SALES AGENCY AGREEMENT

Exhibit 1.1

SALES AGENCY AGREEMENT

Sales Agency Agreement, dated as of December 22, 2006 (this “Agreement”), between AVISTA CORPORATION, a Washington corporation (the “Company”), and BNY CAPITAL MARKETS, INC., a registered broker-dealer organized under the laws of New York (“BNYCMI”).

W I T N E S S E T H :

WHEREAS, the Company has authorized and proposes to issue and sell in the manner contemplated by this Agreement up to 2,000,000 Shares upon the terms and subject to the conditions contained herein; and

WHEREAS, BNYCMI has been appointed by the Company as its agent to sell the Shares and agrees to use its commercially reasonable efforts to sell the Shares offered by the Company upon the terms and subject to the conditions contained herein.

NOW THEREFORE, in consideration of the premises, representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Certain Definitions . For purposes of this Agreement, capitalized terms used herein and not otherwise defined shall have the following respective meanings:

“Actual Sold Amount” means the number of Issuance Shares that BNYCMI has sold during the Selling Period.

“Affiliate” of a Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first-mentioned Person. The term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Closing” has the meaning set forth in Section 2.02.

“Closing Date” means the date on which the Closing occurs.

“Commission” means the United States Securities and Exchange Commission.

“Commitment Period” means the period commencing on March 12, 2007 and expiring on the earliest to occur of (w) the date on which BNYCMI shall have sold the Maximum Program Amount pursuant to this Agreement, (x) the third anniversary of the date of this Agreement, (y) the effective time of the Share Exchange and (z) the date this Agreement is terminated pursuant to Article VII.

“Common Stock” shall mean the Company’s Common Stock, without par value.

“Effective Date” has the meaning set forth in Section 3.03.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Floor Price” means the greater of (a) the minimum price set by the Company in the Issuance Notice below which BNYCMI shall not sell Shares during the Selling Period, which may be adjusted by the Company at any time during the Selling Period and which in no event shall be less than $1.00 without the prior written consent of BNYCMI, which may be withheld in BNYCMI’s sole discretion and (b) $0.25 below the last sale price at which the Company’s Common Stock were quoted on the record of composite transactions reported by The Wall Street Journal on the business day immediately preceding the day for fixing the price of such Shares.

“Issuance” means each occasion on which the Company elects to exercise its right to deliver an Issuance Notice requiring BNYCMI to use its commercially reasonable efforts to sell the Shares as specified in such Issuance Notice, subject to the terms and conditions of this Agreement.

“Issuance Amount” means the number of Issuance Shares to be sold by BNYCMI with respect to any Issuance, which may not exceed 500,000 Shares during any Selling Period without the prior written consent of BNYCMI, which may be withheld in BNYCMI’s sole discretion.

“Issuance Date” means any Trading Day during the Commitment Period that an Issuance Notice is deemed delivered pursuant to Section 2.03(b) hereof.

“Issuance Notice” means a written notice to BNYCMI delivered in accordance with this Agreement in the form attached hereto as Exhibit A.

“Issuance Price” means the Sales Price less the Selling Commission.

“Issuance Shares” means all Shares issued or issuable pursuant to an Issuance that has occurred or may occur in accordance with the terms and conditions of this Agreement.

“Issuance Supplement” has the meaning set forth in Section 3.01.

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“Material Adverse Effect” means a material adverse effect on the business, financial condition, shareholders’ equity or results of operations of the Company and its Subsidiaries considered as a whole, or any development reasonably expected to result in such material adverse change.

“Material Subsidiary” has the meaning set forth in Section 3.05.

“Maximum Program Amount” means 2,000,000 Shares (or, if less, the aggregate amount of Shares registered under the Registration Statement).

“NYSE” means the New York Stock Exchange.

“Person” means an individual or a corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental authority or other entity of any kind.

“Principal Market” means the NYSE.

“Prospectus” has the meaning set forth in Section 3.01.

“Registration Statement” has the meaning set forth in Section 3.01.

“Representation Date” has the meaning set forth in the introductory paragraph of Article III.

“Rights” means the preferred share purchase rights issued pursuant to the Rights Agreement.

“Rights Agreement” means the Rights Agreement, dated November 15, 1999, between the Company and The Bank of New York, as Rights Agent.

“Sales Price” means the actual sale execution price of each Share sold by BNYCMI on the Principal Market hereunder in the case of ordinary brokers’ transactions, or as otherwise agreed by the parties in other methods of sale.

