LOAN AGREEMENT



                                       Between



                                 CITY OF CHULA VISTA

                                          And

                           SAN DIEGO GAS & ELECTRIC COMPANY



                             Dated as of November 1, 1996




                                   Relating to

                                   $60,000,000
                               City of Chula Vista
                      Industrial Development Revenue Bonds
                       (San Diego Gas & Electric Company)
                                  1996 Series B






                                   LOAN AGREEMENT

                                 TABLE OF CONTENTS

                                                                    Page

PARTIES                                                                1
PREAMBLES                                                              1


                                    ARTICLE I

                                   DEFINITIONS

SECTION 1.1.         DEFINITION OF TERMS                               2
SECTION 1.2.         NUMBER AND GENDER                                 2
SECTION 1.3.         ARTICLES, SECTIONS, ETC.                          2

                                    ARTICLE II

                                 REPRESENTATIONS

SECTION 2.1.         REPRESENTATIONS OF THE CITY                       2
SECTION 2.2.         REPRESENTATIONS OF THE BORROWER                   3

                                    ARTICLE III

                    ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS

SECTION 3.1.         AGREEMENT TO ISSUE BONDS; APPLICATION OF BOND
                     PROCEEDS                                          4
SECTION 3.2.         INVESTMENT OF MONEYS IN FUNDS                     4
SECTION 3.3.         AMENDMENT OF DESCRIPTION OF THE PROJECT           4

                                      ARTICLE IV

                          LOAN TO BORROWER; REPAYMENT PROVISIONS

SECTION 4.1.        LOAN TO BORROWER                                   5
SECTION 4.2.        REPAYMENT AND PAYMENT OF OTHER AMOUNTS PAYABLE     5
SECTION 4.3.        UNCONDITIONAL OBLIGATION                           6
SECTION 4.4.        ASSIGNMENT OF CITY'S RIGHTS                        7
SECTION 4.5.        AMOUNTS REMAINING IN FUNDS                         7
SECTION 4.6.        CREDIT FACILITY                                    7

                                    ARTICLE V

                           SPECIAL COVENANTS AND AGREEMENTS

SECTION 5.1.        RIGHT OF ACCESS TO THE PROJECT                     8
SECTION 5.2.        THE BORROWER'S MAINTENANCE OF ITS EXISTENCE;
                    ASSIGNMENTS                                        8
SECTION 5.3.        RECORDS AND FINANCIAL STATEMENTS OF BORROWER       9
SECTION 5.4.        MAINTENANCE AND REPAIR                             9
SECTION 5.5.        QUALIFICATION IN CALIFORNIA                        9
SECTION 5.6.        TAX EXEMPT STATUS OF BONDS                         9
SECTION 5.7.        NOTICE OF RATE PERIODS                            10
SECTION 5.8.        REMARKETING OF THE BONDS                          11
SECTION 5.9.        NOTICES TO TRUSTEE AND CITY                       12
SECTION 5.10.       CONTINUING DISCLOSURE                             12

                                      ARTICLE VI

                          EVENTS OF DEFAULT AND REMEDIES

SECTION 6.1.        EVENTS OF DEFAULT                                 12
SECTION 6.2.        REMEDIES ON DEFAULT                               13
SECTION 6.3.        AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES     15
SECTION 6.4.        NO REMEDY EXCLUSIVE                               15
SECTION 6.5.        NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER        15

                                     ARTICLE VII

                                     PREPAYMENT

SECTION 7.1.       REDEMPTION OF BONDS WITH PREPAYMENT MONEYS         15
SECTION 7.2.       OPTIONS TO PREPAY INSTALLMENTS                     16
SECTION 7.3.       MANDATORY PREPAYMENT                               16
SECTION 7.4.       AMOUNT OF PREPAYMENT                               16
SECTION 7.5.       NOTICE OF PREPAYMENT                               16

                                     ARTICLE VIII

                  NON-LIABILITY OF CITY; EXPENSES; INDEMNIFICATION

SECTION 8.1.       NON-LIABILITY OF CITY                             17
SECTION 8.2.       EXPENSES                                           17
SECTION 8.3.       INDEMNIFICATION                                    18

                                      ARTICLE IX

                                     MISCELLANEOUS

SECTION 9.1.       NOTICES                                            18
SECTION 9.2.       SEVERABILITY                                       18
SECTION 9.3.       EXECUTION OF COUNTERPARTS                          19
SECTION 9.4.       AMENDMENTS, CHANGES AND MODIFICATIONS              19
SECTION 9.5.       GOVERNING LAW                                      19
SECTION 9.6.       AUTHORIZED BORROWER REPRESENTATIVE                 19
SECTION 9.7.       TERM OF THE AGREEMENT                              19
SECTION 9.8.       BINDING EFFECT                                     19

TESTIMONIUM                                                           20

SIGNATURES AND SEALS                                                  20

EXHIBIT A          Description of the Project                        A-1



                               LOAN AGREEMENT


                THIS LOAN AGREEMENT, dated as of November 1, 1996, by and 
between the CITY OF CHULA VISTA, a municipal corporation and charter city 
duly organized and existing under the laws and Constitution of the State 
of California (the "City"), and SAN DIEGO GAS & ELECTRIC COMPANY, a 
corporation organized and existing under the laws of the State of 
California (the "Borrower"),

                               W I T N E S S E T H :

                WHEREAS, the City is a municipal corporation and charter 
city, duly organized and existing under a freeholders' charter pursuant 
to which the City has the right and power to make and enforce all laws 
and regulations in accordance with and as more particularly provided in 
Sections 3, 5 and 7 of Article XI of the Constitution of the State of 
California and Section 200 of the Charter of the City (the "Charter"); 
and

                WHEREAS, the City Council of the City, acting under and 
pursuant to the powers reserved to the City under Sections 3, 5 and 7 of 
Article XI of the Constitution and Section 200 of the Charter, has 
enacted Chapter 3.48 of the Chula Vista Municipal Code, pursuant to 
Ordinance No. 1970 adopted on February 9, 1982, as amended from time to 
time (the "Law"), establishing a program to provide financial assistance 
for the acquisition, construction and installation of facilities for 
industrial, commercial or public utility purposes; and

              WHEREAS, the Borrower has duly applied to the City for 
financial assistance to refinance the costs of acquisition, construction 
and installation of certain facilities for the distribution of electric 
energy and gas, as more fully described in Exhibit A hereto (the 
"Project"), by prepaying a loan (the "Prior Loan") made to the Borrower 
with the proceeds of The City of San Diego Industrial Development Revenue 
Bonds (San Diego Gas & Electric Company) 1986 Series B (the "Prior 
Bonds"), resulting in the refunding of the Prior Bonds; and

               WHEREAS, the City after due investigation and deliberation 
has determined that the Project and the refinancing thereof, and the 
resulting refunding of the Prior Bonds, will directly benefit the 
citizens of the City by substantially promoting the public interests 
recited in the Law and has adopted its resolutions authorizing the 
provision or lending of financial assistance to the Borrower to refinance 
the costs of acquisition, construction and installation of the Project 
and to prepay the Prior Loan, and the issuance and sale of its bonds, 
including its Industrial Development Revenue Bonds (San Diego Gas & 
Electric Company) 1996 Series B (the "Bonds"), for such purposes; and

               WHEREAS, the City proposes to assist in such refinancing 
upon the terms and conditions set forth herein;

               NOW, THEREFORE, in consideration of the premises and the 
respective representations and covenants herein contained, the parties 
hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

              SECTION 1.1.  DEFINITION OF TERMS.  Unless the context 
otherwise requires, the terms used in this Agreement shall have the 
meanings specified in Section 1.01 of the Indenture of Trust, of even 
date herewith relating to the Bonds (the "Indenture"), by and between the 
City and First Trust of California, National Association, as trustee (the 
"Trustee"), as originally executed or as it may from time to time be 
supplemented or amended as provided therein.

