US GEOTHERMAL INC (Form: SB-2, Received: 10/02/2006 06:05:17)

March 31,

Common shares

2,150,309

Share purchase warrants

As Filed with the Securities and Exchange Commission on September 29, 2006
Registration No. 333- ·

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
__________________

U.S. GEOTHERMAL INC.
(Name of small business issuer in its charter)

Delaware	4911	84-1472231

	(Primary Standard Industrial	(IRS Employer Identification
(State of incorporation)	Classification Code Number	Number)

1509 Tyrell Lane, Suite B,
Boise, Idaho 83706
( 208) 424-1027
(Address and telephone number of principal executive office and principal place of business)

_______________

Daniel Kunz
Chief Executive Officer
1509 Tyrell Lane, Suite B,
Boise, Idaho 83706
( 208) 424-1027
(Name, address, and telephone number of agent for service)

Copy to:

Christopher J. Barry
Dorsey & Whitney LLP
1420 Fifth Avenue
Suite 3400
Seattle, WA 98101 USA
(206) 903-8800
___________________

Approximate Date of Proposed Sale to the Public: As soon as practicable after this Registration Statement has become effective.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ]

CALCULATION OF REGISTRATION FEE

Title of each class of		Proposed maximum	Proposed maximum
securities to be	Dollar amount to be	offering price per	aggregate offering	Amount of
registered	registered ⁽²⁾	unit ⁽¹⁾	price	registration fee

Common Shares	32,537,079	$0.975	$31,723,652.03	$3,394.43

(1)	The registration fee has been calculated in accordance with Rule 457(c). On September 27, 2006, the average of the high and low prices for the Registrant's common stock on the Over-The-Counter Bulletin Board was $0.975.
(2)	Plus such additional shares as may be issued pursuant to anti-dilution provisions of the currently outstanding options, the shares resulting from the exercise of which are included in this prospectus.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information contained in this prospectus is not complete and may be changed. The selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these shares, and the Selling Shareholders are not soliciting an offer to buy these shares in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED September 29, 2006

U.S. GEOTHERMAL INC.

PRELIMINARY PROSPECTUS

This prospectus relates to the resale of up to 32,537,079 shares of our common stock by the selling security holders named in this prospectus from time to time. The shares of common stock offered for resale hereby consist of 28,155,951 shares which are currently issued and outstanding and 4,381,128 shares issuable upon exercise of currently outstanding options and warrants.

We will not receive any of the proceeds from the sale of the shares sold pursuant to this prospectus, other than the exercise price to be received upon exercise, if any, of the options and warrants.

Our common stock is traded in Canadian dollars on the TSX Venture Exchange under the symbol “GTH” and in U.S. dollars on the Over-The-Counter Bulletin Board under the symbol “UGTH”. On September 27, 2006, the closing price of our common stock on the TSX Venture Exchange was Cdn$1.06, and the closing price of our common stock on the Over-The-Counter Bulletin Board was $0.96. The exchange rate on that date was Cdn$1.00 = $0.8994.

__________________

The securities offered in this prospectus involve a high degree of risk. You should carefully read and consider the “Risk Factors” commencing on page 7 when determining whether to purchase any of the securities.

____________________

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

____________________

We expect that these shares of common stock may be sold or distributed from time to time by or for the account of the holders through underwriters or dealers, through brokers or other agents, or directly to one or more purchasers, including pledgees, at market prices prevailing at the time of sale or at prices otherwise negotiated. The shares also may be sold by donees or by other persons acquiring the shares. The holders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.

______________________

The date of this prospectus is September 29, 2006.

TABLE OF CONTENTS

EXCHANGE RATE INFORMATION	4
PROSPECTUS SUMMARY	5
RISK FACTORS	7
FORWARD-LOOKING STATEMENTS	13
THE COMPANY AND ITS BUSINESS	14
MARKET FOR COMMON STOCK	31
DIVIDEND POLICY	32
MANAGEMENT	33
EXECUTIVE COMPENSATION	35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	36
BENEFICIAL OWNERSHIP OF SECURITIES	37
SELLING SECURITY HOLDERS	38
USE OF PROCEEDS	41
PLAN OF DISTRIBUTION	41
LEGAL PROCEEDINGS	42
DESCRIPTION OF SECURITIES	42
CAPITALIZATION	43
INDEMNIFICATION OF OFFICERS AND DIRECTORS	43
LEGAL MATTERS	43
EXPERTS	43
MANAGEMENT'S PLAN OF OPERATION	44
CHANGES IN ACCOUNTANTS	49
WHERE YOU CAN FIND MORE INFORMATION	49
INDEX TO FINANCIAL STATEMENTS	50

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from the information contained in this prospectus. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of when this prospectus is delivered or when any sale of our common stock occurs.

In this prospectus, unless otherwise noted, the terms “we”, “our” and “us” refer to U.S. Geothermal Inc. Unless the context otherwise requires, references to our company and its operations include the operations of our consolidated subsidiaries. All references to “dollars” or “$” are to United States dollars and all references to Cdn$ are to Canadian dollars.

EXCHANGE RATE INFORMATION

The following table sets forth, for each period indicated, the high and low exchange rates for United States dollars expressed in Canadian dollars, the average of the exchange rates on the last day of each month during this period, and the exchange rate at the end of the period. These rates are based on the noon buying rate in The City of New York for cable transfers in United States dollars as certified for customs purposes by the Federal Reserve Bank of New York:

	Fiscal Year Ended March 31			Three Months Ended June 30
	2004	2005	2006	2005	2006
Rate at the end of period	1.3100	1.2094	1.1670	1.2256	1.1150
Average rate during period	1.3541	1.2791	1.1938	1.2438	1.1219
Highest rate during period	1.4843	1.3970	1.2703	1.2703	1.1718
Lowest rate during period	1.2690	1.1775	1.1320	1.2146	1.0989

On September 27, 2006, the noon buying rate was $1.00 per Cdn$1.1119.

PROSPECTUS SUMMARY

The following is a summary of us and our business and should be read together with the more detailed information and financial data and statements contained in this prospectus. This summary does not contain all of the information you should consider before investing in our securities. You should read this entire prospectus carefully, especially the risks of investing in our securities discussed under “Risk Factors,” before making an investment decision.

Our Business

U.S. Geothermal Inc. is engaged in the acquisition, development and exploitation of geothermal resources. Our principal focus is the development of the Raft River project, a geothermal project encompassing approximately 8.4 square miles of land located at Raft River, Idaho. Geothermal energy is the natural heat energy stored within the earth’s crust. In some areas of the earth, economic concentrations of heat energy result from a combination of geological conditions that allow water to penetrate into hot rocks at depth, become heated, and then circulate to a near surface environment. In these settings, commercially viable extraction of the geothermal energy and its conversion to electricity become possible and a “geothermal resource” is present.

Our activities to date have primarily focused on determining whether the Raft River project can produce geothermal energy on an economic basis. Extensive testing in the area indicates that a potentially commercially viable geothermal reservoir is available.

We intend to develop the Raft River project in two or more phases. For Phase 1 of development at Raft River, we intend to commercialize the existing production wells and energy field by construction and operation of a 13 megawatt binary cycle geothermal power plant that will provide the energy to be delivered under a power purchase agreement with Idaho Power Company. We have signed an engineering, procurement and construction agreement for the first power plant, and bids have been solicited from several engineering firms to provide engineering, procurement and construction services on all remaining aspects of Phase 1 that are not included in this agreement. Final engineering, equipment procurement and construction is anticipated to take approximately 14 to 16 months from April 25, 2006, and the initial power plant is anticipated to begin production by the end of the third quarter of 2007. The total Phase 1 construction and development costs are expected to be $39 million for the construction of a binary cycle geothermal power plant capable of producing 13 megawatts of power. We have completed project financing for Phase 1 of the Raft River project, whereby Raft River I Holdings, LLC, a subsidiary of The Goldman Sachs Group Inc., will contribute $34 million in cash and we will contribute $5 million in cash and approximately $1.5 million in property to Raft River Energy I LLC, the Phase 1 project joint venture company.

Phase 2 will involve the construction and operation of two additional 13 megawatt power plants. Strong regional interest in geothermal power has resulted in several utilities entering into discussions with us to purchase the electrical power output from the two additional plants. Subject to drilling confirmation of the availability of sufficient geothermal resource, the output from all three power plants at Raft River could be as much as 39 megawatts.

Please see the more detailed discussion of our business starting at page 14 for more information about the Raft River project.

We are still a development stage company and have produced no revenues to date.

Our principal executive office is located at 1509 Tyrell Lane, Suite B, Boise, Idaho 83706. Our telephone number there is 208-424-1027 and our fax number is 208-424-1030.

Our internet address is www.usgeothermal.com . The information contained on our website is not incorporated by reference in this prospectus and should not be considered a part of this prospectus.

The Offering

Shares Outstanding	As at September 27, 2006, we had outstanding (i) 43,698,844 shares of common stock, (ii) compensation options to purchase 1,522,500 units, with each unit consisting of one share of common stock, and (iii) options to purchase 2,858,628 shares of common stock. If all of our outstanding warrants and options were exercised, we would have 48,079,972 shares of common stock outstanding.


Shares Offered	Up to 32,537,079 shares of common stock are to be offered by the selling security holders as follows:

28,155,951 of which are currently issued and outstanding;
2,858,628 of which will be issued upon exercise of our outstanding options; and
1,522,500 of which will be issued upon exercise of our outstanding compensation options to purchase units.

Use of Proceeds

We will not receive any of the proceeds from the sale of shares of common stock offered in this prospectus, other than the exercise price to be received upon exercise, if any, of warrants and options.

Summary Historical Financial Data

The summary historical financial information presented below has been derived from our financial statements for each of the years ended March 31, 2006 and 2005, and through the three months ended June 30, 2006 and 2005.

	Year ended March 31		Three months ended June 30
Statement of Operations Data	2006	2005	2006	2005
	Audited		Unaudited
Revenues	$0	$0	$0	$0
Total expenses	$1,523,385	$1,830,421	$372,486	$416,752
Net loss	$1,523,385	$1,830,421	$372,486	$416,752
Net loss per share	$0.09	$0.12	$0.01	$0.02
Weighted average number of shares	17,797,637	15,209,468	43,283,844	17,347,253
– basic and diluted

	Year ended March 31		Three months ended June 30
Balance Sheet Data	2006	2005	2006	2005
	Audited		Unaudited
Cash and cash equivalents	$20,158,389	$1,957,075	$17,172,400	$1,380,742
Working capital (deficiency)	$19,888,904	$1,824,167	$16,692,680	$1,332,290
Total assets	$21,895,933	$2,584,970	$22,225,825	$2,018,452
Stockholders’ equity (deficit)	$21,615,019	$2,419,868	$21,702,583	$1,928,850

RISK FACTORS

An investment in shares of our common stock involves a high degree of risk. You should consider the following factors, in addition to the other information contained in this prospectus, in evaluating our business and proposed activities before you purchase any shares of our common stock. You should also see the section on Forward-Looking Statements immediately following these Risk Factors regarding risks and uncertainties relating to us and to forward looking statements in this prospectus.

Risks Relating To Our Business

We have a limited operating history, have incurred losses to date, and cannot give any assurance that we can ever attain profitability.

We have been engaged in limited activities in the geothermal business to date. As a result of our brief operating history, our operating results from historical periods are not readily comparable to, and may not be indicative of, future results. We have not generated revenues from operations to date, and cannot give any assurance that we will be able to generate revenues in the future. For the years ended March 31, 2003, 2004, 2005 and 2006, we incurred net losses of $164,909, $676,398, $1,830,421, and $1,523,385 respectively. At March 31, 2005 and March 31, 2006, we had accumulated deficits of $3,709,150 and $5,232,535, respectively. We expect to incur losses for at least the next 18 months and maybe longer. We cannot give you any assurance that we will soon make a profit or that we will ever make a profit.

Our future performance depends on our ability to establish that the geothermal resource is economically sustainable.

Geothermal resource exploration and development involves a high degree of risk. The recovery of the amounts shown for geothermal properties and related deferred costs on our financial statements, as well as the execution of our business plan generally, is dependent upon the existence of economically recoverable and sustainable reserves. While testing carried out in the Raft River area by various government organizations in the past and by us since our acquisition of the property interests comprising the Raft River project, as well as the reports prepared by GeothermEx Inc., support the existence of a geothermal resource, whether this resource is economically recoverable depends on a number of factors, including:

the heat content of the extractable steam or fluids;
the geology of the reservoir;
the total amount of recoverable resource;
operating expenses relating to the extraction of steam or fluids;
price levels relating to the extraction of steam or fluids or power generated; and
capital expenditure requirements relating primarily to the drilling of new wells.

In connection with each geothermal power plant, we must estimate the productivity of the geothermal resource and the expected decline in productivity over time. The productivity of a geothermal resource may decline more than anticipated, resulting in insufficient resource being available for sustained generation of the electrical power capacity desired. An incorrect estimate by us or an unexpected decline in productivity could, if material, adversely affect our results of operations or financial condition.

Geothermal reservoirs are highly complex. As a result, there exist numerous uncertainties in determining the extent of the reservoirs and the quantity and productivity of the steam reserves. Reservoir engineering is an inexact process of estimating underground accumulations of steam or fluids that cannot be measured in any precise way, and depends significantly on the quantity and accuracy of available data. Estimates of reserves are generally revised over time on the basis of the results of drilling, testing and production that occur after the original estimate was prepared. Accordingly, there is a risk of an unexpected decline in the capacity of geothermal wells and a risk of geothermal reservoirs not being sufficient for sustained production of power at expected levels. We cannot assure you that we will be able to accurately estimate the quantity or productivity of our steam reserves.

We have a need for substantial additional financing and will have to significantly delay, curtail or cease operations if we are unable to secure this financing.

We require substantial additional financing to fund the cost of continued development of future Phases of the Raft River project and other operating activities, and to finance the growth of our business, including the construction and commissioning of additional power generation facilities. We may not be able to obtain the needed funds on terms acceptable to us or at all. Further, if additional funds are raised by issuing equity securities, significant dilution to our current shareholders may occur and new investors may get rights that are preferential to current shareholders. Alternatively, we may have to bring in additional joint venture partners to fund further development work, which would result in a further reduction in our interest in the Raft River project.

It is very costly to place geothermal resources into commercial production.

Before the sale of any power can occur from Phase 1 of the Raft River project, it will be necessary to construct a gathering and disposal system, a power plant, and a transmission line, and considerable administrative costs would be incurred, together with the drilling of additional wells. We have estimated these costs to be around $39,000,000 to be incurred over an eighteen month period. To fund expenditures of this magnitude, we have involved a joint venture participant with substantial financial resources, effectively reducing our interest in the Raft River project. Phase 2 will require investments of comparable or greater magnitude, and may require further involvement of joint venture participants. There can be no assurance that these participants can be found and, if found, their involvement would result in us having to substantially reduce our interest in the project.

We may experience project development risks.

Project development involves significant environmental, engineering and construction risks. Our ability to develop the Raft River project is dependent on a number of other factors outside our control, including obtaining power sales agreements, fuel supply and transportation agreements, electrical transmission agreements, site agreements and construction contracts. We cannot assure you that we will be successful in obtaining these agreements. The Raft River project is still in the planning and development stage and we have not signed power sales agreements for all Phases of the Project.

The construction and operation of power generation facilities require numerous permits, approvals and certificates from appropriate federal, state and local governmental agencies, as well as compliance with environmental protection legislation and other regulations. There can be no assurance that we will be able to obtain all necessary licenses, permits, approvals and certificates for the Raft River project or that the completed power plants will comply with all applicable permit conditions, statutes or regulations. In addition, regulatory compliance for the construction of new power generation facilities is a costly and time consuming process, and intricate and changing environmental and other regulatory requirements may necessitate substantial expenditures for permitting and may create a significant risk of expensive delays or significant loss of value in the Raft River project if the Project is unable to function as planned due to changing requirements.

Actual costs of construction or operation of a power plant may exceed estimates used in negotiation of power purchase agreements.

Our initial power purchase agreement is under rates established by the Idaho Public Utility Commission, using an “avoided-cost” model for cost of construction and operating costs of a power plant. If the actual costs of construction or operations exceed the model costs, we may not be able to build the contemplated power plant, or if constructed, may not be able to operate profitably.

New projects are subject to risks associated with the construction of power plants including risks of delays in completion, cost overruns and failures of the construction contractors to perform in accordance with contract terms. Although the engineering, procurement and construction agreement that we have signed for the development of the first power plant is for a fixed price with performance warranties, there are other aspects of development of Phase 1 of the Raft River project that are not covered by this agreement. In addition, the terms of the agreements that we have entered into for the financing of Phase 1 stipulate that we are responsible for any cost overruns in the development. If the other aspects of Phase 1 of the project are not developed under fixed price contracts, or if the performance warranties and other terms are not met by the contractor under the existing agreement, we may face

delays, cost overruns, or unsatisfactory work in completion of Phase 1 of the project, which would, in turn, hurt our results of operations, and our financial position.

We may not be able to manage our growth.

Significant growth in our operations will place demands on our operational, administrative and financial resources, and the increased scope of our operations will present challenges to us due to increased management time and resources required and our existing limited staff. Our future performance and profitability will depend, in part, on our ability to successfully integrate the operational, financial and administrative functions of the Raft River project and other acquired properties into our operations, to hire additional personnel and to implement necessary enhancements to our management systems to respond to changes in our business. There can be no assurance that we will be successful in these efforts. Our inability to integrate acquired properties, to hire additional personnel or to enhance our management systems could have a material adverse effect on our results of operations.

If we incur material debt to fund our business, we could face significant risks associated with this debt.

We will need to procure significant additional financing to construct, commission and operate additional power plants at Raft River in order to generate and sell electricity. If this financing includes the issuance of material amounts of debt, this would expose us to risks including, among others, the following:

a portion of our cash flow from operations would be used for the payment of principal and interest on indebtedness and would not be available for operating expenses, capital expenditures or other purposes;
a significant level of indebtedness and the covenants governing this indebtedness could limit our flexibility in planning for, or reacting to, changes in our business because some activities or financing options may be limited or prohibited under the terms of agreements relating to this indebtedness;
a significant level of indebtedness may make us more vulnerable to defaults by the purchasers of electricity or in the event of a downturn in our business because of fixed debt service obligations; and
the terms of agreements may require us to make interest and principal payments and to remain in compliance with stated financial covenants and ratios. If the requirements of these agreements were not satisfied, the lenders would be entitled to accelerate the payment of all outstanding indebtedness and foreclose on the collateral securing payment of that indebtedness, which would likely include our interest in the project.

In this event, we cannot assure you that we would have sufficient funds available or could obtain the financing required to meet our obligations, including the repayment of outstanding principal and interest on this indebtedness.

We will depend upon a limited number of parties to power sales agreements. Revenues under power sales agreements may be difficult to predict.

Our power generation facilities will rely for revenue on one or more power sales agreements with one or more utility or other customers, such as Idaho Power Company, for substantially all of our revenue. The loss of any one power sales agreement with any of these customers could have a negative effect on our financial position and our results of operations. In addition, any material failure by any customer to fulfill its obligations under a power sales agreement could have a negative effect on our results of operations.

The energy payments under the power purchase agreement with Idaho Power Company depend, or will in the future depend, at least in part, on the cost that Idaho Power Company avoids by purchasing energy from the Phase 1 power plant of our Raft River project instead of obtaining the energy from other sources. Estimates of Idaho Power Company's avoided costs vary substantially and we cannot predict the level of payments to be made in the future under these power purchase agreements. These future payments may be lower than as contemplated by the projections. In addition, under the terms of our initial power purchase agreement with Idaho Power Company, if we do not deliver electricity output within 90% to 110% of our forecasted amount, payments for the amount delivered will be reduced, possibly significantly. If we consistently forecast our output incorrectly, our revenues will be reduced, and we may not be able to operate the Raft River project profitably.

The success of our business relies on retaining our key personnel.

We are dependent upon the services of our President and Chief Executive Officer, Daniel J. Kunz, our Chief Financial Officer, Kerry D. Hawkley, our Chief Operating Officer, Douglas J. Glaspey, and Kevin Kitz, our Vice President – Project Development. The loss of any of their services could have a material adverse effect upon us. We have executed employment agreements with these persons but do not have key-man insurance on any of them.

Our development activities are inherently very risky.

The development of a geothermal resource is such that there cannot be any assurance of success. Exploration costs are not fixed, and the resource cannot be relied upon until substantial development has taken place, which entails high exploration and development costs. The costs of development drilling are subject to numerous variables which could result in substantial cost overruns. Drilling for geothermal resource may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs.

Our drilling operations may be curtailed, delayed or cancelled as a result of numerous factors, many of which are beyond our control, including economic conditions, mechanical problems, title problems, weather conditions, compliance with governmental requirements and shortages or delays of equipment and services. If our drilling activities are not successful, we would experience a material adverse effect on our future results of operations and financial condition.

In addition to the substantial risk that wells drilled will not be productive, or may decline in productivity after commencement of production, hazards such as unusual or unexpected geologic formations, pressures, downhole fires, mechanical failures, blowouts, cratering, explosions, uncontrollable flows of well fluids, pollution and other physical and environmental risks are inherent in geothermal exploration and production. These hazards could result in substantial losses to us due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. We do not fully insure against all risks associated with our business either because insurance is not available or because the cost of coverage is considered prohibitive. The occurrence of an event that is not covered, or not fully covered, by insurance could have a material adverse effect on our financial condition and results of operations.

The impact of governmental regulation could adversely affect our business.

Our business is subject to federal, state and local laws and regulations, including laws and regulations on taxation, the exploration for and development, production and distribution of electricity, and environmental and safety matters. Many laws and regulations require drilling permits and govern the spacing of wells, rates of production, prevention of waste and other matters. These laws and regulations may increase the costs and timing of planning, designing, drilling, installing, operating and abandoning our geothermal wells, the power plant and other facilities. In addition, our operations are subject to complex environmental laws and regulations adopted by federal, state and local jurisdictions where we operate. We could incur liability to governments or third parties for any unlawful discharge of pollutants into the air, soil or water, including responsibility for remedial costs. We could potentially discharge materials into the environment in any of the following ways:

from a well or drilling equipment at a drill site;
leakage from gathering systems, pipelines, power plant and storage tanks;
damage to geothermal wells resulting from accidents during normal operations; and
blowouts, cratering and explosions.

In addition, the submission and approval of environmental impact assessments may be required. Environmental legislation is evolving in a manner which means stricter standards, and enforcement, fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations.

Because the requirements imposed by these laws and regulations are frequently changed, we cannot assure you that laws and regulations enacted in the future, including changes to existing laws and regulations, will not adversely affect our business. In addition, because we acquire interests in properties that have been operated in the past by others, we may be liable for environmental damage caused by former operators.

We may lose our status as a “qualifying facility”.

Under present federal law, we are not and will not be regulated as a holding company under the Public Utility Holding Company Act of 1935 as long as each power plant in which we have an interest is a qualifying facility under the Public Utility Regulatory Policies Act of 1978. A qualifying facility that is a cogeneration facility must produce not only electricity but also thermal energy for use in an industrial or commercial process or heating or cooling applications in specified proportions to the facility's total energy output and must meet specified energy efficiency standards. Under the Public Utility Regulatory Policies Act of 1978, a regulated public electric utility company must purchase electricity at its avoided cost from an independent power plant which has qualifying facility status. Qualifying facility status is granted to independent power plants which use fossil fuel in a manner which allows for recovery and use of a specified percentage of otherwise rejected heat thereby achieving a higher degree of fuel efficiency. Qualifying facility status is also granted to independent power plants which use renewable energy sources, including geothermal, hydro, solar, wind, and waste products, without regard to heat recovery. An independent power plant using fossil fuel, which loses its ability to use recovered heat, could fall below the efficiency standards and thereby lose its qualifying facility status. The regulated public electric utility company, which may have been required to purchase electricity from the independent power plant, could thereafter refuse to purchase that electricity. Independent power plants which have qualifying facility status, and which are not fossil fuel driven, are not required to meet efficiency standards regarding qualifying facility status.

Industry competition may impede our growth.

The electrical power generation industry, of which geothermal power is a sub-component, is highly competitive and we may not be able to compete successfully or grow our business.

We compete in areas of pricing, grid access and markets. The industry in the Pacific Northwest, in which the Raft River project is located, is complex as it is composed of public utility districts, cooperatives and investor-owned power companies. Many of the participants produce and distribute electricity. Their willingness to purchase electricity from an independent producer may be based on a number of factors and not solely on pricing and surety of supply.

Claims have been made that some geothermal plants cause seismic activity and related property damage.

There are approximately two dozen geothermal plants operating within a fifty-square-mile region in the area of Anderson Springs, in Northern California, and there is general agreement that the operation of these plants causes a generally low level of seismic activity. Some residents in the Anderson Springs area have asserted property damage claims against those plant operators. Although there is significant uncertainty surrounding the issue of whether the plant operators are liable for property damage from seismic activity, and to date no court has found in favor of any claimants, there can be no assurance that courts will not find operators liable for property damage in the future. If a person were to assert a successful claim against us in the future for significant property damage, this could have a material adverse effect on our business, results of operations and financial condition.

Our future operating activities will be subject to numerous risks.

The operation of geothermal power projects involves many risks, including the breakdown or failure of power generating equipment, transmission lines or other equipment or processes, performance below expected levels of output or efficiency, operator error and catastrophic events including fires, earthquakes or explosions. Production and injection wells can require frequent maintenance or replacement. Corrosion caused by high-temperature and high-salinity geothermal fluids may require the replacement or repair of equipment, vessels or pipelines. New production and injection wells may be required for the maintenance of current operating levels, thereby requiring substantial capital expenditures. The occurrence of any of these events could significantly reduce or eliminate revenues generated by a project or significantly increase the expenses of a project. Appropriate insurance coverage may not be available in the future at commercially reasonable costs or terms and the amounts for which we will be insured may not cover all potential losses.

There are some risks for which we do not or cannot carry insurance.

Because our current operations are limited in scope, we carry public liability insurance and directors’ and officers’ liability coverage, but do not currently insure against any other risks. As our operations progress, we intend to acquire additional coverage consistent with our operational needs, but we may become subject to liability for pollution or other hazards against which we cannot insure or cannot insure at sufficient levels or against which we may elect not to insure because of high premium costs or other reasons. In particular, coverage is not available for environmental liability or earthquake damage.

Our officers and directors may have conflicts of interests arising out of their relationships with other companies.

Several of our directors and officers serve (or may agree to serve) as directors or officers of other companies or have significant shareholdings in other companies. To the extent that other companies may participate in ventures in which we may participate, the directors may have a conflict of interest in negotiating and concluding terms respecting the extent of participation. If a conflict of interest arises, a director who has a conflict will abstain from voting for or against the approval of participation or terms. From time to time several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger programs, permitting involvement in a greater number of programs and reducing financial exposure in respect of any one program. It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment. Under the laws of the State of Delaware, our directors would be required to act honestly, in good faith and in our best interests.

In determining whether or not we would participate in a particular program and what interest we would acquire in it, the directors would primarily consider the degree of risk to which we would be exposed and our financial position at that time.

Risks Relating To The Market For Our Securities

A significant number of shares of our common stock are eligible for sale in the United States, which could have an adverse effect on the market price for our common stock and could adversely affect our ability to raise needed capital.

As at September 27, 2006, the number of shares in the public float on the TSX Venture Exchange and Over-The-Counter Bulletin Board in the U.S. is approximately 42,633,000. The market price for our common stock could decrease significantly and our ability to raise capital could be adversely affected by the availability of a large number of shares.

Our officers and directors hold sufficient shares that, acting collectively, they may be able to influence the outcome of matters submitted to the shareholders.

Our officers and directors own in the aggregate approximately 13% of our common stock, on a fully diluted basis. If the officers and directors were to act collectively, assuming they continue to own all of their shares, there is a substantial likelihood that they would be able to influence the election of our directors and the outcome of all corporate actions requiring the approval of the shareholders, such as mergers and acquisitions, in their own interests and to the detriment of the other shareholders.

The possible issuance of substantial amounts of additional shares without shareholder approval may dilute the percentage ownership of our shareholders.

There are 43,698,844 shares of our common stock outstanding and 4,381,128 shares of common stock issuable upon exercise or conversion of outstanding options and warrants. There are 100,000,000 shares of our common stock authorized for issuance. All of our authorized shares in excess of those currently outstanding may be issued without any action or approval by our shareholders and may dilute the percentage ownership of our current shareholders.

Because the public market for shares of our common stock is limited, investors may be unable to resell their shares of common stock.

There is currently only a limited public market for our common stock on the TSX Venture Exchange in Canada and on the Over-The-Counter Bulletin Board in the United States, and investors may be unable to resell their shares of common stock. The development of an active public trading market depends upon the existence of willing buyers and sellers that are able to sell their shares and market makers that are willing to make a market in the shares. Under these circumstances, the market bid and ask prices for the shares may be significantly influenced by the decisions of the market makers to buy or sell the shares for their own account, which may be critical for the establishment and maintenance of a liquid public market in our common stock. Market makers are not required to maintain a continuous two-sided market and are free to withdraw firm quotations at any time. We cannot give you any assurance that an active public trading market for the shares will develop or be sustained.

The price of our common stock is volatile, which may cause investment losses for our shareholders.

The market for our common stock is highly volatile, having ranged in the last twelve months from a low of Cdn$0.67 to a high of Cdn$1.60 on the TSX Venture Exchange and from a low of $0.52 to a high of $1.49 on the Over-The-Counter Bulletin Board. The trading price of our common stock on the TSX Venture Exchange and on the Over-The-Counter Bulletin Board is subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to our market or relating to us could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of our stock price may cause investment losses for our shareholders.

Our common stock is considered to be a “penny stock,” which may make it more difficult for investors to sell their shares.

Our common stock is considered to be a “penny stock.” The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges or quoted on NASDAQ, provided that current price and volume information with respect to transactions in these securities is provided by the exchange or system). Prior to a transaction in a penny stock, a broker-dealer is required to:

deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market;
provide the customer with current bid and offer quotations for the penny stock;
explain the compensation of the broker-dealer and its salesperson in the transaction;
provide monthly account statements showing the market value of each penny stock held in the customer’s account; and
make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.

These requirements may have the effect of reducing the level of trading activity in the secondary market for our stock and investors may find it more difficult to sell their shares.

FORWARD-LOOKING STATEMENTS

Statements contained in this prospectus include “forward-looking statements.” Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the actual results, performance and achievements, whether expressed or implied by forward-looking statements, not to occur or be realized. Forward-looking statements generally are based upon our best estimates of future results, performance or achievement, based upon current conditions and the most recent results of operations. Forward-looking statements may be identified by the use of forward-looking terminology such as “expect,” “believe,” “estimate,” “anticipate,” “continue,” or similar terms, variations of these terms or the negative of these terms, or that an event or a condition “may”, “might”,

“should”, “could” or “will” occur or exist, or the negative thereof. Potential risks and uncertainties include, among other things, such factors as:

access to debt and equity capital and the availability of joint venture development arrangements;
business strategy;
our ability to enhance and maintain production from existing wells and successfully develop additional producing wells;
our ability to procure long-term power purchase agreements for future phases of development;
costs and timing associated with construction and development of Phases of the Raft River project;
our statements about quantities of electrical generation, continuing production rates of those levels, estimated or proved geothermal resources, and borrowing availability based on proved resources;
our ability to procure the required permits;
our ability to attract and retain qualified personnel; and
the other factors and information disclosed and discussed under “Risk Factors” above and elsewhere in this prospectus.

Investors should carefully consider these risks, uncertainties and other information, disclosures and discussions which contain cautionary statements identifying important factors that could cause actual results to differ materially from those provided in the forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

THE COMPANY AND ITS BUSINESS

Our Corporate History

U.S. Geothermal Inc. is a Delaware corporation. We were originally incorporated in the province of British Columbia, Canada, under the name “Mango Resources Ltd.” on September 14, 1987, and traded on the Vancouver Stock Exchange under the symbol “MRH.” On October 7, 1999, we changed our name from “Mango Resources Ltd.” to “Consolidated Mango Resources Ltd.” and our share capital was consolidated on the basis of ten pre-consolidation common shares for one post-consolidation common share.

On March 13, 2000, we moved to, and began trading on, the TSX Venture Exchange (which is the successor to the Vancouver Stock Exchange as well as some other provincial exchanges) under the name “U.S. Cobalt Inc.” and under the symbol “USC” and continued to trade under that symbol until trading was halted on April 3, 2002, in accordance with TSX Venture Exchange policy, in anticipation and pending completion of our merger, described below. Upon completion of the merger, we again began trading on the TSX Venture Exchange, under our current symbol, “GTH.”

Historically, we, first as Mango Resources and Consolidated Mango Resources and then as U.S. Cobalt, operated in the resources sector and held interests in various mining properties. Mango conducted initial mineral exploration for base metals (nickel and zinc) of four mineral claims situated in Voisey Bay, Labrador, Canada. Exploration activities in Voisey Bay were unproductive and concluded by the end of 1996, with the mineral claims written off in 1997. Additionally, Mango acquired interests in two gold properties in South East Asia: a property in Kalimantan, Indonesia, in 1996 and a property on the island of Java, Indonesia, in 1997. Neither property yielded significant gold deposits and, due to the adverse gold market during the period, gold exploration activities were also concluded, with activities on the Kalimantan property terminated in 1998 and the Java gold property agreement terminated in July 1999. At that point, Mango had no significant assets and became inactive.

USC Colorado was incorporated on April 27, 1998, to conduct cobalt exploration. In March 2000, we completed a plan of arrangement with USC Colorado, continuing our incorporation from British Columbia to Delaware, under Delaware corporate law, as U.S. Cobalt Inc. A “plan of arrangement” and “continuation” are Canadian law concepts, whereby a Canadian provincial corporation may, practically speaking, become a Delaware (or other U.S. jurisdiction) corporation, similar to a state-to-state reincorporation under U.S. law. As part of the plan of

arrangement, our authorized capital was changed from 100,000,000 common shares without par value to 100,000,000 shares of common stock with a par value of $0.001 per share. USC Colorado became our subsidiary, and conducted cobalt exploration activities. We held an exploration lease and conducted mineral exploration on property in Missouri. By March of 2002, we concluded that cobalt exploration project was no longer promising, and determined to refocus our business efforts on renewable, “green” energy projects. The exploration lease of the Missouri property was terminated in July 2002.

U.S. Geothermal Inc., an Idaho corporation (which we refer to as Geo-Idaho to differentiate it from us) was formed in February 2002 to conduct geothermal resource development. On December 3, 2002, Geo-Idaho entered into an agreement with Vulcan Power Company, pursuant to which Geo-Idaho agreed to acquire from Vulcan Power Company all of the real property, personal property and permits that comprised Vulcan Power Company’s interest in the Raft River project. The agreement with Vulcan Power Company provided for the acquisition, in stages, of 100% of Vulcan’s interest in the Raft River project in consideration for shares and warrants of Geo-Idaho and cash payments to, or on behalf of, Vulcan Power Company of up to $600,000. Geo-Idaho also agreed that, as a condition to completing the purchase, and as an owner, of Vulcan’s interest in the Raft River project, it would work to advance the Raft River project by expending at least $200,000 for a work program, which has since been completed. By August 1, 2005, Geo-Idaho had paid Vulcan Power Company $617,000 in securities and cash payments, and had completed the work program, to bring its percentage ownership of Vulcan’s interest in the Raft River project to 100%.

We and Geo-Idaho entered into a merger agreement on February 28, 2002, which was amended and restated on November 30, 2003. The merger closed on December 19, 2003. In accordance with the merger agreement, we acquired Geo-Idaho through the merger of Geo-Idaho with our wholly-owned subsidiary, EverGreen Power Inc., an Idaho corporation formed for that purpose. Geo-Idaho is the surviving corporation and the subsidiary through which we currently conducts some of our operations. As part of this acquisition, we changed our name to U.S. Geothermal Inc. Because the former Geo-Idaho shareholders became our majority holders, the transaction is treated as a “reverse takeover” for accounting purposes.

In connection with the Geo-Idaho merger transaction, we effected a one-for-five reverse stock split of our common stock. All common stock data set forth in this prospectus has been adjusted for and reflects this reverse stock split.

Our operations are conducted through Geo-Idaho. Unless the context requires otherwise, reference to us and our operations include the operations of the parent and the subsidiary companies.

On May 24, 2006, we formed US Geothermal Services, LLC, a Delaware limited liability company, to participate in the operation of Phase 1 of the Raft River project, and on August 18, 2005, we formed Raft River Energy I LLC, a Delaware limited liability company, as the joint venture entity established to facilitate the financing of Phase 1 of the Raft River project. On August 9, 2006, Raft River I Holdings, LLC, an affiliate of The Goldman Sachs Group, became a member of Raft River Energy I LLC.

On September 5, 2006, the Company announced that it has leased property for a second geothermal project at Neal Hot Springs in eastern Oregon near the Idaho border. The new property, 8.5 square miles of geothermal energy and surface rights, was acquired from a private party. The property has an identified geothermal resource and was recently made part of U.S. Geothermal’s submittal to Idaho Power Company’s Request For Proposals for electricity produced from geothermal sources.

Business

We are a renewable “green” energy development company. Through our subsidiaries and a joint venture company of which we are a member, we are developing geothermal energy power plants in the Raft River area of Idaho. We own a 100% interest in the Raft River project, a geothermal project encompassing approximately 8.4 square miles of land located near Malta, Idaho.

third quarter of 2007. The total Phase 1 construction and development costs are expected to be $39 million for the construction of a binary cycle geothermal power plant capable of producing 13 megawatts of power. We have completed project financing for Phase 1 of the Raft River project, whereby Raft River I Holdings, LLC, a subsidiary of The Goldman Sachs Group Inc., will contribute $34 million in cash and we will contribute $5 million in cash and approximately $1.5 million in property to Raft River Energy I LLC, the Phase 1 project joint venture company.

Phase 2 will involve the construction and operation of two additional 13 megawatt power plants (Units 2 and 3). Strong regional interest in geothermal power has resulted in several utilities entering into discussions with us to purchase the electrical power output from Unit 2 and Unit 3. Subject to drilling confirmation of the availability of sufficient geothermal resource, the output from all three power plants at Raft River could be as much as 39 megawatts.

In addition, we continue to seek and acquire additional property interests with geothermal resources.

Geothermal Energy

Geothermal Resource

Geothermal energy is natural heat energy stored within the earth’s crust at accessible depth. In some areas of the earth, economic concentrations of heat energy result from a combination of geological conditions that allow water to penetrate into hot rocks at depth, become heated, and then circulate to a near surface environment. In these settings, commercially viable extraction of the geothermal energy and its conversion to electricity become possible and a “geothermal resource” is present.

There are four major components (or factors) to a geothermal resource:

	1.	Heat source and temperature – The economic viability of a geothermal resource is related to the amount of heat generated. The higher the temperature, the more valuable the geothermal resource is.

	2.	Fluid – A geothermal resource is commercially viable only when the system contains water and/or steam as a medium to transfer the heat energy to the surface.

	3.	Permeability – The fluid present underground must be able to move. In general, significant porosity and permeability within the rock formation are needed to create a viable reservoir.

	4.	Depth – the cost of development increases with depth, as do resource temperatures. Closeness of the reservoir to the surface is therefore a key factor in the economic valuation of a geothermal resource.

Exploration

In order to assess the potential of a geothermal resource, a variety of geological, geochemical and geophysical investigation techniques are employed. For example, subsurface temperatures are measured by drilling, detailed gravity and magnetic measurements yield models of the underground geologic structure, and measurements of the earth’s electrical resistivity assist in defining possible zones of hot water and/or the hydrothermally altered rocks that typically overlie a thermal aquifer.

Production

The energy necessary to operate a geothermal power plant is typically obtained from at least several production wells which are drilled using established technology similar to that employed in the oil and gas industry. Production wells are typically located within one mile of the power plant. Wells are also needed to inject most of the spent and cooled geothermal water back underground.

Geothermal Power Plants

Geothermal power plants fall into two general categories. A direct-steam plant uses steam directly (either from dry steam wells or separated from water under pressure) to drive turbines connected to generators. A binary power plant uses a heat transfer system to transfer the heat energy from hot water (and/or steam) to a working fluid with a lower

boiling temperature than water. Binary systems are mostly employed at medium-grade resources (with temperatures below about 180°C). Some projects employ combinations of direct-steam and binary systems. We plan to build a binary power plant at the Raft River project.

Environmental Benefits

Geothermal energy is a clean renewable energy with almost zero emissions of greenhouse and acid rain gases. Practically no waste is generated in a binary power plant such as that planned at the Raft River project. After extraction of heat energy from geothermal fluids, all remaining gases and liquids are re-injected into the ground. Geothermal energy projects involve minimum disturbance to the surface and the underground rock formation.

The Raft River project

Location and Property Description of Raft River project

The Raft River project is in south-central Idaho, approximately 55 miles southeast of Burley, the county seat of Cassia County. Burley, population 8,300, is the local agricultural and manufacturing center for the area, providing a full range of light to heavy industrial services.

A commercial airport is located 90 miles to the northeast in Pocatello, Idaho. Pocatello, population 53,000, is a regional center for agriculture, heavy industry (mining, phosphate refining), technology and education with Idaho State University. Malta, a town with a population of 180, is 12 miles north of the project site where basic services, fuel, and groceries are available. Year-round access to the project from Burley is via Interstate Highway 84 south to State Highway 81 south, then east on the Narrows Canyon Road, an improved county road.

The Raft River project Leases

The Raft River project currently consists of ten parcels (generally referred to as the U.S. Geothermal property, the Crank Lease, the Newbold Lease, the Jensen Investments Leases, the Stewart Lease, the Bighorn Mortgage Lease, the Doman Lease, the Griffin Lease, and the Glover Lease) comprising 1743.93 acres of fee land with geothermal rights and 3,652.86 acres of contiguous leased geothermal rights located on private property in Cassia County, Idaho. All parcels are defined by legal subdivision or by metes and bounds survey description. The ten parcels are as follows:

The U.S. Geothermal Property

The U.S. Geothermal property is comprised of four separate purchases that total 1743.93 acres: Vulcan’s interest in the Raft River project; the Elena interest; the Dewsnup interest; and the Wilcock interest. The Vulcan interest includes both surface and geothermal rights and consists of two parcels. The first parcel has a total area of approximately 240 acres and three geothermal wells (RRGE-1, RRGP-4 and RRGP-5) are located on this parcel. The second parcel has a total area of approximately 320 acres, and three additional geothermal wells (RRGE-3, RRGI-6 and RRGI-7) are located on this parcel. A fourth well, RRGE-2, although located on the property covered by the Crank lease, was acquired by us as part of our purchase of the Vulcan interest.

The Elena interest is comprised of surface and geothermal rights to approximately 100 acres of property, excluding the oil and gas rights to the property. The Elena interest is contiguous to other interests owned or leased by us.

The Dewsnup interest is comprised of the surface rights to approximately 123.93 acres of property, excluding the oil and gas rights to the property, but including all water and water rights. The Dewsnup interest is contiguous to other properties owned or leased by us. The geothermal rights to these acres are included in the Crank Lease below.

The Wilcock interest is comprised of the surface and oil and gas rights to approximately 960 acres of property, including irrigation water rights for 1,544 acre-feet of water. The Wilcock interest is contiguous to other properties owned or leased by us. The geothermal rights to these acres are included in the Jensen Investments Leases below.

The Crank Lease

The Crank lease covers approximately 160 acres of mineral and geothermal rights under a production steam well (RRGE-2) that is part of the Vulcan interest and was drilled by the Department of Energy during its tenure on the site. The Crank lease also provides a right of ingress and egress.

The Newbold Lease

The Newbold lease covers approximately 20 acres of both surface and geothermal rights.

The Jensen Investments Leases

The first Jensen Investments lease covers approximately 2,954 acres of geothermal rights only. It is contiguous with the Vulcan interest and property covered by the Crank lease. The second Jensen Investments lease covers approximately 44.5 acres of surface and geothermal rights, and is contiguous with property covered by the first Jensen lease.

The Stewart Lease

The Stewart Lease covers approximately 317 acres on two adjoining parcels. Parcel 1 contains approximately 159.04 acres and includes surface and geothermal rights. Parcel 2 contains approximately 158.50 acres and only covers surface rights. The underlying geothermal rights for Parcel 2 are subject to the first Jensen Investments Lease.

The Bighorn Mortgage Lease

The Bighorn Mortgage lease covers approximately 280 acres of surface and geothermal rights.

The Doman Lease

The Doman lease covers approximately 640 acres of surface and geothermal rights, excluding oil and gas rights.

The Griffin Lease

The Griffin lease contains approximately 160 acres of geothermal rights.

The Glover Lease

The Glover lease contains approximately 160 acres of geothermal rights.

Lease/Royalty Terms

General

The Crank lease, the Newbold lease, the Jensen Investments leases, the Bighorn Mortgage lease, the Doman lease, the Griffin lease and the Glover lease have royalties payable under the following terms:

Energy produced, saved and used for the generation of electric power, which is then sold by lessee, has a royalty of 10% of the net proceeds.
Energy produced, saved and sold by lessee, then used by the purchaser for generation of electric power, has a royalty of 10% of the market value.
Energy produced, which is used for any purpose other than the generation of electricity has a royalty of 5% of the gross proceeds.

Stewart Lease

The Stewart lease has production royalties payable under the following terms:

energy produced, saved and sold by the Lessee, then used by the purchaser for generation of electric power, has a royalty of 10% of the market value of the electric power;
energy produced, saved and used for the generation of electric power, which is then sold by Lessee, has a royalty of 3% of the market value of the electric power; and
energy produced, which is used for any purpose other than the generation of electricity has a royalty of 5% of the gross proceeds.

No production royalties have been paid to date under any of the leases. All of the leases may be extended indefinitely if production is achieved during the primary term, so long as production is maintained. For each lease other than the Crank Lease (see below), once production is achieved the amounts due annually will be the greater of the production royalty and the minimum payment for the last year of the primary term. All payments under the leases are made annually in advance on the anniversary date of the particular lease. In addition, the following lease and other royalty terms apply to the individual leases:

The Crank Lease

The lease agreement with Janice Crank was originally entered into June 28, 2002, and had a primary term of 5 years. After we provided evidence to the lessor that the well (RRGE2) located on lessor’s property is not owned by the lessor (but instead is included in the Vulcan interest), a new lease was entered into on June 28, 2003, with a four-year initial term. Advance production royalties (on a June to June basis) are payable under the Crank lease as follows:

year 1 (paid June 2002 under original lease) – $5,000;
year 2 (paid June 2003 under original lease) – $10,000;
year 3 (paid June 2004 under renegotiated lease) – $10,000;
year 4 (due June 2005) – $10,000; and
year 5 (due June 2006) – $10,000.

Payments for years 2002 through 2006 are advances against future production royalties. For later years, during commercial production, there is a minimum annual production royalty of $18,000. If the initial commercial production from the well is delayed past the primary lease term, we will seek an amendment to extend the primary term to the initial commercial plant production date. The minimum amount that will be payable over the course of the leases is $45,000. Maximum amounts payable will depend on production from the property.

The Newbold Lease

We lease this property pursuant to a lease agreement with Jay Newbold dated March 1, 2004. The Newbold lease has a primary term of 10 years (through February 28, 2014) and is extended indefinitely so long as production from the geothermal field is maintained. Lease payments are as follows:

years 1-5 – $10.00 per acre or $200 per year; and
years 6-10 – $15.00 per acre or $300 per year.

The minimum amount that will be payable over the course of the lease is $2,500. Maximum amounts payable will depend on production from the property.

The Jensen Investments Leases

The first Jensen Investments lease was originally with Sergene Jensen, as lessor, is dated July 11, 2002, and has a primary term of 10 years. In September 2005, the property subject to the lease was conveyed and the lease was assumed by Jensen Investments, Inc. Lease payments (on a July to July basis) are as follows:

years 1-5 – $2.50 per acre or $7,386.88 per year; and
years 6-10 – $3.00 per acre or $8,864.25 per year.

The minimum amount that will be payable over the course of the lease is $81,255.65. Maximum amounts payable will depend on production from the property. The second Jensen Investments lease, with Jensen Investments, Inc., is dated July 12, 2002, and has a primary term of 10 years. Lease payments (on a July to July basis) are as follows:

years 1-5 – $2.50 per acre or $111.25 per year; and
years 6-10 – $3.00 per acre or $133.50 per year.

The minimum amount that will be payable over the course of the lease is $1,223.75. Maximum amounts payable will depend on production from the property.

The Stewart Lease

The Stewart lease, with Reid and Ruth Stewart, is dated December 1, 2004, and has a primary term of 30 years. Lease payments are as follows:

year 1 – $8,000;
year 2 – $5,000; and
year 3-30 – $5,000 plus an annual increase of 5% per year.

The minimum amount that will be payable over the course of the lease is $319,614.00. Maximum amounts payable will depend upon production from the property.

The Bighorn Mortgage Lease

The Bighorn Mortgage lease, with Bighorn Mortgage Corporation, is dated July 5, 2005, and has a primary term of 10 years. Lease payments are as follows:

year 1-5 – $1,400; and
year 6-10 – $2,100.

The minimum amount that will be payable over the course of the lease is $17,500.00. Maximum amounts payable will depend upon production from the property.

The Doman Lease

The Doman lease, with Dale and Ronda Doman, is dated June 23, 2005, and has a primary term of 10 years. Lease payments are as follows:

year 1-5 – $1,600; and
year 6-10 – $3,200.

The minimum amount that will be payable over the course of the lease is $24,000.00. Maximum amounts payable will depend upon production from the property.

The Griffin Lease

The Griffin lease, with Michael and Cleo Griffin, Harlow and Pauline Griffin, Douglas and Margaret Griffin, Terry and Sue Griffin, Vincent and Phyllis Jorgensen, and Alice Mae Griffin Shorts, is dated June 23, 2005, and has a primary term of 10 years. Lease payments are as follows:

year 1 – $1,600;
year 2-5 – $800; and
year 6-10 – $1,200.

The minimum amount that will be payable over the course of the lease is $10,800.00. Maximum amounts payable will depend upon production from the property.

The Glover Lease

The Glover lease, with Philip Glover, is dated January 25, 2006, and has a primary term of 10 years. Lease payments are as follows:

year 1 – $2,100;

year 2-5 – $1,600; and
year 6-10 – $2,400.

The minimum amount that will be payable over the course of the lease is $20,500.00. Maximum amounts payable will depend upon production from the property.

Total Lease Payments

The total minimum amount payable under all of the leases during their primary terms is $522,393.40. The above listed lease payments are payable annually in advance, and are current through lease years beginning in 2006.

Other Geothermal Resource Leases

On May 24, 2006, we signed a geothermal lease agreement with JR Land and Livestock Inc. for the lease of approximately 5,409 acres of surface, mineral and geothermal rights in Malheur County, Oregon. The primary lease term is for ten years with lease payments of $15,000 at signing, $20,000 in year 2, $25,000 in year 3, and $30,000 for each subsequent year. All lease payments are deemed to be advance royalties. A resource evaluation study will be initiated to quantify the geothermal resource.

Office Lease

We lease general office space for our executive office in Boise at an annual cost of $30,506. The underlying lease is a year-to-year lease that expires on January 31, 2007.

Insurance Coverage

With the construction of the power plant included in Phase 1 of the Raft River project, management has increased the general liability and umbrella liability insurance coverage, as deemed necessary. Additional builders risk insurance will be obtained prior to construction of the power plant.

History of the Raft River project

Much of the historical information set forth below is from the August 2002 report entitled “Technical Report On The Raft River Geothermal Resource, Cassia County Idaho” prepared by GeothermEx Inc., a company that specializes in providing consulting, operational and training services in the exploration, development, assessment and valuation of geothermal energy. A copy of the report is available for review at our principal office, or a copy may be obtained for the cost of shipping and handling on written request. A geothermal resource in the Raft River valley was first identified before 1950 at two shallow agricultural wells that produced boiling water, the Crank well and the Bridge well. Interest in exploring and developing the geothermal resource of the Raft River valley began in the early 1970s, first by the U.S. Geological Survey, which undertook reconnaissance geochemical and geological work in 1972. One of the most significant results of this work was that chemical geothermometry of samples from the two boiling wells indicated a resource temperature of about 300°F.

In 1971, the Raft River Rural Electric Cooperative began preliminary investigations into the possibility of generating electric power from this resource. Supported by the U.S. Energy Research and Development Administration, the predecessor to the U.S. Department of Energy, investigations focused on using binary technology, which was experimental at that time, to generate electric power. In late 1973, the U.S. Geological Survey began an integrated geological, geophysical, geochemical and hydrological analysis of geothermal resources in general, and the Raft River geothermal resource specifically. Drilling activities in the Raft River area included 34 auger holes of 100-foot depth, an offset to the Bridge well (one of the two shallow boiling wells mentioned above), and five core holes (also referred to as intermediate holes) ranging in depth from 250 to 1,423 feet. These core holes were drilled to provide information to test geophysical interpretations of the subsurface structure and lithology, and to provide hydrologic and geologic data on the shallow part of the geothermal system.

The next phase of drilling consisted of seven deep, full-diameter wells: RRGE-1, RRGE-2, RRGE-3, RRGP-4, RRGP-5, RRGI-6 and RRGI-7. These were completed during 1975 to 1978, and were the subject of extensive testing. All of these wells are located on the lands comprising the Raft River project.

Well RRGE-1 was located between the Bridge and Crank wells, and targeted the Bridge Zone (an inferred north-northeast-trending fault zone in the area near the boiling shallow wells) at depth. Completed in April 1975, the well was a success, although there was no evidence that it had penetrated a fault. Well RRGE-2, located about 3,000 feet northeast of RRGE-1, also targeted the Bridge Zone, but deeper, in the basement rock. Completed in June 1975, it too was a successful producer, but again, there was no evidence of fault penetration. These two wells were flow tested for several months, and RRGE-2 was injection tested. After the injection testing, well RRGE-2 was deepened by about 500 feet in March 1976.

Further investigation of the postulated Bridge Zone was dropped in 1976; instead, the focus of drilling shifted to evaluating the extent and capacity of the geothermal reservoir. Well RRGE-3, located more than a mile southeast of RRGE-1, was drilled for this purpose and was deliberately side-tracked three times (legs A, B, and C), with modest displacements (< 500 feet) of the bottomhole locations relative to the surface location in all three legs. The purpose of drilling the side-tracks was to determine if additional production could be obtained from a multi-legged well at less cost than drilling an additional well or wells; however, the flow rate from the three legs was lower than that of either of the first two wells. The well was completed in May 1976.

The fourth well was to be an injection well, and was therefore named RRGI-4. Located about 1,800 feet south of well RRGE-1, this well was completed in May 1977. Seven monitoring wells (megawatts-1 through megawatts-7) were drilled to depths ranging from 500 to 1,300 feet in 1978. Injection testing of well RRGI-4 in early 1978 revealed a hydraulic connection to nearby monitoring wells (megawatts-1, USGS-3 and the BLM Offset of the Bridge well). In November 1978, RRGI-4 was deepened and completed as a producer with two legs, and its name was changed to RRGP-4. However, it produced only a small amount of fluid under artesian (or natural pressure) flow.

The next well to be drilled was RRGI-6, located about 3,500 feet E of well RRGE-3. Completed in May 1978, this well was a moderately successful injector. Moving back to the eastern flank of the Jim Sage Mountains, the next well to be drilled was RRGP-5, located about 2,800 feet southwest of RRGE-1. The target for this well was the Bridge Zone or the Horse Well Zone (a second north-northeast-trending structure closer to the mountains). Completed in September 1978, this well produced artesian flow at lower rates than RRGE-1 or RRGE-2.

Finally, well RRGI-7 was completed in August 1978. RRGI-7 is located about 2,000 feet southwest of RRGI-6, and achieved similar results.

In 1979, well RRGP-4 (leg B) was hydraulically fractured; this apparently improved its production rate somewhat. A fracture treatment was also performed on well RRGP-5 in November 1979.

Limited testing was undertaken during or immediately after the drilling of each well; however, these tests were not instrumented and few data are available. All of the production wells were artesian, and self- flow tests of each well were conducted to enable later pump tests to be designed. Pulse tests (a series of tests of each well at different flow rates for relatively short duration, with pressure recovery recorded between each rate step) were also conducted by pumping. Longer-term pump tests were also conducted, using either submersible or line-shaft pumps. Relatively short-term injection tests were conducted. Finally, interference tests, in which one or more wells were produced while pressure data were collected in monitoring wells, were conducted.