“Securities Act” means the Securities Act of 1933, as amended.

“Selling Commission” means 1.0% of the Sales Price.

“Selling Period” means the period of one to twenty consecutive Trading Days (as determined by the Company in the Company’s sole discretion and specified in the applicable Issuance Notice) following the Trading Day on which an Issuance Notice is delivered or deemed to be delivered pursuant to Section 2.03(b) hereof.

“Settlement Date” means the third (3rd) Trading Day following the sale of any Issuance Shares pursuant to this Agreement.

“Share Exchange” means the proposed statutory share exchange contemplated in the Plan of Share Exchange, dated as of February 13, 2006, between the Company and AVA Formation Corp.

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“Shares” shall mean shares of the Company’s Common Stock issued or issuable pursuant to this Agreement.

“Subsidiary” has the meaning set forth in Section 3.05.

“Trading Day” means any day which is a trading day on the NYSE, other than a day on which trading is scheduled to close prior to its regular weekday closing time.

“Voting Stock” of any Person as of any date means the capital stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

ARTICLE II

ISSUANCE AND SALE OF SHARES

Section 2.01 (a) General . Upon the terms and subject to the conditions of this Agreement, the Company may sell Shares through BNYCMI and BNYCMI shall use its commercially reasonable efforts to sell Shares, up to the Maximum Program Amount, based on and in accordance with such Issuance Notices as the Company, in its sole discretion, shall choose to deliver during the Commitment Period until the aggregate number of Shares sold under this Agreement equals the Maximum Program Amount or this Agreement is otherwise terminated. In no event will the Company, directly or indirectly, distribute a Prospectus to any prospective investors or sell any shares pursuant to this Agreement prior to March 12, 2007. The Company acknowledges and agrees that (i) there can be no assurance that BNYCMI will be successful in selling Issuance Shares and (ii) BNYCMI will incur no liability or obligation to the Company or any other Person if it does not sell Issuance Shares for any reason other than a failure by BNYCMI to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such Issuance Shares as required under this Section 2.01. In acting hereunder, BNYCMI will be acting as agent for the Company and not as principal.

(b) Issuances . Upon the terms and subject to the conditions set forth herein, on any Trading Day as provided in Section 2.03(b) hereof during the Commitment Period on which the conditions set forth in Section 5.01 and 5.02 hereof have been satisfied, the Company may exercise an Issuance by the delivery of an Issuance Notice, executed by the Chief Executive Officer, the President, the Executive Vice President, the Treasurer or the Assistant Treasurer of the Company, to BNYCMI. Upon the delivery of an Issuance Notice, and unless the sale of the Issuance Shares described therein has been suspended, cancelled or otherwise terminated in accordance with the terms of this Agreement, BNYCMI shall use its commercially reasonable efforts, consistent with its normal trading and sales practices, to sell pursuant to such Issuance not more than the Issuance Amount. Each sale of Issuance Shares will be settled on the applicable Settlement Date following such sale. BNYCMI will provide written confirmation to the Company no later than the opening of the Trading Day next following

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the Trading Day on which it has made sales of Issuance Shares hereunder setting forth the portion of the Actual Sold Amount for such Trading Day, the corresponding Sales Price and the Issuance Price payable to the Company in respect thereof.

(c) Method of Offer and Sale . The Shares may be offered and sold by any method permitted by law and deemed to be an “at-the-market offering” as defined in Rule 415 of the Securities Act, including sales made directly on the Principal Market or through an electronic communications network, or sales made, if and only if the parties hereto have so agreed in writing, to or through a market maker or in privately negotiated transactions. Nothing in this Agreement shall be deemed to require either party to agree to the offering and sale of Shares to or through a market maker or in privately negotiated transactions, and either party may withhold its consent thereto in its sole discretion.

