contingencies occurs: If the District shall receive
extraordinary receipts or revenues or pay or incur unusual costs or expenses
which substantially affect the amount of the estimated Annual Power Costs; or if
there shall be any substantial change in the date of Completion of Construction,
as estimated by the District.

    The
monthly payments provided for in the original or revised estimate shall be due
and payable at the office of the District at Ephrata, Washington, on the
twentieth day of January, 1965, and on the twentieth day of each month
thereafter to and including the month in which occurs the actual date of
Completion of Construction whether or not the Wanapum Development is then
operating.

    As soon
as practicable after the end of the actual Interim Delivery Period the District
will mail the Purchaser a detailed statement of the actual Annual Power Costs
for such actual Interim Delivery Period (computed in

    accordance
with this subsection 5(h) and based on an interim audit of the accounts of
the Wanapum Development as provided for in Section 11 hereof, but covering
only the actual Interim Delivery Period) and will compare such actual costs of
the actual Interim Delivery Period, with the District's estimated Annual Power
Costs for the estimated Interim Delivery Period.  Any difference in
amount between said actual costs and estimated costs shall promptly be adjusted
and accounted for as between the Purchaser and the District in the manner
provided for in subsection 5(f) hereof, and any such accounting and
adjustment shall make proper allowance for the fact that the Purchaser may not
have been required to pay all of the monthly payments toward such estimated
costs for the reason that the actual date of Completion of Construction may have
substantially preceded the date estimated by the District for such Completion of
Construction.

    (i)           During
the Initial Delivery Period the District's power costs shall be determined by
adding together the following costs and expenses paid or incurred by the
District in connection with the Wanapum Development, namely:

    (1)           The
District's costs and expenses directly resulting from its owning (but not
including depreciation, debt service, nor costs properly chargeable to
acquisition or construction), operating and maintaining in proper repair the
Wanapum Development, and generating power and energy from any

    generating
units which have been installed and placed in operation and delivering the said
power and energy to one or more of the points of delivery as specified in
Section 7 hereof;

    (2)           The
cost to the District of obtaining and maintaining in effect insurance as
provided for in Section 14 hereof;

    (3)           The
costs and expenses paid or incurred by the District for or in connection with
prevention or correction of any unusual loss or damage, or for major
replacements to keep the generating units in operation, to the extent such costs
are not covered by insurance and other funds, including the Construction Fund
established under the Bond Resolution, available for such purpose;
and

    (4)           The
amount of any bonus payments the District may become obligated to pay the
Contractor engaged to install the generating units in accordance with the
provisions of SC-5 of the construction contract (Contract Documents 184-1,
including Addenda 1 to 9, inclusive) for making generating units available
for production of power and energy in the period prior to 12:01 A.M.,
September 1, 1964.  (Any monies received by the District under
this subsection 5(i)(4), together with any sums received by

    the
District as liquidated damages under the construction contract, shall be
forthwith paid by the District to the Construction Fund, and the said bonus
provisions of the construction contract will not be modified or amended without
consent of the Purchaser.)

    The
Purchaser shall be obligated to pay the District ten and eight-tenths percent
(10.8%) of the District's said power costs, and shall be entitled to receive
during all of said Initial Delivery Period its Purchaser's Power
Allocation.  For this purpose the District shall prepare and mail to
the Purchaser a statement showing the costs and expenses paid or incurred by it
in the preceding calendar month or portion of calendar month under this
subsection 5(i) and the Purchaser shall pay the District the amount of its
percentage, above specified, of the total of such costs and
expenses.  If payment of the amount so due is not made by the tenth
day after receipt of the statement by the Purchaser a late payment charge
computed in the manner specified in subsection 5(e) hereof shall be
applicable.

    (j)           In
no event shall the Purchaser be obligated to pay to the District any sum or
amount with respect to or toward any of the costs and expenses set forth in
subsection 5(i)(4) hereof which the District may have incurred or paid in
connection with the Wanapum Development prior to September 1,
1963.

     

    
      	
               
      

            	
              SECTION
      6.

            	
              SCHEDULING OF'
      DELIVERIES

            


    

     

    (a)           It
is the intent of the parties hereto that the power and energy purchased
hereunder by the Purchaser shall be fully coordinated with other resources
available to the Purchaser and with the resources of other Purchasers and that
the operation of the Wanapum Development shall be coordinated with the operation
of the Northwest Power Pool.  Scheduling of generation from the
Wanapum Development 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
section and in other sections of this contract.

    (b)           The
Purchaser, acting singly or as a member of a group of Purchasers, shall make
available to the District at least eight (8) hours before 12:01 A.M.
of each day an hourly schedule of desired total energy deliveries for that
day.  Such schedule shall be based upon the probable water supply to
the Wanapum Development and the resulting probable output.  Revisions
in the schedule may be made at any time upon the request of the Purchaser if
required by changes in estimated river flows or system
loads.  Deviations from schedules for the Wanapum Development Output
shall be held to a minimum by the District and corrected for as promptly as
possible on an hourly basis under conditions as nearly equivalent as possible to
those obtaining when the deviations occurred.