Based on the early drilling results from RRGE-1 and RRGE-2, design of a 5 megawatt binary pilot power plant began in 1976 and was completed by the end of 1978. Plant construction began in August 1979 and was completed in September 1981. The plant was operated in September, October and November 1981. Repairs and modifications were then made, and the plant operated again from March 1982 through June 1982. The output of the plant was about 4 megawatts, and the project confirmed the technical feasibility of binary plant operation with a geothermal fluid source. Wells RRGE-1, RRGE-2 and RRGE-3 were used to supply the plant during its periods of operation, while wells RRGI-6 and RRGI-7 were used for injection. Fluid from well RRGP-5 was used to heat the flow lines after long periods of shut-down. After an expenditure of nearly $40,000,000, final reports were written and the entire project was officially shut down at the end of September 1982.

Raft River Production Wells
Well Number	Depth	Bottom Hole Temperature °C
RRGE - 1	4,989	147
RRGE - 2	6,543	148
RRGE - 3	5,917	149
RRGE - 4	5,099	143
RRGE - 5	4,911	133

As described above, in the 1970s and early 1980s, the Raft River area, including the Raft River project, was under development by agencies of the United States government, beginning with the Energy Research and Development Administration and concluding with the successor organization to the Energy Research and Development Administration, the Department of Energy. U.S. government-sponsored activities at Raft River concluded in 1982. In 1983, Hydra-Co Enterprises, a firm based in Syracuse, New York, purchased the Raft River geothermal site and associated equipment, and moved the geothermal power plant to the Brady’s Hot Springs geothermal field in Nevada. Hydra-Co sold the property in l993 to Vulcan Power Company. Vulcan Power Company did not perform any work on the property.

Work Completed by Our Company

Since acquisition of our initial interest in the Vulcan interest, additional geothermal leases have been negotiated with landowners adjacent to the Vulcan interest and the leases described above were signed.

GeothermEx Inc. was again hired in May 2002 to prepare the technical report for the Raft River project previously referred to. A detailed review of all technical data available for the site was undertaken and a comprehensive report was completed in August 2002 (a copy is available for review at our principal office, or a copy may be obtained for the cost of shipping and handling on written request). GeothermEx Inc. also estimated energy reserves using a US Geological Survey volumetric reserve estimation method. The reserve calculation estimated the most likely megawatt capacity for the project is 15.6 megawatts per square mile, and that there is a greater than 99% probability that at least 10 megawatts of reserves exist per square mile. The nearly 8 square miles of geothermal rights controlled by us may amount to as much as 120 megawatts if the entire leasehold proves as productive as the area developed to date. Finally, GeothermEx Inc. concluded that if all five existing production wells can be restored to full productivity, it should be possible to supply a 14 to 17 megawatts (net) power plant with the addition of one to three new injection wells. A 30 megawatt (net) plant could be supported by a total of 9 to 10 production wells and 7 to 9 injection wells.

A Department of Energy Geothermal Resource Exploration and Definition II cost-sharing grant was awarded to Geo-Idaho in September 2002. The grant request, “Resource Confirmation Testing and Demonstration of Generating Capacity, Raft River project, Cassia County, Idaho”, covered the Phase 1 well testing program as recommended by GeothermEx Inc.. The total Phase 1 program cost which qualified for the grant is $265,096.00 of which 80% ($212,077) has been reimbursed by Department of Energy to us.

GeothermEx Inc. also reviewed a cash flow model prepared by us for a single 10 megawatt power facility, and, based on its review, estimated the net present value of a project with a 25-year lifetime to be $1,224,000, net of projected capital and based on a selling price of $0.05 per kilo watt hour of electricity. This geothermal energy reserves report is also available for review upon request to us.

In early June, 2003, the wellhead valves on the production and injection valves were overhauled and lubricated in preparation for well investigation operations. A high temperature video camera was lowered down in to each well to conduct a downhole camera investigation and inspection of the integrity of the wellbore and determine, if possible, whether the wells were open. The video inspection revealed that four of the production wells had Baker Packers (devices used to control water flow in a well) with flapper valves installed downhole to restrict artesian flow and that two of the four wells had either debris or flow stingers left in the wells. One well, RRGE-2, could not be entered due to the master valve not closing. The two injection wells and production well RRGE-4 were inspected to full depth and found to be open and in good condition.

Due to the discovery of the Baker Packers and the debris, flow testing could not be accomplished without either the removal of the packers or placement of new stingers to open the flapper valves. An updated plan was submitted to the Department of Energy Geothermal Resource Exploration and Definition II program to resolve the packer and debris problems and prepare the wells for flow testing. The amended plan was approved by the Department of Energy on September 15, 2003, with a total budget of $396,521. We will be reimbursed for 80% of the budget (estimated at approximately $317,217). Subsequently, the program was expanded to include an interference test, which helps determine the impact of production pumping on the well field as a whole, and the Geothermal Resource Exploration and Definition II program cost was increased to approximately $700,000 with a plan of phased expenditures.

The well workover program began on April 13, 2004, and by May 14 had successfully removed the debris, placed new stingers, and prepared all of the production wells for flow testing. Flow testing and the downhole investigation (pressure and temperature surveys) began on May 18 and were completed on June 21. Each production well was allowed to self- flow for 24-48 hours while fluid flow, temperature and pressure measurements were collected. Thereafter, data from the well testing program was provided to GeothermEx Inc. for analysis. In October 2004, GeothermEx Inc. issued a report, “Results From The Short-Term Well Testing Program At The Raft River Geothermal Field, Cassia County, Idaho” (a copy is available for review at our principal office). The report concluded that four of the five production wells at Raft River produced commercial amounts of geothermal fluid, and that those four wells could produce a net power capacity (after subtracting the pumping load) of 13.8 megawatts. Further, for development of the project, GeothermEx Inc. estimated that at least one additional injection well would be needed for the project and that a make-up production well will be required after one or two years of operation.

On May 25, 2006, we signed a drilling contract with Union Drilling for the re-work of wells previously drilled for Phase 1 of the Raft River project, and the drilling of additional wells to be included in Phase 2 of the Raft River project. The total cost of Phase 1 and 2 drilling to be completed by Union Drilling is estimated at $13,000,000 and should be completed within six months after drilling is started. The timing of the Phase 1 drilling costs of $5,000,000 and the Phase 2 drilling costs of $8,000,000 are discretionary depending on the availability of cash funds.

Current Activities

Resource Utilization

For Phase 1 of development at Raft River, we will commercialize the existing production wells and energy field by construction of a 13 megawatt geothermal power plant that will provide the energy to be delivered under the power purchase agreement with Idaho Power Company.

We solicited bids from interested parties for an engineering, procurement and construction agreement for the project. In response to the solicitation, we received four engineering, procurement and construction and other construction-related bids from which we selected the bid of Ormat Nevada Inc. and signed an engineering, procurement and construction agreement with Ormat Nevada Inc. on December 5, 2005, which was amended on April 26, 2006. Bids have been solicited from several engineering firms to provide engineering, procurement and construction services on all remaining aspects of the project not included in the agreement with Ormat Nevada Inc.

Final engineering, equipment procurement and construction is anticipated to take approximately 14 to 16 months (assuming no significant or unusual delays from weather, supply issues or similar events), and the initial power plant is anticipated to begin production by the end of the third quarter of 2007.

Financing proposals for the Phase 1 power plant were solicited from nine financing entities. On August 9, 2006, we completed project financing for Phase 1 of the Raft River project.

Engineering, Procurement and Construction and Project Design

On December 5, 2005, we entered into the agreement with Ormat Nevada Inc. to supply equipment for, and construct portions of, Phase 1 of the Raft River project. Ormat Nevada Inc. is a subsidiary of Ormat Technologies Inc., a New York Stock Exchange listed company with over three decades of experience in the design, engineering, manufacturing, construction, and operation of geothermal power plants. The agreement with Ormat Nevada Inc. is for a fixed price of $20,200,000 (exclusive of taxes) and provides for performance warranties by Ormat Nevada Inc. The plant design incorporates Ormat Nevada Inc.’s proprietary power generation technology with water cooling for maximum efficiency. The output of the plant should fully meet the power delivery requirements of the first 10 megawatt power sales agreement between us and Idaho Power Company. We retain responsibility for all other aspects of the Phase 1 power plant, including field development, permitting, and the engineering, procurement and construction of the substation, geothermal production and injection wells, and the gathering system.

The terms of the agreement with Ormat Nevada Inc. also provide us and Ormat Nevada Inc. with the option to build the next two power plants at Raft River on substantially the same terms and conditions, including price, subject to subsequent changes in costs of materials and labor and any cost reduction benefits derived from potential economies of scale.

On April 25, 2006, the agreement with Ormat Nevada Inc. was amended to allow commencement of construction in advance of project financing for Phase 1 of the Raft River project. On April 26, 2006, in connection with the amendment, we issued a notice to proceed to Ormat Nevada Inc. for the binary cycle geothermal power plant that is designed to deliver 10 megawatt monthly average electrical power to Idaho Power Company under a 20-year term power purchase agreement. The notice to proceed commissions Ormat Nevada Inc. to proceed immediately with final detailed engineering and an initial payment of $2,020,000 allows Ormat Nevada Inc. to proceed with ordering of equipment and material components for the power plant with significant manufacturing lead times. The engineering, procurement and construction schedule is intended to provide first synchronization of the new power plant in September 2007 with full commercial operations no later than November 2007. Under the amendment to the agreement with Ormat Nevada Inc., Ormat Nevada Inc. commits to a guaranteed final completion date of November 25, 2007 on the Phase 1 power plant. The agreement with Ormat Nevada Inc. includes a performance bonus if the plant is synchronized by July 2007 and includes a guarantee by Ormat Nevada Inc. for the total output capacity of the plant.

On May 22, 2006, we signed a $2,600,000 construction contract with Industrial Builders for completion of the construction of the pipelines connecting the wells at Raft River with the Phase 1 power plant facility to be constructed by Ormat Nevada Inc.

Bids have been solicited from several engineering firms to provide engineering, procurement and construction services on all remaining aspects of the project not included in the agreement with Ormat Nevada Inc.

Power Purchase Agreement

Under federal and state law, the Phase 1 power plant would be considered a “qualifying facility.” A qualifying facility is an electrical power generating plant (as defined by the Federal Regulatory Energy Commission) that qualifies under the Public Utility Regulatory Policies Act of 1978. Under the Public Utility Regulatory Policies Act of 1978, utility companies are required to purchase at a negotiated rate up to 80 megawatt facilities from independent power producers which are qualifying facilities. Under Idaho law, if a qualifying facility does not exceed 10 megawatts, the power purchase contract will be at the “avoided cost” rate – that is, the rate calculated based on the full cost of power as if the utility were to build a 230 megawatt combined cycle, natural gas fired power plant. On December 29, 2004, we executed a power purchase agreement with Idaho Power Company for a 10 megawatt power project. Idaho Power Company is a regulated utility which is a wholly owned subsidiary of Idacorp, Inc., an energy and technology holding company listed on the New York Stock Exchange. The power purchase agreement forms the basis for the economic development of Phase 1 of the Raft River project and allows for the arrangement of a financing package to construct the facilities, including the power plant. The power purchase agreement is for the electrical output from Phase 1 of the Raft River project and has a 20-year term with a scheduled operations commencement date of August 1, 2007. The electricity price was determined by the Idaho Public Utility Commission under Public Utility Regulatory Policies Act of 1978, using the avoided cost rate. Because the power purchase agreement is pursuant to the Public Utility Regulatory Policies Act of 1978, the total output of the plant must be limited to a maximum of 10 megawatt average each month. In order to protect Idaho Power Company from unanticipated material fluctuations in supply, the power purchase agreement requires us to forecast our monthly electrical output in advance (12 months in advance initially, and on a rolling three-month basis thereafter), and if the actual plant output is below 90% or above 110% of the forecasted output, reduced power

prices apply. Because the forecasts are done every three months, we anticipate that we will generally be able to forecast appropriately.

On May 8, 2006, Idaho Power Company confirmed that we will be allowed to bid the Phase 1 Raft River project into Idaho Power Company’s recently issued geothermal “Request for Proposal for Geothermal Power”. If Idaho Power Company selects us as a successful bidder, we expect that, under a revised power purchase agreement, the Phase 1 power plant will be allowed to sell its full output capacity of 13 megawatt annual average, instead of being capped at 10 megawatt monthly average, as mandated under the current power purchase agreement. This 30% increase in plant output would be achieved with no additional capital investment over that required for 10 megawatts, and is expected to decrease the operating cost per kilowatt-hour. Management is uncertain if quarterly production forecasts will be needed under a full output contract.

On May 5, 2005, we signed two additional power purchase agreements with Idaho Power Company for the Phase 2 power plants (Units 2 and 3). Each power purchase agreement was for 10 megawatts, had a term of 20 years, with annually adjusted electric power prices based on the avoided cost method. With carbon regulation widely anticipated to have a negative impact on the cost of power sourced from coal, and limited opportunities to purchase baseload geothermal power, utilities across the western United States have been eager to discuss power purchases from the Raft River geothermal resource. As a result of the increased interest, we have elected to withdraw our Phase 2 (Units 2 and 3) Idaho Power Company power purchase agreements, without submitting them to the Idaho Public Utility Commission for approval in order to pursue larger capacity power purchase agreements with other utilities. On June 16, 2006, with the concurrence of Idaho Power Company, the two 10 megawatt contracts that were not submitted to the Idaho Public Utility Commission were voided, without further obligation on either party. We believe that we will be able to execute power purchase agreements for 13 megawatts, and that the additional megawatts in each plant will provide greater return for our shareholders.

On February 22, 2006, we received and signed a letter of intent from Eugene Water and Electric Board, of Eugene, Oregon, for Eugene Water and Electric Board’s purchase of the full 13 megawatt electrical output from the second planned power plant of Phase 2 (Unit 2), and we are currently negotiating a draft power purchase agreement with Eugene Water and Electric Board and expect to finalize it by October 2006. Upon execution of the Eugene Water and Electric Board power purchase agreement, and if Unit 1 is successful in the Idaho Power Company Request for Proposal, then the total output from Units 1 and 2 of the Raft River power plants will be 26 megawatts from two plants, instead of the originally planned 30 megawatts from three plants, resulting in substantial capital and operating cost savings through improved economies of scale.

Additionally, strong regional interest in geothermal power has resulted in several utilities from California to Washington entering into discussions with us to purchase the electrical power output from the third planned power plant (Unit 3). Subject to drilling confirmation of the availability of sufficient geothermal resource, the output from all three power plants at Raft River could be 39 megawatts, instead of the maximum 30 megawatts under the previous power purchase agreement provisions with Idaho Power Company.

We will seek additional power purchase agreements for future phases, which may involve drilling new wells and determining the production capacity of those wells for additional plant construction. At this time it is not possible to estimate if or when future wells will be drilled. Future phases may involve additional power purchase agreement’s with Idaho Power Company or other utilities in the service area and may or may not include terms similar to the Phase 1 power purchase agreement.

Environmental Credits

As a “green” power producer, environmental-related credits, such as renewable energy credits or carbon credits, may become available for sale to power companies (to allow them to meet their “green” power requirements) or to businesses which produce carbon based pollution. If available, these credits will belong exclusively to us, and may provide an additional source of revenue.

On July 29, 2006, we signed a $4.6 million renewable energy credits purchase and sales agreement with Holy Cross Energy, a Colorado cooperative electric association. Holy Cross Energy will purchase the renewable energy credits associated with Phase 1 power production from 2008 to 2017. We retain the renewable energy credits associated with power production from Phase 1 after 2017. We expect to receive a majority of the annual revenue from the ten-

year renewable energy credits sales arrangement with Holy Cross Energy which is estimated to be approximately $0.4 million per year, for the first four years after the project is placed in service.

Transmission and Interconnection

On June 24, 2005, we signed a transmission agreement with the Department of Energy’s Bonneville Power Administration - Transmission Business Line for firm, point-to-point power transmission with the Transmission Business Line for up to 12 megawatts of electrical transmission capacity for an initial term of 30 years, beginning June 1, 2006. The agreement is intended to provide transmission capability in support of the Phase 1 power plant. Charges under the transmission agreement are based on federal tariff; the non-refundable annual reservation fee for the first year is $12,336, which represents an estimation of likely annual charges under the agreement, without taking into account potential “short distance” discounts.

In addition to the transmission agreement for Phase 1 of the Raft River project, we have reserved capacity through December 1, 2010, for two plants of up to 12 megawatts each, for an additional 24 megawatts of transmission capacity with the Transmission Business Line to support additional power purchase agreements for future Phases, and has paid fees of $24,672 for the first year. The term of service will be increased once the projects are further along in the development process. In addition, if the Transmission Business Line receives a firm request from a third party for transmission capacity for the period after December 1, 2010 (assuming we have not already extended the term), we will have the first right to match the term proposed by the third party.

On September 8, 2005, the Raft River Rural Electric Co-op received an amended right-of-way from the Department of the Interior - Bureau of Land Management that allows the construction upgrade of an existing transmission line to provide the interconnect for the Raft River project to the Raft River Rural Electric Co-op Bridge substation. On March 9, 2006, we signed the Interconnection and Wheeling Agreement with Raft River Rural Electric Co-op which allows electricity generated at the Phase 1 power plant to be delivered through Raft River Rural Electric Co-op transmission lines and delivered into the Bonneville Power Administration substation for delivery to Idaho Power Company. On May 16, 2006, we signed a $225,000 construction contract with Raft River Rural Electric Co-op for construction of the well distribution lines for delivery of electricity from the power plant to the well heads for the Phase 1 power plant.

Permitting

In preparation for project financing, a Phase 1 Environmental Site Assessment was completed by an independent contractor on October 21, 2005. The Phase 1 assessment identified two underground storage tanks, which have since been removed. An American Land Title Association land title survey that covers all lands owned or leased by us has been completed and Land America Commercial Services is preparing an American Land Title Association extended title insurance policy for the project, which we anticipate acquiring for the benefit of our project financing lenders.

A Conditional Use Permit for the first two power plants was issued by the Cassia County Planning and Zoning Commission on April 21, 2005. The Idaho Department of Environmental Quality issued the Air Quality Permit to Construct on May 26, 2006. The Department of Army Corps of Engineers and the Idaho Department of Water Resources, after we submitted a joint application to them, have determined that the Raft River project does not need to obtain a Section 404 Clean Water Act permit for the project as it is currently designed. Various other county, state and federal permits will be required for the project, including a Cassia County Building Permit.

A voluntary Application for Wastewater Reuse Permit was submitted to the Idaho Department of Environmental Quality on June 14, 2006. The Reuse permit will allow the land application of the non-contact cooling water from the power plant cooling towers.

During the Department of Energy’s development of the Raft River project in the early 1980’s, a multi-year survey of land, plant, animal, archeological, weather, and human health survey was undertaken. The Department of Energy published an extensive report in 1982. We contacted the Department of the Interior Fish and Wildlife Service regarding any plants or animals in the region that are listed as threatened or endangered species, and received a reply stating that there are no issues identified for the project that require consultation under Section 7 of the Endangered Species Act of 1973, as amended.

The Transmission Business Line has issued a categorical exclusion for modification of the existing substation from the requirements of the National Environmental Policy Act. This exclusion fulfills federal environmental permitting requirements for the substation work.

Project Financing.

The total Phase 1 construction and development costs are expected to be $39 million for the construction of a binary cycle geothermal power project capable of producing 13 megawatts of power. Financing proposals for the Phase 1 power plant were solicited from nine financing entities.

On August 9, 2006, we completed project financing for Phase 1 of the Raft River project. In connection with the project financing, we entered into (i) the Membership Admission Agreement, dated August 9, 2006, among Raft River Energy I LLC, a Delaware limited liability company, us and Raft River I Holdings, LLC, a Delaware limited liability company, (ii) the Amended and Restated Operating Agreement of Raft River Energy I LLC, dated as of August 9, 2006, among Raft River Energy I LLC, Raft River I Holdings, LLC and us, and (iii) the Management Services Agreement, dated as of August 9, 2006, between Raft River Energy I LLC and U.S. Geothermal Services, LLC, a Delaware limited liability company and our wholly-owned subsidiary. Raft River I Holdings, LLC, a subsidiary of The Goldman Sachs Group Inc., will contribute $34 million in cash and we will contribute $5 million in cash and approximately $1.5 million in property to Raft River Energy I LLC, the Phase 1 project joint venture company.

Pursuant to the Management Services Agreement, we will provide operating and management services to Raft River Energy I LLC. We expect to receive annual cash distributions up to $1.5 million for the first four project years pursuant to the Management Services Agreement and the Amended and Restated Operating Agreement. The cash distributions made to us will come from three sources: royalty income from our energy leases to Raft River Energy I LLC, a management fee for providing operating and maintenance services, and income-related cash distributions from our investment in Raft River Energy I LLC. After the first four years, we will receive a nominal percentage of the distributable Raft River Energy I LLC cash flow until specified rates of return are achieved, at which time we will receive approximately half of the distributable cash flow. If we develop the economic equivalent of 30 megawatts of power sales during the initial 20-year term of the power purchase agreement then, at the end of year 20, our share of the distributable cash flow increases to a significant majority of cash flow.

Potential Acquisitions

We intend to continue our growth through the acquisition of ownership or leasehold interests in properties that we believe will add to the value of our geothermal resources, and through possible mergers with or acquisitions of operating power plants and advanced geothermal or other renewable energy properties. No specific transactions are currently contemplated.

Competition

Although the market for different forms of energy is large and dominated by very powerful players, we perceive our industrial competition to be independent power producers, and in particular those producers who provide “green” renewable power. Our definition of green power is electricity derived from a source that does not pollute the air, water or earth. Sources of green power, in addition to geothermal, include wind, solar, biomass and run-of-the river hydroelectric. A number of states have instituted renewable portfolio standards that require utilities to purchase a minimum percentage of their power from renewable sources. For example, renewable portfolio standards statutes in California and Nevada require 20% renewable, and according to the Department of Energy’s Energy Efficiency and Renewable Energy department, utilities in 34 states nationwide are providing their customers with the opportunity to purchase green, renewable power through premium pricing programs. As a result, we believe green power is a niche sub-market, in which many power purchasers are increasing or committing to increase their investments. Accordingly, the conventional energy producers do not provide direct competition.

In the Pacific Northwest there are currently no operating geothermal facilities. There exist a number of wind farms, as well as biomass and run-of-the river hydroelectric facilities. However, we believe that the combination of greater reliability and baseload generation from geothermal, access to infrastructure for deliverability, and a low “full life” cost will allow us to compete successfully for long term power purchase agreements.

Governmental Approvals and Regulation

We are subject to both federal and state regulation in respect of the production, sale and distribution of electricity. Federal legislation includes The Public Utilities Act of 1935 (which has two titles: The Public Utility Holding Company Act and the Federal Power Act), as well as the Public Utility Regulatory Policies Act of 1978 and the Energy Policy Act of 1992. Because we are defined as an independent power producer under the rules and regulations of the Federal Energy Regulatory Commission , the relevant aspects of federal legislation are that our electrical generating facilities qualify under the policy set forth under the Public Utility Regulatory Policies Act of 1978 which encourages alternative energy sources such as geothermal, wind, biomass, solar and cogeneration. Additionally, under the Energy Policy Act of 1992, we are currently exempt from The Public Utility Holding Company Act legislation regulating rates for electricity on the wholesale level.

The State of Idaho also regulates electricity through the Idaho Public Utility Commission. Regulated utilities have the exclusive right to distribute and sell electricity within their service area. They may purchase electricity in the wholesale market from independent producers like us. The Idaho Public Utility Commission, in accordance with the Public Utility Regulatory Policies Act of 1978, has the authority to set the rules and regulations governing the sale of electricity generated from alternative energy sources. Regulated utilities are required to purchase electricity on an avoided cost basis from qualifying facilities.

Currently, the Idaho Public Utility Commission defines this type of facility as having an average output capacity of 10 megawatts per month and a contract term of up to 20 years. All Public Utility Regulatory Policies Act of 1978 contracts in Idaho are subject to the approval of the Idaho Public Utility Commission. We are not required to market any of the electricity that we may generate at Raft River to Idaho utilities; under the Energy Policy Act of 1992, we can transmit and sell our electricity in another state. Nonetheless, we initially signed three 10 megawatt power purchase agreements with the Idaho Power Company.

On May 8, 2006, Idaho Power Company confirmed that we would be allowed to bid Phase 1 of the Raft River project into the recently issued Idaho Power Company geothermal “Request for Proposal for Geothermal Power”. If Idaho Power Company selects us as a successful bidder, we expect that under a new power purchase agreement with Idaho Power Company, which would replace the current power purchase agreement, the Phase 1 power plant will be allowed to sell its full output capacity of up to 13 megawatt annual average, instead of being capped at 10 average megawatt per month as mandated under the current power purchase agreement. This 30% increase in plant output would be achieved with no additional capital investment and is expected to decrease the operating cost per kilowatt-hour.

With carbon regulation widely anticipated to increase the cost of power sourced from coal, and limited opportunities to purchase baseload geothermal power, we have found that utilities across the western United States have been eager to discuss power purchases from our Raft River geothermal resource. As a result of the increased interest, we elected to withdraw our Phase 2 (Unit 2 and Unit 3) Idaho Power Company power purchase agreements without submitting them to the Idaho Public Utility Commission for approval in order to pursue larger capacity power purchase agreements with other utilities. With the concurrence of Idaho Power Company, the Unit 2 and Unit 3 10 megawatt contracts have been voided without further obligation on either party.

We have signed a letter of intent with the Eugene Water and Electric Board, from Eugene, Oregon which provides for the Eugene Water and Electric Board to purchase the full 13 megawatt electrical output of Unit 2. The parties have exchanged a draft power purchase agreement and intend to complete it by October 2006. Upon execution of the Eugene Water and Electric Board power purchase agreement, and if Unit 1 is successful in the Idaho Power Company Request for Proposal, then the total output from the Unit 1 and Unit 2 Raft River power plants will be 26 megawatts from two plants, instead of the originally planned 30 megawatts from three plants, resulting in substantial capital and operating cost savings through improved economy of scale.

In addition, the strong regional interest in geothermal power has resulted in several utilities from California to Washington entering into discussions with us to purchase the electrical power output of Unit 3. Subject to drilling confirmation of sufficient geothermal resource, the power plant output from three units at Raft River would be 39 megawatts, instead of the maximum 30megawatts under the previous Idaho Power Company power purchase agreement provisions.

We will require the approval of various federal, state and local authorities for construction of a geothermal facility at Raft River. These authorities include the U.S. Fish and Wildlife Service, Environmental Protection Agency, Idaho

Department of Environmental Quality, Idaho Department of Water Resources, Idaho Bureau of Hazardous Materials, Idaho State Historical Society, Cassia County and the Southern Idaho Regional Solid Waste District. We have retained Kleinfelder Inc. of Boise, Idaho, an independent environmental and regulatory consultant, to advise us as to the siting and design for purpose of governmental approvals. Additionally, David Evans & Associates of Boise, Idaho is providing consulting and engineering services for transmission and interconnection issues and the preparation of the application for a conditional use permit. Centra Consulting, Inc. of Boise, Idaho has been retained to assist with State of Idaho air quality and cooling water reuse permitting.

Environmental Compliance

As our design and permitting activities have progressed, we have further refined and clarified the environmental issues for which we will have to demonstrate compliance in the construction and operation of a geothermal facility at Raft River. The relevant legislation includes Clean Air Act, Endangered Species Act, Clean Water Act, Rivers and Harbors Act, National Historic Preservation Act, National Pollutant Discharge Elimination System, Resource Conservation and Recovery Act, Idaho Solid Waste Facilities Act and the IDAPA Drilling for Geothermal Resource Rules. Please see discussion above under the section entitled “Current Activities – Permitting”.

We believe that a geothermal facility can be designed, constructed and placed into operation at Raft River that will meet environmental compliance requirements. At this time, we do not believe that the cost of compliance at the federal, state and local levels will be significant.

Plant and Equipment

Other than minor office equipment located in our executive office, all of our plant and equipment is located at the Raft River project site. Infrastructure on the site includes five geothermal production wells, two injection wells, wellheads, lined drilling sumps, roads, and security fencing. The plant site has a 50' x 95' office/control room building, a 50' x 100' x 30' office/shop maintenance building with a 15-ton overhead crane, and a 300,000 gallon water tank with a 40'x 30' pump house. At the RRGE-1 well site, there is a 40'x 40' x 20' warehouse building and a 50'x 100' office building. Road access and line power is available at all production and injection well sites. A 138 kV transmission line with a designed capacity of 120 megawatts runs along the northern boundary of the property. The Raft River Rural Electric Cooperative owns the transmission line, and has leased the transmission capacity to the Bonneville Power Administration. We have signed an agreement with the Transmission Business Line with respect to point-to-point transmission. Please see discussion above under the section entitled “Current Activities –Transmission and Interconnection”.

We have sub-leased general office space for our executive office in Boise from Daniel J. Kunz, our Chief Executive Officer, for the first nine months of the year, at an annual cost of $30,506. Effective January 1, 2006, the office space is leased direct from the owner of the property. The underlying lease is a year-to-year lease that expires on January 31, 2007.

Reports to Security holders

We are subject to the reporting requirements of Sections 13 and 15 of the Securities and Exchange Act of 1934, as amended. Those reporting requirements include quarterly reports on Forms 10-Q and an annual report on Form 10-K (or 10-QSB and 10-KSB for so long as we remain a “small business issuer” under the Securities and Exchange Act of 1934, as amended) and interim reports on Form 8-K. We are also subject to reporting requirements imposed by the TSX Venture Exchange and Canadian federal and provincial laws, which require the company to provide annual reports to our securityholders.

MARKET FOR COMMON STOCK

Our shares of common stock are traded on the TSX Venture Exchange under the symbol “GTH” and on the Over-The-Counter Bulletin Board under the symbol “UGTH”.

The first trades of our shares on the Over-The-Counter Bulletin Board started June 8, 2005, and trading has been very limited since then; there can be no assurance that a viable and active trading market will develop. There can be no assurance that even if a market is developed for our shares, there will be a sufficient market so that holders of common shares will be able to sell their shares, or with respect to any price at which holders may be able to sell their

shares. Future trading prices of our common shares will depend on many factors, including, among others, our operating results and the market for similar securities.

The following sets forth information relating to the trading of our common stock on the TSX Venture Exchange.

	Sales Prices on the TSX Venture Exchange (Cdn$)
	High	Low
Fiscal Year Ended March 31, 2005
First Quarter	0.90	0.54
Second Quarter	1.05	0.70
Third Quarter	1.10	0.76
Fourth Quarter	1.05	0.80

Fiscal Year Ended March 31, 2006
First Quarter	1.10	0.80
Second Quarter	0.90	0.61
Third Quarter	0.90	0.67
Fourth Quarter	0.86	0.66

Fiscal Year Ending March 31, 2007
First Quarter	1.45	0.75
Second Quarter (to September 27, 2006)	1.60	0.80

The following sets forth information relating to the trading of our common stock on the Over-The-Counter Bulletin Board, from the date our common stock began trading on the Over-The-Counter Bulletin Board on June 8, 2005.

	Sales Prices on the Over-The-Counter Bulletin
	Board ($)
	High	Low
Fiscal Year Ended March 31, 2006
First Quarter (June 8-June 30)	0.65	0.50
Second Quarter	1.24	0.52
Third Quarter	0.85	0.55
Fourth Quarter	1.30	0.64

Fiscal Year Ending March 31, 2007
First Quarter	1.02	0.70
Second Quarter (to September 27, 2006)	1.49	0.70

As of September 27, 2006, we had approximately 2,300 stockholders of record.

DIVIDEND POLICY

We have never paid and do not intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain any future earnings for reinvestment in our business. Any future determination to pay

cash dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and other relevant factors.

MANAGEMENT

Directors, Executive Officers and Significant Employees

The following sets forth information concerning our current directors, executive officers and significant employees. Each director has been elected to serve until our next annual meeting of stockholders and until his successor has been elected and qualified. Each executive officer serves at the discretion of our board of directors.

Name	Age	Position
Daniel J. Kunz	54	Chief Executive Officer, President and Director
Douglas J. Glaspey ⁽¹⁾	54	Chief Operating Officer and Director
John H. Walker ⁽¹⁾	58	Chairman of the Board and Director
Paul A. Larkin ⁽¹⁾⁽²⁾	56	Director
Kerry D. Hawkley	52	Chief Financial Officer
Kevin R. Kitz	45	Vice President, Development, Geo-Idaho
Robert A. Cline	49	Vice President, Engineering, Geo-Idaho
Christopher S. Harriman	49	President, US Geothermal Services LLC

(1)	Member of Audit Committee.
(2)	Audit Committee Financial Expert.

Daniel J. Kunz is our President and Chief Executive Officer and a director and the President of Geo-Idaho. He has served as a director since March 2000, and was Chairman of the Board of Directors from March 2000 until December 2003. Prior to the acquisition of Geo-Idaho, he served as a director and the President for that company from February 2002 until the acquisition. Mr. Kunz was an executive of Ivanhoe Mines Ltd. from 1997, and served as its President and Chief Executive Officer from November 1, 2000 until March 1, 2003. From March 2, 2003 until March 8, 2004, Mr. Kunz served as Interim President of Jinshan Gold Mines Inc. Mr. Kunz has more than 29 years of experience in international mining, engineering and construction, including, marketing, business development, management, accounting, finance and operations, having held key positions in MK Gold Company (President and Chief Executive Officer) and Morrison Knudsen Corporation (Vice President and Controller, and Chief Financial Officer to the Mining Group). Mr. Kunz holds a Masters of Business Administration and a Bachelor of Science in Engineering Science. He is currently a director of several companies publicly traded on the TSX Venture Exchange, including Jinshan Gold Mines Inc., Triumph Gold Corp., and Chesapeake Gold Corp. Mr. Kunz serves as Chairman of the Board of Directors of China Mineral Acquisition Corporation, which is a publicly traded company on the Over-The-Counter Bulletin Board.

Douglas J. Glaspey is our Chief Operating Officer and a director. He has served as a director since March 2000, and served as its President from March 2000 until the acquisition of Geo-Idaho. He also served as a director and the Chief Executive Officer of Geo-Idaho from February 2002 until the acquisition, and continues to serve as President. From December 1986 to the present, Mr. Glaspey has been a Metallurgical Engineer and Project Manager with Twin Gold Corporation. Mr. Glaspey has 28 years of operating and management experience. He holds a Bachelor of Science in Mineral Processing Engineering and an Associate of Science in Engineering Science. His experience includes production management, planning and directing resource exploration programs, preparing feasibility studies and environmental permitting. He has formed and served as an executive officer of several private resource development companies in the United States, including Drumlummon Gold Mines Corporation and Black Diamond Corporation.

John H. Walker is a director and our Chairman of the board of directors. He has held that position since December 2003. He has served (and continues to serve) as Chief Executive Officer of Mihaly International Canada Limited since 1987. Prior to that Mr. Walker was a Senior Advisor to Falconbridge Limited from September 2000 to April 2002; and Managing Director of Loewen, Ondaatje, McCutcheon, from November 1996 to August 2000. Mr. Walker holds a Master of Environmental Studies degree from York University in Toronto. For many years he was

an executive with Ontario Hydro where he directed programs in renewable energy and international business development, specifically in respect of thermal power generation. Currently as CEO of Mihaly International Canada Limited, based in Oakville, Ontario, he provides services to development and mining companies, corporations, banks, and insurance companies on a range of issues related to project management, construction, fuel supply, build own operate and transfer, project finance and risk management.

Paul A. Larkin serves as a director, a position he has held since March 2000. He served as our Secretary until December, 2003, and served as a director and the Secretary-Treasurer of Geo-Idaho from February 2002 until the acquisition. Since 1983, Mr. Larkin has also been the President of the New Dawn Group, an investment and financial consulting firm located in Vancouver, British Columbia, and the President of Tyner Resources Ltd., a TSX Venture Exchange listed company. New Dawn is primarily involved in corporate finance, merchant banking and administrative management of public companies. Mr. Larkin held various accounting and banking positions for over a decade before founding New Dawn in 1983, and currently serves on the boards of the following companies which are listed on the TSX Venture Exchange: eVenture Capital Corp., Condor Resources Inc., Triumph Gold Corp. and Tyner Resources Ltd.

Kerry D. Hawkley serves as our Chief Financial Officer. He has served as our controller since July 2003, and became Chief Financial Officer as of January 1, 2005. Since July 2003, he has also provided, and continues to provide, consulting services to Triumph Gold Corp. From 1998 to June 2003, Mr. Hawkley served as controller, director and treasurer of LB Industries. Mr. Hawkley has over 29 years experience in all areas of accounting, finance and administration. He holds Bachelor of Business Administration degrees in Accounting and Finance. He started his career as an internal auditor with Union Pacific Corporation and has held various accounting management positions in the oil and gas, truck leasing, mining and energy industries.

Kevin R. Kitz is the Vice President-Development of Geo-Idaho. He joined us in April 2003. He is a mechanical engineer with 19 years of geothermal power plant design, construction and operating experience with UNOCAL, with whom he worked until November 2002. He holds a Bachelor of Science in Mechanical Engineering and Material Science, and is a Professional Engineer in California. During his career with Unocal, he was a Production and Operations Engineer at the 75megawatt Salton Sea geothermal power plant in southern California, a Senior Production Engineer at the Geysers geothermal field in northern California, and a Power Plant Engineering Advisor in the Philippines for geothermal power plants ranging from 12 to 55 megawatts.

Robert A. Cline is the Vice President-Engineering of Geo-Idaho. He joined us in February 2005. He is a civil engineer with 24 years experience developing energy and water resources projects in the western U.S. He holds Bachelor of Science degrees in Civil Engineering and Physics, and is a Professional Engineer in Arizona and Oregon. Prior to joining us, he was the Manager Engineering at Ida-West Energy Company, playing a key role in developing several hydroelectric and gas-fired generating facilities, and was instrumental in several highly successful hydroelectric acquisitions. Prior to 1991, he worked nine years for the US Bureau of Reclamation where he was involved in engineering, contracting and construction of various water resources related projects in Arizona.

Christopher S. Harriman is the President of US Geothermal Services LLC. He has over ten years of power management experience and has eighteen years of industry experience. He worked for Black Hills Generation as plant manager of two ten-megawatt cogeneration facilities in southern Idaho. He also spent eight years with Exxon Shipping, and served in the U.S. Coast Guard. He joined us in July 2006.

Code of Ethics

Management submitted a proposed “Code of Ethics” to the Board of Directors for review and comment. The Board approved the code of ethics at the board meeting held in conjunction with the annual general meeting in September 2005. The code of ethics applies to all our directors, officers and employees. The Code of Ethics is included in our web page at www.usgeothermal.com.

Audit Committee

The audit committee of the board is composed of Messrs. Paul A. Larkin (Chairman), John H. Walker and Douglas J. Glaspey as its members. Our audit committee, among other things, meets with our independent accountants to review our accounting policies, internal controls and other accounting and auditing matters; makes recommendations to the board of directors as to the engagement of independent accountants; and reviews the letter

of engagement and statement of fees relating to the scope of the annual audit and special audit work which may be recommended or required by the independent accountants.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the annual compensation earned or paid to Daniel J. Kunz, the chief executive officer, Douglas J. Glaspey, the chief operating officer, and Kerry D. Hawkley, the chief financial officer, for the year ended March 31, 2006. None of our executive officers or those of Geo-Idaho had compensation that exceeded $100,000 during the fiscal years ending March 31, 2004, March 31, 2005 and March 31, 2006. Annual bonuses or other compensation have not been paid to the named executive officers for any period prior to March 31, 2006, except for the stock options listed below.

Mr. Kunz has an employment agreement with us which provides that he will devote at least 140 hours per month at a compensation of $132,000 annually. Mr. Glaspey and Mr. Hawkley have employment agreements with us that provides that they will devote 100% of their work effort at an annual compensation of $108,000 and $96,000, respectively. Each may engage in other business activities provided they do not engage in any activities which another executive officer determines is competitive, or will otherwise interfere with the performance of their duties to us. In addition to monetary compensation, they are entitled to receive incentive stock options as determined by our board of directors, benefits (including for immediate family) as are or may become available to other employees, and vacation. The employment agreements may be terminated by us without notice, payment in lieu of notice, severance or other sums for causes which include failure to perform in a competent and professional manner, appropriation of corporate opportunities or failure to disclose a conflict of interest, conviction which has become final for an indictable offense, fraud, dishonesty, refusal to follow reasonable and lawful direction of us, breach of fiduciary duty, and a declaration of bankruptcy by or against them. Otherwise we, upon one month written notice, may terminate the agreements. The agreements include covenants of confidentiality and non-competition, and provides for equitable relief in the event of breach.

Name and Principal	Year Ended		Long-term Compensation
position(s)	March 31	Annual Compensation	Awards
		Salary ($)	Securities underlying options/SARs (#)

Daniel J. Kunz	2006	$50,000	NIL
Chief Executive Officer	2005	$60,500	NIL
And President	2004	30,000	200,000

Douglas J. Glaspey	2006	$90,000	NIL
Chief Operating Officer	2005	$66,000	NIL
	2004	$58,000	200,000

Kerry D. Hawkley	2006	$42,000	NIL
Chief Financial Officer	2005 ⁽¹⁾	$33,000	60,000

(1)	Mr. Hawkley was appointed Chief Financial Officer on January 1, 2005.

Director Compensation

Directors who are not otherwise remunerated under an employment agreement are paid $3,750 per quarter and $500 per board meeting attended in person. Directors who are also officers do not receive any cash compensation for serving in that capacity. However, all directors are reimbursed for their out-of-pocket expenses in attending meetings.

Option Grants

On April 12, 2006, we granted 1,763,000 stock options to officers, employees and consultants. The number of stock options granted to executive officers is identified below. The options vest in quarterly increments, starting with the date of grant and every six months thereafter. The exercise price on the date of grant was the closing price of our

common stock on the day preceding the date of grant, less any discount available under the regulations of the exchange.

Optionee	Number of Shares	% of Total Options	Exercise Price	Expiration Date
	Underlying Options	Granted to	(Cdn$)
	Granted	Employees
Daniel J. Kunz	530,000	30.06	0.85	April 12, 2011
Douglas J. Glaspey	380,000	21.55	0.85	April 12, 2011
Kerry D. Hawkley	135,000	7.66	0.85	April 12, 2011

Daniel J. Kunz (January 10, 2006) and Douglas J. Glaspey (December 29, 2005) exercised options granted in a previous year.

Optionee	Shares Acquired on	Value Realized	Number of Shares	Value of In-The-
	Exercise	(Cdn$)	Underlying	Money Unexercised
			Unexercised Options	Options (Cdn$)
Daniel J. Kunz	100,000	18,500	13,494/0	6,949/0
Douglas J. Glaspey	100,000	25,000	22,134/0	11,399/0

We did not award any shares, units or rights to any executive officer under a Long-Term Incentive Plan during the fiscal year ended March 31, 2006.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Payment of Past Due Compensation

In September, 2004, we agreed to pay past due compensation for services rendered in calendar year 2004 to Messrs. Kunz, Glaspey, Bourgeois (who was then our Chief Financial Officer and Secretary) and Larkin, which, on October 19, 2004, each used to exercise options as follows:

		Past due
	Past due	compensation	Exercise price	Number of common
Optionee	compensation ($)	(Cdn$)	(Cdn$)	shares
Daniel Kunz	40,550	51,904	0.60	86,506
Doug Glaspey	36,500	46,720	0.60	77,866
Ron Bourgeois	13,000	16,640	0.60	27,733
Paul Larkin	40,607	51,978	0.60	86,630
Totals	130,657	167,242	0.60	278,735

Stock Option Grants

On April 12, 2006, we granted 1,763,000 stock options to officers, employees and consultants. The number of stock options granted to executive officers and directors is identified below. The options vest in quarterly increments, starting with the date of grant and every six months thereafter. The exercise price on the date of grant was the fair market value of or common stock on the date of grant.

Optionee	Number of Shares	% of Total Options	Exercise Price	Expiration Date
	Underlying Options	Granted to	(Cdn$)
	Granted	Employees
Daniel J. Kunz	530,000	30.06	0.85	April 12, 2011
Douglas J. Glaspey	380,000	21.55	0.85	April 12, 2011

Paul A. Larkin	180,000	10.21	1.00	April 12, 2011
Kerry D. Hawkley	135,000	7.66	0.85	April 12, 2011
John H. Walker	115,000	6.52	1.00	April 12, 2011
Jon Wellinghoff	120,000	6.81	0.85	April 12, 2011

Phase 1 Financing for Raft River Project

On August 9, 2006, we completed project financing for the estimated $39 million Phase 1 construction and development costs for the 13 megawatt binary cycle geothermal power plant for the Raft River project. In connection with the project financing, we entered into (i) the Membership Admission Agreement, dated August 9, 2006, among Raft River Energy I LLC, us and Raft River I Holdings, LLC, a Delaware limited liability company, (ii) the Amended and Restated Operating Agreement of Raft River Energy I LLC, dated as of August 9, 2006, among Raft River Energy I LLC, Raft River I Holdings, LLC and us, and (iii) the Management Services Agreement, dated as of August 9, 2006, between Raft River Energy I LLC and U.S. Geothermal Services, LLC, a Delaware limited liability company and our wholly-owned subsidiary. Raft River I Holdings, LLC, a subsidiary of The Goldman Sachs Group Inc., will contribute $34 million in cash and we will contribute $5 million in cash and approximately $1.5 million in property to Raft River Energy I LLC, the Phase 1 project joint venture company. The property being transferred consists of the power purchase agreement with Idaho Power Company, the engineering, construction and procurement agreement with Ormat Nevada Inc., the transmission agreement with Bonneville Power Administration - Transmission Business Line, the drilling contract with Union Drilling, as well as various leases, permits, reports and wells.

Goldman Sachs & Co., an affiliate of Raft River I Holdings, LLC, holds approximately 8% of our issued and outstanding shares of common stock.

BENEFICIAL OWNERSHIP OF SECURITIES

The following table sets forth the common stock beneficially owned by (1) our directors and named executive officers, (2) persons known by us to beneficially own, individually, or as a group, more than 5% of our outstanding common stock as of August 29, 2006 and (3) all of our current directors and executive officers as a group. For the purposes of the information provided below, beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and, for each person, includes shares that person has the right to acquire within 60 days following August 29, 2006 subject to options, warrants, or similar instruments. Except as indicated in the footnotes to this table, and as affected by applicable community property laws, all persons listed have sole voting and investment power for all shares shown as beneficially owned by them.

Name and Address of Beneficial Owner ⁽¹⁾	Number of Shares	% Shares
Daniel J. Kunz ⁽²⁾	2,776,779	6.31%
Douglas J. Glaspey ⁽³⁾	1,366,559	3.11%
Paul A. Larkin ⁽⁴⁾	964,138	2.20%
Kerry D. Hawkley ⁽⁵⁾	207,500	0.47%
John H. Walker ⁽⁶⁾	178,167	0.41%
Jon Wellinghoff ⁽⁷⁾	60,000	0.14%
All Directors and Officers as a group	5,553,143	12.45%
Goldman, Sachs & Co, 295 Chipeta Way, Salt Lake City, UT 84108	4,200,000	9.61%
SPCP Group LLC, 2 Greenwhich Plaza, Greenwhich, CT 06830	8,300,000	18.99%
S.A.C. Capital Associates LLC, PO Box 58, Victoria House, The Valley, Anguilla	3,000,000	6.87%
Winslow Green Growth Fund, PO Box 7247- 7057, Philadelphia, PA 19170-7057	2,700,000	6.18%
Wexford Capital, Walker House, Mary Street, Georgetown, Cayman Islands	3,000,000	6.87%

(1)	Unless otherwise indicated, the address for each of the above is c/o US Geothermal Inc, 1509 Tyrell Lane, Suite B, Boise, ID 83706.
(2)	336,785 shares included in this column are subject to an escrow agreement until December 19, 2006 for Mr. Kunz.
(3)	140,291 shares included in this column are subject to an escrow agreement until December 19, 2006 for Mr. Glaspey.
(4)	117,336 shares included in this column are subject to an escrow agreement until December 19, 2006 for Mr. Larkin.
(5)	13,333 shares included in this column are subject to an escrow agreement until December 19, 2006 for Mr. Hawkley.
(6)	16,666 shares included in this column are subject to and escrow agreement until December 19, 2006 for Mr. Walker.
(7)	Resigned as a director of the Corporation effective July 30, 2006.

SELLING SECURITY HOLDERS

The securities covered by this prospectus are shares of our common stock that have been issued and shares of our common stock that may be issued upon the exercise of warrants and options to purchase shares of our common stock. Because the selling securityholders may sell all or a portion of their shares at any time and from time to time after the date hereof, no estimate can be made of the number of shares of common stock that each selling security holder may retain upon the completion of the Offering. The number of shares of common stock that may be actually sold by the selling securityholders will be determined by these security holders. We are registering for the selling securityholders named herein an aggregate of 30,790,765 shares of common stock. The shares of common stock to which this prospectus relates consist of the following:

25,000,000 shares of common stock, issued on April 3, 2006 in connection with private placements;
1,746,314 shares of common stock issued on December 19, 2003 in connection with private placements;
909,637 shares of common stock issued upon exercise of stock purchase warrants and options;
280,000 shares of common stock issued upon the exercise of 280,000 compensation options to purchase shares issued on September 16, 2004, to Dundee Securities Corporation, Penson Financial Services Canada and Fraser Mackenzie Ltd. for fees in connection with a private placement;
1,522,500 shares of common stock issuable to Dundee Securities Corporation under compensation options for fees associated with a private placement;
2,,858,628 shares of common stock issuable upon the exercise of options issued on July 31, 2006 (for 170,000 shares), April 12, 2006 (for 1,763,000 shares), April 19, 2005 (for 50,000 shares), February 18, 2005 (for 100,000 shares), November 10, 2004 (for 420,000 shares),and February 3, 2004 (for 355,628 shares) to officers, consultants and employees;
100,000 shares of common stock, issued on February 23, 2005 in connection with the purchase of the Elena interest; and
120,000 shares of common stock issued on February 6, 2006 in connection with a signing bonus included in an employment agreement.

Except as noted above or in the “Beneficial Ownership of Securities” and the “Management” sections of this prospectus, none of the selling securityholders has, or within the past three years has had, any material relationship, position or office with us or our predecessors or affiliates.

The following table sets forth, as of August 29, 2006, (1) the name of each selling security holder, (2) the number of shares of our common stock beneficially owned by each selling security holder, including the number of shares purchasable upon exercise of options, and (3) the maximum number of shares of common stock which the selling securityholders can sell pursuant to this prospectus.

Except as otherwise noted below, the number of shares of our common stock registered for sale hereunder for a selling security holder consists of shares of our common stock either beneficially owned or issuable upon exercise of the warrants or options described above.

U.S. GEOTHERMAL INC. - COMMON SHARES

		Common Shares issuable	Total Shares
Holder Name	Common Shares	upon exercise of options	being offered
BARRETT, NIAL	-	25,000	25,000
BEACH, WAYNE	38,588	-	38,588
BOURGEOIS, RONALD	100,000	-	100,000
BROCK, WILLIAM	33,333	-	33,333
CHI, STEVEN	36,667	-	36,667
CLINE, ROBERT	-	176,500	176,500
COBBS, HARTZELL	4,000	-	4,000
CRYER, EDWIN T	10,000	-	10,000
DAKE, MIKE	25,000	-	25,000
DATSOPOLUS, MILT	222,222	100,000	322,222
DHILLON, SATVIR	-	80,000	80,000
DUNDEE SECURITIES CORPORATION ⁽¹⁾	-	1,522,500	1,522,500
DUNDEE SECURITIES LTD. ⁽²⁾	238,000	-	238,000
ISLA STEINBERG	40,000	-	40,000
LISA PETRELLI	20,000	-	20,000
ROBERT DONALDSON	40,000	-	40,000
VIRGINIA BAIN	20,000	-	20,000
COBANK PROPERTIES ⁽³⁾	20,000	-	20,000
3243796 CDA ⁽⁴⁾	50,000	-	50,000
ROBERT SELLARS	45,000	-	45,000
JOHN PANNETON	80,000	-	80,000
PETER LIEBEL	40,000	-	40,000
EIGURIN, ROY	-	40,000	40,000
ELENA CORPORATION ⁽⁵⁾	100,000	-	100,000
EXPLORATION CAPITAL PARTNERS 2005 LP ⁽⁶⁾	1,500,000	-	1,500,000
FALCONER, DONALD	12,863	-	12,863
FARRELL DISTRIBUTING CORP PENSION PLAN ⁽⁷⁾	235,000	-	235,000
FRANK DAVID ROSS INSURANCE TRUST ⁽⁸⁾	15,000	-	15,000
FRASER MACKENZIE LIMITED ⁽⁹⁾	28,000	-	28,000
GLASPEY, DOUGLAS	100,000	402,134	502,134
GOLDMAN, SACHS & CO. ⁽¹⁰⁾	4,200,000	-	4,200,000
GREAT LAKES PROTECTION FUND ⁽¹¹⁾	50,000	-	50,000
GRIM ESTATES LTD	180,000	-	180,000
HARRIMAN, CHRISTOPHER	-	150,000	150,000
HAWKLEY, KERRY	-	235,000	235,000
JENSEN, STEVEN	21,000	-	21,000
JESSIE SMITH NOYES FOUNDATION ⁽¹²⁾	90,000	-	90,000
JODAMADA FOUNDATION ⁽¹³⁾	100,000	-	100,000
JOHNSON, BEN	-	50,000	50,000
KITZ, KEVIN	139,277	293,167	432,444
KUNZ, DANIEL	768,574	543,494	1,312,068
KUNZ, DAVID	-	15,000	15,000

LARKIN, JP	25,000	25,000	50,000
LARKIN, PAUL	113,370	180,000	293,370
LENNOX-KING, OLIVER	38,588	-	38,588
MALEY, PAT	-	23,333	23,333
MARCUS, BARRY	15,000	-	15,000
MARINER LDC ⁽¹⁴⁾	400,000	-	400,000
MARTIN, SYLVIA	15,000	-	15,000
MISCOLL, JAMES P	40,000	-	40,000
MITCHELL, AMY	-	70,000	70,000
NEEDMOR FUND ⁽¹⁵⁾	15,000	-	15,000
NELSON, DONALD	108,000	-	108,000
NYE, NORMAN RANDALL	-	15,000	15,000
O’DONNELL, JIM	-	20,000	20,000
PARSLEY, GLEN PETER	-	50,000	50,000
PENSON FINANCIAL SERVICES CANADA ⁽¹⁶⁾	14,000	-	14,000
QUANCE, RICHARD	15,000	-	15,000
RANDOLPH K REPASS 1996 REVOCABLE TRUST ⁽¹⁷⁾	80,000	-	80,000
RICHARD, MAURICE	-	50,000	50,000
RIVA RIDGE MASTER FUND LTD. ⁽¹⁸⁾	600,000	-	600,000
RUNYAN, KIP	-	35,000	35,000
S.A.C. CAPITAL ASSOCIATES LLC ⁽¹⁹⁾	3,000,000	-	3,000,000
SANDLER, STEPHEN	45,000	-	45,000
SCENIC HUDSON INC. ⁽²⁰⁾	80,000	-	80,000
SMITH, STEVE R	45,000	-	45,000
SNEDDON, GERALD	130,000	-	130,000
SPCP GROUP LLC ⁽²¹⁾	8,300,000	-	8,300,000
SWARTLEY, JOHN	36,667	-	36,667
THOMAS WILLIAM REISS INSURANCE ⁽²²⁾	15,000	-	15,000
TOLL CROSS INVESTMENTS INC ⁽²³⁾	179,802	-	179,802
VERBENA HOLDING LTD. ⁽²⁴⁾	100,000	-	100,000
VERITABLE QUANDRY LLC	10,000	-	10,000
WALKER, JOHN	40,000	155,000	195,000
WALMESLEY, MARK	100,000	-	100,000
WARD, ROSCOE & JOYCE	5,000	-	5,000
WELLINGHOFF, JON	60,000	120,000	180,000
WEXFORD CATALYST TRADING LTD. ⁽²⁵⁾	1,200,000	-	1,200,000
WEXFORD SPECTRUM TRADING LTD. ⁽²⁶⁾	1,800,000	-	1,800,000
WINKLER, MURRAY	20,000	-	20,000
WINSLOW GREEN GROWTH FUND ⁽²⁷⁾	2,700,000	-	2,700,000
YANKE, RONALD C	108,000	-	108,000
YANTIS, ANNA	-	5,000	5,000
ZIEGLER, WILLIAM R	100,000	-	100,000

TOTAL	28,155,951	4,381,128	32,537,079

(1)	Broker accounts held for the beneficial owner Dundee Securities Corporation, voting controlled by any two of the following: Donald K. Charter, Chief Executive Officer, Robert Sellers, Chief Financial Officer or Daniella Dimitrov, Chief Operating Officer.
(2)	Voting controlled by Dawn Sankar.
(3)	Voting controlled by Stephen Sandler, Portfolio Manager.
(4)	Voting controlled by Stephen Sandler, Portfolio Manager.
(5)	Voting controlled by James Annest, President and Director.
(6)	Voting controlled by Arthur Richards Rule, President.
(7)	Voting controlled by Jackson W. Robinson, President of Winslow Management Company, LLC.
(8)	Voting controlled by Frank Reiss, Director.
(9)	Broker accounts held for the beneficial owner Fraser MacKenzie Limited, voting controlled by Jim Muir, Chief Operating Officer.
(10)	Voting controlled by Alan Waxman.
(11)	Voting controlled by Jackson W. Robinson, President of Winslow Management Company, LLC.
(12)	Voting controlled by Jackson W. Robinson, President of Winslow Management Company, LLC.
(13)	Voting controlled by Mark Goodman, Director.
(14)	Voting controlled by Stephen Golden.
(15)	Voting controlled by Jackson W. Robinson, President of Winslow Management Company, LLC.
(16)	Broker account held for the beneficial owner, Toll Cross Investments, voting controlled by Steve Somodi, Chief Financial Officer.

