DWR Exhibit 10.1



Exhibit10.1  




OPERATING AGREEMENT


       This
OPERATING AGREEMENT (this “Agreement”) is
between the State of California Department of Water Resources
(“DWR”), acting solely under the authority and powers
granted by AB1X, codified as Sections 80000 through 80270 of the
Water Code, and not under its powers and responsibilities with
respect to the State Water Resources Development System, and
Pacific Gas and Electric Company, a California corporation
(“Utility”).  DWR and Utility are sometimes
collectively referred to herein as the “Parties” and
individually referred to as a “Party.”  Unless
otherwise noted, all capitalized terms shall have the meanings set
forth in Article I of this Agreement.


R E C I
T A L S


       WHEREAS,
under the Act, DWR has entered into a number of long-term power
purchase agreements for the purpose of providing the net short
requirements to the retail ratepayers of the State's electrical
corporations, including Utility; and 


       WHEREAS, the
Contract Allocation Order of the Commission provides that such
long-term power purchase agreements are to be operationally
allocated among the State's electrical corporations, including
Utility, solely for the purpose of causing the State’s
electrical corporations to perform certain specified functions on
behalf of DWR, as DWR’s limited agent, including dispatching,
scheduling, billing and settlements functions, and to sell surplus
energy, all as such functions relate to those certain power
purchase agreements that are operationally allocated to each
electrical corporation under the Contract Allocation Order;
and


       WHEREAS, DWR
wishes to provide for the performance of such functions under the
Allocated Contracts by Utility on behalf of DWR in accordance with
such long-term power purchase agreements as provided in this
Agreement; and


       WHEREAS,
consistent with the Contract Allocation Order, DWR will retain
legal and financial obligations, together with ongoing
responsibility for any other functions not explicitly provided in
this Agreement to be performed by Utility, with respect to each of
the Allocated Contracts and it is the intent of DWR and the Utility
that the provisions of this Agreement will not constitute an
“assignment” of the Allocated Contracts or Interim
Contracts to Utility.


       WHEREAS,
consistent with the Interim Contract Order of the Commission, DWR
expects to enter into certain Interim Contracts prior to January 1,
2003 and DWR wishes to provide for the administration of such
Interim Contracts by Utility.


       NOW,
THEREFORE, in consideration of the mutual obligations of the
Parties, the Parties agree as follows:




ARTICLE I

DEFINITIONS


       Section
1.01.  Definitions.  The following terms shall
have the respective meanings in this Agreement: 


       The
following terms, when used herein (and in the attachments hereto)
with initial capitalization, shall have the meaning specified in
this Section 1.01.  Certain additional terms are defined in
the attachments hereto.  The singular shall include the plural
and the masculine shall include the feminine and neuter, and
vice versa.  “Includes” or
“including” shall mean “including without
limitation.”  References to a section or attachment
shall mean a section or attachment of this Agreement, as the case
may be, unless the context requires otherwise, and reference to a
given agreement or instrument shall be a reference to that
agreement or instrument as modified, amended, supplemented or
restated through the date as of which such reference is made
(except as otherwise specifically provided herein).   Unless
the context otherwise requires, references to Applicable Laws or
Applicable Tariffs shall be deemed references to such laws or
tariffs as they may be amended, replaced or restated from time to
time.  References to the time of day shall be deemed
references to such time as measured by prevailing Pacific
Time.


       “
Act” means Chapter 4 of Statutes of 2001 (Assembly Bill 1
of the First 2001-02 Extraordinary Session) of the State of
California, as amended.


       “
Agreement”, means this Operating Agreement, together with
all attached Schedules, Exhibits and Attachments, as such may be
amended from time to time as evidenced by a written amendment
executed by the Parties.


       “
Allocated Contracts” means the long-term power purchase
agreements operationally allocated to Utility under the Contract
Allocation Order, without legal and financial assignment of such
agreements to Utility, as provided in Schedule 1 attached
hereto.


       “
Allocated Power” means all power and energy, including
the use of such power or energy as ancillary services, delivered or
to be delivered under the Contracts. 


       “
Applicable Commission Orders” means such rules,
regulations, decisions, opinions or orders as the Commission may
lawfully issue or promulgate from time to time, which relate to the
subject matter of this Agreement.


       “
Applicable Law” means the Act, Applicable Commission
Orders and any other applicable statute, constitutional provision,
rule, regulation, ordinance, order, decision or code of a
Governmental Authority.


       
“Applicable Tariffs” means Utility’s
tariffs, including all rules, rates, schedules and preliminary
statements, governing electric energy service to Utility’s
customers in its service territory, as filed with and approved by
the Commission and, if applicable, the Federal Energy Regulatory
Commission.


       
“Assign(s)” shall have the meaning set forth in
Section 14.01.


       
“Bonds” shall have the meaning set forth in the
Rate Agreement.


       
“Bond Charges” shall have the meaning set forth
in the Rate Agreement.


       
“Business Day” means the regular Monday through
Friday weekdays that are customary working days, excluding
holidays, as established by Applicable Tariffs.


       
“Commission” means the California Public
Utilities Commission.


       
“Confidential Information” shall have the
meaning set forth in Section 11.01(c).


       
“Contracts” means the Allocated Contracts and
the Interim Contracts.


       
“Contract Allocation Order” means Decision
02-09-053 of the Commission, issued on September 19, 2002, as such
Decision may be modified, revised, amended, supplemented or
superseded from time to time by the Commission.


       
“DWR Power” shall have the same meaning set
forth in the Servicing Arrangement with such amendments to
incorporate the Settlement Principles for Remittances and Surplus
Revenues as provided in Exhibit C of this Agreement.


       
“DWR Revenues” means those amounts required to
be remitted to DWR by Utility in accordance with this Agreement and
as further provided in the Servicing Arrangement.


       
“Effective Date” means the effective date in
accordance with Section 14.13, as such date is set forth on the
cover page hereof.


       
“Fund” means the Department of Water Resources
Electric Power Fund established by Section 80200 of the California
Water Code.


       
“Good Utility Practice” means any of the
practices, methods and acts engaged in or approved by a significant
portion of the electric utility industry during the relevant time
period, or any of the practices, methods and acts which, in the
exercise of reasonable judgment in light of the facts known at the
time the decision was made, could have been expected to accomplish
the desired result at a reasonable cost consistent with good
business practices, reliability, safety and expedition.  Good
Utility Practice does not require the optimum practice, method, or
act to the exclusion of all others, but rather is intended to
include acceptable practices, methods, or acts generally accepted
in the Western Electric Coordinating Council region.


       
“Governmental Authority” means any nation or
government, any state or other political subdivision thereof, and
any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to a government,
including the Commission.


      
“Governmental Program” means any program or
directive established by Applicable Law which directly or
indirectly affects the rights or obligations of the Parties under
this Agreement and which obligates or authorizes DWR to make
payments or give credits to customers or other third parties under
such programs or directives.


       
“ISO” means the California Independent System
Operator Corporation.


       
“Interim Contract Order” means Decision
02-08-071 of the Commission, issued on August 22, 2002, as such
Decision may be amended or supplemented from time to time by the
Commission.


       
“Interim Contracts” mean the power purchase or
exchange arrangements between DWR and various Suppliers entered
into by DWR at the request of Utility and consistent with the
Interim Contract Order, as listed in Schedule 2 attached
hereto.


       
“Order” means Decision 02-12-069 of the
Commission, issued on December 19, 2002 as such decision may be
amended or supplemented from time to time by the
Commission.


       
“Power Charges” shall have the meaning set forth
in the Rate Agreement.


       
“Priority Long Term Power Contract” shall have
the meaning set forth in the Rate Agreement.


       
“Rate Agreement” means the Rate Agreement
between DWR and the Commission adopted by the Commission on
February 21, 2002 in
Decision 02‐02‐051.


       
“Remittance” means a payment by Utility to DWR
or its Assign(s) in accordance with the Servicing
Arrangement.


      
“Servicing Arrangement” means the Servicing
Order as specified in Commission Decision 02-05-048, dated May 16,
2002.


      
“Supplier” means those certain third parties who
are supplying power pursuant to the Contracts.


      
“Term” means term provided in Section 2.05
hereof.


      
“URG” means utility-retained generation,
including without limitation Utility’s portfolio of
generation resources and power purchase agreements prior to or
after the Effective Date by Utility.


       Section
1.02.  Undefined Terms.  Capitalized terms not
otherwise defined in Section 1.01 herein shall have the meanings
set forth in the Act or the Servicing Arrangement.


ARTICLE
II

OPERATIONAL ALLOCATION OF POWER PURCHASE AGREEMENTS;

  MANAGEMENT OF THE CONTRACTS; ALLOCATED POWER;
TERM


       Section
2.01.  Operational Allocation and Management of Power
Purchase Agreements. On behalf of DWR, as its limited agent,
Utility will perform certain day-to-day scheduling and dispatch
functions, billing and settlements and surplus energy sales 
and certain other tasks with respect to the Allocated Contracts and
each Interim Contract, as more fully set forth in this
Agreement. 


       As further
provided in Contract Administration and Performance Test Monitoring
Protocols set forth in Exhibit E, DWR will continue to monitor and
audit the Supplier performance under the Contracts.  Upon
development of a mutually agreeable plan, Utility will monitor the
performance of Suppliers, as further provided in Exhibit E,
subject, however, to DWR's right but not the obligation to audit
and monitor all functions contemplated to be performed by Utility,
all as further provided in this Agreement.


       Section
2.02. Standard of Contract Management.


	
     

	
        (a)  

	
     

	
Utility agrees to perform
the functions specified in this Agreement relating to the Allocated
Contracts and prior to novation, and Interim Contracts in a
commercially reasonable manner, exercising Good Utility Practice,
and in a fashion reasonably designed to serve the overall best
interests of retail electric customers.  Utility shall provide
to DWR such information specifically provided in Exhibit F hereto
to facilitate DWR’s verification of Utility’s
compliance with this Section 2.02.








	
     

	
        (b)  

	
    

	
To the extent requested by
Utility, DWR shall provide evidence in Commission proceedings
describing Utility’s and DWR’s performance, rights and
obligations under this Agreement.








	
     

	
        (c)  

	
    

	
DWR acknowledges the
Commission’s exclusive authority over whether the Utility has
managed Allocated Power available under the Contracts in a just and
reasonable manner and DWR and Utility agree that none of the
provisions of this Agreement shall be interpreted to reduce,
diminish, or otherwise limit the scope of any Commission authority
or to give DWR any authority over such matters.








	
     

	
        (d)  

	
   

	
The Utility acknowledges
DWR’s separate and independent right to evaluate and enforce
Utility’s commercial performance under this
Agreement.








	
     

	
        (e)  

	
   

	
Utility agrees to provide
any information not otherwise required herein that is reasonably
necessary to allow DWR to exercise its rights in subsection (d)
above, provided that all such information shall be used solely for
the purposes of exercising such rights.





       Section
2.03.  Good Faith.  Each Party hereby covenants
that it shall perform its actions, obligations and duties in
connection with this Agreement in good faith.


       Section
2.04.  DWR Power.  During the term of this
Agreement, the electric power and energy, including but not limited
to capacity, and output, or any of them from the Contracts
delivered to retail end-use customers in Utility’s service
area shall constitute DWR Power for all purposes of the Servicing
Arrangement.  Utility shall arrange for transmission service
to accommodate surplus sales to the extent that transmission
service is available and cost effective, all as further provided in
Exhibit A. 


       Section
2.05.  Term.


	
    

	
      (a) 

	
     

	
The Term of this Agreement
shall commence on the Effective Date and shall terminate on the
earlier of (a) the termination of the Servicing Arrangement, or (b)
the termination of this Agreement by DWR upon ninety days’
written notice to Utility, or (c) upon consultation with the
Commission, the termination of the Agreement by DWR upon reasonable
written notice to Utility no shorter than 30 days, or (d) pursuant
to Article VII hereof, the termination of this Agreement by a
non-defaulting Party after an Event of Default.   In addition,
this Agreement will terminate as to each Contract that terminates
in accordance with its terms.  DWR agrees to notify Utility as
to the termination of each Contract as provided in Section 5.01(e)
hereof.








	
     

	
     (b) 

	
    

	
If an event occurs which
has the effect of materially altering and materially adversely
impacting the economic position of the Parties or either of them
under this Agreement, then the affected Party may, by written
notice, request that the Commission approve amendments to this
Agreement or other arrangements incidental to this Agreement as
necessary to preserve or restore the economic position under this
Agreement held by the affected Party immediately prior to such
event.  Such notice shall describe the event and shall include
reasonable particulars as to the manner and extent to which the
economic position of the Party giving notice has been adversely
affected.  The parties shall use their reasonable efforts
during a 180-day period following such notice to negotiate and
effect such amendments following which, if such efforts are
unsuccessful, upon DWR’s sole discretion, DWR may terminate
this Agreement immediately on notice.





ARTICLE
III

LIMITED AGENCY / NO ASSIGNMENT


       Section
3.01.  Limited Agency.  Utility is hereby
appointed as DWR’s agent for the limited purposes set forth
in this Agreement.  Utility shall not be deemed to be acting,
and shall not hold itself out, as agent for DWR for any purpose
other than those described in this Agreement.  Utility’s
duties and obligations shall be limited to those duties and
obligations that are specified in this Agreement.


       Section
3.02.  No Assignment.  DWR shall remain legally
and financially responsible for performance under each of the
Contracts and shall retain liability to the counterparty for any
failure of Utility to perform the functions referred to in this
Agreement on behalf of DWR as its limited agent, under such
Contracts in accordance with the terms thereof.  It is the
intent of DWR and Utility that the provisions of this Agreement
shall not constitute or result in an “assignment” of
the Allocated Contracts in any respect.