    (c)           The
schedules 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's Power Allocation and the Purchaser's allocation of the minimum
discharge;

    (2)           The
Purchaser shall be entitled to a share of that part of the Wanapum Development
Output resulting from the inflow of the stream each hour determined by
multiplying said part of the Wanapum Development Output by the Purchaser's Power
Allocation;

    (3)           The
Purchaser shall be entitled to a share of the pondage available at the Wanapum
Development (hereinafter called the "Purchaser's Allocation of Pondage"),
determined by multiplying the total of said pondage available by the Purchaser's
Power Allocation; and

    (4)           The
Purchaser may schedule more or less than its share of the Wanapum Development
Output determined in accordance with subsection 6(b) hereof by scheduling
from or to a pondage account established for each Purchaser.  The
aggregate amount of the energy scheduled from the pondage account shall not
exceed the Purchaser's Allocation of Pondage determined in accordance with
subsection 6(c) hereof and shall subsequently require the scheduling
of an
equivalent amount of energy to the account for refill by 7:00 A.M. on the
following Monday.  Scheduling by the Purchaser to its pondage account
shall be only against its prior accumulated pondage draft.  Refill
obligations shall be reduced proportionately when inflow of the stream exceeds
the hydraulic capacity of the Wanapum Development and will be cancelled when
spill occurs.

     

    
      	
               
      

            	
              SECTION
      7.

            	
              POINT OF
      DELIVERY

            


    

     

    Electric
power and energy 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 switchyard (when constructed) of the Priest Rapids
Development;

    provided,
that if at any time transmission capacity is inadequate to permit the District
to satisfy any such options which are exercised, the District shall diligently
proceed to increase such transmission capacity as necessary.

     

    
      	
               
      

            	
              SECTION
      8.

            	
              VOLTAGE CONTROL AND
      REACTIVE DELIVERIES

            


    

     

    (a)           The
District shall maintain voltage levels at the Wanapum Development to best
coordinate with the systems of the Purchasers and the systems operated by
members of the Northwest Power Pool.

    (b)           Reactive
kilovolt-amperes shall be made available up to the capability of the equipment
of the Wanapum Development, consistent with the power generation and voltage
level schedule for the Wanapum Development at the time.

    (c)           The
Purchaser is entitled at any time to a share of the reactive output available at
the time of maximum power output from the Wanapum Development determined by
multiplying the total reactive output by the Purchaser's Power Allocation
specified in Section 3 hereof.  The Purchaser may take additional
reactive deliveries when available, or otherwise by reducing deliveries of power
from the Wanapum Development to the Purchaser so as to provide the additional
reactive capability.

     

    
      	
               
      

            	
              SECTION
      9.

            	
              CHARACTER AND
      CONTINUITY OF SERVICE

            


    

     

    (a)           Power
and energy supplied hereunder shall be approximately 230 KV, three-phase,
alternating current, at approximately sixty cycles per second.  The
District may temporarily interrupt or reduce deliveries of electric energy to
the Purchaser if the District determines that such interruption or reduction is
necessary in case of emergencies.  In order to install equipment in,
make repairs to, replacements, investigations and inspections of, or
perform other maintenance work on the Wanapum Development, and in order that
operations of the Purchasers will not be unreasonably interrupted or interfered
with, the District, after consulting with the Purchaser regarding any such
planned interruption or reduction, giving the reason therefor and stating the
probable duration thereof, will to the best of its ability schedule such
interruption at a time which will cause the least interference to the operations
of the Purchaser and the operations of other Purchasers of power from the
Wanapum Development.

    (b)           Except
as interrupted by Uncontrollable Forces or as provided otherwise by this
section, power and energy shall be made available in accordance with this
agreement at all times during the term of this contract commencing with the
Initial Date of Delivery.

     

    
      	
               
      

            	
              SECTION
      10.

            	
              METERING AND
      TRANSMISSION LOSSES

            


    

     

    (a)           The
District shall provide and maintain suitable meters in the generator leads of
the power plant of the Wanapum Development to indicate and record the output of
the Wanapum Development.  The Wanapum Development Output shall be
determined from totalized readings from said meters after making corrections
specified in subsection 2(f) hereof.  The District shall also
arrange for suitable metering at the point of delivery specified in
Section 7 hereof or at other points as agreed upon.  Meters shall
be read by the District or an agent of the District and records thereof shall be
made available to the Purchaser as may be reasonably required.

    (b)           All
deliveries of power and energy hereunder shall be measured as though they were
made at the low voltage side of the transformers in the power house of the
Wanapum Development.  All losses of power and energy purchased
hereunder resulting from transformation and transmission shall be borne by the
Purchaser.

     

    
      	
               
      

            	
              SECTION
      11.

            	
              ACCOUNTS

            


    

     

    (a)           The
District agrees to keep accurate records and accounts of the Wanapum Development
in accordance with the Uniform System of Accounts and in accordance with the
rules and regulations prescribed by the Division of Municipal Corporations of
the State Auditor's office of the State of Washington, separate and apart from
its other accounting records.  Said accounts shall be the subject of
an annual audit by a firm of certified public accountants, experienced in
electric utility accounting and of national reputation, to be employed by the
District.  The transactions with respect to each Contract Year shall
be subject to such an audit.  In addition, such an audit shall be
prepared to cover all transactions relating to the Interim Delivery Period, as
well as a separate audit covering transactions relating to the Initial Delivery
Period.

