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Exchange of Notes between the Government of Canada and the Government of the United States of America, permitting the Disposal of the Canadian Entitlement within the United States of America, further to a Treaty between the Government of Canada and the Government of the United States of America relating to Cooperative Development of the Water Resources of the Columbia River Basin, done at Washington on January 17, 1961 [1999] CATSer 12 (31 March 1999)

E103198 - CTS 1999 No. 18

EXCHANGE OF NOTES BETWEEN THE GOVERNMENT OF CANADA AND THE GOVERNMENT OF THE UNITED STATES OF AMERICA, PERMITTING THE DISPOSAL OF THE CANADIAN ENTITLEMENT WITHIN THE UNITED STATES OF AMERICA, FURTHER TO A TREATY BETWEEN THE GOVERNMENT OF CANADA AND THE GOVERNMENT OF THE UNITED STATES OF AMERICA RELATING TO COOPERATIVE DEVELOPMENT OF THE WATER RESOURCES OF THE COLUMBIA RIVER BASIN, DONE AT WASHINGTON ON JANUARY 17, 1961

I

The Minister (Economic) and Deputy Head of Mission of Canada to the Secretary of State of the United States of America

CANADIAN EMBASSY

WASHINGTON, D.C. March 31, 1999

Note No. 0113

The Secretary of State
Department of State
Washington, D.C.

Excellency,
The Secretary of State,

I have the honour to propose on behalf of the Government of Canada that, in accordance with Article VIII of, the Treaty between Canada and the United States of America relating to Cooperative Development of the Water Resources of the Columbia River Basin including its Annexes A and B, signed at Washington, District of Columbia, United States of America on the 17th day of January, 1961, and the Protocol, brought into force by exchange of instruments of ratification and an exchange of notes on September 16, 1964 (hereinafter the "Treaty"), this note and your reply constitute an exchange of notes authorizing disposals from time to time of all or portions of the downstream power benefits to which Canada is entitled under the Treaty (hereinafter the "Canadian Entitlement") within the United States, with delivery and other arrangements for such disposals made in accordance with the attached Disposal Agreement between the Bonneville Power Administration acting on behalf of the U.S. Entity, and the Province of British Columbia (hereinafter the "Disposal Agreement").

Any reduction of the U.S. obligation to deliver the Canadian Entitlement and any delivery of any portion of the Canadian Entitlement by Bonneville in accordance with the Disposal Agreement shall satisfy the United States obligation under Article V of the Treaty to deliver that portion of the Canadian Entitlement to Canada. Any portion of the Canadian Entitlement not subject to such a reduction or not being delivered within the United States pursuant to the Disposal Agreement shall be delivered to Canada at the Canada-United States border in accordance with Article V(2) of the Treaty.

Nothing in this exchange of notes or the Disposal Agreement amends the Treaty or modifies the rights and obligations of either the Government of Canada or the Government of the United States under the Treaty except as authorized pursuant to Article VIII and Article XVI(6) of the Treaty. Any dispute that arises under the Disposal Agreement shall be resolved in accordance with Section 6 thereof, and an arbitration between the Bonneville Power Administration and the Province of British Columbia under Section 6 of the Disposal Agreement shall constitute an alternative procedure under Article XVI(6) of the Treaty for settling differences arising under the Treaty.

Any portion of the Canadian Entitlement received by British Columbia or its assigns within the United States in accordance with the Disposal Agreement has entered commerce in the United States.

This exchange of notes is without prejudice to any rights or obligations that either party may have under the North American Free Trade Agreement or the Canada-United States Free Trade Agreement.

Pursuant to Article XIV(l) of the Treaty, Canada has designated the Province of British Columbia as the Canadian entity for the purpose of Article XIV(2) (i), with effect from today's date. The British Columbia Hydro and Power Authority remains the Canadian Entity for all other purposes of the Treaty. A copy of the designation is enclosed.

The French text of the attached Disposal Agreement shall be verified and agreed upon by April 30, 1999. An agreed French text shall be confirmed by an exchange of letters.

If the above is acceptable to the Government of the United States of America, I have the honour to propose that this note, with the attached Disposal Agreement, which are equally authentic in English and French, and your Excellency's affirmative note in reply shall constitute an agreement between our two Governments which shall enter into force on the date of your note in reply.