ARTICLE
IV

LIMITED DUTIES OF UTILITY


       
Section 4.01. Limited Duties of Utility as to the
Contracts.  During the Term of this Agreement, Utility
shall:


	
     

	
  (a)

	
      

	
On behalf of DWR, as its
limited agent, perform the day-to-day scheduling and dispatch
functions, including day-ahead, hour-ahead and real time trading,
scheduling transactions with all involved parties,  under the
Allocated Contracts, perform billing and settlements functions and
obtain relevant information for these functions such as
transmission availability and others, with respect to the Allocated
Contracts set forth in Schedule 1 hereto, all as more specifically
provided in the Operating Protocols attached hereto as Exhibit
A;








	
     

	
  (b)

	
      

	
On behalf of DWR, as its
limited agent, enter into transactions for the purchase (or sale,
as the case may be) of gas, gas transmission services, gas storage
services and financial hedges, and perform the operational and
administrative responsibilities for such purchases under gas
tolling provisions under the Allocated Contracts, including the
review of fuel plans and consideration of alternative fuel supply,
all as more specifically provided in the Fuel Management Protocols
attached hereto as Exhibit B;








	
     

	
  (c) 

	
     

	
On behalf of DWR, as its
limited agent, perform all necessary billing and settlement
functions under the Allocated Contracts in accordance with the
terms of the applicable Allocated Contracts.  In addition,
perform all necessary billing and settlement functions related to
DWR Revenues and remit DWR Revenues to DWR, consistent with the
Settlement Principles for Remittances and Surplus Revenues attached
hereto as Exhibit C and the Servicing Arrangement;








	
    

	
 (d)

	
   

	
Assume financial
responsibility for the ISO charges listed on Exhibit D attached
hereto;








	
     

	
  (e) 

	
    

	
On behalf of DWR, as its
limited agent, upon development of a mutually agreeable plan,
monitor the performance of Suppliers under the Allocated Contracts
and undertake the administration of the Allocated Contracts, as
more specifically provided in the Contract Administration and
Performance Monitoring Protocols attached hereto as Exhibit
E;








	
     

	
  (f) 

	
     

	
Provide to DWR the
necessary information required by DWR as more specifically provided
in the DWR Data Requirements From Utility attached hereto as
Exhibit F to facilitate DWR’s continued performance of
financial obligations related to Allocated Contracts and to
facilitate DWR’s verification, audit and monitoring related
to the Allocated Contracts and reporting requirements set forth in
Applicable Laws or agreements;








	
     

	
  (g) 

	
    

	
At all times in performing
its obligations under this Agreement (i) comply with the provisions
of each of the Allocated Contracts, (ii) follow Good Utility
Practice, and (iii) comply with all Applicable Laws and Applicable
Commission Orders;








	
     

	
  (h) 

	
    

	
Appoint a primary and
secondary contact person, as set forth in Schedule 2 hereto, to
coordinate the responsibilities listed in this Section 4.01;
and








	
     

	
  (i)  

	
    

	
On behalf of DWR, as its
limited agent, make surplus energy sales as more specifically
provided in this Agreement; and








	
     

	
  (j)  

	
    

	
Prior to novation of the
Interim Contracts by Utility in accordance with the terms of each
such Interim Contract, comply with the provisions listed in
paragraphs (a) through (i) of this Section 4.01, in each case
substituting the defined term Interim Contract(s) for the term
Allocated Contract(s).





Provided, however, in the
event that DWR fails to provide or provides inaccurate information
which results in Utility's non-compliance with its obligations
under this Agreement, the resulting non-compliance by Utility shall
not constitute an Event of Default under Section 7.01
hereof.


       Section
4.02.  Dispatch or Sale of Allocated Power. 
Subject to any existing or new ISO tariff provisions that may
affect the dispatch of such Contracts, Allocated Power from all
Contracts shall be dispatched or sold, as the case may be, by
Utility pursuant to the Operating Protocols attached hereto as
Exhibit A. 


       Section
4.03.  DWR Revenues.  DWR Revenues shall be
accounted and remitted to DWR consistent with the principles
provided in the Settlement Principles for Remittances and Surplus
Revenues attached hereto as Exhibit C and the provisions of the
Servicing Arrangement.  Unless otherwise specifically provided
in this Agreement, Utility will not be required at any time to
advance or pay any of its own funds in the fulfillment of its
responsibilities under this Agreement.


       Section
4.04.  Ownership of Allocated Power. 
Notwithstanding any other provision herein, and in accordance with
the Act and Section 80110 of the California Water Code, Utility and
DWR agree that DWR shall retain title to all Allocated Power,
including DWR Power.  In accordance with the Act and Section
80104 of the California Water Code, upon the delivery of Allocated
Power to Utility’s customers, those customers shall be deemed
to have purchased that power from DWR, and payment for such sale
shall be a direct obligation of such customer to DWR.  In
addition, Utility and DWR agree that DWR shall retain title to any
surplus Allocated Power sold by Utility as limited agent to DWR as
provided in this Agreement. 


ARTICLE
V

DUTIES OF DWR


       Section
5.01. Duties of DWR.  Consistent with the Contract
Allocation Order, during the Term of this Agreement, DWR
shall:


	
     

	
  (a)

	
     

	
Remain legally and
financially responsible under each of the Contracts and cooperate
with Utility in the transition from DWR to Utility the performance
of the functions provided in this Agreement;








	
     

	
  (b)

	
     

	
Assume legal and financial
responsibilities and enter into or facilitate Utility’s
entering into transactions as DWR’s limited agent, for the
purchase (or sale, as the case may be) of gas, gas transmission
services, gas storage services and financial hedges, and timely
consent to or approve the Utility’s performance of the
operational and administrative responsibilities for such purchases
under gas tolling provisions under the Allocated Contracts,
including the review of fuel plans and consideration of alternative
fuel supply, all as more specifically provided in the Fuel
Management Protocols attached hereto as Exhibit B;








	
     

	
  (c)

	
     

	
Pay invoices to the
Suppliers and perform all necessary verification, audit and
monitoring of the billing and settlement functions to be performed
on DWR’s behalf, as its limited agent, by Utility relating to
the Contracts and prior to novation, the Interim Contracts. 
In addition, perform all necessary verification, audit and
monitoring of the billing and settlement functions to be performed
on DWR’s behalf, as its limited agent, by Utility related to
DWR Revenues, consistent with the principles set forth in the
Settlement Principles for Remittances and Surplus Revenues attached
hereto as Exhibit C;








	
     

	
  (d)

	
     

	
Until such time as a
mutually agreed upon plan may be entered into with Utility and
approved by the Commission, and no earlier than January 1, 2004,
continue to monitor the performance of Suppliers and conduct
certain contract administration duties under the Allocated
Contracts, all as more specifically provided in the Contract
Administration and Performance Monitoring Protocols attached hereto
as Exhibit E.  In addition, continue to perform all other
administrative functions related to Contracts not explicitly
provided in this Agreement to be performed by Utility on behalf of
DWR, as its limited agent;








	
     

	
  (e)

	
     

	
Upon the termination of
any Contract, submit in writing to Utility appropriate Schedules
and Attachments to Exhibit A amended to reflect the termination of
any Contract.  Such amended Schedules and Attachments shall
become effective only upon the effective date of the termination of
such Contract.  Provided, however, rights or obligations of
the Parties that arise or relate to Utility’s performance of
its duties under this Agreement in respect of any terminated
Contract shall survive until the expiration of any such right or
obligation;








	
     

	
  (f)

	
     

	
Appoint a primary and
secondary contact person, as set forth in Schedule 3 hereto,
to coordinate the responsibilities listed in this
Section 5.01.





ARTICLE
VI

SPECIAL CONTRACT TERMS


       Section
6.01.  Special Contract Terms.  In addition to the
obligations set forth in this Agreement, Utility agrees to comply
with the terms and provisions applicable to the Interim Contracts
as set forth in Schedule 2 hereto.


ARTICLE
VII

EVENTS OF DEFAULT


       Section
7.01. Events of Default. The following events shall
constitute “Events of Default” under this
Agreement:


	
     

	
  (a)

	
     

	
any material failure by a
Party to pay any amount due and payable under this Agreement that
continues unremedied for five (5) Business Days after the earlier
of the day the defaulting Party receives written notice thereof
from the non-defaulting Party; or








	
     

	
  (b)

	
    

	
any material failure by
Utility to schedule and dispatch Contracts, consistent with the
principles set forth in Exhibit A; or








	
     

	
  (c)

	
    

	
any failure (except as
provided in (a) or (b)) by a Party to duly observe or perform in
any material respect any other covenant or agreement of such Party
set forth in this Agreement, which failure continues unremedied for
a period of 15 calendar days after written notice of such failure
has been given to such Party by the non-defaulting Party;
or








	
     

	
  (d)

	
    

	
any material
representation or warranty made by a Party shall prove to be false,
misleading or incorrect in any material respect as of the date
made; or








	
     

	
  (e)

	
    

	
an Event of Default (as
defined under the Servicing Arrangement) shall have occurred and is
continuing under the Servicing Arrangement.





       Section
7.02.  Consequences of Utility Event of Default. 
Upon any Event of Default by Utility, DWR may, in addition to
exercising any other remedies available under this Agreement or
under Applicable Law, (i) terminate this Agreement in whole or
in part; and (ii) apply in an appropriate forum for sequestration
and payment to DWR or its Assign(s) of DWR Revenues or for specific
performance of the functions related to the Contracts to be
performed by Utility on behalf of DWR, as its limited agent, as
provided in this Agreement. 


       Section
7.03.      Consequences of DWR Event of
Default.  Upon an Event of Default by DWR, Utility may, in
addition to exercising any other remedies available under this
Agreement or under Applicable Law,  request that the
Commission terminate this Agreement in whole or in part.


       Section
7.04. Remedies.  Subject to Article XIII of this
Agreement, upon any Event of Default, the non-defaulting Party may
exercise any other legal or equitable right or remedy that may be
available to it under applicable law or under this
Agreement. 


       Section
7.05. Remedies Cumulative.  Except as otherwise
provided in this Agreement, all rights of termination,
cancellation, or other remedies in this Agreement are
cumulative.  Use of any remedy shall not preclude any other
remedy available under this Agreement.


       Section
7.06. Waivers. None of the provisions of this Agreement
shall be considered waived by either Party unless the Party against
whom such waiver is claimed gives such waiver in writing.  The
failure of either Party to insist in any one or more instances upon
strict performance of any of the provisions of this Agreement or to
take advantage of any of its rights hereunder shall not be
construed as a waiver of any such provisions or the relinquishment
of any such rights for the future, but the same shall continue and
remain in full force and effect.  Waiver by either Party of
any default by the other Party shall not be deemed a waiver of any
other default.


ARTICLE
VIII

PAYMENT OF FEES AND CHARGES


       Section
8.01.  Utility Fees and Charges.  As noted in the
Contract Allocation Order, the details of the amount and recovery
of administrative costs to Utility associated with the Contracts
are expected to be considered in another Commission
proceeding.  As such, the Parties agree that the
administrative costs to Utility will be recovered pursuant to such
Commission proceeding. Utility shall enter the cost of such fees
and charges in its Purchased Electric Commodity Account, or its
successor or another account designated by the Commission on a
current basis, for recovery in retail rates subject to subsequent
Commission review.


ARTICLE
IX

REPRESENTATIONS AND WARRANTIES


       Section
9.01. Representations and Warranties.


	
     

	
  (a)

	
      

	
Each person executing this
Agreement for the respective Parties expressly represents and
warrants that he or she has authority to bind the Party on whose
behalf he or she has executed this Agreement.








	
     

	
  (b)

	
      

	
Each Party represents and
warrants that it has the full power and authority to execute and
deliver this Agreement and to perform its terms, that execution,
delivery and performance of this Agreement have been duly
authorized by all necessary corporate or other action by such
Party, and that this Agreement constitutes such Party’s
legal, valid and binding obligation, enforceable against such Party
in accordance with its terms.








	
     

	
  (c)

	
      

	
DWR represents and
warrants that all necessary and appropriate notices, inducements,
undertakings, approvals, and consents have been obtained from each
Supplier to the Contract allocated to Utility in order for Utility
to undertake its duties set forth in this Agreement in a timely and
appropriate fashion. 





ARTICLE
X

LIMITATIONS ON LIABILITY


       Section
10.01. Consequential Damages. In no event will either Party
be liable to the other Party for any indirect, special, exemplary,
incidental, punitive, or consequential damages under any
theory.  Nothing in this Section 10.01 shall limit either
Party’s rights as provided in Article VII above.


       Section
10.02. Limited Obligations of DWR. Any amounts payable by
DWR under this Agreement shall be payable solely from moneys on
deposit in the Department of Water Resources Electric Power Fund
established pursuant to Section 80200 of the California Water Code
(the “Fund”). 


       Section
10.03.  Sources of Payment; No Debt of State. 
DWR's obligation to make payments hereunder shall be limited solely
to the Fund and shall be payable as an operating expense of the
Fund solely from Power Charges subject and subordinate to each
Priority Long Term Power Contract in accordance with the priorities
and limitations established with respect to the Fund’s
operating expenses in any indenture providing for the issuance of
Bonds and in the Rate Agreement and in the Priority Long Term Power
Contracts.  Any liability of DWR arising in connection with
this Agreement or any claim based thereon or with respect thereto,
including, but not limited to, any payment arising as the result of
any breach or Event of Default under this Agreement, and any other
payment obligation or liability of or judgment against DWR
hereunder, shall be satisfied solely from the Fund.  NEITHER
THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF
CALIFORNIA ARE OR MAY BE PLEDGED FOR ANY PAYMENT UNDER THIS
AGREEMENT. Revenues and assets of the State Water Resources
Development System, and Bond Charges under the Rate Agreement,
shall not be liable for or available to make any payments or
satisfy any obligation arising under this Agreement.  If
moneys on deposit in the Fund are insufficient to pay all amounts
payable by DWR under this Agreement, or if DWR has reason to
believe such funds may become insufficient to pay all amounts
payable by DWR under this Agreement, DWR shall diligently pursue an
increase to its revenue requirements as permitted under the Act
from the appropriate Governmental Authority as soon as
practicable.  To the extent DWR’s obligations are
“administrative costs,” they will require annual
appropriation by the legislature.