    (b)           A
copy of each such audit, including all recommendations of the accountants, shall
be furnished by the District to the Purchaser promptly after the same shall have
been prepared.

     

    
      	
               
      

            	
              SECTION
      12.

            	
              INFORMATION TO BE MADE
      AVAILABLE TO THE PURCHASER

            


    

     

    (a)           All
drawings, designs, plans, specifications and terms of contracts relating to the
construction and operation of the Wanapum Development are or will be placed on
file in the office of the District at Ephrata, Washington and will be open to
inspection by the Purchaser.

    (b)           All
agreements and data relating to the financing of the Wanapum Development may be
examined by the Purchaser at the office of the District.

    (c)           All
operating and financial records and reports relating to the Wanapum Development
may be examined by the Purchaser at the office of the District.

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

    (e)           The
Purchaser's representatives shall at all times be given reasonable access to the
Wanapum Development.

     

    
      	
               
      

            	
              SECTION
      13.

            	
              ADVISORY COMMITTEE -
      ARBITRATION

            


    

     

    (a)           In
order that Purchasers may, in an orderly way, participate in problems relating
to the Wanapum Development, there is hereby established the Wanapum Advisory
Committee (herein called "the Committee").  The Purchaser and each of
the other Purchasers are entitled to representation on the Committee and may
each appoint a representative to attend Committee
meetings.  A Chairman shall be elected by the members of the
Committee.  The Committee will meet regularly on the Monday following
the first Tuesday of each month, or as otherwise determined by the Committee,
for the purpose of discussing the problems with respect to the Wanapum
Development and may make recommendations to the District with reference
thereto.  Special meetings shall be called by the Chairman at the
request of the District or upon the request of members of the Committee
representing one-third (1/3) of the power purchased by the
members.  All meetings will be held at the office of the District at
Ephrata, Washington, or at such other place or places as may be determined by
the Committee.

    (b)           Except
in the event of an emergency requiring immediate action, the District shall give
to the Committee reasonable notice, in no case less than thirty (30) days,
whenever it proposes to replace items of major equipment in or to construct
additions to or extensions of the Wanapum Development, or to enter into
additional new or special contractual arrangements relating to and substantially
modifying the operation or Annual Power Costs of the Wanapum
Development.

    (c)           The
District will give due consideration to the recommendations of the
Committee.  In considering said recommendations, the District shall
give due regard to the objective of achieving from the Wanapum Development the
optimum electric power production consistent with economy, reliability and
facility of operation and the District's statutory duties.  If in the
opinion of the
Committee the District has given inadequate consideration to its informal
recommendations, written recommendations may be made to the District whenever
such recommendations are approved in writing by members of the Committee
representing Purchasers who are purchasing two-thirds (2/3) of the power
purchased by all Purchasers.  Such written recommendations shall be
forwarded to the District with appropriate supporting data.  The
District shall take action on such recommendations within a reasonable time by
adopting, modifying or rejecting such recommendations.  If the
District modifies or rejects said recommendations it shall notify the Committee
of its action in writing, giving the reasons therefor.

    (d)           If
the District modifies or rejects a written recommendation of the Committee
dealing with matters which may be arbitrated as set forth in
subsection 13(e) hereof, and made in accordance with the procedures set
forth in subsection 13(c) hereof, the Committee may, by affirmative vote of
members of the Committee representing Purchasers who purchase two-thirds (2/3)
of the power purchased by all Purchasers, submit the recommendation to a board
of arbitrators.  The board of arbitrators shall be composed of three
(3) persons, one of whom shall be appointed by the District, one of whom
shall be appointed by majority vote of the Committee, and the third person to be
appointed by the two persons so appointed.  In the event said two
members cannot agree upon the appointment of a third person, then such third
person shall be appointed by the Chief Justice of the Supreme Court of the State
of Washington.  The procedure for arbitration shall be governed
by the laws of the State of Washington.  Insofar as the parties hereto
may legally do so, they agree to abide by the decision of said board; provided,
that the District shall not be bound by any decision of a board of arbitration
to the extent that such decision is retroactive beyond the date when the matter
arbitrated was made the subject of written recommendation of the
Committee.

    (e)           The
matters which may be arbitrated in accordance with subsection 13(d) hereof
shall consist of all matters pertaining to the maintenance, operation,
additions, replacements and renewals, insurance to be carried on the Wanapum
Development and its operation (which in no event shall be less than that
required under the terms of the Bond Resolution), and subsequent financing and
refinancing of the Wanapum Development, except such matters which are by law
vested exclusively in the discretion of the District.  All written
Committee recommendations not approved by the District with respect to amounts
to be charged to the Wanapum Development as a result of voluntary payments in
lieu of taxes or other voluntary donations made by the District may be
arbitrated in accordance with subsection 13(d) hereof.

    (f)           In
the event this Section 13 or any paragraph, sentence, clause or phrase
thereof shall be adjudicated by a court of last resort and of competent
jurisdiction to be invalid or illegal, the remainder of this contract shall be
unaffected by such adjudication, and all other provisions of this contract shall
remain in full force and effect as though this section or such part thereof so
adjudicated to be invalid had not been included herein.

     

    
      
        
        

      

      
        
        

      

      
        
        

      

    

     

    
      	
               
      

            	
              SECTION
      14.