Accept, Excellency, the renewed assurances of my highest consideration.

Doug G. Waddell

Minister (Economic) and
Deputy Head of Mission

AGREEMENT ON DISPOSALS OF THE CANADIAN ENTITLEMENT WITHIN THE UNITED STATES FOR APRIL 1, 1998 THROUGH SEPTEMBER 15, 2024 BETWEEN THE BONNEVILLE POWER ADMINISTRATION, ACTING ON BEHALF OF THE U.S. ENTITY AND THE PROVINCE OF BRITISH COLUMBIA ("BRITISH COLUMBIA")

WHEREAS:

A. Canada and the United States of America are parties to the "Treaty between Canada and the United States of America relating to Co-operative Development of the Water Resources of the Columbia River Basin" including its Annexes A and B, signed at Washington, District of Columbia, United States of America on the 17th day of January, 1961, and the Protocol, brought into force by exchange of instruments of ratification and an exchange of notes on September 16, 1964 (hereinafter the "Treaty"); and

B. Pursuant to Article V(2) of the Treaty, the United States is obligated to deliver to Canada the Canadian Entitlement at a point on the Canada - United States boundary near Oliver, British Columbia, or at such other place as the Canadian Entity and the U.S. Entity may agree upon, and those Entities have entered into the Entity Agreement for that purpose; and

C. Pursuant to Article VIII(l) of the Treaty, portions of the Canadian Entitlement may be disposed of within the United States with the authorization of Canada and the United States evidenced by an exchange of notes; and

D. By exchange of notes dated September 16, 1964, Canada and the United States authorized the sale of the Canadian Entitlement within the United States pursuant to Article VIII of the Treaty; the sale expires in steps occurring March 31, 1998, March 31, 1999, and March 31, 2003; and

E. By an exchange of notes (the "1999 Exchange of Notes") Canada and the United States are authorizing disposals of all or portions of the Canadian Entitlement within the United States with satisfaction of the U.S. obligation under the Treaty to be made by deliveries and reduction of the U.S. obligation to deliver the Canadian Entitlement in accordance with this Agreement; and

F. Under the terms of the Canada - British Columbia Agreement dated July 8, 1963, all proprietary rights, title, and interests in the Canadian Entitlement accruing to Canada belong to the Province of British Columbia; and

G. By the 1999 Exchange of Notes Canada has, under Article XIV(1) of the Treaty, designated British Columbia as the Canadian entity under the Treaty for the limited purpose of making arrangements for disposals of all or portions of the Canadian Entitlement within the United States.

NOW THEREFORE in accordance with the Treaty and the 1999 Exchange of Notes, Bonneville and British Columbia (the "Parties") agree as follows:

1. Effective Date and Term

This Agreement shall be effective upon the entry into force of the 1999 Exchange of Notes and shall continue in full force and effect until 2400 hours on September 15, 2024, unless terminated earlier in accordance with its terms. All then outstanding obligations shall continue until satisfied.

2. Definitions

2.1. For purposes of this Agreement:

(a) "Bonneville" shall mean the Administrator of the Bonneville Power Administration acting on behalf of the U.S. Entity in carrying out the electric power obligations of the United States Government under the Treaty; and

(b) "Canadian Entitlement" shall mean at any time the downstream power benefits to which Canada is entitled at that time as described in Article V(1) and Article VII of the Treaty and determined in accordance with the Treaty; and

(c) "Canadian Entity" shall mean, except as otherwise specified in preambular paragraph G, British Columbia Hydro and Power Authority or any successor designated as Canadian Entity pursuant to the Treaty; and

(d) "deliver" shall mean make available in the case of electrical capacity or deliver in the case of electrical energy, or both, as the context may require and derivatives of "deliver" shall have corresponding meanings; and

(e) "disposal" shall include disposal by way of: (i) agreements resulting in the reduction of the U.S. obligation to deliver the Canadian Entitlement; (ii) sale; (iii) exchange; or (iv) otherwise, and "dispose of" shall have a corresponding meaning; and