(17)	Voting controlled by Jackson W. Robinson, President of Winslow Management Company, LLC.
(18)	Voting controlled by Stephen Golden.
(19)	Voting controlled by Peter A. Nussbaum, General Counsel.
(20)	Voting controlled by Jackson W. Robinson, President of Winslow Management Company, LLC.
(21)	Voting controlled by Frederick H. Fogel.
(22)	Voting controlled by Thomas Reiss, Director.
(23)	Broker accounts held for the beneficial owner Toll Cross Investments Inc., voting controlled by Steve Somodi, Chief Financial Officer.
(24)	Voting controlled by John Epps, Attorney-in-Fact.
(25)	Voting controlled by Jay Maymudes, Vice President and Treasurer.
(26)	Voting controlled by Jay Maymudes, Vice President and Treasurer.
(27)	Voting controlled by Jackson W. Robinson, President of Winslow Management Company, LLC.

USE OF PROCEEDS

We will not receive any of the proceeds from the sale of the shares of common stock offered in this prospectus, other than the exercise price to be received upon exercise, if any, of the options. We do not know if or when any or how many of the options may be exercised. We will pay substantially all of the expenses related to the registration of the securities.

PLAN OF DISTRIBUTION

The selling shareholders and their successors, which includes their donees, pledges, transferees and successors-in-interest, may sell the shares of common stock offered by this prospectus from time to time in one or more transactions. We will not receive any proceeds from the sale of the shares by the selling shareholders. The selling shareholders may sell the shares at fixed prices that may change, market prices at the time of sale, prices related to market prices at the time of sale, or negotiated prices. The selling shareholders may sell the shares in one or more transactions:

in the open market;
on the Over-The-Counter Bulletin Board and on the TSX Venture Exchange, or such other market or exchange on which the shares of common stock are then traded;
in privately negotiated transactions;
in an underwritten offering;
combination of such methods or any other legally available means.

The selling shareholders may sell the shares to or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions from the selling shareholders or the purchasers of the securities. These discounts, concessions or commissions may be in excess of those customary in the types of transactions involved. Any broker-dealer may act as a broker-dealer on behalf of a selling shareholder in connection with the offering of the shares.

There can be no assurance that any selling shareholder will sell any or all of the securities pursuant to this prospectus. Further, we cannot assure you that any selling shareholder will not transfer, devise or gift the securities by other means not described in this prospectus. In addition, any securities covered by this prospectus that qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act of 1933, as amended, may be sold under Rule 144 or Rule 144A rather than under this prospectus. The securities may be sold in some states only through registered or licensed brokers or dealers. In addition, in some states the securities may not be sold unless they have been registered or qualified for sale or an exemption from registration or qualification is available and complied with.

The selling shareholders and any underwriters, broker-dealers or agents that participate in the distribution of the securities may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended. As a result, any profits on the sale of the securities by selling shareholders and any discounts or commissions received by any broker-dealers or agents may be deemed to be underwriting discounts and commissions under the Securities Act of 1933, as amended. Selling shareholders who are “underwriters” within the meaning of the Securities Act of 1933, as amended, will be subject to prospectus delivery requirements of the Securities Act of 1933, as amended. If the selling shareholders were deemed to be underwriters, the selling shareholders may be subject to statutory liabilities of the Securities Act of 1933, as amended, and the Securities and Exchange Act of 1934, as amended. If the securities are sold through underwriters, broker-dealers or agents, the selling shareholders will be responsible for underwriting discounts or commissions or agent’s commissions.

In connection with the sales of the securities, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions that in turn may engage in short sales of the securities in the course of hedging their positions, sell the securities short and deliver the securities to close out short positions, loan or pledge securities to broker-dealers or other financial institutions that in turn may sell the securities, enter into option or other transactions with broker-dealers or other financial institutions that require the delivery to the broker-dealer or other financial institution of the securities, which the broker-dealer or other financial institution may resell pursuant to the prospectus, or enter into transactions in which a broker-dealer makes purchases as a principal for resale for its own account or through other types of transactions.

The selling shareholders may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by the selling shareholders or borrowed from the selling shareholders or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from the selling shareholders in settlement of those derivatives to close out any related open borrowings of stock. The third party in these sale transactions will be an underwriter and, if not identified in this prospectus, will be identified in the applicable prospectus supplement or a post-effective amendment.

The selling security shareholders and any other person participating in the sale of securities will be subject to the Securities and Exchange Act of 1934, as amended. The rules under the Securities and Exchange Act of 1934, as amended, include, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the securities by the selling shareholders and any other person. In addition, Regulation M may restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities with respect to the particular securities being distributed. This may affect the marketability of the securities and the ability of any person or entity to engage in market-making activities with respect to the securities.

To our knowledge, there are currently no plans, arrangements or understandings between any selling shareholders and any underwriter, broker-dealer or agent regarding the sale of the securities by the selling shareholders. The only selling shareholders which are “broker-dealers” under the Securities Act of 1933, as amended, are Toll Cross Securities, Dundee Securities Corporation and Fraser Mackenzie Limited which received their securities as compensation for investment banking services. Toll Cross Investments, Inc. and Haworth Partners are affiliates of Toll Cross Securities. Each of Toll Cross Investments, Inc., Haworth Partners, Dundee Securities Corporation and Fraser Mackenzie Limited represented at the time of purchase of their securities that they were purchasing for investment and not for resale, and had no agreements or understandings, directly or indirectly, with any person to purchase the securities they purchased.

We will pay substantially all of the expenses incident to this registration of securities other than commissions and discounts of underwriters, brokers, dealers or agents. The selling securityholders may indemnify any broker, dealer, agent or underwriter that participates in transactions involving sales of the securities against some liabilities, including liabilities arising under the Securities Act of 1933, as amended.

LEGAL PROCEEDINGS

As of September 27, 2006, management is not aware of any legal proceedings in which we are a party, as plaintiff or defendant, or which involve any of our properties.

DESCRIPTION OF SECURITIES

Under our Certificate of Incorporation, the total number of shares of all classes of stock that we have authority to issue is 100,000,000, consisting of 100,000,000 shares of common stock, with a par value of $0.001 per share. As of September 27, 2006, there were 43,698,844 shares of our common stock issued and outstanding. Our common stock is traded on the TSX Venture Exchange under the symbol “GTH” and on the Over-The-Counter Bulletin Board under the symbol “UGTH”. The holders of common stock:

are entitled to one vote per share on each matter submitted to a vote of stockholders;
have no cumulative voting rights, and, accordingly, the holders of a majority of the outstanding shares have the ability to elect all of the directors;

have no preemptive or other rights to subscribe for shares; and
are entitled to such distributions as may be declared from time to time by the board of directors from funds legally available therefore, and upon liquidation are entitled to share ratably in the distribution of assets remaining after payment of liabilities.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization at March 31, 2006 and June 30, 2006:

	March 31, 2006	June 30, 2006
	($)	($)
Cash and cash equivalents	20,158,389	17,172,400
Total long term obligations	-	-
Capital stock
Authorized: 100,000,000 common shares, par	18,264	43,304
value $0.001 per share, 43,303,844
outstanding common shares

Additional paid-in capital and stock purchase warrants	26,796,498	27,231,508

Accumulated deficit since February 26, 2002	(5,232,535)	(5,605,021)

Accumulated other comprehensive income	32,792	32,792

Total liabilities and stockholders equity	21,895,933	22,225,825

INDEMNIFICATION OF OFFICERS AND DIRECTORS

Article XII of our Certificate of Incorporation provides for indemnification of officers and directors except (i) for any breach of a director's duty of loyalty to the company or its stakeholders (ii) acts and omission that are not in good faith or that involve intentional misconduct or knowing violation of law, (iii) under Section 174 of the general corporate law of the State of Delaware, or (iv) for any transaction from which the director derived any improper benefit.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers or controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.

LEGAL MATTERS

The validity of the issuance of the common stock offered hereby will be passed upon for us by Dorsey & Whitney LLP.

EXPERTS

The financial statements as of March 31, 2006, included in this prospectus have been so included in reliance on the report of Williams & Webster, P.S., independent accountants, given on the authority of said firm as experts in auditing and accounting.

The financial statements as of March 31, 2005, included in this prospectus have been so included in reliance on the report of Morgan and Company, independent accountants, given on the authority of said firm as experts in auditing and accounting.

Much of the information with respect to the geothermal resource at the Raft River project included in this prospectus is derived from the reports of GeothermEx, Inc. and has been included in this prospectus upon the authority of that company as experts with respect to the matters covered by the reports.

Much of the information with respect to the geothermal resource at Neal Hot Springs included in this prospectus is derived from the reports of Teplow Geologic and Thermochem, Inc. and has been included in this prospectus upon the authority of that company as experts with respect to the matters covered by the reports.

MANAGEMENT'S PLAN OF OPERATION

Twelve Month Plan of Operation

Our plan of operations for the next 12 months includes the following elements:

(1)	complete the conditions precedent to the financing drawdown to construct the Phase 1 power plant;

(2)	finalize construction agreements regarding the engineering, procurement and construction for aspects of the project not included under the agreements with Ormat Nevada Inc., Bonneville Power Administration, Industrial Builders, and Raft River Rural Electric Co-op;

(3)	continue permitting activities;

(4)	continue project construction for the first power plant under Phase 1;

(5)	finalize replacement Raft River Phase 2 power purchase agreements;

(6)	drill Raft River Phase 2 production and injection wells;

(7)	evaluate the geothermal resource potential of the new Oregon property; and

(8)	continue to seek and acquire additional geothermal resource properties and/or operations.

As part of its enhanced power sales plan, U.S. Geothermal submitted its response to Idaho Power’s request for proposals for the supply of geothermal power on August 11, 2006. Part of the company’s response to Idaho Power is a proposal to convert the existing 10MW monthly average contract to a full output contract that would allow an annual average 13MWs of power sales.

On August 10, 2006, the $34 million project finance was announced for Phase One of the Raft River development. The project finance structure is based on a partnership. As reported in U.S. Geothermal’s recently filed 8K and material change report, which are posted on both EDGAR and SEDAR, Raft River Holdings LLC (“RRH”) is an affiliate of The Goldman Sachs Group, and is U.S. Geothermal’s investment partner in Raft River Energy I LLC (“RREI”), the entity formed to own, construct and operate Phase One.

U.S. Geothermal has made a $5 million dollar cash contribution and is transferring to RREI the existing seven production and injection wells, and certain geothermal rights and leases covering 1,800 acres from the 5,397 total acres of geothermal rights currently held. RRH will make capital contributions totaling $34 million in accord with the construction payment schedule.

The partnership is able to consider increased development within the Phase One area of interest that may have a potential power capacity of 40MWs or more based on GeothermEx’s independent assessment of a 50 percent probability that 15.6 MWs per square mile exists at Raft River. The partnership does not restrict further development of the Company’s geothermal rights and allows for the development of the planned Phase Two power plants.

The approximately $1.7 million per year generated by the important Federal Renewable Electricity Production Tax Credits of $19 per megawatt-hour for every megawatt-hour of energy produced over the next 10 years will be claimed by RRH.

Ormat Nevada, a wholly owned subsidiary of Ormat Industries (NYSE: ORA), commenced work on April 26, 2006,

under the terms of a $20.2 million engineering procurement and construction contract signed in December 2005. Now in the sixth month of the 21-month contract, Ormat is continuing the detailed engineering and design, and has ordered major equipment including condensers, pumps, and a generator. Ormat will manufacture other critical equipment, including heat exchangers and the turbines. The project is on schedule and is expected to deliver its first power in September 2007, with commercial production in October 2007.

The Idaho Department of Environmental Quality issued the air quality Permit To Construct on May 26, 2006.

A $2.6 million contract was signed with Industrial Builders of Ontario, Oregon to construct the geothermal pipeline gathering and distribution system which will connect the production and injection wells with the power plant. The pipeline construction work is nearly 30 percent complete and is divided into two parts: 24-inch and 16-inch diameter injection pipelines, and 10-inch and 12-inch diameter production pipelines. Approximately 50 percent of the pipeline supports and 1,400-feet of 24-inch injection pipeline pipe are installed.

A $225,000 contract was recently signed with Raft River Rural Electrical Co-op to build the production well power distribution lines for delivery of electricity from the power plant to the well heads. Work has commenced on the distribution system.

A well improvement drilling contract was signed on May 25, 2006 with Union Drilling. The drill rig was mobilized to the site August 15, 2006 and started the improvement program by deepening the two existing injection wells. The drill rig will then be moved to two of the existing production wells and drill an additional production leg in each well to enhance production and reduce the number of total wells required to feed the Phase One power plant. The well improvement drilling program for Phase One, which will provide the required injection and production capacity for Unit 1, is expected to last 90 days.

The drill rig will then be moved the Phase 2 area and begin drilling the first new production well in over 25 years at Raft River.

U.S. Geothermal has purchased two new properties with ground water rights that will provide cooling water to the Phase One and Phase Two power plants and surface access for pipelines and project facilities. The two land parcels total 1,083 acres and have irrigation water rights for 1,904 acre-feet of water. A third purchase of water rights only was also completed for an additional 544 acre-feet of ground water. The Company will lease the amount of cooling water required for Phase One from these water rights to RREI. A transfer of the water rights required for Phase One from irrigation use to industrial use is pending final approval from the Idaho Department of Water Resources.

Teplow Geologic (“Teplow”), an independent geothermal consulting firm, recently conducted a geological reconnaissance and preliminary assessment of the project and found that “a commercially viable geothermal resource was discovered at Neal Hot Springs in l979”. Thermochem, Inc, an independent consulting firm, analyzed geothermal fluid samples recently collected from the area by Teplow. Using the chalcedony geothermometer method, a probable reservoir temperature of 311ºF to 320ºF is indicated, while a distal source temperature of 347ºF to 356ºF is indicated by the cation geothermometer.

A geophysical and geological mapping program has been proposed by Teplow to help determine the overall extent of the geothermal reservoir. A high-permeability production zone has been encountered by previous exploration drilling at a depth of 2680 feet and thus represents a confirmed production-drilling target. After completion of the mapping program, it is anticipated that production wells can be sited and drilled to intersect the geothermal reservoir at depths ranging from 2,500 to 4,700 feet. This well drilling would be followed by flow testing to confirm the production sustainability of the reservoir.

Statement Of Operations

A review of operating results for the three months ended June 30, 2006 and June 30, 2005

We incurred a net loss of $372,486 for the three months ended June 30, 2006, as compared to a net loss of $416,752 for the same period in 2005. No foreign currency translation adjustment resulted in a total comprehensive loss of $372,486 for the period ending June 30, 2006, as compared to a foreign currency translation adjustment of $132,469 and a total comprehensive loss of $549,221 in the same period ended June 30, 2005.

Interest income was $178,962 for the period ended June 30, 2006 as compared to $19,772 for the same period a year earlier. This is because of interest earned on monies invested in money market funds. Our expenses were $961,777 in the period ended June 30, 2006 as compared to $532,210 in the same three month period a year earlier. The major component of the $429,567 increase is $395,675 of salaries and wages and $42,124 in consulting fees in the period ended June 30, 2006. Travel and promotion was $105,046 in 2006 as compared to $80,334 in 2005. Stock based compensation of $438,659 is included in consulting fees and salaries and wages for the period ended June 30, 2006. Timing of fund transfers from Canada of the private placement funds resulting in a foreign exchange gain of $410,329.

A review of operating results for the years ended March 31, 2006 and 2005

We incurred a net loss of $1,523,385 for the year ended March 31, 2006, compared to a net loss of $1,830,421 for the same period in 2005. A foreign exchange loss of $132,470 resulted in a total comprehensive loss of $1,655,855 for the year ended March 31, 2006. There was $165,262 in foreign exchange gain in the year ended March 31, 2005. During the year ended March 31, 2006 there were no operating revenues, which was the situation for the year ended March 31, 2004, as we were still in a development stage and had not yet placed our resources into a commercial electricity power generation.

Interest income was $23,276 for the year ended March 31, 2006 as compared to $16,994 for the same period a year earlier. There was no operating revenue for the years ended March 31, 2006 and 2005. Our expenses were $1,663,069 as compared to $1,751,530 a year earlier. The general and administrative portion was $1,160,386, and exploration expenditures were nil for the year ended March 31, 2006. In the year ended March 31, 2005, general and administrative expenses were $1,087,449 and exploration expenditures were $438,885. Professional fees were $386,275 for the year ended March 31, 2006 and $321,081 for the year ended March 31, 2005. The amounts included in general and administrative expenses were primarily composed of salaries and wages and travel and promotion. There were no write-downs of assets. Stock based compensation of $180,780 is included in consulting fees and salaries and wages for the year ended March 31, 2006.

Liquidity and Capital Resources

Three months ended June 30, 2006 and June 30, 2005

Our working capital position of $16,692,680 at June 30, 2006 is adequate to fund our activities to March 31, 2008. Through March 31, 2008, we anticipate our staffing, professional services and office expenditures will average approximately $129,500 per month, or approximately $2,719,500. During the same period, Raft River development activities, including additional well drilling and testing, permitting, engineering, financing and the acquisition of transmission agreements are anticipated to cost approximately $8,800,000.

Further Raft River development and construction projects will not be initiated unless and until additional debt or equity financing is obtained. Consistent with Management’s Plan of Operations on page 44, we have obtained equity financing based on the strength of the Phase 1 power purchase agreement.

Net cash provided by equity financing activities was $19,983,281 in the three months ended June 30, 2006. Financing activities totaled $13,008 in the same period in 2005. Acquisition and development expenditures were $3,285,246 for the 2006 period as compared to $1,000 in the three months ended June 30, 2005. In the period ended June 30, 2006, $277,866 was utilized in operations, as compared to $455,872 in the same period in 2005. Working capital as at June 30, 2006 was $16,692,680 as compared to $1,332,290 on June 30, 2005. Cash resources were $17,172,400 at June 30, 2006 and unpaid current liabilities were $523,242. At June 30, 2005, cash resources were $1,380,742 and unpaid current liabilities were $89,602.

Years ended March 31, 2006 and 2005

Net cash provided by equity financing activities in 2006 was $708,337 as compared to $2,576,562 in 2005. Acquisition and development expenditures were $1,131,764 as compared to $41,331 in 2005. In 2006, $1,204,679 was utilized in operations while $1,578,139 was used in operations for 2005. The working capital as at March 31, 2006 was $19,888,904 as compared to $1,824,167 on March 31, 2005. Cash resources were $20,354,888 and unpaid current liabilities were $280,914 at March 31, 2006. Included in consulting fees for the year ended March 31, 2006 was $180,779 for stock-based compensation. Cash resources were $1,957,075 and unpaid current liabilities were $165,102 as at March 31, 2005 and $295,541 for stock based compensation expense was included in consulting fees.

Critical Accounting Policies

This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of our management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short term deposits with maturities of no more than ninety days when acquired.

Going Concern

Based on our projected spending over the next 12 months and the $20,134,260 cash received from the private placement completed April 3, 2006, our auditors have removed the going concern qualification from our financial statements. Management believes that sufficient funding will be available to meet our business objectives, including anticipated cash needs for working capital, and financing for construction of the Phase 1 power plant. As shown in the accompanying consolidated financial statements, we have incurred an accumulated deficit of $5,605,021 for the period from February 26, 2002 (inception) to March 31, 2006, and have no revenue from operations.

Property, Plant and Equipment

Costs of acquisition of geothermal properties are capitalized on an area-of-interest basis. Amortization of these costs will be on a unit-of-production basis, based on estimated proven geothermal reserves should these reserves be found. If an area of interest is abandoned, the costs thereof are charged to income in the year of abandonment.

We expense all costs related to the development of geothermal reserves prior to the establishment of proven and profitable reserves. Other equipment is recorded at cost. Depreciation of other equipment is calculated on a straight-line basis at an annual rate of 30%.

Income Taxes

As part of the process of preparing the consolidated financial statements, we are required to estimate the federal and state income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as derivative instruments, depreciation, depletion and amortization, and some accrued liabilities for tax and accounting purposes. These differences and the net operating loss carry forwards result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess, using all available positive and negative evidence, the likelihood that the deferred tax assets will be recovered from future taxable income. If we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we must include an expense or reduction of an expense within the tax provisions in the consolidated statement of operations.

Under SFAS 109, Accounting for Income Taxes, an enterprise must use judgment in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists (a) the more positive evidence is necessary and (b) the more difficult it is to support a conclusion that a valuation

allowance is not needed for some portion, or all of the deferred tax asset. Among the more significant types of evidence that we consider are:

taxable income projections in future years;
whether the carry forward period is so brief that it would limit realization of tax benefits;
future sales and operating cost projections that will produce more than enough taxable income to realize the deferred tax asset based on existing sales prices and cost structures; and
our earnings history exclusive of the loss that created the future deductible amount coupled with the evidence indicating that the loss is an aberration rather than a continuing condition.

Since we have no earnings history to determine the likelihood of realizing the benefits of the deferred tax asset, we are unable to determine our ability to realize net operating loss carry forwards prior to their expiration. Accordingly, we are required to provide a valuation allowance against our deferred tax asset.

The significant components of the deferred tax asset at June 30, 2006 and June 30, 2005 were as follows:

	June 30, 2006	March 31, 2006
Net operating loss carryforward	5,567,000	5,196,000
Deferred tax asset	1,893,000	1,767,000
Less valuation allowance for tax asset	-1,893,000	-1,767,000
Net deferred tax asset	-	-

At June 30, 2006 and March 31, 2006, we have net operating loss carryforwards of approximately $5,567,000 and $5,196,000 respectively, which expire in the years 2023 through 2026. The change in the allowance account from March 31, 2006 to June 30, 2006 was $126,000.

Recent Accounting Pronouncements

In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140.” This statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: a transfer of the servicer’s financial assets that meets the requirements for sale accounting; a transfer of the servicer’s financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities; or an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. The statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable and permits an entity to choose either the amortization or fair value method for subsequent measurement of each class of servicing assets and liabilities. The statement further permits, at its initial adoption, a one-time reclassification of available for sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available for sale securities under Statement 115, provided that the available for sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. Management believes the adoption of this statement will have no impact on our financial condition or results of operations.

In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections,” (hereinafter SFAS No. 154) which replaces Accounting Principles Board Opinion No. 20, accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements – An Amendment of APB Opinion No. 28”. SFAS No. 154 provides guidance on accounting for and reporting changes in accounting principle and error corrections. SFAS No. 154 requires that changes in accounting principle be applied retrospectively to prior period financial statements and is effective for

fiscal years beginning after December 15, 2005. Management does not expect SFAS No. 154 to have a material impact on our financial position, results of operations, or cash flows.

CHANGES IN ACCOUNTANTS

On July 15, 2005, we asked for and received the resignation of Morgan & Company, CA, our independent accountant who was previously engaged as the principal accountant to audit our financial statements. Based on the recommendation of our audit committee, our board of directors determined that it was in its best interests to engage independent accountants who are more familiar with United States generally accepted accounting principles and with requirements for filings with the Securities and Exchange Commission, and who are located closer to our principal business office.

Morgan & Company’s report on our financial statements for the two most recent fiscal years did not contain an adverse opinion or disclaimer of opinion, nor was it modified as to audit scope, or accounting principles, but it did contain a modification as to uncertainty.

There were no disagreements between us and Morgan & Company on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, for the two most recent fiscal years and through the date of dismissal. Morgan & Company has not advised us that (i) internal controls necessary to develop reliable financial statements did not exist; or (ii) information has come to the attention of Morgan & Company which made Morgan & Company unwilling to rely on management’s representations, or unwilling to be associated with the financial statements prepared by management; or (iii) the scope of the audit should be expanded significantly, or that information had come to the attention of Morgan & Company that will, or if further investigated might, materially impact the fairness or reliability of any previously issued audit report or the underlying financial statements.

Effective July 15, 2005, we engaged Williams & Webster, P.S., certified public accountants, as the principal accountant to audit our financial statements. In addition, also effective July 15, 2005, we engaged HEIN & Associates LLP as accounting advisor/consultant for accounting, tax and internal control issues that may raise independence concerns for Williams & Webster, P.S., and/or the Securities and Exchange Commission. Prior to their engagement, we did not consult with either of these firms with respect to the application of accounting principles to a specific completed or contemplated transaction or the type of audit opinion that might be rendered on our financial statements, and no written or oral advise with respect to such matters was provided by either firm.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to informational filing requirements of the U.S. Securities Exchange Act of 1934, as amended, and its rules and regulations. This means that we will file reports and other information with the U.S. Securities and Exchange Commission. The reports and other information that we will file can be read and copied at the public reference facilities maintained by the Commission at One Station Place, 100 F Street, NE, Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for information on the operation of the public reference rooms. Copies of this material can also be obtained from the Commission at prescribed rates through its Public Reference Section at 450 Fifth Street, Northwest, Washington, DC 20549. The Commission maintains a Web site that will contain the reports and other information that we file electronically with the Commission and the address of that Web site is http://www.sec.gov . Statements contained in this prospectus as to the intent of any contract or other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of the particular contract or other document filed as an exhibit to this registration statement, each statement being qualified in all respects by this reference.

This prospectus is part of a registration statement we filed with the SEC. You should rely only on the information or representations provided in this prospectus. We have not authorized anyone to provide you with any information other than that provided in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of the document.

We also file disclosure information as required by the British Columbia Securities Commission and the TSX Venture Exchange. This information can be found at the following Web site: www.sedar.com .

U.S. Geothermal Inc.

CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2006

U.S. Geothermal Inc.

March 31, 2006

TABLE OF CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	52


FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS	55
CONSOLIDATED STATEMENTS OF INCOME	56
CONSOLIDATED STATEMENT OF CASH FLOW	57
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	59


NOTES TO FINANCIAL STATEMENTS	62

Board of Directors
U.S. Geothermal Inc.
Boise, Idaho

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheet of U.S. Geothermal Inc. (an exploration stage company) as of March 31, 2006, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended and for the period from February 26, 2002 (inception) through March 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The financial statements of U.S. Geothermal Inc. as of March 31, 2005 were audited by other auditors whose report dated June 16, 2005 expressed an unqualified opinion on those financial statements.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Geothermal Inc. as of March 31, 2006 and the results of its operations, stockholders’ equity, and cash flows for the year then ended and for the period from February 26, 2002 (inception) through March 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
June 23, 2006

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

(Stated in U.S. Dollars)

		March 31,			March 31,
		2006			2005

ASSETS

Current
Cash and cash equivalents	$	196,499		$	1,957,075
Restricted cash (see Note 10)		19,961,890			0
Refundable tax credit		4,703			3,095
Prepaid expenses and other		6,726			29,099
Total Current Assets		20,169,818			1,989,269

Property, Plant and Equipment (see Note 4)		1,726,115			595,701
Total Assets	$	21,895,933		$	2,584,970

LIABILITIES

Current
Accounts payable and accrued liabilities	$	270,831		$	160,260
Related party accounts payable		10,083			4,842
Total Current Liabilities		280,914			165,102

STOCKHOLDERS’ EQUITY
Capital stock
Authorized:
100,000,000 common shares with a $0.001 par value
Issued and Outstanding:
18,263,844 shares at March 31, 2006 and		18,264			17,332
17,331,429 shares at March 31, 2005
Capital stock issuable		20,134,260			0
Additional paid-in capital		5,338,200			3,485,642
Stock purchase warrants		1,324,038			2,460,782
Accumulated other comprehensive income		32,792			165,262
Accumulated deficit before development stage		(1,037,422	)		(1,037,422	)
Accumulated deficit during development stage		(4,195,113	)		(2,671,728	)
Total Stockholders’ Equity		21,615,019			2,419,868
Total Liabilities and Stockholders’ Equity	$	21,895,933		$	2,584,970

Approved on behalf of the Board:

“Doug Glaspey”, Director

“Paul Larkin”, Director

The accompanying notes are an integral part of these consolidated financial statements.

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Stated in U.S. Dollars)

		YEAR						CUMULATIVE
		ENDED						PERIOD FROM
		MARCH 31						FEB. 26, 2002
		2006			2005			TO MAR. 31, 2006

Revenue	$	-		$	-		$	-

Operating Expenses
Consulting fees		54,513			489,747			908,465
Administrative and development costs		185,186			118,098			326,071
Exploration expenditures		-			438,885			440,611
Professional fees		386,275			321,081			963,991
Management fees		36,415			86,463			288,733
Salaries and wages		639,927			207,759			847,686
Travel and promotion		360,753			89,497			474,518
Loss from Operations		(1,663,069	)		(1,751,530	)		(4,250,075	)

Other Income (Expense)
Foreign exchange gain (loss)		116,408			(95,885	)		11,269
Interest income		23,276			16,994			43,693
Loss Before Income Taxes		(1,523,385	)		(1,830,421	)		(4,195,113	)

Income Taxes (see Note 2g)		-			-			-

Net Loss	$	(1,523,385	)	$	(1,830,421	)	$	(4,195,113	)


Basic And Diluted Net Loss Per Share	$	(0.09	)	$	(0.12	)


Weighted Average Number Of Shares Outstanding		17,797,637			15,209,468
for Basic and Diluted Calculations


Other Comprehensive Income (Loss)
Net loss for the period	$	(1,523,385	)	$	(1,830,421	)	$	(4,195,113	)
Foreign currency translation adjustment		(132,470	)		165,262			32,792


Total Comprehensive Loss	$	(1,655,855	)	$	(1,665,159	)	$	(4,162,321	)

The accompanying notes are an integral part of these consolidated financial statements.

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in U.S. Dollars)

		YEAR ENDED						FROM
		March 31						FEB. 26, 2002
		2006			2005			TO MAR. 31, 2006


Operating Activities
Net loss for the period	$	(1,523,385	)	$	(1,830,421	)	$	(4,195,113	)
Add: Non-cash items:
Depreciation		1,350			1,399			3,325
Shares issued for other than cash		-			-			49,600
Stock based compensation		180,779			295,540			772,400


Change in non-cash working
capital items:
Accounts payable and accrued		115,812			(20,363	)		34,770
Liabilities
Prepaid expenses		22,373			(29,099	)		(6,726	)
Refundable tax credit and grant		(1,608	)		4,805			1,115
receivable
Total Cash Used by Operating		(1,204,679	)		(1,578,139	)		(3,340,629	)
Activities
Investing Activities
Purchases of property, plant and		(1,131,764	)		(41,331	)		(1,652,089	)
equipment
Cash acquired on business		-			-			5,798
combination
Total Cash Provided (Used) by		(1,131,764	)		(41,331	)		(1,646,291	)
Investing Activities

Financing Activities
Issuance of share capital, net of		708,337			2,576,562			5,150,627
share issue cost
Total Cash Provided by Financing		708,337			2,576,562			5,150,627
Activities

Foreign Exchange Effect On
Cash And Cash Equivalents		(132,470	)		129,470			32,792



Increase (Decrease) In Cash And		(1,760,576	)		1,086,562			196,499
Cash Equivalents

Cash And Cash Equivalents,
Beginning Of Period		1,957,075			870,513			-

Cash And Cash Equivalents, End	$	196,499		$	1,957,075		$	196,499
Of Period

The accompanying notes are an integral part of these consolidated financial statements.

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Stated in U.S. Dollars)

		YEAR ENDED				FROM
		MARCH 31				FEB. 26, 2002
		2006		2005		TO MAR. 31, 2006


Supplemental Disclosure
Taxes paid	$	-	$	-	$	-
Interest paid		-		-		-
Non-cash investing and financing activities
Shares issued for settlement of debt		-		-		173,639
Shares issued for professional services		-		-		49,600
Shares issued for geothermal property		-		60,351		77,350
Warrants issued for share issue cost		-		133,341		158,778

The accompanying notes are an integral part of these consolidated financial statements.

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FROM INCEPTION, FEBRUARY 26, 2002, TO MARCH 31, 2006

(Stated in U.S. Dollars)

	NUMBER				ADDITIONAL		CAPITAL		STOCK		ACCUM.
	OF				PAID-IN		STOCK		PURCHASE		OTHER		ACCUM.
	SHARES		AMOUNT		CAPITAL		ISSUABLE		WARRANTS		INCOME		DEFICIT			TOTAL


Shares issued for cash at $0.015 per share – February 26,
2002	2,600,000	$	2,600	$	37,400	$	-	$	-	$	-	$	-		$	40,000
Shares and warrants issued for Geothermal property at
$0.009 – March 5, 2002	1,895,000		1,895		15,105		-		-		-		-			17,000

Balance, March 31, 2002 – U.S. Geothermal Inc. – Idaho
	4,495,000		4,495		52,505		-		-		-		-			57,000

Shares issued for cash at $0.25 per share – May 28, 2002
	395,000		395		98,355		-		-		-		-			98,750
Shares issued for services at $0.25 per share – May 28,
2002	5,000		5		1,245		-		-		-		-			1,250
Shares issued for cash at $0.30 per share – November 1,
2002	1,023,667		1,024		306,076		-		-		-		-			307,100
Shares issued for services at $0.30 per share – November
1, 2002	10,000		10		2,990		-		-		-		-			3,000
Shares issued for services at $0.30 per share – February
14, 2003	151,170		151		45,199		-		-		-		-			45,350
Net loss for the period	-		-		-								(164,909	)		(164,909	)

Balance carried forward, March 31, 2003 – U.S.
Geothermal Inc. – Idaho	6,079,837	$	6,080	$	506,370	$	-	$	-	$	-	$	(164,909	)	$	347,541

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Continued)

FROM INCEPTION, FEBRUARY 26, 2002, TO MARCH 31, 2006

(Stated in U.S. Dollars)

	NUMBER						ADDITIONAL			CAPITAL		STOCK		ACCUM.
	OF						PAID-IN			STOCK		PURCHASE		OTHER		ACCUM.
	SHARES			AMOUNT			CAPITAL			ISSUABLE		WARRANTS		INCOME		DEFICIT			TOTAL

Balance carried forward, March 31, 2003 – U.S.																		$
Geothermal Inc. – Idaho	6,079,837		$	6,080		$	506,370		$	-	$	-	$	-	$	(164,909	)		347,541


Consolidation adjustment to the number of shares issued
and outstanding as a result of the reverse take-over	(6,079,837	)	$	(6,080	)	$	6,080		$	-	$	-	$	-	$	-		$	-
transaction- U.S. Geothermal Inc.- Idaho
December 19, 2003
Legal parent company shares issued and outstanding at
time of reverse take-over- U.S. Cobalt Inc.-	2,274,616			2,275			(2,275	)		-		-		-		-			-
December 19, 2003
Shares issued for acquisition of U.S. Geothermal Inc.-
Idaho	6,939,992			6,940			(6,940	)		-		-		-		(408,166	)		(408,166	)
Warrants issued for acquisition of U.S. Geothermal Inc.-
Idaho	-			-			-			-		629,256		-		(629,256	)		-

Shares and warrants issued for cash at a price of $0.45 per
share in a private placement, net of share issue costs of	3,322,221			3,322			959,230			-		457,326		-		-			1,419,878
$75,122 paid in cash and $25,437 paid by issuance of
83,333 agent’s warrants- December 19, 2003
Shares and warrants issued for conversion of notes at
$0.45 per share – February 20, 2004	385,864			386			123,090			-		50,162		-		-			173,638
Stock options granted
	-			-			296,081			-		-		-		-			296,081
Foreign currency translation gain
	-			-			-			-		-		35,792		-			35,792

Net loss for the year
	-			-			-			-		-		-		(676,398	)		(676,398	)
Balance, March 31, 2004
	12,922,693		$	12,923		$	1,881,636		$	-	$	1,136,744	$	35,792	$	(1,878,729	)	$	1,188,366

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (CONTINUED)

FROM INCEPTION, FEBRUARY 26, 2002, TO MARCH 31, 2006

(Stated in U.S. Dollars)

	NUMBER				ADDITIONAL		CAPITAL		STOCK			ACCUM.
	OF				PAID-IN		STOCK		PURCHASE			OTHER			ACCUM.
	SHARES		AMOUNT		CAPITAL		ISSUABLE		WARRANTS			INCOME			DEFICIT			TOTAL

Balance, March 31, 2004	12,922,693	$	12,923	$	1,881,636	$	-	$	1,136,744		$	35,792		$	(1,878,729	)	$	1,188,366


Shares and warrants issued for cash at a price of $0.66 in
a private placement, net of share issue costs of	4,000,001		4,000		1,103,082		-		1,324,038			-			-			2,431,120
$225,131 paid in cash and $133,341 paid by the
issuance of 280,000 agent’s warrants- September 17,
2004
Shares issued for property at a price of $0.60- February	100,000		100		60,251		-		-			-			-			60,351
22, 2005
Shares issued for stock options exercised	308,735		309		145,133		-		-			-			-			145,442
Stock options granted	-		-		295,540		-		-			-			-			295,540
Foreign currency translation gain	-		-		-		-		-			129,470			-			129,470
Net loss for the year	-		-		-		-		-			-			(1,830,421	)		(1,830,421	)

Balance, March 31, 2005	17,331,429		17,332		3,485,642		-		2,460,782			165,262			(3,709,150	)		2,419,868
Stock options granted	-		-		180,780		-		-			-			-			180,780
Expiration of stock purchase warrants	-		-		1,061,145		-		(1,061,145	)		-			-			-
Shares issued for stock options and warrants exercised	932,415		932		610,633		-		(75,599	)		-			-			535,966
Foreign currency translation loss	-		-		-		-		-			(132,470	)		-			(132,470	)
Capital stock issuable as result of a private placement to
be closed April 3, 2006	-		-		-		20,134,260		-			-			-			20,134,260
Net loss for the year
	-		-		-		-		-			-			(1,523,385	)		(1,523,385	)
Balance, March 31, 2006
	18,263,844	$	18,264	$	5,338,200	$	20,134,260	$	1,324,038		$	32,792		$	(5,232,535	)	$	21,615,019

The accompanying notes are an integral part of these consolidated financial statements.

U.S. GEOTHERMAL INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Stated in U.S. Dollars)

NOTE 1 – NATURE OF OPERATIONS AND GOING CONCERN

a) Organization

When U.S. Cobalt Inc. (“GTH” or the “Company”) completed a reverse take-over on December 19, 2003, the former stockholders of U.S. Geothermal Inc. (“GEO - Idaho”), a company incorporated on February 26, 2002 in the State of Idaho, acquired control of GTH (Note 3). In connection with the transaction, U.S. Cobalt Inc. changed its name to U.S. Geothermal Inc. and consolidated its common stock on a one new to five old basis. All references to common shares in these financial statements have been restated to reflect the roll-back of common stock.

b) Development Stage Activities

The Company has been in the development stage since its formation and has not yet realized any revenues from its planned operations. GEO - Idaho operates for the purpose of acquiring geothermal properties and entered into an agreement with the previous owner, pursuant to which the Company has acquired a 100% interest in the Raft River Geothermal Property located in Cassia County, Idaho (Note 4).

c) Going Concern

Based on the Company’s projected spending over the next 12 months and the $20,134,260 cash received from the private placement completed April 3, 2006, the Company’s auditors have removed the going concern qualification from the Company’s financial statements. Management believes that sufficient funding will be available to meet its business objectives, including anticipated cash needs for working capital, and is currently evaluating several financing options for construction of the phase one power plant. As shown in the accompanying consolidated financial statements, the Company has incurred an accumulated deficit of $5,232,535 for the period from February 26, 2002 (inception) to March 31, 2006, and has no revenue from operations.

NOTE 2- ACCOUNTING POLICIES

a) Basis of Presentation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the following companies:

U.S. Geothermal Inc. (incorporated in the State of Delaware);
U.S. Geothermal Inc. (incorporated in the State of Idaho);

U.S. Cobalt Inc. (incorporated in the State of Colorado);
Raft River Energy I LLC (incorporated in the State of Delaware);
US Geothermal Services, LLC (incorporated in the State of Delaware).

All inter-group transactions are eliminated on consolidation.

b) Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Company’s financial position and results of operations.

c) Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections,” (hereinafter SFAS No. 154”) which replaces Accounting Principles Board Opinion No. 20, accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements – An Amendment of APB Opinion No. 28”. SFAS No. 154 provides guidance on accounting for and reporting changes in accounting principle and error corrections. SFAS No. 154 requires that changes in accounting principle be applied retrospectively to prior period financial statements and is effective for fiscal years beginning after December 15, 2005. Management does not expect SFAS No. 154 to have a material impact on the Company’s financial position, results of operations, or cash flows.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153. This statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that opinion, however, included certain exceptions to that principle. This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued. Management believes the adoption of this statement had no impact on the financial statements of the Company at December 31, 2005 and 2004.

In December 2004, the Financial Accounting Standards Board issued a revision to Statement of Financial Accounting Standards No. 123R, “Accounting for Stock Based Compensation.” This statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This statement does not change the accounting guidance for share based payment transactions with parties other than employees provided in Statement of Financial Accounting Standards No. 123. This statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans.” The Company has not yet determined the impact to its financial statements from the adoption of this statement.

d) Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short term deposits with maturities of no more than ninety days when acquired.

e) Property, Plant and Equipment

Costs of acquisition of geothermal properties are capitalized on an area-of-interest basis. Amortization of these costs will be on a unit-of-production basis, based on estimated proven geothermal reserves should such reserves be found. If an area of interest is abandoned, the costs thereof are charged to income in the year of abandonment.

The Company expenses all costs related to the development of geothermal reserves prior to the establishment of proven and profitable reserves. Other equipment is recorded at cost. Depreciation of other equipment is calculated on a straight-line basis at an annual rate of 30%.

f) Impairment of Long-Lived Assets

SFAS No. 144- “Accounting for the Impairment or Disposal of Long-Lived Assets” establishes a single accounting model for long-lived assets to be disposed of by sale including discontinued operations. SFAS 144 requires that these long-lived assets be measured at the lower of the carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations.

g) Income Taxes

The Company accounts for income taxes pursuant to SFAS No. 109- “Accounting for Income Taxes”. Under SFAS No. 109, the Company is required to compute tax asset benefits for net operating losses carried forward. Potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

The significant components of the deferred tax asset at March 31, 2006 and March 31, 2005 were as follows:

		March 31,		March 31,
		2006		2005
Net operating loss carryforward	$	5,196,418	$	3,541,913
Deferred tax asset:	$	1,767,000	$	1,204,000
Less valuation allowance for tax asset		-1,767,000		-1,204,000
Net deferred tax asset	$	-	$	-

At March 31, 2006 and March 31, 2005, the Company has net operating loss carryforwards of approximately $5,196,418 and $3,541,913 respectively, which expire in the years 2023 through 2025. The change in the allowance account from March 31, 2005 to March 31, 2006 was $563,000.

h) Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, refundable tax credits, and accounts payable and accrued liabilities. Unless otherwise noted, it is management’s opinion

that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values, unless otherwise noted.

Refundable tax credit is comprised of Goods and Services Tax (“GST”) which is refundable from the Government of Canada.

i) Basic and Diluted Loss Per Share

In accordance with SFAS No. 128- “Earnings Per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. As the Company generated net losses in each of the periods presented, the basic and dilutive loss per share is the same, as any exercise of options or warrants would be anti-dilutive.

j) Foreign Currency Translation

The Company’s functional currency is the U.S. dollar. Transactions in foreign currency are converted into U.S. dollars using the current method as follows:

Monetary items at the rate prevailing at the balance sheet date;
Non-monetary items at the historical exchange rate;
Revenue and expenses at the average rate in effect during the applicable accounting period.

Adjustments arising from the translation of the foreign currency amounts are included as a separate component of stockholders’ equity.

k) Asset Retirement Obligations

SFAS No. 143- “Accounting for Asset Retirement Obligations” requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time the obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset.

NOTE 3 - REVERSE TAKE-OVER

Effective December 19, 2003, GTH acquired 100% of the issued and outstanding voting shares of GEO - Idaho by issuing 6,939,992 common shares and 2,420,217 share purchase warrants, of which 2,150,309 common shares and no share purchase warrants were held in escrow as at December 31, 2005 (as at March 31, 2005, 4,243,325 common shares and 1,946,937 share purchase warrants were held in escrow). Each share purchase warrant entitled the holder to purchase one additional common share at a price of $0.75 per share until December 19, 2005. As of December 31, 2005, the 2,420,217 stock purchase warrants noted above have expired without exercise. Since the transaction resulted in the former shareholders of GEO - Idaho owning the majority of the issued shares of GTH, the transaction, which is referred to as a “reverse take-over”, has been treated for accounting purposes as an acquisition by GEO - Idaho of the net

assets and liabilities of GTH. Under this purchase method of accounting, the results of operations of GTH are included in these financial statements from December 19, 2003. GEO -Idaho is deemed to be the purchaser for accounting purposes. Accordingly, its net assets are included in the balance sheet at their previously recorded values.

The Company has determined that the share purchase warrants issued as part of the transaction have a fair value of $629,256 as determined by using the Black-Scholes pricing model with the assumptions as stated in Note 5. The amount is considered to be additional consideration given to the former GEO - Idaho shareholders and, as such, has been allocated, along with the net liabilities assumed of GTH, to deficit.

The acquisition is summarized as follows:

Current assets (including cash of $5,798)	$	11,616
Current liabilities		(419,782	)

Net liabilities assumed	$	(408,166	)

The net liabilities assumed have been charged to accumulated deficit.

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

GEO - Idaho entered into an agreement, as amended December 3, 2002, with the previous owner to purchase up to a 100% interest in the Raft River Geothermal Property (“the Property”) located in Cassia County, Idaho, in exchange for 1,895,000 shares (the “old shares”), 1,612,000 warrants (the “old warrants”) of GEO – Idaho, and up to $600,000 in cash. A condition to acquiring 100% of the Property is the completion by GEO - Idaho of at least a $200,000 work program on the Property. The old shares and old warrants were exchanged subsequent to December 31, 2002 (as part of the reverse take-over described in Notes 3 and 5) for shares and warrants of the Company.

As of March 31, 2006, the Company has acquired a 100% interest in the Property by making cash payments totalling $250,000 in 2003, $225,000 in 2004 and $125,000 in 2005. The Company has also completed the requisite work program. In addition, the Company has paid $57,728 to acquire two purchase options on 1,083 acres of surface and water rights, and paid $949,036 to initiate construction of the Raft River Project.

During the year ended March 31, 2005, the Company acquired 100 acres of surface and energy rights in exchange for a cash payment of $40,000 and issuance of 100,000 common shares valued at $60,351.

Property, plant and equipment consisted of the following at the dates shown:

		March 31,			March 31,
		2006			2005
Geothermal property (land and equipment)
Balance, beginning of period	$	592,351		$	492,000
Shares issued		-			60,351
Cash payments		182,728			40,000
Balance, end of period		775,079			592,351

Construction in Process- Raft River Project
Balance, beginning of period		-			-
Power Plant One		565,459			-
Transmission Lines and Substation		139,193			-
Pipelines		78,478			-
Well Drilling		165,906			-
Balance, end of period		949,036			-

Other equipment
Balance, beginning of period		5,325			3,994
Acquisitions		-			1,331
Balance, end of period		5,325			5,325
Less: Accumulated depreciation		(3,325	)		(1,975	)
Net balance, end of period		2,000			3,350

	$	1,726,115		$	595,701

NOTE 5 - CAPITAL STOCK

The Company is authorized to issue 1,000,000,000 shares of common stock. All shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.

On March 13, 2006, the Company issued 15,000 common shares upon the exercise of 15,000 options at an exercise price of $0.60 CDN ($0.51 U.S. as of March 13, 2006).

On February 17, 2006, the Company issued 192,934 common shares upon the exercise of 192,934 stock purchase warrants at an exercise price of $0.75 U.S.

On February 9, 2006, the Company issued 25,000 common shares upon the exercise of 25,000 options at an exercise price of $0.60 CDN ($0.51 as of February 9, 2006).

On February 6, 2006, the Company issued 120,000 common shares as a signing bonus as part of an employment agreement at a deemed price of $0.72 CDN ($0.61 U.S. as of February 6, 2006.

On January 9, 2006, the Company issued 138,370 common shares upon the exercise of 138,370 options at an exercise price of $0.60 CDN ($0.51 U.S. as of January 9, 2006).

On January 3, 2006, the Company issued 200,000 common shares upon the exercise of 200,000 options at an exercise price of $0.60 CDN ($0.51 U.S. as of January 3, 2006).

On December 28, 2005, the Company issued 183,333 common shares upon the exercise of 100,000 options at an exercise price of $0.60 CDN ($0.51 U.S. as of December 28, 2005) and 83,333 purchase warrants at an exercise price of $0.45 U.S.

On July 22, 2005, the Company issued 40,000 common shares upon the exercise of 40,000 options at an exercise price of $0.60 CDN ($0.51 U.S. as of July 22, 2005).

On April 11, 2005, the Company issued 17,778 common shares upon the exercise of 17,778 options at an exercise price of $0.90 CDN ($0.73 U.S. as of April 11, 2005).

On February 23, 2005, the Company issued 100,000 common shares at a price of $0.60 for two parcels of land and energy rights adjacent to its Raft River Property valued at $60,351.

On February 18, 2005, the Company issued 30,000 common shares upon the exercise of 30,000 stock options at an exercise price of $0.60 CDN ($0.49 U.S. as at February 18, 2005).

On October 20, 2004, the Company issued 278,735 common shares upon the exercise of 278,735 stock options at an exercise price of $0.60 CDN ($0.47 U.S. as at October 20, 2004).

In payment for services provided in connection with the private placement described below, the Company paid $225,131 in cash and granted 280,000 agent’s warrants exercisable at a price of $0.85 CDN ($0.72 U.S. as at September 30, 2005) until September 17, 2006. The warrants are exercisable into units identical (including with respect to acceleration) to the units offered in the private placement. The fair value of $133,341, as calculated by the Black-Scholes model, was recorded as a share issue cost.

On September 17, 2004, the Company issued 4,000,001 units for a private placement at a price of $0.85 CDN ($0.66 U.S. as at September 17, 2004) per unit. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at a price of $1.25 CDN ($1.06 U.S. as at September 30, 2005) per share until September 17, 2006. Should the closing price of the Company’s common shares exceed $1.65 CDN ($1.40 U.S. as at September 30, 2005) per share for twenty consecutive trading days, the exercise date of the warrants may be accelerated to a date not earlier than twenty days following the date of the press release indicating the acceleration.

During the year ended March 31, 2004, the Company made cash payments totalling $137,398 pursuant to the convertible notes described below. On February 20, 2004, the Company issued 385,864 units, at a value of $0.45 per unit, on conversion of amounts due under the convertible promissory notes totalling $173,639, including unpaid principal of $147,000 and interest accrued at a rate of 20% per annum totalling $26,638. Each unit has identical terms and conditions to the units issued in the December 2003 private placement described below, other than the expiration date of the warrants which expire on February 17, 2006.

On December 19, 2003, the Company issued 6,939,992 shares and 2,420,217 warrants (the “new warrants”) to the shareholders of GEO - Idaho to effect the reverse take-over (“RTO”) described

in Note 3. Pursuant to the negotiated agreement of the parties, as approved by the TSX Venture Exchange, the GEO - Idaho shares were exchanged on a one-for-one basis with all GEO - Idaho shareholders other than Vulcan Power Company, which received shares and warrants so that Vulcan Power would own 14% on a non-diluted and 25% on a fully-diluted basis after closing (taking into account the private placement closed in conjunction with the RTO discussed below). To meet these percentages, Vulcan was issued 1,755,159 shares and the 2,420,217 new warrants. Vulcan had held 1,895,000 GEO-Idaho shares and 1,612,000 GEO - Idaho warrants prior to the RTO. The new warrants, issued only to Vulcan as the sole old warrant holder of GEO - Idaho, have an exercise price of $0.75 per share and expire December 19, 2005. Concurrently with the RTO, the Company issued 3,322,221 units for a private placement at a price of $0.45 per unit. Each unit consists of one common share and one half of one share purchase warrant. Each full share purchase warrant entitles the holder to purchase one additional common share at a price of $0.75 per share until December 19, 2005. The share issuance costs of this issuance were $100,559. Of this amount, $75,122 was paid in cash and $25,437 was paid by the issuance of 83,333 agent’s warrants to purchase up to 83,333 common shares, exercisable at a price of $0.45 until December 19, 2005. The value assigned to the new warrants was $629,256 ($0.26 per warrant), and the value assigned to the warrants included in the units was $431,889 ($0.26 per warrant) as calculated by the Black-Scholes model. The exercise date of the warrants issued in connection with the RTO, the private placement and agent services can be accelerated to 30 days after written notice from the Company provided that the Company has obtained both: (i) all material permits and licenses necessary to authorize initiation of construction of a 10 megawatt power plant; and (ii) power purchase and transmission agreements for such plant. The fair value of the agent’s warrants of $25,437 ($0.30 per warrant) was calculated by the Black-Scholes model. The share issue costs have been netted against the proceeds allocated to additional paid in capital.

On April 25, 2003, the Company committed to issue convertible promissory notes in an aggregate principal amount of $269,000. The notes were convertible, at the option of the holder, into units identical in terms to the units described above, except with respect to the expiration date of the units, as described above. The notes carried an interest rate of 20%.

On February 14, 2003, the Company issued 151,170 common shares to directors of the Company for management services. These shares had a fair value on that date of $45,350. Accordingly, these shares were recorded as a charge to management fees in the consolidated statement of operations.

On November 1, 2002, the Company issued 1,023,667 common shares at a price of $0.30 per share for cash proceeds of $307,100 and 10,000 common shares for services related to the geothermal property. The shares issued for services had a fair value on that date of $3,000. Accordingly, these shares were recorded as a charge to exploration expenditures in the consolidated statement of operations.

On May 28, 2002, the Company issued 395,000 common shares at a price of $0.25 per share for cash proceeds of $98,750 and issued 5,000 common shares for consulting services. The shares issued for services had a fair value on that date of $1,250. Accordingly, the shares issued for services were recorded as a charge to consulting fees in the consolidated statement of operations.

Escrow Shares

The following common shares and share purchase warrants are in escrow at the dates shown:

The escrow shares and warrants are or were held in escrow pursuant to standard requirements of the TSX Venture Exchange, which required that escrow conditions be placed upon the shares and share purchase warrants issued in conjunction with the acquisition of GEO - Idaho (Note 3) and the concurrently completed private placement (Note 5). Shares are released from escrow at six month intervals, with the last release from escrow scheduled for December 19, 2006. All stock purchase warrants previously held in escrow expired as of December 31, 2005, without exercise.