              SECTION 1.2.  NUMBER AND GENDER.  The singular form of any 
word used herein, including the terms defined in Section 1.01 of the 
Indenture, shall include the plural, and vice versa.  The use herein of a 
word of any gender shall include all genders.

              SECTION 1.3.  ARTICLES, SECTIONS, ETC.  Unless otherwise 
specified, references to Articles, Sections and other subdivisions of 
this Agreement are to the designated Articles, Sections and other 
subdivisions of this Agreement as originally executed.  The words 
"hereof," "herein," "hereunder" and words of similar import refer to this 
Agreement as a whole.  The headings or titles of the several articles and 
sections, and the table of contents appended to copies hereof, shall be 
solely for convenience of reference and shall not affect the meaning, 
construction or effect of the provisions hereof.


                                   ARTICLE II

                                REPRESENTATIONS

              SECTION 2.1.  REPRESENTATIONS OF THE CITY.  The City makes 
the following representations as the basis for its undertakings herein 
contained:

               (a)  The City is a municipal corporation and charter city 
in the State of California.  Under the provisions of the Law, the City 
has the power to enter into the transactions contemplated by this 
Agreement and to carry out its obligations hereunder.  The Project 
constitutes a "project" as that term is defined in the Law.  By proper 
action, the City has been duly authorized to execute, deliver and duly 
perform this Agreement and the Indenture.

               (b)  To refinance the cost of the Project, the City will 
issue the Bonds which will mature, bear interest and be subject to 
redemption as set forth in the Indenture.

               (c)  The Bonds will be issued under and secured by the 
Indenture, pursuant to which the City's interest in this Agreement 
(except certain rights of the City to give approvals and consents and to 
receive payment for expenses and indemnification and certain other 
payments) will be pledged to the Trustee as security for payment of the 
principal of, premium, if any, and interest on the Bonds.

               (d)  The City has not pledged and will not pledge its 
interest in this Agreement for any purpose other than to secure the Bonds 
under the Indenture.

               (e)  The City is not in default under any of the 
provisions of the laws of the State of California or the City's Charter 
which default would affect its existence or its powers referred to in 
subsection (a) of this Section 2.1.

               (f)  The City has found and determined and hereby finds 
and determines that all requirements of the Law with respect to the 
issuance of the Bonds and the execution of this Agreement and the 
Indenture have been complied with and that refinancing the Project by 
issuing the Bonds, refunding or replacing the Prior Bonds and entering 
into this Agreement and the Indenture will be in furtherance of the 
purposes of the Law.

               (g)  On May 21, 1996, the City Council of the City adopted 
Resolution No. 18302 authorizing the issuance and sale of the Bonds.

               (h)  On July 23, 1996, the City Council adopted Resolution 
No. 18384 authorizing the execution and delivery of a bond purchase 
agreement and official statement in connection with the sale of the 
Bonds.

             SECTION 2.2.  REPRESENTATIONS OF THE BORROWER.  The Borrower 
makes the following representations as the basis for its undertakings 
herein contained:

              (a)  The Borrower is a corporation duly formed under the 
laws of the State of California, is in good standing in the State of 
California and has the power to enter into and has duly authorized, by 
proper corporate action, the execution and delivery of this Agreement and 
all other documents contemplated hereby to be executed by the Borrower.

              (b)  Neither the execution and delivery of this Agreement, 
the consummation of the transactions contemplated hereby, nor the 
fulfillment of or compliance with the terms and conditions hereof and 
thereof, conflicts with or results in a breach of any of the terms, 
conditions or provisions of the Borrower's Articles of Incorporation or 
By-laws or of any corporate actions or of any agreement or instrument to 
which the Borrower is now a party or by which it is bound, or constitutes 
a default (with due notice or the passage of time or both) under any of 
the foregoing, or results in the creation or imposition of any prohibited 
lien, charge or encumbrance whatsoever upon any of the property or assets 
of the Borrower under the terms of any instrument or agreement to which 
the Borrower is now a party or by which it is bound.

              (c)  The Project consists and will consist of those 
facilities described in Exhibit A hereto, and the Borrower shall make no 
changes to such portion of the Project or to the operation thereof which 
would affect the qualification of the Project as a "project" under the 
Law or impair the exemption from gross income of the interest on the 
Bonds for federal income tax purposes.  In particular, the Borrower shall 
comply with all requirements of the San Diego Gas & Electric Company 
Engineering Certificate, dated the Issue Date (the "Engineering 
Certificate"), which is hereby incorporated by reference herein.  The 
Project consists of facilities for the local furnishing of electric 
energy and gas as described in the Engineering Certificate.  The Borrower 
intends to utilize such portion of the Project as facilities for the 
local furnishing of electric energy and gas throughout the foreseeable 
future.

              (d)  The Borrower has and will have title to the Project 
sufficient to carry out the purposes of this Agreement.

              (e)  The economic useful life of the Project is as set 
forth in the Engineering Certificate.

              (f)  All certificates, approvals, permits and 
authorizations with respect to the construction of the Project of 
agencies of applicable local governmental agencies, the State of 
California and the federal government have been obtained; and pursuant to 
such certificates, approvals, permits and authorizations the Project has 
been constructed and is in operation.


                                   ARTICLE III

                    ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS

              SECTION 3.1.  AGREEMENT TO ISSUE BONDS; APPLICATION OF BOND 
PROCEEDS.  To provide funds to enable the Borrower to refinance a portion 
of the cost of the Project by prepaying the Prior Loan, the City agrees 
that it will issue under the Indenture, sell and cause to be delivered to 
the purchasers thereof, the Bonds, bearing interest as provided and 
maturing on the date set forth in the Indenture.  The City will thereupon 
apply the proceeds received from the sale of the Bonds as provided in 
Section 3.02 of the Indenture.

            SECTION 3.2.  INVESTMENT OF MONEYS IN FUNDS.  Any moneys in 
any fund held by the Trustee shall, at the written request of an 
Authorized Borrower Representative, be invested or reinvested by the 
Trustee as provided in the Indenture.  Such investments shall be held by 
the Trustee and shall be deemed at all times a part of the fund from 
which such investments were made, and the interest accruing thereon and 
any profit or loss realized therefrom shall, except as otherwise provided 
in the Indenture, be credited or charged to such fund.

            SECTION 3.3.  AMENDMENT OF DESCRIPTION OF THE PROJECT.   In 
the event that the Borrower desires to amend or supplement the Project, 
as described in Exhibit A hereto, and the City approves of such amendment 
or supplement, the City will enter into, and will instruct the Trustee to 
consent to, such amendment or supplement upon receipt of:

                (i)  a certificate of an Authorized Borrower 
Representative describing in detail the proposed changes and 
stating that they will not have the effect of disqualifying any 
component of the Project as a facility that may be financed 
pursuant to the Law;

               (ii)  a copy of the proposed form of amended or 
supplemented Exhibit A hereto; and

              (iii)  an Opinion of Bond Counsel that such proposed 
changes will not affect the exclusion from gross income of interest 
on the Bonds for federal income tax purposes.


                                   ARTICLE IV
                     LOAN TO BORROWER; REPAYMENT PROVISIONS

              SECTION 4.1.  LOAN TO BORROWER.  The City and the Borrower 
agree that the application of the proceeds of sale of the Bonds to refund 
and retire a portion of the Prior Bonds and the first mortgage bonds of 
the Borrower relating thereto will be deemed to be and treated for all 
purposes as a loan to the Borrower of an amount equal to the principal 
amount of the Bonds.