       Section
10.04. Cap on Liability.  In no event will Utility be
liable to DWR for damages under this Agreement, including
indemnification obligations, whether in contract, warranty, tort
(including negligence), strict liability or otherwise (referred to
as “Damages” for purposes of this Section), in an
amount in excess of: 1) on an annual calendar year basis, $5
million plus ten percent of Damages in excess of $5 million and 2)
for the entire term of this Agreement, $50 million in total
payments of Damages to DWR.  For example, if Damages for an
event are $100 million, Utility’s total liability for this
event would be $14.5 million ($5 million plus10% of $95 million)
and that would be the full extent of Utility’s liability for
such Damages.  All Damages associated with an event will apply
only to the annual limit in the first year in which Damages for
that event were assessed.  For example, if Damages for an
event were paid as follows: $15 million in year 1 and $10 million
in year 2, the Utility would pay DWR $7 million ($5 million plus10%
of $10 million for year 1 and 10% of $10 million for year 2). 
In this example, the $1 million paid to DWR in year 2 (10% of $10
million) does not count against the year 2 $5 million calendar year
threshold.  DWR hereby releases Utility from any liability for
Damages in excess of the limitations on liability set forth in this
Section 10.04, provided however, that this limitation on Utility
liability shall not apply to the extent the liability is a result
of Utility’s gross negligence or willful
misconduct.


ARTICLE
XI

CONFIDENTIALITY


       Section
11.01.  Proprietary Information.


	
     

	
  (a)

	
     

	
Nothing in this Agreement
shall affect Utility’s obligations to observe any Applicable
Law prohibiting the disclosure of Confidential Information
regarding its customers.








	
     

	
  (b)

	
     

	
Nothing in this Agreement,
and in particular nothing in Sections 11.01(e)(x) through
11.01(e)(z) of this Agreement, shall affect the rights of the
Commission to obtain from Utility, pursuant to Applicable Law,
information requested by the Commission, including Confidential
Information provided by DWR to Utility. Applicable Law, and not
this Agreement, will govern what information the Commission may
disclose to third parties, subject to any confidentiality agreement
between DWR and the Commission.








	
     

	
  (c)

	
     

	
The Parties acknowledge
that each Party may acquire information and material that is the
other Party’s confidential, proprietary or trade secret
information.  As used herein, “Confidential
Information” means any and all technical, commercial,
financial and customer information disclosed by one Party to the
other (or obtained from one Party’s inspection of the other
Party’s records or documents), including any patents, patent
applications, copyrights, trade secrets and proprietary
information, techniques, sketches, drawings, maps, reports,
specifications, designs, records, data, models, inventions,
know-how, processes, apparati, equipment, algorithms, software
programs, software source documents, object code, source code, and
information related to the current, future and proposed products
and services of each of the Parties, and includes, without
limitation, the Parties’ respective information concerning
research, experimental work, development, design details and
specifications, engineering, financial information, procurement
requirements, purchasing, manufacturing, business forecasts, sales
and merchandising, and marketing plans and information.  In
all cases, Confidential Information includes proprietary or
confidential information of any third party disclosing such
information to either Party in the course of such third
party’s business or relationship with such Party. 
Utility’s Confidential Information also includes any and all
lists of customers, and any and all information about customers,
both individually and aggregated, including but not limited to
customers’ names, street addresses of customer residences
and/or facilities, email addresses, identification numbers, Utility
account numbers and passwords, payment histories, energy usage,
rate schedule history, allocation of energy uses among customer
residences and/or facilities, and usage of DWR Power.  All
Confidential Information disclosed by the disclosing Party
(“Discloser”) will be considered Confidential
Information by the receiving Party (“Recipient”) if
identified as confidential and received from Discloser.








	
     

	
  (d)

	
     

	
Each Party agrees to take
all steps reasonably necessary to hold in trust and confidence the
other Party’s Confidential Information.  Without
limiting the generality of the immediately preceding sentence, each
Party agrees (i) to hold the other Party’s Confidential
Information in strict confidence, not to disclose it to third
parties or to use it in any way, commercially or otherwise, other
than as permitted under this Agreement; and (ii) to limit the
disclosure of the Confidential Information to those of its
employees, agents or directly related subcontractors with a need to
know who have been advised of the confidential nature thereof and
who have acknowledged their express obligation to maintain such
confidentiality.  DWR shall not disclose Confidential
Information to employees, agents or subcontractors that are in any
respect responsible for power marketing or trading activities
associated with the State Water Resources Development
System.








	
     

	
  (e)

	
     

	
The foregoing two
paragraphs will not apply to any item of Confidential Information
if:  (i) it has been published or is otherwise readily
available to the public other than by a breach of this Agreement;
(ii) it has been rightfully received by Recipient from a third
party without breach of confidentiality obligations of such third
party and outside the context of the provision of services under
this Agreement; (iii) it has been independently developed by
Recipient personnel having no access to the Confidential
Information; (iv) it was known to Recipient prior to its first
receipt from Discloser, or (v) it has been summarized, processed
and incorporated for incorporation into reports, discussions,
statements or any other further work product.  In addition,
Recipient may disclose Confidential Information if and to the
extent required by law or a Governmental Authority, provided that
(x) Recipient shall give Discloser a reasonable opportunity to
review and object to the disclosure of such Confidential
Information, (y) Discloser may seek a protective order or
confidential treatment of such Confidential Information, and (z)
Recipient shall make commercially reasonable efforts to cooperate
with Discloser in seeking such protective order or confidential
treatment.  Discloser shall pay Recipient its reasonable costs
of cooperating.





       Section
11.02.  No License.  Nothing contained in this
Agreement shall be construed as granting to a Party a license,
either express or implied, under any patent, copyright, trademark,
service mark, trade dress or other intellectual property right, or
to any Confidential Information now or hereafter owned, obtained,
controlled by, or which is or may be licensable by, the other
Party.


       Section
11.03.  Survival of Provisions.  The provisions of
this Article XI shall survive the termination of this
Agreement.


ARTICLE
XII

RECORDS AND AUDIT RIGHTS


       Section
12.01.  Records.  Utility shall maintain accurate
records and accounts relating to the Contracts in sufficient detail
to permit DWR to audit and monitor the functions to be performed by
Utility on behalf of DWR, as its limited agent, under this
Agreement.  In addition, Utility shall maintain accurate
records and accounts relating to DWR Revenues to be remitted by
Utility to DWR, consistent with the Settlement Principles for
Remittances and Surplus Revenues set forth in Exhibit C
hereto.  Utility shall provide to DWR and its Assign(s) access
to such records.  Access shall be afforded without charge,
upon reasonable request made pursuant to Section 12.02. 
Access shall be afforded only during Business Hours and in such a
manner so as not to interfere unreasonably with Utility’s
normal operations.  Utility shall not treat DWR Revenues as
income or assets of Utility or any affiliate for any tax, financial
reporting or regulatory purposes, and the financial books or
records of Utility and affiliates shall be maintained in a manner
consistent with the absolute ownership of DWR Revenues by DWR and
Utility’s holding of DWR Revenues in trust for DWR (whether
or not held together with other monies).


       Section
12.02.  Audit Rights. 


	
     

	
  (a)

	
     

	
Upon 30 calendar
days’ prior written notice, DWR may request an audit,
conducted by DWR or its agents (at DWR’s expense), of
Utility’s records and procedures, which shall be limited to
records and procedures containing information bearing upon
Utility’s performance of its obligations under this
Agreement.  The audit shall be conducted during Business Hours
without interference with Utility’s normal operations, and in
compliance with Utility’s security procedures.








	
     

	
  (b)

	
     

	
As provided in the Act,
the State of California Bureau of State Audits (the
“Bureau”) shall conduct a financial and performance
audit of DWR’s implementation of Division 27 (commencing with
Section 80000) of the California Water Code, and the Bureau shall
issue a final report on or before March 31, 2003.  In
addition, as provided in Section 8546.7 of the California
Government Code, Utility agrees that, pursuant to this
Section 12.02, DWR or the State of California Department of
General Services, the Bureau, or their designated representative
(“DWR’s Agent”) shall have the right to review
and to copy (at DWR’s expense) any non-confidential records
and supporting documentation pertaining to the performance of this
Agreement and to conduct an on-site review of any Confidential
Information pursuant to Section 12.03 hereof.  Utility agrees
to maintain such records for such possible audit for three years
after final Remittance to DWR.  Utility agrees to allow such
auditor(s) access to such records during Business Hours and to
allow interviews of any employees who might reasonably have
information related to such records.  Further, Utility agrees
to include a similar right for DWR or DWR’s Agent to audit
records and interview staff in any contract between Utility and a
subcontractor directly related to performance of this
Agreement.





       Section
12.03.  Confidentiality.  Materials reviewed by
either Party or its agents in the course of an audit may contain
Confidential Information subject to Article XI above. 
The use of all materials provided to DWR or Utility or their
agents, as the case may be pursuant to this Article XII, shall
comply with the provisions in Article XI and shall be limited
to use in conjunction with the conduct of the audit and preparation
of a report for appropriate distribution of the results of the
audit consistent with Applicable Law.


       Section
12.04.  Annual Certifications.  At least annually,
and in no event later than the tenth Business Day after the end of
the calendar year, Utility shall deliver to DWR a certificate of an
authorized representative certifying that to the best of such
representative’s knowledge, after a review of Utility
performance under this Agreement, Utility has fulfilled its
obligations under this Agreement in all material respects and is in
compliance herewith in all material respects.


       Section
12.05.  Additional Applicable Laws.  Each Party
shall make an effort to promptly notify the other Party in writing
to the extent such Party becomes aware of any new Applicable Laws
or changes (or proposed changes) in Applicable Tariffs hereafter
enacted, adopted or promulgated that may have a material adverse
effect on either Party’s ability to perform its duties under
this Agreement.  A Party’s failure to so notify the
other Party pursuant to this Section 12.05 will not constitute
a material breach of this Agreement, and will not give rise to any
right to terminate this Agreement or cause either Party to incur
any liability to the other Party or any third party.


       Section
12.06.  Other Information.  Upon the reasonable
request of DWR or its Assign(s), Utility shall provide to DWR or
its Assign(s) any public financial information in respect of
Utility applicable to services provided by Utility under this
Agreement, to the extent such information is reasonably available
to Utility, which (i) is reasonably necessary and permitted by
Applicable Law to monitor the performance by Utility hereunder, or
(ii) otherwise relates to the exercise of DWR’s rights
or the discharge of DWR’s duties under this Agreement or any
Applicable Law.  In particular, but without limiting the
foregoing, Utility shall provide to DWR any such information that
is necessary or useful to calculate DWR’s revenue
requirements (as described in Sections 80110 and 80134 of the
California Water Code).


       Section
12.07.  Data and Information Retention.  All data
and information associated with the provision and receipt of
services pursuant to this Agreement shall be maintained for the
greater of (a) the retention time required by Applicable Law or
Applicable Tariffs for maintaining such information, or (b) three
(3) years.


ARTICLE
XIII

DISPUTE RESOLUTION


       Section
13.01.  Dispute Resolution.  Should any dispute
arise between the Parties or should any dispute between the Parties
arise from the exercise of either Party’s audit rights
contained in Section 12.02 hereof, the Parties shall remit any
undisputed amounts and agree to enter into good faith negotiations
as soon as practicable to resolve such disputes within (10)
Business Days so as to resolve such disputes, as appropriate,
within the timeframes provided under this Agreement, or as soon as
possible thereafter.  For any disputed Remittances, if such
resolution cannot be made before the remittance date, Utility shall
remit the undisputed portion to DWR.  In addition, the
disputed portion of the Remittances shall be deposited into an
escrow account held by a qualified, independent escrow
holder.  Upon resolution of such disputes, the Party that
escrowed the disputed amount shall reimburse the other Party from
the escrow account as necessary.


       Section
13.02.  ISO Settlements Disputes.  Utility shall
review, validate and verify all ISO charges/credits contained on
all ISO settlement statements, including any charges/credits
resulting from functions related to the Contracts to be performed
by Utility as provided in this Agreement.  Utility shall
inform DWR of any discrepancies and shall dispute any such
discrepancies with the ISO in accordance with the ISO’s
tariff and protocols.  Except as provided in Section 13.03, if
any ISO charge type settlement amount appearing on a Preliminary or
Final Settlement Statement (as defined in the ISO tariff) resulting
or relating to the Utility’s performance of functions related
to the Contracts under this Agreement is in dispute, it shall be
the responsibility of Utility, on behalf of DWR, as its limited
agent, to seek resolution of said dispute through the ISO dispute
resolution process as provided in the ISO’s tariff.
 


       For
disputes affecting Utility’s Remittances to DWR, including
disputes on ISO charges to non-DWR parties that would affect
Remittances to DWR, Utility shall provide to DWR: a) notification
of submission of the dispute through the ISO dispute resolution
process, identifying, among other items, the dispute type,
quantity, price and allocation; b) a copy of the submitted dispute
and all supporting data; and c) a copy of all ensuing documentation
resulting from the ongoing dispute resolution process. 
Utility shall track and validate all disputed ISO charges involving
any financial responsibility of DWR.


       Section
13.03.  Supplier Invoice Disputes.  DWR shall
continue to be responsible for all dispute resolution relating to
Supplier invoices.  In addition, except as specifically
provided in Exhibit E of this Agreement, all other contract
administration functions shall remain DWR’s
responsibility. 


       Section
13.04.  Good-Faith Negotiations.  Should any
dispute arise between the Parties relating to this Agreement, the
Parties shall undertake good-faith negotiations to resolve such
dispute.  If the Parties are unable to resolve such dispute
through good-faith negotiations, either Party may submit a detailed
written summary of the dispute to the other Party.  Upon such
written presentation, each Party shall designate an executive with
authority to resolve the matter in dispute.  If the Parties
are unable to resolve such dispute within 30 days from the date
that a detailed summary of such dispute is presented in writing to
the other Party, then either Party may, at its sole discretion,
submit the dispute to the Commission for final
resolution. 