Section 2.02 Effectiveness . This Agreement shall be deemed to become effective (the “Closing”) concurrently with the execution and delivery of this Agreement by the parties hereto and the completion of the closing transactions set forth in the immediately following sentence. At the Closing, the following closing transactions shall take place, each of which shall be deemed to occur simultaneously with the Closing: (i) the Company shall deliver to BNYCMI a certificate executed by the Corporate Secretary or an Assistant Corporate Secretary of the Company, signing in such capacity, dated the date of the Closing (A) certifying that attached thereto are true and complete copies of the resolutions duly adopted by the Board of Directors of the Company authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (including, without limitation, the issuance of the Shares pursuant to this Agreement), which authorization shall be in full force and effect on and as of the date of such certificate and (B) certifying and attesting to the office, incumbency and specimen signatures of each Person who executed the Agreement for or on behalf of the Company; (ii) the Company shall deliver to BNYCMI a certificate executed by the Chief Executive Officer, the President, the Executive Vice President, the Treasurer or the Assistant Treasurer of the Company, signing in such capacity, dated the date of the Closing, confirming that the representations and warranties of the Company contained in this Agreement are true and correct in all material respects and that the Company has performed in all material respects all of its obligations hereunder to be performed on or prior to the Closing Date and as to the matters set forth in Section 5.01(a) hereof; (iii) Marian M. Durkin, Esq., Senior Vice President, General Counsel and Chief Compliance Officer of the Company, shall deliver to BNYCMI an opinion, dated the date of the Closing and addressed to BNYCMI, to the effect set forth in Exhibit B attached hereto; (iv) Dewey Ballantine LLP, counsel to the Company, shall deliver to BNYCMI an opinion (relying for matters of Washington, Idaho, Montana and Oregon law on the opinion of Marian M. Durkin, Esq.), dated the date of the Closing and addressed to BNYCMI, to the effect set forth in Exhibit B attached hereto; and (v) Deloitte & Touche LLP, independent registered public accounting firm for the Company, shall deliver to BNYCMI a letter, dated the Closing Date, in form and substance reasonably satisfactory to BNYCMI covering such matters as are customarily covered in “comfort letters” delivered by independent auditors in public offerings of securities.

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Section 2.03 Mechanics of Issuances . (a)  Issuance Notice . On any Trading Day during the Commitment Period, the Company may deliver an Issuance Notice to BNYCMI, subject to the satisfaction of the conditions set forth in Sections 5.01 and 5.02; provided, however, that (1) the Issuance Amount for each Issuance as designated by the Company in the applicable Issuance Notice shall in no event exceed 500,000 Shares without the prior written consent of BNYCMI, which may be withheld in BNYCMI’s sole discretion, and (2) notwithstanding anything in this Agreement to the contrary, BNYCMI shall have no further obligations with respect to any Issuance Notice if and to the extent the number of Issuance Shares to be sold pursuant thereto, together with the aggregate number of Shares previously sold under this Agreement, shall exceed the Maximum Program Amount.

(b) Delivery of Issuance Notice . An Issuance Notice shall be deemed delivered on the Trading Day that it is received by facsimile, e-mail or otherwise (and the Company confirms such delivery by e-mail notice or by telephone (including voicemail message)) by BNYCMI. No Issuance Notice may be delivered other than on a Trading Day during the Commitment Period. BNYCMI shall comply with such other restrictions and instructions as shall be reasonably requested on the applicable Issuance Notice.

(c) Floor Price . BNYCMI shall not sell Shares below the Floor Price during any Selling Period, and such Floor Price may be adjusted by the Company at any time during any Selling Period upon notice to BNYCMI and confirmation to the Company.

(d) Trading Guidelines . BNYCMI may, to the extent permitted under the Securities Act and the Exchange Act, purchase and sell Common Stock for its own account while this Agreement is in effect provided that (i) no such purchase or sale shall take place while an Issuance Notice is in effect, (ii) in no circumstances shall BNYCMI have a short position in the Common Stock for its own account and (iii) the Company shall not be deemed to have authorized or consented to any such purchases or sales by BNYCMI. In addition, the Company hereby acknowledges and agrees that BNYCMI’s affiliates, subject to compliance with Regulation M under the Exchange Act, may make markets in the Common Stock or other securities of the Company, in connection with which they may buy and sell, as agent or principal, for long or short account, shares of Common Stock or other securities of the Company, at the same time BNYCMI is acting as agent pursuant to this Agreement.

Section 2.04 Use of Free Writing Prospectus . Neither the Company nor BNYCMI has prepared, used, referred to or distributed, or will prepare, use, refer to or distribute without the other party’s prior written consent, any “written communication” which constitutes a “free writing prospectus” as such terms are defined in Rule 405 under the Securities Act.