            SECTION 4.2.  REPAYMENT AND PAYMENT OF OTHER AMOUNTS PAYABLE.

            (a)  The Borrower covenants and agrees to pay to the Trustee 
as a Repayment Installment on the loan to the Borrower pursuant to 
Section 4.1 hereof, on each date provided in or pursuant to the Indenture 
for the payment of principal (whether at maturity or upon redemption or 
acceleration) of, premium, if any, and/or interest on the Bonds, until 
the principal of, premium, if any, and interest on the Bonds shall have 
been fully paid or provision for the payment thereof shall have been made 
in accordance with the Indenture, in immediately available funds, for 
deposit in the Bond Fund, a sum equal to the amount then payable as 
principal (whether at maturity or upon redemption or acceleration), 
premium, if any, and interest upon the Bonds as provided in the 
Indenture.

              Each payment required to be made pursuant to this Section 
4.2(a) shall at all times be sufficient to pay the total amount of 
interest and principal (whether at maturity or upon redemption or 
acceleration) and premium, if any, then payable on the Bonds; provided 
that any amount held by the Trustee in the Bond Fund on any due date for 
a Repayment Installment hereunder shall be credited against the 
installment due on such date to the extent available for such purpose; 
and provided further that, subject to the provisions of this paragraph, 
if at any time the amounts held by the Trustee in the Bond Fund are 
sufficient to pay all of the principal of and interest and premium, if 
any, on the Bonds as such payments become due, the Borrower shall be 
relieved of any obligation to make any further payments under the 
provisions of this Section.  Notwithstanding the foregoing, if on any 
date the amount held by the Trustee in the Bond Fund is insufficient to 
make any required payments of principal of (whether at maturity or upon 
redemption or acceleration) and interest and premium, if any, on the 
Bonds as such payments become due, the Borrower shall forthwith pay such 
deficiency as a Repayment Installment hereunder.

              The obligation of the Borrower to make any payment under 
this Section 4.2(a) with respect to the Bonds shall be deemed to have 
been satisfied to the extent of any corresponding payment by the Credit 
Provider under the Credit Facility, if any, for such Bonds.

              (b)  The Borrower also agrees to pay to the Trustee until 
the principal of, premium, if any, and interest on the Bonds shall have 
been fully paid or provision for the payment thereof shall have been made 
as required by the Indenture, (i) the annual fee of the Trustee for its 
ordinary services rendered as trustee, and its ordinary expenses incurred 
under the Indenture, as and when the same become due, (ii) the reasonable 
fees, charges and expenses of the Trustee, the Registrar and the 
reasonable fees of any paying agent on the Bonds as provided in the 
Indenture, as and when the same become due, (iii) the reasonable fees, 
charges and expenses of the Trustee for the necessary extraordinary 
services rendered by it and extraordinary expenses incurred by it under 
the Indenture, as and when the same become due.  The Borrower shall also 
pay the cost of printing any Bonds required to be furnished by the City.

             (c)  The Borrower also agrees to pay, within 60 days after 
receipt of request for payment thereof, all expenses required to be paid 
by the Borrower under the terms of the bond purchase agreement executed 
by it in connection with the sale of the Bonds, and all reasonable 
expenses of the City related to the financing of the Project which are 
not otherwise required to be paid by the Borrower under the terms of this 
Agreement; provided that the City shall have obtained the prior written 
approval of the Authorized Borrower Representative for any expenditures 
other than those provided for herein or in said bond purchase agreement.

             The Borrower also agrees to pay to the City within five days 
following the Issue Date an issuance fee in the amount of $150,000.00.

             (d)  The Borrower hereby agrees to provide or cause to be 
provided in immediately available funds, for deposit into the Bond 
Purchase Fund maintained by the Tender Agent, all amounts necessary to 
purchase Bonds tendered for purchase in accordance with Sections 2.01(d) 
and 2.01(e) of the Indenture.

             (e)  In the event the Borrower should fail to make any of 
the payments required by subsections (a) through (d) of this Section, 
such payments shall continue as obligations of the Borrower until such 
amounts shall have been fully paid.  The Borrower agrees to pay such 
amounts, together with interest thereon until paid, to the extent 
permitted by law, at the rate of one percent (1%) per annum over the rate 
borne by any Bonds in respect of which such payments are required to be 
made pursuant to said subsection (a), and one percent (1%) per annum over 
the average rate then borne by the Bonds as to all other payments.  
Interest on overdue payments required under subsection (a) or (d) above 
shall be paid to Bondholders as provided in the Indenture.

            (f)  Upon written request of the Trustee, the Borrower shall 
pay any Repayment Installment directly to the Paying Agent.

            (g)  Any unpaid obligation of the Borrower under subsections 
(b) through (e) of this Section 4.2 shall survive the payment and 
discharge of the Bonds and the termination of this Agreement.

             SECTION 4.3.  UNCONDITIONAL OBLIGATION.  The obligations of 
the Borrower to make the payments required by Section 4.2 hereof and to 
perform and observe the other agreements on its part contained herein 
shall be absolute and unconditional, irrespective of any defense or any 
rights of set-off, recoupment or counterclaim it might otherwise have 
against the City, and during the term of this Agreement, the Borrower 
shall pay absolutely net the payments to be made on account of the loan 
as prescribed in Section 4.2 and all other payments required hereunder, 
free of any deductions and without abatement, diminution or set-off.  
Until such time as the principal of, premium, if any, and interest on the 
Bonds shall have been fully paid, or provision for the payment thereof 
shall have been made as required by the Indenture, the Borrower (i) will 
not suspend or discontinue any payments provided for in Section 4.2 
hereof; (ii) will perform and observe all of its other covenants 
contained in this Agreement; and (iii) will not terminate this Agreement 
for any cause, including, without limitation, the occurrence of any act 
or circumstances that may constitute failure of consideration, 
destruction of or damage to the Project, commercial frustration of 
purpose, any change in the tax or other laws of the United States of 
America or of the State of California or any political subdivision of 
either of these, or any failure of the City or the Trustee to perform and 
observe any covenant, whether express or implied, or any duty, liability 
or obligation arising out of or connected with this Agreement or the 
Indenture, except to the extent permitted by this Agreement.

               SECTION 4.4.  ASSIGNMENT OF CITY'S RIGHTS.  As security 
for the payment of the Bonds, the City will assign to the Trustee the 
City's rights, but not its obligations, under this Agreement, including 
the right to receive payments hereunder (except (i) the rights of the 
City to receive notices under this Agreement, (ii) the right of the City 
to receive certain payments, if any, with respect to fees, expenses and 
indemnification and certain other purposes under Sections 4.2(c), 4.2(e), 
6.3, 8.2 and 8.3 hereof, and (iii) the right of the City to give 
approvals or consents pursuant to this Agreement) and the City hereby 
directs the Borrower to make the payments required hereunder (except such 
payments for fees, expenses and indemnification) directly to the Trustee. 
 The Borrower hereby assents to such assignment and agrees to pay the 
Repayment Installments directly to the Trustee (subject to the provisions 
of Section 4.2(f)) without defense or set-off by reason of any dispute 
between the Borrower and the City or the Trustee.

              SECTION 4.5.  AMOUNTS REMAINING IN FUNDS.  It is agreed by 
the parties hereto that after payment in full of (i) the Bonds, or after 
provision for such payment shall have been made as provided in the 
Indenture, (ii) the fees and expenses of the City in accordance with this 
Agreement, (iii) the fees, charges and expenses of the Trustee, the 
Registrar and Paying Agents in accordance with the Indenture and this 
Agreement and (iv) all other amounts required to be paid under this 
Agreement and the Indenture, any amounts remaining in any fund held by 
the Trustee under the Indenture shall belong, subject to the requirements 
of Section 6.06 of the Indenture, to the Borrower and be paid to the 
Borrower by the Trustee.

