Raft River Energy I LLC
Financial Statements
December 31, 2009

	PricewaterhouseCoopers LLP 1300 SW Fifth Avenue Suite 3100 Portland OR 97201 Telephone (971) 544-4000 Facsimile (971) 544-4100

Report of Independent Auditors

To the Members of Raft River Energy I LLC:

In our opinion, the accompanying balance sheets and the related statements of operations, of cash flows and of members' equity present fairly, in all material respects, the financial position of Raft River Energy I LLC at December 31, 2009 and November 28, 2008, and the results of its operations and its cash flows for the fiscal years ended December 31, 2009, November 28, 2008 and November 30, 2007 and for the one-month period ended December 26, 2008 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 4 to the financial statements, the Company has entered into significant transactions with certain related parties.

/s/ PricewaterhouseCoopers LLP

March 31, 2010

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* - See change in fiscal year-end, Note 9

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

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* - See change in fiscal year-end, Note 9

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

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* - See change in fiscal year-end, Note 9

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

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* - See change in fiscal year-end, Note 9

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

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NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Raft River Energy I LLC (the "Company") is a limited liability company organized in the State of Delaware by U.S. Geothermal Inc. on August 18, 2005, for the purpose of constructing and operating a geothermal power plant located near Malta, Idaho. The Company’s power plant is considered to be phase I of a Raft River, Idaho geothermal project expected to consist of three phases. As defined in the Membership Admission agreement, the Company is owned by U.S. Geothermal Inc. and Raft River I Holdings LLC, which is a Delaware limited liability company that is a subsidiary of The Goldman Sachs Group Inc. (collectively referred to as “the members”). As defined in the Management Services Agreements, U.S. Geothermal Services LLC, (a wholly owned subsidiary of U.S. Geothermal Inc.) is the Company’s Operator.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Method

The Company’s financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) which have been consistently applied.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at their estimated net realizable value. The Company has considered the economic conditions, historical trends, contractual terms and financial stability of its major customer when calculating an allowance for uncollectible accounts. At each fiscal year end, management determined that all accounts receivable were collectible and an accrual for an allowance for doubtful accounts was not necessary. Uncollectible accounts are removed when they are deemed uncollectible. Recovered bad debts are recorded as income in the period collected.

Allocation of Profits and Losses

The Company utilizes the hypothetical liquidation at book value method (“HLBV”) for allocating profits and losses. This method utilizes the specific terms outlined in the entity’s organizational contracts and other authoritative documents. These terms include cash disbursement terms, associated financial instruments, debt arrangements, and rights to specific revenue streams.

According to the operating agreement, upon liquidation and, after payment of all outstanding debts, any remaining funds would be distributed to the Members in accordance to their positive capital account balance ratio. Certain contract provisions contain allocation of profit and loss items to arrive at the capital account balances. See Note 8.

Cash and Cash Equivalents

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

Concentration of Risk

The Company’s cash and cash equivalents consisted of commercial bank deposits and a money market account. All cash equivalents are held in a commercial bank located in Boise, Idaho. Deposits held in the regular checking account are subject to Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 (level extended through December 31, 2013). The Company’s cash deposits, at December 31, 2009, totaled $190,591 ($110,591 was not subject to FDIC insurance). The money market funds, at December 31, 2009, totaled $20,266, and were not subject to FDIC insurance.

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Contributed Capital and Membership Structure

Agreements between U.S. Geothermal Inc. and Raft River Holdings LLC were completed for construction financing of Phase I of the Raft River project. To accommodate the construction financing, U.S. Geothermal, Inc. sold 50% of its ownership in the Company to Raft River Holdings in August 2006, with U.S. Geothermal Inc. owning 500 Class B member units and Raft River Holdings owning 500 Class A member units.

As of December 31, 2009, U.S. Geothermal Inc. has contributed $17,953,640 ($17,504,708, net of distributions of $448,932) in cash and property to the project, while Raft River I Holdings LLC has contributed $34,143,100 ($33,943,416, net of distributions of $199,684) in cash. Profits and losses have been allocated according to the HLBV method. See Note 8.

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.

Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts receivable-related party, 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.

Impairment of Long-Lived Assets

The Company evaluates its long-term assets annually for impairment, or when circumstances or events occur that may impact the fair value of the assets. The fair value of geothermal property is primarily evaluated based upon the present value of expected cash flows directly associated with those assets. An impairment loss would be recognized if the carrying amount of a capitalized asset is not recoverable and exceeds its fair value. Management believes that there have not been any circumstances that have warranted the recognition of losses due to the impairment of long-lived assets as of December 31, 2009, December 26, 2008, November 28, 2008 and November 30, 2007.

Inventory

Inventory consists of supplies and replacement parts needed to maintain the power plant and are not intended for resale. Upon purchase, items are recorded at cost and maintained at the lesser of cost or fair market value. Inventory items are charged to operations in the period they are utilized.