NOTE 6 - STOCK -BASED COMPENSATION

The Company‘s stock option plan provides for the grant of incentive stock options enabling the holders to purchase up to 2,584,000 common shares. The plan is for employees, consultants, officers and directors of the Company. Options are granted for a term of up to five years from the date of grant. Stock options granted generally vest over a period of eighteen months. Because the plan has historically been administered in Canada by Pacific Corporate Trust, the Company has issued stock options with an exercise price stated in Canadian dollars per share.

During the quarter ended June 30, 2005, the Company granted 50,000 stock options to a consultant exercisable at a price of $0.72 CDN ($0.61 USD as at December 31, 2005) until April 19, 2010.

During the year ended March 31, 2005, the Company granted 560,000 stock options to consultants, directors and officers exercisable at prices ranging from $0.72 to $0.90 CDN ($0.61 to $0.77 USD as at December 31, 2005).

During the year ended March 31, 2004, the Company granted 1,745,000 stock options to consultants, directors and officers exercisable at a price of $0.60 CDN ($0.51 USD as at December 31, 2005) until January 3, 2009.

Compensation expense related to stock options granted is recorded at their fair value as calculated by the Black-Scholes option pricing model. Compensation expense of $25,509 was included in consulting fees and $155,271 was included in salaries and wages for the twelve months ended March 31, 2006 (March 31, 2005 - $295,541).

The changes in stock options are as follows:

	NUMBER			WEIGHTED
	SHARES			AVERAGE
	UNDER			EXERCISE
	OPTIONS			PRICE

Balance outstanding, March 31, 2004	1,745,000		$	0.60 CDN

Cancelled	(240,000	)		0.60 CDN
Exercised	(308,735	)		0.60 CDN
Granted	470,000			0.72 CDN
Granted	90,000			0.90 CDN
Balance outstanding March 31, 2005	1,756,265			0.65 CDN

Cancelled	(182,267	)		0.60 CDN
Exercised	(518,370	)		0.60 CDN
Granted	50,000			0.72 CDN
Exercised	(17,778	)		0.90 CDN
Cancelled	(22,222	)		0.90 CDN
Balance outstanding March 31, 2006	1,065,628		$	0.67 CDN

The following table summarizes information about the number of shares under stock options outstanding and exercisable at March 31, 2006:

	OPTIONS OUTSTANDING			OPTIONS
				EXERCISABLE
	MARCH 31, 2005	MARCH 31, 2006	REMAINING
EXERCISE	NUMBER OF	NUMBER OF	CONTRACTUAL	NUMBER OF
PRICE	SHARES	SHARES	LIFE (YEARS)	SHARES

$ 0.60 CDN	1,196,265	495,628	2.76	495,628
0.72 CDN	470,000	520,000	3.67	390,000
0.90 CDN	90,000	50,000	3.67	37,500


$ 0.67 CDN	1,756,265	1,065,628	3.25	923,128

The fair value of the stock options granted was estimated using the Black-Scholes option-pricing model and is amortized over the vesting period of the underlying options. The weighted average fair value of options granted was $0.50 per share. The assumptions used to calculate the fair value are as follows:

Changes in the subjective input assumptions can materially affect the fair value estimate and, therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Company’s stock options.

Stock Purchase Warrants

As at March 31, 2006 (8,637,593 as at March 31, 2005), the following share purchase warrants are outstanding:

WARRANTS

EXERCISABLE

ISSUED

(a) INTO

FAIR

PURSUANT TO

NUMBER

EXERCISE

EXPIRATION

VALUE

OF COMMON

PRICE

DATE

AT ISSUANCE

(a) SHARES

Private placement

4,000,001

$1.25 CDN

September 17, 2006

1,190,697

Agent’s warrants

280,000

$0.85 CDN

September 17, 2006

133,341

4,280,001

1,324,038

On February 17, 2006, stock purchase warrants representing 192,934 common shares at an exercise price of $0.75 were exercised.

Effective December 19, 2005, stock purchase warrants representing 4,081,327 shares at an exercise price of $0.75 expired without exercise, while 83,333 stock purchase warrants at an exercise price of $0.45 were exercised.

The Black-Scholes option pricing model was used to determine the fair value of the warrants, with the following assumptions:

	2005	2004

Dividend yield	0%	0%
Expected volatility	150%	136%
Risk free interest rate	2.65%	4.18%
Expected life	24 months	24 months

NOTE 7 - RELATED PARTY TRANSACTIONS

As at March 31, 2006 and March 31, 2005, the amounts of $10,083 and $4,842 are payable to directors and officers of the Company. These amounts are unsecured and due on demand.

The Company incurred the following transactions with directors, officers and a company with a common director:

		12 Months		12 Months
		March 31,		March 31,
		2006		2005

Administrative services	$	19,584	$	18,142

Management fees		21,500		64,196
Consulting fees		24,960		49,194
Legal fees		871		14,913
Rent		13,863		11,273

	$	80,778	$	157,718

NOTE 8 - DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP

The Company’s consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The material difference in respect to these financial statements between U.S. and Canadian GAAP is reflected in the recording of Property, Plant and Equipment. Under Canadian GAAP, development and exploration costs associated with the Raft River project (property lease payments, geological consulting fees, well monitoring and permitting, etc.) are recorded as a capital asset. Under U.S. GAAP, these amounts are expensed. As a result of the above, under Canadian GAAP the following line items in the consolidated balance sheets and income statements would have been presented as follows:

Consolidated Balance Sheets	U.S. GAAP March 31, 2006	Canadian GAAP March 31, 2006	U.S. GAAP March 31, 2005	Canadian GAAP March 31, 2005
Plant, Property & Equipment	$ 1,726,115	$ 2,166,726	$ 595,701	$ 1,054,199
Total Assets	21,895,933	22,336,544	2,584,970	3,043,468
Stockholder’s Equity	21,615,019	22,055,630	2,419,868	2,878,366
Total Liabilities & Stockholder’s Equity	21,895,933	22,336,544	2,584,970	3,043,468

Consolidated Statements of Operations and Comprehensive Loss	U.S. GAAP Twelve Months ended March 31, 2006	Canadian GAAP Twelve Months ended March 31, 2006	U.S. GAAP Twelve Months ended March 31, 2005	Canadian GAAP Twelve Months ended March 31, 2005
Exploration Expenditures	$ 0	$ 0	$ 438,885	$ 15,827
Loss from Operations	(1,663,069)	(1,607,755)	(1,751,530)	(1,496,417)
Net Loss	(1,523,385)	(1,468,071)	(1,830,421)	(1,445,135)

NOTE 9 - COMMITMENTS AND CONTINGENCIES

The Company has entered into several lease agreements with terms expiring up to December 1, 2034 for geothermal properties adjoining the Raft River Geothermal Property. The leases provide for the following annual payments within the next five fiscal years:

2006	$ 28,850
2007	$ 20,100
2008	$ 20,400
2009	$ 20,800
2010	$ 23,800

The Company has signed a 10 MW power purchase agreement with Idaho Power Company for sale of power generated from its planned phase one power plant. Sale of power generated from phase two power plants are currently under discussion. The Company has also signed a transmission agreement with Bonneville Power Administration for transmission of the electricity from this plant to Idaho Power, and from the phase two plants to other purchasers. These agreements are all contingent upon successful financing and construction of the power plant at Raft River.

On December 5, 2005, the Company signed a contract with Ormat Nevada, Inc. (Ormat) for Ormat to construct a 13 MW geothermal power plant at Raft River, Idaho for a lump sum price of $20,200,000 (exclusive of taxes). The Company expects the output of the plant will be used to meet power delivery requirements of the Company’s agreements with Idaho Power Company.

On April 3, 2006, the Company completed a private placement of 25,000,000 common shares at a price of $1.00 CDN ($0.86 U.S. as of April 3, 2006). Proceeds, net of financing fees, totaled $20,134,260. Of the net proceeds, $172,370 had been received in the Company’s bank accounts prior to year end. Since the subscription forms reflected a March 30, 2006 date, and the remainder of the cash was on deposit with Dundee Securities, the private placement was recorded as “Restricted Cash” and as “Capital Stock Issuable” in these financial statements. Upon the issuance of the common shares on April 3, 2006, all cash restrictions were lifted.

We lease general office space for our executive office in Boise at an annual cost of $30,506. The underlying lease is a year-to-year lease that expires on January 31, 2007.

NOTE 10- SUBSEQUENT EVENTS

On April 3, 2006, the Company completed a private placement of 25,000,000 common shares at a price of $1.00 CDN ($0.86 U.S. as of April 3, 2006). Proceeds, net of financing fees, totaled $20,134,260. Of the net proceeds, $172,370 had been received in the Company’s bank accounts. Since the subscription forms reflected a March 30, 2006 date, and the remainder of the cash was on deposit with Dundee Securities, the private placement was reflected as Restricted Cash and as Capital Stock Issuable in these financial statements. Upon the issuance of the common shares on April 3, 2006, all cash restrictions were lifted.

On April 27, 2006, the Company and Ormat amended the contract to construct the phase one geothermal power plant in order to allow commencement of construction in advance of project financing. In connection with the amendment, the Company issued a Notice to Proceed to Ormat, which commissioned them to immediately proceed with final detailed engineering and place orders for long-lead time equipment and material components. This schedule is intended to provide first synchronization of the phase one power plant in September 2007 with full commercial operations no later than November 2007.

U.S. GEOTHERMAL INC.

(A Development Stage Company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2006

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

(Stated in U.S. Dollars)

		Unaudited
		June 30,			March 31,
		2006			2006

ASSETS

Current
Cash and cash equivalents	$	17,172,400		$	196,499
Restricted cash		-			19,961,890
Refundable tax credit		11,688			4,703
Prepaid expenses		31,834			6,726
Total Current Assets		17,215,922			20,169,818

Property, Plant and Equipment		5,009,903			1,726,115
Total Assets	$	22,225,825		$	21,895,933

LIABILITIES

Current
Accounts payable and accrued liabilities	$	504,136		$	270,831
Related party accounts payable		19,106			10,083
Total Current Liabilities		523,242			280,914
STOCKHOLDERS’ EQUITY

Capital Stock
Authorized:
100,000,000 common shares with a $0.001 par value
Issued and Outstanding:
43,303,844 shares at June 30, 2006 and		43,304			18,264
18,263,844 shares at March 31, 2006

Capital stock issuable		-			20,134,260
Additional paid-in capital		25,907,470			5,338,200
Stock purchase warrants		1,324,038			1,324,038
Accumulated other comprehensive income		32,792			32,792
Accumulated deficit before development stage		(1,037,422	)		(1,037,422	)
Accumulated deficit during development stage		(4,567,599	)		(4,195,113	)
Total Stockholders’ Equity		21,702,583			21,615,019
Total Liabilities and Stockholders’ Equity	$	22,225,825		$	21,895,933

Approved on behalf of the Board:

“Doug Glaspey”	“Paul Larkin”
Director	Director

The accompanying condensed notes are an integral part of these consolidated financial statements.

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Stated in U.S. Dollars)

								Unaudited
								CUMULATIVE
		Unaudited			Unaudited			PERIOD FROM
		THREE MONTHS ENDED						INCORPORATION
		JUNE 30,						FEBRUARY 26, 2002
		2006			2005			TO JUNE 30, 2006

Revenue	$	-		$	-		$	-

Operating Expenses
Consulting fees		65,455			23,331			973,920
Corporate administration and development		27,305			17,408			353,376
Exploration expenditures		-			26,318			440,611
Professional fees		213,068			230,121			1,177,059
Management fees		12,328			11,798			301,061
Salaries and wages		538,575			142,900			1,386,261
Travel and promotion		105,046			80,334			579,564
Loss from Operations		(961,777	)		(532,210	)		(5,211,852	)

Other Income (Expense)
Foreign exchange loss		410,329			95,686			421,598
Interest Income		178,962			19,772			222,655
Loss Before Income Taxes		(372,486	)		(416,752	)		(4,567,599	)

Income Taxes		-			-			-

Net Loss	$	(372,486	)	$	(416,752	)	$	(4,567,599	)

Basic And Diluted Net Loss Per Share	$	(0.01	)	$	(0.02	)

Weighted Average Number Of Shares Outstanding for		43,283,844			17,347,253
Basic and Diluted Calculations

Other Comprehensive Income (Loss)
Net loss for the period	$	(372,486	)	$	(416,752	)
Foreign currency translation adjustment		-			(132,469	)

Total Comprehensive Loss	$	(372,486	)	$	(549,221	)

The accompanying condensed notes are an integral part of these consolidated financial statements.

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in U.S. Dollars)

								UNAUDITED
								CUMULATIVE
		Unaudited			Unaudited			PERIOD FROM
		THREE MONTHS						INCORPORATION
		JUNE 30						FEBRUARY 26, 2002
		2006			2005			TO JUNE 30, 2006

Operating Activities
Net loss for the period	$	(372,486	)	$	(416,752	)	$	(4,567,599	)
Add: Non-cash items:
Depreciation		1,458			141			4,783
Shares issued for other than cash		-			-			49,600
Stock based compensation		438,659			45,195			1,211,059

Change in non-cash working capital items:
Accounts payable and accrued liabilities		242,328			(75,500	)		277,098
Prepaid expenses		(25,108	)		(9,798	)		(31,834	)
Refundable tax credit and grant receivable		(6,985	)		(842	)		(5,870	)
Total Cash Provided (Used) by Operating Activities		277,866			(455,872	)		(3,062,763	)
Investing Activities
Purchases of property, plant and equipment		(3,285,246	)		(1,000	)		(4,937,335	)
Cash acquired on business combination		-			-			5,798
Total Cash Provided (Used) by Investing Activities		(3,285,246	)		(1,000	)		(4,931,537	)

Financing Activities
Issuance of share capital, net of share issue cost		19,983,281			13,008			25,133,908
Total Cash Provided by Financing Activities		19,983,281			13,008			25,133,908

Foreign Exchange Effect On Cash And Cash
Equivalents		-			(132,469	)		32,792

Increase In Cash And Cash Equivalents		16,975,901			(576,333	)		17,172,400

Cash And Cash Equivalents, Beginning Of Period
		196,499			1,957,075			-

Cash And Cash Equivalents, End Of Period	$	17,172,400		$	1,380,742		$	17,172,400

The accompanying condensed notes are an integral part of these consolidated financial statements.

Supplemental Disclosure
Taxes paid	$	-	$	-		$	-
Interest paid		-		-			-
Non-cash investing and financing activities
Construction in Progress		-		(1,000	)		(1,000	)
Shares issued for exercise of options		-		13,008			13,008
Shares issued for settlement of debt		-		-			173,639
Shares issued for professional services		-		-			49,600
Shares issued for geothermal property		-		-			77,350
Warrants issued for share issue cost				-			158,778

The accompanying condensed notes are an integral part of these consolidated financial statements.

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FROM INCEPTION, FEBRUARY 26, 2002, TO JUNE 30, 2006

(Stated in U.S. Dollars)

	NUMBER				ADDITIONAL		CAPITAL		STOCK		ACCUM.
	OF				PAID-IN		STOCK		PURCHASE		OTHER		ACCUM.
	SHARES		AMOUNT		CAPITAL		ISSUABLE		WARRANTS		INCOME		DEFICIT			TOTAL


Shares issued for cash at $0.015 per share – February 26,
2002	2,600,000	$	2,600	$	37,400	$	-	$	-	$	-	$	-		$	40,000
Shares and warrants issued for Geothermal property at
$0.009 – March 5, 2002	1,895,000		1,895		15,105		-		-		-		-			17,000

Balance, March 31, 2002 – U.S. Geothermal Inc. – Idaho
	4,495,000		4,495		52,505		-		-		-		-			57,000

Shares issued for cash at $0.25 per share – May 28, 2002
	395,000		395		98,355		-		-		-		-			98,750
Shares issued for services at $0.25 per share – May 28,
2002	5,000		5		1,245		-		-		-		-			1,250
Shares issued for cash at $0.30 per share – November 1,
2002	1,023,667		1,024		306,076		-		-		-		-			307,100
Shares issued for services at $0.30 per share – November
1, 2002	10,000		10		2,990		-		-		-		-			3,000
Shares issued for services at $0.30 per share – February
14, 2003	151,170		151		45,199		-		-		-		-			45,350
Net loss for the period	-		-		-								(164,909	)		(164,909	)

Balance carried forward, March 31, 2003 – U.S.
Geothermal Inc. – Idaho	6,079,837	$	6,080	$	506,370	$	-	$	-	$	-	$	(164,909	)	$	347,541

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (CONTINUED)

FROM INCEPTION, FEBRUARY 26, 2002, TO JUNE 30, 2006

(Stated in U.S. Dollars)

	NUMBER						ADDITIONAL			CAPITAL		STOCK		ACCUM.
	OF						PAID-IN			STOCK		PURCHASE		OTHER		ACCUM.
	SHARES			AMOUNT			CAPITAL			ISSUABLE		WARRANTS		INCOME		DEFICIT			TOTAL

Balance carried forward, March 31, 2003 – U.S.																		$
Geothermal Inc. – Idaho	6,079,837		$	6,080		$	506,370		$	-	$	-	$	-	$	(164,909	)		347,541


Consolidation adjustment to the number of shares issued
and outstanding as a result of the reverse take-over	(6,079,837	)	$	(6,080	)	$	6,080		$	-	$	-	$	-	$	-		$	-
transaction- U.S. Geothermal Inc.- Idaho
December 19, 2003
Legal parent company shares issued and outstanding at
time of reverse take-over- U.S. Cobalt Inc.-	2,274,616			2,275			(2,275	)		-		-		-		-			-
December 19, 2003
Shares issued for acquisition of U.S. Geothermal Inc.-
Idaho	6,939,992			6,940			(6,940	)		-		-		-		(408,166	)		(408,166	)
Warrants issued for acquisition of U.S. Geothermal Inc.-
Idaho	-			-			-			-		629,256		-		(629,256	)		-

Shares and warrants issued for cash at a price of $0.45 per
share in a private placement, net of share issue costs of	3,322,221			3,322			959,230			-		457,326		-		-			1,419,878
$75,122 paid in cash and $25,437 paid by issuance of
83,333 agent’s warrants- December 19, 2003
Shares and warrants issued for conversion of notes at
$0.45 per share – February 20, 2004	385,864			386			123,090			-		50,162		-		-			173,638
Stock options granted
	-			-			296,081			-		-		-		-			296,081
Foreign currency translation gain
	-			-			-			-		-		35,792		-			35,792

Net loss for the year
	-			-			-			-		-		-		(676,398	)		(676,398	)
Balance, March 31, 2004
	12,922,693		$	12,923		$	1,881,636		$	-	$	1,136,744	$	35,792	$	(1,878,729	)	$	1,188,366

U.S. GEOTHERMAL INC.

(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (CONTINUED)

FROM INCEPTION, FEBRUARY 26, 2002, TO JUNE 30, 2006

(Stated in U.S. Dollars)

	NUMBER				ADDITIONAL		CAPITAL			STOCK			ACCUM.
	OF				PAID-IN		STOCK			PURCHASE			OTHER			ACCUM.
	SHARES		AMOUNT		CAPITAL		ISSUABLE			WARRANTS			INCOME			DEFICIT			TOTAL

Balance, March 31, 2004	12,922,693	$	12,923	$	1,881,636	$	-		$	1,136,744		$	35,792		$	(1,878,729	)		1,188,366
																		$
Shares and warrants issued for cash at a price of $0.66 in
a private placement, net of share issue costs of	4,000,001		4,000		1,103,082		-			1,324,038			-			-			2,431,120
$225,131 paid in cash and $133,341 paid by the
issuance of 280,000 agent’s warrants- September 17,
2004
Shares issued for property at a price of $0.60- February	100,000		100		60,251		-			-			-			-			60,351
22, 2005
Shares issued for stock options exercised	308,735		309		145,133		-			-			-			-			145,442
Stock options granted	-		-		295,540		-			-			-			-			295,540
Foreign currency translation gain	-		-		-		-			-			129,470			-			129,470
Net loss for the year	-		-		-		-			-			-			(1,830,421	)		(1,830,421	)

Balance, March 31, 2005	17,331,429		17,332		3,485,642		-			2,460,782			165,262			(3,709,150	)		2,419,868
Stock options granted	-		-		180,780		-			-			-			-			180,780
Expiration of stock purchase warrants	-		-		1,061,145		-			(1,061,145	)		-			-			-
Shares issued for stock options and warrants exercised	932,415		932		610,633		-			(75,599	)		-			-			535,966
Foreign currency translation loss	-		-		-		-			-			(132,470	)		-			(132,470	)
Capital stock issuable as result of a private placement to
be closed April 3, 2006	-		-		-		20,134,260			-			-			-			20,134,260
Net loss for the year
	-		-		-		-			-			-			(1,523,385	)		(1,523,385	)
Balance, March 31, 2006
	18,263,844		18,264		5,338,200		20,134,260			1,324,038			32,792			(5,232,535	)		21,615,019
Stock options granted					438,659														438,659
Shares issued for stock options exercised	40,000		40		21,351														21,391
Capital stock issued as result of a private placement	25,000,000		25,000		20,109,260		(20,134,260	)											0
closed April 3, 2006
Net loss for the period																(372,486	)		(372,486	)
Balance, June 30, 2006	43,303,844	$	43,304	$	25,907,470	$	0		$	1,324,038		$	32,792		$	(5,605,021	)	$	21,702,583

The accompanying condensed notes are an integral part of these consolidated financial statements.

U.S. GEOTHERMAL INC.
(A Development Stage Company)
(Unaudited- Prepared by Management)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2006
(Stated in U.S. Dollars)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

When U.S. Cobalt Inc. (“GTH” or the “Company”) completed a reverse take-over on December 19, 2003, the former stockholders of U.S. Geothermal Inc. (“GEO – Idaho”) a company incorporated on February 26, 2002 in the State of Idaho, acquired control of GTH. (Note 3) In connection with the transaction, U.S. Cobalt Inc. changed its name to U.S. Geothermal Inc. and consolidated its common stock on a one new to five old basis. All references to common shares in these financial statements have been restated to reflect the roll-back of common stock.

The Company has been in the development stage since its formation and has not yet realized any revenues from its planned operations. GEO - Idaho operates for the purpose of acquiring geothermal properties and has entered into an agreement with Vulcan Power Company (“Vulcan”) of Bend, Oregon, U.S.A., pursuant to which it has agreed to acquire up to a 100% interest in the Raft River Geothermal Property located in Cassia County, Idaho, U.S.A. (Note 4).

Basis of Presentation

The interim financial data are unaudited; however, in the opinion of management, the interim data include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The financial statements included herein have been prepared by U.S. Geothermal, Inc. pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although U.S. Geothermal, Inc. believes that the disclosures included herein are adequate to make the information presented not misleading. Operating results for the periods presented are not necessarily indicative of future results. These financial statements should be read in conjunction with the financial statements and notes to financial statements included in the Company’s Annual Report on Form 10-KSB for the year ended March 31, 2006.

These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the following companies:

i) U.S. Geothermal Inc. (incorporated in the State of Delaware);
ii) U.S. Geothermal Inc. (incorporated in the State of Idaho);
iii) U.S. Cobalt Inc. (incorporated in the State of Colorado);
iv) Raft River Energy I LLC (incorporated in the State of Delaware);
v) US Geothermal Services, LLC (incorporated in the State of Delaware).

All inter-group transactions are eliminated on consolidation.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections,” (hereinafter “SFAS No. 154”) which replaces Accounting Principles Board Opinion No. 20, accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements – An Amendment of APB Opinion No. 28”. SFAS No. 154 provides guidance on accounting for and reporting changes in accounting principle and error corrections.

SFAS No. 154 requires that changes in accounting principle be applied retrospectively to prior period financial statements and is effective for fiscal years beginning after December 15, 2005.Management does not expect SFAS No. 154 to have a material impact on the Company’s financial position, results of operations, or cash flows.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short term deposits with maturities of no more than ninety days when acquired.

Going Concern

Based on the Company’s projected spending over the next 12 months and the $20,134,260 cash received from the private placement completed April 3, 2006, the Company’s auditors have removed the going concern qualification from the Company’s financial statements. Management believes that sufficient funding will be available to meet its business objectives, including anticipated cash needs for working capital, and financing for construction of the phase one power plant. As shown in the accompanying consolidated financial statements, the Company has incurred an accumulated deficit of $5,605,021 for the period from February 26, 2002 (inception) to March 31, 2006, and has no revenue from operations.

Property, Plant and Equipment

Costs of acquisition of geothermal properties are capitalized on an area-of-interest basis. Amortization of these costs will be on a unit-of-production basis, based on estimated proven geothermal reserves should such reserves be found. If an area of interest is abandoned, the costs thereof are charged to income in the year of abandonment.

Income Taxes

The significant components of the deferred tax asset at June 30, 2006 and June 30, 2005 were as follows:

		June 30,		March 31,
		2006		2006
Net operating loss carryforward	$	5,567,000	$	5,196,000
Deferred tax asset:	$	1,893,000	$	1,767,000
Less valuation allowance for tax asset		-1,893,000		-1,767,000
Net deferred tax asset	$	-	$	-

At June 30, 2006 and March 31, 2006, the Company has net operating loss carryforwards of approximately $5,567,000 and $5,196,000 respectively, which expire in the years 2023 through 2026. The change in the allowance account from March 31, 2006 to June 30, 2006 was $126,000.

NOTE 3- REVERSE TAKE-OVER

Effective December 19, 2003, GTH acquired 100% of the issued and outstanding voting shares of GEO - Idaho by issuing 6,939,992 common shares and 2,420,217 share purchase warrants, of which 3,149,846 common shares and 1,500,570 share purchase warrants were held in escrow as at June 30, 2005 (March 31, 2005, 4,243,325 common shares and 1,946,937 share purchase warrants). Each share purchase warrant entitles the holder to purchase one additional common share at a price of $0.75 per share until December 15, 2005. Since the transaction resulted in the former shareholders of GEO – Idaho owning the majority of the issued shares of GTH, the transaction, which is referred to as a “reverse take-over”, has been treated for accounting purposes as an acquisition by GEO - Idaho of the net assets and liabilities of GTH. Under this purchase method of accounting, the results of operations of GTH are included in these financial statements from December 19, 2003. GEO - Idaho is deemed to be the purchaser for accounting purposes. Accordingly, its net assets are included in the balance sheet at their previously recorded values.

The Company has determined that the share purchase warrants issued as part of the transaction have a fair value of $629,256 as determined by using the Black-Scholes pricing model with the assumptions as stated in Note 6. The amount is considered to be additional consideration given to the former GEO-Idaho shareholders and, as such, has been allocated, along with the net liabilities assumed of GTH, to deficit.

The acquisition is summarized as follows:

Current assets (including cash of $5,798)	$	11,616
Current liabilities		(419,782	)

Net liabilities assumed	$	(408,166	)

The net liabilities assumed were charged to accumulated deficit.

NOTE 4- PROPERTY, PLANT AND EQUIPMENT

GEO - Idaho entered into an agreement, as amended December 3, 2002, with the previous owner to purchase up to a 100% interest in the Raft River Geothermal Property (“the Property”) located in Cassia County, Idaho, in exchange for 1,895,000 shares (the “old shares”), 1,612,000 warrants (the “old warrants”) of GEO – Idaho, and up to $600,000 in cash. A condition to acquiring 100% of the Property was the completion by GEO - Idaho of at least a $200,000 work program on the Property. The old shares and old warrants were exchanged subsequent to December 31, 2002 (as part of the reverse take-over described in Notes 3 and 5) for shares and warrants of the Company.

During the quarter ended June 30, 2006, the Company acquired 123 acres of surface and energy rights in exchange for a cash payment of $208,413 and acquired 631 acre feet per annum in water rights for $15,000. The Company also acquired access to 5,409 acres of surface, mineral and geothermal rights through a lease payment of $15,000, and paid $2,976,964 in construction costs for the Phase 1 Raft River project. An additional $32,415 was paid to acquire furniture and computer equipment for the corporate and Raft River offices.

Property, plant and equipment consisted of the following at the dates shown:

		June 30,			March 31,
		2006			2006
Geothermal property (land and equipment)
Balance, beginning of period	$	775,079		$	592,351
Shares issued		-			-
Cash payments		275,867			182,728
Balance, end of period		1,050,946			775,079

Construction in Process- Raft River Project
Balance, beginning of period		949,036			-
Power Plant One		2,148,807			565,459
Transmission Lines and Substation		13,544			139,193
Pipelines		397,909			78,478
Well Drilling		416,704			165,906
Balance, end of period		3,926,000			949,036

Other equipment
Balance, beginning of period		5,325			5,325
Acquisitions		32,415			-
Balance, end of period		37,740			5,325
Less: Accumulated depreciation		(4,783	)		(3,325	)
Net balance, end of period		32,957			2,000

	$	5,009,903		$	1,726,115

NOTE 5- CAPITAL STOCK

The Company is authorized to issue 100,000,000 shares of common stock. All shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.

On May 23, 2006, the Company issued 40,000 common shares upon the exercise of 40,000 options at an exercise price of $0.60 CDN ($0.53 U.S. as of May 23, 2006).

On April 3, 2006, the Company completed a private placement of 25,000,000 common shares at a price of $1.00 CDN ($0.86 U.S. as of April 3, 2006). Proceeds, net of financing fees, totaled $20,134,260. Of the net proceeds, $172,370 had been received in the Company’s bank accounts prior to year end. Since the subscription forms reflected a March 30, 2006 date, and the remainder of the cash was on deposit with Dundee Securities Corporation, the private placement was recorded as “Restricted Cash” and as “Capital Stock Issuable” in the financial statements at March 31, 2006. Upon the issuance of the common shares on April 3, 2006, all cash restrictions were lifted.

On March 13, 2006, the Company issued 15,000 common shares upon the exercise of 15,000 options at an exercise price of $0.60 CDN ($0.51 U.S. as of March 13, 2006).

On February 17, 2006, the Company issued 192,934 common shares upon the exercise of 192,934 stock purchase warrants at an exercise price of $0.75 U.S.

On February 9, 2006, the Company issued 25,000 common shares upon the exercise of 25,000 options at an exercise price of $0.60 CDN ($0.51 as of February 9, 2006).

On February 6, 2006, the Company issued 120,000 common shares as a signing bonus as part of an employment agreement at a deemed price of $0.72 CDN ($0.61 U.S. as of February 6, 2006).

On January 9, 2006, the Company issued 138,370 common shares upon the exercise of 138,370 options at an exercise price of $0.60 CDN ($0.51 U.S. as of January 9, 2006).

On January 3, 2006, the Company issued 200,000 common shares upon the exercise of 200,000 options at an exercise price of $0.60 CDN ($0.51 U.S. as of January 3, 2006).

On July 22, 2005, the Company issued 40,000 common shares upon the exercise of 40,000 options at an exercise price of $0.60 CDN ($0.51 U.S. as of July 22, 2005).

On April 11, 2005, the Company issued 17,778 common shares upon the exercise of 17,778 options at an exercise price of $0.90 CDN ($0.73 U.S. as of April 11, 2005).

Escrow Shares and Warrants

The following common shares and share purchase warrants are in escrow at the dates shown:

NOTE 6- STOCK BASED COMPENSATION

The Company‘s stock option plan provides for the grant of incentive stock options for up to 3,469,840 common shares to employees, consultants, officers and directors of the Company. Options are granted for a term of up to five years from the date of grant. Stock options granted generally vest over a period of eighteen months. Since the plan has been administered by our Vancouver office and Pacific Corporate Trust Company, the Company has issued stock options with an exercise price stated in Canadian dollars per share.

During the quarter ended June 30, 2006, the Company granted 1,763,000 stock options to consultants, employees, directors and officers exercisable at prices ranging from $0.85 to $1.00 CDN ($0.77 to $0.90 USD as at June 30, 2006).

During the quarter ended June 30, 2005, the Company granted 50,000 stock options to a consultant exercisable at a price of $0.72 CDN ($0.58 USD as at June 30, 2005) until April 19, 2010.

During the year ended March 31, 2004, the Company granted 1,745,000 stock options to consultants, directors and officers exercisable at a price of $0.60 CDN ($0.48 USD as at June 30, 2005) until January 3, 2009.

Compensation expense related to stock options granted is recorded at their fair value as calculated by the Black-Scholes option pricing model. Compensation expense of $57,209 was included in consulting fees and $381,450 was included in salaries and wages for the quarter ended June 30, 2006 (March 31, 2006 -$180,780).

The changes in stock options are as follows:

				WEIGHTED
				AVERAGE
				EXERCISE
	NUMBER			PRICE

Balance outstanding, March 31, 2003	-		$	-

Granted	1,745,000			0.60 CDN

Balance outstanding, March 31, 2004	1,745,000		$	0.60 CDN

Granted	470,000		$	0.72 CDN
Granted	90,000			0.90 CDN
Cancelled	(240,000	)		0.60 CDN
Exercised	(308,735	)		0.60 CDN

Balance outstanding March 31, 2005	1,756,265		$	0.65 CDN

Cancelled	(182,267	)		0.60 CDN
Exercised	(518,370	)		0.60 CDN
Granted	50,000			0.72 CDN
Exercised	(17,778	)		0.90 CDN
Cancelled	(22,222	)		0.90 CDN

Balance outstanding March 31, 2006	1,065,628			0.67 CDN

Granted	1,763,000			0.88 CDN
Exercised	(40,000	)		0.60 CDN
Balance outstanding June 30, 2006	2,788,628		$	0.81 CDN

The following table summarizes information about the stock options outstanding at June 30, 2006:

	OPTIONS OUTSTANDING			OPTIONS EXERCISABLE
			REMAINING
	EXERCISE	NUMBER OF	CONTRACTUAL	NUMBER OF
	PRICE	SHARES	LIFE (YEARS)	SHARES

$	0.60CDN	455,628	3.25	455,628
	0.72CDN	520,000	4.17	495,000
	0.85 CDN	1,388,000	4.75	347,000
	0.90CDN	50,000	4.17	50,000
	1.00 CDN	375,000	4.75	93,750

$	0.81CDN	2,788,628	4.39	1,441,378

The fair value of the stock options granted was estimated using the Black-Scholes option-pricing model and is amortized over the vesting period of the underlying options. The weighted average fair value of options granted was $0.67 per share. The assumptions used to calculate the fair value are as follows:

Stock Purchase Warrants

As at June 30, 2006, the following share purchase warrants are outstanding:

WARRANTS

EXERCISABLE

ISSUED

(a) INTO

FAIR

PURSUANT TO

NUMBER

EXERCISE

EXPIRATION

VALUE

OF COMMON

PRICE

DATE

AT ISSUANCE

(a) SHARES

Private placement

4,000,001

$1.25 CDN

September 17, 2006

1,190,697

Agent’s warrants

280,000

$0.85 CDN

September 17, 2006

133,341

4,280,001

1,324,038

On February 17, 2006, stock purchase warrants representing 192,934 common shares at an exercise price of $0.75 were exercised.

The Black-Scholes option pricing model was used to determine the fair value of the warrants, with the following assumptions:

	2006	2005

Dividend yield	0%	0%
Expected volatility	%	150%
Risk free interest rate	%	2.65%
Expected life	24 months	24 months

NOTE 7 - RELATED PARTY TRANSACTIONS

As at June 30, 2006 and March 31, 2006, the amounts of $19,106 and $10,083, respectively, are payable to directors and officers of the Company. These amounts are unsecured and due on demand.

The Company incurred the following transactions with directors, officers and a company with a common director:

		3 Months		12 Months
		June 30,		March 31,
		2006		2006

Administrative services	$	5,184	$	19,584
Management fees		4,250		21,500
Consulting fees		6,000		24,960
Legal fees		0		871
Rent		0		13,863

	$	15,434	$	80,778

NOTE 8 - DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP

Consolidated Balance Sheets	U.S. GAAP June 30, 2006	Canadian GAAP June 30, 2006	U.S. GAAP March 31, 2006	Canadian GAAP March 31, 2006
Plant, Property & Equipment	$ 5,009,903	$ 5,450,514	$ 1,726,115	$ 2,166,726
Total Assets	22,193,991	22,634,602	21,895,933	22,336,544
Stockholder’s Equity	21,670,749	22,111,360	21,615,019	22,055,630

Total Liabilities & Stockholder’s Equity	22,193,991	22,634,602	21,895,933	22,336,544
Consolidated Statements of Operations and Comprehensive Loss	U.S. GAAP Three Months ended June 30, 2006	Canadian GAAP Three Months ended June 30, 2006	U.S. GAAP Twelve Months ended March 31, 2006	Canadian GAAP Twelve Months ended March 31, 2006
Exploration Expenditures	$ 0	$ 0	$ 0	$ 0
Loss from Operations	(993,611)	(993,611)	(1,663,069)	(1,607,755)
Net Loss	(404,320)	(404,320)	(1,523,385)	(1,468,071)

NOTE 9 - COMMITMENTS AND CONTINGENCIES

2006	$ 28,850
2007	$ 20,100
2008	$ 20,400
2009	$ 20,800
2010	$ 23,800

On December 5, 2005, the Company signed a contract (the “Ormat EPC Agreement”) with Ormat Nevada, Inc. (Ormat) for Ormat to construct a 13 MW geothermal power plant at Raft River, Idaho for a lump sum price of $20,200,000 (exclusive of taxes). The Company expects the output of the plant will be used to meet power delivery requirements of the Company’s agreements with Idaho Power Company. As part of the Ormat EPC Agreement, the Company has established a $1,000,000 letter of credit with Wells Fargo Bank to collateralize amounts committed by Ormat, but not paid by the Company.

The amount will increase monthly until a maximum letter of credit amount of $5,050,000 is reached. A $5,302,500 money market fund is pledged as collateral backing the letter of credit.

The Company leases general office space for an executive office in Boise at an annual cost of $30,506. The underlying lease is a year-to-year lease that expires on January 31, 2007.

The Company is committed to issue 42,741common shares as additional compensation for hours worked under an employment agreement with an officer of the Company, subject to approval of the TSX Venture Exchange.

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers and controlling persons pursuant to the provisions of its Certificate of Incorporation, or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, this indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against these liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether this indemnification by us is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of this issue.

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Expenses in connection with the issuance and distribution of the securities being registered hereunder, other than underwriting commissions and expenses, are estimated to be as follows:

Registration Fee	$3,395
Printing Expenses	$2,000
Accounting Fees and Expenses	$5,000
Legal Fees and Expenses	$12,000
Miscellaneous Expenses	$0
Total	$22,395

RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, we have issued the following unregistered securities.

On December 19, 2003, we issued 6,939,992 shares of our common stock and 2,420,217 warrants to purchase our common stock in exchange for 100% of Geo-Idaho's outstanding shares and warrants. The shares were issued to the following persons, each of whom was a security holder of Geo-Idaho, in reliance on Section 4(2):

Name	Number of Shares
Vulcan Power Company	1,755,156
Daniel J. Kunz	1,254,769
Douglas J. Glaspey	1,014,649
Paul A. Larkin	863,187
Ronald Bourgeois	821,425
Tom Menning	183,332
Grim Estate Ltd.	180,000

Donald Nelson	108,000
Ronald C. Yanke	108,000
Ross Beaty	85,000
Gerald Sneddon	80,000
John H. Walker	73,807
Sneddon Family Trust	50,000
Steve R. Smith	45,000
Burton Egger	40,000
Steven Chi	36,667
Dr. John Swartley	36,667
John W. Leonard	35,000
William Brock	33,333
Robert Falls	24,000
Steven Jensen	21,000
John Beaulieu	20,000
William Batiuk	17,000
Barry Marcus	15,000
Roscoe Ward	5,000
H. Cobbs	4,000
Veritable Quandry LLC	10,000
Ed Cryer	10,000
Mary Mink	10,000

	The warrants were issued solely to Vulcan Power Company, the sole warrant holder of Geo-Idaho, in reliance on Section 4(2), and were exercisable at a price of $0.75 per share until December 15, 2005. Pursuant to the negotiated agreement of the parties, and as approved by the TSX Venture Exchange, the shares were exchanged on a one-for-one basis with all shareholders other than Vulcan Power Company, which received shares and warrants so that Vulcan Power would own 14% on a non-diluted and 25% on a fully-diluted basis after closing (and taking into account the private placement discussed in paragraph 2, below). The warrants were valued using the Black Scholes model at $0.26 each, or $629,256 in the aggregate, and recorded on our financial statements as an addition to deficit. Each of these persons represented to Geo-Idaho that he purchased the securities for his, her or its own account, for investment and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities.

2.	Also on December 19, 2003, we sold 3,322,221 shares of common stock and 1,661,110 warrants to purchase shares of our common stock in a private offering under Regulations D and S under the Securities Act of 1933, as amended, at a price of $0.45 per unit (with each unit representing one share and one-half of one share purchase warrant), for gross proceeds of $1,494,999. The warrants were exercisable at a price of $0.75 until December 15, 2005, subject to acceleration upon 30 days notice once we obtained a license from permitting authorities for a 10 megawatt power plant and corresponding power purchase and power transmission agreements. The warrants were valued using the Black Scholes model at $0.26 each, or $431,889 in the aggregate. Of the 13 purchasers, two were residents of the United States who represented that they were “accredited investors” under Regulation D, and the remaining 11 sales were to non-U.S. persons and took place in offshore transactions outside of the United States, as defined in Regulation S. Daniel J. Kunz, an officer and director, subscribed for 1,111,111 units. Toll Cross Securities of Toronto, Canada, was paid a cash fee of $52,500 and was issued warrants that were exercisable until December 15, 2005, to purchase 83,333 shares at a price of $0.45, as compensation for its services in connection with the private offering. An additional $22,622 was incurred in legal expenses relating to the offering and together with the $52,500 cash and $25,437 fair value of the Agent’s warrants ($0.26 per warrant, calculated using the Black Scholes model) made up the $100,559 which was charged to share issue costs. The securities

	were issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on and compliance with Regulations D and S thereunder. Each of these persons represented to us that he purchased the securities for his own account, for investment and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities.

3.	On February 20, 2004, we issued 385,864 shares and 192,932 share purchase warrants in connection with the conversion of $147,000 of principal and $26,639 in interest of the promissory notes. Mr. Kunz did not participate in the conversion, and was repaid his principal and interest. The warrants were exercisable until February 17, 2006, at a price of $0.75 per share, and were subject to acceleration upon 30 days notice once we obtained a license from permitting authorities for a 10 megawatt power plant and corresponding power purchase and transmission agreements. The securities were issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on and compliance with Regulations D and S thereunder. Each of these persons represented to us that he purchased the securities for his own account, for investment and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

4.	On September 17, 2004, we sold 4,000,001 shares of common stock and 4,000,001 warrants to purchase shares of our common stock in a private offering under Regulation S, at a price of Cdn $0.85 per unit (a unit being one share and one warrant), for gross proceeds of Cdn $3,400,000. Each unit consists of one share and one warrant which entitles the holder to purchase one share at an exercise price of Cdn $1.25 until September 17, 2006. We may accelerate the exercise period of the warrants on twenty days notice if the closing price of our shares of common stock on a public market exceeds Cdn $1.65 for twenty consecutive business days. The value of each warrant (using the Black-Scholes model) was $0.30, and the aggregate value of the 4,000,001 warrants was $1,190,697. The securities were issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on and compliance with Regulation S. Each of these persons represented to us that he purchased the securities for his own account, for investment and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. Dundee Securities Corporation of Toronto, Canada, was paid a cash fee of Cdn $238,000, and issued a compensation option to acquire 280,000 units at an exercise price per unit of Cdn $0.85, exercisable until September 17, 2006, and valued at $133,341 ($0.30 per warrant, using the Black- Scholes model). The warrants included in Dundee’s units are also subject to acceleration, whether or not the compensation option has been exercised. An additional Cdn $31,977.45 was incurred in legal expenses relating to the offering, as well as Cdn $18,190 in fees to the TSX Venture Exchange which together with the Cdn $238,000 cash paid to Dundee Securities Corporation made up the $225,131 cash component of issuance costs. With the $131,341 which was the fair value of the Dundee Securities Corporation compensation option, the total charged to share issue costs was $358,472.

5.	On October 19, 2004, we issued a total of 278,735 shares on the exercise of stock options issued under our stock option plan to our officers and directors as follows:

	Optionee	Number of Shares Purchased
	Daniel Kunz	86,506
	Douglas Glaspey	77,866
	Ron Bourgeois	27,733
	Paul Larkin	86,630
	Total	278,735

On February 18, 2005, we issued 30,000 shares on the exercise of stock options issued under our stock option plan to Ron Bourgeois. The securities were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on section 4(2) of the Securities Act of 1933, as amended. Elena Corporation represented to us that it acquired the securities for its own account, for investment and not with a view to the distribution of the securities. The certificates for the securities

	bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

7.	On February 23, 2005, we issued 100,000 common shares at a price of $0.60 for two parcels of land and energy rights adjacent to our Raft River property valued at $60,351. The securities were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on section 4(2) of the Securities Act of 1933, as amended. Elena Corporation represented to us that it acquired the securities for its own account, for investment and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

8.	On April 11, 2005, we issued 17,778 common shares upon the exercise of stock options issued to a consultant under our stock option plan. He represented to us that he purchased the securities for his own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

9.	On July 22, 2005, we issued 40,000 common shares upon the exercise of stock options issued to a consultant under our stock option plan. He represented to us that he purchased the securities for his own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

10.	On December 28, 2005, we issued 100,000 common shares upon the exercise of stock options under our stock option plan to Douglas Glaspey, an officer and director, and 83,333 common shares to Toll Cross Securities upon the exercise of agent warrants. Each represented to us that they purchased the securities for their own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

11.	On January 3, 2006, we issued 100,000 common shares to Daniel Kunz, an officer and director, and 100,000 common shares to Ron Bourgeois upon the exercise of stock options issued under our stock option plan. Each represented to us that they purchased the securities for their own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

12.	On January 9, 2006, we issued 138,370 common shares upon the exercise of stock options issued under our stock option plan (113,370 to Paul Larkin, a director, and 25,000 to a consultant). Each represented to us that they purchased the securities for their own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

13.	On February 6, 2006, we issued 120,000 common shares to Kevin Kitz as a signing bonus as part of an employment agreement. He represented to us that he purchased the securities for his own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

14.	On February 9, 2006, we issued 25,000 common shares upon the exercise of stock options issued under our stock option plan to a consultant of the Company. He represented to us that he purchased the securities for his own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid in respect to the issuance.

15.	On February 17, 2006, we issued 192,934 common shares to consultant and employees upon the exercise of stock purchase warrants. Each represented to us that they purchased the securities for their own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

16.	On March 13, 2006, we issued 15,000 common shares to a consultant upon the exercise of stock options issued under our stock option plan. She represented to us that she purchased the securities for her own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid with respect to the issuance.

17.	On April 3, 2006, we sold 25,000,000 shares of common stock in a private offering under Regulation D, at a price of Cdn $1.00 per share for gross proceeds of Cdn $25,000,000. The securities were issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on and compliance with Regulation D. Each of these persons represented to us that it purchased the securities for its own account, for investment and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. Dundee Securities Corporation of Toronto, Canada, was paid a cash fee of Cdn $1,522,500, and issued a compensation option to acquire 1,522,500 shares at an exercise price per share of Cdn $1.00, until April 3, 2008. An additional Cdn $202,200 was incurred in legal expenses relating to the offering, as well as Cdn $32,100 in fees to the TSX Venture Exchange which together with the Cdn $1,522,500 cash paid to Dundee made up the $1,756,800 cash component of issuance costs.

18.	On May 23, 2006, we issued 40,000 common shares to a consultant upon the exercise of stock options issued under our stock option plan. He represented to us that he purchased the securities for his own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid in respect to the issuance.

19.	On August 10, 2006, we issued 40,000 common shares to John Walker and 60,000 common shares to Jon Wellinghoff upon exercise of stock options issued under our stock option plan. They represented that they purchased the securities for their own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid in respect to the issuance.

20.	On August 15, 2006, we issued 134,000 common shares to Dundee Securities Corporation and 14,000 common shares to Penson Financial Services Canada upon the exercise of stock purchase warrants. They represented that they purchased the securities for their own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid in respect to the issuance.

21.	On August 16, 2006, we issued 28,000 common shares to Fraser Mackenzie Limited upon the exercise of stock purchase warrants. They represented that they purchased the securities for their own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid in respect to the issuance.

22.	On August 25, 2006, we issued 119,000 common shares to Dundee Securities Corporation upon the exercise of stock purchase warrants. They represented that they purchased the securities for their own account for investment, and not with a view to the distribution of the securities. The certificates for the securities bear a restrictive legend and stop transfer instructions have been placed against the transfer of the securities. No commissions were paid in respect to the issuance.

EXHIBITS

Exhibit Number	Description
3.1	Certificate of Incorporation of U.S. Cobalt Inc. (now known as U.S. Geothermal Inc.) (Incorporated by reference to exhibit 3.1 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
3.2	Certificate of Domestication of Non-U.S. Corporation (Incorporated by reference to exhibit 3.2 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
3.3	Certificate of Amendment of Certificate of Incorporation (changing name of U.S. Cobalt Inc. to U.S. Geothermal Inc.) (Incorporated by reference to exhibit 3.3 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
3.4	Bylaws of U.S. Cobalt Inc. (now known as U.S. Geothermal Inc.) (Incorporated by reference to exhibit 3.4 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
3.5	Plan of Merger of U.S. Geothermal, Inc. and EverGreen Power Inc. (Incorporated by reference to exhibit 3.5 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
3.6	Amendment to Plan of Merger (Incorporated by reference to exhibit 3.6 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
4.1	Form of Stock Certificate (Incorporated by reference to exhibit 4.1 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
4.2	Form of Warrant Certificate (Incorporated by reference to exhibit 4.2 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
4.3	Provisions Regarding Rights of Stockholders (Incorporated by reference to exhibit 4.3 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
5.1	Opinion on Legality **
10.1	Agreement between U.S. Geothermal Inc. and Vulcan Power Company dated December 3, 2002 regarding the acquisition of the Vulcan interest (Incorporated by reference to exhibit 10.1 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.2	Amendment No. 1 dated November 15, 2003 to Agreement between U.S. Geothermal Inc. and Vulcan Power Company (Incorporated by reference to exhibit 10.2 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.3	Amendment No. 2 to “Agreement by and between U.S. Geothermal Inc. and Vulcan Power Company” dated December 30, 2003 (Incorporated by reference to exhibit 10.3 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.4	Geothermal Lease and Agreement dated July 11, 2002, between Sergene Jensen, Personal Representative of the Estate of Harlan B. Jensen, and U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.5 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.5	Geothermal Lease and Agreement dated June 14, 2002, between Jensen Investments Inc. and U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.6 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.6	Geothermal Lease and Agreement dated March 1, 2004, between Jay Newbold and U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.7 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.7	Geothermal Lease and Agreement dated June 28, 2003, between Janice Crank and the children of Paul Crank and U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.8 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.8	Geothermal Lease and Agreement dated December 1, 2004, between Reid S. Stewart and Ruth O. Stewart and US Geothermal Inc. (Incorporated by reference to exhibit 10.9 to the registrant’s Amendment No. 2 to Form SB-2 registration statement as filed on January 10, 2005)

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10.9	Geothermal Lease and Agreement, dated July 5, 2005, between Bighorn Mortgage Corporation and US Geothermal Inc. (Incorporated by reference to exhibit 10.11 to the registrant’s Form 10- QSB quarterly report as filed on February 17, 2006)
10.10	Geothermal Lease and Agreement, dated June 23, 2005, among Dale and Ronda Doman, and US Geothermal Inc. (Incorporated by reference to exhibit 10.13 to the registrant’s Form 10-QSB quarterly report as filed on February 17, 2006)
10.11	Geothermal Lease and Agreement, dated June 23, 2005, among Michael and Cleo Griffin, Harlow and Pauline Griffin, Douglas and Margaret Griffin, Terry and Sue Griffin, Vincent and Phyllis Jorgensen, and Alice Mae Griffin Shorts, and US Geothermal Inc. (Incorporated by reference to exhibit 10.14 to the registrant’s Form 10-QSB quarterly report as filed on February 17, 2006)
10.12	Geothermal Lease and Agreement dated January 25, 2006, between Philip Glover and US Geothermal Inc. (Incorporated by reference to exhibit 10.9 to the registrant’s Form 10-QSB quarterly report as filed on February 17, 2006)
10.13	Geothermal Lease and Agreement, dated May 24, 2006, between JR Land and Livestock Inc. and US Geothermal Inc. (Incorporated by reference to exhibit 10.30 to the registrant’s Form 10-KSB annual report as filed on June 29, 2006)
10.14	Administrative Services Contract, dated January 1, 2004, between U.S. Geothermal Inc. and New Dawn Holdings Ltd. (Incorporated by reference to exhibit 10.10 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.15	Employment Agreement dated April 1, 2006, with Daniel J. Kunz (Incorporated by reference to exhibit 10.12 to the registrant’s Form 10-KSB annual report as filed on June 29, 2006)
10.16	Employment Agreement dated April 1, 2006, with Kerry D. Hawkley (Incorporated by reference to exhibit 10.22 to the registrant’s Form 10-KSB annual report as filed on June 29, 2006)
10.17	Employment Agreement dated April 1, 2006, with Douglas J. Glaspey (Incorporated by reference to exhibit 10.23 to the registrant’s Form 10-KSB annual report as filed on June 29, 2006)
10.18	Escrow Agreement made December 19, 2003, among U.S. Geothermal Inc., Pacific Corporate Trust Company, as escrow agent, and certain security holders (Incorporated by reference to exhibit 10.15 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.19	Escrow Agreement made December 19, 2003, among U. S. Geothermal Inc., Pacific Corporate Trust Company, as escrow agent, and certain security holders (Incorporated by reference to exhibit 10.16 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.21	First Amended and Restated Merger Agreement dated November 30, 2003 among U.S. Cobalt Inc., EverGreen Power Inc., U.S. Geothermal Inc., and the stockholders of U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.17 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.22	Agreement with Dundee Securities Corporation dated June 28, 2004 (Incorporated by reference to exhibit 10.18 to the registrant’s Form SB-2 registration statement as filed on July 8, 2004)
10.23	Amended and Restated Stock Option Plan of U.S. Geothermal Inc. dated September 29, 2006 .
10.24	Power Purchase Agreement dated December 29, 2004 between U.S. Geothermal Inc. and Idaho Power Company (Incorporated by reference to exhibit 10.19 to the registrant’s Amendment No. 2 to Form SB-2 registration statement as filed on January 10, 2005)
10.25	Engineering, Procurement and Construction Agreement dated December 5, 2005 between U.S. Geothermal Inc. and Ormat Nevada Inc. (Incorporated by reference to exhibit 10.28 to the registrant’s Form 10-QSB quarterly report as filed on February 17, 2006)
10.26	Amendment to the Engineering, Procurement and Construction Agreement dated April 26, 2006 between U.S. Geothermal Inc. and Ormat Nevada Inc. (Incorporated by reference to exhibit 99.1 to the registrant’s Form 8-K as filed on May 2, 2006)
10.27	Letter of Intent from Eugene Water and Electric Board to U.S. Geothermal Inc. dated February 22, 2006

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10.28	Renewable Energy Credits Purchase and Sales Agreement dated July 29, 2006 between Holy Cross Energy and U.S. Geothermal Inc.
10.29	Transmission Agreement dated June 24, 2005 between Department of Energy’s Bonneville Power Administration - Transmission Business Line and U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.27 to the registrant’s Form 10-QSB quarterly report as filed on August 12, 2005)
10.30	Interconnection and Wheeling Agreement dated March 9, 2006 between Raft River Rural Electric Co-op and U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.28 to the registrant’s Form 10-KSB annual report as filed on June 29, 2006)
10.31	Construction Contract dated May 22, 2006 between Industrial Builders and U.S. Geothermal Inc.
10.32	Membership Admission Agreement, dated August 9, 2006, among Raft River Energy I LLC, U.S. Geothermal Inc., and Raft River I Holdings, LLC (Incorporated by reference to exhibit 10.1 to the registrant’s Form 8-K as filed on August 23, 2006) *
10.33	Amended and Restated Operating Agreement of Raft River Energy I LLC, dated as of August 9, 2006, among Raft River Energy I LLC, Raft River I Holdings, LLC and U.S. Geothermal Inc (Incorporated by reference to exhibit 10.2 to the registrant’s Form 8-K as filed on August 23, 2006).*
10.34	Management Services Agreement, dated as of August 9, 2006, between Raft River Energy I LLC and U.S. Geothermal Services, LLC (Incorporated by reference to exhibit 10.3 to the registrant’s Form 8-K as filed on August 23, 2006) *
10.35	Construction contract dated May 22, 2006 between Industrial Builders and U.S. Geothermal Inc. (Incorporated by reference to exhibit 10.31 to the registrant’s Form 10-KSB annual report as filed on June 29, 2006)
16.1	Letter regarding change in accountants from Morgan and Company, Chartered Accountants (Incorporated by reference to exhibit 99.1 to the registrant’s Form 8-K/A as filed on August 1, 2005)
21.1	List of subsidiaries of U.S. Geothermal Inc. (Incorporated by reference to exhibit 21 to the registrant’s Form 10-KSB annual report as filed on June 29, 2006)
23.1	Consent of Morgan and Company, Chartered Accountants
23.2	Consent of Williams & Webster, P.S., Certified Public Accountants
23.3	Consent of GeothermEx Inc. **
23.4	Consent of Dorsey & Whitney LLP **
23.5	Consent of Teplow Geologic **
23.6	Consent of Thermochem, Inc. **
24	Powers of Attorney (included in the Signature Pages of this Registration Statement)

*	- Agreements are the subject of a confidential treatment request filed with the Commission on August 23, 2006.