Section 2.05 Settlements . Subject to the provisions of Article V, on or before each Settlement Date, the Company will cause The Bank of New York, N.A., its transfer agent, to electronically transfer the Issuance Shares being sold by crediting BNYCMI or its designee’s account at The Depository Trust Company (“DTC”) through

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its Deposit/Withdrawal at Custodian System, or by such other means of delivery as may be mutually agreed upon by the parties hereto, and concurrently with the receipt of such Issuance Shares, which in all cases shall be freely tradable, transferable, registered shares in good deliverable form, BNYCMI will deliver the related Issuance Price in same day funds to an account designated by the Company. If the Company defaults in its obligation to deliver Issuance Shares on a Settlement Date, the Company agrees that it will (i) hold BNYCMI harmless against any loss, claim, damage or expense (including, without limitation, penalties, interest and reasonable legal fees and expenses), as incurred, arising out of or in connection with such default by the Company, and (ii) pay to BNYCMI any Selling Commission to which it would otherwise have been entitled absent such default. The individuals listed on Schedule 1 hereto shall be the contact persons for all matters related to the settlement of the transfer of Issuance Shares through the Deposit/Withdrawal at Custodian System for purposes of this Section 2.05.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to, and agrees with, BNYCMI that as of the Closing Date, as of each Issuance Date, as of each Settlement Date and as of any time that the Registration Statement or the Prospectus shall be amended or supplemented (each of the times referenced above is referred to herein as a “Representation Date”), except as may be disclosed in the Prospectus on or before a Representation Date:

Section 3.01 Registration . (a) The Common Stock is registered pursuant to Section 12(b) of the Exchange Act and is currently listed and quoted on the Principal Market under the trading symbol “AVA”, and the Shares have been listed on the Principal Market, subject to notice of issuance. The Company (i) meets the requirements for use of Form S-3 under the Securities Act and the rules and regulations thereunder for the registration of the transactions contemplated by this Agreement and (ii) has been subject to the requirements of Section 12 of the Exchange Act and has timely filed all the material required to be filed pursuant to Sections 13 and 14 of the Exchange Act for a period of more than 12 calendar months. A registration statement on Form S-3 (File No. 333-139239) in respect of the Shares and certain other securities was filed with the Commission in accordance with the provisions of the Securities Act and became effective automatically upon filing; and no other document with respect to the registration statement or documents incorporated by reference therein has heretofore been filed or transmitted for filing with the Commission (other than (x) prospectuses filed pursuant to Rule 424(b) or Rule 433 of the rules and regulations of the Commission under the Securities Act, and (y) Current Reports on Form 8-K, each in the form heretofore delivered to BNYCMI and other than the registration statements referred to in paragraph (b) below). Such registration statement, in the form in which it became effective (including the exhibits thereto, but excluding the Statements of Eligibility on Form T-1) is hereinafter called the “Registration Statement”; and the prospectus relating to the Shares in the form in which it was included in the Registration Statement at the time it became effective, as supplemented by the prospectus supplement containing the plan of distribution of the Shares, in the form in which it is filed with the Commission pursuant

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to Rule 424(b) under the Securities Act and any pricing supplement relating to a particular issuance of the Issuance Shares (each, an “Issuance Supplement”) is hereinafter called the “Prospectus”, except that if any revised prospectus is provided to BNYCMI by the Company for use in connection with the offering of the Shares that is not required to be filed by the Company pursuant to Rule 424(b) promulgated by the Commission under the Securities Act, the term “Prospectus” shall refer to such revised prospectus from and after the time it is first provided to BNYCMI for such use.

(b) Any reference herein to the Registration Statement or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Securities Act, as of the effective date or the date thereof, as the case may be; any reference to any amendment to the Registration Statement shall be deemed to refer to and include any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act, after the effective date of the Registration Statement that is incorporated by reference in the Registration Statement; and any reference to any amendment or supplement to the Prospectus shall be deemed to refer to and include any documents filed after the date of such Prospectus, under the Exchange Act and incorporated by reference in such Prospectus.

(c) Promptly after the execution and delivery of this Agreement, the Company will prepare and file the Prospectus Supplement relating to the Issuance Shares pursuant to Rule 424(b) promulgated by the Commission under the Securities Act, as contemplated by Section 5.01(l) of this Agreement.