(f) "Entity Agreement" shall mean the "Columbia River Treaty Entity Agreement on Aspects of the Delivery of the Canadian Entitlement for April 1, 1998 through September 15, 2024" dated March 29, 1999; and

(g) "Operating Year" shall mean a consecutive twelve month period beginning August 1 and ending July 31; and

(h) "Points of Entitlement Delivery" shall mean the points of integration at which hydroelectric power shall be made available to the transmission system in the Pacific Northwest for delivery over such system to the Canada - United States border pursuant to the Treaty, as such points may be changed from time to time pursuant to Section 4; and

(i) "Transmission Cost" for any period shall mean (i) the cost of transmission service, plus (ii) any cost, excluding transmission losses, which is necessarily incurred to deliver Canadian Entitlement for such period, in each case based on published prices, plus (iii) any costs of redispatch, construction or modification of transmission facilities as determined by the regulatory methodology then applicable to the parties involved; and

(j) "U.S. Entity" shall mean the Administrator of the Bonneville Power Administration and the Division Engineer, Northwestern Division, Corps of Engineers, or any successor designated as U.S. Entity pursuant to the Treaty.

3. Reduction of Obligation

3.1. In accordance with the following provisions of this Section 3, British Columbia may dispose of portions of the Canadian Entitlement from time to time within the United States by agreement with any person having the right, through ownership or contract, to all or a percentage of the output of a hydroelectric generating project on the Columbia River in the United States, if and to the extent that such agreement would result in a reduction of such person's, or any other person's, obligation to generate electric power for delivery to the U.S. Entity.

3.2. If British Columbia proposes to enter into an Agreement referred to in Section 3.1, British Columbia shall provide a written instrument to Bonneville that sets forth the following:

(a) the person whose obligation to the U.S. Entity would be reduced;

(b) the amount by which the obligation of the person identified in Section 3.2(a) to deliver energy to the U.S. Entity would be reduced for each month during the remaining term of this Agreement, provided, however, British Columbia may revise such monthly amounts of energy for any Operating Year by providing 30 days written notice to Bonneville prior to the start of the Operating Year;

(c) the amount for each month of the remaining term of this Agreement by which the obligation of the person identified in Section 3.2(a) to deliver capacity to the U.S. Entity would be reduced, which amount shall be determined during any such month, as the reduction of monthly amount of energy specified under Section 3.2(b) divided by the hours in the month and multiplied by the fraction 168/96, provided, however, such reduction in capacity obligation shall be revised to match changes in the original amounts specified by British Columbia for any Operating Year;

(d) a legally binding acknowledgment that the obligation of the United States under the Treaty for each future Operating Year to deliver the amount of energy finally specified for each month in Section 3.2(b) is reduced for each such Operating Year and that the Canadian Entitlement capacity for each such month during the remaining term of this Agreement is permanently limited to the Canadian Entitlement capacity calculated under the Treaty less the greater of:

(i) the maximum capacity amount for a month established by Section 3.2(c) during the current Operating Year; or

(ii) the maximum capacity amount for a month established by Section 3.2(c) for any previous Operating Year.

Each acknowledgment provided under Section 3.2(d) above shall confirm satisfaction of energy reductions and limitations on capacity amounts based on all previous instruments issued by British Columbia pursuant to this Section 3.2.

3.3. If British Columbia provides a written instrument to Bonneville pursuant to Section 3.2, Bonneville shall accept the reductions identified in Sections 3.2(b) and 3.2(c) of the obligation of the person identified in Section 3.2(a), provided, however, such reductions shall be revised to reflect any revisions provided by British Columbia prior to the start of any Operating Year. As soon as practicable, Bonneville shall sign amendments to contracts with such person or other instruments necessary to provide for such reductions.