            	
              INSURANCE

            


    

     

    The
District agrees to obtain and maintain in full force and effect during the term
of this contract, to the extent available at reasonable cost, adequate insurance
with responsible insurers with policies payable to the District for the benefit
of the District and the Purchasers as their respective interests may appear,
against:

    (1)           Obligations
of the District under the Workmen's Compensation law of the State of Washington,
and employer's liability;

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

    (3)           Physical
loss or damage to the Wanapum Development on replacement cost
basis;

    (4)           Business
interruption loss to the District and/or the Purchasers resulting from delay in
completion of the Wanapum Development and from interruption or reduction of
generation or transmission of power and energy caused by physical loss, damage
or destruction; and

    (5)           Any
other insurance determined to be necessary.

     

    
      	
               
      

            	
              SECTION
      15.

            	
              OPERATION AND
      MAINTENANCE

            


    

     

    The
District covenants and agrees that it will operate and maintain the Wanapum
Development in an efficient and economical manner, consistent with good business
and operating practices of comparable developments.

     

    
      	
               
      

            	
              SECTION
      16.

            	
              BOARD OF CONSULTING
      ENGINEERS ON CONSTRUCTION
PROBLEMS

            


    

     

    The
District shall establish a Board of five (5) Consulting Engineers during the
construction of the Wanapum Development, which shall include two (2) engineers
of outstanding ability and national reputation, selected by the District from a
list of not less than four (4) such engineers submitted by the Committee to the
District.

     

    
      	
               
      

            	
              SECTION
      17.

            	
              CONSTRUCTION AND
      FINANCING CONTRACTS

            


    

     

    The
District agrees that prior to commencing construction of the Wanapum Development
it will have completed financing of the Wanapum Development, shall have let the
major contract for the construction thereof, and shall have obtained adequate
completion bonds for said contract.  Harza Engineering Company has
prepared the plans and specifications for the Wanapum Development (Contract
Documents 184-1, including Addenda 1 to 9, inclusive).  The
District agrees that it will not (without the consent of the Purchasers of a
majority of the power and energy sold by the District to Purchasers as indicated
in Exhibit "A" attached hereto) modify, amend, or waive full compliance
with, nor make the election provided in GC-23 of, the said plans and
specifications, in any material respect, insofar as the said plans and
specifications pertain to the manufacture, installation, testing and acceptance
of all items of major equipment (turbines, generators, governors and
transformers).

     

    
      	
               
      

            	
              SECTION
      18.

            	
              COMPLETION OF
      CONSTRUCTION

            


    

     

    The
District agrees to proceed diligently with the financing and construction of the
Wanapum Development and, subject to Uncontrollable Forces, plans to complete the
Wanapum Development by January 1, 1965.

     

    
      	
               
      

            	
              SECTION
      19.

            	
              ADDITIONAL
      FACILITIES

            


    

     

    (a)           From
time to time during the term hereof the District may propose to expand the
Wanapum Development by installing additional generating
facilities.  Whenever the District proposes to so expand the Wanapum
Development it shall give notice in writing of such intent to the Purchaser
stating:

    (1)           The
estimated cost of such additional generating facilities;

    (2)           The
proposed method of financing the cost of said facilities;

    (3)           The
estimated additional power and energy which would be available as a result of
the installation of said facilities;

    (4)           The
estimated incremental cost (i.e. the costs which will be incurred as a result of
installing the proposed additional facilities, which costs would not be incurred
were such proposed additional facilities not installed) of said additional power
and energy on an annual basis; and

    (5)           The
estimated construction period for the installation of said
facilities.

    The
notice shall also contain other available pertinent information.

    (b)           The
Purchaser shall have the option of purchasing a share of said additional power
and energy determined by multiplying the total additional power and energy by
the Purchaser's Power Allocation, specified in Section 3 hereof, and may
exercise such option by giving written notice to the District on or before the
expiration of ninety (90) days from the receipt of said written notice from
the District.  The District shall give a second notice to the
Purchaser if any of the other Purchasers shall fail to exercise its option for
its full share of said power and energy, and the Purchaser may, by giving
written notice to the District within sixty (60) days after the receipt of
the second notice from the District, have its respective share of said power and
energy increased either in proportion or, as shall be mutually agreed upon, so
as to make available to the Purchaser and to the other Purchasers power and
energy available as a result of any of the other Purchasers failing to elect to
take its full share of said additional power and energy; provided, that such
increases shall not be inconsistent with the provisions of said Public
Law 544 and said Federal Power Commission License concerning the offering
of a reasonable amount of the capacity and power output of the Project for sale
in states neighboring the State of Washington.  The District, in
addition to its share of said additional power and energy
determined by multiplying the total amount of said additional power and energy
by the percent reservation specified in subsection 3(b) hereof, shall be
entitled to the additional power and energy which the Purchaser and other
Purchasers shall not elect to take in accordance with the foregoing
provision.  Failure to exercise its option to purchase additional
power and energy which would be available from the installation of additional
generating facilities proposed by the District at any time shall not be
construed to waive the rights of the Purchaser to a share of the additional
power and energy which would be available from additional facilities proposed
for installation by the District at a later date.

