Document:

exhibit109.htm

    Exhibit
10.9

     

    POWER
SALES CONTRACT

     

    Executed
by

     

    PUBLIC
UTILITY DISTRICT NO. 1 OF

     

    DOUGLAS
COUNTY, WASHINGTON

     

    and

     

    PUGET
SOUND POWER & LIGHT COMPANY

     

     

    THIS AGREEMENT made and
entered into as of the 18th day of September, 1963, between Public
Utility District No. 1 of Douglas County, Washington (hereinafter
called “Douglas”) 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
Washington:

     

    W
i t n e s s e t h :

     

    Whereas,
Douglas 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 to develop the Wells Hydroelectric Project on the Columbia River;
and

     

    Whereas,
Douglas has heretofore obtained a license, issued July 12, 1962, from the
Federal Power Commission (FPC) for Project No. 2149 (Wells Project), a
hydroelectric generating station to be constructed on the Columbia River between
Douglas and Chelan Counties, with the structures, fixtures, equipment and
facilities used or useful in the maintenance and operation of said Project;
and

     

    Whereas,
Douglas has heretofore granted an option to the Purchaser to purchase 31.3% of
the power and energy produced by the Wells Project and the Purchaser desires to
exercise said option on the terms and conditions hereinafter provided;
and

     

    Whereas,
in order to provide funds for the completion of the construction of the Wells
Project, Douglas desires to enter into contracts for the sale of the power and
energy to be produced by the Wells Project in excess of the amounts required to
provide for the actual and prospective needs of Douglas and the Purchaser
desires to purchase such power and energy; and

     

    Whereas,
Douglas has the responsibility and authority for the financing, construction and
operation of the Wells Project;

     

    Now,
Therefore, for and in Consideration of the Mutual Covenants and
Agreements Herein Contained, it is Agreed by and Between the Parties Hereto as
Follows:

     

    Section 1.   Term of
Contract.  This contract shall be in full force and effect
until midnight of August 31, 2018, or until the 1963 Bonds and Completion
Bonds as defined in the First Bond Resolution are paid or provision is made for
the retirement thereof, whichever is later.

     

    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 and
shall mean 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 January 1, 1969 or the Commencement of Normal
Routine Operation, whichever is later, and shall end at 12:01 A.M. on the
following September 1.

     

    (b)           “License”
shall mean the Federal Power Commission License for Project No. 2149 (Wells
Project), issued July 12, 1962, as from time to time amended.

     

    (c)           “Wells
Project” shall mean the “Project” as such term is defined in Section 1.1.E
of the First Bond Resolution and shall include, among other things, an electric
generating plant and associated facilities on the Columbia River at
approximately river mile 516 from the mouth of said river at the Wells site in
Douglas and Chelan Counties, Washington, as authorized by the License; said
generating plant to have an installed nameplate rating of approximately 494,200
kilowatts, and said generating plant and associated facilities to include, but
not be limited to, an earth embankment damming the present Columbia River
channel; a single concrete structure constituting a power house, spillway,
switchyard and fish facilities, including the initial installation of
7 generating units with provision for a total of 10 generating units, and
11 spillway openings; another earth embankment extending from the central
concrete structure to an abutment on the west side of the Columbia River; a
reservoir, waterways, fish ladders and other fish protective devices; associated
transmission, transformation and switching facilities including two 230 kv
transmission lines to or in the vicinity of the Rocky Reach switchyard in
Douglas County; railroad siding, shops, warehouses, construction camp, offices,
and dwellings; and all other structures, fixtures, equipment or facilities used
or useful in the construction, maintenance and operation of the Wells
Hydroelectric Project; and all necessary water rights, development rights,
permits and licenses, easements, rights-of-way, flowage rights and rights
permitting the storage of water, riparian rights and shore rights.

     

    (d)           “Wells
Project Output” shall mean the amount of power and energy produced by, or
received for the account of the Wells Project during the term of this contract
under the operating conditions which exist during said term, including periods
when the Wells Project may not be operable or operating, after corrections for
station and project use, depletions for encroachments, and any adjustments
resulting from the requirements of the License or from orders of governmental
agencies having power to make and enforce such orders.

     

    (e)           “Month”
shall mean a calendar month.

     

    (f)           “Purchaser’s
Power Allocation” shall mean the percentage of Wells Project Output purchased
and sold under this contract as set forth in Section 3 hereof and as
adjusted in accordance with Section 21 hereof.

     

    (g)           “Debt
Service” shall mean, with respect to any period, the aggregate of the amounts
required by the Bond Resolution to be paid or accrued during said period into
the special fund or funds created by the Bond Resolution for the sole purpose of
paying the principal of and premium, if any, and interest on all the Revenue
Bonds from time to time outstanding as the same shall become due and of retiring
said Bonds prior to maturity in the manner provided in the Bond
Resolution.

     

    (h)           “Uncontrollable
Forces” shall mean any cause beyond the control of Douglas, and which by the
exercise of due diligence Douglas 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 governmental 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.

     

    (i)           “Purchasers”
shall mean the Purchaser and other companies which enter into contracts with
Douglas to buy a percentage share of Wells Project Output, all as listed under
the heading “Purchasers” in Exhibit “A”, entitled “Distribution of Wells
Project Output”, attached hereto and made a part hereof.

     

    (j)           “Revenue
Bonds” shall mean the bonds issued by Douglas under the First Bond Resolution
for the purpose of paying the Cost of Acquisition and Construction and any bonds
(including bonds referred to in Section 5(c) hereof) which, by the terms of
the First Bond Resolution, are permitted to be issued payable from the revenues
of the Wells Project on a parity with the bonds issued and sold pursuant to the
First Bond Resolution and secured by an equal charge and lien on such revenues;
except that, unless otherwise agreed to in  writing by the Purchasers,
Revenue Bonds shall not include bonds issued pursuant to Section 9.1.F2(d)
of the First Bond Resolution or bonds issued to refund bonds so
issued.

     

    (k)           “Cost
of Acquisition and Construction” shall mean all costs of acquisition,
construction, installation and financing of the Wells Project, 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 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, such amount may be reduced as referred to in
subsection 6(g) hereof;

     

    (2)           Establishing
a Reserve Account in the Bond Fund pursuant to the First Bond Resolution to the
extent of one (1) year’s interest on the Revenue Bonds;

     

    (3)           Establishing
a Reserve and Contingency Fund in the amount of $5,000,000 pursuant to the First
Bond Resolution;

     

    (4)           Interest
accruing on Revenue Bonds until Commencement of Normal Routine Operation or
until January 1, 1969, whichever is later, except for such interest as is
payable by the Purchasers as part of Annual Power Costs for the Interim Delivery
Period; and

     

    (5)           All
other items relating to payment of costs in connection with the acquisition,
construction, installation and financing of the Wells Project to the extent such
items constitute “Cost of Construction” as defined in Section 6.9 of the
First Bond Resolution.

     

    (1)           “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 contract is executed.

     

    (m)           “Bond
Resolution” shall mean collectively the First Bond Resolution and all other
resolutions adopted by Douglas authorizing the issue of Revenue
Bonds.  The term “First Bond Resolution” shall mean Resolution
No. 688 adopted by the District on October 4, 1963, a certified copy
of which has been delivered to the Purchaser.

     

    (n)           “Initial
Date of Delivery” shall mean 12:01 A.M. of the day the Wells Project is
capable of delivering power and energy hereunder from one or more generating
units which shall have been installed, successfully tested as required by the
specifications, except for the index tests, and, in the opinion of Douglas, the
one or more generating units are ready and available for normal continuous
operation.

     

    (o)           “Commencement
of Normal Routine Operation” shall mean 12:01 A.M. of the day the Wells
Project is capable of delivering power and energy hereunder from all of the
initial seven generating units which shall have been installed, successfully
tested as required by the specifications, except for the index tests, and, in
the opinion of Douglas, the Wells Project with such seven generating units is
ready and available for normal continuous operation.

     

    (p)           “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, 1969.

     

    (q)           “Interim
Delivery Period” shall mean the period of time commencing at 12:01 A.M. on
January 1, 1969 or the Initial Date of Delivery, whichever is later, and
ending with the Commencement of Normal Routine Operation.

     

    (r)           “Okanogan”
shall mean Public Utility District No. 1 of Okanogan County, Washington,
and its successors in interest.

     

    Section 3.   Amount of Wells Project Output
Sold.

     

    (a)           Douglas
agrees to sell to the Purchaser and the Purchaser agrees to purchase
31.3 per cent (31.3%) of Wells Project Output during the term of this
contract subject to adjustment as provided in Section 21
hereof.

     

    (b)           After
the expiration of the term of this contract, the Purchaser shall have the right
of first refusal to purchase that proportion of the part of the output of the
Wells Project which is then, as determined by Douglas, in excess of the actual
and prospective needs of Douglas for service to customers for use within the
service area of Douglas, and for delivery to Okanogan for use within the service
area of Okanogan under the terms of its agreement with Okanogan, which the
Purchaser’s Power Allocation immediately prior to such expiration shall bear to
the then total power allocations of all the Purchasers.  In the event
this subsection 3(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 subsection or such part thereof so adjudicated
to be invalid had not been included herein.

     

    Section 4.   Amount of Energy and Power
Reserved.  Douglas hereby reserves thirty-eight per cent (38%)
of Wells Project 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 14 hereof, as it would have if Douglas
were one of the Purchasers and had the same rights, privileges and obligations
as the Purchasers.  Douglas covenants and agrees that it will
establish, maintain and collect rates or charges for power and energy and other
services, facilities and commodities sold, furnished or supplied by it through
any of its electric properties, which shall be fair and non-discriminatory and
adequate to provide revenues sufficient to enable Douglas to pay its pro rata
share of the Annual Power Costs and all other charges and obligations payable
from such revenues.  All moneys received by Douglas from the sale of
Wells Project Output to the Purchasers, together with payments by Douglas for
power and energy reserved by it from the Wells Project, and all other moneys
received by Douglas from the sale of Wells Project Output, and from sources
connected with the Wells Project other than from the sale of power, shall be
segregated, deposited and held separate and apart from all other revenues of
Douglas and shall be held in trust by Douglas for the uses and purposes
specified in the Bond Resolution.