4. British Columbia Election for United States Delivery

4.1. As soon as practicable after the effective date of this Agreement, Bonneville shall select, and notify British Columbia in writing, of the initial Points of Entitlement Delivery. If Bonneville selects individual Points of Entitlement Delivery and identifies more than one such Point of Entitlement Delivery, Bonneville shall specify the amount of Canadian Entitlement capacity to be made available at each Point of Entitlement Delivery and may specify an amount of energy if necessary for Bonneville to obtain transmission for delivery to the Canada - United States border. The sum of such amounts of capacity shall at least equal the full amount of the Canadian Entitlement capacity. Subject to Section 4.3, from time to time Bonneville may change the Points of Entitlement Delivery and shall promptly notify British Columbia in writing of the new Points of Entitlement Delivery. The foregoing provisions of this Section 4.1 shall apply to changed Points of Entitlement Delivery. From time to time, at British Columbia's request, Bonneville shall provide British Columbia with a forecast of the future Transmission Cost of delivering Canadian Entitlement from the Points of Entitlement Delivery to the Canada-United States border if delivery to British Columbia at Points of Entitlement Delivery had not occurred and the basis for such costs. Forecasts provided shall not be binding on Bonneville.

4.2. From time to time, British Columbia may elect to take delivery of all or a portion of the Canadian Entitlement for periods of at least six months at one or more Points of Entitlement Delivery and may dispose of such portions of the Canadian Entitlement from time to time within the United States subsequent to such delivery. For each such election, British Columbia shall notify Bonneville in writing by the later of (i) the date that is 65 days prior to the commencement of the period of delivery or (ii) the date that is 5 days prior to the first date on which British Columbia could purchase transmission for the period specified in Section 4.2(c) that is generally available from transmission providers for purchase, without reservation charges or other payment in advance of service. Such notice shall specify:

(a) the Points of Entitlement Delivery at which British Columbia wishes to take delivery;

(b) the amounts of Canadian Entitlement capacity to be made available at each Point of Entitlement Delivery specified in Section 4.2(a), and the maximum amount of energy to be delivered at each Point of Entitlement Delivery if necessary to enable reduction in U.S. Entity Transmission Cost of delivering the Canadian Entitlement from the Points of Entitlement Delivery to the Canada - United States border; and

(c) the period for which British Columbia wishes to take delivery at the Points of Entitlement Delivery specified in Section 4.2(a).

4.3. If British Columbia elects under Section 4.2, Bonneville shall deliver without cost all or a portion of the Canadian Entitlement to the Points of Entitlement Delivery in accordance with such election. Bonneville may change the Points of Entitlement Delivery while British Columbia is taking delivery at the existing points only if (a) such change would not require British Columbia to alter transmission arrangements, or (b) such change is made for the purpose of reducing the U.S. Entity's Transmission Cost. If Bonneville intends to change such Points of Entitlement Delivery while British Columbia is taking delivery at the existing points, Bonneville shall notify British Columbia at least 60 days in advance of such changes, and British Columbia shall alter transmission arrangements to be in accordance with such change. Each time Bonneville changes Points of Entitlement Delivery, British Columbia shall be entitled to elect new Points of Entitlement Delivery under Section 4.2 for the remainder of the period referred to in Section 4.2(c).

4.4. British Columbia shall be responsible for arranging any required transmission from the Points of Entitlement Delivery to any point of delivery, and Bonneville shall have no obligation to pay the costs for such transmission, or to provide such transmission. Nothing in this Section 4.4 derogates from the rights of British Columbia to obtain transmission from Bonneville Power Administration not acting in its capacity as or on behalf of the U.S. Entity in accordance with its prevailing practices at the time the transmission is purchased or creates any rights of British Columbia to obtain transmission from Bonneville Power Administration not acting in its capacity as or on behalf of the U.S. Entity other than in accordance with such prevailing practices.

4.5. Notwithstanding British Columbia's election and notification under Section 4.2, British Columbia may suspend any or all elections made pursuant to Section 4.2 during the period specified in Section 4.2(c) provided that British Columbia holds Bonneville harmless from all additional costs, if any, that Bonneville may incur as a result of such suspension. Unless otherwise agreed, British Columbia may only exercise the foregoing right to suspend any or all elections one time during the term of this Agreement.