    (c)           If
the Purchaser exercises its option to take its share of said additional power
and energy, it shall pay for said additional power and energy a percentage of
the incremental annual cost of said additional facilities corresponding to the
percent the share of additional power and energy which it purchases is to the
total additional power and energy available as the result of the installation of
the additional facilities.  If the Purchaser does not elect to take
additional power and energy which would be available from the installation of
additional generating facilities it shall continue to receive the same amount of
power and energy and pay the same annual power cost therefor as if such
additional generating facilities had not been installed.

    (d)           If,
after the Purchaser shall have exercised its option as aforesaid, the District
shall determine that it is not economically feasible for it to
install additional generating facilities as proposed, the District shall be
under no obligation to so do and shall so notify the Purchaser of such
determination.

    (e)           Notwithstanding
any other provisions of Section 19 hereof, whenever the District is
compelled to install additional facilities at or in the Wanapum Development by
any order or decision of the Federal Power Commission or any state or federal
government agency with authority to issue or make and enforce such an order or
decision, the Purchaser shall share the benefits and costs resulting from the
installation of said additional facilities in the same manner and to the same
extent as if the Purchaser had voluntarily exercised its option to purchase the
power and energy resulting from said installation as provided earlier in
Section 19 hereof.

     

    
      	
               
      

            	
              SECTION
      20.

            	
              PROJECT
      INTEGRATION

            


    

     

    (a)           It
is the intention of the parties hereto that when the Wanapum Development is
constructed, its operation shall be integrated with the operation of the Priest
Rapids Development as required by said Public Law 544 and said Federal Power
Commission License for the Project.  It is agreed that all benefits
accruing to the Project as a result of such integration shall be shared equally
by the Priest Rapids and Wanapum Developments.  It is also agreed that
all joint costs of the Priest Rapids and Wanapum Developments shall be equitably
allocated between them and that such allocation shall be reviewed by the
Advisory Committee as provided in Section 13 hereof.  In
the event compensation becomes due the owners of the Rock Island Hydroelectric
Project, in accordance with that certain agreement dated the 8th day of August,
1955 between Puget Sound Power and Light Company, Public Utility District
No. 1 of Chelan County, and Public Utility District No. 2 of Grant
County (a conformed copy of which is attached hereto as Exhibit "B" and
incorporated herein by reference) because of encroachment on the Rock Island
Project, such compensation, if in power and energy, will proportionately reduce
the amount of power and energy to be available to Purchaser under Section 3
herein, but shall not reduce the amount required to be paid by Purchaser under
Section 5 herein.

    (b)           The
parties hereto agree that if operation of the Priest Rapids Development with the
maximum controlled headwater level of 486.5 feet above mean sea level
(determined by reference to the United States Coast and Geodetic Survey Sea
Level Datum of 1929 with supplemental additions of 1947) causes encroachment on
the tailwater of the Wanapum Development, located at or upstream from the
location shown on the License application drawings which were filed with the
Federal Power Commission by the District on June 27, 1955 (approximately
mile 415 on the Columbia River), the Priest Rapids Development shall
compensate the Wanapum Development in kind and coincidentally for one-half (1/2)
of the loss to the Wanapum Development of capacity and power
output.  The Priest Rapids Development shall compensate the Wanapum
Development in kind and coincidentally for all loss
of capacity and power output at the Wanapum Development caused by controlled
headwater levels above said level of 486.5 feet at the Priest Rapids
Development.  If the Wanapum Development is located downstream from
the location shown on the said License application drawings, it shall be
compensated in kind and coincidentally for losses of capacity and power output
due to encroachment by the Priest Rapids Development only to the extent that
such encroachment would have occurred at the location shown on the said
application drawings.

     

    
      	
               
      

            	
              SECTION
      21.

            	
              ADJUSTMENT OF POWER
      ALLOCATION

            


    

     

    The
Purchaser's Power Allocation shall be automatically increased pro-rata with that
of the other Purchasers, not in excess of a cumulative maximum of twenty-five
percent (25%) thereof, in the event of a Default (as hereinafter defined) by any
of the other Purchasers.  The term "Default" as used herein shall mean
the failure by any one of the Purchasers to make the payments specified in
Section 5 hereof and contemporaneously with said failure to make payments
there shall exist, with respect to that one of the Purchasers, any one or more
of the following conditions:

    (a)           An
order, judgment or decree shall be entered by any court of competent
jurisdiction:

    (1)           Appointing
a receiver, trustee or liquidator for any of the Purchasers or the whole or any
substantial part of the properties of any of the Purchasers;

    (2)           Approving
a petition filed against any of the Purchasers under the provision of an Act to
Establish a Uniform System of Bankruptcy Throughout the United States, Approved
July 1, 1898, as amended;

    (3)           Granting
relief to any of the Purchasers under an amendment to said Bankruptcy Act which
shall give relief similar to that afforded by said Act; or

    (4)           Assuming
custody or control of the whole or any substantial part of any of the
Purchaser's properties under the provisions of any other law for the relief or
aid of debtors;

    and such
order, judgment or decree shall not be vacated or set aside or stayed (or, in
case custody or control is assumed by said order, such custody or control shall
not otherwise be terminated) within sixty (60) days from the date of the
entry of such order, judgment or decree.