     

    Section 5.   Annual Power
Costs.

     

    (a)           “Annual
Power Costs”, as used in this contract, shall be deemed to mean all costs and
expenses of Douglas in connection with the Wells Project (excluding depreciation
and items properly chargeable to Cost of Acquisition and Construction), whether
or not the Wells Project is inoperable or the operation thereof is interrupted,
suspended, or interfered with, in whole or in part, during the term of this
contract or any portion of said term, including, but not limited to, the items
of cost and expense of Douglas during each Contract Year in connection with the
Wells Project hereinafter mentioned in this Section 5, to wit:

     

    (1)           amounts
which must be set aside by Douglas for the payment of Debt Service as required
by the Bond Resolution;

     

    (2)           an
amount equal to ten percent (10%) of the total Debt Service during the
applicable Contract Year (being equivalent to the amount which Douglas will
agree in the First Bond Resolution to pay out of the Revenue Fund therein
provided for into the Reserve and Contingency Fund as provided for in the First
Bond Resolution, and to be used only for the purposes therein
provided);

     

    (3)           amounts
which Douglas is required to pay for extraordinary operation and maintenance
costs of the Wells Project, including the prevention or correction of any
unusual loss or damage (including major repairs) thereto, in order to keep the
Wells Project in good operating condition, and for renewals, replacements,
additions, betterments and improvements to the Wells Project and extensions
thereof, to the extent that such amounts exceed the amount in said Reserve and
Contingency Fund available to make or provide for such payments, including any
insurance proceeds payable in respect of such unusual loss or damage or of loss
or damage to the property being repaired, renewed or replaced and available to
make or provide for such payments; and

     

    (4)           all
costs of producing and delivering power and energy from the Wells Project
(including but not limited to ordinary operation and maintenance costs but
excluding depreciation) not accounted for by the payments out of funds and
reserves specified in the foregoing clauses of this Section 5(a) and
properly chargeable to the Wells Project in accordance with the Uniform System
of Accounts.

     

    (b)           Notwithstanding
the provisions of the foregoing subsection 5(a), the term “Annual Power
Costs”, as used in this contract, shall mean:

     

    (1)           for
the Initial Delivery Period, all costs and expenses (not including depreciation,
Debt Service and items properly chargeable to Cost of Acquisition and
Construction) of Douglas in connection with the ownership, operation and
maintenance of the Wells Project during the Initial Delivery Period;
and

     

    (2)           for
the Interim Delivery Period, (i) all costs and expenses (not including
depreciation, Debt Service and items properly chargeable to Cost of Acquisition
and Construction) of Douglas in connection with the ownership, operation and
maintenance of the Wells Project during the Interim Delivery Period;
(ii) that proportion (not exceeding 100%) of the interest and principal
payments accruing during the Interim Delivery Period on all outstanding Revenue
Bonds which the number of generating units installed, successfully tested as
required by the specifications, except for the index tests, and made ready and
available for normal continuous operation bears to the number seven (7),
provided that the seventh unit shall not be deemed to be so ready until the
Commencement of Normal Routine Operation.  For the purpose of this
clause (ii), during the Interim Delivery Period interest payments shall be
deemed to have accrued on a daily basis, and principal payments shall be deemed
to have accrued on a daily basis during the 12-month period prior to their due
date; and the applicable proportion shall be determined from time to time as
additional generating units are so installed, tested, except for the index
tests, and made ready and available; and (iii) 10% of the aggregate amount
payable pursuant to the foregoing clause (ii).

     

    (c)           If
the amounts described in Section 5(a)(3) hereof exceed the amount in said
Reserve and Contingency Fund, including the insurance proceeds referred to in
Section 5(a)(3), plus One Million Dollars ($1,000,000), Douglas agrees that
it will, at the request of the Purchasers, fund the full sum by which such
amounts exceed such insurance proceeds, if any, by the issuance and sale of
equal lien (pari passu) bonds payable from the revenues of the Wells Project;
provided that such bonds can then be legally issued and can be sold; and
provided further that unless all the Purchasers otherwise agree in writing, such
bonds shall mature no earlier than the expiration of the service life of the
facilities financed from the proceeds of such bonds, as determined by the
Consulting Engineer (acting under the First Bond Resolution) at the time of
issuance.

     

    (d)           Any
payment or compensation received by Douglas as a result of the taking or
depletion of any portion of Wells Project Output by any state or federal
government agency shall be allocated to the payment of Annual Power Costs over
the term of such taking, or the remaining term of this contract if the period of
taking is for the remaining term of this contract.  In the event such
taking or depletion is of the whole of Wells Project Output for the remaining
term of this contract, any payment or compensation to Douglas received by
Douglas shall be applied in the manner and to the extent required in the First
Bond Resolution as though such payment was received for the sale or other
disposition of the Wells Project.

     

    (e)           Should
any amount remain in any of the funds established in connection with the Wells
Project, including working capital and all reserves in excess of outstanding
obligations against such funds at the expiration of the term of this contract,
there shall be refunded to the Purchaser, as excess payment for its share of
Wells Project Output theretofore purchased, a share of such remainders
determined by multiplying the total thereof by the percentage of Wells Project
Output to which the Purchaser is entitled immediately prior to such
expiration.

     

    Section 6.   Payment for Well Project Output
Sold.

     

    (a)           Not
less than thirty (30) nor more than sixty (60) days prior to the estimated
date of commencement of the Interim Delivery Period, and on or before one
hundred twenty (120) days prior to January 1, 1969, or the estimated
date of Commencement of Normal Routine Operation, whichever is later, and on or
before one hundred twenty (120) days prior to the beginning of each
Contract Year thereafter, Douglas shall prepare and mail to the Purchaser a pro
forma statement showing:

     

    (1)           The
estimated date of Commencement of Normal Routine Operation.  This need
not be shown after the first statement; provided, that Douglas shall keep the
Purchaser advised at all times of changes in such estimated date, as well as of
the actual date of Commencement of Normal Routine Operation when this
occurs;

     

    (2)           A
detailed estimate of the Annual Power Costs of the Wells Project for the Interim
Delivery Period or for the following Contract Year, as the case may be,
accompanied by a copy of the operating and capital budgets upon which such
estimate is based;

     

    (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 the
Purchaser’s Estimated Cost during the estimated length of the Interim Delivery
Period or during the following Contract Year, as the case may
be.  Said statement shall be in lieu of the issuance of monthly bills
to the Purchaser by Douglas.

     

    (b)           In
the event of extraordinary receipts or payments of unusual costs or other
circumstances (including in the case of the Interim Delivery Period changes in
the estimated date of Commencement of Normal Routine Operation or the dates or
estimated dates when generating units are or are to be made ready for normal
continuous operation) which substantially affect the Annual Power Costs during
the Interim Delivery Period or any Contract Year, Douglas shall prepare and mail
to the Purchaser a revised estimate of Annual Power Costs for the estimated
balance of the Interim Delivery Period or the balance of such Contract Year
which shall supersede the previous estimate of Annual Power Costs as a basis for
the Purchaser’s subsequent monthly payments.

     

    (c)           The
Purchaser shall make said monthly payments as advances on account towards the
payment of its share of the Annual Power Costs at the offices of Douglas at East
Wenatchee, Washington,

     

    (1)           in
the case of the Interim Delivery Period, not later than the last day of the
month in which the Interim Delivery Period commences, and not later than the
twentieth day of each month thereafter, to the month in which occurs the
Commencement of Normal Routine Operation, and

     

    (2)           in
the case of the first Contract Year and thereafter, not later than the last day
of the month in which the Commencement of Normal Routine Operation occurs, or
January 31, 1969, whichever is later, and not later than the twentieth day
of each month thereafter,

     

    whether
or not the Wells Project is then operable or operating; provided that if the
period which is the Interim Delivery Period or the first Contract Year commences
other than on the first day of a month, the payment for the first month of such
period shall be reduced to an amount equal to the Purchaser’s Estimated Cost
divided by the number of days in such period and multiplied by the number of
days in the first month included within such period.

     

    (d)           If
payment in full is not made on or before the close of business on the due date,
a delayed-payment charge of two per cent (2%) of the unpaid amount due will be
made.  Remittances received by mail will be accepted without
assessment of the two per cent (2%) delayed-payment charge if the postmark
indicates the payment was mailed on or before the due date.  If the
due date is a Sunday or a holiday, the next following business day shall be the
last day on which payment may be made or mailed 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, Douglas 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 Purchaser’s Power Allocation has been reallocated under the provisions of
Section 21 hereof, Douglas shall use its best efforts to sell the power and
energy made available by such discontinuance for the account of the
Purchaser.

     

    (e)           Douglas
shall pay into the Revenue Fund established by the Bond Resolution that share of
the Annual Power Costs determined by multiplying the Annual Power Costs by the
percentage of Wells Project Output reserved by Douglas in accordance with
Section 4 hereof as it may be modified by Section 21
hereof.

     

    
    

    (f)           On
or before one hundred twenty (120) days after the end of the Interim
Delivery Period, Douglas will submit to the Purchaser a detailed statement of
the actual Annual Power Costs for the Interim Delivery Period, based on the
audit of the accounts of the Wells Project provided for in Section 12
hereof, and will compare such actual Annual Power Costs with the estimated
Annual Power Costs for the Interim Delivery Period.  If such actual
costs exceed such estimated costs, Douglas shall bill the Purchaser for an
amount equal to such excess multiplied by the Purchaser’s Power Allocation for
the Interim Delivery Period, and the Purchaser agrees to pay such bill
promptly.  If such estimated costs exceed such actual costs, Douglas
shall give credit to the Purchaser for an amount equal to such excess multiplied
by such Power Allocation, such credit to be given (in full until exhausted)
against monthly payments commencing with the first monthly payment after the
submission of such statement.