Lease Arrangements

Arrangements which potentially convey the right to use property, plant, or equipment for a stated period of time are analyzed in accordance with financial reporting pronouncements that address determining whether an arrangement contains a lease to assess whether they should be accounted for as leases. For any arrangements that are found to meet the definition of a lease, an assessment is made as to whether they are capital leases or operating leases in accordance with accounting standards.

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Property, Plant and Equipment

Costs of acquisition of geothermal properties are capitalized on a geothermal reservoir basis. If a geothermal reservoir is abandoned, the costs thereof are charged to income in the year of abandonment. Property, plant and equipment are recorded at historical cost. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset. Major improvements that significantly increase the useful lives and/or the capabilities of the assets are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred.

Estimated useful lives by asset categories are summarized as follows:

Revenue

Revenue Recognition

Energy Sales

The Company’s primary operating revenue originates from electrical power generated by the Company’s geothermal power plant. The revenue is recognized when the power is produced and delivered to the customer who is reasonably assured to be able to pay under the terms defined in the Power Purchase Agreement (PPA).

Renewable Energy Credits

Revenues from Renewable Energy Credits (“RECs”) are recognized when the Company has met the terms of certain energy sales agreements with a financially capable buyer and has met the applicable governing regulations. The Company earns one REC for each megawatt hour produced from the geothermal power plant. Each REC is certified by Western Electricity Coordinating Council (“WREGIS”) and sold under a REC Purchase and Sales Agreement.

Revenue Source

All of the Company’s energy sales are received from one major power company that, primarily, operates in the State of Idaho. All of the power generated originates from the one power plant that utilizes a geothermal reservoir located in southeastern Idaho. Over 99% of the accounts receivable balance at each fiscal year end represented a balance due from one major customer.

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Recent Accounting Pronouncements

Subsequent Events

The FASB has established general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued, as follows:

• The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements;
• The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and
• The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

This standard is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. Subsequent events have been evaluated through March 31, 2010, which is the date the financial statements were issued.

Codify Accounting Standards

The FASB has established the FASB Accounting Standards Codification (“ASC”) as the single source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”) recognized by the FASB to be applied by nongovernmental entities, effective for financial statements issued for interim and annual periods ending after September 15, 2009. The ASC supersedes all existing non-SEC accounting and reporting standards and is referenced in all disclosures. All other non-grandfathered non-SEC accounting literature not included in the codification will become non-authoritative.

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, are detailed as follows:

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At December 31, 2009, construction in progress consisted of pre-drilling costs. At November 28, 2008, construction in progress consisted of costs of construction of the reverse osmosis system to remove caustic particulate matter from the cooling water.

NOTE 4 - RELATED PARTY TRANSACTIONS

The amounts payable to U.S. Geothermal Inc. and U.S. Geothermal Services, LLC as of December 31, 2009 and November 28, 2008, were $572,832 and $161,858; respectively. The amounts payable are unsecured and due on demand. U.S. Geothermal Inc. is the managing member of the Company. U.S. Geothermal Services, LLC is a wholly owned subsidiary of U.S. Geothermal Inc.

At December 31, 2009, the Company had a balance of $26,935 receivable from USG Oregon, LLC which is a wholly owned subsidiary of U.S. Geothermal Inc. The receivable resulted from a sale of drilling mud at the original purchase price. The balance was paid in full in January 2010.

The Company’s related party transactions are summarized as follows:

Management Services Agreement

The Company has entered into a management services agreement with U.S. Geothermal Services, LLC (“Management Company”) effective August 9, 2006, to provide certain management and operating services. The contract terminates upon the earlier of mutual agreement of the contracting parties or August 9, 2028. The quarterly management fee starts at $62,500, and in addition there is incentive payments linked to certain performance targets. If the Company, after considering any amounts set aside by the Owner as operating or other reserves, shall not be sufficient to pay all costs and expenses necessary to operate and maintain the facility in a particular month, the payment of all or a portion of the management fee shall be deferred without accruing interest.

The actual management fee is subject to contracted adjustments based upon financial performance of the Company calculated on a semi-annual basis. In the event that actual results exceed expected results a bonus shall be earned. For the first $10,000, where by the actual results exceeds the expected results, the bonus shall equal the product of the difference multiplied by 10%. If the difference between the actual results and the expected result is more than $10,000, the second component shall equal the product of the difference multiplied by 50%. The second component bonus amount shall not exceed $20,000. In the event that expected results exceed actual results the management fee shall be reduced. If the difference between the expected results and actual results is less than or equal to $175,000, then the management company shall pay the absolute value of the difference multiplied by 10%. If the difference between the expected results and actual results is in excess of $175,000, then the management company shall pay the Company the amount equal to absolute value of the difference in excess of $175,000.