    (b)           Any
of the Purchasers shall:

    (1)           Admit
in writing its inability to pay its debts generally as they become
due;

    (2)           File
a petition in bankruptcy;

    (3)           Make
an assignment for the benefit of its creditors;

    (4)           Consent
to the appointment of a receiver of the whole or any substantial part of its
properties;

    (5)           Be
adjudicated a bankrupt on the basis of a petition in bankruptcy filed against
it;

    (6)           File
a petition or an answer seeking relief under any amendment to said Bankruptcy
Act which shall afford relief substantially similar to that afforded by said
Act; or

    (7)           Consent
to the assumption by any court of competent jurisdiction under the provisions of
any other law for the relief or aid of debtors of custody or control of any of
the Purchasers or of the whole or any substantial part of its
properties;

    provided,
that if prior to an imminent Default by any of the Purchasers it shall
demonstrate to the satisfaction of the District and the other Purchasers
receiving in the aggregate at least two-thirds (2/3) of the balance of the
Wanapum Development Output its inability to pay for its Power Allocation and its
ability to pay for a smaller Power Allocation, then it shall be allowed to
thereafter take such smaller Power Allocation and shall be thereafter liable for
the same in the same manner as for its original Power Allocation; and, in such
event, the automatic increase in the Purchaser's Power Allocation as above
provided shall apply only to the difference between the original Power
Allocation and such lesser Power Allocation of that one of the Purchasers
threatened with Default.

    (c)           If
any of the other Purchasers Defaults, and the Purchaser's Power
Allocation is automatically increased in accordance with this section, the
Purchaser either individually or as a member of a group shall have a right of
recovery from that one of the Purchasers in Default for such amount as the
Purchaser may sustain as a loss or damage by reason of such Default and may
commence such suit, action or proceeding as may be necessary or appropriate to
recover the amount of said loss or damage.

     

    
      	
               
      

            	
              SECTION
      22.

            	
              LIABILITY OF
      PARTIES

            


    

     

    The
District and the Purchaser each assumes full responsibility and liability for
the maintenance and operation of its respective properties and shall indemnify
and save harmless the other party from all liability and expense on account of
any and all damages, claims or actions, including injury to or death of persons,
arising from any act or accident in connection with the installation, presence,
maintenance and operation of the property and equipment of the indemnifying
party; provided, that any liability which is incurred by the District through
the operation and maintenance of the Wanapum Development and not covered by
insurance shall be paid solely from the revenues of the Wanapum Development, and
any payments made by the District to satisfy such liability shall become part of
the Annual Power Cost as set forth in subsection 4(a)(5)
hereof.

     

    
      	
               
      

            	
              SECTION
      23.

            	
              WAIVER OF
      DEFAULT

            


    

     

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

     

    
      	
               
      

            	
              SECTION
      24.

            	
              NOTICES AND
      COMPUTATION OF TIME

            


    

     

    Any
notice or demand, except those provided for in Section 6 hereof, by the
Purchaser under this contract to the District shall be deemed properly given if
mailed postage prepaid and addressed to Public Utility District No. 2 of
Grant County, Washington, at Ephrata, Washington; 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 Puget Sound Power & Light Company,
at Seattle, Washington; and computing any period of time from such notice, such
period shall commence at 12:00 P.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 and from time to time by
either party giving notice as above provided.

     

    
      	
               
      

            	
              SECTION
      25.

            	
              MODIFICATION OF
      CONTRACT TERMS

            


    

     

    It is
recognized by the parties hereto that, by virtue of the Bond Resolution, this
contract cannot be amended, modified or otherwise altered by agreement of the
parties in any manner that will impair or adversely affect the security afforded
by the provisions of this contract for the purchase and sale of power for the
payment of the principal, interest and premium, if any,
on any bonds issued thereunder as they respectively become payable, so long as
any of said bonds are outstanding and unpaid or until provision is irrevocably
made for the payment thereof.

     

    
      	
               
      

            	
              SECTION
      26.

            	
              DISTRICT'S BOND
      RESOLUTION AND LICENSE

            


    

     

    It is
recognized by the parties hereto that the District in its operation of the
Wanapum Development and in the delivery of the power hereunder to the Purchaser,
must comply with the requirements of the Bond Resolution and with the Federal
Power Commission License, and it is therefore accordingly agreed that this Power
Sales Contract is made subject to the terms and provisions of the Bond
Resolution and said License.  The District shall not, without the
written consent of the Purchaser, amend, modify or otherwise change the Bond
Resolution if such amendment, modification or change would be to the
disadvantage of the Purchaser.

     

    
      	
               
      

            	
              SECTION
      27.

            	
              CONFLICT OF
      LAWS

            


    

     

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

     

    
      	
               
      

            	
              SECTION
      28.

            	
              ASSIGNMENT OF
      CONTRACT

            


    

     

    This
contract shall inure to the benefit of, and shall be binding upon the respective
successors and assigns of the parties to this contract.  No assignment
or transfer of this contract shall relieve the parties hereto of any obligation
incurred hereunder.

     

    
      	
               
      

            	
              SECTION
      29.