     

    (g)           On
or before one hundred twenty (120) days after the end of each Contract
Year, Douglas will submit to the Purchaser, based on the audit of the accounts
of the Wells Project provided for in Section 12 hereof, a detailed
statement of the actual Annual Power Costs for such Contract Year and a
statement of the amount existing in the Revenue Fund created by the First Bond
Resolution as of the close of such Contract Year.  If the amount so
existing in the Revenue Fund exceeds the required amount of working capital,
Douglas shall give credit to the Purchaser for an amount equal to such excess
multiplied by the Purchaser’s Power Allocation for such Contract Year, such
credit to be given (in full until exhausted) against monthly payments in the
then current Contract Year; provided that, if Douglas and all the Purchasers
shall agree thereto in writing, all or any part of such excess may be applied
(and such credit shall be correspondingly reduced by such application) to the
making of repairs, renewals, replacements, additions, betterments, improvements
or extensions in connection with the Wells Project; and provided, further, that
if such statement is submitted following the expiration of the term of this
contract, Douglas shall thereupon make a cash refund of such amount to the
Purchaser.  If the required amount of working capital exceeds the
amount so existing in the Revenue Fund, Douglas shall bill the Purchaser for an
amount equal to such excess multiplied by such Power Allocation, and the
Purchaser agrees to pay such bill promptly.  As used in this
subsection (g), the “required amount of working capital” shall be
$1,500,000, or such lesser amount (but not less than $750,000) or such greater
amount as may be agreed upon by Douglas and the Purchasers, and the amount
existing in the Revenue Fund as of the close of any Contract Year shall be
deemed to be the amount of the then excess of the current assets in the Revenue
Fund over the current liabilities thereof determined in accordance with the
Uniform System of Accounts; provided that such current liabilities shall not
include Debt Service for the next following Contract Year.

     

    (h)           The
Purchaser shall pay to Douglas for the Initial Delivery Period an amount
determined by multiplying the Annual Power Costs for the Initial Delivery Period
by the Purchaser’s Power Allocation.  For this purpose, Douglas shall
prepare and mail monthly to the Purchaser a statement showing the portion of the
Annual Power Costs allocable to the preceding month and the Purchaser shall pay
Douglas its percentage thereof promptly.  If payment of the amount so
due is not made by the twentieth day after receipt of the statement by the
Purchaser, a late-payment charge of two per cent (2%) of the unpaid amount due
will be made.  Remittances received by mail will be accepted without
assessment of the two per cent (2%) delayed-payment charge if the postmark
indicates the payment was mailed on or before the twentieth day after such
receipt.  On or before one hundred twenty (120) days after the
end of the Initial Delivery Period, Douglas will submit to the Purchaser a
detailed statement of the Annual Power Costs for the Initial Delivery Period,
based on the audit of the accounts of the Wells Project provided for in
Section 12 hereof, and will compare such Annual Power Costs with the
aggregate of the monthly payments previously made by the
Purchasers.  If such actual costs exceed such aggregate payments,
Douglas shall bill the Purchaser for an amount equal to such excess multiplied
by the Purchaser’s Power Allocation for the Initial Delivery Period, and the
Purchaser agrees to pay such bill promptly.  If such aggregate
payments exceed such actual costs; Douglas shall promptly pay to the Purchaser
an amount equal to such excess multiplied by such Power Allocation.

     

    Section 7.   Scheduling of
Deliveries.

     

    (a)           Deliveries
will be made insofar as possible as requested by the Purchaser, all as provided
in this Section 7; provided, that such deliveries, together with deliveries
requested by all other Purchasers (including deliveries to Douglas pursuant to
its reservation under Section 4 hereof) will be possible of fulfillment
under the terms of the License and will not exceed the capability of the Wells
Project or subject it or its operation to undue hazard.

     

    (b)           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 Wells Project shall be coordinated with the operation of
the Northwest Power Pool.  Scheduling of generation from the Wells
Project 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.

     

    (c)           The
Purchaser, acting singly or as a member of a group of Purchasers, shall make
available to Douglas 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 Wells Project and the resulting probable output.  Changes in the
desired energy deliveries may be made at any time upon the request of the
Purchaser if required by changes in estimated river flows or system
requirements, and the Purchaser may request that such changes be made
continuously through the use of automatic load control
equipment.  Deviations from schedule for Wells Project Output shall be
held to a minimum by Douglas and corrected as promptly as possible on an hourly
basis under conditions as nearly equivalent as possible to those obtaining when
the deviations occurred.

     

    (d)           The
schedules and deliveries requested by the Purchaser shall be in accordance with
the following:

     

    (1)           The
Purchaser shall not request the delivery of energy, or equivalent spill, at a
rate in excess of an amount determined by multiplying the peaking capability of
the Wells Project at the time of such request by the Purchaser’s Power
Allocation.  The Purchaser shall request such deliveries at a rate not
less than an amount determined by multiplying the total deliveries of energy, or
equivalent spill, required to comply with the minimum discharge provisions of
the License, by the Purchaser’s Power Allocation; provided that, if the
aggregate requests of all the Purchasers shall provide sufficient discharge from
the Wells Project to comply with such provisions of the License, Douglas may not
require the scheduling of additional delivery or spill by the
Purchaser;

     

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

     

    (3)           The
Purchaser shall be entitled to schedule a share of the pondage available at the
Wells Project (hereinafter called the “Purchaser’s Allocation of Pondage”),
determined by multiplying the total pondage available by the Purchaser’s Power
Allocation; and

     

    (4)           The
Purchaser may schedule more or less than its share of Wells Project Output
determined in accordance with subsection 7(d)2 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 7(d)3 hereof and shall subsequently require, except as all of
the Purchasers shall otherwise agree, 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 Wells Project and will be cancelled when spill
occurs.

     

    Section 8.   Points of
Delivery.  The power and energy to be made available to the
Purchaser by Douglas hereunder shall be delivered at approximately 230 kv and at
the Purchaser’s request delivered at (a) the Wells Project’s 230 kv
bus at the point or points of connection with any non-Project transmission
lines, and/or (b) any point where the 230 kv transmission facilities
of the Wells Project connect with non-Project facilities in the vicinity of the
Rocky Reach switchyard, and/or (c) other points of delivery as may be
agreed upon from time to time by all of the Purchasers and Douglas; provided,
however, that except as provided in the next succeeding paragraph of this
Section, and until Douglas has had a reasonable opportunity to construct
additional facilities if necessary to comply with Section 20 (f) hereof,
the power and energy to be delivered to the Purchaser at all points of delivery
specified in (b) above shall not exceed the capacity of the Wells Project
transmission facilities between the Wells Project’s 230 kv bus and all said
points of delivery multiplied by the Purchaser’s Power Allocation; the amount so
determined to be hereafter referred to as “Purchaser’s Share of Transmission
Capacity”.

     

    Each
Purchaser of a portion of Wells Project Output shall have the right, without
additional charge by Douglas, to use or assign to another such Purchaser its
Purchaser’s Share of Transmission Capacity to transmit Wells Project and/or
non-Project power and energy.  During any time transmission capacity
is not used or assigned by a Purchaser entitled to the same or any transmission
capacity is made available by opposed power flow such capacity shall be divided
among Purchasers desiring the same in proportion to their respective power
allocations.

     

    Section 9.   Voltage Control and Reactive
Deliveries.

     

    (a)           Douglas
shall maintain voltage levels at the Wells Project 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 Wells Project, consistent with the power generation and voltage level
schedule for the Wells Project at the time.

     

    (c)           The
Purchaser is entitled at any time to a share of the reactive output equal to
that available at the time of maximum power output from the Wells Project
determined by multiplying the total reactive output by the Purchaser’s Power
Allocation.  The Purchaser may take additional reactive deliveries
when available, or otherwise, by reducing deliveries of power from the Wells
Project to the Purchaser so as to provide the additional reactive
capability.

     

    Section 10.   Character and Continuity of
Service.

     

    (a)           Power
and energy delivered hereunder shall be approximately 230 kv, three-phase
alternating current, at approximately sixty cycles per
second.  Douglas may temporarily interrupt or reduce deliveries of
electric energy to the Purchaser if Douglas determines that such interruption or
reduction is necessary in case of emergencies, or in order to install equipment
in, make repairs to, replacements, investigations and inspections of, or perform
other maintenance work on the Wells Project.  In order that operations
of the Purchasers will not be unreasonably interrupted or interfered with,
Douglas, 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 the other Purchasers.

     

    (b)           Except
as interrupted by Uncontrollable Forces or as provided otherwise by this
Section, the Purchaser’s share of Wells Project Output shall be made available
in accordance with this contract at all times during the term of this contract
commencing with the Initial Date of Delivery.

     

    Section 11.   Metering and Transmission
Losses.

     

    (a)           Douglas
shall provide and maintain suitable meters in the generator leads of the power
plant of the Wells Project to indicate and record the output of the Wells
Project.  Wells Project Output shall be determined from totalized
readings from said meters and in accordance with the provisions of
subsection 2(d) hereof.  Douglas shall also arrange for suitable
metering at the point of delivery specified in Section 8 hereof or at other
points as agreed upon.  Meters shall be read by Douglas or an agent of
Douglas and records thereof shall be made available to the Purchaser as may be
reasonably required.

     

    (b)           The
amounts of Wells Project Output delivered hereunder shall be determined as
though they were made at the low voltage side of the power transformers of the
Wells Project.  All losses of power and energy from the Purchaser’s
Power Allocation purchased hereunder resulting from transformation and
transmission shall be borne by the Purchaser.

     

    Section 12.   Accounts.

     

    (a)           Douglas
agrees to keep accurate records and accounts of the Wells Project 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 Douglas.  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 Douglas to the Purchaser promptly after the same shall have been
prepared.

     

    Section 13.   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 Wells Project are or will be placed on file in
the office of Douglas at East Wenatchee, Washington, and will be open to
inspection by the Purchaser.

     

    (b)           All
agreements and data relating to the financing of the Wells Project may be
examined by the Purchaser at the office of Douglas.