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The Company paid U.S. Geothermal Services, LLC management services for the fiscal periods as follows:

Well Field Lease Contract

On November 2, 2006, the Company signed a lease contract with a primary term of 20 years for the groundwater rights needed for cooling purposes at the Facility payable to U.S. Geothermal Inc. (“lessor”). The annual rate of $90,000 is based upon the facility’s expected needs of 900 acre feet per annum (“a.f.a.”) ($10,000 per 100 a.f.a). Based upon the needs of the facility and proper notice given by the lessor, the contract allows for an increase in the amount of water available for lease according to the noted rate. The payments are due annually within ten business days following the anniversary of the (“placed in service”) date. The initial placed in service date was January 3, 2008, which is the date the facility became commercially operational. During the fiscal year ended November 28, 2008, the Company paid the lessor the “initial rent payment” of $90,000 due for the period of time from the contract date to the initial placed in service date, as well as an additional $74,475 for current year lease costs.

The schedule of estimated lease payments for the primary contract term is as follows:

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NOTE 5 - COMMITMENTS AND CONTINGENCIES

Operating Lease Agreements

The Company has entered into several lease agreements with terms expiring up to December 1, 2033, for geothermal properties adjoining the Raft River Geothermal Property, which includes the ground lease related to the power plant. The schedule of estimated annual lease payments is as follows:

*The schedule includes the expected annual related party well field lease payments described in Note 4.

The terms of the management services agreement and the well field lease contract are described in Note 4.

Power Purchase Agreement

The Company signed a twenty year power purchase agreement dated December 29, 2004 with Idaho Power Company for sale of power generated from its planned phase one power plant. It has been determined this meets the definition of a lease arrangement under current accounting pronouncements and is accounted for as an operating lease. As there is no minimum payment, lease income will be recognized as revenue when sales of power occur.

Power Transmission

The Company has also signed a transmission agreement with Bonneville Power Administration for transmission of the electricity from this plant to Idaho Power, and a contract to sell the renewable energy credits for the first ten years to Holy Cross Energy.

NOTE 6 - MEMBERS' INTERESTS

The Company has issued two classes of member units, the Class A units and the Class B units. Each class of ownership gives the owner participating rights in the business and results in equity ownership risks. The rights attached to the different classes will vary over time, in accordance with the terms of the Membership Admission Agreement. The agreement requires the Company to track separately the capital accounts of the members after November 24, 2006. The profits and losses of the Company are allocated based upon the HLBV method as discussed in Note 2. For income tax purposes, the Class A units will receive a greater proportion of the share of losses and other income tax benefits. This includes the allocation of production tax credits, which will be distributed 99% to the Class A units and 1% to the class B units during the first 10 years of production.

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Under the terms of the Membership Admission Agreement, as of November 28, 2008, Raft River I Holdings LLC, has contributed their full obligation of $34.2 million in cash, and U.S. Geothermal Inc. has contributed $17.9 million in assets to the Company. U.S. Geothermal Inc.’s contribution consisted of $16.5 in cash and approximately $1.4 million in property. Based upon the Operating Agreement, loans made by Members to the Company shall not be considered capital contributions. Based upon the advances made to the Company by a Member shall be payable only out of the Company’s property in accordance with the terms and the conditions upon which such advances are made.

NOTE 7 – INCOME TAX

The Company is a Limited Liability Corporation that is treated as a partnership for tax purposes with each of the Members accounting for their share of the tax attributes and liabilities. Accordingly, there are no deferred income tax amounts recorded in these financial statements.

NOTE 8 – ERROR CORRECTION

After re-examining the provisions of the Membership Admission Agreement, Management determined that the profit and loss allocation method applied in the prior periods was not consistent with generally accepted accounting principles. This change is considered to be a correction of an error. To fairly allocate profits and losses between the members, the Company adopted the HLBV method. The adjustments reallocate the member equity balances as if the profits and losses had been allocated with the HLBV method from the Company’s inception. Net earnings/losses or total member’s equity balances are not affected by the reallocation.

We assessed the materiality of this error on financial statements for prior periods and concluded that the error was not material to any periods presented. Accordingly, the Balance Sheet and Statement of Members' Equity herein have been revised to correct for the cumulative amount of this error in fiscal year 2009.

NOTE 9 – FISCAL YEAR-END CHANGE

Due to changes imposed on Member A’s parent company, the Company was required to change its fiscal year-end from November to December, beginning with fiscal 2009. This change in the Company’s fiscal year-end resulted in a one-month transition period that began on November 29, 2008 and ended on December 26, 2008. Fiscal year 2009 began on December 27, 2008 and ended on December 31, 2009. Financial information for this fiscal transition period is included in these financial statements.

The following summarized financial information was presented to compare operating results for the transition period:

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