            	
              UNIFORMITY OF POWER
      SALES CONTRACTS

            


    

     

    (a)           The
Purchaser hereunder is one of several Purchasers who have exercised an option,
previously granted by the District, in accordance with Section 20 of that
certain Power Sales Contract between the parties hereto dated the 21st day of
May, 1956 to purchase power from the Wanapum Development.  Options
similar, except as to percentage of power, have been exercised by the following
Purchasers:

     

    
      	
              Cowlitz
      County, Public Utility District No. 1 of

              Eugene
      Water and Electric Board

              Forest
      Grove, City of

              McMinnville,
      City of

              Milton-Freewater,
      City of

              Pacific
      Power & Light Company

              Portland
      General Electric Company

              Puget
      Sound Power & Light Company

              The
      Washington Water Power Company

            


    

    


    (b)           The
City of Tacoma exercised a similar option but subsequently released the District
from any obligation to supply power from the Wanapum Development.  The
City of Seattle and Public Utility District No. 1 of Kittitas County failed
to exercise similar options.  All the portions of the Wanapum
Development Output covered by the option to City of Tacoma, City of Seattle and
Public Utility District No. 1 of Kittitas County have been reallocated to
the Purchasers listed in subsection (a) above, pursuant to the Power Sales
Contract dated May 21, 1956.

    (c)           It
is understood and agreed that all of said contracts for the sale and purchase of
power shall be uniform in all material respects in their
terms, conditions and provisions with the exception of Purchaser's Power
Allocations.  If any of said contracts are amended or replaced so that
they contain terms or conditions more favorable than those granted to the
Purchaser under this contract, then this contract shall be amended to include
the same terms and conditions so granted to any of the other Purchasers;
provided, however, that the District shall have the right to sell power and
energy reserved by it pursuant to subsection 3(b) hereof on such terms and
conditions as it shall elect and subject to the requirements of
subsection 3(b) hereof nothing herein shall be construed to require the
District to offer equal terms and conditions to the Purchaser.

    


    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

    
      	
               

               

               

               

               

              (SEAL)

            	
              PUBLIC
      UTILITY DISTRICT NO. 1

              OF
      CHELAN COUNTY, WASHINGTON

               

               

              By                /s/ Wm.
      Schempp                                             

              President

            
	 
      	 
      
	
              ATTEST:

            	 
      
	 
      	 
      
	
              By                    /s/ Paul
      Nichart                                             

              Secretary

            	 
      
	 
      	 
      
	 
      	 
      
	
              (SEAL)

            	
              PUGET
      SOUND POWER & LIGHT COMPANY

               

              By                   /s/ L. E.
      Karrer                                              

              Executive Vice President
      (Title)

               

            
	 
      	 
      
	
              ATTEST:

            	 
      
	 
      	 
      
	
              By                    /s/ Ralph M.
      Davis                                             

              Secretary                             (Title)

            	 
      


    

    


    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

    EXHIBIT
"A"

     

    Distribution
of the Wanapum Development Output

     

    
      
        
          	
                  
                     

                    Purchasers

                  

                	 
      	 
      	
                  
                     

                    Percent
      of Wanapum Development Output Sold

                  

                
	 
      	 
      	 
      
	
                  Cowlitz
      County, Public Utility District No. 1 of

                	 
      	
                  2.7

                
	
                  Eugene
      Water and Electric Board

                	 
      	
                  2.3

                
	
                  Forest
      Grove, City of

                	 
      	
                  0.7

                
	
                  McMinnville,
      City of

                	 
      	
                  0.7

                
	
                  Milton-Freewater,
      City of

                	 
      	
                  0.7

                
	
                  Pacific
      Power & Light Company

                	 
      	
                  18.7

                
	
                  Portland
      General Electric Company

                	 
      	
                  18.7

                
	
                  Puget
      Sound Power & Light Company

                	 
      	
                  10.8

                
	
                  The
      Washington Water Power Company

                	 
      	
                  8.2

                
	
                  Aggregate
      Percentage of Wanapum

                      
      Development Output Sold to Purchasers

                	 
      	
                  63.5

                


        

      



    


     

     

     

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

    EXHIBIT
"B"

     

    AGREEMENT

     

    


    THIS
AGREEMENT, entered into this 8th day of August, 1955, between PUBLIC UTILITY
DISTRICT NO. 2 OF GRANT COUNTY, WASHINGTON (hereinafter referred to as
"Grant"), PUGET SOUND POWER & LIGHT COMPANY, a Massachusetts corporation
(hereinafter referred to as "Puget") and PUBLIC UTILITY DISTRICT NO. 1 OF
CHELAN COUNTY, WASHINGTON (hereinafter referred to as "Chelan").

     

    WITNESSETH:

     

    WHEREAS,
Grant has filed an application under the Federal Power Act for a license for a
proposed water power project (No. 2114) to be known as the Priest Rapids
Hydroelectric Development and located on the Columbia River to consist of two
similar projects to be known as the Priest Rapids Project (river mile 397
from mouth of the Columbia River) and the Wanapum Project (river mile 415),
both of which are jointly designated by the Federal Power Commission as Project
No. 2114 and

     

    WHEREAS,
Puget and Chelan severally own and are joint licensees of the Rock Island
Hydroelectric Project on the Columbia River (Project No. 943), which is
upstream from the proposed Priest Rapids Hydroelectric Development;
and

     

    WHEREAS,
the Wanapum Project will adversely affect the Rock Island Project and the
Federal Power Commission has fixed August 18, 1955, as the last date upon
which protests may be filed against the granting of a license for Priest Rapids
Hydroelectric Development and in the absence of the within agreement Puget and
Chelan would file protests against the granting of such license.

