**Exhibit 10.29**
**SEPARATION AGREEMENT**
     This Separation Agreement (this “Agreement”) is made and entered into byand between STEPHEN A. HERMAN and PG&E NATIONAL ENERGY GROUP COMPANY (the“Company”) (collectively the “Parties”) and sets forth the terms and conditionsof Mr. Herman’s separation from employment with the Company. The “EffectiveDate” of this Agreement is defined in paragraph 17(a).
     1.**     Separation.**Mr. Herman’s separation from employment with the Companyand with any and all subsidiary, parent and affiliate companies of the Company,will be effective on the Effective Date. Mr. Herman’s resignation from all ofhis positions as an officer and/or director of the Company, and subsidiary,parent and affiliate companies of the Company was effective close of businessDecember 1, 2002 and from any other position(s) held with the Company, theCompany’s parent, or any Company affiliate or subsidiary. Regardless ofwhether (i) Mr. Herman accepts this Agreement, Mr. Herman will be paid allsalary or wages and vacation accrued, unpaid and owed to Mr. Herman as of theEffective Date, (ii) an amount equal to the salary or wages and vacation thatwould have been paid or accrued had he remained employed from the EffectiveDate through to the end of the month of December, and (iii) Mr. Herman willreceive notice of the right to continue Mr. Herman’s existing health-insurancecoverage pursuant to COBRA.
     2.**     Separation benefits.**In consideration of Mr. Herman’s acceptance ofthis Agreement, Mr. Herman will be provided the following separation benefits:
          a.**Lump-sum payment.**On the Effective Date, the Company will make alump-sum payment to Mr. Herman in the gross amount of Seven Hundred SixThousand, Eight Hundred Seventy-Five Dollars ($706,875.00), less applicable taxwithholdings and deductions.
          b.**NEG Management Retention Program.**On the Effective Date, the Companywill pay to Mr. Herman the full retention payment that he is entitled to underthe terms of such Program.
          c.**Long-Term Incentive Program.**Upon the Effective Date, all unvestedperformance unit grants, stock option grants, and special incentive stockownership premiums provided to Mr. Herman under PG&E Corporation’s PerformanceUnit Plan, Stock Option Plan, and Executive Stock Ownership Program willcontinue to vest, terminate, or be canceled as provided under the terms oftheir respective plans or program, as modified by the PG&E Corporation OfficerSeverance Policy in effect at the time this Agreement is signed by Mr. Herman.The payment, exercise, and withdrawal of Mr. Herman’s vested performance units,stock option grants, and stock ownership premiums will be as provided under theterms of their respective plans or program, provided that the performance unitsand stock ownership premiums granted to Mr. Herman which have not yet vested asof the Effective Date will continue to vest as though Mr. Herman remainedemployed with the Company for 18 months after the Effective Date.
 

 

          d.**STIP payment.**In the event that employees in Mr. Herman’s funding unitor subsidiary are eligible for a payment under the Company’s Short-TermIncentive Plan (“STIP”) for the year in which the Effective Date occurs, theCompany will make the STIP payment that Mr. Herman would have received,pro-rated to reflect the number of months from the beginning of the year to theEffective Date. The STIP payment, if any, will be made at such time as STIPpayments are made to employees in Mr. Herman’s funding unit or subsidiary. TheSTIP Plan Administrator will have the sole discretion to determine the amountof STIP payment, consistent with the program guidelines for the year in whichthe Effective Date occurs.
          e.**Senior Executive Retention Program.**Mr. Herman shall receive paymentsunder the Senior Executive Retention Program equal to those he would havereceived pursuant to his February 21, 2002 grant under the Program had heremained employed through each payment date. Mr. Herman shall receive any suchpayments at the time other Program participants receive their payments.
          f.**Counseling services.**For a maximum of one year following the EffectiveDate, the Company will provide Mr. Herman with executive career counselingand/or placement services from the firm of DeRecat & Associates or, at Mr.Herman’s selection, another firm providing such services under contract withthe Company. If Mr. Herman becomes employed during that one-year period, theCompany’s obligation to provide the service specified in this paragraph willterminate at the time the employment commences.
          g.**Payment of COBRA premiums.**If Mr. Herman elects and is otherwiseeligible to continue Mr. Herman’s existing health-insurance coverage pursuantto COBRA, the Company will pay Mr. Herman’s monthly COBRA premiums for the18-*month*period commencing the first full month after the Effective Date anduntil and unless Mr. Herman becomes covered under the health-insurance plan ofanother employer. Mr. Herman will promptly notify the Company’s Senior HumanResources Officer if Mr. Herman becomes employed in any capacity within thatperiod.
