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7. Now, therefore, in consideration of the provisions, covenants and conditions herein contained, the parties hereto agree as follows, to wit:

REGULATIONS AND AGENCY CONTRACT

8. (a) This contract is subject to all the terms and provisions of Exhibit 2 hereof which is hereby made a part hereof as fully and completely as though set out herein at length, and this contract is subject to such other rules and regulations as hereafter may be promulgated by the Secretary pursuant to law and to Article 27 of Exhibit 2 hereof.

(b) The State hereby consents that the United States shall, and the United States agrees that it shall, cause the energy agreed to be delivered hereunder to be generated and delivered in accordance with the provisions of Exhibit 1; and the parties hereto agree that the rights and obligations of the State under this contract shall be controlled by the provisions of Exhibit 1 to the extent that such provisions are applicable to the State as an allottee or contractor for electrical energy; provided, however, that in the event that such Exhibit 1 shall be terminated as to either or both of the Operating Agents therein named, the United States thereafter shall itself generate and deliver the energy agreed by the United States to be generated and delivered through the agent or agents as to which said Exhibit 1 shall have been terminated.

DELIVERY OF ENERGY

9. (a) The United States agrees to deliver at transmission voltage at Boulder Power Plant, and the State agrees to take and/or pay for, electrical energy for use by it (directly or under contract) in accordance with the provisions of Article 8 hereof, for the period from the effective date of this contract to May 31, 1987, inclusive, in accordance with notices of withdrawal of energy and notices of relinquishment of energy given as provided in Exhibit 2.

(b) From the effective date of this contract and until Section G-3 has been placed in operation, Section G-1 shall be used for the service of the City, the Municipalities, the United States, the State and such resale consumers of energy allocated to but not taken by The Metropolitan Water District of Southern California as are now served by Section G-1.

After said Section G-3 has been placed in operation, said Section G-1 shall be used solely for the service of the City and the Municipalities and the United States, and said Section G-3 shall be used solely for the service of the City and the United States, except that the States of Nevada and Arizona shall be entitled to generation of electrical energy by means of said Section G-3 up to but not exceeding a combined demand of 44,000 kilowatts, and such resale consumers shall be entitled to generation of electrical energy by means of said Section G-3 up to but not exceeding a combined demand of 6,000 kilowatts plus such portion of said 44,000 kilowatts as is not in use or required by the States; provided, that such resale consumers shall not be entitled to take in excess of 70,000,000 kilowatt-hours of electrical energy in any one year of operation.

The fact that energy generated by means of Section G-3 may in fact reach any of said Municipalities, shall not be deemed to be in violation of the foregoing provisions.

The foregoing provisions of this Article 9 (b) relate only to operating conditions, and are not to be construed as an agreement, contemplated by Article 18 of Exhibit 2, relating to or affecting in any way the apportionment of generating charges. Notwithstanding the operating conditions provided for in this Article 9 (b), generating charges for Sections G-1 and G-3 shall be considered as charges for a single section and shall be apportioned in accordance with the provisions of Article 18 cf Exhibit 2.

DELIVERY OF WATER FOR GENERATION OF ELECTRICAL ENERGY

10. (a) Subject to

(i) The statutory requirement that Boulder Dam and the reservoir created thereby shall be used: First, for river regulation, improvement of navigation, and flood control; second, for irrigation and domestic uses and satisfaction of perfected rights mentioned in Section 6 of the Project Act; and third, for power; and

(ii) the further statutory requirement that this contract is made upon the express condition and with the express covenant that the rights of the State, as a contractor for electrical energy, to the use of the waters of the Colorado River, or its tributaries, shall

be subject to and controlled by the Colorado River Compact; the United States will deliver to the State energy in the manner required by this contract, in the quantity to which the State is entitled hereunder, and in accordance with the State's load requirements,

(b) The United States reserves the right temporarily to discontinue or reduce the delivery of water for the generation of electrical energy at any time for the purpose of maintenance, repairs and/or replacements, or installation of equipment, at the Project, and for investigations and inspections necessary thereto; provided, however, that the United States shall, except in case of emergency, give to the State reasonable notice in advance of such temporary discontinuance or reduction, and that the United States shall make such inspections and perform such maintenance and repair work, after consultation with the State, at such times and in such manner as to cause the least inconvenience to the State, and that the United States shall prosecute such work with diligence, and, without unnecessary delay, resume delivery of water so discontinued or reduced.

(c) Should the delivery of water, for any reason or cause, other than any act or omission of the State, be discontinued or reduced below the amount required for the generation of firm energy in accordance with the provisions of this contract, the total number of hours of such discontinuance or reduction in any year shall be determined by taking the sum of the number of hours during which the delivery of water is totally discontinued, plus the product of the number of hours during which the delivery of water is partially reduced and the percentage of said partial reduction below the actual quantity of water required for generation of firm energy. Total or partial reductions in the delivery of water which do not reduce the power output below the amount required at the time for generation of firm energy will not be considered in determining the total hours of discontinuance in any year. The minimum annual payment specified in Article 14 hereof shall be reduced by the ratio that the total number of hours of such discontinuance bears to eight thousand seven hundred sixty (8,760).

