**GUARANTY

 

        This Guaranty is entered into as of October 25, 2000, by WPS ResourcesCorporation, a Wisconsin corporation ("**Guarantor**"), on behalfof WPS Northern Nevada, LLC, a Nevada limited liability company ("**Supplier**"),in favor of and for the benefit of Sierra Pacific Power Company, a Nevadacorporation (**"SPPC"**). SPPC is sometimes referred to herein as **"Beneficiary"**.

        WHEREAS, Supplier and SPPC are entering into a Transitional Power PurchaseAgreement dated as of October 25, 2000 (the "TPPA") by which Supplierhas agreed to sell and SPPC has agreed to buy Energy and Ancillary Services (asdefined in the TPPA) produced by the Tracy/Pinon generating station being soldby SPPC; and

        WHEREAS, it is a condition to the obligation of SPPC to enter into the TPPAfor Guarantor to guaranty the Supplier's obligations under the TPPA on and afterthe Effective Date (as defined in the TPPA), subject to the limitations herein(the **"Guarantied Obligations"**).
**        1. Guaranty. Subject to the terms and conditions herein, Guarantorirrevocably and unconditionally guaranties, as primary obligor and not merely assurety, the due and punctual payment in full of all Guarantied Obligations(including amounts that would become due but for the operation of the automaticstay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.Section 362(a)).

        Subject to the other provisions of this Section 1, upon failure of Supplierto pay any of the Guarantied Obligations when and as the same shall become due,Guarantor will upon demand pay, or cause to be paid, in cash, to SPPC, an amountequal to the lesser of: (i) the aggregate of the unpaid Guarantied Obligationsand (ii) the Credit Amount (as defined in the TPPA) as of the date of suchfailure of Supplier to pay such Guarantied Obligations. In the event Guarantorfails to pay the Guarantied Obligations, each and every default in the paymentshall give rise to a separate cause of action and separate causes of action maybe brought hereunder as each such cause of action arises. In no event shallGuarantor's aggregate liability hereunder exceed the Credit Amount on theEffective Date of the TPPA.

        In the event that all or any portion of the Guarantied Obligations is paid bySupplier, the obligations of Guarantor hereunder shall continue and remain infull force and effect or be reinstated, as the case may be, in the event thatall or any part of such payment(s) is rescinded or recovered directly orindirectly from the Beneficiary as a preference, fraudulent transfer orotherwise, and any such payments that are so rescinded or recovered shallconstitute Guarantied Obligations, subject to the terms and conditions herein.

        2. Expenses. The Guarantor agrees to reimburse SPPC for all reasonable costsand expenses (including, without limitation, the reasonable fees and expenses oflegal counsel) in connection with (i) any default by Guarantor hereunder and anyenforcement or collection proceeding resulting therefrom, including, withoutlimitation, all manner of participation in or other involvement with bankruptcy,insolvency, receivership, foreclosure, winding up or liquidation proceedings ofor involving the Guarantor, judicial or regulatory proceedings of or involvingthe Guarantor and workout, restructuring or other negotiations or proceedings ofor involving the Guarantor (whether or not the workout, restructuring ortransaction contemplated thereby is consummated) and (ii) the enforcement ofthis Section 2.

        3. Guaranty Absolute; Continuing Guaranty. The obligations of Guarantorhereunder are irrevocable, absolute, independent and unconditional and shall notbe affected by any circumstance which constitutes a legal or equitable dischargeof a guarantor or surety other than payment in full of the GuarantiedObligations. In furtherance of the foregoing and without limiting the generalitythereof, Guarantor agrees that: (a) this Guaranty is a guaranty of paymentwhen due and not of collectibility; (b) the obligations of Guarantor hereunderare independent of the obligations of Supplier under the TPPA and a separateaction or actions may be brought and prosecuted against Guarantor whether or notany action is brought against the Supplier and whether or not the Supplier isjoined in any such action or actions; and (c) Guarantor's payment of a portion,but not all, of the Guarantied Obligations shall in no way limit, affect, modifyor abridge Guarantor's liability for any portion of the Guarantied Obligationsthat has not been paid. This Guaranty is a continuing guaranty and shall bebinding upon Guarantor and its successors and assigns.