       Section
13.05.  Costs.  Each Party shall bear its own
respective costs and attorney fees in connection with respect to
any dispute resolution process undertaken by it pursuant to this
Article.  Provided, however, DWR shall reimburse Utility all
reasonably incurred costs, including, but not limited to, in-house
and retained attorneys, consultants, witnesses, and arbitration
costs, arising from or pertaining to all disputes relating to ISO
charges/credits contained on all ISO settlement statements
resulting from the operational, dispatch and administrative
functions related to the Contracts performed by Utility on behalf
of DWR, as its limited agent, pursuant to the standards set forth
in Section 2.02 herein and consistent with the provisions of the
ISO tariff, as may be amended from time to time, including disputes
on ISO charges to non-DWR parties that would affect Remittances to
DWR.  These costs shall be recorded and invoiced in the manner
set forth in Section 8.01 hereof.


ARTICLE
XIV

MISCELLANEOUS


       Section
14.01.  Assignment


	
     

	
  (a)

	
     

	
Except as provided in
paragraphs (b) (c), (d) and (e) below, neither Party shall assign
or otherwise dispose of this Agreement, its right, title or
interest herein or any part hereof to any  entity, without the
prior written consent of the other Party.  No assignment of
this Agreement shall relieve the assigning Party of any of its
obligations under this Agreement until such obligations have been
assumed by the assignee. When duly assigned in accordance with this
Section 14.01(a) and when accepted by the assignee, this Agreement
shall be binding upon and shall inure to the benefit of the
assignee.  Any assignment in violation of this Section 14.01
(a) shall be void.








	
     

	
  (b)

	
     

	
Utility acknowledges and
agrees that DWR may assign or pledge its rights to receive
performance hereunder to a trustee or another party
(“Assign(s)”) in order to secure DWR’s
obligations under its bonds (as that term is defined in the Act),
and any such Assign shall be a third party beneficiary of this
Agreement; provided, however, that this authority to assign or
pledge rights to receive performance hereunder shall in no event
extend to any person or entity that sells power or other goods or
services to DWR.








	
     

	
  (c)

	
     

	
Any person (i) into which
Utility may be merged or consolidated, (ii) which may result from
any merger or consolidation to which Utility shall be a party or
(iii) which may succeed to the properties and assets of Utility
substantially as a whole, which person in any of the foregoing
cases executes an agreement of assumption to perform every
obligation of Utility hereunder, shall be the successor to Utility
under this Agreement without further act on the part of any of the
Parties to this Agreement; provided, however, that Utility shall
have delivered to  DWR and its Assign(s) an opinion of counsel
reasonably acceptable to DWR stating that such consolidation,
merger or succession and such agreement of assumption complies with
this Section 13.01(c) and that all of Utility’s
obligations hereunder have been validly assumed and are binding on
any such successor or assign.








	
     

	
  (d)

	
     

	
Notwithstanding anything
to the contrary herein, DWR’s rights and obligations
hereunder shall be transferred, without any action or consent of
either Party hereto, to any entity created by the State legislature
which is required under Applicable Law to assume the rights and
obligations of DWR under Division 27 of the California Water
Code.








	
     

	
  (e)

	
     

	
Notwithstanding anything
to the contrary herein, Utility’s rights and obligations
under this Agreement may be assigned to the reorganized debtor
under a plan of reorganization approved by the Bankruptcy Court for
Utility without any action or consent of either Party
hereto.





       Section
14.02.  Force Majeure.  Neither Party shall be
liable for any delay or failure in performance of any part of this
Agreement (including the obligation to remit money at the times
specified herein) from any cause beyond its reasonable control,
including but not limited to, unusually severe weather, flood,
fire, lightning, epidemic, quarantine restriction, war, sabotage,
act of a public enemy, earthquake, insurrection, riot, civil
disturbance, strike, restraint by court order or Government
Authority, or any combination of these causes, which by the
exercise of due diligence and foresight such Party could not
reasonably have been expected to avoid and which by the exercise of
due diligence is unable to overcome. 


       Section
14.03.  Severability.  In the event that any one
or more of the provisions of this Agreement shall for any reason be
held to be unenforceable in any respect under applicable law, such
unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such
unenforceable provision or provisions had never been contained
herein.


       Section
14.04.  Survival of Payment Obligations.  Upon
termination of this Agreement, each Party shall remain liable to
the other Party for all amounts owing under this Agreement. 
Utility shall continue to collect and remit, pursuant to the terms
of the Servicing Arrangement and the principles provided in the
Settlement Principles for Remittances and Surplus Revenues provided
in Exhibit C hereto and any DWR Charges billed to customers or any
DWR Surplus Energy Sales Revenues attributable to sales entered
into before the effective date of termination of the Servicing
Arrangement. 


       Section
14.05.  Third-Party Beneficiaries.  The provisions
of this Agreement are exclusively for the benefit of the Parties
and any permitted assignee of either Party and there are no third
party beneficiaries under this Agreement.


       Section
14.06.  Governing Law.  This Agreement shall be
interpreted, governed and construed under the laws of the State of
California without regard to choice of law provisions.


       Section
14.07.  Multiple Counterparts.  This Agreement may
be executed in multiple counterparts, each of which shall be an
original.


       Section
14.08.  Section Headings.  Section and paragraph
headings appearing in this Agreement are inserted for convenience
only and shall not be construed as interpretations of
text.


       Section
14.09.  Amendments.  No amendment, modification,
or supplement to this Agreement shall be effective unless it is in
writing and signed by the authorized representatives of both
Parties and approved as required, and by reference incorporates
this Agreement and identifies the specific portions that are
amended, modified, or supplemented or indicates that the material
is new.  No oral understanding or agreement not incorporated
in this Agreement is binding on either of the Parties.


       Section
14.10.  Amendment Upon Changed Circumstances.  The
Parties acknowledge that compliance with any Commission decision,
legislative action or other governmental action (whether issued
before or after the Effective Date of this Agreement) affecting the
operation of this Agreement, including but not limited to (i)
dissolution of the ISO, (ii) changes in the ISO market structure,
(iii) a decision regarding direct access currently pending
before the Commission, (iv) the establishment of other
Governmental Programs, or (v) a modification to the Contract
Allocation Agreement may require that amendment(s) be made to this
Agreement.  The Parties therefore agree that if either Party
reasonably determines that such a decision or action would
materially affect the services to be provided hereunder or the
reasonable costs thereof, then upon the issuance of such decision
or the approval of such action (unless and until it is stayed), the
Parties will negotiate the amendment(s) to this Agreement that is
(or are) appropriate in order to effectuate the required changes in
services to be provided or the reimbursement thereof.  If the
Parties are unable to reach agreement on such amendments within 60
days after the issuance of such decision or approval of such
action, either Party may, in the exercise of its sole discretion,
submit the disagreement to the Commission for proposed
resolution.  Nothing herein shall preclude either Party from
challenging the decision or action which such Party deems may
adversely affect its interests in any appropriate forum of the
Party’s choosing.


       The Parties
agree that, if the rating agencies request changes to this
Agreement which the Parties reasonably determine are necessary and
appropriate, the Parties will negotiate in good faith, but will be
under no obligation to reach agreement or to ask the Commission to
amend this Agreement to accommodate the rating agency requests and
will cooperate in obtaining any required approvals of the
Commission or other entities for such amendments.


       Section
14.11  Indemnification.


	
     

	
  (a)

	
     

	
Indemnification of
DWR.  Utility (the “Indemnitor”) shall
at all times protect, indemnify, defend and hold harmless DWR, and
its elected officials, appointed officers, employees,
representatives, agents and contractors (each, an
“Indemnified Party” or an “Indemnitee”)
from and against (and pay the full amount of) any and all claims
(whether in tort, contract or otherwise), demands, expenses
(including, without limitation, in-house and retained
attorneys’ fees) and liabilities for losses, damage, injury
and liability of every kind and nature and however caused, and
taxes (of any kind and by whomsoever imposed), to third parties
arising from or in connection with (or alleged to arise from in
connection with):  (1) any failure by Utility to perform its
material obligations under this Agreement; (2) any material
representation or warranty made by Utility shall prove to be false,
misleading or incorrect in any material respect as of the date
made; (3) the gross negligence or willful misconduct of Utility or
any of its officers, directors, employees, agents, representatives,
subcontractors or assignees in connection with this Agreement; and
(4) any violation of or failure by Utility or Indemnitor to
comply with any Applicable Commission Orders or Applicable Law;
provided, however, that the foregoing indemnifications and
protections shall not extend to any losses arising from gross
negligence or willful misconduct of any Indemnified Party.








	
     

	
  (b)

	
     

	
Obligation of
Utility. Consistent with the Contract Allocation Order,
Utility shall not, in acting as limited agent of DWR hereunder be
required to perform any obligations of any Supplier under any
Allocated Contract or to make any payments on behalf of such
Supplier or as the result of the failure of such Supplier to
perform under any Allocated Contract.








	
     

	
  (c)

	
     

	
Indemnification of
Utility. To the extent permitted by law, DWR
(“Indemnitor”) shall at all times protect, indemnify,
defend and hold harmless Utility, and its officers, employees,
representatives, agents and contractors (each, an
“Indemnified Party” or “Indemnitee”), from
and against (and pay the full amount of) any and all claims
(whether in tort, contract or otherwise), demands, expenses
(including, without limitation, in-house and retained attorneys'
fees) and liabilities for losses, damage, injury and liability of
every kind and nature and however caused, and taxes (of any kind
and by whomsoever imposed), to third parties arising from or in
connection with (or alleged to arise from on in connection
with):  (1)  any failure by DWR to perform its material
obligations under this Agreement or any Allocated Contract and,
prior to novation, any Interim Contract; (2) any material
representation or warranty made by DWR shall prove to be false,
misleading or incorrect in any material respect as of the date
made; (3) the gross negligence or willful misconduct of the DWR or
any of its officers, directors or employees, agents,
representatives, subcontractors or assignees in connection with
this Agreement; (4) any action claiming Utility failed to perform
any Supplier's obligations under a Contract; and (5) any violation
of or failure by DWR or Indemnitor to comply with any Applicable
Law; and provided, however, that the foregoing indemnifications and
protections shall not extend to any losses arising from the gross
negligence or willful misconduct of any Indemnified Party.








	
     

	
  (d)

	
     

	
Indemnification
Procedures.  Indemnitee shall promptly give notice
to Indemnitor of any claim or action to which it seeks
indemnification from Indemnitor.  Indemnitor shall defend any
such claim or action brought against it, and may also defend such
claim or action on behalf of the Indemnitee (with counsel
reasonably satisfactory to Indemnitor) unless there is any actual
or potential conflict between Indemnitor and Indemnitee with
respect to such claim or action.  If there is any actual or
potential conflict between Indemnitor and Indemnitee with respect
to such claim or action, Indemnitee shall have the opportunity to
assume (at Indemnitor’s expense) defense of any claim or
action brought against Indemnitee by a third party; however,
failure by Indemnitee to request defense of such claim or action by
the Indemnitor shall not affect Indemnitee’s right to
indemnity under this Section 14.11.  In any action or claim
involving Indemnitee, Indemnitor shall not settle or compromise any
claim without the prior written consent of Indemnitee.





       Section
14.12.  Notices and Demands.  (a) Except as
otherwise provided under this Agreement, all notices, demands, or
requests pertaining to this Agreement shall be in writing and shall
be deemed to have been given (i) on the date delivered in person,
(ii) on the date when sent by facsimile (with receipt confirmed by
telephone by the intended recipient or his or her authorized
representative) or electronic transmission (with receipt confirmed
telephonically or electronically by the intended recipient or his
or her authorized representative) or by special messenger, or
(iii) 72 hours following delivery to a United States post
office when sent by certified or registered United States mail
postage prepaid, and addressed as set forth below:


	
Utility:   

	
          

	
Pacific Gas and Electric
Company

 245 Market Street, Room 1267

 San Francisco, CA 94105-1814








	
Attn:     

	
          

	
Roy Kuga

 Lead Director of Gas and Electric Supply

 Telephone: (415) 973-3806

 Facsimile: (415) 973-0585

 Email: rmk4@pge.com








	
DWR:   

	
         

	
 DWR:    State of
California

 The Resources Agency

 Department of Water Resources

 California Energy Resources Scheduling Division

 3310 El Camino Avenue, Suite 120

 Sacramento, California  95821








	
Attn:     

	
         

	
Peter S. Garris

 Deputy Director

 Telephone:  (916) 574-2733

 Facsimile:  (916) 574-0301

 Email:  pgarris@water.ca.gov








	
            

	
  (a)

	
   

	
Each Party  shall be
entitled to specify as its proper address any other address in the
United States, or specify any change to the above information, upon
written notice to the other Party complying with this
Section 14.12.








	
            

	
  (b)

	
   

	
Each Party shall designate
on Attachment A the person(s) to be contacted with respect to
specific operational matters.  Each Party shall be entitled to
specify any change to such person(s) upon written notice to the
other Party complying with this Section 14.12.





       Section
14.13.  Approval.  This Agreement shall be
effective upon the execution by both Parties and approval of such
executed agreement by the Commission.  Except as expressly
provided otherwise herein, neither Party may commence performance
hereunder until such date.  Any delay in the commencement of
performance hereunder as a consequence of waiting for such
approval(s) shall not be a breach or default under this
Agreement.


       Section
14.14.  Government Code and Public Contract Code
Inapplicable.  DWR has determined, pursuant to Section
80014(b) of the California Water Code, that application of certain
provisions of the Government Code and Public Contract Code
applicable to State contracts, including but not limited to
advertising and competitive bidding requirements and prompt payment
requirements, would be detrimental to accomplishing the purposes of
Division 27 (commencing with Section 80000) of the
California Water Code and that such provisions and requirements are
therefore not applicable to or incorporated in this
Agreement.


       Section
14.15. Annual Review. The provisions of the Exhibits are
subject to annual review by DWR and Utility to ensure their
relevance and usefulness.  In the event that the Parties
mutually agree that certain provisions of the Exhibits should be
amended or supplemented, an amendment to the Exhibit should be
executed and Utility shall submit to the Commission for
approval.