**	To be filed by amendment

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ITEM 28. UNDERTAKINGS

The undersigned Registrant hereunder undertakes:

(1)	To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:

	(i)	include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended;

	(ii)	reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and

	(iii)	include any additional or changed material information on the plan of distribution.

(2)	For the purpose of determining liability under the Securities Act of 1933, as amended, to treat each such post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.

(3)	File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

Remainder of page intentionally left blank.

Signatures on following page.

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SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2, and authorizes this Registration Statement to be signed on its behalf by the undersigned, in the City of Boise, State of Idaho, on September 29, 2006.

	U.S. GEOTHERMAL INC.

	By:	/s/ Daniel J. Kunz

		Daniel J. Kunz

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each of the undersigned directors and officers of U.S. Geothermal Inc., a Delaware corporation, which is filing a Registration Statement on Form SB-2 with the Securities and Exchange Commission, Washington, D.C. 20549 under the provisions of the Securities Act of 1933, as amended, hereby constitutes and appoints each of Daniel J. Kunz and Douglas J. Glaspey, as the individual's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign this Registration Statement and any or all amendments, including post-effective amendments, to the Registration Statement, including a Prospectus or an amended Prospectus therein and any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and all other documents in connection therewith to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact as agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

/s/ Daniel J. Kunz	Director and President, Chief Executive	September 29, 2006
Daniel J. Kunz	Officer (Principal Executive Officer)



/s/ Douglas J. Glaspey	Director and Chief Operating Officer	September 29, 2006
Douglas J. Glaspey


/s/ Kerry D. Hawkley	Chief Financial Officer (Principal Financial	September 29, 2006
Kerry D. Hawkley	and Accounting Officer)



/s/ John Walker	Director and Chairman	September 29, 2006
John Walker


/s/ Paul Larkin	Director	September 29, 2006
Paul Larkin

105

U.S. GEOTHERMAL INC.

AMENDED AND RESTATED STOCK OPTION PLAN

SEPTEMBER 29, 2006

TABLE OF CONTENTS

		Page

ARTICLE 1 DEFINITIONS AND INTERPRETATION
1.1	Definitions	3
1.2	Choice of Law	6
1.3	Headings	6

ARTICLE 2 PURPOSE AND PARTICIPATION
2.1	Purpose	6
2.2	Participation	6
2.3	Notification of Award	7
2.4	Copy of Plan	7
2.5	Limitation	7

ARTICLE 3 TERMS AND CONDITIONS OF OPTIONS
3.1	Board to Allot Shares	7
3.2	Number of Shares	7
3.3	Limitations on Issue	7
3.4	Term of Option	8
3.5	Acceleration by the Administrator	9
3.6	Impermissable Transfer of Option	9
3.7	Termination of Option	9
3.8	Exercise Price	9
3.9	Assignment of Options	9
3.10	Adjustments	9
3.11	Vesting	10
3.12	Compliance with Rule 16b-3	10

ARTICLE 4 EXERCISE OF OPTION
4.1	Exercise of Option	10
4.2	Issue of Share Certificates	11
4.3	Condition of Issue	11

ARTICLE 5 ADMINISTRATION
5.1	Administration	11
5.2	Interpretation	11

ARTICLE 6 TERMS AND CONDITIONS OF OPTIONS GRANTED TO U.S. OPTION HOLDERS
6.1	Definitions	12
6.2	Exchange Requirements	13
6.3	Maximum Number of Shares for Incentive Stock Options	13
6.4	Designation of Options	13
6.5	Special Requirements for Incentive Stock Options	13
6.6	Shareholder Approval	15

ARTICLE 7 AMENDMENT AND TERMINATION
7.1	Prospective Amendment	15
7.2	Retrospective Amendment	15
7.3	Terms or Amendments Requiring Disinterested Shareholder Approval	15
7.4	Termination	16
7.5	Agreement	16

ARTICLE 8 APPROVALS REQUIRED FOR PLAN
8.1	Approvals Required for Plan	16
8.2	Substantive Amendments to Plan	16

STOCK OPTION PLAN

ARTICLE 1
DEFINITIONS AND INTERPRETATION

1.1 Definitions

As used herein, unless anything in the subject matter or context is inconsistent therewith, the following terms shall have the meanings set forth below:

	a)	“Administrator” means, initially, the secretary of the Corporation and thereafter shall mean such director or other senior officer or employee of the Corporation as may be designated as Administrator by the Board from time to time;

	b)	“affiliate” has the meaning ascribed thereto in the Securities Act (British Columbia);

	c)	“associate” has the meaning ascribed thereto in the Securities Act (British Columbia);

	d)	“Award Date” means the date on which the Board grants and announces a particular Option;

	e)	“Board” means the board of directors of the Corporation or a duly appointed Committee thereof;

	f)	“Cause” means, with respect to any Participant, (a) any act of dishonesty, fraud or theft, (b) any improper use or disclosure of any confidential information or trade secret belonging to the Corporation or any Affiliate, (c) any material breach of the terms and conditions of an employment agreement or consulting agreement between such Participant and the Corporation or any Affiliate, (d) conviction of, or confession to, any felony or any gross misdemeanor involving moral turpitude, fraud or theft, or (e) any other act that has, or could be expected to have, an adverse effect on the reputation or business of the Corporation or any Affiliate, as determined by the Administrator;

	g)	“Committee” means a committee of directors of the Corporation appointed by the Board to administer this Plan. If, at any time, Rule 16b-3 under the Exchange Act applies to the Corporation, (a) the Committee must consist of at least the minimum number of directors of the Corporation necessary for Options to satisfy the requirements of Rule 16b-3 and (b) each director of the Corporation appointed to the Committee must be a “non- employee director” (within the meaning of Rule 16b-3);

	h)	“Consultant” means an individual or Consultant Company, other than an Employee or a Director of the Corporation, that:

is engaged to provide on a ongoing bona fide basis consulting, technical, management or other services to the Corporation or to an affiliate of the Corporation, other than services provided in relation to a distribution;

	b.	provides the services under a written contract between the Corporation or the affiliate and the individual or the Consultant Company;

	c.	in the reasonable opinion of the Corporation, spends or will spend a significant amount of time and attention on the affairs and business of the Corporation or an affiliate of the Corporation; and

	d.	has a relationship with the Corporation or affiliate of the Corporation that enables the individual to be knowledgeable about the business and affairs of the Corporation.

i)	“Consultant Company” means, for an individual consultant, a company or partnership of which the individual consultant is an employee, shareholder or partner;

j)	“Continuous Service” means service without interruption or termination, for any reason, as an Employee, Director or Consultant of the Corporation or any subsidiary. Continuous Service will not be considered interrupted or terminated upon (a) sick leave, military leave or any other leave of absence approved by the Administrator that does not exceed 90 days in the aggregate, provided, however, that if reemployment upon the expiration of any such leave is guaranteed by contract or applicable law, such 90 day limitation will not apply, or (b) a transfer from one office of the Corporation or any subsidiary to another office of the Corporation or any subsidiary or a transfer between the Corporation and any subsidiary;

k)	“Corporation” means U.S. Geothermal Inc.;

l)	“Director” means any individual holding the office of director or senior officer of the Corporation or subsidiary of the Corporation;

m)	“Disinterested Shareholder Approval” means approval by a majority of votes cast by all shareholders of the Corporation at a duly constituted shareholders’ meeting, excluding votes attached to shares beneficially owned by insiders to whom Options may be granted under the Plan and their associates;

n)	“Employee” means an individual regularly employed on a full-time or part-time basis by the Corporation or a subsidiary of the Corporation or an individual who, on a regular basis and for a minimum amount of time per week, performs services for the Corporation or a subsidiary of the Corporation normally provided by an employee other than a Director, and for the purpose of the Plan includes a Management Company Employee;

o)	“Exchange” means the TSX Venture Exchange or, if the Shares are no longer listed for trading on the TSX Venture Exchange, such other exchange or quotation system on which the Shares are listed or quoted for trading;

p)	“Exchange Act” means the U.S. Securities Act of 1934, as amended;

q)	“Exercise Notice” means the notice respecting the exercise of an Option in the form set out as Schedule “B” hereto, duly executed by the Option Holder;

r)	“Exercise Period” means the period during which a particular Option may be exercised and is the period from and including the Award Date through to and including the Expiry Date, subject to the provisions of the Plan relating to vesting of Options;

s)	“Exercise Price” means the price at which an Option may be exercised as determined in accordance with paragraph 3.6;

t)	“Expiry Date” means the date determined in accordance with paragraph 3.4 and after which a particular Option cannot be exercised;

u)	“insider” has the meaning ascribed thereto in the Securities Act (British Columbia);

v)	“Investor Relations Activities” has the meaning assigned by Policy 1.1 of the TSX Venture Exchange Policies, and generally means any activities or communications that can be reasonably be seen to be intended to or be primarily intended to promote the merits or awareness of or the purchase or sale of securities of the Corporation;

w)	“Management Company Employee” means an individual employed by a person providing management services to the Corporation, which are required for the ongoing successful operation of the business enterprise of the Corporation, but excluding a person involved in Investor Relations Activities;

x)	“Option” means an option to acquire Shares, awarded to a Director, Employee or Consultant pursuant to the Plan;

y)	“Option Certificate” means the certificate, substantially in the form set out as Schedule “A” hereto, evidencing an Option;

z)	“Option Holder” means a Director, Employee or Consultant, or a former Director, Employee or Consultant, who holds an unexercised and unexpired Option;

aa)	“Plan” means this U.S. Geothermal Inc. stock option plan;

bb)	“Personal Representative” means:

	a.	in the case of a deceased Option Holder, the executor or administrator of the deceased duly appointed by a court or public authority having jurisdiction to do so; and

	b.	in the case of an Option Holder who for any reason is unable to manage his or her affairs, the person entitled by law to act on behalf of such Option Holder;

cc)	“Reporting Person” means an officer of the Corporation, a director of the Corporation or any person who owns more than ten percent (10%) of the outstanding stock of the Corporation (within the meaning of Rule 16a-2 promulgated under the Exchange Act) and who is required to file reports pursuant to Rule 16a-3 promulgated under the Exchange Act;

	dd)	“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended; and

	ee)	“Share” or “Shares” means, as the case may be, one or more common shares in the capital of the Corporation.

1.2 Choice of Law

The Plan is established under and the provisions of the Plan shall be interpreted and construed in accordance with the laws of the State of Delaware.

1.3 Headings

The headings used herein are for convenience only and are not to affect the interpretation of the Plan.

ARTICLE 2
PURPOSE AND PARTICIPATION

2.1 Purpose

The purpose of the Plan is to provide the Corporation with a share-related mechanism to attract, retain and motivate qualified Directors, Employees and Consultants, to reward such of those Directors, Employees and Consultants as may be awarded Options under the Plan by the Board from time to time for their contributions toward the long term goals of the Corporation and to enable and encourage such Directors, Employees and Consultants to acquire Shares as long term investments.

2.2 Participation

The Board shall, from time to time, in its sole discretion determine those Directors, Employees and Consultants, if any, to whom Options are to be awarded. If the Board elects to award an Option to a Director, the Board shall, in its sole discretion but subject to paragraph 3.2, determine the number of Shares to be acquired on the exercise of such Option. If the Board elects to award an Option to an Employee or Consultant, the number of Shares to be acquired on the exercise of such Option shall be determined by the Board in its sole discretion, and in so doing the Board may take into account the following criteria:

	(a)	the remuneration paid to the Employee or Consultant as at the Award Date in relation to the total remuneration payable by the Corporation to all of its Employees and Consultants as at the Award Date;

	(b)	the length of time that the Employee or Consultant has been employed or engaged by the Corporation; and

	(c)	the quality of work performed by the Employee or Consultant.

Option Holders that are corporate entities will be required to undertake in writing not to effect or permit any transfer of ownership or option of its shares, nor issue more of its shares as long as such Option remains outstanding, unless the written permission of the Exchange and the Corporation is obtained.

2.3 Notification of Award

Following the approval by the Board of the awarding of an Option, the Administrator shall notify the Option Holder in writing of the award and shall enclose with such notice the Option Certificate representing the Option so awarded.

2.4 Copy of Plan

Each Option Holder, concurrently with the notice of the award of the Option, shall be provided with a copy of the Plan. A copy of any amendment to the Plan shall be promptly provided by the Administrator to each Option Holder.

2.5 Limitation

The Plan does not give any Option Holder that is a Director the right to serve or continue to serve as a Director of the Corporation nor does it give any Option Holder that is an Employee or Consultant the right to be or to continue to be employed or engaged by the Corporation.

ARTICLE 3
TERMS AND CONDITIONS OF OPTIONS

3.1 Board to Allot Shares

The Shares to be issued to Option Holders upon the exercise of Options shall be allotted and authorized for issuance by the Board prior to the exercise thereof.

3.2 Number of Shares

The aggregate maximum number of Shares which may be at any time be subject to issuance under the Plan, together with the number of Shares issuable under outstanding options granted otherwise than under the Plan, shall not exceed ten percent (10%) of the issue and outstanding Shares of the Corporation at the time the Option is granted.

3.3 Limitation on Issue

The following restrictions on issuances of Options are applicable under the Plan:

the aggregate number of Shares that may be issued to any one Option Holder in a 12 month period under the Plan shall not exceed five percent (5%) of the issued and

		outstanding Shares of the Corporation, unless the Corporation is classified as a Tier 1 Issuer by the TSX Venture Exchange and has obtained Disinterested Shareholder Approval;

	b)	the aggregate number of Options granted to any Consultant in a 12 month period shall not exceed two percent (2%) of the issued and outstanding Shares of the Corporation, calculated at the date the Option is granted;

	c)	the aggregate number of Options granted to persons employed to provide Investor Relations Activities shall not exceed two percent (2%) of the issued and outstanding shares of the Corporation in any 12 month period, calculated at the date the Option is granted; and

	d)	Options issued to Consultants performing Investor Relations Activities must vest in stages over 12 months with no more than 25% of the Options vesting in any three month period.

If any Option expires or otherwise terminates for any reason without having been exercised in full, the number of Shares in respect of which the Option expired or terminated shall again be available for the purposes of the Plan.

3.4 Term of Option

Subject to paragraph 3.5, the Expiry Date of an Option shall be the date so fixed by the Board at the time the particular Option is awarded, provided that such date shall not be later than:

	(a)	for so long as the Corporation is classified as a Tier 2 Issuer or equivalent designation of the Exchange, the fifth anniversary of the later of the date the Shares are listed on the Exchange and the Award Date of the Option; or

	(b)	for so long as the Corporation is classified as a Tier 1 Issuer on the Exchange, or the Shares are no longer listed on the Exchange, the tenth anniversary of the Award Date of the Option.

3.5 Termination of Option

	(a)	Termination of Continuous Service upon Death

		If the Continuous Service of the Option Holder is terminated due to the death of such Option Holder, the Option may be exercised (to the extent such Option was exercisable on the date of death) for a period of one year after the date of death (but in no event beyond the term of such Option).

	(b)	Termination of Continuous Service for Cause

If the Continuous Service of the Option Holder is terminated for Cause, the Option will terminate and become null and void (unless otherwise determined by the Administrator).

(c)

Termination of Continuous Service for Other Reasons

If the continuous Service of the Option Holder is terminated for any reason other than the death or termination for Cause, the Option may be exercised (to the extent such Option was exercisable on the date of termination) for a period of 90 days after the date of termination.

Notwithstanding the foregoing, for so long as the Corporation is classified as a Tier 2 Issuer, the Expiry Date for Options granted to any Option Holder engaged in Investor Relations Activities shall be the 30 ^th day following the date that the Option Holder ceases to be employed in such capacity.

3.6 Acceleration by the Administrator

Subject to the rules and policies of the Exchange, the Board may accelerate the date on which any Option may be exercised.

3.7 Impermissible Transfer of Option

If the Option Holder attempts to transfer, assign, pledge, hypothecate or otherwise dispose of the Option in a manner that is not permitted by Section 3.9, such Option will terminate and become null and void (unless otherwise determined by the Administrator).

3.8 Exercise Price

The Exercise Price shall be that price per share, as determined by the Board in its sole discretion and announced as of the Award Date, at which an Option Holder may purchase a Share upon the exercise of an Option, and shall not be less than the closing price of the Corporation’s Shares traded through the facilities of the Exchange (or, if the Shares are no longer listed for trading on the Exchange, then such other exchange or quotation system on which the Shares are listed or quoted for trading) on the day preceding the Award Date, less any discount permitted by the Exchange, or such other price as may be required by the Exchange.

3.9 Assignment of Options

Options may not be assigned or transferred, provided however that the Personal Representative of an Option Holder may, to the extent permitted by paragraph 4.1, exercise the Option within the Exercise Period.

3.10 Adjustments

If prior to the complete exercise of any Option the Shares are consolidated, subdivided, converted, exchanged or reclassified or in any way substituted for (collectively the “Event”), an

Option, to the extent that it has not been exercised, shall be increased or decreased proportionally by the Board, in accordance with such Event as the case may be, and the Option Price will be adjusted accordingly. The number of Shares resulting from the Options will be determined as if the Option had been fully exercised prior to the effective date of the Event.

No fractional shares shall be issued upon the exercise of any Option and accordingly, if as a result of the Event, an Option Holder would become entitled to a fractional Share, such Option Holder shall have the right to purchase only the next lowest whole number of Shares and no payment or other adjustment will be made with respect to the fractional interest so disregarded. Additionally, no lot of Shares in an amount less than 500 shares shall be issued upon the exercise of the Option unless such amount of Shares represents the balance left to be exercised under the Option.

3.11 Vesting

All Options granted pursuant to the Plan will be subject to such vesting requirements as may be prescribed by the Exchange, if applicable, or as may be imposed by the Board. Unless otherwise approved by the Board, and subject to the rules and policies of the Exchange, all Options granted pursuant to the Plan must contain conditions relating to the vesting of the right to exercise an Option granted to any Option Holder, which will provide that the right to purchase Shares under the Option may not be exercised any earlier than the following times (although the Board may impose longer vesting periods):

Number of Shares	Date After Which the Shares may be Purchased
One Quarter	Award Date
One Quarter	Six Months Following Award Date
One Quarter	One Year Following Award Date
One Quarter	Eighteen Months Following Award Date

The Option Certificate representing any such Option will disclose any vesting conditions.

3.12 Compliance with Rule 16b-3

Options granted to Reporting Persons must meet the requirements of Rule 16b-3 and must contain such additional terms and conditions as are required by Rule 16b-3 in order to qualify for the maximum exemption for plan transactions.

ARTICLE 4
EXERCISE OF OPTION

4.1 Exercise of Option

An Option may be exercised only by the Option Holder or the Personal Representative of any Option Holder in the event of the death or inability to manage the affairs of the Option Holder. An

Option Holder or the Personal Representative of any Option Holder may exercise an Option in whole or in part at any time or from time to time during the Exercise Period up to 5:00 p.m. local time in Vancouver, British Columbia on the Expiry Date by delivering to the Administrator an Exercise Notice, the applicable Option Certificate and a certified cheque or bank draft payable to the Corporation in an amount equal to the aggregate Exercise Price of the Shares to be purchased pursuant to the exercise of the Option.

4.2 Issue of Share Certificates

As soon as practicable following the receipt of the Exercise Notice, the Administrator shall cause to be delivered to the Option Holder a certificate for the Shares purchased pursuant to the exercise of the Option. If the number of Shares purchased is less than the number of Shares subject to the Option Certificate surrendered, the Administrator shall forward a new Option Certificate to the Option Holder concurrently with delivery of the aforesaid share certificate for the balance of Shares available under the Option. Further, if the Corporation is a Tier 2 Issuer, or the Exercise Price of the Option is below the current market price of the Shares, the certificate for the shares will bear a legend stipulating the Shares are subject to a four-month Exchange hold period commencing on the date the Options were granted.

4.3 Condition of Issue

The issue of Shares by the Corporation pursuant to the exercise of an Option is subject to this Plan and compliance with the laws, rules and regulations of all regulatory bodies applicable to the issuance and distribution of such Shares and to the listing requirements of any stock exchange or exchanges on which the Shares may be listed. The Option Holder agrees to comply with all such laws, rules and regulations and agrees to furnish to the Corporation any information, report and/or undertakings required to comply with and to fully co-operate with the Corporation in complying with such laws, rules and regulations.

ARTICLE 5
ADMINISTRATION

5.1 Administration

The Plan shall be administered by the Administrator on the instructions of the Board. The Board may make, amend and repeal at any time and from time to time such regulations not inconsistent with the Plan as it may deem necessary or advisable for the proper administration and operation of the Plan and such regulations shall form part of the Plan. The Board may delegate to the Administrator or any Director, officer or employee of the Corporation such administrative duties and powers as it may see fit.

5.2 Interpretation

The interpretation by the Board of any of the provisions of the Plan and any determination by it pursuant thereto shall be final and conclusive and shall not be subject to any dispute by any Option Holder. No member of the Board or any person acting pursuant to authority delegated by it hereunder shall be liable for any action or determination in connection with the Plan made or taken

in good faith and each member of the Board and each such person shall be entitled to indemnification with respect to any such action or determination in the manner provided for by the Corporation.

ARTICLE 6
TERMS AND CONDITIONS OF OPTIONS GRANTED TO U.S. OPTION HOLDERS

6.1 Definitions

For the purpose of this Article 6, the following terms shall have the meanings set forth below:

	a)	“Code” means the Internal Revenue Code of 1986, as amended;

	b)	“Fair Market Value” means, with respect to any Share, the fair market value, as of a given date, of such Share, determined by such methods and procedures as are established from time to time by the Board. Unless otherwise determined by the Board, the fair market value of a Share as of a given date will be the closing price of the Corporation’s Shares traded through the facilities of the Exchange (or, if the Shares are no longer listed for trading on the Exchange, then such other exchange or quotation system on which the Shares listed or quoted for trading) on the day preceding the Award Date;

	c)	“Incentive Stock Option” means an Option that is intended to qualify as an “incentive stock option” pursuant to section 422 of the Code;

	d)	“Nonqualified Stock Option” means an Option that is not an Incentive Stock Option;

	e)	“Parent” means any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, if each corporation in such chain (other than the Corporation) owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. The preceding definition of the term “Parent” is intended to comply with, and will be interpreted consistently with, section 424(e) of the Code;

	f)	“Subsidiary” means any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, if each corporation (other than the last corporation) in such chain owns stock possessing fifty percent (50%)or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. The preceding definition of the term “Subsidiary” is intended to comply with, and will be interpreted consistently with, section 424(f) of the Code;

	g)	“U.S. Option Holder” means an Option Holder who is a citizen of the United States or a resident of the United States, in each case as defined in section 7701(a)(30)(A) and section 7701(b)(1) of the Code; and

	h)	“10% Shareholder” means any person who owns, taking into account the constructive ownership rules set forth in section 424(d) of the Code, more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent

or Subsidiary).

6.2 Exchange Requirements

This Article 6 shall be subject to the rules and policies of the Exchange.

6.3 Maximum Number of Shares for Incentive Stock Options

Notwithstanding any provision of this Plan to the contrary, the aggregate number of Shares available for Incentive Stock Options is 2,500,000, subject to adjustment pursuant to section 3.10 of this Plan and subject to the provisions of section 422 and 424 of the Code.

6.4 Designation of Options

Each option agreement with respect to an Option granted to a U.S. Option Holder shall specify whether the related Option is an Incentive Stock Option or a Nonqualified Stock Option. If no such specification is made in the applicable option agreement, the related Option will be (a) an Incentive Stock Option if all of the requirements under the Code that must be satisfied in order for such Option to qualify as a Incentive Stock Option are satisfied, or (b) in all other cases, a Nonqualified Stock Option.

6.5 Special Requirements for Incentive Stock Options

In addition to the other terms and conditions of this Plan, the following limitations and requirements will apply to an Incentive Stock Option:

	a)	An Incentive Stock Option may be granted only to an Employee. For purposes solely of this section 6.3, “Employee” means a person who is an employee of the Corporation (or of any Parent or Subsidiary) for purposes of section 422 of the Code.

	b)	The aggregate Fair Market Value of the Shares (determined as of the applicable date the Option is granted (the “Grant Date”) with respect to which Incentive Stock Options are exercisable for the first time by any U.S. Option Holder during any calendar year (pursuant to this Plan and all other plans of the corporation and of any Parent or Subsidiary) will not exceed one hundred thousand dollars (U.S. $100,000) or any other limitation subsequently set forth in section 422(d) of the Code.

	c)	The exercise price per Share payable upon exercise of an Incentive Stock Option will be not less than one hundred percent (100%) of the Fair Market Value of a Share on the applicable Grant Date; provided, however, that the exercise price per Share payable upon exercise of an Incentive Stock Option granted to a U.S. Option Holder who is a 10% Shareholder on the applicable Grant Date will be not less than one hundred ten percent (110%) of the Fair Market Value of a Share on the applicable Grant Date.

	d)	No Incentive Stock Option may be granted more than ten (10) years after the earlier of (i) the date on which this Plan is adopted by the Board or (ii) the date on which this Plan is

		approved by the shareholders of the Corporation.

	e)	An Incentive Stock Option will terminate and no longer be exercisable no later than ten (10) years after the applicable Grant Date; provided, however, that an Incentive Stock Option granted to a U.S. Option Holder who is a 10% Shareholder on the applicable Grant Date will terminate and no longer be exercisable no later than five (5) years after the applicable Grant Date.

	f)	If a U.S. Option Holder who has been granted an Incentive Stock Option ceases to be an Employee, such Incentive Stock Option will be exercisable as follows:

	(i)	If a U.S. Option Holder who has been granted an Incentive Stock Option ceases to be an Employee due to the death of such U.S. Option Holder, such Incentive Stock Option may be exercised (to the extent such Incentive Stock Option was exercisable on the date of death) by the estate of such U.S. Option Holder, or by any person to whom such Incentive Stock Option was transferred in accordance with Section 6.5(h), for a period of one (1) year after the date of death (but in no event beyond the Expiry Date of such Incentive Stock Option),

	(ii)	If a U.S. Option Holder who has been granted an Incentive Stock Option ceases to be an Employee for any reason other than the death of such U.S.

		Option Holder or termination for Cause, such Incentive Stock Option may be exercised (to the extent such Incentive Stock Option was exercisable on the date of termination) by such U.S. Option Holder for a period of three (3) months after the date of termination (but in no event beyond the Expiry Date of such Incentive Stock Option).

		For the purposes of this Section 6.5(f), the employment of a U.S. Option Holder who has been granted an Incentive Stock Option will not be considered interrupted or terminated upon (a) sick leave, military leave or any other leave of absence approved by the Administrator that does not exceed ninety (90) days in the aggregate; provided, however, that if reemployment upon the expiration of any such leave is guaranteed by contract or applicable law, such ninety (90) day limitation will not apply, or (b) a transfer from one office of the Corporation (or any Parent or Subsidiary) to another office of the Corporation (or any Parent or Subsidiary) or a transfer between the Corporation and any Parent or Subsidiary.

	g)	An Incentive Stock Option granted to a U.S. Option Holder may be exercised during such U.S. Option Holder’s lifetime only by such U.S. Option Holder.

	h)	An Incentive Stock Option to a U.S. Option Holder may not be transferred, assigned, pledged, hypothecated or otherwise disposed of by such U.S. Option Holder, except by will or by the laws of descent and distribution.

6.6 Shareholder Approval

In the event that this Plan is not approved by the shareholders of the Corporation within twelve (12) months before or after the date on which this Plan is adopted by the Board, any Incentive Stock Option granted under this Plan will automatically be deemed to be a Nonqualified Stock Option.

ARTICLE 7
AMENDMENT AND TERMINATION

7.1 Prospective Amendment

Subject to applicable regulatory and, if required by any relevant law, rule or regulation applicable to the Plan, to shareholder approval, the Board may from time to time amend the Plan and the terms and conditions of any Option thereafter to be granted and, without limiting the generality of the foregoing, may make such amendment for the purpose of meeting any changes in any relevant law, rule or regulation applicable to the Plan, any Option or the Shares or for any other purpose which may be permitted by all relevant laws, rules and regulations provided always that any such amendment shall not alter the terms or conditions of any Option or impair any right of any Option Holder pursuant to any Option awarded prior to such amendment. Notwithstanding the foregoing, the Board may, subject to section 3.9 hereof, amend the terms upon which each Option shall become vested with respect to Shares without further approval of the Exchange, other regulatory bodies having authority over the Corporation or the Plan or the shareholders.

7.2 Retrospective Amendment

Subject to applicable regulatory approval and, if required by any relevant law, rule or regulation applicable to the Plan, to shareholder approval, the Board may from time to time retrospectively amend the Plan and, with the consent of the affected Option Holders, retrospectively amend the terms and conditions of any Options which have been previously granted.

7.3 Terms or Amendments Requiring Disinterested Shareholder Approval

The Corporation will be required to obtain Disinterested Shareholder Approval prior to any of the following actions becoming effective:

(a)	the Plan, together with all of the Corporation’s previously established and outstanding stock option plans or grants, could result at any time in:

	(i)	the aggregate number of shares reserved for issuance under Options granted to insiders exceeding 10% of the issued and outstanding Shares of the Corporation;

	(ii)	the grant of Options to insiders, within a 12 month period, exceeding 10% of the issued and outstanding Shares of the Corporation;

		(iii)	in the case of a Tier 1 Issuer only, the issuance to any Option Holder, within a 12 month period, of a number of shares exceeding 5% of the issued and outstanding Shares of the Corporation; or

		(iv)	any reduction in the Exercise Price of an Option previously granted to an insider.

7.4 Termination

The Board may terminate the Plan at any time provided that such termination shall not alter the terms or conditions of any Option or impair any right of any Option Holder pursuant to any Option awarded prior to the date of such termination. Notwithstanding the termination of the Plan, the Corporation, Options awarded under the Plan, Option Holders and Shares issuable under Options awarded under the Plan shall continue to be governed by the provisions of the Plan.

7.5 Agreement

The Corporation and every person to whom an Option is awarded hereunder shall be bound by and subject to the terms and conditions of the Plan.

ARTICLE 8
APPROVALS REQUIRED FOR PLAN

8.1 Approvals Required for Plan

Prior to its implementation by the Corporation, the Plan is subject to approval by the Exchange.

8.2 Substantive Amendments to Plan

Any substantive amendments to the Plan shall be subject to the Corporation first obtaining the approvals of:

	(a)	the shareholders of the Corporation, including Disinterested Shareholder Approval, if necessary, at a general meeting where required by the rules and policies of any stock exchange on which the Shares may be listed for trading; and

	(b)	any stock exchange on which the Shares may be listed for trading.

SCHEDULE “A”

U.S. GEOTHERMAL INC.
STOCK OPTION PLAN OPTION CERTIFICATE

This Certificate is issued pursuant to the provisions of U.S. Geothermal Inc. (the “Corporation”) Stock Option Plan (the “Plan”) and evidences that _______________ (the “Holder”) is the holder of an option (the “Option”) to purchase up to _______________ common shares (the “Shares”) in the capital stock of the Corporation at a purchase price of $_______________ per Share. Subject to the provisions of the Plan:

	(a)	the Award Date of this Option is _______________; and

	(b)	the Expiry Date of this Option is _______________.

This Option may be exercised in accordance with its terms at any time and from time to time from and including the Award Date through to and including up to 5:00 P.M. local time in Vancouver, British Columbia on the Expiry Date, by delivery to the Administrator of the Plan an Exercise Notice, in the form provided in the Plan, together with this Certificate and a certified cheque or bank draft payable to “U.S. Geothermal Inc.” in an amount equal to the aggregate of the Exercise Price of the Shares in respect of which the Option is being exercised.

This Certificate and the Option evidenced hereby is not assignable, transferable or negotiable and is subject to the detailed terms and conditions contained in the Plan. This Certificate is issued for convenience only and in the case of any dispute with regard to any matter in respect hereof, the provisions of the Plan and the records of the Corporation shall prevail.

The Corporation and the Holder represent that the Holder under the terms and conditions of the Plan is a bona fide __________________________ of the Corporation, entitled to receive Options under TSX Venture Exchange Policies.

The foregoing Option has been awarded this ____ day of _______________.

Without prior written consent of the TSX Venture Exchange and compliance with all applicable securities legislation, the securities represented by this certificate and the shares issuable upon the exercise thereof may not be sold, transferred, hypothecated or otherwise traded on or through the facilities of the TSX Venture Exchange or otherwise in Canada or to or for the benefit of a Canadian resident until _____________________.

U.S. GEOTHERMAL INC.

Per: ____________________

SCHEDULE “B”

EXERCISE NOTICE

TO:	The Administrator, Stock Option Plan
	U.S. Geothermal Inc.

Exercise of Option

The undersigned hereby irrevocably gives notice, pursuant to the U.S. Geothermal Inc. (the “Corporation”) Stock Option Plan (the “Plan”), of the exercise of the Option to acquire and hereby subscribes for (cross out inapplicable item):

	(a)	all of the Shares; or

	(b)	____________ of the Shares which are the subject of the option certificate attached hereto.

Calculation of total Exercise Price:

(a)	number of Shares to be acquired on exercise:	_________________ shares

(b)	times the Exercise Price per Share:	$ _________________

	Total Exercise Price, as enclosed herewith:	$ _________________

The undersigned tenders herewith a cheque or bank draft (circle one) in the amount of $___________, payable to “U.S. Geothermal Inc.” in an amount equal to the total Exercise Price of the Shares, as calculated above, and directs the Corporation to issue the share certificate evidencing the Shares in the name of the undersigned to be mailed to the undersigned at the following address:

________________________________________

DATED the _____ day of _______________.


Witness		Signature of Option Holder


Name of Witness (Print)		Name of Option Holder (Print)

RENEWABLE ENERGY CREDIT
PURCHASE AND SALE AGREEMENT

This Renewable Energy Credit Purchase and Sale Agreement (“Agreement”), dated as of ___ July 29 __, 2006, is entered into by and between:

	1.	Raft River Energy I LLC , a Delaware limited liability company, with its principal place of business at 1509 Tyrell Lane, Suite B, Boise, Idaho 83706 (“Seller”); and

	2.	Holy Cross Energy , a Colorado cooperative electric association, with its principal place of business at 3799 Highway 82, Glenwood Springs, Colorado 81601 (“Buyer”).

Buyer and Seller may be referred to individually herein as “Party” and collectively as “Parties.”

ARTICLE I: RECITALS

WHEREAS Seller is developing the Unit 1 geothermal power plant (the “Specified Resource”) in the Raft River Known Geothermal Resource Area in the State of Idaho and has the right to sell up to 10 megawatts (“MW”) average per month of electrical output under a Firm Energy Sales Agreement with Idaho Power Company (the “IPC Contract”) under which Seller contractually retains the “Environmental Attributes” and “Renewable Energy Credits” or “RECs” that are associated with the generation of renewable electric energy; and

WHEREAS the State of Colorado passed a Renewable Energy Standard (the “CO-RES”) that requires Buyer to meet certain escalating thresholds for its future retail electric energy sales though either the generation of electricity by means of eligible renewable energy facilities (including biomass, geothermal, hydropower, solar, and wind) or via the purchase of renewable energy credits associated with the aforementioned eligible energy facilities; and

WHEREAS , to adhere to the intent and spirit of the CO-RES which includes the development of new renewable energy facilities, Buyer responded to a solicitation of Seller to purchase RECs, wherein such sales proceeds received from Buyer would support Seller in its financing for the construction of the Specified Resource; and

WHEREAS Seller desires to deliver and sell and Buyer desires to accept and buy RECs for a period of 10 years commencing in 2008; and

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WHEREAS Buyer and Seller are in agreement that under any contract or contracts for the electrical output of the Specified Resource that have been or may be entered into by Seller with Idaho Power Company or others, Buyer will retain a senior position relative to any other entity for the purchase and delivery of up to 87,600 RECs per year.

NOW, THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter set forth, the Parties, intending to be legally bound, agree as follows:

ARTICLE II: DEFINITIONS

“Agreement” means this Renewable Energy Credit Purchase and Sale Agreement executed between the Parties, including Exhibit A and any such revisions as may be agreed to in writing and signed by both Parties.

“Buyer’s Reserve” means a volume of RECs that are owned and held by Seller, but controlled by Buyer, as more fully described in paragraph III.H below.

“CO-RES” means the electric resource standard for eligible renewable energy resources specified in § 40-2-124, C.R.S., and in the implementing regulations promulgated by the Colorado Public Utilities Commission at 4 CCR 723-3, effective July 2, 2006.

"Environmental Attributes" a) include, but are not limited to, green tags, green certificates, renewable energy credits and tradable renewable certificates directly associated with the Specified Energy from the Seller’s Specified Resource. b) means the full set of non-energy attributes, including any and all credits, benefits, emissions reductions, environmental air quality credits, and emissions reduction credits, offsets and allowances, howsoever described or entitled, resulting from the avoidance of the emission of any gas (including, but not limited to mercury, CO2, NOX, and SO2), chemical, or other substance, directly attributable to the generation of the Specified Energy by the Specified Resource. c) does not mean (i) any energy, capacity, reliability or other power attributes from the Specified Resource; or (ii) tax credits, deductions, refunds, loans or other financial incentives associated with the construction and operation of the Specified Resource that are applicable to federal or state or local property, sales or income tax obligations.

“Events of Default” mean and are limited to those events set forth in Article VI.

“Full Output Contract” means a new or revised contract or contracts between Seller and Idaho Power or others for the electrical power generated by the Specified Resource that is not limited to 10 MW per month.

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“Green-e Certified” or “Green-e Certification” means RECs possessing Tradable Renewable Certificate Certification by the Green-e Renewable Electricity Certification Program administered by the Center for Resource Solutions, or another certification authority accepted by the Parties, agreement as to which shall not be unreasonably withheld.

“IPC Contract” means the Firm Energy Sales Agreement between US Geothermal and Idaho Power entered into on December 29, 2004, Project Number 31765155, and approved by the Idaho Public Utilities Commission, as such contract may be amended, modified or supplemented from time to time.

“REC” means Renewable Energy Credit.

"REC Reporting Rights" means the exclusive right to report to or register with any agency, authority or other party, including, without limitation under Section 1605(b) of the Energy Policy Act of 1992, or under any present or future Federal, state or local law, regulation or bill, and international or foreign emissions trading program, exclusive ownership of the RECs.

"Renewable Energy Credit" (REC) means all rights, title and interest in and to the Environmental Attributes, plus the REC Reporting Rights. For purposes of this Agreement, one REC (a) represents the Environmental Attributes associated with the generation and delivery of 1 MWh of Specified Energy by the Specified Resource to Idaho Power or another entity, after excluding any Specified Energy produced using fossil fuel, except to the extent, if any, that fossil fuel use is authorized by CO-RES, and (b) is Green-e Certified.

“Revenue Meter” means the meter used to measure and calculate the net generation of the Specified Resource delivered to the transmission/distribution grid.

“Specified Energy” means the electrical energy produced by the Specified Resource and metered at the Revenue Meter of the Specified Resource.

“Specified Resource” means the Raft River Geothermal Power Plant Unit 1 near Malta, Idaho that will produce the Specified Energy under the terms of the IPC Contract or if executed, the Full Output Contract.

ARTICLE III: TRANSACTION

A. Term . This Agreement shall take effect upon execution by both Parties and will end on December 31, 2017, unless both parties in writing mutually agree to a time extension

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exceeding December 31, 2017. If this occurs, a Purchase Price will be negotiated as part of the extension.

B. Sale and Purchase . In accordance with the terms of this Agreement, Seller will be obligated to sell to Buyer, and Buyer will be obligated to accept and buy from Seller, RECs as more fully set forth below.

C. Quantity . Commencing on the later of (i) January 1, 2008, or (ii) the first date when Specified Energy is delivered under the IPC Contract or the Full Output Contract, Seller shall sell and deliver, and Buyer shall accept and buy, RECs as follows:

1.	IPC Contract : In every calendar month, Seller shall sell and deliver and Buyer shall accept and buy, RECs corresponding to 100% of Seller’s total production of Specified Energy, up to a maximum of 87,600 RECs per calendar year.

2.	Full Output Contract : Subject to the limitation in paragraph III.C.4 below, in every calendar month, Seller shall sell and deliver and Buyer shall accept and buy, RECs corresponding to the total of a) the first 7,300 RECs, plus b) 25% of the remaining monthly output of RECs.

3.	Minimum Quantity: Seller does not warrant or guarantee that it will generate any minimum amount of Specified Energy or associated RECs on a monthly or annual basis.

4.	Annual Quantity: Seller shall not be obligated to deliver and Buyer shall not be obligated to buy more than 87,600 RECs per calendar year.

5.	Additional Quantities:

	In the event that Seller delivers less than 87,600 RECs to Seller in respect of any calendar year, Seller shall deliver to Buyer any RECs, other than the Buyer’s Reserve, owned by Seller and not required to be delivered to any other party by Seller in order to comply with its minimum delivery obligations under any agreement with any other party, so as to make up such shortfall in the annual quantity of RECs.

6.	Buyer’s Reserve Quantity: Those RECs that under paragraph III.H are either obligated to be used to create the Buyer’s Reserve, or to be delivered from the Buyer’s Reserve, shall be excluded from the monthly or annual delivery requirements of this paragraph III.C.

D. Excess RECs . Seller may (but is not required to) offer to sell to Buyer, and Buyer may (but is not required to) purchase from Seller, RECs corresponding to generation of Specified Energy in excess of the monthly or annual maximum delivery levels set forth in paragraphs 1 and 2 of paragraph II.C above. The price for such excess RECs shall be the then-applicable price per REC under paragraph III.G, below.

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E. Senior Right . Seller shall be obligated to fulfill the Buyer’s REC delivery requirements of this Agreement prior to the retention or delivery of RECs with any other party, up to the monthly and annual limits set forth in paragraph III.C.

	1.	Seller shall take all reasonable steps to defend and support Buyer's right to RECs under this Agreement, at Seller's sole cost and expense, if such right is contested or challenged by Idaho Power Company or any alternative or replacement purchaser from Buyer of the Specified Energy.

	2.	The Parties shall cooperate to defend or support of Buyer's rights under this Agreement before any Idaho or Colorado governmental entity.

	3.	Notwithstanding any other provision of this paragraph III.E, (i) Seller shall not be responsible for any costs of implementing paragraph III.E.1 that exceed a maximum of 20% of the annual revenues per contract year, provided the costs do not arise as a result of Seller's willful breach of this Agreement; and (ii) Seller's obligations under this paragraph III.E. shall not be enforceable against Seller with respect to any RECs that Buyer sells or transfers to third parties.

F. Forecasting . By January 30 ^th of every year of the Term, Seller shall provide to Buyer a good faith written forecast of Seller’s expected production for that year and the remainder of the Term. Seller does not warrant the delivery of RECs as a result of the forecast.

G. Price .

If Seller is delivering Specified Energy under the IPC Contract, then the price per REC shall be as given in Table 1.

Table 1: REC Prices - IPC Contract

Year	Price ($/MWh)	Year	Price ($/MWh)
2008	$7.50	2013	$5.00
2009	$7.00	2014	$4.50
2010	$6.50	2015	$4.00
2011	$6.00	2016	$3.50
2012	$5.50	2017	$3.00

If Seller is delivering Specified Energy under a Full Output Contract, then the price per REC shall be as given in Table 2.

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Table 2: REC Prices - Full Output Contract

Year	Price ($/MWh)	Year	Price ($/MWh)
2008	$7.50	2013	$5.00
2009	$7.00	2014	$4.75
2010	$6.50	2015	$4.75
2011	$6.00	2016	$4.75
2012	$5.50	2017	$4.75

Under either contract scenario, the price per REC will be based on the calendar month in which the RECs are billed to Buyer.

H. Buyer’s Reserve . Not later than December 31, 2008, Seller shall establish and thereafter administer on behalf of Buyer a reserve account from RECs generated in 2007 or 2008 which shall be delivered to Buyer at the Buyer’s discretion. The Buyer’s Reserve shall be administered as follows:

	1.	Reserve Quantity . Seller shall initially establish the Buyer’s Reserve with 8,760 RECs.

	2	Vintage: The Seller shall implement all necessary internal accounting procedures to ensure that the RECs in the Buyer’s Reserve shall be Green- e Certified when delivered.

	3.	Ownership . Buyer’s Reserve RECs shall be owned and held by Seller, for the exclusive benefit of Buyer, until delivery thereof to Buyer.

	4.	Delivery . At any time during the term, Buyer shall have the right to require Seller to deliver to Buyer all or any portion of the RECs then remaining in the Reserve. Seller shall be under no obligation to replace RECs from the Buyer’s Reserve delivered at the request of the Buyer.

	5.	Payment . Buyer, upon receipt of RECs delivered from the Reserve, shall pay Seller for such RECs in a manner consistent with the applicable terms and conditions of this Agreement.

	6.	Termination . Upon termination of this Agreement, any and all RECs remaining in the Reserve that have not been delivered to Buyer shall become the sole property of Seller.

I. Certification. All RECs delivered from Seller to Buyer under the terms of this Agreement shall be Green-e Certified RECs.

J. Delivery . Seller shall deliver RECs to Buyer in Colorado on a monthly basis. Seller shall effect delivery by delivering on or about the 10 ^th of every month, an invoice and a “Renewable Energy Credit Attestation and Bill of Sale” (in substantially the form attached hereto as Exhibit A) to Buyer.

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K. True-Up . If, as a result of a meter inspection, billing error, or audit under Article IV, it is determined that the quantity of Specified Energy does not correlate or coincide with deliveries of RECs to Buyer, then each party shall promptly, upon the other party’s request, provide the requesting party with all necessary documentation and cooperate with the other Party as reasonably required. Buyer and Seller shall act in a timely manner to resolve any under/over payments or deliveries associated with the sale and purchase of RECs that may result if a true-up obligation arises.

L. Payment . Buyer shall make payment to Seller for the RECs delivered by Buyer to Seller within ten business days after receipt of an invoice. Any amount not paid when due under this Agreement shall accrue interest at the lesser of 12% per annum or the highest rate permitted under applicable law until paid.

M. Taxes . Seller is responsible for all taxes arising prior to delivery. Buyer is responsible for all taxes after delivery. Neither party is responsible for income or ad valorem taxes of the other party. Seller shall not be responsible for any Colorado sales or use tax arising or resulting from RECs delivered under this Agreement, and should any such tax be due, it shall be paid by Buyer.

If a Party is required to remit or pay taxes that are the other Party’s responsibility hereunder, such responsible Party shall reimburse the other for such taxes upon request. Both Parties shall use reasonable efforts to administer this Agreement and implement its provisions so as to minimize taxes. In the event any of the sales of RECs hereunder are to be exempted from or not subject to any particular taxes, Buyer shall, promptly upon Seller’s request, provide Seller with all necessary documentation to evidence such exemption.

N. Title . Ownership of RECs shall transfer from Seller to Buyer upon delivery of the Renewable Energy Credit Attestation and Bill of Sale, and contingent on Buyer’s payment in-full for such delivered RECs. Upon transfer of ownership by Seller to Buyer, Buyer shall have absolute and exclusive ownership of the RECs. Attestations may be disclosed by either party to others to substantiate and verify Seller’s representations.

O. Further Assurances . At Buyer’s request and expense, the Parties shall execute all documents and instruments necessary and desirable to evidence the RECs or to effect or evidence transfer of RECs to Buyer or its designee beyond that of the Renewable Energy Credit Attestation and Bill of Sale. At Buyer’s expense, in the event that Buyer requests, or the States of Idaho or Colorado require, participation by Seller in a registry or tracking system, such as the Western Renewable Energy Generation Information System (“WREGIS”), then Seller will promptly register with that system and participate as reasonably necessary to effect participation with the tracking system. At Seller’s expense, Seller will obtain Green-e Certification of all RECs sold to Buyer under this

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Agreement. Each Party shall promptly give to the other Party copies of all documents it submits to such registry, tracking or certification bodies to document, record, or effectuate these obligations.

P. Retail/Marketing Claims . Seller grants to Buyer all REC Reporting Rights to RECs sold under this Agreement. Seller further allows Buyer to advertise, market, and promote to its customers and the general public the benefits of the REC purchases.

ARTICLE IV: BUYER’S RIGHT TO AUDIT

A. Audit of Books and Records . Upon five business days advance written notice from Buyer, Seller shall make its records and accounts relating to the Agreement and the production of Specified Energy from the Specified Resource and RECs transferred to Buyer pursuant to the Agreement available for audit at Seller’s offices during Seller’s normal office hours, but Seller shall not be required to make such documents available more than twice each year during the Term.

B. Meter Audit . Seller shall provide Buyer with a reasonable opportunity to periodically inspect and read Seller's Revenue Meters used to determine the quantity of Specified Energy delivered to Idaho Power or others, at Buyer's request, but not more frequently than once per month. Seller shall notify Buyer and providing Buyer with an opportunity to attend any Revenue Meter calibration or tests conducted by Seller or by Idaho Power or others, and to review results of meter readings that may be furnished by Idaho Power or others to Seller, subject to the confidentiality provisions or requirements for consent of Idaho Power or others, if any, applicable under the IPC Contract or any Full Output Contract as the case may be.

ARTICLE V: REPRESENTATIONS AND WARRANTIES

A. Mutual Representations and Warranties. Each Party represents and warrants to the other that: (i) it is duly organized and validly existing under the laws of the jurisdiction of its incorporation or organization; (ii) it has the corporate, governmental or other legal capacity and authority to execute this Agreement and to perform its obligations hereunder, and all acts necessary to the valid execution, delivery and performance of this Agreement, have or will be taken and performed by each Party, or by its board of directors, shareholders, managing members, members or partners, as appropriate; (iii) such execution and performance do not violate or conflict with any law or regulation applicable to it, any provision of its constitutional documents, any order or judgment of any court or government agency applicable to it or any of its assets or any contract or contractual restriction by which it is bound or affecting it or any of its assets; (iv) all governmental and other authorizations that are required to have been obtained or

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submitted by it with respect to this Agreement have been obtained or submitted and are in full force and effect and all conditions of any such authorizations, approvals, consents, notices and filings have been complied with; (v) it is not relying upon any representations of the other Party other than those expressly set forth in this Agreement; (vi) it has executed this Agreement based upon its own judgment and upon such advice from such advisors as it has deemed necessary and not in reliance upon any view expressed by the other Party; and (vii) all persons executing this Agreement on behalf of each Party is duly authorized by such Party to do so.

B. Warranties of Seller. Seller hereby warrants to Buyer that with respect to all RECs sold and delivered by Seller to Buyer under this Agreement, as set forth in a “Renewable Energy Credit Attestation and Bill of Sale” (the form of which is attached as Exhibit A), as of the date of delivery of such RECs:

	1.	Seller has and will maintain, and transfer to buyer, good and merchantable title to such RECs, and such RECs are free and clear of any liens, taxes, claims, security interests or other encumbrances or any right or interest therein or thereto by any entity of any kind whatsoever.

	2.	Seller has not claimed ownership of the RECs or sold or exchanged the RECs to any other person or entity (whether separately or with RECs included as part of any blended energy product), such sale being the first and only sale of RECs by Seller.

	3.	The RECs are Green-e Certified.

	4.	The Specified Resource from which RECs are sourced was not built in order to comply with a renewable portfolio standard or other renewable energy requirement of a local, state or federal government entity, or to comply with any mandate by a public utilities commission ruling or as a quid pro quo component of a legal settlement.

	5.	As of the date of the Agreement, the Specified Resource is an "Eligible Renewable Energy Resource" pursuant to Rule 3650(f) of the CO-RES.

	6.	Seller is not required under any Idaho program, rule, law or regulation to sell the same RECs that are to be sold to Buyer under this Agreement to Idaho Power Company or to other purchasers of Specified Energy.

C. LIMITATION OF WARRANTIES . EXCEPT AS EXPRESSLY SET FORTH IN PARAGRAPH V.B. ABOVE, SELLER EXPRESSLY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES WHETHER WRITTEN OR ORAL, AND WHETHER EXPRESS OR IMPLIED WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE RECS. IN PARTICULAR, EXCEPT AS EXPRESSLY SET FORTH IN PARAGRAPH V.B. ABOVE, BUT WITHOUT OTHERWISE LIMITING THE GENERALITY OF THE FOREGOING, SELLER MAKES NO WARRANTY THAT THE RECS WILL COMPLY WITH THE RENEWABLE

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ENERGY STANDARD OR RENEWABLE PORTFOLIO STANDARD OF ANY NATION, STATE, AGENCY, COOPERATIVE OR POLITICAL SUBDIVISION THEREOF OR THAT THE RECS HAVE ANY MARKET VALUE OTHER THAN THAT ESTABLISHED THROUGH THIS AGREEMENT.

ARTICLE VI: EVENTS OF DEFAULT; REMEDIES

A. Event of Default . “Event of Default” shall mean, with respect to a Party (the “Defaulting Party”): (1) the failure to make when due any payment under this Agreement if such failure is not remedied within fifteen days after written notice of such failure is given; (2) any such Party's representation or warranty proves to have been incorrect or misleading in any material respect when made; (3) the failure to perform any other covenant set forth in this Agreement if such failure is not remedied within fifteen days after written notice of such failure is given; or (4) its bankruptcy.

B. Remedies Upon Event of Default. In the Event of Default by a Party and for so long as the Event of Default is continuing, the non-defaulting Party (the “Performing Party”) shall have the right to do any or all of the following: (1) obtain damages from the defaulting Party (including in the case of Buyer's default, as applicable, the price per REC for any RECs delivered to Buyer for which Seller has not been paid, and in the case of Seller's default, as applicable, the costs incurred by Buyer to purchase that quantity of RECs associated with Specified Energy that Seller is obligated to deliver but fails to deliver); (2) withhold any payments or deliveries due in respect of this Agreement; (3) upon 20 business days’ written notice to the Defaulting Party, terminate this Agreement and obtain the damages set forth in paragraph VI.C below; or (4) exercise such other remedies as may be available at law or in equity or as otherwise provided for in this Agreement, including in the case of Buyer, injunctive or declaratory relief. Each Party shall use commercially reasonable efforts to mitigate any damages it may incur under this Agreement as a result of an Event of Default.

C. Termination Liabilities.

Buyer’s Liability. If an Event of Default occurs with respect to Buyer and Seller elects to terminate this Agreement , or receive damages under this paragraph VI.C.1, then Buyer shall be obligated to pay Seller termination damages equal to the sum of (a) the Purchase Price for any RECs delivered to Buyer for which Seller has not been paid, if any, plus (b) the positive difference, if any, between (i) the Purchase Price set forth in this Agreement for all RECs remaining to be delivered to Buyer, if any, minus the forward market price as of the date of termination by Seller, to be determined based upon the average of prices quoted by two independent brokers reasonably selected by Seller, for all such RECs remaining to be

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		delivered to Buyer, if any, plus any brokerage fees and other costs reasonably incurred by Seller either in terminating any arrangement pursuant to which it hedged its obligations or entering into any replacement transactions.