        4. Actions by Beneficiary. The Beneficiary may from time to time, withoutnotice or demand and without affecting the validity or enforceability of thisGuaranty or giving rise to any limitation, impairment or discharge ofGuarantor's liability hereunder, (a) renew, extend, accelerate or otherwisechange the time, place, manner or terms of payment of the GuarantiedObligations, (b) settle, compromise, release or discharge, or accept orrefuse any offer of performance with respect to, or substitutions for, theGuarantied Obligations or any agreement relating thereto and/or subordinate thepayment of the same to the payment of any other obligations, (c) requestand accept other guaranties of the Guarantied Obligations and take and holdsecurity for the payment of this Guaranty or the Guarantied Obligations,(d) release, exchange, compromise, subordinate or modify, with or withoutconsideration, any security for payment of the Guarantied Obligations, any otherguaranties of the Guarantied Obligations, or any other obligation of any Personwith respect to the Guarantied Obligations, (e) enforce and apply anysecurity hereafter held by or for the benefit of the Beneficiary in respect ofthis Guaranty or the Guarantied Obligations and direct the order or manner ofsale thereof, or exercise any other right or remedy that the Beneficiary mayhave against any such security, and (f) exercise any other rights availableto SPPC under the TPPA.

        5. No Discharge. This Guaranty and the obligations of Guarantor hereundershall be valid and enforceable and shall not be subject to any limitation,impairment or discharge for any reason (other than payment in full of theGuarantied Obligations), including without limitation the occurrence of any ofthe following, whether or not Guarantor shall have had notice or knowledge ofany of them: (a) any failure to assert or enforce or agreement not toassert or enforce, or the stay or enjoining, by order of court, by operation oflaw or otherwise, of the exercise or enforcement of, any claim or demand or anyright, power or remedy with respect to the Guarantied Obligations or anyagreement relating thereto, or with respect to any other guaranty of or securityfor the payment of the Guarantied Obligations, (b) any waiver ormodification of, or any consent to departure from, any of the terms orprovisions of any other guaranty or security for the Guarantied Obligations,(c) the Guarantied Obligations, or any agreement relating thereto, at anytime being found to be illegal, invalid or unenforceable in any respect,(d) the application of payments received from any source to the payment ofindebtedness other than the Guarantied Obligations, even if the Beneficiarymight have elected to apply such payment to any part or all of the GuarantiedObligations, (e) any failure to perfect or continue perfection of asecurity interest in any collateral which secures any of the GuarantiedObligations, (f) any defenses, set-offs or counterclaims which the Suppliermay assert against the Beneficiary in respect of the Guarantied Obligations,including but not limited to failure of consideration, breach of warranty,payment, statute of frauds, statute of limitations, accord and satisfaction, and(g) any other act or thing or omission, or delay to do any other act orthing, which may or might in any manner or to any extent vary the risk ofGuarantor as an obligor in respect of the Guarantied Obligations.