     

    (c)           All
operating and financial records and reports relating to the Wells Project may be
examined by the Purchaser at the office of Douglas.

     

    (d)           Policies
of insurance carried by Douglas pursuant to Section 15 hereof shall be
available at the office of Douglas for inspection by the Purchaser.

     

    (e)           The
Purchaser’s representatives shall at all times be given reasonable access to the
Wells Project.

     

    Section 14.   Advisory
Committee—Arbitration.

     

    (a)           In
order that the Purchasers may, in an orderly way, participate in problems
relating to the Wells Project, there is hereby established the Wells 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 each month, or as otherwise determined by the
Committee, for the purpose of discussing the problems with respect to the Wells
Project and may make recommendations to Douglas with reference
thereto.  Special meetings shall be called by the Chairman at the
request of Douglas or upon the request of any member of the
Committee.  All meetings will be held at the office of Douglas at East
Wenatchee, Washington, or at such other place or places as may be determined by
the Committee.

     

    (b)           Copies
of the operating and capital budgets referred to in subsection 6(a)(2)
hereof shall be submitted to the Committee.

     

    (c)           Except
in the event of an emergency requiring immediate action, Douglas 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, improvements or betterments to or extensions of the Wells Project, or
to enter into additional new or special contractual arrangements relating to or
substantially modifying the operation or Annual Power Costs of the Wells
Project.

     

    (d)           Douglas
will give due consideration to the recommendations of the
Committee.  In considering said recommendations, Douglas shall give
due regard to the objective of achieving from the Wells Project the optimum
electric power production consistent with economy, reliability and facility of
operation and Douglas’ statutory duties.  Written recommendations may
be made to Douglas whenever such recommendations are approved in writing by
members of the Committee representing Purchasers who are purchasing forty-nine
per cent (49%) or more of that part of the Wells Project Output purchased under
this contract and the other contracts referred to in subsection 2(i) hereof
by all Purchasers.  Such written recommendations shall be forwarded to
Douglas with appropriate supporting data.  Douglas shall take action
on such recommendations within a reasonable time by adopting, modifying or
rejecting such recommendations.  If Douglas modifies or rejects said
recommendations it shall notify the Committee of its action in writing, giving
the reasons therefor.

     

    (e)           If
Douglas modifies or rejects a written recommendation of the Committee dealing
with matters which may be arbitrated as set forth in subsection 14(f)
hereof, and made in accordance with the procedures set forth in
subsection 14(d) hereof, the Committee may, by affirmative vote of members
of the Committee representing Purchasers who purchase forty-nine per cent (49%)
or more of that part of Wells Project Output purchased under this contract and
the other contracts referred to in subsection 2(i) hereof 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 Douglas, one of whom shall be appointed by majority vote
of the members of the Committee, and the third person shall be appointed by the
two persons so appointed.  In the event said two persons 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
Douglas shall not be bound by any decision of a board of arbitrators 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.

     

    (f)           Subject
to the provisions of Section 22 hereof, the matters which may be arbitrated
in accordance with subsection 14(e) hereof shall consist of all matters
pertaining to the maintenance, operation, additions, betterments, extensions,
improvements, replacements and renewals of the Wells Project, insurance to be
carried on the Wells Project and its operation, financing and refinancing,
voluntary payments in lieu of taxes or other voluntary donations made by
Douglas, and any matter substantially adversely affecting Annual Power Costs,
except, however, that this Section 14 shall not require Douglas to submit
to arbitration any matter which Douglas cannot lawfully submit to
arbitration.

     

    (g)           In
the event this Section 14 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 15.   Insurance.  Douglas
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 Douglas for the benefit of Douglas
and the Purchasers as their respective interests may appear,
against:

     

    (1)           Obligations
of Douglas 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 Wells Project;

     

    (4)           Business
interruption loss to Douglas and/or the Purchasers resulting from delay in
completion of the Wells Project, 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 by Douglas and concurred in by the
Purchasers who are purchasing sixty percent (60%) or more of that part of the
Wells Project Output purchased under this contract and the other contracts
referred to in subsection 2(i) hereof by all the Purchasers.

     

    Section 16.   Operation and
Maintenance.  Douglas covenants and agrees that it will operate
and maintain the Wells Project in an efficient and economical manner, consistent
with good business and operating practices of comparable non-federally owned
hydroelectric projects on the Columbia River in the United States.

     

    Section 17.   Board of Consulting Engineers on
Construction Problems.  Douglas shall establish a Board of
five, (5) Consulting Engineers during the construction of the Wells Project,
which shall include two (2) engineers of outstanding ability and national
reputation, selected by Douglas from a list of not less than four (4) such
engineers submitted by the Committee to Douglas.

     

    Section 18.   Construction and Financing
Contracts.  Douglas agrees that prior to commencing
construction of the Wells Project it will have completed the financing of the
estimated Cost of Acquisition and Construction, shall have let the major
contract for the construction thereof, and shall have obtained adequate surety
bonds for the completion of said contract.  Bechtel Corporation shall
have prepared the plans and specifications for the Wells Project, and Messrs.
Fraley and Leighton shall have prepared the plans and specifications for the
office building included in the Wells Project, all of which plans and
specifications shall have been subject to review by the Purchaser, and Douglas
agrees that it will not (without the consent of the Purchasers who are
purchasing sixty per cent (60%) or more of that part of the Wells Project Output
purchased under this contract and the other contracts referred to in
subsection 2(i) hereof by all the Purchasers) modify, amend or waive full
compliance with, nor make any elections provided for in, the said plans and
specifications, in any material respect.

     

    Section 19.   Completion of
Construction.  Douglas agrees to proceed diligently with the
financing and construction of the Wells Project and, subject to Uncontrollable
Forces, plans to complete the Wells Project by September 1,
1968.

     

    Section 20.   Additional
Facilities.

     

    (a)           From
time to time during the term hereof Douglas may propose to expand the Wells
Project by installing additional generating facilities.  Whenever
Douglas proposes to so expand the Wells Project 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 output by the
Purchaser’s Power Allocation, and may exercise such option by giving written
notice to Douglas on or before the expiration of ninety (90) days from the
receipt of said written notice from Douglas.  Douglas 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 Douglas within sixty (60) days
after the receipt of the second notice from Douglas, 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.  Douglas, in addition to its share of said additional output
determined by multiplying the total amount of said additional power and energy
by the percent reservation for Douglas specified in Section 4 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 Douglas 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
Douglas 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 of 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
percentage of Wells Project Output and pay the same Annual Power Costs therefor
as if such additional generating facilities had not been installed.

     

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

     

    (e)           Notwithstanding
any other provisions of Section 20 hereof, whenever Douglas is compelled to
install additional facilities at or in the Wells Project 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 the installation of additional generating facilities as
provided above in Section 20 hereof.

     

    (f)           Douglas
agrees that it will construct as a part of the Wells Project such transmission
lines and such terminal facilities as are necessary to deliver power and energy
from the Wells Project to the points of delivery specified in Section 8 of
this contract and the similar contracts with the other
Purchasers.  The Purchaser hereby agrees that Douglas may at any time
or from time to time construct as a part of the Wells Project (1) one
230/115-kv stepdown substation at the Wells Project and one 230/115-kv stepdown
substation near the Rocky Reach switchyard with a combined capacity of not more
than 250,000 kva, (2) one 115-kv transmission line approximately
10 miles long from the Wells Project to the vicinity of Brewster and
Bridgeport, and (3) one 115-kv transmission line approximately 8 miles
long from the vicinity of the Rocky Reach switchyard to the Eastmont area of
Douglas County, including, in each case, necessary terminal
facilities.

     

    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 Per Cent (25%) of its original
percentage allocation specified in Exhibit “A” hereto, in the event of a
Default (as hereinafter defined) by any one or more of the other
Purchasers.  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.  The term “Default” as
used herein shall mean the failure by any one of the Purchasers to make the
payments specified in Section 6 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 said Purchaser or the whole or any
substantial part of the properties of said Purchaser;

     

    (2)           Approving
a petition filed against said Purchaser 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 said Purchaser 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 the properties of
said Purchaser 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)           Said
Purchaser 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 such
Purchaser or of the whole or any substantial part of its
properties;

     

    provided
that if prior to an imminent Default by any Purchaser (hereinafter called the
“Defaulting Purchaser”), the Defaulting Purchaser shall demonstrate, to the
satisfaction of other Purchasers receiving in the aggregate at least two-thirds
(2⁄3) of the Wells Project Output being purchased by Purchasers other than the
Defaulting Purchaser under this contract and the other contracts referred to in
subsection 2(i) hereof and to the satisfaction of Douglas, the inability of
the Defaulting Purchaser to pay for its power allocation under its contract and
its ability to pay for a smaller power allocation thereunder, then the
Defaulting Purchaser shall be allowed thereafter to take such smaller power
allocation thereunder and shall thereafter be liable thereunder for the smaller
power allocation in the same manner as for its previous power allocation
thereunder; and, in such event, the automatic increase in the Purchaser’s Power
Allocation as above provided shall apply only to the amount of such decrease in
power allocation of the Defaulting Purchaser.

     

    Section 22.   Additions, Betterments, Improvements
and Extensions.  Douglas may at its option make in any Contract
Year additions, betterments or improvements to or extensions of the Wells
Project costing in the aggregate not more than $25,000, but may not make in such
Contract Year such additions, betterments, improvements or extensions costing in
the aggregate more than $25,000 unless such excess amount shall have been
approved in writing by Purchasers who are purchasing sixty per cent (60%) or
more of the part of the Wells Project Output purchased under this contract and
the other contracts referred to in subsection 2(i) hereof by all
Purchasers.  Notwithstanding the provisions of this Section 22,
such approval of the Purchasers shall not be required in connection with the
construction of the facilities referred to in Section 20
hereof.

     

    Section 23.   Liability of
Parties.  Douglas 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 Douglas through the operation and maintenance of the Wells
Project and not covered by insurance shall be paid solely from the revenues of
the Wells Project, and any payments made by Douglas to satisfy such liability
shall become part of the Annual Power Costs.