(d) In no event shall any liability accrue against the United States, its officers, agents and/or employees, for any damage, direct or indirect, arising on account of drought, hostile diversion, Act of God, or the public enemy, or other similar cause; nevertheless interruptions in delivery of water occasioned by such causes shall be governed as provided in this Article 10. In the event of shortage of electrical energy at Boulder Power Plant due to shortage of water, the available electrical energy shall be prorated among all allottees concerned, on the basis of their respective obligations to take and/or pay for firm energy in the year of operation in which the shortage occurs.

MEASUREMENT OF ENERGY

11. All electrical energy shall be measured at generator voltage. Suitable correction shall be made in the amounts of energy as measured at generator voltage to cover step-up transformer losses. The electrical energy delivered hereunder during any period in which the meters furnished to measure such electrical energy fail to register shall, for billing purposes, be estimated from the best information available. The testing of meters and calibration of testing equipment shall be in accordance with Article 19 of Exhibit 1. If said exhibit should be terminated the same provisions shall apply as nearly as may be.

ENERGY RATES AND GENERATING CHARGES

12. The rates and charges to be paid by the State for electrical energy under this contract shall be in accordance with those specified in Exhibit 2.

BILLING AND PAYMENTS

13. (a) The State shall pay monthly for electrical energy and for the generation thereof in accordance with the energy rates and generating charges specified in Exhibit 2. The energy bill for each month shall be computed at the rate for firm energy in effect when such energy was taken on the basis of the actual amount of energy used during such month; provided, however, that the bill for energy for the month of May of each year shall not be less than the difference between the minimum annual energy payment, as provided in Article 14 hereof, and the sum of the amounts charged for firm energy during the preceding eleven months. The United States will submit bills to the State by the tenth of each month immediately following the month during which the energy was generated, and payments shall be due on the first day of the month immediately succeeding. If such charges (less proper and applicable credits) are not paid when due an interest charge of one per centum (1%) of the amount unpaid shall be added thereto, and thereafter an additional interest charge of one per centum (1%) of the principal sum unpaid shall be added on the first day of each succeeding calendar month until the amount due, including such interest, is paid in full, but nothing contained in this article shall be construed as in any manner abridging, limiting, or depriving the United States of any means of enforcing any remedy either at law or in equity for the breach of any of the provisions hereof which it would otherwise have.

(b) In accordance with the provisions of Section 4 (b) of the Adjustment Act, in the event payments to the States of Arizona and Nevada, or either of them, under Section 2 (c) of the Adjustment Act, shall be reduced by reason of the collection of taxes mentioned in said section, adjustments shall be made, from time to time, with each allottee which shall have paid any such taxes, by credits or otherwise, for that proportion of the amount of such reductions which the amount of the payments of such taxes by such allottee bears to the total amount of such taxes collected.

MINIMUM ANNUAL PAYMENTS

14. The minimum quantity of firm energy which the State shall take and/or pay for at firm energy rates in each year of operation under the terms of this contract shall be the total kilowatt hours stated in notices of withdrawal which are in effect as of June 1 of
such year of operation as properly adjusted to account for the number
of kilowatt hours for the remainder of such year of operation added
or subtracted by notices of withdrawal or relinquishment becoming
effective during such year of operation. No period of less than one
day will be considered in making such adjustments. The total
amount of energy for which notices of withdrawal are in effect as of
June 1, 1941, shall be thirty-five million eight hundred thousand
(35,800,000) kilowatt-hours. The minimum annual energy payment
shall be reduced in case of interruptions or curtailment of delivery
of water as provided in Article 10 hereof.

CONTINGENT ON FINAL EFFECTIVENESS OF ADJUSTMENT ACT

15. This contract shall not become effective unless and until the
Adjustment Act shall have taken effect for all purposes pursuant to
the provisions of Section 10 thereof, but thereupon this contract
shall be fully effective and binding upon the parties hereto as of
midnight, Pacific Standard Time, on the last day of the calendar
month in which the Adjustment Act shall have become fully effective.
The original contract between the parties hereto shall terminate as
of such effective date.

If the Adjustment Act shall not have taken effect for all purposes
prior to June 1, 1941, this contract shall be null, void, and of no force
or effect.

DURATION OF CONTRACT

16. This contract shall remain in effect to and including May 31,
1987, unless sooner terminated as elsewhere herein provided The
State, if this contract has not been terminated prior to said date,
shall be entitled to a renewal hereof upon such terms and conditions
as may be authorized or required under the then existing laws and
regulations, unless the property of the State dependent for its use-
fulness on a continuation of this contract be purchased or acquired,
and the State be compensated for damages to its property, used and
useful in the transmission and distribution of such electrical energy
and not taken, resulting from the termination of the supply.

NO ENERGY TO BE DELIVERED WITHOUT PAYMENT

17. Unless an extension of time for payment has been first obtained
from the Secretary, in writing, no energy shall be generated for, or
delivered to, the State if it shall be in arrears for more than twelve
(12) months in the payment of any charge due to the United States
hereunder.

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