Section 3.02 Incorporated Documents . The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus pursuant to Item 12 of Form S-3 (collectively, the “Incorporated Documents”), as of the date filed with the Commission under the Exchange Act, conformed and will conform in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of such documents contained or will contain at such time an untrue statement of a material fact or omitted or will omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

Section 3.03 The Registration Statement . No stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been initiated or, to the best knowledge of the Company, threatened by the Commission. The Registration Statement, as of the Effective Date, conformed or will conform in all material respects to the requirements of the Securities Act, and the rules and regulations of the Commission promulgated thereunder and, as of the Effective Date, does not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, as of its original issue date, as of the date of any filing of an Issuance Supplement thereto pursuant to Rule 424(b) promulgated by the Commission under the Securities Act and as of the date of any other amendment or supplement thereto, conforms or will conform in all material respects to the requirements of the

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Securities Act and the rules and regulations of the Commission promulgated thereunder and, as of such respective dates, does not and will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by BNYCMI expressly for use in the Prospectus. As used herein, with respect to the Registration Statement, the term “Effective Date” means, as of a specified time, the later of (i) the date that the Registration Statement or the most recent post-effective amendment thereto was or is declared effective by the Commission under the Securities Act, (ii) the date that the Company’s Annual Report on Form 10-K for its most recently completed fiscal year is filed with the Commission under the Exchange Act and (iii) each deemed effective date for the Registration Statement with respect to the Company and BNYCMI for the Shares pursuant to Rule 430B(f)(2) of the Securities Act.

Section 3.04 Changes . Since the date of the latest audited financial statements included or incorporated by reference in the Prospectus there has not been any material adverse change in or affecting the business, financial condition, shareholders’ equity or results of operations of the Company and its subsidiaries, considered as a whole, or any development reasonably expected to result in such a material adverse change except as set forth in or contemplated by the Prospectus.

Section 3.05 Organizational Matters . The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Washington, with corporate power and authority to own or lease its properties and conduct its business in all material respects as described in the Registration Statement and the Prospectus; the Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect and, except as set forth in or contemplated by the Prospectus, has all material required approvals and authorizations to own, lease and operate its properties, and to transact an electric and/or gas public utility business in such jurisdictions. Each Material Subsidiary of the Company has been duly incorporated and is validly existing as a corporation and to the extent such concept is applicable, is in good standing under the laws of its jurisdiction of incorporation. As used in this Agreement, the term “Subsidiary” means any Person (other than a natural person), at least a majority of the outstanding Voting Stock of which is owned by the Company, by one or more Subsidiaries or by the Company and one or more Subsidiaries. As of the date of this Agreement, the only Material Subsidiaries of the Company are Avista Capital, Inc. (“Avista Capital”), Avista Energy, Inc. (“Avista Energy”) and Advantage IQ, Inc. (“Advantage IQ”) (each, a “Material Subsidiary”).

Section 3.06 Authorization; Enforceability . The Company has duly authorized, executed and delivered this Agreement. This Agreement constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and by limitations imposed by law and public policy on indemnification, contribution or other exculpation.

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Section 3.07 Capitalization . The Company has an authorized capitalization as set forth in the Prospectus, and all of the outstanding shares of Common Stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable.

Section 3.08 Capitalization of Material Subsidiaries . All of the issued shares of capital stock of Avista Capital, Avista Energy and Advantage IQ have been duly and validly authorized and issued, are fully paid and non-assessable; 1,715,000 shares of Avista Capital’s capital stock are issued and outstanding and the Company is the record and beneficial owner of all shares of such capital stock; 11,822,899 shares of Avista Energy’s capital stock are issued and outstanding and Avista Capital is the record and beneficial owner of 11,801,728 shares of such capital stock; and 29,591,434 shares of Advantage IQ’s capital stock are issued and outstanding (which consist of (i) 2,031,814 shares of non-voting preferred stock and (ii) 27,559,620 shares of common stock) and Avista Capital is the record and beneficial owner of 1,849,698 shares of such preferred stock and 27,540,570 shares of such common stock; and the shares of capital stock of Avista Capital, Avista Energy and Advantage IQ that are owned directly or indirectly by the Company are owned free and clear of all security interests, liens, encumbrances, equities and claims.

