Avista Corporation Executive Deferral Plan

1.1

“Account Balance” shall mean, with respect to a Participant, a credit on the records of the Employer equal to the sum of (i) the Deferral Account balance and (ii) the Company Matching Account balance. The Account Balance, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.

1.2

“Annual Bonus” shall mean any compensation, in addition to Base Annual Salary relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, payable to a Participant as an Employee under any Employer’s annual bonus and cash incentive plans, excluding stock options.

1.3

“Annual Company Matching Amount” for any one Plan Year shall be the amount determined in accordance with Section 3.5.

1.4

“Annual Deferral Amount” shall mean that portion of a Participant’s Base Annual Salary and/or Annual Bonus and/or Performance Award Amount that a Participant elects to have, and is deferred, in accordance with Article 3, for any one Plan Year. In the event of a Participant’s death or other Separation from Service prior to the end of a Plan Year, such year’s Annual Deferral Amount (other than any Performance Award Amount) shall be the actual amount withheld prior to such event.

1.5

“Annual Installment Method” shall be an annual installment form of payment over the number of years selected by the Participant in accordance with this Plan, calculated as follows: (a) during the Plan Year in which such payments begin, each payment shall equal the Account Balance to be distributed under the Annual Installment Method divided by the total number of installment payments to be made; and (b) during the remaining benefit payment period, the amount of each installment to be paid during each such subsequent Plan Year shall equal the remaining Account

Balance as of December 31 of the prior year divided by the number of installment payments to be made in and after such subsequent Plan Year. Notwithstanding the foregoing, the final installment shall be the Participant’s Account Balance as of the date of payment.

1.6

“Base Annual Salary” shall mean the annual cash compensation relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, excluding bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, directors fees and other fees, automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee’s gross income). Base Annual Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant’s gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Employee.

1.7

“Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 7, that are entitled to receive benefits under this Plan upon the death of a Participant.

1.8

“Beneficiary Designation Form” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries.

1.9

“Board” shall mean the board of directors of the Company.

1.10

“Change of 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 1.10; 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.

1.11

“Claimant” shall have the meaning set forth in Section 11.1.

1.12

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

1.13

“Committee” shall mean the committee described in Article 9.

1.14

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

1.15

“Company Matching Account” shall mean (i) the sum of all of a Participant’s Annual Company Matching Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s Company Matching Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Company Matching Account.

1.16

“Deferral Account” shall mean (i) the sum of all of a Participant’s Annual Deferral Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account.

1.17

“Disability” shall mean that a Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months or is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering Employees.

1.18

“Distribution Election Form” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to elect the form and timing of distributions to the Participant under the Plan.

1.19

“Eligible Performance Award” shall mean a Performance Award pursuant to which the Committee, in its sole discretion, has determined the Performance Award Amount to be deferrable in accordance with Article 3.

1.20

“Employee” shall mean a person who is an employee of any Employer.

1.21

“Employer(s)” shall mean the Company and/or any other Related Employer (now in existence or hereafter formed or acquired) that participates in the Plan with respect to its Employees.

1.22

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

1.23

“401(k) Plan” shall be The Investment and Employee Stock Ownership Plan of Avista Corporation, as amended from time to time.

1.24

“LTIPs” shall mean either the Company’s Long Term Incentive Plan or the 2000 Non-Officer Employee Long Term Incentive Plan.

1.25

“Monthly Installment Method” shall be a monthly installment form of payment over the number of months selected by the Participant in accordance with this Plan, calculated as follows: (a) during the Plan Year in which such payments begin, each payment shall equal the Account Balance to be distributed under the Monthly Installment Method divided by the total number of installment payments to be made; and (b) during the remaining benefit payment period, the amount of each installment to be paid during each such subsequent Plan Year shall equal the remaining Account Balance as of December 31 of the immediately preceding Plan Year divided by the number of installment payments to be made in and after such subsequent Plan Year. Notwithstanding the foregoing, the final installment shall be the Participant’s Account Balance as of the date of payment.

1.26

“Participant” shall mean any Employee (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a deferral election form, (iv) whose signed deferral election form is accepted by the Committee, (v) who commences participation in the

Plan, and (vi) whose deferral election form has not terminated. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an account balance under the Plan, even if he or she has an interest in the Participant’s benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce.