	2.	Seller’s Liability. If an Event of Default occurs with respect to Seller and Buyer elects to terminate this Agreement or receive damages under this Paragraph VI.C.2, then Seller shall be obligated to pay Buyer termination damages equal to the sum of (a) the positive difference, if any, between (i) the forward market price as of the date of termination by Buyer, to be determined based upon the average of prices quoted by two independent brokers reasonably selected by Buyer, for all RECs that Seller is obligated to deliver to Buyer but which remain undelivered minus (ii) the Purchase Price Buyer would have had to pay Seller for the same number of RECs, plus (b) any brokerage fees and other costs reasonably incurred by Buyer either in terminating any arrangement pursuant to which it hedged its obligations or entering into any replacement transactions. Notwithstanding any Event of Default with respect to Seller, Buyer shall pay Seller the Purchase Price for any RECs delivered to Buyer for which Seller has not been paid, provided, however, Buyer may first set-off from such amount any amounts due to Buyer from Seller under this provision or any other provision in this Agreement.

	3.	One-Way Termination . Seller shall not owe Buyer any amounts under this paragraph VI.C if Buyer is the Defaulting Party, and Buyer shall not owe Seller termination damages under this paragraph VI.C if Seller is the Defaulting Party.

D. Setoff. If the Agreement is terminated, the Performing Party may, at its election, set off any or all amounts that the Defaulting Party owes to it (whether under this Agreement or otherwise and whether or not then due) against any or all amounts which it owes to the Defaulting Party (whether under this Agreement or otherwise and whether or not then due).

E. Payment of Damages. Any termination damages due hereunder shall be paid by the close of business within five business days following the Defaulting Party’s receipt of the Performing Party’s written termination notice setting forth the termination payment due.

F. Limitation of Liability. THE PARTIES AGREE THAT THE EXPRESS REMEDIES AND MEASURES OF DAMAGES PROVIDED HEREIN SATISFY THE ESSENTIAL PURPOSES HEREOF. FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGE IS PROVIDED, SUCH REMEDY OR

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MEASURE SHALL BE THE SOLE AND EXCLUSIVE REMEDY. IF NO REMEDY OR MEASURE OF DAMAGE IS EXPRESSLY PROVIDED, THE OBLIGOR’S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY AS THE SOLE AND EXCLUSIVE REMEDY. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES AGREE THAT NO PARTY SHALL BE REQUIRED TO PAY OR BE LIABLE FOR SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES, LOST PROFIT OR BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT, CONTRACT OR OTHERWISE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE DEEMED LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE LIQUIDATED DAMAGES CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS.

G. Survival. This Article V shall survive the expiration or termination of this Agreement, but only until such time as the remedies provided are exercised.

H. Force Majeure . To the extent either Party is prevented by Force Majeure from carrying out, in whole or in part, its obligations under this Agreement, and such Party (the “Claiming Party”) gives notice and details of the Force Majeure to the other Party as soon as practicable, then, unless otherwise specified, the Claiming Party shall be excused from the performance of its obligations in this Agreement (other than the obligation to make payments then due or becoming due with respect to performances prior to the Force Majeure). The non-Claiming Party shall not be required to perform or resumes performance of its obligations to the Claiming Party corresponding to the obligations of the Claiming Party excused by Force Majeure. Force Majeure means any event or circumstance not anticipated as of the date of execution of this Agreement that (a) in whole or in part, delays a Claiming Party’s performance under this Agreement, causes a Claiming Party to be unable to perform its obligations, or prevents a Claiming Party from complying with or satisfying the conditions of this Agreement; (b) is not within the reasonable control of that Party; and (c) the Claiming Party has been unable to overcome by the exercise of due diligence. Force Majeure may include, but is not limited to, acts of God, labor disturbance, acts of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or equipment, or a curtailment, order, regulation or restriction imposed by governmental, military, or lawfully established civilian authorities. Neither Party will be considered to be in default for failure to comply with a term of this Agreement to the extent and during such period of time that such failure to comply is caused by an event of Force Majeure.

I. Government Action.

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	1.	Buyer shall not be relieved of its obligations under this Agreement to purchase RECs delivered by Seller at the price and on the terms set forth in this Agreement, notwithstanding any change in the CO-RES or in any other Colorado program, rule, law or regulation.

	2.	Seller shall not be relieved of its obligations under this Agreement to deliver RECs that it is obligated to sell at the price and on the terms set forth in this Agreement, notwithstanding any change in any Idaho program, rule, law or regulation.

ARTICLE VII: MISCELLANEOUS

A. Notices. Notices, which may be given by facsimile with an original to follow via regular mail, shall be given as follows or to such other address as may be provided by a Party from time to time in writing. All notices are effective upon receipt.

To Seller:	To Buyer:
Raft River Energy I LLC.	Holy Cross Energy
Attn: Dan Kunz, President	Attn: Kent Benham, CEO
1509 Tyrell Lane, Suite B	PO Box 2150
Boise, ID 83706	Glenwood Springs, CO 81602

Phone: 208-424-1027	Phone: 970-945-5491
FAX: 208-424-1030	FAX: 970-945-4081

B. Entire Agreement; Counterparts. This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof. This Agreement may not be amended, changed, modified, or altered unless such amendment, change, modification, or alteration is in writing and signed by both Parties. This Agreement may be executed in counterparts, including by a facsimile transmission thereof, each of which is an original and all of which constitute one and the same instrument.

C. Assignment. Neither Party shall transfer or assign all or any part of this Agreement or its rights or obligations hereunder or otherwise dispose of any right, title or interest herein without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed; provided, however, either Party may, without the consent of the other Party (i) transfer or assign this Agreement to a subsidiary, parent or affiliate of such Party which affiliate’s creditworthiness is equal to or higher than that of such Party, or (ii) transfer or assign this Agreement to any person or entity succeeding to all or substantially all of the assets whose creditworthiness is equal to or higher than that of such Party; provided, however, that in each case, any such assignee shall agree in writing to be bound by the terms and conditions hereof.

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D. Successors and Assigns. This Agreement inures to the benefit of and is binding upon the Parties and their respective successors and permitted assigns.

E. Severability. If any provision of this Agreement is determined to be invalid, void or unenforceable by any court of competent jurisdiction, such determination shall not invalidate, void, or make unenforceable any other provision, agreement or covenant of this Agreement, provided the basic purposes of this Agreement and the benefits to the Parties are not substantially impaired.

F. No Prior Agreements. This Agreement completely and fully supersedes all other prior understandings or agreements, both written and oral, between the Parties relating to the subject matter hereof.

G. No Waiver. Waiver by a Party of any default by the other Party shall not be construed as a waiver of any other default, nor shall any delay by a Party in the exercise of any right under this Agreement be considered as a waiver or relinquishment thereof.

H. Headings. The headings used herein are for convenience and reference purposes only.

I. Rules of Construction . "Hereof," "herein," "hereunder" and similar words refer to this Agreement in its entirety. All accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles consistently applied (" GAAP "). "Or" is not necessarily exclusive.

J. No Third Party Beneficiaries. This Agreement confers no rights whatsoever upon any person other than the Parties and shall not create, or be interpreted as creating, any standard of care, duty or liability to any person not a Party hereto.

K. Negotiated Agreement. This Agreement shall be considered for all purposes as prepared through the joint efforts of the Parties. Therefore, doubtful or ambiguous provisions, if any, contained in this Agreement shall not be construed against the Party who physically drafted and prepared it.

L. Venue and Controlling Law . This Agreement and its construction and enforcement shall be governed in all respects by the laws of the State of Idaho, except provisions dealing with conflicts of laws. Any proceedings to enforce this Agreement, declare the parties’ rights and obligations under it, or in any way relating to it shall be brought in Idaho state district court, Fourth District, Ada County, or in the United States District Court for the District of Idaho. Each of the parties expressly consents to the jurisdiction

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of either court over them personally for such purpose, and waives any objection to personal jurisdiction and venue in either court for such purpose.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above.

Raft River Energy I LLC	Holy Cross Energy

BY: Daniel Kunz (July 29)	BY: Kent Benham (July 29)

NAME: Daniel Kunz	NAME: Kent Benham

TITLE: President	TITLE: CEO

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EXHIBIT A
Raft River Energy I LLC
Renewable Energy Credit Attestation and Bill of Sale

Raft River Energy I LLC (“Seller”) hereby sells, transfers and delivers to Holy Cross Energy (“Buyer”) the RECs (described below) associated with the generation of the Specified Energy by the Specified Resource (as such term(s) are defined in the Renewable Energy Credit Purchase and Sale Agreement (the “Agreement”), dated ____________, 2006, between Seller and Buyer).

Facility name and location:	The Raft River Unit 1 Geothermal Power Plant
Energy Source:	Geothermal
Generator Capacity (MVA):	22.5 MVA
Operational Date:	September 2007
Identification Number:	( e.g. DOE EIA #)

Specified Energy delivered from Specified Resource:

	Dates	MWh generated
	_____________	_____________

RECs Delivered to Buyer from Seller:

	Dates	RECs Delivered to Buyer
	_____________	_____________

Seller further attests, warrants and represents as follows:

	i)	To the best of its knowledge, the information provided herein is true and correct;

	ii)	Seller has good and merchantable title to such RECs, and such RECs are free and clear of any liens, taxes, claims, security interests or other encumbrances or any right or interest therein or thereto by any entity of any kind whatsoever;

	iii)	Seller has not claimed ownership of the RECs or sold or exchanged the RECs with, any other person or entity (whether separately or with RECs included as part of any blended energy product), such sale being the first and only sale of RECs by Seller.

	iv)	The Specified Resource generated and delivered to the grid the Specified Energy during the period _______ to ________ in the amount indicated, as undifferentiated energy, as measured at the Revenue Meter.

	v)	The RECs are Green-e Certified.

Pursuant to this Renewable Energy Credit Attestation and Bill of Sale , Seller transfers to Buyer all of Seller’s right, title and interest in and to the RECs and Environmental Attributes associated with the generation of the Specified Energy by the Specified Resource for delivery to the grid.

Contact Person:

Tel:

Fax:

WITNESS MY HAND,

Raft River Energy I LLC	Attest:

By: _________________________________	By: _________________________________

Name: _________________________________	Name: _________________________________

Date: _________________________________	Date: _________________________________

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CONSTRUCTION CONTRACT

Between

Raft River Energy I LLC

And

Industrial Builders

Dated as of May 22, 2006

CONFIDEN TIAL

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CONTENTS

ARTICLE 1	DEFINITIONS, INTERPRETATION AND CONTRACT DOCUMENTS	1
1.1	Definitions	1
1.2	Interpretation	7
1.3	Documents Included	8
ARTICLE 2	CONTRACTOR RESPONSIBILITIES	9
2.1	General Responsibilities	9
2.2	Specific Responsibilities	9
2.3	Contractor’s Personnel and Labor Relations	10
2.4	Representations and Warranties of Contractor	11
ARTICLE 3	COMPANY RESPONSIBILITIES	11
3.1	General Responsibilities	11
3.2	Company’s Representative	12
3.3	Representations and Warranties of Company	12
ARTICLE 4	COMMENCEMENT OF WORK	13
4.1	Notice to Proceed	13
4.2	Commencement	13
4.3	Reserved	13
4.4	Reserved	13
4.5	Reserved	13
4.6	Delay Liquidated Damages	13
4.7	Final Completion	14
4.8	Final Completion Certificate	14
4.9	Punchlist	15
ARTICLE 5	COMPENSATION AND PAYMENT	15
5.1	Contract Price	15
5.2	Payment Schedule	16
5.3	Payment	16
5.4	Final Completion Payment for the Facility	17

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5.5	Payments Not Acceptance of Work	17
5.6	Payment of Subcontractor	17
5.7	Waiver of Liens	17
5.8	Interest	17
ARTICLE 6	TESTING	18
6.1	General	18
6.2	Test Procedures	18
6.3	Notice of Testing	18
6.4	Deficiencies	18
ARTICLE 7	INTENTIONALLY OMITTED	19
ARTICLE 8	CONSTRUCTION SUSPENSION AND ACCELERATION; CHANGE ORDER	19
8.1	Construction Suspension and Acceleration	19
8.2	Change Orders	19
8.3	Procedure for Change Orders	19
8.4	Change Orders Due to Contractor Error	20
8.5	Change Orders Due to Changes in Law	21
8.6	Effect of Force Majeure; Excused Performance	21
8.7	Company-Caused Changes	22
8.8	Price Change	22
8.9	Effectiveness; Continued Performance Pending Resolution of Disputes	27
8.10	Documentation	27
8.11	Continue Work	28
8.12	Critical Path Schedule Updates	28
8.13	Change Order Constitutes Complete Relief	28
8.14	Effect of Changes on Warranties and Safety	28
ARTICLE 9	DESIGN AND DOCUMENTATION	29
9.1	Inspection of Work	29
9.2	As-Built Drawings	29
9.3	Equipment Manuals	29

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ARTICLE 10	WARRANTIES	29
10.1	Warranty	29
10.2	Warranty Period	30
10.3	Defect Remedy Work	30
10.4	Implementation of Warranty	31
10.5	Disclaimer and Release	31
ARTICLE 11	INTENTIONALLY OMITTED	32
ARTICLE 12	TITLE; CARE OF THE WORK	32
12.1	Passage of Title	32
12.2	Risk of Loss	32
ARTICLE 13	INSURANCE AND BONDING	32
13.1	Contractor Provided Insurance	32
13.2	Company Provided Insurance	33
13.3	Policies	33
13.4	Payment of Deductibles	35
13.5	Evidence of Insurance	35
13.6	Performance Payment and Other Bonds	35
ARTICLE 14	DISPUTE RESOLUTION	36
14.1	Settlement by Mutual Agreement	36
14.2	Mediation	36
14.3	Pending Disputes	37
ARTICLE 15	INDEMNIFICATION	37
15.1	General	37
15.2	Indemnification for Bodily Injury or Property Damage	37
15.3	Indemnity from Liens	38
15.4	Reserved	38
15.5	Company’s Indemnity	38
15.6	Notice and Settlement of Claims	38
ARTICLE 16	ASSIGNMENT	39
16.1	Assignment by Company	39

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16.2	Assignment by Contractor	39
16.3	Succession	39
ARTICLE 17	SUBCONTRACTORS	39
17.1	Subcontracts	39
17.2	Subcontract Provisions	39
17.3	Vendors	40
ARTICLE 18	SUSPENSION	40
18.1	Right of Company to Suspend Work	40
18.2	Initial Payments to Contractor	40
18.3	Extended Suspension	40
18.4	Right of Contractor to Suspend	40
18.5	Additional Changes Resulting From Suspensions	40
18.6	Resumption of Work	41
ARTICLE 19	TERMINATION	41
19.1	Termination by Company	41
19.2	Termination by Contractor	42
19.3	Due to Force Majeure	42
19.4	Due to Company’s Convenience	43
19.5	Exclusive Remedy	43
19.6	Actions Required Following Termination	43
19.7	Termination and Transfer of Subcontracts and Other Rights	44
19.8	Surviving Obligations	44
ARTICLE 20	INTENTIONALLY OMITTED	44
ARTICLE 21	CONFIDENTIALITY	44
21.1	Both Parties to Keep Information Confidential	44
21.2	Use of Information	45
21.3	Exclusions	45
21.4	Contractor Logos	45
ARTICLE 22	NOTICES	45
22.2		46

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ARTICLE 23	MISCELLANEOUS	46
23.1	Governing Law	46
23.2	Construction	46
23.3	Nature of Agreement	47
23.4	Severability	47
23.5	Amendments and Waivers	47
23.6	Survival	47
23.7	Counterparts	47
23.8	Entire Contract	47
23.9	Waivers	48
23.10	Counterparts; Transmitted Copies	48
23.11	Further Assurances	48

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	LIST OF EXHIBITS:

	Exhibit A	Contract Price and Payment Schedule

	Exhibit B	Schedule (Gantt Chart)

	Exhibit C1	Pipeline System Criteria and Project Scope

	Exhibit C2	Drawings and General Notes

	Exhibit D	Performance Test Protocols

	Exhibit E	Warranty Claim Procedures

	Exhibit F	Approved Vendors List

	Exhibit G	Permits

	Exhibit H	Reserved

	Exhibit I	Certificate of Final Completion

	Exhibit J	Form of Final Lien Waiver

	Exhibit K	Liquidated Damages

	Exhibit L	Change Order Form

	Exhibit M	Change Order Request Form

	Exhibit N	Work Items Prior to Notice to Proceed

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CONSTRUCTION CONTRACT

THIS CONSTRUCTION CONTRACT (“ Contract ”) dated as of May 22, 2006, is made by and between:

(1)	Raft River Energy I LLC, a Delaware Limited Liability Company with its principal place of business at 1509 Tyrell Lane, Suite B, Boise, Idaho 83706 (“ Company ”); and

(2)	IBI DBA Industrial Builders, an Idaho corporation, with its principal place of business at 20394 Pinto Lane, Caldwell Idaho 83605 (“ Contractor ”).

RECITALS

A. Company is developing a nominal 13 MW geothermal power plant in the Raft River Known Geothermal Resource Area in the State of Idaho and desires to retain Contractor to provide certain procurement and construction related services to provide pipelines to connect the geothermal power plant to production and injection wells.

B. Contractor desires to be retained by Company to provide procurement and construction related services to provide pipelines to connect the geothermal power plant to production and injection wells.

AGREEMENT

THEREFORE, Company and Contractor (each individually, a “ Party ” and together, the “ Parties ”) agree as follows:

ARTICLE 1 DEFINITIONS, INTERPRETATION AND CONTRACT DOCUMENTS

1.1 Definitions

In addition to the terms defined elsewhere in this Contract, the definitions of certain terms used in this Contract with initial letters capitalized are as set forth herein.

“ Affiliate ” means, with respect to any person or entity, any other person or entity (including any officer, director, shareholder, partner, employee, agent or representative of such person or entity) that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such first person or entity. For purposes of this definition, “ control ” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person or entity, whether through the ownership of voting securities, partnership or other ownership interests, by contract, by Law or otherwise.

“ As-Built Drawings ” has the meaning given to it in Section 9.3.

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“ Certificate of Final Completion ” means the certificate issued by Contractor to Company under this Contract, pursuant to Section 4.8.

“ Change in the Work ” means a change to the Work as provided in Article 8.

“ Change of Law ” means any Law, official interpretation thereof or manner of interpretation thereof, that is amended or modified, is enacted, adopted, promulgated or otherwise becomes effective or is repealed, revoked, suspended or not renewed after the Effective Date and which increases Contractor’s cost of performing the Work, delays Contractor’s performance of the Work or otherwise adversely affects Contractor’s performance of its obligations under this Contract.

“ Change Order ” means a written change order based on the form set forth in Exhibit L describing the Change in the Work and its effect, if any, on the Contract Price, the Payment Schedule, the Schedule and any other provision of this Contract that is affected.

“ Commencement Date ” has the meaning given to it in Section 4.2.

“ Company ” has the meaning set forth in the introductory paragraph to this Contract .

“ Company Default ” means the failure or delay of Company or its representatives, agents, subcontractors or suppliers (other than Contractor and its Subcontractors and their agents and employees) to meet Company’s material obligations under this Contract, including the obligations identified in Section 3.1.

“Company Indemnified Party” has the meaning set forth in Section 15.1.

“ Company Permits ” means the Permits to be obtained by Company as described in Exhibit G and, other than the Contractor Permits, any Permits otherwise necessary for the construction, operation and maintenance of the Project.

“ Company’s Representative ” has the meaning given to it in Section 3.2.

“ Contract ” means this Construction Contract together with the Exhibits attached hereto, as the same may be amended or otherwise modified from time-to-time as permitted herein.

“ Contract Price ” means the total aggregate price payable to Contractor by Company as set forth in Exhibit A, and as adjusted pursuant to the provisions of this Contract.

“ Contractor ” has the meaning given to it in the Preamble.

“ Contractor Default ” means the failure or delay of Contractor or its representatives, agents, subcontractors or suppliers to meet Contractor’s material obligations under this Contract, including obligations identified in Section 2.1.

“ Contractor Hazardous Materials ” has the meaning given to it in Section 2.2(h) .

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“ Contractor Permits ” means the Permits to be obtained by Contractor as described in Exhibit G.

“ Contractor’s Representative ” has the meaning given to it in Section 2.3.2.

“ Day ” means a twenty-four (24) hour period beginning and ending at 12:00 midnight .

“ Defect ” or “ Defective ” means any Work, including any part or component thereof, that: (i) contains improper or inferior workmanship; (ii) fails to conform in any material respect with the relevant Drawings or Specifications, including any Change in the Work; (iii) is not manufactured in any material respect with the applicable Drawings and the Specifications; and (iv) is not free from defects in material and workmanship.

“ Defect Remedy Work ” means Contractor’s repair or replacement of any Defect or Work that is Defective.

“ Delay Liquidated Damages ” has the meaning given to it in Section 4.6.

“ Delayed Payment Rate ” means a per annum rate of interest equal to the lesser of (i) twelve percent (12%) and (ii) the maximum rate permitted by applicable Law.

“ Documents ” means any design, drawing (including the Drawings), certificate, specification (including the Specifications), report, studies, model, program, record, pattern, sample, written information and data and other document of whatever nature (including a record thereof in software form).

“ Dollars ” or “ $ ” means the lawful currency of the United States of America.

“ Drawings ” means the Facility drawings set forth in Exhibit C2 or otherwise provided by Contractor to Company pursuant to Article 9 or other terms of this Contract, including the As-Built Drawings.

“ Effective Date ” means the date of this Contract.

“ Facility ” means the unit number one geothermal power plant’s geothermal and injection pipelines to be located in the Raft River Known Geothermal Resource Area in Cassia County in the State of Idaho to be constructed as part of the development of the Project on the Site, all as more particularly described in exhibits C1 and C2, but for avoidance of doubt excludes the power plant, cooling tower make-up water wells and their associated pipelines, wellhead equipment, transmission lines, distribution lines and their associated transformers and disconnects.

“ Final Completion ” means the satisfaction or deemed satisfaction of each of the following: (a)completion of the work required in exhibits C1 and C2; (b) Contractor has delivered final lien waivers and releases from Contractor and Contractor’s Subcontractors to Company; (b) all Documents which are to be delivered to Company, by Contractor on or before the Final Completion Date pursuant to this Contract have in-fact been delivered to Company; (c) all of Contractor’s supplies, personnel, rubbish and Contractor Hazardous Materials have been

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removed from the Site; and (d) all Work other than Punch List Items have been completed in accordance with this Agreement.

“ Final Completion Date ” means the date upon which the Certificate of Final Completion was issued by Contractor to Company pursuant to Section 4.7 (provided that such Certificate of Final Completion has been subsequently countersigned by Company pursuant to Section 4.8) .

“ Financing Parties ” means (a) any and all lenders providing senior or subordinated construction, interim or long-term debt financing or refinancing; and (b) any and all equity investors providing leveraged lease-financing or refinancing, and in each case any trustee or agent acting on their behalf, for the Facility. Company shall provide written notice to Contractor of the names of all of the Financing Parties.

“ Force Majeure ” means any war, declared or not, invasion, armed conflict or act of public enemy, blockage, embargo, revolution, insurrection, riot, civil commotion, act of terrorism, or sabotage provided that any such event occurs within or directly involving the United States or any individual state, or any other country from which machinery, equipment or material for the Facility are procured or transported through, an act of God, including, but not limited to, lightning, fire, earthquakes, volcanic activity, floods, storms or unusual weather conditions, cyclones, typhoons, or tornadoes, labor disputes including strikes, or slowdowns, or lockouts that extend beyond the Facility or are widespread or nationwide, or any other event or circumstances or combination of event(s) or circumstances beyond the reasonable control of a Party, that have a real, quantifiable and adverse impact on cost or performance of the Work.

“ Governmental Authority ” means any local, state, regional, central or national government administrative, judicial or executive organs, but excluding any similar foreign or multinational entity, that has or purports to have or asserts or attempts to assert, jurisdiction to legislate, decree, adjudicate or enforce any decision related to, or bearing on, the Facility or the Work.

“ Guaranteed Final Completion Date ” means the Guaranteed Final Completion Date identified as on or before January 15, 2007, as the same may be amended from time-to-time in accordance with this Contract.

“ Hazardous Materials ” means any hazardous or toxic substances, materials and wastes which are regulated or are classified as hazardous or toxic by any Governmental Authority having jurisdiction over the Site, including, but not limited to, those substances included in the definitions of “Hazardous Substances,” “Hazardous Materials,” “Toxic Substances,” “Hazardous Waste,” “Solid Waste,” “Pollutant,” or “Contaminant " ” in any federal, state, local or other Law pertaining to public or worker health, welfare or safety or the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. § 9601 et seq. , as amended by the Superfund Amendments and Reauthorization Act of 1986; the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. § 6901 et seq. ; the Federal Clean Air Act, 42 U.S.C. § 7401-7626; the Federal Water Pollution Control Act and Federal Clean Water Act of 1977, as amended, 33 U.S.C. § 1251 et seq. ; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 135 et seq. ; the Federal

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Environmental Pesticide Control Act, the Federal Toxic Substances Control Act, 15 U.S.C. § 2601 et seq. ; the Federal Safe Drinking Water Act, 42 U.S.C. § 300(f) et seq. ; the Emergency Planning and Community Right-To-Know Act of 1986, 42 U.S.C. § 11001 et seq. ; and the Occupational Safety and Health Act of 1970, 29 U.S.C. § 651 et seq. and in the regulations promulgated pursuant to those laws.

“ Information ” means any Drawings, Specifications or other information furnished directly or indirectly by the other Party hereto in connection with the Contract and the Facility and the Project whether such Information has been furnished prior to, during or following termination of the Contract in connection with the performance of this Contract.

“ Insolvency Event ” means the bankruptcy, insolvency, liquidation, administration or other receivership or dissolution of a Party and any equivalent or analogous Proceedings by whatever name known and in whatever jurisdiction and any step taken (including the presentation of a petition or the passing of a resolution) for or with a view to any of the foregoing.

“ Law ” means any federal, state, commonwealth, local or other constitution, charter, act statute, law, ordinance, treaty, resolution, directive (to the extent having the force of law), code, rule, regulation, order, specified standards or objective criteria contained in any applicable permit or approval, which standards or criteria must be met in order for the Facility to be constructed and operated lawfully, and other legislative or administrative action of any Governmental Authority, or a final decree, judgment or order of a court, or any applicable engineering, construction, safety or electrical generation code.

“ Liability ” or “ Liabilities ” means any fine, penalty, damage, loss, cost, claim or expense or other liability (including any related fees, expenses and disbursements of a Party’s counsel).

“Limited Notice to Proceed” means the notice issued by Company to Contractor authorizing Contractor to commence work under this Contract on items listed in Exhibit N.

“ Liquidated Damages ” means Delay Liquidated Damages.

“ Major Vendor ” means any vendor engaged directly by Contractor to provide equipment for incorporation into the Work at the Site, who’s Work is valued in excess of that provided in Section 17.3.

“ Materials ” means all equipment, supplies, apparatus, instruments, machinery, parts, tools, components, appliances, spare parts and appurtenances thereto to be supplied under this Contract by Contractor as described in or required by the Scope of Work.

“ Month ” means a period beginning at 12:00 midnight on the last Day of the preceding calendar month and ending at 12:00 midnight on the last Day of the calendar month.

“ MW ” means megawatts.

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“ Notice to Proceed ” means the notice issued by Company to Contractor authorizing Contractor to commence the Work under this Contract.

“Owner Supplied Materials” means pipeline and other materials provided by the Owner for incorporation into the Work, and more fully defined in Exhibit C1

“ Party ” and “ Parties ” have the meanings given to them in the Preamble.

“ Payment Schedule ” means the payment schedule for payment of the Contract Price as set forth in Exhibit A.

“ Performance Tests ” means the tests as outlined in Article 6 to be carried out to determine whether the Work satisfies the performance requirements set forth in this Contract.

“ Permits ” means the permits, approvals and licenses required from Governmental Authorities necessary for the construction, operation and maintenance of the Facility and the performance of the Work.

“ PPA ” means the Firm Energy Sales Agreement in effect between Idaho Power Company and US Geothermal Inc. under which the output from the Facility would be delivered and bought.

“ Proceeding ” means any claim, suit, demand, allegation, arbitration, dispute or other action process, or proceeding whether actual or threatened.

“ Project ” means the geothermal power generation project unit number one to be constructed in the Raft River Known Geothermal Resource Area in Cassia County in the State of Idaho, including the Facility and the related power plant, geothermal production and re-injection wells, and the gathering system pipelines.

“ Prudent Industry Practices ” means those practices, methods, equipment, specifications and standards of safety and performance, as the same may change from time-to-time, as are commonly used in operations of privately-owned geothermal electric power generation facilities similar to the Facility, which in the exercise of reasonable judgment and in light of the facts known at the time the decision was made, are considered good, safe and prudent practice in connection with the operation and maintenance of geothermal electric power generation facilities similar to the Facility. Prudent Industry Practices are not intended to be limited to the optimal practices, methods, equipment, specifications and standards, but rather to be the practices, methods, equipment, specifications and standards generally accepted in the privately-owned geothermal electric power industry.

“ Punchlist Items ” means unfinished items of Work (such as Spare Parts, painting, fine-finish grading or clean-up, updating of Drawings, manuals or other Documents) the lack of which or the failure of which to complete (considered individually or in the aggregate of all Punchlist Items) does not or will not adversely affect the, safety or integrity of the Facility and does not impact the performance of the Facility.

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“ Safety Plans ” has the meaning given to it in Section 2.3.4.

“ Safety Report ” has the meaning given to it in Section 2.3.4.

“ Schedule ” means a Gantt Chart as provided in Exhibit B, as it may be amended from time-to-time as set forth in this Contract, which sets forth the Work performance milestone schedule for the Facility.

“ Scope of Work ” means the specific delineation of items of Work to be performed by Contractor as set forth in exhibits C1 and C2, which may be modified pursuant to a Change Order pursuant to Article 8, and which shall conform to the Drawings and the Specifications.

“ Site ” means the area encompassed by the Facility, together with spaces, roads, easements, privileges, access rights, rights-of-way and other rights and interests in land that has been acquired or will be acquired by Company to develop, engineer, build, own, operate and maintain the Project and appurtenant facilities, including any associated working and laydown areas for Contractor.

“ Specifications ” means the Pipeline System Criteria and Project Scope (Exhibit C1), and the Drawings and General Notes (Exhibit C2) for the Facility as set forth in the referenced exhibits.

“ Subcontract ” means an agreement between Contractor and a Subcontractor for the performance of any portion of the Work.

“ Subcontractor ” means any person or entity, other than Contractor’s employees, engaged by Contractor to perform services relating to the Work.

“ Tax ” means any present or future tax, charge, levy, impost or duty of any kind whatsoever, or any amount payable on account of or as security for any of the foregoing, imposed by any Governmental Authority together with any penalties, additions, liens, surcharges and interest relating thereto.

“ Warranty Period ” has the meaning given to it in Section 10.2.

“ Work ” means all of the work, services and other duties, obligations and responsibilities that are to be carried out by or under the direction of Contractor pursuant to this Contract, including that work specifically described as Contractor liabilities in the Scope of Work.

1.2 Interpretation

1.2.1 Where the context requires, words importing the singular shall include the plural and vice versa, and words importing persons shall include entities.

1.2.2 A reference in this Contract to any Article, Section, Exhibit, Clause or Paragraph is, except where it is expressly stated to the contrary, a reference to such article, section, exhibit, clause or paragraph in this Contract.

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1.2.3 Headings are for convenience of reference only.

1.2.4 Each reference to this Contract shall include a reference to each agreed variation of or supplement to this Contract as may be amended, varied or supplemented from time-to-time.

1.2.5 Where the context requires, any reference to a person, entity or Party shall include such person’s, entity’s or Party’s successors and permitted assigns.

1.2.6 References to the word “include” or “including” are to be construed without limitation.

1.3 Documents Included

This Contract shall consist of this document and the following Exhibits, which are specifically incorporated herein and made a part hereof by this reference.

	Exhibit A	Contract Price and Payment Schedule
	Exhibit B	Schedule (Gantt Chart)
	Exhibit C1	Pipeline System Criteria and Project Scope
	Exhibit C2	Drawings and General Notes.
	Exhibit D	Performance Test Protocols
	Exhibit E	Warranty Claim Procedures
	Exhibit F	Approved Vendor List
	Exhibit G	Permits
	Exhibit H	Reserved
	Exhibit I	Certificate of Final Completion
	Exhibit J	Form of Final Lien Waiver
	Exhibit K	Liquidated Damages
	Exhibit L	Change Order Form
	Exhibit M	Change Order Request Form
	Exhibit N	Work Items Prior to Notice to Proceed

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ARTICLE 2 CONTRACTOR RESPONSIBILITIES

2.1 General Responsibilities

2.1.1 Except as otherwise expressly set forth in this Contract, Contractor, in consideration of the Contract Price, shall provide, furnish and perform, or cause to be provided, furnished or performed, Materials, supervision, labor and services required for the development, procurement, manufacturing, transport to Site, quality assurance, inspection, erection, construction, and commissioning of the Facility as specified in the Scope of Work and in accordance with the provisions of this Contract. The scope does not include design of the pipeline system. 2.1.2 Contractor shall diligently prosecute the Work in a good and workmanlike manner in accordance with the Schedule and in accordance with the provisions of this Contract.

2.2 Specific Responsibilities

Without limiting the generality of Section 2.1.1 and subject to the terms and conditions set forth in this Contract, Contractor shall at its own expense furnish, undertake, provide or cause to be furnished, undertaken or provided the following:

(a) obtain the Contractor Permits from the applicable Governmental Authorities as shown in Exhibit G;

(b) coordinate its activities pursuant to this Contract with those activities of Company’s other contractors as requested by Company; provided, however, that such coordination does not delay or otherwise unreasonably interfere with Contractor’s performance of the Work in accordance with the Schedule;

(c) coordinate its activities with the Raft River Highway District for that part of the Work that will involve crossing county roads.

(d) clearing, excavation, backfilling, compaction, consolidation and removal or importation of related materials required with respect to preparation of the Site in accordance with the Scope of Work;

(e) procurement, supply and transportation to the Site of all Materials, except Owner Supplied Materials, necessary to complete the Facility;

(f) supervision and direction of construction and other Work activities on the Site, including construction by Subcontractors, and the coordination of the Work under this Contract;

(g) keep the Site from waste materials or rubbish caused by Contractor’s activities and in a reasonably presentable condition given the nature of the Work. Contractor may store all rubbish and construction debris in an authorized disposal area furnished by Company as provided in Section 3.1(f) . Contractor shall be responsible for the containment of any such material within such area. All rubbish and construction debris caused by Contractor’s activities shall be disposed through a licensed waste hauler, or in a licensed waste disposal site, to be paid for by the Contractor.

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(h) remediate and dispose of in accordance with applicable Law any Hazardous Materials generated, transported or released by Contractor or any Subcontractor on or about the Site (“ Contractor Hazardous Materials ”);

(i) provide periodic reports to Company, not less frequently than monthly, regarding the progress of the Work, including a Gantt Chart in Microsoft Project format in sufficient detail to allow a reasonably experienced engineer to evaluate the progress of the Work;

(j) provide periodic reports to Company, not less frequently than monthly, regarding the progress of the Work, including a Gantt Chart in MS Project format in sufficient detail to allow a reasonably experienced engineer to evaluate the progress of the Work;

(k) test the Facility as detailed in Exhibit C1 using test protocols provided in Exhibit D; and

(l) clearance of the Site of temporary structures, surplus Materials and tools that were delivered or created by Contractor through the course of the Work, upon completion of field work; provided that Contractor shall offer to sell to Company at cost any such temporary structures, surplus Materials and tools that Contractor does not want to retain.

(m) Contractor will coordinate with Owner regarding crops and field access.

2.3 Contractor’s Personnel and Labor Relations

2.3.1 Contractor shall provide qualified and experienced personnel to perform the Work at the Site.

2.3.2 Contractor shall designate, by written notice to Company, a representative who shall act as a single point of contact with Company in all matters relating to the Work (“ Contractor’s Representative ”). Contractor’s Representative shall have full authority to act on behalf of Contractor for all purposes in connection with this Contract.

2.3.3 Company shall be entitled by written notice to Contractor to object to any representative or person employed by Contractor (including Contractor’s Representative) or any Subcontractor in the execution of the Work who, in the reasonable opinion of Company, is incompetent or negligent, or engaged in misconduct, and Contractor shall promptly remove such person from the Work and appoint a suitable replacement, or ensure that the relevant Subcontractor does so.

2.3.4 Contractor shall develop, present to Company and implement a safety plan for its own construction activities on the Site and for emergency situations prior to the commencement of Work at the Site (“ Safety Plans ”). During performance of the Work, Contractor shall publish work safety rules for the Site in compliance with the Safety Plan, which safety rules shall apply to any and all visitors to the Site, including representatives of Company. Each week (or other interval mutually agreeable to Company and Contractor), Contractor shall prepare and provide to Company a written report (“ Safety Report ”) listing (i) any breaches or violations of the Safety Plan, (ii) a description of any incidents resulting therefrom, (iii) incidents

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related to safety issues at the Site, (iv) the cause of any such incident, (v) the nature of such incident, (vi) the severity of such incident, and (vii) the remedial actions planned to remedy such incident and prevent such incident from occurring in the future.

2.3.5 Contractor shall be responsible for the security and protection (i) of its equipment, supplies and tools used in connection with the Work through the Final Completion Date, and (ii) for all of the other property owned or leased by Contractor or any of its Subcontractors located at the Site at areas thereon provided by Company or stored or warehoused off the Site through the Final Completion Date. Contractor shall use due care to protect any of Company’s property at any time in its possession or under its control while performing the Work which shall not be less than the care exercised by Contractor with its own property and Contractor shall be responsible for any damage to such property resulting from its failure to use such care.

2.3.6 Contractor, its Subcontractors, agents and employees shall observe all pertinent and reasonable regulations and rules issued by Company to Contractor which are in effect at the Site, as the case may be, regarding passes, badges and proper conduct on such Site. Company may issue reasonable modifications to such regulations and rules from time-to-time.

2.3.7 Company and its agents, employees and other contractors shall observe all pertinent and reasonable regulations and rules issued by Contractor, including the Safety Plan, which are in effect at the Site, as the case may be, regarding passes, badges and proper conduct on such Site. Contractor may issue reasonable modifications to such regulations and rules from time-to-time.

2.4 Representations and Warranties of Contractor

Contractor represents and warrants to Company that:

(a) Contractor is a corporation duly organized, validly existing and in good standing under the Laws of the state of Idaho and has the requisite legal power and authority to execute, deliver and perform this Contract;

(b) the execution, delivery and performance by Contractor of this Contract has been duly authorized by all requisite action of Contractor, and there is no provision in its charter documents requiring further consent for such action by any other person or entity; and

(c) this Contract constitutes the legal, valid and binding obligation of Contractor, enforceable against Contractor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, reorganization, moratorium or similar laws affecting or limiting creditors’ rights generally or by equitable principles relating to enforceability.

ARTICLE 3 COMPANY RESPONSIBILITIES

3.1 General Responsibilities

Company shall, at Company’s expense, furnish, undertake, provide or cause to be furnished, undertaken or provided the following:

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(a) make available to Contractor and its Subcontractors by the time specified in the Schedule, and continuing until the end of the Warranty Period, the Site, including space for all construction facilities, and laydown and storage areas;

(b) obtain and maintain in effect all Company Permits from the Governmental Authorities in a timely manner as required to permit Contractor and its Subcontractors to proceed with the Work in accordance with the Schedule;

(c) prepare and/or obtain all environmental impact assessments, studies and statements and geotechnical reports required in connection with the ownership, financing, construction, operation and maintenance of the Facility and the performance of this Contract;

(d) furnish to Contractor copies of any environmental impact assessment, studies and statements and geotechnical reports prepared or obtained as provided in Section 3.1(c) and any information, a power of attorney (if required) and any other items reasonably necessary for Contractor to obtain the Contractor Permits or perform the Work in a timely manner as required to permit Contractor and its Subcontractors to proceed with the Work in accordance with the Schedule;

(e) provide or make arrangements to provide electrical distribution lines and electrical equipment (transformers, disconnects, etc.) to the tie-in point at the geothermal wells and branch connection;

(f) provide to Contractor a rubbish and construction debris (but not for Contractor Hazardous Materials) storage area on or adjacent to the Site. Disposal of such Contractor materials stored therein shall be the responsibility of the Contractor, pursuant to Section 2.2 (g).

(g) any removal or disposal of the existing transite pipe on the Site exposed during the Work; and,

(h) remediate and dispose of in accordance with applicable Law any Hazardous Materials that are found or are uncovered on or about the Site other than Contractor Hazardous Materials that are the responsibility of Contractor as provided in Section 2.2(h)

(i) provide to Contractor an area where cleared and grubbed materials can be disposed.

3.2 Company’s Representative

Company shall designate by written notice to Contractor a representative who shall act as a single point of contact with Contractor in all matters relating to the Work (“ Company’s Representative ”). Company’s Representative shall have full authority to act on behalf of Company for all purposes in connection with this Contract.

3.3 Representations and Warranties of Company

Company represents and warrants that:

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(a) Company is a corporation duly organized and validly existing under the Laws of the State of Idaho and has all requisite legal power and authority to execute, deliver and perform this Contract;

(b) the execution, delivery and performance by Company of this Contract have been duly authorized by all requisite corporate action of Company and there is no provision in its charter documents requiring further consent for such action by any other person or entity; and

(c) this Contract constitutes the legal, valid and binding obligation of Company, enforceable against Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, reorganization, moratorium or similar laws affecting or limiting creditors’ rights generally or by equitable principles relating to enforceability.

ARTICLE 4 COMMENCEMENT OF WORK

4.1 Notice to Proceed

Company shall issue a Notice to Proceed to Contractor only at such time as Company has arranged financing for Company to be able to meet its obligations under this Contract and to develop the Project and pays to Contractor simultaneously with the issuance of such Notice to Proceed the amount specified for the first payment milestone set forth in the Schedule, if any. At the mutual agreement of the Parties, Company shall have the option of issuing a Limited Notice to Proceed to allow the Contractor to begin performing such work as agreed to between the Parties in advance of the Notice to Proceed. The Company shall have the right to terminate or suspend work prior to issuing a Notice to Proceed without financial obligations beyond the amount agreed upon to cover the period up to the Notice to Proceed.

4.2 Commencement

Subject to Section 4.1, Contractor shall commence performance of the Work promptly upon receipt of a Notice to Proceed from Company (“ Commencement Date ”). Contractor shall thereafter proceed diligently to perform the Work and furnish sufficient forces and construction equipment to perform the Work in accordance with the Schedule. The contract amount and Guaranteed Completion Date are based upon the Contractor receiving a Notice to Proceed on or before June 1, 2006.

4.3 Reserved

4.4 Reserved

4.5 Reserved

4.6 Delay Liquidated Damages

The Parties agree that it would be extremely difficult and impracticable under the presently known and anticipated facts and circumstances to ascertain and fix the actual damages that Company would incur should Contractor fail to achieve Final Completion by the Guaranteed

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Final Completion Date, and accordingly, the Parties hereby agree that if Contractor fails to so achieve Final Completion by the Guaranteed Final Completion Date, then Company shall be entitled to recover from Contractor as liquidated damages for such delay, and not as a penalty, the amounts set forth in Exhibit K (“ Delay Liquidated Damages ”). The Delay Liquidated Damages are, subject to Article 19, Company’s sole and exclusive remedy in the event Contractor fails to achieve any of the milestones for the Facility, including Final Completion, by the dates set forth in the Schedule. Company and Contractor further agree that the Delay Liquidated Damages are a good faith estimate of the damages Company would suffer.

4.7 Final Completion

When all of the following conditions have been met with respect to the Facility, Contractor shall issue to Company a Certificate of Final Completion in substantially the same form as that set forth in Exhibit I:

(a) except for the Punchlist Items and As-Built Drawings, the Facility and Work has been completed and complies with exhibits C1 and C2, referenced specifications, and applicable Laws;

(b) the Facility has satisfied the checks and tests outlined in Article 6 ;

(c) any amount finally determined due for Delay Liquidated Damages has either been paid or agreed and shall be deducted from the final payment of the Contract Price;

(d) the list of Punchlist Items (if any) for the Facility have been identified by Contractor and provided to Company as provided in Section 4.9;

(e) all other deliverables identified in this Contract with respect to the Facility (except for the As-Built Drawings or deliverables appearing in the Punchlist Items provided by Contractor), including documents and materials described in Article 9, have been completed in accordance with the provisions hereof and have been provided to Company . ; and

(f) all rubbish accumulated by Contractor in the Company-designated disposal area has been removed and disposed in accordance with Section 2.2(g) .

4.8 Final Completion Certificate

Within fifteen (15) Days following the receipt of the Certificate of Final Completion, Company shall inspect the Facility and review all Work and services performed by Contractor with respect thereto, and shall either (i) deliver to Contractor the Certificate of Final Completion countersigned and certifying that the Work requirements of this Contract (other than the Punchlist Items identified by Contractor and the As-Built Drawings) have been fully satisfied for the Facility and Final Completion of the Facility has accordingly been achieved, or (ii) if reasonable cause exists for doing so, notify Contractor in writing that Final Completion of the Facility has not been achieved, stating in detail the reasons therefore. In the event that Company determines that Final Completion has not been achieved and Contractor has not disputed Company’s determination, Contractor shall promptly take such corrective action or perform such

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additional Work or other services as shall be necessary to achieve Final Completion of the Facility and shall issue to Company another Certificate of Final Completion. Such procedure shall be repeated until Final Completion of the Facility has been achieved; provided, however, that Company shall respond to any such subsequent Certificate of Final Completion within ten (10) Days following the receipt thereof. If Company fails to provide the Certificate of Final Completion or as contemplated in (ii) above within the aforementioned period, Final Completion of the Facility shall be deemed to have been achieved.

4.9 Punchlist

Contractor shall provide to Company a list of all Punchlist Items and the estimated cost thereof prior to the issuance of the Certificate of Final Completion. Within fifteen (15) Days following the receipt of this list of Punchlist Items, Company shall notify Contractor in writing whether Company has any objections to that list or the estimates thereof. If Company has any objections, including additions, the Parties shall use good faith efforts to resolve such objections. If no agreement can be reached, the provisions of Article 14 shall be invoked to resolve the dispute. Two hundred percent (200%) of the estimated value of such Work, as reasonably decided by Company, shall be retained or deducted from the Contract Price by Company or, at Contractor’s option, paid to Company by Contractor pending satisfactory rectification and/or completion. Contractor shall rectify or complete to the reasonable satisfaction of Company within the time stated in the Certificate of Final Completion any such Punchlist Items listed. In the event Contractor fails to rectify or complete any Punchlist Items listed, Company may arrange for the outstanding work to be done and the cost thereof shall be certified by Company and deducted from the Contract Price or, at Contractor’s option, paid to Company by Contractor. Upon satisfactory rectification and/or completion of such Work, the money retained, deducted or paid under this Section 4.9 in relation thereto shall be reimbursed to Contractor by Company. During the period after Final Completion, Contractor and Company shall cooperate to ensure that the performance of the Work does not unreasonably interfere with the commercial operation of the Facility and at the same time allowing the remaining Work to be performed in a prompt and efficient manner. As soon as practicable after the completion of all Punchlist Items, Contractor shall remove all of its equipment and Materials and complete the removal of all Work-related waste material and rubbish from and around the Site.

ARTICLE 5 COMPENSATION AND PAYMENT

5.1 Contract Price

5.1.1 As compensation for the performance of the Work, Company shall pay Contractor, in the manner and at the times hereinafter specified, the Contract Price, which amount may be subject to adjustment in accordance with the terms of this Contract.

5.1.2 The Contract Price includes any and all Taxes imposed directly or indirectly by any Governmental Authority including export taxes, importation duties and income Taxes imposed on Contractor.

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5.1.3 Contractor shall be responsible for paying all State of Idaho sales and use taxes due as a result of the Work in the construction of the Facility to the State of Idaho.

5.1.4 Upon request of Company, Contractor shall:

(a) promptly provide to Company evidence of its remittance to the applicable Governmental Authority of all state and local sales and use taxes that Contractor collects from Company under this Contract; and

(b) provide Company with sufficient level of detail such that Company is able to claim any State of Idaho sales and use tax refund for geothermal energy projects for which it may be eligible under State of Idaho law.

5.2 Payment Schedule

Exhibit A sets forth the payment installments payable by Company in respect of Work performed by Contractor. The Schedule shall be used as the basis for preparation of invoices and for payments. Any cumulative acceleration of the Payment Schedule of more than fourteen (14) Days must reflect a reciprocal acceleration in the Guaranteed Final Completion Date.

5.3 Payment

5.3.1 Contractor shall present monthly invoices based on progress completion and completion of milestones as provided in the Payment Schedule. Except as provided below in this Section 5.3, invoices that are presented for payment shall be paid within thirty (30) Days of Company’s receipt of such invoice.

5.3.2 Within fifteen (15) Days of its receipt of an invoice and such Documents, Company’s Representative shall give written notice to Contractor of any objections that Company’s Representative has with regard to the accomplishment of such progress amounts or milestones. If Company’s Representative fails to provide such notice within such fifteen (15) Day period, the progress amount or milestone shall be deemed accomplished and Contractor shall be entitled to payment. If Company’s Representative provides written notice of objection to the accomplishment of such progress amount or milestone and said Documentation within the period described above, and the contents of Company’s Representative’s notice is not in dispute, Contractor shall resubmit the corrected invoice and/or Documentation, and the above-described approval process shall reapply except that the response time shall be ten (10) Days rather than fifteen (15) Days.

5.3.3 If pursuant to Section 5.3.2, Company’s Representative disputes any amounts invoiced by Contractor within the specified time period, Company shall promptly pay to Contractor the undisputed amount of such invoice in the manner provided in Section 5.3.1, and any disputed amount that is ultimately determined to have been payable shall be paid with interest from the date the item was payable to and including the date of payment, in accordance with the provisions of Section 5.8. The Parties shall resolve their differences regarding the disputed amount in accordance with the dispute resolution procedures set forth in Article 14.

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5.3.4 The Owner and Contractor will enter into a Joint Checking Agreement whereby Subcontractors and suppliers will be issued joint checks from the Owner. Contractor will be required to obtain and provide to Owner lien releases from Subcontractors and suppliers for progress and final payment for materials and services.

5.4 Final Completion Payment for the Facility

No later than thirty (30) Days after the Final Completion Date, Contractor shall submit to Company a statement summarizing and reconciling all previous invoices, payments and Changes in the Work, with respect to the Work, and a waiver of liens as provided in Section 5.7 from Contractor for the Facility and such other data as Company may reasonably request establishing payment of or surety for payment of such unpaid Contractor obligations. Within thirty (30) Days of the receipt of such statements and lien waiver, Company shall pay Contractor the remaining portion of the Contract Price (except with respect to amounts remaining to be paid by Company under the Contract for retainage and Punchlist Items less any unpaid Liquidated Damages owing by Contractor). Any disputes regarding a final payment shall be handled in accordance with the procedure set forth in Article 14.

5.5 Payments Not Acceptance of Work

No payment made by Company to Contractor shall be considered or deemed to represent that Company has inspected the Work or checked the quality or quantity of the Work and shall not be deemed or construed as an approval or acceptance of any Work or as a waiver of any claim or right Company may have hereunder.

5.6 Payment of Subcontractor

Contractor shall promptly pay, in accordance with the terms and conditions set forth in the respective Subcontract, each Subcontractor the amount to which said Subcontractor is entitled. Contractor shall, by an appropriate agreement with each Subcontractor, require each Subcontractor to make timely payments to its laborers, suppliers and subcontractors in a similar manner.

5.7 Waiver of Liens

As a condition precedent to the making of the final Payment Schedule payment by Company hereunder, Contractor shall be required, upon request by Company, to supply Company with a waiver and release of liens and security interests to the extent of such payment in the form attached as Exhibit J, duly executed by Contractor.

5.8 Interest

Amounts not paid by either Party to the other when due under any provision of this Contract, including the provisions of this Article 5, shall bear interest, from the date payment was due to and including the date of payment, at the Delayed Payment Rate.

5.9 Retainage

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Company shall make progress payments on account of the Contract Price on the basis of the Payment Schedule contained in Exhibit A as may be modified.

Prior to Final Completion, each progress payment will be made in an amount equal to 90 percent of the Work completed, with the balance being retainage, less such amounts Company may withhold, including but not limited to liquidated damages. Upon payment of 50 percent of the Contract Price as amended due to Change Orders, and provided the Owner is satisfied with the performance and progress of Work, the Owner may reduce or eliminate further withholding of retainage.

Upon completion to the satisfaction of the Company’s Representative of all punchlist items per Section 4.9, Company shall within 30 days pay all amounts retained in accordance with this section and Section 4.9. Reimbursement for retainage will include a payment for interest on retained money that will be based on an annual interest rate of 4 percent.

ARTICLE 6 TESTING

6.1 General

A general listing of the required tests is provided in Exhibit C1. Development and implementation of test procedures and protocols shall be the responsibility of Contractor. These procedures and protocols, as developed by the Contractor, and agreed to by the Company, shall be provided in Exhibit D prior to Contract signature. Contractor shall be responsible for providing all supplies required for carrying out such tests in accordance with this Contract. Company may, at its expense, require independent calibration of any and all instruments used by Contractor and/or supply Company’s own instruments to be used in addition to those of Contractor.

6.2 Test Procedures

The Performance Tests shall be performed under normal operating conditions as described in Exhibit D hereto and in accordance with all applicable Laws in effect on the date thereof.

6.3 Notice of Testing

Contractor shall notify Company at least fourteen (14) Days in advance of the actual date that Contractor shall start conducting tests. Company’s Representative shall be entitled to attend at the time and place appointed in connection with the performance of the tests. If Company’s Representative fails to attend at the time and place appointed for the tests, Contractor shall be entitled to proceed with the tests in their absence. The tests shall then be deemed to have been made in the presence of Company’s Representative.

6.4 Deficiencies

If deficiencies are found, the Contractor shall take whatever actions are necessary to achieve compliance with the Contract provisions, at no additional cost to the Owner.

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Corrections shall be made within a reasonable period of time as agreed to by both the Contractor and Owner, but under no circumstances shall extend beyond sixty (60) days.

ARTICLE 7 INTENTIONALLY OMITTED

ARTICLE 8 CONSTRUCTION SUSPENSION AND ACCELERATION; CHANGE ORDER

8.1 Construction Suspension and Acceleration

8.1.1 Company may order Contractor to suspend the Work, or any part thereof, for such a time and in such a manner as Company may consider necessary or desirable. Contractor, during such a suspension, shall properly protect and secure the Work, or such part thereof, so far as is necessary in the opinion of Company. In the event of such order to suspend the Work, or any part thereof, and such suspension is not the result of a Contractor default, Contractor shall be entitled to a Change Order for adjustments pursuant to this Article 8 in the Contract Price and the Schedule (including the Guaranteed Final Completion Date) as may be affected by such suspension.

8.1.2 Company may order Contractor to accelerate the progress of the Work, or any part thereof, for such a time and in such a manner as Company may consider necessary or desirable provided that such acceleration is reasonably practicable. In the event of such order to accelerate the Work, or any part thereof, and such acceleration is not the result of Contractor’s default, Contractor shall be entitled to a Change Order for adjustments pursuant to this Article 8 in the Contract Price as may be affected by such acceleration.

8.2 Change Orders

Company, without invalidating this Contract, may order Changes in the Work that are reasonably related to and do not materially reduce or increase the Scope of Work, in which event one or more of the Contract Price, the Schedule (including the Guaranteed Final Completion Date) and other such parts of the Contract as may be affected by such Change in the Work shall be adjusted as necessary. If Company decides not to issue a Change Order after having requested a Change in the Work, unless such Change Order request is issued in response to a Contractor Change Order notice as set forth in Section 8.3.2, Contractor shall be entitled to reasonable compensation for providing engineering services necessary to respond to Company’s Change Order request. Such reasonable compensation is defined to mean Contractor’s actual direct cost of providing such engineering services plus a fifteen percent (15%) mark-up for overhead and profit. All Changes in the Work shall be authorized by a Change Order and only Company or Company’s Representative may issue Change Orders.