     

    Section 24.   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, right or
matter.

     

    Section 25.   Notices and Computation of
Time.  Any notice or demand, except those provided for in
Section 7 hereof, by the Purchaser under this contract to Douglas shall be
deemed properly given if mailed postage prepaid and addressed to Public Utility
District No. 1 of Douglas County, Washington, at East Wenatchee,
Washington; any notice or demand by Douglas to the Purchaser under this contract
shall be deemed properly given if mailed postage prepaid and addressed to Puget
Sound Power & Light Company, Attention Ralph M. Davis, President,
P.O. Box 535, Bellevue, 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 26.   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 a portion of Wells Project Output for the payment of the principal,
interest and premium, if any, on Revenue Bonds as they respectively become
payable, as long as any of the 1963 Bonds and Completion Bonds as defined in the
First Bond Resolution are outstanding and unpaid or until provision is
irrevocably made for the payment thereof.

     

    Section 27.   Douglas’ Bond Resolution and
License.  It is recognized by the parties hereto that Douglas
in its operation of the Wells Project and in the delivery of a portion of Wells
Project Output hereunder to the Purchaser, must comply with the requirements of
the Bond Resolution and with the License, and it is, therefore, accordingly
agreed that this Power Sales Contract is made, and arbitration hereunder shall
be, subject to the terms and provisions of the Bond Resolution and the
License.  Douglas 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.  Except to the extent modification, amendment or change is
permitted by this Section 27, said Bond Resolution shall continue to be
binding upon Douglas so long as the Purchaser is purchasing power and energy
during the term of this contract and irrespective of whether the Bonds have been
redeemed.  Douglas shall not, over the objection of the Purchaser,
voluntarily accept or apply for an amendment or modification of the
License.

     

    Section 28.   Conflict of
Laws.  The parties hereto agree that this contract shall be
governed by the laws of the State of Washington.

     

    Section 29.   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 30.   Uniformity of Power Sales
Contracts.  The Purchaser is one of several Purchasers as
follows:

     

    
      	
              Puget
      Sound Power & Light Company

              Portland
      General Electric Company

              Pacific
      Power & Light Company

              The
      Washington Water Power Company

            

    

    

    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 the power allocation for each of the
Purchasers.  If any of said contracts are amended or replaced, then
this contract shall, at the option of the Purchaser, be amended or replaced to
conform to the changed or substituted contract; provided, however, that Douglas
shall have the right to sell power and energy reserved by it pursuant to
Section 4 hereof on such terms and conditions as it shall elect and nothing
herein shall be construed to require Douglas to offer equal terms and conditions
to the purchasers of such reserved power and energy.

     

    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.

     

    
      	 
      	 
      	
              Public
      Utility District No. 1 of

              Douglas
      County, Washington

            
	 
      	 
      	 
      
	
               

              (Seal)

            	 
      	
              By           /s/
      Lloyd
      McLean

              President

            
	 
      	 
      	 
      
	 
      	 
      	
              By           /s/
      Howard Prey

              Vice
  President

            
	 
      	 
      	 
      
	
              Attest:

            	 
      	 
      
	 
      	 
      	 
      
	
              /s/
      Ross
      A. Heminger

            	 
      	 
      
	
              Secretary

            	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	
              Puget
      Sound Power & Light Company

            
	
              (Seal)

            	 
      	 
      
	 
      	 
      	
              By           /s/
      L. E. Karrer

              Vice
  President

            
	 
      	 
      	 
      
	
              Attest:

            	 
      	 
      
	 
      	 
      	 
      
	
              /s/  C.
      B. Schoeggl

              Secretary

            	 
      	 
      

    

    

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

    EXHIBIT
“A”

     

    Distribution
of Wells Project Output

     

    

    
      	 
      	
              
                 

                Purchasers

              

            	 
      	 
      	
              
                 

                Original
      Percentage Allocation

              

            
	
              Puget
      Sound Power & Light Company

            	 
      	
              31.3%

            
	
              Portland
      General Electric Company

            	 
      	
              20.3%

            
	
              Pacific
      Power & Light Company

            	 
      	
              6.9%

            
	
              The
      Washington Water Power Company

            	 
      	
              3.5%

            
	 
      	 
      	
              62%exhibit1010.htm

    Exhibit
10.10

     

    

     

    CONSTRUCTION
AND OWNERSHIP

     

    AGREEMENT

     

    INDEX

     

    
      
        
          	
                  TITLE

                	 
      
	 
      	 
      
	
                  WITNESSETH

                	 
      
	
                   
      1.

                	
                  Definitions

                	 
      
	
                   
      2.

                	
                  Ownership
      of Project

                	 
      
	
                   
      3.

                	
                  Design,
      Engineering and Construction Management

                	 
      
	
                   
      4.

                	
                  Construction

                	 
      
	
                   
      5.

                	
                  Construction
      Cost

                	 
      
	
                   
      6.

                	
                  Payment
      of Cost of Project

                	 
      
	
                   
      7.

                	
                  Accounting
      and Reports

                	 
      
	
                   
      8.

                	
                  Licenses
      and Permits

                	 
      
	
                   
      9.

                	
                  Insurance

                	 
      
	
                  10.

                	
                  Owners'
      Committee

                	 
      
	
                  11.

                	
                  Damage
      to or Destruction of Project:  Disposition upon
      Abandonment

                	 
      
	
                  12.

                	
                  Liabilities

                	 
      
	
                  13.

                	
                  Defaults

                	 
      
	
                  14.

                	
                  Uncontrollable
      Forces

                	 
      
	
                  15.

                	
                  Waiver
      of Right to Partition

                	 
      
	
                  16.

                	
                  Transfer
      and Assignments:  Secured Interests

                	 
      
	
                  17.

                	
                  Obligations
      Are Several

                	 
      
	
                  18.

                	
                  Successors
      and Assigns

                	 
      
	
                  19.

                	
                  Notices

                	 
      
	
                  20.

                	
                  Additional
      Documents

                	 
      
	
                  21.

                	
                  Capital
      Additions and Retirements

                	 
      
	
                  22.

                	
                  Construction
      of Additional Generating Units

                	 
      
	
                  23.

                	
                  Regulatory
      Approval

                	 
      
	
                  24.

                	
                  Arbitration

                	 
      
	
                  25.

                	
                  Rule
      Against Perpetuities or Similar Or Related Rules

                	 
      
	
                  26.

                	
                  Term

                	 
      

        

      

    

     

    
      
        
        

      

      
        
        

      

      
        
        

      

    

    CONSTRUCTION
AND OWNERSHIP

     

    AGREEMENT

     

    

    THIS
AGREEMENT, made as of the 30th day of July 1971, by and between THE MONTANA
POWER COMPANY, a Montana corporation, hereinafter referred to as "Montana" and
PUGET SOUND POWER & LIGHT COMPANY, a Washington corporation, hereinafter
referred to as "Puget".

     

    WITNESSETH:

     

    WHEREAS,
the parties desire to establish the terms and conditions relating to their
ownership, as tenants in common, and the planning, financing, acquisition,
construction, operation and maintenance of the Colstrip Steam Electric
Generating Project and related facilities, as hereinafter defined;

     

    NOW,
THEREFORE, for and in consideration of the mutual covenants and agreements
herein stated and the performance thereof, all as hereinafter set forth, the
parties hereto mutually agree as follows:

     

    1.           Definitions

     

    (a)           "Project."  Project
means the coal-fired thermal generating plant, consisting of two units, each of
350 megawatt nominal rating and related facilities as described in
Exhibit "A" attached hereto and the necessary real property, property
rights, including access easements and appurtenances, as described in Exhibit
"B" hereto, located near Colstrip, Montana.

     

    (b)           "Project
Agreements" means this Agreement together with the following
agreements:

     

    
      	
               
      

            	
              (i)

            	
              Agreement
      for the Operation and Maintenance of Colstrip Steam Electric Generating
      Plant, hereinafter referred to as the "Operating
    Agreement";

            

    

     

    
      	
               
      

            	
              (ii)

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

            

    

     

    
      	
               
      

            	
              (iii)

            	
              Transmission
      Agreement.

            

    

     

    (c)           "Owners"
shall mean Montana and Puget or their successor or assigns.

     

    (d)           "Ownership
Agreement" shall mean this Agreement.

     

    2.           Ownership of
Project

     

    Subject
to the terms and conditions hereinafter set forth, ownership of the Project
shall be as follows:

     

    (a)           The
Project other than coal shall be owned by the parties hereto as tenants in
common, with each party's respective undivided interests being in the following
percentages:

     

    Montana
- 50%

    Puget      - 50%

     

    Such
percentages are hereafter referred to as the "Ownership
Percentages".  Each Owner shall be entitled to schedule and take an
amount of generation up to but not to exceed its Ownership Percentage of the
Project's net generating capability.

     

    (b)           All
of the respective covenants and agreements set forth and contained in the
Project Agreements are incorporated herein by this reference and shall bind and
shall be and become the respective obligations of each Owner, its successors and
assigns.  It is the specific intention of this provision that, except
for the parties' mutual Waiver of Right to Partition as set forth in
subsection 15(b) of this Ownership Agreement, all of the covenants and
conditions of all of the Project Agreements shall be personal to the parties and
not covenants running with the land and shall be binding upon any party which
acquires any rights, title or interest of any Owner of the Project in, to and
under the Project Agreements, pursuant to subsections (b) through (e) of
Section 16.

     

    3.           Design, Engineering and
Construction Management

     

    Montana
has entered into a Contract for Engineering, Procurement and Construction with
Bechtel Corporation, (hereinafter "Bechtel Contract") dated January 23,
1970.  Puget became a party to said contract as of July 30,
1971.  Unless otherwise agreed, Montana and Puget will retain on a
continuous basis, the Bechtel Corporation or some other construction engineer or
engineering firm of national reputation recognized for knowledge, skill and
experience in the design and construction managements of electrical generating
facilities until the parties mutually agree that the Project has been
completed.