5. Mutually Agreeable United States Delivery

5.1. In addition to disposals pursuant to Section 3 and disposals subsequent to delivery pursuant to Section 4, British Columbia may dispose of all or portions of the Canadian Entitlement from time to time within the United States, provided that in connection with any such disposal British Columbia either:

(a) enters into an agreement with Bonneville that is not inconsistent with the Treaty and provides for delivery of the Canadian Entitlement at Points of Entitlement Delivery in accordance with the terms of such agreement. Delivery at Points of Entitlement Delivery in accordance with any such agreement shall satisfy the U.S. Treaty obligation with respect to such portions delivered, or,

(b) enters into a commercial agreement with the Bonneville Power Administration not acting in its capacity as or on behalf of the U.S. Entity that provides for a reduction of the U.S. obligation to deliver the Canadian Entitlement. Whenever such an agreement under this subsection (b) is entered into, British Columbia shall provide to Bonneville a written instrument that sets forth a legally binding acknowledgment that the obligation of the United States under the Treaty to deliver Canadian Entitlement is reduced for the period and in the amount agreed to under such commercial agreement.

5.2. In connection with disposals pursuant to Section 5.1, British Columbia may enter into commercial agreements with the Bonneville Power Administration not acting in its capacity as or on behalf of the U.S. Entity or with any other party to provide further delivery and other arrangements for such disposals separately or in combination with agreements reached under Section 5.1.

6. Dispute Resolution

6.1. Bonneville and British Columbia shall make reasonable efforts to settle any dispute that arises under this Agreement (a "Dispute"), including use of a facilitator or mediator as agreed by the Parties. Settlement offers shall not be admissible in any subsequent dispute resolution process.

6.2 Notwithstanding Section 6.1. either Party may at any time give notice of a Dispute ("Notice of Dispute") to the other Party, the Government of Canada and the Government of the United States. The Notice of Dispute shall be delivered in writing and by hand as follows:

For delivery to the Government of Canada:

Legal Adviser
Department of Foreign Affairs and International Trade
125 Sussex Drive, Ottawa, Ontario

For delivery to the Government of the United States:

Office of the Legal Adviser
Department of State
Washington, D.C.

The Party giving the Notice of Dispute shall inform the other Party and the two Governments of the date the Notice was delivered to both Governments, with the last date of delivery being the effective date of the Notice of Dispute.

6.3. For 45 days following the effective date of the Notice of Dispute, the Government of Canada and the Government of the United States of America may hold consultations concerning the Dispute and consider whether to invoke the procedures of Article XVI of the Treaty for settlement of differences between the Governments. If, within 45 days following the effective date of the Notice, neither the Parties nor the Governments have resolved the dispute and neither Government has informed the other Government in writing that it is invoking the procedures of Article XVI of the Treaty concerning settlement of differences, either British Columbia or Bonneville may proceed to arbitration in accordance with Section 6.4 by delivering to the other a notice to arbitrate ("Notice to Arbitrate").

6.4. Any arbitration under this Section 6.4 shall commence and proceed in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL Rules"), as they may be in force at the time of the arbitration, subject to the following modifications:

(a) arbitrations shall be by a panel of three arbitrators selected in accordance with this Section 6.4;

(b) within 15 days of receipt of the Notice to Arbitrate, each Party shall select one arbitrator who is willing and able to act as such, has expertise in the subject of transmission and generation of electrical power, and is not and has not within two years prior to the Notice of Dispute been an employee of or contractor to either of the Parties. Each Party shall notify the other Party on the date of such selection. If a Party fails to notify the other Party of its selection within such 15 day period, the other Party may select the Party's arbitrator and such arbitrator shall be deemed selected by the Party that failed to notify the other Party of its selection;

(c) the arbitrators selected by the Parties shall select the third arbitrator from the list of arbitrators ("the List") of the Western Region Transmission Association ("WRTA") or its successor organization;

(d) if the arbitrators selected by the Parties cannot agree upon the third arbitrator within 30 days of receipt of the Notice to Arbitrate, the Parties shall, within 5 days after the expiry of such 30-day period, meet at a time and location in Vancouver, British Columbia or Portland, Oregon, as selected by the Party who sent the Notice to Arbitrate, and take turns striking a name from the List. The first Party to strike a name shall be selected by drawing lots. If either Party fails to meet at the selected time and place or to strike a name from the List within 15 minutes of the last name struck by the other Party, then the other Party may select the third arbitrator from the names or remaining names on the List. The last remaining name shall be designated as the third arbitrator. If the person selected as the third arbitrator in accordance with this subsection is ineligible, unwilling or unable to act as such, then the last name struck shall be designated as the third arbitrator if he or she is eligible, willing and able to act, and so on until a third arbitrator is selected who is eligible, willing and able to act;