8.3 Procedure for Change Orders.

8.3.1 As soon as reasonably possible, but in no event later than fourteen (14) Days after Contractor becomes aware, through the exercise of reasonable diligence, of any circumstances which Contractor has reason to believe may constitute a Change in the Work, Contractor shall issue to Company a Change Order notice using the Change Order Request form

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set forth in Exhibit M. All Change Order notices shall include preliminary documentation sufficient to enable Company to determine (i) the factors necessitating the possibility of a Change Order; (ii) the impact which the Change Order is likely to have on the Contract Price; and (iii) the impact which the Change Order is likely to have on the Schedule (including the Guaranteed Final Completion Date). Failure to give such proper and timely Change Order notice shall, to the extent Company is prejudiced by such failure, constitute a waiver of Contractors right to an adjustment.

8.3.2 If Company desires to make a Change Order in response to a Change Order notice, it shall submit a Change Order request to Contractor using the Change Order Request form set forth in Exhibit M. Contractor shall promptly review the Change Order request and notify Company promptly in writing of the options for implementing the proposed Change Order (including, if possible, any option that does not involve an extension of time) and the effect, if any, each such option would have on the Contract Price, the Schedule (including the Guaranteed Final Completion Date), or any other such part of the Contract as may be affected. The preparation and provision of information to Company in response to a Change Order request shall be at Contractor’s expense if such Change Order request is issued in response to a Change Order notice issued by Contractor pursuant to this Section 8.3.2 and otherwise Contractor shall be reimbursed for such expense as provided in Section 8.2.

8.3.3 If Company agrees that a Change Order is in order and accepts Contractor’s statement of the effect of such Change Order on any one or more of the Contract Price, the Schedule (including the Guaranteed Final Completion Date), or any other such part of the Contract as may be affected, Company shall issue a Change Order. In the event Company disagrees with Contractor’s statement of the effect of such Change Order on any one or more of the Contract Price, the Schedule (including the Guaranteed Final Completion Date), or any other such part of the Contract as may be affected, Company may proceed to issue the Change Order in accordance with Section 8.8.

8.4 Change Orders Due to Contractor Error

Except as provided in Sections 8.5, 8.6 or 8.7, no Change Order shall be issued and no adjustment of any one or more of the Contract Price or the Schedule (including the Guaranteed Final Completion Date) shall be made to the extent resulting from any delay, failure of performance, correction of errors, and flaws or errors in design, omissions, deficiencies or improper or defective Work, machinery, equipment, materials, systems, supplies or other items on the part of Contractor or any Subcontractor in the performance of the Work or provisions of, or delay in provisions of Materials or other items of the Work where such delay was within the reasonable control of Contractor or any Subcontractor, or any failure of Contractor or any Subcontractor to comply with the Contract. To the extent any delay or failure of performance was concurrently caused by Company and Contractor, Contractor shall be entitled to an adjustment of the Schedule (including the Guaranteed Final Completion Date) for that portion of the delay or failure of performance that was concurrently caused, but Contractor shall not be entitled to any adjustment of Contract Price for such concurrent delay.

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8.5 Change Orders Due to Changes in Law

Any Change in the Work necessitated by any Change of Law enacted after the Effective Date (excluding therefrom any change in applicable Law relating to taxation of Contractor’s income) shall be treated as a Change Order under Section 8.3.

8.6 Effect of Force Majeure; Excused Performance

If Contractor’s performance hereunder is wholly or partially prevented due to the occurrence of a Force Majeure affecting Contractor and such Force Majeure has caused an extension of the Guaranteed Final Completion Date or any other date under the Schedule, Contractor shall provide to Company a written description of Contractor’s plan to make-up Days lost under the Schedule due to the occurrence of such Force Majeure, including an estimate of the costs of such plan. In the event of the occurrence of a Force Majeure, Contractor shall be entitled to a Change Order for adjustments pursuant to this Article 8 in the Schedule (including the Guaranteed Final Completion Date) and other such parts of the Contract as may be affected by such Force Majeure; provided, however, that there shall be no adjustment in the Contract Price for events of Force Majeure declared by a Party. To the extent that Company desires to pay for the costs of acceleration of the Work or change to the Schedule (including the Guaranteed Final Completion Date) set forth in Contractor’s proposal in order to compensate for delays in the work caused by such Force Majeure, Company shall authorize a Change Order increasing the Contract Price and adjusting the Schedule (in addition to any automatic adjustments of the Guaranteed Final Completion Date). Except for the obligations of either Party to make any required payment then due and owing under this Contract, if either Party is rendered wholly or partially unable to perform its obligations under this Contract because of a Force Majeure, then such Party’s obligations that are so affected shall be excused and suspended to the extent and during the continuance of the Force Majeure. If a Force Majeure affecting the Contractor continues for two (2) consecutive months or more, or if a Force Majeure affecting the Company continues for six (6) consecutive months or more, this Contract may be terminated by either Party pursuant to Section 19.3. This Section 8.6 is subject to and conditioned upon the following:

(a) the non-performing Party, by exercise of due foresight, could not reasonably have been expected to avoid, or that by the exercise of reasonable due diligence could not have been able to overcome, such Force Majeure;

(b) the non-performing Party gives the other Party notice describing the particulars of the occurrence, with notice given promptly after the occurrence of the Force Majeure, and in no event more than fifteen (15) Days after the affected Party becomes aware of such occurrence; within fifteen (15) Days after such occurrence, the non-performing Party shall give the other Party written notice estimating the expected duration and probable impact on the performance of such Party’s obligations hereunder, and continues to furnish timely regular reports with respect thereto during the continuation of the Force Majeure;

(c) the non-performing Party shall forecast the duration of its non-performance, provided that it shall be no more than is reasonably required by the Force Majeure;

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(d) the non-performing Party shall exercise all reasonable efforts to mitigate or limit damages to the other Party;

(e) the non-performing Party shall exercise all reasonable efforts to continue to perform its obligations hereunder and to correct or cure the event or condition excusing performance; and

(f) when the non-performing Party is able to resume performance of its obligations under this Contract, that Party shall give the other Party written notice to that effect and shall promptly resume performance hereunder.

8.7 Company-Caused Changes

In the event and to the extent (a) a failure of Company to perform, or cause performance of, its obligations in accordance with the Contract; or (b) damage to or destruction of any Work caused by Company cause a delay in Contractor’s performance of the Work which impairs Contractor’s ability to meet the Schedule, or impacts Contractor’s cost of performance of the Work, an equitable adjustment in the Schedule (including the Guaranteed Final Completion Date) or the Contract Price or any other such part of this Contract as may be affected shall be made pursuant to this Article 8. To the extent Contractor cannot reasonably redeploy labor or equipment, reasonable standby and mobilization/remobilization costs incurred by Contractor resulting from any such delay shall be reimbursed to Contractor monthly as such costs are incurred.

8.8 Price Change

8.8.1 An increase or decrease in Contract Price, if any, required pursuant to this Article 8 as a result of a Change Order shall be determined by the mutual agreement of the Parties, and shall be paid (or reimbursed) in one or more payments in accordance with the following:

(a) as a fixed price lump-sum, in an amount proposed by Contractor (properly itemized and supported by sufficient substantiating data to permit evaluation) and accepted by Company; or

(b) by unit pricing; or

(c) if neither of the methods set forth in Section 8.1(a) or 8.8(b) is agreed upon by the Parties, after good faith negotiation by the Parties, Contractor shall perform the Work on a time and material basis.

8.8.2 Change Order Pricing – Fixed Price . When the fixed price method is used to determine the value of any Work covered by a Change Order, or of a request for an equitable adjustment in the Contract Price, the following procedures shall apply:

1. Contractor’s Change Order proposal, or request for adjustment in the Contract Price, shall be accompanied by a breakdown of the costs, including labor, material, equipment, subcontractor costs, overhead and profit. The costs

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shall be itemized in the manner set forth below, and shall be submitted on breakdown sheets in a form approved by Company.

2. All costs shall be calculated based upon appropriate industry standard methods of calculating labor, material quantities and equipment costs.

3. If any of Contractor’s pricing assumptions are contingent upon anticipated actions of Company, Contractor shall clearly state them in the proposal or request for an equitable adjustment.

4. The cost of any additive or deductive changes in the Work shall be calculated as set forth below, except that overhead and profit shall not be included on deductive changes in the Work. Where a change in the Work involves additive and deductive work by the same Contractor or Subcontractor, small tools, overhead, profit, bond and insurance markups shall apply to the net difference.

5. If the total cost of the change in the Work or request for equitable adjustment does not exceed One Dollars ($1,000)], Contractor shall not be required to submit a breakdown of the description of the change in the Work or request for equitable adjustment, unless change in the Work is sufficiently definitive for Company to determine fair value.

6. If the total cost of the change in the Work or request for equitable adjustment is Ten Thousand Dollars ($10,000) or more, Contractor shall submit a breakdown in the following level of detail if the description of the change in the Work or if the request for equitable adjustment is sufficiently definitive to permit the Company to determine fair value:

a. lump sum labor;

b. lump sum equipment and material;

c. lump sum equipment usage;

d. overhead and profit as set forth below;

e. insurance and bond costs as set forth below; and

f. construction-related indirect costs and home office personnel tasks dedicated specifically to the Facility.

7. Any request for adjustment of Contract Price based upon the fixed price method shall include only the following items:

a. Craft Labor Costs : These are the labor costs determined by multiplying the estimated additional number of craft hours needed to perform the change in the Work by the hourly labor costs. Craft hours

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should cover all direct labor. The hourly costs shall be based on the following:

(1) Basic Wages and Benefits : Hourly rates and benefits (general foreman and below) as set forth in Exhibit L.

(2) Worker’s Insurance : Direct contributions for industrial insurance.

(3) Federal Insurance : Direct contributions required by the Federal Insurance Compensation Act; Federal Unemployment Tax Act; and the State Unemployment Compensation Act, if any.

(4) Travel Allowance : Travel allowance and/or subsistence, if applicable, not exceeding those allowances prevailing in the region, which are itemized and identified separately.

b. Equipment and Material Costs : This is an itemization of the quantity and cost of equipment and materials needed to perform the change in the Work. Such costs shall be developed from actual known costs, supplier quotations or standard industry pricing guides. Equipment and material costs shall consider all available discounts. Freight costs, express charges, or special delivery charges, shall be itemized.

c. Construction Equipment Costs : This is an itemization of the type of equipment and the estimated or actual length of time the construction equipment appropriate for the Work is or shall be used on the change in the Work. Costs shall be allowed for construction equipment to the extent used for the changed Work, or for additional rental costs and other costs (including but not limited to fuel, oil, minor maintenance, service, cleaning and repair of construction equipment) actually incurred by the Contractor. Equipment charges shall be developed from Contractor’s rate sheet or actual invoice rental costs plus costs for fuel and oil established by using the Data Quest Rental Rate (Blue Book). The maximum rate for standby Contractor-owned equipment shall not exceed fifty percent (50%) of the applicable rate.

d. Allowance for Small Tools, Expendables and Consumable Supplies : Small tools consist of tools which cost Seven Hundred Fifty Dollars ($750) or less and are normally furnished by the performing contractor. The maximum rate for small tools, expendables and consumables shall not exceed the following:

(1) for Contractor, eight percent (8%) of direct labor costs; and

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(2) for Subcontractors, eight percent (8%) of direct labor costs.

Expendables and consumable supplies directly associated with the change in Work must be itemized.

e. Subcontractor Costs : This is defined as payments Contractor makes to Subcontractors for changed Work performed by Subcontractors of any tier. The Subcontractors’ cost of Work shall be calculated and itemized in the same manner as prescribed herein for Contractor.

f. Indirect Costs : This is defined as costs of any kind attributable to direct and indirect delay, acceleration, or impact, added to the total cost to Company of any Change Order, or any request for additional Work or extra payment of any kind on the Facility. This allowance shall compensate Contractor for all non-craft labor, including field manager and superintendent, temporary construction facilities, field engineering, schedule updating, as-built drawings, home office cost, office engineering, estimating costs, additional overhead because of extended time, and any other cost incidental to the change in the Work.

g. Contingency and Profits : The cost to which contingency and profit is to be applied shall be determined in accordance with subparagraphs a-f above. Contingency and profit shall be calculated as [fifteen percent (15%)] of the sum of subparagraphs a-f above.

h. Cost of Change in Insurance or Bond Premium : This is defined as:

(1) Contractor’s Liability Insurance : The cost of any changes in Contractor’s liability insurance arising directly from execution of the Change Order; and

(2) Performance Bond(s) : The cost of the additional premium for Contractor’s performance bond, if any, arising directly from the changed Work.

The costs of any change in insurance or bond premium shall be added after contingency and profit are calculated in accordance with subparagraph g above.

8.8.3 Change Order Pricing – Unit Prices .

1. Whenever Company authorizes Contractor to perform Work on a unit-price basis, Company’s authorization shall clearly state:

a. scope of work to be performed;

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b. type of reimbursement including pre-agreed rates for material quantities; and

c. a maximum not-to-exceed limit.

2. Contractor shall:

a. cooperate with Company and assist in monitoring the Work being performed;

b. leave access as appropriate for quantity measurement; and

c. not be required to perform unit-cost work past the established not to exceed limit without Company’s prior written approval.

3. Unit prices shall include reimbursement for all direct and indirect costs of the Work, plus contingency overhead and profit, and bond and insurance costs, and quantities must be supported by field measurement statements signed by Company.

8.8.4 Change Order Pricing – Time and Material Prices .

(a) Whenever Company authorizes Contractor to perform Work contemplated under a Change Order on a time and material basis, Company’s authorization shall clearly state:

(i). scope of Work to be performed; and

(ii). type of reimbursement including pre-agreed rates, if any, for material quantities or labor.

(b) Contractor shall:

(i). cooperate with Company and assist in monitoring the Work being performed. As requested by Company, identify workers assigned to the Work and areas in which they are working;

(ii). identify on daily time sheets all labor, equipment and materials furnished in accordance with this authorization. Submit copies of daily time sheets within two (2) Days for Company’s review;

(iii). leave access as appropriate for quantity measurement;

(iv). efficiently perform all Work in accordance with this Section 8.8.2;

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(v). not be required to perform time and material work past the established not to exceed limit(s) without Company’s prior written approval.

(vi). Submit costs in accordance with Section 8.8.1, plus profit and overhead of fifteen percent (15%) on the sum of such costs and additional verification supported by:

(1) labor priced at Contractor’s then current burdened direct labor rates, detailed on daily time sheets;

(2) invoices for equipment and material; and

(3) invoices for construction equipment rental costs.

8.9 Effectiveness; Continued Performance Pending Resolution of Disputes

If a Change in the Work is initiated under this Article 8, then the Change Order and the modifications made pursuant to such Change Order shall be effective upon Company’s issuance of a Change Order with respect thereto. Notwithstanding a dispute regarding any proposed or requested Change Order, or any adjustment of one or more of the Contract Price, the Schedule (including the Guaranteed Final Completion Date), or any other such part of this Contract as may be affected with respect to a Change Order, Contractor shall proceed with the performance of such Change Order promptly following Company’s execution of the corresponding Change Order.

8.10 Documentation

All claims by Contractor for adjustments pursuant to a Change Order to one or more of the Contract Price, the Schedule (including the Guaranteed Final Completion Date), or any other such part of this Contract as may be affected as a result of Change Orders under this Article 8 shall be supported by such documentation as is reasonably sufficient for Company to determine the accuracy thereof. Within thirty (30) Days of Contractor’s knowledge of Contractor’s need to provide additional supporting data for the Change Order notice, unless Company agrees in writing to allow an additional period of time to ascertain more accurate data, Contractor shall supplement the Change Order notice with additional supporting data. Such additional data shall include, to the extent known, or through the exercise of reasonable diligence should be known at the time, at a minimum (a) the amount of compensation or delay claimed, itemized in accordance with procedures set forth herein; (b) specific facts, circumstances; (c) analysis that confirms not only that Contractor suffered the damages or delay claimed, but that the damages or delay claimed were actually a result of the act, event, or condition complained of, and that the Contract provides entitlement to an equitable adjustment in Contract Price or Schedule (including the Guaranteed Final Completion Date) for such act, event or condition; and (d) supporting documentation sufficiently detailed to permit an informed analysis of the request by Company. Failure to provide such additional information and documentation, to the extent such information and documentation was reasonably available to Contractor, within the time allowed or within the

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format required shall, to the extent Company’s interests are prejudiced, constitute a waiver of Contractor’s right to an adjustment.

8.11 Continue Work

Pending final resolution of any request in accordance with this Article 8, unless otherwise agreed in writing, Contractor shall proceed diligently with performance of the Work.

8.12 Critical Path Schedule Updates

If there is any change in the Schedule covered by a Change Order, or based on a Change Order notice, Contractor shall provide Company with an updated version of Contractor’s Exhibit B Schedule showing the critical path schedule reflecting the change attributable to the Change Order or event(s) giving rise to the request for adjustment.

8.13 Change Order Constitutes Complete Relief

Except for aggregate impacts which are either unknown, or despite the exercise of reasonable diligence would not be known at the time of execution of a Change Order, any Change Order signed by Company and Contractor shall constitute full compensation to Contractor for all claims for cost for direct, indirect, labor, temporary construction failures, job site, or home office overhead, stacking of trades, inefficiencies, impacts or any other cost of any kind or nature; and in the event the Change Order adjusts the Schedule, the Change Order signed by Company and Contractor constitutes complete relief to Contractor for schedule impacts for all events giving rise to the Change Order.

8.14 Effect of Changes on Warranties and Safety

8.14.1 If Contractor reasonably believes that a proposed Change in the Work may negatively affect any warranty or performance commitments with regard to any Work, Contractor shall serve Company notice within fourteen (14) Days of Contractor’s receipt of such proposal of its belief and the believed effect. If Company insists, despite Contractor’s notice, upon requiring the execution of such proposal and Contractor acquiesces to Company’s request and executes the proposal, the affected warranties or performance commitments shall be adjusted to the extent agreed between the Parties or as already determined in accordance with the provisions of Article 14, but only to the extent related to or derived from Company’s proposal.

8.14.2 If Contractor reasonably believes that a proposed Change in the Work may negatively affect safety of the Work or persons in its vicinity or would violate any applicable Laws, Contractor shall serve Company notice within fourteen (14) Days of Contractor’s receipt of such proposal of Contractor’s belief and the believed effect, and Contractor shall not be required to perform such proposal.

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ARTICLE 9 DESIGN AND DOCUMENTATION

9.1 Inspection of Work

At Company’s sole expense, Company and Company’s Representative shall have the right to inspect any item of the Work to be provided hereunder. Company and Company’s Representative shall have access to those portions of the Site then under Contractor’s control, at all times and without notice. While at the Site, Company and the Company’s Representative shall comply with all of Contractor’s safety rules and other job site rules and regulations.

9.2 As-Built Drawings

Within two (2) months following the Final Completion Date, Contractor shall furnish to Company one set of redline drawings of the Facility on which are marked any and all material deviations from those Drawings that were issued for construction or updated by change orders (“ As-Built Drawings ”).

9.3 Equipment Manuals

Contractor shall supply operations and maintenance manuals in accordance with Section 10.1 of Exhibit C1.

ARTICLE 10 WARRANTIES

10.1 Warranty

Contractor warrants to Company that:

(a) the Work shall conform in all material respects to the Drawings, the Specifications and the other requirements set forth in this Contract;

(b) the Work shall be of good quality, free from any Defect and shall be performed in a workmanlike and skilful manner;

(i) be new and shall be of a suitable grade of its respective kind for its intended use, unless otherwise authorized in writing by the Company;

(ii) be free from any Defect in the case of new materials, and as warranted by the supplier in the case of used materials;

(iii) meet the requirements of this Contract;

(iv) be free from any charge, encumbrance, lien or other security interest; and

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(v) comply with current applicable Laws.

(d) title and ownership to the Work shall pass to and vest in Company, as described in Section 12.1, free and clear of any and all liens, claims, charges, security interests, encumbrances and rights of other persons arising as a result of any actions or failure to act of Contractor, its Subcontractors, or their employees or representatives; and

(e) the Work has been and shall be designed and engineered with all the skill, care and diligence to be expected of appropriately qualified and experienced professional designers and engineers with experience in carrying out works of a similar, type, nature and complexity to the Work.

10.2 Warranty Period

The warranties set forth in Section 10.1 shall extend for a period of twelve (12) Months from the Final Completion Date; provided, however, that such period with respect to any item of the Work that is repaired, replaced, modified, or otherwise altered by Contractor pursuant to Section 10.3 shall be extended for twelve (12) Months from the date of completion of such repair, replacement, modification or alteration (for such item, the “ Warranty Period ”). Upon the expiration of the Warranty Period, Contractor will assign to Company, to the extent assignable, the warranties relating to the Work from any Subcontractors or vendors that extend beyond the Warranty Period, if any.

10.3 Defect Remedy Work

10.3.1 Company shall notify Contractor promptly (but not longer than forty-eight (48) hours) upon discovery of any Defect. A written “failure report,” which includes available technical and logistic information to assist Contractor to assess the damage to the equipment and to evaluate appropriate corrective action, shall be provided to Contractor as soon as reasonably practicable upon discovery of the Defect.

10.3.2 Contractor’s responsibility for any such warranty claim shall be limited to Contractor’s performance of Defect Remedy Work on the Defect and Contractor shall perform such Defect Remedy Work as soon as reasonably possible following Contractor’s receipt of notice and the relevant failure report from Company applicable to such Work. Only direct costs and expenses of Defect Remedy Work shall be borne by Contractor. Contractor shall have the obligation in connection with the performance of any Defect Remedy Work to provide any special rigging, cranes or heavy equipment or any labor required in connection with operating such equipment, except where such items or labor are readily available at the Site, in which case such items or labor shall be provided by Company or Company’s operator, at Contractor’s request, and Contractor shall pay reasonable compensation therefore.

10.3.3 All costs associated with the performance of any repair and maintenance work which is not Defect Remedy Work, including the costs of the replacement of any parts or other portions of the Work which are not defective but which are replaced in conjunction with Defect Remedy Work at the request of Company, shall be the responsibility of Company. Company shall provide Contractor with access to the Facility and to utilities, tools and

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equipment available at the Site for Contractor’s performance of any Defect Remedy Work. If Contractor elects not to carry out such Defect Remedy Work and requests Company to perform the same under this Article 10 instead of Contractor, Company may cause the Defect Remedy Work to be effected and Contractor shall reimburse Company the costs Company has reasonably incurred as a result.

10.3.4 The warranty and the liabilities and obligations of Contractor under this Contract shall not extend to replacement of normal consumables or apply to any failure to comply with the warranty that has been caused by (i) any erosion or de-erosion or normal wear and tear in operation of the subject Work; (ii) any failure of Company or a third party, other than Contractor or Subcontractor, to properly store, install, operate and/or maintain the subject Work in accordance with good industry practices and the O&M Manual; (iii) any modifications made to the subject Work by any person other than personnel of Contractor or Subcontractor without Contractor’s express written consent prior to such modifications; (iv) any neglect, abuse, malicious mischief, vandalism or event of Force Majeure (other than a warranty failure) affecting the subject Work; (v) any other negligent act of Company or Company’s operator; (vi) operation of the Facilities under conditions (including composition of the geothermal fluid) outside of the range specified in the Design Conditions; or (vii) operation of the Facility, other than by personnel of Contractor or Subcontractor, without Contractor’s prior express written consent, outside the Facility’s defined operation range.

10.4 Implementation of Warranty

The warranty claims and related Work shall be implemented in accordance with the Warranty Claim Procedures in Exhibit E.

10.5 Disclaimer and Release

THE WARRANTIES, CONDITIONS, OBLIGATION AND LIABILITIES OF CONTRACTOR AND RIGHTS AND REMEDIES OF COMPANY SET FORTH IN THIS CONTRACT ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND COMPANY HEREBY WAIVES, RELEASES AND RENOUNCES, ALL OTHER PRESENT AND FUTURE WARRANTIES, CONDITIONS, OBLIGATIONS, REPRESENTATIONS AND LIABILITIES OF CONTRACTOR, TOGETHER WITH ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF COMPANY AGAINST CONTRACTOR, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, (A) ANY IMPLIED WARRANTY OR CONDITION OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE; (B) ANY IMPLIED WARRANTY OR CONDITION ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; (C) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF CONTRACTOR OR ITS SUBCONTRACTORS, ACTUAL, PASSIVE OR IMPUTED; OR (D) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO THE FACILITY, WORK OR ANY PORTION THEREOF OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES.

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ARTICLE 11 INTENTIONALLY OMITTED

ARTICLE 12 TITLE; CARE OF THE WORK

12.1 Passage of Title

Legal title to and ownership of all Work and Materials provided hereunder shall pass to and vest in the Raft River Energy I LLC at the later of (i) delivery to the Site; or (ii) upon payment of the respective payment pursuant to the Payment Schedule.

12.2 Risk of Loss

Contractor shall be responsible to assure safe delivery of all Materials to the Site. Except to the extent caused by the negligence or willful misconduct of Company, Contractor shall bear the risk of physical loss or destruction of or damage to the Materials and the Work, whether or not incorporated in the Facility at the Site or located on or off the Site, until the Final Completion Date. Notwithstanding the passage of title as provided in Section 12.1, Contractor assumes the risk of loss with respect to, and shall be obligated to replace, repair or reconstruct, any portion or all of the Materials or the Work that is lost, damaged or destroyed prior to turning over care, custody and control of such Material or Work to Company as provided in this Contract, irrespective of how such loss, damage or destruction shall have occurred. In the event of a termination of this Contract in accordance with the provisions hereof prior to such turnover, the risk of loss with respect to such Materials and Work shall pass to Company upon the effective date of termination, whether by Company or by Contractor.

ARTICLE 13 INSURANCE AND BONDING

13.1 Contractor Provided Insurance

Contractor shall:

(a) obtain and maintain in full force and effect from the Commencement Date through Final Completion, at its own cost, the following policies of insurance:

(i) Builders All Risk insurance in an amount equal to cover the replacement cost of the Facility, including transit coverage for purchased pipe and materials;

(ii) Public Liability insurance with bodily injury and property damage combined single limits of at least One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the aggregate. Such insurance shall cover liability for bodily injury to third parties or damage to property to third parties arising in connection with the performance of the Work;

(iii) Excess Liability insurance with a single limit of at least Five Million Dollars ($5,000,000) per occurrence in excess of the limits of the insurance provided in paragraph (ii) above;

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(iv) Workers Compensation insurance providing statutory limits of liability, and Employers Liability limits of One Million Dollars ($1,000,000) per disease/accident/ employee, covering Contractor;

(v) Marine transit insurance for Materials and/or Equipment procured and to be delivered pursuant to this Contract and to provide that Company is named as the additional named insured; and

(b) procure and maintain such further coverage’s as Contractor is required to have by any applicable Law.

In the event this insurance or any portion of it becomes commercially unavailable, Company and Contractor shall cooperate to obtain such replacement insurance as may be available and this Contract shall be modified accordingly.

13.2 Company Provided Insurance

Company shall:

(a) obtain and maintain in full force and effect, at its own cost, the following policies of insurance:

(i) All risks property insurance with a limit in an amount not less than the replacement cost of the Facility pipeline and equipment the care, custody and control of which has been turned over to Company by Contractor pursuant to this Contract;

(iii) Excess Liability insurance with a single limit of at least Ten Million Dollars ($10,000,000) per occurrence in excess of the limits of the insurance provided in paragraph (ii) above; and

(b) procure and maintain such further coverages as Company is required to have by any applicable Law.

13.3 Policies

13.3.1 Contractor’s insurance shall:

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(a) name Company and its directors, officers, representatives, employees and agents and any identified Financing Parties as additional insured’s;

(b) include the following cross-liability clause:

“Where more than one party comprises the “Insured,” each of the parties shall, for the purpose of such insurance, be considered as a separate and distinct unit/entity, and the words “the Insured” shall be considered as applying to each party in the same manner as if a separate policy has been issued to each of the said parties. The insurer shall provide indemnity to each in the same manner and to the same extent as if a separate policy has been issued to each, provided that the total amount payable in respect of compensation shall not exceed the limits of indemnity”;

(c) provide that such Contractor’s insurance may not be cancelled, non-renewed or materially changed by the insurer without giving thirty (30) Days’ prior written notice to Company;

(d) waive any and all rights of subrogation against Company and its respective directors, officers, representatives, agents and employees, and waive any other right of the insurers to any offset or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any Liability of Company or its directors, officers, representatives, agents and employees; and

(e) provide that any other insurance maintained by Company and its respective directors, officers, representatives, agents and employees is in excess of such Contractor’s insurance and not contributory with it.

13.3.2 Company’s insurance shall:

(a) name Contractor, Subcontractors and their respective directors, officers, representatives, employees and agents and any identified Financing Parties as additional insured’s;

(b) include the following cross-liability clause:

(c) provide that such Company’s insurance may not be cancelled, non-renewed or materially changed by the insurer without giving sixty (60) Days’ prior written notice to the Contractor;

(d) waive any and all rights of subrogation against Contractor, Subcontractors and their respective directors, officers, representatives, agents and employees, and waive any

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other right of the insurers to any offset or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any Liability of Contractor, Subcontractors or their respective directors, officers, representatives, agents and employees; and

(e) provide that any other insurance maintained by Contractor, any Subcontractors and their respective directors, officers, representatives, agents and employees is in excess of such Company’s insurance and not contributory with it.

13.4 Payment of Deductibles

If any of the insurance described above shall have any deductibles, the Party obligated to procure such insurance shall be solely responsible for payment of all such deductible amounts associated with such insurance.

13.5 Evidence of Insurance

Within thirty (30) Days of the Commencement Date (or with regard to the Builders All Risk coverage described in Section 13.1(a)(i), prior to the commencement of Work at the Site), each Party shall cause its insurers or agents to provide to the other Party for the other Party’s review and approval certificates of insurance evidencing the policies and terms specified in this Article 13. Notwithstanding the foregoing, Contractor shall be entitled to cause its insurers or agents to provide to Company the certificates of insurance evidencing its builders all risk policy only when the relevant risk arises. Failure by a Party to obtain the insurance coverage or certificates of insurance required by this Article 13 shall not in any way relieve or limit such Party’s obligations and liabilities under this Contract, nor shall the failure of any insurance company for any reason to pay claims accruing with respect to such Party’s insurance, affect, negate or release such Party from any of the provisions of this Contract, including such Party’s indemnity obligations. The insurance coverage to be provided by each Party pursuant to this Article 13 are not intended to, and shall not in any manner, limit or modify such Party’s obligations under this Contract, except to the extent any proceeds of such insurance are applied in satisfaction of such Party’s obligations. If a Party shall fail to procure or maintain its insurances, then the other Party shall have the right (but shall not be obligated) to provide and maintain such insurance at the defaulting Party’s expense and to deduct the cost thereof from any amount or amounts due to the other Party or in the event there are no such amounts due and payable, the defaulting Party shall reimburse the other Party for such costs on demand.

13.6 Performance Payment and Other Bonds

Contractor shall furnish bond(s) for performance and payment in an amount at least equal to 50% of the Contract Price, or as agreed to by both Parties, as security for the faithful performance and payment of contractor’s obligations under the Contract Documents. These bonds shall remain in effect until 30 days after the date when final payment becomes due, except as provided otherwise by Laws or Regulations.

All bonds shall be in the form prescribed herein, except as provided by Laws or Regulations, and shall be executed by such sureties as are named in the current list of “Companies Holding Certificates of Authority as Acceptable Sureties on Federal Bonds and as

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Acceptable Reinsuring Companies” as published in Circular 570 (amended) by the Financial Management Service, Surety Bond Branch, U.S. Department of the Treasury. All bonds signed by an agent must be accompanied by a certified copy of the agent’s authority to act.

If the surety on any bond furnished by Contractor is declared bankrupt or becomes insolvent or its right to do business is terminated in any state where any part of the Project is located or it ceases to meet the requirements of this paragraph, Contractor shall promptly notify Client and Client’s Representative and shall, within 20 days after the event giving rise to such notification, provide another bond and surety, both of which shall comply with the requirements of this paragraph and succeeding paragraph.

The Contractor will be required to obtain performance and payment bonds for the insulation subcontractor for the full amount of the insulation contract, which will be an amount of approximately $400,000.

ARTICLE 14 DISPUTE RESOLUTION

14.1 Settlement by Mutual Agreement

Company and Contractor desire that this Contract operate between them fairly and reasonably. If during the term of this Contract a dispute arises between Company and Contractor, or one Party perceives the other as acting unfairly or unreasonably, or a question of interpretation arises hereunder, then the Parties shall cause the Company’s Representative and Contractor’s Representative to promptly confer and exert their good faith efforts to reach a reasonable and equitable resolution of the issue. If Company’s Representative and Contractor’s Representative are unable to resolve the issue within fourteen (14) Days, the matter shall be referred within five (5) Days of the lapse of such period to the Parties’ responsible officers for resolution. Neither Party shall seek resolution by mediation or arbitration of any dispute arising in connection with this Contract until both Parties’ responsible officers, who shall be identified by each Party from time-to-time, have had at least fourteen (14) Days to resolve the dispute following referral of the dispute to such responsible officers. If the Parties fail to settle such dispute within such period (including a failure to identify their respective responsible officers and make necessary referrals within such period), the provisions of Section 14.2 shall apply unless the Parties agree that the dispute is to be resolved according to the provisions of Section 14.3.

14.2 Mediation

If a dispute under this Contract is not resolved by the Parties pursuant to Section 14.1, upon the request of either Party the Parties shall try in good faith to settle the dispute by nonbinding mediation administered by the American Arbitration Association under its Commercial Mediation Rules before resorting to arbitration. Unless otherwise agreed upon by the Parties, the mediation shall be held in Ada County, Idaho. Each Party shall bear the cost and expense of preparing and presenting its own case (including, but not limited to, its own attorneys’ fees and costs of witnesses). Payment of the mediator and other costs and expenses of the mediation shall be divided equally among the Parties.

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14.3 Pending Disputes

Notwithstanding any provision of this Article 14 to the contrary, either Party may commence litigation within thirty (30) Days prior to the date after which the commencement of litigation could be barred by any applicable statute of limitations or other law, rule, regulation, or order of similar import or in order to request injunctive or other equitable relief in connection with any bankruptcy or insolvency proceeding or otherwise necessary to prevent irreparable harm. In such event, the Parties shall (except as may be prohibited by judicial order) nevertheless continue to follow the procedures set forth herein. While any disputes under this Contract are pending, including the commencement and pendency of any of the dispute resolution procedures set forth in this Article 14, the Parties shall abide by all their obligations under this Contract without prejudice to a final determination in accordance with the foregoing provisions of this Article 14.

ARTICLE 15 INDEMNIFICATION

15.1 General

Contractor shall defend, indemnify and hold harmless Company, the Financing Parties, each of their parent company and affiliates, and the directors, officers, members, agents, employees, successors and assigns of each of them (each, a “ Company Indemnified Party ”), from and against any and all claims, demands, and causes of action asserted by any Governmental Authority or other third party against any Company Indemnified Party (other than as a result of a breach of this Contract by such person) and any Liabilities, including reasonable attorneys’ fees, incurred by such Company Indemnified Party in connection therewith to the extent and as a result of Contractor’s performance (or that of its Subcontractors, agents, employees or consultants) under this Contract, including, but not limited to (a) on account of any violation of any Law or Permit to be complied with by Contractor hereunder; and (b) in respect of any Taxes imposed on or attributable to performance of Contractor other than to the extent caused by or arising from the negligence or willful misconduct of such Company Indemnified Party not attributable to Contractor or any affiliate or Subcontractor of Contractor.

15.2 Indemnification for Bodily Injury or Property Damage

Company, as one Party, and Contractor, as the other Party, shall defend, indemnify and hold each other, and each other’s lenders, Financing Parties, parent company, affiliates, officers, directors, members, agents and employees, owners of the real property comprising the Site, harmless from and against any loss, damage or liability (including, but not limited to, reasonable attorneys’ fees and other costs but excluding consequential damages) on account of any claim by a third party for bodily injury or property damage against the indemnified party caused by the negligent act or omission of the indemnifying party or the indemnifying party’s employees, contractors, subcontractors or agents, in connection with the performance of their respective undertakings under this Contract.

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15.3 Indemnity from Liens

Contractor shall defend, indemnify and hold each of the Company Indemnified Parties harmless from and against (i) all liens arising from the performance of the Work by Contractor or otherwise caused by any Subcontractor or any employee, agent or Affiliate of Contractor or any of its Subcontractors or anyone else entitled to file a lien under Law; and (ii) any loss, damage or liability (including, but not limited to, reasonable attorneys’ fees and other costs) in connection with any and all mechanics’ liens filed in connection with Contractor’s Work hereunder. This Section 15.3 shall not apply to Liens of Contractor which result from non-payment by Company.

15.4 Reserved

15.5 Company’s Indemnity

Company shall defend, indemnify and hold harmless Contractor and its Subcontractors and their respective joint venture partners, directors, officers, agents, employees, shareholders and affiliates from any and all Liability or Proceedings arising out of:

(a) any actual or alleged injury or death of persons or damage to property arising out of the negligence, willful misconduct or default of Company (except only to the extent that the same have been caused by the negligence or default of Contractor or its Subcontractors);

(b) any and all environmental related liability or cost arising from or related to the Site, including any actual or alleged injury to persons or property related thereto or any remedial activity (except to the extent the same was caused by the negligence or default of Contractor or its Subcontractors in connection with their performance of the Work); or

15.6 Notice and Settlement of Claims

A Party seeking the benefit of an indemnity under this Article 15 shall give the other Party written notice of any claim giving rise to the indemnity promptly after such Party learns of the same. The indemnifying Party may, at its own cost, conduct negotiations for the settlement of such claim and any litigation that may arise therefrom. The Party claiming the benefit of the indemnity shall not make any admission that might be prejudicial to the indemnifying Party unless the indemnifying Party fails to take over the conduct of the negotiations or litigation within a reasonable time after having been so requested. The indemnifying Party shall not settle any indemnified claim without the indemnified Party’s prior written approval (not to be unreasonably withheld or delayed). The Party claiming the benefit of the indemnity shall, at the request of the other Party, provide reasonable assistance for the purpose of contesting any such claim or action, and shall be paid all reasonable costs incurred in doing so and shall have the right to have its own counsel, at its expense, participate in the defense and negotiation of the claim or action.

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ARTICLE 16 ASSIGNMENT

16.1 Assignment by Company

Company may not assign any or all of its obligations, rights, title and/or interest in and to or arising out of or in connection with the Contract without the prior written approval of Contractor, which approval shall not be arbitrarily or unreasonably withheld or delayed. Notwithstanding the foregoing, Company may, without written approval, assign its obligations, rights, title and/or interest in and to or arising out of or in connection with the Contract for the purpose of securing financing.

16.2 Assignment by Contractor

Contractor may not assign any or all of its obligations, rights, title and/or interest in and to or arising out of or in connection with the Contract without the prior written approval of Company, which approval shall not be arbitrarily or unreasonably withheld or delayed. No assignment of Contractor’s obligations, rights, title and/or interest in and to or arising out of or in connection with the Contract shall relieve Contractor of any obligation hereunder.

16.3 Succession

This Contract shall inure to the benefit of and be binding upon the successors and permitted assigns (as provided for by Sections 16.1 and 16.2) of the Parties.

ARTICLE 17 SUBCONTRACTORS

17.1 Subcontracts

Subject to Section 17.2, Contractor may enter into Subcontracts for the performance of the Work and shall be solely responsible for the satisfactory performance of the Work and the acts, defaults and omissions of any Subcontractor notwithstanding any review, approval or other action taken by Company with regard to the selection of a Subcontractor hereunder. Contractor shall be responsible for the actions of the Subcontractors in their performance of the Work as if such actions were those of Contractor. The issuance of any Subcontract shall not relieve Contractor of any of its obligations under this Contract. All Subcontracts shall be consistent with and in no way contrary to or inconsistent with any of the terms or provisions of this Contract. No contractual relationship shall exist between Company and any Subcontractor with respect to the Work to be performed hereunder, and no Subcontractor is intended to be or shall be deemed a third-party beneficiary of this Contract. Except as expressly set forth in Section 17.2, nothing contained herein shall (a) create any contractual relationship between any Subcontractor and Company or (b) obligate Company to pay or arrange for the payment of any Subcontractor.

17.2 Subcontract Provisions

Contractor shall ensure that Subcontracts made with Subcontractors having a value of Two Hundred Thousand Dollars or more are made in writing. Contractor shall make reasonable efforts to require that each such Subcontract shall provide that the rights and obligations of

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Contractor under each such Subcontract are assignable to Company, its successors and assigns upon Company’s written request accompanied by proof of source of payment to such Subcontractor’s satisfaction, following any termination of this Contract.

17.3 Vendors

Contractor shall not subcontract the supply of any equipment for a price of in excess of Fifty Thousand Dollars ($50,000), except to vendors approved by Company, which approval shall not be arbitrarily or unreasonably withheld.

ARTICLE 18 SUSPENSION

18.1 Right of Company to Suspend Work

Company may suspend performance of the Work by Contractor hereunder as provided in Section 8.1.1.

18.2 Initial Payments to Contractor

Contractor shall be entitled to payment for Work that has been completed as of the effective date of such suspension or concerning which delivery has been suspended if such suspension has not ceased within ten (10) Days of the effective date of such suspension within thirty (30) Days of the issuance of an invoice therefore by Contractor.

18.3 Extended Suspension

In the event that the duration of the suspensions by Company exceed ninety (90) Days in the aggregate, then Contractor may give notice to the Company’s Representative requesting permission to proceed. If permission is not granted within twenty (20) Days of the delivery of such notice, Contractor may terminate its obligations under the Contract by so notifying Company in writing, and Contractor shall be entitled to payments as described in Section 19.2.2.

18.4 Right of Contractor to Suspend

Contractor may suspend performance of the Work hereunder, in whole or in part, upon thirty (30) Days’ prior written notice to Company of Contractor’s intention to suspend for reasons of (i) the aggregate amount of the payments withheld by Company as a result of a billing dispute(s) equals one hundred thousand dollars ($100,000); or (ii) Company breaches or is in default under any financing obligations with any Financing Parties. Such suspension shall continue for the period specified in the suspension notice.

18.5 Additional Changes Resulting From Suspensions

Provided that suspension is not necessary by reason of a default on the part of Contractor that has not been corrected, in the event of suspension pursuant to this Article 18 the Contract Price shall be increased by the amount equal to the additional costs reasonably incurred by Contractor as a result of the suspension (including costs for the purpose of safeguarding, storage, personnel, Subcontractors or rented equipment costs, demobilization and re-mobilization costs

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and increased costs or charges incurred for rescheduling) and the scheduled dates specified in this Contract, the Schedule, and all other dates and milestones herein by which Contractor’s responsibilities are measured shall be adjusted to reflect any delays resulting from such suspension (including a period equal to the suspension period, a period for demobilization and re-mobilization plus any additional period required). If Contractor shall, solely in consequence of such suspension, be required to perform any obligations under its warranty at a time which exceeds the original schedule for warranty obligations that would have been applied if there were no suspension, the additional cost of complying with the warranty obligations shall be added to the Contract Price.

18.6 Resumption of Work

Upon receipt of notice to resume the Work in accordance with this Contract, Contractor shall examine the Facility and the Work affected by the suspension. Contractor shall make good any deterioration or defect in or loss of such Facility or Work that may have occurred during suspension, and costs incurred in making such examinations and making good and resuming Work shall be added to the Contract Price, all of which Work shall be at Company’s expense unless such suspension occurred by reason of a default on the part of Contractor that was not corrected within the time period specified in Section 19.1.

ARTICLE 19 TERMINATION

19.1 Termination by Company

19.1.1 Company may terminate the Work and this Contract after the occurrence of one or more of the following events of default and if, following a written notice from Company to cure such event of default, said event of default continues to exist for ten (10) Days in the circumstances described in (a) below, and twenty (20) Days in the circumstances described in (b) below:

(a) the occurrence of an Insolvency Event involving Contractor; or

(b) Contractor defaults in its performance under a material provision of this Contract; provided, however, that Company may not terminate this Contract if, after notice of such default and prior to expiration of the twenty (20) Day period set forth above, Contractor has commenced and is diligently pursuing efforts to cure such breach.

19.1.2 In the event of termination as provided in Section 19.1.1, Company shall compensate Contractor for all payment amounts or milestones achieved plus a pro rata portion of the payment amounts for Work partially achieved as of termination, but Company shall not compensate Contractor for any other costs associated with the termination of the Work. Upon termination and such payment, Contractor shall deliver to Company possession of the Work in its then condition, including Drawings and Specifications and contracts with Subcontractors, and construction supplies dedicated solely to construction of the Facility.

19.1.3 In the event of termination as provided in Section 19.1.1: (a) Company shall have the right, at its sole option, to assume and become liable for any reasonable written

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obligations and commitments that Contractor may have in good faith undertaken with third parties in connection with the Work, which obligations and commitments are by Law or by their terms assumable by Company and are not covered by the payments made to Contractor under Section 19.1.2. If Company elects to assume any obligation of Contractor as described in this Section 19.1.3, then as a condition precedent to Company’s compliance with any subsection of this Article 19, Contractor shall execute all papers and take all other reasonable steps requested by Company that may be required to vest in Company all rights, set-offs, benefits and titles necessary to such assumption by Company of such obligations. Company agrees to indemnify and hold Contractor harmless against any Liability under any obligations assumed by Company pursuant hereto.

19.2 Termination by Contractor

19.2.1 Contractor may terminate the Work and this Contract after the occurrence of one or more of the following events of default and if, following a written notice from Contractor to Company to cure such event of default, said event of default continues to exist for ten (10) Days in the event of a payment default, and thirty (30) Days in the event of any of the other defaults described below:

(a) the occurrence of an Insolvency Event involving Company;

(b) Company defaults in its performance under a material provision of this Contract; provided, however, that Contractor may not terminate this Contract if, for all cases except for the obligation to make or complete any payment, after notice of such default and prior to expiration of the thirty (30) Day period set forth above, Company has commenced and is diligently pursuing efforts to cure such breach; or

(c) Company breaches or is in default under any financing obligations with any Financing Parties and fails to cure such breach or default within the cure or other period provided in the applicable agreement or instrument.

19.2.2 In the event of termination as provided in Section 19.2.1, Company shall pay to Contractor the greater of (a) that portion of the Contract Price associated with all payment amount or milestones achieved, including any amount in the Letter of Credit which amount Contractor may draw down, plus a pro rata portion of the payment amount or milestone amounts for partially achieved Work up to the date of Contractor’s receipt of notice of termination plus any costs attributable to and incurred in terminating the Work, including cancellation charges owed to third parties, but in no event shall the total amount exceed the Contract Price , or (b) the termination amount payable by Company to Contractor as specified in Section 19.4.

19.3 Due to Force Majeure

If (a) Company wholly suspends the Work on the Facility for six (6) consecutive months due to the occurrence of a Force Majeure suffered by Company; or (b) Contractor is prevented from performing the Work for a period of six (6) consecutive months as a result of the occurrence of a Force Majeure suffered by Contractor, then the affected Party may terminate this Contract at no cost or penalty, other than the payment of all accrued payment obligations due

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and payable pursuant to this Contract (excluding loss of anticipated profits for the Work not yet performed by Contractor) upon not less than fifteen (15) Days prior written notice to the other Party; provided, however, that nothing in this Section 19.3 shall relieve or excuse either Party from its obligations under Sections 19.5 and 19.6.

19.4 Due to Company’s Convenience

If Company determines it is in its best interest to terminate this Contract for its convenience, then Company may terminate this Contract at no cost or penalty if such notice is given prior to Company issuing Contractor a Notice to Proceed pursuant to Section 4.1. Company may also terminate this Contract for convenience after issuing Contractor a Notice to Proceed at no cost or penalty, other than the payment by Company to Contractor of the sum of (a) all accrued payment obligations due and payable pursuant to this Contract plus a pro rata portion of the payment amounts for partially achieved Work up to the date of Contractor’s receipt of notice of termination (excluding loss of anticipated profits for the Work not yet performed by Contractor), (b) any costs attributable to and incurred in terminating the Work, including cancellation charges owed to third parties, and (c) One Hundred Thousand Dollars ($100,000) for miscellaneous expenses and/or loss of anticipated profit for the Work not yet performed by Contractor. Such payment shall be made by Company to Contractor not less than fifteen (15) Days after Contractor has provided Company written notice of the amounts due. Nothing in this Section 19.4 shall relieve or excuse either Party from its obligations under Sections 19.6 and 19.7. It is understood and agreed by the Parties that Contractor shall be damaged by Company’s termination of this Contract for convenience and that (i) it would be impracticable or extremely difficult to fix the actual damages resulting therefrom; (ii) the termination fee described in clause (c) above is in the nature of liquidated damages, and not a penalty, and is fair and reasonable; and (iii) such payments represent a reasonable estimate of fair compensation to Contractor for the losses that may reasonably be anticipated from such termination.

19.5 Exclusive Remedy

Company’s payment to Contractor pursuant to either Section 19.3 or 19.4, shall be Contractor’s exclusive remedy against Company in the event of such termination.

19.6 Actions Required Following Termination

Upon early termination of the Work, each Party shall be immediately released from any and all obligations to the other Party (except for the obligation of each Party to pay any amount then accrued or due hereunder, or otherwise due under this Article 19), Contractor immediately shall discontinue the Work and remove its personnel and construction equipment from the Site, and except for termination due to Company’s default Company shall be entitled to take exclusive possession of the Materials and all or any part of the Materials delivered or en route to the Site, to the extent that Company has paid Contractor all undisputed amounts hereunder then due and payable from Company to Contractor. Contractor shall immediately take such steps as are reasonably necessary to preserve and protect Work completed and in progress.

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19.7 Termination and Transfer of Subcontracts and Other Rights

Upon the early termination of the Work pursuant to this Article 19, including pursuant to Section 19.4, if requested by the Company, Contractor shall make reasonable efforts to cancel existing contracts with Subcontractors performing Work at the Site. If early termination of the Work occurs due to the default by Contractor, Contractor shall also, upon request by Company (a) deliver and assign to Company, pursuant to a document produced by Contractor and reasonably acceptable to Company, any and all Subcontracts, purchase orders, bonds and options made by Contractor for Work to be performed at the Site (but in no event shall Company be liable for any action or default of Contractor occurring prior to such delivery and assignment (except to the extent such action or default was caused by Company) and Contractor shall defend and hold harmless Company against any such liability); and (b) deliver to Company originals of all Subcontracts and all papers and documents relating to Contractor Permits, orders placed, bills and invoices, lien releases related to the Work. All deliveries hereunder shall be made free and clear of any liens, security interests or encumbrances, except as may arise hereunder, be created by Company or may arise in favor of Contractor due to non-payment by Company. Except as provided herein, no action taken by Company or Contractor after the termination of the Work and/or this Contract shall prejudice any other rights or remedies of Company or Contractor provided by Law, this Contract or otherwise upon such termination.

19.8 Surviving Obligations

Termination or expiration of this Contract (a) shall not relieve either Party of its obligations with respect to the confidentiality of the other Party’s information as set forth in Article 21; (b) shall not relieve either Party of any obligations hereunder which expressly or by implication survive termination hereof; and (c) except as otherwise provided in any provision of this Contract expressly limiting the liability of either Party, shall not relieve either Company or Contractor of any obligations or liabilities for loss or damage to the other Party arising out of or caused by acts or omissions of such Party prior to the effectiveness of such termination or arising out of such termination, and shall not relieve Contractor of its obligations as to portions of the Work or other services already performed or of obligations assumed by Contractor prior to the date of termination. This Section 19.8 shall survive the termination or expiration of this Contract.

ARTICLE 20 INTENTIONALLY OMITTED

ARTICLE 21 CONFIDENTIALITY

21.1 Both Parties to Keep Information Confidential

Company and Contractor shall keep confidential and shall not, without the written consent of the other Party, divulge to any third party Information of the other Party.

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21.2 Use of Information

Contractor shall not use any Information received from Company for any purpose other than the procurement and construction of the Facility, or such other Work as required for the performance of the Contract.

21.3 Exclusions

The obligations of any Party under Sections 21.1 and 21.2 shall not apply to Information of the other Party that:

(a) now or hereafter enters the public domain through no fault of the receiving Party;

(b) can be proved to have been in the possession of the receiving Party at the time of disclosure and which was not previously obtained, directly or indirectly, from the other Party hereto;

(c) otherwise lawfully becomes available to the receiving Party from a third party under no obligation of confidentiality; or

(d) the receiving Party is required by law or any relevant stock exchange or other competent regulatory authority to publish or otherwise disclose but only to the extent that it is necessary to publish or disclose the same.

21.4 Contractor Logos

Contractor shall apply no names, logos, or other markings to the Facility without the written permission of the Company.

ARTICLE 22 NOTICES

22.1 All notices and other communications required or permitted by this Contract shall be in writing and delivered by hand (including by messenger or courier) or by airmail post or special courier or by telecopier or facsimile (receipt confirmed), at the addresses or numbers set forth below or at such other addresses or numbers as the Party receiving notice shall subsequently designate by way of replacement by giving ten (10) Days’ written notice to the other Party pursuant to this Section:

	If to Company:	Raft River Energy I LLC
		1509 Tyrell Lane, Suite B
		Boise, Idaho 83706
		Attention: Daniel Kunz
		Fax: (208) 424-1030

	with a copy for
	any notice of
	claim or dispute

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	to:	Stoel Rives LLP
		600 University Street
		Seattle, WA 98101
		Attention: John F. Pierce
		Fax: (206) 386-5700

	If to Contractor:	Industrial Builders
		20394 Pinto Lane
		Caldwell, ID 83605

		Attention: Dave Erlebach
		Fax: (541) 889-7755

22.2 Any notice sent by telecopier or facsimile transmission shall be confirmed within two (2) Days after dispatch by notice sent by airmail or special courier.

22.3 Any notice or confirmation of notice sent by airmail or special courier shall be deemed (in the absence of evidence of earlier receipt) to have been delivered ten (10) Days after dispatch and in proving the fact of dispatch, it shall be sufficient to show that the envelope containing such notice was properly addressed, stamped and conveyed to the postal authorities or courier service for transmission by airmail or special courier.

22.4 Any notice delivered by hand, facsimile, telecopier or telegram shall be deemed to have been delivered on the date of its dispatch.

22.5 In this Article 22, notices shall include any approvals, consents, instructions, orders, and certificates to be given under the Contract.

ARTICLE 23 MISCELLANEOUS

23.1 Governing Law

This Contract and the Exhibits hereto shall in all respects be governed by and construed under the laws of the State of Idaho, without regard to the principles of conflict of laws. The selection of Idaho law shall conclusively be presumed to be a significant, material and reasonable relationship with the State of Idaho and shall be enforced whether or not there are other relationships with the State of Idaho. Any dispute arising under or related to this Agreement shall be resolved by a court of competent jurisdiction in Ada County, Idaho, and each party hereby irrevocably and unconditionally submits to such exclusive jurisdiction and venue.

23.2 Construction

This Contract and any documents or instruments delivered pursuant hereto shall be construed without regard to the identity of the person who drafted the various provisions of the same. Each and every provision of this Contract and such other documents and instruments shall be construed as though the parties participated equally in the drafting of the same. Consequently, the parties acknowledge and agree that any rule of construction that a document is

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to be construed against the drafting party shall not be applicable to this Contract or such other documents or instruments.

23.3 Nature of Agreement

Contractor and its Subcontractors shall be independent contractors with respect to the Work, irrespective of whether such Subcontractors are selected or approved by Company, and neither Contractor nor its Subcontractors, nor the employees of either, shall be deemed to be the servants, employees, representatives or agents of Company. This Contract does not create any agency, partnership, joint venture or other joint relationship between Company and Contractor. Nothing contained in this Contract shall be construed (a) to authorize either Party hereto to act as agent for the other Party or to permit a Party hereto to undertake any contract or other obligation for the other Party or (b) to create any agency, partnership, joint venture or other joint relationship between the Parties.