     

    4.           Construction

     

    (a)           The
Project shall be constructed at the lowest reasonable cost and in a prudent and
skillful manner in accord both with standards prevailing in the utility industry
for projects of a similar size and nature and with applicable laws and final
orders or regulations of regulatory agencies having jurisdiction and
substantially in accordance with the description set forth in the attached
Exhibit "A".  The Project shall substantially conform to designs,
plans, specifications and
construction schedules which have been or will be made available to the parties
as such are available.  It is intended that the contracts for purchase
of equipment and construction of the Project shall be scheduled so as to provide
for a date of initial test and operation of the Project, presently scheduled for
May 1, 1975, for the first unit and May 1, 1976, for the second unit and for the
commercial operation of the first unit of the Project not later than July 1,
1975, and for the completion and commercial operation of the second unit of the
Project not later than July 1, 1976.

     

    (b)           Any
agreements, purchase contracts and orders entered into by Montana in its own
name providing for the purchase of materials, equipment and services for the
Project are hereby dedicated to the Project and ratified by
Puget.  Montana, with reasonable expedition as agent for itself and
Puget, shall enter into additional contracts for such purposes as well as
contracts for the construction of the Project; Montana will continue as agent
for itself and Puget to incur obligations and make expenditures relating to the
engineering and other services necessary for continued Project planning and
engineering.

     

    (c)           With
the assistance of Puget, Montana on its own behalf as to its own interest and as
agent for Puget shall supervise and perform engineering and other services in
connection with the engineering and construction of the
Project.  Montana shall consult with Puget prior to making major
decisions involving the design and other engineering, purchasing, subcontracting
and construction of the Project.

     

    (d)           As
soon as practical after the execution of this Agreement, Montana shall submit to
Puget an estimate of total cost and a schedule setting forth the estimated costs
of constructing and completing the Project separately by
months.  Montana shall thereafter submit quarterly revisions of such
schedule to Puget, together with a summary report of the Construction Costs
accumulated to date and other pertinent data including, when requested, copies
of construction contracts, purchase orders and other agreements relating to
construction progress.

     

    (e)           Montana
will maintain, or cause to be maintained separately, appropriate documentation
and records of all Project expenditures and charges made and incurred by
Montana, together with all other charges, payments and any expenses or receipts
relating to Project construction.  Such records of Montana shall be
made available for inspection by Puget at all reasonable times.

     

    (f)           Puget
authorizes and directs Montana to schedule deliveries of appropriate quantities
of coal and other fuel to permit testing of the first and second units of the
Project as each said unit becomes ready therefor.  Montana shall
appropriately record coal and other fuel used for such purposes and furnish a
copy of such record to Puget.  Montana
will schedule generation from testing to the Owners according to their
respective Ownership Percentages.

     

    (g)           Surplus
commodities, materials, equipment and the other personal property resulting from
construction of the Project shall be disposed of in accordance with
Section XVI(b) of the Operating Agreement.

     

    5.           Construction
Cost

     

    Construction
Cost of the Project shall consist of payments made and obligations incurred by
either party in connection with the construction, installation and acquisition
of the Project, other than interest during construction, for:

     

    (a)           All
costs of preliminary investigation in the Colstrip-Nichols area, land and land
acquisition, water development, development labor and other costs, design,
engineering, contractors' fees, construction labor, materials and supplies,
operator and other personnel training, testing, preparation of Operation and
Maintenance Manuals, and all other costs properly allocable to Construction
Costs.  Any net receipts relating to construction shall be credited
against Construction Costs;

     

    (b)           All
costs of insurance obtained pursuant to paragraph 9 hereof, and applicable to
the period of construction;

     

    (c)           All
costs relating to injuries and damage claims which may be payable and paid
arising out of the construction of the Project less proceeds of insurance
maintained under paragraph 9 hereof or under the Bechtel Contract;

     

    (d)           All
federal, state or local taxes imposed upon the Project during the construction
period but excluding state and federal net income taxes levied upon income
derived by the Owners during said period;

     

    (e)           The
cost of all services performed and materials furnished by Montana and Puget
directly applicable to Project construction including:

     

    
      	
               
      

            	
              (i)

            	
              Payroll
      of employees, including principal department heads and officers based upon
      an actual time or other agreeable basis, including all normal and usual
      related employee benefit costs such as Social Security taxes, unemployment
      insurance expense, group life insurance, group hospitalization and medical
      insurance, pension funding expense, workmen's compensation, long-term
      disability and other insurance, vacations, holidays, sick leave,
      etc.;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              Materials
      and supplies, including related purchasing and handling
    costs;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              Travel
      expenses, including use of Owners' transportation
    equipment;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              Construction
      power costs;

            

    

     

    
      	
               
      

            	
              (v)

            	
              Other
      miscellaneous costs.

            

    

     

    (f)           No
administration and general expenses will be allocated to the Project during
construction as all applicable overhead costs will be included with the direct
costs charged to the Project under subsection (e) above.

     

    6.           Payment of Cost of
Project

     

    (a)           Montana
and Puget shall share Construction Costs according to their respective Ownership
Percentages.  Notwithstanding completion of the Project, each Owner
shall remain liable for any claims arising out of the construction of the
Project and shall be entitled to any refunds, repayments, settlements or other
credits with such claims and credits divided according to their respective
Ownership Percentage share.

     

    (b)           Montana
shall submit to Puget a detailed accounting of all Construction Costs and
receipts through June 30, 1972 and Puget shall submit such an accounting to
Montana.  Within fifteen (15) days after receipt of Montana's
accounting, Puget shall make an initial advance to Montana equal to one-half
(1/2) of the difference between Montana's statement and Puget's statement,
subject to later verification and acceptance of said
accountings.  Montana's accounting shall include such carrying costs
as are mutually agreed by the Owners.

     

    (c)           From
and after the date hereof, not later than the 20th day of each month, Montana
will notify Puget of the estimated sums required for disbursements on account of
the construction of the Project during the succeeding calendar
month.

     

    (d)           Montana
will continue to process and pay Construction Costs on the Project in its usual
manner.  Montana and Puget will establish a system of advances
mutually agreeable to both parties to provide Montana with funds to cover
Puget's share of Project's cost.

     

    7.           Accounting and
Reports

     

    (a)           Montana
shall at all times maintain and appropriately preserve separate books of account
containing detailed entries of all items of cost and receipts applicable to the
construction of the Project.  Accounting
for all of such costs shall be in accordance with customary practices in the
electric utility industry and the basic records and documents shall be made
available to Puget for inspection at all reasonable times.  Montana
shall furnish to Puget upon request, photocopies of all construction contracts
and purchase orders and of all accounting entries and vouchers in such detail as
may be necessary in order that each Owner may properly record its percentage of
the Construction Cost of the Project on such Owner's own books and
records.

     

    (b)           Montana
shall furnish to Puget monthly Construction Costs and progress reports and such
other reports as may from time to time reasonably be requested by
Puget.  At the request of Puget, Montana shall provide certificates
signed by a responsible officer of Montana or an individual designated by him
for such signature setting forth the status of Project Construction costs and
application of funds.  The certificate shall be in such form and
contain such information as is reasonably requested by Puget.

     

    (c)           Montana's
books and records relating to Project Construction Costs shall be open to
inspection by Puget or any independent auditors nominated by
them.  Either party may request an independent audit of such Project
costs at any time during construction and at the completion thereof, the cost of
which shall be a Construction Cost.  The records shall also be made
available on written request by any of the companies to independent auditors and
representatives of any regulatory body or taxing authority having jurisdiction
for inspection, copying, audit or other proper business
requirements.

     

    8.           Licenses and
Permits

     

    Upon the
expiration of any licenses or permits required for the ownership, construction,
maintenance, or operation of the Project or in the event new such licenses or
permits shall be required, the Owners as tenants in common agree to file timely
applications for the same as may be necessary or appropriate, such licenses or
permits to be held as tenants in common in accord with each parties' respective
Ownership Percentage.

     

    9.           Insurance

     

    (a)           The
Owners shall procure at the earliest practicable time and thereafter maintain in
effect at all times hereinafter provided, to the extent available at reasonable
cost and in accord with standards prevailing in the utility industry for
projects of similar size and nature, adequate insurance coverage of the Project
with responsible insurers, with each Owner as a named assured and with losses
payable to the respective Owners for their benefit as their respective interests
may appear, to protect and insure against:

    Workmen's
Compensation and Employer's Liability, public liability for bodily injury and
property damage, all risks of physical damage to property or equipment,
including transportation and installation perils, and such other insurance as
the Owners deem necessary, with reasonable limits and subject to appropriate
exclusions and deductibles.  Self insurance under the State of
Montana's Workmen's Compensation laws may be substituted for the referenced
Workmen's Compensation and Employee's Liability insurance and the Owners agree
to cooperate to establish a procedure whereby the cost of such self insurance
shall be levelized over a three to five year period.

     

    (b)           The
premium costs for insurance coverages until the completion of construction shall
be a Construction Cost of the Project, and shall thereafter be an operating
expense and shall be borne by the Owners in their respective percentage
interests.

     

    (c)           To
the extent permitted by its insurance policies, each Owner waives any rights of
subrogation against the other Owner, its agents and employees, for losses,
costs, damages or expenses arising out of the construction, operation,
maintenance, reconstruction or repair of the Project.

     

    10.           Owners'
Committee

     

    (a)           As
a means of securing effective cooperation, interchange of information and
management of the property owned as tenants in common, on a prompt and orderly
basis in connection with various administrative and technical problems which may
arise from time to time under the terms and conditions of the Project
Agreements, the Owners hereby establish an Owner's Committee.

     

    (b)           Each
Owner shall notify the other Owner promptly of the designation of its
representative on the Owners' Committee and of any subsequent change in its
designation.  Either of the Owners may, by written notice to the other
Owner, designate an alternate or substitute to act as its representative, to act
on the Committee in the absence of the regular member of the Committee, or to
act on specified occasions or with respect to specified matters.

     

    (c)           The
Owners' Committee shall have no authority to modify any of the provisions of
this Agreement.

