REIMBURSEMENT AND INDEMNITY AGREEMENT

Exhibit 10.1

EXECUTION COPY

REIMBURSEMENT AND INDEMNITY AGREEMENT

between

CASCADE NATURAL GAS CORPORATION

and

MBIA INSURANCE CORPORATION

regarding

$30,000,000

Cascade Natural Gas Corporation

5.25% Insured Quarterly Notes (IQ Notes ^SM )

Due February 1, 2035

Dated as of January 25, 2005

TABLE OF CONTENTS

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REIMBURSEMENT AND INDEMNITY AGREEMENT

THIS REIMBURSEMENT AND INDEMNITY AGREEMENT (this “Agreement”) dated as of January 25, 2005 is entered into by and between CASCADE NATURAL GAS CORPORATION, a corporation, duly organized under the laws of the State of Washington, as issuer (the “Issuer”) and MBIA INSURANCE CORPORATION , a stock insurance corporation, duly organized and existing under the laws of the State of New York (“MBIA”).  Capitalized terms not otherwise defined shall have the meanings ascribed thereto in Article I of this Agreement.

RECITALS:

1.                                        Cascade Natural Gas Corporation (the “Issuer”) is a corporation duly organized and existing under the laws of the State of Washington;

2.                                        The Issuer intends to issue certain fixed rate notes (the “Notes”) under the Indenture and has asked MBIA to issue a financial guaranty insurance policy (the “Policy”) insuring certain payments of principal and interest on the Notes without regard to any acceleration of the time of payment of the Notes;

3.                                        The Notes are being issued for the purpose of repaying short-term debt;

4.                                        MBIA has agreed, pursuant to the terms of the MBIA Commitment, to deliver the Policy to the Trustee, but has required that the Issuer undertake certain obligations hereunder in connection therewith; and

5.                                        This Agreement is entered into in order to set forth certain representations, warranties, covenants and other agreements of the Issuer and to evidence and secure the Issuer’s obligation (a) to reimburse MBIA for any payment made by MBIA under the Policy and as provided herein and (b) to indemnify or reimburse MBIA for certain amounts as more fully set forth herein.

In consideration of the premises and the mutual promises set forth below, MBIA and the Issuer agree as follows:

ARTICLE I

DEFINITIONS

Unless the context otherwise requires, the terms defined in this Article I shall, for all purposes of this Agreement, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined.  Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.

“ Agreement ” means this Reimbursement and Indemnity Agreement dated as of January 25, 2005, including any amendments or any supplements hereto as herein permitted.

“ Assets ” means the total amount of all assets as shown on the audited consolidated balance sheet contained in the latest audited financial statements of the Issuer.

“ Asset Sale ” means any asset sale other than (a) the sale or other disposition in the normal course of business, (b) the sale of accounts receivable and other receivables, (c) the sale of capital stock of a Subsidiary other than a Material Subsidiary; or (d) dispositions pursuant to requirements of law or regulatory mandate or order.

 “ Authorized Officer ” means, with respect to the Issuer, the Chief Executive Officer, the Chief Financial Officer any Vice President and any other individual authorized by the Issuer’s Articles of Incorporation or By-Laws to perform the act or sign the document in question.

 “ Business Day ” means any day other than (a) a Saturday or Sunday, (b) a State legal holiday or (c) any day which shall be in the city in which the Trustee, the Tender Agent, the Issuer or MBIA is located, a legal holiday or a day on which banks in any of such cities are required or authorized by law or other government action to close.

“ Consolidated Net Worth ” means the total of the amounts shown on the consolidated balance sheet of the Issuer and its consolidated subsidiaries, determined on a consolidated basis in accordance with generally accepted accounting principles, as (i) the stated value of all outstanding common stock plus (ii)  paid-in capital plus (iii) any accumulated other comprehensive income plus (iv) any retained earnings.

“ Debt ” means all indebtedness of the Issuer for borrowed money evidenced by a note, bond, debenture or similar instrument or other securities or guarantees by the Issuer (without duplication) of any thereof, but excluding any capital lease obligations related to or pursuant to statute, code or a like mechanism whereby the Issuer conveys to and leases from a governmental authority real property and/or improvements.