     

    NOW,
THEREFORE, in consideration of the mutual covenants and agreements herein
contained, the parties hereto agree as follows:

     

    1.           Grant
agrees to fully compensate Puget and Chelan and each of them or their successors
in interest in the Rock Island Project for all loss, damage and expense which
Puget and Chelan or either of them or their successors in interest in the Rock
Island Project shall sustain or incur by reason of the construction or operation
of said Priest Rapids Hydroelectric Development or any part
thereof.  That wherever the term "Puget and Chelan" is used in this
agreement the same shall include either or their successors in
interest.

     

    2.           Without
limiting the generality of the foregoing, Grant agrees regarding loss of power
and energy, to compensate Puget and Chelan for all loss in the generation of
power and energy at the Rock Island Project which shall result from the
backwater of the Wanapum Project, by delivering to Puget and Chelan the amount
of power and energy so lost at the Rock Island Project, which deliveries by
Grant shall be made into the respective transmission systems of Puget and
Chelan simultaneously with the occurrences of the losses at the Rock Island
Project to the end that the amount of power and energy available to Puget and
Chelan from the Rock Island Project, plus the deliveries to Puget and Chelan as
aforesaid, shall at all times equal the power and energy which would have been
available to Puget and Chelan at the Rock Island Project in the absence of said
Priest Rapids Hydroelectric Development.

     

    3.           In
consideration of the undertaking, and commitment of Grant herein contained,
Puget and Chelan agree not to protest the granting of Grant's application for a
license for said Priest Rapids Hydroelectric Development.

     

    4.           The
parties hereto agree that the obligations of the within agreement shall be
included in any license which the Federal Power Commission shall issue to Grant
for said Priest Rapids Hydroelectric Development and each party hereto hereby
requests that the obligations of the within agreement be included as conditions
of such license.  Notwithstanding the fact that such license may be
issued without inclusion of the obligations of the within agreement as
conditions of such license, the obligations of the within agreement shall
continue after the issuance of such license.

     

    5.           The
obligations of Grant hereunder shall be binding upon its successors in interest
in the Priest Rapids Hydroelectric Development or any part thereof, and the
benefits of this agreement shall inure to the successors in interest
respectively of Puget and Chelan in the said Rock Island Project.

     

    IN
WITNESS WHEREOF, the parties hereto have caused this agreement to be executed by
their proper officers respectively, being thereunto duly authorized, and their
respective corporate seals to be hereto affixed, the day and year first above
written.

     

    
      	
               

              ATTEST:

              By           /s/           Wm.
      Schempp

                     
        Secretary

            	
              PUBLIC
      UTILITY DISTRICT NO. 2

              OF
      GRANT COUNTY, WASHINGTON

              By           /s/           F.
      Wm. Arlt

                      
      President

               

            
	
               

              ATTEST:

              By           /s/           D.
      J. Torrance

                      
      Assistant Secretary

            	
              PUGET
      SOUND POWER & LIGHT COMPANY

               

              By           /s/           Frank
      McLaughlin

                       
      President

               

            
	
               

              ATTEST:

              By           /s/           Ivan
      J. Compton

                      
      Secretary

            	
              PUBLIC
      UTILITY DISTRICT NO. 1

              OF
      CHELAN COUNTY, WASHINGTON

              By           /s/           L.
      J. Richardson

                       
      President

            


    

    


    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

    EXHIBIT
"C"

     

    E S C R O
W  I N S T R U C T I O N S

     

    To:

     

    The
Peoples National Bank of Washington

     

    Grant
County Branch

     

    Ephrata,
Washington

     

    Re:           Wanapum
Development

     

    Gentlemen:

    


    Pursuant
to the negotiations which have been carried on between Public Utility District
No. 2 of Grant County, Washington (hereinafter referred to as "the
District"), and Puget Sound Power & Light Company (hereinafter referred
to as "the Purchaser"), and other utility systems providing electric service to
the residents of the states of Washington, Oregon and Idaho, looking toward the
sale and purchase of the output of the above Development, we enclose herewith
and attach hereto an executed contract (in duplicate) setting forth the terms
and conditions under which the Purchaser will take and pay for ten and
eight-tenths percent (10.8%) of the output of the Wanapum
Development.

    


    The
enclosed contract is delivered to you in escrow and one executed copy shall be
delivered to the District and one executed copy to the Purchaser when you shall
have received written authority, or telegraphed instructions from the Purchaser
to release the same.  If you shall not have received such written
authority or telegraphed instructions by December 1, 1959 the enclosed
contract shall be destroyed by you.  Authorized representatives of
either party to the contract may examine the same while it remains in your
custody

    


    
      	 
      	
              Yours
      very truly,

               

              PUGET
      SOUND POWER & LIGHT COMPANY

               

              By                                                  
        

                                                               
      (Title)

               

              PUBLIC
      UTILITY DISTRICT NO. 2 OF GRANT COUNTY

               

              By                                                
         

                                                        
      President

            
	 
      	 
      
	
              Accepted
      this _____ day of June, 1959.

            	 
      
	 
      	 
      
	
              THE
      PEOPLES NATIONAL BANK OF WASHINGTON

            	 
      
	 
      	 
      
	
              By                                                                    

                                                             
      Authorized Officer