     3.**     Defense and indemnification in third-party claims.**The Company and/orits parent, affiliate, or subsidiary will provide Mr. Herman with legalrepresentation and indemnification protection in any legal proceeding in whichMr. Herman is a party or is threatened to be made a party by reason of the factthat Mr. Herman is or was an employee or officer of the Company and/or itsparent, affiliate or subsidiary, in accordance with the terms of the resolutionof the Board of Directors of PG&E Corporation dated December 18, 1996.
     4.**     Cooperation with legal proceedings.**Mr. Herman will, upon reasonablenotice, furnish information and proper assistance to the Company and/or itsparent, affiliate or subsidiary (including truthful testimony and documentproduction) as may reasonably be required by them or any of them in connectionwith any legal, administrative or regulatory proceeding in which they or any ofthem is, or may become, a party, or in connection with any filing or similarobligation imposed by any taxing, administrative or regulatory authority havingjurisdiction, provided, however, that the Company and/or its parent, affiliateor subsidiary will pay all reasonable expenses incurred by Mr. Herman incomplying with this paragraph.
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     5.**     Release of claims and covenant not to sue.**
          a. Except for the obligations of this Agreement, in consideration of theseparation benefits and other benefits the Company is providing under thisAgreement, Mr. Herman, on behalf of Mr. Herman and Mr. Herman’srepresentatives, agents, heirs and assigns, waives, releases, discharges andpromises never to assert any and all claims, liabilities or obligations ofevery kind and nature, whether known or unknown, suspected or unsuspected thatMr. Herman ever had, now has or might have as of the Effective Date against theCompany or its predecessors, parent, affiliates, subsidiaries, shareholders,owners, directors, officers, employees, agents, attorneys, successors, orassigns. These released claims include, without limitation, any claims arisingfrom or related to Mr. Herman’s employment with the Company, its parent or anyof its affiliates and subsidiaries, and the termination of that employment.These released claims also specifically include, but are not limited, anyclaims arising under any federal, state and local statutory or common law, suchas (as amended and as applicable) Title VII of the Civil Rights Act, the AgeDiscrimination in Employment Act, the Americans With Disabilities Act, theEmployee Retirement Income Security Act, the Code of Maryland, Labor andEmployment, any other federal, state or local law governing the terms andconditions of employment or the termination of employment, and the law ofcontract and tort; and any claim for attorneys’ fees.
          b. Mr. Herman acknowledges that there may exist facts or claims inaddition to or different from those which are now known or believed by Mr.Herman to exist. Nonetheless, this Agreement extends to all claims of everynature and kind whatsoever, whether known or unknown, suspected or unsuspected,past or present.
          c. With respect to the claims released in the preceding paragraphs, Mr.Herman will not initiate or maintain any legal or administrative action orproceeding of any kind against the Company or its predecessors, parent,affiliates, subsidiaries, shareholders, owners, directors, officers, employees,agents, attorneys, successors, or assigns, for the purpose of obtaining anypersonal relief, nor (except as otherwise required or permitted by law) assistor participate in any such proceedings, including any proceedings brought byany third parties.
     6.**     Re-employment.**Mr. Herman will not seek any future re-employment withthe Company, its parent or any of its subsidiaries or affiliates. Thisparagraph will not, however, preclude Mr. Herman from accepting an offer offuture employment from the Company, its parent or any of its subsidiaries oraffiliates.
     7.**     Non-disclosure.**
          a. Mr. Herman will not disclose, publicize, or circulate to anyone inwhole or in part, any information concerning the existence, terms, and/orconditions of this Agreement without the express written consent of theCompany’s Chief Legal Officer unless otherwise required or permitted by law.Notwithstanding the preceding sentence, Mr. Herman may disclose the terms andconditions of this Agreement to Mr. Herman’s family members, and any attorneysor tax advisors, if any, to whom there is a *bona fide*need for disclosure inorder for them to render professional services to Mr. Herman, provided that theperson first agrees to keep
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the information confidential and not to make any disclosure of the terms andconditions of this Agreement unless otherwise required or permitted by law.
          b. Mr. Herman will not use, disclose, publicize, or circulate anyconfidential or proprietary information concerning the Company or itssubsidiaries or affiliates, which has come to Mr. Herman’s attention during Mr.Herman’s employment with the Company, unless doing so is expressly authorizedin writing by the Company’s Chief Legal Officer, or is otherwise required orpermitted by law. Before making any legally-required or permitted disclosure,Mr. Herman will give the Company notice at least ten (10) business days inadvance.