Section 3.09 Shares . The Shares have been duly authorized by all necessary corporate action on the part of the Company and, when issued and delivered against payment therefor as provided in this Agreement, the Shares will be validly issued, fully paid and nonassessable, will not be subject to any preemptive or similar rights and will be free and clear of all claims, liens, charges, encumbrances and security interests of any nature whatsoever. The Shares conform in all material respects to the description thereof contained in the Prospectus under the caption “Description of Common Stock.” Except as set forth in the Prospectus, there are no outstanding options, warrants, conversion rights, subscription rights, preemptive rights, rights of first refusal or other rights or agreements of any nature outstanding to subscribe for or to purchase any shares of Common Stock of the Company or any other securities of the Company of any kind binding on the Company (except pursuant to dividend reinvestment, stock purchase or ownership, stock option, director or employee benefit plans) and there are no outstanding securities or instruments of the Company containing anti-dilution or similar provisions that will be triggered by the issuance of the Shares as described in this Agreement. There are no restrictions upon the voting or transfer of any shares of the Company’s Common Stock pursuant to the Company’s Restated Articles of Incorporation or By-laws. There are no agreements or other obligations (contingent or otherwise) that may require the Company to repurchase or otherwise acquire any shares of its Common Stock. No Person has the right, contractual or otherwise, to cause the Company to issue to it, or to register pursuant to the Securities Act, any shares of capital stock or other securities of the Company upon the filing of the Registration Statement or the issuance or sale of the Shares hereunder.

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Section 3.10 No Conflicts . The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not (a) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the imposition of a lien or security interest upon any property or assets used in the conduct of the business of the Company or any Material Subsidiary pursuant to, any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any Material Subsidiary is a party or by which the Company or any Material Subsidiary is bound or to which any of the property or assets used in the conduct of the business of the Company or any Material Subsidiary is subject, (b) result in any violation of the provisions of the Restated Articles of Incorporation or the By-laws of the Company or the organizational documents of any Material Subsidiary, or (c) result in any violation of any applicable statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any Material Subsidiary or any of their properties (except in each case for conflicts, breaches, violations, defaults, liens or security interests that would not have a Material Adverse Effect).

Section 3.11 Consents, Approvals, Authorizations . No consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body is required for the performance by the Company of its obligations under this Agreement, except (1) such as have been, or will have been prior to the Closing Date, obtained under the Securities Act, (2) such consents, approvals, authorizations, orders, registrations or qualifications as may be required by the Washington Utilities and Transportation Commission (the “WUTC”), the Idaho Public Utilities Commission (the “IPUC”) and the Public Utility Commission of Oregon (the “OPUC”) and (3) for such consents, approvals, authorizations, orders, registrations or qualifications as may be required under state securities or blue sky laws, as the case may be.

Section 3.12 Legal Proceedings . Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its Subsidiaries is a party or of which any property of the Company or any of its Subsidiaries is the subject which, if determined adversely to the Company or any of its Subsidiaries, would individually or in the aggregate have a Material Adverse Effect and, to the best of the Company’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others.

Section 3.13 Sale of Shares . Immediately after any sale of Shares by the Company hereunder, the aggregate number of Shares that have been issued and sold by the Company hereunder will not exceed the aggregate amount of Common Stock (x) registered and available under the Registration Statement or (y) that shall be authorized by the WUTC, IPUC and OPUC from time to time (in this regard, the Company acknowledges and agrees that BNYCMI shall have no responsibility for maintaining records with respect to the aggregate number of Shares sold, or of otherwise monitoring the availability of Common Stock for sale, under the Registration Statement or the applicable WUTC, IPUC or OPUC authorizations).

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Section 3.14 Investment Company . The Company is not, and after giving effect to the offering and sale of the Shares, will not be, an “investment company” within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”).

Section 3.15 Financial Condition; No Adverse Changes . (a) The financial statements, together with related schedules and notes, included or incorporated by reference in the Registration Statement and the Prospectus, present fairly the consolidated financial position, results of operations and changes in financial position of the Company and the Subsidiaries on the basis stated therein at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, subject to normal year-end adjustments, except as disclosed therein; and the other financial and statistical information and data included or incorporated by reference in the Registration Statement and the Prospectus are accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company and the Subsidiaries. No other financial statements are required to be set forth or to be incorporated by reference in the Registration Statement or the Prospectus under the Securities Act.

(b) Deloitte & Touche LLP, who have certified certain financial statements of the Company and its Subsidiaries and have audited the Company’s internal control over financial reporting and management’s assessment thereof, is a registered public accounting firm, and is independent with respect to the Company and its Subsidiaries, each within the meaning of the Exchange Act and the rules and regulations of the Commission thereunder and the rules and regulations of the Public Company Accounting Oversight Board;

(c) The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Exchange Act) that comply with the requirements of the Exchange Act and have been designed to ensure that material information relating to the Company and its Subsidiaries is communicated to the Company’s principal executive officer and principal financial officer. The Company’s disclosure controls and procedures were effective as of December 31, 2005.