       Section
14.16 Other Operating Agreement.  It is DWR’s
intent to have a consistent operating agreement with all three
investor-owned utilities (IOUs).  Should DWR reach an
operating agreement with another IOU relating to the subject matter
of this Agreement, that in Utility’s judgment is more
favorable on the whole than this Agreement, Utility shall have the
right to receive the same terms and conditions as such other
IOU.  This provision specifically does not allow Utility to
select particular portions or provisions of such other IOU’s
operating agreement.  In addition, if Utility elects to be
subject to such other IOU’s operating agreement’s terms
and conditions, Utility shall be subject to such other IOU’s
operating agreement with only such modifications agreed to by DWR
as necessary to address operating differences between that other
IOU and Utility.  Utility shall exercise the foregoing right
within 60 days following Commission approval of such other
operating agreement.


PG&E
Execution Copy


       IN
WITNESS WHEREOF, the Parties have executed this Agreement on
the date or dates indicated below, to be effective as of the
Effective Date.


	
CALIFORNIA STATE
DEPARTMENT OF WATER RESOURCES, acting solely under the
authority and powers granted by AB1X, codified as Sections 80000
through 80270 of the Water Code, and not under its powers and
responsibilities with respect to the State Water Resources
Development System

	
   

	
PACIFIC GAS &
ELECTRIC COMPANY, a California Corporation


	
                                                         

	
    

	
                                          


	
By:     /s/ Peter S.
Garris

 ___________________________________

		
By:     /s/ Gregory M.
Rueger

 ____________________________________


	
Name:     Peter S.
Garris

		
Name:     Gregory M.
Rueger


	
Title:     Deputy
Director

		
Title:     Senior Vice
President, Generation


	
Date:     4/17/03

		
Date:     April 17,
2003







PG&E EXHIBIT A


OPERATING PROTOCOLS


EXHIBIT
A


OPERATING PROTOCOLS


Pursuant to Section 4.01
of this Agreement, on behalf of DWR as its limited agent, Utility
shall perform the day-to-day scheduling and dispatch functions,
including day-ahead, hour-ahead and real-time trading, scheduling
of transactions with all involved parties, making surplus energy
sales and obtaining relevant information for these functions such
as transmission availability and others, with respect to the
Allocated Contracts set forth in Schedule 1 to the Agreement, and,
prior to novation, the Interim Contracts set forth in Schedule 2,
all as more specifically provided below and in compliance with the
provisions of each of the Contracts:


	
      

	
I.  

	
Resource Commitment and
Dispatch.  Utility agrees to use good faith efforts
to dispatch Allocated Contracts, and, prior to novation, Interim
Contracts, based on the principle of “least cost
dispatch” to retail customers, consistent with the Contract
Allocation Order and other Applicable Commission Orders. Utility
shall undertake these least cost dispatch functions both of the
Contracts and its URG so as to minimize the cost of service to
retail customers based on circumstances known or that reasonably
could have been known by Utility at the time dispatch decisions are
made.  DWR shall have no role in enforcement or review of
Utility least cost dispatch under this Agreement and all issues of
Utility compliance with least cost dispatch shall be within the
sole review of the Commission.


			
                      

	
		
  A.  

	
Annual, Quarterly and
Weekly Load and Resource Assessment Studies. 
Utility shall provide to DWR copies of its annual and quarterly
load and resource assessment studies.  Provided that Utility
submits substantially the same information to the Commission,
copies of the Commission submission will be simultaneously sent to
DWR to satisfy requirements of this section.  In addition,
Utility will provide a weekly commitment and dispatch plan for
informational purposes to DWR in the same form that such plan is
used internally.

	
 


			
                     

	
		
  B.  

	
Scheduling
Protocols.

	
 


				
                                  

	
			
1.  

	
DWR is responsible for
notifying the counter-party to each of the Allocated Contracts that
scheduling under the Allocated Contracts will be performed by
Utility before the first day that schedules are due to be submitted
by Utility.  DWR is responsible for notifying Utility of any
changes to the Allocated Contracts that it has negotiated,
including changes to the scheduling terms.  DWR agrees to
provide such notice as soon as possible following the negotiation
of any changed provisions and in any case prior to the time that
any changed provisions become effective.

	
 


	
   

			
                               

	
				
To the extent that any of
the Interim Contracts are amended or modified by DWR or Utility,
including changes to the scheduling terms, DWR and Utility agree to
provide such notice to the other Party as soon as possible
following the negotiation of any changed provisions and in any case
prior to the time that any such changed provisions become
effective.

	
 


				
                                    

	
			
2.  

	
Utility agrees to schedule
Contracts in accordance with their terms and in accordance with the
requirements of the Control Area operator or operators with whom
the Contract must be scheduled to provide for power
delivery.

	
 








	
      

	
II.  

	
ISO Ancillary Service
(AS) Market.  Among the Contracts are resources
that are or may be qualified to be bid into the ISO’s
Ancillary Services (“AS”) market or that Utility may
use in its self-provision of AS.  Utility is authorized to
develop protocols and procedures for the use of DWR resources for
AS.  Utility shall, upon DWR’s request, provide to DWR
such information concerning Utility’s intended use of DWR
resources for AS as DWR may reasonably request for planning and
revenue requirement purposes.


			
                                  


		
III..  

	
Surplus Energy Sales
and Energy Exchanges








	
     

	
  A.  

	
Over-generation.  If the ISO
announces an  over-generation situation Utility will 
back down resources in accordance with the ISO tariff and 
Good Utility Practice. In order to reduce the need for physical
curtailment in over-generation situations, DWR and Utility shall
develop pay for curtailment protocols and procedures that will
enable Utility to instruct a must-take resource not to deliver
energy under specified conditions. The costs and charges associated
with mitigation of an over-generation situation shall be allocated
among the Parties on a pro-rata basis consistent with the surplus
sales allocation principles set forth in Exhibit C. 


			
                                   


		
  B.  

	
Energy Exchange
Arrangements.  Existing non-DWR/CERS exchanges and
those that might be transacted post-2002, will be considered URG
exchanges. The accounting of energy necessary to support energy
exchanges is addressed in Exhibit C. 


			
                                     

	
		
  C.  

	
Surplus Energy Sales
Arrangement.  Utility shall on a monthly basis
prepare a sales plan addressing all surplus sales, including
without limitation sales to manage over-generation, contemplated by
the Utility for review by DWR.  Such plan shall address sales
of power from the combined portfolio of URG resources and Allocated
Contracts, which will be administered by Utility on its own behalf
and acting as DWR’s limited agent. As specified in Section
2.02 of the Agreement, Utility shall pursue surplus sales in a
fashion reasonably designed to serve the overall best interests of
retail electric customers based on information known or could have
been known by Utility at the time.  Utility agrees to include
sufficient details in the sales plans to allow DWR to satisfy its
financial management and reporting requirements. To the extent
there is surplus power uncommitted to a forward energy surplus
sales transaction, Utility shall be required to bid such surplus
energy in the day-ahead, hour-ahead or real-time market. 
Utility shall arrange for transmission service to accommodate
surplus sales to the extent that transmission service is available
and cost effective.  The costs of transmission service, ISO
charges and the costs of firm transmission rights associated with
such surplus energy sales transactions shall be treated in
accordance with the Settlement Principles for Remittances and
Surplus Revenues attached hereto as Exhibit C. 

	
 








	
      

	
IV.  

	
Outage Coordination and
Determination of Resource Availability of
Contracts.  Utility shall communicate with the
Scheduling Coordinator of each Contract to coordinate, approve,
document and report planned Contract outages.  For those
Contracts where resource availability affects capacity payments,
Utility will use good faith efforts to verify supplier actual
resource availability, and keep records of resource availability as
reported by Supplier.  In addition, Utility shall document all
outages (forced and planned) and notices of outages of DWR contract
resources and provide such documents to DWR within five (5)
business days after the end of each calendar month.  Interim
Contracts Utility and DWR agree that the Attachments and data
requirements associated with this Agreement will be updated as
needed to incorporate the addition of new Interim Contracts entered
into after the execution date of this Agreement.





PG&E
EXHIBIT B


FUEL
MANAGEMENT PROTOCOLS


EXHIBIT
B


FUEL
MANAGEMENT PROTOCOLS


Certain of the Contracts
listed on Schedule 1 of this Agreement provide DWR the option of
either (i) letting the Supplier provide the necessary natural gas
for its generating units at an index-based price or agreed upon
fixed price or (ii) DWR procuring the gas supply and causing such
supply to be delivered to the Supplier under a tolling arrangement
(“Fuel Option”).  Certain of the Contracts with
Fuel Option provide that DWR can decide on a monthly basis whether
to procure the gas and others provide that the decision be made
annually or semi-annually when DWR reviews the Supplier’s
proposed fuel plan.


The purpose of this
Exhibit B is to describe the relationship which will exist between
DWR and Utility and the specific responsibilities of each as they
all relate to managing the natural gas provisions of the Contracts
which include Fuel Options.  Specifically, this Exhibit B will
address responsibilities for the following activities: (i)
determining types and lengths of gas contracts, (ii) nominating
deliveries, (iii) contracting for gas transportation and storage,
(iv) managing imbalances, (v) reviewing, authorizing and making
payment of gas invoices and (vi) determining and implementing hedge
strategies, as appropriate. 


	
I.  

	
Operating Relationship
Between DWR and Utility

	
 


		
                                             

	
		
While DWR will retain
legal and financial responsibility for gas and related services,
Utility shall, as a limited agent acting for DWR, perform the
administrative and operational activities, as further specified
below, required to ensure adequate gas is supplied to
Suppliers’ generating units, consistent with the tolling
provisions included in the Contracts.  The intent of this
relationship is to provide Utility sufficient flexibility and
authority to execute normal day-to-day activities associated with
managing the fuel provisions of tolling Contracts and procurement
of natural gas and related services, as a limited agent acting on
behalf of DWR without direct involvement by DWR but in a manner
consistent with Utility Gas Supply Plans which have been reviewed
and approved by DWR and the Commission. 

	
 








	
II.  

	
Fuel
Activities

	
 


		
                                      

	
		
Consistent with the terms
of the Contracts with Fuel Options, Utility shall have
administrative and operational authority to act, as a limited
agent, for fuel supply related activities, consistent with the
following goals and guidelines whenever Utility has recommended,
and DWR has reviewed and approved such recommendation that gas for
a Contract with Fuel Option be caused to be supplied by Utility
from a list of approved providers.

	
 








	
      

	
1.  

	
Utility shall use
reasonable commercial efforts to secure delivery of gas in a
reliable manner and consistent with gas requirements for producing
scheduled energy.


			
                                      


		
2.  

	
Utility shall develop a
portfolio of gas supply for the Contracts that contain Fuel Options
and where Utility is to supply gas, acting as limited agent on
behalf of DWR, consistent with the approved Utility Gas Supply
Plans.  Such portfolio should be diversified in terms of price
mechanism, period of performance, and gas suppliers.


			
                                      


		
3.  

	
Utility shall develop a
portfolio of supply which is reasonably priced relative to the
market and in accordance with an approved Utility Gas Supply
Plan.








	
III.  

	
Review of Supplier Fuel
Plans


		
                                      


		
In accordance with the
terms of each of the Contracts with Fuel Options, Utility, acting
as a limited agent on behalf of DWR, shall review each fuel plan
prepared and submitted by the Supplier, and forwarded to the
Utility by DWR, and determine whether to recommend (i) approval of
the Supplier Fuel Plan and authorization for the Supplier to
provide gas to its generating unit(s), or (ii) procurement and
management of gas supplies to the generating unit(s) by
Utility.  Utility, acting as a limited agent on behalf of DWR,
shall advise DWR and the Commission on a timely basis of its
recommendation regarding responsibility for supplying natural
gas.  DWR shall, on a timely basis, review Utility’s
recommendation and either approve or identify requested
changes.  Once approved, Utility shall advise the Supplier in
accordance with the time requirements included in the appropriate
Contract with Fuel Option.  In addition, for any Supplier Fuel
Plans which have been implemented and are operative as of the
Effective Date, and where DWR has previously elected to be
responsible for gas supply, Utility may advise DWR that it would
rather have Supplier provide the gas as of the Effective
Date.  DWR shall coordinate with Utility and Supplier to
revise such Supplier Fuel Plans, to the extent possible, prior to
the Effective Date.  








	
IV.  

	
Fuel Procurement
Strategies


		
                                      


		
Under the Contracts with
Fuel Option, upon Utility’s recommendation, and DWR’s
review and approval of such recommendation, Utility will be
responsible for procuring the natural gas fuel from a list of
approved gas providers. Utility shall, acting as the limited agent
of DWR, have administrative and operational responsibility for
determining its gas procurement strategies, including but not
limited to (i) types of contracts, (ii) length of contracts, (iii)
pricing terms, (iv) use of storage, (v) types of gas
transportation, (vi) delivery point(s), (vii) whether and how to
obtain gas price forecasts, (viii) if and what risk management
tools are to be used, and (ix) how to maintain current market
intelligence. 


		
                                      


		
Utility shall consolidate
these strategies and submit them to DWR and the Commission as a
“Utility Gas Supply Plan” by April 17, 2003 and,
thereafter on a semi-annual basis during the Term.  Utility
may also provide a copy of such Gas Supply Plan to DWR in advance
of the filing with the Commission so as to be able to indicate
DWR’s approval of such plan.  Utility shall indicate in
its Advice Letter filing to the Commission whether DWR has approved
such plan as appropriate.  DWR shall also formally notify the
Commission when it has approved such plan.


		
                                      


		
DWR and the Commission
will review and approve the Utility Gas Supply Plans.  In the
event of conflicting guidance between the Commission and DWR
regarding various aspects of the Gas Supply Plan they respectively
approve or reject, where DWR only approves a subset of what the
Commission approves, then Utility shall operate within the sphere
of DWR’s approval.  If, however, the Commission
explicitly rejects portions of the Gas Supply Plan that DWR would
authorize, then Utility must operate within the limitations of the
Commission’s decision.  After a reasonable period of
time operating within the framework of the Gas Supply Plans and the
Commission’s and DWR’s respective approval and/or
rejection of various pieces of the Gas Supply Plan, the Parties
agree to meet and confer to determine whether the approval process
may need to be revised in some manner, and Utility shall submit to
Commission any such proposed revisions. Once approved, Utility may
act within such Utility Gas Supply Plan without further DWR
involvement, except as provided below.