23.4 Severability

In the event that any of the provisions or portions, or applications thereof, of this Contract become invalid, illegal or unenforceable in any respect under the Law of any jurisdiction, Company and Contractor shall negotiate an equitable adjustment in the provisions of this Contract with a view toward effecting the purpose of this Contract, and the validity and enforceability of the remaining provisions or portions, or applications thereof, shall not be affected thereby.

23.5 Amendments and Waivers

This Contract may not be changed or amended orally, and no waiver hereunder may be oral. Any change or amendment or any waiver of any term or provision of, or consent granted under, this Contract shall only be effective if given in writing and signed by the waiving or consenting Party (or both Parties in the case of a change or amendment).

23.6 Survival

The provisions of Sections 2.4, 3.3, 5, 9.4, 9.5, , and all of Articles 5, 14, 15, 19, 21, 22 and 23 shall survive termination or expiration of the Contract for whatever reason.

23.7 Counterparts

This Contract may be executed in separate counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

23.8 Entire Contract

This Contract and the Exhibits sets forth the full and complete understanding of the Parties relating to the subject matter hereof as of the Effective Date and supersedes any and all negotiations, agreements, understandings and representations made or dated prior thereto with respect to such subject matter. Contractor shall not be bound by, and specifically objects to, any term, condition or other provision that is different from or in addition to the provisions of this

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Contract (whether or not it would materially alter this Contract), which is proffered by Company in any purchase order, receipt, acceptance, confirmation, correspondence or otherwise, unless Contractor specifically agrees to such provision in a written instrument signed by Contractor.

23.9 Waivers

Subject to Section 23.5, no relaxation, forbearance, delay, indulgence or failure by either Party to enforce any of the terms, covenants, conditions or other provisions of this Contract at any time shall in any way prejudice, affect, limit, modify or waive that Party’s right thereafter to enforce or compel strict compliance with every term, covenant, condition or other provision hereof, any course of dealing or custom of the trade notwithstanding. No delay or omission on the part of a Party shall operate as a waiver thereof, nor shall any waiver by either Party of any breach of the Contract operate as a waiver of any subsequent or continuing breach of the Contract.

23.10 Counterparts; Transmitted Copies

This Contract may be executed in any number of counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. To expedite the process of entering into this Contract, the parties acknowledge that Transmitted Copies of this Contract shall be equivalent to original documents until such time (if any) as original documents are completely executed and delivered. “ Transmitted Copies ” mean copies that are reproduced or transmitted via facsimile or another process of complete and accurate reproduction and transmission.

23.11 Further Assurances

Company and Contractor shall use reasonable endeavors to implement the provisions of this Contract, and for such purpose each, at the request and expense of the other, shall, without further consideration, promptly execute and deliver or cause to be executed and delivered to the other such, consents, documents or other instruments in addition to those required by this Contract as the other may reasonably require to implement any provision of this Contract.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Parties have caused this Contract to be executed on the date first above written.


Company :		Contractor :

Raft River Energy I LLC		IBI DBA Industrial Builders

By:		By:

Name:	Daniel Kunz	Name:	Dave Erlebach

Title:	President	Title:	Manager

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EXHIBIT A

CONTRACT PRICE AND PAYMENT SCHEDULE

Contract Price:

	Description	Change Order	Change Order	Allowances	Totals
		Add ons	Deductions
	Base Bid				$ 2,601,000.00

	Deductions:
1	Credit for removing End Caps on		$ 12,312.00
	10" and 12" Supports

2	Credit for deleting Windows in		$ 3,815.00
	double Support

3	Credit for deleting third party		$ 3,530.00
	inspections

4	Credit to remove (1) window from		$ 3,311.00
	single support, (2) windows still
	required

	Total for deductions		$ 22,968.00		$ 2,578,032.00

	Additions:
1	Extra Cost to excavate double holes	$ 37,188.00
	in lieu of auger and add additional
	concrete

2	Direct Reimbursable Cost for Bond	Cost of Bond

3	Added cost for additional 5 million	$ 6,692.00
	dollar umbrella

4	Added cost for Builders Risk	$ 4,700.00

5	Added cost for drawing change to be
	determined and added in per
	change order

	Total for additions	$ 48,580.00			$ 2,626,612.00

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Contract Allowances:

	Description	Change Order	Change Order	Allowances	Totals
		Add ons	Deductions
	Allowances:
1	Base Bid allowance for steel pipe			3780 lf 16" Pipe - $ 79,950.00
	any deviation from these allowances			5781 lf 12" Pipe - $124,291.00
	will become a deductive or additive			7733 lf 10" Pipe - $134,550.00
	change order will be given upon			Total Allowance = $ 338,391.00
	purchase of pipe			Formula: (Act.Cost - Base Bid) = Cost
				or deduct

2	Base Bid allows for 1 ft of insulation			JT# = Joint Number
	on each end of 24" used pipe for a			JTL = Joint length
	total of 2 ft per joint. A deductive or			Payment to be made using this
	additive change order will be issued			formula:
	upon measurement of each joint.			(JTL lf - 2ft) x $37.15/lf = Cost or deduct


3	Base Bid allows for no repairs to			Payment will be made using the
	insulation damages on the 24" used			following formula:
	pipe. An additive change order will			sq ft of repair x $10.51 = Cost
	be issued upon measurement
	of each repair

4	Base Bid did not allow for any pipe			Formulas:
	deviation from horizontal. Any			24" mitered joints x $1,382.00 = Cost
	deviation from horizontal that			16" mitered joints x $987.00 = Cost
	requires a mitered joint, will be paid			12" mitered joints x $736.00 = Cost
	for on an as need basis.			10" mitered joints x $680.00 = Cost

5	Base Bid allowed for 16" used pipe			Possible Credit
	and assumed each joint would be			$ 1,770.00
	required to be beveled. If new pipe
	is purchased a credit will be given.
	(59 joints)

6	Base Bid allowed for new 12" pipe. If			Possible Add
	used pipe is purchased joints will			$ 4,140.00
	have to be beveled. (138 joints)

7	Base Bid allowed for new 10" pipe.			Possible Add
	If used pipe is purchased joints will			$ 5,910.00
	have to be beveled. (197 joints).

8	Any value engineering ideas that result
	in savings will be split 50/50 between
	contractor and owner

REV A

Payment Schedule:

Raft River Geothermal Power Plant									Date:
									Industrial Builders
					2611		Billing Period: May
							Application No
ITEM NO.	DESCRIPTION OF WORK	UNT	SCHEDULED VALUE	WORK COMPLETED		STORED MAT'L	TOTAL COMPLETED		BALANCE TO FINISH	10% RETAINAGE
ITEM NO.	DESCRIPTION OF WORK	UNT	SCHEDULED VALUE	PREV. APP.	THIS APP.	STORED MAT'L	TO DATE	%	BALANCE TO FINISH	10% RETAINAGE
	Mobilization (NTP)	1	$50,000.00						-

	Limited Mobilization	1	$50,000.00		$50,000.00		$50,000.00	100%	-	$5,000.00

	Survey	1	$30,000.00

	Clear & Grub	6	$62,000.00

	Submittals	1	$10,000.00

	Bonds & Insurance	1	$24,612.00

	Supports - Fabricate	576
	Purchase Materials	1	$100,000.00
	Prefabricate & Deliver	576
	PP to Branch Connection
	Well 7	97	$60,000.00
	Well 6	79	$50,000.00
	Well 1	44	$20,000.00
	Well 2	140	$40,000.00
	Well 3	178	$120,000.00
	Well 4	38	$17,000.00

	Supports - Install
	PP to Branch Connection
	Well 7	97	$60,000.00
	Well 6	79	$50,000.00
	Well 1	44	$20,000.00
	Well 2	140	$50,000.00
	Well 3	178	$130,000.00
	Well 4	38	$17,000.00

	Shoes
	Purchase Material	1	$35,000.00
	Prefabricate & Deliver
	PP to Branch Connection
	Well 7	97	$25,000.00
	Well 6	79	$20,000.00
	Well 1	44	$10,000.00
	Well 2	140	$30,000.00
	Well 3	178	$45,000.00
	Well 4	38	$10,000.00

	Purchase Pipe	1	$340,000.00

	Purchase Valves & Fittings	1	$90,000.00

	Install Pipe, Shoes, Valves & Fittings
	PP to Branch Connection
	Well 7 24"	7268	$200,000.00
	Well 7 16"	1288	$50,000.00
	Well 6	2460	$80,000.00
	Well 1	1676	$35,000.00
	Well 2	4880	$60,000.00
	Well 3	5726	$100,000.00
	Well 4	1009	$30,000.00

	Construct Road Crossings	6	$50,000.00

	Construct Bridge & Set	1	$50,000.00

REV A

Payment Schedule (Continued):

Raft River Geothermal Power Plant									Date:
									Industrial Builders
					2611		Billing Period: May
							Application No
ITEM NO.	DESCRIPTION OF WORK	UNT	SCHEDULED VALUE	WORK COMPLETED		STORED MAT'L	TOTAL COMPLETED		BALANCE TO FINISH	10% RETAINAGE
ITEM NO.	DESCRIPTION OF WORK	UNT	SCHEDULED VALUE	PREV. APP.	THIS APP.	STORED MAT'L	TO DATE	%	BALANCE TO FINISH	10% RETAINAGE
	Mobilization (NTP)	1	$50,000.00						-
									Date:
	Insulate Pipe
	Well 7 24"		$15,000.00
	Well 7 16"		$21,000.00
	Well 6		$40,000.00
	Well 1		$35,000.00
	Well 2		$100,000.00
	Well 3		$135,000.00
	Well 4		$21,000.00

	Insulate Joints	6
	PP to Branch Connection		$5,000.00

	Hydro Test	6	$20,000.00

	As- Builts		$2,000.00

	O & M Information		$2,000.00

	Demobilization		$10,000.00


	Total		$2,626,612.00

REV A

EXHIBIT B

GANTT CHART

EXHIBIT C1

PIPELINE SYSTEM CRITERIA AND PROJECT SCOPE

1.0	INTRODUCTION	57

2.0	BASIS OF PLANT OPERATION	57

3.0	DESIGN CONDITIONS	57

4.0	CODES AND STANDARDS	59

5.0	GENERAL PROJECT SCOPE REQUIREMENTS	61

6.0	MECHANICAL DESIGN AND CONSTRUCTION	63

7.0	CIVIL AND STRUCTURAL DESIGN	75

8.0	SUBMITTALS	77

9.0	PERFORMANCE TESTING AND ACCEPTANCE	78

10.0	PLANT OPERATIONS AND MAINTENANCE MANUALS	79

1.0 INTRODUCTION

1.1	This document provides the Project Scope and specifications to be used by the Contractor in performing the Work under the Contract.

1.2	The Project Scope does not include design of pipeline systems, or guarantying the performance of the system related to the pipeline design.

1.3	The Contractor shall furnish materials, equipment and services required to procure, construct, precommission and test a geothermal pipeline system with a 30 year design life (the Project Scope).

1.4	The Project Scope is necessary to support a nominal 13.3 MW power plant provided by others.

1.5	The following definitions are applicable to this document.

	•	Project Scope – the work of the Contractor described in this document, comprising the pipelines and equipment systems that together will deliver geothermal fluid from the production wellheads to the power plant and from the power plant to the injection wellheads.

	•	Supplier – refers to a vendor or manufacturer that supplies material to the project under contract to the Contractor or Company.

2.0 BASIS OF PLANT OPERATION

2.1

The power plant will be designed for an annual average availability of 97% (8,497 hours per year). Scheduled overhauls shall occur once every 2-years for up to 7 days per occurrence. Unscheduled outages during the year are anticipated not exceed 15 days during each two year period. The Project Scope shall be constructed to exceed this reliability standard so as not to reduce the power plant availability.

3.0 DESIGN CONDITIONS

3.1

The Raft River Geothermal Power Plant, Unit 1, is located approximately 40 miles southeast of Burley, Idaho, which is the county seat. Existing assets at the project location include geothermal production wells, injection wells, and monitoring wells. The project location involves an area of approximately two square miles, out of the six square miles of U.S. Geothermal owned and leased land. The entire project is located in Township 15 South, Range 26 East, Boise Meridian, Cassia County, Idaho. Facilities by section numbers are provided in the following table

Facility	Section
Standby well RRG-5	22
Production wells RRG-1, RRG-2 and RRG-4	23
Power plant unit #1	23
Production well RRG-3 Injection wells RRG-6 and RRG-7	25

	3.2	The elevation of the power plant and well sites vary from 4818 to 4890 feet above mean sea level.

	3.3	The site is located in Seismic Zone C, as defined by the International Building Code. Seismic design for all new buildings and structures that are regularly occupied shall be in accordance with the IBC for earthquake with an importance factor of 1.0.

	3.4	Weather data is as follows:

Ambient Weather Conditions – Based on Malta Agrimet data	Drybulb Temperatures
Annual average temperature	48ºF
Average temperature, coldest month in year	29ºF
Minimum winter temperature	-30ºF
Temperature, warmest month in year
	Average	71ºF
	1 ^st SD	85ºF
	2 ^nd SD	99ºF
Maximum summer temperature	111ºF
Precipitation and Storms	2.0 in. per 24 hours
Maximum monthly average rainfall	1.64 in. (May)
Maximum rainfall in one hour	1.0 in.
Design rainfall	100 year storm event having a 24-hour duration (2.6 inches) per NOAA data

Lightning storms	Common in summer
Average annual rainfall	11 inches
Wind	Approximately 10 mph
Maximum wind velocity (gusts)	90 mph per IBC
Design wind pressure	IBC, 90 mph, Exposure C,
Snow	29 pounds per square foot per IBC
Frost Depth per IBC	24 inches
Climate Zone per IBC	14B

4.0 CODES AND STANDARDS

	4.1	The design, manufacture and erection of pipeline and equipment systems shall be in accordance with governing Codes and Standards current at the time of contract award.

	4.2	The Contactor shall comply with all applicable local, state and federal requirements.

	4.3	The detailed design of each system and equipment specification shall contain reference to the specific code or standard to which the item is designed. In general, the following Codes and Standards should apply.

	4.4	Any conflict between codes shall be referred to Company’s Representative for resolution.

	Standard	Description

	AASHTO	American Association of State Highway and Transportation
		Officials
		American Concrete Institute
		Building Code Requirements for Reinforced Concrete (ACI
	ACI	318)
		Building Code Requirements for Concrete Masonry Structures
		(ACI 531-79)

		American Institute of Steel Construction
	AISC	Specification for the design, fabrication and erection of
		structural steel for buildings.

	ANSI	American National Standards Institute
	API	American Petroleum Institute
	ASCE	American Society of Civil Engineers
		American Society of Mechanical Engineers
		Boiler and Pressure Vessel Code, Sections II, VIII, IX
	ASME	Power Test Codes, as applicable
		Power Piping Code B31.1
		American Society of Testing & Materials
	ASTM	Material Specifications as applicable
		Sampling and Testing Standards as applicable
	AWS	American Welding Society
	AWWA	American Water Works Association
	EPA	Environmental Protection Agency
		Factory Mutual System
	FM	Handbook of Industrial Loss Prevention
		Factory Mutual Approval Guide
		Loss Prevention Data
	IBC	International Building Code
	MSS	Manufacturers Standardization Society
	OSHA	Occupational Safety and Health Act, (Latest Edition)
	SSPC	Structural Steel Painting Council
	TEMA	Tubular Exchanger Manufacturers Association
	TIMA	Thermal Institute Manufacturers Association
	UBC	Uniform Building Code
		NOTE: See also “IBC”
		Underwriters Laboratories, Inc.
	UL	UL Product Lists (where not FM listed)
	UMC	Uniform Mechanical Code

5.0	GENERAL PROJECT SCOPE REQUIREMENTS

	5.1	Introduction

		The criteria presented herein shall apply to the Project Scope for a pipeline system having a design life of 30 years. The work shall include all labor, supervision, material and equipment necessary to provide and install a system of pipelines in accordance with this document and the Drawings and General Notes included in the Contract. Generally, the Project Scope consists of providing a complete pipeline system to deliver geothermal fluid from four production wells to the power plant, and to provide a complete pipeline system to deliver cooled geothermal water from the power plant to two injection wells.

		In general, Project Scope under this work shall include but not be limited to providing the following: Pipeline work; Providing and installing all pipe supports, including surveying, earthwork, concrete, and support pipe and steel; Hauling Company supplied pipe from Company’s onsite storage yard to the point of use along the pipeline routes; Installing all Company supplied 24-inch insulated pipe, or in the event the 24- inch pipe is not supplied by Company, providing and installing all Contractor supplied 24-inch pipe; Installing all Company provided 10 and 12-inch production pipe, or in the event the pipe is not supplied by Company, providing and installing Contractor supplied 10 and 12-inch production pipelines from wells RRG-1, RRG-2, RRG-3 and RRG-4 to the power plant site Installing all Company provided 16-inch injection pipe, or in the event the pipe is not supplied by Company, providing and installing Contractor supplied 16-inch injection pipes from the branch connection to injection wells RRG-6 and RRG-7; Providing and installing all 10, 12, 16 and 24-inch diameter pipe fittings for both new and used pipe including elbows, Tee’s, reducers and other fittings as needed; Providing and installing all insulation for all contractor supplied pipe and fittings; Providing all insulation and materials needed to patch or repair Company supplied 24-inch pipe; Providing all materials and constructing roadway crossings at all locations identified by the Company in the drawings, or thereafter; Providing materials and constructing a bridge structure crossing the Raft River; and, Providing and installing drain pipes and valves Providing and installing block valves Providing and installing drain, vent and instrumentation isolation valves

	Proving and installing pressure relief valves and pipe Providing and installing bypass piping and valves Providing and installing all fittings to ensure a complete system

5.2	Work by Others

	5.2.1	Preparation of “Drawings and General Notes” for the pipeline, and preparation of “Issued for Construction” pipeline drawings;

	5.2.2	Topographic map of site with two foot contours;

	5.2.3	Identification of buried transite pipeline routes

	5.2.4	The design and construction of the power plant including the power plant substation;

	5.2.5	Wellhead work, including flow control valves, instrumentation, wiring, lube oil system, seal/cooling water system, nitrogen bubbler system, electrical equipment and connections, well sheds, grounding system and freeze protection will be provided by Company.

	5.2.6	Pipeline lowpoint drain ponds;

	5.2.7	Operating and environmental permits;

	5.2.8	Flushing, and cleaning of the pipeline after mechanical completion, per Owner specified procedures. Water for the hydrostatic testing will be provided by the Company, and is assumed to come from local irrigation wells;

	5.2.9	Company will pay for or provide all construction and startup water;

	5.2.10	Design and construction of the transmission line from Bridge Substation to the power plant, including work within the Bridge Substation;

	5.2.11	Design and construction of the distribution line from the power plant to the well sites, including installation of pole mounted 34.5/4.16 kV transformers and disconnects, and 34.5kV/240V/120V pole mounted transformers at well sites;

	5.2.12	Installation of production pumps at wells RRG-1, RRG-2, RRG-3 and RRG-4;

	5.2.13	Installation of fire water pipeline from DOE water tank to power plant; and,

	5.2.14	Installation of the raw water supply system.

5.3	Project Scope Tie-In Points

	5.3.1	Production wells

		5.3.1.1	12-inch 400 series API flange on discharge of pump flow tee

		5.3.1.2	3-inch 2000 API valves

	5.3.2	Injection well and well pad tie-ins

		5.3.2.1	12-inch 400 series API flange at the top of the injection wellhead valve

	5.3.3	The power plant site

		5.3.3.1	Production pipeline to the power plant, ending with a blind flange.

		5.3.3.2	Injection pipeline from the power plant, beginning with a blind flange.

6.0	MECHANICAL DESIGN AND CONSTRUCTION

	Reasonable provisions for performance of routine and nonscheduled maintenance and for expected upset conditions will be included in the design prepared by Owner’s Engineer. The design of the equipment and the pipeline system will anticipate and accommodate planned and unplanned shutdowns and trips of portions of the well and pipeline system, or of the entire system.

	6.1	Piping Design and Construction

		6.1.1	Design Standards

			All brine piping design and construction will be conducted in accordance with the standards set forth in ASME B31.1

			Other services shall be designed according to the appropriate code.

			All brine piping shall be designed and constructed to minimize water hammer such as installing a minimum flow recirculation/startup bypass at each production pump discharge. Operating procedures, including startup, must address operating without creating water hammer.

		6.1.2	Design Conditions

			The design conditions for the pipelines are provided in Table 6.1-1:

Description	Normal	Temperature	Normal	Design	Pressure
	Temperature	Max	Operating	Pressure	Max
		(for <5% of	Pressure		(for <5%
		operation life)			of
					operation
					life)

ANSI 600	300ºF	310ºF	150 psig	1000 psig	1200 psig

Wellhead to FCV

ANSI 300	300ºF	310ºF	150 psig	120% of	120% of
				24” line	des. Press
All other pipe except
24” injection line				(420 psig)	(500 psig)

ANSI 300	170ºF	310ºF	250 psig	350 psig	120% of
					des. Press
24” injection line
					(500 psig)

	6.1.3	Pressure Relief

		Over-pressure protection shall be supplied by rupture discs and/or relief valves. Any relief valve in brine service must be installed with a rupture disk below the relief valve to protect the valve from scaling. A “witness” method, such as a ½” vent pipe with a ball valve, must be provided to allow a failed rupture disc to be detected. Pressure relief devices must be piped to a sump or a safe location.

		All piping upstream of the power plant inlet valve shall be protected by relief valves on the individual production pipelines.

		Piping downstream of the power plant shall be protected by relief valves set to the design pressure of the pipeline to be determined by the Owner’s Engineer. If the injection pumps are not operating, the production pipeline relief valves can be included in the pressure relief design of the injection pipeline.

	6.1.4	Pipeline sizes

		Line sizes and wall thicknesses for the principal system piping is indicated Table 6.1-2.

Table 6.1 -2: Pipeline Size and Support Requirements

Pipe Class and Flanges	Designation and Uses	Design Pressure (psig)	Nominal Pipe Diameter & Grade ¹	B31.1 Minimum Wall Thickness	Corrosion Allowance	Nominal Wall Thickness & Schedule ²	Minimum Wall Thickness ³ (pipe and fittings)
ANSI 600	Wellhead Pipe Pump to FCV	1000 psig	12.75” A-106 Grade B, Seamless	0.4140”	1/16”	0.562” Schedule 60	0.492”
			10.75” A-106 Grade B, Seamless	0.3490”	1/16”	0.500” Schedule 60	0.438”
		All	3.00” A-53 Grade B ERW,	0.1331”	1/16”	0.300” Schedule 80	0.263”
ANSI 300	Standard Line Pipe FCV to power plant	42 0 psig	24.00”	0.3079”	1/32”	0.3750”	0.3392”

¹ Where A-53 Grade B ERW is specified, A-106 Grade B may be substituted.

² Nominal Wall Thickness based on a plus or minus 12.5% mill tolerance.

³ Minimum Wall Thickness to be calculated after subtraction of mill tolerances (if any).

• Injection line, except Special Thin Wall 24” • Injection line supplied by Contractor in lieu of Company supplied pipe	(20% Occasional Load Case)	API 5L B, DSAW			Std. Wall
	Design Case	18.00” A-53 Grade B ERW	0.2926”	1/32”	0.375” Std. Wall	0.328”
	Design	16.00” A-53 Grade B ERW	0.2601”	1/16”	0.375” Std. Wall	0.328”
		12.750” A-53 Grade B ERW	0.2073”	1/16”	0.375” Std. Wall	0.328”
		10.750” A-53 Grade B ERW	0.1748”	1/16”	0.365” Std. Wall	0.319”
		6.625” A-53 Grade B ERW	0.1077”	1/16”	0.280” (6” Nom. Pipe) Std. Wall	0.245”
		4.500” A-53 Grade B ERW	0.0732”	1/16”	0.237” (4” Nom. Pipe) Std. Wall	0.207”
		3.500” A-53 Grade B ERW	0.0 569”	1/ 16”	0.216” (3” Nom. Pipe)	0.189”

						Std. Wall
			2.375” A-53 Grade B ERW Seamless	0.0386”	1/16”	0.218” (2” Nom. Pipe) Schedule 80	0.191”
ANSI 300	Special Heavy Wall • Stress reducer at key fittings	420 psig	24.00” A-53 Grade B ERW	0.438”	1/16”	0.500” Extra Strong	0.438”
			18.00” A-53 Grade B ERW	0.438”	1/16”	0.500” Extra Strong	0.438”
			16.00” A-53 Grade B ERW	0.438”	1/16”	0.500” Extra Strong	0.438”
			12.75” A-53 Grade B ERW	0.438”	1/16”	0.500” Extra Strong	0.438”
			10.75” A-53 Grade B ERW	0.438”	1/16”	0.500” Extra Strong	0.438”
			6.625” A-53 Grade B ERW	0.3780”	1/16”	0.500” Extra Strong	0.3780”
			4.500” A-53 Grade B ERW	0.337”	1/16”	0.337” Extra Strong	0.295”
			3.500”	0.262”	1/16”	0.300”	0.262”

			A-53 Grade B ERW			Extra Strong
			2.375” A-53 Grade B ERW	0.0386”	1/16”	0.218” (2” Nom. Pipe) Schedule 80	0.191”
ANSI 300	Special Thin Wall provided by Company	350 psig	24.00” API 5L B, DSAW	0.3079”	1/32”	0.3750” Std. Wall	0.3392”

6.1.5	Routing Routing of the principal piping is indicated in the drawings included in Exhibit C2 of the contract. Any deviation from the indicated route shall be submitted for approval to the Company.

6.1.6	Pipe Support Any deviations from this requirement must be submitted to Company for approval prior to final design documents being issued for construction.

	6.1.6.1	Above-ground pipe will be supported in pipe racks or “T” supports or other permanent support designs. “Sleeper” supports set on the ground shall not be used.

	6.1.6.2	Pipe supports shall be designed and installed to prevent the accumulation of standing water that could lead to corrosion and thinning of the structural steel. This includes the accumulation of water inside pipe supports.

	6.1.6.3	Pipe support designs are depicted in drawing 5021-33-01.

6.1.7	Stress Analysis Stress analysis shall be performed by the Owner’s Engineer per ASME B31.1. Stress will be reduced via horizontal expansion loops, offsets or expansion joints. Vertical expansion loops are not allowed. Use of expansion joints is allowed, upon approval of design and specification details by Company. It is not the Contractors responsibility to perform a stress analysis.

6.1.8	Insulation and Freeze Protection

	6.1.8.1	General: Contractor shall provide thermal insulation for all pipelines 4” and larger, and all valves installed in pipelines.

	6.1.8.2	Production pipelines: The insulation system shall provide the equivalent insulation to the R-value provided by at least 3 inches of fiberglass with an aluminum jacket.

	6.1.8.3	Injection pipeline: The insulation system shall provide the equivalent insulation to the R-value provided by at least 1 inch of fiberglass with an aluminum jacket

	6.1.8.4	Pipeline Flanges: Fixed insulation shall be brought to within eighteen inches (18”) of any pipeline flange. A removable insulation jacket shall be provided for all flanged connections and/or in-line valves.

	6.1.8.5	One inch of insulation shall be provided for all lines 2" and under which are exposed to winter temperatures below freezing and which cannot be drained during shutdowns or are stagnant during normal operations. Exposed dead legs over 2” are not allowed.

	6.1.8.6	Materials of Construction for Insulation:

Fiberglass, mineral wool, calcium silicate, polyurethane foam, and other materials suitable for the design temperatures are allowed. Asbestos shall not be used.
Fiberglass and mineral wool shall be 4 lb/ft^3 density.
Backing paper shall high temperature resistant, and shall be non-bleach, chloride free.
Insulation shall be secured to the pipeline with galvanized or stainless steel wire, with a minimum of two sets of tie- down wires per insulation material width.
All insulation from the production pump to 3’ downstream of the flow control valve shall be calcium silicate to prevent damage from maintenance and operation activities over the life of the project.
Jacketing shall provide the necessary moisture and weather protection for the particular insulation. If no jacket is required for long-term protection of the insulation, then it is not required by this specification. Paint may be used if the only weather protection required is UV blocking.
Alumimum jacketing shall be 0.016” min. thickness for 16” diameter and under piping.
Aluminum jacketing shall be 0.020” min. thickness for piping greater than 16” diameter.
Jacketing shall be secured with stainless steel screws and sealed with high temperature silicon chalking of insulation industry grade. All jacketing edges shall be sealed, including gores sections for fittings.
Should banding be used over the jacketing, bands shall be 304L stainless steel, spaced on 18” centers, and shall be ½” in width. Bands shall match the external color of the jacketing.

	6.1.9	Isolation Requirements

		The piping system shall be designed by the Owner’s Engineer to be appropriately isolated for maintenance from all sources of energy such as the main geofluid line and the well. Acceptable isolation methods are double block and bleed or an isolation valve with a dropout spool. Drop out spools must be accessible from ground level or a working platform.

	6.1.10	Metering runs

		Wherever a flow meter is required, the piping shall be laid out to meet ASME and ISA meter run requirements. Per these specifications, there shall be sufficient straight pipe upstream and downstream of the meter based on the elbow configuration at the inlet and outlet of the meter run.

		The inside diameter of the pipe shall be measured to 0.001 inches prior to construction of the meter run.

	6.1.11	Materials of Construction

6.1.11.1	General:

	Piping materials shall be suitable for geothermal service and conform to ASME B31.1. No copper or copper bearing alloys shall be allowed to contact geothermal fluids. Pipelines carrying geofluids shall have corrosion allowances as specified in Table 6.1-2 (Pipeline Size and Support Requirements).

6.1.11.2	Pipe:

		Pipe materials shall be as specified in Table 6.1-2 (Pipeline Size and Support Requirements).

		Used pipe may be substituted for new pipe, upon written approval of Company.

6.1.11.3	Pipe Fittings : Carbon steel, ASTM A-234 Gr WPB butt welded. Miter joints are not allowed. 5D radius (minimum) bends are permitted. Small bore fittings shall be socket weld, 3000 pound, ASTM A-105.

6.1.11.4	Gate Valves : Flanged, raised face, wedge, ASTM A-216 Gr WCB cast steel bodies, OS&Y and bolted bonnets. Valve trim shall have a proven 10 year service life in similar geothermal service, for example stellite or 316 sealing surfaces and 17-4 PH valve stem. Valve specifications shall be submitted to Company for approval and verification prior to order by Contractor.

6.1.11.5	Check Valves : Carbon steel, ASTM A-216 Gr WCB, swing type with bolted bonnet.

6.1.11.6	Pressure Relief Valves : Valve specifications shall be submitted to Company for approval and verification prior to order by Contractor.

6.1.11.7	Flanges : Raised faced, ASTM-105. Small bore flanges shall be socket weld.

6.1.11.8	Gaskets : Spiral wound, 304 stainless steel with grafoil filler.

6.1.11.9	Stud Bolts : ASTM A-193 Gr B7 with heavy hex nuts (ASTM A-194 Gr 2H).

	6.1.11.10	Drain Valves : Shall be a minimum of 2 inches, unless otherwise specified.

	6.1.11.11	Expansion Joints: If used shall be high-alloy or annealed austenitic stainless and designed to withstand or protected against infrequent water-hammer events.

	6.1.11.12	Pipe Supports : New pipe or used pipe may be used. Pipe shall be ASTM A-53 Grade B or API 5L Grade B or equivalent as approved by Company.

	6.1.12	Preoperational System Cleaning

		Prior to placing in operation, the piping system shall be cleaned by the Company according to the Contractor’s specification. Contractor shall submit cleaning procedure to Company for approval prior to starting construction. Cleaning procedure shall use any of a combination of air, water, geothermal brine or geothermal steam. Cleaning energy shall be equivalent to a liquid flow velocity of 20 feet per second. The pipeline flush will be conducted by the Company as described in Section 9.2.

6.2

Layout Requirements

6.2.1

All pipe shall be sloped to drain to the following locations:

Unit 1 power plant drain sump
Crook well drain sump

The pipeline will be installed with a nominal top of pipe support elevation to be between 18” and 36” in height. Pipe support height can vary to provide a constant slope between horizontal changes in direction (PI’s) and avoid vertical breaks (VPI’s) in the slope as much as practical. Pipeline PI’s are shown on the drawings. VPI’s will be determined in the following sequence:

	1.	Contractor to provide surveyed elevation of ground profile at 200-foot intervals and at grade breaks

	2.	Owner’s Engineer will determine vertical alignment using contractor data.

field Pipe support heights taller than 48” must be submitted to the owner for engineering review related to the piping loads on these supports prior to installation.

Drain sumps will be provided by the Company at the Unit 1 power plant site, Crook well drain sumps located along the northern edge of Section 26 on each side of the Raft River, and along the production pipe from RRG-2 south of the county road crossing.

	Except as otherwise noted on the drawings, all drain pipes and valves shall be 2-inch.

6.2.2	Maintenance and operation access must be maintained to the wellhead pipeline valves, instruments, and the wellhead sheds. Maintenance access includes:

	•	The ability to drive a service vehicle next to the equipment
	•	Ability to remove any at grade pump or control valve with a 5-ton crane.

6.3	Not used

6.4	Not used

6.5	Utility Systems

	6.5.1	Waste Disposal

		Toxic or hazardous waste discovered at the site must be immediately reported to the Company so that it may arrange for proper removal and disposal. Contractor shall handle all toxic or hazardous wastes generated in the course of construction in accordance with applicable laws and regulations. There is existing buried transite pipe in the well field. To facilitate the Contractor’s work under this Work, prior to the start of construction, the Company shall located transite pipe crossing locations.

	6.5.2	Painting and Coatings

		Manufactured equipment and valves supplied under this contract shall be painted in accordance with Supplier's standard practice with due consideration for the operating environment and temperature. Factory applied painting is required with repair of construction damage prior to mechanical completion.

		A two coat paint system (one prime and one finish coat) per Company approved paint supplier shall be applied to pipe supports in irrigated fields and adjacent to roads. Surface preparation prior to primer application shall be to near white blast per SSPC.

7.0	CIVIL AND STRUCTURAL DESIGN 7.1 Geotechnical Report

	A geotechnical soils investigation and analysis has been conducted to establish foundation design parameters. The report, prepared by CH2M Hill, dated October 2005, and entitled Geotechnical Report, consists of summary information from drill 17 borings. Twelve of the borings were along the pipeline routes and five were in the power plant area.

7.2	Civil Work Criteria

	7.2.1	Clearing and Grubbing

		Areas through sagebrush shall be cleared and grubbed only as necessary for the performance of work and subsequent operation and maintenance. Removed organic materials shall be removed from the work area.

	7.2.2	Earthwork

		Excavation along pipeline routes shall be to the dimensions and limits as indicated on the Drawings and General Notes. Excavation for all other work shall conform to good engineering and construction practice.

		Backfill shall be compacted in accordance with good engineering and construction practices. Compaction under or adjacent to load bearing structures shall be to a minimum of 95% of the maximum laboratory dry density. All other areas shall be compacted to a minimum of 90% dry density.

	7.2.3	Site Preparation

		Areas not required for plant operation and construction shall remain natural. Efforts shall be made to minimize damage to natural areas and especially farmland. Excessive or unnecessary damage to farmland may be charged to Contractor at applicable lease rates. Erosion control for storm drainage during the construction phase shall be implemented in accordance with the Storm Water Pollution Prevention Plan. An area within the project site will be provided for construction trailers and activities. After completion, these areas shall be regraded, and made free and clear of debris and unused construction material.

		Buried irrigation pipelines shall be identified and protected. The direct and indirect costs to repair damages to such pipelines shall be the responsibility of the Contractor.

	7.2.4	Roads

		The Contractor shall provide permanent access roads along pipeline routes in sagebrush areas. The roads shall be graded after construction and

		cleared of debris to 10’ from edge of pipeline supports. Surfacing of the roads is not required.

		Access roads through farmland are for construction only and shall be graded to conform with farm contours in order for the land to be returned to farm use at the end of construction.

		Loading over culverts and pipes shall be in accordance with AASHTO- HS20-44.

	7.2.5	Storm Water Control

		Runoff control from storm water shall conform to the approved Storm Water Pollution Prevention Plan, which shall be the responsibility of the Contractor to obtain, if required.

7.3	Civil/Structural Materials and Design

	7.3.1	Concrete

		•	Unless specified to the contrary in the Drawings, concrete design compressive strengths shall be as follows:

	Use	f’c
	All structural concrete	4,000 psi
	Pipe support concrete	2,900 psi
	Electrical duct encasement and	2,000 psi
	lean concrete backfill

	•	Compressive strength (f’c) refers to strength at 3 days.

7.3.2	Reinforcing Steel

	Bar sizes No. 3 through No. 18 shall be deformed billet steel, conforming to ASTM Designation A615, Grade 60.

	Spirals shall be deformed bars conforming to ASTM A82. Welded wire fabric shall conform to ASTM A185.

7.3.3	Anchor Bolts

		Anchor bolt steel, washers, and nuts, shall conform to ASTM A307, A-36 or A-193. Allowable stress on anchor bolts shall be 20,000 psi based on net tensile stress area of bolts. Headed stud anchor bolts shall conform to ASTM A-108.

	7.3.4	Structural Steel

		Structural steel shall be designed in accordance with latest edition of AISC and IBC. All bolted connections shall have a minimum of two 3/4 inch diameter high strength bolts. All high strength bolt connections shall be bearing type connections.

		Structural steel shapes and plates shall conform to ASTM A36 or A572, Grade 50.

		Structural pipe members shall conform to ASTM A53, Types E or S, Grade B or ASTM A106, Grade A.

		Allowable stresses in structural steel shall be determined in accordance with the AISC code, 9th Edition.

		All high strength bolts, nuts and washers shall conform to ASTM A325. All other bolts and nuts shall conform to ASTM A307, Grade B. All filler metal shall conform to AWS D1.1.

8.0	SUBMITTALS

The Contractor shall submit to the Company and the Company's Engineer information describing the equipment and pipeline materials in a timely manner, such that the schedule for design and construction of the facility shall not be delayed. The Contractor shall, as a minimum, submit to the Company the following information:

8.1	The Company shall have the right to review and comment on the following documents in addition to those referenced in other parts of the contract.

		Contractor Quality Control Procedures
		Contractor's Site Safety and Security Program
		Mechanical Completion, Inspection and Test Procedures and Results
		Operation and Maintenance Manuals

8.2	The Company shall be provided with the following:

		Vendor Submittals including Shop Drawings, Catalog Cuts, Construction Procedures and Scheduling Information
		Vendor Guarantees

		System Test and Start-up Procedures, Test Packages

8.3	The sequence of submission of all submittals shall be such that all information is available for checking each submittal when it is received. Within seven (7) days after receipt, unless as otherwise agreed upon for critical items, the Company will return two copies of the submittals with comments.

8.4	The submittals shall be accompanied by a letter of transmittal identifying the documents submitted.

8.5	Drawings.

	8.5.1	General

		All drawings, and Instruction Books shall be in the English language and all dimensions and units of measurements shall be in the United States standard units.

	8.5.2	Drawing Quality

		The submittal shall have every line, character, and letter or symbol clearly legible.

	8.5.3	Scale Required

		All drawings shall be drawn accurately to a scale sufficiently large to show all pertinent features. Dimensions shown on all drawings shall be in feet and inches.

9.0	PERFORMANCE TESTING AND ACCEPTANCE

	9.1	General

		Prior to final acceptance, the pipeline system shall be inspected and tested for completion, conformance to the contract, specifications and design documents. This testing shall be conducted per governing codes and by protocols and procedures described in this document or agreed to between the Parties. Completion is achieved when all pipelines and support systems have been installed, all insulation has been installed, and the Contractor tests outlined below have been successfully completed, and the system is ready for operations.

		Contractor Tests - As a minimum the following tests shall be successfully completed by the Contractor:

			Pipeline hydrostatic test

			Visual weld inspection by a Certified Weld Inspector (CWI) of all pressure containing welds as required by ASME B31.1 visual inspection requirements.
			Pipeline radiography will be provided by the Contractor whenever radiographic results of tests paid for by the Owner fail. For each failed test the Contractor shall pay for two additional tests of welds from the same welder.

		Owner Tests – The Owner shall have the right to check any Contractor welds using radiography to be paid for by the Owner. Owner testing will be limited to no more than 10% of all Contractor circumferential butt welds. Tests will include:

			Each welder shall have their first (4) welds radiographed. These will be included as part of the 10% radiography requirement.
			Interpretation of the radiography will be per ASME B31.1, by a CWI.

	9.2	Company’s Scope for Completion

		The following work will be conducted by the Company:

			Pipeline flush and cleaning

10.0	PLANT OPERATIONS AND MAINTENANCE MANUALS

	10.1	Operations and Maintenance Manuals Contractor shall provide detailed system and equipment instructions from the Contractor’s equipment suppliers. The contractor shall supply five (5) copies of the instruction books for all equipment incorporated in the work specified herein to the Company. These shall give complete and detailed installation and operation instructions, with particular emphasis on sequence and methods to be used in future maintenance, disassembly, and reassembly. Special precautions, sequence of work, recommendations on methods of assembly, and adjustment of all parts requiring adjustment shall be covered in detail. Parts catalogs and other data shall be included for easy identification of parts for ordering replacements. The above requirements shall be assembled together with three sets of all major drawings reduced to or copied onto 11 inch by 17 inches paper and bound in a permanent, strong, and serviceable cover without folding the drawings. Instruction books as a minimum shall include as required the following:

	10.1.1	Recommended methods for assembly and adjustment of all parts requiring assembly or adjustment, including bearings.

	10.1.2	Recommendation on equipment installation, including special precautions and sequences of work.

	10.1.3	Detailed operating instructions consistent with the operation and maintenance provisions provided or required by the various equipment suppliers as a condition of their warranty obligations.

	10.1.4	Recommended maintenance procedures including required test and calibration intervals.

	10.1.5	Test and calibration procedures for all devices including test equipment connection drawings.

	10.1.6	Equipment storage and hydrostatic testing details shall be provided by the Contractor.

	10.1.7	Complete weld maps for the project depicting:

	Welder/Fitter ID for fit up.

		Supervisor ID for fit up approval.
		Date for fit up of the joint.

	Welder ID for hot and root pass.

		Supervisor ID and Inspector ID for approval.
		Weld procedure employed.
		NDE methods and approval.
		Date for root and hot pass.

	Welder ID for fill and cap.

		Supervisor ID and Inspector ID for approval.
		Weld procedure employed.
		NDE methods and approval.
		Date for root and hot pass.

The above can be submitted in notebook form. The above data must refer to the specific weld ID as shown on the weld map drawings submitted by the Contractor.

EXHIBIT C2

DRAWINGS AND GENERAL NOTES

Drawings and general notes provided as separate documents.

EXHIBIT D

PERFORMANCE TEST PROTOCOLS

Protocols to be agreed to between Parties prior to hydrostatic testing.

EXHIBIT E

WARRANTY CLAIM PROCEDURES

1. Where Company has agreed in accordance with the terms of the Contract to take corrective action, and upon notifying Contractor as set forth in Section 10.3.1 of the Contract, Company may undertake corrective action, but Contractor reserves the right to investigate and determine the eligibility of such warranty claim.

2. Company shall notify Contractor in accordance with Section 10.3.1 of the Contract and provide documents per paragraph 3 below together with a written cost estimate of the corrective action required. As soon as reasonably possible following the receipt of said documents and cost estimate, Contractor shall investigate the defect and shall issue written instructions to Company on the corrective action to be undertaken, or Contractor shall undertake corrective action by its own employees or agents.

3. The following procedures shall be observed in all Contractor warranty claims for the Facility in connection with which Company taken corrective action at Contractor’s request as identified in paragraph 1 above:

(a) A failure report, which shall contain technical and logistic information sufficiently detailed to enable Contractor to assess the damage to the Work and to evaluate appropriate corrective action in the form as agreed to by Company and Contractor, shall be provided by Company as soon as reasonably practicable after the occurrence of any event giving rise to a warranty claim.

(b) Warranty claims shall be submitted in accordance with paragraph (d) below, and shall include, as a required minimum, the following documents:

(i) Applicable failure report;

(ii) List of equipment and materials purchased or used in accomplishing the repair, schedule of operations and subcontractors hours applicable to each claim, and a copy of any internal work orders or purchase orders prepared in connection with each such claim;

(iii) Company’s maintenance and repair records with respect to the equipment for which the claim is being made (Company shall include with such maintenance and repair records the manufacturer/vendor part number and serial number and the identification by part number and serial number of the next major assembly call-out (such as, but not limited to, turbine, generator, electrical cabinet)); and

(iv) copies of invoices received or prepared for costs and expenses claimed.

The documentation to be provided pursuant to paragraphs (b)(ii) and (b)(iii) above, shall be in a form reasonably acceptable to Contractor.

(c) All warranty claims pertaining to failure of the equipment for which Company has independently undertaken corrective action during any calendar month shall be submitted to Contractor on or before the last day of the following calendar month. Claims shall be paid by Contractor on a net 30 basis. Work performed by Company under a warranty claim shall be billed on a “time and material” basis as defined below:

(d) “Time and Material” in connection with a warranty claim is defined as follows:

(i) With respect to “Time”, the product of one hundred fifteen percent (115%) of the normal hourly wage (including fringe benefits, insurance and taxes) Company pays with respect to its particular employee (not including overhead) multiplied by the number of hours each employee performed the particular Work.

(ii) With respect to “Material”, one hundred ten percent (110%) of the actual purchase price paid by Company or an affiliate to a third party for the materials incorporated or consumed in connection with the Work; and

(iii) With respect to Work performed by a subcontractor (other than an entity which directly or indirectly controls, is controlled by, or is under common control with, Company, Work done by any such entity being deemed Work done by Company through its own employees for purposes of this definition), one hundred ten percent (110%) of the actual amount paid by Company to the subcontractor for such Work.

(e) Accounting settlement between Company and Contractor due to warranty claims shall occur on a quarterly basis.

(f) Company shall maintain adequate records to support all warranty claims and allow Contractor to audit warranty claims upon no less than ten (10) Days period notice.

EXHIBIT F

APPROVED VENDOR LIST

Equipment Item	Name of Supplier/Vendor
Geothermal Pipe (Used or Limited Service)	Mill Man Steel, Inc

EXHIBIT G

PERMITS

This Exhibit G defines the current scope and allocation of permitting and contracting work for the Project. Contractor is responsible for only the permits expressly designated below as being the responsibility of Contractor; Company is responsible for obtaining all other Project related permits.

PERMITS & CONTRACTS	Prepare by and responsibility party
Conditional Use Permit	Company

Pipeline road crossing easements (from highway district)	Company/RRREC
Private land lease & easements	Company
County Building Permit	Contractor
Storm Water Pollution Prevention Plan (containment plan during construction)	Contractor
Storm Water Pollution Prevention Plan (containment plan during operation)	Company
Idaho Power Certifications	Company

EXHIBIT I

CERTIFICATE OF FINAL COMPLETION

US Geothermal, Inc.
1509 Tyrell Lane, Suite B
Boise, ID 83706
Attn: Daniel Kunz

With reference to the CONSTRUCTION CONTRACT (the “Contract”) dated as of _________________between RAFT RIVER ENERGY I LLC (“Company”), and _____________________________(“Contractor”) for construction of the unit number one Raft River Geothermal Project pipeline and equipment in Cassia County, Idaho, Company hereby confirms and certifies that the requirements of the Contract for Final Completion set forth in the Section 4.7 of the Contract have been achieved as of _____________, 200_. Attached hereto is a list of the Punchlist Items submitted by Contractor for approval by Company pursuant to Section 4.9 of the Contract.

Terms defined in the Contract shall have the same meaning when used herein.

Executed this ____ day of ________________, 200__.

_____________

By: _________________________________
Name: ______________________________
Title: _______________________________

AGREED:

US Geothermal, Inc.

By: ______________________

Name: ______________________

Title: ______________________

Date Signed: ______________________

EXHIBIT J

FORM OF FINAL LIEN WAIVER

WAIVER OF LIENS/RELEASE
AND CERTIFICATE OF FINAL PAYMENT

With reference to the Construction Contract (“Contract”) dated as of ________________between the undersigned, ____________________________, (“Contractor”) and RAFT RIVER ENERGY I LLC. (“Company”) for construction of the unit number one Raft River Geothermal Power Project pipelines and equipment in Cassia County, Idaho, Contractor hereby certifies and represents that it has made, or will make, when due, full payment of all costs, charges and expenses incurred by it or on its behalf for work, labor, services, materials and equipment supplied to the foregoing premises and/or used in connection with its work under the Contract with respect to the Facility, other than any thereof for which payment has been requested in the invoice of even date herewith.

Contractor hereby covenants that it will require each of its subcontractors and material suppliers to make full payment of all costs, charges and expenses incurred by them or on their behalf for work, labor, services, materials and equipment supplied to the foregoing premises and/or used by them in connection with the undersigned’s work under the Contract with respect to the Facility, other than any thereof for which payment has been requested in the invoice of even date herewith.

In consideration of ____________________Dollars ($__________) as final payment under the Contract for work performed by Contractor as of _________, 200_, Contractor, upon receipt of such final payment hereby unconditionally releases and forever discharges Company and Company’s premises and property from all claims, liens and obligations of every nature arising out of or in connection with the payment of the aforesaid final payment except as set forth below:

(Note: If none, write “NONE” in space above. Any claims excepted must be described and the specific amount claimed must be set forth.)

As additional consideration for the aforesaid final payment, Contractor, upon receipt of such payment agrees to indemnify and hold harmless Company from and against all costs, losses, claims, causes of action, judgments and expenses, including attorney’s fees arising out of or in connection with claims against Company, which claims arise out of the performance of the work under the Contract with respect to the Facility and which may be asserted by Contractor or any of its Subcontractors or any of their representatives, officers, agents or employees except for those claims listed above.

The foregoing shall not relieve Contractor of its obligations under the provisions of the Contract, which by their nature survive completion of the work including, without limitation, warranties, guarantees and indemnities.

Executed this __________________day of ________________________, _____.

_________________

By: ______________________________
NAME: ___________________________
TITLE: ___________________________

EXHIBIT K

LIQUIDATED DAMAGES

Delay Liquidated Damages

Delay Liquidated Damages shall be paid by Contractor to Company, based on the number of days between the Final Completion Date and the Guaranteed Final Completion Date, as set forth in the following table.

.If the Final Completion Date does not occur on or before the Guaranteed Final Completion Date, then Contractor shall pay to Company liquidated damages calculated as the sum of the amount set forth below for each Day that the Final Completion Date is after the Guaranteed Final Completion Date during the period between the Guaranteed Final Completion Date and the Final Completion Date:

DESCRIPTION	DELAY LIQUIDATED DAMAGES
Final Completion Date prior to Guaranteed Final Completion Date	No Delay Liquidated Damages
Final Completion Date 0 to 15 Days after Guaranteed Final Completion Date	Delay Liquidated Damages payment waived by Company
Final Completion Date 16 to 45 Days after Guaranteed Final Completion Date	$1000 per day
Final Completion Date from 46 days after Guaranteed Final Completion Date until April 30, 2007	The total damages from above plus $1,200 per day after day 45.
Final Completion Date from May 1, 2007 to September 30, 2007	The total damages from above plus $4,300 per day after May 1, 2007
Final Completion Date after October 1, 2007	The total damages from above plus $7,100 per day after October 1, 2007

The cap on liquidated damages shall be limited to One Million Dollars ($1,000,000).

EXHIBIT L

CHANGE ORDER FORM

Change Order Log

Contract Labor Rates:





Description	*Craft*	*Craft Overtime*	*Laborer*	*Laborer Overtime*


Hourly rate	$25.00	$37.50	$14.00	$21.00
Benefits	$6.25	$5.50	$3.50	$3.50
Subsistance and travel	$5.00	$5.00	$5.00	$5.00
Subtotal	$36.25	$48.00	$22.50	$29.50

Workmans Comp	$1.52	$2.01	$0.94	$1.23
Liability Insurance	$0.53	$0.70	$0.33	$0.43
Subtotal	$2.04	$2.71	$1.27	$1.66

Total	$38.29	$50.71	$23.77	$31.16

Small tools and consumables	$2.00	$3.00	$1.12	$1.68


Total Hourly Cost	$40.29	$53.71	$24.89	$32.84

Labor Markup at 15%	$6.04	$8.06	$3.73	$4.93

Total Hourly Rate	$46.34	$61.76	$28.62	$37.77

EXHIBIT M

CHANGE ORDER REQUEST FORM

EXHIBIT N

WORK ITEMS PRIOR TO NOTICE TO PROCEED

Initiation of following list of contractor work items was requested by the Contractor to be commenced upon signing the contract. The purpose is to allow the Contractor to get started with work prior to issuance of the Notice to Proceed, which is anticipated on or before June 1, 2006. As agreed by the Parties, commencement of the following items of work is allowed per issuance of a Limited Notice to Proceed. As further agreed, funding in the amount of $50,000 will be made available for work under this exhibit to compensate Contractor for expenses from the Limited Notice to Proceed until issuance of the Notice to Proceed.

	1.	We need CAD files for our surveyor. Can we get from the Engineer so he can begin his layout?

	2.	Get surveyor started. Write P. O. and get time slot. He is currently 2 to 3 weeks behind. We can forward elevations to Engineers to establish elevations of supports.

	3.	Get storm water prevention permit started and applied for.

	4.	According to Thorton if we can get the line staked he will start clearing and grubbing in his spare time and then be ready when we get on site

	5.	Industrial Builders to Mobilize on site. Set up trailers and utilities as needed. Set up laydown area where we will not interfere with future construction of Plant.

	6.	Set up living accommodations. Try to get set up with motel in Malta or trailer spaces for RV’s.

	7.	Establish and finalize schedule- Sequence of pipe line construction

	8.	Put down payment on production auger to hold.

	9.	Set up jig and mock up supports and mock up shoes etc.

	10.	Paint color for supports- (Tan-?)

	11.	Set up weld charts for project and establish Q.C. procedures with MTI

	12.	Establish Safety procedures

	13.	Establish RFI procedures

	14.	Establish monthly meeting dates

	15.	Establish schedule of values

INDEPENDENT AUDITORS’ CONSENT

We consent to the use in the Registration Statement of U.S. Geothermal Inc. on Form SB-2 of our Independent Auditors’ Report, dated June 16, 2005, on the consolidated balance sheet of U.S. Geothermal Inc. and subsidiaries as at March 31, 2005, and the related consolidated statements of operations, cash flows, and stockholders’ equity for the year ended March 31, 2005, and for the period from February 26, 2002 (date of inception) to March 31, 2004.

In addition, we consent to the reference to us under the heading “Interests Of Named Experts And Counsel” in the Registration Statement.

Vancouver, Canada	“Morgan & Company”

September 29, 2006	Chartered Accountants

Tel: (604) 687-5841		P.O. Box 10007 Pacific Centre
Fax: (604) 687-0075		Sute 1488 - 700 West Georgia Street
www.morgan-cas.com		Vancouver, B.C. V7Y 1A1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders of
U.S. Geothermal Inc.
(A development stage company)

We have audited the accompanying consolidated balance sheet of U.S. Geothermal Inc. (a development stage company) and its subsidiaries as of March 31, 2005 and the related consolidated statements of operations and comprehensive loss, cash flows, and stockholders’ equity for the year then ended, and for the cumulative period from February 26, 2002 (date of inception) to March 31, 2005. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as at March 31, 2005, and the consolidated results of its operations and its cash flows for the period indicated in conformity with accounting principles generally accepted in the United States.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectives of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered losses since inception, has not attained profitable operations and is dependent upon obtaining adequate financing to fulfil its development activities. These factors raise substantial doubt that the Company will be able to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Vancouver, Canada	“Morgan & Company”

September 29, 2006	Chartered Accountants

Tel: (604) 687-5841		P.O. Box 10007 Pacific Centre
Fax: (604) 687-0075		Sute 1488 - 700 West Georgia Street
www.morgan-cas.com		Vancouver, B.C. V7Y 1A1

Board of Directors
US GEOTHERMAL INC.
Boise, ID 83706

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use of our report dated June 23, 2006, on the financial statements of US Geothermal Inc. as of March 31, 2006 and the period then ended, and the inclusion of our name under the heading "Experts" in the Form SB-2 Registration Statement filed with the Securities and Exchange Commission.

Williams & Webster, P.S.
Spokane, Washington

September 27, 2006