(d) The Company and its Subsidiaries maintain systems of internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act). The Company’s internal control over financial reporting was effective as of December 31, 2005, and the Company is not aware of any material weaknesses therein. Since the date of the latest audited financial statements included or incorporated by reference in the Prospectus, there has been no change that has materially adversely affected, or is reasonably likely to materially adversely affect, the Company’s internal control over financial reporting.

Section 3.16 Use of Proceeds . The Company will use the net proceeds from the offering of Shares in the manner specified in the Prospectus under “Use of Proceeds.”

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Section 3.17 Environmental Matters . Other than as set forth in the Prospectus, (a) the Company and its Subsidiaries are in compliance in all material respects with all applicable state and federal environmental laws, except for instances of noncompliance that, individually or in the aggregate, would not have a Material Adverse Effect, and (b) no event or condition has occurred that is reasonably likely to interfere in any material respect with the compliance by the Company and its Subsidiaries with any environmental law or that is reasonably likely to give rise to any liability under any environmental law, in each case that, individually or in the aggregate, would have a Material Adverse Effect.

Section 3.18 Rights . The Rights Agreement has been duly authorized, executed and delivered by the Company; when the Rights shall have been issued in accordance with the terms of this Agreement such Rights will constitute legally issued and binding obligations subject to regulatory approval and other conditions specified in the Rights Agreement. The Rights conform in all material respects to the description thereof contained in the Prospectus under the caption “Description of Common Stock.”

Section 3.19 Officer’s Certificate . Any certificate signed by the Chief Executive Officer, the President, the Executive Vice President, the Treasurer or the Assistant Treasurer of the Company and delivered to BNYCMI or to counsel for BNYCMI in connection with an Issuance shall be deemed a representation and warranty by the Company to BNYCMI as to the matters covered thereby on the date of such certificate.

Section 3.20 Finder’s Fees . The Company has not incurred (directly or indirectly) nor will it incur, directly or indirectly, any liability for any broker’s, finder’s, financial advisor’s or other similar fee, charge or commission in connection with this Agreement or the transactions contemplated hereby, except as set forth in this Agreement.

ARTICLE IV

COVENANTS

The Company covenants and agrees during the term of this Agreement with BNYCMI as follows:

Section 4.01 Registration Statement and Prospectus . (i) To make no amendment or supplement to the Registration Statement or the Prospectus (other than (x) an amendment or supplement relating solely to the issuance or offering of securities other than the Shares and (y) by means of an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q or a Current Report on Form 8-K filed with the Commission under the Exchange Act and incorporated or deemed to be incorporated by reference in the Registration Statement or the Prospectus) after the date of delivery of an Issuance Notice and prior to the related Settlement Date(s) that is reasonably disapproved by BNYCMI promptly after reasonable notice thereof; (ii) to prepare, with respect to any Issuance Shares to be sold pursuant to this Agreement, an Issuance Supplement with respect to

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such Issuance Shares in a form previously approved by BNYCMI and to file such Issuance Supplement pursuant to Rule 424(b) promulgated by the Commission under the Securities Act within the time period required thereby, only if delivery and filing of such an Issuance Supplement is required by applicable law or by the rules and regulations of the Commission; (iii) to make no amendment or supplement to the Registration Statement or the Prospectus (other than (x) an amendment or supplement relating solely to the issuance or offering of securities other than the Shares and (y) by means of an Annual Report on Form 10-K, a Quarterly Report on Form 10-Q or a Current Report on Form 8-K filed with the Commission under the Exchange Act and incorporated or deemed to be incorporated by reference in the Registration Statement or the Prospectus) at any time prior to having afforded BNYCMI a reasonable opportunity to review and comment thereon; (iv) to file within the time periods required by the Exchange Act all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act so long as the delivery of a prospectus is required under the Securities Act or under the blue sky or securities laws of any jurisdiction in connection with the offering or sale of the Shares, and during such period to advise BNYCMI, promptly after the Company receives notice thereof, of the time when any amendment to the Registration Statement has been filed with the Commission or has become effective or any supplement to the Prospectus or any amended Prospectus has been filed with the Commission, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any prospectus relating to the Shares, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, of any request by the Commission for the amendment or supplement of the Registration Statement or the Prospectus or for additional information relating thereto, or the receipt of any comments from the Commission with respect to the Registration S