              SECTION 4.6.  CREDIT FACILITY.  No initial Credit Facility 
shall be provided with respect to the Bonds.  The Borrower may provide 
and subsequently terminate or remove a Credit Facility with respect to 
the Bonds pursuant to the provisions of Section 5.07 of the Indenture; 
provided, however, that, except in connection with the redemption of 
Bonds, the Borrower shall not intentionally cause the termination or 
substitution of any Credit Facility with respect to Bonds during a Term 
Rate Period or a Variable Term Segment with respect to such Bonds.  Not 
less than twenty-five days prior to the termination, removal, 
substitution or delivery of any Credit Facility with respect to the 
Bonds, the Borrower shall mail written notice of such termination, 
removal, substitution or delivery to the Trustee.  Not less than fifteen 
days prior to the delivery of any substitute or new Credit Facility for 
the Bonds, the Borrower shall mail written notice of such substitution or 
delivery to each Rating Agency.


                                     ARTICLE V

                         SPECIAL COVENANTS AND AGREEMENTS

                SECTION 5.1.  RIGHT OF ACCESS TO THE PROJECT.  The 
Borrower agrees that during the term of this Agreement the City, the 
Trustee and the duly authorized agents of either of them shall have the 
right at all reasonable times during normal business hours to enter upon 
the site of the Project described in Exhibit A hereto to examine and 
inspect such Project; provided, however, that this right is subject to 
federal and State of California laws and regulations applicable to such 
site.  The rights of access hereby reserved to the City and the Trustee 
may be exercised only after such agent shall have executed release of 
liability (which release shall not limit any of the Borrower's 
obligations hereunder) and secrecy agreements if requested by the 
Borrower in the form then currently used by the Borrower, and nothing 
contained in this Section or in any other provision of this Agreement 
shall be construed to entitle the City or the Trustee to any information 
or inspection involving the confidential know-how of the Borrower.

                SECTION 5.2.  THE BORROWER'S MAINTENANCE OF ITS 
EXISTENCE; ASSIGNMENTS.  (a)  The Borrower agrees that during the term of 
this Agreement it will maintain its corporate existence in good standing 
and will not dissolve or otherwise dispose of all or substantially all of 
its assets and will not consolidate with or merge into another 
corporation or permit one or more other corporations to consolidate or 
merge into it; provided, that the Borrower may, without violating the 
covenants contained in this Section, consolidate with or merge into 
another corporation, or permit one or more other corporations to 
consolidate with or merge into it, or sell or otherwise transfer to 
another corporation all or substantially all of its assets and thereafter 
dissolve, provided that (1) either (A) the Borrower is the surviving 
corporation or (B) the surviving, resulting or transferee corporation, as 
the case may be, (i) assumes and agrees in writing to pay and perform all 
of the obligations of the Borrower hereunder and (ii) qualifies to do 
business in the State of California; and (2) the Borrower shall deliver 
to the Trustee an Opinion of Bond Counsel to the effect that such 
consolidation, merger or transfer and dissolution does not in and of 
itself adversely affect the exclusion from gross income for federal 
income tax purposes of interest on the Bonds.

              (b)  With the prior written consent of the City (which 
consent shall not be unreasonably withheld), the rights and obligations 
of the Borrower under this Agreement may be assigned by the Borrower, in 
whole or in part, subject, however, to each of the following conditions:

                (i)  No assignment (other than pursuant to a merger, 
consolidation or combination described in Section 5.2(a)) shall relieve 
the Borrower from primary liability for any of its obligations hereunder, 
and in the event of any assignment not pursuant to Section 5.2(a), the 
Borrower shall continue to remain primarily liable for the payments 
specified in Section 4.2 hereof and for performance and observance of the 
other agreements on its part herein provided to be performed and observed 
by it.

               (ii)  Any assignment from the Borrower shall retain for 
the Borrower such rights and interests as will permit it to perform its 
obligations under this Agreement, and any assignee from the Borrower 
shall assume the obligations of the Borrower hereunder to the extent of 
the interest assigned.

              (iii)  The Borrower shall, within thirty days after 
delivery of such assignment, furnish or cause to be furnished to the City 
and the Trustee a true and complete copy of each such assignment together 
with an instrument of assumption.

               (iv)  The Borrower shall cause to be delivered to the City 
and the Trustee an Opinion of Bond Counsel that such assignment will not, 
in and of itself, result in the interest on the Bonds being determined to 
be includable in the gross income for federal income tax purposes of the 
owners thereof (other than a "substantial user" of the Project or a 
"related person" within the meaning of Section 103(b)(13) of the 1954 
Code).

                SECTION 5.3.  RECORDS AND FINANCIAL STATEMENTS OF 
BORROWER.  The Borrower agrees (a) to keep and maintain full and accurate 
accounts and records of its operations in accordance with generally 
accepted accounting principles, (b) to permit the Trustee for itself or 
on behalf of the holders of the Bonds and its designated officers, 
employees, agents and representatives to have access to such accounts and 
records and to make examinations thereof at all reasonable times and 
(c) upon request of the Trustee, to provide the Trustee with the 
Borrower's most recent audited financial statements.

                SECTION 5.4.  MAINTENANCE AND REPAIR.  The Borrower 
agrees that as long as it owns the Project it will (i) maintain, or cause 
to be maintained, the Project in as reasonably safe condition as its 
operations shall permit and (ii) maintain, or cause to be maintained, the 
Project in good repair and in good operating condition, ordinary wear and 
tear excepted, making from time to time all necessary repairs thereto and 
renewals and replacements thereof.

                SECTION 5.5.  QUALIFICATION IN CALIFORNIA.  The Borrower 
agrees that throughout the term of this Agreement it, or any successor or 
assignee as permitted by Section 5.2, will be qualified to do business in 
the State of California.

                SECTION 5.6.  TAX EXEMPT STATUS OF BONDS.  (a) It is the 
intention of the parties hereto that interest on the Bonds shall be and 
remain excluded from gross income for federal income tax purposes.  To 
that end, the covenants and agreements of the City and the Borrower in 
this Section and in the Tax Certificate are for the benefit of the 
Trustee and each and every person who at any time will be a holder of the 
Bonds.  Without limiting the generality of the foregoing, the Borrower 
and the City agree that there shall be paid from time to time all amounts 
required to be rebated to the United States pursuant to Section 148(f) of 
the Code and any temporary, proposed or final Treasury Regulations as may 
be applicable to the Bonds from time to time.  This covenant shall 
survive payment in full or defeasance of the Bonds.  The Borrower 
specifically covenants to pay or cause to be paid for and on behalf of 
the City to the United States at the times and in the amounts determined 
under Section 6.06 of the Indenture the Rebate Requirement as described 
in the Tax Certificate.  The City shall not be liable to make any such 
payment except from funds provided by the Borrower for such purpose.