     **8.     No competition or solicitation.**
          For a period of one year after the Effective Date, Mr. Herman will not,directly or indirectly, solicit or contact for the purpose of diverting ortaking away or attempt to solicit or contact for the purpose of diverting ortaking away:
 (1) any existing customer of the Company or itsparent, affiliates or subsidiaries;  (2) any prospective customer of the Company or itsparent, affiliates or subsidiaries about whom Mr. Hermanacquired information as a result of any solicitation effortsby the Company or its parent, affiliates or subsidiaries, orby the prospective customer, during Mr. Herman’s employmentwith the Company;  (3) any existing vendor of the Company or its parent,affiliates or subsidiaries;  (4) any prospective vendor of the Company or itsparent, affiliates or subsidiaries, about whom Mr. Hermanacquired information as a result of any solicitation effortsby the Company or its parent, affiliates or subsidiaries, orby the prospective vendor, during Mr. Herman’s employment withthe Company;  (5) any existing employee, agent or consultant of theCompany or its parent, affiliates or subsidiaries, toterminate or otherwise alter the person’s or entity’semployment, agency or consultant relationship with the Companyor its parent, affiliates or subsidiaries; or  (6) any existing employee, agent or consultant of theCompany or its parent, affiliates or subsidiaries, to work inany capacity for or on behalf of any person, company or otherbusiness enterprise that is in competition with the Company orits parent, affiliates or subsidiaries.
     9.**     Material breach by Employee.**In the event that Mr. Herman breaches anymaterial provision of this Agreement, including but not necessarily limited toparagraphs 4, 5, 6, 7, and/or 8, the Company will have no further obligation topay or provide to Mr. Herman any
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unpaid amounts or benefits specified in thisAgreement and will be entitled to immediate returnof any and all amounts or benefits previously paid or provided to Mr.Herman under this Agreement and to recalculate any future pension benefitentitlement without the additional credited service and/or age Mr. Hermanreceived or would have received under this Agreement. Despite any breach byMr. Herman, Mr. Herman’s other duties and obligations under this Agreement,including Mr. Herman’s waivers and releases, will remain in full force andeffect. In the event of a breach or threatened breach by Mr. Herman of any ofthe provisions in paragraphs 4, 5, 6, 7, and/or 8, the Company will, inaddition to any other remedies provided in this Agreement, be entitled toequitable and/or injunctive relief and, because the damages for such a breachor threatened breach will be difficult to determine and will not provide a fulland adequate remedy, the Company will also be entitled to specific performanceby Mr. Herman of Mr. Herman’s obligations under paragraphs 4, 5, 6, 7, and/or8. Pursuant to paragraph 14, and except as otherwise prohibited or limited bylaw, Mr. Herman will also be liable for any litigation costs and expenses thatthe Company incurs in successfully seeking enforcement of its rights under thisAgreement, including reasonable attorney’s fees.
     10**.     Material breach by the Company.**Mr. Herman will be entitled torecover actual damages in the event of any material breach of this Agreement bythe Company, including any unexcused late or non-payment of any amounts owedunder this Agreement, or any unexcused failure to provide any other benefitsspecified in this Agreement. In the event of a breach or threatened breach bythe Company of any of its material obligations to Mr. Herman under thisAgreement, Mr. Herman will be entitled to seek, in addition to any otherremedies provided in this Agreement, specific performance of the Company’sobligations and any other applicable equitable or injunctive relief. Pursuantto paragraph 14, and except as prohibited or limited by law, the Company willalso be liable for any litigation costs and expenses that Mr. Herman incurs insuccessfully seeking enforcement of Mr. Herman’s rights under this Agreement,including reasonable attorney’s fees. Despite any breach by the Company, itsother duties and obligations under this Agreement will remain in full force andeffect.
     11**.     No admission of liability.**This Agreement is not, and will not beconsidered, an admission of liability or of a violation of any applicablecontract, law, rule, regulation, or order of any kind.
     12**.     Complete agreement.**This Agreement sets forth the entire agreementbetween the Parties pertaining to the subject matter of this Agreement andfully supersedes any prior or contemporaneous negotiations, representations,agreements, or understandings between the Parties with respect to any suchmatters, whether written or oral (including any that would have provided Mr.Herman with any different severance arrangements). The Parties acknowledgethat they have not relied on any promise, representation or warranty, expressor implied, not contained in this Agreement. Parol evidence will beinadmissible to show agreement by and among the Parties to any term orcondition contrary to or in addition to the terms and conditions contained inthis Agreement.