	
V.  

	
Gas
Purchasing


		
                                      


		
Utility and DWR shall
jointly determine a list of approved gas providers who can be used
to supply gas under the Contracts with Fuel Options.  Master
agreements intended to cover normal day-to-day volumes will then be
executed with such approved providers.  While DWR will be the
executing party under all DWR gas contracts, such agreements shall
specifically authorize Utility to act for and on behalf of DWR, as
a limited agent, in negotiating specific prices, quantities and
delivery periods for specific purchases under such master
agreements; provided however, on the earliest practicable date
after the execution of this Agreement, DWR agrees to provide to
Utility in writing and in advance of such negotiations any limits,
including without limitation any terms, that may be required by
DWR.  If Utility determines it would be beneficial to enter
into any DWR gas contract which exceeds 3 months or have a total
value exceeding $10 million, it shall negotiate such agreement(s)
and submit them to DWR for advance approval and
execution.  








	
VI.  

	
Gas
Transportation


		
                                      


		
Utility shall have
responsibility for recommending to DWR which pipelines should
transport gas if Utility, acting as limited agent on behalf of DWR
is to supply gas  under a Contract with Fuel Option. 
Following approval of or revision of Utility Gas Supply Plan,
Utility shall negotiate firm and/or interruptible agreements with
such pipelines, consistent with the Utility Gas Supply Plan and
submit them to DWR for execution.  While DWR will be the
executing party, such agreements with pipelines shall specifically
authorize Utility to act for and on behalf of DWR in nominating gas
deliveries, making imbalance trades and managing gas volumes
transported under such agreements  provided, however, on the
earliest practicable date after the execution of this Agreement,
DWR agrees to provide to Utility in writing and in advance of such
negotiations any limits, including without limitation any terms,
that may be required by DWR.








	
VII.  

	
Gas
Scheduling


		
                                      


		
If permitted under the
Allocated Contracts, the Utility shall have full administrative and
operational responsibility for scheduling gas deliveries, whether
to a specific generating plant or to storage for all gas contracts
entered into by DWR or by Utility on DWR’s behalf pursuant to
this Exhibit B.  This function includes use of interstate and
intrastate gas pipeline provider websites, confirming via
telephone, and all other activities required to move gas from the
designated delivery point, as determined by the Utility, to its
destination, as determined by the Utility.








	
VIII.  

	
Storage Capacity,
Injections and Withdrawals


		
                                      


		
Utility shall have
responsibility for devising plans for gas storage, if Utility,
acting as limited agent on behalf of DWR,  is to supply gas
under Contracts with Fuel Option from a list of approved
providers.   Following approval of the Utility Gas Supply
Plans, Utility shall negotiate firm and/or interruptible agreements
with such storage service providers and submit them to DWR for
execution.  While DWR will be the executing party with DWR
remaining the principal under such contracts, such agreements with
storage service providers shall specifically authorize Utility to
act for and on behalf of DWR in nominating gas injections and
withdrawals under such agreements; provided, however, on the
earliest practicable date after the execution of this Agreement,
DWR agrees to provide to Utility in writing and in advance of such
negotiations any limits, including without limitation any terms,
that may be required by DWR.  








	
IX.  

	
Managing Gas
Delivery/Usage Imbalances


		
                                      


		
For gas that it purchases
and transports on behalf of DWR, Utility shall have full
administrative and operational responsibility for monitoring and
managing the daily status of gas usage vs. gas deliveries (i.e. gas
imbalances).  In addition, to the extent that gas
transportation providers issue operational flow orders or require
adjustments in scheduled gas deliveries due to system constraints,
Utility, acting as limited agent on behalf of DWR, shall be
responsible for compliance with such orders.  Utility shall
also be responsible for any penalties imposed by gas transportation
providers for imbalances caused by Utility, due to its failure to
exercise prudent gas management practices.


		
                                      


	
X.  

	
Invoice Review,
Approval and Payment


		
                                      


		
For natural gas, pipeline
transportation and storage services it purchases in accordance with
this Exhibit B, Utility, acting as limited agent on behalf of DWR,
shall have responsibility for receiving invoices from gas,
transportation and storage suppliers, reviewing them for accuracy,
approving/rejecting invoices for payment and forwarding to DWR for
payment; provided, however, on the earliest practicable date after
the execution of this Agreement, DWR agrees to cause Utility to be
authorized to receive such information from Suppliers. 
Utility shall provide DWR sufficient documentation to verify
payment of the invoices.


		
                                      


	
XI.  

	
Forecasting


		
                                      


		
Utility shall be
responsible for all gas price, demand and supply forecasts which
Utility believes are consistent with any accepted gas supply
responsibilities. 


		
                                      


	
XII.  

	
Risk
Management


		
                                      


		
Utility shall develop and
include in its Gas Supply Plans, plans for the hedging of DWR Fuel
Supply costs.  Final decisions relating to the use or non-use
of financial tools such as futures, options and swaps to hedge
future gas price exposure on any gas volumes not hedged by Utility
under the Utility Gas Supply Plans shall be made and implemented by
DWR.  Any such contracts executed by DWR on a “portfolio
basis” should be utility-specific.


		
                                      


	
XIII.  

	
Market
Intelligence


		
                                      


		
Any and all efforts to
obtain, analyze and utilize market intelligence for decision-making
purposes shall be the responsibility of Utility. 


		
                                      


	
XIV.  

	
Payment of Gas
Costs


		
                                      


		
For natural gas, pipeline
transportation, financial hedges and storage services that are
purchased and provided by a Supplier under an approved Fuel Supply
Plan, DWR shall pay such gas related costs as part of the invoice
for commodity, product, or services submitted by the
Supplier.  For natural gas, pipeline transportation and
storage services provided under DWR contracts and administered by
Utility on behalf of DWR, DWR shall pay invoices after they have
been reviewed and approved for payment by Utility.


		
                                      


	
XV.  

	
Allocation of Existing
DWR Gas Contracts


		
                                      


		
DWR has entered into gas
supply, transportation and storage contracts as provided in
Attachment 1 to this Exhibit B that have expiration dates after the
Effective Date of this Agreement.  The administrative and
operational control of the contracts listed on Attachment 1 to this
Exhibit B will become the responsibility of Utility.  This
shall include (i) scheduling gas transportation, (ii) confirming
gas deliveries, (iii) nominating gas withdrawals from and
injections into storage, if applicable, (iv) and reviewing and
approving invoices for payment.  When approved, invoices shall
be transmitted to DWR for payment within 10 days of receipt of
invoice from the gas supplier, gas storage or gas transportation
provider.


		
                                      


	
XVI.  

	
Pre-existing Financial
Hedge Instruments


		
                                      


		
If DWR has entered into
any financial hedge transactions that will remain operable after
the Effective Date of this Agreement, DWR shall retain full
administrative and operational control over such
transactions.

 





PG&E
EXHIBIT C


SETTLEMENT PRINCIPLES

FOR REMITTANCES AND

SURPLUS REVENUES


EXHIBIT
C


SETTLEMENT PRINCIPLES FOR REMITTANCES AND
SURPLUS

  REVENUES


This Exhibit C outlines
the principles by which Utility will calculate revenues associated
with surplus energy sales and DWR energy delivered to retail
customers.  This Exhibit C also addresses the information that
Utility will provide to DWR to support DWR payment of Contract
invoices, and invoices from natural gas supplier(s) for fuel
provided to service DWR Contracts where tolling options have been
implemented. 


This Exhibit C works in
conjunction with the applicable Servicing Arrangement with Utility
for purposes of determining the remittance amounts by Utility,
which serves as DWR’s billing and collection
agent.




In accordance with the Contract Allocation Order (*), this Exhibit C
provides that:


   ●   Revenues
will be allocated for both surplus sales and retail customer
deliveries


   ●   Revenues
will be allocated pro rata, based on dispatched quantities of
energy


   ●   The
principle of balancing least cost economic dispatch while
maintaining reliability is reinforced through these revenue
allocation protocols.


   ●   Surplus
sales quantities will be calculated as the difference between
Utility’s Energy Delivery Obligations (EDO) and the
combination of energy from URG and energy dispatched from the
Contracts.


Where Utility’s
Energy Delivery Obligations is defined as: (1) Utility’s
retail load(**) which includes distribution losses, (2) all pump-back
loads, (3) energy exchange transactions between Utility and counter
parties, (4) existing wholesale obligations, and (5) transmission
losses.


The principles herein,
together with the applicable methods and calculations contained in
the Servicing Arrangement, form a substantive component of the
accounting protocols required to implement the Contract Allocation
Order. This Exhibit should also be read in conjunction with Exhibit
F (“Data Requirements”).


(*)  Contract Allocation Order is CPUC Decision
(D.) 02-09-053.

(**) 
PG&E retail load obligations per CPUC May 2002 Service Order
(D.02-05-048) includes Western Area Power Administration (WAPA)
load, although this load is not retail load.


Exhibit F may periodically
be modified to include all data that DWR will require to verify the
remittances of revenues as remittance or implementation protocols
change.  Utility and DWR agree to modify Exhibit F to include
or exclude information reasonable determined by DWR to allow DWR to
verify Net DWR Retail Supply and the surplus
remittances.


	
I.  

	
Utility Remittance to
DWR


		
                    


		
Utility shall remit to DWR
an Energy Payment for the delivery of Contract energy to 
Utility retail customers (including the delivery or Contract energy
to WAPA)  and a separate payment for DWR’s share of
Surplus Energy Sales Revenues.  The principles for the
remittances to DWR of Surplus Energy Sales Revenue and Energy
Payment are contained in Sections A and B of this Exhibit C,
respectively.  The details for determination of the
remittances to DWR by Utility are contained in the Servicing
Arrangement.


		
                    


	
A.  

	
Utility Remittance to
DWR of Revenue from Surplus Energy Sales


		
                    


		
Surplus Energy and
Revenues


		
                    


		
Surplus energy exists when
dispatched supply from Utility portfolio and DWR Contracts exceeds
Utility’s Energy Delivery Obligations.  When such a
condition exists, the revenues from the sale of surplus energy
shall be shared between Utility and DWR.  Surplus sale
revenues can occur either through a forward market sale or a
delivery of the excess energy into the ISO real time market. 
In addition to the sharing of surplus energy revenues, the quantity
of any surplus energy shall likewise be shared between Utility and
DWR, and used in the determination of the Hourly Percentage Factor
described in Section I.(B).


		
                    


		
Surplus energy sales
revenues shall be placed by Utility into a separate account
(Surplus Sales Fund) to be held in trust and shall be disbursed by
Utility to DWR in accordance with the pro-rata allocation
principles in Exhibit C and consistent with the provisions of
Attachment J of the Servicing Arrangement.  For surplus energy
sales to third parties, Utility shall apply reasonable credit risk
management criteria that is consistent with industry accepted
credit standards.


		
                    


		
Surplus Energy
Quantity


		
                    


		
The Surplus Energy
quantity shall be determined by subtracting Utility’s Energy
Delivery Obligations from the sum of dispatched URG energy and
dispatched DWR Supply.  URG energy shall include dispatched
energy from URG, new Utility contracts and Utility market purchases
with adjustments for Ancillary Services and ISO Instructed Energy
as described under “Definitions and Adjustments.” 
DWR Supply shall include dispatched energy from DWR must take and
dispatchable contracts plus adjustments described
below.  


		
                    


		
DWR Surplus Energy
quantity shall be the product of Surplus Energy quantity multiplied
by the DWR Surplus Energy Percentage.  Utility Surplus Energy
quantity shall be the remaining portion of Surplus Energy. 
Both Utility and DWR Surplus Energy quantities shall be applied to
the respective Party’s energy supply quantities for
determination of the Hourly Percentage Factor described in Section
(B).


		
                    


		
Surplus Energy Sales
Revenues


		
                    


		
Surplus Energy Sales
Revenues shall be shared between Utility and DWR in the same manner
as Surplus Energy.  


		
                    


		
Forward Market
Sale


		
                    


		
DWR share of revenues from
a forward market sale of surplus energy shall be the product of the
net revenue multiplied by the DWR Surplus Energy Percentage. 
Utility share of these revenues shall be net revenue less DWR share
of net revenues.  Revenues from a forward market sale shall
not be distributed to the Parties until after Utility receives the
revenues from the sales and pays sale‐related charges. 
Shared revenues from forward market sales shall be net of
transmission costs and broker fees.


		
                    


		
ISO Real Time Market
Sales


		
                    


		
Revenues from delivery of
surplus energy to the ISO real time market shall be determined from
the product of positive load or supply deviation multiplied by the
ISO real time market price.  These revenues will be netted
against any ISO charges related to the load deviation, including a
negative ISO price.  Load deviation is determined by
subtracting the Utility metered supply from the Final Hour Ahead
Supply Schedule, however only positive quantities, where schedule
exceeds meter, reflect surplus conditions for revenue sharing.
Supply deviation is determined by subtracting the Final Hour Ahead
Supply Schedule (adjusted by real time instructions) from metered
supply, however, only positive quantities, where meter exceeds the
adjusted schedule, reflect surplus conditions for revenue
sharing.


		
                    


		
DWR share of revenues from
delivery of surplus energy to ISO real time market shall be the
product of the net revenues multiplied by the DWR Surplus Energy
Percentage.  Utility share of these net revenues shall be the
net revenue less DWR share of net revenues.  Revenues from
delivery of surplus energy to the ISO real-time market shall not be
distributed to the Parties until after the Utility received payment
for final monthly invoice from the ISO for the month in which the
surplus energy was delivered.


		
                    


		
Over-generation
Periods


		
                    


		
During periods of
over-generation condition as announced by the ISO, surplus sales
may be made at very low, zero or even negative prices.  In
such conditions, the surplus sale revenue calculations as described
above still hold.  However it is recognized that the sales may
result in little or no revenue.  Sales could even be done at a
cost to the seller.  That seller could be Utility or the ISO
selling in an “out-of-market” condition.  During
these conditions, ISO-related charges assigned to Utility for such
sales (e.g. – ISO selling out‐of‐market) are
included in the surplus sales revenue as a cost.  During
over-generation conditions there may be no market in which to sell
surplus energy.  In that event, or in expectation of that
event, Utility shall declare that no valid market exists for
surplus energy and shall begin curtailing must-take resources in
accordance with Utility’s procedures for mitigating
over-generation conditions.  Such mitigation measures shall be
consistent with good utility practice, specifically hydroelectric
facilities at spill or near-spill conditions and nuclear facilities
scheduled by Utility are the last resources to be reduced in power
output.


