Avista Corporation Supplemental Executive Retirement Plan

1.1

Purpose . This Avista Corporation Supplemental Executive Retirement Plan (2005 Component) is effective January 1, 2005 and is designed to provide supplemental retirement benefits payable out of the general assets of any Company as provided in Section 4.1. This Plan shall be unfunded for tax purposes and purposes of Title I of ERISA. This Plan is a component of the Avista Corporation Supplemental Executive Retirement Plan.

1.2

Intent . The intent of the Plan is to restore the benefit which would otherwise be payable under the Funded Pension Plan due to the limitations under Code Sections 401(a)(17) and 415 and to restore the benefit which would otherwise be lost thereunder as a result of the Employee’s participation in the Deferred Compensation Plan. In addition, for an Employee who has attained a minimum age of 55 years as well as a minimum 15 years of Vesting Service, this Plan is designed to provide an increased benefit through the Applicable Percent identified in Section 4.1(b) thereof.

2.1

“Actuarial Equivalent” shall mean an actuarial equivalent value of an amount payable in a different form or at a different date computed on the basis of the following actuarial assumptions:

2.2

“Administrator” shall mean, prior to a Change in Control, the Administrator appointed to administer the Funded Pension Plan, as appointed from time to time. Upon and after a Change in Control, Administrator shall mean the person or entity appointed in accordance with Section 5.2.

2.3

Subject to the requirements of Code Section 409A, except as otherwise provided in an agreement between the Company and the Employee and approved by the Compensation & Organization Committee of the Board, “Benefit Service” shall mean the periods of service which are counted for the purposes of determining the amount of benefit earned as defined in Section 4.1 of the Funded Pension Plan.

2.4

“Board” shall mean the Board of Directors of Avista Corporation.

2.5

“Change in Control” shall mean:

(a)

The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2.5; or

(b)

Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors, or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c)

Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d)

Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

2.6

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

2.7

“Company” shall mean Avista Corporation, a Washington corporation, Avista Energy, and any business which assumes the obligations of a Company hereunder.

2.8

“Deferred Compensation Plan” shall mean the non-qualified deferred compensation plan sponsored by Avista Corporation known as the “Avista Corporation Executive Deferral Plan”, which includes the Avista Corporation Executive Deferral Plan (2005 Component) and any predecessor or successor plans thereof.

2.9

“Eligible Dependent Children” shall mean the natural or adopted children of the Employee or the Employee’s Eligible Surviving Spouse who are dependents of and have been dependents of such Employee or spouse throughout the 12 month period preceding the Employee’s death.

2.10

“Eligible Surviving Spouse” shall mean the person to whom the Employee was legally married on his benefit commencement date and at the time of his death has been married for at least 12 months.

2.11

“Employee” shall mean an elected officer of the Company who is a member in the Funded Pension Plan.

2.12

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

2.13

“Final Average Earnings” shall for the purpose of calculating benefits under Section 4.1(a) have the same meaning as the definition in the Funded Pension Plan with the exception that the calculation of the Employee’s annual earnings shall be made without regard to the dollar limitation under Code Section 401(a)(17) and shall include any compensation deferred by the Employee under the Deferred Compensation Plan. The same definition described in the preceding sentence shall be followed in calculating the benefits under Section 4.1(b) with the exception that average earnings shall be determined by referencing the 60 consecutive months in the last 120 months of service for which such average is highest.

2.14

“Funded Pension Plan” shall mean the “Retirement Plan for Employees of Avista Corporation”, as outlined under the terms and provision of the plan document as in effect at the time of the Employee’s Separation from Service.

2.15

“Minimum Survivor Annuity” shall mean an annuity for the life of the Employee’s Eligible Surviving Spouse equal to 50% of the amount that would have been paid to the Employee had the Employee’s benefit been paid in the form of a joint and survivor annuity with a 50% continuance , and in an amount that is the Actuarial Equivalent of the Employee’s benefit determined under Sections 4.1 and 4.2, as applicable, payable in the form of a single life annuity.

2.16

“Plan” shall mean the component of the Avista Corporation Supplemental Executive Retirement Plan set forth in this plan document titled the “Avista Corporation Supplemental Executive Retirement Plan (2005 Component)”, as amended from time to time and that governs benefits that accrue thereunder on and after January 1, 2005.

2.17

“Related Company” shall mean a corporation which is a member of the same controlled group of corporations (as defined in Code Section 414(b)) as Avista Corporation and a trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with Avista Corporation.

2.18

“Separation from Service” means that an Employee has died, retired or otherwise has incurred a termination of employment. An Employee will not incur a Separation from Service while he is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the individual retains a right to reemployment under an applicable statute or