(e) either the Government of the United States of America or the Government of Canada may, in its discretion, strike the third arbitrator selected under Section 6.4 (d) above within 10 days of having been notified of the third arbitrator's identity, in which case either Party shall request the Appointing Authority to select within 30 days, or more rapidly if possible, the third arbitrator, who shall have expertise in the subject of transmission and generation of electrical power and shall not be a citizen or permanent resident of either the United States of America or Canada. The Parties hereby designate the International Chamber of Commerce as the Appointing Authority;

(f) in the event that the WRTA arbitrators List ceases to exist, the Parties shall negotiate in good faith to select another arbitrators list (which shall become the "List" referred to in Section 6.4(c)) from which to select the third arbitrator, failing which selection, within 30 days after the Notice to Arbitrate, the third arbitrator shall be selected in accordance with the UNCITRAL Rules;

(g) except with the agreement of the Parties or of the arbitrators selected by each Party, a person shall not be eligible to act as the third arbitrator if the person is or has within the last 5 years been employed or retained directly or indirectly by either Party or the government of either the United States or Canada;

(h) the third arbitrator shall be the Chair of the arbitration panel;

(i) the decision of a majority of the arbitrators shall be the decision of the arbitration panel;

(j) the place of the first arbitration under this Agreement shall be the location of the head office (either Portland, Oregon or Vancouver, British Columbia) of the Party that did not initiate the Notice to Arbitrate. The place of subsequent arbitrations shall alternate between Portland, Oregon, and Vancouver, British Columbia. Hearings shall be held in the place of the arbitration;

(k) the Parties intend that the arbitration shall proceed and conclude within 90 days, or otherwise as expeditiously as reasonably possible, taking into account the circumstances of the case. The Parties direct the arbitrators, subject always to their discretion, to establish times for taking actions during the arbitration that are consistent with this intent.

6.5 Once a Notice to Arbitrate has been delivered, Section 6.4 shall be the exclusive means of resolving the Dispute, subject always to the rights of the Parties to negotiate a settlement. The award of the arbitration panel shall be final and binding.

7. Assignments

7.1. From time to time British Columbia may assign its rights and related obligations under this Agreement, other than those set forth in Sections 3 and 4.2 of this Agreement, to one or more third parties, subject to the following conditions:

(a) such assignment may pertain to all or a portion of the Canadian Entitlement for all or a part of the term of this Agreement;

(b) the assignee must:

(i) be an eligible transmission customer of the transmission provider at the Point of Entitlement Delivery under United States Federal law; or

(ii) have any United States Federal regulatory approvals that are required to purchase power at the Point of Entitlement Delivery; provided, however, that if such assignee does not dispose of the assigned power before it must be scheduled, the assignee must also meet the requirements in (i) above;

(c) British Columbia shall be the representative for such third party with respect to scheduling the portion of the Canadian Entitlement assigned except that purchasing and scheduling of transmission from the Point of Entitlement Delivery shall be the responsibility of the assignee;

(d) British Columbia shall provide to Bonneville, by the hour for submitting daily pre-schedules at least three working days prior to the day of first delivery, written notice of the assignment specifying the assignee, the capacity amounts, in megawatts (MW), assigned to the assignee, and the period of the assignment;

(e) British Columbia shall submit to Bonneville, at the same time as the Canadian Entity submits daily pre-schedules of Canadian Entitlement pursuant to the Scheduling Guidelines, the hourly amounts of Canadian Entitlement that will be scheduled to an assignee or a purchasing/selling entity on behalf of the assignee under this Agreement; and

(f) British Columbia has provided Bonneville six months written notice of its intent to commence making assignments pursuant to this Agreement.

7.2. British Columbia is responsible for delivering to the assignee any energy scheduled to or on behalf of the assignee that, due to an uncontrollable force, is delivered to the Canada - United States border pursuant to scheduling guidelines as agreed to by the Canadian Entity and the U.S. Entity.