		
                    


		
Over-generation for
purposes of this Exhibit C is defined as the condition in which
total supply exceeds total loads in the ISO control
area.


		
                    


		
Revenues or costs from
delivery of surplus energy to the ISO real time market under an
over-generation condition shall not be distributed to the Parties
until after Utility receives payment for final monthly invoice from
the ISO for the month in which the surplus energy was
delivered.


		
                    


		
Calculation of Surplus
Energy Percentage


		
                    


		
DWR Surplus Energy
Percentage shall be equal to the pro rata share of DWR Supply to
the sum of Utility Supply and DWR Supply, expressed as
follows:


		
                    


		
DWR Surplus Energy
Percentage = DWR Supply / (Utility Supply + DWR
Supply) 


		
                    


		
Where:


		
                    


		
DWR Supply is total energy
dispatched from DWR Contracts with adjustments for transmission
losses, Ancillary Services and ISO Instructed Energy transactions
described below.


		
                    


		
Utility Supply is total
energy dispatched from URG, new Utility contracts and Utility
market purchases with adjustments for transmission losses, existing
wholesale obligations, WAPA load, Ancillary Services and ISO
Instructed Energy, exchange transactions, and ISO Uninstructed
Energy as described below.


		
                    


		
Definitions and
Adjustments


		
                    


		
Certain energy and
capacity transactions, which may be conducted by Utility in its
normal course of business, may affect the Utility and DWR Supply
quantities used in pro rata calculations.


		
                    


		
Exchanges
are transactions where energy is delivered to a third party in one
period and a similar, but not necessarily equal, amount of energy
is returned by third party in a different period.  For the
purposes of pro rata share calculation, exchanges use and
supplement energy from the Utility Supply.


		
                    


		
Forward
Sales are transactions where energy is sold in a forward
market to balance supply with demand.  In general, for the
purposes of remittance determination, forward sales are made using
energy from the joint Utility/DWR portfolio.


		
                    


		
Ancillary
Services are transactions where capacity from certain
qualifying resources is sold to ISO for ancillary services rather
than being used as energy to serve retail load.  
Resources from both Utility portfolio and DWR Contracts may qualify
for use as ancillary services.  Since the capacity used for
ancillary services does not serve retail energy load, ancillary
service capacity is not considered as a joint Utility/DWR portfolio
transaction for the purpose of remittance determination.  If
Utility or DWR Contract resource capacity is used for ancillary
services, the capacity quantity will not be included in the supply
quantity of the owning party for the purpose of pro rata share
calculations, and owning party will retain all the revenues from
the ancillary services as well as all associated transaction costs
and ISO charges. 


		
                    


		
ISO Instructed
Energy is a transaction where certain qualifying
resources are able to sell energy from unused capacity to the ISO
in the real time market.  The energy delivered from these
resources is directed by the ISO in real time to balance supply and
load imbalances on the grid.  Either Utility portfolio or DWR
Contracts may contain resources that have ability to provide
instructed energy to ISO.  Since instructed energy is resource
specific and does not directly serve the retail load of any
utility, instructed energy is not considered as a joint Utility/DWR
portfolio transaction for the purpose of remittance
determination.  If Utility or DWR Contract resources are
dispatched as instructed energy, the energy quantity will not be
included in the supply quantity of the owning party for the purpose
of pro rata share calculations, and owning party will retain all
the revenues from the instructed energy as well as all associated
transaction costs and ISO charges.   


	
		
                    


		
ISO Uninstructed
Energy is a transaction where energy is delivered or
received from the ISO grid in the real time based on the actual
consumption of retail load and actual deliveries of supply
resources.   


		
                    


		
Uninstructed Load
Deviations


		
                    


		
Uninstructed load
deviations are the difference between scheduled load and metered
load.  If load deviations are positive (schedule exceeds
meter), it is considered that excess supply was dispatched from the
joint Utility/DWR portfolio in excess of quantity needed to serve
retail load, and that the ISO credit for the excess supply should
be shared pro rata as described above.  If load deviations are
negative (meter exceed schedule), it is considered that Utility had
to procure additional supply from ISO real time market.  The
negative load deviation quantity procured from ISO real time market
is considered a Utility market purchase and the quantity will be
included in Utility Supply for pro rata share calculation
purposes.


		
                    


		
Uninstructed Supply
Deviations


		
                    


		
Uninstructed supply
deviations are the difference between scheduled supply and metered
supply plus an ISO allocation for transmission losses.  Since
all DWR Contract energy will be delivered to Utility as SC to SC
transfers, no uninstructed energy deviations will be assessed by
the ISO to DWR Contracts.  All uninstructed supply deviations,
whether positive or negative, reflect over or under deliveries from
Utility supply portfolio and purchases by Utility to cover
allocated transmission losses.  Any supply deviation is
considered as either a net Utility market purchase or a net Utility
supply reduction, and the supply deviation quantity, positive or
negative, will be included in Utility Supply for pro rata share
calculation purposes.


		
                    


		
Transmission
Losses


		
                    


		
Transmission loss is
defined as Energy that is lost due to the process of transmitting
energy from supply source to load.  Therefore, supply
resources from DWR Contracts and Utility Supply have distinct and
identifiable quantity of transmission losses.  Utility and DWR
Supply should be net of transmission losses because of energy that
is delivered to retail customers (i.e. load) equals quantity of
supply les losses.


		
                    


	
B.  

	
Utility Remittance to
DWR for Sales of DWR Energy to Utility Retail Customers
–Energy Payment


		
                    


		
Utility shall remit to DWR
its Energy Payments according to the terms of each Utility’s
respective Servicing Arrangement.


		
                    


		
The DWR Energy Payment is
billed by each utility to customers in accordance with the terms of
each applicable Utility Servicing Arrangement.  The DWR Energy
Payment is billed kWhs served by Net DWR Supply at the applicable
CPUC approved DWR rate.  Net DWR Supply is total DWR Supply
less DWR share of surplus energy.  The DWR Energy Payment is
allocated based on the percentage of energy supplied by DWR to
Utility, which is the “Hourly Percentage Factor”
multiplied by the retail load of each customer.  The Hourly
Percentage Factor is determined by calculating the percentage of
net energy supplied by DWR to Utility to serve retail load, as
expressed below:


		
                    


		
Hourly Percentage
Factor = Net DWR Supply / (Net Utility Supply + Net DWR
Supply)


		
                    


		
Where:


		
                    


		
Net DWR Supply is DWR
Supply quantity used for the determination of DWR Surplus Energy
Percentage less DWR share of surplus energy quantity, which is
determined by the product of surplus energy multiplied by DWR
Surplus Energy Percentage.


		
                    


		
Net Utility Supply is
Utility Supply quantity used for the determination of DWR Surplus
Energy Percentage less Utility share of surplus energy quantity,
which is total surplus energy less the DWR share of surplus energy
quantity.


		
                    


		
In the Event of any
conflict between the formulas and procedures in this Exhibit C and
the formulas and procedures in Utility’s Servicing
Arrangement, those contained in Utility’s Servicing
Arrangement shall govern.


		
                    


	
II.  

	
Bilateral
Settlement


		
                    


		
Under the Contract
Allocation Order DWR remains financially obligated for the
Contracts. DWR will continue to pay suppliers and this requires DWR
to apply appropriate procedures and controls to ensure that
payments are made accurately and in a timely manner. Information
supporting Contract settlements will be provided by Utility, and
additional information may also be required to address contract
performance issues (such as availability and other items as
discussed in Exhibit E) and to allow DWR to settle disputes in an
appropriate manner.


		
                    


		
DWR requires sufficient
information to support payment requests so that it can meet the
accountability requirements of the State Controller’s Office
and the State Auditor, and simultaneously comply with the
applicable statutes concerning disbursement of public monies. The
Utility shall reconcile schedules with suppliers invoice.  DWR
shall make the associated payments to suppliers after performing
its verification, and Utility will provide the data as required in
Exhibit F to allow it to perform these duties in a timely manner as
set forth herein.


		
                    


		
DWR shall continue to
perform validation of settlement data and invoices and pay Contract
costs directly to the suppliers upon validation of
invoices.


		
                    


	
III.  

	
Fuel Cost Verification
and Settlement


		
                    


		
Exhibit B provides a
detailed discussion concerning Utility’s responsibility for
fuel management. DWR will continue to pay fuel suppliers and others
involved in providing fuel management services for the delivery of
fuel for those DWR Contracts where the Fuel Option has been
elected.   Consistent with the above, Utility will
perform settlements activities to reconcile quantities and
associated charges, and DWR will perform verification, audit and
monitoring to support its disbursement of funds.  Utility will
comply with the requirements contained in Exhibit F to provide DWR
with the necessary information to apply appropriate procedures and
controls to ensure that fuel payments and payments for fuel
management services are made accurately and in a timely manner and
to allow DWR to settle disputes in an appropriate
manner.










PG&E
EXHIBIT D


ISO
SCHEDULING COORDINATOR CHARGES







EXHIBIT
D


ISO
SCHEDULING COORDINATOR CHARGES


       The
financial obligation for ISO charges incurred as of the 
Effective Date will be allocated to the Utility, unless otherwise
extended under the existing and any future   Applicable
Commission Orders.  Unless specifically provided in Exhibit C
hereto, all ISO charges incurred after the Effective Date
attributable to load and resources shall be the responsibility of
Utility.  


       Utility
agrees that any refunds, reruns or credits through the ISO
attributable to costs incurred by DWR for trade dates beginning
Hour Ending 2200, January 17, 2001  up to the Effective Date,
which are separate from ISO charges subject to Commission Decision
No. 02-05-048, shall belong to DWR and Utility shall take all
necessary action to remit such refunds or credits to DWR within
reasonable time.  In addition, DWR shall be responsible for
any ISO charges incurred during this period pursuant to the
existing letter agreement between the Parties.  Utility shall
invoice DWR for such ISO charges within a reasonable period of time
and DWR shall pay Utility for such ISO charges within 10 days of
receipt of such invoice.  Without making any assurances as to
Commission action, DWR agrees to take appropriate action to ensure
that such refunds or credits are applied consistent with
DWR’s Revenue Requirement cost allocation method for the same
trade dates.


       DWR
agrees that any refunds, reruns, or credits through the ISO
attributable to ISO charges invoiced to DWR under the November 7,
2001 order of the Federal Energy Regulatory Commission and
subsequent orders but which are further subject to Commission
Decision No.02-05-048, which directs Utility to directly reimburse
DWR for such ISO charges incurred starting Hour Ending 2200,
January 17, 2001 up to the Effective Date, shall belong to Utility
and DWR shall take all necessary action to remit such refunds or
credits directly to Utility within reasonable time.







PG&E
EXHIBIT E


CONTRACT
MANAGEMENT AND

ADMINISTRATION PROTOCOLS







EXHIBIT
E


CONTRACT
MANAGEMENT AND ADMINISTRATION PROTOCOLS


DWR will retain all
contract management, administration and monitoring responsibilities
for the Contracts, including due diligence, performance testing,
contract performance assessment, formal correspondence and
notifications with Suppliers, exercise of contract options,
contract interpretation and dispute resolution, and financial
reporting.  In the event Utility and DWR agree in the future
to transition the Due Diligence and Performance Test Monitoring
functions set forth in this Exhibit E from DWR to the Utility, the
Parties will first develop a mutually acceptable plan of
performance, a transition schedule, and a transition plan for
transfer of such functions from DWR to the Utility for review and
approval by the Commission. . Upon agreement of the Parties to an
acceptable plan and completion of the transition period, the agreed
upon functions will transfer from DWR to the Utility (“the
Transition Date”).


I. 
Due-Diligence


The Due Diligence function
assesses the progress of permitting, construction and performance
capability of new generating facilities under to the
Contracts.  Due Diligence includes (i) monitoring activities
associated with the development, construction, and performance of
new generating facilities; (ii) identification and tracking of key
projects milestones including permitting, equipment procurement,
construction, commissioning, and performance testing; (iii)
coordination with permitting agencies and the Suppliers, review of
project documents, physical inspections, and witnessing of
acceptance tests, (iv) verification that the new facilities can
perform in a manner that is consistent with the obligations under
the appropriate Contract and (v) review and approval of commercial
operation dates and documentation.


II.  
Performance Test Monitoring


A.  Annual
Performance Tests


Annual Performance Tests
verify ongoing compliance with the Contracts and establish plants
capacities and efficiencies that are used to calculate contract
payments, either for capacity or energy.  Annual Performance
Test responsibilities generally consist of (i) verification of
testing procedures, (ii) witness of performance tests, (iii)
review of test results and test reports for compliance with
Contract terms and conditions, and (iv) identification of contract
non-compliance for dispute resolution with the Supplier. 
Prior to the Transition Date, the Utility will cooperate and assist
DWR with scheduling of upcoming Annual Performance Tests, and the
Utility may have its staff witness such testing. 


B.  Scheduled
Performance Tests


Prior to the Transition
Date, on occasion, DWR may request that Utility schedule a peaking
or dispatchable generating facility for testing (to assure that
such generation facility is available according to the terms of the
contract between such generation facility and DWR). The utility
will cooperate and shall coordinate with the DWR on a mutually
acceptable date for performance of the test.  On the date
agreed upon, the Utility shall schedule the specified facility or
unit for operation to test the availability, reliability, and
performance of the scheduled unit. 


C.  Test Procedures
and Protocols


Prior to January 1, 2003,
Utility shall meet with DWR staff to review, discuss, and verify
test procedures and protocols developed by DWR. 