“Equity ” means total common shareholders’ equity computed in accordance with GAAP.

“GAAP” means generally accepted accounting principles in the United States as in effect from time to time.

“ Indenture ” means the Indenture dated as of August 1, 1992 between the Issuer and the Trustee relating to the Notes, as amended and supplemented including as supplemented by the First Supplemental Indenture dated as of October 25,1993 and as supplemented by the Second Supplemental Indenture dated as of January 25, 2005, each between the Issuer and the Trustee.

“ Issuance Date ” means the date upon which the Policy is issued.

“ Issuer ” means Cascade Nautral Gas Corporation.

“ Lien ” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other) charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever.

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“ Material Subsidiary ” means any Subsidiary with a Net Worth in excess of 20% of Consolidated Net Worth.

“ MBIA ” means MBIA Insurance Corporation, a New York stock insurance corporation.

“ MBIA Commitment ” means the Revised MBIA Insurance Corporation Commitment dated January 21, 2005, relating to the delivery of the Policy.

“ Net Worth ” means the total of the amounts shown on the balance sheet, determined in accordance with generally accepted accounting principles, as (i) the stated value of all outstanding common stock plus (ii) paid-in capital plus (iii) any accumulated other comprehensive income plus (iv) any retained earnings.

“ Notes ” means the $30,000,000 Cascade Natural Gas Corporation Insured Quarterly Notes (IQ Notes ^SM ), Series 2005.

“ Offering Document ” means the Prospectus Supplement dated January 20, 2005, relating to the Notes.

“ Person ” means an individual, corporation, limited liability company, partnership, joint trust venture, trust or incorporated organization, or a government or any agency or political subdivision thereof.

“ Policy ” means any Financial Guaranty Insurance Policies issued by MBIA in connection with the Notes.

“ Prime Rate ” means for any date of determination, the rate of interest as it is publicly announced by Citibank, N.A. at its principal office in New York, New York as its prime lending rate for unsecured commercial loans within the United States (any change in such prime rate of interest to be effective on the date such change is announced by Citibank, N.A.); provided, however, that if Citibank, N.A. ceases to announce a prime lending rate for unsecured commercial loans within the United States, then “Prime Rate” shall mean the average of the prime lending rates for unsecured commercial loans within the United States as announced by three leading commercial banks selected by MBIA from time-to-time.

“ Property ” means any and all property, whether real, personal tangible, intangible, or mixed, or other assets.

“ Regulated Utility Company ” means a corporation (or other entity) engaged in the transmission, distribution, or sale of natural gas, which is regulated, or subject to regulation, by an applicable agency, including a public service commission or public utility commission.

“ Reimbursement Rate ” means for any date of determination, the Prime Rate plus 2%.  The Reimbursement Rate shall be computed on the basis of a year of 365 days calculating the actual number of days elapsed.  In no event shall the Reimbursement Rate exceed the maximum rate permissible under any applicable law limiting interest rates.

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“ Related Documents ” means the Notes, the Indenture, and any other transaction document or agreement contemplated by the Notes or this Agreement.

“ Reorganization ” means any reorganization of the Issuer or any consolidation, merger or transfer of a substantial portion of the assets of the Issuer.

“ State ” means the State of Washington.

“Subsidiary” means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly to indirectly, by the Issuer or by one or more of its Subsidiaries or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interest having ordinary voting power of which shall at the time be so owned or controlled by the Issuer.

“ Total Capitalization ” means Equity, preferred and/or preference stock and Debt of the Issuer, computed in accordance with GAAP.

“ Trustee ” means The Bank of New York.

ARTICLE II

REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE ISSUER

The Issuer represents and warrants to, and covenants with, MBIA that:

(a)                                   The Issuer is organized and is duly established and existing under the laws of the State.

(b)                                  The Issuer has the full power and authority (corporate and other) to execute and deliver this Agreement and to enter into the transactions contemplated by this Agreement and the Related Documents.  The execution and delivery of this Agreement and each of the Related Documents has been duly authorized by the Issuer, and all necessary approvals for the execution, delivery and performance by the Issuer of this Agreement and the Related Documents have been obtained.