7.3. British Columbia is responsible for all billing, notification regarding changes in schedules, and reconciliation of discrepancies in schedules among British Columbia, its assignees and any purchasing/selling entity receiving that power.

7.4. British Columbia's obligations under this Agreement shall only be relieved to the extent that they are satisfied by such third party assignees.

7.5. British Columbia shall pay Bonneville for verifiable administrative, scheduling and billing costs that Bonneville may incur as a result of assignments under this Agreement. Bonneville and British Columbia agree to use best efforts to alleviate any administrative difficulties created by assignments under this Agreement.

7.6. Any rights assigned to a third party pursuant to this Section 7 may not be further assigned to another third party unless such practice is standard practice which Bonneville makes available to other parties.

7.7. Notwithstanding Section 7.1, British Columbia may from time to time assign to British Columbia Power Exchange Corporation or any other British Columbia crown corporation all of its rights and obligations under this Agreement. No more than one such assignment may be effective at anyone time and such assignment shall convey all of such rights and obligations for the period of such assignment. British Columbia shall provide prompt written notice to Bonneville of such assignment no later than 60 days prior to its effective date including the name mailing address and phone numbers of such assignee and the term of the assignment. Any assignee pursuant to this Section 7.7 shall have all the rights of British Columbia pursuant to this Agreement, including the right to assign rights and related obligations pursuant to this Section 7 notwithstanding that such assignee is not designated as an entity by Canada pursuant to the Treaty.

8. Scheduling

8.1. Scheduling guidelines as agreed to by the Canadian Entity and U.S. Entity shall apply to all Canadian Entitlement delivered under this Agreement. The Parties agree that the scheduling agent appointed by the Canadian Entity pursuant to the Entity Agreement shall schedule all Canadian Entitlement under this Agreement.

8.2. For the period prior to April 1, 2000, British Columbia shall provide Bonneville for each schedule under Section 4 of this Agreement written notice of the receiving control area, all transmission providers that British Columbia intends to use, and the last purchasing/selling entity prior to delivery in the receiving control area. Such notice shall be provided by the hour for submitting daily pre-schedules at least two working days prior to pre-schedule. British Columbia shall limit the number of such schedules to the amount of Canadian Entitlement capacity elected to be delivered at Points of Entitlement Delivery divided by 25 MW.

9. Miscellaneous Provisions

9.1. Unless otherwise provided, all notices required under this Agreement shall be in writing and given by mail, facsimile, or in such other form as the Parties agree. Each Party shall designate in writing a person for the purpose of receiving notice within 30 days of the effective date. Such designation may be changed by subsequent notice.

9.2. This Agreement shall be governed by and construed in a manner consistent with the Treaty.

9.3. The terms and conditions of this Agreement may be amended only by written agreement of the Parties; provided, however, that the Parties may agree to modifications of or deviations from such terms and conditions without written agreement if those modifications or deviations are for a duration of less than two weeks. Notwithstanding the foregoing, Section 9.2 may not be amended by the Parties.

9.4. Deliveries at a Point of Entitlement Delivery shall not be interrupted or curtailed except for reasons of uncontrollable force or maintenance and then only on the same basis as deliveries of firm power from the Federal Columbia River Power System to Pacific Northwest customers of Bonneville Power Administration not acting in its capacity as or on behalf of the U.S. Entity or any successor.

9.5. If any provision of this Agreement is determined to be unenforceable, that provision shall be deemed severed from and shall not affect the enforceability of the remaining provisions.

10. Termination of the Agreement

10.1. In addition to any other rights and remedies available to either Party, either Party may terminate this Agreement if:

(a) performance of either Party under this Agreement is frustrated; or

(b) either Party has breached this Agreement such that substantially the whole benefit from this Agreement is lost to the other Party.

10.2. Frustration under this Agreement shall include, but is not limited to:

(a) any final action by a court of competent jurisdiction, after all appeals have been finally determined or the time for appealing has expired, which invalidates or makes this Agreement unenforceable on the petition of a third party;

(b) any action of the Canadian Government or the United States Government which rescinds either Party's or its successor's authority to perform under this Agreement or a failure to provide a party authorized and able to perform under this Agreement.