        6. Waivers for the Benefit of Beneficiary. Guarantor waives, for the benefitof Beneficiary: (a) any right to require the Beneficiary, as a condition ofpayment or performance by Guarantor, to (i) proceed against the Supplier,any other guarantor of the Guarantied Obligations or any other Person,(ii) proceed against or exhaust any security held from the Supplier, anyother guarantor of the Guarantied Obligations or any other Person, or(iii) pursue any other remedy in the power of the Beneficiary; (b) anydefense arising by reason of the incapacity, lack of authority or any disabilityor other defense of the Supplier including, without limitation, any defensebased on or arising out of the lack of validity or the unenforceability of theGuarantied Obligations or any agreement or instrument relating thereto or byreason of the cessation of the liability of the Supplier from any cause otherthan payment in full of the Guarantied Obligations; (c) any defense basedupon any statute or rule of law which provides that the obligation of a suretymust be neither larger in amount nor in other respects more burdensome than thatof the principal; (d) (i) any principles or provisions of law,statutory or otherwise, that are or might be in conflict with the terms of thisGuaranty and any legal or equitable discharge of Guarantor's obligationshereunder, (ii) the benefit of any statute of limitations affectingGuarantor's liability hereunder or the enforcement hereof, (iii) any rightsto set-offs, recoupments and counterclaims, and (iv) promptness, diligenceand any requirement that the Beneficiary protect, secure, perfect or insure anylien on any property subject thereto; (e) notices, demands, presentments,protests, notices of protest, notices of dishonor and notices of any action orinaction, including acceptance of this Guaranty; and (f) to the fullestextent permitted by law, any defenses or benefits that may be derived from orafforded by law which limit the liability of or exonerate guarantors orsureties, or which may conflict with the terms of this Guaranty.

        7. Waiver of Rights Against Supplier. Guarantor waives any claim, right orremedy, direct or indirect, that Guarantor now has or may hereafter have againstthe Supplier or any of its assets in connection with this Guaranty or theperformance by Guarantor of its obligations hereunder, in each case whether suchclaim, right or remedy arises in equity, under contract, by statute,undercommon law or otherwise and including without limitation (a) any right ofsubrogation, reimbursement or indemnification that Guarantor now has or mayhereafter have against the Supplier, (b) any right to enforce, or toparticipate in, any claim, right or remedy that the Beneficiary now has or mayhereafter have against the Supplier, and (c) any benefit of, and any rightto participate in, any collateral or security hereafter held by the Beneficiary.Guarantor further agrees that, to the extent the waiver or agreement to withholdthe exercise of its rights of subrogation, reimbursement and indemnification asset forth herein is found by a court of competent jurisdiction to be void orvoidable for any reason, any rights of subrogation, reimbursement orindemnification Guarantor may have against the Supplier or against anycollateral or security shall be junior and subordinate to any rights theBeneficiary may have against Supplier, to all right, title and interest theBeneficiary may have in any such collateral or security, and to any right theBeneficiary may have against such other guarantor.

        8. Representations and Warranties of Guarantor. Guarantor represents andwarrants to SPPC as follows:

        (a) Guarantor is a corporation duly organized, validly existing and in goodstanding under the laws of its state of incorporation. Guarantor has therequisite corporate power and authority to own, lease and operate its propertiesand to carry on its business as now being conducted.

        (b) Guarantor has the corporate power and authority to execute and deliverthis Guaranty and to consummate the transactions contemplated hereby. Theexecution and delivery of this Guaranty and the consummation of the transactionscontemplated hereby have been duly and validly authorized by the Board ofDirectors of Guarantor, and no other corporate proceedings on the part ofGuarantor, including the approval of its shareholders, are necessary toauthorize this Guaranty or to consummate the transactions so contemplated. ThisGuaranty has been duly and validly executed and delivered by Guarantor andconstitutes a valid and binding agreement of Guarantor, enforceable againstGuarantor in accordance with its terms.

        (c) There are no legal or arbitral proceedings by or before any governmentalor regulatory authority or agency, now pending or (to Guarantor's knowledge)threatened against Guarantor or its subsidiaries that could reasonably beexpected to have a material adverse effect on the consolidated financialcondition, operations or business taken as a whole of it and its subsidiaries.

        (d) The representations and warranties made herein will remain true untilGuarantor has fulfilled all obligations to pay in full the GuarantiedObligations.