(c)                                   The execution and delivery of this Agreement and each of the Related Documents, the consummation of the transactions contemplated hereby and thereby and the fulfillment of or compliance with the terms and conditions of this Agreement and each Related Document by the Issuer do not conflict with or result in any material breach or violation of any of the terms, conditions or provisions of any applicable laws, including regulations, or any material agreement or instrument to which the Issuer is now a party or by which it is bound, or constitutes a default under any of the foregoing which default would materially and adversely affect the consummation of the transactions contemplated hereby and by the terms of the Related Documents.

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(d)                                  This Agreement and each Related Document to which the Issuer is a party, when executed and delivered by the Issuer, assuming the due authorization, execution and delivery by the other parties thereto, constituted and will constitute the legal, valid and binding obligations of the Issuer, enforceable against the Issuer in accordance with their terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally, (ii) general equitable principles, (iii) limitations on enforceability of rights to indemnification by federal or state securities laws or regulations or (iv) public policy.

(e)                                   The Issuer shall provide or cause to be provided to MBIA prior to delivery of the Policy (i) conformed copies of this Agreement and the Related Documents and (ii) such opinions of legal counsel and certified resolutions of the Issuer evidencing necessary or appropriate corporate action by the Issuer, and other documents as may reasonably be requested by MBIA, including documents evidencing any required approvals of the transactions contemplated to be undertaken by the Issuer under this Agreement and the Related Documents.

(f)                                     The Issuer hereby makes to MBIA the same representations, warranties and the same covenants made by the Issuer, as are set forth in each of the Related Documents which representations, warranties and covenants, as well as the related defined terms contained therein, are incorporated herein by this reference with the same limitations imposed in such Related Document but with the same effect as if each and every such representation, warranty and covenant and defined term were set forth herein in its entirety.  Any amendment to such representations, warranties and covenants or defined terms in any of the Related Documents and any termination, defeasance, discharge or replacement of any of the Related Documents shall be effective to amend, terminate, replace or discharge such representations, warranties, covenants and defined terms of the specified documents if adopted in accordance with their respective requirements, but shall not be effective to amend this Agreement without the prior written consent of MBIA if such amendment, termination, replacement or discharge shall materially adversely affect the rights of MBIA hereunder.

(g)                                  The Issuer will deliver to MBIA:

(i)                                      the Issuer shall furnish to the Insurer (to the attention of the Surveillance Department) as soon as practicable after the filing thereof, a copy of each Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed by the Issuer, a copy of any audited financial statements of the Issuer, and any other information reasonably requested, and during any Event of Default by the Issuer, upon receipt by the Issuer, of an accountant’s management letter, the Issuer will forward a copy of such management letter to MBIA;

(ii)                                   simultaneously with the delivery of financial statements referred to in clause (i) above, certificates of an Authorized Officer of the Issuer stating that (A) the Issuer is in compliance with the provisions of Article II of this Agreement and (B) after due inquiry there does not exist on the date of such certificate any event of default or event which with notice or lapse of time or both would

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constitute an Event of Default of which the Issuer is aware or, if any event of default does exist, stating that such event exists and setting forth the details thereof and the action that the Issuer is taking or proposes to take with respect thereto;

(h)                                  The Issuer agrees to permit MBIA, at MBIA’s expense, to examine and inspect, at any reasonable time, upon reasonable notice, the books of record and account of the Issuer relating to its transactions pursuant to the Indenture, and all other records relating to its transactions pursuant to the Indenture and the Notes.

(i)                                      The Issuer warrants that its obligations under this Agreement will remain obligations of a corporation engaged principally in the sale, distribution and/or transmission of natural gas, regulated by the Washington Utilities and Transportation Commission, the Public Utility Commission of Oregon or the utility regulatory body of any other state for so long as such operations and any gas utility companies operating within the State, the State of Oregon and any other state are generally subject to regulation.

(j)                                      Notwithstanding anything to the contrary in the Indenture or any other Related Document, the Issuer hereby agrees that it shall not consent to any acceleration of the Notes, other than redemptions under the Indenture, without the prior written consent of MBIA.

(k)                                   The Issuer agrees not to use MBIA’s name in any public document including, without limitation, a press release or presentation, announcement or forum without MBIA&#821