     13**.     Severability.**If any provision of this Agreement is determined to beinvalid, void, or unenforceable, the remaining provisions will remain in fullforce and effect except that,
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should paragraphs 4, 5, 6, 7, and/or 8 be heldinvalid, void or unenforceable, either jointly or separately as a result of anyaction initiated by Mr. Herman or his representative, the Companywill be entitled to rescind the Agreement and/or recover from Mr. Hermanany payments made and benefits provided to Mr. Herman under this Agreement.
     14**.     Arbitration.**With the exception of any request for specificperformance, injunctive or other equitable relief, any dispute or controversyof any kind arising out of or related to this Agreement, Mr. Herman’semployment with the Company (or with the employing subsidiary), the separationof Mr. Herman from that employment and from Mr. Herman’s positions as anofficer and/or director of the Company or any subsidiary or affiliate, or anyclaims for benefits, will be resolved exclusively by final and bindingarbitration using a three-member arbitration panel in accordance with theCommercial Arbitration Rules of the American Arbitration Association currentlyin effect, provided, however, that in rendering their award, the arbitratorswill be limited to accepting the position of Mr. Herman or the Company. Theonly claims not covered by this paragraph are any non-waivable claims forbenefits under workers’ compensation or unemployment insurance laws, which willbe resolved under those laws. Any arbitration pursuant to this paragraph willtake place in Bethesda, Maryland. The Parties may be represented by legalcounsel at the arbitration but must bear their own fees for such representationin the first instance. The prevailing party in any dispute or controversycovered by this paragraph, or with respect to any request for specificperformance, injunctive or other equitable relief, will be entitled to recover,in addition to any other available remedies specified in this Agreement, alllitigation expenses and costs, including any arbitrator, administrative orfiling fees and reasonable attorneys’ fees, except as prohibited or limited bylaw. The Parties specifically waive any right to a jury trial on any disputeor controversy covered by this paragraph. Judgment may be entered on thearbitrators’ award in any court of competent jurisdiction. Subject to thearbitration provisions of this paragraph, the sole jurisdiction and venue forany action related to the subject matter of this Agreement will be the Marylandstate and federal courts having within their jurisdiction the location of theCompany’s principal place of business in Maryland at the time of such action,and both Parties hereby consent to the jurisdiction of such courts for any suchaction.
     15**.     Governing law.**This Agreement will be governed by and construed underthe laws of the United States and, to the extent not preempted by such laws, bythe laws of the State of Maryland, without regard to their conflicts of lawsprovisions.
     16**.     No waiver.**The failure of either Party to exercise or enforce, at anytime, or for any period of time, any of the provisions of this Agreement willnot be construed as a waiver of that provision, or any portion of thatprovision, and will in no way affect that party’s right to exercise or enforcesuch provisions. No waiver or default of any provision of this Agreement willbe deemed to be a waiver of any succeeding breach of the same or any otherprovisions of this Agreement.
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     17**.     Acceptance of Agreement.**
          a. Mr. Herman was provided up to 21 days to consider and accept the termsof this Agreement and was advised to consult with an attorney about theAgreement before signing it. After reviewing an earlier draft of theAgreement, Mr. Herman requested certain modifications to the Agreement whichwere accepted and are reflected in this Agreement. Although based on thosemodifications, Mr. Herman may have been entitled to another 21-day period inwhich to consider and accept the terms of this Agreement, Mr. Herman elected towaive any applicable new 21-day period. After signing the Agreement, Mr.Herman will have an additional seven (7) days in which to revoke in writingacceptance of this Agreement. To revoke, Mr. Herman will submit a signedstatement to that effect to the Company’s Senior Human Resources Officer beforethe close of business on the seventh day. If Mr. Herman does not submit atimely revocation, the Effective Date of this Agreement will be the eighth dayafter Mr. Herman signs it, at which time the Company shall wire transfer thepayments set forth in paragraphs 2 (a) and 2 (b), above.
          b. Mr. Herman acknowledges reading and understanding the contents of thisAgreement, being afforded the opportunity to review carefully this Agreementwith an attorney of Mr. Herman’s choice, not relying on any oral or writtenrepresentation not contained in this Agreement, signing this Agreementknowingly and voluntarily, and, after the Effective Date of this Agreement,being bound by all of its provisions.           Dated:                                                                                         PG&E National Energy Group Company               By:                                                                                                                                       Dated:                                                                                             STEPHEN A. HERMAN                                                                                                                                                                
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