III.  Contract
Performance Assessments


DWR shall continue to
perform an after-the-fact review (“Performance
Assessment”) of each Contract on a periodic basis.  The
purpose of the Performance Assessment is to assess, analyze, and
document the overall performance of each contract Supplier, assure
that the Supplier is satisfying the terms and conditions of their
respective contract(s), and identify potential issues, disputes,
and other matters that may require corrective action by either
Utility or DWR as part of contract administration. 


IV.  Other
Administrative Matters


A.  Correspondence
with Suppliers


Utility and DWR agree to
copy each other on all written correspondence and written
notifications sent to or received from a Supplier of an Allocated
Contract or Interim Contract related to the activities described in
this Exhibit E. The Parties agree to provide additional information
as requested related to verification and support of the activities
described in this Exhibit E.


B. 
Reports


Results of the activities
described in this Exhibit E will be documented by DWR in written
reports (“Reports”) and shall be discussed periodically
between DWR and the Utility.  Such Reports may include, but
are not limited to, summary of test results, status of projects,
recommendations for operational changes, procedural changes,
dispute resolution, and results of Performance
Assessments. 


Such Reports,
documentation, or other material developed by either Party shall be
shared and reviewed with the other Party on a timely
basis.







PG&E
EXHIBIT F


DWR DATA
REQUIREMENTS FROM UTILITY







EXHIBIT
F


DWR DATA
REQUIREMENTS FROM UTILITY


To effectively fulfill its
legal and financial responsibilities, DWR requires access to
standard and reliable information on a timely basis. Post
transition, DWR remains statutorily and contractually obligated to
collect, account for, and remit funds for the power it provides to
the IOU’s retail customers.  More specifically, post
transition, DWR must have readily available access to information
that is currently available in-house due to DWR’s operational
responsibilities.  The primary source of this information post
transition will be the three utilities.


The information being
requested is required to:


   ●   Verify,
audit, monitor and authorize payment for bilateral invoices for
allocated DWR contracts;


   ●   Manage
disputes between DWR and the bilateral counterparties;


   ●   Verify,
audit, monitor and authorize payment for fuel procured by the
utilities relating to DWR allocated contracts;


   ●   Verify,
audit, monitor, collect and IOU remittances relating to repayment
of Energy Supplied and Bond Funds;


   ●   Forecast,
manage and monitor DWR monetary requirements and associated
accounts;


   ●   Ongoing
reporting responsibilities under AB1X, the rate agreement and bond
indenture;


   ●   Audit
and monitor long-term contract performance and associated risks
prior to contract assignment or novation.


The table below contains a
brief description of the information to be provided by Utility, the
frequency for which Utility shall provide such information to DWR,
and the effective date for when Utility shall provide such
information to DWR.


The following table
outlines DWR data requirements relating to general contract/trade
information:


	
Contract/Trade

			
	
Requirement

	
Description

	
Freq

	
Effective

	
Delivery
Method


	
Surplus Energy Sales
Plan

	
Monthly utility’s
surplus energy sales plan updated weekly.  Sales plan will
outline all surplus sales contemplated by the utility, including
but not limited to balance of month, weekly balance of week and
other short-term sales.

	
Monthly plan, updated
weekly

	
1/1/2003

	
Email/Fax - Standard Form
TBD


	
Surplus Energy
Sales

	
Contract/Deal information
relating to the forward sale of DWR surplus energy.  This
would include but is not limited to Counter party, Term (Start/End
Date), Hourly Contract Volumes, Hourly Price, Location, any fee
information, etc.

	
When executed

	
All surplus forward
sales  entered into after 1/1/2003

	
Email/Fax - Standard Form
TBD










The following table
outlines DWR data requirements relating to long-term contract
schedule information and associated bilateral invoices:


	
Schedule/Bilateral
Invoice

			
	
Requirement

	
Description

	
Freq

	
Effective

	
Delivery
Method


	
Final Schedule Volumes,
Long Term Contracts

	
For all long-term
contracts allocated to the utilities and any surplus energy sales,
the detailed hourly final schedule volumes and pricing information
by contract by counterparty, by day.


Final schedule volumes are
defined as the final volume for the hour at the completion of the
real-time market.  These volumes represent the hour ahead
scheduled volumes adjusted to include any real-time market
adjustments by the ISO.  Absent any real time adjustments,
this data will be the same as Final Hour Ahead Schedule.


File should include, but
is not limited to; Utility identifier, file type identifier (i.e.
final, HA), SC identifier, counterparty identifier, contract
identifier, schedule type identifier (i.e. sale), delivery
location, date, volume scheduled by hour, price per
hour.

	
T+1 (Daily)

	
1/2/2003

	
Secure Electronic –
Format TBD


	
Hour Ahead  Schedule
Volumes, Long Term Contracts

	
For all long-term
contracts allocated to the utilities and any surplus energy sales,
the detailed hour ahead final schedule volumes and pricing
information by contract, by counterparty, by day.


Format and data elements
of the file provided should be identical to what was specified
above in Final Schedule volumes.


(Note: This cannot be the
ISO Hour Ahead Final Schedule template as this file does not
provide transactional level details but consolidates/collapses
information based on certain ISO rules.)

	
T+1 (Daily)

	
1/2/2003

	
Secure Electronic –
Format TBD


	
Reconciled Monthly
bilateral invoices

	
Monthly invoice and
supporting documentation for bilateral contracts relating to DWR
long-term contracts, reviewed and approved by utility for payment
by DWR to the counterparyy.

	
Monthly – 5 business
days prior to payment due date

	
Feb 03

	
TBD





In the event of a
bilateral invoice dispute with the counterparty, DWR may also
request from the utility the additional schedule information. 
This information would be in the same format as outlined in the
table above.  As mentioned above, DWR is requesting
transactional level information and not the associated ISO template
files due to the consolidation/collapsing of schedules with the
template files.  Schedule information required would
include :


Hour Ahead Preferred
Schedule Volumes


Day Ahead Final Schedule
Volumes


Day Ahead Adjusted
Schedule Volumes


Day Ahead Revised
Preferred Schedule Volumes


Day Ahead Preferred
Schedule Volumes


The following table
outlines DWR data requirements relating to the verification of fuel
costs.  It assumes DWR will retain legal and financial
responsibility for gas and related services while the utility will
perform administrative and operational responsibilities as outlined
in Exhibit B.


	
Fuel Costs

			
	
Requirement

	
Description

	
Freq

	
Effective

	
Delivery
Method


	
Generator fuel plan
proposal

	
Proposal and supporting
analysis on whether or not to accept or reject of generator fuel
plan.

	
Based on individual
contracts

	
Jan-03

	
TBD


	
Utility Fuel Procurement
Plan

	
Utility will provide a
bi-annual fuel procurement plan for utility supplied
fuel.

	
Bi-Annual

	
Jan-03

	
TBD


	
Tolling agreement
Settlement Report

	
Monthly report on each DWR
tolling agreement that includes but is not limited to: tolling
contract identifier, who provided the gas (generator/utility) and
daily quantity of gas supplied.

	
Monthly

	
Feb-03

	
Electronic Format
TBD


	
Reconciled Monthly Gas
Invoice

	
Suppliers monthly invoice
and supporting documentation for fuel procurement relating to DWR
tolling agreements, reviewed and approved by Utility for payment by
DWR to the supplier.

	
Monthly –
5‐business days prior to payment due date

	
Feb-03

	
Electronic – Format
TBD


	
Gas Transportation
Contract Information

	
Details relating to the
Utility negotiated firm and/or interruptible transportation
agreements for DWR review and authorization.

	
When executed

	
All contracts effective
after 1/1/2003

	
E-mail/Fax Standard Form
TBD

	
 


	
Gas Storage Contract
Information

	
Details relating to the
Utility/negotiated firm and/or interruptible storage agreements for
DWR review and authorization.

	
When executed

	
All contracts effective
after 1/1/03

	
E-mail/Fax Standard Form
TBD


	
Reconciled Monthly gas
transportation invoices

	
Suppliers monthly invoice
and supporting documentation for natural gas transportation costs
relating to DWR tolling agreements, reviewed and approved by
utility for payment by DWR to the supplier.

	
Monthly –
5‐business days prior to payment due date

	
Feb-03

	
Electronic – Format
TBD


	
Reconciled  Monthly
gas storage invoices

	
Supplier’s monthly
invoice and supporting documentation for storage relating to DWR
tolling agreements, reviewed and approved by utility for payment by
DWR to the supplier.

	
Monthly –
5‐business days prior to payment due date

	
Feb-03

	
Electronic – Format
TBD

	
 










The following table
outlines additional DWR data relating to utility revenue
remittance:


	
Utility Revenue
Remittance

				
 


	
Requirement

	
Description

	
Freq

	
Effective

	
Delivery
Method

	
 


	
Utility ISO Preliminary
Settlement and Supporting Files

	
The complete Utility
preliminary settlement statement and supporting files in original
ISO template format. 

	
T + 38 business
days

	
Ongoing

	
Secure Electronic-ISO
Template Direct from ISO

	
 


	
Utility Final ISO
Settlement Statement and Supporting Files

	
The complete Utility final
ISO settlement statement and supporting files in ISO original
template format.  This information also required for
remittance calculation purposes.

	
T + 45 business
days

	
Ongoing

	
Secure Electronic-ISO
Template Direct from ISO

	
 


	
Scheduled Retail Load by
hour

	
Utilities estimated retail
load information by hour, by day used for the preliminary
remittance.

	
T + 1

	
1/1/2003

	
TBD

	
 


	
Hourly aggregate final
schedule of Utility’s resource portfolio

	
Utilities total hourly
scheduled volumes for the entire Utilities portfolio.  This is
an aggregate total for the day, by hour and represents the total
volume supplied by the utility.

	
T+1


(Daily)

	
1/2/2003

	
TBD

	
 


	
Wholesale Obligation
Volumes

	
Utilities total hourly
scheduled volumes for pre-existing wholesale commitments in
aggregate by the hour for each day.

	
T+1 (Daily)

	
1/2/03

	
TBD

	
 


	
Hourly Distribution Loss
Factor

	
Utility DLF % by
hour

	
When changes
required

	
1/1/2003

	
TBD

	
 


	
Estimated DWR remittance
%

	
Utility estimated
remittance percentage.

	
When changes
required

	
1/1/2003

	
TBD

	
 


	
Energy Sales billed
(kWh)*

	
Monthly kWh billed by
Utility to end users

	
Monthly

	
Ongoing

	
Standard DWR Form/File
(TBD)

	
 


	
DWR Power Charge
volumes*

	
Monthly kWh billed by
Utility to end users

	
Monthly

	
Ongoing

	
Standard DWR Form/File
(TBD)

	
 


	
DWR Power Charge billed to
Customer*

	
Monthly dollar amount of
DWR Power Charge being billed to customer including identification
of dates billed.

	
Monthly

	
Ongoing

	
Standard DWR Form/File
(TBD)

	
Ongoing

	
Standard DWR
Form/File


	
DWR Power Charge Remitted
to DWR*

	
Daily dollar amount being
remitted by Utility to DWR for the DWR Power Charge collected from
customers including identification of dates billed.

	
Daily

	
Ongoing

	
Standard DWR Form/File
(TBD)

		



*This information is
already provided pursuant to the Servicing Arrangement, and
supports the daily remittance calculation for each month and
subsequent true-ups.  The Servicing Arrangement will be
modified as necessary to conform to this Operating
Agreement.


As various Commission
proceedings are finalized DWR will also require specific data
related to Bond Charge remittances and to Direct Access exit
fees.  The specific nature and format of this data will be
agreed with between the utilities and DWR.







The following table
outlines DWR data requirements relating to resource
information:


	
Resource
Information

			
	
Requirement

	
Description

	
Freq

	
Effective

	
Delivery
Method


	
Load and Resource
Assessment Studies


 

	
Copies of Utilities annual
and quarter load and resource assessment studies as provided to the
PUC.

	
Annually and
quarterly

	
Jan-03

	
TBD


	
Update Description of
Resources

	
Updated description of URG
resources .

	
Annually or when
significant changes

	
Jan 1, 04

	
TBD


	
Unit Commitment
Studies

	
  As provided to the
PUC.

	
Weekly

	
Jan-03

	
TBD


	
DWR Non-Dispatched
Resources Report

	
Report of Resources that
were economic to run, but were not dispatched.

	
Ad hoc

	
1/1/03

	
TBD


	
DWR Resource
Unavailability Form

	
Utility notification to
DWR for resources within an allocated contracts becoming
unavailable, or scheduled to become unavailable.


Note: This information
could be provided directly from the generator to DWR and would
therefore not be required from Utility.

	
As outlined in operating
agreement

	
1/1/2003

	
Standard DWR Form –
Email/Fax





Upon the reasonable
request of DWR, Utility will provide to DWR any information in
respect of Utility that is applicable to the rights and obligations
of the Parties under this Agreement or any material information
that is reasonably necessary for DWR to monitor and manage their
risks and perform their fiduciary responsibilities.  Upon the
reasonable request of Utility, DWR will provide to Utility any
information in respect of DWR that is applicable to the rights and
obligations of the Parties under this Agreement or any material
information that is reasonably necessary for Utility to
operationally administer Contracts under this Agreement.


For the information
identified above, or any additional information identified through
the term of this Agreement, standard submission formats will be
used or be developed by DWR for use by each of the investor-owned
utilities, including Utility.  In the cases where the
information requirements result in a large volume of data (e.g.,
schedule information), DWR will use or develop standard detailed
file definitions for use by all of the investor-owned utilities,
including Utility.  Data will be submitted to DWR by Utility
through a secure electronic communication medium, unless other
medium is reasonably requested by DWR.


As a result of the
relative short implementation timeframes, it is anticipated an
interim delivery protocol (e.g., comma delimited file via email,
compact diskettes) will be utilized until the final data
transmission media are in place.  DWR shall work jointly with
Utility to ensure the required data is available by January 1,
2003.


In the event that DWR
incurs additional costs, including but not limited to penalties,
interest or other such costs, due to Utility’s failure to
timely provide the data set forth in this Exhibit F, any such
direct cost increase invoiced or assessed to DWR shall be borne by
Utility.


The provisions of this
Exhibit are subject to annual review by DWR and Utility to ensure
that data reporting remains relevant and useful.