        9. Set Off. In addition to any other rights the Beneficiary may have underlaw or in equity, if any amount shall at any time be due and owing by Guarantorto the Beneficiary under this Guaranty, the Beneficiary is authorized at anytime or from time to time, without notice (any such notice being expresslywaived), to set off and to appropriate and to apply any indebtedness of theBeneficiary owing to Guarantor and any other property of Guarantor held by theBeneficiary to or for the credit or the account of Guarantor against and onaccount of the Guarantied Obligations and liabilities of Guarantor to theBeneficiary under this Guaranty.

        10. Disputes. Any action, claim or dispute arising out of or relating to thisGuaranty (any such action, claim or dispute, a "Dispute") shall besubmitted in writing to the other Party. In the event Guarantor and SPPC areunable to resolve the Dispute satisfactorily within thirty (30) days from thereceipt of notice of the Dispute, either Guarantor or SPPC may initiatearbitration through the serving and filing of a demand for arbitration.Guarantor and SPPC expressly agree that such arbitration shall be the exclusivemeans to further resolve any Dispute and hereby irrevocably waive their right toa jury trial with respect to any Dispute, provided that at any time a requestmade for provisional remedies requesting preservation of respective rights andobligations under the Guaranty may be resolved by a court of law located in theCounty of the principal place of business of SPPC. Arbitration shall beconducted in accordance with Sections 13.4, 13.5, 13.6, 13.7, and 13.8 of theTPPA.

        11. Amendments and Waivers. No amendment, modification, termination or waiverof any provision of this Guaranty, and no consent to any departure by Guarantortherefrom, shall in any event be effective without the written concurrence ofSPPC and, in the case of any such amendment or modification, Guarantor. Any suchwaiver or consent shall be effective only in the specific instance and for thespecific purpose for which it was given.

        12. Miscellaneous. It is not necessary for Beneficiary to inquire into thecapacity or powers of Guarantor or Supplier or the officers, directors or anyagents acting or purporting to act on behalf of any of them.

        The rights, powers and remedies given to Beneficiary by this Guaranty arecumulative and shall be in addition to and independent of all rights, powers andremedies given to Beneficiary by virtue of any statute or rule of law or in theTPPA. Any forbearance or failure to exercise, and any delay by Beneficiary inexercising, any right, power or remedy hereunder shall not impair any suchright, power or remedy or be construed to be a waiver thereof, nor shall itpreclude the further exercise of any such right, power or remedy.

        In case any provision in or obligation under this Guaranty shall be invalid,illegal or unenforceable in any jurisdiction, the validity, legality andenforceability of the remaining provisions or obligations, or of such provisionor obligation in any other jurisdiction, shall not in any way be affected orimpaired thereby.

        This Guaranty shall inure to the benefit of Beneficiary and its respectivesuccessors and assigns.

         13. Notices. All notices, requests, demands, waivers, consents and othercommunications hereunder shall be in writing, shall be delivered either inperson, by telegraphic, facsimile or other electronic means, by overnight aircourier or by mail, and shall be deemed to have been duly given and to havebecome effective (a) upon receipt if delivered in person or by telegraphic,facsimile or other electronic means, (b) one (1) business day after having beendelivered to an air courier for overnight delivery or (c) three (3) businessdays after having beendeposited in the U.S. mails as certified or registered mail, return receiptrequested, all fees prepaid, directed to the parties at the following addresses:
If to Guarantor, addressed to:  Ralph G. Baeten          WPS Resources Corporation          700 North Adams Street          Green Bay, WI 54307          Facsimile: (920) 433-7653If to SPPC, addressed to: William E. Peterson          Sierra Pacific Power Company          6100 Neil Road          Reno, Nevada 89511          Facsimile: (775) 834-5959
 

 

        IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executedand delivered by its officers thereunto duly authorized as of the date firstwritten above.

By: __________________________                            Ralph G. Baeten                            Title: Treasurer                            Address: WPS Resources Corporation                            700 North Adams Street                            Green Bay, WI 54307****