The deal still must be approved by PSE’s board of directors and by the eight cities and water districts belonging to the Cascade Water Alliance.

Assuming that happens, Pierce County’s largest lake would become a drinking water source for east King County, including Bellevue and the Sammamish Plateau.

Terms of the proposed sale were not released.

News of the tentative pact appears to dim the hopes of the three nearby cities of Bonney Lake, Sumner and Auburn to buy Lake Tapps. In September they offered PSE $35 million cash up front, but the company declined because it had an exclusive agreement to negotiate with the alliance.

Sumner Mayor Dave Enslow said nothing is certain at this point.

“When PSE cashes the check, then it will be a done thing,” he said.

Last week the mayors of the three cities wrote Gov. Chris Gregoire to say they were still interested in buying the lake. They also argued that local ownership and management would be best for the region.

Alliance executive director Michael Gagliardo said Tuesday that his organization is ready to work with the Pierce County cities on water needs, lake management and recreational water levels.

He said the sale is for cash at closing and would include an agreement with Puget Sound Energy to manage the lake for three to five years.

“Each board member is having their attorney review it,” Gagliardo said, adding that he expects a final vote by the alliance board in the next two months.

Puget Sound Energy has owned the lake and its water system for hydroelectric power for nearly 100 years. Spokesman Roger Thompson said the power company “is optimistic a transaction” can be concluded, although it might not close until next fall, he said.

Under terms of PSE’s earlier negotiating agreement with the alliance, a possible $37 million sale price would include $10 million up front and $27 million at closing. The alliance also would take over PSE’s application to the state for a water right to Lake Tapps.

In their letter to Gregoire, the three local cities urged her to consider local communities before issuing a water right.

Securing that right is important because the alliance needs some certainty of water before it makes a major investment in pipelines and a treatment plant.

The Department of Ecology issued a water right to PSE in 2003 as a hydroelectric project. The next year, PSE shut down its power plant, and the state has been reviewing that water right as a resource for the Alliance.

Tom Loranger, who is overseeing the process for the department, said he expects a final water right to be issued to the alliance this year. The proposal would allow 100 cubic feet per second of water to be diverted from the White River into the lake, for a total of about 65 million gallons per day.

Mike Archbold: 253-597-8692