     

    (d)           The
Owners' Committee shall meet at such times and places as agreed upon by the
members or when requested by either Owner upon 10 days' notice in
writing.

     

    (e)           Each
Owner shall have the right through its officers, employees or agents to inspect
the Project and Project records at any reasonable time and to require that the
Project be constructed in
accordance with the standards provided in paragraph 4.

     

    11.           Damage to or Destruction of
Project:  Disposition upon Abandonment

     

    (a)           If
all or substantially all of the project be destroyed or damaged beyond repair or
damaged to the extent that the cost of repair substantially exceeds the proceeds
of insurance available for reconstruction or repair and the Owners do not agree
to reconstruct or repair the Project, or if for any reason the Owners determine
to abandon the Project, the salvageable portion of the Project and the plant
site shall be disposed of in accordance with a procedure agreed upon by the
Owners; the proceeds from such disposition shall be distributed to the Owners in
accordance with their respective percentages; any demolition, removal and
cleanup costs shall be charged against and borne by the Owners in accordance
with their respective percentages; provided, however, that if either of the
Owners of the Project elect to reconstruct the Project, the value of the Project
shall be appraised by independent appraisers and an amount of money equal to
such value multiplied by the percentage of such Owner not so electing shall be
paid by the Owner so electing; such Owner so receiving payment shall convey its
interest in the Project to the Owner so electing to reconstruct.

     

    (b)           In
the event that less than substantially all of the Project shall be destroyed or
damaged, and the cost of repair, restoration or reconstruction does not
substantially exceed the proceeds of applicable insurance, unless otherwise
agreed by Owners the Project shall be repaired, restored, or reconstructed by
the Owners in such manner as to restore the Project to substantially the same
general character and use as the original project.

     

    12.           Liabilities

     

    (a)           Each
of the Owners releases the other Owner, its agents and employees, for any
consequential losses or damages arising out of the construction, operation,
maintenance, reconstruction and repair of the Project, including but not limited
to loss of use and loss of profit.

     

    (b)           Any
loss, cost, liability, damage and expense to the Owners or any Owner, other than
damages to Owners resulting from loss of use and occupancy of the Project or any
part thereof, resulting from the construction, operation, maintenance,
reconstruction or repair of the Project and based upon injury to or death of
persons or damage to or loss of property including the Project and other
property of Owners or other parties, to the extent not covered by collectible
insurance, shall be charged to Project Construction Costs or Project Operating
Expenses, whichever may be appropriate.

     

    13.           Defaults

     

    (a)           Each
Owner hereby agrees that it will make all payments and perform all other
obligations by it to be made or performed pursuant to all of the terms,
covenants and conditions contained in the several Project Agreements and that a
default of any of the terms, covenants and conditions contained in any of the
Project Agreements shall be an act of default under this Agreement.

     

    (b)           In
the event either Owner shall dispute an asserted default by it, then such Owner
shall make payment of any sums in dispute or perform the obligation in dispute
but may do so under protest.  Such protest shall be in writing and
shall specify the reasons upon which the protest is based by copies thereof
being mailed to the other Owner.  Upon resolution of such dispute,
then the payments advanced or made between Owners, as in this paragraph
provided, shall be adjusted appropriately.

     

    14.           Uncontrollable
Forces

    
      
      

    

     

    No Owner
shall be considered to be in default in the performance of any of the
obligations hereunder; other than obligations of either Owner to pay costs and
expenses, if failure of performance shall be due to uncontrollable
forces.  The term "uncontrollable forces" shall mean any cause beyond
the control of the Owner affected and which, by the exercise of reasonable
diligence, the party is unable to overcome, and shall include but not be limited
to an act of God, fire, flood, explosion, strikes, labor disputes, labor or
material shortages, sabotage, an act of the public enemy, civil or military
authority, including court orders, injunctions, and orders of government
agencies with proper jurisdiction prohibiting acts necessary to performance
hereunder or permitting any such act only subject to unreasonable conditions,
insurrection or riot, an act of the elements, failure of equipment, or inability
to obtain or ship materials or equipment because of the effect of similar causes
on suppliers or carriers.  Nothing contained herein shall be construed
so as to require an Owner to settle any strike or labor dispute in which it may
be involved.  Any party rendered unable to fulfill any obligation by
reason of uncontrollable forces shall exercise due diligence to remove such
inability with all reasonable dispatch.

     

    15.           Waiver of Right to
Partition

     

    (a)           The
Owners and each of them shall accept title to the Project, as tenants in common,
and agree that their interests therein shall be held in such tenancy in
common.

     

    (b)           So
long as the Project or any part thereof as originally constructed, reconstructed
or added to is used or useful for the generation of electric power and energy,
or to the end of the period permitted
by applicable law, whichever first occurs, the Owners waive the right to
partition whether by partition in kind or sale and division of the proceeds
thereof, and agree that they will not resort to any action at law or in equity
to partition and further waive the benefit of all laws that may now or hereafter
authorize such partition of the properties comprising the Project.  It
is agreed this covenant shall be deemed to run with the land.

     

    16.           Transfer and
Assignments:  Secured Interests

     

    The
undivided interest of either Owner in the Project, and all or any part thereof,
and in the Project Agreements, may be transferred and assigned as follows but
not otherwise:

     

    (a)           To
any mortgagee, trustee, or secured party, as security for bonds or other
indebtedness of such Owner, present or future; and such mortgagee, trustee or
secured party may realize upon such security in foreclosure or other suitable
proceedings, and succeed to all right, title and interests of such
Owner;

     

    (b)           To
any investor-owned corporation or entity in the utility business into which or
with which the Owner making the transfer may be merged or
consolidated;

     

    (c)           To
any corporation or entity the stock or ownership of which is wholly owned by the
Owner making the transfer;

     

    (d)           To
any other person; provided that the Owner shall first offer to transfer its
interest or any part thereof to the other Owner, at the amount of, and on terms
not less advantageous than, those of a bona fide offer from a buyer able and
willing to purchase such Owner's interest.  The offer shall remain
open for the period specified by the Owner but not less than six
(6) months;

     

    (e)           To
any other person where the Owners consent to such transfer in advance in
writing.

     

    No
transfer or assignment of any interest in the Project or any Project Agreement
pursuant to subparagraphs (b) through (e) above may be made unless
simultaneously the Owner's interest or part thereof in all other Project
Agreements is similarly transferred or assigned to the same person or persons,
and such person or persons have assumed in writing all the duties and
obligations of the Owner transferring or assigning under this Agreement and
under all other Project Agreements.  Transfers or assignments shall
not relieve an Owner of any obligation hereunder, except to the extent agreed in
writing by all other Owners.

     

    17.           Obligations are
Several

     

    The
duties, obligations and liabilities of Montana and Puget hereunder are intended
to be several and not joint or collective and neither shall be jointly or
severally liable for the acts, ommission, or obligations of the
other.  Nothing herein contained shall be construed
to create an association, joint venture, partnership, or impose a partnership
duty, obligation or liability, between Montana and Puget.  Neither
party shall have a right or power to bind the other party without its express
written consent, except as expressly provided in this Agreement.  This
Agreement shall be construed in accordance with the laws of the State of
Montana.

     

    18.           Successors and
Assigns

     

    Subject
to the restrictions on transfer and assignment herein provided, all of the
respective covenants and obligations of each of the Owners shall be and become
the respective obligations of the successors and assigns of each such
Owner.  It is the specific intention of this provision that all such
covenants and obligations shall be binding upon any party which acquires any of
the right, title or interest of either of the Owners in the Project pursuant to
subsections (b) through (e) of Section 16.

     

    19.           Notices

     

    Any
notice, demand or request provided for in this Agreement served, given or made
in connection therewith shall be deemed properly served, given or made if given
in person or sent by registered or certified mail, postage prepaid, addressed to
the party or parties at its or their principal place or places of business to
the attention of the president or chief executive officer of Montana or
Puget.  Either party may at any time, and from time to time, change
its designation of the person to whom notice shall be given by giving notice to
the other party as hereinabove provided.

     

    20.           Additional
Documents

     

    Each
Owner, upon request by the other Owner, shall make, execute and deliver any and
all documents reasonably required to implement the terms of this
Agreement.

     

    21.           Capital Additions and
Retirements

     

    Capital
improvements, betterments, replacements and additions shall be made and
accounted for as provided in Article XII of the Operating
Agreement.  Capital retirements shall be made as mutually agreed by
the Owners.

     

    22.           Construction of Additional
Generating Units and Provisions For Additional Facilities

     

    (a)           Each
Owner shall have the right to install and operate on the Project land such
facilities as are reasonably required to enable it to deliver to its own system
the power to which it is entitled under the Project Agreements, and to establish
interconnections between its system and that of the other Owner; provided,
however, that the facilities of either Owner shall be so installed and operated
as not to burden or unreasonably interfere with those of the other Owner or the
Project, the construction on the Project land of generating units in addition to
the first two units, or the ultimate full utilization of the land.  In
the event that an Owner proposes to install or operate facilities which would
require the relocation of previously installed facilities of the other Owner, or
of the Project, but would otherwise meet the requirements of the preceding
sentence, the Owner desiring to install or operate such facilities shall have
the right to call for such relocation if it bears the cost thereof.

     

    (b)           Montana
either individually or jointly with other parties shall have the right to
construct and operate on Project real property (subject to the provisions of
subparagraph (c) giving Puget a right to participate therein) additional
generating units and necessary appurtenances thereto; provided, however, that no
unit with a planned net capability less than 180 MW shall be so constructed
and operated without the consent of Puget and that any additional generating
units and related appurtenances shall be so installed and operated as not to
burden or unreasonably interfere with the facilities of Puget, the Project, or
the ultimate full utilization of the Project Site for electric power
generation.  In the event Montana individually or jointly with any
other party decides to construct and operate an additional generating unit or
units and appurtenances which would require the relocation of previously
installed facilities of Puget or the Project, it shall have the right to call
for or accomplish such relocation, as the case may be, if it bears the cost
thereof.  In connection with any such additional units Montana
individually or jointly with other parties shall have the right to use any
facilities installed as part of the Project and to modify such facilities for
use in connection with the installation or operation of such additional
generating units and appurtenances; provided, however, that such use of Project
facilities shall not burden or unreasonably interfere with the Project, that the
cost of any modification shall be borne by Montana, and that Montana shall pay
to the Project Owners a reasonable monthly facilities' charge based on the
portion of the Project facilities devoted to the use of the additional units as
compared to the portion devoted to the generating units of the Project, which
charge shall take into account such costs as capital and other carrying charges,
depreciation, O & M, taxes, insurance and return on
investment.