IN WITNESS WHEREOF the Parties have caused this Agreement to be executed.

Executed for the Bonneville Power Administration, Acting on Behalf of the U.S. Entity, this 29^th day of March, 1999,

Judith A. Johansen

Administrator and Chief Executive Officer
The Bonneville Power Administration

Executed for the Province of British Columbia this 29^th day of March, 1999.

Michael Farnworth

Minister of Employment and Investment
The Province of British Columbia

II

The Secretary of State of the United States of America to the Ambassador of Canada

DEPARTMENT OF STATE

WASHINGTON, March 31, 1999

His Excellency Raymond Chrétien,
Ambassador of Canada

Excellency:

I have the honor to acknowledge receipt of your Excellency's note of today's date, which reads as follows:

"Excellency,
The Secretary of State,

I have the honour to propose on behalf of the Government of Canada that, in accordance with Article VIII of the Treaty between Canada and the United States of America relating to Cooperative Development of the Water Resources of the Columbia River Basin including its Annexes A and B, signed at Washington, District of Columbia, United States of America on the 17th day of January, 1961, and the Protocol, brought into force by exchange of instruments of ratification and an exchange of notes on September 16, 1964 (hereinafter the "Treaty"), this note and your reply constitute an exchange of notes authorizing disposals from time to time of all or portions of the downstream power benefits to which Canada is entitled under the Treaty (hereinafter the "Canadian Entitlement) within the United States, with delivery and other arrangements for such disposals made in accordance with the attached Disposal Agreement between the Bonneville Power Administration acting on behalf of the U.S. Entity, and the Province of British Columbia (hereinafter the "Disposal Agreement").

Any reduction of the U.S. obligation to deliver the Canadian Entitlement and any delivery of any portion of the Canadian Entitlement by Bonneville in accordance with the Disposal Agreement shall satisfy the United States obligation under Article V of the Treaty to deliver that portion of the Canadian Entitlement to Canada. Any portion of the Canadian Entitlement not subject to such a reduction or not being delivered within the United States pursuant to the Disposal Agreement shall be delivered to Canada at the Canada - United States border in accordance with Article V(2) of the Treaty.

Nothing in this exchange of notes or the Disposal Agreement amends the Treaty or modifies the rights and obligations of either the Government of Canada or the Government of the United States under the Treaty except as authorized pursuant to Article VIII and Article XVI (6) of the Treaty. Any dispute that arises under the Disposal Agreement shall be resolved in accordance with Section 6 thereof, and an arbitration between the Bonneville Power Administration and the Province of British Columbia under Section 6 of the Disposal Agreement shall constitute an alternative procedure under Article XVI (6) of the Treaty for settling differences arising under the Treaty.

Any portion of the Canadian Entitlement received by British Columbia or its assigns within the United States in accordance with the Disposal Agreement has entered commerce in the United States.

This exchange of notes is without prejudice to any rights or obligations that either party may have under the North American Free Trade Agreement or the Canada - United States Free Trade Agreement.

Pursuant to Article XIV(1) of the Treaty, Canada has designated the Province of British Columbia as the Canadian entity for the purpose of Article XIV(2) (i), with effect from today's date. The British Columbia Hydro and Power Authority remains the Canadian Entity for all other purposes of the Treaty. A copy of the designation is enclosed.

The French text of the attached Disposal Agreement shall be verified and agreed upon by April 30, 1999. An agreed French text shall be confirmed by an exchange of letters.

If the above is acceptable to the Government of the United States of America, I have the honour to propose that this note, with the attached Disposal Agreement, which are equally authentic in English and French, and your Excellency's affirmative note in reply shall constitute an agreement between our two Governments which shall enter into force on the date of your note in reply."

On behalf of the Government of the United States of America, I have the honor to accept the proposals in your Excellency's note. Accordingly, your Excellency's note, with the attached Disposal Agreement, and this note shall constitute an Agreement between our two Governments which enters into force today.

Accept, Excellency, the renewed assurances of my highest consideration.

For the Secretary of State:

Stuart E. Eizenstat