                (b)  The City covenants and agrees that it has not taken 
and will not take any action which results in interest to be paid on the 
Bonds being included in gross income of the holders of the Bonds for 
federal income tax purposes, and the Borrower covenants and agrees that 
it has not taken or permitted to be taken and will not take or permit to 
be taken any action which will cause the interest on the Bonds to become 
includable in gross income for federal income tax purposes; provided that 
neither the Borrower nor the City shall have violated these covenants if 
interest on any of the Bonds becomes taxable to a person solely because 
such person is a "substantial user" of the Project or a "related person" 
within the meaning of Section 147(a) of the Code; and provided further 
that none of the covenants and agreements herein contained shall require 
either the Borrower or the City to enter an appearance or intervene in 
any administrative, legislative or judicial proceeding in connection with 
any changes in applicable laws, rules or regulations or in connection 
with any decisions of any court or administrative agency or other 
governmental body affecting the taxation of interest on the Bonds.  The 
Borrower acknowledges having read Section 6.06 of the Indenture and 
agrees to perform all duties imposed on it by such Section, by this 
Section and by the Tax Certificate.  Insofar as Section 6.06 of the 
Indenture and the Tax Certificate impose duties and responsibilities on 
the City or the Borrower, they are specifically incorporated herein by 
reference.

                (c)  Notwithstanding any provision of this Section 5.6 or 
Section 6.06 of the Indenture, if the Borrower shall provide to the City 
and the Trustee an Opinion of Bond Counsel to the effect that any 
specified action required under this Section 5.6 and Section 6.06 of the 
Indenture is no longer required or that some further or different action 
is required to maintain the exclusion from federal income tax of interest 
on the Bonds, the Borrower, the Trustee and the City may conclusively 
rely on such opinion in complying with the requirements of this Section, 
and the covenants set forth in this Section 5.6 shall be deemed to be 
modified to that extent.

                SECTION 5.7.  NOTICE OF RATE PERIODS.  The Borrower shall 
designate and give timely written notice to the Trustee as required by 
the Indenture prior to any change in Rate Periods for the Bonds.  In 
addition, if the Borrower shall elect to change Rate Periods in 
accordance with the Indenture and the Bonds under circumstances requiring 
the delivery of an Opinion of Bond Counsel, the Borrower shall deliver 
such opinion to the Trustee concurrently with the giving of notice with 
respect thereto, and no such change shall be effective without an Opinion 
of Bond Counsel to the effect that such change is authorized or permitted 
by the Indenture and the Law and will not adversely affect the Tax-Exempt 
status of the interest on the Bonds.

                SECTION 5.8.  REMARKETING OF THE BONDS  .

                (a)    The Borrower agrees to perform all obligations and 
duties required of it by the Indenture with respect to the remarketing of 
the Bonds, and, to appoint as set forth below a Remarketing Agent and a 
Tender Agent meeting the qualifications and otherwise meeting the 
requirements set forth in this Section 5.8.

                (b)     Tender Agent.

                (i)  Appointment and Duties:  In order to carry out the 
duties and obligations of the Tender Agent contained in the Indenture, 
the Borrower shall appoint a Tender Agent or Tender Agents in order to 
carry out such duties and obligations, subject to the conditions set 
forth below.  Each Tender Agent shall designate to the Trustee its 
principal office and signify its acceptance of the duties and obligations 
imposed upon it under the Indenture by entering into a Tender Agreement 
with the Borrower and such other parties as shall be appropriate, which 
may be combined with a Remarketing Agreement into a single document, 
delivered to the City, the Trustee, the Borrower and the Remarketing 
Agent, under which the Tender Agent shall agree, particularly (but 
without limitation):  (A) to perform the duties and comply with the 
requirements imposed upon it by the Tender Agreement, the Indenture and 
this Agreement; and (B) to keep such books and records with respect to 
its activities as Tender Agent as shall be consistent with prudent 
industry practice and to make such books and records available for 
inspection by the City, the Trustee and the Borrower at all reasonable 
times.

                 (ii)  Qualifications:  The Tender Agent shall be a 
financial institution organized and doing business under the laws of the 
United States or of a state thereof, authorized under such laws to 
exercise corporate trust powers, having a combined capital and surplus of 
at least Fifty Million Dollars ($50,000,000), and subject to supervision 
or examination by federal or state authority.  If such financial 
institution publishes a report of condition at least annually, pursuant 
to law or to the requirements of any supervising or examining authority 
above referred to, then for the purposes of this Section the combined 
capital and surplus of such financial institution shall be deemed to be 
its combined capital and surplus as set forth in its most recent report 
of condition so published.

                 (c)     Remarketing Agent.  In order to carry out the 
duties and obligations contained in the Indenture, the Borrower, by an 
instrument in writing (which may be the Remarketing Agreement) signed by 
an Authorized Borrower Representative, shall select the Remarketing Agent 
for the Bonds subject to the conditions set forth below.  The Remarketing 
Agent shall designate to the Trustee its principal office and signify its 
acceptance of the duties and obligations imposed upon it under the 
Indenture by a written instrument of acceptance (which may be the 
execution of a Remarketing Agreement) delivered to the City, the Trustee 
and the Borrower under which the Remarketing Agent shall agree, 
particularly (but without limitation):  (i) to perform the duties and 
comply with the requirements imposed upon it by the Remarketing 
Agreement, the Indenture and this Agreement; and (ii) to keep such books 
and records with respect to its activities as Remarketing Agent as shall 
be consistent with prudent industry practice and to make such books and 
records available for inspection by the City, the Trustee and the 
Borrower at all reasonable times.

                   (d)    Remarketing Agreement.  In order to provide for 
the remarketing of the Bonds, the Borrower shall enter into a Remarketing 
Agreement with the Remarketing Agent and such other parties as shall be 
appropriate, which may be combined with a Tender Agreement into a single 
document.  The Remarketing Agreement shall include the following:  (i) a 
requirement that the Remarketing Agreement shall not be terminated by the 
Borrower without cause for a period of at least six months after the 
effective date thereof; and (ii) a statement to the effect that the 
Remarketing Agent is not acting in an agency capacity with respect to the 
Borrower in establishing interest rates and Rate Periods as described in 
Section 2.01 of the Indenture, but is acting as agent of the City 
pursuant to the Law with respect to such functions.

                SECTION 5.9.  NOTICES TO TRUSTEE AND CITY.  The Borrower 
hereby agrees to provide the Trustee and the City with notice of any 
event of which it has knowledge which, with the passage of time or the 
giving of notice, would be an Event of Default, such notice to include a 
description of the nature of such event and what steps are being taken to 
remedy such Event of Default.

                SECTION 5.10.  CONTINUING DISCLOSURE.  The Borrower 
hereby covenants and agrees, upon the adjustment of the Rate Period for 
the Bonds to a Term Rate Period pursuant to Section 2.01(c)(iv) of the 
Indenture and the remarketing of such Bonds in accordance with the 
Indenture, to comply with the continuing disclosure requirements for the 
Bonds as promulgated under Rule 15c2-12, as it may from time to time 
hereafter be amended or supplemented.  Notwithstanding any other 
provision of this Agreement, failure of the Borrower to comply with the 
requirements of Rule 15c2-12 applicable to the Bonds, as it may from time 
to time hereafter be amended or supplemented, shall not be considered an 
Event of Default hereunder or under the Indenture; however, any 
Bondholder or beneficial owner of any Bonds may take such actions as may 
be necessary and appropriate, including seeking mandate or specific 
performance by court order, to cause the Borrower to comply with its 
obligations pursuant to this Section 5.10.


                                    ARTICLE VI

                         EVENTS OF DEFAULT AND REMEDIES

                SECTION 6.1.  EVENTS OF DEFAULT.  Any one of the 
following which occurs and continues shall constitute an Event of Default 
pursuant to this Agreement:

                (a)  failure by the Borrower to pay any amounts required 
to be paid under Section 4.2(a) or 4.2(d) hereof at the times 
required to avoid causing an Event of Default pursuant to the 
Indenture; or

                (b)  failure of the Borrower to observe and perform any 
covenant, condition or agreement on its part required to be 
observed or performed by this Agreement, other than making the 
payments referred to in (a) above, which continues for a period of 
60 days after written notice, which notice shall specify such 
failure and request that it be remedied, given to the Borrower by 
the City or the Trustee, unless the City and the Trustee shall 
agree in writing to an extension of such time; provided, however, 
that if the failure stated in the notice cannot be corrected within 
such period, the City and the Trustee will not unreasonably 
withhold their consent to an extension of such time if corrective 
action is instituted within such period and diligently pursued 
until the default is corrected; or

                (c)  an Act of Bankruptcy of the Borrower; or

                (d)  a default under any Credit Facility if the Credit 
Provider notifies the Trustee in writing that such default shall be 
treated as an Event of Default hereunder.

The provisions of subsection (b) of this Section are subject to the 
limitation that the Borrower shall not be deemed in default if and so 
long as the Borrower is unable to carry out its agreements hereunder by 
reason of strikes, lockouts or other industrial disturbances; acts of 
public enemies; orders of any kind of the government of the United States 
or of the State of California or any of their departments, agencies, or 
officials, or any civil or military authority; insurrections, riots, 
epidemics, landslides; lightning; earthquake; fire; hurricanes; storms; 
floods; washouts; droughts; arrests; restraint of government and people; 
civil disturbances; explosions; breakage or accident to machinery, 
transmission pipes or canals; partial or entire failure of utilities; or 
any other cause or event not reasonably within the control of the 
Borrower; it being agreed that the settlement of strikes, lockouts and 
other industrial disturbances shall be entirely within the discretion of 
the Borrower, and the Borrower shall not be required to make settlement 
of strikes, lockouts and other industrial disturbances by acceding to the 
demands of the opposing party or parties when such course is, in the 
judgment of the Borrower, unfavorable to the Borrower.  This limitation 
shall not apply to any default under subsections (a), (c) or (d) of this 
Section.

                SECTION 6.2.  REMEDIES ON DEFAULT.  Whenever any Event of 
Default shall have occurred and shall continue, the following remedies 
may be pursued:

                   (a)  The Trustee may, and upon the written request of 
any Credit Provider or the holders of not less than 25% in 
aggregate principal amount of Bonds then outstanding, shall, by 
notice in writing delivered to the Borrower with copies of such 
notice being sent to the City and each Credit Provider, declare the 
unpaid balance of the loan payable under Section 4.2(a) of this 
Agreement and the interest accrued thereon to be immediately due 
and payable and such principal and interest shall thereupon become 
and be immediately due and payable.  Upon any such acceleration, 
the Bonds shall be subject to mandatory redemption as provided in 
Section 4.01(b)(3) of the Indenture.  After any such declaration of 
acceleration, the Trustee shall immediately take such actions as 
necessary to realize moneys under any Credit Facility.

                  (b)  The Trustee shall have access to and the right to 
inspect, examine and make copies of the books and records and any 
and all accounts, data and federal income tax and other tax returns 
of the Borrower.

                  (c)  The City or the Trustee may take whatever action 
at law or in equity as may be necessary or desirable to collect the 
payments and other amounts then due and thereafter to become due or 
to enforce performance and observance of any obligation, agreement 
or covenant of the Borrower under this Agreement.

               The provisions of clause (a) of the preceding paragraph, 
however, are subject to the condition that if, at any time after the loan 
shall have been so declared due and payable, and before any judgment or 
decree for the payment of the moneys due shall have been obtained or 
entered as hereinafter provided, there shall have been deposited with the 
Trustee a sum sufficient (together with any amounts held in the Bond 
Fund) to pay all the principal of the Bonds matured prior to such 
declaration and all matured installments of interest (if any) upon all 
the Bonds, with interest on such overdue installments of principal as 
provided herein, and the reasonable expenses of the Trustee, and any and 
all other defaults known to the Trustee (other than in the payment of 
principal of and interest on the Bonds due and payable solely by reason 
of such declaration) shall have been made good or cured to the 
satisfaction of the Trustee or provision deemed by the Trustee to be 
adequate shall have been made therefor, then, and in every such case, the 
holders of at least a majority in aggregate principal amount of the Bonds 
then outstanding, by written notice to the City and to the Trustee, may, 
on behalf of the holders of all the Bonds, rescind and annul such 
declaration and its consequences and waive such default; provided that no 
such rescission and annulment shall extend to or shall affect any 
subsequent default, or shall impair or exhaust any right or power 
consequent thereon; and provided further that there shall not be 
rescinded or annulled any such declaration which follows an event 
described in Section 6.1(d) without the written consent of the Credit 
Provider.

                In case the Trustee or the City shall have proceeded to 
enforce its rights under this Agreement and such proceedings shall have 
been discontinued or abandoned for any reason or shall have been 
determined adversely to the Trustee or the City, then, and in every such 
case, the Borrower, the Trustee and the City shall be restored 
respectively to their several positions and rights hereunder, and all 
rights, remedies and powers of the Borrower, the Trustee and the City 
shall continue as though no such action had been taken (provided, 
however, that any settlement of such proceedings duly entered into by the 
City, the Trustee or the Borrower shall not be disturbed by reason of 
this provision).

               In case the Borrower shall fail forthwith to pay amounts 
due by reason of this Section 6.2 upon demand of the Trustee, the Trustee 
shall be entitled and empowered to institute any action or proceeding at 
law or in equity for the collection of the sums so due and unpaid, and 
may prosecute any such action or proceeding to judgment or final decree, 
and may enforce any such judgment or final decree against the Borrower 
and collect in the manner provided by law the moneys adjudged or decreed 
to be payable.

                In case proceedings shall be pending for the bankruptcy 
or for the reorganization of the Borrower under the federal bankruptcy 
laws or any other applicable law, or in case a receiver or trustee shall 
have been appointed for the property of the Borrower or in the case of 
any other similar judicial proceedings relative to the Borrower, or the 
creditors or property of the Borrower, then the Trustee shall be entitled 
and empowered, by intervention in such proceedings or otherwise, to file 
and prove a claim or claims for the whole amount owing and unpaid 
pursuant to this Agreement and, in case of any judicial proceedings, to 
file such proofs of claim and other papers or documents as may be 
necessary or advisable in order to have the claims of the Trustee allowed 
in such judicial proceedings relative to the Borrower, its creditors or 
its property, and to collect and receive any moneys or other property 
payable or deliverable on any such claims, and to distribute such amounts 
as provided in the Indenture after the deduction of its charges and 
expenses.  Any receiver, assignee or trustee in bankruptcy or 
reorganization is hereby authorized to make such payments to the Trustee, 
and to pay to the Trustee any amount due it for compensation and 
expenses, including expenses and fees of counsel incurred by it up to the 
date of such distribution.

                SECTION 6.3.  AGREEMENT TO PAY ATTORNEYS' FEES AND 
EXPENSES.  In the event the Borrower should default under any of the 
provisions of this Agreement and the City or the Trustee should employ 
attorneys or incur other expenses for the collection of the payments due 
under this Agreement or the enforcement of performance or observance of 
any obligation or agreement on the part of the Borrower herein contained, 
the Borrower agrees to pay to the City or the Trustee the reasonable fees 
of such attorneys and such other expenses so incurred by the City or the 
Trustee.

                SECTION 6.4.  NO REMEDY EXCLUSIVE.  No remedy herein 
conferred upon or reserved to the City or the Trustee is intended to be 
exclusive of any other available remedy or remedies, but each and every 
such remedy shall be cumulative and shall be in addition to every other 
remedy given under this Agreement or now or hereafter existing at law or 
in equity or by statute.  No delay or omission to exercise any right or 
power accruing upon any default shall impair any such right or power or 
shall be construed to be a waiver thereof, but any such right and power 
may be exercised from time to time and as often as may be deemed 
expedient.  In order to entitle the City or the Trustee to exercise any 
remedy reserved to it in this Article, it shall not be necessary to give 
any notice, other than such notice as may be herein expressly required.  
Such rights and remedies as are given the City hereunder shall also 
extend to the Trustee, and the Trustee and the holders of the Bonds shall 
be deemed third party beneficiaries of all covenants and agreements 
herein contained.

              SECTION 6.5.  NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER.  
In the event any agreement or covenant contained in this Agreement should 
be breached by the Borrower and thereafter waived by the City or the 
Trustee, such waiver shall be limited to the particular breach so waived 
and shall not be deemed to waive any other breach hereunder.


                                  ARTICLE VII

                                   PREPAYMENT

                 SECTION 7.1.  REDEMPTION OF BONDS WITH PREPAYMENT 
MONEYS.  By virtue of the assignment of certain of the rights of the City 
under this Agreement to the Trustee as is provided in Section 4.4 hereof, 
the Borrower agrees to and shall pay directly to the Trustee any amount 
permitted or required to be paid by it under this Article VII.  The 
Trustee shall use the moneys so paid to it by the Borrower to effect 
redemption of the Bonds in accordance with Article IV of the Indenture on 
the date specified for such redemption pursuant to Section 7.5 hereof.

               SECTION 7.2.  OPTIONS TO PREPAY INSTALLMENTS.  The 
Borrower shall have the option to prepay the amounts payable under 
Section 4.2 hereof, in whole or in part, by paying to the Trustee, for 
deposit in the Bond Fund, the amount set forth in Section 7.4 hereof, 
under the circumstances set forth in Section 4.01(a) of the Indenture; 
provided, however, that if any event specified in Section 4.01(a)(1)(A) 
through (D) of the Indenture gives rise to the Borrower's exercise of its 
option to prepay such amounts payable hereunder, the amount of such loan 
payment prepaid shall not exceed the original cost of the portion of the 
Project affected by such event.

               SECTION 7.3.  MANDATORY PREPAYMENT.  (a) The Borrower 
shall have and hereby accepts the obligation to prepay Repayment 
Installments to the extent mandatory redemption of the Bonds is required 
pursuant to Section 4.01(b) of the Indenture.  The Borrower shall satisfy 
its obligation hereunder by prepaying such Repayment Installments within 
one hundred eighty (180) days after the occurrence of any event set forth 
in paragraphs (1) through (3) of said Section 4.01(b) giving rise to such 
required prepayment, and immediately upon the occurrence of any event set 
forth in paragraph (3) thereof giving rise to such required prepayment.  
The amount payable by the Borrower in the event of a prepayment required 
by this Section shall be determined as set forth in Section 7.4 and shall 
be deposited in the Bond Fund.

              SECTION 7.4.  AMOUNT OF PREPAYMENT.  In the case of a 
prepayment of the entire amount due hereunder pursuant to Section 7.2 or 
7.3 hereof, the amount to be paid shall be a sum sufficient, together 
with other funds and the yield on any securities deposited with the 
Trustee and available for such purpose, to pay (1) the principal of all 
Bonds outstanding on the redemption date specified in the notice of 
redemption, plus interest accrued and to accrue to the payment or 
redemption date of the Bonds, plus premium, if any, pursuant to the 
Indenture, (2) all reasonable and necessary fees and expenses of the 
City, the Trustee, the Registrar, the Tender Agent and any Paying Agent 
accrued and to accrue through final payment of the Bonds, and (3) all 
other liabilities of the Borrower accrued and to accrue under this 
Agreement.

              In the case of partial prepayment of the Repayment 
Installments, the amount payable shall be a sum sufficient, together with 
other funds deposited with the Trustee and available for such purpose, to 
pay the principal amount of and premium, if any, and accrued interest on 
the Bonds to be redeemed, as provided in the Indenture, and to pay 
expenses of redemption of such Bonds.

              SECTION 7.5.  NOTICE OF PREPAYMENT.  The Borrower shall 
give forty-five days' prior written notice to the City and the Trustee 
specifying the date upon which any prepayment pursuant to this 
Article VII will be made.  If, in the case of a mandatory prepayment 
pursuant to Section 7.3 hereof, the Borrower fails to give such notice of 
a prepayment required by this Section 7.5, such notice may be given by 
the City or by any holder or holders of ten percent (10%) or more in 
aggregate principal amount of the Bonds Outstanding, and shall be given 
by the Trustee, but solely at the times and under the circumstances 
provided in Section 4.01(b) of the Indenture.  The City and the Trustee, 
at the request of the Borrower or any such Bondholder or Bondholders, 
shall forthwith take all steps necessary under the applicable provisions 
of the Indenture (except that the City shall not be required to make 
payment of any money required for such redemption) to effect redemption 
of all or part of the then outstanding Bonds, as the case may be, on the 
earliest practicable date thereafter on which such redemption may be made 
under applicable provisions of the Indenture.

               Notwithstanding anything to the contrary in this 
Agreement, each notice contemplated in this Section 7.5 that is given 
with respect to an optional prepayment pursuant to Section 7.2 hereof may 
state that it is subject to and conditional upon receipt by the Trustee 
on or prior to the proposed prepayment date of amounts sufficient to 
effect such prepayment and, if a notice so states, such notice shall be 
of no force and effect and the prepayment need not be made and the 
Repayment Installments will not become due and payable on the proposed 
prepayment date unless such amounts are so received on or prior to the 
proposed prepayment date.


                                  ARTICLE VIII

                  NON-LIABILITY OF CITY; EXPENSES; INDEMNIFICATION

                SECTION 8.1.  NON-LIABILITY OF CITY.  The City shall not 
be obligated to pay the principal of, or premium, if any, or interest on 
the Bonds, or to discharge any other financial liability (including but 
not limited to financial liability under Section 5.6 hereof) in 
connection herewith, except from Revenues.  The Borrower hereby 
acknowledges that the City's sole source of moneys to repay the Bonds 
will be provided by the payments made by the Borrower pursuant to this 
Agreement (excluding payments to the City or the Trustee pursuant to 
Section 4.2(b), 4.2(c), 4.2(e), 5.6, 6.3, 8.2 and 8.3 of this Agreement), 
together with other Revenues, including investment income on certain 
funds and accounts held by the Trustee under the Indenture, and hereby 
agrees that if the payments to be made hereunder shall ever prove 
insufficient to pay all principal of, and premium, if any, and interest 
on the Bonds as the same shall become due (whether by maturity, 
redemption, acceleration or otherwise), then upon notice from the 
Trustee, the Borrower shall pay such amounts as are required from time to 
time to prevent any deficiency or default in the payment of such 
principal, premium or interest, including, but not limited to, any 
deficiency caused by acts, omissions, nonfeasance or malfeasance on the 
part of the Trustee, the Borrower, the City or any third party.

                SECTION 8.2.  EXPENSES.  The Borrower covenants and 
agrees to pay within fifteen (15) days after billing therefor and to 
indemnify the City and the Trustee against all costs and charges, 
including fees and disbursements of attorneys, accountants, consultants, 
including financial consultants, engineers and other experts incurred, in 
the absence of willful misconduct, in connection with this Agreement, the 
Bonds or the Indenture.  The City shall notify the Borrower in writing 
prior to engaging any professional or expert for which the City plans to 
bill the Borrower.

               SECTION 8.3.  INDEMNIFICATION.  The Borrower releases the 
City and the Trustee from, and covenants and agrees that neither the City 
nor the Trustee shall be liable for, and covenants and agrees, to the 
extent permitted by law, to indemnify, defend and hold harmless the City 
and the Trustee and their officers, employees and agents from and 
against, any and all losses, claims, damages, liabilities or expenses, of 
every conceivable kind, character and nature whatsoever arising out of, 
resulting from or in any way connected with (1) the Project, or the 
conditions, occupancy, use, possession, conduct or management of, or work 
done in or about, or from the planning, design, acquisition, installation 
or construction of the Project or any part thereof; (2) the issuance of 
any Bonds or any certifications, covenants or representations made in 
connection therewith and the carrying out of any of the transactions 
contemplated by the Bonds, the Indenture and this Agreement;  (3) the 
Trustee's acceptance or administration of the trusts under the Indenture, 
or the exercise or performance of any of its powers or duties under the 
Indenture or this Agreement; or (4) any untrue statement or alleged 
untrue statement of any material fact or omission or alleged omission to 
state a material fact necessary to make the statements made, in light of 
the circumstances under which they were made, not misleading, in any 
official statement or other offering circular utilized by the City or any 
underwriter or placement agent in connection with the sale of any Bonds; 
provided that such indemnity shall not be required for damages that 
result from negligence or willful misconduct on the part of the party 
seeking such indemnity.  The indemnity of the Trustee required by this 
Section shall be only to the extent that any loss sustained by the 
Trustee exceeds the net proceeds the Trustee receives from any insurance 
carried with respect to the loss sustained.  The Borrower further 
covenants and agrees, to the extent permitted by law, to pay or to 
reimburse the City and the Trustee and their officers, employees and 
agents for any and all reasonable costs, including but not limited to 
attorneys fees, liabilities or expenses incurred in connection with 
investigating, defending against or otherwise in connection with any such 
losses, claims, damages, liabilities, expenses or actions, except to the 
extent that the same arise out of the negligence or willful misconduct of 
the party claiming such payment or reimbursement.  The provisions of this 
Section shall survive the retirement of the Bonds or resignation or 
removal of the Trustee.


                                    ARTICLE IX

                                   MISCELLANEOUS

               SECTION 9.1.  NOTICES.  All notices, certificates or other 
communications shall be deemed sufficiently given on the second day 
following the day on which the same have been mailed by first class mail, 
postage prepaid, addressed to the City, the Borrower or the Trustee, as 
the case may be, as set forth in the Indenture.  A duplicate copy of each 
notice, certificate or other communication given hereunder by either the 
City or the Borrower to the other shall also be given to the Trustee.  
The City, the Borrower and the Trustee may, by notice given hereunder, 
designate any different addresses to which subsequent notices, 
certificates or other communications shall be sent.

                SECTION 9.2.  SEVERABILITY.  If any provision of this 
Agreement shall be held or deemed to be, or shall in fact be, illegal, 
inoperative or unenforceable, the same shall not affect any other 
provision or provisions herein contained or render the same invalid, 
inoperative, or unenforceable to any extent whatever.

               SECTION 9.3.  EXECUTION OF COUNTERPARTS.  This Agreement 
may be simultaneously executed in several counterparts, each of which 
shall be an original and all of which shall constitute but one and the 
same instrument; provided, however, that for purposes of perfecting a 
security interest in this Agreement under Article 9 of the California 
Uniform Commercial Code, only the counterpart delivered, pledged, and 
assigned to the Trustee shall be deemed the original.

               SECTION 9.4.  AMENDMENTS, CHANGES AND MODIFICATIONS.  
Except as otherwise provided in this Agreement or the Indenture, 
subsequent to the initial issuance of Bonds and prior to their payment in 
full, or provision for such payment having been made as provided in the 
Indenture, this Agreement may not be effectively amended, changed, 
modified, altered or terminated without the written consent of the 
Trustee.

               SECTION 9.5.  GOVERNING LAW.  This Agreement shall be 
governed exclusively by and construed in accordance with the applicable 
laws of the State of California.

               SECTION 9.6.  AUTHORIZED BORROWER REPRESENTATIVE.  
Whenever under the provisions of this Agreement the approval of the 
Borrower is required or the City or the Trustee is required to take some 
action at the request of the Borrower, such approval or such request 
shall be given on behalf of the Borrower by an Authorized Borrower 
Representative, and the City and the Trustee shall be authorized to act 
on any such approval or request and neither party hereto shall have any 
complaint against the other or against the Trustee as a result of any 
such action taken.

               SECTION 9.7.  TERM OF THE AGREEMENT.  This Agreement shall 
be in full force and effect from the date hereof and shall continue in 
effect as long as any of the Bonds are outstanding or the Trustee holds 
any moneys under the Indenture, whichever is later; provided, however, 
that the rights of the Trustee and the City under Section 8.2 and 8.3 
hereof shall survive the termination of this Agreement, the retirement of 
the Bonds and the removal or resignation of the Trustee.  All 
representations and certifications by the Borrower as to all matters 
affecting the Tax-Exempt status of the Bonds shall survive the 
termination of this Agreement.

               SECTION 9.8.  BINDING EFFECT.  This Agreement shall inure 
to the benefit of and shall be binding upon the City, the Borrower, the 
Trustee and their respective successors and assigns; subject, however, to 
the limitations contained in Section 5.2 hereof.


               IN WITNESS WHEREOF, the City of Chula Vista has caused 
this Agreement to be executed in its name and its seal to be hereunto 
affixed and attested by its duly authorized officers, and San Diego Gas & 
Electric Company has caused this Agreement to be executed in its name and 
its seal to be hereunto affixed by its duly authorized officers, all as 
of the date first above written.

                                    CITY OF CHULA VISTA



                                    By___________________________________
                                                     Mayor
[SEAL]

Attest:



________________________________________
City Clerk

APPROVED AS TO FORM:

JOHN M. KAHENY
CITY ATTORNEY



By______________________________________
  Deputy City Attorney


                                     SAN DIEGO GAS & ELECTRIC COMPANY



                                     By__________________________________
                                               Senior Vice President,
[SEAL]                                       Chief Financial Officer and 
Treasurer

Attest:



___________________________________
Assistant Secretary


                                   EXHIBIT A

                           Description of the Project

Local Electric Facilities

                Acquisition and construction of additions and 
improvements to the Borrower's electric distribution facilities (12 KV 
and under) and related substations, and customer service connections 
located within the Borrower's electric retail service area, required by 
the Borrower to provide for the transfer and distribution of electric 
energy to its customers located therein, including all necessary poles, 
foundations, cable, conduit, transformers, switches, controls, meters, 
substations, land and land-rights and other like facilities and 
equipment, as well as necessary other equipment required for the proper 
installation, protection, maintenance, control and operation of the 
foregoing local electric distribution facilities.  These facilities will 
be required to meet the needs of new customers, maintain and improve 
system capabilities, and make overhead to underground conversions.


Local Gas Facilities

                Acquisition and construction of additions and 
improvements to the Borrower's gas distribution (operating at pressures 
at or below 400 psig) facilities, located within its gas retail service 
area in San Diego County, required for the distribution of gas for 
delivery to the Borrower's customers located therein.  Such facilities 
include the acquisition and construction of new, high-pressure 
distribution mains, and new customer service lines or the extension, 
replacement or relocation of such existing mains or portions or 
components thereof, regulator stations controlling the passage of gas 
from distribution mains of higher pressure to distribution mains of lower 
pressure and the volume and pressure of gas within the mains, together 
with all necessary valves, controls, meters, and other measuring and 
regulating devices, and facilities, plant, property, and other equipment 
and improvements (including land and land-rights) necessary for the 
installation, protection, maintenance, control and operation of the 
foregoing.