     

    (c)           To
the extent Montana individually or jointly with any other party decides to
construct and operate additional steam electric generating units at the Project
Site, Puget shall have the right to participate in the ownership of such units
to the extent it elects, but not to exceed fifty percent (50%) of the total
ownership of each unit, under terms and conditions substantially similar to
these Project Agreements taking into account intervening
changes in construction, ownership and operating costs and
conditions.  Such right shall be exercised with respect to each
individual additional generating unit at the time that Montana makes a firm
decision to construct said additional unit and may not be cumulated for
application against later generating units.

     

    (d)           In
the event any or all of the next 1400 MW of such additional generation, not
including generation from units agreed to be constructed under the Project
Agreements, is not constructed on the Project Site but is constructed elsewhere
in Montana by Montana using Colstrip coal, Puget shall have the right to
participate in the ownership of such plants to the extent it elects but not to
exceed fifty percent (50%) of the total ownership of each unit under terms and
conditions substantially similar to these Project Agreements taking into account
intervening changes in construction, ownership and operating costs and
conditions.  Such right to participate in off-site generation shall
not extend, however to generating facilities owned in whole or in part by
Montana constructed to serve a specific industrial load, generation developed or
utilized as a by-product of an industrial process, generation undertaken jointly
with another Montana utility, or generation undertaken jointly with a public or
quasi public agency and any such generation in which Puget does not have a right
to participate shall not reduce Puget's entitlement to participate in the
aforementioned 1400 MW of additional generation; provided, however, that to
the extent Puget has a right to participate in future generation under this
subsection (d) it must exercise such right with respect to each individual
additional generating unit at the time that Montana makes a firm decision to
construct said additional unit and such right to participate may not be
cumulated for application against later generating units.

     

    (e)           After
Montana has offered to Puget the opportunity to participate in 1400 MW of
additional generation under paragraphs (c) or (d) above, Puget shall have
the right to participate in the ownership of any steam electric generation
undertaken by Montana which uses Colstrip area coal to the extent it elects but
not to exceed twenty-five percent (25%) of the total ownership in any such
generation plant.  Puget's right to participate shall be upon a right
of first refusal basis whereby Montana will offer such right to Puget at the
time that Montana makes a firm decision to construct an additional unit upon
terms and conditions not less favorable to Puget than would be offered to any
other bona fide proposed participant.  Such right shall not extend,
however, to generating facilities owned in whole or part by Montana constructed
to serve a specific industrial load, generation developed as a by-product of an
industrial process, generation undertaken jointly with another Montana utility,
generation undertaken jointly with a public or quasi public agency or to
generating facilities owned and operated solely by Montana.

     

    (f)           All
of the rights of Puget described in paragraphs (d) and (e) above shall be
subject to the following limitations:

     

    (1)           Such
rights to participate shall terminate to the extent not previously exercised on
June 1, 1992;

     

    (2)           If
Puget elects to participate pursuant to subsections (c), (d), or (e) above,
it will so advise Montana in writing within ninety (90) days of the receipt
by it of written notice from Montana that it has made a firm
decision.  Prior to sending such notice, Montana shall make available
to Puget any relevant information it has concerning the proposed
plant;

     

    (3)           Such
rights are not assignable by Puget to any other entity without the consent of
Montana except to a corporation whose stock or other ownership is wholly owned
by Puget or except to a successor corporation to Puget resulting from a
corporate reorganization in which there is no substantial change in beneficial
ownership;

     

    (4)           Such
rights to the extent not previously exercised, may be withdrawn by Montana with
respect to a proposed plant upon a sufficient showing of unsound financial or
other adverse operating condition of Puget which has or may have a significant
material bearing upon Puget's ability to perform its obligations and discharge
its liabilities under agreements reasonably necessary to construct, own and
operate such additional generating units;

     

    (5)           Montana,
unless otherwise mutually agreed, shall be the Operator of any steam electric
generating plants constructed under the terms of this Section 22;
and

     

    (6)           Nothing
contained in this Section 22 shall be construed to constitute a dedication
of coal reserves owned by Western Energy Company, a subsidiary of Montana, nor
an agreement to dedicate such reserves.

     

    
      	
               
      

            	
              (g)

            	
              (1)

            	
              "Colstrip
      Area Coal" or "Colstrip Coal" as used in this Section 22 means those
      coal reserves now or hereafter owned or controlled by Western Energy
      Company, a Montana corporation, within the sections shown on
      Exhibit "C" attached;

            

    

     

    (2)           "Project
Site" as used herein shall include the real property, property rights, easements
and appurtenances described in Exhibit B.

     

    23.           Regulatory
Approval

     

    It is
understood that transfers of property under this Agreement to
another party hereto may be subject to the jurisdiction of state or federal
regulatory agencies and this Agreement shall not be effective as to such
transfers until approved by all regulatory authorities having
jurisdiction.

     

    24.           Arbitration

     

    Any
controversies arising out of or relating to any of the Project Agreements other
than the "Coal Agreement" including any failure of the Owners to agree with
respect to any matter requiring Owners' agreements hereunder, which cannot be
resolved through negotiations between the parties hereto within thirty
(30) days after inception of the matter in dispute, shall be submitted to
an Arbitrator, competent and experienced in electric utility industry accounting
and operations.  If the parties cannot mutually agree upon such
Arbitrator, then upon petition of either party, such Arbitrator shall be
appointed by the senior United States District Judge for the District of
Montana.  The arbitration shall be conducted under the rules of the
American Arbitration Association.  The Arbitrator shall render his
decision in writing not later than thirty (30) days after the matter has been
submitted to him, and such decision shall be conclusive and binding upon the
parties.  The costs incurred by any arbitration proceedings shall be
borne equally by the Owners.

     

    25.           Rule Against Perpetuities Or
Similar Or Related Rules

     

    If the
duration of any term or condition of the Project Agreements shall be subject to
the rule against perpetuities or a similar or related rule then the
effectiveness of such term or condition shall not extend beyond (i) the
maximum period of time permitted under such rule, or (ii) the specific
applicable period of time expressed in this Agreement, whichever is
shorter.  For purposes of applying the rule against perpetuities or a
similar or related rule the measuring lives in being shall be those of the
officers of Montana listed by name on page 104, Schedule of Officers, of
the annual report, FPC Form 1, filed by Montana with the Federal Power
Commission for the year ended on December 31, 1971, and the officers of
Puget listed by name on page 104, Schedule of Officers, of the annual
report, FPC Form 1, filed by Puget with the Federal Power Commission for
the year ended on December 31, 1971, together with all those officers'
children that are living on the date of execution of the Project
Agreements.  As used in this paragraph the word "children" shall have
its primary and generally accepted meaning of descendants of the first
degree.

     

    26.           Term

     

    This
Agreement shall continue for so long as the Project or any part thereof as
originally constructed, reconstructed or added to is used or useful for the
generation of electric power and energy, or to the end of the period permitted
by applicable laws, whichever first occurs.

     

    IN
WITNESS WHEREOF, the parties hereto have executed this Agreement in several
counterparts.

     

    
      	
               

               

               

               

              ATTEST:

               

              /s/
      W.
      Watson                                               

                                                                      
      Secretary

               

            	 
      	
              PUGET
      SOUND POWER & LIGHT COMPANY

               

               

              By  /s/
      Ralph
      M. Davis                                               

                                                                                      President

            
	
               

               

               

               

              ATTEST:

               

              /s/
      John
      C. Hauck                                              

                                                                         
      Secretary

            	 
      	
              THE
      MONTANA POWER COMPANY

               

               

              By  [Signature
      Illegible]                                              

                                                                                    
      President

            

    

    

    
      	
              STATE
      OF
      WASHINGTON                        
      )

                                                                                      )

              COUNTY
      OF
      KING                                     
      )

            	
               

              ss

            	 
      

    

    

    On this
1st day of Sept, 1972, before me, the undersigned, a Notary Public in and for
the State of Washington, personally appeared Ralph M Davis, known to me to be
president of PUGET SOUND POWER & LIGHT COMPANY and acknowledged to me that
he executed the within instrument on behalf of that corporation.

     

    IN
WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial Seal the
day and year in this certificate first above written.

     

    
      	 
      	 
      	
               

              [Signature
      Illegible]                                           

              Notary
      Public for the State of Washington 

              Residing
      at Bellevue

              My
      Commission
expires:  5/3/73

            

    

    

    
      	
              STATE
      OF
      MONTANA                              
      )

                                                                                    
      )

              COUNTY
      OF SILVER
      BOW                       )

            	
               

              ss

            	 
      

    

    

    On this
11th day of September, 1972, before me, the undersigned, a Notary Public in and
for the State of Montana, personally appeared Geo. W. O'Connor, known to me to
be the President of THE MONTANA POWER COMPANY and acknowledged to me that he
executed the within instrument on behalf of that corporation.

     

    IN
WITNESS WHEREOF, I have hereunto set my hand and affixed my Notarial Seal the
day and year in this certificate first above written.

     

    
      	 
      	 
      	
               

              [Signature
      Illegible]                                     
      

              Notary
      Public for the State of Montana

              Residing
      at Butte, Montana

              My
      Commission expires:  July 17,
1974

            

    

    

    
      
        
        

      

      
        
        

      

      
        
        

      

    

    EXHIBIT
A

     

    Construction
and Ownership Agreement

     

    Colstrip
Units #1 and #2

     

    

    DESCRIPTION
OF PROJECT

     

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

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