1.27

“Payout at a Specified Time” shall mean the payout set forth in Section 4.1.

1.28

“Performance Award” shall mean the grant of an award by the Company to a Participant pursuant to an LTIP.

1.29

“Performance Award Agreement” shall mean the agreement evidencing the grant of a Performance Award.

1.30

“Performance Award Amount” shall mean the total cash amount or cash equivalent earned by a Participant under an Eligible Performance Award upon the achievement of certain performance criteria set forth in the Performance Award Agreement related thereto.

1.31

“Performance Cycle” shall mean that period of time during which a Performance Award may be earned, as set forth in a Participant’s Performance Award Agreement.

1.32

“Plan” shall mean the Company’s Executive Deferral Plan (2005 Component), which shall be evidenced by this document and by each Participant’s deferral election form, as they may be amended from time to time. The Plan is a component of the Avista Corporation Executive Deferral Plan and governs deferrals under such plan that are made with respect to Base Annual Salary, Annual Bonuses and Performance Awards that are earned on and after on January 1, 2005.

1.33

“Plan Year” shall mean a period beginning on January 1 of each calendar year and continuing through the last day of December of the same calendar year.

1.34

“Pre-Termination Survivor Benefit” shall mean the benefit set forth in Article 6.

1.35

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

1.36

“Separation from Service” shall mean 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 contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Employee will return to perform services. Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Employee to be unable to perform the duties of his position of employment or any substantially similar position of employment, a 29 month period of absence is substituted for such six month period.

“Termination of employment” means that it is reasonably anticipated based on the facts and circumstances that an Employee will perform no further services after a certain date or that the

level of bona fide services he would perform after such date would permanently decrease to no more than 20 percent of the average level of bona fide services performed over the immediately preceding 36 month period (or the full period of services if the Employee has been providing services for less than 36 months). An Employee shall incur a Separation from Service when the level of bona fide services performed decreases to a level equal to 20 percent or less of the average level of services performed by him during the immediately preceding 36 month period.

1.37

“Stock” shall mean Avista Corporation common stock, zero par value, or any other equity securities of the Company designated by the Committee.

1.38

“Survivor Benefit Payment Election Form” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to elect the form of payment to his or her Beneficiary in the event of his or her death under Article 6.

1.39

“Termination Benefit” shall mean the benefit set forth in Article 5.

1.40

“Trust” shall mean one or more trusts established pursuant to that certain Master Trust Agreement, effective as of March 1, 2000 between the Company and the trustee named therein, as amended from time to time.

1.41

“Years of Service” shall mean the total number of full years in which a Participant has been employed by one or more Employers. For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Employee’s date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date. Any partial year of employment shall not be counted.

2.1

Selection by Committee . Participation in the Plan shall be limited to a select group of management and highly compensated Employees of the Employers, as determined by the Committee in its sole discretion. From that group, the Committee shall select, in its sole discretion, Employees to participate in the Plan.

2.2

Enrollment Requirements . As a condition to participation, each selected Employee shall complete, execute and return to the Committee a deferral election form, a Distribution Election Form and a Beneficiary Designation Form, all within 30 days after he or she is selected to participate in the Plan. An Employee may not elect to participate in the Plan within the 30 day period described above if on the date he or she becomes eligible to participate he or she already participates in another non-qualified elective “account balance plan” of the Employer (as such term is defined in Treasury Regulation Section 1.409A-1(c)(2)(i)(A), other than a plan described in Treasury Regulation Sections 1.409A-1(c)(2)(i)(D), (E), (F), (G) or (H) relating to separation pay plans, rights to in-kind benefits or reimbursements, split dollar life insurance arrangements, modified foreign earned income, and stock rights). In such case, the Employee may enroll in the Plan for the next following Plan Year. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary.

2.3

Eligibility; Commencement of Participation . Provided an Employee selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period, that Employee shall commence participation in the Plan on the first day of the month following the month in which the Employee completes all enrollment requirements. If an Employee fails to meet all such requirements within the period required, in accordance with Section 2.2, that Employee shall not be eligible to participate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee of the required documents.

3.1

Minimum Deferrals.

(a)

Base Annual Salary and/or Annual Bonus . Prior to each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Annual Salary and/or Annual Bonus in the following minimum amounts for each deferral elected: