**Exhibit10.39**

 

**SETTLEMENTAND RELEASE OF CLAIMS AGREEMENT**

 

This Settlement and Release of Claims Agreement (“Agreement”) isentered into as of January 13, 2005 by and among each of the MirantParties, each of the California Parties and OMOI. Each of the Mirant Parties,the California Parties and OMOI is a “Party,” and collectively are “Parties”to this Agreement. Except as otherwise specified herein, all references in thisAgreement to a “Section,” “Article” or “Exhibit” shallmean a Section, Article or Exhibit of this Agreement. Unless the contextotherwise requires, capitalized terms used in this Agreement shall have themeanings specified in Article I.

 

**RECITALS**

 

A.                                   WHEREAS, various of the Parties are engagedin complex and disputed regulatory proceedings, appellate proceedings,litigation and investigations regarding numerous issues and allegations arisingfrom events in the California and western energy markets during the years 2000and 2001;

 

B.                                     WHEREAS, in addition to being engaged in thematters referenced above, the Mirant Parties and PG&E also are engaged inadditional complex and disputed regulatory proceedings regarding certain ratesand potential refunds associated with services and payment obligations providedfor in the RMR Agreements;

 

C.                                     WHEREAS, the Mirant Parties are debtors inpossession in the Bankruptcy Proceedings, and (with their affiliated Debtors)are contemplating the Mirant Plans;

 

D.                                    WHEREAS, a number of the SettlingParticipants, as well as FERC, the PX and the CAISO, have filed proofs ofclaims and alleged claims against the Mirant Parties in the BankruptcyProceedings;

 

E.                                      WHEREAS, the Parties and the AdditionalSettling Participants have determined that it is preferable to settle thedisputes addressed herein, rather than continue to litigate; and

 

F.                                      WHEREAS, this Agreement and the ImplementingAgreements contemplate a comprehensive resolution of all disputes and othermatters addressed herein (i) through the settlement of the regulatoryproceedings, appellate proceedings, litigation, proofs of claims and claimsidentified herein, and (ii) by effectuating the transactions, granting ofrights and benefits, and assumption of obligations specified and provided forherein (such comprehensive resolution and such transactions are referred to hereincollectively as the “Settlement”).

 

NOW, THEREFORE, in consideration of the mutual covenants andagreements, and other good and valuable consideration, provided for herein, andsubject to and upon the terms and conditions hereof, the Parties agree asfollows.

 

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**ARTICLE I**

**DEFINITIONSAND INTERPRETATION**

 

1.1                                 Defined Terms. The following capitalized terms, when usedin this Agreement, including the Exhibits, shall have the meanings specified inthis Section 1.1.

 

1.1.1                        “2005 RMR FERC Settlement” has themeaning set forth in Section 8.3.

 

1.1.2                        “Additional Settling Participant”means (i) the entities defined in Article XI who may become bound by theterms of the Settlement and this Agreement and receive benefits hereunder, and(ii) the SWP, which has agreed to become bound by the terms of the Settlementand this Agreement pursuant to the SWP Side Letter.

 

1.1.3                        “Aggregate Allowed Claim” has themeaning set forth in Section 5.1.1.

 

1.1.4                        “Aggregate Allowed Claim Benefits” hasthe meaning set forth in Section 5.1.1.

 

1.1.5                        “Agreement” means this Settlement andRelease of Claims Agreement, including all Exhibits, as the same may beamended, modified, supplemented or replaced from time to time.

 

1.1.6                        “Allocation Matrix” means the matrixattached as Exhibit F that sets forth the various allocation percentages withrespect to certain portions of the MAEM Receivables that are applicable to eachSettling Participant pursuant to this Agreement.

 

1.1.7                        “Bankruptcy Code” means title 11 ofthe United States Code, as the same may be amended from time to time.

 

1.1.8                        “Bankruptcy Proceedings” means,collectively, the Mirant Parties’ respective Chapter 11 cases, together withthe other Chapter 11 cases of the Mirant Parties’ affiliated Debtors pending inthe Mirant Bankruptcy Court or, to the extent of the reference thereto beingwithdrawn, in the Mirant District Court.

 

1.1.9                        “Bankruptcy Rules” means the FederalRules of Bankruptcy Procedure, as the same may be amended from time to time.

 

1.1.10                  “Bankruptcy Rule 9019 Motion” has themeaning set forth in Section 3.2.1.

 

1.1.11                  “Business Day” has the same meaning asprovided in California Civil Code Section 9.

 

1.1.12                  “CAISO” means the CaliforniaIndependent System Operator Corporation, a California public benefit corporation.

 

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1.1.13                  “California Attorney General” meansthe People of the State of California, *exrel.*Bill Lockyer, Attorney General of the State of California.

 

1.1.14                  “California Litigation Escrow” meansthe escrow identified in and established pursuant to Section 6.1.

 

1.1.15                  “California Parties” means,collectively, the California State Parties and the California Utilities.

 

1.1.16                  “California State Parties” means,collectively, the California Attorney General, the CPUC, CERS and the CEOB.

 

1.1.17                  “California Utilities” means,collectively, PG&E, SCE, and SDG&E.

 

1.1.18                  “CC8 Alternative Consideration” hasthe meaning set forth in Section 8.9.

 

1.1.19                  “CC8 Application” has the meaning setforth in Section 1.1.32(iv).

 

1.1.20                  “CC8 Assets” has the meaning set forthin Section 8.7.3.

 

1.1.21                  “CC8 Asset Transfer Agreement” meansthe asset transfer agreement described in Section 8.7.3 that will beexecuted by Delta, Mirant Special Procurement, Inc. and PG&E, if at all, byApril 30, 2005 (or such later date as may be agreed to pursuant to Section 8.8.1),and shall include for all purposes of this Agreement all ancillary documentsand agreements that are provided for in such asset transfer agreement.

 

1.1.22                  “CC8 Claim” has the meaning set forth in**Section 8.9.1.

 

1.1.23                  “CC8 Claim Plan Securities” has themeaning set forth in Section 8.9.2.

 

1.1.24                  “CC8 Claim Shortfall” has the meaningset forth in Section 8.9.3.

 

1.1.25                  “CC8 Claim Shortfall Notice” has themeaning set forth in Section 8.9.3.

 

1.1.26                  “CC8 Closing Date” means the date ofclosing of the transfer of the CC8 Assets from Delta and Mirant SpecialProcurement, Inc. to PG&E in accordance with the terms of the CC8 AssetTransfer Agreement and subject to Section 1.1.32.

 

1.1.27                  “CC8 Escrow” means the escrow to beestablished jointly by Delta and PG&E pursuant to the CC8 Escrow Agreement.

 

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1.1.28                  “CC8 Escrow Agreement” means an escrowagreement to be executed as provided for in Section 8.7.1 by and amongDelta, PG&E and the escrow agent thereunder substantially in the formattached hereto as Exhibit C, but with such modifications as may be required bysuch escrow agent that are not inconsistent with the allocation to Delta andPG&E of the benefits and burdens reflected in Exhibit C.

 

1.1.29                  “CC8 Execution Triggering Event” hasthe meaning set forth in Section 8.8.

 

1.1.30                  “CC8 Petition for Modification” hasthe meaning set forth in Section 1.1.32(iv).

 

1.1.31                  “CC8 Project” has the meaning setforth in Section 8.7.3.

 

1.1.32                  “CC8 Transfer Approval Date” means, ifDelta, Mirant Special Procurement, Inc. and PG&E execute the CC8 AssetTransfer Agreement, the first day on which all of the following approvals havebeen issued or otherwise obtained and are in effect with respect to the CC8Asset Transfer Agreement and the transactions included therein:

 

(i)                                     ifapproval from the Mirant Bankruptcy Court is required that is separate from theMirant Bankruptcy Court Approval that is obtained as set forth in Section 2.4,the Mirant Bankruptcy Court has issued an unstayed order authorizing Delta andMirant Special Procurement, Inc. to transfer and assign the CC8 Assets, andotherwise to perform their obligations under the CC8 Asset Transfer Agreementon the terms and conditions specified therein without material change,modification or condition thereto, or with one or more material changes,modifications or conditions to such approval that are acceptable in its ortheir sole discretion to the party or parties adversely affected by any suchchange, modification or condition;

 

(ii)                                  ifPG&E Bankruptcy Court approval is required, the PG&E Bankruptcy Courthas issued an unstayed order authorizing PG&E to take assignment, ownershipand possession of the CC8 Assets, and otherwise to perform its obligationsunder the CC8 Asset Transfer Agreement on the terms and conditions specifiedtherein without material change, modification or condition thereto, or with oneor more material changes, modifications or conditions to such approval that areacceptable in its or their sole discretion to the party or parties adverselyaffected by any such change, modification or condition;

 

(iii)                               ifFERC approval is required, FERC has issued an unstayed order authorizing Deltaand PG&E to perform their respective obligations under the CC8 AssetTransfer Agreement on the terms and conditions specified therein withoutmaterial change, modification or condition thereto, or with one or morematerial changes, modifications or conditions to such approval that areacceptable in its or their sole discretion to the party or parties adverselyaffected by any such change, modification or condition;

 

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(iv)                              theCPUC has issued an unstayed decision on PG&E’s separate application (the “CC8Application”) authorizing PG&E to take assignment, ownership andpossession of the CC8 Assets, and otherwise perform its obligations under theCC8 Asset Transfer Agreement on the terms and conditions specified therein andin the CC8 Application without material change, modification or conditionthereto, or with one or more material changes, modifications or conditions tosuch approval that are acceptable in its or their sole discretion to the partyor parties to the CC8 Asset Transfer Agreement adversely affected by any suchchange, modification or condition. PG&E, Delta and Mirant SpecialProcurement, Inc. shall each advise the CPUC in comments filed on the proposeddecision on the CC8 Application (the “Proposed CPUC CC8 Decision”), or,to the extent any change, modification or condition appears in the CPUC’sdecision on the CC8 Application (the “Original CPUC CC8 Decision”) butnot in the Proposed CPUC CC8 Decision, in a petition for modification of theOriginal CPUC CC8 Decision that is filed within thirty (30) days of itsissuance (“CC8 Petition for Modification”), of any change, modificationor condition to such approval contained in the Proposed CPUC CC8 Decision or inthe Original CPUC CC8 Decision that PG&E, Delta or Mirant SpecialProcurement, Inc. considers to be material. Any such change, modification orcondition contained in the Proposed CPUC CC8 Decision or in the Original CPUCCC8 Decision which is not so identified to the CPUC as material shall be deemednot to be material. Consent or lack of consent to material changes,modifications or conditions, if any, shall be communicated to the parties tothe CC8 Asset Transfer Agreement and the CPUC by the later of (a) ten (10)Business Days after the date of issuance of the Original CPUC CC8 Decision, or(b) ten (10) Business Days after the issuance of the CPUC’s decision on any CC8Petition for Modification. The failure of an affected party to provide noticein accordance with the foregoing sentence shall be deemed to constituteacceptance by such party of the material change or condition.

 

Inaddition, if any of the approvals listed in subparts (i)-(iii) above includes amaterial change, modification or condition that adversely affects any party tothe CC8 Asset Transfer Agreement, each party so affected shall communicate itsconsent or lack of consent to such change or condition to the other parties tothe CC8 Asset Transfer Agreement within ten (10) Business days after theeffective date of the approval. The failure of an affected party to providenotice in accordance with the foregoing sentence shall be deemed to constituteacceptance by such party of the material change or condition.

 

Notwithstandinganything to the contrary herein, the CC8 Transfer Approval Date shall not takeplace if one or more of the approving authorities listed in subparts (i)-(iv)above condition its or their approvals on changes, modifications or conditionsthat are inconsistent with the terms and conditions of the approvals granted byone or more other approving authorities, but shall occur at such time, if any,when, by further action of the approving authorities, any such inconsistenciesare eliminated.

 

1.1.33                  “CC8 Triggering Event” has the meaningset forth in Section 8.8.

 

1.1.34                  “CEOB” means the CaliforniaElectricity Oversight Board.

 

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1.1.35                  “CERS” means the California Departmentof Water Resources acting solely under the authority and powers created by CaliforniaAssembly Bill 1 from the First Extraordinary Session of 2000-2001, codified inSections 80000 through 80270 of the California Water Code.

 

1.1.36                  “CERS Allowed Claim” has the meaningset forth in Section 5.2.

 

1.1.37                  “CERS Escrow” has the meaning setforth in Section 6.5.8.

 

1.1.38                  “CPUC” means the California PublicUtilities Commission.

 

1.1.39                  “Debtors” means, collectively, theMirant Parties and the other affiliated entities in the Bankruptcy Proceedingsthat are listed in Exhibit E.

 

1.1.40                  “Deemed Distribution” has the meaningset forth in Section 6.5.5.

 

1.1.41                  “Deemed Distribution Recipients” hasthe meaning set forth in Section 6.5.5.

 

1.1.42                  “Delta” means Mirant Delta, LLC, aDelaware limited liability company.

 

1.1.43                  “Delta Plan” means the Mirant Planthat governs the disposition of Delta’s estate.

 

1.1.44                  “Delta Plant Option Agreement” meansthe agreement under which PG&E would have (i) an option to acquire allexisting units of Delta’s Pittsburg Power Plant, and (ii) an option to acquireall existing units of Delta’s Contra Costa Power Plant, and that will beexecuted by Delta and PG&E, if at all, at the same time as the CC8 AssetTransfer Agreement.

 

1.1.45                  “Delta Plant Option Application” hasthe meaning set forth in Section 8.7.4.2(iv).

 

1.1.46                  “Delta Plant Option Petition forModification” has the meaning set forth in Section 8.7.4.2(iv).

 

1.1.47                  “Estimated Receivables” has themeaning set forth in Section 5.3.1.

 

1.1.48                  “Execution Date” means the date thisAgreement has been executed by all Parties.

 

1.1.49                  “FERC” means the Federal EnergyRegulatory Commission.

 

1.1.50                  “FERC Allowances Determination” meansthe FERC order directing the payment of Fuel Cost Allowances in the FERC RefundProceeding,

 

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regardlessof whether such order is subject to requests for stay, rehearing or appeal,provided that such order has not been stayed.

 

1.1.51                  “FERC Gaming Proceeding” means FERCDocket Nos. EL03-158 and EL03-180, and any related appeals.

 

1.1.52                  “FERC Investigations” means theinvestigations conducted by FERC in FERC Docket Nos. PA02-2, PA03-08, IN03-10and the Physical Withholding Investigation, and any related appeals.

 

1.1.53                  “FERC Interest Determination” has themeaning set forth in Section 6.5.7.

 

1.1.54                  “FERC Interest Rate” means theinterest rate calculated using FERC’s requirements under 18 C.F.R. § 35.19a(a)(2).

 

1.1.55                  “FERC Long-Term Contract Proceeding”means FERC Docket Nos. EL02-60 and EL02-62, and any related appeals.

 

1.1.56                  “FERC MBR Proceedings” means FERCDocket Nos. ER97-4166, ER99-1841, ER99-1842, ER99-1833, ER01-1265, ER0l-1267,ER0l-1270, ER01-1278 and EL02-71, and any related appeals.

 

1.1.57                  “FERC Proceedings” means,collectively, the FERC Refund Proceeding, the FERC Long-Term ContractProceeding, the FERC Gaming Proceeding, the FERC RMR Proceedings, the FERC MBRProceedings, and proceedings conducted before FERC in FERC Docket No. EL01-10,and any related appeals.

 

1.1.58                  “FERC Receivables Determination” meansthe FERC order issued in the FERC Refund Proceeding following the PreparatoryRerun establishing the unpaid MAEM Receivables, regardless of whether suchorder is subject to requests for stay, rehearing or appeal, provided that suchorder has not been stayed.

 

1.1.59                  “FERC Refund Determination” means theFERC order establishing the amount of refunds owed by the Mirant Parties toNon-Settling Participants, regardless of whether such order is subject torequests for stay, rehearing or appeal, provided that such order has not beenstayed.

 

1.1.60                  “FERC Refund Proceeding” means theFERC refund proceeding conducted before FERC in FERC Docket Nos. EL00-95 *et al.,*EL00-98 *et al.,*ER01-889, ER01-1455, ER01-3013 and ER03-746, and anyrelated appeals.

 

1.1.61                  “FERC RMR Proceedings” means theproceedings conducted before FERC in FERC Docket Nos. ER98-495, ER04-227 andER03-215, and any related appeals.

 

1.1.62                  “FERC Settlement Order” means the FERCorder granting the Required Approval with respect to FERC, in accordance with Section 2.4.1.

 

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1.1.63                  “First Wraparound Agreement” means theagreement between PG&E and Delta attached hereto as part of Exhibit B thathas a term of up to one year ending no later than December 31, 2005 (exceptas it may be extended pursuant to Section 2.2.1), the effectiveness ofwhich is not subject to approval by the CPUC.

 

1.1.64                  “Follow-Up Implementing Agreements”means the additional definitive agreements, if any, that implement and setforth certain terms and conditions associated with transactions involving theCC8 Assets and the granting of options with respect to assets associated withthe existing Contra Costa Power Plant and the existing Pittsburg Power Plant,and that will be executed, if at all, after the Execution Date, including theCC8 Asset Transfer Agreement and all agreements and documents included therein,and the Delta Plant Option Agreement.

 

1.1.65                  “Fuel Cost Allowance” means the claimfor recovery of fuel costs incurred by generating units during the RefundPeriod made pursuant to FERC orders in the FERC Refund Proceeding.

 

1.1.66                  “Governmental Authority” means any “governmentalunit” as defined in Section 101 of the Bankruptcy Code.

 

1.1.67                  “Implementing Agreements” means,collectively, the Initial Implementing Agreements and, to the extent that theyhave been executed by all required parties, the Follow-Up ImplementingAgreements.

 

1.1.68                  “Initial Implementing Agreements”means the Wraparound Agreements and the CC8 Escrow Agreement, which areadditional definitive agreements that implement and set forth certain terms andconditions of the Settlement and this Agreement in greater detail, and thatwill be executed by the parties thereto as provided in Section 8.7.1 and Section 8.7.2.

 

1.1.69                  “January PX Transactions” has themeaning set forth in Section 6.6.5.1.

 

1.1.70                  “Liquidating Trust” has the meaningset forth in Section 3.7.

 

1.1.71                  “Lockyer Decision” has the meaning setforth in Section 9.10.

 

1.1.72                *“Lockyer*v. *FERC**”*means the proceeding described in Section 9.10.

 

1.1.73                  *“Lockyer v. FERC*Remand” means proceedings conducted by FERC pursuant to the remand resultingfrom the Lockyer Decision, and any related appeals.

 

1.1.74                  “MAEM” means Mirant Americas EnergyMarketing, LP, a Delaware limited partnership.

 

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1.1.75                  “MAEM Plan” means the Mirant Plan thatgoverns the disposition of MAEM’s estate.

 

1.1.76                  “MAEM Receivables” means all of MAEM’srights and claims to payment, whether direct or indirect, by, from or throughthe PX and/or the CAISO for sales of energy and ancillary services into theCalifornia power markets administered by the PX and/or the CAISO during theperiod January 1, 2000 through June 20, 2001, including the amount ofinterest on unpaid amounts of MAEM Receivables, the right to which attaches tothe MAEM Receivables, and before adjustment by FERC in the FERC RefundProceeding, but excluding receivables owed to or amounts owed by, the Mirant Partiesor other Debtors which are accounted for separately under the RMR Agreements.

 

1.1.77                  “MAG” means Mirant AmericasGeneration, LLC, a Delaware limited liability company.

 

1.1.78                  “Market Participants” means thoseentities that were CAISO Scheduling Coordinators or otherwise directly soldenergy to or purchased energy from the CAISO and/or the PX markets during partor all of the Settlement Period, including the SWP. For purposes of clarity,the term Market Participants as used herein does not include the CAISO or thePX.

 

1.1.79                  “Mirant Bankruptcy Court” means theUnited States Bankruptcy Court for the Northern District of Texas, Fort WorthDivision.

 

1.1.80                  “Mirant Bankruptcy Court Approval” hasthe meaning set forth in Section 2.4.2.

 

1.1.81                  “Mirant-CERS Agreement” means thatcertain Western Systems Power Pool Agreement effective as of February 1,2001 (“WSPP Agreement”), the Letter Agreement for Transactions under theWSPP Agreement dated April 24, 2001, and the Confirmation Agreement andAdditional Terms and Conditions dated May 22, 2001 (together with any exhibits,schedules, confirmation letters and any written supplements thereto) in eachcase between MAEM and CERS.

 

1.1.82                  “Mirant District Court” means theUnited States District Court for the Northern District of Texas, Fort WorthDivision, including where such Court acts on matters as to which it haswithdrawn the reference from the Mirant Bankruptcy Court.

 

1.1.83                  “Mirant Parties” means, collectively,Mirant Corporation, a Delaware corporation, Mirant Americas, Inc., a Delaware corporation,MAEM, Mirant Americas Energy Marketing Investments, Inc., a Georgiacorporation, MAG, Mirant California Investments, Inc., a Delaware corporation,Mirant California, LLC, a Delaware limited liability company, Delta, Potrero,Mirant Special Procurement, Inc., a Delaware corporation, Mirant Services, LLC,a Delaware limited liability company, and Mirant Americas Development, Inc., aGeorgia corporation.

 

1.1.84                  “Mirant Plans” means, collectively,Debtors’ plans of reorganization under the Bankruptcy Code.

 

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1.1.85                  “Mirant Refund Escrow” has the meaningset forth in Section 6.1.

 

1.1.86                  “Mitigation” means the obligation topay or account for refunds, adjustments, allowances or charges, as determinedin the FERC Refund Proceeding.

 

1.1.87                  “Net Payers” has the meaning set forthin Section 6.4.1.

 

1.1.88                  “Net Refund Recipient” has the meaningset forth in Section 6.5.2.

 

1. 1.89               “Non-Settling Participants” meansMarket Participants that are not Parties, and that do not elect to become boundby this Agreement in order to participate in the Settlement pursuant to Article XI.

 

1.1.90                  “Official Committees” means theofficial committees appointed in the Bankruptcy Proceedings by the UnitedStates trustee pursuant to Section 1102 of the Bankruptcy Code.

 

1.1.91                  “OMOI” means FERC’s Office of MarketOversight and Investigations.

 

1.1.92                  “Original CPUC CC8 Decision” has themeaning set forth in Section 1.1.32(iv).

 

1.1.93                  “Original CPUC Delta Plant Option Decision”has the meaning set forth in Section 8.7.4.2(iv).

 

1.1.94                  “Original Purchase and Sale Agreement”has the meaning set forth in Section 4.2.1.

 

1.1.95                  “Party” and “Parties” have themeanings set forth in the preamble to this Agreement.

 

1.1.96                  “PG&E” means Pacific Gas andElectric Company, a California corporation.

 

1.1.97                  “PG&E Bankruptcy Court” means theUnited States District Bankruptcy Court for the Northern District ofCalifornia.

 

1.1.98                  “PG&E Plan Escrow” means theescrow established by PG&E pursuant to PG&E’s plan of reorganizationand other ancillary agreements for payment of its outstanding debts to the PXand to the CAISO.

 

1.1.99                  “Physical Withholding Investigation”means FERC’s undocketed fact-finding investigation regarding allegedwithholding by entities that controlled generation selling into the Californiawholesale energy and ancillary services markets.

 

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1.1.100            “Plan” means a plan of reorganizationunder the Bankruptcy Code.

 

1.1.101            “Plan Settlement Solution” has themeaning set forth in Section 2.8.2.

 

1.1.102            “Post-January 17 Period” meansthe period January 18, 2001 through June 20, 2001.

 

1.1.103            “Potrero” means Mirant Potrero, LLC,Delaware limited liability company.

 

1.1.104            “Potrero Plan” means the Mirant Planthat governs the disposition of Potrero’s estate.

 

1.1.105            “Pre-January 18 Period” means theperiod October 2, 2000 through January 17, 2001.

 

1.1.106          “Pre-October Period” means the period January 1, 2000through October 1, 2000.

 

1.1.107            “Preparatory Rerun” means the CAISOand PX settlements rerun process for the period October 2, 2000 through June 20,2001, conducted pursuant to FERC Docket No. ER03-746, before and without regardto the calculation of any refunds or mitigation.

 

1.1.108            “Proposed CPUC CC8 Decision” has themeaning set forth in Section 1.1.32(iv).

 

1.1.109            “Proposed CPUC Delta Plant Option Decision”has the meaning set forth in Section 8.7.4.2(iv).

 

1.1.110            “PX” means the California PowerExchange Corporation, a California public benefits corporation.

 

1.1.111            “PX SettlementClearing Account” means the account maintained and held by the PXcontaining funds relating to the PX and CAISO markets that have not yet beendistributed.

 

1.1.112            “Receivables Excess”has the meaning set forth in Section 6.6.1.

 

1.1.113            “ReceivablesShortfall” has the meaning set forth in Section 6.6.1.

 

1.1.114            “Refund Excess”has the meaning set forth in Section 6.6.2.

 

1.1.115            “Refund Period”means the period October 2, 2000 through June 20, 2001.

 

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1.1.116            “Refund Shortfall”has the meaning set forth in Section 6.6.2.

 

1.1.117            “Related Parties”means, collectively, as to any Party entitled to receive a release of claims orother rights in accordance with this Agreement, such Party’s present and formermanagers (to the extent that such managers are individuals), directors,officers, employees, and agents, and as further specified in Section 9.1.Each Debtor is a Related Party as to any Mirant Party.

 

1.1.118            “Required Approvals”has the meaning set forth in Section 2.4.1.

 

1.1.119            “RMR Agreements”means, collectively (i) that certain Must-Run Service Agreement dated as of June 1,1999, between Southern Energy Potrero, L.L.C. (now known as Mirant Potrero,LLC) and the CAISO pertaining to the facility commonly known as**thePotrero Power Plant, as amended from time to time, (ii) that certain Must-RunService Agreement dated as of June 1, 1999, between Southern Energy Delta,L.L.C. (now known as Mirant Delta, LLC) and the CAISO pertaining to the facilitycommonly known as the Contra Costa Power Plant, as amended from time to time,and (iii) that certain Must-Run Service Agreement dated June 1, 1999,between Southern Energy Delta, L.L.C. (now known as Mirant Delta, LLC) and theCAISO pertaining to the facility commonly known as the Pittsburg Power Plant,as amended from time to time. Each of the foregoing agreements also may bereferred to individually herein as an “RMR Agreement.”

 

1.1.120            “RMR Claim” hasthe meaning set forth in Section 8.5.

 

1.1.121            “RMR Claim PlanSecurities” has the meaning set forth in Section 8.5.

 

1.1.122            “RMR ClaimShortfall” has the meaning set forth in Section 8.5.

 

1.1.123            “RMR ClaimShortfall Notice” has the meaning set forth in Section 8.5.

 

1.1.124            “RMR Order” hasthe meaning set forth in Section 8.1.

 

1.1.125            “RSBA” has themeaning set forth in Section 8.2.

 

1.1.126            “Rule 9019Supplemental Solution” has the meaning set forth in Section 2.4.2.

 

1.1.127            “SCE” meansSouthern California Edison Company, a California corporation.

 

1.1.128            “SDG&E”means San Diego Gas & Electric Company, a California corporation.

 

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1.1.129            “Second WraparoundAgreement” means the agreement between PG&E and Delta attached heretoas part of Exhibit B that has a term beginning on January 1, 2006 (or, ifthe First Wraparound Agreement is extended pursuant to Section 2.2.1,beginning on January 1, 2007) and continuing through December 31,2012, and that shall not be effective until the CPUC has provided the RequiredApproval in accordance with Sections 2.4.1 and 2.5.

 

1.1.130            “Settlement”has the meaning set forth in Recital F to this Agreement.

 

1.1.131            “SettlementEffective Date” has the meaning set forth in Section 2.3.

 

1.1.132            “SettlingParticipants” means the California Parties and the Additional SettlingParticipants.

 

1.1.133            “Settlement Period”means the period January 1, 1998 through July 14, 2003. ThisSettlement Period reflects the unique circumstances presented by the MirantParties’ Bankruptcy Proceedings.

 

1.1.134            “SO2 Claim” hasthe meaning set forth in Section 8.6.

 

1.1.135            “SO2 Claim PlanSecurities” has the meaning set forth in Section 8.6.

 

1.1.136            “SO2 ClaimShortfall” has the meaning set forth in Section 8.6.

 

1.1.137            “SO2 ClaimShortfall Notice” has the meaning set forth in Section 8.6.

 

1.1.138            “Stay Period”has the meaning set forth in Section 10.1.

 

1.1.139            “SWP” means theCalifornia Department of Water Resources, acting in its capacity as the StateWater Resources Development System and the State Water Project.

 

1.1.140            “SWP Side Letter”has the meaning set forth in Section 2.2.2.

 

1.1.141            “Termination Event”has the meaning set forth in Section 2.8.1.

 

1.1.142            “Unsatisfied BankruptcyCondition” has the meaning set forth in Section 8.9.l(i).

 

1.1.143            “Unsettled MirantRefund Amounts” has the meaning set forth in Section 6.9.4

 

1.1.144            “UnsettledParticipant Refund Amount” has the meaning set forth in Section 6.9.4.1.

 

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1.1.145            “Voting SupportRequirements” has the meaning set forth in Section 3.3.3.2.

 

1.1.146            “WraparoundAgreements” means, collectively, the First Wraparound Agreement and theSecond Wraparound Agreement.

 

1.1.147            “WSPP Agreement”has the meaning set forth in Section 1.1.81.

 

1.2                                 Rules of Interpretation. The following rules of interpretation shallapply to this Agreement, including all Exhibits.

 

1.2.1                        Singular;Plural. Unless the context otherwise requires, words used in this Agreementshall include in the singular number the plural and in the plural number thesingular.

 

1.2.2                        SelfReference; Incorporation by Reference; Cross Reference. The words “hereof,”“herein,” and “hereunder” and words of similar import when used in thisAgreement, including the Exhibits, shall, unless otherwise specified, refer tothis Agreement as a whole and not to any particular Article, Section, Exhibitor provision of this Agreement, and all references to Articles, Sections orExhibits shall be to all subparts of such Articles, Sections or Exhibits. AllExhibits shall be deemed to be incorporated by reference and made a part ofthis Agreement.

 

1.2.3                        Inclusiveof Permitted Successors. Unless otherwise stated, any reference in thisAgreement to any person shall include its permitted successors and assigns and,in the case of any Governmental Authority, any entity succeeding to its functionsand capabilities.

 

1.2.4                        Gender.Whenever the context may require, any pronoun used herein shall include thecorresponding masculine, feminine and neuter forms.

 

1.2.5                        InclusiveReferences. When used herein, the words “include,” “includes” and “including”shall not be limiting and shall be deemed in all instances to be followed bythe phrase “without limitation.”

 

1.2.6                        Conflicts.In the event of any conflict between the terms of this Agreement and anyImplementing Agreement, the terms of such Implementing Agreement shall, asamong the parties to such Implementing Agreement only, control over thecorresponding provisions of this Agreement; provided, however, that the provisionsof Section 1.1.32, Section 2.5, Section 2.6, Section 2.8.4and Article VIII of this Agreement shall control over any conflictingprovisions contained in any Implementing Agreement, and further provided thatnothing in any Implementing Agreement may effect an amendment to this Agreement.

 

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**ARTICLE II**

**BINDINGOBLIGATIONS; CONDITIONS TO EFFECTIVENESS;**

**TERMINATION**

 

2.1                                 Binding Obligations.

 

2.1.1                        Parties. Except (i) as provided in Section 2.2,under which various of the Parties’ rights and obligations hereunder aresubject to the occurrence of the Settlement Effective Date, and (ii) as toOMOI, whose obligations under this Agreement shall not be effective until theissuance of the FERC Settlement Oder, this Agreement shall be a bindingobligation of all Parties immediately upon the Execution Date; provided,however, that prior to approval of this Agreement by the Mirant BankruptcyCourt and the PG&E Bankruptcy Court, or the granting by the Mirant BankruptcyCourt and the PG&E Bankruptcy Court of authorization for the Mirant Partiesand PG&E, respectively, to enter into this Agreement, (a) the obligationsof the Mirant Parties and PG&E hereunder shall be limited to those mattersfor which no prior approval of the Mirant Bankruptcy Court and the PG&EBankruptcy Court, respectively, is required, and (b) the other Parties shall bebound to this Agreement only to the extent that all of the Mirant Parties andPG&E are bound to this Agreement.

 

2.1.2                        AdditionalSettling Participants. For purposes of clarity, each Additional SettlingParticipant shall be bound to the terms of the Settlement and this Agreement asa Settling Participant as of the time set forth in Article XI, but shallnot be a party to thisAgreement.

 

2.1.3                        Cooperation.Until such time as (i) the CAISO and the PX have been directed by FERC to takeand have taken the actions specified in this Agreement as being applicable tothem through the effect of the FERC Settlement Order, whether by effect of theFERC Settlement Order or otherwise, and (ii) FERC has approved the Settlementand this Agreement by issuing the FERC Settlement Order, the Parties shall usereasonable efforts to persuade the CAISO and the PX each (a) to cooperate withthe Parties to facilitate the occurrence of the Settlement Effective Date atthe earliest feasible time, including by joining in any stay or extensionthereof that may be requested by the Parties., and in any actions taken by theParties to enable the Mirant Bankruptcy Court to approve the Bankruptcy Rule9019 Motion, any Rule 9019 Supplemental Solution, or any Plan SettlementSolution, in each case in accordance with the terms hereof, and (b) to refrainfrom any action that would be inconsistent with this Agreement.

 

2.2                                 Conditions Precedent Certain Obligations.

 

2.2.1                        Occurrenceof the Settlement Effective Date. The obligation of any Party to assignreceivables, agree to the designation of allowed claims (other than for votingand feasibility purposes as provided in Section 5.1.1.2 and Section 8.12),transfer assets or take any actions in connection with the planned transfer ofassets, make payments or deposit or transfer funds, perform any of itsobligations under any Implementing Agreement other than the First WraparoundAgreement, assume liabilities or release or withdraw liabilities, defenses,claims or proofs of claim hereunder, or waive

 

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rights to file claims, appeals, or rehearing requests, and allreleases, waivers, and withdrawals of claims and defenses specified herein, aswell as any other undertakings under Article IX, shall not be effectiveuntil the occurrence of the Settlement Effective Date. For clarity, this Section 2.2.1shall not delay the effectiveness of the Parties’ obligations to take theactions specified in Sections 3.2 and 3.3 to facilitate the Mirant BankruptcyCourt’s approval of the Bankruptcy Rule 9019 Motion, any Rule 9019 SupplementalSolution or any Plan Settlement Solution, all of which shall be effective as ofthe Execution Date. Notwithstanding anything to the contrary in this Agreement,if the Settlement Effective Date has not occurred on or before December 31,2005, and no Termination Event has occurred, then (i) the First WraparoundAgreement shall be extended through December 31, 2006, (ii) the parties tothe First Wraparound Agreement shall seek any necessary FERC authorization toextend the 2005 RMR FERC Settlement through December 31, 2006, and (iii)the Second Wraparound Agreement shall not become effective until January 1,2007, provided that the CAISO has agreed to such extension of the 2005 RMR FERCSettlement and provided further that this Section 2.2.1 shall not causeany extension of the First Wraparound Agreement if the First WraparoundAgreement has terminated pursuant to its terms prior to December 31, 2005or if FERC does not authorize the extension of the 2005 RMR FERC Settlementthrough December 31, 2006. For the avoidance of doubt, if a TerminationEvent occurs after December 31, 2005, and the First Wraparound Agreementhas been extended in accordance with the preceding sentence, then the FirstWraparound Agreement shall remain in effect through December 31, 2006, butthe Second Wraparound Agreement shall not become effective.

 

2.2.2                        SWPSide Letter. In addition to the condition precedent specified in Section 2.2.1,the obligations of the Mirant Parties as specified in Section 2.2.1 shallbe effective only if the SWP has executed and delivered a letter agreement inthe form attached as Exhibit I in which the SWP has committed to be bound bythe terms of the Settlement and this Agreement as an Additional SettlingParticipant (the “SWP Side Letter”). CERS shall use reasonable effortsto obtain a supplemental letter agreement executed by SWP that (i) requires SWP’sprompt opt-in to this Agreement as an Additional Settling Participant, (ii)provides for a stay of litigation while SWP’s opt-in is pending that is consistentwith the stays to which CERS has agreed, and (iii) limits SWP’s claims forvoting and feasibility purposes in the Bankruptcy Proceedings to SWP’s shareunder the Allocation Matrix.

 

2.3                                 Settlement Effective Date. The “Settlement Effective Date”shall occur on the first day on which all of the Required Approvals withrespect to this Agreement and the Initial Implementing Agreements have beenentered, issued or otherwise obtained and are in full force and effect and notthen stayed, notwithstanding that a request for stay, rehearing or appeal maythen be pending as to one or more of the Required Approvals; provided, however,that the First Wraparound Agreement shall be effective upon its execution tothe maximum extent permitted by applicable law.

 

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2.4                                 Required Approvals.

 

2.4.1                        List.The Settlement made pursuant to this Agreement shall be subject to approval bythe Mirant Bankruptcy Court, the PG&E Bankruptcy Court as to PG&E, FERCin the FERC Settlement Order, and the CPUC (except with respect to the FirstWraparound Agreement), of all terms and conditions of this Agreement and the InitialImplementing Agreements in their entirety without material change or condition unacceptableto any adversely affected Party (collectively, the “Required Approvals”and each a “Required Approval”). If any Required Approval (including theRequired Approval from the Mirant Bankruptcy Court), or, if the SettlementEffective Date has not then occurred, any order resulting from a request forrehearing or an appeal of any of the Required Approvals, includes a materialchange or condition that adversely affects any Party, then each Party soaffected shall communicate its consent or lack of consent to such change orcondition in writing to the other Parties within five (5) Business Days afterthe date on which the decision, order, or ruling constituting the RequiredApproval, or any order resulting from a request for rehearing or appeal of anyRequired Approval, was issued. The failure of an affected Party to providewritten notice in accordance with the foregoing sentence shall constituteacceptance by such Party of the material change or condition.

 

2.4.2                        For theavoidance of doubt, the Mirant Bankruptcy Court shall be deemed to have giventhe Required Approval (the “Mirant Bankruptcy Court Approval”) upon theearliest to occur of: (i) the date on which an order is entered by it approvingthe Bankruptcy Rule 9019 Motion in a manner that meets the specifications setforth in Section 2.4.1; (ii) if a Rule 9019 Supplemental Solution isinitiated, the date on which such Rule 9019 Supplemental Solution results in anapproval that meets the specifications set forth in Section 2.4.1; or(iii) the confirmation date of Mirant Plans that fully incorporate theSettlement and this Agreement in accordance with Section 3.3 if the Settlementor any portion of the Settlement is approved as a result of a Plan Settlement Solution.As used herein, the term “Rule 9019 Supplemental Solution” means any action,motion or combination thereof that the Parties agree should be taken or filedin addition to the Bankruptcy Rule 9019 Motion for purposes of seeking theRequired Approval from the Mirant Bankruptcy Court, and to address anydeficiencies identified by the Mirant Bankruptcy Court in its order or decisionon the Bankruptcy Rule 9019 Motion or any concerns of the Mirant BankruptcyCourt regarding the Bankruptcy Rule 9019 Motion that are perceived by theParties, and includes any supplemental, renewed or amended motion, the form ofany pleadings to be filed, and the process to be followed. For the avoidance ofdoubt, the Mirant Bankruptcy Court Approval may be achieved in whole or in partby an order of the Mirant District Court. The Parties agree to negotiate ingood faith to agree upon a Rule 9019 Supplemental Solution, if necessary, andto pursue any Rule 9019 Supplemental Solution that may be agreed upon.

 

2.4.3                        Divisionof Responsibilities. The following Parties shall be responsible forpreparing and filing the filings, applications and other documentation necessaryto obtain the Required Approvals, which filings, applications and other documentationshall be in form and substance satisfactory, in the reasonable exercise of theirjudgment, to all affected Parties: (i) the Mirant Parties as to the MirantBankruptcy

 

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CourtApproval, as further specified in Sections 3.2 and 3.3; (ii) PG&E as to theRequired Approval from the PG&E Bankruptcy Court; and (iii) the MirantParties and the California Parties as to the Required Approval from FERC. AllParties shall cooperate in good faith expeditiously to prepare, approve andfile all such filings, applications and other documentation as soon asreasonably practicable following the Execution Date. Immediately after theExecution Date, the Parties shall, at their own cost and expense, expeditiouslyseek the Required Approvals and shall take all other actions as reasonablynecessary to achieve the Settlement Effective Date, except that nothing in thisAgreement shall obligate any Party to appeal an order that fails to approvethis Agreement.

 

2.5                                 CPUC Required Approval. The CPUC’s execution of this Agreement as aParty (i) shall constitute the Required Approval from the CPUC for all purposesof this Agreement and the Initial Implementing Agreements, (ii) shallconstitute authorization and permission for SCE to consummate the Settlementand perform its obligations under this Agreement, (iii) shall constituteauthorization for PG&E either to (a) acquire and take ownership of the CC8Assets and to effectuate the other ancillary transactions included or intendedto be addressed in the CC8 Asset Transfer Agreement, whether or not the DeltaPlant Option Agreement is executed, upon the occurrence of the CC8 TransferApproval Date if such date should occur, or (b) receive the CC8 AlternativeConsideration in lieu of the CC8 Assets and the other ancillary transactionsincluded or intended to be addressed in the CC8 Asset Transfer Agreement asreasonable consideration in full payment and satisfaction of the claims andliabilities that were intended to be satisfied by the transfer of the CC8Assets and the other ancillary transactions included or intended to beaddressed in the CC8 Asset Transfer Agreement, consistent with Section 8.10,(iv) shall not in any way affect or limit the CPUC’s review of, ordetermination with respect to, the consummation of the transactions included inthe CC8 Asset Transfer Agreement or the Delta Plant Option Agreement, andnothing herein shall be viewed as a pre-judgment or predetermination by the CPUCof such transactions, and (v) shall constitute both authorization for PG&Eto enter into the Second Wraparound Agreement and approval of the reasonablenessof PG&E entering into the Second Wraparound Agreement. If the CPUC subsequentlydetermines, for any reason, not to approve PG&E’s acquisition of the CC8Assets, or not to authorize PG&E to consummate any of the ancillarytransactions included or intended to be addressed in the CC8 Asset TransferAgreement, or otherwise fails to grant such approval and authorization, thenthe Settlement, this Agreement and the Initial Implementing Agreements shall bepreserved in full force and effect as to all aspects hereof and thereof and aCC8 Triggering Event shall be deemed to have occurred. Notwithstanding anythingto the contrary in this Agreement, (1) the Settlement, this Agreement and theInitial Implementing Agreements shall be preserved in full force and effect asto all aspects hereof and thereof regardless of whether the CPUC approves theDelta Plant Option Agreement or PG&E exercises the options that areintended to be provided for therein, (2) if the CPUC approves the CC8 AssetTransfer Agreement but not the Delta Plant Option Agreement, no CC8 TriggeringEvent will be deemed to have occurred and the Delta Plant Option Agreementshall be terminated without further obligation or liability of any partythereto, and (3) in no event shall PG&E be entitled (A) to both acquire theCC8 Assets and receive the CC8 Alternative Consideration, or (B) to bothacquire the CC8 Alternative Consideration and receive the options intended tobe provided for in the Delta Plant Option Agreement,

 

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includingin the event that the CC8 Asset Transfer Agreement is not executed or isrejected but the Delta Plant Option Agreement is executed and approved. For theavoidance of doubt, the Parties agree that (x) the consideration received bythe Parties under this Agreement is adequate and reasonable even if the DeltaPlant Option Agreement is not executed or never becomes effective, or if theoptions granted thereunder are not exercised, and (y) neither the failure ofthe applicable Parties to execute the Delta Plant Option Agreement, nortermination of the Delta Plant Option Agreement after it is executed, in eachcase for any reason, will result in any failure of consideration for purposesof the Settlement or this Agreement.

 

2.6                                 CC8 Transfer Approval Date. The occurrence of the CC8 Transfer ApprovalDate shall be a condition precedent to the respective obligations of Delta, MirantSpecial Procurement, Inc. and PG&E to effectuate the actual transfer and assignmentof the CC8 Assets under and in accordance with, and to consummate the otherancillary transactions included or intended to be addressed in, the CC8 Asset TransferAgreement, but shall not otherwise be a condition to the effectiveness of this Agreementor any Initial Implementing Agreement, or otherwise affect the rights or obligationsof any Party, including any Mirant Party or PG&E, hereunder or thereunder. IfPG&E receives the CC8 Alternative Consideration pursuant to the terms ofthis Agreement, such CC8 Alternative Consideration shall be in lieu of any andall rights to the CC8 Assets and the consummation of all other ancillarytransactions included or intended to be addressed in the CC8 Asset TransferAgreement.

 

2.7                                 FERC Settlement Order.

 

2.7.1                        Effect.FERC’s approval of the Settlement and this Agreement through the issuance ofthe FERC Settlement Order shall constitute FERC’s direction:

 

(i)                                     toeach of the CAISO and the PX, as of the Settlement Effective Date, to (a)implement this Agreement in accordance with its terms, and to refrain fromtaking any actions that are inconsistent herewith, (b) conform their books andrecords to reflect the terms of this Agreement, as specified in Section 6.9,(c) waive, release and withdraw with prejudice all claims and proofs of claimfiled by them as to any Debtor in the Bankruptcy Proceedings that seek torecover amounts or otherwise obtain relief on behalf of or for the benefit ofany Settling Participant with respect to any claim that is duplicative of theclaims released in this Agreement or that, with respect to any SettlingParticipant, otherwise pertains to conduct, acts or omissions that areencompassed within the releases set forth in this Agreement, and (d) releaseand return all collateral provided by any Mirant Party, and forego or otherwisewithdraw all requests for additional collateral from any Mirant Party, in eachcase to the extent that such collateral or request for collateral applies toliabilities that are released by this Agreement, or involves an amount ofcollateral that is calculated taking into account such liabilities;

 

(ii)                                  withoutlimiting the generality of subpart (i)(c) above, to the CAISO, as of theSettlement Effective Date, to waive, release and withdraw

 

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with prejudice Proof of Claim Nos. 7203, 7205, 7801 and 7836 in theBankruptcy Proceedings, and all other claims arising out of or relating to theRMR Agreements with respect to all periods prior to and including September 30,2004, whether known or unknown, contingent, fixed or inchoate, whetherliquidated or unliquidated and however and whenever arising;

 

(iii)                               tothe PX (a) that the PX shall, effective as of the Settlement Effective Date,(1) assign to each Non-Settling Participant any and all rights and claims thatthe PX holds with respect to claims asserted in the Bankruptcy Proceedings onbehalf of such Non-Settling Participant, with the effect that such assigneeNon-Settling Participants shall be entitled to assume the positions establishedby the PX in the Bankruptcy Proceedings, subject to all of the rights, defensesand offsets that the Mirant Parties and other Debtors may have against the PXand directly as to such Non-Settling Participants, (2) be relieved of anyfurther obligation to prosecute claims in the Bankruptcy Proceedings on behalfof Non-Settling Participants, (3) file notices of assignment in the BankruptcyProceedings in compliance with Bankruptcy Rule 3001 (e) and otherwiseeffectuate the transfer of the rights and claims that are required to beassigned pursuant to this subpart (a), and (4) cease all activities and actionsassociated with prosecuting or litigating claims on behalf of any Non-SettlingParticipant in the Bankruptcy Proceedings unless and until the PX has receivedan executed agreement from such Non-Settling Participant confirming that theNon-Settling Participant will assume and reimburse the PX for all costs andexpenses (including attorneys’ fees) associated with such activities andactions by the PX, and (b) that after the entry of the FERC Settlement Order noMarket Participants (including any Mirant Party) other than the Non-SettlingParticipants shall be liable for any costs or expenses (including attorneys’fees) of the PX incurred thereafter that are associated with prosecuting orlitigating claims on behalf of the Non-Settling Participants in the BankruptcyProceedings, or otherwise with participating in the Bankruptcy Proceedings, andamong the Non-Settling Participants, the only Non-Settling Participants thatshall be liable for such PX costs and expenses (including attorneys’ fees) arethose Non-Settling Participants that notify the PX in writing of theiragreement to pay such PX costs and expenses (including attorneys’ fees);

 

(iv)                              thatall claims and proofs of claim filed by FERC as to any Debtor in the BankruptcyProceedings that seek to recover payments, impose penalties, or otherwiseobtain relief based on or arising out of conduct, acts or omissions that arethe subject of the releases set forth in this Agreement, or that otherwisewould be waived, released and/or withdrawn under this Agreement if asserted bya Settling Participant, shall be deemed to be waived, released and withdrawnwith prejudice effective as of the Settlement Effective Date; and

 

(v)                                 thatall FERC Investigations insofar as they relate to alleged conduct, acts oromissions by any Mirant Party shall be terminated and extinguished as of theSettlement Effective Date without any penalty or

 

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consequence to, or other obligation or liability of, any Mirant Partyor its Related Parties that is not provided for in this Agreement.

 

2.7.2                        DuplicativeClaims. The Parties agree that all claims asserted in proofs of claim filedby the CAISO and the PX as of the Settlement Effective Date against any MirantParty or other Debtor in the Bankruptcy Proceedings shall be deemed to beduplicative of the claims released in this Agreement except (i) as such claimsrelate specifically to services (including the PX wind-up activities such asthose at issue in FERC Docket No. ER02-2234) provided by the CAISO or the PX toa Mirant Party for which the CAISO or the PX is entitled to receive a paymentfor its own account and to cover its own costs and expenses, as specified inthe FERC-approved tariff of the CAISO or the PX, and which remain unpaid, (ii)as specified in Exhibit A, or (iii) to the extent that such claim is found tobe for the benefit of a Non-Settling Participant.

 

2.8                                 Termination and Effect.

 

2.8.1                        TerminationEvents. If the Settlement Effective Date has not yet occurred, and unlessotherwise agreed to by the Parties in writing, the Settlement and thisAgreement shall terminate (each of the events specified in subparts (i)-(vii)below shall be a “Termination Event”):

 

(i)                                     atthe option of any Party, if FERC issues an order denying approval of theSettlement or this Agreement in whole or in part;

 

(ii)                                  atthe option of any Party, if, except under the circumstances specified in Section 2.8.2,the Mirant Bankruptcy Court enters an order denying the Bankruptcy Rule 9019Motion in whole or in part;

 

(iii)                               atthe option of any Party, if the Mirant Bankruptcy Court enters an order denyingconfirmation of Mirant Plans that incorporate a Plan Settlement Solution;

 

(iv)                              atthe option of any Party, if the Settlement Effective Date has not occurred by March 31,2006;

 

(v)                                 atthe option of the California Parties, if the Mirant Parties at any time becomeproponents of, or advocate in any court of competent jurisdiction the confirmationof, Mirant Plans that do not fully incorporate the terms of the Settlement andthis Agreement, including the requirements of Section 3.3.3, in accordancewith the terms hereof;

 

(vi)                              atthe option of the Mirant Parties, if any California Party becomes a proponentof, or advocates in any court of competent jurisdiction the confirmation of,Mirant Plans that do not fully incorporate the terms of the Settlement and thisAgreement in accordance with the terms hereof, or (provided that the Mirant Partiesare in compliance with their obligations under Sections 3.3.3.2(i) and (ii)) ifany California Party opposes or objects to Mirant Plans in violation of theVoting Support Requirements; or

 

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(vii)                           at theoption of the California Party against whom an action referenced in subparts(a)-(d) below is filed if, at any time prior to the later to occur of theSettlement Effective Date or the effective date of the Mirant Plan(s)applicable to any Mirant Parties in which any aspect of the Settlement or thisAgreement is approved or implemented, and provided that another TerminationEvent has not then occurred, any party has commenced any action or proceedingin the Bankruptcy Proceedings against a California Party (a) under any ofsections 542, 544, 545, 547, 548, 549, or 553 of the Bankruptcy Code to avoidany alleged transfer to or seek turnover from such California Party, (b) under section 550of the Bankruptcy Code to recover any such alleged transfer, (c) under section 510(c)of the Bankruptcy Code to subordinate any claim of such California Party, or(d) under section 502(d) of the Bankruptcy Code to disallow any claim ofany California Party based upon any alleged avoidable transfer and, ifcommenced by a party other than one of the Debtors, such action is notdismissed within 90 days. Any statute of limitations, defense of laches orother deadline for the filing of any actions or proceedings referenced insubparts (a) through (d) above shall be extended and tolled until sixty (60)days after the occurrence of any Termination Event, and the Mirant Partiesagree that they will not seek a further or other extension or tolling of theiraffected rights with respect to the California Parties beyond or in addition tothat provided for in this sentence. If any action or proceeding referenced insubparts (a) through (d) above is commenced by a party other than a Debtor, orif any party other than a Debtor seeks authority to commence such an action orproceeding, the Mirant Parties agree to oppose any such action, proceeding orrequest, provided that a Termination Event has not occurred. Alternatively, ifthe Settlement Effective Date does not occur or any Termination Event occurs,the Parties intend that no Mirant Party or any other Debtor shall be prejudicedas to any such claims by reason of such delay by the Mirant Parties in theenforcement of any such claims in the Bankruptcy Proceedings. Notwithstandingthe foregoing, nothing herein shall be deemed to release, waive or adverselyaffect any right or defense by any Mirant Party as to any right of setoff orrecoupment claimed by any California Party (or any other person or entity),including without limitation under Section 553, that is not releasedhereunder.

 

AnyParty declaring a Termination Event under this Section 2.8.1 shall providewritten notice to all other Parties. Any Termination Event so declared shallnot be effective until five (5) Business Days after all Parties have receivedsuch notice.

 

2.8.2                        Rule9019 Supplemental Solution; Plan Settlement Solution. Notwithstandinganything to the contrary in this Agreement, if the Mirant Bankruptcy Courtdenies or does not approve the Bankruptcy Rule 9019 Motion in whole or in part,then a Termination Event shall not be deemed to have occurred as long as theMirant Bankruptcy Court’s oral or written order or associated decision does notdeny the Settlement in whole or in part on grounds that the Settlement is notfair and equitable and in the best interests of the Mirant Parties’ respectiveestates under applicable Fifth Circuit precedent governing approval ofcompromises under Bankruptcy Rule 9019; and either: (i) the Parties agree toseek a Rule 9019 Supplemental Solution; or (ii) the Mirant Parties (a) filedisclosure statements with respect to Mirant Plans or amendments to MirantPlans within a reasonable time under the circumstances (including, when

 

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appropriate,in light of the Mirant Parties’ independent negotiations with the OfficialCommittees and other key creditors in the Bankruptcy Proceedings) after thelater to occur of the entry of the Mirant Bankruptcy Court’s order on theBankruptcy Rule 9019 Motion, or its order on any motion seeking a Rule 9019Supplemental Solution, but in no event later than June 1, 2005, that seekMirant Bankruptcy Court Approval of the Settlement, or any portion of theSettlement for which approval was not obtained through the Bankruptcy Rule 9019Motion or any motion seeking the Rule 9019 Supplemental Solution, and (b)thereafter at all times pursue approval of such Mirant Plans in a reasonablemanner under the circumstances, considering the various other constituencies inthe Bankruptcy Proceedings and the need to obtain approval and implementationof Mirant Plans for all of the Debtors (a “Plan Settlement Solution”).

 

2.8.3                        Effectof Termination. Upon the occurrence of a Termination Event, (i) thisAgreement, except for the provisions set forth in this Section 2.8.3, in Section 2.8.1(vii)(but only with respect to the extension and tolling of the statute of limitations,defense of laches or other deadline for filing any action or proceeding referencedin subparts(a)-(d) thereof, as such extension and tolling is provided for therein),and in Sections 2.8.4, 4.4, 8.3 and 8.4 (including the 2005 RMR FERC Settlementas to calendar year 2005, and as to calendar year 2006 if the 2005 RMR FERC Settlementis extended pursuant to Section 2.2.1), and all Implementing Agreements (exceptthe First Wraparound Agreement), shall be null and void and of no further forceor effect, with all rights, claims, defenses, duties and obligations of theParties thereafter restored as if the Agreement and such ImplementingAgreements had never been executed, and (ii) no Party shall have any furtherobligation hereunder with respect to any Initial Implementing Agreements orFollow-Up Implementing Agreements that have not yet been executed.

 

2.8.4                        FirstWraparound Agreement and 2005 RMR FERC Settlement. Notwithstanding anythingto the contrary herein, the provisions of Sections 8.3 and 8.4, including the2005 RMR FERC Settlement as to calendar year 2005, and as to calendar year 2006if the 2005 RMR FERC Settlement is extended pursuant to Section 2.2.1, andthe First Wraparound Agreement shall not be affected by a termination of thisAgreement or any other Implementing Agreement, and the rights, obligations,covenants and agreements of each of the Mirant Parties, PG&E and the CAISOas set forth in Sections 8.3 and 8.4, including the 2005 RMR FERC Settlement asto calendar year 2005, and as to calendar year 2006 if the 2005 RMR FERCSettlement is extended pursuant to Section 2.2.1, and under the FirstWraparound Agreement shall continue in full force and effect in accordance withthe terms thereof.

 

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**ARTICLE III**

**IMPLEMENTATION**

 

3.1                                 Implementing Agreements. Certain terms of the Settlement and this Agreementshall be further memorialized in, and implemented in accordance with, the ImplementingAgreements; provided, however, that the relevant Parties’ failure to executethe Follow-Up Implementing Agreements shall not have any effect on the effectivenessof the Settlement, this Agreement or any Initial Implementing Agreement.

 

3.2                                 Mirant Bankruptcy Court Approval.

 

3.2.1                        BankruptcyRule 9019 Motion. The Mirant Parties shall prepare and file a motion withthe Mirant Bankruptcy Court pursuant to Bankruptcy Rule 9019, which motion andrelated pleadings shall be in form and substance satisfactory to each of theParties in the reasonable exercise of its judgment, seeking: (i) approval ofthe Settlement, as embodied in this Agreement and the Initial ImplementingAgreements, or in the alternative, if such approval is not obtained, confirmationof the Mirant Parties’ authority to execute this Agreement and be bound to theterms hereof, except to the extent provided in Section 2.2; (ii) a goodfaith finding under Section 363(m) of the Bankruptcy Code with respect tothe asset transfers provided for herein, including in Article V, Article VIIIand Section 9.3.6; and (iii) an order granting the foregoing approvals andfindings that becomes effective immediately upon entry notwithstanding the ten(10) day stay provided for in Bankruptcy Rule 6004(g) (such motion is referredto herein as the “Bankruptcy Rule 9019 Motion”). To expedite approval ofall Implementing Agreements, the Parties shall seek authorization in theBankruptcy Rule 9019 Motion for all Mirant Parties that are parties to the Follow-UpImplementing Agreements to execute and perform their obligations under suchFollow-Up Implementing Agreements without further order of the MirantBankruptcy Court, as long as the terms of such Follow-Up ImplementingAgreements are consistent with the terms of this Agreement and any otherdocumentation that is submitted to the Mirant Bankruptcy Court in connectionwith this Agreement. The Mirant Parties shall file, together with theBankruptcy Rule 9019 Motion, a form of order approving the Bankruptcy Rule 9019Motion that also shall be in form and substance satisfactory to each of theParties in the reasonable exercise of its judgment. As soon as practicableafter the Execution Date, but in no event later than thirty (30) days after theExecution Date, the Mirant Parties shall: (a) prepare and circulate theBankruptcy Rule 9019 Motion and related pleadings and form of order to theother Parties to ensure that all Parties have adequate time to review inadvance of filing the form and substance of the Bankruptcy Rule 9019 Motion andform of order and resolve disagreements, if any, regarding the same; (b) filethe Bankruptcy Rule 9019 Motion and form of order; and (c) seek support for theBankruptcy Rule 9019 Motion and form of order from the Official Committees andother key creditors of the Debtors. The Bankruptcy Rule 9019 Motion shall notbe part of the withdrawn reference proceedings. The Parties shall not seek towithdraw from the Mirant Bankruptcy Court the reference for the Bankruptcy Rule9019 Motion and shall jointly oppose any effort by a third party to withdrawthe reference as to the Bankruptcy Rule 9019 Motion.

 

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3.2.2                        Cooperation.

 

3.2.2.1               In allowing this Agreement and theImplementing Agreements to become effective before the effective date of theapplicable Mirant Plans, the Parties each agree to cooperate reasonably (andshall seek to persuade each of the CAISO, the PX and FERC to cooperatereasonably) in connection with obtaining approval and confirmation of MirantPlans that are consistent with and in compliance with this Agreement and theImplementing Agreements. Notwithstanding the foregoing, nothing in this Section 3.2.2.1shall in any way limit any Party’s exercise of its fiduciary or other dutiesby, among other things, voting for, preferring, cooperating in connection withor otherwise supporting any competing or alternative plan or plans ofreorganization, provided that (i) the Party is in compliance with therequirements of Section 3.3.3, and (ii) such competing or alternativeplans fully incorporate and effectuate the entire Settlement and all provisionsof this Agreement and the Implementing Agreements in all respects. If theMirant Bankruptcy Court approves part, but not all, of the Settlement in theBankruptcy Rule 9019 Motion and the Mirant Parties pursue a Rule 9019Supplemental Solution or a Plan Settlement Solution, then any portion of theSettlement, this Agreement or the Implementing Agreements that may have beenapproved as part of the Bankruptcy Rule 9019 Motion and that is specified in Section 2.2.1as becoming effective only upon the occurrence of the Settlement Effective Dateis, notwithstanding any other provision of this Agreement, not effective untilthe Settlement Effective Date.

 

3.2.2.2               If,as a condition to granting the Mirant Bankruptcy Court Approval or making suchapproval effective, the Mirant Bankruptcy Court requires some further action oraccomplishment by the Parties, then the Parties agree to cooperate with eachother, and the Parties agree to use reasonable efforts to seek to persuade theCAISO, PX and FERC to cooperate with the Parties, to arrive at a mutuallysatisfactory Rule 9019 Supplemental Solution; provided, however, that if theMirant Bankruptcy Court requires that any proceedings pending before the MirantDistrict Court identified in Exhibit D, and/or any pending motion to withdrawthe reference filed in the Bankruptcy Proceedings that concerns any of thematters identified in Exhibit D, be referred or restored in whole or part tothe Mirant Bankruptcy Court, the Parties’ obligation to cooperate does notrequire the California Parties to dismiss or withdraw such proceedings or motions.

 

3.3                                 Mirant Plans.

 

3.3.1                        Incorporation.If the Mirant Bankruptcy Court enters an order approving the Bankruptcy Rule9019 Motion or any Rule 9019 Supplemental Solution, then the Mirant Plans shallincorporate fully the provisions of this Agreement, unless a Termination Eventhas occurred or later occurs, it being understood that the Mirant Plansthemselves shall not be considered part of this Agreement or the ImplementingAgreements. As long as a Termination Event has not occurred, if the MirantBankruptcy Court denies or does not approve the Bankruptcy Rule 9019 Motion inits entirety,

 

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includingas a result of any Rule 9019 Supplemental Solution, then (i) the Parties shallremain bound by the Settlement and this Agreement, and (ii) the Mirant Partiesshall seek through confirmation of the Mirant Plans to obtain Mirant BankruptcyCourt approval of those portions of this Agreement, the ImplementingAgreements, and the Settlement for which approval has not yet been granted, andshall request approval of such unapproved portions of the Settlement, thisAgreement and the Implementing Agreements as part of the Mirant Plans, providedthat the effectiveness of any portion of the Settlement, this Agreement or theImplementing Agreements that may have been approved as part of the BankruptcyRule 9019 Motion or through any Rule 9019 Supplemental Solution, and that isspecified in Section 2.2.1 as becoming effective only upon the occurrenceof the Settlement Effective Date, shall not become effective until theSettlement Effective Date. If all or a portion of the Settlement must beapproved in a Plan Settlement Solution, then the Mirant Plans shall incorporatefully the provisions of this Agreement and the Implementing Agreements andshall authorize and require the applicable Debtors’ performance hereof andthereof, it being understood that the Mirant Plans themselves shall not beconsidered part of this Agreement or the Implementing Agreements.

 

3.3.2                        Limitationof Debtor Obligations. The payment obligations associated with the AggregateAllowed Claim and the CERS Allowed Claim are limited to MAEM, and theobligations associated with the consideration exchanged in Article VIIIare limited to Delta, Potrero and Mirant Special Procurement, Inc.Notwithstanding anything to the contrary in this Agreement, this Agreement isnot intended to affect obligations between or among any of the Debtors. Theprovisions of the Mirant Plans that are not covered by this Agreement or theImplementing Agreements are the subject of separate negotiations with theOfficial Committees. Neither this Agreement nor any Implementing Agreementshall affect the rights of the Debtors to negotiate and propose the terms andstructure of the Mirant Plans, provided that, in the event that all or aportion of this Agreement and the Implementing Agreements are incorporated intothe Mirant Plans, the Mirant Plans shall incorporate fully this Agreement(including Section 3.3.3.2) and the Implementing Agreements, and shallauthorize and require the Parties’ execution, delivery, implementation andperformance hereof and thereof as conditions precedent to the effectiveness ofthe Mirant Plans.

 

3.3.3                        Classificationand Plan Objections.

 

3.3.3.1               Becausethe Mirant Parties may make compromises now if the Bankruptcy Rule 9019 Motionor any Rule 9019 Supplemental Solution is approved before the Mirant Plans areconfirmed, the Settling Participants acknowledge that it would be inequitableif a Settling Participant (or FERC, the CAISO or the PX) were subsequently touse its rights and entitlements under the Settlement, this Agreement or anyImplementing Agreement and other rights to obtain additional benefits under theMirant Plans in exchange for not defeating or obstructing the confirmation ofthe Mirant Plans, and, in consequence, the Settling Participants agree not todo so.

 

3.3.3.2               Forpurposes of this Agreement, the “Voting Support Requirements” shall meanthe requirements of this Section 3.3.3.2. The Parties

 

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agree that:

 

(i)                                     for all Plans of any Debtor affecting theclaims and rights granted to PG&E under this Agreement in the BankruptcyProceedings, (a) such Plans shall fully and completely include and incorporatethe terms of the Settlement and this Agreement applicable to PG&E and shallnot contain any provisions which condition, limit or restrict PG&E’sability to receive the full benefits of the Settlement with respect to the RMRClaim, the SO2 Claim and either the CC8 Asset Transfer Agreement, or, ifapplicable, the CC8 Alternative Consideration, (b) the claims and rightscomprising the RMR Claim, the SO2 Claim and the CC8 Claim shall each beclassified in a separate class under the Delta Plans, the Potrero Plans, andany Plan that governs or purports to affect the disposition of the estate ofany other Mirant Party that is a party to the CC8 Asset Transfer Agreement orthat purports to dispose of or resolve the RMR Claim, the SO2 Claim or the CC8Claim, (c) PG&E shall be provided the benefits of such claims in accordancewith the terms of this Agreement, which treatment PG&E hereby acknowledgesto be the equivalent of payment in full of the RMR Claim, the SQ2 Claim and,subject to the occurrence of a CC8 Triggering Event, the CC8 Claim, and (d) solong as subparts (a) through (c) above are satisfied, and following such reviewby PG&E of approved disclosure statements and solicitation packagespertaining to such Plans as may be required by applicable law for such purpose,and considering the existing knowledge and information already possessed byPG&E, PG&E shall vote the RMR Claim, the SO2 Claim and the CC8 Claim toaccept such Plans; provided, however, that, subject to Section 3.3.3.1,PG&E shall retain its right to object to such Plans on grounds not relatedto the treatment of the RMR Claim, the SO2 Claim or the CC8 Claim;

 

(ii)                                  for any Plan of any Debtor affecting thesecured claim of the California Parties with respect to the MAEM Receivablesset out in Section 5.1.1.2, (a) such Plan shall fully and completelyinclude and incorporate the terms of the Settlement and this Agreement betweenand among the California Parties and MAEM and shall not contain any provisionswhich condition, limit or restrict the California Parties’ ability to receivethe full benefits of the Settlement with respect to the MAEM Receivables, (b)the claim and rights comprising the MAEM Receivables shall be classified in aseparate class under such Plan, (c) the California Parties shall be providedthe benefits of such claim in accordance with the terms of this Agreement,which treatment the California Parties hereby acknowledge to be the equivalentof payment in full of the MAEM Receivables, and (d) so long as subparts (a)through (c) above are satisfied, and following such review by the California Partiesof approved disclosure statements and solicitation packages pertaining to suchPlan as may be required by applicable law for such purpose, and considering theexisting knowledge and information already possessed by the California Parties,the California Parties shall vote their secured claim in respect of the MAEMReceivables to accept such Plan; provided, however, that, subject toSection 3.3.3.1, the California Parties shall retain their right to objectto such Plan on grounds not related to the treatment of the secured

 

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claim in respect of the MAEM Receivables; and

 

(iii)                               Nothing in this Section 3.3.3.2 orelsewhere in this Agreement shall prevent or otherwise limit the CaliforniaParties from raising good faith objections to the Mirant Plans as they relateto the Aggregate Allowed Claim or the CERS Allowed Claim, or voting theAggregate Allowed Claim and the CERS Allowed Claim, as decided by theCalifornia Parties and CERS in their sole discretion.

 

3.3.3.3               Notwithstandinganything to the contrary in Section 3.3.3.2, to the extent required byapplicable law, including Section 1125 of the Bankruptcy Code, anadditional component of the Voting Support Requirements applicable to eachCalifornia Party shall be that such California Party must have been providedwith a disclosure statement approved by the Mirant Bankruptcy Court for theMirant Plans that contains information that is materially consistent with, andthat is not materially inconsistent with, the information that was provided orotherwise available to such California Party prior to the issuance of suchdisclosure statement, including in connection with the knowledge acquired bythe California Parties in connection with the process of negotiating anddocumenting the Settlement.

 

3.3.3.4               TheSettling Participants agree to meet and confer with the Mirant Partiesregarding any objections they may have to the Mirant Plans, and to attempt toresolve their objections with the Mirant Parties prior to filing suchobjections with the Mirant Bankruptcy Court.

 

3.4                                 PG&E Bankruptcy Court Approval. Within fifteen (15) Business Days after theExecution Date, PG&E shall file with the PG&E Bankruptcy Court a motionunder Bankruptcy Rule 9019 seeking approval of whatever part of the Settlementis still required to be approved by the PG&E Bankruptcy Court, and PG&Eshall diligently prosecute that motion.

 

3.5                                 Timetable. The Parties shall use their reasonable efforts to accomplish thefollowing results by the following dates, provided that a failure to achievesuch results by the dates specified below shall not entitle any Party toterminate or modify this Agreement or any Implementing Agreement, or otherwiseaffect any Party’s rights or obligations hereunder or thereunder in anyrespect:

 

3.5.1                        Obtaining approval of this Agreement and theImplementing Agreements by the Mirant Bankruptcy Court through the BankruptcyRule 9019 Motion or through any Rule 9019 Supplemental Solution to the extentpossible, and subject to the provisions of Sections 2.8.2, 3.2 and 3.3, byApril 30, 2005;

 

3.5.2                        Obtaining approval of this Agreement and theImplementing Agreements, to the extent required, by the PG&E BankruptcyCourt by February 28, 2005;

 

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3.5.3                        Filing the Agreement with FERC for approvalwithin fifteen (15) days after the Execution Date and obtaining the FERCSettlement Order within ninety (90) days after the filing of this Agreement forapproval by FERC; and

 

3.5.4                        If the Settlement is implemented, in whole orin part, through any Mirant Plans as provided for in Section 3.3, thenfiling of the applicable Mirant Plans and accompanying disclosure statement(s)that fully incorporate this Agreement and the Implementing Agreements byJune 1, 2005, approval of such disclosure statement(s) by December 1,2005, and confirmation of the applicable Mirant Plans by February 1, 2006.

 

3.6                                 Plan Rights Preserved. Except with respect to the Mirant Parties’obligation to incorporate fully the terms of this Agreement and theImplementing Agreements into the Mirant Plan(s) to the extent specified inSection 3.3.1, and their obligation not to include anything in the MirantPlans that would deprive the Settling Participants of the rights and entitlementsof the Settlement, nothing in this Agreement shall directly or indirectlycontrol, dictate, limit or otherwise adversely affect the rights of the Debtorsto propose and negotiate one or more Mirant Plans with the Official Committees,including the right to place unsecured claims in different classes inaccordance with the requirements of the Bankruptcy Code, provided that thetreatment of the Aggregate Allowed Claim and the CERS Allowed Claim shall bethe same as the treatment generally accorded other allowed general unsecuredclaims against MAEM and any other Debtors consolidated with MAEM for purposesof the MAEM Plan (in the event MAEM and one or more other Debtors aresubstantively consolidated) (as distinguished from “administrative convenienceclasses” permitted higher recoveries under Section 1122(b) of theBankruptcy Code or other priority or special claims entitled to uniquetreatment pursuant to Section 1122 of the Bankruptcy Code).

 

3.7                                 Conventional Liquidating Trust. Without restricting the Debtors’ ability orright to reorganize by converting debt into equity in reorganized Debtors, theMirant Parties shall cooperate with the California Parties, upon their request,to create a conventional liquidating trust in the Mirant Plans to hold anyequity securities distributable on account of the Aggregate Allowed Claim andthe CERS Allowed Claim that is in form and substance reasonably satisfactory tothe California Parties (the “Liquidating Trust”).

 

3.8                                 Exclusion. Nothing in this Agreement shall be deemed to revive any claim of anyParty or other person or entity that is barred by any bar date order of theMirant Bankruptcy Court, whether now or in the future and whether applicable toprepetition or postpetition claims. Debtors reserve all of their rights anddefenses under all such bar date orders, as well as under any Mirant Plan orconfirmation order discharging any claims under Section 1141 of theBankruptcy Code or otherwise. The foregoing exclusions and reservation ofrights and defenses (i) shall not prevent any person or entity from becoming anAdditional Settling Participant in accordance with the process specified inArticle XI, and (ii) shall not impair, diminish or otherwise affect therights and entitlements of SDG&E or any other Settling Participant pursuantto this Agreement and the Settlement with respect to the Aggregate AllowedClaim, the CERS

 

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Allowed Claim, the MAEMReceivables or otherwise, in each case as applicable under this Agreement.

 

**ARTICLE IVSETTLEMENT AND ACKNOWLEDGEMENT**

 

4.1                                 Settlement.

 

4.1.1                        Settlementof All Claims. As described with more particularity in Article IX, andsubject to the limitations set forth therein and in Section 4.2.1 (ii),all claims against the Mirant Parties and their Related Parties by the SettlingParticipants, and all claims against the Settling Participants and theirRelated Parties by the Mirant Parties, for damages, refunds, disgorgement ofprofits, revocation of market-based rate authority, or other monetary ornon-monetary remedies, in the FERC Refund Proceeding, the FERC Long-TermContract Proceeding, the FERC Gaming Proceeding, the FERC RMR Proceedings, theFERC MBR Proceedings, FERC Docket No. EL01-10, *Lockyerv. FERC,*the *Lockyer**v*. *FERC*Remand,the litigation matters addressed in Article IX and Exhibit D, and theBankruptcy Proceedings (excepting only those claims identified in Exhibit A andthose claims asserted by Additional Settling Participants that are not releasedin Section 8.2, Section 11.2 or Article IX) shall be deemedsettled and resolved upon the occurrence of the Settlement Effective Date,provided that none of the FERC Refund Proceeding, the FERC Gaming Proceeding,FERC Docket No. EL01-10, *Lockyer v. FERC,*the*Lockyer**v*.*FERC*Remand, or other claimsshall be deemed settled as to Non-Settling Participants. The Settlement andthis Agreement also fully resolve and satisfy completely each of the following:(i) any and all claims that the Mirant Parties have or may have againstPG&E with respect to the power purchase agreement between MAEM and PG&Emade under the Western Systems Power Pool Master Agreement and the “MasterNetting, Close-out Netting and Margin Agreement” dated October 25, 2000,and the Mirant Parties hereby waive and release PG&E and its RelatedParties from any such claim; (ii) any and all claims that the Mirant Partieshave or may have against PG&E as a result of PG&E’s June 15, 2003draw on the Letter of Credit issued by Wachovia Bank, N.A. on behalf of MAEM (NumberLC870-131459), and the Mirant Parties hereby waive and release PG&E and itsRelated Parties from any such claim; and (iii) any and all claims that PG&Emay have against MAEM or any Mirant Party or any of their Related Parties forthe early termination of or otherwise with respect to the power purchaseagreement between MAEM and PG&E made under the Western Systems Power PoolMaster Agreement and the “Master Netting, Close-Out Netting and MarginAgreement” dated October 25,2000, and PG&E hereby waives and releases the Mirant Parties and theirRelated Parties from any such claim.

 

4.1.2                        Exclusions.No provision of this Agreement shall affect any rights, claims, counterclaims,offsets or defenses of any kind that the Mirant Parties or the Settling Participants have or mayclaim to have against Non-Settling Participants and other third parties, orwith respect to the claims identified in Exhibit A.

 

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4.2                                 Withdrawal and Dismissal of Claims andActions.

 

4.2.1                        California Party Claims. Effective as of the Settlement EffectiveDate, except as to (i) claims identified in Exhibit A, and (ii) claims andproofs of claim related to indemnity obligations filed by PG&E in theBankruptcy Proceedings or by any Debtor in PG&E’s bankruptcy proceedings,in each case arising under the Purchase and Sale Agreements between Delta andPG&E and between Potrero and PG&E dated November 24, 1998 pursuantto which Delta and Potrero acquired their existing generating facilities fromPG&E (collectively, the “Original Purchase and Sale Agreement”), itbeing understood that all claims identified in subparts (i)-(ii) above are notaffected by this Agreement; (a) all proofs of claim filed by any CaliforniaParty against the Mirant Parties or other Debtors in the BankruptcyProceedings, and all other claims asserted by the California Parties againstany Mirant Party or other Debtor that are within the scope of the releasesprovided in Article IX, shall be withdrawn with prejudice and deemedsatisfied in their entirety by the consideration provided for in thisAgreement; and (b) all proofs of claim filed by the Mirant Parties againstPG&E in PG&E’s bankruptcy proceedings, and all other claims asserted bythe Mirant Parties against PG&E within the scope of the releases providedin this Agreement, shall be withdrawn with prejudice and deemed satisfied intheir entirety by the consideration provided for in this Agreement.Notwithstanding anything to the contrary herein, nothing in this Agreement orany Implementing Agreement shall (1) release PG&E or any Debtor from theterms of the Original Purchase and Sale Agreement, or (2) obligate any Debtorto assume the Original Purchase and Sale Agreement as part of the BankruptcyProceedings. The Parties agree to cooperate with each other to the extentnecessary to effectuate the intent of this Section 4.2.1, including bysupporting an order of the Mirant Bankruptcy Court directing the clerk of theMirant Bankruptcy Court or any authorized claims agent to expunge from therecord all such claims that are so withdrawn and actually accomplishing suchwithdrawal.

 

4.2.2                        Additional Settling Participant Claims. Effective as of the Settlement EffectiveDate, except as to claims and proofs of claim by Additional SettlingParticipants against the Mirant Parties that are not within the scope of thereleases provided in this Agreement, it being understood that such claims arenot affected by this Agreement, all proofs of claim filed by any AdditionalSettling Participant against the Mirant Parties or other Debtors in theBankruptcy Proceedings, and all other claims asserted by any AdditionalSettling Participant against any Mirant Party or other Debtor, in each casethat are within the scope of the releases provided in Article IX or Section 11.2of this Agreement, shall be withdrawn with prejudice and deemed satisfied intheir entirety by the consideration provided for in this Agreement. TheAdditional Settling Participants agree to cooperate with the Mirant Parties tothe extent reasonably necessary to effectuate the intent of this Section 4.2.2,including by supporting an order of the Mirant Bankruptcy Court directing theclerk of the Mirant Bankruptcy Court or any authorized claims agent to expungefrom the record all such claims that are so withdrawn and actuallyaccomplishing such withdrawal.

 

4.2.3                        CAISO, PX and FERC Claims. Effective as of the Settlement EffectiveDate, the Parties shall use reasonable efforts to seek the prompt dismissal or

 

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withdrawalwith prejudice of (i) all proofs of claim filed by the CAISO and the PX againstthe Mirant Parties or other Debtors in the Bankruptcy Proceedings that seek torecover amounts or otherwise obtain relief on behalf of or for the benefit ofany Settling Participant with respect to any claim that is duplicative of theclaims released in this Agreement or that otherwise pertains to conduct, actsor omissions by the Mirant Parties that are the subject of the releases setforth in this Agreement, and (ii) all claims and proofs of claim filed by FERCas to any Debtor in the Bankruptcy Proceedings that seek to recover payments,impose penalties, or otherwise obtain relief based on or arising out ofconduct, acts or omissions that are the subject of the releases set forth inthis Agreement, or that otherwise would be waived, released and/or withdrawnunder this Agreement if asserted by a Settling Participant, in each case inaccordance with the FERC Settlement Order and this Agreement. Each SettlingParticipant hereby agrees to join the Mirant Parties in any argument before theMirant Bankruptcy Court that all claims released in this Agreement actuallybelong to the Settling Participants as the beneficiaries, real parties ininterest and/or responsible parties, and not to the CAISO or the PX.

 

4.2.4                        Settling Participant Covenants andResponsibilities. For thepurpose of avoiding a duplicative recovery by any Settling Participant, andsubject to the occurrence of the Settlement Effective Date, each SettlingParticipant hereby: (i) assigns to the Mirant Parties all of its rights torecover from the CAISO and/or the PX any amounts recovered by the CAISO and/orthe PX on claims filed in the Bankruptcy Proceedings that fall within the scopeof the waiver, release, and withdrawal provided in Section 2.7.1(i)(c);and (ii) agrees to pay and transfer to the Mirant Parties any such duplicativeamounts that may be received by such Settling Participant from the CAISO and/orthe PX immediately upon receipt of such payment.

 

4.2.5                        PG&E Additional Covenants andResponsibilities. Withoutlimiting the generality of Section 4.2.4, PG&E also agrees that (i) tothe extent that the CAISO recovers any amounts in the Bankruptcy Proceedings inconnection with Proof of Claim Nos. 7203, 7205, 7801 and 7836 in the BankruptcyProceedings, or any other proofs of claim filed by the CAISO against any Debtorthat arise out of or relate to the RMR Agreements with respect to any periodprior to and including September 30, 2004, PG&E assigns to the MirantParties all of its rights to recover from the CAISO all such amounts, andagrees to pay and transfer to the Mirant Parties all such amounts that may bereceived by PG&E from the CAISO immediately upon PG&E’s receiptthereof, and (ii) PG&E will support the Mirant Parties in any argumentbefore the Mirant Bankruptcy Court that all claims referred to in subpart (i)above that have been or may be filed or otherwise asserted by the CAISO in theBankruptcy Proceedings actually belong to PG&E as the beneficiary, realparty in interest and/or responsible party under the RMR Agreements.

 

4.2.6                        Dismissal of Certain Actions. Within five (5) Business Days after theSettlement Effective Date, (i) the Mirant Parties shall withdraw or seek todismiss, to the extent not already done pursuant to Section 3.2.2.2, ineach case with prejudice, the adversary proceedings and contested mattersidentified in Exhibit D as to the Settling Participants, and any otherobjections to, or motions to estimate, the claims of

 

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theSettling Participants filed in the Bankruptcy Proceedings that are the subjectof the releases provided by the Mirant Parties in this Agreement, and any otherpleadings initiated by any of the Debtors against any of the SettlingParticipants that are contrary to the terms of the Settlement and thisAgreement, except to the extent that such claims have been previously dismissedor finally disposed of by the orders of FERC or the Mirant Bankruptcy Court,and (ii) the Settling Participants shall withdraw or seek to dismiss, in eachcase with prejudice, all pending claims asserted by them against the MirantParties or their Related Parties that are the subject of the releases grantedin this Agreement, except to the extent that such claims have been previouslydismissed or finally disposed of by the orders of FERC or the Mirant BankruptcyCourt. Notwithstanding the foregoing, the Mirant Parties shall not be requiredto withdraw or dismiss any adversary proceeding or contested matter withrespect to the CAISO and the PX (a) until such time as each of the CAISO andthe PX has effectuated the full and complete waiver, release, withdrawal anddismissal of all claims against all Mirant Parties and their Related Partiesthat, if asserted by a Settling Participant, would be waived, released,withdrawn and dismissed under the Settlement and this Agreement, or a FERCSettlement Order has been issued and become effective that accomplishes thesame result to the Mirant Parties’ reasonable satisfaction, or (b) thataddresses a claim that is not the subject of the releases provided by theMirant Parties in this Agreement.

 

4.3                                 Acknowledgement of Compromise. The Parties acknowledge and agree that theconsideration and other covenants and obligations set forth in this Agreementand the Implementing Agreements settle and compromise the claims of theSettling Participants as set forth in the releases contained in this Agreement.

 

4.4                                 No Admission of Liability. In executing this Agreement and, ifapplicable, the Implementing Agreements, no Party is admitting any liability orculpability with respect to any of the claims against it released in this Agreement,or any other matter addressed herein or in any Implementing Agreement. EachParty expressly denies any wrongdoing or culpability with respect to the claimsagainst it released in this Agreement, or any other matter addressed in thisAgreement or any Implementing Agreement, and does not, by execution of thisAgreement or any Implementing Agreement, admit or concede any actual orpotential fault, wrongdoing or liability in connection with any facts or claimsthat have been or could have been alleged against it with respect thereto.Neither this Agreement nor any Implementing Agreement, nor any act performed ordocument executed pursuant to or in furtherance of this Agreement or anyImplementing Agreement: (i) is or may be deemed to be, or may be used by aSettling Participant or a Mirant Party as, an admission of, or evidence of, thevalidity of any released claim, or of any wrongdoing or liability of any of theParties; (ii) is or may be deemed to be, or may be used by a SettlingParticipant or a Mirant Party as, an admission of, or evidence of, any fault oromission of any of the Parties in any civil, criminal, regulatory oradministrative proceeding in any court, administrative agency, regulatoryauthority, or other tribunal; or (iii) shall be offered in evidence or allegedin any pleading by any Settling Participant or any Mirant Party, except toobtain approval of the Bankruptcy Rule 9019 Motion or any Rule 9019Supplemental Solution, to confirm the Mirant Plans, to obtain other RequiredApprovals, or to enforce the terms of and obtain the benefits of this Agreementor any Implementing Agreement. In no event shall

 

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thisAgreement or any Implementing Agreement, any of their provisions or anynegotiations, statements or court proceedings relating to them or theSettlement in any way be construed as, offered as, received as, used as ordeemed to be evidence of any kind in any action, or in any judicial,administrative, regulatory or other proceeding, except in a proceeding toenforce the terms or obtain the benefits of this Agreement, any ImplementingAgreement or any Mirant Plan or to obtain the Required Approvals.

 

**ARTICLE VALLOWED CLAIMS; ASSIGNMENT OF MAEM RECEIVABLES**

 

5.1                                 Aggregate Allowed Claim.

 

5.1.1                        Aggregate Allowed Claim. As of the Settlement Effective Date, theCalifornia Parties collectively shall have an allowed, prepetition,non-priority general unsecured claim against MAEM in its Bankruptcy Proceedingin the aggregate, fixed, liquidated amount of $175,000,000 (the “AggregateAllowed Claim”). The Mirant Parties and all Settling Participants herebyirrevocably waive any rights they may otherwise have under Section 502(j)of the Bankruptcy Code with respect to the Aggregate Allowed Claim. MAEM shallbe entitled under any applicable Mirant Plan to pay and distribute all benefitsto be paid on the Aggregate Allowed Claim (the “Aggregate Allowed ClaimBenefits”) that are not distributed to the Liquidating Trust, to the MirantRefund Escrow established pursuant to Section 6.1, or to such other escrowaccount as the California Parties may designate. The holders of the AggregateAllowed Claim shall be impaired and entitled to vote on the MAEM Plan. Theallocation of the Aggregate Allowed Claim Benefits among the California Partiesshall also be subject to the satisfaction of the following conditions:

 

5.1.1.1               The allocation shall be without prejudice tothe rights of the Mirant Parties and other Debtors to challenge claims assertedby Non-Settling Participants or other parties that do not accept theobligations of the Settlement by becoming Additional Settling Participants inaccordance with Article XI, or by the CAISO or the PX, including on thegrounds that the claims of such parties are duplicative of the claims settledhereunder; and

 

5.1.1.2               Upon request of the Mirant Parties, andprovided that the Settlement is approved as part of the Bankruptcy Rule 9019Motion or pursuant to any Rule 9019 Supplemental Solution filed in accordancewith Section 3.2, the California Parties shall promptly, so as not todelay the Bankruptcy Proceedings (and, in any event, prior to the conclusion ofthe hearing on the MAEM disclosure statement), allocate the Aggregate AllowedClaim Benefits on an interim basis for purposes of voting on the MAEM Plan andfor purposes of evaluating the feasibility of the MAEM Plan, and shall provideadvance notice of such allocation to the Mirant Parties at least ten (10)Business Days before the voting period with respect to the MAEM Plan begins. Ifthe Settlement is not approved as part of a Bankruptcy Rule 9019 Motion or aRule 9019 Supplemental Solution filed in accordance with Section 3.2, orif the Bankruptcy Rule 9019 Motion or a Rule 9019 Supplemental Solution hasbeen approved but the Settlement Effective

 

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Date has not occurred, and so long as a Termination Event has notoccurred, then the Parties agree that the California Parties shall have (i) onaccount of their asserted offset rights pursuant to Section 553 of theBankruptcy Code, and pursuant to Section 506 of the Bankruptcy Code, anallowed secured claim equal to the amount of $283,231,269 and (ii) an allowedunsecured claim of $175,000,000, each against MAEM solely for voting andfeasibility purposes (and shall have no other allowed claim for such purposes,except in connection with the CERS Allowed Claim as to CERS, the allowedadministrative expense claim provided for in Section 5.3.6, and, ifallowed, the claims listed in Exhibit A, if any), and the California Partiesshall promptly, so as not to delay the Bankruptcy Proceedings (and, in anyevent, prior to the conclusion of the hearing on the MAEM disclosurestatement), allocate such secured claim and such unsecured claim on an interimbasis solely for purposes of voting on the MAEM Plan and for purposes ofevaluating feasibility, and shall provide advance notice of such allocation tothe Mirant Parties at least ten (10) Business Days before the voting periodwith respect to the MAEM Plan begins. So long as a Termination Event has notoccurred, the California Parties shall make no other voting or feasibilityobjections as to any Mirant Plan with respect to the claims released orwithdrawn in this Agreement, including with respect to the duplicate claims ofthe CAISO and the PX, provided that this Section 5.1.1.2 shall not affectthe California Parties’ rights with respect to claims not released or withdrawnunder this Agreement. Notwithstanding the foregoing, nothing in this Section 5.1.1.2shall alter or limit the scope or amount of the MAEM Receivables to be assignedto the California Parties pursuant to Section 5.3.2.

 

5.1.2                        Gaming Settlement Consideration Excluded. The Aggregate Allowed Claim does notinclude, and is in addition to, the proposed $332,411 payment and the$3,665,811.59 prepetition claim against MAEM provided for in the proposedsettlement reached by certain of the Mirant Parties with FERC trial staff inthe FERC Gaming Proceeding, which is pending before FERC for its approval.Notwithstanding the foregoing, the Parties agree that any and all claims of theSettling Participants against the Mirant Parties based upon acts or omissionsthat are the subject of the FERC Gaming Proceeding shall, upon the Settlement EffectiveDate, be deemed to be settled in accordance with Article IX, provided thatnothing in this Agreement shall limit or otherwise affect the rights of anySettling Participant to seek a portion of the amounts received by FERC inconnection with the settlement reached by certain of the Mirant Parties withFERC trial staff in the FERC Gaming Proceeding. Within five (5) Business Daysafter the Execution Date, the Mirant Parties and the California Parties willjointly request that FERC stay and take no further action in the FERC GamingProceeding pending the issuance of the Required Approvals and the occurrence ofthe other conditions precedent to the Settlement Effective Date. Within ten(10) Business Days after the Settlement Effective Date, the California Partieswill withdraw their objections to the settlement between certain of the MirantParties and FERC trial staff in the FERC Gaming Proceeding, and will requestapproval of that settlement as proposed by certain of the Mirant Parties andFERC trial staff without change or modification thereto. Nothing in thisAgreement or FERC’s approval thereof shall be deemed to affect the allocationof the payments made by certain of the Mirant Parties pursuant to FERC’s

 

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ordersin the FERC Gaming Proceeding or to prejudice the right of any SettlingParticipant to advocate any particular method for allocating such paymentsamong potential recipients.

 

5.1.3                        Satisfaction of Aggregate Allowed Claim andCERS Allowed Claim. Unlessthe Parties agree otherwise, and subject to Section 3.6, the AggregateAllowed Claim and the CERS Allowed Claim shall be satisfied in the same manner,at the same time, and to the same extent as, and not less favorably than, theallowed claims of other general unsecured MAEM creditors and any other Debtorsconsolidated with MAEM for purposes of the MAEM Plan (in the event that one ormore other Debtors are substantively consolidated with MAEM).

 

5.1.4                        Distributions. The Mirant Parties shall ensure that theAggregate Allowed Claim Benefits are distributed to the Liquidating Trust, theMirant Refund Escrow or such other escrow fund as the California Parties maydesignate pursuant to this Agreement, but shall otherwise have noresponsibility for ensuring that the California Parties obtain their allocatedshares of any distributions on account of the Aggregate Allowed Claim Benefits.Distributions under the MAEM Plan for or on account of the Aggregate AllowedClaim and the CERS Allowed Claim shall be without offset, defense or reductionon account of any claim or counterclaim of the Mirant Parties against any ofthe California Parties.

 

5.2                                 CERS Allowed Claim. As of the Settlement Effective Date, CERSshall have, in addition to its allocated share of the Aggregate Allowed Claim,an allowed, prepetition, non-priority general unsecured claim against MAEM inits Bankruptcy Proceeding in the aggregate, fixed, liquidated amount of$2,250,000 (the “CERS Allowed Claim”). CERS and the Mirant Partiesacknowledge and agree that Proof of Claim Nos. 7,549 through 7,555 filed byCERS in the Bankruptcy Proceedings shall be deemed satisfied in their entiretyby the CERS Allowed Claim insofar as they assert claims for “overcharges onshort term purchases due to billing or accounting errors” or otherwise relateto reconciliation of payments reflected on invoices for transactions conductedduring 2000 and 2001, and the remaining portions of such proofs of claim shallbe released pursuant to Article IX, subject to the terms and conditionsspecified therein.

 

5.2.1                        If the CERS Allowed Claim is not approved aspart of a Bankruptcy Rule 9019 Motion or any Rule 9019 Supplemental Solutionfiled in accordance with Section 3.2, and a Termination Event has notoccurred and does not occur, then the Parties agree that CERS shall have anallowed unsecured claim of $2,250,000 against MAEM solely for voting andfeasibility purposes (and shall have no other allowed claim for such purposes,except in connection with the Aggregate Allowed Claim and the allowedadministrative expense claim provided for in Section 5.3.6). CERS shall beimpaired and entitled to vote on the MAEM Plan as the holder of the CERSAllowed Claim.

 

5.2.2                        Each of the Mirant Parties and CERS herebyirrevocably waives any rights they may otherwise have under Section 502(j)of the Bankruptcy Code with respect to the CERS Allowed Claim.

 

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5.2.3                        Distributions under the MAEM Plan for or onaccount of the CERS Allowed Claim shall be made to the Liquidating Trust orsuch other trust, account or person as may be directed by CERS.

 

5.3                                 Assignment of Receivables To CaliforniaParties.

 

5.3.1                        Estimated Receivables. The Parties acknowledge that, as of theExecution Date, the PX holds in the PX Settlement Clearing Account certainundistributed funds relating to transactions in the markets of the PX and theCAISO. As of the Execution Date, MAEM has a claim to unpaid receivables duefrom the CAISO and PX markets, before interest and potential subsequentadjustments by FERC in the FERC Refund Proceeding, in the PX SettlementClearing Account for transactions in or through the PX and the CAISO during theperiod January 1, 2000 through June 20, 2001 equal to $283,231,269,which reflects a reversal of offsets of $815,238 in estimated PX wind-upexpenses and application of the soft cap (as calculated in accordance withFERC’s order of April 26, 2001 in the FERC Refund Proceeding), plus$36,691,563, which reflects a reversal of the soft cap, thereby increasing the$283,231,269 to $319,922,833 (“Estimated Receivables”).

 

5.3.2                        Assignment of MAEM Receivables. Effective as of the Settlement EffectiveDate and notwithstanding anything to the contrary in Section 5.1.1.2, (i)the Mirant Parties shall, and do hereby, assign, sell, transfer, convey anddeliver to the California Parties and (ii) the California Parties shall, and dohereby, assume, purchase, acquire and accept all of the Mirant Parties’ right,title and interest in and to the MAEM Receivables and all claims, rights ofaction and defenses otherwise available to the Mirant Parties or the otherDebtors arising from or relating to the MAEM Receivables, whether in thePreparatory Rerun process, in the FERC Refund Proceeding, or through any otherCAISO or PX settlements adjustment permitted under the applicable CAISO or PXtariffs, provided that nothing in this Article V shall affect any rights,obligations, claims or defenses, to the extent they exist, between or among anyof the Mirant Parties or the other Debtors related to the MAEM Receivables, andprovided further that the rights, obligations, claims and defenses retainedunder the preceding proviso shall not include any rights, obligations, claimsor defenses that could result in any claim against the California Partiesrelated to the MAEM Receivables or diminish the value of the MAEM Receivablesto the California Parties. The Mirant Parties’ transfer of all their rights,title and interest in and to the MAEM Receivables is “as is” and without recourse,and is free and clear of all liens, claims, encumbrances and interests of anykind whatsoever in accordance with Section 363(f) of the Bankruptcy Code,and the California Parties’ interest in the MAEM Receivables shall beautomatically perfected by the order of the Mirant Bankruptcy Court grantingthe Required Approval. The term “without recourse” in the foregoing sentenceshall not limit or be construed as limiting in any way any rights theCalifornia Parties have with respect to the Mirant Parties pursuant to theexpress written provisions, representations and warranties of this Agreement.The Mirant Parties and the other Debtors shall have no obligation to take anyaction to collect any MAEM Receivables after the MAEM Receivables are assignedto the California Parties apart from cooperating in the release of data andproviding any releases or waivers that are reasonably necessary to implementthe FERC Settlement Order. The Parties

 

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acknowledgeand agree that the assignment of the MAEM Receivables includes the right tointerest on such MAEM Receivables pursuant to the FERC Interest Determination.The Mirant Parties, including MAEM, shall have no liability or obligation forpaying or otherwise ensuring the payment of any interest amount to any SettlingParticipant with respect to the MAEM Receivables.

 

5.3.3                        Scope of Assigned Receivables. Except as otherwise expressly providedherein, the MAEM Receivables shall include any and all positive or negative allocationsof charges or credits that may be made by the CAISO or the PX that cause anadjustment positive or negative to the MAEM Receivables as a result of or onaccount of the CAISO and PX transactions by or with respect to MAEM during theperiod January 1, 2000 through June 20, 2001. Other than in thecircumstances described in Section 6.6.3, to the extent that the CAISO orthe PX is determined in any future proceeding or for any reason to owe anyadditional amounts to MAEM or be owed any additional amounts by MAEM for suchperiod, such amounts are, subject to the provisions of Section 6.6.6,assigned to or become the responsibility of the California Parties, providedthat nothing in this sentence shall be construed as relieving MAEM of itsresponsibility for PX wind-up expenses for the period specified below. Chargesor credits that pertain to transactions by the Mirant Parties or theiraffiliates in the CAISO or the PX during periods outside the period January 1,2000 through June 20, 2001 are not MAEM Receivables assigned to theCalifornia Parties, and shall not in any way affect the MAEM Receivables. MAEMwill remain obligated for any PX wind-up expenses associated with PX workperformed prior to the Settlement Effective Date, as may be determined in FERCDocket Nos. ER02-2234, *et al.,*andsuch amounts shall not constitute a part of the MAEM Receivables or bedeductible from the MAEM Receivables, and shall be entitled to treatment in theBankruptcy Proceedings as an allowed administrative expense claim under Section 503(b)of the Bankruptcy Code without the need to file a request for payment under Section 503(a)of the Bankruptcy Code. The California Parties will assume MAEM’s share, as maybe determined by FERC, of all PX wind-up expenses associated with PX workperformed after the Settlement Effective Date. FERC’s approval of thisAgreement in the FERC Settlement Order shall constitute its direction (i) tothe CAISO and the PX to recognize and implement the assignment of the MAEMReceivables and the treatment of PX wind-up expenses in accordance with thisAgreement, and (ii) to the PX to reverse any offsets previously made to theMAEM Receivables to reflect PX wind-up expenses payable by MAEM under thisAgreement.

 

5.3.4                        Representations and Warranties. The Mirant Parties represent and warrantthat the full amount of the Estimated Receivables was reflected on the CAISOand PX accounts as they stood before and without regard to the PreparatoryRerun and Mitigation, and without regard to any interest owing to or by theMirant Parties. The Mirant Parties further represent and warrant that (i) as ofthe Execution Date, the Mirant Parties are not aware of any material issue thatis likely to arise that is unique to one or more of the Mirant Parties, asopposed to issues that are likely to be common to Market Participantsgenerally, and that is expected to have a material adverse effect on the amountof the Estimated Receivables, and (ii) as of the Settlement Effective Date,none of the MAEM Receivables will have been pledged, hypothecated,

 

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encumbered,sold, transferred or otherwise assigned, whether voluntarily or involuntarilyor by way of setoff or offset, in whole or in part.

 

5.3.5                        Definitions. For purposes of the representation in subpart (i) of Section 5.3.4,(i) a material issue is an issue (or collection of issues) with a cumulativelikely adverse impact of $3,000,000 or more on the actual amount of theEstimated Receivables, and (ii) issues that are likely to be common to MarketParticipants generally include any market, penalty or charge type adjustmentthat is administered across (a) the CAISO market or the PX market as a whole,even if the Mirant Parties are the only Market Participants affected for aparticular time interval, or (b) all resources, including reliability must-rungenerating units, regarding energy or ancillary service deviation or other typeof correction, even if a Mirant Party’s resource may be the only adjustmentduring a particular time interval.

 

5.3.6                        Authorized Disclosures: Interim Distributions. The Mirant Parties authorize the CAISO andthe PX to disclose to the California Parties, subject to customary andappropriate confidentiality requirements limiting disclosure to third partiesthat are reasonably satisfactory to the Mirant Parties, data necessary toverify the amount of the MAEM Receivables, and the existence and amount of allliens or encumbrances thereon. After the Execution Date, the Mirant Partiesshall advise the California Parties of any further receipts or payments, orobligations or charges, received from or due to the CAISO or the PX beforefinal distributions under this Agreement. If any part of the EstimatedReceivables is paid to the Mirant Parties after the Execution Date, then theMirant Parties receiving such Estimated Receivables shall pay an equal amount,plus associated interest at the FERC Interest Rate, into the Mirant RefundEscrow, or such other escrow fund as the California Parties may designate, withintwo (2) Business Days after the Settlement Effective Date. The obligation ofthe Mirant Parties under the preceding sentence shall be entitled to treatmentin the Bankruptcy Proceedings as an allowed administrative expense claim under Section 503(b)of the Bankruptcy Code without the need to file a request for payment under Section 503(a)of the Bankruptcy Code.

 

5.4                                 Allocation Matrix. No Mirant Party has any obligation toensure that the consideration provided for under this Agreement is actuallyallocated in the manner specified in the Allocation Matrix, including onaccount of distributions through the PX, the CAISO or the PG&E Plan Escrow,provided that, in addition to fulfilling their duty of cooperation pursuant to Section 6.9.8,the Mirant Parties will provide data and releases and waivers to the extentnecessary to implement this Agreement, in each case under reasonable terms andconditions and subject to confidentiality protections that are reasonablyacceptable to the Mirant Parties.

 

**ARTICLE VIALLOCATION AND DISPOSITION OF****MAEM****RECEIVABLES AND AGGREGATE ALLOWED CLAIM BENEFITS**

 

6.1                                 Escrow Accounts. No later than ten (10) Business Days afterthe Settlement Effective Date, the California Parties shall establish an escrowaccount (the

 

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“MirantRefund Escrow”) for the purpose of receiving, holding and transferring theMAEM Receivables and other funds, including any funds received from the Liquidating Trust, to theextent provided for herein. The California Parties shall also establish aseparate escrow account (the “California Litigation Escrow”) for thepurpose of receiving, holding and transferring such portion of the MAEMReceivables and other funds, including any funds received from the LiquidatingTrust, required or permitted herein to be transferred to the CaliforniaLitigation Escrow as they may agree upon among themselves. The costs ofcreating and maintaining the Mirant Refund Escrow, the California LitigationEscrow, and any other escrow accounts created in connection with this Agreementshall be the responsibility of the California Parties. In the event that boththe Mirant Refund Escrow and the California Litigation Escrow are not availableto begin receiving funds ten (10) Business Days after the Settlement EffectiveDate, then all time periods provided in this Agreement for the payment of fundsthat include payments to or from the Mirant Refund Escrow or the CaliforniaLitigation Escrow shall be extended by the number of days between the tenth (10th)Business Day after the Settlement Effective Date and the date on which both theMirant Refund Escrow and the California Litigation Escrow are available tobegin receiving funds.

 

6.2                                 Transfer and Disposition of MAEM Receivables.

 

6.2.1                        Notice to the CAISO and the PX. No later than six (6) Business Days afterthe Settlement Effective Date, the California Parties shall advise the CAISOand the PX that the full amount of the MAEM Receivables that have been assignedto the California Parties pursuant to Section 5.3, as well as theassociated interest on such amount, shall be applied to the funding of theconsideration provided for in this Agreement, including Deemed Distributions,as provided for in Section 6.3.

 

6.2.2                        Transfer to Mirant Refund Escrow. No later than ten (10) Business Days afterthe Settlement Effective Date, the PX shall transfer a cash payment from the PXSettlement Clearing Account to the Mirant Refund Escrow, equal to the EstimatedReceivables, excluding interest thereon, (i) less an amount equal to the totalof all Deemed Distributions pursuant to Section 6.5.5, (ii) less an amountequal to all distributions of funds relating to the period January 1, 2000through June 20, 2001 (including interest thereon) that have been paid bythe CAISO or the PX to the Mirant Parties after the Execution Date but prior tosuch cash transfer, (iii) less the amount set forth in Section 6.2.3, (iv)plus the amounts owed by Market Participants with negative allocations shown onthe Allocation Matrix. The Mirant Parties will comply with their obligations asspecified in other provisions of this Agreement, but shall have no additionalobligations with respect to the amount referenced in this Section 6.2.2,including with respect to whether such amount is actually transferred ordeposited into the Mirant Refund Escrow.

 

6.2.3                        Transfer to California Litigation Escrow. Concurrently with the transfer of funds tothe Mirant Refund Escrow that is required under Section 6.2.2, the PXshall transfer a cash payment in the amount of $112,036,394 from the PXSettlement Clearing Account to the California Litigation Escrow, which paymentshall comprise the following amounts: (i) $35,836,394 to be allocated as theCalifornia Parties may agree

 

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amongthemselves, with such amount not to be considered to be a refund attributableto the Refund Period for purposes of the allocation of shortfalls and excessesamong the California Parties; plus (ii) $76,200,000 for bilateral claims madeby CERS against MAEM, to be allocated to CERS. Upon a final determination ofthe amount of the MAEM Receivables, the PX shall transfer and deposit into theCalifornia Litigation Escrow the amount, if any, by which the MAEM Receivablesexceed the amounts transferred pursuant to Section 6.2.2 and this Section 6.2.3.The Mirant Parties will comply with their obligations as specified in otherprovisions of this Agreement, but shall have no additional obligations withrespect to the amount referenced in this Section 6.2.3, including withrespect to whether such amount is actually transferred or deposited into theCalifornia Litigation Escrow.

 

6.2.4                        Stay of Distribution. The FERC Settlement Order shall constituteFERC’s direction that, notwithstanding any orders issued by FERC requiring orauthorizing distributions by the CAISO or the PX, or directing the payment ofrefunds, the CAISO and the PX shall make no distribution or transfer of all orany portion of the MAEM Receivables, and no refunds associated with sales bythe Mirant Parties in the CAISO and the PX markets shall be effectuated withrespect to any Settling Participant, whether by payment or accountingadjustment, prior to the earlier of (i) the termination of this Agreementpursuant to Section 2.8, or (ii) the Settlement Effective Date.

 

6.3                                 Attribution of Receivables to Time Periods. The California Parties will agree amongthemselves which portions of the Estimated Receivables relate to the Pre-October Period,to the Refund Period, and, within the Refund Period, to the Pre- January 18Period and the Post-January 17 Period for the purpose of adjusting theirrecoveries in the event of any shortfall or excess referenced in Section 6.6.The Allocation Matrix contains an allocation to these three time periods ofrefunds available for Settling Participants. The amounts shown in theAllocation Matrix reflect, among other things, an allowance of 50 percent ofthe Fuel Cost Allowance claims previously submitted by the Mirant Parties inthe FERC Refund Proceeding.

 

6.4                                 Fuel Cost Allowance Claim.

 

6.4.1                        Fuel Cost Allowances. The Mirant Parties shall not seek anyadditional Fuel Cost Allowance as against the Settling Participants for theperiod beginning January 1, 2000 through June 20, 2001. The Fuel CostAllowance provided for herein shall, as to the total amounts applicable to themarket as a whole, remain fixed as to the Parties and Additional SettlingParticipants. The proposed allocation of charges for such allowance toindividual Market Participants, which is currently based on gross load, shallbe subject to adjustment and “true up” to comply with the FERC AllowancesDetermination. Because the charges for Fuel Cost Allowances can exceed therefunds due to a Market Participant, some Market Participants may be shown asowing money in the allocation. Such Market Participants that become SettlingParticipants (“Net Payers”) will not receive or be liable for paymentuntil the date that FERC requires Market Participants to pay such allowances inthe FERC Refund Proceeding, at which time the payments owed to or owing fromsuch Net Payers will be adjusted based on FERC’s determinations concerningallocation of the Fuel Cost Allowances.

 

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6.4.2                        Non-Settling Participants. The Settling Participants agree that theywill not challenge or oppose any Mirant Party’s defense of its Fuel CostAllowance claim as against Non-Settling Participants, will not seek discoveryor other relief against any Mirant Party’s claims against Non-SettlingParticipants and will not assist any other party’s claim or defense against anyMirant Party with respect to a Mirant Party’s Fuel Cost Allowance claims.Nothing in this Section 6.4.2 shall affect the Settling Participants’rights to advocate any particular method for allocating a Mirant Party’s FuelCost Allowance among Market Participants.

 

6.4.3                        FERC Filing. The California Parties agree to support a joint filing, if the MirantParties elect to make one, requesting that FERC waive application of FERC’s December 20,2004 order in the Refund Proceeding, 109 FERC ¶61,297, with respect to anyMirant Party’s obligation to file an audited Fuel Cost Allowance claim untilafter FERC issues the FERC Settlement Order, and to not require the Mirant Partiesto submit an audited Fuel Cost Allowance claim if FERC approves this Agreementin the FERC Settlement Order. All Additional Settling Participants that optinto the Settlement and this Agreement pursuant to Article XI agree tocomply with the provisions of this Section 6.4 to the same extent as isrequired of the California Parties.

 

6.4.4                        Continued Defense of Fuel Cost AllowanceClaim. If and to the extentthat FERC does not grant either motion made pursuant to Section 6.4.3, theMirant Parties shall continue to defend their Fuel Cost Allowance claims as toNon-Settling Participants, notwithstanding any other provision of thisAgreement, and the Mirant Parties shall, at their own expense, submit theirfuel cost data and claim to the auditor. Subject to the occurrence of theSettlement Effective Date, the California Parties shall reimburse the MirantParties for the auditor costs (including amounts invoiced by the auditor inconnection with the collecting and receiving of the Mirant Parties’ fuel cost dataand claims as directed by the auditor), and any other reasonable third-partycosts that the Mirant Parties incur in defense of their Fuel Cost Allowanceclaims following the Execution Date. Reimbursements required of the CaliforniaParties under this Section 6.4.4 shall be made on an ongoing basis uponthe later to occur of five (5) Business Days after the Settlement EffectiveDate, or fifteen (15) Business Days after the California Parties’ receipt fromthe Mirant Parties of invoices and supporting documentation showing the amountof such reimbursable costs that have been incurred by the Mirant Partiesfollowing the Execution Date. After the submittal of the initial invoice orseries of invoices, the Mirant Parties shall submit invoices for reimbursement underthis Section 6.4.4 on a monthly basis. The California Parties may, attheir sole discretion, determine the level of expenses that they are willing tobear under this provision, in which case (i) the California Parties shalldeliver notice to the Mirant Parties that they no longer intend to pursue thedefense of the Fuel Cost Allowance claim, and shall bear all reasonable costsand expenses incurred or accrued through the date on which the Mirant Partiesreceive such notice, and (ii) the Mirant Parties shall not be obligated tocontinue the defense of the Fuel Cost Allowance claim after the date of theirreceipt of such notice from the California Parties, and shall not be obligatedto incur or pay any costs or expenses associated with the Fuel Cost Allowanceclaim that are not paid or reimbursed by the California Parties. By providingthe notice referenced in subpart (i) of the preceding sentence, the CaliforniaParties may, subject to the terms of 

 

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thepreceding sentence, discontinue funding of the defense of Fuel Cost Allowanceclaims relating to specific time periods, in which case the Mirant Parties willbe obligated to continue to defend their Fuel Cost Allowance claims only as totime periods for which the California Parties are providing continued funding.

 

6.4.5                        Assignment of Recoveries. In addition to the transfer of the MAEMReceivables to the California Parties, as provided in this Agreement, theMirant Parties hereby assign, sell, transfer, convey and deliver to theCalifornia Parties, free and clear of all liens, claims, encumbrances, orinterests of any kind or nature whatsoever, pursuant to Section 363(f) ofthe Bankruptcy Code, and effective on the Settlement Effective Date, anyrecoveries of their Fuel Cost Allowance claims from Non-Settling Participants.Such recoveries shall be attributed to, and divided between, the Pre-January 18Period and the Post-January 17 Period by the California Parties. Nothingin this Section 6.4 shall restrict the ability of the California Partiesto continue to participate in any existing proceeding, or to initiate orparticipate in any future proceeding, insofar as such proceeding concerns aFuel Cost Allowance claim made by a supplier other than any Mirant Party.

 

6.5                                 Allocation to Refund Recipients.

 

6.5.1                        Refunds. Subject to the adjustments set forth herein, each SettlingParticipant shall be allocated the net refund amounts shown for that SettlingParticipant on the Allocation Matrix.

 

6.5.2                        Net Refund Recipients. Except as provided for Deemed DistributionRecipients, the net refunds to be paid to each Settling Participant that isowed net refunds after consideration of amounts that the particular SettlingParticipant may itself owe to the market in the form of refunds as calculatedin exhibits CPX 51 and CAISO 30 in the FERC Refund Proceeding (such SettlingParticipants are referred to herein as “Net Refund Recipients”) shall bepaid from the Mirant Refund Escrow in the form of cash.

 

6.5.3                        Allocation of Aggregate Allowed ClaimBenefits. The AggregateAllowed Claim Benefits shall be allocated by separate agreement among theCalifornia Parties. The share of the Aggregate Allowed Claim Benefits allocatedto each California Party, shall be paid (i) to the California Party, (ii) to anescrow fund designated by the California Party, or (iii) to the LiquidatingTrust in accordance with the election of that California Party, notice of whichshall be provided in writing to the Mirant Parties no later than five (5) BusinessDays after receiving written notice from the Mirant Parties that the AggregateAllowed Claim Benefits are available for distribution as provided in Section 5.1.4.

 

6.5.4                        Anomalous Bidding Investigation. Within five (5) Business Days after thetransfer provided for in Section 6.2.2, a portion of the cash paymentstransferred pursuant to Section 6.2.2 equal to the total of allNon-Settling Participants’ allocable shares of the $24,000,000 in refunds forthe Pre-October Period as shown on the Allocation Matrix shall betransferred to an account specified by OMOI

 

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contemporaneouslywith the distributions required in Section 6.2.2. Such consideration shallbe allocated by FERC as part of its resolution of the anomalous biddinginvestigation in Docket No. IN03-10. Nothing herein shall preclude any Partyfrom advocating any particular refund allocation or methodology with respect tothis amount.

 

6.5.5                        Deemed Distributions. PG&E and other Settling Participants(if any) having an outstanding payable to the PX, or owing net refunds ascalculated in exhibits CPX 51 and CAISO 30 in the evidentiary hearing in DocketNos. EL00-95, *et al.*(“DeemedDistribution Recipients”), shall not receive a cash payment from the MirantRefund Escrow but shall instead receive their refund share as shown in theAllocation Matrix through an offset to their outstanding payable to the PX ornet refund obligation (a “Deemed Distribution”). The Parties agree, andthe FERC Settlement Order shall constitute FERC’s determination, that thePG&E Plan Escrow may be reduced in an amount equal to PG&E’s DeemedDistributions under this Agreement. Other Settling Participants who do notqualify as Net Refund Recipients shall also receive their allocable refunds inthe form of an offset against their outstanding market obligations. Exhibit Hcontains a list of parties in addition to PG&E that will be DeemedDistribution Recipients if they become Additional Settling Participants inaccordance with Article XL.

 

6.5.6                        Timing. Except as provided in Sections 6.5.5, 6.5.6 and 6.5.7, principalpayments on refunds reflecting the amount shown in the Allocation Matrix,either in the form of cash from the transferred Estimated Receivables orthrough the offset of payables provided for in the case of DeemedDistributions, shall be effectuated for Settling Participants, includingAdditional Settling Participants, no later than twenty (20) Business Days afterthe Settlement Effective Date. Distributions of the Aggregate Allowed ClaimBenefits shall be effectuated no later than twenty (20) Business Days after thedistribution from the MAEM Plan to the California Litigation Escrow orLiquidating Trust as designated by the California Parties pursuant to Section 5.1.4.

 

6.5.7                        Interest. The PX shall pay to the Mirant Refund Escrow interest payable withrespect to the MAEM Receivables within ten (10) Business Days after the laterof (i) the Settlement Effective Date, and (ii) the date on which FERC issues anorder finally determining interest and shortfalls associated with the CAISO andPX settlement reruns and refund calculations regardless of whether such orderis subject to requests for stay, rehearing or appeals provided that such orderhas not been stayed (“FERC Interest Determination”), and interestamounts will be paid from the Mirant Refund Escrow to the Settling Participantswithin ten (10) Business Days after such distribution to the Mirant RefundEscrow. The amount of interest to be paid to Settling Participants associatedwith the refunds provided pursuant to this Agreement shall be determined in theFERC Interest Determination, provided that, to the extent amounts are held inthe Mirant Refund Escrow, Settling Participants shall be paid interest on suchamounts at the interest rate earned by that escrow account. Funds held in theCalifornia Litigation Escrow shall earn the rate of interest applicable to thatescrow account. Funds held in the Liquidating Trust shall earn the rate ofinterest applicable thereto. To the extent that the Settling Participants areentitled to payment from the Liquidating Trust, the Mirant Refund Escrow, orthe California Litigation Escrow, each will be entitled to a proportionateshare of interest at the escrow or trust interest rate to the extent interesthas been earned on such

 

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fundswhile in the escrow account or Liquidating Trust and, in the case of the fundsheld in the Liquidating Trust, the terms of the Liquidating Trust so provide.The refunds for the Pre-October Period shall not bear any interest exceptfor any pro rata share of interest that is earned on those amounts in theMirant Refund Escrow itself. Nothing in this Agreement requires any MirantParty to pay any interest to any Settling Participant at any time on theAggregate Allowed Claim or the CERS Allowed Claim.

 

6.5.8                        CERS Amount. From the amount of refunds that otherwise are due to CERS pursuant toSections 6.5.1 or 6.5.3 (excluding any refunds allocated to short term bilateralsales made to CERS by MAEM), an amount determined solely by CERS shall bewithheld in the Mirant Refund Escrow, or other escrow specified by CERS, inorder to pay any claims against CERS arising under Section 6.6.5.2 and anyof Sections 6.8.1 through 6.8.5 (amounts held in escrow pursuant to this Section 6.5.8are denoted as the “CERS Escrow”). CERS may withdraw funds from the CERSEscrow (i) from time to time with the prior written consent of the CaliforniaUtilities if CERS can demonstrate to the reasonable satisfaction of theCalifornia Utilities that, after giving effect to such withdrawal, the CERSEscrow shall have sufficient funds on deposit to satisfy in full theaforementioned obligations, and (ii) in whole or in part following the later tooccur of the following, provided that all claims of CERS arising under Section 6.6.5.2or any of Sections 6.8.1 through 6.8.5 have been paid in full: (a) issuance byFERC of the FERC Receivables Determination and the final resolution of anyrequests for rehearing or any appeals thereof, or, if no such requests forrehearing or appeals are filed, the lapse of any period within which suchrequests or appeals must be filed; (b) issuance by FERC of the FERC RefundDetermination and the final resolution of any requests for rehearing or anyappeals thereof, or, if no such requests for rehearing or appeals are filed,the lapse of any period within which such requests or appeals must be filed;(c) issuance by FERC of the FERC Interest Determination and the final resolutionof any requests for rehearing or any appeals therefrom or, if no such requestsfor rehearing or appeals are filed, the lapse of any period within with suchrequests for rehearing or appeals must be filed; or (d) issuance by FERC of theFERC Allowances Determination and the final resolution of any requests forrehearing or appeals therefrom or, if no such requests for rehearing or appealsare filed, the lapse of any period within which such requests for rehearing orappeals must be filed.

 

6.5.9                        Funds in the California Litigation Escrow. All funds in the California LitigationEscrow shall be distributed in accordance with a separate agreement among theCalifornia Parties. Distributions from the California Litigation Escrow willaccrue interest only from the date the California Litigation Escrow is fundedand at the rate of interest earned on the funds held therein.

 

6.5.10                  Non-Settling Participants. Subject to Section 6.6.6, theCalifornia Parties shall pay to the CAISO and/or the PX, from the Mirant RefundEscrow, the California Litigation Escrow or otherwise, any refunds due toNon-Settling Participants by the Mirant Parties in connection with transactionsin the CAISO or the PX markets during the Refund Period, as determined by FERCin the FERC Refund Proceeding. Notwithstanding the foregoing, Non-SettlingParticipants shall not receive any accelerated payment of the Mirant Parties’refunds under the Settlement or this

 

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Agreementand shall not be guaranteed any specific level of refunds. Debtors reserve allof their rights, defenses and offsets with respect to each Non-Settling Party.

 

6.5.11                  Mirant Parties. None of the Mirant Parties or other Debtorsshall be a claimant for any of the funds to be allocated to the SettlingParticipants pursuant to the terms of this Agreement or the ImplementingAgreements, except as specified in Article VIII and/or the CC8 EscrowAgreement.

 

6.6                                 Shortfalls and Excesses. Subject to the limitations and allocationsof responsibility set forth in this Section 6.6, the California Partiesshall be at risk for adjusting their own recoveries under this Agreement inlight of shortfalls arising from the Mirant Parties’ transactions in the CAISOor the PX markets for the Refund Period, as determined in the FERC RefundProceeding, and shall be entitled to the benefit of any additional amounts,including as a result of the FERC Refund Determination, that are found to beowing to the Mirant Parties for such transactions in the Refund Period.

 

6.6.1                        Receivables Shortfall and Receivables Excess. The amount, if any, by which the MAEMReceivables for any time period is less than the appropriate portion of theEstimated Receivables allocated to that period shall be referred to herein as a“Receivables Shortfall.” The amount if any, by which the MAEMReceivables for any time period exceeds the appropriate portion of theEstimated Receivables allocated to that period shall be referred to herein as a“Receivables Excess.”

 

6.6.2                        Refund Shortfall and Refund Excess. The amount, if any, by which the total ofthe amounts allocated in the Allocation Matrix to Non-Settling Participants fora particular time period is insufficient to satisfy refund obligations payableby the Mirant Parties to Non-Settling Participants, as determined in the FERCRefund Determination, for the same time period shall be referred to herein as a“Refund Shortfall.” The amount, if any, by which the total of theamounts allocated in the Allocation Matrix to Non-Settling Participants for aparticular time period exceed the amounts needed to satisfy refund obligationspayable by the Mirant Parties to Non-Settling Participants, as determined inthe FERC Refund Determination, for the same time period shall be referred toherein as a “Refund Excess.”

 

6.6.3                        MAEM Responsibility. MAEM is solely responsible to Non-SettlingParticipants for Refund Shortfalls relating to the Pre-October Period, andshall solely be entitled to Refund Excesses relating to the Pre-October Period.None of the Mirant Parties, including MAEM, shall be responsible to SettlingParticipants or to Non-Settling Participants for a Receivables Shortfall or aRefund Shortfall relating to the Pre-January 18 Period or Post-January 17Period, and the Mirant Parties shall not be entitled to claim any interest orright to a Receivables Excess or a Refund Excess relating to the Pre-January 18Period or Post-January 17 Period. Additionally, none of the MirantParties, including MAEM, shall be responsible to Settling Participants or toNon-Settling Participants for a Receivables Shortfall relating to the Pre-October Period,and shall not be entitled to claim any interest or right to a ReceivablesExcess relating to the Pre-October Period.

 

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6.6.4                        Distributions to Non-Settling Participants. As set forth in more detail in Section6.6.5, and subject to the limitations of Section 6.6.6, the California Partiesshall pay to the CAISO and/or the PX, from the Mirant Refund Escrow, theCalifornia Litigation Escrow or otherwise, the Refund Shortfall for eachNon-Settling Participant for the Pre-January 18 Period and the Post-January 17Period. Such payment shall be made within the time period FERC establishes forthe payment of refunds in the FERC Refund Proceeding. The CAISO and/or PX shalldistribute the Refund Shortfall to each Non-Settling Participant in the mannerprovided in the FERC Refund Determination.

 

6.6.5                        Responsibility for Shortfalls and Excesses. Subject to the provisions of Section 6.6.6,Refund Shortfalls and Receivables Shortfalls associated with the Pre-January 18Period and Post-January 17 Period will be paid by the California Parties asprovided in Section 6.6.5.1 and 6.6.5.2. To the extent there is a ReceivablesExcess or Refund Excess for the Pre-January 18 Period and Post-January 17Period, such Receivables Excess or Refund Excess shall be transferred to theCalifornia Litigation Escrow and shall be allocated as provided in Sections6.6.5.1 and 6.6.5.2. Receivables Shortfalls associated with the Pre-OctoberPeriod will be paid by the California Parties as provided in Section 6.6.5.3.To the extent there is a Receivables Excess for the Pre-October Period, suchReceivables Excess shall be transferred to the California Litigation Escrow andshall be allocated as provided in Sections 6.6.5.3.

 

6.6.5.1               Pre-January 18 Period. Each of the California Utilities shall beresponsible for its share of any Refund Shortfall or Receivables Shortfallallocated to the Pre-January 18 Period, as well as for its share of any RefundShortfall or Receivables Shortfall attributable to transactions in the PXduring the period beginning on January 18, 2001 and ending on January 31, 2001(such transactions, the “January PX Transactions”). Any suchresponsibility shall be deemed to be a reversal of amounts allocated to theCalifornia Utilities under this Agreement and shall be paid to the CAISO and/orthe PX from the amounts allocated to the California Utilities, on a pro ratabasis determined with reference to the principal amount of the refunds(including Deemed Distributions) allocated to each of the California Utilitiesunder this Agreement for that period. The California Utilities shall beentitled to payment of any Refund Excess or Receivables Excess allocated to thePre-January 18 Period and January PX Transactions. Said amount shall be paid ona pro rata basis determined with reference to the total principal amount of therefunds (including Deemed Distributions) allocated to each of the CaliforniaUtilities under this Agreement for that period.

 

6.6.5.2               Post-January 17 Period. Except with respect to the January PXTransactions, which shall be governed by Section 6.6.5.1, CERS shall beresponsible for any Refund Shortfall or Receivables Shortfall allocated to thePost-January 17 Period, and shall be entitled to payment of any Refund Excessor Receivables Excess allocated to the Post-January 17 Period.

 

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6.6.5.3               Pre-October Period. Each of the California Utilities shall beresponsible for its share of any Receivables Shortfall allocated to thePre-October Period. Any such responsibility shall be deemed to be a reversal ofamounts allocated to the California Utilities under this Agreement and shall bepaid to the CAISO and/or the PX from the amounts allocated to the CaliforniaUtilities, on a pro rata basis determined with reference to the principalamount of the refunds (including Deemed Distributions) allocated to each of theCalifornia Utilities under this Agreement for that period. The CaliforniaUtilities shall be entitled to payment of any Receivables Excess allocated tothe Pre-October Period. Said amount shall be paid on a pro rata basisdetermined with reference to the total principal amount of the refunds(including Deemed Distributions) allocated to each of the California Utilitiesunder this Agreement for that period.

 

6.6.6                        Limitations on California Parties’Obligations.

 

6.6.6.1               Limitation as to Amounts Owed. Notwithstanding any other provision of thisAgreement, (i) the obligation of any California Party to pay money toNon-Settling Participants shall be limited to payment of claims in the FERCRefund Proceeding and the *Lockyer**v*. *FERC*Remandarising from the Mirant Parties’ transactions in the CAISO or the PX marketsduring the Refund Period, and shall not encompass payment of claims arisingfrom other transactions or in any other proceeding, and (ii) the obligation ofany California Party to pay money under this Agreement (excluding Article VIII)shall not, in any event exceed the total amount of MAEM Receivables and/orDeemed Distributions allocated to that California Party pursuant to thisAgreement for the applicable period.

 

6.6.6.2               Settlement with Non-Settling Participants. The Mirant Parties retain the right tonegotiate with and enter into settlements of claims with Non-SettlingParticipants, and such settlements may, subject to any necessary approvals,establish the amount of refunds payable to such Non-Settling Participants bythe Mirant Parties, but, absent written consent of each of the CaliforniaParties, acting in their sole discretion, the amount of any such settlementthat will be paid from the Mirant Refund Escrow, the California LitigationEscrow, or otherwise by the California Parties may not exceed the amount thatwould have been allocated to that Non-Settling Participant if it had become anAdditional Settling Participant.

 

6.7                                 Sales Addressed. Without limiting the foregoing provisionsof Section 6.6, nothing in this Agreement shall require the California Partiesto bear any liability to any party relating to the Mirant Parties’ salesoutside of the CAISO and the PX markets.

 

6.8                                 Effect of Subsequent FERC Orders and Appeals.

 

6.8.1                        If, as a result of a FERC order on rehearing,reconsideration, or remand, or an order by a court of appeals (in each casethat is a final order that is no

 

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longer subject to appeal),the FERC Interest Determination is changed in a way that changes the amount ofinterest owed to Market Participants in the CAISO and/or the PX markets withrespect to the MAEM Receivables, then the amount of interest paid on suchreceivables shall be trued-up among the CAISO, the PX and the CaliforniaParties, by way of refund or surcharge, with interest at the FERC Interest Rateor such other rate as FERC may determine to be applicable, to give full effectto the change from the FERC Interest Determination.

 

6.8.2                        If, as a result of a FERC order on rehearing,reconsideration, or remand, or an order by a court of appeals (in each casethat is a final order that is no longer subject to appeal), the FERC InterestDetermination is changed in a way that changes the interest amount paid toSettling Participants associated with refunds and other distributions pursuantto this Agreement, then the amount of such interest paid to SettlingParticipants shall be trued-up among the Settling Participants or between theSettling Participants and the Mirant Refund Escrow, by way of refund orsurcharge, with interest at**the FERC Interest Rate or suchother rate as FERC may determine to be applicable, to give full effect to thechange from the FERC Interest Determination.

 

6.8.3                        If, as a result of a FERC order on rehearing,reconsideration, or remand, or an order by a court of appeals (in each casethat is a final order that is no longer subject to appeal), the FERC AllowancesDetermination is changed in a way that changes the allocation of Fuel CostAllowances among the Settling Participants, then the amount of Fuel CostAllowances paid to or by each Settling Participant pursuant to this Agreementshall be trued-up among such Settling Participants, by way of refund orsurcharge, with interest at the FERC Interest Rate or such other rate as FERCmay determine to be applicable, to give full effect to the change from the FERCAllowances Determination.

 

6.8.4                        If, as a result of a FERC order on rehearing,reconsideration, or remand, or an order by a court of appeals (in each casethat is a final order that is no longer subject to appeal), the FERCReceivables Determination is changed in a way that changes the amount of theMAEM Receivables, then the amount of MAEM Receivables paid by the CAISO and thePX to the California Parties pursuant to this Agreement shall be trued-up amongthe CAISO, the PX and the California Parties, by way of refund or surcharge,with interest at the FERC Interest Rate or such other rate as FERC maydetermine to be applicable, to give full effect to the change from the FERCReceivables Determination.

 

6.8.5                        If, as a result of a FERC order on rehearing,reconsideration, or remand, or an order by a court of appeals (in each casethat is a final order that is no longer subject to appeal), the FERC RefundDetermination is changed in a way that increases or decreases the amount ofrefunds owed by MAEM to any particular Non-Settling Participant for thePre-January 18 Period or the Post-January 17 Period, then the amount paid to orreceived from such Non-Settling Participant for the Pre-January 18 Period andthe Post-January 17 Period shall be trued-up among the California Parties andsuch Non-Settling Participant, by way of refund or surcharge, with

 

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interest at the FERC InterestRate or such other rate as FERC may determine to be applicable, to give fulleffect to the change to the FERC Refund Determination.

 

6.8.6                        All payments pursuant to this Section 6.8shall be made at the time and in the manner specified by FERC or the court orappeals. If neither FERC nor the court of appeals specifies the time and mannerfor such payments, then such payments shall be made by wire transfer withintwenty (20) Business Days after the issuance of the FERC or court of appealsorder (in each case that is a final order no longer subject to appeal) changingthe FERC Interest Determination, the FERC Allowances Determination, the FERCReceivables Determination, or the FERC Refund Determination, as applicable.

 

6.8.7                        None of the true-ups in this Section 6.8shall affect or apply to the Mirant Parties.

 

6.9                                 FERC-Directed Compliance. The FERC’s approval of this Agreement inthe FERC Settlement Order shall constitute its direction to each of the CAISOand the PX to do all of the following:

 

6.9.1                        General Accounting Treatment. The CAISO and the PX shall conform theirbooks and records to reflect the distributions, transfers and status ofaccounts as provided for in this Agreement.

 

6.9.2                        Accounting Treatment of Assigned MAEMReceivables. The CAISO andthe PX shall reflect on their books and records all distributions from the PXSettlement Clearing Account to the Mirant Refund Escrow and to the CaliforniaLitigation Escrow that represent payments of amounts owed by the CAISO for theMAEM Receivables. The CAISO shall recognize, as a reduction in the amountspayable to it by the PX, all distributions from the PX Settlement ClearingAccount under this Agreement that represent payments of amounts owed by theCAISO for the MAEM Receivables.

 

6.9.3                        Calculation of MAEM Receivables. The CAISO and PX shall calculate the amountof the MAEM Receivables, and submit those calculations for approval to FERC atthe same time that they submit their calculations of receivables for otherMarket Participants. Within ten (10) Business Days after the FERC ReceivablesDetermination, the CAISO and the PX shall divide the unpaid MAEM Receivables asdetermined in the FERC Receivables Determination between the Pre-OctoberPeriod, the Pre-January 18 Period and the Post-January 17 Period, to the extentsuch division between time periods is not provided in the FERC ReceivablesDetermination.

 

6.9.4                        Calculation and Accounting Treatment ofDistributions To Settling Participants and Non-Settling Participants. The CAISO and the PX shall calculate theamount, if any, that the Mirant Parties would owe in refunds pursuant to FERC’sorders in the FERC Refund Proceeding for each of three time periods, the Pre-OctoberPeriod, the Pre-January 18 Period and the Post-January 17 Period (“Unsettled

 

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MirantRefund Amounts”), andshall submit those calculations for approval to FERC at the same time that theysubmit their calculations of refunds for other Market Participants.

 

6.9.4.1               Calculation of Refund Amounts For IndividualMarket Participants. Followingthe date of the FERC Refund Determination, but prior to the date on whichrefunds are to be paid pursuant to the FERC Refund Determination, the CAISO andthe PX shall determine the portion of the Unsettled Mirant Refund Amounts that,absent this Agreement, would be deemed to be owed to each Settling Participantand Non-Settling Participant that is entitled to receive refunds (“UnsettledParticipant Refund Amount”). The CAISO and the PX shall determine theUnsettled Participant Refund Amount for each Settling Participant andNon-Settling Participant by multiplying the Unsettled Mirant Refund Amounts foreach respective time period by each such Participant’s percentage share oftotal refunds in the combined CAISO and PX markets for that time period.

 

6.9.4.2               Accounting Treatment of Distributions toSettling Participants. TheCAISO and the PX shall reflect on their books and records that SettlingParticipants have, through this Agreement, been paid in full their share of allrefunds allocated to them under this Agreement and shall not be entitled toreceive the Unsettled Participant Refund Amount if different from the amount ofrefunds allocated to each respective Settling Participant under this Agreement.

 

6.9.4.3               Accounting Treatment of Deemed Distributions. The CAISO and the PX shall reflect DeemedDistributions on the books and records of the CAISO and the PX as reductions inthe amounts owed to the CAISO or the PX by any Settling Participant thatreceives a Deemed Distribution.

 

6.9.5                        Adjustments. Any adjustments to the amounts shown in the Allocation Matrixpursuant to Section 6.4.1 or Section 6.8 will be reflected on the books andrecords of the CAISO and the PX when these amounts become known. Any suchchanges will be implemented through a compliance filing with, or order by,FERC.

 

6.9.6                        Interest Accrual. The CAISO and the PX shall reflect in theirbooks and records, with respect to Settling Participants, that the accrual ofinterest at the FERC-established rate on principal amounts subject to the FERCInterest Determination as provided for in Section 6.5.5 ceases upon thedistribution of funds from the PX or the CAISO to the Mirant Refund Escrow orto the California Litigation Escrow pursuant to this Agreement, or as may beaccomplished through the implementation of Deemed Distributions, and, forpurposes of the accounts of the PX and the CAISO, no interest on such fundsshall accrue after distribution or crediting as a Deemed Distribution.

 

6.9.7                        Mirant Parties’ Collateral. The California Parties acknowledge andagree that (i) upon the Settlement Effective Date, all of the Mirant Parties’liabilities in the PX with respect to the Settling Participants will be deemedbilled and settled for purposes of the PX tariff, and (ii) within fifteen (15)Business Days of the Settlement Effective Date, the Mirant Parties shall beentitled to a release by the PX of any and all

 

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collateral posted by any ofthe Mirant Parties. FERC’s approval of this Agreement in the FERC SettlementOrder shall constitute its direction to the PX to release and return allcollateral provided by any Mirant Party, and to forego or otherwise withdrawall requests for additional collateral from any Mirant Party, in each case tothe extent that such collateral or request for collateral applies toliabilities that are released by this Agreement, or involves an amount ofcollateral that is calculated taking into account such liabilities.

 

6.9.8                        Duty of Cooperation. Each Party shall reasonably and in goodfaith cooperate and take all reasonable steps to secure (i) the release offunds from the PX Settlement Clearing Account to the Mirant Refund Escrow orthe California Litigation Escrow, as contemplated by this Agreement, (ii) theaccounting treatment contemplated under this Article VI, and (iii) any otheracts of the PX or the CAISO necessary to effectuate the terms of thisAgreement. This duty of cooperation shall include making individual or jointrequests to the PX or the CAISO, executing appropriate waivers, providing data,and providing other assistance to the PX and the CAISO as necessary toimplement this Agreement.

 

6.9.9                        Tariff Waivers. FERC approval of this Agreement in the FERCSettlement Order shall constitute a grant of such waivers of the CAISO and thePX tariffs as may be necessary for the CAISO and the PX to disburse such fundsas required by this Agreement, to account for transfers, allocations anddistributions of funds as required by this Agreement, and to otherwiseimplement this Agreement.

 

6.10                           Mirant Refund Escrow Balance. Any amounts not distributed to SettlingParticipants pursuant to this Agreement that remain in the Mirant Refund Escrowafter all refunds and associated interest have been paid to SettlingParticipants and Non-Settling Participants, as provided in this Agreement,shall be transferred to the California Litigation Escrow.

 

**ARTICLE VIIMIRANT PARTIES’ COOPERATION AND PROSPECTIVE COMMITMENTS**

 

7.1                                 FERC Market Behavior Rules. The Mirant Parties will comply with FERC’smarket behavior rules as established in FERC Docket No. EL01*-*118, as those rules may be applicable andamended from time to time. The Mirant Parties agree that, as of the SettlementEffective Date, they will not pursue a challenge, by means of objection,rehearing, appeal or otherwise, of market behavior rules adopted or implementedpursuant to FERC’s Order of November 17, 2003 in Docket No. EL01-118, 105 FERC ¶61,218 (2003) and the May 19, 2004 order on rehearing, 107 FERC ¶ 61,175 (2004).This undertaking shall not preclude the Mirant Parties from (i) opposing anyparty’s challenges or objections that seek to modify the above-referencedorders, (ii) defending its behavior in specific enforcement actions or otherFERC proceedings, or (iii) intervening in future proceedings to comment on howthe market behavior rules should be interpreted or applied.

 

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7.2                                 CAISO Tariff Provisions. The Mirant Parties shall comply withapplicable CAISO tariff provisions concerning must-offer obligations unless anduntil such time that FERC approves the termination of such obligation(s), asapplicable, provided that all Parties are free to advocate changes in orinterpretations of those tariff provisions.

 

7.3                                 Cooperation with the California Parties. The Mirant Parties shall cooperate with theCalifornia Parties in pursuing claims against suppliers other than the MirantParties and their Related Parties in the FERC Refund Proceeding relating to theperiod January 1, 2000 through June 20, 2001, by making available to theCalifornia Parties within a reasonable time, at the reasonable expense of theCalifornia Parties, who shall be obligated to pay the Mirant Parties’reasonable out-of-pocket expenses associated with their cooperation under thisSection 7.3, other than attorneys’ fees, and without obligating any MirantParty to bear any expense under this Section 7.3, such information anddocuments as they may reasonably specify that are (i) relevant to such claims,(ii) in the Mirant Parties’ possession or control, and (iii) not privileged;provided that, if any such information or document contains proprietary andsensitive commercial material, such material will be provided under anagreement requiring that such information or document not be disclosed by theCalifornia Parties to any market participant’s “competitive duty personnel” (asthat term is generally defined for purposes of protective orders entered inproceedings before FERC). As part of their ongoing cooperation obligations, theMirant Parties shall make witnesses available for interviews and depositions bythe California Parties at mutually convenient times and locations. TheCalifornia Parties will seek information in a focused manner, and will workwith the Mirant Parties to streamline information and requests as appropriate.The witness interviews, depositions and all documents disclosed will be subjectto the existing or future confidentiality agreements and protective ordersbetween the Mirant Parties and the California Parties and the confidentialityprovisions of California Government Code Section 11180, *et seq.*OMOI shall be permitted to attendand ask questions at any such interview or deposition, and, at its request,shall be provided with copies of any written information provided through suchcooperative efforts.

 

7.4                                 Cooperation with the California AttorneyGeneral. The Mirant Partiesshall continue to cooperate with the California Attorney General’s investigationsand litigation related to the California energy crisis, provided that (i) suchcooperation shall not obligate the Mirant Parties to waive any privileges, and(ii) wherever possible, the California Attorney General shall ensure that theMirant Parties’ obligations under this Section 7.4 are not duplicative of theirobligations under Section 7.3. As part of their ongoing cooperationobligations, the Mirant Parties shall make witnesses available for interviewsand depositions by the California Attorney General at mutually convenient timesand locations and to produce documents as requested. The California AttorneyGeneral will seek information in a focused manner, and will work with theMirant Parties to streamline information requests as appropriate. The witnessinterviews, depositions, and all documents disclosed pursuant to this Section7.4 will be subject to the existing or future confidentiality agreements andprotective orders between the California Attorney General and the MirantParties and the confidentiality provisions of California Government CodeSection 11180, *et seq.*Thedocuments produced by the Mirant Parties

 

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to the California AttorneyGeneral under this Section 7.4 or pursuant to subpoenas can be used by theCalifornia Attorney General in litigation against third parties (not includingany Debtor) pursuant to a court approved protective order. The CaliforniaAttorney General shall give reasonable notice to the Mirant Parties of its intentto use such documents in litigation which notice shall specify the terms of theprotective order under which they may be used.

 

**ARTICLE VIIIRELIABILITY MUST-RUN CONSIDERATION**

 

8.1                                 Issuance of RMR Order. PG&E and the Mirant Parties agree tocooperate to request, promptly after the Settlement Effective Date, that FERCissue an order in FERC Docket Nos. ER98-495, ER98-1614, ER98-2145 and ER99-3603regarding the initial decision of the Administrative Law Judge in thoseproceedings, 91 FERC ¶ 63,008 (2000) (“RMR Order”) at the earliestpossible date thereafter. PG&E and the Mirant Parties further agree thatthe RMR Order shall have no effect upon any charges, including refunds, underthe RMR Agreements incurred before January 1, 2005. PG&E and the MirantParties agree that each shall have the right to seek rehearing and appeal ormodification of the RMR Order to the extent that it has any effect upon anysuch Party.

 

8.2                                 Settlement and Release. As of the Settlement Effective Date,PG&E and the Mirant Parties hereby waive and release all rights to anyrefunds or other claims of any kind (except for those specifically allowedherein) under or in connection with any RMR Agreement, arising from anycircumstances existing prior to and including September 30, 2004, whether thenowing or accrued and whether fixed, inchoate, contingent, liquidated orunliquidated, known or unknown, including those alleged in or arising from theFERC RMR Proceedings; provided, however, that neither this release of claimsfor refunds, nor any other provision of this Agreement, shall affect the ratesset under the 2005 RMR FERC Settlement. The waiver set forth in Section 9.14shall apply equally to the release provided for in this Section 8.2 as to therelease of unknown claims. FERC’s issuance of the FERC Settlement Order shallconstitute authority for PG&E to account for and dispose of all claims toany refunds or any other claims of any kind (besides those specifically allowed herein) under or in connection withany RMR Agreement through the Reliability Services Balancing Account underPG&E’s Transmission Owner Tariff on file with FERC (the “RSBA”), asthe RSBA or its application may be modified or superseded with authorization ofthe FERC, arising from any circumstances existing prior to the effective dateof the FERC Settlement Order, whether then owing or accrued and whether fixed,inchoate, contingent, liquidated or unliquidated, including those alleged in orarising from the FERC RMR Proceedings.

 

8.3                                 Prospective RMR Rates. Nothing in this Agreement shall bar theMirant Parties from seeking to change the RMR rate methodology in the future orarguing that a different methodology should be used in other proceedingsinvolving similar rate issues. Notwithstanding any other provision of thisAgreement, the Annual Fixed Revenue Requirement and other rate components inSchedule F of each RMR Agreement shall be established and fixed for the periodJanuary 1, 2005 through December 31, 2005 in accordance with the settlementamong PG&E, the CAISO and certain Mirant Parties, as

 

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set forth in Exhibit G (the “2005RMR FERC Settlement”), provided that (i) the 2005 RMR FERC Settlement shallbe extended to include the period January 1, 2006 through December 31,**2008 if and when the CPUC has providedthe Required Approval by entering into this Agreement as a Party in accordancewith Sections 2.4.1 and 2.5 and the Settlement Effective Date has occurred, and(ii) the 2005 RMR FERC Settlement shall be extended by one year under thecircumstances provided for in Section 2.2.1. The Mirant Parties and PG&Eacknowledge and agree that, and the FERC Settlement Order shall constitute FERC’sdirection that, during the period January 1, 2005 through December 31, 2008, subjectto the condition in the preceding sentence as to the last three years of thatperiod, the 2005 RMR FERC Settlement shall supercede and replace in itsentirety the filing that certain Mirant Parties are required to file with FERCpursuant to Schedule F of the RMR Agreements.

 

8.4                                 Filing of the 2005 RMR FERC Settlement. PG&E and certain Mirant Parties shall,no later than January 31, 2005, jointly with the CAISO (i) file the 2005 RMRFERC Settlement with FERC, and (ii) request that FERC approve the 2005 RMR FERCSettlement in lieu of the filing that certain Mirant Parties are required tosubmit to FERC pursuant to Schedule F of the RMR Agreements. All Parties agreethat they shall not oppose the 2005 RMR FERC Settlement. Subject to approval bythe Mirant Bankruptcy Court, the 2005 RMR FERC Settlement (as applied only tocalendar year 2005 and, subject to Section 2.2.1, to calendar year 2006) shallbecome effective and shall remain in effect regardless of whether or not theSettlement Effective Date ever occurs.

 

8.5                                 RMR Claim. PG&E shall receive an allowed, prepetition, non-priority generalunsecured claim against Delta in its Bankruptcy Proceedings in an amount thatwill result in a total aggregate distribution to PG&E of $43,000,000 incash and/or securities under the Delta Plan (the “RMR Claim”). The RMRClaim shall be free of offset, defense, reduction, claim or counterclaim of anykind whatsoever. Upon the effective date of the Delta Plan, and in accordancewith the plan of distribution under the Delta Plan, Delta shall promptlydeliver to PG&E cash and/or securities that are in proportions and havecharacteristics at least equal to the most favorable combination of cash and/orsecurities that are delivered under the relevant Mirant Plan to any holder ofthe MAG senior notes due in 2006 (“RMR Claim Plan Securities”)(provided, however, that if such notes are reinstated, Delta shall promptlydeliver to PG&E cash and/or securities that are in proportions and havecharacteristics at least equal to the most favorable combination of cash and/orsecurities that are delivered to any holder of the highest quality MAG seniornotes not reinstated) having an aggregate then-current value of $43,000,000,which value shall be determined using the Mirant Bankruptcy Court’s valuationof the RMR Claim Plan Securities in its confirmation order for the Delta Planor other applicable Mirant Plan. As soon as practicable after its receipt ofthe RMR Claim Plan Securities from Delta, and subject to any limitations thatmay be specified in the Mirant Bankruptcy Court’s confirmation order for theDelta Plan or other applicable Mirant Plan, PG&E shall sell or cause thesale of the RMR Claim Plan Securities for cash. PG&E shall use commerciallyreasonable efforts to liquidate the RMR Claim Plan Securities in a manner thatwill maximize their liquidated value and minimize the effect on the marketvalue of the RMR Claim Plan Securities. To the extent that the aggregate

 

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value of the cash proceeds,net of third-party transaction costs, from PG&E’s sale of the RMR ClaimPlan Securities, as determined on the date on which PG&E has sold all ofthe RMR Claim Plan Securities, plus the cash received by PG&E in payment ofthe RMR Claim (if any), is less than $43,000,000, such shortfall (“RMR ClaimShortfall”) shall be recovered by PG&E in the manner specified below.PG&E shall notify Delta in writing of the amount of the RMR ClaimShortfall, and shall simultaneously provide Delta with documentation thatdemonstrates the value of the cash proceeds, net of third-party transactioncosts, realized by PG&E from the sale of the RMR Claim Plan Securities (“RMRClaim Shortfall Notice”). PG&E thereafter shall be entitled to recoupthe RMR Claim Shortfall by applying a monthly credit in each month after Delta’sreceipt of the RMR Claim Shortfall Notice against amounts otherwise owing byPG&E to Delta during such month under the Wraparound Agreement in effect atthe time an installment is credited, and such right of offset shall be securedby Delta’s right to receive payments under the Wraparound Agreements. Deltashall be entitled to accelerate the payment of any RMR Claim Shortfall at anytime in its sole discretion by paying in cash whatever amounts have not beenrecovered through the crediting mechanism described in the preceding sentence,provided that if the RMR Claim Shortfall is not recovered in its entiretythrough such crediting mechanism within three (3) months after Delta’s receiptof the RMR Claim Shortfall Notice, PG&E shall notify Delta and MAG inwriting of the outstanding amount of the RMR Claim Shortfall and MAG shall beobligated to make a cash payment to PG&E within two (2) Business Daysfollowing MAG’s receipt of such notice in the full amount of the remaining RMRClaim Shortfall. Delta or MAG, if applicable, shall pay PG&E interest onthe outstanding amount of the RMR Claim Shortfall that remains unpaid within 30days after Delta’s receipt of the RMR Claim Shortfall Notice, with such interestto be calculated at the FERC Interest Rate. All cash received by PG&Epursuant to this Section 8.5 shall be credited by PG&E to the RSBAcontemporaneously with its receipt by PG&E and shall benefit PG&E’sratepayers through a prospective reduction in reliability must-run costs.

 

8.6                                 SO2 Claim. PG&E shall receive an allowed, prepetition, non-priority generalunsecured claim against Delta in its Bankruptcy Proceedings in an amount thatwill result in a total aggregate distribution to PG&E of $20,000,000 incash and/or securities under the Delta Plan (the “SO2 Claim”). The SO2Claim shall be free of offset, defense, reduction, claim or counterclaim of anykind whatsoever. The SO2 Claim shall be in full and complete satisfaction ofProof of Claim No. 6504 in the Bankruptcy Proceedings and PG&E shallrelease, withdraw and dismiss with prejudice Proof of Claim No. 6504 inaccordance with Section 4.2.1. Upon the effective date of the Delta Plan, andin accordance with the plan of distribution under the Delta Plan, Delta shallpromptly deliver to PG&E cash and/or securities that are in proportions andhave characteristics at least equal to the most favorable combination of cashand/or securities that are delivered under the relevant Mirant Plan to anyholder of the MAG senior notes due in 2006 (“SO2 Claim Plan Securities”)(provided, however, that if such notes are reinstated, Delta shall promptlydeliver to PG&E cash and/or securities that are in proportions and havecharacteristics at least equal to the most favorable combination of cash and/orsecurities that are delivered to any holder of the highest quality MAG seniornotes not reinstated) having an aggregate then-current value of $20,000,000,which value shall be determined using the Mirant Bankruptcy Court’s valuationof the SO2 Claim

 

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Plan Securities in its confirmationorder for the Delta Plan or other applicable Mirant Plan. As soon aspracticable after its receipt of the SO2 Claim Plan Securities from Delta, andsubject to any limitations that may be specified in the Mirant Bankruptcy Court’sconfirmation order for the Delta Plan or other applicable Mirant Plan, PG&Eshall sell or cause the sale of the SO2 Claim Plan Securities for cash.PG&E shall use commercially reasonable efforts to liquidate the SO2 ClaimPlan Securities in a manner that will maximize their liquidated value andminimize the effect on the market value of the SO2 Claim Plan Securities. Tothe extent that the aggregate value of the cash proceeds, net of third-partytransaction costs, from PG&E’s sale of the SO2 Claim Plan Securities, asdetermined on the date on which PG&E has sold all of the SO2 Claim PlanSecurities, plus the cash received by PG&E in payment of the SO2 Claim (ifany), is less than $20,000,000, such shortfall (“SO2 Claim Shortfall”)shall be recovered by PG&E in the manner specified below. PG&E shallnotify Delta in writing of the amount of the SO2 Claim Shortfall, and shallsimultaneously provide Delta with documentation that demonstrates the value ofthe cash proceeds, net of third-party transaction costs, realized by PG&Efrom the sale of the SO2 Claim Plan Securities (“SO2 Claim Shortfall Notice”).PG&E thereafter shall be entitled to recoup the SO2 Claim Shortfall by applyinga monthly credit in each month after Delta’s receipt of the SO2 Claim ShortfallNotice against amounts otherwise owing by PG&E to Delta in each such monthunder the Wraparound Agreement in effect at the time an installment iscredited, as such amounts are determined after the credit for the RMR ClaimShortfall, if any, is applied, and such right of offset shall be secured byDelta’s right to receive payments under the Wraparound Agreements. Delta shallbe entitled to accelerate the payment of any SO2 Claim Shortfall at any time inits sole discretion by paying in cash whatever amounts have not been recoveredthrough the crediting mechanism described in the preceding sentence, providedthat if the SO2 Claim Shortfall is not recovered in its entirety through suchcrediting mechanism within three (3) months after Delta’s receipt of the SO2Claim Shortfall Notice, PG&E shall notify Delta and MAG in writing of theoutstanding amount of the SO2 Claim Shortfall and MAG shall be obligated tomake a cash payment to PG&E within two (2) Business Days following MAG’sreceipt of such notice in the full amount of the remaining SO2 Claim Shortfall.Delta or MAG, if applicable, shall pay PG&E interest on the outstandingamount of the SO2 Claim Shortfall that remains unpaid within 30 days afterDelta’s receipt of the SO2 Claim Shortfall Notice, with such interest to becalculated at the FERC Interest Rate. All cash received by PG&E pursuant tothis Section 8.6 shall be treated consistently with section 11.7.3 of CPUC DecisionNo. 97-11-074, subject to any subsequent CPUC ratemaking determination.

 

8.7                                 Implementing Agreements.

 

8.7.1                        CC8 Escrow Agreement. Prior to the effective date of the DeltaPlan, Delta, PG&E and the escrow agent thereunder shall execute the CC8Escrow Agreement.

 

8.7.2                        Wraparound Agreements. As of the Execution Date, Delta andPG&E shall have executed, or shall execute, the Wraparound Agreements.

 

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8.7.3                        CC8 Transfer Agreement. PG&E, Delta and Mirant SpecialProcurement, Inc. shall use good faith, commercially reasonable efforts tonegotiate and execute the CC8 Asset Transfer Agreement (including allagreements and documents included therein) on or before April 30, 2005. Subjectto the terms and conditions of the CC8 Asset Transfer Agreement, as they may bemodified pursuant to Section 1.1.32, and if the conditions precedentthereunder, as they may be modified pursuant to Section 1.1.32, to a transferof the CC8 Assets are satisfied, Delta and Mirant Special Procurement, Inc.shall transfer and assign the CC8 Assets to PG&E or its designee, andPG&E or its designee shall receive and take assignment of the CC8 Assets,in each case in accordance with the terms and conditions to be specified in theCC8 Asset Transfer Agreement, as they may be modified pursuant to Section1.1.32; provided that the transfer of the CC8 Assets to any such designee ofPG&E shall be subject to the approval of the CPUC and the CPUC’s failure toapprove the transfer of the CC8 Assets to such designee shall not be deemed tobe a material change to the terms of the CC8 Asset Transfer Agreement forpurposes of Section 1.1.32. The “CC8 Assets” shall include certainpermits, facilities, contracts, equipment and real property owned or held byDelta, Mirant Special Procurement, Inc., or other subsidiaries of MirantCorporation in connection with Delta’s planned development and construction ofthe nominally rated 530 megawatt Contra Costa Unit 8 Power Project (“CC8Project”). As more specifically identified in the CC8 Asset TransferAgreement, the CC8 Assets will consist of (i) two natural gas-fired combustionturbines and generators, one steam turbine and generator, associated heatrecovery steam generator equipment, main step-up and auxiliary transformers,steam turbine condenser, certain permit and engineering work performed to date,the existing engineering, procurement and construction contract, the existinglong-term service agreement, and queue assignments for electric and natural gastransmission interconnections, and (ii) real property rights or interests thatare sufficient for the reliable and economic construction, ownership, operationand maintenance of the CC8 Project, as agreed by Delta, Mirant SpecialProcurement, Inc., and PG&E in the CC8 Asset Transfer Agreement.Notwithstanding anything to the contrary herein, the CC8 Assets shall notinclude (a) the existing generating units at the existing Pittsburg Power Plantor the existing generating units at the existing Contra Costa Power Plant, (b)other property and assets specified in the CC8 Asset Transfer Agreement,consistent with this Agreement, or (c) land that will be reserved for Delta andnot transferred or leased, as specified in the CC8 Asset Transfer Agreement.

 

8.7.4                        Delta Plant Option Agreement. PG&E and Delta shall use good faith,commercially reasonable efforts to negotiate and execute the Delta Plant OptionAgreement on or before April 30, 2005. The Delta Plant Option Agreement and therespective obligations of Delta and PG&E thereunder shall be subject to thefollowing conditions and requirements.

 

8.7.4.1               If the Delta Plant Option Agreement is notexecuted by April 30, 2005, no CC8 Triggering Event shall be deemed to haveoccurred and neither Delta nor PG&E shall have any further liability orobligation with respect to Section 8.7.4 or the Delta Plant Option Agreement.

 

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8.7.4.2               If the Delta Plant Option Agreement isexecuted by April 30, 2005, neither the Delta Plant Option Agreement nor therespective obligations of Delta and PG&E thereunder shall be effectiveuntil the first day on which all of the following approvals have been issued orotherwise obtained and are in effect with respect thereto:

 

(i)                                     if approval from the Mirant Bankruptcy Courtis required that is separate from the Mirant Bankruptcy Court Approval that isobtained as set forth in Section 2.4, the Mirant Bankruptcy Court has issued anunstayed order authorizing Delta to perform its obligations under the DeltaPlant Option Agreement on the terms and conditions specified therein withoutmaterial change, modification or condition thereto, or with one or morematerial changes, modifications or conditions to such approval that areacceptable in its or their sole discretion to the party or parties adverselyaffected by any such change, modification or condition;

 

(ii)                                  if PG&E Bankruptcy Court approval isrequired, the PG&E Bankruptcy Court has issued an unstayed orderauthorizing PG&E to perform its obligations under the Delta Plant OptionAgreement on the terms and conditions specified therein without materialchange, modification or condition thereto, or with one or more materialchanges, modifications or conditions to such approval that are acceptable in itsor their sole discretion to the party or parties adversely affected by any suchchange, modification or condition;

 

(iii)                               if FERC approval is required, FERC has issuedan unstayed order authorizing Delta and PG&E to perform their respectiveobligations under the Delta Plant Option Agreement on the terms and conditionsspecified therein without material change, modification or condition thereto,or with one or more material changes, modifications or conditions to suchapproval that are acceptable in its or their sole discretion to the party orparties adversely affected by any such change, modification or condition; and

 

(iv)                              the CPUC has issued an unstayed decision onPG&E’s separate application (“Delta Plant Option Application”) authorizingPG&E to perform its obligations under the Delta Plant Option Agreement onthe terms and conditions specified therein and in the Delta Plant OptionApplication without material change, modification or condition thereto, or withone or more material changes, modifications or conditions to such approval thatare acceptable in its or their sole discretion to the party or parties to theDelta Plant Option Agreement adversely affected by any such change,modification or condition. PG&E and Delta shall each advise the CPUC in commentsfiled on the proposed decision on the Delta Plant Option Application (the “ProposedCPUC Delta Plant Option Decision”), or, to the extent any change,modification or condition appears in the CPUC’s decision on the Delta PlantOption Application (the “Original CPUC Delta Plant Option Decision”) butnot in the Proposed CPUC Delta Plant Option Decision, in a petition formodification of the Original CPUC Delta Plant

 

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OptionDecision that is filed within thirty (30) days after its issuance (“DeltaPlant Option Petition for Modification”), of any change, modification orcondition to such approval contained in the Proposed CPUC Delta Plant OptionDecision or in the Original CPUC Delta Plant Option Decision that PG&E orDelta considers to be material. Any such change, modification or conditioncontained in the Proposed CPUC Delta Plant Option Decision or in the OriginalCPUC Delta Plant Option Decision which is not so identified to the CPUC asmaterial shall be deemed not to be material. Consent or lack of consent tomaterial changes, modifications or conditions, if any, shall be communicated tothe parties to the Delta Plant Option Agreement and the CPUC by the later of(a) ten (10) Business Days after the date of issuance of the Original CPUCDelta Plant Option Decision, or (b) ten (10) Business Days after the issuanceof the CPUC’s decision on any Delta Plant Option Petition for Modification. Thefailure of an affected party to provide notice in accordance with the foregoingsentence shall be deemed to constitute acceptance by such party of the materialchange or condition.

 

Inaddition, if any of the approvals listed in subparts (i)-(iii) above includes amaterial change, modification or condition that adversely affects any party tothe Delta Plant Option Agreement, each party so affected shall communicate itsconsent or lack of consent to such change or condition to the other parties tothe Delta Plant Option Agreement within ten (10) Business days after theeffective date of the approval. The failure of an affected party to providenotice in accordance with the foregoing sentence shall be deemed to constituteacceptance by such party of the material change or condition.

 

Notwithstandinganything to the contrary herein, neither the Delta Plant Option Agreement northe respective obligations of Delta or PG&E thereunder shall becomeeffective if one or more of the approving authorities listed in subparts(i)-(iv) above condition its or their approvals on changes, modifications orconditions that are inconsistent with the terms and conditions of the approvalsgranted by one or more other approving authorities, but shall occur at suchtime, if any, when, by further action of the approving authorities, any such inconsistenciesare eliminated.

 

8.7.4.3               If (i) any of the approvals required underSection 8.7.4.2 are not granted in accordance with the terms of Section8.7.4.2, or (ii) a CC8 Triggering Event occurs, then the Delta Plant OptionAgreement shall terminate automatically, and neither Delta nor PG&E shallhave any further liability or obligation under Section 8.7.4 or with respect tothe Delta Plant Option Agreement.

 

8.8                                 CC8 Triggering Events. A “CC8 Triggering Event” shall bedeemed to have occurred upon the occurrence of any of the events specified inSections 8.8.1 through 8.8.7 below, provided that the occurrence of the CC8Triggering Event specified in Section 8.8.1 or the occurrence of the CC8Triggering Event specified in Section 8.8.2 each additionally shall be referredto herein as a “CC8 Execution Triggering Event”:

 

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8.8.1                        Delta, Mirant Special Procurement, Inc.,PG&E, or any Mirant Party or any affiliate of a Mirant Party that is anecessary party to the CC8 Asset Transfer Agreement in order to effectuate thetransfer of the CC8 Assets has not executed the CC8 Asset Transfer Agreementfor any reason regardless of fault on the part of any party by April 30,2005 (provided that this date may be extended by the mutual written agreement ofDelta, Mirant Special Procurement, Inc. and PG&E);

 

8.8.2                        the CC8 Asset Transfer Agreement has beenexecuted by April 30, 2005 (or such later date as may be agreed topursuant to Section 8.8.1) by Delta, Mirant Special Procurement, Inc.,PG&E, and each Mirant Party and each affiliate of a Mirant Party that is anecessary party to the CC8 Asset Transfer Agreement in order to effectuate thetransfer of the CC8 Assets, and the Settlement Effective Date has occurred, butsome additional approval of the Mirant Bankruptcy Court is required to make theCC8 Asset Transfer Agreement binding and effective as to Delta, Mirant SpecialProcurement, Inc. or any such Mirant Party or affiliate of a Mirant Party inaccordance with the terms of the CC8 Asset Transfer Agreement, as they may bemodified pursuant to Section 1.1.32, and the Mirant Bankruptcy Court hasfailed or refused to provide such additional approval by the confirmation dateof the Delta Plan (“Unsatisfied Bankruptcy Condition”);

 

8.8.3                        PG&E has given Delta notice by January 31,2006 that it is not satisfied, for any reason in its sole discretion, with thecondition of the equipment, facilities, property or contracts to be assumed aspart of the CC8 Assets under the CC8 Asset Transfer Agreement, provided that ifPG&E fails to give Mirant such notice by January 31, 2006, PG&E’ssatisfaction or dissatisfaction with the condition of the equipment,facilities, property or contracts to be assumed as part of the CC8 Assets shallnot be an excuse for any failure to close on the transfer of the CC8 Assets,provided that Mirant has met its obligations under the CC8 Asset TransferAgreement;

 

8.8.4                        the CPUC has issued an order that has becomefinal either (i) rejecting the CC8 Asset Transfer Agreement or the transactionscontemplated therein in whole or in material part, or (ii) approving the CC8Asset Transfer Agreement and the transactions contemplated therein onconditions that do not satisfy the requirements of Section 1.1.32;

 

8.8.5                        the CPUC has not approved the CC8 AssetTransfer Agreement and the transactions contemplated therein on terms and conditionsthat satisfy the requirements of Section 1.1.32 by December 31, 2006;

 

8.8.6                        the CC8 Closing Date has not occurred for anyreason, regardless of fault on the part of any party, by June 30, 2008; or

 

8.8.7                        such other events as may be specified in the CC8Asset Transfer Agreement.

 

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8.9                                 CC8 Alternative Consideration. PG&E’s right to receive distribution ofthe CC8 Claim in accordance with this Section 8.9 and the CC8 EscrowAgreement shall be referred to herein as the “CC8 Alternative Consideration.”

 

8.9.1                        PG&E shall receive an allowed,prepetition, non-priority general unsecured claim (the “CC8 Claim”)against Delta in its Bankruptcy Proceedings in an amount that will result in atotal aggregate distribution to PG&E of either:

 

(i)                                     $70,000,000 in cash and/or securities underthe Delta Plan if (a) PG&E, Delta, Mirant Special Procurement, Inc., andeach Mirant Party and each affiliate of a Mirant Party that is a necessaryparty to the CC8 Asset Transfer Agreement in order to effectuate the transferof the CC8 Assets have executed the CC8 Asset Transfer Agreement by April 30,2005 (or such later date as may be agreed to pursuant to Section 8.8.1),and (b) no Unsatisfied Bankruptcy Condition exists or could exist with thepassage of time, such that a CC8 Execution Triggering Event no longer couldoccur; or

 

(ii)                                  $85,000,000 in cash and/or securities underthe Delta Plan if (a) a CC8 Execution Triggering Event has occurred, (b)PG&E, Delta, Mirant Special Procurement, Inc., and each Mirant Party andeach affiliate of a Mirant Party that is a necessary party to the CC8 AssetTransfer Agreement in order to effectuate the transfer of the CC8 Assets havenot yet executed the CC8 Asset Transfer Agreement and April 30, 2005 (orsuch later date as may be agreed to pursuant to Section 8.8.1) has not yetpassed, or (c) an Unsatisfied Bankruptcy Condition exists or could exist withthe passage of time, such that a CC8 Execution Triggering Event still couldoccur,

 

whichCC8 Claim shall be payable to PG&E in accordance with the provisions ofthis Agreement and the CC8 Escrow Agreement.

 

8.9.2                        Upon the effective date of the Delta Plan,and in accordance with the plan of distribution under the Delta Plan, Deltashall promptly deliver to PG&E cash and/or securities that are inproportions and have characteristics at least equal to the most favorablecombination of cash and/or securities that are delivered under the relevant MirantPlan to any holder of the MAG senior notes due in 2006 (“CC8 Claim Plan Securities”)(provided, however, that if such notes are reinstated, Delta shall promptly deliverto PG&E cash and/or securities that are in proportions and havecharacteristics at least equal to the most favorable combination of cash and/orsecurities that arc delivered to any holder of the highest quality MAG seniornotes not reinstated) having an aggregate then-current value of $70,000,000 ifthe provisions of subpart (i) of Section 8.9.1 are applicable, or havingan aggregate then-current value of $85,000,000 if the provisions of subpart(ii) of Section 8.9.1 are applicable, which value shall be determined ineither case using the Mirant Bankruptcy Court’s valuation of the CC8 Claim PlanSecurities in its confirmation order for the Delta Plan or other applicableMirant Plan. PG&E shall deposit all cash received from Delta in respect ofthe CC8 Claim (if any) into the CC8 Escrow within two (2) Business Days afterPG&E’s receipt of such cash. As soon as practicable after its receipt ofthe CC8 Claim Plan Securities from Delta, and subject to any limitations thatmay be specified in the Mirant Bankruptcy Court’s confirmation order for theDelta Plan or other applicable Mirant Plan, PG&E shall sell or cause thesale

 

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ofthe CC8 Claim Plan Securities for cash and shall deposit all proceeds from suchsale, net of third-party transaction costs and net of any income taxes that maybe due on any gain on the sale of the CC8 Claim Plan Securities (it beingunderstood that any such gain will be determined by any difference between thevalue of the CC8 Claim Plan Securities when received by PG&E and the valuewhen sold by PG&E, and that the netting of income taxes for deposit into theCC8 Escrow shall be without prejudice to subsequent CPUC retail ratemakingdeterminations of tax treatment), into the CC8 Escrow in accordance with theprovisions of the CC8 Escrow Agreement. PG&E shall use commerciallyreasonable efforts to liquidate the CC8 Claim Plan Securities in a manner thatwill maximize their liquidated value and minimize the effect on the marketvalue of the CC8 Claim Plan Securities.

 

8.9.3                        To the extent that the aggregate value of thecash proceeds, net of third party transaction costs and net of any income taxesthat may be due on any gain on the sale of the CC8 Claim Plan Securities (itbeing understood that any such gain will be determined by any differencebetween the value of the CC8 Claim Plan Securities when received by PG&Eand the value when sold by PG&E, and that the netting of income taxes fordeposit into the CC8 Escrow shall be without prejudice to subsequent CPUCretail ratemaking determinations of tax treatment) from PG&E’s sale of theCC8 Claim Plan Securities, as determined on the date on which PG&E has soldall of the CC8 Claim Plan Securities, plus the cash received by PG&E inpayment of the CC8 Claim (if any), is less than the value of the CC8 Claim, asdetermined according to subpart (i) or subpart (ii) of Section 8.9.1, asapplicable, such shortfall (“CC8 Claim Shortfall”) shall be recovered byPG&E in the manner specified below. PG&E shall notify Delta in writingof the amount of the CC8 Claim Shortfall, and shall simultaneously provideDelta with documentation that demonstrates the value of the cash proceeds, netof third party transaction costs and net of any income taxes that may be due onany gain on the sale of the CC8 Claim Plan Securities (it being understood thatany such gain will be determined by any difference between the value of the CC8Claim Plan Securities when received by PG&E and the value when sold byPG&E, and that the netting of income taxes for deposit into the CC8 Escrowshall be without prejudice to subsequent CPUC retail ratemaking determinationsof tax treatment), realized by PG&E from the sale of the CC8 Claim PlanSecurities (“CC8 Claim Shortfall Notice”). After its receipt of the CC8Claim Shortfall Notice, Delta shall provide for recovery of the CC8 ClaimShortfall by either (i) depositing additional cash in the amount of the CC8Claim Shortfall into the CC8 Escrow, to the extent that Delta determines suchadditional cash to be available for such deposit, or (ii) crediting theoutstanding CC8 Claim Shortfall against any amounts otherwise owing in eachmonth following Delta’s receipt of the CC8 Claim Shortfall Notice under theWraparound Agreement in effect at the time an installment is credited, as suchamounts are determined after the credits for the RMR Claim Shortfall, if any,and the SO2 Claim Shortfall, if any, are applied, with such right of offset tobe secured by Delta’s and Potrero’s rights to receive payments under theWraparound Agreements. After PG&E’s receipt of an invoice from Deltashowing the amount of any such credit, PG&E shall deposit into the CC8Escrow cash equivalent to the full amount of such credit in lieu of making thecorresponding payment in such amount and on the date such amount would havebeen due under the applicable Wraparound Agreement. Delta shall be entitled to acceleratethe payment of the CC8 Claim Shortfall at any time in its sole

 

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discretionby depositing cash into the CC8 Escrow in an amount equal to whatever amountshave not been recovered through Delta’s prior payment of cash, or through thecrediting mechanism described in the preceding sentence, provided that if theCC8 Claim Shortfall is not recovered in its entirety through such creditingmechanism within three (3) months after Delta’s receipt of the CC8 ClaimShortfall Notice, PG&E shall notify Delta and MAG in writing of theoutstanding amount of the CC8 Claim Shortfall and (a) MAG shall make a cashpayment to PG&E within two (2) Business Days following MAG’s receipt ofsuch notice in the full amount of the remaining CC8 Claim Shortfall plus anyinterest due under the next sentence, and (b) PG&E shall deposit the fullamount of such cash payment into the CC8 Escrow within two (2) Business Daysafter PG&E receipt of such cash payment from MAG. Delta or MAG, asapplicable, shall pay to PG&E interest on the outstanding amount of the CC8Claim Shortfall that remains unpaid thirty (30) days after Delta’s receipt ofthe CC8 Claim Shortfall Notice, with such interest to be calculated at the FERCinterest rate.

 

8.9.4                        All cash deposited into the CC8 Escrowpursuant to this Section 8.9 shall remain in the CC8 Escrow until suchtime as it is subject to disbursement to PG&E or Delta, as the case may be,in accordance with this Agreement and the CC8 Escrow Agreement.

 

8.10                           Occurrence of a CC8 Triggering Event. Upon the occurrence of any CC8 TriggeringEvent: (i) except as to those CC8 Triggering Events that only a specified partyis entitled to declare upon the giving of notice to the other party (as suchCC8 Triggering Events are designated in Section 8.8 or in the CC8 AssetTransfer Agreement), Delta and Mirant Special Procurement, Inc. on the onehand, and PG&E on the other hand, may give notice to the other party or partiesthat a CC8 Triggering Event has occurred; (ii) to the extent that they havebeen executed, the CC8 Asset Transfer Agreement, the Delta Plant OptionAgreement, and all transactions contemplated thereby shall be terminated andabandoned, without further action by Delta, Mirant Special Procurement, Inc. orPG&E, and no party shall have any further obligations or liabilities withrespect thereto; (iii) the obligations of Delta, Mirant Special Procurement,Inc. and any other subsidiary of Mirant Corporation under the CC8 AssetTransfer Agreement shall be replaced in their entirety with Delta’s obligationto transfer and pay to PG&E the CC8 Alternate Consideration; (iv) Deltashall be obligated to pay, transfer, convey and deliver to PG&E the CC8Alternative Consideration in the manner and subject to the procedures, termsand conditions specified herein and in the CC8 Escrow Agreement; and (v)PG&E shall receive, acquire and accept from Delta the CC8 Alternative Considerationin accordance with the terms and conditions of this Agreement and the CC8 EscrowAgreement. All cash received by PG&E pursuant to this Section 8.10shall be credited by PG&E to the RSBA contemporaneously with its receipt byPG&E and shall benefit PG&E’s ratepayers through a prospective reductionin reliability must-run costs.

 

8.11                           Acknowledgement. Each of PG&E and the Mirant Partiesacknowledge and agree that the payment and receipt of the CC8 AlternativeConsideration: (i) fully satisfies and discharges the respective rights andobligations they would otherwise have under the CC8 Asset Transfer Agreement;(ii) provides full and adequate consideration

 

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thatis equivalent for all purposes of this Agreement to the transactionscontemplated by the CC8 Asset Transfer Agreement; and (iii) satisfies allclaims, including any portions thereof, that were intended to be satisfied bythe transactions contemplated in the CC8 Asset Transfer Agreement. The paymentof the CC8 Alternative Consideration, and the termination of the CC8 Asset TransferAgreement and the Delta Plant Option Agreement shall have no consequence orimpact on this Agreement, its effectiveness, or the Parties’ respective rightsand obligations hereunder. For the avoidance of doubt, the Parties agree that(x) the consideration received by the Parties under this Agreement is adequateand reasonable even if the Delta Plan Option Agreement is not executed or neverbecomes effective, or if the options granted thereunder are not exercised, and(y) neither the failure of the applicable Parties to execute the Delta PlanOption Agreement, nor termination of the Delta Plan Option Agreement after itis executed, in each case for any reason, will result in any failure ofconsideration for purposes of the Settlement or this Agreement.

 

8.12                           Voting Rights. If the Settlement is not approved as partof the Bankruptcy Rule 9019 Motion or a Rule 9019 Supplemental Solution filedin accordance with Section 3.2, or if a Bankruptcy Rule 9019 Motion or aRule 9019 Supplemental Solution has been approved but the Settlement EffectiveDate has not occurred, and provided that a Termination Event has not occurredand does not occur, then the Parties agree that PG&E shall have (i) anallowed unsecured claim of $43,000,000, (ii) an allowed unsecured claim of$20,000,000, and (iii) an allowed unsecured claim of $70,000,000 if theprovisions of subpart (i) of Section 8.9.1 are then applicable, or$85,000,000 if the provisions of subpart (ii) of Section 8.9.1 are thenapplicable, each against Delta solely for voting and feasibility purposes (andPG&E shall have no other allowed claim for such purposes). So long as aTermination Event has not occurred, PG&E shall make no other voting orfeasibility objections as to any Mirant Plan with respect to the claims releasedor withdrawn in this Article VIII, including with respect to the duplicateclaims of the CAISO or the PX, provided that this Section 8.12 shall notaffect PG&E’s rights with respect to claims not released or withdrawn underthis Article VIII.

 

8.13                           Retention of Certain Claims. Notwithstanding anything to the contrary herein,the Mirant Parties shall retain all claims, defenses and rights to appeal with respectto any entity or party that is not a Settling Participant and with respect toall matters not covered by the releases and waivers set forth in this Article VIIIand Article IX.

 

8.14                           Effect on Other Parties. Except as provided in Section 8.4,nothing in this Article VIII shall create any rights, obligations orduties as to Parties other than PG&E, the CPUC and the Mirant Parties,provided that this Section 8.14 shall not diminish, expand, or otherwisehave any effect on the releases that are provided in Article IX*.*

 

**ARTICLE IXRELEASES AND WAIVERS**

 

In exchange for the consideration specified herein, on the SettlementEffective Date, the Parties shall effectuate the following.

 

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9.1                                 Applicability. The releases set forth in this Article IXshall run to, benefit and be enforceable by each Party and each AdditionalSettling Participant. In addition, with respect to each Party, each releasegiven in this Article IX to such Party shall extend to, benefit and beenforceable by the Related Parties of such Party, regardless of whether suchrelease, by its express terms, refers to such Related Parties. Notwithstandingthe foregoing, Vastar Resources, Inc. and any present or former subsidiary ofVastar Resources, Inc. that directly or indirectly held an ownership interestin Southern Company Energy Marketing L.P. (the predecessor to MAEM) is aRelated Party as to MAEM, but only with respect to claims arising out of theacts or omissions of MAEM or its present or former managers (to the extent thatsuch managers are individuals), directors, officers, employees, or agentsrelating to periods prior to and including September 2000. The release anddischarge of individuals effectuated by this Section 9.1 is not intendedto expand the number or identity of corporate or organizational entities releasedor discharged by the releases set forth in this Article IX, except asspecified above. No persons or entities that are not Parties, Related Partiesor Settling Participants shall be entitled to the benefits of, or entitled toenforce, the releases set forth in this Article IX.

 

9.2                                 Effectiveness. The releases, waivers, and undertakings inthis Article IX shall become effective upon the Settlement Effective Date.

 

9.3                                 Proceedings and Issues Settled as BetweenMirant Parties and the Settling Participants.

 

9.3.1                        In return for the consideration specifiedelsewhere in this Agreement, all claims of any Settling Participant against theMirant Parties for damages, refunds, disgorgement of profits, revocation ofmarket-based rate authority, or other monetary or non-monetary remedies, whetherarising in law or equity, in the FERC Refund Proceeding, the FERC RMRProceedings, the FERC Long-Term Contract Proceedings, the FERC MBR Proceedings,the FERC Gaming Proceeding, FERC Docket No. EL01-10, *Lockyer**v*. *FERC,*the *Lockyerv. FERC*Remand, and the litigation matters referenced in this Article IX,or as they otherwise relate to sales by the Mirant Parties in the CAISO and PXmarkets, sales by Mirant to CERS, or bilateral contracts with any CaliforniaParty, in each case during the Settlement Period (and, (i) with respect to theFERC RMR Proceedings, during all periods prior to and including September 30,2004, and (ii) with respect to each of the other proceedings identified above,for such additional periods as are, as of the Execution Date, covered by theallegations made in such proceedings) shall be deemed settled and released,provided that none of the proceedings identified above in this Section 9.3.1shall be deemed settled by this Agreement as to Non-Settling Participants.Nothing in this Section 9.3.1 shall restrict in any other way the abilityof (a) the Settling Participants to prosecute and pursue the aforementionedproceedings as against parties other than the Mirant Parties and their RelatedParties, or (b) the Mirant Parties to litigate and assert defenses in theaforementioned proceedings as against parties other than the Parties or theAdditional Settling Participants. For the avoidance of doubt, the Settlementand this Agreement are intended to resolve all claims of any SettlingParticipant against the Mirant Parties for damages, refunds, disgorgement ofprofits, revocation of market-based rate authority, or other monetary ornon-monetary

 

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remedies,whether arising in law or equity, that have been asserted or alleged in theproceedings listed in Exhibit D, and all such claims are released.

 

9.3.2                        Each Settling Participant releases, acquitsand forever discharges the Mirant Parties from any and all claims, obligations,losses, causes of action, allegations, demands and liabilities, for refunds,forfeiture or disgorgement of profits, payments, penalties, credits, or othermonetary or non-monetary remedies, relief, compensation or consideration of anykind, asserted in or arising from the proofs of claims and claims filed orotherwise asserted in the Bankruptcy Proceedings that are required to bewithdrawn pursuant to Article IV. Each Mirant Party releases, acquits andforever discharges the Settling Participants from any and all claims,obligations, losses, causes of action, allegations, demands and liabilities,for refunds, forfeiture or disgorgement of profits, payments, penalties,credits, or other monetary or non-monetary remedies, relief, compensation orconsideration of any kind, asserted in or arising from (i) the adversaryproceedings and contested matters identified in Exhibit D, and (ii) the claimsthat are required to be withdrawn pursuant to Article IV; provided,however, that the foregoing release by the Mirant Parties shall not release orotherwise adversely affect any of the claims, rights or defenses asserted bythe Mirant Parties therein against or with respect to any person or entity thatis not a Settling Participant.

 

9.3.3                        The Mirant Parties and the Settling Participantswill not contest the amount of refund liability or offsets attributable to theMirant Parties in the FERC Refund Proceeding, except as may be specificallyprovided in this Agreement.

 

9.3.4                        The Settling Participants will not dispute,challenge, seek rehearing, or pursue appeal of the outcome of the FERCInvestigations or FERC’s investigations in Docket No. EL01-10, as they relateto the Mirant Parties, and will, within five (5) Business Days after theSettlement Effective Date, withdraw their challenges and not submit any newchallenges to the outcome of the FERC Investigations or FERC’s investigationsin Docket No. EL01-10 as they relate to the Mirant Parties. Without limitingthe foregoing, the California Parties shall withdraw with prejudice as to theMirant Parties their petition for rehearing of their motion for clarificationand request for additional procedures in FERC’s Anomalous Bidding Investigationin *San Diego Gas & Elec. Co.**v.**Sellers, et al.,*DocketNos. EL00-95-000 *et al.,*(Aug.18, 2004).

 

9.3.5                        The Settling Participants will not dispute,challenge, object to, seek rehearing of, or pursue appeal of the settlementbetween FERC trial staff and the Mirant Parties in the FERC Gaming Proceeding,and the Settling Participants will, within five (5) Business Days after theSettlement Effective Date, withdraw any claim that the amount of thatsettlement should have been increased based on the treatment of replacementreserves, an issue that was addressed in comments on such settlement in the FERCGaming Proceeding. The amounts that the Mirant Parties agreed to pay as part ofthe settlement of the FERC Gaming Proceeding between certain Mirant Parties andFERC trial staff shall not be part of the Aggregate Allowed Claim, as specifiedin Section 5.1.2.

 

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9.3.6                        The Mirant Parties forgo any claim forrefunds resulting from any mitigation of CERS’ sales of electricity into theCAISO or the PX markets, as well as surcharges associated with such sales, thatmay be required pursuant to FERC’s May 12, 2004 Order on Requests for Rehearingand Clarification in Docket Nos. EL00-95-087 and EL00-98-074, or its orderdated November 23, 2004 in the same dockets, or subsequent orders. Toimplement the terms of this Section 9.3.6, the Mirant Parties herebyassign, sell, transfer, convey and deliver to CERS, effective as of theSettlement Effective Date, all of their right, title and interest in and to anysuch refunds and surcharges, whether now existing or hereafter arising, freeand clear of all liens, encumbrances and interests of any kind whatsoever inaccordance with Section 363(f) of the Bankruptcy Code, as automaticallyperfected by order of the Mirant Bankruptcy Court.

 

9.3.7                        The Mirant Parties shall, within five (5)Business Days after the Settlement Effective Date, withdraw all outstandingchallenges to the orders in the FERC Refund Proceeding and the FERC GamingProceeding, provided that (i) the Mirant Parties and other Debtors may continueto challenge any matter involving prospective mitigation for periods after theSettlement Period, and may pursue any claims or defenses or assert any positionwith respect to Non-Settling Participants or other Market Participants orentities that are not bound by this Agreement, and (ii) the Settling Participantsmay, subject to the releases contained in this Agreement, continue to assert theirrespective positions on the issue of prospective mitigation for periods afterthe Settlement Period, and may continue to assert any position on refunds asrelated to suppliers other than the Mirant Parties and their Related Parties.

 

9.3.8                        Each Settling Participant releases, acquitsand forever discharges the Mirant Parties from any and all claims for refunds,forfeiture of profits, payments, penalties, credits, or other monetary ornon-monetary remedies, relief, penalties, compensation or consideration of anykind, based on, or arising out of, in whole or in part, the RMR Agreements andall transactions conducted thereunder prior to and including September 30,2004, including all claims that were or could have been asserted in the FERCRMR Proceedings, provided that any rates determined in the 2005 RMR FERCSettlement to apply on a going forward basis shall not be released by this Agreement.

 

9.3.9                        Each Settling Participant releases, acquitsand forever discharges the Mirant Parties, and each Mirant Party releases,acquits and forever discharges the Settling Participants, from any and allclaims for refunds, forfeiture of profits, payments, penalties, credits, orother monetary or non-monetary remedies, relief, penalties, compensation orconsideration of any kind, based on, or arising out of the Mirant-CERS Agreement.Nothing in this section shall restrict in any way the ability of the CaliforniaParties to prosecute the FERC Long-Term Contract Proceeding as to parties otherthan the Mirant Parties and their Related Parties.

 

9.3.10                  This Settlement is not settling any claims ofNon-Settling Participants, or of other Market Participants and entities who arenot Parties or Additional Settling Participants. The Mirant Parties and otherDebtors shall not be deemed to have

 

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waivedtheir right or ability to assert any and all claims and defenses they may haveagainst Non-Settling Participants, and the Mirant Parties and other Debtorsshall not be deemed to have waived their right or ability to make any claims,defenses, arguments or take any positions in any proceedings, including theFERC Proceedings, the FERC Investigations, and any other proceeding beforeFERC, and to resist claims by or pursue claims against such Non-SettlingParticipants or other entities who are not Parties or Additional SettlingParticipants. Nothing in the Settlement or this Agreement shall preclude or inany way limit the Mirant Parties’ and other Debtors’ defenses against anyclaims by any parties that the Mirant Parties owe obligations to the CAISO, thePX or any Market Participant or any other entity who is not a Party or anAdditional Settling Participant, outside of the obligations arising under thisAgreement, with respect to the California and western wholesale electricitymarkets during the Settlement Period.

 

9.3.11                  Nothing herein shall affect the rights of theMirant Parties to assert any and all defenses to claims of FERC, the SWP, theCAISO and the PX to the extent that such claims are not released and withdrawnwith prejudice as a result of this Agreement.

 

9.3.12                  The FERC Settlement Order shall constituteconfirmation that the Mirant Parties’ obligations to make any payment to anyentity under the FERC Proceedings, the FERC Investigations, or under otherproceedings before FERC with respect to any claim released under the terms ofthis Article IX, are hereby settled in their entirety, as provided in thisAgreement.

 

9.3.13                  The FERC Settlement Order shall constituteauthorization for the allocation of any payments provided for in thisAgreement, in the manner specified herein, to the California Utilities and CERSin their respective capacities as Scheduling Coordinators of record in theCAISO and/or as participants in the PX.

 

9.3.14                  No Party may seek rehearing of, or appeal,the FERC Settlement Order.

 

9.4                                 Release of Receivables Disputes. Effective upon the Settlement Effective Date,the Mirant Parties hereby waive and release any disputes regarding existingCAISO and PX settlements for the Settlement Period. As assignee of the MAEMReceivables, the California Parties may pursue, at their expense, any disputesregarding any future CAISO or PX settlement or invoicing adjustments affectingthe consideration that they receive under this Agreement.

 

9.5                                 FERC, Federal Power Act and Natural Gas ActReleases. Subject to Section 9.11,the Mirant Parties on the one hand, and the Settling Participants on the otherhand, hereby, as of the Settlement Effective Date, mutually release anddischarge one another from any and all past, existing and future claims,obligations, losses, causes of action, allegations, demands and liabilitiesarising at FERC and/or under the Federal Power Act or the Natural Gas Act,whether known or unknown, whether asserted or unasserted, for refunds,forfeiture or disgorgement of profits, payments, penalties, or

 

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othermonetary or non-monetary remedies, to the extent that any of the foregoingconcern, pertain to, or arise from allegations that:

 

9.5.1                        Any of the Mirant Parties or the SettlingParticipants directly or indirectly charged or collected unjust, unreasonableor otherwise unlawful rates, prices, terms or conditions for electric energy,ancillary services, transmission congestion or natural gas in the westernelectricity markets or in western natural gas markets during the SettlementPeriod;

 

9.5.2                        Any of the Mirant Parties or the SettlingParticipants directly or indirectly manipulated the western electricity orwestern natural gas markets in any fashion (including, but not limited to,claims of economic or physical withholding, gaming, forms of marketmanipulation discussed in the Final FERC Staff Report in Docket PA02-2, themisreporting of information to trade publications that publish price indices,or any other forms of market manipulation), or otherwise engaged in any unjust orillegal trading practices, or otherwise violated any applicable tariff,regulation, law, rule or order relating to the western electricity or westernnatural gas markets during the Settlement Period; or

 

9.5.3                        Any of the California Parties are liable forpayments to the Mirant Parties for congestion charges or for sales of energy orancillary services during the Settlement Period.

 

9.5.4                        The releases set forth in Sections 9.5.1through 9.5.3 do not affect any of the Parties’ rights and obligations in FERCproceedings pertaining to the Mirant Parties’ market-based rate authorityinsofar as and to the extent that those proceedings may relate to transactionsundertaken, any Mirant Party’s behavior, or requests for relief, during orconcerning a period outside the Settlement Period.

 

9.6                                 Civil Claims Releases. Subject to Section 9.11, the MirantParties on the one hand, and the Settling Participants on the other hand,mutually release and discharge one another from any and all past, existing andfuture claims for civil damages and/or equitable relief, whether known orunknown, whether asserted or unasserted, concerning, pertaining to, or arisingfrom allegations that:

 

9.6.1                        Any of the Mirant Parties or the SettlingParticipants directly or indirectly charged or collected unjust, unreasonableor otherwise unlawful rates, prices, terms or conditions for electric power,natural gas, ancillary services, or transmission congestion in the westernelectricity markets or in western natural gas markets during the SettlementPeriod;

 

9.6.2                        During the Settlement Period, any of theMirant Parties or the Settling Participants directly or indirectly manipulatedthe western electricity or western natural gas markets or prices paid therein,including any published or unpublished price indices, in any fashion(including, but not limited to, claims of economic or physical withholding,gaming, misreporting of prices, forms of market manipulation discussed in theFinal FERC Staff Report in Docket PA02-2, or any other forms of market

 

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manipulation),or otherwise engaged in any unjust or illegal trading practices, or otherwiseviolated any applicable tariff, regulation, law, rule or order relating to thewestern electricity or western natural gas markets during the SettlementPeriod;

 

9.6.3                        Any of the Mirant Parties or the SettlingParticipants was unjustly enriched by any conduct giving rise to the claimsreleased in this Agreement;

 

9.6.4                        Any of the California Parties are liable forpayments to the Mirant Parties for congestion charges or for sales of energy orancillary services during the Settlement Period;

 

9.6.5                        Any of the Mirant Parties or the SettlingParticipants during the Settlement Period engaged in illegal acquisitionsand/or holdings and/or control of assets, benefits, services or rights relatedto such assets, under section 7 of the Clayton Act, 15 U.S.C. § 18;

 

9.6.6                        Any of the Mirant Parties or the SettlingParticipants engaged in conduct that forms the basis for the claims alleged inthe proceedings listed on Exhibit D during any period alleged in such claims;and

 

9.6.7                        Any of the Mirant Parties engaged in conductthat forms the basis for the claims alleged by the California Attorney Generalin the following proceedings, in each case with respect to all time periodsalleged therein: (i) the proceedings that were originally filed by theCalifornia Attorney General in California Superior Court in the County of SanFrancisco, and which was subsequently removed to the United States District Courtfor the Northern District of California, California ex rel. Lockyer v. MirantCorp., *et al.,*Northern Districtof California Docket No. 02-1914, *et**al*.; (ii) the proceedings originally filed by the CaliforniaAttorney General in the California Superior Court in the County of SanFrancisco, and which was subsequently removed to the United States DistrictCourt for the Northern District of California, California ex rel. Lockyer v.Mirant Corp., *et al.,*NorthernDistrict of California Docket No. 02-2207, *etal.*; (iii) the proceedings originally filed by the CaliforniaAttorney General in the California Superior Court in the County of SanFrancisco, and which was subsequently removed to the United States DistrictCourt for the Northern District of California, California ex rel.  Lockyer v. Mirant Corp., *et al.,*Northern District of CaliforniaDocket No. 04-3924 VRW, *et al.;*and(iv) the proceedings originally filed by the California Attorney General in theUnited States District Court for the Northern District of California,California ex rel. Lockyer v. Mirant Corp., *etal.,*Northern District of California Docket No. 02-1787 VRW;provided that the releases provided in the foregoing provisions of this Section 9.6.7are provided only by the California Attorney General. For the avoidance ofdoubt, all Parties agree that all of the foregoing proceedings shall bedismissed with prejudice, and that the limitation at the end of the foregoingsentence does not diminish, restrict or otherwise affect the releases providedin other provisions of this Article IX.

 

9.7                                 CERS Invoice Disputes. Effective upon the Settlement EffectiveDate, CERS hereby releases, acquits and forever discharges the Mirant Parties,and the Mirant

 

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Partieshereby release, acquit and forever discharge CERS, from any and all claims forrefunds, payments, penalties, credits, or other monetary or non-monetaryremedies, compensation or consideration of any kind, whether known or unknown,whether asserted or unasserted, and whether contingent, fixed or inchoate,based on, or arising out of, in whole or in part, the reconciliation ofpayments as reflected on invoices from MAEM to CERS for bilateral salesconducted during 2000 and 2001, including claims asserted in Proof of ClaimNos. 7,549 through 7,555.

 

9.8                                 Scope of FERC, Federal Power Act and CivilClaim Releases. The scope ofreleases provided in Sections 9.5 and 9.6 shall include releases, subject to Section 9.11,of the following with respect to the Settlement Period;

 

9.8.1                        All claims against the Mirant Parties forrefunds or other price adjustments arising from sales of electricity andnatural gas by the Mirant Parties into the western electricity or natural gasmarkets;

 

9.8.2                        To the extent not encompassed in Section 9.6,all claims against the Mirant Parties for damages and other relief based onfederal and/or state antitrust statutes, Section 17200 of the CaliforniaBusiness and Professions Code and any similar statutes of any other state,common law torts, and any and all similar civil statutes and causes of actionat law or in equity for damages or restitution as such claims or damages wouldconcern any Mirant Party’s sales of electricity or natural gas in the western markets;

 

9.8.3                        Claims against the Mirant Parties for anytransactions in the western electricity or natural gas markets not currentlybeing litigated at FERC but included in rehearing applications pending at FERC,or included in petitions for review, filed by one or more of the SettlingParticipants; and

 

9.8.4                        Claims against the Mirant Parties seekingrefunds, damages, restitution and/or penalties associated with any allegationsthat the Mirant Parties manipulated published natural gas or electricity priceindices directly (including through misreporting to price index publishers) orindirectly (including through alleged wash trades).

 

9.9                                 Cooperation with Investigations andWithdrawal from Proceedings.The Settling Participants shall continue to cooperate with all state andfederal investigations and to participate in all matters before FERC; providedthat, as of the Settlement Effective Date, the Settling Participants shallwithdraw from and shall not prosecute any litigation, administrativeproceedings or investigations with respect to the Mirant Parties insofar assuch prosecution would be inconsistent with the release of claims to beeffectuated by this Agreement.

 

9.10                           *Lockyer**v.**FERC**.*The releases set forth in this Article IXinclude any claims, causes of action, demands or defenses of the SettlingParticipants against the Mirant Parties at FERC that are premised on thefactual and legal contentions forming the basis for the appeal to the UnitedStates Court of Appeals for the Ninth Circuit in *Lockyer*

 

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*v.**FERC,*CaseNo. 02-73093, 383 F.3d 1006 (9th Cir. 2004) (“Lockyer Decision”). The California Attorney General and theother Settling Participants agree that, within ten (10) days of the SettlementEffective Date, they will file at FERC to withdraw all claims against theMirant Parties in *Lockyer v. FERC,*andthe *Lockyer v. FERC*Remand. FERC’sgrant of the relief requested in such filing shall not be a condition precedentto any of the Parties’ obligations under this Agreement. The Mirant Partiesexpressly reserve the right to seek rehearing of or appeal the LockyerDecision, and nothing in this Agreement shall constitute a waiver of, orotherwise preclude, foreclose or prejudice such rights in any manner. TheCalifornia Parties retain all of their rights to oppose any such request forrehearing or appeal.

 

9.11                           Limitations on Releases.

 

9.11.1                  The releases set forth in this Article IXdo not constitute a waiver or release by the California Attorney General of (i)the right to proceed under California criminal laws against any of the MirantParties for any actions of or omissions by the Mirant Parties both before orsubsequent to the Settlement Effective Date, except as to criminal statueviolations that serve as a predicate for civil claims, including under Section 17200of California Business and Professions Code, all of which are waived and released,or (ii) for any actions or omissions which were willfully fraudulent; provided,however, that this limitation on the scope of the releases set forth in this Article IXdoes not apply to any claim that is based solely upon any act or omission ofthe Mirant Parties that occurred prior to the Settlement Effective Date andeither (a) is currently known as of the date of execution of this Agreement bythe California Attorney General’s office, or (b) has previously been remediatedby the Settlement, this Agreement or otherwise. This Section 9.11.1 iswithout prejudice to the rights of the Mirant Parties to seek a discharge underany Mirant Plans of the claims preserved by the California Attorney General inthis Section 9.11.1, and to the rights of the California Attorney Generalto object to confirmation of any Mirant Plans because the Mirant Parties seeksuch discharge.

 

9.11.2                  All Parties to this Agreement shall remainfree to participate in any existing proceeding, or to initiate or participatein any future proceeding, addressing matters not settled in this Agreement,such as generic issues concerning market structure, scheduling rules, generallyapplicable market rules, and generally applicable price mitigation.

 

9.12                           No Assistance to Remaining Litigants. No Settling Participant shall subsidize orassist the litigation, discovery, 

investigationor analysis of any other party or Market Participant pertaining to the claims,or the subject matter of the claims, released as to the Mirant Parties pursuantto this Agreement, provided that nothing herein shall preclude any SettlingParticipant from continuing litigation on the same or similar grounds, orrelated investigatory activities, against suppliers other than the MirantParties, their Related Parties, and the other entities released herein inaccordance with this Article IX. The Mirant Parties shall not provideassistance to any other litigants in their efforts relating to litigationagainst the California Parties concerning the matters that are the subject ofthe releases provided in this Article IX, provided that nothing hereinshall preclude the Mirant Parties from participating in proceedings orsubmitting filings or

 

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pleadingsjointly with other parties in connection with the Mirant Parties’ defense ofclaims by Non-Settling Participants. Nothing in this Section 9.12 shallpreclude Parties from providing information to others as required by law.

 

9.13                           Waiver of Appeals and Requests for Rehearing.

 

9.13.1                  Each of the Settling Participants shall (i)forego any rights to seek rehearing of, appeal, or seek reconsiderationpursuant to section 502(j) of the Bankruptcy Code with respect to any andall of the claims released and matters settled herein by each of them withrespect to any of the Mirant Parties, and (ii) take appropriate steps towithdraw any pending requests for rehearing or appeals (including interventionsin appeals) with respect to such released claims as against any Mirant Parties.

 

9.13.2                  Each of the Mirant Parties shall (i) foregoany rights to seek rehearing of, appeal, or seek reconsideration pursuant to section 502(j)of the Bankruptcy Code with respect to, any and all of the claims released andmatters settled herein by them with respect to any of the Settling Participantsand (ii) take appropriate steps to withdraw any pending requests for rehearingor appeals (including interventions in appeals) with respect to such releasedclaims as against any Settling Participants.

 

9.13.3                  Nothing in this Settlement shall preclude anyof the Settling Participants from participating fully in any request forrehearing or appellate proceeding to the extent those proceedings relate toclaims by the Settling Participants against Market Participants other than theMirant Parties or their Related Parties. Nothing in this Settlement shallpreclude any of the Mirant Parties from participating fully in any request forrehearing or appellate proceeding to the extent those proceedings relate toclaims by the Mirant Parties against Market Participants other than theSettling Participants or their Related Parties.

 

9.14                           Effectiveness of Releases; Waiver of UnknownClaims. The Mirant Partiesand the Settling Participants 

acknowledgeand agree that, except as expressly reserved in Section 9.11, it is theirintention that the releases granted pursuant to this Article IX andpursuant to Section 8.2 and Section 11.2 shall be effective as a barto all causes of action and demands for monetary relief, including costs,expenses, attorneys’ fees, damages, losses and liabilities of every kind, knownor unknown, suspected or unsuspected, specified in this Article IX and in Section 8.2and Section 11.2. In furtherance of this intention, the Mirant Parties, onthe one hand, and the Settling Participants, on the other hand, with respect tothe specific matters released herein, each knowingly, voluntarily,intentionally and expressly waive, as against each other, any and all rightsand benefits conferred by California Civil Code Section 1542 and any lawof any state or territory of the United States or principle of common law thatis similar to Section 1542. Section 1542 provides:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOTKNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,WHICH IF KNOWN

 

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BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

 

In connection with such waiver and relinquishment, the Mirant Partiesand the Settling Participants each acknowledge that they are aware that theymay hereafter discover facts in addition to or different from those which theyknow or believe to be true and with respect to the subject matter of thisAgreement, but that it is their intention hereby, except as expressly reservedin Section 9.11, to fully, finally and forever settle and release allmatters, disputes, differences, known or unknown, suspected or unsuspected,that are set forth in this Article IX and in Section 8.2 and Section 11.2.This Agreement is intended to include in its effect, without limitation, otherthan the limitations set forth in Section 9.11, all claims encompassedwithin the settlement and releases set forth in this Article IX and in Section 8.2and Section 11.2, including those which the Mirant Parties and theSettling Participants may not know or suspect to exist at the time of executionof this Agreement, and this Agreement contemplates the extinguishment of allsuch claims, except as expressly reserved in Section 9.11. The releasesset forth in this Article IX and in Section 8.2 and Section 11.2shall be, and remain in effect as, full and complete releases, notwithstandingthe discovery or existence of any such additional or different facts relatingto the subject matter of this Agreement. Notwithstanding the waiver ofCalifornia Civil Code Section 1542, the Mirant Parties and the Settling Participantsacknowledge and agree that the releases provided for in this Agreement arespecific to the matters set forth in this Article IX and in Section 8.2and Section 11.2 and are not intended to create general releases as to allclaims, or potential claims, between the Settling Participants or any of themand the Mirant Parties. Each Party continues to have its rights and defensesunder this Agreement and the Implementing Agreements, none of which arereleased or impaired.

 

9.15                           Good Faith Settlement. The Parties agree that the Settlement asset forth in this Agreement is a “good faith settlement” within the meaning ofCalifornia Code of Civil Procedure section 877.6 (and any similar law ofany other applicable jurisdiction) for purposes of eliminating third-partyindemnity contribution and arbitration claims against the Debtors. All Partiesshall support a finding by the Mirant Bankruptcy Court to that effect as wellas in the Required Approvals for this Agreement and the ImplementingAgreements.

 

9.16                           Release By Mirant Parties of Avoiding PowerClaims. Effective on theSettlement Effective Date, each of the Mirant Parties, acting on behalf ofitself and on behalf of any party (or parties) purporting to act on behalf ofthe estate of such Mirant Party, releases the California Parties from any andall claims, obligations, causes of action and liabilities (i) under any ofsections 542, 544, 545, 547, 548, 549, or 553 of the Bankruptcy Code to avoidany alleged transfer to or seek turnover from a California Party, (ii) under section 550of the Bankruptcy Code to recover any such alleged transfer, (iii) under section 510(c)to subordinate any claim of a California Party, or (iv) under section 502(d)to disallow any claim of a California Party based upon any alleged avoidabletransfer so released. The Mirant Parties shall cause the other Debtors toprovide comparable releases to the releases set out in this Section 9.16to the California Parties in conjunction with obtaining the Mirant BankruptcyCourt’s approval of the

 

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Settlementand this Agreement. Notwithstanding the foregoing, nothing herein shall bedeemed to release, waive or adversely affect any right or defense by any MirantParty as to any right of setoff or recoupment claimed by any California Party(or any other person or entity), including without limitation under Section 553,that is not released hereunder.

 

**ARTICLE XSTAY OF PROCEEDINGS**

 

10.1                           Requests for Stay. As promptly as possible after the ExecutionDate, but in no event later than January 31, 2005, the Parties shall seekan immediate stay, or an extension of any stay then in effect, of theproceedings set forth on Exhibit D, which stay shall apply with equal force toany Official Committee or other party in interest in the Bankruptcy Proceedingsand shall remain in full force and effect until the earlier of (i) terminationof this Agreement pursuant to the terms of Section 2.8, or (ii) theSettlement Effective Date (the “Stay Period”). No collateral estoppel orother prejudice to any Party’s rights, claims or defenses shall arise during oron account of the Stay Period. Such stays shall not prejudice any existingstays in effect at such time.

 

10.2                           No Further Action. Commencing on the Execution Date andcontinuing throughout the Stay Period, the Parties shall not file any motion orother pleading requesting relief from the Mirant Bankruptcy Court, the MirantDistrict Court, the other courts before which the stayed actions are pending,or FERC in respect of the stayed actions or proceedings, except as may benecessary to continue the stay or to effectuate the Mirant Plan(s), in a mannerconsistent with the Settlement and this Agreement.

 

10.3                           Cooperation. The Parties shall cooperate, at their own expense, to the extentnecessary to effectuate and implement all of the terms and conditions of this Article Xand shall exercise their reasonable efforts to obtain the stays and deferrals hereindescribed.

 

10.4                           Rights Reserved. Nothing in this Article X shallpreclude any Party from taking such actions in or with respect to theproceedings identified in Exhibit D as may be necessary to preserve or advanceits rights or defenses with respect to parties to such proceedings other thanthe Parties, the Debtors, or Additionally Settling Participants during the StayPeriod.

 

**ARTICLE XIADDITIONAL SETTLING PARTICIPANTS**

 

11.1                           Election to Participate in Settlement. The Parties acknowledge and agree that uponthe filing of this Agreement at FERC, any Market Participant that elects to bebound by this Agreement may become an Additional Settling Participant and shallbe bound by the terms hereof by notifying FERC that the Market Participantwishes to become a Settling Participant. Copies of such notice shall be served onthe service lists to the FERC Refund Proceeding in accordance with FERC’srules. Any Market Participant that has not provided such notice on or beforethe date that is five (5) Business Days following the issuance by FERC of theFERC Settlement Order shall have no right

 

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toparticipate in the Settlement contemplated in this Agreement, absent theagreement of the California Parties and the Mirant Parties, and shall be deemedto be a Non-Settling Participant for purposes of this Agreement. For purposesof clarity, any Additional Settling Participant shall have the same rights andobligations under this Agreement that apply to other Settling Participants,even though such Additional Settling Participants shall not be Parties hereto.

 

11.2*                          *Releases. Each Market Participant electing to be an Additional SettlingParticipant bound by this Agreement pursuant to Section 11.1 shall bedeemed to have provided all of the waivers and releases of claims against theMirant Parties and their Related Parties that are set forth in Article IX,and the Mirant Parties shall be deemed to have provided or received thereleases set forth in Article IX as they relate to such AdditionalSettling Participant. Non-Settling Participants shall not be deemed to haveprovided or received any of the releases set forth in this Agreement.

 

**ARTICLE XIIREPRESENTATIONS AND WARRANTIES**

 

12.1                           Representations and Warranties of theSettling Participants. EachSettling Participant hereby represents and warrants that, except for anyapprovals or authorizations required by the Bankruptcy Code, approval of FERCunder the Federal Power Act, and the expiration of the applicable waitingperiod in connection with any Hart-Scott-Rodino filing required to effectuatethe transfer of the CC8 Assets, (i) the execution, delivery and performance bysuch Settling Participant of this Agreement has been duly authorized and allnecessary action has been taken by such Settling Participant in connection withsuch authorization; (ii) this Agreement does not and will not require anyconsent or approval of, notice to or action by, any person or entity in orderto be effective and enforceable; (iii) it is the sole owner, actualbeneficiary, real party in interest and/or responsible party of the claimswhich are being resolved and compromised by it pursuant to this Agreement, andthere has been no sale, assignment, transfer, pledge, hypothecation orattempted sale, assignment, transfer, pledge or hypothecation, by it of any suchactual or beneficial rights or claims, whether directly or indirectly, byoperation of law or otherwise; and (iv) when executed and delivered by suchSettling Participant, this Agreement and the Initial Implementing Agreementswill constitute a legal, valid and binding obligation of such SettlingParticipant that is enforceable against it in accordance with the terms hereofand thereof. The representations and warranties set forth in this Section 12.1shall be effective (a) as to all Settling Participants other than Additional SettlingParticipants, as of the Execution Date, and (b) as to Additional Settling Participants,as of the date of opt-in in accordance with Article XI.

 

12.2                           Representations and Warranties of the MirantParties. Each Mirant Party herebyrepresents and warrants that, except for any approvals or authorizationsrequired by the Bankruptcy Code, approval of FERC under the Federal Power Act,and the expiration of the applicable waiting period in connection with anyHart-Scott-Rodino filing required to effectuate the transfer of the CC8 Assets,(i) the execution, delivery and performance by such Mirant Party of thisAgreement has been duly authorized and all necessary action has been taken bysuch Mirant Party in connection with such

 

77

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authorization;(ii) this Agreement does not and will not require any consent or approval of,notice to or action by, any person or entity in order to be effective andenforceable; (iii) it is the sole owner, actual beneficiary, real party ininterest and/or responsible party of the claims which are being resolved andcompromised by it pursuant to this Agreement; and (iv) when executed anddelivered by such Mirant Party, this Agreement and the Implementing Agreementswill constitute a legal, valid and binding obligation of such Mirant Party thatis enforceable against it in accordance with the terms hereof and thereof.

 

**ARTICLE XIIIRESOLUTION OF DISPUTES**

 

13.1                           Dispute Resolution. After the effective date of the MirantPlans, disputes arising under this Agreement or the Implementing Agreementsshall be resolved through the following process; provided however, that anydispute or disagreement relating to the requirements or interpretation of anyMirant Plan shall be subject to the jurisdiction of, and shall be brought inthe first instance before, the Mirant Bankruptcy Court.

 

13.2                           Notice. Notice of any dispute arising under this Agreement that is subject tothe dispute resolution process provided for in this Article XIII shall beprovided to all Parties. Each Party receiving such notice shall, within ten(10) Business Days after such receipt, provide a written response to the Partygiving the notice, which response shall indicate the responding Party’sposition with respect to the dispute and whether it considers itself to be anaffected Party that is entitled to participate in the dispute resolutionprocess.

 

13.3                           In-Person Meeting. The Parties affected by the dispute shallfirst participate in an in-person meeting to attempt to resolve the dispute.

 

13.4                           Mediation. If the dispute remains unresolved after the Parties have participatedin an in-person meeting or no meeting has occurred within thirty (30) days afterone Party has given the other Parties notice of the dispute, the Parties thenshall participate in a non-binding mediation before a neutral mediator mutuallyagreed upon by the Parties.

 

13.5                           Binding Arbitration. If the Parties cannot agree upon a mediatoror the dispute has not been resolved by non-binding mediation within ninety(90) days after one Party has given the other Parties notice of the dispute,the Parties shall participate in binding arbitration before a single, neutralarbitrator selected from the national panel maintained by the CPR Institute forDispute Resolution and utilizing the CPR Rules for Non-Administered Arbitrationin effect as of the Execution Date. Any arbitration hearing conducted underthis Section 13.5 shall commence no later than 180 days after one Party hasgiven the other Parties notice of the dispute, provided that the arbitrator mayextend the hearing date at the request of a Party to the dispute upon a showingof good cause.

 

78

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**ARTICLE XIVMISCELLANEOUS**

 

14.1                           Notices. All notices, demands and other communications hereunder shall be inwriting and shall be deemed to have been duly given: (i) when personally delivered;(ii) upon actual receipt (as established by confirmation of receipt orotherwise) during normal business hours, otherwise on the first (lst)Business Day thereafter, if transmitted by facsimile or telecopier withconfirmation of receipt; (iii) on the date of receipt when mailed by certifiedmail, return receipt requested, postage prepaid; or (iv) on the date of receiptwhen sent by overnight courier; in each case, to the addresses set forth in Section 14.2,or to such other addresses as a Party may from time to time specify by noticeto the other Parties given pursuant to this Section 14.1.

 

14.2                           Parties’ Addresses. Notices required under this Agreement shallbe delivered to:

 
| **If to the Mirant Parties:**     |
|-----------------------------------|
|                              |
| Douglas  L. Miller                |
| General  Counsel                  |
| Mirant  Corporation               |
| 1155  Perimeter Center West       |
| Atlanta,  Georgia 30338           |
| Telephone:                        | 678-579-7924 |
| Facsimile:                        | 678-579-6767 |
| Email:                            | douglas.miller@mirant.com |
|                              |
| *With a copy to:*                 |
|                              |
| Debra  Raggio Bolton              |
| Associate  General Counsel        |
| Mirant  Corporation               |
| 601  Thirteenth St., NW Suite 580 |
| Washington,  DC 20005             |
| Telephone:                        | 202-585-3809 |
| Facsimile:                        | 202-678-5942 |
| E-Mail:                           | debra.bolton@mirant.com |
|                              |
| **If to PG&E:**               |
|                              |
| Joshua  Bar-Lev                   |
|                              |
| Physical  address:                |
| PG&E  Legal Department        |
| 77  Beale Street                  |
| San  Francisco, CA 94120          |

 

79

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| *Mailing address:*                     |
|----------------------------------------|
|                                   |
| Mail  Code B30A                        |
| P.O.  Box 7442                         |
| San  Francisco, CA 94120-7442          |
| Telephone:                             | (415)  973-4507 |
| Facsimile:                             | (415)  973-5520 |
| E-Mail:                                | jxb7@pge.com |
|                                   |
| *With a copy to:*                      |
|                                   |
| Stan  Berman                           |
| Heller,  Ehrman, White & McAuliffe |
| 701  Fifth Avenue, Suite 6100          |
| Seattle,  WA 98104-7098                |
| Telephone:                             | (206)  389-4276 |
| Facsimile:                             | (206)  515-8927 |
| E-Mail:                                | sberman@hewm.com |
|                                   |
| **If to SCE:**                         |
|                                   |
| Russell  Swartz                        |
| Southern  California Edison Company    |
| 2244  Walnut Grove Avenue              |
| Rosemead,  CA 91770                    |
| Telephone:                             | (626)  302-3925 |
| Facsimile:                             | (626)  302-1904 |
| E-Mail:                                | russell.swartz@sce.com |
|                                   |
| *With a copy to:*                      |
|                                   |
| Richard  Roberts                       |
| Steptoe  & Johnson LLC             |
| 1330  Connecticut Avenue, N.W.         |
| Washington,  D.C. 20036-1795           |
| Telephone:                             | (202)  429-6756 |
| Facsimile:                             | (202)  429-3902 |
| E-Mail:                                | RRoberts@Steptoe.com |
|                                   |
| **If to SDG&E:**                   |
|                                   |
| Don  Garber                            |
| San  Diego Gas & Electric Company  |
| 101  Ash Street                        |
| San  Diego, CA 92101-3017              |
| Telephone:                             | (619)  696-4539 |
| Facsimile:                             | (619)  699-5027 |
| E-Mail:  dgarber@sempra.com            |

 

80

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| *With a copy to:*                              |
|------------------------------------------------|
|                                           |
| Nicholas  W. Fels                              |
| Covington  & Burling                       |
| 1201  Pennsylvania Avenue, N.W.                |
| Washington,  D.C. 20004                        |
| Telephone:                                     | (202)  662-5648 |
| Facsimile:                                     | (202)  662-6291 |
| E-Mail:nfels@cov.com                           |
|                                           |
| **If to OMOI:**                                |
|                                           |
| Robert  Pease                                  |
| Office  of Market Oversight and Investigations |
| Federal  Energy Regulatory Commission          |
| 888  1st Street, NE                            |
| Washington,  D.C 20426                         |
| Telephone:                                     | (202)  502-8131 |
| Facsimile:                                     | (202)  208-0057 |
| E-Mail:Robert.Pease@ferc.gov                   |
|                                           |
| *With a copy to:*                              |
|                                           |
| Lee  Ann Watson                                |
| Office  of Market Oversight and Investigations |
| Federal  Energy Regulatory Commission          |
| 888  1st Street, NE                            |
| Washington,  D.C. 20426                        |
| Telephone:                                     | (202)  502-6317 |
| Facsimile:                                     | (202)  208-0057 |
| E-Mail:LeeAnn.Watson@ferc.gov                  |
|                                           |
| **If to CERS:**                                |
|                                           |
| Peter  S. Garris                               |
| Deputy  Director                               |
| California  Department of Water Resources      |
| 3310  El Camino Avenue, Suite 120              |
| Sacramento,  CA 95821                          |
| Telephone:                                     | (916)  574-2733 |
| Facsimile:                                     | (916)  574-0301 |
| E-Mail:pgarris@water.ca.gov                    |

 

81

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| *With a copy to:*                       |
|-----------------------------------------|
|                                    |
| Office  of the Chief Counsel            |
| 1416  Ninth Street, Room 1118           |
| Sacramento,  CA 95814                   |
| Telephone:                              | (916)  653-7084 |
| Facsimile:                              | (916)  654-9822 |
| E-Mail:nsaracin@water.ca.gov            |
|                                    |
| **If to CEOB:**                         |
|                                    |
| Erik  Saltmarsh                         |
| California  Electricity Oversight Board |
| 770  L Street, Suite 1250               |
| Sacramento,  CA 95814                   |
| Telephone:                              | (916)  322-8601 |
| Facsimile:                              | (916)  322-8591 |
| E-Mail:esaltmarsh@eob.ca.gov            |
|                                    |
| **If to CPUC:**                         |
|                                    |
| Sean  Gallagher                         |
| California  Public Utilities Commission |
| Legal  Division, Room 5124              |
| 505  Van Ness Avenue                    |
| San  Francisco 94102                    |
| Telephone:                              | (415)  703-2059 |
| Facsimile:                              | (415)  703-2262 |
| E-Mail:shg@cpuc.ca.gov                  |
|                                    |
| **If to California Attorney General:**  |
|                                    |
| Ken  Alex                               |
| Supervising  Deputy Attorney General    |
| P.O.  Box 70550                         |
| 1515  Clay St., 20th Fl.                |
| Oakland,  CA 94612-0550                 |
| Telephone:                              | (510)  622-2137 |
| Facsimile:                              | (510)  622-2270 |
| E-Mail:ken.alex@doj.ca.gov              |

 

14.3                           Non-Severability. The benefits and burdens of this Agreementare intended to balance the interests of the Mirant Parties, the SettlingParticipants and OMOI.  Therefore, if itshould be determined by a court of competent jurisdiction that any materialprovision herein is invalid, illegal or unenforceable, this entire Agreementshall be invalid, illegal and unenforceable unless the Parties agree otherwise,and all of the Mirant Parties, the Settling Participants and OMOI shall, to theextent possible, be returned to the same position that they were in prior tothe execution of this Agreement as

 

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ifthis Agreement had never been executed, provided that Section 2.8.3 shallcontinue to apply.

 

14.4                           Governing Law. To the extent not governed by federal law,this Agreement shall be governed by and construed in accordance with the lawsof the State of California, without regard to the conflict of laws principlesthereof.

 

14.5                           Entire Agreement. This Agreement and the ImplementingAgreements contain the entire agreement among the Parties with respect to thesubject matter hereof and there are no agreements, understandings,representations or warranties between the Parties other than those set forth orreferred to herein. Each of the Parties expressly disclaims any reliance uponany representations or warranties not stated herein.

 

14.6                           Successors and Assigns. This Agreement shall be binding upon andinure to the benefit of the Parties hereto and their respective permittedsuccessors and assigns.

 

14.7                           No Third-Party Beneficiaries; No Admissions. This Agreement is not intended to conferupon any person or entity that is not a Party, a Related Party or a SettlingParticipant any rights or remedies hereunder, and no one, other than a Party, aRelated Party or a Settling Participant, is entitled to rely on anyrepresentation, warranty, covenant, release, waiver or agreement containedherein. Moreover, except for the purpose of enforcing the terms and conditionsof this Agreement as between and among the Parties, the Related Parties and theSettling Participants, nothing herein shall establish any precedents as betweenthe Parties, the Related Parties, the Settling Participants and any thirdparties as to the resolution of any dispute that is not resolved in thisAgreement.

 

14.8                           Costs. Except as provided in this Agreement and the Implementing Agreements,each of the Parties shall pay its own costs and expenses, including attorneys’fees, incurred in connection with the disputes that are settled herein and the negotiation,preparation and implementation of this Agreement and the Implementing Agreements,including costs and expenses incurred in preparing stipulations, making motionsand seeking and obtaining the Required Approvals.

 

14.9                           Execution. This Agreement may be executed in any number of counterparts, each ofwhich, when executed, will be deemed to be an original and all of which takentogether will be deemed to be one and the same instrument. This Agreement maybe executed by signature via facsimile transmission, which shall be deemed to bethe same as an original signature.

 

14.10                     Modifications. This Agreement may be modified only if inwriting and signed by each of the Parties affected by the proposedmodification. No waiver of any provision of this Agreement or departure fromany term of this Agreement shall be effective unless in writing and signed bythe Party granting the waiver. No modification will be effective unless anyapproval of the FERC or the Mirant Bankruptcy Court required with respect tosuch modification, if any, has been received.

 

14.11                     Assignments. No Party shall assign or transfer this Agreement or its rights orobligations hereunder without the prior written consent of the other affectedParties;

 

83

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provided,however, that any Party may, without the consent of the other Parties (andwithout relieving itself from liability hereunder), transfer or assign thisAgreement to any person or entity succeeding to all or substantially all of theassets of such Party, provided that the assignee agrees in writing to be boundby the terms and conditions hereof.

 

14.12                     Headings. The headings or titles of Articles or Sections used in this Agreementare for convenience only and shall be disregarded in interpreting this Agreement.

 

14.13                     Parties Represented by Counsel. The Parties acknowledge that they have soughtthe advice of, and have been advised by, legal counsel of their choice in connectionwith the negotiation of this Agreement, and that the Parties have willingly enteredinto this Agreement with a full understanding of the legal and financial consequencesof this Agreement.

 

14.14                     Drafting of Agreement. The Parties acknowledge that (i) thisAgreement and each Implementing Agreement is the result of negotiations among,and has been reviewed by, each Party and its respective counsel, and (ii) allParties contributed to the drafting of this Agreement and each ImplementingAgreement. Accordingly, this Agreement and each Implementing Agreement shall bedeemed to be the product of each Party, and no ambiguity shall be construed infavor of or against any Party on the basis that it was the drafter.

 

14.15                     Consents; Acceptance. Unless otherwise expressly provided herein,any consent, acceptance, satisfaction, cooperation or approval required of aParty under this Agreement shall not be unreasonably withheld or delayed.

 

14.16                     Joint and Several Liability. Nothing in this Agreement or the ImplementingAgreements shall be deemed to create any joint and several liability among theCalifornia Parties or among the Mirant Parties.

 

**[SIGNATURES APPEAR ON****NEXT****PAGE]**

 

84

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**Settlement and release of claims agreement**

 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to beexecuted by their duly authorized officers or representatives. This Agreementmay be executed in any number of counterparts, each of which, when executed,will be deemed to be an original and all of which taken together will be deemedto be one and the same instrument. This Agreement may be executed by signaturevia facsimile transmission, which shall be deemed to be the same as an originalsignature.

 
| **MIRANT CORPORATION**                    | **MIRANT AMERICAS, INC.**                                     |
|-------------------------------------------|---------------------------------------------------------------|
|                                      |                                                          |
|                                      |                                                          |
| By:                                       | /s/ Curtis A. Morgan                                          |   | By: | /s/  Curtis A. Morgan |   |
|                                      | Name:                                                         | Curtis  A. Morgan |   | Name: | Curtis A. Morgan |
|                                      | Title:                                                        | Executive  Vice President and |   | Title: | President  and Chief |
|                                      |                                                          | Chief  Operating Officer |   |   | Executive  Officer |
|                                      | Date:                                                         | January 14,  2005 |   | Date: | January 14,  2005 |
|                                      |                                                          |
|                                      |                                                          |
| **MIRANT AMERICAS ENERGY  MARKETING, LP** | **MIRANT AMERICAS ENERGY  MARKETING****INVESTMENTS,****INC.** |
|                                      |                                                          |
| By:  Mirant Americas Development, Inc.    |                                                          |
| Its:  General Partner                     |                                                          |
|                                      | By:                                                           | /s/  J. William Holden III |   |
|                                      |                                                          | Name: | J.  William Holden III |
| By:                                       | /s/ Curtis A. Morgan                                          |   |   | Title: | Sr.  Vice President |
|                                      | Name:                                                         | Curtis  A. Morgan |   | Date: | January 14,  2005 |
|                                      | Title:                                                        | President  and |   |
|                                      |                                                          | Chief  Executive Officer |   |
|                                      | Date:                                                         | January 14,  2005 |   |
|                                      |                                                          |
|                                      |                                                          |
| **MIRANT AMERICAS  GENERATION, LLC**      | **MIRANT CALIFORNIA  INVESTMENTS, INC.**                      |
|                                      |                                                          |
|                                      |                                                          |
| By:                                       | /s/  Curtis A. Morgan                                         |   | By: | /s/ Curtis A. Morgan |   |
|                                      | Name:                                                         | Curtis  A. Morgan |   | Name: | Curtis  A. Morgan |
|                                      | Title:                                                        | President  and |   | Title: | Chief  Executive Officer |
|                                      |                                                          | Chief  Executive Officer |   | Date: | January 14,  2005 |
|                                      | Date:                                                         | January 14,  2005 |   |   |
|                                           |                                                               |  |  |  |  |  |  |  |

 

1

----

 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to beexecuted by their duly authorized officers or representatives. This Agreementmay be executed in any number of counterparts, each of which, when executed,will be deemed to be an original and all of which taken together will be deemedto be one and the same instrument. This Agreement may be executed by signaturevia facsimile transmission, which shall be deemed to be the same as an originalsignature.

 
| **MIRANT CALIFORNIA, LLC** | **MIRANT DELTA, LLC**                 |
|----------------------------|---------------------------------------|
|                       |                                  |
| By:                        | /s/  Curtis A. Morgan                 |   | By: | /s/ Curtis A. Morgan |   |
|                       | Name:                                 | Curtis  A. Morgan |   | Name: | Curtis A. Morgan |
|                       | Title:                                | Chief  Executive Officer |   | Title: | Chief  Executive Officer |
|                       | Date:                                 | January 14,  2005 |   | Date: | January 14,  2005 |
|                       |                                  |
|                       |                                  |
| **MIRANT POTRERO, LLC**    | **MIRANT****SPECIAL****PROCUREMENT,** |
|                       | **INC.**                              |
|                       |                                  |
| By:                        | /s/ Curtis A. Morgan                  |   |   |
|                       | Name:                                 | Curtis A. Morgan | By: | /s/  J. William Holden III |   |
|                       | Title:                                | Chief  Executive Officer |   | Name: | J.  William Holden III |
|                       | Date:                                 | January 14,  2005 |   | Title: | Sr.  Vice President |
|                       |                                  | Date: | January 14,  2005 |
|                       |                                  |
|                       |                                  |
| **MIRANT SERVICES, LLC**   | **MIRANT AMERICAS DEVELOPMENT,**      |
|                       | **INC.**                              |
|                       |                                  |
| By:                        | /s/ Curtis A. Morgan                  |   |   |
|                       | Name:                                 | Curtis A. Morgan | By: | /s/ Curtis A. Morgan |   |
|                       | Title:                                | Executive  Vice President |   | Name: | Curtis  A. Morgan |
|                       | Date:                                 | January 14,  2005 |   | Title: | President  and |
|                       |                                  |   | Chief  Executive Officer |
|                       |                                  | Date: | January 14,  2005 |
|                            |                                       |  |  |  |  |  |  |

 

2

----

 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to beexecuted by their duly authorized officers or representatives. This Agreementmay be executed in any number of counterparts, each of which, when executed,will be deemed to be an original and all of which taken together will be deemedto be one and the same instrument. This Agreement may be executed by signaturevia facsimile transmission, which shall be deemed to be the same as an originalsignature.

 
| **THE PEOPLE OF THE STATE OF  CALIFORNIA, *EX REL.*BILL  LOCKYER,  ATTORNEY GENERAL OF THE STATE  OF CALIFORNIA** | **CALIFORNIA DEPARTMENT OF  WATER RESOURCES, ACTING SOLELY  UNDER THE AUTHORITY AND POWERS  CREATED IN CALIFORNIA ASSEMBLY  BILL 1 FROM THE FIRST  EXTRAORDINARY SESSION OF 2000-  2001, CODIFIED IN SECTIONS 80000** |
|-------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| By:                                                                                                               | /s/ Ken Alex                                                                                                                                                                                                          |   | **THROUGH 80270 OF THE CALIFORNIA** |
|                                                                                                              | Name:                                                                                                                                                                                                                 |   | **WATER CODE** |
|                                                                                                              | Title:                                                                                                                                                                                                                | ASAAG |   |
|                                                                                                              | Date:                                                                                                                                                                                                                 | January 13, 2005 |   |
|                                                                                                              |                                                                                                                                                                                                                  |
|                                                                                                              | By:                                                                                                                                                                                                                   | /s/ Peter S. Garris |   |
|                                                                                                              |                                                                                                                                                                                                                  | Name: | Peter S. Garris |
|                                                                                                              |                                                                                                                                                                                                                  | Title: | Deputy Director |
|                                                                                                              |                                                                                                                                                                                                                  | Date: | January 14,  2005 |
|                                                                                                              |                                                                                                                                                                                                                  |   |
|                                                                                                              |                                                                                                                                                                                                                  |
| **CALIFORNIA ELECTRICITY  OVERSIGHT BOARD**                                                                       | **CALIFORNIA PUBLIC UTILITIES  COMMISSION**                                                                                                                                                                           |
|                                                                                                              |                                                                                                                                                                                                                  |
|                                                                                                              |                                                                                                                                                                                                                  |
| By:                                                                                                               | /s/ [ILLEGIBLE]                                                                                                                                                                                                       |   | By: | /s/ Randolph Wu |   |
|                                                                                                              | Name:                                                                                                                                                                                                                 |   |   | Name: | Randolph Wu |
|                                                                                                              | Title:                                                                                                                                                                                                                |   |   | Title: | General  Counsel |
|                                                                                                              | Date:                                                                                                                                                                                                                 | January 14,  2005 |   | Date: | January 14,  2005 |
|                                                                                                                   |                                                                                                                                                                                                                       |  |  |  |  |  |  |

 

3

----

 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to beexecuted by their duly authorized officers or representatives. This Agreementmay be executed in any number of counterparts, each of which, when executed,will be deemed to be an original and all of which taken together will be deemedto be one and the same instrument. This Agreement may be executed by signaturevia facsimile transmission, which shall be deemed to be the same as an originalsignature.

 
| **PACIFIC GAS AND ELECTRIC  COMPANY**              | **SOUTHERN CALIFORNIA EDISON  COMPANY** |
|----------------------------------------------------|-----------------------------------------|
| ** **                                         |                                    |
|                                               |                                    |
| By:                                                | /s/ Roger J. Peters                     |   | By: | /s/ Stephen E. Pickett |   |
|                                               | Name:                                   | Roger  J. Peters |   | Name: | Stephen  E. Pickett |
|                                               | Title:                                  | SVP  - General Counsel |   | Title: | Sr.  VP & General Counsel |
|                                               | Date:                                   | January 13,  2005 |   | Date: | January 14,  2005 |
|                                               |                                    |
| **SAN DIEGO GAS* *&* *****ELECTRIC** | **THE FEDERAL ENERGY REGULATORY**       |
| **COMPANY**                                        | **COMMISSION OFFICE OF* *MARKET**  |
|                                               | **OVERSIGHT AND INVESTIGATIONS**        |
|                                               |                                    |
|                                               |                                    |
| By:                                                | /s/ James P. Avery                      |   |   |
|                                               | Name:                                   | James  P. Avery | By: | /s/ Robert Pease |   |
|                                               | Title:                                  | Senior  Vice President |   | Name: | ROBERT PEASE |
|                                               | Date:                                   | January 13,  2005 |   | Title: | Deputy  Director OMOI/FERC |
|                                               |                                    | Date: | January 13,  2005 |
|                                                    |                                         |  |  |  |  |  |  |

 

4

----

 

**Table ofExhibits**

 
| Exhibit A  | Proofs Of Claims Not  Affected By The Settlement |   |
|------------|--------------------------------------------------|--------|
|       |                                             |   |
| Exhibit B  | Wraparound Agreements                            |   |
|       |                                             |   |
| Exhibit C  | CC8 Escrow Agreement                             |   |
|       |                                             |   |
| Exhibit  D | Stayed  Litigation And Contested Matters         |   |
|       |                                             |   |
| Exhibit  E | List  Of Debtors                                 |   |
|       |                                             |   |
| Exhibit  F | Allocation  Matrix                               |   |
|       |                                             |   |
| Exhibit  G | 2005  RMR FERC Settlement                        |   |
|       |                                             |   |
| Exhibit  H | Deemed  Distribution Recipients                  |   |
|       |                                             |   |
| Exhibit  I | Form  of SWP Side Letter                         |   |

 

i

----

 

**Exhibit A**

 

**Proofs OfClaims Not Affected By The Settlement**

 

1.               Claim No. 7522 on behalf of the CaliforniaDepartment of Toxic Substances Control (“CDTSC”) against Delta in the amount of$979.50 for “HWCL Fees.” (hazardous waste generator fees)

 

2.               Claim No. 7523 on behalf of CDTSC againstDelta in the amount of $398,837 for penalties under the Hazardous Waste ControlLaw for non-compliance with state hazardous waste laws and regulations

 

3.               Claim No. 7524 on behalf of CDTSC againstPotrero in the amount of $107.00 for “HWCL fees.” (hazardous waste generatorfees)

 

4.               Claim No. 7525 on behalf of CDTSC againstPotrero in the amount of $110.90 for “consultive services” based on ConsultingServices Agreement under California Health and Safety Code section 25201.9

 

*5.**             *Claim No. 7630 on behalf of CDTSC againstDelta in an unliquidated amount for potential future environmental liability

 

6.               Claim No 7631 on behalf of CDTSC againstPotrero in an unliquidated amount for potential future environmental liability

 

7.               Claim No. 2081 on behalf of the CaliforniaDepartment of Health Services against Mirant Potrero, LLC in the amount of$1,602.32

 

8.               Claim No. 7586 on behalf the Regional WaterQuality Control Board for the San Francisco Bay Region against Potrero in anestimated amount of $7,500,000.00 for groundwater contamination at the PotreroPower Plant Site

 

9.               Claim No. 7587 on behalf the Regional WaterQuality Control Board for the San Francisco Bay Region against Delta in anunliquidated amount for potential contamination at the Pittsburg Power Plantand its four class I ponds

 

10.         Claim No. 7588 on behalf the Regional Water Quality Control Board forthe San Francisco Bay Region against Mirant in an estimated amount of$7,500,000.00 for groundwater contamination at Potrero Power Plant andPittsburg Power Plant.

 

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**Exhibit B**

 

**WraparoundAgreements**

 

**Attached**

 

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**Exhibit C**

 

**[FORM OF]**

 

**CC8****ESCROW AGREEMENT**

 

This CC8 Escrow Agreement (“Escrow Agreement”) is entered intoas of [                       ][      ], 200[   ], by and amongMirant Delta, LLC (“Delta”), a Delaware limited liability company,Pacific Gas and Electric Company, a California corporation (“PG&E”),and [Deutsche Bank Trust Company Americas, a New York banking corporation, awholly-owned subsidiary of Deutsche Bank AG], as escrow agent (the “EscrowAgent”).

 

**RECITALS**

 

A.                                   The Mirant Parties (as defined below),PG&E, and others are parties to the Settlement and Release of ClaimsAgreement (as defined below), pursuant to which, and subject to its terms andconditions, the Mirant Parties, PG&E and the other parties thereto enterinto a settlement with respect to certain disputes among them.

 

B.                                     In accordance with the terms of theSettlement and Release of Claims Agreement, the Mirant Parties and PG&E arenegotiating the CC8 Asset Transfer Agreement (as defined in the Settlement andRelease of Claims Agreement), including the agreements and other documents thatare included therein, by which the Mirant Parties will, subject to theconditions in the CC8 Asset Transfer Agreement being satisfied, transfer andassign to PG&E the CC8 Assets (as such term is defined in the Settlementand Release of Claims Agreement), provide certain services and rights toPG&E in connection with the CC8 Assets and otherwise consummate the transactionsprovided for in the CC8 Asset Transfer Agreement.

 

C.                                     In accordance with the terms of theSettlement and Release of Claims Agreement and this Escrow Agreement, if a CC8Triggering Event (as defined in the Settlement and Release of Claims Agreement)occurs, then PG&E shall be entitled to the CC8 Alternative Consideration(as defined in the Settlement and Release of Claims Agreement) as provided forin the Settlement and Release of Claims Agreement, and as implemented throughthis Escrow Agreement.

 

D.                                    Delta and PG&E desire to establish theterms and conditions pursuant to which the Escrow Fund (as defined below) willbe established, maintained and disbursed.

 

NOW, THEREFORE, in consideration of the mutual covenants andagreements, and other good and valuable consideration, provided for herein, andsubject to and upon the terms and conditions hereof, the parties hereto agreeas follows.

 

**AGREEMENT**

 

**1.****                                     ****Defined Terms****.** As used in this Escrow Agreement, thefollowing terms shall have the meanings set forth below. Capitalized terms usedin this Escrow Agreement and not

 

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otherwisedefined shall have the meanings given them in the Settlement and Release ofClaims Agreement.

 

“Agreement Dispute” has the meaning set forth in Section 7of this Escrow Agreement.

 

“Bankruptcy Proceedings” means, collectively, the Mirant Parties’respective Chapter 11 cases, together with the other Chapter 11 cases of MirantParties’ affiliated debtors pending in the Mirant Bankruptcy Court or, to theextent of the reference thereto being withdrawn, in the United States DistrictCourt for the Northern District of Texas, Fort Worth Division.

 

“Cash Proceeds” has the meaning set forth in Section 2(a)of this Escrow Agreement.

 

“Cash Proceeds Notice” has the meaning set forth in Section 2(a)of this Escrow Agreement.

 

“CC8 Alternative Consideration” has the meaning set forth in theSettlement and Release of Claims Agreement.

 

“CC8 Assets” has the meaning set forth in the Settlement andRelease of Claims Agreement.

 

“CC8 Asset Transfer Agreement” has the meaning set forth in theSettlement and Release of Claims Agreement.

 

“CC8 Claim” has the meaning set forth in the Settlement andRelease of Claims Agreement.

 

“CC8 Claim Plan Securities” has the meaning set forth in theSettlement and Release of Claims Agreement.

 

“CC8 Claim Shortfall” has the meaning set forth in theSettlement and Release of Claims Agreement.

 

“CC8 Claim Value” means the aggregate value of the cash and/orCC8 Claim Plan Securities required to be distributed to PG&E by the CC8Claim pursuant to Section 8.9 of the Settlement and Release of ClaimsAgreement, which shall be either $70,000,000 or $85,000,000, as determined inaccordance with subpart (i) or subpart (ii) of Section 8.9.1 of theSettlement and Release of Claims Agreement.

 

“CC8 Execution Triggering Event” has the meaning set forth inthe Settlement and Release of Claims Agreement.

 

“CC8 Triggering Event” has the meaning set forth in theSettlement and Release of Claims Agreement.

 

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“Closing” means the date of closing of the transfer of the CC8Assets to PG&E and the other transactions provided for in the CC8 AssetTransfer Agreement, in accordance with the terms thereof.

 

“CPUC” has the meaning set forth in Section 7 of thisEscrow Agreement.

 

“Debtor” has the meaning set forth in the Settlement and Releaseof Claims Agreement.

 

“Delta” has the meaning set forth in the introductory paragraphof this Escrow Agreement.

 

“Delta Plan” has the meaning set forth in the Settlement andRelease of Claims Agreement.

 

“Effective Date” has the meaning set forth in Section 2 ofthis Escrow Agreement.

 

“Escrow Account” has the meaning set forth in Section 2(a)of this Escrow Agreement.

 

“Escrow Agent” has the meaning set forth in the introductoryparagraph of this Escrow Agreement.

 

“Escrow Fund” has the meaning set forth in Section 2(a) ofthis Escrow Agreement.

 

“Mirant Bankruptcy Court” means the United States BankruptcyCourt for the Northern District of Texas, Fort Worth Division.

 

“Mirant Parties” has the meaning set forth in the Settlement andRelease of Claims Agreement.

 

“PG&E” has the meaning set forth in the introductoryparagraph of this Escrow Agreement.

 

“Settlement and Release of Claims Agreement” means theSettlement and Release of Claims Agreement executed January 13, 2005 amongthe Mirant Parties, PG&E and the other parties thereto.

 

**2.****                                     ****Effective Date; Appointmentof Escrow Agent**. ThisEscrow Agreement and the parties’ obligations hereunder shall not becomeeffective until the effective date of the Delta Plan (“Effective Date”).  Effective as of the Effective Date, Delta andPG&E hereby appoint the Escrow Agent to act in accordance with the terms andconditions of this Escrow Agreement, and the Escrow Agent hereby accepts suchappointment.

 

**a)****             ****Deposit of Cash Proceeds**. PG&E shall deposit all cash received fromDelta as part of the CC8 Claim, if any, into the escrow established jointly byPG&E and Delta pursuant to this Escrow Agreement (“Escrow Account”)within two (2) Business Days

 

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following PG&E’s receipt of any such cash. As soon as practicableafter PG&E’s sale of the CC8 Claim Plan Securities that are delivered to itby Delta as part of the CC8 Claim pursuant to Section 8.9.2 of theSettlement and Release of Claims Agreement, PG&E shall deposit in theEscrow Account all cash proceeds from such sale, net of third party transactioncosts and net of any income taxes that may be due on any gain on the sale ofthe CC8 Claim Plan Securities (it being understood that any such gain will bedetermined by any difference between the value of the CC8 Claim Plan Securitieswhen received by PG&E and the value when sold by PG&E, and that thenetting of income taxes for deposit into the CC8 Escrow shall be withoutprejudice to subsequent CPUC retail ratemaking determinations of taxtreatment). The Escrow Agent shall promptly thereafter advise Delta and PG&Ein writing in the manner specified in Section 11(f) of this EscrowAgreement (“Cash Proceeds Notice”) of the total amount of cash in theEscrow Account, including any cash received from Delta as part of the CC8 Claimand the net proceeds realized by PG&E from its sale of the CC8 Claim PlanSecurities (collectively, the “Cash Proceeds”). The Cash Proceeds andany additional monies that are deposited into the Escrow Account in accordancewith this Escrow Agreement shall constitute part of the “Escrow Fund”.

 

**b)****             ****Treatment of Cash Proceeds****.**

 

**i.****                ****CC8 Claim Shortfall**. In the event of a CC8 Claim Shortfall,Delta and PG&E shall deposit the payments required under Section 8.9.3of the Settlement and Release of Claims Agreement into the Escrow Account.

 

**ii.****            ****Cash Proceeds in Excess of theCC8 Claim Value**. If thetotal of the Cash Proceeds in the Escrow Account as of the date of the CashProceeds Notice exceeds the CC8 Claim Value, the Escrow Agent shall transfer toDelta in the manner directed by Delta all Cash Proceeds constituting the EscrowFund that are in excess of the CC8 Claim Value.

 

**c)****             ****Interest on Escrow Fund**. Any interest earned on the Escrow Fund,when invested as provided in Section 4 of this Escrow Agreement shall beapplied FIRST, to pay all fees and expenses of the Escrow Agent and to anyamounts already claimed by the Escrow Agent under Section 6 of this EscrowAgreement, and SECOND, to be added to the Escrow Fund held by the Escrow Agentunder this Escrow Agreement. Notwithstanding anything to the contrary in thisEscrow Agreement, to the extent that Delta pays any expenses, disbursements,advances, legal or other fees, taxes, penalties, losses, damages, or any othercharge, cost or expenditure provided for under Section 6 or Section 8of this Escrow Agreement, to or on behalf of the Escrow Agent, any interest earnedon the Escrow Fund, including interest already accrued as of the date thatDelta incurs such expenditures and any future interest, shall be paid, wheninterest becomes available to do so, to Delta in an amount sufficient toreimburse Delta in full for all of the foregoing expenditures.

 

**3.****                                     ****Disbursement of the Escrow Fund**. The Escrow Agent shall disburse the EscrowFund as provided below, as instructed in a writing executed by Delta andPG&E and

 

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deliveredto the Escrow Agent, or as otherwise authorized by the terms of this EscrowAgreement.

 

**a)****             ****Termination**. If the Settlement and Release of Claims Agreement is terminated for anyreason as provided for therein, this Escrow Agreement also shall be immediatelyterminated, without further liability or obligation of any party. Upontermination of this Escrow Agreement, either Delta or PG&E may deliver acertificate signed by an officer thereof to the other party and to the EscrowAgent. Upon receipt of such certificate, the Escrow Agent shall distribute theEscrow Fund, including all Cash Proceeds, interest and all other money andproperty in the Escrow Account, to Delta in the manner directed by Delta.

 

**b)****             ****CC8 Triggering Event**. Upon the occurrence of a CC8 TriggeringEvent, PG&E shall notify Delta in writing that PG&E is declaring a CC8Triggering Event, and also shall deliver a certificate signed by PG&E’sgeneral counsel or a person designated by such counsel to that effect to theEscrow Agent and Delta.  If the CC8Triggering Event is one that a Mirant Party is authorized to declare pursuantto the terms of the Settlement and Release of Claims Agreement or the CC8 AssetTransfer Agreement, Delta shall have the right to deliver an equivalent noticeand certificate to PG&E and the Escrow Agent, and such notice andcertificate shall have the same force and effect as if it had been delivered byPG&E.

 

**i.**                 If a CC8 Triggering Event that is a CC8Execution Triggering Event has occurred before the Effective Date, then, as ofthe Effective Date, (a) Delta and PG&E shall comply with the applicablerequirements of Section 8.9 of the Settlement and Release of ClaimsAgreement, and (b) Delta, PG&E and the Escrow Agent shall comply with theprovisions of Section 2 of this Escrow Agreement. As soon as practicableafter the total amount of the Escrow Fund is equal to $85,000,000 (calculatedafter deduction of the Escrow Agent’s fees and expenses in accordance with Section 4and Section 6 of this Escrow Agreement), the Escrow Agent shall distribute$85,000,000 in cash to PG&E, plus any interest that has accrued on the$85,000,000 and that remains in the Escrow Account after deduction of theEscrow Agent’s fees and expenses in accordance with Section 4 of thisEscrow Agreement, and after deduction of any amount required to be paidpursuant to Section 6 of this Escrow Agreement. All Cash Proceeds andother monies thereafter remaining in the Escrow Account shall be paid to Delta.

 

**ii.**             If a CC8 Triggering Event that is not a CC8Execution Triggering Event has occurred before the Effective Date, then, as ofthe Effective Date, (a) Delta and PG&E shall comply with the applicablerequirements of Section 8.9 of the Settlement and Release of ClaimsAgreement, and (b) Delta, PG&E and the Escrow Agent shall comply with theprovisions of Section 2 of this Escrow Agreement.  As soon as practicable after the total amountof the Escrow Fund is equal to $70,000,000 (calculated after deduction of theEscrow Agent’s fees and expenses in accordance with Section 4 and Section 6of this Escrow Agreement), the Escrow Agent shall distribute $70,000,000 incash to PG&E,

 

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plus any interest that has accrued on the$70,000,000 and that remains in the Escrow Account after deduction of theEscrow Agent’s fees and expenses in accordance with Section 4 of thisEscrow Agreement, and after deduction of any amount required to be paidpursuant to Section 6 of this Escrow Agreement. All Cash Proceeds inexcess of $70,000,000, all interest that has accrued on such Cash Proceeds inexcess of $70,000,000, and all other monies thereafter remaining in the EscrowAccount shall be paid to Delta.

 

**iii.**         If a CC8 Triggering Event that is a CC8 Execution Triggering Eventoccurs after the Effective Date but before PG&E has liquidated the CC8Claim Plan Securities, then, (a) PG&E shall promptly liquidate the CC8Claim Plan Securities in accordance with Section 8.9.2 of the Settlementand Release of Claims Agreement, (b) Delta and PG&E shall comply with theapplicable requirements of Section 8.9 of the Settlement and Release ofClaims Agreement, and (c) Delta, PG&E and the Escrow Agent shall complywith the provisions of Section 2 of this Escrow Agreement As soon aspracticable after the total amount of the Escrow Fund is equal to $85,000,000(calculated after deduction of the Escrow Agent’s fees and expenses inaccordance with Section 4 and Section 6 of this Escrow Agreement), theEscrow Agent shall distribute $85,000,000 in cash to PG&E, plus anyinterest that has accrued on the $85,000,000 and that remains in the EscrowAccount after deduction of the Escrow Agent’s fees and expenses in accordancewith Section 4 of this Escrow Agreement, and after deduction of any amountrequired to be paid pursuant to Section 6 of this Escrow Agreement. AllCash Proceeds and other monies thereafter remaining in the Escrow Account shallbe paid to Delta.

 

**iv.**            If a CC8 Triggering Event that is not a CC8Execution Triggering Event occurs after the Effective Date but before PG&Ehas liquidated the CC8 Claim Plan Securities, then, (a) PG&E shall promptlyliquidate the CC8 Claim Plan Securities in accordance with Section 8.9.2of the Settlement and Release of Claims Agreement, (b) Delta and PG&E shallcomply with the applicable requirements of Section 8.9 of the Settlementand Release of Claims Agreement, and (c) Delta, PG&E and the Escrow Agentshall comply with the provisions of Section 2 of this Escrow Agreement.  As soon as practicable after the total amountof the Escrow Fund is equal to $70,000,000 (calculated after deduction of theEscrow Agent’s fees and expenses in accordance with Section 4 of thisEscrow Agreement and Section 6 of this Escrow Agreement), the Escrow Agentshall distribute $70,000,000 in cash to PG&E, plus any interest that hasaccrued on the $70,000,000 and that remains in the Escrow Account afterdeduction of the Escrow Agent’s fees and expenses in accordance with Section 4of this Escrow Agreement, and after deduction of any amount required to be paidpursuant to Section 6 of this Escrow Agreement. All Cash Proceeds inexcess of $70,000,000, all interest that has accrued on such Cash Proceeds inexcess of $70,000,000, and all other monies thereafter remaining in the EscrowAccount shall be paid to Delta.

 

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**v.**                If a CC8 Triggering Event that is a CC8Execution Triggering Event occurs after the Effective Date and after PG&Ehas liquidated the CC8 Claim Plan Securities in accordance with Section 8.9.2of the Settlement and Release of Claims Agreement, then (a) Delta and PG&Eshall comply with the applicable requirements of Section 8.9 of theSettlement and Release of Claims Agreement, and (b) Delta, PG&E and theEscrow Agent shall comply with the provisions of Section 2 of this EscrowAgreement. As soon as practicable after the total amount of the Escrow Fund isequal to $85,000,000 (calculated after deduction of the Escrow Agent’s fees andexpenses in accordance with Section 4 and Section 6 of this EscrowAgreement), the Escrow Agent shall distribute $85,000,000 in cash to PG&E,plus any interest that has accrued on the $85,000,000 and that remains in theEscrow Account after deduction of the Escrow Agent’s fees and expenses inaccordance with Section 4 of this Escrow Agreement, and after deduction ofany amount required to be paid pursuant to Section 6 of this EscrowAgreement. All Cash Proceeds and other monies thereafter remaining in theEscrow Account shall be paid to Delta.

 

**vi.**            If a CC8 Triggering Event that is not a CC8Execution Triggering Event occurs after the Effective Date and after PG&Ehas liquidated the CC8 Claim Plan Securities in accordance with Section 8.9.2of the Settlement and Release of Claims Agreement, then (a) Delta and PG&Eshall comply with the applicable requirements of Section 8.9 of theSettlement and Release of Claims Agreement, and (b) Delta, PG&E and theEscrow Agent shall comply with the provisions of Section 2 of this EscrowAgreement. As soon as practicable after the total amount of the Escrow Fund isequal to $70,000,000 (calculated after deduction of the Escrow Agent’s fees andexpenses in accordance with Section 4 and Section 6 of this EscrowAgreement), the Escrow Agent shall distribute $70,000,000 in cash to PG&E,plus any interest that has accrued on the $70,000,000 and that remains in theEscrow Account after deduction of the Escrow Agent’s fees and expenses inaccordance with Section 4 of this Escrow Agreement, and after deduction ofany amount required to be paid pursuant to Section 6 of this EscrowAgreement. All Cash Proceeds in excess of $70,000,000, all interest that hasaccrued on such Cash Proceeds in excess of $70,000,000, and all other moniesthereafter remaining in the Escrow Account shall be paid to Delta.

 

**c)****             ****The Date of Closing****.** Following the occurrence of the Closing,PG&E will deliver a certificate signed by PG&E’s general counsel or aperson designated by such counsel to that effect to the Escrow Agent and Delta.If PG&E has not delivered the foregoing certificate within two (2) BusinessDays after the Closing, Delta shall have the right to deliver an equivalentnotice and certificate to PG&E and the Escrow Agent, and such notice and certificateshall have the same force and effect as if it had been delivered by PG&E.Upon receipt of any such certificate from PG&E or Delta, the Escrow Agentshall promptly disburse the Escrow Fund, including all Cash Proceeds and allother money and assets held in the Escrow Account, after deduction of theEscrow Agent’s fees and expenses in accordance with Section 4 of thisEscrow Agreement, and after

 

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deduction of any amount required to be paid pursuantto Section 6 of this Escrow Agreement, to Delta in accordance with Delta’sinstructions.

 

This Escrow Agreement shall terminate upon the distribution of theEscrow Fund, including all Cash Proceeds and all other money and assets held inthe Escrow Account. The provisions of Sections 6, 8 and 9 of this EscrowAgreement shall survive the termination of this Escrow Agreement and theearlier resignation or removal of the Escrow Agent.

 

**4.****                                     ****Investment of Escrow Cash****.** The Escrow Agent shall invest or reinvest theCash Proceeds as directed in writing by Delta in any of the following:

 

**a)**              direct obligations of, or obligations fullyguaranteed as to principal and interest by, the United States or any agency orinstrumentality thereof, provided that such obligations are backed by the fullfaith and credit of the United States and have an original maturity of no morethan 180 days;

 

**b)****             **certificatesof deposit of or interest bearing accounts with national banks or corporationsendowed with trust powers, having capital and surplus in excess of $100,000,000,provided that such certificates or accounts have an original maturity of no morethan 90 days;

 

**c)**              commercial paper (having original maturitiesof no more than 90 days) that at the time of investment is rated A-1 by Standardand Poor’s Corporation or P-1 by Moody’s Investor Service;

 

**d)**              repurchase agreements with any bank orcorporation described in subpart (b), above, fully secured by obligationsdescribed in subpart (a), above, collateralized by 102 percent, and having aterm of no more than 90 days; or

 

**e)**              any money market fund registered under theInvestment Company Act of 1940, as amended.

 

The Escrow Agent shall have no obligation to invest or reinvest theEscrow Fund if deposited with the Escrow Agent after 11:00 a.m. (E.S.T.) onsuch day of deposit. Instructions received after 11:00 a.m. (E.S.T.) will betreated as if received on the following business day. The Escrow Agent shallhave no responsibility for any investment losses resulting from the investment,reinvestment or liquidation of the Escrow Fund. Any interest or other incomereceived on such investment and reinvestment of the Escrow Fund shall becomepart of the Escrow Fund and any losses incurred on such investment andreinvestment of the Escrow Fund shall be debited against the Escrow Fund. If aselection is not made and a written direction not given to the Escrow Agent,the Escrow Fund shall remain uninvested with no liability for interest therein.It is agreed and understood that the entity serving as Escrow Agent may earnfees associated with the investments outlined above in accordance with theterms of such investments. Notwithstanding the foregoing, the Escrow Agentshall have the power to sell or liquidate the foregoing investments wheneverthe Escrow Agent shall be required to release all or any portion of the EscrowFund pursuant to Section 3 of this Escrow Agreement. In no event shall theEscrow Agent be deemed an investment manager or adviser in respect of anyselection of investments hereunder.

 

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**5.****                                     ****Access****to Escrow Documents**. During the term of this Escrow Agreement,Delta and PG&E shall have access to the documents delivered to or by theEscrow Agent.

 

**6.****                                     ****Fees****and Expenses of EscrowAgent; Indemnification****.**

 

**a)****             **TheEscrow Agent shall be entitled to payment as provided in this Section 6for customary fees and expenses for all services rendered by it hereunder inaccordance with the fee schedule attached as Exhibit A hereto (assuch fees may be adjusted from time to time, with such adjustments to beeffective 60 days after receipt of notice by Delta and PG&E). It isunderstood by all parties that the annual fee will be deducted when it becomesdue from amounts constituting interest or earnings on the Escrow Fund then on depositwith the Escrow Agent under this Escrow Agreement, and all such interest and earningsshall be applied first to pay the Escrow Agent’s fees and expenses before beingallocated to any other purpose. To the extent such interest is insufficient topay such fees in full, and upon written notice providing a reasonableaccounting from the Escrow Agent, Delta shall pay the Escrow Agent fees, andany out-of-pocket expenses, fees and expenses of counsel, or other charges bythe Escrow Agent incurred in connection with its obligations under this EscrowAgreement. Delta shall reimburse the Escrow Agent on demand for all loss,liability, damage, disbursements, advances or expenses paid or incurred by itin the administration of its duties hereunder, including, but not limited to, allreasonable counsel, advisors’ and agents’ fees and disbursements and all taxesor other governmental charges. At all times, the Escrow Agent will have a rightof set off and first lien on the funds in the Escrow Fund for payment ofcustomary fees and expenses and all such loss, liability, damage or expenses.Such fees and expenses shall be paid from the Escrow Fund to the extent nototherwise paid hereunder. The obligations contained in this Section 6shall be the obligation of Delta, and shall survive the termination of thisEscrow Agreement and the resignation or removal of the Escrow Agent.

 

**b)**              Deltashall indemnify, defend and hold harmless the Escrow Agent and its officers,directors, employees, representatives and agents, from and against andreimburse the Escrow Agent for any and all claims, expenses, obligations,liabilities, losses, damages, injuries (to person, property, or naturalresources), penalties, stamp or other similar taxes, actions, suits, judgments,reasonable costs and expenses (including reasonable attorney’s fees andexpenses) of whatever kind or nature regardless of their merit, demanded,asserted or claimed against the Escrow Agent by any third party directly orindirectly relating to, or arising from, claims against the Escrow Agent by reasonof its participation in the transactions contemplated hereby, including withoutlimitation all reasonable costs required to be associated with claims fordamages to persons or property, and reasonable attorneys’ and consultants’ feesand expenses and court costs except to the extent caused by the Escrow Agent’sgross negligence or willful misconduct. The provisions of this Section 6(b)shall survive the termination of this Agreement or the earlier resignation orremoval of the Escrow Agent.

 

**7.****                                     ****Resolution of Conflicts****.** After the Effective Date, except as otherwiselimited by law, resolution of any and all controversies, disputes and claimsarising out of, relating to, in connection with or resulting from this EscrowAgreement (or any transaction contemplated

 

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hereby),including as to the interpretation, performance, non-performance, validity,breach or termination of this Escrow Agreement, whether the claim is based oncontract, tort, regulation, rule, statute or constitution and any claimsraising questions of law, whether arising before or after termination of thisEscrow Agreement (each an “Agreement Dispute”), shall be exclusivelygoverned by and settled in accordance with the provisions of this Section 7.Unless otherwise agreed in writing, the Parties shall continue to perform theirobligations under the provisions of this Escrow Agreement during the course ofdispute resolution pursuant to the provisions of this Section 7. Notice ofan Agreement Dispute shall be provided to the parties to this Escrow Agreementand to the California Public Utilities Commission (“CPUC”). The CPUC mayparticipate in the resolution of an Agreement Dispute by participating in thedispute resolution process provided for below as a party.

 

**a)**              **Negotiation and Mediation**.

 

**i.**                 **Negotiation**. The parties shall make a good faith attemptto resolve any Agreement Dispute through negotiation. Within 30 days afternotice of an Agreement Dispute is given by a party to another party or parties,each such party shall select one or more representatives who are vicepresidents of such party or, in the case of the CPUC, an employee withauthority to bind the CPUC, which representatives shall meet and make a goodfaith attempt to resolve such Agreement Dispute and shall continue to negotiatein good faith in an effort to resolve the Agreement Dispute.

 

**ii.**             **Mediation**. If such representatives fail to resolve anAgreement Dispute within 30 days after the first meeting of the representativesor fail to meet within 30 days after the date of the applicable notice of anAgreement Dispute (such date, the “Mediation Trigger Date”), theaffected parties shall seek resolution of the Agreement Dispute throughmediation, with a mediator mutually acceptable to the affected parties. Therepresentatives of the affected parties selected pursuant to Section 7(a)(i)of this Escrow Agreement shall be in attendance at the mediation.

 

**iii.**         **Settlement**. If a settlement is mutually agreed upon asa result of the negotiation or mediation, then such settlement shall berecorded in writing, signed by the affected parties, and shall be binding onthem.

 

**b)**              **Arbitration**.

 

**i.****                ****Selection of Arbitrator**. In the event that (1) the affected partiesfail to mutually agree upon a mediator pursuant to Section 7(a)(ii) ofthis Escrow Agreement within 30 days after the Mediation Trigger Date or (2)any Agreement Dispute is not settled by the affected parties within sixty (60)days after the Mediation Trigger Date, a party may initiate arbitration bysending written notice to the other party or parties requesting arbitration anddescribing the Agreement Dispute and any proposed remedy. Within ten (10)Business Days after receipt of such notice, the affected parties shall meet toselect a single arbitrator. If the affected parties cannot agree on theselection

 

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of an arbitrator or such parties fail to meet withinten (10) Business Days, the arbitrator shall be selected by the AmericanArbitration Association in accordance with its Commercial Arbitration Rules.The arbitrator selected under these procedures shall be a lawyer or retiredjudge with at least ten years’ experience arbitrating complex commercialdisputes.

 

**ii.**             **Location**. The arbitration shall be conducted in theCity and County of San Francisco, California and shall be governed by theCommercial Arbitration Rules of the American Arbitration Association, except asmodified herein or as agreed by the affected Parties in writing.

 

**iii.**         **Discovery**. The affected parties shall have the right toconduct discovery in accordance with California Code of Civil Procedure Section 1283.05,including the right to two depositions of each opposing party, 20interrogatories, 25 requests for admissions, and requests for the production ofdocuments and other items. If additional discovery is necessary because of thecomplexity or importance of the issues, the parties shall negotiate in goodfaith regarding additional discovery and, if such negotiations fail, thearbitrator upon a showing of good cause may allow for additional reasonablediscovery, giving due consideration to the complexity and importance of theissues, efficiency lost and prevention of undue intrusiveness and harassment.

 

**iv.****           ****Hearing**. After giving the affected parties due noticeof hearing, the arbitrator shall hear the Agreement Dispute submitted forarbitration and shall provide a reasoned, written decision within 90 days afterthe completion of the hearing or such other date selected by agreement of theaffected parties. The decision shall conform to applicable law. The proceduraland substantive law applied in the arbitration shall be the law of the State ofCalifornia without regard to its conflict of law principles, unless the claimsor defenses raise issues of federal law in which case federal substantive lawshall apply to those particular claims or defenses. The arbitrator shall bebound to apply the law, including the rules of evidence, and shall be empoweredto hear and determine dispositive motions, including motions to dismiss andmotions for summary judgment. The arbitrator shall have no authority to alterthe terms of this Escrow Agreement or the Settlement and Release of ClaimsAgreement.

 

**v.**                **“Baseball Style” Arbitration**. The arbitration shall be a “baseball style”arbitration. Each party shall submit a proposed resolution of the AgreementDispute.  The arbitrator shall choose oneof the proposed resolutions without modification, provided that the arbitratorshall not choose any resolution that is inconsistent with the terms of thisEscrow Agreement or the Settlement and Release of Claims Agreement. Thedecision of the arbitrator shall be final and binding upon the parties, and aparty may petition a court to correct or vacate the decision only upon groundsthat an award contained therein was procured by corruption, fraud or otherundue means and may not petition a court to correct or vacate the decision forfailure of the arbitrator to apply the law or

 

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any other grounds or reasons. Judgment may beentered on the decision in any court of competent jurisdiction upon theapplication of any affected party.

 

**vi.**            **Injunctions**. The arbitrator shall have the right to issuetemporary restraining orders, preliminary injunctions and final injunctions.

 

**vii.**        **Fees and Costs**. The arbitrator may award costs andreasonable attorneys’ fees to the prevailing party. If more than one partyprevails in part, such fees may be allocated among the parties in such amountsas may be determined by the arbitrator based on the relative merits and amountsof each party’s claims.

 

**c)**              **Specific Performance**. Notwithstanding Sections 7, 7(a) and 7(b) ofthis Escrow Agreement, the parties agree that irreparable damage may occur inthe event that the provisions of this Escrow Agreement are not performed in allmaterial respects in accordance with their specific terms or are otherwisebreached in any material respect.  It isaccordingly agreed that a party shall be entitled to seek a temporaryrestraining order or preliminary injunction from any court of competentjurisdiction to maintain the status quo or otherwise to prevent a materialbreach of this Escrow Agreement and to enforce specifically the terms andprovisions hereof until an arbitration proceeding can be commenced or aninjunction hearing held.

 

**8.****                                     ****The Escrow****Agent**.

 

*[Provisionswill be added to address the duties and responsibilities of the Escrow Agent basedon discussions with the Escrow Agent. PG&E and Delta agree that Delta willbe responsible for fees, expenses and indemnification obligations imposed bythe Escrow Agent, subject to the reimbursement provision in Section 2(c)of this Escrow Agreement.]*

 

**9.****                                     ****Resignation and****Removal of****Escrow Agent**. The Escrow Agent may resign and bedischarged from its duties hereunder at any time by giving thirty (30) calendardays’ prior written notice of such resignation to Delta and PG&E. Delta andPG&E may remove the Escrow Agent at any time by giving thirty (30) calendardays’ prior written notice to the Escrow Agent. Upon such notice, a successorescrow agent shall be appointed by Delta and PG&E, who shall providewritten notice of such to the resigning or removed Escrow Agent. Such successorescrow agent shall become the escrow agent hereunder upon the resignation orremoval date specified in such notice and upon its receipt of the Escrow Fund.If Delta and PG&E are unable to agree upon a successor escrow agent withinthirty (30) days after such notice, the Escrow Agent may, in its solediscretion, apply to a court of competent jurisdiction for the appointment of asuccessor escrow agent or for other appropriate relief. The costs and expenses(including its reasonable attorneys’ fees and expenses) incurred by the EscrowAgent in connection with such proceeding shall be paid by Delta. Upon receiptof the identity of the successor escrow agent, the Escrow Agent shall eitherdeliver the Escrow Fund then held hereunder to the successor Escrow Agent, lessthe Escrow Agent’s fees, costs and expenses or other obligations owed to the EscrowAgent to be paid from any interest earned in respect of the Escrow Fund, orhold any interest earned in respect of the Escrow Fund (or any portionthereof), pending distribution, until all such fees, costs and expenses orother obligations are paid. Upon its resignation and delivery

 

C-12

----

 

ofthe Escrow Fund as set forth in this Section 9, the Escrow Agent shall bedischarged of and from any and all further obligations arising in connectionwith the Escrow Fund or this Escrow Agreement.

 

**10.****                              ****Taxes**. Taxes incurred with respect to the earningsof the Escrow Fund and payments made hereunder shall be borne by the party towhom such earnings are distributed (or to be distributed) or to whom suchpayment is made.

 

**11.****                              ****Miscellaneous**.

 

**a)**              **Amendments****and Waivers**. Any term of this Escrow Agreement may be amendedor waived with the written consent of the parties hereto or their respective successorsand assigns. Any amendment or waiver effected in accordance with this Section 11(a)shall be binding upon the parties and their respective successors and assigns.

 

**b)****             ****Successors and Assigns**. The terms and conditions of this EscrowAgreement shall inure to the benefit of and be binding upon the respectivesuccessors and assigns of the parties hereto. Nothing in this Escrow Agreement,express or implied, is intended to confer upon any party other than the partieshereto or their respective successors and assigns any rights, remedies,obligations, or liabilities under or by reason of this Escrow Agreement, exceptas expressly provided in this Escrow Agreement.

 

**c)****             ****Governing Law; Jurisdiction**. This Escrow Agreement and all acts and transactionspursuant hereto and the rights and obligations of the parties hereto shall be governed,construed and interpreted in accordance with the laws of the State of California,without giving effect to principles of conflicts of law. Except as specified inSection 7 of this Escrow Agreement, each of the parties to this EscrowAgreement consents to the exclusive jurisdiction and venue of the courts of thestate and federal courts of San Francisco County, California.

 

**d)****             ****Counterparts**. This Escrow Agreement may be executed intwo or more counterparts, each of which shall be deemed an original and all ofwhich together shall constitute one instrument.

 

**e)****             ****Titles and Subtitles**. The titles and subtitles used in thisEscrow Agreement are used for convenience only and are not to be considered inconstruing or interpreting this Escrow Agreement.

 

**f)**                **Notices**. Any notice required or permitted by thisEscrow Agreement shall be in writing and shall be deemed to have been dulygiven: (i) when personally delivered; (ii) upon actual receipt (as establishedby confirmation of receipt or otherwise), during normal business hours,otherwise on the first (1st) Business Day thereafter, if transmitted byfacsimile or telecopier with confirmation of receipt; (iii) on the date ofreceipt when mailed by certified mail, return receipt requested, postageprepaid; or (iv) on the first (1st) Business Day thereafter when sent byovernight courier; in each case to the addresses set forth below, or to suchother addresses as Delta, PG&E or the Escrow

 

C-13

----

 

Agent may from time to time specify by notice to the other parties tothis Escrow Agreement in accordance with this Section 11(f).

 
| If  to Delta:                           |
|-----------------------------------------|
|                                    |
| Mirant  Delta, LLC                      |
| 1155  Perimeter Center West             |
| Atlanta,  Georgia 30338                 |
| Telephone:  678-579-5000                |
| Attention:  General Counsel             |
| Facsimile:  678-579-5001                |
|                                    |
| If  to PG&E:                        |
|                                    |
| Pacific  Gas and Electric Company       |
| 77  Beale Street, Suite 3200            |
| San  Francisco, California 94105        |
| Attention:  General Counsel             |
| Facsimile:  (415) 973-0200              |
|                                    |
| If  to the Escrow Agent:                |
|                                    |
| Deutsche  Bank Trust Company Americas   |
| 60  Wall Street, 27th Floor             |
| Mail  Stop: NYC60-2710                  |
| New  York, New York 10005               |
| Facsimile:  (212) 797-8623              |
| Attention:  Manager, Escrow Team        |
|                                    |
| If  to the CPUC:                        |
|                                    |
| Sean  Gallagher                         |
| California  Public Utilities Commission |
| Legal  Division, Room 5124              |
| 505  Van Ness Avenue                    |
| San  Francisco 94102                    |
| Telephone:                              | (415)  703-2059 |
| Facsimile:                              | (415)  703-2262 |

 

**g)****            ****Severability**. If one or more provisions of this Escrow Agreement are held to beunenforceable under applicable law, the parties agree to renegotiate suchprovision in good faith, in order to maintain the economic position enjoyed byeach party as close as possible to that under the provision renderedunenforceable. In the event that the parties cannot reach a mutually agreeableand enforceable replacement for such provision, then (i) such provision shallbe excluded from this Escrow Agreement, (ii) the balance of this EscrowAgreement shall be interpreted as if such provision were so excluded and (iii)the balance of this Escrow Agreement shall be enforceable in accordance withits terms.

 

C-14

----

 

**h)**             **Entire****Agreement**. This Escrow Agreement is the product of allof the parties hereto, and constitutes the entire agreement between suchparties pertaining to the subject matter hereof, and merges all priornegotiations and drafts of the parties with regard to the transactionscontemplated herein. Any and all other written or oral agreements existingbetween the parties hereto regarding such transactions are expressly canceled.In the event of any conflict between the terms of this Escrow Agreement and theterms of the Settlement and Release of Claims Agreement, this Escrow Agreementshall govern.

 

**i)**                **Advice of****Legal****Counsel**. Each party acknowledges and represents that,in executing this Escrow Agreement, it has had the opportunity to seek adviceas to its legal rights from legal counsel and that the person signing on itsbehalf has read and understood all of the terms and provisions of this EscrowAgreement. This Escrow Agreement shall not be construed against any party byreason of the drafting or preparation thereof.

 

IN WITNESS WHEREOF, the Parties have caused this Escrow Agreement to beexecuted as of the day and year first written above.

 

 
|   | MIRANT  DELTA LLC                             |
|--------|-----------------------------------------------|
|   |                                          |
|   |                                          |
|   | By:                                           |   |   |
|   |                                          | Name: |
|   |                                          | Title: |
|   |                                          |
|   |                                          |
|   | PACIFIC  GAS AND ELECTRIC COMPANY             |
|   |                                          |
|   |                                          |
|   | By:                                           |   |   |
|   |                                          | Name: |
|   |                                          | Title: |
|   |                                          |
|   |                                          |
|   | ESCROW  AGENT: [INSERT NAME OF  ESCROW AGENT] |
|   |                                          |
|   |                                          |
|   | By:                                           |   |   |
|   |                                          | Name: |
|   |                                          | Title: |
|        |                                               |  |  |  |

 

C-15

----

 

**CC8Escrow Agreement Exhibit A**

 

**FEESCHEDULE**

 

***[To be added based on discussions with theEscrow Agent]***

 

C-A-1

----

 

**Exhibit D**

 

**StayedLitigation And Contested Matters**

 

1.            Mirant Americas Energy Marketing, LP vs.Pacific Gas & Electric Company, Adv. Proc.No. 04-04240, pending in theMirant Bankruptcy Court;

 

2.            Mirant Corp., et al vs. Southern CaliforniaEdison, Inc., Ad. Proc. No. 04-04241, pending in the Mirant Bankruptcy Court;

 

3.            Mirant Corp. et al vs. California Departmentof Water Resources, Adv. Proc. No. 04-04243, pending in the Mirant BankruptcyCourt;

 

4.            Mirant Americas Energy Marketing, LP v.California Power Exchange Corporation, Adv. No. 04-04242, pending in the MirantBankruptcy Court;

 

5.            Mirant Americas Energy Marketing, LP v.California Independent System Operator Corporation, Adv. No. 04-04244, pendingin the Mirant Bankruptcy Court;

 

6.            Mirant Americas Energy Marketing, L.P. et al.v. Pacific Gas & Electric Company, et al., 4:04-CV-557-A (Consolidated withNos. 4:04-CV-558-A, 4:04-CV-559-A, 4:04-CV-560-A, *&*4:04-CV-561-A), pending in the Mirant District Court;

 

7.            Initial Objection to Proofs of Claim Filed byCalifornia Public Utilities Commission pending in the Mirant Bankruptcy Court;

 

8.            Debtors’ Second Objection to Proofs of ClaimFiled by the California Public Utilities Commission (Claim Nos. 7529, 7530,7531, 7532, 7533, 7534 and 7535) pending in the Mirant Bankruptcy Court;

 

9.            Debtors’ Objection to Proofs of Claim Filedby the California Independent System Operator Corporation (Claim Nos. 7203,7204, 7205, 7801, 7806, 7836) pending in the Mirant Bankruptcy Court;

 

10.          Debtors’ Objection to Proofs of Claim Filedby Southern California Edison Company (Claim Nos. 5944, 5945, 5946 and 5947) pendingin the Mirant Bankruptcy Court;

 

11.          Debtors’ Objection to Proofs of Claim Filedby the Federal Energy Regulatory Commission (Claim Nos. 7563, 7564, 7565, 7566and 7567) pending in the Mirant Bankruptcy Court;

 

12.          Debtors’ Objection to Proofs of Claim Filedby the California Power Exchange Corporation (Claim Nos. 6531 and 6540) pendingin the Mirant Bankruptcy Court;

 

13.          Debtors’ Objection to Proofs of Claim Filedby Pacific Gas & Electric Company (Claim Nos. 6515, 6516, 6518, 6724 and6725) pending in the Mirant Bankruptcy Court;

 

D-1

----

 

14.          Consolidated Omnibus Objection to Proofs ofClaim Filed by the People of the State of California, ex rel. Bill Lockyer,Attorney General of the State of California (Claim Nos. 7536, 7537, 7538, 7539,7540, 7541 and 7542) pending in the Mirant Bankruptcy Court;

 

15.          Debtors’ Consolidated Omnibus Objection toProofs of Claim Filed by the California Department of Water Resources and theState of California (Claim Nos. 7543, 7544, 7545, 7546, 7547, 7548, 7549, 7550,7551, 7552, 7553, 7554, 7555, 7556, 7557, 7558, 7559, 7560, 7561, 7562) pendingin the Mirant Bankruptcy Court;

 

16.           FERC Proceeding No. ER98-495-000, pending atFERC;

 

17.           FERC Proceeding No. EL03-158, pending atFERC;

 

18.          Proceedings originally filed by theCalifornia Attorney General in the United States District Court for theNorthern District of California, California ex rel. Lockyer v. Mirant Corp., etal., Northern District of California, Docket No. 02-1787 VRW, alleging that certainMirant Parties engaged in illegal acquisitions and/or holdings and/or controlof assets, benefits, services or rights related to such assets, under section 7of the Clayton Act, 15 U.S.C. § 18 and any pending appeals therefrom;

 

19.          Proceedings originally filed by theCalifornia Attorney General in the California State Court in San FranciscoCounty, California ex rel. Lockyer v. Mirant Corp., et al., Northern Districtof California, Docket No. 04-3924 VRW, et al., alleging that certain MirantParties engaged in unjust and illegal trading practices during the Californiaenergy crisis and any appeals therefrom;

 

20.          Motion for an Order Granting San Diego Gas& Electric Leave to File Proofs of Claim pending in the Mirant BankruptcyCourt;

 

21.          Debtors’ Objection to Motion of San Diego Gas& Electric for Leave to File Proofs of Claim and Objection to Claim Numbers8076, 8077, 8078 and 8079 pending in the Mirant Bankruptcy Court; and

 

22.          PG&E’s Omnibus Objection To ISO And GeneratorClaims For Reliability Must-Run Service Agreement Charges, with respect to theclaims of Mirant Delta LLC (Claim No. 8875) and Mirant Potrero LLC (Claim No.8876) (hearing currently scheduled for February 9, 2005 at 9:30 a.m.).

 

D-2

----

 

**Exhibit E**

 

**List ofDebtors**

 
| **Bankruptcy  Proceedings  Case No.** | ** ** | **Debtor Entity**                                  |
|---------------------------------------|------------|----------------------------------------------------|
| 03-46590                              |       | Mirant Corporation                                 |
|                                  |       |                                               |
| 03-46591                              |       | Mirant Americas Energy Marketing, LP               |
|                                  |       |                                               |
| 03-46592                              |       | Mirant Americas Generation, LLC                    |
|                                  |       |                                               |
| 03-46593                              |       | Mirant Mid-Atlantic, LLC                           |
|                                  |       |                                               |
| 03-46594                              |       | Mirant Americas, Inc.                              |
|                                  |       |                                               |
| 03-46595                              |       | Hudson Valley Gas Corporation                      |
|                                  |       |                                               |
| 03-46596                              |       | Mint Farm Generation, LLC                          |
|                                  |       |                                               |
| 03-46597                              |       | Mirant Americas Development Capital, LLC           |
|                                  |       |                                               |
| 03-46598                              |       | Mirant Americas Development, Inc.                  |
|                                  |       |                                               |
| 03-46599                              |       | Mirant Americas Energy Marketing Investments, Inc. |
|                                  |       |                                               |
| 03-46600                              |       | Mirant Americas Gas Marketing I, LLC               |
|                                  |       |                                               |
| 03-46601                              |       | Mirant Americas Gas Marketing II, LLC              |
|                                  |       |                                               |
| 03-46602                              |       | Mirant Americas Gas Marketing III, LLC             |
|                                  |       |                                               |
| 03-46603                              |       | Mirant Americas Gas Marketing IV, LLC              |
|                                  |       |                                               |
| 03-46604                              |       | Mirant Americas Gas Marketing V, LLC               |
|                                  |       |                                               |
| 03-46605                              |       | Mirant Americas Gas Marketing VI, LLC              |
|                                  |       |                                               |
| 03-46606                              |       | Mirant Americas Gas Marketing VII, LLC             |
|                                  |       |                                               |
| 03-46607                              |       | Mirant Americas Gas Marketing VIII, LLC            |
|                                  |       |                                               |
| 03-46608                              |       | Mirant Americas Gas Marketing IX, LLC              |
|                                  |       |                                               |
| 03-46609                              |       | Mirant Americas Gas Marketing X, LLC               |
|                                  |       |                                               |
| 03-46610                              |       | Mirant Americas Gas Marketing XI, LLC              |
|                                  |       |                                               |
| 03-46611                              |       | Mirant Americas Gas Marketing XII, LLC             |
|                                  |       |                                               |
| 03-46612                              |       | Mirant Americas Gas Marketing XIII, LLC            |
|                                  |       |                                               |
| 03-46613                              |       | Mirant Americas Gas Marketing XIV, LLC             |
|                                  |       |                                               |
| 03-46614                              |       | Mirant Americas Gas Marketing XV, LLC              |
|                                  |       |                                               |
| 03-46615                              |       | Mirant Americas Procurement, Inc.                  |
|                                  |       |                                               |
| 03-46616                              |       | Mirant Americas Production Company                 |

 

E-1

----

 
| **Bankruptcy  Proceedings  Case No.** | ** ** | **Debtor Entity**                                   |
|---------------------------------------|------------|-----------------------------------------------------|
| 03-46617                              |       | Mirant Americas Retail Energy Marketing, LP         |
|                                  |       |                                                |
| 03-46618                              |       | Mirant Bowline, LLC                                 |
|                                  |       |                                                |
| 03-46619                              |       | Mirant California Investments, Inc.                 |
|                                  |       |                                                |
| 03-46620                              |       | Mirant California, LLC                              |
|                                  |       |                                                |
| 03-46621                              |       | Mirant Canal, LLC                                   |
|                                  |       |                                                |
| 03-46622                              |       | Mirant Capital Management, LLC                      |
|                                  |       |                                                |
| 03-46623                              |       | Mirant Capital, Inc.                                |
|                                  |       |                                                |
| 03-46624                              |       | Mirant Central Texas, LP                            |
|                                  |       |                                                |
| 03-46625                              |       | Mirant Chalk Point Development, LLC                 |
|                                  |       |                                                |
| 03-46626                              |       | Mirant Chalk Point, LLC                             |
|                                  |       |                                                |
| 03-46627                              |       | Mirant D.C. O&M, LLC                            |
|                                  |       |                                                |
| 03-46628                              |       | Mirant Danville, LLC                                |
|                                  |       |                                                |
| 03-46629                              |       | Mirant Delta, LLC                                   |
|                                  |       |                                                |
| 03-46630                              |       | Mirant Dickerson Development, LLC                   |
|                                  |       |                                                |
| 03-46631                              |       | Mirant Fund 2001, LLC                               |
|                                  |       |                                                |
| 03-46632                              |       | Mirant Gastonia, LLC                                |
|                                  |       |                                                |
| 03-46633                              |       | Mirant Intellectual Asset Management and  Marketing |
|                                  |       |                                                |
| 03-46634                              |       | Mirant Kendall, LLC                                 |
|                                  |       |                                                |
| 03-46635                              |       | Mirant Las Vegas, LLC                               |
|                                  |       |                                                |
| 03-46636                              |       | Mirant Lovett, LLC                                  |
|                                  |       |                                                |
| 03-46637                              |       | Mirant MD Ash Management, LLC                       |
|                                  |       |                                                |
| 03-46638                              |       | Mirant Michigan Investments, Inc.                   |
|                                  |       |                                                |
| 03-46639                              |       | Mirant Mid-Atlantic Services, LLC                   |
|                                  |       |                                                |
| 03-46640                              |       | Mirant New England, Inc.                            |
|                                  |       |                                                |
| 03-46641                              |       | Mirant New York, Inc.                               |
|                                  |       |                                                |
| 03-46642                              |       | Mirant NY-Gen, LLC                                  |
|                                  |       |                                                |
| 03-46643                              |       | Mirant Parker, LLC                                  |
|                                  |       |                                                |
| 03-46644                              |       | Mirant Peaker, LLC                                  |
|                                  |       |                                                |
| 03-46645                              |       | Mirant Piney Point, LLC                             |
|                                  |       |                                                |
| 03-46646                              |       | Mirant Portage County, LLC                          |
|                                  |       |                                                |
| 03-46647                              |       | Mirant Potomac River, LLC                           |

 

E-2

----

 
| **Bankruptcy  Proceedings  Case No.** | ** ** | **Debtor Entity**                          |
|---------------------------------------|------------|--------------------------------------------|
| 03-46648                              |       | Mirant Potrero, LLC                        |
|                                  |       |                                       |
| 03-46649                              |       | Mirant Services, LLC                       |
|                                  |       |                                       |
| 03-46650                              |       | Mirant Special Procurement, Inc.           |
|                                  |       |                                       |
| 03-46651                              |       | Mirant Sugar Creek Holdings, Inc.          |
|                                  |       |                                       |
| 03-46652                              |       | Mirant Sugar Creek Ventures, Inc.          |
|                                  |       |                                       |
| 03-46653                              |       | Mirant Sugar Creek, LLC                    |
|                                  |       |                                       |
| 03-46654                              |       | Mirant Texas Investments, Inc.             |
|                                  |       |                                       |
| 03-46655                              |       | Mirant Texas Management, Inc.              |
|                                  |       |                                       |
| 03-46656                              |       | Mirant Texas, LP                           |
|                                  |       |                                       |
| 03-46657                              |       | Mirant Wichita Falls Investments, Inc.     |
|                                  |       |                                       |
| 03-46658                              |       | Mirant Wichita Falls Management, Inc.      |
|                                  |       |                                       |
| 03-46659                              |       | Mirant Wichita Falls, LP                   |
|                                  |       |                                       |
| 03-46660                              |       | Mirant Wyandotte, LLC                      |
|                                  |       |                                       |
| 03-46661                              |       | Mirant Zeeland, LLC                        |
|                                  |       |                                       |
| 03-46662                              |       | Shady Hills Power Company, LLC             |
|                                  |       |                                       |
| 03-46663                              |       | West Georgia Generating Company, LLC       |
|                                  |       |                                       |
| 03-47927                              |       | Mirant EcoElectrica Investments I, Ltd.    |
|                                  |       |                                       |
| 03-47929                              |       | Puerto Rico Power Investments, Ltd.        |
|                                  |       |                                       |
| 03-49548                              |       | Mirant Wrightsville Investments, Inc.      |
|                                  |       |                                       |
| 03-49556                              |       | Mirant Wrightsville Management, Inc.       |
|                                  |       |                                       |
| 03-46588                              |       | MLW Development, LLC                       |
|                                  |       |                                       |
| 03-49553                              |       | Wrightsville Power Facility, LLC           |
|                                  |       |                                       |
| 03-91079                              |       | Mirant Americas Energy Capital, LP         |
|                                  |       |                                       |
| 03-91081                              |       | Mirant Americas Energy Capital Assets, LLC |
|                                  |       |                                       |
| 03-49555                              |       | Wrightsville Development Funding, L.L.C    |

 

E-3

----

 

**Exhibit F**

 

**AllocationMatrix**

 

**Attached**

 

F-1

----

 

Allocationof Refunds from Mirant

Effectivedate distribution

 
| ** **                                        | ** ** | ** **      | ** ** | **REFUND**         | ** ** | ** **      | ** ** | **PI Sell Cap  Adjustment** | ** ** | ** **      | ** ** | **Adjustment  [ILLEGIBLE]  Call Parties** | ** ** | ** **      | ** ** | **Total  Refund**  | ** ** | ** **      | ** ** | **Gas  [ILLEGIBLE]** | ** ** |
|---------------------------------------------------|------------|-----------------|------------|--------------------|------------|-----------------|------------|-----------------------------|------------|-----------------|------------|-------------------------------------------|------------|-----------------|------------|--------------------|------------|-----------------|------------|----------------------|------------|
| ** **                                        | ** ** | ** **      | ** ** | **Oct 2 - Jan 17** | ** ** | ** **      | ** ** | **Oct 2 - Jan 17**          | ** ** | ** **      | ** ** | **Oct 2 - Jan 17**                        | ** ** | ** **      | ** ** | **Oct 2 - Jan 17** | ** ** | ** **      | ** ** | **Oct 2 - Jan 17**   | ** ** |
| **[ILLEGIBLE]**                                   | ** ** | **[ILLEGIBLE]** | ** ** | **[ILLEGIBLE]**    | ** ** | **[ILLEGIBLE]** | ** ** | **[ILLEGIBLE]**             | ** ** | **[ILLEGIBLE]** | ** ** | **[ILLEGIBLE]**                           | ** ** | **[ILLEGIBLE]** | ** ** | **[ILLEGIBLE]**    | ** ** | **[ILLEGIBLE]** | ** ** | **[ILLEGIBLE]**      | ** ** |
| Pacific Gas and  Electric Company                 |       | 0.5000          |       | 126,742,275        |       | 0.5000          |       | 21,355,507                  |       | 0.6118          |       | (26,674,460                               | )          | —          |       | 121,423,302        |       | 0.4074          |       | (13,687,274)         |       |
| Southern  California Edison Company               |       | 0.2572          |       | 54,509,508         |       | [ILLEGIBLE]     |       | [ILLEGIBLE]                 |       | [ILLEGIBLE]     |       | [ILLEGIBLE]                               |       | —          |       | 52,503,154         |       | 0.3367          |       | (11,310,840)         |       |
| San Diego Gas  & Electric                     |       | ?               |       | 25,496,614         |       | 0.1171          |       | 4,296,069                   |       | 0.1234          |       | (5,362,160)                               |       | —          |       | [ILLEGIBLE]        |       | 0.0701          |       | (2,354,430)          |       |
| California  Department of Water Resources -CERS   |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| Salt River  Project                               |       | 0.0136          |       | 4,058,207          |       | 0.0126          |       | 683,759                     |       | —          |       | —                                    |       | —          |       | 4,741,991          |       | 0.0181          |       | [ILLEGIBLE]          |       |
| Aquia Power  Corporation                          |       | [ILLEGIBLE]     |       | 1,659,453          |       | 0.0076          |       | 279,510                     |       | —          |       | —                                    |       | —          |       | 1,939,063          |       | —          |       | —               |       |
| Arizona Public  Service Company                   |       | 0.0058          |       | 1,252,5?5          |       | [ILLEGIBLE]     |       | 211,057                     |       | —          |       | —                                    |       | —          |       | 1,463,722          |       | 0.0038          |       | [ILLEGIBLE]          |       |
| Automated Power Exchange                          |       | 0.0058          |       | 716,150            |       | 0.0030          |       | 120,689                     |       | —          |       | —                                    |       | —          |       | 836,620            |       | 0.0050          |       | (199,907             | )          |
| New Energy Inc.                                   |       | 0.0021          |       | 507,584            |       | 0.0023          |       | 85,536                      |       | —          |       | —                                    |       | —          |       | 583,109            |       | 0.0051          |       | (183,005             | )          |
| American Electric  Power Service Corporation      |       | 0.0029          |       | 532,053            |       | 0.0029          |       | 106,501                     |       | —          |       | —                                    |       | —          |       | 738,559            |       | —          |       | —               |       |
| California  [ILLEGIBLE] Power Bankers LLC         |       | 0.0019          |       | 419,230            |       | 0.0019          |       | 10,638                      |       | —          |       | —                                    |       | —          |       | [ILLEGIBLE]        |       | 0.0007          |       | (24,224              | )          |
| COTP / COTB                                       |       | 0.0036          |       | 412,569            |       | 0.0009          |       | 142,032                     |       | —          |       | —                                    |       | —          |       | [ILLEGIBLE]        |       | [ILLEGIBLE]     |       | [ILLEGIBLE]          |       |
| [ILLEGIBLE]  Energy Partners, Inc                 |       | 0.0050          |       | 223,529            |       | 0.0010          |       | 37,684                      |       | —          |       | —                                    |       | —          |       | 261,193            |       | [ILLEGIBLE]     |       | (8,325               | )          |
| City of  [ILLEGIBLE]                              |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | [ILLEGIBLE]     |       | [ILLEGIBLE]          |       |
| Strategic Energy,  LLC                            |       | 0.0007          |       | 146,135            |       | 0.0007          |       | 24,623                      |       | —          |       | —                                    |       | —          |       | 170,758            |       | [ILLEGIBLE]     |       | (24,704              | )          |
| City of Riverside                                 |       | 0.0004          |       | 83,984             |       | 0.0004          |       | 14,153                      |       | —          |       | —                                    |       | —          |       | 38,146             |       | 0.0054          |       | (181,379             | )          |
| City of Pasadena                                  |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | [ILLEGIBLE]     |       | (14,475              | )          |
| Pacific Gas and  Electric Energy Services Company |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| [ILLEGIBLE]                                       |       | 0.0002          |       | 40,814             |       | 0.0002          |       | 6,877                       |       | —          |       | —                                    |       | —          |       | 47,691             |       | —          |       | —               |       |
| Sempra Energy  Trading Corporation                |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| City of  [ILLEGIBLE]                              |       | 0.0001          |       | 22,523             |       | 0.0001          |       | 3,812                       |       | —          |       | —                                    |       | —          |       | 26,435             |       | 0.0004          |       | (13,379              | )          |
| El Paso Power  Services Company                   |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| Sacramento  Municipal Utility District            |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | [ILLEGIBLE]     |       | [ILLEGIBLE]          |       |
| Western Area  Power Admin Reding                  |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| Transita Energy Marketing  Inc.                   |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| Louisville Gas  and Electric Company              |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| [ILLEGIBLE]  Energy Services Inc.                 |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0000          |       | (2                   | )          |
| Puget Sound  Energy                               |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| PECO Energy  Company                              |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| [ILLEGIBLE] on Power  Source Inc.                 |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| City of  [ILLEGIBLE], Public Service Department   |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| [ILLEGIBLE]                                       |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| [ILLEGIBLE]                                       |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| Public Service  Company of Colorado               |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| Public Service  Company of New Mexico             |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| Arizona Electric  Power                           |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| Energy-Kach  Energy Trading, Inc.                 |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| Calpina Energy  Services, LP                      |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | —          |       | —               |       |
| [ILLEGIBLE]  Energy Marketing and Trading         |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0000          |       | (709                 | )          |
| City of Seattle,  City [ILLEGIBLE] Department     |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0004          |       | (14,636              | )          |
| City of Azusa                                     |       | 0.0000          |       | 5,6??              |       | 0.0000          |       | ?                           |       | —          |       | —                                    |       | —          |       | 6,845              |       | 0.0010          |       | (34,535              | )          |
| Idaho Power  Company                              |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0009          |       | [ILLEGIBLE]          |       |
| [ILLEGIBLE]                                       |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0010          |       | [ILLEGIBLE]          |       |
| Coral Power, LLC                                  |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0009          |       | [ILLEGIBLE]          |       |
| Northern  California Power Agency                 |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0014          |       | [ILLEGIBLE]          |       |
| [ILLEGIBLE] Power  Marketing Inc                  |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0016          |       | [ILLEGIBLE]          |       |
| British Columbia  Power Exchange Corporation      |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0057          |       | (190,721             | )          |
| City of [ILLEGIBLE]                               |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0052          |       | (174,841             | )          |
| Western Area  Power Administration [ILLEGIBLE]    |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0051          |       | (172,364             | )          |
| Eron Power  Marketing Inc.                        |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0351          |       | (1,177,945           | )          |
| California  Department of Water Resources (SWP)   |       | —          |       | —             |       | —          |       | —                      |       | —          |       | —                                    |       | —          |       | —             |       | 0.0391          |       | (1,312,939           | )          |
|                                              |       |            |       |               |       |            |       |                        |       |            |       |                                      |       |            |       |               |       |            |       |                 |       |
| SUM OF REFUND                                     |       |            |       | [ILLEGIBLE]        |       |            |       | [ILLEGIBLE]                 |       |            |       | [ILLEGIBLE]                               |       |            |       | [ILLEGIBLE]        |       |            |       | [ILLEGIBLE]          |       |

 
| ** **                                        | ** ** | **TOTAL  [ILLEGIBLE]** | ** ** | ** **      | ** ** | **REFUNDS**     | ** ** | ** **      | ** ** | **Gas [ILLEGIBLE]** | ** ** | **TOTAL [ILLEGIBLE]** | ** ** | ** **      | ** ** | **??? October** | ** ** | **TOTAL [ILLEGIBLE]** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|---------------------|------------|-----------------------|------------|-----------------|------------|-----------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **Oct 2 - Jan 17**     | ** ** | ** **      | ** ** | **Jan 18 -**    | ** ** | ** **      | ** ** | **Jan 18 -**        | ** ** | **Jan 18 -**          | ** ** | ** **      | ** ** | **[ILLEGIBLE]** | ** ** | **A+B+C**             | ** ** |
| **[ILLEGIBLE]**                                   | ** ** | **[ILLEGIBLE]**        | ** ** | **[ILLEGIBLE]** | ** ** | **[ILLEGIBLE]** | ** ** | **[ILLEGIBLE]** | ** ** | **[ILLEGIBLE]**     | ** ** | **[ILLEGIBLE]**       | ** ** | **[ILLEGIBLE]** | ** ** | **[ILLEGIBLE]** | ** ** | **[ILLEGIBLE]**       | ** ** |
| Pacific Gas and  Electric Company                 |       | [ILLEGIBLE]            |       | —          |       | —          |       | —          |       | —              |       | [ILLEGIBLE]           |       | 0.3767          |       | 9,089,043       |       | [ILLEGIBLE]           |       |
| Southern  California Edison Company               |       | [ILLEGIBLE]            |       | —          |       | —          |       | —          |       | —              |       | [ILLEGIBLE]           |       | [ILLEGIBLE]     |       | 8,311,465       |       | [ILLEGIBLE]           |       |
| San Diego Gas  & Electric                     |       | [ILLEGIBLE]            |       | —          |       | —          |       | —          |       | —              |       | [ILLEGIBLE]           |       | [ILLEGIBLE]     |       | 1,594,242       |       | [ILLEGIBLE]           |       |
| California  Department of Water Resources -CERS   |       | [ILLEGIBLE]            |       | 0.9694          |       | 9,553,558       |       | [ILLEGIBLE]     |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Salt River  Project                               |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0001          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | [ILLEGIBLE]     |       | [ILLEGIBLE]     |       | [ILLEGIBLE]           |       |
| Aquia Power  Corporation                          |       | [ILLEGIBLE]            |       | 0.0007          |       | 8,547           |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Arizona Public  Service Company                   |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0003          |       | (1,138              | )          | [ILLEGIBLE]           |       | [ILLEGIBLE]     |       | 119,3?3         |       | [ILLEGIBLE]           |       |
| Automated Power Exchange                          |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0036          |       | (12,033             | )          | [ILLEGIBLE]           |       | [ILLEGIBLE]     |       | [ILLEGIBLE]     |       | [ILLEGIBLE]           |       |
| New Energy Inc.                                   |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0015          |       | (5,132              | )          | [ILLEGIBLE]           |       | [ILLEGIBLE]     |       | 394,067         |       | [ILLEGIBLE]           |       |
| American Electric  Power Service Corporation      |       | [ILLEGIBLE]            |       | 0.0013          |       | 13,108          |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| California  [ILLEGIBLE] Power Bankers LLC         |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0000          |       | (110                | )          | [ILLEGIBLE]           |       | 0.0001          |       | 18,238          |       | [ILLEGIBLE]           |       |
| COTP / COTB                                       |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0847          |       | (115,787            | )          | [ILLEGIBLE]           |       | [ILLEGIBLE]     |       | [ILLEGIBLE]     |       | [ILLEGIBLE]           |       |
| [ILLEGIBLE]  Energy Partners, Inc                 |       | [ILLEGIBLE]            |       | 0.0000          |       | 238             |       | 0.0000          |       | (1                  | )          | [ILLEGIBLE]           |       | 0.0004          |       | 8,949           |       | [ILLEGIBLE]           |       |
| City of  [ILLEGIBLE]                              |       | [ILLEGIBLE]            |       |            |       |            |       | 0.0057          |       | (18,917             | )          | [ILLEGIBLE]           |       | [ILLEGIBLE]     |       | 222,115         |       | [ILLEGIBLE]           |       |
| Strategic Energy,  LLC                            |       | [ILLEGIBLE]            |       | 0.0000          |       | 242             |       | 0.0019          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0000          |       | 951             |       | [ILLEGIBLE]           |       |
| City of Riverside                                 |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0079          |       | (26,382             | )          | [ILLEGIBLE]           |       | [ILLEGIBLE]     |       | 205,168         |       | [ILLEGIBLE]           |       |
| City of Pasadena                                  |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0024          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0043          |       | 102,445         |       | [ILLEGIBLE]           |       |
| Pacific Gas and  Electric Energy Services Company |       | [ILLEGIBLE]            |       | —          |       | —          |       | —          |       | —              |       | [ILLEGIBLE]           |       | 0.0025          |       | 59,714          |       | [ILLEGIBLE]           |       |
| [ILLEGIBLE]                                       |       | [ILLEGIBLE]            |       | —          |       | —          |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Sempra Energy  Trading Corporation                |       | [ILLEGIBLE]            |       | —          |       | —          |       | —          |       | —              |       | [ILLEGIBLE]           |       | 0.0015          |       | 35,345          |       | [ILLEGIBLE]           |       |
| City of  [ILLEGIBLE]                              |       | [ILLEGIBLE]            |       | —          |       | —          |       | [ILLEGIBLE]     |       | (7,026              | )          | [ILLEGIBLE]           |       | 0.0006          |       | 15,073          |       | [ILLEGIBLE]           |       |
| El Paso Power  Services Company                   |       | [ILLEGIBLE]            |       | 0.0021          |       | 21,062          |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Sacramento  Municipal Utility District            |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0000          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0020          |       | 47,265          |       | [ILLEGIBLE]           |       |
| Western Area  Power Admin Reding                  |       | [ILLEGIBLE]            |       | 0.0004          |       | [ILLEGIBLE]     |       | 0.0031          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Transita Energy  Marketing Inc.                   |       | [ILLEGIBLE]            |       | 0.0001          |       | 771             |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Louisville Gas  and Electric Company              |       | [ILLEGIBLE]            |       | —          |       | —          |       | —          |       | —              |       | [ILLEGIBLE]           |       | 0.0000          |       | 688             |       | [ILLEGIBLE]           |       |
| [ILLEGIBLE]  Energy Services Inc.                 |       | [ILLEGIBLE]            |       | —          |       | —          |       | [ILLEGIBLE]     |       | (1                  | )          | [ILLEGIBLE]           |       | 0.0000          |       | 526             |       | [ILLEGIBLE]           |       |
| Puget Sound  Energy                               |       | [ILLEGIBLE]            |       | 0.0000          |       | 136             |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| PECO Energy  Company                              |       | [ILLEGIBLE]            |       | 0.0000          |       | 75              |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| [ILLEGIBLE] on Power  Source Inc.                 |       | [ILLEGIBLE]            |       | 0.0000          |       | 45              |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| City of  [ILLEGIBLE], Public Service Department   |       | [ILLEGIBLE]            |       | 0.0000          |       | 12              |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| [ILLEGIBLE]                                       |       | [ILLEGIBLE]            |       | 0.0000          |       | 7               |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| [ILLEGIBLE]                                       |       | [ILLEGIBLE]            |       | 0.0000          |       | 2               |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Public Service  Company of Colorado               |       | [ILLEGIBLE]            |       | 0.0000          |       | 2               |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Public Service  Company of New Mexico             |       | [ILLEGIBLE]            |       | 0.0000          |       | 1               |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Arizona Electric  Power                           |       | [ILLEGIBLE]            |       | 0.0000          |       | 1               |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Energy-Kach  Energy Trading, Inc.                 |       | [ILLEGIBLE]            |       | 0.0000          |       | 1               |       | —          |       | —              |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| Calpina Energy  Services, LP                      |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0000          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | —          |       | —          |       | [ILLEGIBLE]           |       |
| [ILLEGIBLE]  Energy Marketing and Trading         |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0000          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0000          |       | 254             |       | [ILLEGIBLE]           |       |
| City of Seattle,  City [ILLEGIBLE] Department     |       | [ILLEGIBLE]            |       | 0.0001          |       | [ILLEGIBLE]     |       | 0.0001          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0004          |       | 10,515          |       | [ILLEGIBLE]           |       |
| City of Azusa                                     |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0011          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0011          |       | 26,574          |       | [ILLEGIBLE]           |       |
| Idaho Power  Company                              |       | [ILLEGIBLE]            |       | 0.0006          |       | [ILLEGIBLE]     |       | 0.0004          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.00025         |       | 12,153          |       | [ILLEGIBLE]           |       |
| [ILLEGIBLE]                                       |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0002          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0009          |       | 21,353          |       | [ILLEGIBLE]           |       |
| Coral Power, LLC                                  |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0014          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0009          |       | [ILLEGIBLE]     |       | [ILLEGIBLE]           |       |
| Northern California  Power Agency                 |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0015          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0013          |       | 31,158          |       | [ILLEGIBLE]           |       |
| [ILLEGIBLE] Power  Marketing Inc                  |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0009          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0015          |       | 36,031          |       | [ILLEGIBLE]           |       |
| British Columbia  Power Exchange Corporation      |       | [ILLEGIBLE]            |       | 0.0033          |       | [ILLEGIBLE]     |       | 0.0001          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0051          |       | [ILLEGIBLE]     |       | [ILLEGIBLE]           |       |
| City of  [ILLEGIBLE]                              |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0066          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0050          |       | [ILLEGIBLE]     |       | [ILLEGIBLE]           |       |
| Western Area  Power Administration [ILLEGIBLE]    |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0060          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0040          |       | [ILLEGIBLE]     |       | [ILLEGIBLE]           |       |
| Eron Power  Marketing Inc.                        |       | [ILLEGIBLE]            |       | 0.0213          |       | [ILLEGIBLE]     |       | 0.0141          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0308          |       | [ILLEGIBLE]     |       | [ILLEGIBLE]           |       |
| California  Department of Water Resources (SWP)   |       | [ILLEGIBLE]            |       | —          |       | —          |       | 0.0131          |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       | 0.0311          |       | [ILLEGIBLE]     |       | [ILLEGIBLE]           |       |
|                                              |       |                   |       |            |       |            |       |            |       |                |       |                  |       |            |       |            |       |                  |       |
| SUM OF REFUND                                     |       | [ILLEGIBLE]            |       |            |       | [ILLEGIBLE]     |       |            |       | [ILLEGIBLE]         |       | [ILLEGIBLE]           |       |            |       | [ILLEGIBLE]     |       | [ILLEGIBLE]           |       |

 

----

*       Additional Relief of $175 million [ILLEGIBLE] share will be affected to [ILLEGIBLE] and is not [ILLEGIBLE] in this [ILLEGIBLE].

*       Oct 3 - Jan 17 Refunds includes [ILLEGIBLE] Refunds through January 31, 2001.

*       A [ILLEGIBLE] who aware is the market refunds or payable according to Exhibits ISO-30and [ILLEGIBLE] in the ELDO-9? [ILLEGIBLE] proceeding shall [ILLEGIBLE] a deemed distributions [ILLEGIBLE]

*       The allocation of gas and emission address [ILLEGIBLE]will be subject to true us basedon a fine [ILLEGIBLE] including [ILLEGIBLE] affective of such costs. Participants who own gas or emissions [ILLEGIBLE]their refunds will not be required is pay such access until the date FERCrequires participants to pay gas and emissions in the Refund Proceeding.

*       SCE and SOG&E shares in the refund period(October 2, 2000 to January 17, 2001) requires the adjustment forSOG&E’s 20% [ILLEGIBLE] (2.36% increase in SCE’s share and 2.35% increasein [ILLEGIBLE] shares) through the [ILLEGIBLE] Parties Refund [ILLEGIBLE]instructions. This results is an adjustment of $[ILLEGIBLE] by which SCE’sshare is increased to [ILLEGIBLE] and SOG&E’s share is increased to [ILLEGIBLE].

*       Allocation percentages [ILLEGIBLE] to feesdecimal for display payments only).

 

F-2

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**ExhibitG**

 

**2005 RMR FERC Settlement**

 

**Attached**

 

G-1

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**Exhibit H**

 

**DeemedDistribution Recipients**

 

**PARTICIPANTSTHAT WOULD QUALIFY ASDEEMED DISTRIBUTION PARTICIPANTS**

 

Pacific Gas and ElectricCompany

British Columbia PowerExchange Corporation

Sempra Energy TradingCorporation

Enron Power Marketing, Inc.

Puget Sound Energy

El Paso Power ServicesCompany

Idaho Power Company

City of Pasadena

Transalta Energy MarketingInc.

Constellation Power SourceInc.

Automated Power Exchange

PECO Energy Company

Western Area Power Admin.-Redding

 

H-1

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**Exhibit I**

 

**Form of SWP Side Letter**

 

**Attached**

 

I-1

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**POWERPURCHASE AND SALE AGREEMENT**

**(FIRSTWRAPAROUND AGREEMENT)**

 

by and among

 

**MIRANTDELTA, LLC**

 

and

 

**MIRANTPOTRERO, LLC**

 

and

 

**PACIFICGAS AND ELECTRIC COMPANY**

 

 

December 28, 2004

 

1

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**TABLE OFCONTENTS**

 
| 1.                                                                                          | DEFINITIONS                              |   |
|---------------------------------------------------------------------------------------------|------------------------------------------|--------|
|                                                                                        |                                     |   |
| 2.                                                                                          | TERM; CONDITIONS PRECEDENT; SURVIVAL     |   |
|                                                                                        |                                     |   |
| 3.                                                                                          | RMR  AGREEMENTS                          |   |
|                                                                                        |                                     |   |
| 4.                                                                                          | OPERATION OF THE FACILITY                |   |
|                                                                                        |                                     |   |
| 5.                                                                                          | CAPACITY; ENERGY; AND ANCILLARY SERVICES |   |
|                                                                                        |                                     |   |
| 6.                                                                                          | AVAILABILITY                             |   |
|                                                                                        |                                     |   |
| 7.                                                                                          | SCHEDULING AND DISPATCH                  |   |
|                                                                                        |                                     |   |
| 8.                                                                                          | NOX LIMITATIONS                          |   |
|                                                                                        |                                     |   |
| 9.                                                                                          | DELTA  DISPATCH                          |   |
|                                                                                        |                                     |   |
| 10.                                                                                         | MUST OFFER/RUN                           |   |
|                                                                                        |                                     |   |
| 11.                                                                                         | GAS                                      |   |
|                                                                                        |                                     |   |
| 12.                                                                                         | CHARGES                                  |   |
|                                                                                        |                                     |   |
| 13.                                                                                         | REPRESENTATIONS AND  WARRANTIES          |   |
|                                                                                        |                                     |   |
| 14.                                                                                         | EVENT OF DEFAULT AND  REMEDIES           |   |
|                                                                                        |                                     |   |
| 15.                                                                                         | BILLING AND PAYMENT                      |   |
|                                                                                        |                                     |   |
| 16.                                                                                         | INDEMNIFICATION                          |   |
|                                                                                        |                                     |   |
| 17.                                                                                         | LIMITATION OF LIABILITY                  |   |
|                                                                                        |                                     |   |
| 18.                                                                                         | ASSIGNMENT; BINDING EFFECT               |   |
|                                                                                        |                                     |   |
| 19.                                                                                         | CONFIDENTIALITY                          |   |
|                                                                                        |                                     |   |
| 20.                                                                                         | NOTICES                                  |   |
|                                                                                        |                                     |   |
| 21.                                                                                         | SECURITY                                 |   |
|                                                                                        |                                     |   |
| 22.                                                                                         | FORCE  MAJEURE                           |   |
|                                                                                        |                                     |   |
| 23.                                                                                         | DISPUTE RESOLUTION                       |   |
|                                                                                        |                                     |   |
| 24.                                                                                         | INSURANCE                                |   |
|                                                                                        |                                     |   |
| 25.                                                                                         | MATERIAL CHANGE(S)                       |   |
|                                                                                        |                                     |   |
| 26.                                                                                         | MISCELLANEOUS                            |   |
|                                                                                        |                                     |
| EXHIBIT A:  2005 RMR FERC Settlement                                                   |                                     |
|                                                                                        |                                     |
| EXHIBIT B:  Examples of Applicability of Schedule G  vs. Modified Schedule G |                                     |

 

2

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| EXHIBIT C:  OFO Penalties                                                         |   |
|----------------------------------------------------------------------------------------|--------|
|                                                                                   |   |
| EXHIBIT D:  Notices                                                               |   |
|                                                                                   |   |
| EXHIBIT E:  Form of Letter of Credit                                              |   |
|                                                                                   |   |
| EXHIBIT F:  Payment and Invoicing Estimated Timeline for  RMR and Market Payments |   |
|                                                                                   |   |
| EXHIBIT G:  Estimated Net Exposure                                                |   |

 

3

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**POWERPURCHASE AND SALE AGREEMENT**

 

**THIS POWERPURCHASE AND SALE AGREEMENT**(the “Agreement”) is entered into as of the 28th Day of December, 2004,(the “Agreement Date”), by and among Mirant Delta, LLC, a Delaware limitedliability company (“Mirant Delta”), Mirant Potrero, LLC, a Delaware limitedliability company (“Mirant Potrero”, together with Mirant Delta, “Mirant” or “Seller”),and Pacific Gas and Electric Corporation, a California corporation (“PG&E”or “Buyer”). Seller and Buyer may be individually referred to herein as a “Party”and, collectively, as the “Parties.”

 

**NOW,THEREFORE,**theParties hereby agree as follows:

 

**1**.             **DEFINITIONS**

 

All capitalized terms usedbut not otherwise defined hereinshall have the meanings ascribed in the RMR Agreements and the Tariff. Thefollowing terms shall have the meanings set forth below.

 

“Affiliate” means anyPerson that directly or indirectly controls, is controlled by or is undercommon control with the Person in question.

 

“Amendment 60” hasthe meaning set forth in Section 10.1.

 

“Ancillary Services”has the meaning given in the RMR Agreements.

 

“Availability Notice”has the meaning set forth in Section 7.2.

 

“Bankruptcy” meanswith respect to a Person that such Person (i) ceases doing business as a goingconcern, files a voluntary petition in bankruptcy or is adjudicated bankrupt orinsolvent, or files any petition or answer seeking any reorganization,arrangement, composition, readjustment, liquidation, dissolution or similarrelief under the present or any future federal bankruptcy code or any otherpresent or future applicable federal, state or other Governmental Rule, orseeks or consents to or acquiesces in the appointment of any trustee, receiver,custodian or liquidator of said Person or of all or any substantial part of itsproperties, or makes an assignment for the benefit of creditors; or (ii) aproceeding is initiated against the Person seeking any reorganization,arrangement, composition, readjustment, liquidation, dissolution or similarrelief under the present or any future federal bankruptcy code or any otherGovernmental Rule and, such proceeding, as described in this Section l.l(4)(ii),is not dismissed within ninety (90) Days after the commencement, or anytrustee, receiver, custodian or liquidator of said Person or of all or anysubstantial part of its properties is appointed without the consent oracquiescence of said Person, and such appointment is not vacated or stayed onappeal or otherwise within ninety

 

4

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(90) Days after theappointment, or, within ninety (90) Days after the expiration of any such stay,has not been vacated.

 

“Bankruptcy Court”has the meaning set forth in Section 14.1 (2).

 

“Btu” means BritishThermal Unit which is the standard Unit for measuring the quantity of heatenergy, such as the heat content of Fuel.

 

“Bubble” has themeaning given in Section 8(2).

 

“Business Day” meansa Day other than Saturday, Sunday, a NERC holiday or a Day that is authorizedas a holiday by banks in New York, New York.

 

“Buyer’s Monthly Charges”has the meaning given in Section 12.1(1).

 

“Buyer’s Monthly Credits”has the meaning set forth in Section 12.4.

 

“Buyer’s PG&ECitygate Pool” has the meaning given in Section 11.1(2) and appliesonly to Seller’s provision of Gas to the Non-RMR Delta Units.

 

“Calculation Date”means any Business Day on or before the fifteenth (15th) Day of a month during the “Condition 1” Term on which Seller makesthe determinations referred to in Article 21 of this Agreement.

 

“Claims” means allclaims or actions filed by a Person, including fines or penalties, whethergroundless, false or fraudulent, that relate to the subject matter of anindemnity, and the resulting losses, damages, expenses, attorney’s fees andcourt costs, whether incurred by settlement or otherwise, and whether suchclaims or actions are filed prior to or after the expiration or termination ofthis Agreement.

 

“Collateral Requirement”has the meaning set forth in Section 21.2.

 

“Commercial Interest Rate”means a rate equal to the per annum rate of interest equal to the “Monthly”Federal Funds Rate (as reset on a monthly basis and based on the latest monthfor which such rate is available) as reported in Federal Reserve BankPublication H.15-519, or any successor publication, published by the Board ofGovernors of the Federal Reserve System.

 

“Condition 1’ Term”means the period commencing pursuant to Section 2.1 through and includinghour ending 2400 PPT on the Termination Date.

 

“Contract Term” meansthe term of this Agreement beginning on the Agreement Date and ending on theTermination Date.

 

5

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“Contra Costa Facility”means the natural gas fueled electric generating facility owned by Seller inContra Costa County, California, including all equipment used to produce theMaximum Net Dependable Capacity, Energy and Ancillary Services, buildings andfacilities, facility control systems, fire protection systems, potable,process, and sanitary water supply, treatment, storage, disposal, and transfersystems, the Electrical Interconnection Facilities, the Gas InterconnectionFacilities and all related equipment necessary to accept Fuel at the GasDelivery Point including storage and transfer systems, and ingress and egressto the Facility Site.

 

“CPUC” means theCalifornia Public Utilities Commission or any successor agency.

 

“Credit Rating” meanswith respect to a Party or any entity, on any date of determination, therespective ratings then assigned to such Party’s or entity’s unsecured, seniorlong-term debt (not supported by third party credit enhancement). In the eventof any inconsistency in ratings by Moody’s and S&P (a “split rating”), thelower assigned rating shall control. If such entity does not have an unsecured,senior long-term debt rating by either S&P or Moody’s, then “Credit Rating”shall mean the general corporate credit rating or long-term issuer rating, asapplicable, assigned by such rating agency to such entity.

 

“Damages” has themeaning set forth in Section 16.1 (1).

 

“Day” means the24-hour period beginning and ending at 12:00 midnight PPT.

 

“Defaulting Party”has the meaning set forth in Section 14.1(1).

 

“Delivery Point”means the ‘Delivery Point’ specified for each RMR Unit in the applicable Schedule A,part 4, of the RMR Agreements.

 

“Delta Units” or “DeltaRMR Units” means the electric generating Units owned by Mirant Delta andlocated in Pittsburg, California, known as Pittsburg 5 and Pittsburg 6 and theelectric generating Unit owned by Mirant Delta and located in Antioch,California, known as Contra Costa 7; provided that a Delta Unit shall be aDelta RMR Unit only as long as it remains subject to the applicable RMRAgreement.

 

“Dispatch Notice” hasthe meaning set forth in RMR Agreements.

 

“EFO” has the meaninggiven in the Gas Transporter’s tariff.

 

“ElectricalInterconnection Agreements” mean the interconnection agreement(s) betweenSeller and the System Operator providing for the maintenance and operation ofthe Electrical Interconnection Facilities.

 

6

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“ElectricalInterconnection Facilities” means the equipment necessary to connect theUnits to the System Operator’s 115kV and 230 kV transmission system.

 

“Energy” has themeaning given in the RMR Agreements.

 

“Energy Meters” meansthe System Operator’s revenue meters identified in Section 5 of SchedulesA of the RMR Agreements.

 

“Event of Default”has the meaning set forth in Section 14.1(1).

 

“Exhibit” means anyexhibit attached to this Agreement, which is hereby incorporated into thisAgreement by reference.

 

“Facility(ies)” meansthe Contra Costa Facility, the Pittsburg Facility or the Potrero Facility, asapplicable.

 

“Facility Site” meansthe parcel of land on which the applicable Facility is located.

 

“FERC” means theFederal Energy Regulatory Commission, or its successor.

 

“Filing” has themeaning set forth in Section 14.1(2).

 

“Force Majeure Event”  has the meaning given in the applicable RMRAgreement(s).

 

“Forced Outage” hasthe meaning ascribed in the RMR Agreements.

 

“Fuel” means Gas andDistillate Fuel and RMR Fuel and Non-RMR Fuel, as applicable.

 

“GAAP” meansGenerally Accepted Accounting Principles.

 

“Gas” means naturalgas or any mixture of hydrocarbon gases or hydrocarbon gases andnon-combustible gases consisting predominantly of methane.

 

“Gas Delivery Point”means the point of interconnection between the Gas Transporter’s pipeline andthe applicable Facility.

 

“Gas Exposure” hasthe meaning set forth in Section 21.3.

 

“Gas Imbalance Charges”means any pipeline scheduling, imbalance, cashout, operational flow order orother similar pipeline penalties or charges assessed by Gas Transporterresulting from failure to communicate to the pipeline,

 

7

----

 

nominations, nominationchanges or failure to adjust nominations to comply with Gas Transporter’stariffs and imbalance tolerance limits.

 

“Gas Index” means,for a given Trading Day the two (2) Day rolling average simple average of theGas Daily, PG&E Citygate Index (midpoint) and the NGI Daily Gas PriceIndex, PG&E Citygate (average) as shown in Table C1-8 of Schedules C of theRMR Agreements.

 

“Gas InterconnectionFacilities” means the meter owned and operated by the Gas Transporter,which is located at the applicable Facility, and other equipment necessary toconnect the Facility with the Gas Transporter’s transportation system.

 

“Gas Meter” means theGas the meter owned by the Gas Transporter and located at the applicable GasDelivery Point.

 

“Gas Tariff’ has themeaning given in Section 11.3.

 

“Gas Transmission ServiceAgreement” or “GTSA” means the interconnection agreement betweenSeller and the Gas Transporter providing for the operation and maintenance ofthe Gas Interconnection Facilities.

 

“Gas Transporter”means Pacific Gas & Electric Company or its successor.

 

“GSM” has the meaninggiven in Section 11.5(1).

 

“Generator Imbalance Fees”means any imbalance fees, penalties or other similar fees, costs or penaltiesimposed by any System Operator other than Uninstructed Deviation Penalties.

 

“Good Industry Practice”has the meaning given in the RMR Agreements.

 

“Governmental Authority”means any federal, state or local governmental body, any governmental,military, regulatory or administrative agency, commission, body or otherauthority exercising or entitled to exercise any administrative, executive,judicial, legislative, policy, regulatory or taxing authority, jurisdiction orpower, any court or governmental tribunal, or any applicable independent systemoperator, regional transmission organization, regional power pool, reliabilitycouncil or other regional entity performing similar functions.

 

“Governmental Rule”means any law, rule, regulation, ordinance, order, code, permit,interpretation, judgment, decree, directive, guideline, policy or similar formof decision of any Governmental Authority having the effect and force of law.

 

8

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“Guarantee” means theinstrument or agreement pursuant to which a Guarantor provides credit supportfor the obligations of a Party; provided, however, that such instrument oragreement shall be in a form reasonably acceptable to the Person receiving suchguarantee and extending credit as a result thereof.

 

“Guarantor” means aPerson that has a Credit Rating by S&P and Moody’s of at least BBB- byS&P and Baa3 by Moody’s and that is acceptable, as determined in acommercially reasonable manner, to the Party who would be protected by theGuarantee issued from such Person.

 

“ISO” means theCalifornia Independent System Operator Corporation or its successor.

 

“kW” means kilowatt.

 

“kWh” meanskilowatt-hour.

 

“Letter of Credit”means an unconditional, irrevocable, non-transferable, standby letter of creditnaming a Party as the sole beneficiary, issued by a United States commercialbank, a United States financial institution, or the United States branch of aforeign commercial bank, with a minimum of one billion U. S. dollars capitaland surplus, in each case with a Credit Rating of at least A by S&P and A2by Moody’s, in the form attached hereto as Exhibit E. The Secured Party shallvalue the Letter of Credit at its Stated Amount (as defined in the Letter ofCredit) for purposes of securing the Posting Party’s Collateral Requirement aslong as the Issuing Bank (as defined in the Letter of Credit) maintains aCredit Rating of at least A by S&P and A2 by Moody’s.  If at any time the Issuing Bank does not havea Credit Rating of at least A by S&P and A2 by Moody’s, the Secured Partyshall value the Letter of Credit issued by such entity at zero ($ 0).

 

“Long-term Planned Outage”has the meaning ascribed in the RMR Agreements.

 

“MMBtu” means onemillion British Thermal Units.

 

“Market Exposure” hasthe meaning set forth in Section 21.3.

 

“Market Payment” hasthe meaning set for in Section 15.1(1).

 

“Maximum Net DependableCapacity” has the meaning ascribed in the RMR Agreements.

 

“Moody’s” means Moody’sInvestor Services, Inc., or its successor.

 

“Must Run Dispatch”has the meaning given in Section 10.1.

 

9

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“MW” means amegawatt. One MW is equal to 1,000 kW.

 

“MWh” means amegawatt-hour. One MWh is equal to 1, 000 kWh.

 

“NBAA” has themeaning given in Section 11.1(3).

 

“Natural Gas ServiceAgreement” or “NGSA” means the gas service agreement between Sellerand the Gas Transporter for the applicable Facility.

 

“Net Exposure” hasthe meaning set forth in Section 21.3.

 

“Non-Conforming Gas”has the meaning set forth in Section 11.3(2).

 

“Non-Defaulting Party”has the meaning set forth in Section 11.l(l)(a).

 

“Non-RMR Gas” has themeaning given in Section 11.1(2).

 

“Non-RMR Unit Gas Meters”has the meaning set forth in Section 11.l(4).

 

‘‘Non-RMR Unit MDO”has the meaning set forth in Section 11.5(1).

 

“Non-RMR Units” hasthe meaning given in Section 7.1.

 

“Notification Time”means 10:00 am PPT on any Calculation Date.

 

“OFO” has the meaninggiven in the Gas Transporter’s tariff.

 

“Operational Limitations”means the limitations described in Sections 3 and 6 through 11 of Schedule Aof the RMR Agreements.

 

“Pacific Prevailing Time”or “PPT” means the prevailing time (*i.e.*, StandardTime or Daylight Savings Time) on any given Day in the Pacific time zone.

 

“Person” means anindividual, partnership, corporation, limited liability company, association,trust, joint venture, unincorporated organization, Governmental Authority, orother type of entity.

 

“Permit” has themeaning given in Section 9.

 

“Pittsburg Facility”means the natural gas fueled electric generating facility owned by Seller inContra Costa County, California, including all equipment used to produce theMaximum Net Dependable Capacity, Energy and Ancillary Services, buildings andfacilities, facility control systems, fire protection systems, potable,process, and sanitary water supply, treatment, storage, disposal, and transfer

 

10

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systems, the ElectricalInterconnection Facilities, the Gas Interconnection Facilities and all relatedequipment necessary to accept Fuel at the Gas Delivery Point including storageand transfer systems, and ingress and egress to the Facility Site.

 

“Planned MaintenanceOutage” means Long-term Planned Outages and any other planned curtailmentor outage at one or more RMR Units at the Facility for purpose of performingmaintenance on the RMR Units, as further described in Section 4.3.

 

“Posting Party” hasthe meaning set forth in Section 21.1.

 

“Potrero Facility”means the natural gas and distillate fueled electric generating facility ownedby Seller in San Francisco, California, including all equipment used to producethe Maximum Net Dependable Capacity, Energy and Ancillary Services, buildingsand facilities, facility control systems, fire protection systems, potable,process, and sanitary water supply, treatment, storage, disposal, and transfersystems, the Electrical Interconnection Facilities, the Gas InterconnectionFacilities and all related equipment necessary to accept Fuel at the FuelDelivery Point including storage and transfer systems, and ingress and egressto the Facility Site.

 

“Potrero Units” or “PotreroRMR Units” means the electric generating Units owned by Mirant Potrero andlocated in San Francisco, California, known as Potrero 3, Potrero 4, Potrero 5and Potrero 6; provided that a Potrero Unit shall be a Potrero RMR Unit only aslong as it remains subject to the applicable RMR Agreement.

 

“RMR Agreements” are(i) that certain Must-Run Service Agreement, dated June 1, 1999, betweenMIRANT DELTA, LLC and CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION, asmay be in effect from time to time, pertaining to the facility commonly knownas the Pittsburg Power Plant (the “Pittsburg RMR Agreement”); (ii) that certainMust-Run Service Agreement, dated June 1, 1999, between MIRANT DELTA, LLCand CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION, as may be in effectfrom time to time, pertaining to the facility commonly known as the Contra CostaPower Plant (the “Contra Costa RMR Agreement”); and (iii) that certain Must-RunService Agreement, dated June 1, 1999, between MIRANT POTRERO, LLC andCALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION, as may be in effect fromtime to time, pertaining to the facility commonly known as the Potrero PowerPlant (the “Potrero RMR Agreement”, together with the Pittsburg RMR Agreementand the Contra Costa RMR Agreement, the “RMR Agreements”).

 

“RMR Exposure” hasthe meaning set forth in Section 21.3.

 

11

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“RMR Gas” has themeaning given in Section 11.1(1).

 

“RMR Payment” has themeaning set for in Section 15.1(1).

 

“RMR Interest Rate”means ‘Interest Rate’ as defined in the RMR Agreement.

 

“RMR Units” means theDelta Units and Potrero Units, which have been designated as ReliabilityMust-Run units pursuant to RMR Agreements between the ISO and Mirant Delta,with respect to the Delta Units, and between Mirant Potrero and the ISO, withrespect to the Potrero Units; provided that such units remain, at all timesduring (the Contract Term, subject to the RMR Agreements.

 

“SC” or “SchedulingCoordinator” has the meaning set forth in the Tariff.

 

“S&P” means theStandard & Poor’s Ratings Group, a division of The McGraw-Hill Companies,or its successor.

 

“Secured Party” hasthe meaning set forth in Section 21.1.

 

“Security” means aLetter of Credit or cash in the form of dollars of the United States ofAmerica.

 

“Seller Balancing Account”has the meaning set forth in Section 11.5(2)(A).

 

“Seller Monthly Imbalance”has the meaning set forth in Section 11.5(2)(B).

 

“Settlement Amount”means the net losses and costs, if any, expressed in U.S. dollars, which suchNon-Defaulting Party incurs as a result of the termination of this Agreementincluding, at the Non-Defaulting Party’s option, all (i) net losses and costsincurred by the Non-Defaulting Party to (a) purchase or sell, as applicable,capacity, energy and ancillary services equally useful as the Maximum NetDependable Capacity, Energy and Ancillary Services purchased and sold underthis Agreement and (b) maintain, terminate, obtain or re-establish any tradingpositions entered into by a Party to hedge its obligations under thisAgreement, and (ii) reasonable attorney’s fees incurred by the Non-DefaultingParty in connection with the termination of this Agreement.  If Seller is the Non-Defaulting Party, (i)above shall include, but not be limited to, all costs incurred such as thedifference between what Seller would have received under Condition 2” versus “Condition1” as more fully described in Article 12 until such time as the ISO allowsSeller to switch to “Condition 2”. If the calculation of the Settlement Amountresults in a positive number, that positive number, the Settlement Amount,shall be due to the Non-Defaulting Party from the Defaulting Party. If theNon-Defaulting Party does not incur any net losses and costs as a result of thetermination of this Agreement, or if the calculation results in a

 

12

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negative number, theSettlement Amount shall be deemed to be zero (0). In calculating a SettlementAmount, the Non-Defaulting Party shall discount to present value (in acommercially reasonable manner based on the Commercial Interest Rate for theapplicable period) any amount that would otherwise have been due at a laterdate.

 

“Station Load” meansthe power required by the auxiliary equipment necessary for the operation ofthe Facility including, but not limited to, pumps, fans, etc.

 

“System Operator”means California Independent System Operator Corporation or any successorthereto that provides electric transmission services to support thetransmission of Energy or Ancillary Services from the Delivery Point.

 

“System Operator’sProtocols” means the documents adopted by the System Operator, as amendedfrom time to time, that contain the scheduling, operating, planning,reliability and settlement policies, rules, guidelines, procedures, standardsand criteria of the control area.

 

“Tariff” means theISO Conformed Tariff, as may be amended from time to time.

 

“Termination Date”has the meaning set forth in Section 2.1.

 

“Terminated RMR Unit”has the meaning given in Section 2.1.

 

“Transmission AncillaryServices” means those ancillary services that Buyer must purchase from theSystem Operator as necessary to support the transmission of Energy or AncillaryServices from the Delivery Point.

 

“UDPs” or “UninstructedDeviation Penalty(ies)” has the meaning set forth in the Tariff.

 

“Unit(s)” has themeaning given in Section 7.1.

 

“2005 RMR FERC Settlement”is the settlement to be filed by the Parties with FERC in a form substantiallysimilar to that attached hereto as Exhibit A.

 

**2.****             TERM;CONDITIONS PRECEDENT; SURVIVAL**

 

**2.1****          Term.**

 

(1)           The Contract Term with respect to each of theRMR Units shall commence on the Agreement Date and shall continue through December 31,2005, unless terminated prior to such date pursuant to this Agreement (the “TerminationDate”); provided, however, that if the RMR Agreement for any RMR Unit isterminated or

 

13

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expires before December 31, 2005 (the “TerminatedRMR Unit”), then this Agreement shall also terminate automatically with respectto that Terminated RMR Unit subject only to the obligation and liabilitydescribed in Section 3(4) of this Agreement; and provided further that ifsuch Terminated RMR Unit is subsequently re-designated as a Reliability MustRun Unit while the Contract Term is still in effect, the Terminated RMR Unitshall not be subject to this Agreement. If an RMR Unit becomes a Terminated RMRUnit, Seller shall, within thirty (30) Days of such termination, file to removethe tariff sheets associated with such Terminated RMR Unit.

 

(2)           The “Condition 1” Term shall commence on theDay the ISO allows Seller to switch to “Condition 1”. Consistent with Section 3.2(d)of the RMR Agreements, the change from “Condition 2” to “Condition 1” shalltake place on the first Day of a month. At the request of Buyer, which requestBuyer may make prior to the satisfaction of the conditions set forth in section 2.2,Seller shall request from the ISO a change of status of the RMR Units to “Condition1” and request a waiver of (i) the ninety (90) Day notice requirement forchanging the status of the RMR Units to “Condition 1” and (ii) the requirementthat an RMR Unit remain in its existing Condition for at least twelve (12)months.

 

**2.2****         ****Conditions Precedent to the Parties’ Performance****.**

 

Notwithstanding any other provisionof this Agreement, performance under this Agreement of any obligation toprovide or pay for the power purchase and sale arrangement shall arise onlyupon the satisfaction of the following conditions:

 

(1)           Seller shall obtain approval by the BankruptcyCourt. The approval of the Bankruptcy Court shall include a court order thatconfers rights to the Buyer under this Agreement that are acceptable to theBuyer. In the event that such approval has not been obtained by January 31,2005, either Party may terminate this Agreement upon written notice to theother Party with no obligation or liability to either Party as a result of suchtermination, except, if Seller is unable to obtain this approval and eitherParty exercises its termination right, Seller agrees to make a limited 205filing with FERC, based on the formulas set forth in Schedule F of the RMRAgreements, within sixty (60) days of the notice of termination. Seller agreesto pay Buyer a termination fee equal to the difference, for the period from January 1,2005, until the effective date of the limited 205 filing, between the paymentsmade to Seller under the RMR Agreements and the payments that would have beenmade to Seller if the rates under the limited 205 filing as finally accepted orapproved by FERC, no longer subject to rehearing or appeal, had been in effectas of January 1, 2005.  If Sellerhas switched to “Condition 1” per Section 2.1(1) prior to receipt ofBankruptcy Court approval, Seller shall operate as if it were under “Condition2” until the earlier of (a) receipt of Bankruptcy Court approval or (b) thefirst Day that Seller operates under “Condition 2” pursuant to the ISO’sapproval, following a termination under this Section. Furthermore, if Sellerhas already switched to “Condition 1” and a termination as described in this Section occurs,Buyer agrees to pay Seller the difference between what Seller would havereceived under “Condition 2” versus

 

14

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“Condition 1”, as more fully described in Article 12,for the period from the date of the termination through and until the first Daythat Seller operates under “Condition 2” pursuant to the ISO’s approval,provided that Seller requests such a change with fifteen (15) Days of thetermination.

 

(2)           TheParties have filed the 2005 RMR FERC Settlement.

 

**2.3****         ****Survival****.**

 

As of theTermination Date, the Parties shall no longer be bound by the terms andconditions hereof, except (i) to the extent necessary to enforce any rights andthe obligations of the Parties, including, but not limited to, paymentobligations, arising under this Agreement prior to such Termination Date; (ii)the obligations of the Parties hereunder with respect to confidentiality, auditand indemnification shall survive any termination of this Agreement and shallcontinue for a period of two (2) years following such Termination Date; and(iii) the rights and obligations as stated in Section 2.2(1).

 

**3.****            ****RMR AGREEMENTS**

 

(1)           Buyeracknowledges and agrees that (a) its rights under this Agreement are subject tothe RMR Agreements, including rights and obligations of Seller and the ISO thereunder,(b) Schedules A, B, C, and D of the RMR Agreements are subject to change annuallythrough Seller’s limited 205 filing with FERC, as provided for in the RMR Agreements,and (c) Seller shall continue to operate the Non-RMR Units and neither such operationnor such Non-RMR Units are subject to this Agreement, except as expressly providedherein.

 

(2)           TheParties shall file the 2005 RMR FERC Settlement on or before January 7,2005.

 

(3)           Sellershall retain all rights and responsibilities under the RMR Agreements relatingto Capital Items and Repair, including, but not limited to, submission ofCapital Item reports showing proposed Capital Items, installation of CapitalItems, submission of Unplanned Repair Notices, making Repairs, and application forrecovery of Capital Item and Repair costs through Surcharge Payments or ISO’s RepairShare.

 

(4)           Inthe event that an RMR Unit is Closed within six (6) months after the RMR Unitceases to be subject to the RMR Agreement as a result of termination, pursuantto Sections 2.2 (b) (ii), (iii), (iv) or (v) of the RMR Agreement, or becauseISO does not extend the term of the RMR Agreement under Section 2.1 (b) ofthe RMR Agreements (the “RMR Termination”) and so long as Seller is entitled toreceive a Termination Fee, Buyer shall pay Seller, in accordance with thepayment schedule in the RMR Agreements, the difference between (a) theTermination Fee calculated pursuant to

 

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Section 2.5 (b) of the RMR Agreement as if theUnit were “Condition 2” at the time of the RMR Termination and (b) anyTermination Fee for a “Condition 1” Unit received from the ISO as a result ofthe RMR Termination.

 

(5)           All rights available to Seller, pursuant tothe RMR Agreements, that are not specifically addressed herein are expresslyreserved by Seller and shall not be affected hereby; provided that, Sellershall not have the right to sell any portion of the Maximum Net DependableCapacity, Energy, or Ancillary Services from any RMR Unit to any third party,other than as provided in Section 5.2.

 

**4.****            ****OPERATION OF THE FACILITY**

 

**4.1****          Permits.**

 

Seller shall, at itsexpense, acquire and maintain in effect during the Contract Term, from any andall Governmental Authorities with jurisdiction over Seller or the Facilities,all permits and approvals, in each case necessary for the ownership, operationand maintenance of the Facilities in accordance with this Agreement, the RMRAgreements, and all Governmental Rules. Seller shall be responsible for, andbear all costs of, compliance with all of its permits. Notwithstanding theforegoing, Buyer shall be responsible for all costs associated with emissionscredits that may be required for the operation of the Facilities as dispatchedby Buyer in excess of dispatches by the ISO.

 

**4.2****          Good Industry Practice.**

 

Seller shall cause theFacilities to be operated and maintained in accordance with Good Industry Practiceand in accordance with the terms and conditions of this Agreement and the RMRAgreements.

 

**4.3****          Maintenance Outages.**

 

Seller shall be responsible for proper maintenanceof all Units. Buyer and Seller shall make commercially reasonable efforts, incooperation with the ISO, to coordinate planned outages such that Seller’sPlanned Maintenance Outages do not overlap with Buyer’s refueling outages atDiablo Canyon Nuclear Power Plant.

 

(1)           Schedule of Planned Maintenance Outages.

 

(a)           Planned Maintenance Outages for RMR Unitsshall be scheduled and performed in accordance with Section 7.2 of the RMRAgreements. Seller shall not be obligated to deliver Energy or AncillaryServices from an RMR Unit pursuant to this Agreement during Planned MaintenanceOutages affecting such RMR Unit.

 

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(b)           Buyer agrees that Seller must perform PlannedMaintenance Outages at the RMR Units in an effort to reduce and prevent Forced Outagesand to maintain the efficiency of the RMR Units. Such Planned MaintenanceOutages include, but are not limited to, the RMR Unit manufacturer’srecommended and required maintenance and any preventive maintenance thatmaintains or improves the reliability of the RMR Unit.  The Planned Maintenance Outage schedule shallbe based on (i) the RMR Unit manufacturer’s equivalent start and runtimeguidelines, (ii) Good Industry Practice, (iii) the long-term service agreementfor the RMR Units, (iv) the actual dispatch of the RMR Units and (v) the RMR Unit’spoint in the maintenance cycle and the potential impacts to the Unit and costsif the maintenance schedule is changed. On or before December 31, 2004, Sellershall provide to Buyer, in writing, its proposed schedule of PlannedMaintenance Outages for the “Condition 1” Term and the reason for such PlannedMaintenance Outages.

 

(c)           In the event that the RMR Unit manufacturerissues a new technical bulletin, which requires immediate maintenance to beperformed, Seller shall notify Buyer of the circumstances surrounding such maintenanceand Seller will work together with Buyer to schedule the maintenance outagenotwithstanding the short notice involved.

 

(2)           Duration of Planned Maintenance Outages. Seller shall use its commercially reasonable efforts to complete anyPlanned Maintenance Outage affecting an RMR Unit in a timely manner, with theexpress goal of minimizing any adverse effect on Buyer’s ability to schedulepower from such Unit. During each Planned Maintenance Outage, Seller shall keepBuyer apprised of the status and the expected duration of the PlannedMaintenance Outage.

 

(3)           Maintenance-related Charges. If Seller is required to Start-up andoperate an RMR Unit for maintenance purposes, Seller and Buyer shall worktogether such that the maintenance related start and operation can be completedwhen the Energy or Ancillary Services from the RMR Unit is being dispatched bythe Buyer or the ISO.  If the Seller andBuyer are unable to complete the maintenance related Start-up and operationduring a time when the Buyer or the ISO has dispatched the RMR Unit, Seller shallnotify Buyer of the date of the maintenance related start and operation atleast two (2) Business Days in advance. Buyer shall provide, at its expense,all Gas required for the start and operation of the applicable RMR Unit andschedule the quantity of Energy or Ancillary Services produced during suchoperation in a commercially reasonable manner. Buyer shall receive all revenuesassociated with the sale of Energy or Ancillary Services from the RMR Unitduring the period of time the RMR Unit is being operated for maintenancepurposes.

 

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**4.4****         ****Station Load****.**

 

Sellershall be responsible for Station Load at all times including during all PlannedMaintenance Outages and Forced Outages and during Start-up and Shutdown of anRMR Unit, and any periods when an RMR Unit has not been dispatched.

 

**4.5****         ****Testing****.**

 

Sellershall be entitled to conduct all tests described in Section 4.9 of the RMRAgreements.

 

**4.6****         ****Operating Procedures****.**

 

Assoon as practicable following the Agreement Date, the Parties shall provide fora method, or protocol, by which communication and data exchange takes place.This protocol shall include the delivery of Gas to the Facility, noticesregarding the availability of the Facility, exchanges of schedules, andidentification of and contact information for key personnel.

 

**5.****            ****CAPACITY; ENERGY; ANDANCILLARY SERVICES**

 

**5.1****         ****Maximum Net DependableCapacity; Energy; Ancillary Services****.**

 

(1)           Subject to the terms and conditions of thisAgreement, Seller agrees to make available to Buyer, during the “Condition 1”Term the Maximum Net Dependable Capacity, Energy and Ancillary Services fromthe RMR Units at the Delivery Point. In consideration, Buyer agrees to payBuyer’s Monthly Charges.

 

(2)           With respect to Ancillary Services, theParties acknowledge and agree that certain of such Ancillary Services wouldrequire that a portion of the Maximum Net Dependable Capacity of the Facilitybe held in reserve for such Ancillary Services to be sold or provided (or asmay be used by Buyer for its own account) from the RMR Unit and that thecombination of Energy and Ancillary Services to be sold from the RMR Unit byBuyer shall not exceed the Maximum Net Dependable Capacity of the RMR Unit.  Any Ancillary Services which Seller may be requiredto provide to the System Operator(s) under the terms of the RMR Agreements orthe Electrical Interconnection Agreement, or under the System Operator’sProtocols, shall not be deducted from the Maximum Net Dependable Capacity madeavailable to the Buyer under this Agreement.

 

(3)           Should the CPUC, during the term of thisAgreement, put in place a resource adequacy requirement utilizing capacitytagging, Seller shall provide Buyer with the capacity tags for that period forthe full capacity of the RMRUnits.  Such a process will likelyinclude specifying that the RMR Units be bid into the ISO Day-Ahead market ifnot scheduled by Buyer, and if not selected Day-Ahead, be subject to residualunit commitment.  Any incrementalexpenses associated with providing or facilitating resource adequacy, capacitytagging, residual unit commitment services or other similar

 

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obligation incurred bySeller in its performance of same shall be paid to Seller by Buyer, as applicable,in accordance with Section 25.1.

 

**5.2****         ****Exclusive Rights Subject tothe RMR Agreements****.**

 

Sellerand Buyer desire to enter into this power purchase and sale arrangement whereby(i) Seller shall elect “Condition 1” under the RMR Agreements but be paid byBuyer as if it had elected “Condition 2” with respect to all provisions undersuch RMR Agreements and credit to Buyer the “Condition 1” payments it receivesfrom the ISO; (ii) Buyer shall deliver Gas to the Delta RMR Units; and (iii)Seller shall convert such Gas into Energy and Ancillary Services when directedby Buyer; provided, however, that Buyer’s rights described in (i) through (iii)above shall be limited by the following: (a) if a Termination Date has beendeclared by Seller as a result of an Event of Default, which has occurred withrespect to Buyer and is continuing after the applicable cure period, Seller, inits exercise of commercially reasonable efforts to mitigate its lossesresulting from such Event of Default, may sell any or all of the Maximum NetDependable Capacity, Energy and Ancillary Services to third parties during anyperiod of suspension of Seller’s performance obligations hereunder pursuant toSection 14.2(1); (b) Seller may sell Energy or Ancillary Services to a partyother than Buyer or the ISO, pursuant to “contract path” transactions made inaccordance with the RMR Agreements; and (c) the ISO shall continue to possessall rights available to it under the RMR Agreements.  For purposes of clarity, Seller shall not havethe right to sell any Maximum Net Dependable Capacity, Energy and AncillaryServices from an RMR Unit to any party other than Buyer or the ISO during the “Condition1” Term without the prior written consent of Buyer except as may be requiredpursuant to any Electrical Interconnection Agreement between Seller and anySystem Operator(s), as may be required by any Governmental Authority or as specifically provided for in (a),(b) and (c) above.

 

**5.3****         ****Energy Delivery Point****.**

 

Alldeliveries and receipts of Energy shall be made and measured at the DeliveryPoint.

 

**5.4****         ****Title and Risk of Loss****.**

 

(1)           As between the Parties, Seller shall bedeemed to be in exclusive possession and control (and responsible for anydamages or injury caused thereby) of the Energy and Ancillary Services prior tothe Delivery Point, and Buyer shall be deemed to be in exclusive possession andcontrol (and responsible for any damages or injury caused thereby) of theEnergy and Ancillary Services at and from the Delivery Point.  Title to the Energy, Ancillary Services andthe Maximum Net Dependable Capacity of the RMR Units, subject to the RMRAgreements and the ISO’s rights thereunder, shall remain at all times withBuyer. Each of Seller and Buyer shall and hereby does indemnify, defend andhold harmless the other Party from any Claims arising from any act, failure toact or

 

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incident relating to Energyand Ancillary Services occurring when the Energy or Ancillary Services is underits possession and control.

 

(2)           Seller warrants that the Energy delivered bySeller and the Ancillary Services available from the RMR Units shall be freeand clear of all liens, Claims and encumbrances arising prior to the DeliveryPoint, except as provided for in the RMR Agreements, and warrants that theMaximum Net Dependable Capacity of such Units is free and clear of any liens,Claims and encumbrances, except as provided for in the RMR Agreements.

 

**5.5****         ****Transmission Services****.**

 

Buyershall arrange, either directly or indirectly through a third party, for alltransmission service and Transmission Ancillary Services from the DeliveryPoint and shall pay all costs for the same pursuant to the Tariff and theSystem Operator’s Protocols including, without limitation, all costs associatedwith line losses, necessary to transmit the Energy and Ancillary Servicesdelivered under this Agreement from the Delivery Point to any point at whichBuyer redelivers the Energy and Ancillary Services to its customer(s).

 

**5.6****         ****Electrical InterconnectionAgreement****.**

 

Sellerhas entered into an Electrical Interconnection Agreement with the SystemOperator and shall maintain such Electrical Interconnection Agreement in fullforce and effect throughout the “Condition 1” Term.

 

**5.7****         ****Energy Meters****.**

 

Energyand Ancillary Services delivered by Seller shall be measured by the EnergyMeters at the Delivery Point. Seller shall own, operate, maintain and test theEnergy Meters at the Delivery Point. Seller shall coordinate with the SystemOperator and Buyer with respect to the maintenance and testing of Energy Metersconsistent with the Electrical Interconnection Agreement and Good IndustryPractice.

 

**6.****            ****AVAILABILITY**

 

Availabilityfor each RMR Unit will be determined in accordance with the existing terms ofthe RMR Agreements as of the Agreement Date, including, but not limited to, thecalculation of Target Availability Hours in Section 6, Schedules B of the RMRAgreements; provided, however, that the Monthly Availability Payment shall notbe decreased as a result of any unavailability due to a Force Majeure Event ora Forced Outage arising from Buyer’s construction or operation of Contra CostaUnit 8 or Buyer’s connection and synchronization to the ISO Controlled Grid orthe Distribution Grid.

 

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**7.****            ****SCHEDULING AND DISPATCH**

** **

**7.1****         ****Dispatch****.**

 

(1)           Seller or an Affiliate of Seller shall be theSC for the RMR Units and the non-RMR Units (the “Non-RMR Units”, together withthe RMR Units, the “Units”). As of the Agreement Date, Mirant Americas EnergyMarketing, LP is the SC for the RMR Units and the Non-RMR Units. Seller maychange the SC in its sole discretion and will promptly notify Buyer of any suchchange.

 

(2)           Buyer shall have full dispatch flexibilityconsistent with Operational Limitations on the RMR Units as provided for ineach Schedule A of the applicable RMR Agreement; provided, however, that Sellerhas the right to override any dispatch request by Buyer that would, in Seller’sreasonable opinion, create health or safety issues, violate anylegally-required operating restrictions, applicable laws or regulations, orwould, if honored, result in Seller’s non-compliance with any Schedule A of theRMR Agreements.

 

(3)           Consistent with ISO timelines and schedulingprotocols, Buyer may elect Day-Ahead, Hour-Ahead and Supplemental Energy bidsfor delivery of Energy and Ancillary Services (as defined in the respective RMRAgreement); provided that, Buyer shall schedule at least all Energy to theextent dispatched by the ISO under the RMR Agreements for Day-Ahead andHour-Ahead if Buyer has directed Seller to select “market path”. Buyer reservesthe right to select “market path” or “contract path” for any RMR Agreementdispatch order by ISO.  Unless otherwisedirected by Buyer for each Day-Ahead and Hour-Ahead dispatch instruction by ISOfor the Delta RMR Units, by default Seller shall notify the ISO of its electionof “market path” for all Energy quantities from the Delta RMR Units, with theexception of ISO dispatches after the close of the Hour-Ahead Market.  ISO dispatch orders in real-time under the RMRAgreements shall be responded to directly by Seller as “contract path” andSeller shall notify Buyer of such orders in a timely manner. Potrero dispatchesare more fully addressed in Section 7.5.

 

(4)           Buyer shall provide Seller with all dispatchschedules and intra-Day adjustments reasonably in advance of the ISO schedulingdeadlines. The Parties shall cooperate to ensure that all changes in thedispatch schedule are properly, appropriately and promptly (considering theparticular circumstances involved) communicated to all entities requiringnotification of any increase or decrease in the scheduled dispatch of the Facility.  The Parties shall be further obligated tocoordinate their scheduling activities and notices to one another to allow eachParty sufficient time to meet deadlines and requirements of any SystemOperator(s) and Gas transportation providers to assist the other Party inminimizing or eliminating Uninstructed Deviation Penalties, Generator ImbalanceFees and Gas Imbalance Charges that may be associated with such deadlines andrequirements.

 

(5)           Seller has no residual dispatch rights on theRMR Units if not called upon by the ISO or the Buyer, except as set forth inSections 5.2 and 7.6 herein.

 

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(6)            Seller may fulfill any Dispatch Notice fromthe ISO or, if agreed to, dispatch schedule from the Buyer from a SubstituteUnit as provided for in Section 5.1 of the RMR Agreements.

 

**7.2****         ****Scheduling and DispatchProtocols****.**

 

Schedulingand dispatch shall occur as follows:

 

(1)           Day-Ahead Scheduling:

 
| 0515 PPT: |   | Seller will notify Buyer  of the Availability of each RMR Unit and the Day-Ahead dispatch for each RMR  Unit for each hour that for which a Dispatch Notice is submitted to the  Seller by ISO under the RMR Agreements (“Availability Notice”). |
|-----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                       |
| 0545 PPT: |   | Buyer shall notify Seller  of its selection of “contract path”, if applicable, for the dispatches by ISO  under the RMR Agreements.                                                                                                              |
|      |   |                                                                                                                                                                                                                                                       |
| 0600 PPT: |   | Seller will notify ISO of its election of  “market path” or “contract path” for the dispatches by ISO under the RMR  Agreements.                                                                                                  |
|      |   |                                                                                                                                                                                                                                                       |
| 0615 PPT: |   | Buyer will notify Seller  of the Day-Ahead dispatch requirements of Buyer including:                                                                                                                                                                       |
|      |   |                                                                                                                                                                                                                                                       |
|      |   | (a)           Energy and Ancillary Service schedules for  each RMR Unit, for each hour (inclusive of ISO dispatches as provided by  Seller to Buyer above); and                                          |
|      |   |                                                                                                                                                                                                                                                       |
|      |   | (b)           Confirmation of total SC Trade quantities  by hour.                                                                                                                                        |
|      |   |                                                                                                                                                                                                                                                       |
| 1000 PPT: |   | Buyer and Seller submit  balanced schedules, including all inter-SC Trades, to ISO.                                                                                                                                                                        |

 

(2)           Day-Of Scheduling:

 

The scheduling timeline in this “Day-Of-Scheduling” section is based oncurrent ISO Tariff protocols, but Buyer and Seller acknowledge that the ISO isnot currently following such timeline for Hour-Ahead dispatches. If the ISOrevises the timeline through a Tariff amendment, Buyer and Seller shall revisethe timeline below accordingly, maintaining the “x + 45 minutes” and “x + 60minutes” provision for election of “market path” or “contract path” for Hour-

 

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Aheadscheduling, where x is definedas follows and the number of minutes indicate the time after the ISOnotification at time x:

 

In conformance to the Hour-Ahead RMR scheduling blocks outlined inTable 1.1 of the ISO Operation Procedure G-203, x = 1400 PPT Day Before, 0400PPT Operating Day or 1000 PPT Operating Day, as applicable.

 
| 1400 PPT    |                                                                                                                                                                                                                                                 |
|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Day Before: | Seller will forward to  Buyer the Hour-Ahead dispatch for each RMR Unit, for each hour for which a  Dispatch Notice is submitted to Seller by ISO under the RMR Agreements (Hours  Ending (“HE”) 0100-1000).                               |
|        |                                                                                                                                                                                                                                                 |
| 0400 PPT:   | Seller will forward to  Buyer the Hour-Ahead dispatch for each RMR Unit for each hour for which a Dispatch  Notice is submitted to Seller by ISO under the RMR Agreements (HE 1100-1600).                                                            |
|        |                                                                                                                                                                                                                                                 |
| 1000PPT:    | Seller will forward to  Buyer the Hour-Ahead dispatch for each RMR Unit for each hour for which a  Dispatch Notice is submitted to Seller by ISO under the RMR Agreements (HE  1700-2400).                                                           |
|        |                                                                                                                                                                                                                                                 |
| x + 45 min: | Buyer will notify Seller  of Buyer’s election of “contract path”, if applicable                                                                                                                                                       |
|        |                                                                                                                                                                                                                                                 |
| x + 60 min: | Seller will notify ISO as  to its election of “market path” or ‘‘contract path” for the Energy  quantities from the RMR Units dispatched by ISO and for those hours for which  no previous selection has already been made. |

 

Ifthe ISO continues to not follow Operating Procedure G-203, Buyer shall notifySeller of Buyer’s election of “contract path”, if applicable, 30 minutes priorto Seller’s deadline to notify the ISO of such election.

 

Hour-Aheadtimelines based on schedule “t-xxx” where “xxx” are the minutes prior to thestart of the hour of delivery:

 

(a)      t-165 minutes:  Buyer will notify Seller of the “Day Of”dispatch requirements of Buyer, including SC Trade quantities by hourly Energyand Ancillary Service schedules for each RMR Unit (inclusive of quantitiesdispatched by the ISO under the RMR Agreements); and

 

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(b)      t-135 minutes: Confirm totals. Buyer andSeller submit balanced schedules including all Inter-SC Trades to ISO.

 

(3)           Supplemental Energy Market:

 

Thirty(30) minutes prior to the closure of bidding into the Supplemental Energymarket, Buyer will notify Seller of bid curves for submission to ISO forSupplemental Energy, both incremental and decremental, for each RMR Unit. Inthe event that Buyer fails to notify Seller of such bid curves, Seller maydevelop and submit bid curves to the ISO on behalf of Buyer. In such event,Seller shall subsequently send Buyer any submission made on its behalf. Sellershall notify Buyer in a timely manner of any dispatches of the RMR Units by ISOin the Supplemental Energy market. Buyer and Seller acknowledge the sensitivenature of the information in Buyer’s bid curves and Seller agrees to use suchinformation only for the purposes described herein.

 

(4)           Ancillary Services Market:

 

Subjectto the timelines described above in (1) and (2), Buyer will notify Seller ofbid curves for submission to ISO for Ancillary Services capacity for each RMRUnit. Seller shall notify Buyer in a timely manner of any dispatches of the RMRUnits by ISO in the Ancillary Services market. Buyer and Seller acknowledge thesensitive nature of the information in Buyer’s bid curves and Seller agrees touse such information only for the purposes described herein.

 

**7.3****         ****Dispatch Notice;Restrictions****.**

 

(1)           To cancel a dispatch schedule and avoidincurring a Start-up Payment obligation, Buyer must notify Seller of suchcancellation prior to the RMR Unit operator initiating the start sequence. IfBuyer fails to provide a dispatch notice to Seller to cancel dispatch of theRMR Unit before the RMR Unit Starts-up, Buyer will be responsible for theStart-up Payment for the applicableUnit(s) and such Start-up shall count against Buyer as provided for in Section5.3(a) of the RMR Agreements for “Condition 2”.

 

(2)           Any dispatch schedules and intra-Dayadjustments submitted by Buyer must be consistent with the limitations on theRMR Units as defined in each Schedule A of the RMR Agreements.  Seller shall not be obligated to deliverEnergy or Ancillary Services that violates these limitations. Buyer may requestdispatch of the RMR Units in excess of the Contract Service Limits consistentwith each Section 4.7 of the RMR Agreements.

 

**7.4****         ****Uninstructed Deviation Penalty;Generator Imbalance Fees.**

 

(1)           Subject to the terms of this Agreement andconsistent with Good Industry Practice and the Operational Limitations, Selleragrees to operate the Facility to comply promptly with the dispatch by Buyer orthe ISO and to minimize Uninstructed Deviation Penalty(ies).  Seller and Buyer shall be equally responsiblefor any Uninstructed

 

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Deviation Penalty(ies)incurred with respect to Buyer’s or the ISO’s dispatch of the RMR Units.

 

(2)           Buyer shall be responsible for any GeneratorImbalance Fees incurred by Buyer’s or the ISO’s dispatch of the RMR Units under“Condition 1”; provided, however, that Seller would not have otherwise incurredsuch fees when operating under “Condition 2”.

 

**7.5****         ****Potrero Units****.**

 

(1)           Notwithstanding anything to the contraryherein, neither Seller nor Buyer shall have the right to dispatch the PotreroUnits beyond the ISO’s dispatch. Subject to a commitment from the ISO and theCPUC as to certain resource adequacy (“RA”) rights for the Potrero Units, Buyerwill request Seller to designate such Units as RMR Units under “Condition 1”for the “Condition 1” Term so that the full RA rights can be credited to Buyer,and Seller shall request from the ISO a change of status of the Potrero RMR Unitsto “Condition 1” and request a waiver of the ninety (90) Day notice requirementfor changing the status of the Potrero RMR Units to “Condition 1” so that thePotrero RMR Units will be able to perform under “Condition 1” as soon aspossible.

 

(2)           All Energy and capacity from the Potrero RMRUnits shall be scheduled as “contract path”. Seller shall provide all the Fuel required for ISO dispatch of thePotrero Units.

 

**7.6****         ****Seller’s Residual DispatchRights****.**

 

(1)           If neither the ISO nor the Buyer hasdispatched Pittsburg Unit 5 or 6, Seller may dispatch one of such RMR Units ata cost to Seller as described in Section 7.6(2) in order to generate sufficientsteam to dispatch Pittsburg Unit 7, a Non-RMR Unit.  Any Start-up by Seller pursuant to thisSection 7.6 (1) shall not be a Counted Start-up even if, after Seller hasstarted an RMR Unit and has not yet stopped it, Buyer or the ISO dispatches thatRMR Unit.  Any Service Hours and MWhproduced pursuant to Seller’s dispatch under this section shall not countagainst the Contract Service Limits; provided, however, that if the Buyer orthe ISO dispatches the affected RMR Unit, the applicable Service Hours and MWhproduced pursuant to such dispatch shall count against the Contract ServiceLimits. If Pittsburg Unit 5 or 6 becomes a Terminated RMR Unit, Seller shallutilize such Terminated RMR Unit, if available, to supply steam for PittsburgUnit 7 as described herein.

 

(2)           Buyer shall supply Gas and Seller shallcompensate Buyer for the quantity of Gas required to run Pittsburg 5 or 6 inorder to generate enough steam necessary to operate Pittsburg 7 pursuant topart (1) of this Section 7.6.  Seller shallpay Buyer the following: (123.5 MMBtu/hour) * (Number of hours in which Selleris taking steam) * Gas Index. To avoid the double payment of Gas by Seller inany given month, Seller will reduce the monthly total metered Gas amount in thefuel reimbursement calculation as

 

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described in Section 11.8 bythe same amount of Gas used by Seller pursuant to this Section 7.6 in the samemonth.

 

(3)           Prior to exercising its rights under thisSection 7.6, Seller shall notify Buyer in accordance with Section 11.5 (1).

 

**8.****            ****NOX LIMITATIONS**

 

(1)           The Units are subject to operating under NOXlimits, as may be modified from time to time, imposed by the Bay Area AirQuality Management District (“BAAQMD”). These limits are applied to the combined NOX emissions of Sellers’ ContraCosta, Pittsburg and Potrero facilities. Dispatch schedules shall be consistentwith these limits, and Seller shall retain the right to alter dispatchschedules to the extent necessary to ensure compliance therewith.  Seller shall use commercially reasonable effortsto minimize any adverse impact these limits may have on dispatch schedules submittedby Buyer to Seller; provided that, in no instance shall Seller’s market transactionsusing the Non-RMR Units in any way or to any extent take precedence over orotherwise impede Buyer’s dispatch.

 

(2)           RMR Units shall have priority over Non-RMRUnits in using the Seller’s “Bay Area Bubble” (the “Bubble”), as defined byRegulation 9, Rule 11 of the BAAQMD. If, after all generation from any Non-RMRUnit is curtailed to the point of compliance with the BAAQMD limits, the ISO’sor Buyer’s dispatch of an RMR Unit would cause a violation of the Bubble limit,then the ISO or Buyer, as applicable and in consultation with Seller, may berequired to either dispatch additional Energy from an RMR Unit with a SelectiveCatalytic Reduction system or curtail load from the responsible RMR Unit(s),which would facilitate the reduction of NOX emissions to a level within the Bubblelimit, to continue such dispatch. Seller’s ability to use otherwise unutilizedBubble space shall be subject at all times to the ISO’s and Buyer’s dispatch ofRMR Units. Any violations of the Bubble limit shall be the sole responsibilityof Seller.

 

**9.****            ****DELTA DISPATCH**

 

(1)           Consistent with the National PollutantDischarge Elimination System permit in effect at the time (the “Permit”) forthe Contra Costa and Pittsburg Facilities, and subject to the exceptions setforth in Section 7(a) of the Permit, preferential operation of Pittsburg Unit 7and the minimization of circulating water flow through Pittsburg Units 5 &6 and Contra Costa Units 6 & 7 are required during the “Delta Dispatchperiod” (from May 1 through July 15).  The dispatch procedures currently in effect,including the exceptions set forth in Section 7(a) of the Permit, arereferenced in Schedules A of the Contra Costa and Pittsburg RMR Agreements.Dispatch schedules submitted by Buyer shall be consistent with the Permitreferenced in each Schedule A of the RMR Agreements. In the event that Sellerincurs any mitigation fees pursuant to the Permit as the result of Buyer’sdispatch of the RMR Units during the Delta Dispatch period, Buyer

 

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shall be solely liable forsame, notwithstanding Seller’s ability to avoid such penalties through itsdispatch of any Non-RMR Unit(s).

 

(2)           At Buyer’s request, Seller shall use itscommercially reasonable efforts to obtain revisions to the Permit that wouldeliminate the preferential operation of Pittsburg Unit 7, a Non-RMR Unit, orotherwise ease or eliminate restrictions on Buyer’s dispatch of the DeltaUnits. Failure to achieve any such revisions, however, shall not result in anyadditional liability or obligations on Seller under this Agreement with respectto the Permit or Seller’s obligation to comply with the Permit and nothing willrequire Seller to dispatch Pittsburg Unit 7 if it is not in Seller’s economicinterest to do so.

 

**10.****         ****MUST OFFER/RUN**

 

10.1         Delta RMR Units. In the event that a Delta RMR Unit isdispatched by the ISO pursuant to the Must-Offer Obligation (the “Must-OfferDispatch”), Seller shall credit Buyer the Minimum Load Cost Compensationreceived from the ISO, and Buyer shall pay Seller Schedule G rates, inaccordance with Tariff Amendment 60, as approved by FERC in *California Independent System Operator Corp,*108FERC (CCH) ¶ 61,022 (2004) and 109 FERC (CCH) ¶ (“Amendment 60”), for the associated Start-ups and the Energyand Ancillary Services delivered pursuant to an ISO Must Offer Dispatch. However,due to Buyer’s provision of Gas for the Must-Offer Dispatch, the Schedule G ratesshall exclude the associated Schedule C charges. Buyer shall provide all Gasneeded to fulfill any such dispatch of the Delta RMR Units, with thenotification requirements by Seller for Gas supply by Buyer pursuant to Section11.5(1). Start-ups shall not be double-counted. Must-Offer Dispatch MWh,Service Hours and Start-ups are not counted for purposes of Sections 12.2 and12.3.

 

10.2         Potrero RMR Units. In the event that a Potrero RMR Unit isdispatched by the ISO pursuant to a Must-Offer Dispatch, Seller shall creditBuyer the Minimum Load Cost Compensation received from the ISO, and Buyer shallpay Seller Schedule G rates, in accordance with Amendment 60 for the associatedStart-ups and the Energy and Ancillary Services delivered pursuant to an ISOMust Offer Dispatch. For purpose of clarity, due to Seller’s provision of Fuelfor the Must-Offer Dispatch, the Schedule G rates shall include the associatedSchedule C charges.  Start-ups shall notbe double-counted.  Must offer MWh,Service Hours and Start-ups are not counted for purposes of Sections 12.2 and 12.3.

 

**11.****         ****GAS**

 

**11.1****       ****Gas and Gas Metering****.**

 

(1)           RMR Gas. During the “Condition 1” Term, Buyer, at its sole cost and expense,shall arrange, nominate, balance, transport and deliver to the Gas DeliveryPoint such quantities of Gas as are required by Seller to generate from theDelta RMR Units the quantity of Energy and Ancillary Services scheduled byBuyer including, without

 

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limitation, Gas required forStart-up and Shutdown of such RMR Units and pipeline shrinkage, as applicable (“RMRGas”).

 

(2)           Non-RMR Gas. Seller, at its sole cost and expense, shall provide all Fuel requiredfor any dispatch of Non-RMR Units and pipeline shrinkage, as applicable (“Non-RMRGas”).  Seller shall deliver Gas for theNon-RMR Units to Buyer’s PG&E Citygate Pool.  Buyer shall be responsible for nominating Gasreceived from Seller at Buyer’s PG&E Citygate Pool to the Gas DeliveryPoint(s).

 

(3)           Facility Balancing; Transport Costs. On or before the commencement of the “Condition1” Term, Seller shall (a) amend Seller’s Noncore Balancing Aggregation Agreement(“NBAA”) to designate Buyer as the NBAA holder and the balancing agent; (b)revise each applicable NGSA to provide that Buyer receives the invoices for allservices thereunder; and (c) designate Buyer as the Nominating Marketer undereach applicable NGSA,  Buyer shall payGas Transporter for all services provided under the NGSA for the RMR andNon-RMR Units.  With respect to the NGSAinvoiced amounts, Seller shall reimburse Buyer for all invoiced costs fordelivery of Non-RMR Gas from Buyer’s PG&E Citygate Pool to the Gas DeliveryPoint.  Should Gas Transporter’s invoiceinclude fixed charges such fixed charges shall be allocated between the Partiesbased on the ratio of the aggregate MDQ for the RMR Units covered by the NGSAfor a particular Facility and the aggregate MDQ for the Non-RMR Units for thesame Facility. When an RMR Unit at a Facility becomes a Terminated RMR Unit andthere are no other surviving RMR Units at the same Facility, the Parties shallcooperate as soon as practicable to (a) amend Seller’s NBAA to designate Selleras the NBAA holder and the balancing agent for such Facility; (b) revise theNGSA to provide that Seller receives the invoices for all services thereunder;and (c) designate Seller as the Nominating Marketer under the applicable NGSA.

 

(4)           Gas Metering.

 

(a)           Gas delivered by Buyer to the Gas Delivery Point shall be measured bythe Gas Meter at the Gas Delivery Point. The Gas Transporter shall own,operate, maintain and test the Gas Meter located at the Gas Delivery Point. Sellershall coordinate with the Gas Transporter and Buyer with respect to maintenanceand testing of the Gas Meter consistent with the Gas Transmission ServiceAgreement and Good Industry Practice. The Gas Meter located at the Gas DeliveryPoint will measure the Gas consumed by the entire Facility rather than individualUnits.

 

(b)           Notwithstanding the foregoing, Seller may, at its sole cost and expense,cause Gas meters to be installed at each Non-RMR Unit that satisfy the requirementsoutlined in Schedule C, Part 1, A(2)(a), of the RMR Agreements (“Non-RMR UnitGas Meters”),  In such event, Sellershall coordinate with the Gas Transporter and Buyer with respect to maintenanceand testing of the Non-RMR Unit Gas Meters consistent with the Gas TransmissionService Agreement

 

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andGood Industry Practice, and the Non-RMR Unit Gas Meters will measure the Gasconsumed by the Non-RMR Units.

 

**11.2****       ****Gas Transmission ServiceAgreement****.**

 

Sellerhas entered into the GTSA and the NGSA for each RMR Facility with the GasTransporter and shall maintain each of such GTSA and NGSA in full force andeffect throughout the “Condition 1” Term.

 

**11.3****       ****Gas Specifications****.**

 

(1)           All Gas tendered by Buyer for delivery to theGas Delivery Point shall meet the then current natural Gas qualityspecifications as set forth in the Gas Transporter’s tariff (“Gas Tariff”), assuch specifications may change from time to time.

 

(2)           If Gas tendered for delivery under thisAgreement at the Gas Delivery Point materially fails for any reason to conformto the applicable specification set forth in Section 11.3(l) (“Non-ConformingGas”), Seller will consider whether it is able to accept such Non-ConformingGas and may refuse to take possession of all or any part of such Gas, givingBuyer the reasons for such refusal as soon as practicable. If Seller chooses toaccept the Non-Conforming Gas, it will advise Buyer of same in writing, andeach Party shall be responsible for the disposition of its own Gas, asapplicable.

 

(3)           If the Facility is damaged as a direct resultof the delivery of Non-Conforming Gas that Seller has not approved for receiptand use at the Facility, Seller shall be entitled to the remedies available toit pursuant to its agreement with the Gas Transporter. Seller shall usecommercially reasonable efforts to mitigate any damages resulting from thedelivery of any Non-Conforming Gas at the Gas Delivery Point and the use ofsuch Gas in a Unit.

 

(4)           The unavailability of the Facility due toBuyer’s delivery of Non-Conforming Gas that was not approved by the Sellershall not be considered a Forced Outage, and the Facility shall be consideredavailable for the purpose of calculating the Monthly Availability Payment.

 

**11.4****       ****Title and Risk of Loss****.**

 

(1)           As between the Parties, Buyer shall be deemedto be in exclusive possession and control (and responsible for any damages orinjury caused thereby) of the RMR Gas prior to the Gas Delivery Point, andSeller shall be deemed to be in exclusive possession and control (andresponsible for any damages or injury caused thereby) of the RMR Gas at andfrom the Gas Delivery Point. Notwithstanding delivery to the Gas DeliveryPoint, title to the RMR Gas shall remain with Buyer or Buyer’s third partysupplier. As between the Parties with respect to Non-RMR Gas, Seller shall bedeemed to be in exclusive possession and control (and responsible for anydamages or injury caused

 

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thereby) prior to Buyer’sPG&E Citygate Pool and at and from the Gas Delivery Point, and Buyer shallbe deemed to be in exclusive possession and control (and responsible for anydamages or injury caused thereby) at and from Buyer’s PG&E Citygate Pool tothe Gas Delivery Point. Notwithstanding delivery to the Gas Delivery Point,title to the RMR Gas shall remain with Buyer or Buyer’s third party supplier.Each of Seller and Buyer shall and hereby does indemnify, defend and holdharmless the other Party from any Claims arising from any act, failure to actor incident related to RMR Gas or Non-RMR Gas occurring when the indemnifyingParty is in possession of such RMR Gas or Non-RMR Gas.

 

(2)           Buyer warrants that the Gas delivered byBuyer shall be free and clear of all liens, Claims and encumbrances arisingprior to the Gas Delivery Point. Seller warrants that the Non-RMR Gas deliveredto Buyer at Buyer’s PG&E Citygate Pool shall be free and clear of allliens, Claims and encumbrances arising prior to the Buyer’s PG&E CitygatePool.

 

**11.5****       ****Gas Scheduling Manager****.**

 

(1)           For those Facilities for which Buyer isdesignated as the NBAA holder, Buyer shall act as the Gas scheduling manager (“GSM”).The GSM shall cooperate with Seller to provide for scheduling changes asallowed under the Gas Tariff for day-ahead and intra-Day Gas nominations todeliver Non-RMR Gas to the Gas Delivery Point. Seller shall provide a finalday-ahead Gas schedule to Buyer by 8:30 a.m. PPT. Intra-Day nominations shallbe submitted by Seller to Buyer thirty (30) minutes prior to the applicablenomination cycle deadline as defined by the Gas Tariff.  Seller’s ability to nominate per each Non-RMRUnit shall be limited to the Unit Maximum Daily Quantity as definedherein.  Seller shall be allowed todeliver in excess of the Non-RMR Unit MDQ with Buyer’s consent in order to makeup past imbalances. The “Non-RMR Unit MDQ” is defined for each Non-RMR Unit asthe ‘Unit MDQ’ as defined by the Facility NGSA. Buyer and Seller shallcooperate to update the Unit MDQs in each applicable Facility NGSA from time totime in order to reflect Unit operations, as allowed under the Gas Transporter’stariff.

 

(2)           With respect to Non-RMR Gas, Buyer shallprovide to Seller the benefit of equivalent balancing rights and relatedservices that are available under the Gas Transporter’s tariff to a singlepremises entity with an MDQ equal to the aggregate of all Non-RMR Unit MDQs asdefined in Section 11.5(1). Capitalized terms used but otherwise not defined inthis Section 11.5(2) shall have the meanings ascribed in the Gas Transporter’stariff.

 

(A)          Notwithstanding any aggregation by the GSM of individual BalancingService accounts maintained by the GSM into a single Balancing Service accountunder the G-Bal Schedule, the GSM shall maintain on its books a separatebalancing account on behalf of Seller with respect to the Non-RMR Gas deliveredin accordance with this Agreement (“Seller Balancing Account”). The

 

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GSMshall calculate the Seller’s daily Gas imbalances for purposes of administeringthe Seller Balancing Account as the difference between (i) the aggregate of theNon-RMR Gas delivered and (ii) the aggregate amount of Gas allocated by the GSMto the Non-RMR Units in accordance with Section 11.5(3). Seller’s monthlyimbalance shall be the sum of (the daily Gas imbalances in a given calendarmonth.

 

(B)           Within one (1) Business Day after the end of any “gas day” (as definedin the Gas Transporter’s tariff), the GSM shall deliver to Seller a copy of theSeller Balancing Account balance for the preceding gas day, which shall specify(i) Seller’s daily Gas imbalances for each day of the current month, inaccordance with the allocation methodology set forth in Section 11.5(3), (ii)the aggregate of such imbalances for the current month, and (iii) any carryoverof imbalances from prior months to such current month ((i), (ii), and (iii),collectively, the “Seller Monthly Imbalance”). Within five (5) Business Daysafter the end of any calendar month, representatives of Buyer and Seller shallmeet via conference call to reconcile any differences in the Seller BalancingAccount balance communicated by the GSM.

 

(C)           If the Seller Monthly Imbalance is within the Tolerance Band for suchmonth (i.e. if the fraction (expressed as a percentage) equal to the SellerMonthly Imbalance divided by the aggregate amount allocated by GSM to Non-RMRUnits, in accordance with Section 11.5(3) for such month, is equal to or lessthan the percentage specified for the Tolerance Band in the Gas Transporter’stariff), such Seller Monthly Imbalance shall be carried forward solely for theaccount of Seller, at Seller’s discretion. Buyer shall provide Gas associatedwith any positive imbalance for use under this Agreement. Buyer shall beresponsible for any negative imbalance carried forward to the appropriatesubsequent month.

 

(D)          To the extent permitted under the Gas Transporter’s tariff, Seller maytrade any Seller Monthly Imbalance between Buyer and third parties identifiedby Seller, including the transfer of all or part of such Seller Monthly Imbalanceto Gas storage; provided, however, that Seller shall be solely responsible forany credit requirements of such third party transferees or storage facilitiesand any non-performance by such third party transferees or storage facilitiesin connection with such transactions.

 

(E)           For any Seller Monthly Imbalance not traded or carried forward, Selleragrees to pay or receive the applicable Gas Transporter’s tariff cash out rate.

 

(3)           Seller shall provide Buyer with all thenecessary Gas Meter and Energy Meter data in order to calculate the daily Gasallocation between the Non-RMR and RMR Units. For purposes of daily nominationsonly, Gas shall be allocated by the GSM daily to each Non-RMR and RMR Unit inan equitable manner, utilizing the methodology set

 

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forth in the ISO’s RMRinvoice template. Notwithstanding the foregoing, if Seller installs Non-RMRUnit Gas Meters, then the quantity of Non-RMR Gas shall be determined using theinformation from such meters. The Parties shall work together to reconcilesummation of the daily nominated amounts as described in this Section 11.5(3)with the monthly amounts calculated pursuant to Section 11.8.

 

**11.6****       ****Gas Imbalance Charges****.**

 

(1)           Buyer shall be responsible for all GasImbalance Charges associated with Gas deliveries under this Agreement to theextent such charges are caused by Buyer’s actions or inactions. Seller shall beresponsible for all Gas Imbalance Charges associated with Gas deliveries underthis Agreement to the extent such charges are caused by Seller’s actions orinactions.  Both Parties shall usecommercially reasonable efforts to avoid imbalances and to correct anyimbalances, which may occur.

 

(2)           The Parties shall keep themselves informed ofsystem wide operation flow order or “OFO” and emergency flow order or “EFO”notices. Accordingly, Buyer and Seller acknowledge that under certain OFOconditions that either Party’s action may provide benefit to the other throughthe NBAA pool. See Exhibit C.

 

** **
| **OFO Penalty Causes**     | ** ** | **Responsible Party** |
|----------------------------|------------|-----------------------|
|                       |       |                  |
| Unit schedule deviation    |       | Seller                |
| Schedule change            |       | Party making change   |
| Over/Under Delivery of Gas |       | Party making change   |

 

The GSM shall notify Sellerof any customer specific OFOs and EFOs (as defined in the Gas Transporter’stariff) affecting the Facilities for which Buyer is designated as the NBAAholder, advising Seller of the terms of such customer specific OFO withinfifteen (15) minutes of its receipt of written notice of a customer specificOFO and as promptly as is reasonably possible after its receipt of writtennotice of a customer specific EFO.

 

(3)           In any calendar month that the ISO MonthlyFuel Imbalance Charge exceeds the limit as specified in Schedules C of the RMRAgreements, Buyer shall provide all necessary information in order for Sellerto act on Buyer’s behalf in seeking reimbursement of penalties from the ISO.Seller shall pay to Buyer any reimbursement received therefrom.

 

(4)           The GSM shall estimate OFO and EFO charges orpenalties it reasonably expects Buyer to incur in any calendar month under thisAgreement.  Such estimated OFO and EFOcharges or penalties shall be invoiced by Buyer to Seller as provided in Section12.5; provided, however, that such invoiced amounts shall be reconciled againstthe actual, final invoices from the Gas Transporter and any difference theretoshall be settled by the Parties in the next monthly billing cycle.

 

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**11.7****       ****Uninstructed Deviation Penalty(ies)(UDPs)****.**

 

PerSection 7.4(1) of this Agreement, Seller and Buyer shall be equally responsiblefor Uninstructed Deviations Penalties. Buyer shall compensate Seller for Gasthat would have been needed to provide Energy associated with negativeUninstructed Deviation Penalties. Compensation for negative UDPs will becalculated by multiplying (i) the sum of (a) the Gas Index and (b) theapplicable Gas Transporter’s tariff rate in effect at the time the UDP is incurredto deliver Gas from Buyer’s PG&E Citygate Pool to the Gas Delivery Point by(ii) the estimated Gas required to deliver the MWhs that Seller procured in themarket to meet Buyer’s schedule due to the negative deviation during the periodin which the UDP is incurred.  The Gasfor negative UDPs will be estimated by using Equation C1-7a in the RMRAgreements, replacing the 1.02 factor with 1.0, and calculating the differencein the resulting MMBTUs at the scheduled MWh and the metered MWh for theperiods in which UDPs were incurred.

 

**11.8****       ****Fuel Reimbursement****.**

 

Sellerwill financially reimburse Buyer for the allocated quantity of Gas for each RMRUnit, as calculated in the ISO’s RMR invoice template (“RMR Allocated Quantity”),to the extent such RMR Allocated Quantity exceeds the quantity that resultsfrom the Unit Hourly Cap Heat Input calculation set forth in the ISO’s RMRinvoice template. Such reimbursement amount shall also be calculated inaccordance with the ISO’s RMR invoice template using the Gas Index and theexcess quantity.

 

**12.****         ****RMR, MARKET AND NON-RMR GASCHARGES**

 

Forthe avoidance of doubt, the intent of the parties is for Seller to becompensated for the RMR Units by Buyer, subject to the rates discussed herein,as if Seller had elected “Condition 2” under the RMR Agreements for allpurposes. For purposes of this Agreement, all amounts due to Seller by Buyershall be paid to Seller’s SC.

 

**12.1****       ****Buyer’s Monthly Charges****.**

 

(1)           In consideration for the rights providedBuyer in this Agreement, Buyer shall pay to Seller for each month during the “Condition1” Term:

 

(a)      all “Condition 2” rates described inSchedules B of the RMR Agreements;

(b)      any other payments required in Sections 2.5,8.2, 8.6 and 9 of the RMR Agreements and Buyer’s share of payments in Section 8.7of the RMR Agreements whether or not specifically captured in Sections 12.1,12.2 and 12.3;

 

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(c)      payments resulting from Energy dispatched bythe ISO pursuant to Seller’s provision, at Buyer’s direction, of RegulationDown Ancillary Service;

(d)      payments resulting from Energy dispatched bythe ISO pursuant to Supplemental Energy “decremental” bids submitted by Seller;and

(e)      the charges provided for in Sections 7.4, 9,10, 11.7, 12.2, 12.3 and 25.1 of this Agreement, when applicable (all of whichtogether shall be the “Buyer’s Monthly Charges”).

 

(2)           For purposes of calculating Buyer’s MonthlyCharges,

(a)      the Annual Fixed Revenue Requirement (“AFRR”)Table B-6 in Section 7 of Schedules B of the RMR Agreements shall apply, as modifiedby the 2005 RMR FERC Settlement;

(b)      the Monthly Option Payment shall equal thesum of the Monthly Availability Payment and the Monthly Surcharge Payment minusthe total Non-Performance Penalty for the applicable month that is incurred bySeller under the RMR Agreements attributable to the ISO dispatch;

(c)      in no event shall the Monthly Option Paymentfor any month be less than zero;

(d)      only Sections E (table C1-18), F, and C ofSchedule C of the RMR Agreements shall apply for the Variable O&M Costs foreach Delta RMR Unit, and Potrero RMR Units shall not be included; and

(e)      any Dispatch Notice submitted by the ISO ordispatch schedule submitted by Buyer hereunder will count as if the RMR Unitwas dispatched under “Condition 2”.

 

Schedule C charges relatedto Monthly Billed Fuel Cost, Monthly Fuel Imbalance Charge, and Monthly OtherFuel Related Cost are specifically excluded due to Buyer acting as Gas supplierfor the Delta RMR Units.

 

(3)           If Buyer claims a Force Majeure Event for anyreason, Buyer shall not be relieved of the obligation to pay Buyer’s MonthlyCharges to Seller.

 

**12.2****       ****Schedule G Charges****.**

 

(1)           In the event that the ISO dispatches any RMRUnit in excess of the then prevailing Contract Service Limits, Buyer shall paySeller all applicable Schedule G rates for the excess Counted MWh, CountedService Hours, and Counted Start-ups resulting therefrom as if all dispatchesby the ISO were under “Condition 2”. For purposes of clarity, in equation G-lof Schedules G the “Variable Cost Payment for the Billing Month” shall notexclude charges related to Monthly Billed Fuel Cost, Monthly Fuel ImbalanceCharge and Monthly Other Fuel Related Cost.

 

(2)           Exhibit B illustrates settlements that relateto Schedule G Charges.

 

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**12.3****       ****Modified Schedule G Charges****.**

 

(1)           In the event that the combined Start-ups ofBuyer and the ISO for any RMR Unit are greater than the Maximum AnnualStart-ups for 2005, each excess Counted Start-up by the Buyer shall be paid atthe applicable Prepaid Start-up Charge multiplied by three (3). A requestedStart-up by Buyer cannot be double counted in the sense that if the Buyerrequests a Start-up and the RMR Unit subsequently trips during Start-up oroperation and has to be restarted, this sequencing will represent only a singleStart-up for purposes of determining when Modified Schedule G Charges takeeffect.  For clarity, the entire periodof operation for an RMR Unit beginning with Buyer’s request for a Start-up andcontinuing until Buyer’s request that such Unit Shutdown shall constitute a singleStart-up for purposes of the Modified Schedule G Charges.

 

(2)           In the event that the combined dispatches ofBuyer and the ISO for any RMR Unit are greater than the 2005 Contract ServiceLimits for the Maximum Annual MWh or the Maximum Annual Service Hours, Buyershall pay Seller for all resulting excess Counted MWh and Counted Service Hoursas if all dispatches were under “Condition 2”; provided, however, that in suchinstance equation G-1 of Schedules G of the RMR Agreements shall be modified sothat the “Variable Cost Payment for the Billing Month” equals the product ofthe Monthly Variable O&M Cost and four (4).

 

(3)           For the purposes of clarity, Buyer shall payfor each excess Start-up and each excess MWh only once, at either the ScheduleG or Modified Schedule G rate.

 

(4)           To the extent that Seller receives anySchedule G revenues from the ISO, such amounts shall be credited to Buyeragainst the total amounts due as describedhereunder pursuant to the Schedule G rates and the Modified Schedule G Rates.

 

(5)           Exhibit B illustrates settlements that relateto Modified Schedule G Charges.

 

**12.4****       ****Credit of “Condition 1”Payments and Other Offsets****.**

 

Sellershall credit Buyer, or cause its SC to credit Buyer, all amounts (“Buyer’sMonthly Credits”) received from the ISO that are based on performance of theRMR Units during the “Condition 1” Term and result from the following:

 

1.    The “Condition 1” Monthly Option Payment paidby the ISO for each month under the RMR Agreements;

 

2.    Capacity awarded by the ISO pursuant toSeller’s provision of Spinning Reserves, Non-spinning Reserves, Regulation Up,Regulation Down Ancillary Service(s) or any other Ancillary Service(s) bids, asdirected by Buyer;

 

3.    Energy dispatched by the ISO pursuant toSeller’s provision of Spinning Reserves, Non-spinning Reserves, Regulation UpAncillary Service(s) or any other Ancillary Service(s) bids, as directed byBuyer;

 

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4.    Energy dispatched by the ISO pursuant toSeller’s provision of Supplemental Energy “incremental” bids, as directed byBuyer;

 

5.    For Delta RMR Units only, payments receivedfrom the ISO related to Seller’s election of “contract path”, as directed byBuyer, for transactions including, but not limited to, RMR dispatches after theclose of the Hour-Ahead Market;

 

6.    For Delta RMR Units only, payments receivedfrom the ISO related to Buyer’s election of “contract path” for RMR dispatchesof Day-ahead and intra-Day transactions;

 

7.    For Delta RMR Units only, Gas reimbursements,as further described in Section 11.8 of this Agreement;

 

8.    For Delta RMR Units only, Start-up Fuel Costsfor Start-ups under the RMR Agreements; provided, however, at the end of eachcalendar year, if the actual number of Start-ups is less than the number ofPrepaid Start-ups for which Seller has reimbursed Buyer, then the parties shallsplit the remaining difference on a 50/50 basis;

 

9.    Minimum Load Cost Compensation for anyMust-Offer Dispatch pursuant to Section 10;

 

10.  Any interest due Buyer, pursuant to Section 9of the RMR Agreements; and

 

11.  Any amounts due Buyer from Seller, althoughnot received from the ISO, for provision of steam as further described inSection 7.6(2) of this Agreement.

 

**12.5****       ****Gas Charges****.**

 

Buyershall invoice Seller for (a) imbalances pursuant to Sections 11.5(2)(E) and11.6(1); (b) the transport costs for Non-RMR Gas as described in Section11.1(3); (c) any OFO or EFO charges pursuant to section 11.6(4); (d) any otherapplicable charges to Seller relating to the Non-RMR Gas; and (e) any creditsdue to Seller, including, but not limited to, those described in Sections 11.5and 11.6, providing supporting documentation acceptable in industry practice tosupport the amount charged.  If theactual quantity delivered is not known by the billing date, billing will beprepared based on the quantity of Non-RMR Gas scheduled by Seller in theapplicable calendar month. The invoiced quantity will then be adjusted to theactual quantity on the following calendar month’s billing or as soon thereafteras actual delivery information is available.

 

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**13.****         ****REPRESENTATIONS ANDWARRANTIES**

** **

**13.1****       ****Representations andWarranties****.**

 

(1)           As a material inducement to entering intothis Agreement, each Party with respect to itself, hereby represents andwarrants to the other Party as of the Agreement Date and throughout theContract Term as follows:

 

(a)          it is duly organized, validly existing and ingood standing under the laws of the jurisdiction of its formation and isqualified to conduct its business in those jurisdictions necessary for it toperform its obligations under this Agreement;

 

(b)          it has all authorizations from anyGovernmental Authority necessary for it to legally perform its obligationsunder this Agreement or will obtain such authorizations in a timely manner priorto when any performance by it requiring such authorization becomes due;

 

(c)          the execution, delivery and performance ofthis Agreement are within its powers, have been duly authorized by allnecessary action and do not violate any of the terms or conditions in its governingdocuments or any contract to which it is a party or any Governmental Ruleapplicable to it;

 

(d)          this Agreement constitutes a legal, valid andbinding obligation of such Party enforceable against it in accordance with itsterms, and each Party has all rights such that it can and will perform its obligationsto the other Party in conformance with the terms and conditions of thisAgreement, subject to bankruptcy, insolvency, reorganization and other lawsaffecting creditor’s rights generally and general principles of equity;

 

(e)          except as provided in Section 14.1(2), noBankruptcy is pending against it or to its knowledge threatened against it; and

 

(f)           the audited financial statements provided bySeller and Buyer pursuant to Section 15.4(2) are true and accurate based on therespective Party’s knowledge, information and belief;

 

(g)          it has negotiated and entered into thisAgreement in the ordinary course of its respective business, in good faith, forfair consideration and on an arm’s length basis.

 

(2)           Seller hereby represents and warrants thatthe terms and conditions of this Agreement are fair and reasonable and reflectits exercise of prudent business judgment consistent with its fiduciary dutiesas a debtor-in-possession and are supported by fair consideration andreasonably equivalent value in money or money’s worth.

 

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(3)           Each of Buyer and Seller represent andwarrant to the other that it is a “forward contract merchant” within themeaning of the United States Bankruptcy Code.

 

**13.2****       ****No Other Representations andWarranties****.**

 

EachParty acknowledges that it has entered into this Agreement based solely uponthe express representations and warranties set forth in this Agreement.

 

**14.****         ****EVENT OF DEFAULT ANDREMEDIES**

** **

**14.1****       ****Event of Default****.**

 

(1)           An “Event of Default” shall mean withrespect to a Party (the “Defaulting Party”) any of the actions set forthbelow in this Section 14.1(1):

 

(a)           the failure of the Defaulting Party to make,when due, any payment required under this Agreement if such failure is notremedied within five (5) Business Days after written notice of such failure isgiven to the Defaulting Party by the other Party (the “Non-Defaulting Party”);

 

(b)           except as permitted by Section 5.2, the saleby Seller of any portion of the Maximum Net Dependable Capacity, Energy orAncillary Services from any of the RMR Units to any third party during the “Condition1” Term;

 

(c)           any representation or warranty (including,but not limited to, the representation and warranty set forth in Section13.l(l)(f)) made by the Defaulting Party in this Agreement shall prove to havebeen false or misleading in any material respect when made; provided that, ifsuch representation or warranty is capable of being corrected, no Event of Defaultshall have occurred if the Defaulting Party is diligently pursuing suchcorrection and such representation or warranty is corrected within thirty (30)Days from the date upon which the Non-Defaulting Party gives written notice tothe Defaulting Party of the false and misleading nature of the representationor warranty;

 

(d)           the failure by the Defaulting Party toperform any material covenant set forth in this Agreement (other than theevents that are otherwise specifically covered in this Section 14.1(1) as aseparate Event of Default and other than any covenant for which an exclusiveremedy is set out elsewhere in this Agreement), and such failure is not excusedby a Force Majeure Event or cured within thirty (30) Days after written notice thereofto the Defaulting Party or, if such failure cannot reasonably be cured in suchperiod and the Defaulting Party within such period commences, and thereafterproceeds with reasonable due diligence, to cure

 

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suchfailure, such period shall be extended for such further period as shall benecessary for the Party to cure such failure with reasonable due diligence,provided that the total cure period shall not exceed ninety (90) Days;

 

(e)           except as provided in Section 14.1(2), theBankruptcy of the Defaulting Party; and

 

(f)            the failure by the Defaulting Party to meetits obligation to provide Security as required by Article 21 if such failure isnot remedied within three (3) Business Days after written notice of suchfailure is given to the Defaulting Party by the other Non-Defaulting Party.

 

(2)           Notwithstanding anything herein to thecontrary, Buyer acknowledges that Seller filed a voluntary petition for reliefunder Chapter 11 of the United States Bankruptcy code on July 14, 2003 (the “Filing”)and such case remains pending in the United States Bankruptcy Court, NorthernDistrict of Texas (the “Bankruptcy Court”). Until such time as Seller emergesfrom Chapter 11 Bankruptcy through the confirmation of a plan orreorganization, the Filing shall not constitute an Event of Default underSections 14.1(l)(c) or (e) of this Agreement; provided, however, that in theevent that (A) Seller files a motion which contemplates the sale ofsubstantially all of its assets; (B) Seller files a Chapter 11 plan whichcontemplates the sale of substantially all of its assets; (C) Seller files amotion or request to convert its Chapter 11 case to a Chapter 7 proceeding; or(D) the Bankruptcy Court enters an order converting Seller’s case from aChapter 11 proceeding to a Chapter 7 proceeding, any such event (A) through (D)shall constitute an Event of Default under Sections 14.l(c) or (e) of thisAgreement.

 

**14.2****       ****Remedies Upon an Event ofDefault****.**

 

(1)           Upon the occurrence of an Event of Defaultand, with the exception of the Bankruptcy of a Party, for so long as such Eventof Default is continuing, after the applicable cure period, the Non-DefaultingParty may, upon written notice to the Defaulting Party, establish a date, noearlier than the Day such notice is effective and no later than twenty (20)Days after such notice is effective, on which this Agreement will terminate (“EarlyTermination Date”) and suspend its performance hereunder as of the declarationof such Early Termination Date; if the Event of Default is the Bankruptcy of aParty, the Non-Defaulting Party may exercise the remedy of immediatetermination. Moreover, the Non-Defaulting Party will have the right to exerciseall rights and remedies available to it under this Agreement, at law, and inequity including, but not limited to, the right: (a) to retain, draw on,liquidate, or apply any Security for any amounts due and owing; (b) to requirethe Defaulting Party to pay damages as set forth in Section 14.2(2); (c) tocommence dispute resolution procedures as provided for in Article 23; (d) tofile suit to compel the Defaulting Party to perform or pay any damages awardedthe Non-Defaulting Party pursuant to Article 23; and (e) to file suit to enjoinany acts that are unlawful or violate the rights of the Non-Defaulting Partyunder this Agreement.

 

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(2)           Except as otherwise expresslyprovided herein, any Event of Default shall subject the Defaulting Party to thepayment only of actual, direct damages to the Non-Defaulting Party.  The Non-Defaulting Party may take any actionsit deems necessary or appropriate to protect, preserve or enforce its rights orto reduce any risk of loss resulting from an early termination of thisAgreement. The Non-Defaulting Party shall calculate a Settlement Amount, ifany, resulting from an Early Termination Date in a commercially reasonablymanner.  The Settlement Amount isintended to compensate the Non-Defaulting Party for the loss of bargain, thecosts of mitigation, and the loss of protection against risks arising from theearly termination of this Agreement.  Upondetermination of the Settlement Amount by the Non-Defaulting Party, theNon-Defaulting Party shall provide the Defaulting Party with a writtenstatement showing the calculation of the Settlement Amount in sufficient detailto allow the Defaulting Party to compare such amount to its own estimate of theSettlement Amount, and such Settlement Amount shall be due and owing uponnotice of the calculation statement to the Defaulting Party. No later than thethird (3rd) Business day after notice of the Settlement Amount isprovided to the Defaulting Party by the Non-Defaulting Party, the Party owingsuch Settlement Amount shall pay same by wire transfer of immediately availablefunds. In the event that the Defaulting Party disputes the Non-DefaultingParty’s calculation of the Settlement Amount, the dispute shall be resolvedpursuant to the terms of Article 23. Nothing in this Section 14.2(2) shall beconstrued to restrict or preclude the Non-Defaulting Party from realizing onany Security held by the Non-Defaulting Party at any time upon the occurrenceof an Event of Default with respect to the Defaulting Party notwithstanding(and without awaiting the outcome of) any dispute as to the Settlement Amountpayable.  Consistent with Section 26.1,the Parties have an obligation to mitigate damages in an Event of Default inorder to minimize the Settlement Amount.

 

(3)           Any assertion by the Non-DefaultingParty of its entitlement to enforce any of the remedies described in Section14.2(1) must be initiated by the Non-Defaulting Party, through written noticeto the Defaulting Party, no later than the expiration of twelve (12) monthsafter the termination of this Agreement. The Party, who fails to act in atimely manner as provided in this Section 14.2, shall be deemed to have waivedits right to enforce such remedies.

 

**15.****         ****BILLING AND PAYMENT**

 

**15.1****       ****Billing and Payment for RMR and Market Payments.**

 

(1)           The timing of payments and invoicesreceived by Seller and the invoicing of Buyer by Seller shall be as providedfor in the RMR Agreements or the Tariff, as applicable. Following each monthduring the “Condition 1” Term and within five (5) Business Days of Seller’sissuance of a Revised Estimated RMR invoice to the ISO and within five (5)Business Days of Seller’s receipt of the Tariff Monthly Preliminary GMC andMarket Invoice, Seller shall render to Buyer (by regular mail, facsimile orother acceptable means pursuant to Section 20) a statement setting forthBuyer’s Monthly

 

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Charges and Buyer’s Monthly Credits for such month forthe charges set forth in the applicable RMR invoice and any other amounts dueto either Party.  Within five (5)Business Days of Seller’s issuance of the Revised Adjusted RMR Invoice to theISO, Seller shall render to Buyer (by regular mail, facsimile or otheracceptable means pursuant to Section 20) a statement setting forth the netcredit or debit (based on the difference between Buyer’s Monthly Charges andBuyer’s Monthly Credits assessed in conjunction with the Revised Estimated RMRInvoice and the same assessed in conjunction with the Revised Adjusted RMRInvoice) for such month for the charges set forth in the applicable RMR invoiceand any other amounts due to either Party. Within five (5) Business Days ofSeller’s receipt of the Monthly Final GMC and Market Invoice from the ISO,Seller shall render to Buyer (by regular mail, facsimile or other acceptablemeans pursuant to Section 20) a statement setting forth the net credit or debit(based on the difference between Buyer’s Monthly Charges and Buyer’s MonthlyCredits assessed in conjunction with the Monthly Preliminary GMC and the sameassessed in conjunction with the Monthly Final GMC) for such month for thecharges set forth in the applicable ISO invoice and any other amounts due toeither Party. Within five (5) Business Days after receipt of Seller’s statementBuyer or Seller, as applicable, shall render, by wire transfer, the amount setforth on such statement for payments due under the RMR Agreements (“RMRPayment”) or payments due under the Tariff (“Market Payment”), or payments dueunder Buyer’s Monthly Charges and Buyer’s Monthly Credits that are nototherwise included in the RMR Payment or Market Payment to the payment addressprovided in Exhibit D hereto. For purposes of clarity, “payments due under theTariff” shall include all transactions with the ISO, including transactionsmade pursuant to the RMR Agreements in which Buyer does not elect “contractpath”. All “contract path” volumes will be settled in accordance with the RMRAgreements.

 

(2)           To the extent relevant, each paymentunder this Agreement for a given time period shall be based on the same datawhich form the basis for the corresponding payment by the ISO to Seller withrespect to the RMR Agreements or otherwise and any payments pursuant to theTariff for that same time period. Seller shall make available to Buyer,simultaneously with their delivery to or receipt from ISO, the followingdocuments to the extent they relate to the “Condition 1” Term: (i) all invoicesunder the RMR Agreements *(e.g.,*EstimatedRMR Invoices, Revised Estimated RMR Invoices, Adjusted RMR Invoices and RevisedAdjusted RMR Invoices), (ii) all documents reflecting changes to such invoices *(e.g.,*Prior Period Change Worksheets),(iii) all invoices (e.g. Monthly Preliminary GMC and Market Invoice and MonthlyFinal GMC and Market Invoice) and Daily Settlement Statements between Sellerand ISO under the Tariff relating to Market Payments that result fromtransactions from Delta RMR Units, and (iv) all documents reflecting changes tosuch invoices. Any adjustment pursuant to Adjusted Final RMR Invoice andMonthly Final GMC and Market Invoice and any prior period adjustments (e.g.Prior Period Change Worksheets) shall be settled between Buyer and Seller inthe following settlement cycle.

 

(3)           Disputes concerning billing andpayment shall be handled as follows:

 

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(a)                                  A Party may, in good faith, dispute thecorrectness of any invoice issued by Seller under this Article 15 or anyadjustment to such an invoice or adjust any invoice for any arithmetic orcomputational error within twelve (12) months of the date the invoice, oradjustment to an invoice, was rendered. Any such disputes shall be resolved inaccordance with Article 23.

 

(b)                                 Disputes concerning billing and paymentrelated only to the RMR ISO invoices shall be subject to the timeline for suchdisputes as provided in the RMR Agreements and shall be resolved in accordancewith Article 23.

 

(c)                                  Buyer, may, in good faith, dispute anyISO settlement data related only to “market” transactions by notifying Sellerof such dispute using the ISO Settlement dispute form and providing allsupporting documentation no later than four (4) Business Days prior to thedeadline by which Seller must file a dispute with the ISO, where such deadlineis determined using the ISO payment calendar. The timeline for resolution of “market” disputes shall be as provided inthe Tariff, and the decision rendered by the ISO with respect to any “market”dispute shall be final and binding on the Parties. Seller shall only beobligated to credit Buyer any disputed amount to the extent that the ISOcredits Seller same.

 

(d)                                 In the event a Party disputes an invoiceor a portion thereof, or any other claim or adjustment arising with respect tothis Agreement, the disputing Party shall pay the disputed invoiced amounts infull on the applicable payment due date, subject to later return together withinterest accrued at the Commercial Interest Rate for “market” transactions andat the RMR Interest Rate for RMR transactions, in either case from the date thedisputed amount is paid until the date it is returned.

 

(4)           If the owing Party fails to remit thefull amount payable when due, interest on the unpaid portion shall accrue fromthe date due until the date of payment at the Commercial Interest Rate.Inadvertent overpayments shall be returned upon request or deducted by Sellerfrom subsequent payments. Overdue payments shall accrue interest from the duedate to the date of payment at the Commercial Interest Rate.  Errors with respect to invoices or paymentsshall be resolved as if section 9.8 of the RMR Agreements were a part of thisAgreement. Any adjustments subsequently made by the ISO shall be paid to orreceived from Buyer in a timely manner.

 

(5)           Notwithstanding anything to the contraryherein, the Parties acknowledge and agree that calculation of the paymentsdescribed herein are unique, complicated and dependent on information receivedfrom the ISO and each other.  AttachedExhibit F contains an estimated timeline for settlement of RMR Payment andMarket Payment amounts as specified in Sections 12.1, 12.2, 12.3, and 12.4 ofthis Agreement.  The Parties shall use anestimation procedure for settlement of the first three (3) months of the“Condition 1” Term (the “Estimation Period”) until such time as the Parties canmore fully develop a settlement process for this Agreement.  Following conclusion of the EstimationPeriod, the Parties shall work together to true-up in a timely manner the

 

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amounts invoiced during such period. During theEstimation Period, the parties shall use commercially reasonable efforts to useas much information as practicable from invoicing between Seller and ISOrelated to the RMR Agreements and the Tariff, and other information, ifpracticable, related to Article 12 of this Agreement.  However, at a minimum, the invoices duringthe Estimation Period shall contain the following:

 

(a)                                  The estimated invoice for the first monthof the “Condition 1” Term shall be rendered to Buyer by the end of the secondmonth of the “Condition 1” Term, with payment due within five (5) Business Daysof its receipt, and contain the sum of following amounts: (a) (i) the sum ofAFRRs for the RMR Units in Table B-6 shall be divided by twelve (12) and (ii)the resulting quotient shall be multiplied by the difference of one (1) minusthe Fixed Option Payment Factor; (b) (i) the total of Annual Capital Recoveryamounts for the RMR Units divided by twelve (12) and (ii) the resultingquotient shall be multiplied by the difference of one (1) minus the SurchargePayment Factor, (c) (i) the sum of ISO Variable O&M Cost plus ISOScheduling Coordinator Charge plus ISO ACA Charge multiplied by (ii) themetered MWh for the Delta RMR Units for the first month, and (d) credit ofestimated Schedule C reimbursement received from ISO for any “contract path”designated Energy for the first month for the Delta RMR Units;

 

(b)                                 The estimated invoice for the secondmonth of the “Condition 1” Term shall be rendered to Buyer by the end of thethird month of the “Condition 1” Term, with payment due within five (5)Business Days of its receipt, and contain the sum of following amounts: (a) (i)the sum of AFRRs for the RMR Units in Table B-6 shall be divided by twelve (12)and (ii) the resulting quotient shall be multiplied by the difference of one(1) minus the Fixed Option Payment Factor; (b) (i) the total of Annual CapitalRecovery amounts for the RMR Units divided by twelve (12) and (ii) theresulting quotient shall be multiplied by the difference of one (1) minus theSurcharge Payment Factor, (c) (i) the sum of ISO Variable O&M Cost plus ISOScheduling Coordinator Charge plus ISO ACA Charge multiplied by (ii) themetered MWh for the Delta RMR Units for the second month, (d) credit ofestimated Schedule C reimbursement received from ISO for any “contract path”designated Energy for the second month for the Delta RMR Units, and (e) creditof revenues received from the ISO pursuant to the Monthly Preliminary GMC andMarket Invoice between Seller and ISO under the Tariff relating to MarketPayments that result from transactions from the Delta RMR Units during thefirst month;

 

(c)                                  The estimated invoice for the third monthof the “Condition 1” Term shall be rendered to Buyer by the end of the fourthmonth of the “Condition 1” Term, with payment due within five (5) Business Daysof its receipt, and contain the sum of following amounts: (a) (i) the sum ofAFRRs for the RMR Units in Table B-6 shall be divided by twelve (12) and (ii)the resulting quotient shall be multiplied by the difference of one (1) minus

 

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the Fixed Option PaymentFactor; (b) (i) the total of Annual Capital Recovery amounts for the RMR Unitsdivided by twelve (12) and (ii) the resulting quotient shall be multiplied bythe difference of one (1) minus the Surcharge Payment Factor, (c) (i) the sumof ISO Variable O&M Cost plus ISO Scheduling Coordinator Charge plus ISOACA Charge multiplied by (ii) the metered MWh for the Delta RMR Units for thethird month, (d) credit of estimated Schedule C reimbursement received from ISOfor any “contract path” designated Energy for the third month for the Delta RMRUnits, and (e) credit of revenues received from the ISO pursuant to the MonthlyPreliminary GMC and Market Invoice between Seller and ISO under the Tariffrelating to Market Payments that result from transactions from the Delta RMRUnits during the second month;

 

(d)                                 The invoice for the fourth month of the“Condition 1” Term shall be rendered to Buyer by the end of the fifth month ofthe “Condition 1 “ Term, with payment due within five (5) Business Days of itsreceipt, and contain Buyer’s Monthly Charges and Buyer’s Monthly Creditspursuant to Section 12, and the Sections referenced therein, of this Agreement. This invoice shall contain true-ups forthe first month of settlements, including, but not limited to, adjustmentsresulting from Revised Adjusted RMR Invoices and Monthly Final GMC and MarketInvoice; and

 

(e)                                  The invoices for the fifth and futuremonths of the “Condition 1” Term shall be rendered to Buyer pursuant to Section15.1 (1); provided, however, that the invoice for the fifth month shall containtrue-ups for the second month of settlements, including, but not limited to,adjustments resulting from Revised Adjusted RMR Invoices and Monthly Final GMCand Market Invoice, and the invoice for the sixth month shall contain true-upsfor the third month of settlements, including, but not limited to, adjustmentsresulting from Revised Adjusted RMR Invoices and Monthly Final GMC and MarketInvoice.

 

**15.2        Billing and Payment for Gas Charges.**

 

(1)           Seller shall remit the amount dueunder Section 12.5, by wire transfer, in immediately available funds, on orbefore the later of the 25th Day of the calendar month following themonth of delivery or ten (10) Days after receipt of the invoice by Seller;provided that if such payment date is not a Business Day, payment shall be dueon the next Business Day following that date. In the event that any paymentsare due Seller hereunder, payment to Seller shall be made in accordance withthis Section 15.2.

 

(2)           A Party may, in good faith, disputethe correctness of any invoice or any adjustment to such an invoice or adjustany invoice for any arithmetic or computational error within twelve (12) monthsof the date the invoice, or adjustment to an invoice, was rendered. Disputesconcerning billing and payment shall be resolved in accordance with Article23.  In the event a Party disputes aninvoice or a portion thereof, or any other claim or adjustment arising withrespect to this Agreement, the disputing Party shall pay

 

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the disputed invoiced amounts in full on theapplicable payment due date, subject to later return together with interestaccrued at the Commercial Interest Rate until the date paid.  If the invoiced Party fails to remit the fullamount payable when due, interest on the unpaid portion shall accrue from thedate due until the date of payment at the Commercial Interest Rate. Inadvertentoverpayments shall be returned upon request or deducted by Seller fromsubsequent payments. Overdue payments shall accrue interest from the due dateto the date of payment at the Commercial Interest Rate.

 

**15.3        Netting.**

 

In each month there areamounts owed to and by each Party, the Parties shall to the extent reasonablypossible aggregate and discharge their obligations to pay or credit throughnetting, in which case the Party, if any, owing the greater aggregate amountmay pay to the other Party the difference between the amounts owed. Forpurposes of clarity, the Parties shall not “net” (a) RMR Payments or MarketPayments against (b) Gas charges as described in Section 12.5. Seller shall notbe obligated to credit Buyer any revenues related thereto until such time asSeller receives same from the ISO. Such netting shall not result in any waiverof, and each Party reserves to itself, any rights, counterclaims, remedies ordefenses (to the extent not expressly herein waived or denied) which such Partyhas or may be entitled to arising from or out of this Agreement.

 

**15.4        Audit and Financial Information.**

 

(1)           Each Party (and its representatives)has the right, on five (5) Business Days’ prior written notice, at its soleexpense and during normal working hours, to examine the records of the otherParty to the extent reasonably necessary to verify the accuracy of anystatement, charge or computation made pursuant to this Agreement, including ISOsettlements, Energy, Ancillary services, capacity schedules, and Fuelconsumption.  If requested, Seller shallprovide to Buyer statements evidencing the quantities of Energy and AncillaryServices delivered at the Delivery Point, metering records of Fuel delivered tothe Fuel Delivery Point and Fuel consumed at the Facility and any tests orrecords of any non-conforming Gas delivered at the Gas Delivery Point.  If any such examination reveals anyinaccuracy in any statement, the necessary adjustments in such statement andthe payments thereof will be promptly made and shall bear interest calculatedat the Commercial Interest Rate from**thedate the overpayment or underpayment was made until such adjustment is paid orrefunded; *provided, however,*thatno adjustment for any statement or payment will be made unless objection to theaccuracy thereof was made prior to the lapse of twelve (12) months from thereceipt thereof.

 

(2)           If requested by a Party (“Party A”),the other Party (“Party B”) shall deliver (i) within 120 Days following the endof each fiscal year, a copy of Party B’s annual report containing auditedconsolidated financial statements for such fiscal year and

 

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(ii) within 60 Days after the end of each of its firstthree fiscal quarters of each fiscal year, a copy of Party B’s quarterly reportcontaining unaudited consolidated financial statements for such fiscal quarter.In all cases the statements shall be for the most recent accounting period andprepared in accordance with GAAP; provided, however, that should any suchstatements not be available on a timely basis due to a delay in preparation orcertification, such delay shall not be an Event of Default under Section14.1(1) so long as Party B diligently pursues the preparation, certificationand delivery of the statements. If Party B’s financial statements are publiclyavailable from the website of the Securities and Exchange Commission, Party Bshall not be required to deliver copies of such statements to Party A.Notwithstanding this Section 15.4(2), with respect to Seller, all financialstatements shall be for Mirant Corporation.

 

(3)           In order to facilitate verificationof invoice data, the Parties shall use commercially reasonable efforts to allowBuyer to have access to Seller’s portion of the ISO RMR website regardinginformation on the Delta RMR Units.

 

**16.          INDEMNIFICATION**

 

The Parties hereby incorporate the indemnity provisionfrom the RMR Agreements as follows. Subject to the limitations in Section 17,each Party shall indemnify, defend and hold harmless the other Party and itsofficers, directors, employees, agents, contractors and sub-contractors, fromand against all third party claims, judgments, losses, liabilities, costs,expenses (including reasonable attorneys’ fees) and damages for personalinjury, death or property damage, caused by the negligence or willfulmisconduct related to this Agreement or breach of this Agreement of theindemnifying Party, its officers, directors, agents, employees, contractors orsub-contractors, provided that this indemnification shall be only to the extentsuch personal injury, death or property damage is not attributable to thenegligence or willful misconduct related to this Agreement or breach of thisAgreement of the Party seeking indemnification, its officers, directors,agents, employees, contractors or sub-contractors. This indemnification shallnot include or cover any claim covered by any workers’ compensation law. Thisindemnification shall be for an amount not exceeding the deductible of theindemnifying Party’s commercial general liability insurance. The indemnifiedParty shall give the other Party prompt notice of any such claim. Theindemnifying Party shall have the right to choose competent counsel, controlthe conduct of any litigation or other proceeding, and settle any claim. Theindemnified Party shall provide all documents and assistance reasonablyrequested by the indemnifying Party.

 

**17.          LIMITATIONOF LIABILITY**

 

THE PARTIES CONFIRM THATTHE EXPRESS REMEDIES AND MEASURES OF DAMAGES PROVIDED IN THIS AGREEMENT SATISFYTHE ESSENTIAL PURPOSES HEREOF FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESSREMEDY OR MEASURE OF DAMAGES IS HEREIN PROVIDED, SUCH EXPRESS REMEDY OR MEASUREOF DAMAGES SHALL BE

 

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THE SOLE AND EXCLUSIVE REMEDY, THE OBLIGOR’S LIABILITYSHALL BE LIMITED AS SET FORTH IN SUCH PROVISION AND ALL OTHER REMEDIES ORDAMAGES AT LAW OR IN EQUITY ARE WAIVED. IF NO REMEDY OR MEASURE OF DAMAGES ISEXPRESSLY HEREIN PROVIDED, THE OBLIGOR’S LIABILITY SHALL BE LIMITED TO DIRECTACTUAL DAMAGES ONLY, SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVEREMEDY AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED.  NEITHER PARTY SHALL BE LIABLE FORCONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOSTOPPORTUNITY COSTS OR LOST PROFITS, BY STATUTE, IN TORT OR CONTRACT, AT LAW ORIN EQUITY, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THEPARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OFDAMAGES IS WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING,WITHOUT LIMITATION, THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE ISSOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGESREQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THEDAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OTHERWISE OBTAINING ANADEQUATE REMEDY IS INCONVENIENT AND THE LIQUIDATED DAMAGES CONSTITUTE AREASONABLE APPROXIMATION OF THE HARM OR LOSS.

 

**18.****         ****ASSIGNMENT; BINDING EFFECT**

** **

**18.1****       ****Assignment****.**

 

Neither Party shallassign this Agreement or any of its rights or obligations hereunder without theprior written consent of the other Party, which consent shall not beunreasonably withheld or delayed, and any such assignee shall agree in writingto be bound by the terms and conditions hereof and shall meet the non-assigningParty’s creditworthiness criteria which shall include, but shall not be limitedto, providing adequate assurance to the non-assigning Patty in an amount andform determined by the non-assigning Party in a commercially reasonable manner. The Parties acknowledge that the formand amount of any adequate assurance which the non-assigning Party may requirefrom an assignee, as described in the preceding sentence, may not be the sameas the form and amount of Security which Seller or Buyer, as applicable, isrequired to provide pursuant to Article 21. Notwithstanding the foregoing,either Party may, without the need for consent from the other Party, (a)transfer, sell, pledge, encumber or assign this Agreement or the accounts,revenues or proceeds hereof in connection with any financing or other financialarrangements; (b) transfer or assign this Agreement to an Affiliate of suchParty; or (c) transfer or assign this Agreement to any Person succeeding to allor substantially all of the assets of such Party; provided, that in the case ofclauses (b) and (c) any such assignee shall agree in writing to be bound by theterms and conditions hereof and shall (i) meet the non-assigning Party’screditworthiness criteria

 

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which shall include, but shall not be limited to,providing adequate assurance to the non-assigning Party in an amount and formdetermined by the non-assigning Party in a commercially reasonable manner and(ii) demonstrate to the non-assigning Party that it has internal or externalresources with reasonable proficiency in generation operations and that it isable to operate the Facility consistent with Good Industry Practice and inaccordance with all the obligations under this Agreement.  Upon any assignment consented to by the otherParty or permitted under clauses (b) or (c) of the preceding sentence, theassigning Party shall be relieved of liability for all obligations arisinghereunder after the date such assignment becomes effective. The Parties agreethat it shall be a condition precedent to any proposed assignment of thisAgreement that the assignor and assignee shall fulfill the obligations of thisSection 18.1 before the assignment of this Agreement shall be allowed to occur.

 

**18.2****       ****Binding Effect****.**

 

This Agreement shallinure to the benefit of and be binding upon the Parties and their respectivesuccessors and permitted assigns.

 

**19.****         ****CONFIDENTIALITY**

 

Each Party shall keepconfidential, and shall not disseminate to any third party (other than suchParty’s Affiliates) or use for any other purpose (except with writtenauthorization), any information received from the other that is confidential orproprietary unless legally compelled (by deposition, inquiry, request forproduction of documents, subpoena, civil investigative demand or similarprocess, or by order of a court or tribunal of competent jurisdiction, or inorder to comply with applicable rules or requirements of any stock exchange,government department or agency or other Governmental Authority, or byrequirements of any securities law or regulation or other Governmental Rule) oras necessary to enforce the terms of this Agreement. Either Party may disclosethe terms of this Agreement to (i) its Affiliates, and to its and theirofficers, directors, employees, attorneys and accountants, (ii) creditreporting agencies, upon request and who are bound to hold, treat and protectsuch information on a confidential basis and (iii) its lenders, prospectivelenders, financing participants and their respective consultants and agents who(in the case of Persons identified in clause (iii)) are bound to hold, treatand protect such information on a confidential basis. If any Party is compelledto disclose any confidential information of the other Party, such Party shallrequest that such disclosure be protected and maintained in confidence to theextent reasonable under the circumstances and use reasonable efforts to protector limit disclosure with respect to commercially sensitive terms. In addition,such Party shall provide the other Party with prompt notice of the requirementto disclose confidential information in order to enable the other Party to seekan appropriate protective order or other remedy, and such Party shall consultwith the other Party with respect to the other Party taking steps to resist ornarrow the scope of any required disclosure.

 

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**20.          NOTICES**

 

Allnotices, requests, statements or payments shall be made to the addresses andpersons specified in Exhibit D hereto. All notices or requests shall be made inwriting except where this Agreement expressly provides that notice may be madeorally. Notices required to be in writing shall be delivered by letter,facsimile or other documentary form. Notice by facsimile shall be deemed tohave been received on the Day on which it was transmitted (where confirmationof successful transmission is received) (unless transmitted after 5:00 p.m. atthe place of receipt or on a Day that is not a Business Day in which case itshall be deemed received on the next Business Day); provided that dispatchnotifications and notifications of changes in availability of the Facility sentby facsimile shall be treated as received when confirmation of successfultransmission is received. Notice by hand delivery, overnight mail, or couriershall be deemed to have been received when delivered. Notice by telephone shallbe deemed to have been received at the time the call is received. A Party maychange its address by providing notice of same in accordance herewith.

 

**21.          SECURITY**

 

21.1         Encumbrance; Grant of Security Interest. As securityfor the prompt and complete payment of all amounts now due or that mayhereafter become due from a Party to the other Party and performance by a Partyof all of its obligations, each Party hereby pledges, assigns, conveys andtransfers to the other Party, and hereby grants to the other Party a presentand continuing security interest in and to, and a general first lien upon andright of set off against, all of such Party’s right, title and interest in, toand under any Security (except Letters of Credit) which has been or may in thefuture be transferred to, or received by, the other Party, and all dividends,interest, and other proceeds from time to time received, receivable, orotherwise distributed in respect of, or in exchange for, any or all of theforegoing.

 

21.2         Collateral Requirement. The amount of Security to beposted by a Party (the “Posting Party”) to the other Party (the “SecuredParty”) shall be equal to the amount that the Net Exposure “owed” by thePosting Party to the Secured Party for any month exceeds the Credit Thresholdfor the Posting Party, subject to the provisions of this Article 21 (the“Collateral Requirement”).  If the NetExposure is a negative number, Seller shall post Security, as calculatedherein, to Buyer. If the Net Exposure is a positive number, Buyer shall postSecurity, as calculated herein, to Seller.  Notwithstanding the foregoing, for Seller, theSecurity required hereunder shall at no time be greater than $7.5 million.

 

21.3         Calculation of Net Exposure. “Net Exposure” equalsthe RMR Exposure plus the Market Exposure plus the Gas Exposure. Thecalculation of Net Exposure shall be made in accordance with the followingterms. It is the intent of the Parties that the Calculation Date coincide, tothe extent possible, with the submission by Seller to the ISO of an EstimatedRMR Invoice for the previous trade month. If for any reason Seller does not

 

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submit such an invoice tothe ISO, with a copy concurrently to Buyer, or estimate to Buyer on or beforethe fifteenth (15th) calendar day of a month, Buyer may, at itselection, estimate the amounts described below as needed for the calculation ofNet Exposure and demand any resulting Collateral Requirement. Attached ExhibitG contains a method for calculating an estimated Net Exposure for the firstfour (4) Calculation Dates, the period during which sufficient settlement datamay not be available to do a more accurate calculation; provided, however, thatif actual amounts become available for any of the estimated amounts in ExhibitG, the applicable Party shall use such actual amounts in calculating the NetExposure in accordance with the methodology described in Exhibit G.

 

(1)“RMR Exposure” shall be the sum of: (a) for the previous month, Buyer’s“Condition 2” obligation to Seller less the “Condition 1” revenues in theEstimated RMR Invoice; (b) for the current month and the subsequent month,Buyer’s expected “Condition 2” obligation to Seller for Monthly AvailabilityPayment plus the Monthly Surcharge Payment less the expected “Condition 1”credits for the same period from Seller to Buyer; and (c) for the current monthand the subsequent month, an estimate of Seller’s credits to Buyer resultingfrom the sale of “contract path” Energy pursuant to the RMR Agreements.  An estimate of “contract path” Energy may becalculated as MW available at the Delta RMR Units, multiplied by the hours inthe current month, multiplied by a capacity factor (equal to the prior month’spercentage of actual “contract path” Energy), multiplied by a fixed heat rateof 11MMBtu/MWh, multiplied by the last published *Natural Gas Intelligence Bidweek*Spot Gas Prices,California, PG&E Citygate Average, multiplied by two (2) (for two (2)months). For example, only, 966 MW * 720 hours/mo * 5% (or prior month’s actualpercentage) * 11 MMBtu/MWh * S6.50/MMBtu * 2 = approximately $5.0 million;

 

(2)“Market Exposure” shall be based on the last settled Market Payment betweenSeller and Buyer. The amount of that last settled Market Payment shall bemultiplied by three (3) (for three (3) months). For clarity, for purposes ofthe Market Exposure calculation, a payment from Seller to Buyer is a negativenumber, and a payment from Buyer to Seller is a positive number; and

 

(3)“Gas Exposure” shall be an estimate of potential Gas imbalances, calculated as(-1) * 5% * MDQ (as set forth in each of Seller’s NGSAs, which are subject tochange from time to time) * 61 days * the last published *Natural Gas Intelligence Bidweek*Spot GasPrices, California, PG&E Citygate Average. For clarity, for purposes of the Gas Exposure calculation, a potentialexposure by Buyer to Seller, implying potential payment from Seller to Buyer,is a negative number.

 

21.4         Transfer of Security.

 

(1)If the Secured Party demands Security, pursuant to the Collateral Requirement,from the Posting Party on or before the Notification Time on a Business Day,such Security shall be transferred by 5:00 p.m., New York City time, on thesecond Business Day after the Business Day such demand is made. Securitydemanded of a

 

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Posting Party after theNotification Time on a Business Day shall be transferred by 5:00 p.m., New YorkCity time, on the third Business Day after the Business Day such demand ismade. If the Posting Party demands the return of Security, pursuant to theCollateral Requirement, from the Secured Party on or before the NotificationTime on a Business Day, such Security shall be transferred by 5:00 p.m., NewYork City time, on the second Business Day after the Business Day such demandis made. Return of Security demanded by a Posting Party after the NotificationTime on a Business Day shall be transferred by 5:00 p.m., New York City time,on the third Business Day after the Business Day such demand is made.

 

(2)           A Posting Party may substitute newSecurity for other existing Security of equal value on the Business Dayfollowing the Secured Party’s receipt of written notice thereof. Upon thetransfer to the Secured Party of the substitute Security, the Secured Partyshall transfer the relevant replaced Security to the Posting Party no laterthan the second Business Day after such transfer has been effected.

 

21.5         Credit Thresholds.

 

(1)           The applicable Credit Threshold foreach Party is as follows:

 

To qualify for a CreditThreshold Amount at BBB-/Baa3 Credit Rating, Seller’s or its Guarantor’s CreditRating outlook from each of S&P and Moody’s, respectively, shall be“Stable” or better. Credit Threshold for Seller (or its Guarantor):

** **
| **Amount**  | ** ** | **S&P  Credit Rating** | ** ** | **Moody’s  Credit Rating** | ** ** |
|-------------|------------|----------------------------|------------|---------------------------------|------------|
| $15 million |       | AA- and above              |       | Aa3 and above                   |       |
| $10 million |       | BBB+ to A+                 |       | Baal to Al                      |       |
| $5 million  |       | BBB- to BBB                |       | Baa3 to Baa2                    |       |
| $ Zero |       | Below BBB-                 |       | Below Baa3                      |       |

 

To qualify for a Credit Threshold Amount at BBB-/Baa3 Credit Rating,Buyer’s Credit Rating outlook from each of S&P and Moody’s, respectively,shall be “Stable” or better. Credit Threshold for Buyer:

** **
| **Amount**  | ** ** | **S&P  Credit Rating** | ** ** | **Moody’s  Credit Rating** | ** ** |
|-------------|------------|----------------------------|------------|---------------------------------|------------|
| $22 million |       | AA- and above              |       | Aa3 and above                   |       |
| $17 million |       | BBB+ to A+                 |       | Baal to A1                      |       |
| $12 million |       | BBB- to BBB                |       | Baa3 to Baa2                    |       |
| $ Zero |       | Below BBB-                 |       | Below Baa3                      |       |

** **

(2)           IfSeller’s Guarantor issues a Guarantee, the Credit Threshold for Seller or itsGuarantor shall be the lesser of (a) the amount denoted in the applicableCredit Threshold matrix and (b) the amount of the Guarantee.

 

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21.6         Interest on Cash Collateral.  Any cash posted as Security hereunder shallaccrue interest for the benefit of the Posting Party in accordance with theCommercial Interest Rate.

 

21.7         Letter of Credit.

 

If(i) the Posting Party has provided a Letter of Credit under Article 21, (ii)the Posting Party fails to cause any Letter of Credit to be renewed or replacedat least twenty (20) Days before its expiration, and (iii) the Posting Party hasnot provided substitute Security if permitted under Article 21, then theSecured Party shall have the right to draw all or any part of the availablebalance of such Letter of Credit, in an amount not exceeding the CollateralRequirement. The Posting Party’s failure to renew the Letter of Credit shallnot, in and of itself, result in an Event of Default under Section 14.1(1)(f).The cash proceeds received by the Secured Party from drawing on a Letter ofCredit under this provision shall be held as cash Security and shall be subjectto Section 21.6. If the bank issuing the Letter of Credit fails to honor theSecured Party’s properly documented request to draw on the outstanding Letterof Credit and the Posting Party fails to provide a replacement Letter of Creditfrom a financial institution reasonably acceptable to the Secured Party or cashas a replacement for that dishonored Letter of Credit, an Event of Default withrespect to the Posting Party shall be deemed to have occurred under Section14.1(1)(f).

 

21.8         Exercise of Rights AgainstSecurity.

 

If(i) an Event of Default with respect to the Posting Party has occurred and iscontinuing, or (ii) an Early Termination Date has occurred or has beendesignated as the result of an Event of Default with respect to the PostingParty, then, unless the Posting Party has paid in full all of its obligationsthat are due to the Secured Party under this Agreement, the Secured Party mayexercise one or more of the following rights and remedies:

 

(1)           Letter of Credit. If theSecurity posted by the Posting Party is one or more Letters of Credit, theSecured Party may draw on the entire, undrawn portion of all outstandingLetters of Credit; provided that, such drawing shall not exceed the SettlementAmount as calculated by the Secured Party. Notwithstanding the Secured Party’sreceipt of cash proceeds from a drawing under a Letter of Credit, the PostingParty shall remain liable (i) for any failure to provide any additionalSecurity as required by Article 21 and (ii) for any amounts owing to theSecured Party and remaining unpaid after the application of the amounts sodrawn by the Secured Party.

 

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(2)           Cash. If the Security postedby the Posting Party is cash, the Secured Party shall have the right to applysuch cash against and in satisfaction of any amount due and payable by thePosting Party in respect of its obligations under this Agreement.

 

**22.****         ****FORCE MAJEURE**

 

TheParties hereby incorporate the Force Majeure provision from the RMR Agreementsas follows. If either Party is unable to perform its obligations under thisAgreement due to a Force Majeure Event, the Party unable to perform shallnotify the other Party of the Force Majeure Event promptly after the occurrencethereof. The Party’s notice may be given orally but shall promptly be confirmedin writing or electronically.  If a ForceMajeure Event prevents a Party from performing, in whole or in part, itsobligations under this Agreement, such Party’s obligations, other thanobligations to pay money (unless the means of transferring funds is affected),shall be suspended and such Party shall have no liability with respect to suchobligations; provided, that the suspension of the Party’s obligations is of nogreater scope and of no longer duration than is required by the Force MajeureEvent. If a Force Majeure Event reduces the Availability of an RMR Unit, theAvailability shall be determined as if the RMR Unit were available up to theUnit Availability Limit in effect prior to the Force Majeure Event through theearlier of the 12th Day following the Force Majeure Event or until the RMRUnit’s Availability is restored, whichever occurs first. The Party that isunable to perform by reason of a Force Majeure Event shall use commerciallyreasonable efforts to remedy its inability to perform and mitigate theconsequences of the Force Majeure Event as soon as reasonably practicable;provided, that no Party shall be required to obtain replacement power or tosettle any strike or other labor dispute on terms which, in the Party’s solediscretion, are contrary to its interest and, except to the extent that the RMRUnit’s primary Fuel is distillate fuel oil or Schedule H of the RMR Agreementsexpressly requires Seller to maintain fuel oil capability for the RMR Unit,Seller shall not be required to obtain or use fuel oil to operate an RMR Unit.  The Party unable to perform shall advise theother Party of its efforts to remedy its inability to perform and to mitigatethe consequences of the Force Majeure Event, and shall advise the other Partyof when it believes it will be able to resume performance of its obligationsunder this Agreement.

 

**23.****         ****DISPUTE RESOLUTION**

 

Section 11.1 of the RMR Agreements is incorporatedherein by reference and shall apply to any disputes that may arise between theParties under this Agreement provided that only Buyer and Seller shall beparties to the dispute resolution process.

 

**24.****         ****INSURANCE**

 

During the Contract Term, Seller shall carry andmaintain, or cause to be carried and maintained, no less than the insurancecoverages required in the RMR Agreements.

 

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**25.****         ****MATERIAL CHANGE(S)**

 

**25.1****       ****RMR; RMR Agreements****.**

 

Ifthe present RMR regulatory regime in existence as of the Effective Date of thisAgreement is modified or superseded by some other regime, system or marketdesign (*e.g.,*Market Redesign andTechnology Upgrade) and such modification or superseding regime does not resultin the termination or expiration of any RMR Agreement but nonetheless resultsin either (1) a reduction in what would have been the amount of payments toSeller under “Condition 2,” or (2) imposition of additional costs or charges onSeller, and such Regime Change results in a cumulative negative financialimpact to Seller of $50,000 or more on earnings before interest, taxes, anddepreciation, Buyer shall increase its payments hereunder to ensure that Sellerreceives the same payments-to-costs benefit as the Parties have agreed to aspart of this Agreement. In such event, Seller shall invoice Buyer in accordancewith the billing provisions set forth in this Agreement each time thecumulative negative financial impact on Seller’s earnings as defined hereinreaches at least $50,000. Buyer’s obligation to pay any such invoices shallcontinue for the remaining term of this Agreement.

 

**25.2****       ****Air Permit****.**

 

Ifthe air permit for the Facility, as originally issued, is amended such that themaximum number of Run Hours or the minimum load, as determined by environmentalrestrictions contained in the air permit, materially reduces the availabilityof the Facility, Seller shall provide Buyer with prompt written notice of suchamendment, and Buyer shall have the right to terminate this Agreement byproviding written notice to Seller within ninety (90) Days of Buyer’s receiptof notice of any such amendment, with any such termination to be effectiveninety (90) Days after delivery of such termination notice. Seller and Buyershall not be liable for any damages resulting from an early termination of thisAgreement pursuant to this Section 25.2. If the Facility’s air permit isamended by any Governmental Authority, Seller shall promptly notify Buyer ofany modifications to the Operational Limitations as may be necessary to complywith the amended air permit. Notwithstanding the above, Seller shall have theduty to use its commercially reasonable efforts to oppose any amendment thatmay adversely affect the dispatch rights provided for herein.

 

**26.****         ****MISCELLANEOUS**

** **

**26.1****       ****Duty to Mitigate.**

 

EachParty agrees that it has a duty to mitigate damages and covenants that it willuse commercially reasonable efforts to minimize any damages it may incur as aresult of the other Party’s performance or non-performance of this Agreement.

 

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**26.2****       ****Entire Agreement andAmendments****.**

 

ThisAgreement constitutes the entire agreement between the Parties with respect tothe subject matter hereof. There are no prior or contemporaneous agreements orrepresentations affecting the subject matter of this Agreement other than thoseherein expressed. No amendment, modification or change to this Agreement shallbe enforceable unless reduced to writing and executed by both Parties.

 

**26.3****       ****Governing Law****.**

 

ThisAgreement and the rights and duties of the Parties hereunder shall be governedby and construed, enforced and performed in accordance with the laws of theState of California, without giving effect to principles of conflicts of lawsthat would require the application of the law of any other state.

 

**26.4****       ****Waivers****.**

 

Thefailure of either Party hereto to enforce at any time any provision of thisAgreement shall not be construed to be a waiver of such provision, nor in anyway to affect the validity of this Agreement or any part hereof or the right ofa Party thereafter to enforce each and every such provision. A waiver underthis Agreement must be in writing and state that it is a waiver. No waiver ofany breach of this Agreement shall be held to constitute a waiver of any otheror subsequent breach.

 

**26.5****       ****Fines****.**

 

Exceptas otherwise provided in this Agreement, each Party shall be responsible forand shall pay the fines that are levied upon it by a Governmental Authority orregulatory body as a result of such Party’s own actions or inactions except tothe extent one Party is obligated to indemnify the other Party under thisAgreement.

 

**26.6****       ****Severability****.**

 

Exceptas otherwise stated herein, any provision or section declared or renderedunlawful by a Governmental Authority, or deemed unlawful because of a statutorychange, will not otherwise affect the lawful obligations that arise under thisAgreement.

 

**26.7****       ****Headings; Exhibits****.**

 

Theheadings used for the sections and articles herein are for convenience andreference purposes only and shall in no way affect the meaning orinterpretation of the provisions of this Agreement. Any and all Exhibitsreferred to in this Agreement are, by such reference, incorporated herein andmade a part hereof for all purposes.

 

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**26.8****       ****No Third PartyBeneficiaries****.**

 

Nothingin this Agreement shall provide any benefit to any third party or entitle anythird party to any claim, cause of action, remedy or right of any kind, itbeing the intent of the Parties that this Agreement shall not be construed as athird party beneficiary contract.

 

**26.9****       ****Counterparts****.**

 

ThisAgreement may be executed in several counterparts, each of which is an originaland all of which constitute one and the same instrument. Execution pages may bedelivered by facsimile, and each such facsimile copy of an execution page shallhave the same legal force and effect as would an original.

 

**26.10****     ****No Partnership****.**

 

Nothingcontained in this Agreement shall be construed to create a partnership, jointventure, agency or other relationship that may invoke fiduciary obligationsbetween the Parties hereto.

 

**26.11****     ****Press Releases****.**

 

TheParties shall not issue a press release or make any public statement withrespect to this Agreement or the substance hereof without the prior writtenagreement of the other Party with respect to the form, substance and timingthereof, except that either Party may make any such press release or publicstatement when the releasing Party is advised by its legal counsel that such apress release or public statement is required by law, regulation, stockexchange rules or in connection with the financing of the Facility, but in suchevent the Parties shall use their reasonably good faith efforts to agree as to theform, substance and timing of such release or statement.

 

**26.12****     ****Rights under the FederalPower Act****.**

 

(1)           This Agreement shall not be subjectto change through any unilateral application by either Party to anyGovernmental Authority including, but not limited to, the FERC pursuant to theprovisions of Sections 205 or 206 of the Federal Power Act, without the priormutual written agreement of both Parties.  Each of the Parties hereby irrevocably waives any right it may or canhave to unilaterally seek any change, or to support any application, complaint,or action by any other party or Governmental Authority seeking such change.

 

(2)           Absent agreement by the Parties tothe proposed change, the standard of review for changes to any Section of thisAgreement proposed by a Party, a non-party or the FERC acting suasponteshall be the “public interest” standard of review set forth in United GasPipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956) and Federal

 

56

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Power Commission v. Sierra Pacific Power Co., 350 U.S. 348 (1956) (the “Mobile-Sierra”doctrine).

 

[Signature page follows this page]

 

57

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IN WITNESS WHEREOF, each of Seller and Buyer hascaused this Agreement to be executed on its behalf by its duly authorizedrepresentative to be effective as of the date first above written.

 
|   | **Mirant Delta, LLC**                    |                    |
|--------|------------------------------------------|-------------------------|
|   |                                     |                    |
|   | By:                                      | /s/ Curtis A. Morgan    |   |
|   |                                     |                    |
|   | Name:                                    | Curtis A. Morgan        |   |
|   |                                     |                    |   |
|   | Title:                                   | Chief Executive Officer |   |
|   |                                     |                    |   |
|   | Date:                                    | 12/28/04                |   |
|   |                                     |                    |
|   |                                     |                    |
|   | **Mirant Potrero, LLC**                  |                    |
|   |                                     |                    |
|   | By:                                      | /s/ Curtis A. Morgan    |   |
|   |                                     |                    |
|   | Name:                                    | Curtis A. Morgan        | ** ** |
|   |                                     |                    |   |
|   | Title:                                   | Chief Executive Officer |   |
|   |                                     |                    |   |
|   | Date:                                    | 12/28/04                |   |
|   |                                     |                    |
|   |                                     |                    |
|   | **Pacific Gas and Electric Corporation** |                    |
|   |                                     |                    |
|   | By:                                      |                    |   |
|   |                                     |                    |   |
|   | Name:                                    |                    |   |
|   |                                     |                    |   |
|   | Title:                                   |                    |   |
|   |                                     |                    |   |
|   | Date:                                    |                    |   |
|        |                                          |                         |  |  |  |  |

 

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IN WITNESS WHEREOF, each of Seller and Buyer hascaused this Agreement to be executed on its behalf by its duly authorizedrepresentative to be effective as of the date first above written.

 
|   | **Mirant Delta, LLC**                    |                   |
|--------|------------------------------------------|------------------------|
|   |                                     |                   |
|   | By:                                      |                   |   |
|   |                                     |                   |
|   | Name:                                    |                   |   |
|   |                                     |                   |   |
|   | Title:                                   |                   |   |
|   |                                     |                   |   |
|   | Date:                                    |                   |   |
|   |                                     |                   |
|   |                                     |                   |
|   | **Mirant Potrero, LLC**                  |                   |
|   |                                     |                   |
|   | By:                                      |                   |   |
|   |                                     |                   |
|   | Name:                                    | ** **             | ** ** |
|   |                                     |                   |   |
|   | Title:                                   |                   |   |
|   |                                     |                   |   |
|   | Date:                                    |                   |   |
|   |                                     |                   |
|   |                                     |                   |
|   | **Pacific Gas and Electric Corporation** |                   |
|   |                                     |                   |
|   | By:                                      | /s/ Gordon R.  Smith   |   |
|   |                                     |                   |   |
|   | Name:                                    | Gordon R. Smith        |   |
|   |                                     |                   |   |
|   | Title:                                   | President and CEO      |   |
|   |                                     |                   |   |
|   | Date:                                    | December 28, 2004 |   |
|        |                                          |                        |  |  |  |  |

 

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**ExhibitA**

 

2005 RMR FERC Settlement

 

**McDermottWill & Emery**

 
| Boston   Brussels   Chicago    Düsseldorf   London   Los Angeles   Miami     Milan |   | Michael A. Yuffee |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|
| Munich   New  York   Orange County   Rome   San Diego    Silicon Valley   Washington, D. C.            |   | Attorney at Law   |
|                                                                                                                                                               |   | myuffee@mwe.com   |
|                                                                                                                                                               |   | 202.756.8066      |

 

December    , 2004

 
| BY HAND DELIVERY                      |   | **PRIVILEGED  AND CONFIDENTIAL** | ** ** |
|---------------------------------------|--------|----------------------------------|------------|
|                                  |   | **ATTORNEY  WORK PRODUCT**       | ** ** |
| Hon. Magalie R. Salas                 |   | **ATTORNEY-CLIENT**              | ** ** |
| **COMMUNICATION**                     |   | ** **                       | ** ** |
| Secretary                             |   | ** **                       |
| Federal Energy Regulatory  Commission |   | **DRAFT**                        |
| 888 First Street, N.E.                |   |                             |
| Washington, D. C. 20426               |   |                             |

 

 

Re:          *Mi**rantDelta, LLC and Mirant Potrero, LLC,*Docket No. ER05-    -000

 

Dear Secretary Salas:

 

Pursuantto Rule 602 of the Federal Energy Regulatory Commission’s Rules of Practice andProcedure, 18 C.F.R. § 385.602 (2004), Mirant Delta, LLC (“Mirant Delta”) andMirant Potrero, LLC (“Mirant Potrero”) (collectively, “Mirant”),(A) herebysubmit an original and 14 copies of an Offer of Partial Settlement(“Settlement”) among the following parties (collectively, the “SupportingParties”): Mirant, the California Independent System Operator Corporation (“ISO”),and Pacific Gas and Electric Company (“PG&E”).  This Settlement represents an integrated andcomplete resolution of all issues in this proceeding relating to: (i) Owner’sRepair Cost Obligations; (ii) Annual Fixed Revenue Requirements (“AFRRs”); and(iii) Variable O&M Rates (“VOM Rates”). In addition, this Settlementconditionally extends the settlement of these issues through 2008.

 

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(A)          Beginning on July 14, 2003, Mirant Corporation and certainof its affiliated entities (collectively, “Mirant”) commenced proceedings underChapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101*, et seq.,* inthe United States Bankruptcy Court for the Northern District of Texas, FortWorth Division (the “Bankruptcy Court”). In filing this Explanatory Statementand related Settlement, Mirant does not intend to waive any protections whichmight be afforded to it under the Bankruptcy Code, including but not limited tothose protections provided by Section 362 thereof.

 

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TheSupporting Parties are authorized to represent that although the CaliforniaPublic Utilities Commission (“CPUC”) and the California Electricity OversightBoard (“EOB”) are not signatories to the Settlement, the CPUC and EOB do notoppose the Settlement.

 

TheSettlement consists of:

 

(i)this transmittal letter;

 

(ii)an Explanatory Statement concerning the Settlement;

 

(iii)the Offer of Partial Settlement by and between the Supporting Parties;

 

(iv)a proposed order approving the Settlement; and

 

(v)a draft notice of filing.

 

Mirantrespectfully requests that the Secretary transfer the Settlement to theCommission pursuant to Rule 602(b)(2)(ii). Mirant submits that this Settlementis in the public interest and should be accepted by the Commission as it is theresult of in-depth negotiations among the Supporting Parties and resolves allissues in this proceeding relating to: (i) Owner’s Repair Cost Obligations;(ii) AFRRs; and (iii) VOM Rates. Accordingly, Mirant requests that theCommission approve the Settlement.

 
|   | Respectfully submitted,                    |
|--------|--------------------------------------------|
|   |                                       |
|   |                                       |   |
|   | Michael A. Yuffee                          |
|   | Bruce A. Bedwell                           |
|   | McDERMOTT WILL & EMERY  LLP            |
|   |                                       |
|   | Debra Raggio Bolton  Mirant Corporation    |
|   |                                       |
|   | Attorneys for                              |
|   | Mirant Delta, LLC and  Mirant Potrero, LLC |

 

Attachments

 

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**CERTIFICATEOF SERVICE**

 

Ihereby certify that I have this day served copies of the foregoing documentupon each person designated on the official service list as compiled by theSecretary in this proceeding in accordance with the requirements of Rule 2010of the Rules of Practice and Procedure, 18 C.F.R. 385.2010 (2004).

 

In addition, copies of thisfiling have been served on the following persons:

 

Deborah A. Le Vine

Director of Contracts andCompliance

California ISO Corporation

151 Blue Ravine Road

Folsom, CA 95630

 

Robert Kott

Manager of ReliabilityContracts

California ISO Corporation

151 Blue Ravine Road

Folsom, CA 95630

 

Laura Douglass

Team Lead, ReliabilityStrategy

Pacific Gas and ElectricCompany

Mail Code N12E

P.O. Box 770000

San Francisco, CA 94177-0001

 

Charles F. Robinson

Vice President and GeneralCounsel

California ISO Corporation

151 Blue Ravine Road

Folsom, CA 95630

 

Stuart K. Gardiner

Law Department, B30A

Pacific Gas and Electric Co.

P.O. Box 7442

San Francisco, CA 94120

 

DATED at Washington, D.C., this    thday of December, 2004.

 
|   |             |   |
|--------|------------------|--------|
|   | Bruce A. Bedwell |

 

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**EXPLANATORYSTATEMENT**

 

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** **

**EXPLANATORY STATEMENT(B)**

 

**I.              PROCEDURAL HISTORY**

 

1.                                                                       Mirant Delta isthe owner of the Contra Costa Power Plant located in Antioch, California, andthe Pittsburg Power Plant located in Pittsburg, California. Mirant Potrero isthe owner of the Potrero Power Plant located in San Francisco, California.

 

2.                                                                       Mirant Delta andMirant Potrero operate generating units at their respective power plantssubject to Must-Run Service Agreements (“RMR Agreements”) with the ISO, theSchedules to which contain certain generation unit-specific terms andconditions. The units subject to such obligations under these RMR Agreementsare referred to herein as RMR Units.(C)

 

3.                                                                       By their expressterms, the RMR Agreements provide for annual revisions to, among other things,the AFRRs and VOM Rates for each RMR Unit. Pursuant to Schedule B, Section 7 ofthe RMR Agreements, the AFRRs are determined by the Formula Rate set forth inSchedule F to the RMR Agreements, unless Mirant files a superseding rateschedule under Section 205 of the Federal Power Act.  The VOM Rates also are determined by a formulaset forth in Schedule F. Schedule F requires that Mirant provide annually tothe ISO an “Information Package detailing and supporting all calculations” usedto determine the AFRRs and VOM Rates under the respective formulas for theupcoming calendar year (“Schedule F Filing Requirements”). Mirant is requiredto provide a copy of this Information Package to the Commission “in aninformational filing.”

 

4.                                                                       On October 9,2001, Mirant submitted, in Docket No. ER02-64-000, an information package inthe form of an informational filing (“2002 Information Package”) in accordancewith Schedule F of its RMR Agreements. The 2002 Information Package containeddata and workpapers detailing Mirant’s calculation of its proposed AFRRs andVOM Rates for calendar year 2002. PG&E*,*theISO, the EOB, and the CPUC (collectively, the “Joint Parties”)(D) filedprotests to the 2002 Information Package, raising a variety of issues.

 

5.                                                                       On December 19,2001,**the Commission issued anorder conditionally accepting for filing the revised tariff sheets submitted inDocket No. ER02-198-000, subject to

 

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(B)           This Explanatory Statementis not intended to alter any of the specific provisions of the Settlement,including its exhibits and attachments, and is provided solely to comply withthe Commission’s rules.

 

(C)           Specifically, the followingunits owned by Mirant will be subject to RMR Agreements during calendar year2005: Contra Costa Units 4, 5 and 7; Pittsburg Units 5 and 6; and Potrero Units3, 4, 5 and 6.

 

(D)          The only other party torespond to this filing was the City and County of San Francisco, whose Motionto Intervene raised no substantive issues.

 

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refundand the outcome of the ongoing proceedings in Docket No. ER02-64-000.  *MirantDelta, LLC,*97 FERC ¶ 61,284 (2001).

 

6.                                                                       On November 20, 2002,the Supporting Parties entered into a stipulation and agreement (the “2002-2004Settlement”), which fully resolved all issues in Docket Nos. ER02-64-000 andER02-198-000. No party objected to the 2002-2004 Settlement and the Commissionapproved the settlement on February 5, 2003.(E) The 2002-2004 Settlement setforth Mirant’s AFRRs and VOM Rates for the period January 1, 2002 through December31, 2004, thereby eliminating the need for Mirant to make Schedule F filingsfor those calendar years. The 2002-2004 Settlement also set forth Mirant’sOwner’s Repair Cost Obligations for the same period.

 

7.                                                                       On December 16,2004, Mirant filed with the Commission various proposed rate and rate schedulechanges (referred to as the “Limited 205 Filing”). The Limited 205 Filing,among other things, contains the proposed: (i) Owner’s Repair Cost Obligations;(ii) AFRRs; and (iii) VOM Rates for each RMR Unit, to be effective January 1, 2005.

 

**II.****           ****DESCRIPTION OF SETTLEMENT**

 

1.                                                                       In anticipationof the Schedule F Filing Requirements and the Limited 205 Filing, theSupporting Parties initiated informal settlement discussions to resolve anypotential issues relating to the AFRRs and VOM Rates for calendar year 2005. Asa result of these informal settlement discussions, the Supporting Partiessubmit the attached Settlement, pursuant to which the Supporting Partiesconsent to the: (i) Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii) VOMRates as set forth in Mirant’s Limited 205 Filing for 2005.

 

2.                                                                       Pursuant to theSettlement, the rates in Mirant’s Limited 205 Filing for the following itemswill be effective for the period January 1, 2005 through December 31, 2005: (a)Owner’s Repair Cost Obligations as contained in Schedule A, Section 13 of theRMR Agreements; (b) AFRRs, as contained in Table B-6 of the RMR Agreements; and(c) VOM Rates, as contained in Table C1-18 of the RMR Agreements.

 

3.                                                                                                                                       Specifically,the Supporting Parties consent to the following, as reflected in Mirant’sLimited 205 Filing for 2005:

 

a.                             New AFRRs forContra Costa Unit 7, Pittsburg Units 5-6, and Potrero Units 3-6;

 

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(E)           *MirantDelta, LLC and Mirant Potrero, LLC,*102 FERC ¶ 61,130 (2003).

 

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b.                             ForContra Costa Units 4-5, the continuation of the AFRRs contained in the2002-2004 Settlement;

 

c.                             For all RMR Units,the continuation of the VOM Rates contained in the 2002-2004 Settlement;

 

d.                             For all RMR Units,new Owner’s Repair Cost Obligations; and

 

e.                             Revised RateSchedule Sheets to be effective January 1, 2005 through December 31, 2005.

 

4.                                                    Upon agreement by the SupportingParties, this Settlement may be extended, without modification, for the periodJanuary 1, 2006 through December 31, 2008, by providing joint notice of suchextension to the Commission.

 

5.                                                                       The Settlement,in conjunction with Mirant’s Limited 205 Filing, completely satisfies Mirant’sSchedule F Filing Requirements for 2005 and, if the Settlement is extended, for2006 through 2008.

 

6.                                                                       Through thisSettlement, the Supporting Parties consent only to those changes in Mirant’sLimited 205 Filing for 2005 discussed herein, and take no position on the otherchanges set forth in Mirant’s Limited 205 Filing.

 

**III.           EFFECTIVE DATE**

 

The Settlement shall be effective on the later of: (1) the date theSettlement is approved by the United States Bankruptcy Court for the NorthernDistrict of Texas, Fort Worth Division, which approval will be sought promptlyby Mirant after the Commission issues an order approving the Settlement withoutmodification or condition or, if modified or conditioned by the Commission,after acceptance of the modification or conditions contained in such order byall of the Supporting Parties; or (2) if modified or conditioned by theBankruptcy Court, upon the date of acceptance of the modifications orconditions contained in such order by all of the Supporting Parties (“EffectiveDate”).

 

**IV.           REFUNDS**

 

Refundswill be paid pursuant to the terms and conditions of the Settlement.

 

**V.            COMMENTS**

 

The Supporting Parties seek expedited treatment and request waiver ofRules 602(d)(2) and 602(f) so that initial comments on the Settlement are dueon January   , 2005, and reply comments are due on January   , 2005.

 

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**VI.****          ****POLICY ISSUES AND OTHER ISSUESARISING UNDER THE SETTLEMENT**

 

Inaccordance with the Chief Judge’s October 15, 2003 Notice to the Publicconcerning Information to be Provided with Settlement Agreements, the Partiesprovide the following information:

 

**1.             Underlying Issues and MajorImplications**

 

TheParties wish to resolve all outstanding issues with respect to the: (i) Owner’sRepair Cost Obligations; (ii) AFRRs; and (iii) VOM Rates set forth in Mirant’sLimited 205 Filing for 2005. Through this Settlement, the Parties agree thatthe data contained in Mirant’s Limited 205 Filing for 2005 concerning: (i)Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii) VOM Rates are to beaccepted as filed, to be effective from January 1, 2005, through December 31,2005 and thereafter until changed by Commission order.

 

**2.             Policy Implications**

 

Theunopposed changes to Mirant’s RMR Agreements do not raise any policy implications.

 

**3.             Pending Cases That May Be Affected**

 

TheSettlement will not affect any cases currently pending before the Commission.

 

**4.             Issues of First Impression andReversals on Commission Position**

 

TheSettlement does not raise any issues of first impression and does not proposeto reverse any previous Commission decisions involving similar issues.

 

**5.             Standard of Review**

 

TheParties intend that the standard of review for changes to any section of theSettlement proposed by a Party, a non-party or the Commission acting *sua sponte,*shall be the “public interest”standard of review set forth in *United GasPipe Line**Co. v.**Mobile Gas Service Corp*.,**350U.S. 332 (1956) and *Federal Power Commission**v.**SierraPacific Power Co*.,**350 U.S. 348 (1956) (the *“Mobile-Sierra”*doctrine).

 

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**OFFER OFSETTLEMENT**

 

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** **

**OFFER OF SETTLEMENT**

 

ThisOffer of Partial Settlement (the “Settlement”) is dated as of December   , 2004, by and among Mirant Delta, LLC (“Mirant Delta”) andMirant Potrero, LLC (“Mirant Potrero”) (collectively, “Mirant”),(F) theCalifornia Independent System Operator Corporation (“ISO”), and Pacific Gas andElectric Company (“PG&E”). These parties are referred to hereinindividually as a “Party” and collectively as the “Parties” or “SupportingParties.” The Parties are authorized to represent that although the CaliforniaPublic Utilities Commission (“CPUC”) and the California Electricity OversightBoard (“EOB”) are not signatories to the Settlement, the CPUC and BOB do notoppose the Settlement.

 

**RECITALS**

 

A.            Mirant Delta is the owner of theContra Costa Power Plant located in Antioch, California, and the PittsburgPower Plant located in Pittsburg, California. Mirant Potrero is the owner ofthe Potrero Power Plant located in San Francisco, California.

 

B.            Mirant Delta and Mirant Potrerooperate generating units at their respective power plants subject to Must-RunService Agreements (“RMR Agreements”) with the ISO, the Schedules to whichcontain certain generation unit-specific terms and conditions. The unitssubject to such obligations under these RMR Agreements are referred to hereinas RMR Units.(G)

 

C.            By their express terms, the RMRAgreements provide for annual revisions to, among other things, the AnnualFixed Revenue Requirements (“AFRRs”) and Variable O&M Rates (“VOM Rates”)for each unit subject to the agreements. Pursuant to Schedule B, Section 7 ofthe RMR Agreements, the AFRRs are determined by the Formula Rate set forth inSchedule F to the RMR Agreements, unless Mirant files a superseding rateschedule filed under Section 205 of the Federal Power Act.  The VOM Rates also are determined by a formulaset forth in Schedule F. Schedule F requires that Mirant provide annually tothe ISO an “Information Package detailing and supporting all calculations” usedto determine the AFRRs and VOM Rates under the respective formulas for theupcoming calendar year (“Schedule F Filing Requirements”). Mirant is required toprovide a copy of this Information Package to the Commission “in aninformational filing.”

 

----

(F)           Beginning on July 14, 2003, Mirant Corporation and certainof its affiliated entities (collectively, “Mirant”) commenced proceedings underChapter 11 of the Bankruptcy Code, 11 U.S.C, §§ 101, et seq., in the UnitedStates Bankruptcy Court for the Northern District of Texas, Fort Worth Division(the “Bankruptcy Court”). In filing this Settlement, Mirant does not intend towaive any protections which might be afforded to it under the Bankruptcy Code,including but not limited to those protections provided by Section 362 thereof.

 

(G)           Specifically, the following units owned by Mirant will besubject to RMR Agreements during calendar year 2005: Contra Costa Units 4, 5and 7; Pittsburg Units 5 and 6; and Potrero Units 3, 4, 5 and 6.

 

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D.            OnOctober 9, 2001, Mirant submitted, in Docket No. ER02-64-000, an informationpackage in the form of an informational filing (“2002 Information Package”) inaccordance with Schedule F of its RMR Agreements. The 2002 Information Packagecontained data and workpapers detailing Mirant’s calculation of its proposedAFRRs and VOM Rates for calendar year 2002. PG&E, the ISO, the EOB, and theCPUC filed protests to the 2002 Information Package, raising a variety ofissues.(H)

 

E.             OnDecember 19, 2001, the Commission issued an order conditionally accepting forfiling the revised tariff sheets submitted in Docket No. ER02-198-000, subjectto refund and the outcome of the ongoing proceedings in Docket No. ER02-64-000.*Mirant Delta, LLC,*97 FERC ¶61,284 (2001).

 

F.             OnNovember 20, 2002, the Parties entered into a stipulation and agreement (the “2002-2004Settlement”), which fully resolved all issues in Docket Nos. ER02-64-000 andER02-198-000. No party objected to the 2002-2004 Settlement and the Commissionapproved the settlement on February 5, 2003.(1) The 2002-2004 Settlement setforth Mirant’s AFRRs and VOM Rates for the period January 1, 2002 throughDecember 31, 2004, thereby eliminating the need for Mirant to make Schedule Ffilings for those calendar years. The 2002-2004 Settlement also set forth theOwner’s Repair Cost Obligations for the same period.

 

G.            OnDecember 16, 2004, Mirant filed with the Commission various proposed rate andrate schedule changes (referred to as the “Limited 205 Filing”). The Limited205 Filing, among other things, contains the proposed: (i) Owner’s Repair CostObligations; (ii) AFRRs; and (iii) VOM Rates for each RMR Unit, to be effectiveJanuary 1, 2005.

 

H.            TheParties wish to resolve all outstanding issues with respect to the: (i) Owner’sRepair Cost Obligations; (ii) AFRRs; and (iii) VOM Rates set forth in Mirant’sLimited 205 Filing for 2005.

 

NOW, THEREFORE, in consideration of the recitals andthe mutual covenants and agreements hereinafter set forth, the Parties mutuallycovenant and agree as follows:

 

**1.         IMPLEMENTATION**

 

1.1       The Parties agreethat the data contained in Mirant’s Limited 205 Filing for 2005 concerning: (i)Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii) VOM Rates are to beaccepted as filed, to be effective from January 1, 2005,

 

----

(H)        Theonly other party to respond to this filing was the City and County of SanFrancisco, whose Motion to Intervene raised no substantive issues.

 

(I)          *MirantDelta, LLC and Mirant Potrero, LLC,*102 FERC ¶ 61,130 (2003).

 

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through December 31, 2005 and thereafteruntil changed by Commission order. Specifically, the Parties consent to thefollowing:

 

(a)          TheAFRRs for Mirant’s electric generating facilities shall be as follows:

 

 
| **Facility** | ** ** | **AFRR** | ** **       |
|--------------|------------|----------|------------------|
| Contra Costa |       | $        |  23,149,445 |   |
| Pittsburg    |       | $        |  30,314,380 |   |
| Potrero      |       | $        |  19,159,168 |   |

 

(b)          Theabove facility-specific AFRRs shall be allocated to the various RMR Units asfollows:

 

 
| **Facility and Unit** | ** ** | **AFRR** | ** ** |
|-----------------------|------------|----------|------------|
| Contra Costa 4        |       | $        | 456,209    |   |
| Contra Costa 5        |       | $        | 456,209    |   |
| Contra Costa 7        |       | $        | 22,237,027 |   |
| Pittsburg 5           |       | $        | 15,157,190 |   |
| Pittsburg 6           |       | $        | 15,157,190 |   |
| Potrero 3             |       | $        | 17,908,424 |   |
| Potrero 4             |       | $        | 338,285    |   |
| Potrero 5             |       | $        | 451,175    |   |
| Potrero 6             |       | $        | 461,284    |   |

 

(c)           TheVOM Rates for the RMR Units at the Contra Costa, Pittsburg, and PotreroFacilities shall be as follows:

 

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| **Facility and Unit** | ** ** | **VOM Rate  ($/MWh)** | ** ** |
|-----------------------|------------|-----------------------|------------|
| Contra Costa 4        |       | $                     | 0          |   |
| Contra Costa 5        |       | $                     | 0          |   |
| Contra Costa 7        |       | $                     | 0.99       |   |
| Pittsburg 5           |       | $                     | 0.76       |   |
| Pittsburg 6           |       | $                     | 0.76       |   |
| Potrero 3             |       | $                     | 3.16       |   |
| Potrero 4             |       | $                     | 0          |   |
| Potrero 5             |       | $                     | 0          |   |
| Potrero 6             |       | $                     | 0          |   |

 

(d)         TheOwner’s Repair Cost Obligations for the Contra Costa, Pittsburg, and PotreroFacilities shall be as follows:

 

 
| **Facility** | ** ** | **Owner’s Repair  Cost Obligation** | ** ** |
|--------------|------------|------------------------------------------|------------|
| Contra Costa |       | $                                        | 423,152    |   |
| Pittsburg    |       | $                                        | 552,707    |   |
| Potrero      |       | $                                        | 406,885    |   |

 

1.2       The Supporting Parties hereby incorporateinto this Settlement those Revised Rate Schedule Sheets attached to Mirant’s Limited205 Filing for 2005 (“Revised Rate Schedule Sheets”) showing the agreed-uponchanges identified in Section 1.1, *supra,*tobe effective January 1, 2005.

 

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1.3       Upon their effectiveness, the Revised RateSchedule Sheets shall supersede and revise the corresponding currentlyeffective rate schedule sheets that comprise the RMR Agreements previouslyfiled by Mirant.

 

1.4       The Supporting Parties consent only to thosechanges in Mirant’s Limited 205 Filing for 2005 specified herein, and take noposition on the other changes set forth in Mirant’s Limited 205 Filing.

 

1.5       If approved by the Commission, thisSettlement fully resolves all issues in this proceeding relating to: (i) Owner’sRepair Cost Obligations; (ii) AFRRs; and (iii) VOM Rates. The Settlement, inconjunction with Mirant’s Limited 205 Filing, completely satisfies Mirant’sSchedule F Filing Requirements for 2005, and if the Settlement is extended, for2006 through 2008.

 

1.6       Upon agreement by the Supporting Parties,this Settlement may be extended, without modification, for the period January1, 2006 through December 31, 2008, by providing joint notice of such extensionto the Commission.

 

**2.         EFFECTIVE DATE**

 

2.1       The Settlement shall be effective on thelater of: (1) the date the Settlement is approved by the United StatesBankruptcy Court for the Northern District of Texas, Fort Worth Division, whichapproval will be sought promptly by Mirant after the Commission issues an orderapproving the Settlement without modification or condition or, if modified orconditioned by the Commission, after acceptance of the modifications orconditions contained in such order by all the Supporting Parties; or (2) ifmodified or conditioned by the Bankruptcy Court, upon the date of acceptance ofthe modifications or conditions contained in such order by all of the Parties (“EffectiveDate”).

 

2.2       Within ten (10) business days followingeither Commission approval without modification or condition, or if modified orconditioned by the Commission, within ten (10) business days of acceptance ofthe modifications or conditions contained in such order by all of theSupporting Parties, Mirant will file and thereafter diligently prosecute in theBankruptcy Court, a request for approval of the Settlement, thereafter takingall actions necessary to obtain such approval.

 

**3.         ACTION BY PARTIES**

 

3.1       Except for the Bankruptcy Court Approvalprovided in Section 2, the Parties hereby waive any and all rights to seekrehearing or judicial review of the Commission’s order(s) approving thisSettlement, and shall be bound by and

 

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entitled to the benefits of the provisions ofthis Settlement; *provided, however,*thatif the Commission approves this Settlement with modification or condition, aParty may seek rehearing or judicial review of the Commission’s order(s)approving this Settlement solely to challenge the Commission’s imposition ofmodifications or conditions in order to preserve the terms and conditions ofthis Settlement as filed.

 

3.2       The rates and other values in Mirant’sLimited 205 Filing for the following items settled herein will be effective forthe period January 1, 2005 through December 31, 2005, unless extended underSection 1.6: (a) Owner’s Repair Cost Obligations as contained in Schedule A,Section 13 of the RMR Agreements; (b) AFRRs, as contained in Table B-6 of theRMR Agreements; and (c) VOM Rates, as**containedin Table Cl-18 of the RMR Agreements.

 

3.3       Nothing in this Settlement is intended toaffect any obligation of Mirant under the RMR Agreements other than thoseexpressly provided herein, and specifically, Mirant shall continue to submitproposed annual changes to the RMR Agreements in accordance with Section4.1l(a), Schedule B, and Schedule D of the RMR Agreements and consistent withthis Settlement.

 

**4.         RESERVATIONS**

 

4.1       Agreement to or acquiescence in thisSettlement shall not be deemed in**anyrespect to constitute an admission by any Party hereto that any allegation orcontention made by any other Party in these proceedings is true or valid. Inreaching this Settlement, the Parties specifically agree that this Settlementrepresents a negotiated agreement for the sole purpose of settling certainissues, as described herein. No Party or affiliate of any of the Parties shallbe deemed to have approved, accepted, agreed to, or consented to any fact,concept, theory, rate methodology, principle, or method relating tojurisdiction, prudence, reasonable cost of service, cost classification, costallocation, rate design, rate schedule provisions, or other matters underlyingor purported to underlie any of the resolutions of the issues provided herein.The Commission’s approval of the Settlement shall not constitute approval of,or precedent regarding, any principle or issue in this proceeding.

 

4.2       The Parties agree that the resolution of anymatter in this Settlement shall not be deemed to be a “settled practice” asthat term was interpreted and applied in *PublicService Commission of the State of New York*v. *FERC,*642 F.2d 1335 (D.C. Cir. 1980).

 

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4.3       (a) Each Partyirrevocably waives its rights, including its rights under §§ 205-206 of theFederal Power Act, unilaterally to seek or support a change in the rate(s),charges, classifications, terms or conditions of this Settlement. By thisprovision, each Party expressly waives its right to seek or support: (i) anorder from the Commission finding that the rate(s), charges, classifications,terms or conditions agreed to by the Parties in the Settlement are unjust andunreasonable; or (ii) any refund with respect thereto. Each Party agrees not tomake or support such a filing or request, and that these covenants and waiversshall be binding notwithstanding any regulatory or market changes that mayoccur hereafter.

 

(b)        Absent the agreement of all Parties to the proposed change,the standard of review for changes to any section of the Settlement proposed bya Party (to the extent that any waiver in Section (a) above is unenforceable orineffective as to such Party), a non-party or the Commission acting *sua sponte,*shall be the “public interest”standard of review set forth in *United GasPipe Line Co.*v. *Mobile GasService Corp.,*350 U.S. 332 (1956) and *Federal Power Commission v. Sierra Pacific Power*Co., 350U.S. 348 (1956) (the *“Mobile-Sierra”*doctrine).

 

4.4       This Settlementdoes not resolve any issues related to Mirant’s Limited 205 Filing for 2005 notdiscussed herein nor does this Settlement restrict in any way the positionsthat the Parties may take with respect to such issues. The Parties specificallyreserve their rights and positions therein. Further, except as provided inSections 4.3 of this Settlement, this Settlement is not intended to limit oraffect the rights and remedies of the Parties with respect to any otherparticular dispute not resolved by this Settlement.

 

4.5       Notwithstanding anyprovision of this Settlement, nothing included in this Settlement is intendedto limit or affect the rights and remedies of the Parties with respect to anyclaim that the amounts invoiced under the RMR Agreements are incorrect,including any dispute involving the interpretation or application of the RMRAgreements.

 

**5.         MISCELLANEOUS PROVISIONS**

 

5.1       The titles andheadings of the various Articles and Sections in this Settlement are forreference purposes only. They are not to be construed or taken into account ininterpreting this Settlement, and do not qualify, modify, or explain theeffects of this Settlement.

 

5.2       The rights conferredand obligations imposed on any Party by this Settlement shall inure to thebenefit of and be binding on that Party’s successors in interest or assigneesas if such successor or assignee was itself a Party hereto.

 

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5.3       This Settlement maybe executed in counterparts by each Party, each of which shall be deemed to bean original, but which together shall constitute one and the same instrument.

 

5.4       The discussionsamong the Parties that have resulted in this Settlement have been conducted onthe explicit understanding that they were undertaken subject to Rule 602(e) ofthe Commission’s Rules of Practice and Procedure, 18 C.F.R. § 385.602(e)(2004),and the rights of the Parties with respect thereto shall not be impaired bythis Settlement.

 

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**6.         CONCLUSION**

 

The Parties respectfully request that theCommission approve the instant Settlement without modification or condition.

 

Signed and Dated this       th day of December, 2004.

 
| The California Independent System Operator  Corporation |   | Mirant Delta, LLC and Mirant Potrero, LLC |
|---------------------------------------------------------|--------|-------------------------------------------|
|                                                    |   |                                      |
| By:                                                     |   |                                      |   | By: |   |   |
|                                                    |   |                                      |
| Name:                                                   |   |                                      |   | Name: |   |   |
|                                                    |   |                                      |
| Title:                                                  |   |                                      |   | Title: |   |   |
|                                                    |   |                                      |
| Pacific Gas and Electric Company                        |   |                                      |
|                                                    |   |                                      |
| By:                                                     |   |                                      |   |   |
|                                                    |   |                                      |
| Name:  Stuart K. Gardiner                          |   |                                      |
|                                                    |   |                                      |
| Title: Attorney                                         |   |                                      |
|                                                         |        |                                           |  |  |  |  |  |  |  |  |

 

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**DRAFT ORDER**

 

78

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FEDERAL ENERGY REGULATORYCOMMISSION

WASHINGTON, D.C. 20426

 

[Date]

 
|                           |   | In Reply refer to:                           |
|--------------------------------|--------|----------------------------------------------|
|                           |   | Docket No. ER05-    -000 |
|                           |   |                                         |
| McDermott Will & Emery LLP |   |                                         |
| ATTN: Michael A. Yuffee        |   |                                         |
| Attorney for Mirant Delta, LLC |   |                                         |
| and Mirant Potrero, LLC        |   |                                         |
| 600 13th Street, N.W.          |   |                                         |
| Washington, D.C. 20005         |   |                                         |

 

Dear Mr. Yuffee:

 

OnDecember        *,*2004, you filed an offer of settlementamong Mirant Delta, LLC, Mirant Potrero, LLC (collectively, “Mirant”), theCalifornia Independent System Operator Corporation (“ISO”) and Pacific Gas andElectric Company (“PG&E”) in the above-referenced dockets.

 

The subject settlement is in the publicinterest and is hereby approved. The Commission’s approval of this settlementdoes not constitute approval of, or precedent regarding, any principle or issuein this proceeding. The parties agree that the settlement is subject to the publicinterest standard of review.

 
|   | By direction of the Commission, |
|--------|---------------------------------|
|   |                            |
|   |                            |
|   | Magalie R. Salas,               |
|   | Secretary                       |

 

cc:All Parties

 

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**DRAFT NOTICE**

 

80

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**UNITED STATES OF AMERICA**

**BEFORE THE**

**FEDERAL ENERGY REGULATORY COMMISSION**

 
| Mirant  Delta, LLC   | ) | Docket  No. ER05-      -000 |
|----------------------|---|-----------------------------------------------------------|
| Mirant  Potrero, LLC | ) |                                                      |

 

NOTICE OF FILING

(December     , 2004)

 

Take notice that, on December     , 2004, the following parties submitted an Offerof Settlement in the above-referenced dockets: Mirant Delta, LLC, MirantPotrero, LLC, the California Independent System Operator Corporation andPacific Gas and Electric Company.

 

Any person desiring to intervene or to protest thisfiling must file in accordance with Rules 211 and 214 of the Commission’s Rulesof Practice and Procedure (18 CFR 385.211, 385.214). Protests will beconsidered by the Commission in determining the appropriate action to be taken,but will not serve to make protestants parties to the proceeding. Any personwishing to become a party must file a notice of intervention or motion tointervene, as appropriate. Such notices, motions, or protests must be filed onor before the comment date. Anyone filing a motion to intervene or protest mustserve a copy of that document on the Applicant and all the parties in thisproceeding.

 

The Commission encourages electronic submission ofprotests and interventions in lieu of paper using the “eFiling” link athttp://www.ferc.gov. Persons unable to file electronically should submit anoriginal and 14 copies of the protest or intervention to the Federal EnergyRegulatory Commission, 888 First Street, N.E., Washington, D.C. 20426.

 

This filing is accessible on-line athttp://www.ferc.gov, using the “eLibrary” link and is available for review inthe Commission’s Public Reference Room in Washington, D.C.  There is an “eSubscription” link on the website that enables subscribers to receive email notification when a document isadded to a subscribed docket(s). For assistance with any FERC Online service,please email FERCOnlineSupport@ferc.gov, or call (866) 208-3676 (toll free).For TTY, call (202) 502-8659.

 

Comment Date: 5:00 pm Eastern Time on January     , 2005. Reply Comment Date: 5:00 pm Eastern Timeon January      , 2005.

 
|   | Magalie R. Salas |
|--------|------------------|
|   |             |
|   | Secretary        |

 

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**Exhibit B**

 

Examples of Applicability ofSchedule G vs. Modified Schedule G

 

Calculation is done by Unit, byyear

Application for 2005-2012

In this example, using volume(MWh), but logic also applies to contract service limit hours in the samemanner

(Schedule G rates apply forCAISO calls beyond these volumes)

 

Assume:

Pittsburg 5 # of allowedstartups in 20, per actual 2005 RMR contract

Pittsburg 5 volumetric limit is400,000 MWh (frozen # to be used to determine applicability of ModifiedSchedule G rates)

in 2007, the RMR contract forPittsburg 5 allows for 280,000 MWh under base rates

 
| Sample #1.  2007 Operation                          |   | 2007 Costs                                                   |
|-----------------------------------------------------|--------|--------------------------------------------------------------|
| CAISO calls  (combined DA, HA and RT) = 310,000 MWh |   | CAISO energy  at Schedule C rates for 200,000 MWh            |
| PG&E  calls = 140,000 MWh                       |   | CAISO energy  at Schedule G rates for 30,000 MWh             |
| CAISO  startups = 15                                |   | PG&E  energy at Schedule C rates for 120,000 MWh         |
| PG&E  startups = 5                              |   | PG&E energy  at Modified Schedule G rates for 20,000 MWh |
|                                                |   | Schedule B  rates for 20 startups                            |
|                                                |   | Modified  Schedule G rates for 3 startups                    |
|                                                |   |                                                         |
| Sample #2.  2007 Operation                          |   | 2007 Costs                                                   |
| CAISO calls  (combined DA, HA and RT) = 220,000 MWh |   | CAISO energy  at Schedule C rates for 220,000 MWh            |
| PG&E  calls = 210,000 MWh                       |   | CAISO energy  at Schedule G rates for 0 MWh                  |
| CAISO  startups = 10                                |   | PG&E  energy at Schedule C rates for 180,000 MWh         |
| PG&E  startups = 8                              |   | PG&E  energy at Modified Schedule G rates for 30,000 MWh |
|                                                |   | Schedule B  rates for 18 startups                            |
|                                                |   | Modified  Schedule G rates for 0 startups                    |
|                                                |   |                                                         |
| Sample #3.  2007 Operation                          |   | 2007 Costs                                                   |
| CAISO calls  (combined DA, HA and RT) = 20,000 MWh  |   | CAISO energy  at Schedule C rates for 28,000 MWh             |
| PG&E  calls = 360,000 MWh                       |   | CAISO energy  at Schedule G rates for 0 MWh                  |
| CAISO  startups = 25                                |   | PG&E  energy at Schedule C rates for 350,000 MWh         |
| PG&E  startups = 2                              |   | PG&E  energy at Modified Schedule G rates for 0 MWh      |
|                                                |   | Schedule B  rates for 20 startups                            |
|                                                |   | Schedule G  rates for 5 startups                             |
|                                                |   | Modified  Schedule G rates for 2 startups                    |
|                                                |   |                                                         |
| Sample #4.  2007 Operation                          |   | 2007 Costs                                                   |
| CAISO calls  (combined DA, HA and RT) = 310,000 MWh |   | CAISO energy  at Schedule C rates for 280,000 MWh            |
| PG&E  calls = 50,000 MWh                        |   | CAISO energy  at Schedule G rates for 30,000 MWh             |
| CAISO  startups = 17                                |   | PG&E  energy at Schedule C rates for 80,000 MWh          |
| PG&E  startups = 4                              |   | PG&E  energy at Modified Schedule G rates for 0 MWh      |
|                                                |   | Schedule B  rates for 20 startups                            |
|                                                |   | Modified  Schedule G rates for 1 startups                    |

 

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**Exhibit C– OFO Penalties**

 

Low-Inventory OFO AllocationExamples:

 

Situation 1: Both partiesdeliver volumes short of the tolerance band.

The aggregated shortfall ofboth parties is short of the 5% tolerance band set by the Gas Transporter forthe OFO.  Calculate the volume subject topenalty for each party by calculating that party’s shortfall percentage,deducting the 5% allowance (tolerance band) from that shortfall, and applyingthe remaining percentage to that party’s usage. This result is that party’s volume subject to penalty.

 

Situation 2: One party deliversvolumes short of the tolerance band and both parties deliver short of theirusage.

The aggregated shortfall ofboth parties is short of the 5% tolerance band set by the Gas Transporter forthe OFO.  Calculate the shortfallattributed to each party.  Since PG&Eis within the 5% tolerance band and Mirant is not, the entire shortfall isallocated to Mirant.  OFO penalties forthis instance are allocated to Mirant. Note that the volume subject to penalty was reduced because PG&E didnot fully use its 5% allocation.

 

High-Inventory OFO AllocationExample:

 

Situation 3: One party deliversvolumes in excess of the tolerance band and the other party delivers short ofits usage.

The aggregated shortfall of bothparties is in excess of the 5% tolerance band set by the Gas Transporter forthe OFO.  Calculate the excess attributedto each party.  Since Mirant deliveredvolumes short of its usage and PG&E delivered volumes in excess of thetolerance band, the entire excess is allocated to PG&E.  OFO penalties for this instance are allocatedto PG&E.  Note that the volumesubject to penalty was reduced because Mirant did not use any of its 5%allocation and in fact, delivered short of its usage.

 

OFO Example

 
| ** **                     | ** ** | **Gas Delivery** | ** ** | **Gas  Usage** | ** ** |
|--------------------------------|------------|------------------|------------|----------------|------------|
| **Situations**                 | ** ** | **Mirant**       | ** ** | **PG&E**   | ** ** | **Total** | ** ** | **Mirant** | ** ** | **PG&E** | ** ** | **Total** | ** ** |
|                           |       |             |       |           |       |   |   |   |   |   |   |   |   |
| Both over  tolerance band      |       | 50000            |       | 75000          |       | 125000 |   | 60000 |   | 63000 |   | 143000 |   |
|                           |       |             |       |           |       | 0 |   |   |   |   |   | 0 |   |
| One party over                 |       | 50000            |       | 81000          |       | 131000 |   | 60000 |   | 63000 |   | 143000 |   |
|                           |       |             |       |           |       | 0 |   |   |   |   |   | 0 |   |
| Parties in opposite  positions |       | 40000            |       | 80000          |       | 120000 |   | 50000 |   | 60000 |   | 110000 |   |
|                           |       |             |       |           |       | 0 |   |   |   |   |   | 0 |   |

 
| **Situations**                     | ** ** | **Volume  Difference** | ** ** | **%  Difference** | ** ** | **Utility  Tolerance  Band** | ** ** | **Allowed  Volume** | ** ** | **Mirant** | ** ** | **PG&E** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------|------------|------------------------|------------|-------------------|------------|------------------------------|------------|---------------------|------------|------------|------------|--------------|------------|------------|------------|------------|------------|------------|------------|
| **Gas Volume  subject to Penalty** |
| **Mirant**                         | ** ** | **PG&E**           | ** ** | **Total**         |
|                               |       |                   |       |              |       |                         |       |                |       |       |       |         |       |       |       |       |       |       |       |
| Both over  tolerance band          |       | -16000                 |       | -12.59            | %          | -5                           | %          | -71.50              |       | 16.67      | %          | -9.64        | %          | -7000      |       | -3850      |       | -10650     |       |
|                               |       |                   |       |              |       |                         |       |                |       |       |       |         |       | 0          |       | 0          |       | 0          |       |
| One party over                     |       | -12000                 |       | -8.39             | %          | -5                           | %          | -71.50              |       | -16.67     | %          | -2.41        | %          | -4850      |       | 0          |       | -4850      |       |
|                               |       |                   |       |              |       |                         |       |                |       |       |       |         |       | 0          |       | 0          |       |       |       |
| Parties in opposite  positions     |       | 10000                  |       | 9.09              | %          | 5                            | %          | 5500                |       | -20.00     | %          | 33.33        | %          | 0          |       | 4500       |       | 4500       |       |
|                               |       |                   |       |              |       |                         |       |                |       |       |       |         |       | 0          |       | 0          |       | 0          |       |

 

83

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**EXHIBIT D**

**NOTICES**

 
| Mirant                          |   | PG&E                              |
|---------------------------------|--------|---------------------------------------|
|                            |   |                                  |
| **NOTICES:**                    |   | **NOTICES:**                          |
| 1155  Perimeter Center W        |   | P.O. Box  770000, MCN12E              |
| Atlanta, GA  30338-5416         |   | San  Francisco, CA 94177              |
| Attention:  Legal               |   | Attention:  Director, Power Contracts |
| Phone:  678.579.6900            |   | Phone:  415.973.0070                  |
| Facsimile:  678.579.5988        |   | Facsimile:  415.973.9176              |
|                            |   |                                  |
| **PAYMENT:**                    |   | **PAYMENT:**                          |
| Bank of  America, N.A.          |   | By Wire  Transfer:                    |
| ABA #  11000012                 |   | Mellon Trust  of New England, N.A.    |
| Account  Number 3751003269      |   | Account  Title: PG&E              |
|                            |   | Account  Number: 059994               |
|                            |   | ABA Number:  011001234                |
|                            |   |                                  |
| **CREDIT:**                     |   | **CREDIT:**                           |
| Attention:  Credit Department   |   | Attention:  Credit Department         |
| Phone:  678.579.3061            |   | Phone:  415.972.5244                  |
| Facsimile:  678.579.5823        |   | Facsimile:  415.973.7301              |
|                            |   |                                  |
| **SCHEDULING:**                 |   | **SCHEDULING:**                       |
| 24 Hour  Desk: 678.579.3100     |   | Day Ahead Desk:  415.973.6222         |
| 24 Hour Desk  Fax: 678.579.5541 |   | 24 Hour  Desk: 415.973.7900           |
|                            |   | 24 Hour Fax:  415.972.5340            |

 

84

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**EXHIBIT E**

FORM OF LETTER OF CREDIT

**ISSUING BANK LETTERHEADADDRESS**

 
| Issuing  Bank:                                                | [insert  name          |
|---------------------------------------------------------------|------------------------|
|                                                          |   Insert address] |
|                                                          |                   |
| Date:                                                         | [insert  date]         |
|                                                          |
| Irrevocable  Standby Letter of Credit Number: [insert number] |                   |
|                                                          |                   |
| Beneficiary:                                                  |                   |
|                                                          |
| Applicant:  [insert name                                      |                   |
|                                                          | insert  address]       |
| Advising  Bank:                                               | [insert  name          |
|                                                          | insert  address        | (if  applicable)] |
|                                                          |                   |
| Confirming  Bank:                                             | [insert  name          |
|                                                          | Insert  address        |
|                                                          | (if  applicable)]      |
|                                                               |                        |  |  |  |  |

 

Atthe request of [insert name of Applicant] and for the account of [insert nameof account party which may be the same as Applicant] (the “Account Party”), We,[insert name of Issuing Bank], hereby issue our irrevocable standby letter ofcredit (“Letter of Credit”), Number [insert number] in your favor available fordraw in the amount of United States Dollars [spell out the amount followed by(US$xxxxxxxx.xx)] (hereinafter, as may be reduced from time to time inaccordance with the provisions hereof, the (“Stated Amount”)), effectiveimmediately and expiring at our office at the address indicated above with ourclose of business at 5:00 PM [insert City] time on [insert date] (“ExpirationDate”) unless terminated earlier in accordance with the provisions hereof.

 

Fundsunder this Letter of Credit will be made available to you by payment againstpresentation of the following documents:

 

1.                    Your drawing request marked “drawn under[insert name of Issuing Bank], Letter of Credit Number [insert number], dated [insertdate]”;

 

***AND***

 

2.              A Beneficiary Certificate purportedly signed by anauthorized representative of the [insert name of Beneficiary] stating either:

 

85

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(i)  “ThisLetter of Credit will expire in twenty (20) calendar days or less and [insertname of Account Party] has not provided alternate security acceptable to[insert name of Beneficiary] and the amount being drawn of United StatesDollars [spell out the amount followed by (US$xxxxxxxx.xx)] does not exceed theamount of security that [insert name of Account Party] is required to post to[insert name of Beneficiary] under the terms of that certain Power Purchase andSale Agreement (First Wraparound Agreement) by and among Mirant Delta, LLC andMirant Potrero, LLC and Pacific Gas and Electric Company, dated December     ,2004”;

 

OR

 

(ii)  “Theamount of the accompanying drawing request represents the amount owed by[insert name of Applicant] to [insert name of Beneficiary] in accordance withthe terms of that certain Power Purchase and Sale Agreement (First WraparoundAgreement) by and among Mirant Delta, LLC and Mirant Potrero, LLC and PacificGas and Electric Company, dated December      ,2004, which amount was not paid when due, and such failure to pay was notremedied within the applicable cure period and the amount owed remains unpaid.”

 

SpecialConditions:

 

1.   Partialdrawing(s) are permitted.

 

2*.  *ThisLetter of Credit shall terminate upon the earlier of:

 

(i)  THEMAKING BY YOU OF THE FINAL DRAWING AVAILABLE TO BE MADEHEREUNDER;

 

(ii) THE SURRENDER OF THIS ORIGINAL LETTER OF CREDITACCOMPANIED BY YOUR LETTER

ACKNOWLEDGING TERMINATIONOF THIS LETTER OF CREDIT; AND

 

(iii)THE EXPIRATION DATE.

 

3.              All banking chargesassociated with this Letter of Credit are for the account of the Applicant.

 

4.              This Letter ofCredit is not transferable.

 

5.              Each drawingrequest honored by us shall reduce the Stated Amount by the amount honored.

 

Wehereby engage with you that drawing requests drawn under and in compliance withthe terms of this Letter of Credit will be duly honored if drawn and presentedfor payment at any time before the close of business [Time], Eastern PrevailingTime at our counters located at [address] on or before the Expiration Date orin the event of Force Majeure, as defined under Article 17 of the UniformCustoms and Practice for Documentary Credits (1993 Revision) InternationalChamber of Commerce Publication No. 500 (“UCP”), that interrupts our business,within fifteen (15) days after resumption of our business, whichever is later.

 

86

----

 

Except as otherwise stated herein, this credit is subject to the UCPand, with respect to matters not so covered, this Letter of Credit is subjectto and governed by the laws of the State of New York.

 

Ifyou have any questions regarding this Letter of Credit, please call [TelephoneNo.] or write to the attention of [Insert Department name and address] citingthe Letter of Credit number quoted above.

 
| By:    |                  |   |
|--------|-----------------------|--------|
|   | Authorized  Signature |   |
| Name:  |                  |   |
| Title: |                  |   |
|   |                  |
|   |                  |
| By:    |                  |   |
|   | Authorized  Signature |   |
| Name:  |                  |   |
| Title: |                  |   |
|        |                       |        |  |  |  |

 

87

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**Exhibit F - Payment and Invoicing Estimated Timeline for RMR and MarketPayments**

 

Trade Month: T to  T+30

 
| T - T+30           |   | *January*  |   |                                                                                                                                                                                                                                                                                                                                                    |
|--------------------|--------|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
| T+30 - T+60        |   | *February* |   | T+40

Est RMR  Invoice                                                                                                                                                                                                                                                                                                                                  |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
|               |   | * *   |   | T+60

Revised EST  RMR Invoice                                                                                                                                                                                                                                                                                                                          |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
| T+60 - T+90        |   | *March*    |   | T+65

RMR  Settlement for Trade Month T to T+30 

PG&E  pays Mirant:

Monthly Option Payment (Condition 2 Rates), Sect 12.1(1) (a) &  (b)

Variable Costs (Schedule C) for ‘market path’

and fuel charges, Sect 12.1 (2) (d) & (e)

Schedule G Sect 12.2 & Modified Schedule G Sect 12.3

Make Whole RMR, Sect 25.1          |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
|               |   | * *   |   | Mirant  credits PG&E:

Monthly Option Payment (Condition 1 Rates), Sect 12.4(1)

Variable Costs (Schedule C) for ‘contract path’

Incl ISO fuel charges, Sect 12.4 (5) & (6)

Gas Reimbursement, Sect 12.4(7)

Schedule D charges for Startups, Sect 12.4(8)

Payment for fuel burned to create steam for Pittsburg 7, Sect  12.4(11) |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
|               |   | * *   |   | T+70

Est RMR  Invoice for trade month T+30 to T+60                                                                                                                                                                                                                                                                                                     |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
|               |   | * *   |   | T+90

Revised Est  RMR Invoice for trade month T+30 to T+40

Preliminary  GMC and Market Invoice [Mirant to PG&E]                                                                                                                                                                                                                                   |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
| T+90 - T+120       |   | *April*    |   | T+95

RMR  Settlement for Trade Month T+30 to T+60 

PG&E  pays Mirant:

Monthly Option Payment (Condition 2 Rates) Sect 12.1(1) (a) & (b)

Variable Costs (Schedule C) for ‘market path’ excl fuel charges, Sect  12.1(2) (d) & (e)

Schedule G (Sect 12.2) & Modified Schedule G Sect 12.3 Make Whole  RMR, Sect. 25.1      |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
|               |   | * *   |   | Mirant  credits PG&E:

Monthly Option Payment (Condition 2 Rates), Sect 12.4(1)

Variable Costs (Schedule C) for ‘contract path’ and ISO fuel charges,  Sect 12.4(5) & (6)

Gas Reimbursement, Sect 12.4(7)

Schedule D charges for Startups, Sect 12.4(8)

Payment for fuel burned to create steam for Pittsburg 7, Sect  12.4(11)   |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
|               |   | * *   |   | Market  Settlement for Trade Month T to T+30 (Preliminary) 

PG&E pays Mirant:

Energy dispatch for Reg down Ancillary Service, Sect 12.1 (1) (c)

Energy dispatch for Supplemental Energy Dec Bids, Sect 12.1 (1) (d)

UDP Sect 7.4

Delta Dispatch Mitigation Fees, Sect 8

Schedule G for Must Offer, Sect 10

Gas for UDP Sect 11.7             |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
|               |   | * *   |   | Mirant credits PG&E:

Ancillary Services capacity amended by the ISO, Sect 12.4 (2)

Ancillary Services Energy, Sect 12.4 (3)

Energy from Supplemental Energy Inc. [ILLEGIBLE] Sect 12.4(4)  Minimum Load Cost Compensation Sect 12.4 (9)                                                                                                          |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
|               |   | * *   |   | T+105

Market Settlement for T to T+30 [Final]                                                                                                                                                                                                                                                                                                          |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
| T+120 - T+150      |   | *May*      |   | T+125

Same as T+95, based on actuals

RMR Settlement for T+60 to T+90

Market Settlement for T+30 to T+60                                                                                                                                                                                                                                              |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
|               |   | * *   |   | T+135

Revised Adj Invoice  for T to T+30                                                                                                                                                                                                                                                                                                               |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
|               |   | * *   |   | T+140

Revised Adj  Settlement for T to T+30                                                                                                                                                                                                                                                                                                            |
|               |   | * *   |   |                                                                                                                                                                                                                                                                                                                                                    |
| T+150 &  above |   | *June*     |   | T+155

RMR Settlement for T+90 to T+120

Market Settlement for T+60 to T+90

True ups for T to T+30                                                                                                                                                                                                                                                     |

 

88

----

 

**EXHIBIT G - ESTIMATED NET EXPOSURE**

 

Assuming Condition 1 Term (energydelivery) starts on February 1, 2005

Calculation of Net Exposurebased on definition in PPA and does not necessarily reflect expected settlementamounts

For example, Gas Exposure mayhave $0 being settled, as it is only a potential exposure, whereas gastransportation will get settled but is not included in the Net Exposure calculation.

 
| Estimated  Net Exposure on February 10, 2005 |
|----------------------------------------------|
| 1. RMR  Exposure                             |   | $ |   |   | 1a - no past  exposure |
|                                         |   | $ | 3,500,000 |   | 1b - Current  month - PG&E will owe Mirant - based on 50% Fixed Option Payment Factor and  Surcharge Payment Factor, but subject to change |
|                                         |   | $ | 3,500,000 |   | 1b - Prompt  month - PG&E will owe Mirant - based on 50% Fixed Option Payment Factor  and Surcharge Payment Factor, but subject to change |
|                                         |   | $ | (2,320,718) |   | 1c -  Estimated as 966 MW * 28 days in Feb * 24 h/day * 5%* 11 MMBtu/MWh * $6.50/MMBtu  - Mirant will owe PG&E |
|                                         |   | $ | (2,569,367) |   | 1c -  Estimated as 966 MW * 31 days in March * 24 h/day * 5%* 11 MMBtu/MWh * $6.50/MMBtu  - Mirant will owe PG&E |
|                                         |   |   |   | use last published NGI Bidweek Spot Gas Prices, California, PG&E Citygate  Average; assume 5% capacity factor until actual data available |
| 2. Market  Exposure                          |   | $ | (3,750,000) |   | estimate of  $1.875 million per month for current and prompt month due to no data and no  past exposure - Mirant will owe PG&E |
| 3. Gas  Exposure                             |   | $ | (3,173,923) |   | Estimated as  (-1) * 160,097 MDQ * 5% * 61 days * $6.50/MMBtu, but will use updated MDQs if/when  available - Mirant potentially owes PG&E |
|                                         |   |   |   | MDQ based on Pittsburg 7 and Contra Costa 6; use last published NGI  monthly index for PG&E Citygate just like in 1c |
| **NET  EXPOSURE**                            | ** ** | **$** | **(4,814,008)** | ** ** | **PG&E  exposed to Mirant** |

 
| Estimated  Net Exposure on March 10, 2005 |
|-------------------------------------------|
| 1. RMR  Exposure                          |   | $ | 1,179,282 |   | 1a - to be  based on Est RMR invoice - number here based on assumption of 5% contract  path in February - PG&E owes Mirant |
|                                      |   | $ | 3,500,000 |   | 1b - Current  month - PG&E will owe Mirant - based on 50% Fixed Option Payment Factor  and Surcharge Payment Factor, but subject to change |
|                                      |   | $ | 3,500,000 |   | 1b - Prompt  month - PG&E will owe Mirant - based on 50% Fixed Option Payment Factor  and Surcharge Payment Factor, but subject to change |
|                                      |   | $ | (2,569,367) |   | 1c -  Estimated as 966 MW * 31 days in March * 24 h/day * 5% * 11 MMBtu/MWh * $6.50/MMBtu  - Mirant will owe PG&E |
|                                      |   | $ | (2,486,484) |   | 1c -  Estimated as 966 MW * 30 days in April * 24 h/day * 5% * 11 MMBtu/MWh * $6.50/MMBtu  - Mirant will owe PG&E |
|                                      |   |   |   | use last published NGI Bidweek Spot Gas Prices, California, PG&E Citygate  Average; assume 5% capacity factor until actual data available |
|                                      |   |   |   | for 1a and 1c, if Mirant has information on % contract path in  February and PG&E validates, use that % instead of 5% |
| 2. Market  Exposure                       |   | $ | (5,625,000) |   | estimate of  $1.875 million per month * 3 for previous, current, and prompt month due to  no data and no past exposure - Mirant will owe PG&E |
|                                      |   |   |   | if Mirant and/or PG&E are able to roughly estimate a market  payment for February and agree, could multiply that by 3 instead |
| 3. Gas  Exposure                          |   | $ | (3,173,923) |   | Estimated as  (-1) * 160,097 MDQ * 5% * 61 days * $6.50/MMBtu, but will use updated MDQs if/when  available - Mirant potentially owes PG&E |
|                                      |   |   |   |   | MDQ based on Pittsburg 7 and Contra Costa 6; use last published NGI  monthly index to PG&E Citygate just like in 1c |
| **NET  EXPOSURE**                         | ** ** | **$** | **(5,576,492)** | ** ** | **PG&E  exposed to Mirant** |

 
| Estimated  Net Exposure on April 10, 2005 |
|-------------------------------------------|
| 1. RMR  Exposure                          |   | $ | 930,633 |   | 1a - to be  based on Est RMR invoice - number here based on assumption of 5% contract  path in March - PG&E owes Mirant |
|                                      |   | $ | 3,500,000 |   | 1b - Current  month - PG&E will owe Mirant - based on 50% Fixed Option Payment Factor  and Surcharge Payment Factor, but subject to change |
|                                      |   | $ | 3,500,000 |   | 1b - Prompt  month - PG&E will owe Mirant - based on 50% Fixed Option Payment Factor  and Surcharge Payment Factor, but subject to change |
|                                      |   | $ | (2,486,484) |   | 1c -  Estimated as 966 MW * 30 days in April * 24 h/day* 5% * 11 MMBtu/MWh * $6.50/MMBtu  - Mirant will owe PG&E |
|                                      |   | $ | (2,569,367) |   | 1c -  Estimated as 966 MW * 31 days in May * 24 h/day * 5% * 11 MMBtu/MWh * $6.50/MMBtu  Mirant will owe PG&E |
|                                      |   |   |   | use last published NGI Bidweek Spot Gas Prices, California, PG&E Citygate  Average |
|                                      |   |   |   | for 1a and 1c, use latest available % contract path, based on either  Feb or March, instead of 5% |
| 2. Market  Exposure                       |   | $ | (5,625,000) |   | estimate of  $1.875 million per month * 3 for previous, current, and prompt month due to  no data and no past exposure - Mirant will owe PG&E |
|                                      |   |   |   |   | if Mirant and/or PG&E are able to roughly estimate a market  payment for February or March and agree, could multiply that by 3 |
| 3. Gas  Exposure                          |   | $ | (3,173,923) |   | Estimated as  (-1) * 160,097 MDQ * 5% * 61 days * $6.50/MMBtu, but will use updated MDQs if/when  available - Mirant potentially owes PG&E |
|                                      |   |   |   |   | MDQ based on Pittsburg 7 and Contra Costa 6; use last published NGI  monthly index for PG&E Citygate just like in 1c |
| **NET  EXPOSURE**                         | ** ** | **$** | **(5,924,141)** | ** ** | **PG&E  exposed to Mirant** |

 
| Estimated  Net Exposure on May 10, 2005 |
|-----------------------------------------|
| 1. RMR  Exposure                        |   | $ | 1,013,516 |   | 1a - to be  based on Est RMR invoice - number here based on assumption of 5% contract  path in April - PG&E owes Mirant |
|                                    |   | $ | 3,500,000 |   | 1b - Current  month - PG&E will owe Mirant - based on 50% Fixed Option Payment Factor  and Surcharge Payment Factor, but subject to change |
|                                    |   | $ | 3,500,000 |   | 1b - Prompt  month - PG&E will owe Mirant - based on 50% Fixed Option Payment Factor  and Surcharge Payment Factor, but subject to change |
|                                    |   | $ | (2,569,367) |   | 1c -  Estimated as 966 MW * 31 days in May * 24 h/day * 5% * 11 MMBtu/MWh * $6.50/MMBtu  - Mirant will owe PG&E |
|                                    |   | $ | (2,486,484) |   | 1c -  Estimated as 966 MW * 30 days in June * 24 h/day * 5% * 11 MMBtu/MWh * $6.50/MMBtu  - Mirant will owe PG&E |
|                                    |   |   |   | use last published NGI Bidweek Spot Gas Prices, California, PG&E Citygate  Average |
|                                    |   |   |   | for 1a and 1c, use latest available % contract path, based on either  March or April, instead of 5% |
| 2. Market  Exposure                     |   | $ | (5,625,000) |   | based on Preliminary  GMC and Market invoice for February (assumed here as $1.875 million),  multiplied by 3 |
| 3. Gas  Exposure                        |   | $ | (3,173,923) |   | Estimated as  (-1) * 160,097 MDQ * 5% * 61 days * $6.50/MMBtu, but will use updated MDQs if/when  available - Mirant potentially owes PG&E |
|                                    |   |   |   |   | MDQ based on Pittsburg 7 and Contra Costa 6; use last published NGI  monthly index for PG&E Citygate just like in 1c |
| **NET  EXPOSURE**                       | ** ** | **$** | **(5,841,258)** | ** ** | **PG&E  exposed to Mirant** |

 

89

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**POWERPURCHASE AND SALE AGREEMENT**

**(SECOND WRAPAROUNDAGREEMENT)**

 

by and among

** **

**MIRANTDELTA, LLC**

** **

and

 

**MIRANTPOTRERO, LLC**

** **

and

 

**PACIFICGAS AND ELECTRIC COMPANY**

 

 

January 13, 2005

 

----

 

**TABLEOF CONTENTS**

 
| 1.                                                                            | DEFINITIONS                               |   |
|-------------------------------------------------------------------------------|-------------------------------------------|--------|
|                                                                          |                                      |   |
| 2.                                                                            | TERM;  CONDITIONS PRECEDENT; SURVIVAL     |   |
|                                                                          |                                      |   |
| 3.                                                                            | RMR  AGREEMENTS                           |   |
|                                                                          |                                      |   |
| 4.                                                                            | OPERATION  OF THE FACILITY                |   |
|                                                                          |                                      |   |
| 5.                                                                            | CAPACITY;  ENERGY; AND ANCILLARY SERVICES |   |
|                                                                          |                                      |   |
| 6.                                                                            | AVAILABILITY                              |   |
|                                                                          |                                      |   |
| 7.                                                                            | SCHEDULING  AND DISPATCH                  |   |
|                                                                          |                                      |   |
| 8.                                                                            | NOX  LIMITATIONS                          |   |
|                                                                          |                                      |   |
| 9.                                                                            | DELTA  DISPATCH                           |   |
|                                                                          |                                      |   |
| 10.                                                                           | MUST  OFFER/RUN                           |   |
|                                                                          |                                      |   |
| 11.                                                                           | GAS                                       |   |
|                                                                          |                                      |   |
| 12.                                                                           | CHARGES                                   |   |
|                                                                          |                                      |   |
| 13.                                                                           | REPRESENTATIONS AND WARRANTIES            |   |
|                                                                          |                                      |   |
| 14.                                                                           | EVENT OF DEFAULT AND REMEDIES             |   |
|                                                                          |                                      |   |
| 15.                                                                           | BILLING AND PAYMENT                       |   |
|                                                                          |                                      |   |
| 16.                                                                           | INDEMNIFICATION                           |   |
|                                                                          |                                      |   |
| 17.                                                                           | LIMITATION OF LIABILITY                   |   |
|                                                                          |                                      |   |
| 18.                                                                           | ASSIGNMENT; BINDING EFFECT                |   |
|                                                                          |                                      |   |
| 19.                                                                           | CONFIDENTIALITY                           |   |
|                                                                          |                                      |   |
| 20.                                                                           | NOTICES                                   |   |
|                                                                          |                                      |   |
| 21.                                                                           | SECURITY                                  |   |
|                                                                          |                                      |   |
| 22.                                                                           | FORCE MAJEURE                             |   |
|                                                                          |                                      |   |
| 23.                                                                           | DISPUTE RESOLUTION                        |   |
|                                                                          |                                      |   |
| 24.                                                                           | INSURANCE                                 |   |
|                                                                          |                                      |   |
| 25.                                                                           | MATERIAL CHANGE(S)                        |   |
|                                                                          |                                      |   |
| 26.                                                                           | MISCELLANEOUS                             |   |
|                                                                          |                                      |   |
| EXHIBIT A: 2005 RMR FERC Settlement                                           |                                      |
|                                                                          |                                      |
| EXHIBIT  B: Examples of Applicability of  Schedule G vs. Modified Schedule  G |                                      |

 

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| EXHIBIT C: OFO Penalties                                                         |   |
|----------------------------------------------------------------------------------|--------|
|                                                                             |   |
| EXHIBIT D: Notices                                                               |   |
|                                                                             |   |
| EXHIBIT E*:*Form of Letter of Credit                                             |   |
|                                                                             |   |
| EXHIBIT  F: Payment and Invoicing Estimated Timeline for RMR and Market Payments |   |
|                                                                             |   |
| EXHIBIT G: Estimated  Net Exposure                                               |   |

 

3

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**POWERPURCHASE AND SALE AGREEMENT**

 

**THISPOWER PURCHASE AND SALE AGREEMENT** (the “Agreement”) isentered into as of the 13th Day of January, 2005, (the “Agreement Date”), byand among Mirant Delta, LLC, a Delaware limited liability company (“MirantDelta”), Mirant Potrero, LLC, a Delaware limited liability company (“MirantPotrero”, together with Mirant Delta, “Mirant” or “Seller”), and Pacific Gasand Electric Corporation, a California corporation (“PG&E” or “Buyer”).Seller and Buyer may be individually referred to herein as a “Party” and,collectively, as the “Parties.”

 

**NOW,THEREFORE,** the Parties hereby agree as follows:

 

**1.****             DEFINITIONS**

 

All capitalizedterms used but not otherwise defined herein shall have the meanings ascribed inthe RMR Agreements and the Tariff. The following terms shall have the meaningsset forth below.

 

“Affiliate”means any Person that directly or indirectly controls, is controlled by or isunder common control with the Person in question.

 

“Amendment 60”has the meaning set forth in Section 10.1. 

 

“AncillaryServices” has the meaning given in the RMR Agreements. 

 

“ AvailabilityNotice” has the meaning set forth in Section 7.2.

 

“Bankruptcy”means with respect to a Person that such Person (i) ceases doing business as agoing concern, files a voluntary petition in bankruptcy or is adjudicated bankruptor insolvent, or files any petition or answer seeking any reorganization,arrangement, composition, readjustment, liquidation, dissolution or similarrelief under the present or any future federal bankruptcy code or any otherpresent or future applicable federal, state or other Governmental Rule, orseeks or consents to or acquiesces in the appointment of any trustee, receiver,custodian or liquidator of said Person or of all or any substantial part of itsproperties, or makes an assignment for the benefit of creditors; or (ii) aproceeding is initiated against the Person seeking any reorganization,arrangement, composition, readjustment, liquidation, dissolution or similarrelief under the present or any future federal bankruptcy code or any other GovernmentalRule and, such proceeding, as described in this Section 1.1(4)(ii), is notdismissed within ninety (90) Days after the commencement, or any trustee,receiver, custodian or liquidator of said Person or of all or any substantialpart of its properties is appointed without the consent or acquiescence of saidPerson, and such appointment is not vacated or stayed on appeal or otherwisewithin ninety

 

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 (90) Days after the appointment, or, withinninety (90) Days after the expiration of any such stay, has not been vacated.

 

“Bankruptcy Court”has the meaning set forth in Section 14.1 (2).

 

“Btu” meansBritish Thermal Unit which is the standard Unit for measuring the quantity ofheat energy, such as the heat content of Fuel.

 

“Bubble”has the meaning given in Section 8(2).

 

“Business Day”means a Day other than Saturday, Sunday, a NERC holiday or a Day that isauthorized as a holiday by banks in New York, New York.

 

“Buyer’sMonthly Charges” has the meaning given in Section 12.1(1). 

 

“Buyer’sMonthly Credits” has the meaning set forth in Section 12.4.

 

“Buyer’sPG&E Citygate Pool” has the meaning given in Section 11.1(2) andapplies only to Seller’s provision of Gas to the Non-RMR Delta Units.

 

“CalculationDate” means any Business Day on or before the fifteenth (15th)Day of a month during the “Condition 1” Term on which Seller makes thedeterminations referred to in Article 21 of this Agreement.

 

“Claims”means all claims or actions filed by a Person, including fines or penalties,whether groundless, false or fraudulent, that, relate to the subject matter ofan indemnity, and the resulting losses, damages, expenses, attorney’s fees andcourt costs, whether incurred by settlement or otherwise, and whether suchclaims or actions are filed prior to or after the expiration or termination ofthis Agreement.

 

“CollateralRequirement” has the meaning set forth in Section 21.2.

 

“CommercialInterest Rate” means a rate equal to the per annum rate of interest equalto the “Monthly” Federal Funds Rate (as reset on a monthly basis and based onthe latest month for which such rate is available) as reported in FederalReserve Bank Publication H.15-519, or any successor publication, published bythe Board of Governors of the Federal Reserve System.

 

“Condition 1’ Term”means the period commencing pursuant to Section 2.1 through and including hourending 2400 PPT on the Termination Date.

 

“Contract Term”means the term of this Agreement beginning on the Agreement Date and ending onthe Termination Date.

 

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“Contra CostaFacility” means the natural gas fueled electric generating facility ownedby Seller in Contra Costa County, California, including all equipment used toproduce the Maximum Net Dependable Capacity, Energy and Ancillary Services,buildings and facilities, facility control systems, fire protection systems,potable, process, and sanitary water supply, treatment, storage, disposal, andtransfer systems, the Electrical Interconnection Facilities, the GasInterconnection Facilities and all related equipment necessary to accept Fuelat the Gas Delivery Point including storage and transfer systems, and ingressand egress to the Facility Site.

 

“CPUC”means the California Public Utilities Commission or any successor agency.

 

“Credit Rating”means with respect to a Party or any entity, on any date of determination, therespective ratings then assigned to such Party’s or entity’s unsecured, seniorlong-term debt (not supported by third party credit enhancement). In the eventof any inconsistency in ratings by Moody’s and S&P (a “split rating”), thelower assigned rating shall control. If such entity does not have an unsecured,senior long-term debt rating by either S&P or Moody’s, then “Credit Rating”shall mean the general corporate credit rating or long-term issuer rating, asapplicable, assigned by such rating agency to such entity.

 

“Damages”has the meaning set forth in Section 14.2 (2).

 

“Day” meansthe 24-hour period beginning and ending at 12:00 midnight PPT.

 

“DefaultingParty” has the meaning set forth in Section 14.1(1).

 

“Delivery Point”means the ‘Delivery Point’ specified for each RMR Unit in the applicableSchedule A, part 4, of the RMR Agreements.

 

“Delta Units”or “Delta RMR Units” means the electric generating Units owned by MirantDelta and located in Pittsburg, California, known as Pittsburg 5 and Pittsburg6 and the electric generating Unit owned by Mirant Delta and located inAntioch, California, known as Contra Costa 7; provided that a Delta Unit shallbe a Delta RMR Unit only as long as it remains subject to the applicable RMRAgreement.

 

“DispatchNotice” has the meaning set forth in RMR Agreements.

 

“EFO” hasthe meaning given in the Gas Transporter’s tariff.

 

“ElectricalInterconnection Agreements” mean the interconnection agreement(s) betweenSeller and the System Operator providing for the maintenance and operation ofthe Electrical Interconnection Facilities.

 

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“ElectricalInterconnection Facilities’’ means the equipment necessary to connect theUnits to the System Operator’s 115kV and 230 kV transmission system.

 

“Energy”has the meaning given in the RMR Agreements.

 

“Energy Meters”means the System Operator’s revenue meters identified in Section 5 of SchedulesA of the RMR Agreements.

 

“Event ofDefault” has the meaning set forth in Section 14.1(1).

 

“Exhibit”means any exhibit attached to this Agreement, which is hereby incorporated intothis Agreement by reference.

 

“Facility(ies)”means the Contra Costa Facility, the Pittsburg Facility or the PotreroFacility, as applicable.

 

“Facility Site”means the parcel of land on which the applicable Facility is located.

 

“FERC”means the Federal Energy Regulatory Commission, or its successor.

 

 “Filing” has the meaning set forth inSection 14.1(2).

 

“Force MajeureEvent” has the meaning given in the applicable RMR Agreement(s).

 

“Forced Outage”has the meaning ascribed in the RMR Agreements.

 

“Fuel”means Gas and Distillate Fuel and RMR Fuel and Non-RMR Fuel, as applicable.

 

“GAAP”means Generally Accepted Accounting Principles.

 

“Gas” meansnatural gas or any mixture of hydrocarbon gases or hydrocarbon gases andnon-combustible gases consisting predominantly of methane.

 

“Gas DeliveryPoint” means the point of interconnection between the Gas Transporter’spipeline and the applicable Facility.

 

“Gas Exposure”has the meaning set forth in Section 21.3.

 

“Gas ImbalanceCharges” means any pipeline scheduling, imbalance, cashout, operationalflow order or other similar pipeline penalties or charges assessed by GasTransporter resulting from failure to communicate to the pipeline,

 

7

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nominations, nominationchanges or failure to adjust nominations to comply with Gas Transporter’stariffs and imbalance tolerance limits.

 

“Gas Index”  means, for a given Trading Day the two (2)Day rolling average simple average of the Gas Daily, PG&E Citygate Index(midpoint) and the NGl Daily Gas Price Index, PG&E Citygate (average) asshown in Table C1-8 of Schedules C of the RMR Agreements.

 

“Gas Interconnection Facilities’’means the meter owned and operated by the Gas Transporter, which is located atthe applicable Facility, and other equipment necessary to connect the Facilitywith the Gas Transporter’s transportation system.

 

“Gas Meter” meansthe Gas the meter owned by the Gas Transporter and located at the applicableGas Delivery Point.

 

‘‘Gas Tariff” hasthe meaning given in Section 11.3.

 

“Gas TransmissionService Agreement” or “GTSA” means the interconnection agreementbetween Seller and the Gas Transporter providing for the operation andmaintenance of the Gas Interconnection Facilities.

 

“Gas Transporter”means Pacific Gas & Electric Company or its successor.

 

 “GSM” has the meaning given in Section11.5(1).

 

“Generator ImbalanceFees” means any imbalance fees, penalties or other similar fees, costs orpenalties imposed by any System Operator other than Uninstructed Deviation Penalties.

 

“Global Settlement”shall mean the Settlement and Release of Claims Agreement by and among certainentities, including Seller and Buyer, dated January 13, 2005, to which thisAgreement is attached and made a part thereof as Exhibit B.

 

“Good IndustryPractice” has the meaning given in the RMR Agreements.

 

“GovernmentalAuthority” means any federal, state or local governmental body, anygovernmental, military, regulatory or administrative agency, commission, bodyor other authority exercising or entitled to exercise any administrative,executive, judicial, legislative, policy, regulatory or taxing authority,jurisdiction or power, any court or governmental tribunal, or any applicableindependent system operator, regional transmission organization, regional powerpool, reliability council or other regional entity performing similarfunctions.

 

“Governmental Rule”means any law, rule, regulation, ordinance, order, code, permit,interpretation, judgment, decree, directive, guideline, policy or similar

 

8

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form of decisionof any Governmental Authority having the effect and force of law.

 

“Guarantee”means the instrument or agreement pursuant to which a Guarantor provides creditsupport for the obligations of a Party; provided, however, that such instrumentor agreement shall be in a form reasonably acceptable to the Person receivingsuch guarantee and extending credit as a result thereof.

 

“Guarantor”means a Person that has a Credit Rating by S&P and Moody’s of at least BBB-by S&P and Baa3 by Moody’s and that is acceptable, as determined in acommercially reasonable manner, to the Party who would be protected by theGuarantee issued from such Person.

 

“ISO” meansthe California Independent System Operator Corporation or its successor.

 

“kW” meanskilowatt.

 

“kWh” meanskilowatt-hour.

 

“Letter ofCredit” means an unconditional, irrevocable, non-transferable, standbyletter of credit naming a Party as the sole beneficiary, issued by a UnitedStates commercial bank, a United States financial institution, or the United Statesbranch of a foreign commercial bank, with a minimum of one billion U. S.dollars capital and surplus, in each case with a Credit Rating of at least A byS&P and A2 by Moody’s, in the form attached hereto as Exhibit E. TheSecured Party shall value the Letter of Credit at its Stated Amount (as definedin the Letter of Credit) for purposes of securing the Posting Party’sCollateral Requirement as long as the Issuing Bank (as defined in the Letter ofCredit) maintains a Credit Rating of at least A by S&P and A2 by Moody’s.If at any time the Issuing Bank does not have a Credit Rating of at least A byS&P and A2 by Moody’s, the Secured Party shall value the Letter of Creditissued by such entity at zero ($ 0).

 

“Long-term PlannedOutage” has the meaning ascribed in the RMR Agreements.

 

“MMBtu”means one million British Thermal Units. 

 

“MarketExposure” has the meaning set forth in Section 21.3.

 

“Market Payment”has the meaning set for in Section 15.1(1).

 

“Maximum NetDependable Capacity” has the meaning ascribed in the RMR Agreements.

 

9

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“Moody’s”means Moody’s Investor Services, Inc., or its successor. 

 

“Must RunDispatch” has the meaning given in Section 10.1 . 

 

“MW” meansa megawatt. One MW is equal to 1,000 kW. 

 

“MWh” meansa megawatt-hour. One MWh is equal to 1,000 kWh. 

 

“NBAA” hasthe meaning given in Section 11.1(3).

 

“Natural GasService Agreement” or “NGSA” means the gas service agreement betweenSeller and the Gas Transporter for the applicable Facility.

 

“Net Exposure”has the meaning set forth in Section 21.3.

 

“Non-ConformingGas” has the meaning set forth in Section 11.3(2).

 

“Non-DefaultingParty” has the meaning set forth in Section 11.1(l)(a). 

 

“Non-RMR Gas”has the meaning given in Section 11.1(2).

 

“Non-RMR UnitGas Meters” has the meaning set forth in Section 11.1(4).

 

“Non-RMR UnitMDO” has the meaning set forth in Section 11.5(1).

 

“Non-RMR Units”has the meaning given in Section 7.1.

 

“Notification Time”means 10:00 am PPT on any Calculation Date.

 

“OFO” hasthe meaning given in the Gas Transporter’s tariff.

 

“OperationalLimitations ” means the limitations described in Sections 3 and 6 through11 of Schedule A of the RMR Agreements.

 

“PacificPrevailing Time” or “PPT” means the prevailing time *(i.e.,*Standard Time or Daylight SavingsTime) on any given Day in the Pacific time zone.

 

“Person”means an individual, partnership, corporation, limited liability company,association, trust, joint venture, unincorporated organization, GovernmentalAuthority, or other type of entity.

 

“Permit”has the meaning given in Section 9.

 

“PittsburgFacility” means the natural gas fueled electric generating facility ownedby Seller in Contra Costa County, California, including all equipment used to

 

10

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produce theMaximum Net Dependable Capacity, Energy and Ancillary Services, buildings andfacilities, facility control systems, fire protection systems, potable,process, and sanitary water supply, treatment, storage, disposal, and transfersystems, the Electrical Interconnection Facilities, the Gas InterconnectionFacilities and all related equipment necessary to accept Fuel at the GasDelivery Point including storage and transfer systems, and ingress and egressto the Facility Site.

 

“PlannedMaintenance Outage” means Long-term Planned Outages and any other plannedcurtailment or outage at one or more RMR Units at the Facility for purpose ofperforming maintenance on the RMR Units, as further described in Section 4.3.

 

“Posting Party”has the meaning set forth in Section 21.1.

 

“PotreroFacility” means the natural gas and distillate fueled electric generatingfacility owned by Seller in San Francisco, California, including all equipmentused to produce the Maximum Net Dependable Capacity, Energy and AncillaryServices, buildings and facilities, facility control systems, fire protectionsystems, potable, process, and sanitary water supply, treatment, storage,disposal, and transfer systems, the Electrical Interconnection Facilities, theGas Interconnection Facilities and all related equipment necessary to acceptFuel at the Fuel Delivery Point including storage and transfer systems, andingress and egress to the Facility Site.

 

“Potrero Units”or “Potrero RMR Units” means the electric generating Units owned byMirant Potrero and located in San Francisco, California, known as Potrero 3,Potrero 4, Potrero 5 and Potrero 6; provided that a Potrero Unit shall be aPotrero RMR Unit only as long as it remains subject to the applicable RMRAgreement.

 

“RMR Agreements”are (i) that certain Must-Run Service Agreement, dated June 1, 1999, betweenMIRANT DELTA, LLC and CALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION, asmay be in effect from time to time, pertaining to the facility commonly knownas the Pittsburg Power Plant (the “Pittsburg RMR Agreement”); (ii) that certainMust-Run Service Agreement, dated June 1, 1999, between MIRANT DELTA, LLC andCALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION, as may be in effect fromtime to time, pertaining to the facility commonly known as the Contra CostaPower Plant (the “Contra Costa RMR Agreement”); and (iii) that certain Must-RunService Agreement, dated June 1, 1999, between MIRANT POTRERO, LLC andCALIFORNIA INDEPENDENT SYSTEM OPERATOR CORPORATION, as may be in effect fromtime to time, pertaining to the facility commonly known as the Potrero PowerPlant (the “Potrero RMR Agreement”, together with the

 

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Pittsburg RMRAgreement and the Contra Costa RMR Agreement, the “RMR Agreements”).

 

“RMR Exposure”has the meaning set forth in Section 21.3.

 

“RMR Gas”has the meaning given in Section 11.1(1).

 

“RMR Payment”has the meaning set for in Section 15.1(1).

 

“RMR InterestRate” means ‘Interest Rate’ as defined in the RMR Agreement.

 

“RMR Units”means the Delta Units and Potrero Units, which have been designated asReliability Must-Run units pursuant to RMR Agreements between the ISO andMirant Delta, with respect to the Delta Units, and between Mirant Potrero andthe ISO, with respect to the Potrero Units; provided that such units remain, atall times during the Contract Term, subject to the RMR Agreements.

 

“SC” or “SchedulingCoordinator” has the meaning set forth in the Tariff.

 

“S&P” meansthe Standard & Poor’s Ratings Group, a division of The McGraw-HillCompanies, or its successor.

 

“Secured Party”has the meaning set forth in Section 21.1.

 

“Security”means a Letter of Credit or cash in the form of dollars of the United States ofAmerica.

 

“SellerBalancing Account” has the meaning set forth in Section 11.5(2)(A).

 

“Seller MonthlyImbalance” has the meaning set forth in Section 11.5(2)(B).

 

“SettlementAmount” means the net losses and costs, if any, expressed in U.S. dollars,which such Non-Defaulting Party incurs as a result of the termination of thisAgreement including, at the Non-Defaulting Party’s option, all (i) net lossesand costs incurred by the Non-Defaulting Party to (a) purchase or sell, asapplicable, capacity, energy and ancillary services equally useful as theMaximum Net Dependable Capacity, Energy and Ancillary Services purchased andsold under this Agreement and (b) maintain, terminate, obtain or re-establishany trading positions entered into by a Party to hedge its obligations underthis Agreement, and (ii) reasonable attorney’s fees incurred by theNon-Defaulting Party in connection with the termination of this Agreement. IfSeller is the Non-Defaulting Party, (i) above shall include, but not be limitedto, all costs incurred such as the difference between what Seller would havereceived under Condition 2” versus “Condition 1” as more fully described inArticle 12 until such time as the ISO allows Seller to switch to “Condition 2”.If the calculation of the

 

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Settlement Amountresults in a positive number, that positive number, the Settlement Amount,shall he due to the Non-Defaulting Party from the Defaulting Party. If theNon-Defaulting Party does not incur any net losses and costs as a result of thetermination of this Agreement, or if the calculation results in a negativenumber, the Settlement Amount shall be deemed to be zero (0). In calculating aSettlement Amount, the Non-Defaulting Party shall discount to present value (ina commercially reasonable manner based on the Commercial Interest Rate for theapplicable period) any amount that would otherwise have been due at a laterdate.

 

“Station Load”means the power required by the auxiliary equipment necessary for the operationof the Facility including, but not limited to, pumps, fans, etc.

 

“SystemOperator” means California Independent System Operator Corporation or anysuccessor thereto that provides electric transmission services to support thetransmission of Energy or Ancillary Services from the Delivery Point.

 

“SystemOperator’s Protocols” means the documents adopted by the System Operator,as amended from time to time, that contain the scheduling, operating, planning,reliability and settlement policies, rules, guidelines, procedures, standardsand criteria of the control area.

 

“Tariff” meansthe ISO Conformed Tariff, as may be amended from time to time.

 

“TerminationDate” has the meaning set forth in Section 2.1. 

 

“Terminated RMRUnit” has the meaning given in Section 2.1.

 

“TransmissionAncillary Services” means those ancillary services that Buyer must purchasefrom the System Operator as necessary to support the transmission of Energy orAncillary Services from the Delivery Point.

 

“UDPs” or “UninstructedDeviation Penalty(ies)” has the meaning set forth in the Tariff.

 

“Unit(s)”has the meaning given in Section 7.1.

 

“2005 RMR FERCSettlement” is the settlement that was filed by the Parties with FERC onJanuary 7, 2005, and is attached hereto as Exhibit A.

 

“2006-2008 RMRFERC Settlement” is the settlement to be filed by the Parties with FERC ina form substantially similar to Exhibit A, *provided*that such settlement and its filing with FERC alternatively mayconsist of the Parties taking alternative action, such as (i) filing a noticewith FERC, under the 2005 RMR

 

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FERC Settlementthat extends the terms of the 2005 RMR FERC Settlement for the period fromJanuary 1, 2006, through December 31, 2008, or (ii), if the Agreement does notbecome effective until January 1, 2007, pursuant to Section 2.2.1 of the GlobalSettlement, seeking authorization from FERC to extend the terms of the 2005 RMRFERC Settlement from January 1, 2007, through December 31, 2008.

 

**2.****            ****TERM; CONDITIONS PRECEDENT; SURVIVAL**

 

**2.1**          **Term.**

 

(1)           TheContract Term with respect to each of the RMR Units shall commence on theAgreement Date and shall continue through December 31, 2012; provided that ifthe RMR Agreement for any RMR Unit is terminated or expires before December 31,2012 (the “Terminated RMR Unit”), then this Agreement shall also terminateautomatically with respect to that Terminated RMR Unit subject only to the obligationand liability described in Section 3(4) of this Agreement; and provided furtherthat if such Terminated RMR Unit is subsequently re-designated as a ReliabilityMust Run Unit while the Contract Term is still in effect, the Terminated RMRUnit shall not be subject to this Agreement. If an RMR Unit becomes aTerminated RMR Unit, Seller shall, within thirty (30) Days of such termination,file to remove the tariff sheets associated with such Terminated RMR Unit.  For each RMR Unit, the “Termination Date”shall be the earlier of (a) midnight on December 31, 2012, (b) the date suchUnit becomes a Terminated RMR Unit as provided herein, or (c) the TerminationDate specified by the Non-Defaulting Party if there is an Event ofDefault.  Upon the occurrence of aTermination Date as a result of an Event of Default during the term of the 2006-2008RMR FERC Settlement, Seller shall, within sixty (60) Days of such date, make anew rate schedule filing with FERC as required by the RMR Agreements.

 

(2)           The“Condition 1” Term shall commence on January 1, 2006. If the RMR Units are on “Condition2” immediately prior to the “Condition 1” Term, then at the request of Buyer,Seller shall request from the ISO, no later than December 1, 2005, a change ofstatus of the RMR Units to “Condition 1” effective on January 1, 2006. Seller shallnot change the designation of the RMR Units to “Condition 2” for the durationof the Contract Term.

 

**2.2****          Conditions Precedentto the Parties’ Performance.**

 

Notwithstandingany other provision of this Agreement, performance under this Agreement of anyobligation to provide or pay for the power purchase and sale arrangement shallarise only upon the satisfaction of the following conditions:

 

(1)           Attainmentof the required approvals set forth in Section 2.4 of the Global Settlement andno Termination Event shall have occurred as described in Section 2.8 of theGlobal Settlement.

 

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(2)           Sellershall obtain on or before January 1, 2006, a waiver from the ISO throughDecember 31, 2012, with respect to (i) the ninety (90) Day notice requirementfor changing the status of the RMR Units back to “Condition 2” so that, upontermination of this Agreement, the RMR Units will be able to perform under “Condition2” on the first Day of the month following thirty (30) Days’ notice to the ISOand (ii) the requirement that an RMR Unit must remain in its existing Conditionfor at least twelve (12) months.

 

(3)           Buyershall obtain approval of this Agreement as set forth in Section 2.5 of theGlobal Settlement. In the event such approval has not been obtained by November1, 2005, either Party may terminate this Agreement upon written notice to theother Party with no obligation or liability under this Agreement to the otherParty resulting from such termination.

 

(4)           TheParties shall file the 2006-2008 RMR FERC Settlement on or before November 1, 2005.

 

**2.3****          Survival.**

 

As of theTermination Date, the Parties shall no longer be bound by the terms andconditions hereof, except (i) to the extent necessary to enforce any rights andthe obligations of the Parties, including, but not limited to, paymentobligations, arising under this Agreement prior to such Termination Date; and(ii) the obligations of the Parties hereunder with respect to confidentiality,audit and indemnification shall survive any termination of this Agreement andshall continue for a period of two (2) years following such Termination Date.

 

**3.****            ****RMR AGREEMENTS**

 

(1)           Buyeracknowledges and agrees that (a) its rights under this Agreement are subject tothe RMR Agreements, including rights and obligations of Seller and the ISO thereunder,(b) Schedules A, B, C, and D of the RMR Agreements are subject to change annuallythrough Seller’s annual rate schedule revision filing with FERC required by theRMR Agreements, and (c) Seller shall continue to operate the Non-RMR Units and neithersuch operation nor such Non-RMR Units are subject to this Agreement, except as expresslyprovided herein.

 

(2)           TheParties shall file the 2006-2008 RMR FERC Settlement on or before November 1, 2005.

 

(3)           Sellershall retain all rights and responsibilities under the RMR Agreements relatingto Capital Items and Repair, including, but not limited to, submission ofCapital Item reports showing proposed Capital Items, installation of CapitalItems, submission of Unplanned Repair Notices, making Repairs, and application

 

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for recovery of CapitalItem and Repair costs through Surcharge Payments or ISO’s Repair Share.

 

(4)           Ifan RMR Unit is Closed within six (6) months after the KMR Unit ceases to besubject to the RMR Agreement as a result of termination, pursuant to Sections 2.2(b) (ii), (iii), (iv) or (v) of the RMR Agreement, or because ISO does notextend the term of the RMR Agreement under Section 2.1 (b) of the RMRAgreements (the “RMR Termination”) and so long as Seller is entitled to receivea Termination Fee, Buyer shall pay Seller, in accordance with the paymentschedule in the RMR Agreements, the difference between (a) the Termination Feecalculated pursuant to Section 2.5 (b) of the RMR Agreement as if the Unit were“Condition 2”**at the time of the RMR Terminationand (b) any Termination Fee for a “Condition 1” Unit received from the ISO as aresult of the RMR Termination.

 

(5)           Allrights available to Seller, pursuant to the RMR Agreements, that are notspecifically addressed herein are expressly reserved by Seller and shall not beaffected hereby; provided that, Seller shall not have the right to sell anyportion of the Maximum Net Dependable Capacity, Energy, or Ancillary Servicesfrom any RMR Unit to any third party, other than as provided in Section 5.2.

 

**4.****            ****OPERATION OF THE FACILITY**

 

**4.1****          Permits.**

 

Seller shall, atits expense, acquire and maintain in effect during the Contract Term, from anyand all Governmental Authorities with jurisdiction over Seller or theFacilities, all permits and approvals, in each case necessary for theownership, operation and maintenance of the Facilities in accordance with thisAgreement, the RMR Agreements, and all Governmental Rules. Seller shall beresponsible for, and bear all costs of, compliance with all of its permits.Notwithstanding the foregoing, Buyer shall be responsible for all costsassociated with emissions credits that may be required for the operation of theFacilities as dispatched by Buyer in excess of dispatches by the ISO.

 

**4.2****          Good Industry Practice.**

 

Seller shall causethe Facilities to be operated and maintained in accordance with Good IndustryPractice and in accordance with the terms and conditions of this Agreement andthe RMR Agreements.

 

**4.3****          Maintenance Outages.**

 

Seller shall beresponsible for proper maintenance of all Units. Buyer and Seller shall makecommercially reasonable efforts, in cooperation with the ISO, to coordinateplanned outages such that Seller’s Planned Maintenance Outages do not overlapwith Buyer’s refueling outages at Diablo Canyon Nuclear Power Plant.

 

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(1)           Scheduleof Planned Maintenance Outages.

 

(a)           PlannedMaintenance Outages for RMR Units shall be scheduled and performed inaccordance with Section 7.2 of the RMR Agreements. Seller shall not beobligated to deliver Energy or Ancillary Services from an RMR Unit pursuant tothis Agreement during Planned Maintenance Outages affecting such RMR Unit.

 

(b)           Buyeragrees that Seller must perform Planned Maintenance Outages at the RMR Units inan effort to reduce and prevent Forced Outages and to maintain the efficiencyof the RMR Units. Such Planned Maintenance Outages include, but are not limitedto, the RMR Unit manufacturer’s recommended and required maintenance and any preventivemaintenance that maintains or improves the reliability of the RMR Unit. ThePlanned Maintenance Outage schedule shall be based on (i) the RMR Unitmanufacturer’s equivalent start and runtime guidelines, (ii) Good IndustryPractice, (iii) the long-term service agreement for the RMR Units, (iv) theactual dispatch of the RMR Units and (v) the RMR Unit’s point in themaintenance cycle and the potential impacts to the Unit and costs if themaintenance schedule is changed. On or before October 1 of each year of theContract Term, Seller shall provide to Buyer, in writing, its proposed scheduleof Planned Maintenance Outages for the following year in the Contract Term andthe reason for such Planned Maintenance Outages.

 

(c)           Inthe event that the RMR Unit manufacturer issues a new technical bulletin, whichrequires immediate maintenance to be performed, Seller shall notify Buyer ofthe circumstances surrounding such maintenance and Seller will work togetherwith Buyer to schedule the maintenance outage notwithstanding the short noticeinvolved.

 

(2)           Durationof Planned Maintenance Outages.  Sellershall use its commercially reasonable efforts to complete any PlannedMaintenance Outage affecting an RMR Unit in a timely manner, with the expressgoal of minimizing any adverse effect on Buyer’s ability to schedule power fromsuch Unit. During each Planned Maintenance Outage, Seller shall keep Buyerapprised of the status and the expected duration of the Planned MaintenanceOutage.

 

(3)           Maintenance-relatedCharges. If Seller is required to Start-up and operate an RMR Unit formaintenance purposes, Seller and Buyer shall work together such that themaintenance related start and operation can be completed when the Energy or AncillaryServices from the RMR Unit is being dispatched by the Buyer or the ISO.  If the Seller and Buyer are unable tocomplete the maintenance related Start-up and operation during a time when theBuyer or the ISO has dispatched the RMR Unit, Seller

 

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shall notify Buyer of thedate of the maintenance related start and operation at least two (2) BusinessDays in advance. Buyer shall provide, at its expense, all Gas required for thestart and operation of the applicable RMR Unit and schedule the quantity ofEnergy or Ancillary Services produced during such operation in a commerciallyreasonable manner. Buyer shall receive all revenues associated with the sale ofEnergy or Ancillary Services from the RMR Unit during the period of time theRMR Unit is being operated for maintenance purposes.

 

**4.4****          StationLoad.**

 

Seller shall beresponsible for Station Load at all times including during all PlannedMaintenance Outages and Forced Outages and during Start-up and Shutdown of anRMR Unit, and any periods when an RMR Unit has not been dispatched.

 

**4.5****          Testing.**

 

Seller shall beentitled to conduct all tests described in Section 4.9 of the RMR Agreements.

 

**4.6****          OperatingProcedures.**

 

As soon uspracticable following the Agreement Date, the Parties shall provide for amethod, or protocol, by which communication and data exchange takes place. Thisprotocol shall include the delivery of Gas to the Facility, notices regardingthe availability of the Facility, exchanges of schedules, and identification ofand contact information for key personnel.

 

**5.****            ****CAPACITY; ENERGY; AND ANCILLARY SERVICES**

 

**5.1****          MaximumNet Dependable Capacity; Energy; Ancillary Services.**

 

(1)           Subjectto the terms and conditions of this Agreement, Seller agrees to make availableto Buyer, during the “Condition 1” Term the Maximum Net Dependable Capacity,Energy and Ancillary Services from the RMR Units at the Delivery Point. In consideration,Buyer agrees to pay Buyer’s Monthly Charges, less Buyer’s Monthly Credits.

 

(2)           Withrespect to Ancillary Services, the Parties acknowledge and agree that, (a) inorder for the RMR Units to provide certain of such Ancillary Services a portionof the Maximum Net Dependable Capacity of an RMR Unit must be held in reservewhether such Ancillary Services to be sold or used by Buyer for its own accountand (b) the combination of Energy and Ancillary Services dispatched or held inreserve for dispatch by Buyer from any RMR Unit shall not exceed the MaximumNet Dependable Capacity

 

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of that RMR Unit. AnyAncillary Services which Seller may be required to provide to the SystemOperator(s) under the terms of the RMR Agreements or the ElectricalInterconnection Agreement, or under the System Operator’s Protocols, shallcount as part of the Maximum Not Dependable Capacity made available to theBuyer for purposes of this Agreement.

 

(3)           Shouldthe CPUC, during the term of this Agreement, put in place a resource adequacyrequirement utilizing capacity tagging, Seller shall provide Buyer with thecapacity tags for that period for the full capacity of the RMR Units. Such a processwill likely include specifying that the RMR Units be bid into the ISO Day-Aheadmarket if not scheduled by Buyer, and if not selected Day-Ahead, be subject toresidual unit commitment. Any incremental expenses associated with providing orfacilitating resource adequacy, capacity tagging, residual unit commitmentservices or other similar obligation incurred by Seller in its performance ofsame shall be paid to Seller by Buyer, as applicable, in accordance withSection 25.1.

 

**5.2****          Exclusive Rights Subject to the RMHAgreements.**

 

Seller and Buyerdesire to enter into this power purchase and sale arrangement whereby (i)Seller shall elect “Condition 1” under the RMR Agreements but be paid by Buyeras if it had elected “Condition 2” with respect to all provisions under suchRMR Agreements and credit to Buyer the “Condition 1” payments it receives fromthe ISO; (ii) Buyer shall deliver Gas to the Delta RMR Units; and (iii) Sellershall convert such Gas into Energy and Ancillary Services when directed byBuyer; provided, however, that Buyer’s rights described in (i) through (iii)above shall be limited by the following: (a) if a Termination Date has beendeclared by Seller as a result of an Event of Default, which has occurred withrespect to Buyer and is continuing after the applicable cure period, Seller, inits exercise of commercially reasonable efforts to mitigate its lossesresulting from such Event of Default, may sell any or all of the Maximum NetDependable Capacity, Energy and Ancillary Services to third parties during anyperiod of suspension of Seller’s performance obligations hereunder pursuant toSection 14.2(1); (b) Seller may sell Energy or Ancillary Services to a partyother than Buyer or the ISO, pursuant to “contract path” transactions made in accordancewith the RMR Agreements; and (c) the ISO shall continue to possess all rightsavailable to it under the RMR Agreements. For purposes of clarity, Seller shallnot have the right to sell any Maximum Net Dependable Capacity, Energy andAncillary Services from an RMR Unit to any party other than Buyer or the ISOduring the “Condition 1” Term without the prior written consent of Buyer exceptas may be required pursuant to any Electrical Interconnection Agreement betweenSeller and any System Operator(s), as may be required by any GovernmentalAuthority or as specifically provided for in (a), (b) and (c) above.

 

**5.3****          Energy Delivery Point.**

 

All deliveries andreceipts of Energy shall be made and measured at the Delivery Point.

 

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**5.4****          Title and Risk of Loss.**

 

(1)           Asbetween the Parties,  Seller shall bedeemed to be in exclusive possession and control (and responsible for anydamages or injury caused thereby) of the Energy and Ancillary Services prior tothe Delivery Point, and Buyer shall be deemed to be in exclusive possession andcontrol (and responsible for any damages or injury caused thereby) of theEnergy and Ancillary Services at and from the Delivery Point. Title to the Energy,Ancillary Services and the Maximum Net Dependable Capacity of the RMR Units,subject to the RMR Agreements and the ISO’s rights thereunder, shall remain atall times with Buyer. Each of Seller and Buyer shall and hereby does indemnify,defend and hold harmless the other Party from any Claims arising from any act,failure to act or incident relating to Energy and Ancillary Services occurringwhen the Energy or Ancillary Services is under its possession and control.

 

(2)           Sellerwarrants that the Energy delivered by Seller and the Ancillary Servicesavailable from the RMR Units shall be free and clear of all liens, Claims and encumbrancesarising prior to the Delivery Point, except as provided for in the RMR Agreements,and warrants that the Maximum Net Dependable Capacity of such Units is free andclear of any liens, Claims and encumbrances, except as provided for in the RMR Agreements.

 

**5.5****          TransmissionServices.**

 

Buyer shallarrange, either directly or indirectly through a third party, for alltransmission service and Transmission Ancillary Services from the DeliveryPoint and shall pay all costs for the same pursuant to the Tariff and theSystem Operator’s Protocols including, without limitation, all costs associatedwith line losses, necessary to transmit the Energy and Ancillary Servicesdelivered under this Agreement from the Delivery Point to any point at whichBuyer redelivers the Energy and Ancillary Services to its customer(s).

 

**5.6****          Electrical Interconnection Agreement.**

 

Seller has enteredinto an Electrical Interconnection Agreement with the System Operator and shallmaintain such Electrical Interconnection Agreement in full force and effectthroughout the “Condition 1” Term.

 

**5.7****          EnergyMeters.**

 

Energy andAncillary Services delivered by Seller shall be measured by the Energy Metersat the Delivery Point. Seller shall own, operate, maintain and test the EnergyMeters at the Delivery Point. Seller shall coordinate with the System Operatorand Buyer with respect to the maintenance and testing of Energy Metersconsistent with the Electrical Interconnection Agreement and Good IndustryPractice.

 

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** **

**6.****            ****AVAILABILITY**

 

Availability foreach RMR Unit will be determined in accordance with the existing terms of theRMR Agreements as of the Agreement Date, including, but not limited to, thecalculation of Target Availability Hours in Section 6, Schedules B of the RMRAgreements; provided, however, that the Monthly Availability Payment shall notbe decreased as a result of any unavailability due to a Force Majeure Event ora Forced Outage arising from Buyer’s construction or operation of Contra CostaUnit 8 or Buyer’s connection and synchronization to the ISO Controlled Grid orthe Distribution Grid.

 

**7.****            ****SCHEDULING AND DISPATCH**

** **

**7.1****          Dispatch.**

 

(1)           Selleror an Affiliate of Seller shall be the SC for the RMR Units and the non-RMRUnits (the “Non-RMR Units”, together with the RMR Units, the “Units”). As ofthe Agreement Date, Mirant Americas Energy Marketing, LP is the SC for the RMR Unitsand the Non-RMR Units.  Seller may changethe SC in its sole discretion and will promptly notify Buyer of any such change.

 

(2)           Buyershall have full dispatch flexibility consistent with Operational Limitations onthe RMR Units as provided for in each Schedule A of the applicable RMR Agreement;provided, however, that Seller has the right to override any dispatch request byBuyer that would, in Seller’s reasonable opinion, create health or safetyissues, violate any legally-required operating restrictions, applicable laws orregulations, or would, if honored, result in Seller’s non-compliance with anySchedule A of the RMR Agreements.

 

(3)           Consistentwith ISO timelines and scheduling protocols, Buyer may elect Day-Ahead,Hour-Ahead and Supplemental Energy bids for delivery of Energy and AncillaryServices (as defined in the respective RMR Agreement); provided that, Buyer shallschedule at least all Energy to the extent dispatched by the ISO under the RMR Agreementsfor Day-Ahead and Hour-Ahead if Buyer has directed Seller to select “marketpath”. Buyer reserves the right to select “market path” or “contract path” forany RMR Agreement dispatch order by ISO. Unless otherwise directed by Buyer foreach Day-Ahead and Hour-Ahead dispatch instruction by ISO for the Delta RMRUnits, by default Seller shall notify the ISO of its election of “market path”for all Energy quantities from the Delta RMR Units, with the exception of ISOdispatches after the close of the Hour-Ahead Market.  ISO dispatch orders in real-time under theRMR Agreements shall be responded to directly by Seller as “contract path” andSeller shall notify Buyer of such orders in a timely manner. Potrero dispatchesare more fully addressed in Section 7.5.

 

(4)           Buyershall provide Seller with all dispatch schedules and intra-Day adjustmentsreasonably in advance of the ISO scheduling deadlines. The Parties shall cooperateto ensure that all changes in the dispatch schedule are properly, appropriately

 

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and promptly (consideringthe particular circumstances involved) communicated to all entities requiringnotification of any increase or decrease in the scheduled dispatch of theFacility. The Parties shall be further obligated to coordinate their schedulingactivities and notices to one another to allow each Party sufficient time tomeet deadlines and requirements of any System Operator(s) and Gastransportation providers to assist the other Party in minimizing or eliminatingUninstructed Deviation Penalties, Generator Imbalance Fees and Gas ImbalanceCharges that may be associated with such deadlines and requirements.

 

(5)           Sellerhas no residual dispatch rights on the RMR Units if not called upon by the ISOor the Buyer, except as explicitly set forth in Sections 5.2 and 7.6 herein.

 

(6)           Sellermay fulfill any Dispatch Notice from the ISO or, if agreed to by Buyer,dispatch schedule from Buyer, from a Substitute Unit as provided for in Section5.1 of the RMR Agreements.

 

**7.2****          Schedulingand Dispatch Protocols.**

 

Scheduling anddispatch shall occur as follows:

 

(1)           Day-AheadScheduling:

 

0515PPT:               Seller will notifyBuyer of the Availability of each RMR Unit and the Day-Ahead dispatch for eachRMR Unit for each hour that for which a Dispatch Notice is submitted to theSeller by ISO under the RMR Agreements (“Availability Notice”).

 

0545PPT:               Buyer shall notifySeller of its selection of “contract path”, if applicable, for the dispatchesby ISO under the RMR Agreements.

 

0600PPT:               Seller will notifyISO of its election of “market path” or “contract path” for the dispatches byISO under the RMR Agreements.

 

0615PPT:               Buyer will notifySeller of the Day-Ahead dispatch requirements of Buyer including:

 

(a)           Energyand Ancillary Service schedules for each RMR Unit, for each hour (inclusive ofISO dispatches as provided by Seller to Buyer above); and

 

(b)           Confirmationof total SC Trade quantities by hour.

 

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1000PPT:               Buyer and Seller submitbalanced schedules, including all inter-SC Trades, to ISO.

 

(2)           Day-OfScheduling:

 

The schedulingtimeline in this “Day-Of-Scheduling” section is based on current ISO Tariffprotocols, but Buyer and Seller acknowledge that the ISO is not currentlyfollowing such timeline for Hour-Ahead dispatches. If the ISO revises thetimeline through a Tariff amendment, Buyer and Seller shall revise the timelinebelow accordingly, maintaining the “x + 45 minutes” and “x + 60 minutes”provision for election of “market path” or “contract path” for Hour-Aheadscheduling, where x is defined as follows and the number of minutes indicatethe time after the ISO notification at time x:

 

In conformance tothe Hour-Ahead RMR scheduling blocks outlined in Table 1.1 of the ISO OperationProcedure G-203, x = 1400 PPT Day Before, 0400 PPT Operating Day or 1000 PPTOperating Day, as applicable.

 

1400 PPT

DayBefore:           Seller will forward toBuyer the Hour-Ahead dispatch for each RMR Unit, for each hour for which aDispatch Notice is submitted to Seller by ISO under the RMR Agreements (HoursEnding (“HE”) 0100-1000).

 

0400PPT:               Seller will forwardto Buyer the Hour-Ahead dispatch for each RMR Unit for each hour for which aDispatch Notice is submitted to Seller by ISO under the RMR Agreements (HE1100-1600).

 

1000PPT:                Sellerwill forward to Buyer the Hour-Ahead dispatch for each RMR Unit for each hourfor which a Dispatch Notice is submitted to Seller by ISO under the RMRAgreements (HE 1700-2400).

 

x+ 45 min:              Buyer will notifySeller of Buyer’s election of “contract path”, if applicable

 

x+ 60 min:              Seller will notifyISO as to its election of “market path” or “contract path” for the Energyquantities from the RMR Units dispatched by ISO and for those hours for whichno previous selection has already been made.

 

If the ISO continues tonot follow Operating Procedure G-203, Buyer shall notify Seller of Buyer’selection of “contract path”, if applicable, 30 minutes prior to Seller’sdeadline to notify the ISO of such election.

 

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Hour-Aheadtimelines based on schedule “t-xxx” where “xxx” are the minutes prior to thestart of the hour of delivery:

 

(a)           t-165minutes:   Buyer will notify Seller ofthe “Day Of” dispatch requirements of Buyer, including SC Trade quantities byhourly Energy and Ancillary Service schedules for each RMR Unit (inclusive ofquantities dispatched by the ISO under the RMR Agreements); and

 

(b)           t-135minutes:  Confirm totals.  Buyer and Seller submit balanced schedulesincluding all Inter-SC Trades to ISO.

 

(3)           SupplementalEnergy Market:

 

Thirty (30)minutes prior to the closure of bidding into the Supplemental Energy market,Buyer will notify Seller of bid curves for submission to ISO for SupplementalEnergy, both incremental and decremental, for each RMR Unit. In the event thatBuyer fails to notify Seller of such bid curves, Seller may develop and submitbid curves to the ISO on behalf of Buyer. In such event, Seller shallsubsequently send Buyer any submission made on its behalf. Seller shall notifyBuyer in a timely manner of any dispatches of the RMR Units by ISO in theSupplemental Energy market. Buyer and Seller acknowledge the sensitive natureof the information in Buyer’s bid curves and Seller agrees to use suchinformation only for the purposes described herein.

 

(4)           AncillaryServices Market:

 

Subject to thetimelines described above in (1) and (2), Buyer will notify Seller of bidcurves for submission to ISO for Ancillary Services capacity for each RMR Unit.Seller shall notify Buyer in a timely manner of any dispatches of the RMR Unitsby ISO in the Ancillary Services market. Buyer and Seller acknowledge thesensitive nature of the information in Buyer’s bid curves and Seller agrees touse such information only for the purposes described herein.

 

**7.3****          Dispatch****Notice;Restrictions.**

 

(1)           Tocancel a dispatch schedule and avoid incurring a Start-up Payment obligation,Buyer must notify Seller of such cancellation prior to the RMR Unit operator initiatingthe start sequence. If Buyer fails to provide a dispatch notice to Seller tocancel dispatch of the RMR Unit before the RMR Unit Starts-up, Buyer will beresponsible for the Start-up Payment for the applicable Unit(s) and suchStart-up shall count against Buyer as provided for in Section 5.3(a) of the RMRAgreements for “Condition 2”.

 

(2)           Anydispatch schedules and intra-Day adjustments submitted by Buyer must beconsistent with the limitations on the RMR Units as defined in each Schedule A ofthe RMR Agreements.  Seller shall not beobligated to deliver Energy or Ancillary

 

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Services that violatesthese limitations. Buyer may request dispatch of the RMR Units in excess of theContract Service Limits consistent with each Section 4.7 of the RMR Agreements.

 

**7.4****          Uninstructed Deviation Penalty; GeneratorImbalance Fees.**

 

(1)           Subjectto the terms of this Agreement and consistent with Good Industry Practice andthe Operational Limitations, Seller agrees to operate the Facility to comply promptlywith the dispatch by Buyer or the ISO and to minimize Uninstructed Deviation Penalty(ies).  Seller and Buyer shall he equally responsiblefor any Uninstructed Deviation Penalty(ies) incurred with respect to Buyer’s orthe ISO’s dispatch of the RMR Units.

 

(2)           Buyershall be responsible for any Generator Imbalance Fees incurred by Buyer’s orthe ISO’s dispatch of the RMR Units under “Condition 1”, but only to the extentthat Seller would not have otherwise incurred such fees when operating under “Condition2”.

 

**7.5****          Potrero Units.**

 

(1)           Notwithstandinganything to the contrary herein, neither Seller nor Buyer shall have the rightto dispatch the Potrero Units beyond the ISO’s dispatch. Subject to a commitmentfrom the ISO and the CPUC as to certain resource adequacy (“RA”) rights for thePotrero Units, Buyer may request Seller to designate such Units as RMR Units under“Condition 1” for the “Condition 1” Term so that the full RA rights can becredited to Buyer, and Seller shall request from the**ISO a changeof status of the Potrero RMR Units to “Condition 1” and request a waiver of theninety (90) Day notice requirement for changing the status of the Potrero RMRUnits to “Condition 1” so that the Potrero RMR Units will be able to performunder “Condition 1” as soon as possible.

 

(2)           AllEnergy and capacity from the Potrero RMR Units shall be scheduled as “contractpath”.  Seller shall provide all the Fuelrequired for ISO dispatch of the Potrero Units.

 

**7.6****          Seller’s Residual Dispatch Rights.**

 

(1)           Ifneither the ISO nor the Buyer has dispatched Pittsburg Unit 5 or 6*,*Sellermay dispatch one of such RMR Units at Seller’s sole cost and as described inSection 7.6(2) for the limited purpose of generating sufficient steam todispatch Pittsburg Unit 7, a Non-RMR Unit. Any Start-up by Seller pursuant tothis Section 7.6 (1) shall not be a Counted Start-up even if, after Seller hasstarted an RMR Unit for this purpose and has not yet stopped it, Buyer or theISO dispatches that RMR Unit. Any Service Hours and MWh produced pursuant to Seller’sdispatch under this section shall not count against the Contract ServiceLimits; provided, however, that if the Buyer or the ISO dispatches the affectedRMR Unit, the applicable Service Hours and MWh produced

 

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pursuant to such dispatchshall count against the Contract Service Limits. If Pittsburg Unit 5 or 6becomes a Terminated RMR Unit, Seller shall utilize such Terminated RMR Unit,if available, to supply steam for Pittsburg Unit 7 as described herein.

 

(2)           Buyershall supply Gas and Seller shall compensate Buyer for the quantity of Gasrequired to run Pittsburg 5 or 6 in order to generate enough steam necessary tooperate Pittsburg 7 pursuant to part (1) of this Section 7.6.  Seller shall pay Buyer the following: (123.5MMBm/hour) * (Number of hours in which Seller is taking steam) * Gas Index. Toavoid the double payment of Gas by Seller in any given month, Seller will reducethe monthly total metered Gas amount in the fuel reimbursement calculation as describedin Section 11.8 by the same amount of Gas used by Seller pursuant to this Section7.6 in the same month.

 

(3)           Priorto exercising its rights under this Section 7.6, Seller shall notify Buyer inaccordance with Section 11.5 (1).

 

**8.****            ****NOX LIMITATIONS**

 

(1)           TheUnits are subject to operating under NOX limits, as may be modified from timeto time, imposed by the Bay Area Air Quality Management District (“BAAQMD”).  These limits are applied to the combined NOXemissions of Sellers’ Contra Costa, Pittsburg and Potrero facilities. Dispatchschedules shall be consistent with these limits, and Seller shall retain theright to alter dispatch schedules to the extent necessary to ensure compliancetherewith.  Seller shall use commerciallyreasonable efforts to minimize any adverse impact these limits may have ondispatch schedules submitted by Buyer to Seller; provided that, in no instanceshall Seller’s market transactions using the Non-RMR Units in any way or to anyextent take precedence over or otherwise impede Buyer’s dispatch.

 

(2)           RMRUnits shall have priority over Non-RMR Units in using the Seller’s “Bay AreaBubble” (the “Bubble”), as defined by Regulation 9, Rule 11 of the BAAQMD.  If, after all generation from any Non-RMRUnit is curtailed to the point of compliance with the BAAQMD limits, the ISO’sor Buyer’s dispatch of an RMR Unit would cause a violation of the Bubble limit,then the ISO or Buyer, as applicable and in consultation with Seller, may berequired to either dispatch additional Energy from an RMR Unit with a SelectiveCatalytic Reduction system or curtail load from the responsible RMR Unit(s),which would facilitate the reduction of NOX emissions to a level within theBubble limit, to continue such dispatch. Seller’s ability to use otherwise unutilizedBubble space shall be subject at all times to the ISO’s and Buyer’s dispatch ofRMR Units. Any violations of the Bubble limit shall be the sole responsibilityof Seller.

 

**9.****            ****DELTA DISPATCH**

 

(1)           Consistentwith the National Pollutant Discharge Elimination System permit in effect atthe time (the “Permit”) for the Contra Costa and Pittsburg Facilities,

 

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and subject to theexceptions set forth in Section 7(a) of the Permit, preferential operation ofPittsburg Unit 7 and the minimization of circulating water flow throughPittsburg Units 5 & 6 and Contra Costa Units 6 & 7 are required duringthe “Delta Dispatch period” (from May 1 through July 15). The dispatchprocedures currently in effect, including the exceptions set forth in Section7(a) of the Permit, are referenced in Schedules A of the Contra Costa andPittsburg RMR Agreements. Dispatch schedules submitted by Buyer shall beconsistent with the Permit referenced in each Schedule A of the RMR Agreements.To the extent that Seller incurs any mitigation fees pursuant to the Permit asthe result of Buyer’s dispatch of the RMR Units during the Delta Dispatchperiod, Buyer shall be solely liable for same, notwithstanding Seller’s abilityto avoid such penalties through its dispatch of any Non-RMR Unit(s).

 

(2)           AtBuyer’s request, Seller shall use its commercially reasonable efforts to obtainrevisions to the Permit that would eliminate the preferential operation ofPittsburg Unit 7, a Non-RMR Unit, or otherwise ease or eliminate restrictionson Buyer’s dispatch of the Delta Units. Failure to achieve any such revisions,however, shall not result in any additional liability or obligations on Sellerunder this Agreement with respect to the Permit or Seller’s obligation tocomply with the Permit and nothing will require Seller to dispatch PittsburgUnit 7 if it is not in Seller’s economic interest to do so.

 

**10.****         ****MUSTOFFER/RUN**

 

10.1         DeltaRMR Units.  If a Delta RMR Unit isdispatched by the ISO pursuant to the Must-Offer Obligation (the “Must-OfferDispatch”),  Seller shall credit Buyerthe Minimum Load Cost Compensation received from the ISO, and Buyer shall paySeller Schedule G rates, in accordance with Tariff Amendment 60, as approved byFERC in *California Independent SystemOperator Corp,*108 FERC (CCH) ¶ 61,022 (2004) and 109 FERC (CCH) ¶ (“Amendment60”), for the associated Start-ups and the Energy and Ancillary Servicesdelivered pursuant to an ISO Must Offer Dispatch. However, because Buyer is providingGas for the Must-Offer Dispatch, the Schedule G rates shall exclude theassociated Schedule C charges. Buyer shall provide all Gas needed to fulfillany such dispatch of the Delta RMR Units, with the notification requirements bySeller for Gas supply by Buyer pursuant to Section 11.5(1). Start-ups shall notbe double-counted. Must-Offer Dispatch MWh, Service Hours and Start-ups are notcounted for purposes of Sections 12.2 and 12.3.

 

10.2         PotreroRMR Units.  In the event that aPotrero RMR Unit is dispatched by the ISO pursuant to a Must-Offer Dispatch,Seller shall credit Buyer the Minimum Load Cost Compensation received from theISO, and Buyer shall pay Seller Schedule G rates, in accordance with Amendment60 for the associated Start-ups and the Energy and Ancillary Services deliveredpursuant to an ISO Must Offer Dispatch. For purpose of clarity, due to Seller’sprovision of Fuel for the Must-Offer Dispatch, the Schedule G rates shallinclude the associated Schedule C charges. Start-ups shall not be double-counted. Must offer MWh, Service Hours and Start-ups are not counted for purposesof Sections 12.2 and 12.3.

 

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**11.**          **GAS**

 

**11.1****        Gasand Gas Metering.**

 

(1)           RMR Gas. During the “Condition1” Term, Buyer, at its sole cost and expense, shall arrange, nominate, balance,transport and deliver to the Gas Delivery Point such quantities of Gas as arerequired by Seller to generate from the Delta RMR Units the quantity of Energyand Ancillary Services scheduled by Buyer including, without limitation, Gasrequired for Start-up and Shutdown of such RMR Units and pipeline shrinkage, asapplicable (“RMR Gas”).

 

(2)           Non-RMRGas. Seller, at its sole cost and expense, shall provide all Fuel requiredfor any dispatch of Non-RMR Units and pipeline shrinkage, as applicable (“Non-RMRGas”).  Seller shall deliver Gas for theNon-RMR Units to Buyer’s PG&E Citygate Pool. Buyer shall be responsible fornominating Gas received from Seller at Buyer’s PG&E Citygate Pool to the GasDelivery Point(s).

 

(3)           FacilityBalancing; Transport Costs.  On orbefore the commencement of the “Condition 1” Term, Seller shall (a) amendSeller’s Noncore Balancing Aggregation Agreement (“NBAA”) to designate Buyer asthe NBAA holder and the balancing agent; (b) revise each applicable NGSA toprovide that Buyer receives the invoices for all services thereunder; and (c)designate Buyer as the Nominating Marketer under each applicable NGSA.  Buyer shall pay Gas Transporter for allservices provided under the NGSA for the RMR and Non-RMR Units. With respect tothe NGSA invoiced amounts, Seller shall reimburse Buyer for all invoiced costsfor delivery of Non-RMR Gas from Buyer’s PG&E Citygate Pool to the GasDelivery Point.  Should Gas Transporter’sinvoice include fixed charges such fixed charges shall be allocated between theParties based on the ratio of the aggregate MDQ for the RMR Units covered bythe NGSA for a particular Facility and the aggregate MDQ for the Non-RMR Unitsfor the same Facility. When an RMR Unit at a Facility becomes a Terminated RMRUnit and there are no other surviving RMR Units at the same Facility, theParties shall cooperate as soon as practicable to (a) amend Seller’s NBAA todesignate Seller as the NBAA holder and the balancing agent for such Facility;(b) revise the NGSA to provide that Seller receives the invoices for allservices thereunder; and (c) designate Seller as the Nominating Marketer underthe applicable NGSA.

 

(4)           GasMetering.

 

(a)           Gasdelivered by Buyer to the Gas Delivery Point shall be measured by the Gas Meterat the Gas Delivery Point. The Gas Transporter shall own, operate, maintain andtest the Gas Meter located at the Gas Delivery Point. Seller shall coordinatewith the Gas Transporter and Buyer with respect to maintenance and testing ofthe Gas Meter consistent with the Gas Transmission Service Agreement and GoodIndustry Practice. The Gas Meter located at the Gas

 

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Delivery Pointwill measure the Gas consumed by the entire Facility rather than individualUnits.

 

(b)           Notwithstandingthe foregoing, Seller may, at its sole cost and expense, cause Gas meters to beinstalled at each Non-RMR Unit that satisfy the requirements outlined inSchedule C, Part 1, A(2)(a), of the RMR Agreements (“Non-RMR Unit Gas Meters”),In such event, Seller shall coordinate with the Gas Transporter and Buyer withrespect to maintenance and testing of the Non-RMR Unit Gas Meters consistentwith the Gas Transmission Service Agreement and Good Industry Practice, and theNon-RMR Unit Gas Meters will measure the Gas consumed by the Non-RMR Units.

 

**11.2****        Gas Transmission Service Agreement.**

 

Seller has enteredinto the GTSA and the NGSA for each RMR Facility with the Gas Transporter andshall maintain each of such GTSA and NGSA in full force and effect throughoutthe “Condition 1” Term.

 

**11.3****        Gas Specifications.**

 

(1)           AllGas tendered by Buyer for delivery to the Gas Delivery Point shall meet thethen current natural Gas quality specifications as set forth in the Gas Transporter’stariffs as filed with the CPUC (“Gas Tariff), as such specifications may changefrom time to time.

 

(2)           IfGas tendered for delivery under this Agreement at the Gas Delivery Pointmaterially fails for any reason to conform to the applicable specification setforth in Section 11.3(1) (“Non-Conforming Gas”), Seller will consider whetherit is able to accept such Non-Conforming Gas and may refuse to take possessionof all or any part of such Gas, giving Buyer the reasons for such refusal assoon as practicable. If Seller chooses to accept the Non-Conforming Gas, itwill advise Buyer of the same in writing, and each Party shall be responsiblefor the disposition of its own Gas, as applicable.

 

(3)           Ifthe Facility is damaged as a direct result of the delivery of Non-ConformingGas that Seller has not approved for receipt and use at the Facility, Seller shallbe entitled to the remedies available to it pursuant to its agreement with theGas Transporter. Seller shall use commercially reasonable efforts to mitigateany damages resulting from the delivery of any Non-Conforming Gas at the GasDelivery Point and the use of such Gas in a Unit.

 

(4)           Theunavailability of the Facility due to Buyer’s delivery of Non-Conforming Gasthat was not approved by the Seller shall not be considered a Forced Outage,and the Facility shall be considered available for the purpose of calculatingthe Monthly Availability Payment.

 

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**11.4****                        Titleand Risk of Loss.**

 

(1)                                  Asbetween the Parties, Buyer shall be deemed to be in exclusive possession andcontrol (and responsible for any damages or injury caused thereby) of the RMRGas prior to the Gas Delivery Point, and Seller shall be deemed to be inexclusive possession and control (and responsible for any damages or injurycaused thereby) of the RMR Gas at and from the Gas Delivery Point.  Notwithstanding delivery to the Gas DeliveryPoint, title to the RMR Gas shall remain with Buyer or Buyer’s third party supplier.As between the Parties with respect to Non-RMR Gas, Seller shall be deemed to bein exclusive possession and control (and responsible for any damages or injurycaused thereby) prior to Buyer’s PG&E Citygate Pool and at and from the GasDelivery Point, and Buyer shall be deemed to be in exclusive possession andcontrol (and responsible for any damages or injury caused thereby) at and fromBuyer’s PG&E Citygate Pool to the Gas Delivery Point.  Notwithstanding delivery to the Gas DeliveryPoint, title to the RMR Gas shall remain with Buyer or Buyer’s third partysupplier. Each of Seller and Buyer shall and hereby does indemnify, defend andhold harmless the other Party from any Claims arising from any act, failure toact or incident related to RMR Gas or Non-RMR Gas occurring when theindemnifying Party is in possession of such RMR Gas or Non-RMR Gas.

 

(2)                                  Buyerwarrants that the Gas delivered by Buyer shall be free and clear of all liens,Claims and encumbrances arising prior to the Gas Delivery Point. Seller warrantsthat the Non-RMR Gas delivered to Buyer at Buyer’s PG&E Citygate Pool shallbe free and clear of all Liens, Claims and encumbrances arising prior to theBuyer’s PG&E Citygate Pool.

 

**11.5****                        GasScheduling Manager.**

 

(1)                                  Forthose Facilities for which Buyer is designated as the NBAA holder, Buyer shallact as the Gas scheduling manager (“GSM”). The GSM shall cooperate with Sellerto provide for scheduling changes as allowed under the Gas Tariff for day-aheadand intra-Day Gas nominations to deliver Non-RMR Gas to the Gas Delivery Point.Seller shall provide a final day-ahead Gas schedule to Buyer by 8:30 a.m. PPT.Intra-Day nominations shall be submitted by Seller to Buyer thirty (30) minutesprior to the applicable nomination cycle deadline as defined by the Gas Tariff.Seller’s ability to nominate per each Non-RMR Unit shall be limited to the UnitMaximum Daily Quantity as defined herein. Seller shall be allowed to deliver inexcess of the Non-RMR Unit MDQ with Buyer’s consent in order to make up pastimbalances. The “Non-RMR Unit MDQ” is defined for each Non-RMR Unit as the ‘UnitMDQ’ as defined by the Facility NGSA. Buyer and Seller shall cooperate toupdate the Unit MDQs in each applicable Facility NGSA from time to time in orderto reflect Unit operations, as allowed under the Gas Transporter’s tariff.

 

(2)                                  Withrespect to Non-RMR Gas, Buyer shall provide to Seller the benefit of equivalentbalancing rights and related services that are available under the Gas

 

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Transporter’s tariff to asingle premises entity with an MDQ equal to the aggregate of all Non-RMR UnitMDQs as defined in Section 11.5(1). Capitalized terms used but otherwise notdefined in this Section 11.5(2) shall have the meanings ascribed in the GasTransporter’s tariff.

 

(A)                              Notwithstandingany aggregation by the GSM of individual Balancing Service accounts maintainedby the GSM into a single Balancing Service account under the G-Bal Schedule,the GSM shall maintain on its books a separate balancing account on behalf ofSeller with respect to the Non-RMR Gas delivered in accordance with thisAgreement (“Seller Balancing Account”). The GSM shall calculate the Seller’sdaily Gas imbalances for purposes of administering the Seller Balancing Accountas the difference between (i) the aggregate of the Non-RMR Gas delivered and(ii) the aggregate amount of Gas allocated by the GSM to the Non-RMR Units inaccordance with Section 11.5(3). Seller’s monthly imbalance shall be the sum ofthe daily Gas imbalances in a given calendar month.

 

(B)                                Withinone (1) Business Day after the end of any “gas day” (as defined in the GasTransporter’s tariff), the GSM shall deliver to Seller a copy of the SellerBalancing Account balance for the preceding gas day, which shall specify (i)Seller’s daily Gas imbalances for each day of the current month, in accordancewith the allocation methodology set forth in Section 11.5(3), (ii) the aggregateof such imbalances for the current month, and (iii) any carryover of imbalancesfrom prior months to such current month ((i), (ii), and (iii), collectively,the “Seller Monthly Imbalance”). Within five (5) Business Days after the end ofany calendar month, representatives of Buyer and Seller shall meet via conferencecall to reconcile any differences in the Seller Balancing Account balancecommunicated by the GSM.

 

(C)                                Ifthe Seller Monthly Imbalance is within the Tolerance Band for such month (i.e.if the fraction (expressed as a percentage) equal to the Seller MonthlyImbalance divided by the aggregate amount allocated by GSM to Non-RMR Units, inaccordance with Section 11.5(3) for such month, is equal to or less than thepercentage specified for the Tolerance Band in the Gas Transporter’s tariff),such Seller Monthly Imbalance shall be carried forward solely for the accountof Seller, at Seller’s discretion. Buyer shall provide Gas associated with anypositive imbalance for use under this Agreement. Buyer shall be responsible forany negative imbalance carried forward to the appropriate subsequent month.

 

(D)                               Tothe extent permitted under the Gas Transporter’s tariff, Seller may trade anySeller Monthly Imbalance between Buyer and third parties identified by Seller,including the transfer of all or part of such Seller Monthly Imbalance to Gasstorage;  provided, however, that Sellershall be solely responsible for any credit requirements of such third partytransferees or storage

 

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facilities and anynon-performance by such third party transferees or storage facilities inconnection with such transactions.

 

(E)                                 Forany Seller Monthly Imbalance not traded or carried forward, Seller agrees topay or receive the applicable Gas Transporter’s tariff cash out rate.

 

(3)                                  Sellershall provide Buyer with all the necessary Gas Meter and Energy Meter data inorder to calculate the daily Gas allocation between the Non-RMR and RMR Unite.For purposes of daily nominations only, Gas shall be allocated by the GSM dailyto each Mon-RMR and RMR Unit in an equitable manner, utilizing the methodologyset forth in the ISO’s RMR invoice template. Notwithstanding the foregoing, ifSeller installs Non-RMR Unit Gas Meters, then the quantity of Non-RMR Gas shallbe determined using the information from such meters. The Parties shall worktogether to reconcile summation of the daily nominated amounts as described inthis Section 11.5(3) with the monthly amounts calculated pursuant to Section11.8.

 

**11.6**                        **Gas****ImbalanceCharges.**

 

(1)                                  Buyershall be responsible for all Gas Imbalance Charges associated with Gasdeliveries under this Agreement to the extent such charges are caused by Buyer’sactions or inactions. Seller shall be responsible for all Gas Imbalance Chargesassociated with Gas deliveries under this Agreement to the extent such chargesare caused by Seller’s actions or inactions.  Both Parties shall use commercially reasonable efforts to avoidimbalances and to correct any imbalances, which may occur.

 

(2)                                  TheParties shall keep themselves informed of system wide operation flow order or “OFO”and emergency flow order or “EFO” notices, Accordingly, Buyer and Selleracknowledge that under certain OFO conditions that either Party’s action may providebenefit to the other through the NBAA pool. See Exhibit C.

 

 
| **OFO  Penalty Causes**     | ** ** | **Responsible  Party** |
|-----------------------------|------------|------------------------|
|                        |       |                   |
| Unit schedule deviation     |       | Seller                 |
| Schedule change             |       | Party making change    |
| Over/Under Delivery of  Gas |       | Party making change    |

 

The GSM shall notifySeller of any customer specific OFOs and EFOs (as defined in the GasTransporter’s tariff) affecting the Facilities for which Buyer is designated asthe KBAA holder, advising Seller of the terms of such customer specific OFOwithin fifteen (15) minutes of its receipt of written notice of a customerspecific OFO and as promptly as is reasonably possible after its receipt ofwritten notice of a customer specific EFO.

 

(3)                                  Inany calendar month that the ISO Monthly Fuel Imbalance Charge exceeds the limitas specified in Schedules C of the RMR Agreements, Buyer shall

 

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provide all necessaryinformation in order for Seller to act on Buyer’s behalf in seekingreimbursement of penalties from the ISO. Seller shall pay to Buyer anyreimbursement received therefrom.

 

(4)                                  TheGSM shall estimate OFO and EFO charges or penalties it reasonably expects Buyerto incur in any calendar month under this Agreement. Such estimated OFO and EFOcharges or penalties shall be invoiced by Buyer to Seller as provided in Section12.5; provided, however, that such invoiced amounts shall be reconciled againstthe actual, final invoices from the Gas Transporter and any difference theretoshall be settled by the Parties in the next monthly billing cycle.

 

**11.7****                        UninstructedDeviation Penalty(ies) (UDPs).**

 

Per Section 7.4(1)of this Agreement, Seller and Buyer shall be equally responsible forUninstructed Deviations Penalties. Buyer shall compensate Seller for Gas thatwould have been needed to provide Energy associated with negative UninstructedDeviation Penalties. Compensation for negative UDPs will be calculated bymultiplying (i) the sum of (a) the Gas Index and (b) the applicable GasTransporter’s tariff rate in effect at the time the UDP is incurred to deliverGas from Buyer’s PG&E Citygate Pool to the Gas Delivery Point by (ii) theestimated Gas required to deliver the MWhs that Seller procured in the marketto meet Buyer’s schedule due to the negative deviation during the period inwhich the UDP is incurred. The amount of Gas used during a negative UDP will beestimated by using Equation Cl-7a in the RMR Agreements, replacing the 1.02factor with 1.0, and calculating the difference in the resulting MMBTUs at thescheduled MWh and the metered MWh for the periods in which UDPs were incurred.

 

**11.8****                        FuelReimbursement.**

 

Seller willfinancially reimburse Buyer for the allocated quantity of Gas for each RMRUnit, as calculated in the ISO’s RMR invoice template (“RMR Allocated Quantity”),to the extent such RMR Allocated Quantity exceeds the quantity that resultsfrom the Unit Hourly Cap Heat Input calculation set forth in the ISO’s RMRinvoice template. Such reimbursement amount shall also be calculated inaccordance with the ISO’s RMR invoice template using the Gas Index and the excessquantity.

 

**12.****                              ****RMR, MARKET AND NON-RMR GAS CHARGES**

 

For the avoidanceof doubt, the intent of the Parties is that Seller be compensated for the RMRUnits by Buyer, subject to the rates discussed herein, as if Seller had elected“Condition 2” under the RMR Agreements for all purposes. For purposes of thisAgreement, all amounts due to Seller by Buyer shall be paid to Seller’s SC.

 

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**12.1****                        Buyer’sMonthly Charges.**

 

(1)                                  Inconsideration for the rights provided Buyer in this Agreement, Buyer shall payto Seller for each month during the “Condition 1” Term:

 

(a)                                  all“Condition 2” rates described in Schedules B of the RMR Agreements;

(b)                                 anyother payments required in Sections 2.5, 8.2, 8.6 and 9 of the RMR Agreementsand Buyer’s share of payments in Section 8.7 of the RMR Agreements whether ornot specifically captured in Sections 12.1, 12.2 and 12.3;

(c)                                  paymentsresulting from Energy dispatched by the ISO pursuant to Seller’s provision, atBuyer’s direction, of Regulation Down Ancillary Service;

(d)                                 paymentsresulting from Energy dispatched by the ISO pursuant to Supplemental Energy “decremental”bids submitted by Seller; and

(e)                                  thecharges provided for in Sections 7.4, 9, 10, 11.7, 12.2, 12.3 and 25.1 of this Agreement,when applicable (all of which together shall be the “Buyer’s Monthly Charges”).

 

(2)                                  Forpurposes of calculating Buyer’s Monthly Charges,

(a)                                  theAnnual Fixed Revenue Requirement (“AFRR”) Table B-6 in Section 7 of Schedules Bof the RMR Agreements shall apply, as set by the 2006-2008 RMR FERC Settlement,and as may be further modified for 2009, 2010, 2011 and 2012 in Seller’s annualrate schedule revision filing required by the RMR Agreements as finally acceptedor approved by FERC and no longer subject to rehearing or appeal;

(b)                                 theMonthly Option Payment shall equal the sum of the Monthly Availability Paymentand the Monthly Surcharge Payment minus the total Non-Performance Penalty forthe applicable month that is incurred by Seller under the RMR Agreementsattributable to the ISO dispatch;

(c)                                  inno event shall the Monthly Option Payment for any month be less than zero;

(d)                                 onlySections E (table Cl-18), F, and G of Schedule C of me RMR Agreements shallapply for the Variable O&M Costs for each Delta RMR Unit, and Potrero RMRUnits shall not be included; and

(e)                                  anyDispatch Notice submitted by the ISO or dispatch schedule submitted by Buyerhereunder will count as if the RMR Unit was dispatched under “Condition 2”.

 

Schedule C chargesrelated to Monthly Billed Fuel Cost, Monthly Fuel Imbalance Charge, and MonthlyOther Fuel Related Cost are specifically excluded due to Buyer acting as Gassupplier for the Delta RMR Units.

 

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(3)                                  IfBuyer claims a Force Majeure Event for any reason, Buyer shall not be relievedof the obligation to pay Buyer’s Monthly Charges to Seller.

 

**12.2****                        ScheduleG Charges.**

 

(1)                                  Inthe event that the ISO dispatches any RMR Unit in excess of the then prevailingContract Service Limits, Buyer shall pay Seller all applicable Schedule G ratesfor the excess Counted MWh, Counted Service Hours, and Counted Start-upsresulting therefrom as if all dispatches by the ISO were under “Condition 2”.For purposes of clarity, in equation G-1 of Schedules G the “Variable CostPayment for the Billing Month” shall not exclude charges related to MonthlyBilled Fuel Cost, Monthly Fuel Imbalance Charge and Monthly Other Fuel RelatedCost.

 

(2)                                  ExhibitB illustrates settlements that relate lo Schedule G Charges.

 

**12.3****                        ModifiedSchedule G Charges.**

 

(1)                                  Ifthe combined Start-ups of Buyer and the ISO for any RMR Unit are in excess ofthe greater of the Contract Service Limits for (a) the Maximum Annual Start-upsfor 2005 and (b) the then prevailing Maximum Annual Startups, each excessCounted Start-up by the Buyer shall be paid at the applicable Prepaid Start-upCharge multiplied by three (3). A requested Start-up by Buyer cannot be doublecounted in the sense that if the Buyer requests a Start-up and the RMR Unitsubsequently trips during Start-up or operation and has to be restarted, thissequencing will represent only a single Start-up for purposes of determiningwhen Modified Schedule G Charges take effect. For clarity, the entire period ofoperation for an RMR Unit beginning with Buyer’s request for a Start-up andcontinuing until Buyer’s request that such Unit Shutdown shall constitute asingle Start-up for purposes of the Modified Schedule G Charges.

 

(2)                                  Ifthe combined dispatches of Buyer and the ISO for any RMR Unit are in excess ofthe greater of the Contract Service Limits for (a) the Maximum Annual MWh orthe Maximum Annual Service Hours for 2005 and (b), the then prevailing Maximum AnnualMWh or the Maximum Annual Service Hours, Buyer shall pay Seller for all resultingexcess Counted MWh and Counted Service Hours as if all dispatches were under “Condition2”; provided, however, that in such instance equation G-1 of Schedules G of theRMR Agreements shall be modified so that the “Variable Cost Payment for the BillingMonth” equals the product of the Monthly Variable O&M Cost and four (4).

 

(3)                                  Forthe purposes of clarity, Buyer shall pay for each excess Start-up and eachexcess MWh only once, at either the Schedule G or Modified Schedule G rate.

 

(4)                                  Tothe extent that Seller receives any Schedule G revenues from the ISO, suchamounts shall be credited to Buyer against the total amounts due as described hereunderpursuant to the Schedule G rates and the Modified Schedule G Rates.

 

(5)                                  ExhibitB illustrates settlements that relate to Modified Schedule G Charges.

 

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**12.4****                        Creditof “Condition 1” Payments and OtherOffsets.**

 

Seller shallcredit Buyer, or cause its SC to credit Buyer, all amounts (“Buyer’s MonthlyCredits”) received from the ISO that are based on performance of the RMR Unitsduring the “Condition 1” Term and result from the following:

 

1.               The “Condition 1”Monthly Option Payment paid by the ISO for each month under the RMR Agreements;

 

2.               Capacity awarded bythe ISO pursuant to Seller’s provision of Spinning Reserves, Non-spinningReserves, Regulation Up, Regulation Down Ancillary Service(s) or any otherAncillary Service(s) bids, as directed by Buyer;

 

3.               Energy dispatchedby the ISO pursuant to Seller’s provision of Spinning Reserves, Non-spinningReserves, Regulation Up Ancillary Service(s) or any other Ancillary Service(s)bids, as directed by Buyer;

 

4.               Energy dispatchedby the ISO pursuant to Seller’s provision of Supplemental Energy “incremental”bids, as directed by Buyer;

 

5.               For Delta RMR Unitsonly, payments received from the ISO related to Seller’s election of “contractpath”, as directed by Buyer, for transactions including, but not limited to,RMR dispatches after the close of the Hour-Ahead Market;

 

6.               For Delta RMR Unitsonly, payments received from the ISO related to Buyer’s election of “contractpath” for RMR dispatches of Day-ahead and intra-Day transactions;

 

7.               For Delta RMR Unitsonly, Gas reimbursements, as further described in Section 11.8 of thisAgreement;

 

8.               For Delta RMR Unitsonly, Start-up Fuel Costs for Start-ups under the RMR Agreements; provided,however, at the end of each calendar year, if the actual number of Start-ups isless than the number of Prepaid Start-ups for which Seller has reimbursedBuyer, then the parties shall split the remaining difference on a 50/50 basis;

 

9.               Minimum Load CostCompensation for any Must-Offer Dispatch pursuant to Section 10;

 

10.         Any interest due Buyer,pursuant to Section 9 of the RMR Agreements; and

 

11.         Any amounts due Buyerfrom Seller, although not received from the ISO, for provision of steam asfurther described in Section 7.6(2) of this Agreement.

 

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**12.5****                        Gas Charges.**

 

Buyer shallinvoice Seller for (a) imbalances pursuant to Sections 11.5(2)(E) and 11.6(1);(b) the transport costs for Non-RMR Gas as described in Section 11.1(3); (c)any OFO or EFO charges pursuant to section 11.6(4); (d) any other applicablecharges to Seller relating to the Non-RMR Gas; and (e) any credits due toSeller, including, but not limited to, those described in Sections 11.5 and11.6, providing supporting documentation acceptable in industry practice tosupport the amount charged. If the actual quantity delivered is not known bythe billing date, billing will be prepared based on the quantity of Non-RMR Gasscheduled by Seller in the applicable calendar month. The invoiced quantitywill then be adjusted to the actual quantity on the following calendar month’sbilling or as soon thereafter as actual delivery information is available.

 

**13.****                              ****REPRESENTATIONS AND WARRANTIES**

 

**13.1****                        Representationsand Warranties.**

** **

(1)                                  Asa material inducement to entering into this Agreement, each Party with respectto itself, hereby represents and warrants to the other Party as of theAgreement Date and throughout the Contract Term as follows:

 

(a)                                  itis duly organized, validly existing and in good standing under the laws of thejurisdiction of its formation and is qualified to conduct its business in thosejurisdictions necessary for it to perform its obligations under this Agreement;

 

(b)                                 ithas all authorizations from any Governmental Authority necessary for it tolegally perform its obligations under this Agreement or will obtain suchauthorizations in a timely manner prior to when any performance by it requiringsuch authorization becomes due;

 

(c)                                  theexecution, delivery and performance of this Agreement are within its powers,have been duly authorized by all necessary action and do not violate any of theterms or conditions in its governing documents or any contract to which it is aparty or any Governmental Rule applicable to it;

 

(d)                                 thisAgreement constitutes a legal, valid and binding obligation of such Partyenforceable against it in accordance with its terms, and each Party has allrights such that it can and will perform its obligations to the other Party inconformance with the terms and conditions of this Agreement, subject tobankruptcy, insolvency,

 

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reorganization andother laws affecting creditor’s rights generally and general principles ofequity;

 

(e)                                  exceptas provided in Section 14.1(2), no Bankruptcy is pending against it or to itsknowledge threatened against it; and

 

(f)                                    theaudited financial statements provided by Seller and Buyer pursuant to Section15.4(2) are true and accurate based on the respective Party’s knowledge,information and belief;

 

(g)                                 ithas negotiated and entered into this Agreement in the ordinary course of itsrespective business, in good faith, for fair consideration and on an arm’slength basis.

 

(2)                                  Sellerhereby represents and warrants that the terms and conditions of this Agreementare fair and reasonable and reflect its exercise of prudent business judgment consistentwith its fiduciary duties as a debtor-in-possession and are supported by fair considerationand reasonably equivalent value in money or money’s worth.

 

(3)                                  Eachof Buyer and Seller represent and warrant to the other that it is a “forwardcontract merchant” within the meaning of the United States Bankruptcy Code.

 

**13.2****                        NoOther Representations and Warranties.**

 

Each Partyacknowledges that it has entered into this Agreement based solely upon theexpress representations and warranties set forth in this Agreement.

 

**14.****                              ****EVENT OF DEFAULT AND REMEDIES**

** **

**14.1****                        Eventof Default.**

 

(1)                                  An“Event of Default” shall mean with respect to a Party (the “DefaultingParty”) any of the actions set forth below in this Section 14.1(1):

 

(a)                                  thefailure of the Defaulting Party to make, when due, any payment required underthis Agreement if such failure is not remedied within five (5) Business Daysafter written notice of such failure is given to the Defaulting Party by theother Party (the “Non-Defaulting Party”);

 

(b)                                 exceptas permitted by Section 5.2, the sale by Seller of any portion of the MaximumNet Dependable Capacity, Energy or Ancillary Services from any of the RMR Unitsto any third party during the “Condition 1” Term;

 

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(c)                                  anyrepresentation or warranty (including, but not limited to, the representationand warranty set forth in Section 13.l(l)(f)) made by the Defaulting Party inthis Agreement shall prove to have been false or misleading in any material respectwhen made; provided that, if such representation or warranty is capable ofbeing corrected, no Event of Default shall have occurred if the DefaultingParty is diligently pursuing such correction and such representation or warrantyis corrected within thirty (30) Days from the date upon which theNon-Defaulting Party gives written notice to the Defaulting Party of the falseand misleading nature of the representation or warranty;

 

(d)                                 thefailure by the Defaulting Party to perform any material covenant set forth inthis Agreement (other than the events that are otherwise specifically coveredin this Section 14.1(1) as a separate Event of Default and other than anycovenant for which an exclusive remedy is set out elsewhere in this Agreement),and such failure is not excused by a Force Majeure Event or cured within thirty(30) Days after written notice thereof to the Defaulting Party or, if suchfailure cannot reasonably be cured in such period and the Defaulting Partywithin such period commences, and thereafter proceeds with reasonable duediligence, to cure such failure, such period shall be extended for such furtherperiod as shall be necessary for the Party to cure such failure with reasonabledue diligence, provided that the total cure period shall not exceed ninety (90)Days;

 

(e)                                  exceptas provided in Section 14.1(2), the Bankruptcy of the Defaulting Party; and

 

(f)                                    thefailure by the Defaulting Party to meet its obligation to provide Security asrequired by Article 21 if such failure is not remedied within three (3)Business Days after written notice of such failure is given to the DefaultingParty by the other Non-Defaulting Party.

 

(2)                                  Notwithstandinganything herein to the contrary, Buyer acknowledges that Seller filed a voluntarypetition for relief under Chapter 11 of the United States Bankruptcy code onJuly 14, 2003 (the “Filing”) and such case remains pending in the United StatesBankruptcy Court, Northern District of Texas (the “Bankruptcy Court”). Untilsuch time as Seller emerges from Chapter 11 Bankruptcy through the confirmationof a plan or reorganization, the Filing shall not constitute an Event ofDefault under Sections l4.l(l)(c) or (e) of this Agreement; provided, however,that in the event that (A) Seller files a motion which contemplates the sale ofsubstantially all of its assets; (B) Seller files a Chapter 11 plan whichcontemplates the sale of substantially all of its assets; (C) Seller files amotion or request to convert its Chapter 11 case to a Chapter 7 proceeding; or(D) the Bankruptcy Court enters an order converting Seller’s case from a

 

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Chapter 11 proceeding toa Chapter 7 proceeding, any such event (A) through (D) shall constitute anEvent of Default under Sections 14.1(l)(c) or (c) of this Agreement.

 

**14.2****                        RemediesUpon an Event of Default.**

 

(1)                                  Uponthe occurrence of an Event of Default and, with the exception of the Bankruptcyof a Party, for so long as such Event of Default is continuing, after the applicablecure period, the Non-Defaulting Party may, upon written notice to the DefaultingParty, establish a date, no earlier than the Day such notice is effective andno later than twenty (20) Days after such notice is effective, on which thisAgreement will terminate (“Early Termination Date”) and suspend its performancehereunder as of the declaration of such Early Termination Date; if the Event ofDefault is the Bankruptcy of a Party, the Non-Defaulting Party may exercise theremedy of immediate termination. Moreover, the Non-Defaulting Party will havethe right to exercise all rights and remedies available to it under thisAgreement, at law, and in equity including, but not limited to, the right: (a)to retain, draw on, liquidate, or apply any Security for any amounts due and owing;(b) to require the Defaulting Party to pay damages as set forth in Section14.2(2); (c) to commence dispute resolution procedures as provided for inArticle 23; (d) to file suit to compel the Defaulting Party to perform or payany damages awarded the Non-Defaulting Party pursuant to Article 23; and (e) tofile suit to enjoin any acts that are unlawful or violate the rights of theNon-Defaulting Party under this Agreement.

 

2)                                      Exceptas otherwise expressly provided herein, any declaration, of an Early TerminationDate as a result of an Event of Default shall subject the Defaulting Party to thepayment only of actual, direct damages (“Damages”), which are described hereinbut not limited hereby, to the Non-Defaulting Party. The Non-Defaulting Partymay take any actions it deems necessary or appropriate to protect, preserve orenforce its rights or to reduce any risk of loss resulting from an earlytermination of this Agreement. The Non- Defaulting Party shall calculate a SettlementAmount, if any, resulting from an Early Termination Date in a commerciallyreasonably manner.  The Settlement Amountis intended to compensate the Non-Defaulting Party for the loss of the benefitsof the bargain, the costs of mitigation, and the loss of protection againstrisks arising from the early termination of this Agreement.  Upon determination of the Settlement Amountby the Non-Defaulting Party, the Non-Defaulting Party shall provide theDefaulting Party with a written statement showing the calculation of theSettlement Amount in sufficient detail to allow the Defaulting Party to comparesuch amount to its own estimate of the Settlement Amount, and such SettlementAmount shall be due and owing upon receipt (as determined in accordance with Section20 of this Agreement) of this written statement by the Defaulting Party. Nolater than the third (3rd) Business day after notice of the SettlementAmount is provided to the Defaulting Party by the Non-Defaulting Party, the Partyowing such Settlement Amount shall pay same by wire transfer of immediately availablefunds. If the Defaulting Party disputes the Non-Defaulting Party’s calculationof the Settlement Amount, the dispute shall be resolved pursuant to the termsof Article 23. Nothing in this Section 14.2(2) shall be construed to restrictor preclude the Non-Defaulting Party from realizing on any Security held by theNon-Defaulting Party at any

 

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time upon the occurrenceof an Event of Default with respect to the Defaulting Party notwithstanding(and without awaiting the outcome of) any dispute as to the Settlement Amountpayable. Consistent with Section 26.1, the Parties have an obligation tomitigate damages in an Event of Default in order to minimize the SettlementAmount.

 

(3)                                  Anyassertion by the Non-Defaulting Party of its entitlement to enforce any of theremedies described in Section 14.2(1) must be initiated by the Non-DefaultingParty, through written notice to the Defaulting Party, no later than theexpiration of twelve (12) months after the termination of this Agreement. TheParty, who fails to act in a timely manner as provided in this Section 14.2,shall be deemed to have waived its right to enforce such remedies.

 

**15.****                              ****BILLING AND PAYMENT**

 

**15.1****                        Billingand Payment for RMR and Market Payments.**

 

(1)                                  Thetiming of payments and invoices received by Seller and the invoicing of Buyerby Seller shall be as provided for in the RMR Agreements or the Tariff, asapplicable. Following each month during the “Condition 1” Term and within five(5) Business Days of Seller’s issuance of a Revised Estimated RMR invoice tothe ISO and within five (5) Business Days of Seller’s receipt of the TariffMonthly Preliminary GMC and Market Invoice, Seller shall render to Buyer (byregular mail, facsimile or other acceptable means pursuant to Section 20) astatement setting forth Buyer’s Monthly Charges and Buyer’s Monthly Credits forsuch month for the charges set forth in the applicable RMR invoice and anyother amounts due to either Party. Within five (5) Business Days of Seller’sissuance of the Revised Adjusted RMR Invoice to the ISO, Seller shall render toBuyer (by regular mail, facsimile or other acceptable means pursuant to Section20) a statement setting forth the net credit or debit (based on the differencebetween Buyer’s Monthly Charges and Buyer’s Monthly Credits assessed inconjunction with the Revised Estimated RMR Invoice and the same assessed inconjunction with the Revised Adjusted RMR Invoice) for such month for thecharges set forth in the applicable RMR invoice and any other amounts due toeither Party. Within five (5) Business Days of Seller’s receipt of the MonthlyFinal GMC and Market Invoice from the ISO, Seller shall render to Buyer (byregular mail, facsimile or other acceptable means pursuant to Section 20) astatement setting forth the net credit or debit (based on the differencebetween Buyer’s Monthly Charges and Buyer’s Monthly Credits assessed inconjunction with the Monthly Preliminary GMC and the same assessed inconjunction with the Monthly Final GMC) for such month for the charges setforth in the applicable ISO invoice and any other amounts due to either Party.Within five (5) Business Days after receipt of Seller’s statement Buyer orSeller, as applicable, shall render, by wire transfer, the amount set forth onsuch statement for payments due under the RMR Agreements (“RMR Payment”) orpayments due under the Tariff (“Market Payment”), or payments due under Buyer’sMonthly Charges and Buyer’s Monthly Credits that are not otherwise included inthe RMR Payment or Market Payment to the payment address provided in Exhibit Dhereto. For purposes of clarity, “payments due under the Tariff’

 

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shall include alltransactions with the ISO, including transactions made pursuant to the RMRAgreements in which Buyer does not elect “contract path”. All “contract path”volumes will be settled in accordance with the RMR Agreements.

 

(2)                                  Tothe extent relevant, each payment under this Agreement for a given time periodshall be based on the same data which form the basis for the corresponding paymentby the ISO to Seller with respect to the RMR Agreements or otherwise and any paymentspursuant to the Tariff for that same time period.  Seller shall make available to Buyer,simultaneously with their delivery to or receipt from ISO, the following documentsto the extent they relate to the “Condition 1” Term: (i) all invoices under theRMR Agreements *(e.g.,*EstimatedRMR Invoices, Revised Estimated RMR Invoices, Adjusted RMR Invoices and RevisedAdjusted RMR Invoices), (ii) all documents reflecting changes to such invoices *(e.g.,*Prior Period Change Worksheets),(iii) all invoices (e.g. Monthly Preliminary GMC and Market Invoice and MonthlyFinal GMC and Market Invoice) and Daily Settlement Statements between Sellerand ISO under the Tariff relating to Market Payments that result fromtransactions from Delta RMR Units, and (iv) all documents reflecting changes tosuch invoices.  Any adjustment pursuantto Adjusted Final RMR Invoice and Monthly Final GMC and Market Invoice and anyprior period adjustments (e.g. Prior Period Change Worksheets) shall be settledbetween Buyer and Seller in the following settlement cycle.

 

(3)                                  Disputesconcerning billing and payment shall be handled as follows:

 

(a)                                  AParty may, in good faith, dispute the correctness of any invoice issued bySeller under this Article 15 or any adjustment to such an invoice or adjust anyinvoice for any arithmetic or computational error within twelve (12) months ofthe date the invoice, or adjustment to an invoice, was rendered.  Any such disputes shall be resolved inaccordance with Article 23.

(b)                                 Disputesconcerning billing and payment related only to the RMR ISO invoices shall besubject to the timeline for such disputes as provided in the RMR Agreements andshall be resolved in accordance with Article 23.

(c)                                  Buyer,may, in good faith, dispute any ISO settlement data related only to “market”transactions by notifying Seller of such dispute using the ISO Settlementdispute form and providing all supporting documentation no later than four (4)Business Days prior to the deadline by which Seller must file a dispute withthe ISO, where such deadline is determined using the ISO payment calendar.  The timeline for resolution of “market” disputesshall be as provided in the Tariff, and the decision rendered by the ISO withrespect to any “market” dispute shall be final and binding on the Parties.Seller shall only be obligated to credit Buyer any disputed amount to theextent that the ISO credits Seller same.

(d)                                 Inthe event a Party disputes an invoice or a portion thereof, or any other claimor adjustment arising with respect to this Agreement, the disputing Party shallpay the disputed invoiced amounts in full on the applicable payment due date,subject to later refund together with interest accrued at

 

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the CommercialInterest Rate for “market” transactions and at the RMR Interest Rate for RMRtransactions, in either case from the date the disputed amount is paid untilthe date it is returned.

 

(4)                                  Ifthe owing Party fails to remit the full amount payable when due, interest onthe unpaid portion shall accrue from the date due until the date of payment atthe Commercial Interest Rate. Any overpayments that are agreed upon by theParties shall be returned upon request or deducted by Seller or Buyer fromsubsequent payments. Overdue payments or refunds shall accrue interest from thedue date to the date of payment at the Commercial Interest Rate.  Errors with respect to invoices or paymentsshall be resolved as if section 9.8 of the RMR Agreements were a part of thisAgreement.  Any adjustments subsequentlymade by the ISO shall be paid to or received from Buyer in a timely manner.

 

(5)                                  Notwithstandinganything to the contrary herein, the Parties acknowledge and agree thatcalculation of the payments described herein are unique, complicated and dependenton information received from the ISO and each other.  Attached Exhibit F contains an estimatedtimeline for settlement of RMR Payment and Market Payment amounts as specifiedin Sections 12.1, 12.2, 12.3, and 12.4 of this Agreement.  If the Parties have not yet developed asettlement process for this Agreement, the Parties shall use an estimationprocedure for settlement of the first three (3) months of the “Condition 1”Term (the “Estimation Period”). Following conclusion of the Estimation Period, the Parties shall worktogether to true-up in a timely manner the amounts invoiced during such period.During the Estimation Period, the parties shall use commercially reasonable effortsto use as much information as practicable from invoicing between Seller and ISOrelated to the RMR Agreements and the Tariff, and other information, ifpracticable, related to Article 12 of this Agreement. However, at a minimum,the invoices during the Estimation Period shall contain the following:

 

(a)                                  Theestimated invoice for the first month of the “Condition 1” Term shall berendered to Buyer by the end of the second month of the “Condition 1” Term,with payment due within five (5) Business Days of its receipt, and contain thesum of following amounts: (a) (i) the sum of AFRRs for the RMR Units in TableB-6 shall be divided by twelve (12) and (ii) the resulting quotient shall bemultiplied by the difference of one (1) minus the Fixed Option Payment Factor;(b) (i) the total of Annual Capital Recovery amounts for the RMR Units dividedby twelve (12) and (ii) the resulting quotient shall be multiplied by thedifference of one (1) minus the Surcharge Payment Factor, (c) (i) the sum ofISO Variable O&M Cost plus ISO Scheduling Coordinator Charge plus ISO ACACharge multiplied by (ii) the metered MWh for the Delta RMR Units for the firstmonth, and (d) credit of estimated Schedule C reimbursement received from ISOfor any “contract path” designated Energy for the first month for the Delta RMRUnits;

(b)                                 Theestimated invoice for the second month of the “Condition 1” Term shall berendered to Buyer by the end of the third month of the “Condition

 

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1” Term, withpayment due within five (5) Business Days of its receipt, and contain the sumof following amounts: (a) (i) the sum of AFRRs for the RMR Units in Table B-6shall be divided by twelve (12) and (ii) the resulting quotient shall bemultiplied by the difference of one (1) minus the Fixed Option Payment Factor;(b) (i) the total of Annual Capital Recovery amounts for the RMR Units dividedby twelve (12) and (ii) the resulting quotient shall be multiplied by thedifference of one (1) minus the Surcharge Payment Factor, (c) (i) the sum ofISO Variable O&M Cost plus ISO Scheduling Coordinator Charge plus ISO ACACharge multiplied by (ii) the metered MWh for the Delta RMR Units for thesecond month, (d) credit of estimated Schedule C reimbursement received fromISO for any “contract path” designated Energy for the second month for theDelta RMR Units, and (e) credit of revenues received from the ISO pursuant tothe Monthly Preliminary GMC and Market Invoice between Seller and ISO under theTariff relating to Market Payments that result from transactions from the DeltaRMR Units during the first month;

(c)                                  Theestimated invoice for the third month of the “Condition 1” Term shall berendered to Buyer by the end of the fourth month of the “Condition 1” Term,with payment due within five (5) Business Days of its receipt, and contain thesum of following amounts: (a) (i) the sum of AFRRs for the RMR Units in TableB-6 shall be divided by twelve (12) and (ii) the resulting quotient shall bemultiplied by the difference of one (1) minus the Fixed Option Payment Factor;(b) (i) the total of Annual Capital Recovery amounts for the RMR Units dividedby twelve (12) and (ii) the resulting quotient shall be multiplied by thedifference of one (1) minus the Surcharge Payment Factor, (c) (i) the sum ofISO Variable O&M Cost plus ISO Scheduling Coordinator Charge plus ISO ACACharge multiplied by (ii) the metered MWh for the Delta RMR Units for the thirdmonth, (d) credit of estimated Schedule C reimbursement received from ISO forany “contract path” designated Energy for the third month for the Delta RMRUnits, and (e) credit of revenues received from the ISO pursuant to the MonthlyPreliminary GMC and Market Invoice between Seller and ISO under the Tariffrelating to Market Payments that result from transactions from the Delta RMRUnits during the second month;

(d)                                 Theinvoice for the fourth month of the “Condition 1” Term shall be rendered toBuyer by the end of the fifth month of the “Condition 1” Term, with payment duewithin five (5) Business Days of its receipt, and contain Buyer’s MonthlyCharges and Buyer’s Monthly Credits pursuant to Section 12, and the Sectionsreferenced therein, of this Agreement. This invoice shall contain true-ups for the first month of settlements,including, but not limited to, adjustments resulting from Revised Adjusted RMR Invoicesand Monthly Final GMC and Market Invoice; and

(e)                                  Theinvoices for the fifth and future months of the “Condition 1” Term shall berendered to Buyer pursuant to Section 15.1 (1); provided, however, that theinvoice for the fifth month shall contain true-ups for the

 

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second month ofsettlements, including, but not limited to, adjustments resulting from RevisedAdjusted RMR Invoices and Monthly Final GMC and Market Invoice, and the invoicefor the sixth month shall contain true-ups for the third month of settlements,including, but not limited to, adjustments resulting from Revised Adjusted RMRInvoices and Monthly Final GMC and Market Invoice.

 

**15.2****                        Billingand Payment for Gas Charges.**

 

(1)                                  Sellershall remit the amount due under Section 12.5, by wire transfer, in immediatelyavailable funds, on or before the later of the 25th Day of the calendar monthfollowing the month of delivery or ten (10) Days after receipt of the invoiceby Seller; provided that if such payment date is not a Business Day, paymentshall be due on the next Business Day following that date. In the event thatany payments are due Seller hereunder, payment to Seller shall be made inaccordance with this Section 15.2.

 

(2)                                  AParty may, in good faith, dispute the correctness of any invoice or anyadjustment to such an invoice or adjust any invoice for any arithmetic orcomputational error within twelve (12) months of the date the invoice, oradjustment to an invoice, was rendered. Disputes concerning billing and paymentshall be resolved in accordance with Article 23. In the event a Party disputesan invoice or a portion thereof, or any other claim or adjustment arising withrespect to this Agreement, the disputing Party shall pay the disputed invoicedamounts in full on the applicable payment due date, subject to later returntogether with interest accrued at the Commercial Interest Rate until the datepaid.  If the invoiced Party fails toremit the full amount payable when due, interest on the unpaid portion shallaccrue from the date due until the date of payment at the Commercial InterestRate. Inadvertent overpayments shall be returned upon request or deducted bySeller from subsequent payments. Overdue payments shall accrue interest fromthe due date to the date of payment at the Commercial Interest Rate.

 

**15.3****                        Netting.**

 

In each month for whichthere are amounts owed to and by each Party, the Parties shall to the extentreasonably possible aggregate and discharge their obligations to pay or credit throughnetting, in which case the Party owing the greater aggregate amount may pay tothe other Party the difference between the amounts owed; provided that, forpurposes of clarity, the Parties shall not “net” (a) RMR Payments or MarketPayments against (b) Gas charges as described in Section 12.5; and providedfurther that, Seller shall not be obligated to credit Buyer with, and Buyer maynot net, any Condition 1 revenues until such time as Seller receives same fromthe ISO. Such netting shall not result in any waiver of, and each Partyreserves to itself, any rights, counterclaims, remedies or defenses (to theextent not expressly herein waived or denied) which such Party has or may beentitled to arising from or out of this Agreement.

 

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**15.4****                        Rightof Audit and Obligation to Provide Financial Information.**

 

(1)                                  EachParty (and its representatives) has the right, on five (5) Business Days’ priorwritten notice, at its sole expense and during normal working hours, to examinethe records of the other Party to the extent reasonably necessary to verify theaccuracy of any statement, charge or computation made pursuant to thisAgreement, including ISO settlements, Energy, Ancillary services, capacityschedules, and Fuel consumption.  Ifrequested, Seller shall provide to Buyer statements evidencing the quantitiesof Energy and Ancillary Services delivered at the Delivery Point, metering recordsof Fuel delivered to the Fuel Delivery Point and Fuel consumed at the Facilityand any tests or records of any non-conforming Gas delivered at the GasDelivery Point.  If any such examinationreveals any inaccuracy in any statement, the necessary adjustments in suchstatement and the payments thereof will be promptly made and shall bearinterest calculated at the Commercial Interest Rate from the date theoverpayment or underpayment was made until such adjustment is paid or refunded;*provided, however,*that noadjustment for any statement or payment will be made unless objection to the accuracythereof was made prior to the lapse of twelve (12) months from the receipt thereof.

 

(2)                                  Ifrequested by a Party (“Party A”), the other Party (“Party B”) shall deliver (i)within 120 Days following the end of each fiscal year, a copy of Party B’s annualreport containing audited consolidated financial statements for such fiscalyear and (ii) within 60 Days after the end of each of its first three fiscalquarters of each fiscal year, a copy of Party B’s quarterly report containingunaudited consolidated financial statements for such fiscal quarter.  In all cases the statements shall be for themost recent accounting period and prepared in accordance with GAAP; provided,however, that should any such statements not be available on a timely basis dueto a delay in preparation or certification, such delay shall not be an Event ofDefault under Section 14.1(1) so long as Party B diligently pursues thepreparation, certification and delivery of the statements.  If Party B’s financial statements arepublicly available from the website of the Securities and Exchange Commission,Party B shall not be required to deliver copies of such statements to Party A.Notwithstanding this Section 15.4(2), with respect to Seller, all financialstatements shall be for Mirant Corporation.

 

(3)                                  Tofacilitate verification of invoice data, the Parties shall use commercially reasonableefforts to allow Buyer to have access to Seller’s portion of the ISO RMR websiteregarding information on the Delta RMR Units.

 

**16.****                              ****INDEMNIFICATION**

 

The Parties herebyincorporate the indemnity provision from the RMR Agreements as follows. Subjectto the limitations in Section 17, each Party shall indemnify, defend and holdharmless the other Party and its officers, directors, employees, agents,contractors and sub-contractors, from and against all third party claims,judgments, losses, liabilities, costs, expenses (including reasonable attorneys’fees) and damages for personal injury,

 

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death or property damage,caused by the negligence or willful misconduct related to this Agreement orbreach of this Agreement of the indemnifying Party, its officers, directors,agents, employees, contractors or sub-contractors, provided that this indemnificationshall be only to the extent such personal injury, death or property damage isnot attributable to the negligence or willful misconduct related to thisAgreement or breach of this Agreement of the Party seeking indemnification, itsofficers, directors, agents, employees, contractors or sub-contractors. Thisindemnification shall not include or cover any claim covered by any workers’compensation law. This indemnification shall be for an amount not exceeding thedeductible of the indemnifying Party’s commercial general liability insurance.The indemnified Party shall give the other Party prompt notice of any suchclaim. The indemnifying Party shall have the right to choose competent counsel,control the conduct of any litigation or other proceeding, and settle anyclaim. The indemnified Party shall provide all documents and assistancereasonably requested by the indemnifying Party.

 

**17.****                              ****LIMITATION OF LIABILITY**

 

THE PARTIESCONFIRM THAT THE EXPRESS REMEDIES AND MEASURES OF DAMAGES PROVIDED IN THISAGREEMENT SATISFY THE ESSENTIAL PURPOSES HEREOF FOR BREACH OF ANY PROVISION FORWHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS HEREIN PROVIDED, SUCH EXPRESSREMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, THEOBLIGOR’S LIABILITY SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION AND ALLOTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. IF NO REMEDY ORMEASURE OF DAMAGES IS EXPRESSLY HEREIN PROVIDED, THE OBLIGOR’S LIABILITY SHALLBE LIMITED TO DIRECT ACTUAL DAMAGES ONLY, SUCH DIRECT ACTUAL DAMAGES SHALL BETHE SOLE AND EXCLUSIVE REMEDY AND ALL**OTHERREMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. NEITHER PARTY SHALL BELIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES,LOST OPPORTUNITY COSTS OR LOST PROFITS, BY STATUTE, IN TORT OR CONTRACT, AT LAWOR IN EQUITY, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OFTHE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OFDAMAGES IS WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING,WITHOUT LIMITATION, THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE ISSOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGESREQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THEDAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OTHERWISE OBTAINING ANADEQUATE REMEDY IS INCONVENIENT AND THE LIQUIDATED DAMAGES CONSTITUTE AREASONABLE APPROXIMATION OF THE HARM OR LOSS.

 

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**18.****                              ****ASSIGNMENT; BINDINGEFFECT**

 

**18.1****                        Assignment.**

 

Neither Partyshall assign this Agreement or any of its rights or obligations hereunderwithout the prior written consent of the other Party, which consent shall notbe unreasonably withheld or delayed, and any such assignee shall agree inwriting to be bound by the terms and conditions hereof and shall meet thenon-assigning Party’s creditworthiness criteria which shall include, but shallnot be limited to, providing adequate assurance to the non-assigning Party inan amount and form determined by the non-assigning Party in a commerciallyreasonable manner. The Parties acknowledge that the form and amount of anyadequate assurance which the non-assigning Party may require from an assignee,as described in the preceding sentence, may not be the same as the form andamount of Security which Seller or Buyer, as applicable, is required to providepursuant to Article 21. Notwithstanding the foregoing, either Party may,without the need for consent from the other Party, (a) transfer, sell, pledge,encumber or assign this Agreement or the accounts, revenues or proceeds hereofin connection with any financing or other financial arrangements; (b) transferor assign this Agreement to an Affiliate of such Party; or (c) transfer or assignthis Agreement to any Person succeeding to all or substantially all of theassets of such Party; provided, that in the case of clauses (b) and (c) anysuch assignee shall agree in writing to be bound by the terms and conditionshereof and has (i) met the non-assigning Party’s creditworthiness criteriawhich shall include, but shall not be limited to, providing adequate securityto the non-assigning Party in an amount and form determined by thenon-assigning Party in a commercially reasonable manner and (ii) demonstratedto the non-assigning Party that it has internal or external resources withreasonable proficiency in generation operations and that it is able to operatethe Facility consistent with Good Industry Practice and in accordance with allthe obligations under this Agreement. Upon any assignment consented to by the otherParty or permitted under clauses (b) or (c) of the preceding sentence, theassigning Party shall be relieved of liability for all obligations arisinghereunder after the date such assignment becomes effective. The Parties agreethat it shall be a condition precedent to any proposed assignment of thisAgreement that the assignor and assignee shall fulfill the obligations of thisSection 18.1 before the assignment of this Agreement shall be allowed to occur.

 

**18.2****                        BindingEffect.**

 

This Agreementshall inure to the benefit of and be binding upon the Parties and theirrespective successors and permitted assigns.

 

**19.****                              ****CONFIDENTIALITY**

 

Each Party shallkeep confidential, and shall not disseminate to any third party (other thansuch Party’s Affiliates) or use for any other purpose (except with writtenauthorization), any information received from the other that is confidential orproprietary

 

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unless legally compelled(by deposition, inquiry, request for production of documents, subpoena, civilinvestigative demand or similar process, or by order of a court or tribunal ofcompetent jurisdiction, or in order to comply with applicable rules or requirementsof any stock exchange, government department or agency or other GovernmentalAuthority, or by requirements of any securities law or regulation or otherGovernmental Rule) or as necessary to enforce the terms of this Agreement.Either Party may disclose the terms of this Agreement to (i) its Affiliates,and to its and their officers, directors, employees, attorneys and accountants,(ii) credit reporting agencies, upon request and who are bound to hold, treatand protect such information on a confidential basis and (iii) its lenders,prospective lenders, financing participants and their respective consultantsand agents who (in the case of Persons identified in clause (iii)) are bound tohold, treat and protect such information on a confidential basis. If any Partyis compelled to disclose any confidential information of the other Party, suchParty shall request that such disclosure be protected and maintained inconfidence to the extent reasonable under the circumstances and use reasonableefforts to protect or limit disclosure with respect to commercially sensitiveterms. In addition, such Party shall provide the other Party with prompt noticeof the requirement to disclose confidential information in order to enable theother Party to seek an appropriate protective order or other remedy, and suchParty shall consult with the other Party with respect to the other Party takingsteps to resist or narrow the scope of any required disclosure.

 

**20.****                              ****NOTICES**

 

All notices,requests, statements or payments shall be made to the addresses and personsspecified in Exhibit D hereto. All notices or requests shall be made in writingexcept where this Agreement expressly provides that notice may be made orally.Notices required to be in writing shall be delivered by letter, facsimile orother documentary form. Notice by facsimile shall be deemed to have beenreceived on the Day on which it was transmitted (where confirmation ofsuccessful transmission is received) (unless transmitted after 5:00 p.m. at theplace of receipt or on a Day that is not a Business Day in which case it shallbe deemed received on the next Business Day); provided that dispatchnotifications and notifications of changes in availability of the Facility sentby facsimile shall be treated as received when confirmation of successfultransmission is received. Notice by hand delivery, overnight mail, or couriershall be deemed to have been received when delivered. Notice by telephone shallbe deemed to have been received at the time the call is received. A Party maychange its address by providing notice of same in accordance herewith.

 

**21.****                              ****SECURITY**

 

21.1                           Encumbrance;Grant of Security Interest. As security for the prompt and complete paymentof all amounts now due or that may hereafter become due from a Party to theother Party and performance by a Party of all of its obligations, each Partyhereby pledges, assigns, conveys and transfers to the other Party, and herebygrants to the other Party a present and continuing security interest in and to,and a general first lien upon and

 

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right of set off against,all of such Party’s right, title and interest in, to and under any Security(except Letters of Credit) which has been or may in the future be transferredto, or received by, the other Party, and all dividends, interest, and otherproceeds from time to time received, receivable, or otherwise distributed inrespect of, or in exchange for, any or all of the foregoing.

 

21.2                           CollateralRequirement. The amount of Security to be posted by a Party (the “PostingParty”) to the other Party (the “Secured Party”) shall be equal to the amountthat the Net Exposure “owed” by the Posting Party to the Secured Party for anymonth exceeds the Credit Threshold for the Posting Party, subject to theprovisions of this Article 21 (the “Collateral Requirement”).  If the Net Exposure is a negative number, Sellershall post Security, as calculated herein, to Buyer. If the Net Exposure is apositive number, Buyer shall post Security, as calculated herein, to Seller.Notwithstanding the foregoing, for Seller, the Security required hereundershall at no time be greater than $7.5 million.

 

21.3                           Calculationof Net Exposure. “Net Exposure” equals the RMR Exposure plus the Market Exposureplus the Gas Exposure. The calculation of Net Exposure shall be made inaccordance with the following terms. It is the intent of the Parties that theCalculation Date coincide, to the extent possible, with the submission bySeller to the ISO of an Estimated RMR Invoice for the previous trademonth.  If for any reason Seller does notsubmit such an invoice to the ISO, with a copy concurrently to Buyer, orestimate to Buyer on or before the fifteenth (15th) calendar day ofa month, Buyer may, at its election, estimate the amounts described below asneeded for the calculation of Net Exposure and demand any resulting CollateralRequirement. Attached Exhibit G contains a method for calculating an estimatedNet Exposure for the first four (4) Calculation Dates, the period during whichsufficient settlement data may not be available to do a more accurate calculation;provided, however, that if actual amounts become available for any of the estimatedamounts in Exhibit G, the applicable Party shall use such actual amounts in calculatingthe Net Exposure in accordance with the methodology described in Exhibit G.

 

(1) “RMR Exposure”shall be the sum of: (a) for the previous month, Buyer’s “Condition 2”obligation to Seller less the “Condition 1” revenues in the Estimated RMRInvoice; (b) for the current month and the subsequent month, Buyer’s expected “Condition2” obligation to Seller for Monthly Availability Payment plus the MonthlySurcharge Payment less the expected “Condition 1” credits for the same periodfrom Seller to Buyer; and (c) for the current month and the subsequent month,an estimate of Seller’s credits to Buyer resulting from the sale of “contractpath” Energy pursuant to the RMR Agreements. An estimate of “contract path”Energy may be calculated as MW available at the Delta RMR Units, multiplied bythe hours in the current month, multiplied by a capacity factor (equal to theprior month’s percentage of actual “contract path” Energy), multiplied by afixed heat rate of 11MMBtu/MWh, multiplied by the last published *Natural Gas Intelligence Bidweek*Spot GasPrices, California, PG&E Citygate Average, multiplied by two (2) (for two(2) months). For example, only, 966 MW * 720

 

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hours/mo * 5% (or priormonth’s actual percentage) * 11 MMBtu/MWh * $6.50/MMBtu * 2 = approximately$5.0 million;

 

(2)                                  “MarketExposure” shall be based on the last settled Market Payment between Seller andBuyer. The amount of that last settled Market Payment shall be multiplied by three(3) (for three (3) months). For clarity, for purposes of the Market Exposure calculation,a payment from Seller to Buyer is a negative number, and a payment from Buyerto Seller is a positive number; and

 

(3)                                  “GasExposure” shall be an estimate of potential Gas imbalances, calculated as (-1)* 5% * MDQ (as set forth in each of Seller’s NGSAs, which are subject to changefrom time to time) * 61 days * the last published *Natural Gas Intelligence Bidweek*Spot Gas Prices,California, PG&E Citygate Average. For clarity, for purposes of the Gas Exposure calculation, a potentialexposure by Buyer to Seller, implying potential payment from Seller to Buyer,is a negative number.

 

21.4                           Transferof Security.

 

(1)                                  Ifthe Secured Party demands Security, pursuant to the Collateral Requirement,from the Posting Party on or before the Notification Time on a Business Day,such Security shall be transferred by 5:00 p.m., New York City time, on thesecond Business Day after the Business Day such demand is made.  Security demanded of a Posting Party afterthe Notification Time on a Business Day shall be transferred by 5:00 p.m., NewYork City time, on the third Business Day after the Business Day such demand ismade. If the Posting Party demands the return of Security, pursuant to theCollateral Requirement, from the Secured Party on or before the NotificationTime on a Business Day, such Security shall be transferred by 5:00 p.m., NewYork City time, on the second Business Day after the Business Day such demandis made. Return of Security demanded by a Posting Party after the NotificationTime on a Business Day shall be transferred by 5:00 p.m., New York City time,on the third Business Day after the Business Day such demand is made.

 

(2)                                  APosting Party may substitute new Security for other existing Security of equalvalue on the Business Day following the Secured Party’s receipt of writtennotice thereof.  Upon the transfer to theSecured Party of the substitute Security, the Secured Party shall transfer therelevant replaced Security to the Posting Party no later than the secondBusiness Day after such transfer has been effected.

 

21.5                           CreditThresholds.

 

(1)                                  Theapplicable Credit Threshold for each Party is as follows:

 

To qualify for a CreditThreshold Amount at BBB-/Baa3 Credit Rating, Seller’s or its Guarantor’s CreditRating outlook from each of S&P and Moody’s, respectively, shall be “Stable”or better. Credit Threshold for Seller (or its Guarantor):

 

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| **Amount**  | ** ** | **S&P  Credit Rating** | ** ** | **Moody’s  Credit Rating** |
|-------------|------------|----------------------------|------------|---------------------------------|
| $15 million |       | AA- and above              |       | Aa3 and above                   |
| $10 million |       | BBB+ to A+                 |       | Baa1 to A1                      |
| $5 million  |       | BBB- to BBB                |       | Baa3 to Baa2                    |
| $ Zero |       | Below BBB-                 |       | Below Baa3                      |

 

To qualify for a**Credit Threshold Amount at BBB-/Baa3Credit Rating, Buyer’s Credit Rating outlook from each of S&P and Moody’s,respectively, shall be “Stable” or better. Credit Threshold for Buyer:

 

 
| **Amount**  | ** ** | **S&P  Credit Rating** | ** ** | **Moody’s  Credit Rating** |
|-------------|------------|----------------------------|------------|---------------------------------|
| $22 million |       | AA- and above              |       | Aa3 and above                   |
| $17 million |       | BBB+ to A+                 |       | Baa1 to A1                      |
| $12 million |       | BBB- to BBB                |       | Baa3 to Baa2                    |
| $ Zero |       | Below BBB-                 |       | Below Baa3                      |

 

(2) If Seller’sGuarantor issues a Guarantee, the Credit Threshold for Seller or its Guarantorshall be the lesser of (a) the amount denoted in the applicable CreditThreshold matrix and (b) the amount of the Guarantee.

 

21.6                           Intereston Cash Collateral.  Any cash postedas Security hereunder shall accrue interest for the benefit of the PostingParty in accordance with the Commercial Interest Rate.

 

21.7                           Letterof Credit.

 

If (i) the PostingParty has provided a Letter of Credit under Article 21, (ii) the Posting Partyfails to cause any Letter of Credit to be renewed or replaced at least twenty(20) Days before its expiration, and (iii) the Posting Party has not providedsubstitute Security if permitted under Article 21, then the Secured Party shallhave the right to draw all or any part of the available balance of such Letterof Credit, in an amount not exceeding the Collateral Requirement. The PostingParty’s failure to renew the Letter of Credit shall not, in and of itself,result in an Event of Default under Section 14.1(l)(f). The cash proceedsreceived by the Secured Party from drawing on a Letter of Credit under thisprovision shall be held as cash Security and shall be subject to Section 21.6.If the bank issuing the Letter of Credit fails to honor the Secured Party’sproperly documented request to draw on the outstanding Letter of Credit and thePosting Party fails to provide a replacement Letter of Credit from a financialinstitution reasonably acceptable to the Secured Party or cash as a replacementfor that dishonored Letter of Credit, an Event of Default with respect to thePosting Party shall be deemed to have occurred under Section 14.1(l)(f).

 

52

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21.8                           Exerciseof Rights Against Security.

 

If (i) an Event ofDefault with respect to the Posting Party has occurred and is continuing, or(ii) an Early Termination Date has occurred or has been designated as theresult of an Event of Default with respect to the Posting Party, then, unlessthe Posting Party has paid in full all of its obligations that are due to theSecured Party under this Agreement, the Secured Party may exercise one or moreof the following rights and remedies:

 

(1)                                  Letterof Credit. If the Security posted by the Posting Party is one or more Lettersof Credit, the Secured Party may draw on the entire, undrawn portion of all outstandingLetters of Credit; provided that, such drawing shall not exceed the Settlement Amountas calculated by the Secured Party. Notwithstanding the Secured Party’s receiptof cash proceeds from a drawing under a Letter of Credit, the Posting Partyshall remain liable (i) for any failure to provide any additional Security asrequired by Article 21 and (ii) for any amounts owing to the Secured Party andremaining unpaid after the application of the amounts so drawn by the SecuredParty.

 

(2)                                  Cash.If the Security posted by the Posting Party is cash, the Secured Party shallhave the right to apply such cash against and in satisfaction of any amount dueand payable by the Posting Party in respect of its obligations under thisAgreement.

 

**22.****                              ****FORCE MAJEURE**

 

The Parties herebyincorporate the Force Majeure provision from the RMR Agreements as follows. Ifeither Party is unable to perform its obligations under this Agreement due to aForce Majeure Event, the Party unable to perform shall notify the other Partyof the Force Majeure Event promptly after the occurrence thereof. The Party’snotice may be given orally but shall promptly be confirmed in writing orelectronically. If a Force Majeure Event prevents a Party from performing, inwhole or in part, its obligations under this Agreement, such Party’sobligations, other than obligations to pay money (unless the means oftransferring funds is affected), shall be suspended and such Party shall haveno liability with respect to such obligations; provided, that the suspension ofthe Party’s obligations is of no greater scope and of no longer duration thanis required by the Force Majeure Event. If a Force Majeure Event reduces theAvailability of an RMR Unit, the Availability shall be determined as if the RMRUnit were available up to the Unit Availability Limit in effect prior to theForce Majeure Event through the earlier of the 12th Day following the ForceMajeure Event or until the RMR Unit’s Availability is restored, whicheveroccurs first. The Party that is unable to perform by reason of a Force MajeureEvent shall use commercially reasonable efforts to remedy its inability toperform and mitigate the consequences of the Force Majeure Event as soon asreasonably practicable; provided, that no Party shall be required to obtainreplacement power or to settle any strike or other labor dispute on termswhich, in the Party’s sole discretion, arc contrary to its interest and, exceptto the extent that the RMR Unit’s primary Fuel is distillate fuel oil orSchedule H of the RMR Agreements expressly requires Seller to maintain fuel oilcapability for the RMR Unit, Seller shall not be required to obtain or use fueloil to operate an RMR Unit. The Party unable to perform

 

53

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shall advise the otherParty of its efforts to remedy its inability to perform and to mitigate theconsequences of the Force Majeure Event, and shall advise the other Party ofwhen it believes it will he able to resume performance of its obligations underthis Agreement.

 

**23.****                              ****DISPUTE RESOLUTION**

 

Section 11.1 ofthe RMR Agreements is incorporated herein by reference and shall apply to anydisputes that may arise between the Parties under this Agreement provided thatonly Buyer and Seller shall be parties to the dispute resolution process.

 

**24.****                              ****INSURANCE**

 

During theContract Term, Seller shall carry and maintain, or cause to be carried andmaintained, no less than the insurance coverages required in the RMRAgreements.

 

**25.****                              ****MATERIAL CHANGE(S)**

 

**25.1****                        RMR;RMR Agreements.**

 

If the present RMRregulatory regime in existence as of the Effective Date of this Agreement ismodified or superseded by some other regime, system or market design *(e.g.,*Market Redesign and TechnologyUpgrade) and such modification or superseding regime does not result in thetermination or expiration of any RMR Agreement but nonetheless results ineither (1) a reduction in what would have been the amount of payments to Sellerunder “Condition 2,” or (2) imposition of additional costs or charges onSeller, and such Regime Change results in a cumulative negative financialimpact to Seller of $50,000 or more on earnings before interest, taxes, anddepreciation, Buyer shall increase its payments hereunder to ensure that Sellerreceives the same payments-to-costs benefit as the Parties have agreed to aspart of this Agreement. In such event, Seller shall invoice Buyer in accordancewith the billing provisions set forth in this Agreement each time thecumulative negative financial impact on Seller’s earnings as defined hereinreaches at least $50,000. Buyer’s obligation to pay any such invoices shallcontinue for the remaining term of this Agreement; provided, however, as ofJanuary 1, 2009, Buyer shall have the unconditional right to terminate thisAgreement on a Unit by Unit basis at any time; provided that, (a) suchtermination shall become effective on the date the ISO permits Seller to switcheach affected RMR Unit from “Condition 1” status to “Condition 2” status and(b) Buyer pays Seller, subject to the payment and netting provisions set forthherein, the total amount of Seller’s outstanding negative financial impact onearnings as defined herein at the time of termination.

 

54

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**25.2****                        AirPermit.**

 

If the air permitfor the Facility, as originally issued, is amended such that the maximum numberof Run Hours or the minimum load, as determined by environmental restrictionscontained in the air permit, materially reduces the availability of theFacility, Seller shall provide Buyer with prompt written notice of suchamendment, and Buyer shall have the right to terminate this Agreement byproviding written notice to Seller within ninety (90) Days of Buyer’s receiptof notice of any such amendment, with any such termination to be effectiveninety (90) Days after delivery of such termination notice. Seller and Buyershall not be liable for any damages resulting from an early termination of thisAgreement pursuant to this Section 25.2. If the Facility’s air permit isamended by any Governmental Authority, Seller shall promptly notify Buyer ofany modifications to the Operational Limitations as may be necessary to complywith the amended air permit. Notwithstanding the above, Seller shall have theduty to use its commercially reasonable efforts to oppose any amendment thatmay adversely affect the dispatch rights provided for herein.

 

**26.****                              ****MISCELLANEOUS**

 

**26.1****                        Duty toMitigate.**

 

Each Party agreesthat it has a duty to mitigate damages and covenants that it will usecommercially reasonable efforts to minimize any damages it may incur as aresult of the other Party’s performance or non-performance of this Agreement.

 

**26.2****                        EntireAgreement and Amendments.**

 

This Agreementconstitutes the entire agreement between the Parties with respect to thesubject matter hereof. There are no prior or contemporaneous agreements orrepresentations affecting the subject matter of this Agreement other than thoseherein expressed. No amendment, modification or change to this Agreement shallbe enforceable unless reduced to writing and executed by both Parties.

 

**26.3****                        GoverningLaw.**

 

This Agreement andthe rights and duties of the Parties hereunder shall be governed by andconstrued, enforced and performed in accordance with the laws of the State ofCalifornia, without giving effect to principles of conflicts of laws that wouldrequire the application of the law of any other state.

 

**26.4****                        Waivers.**

 

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The failure ofeither Party hereto to enforce at any time any provision of this Agreementshall not be construed to be a waiver of such provision, nor in any way toaffect the validity of this Agreement or any part hereof or the right of aParty thereafter to enforce each and every such provision. A waiver under thisAgreement must be in writing and state that it is a waiver. No waiver of anybreach of this Agreement shall be held to constitute a waiver of any other orsubsequent breach.

 

**26.5****                        Fines.**

 

Except asotherwise provided in this Agreement, each Party shall be responsible for andshall pay the fines that are levied upon it by a Governmental Authority orregulatory body as a result of such Party’s own actions or inactions except tothe extent one Party is obligated to indemnify the other Party under thisAgreement.

 

**26.6****                        Severability.**

 

Except asotherwise stated herein, any provision or section declared or rendered unlawfulby a Governmental Authority, or deemed unlawful because of a statutory change,will not otherwise affect the lawful obligations that arise under thisAgreement.

 

**26.7****                        Headings;Exhibits.**

 

The headings usedfor the sections and articles herein are for convenience and reference purposesonly and shall in no way affect the meaning or interpretation of the provisionsof this Agreement. Any and all Exhibits referred to in this Agreement are, bysuch reference, incorporated herein and made a part hereof for all purposes.

 

**26.8****                        NoThird Party Beneficiaries.**

 

Nothing in thisAgreement shall provide any benefit to any third party or entitle any thirdparty to any claim, cause of action, remedy or right of any kind, it being theintent of the Parties that this Agreement shall not he construed as a thirdparty beneficiary contract.

 

**26.9****                        Counterparts.**

 

This Agreement maybe executed in several counterparts, each of which is an original and all ofwhich constitute one and the same instrument. Execution pages may be deliveredby facsimile, and each such facsimile copy of an execution page shall have thesame legal force and effect as would an original.

 

**26.10****                 NoPartnership.**

 

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Nothing containedin this Agreement shall be construed to create a partnership, joint venture,agency or other relationship that may invoke fiduciary obligations between theParties hereto.

 

**26.11****                 PressReleases.**

 

Neither Party mayissue a press release or make any public statement with respect to thisAgreement or the substance hereof without the prior written agreement of theother Party with respect to the form, substance and timing thereof, except thateither Party may make any such press release or public statement when thereleasing Party is advised by its legal counsel that such a press release orpublic statement is required by law, regulation, stock exchange rules or inconnection with the financing of the Facility, but in such event the Partiesshall use their reasonably good faith efforts to agree as to the form,substance and timing of such release or statement.

 

**26.12****                 Rights under the Federal Power Act.**

 

(1)                                  ThisAgreement shall not be subject to change through any unilateral application byeither Party to any Governmental Authority including, but not limited to, theFERC pursuant to the provisions of Sections 205 or 206 of the Federal PowerAct, without the prior mutual written agreement of both Parties.  Each of the Parties hereby irrevocably waivesany right it may or can have to unilaterally seek any change, or to support anyapplication, complaint, or action by any other party or Governmental Authorityseeking such change.

 

(2)                                  Absentagreement by the Parties to the proposed change, the standard of review forchanges to any Section of this Agreement proposed by a Party, a non-party or theFERC acting suasponte shall be the “public interest” standard ofreview set forth in United Gas Pipe Line Co. v. Mobile Gas Service Corp.,350 U.S. 332 (1956) and Federal Power Commission v. Sierra Pacific Power Co.,350 U.S. 348 (1956) (the “Mobile-Sierra” doctrine).

 

[Signature pagefollows this page]

 

57

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IN WITNESS WHEREOF, each of Seller and Buyerhas caused this Agreement to be executed on its behalf by its duly authorizedrepresentative to be effective as of the date first above written.

 
|       |       | **Mirant****Delta, LLC**             |
|------------|------------|--------------------------------------|
|       |       |                                 |
|       |       | By:                                  | /s/ Curtis A. Morgan |   |
|       |       |                                 |   |
|       |       | Name:                                | Curtis A. Morgan |   |
|       |       |                                 |
|       |       | Title:                               | Chief Executive Officer |   |
|       |       |                                 |
|       |       | Date:                                | 1/13/05 |   |
|       |       |                                 |
| ** ** | ** ** | ** **                           |
| ** ** | ** ** | **Mirant Potrero, LLC**              |
| ** ** | ** ** | ** **                           |
|       |       | By:                                  | /s/ Curtis A. Morgan |   |
|       |       |                                 |
|       |       | Name:                                | Curtis A. Morgan |   |
|       |       |                                 |
|       |       | Title:                               | Chief Executive Officer |   |
|       |       |                                 |
|       |       | Date:                                | 1/13/05 |   |
|       |       |                                 |
|       |       | ** **                           |
|       |       | **Pacific Gas and Electric Company** |
|       |       |                                 |
|       |       | By:                                  | /s/ Gordon R. Smith |   |
|       |       |                                 |
|       |       | Name:                                | Gordon R. Smith |   |
|       |       |                                 |
|       |       | Title:                               | President and C.E.O. |   |
|       |       |                                 |
|       |       | Date:                                | January 14, 2005 |   |
|            |            |                                      |  |  |  |  |  |  |

 

58

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**Exhibit A**

 

McDermott                                   

Will & Emery                         

 
| Boston  Brussels Chicago Dissaldorf London los Angeles Miami Milanmunich new york Orange County Rome San Diego  Silicon Valley Washington, D.C. | FILED   OFFICE OF THE  SECRETARY | Michael A. Yuffee  Attorney at Law  myuffee@mwe.com  202.756.8086 |
|------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|------------------------------------------------------------------------|
|                                                                                                                                                 | 2005 JAN - 7 P 3:55              |
|                                                                                                                                                 | FEDERAL ENERGY                   |
|                                                                                                                                                 | REGULATORY  COMMISSION           |

 

January 7, 2005

 

BY HAND DELIVERY

 

Hon. Magalie R. Salas

Secretary

Federal Energy Regulatory Commission

888 First Street, N.E.

Washington, D.C. 20426

 

Re:                               *Mirant Delta, LLC andMirant Potrero, LLC,*DocketNo. ERO5-343-000

 

Dear Secretary Salas:

 

Pursuant to Rule 602 of the Federal EnergyRegulatory Commission’s Rules of Practice and Procedure, 18 C.F.R. § 385.602(2004), Mirant Delta, LLC (“Mirant Delta”) and Mirant Potrero, LLC (“MirantPotrero”) (collectively, “Mirant”),(1) hereby submit an original and 14 copies of an Offer of PartialSettlement (“Settlement”) among the following parties (collectively, the “SupportingParties”): Mirant, the California Independent System Operator Corporation (“ISO”),the California Electricity Oversight Board (“EOB”) and Pacific Gas and ElectricCompany (“PG&E”). This Settlement represents an integrated and completeresolution of all issues in this proceeding relating to: (i) Owner’s RepairCost Obligations; (ii) Annual Fixed Revenue Requirements (“AFRRs”); and (iii)Variable O&M Rates (“VOM Rates”) for Contra Costa Units 4, 5 and 7*,*PittsburgUnits 5 and 6, and Potrero Units 3, 4, 5 and 6. In addition, this Settlementconditionally extends the settlement of these issues through 2008.

 

The Supporting Parties are authorized torepresent that although the California Public Utilities Commission (“CPUC”) isnot a signatory to the Settlement, the CPUC does not oppose the Settlement.

 

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(1)                                  Beginning on July 14, 2003, Mirant Corporationand certain of its affiliated entities (collectively,  “Mirant”) commenced proceedings under Chapter11 of the Bankruptcy Code, 11 U.S.C. §§ 101, *etseq.,*in the United States Bankruptcy Court for the NorthernDistrict of Texas, Fort Worth Division (the “Bankruptcy Court”). In filing thisExplanatory Statement and related Settlement, Mirant does not intend to waiveany protections which might be afforded to it under the Bankruptcy Code,including but not limited to those protections provided by Section 362 thereof.

 

----

 

 

The Settlement consists of:

 

(i) this transmittal letter;

 

(ii) an Explanatory Statement concerning theSettlement;

 

(iii) the Offer of Partial Settlement by andbetween the Supporting Parties;

 

(iv) a proposed order approving the Settlement;and

 

(v) a draft notice of filing.

 

Mirant respectfully requests that theSecretary transfer the Settlement to the Commission pursuant to Rule 602(b)(2)(ii).Mirant submits that this Settlement is in the public interest and should beaccepted by the Commission as it is the result of in-depth negotiations amongMirant, PG&E, CPUC and EOB and resolves all issues in this proceedingrelating to: (i) Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii) VOMRates. Accordingly, Mirant requests that the Commission approve the Settlement.

 
|   | Respectfully  submitted,                   |
|--------|--------------------------------------------|
|   |                                       |
|   | /s/  Michael A. Yuffee                     |   |
|   | Michael  A. Yuffee                         |
|   | Bruce  A. Bedwell                          |
|   | McDERMOTT  will & emery LLP            |
|   |                                       |
|   | Debra  Raggio Bolton                       |
|   | Mirant  Corporation                        |
|   |                                       |
|   | Attorneys  for                             |
|   | Mirant  Delta, LLC and Mirant Potrero, LLC |

 

 

Attachments

 

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**CERTIFICATEOF SERVICE**

 

I hereby certify that I have this day servedcopies of the foregoing document upon each person designated on the officialservice list as compiled by the Secretary in this proceeding in accordance withthe requirements of Rule 2010 of the Rules of Practice and Procedure, 18 C.F.R.385.2010 (2004).

 

In addition, copies of this filing have been served on the followingpersons:

 
| Deborah  A. Le Vine                     |   | Charles  F. Robinson                    |
|-----------------------------------------|--------|-----------------------------------------|
| Director  of Contracts                  |   | Vice  President and General Counsel     |
| California  ISO Corporation             |   | California  ISO Corporation             |
| 151  Blue Ravine Road                   |   | 151  Blue Ravine Road                   |
| Folsom,  CA 95630                       |   | Folsom,  CA 95630                       |
|                                    |   |                                    |
| Robert  C. Kott                         |   | Mary  Anne Sullivan                     |
| Manager  of Reliability Contracts       |   | Hogan  & Hartson                    |
| California  ISO Corporation             |   | 555  Thirteenth Street, NW              |
| 151  Blue Ravine Road                   |   | Washington,  DC 20004                   |
| Folsom,  CA 95630                       |   |                                    |
|                                    |   |                                    |
| Laura  Douglass                         |   | Stuart  K. Gardiner                     |
| Team  Lead, Reliability Strategy        |   | Law  Department, B30A                   |
| Pacific  Gas and Electric Company       |   | Pacific  Gas and Electric Company       |
| Mail  Code N12E                         |   | P.O.  Box 7442                          |
| P.O.  Box 770000                        |   | San  Francisco, CA 94120                |
| San  Francisco, CA 94177-0001           |   |                                    |
|                                    |   |                                    |
| Kenneth  L. Glick                       |   | Laurence  G. Chaset                     |
| Staff  Counsel                          |   | Legal  Division                         |
| California  Electricity Oversight Board |   | California  Public Utilities Commission |
| 770  L. Street                          |   | 505  Van Ness Avenue                    |
| Suite  1250                             |   | San  Francisco, CA 94102                |
| Sacramento,  CA 95814                   |   |                                    |

 

| DATED at Washington, D.C., this 7th day of January, 2005. |
|-----------------------------------------------------------|
|                                                      |
|                                                      |
|                                                      |   | /s/  Bruce A. Bedwell |   |
|                                                      |   | Bruce  A. Bedwell |   |

 

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**EXPLANATORYSTATEMENT**

 

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**EXPLANATORYSTATEMENT (1)**

** **

**I.****                                        ****PROCEDURAL HISTORY**

 

1.                                       Mirant Delta is the owner of the Contra CostaPower Plant located in Antioch, California, and the Pittsburg Power Plantlocated in Pittsburg, California. Mirant Potrero is the owner of the PotreroPower Plant located in San Francisco, California.

 

2.                                       Mirant Delta and Mirant Potrero operategenerating units at their respective power plants subject to Must-Run ServiceAgreements (“RMR Agreements”) with the ISO, the Schedules to which containcertain generation unit-specific terms and conditions. The units subject tosuch obligations under these RMR Agreements are referred to herein as RMRUnits.(2)

 

3.                                       By their express terms, the RMR Agreementsprovide for annual revisions to, among other things, the AFRR and the VariableO&M Rate (“VOM Rate”) for each RMR Unit. Pursuant to Schedule B, Section 7of the RMR Agreements, the AFRR values are determined by the Formula Rate setforth in Schedule F to the RMR Agreements, unless Mirant files a supersedingrate schedule under Section 205 of the Federal Power Act. The VOM Rates alsoare determined by a formula set forth in Schedule F. Schedule F requires thatMirant provide annually to the ISO an “Information Package detailing andsupporting all calculations” used to determine the AFRRs and VOM Rates underthe respective formulas for the upcoming calendar year (“Schedule F FilingRequirements”). Mirant is required to provide a copy of this InformationPackage to the ISO “in printed form and a suitable electronic format” and tothe Commission “in an informational filing.”

 

4.                                       On October 9, 2001, Mirant submitted, inDocket No. ER02-64-000, an information package in the form of an informationalfiling (“2002 Information Package”) in accordance with Schedule F of its RMRAgreements. The 2002 Information Package contained data and workpapersdetailing Mirant’s calculation of its proposed AFRRs and VOM Rates for calendaryear 2002. PG&E, the ISO, the EOB, and the CPUC (collectively, the “JointParties”)(3) filed protests to the 2002 Information Package, raising a varietyof issues.

 

5.                                       On December 19, 2001, the Commission issuedan order conditionally accepting for filing the revised tariff sheets submittedin Docket No. ER02-198-000, subject to refund and

 

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(1)                                  This Explanatory Statement is not intended toalter any of the specific provisions of the Settlement, including its exhibitsand attachments, and is provided solely to comply with the Commission’s rules.

 

(2)                                  Specifically, the following units owned byMirant will be subject to RMR Agreements during calendar year 2005: ContraCosta Units 4, 5 and 7; Pittsburg Units 5 and 6; and Potrero Units 3, 4, 5 and 6.

 

(3)                                  The only other party to respond to thisfiling was the City and County of San Francisco, whose Motion to Intervene raisedno substantive issues.

 

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the outcome of the ongoing proceedings in Docket No. ER02-64-000. *Mirant Delta, LLC,*97 FERC ¶ 61,284(2001).

 

6.                                       On November 20, 2002, the Supporting Partiesentered into a stipulation and agreement (the “2002-2004 Settlement”), whichfully resolved all issues in Docket Nos. ER02-64-000 and ER02-198-000. No partyobjected to the 2002-2004 Settlement and the Commission approved the settlementon February 5, 2003.(4) The 2002-2004 Settlement set forth Mirant’s AFRRs andVOM Rates for the period January 1, 2002 through December 31,**2004,thereby eliminating the need for Mirant to make Schedule F filings for thosecalendar years. The 2002-2004 Settlement also set forth Mirant’s Owner’s RepairCost Obligations for the same period.

 

7.                                       On December 16, 2004, Mirant filed with theCommission various proposed rate and rate schedule changes (referred to as the “Limited205 Filing”). The Limited 205 Filing, among other things, contains theproposed: (i) Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii) VOM Ratesfor each RMR Unit, to be effective January 1, 2005.

 

**II.****                                    ****DESCRIPTION OF SETTLEMENT**

 

1.                                       In anticipation of the Schedule F FilingRequirements and the Limited 205 Filing, Mirant, PG&E, CPUC and BOBinitiated informal settlement discussions to resolve any potential issuesrelating to the AFRRs and VOM Rates for calendar year 2005. As a result ofthese informal settlement discussions, the Supporting Parties submit theattached Settlement, pursuant to which the Supporting Parties consent to the:(i) Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii) VOM Rates as setforth in Mirant’s Limited 205 Filing for 2005.(5)

 

2.                                       Pursuant to the Settlement, the AFRR, VOMRate and Owner’s Repair Cost Obligation values in Mirant’s Limited 205 Filingwill be effective for the period January 1, 2005, through December 31, 2005 asfollows: (a) Owner’s Repair Cost Obligations as contained in Schedule A,Section 13 of the RMR Agreements; (b) AFRRs, as contained in Table B-6 of the RMRAgreements; and (c) VOM Rates, as contained in Table Cl-18 of the RMRAgreements.

 

3.                                       Specifically, the Supporting Parties consentto the following, as reflected in Mirant’s Limited 205 Filing for 2005:

 

a.                                       New AFRRs for Contra Costa Unit 7, PittsburgUnits 5-6, and Potrero Units 3-6;

 

b.                                      For Contra Costa Units 4-5, the continuationof the AFRRs contained in the 2002-2004 Settlement;

 

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(4)                                  *Mirant Delta, LLC andMirant Potrero, LLC*, 102FERC ¶ 61,130 (2003).

 

(5)                                  The ISO has not had the opportunity toindependently investigate or evaluate the basis for the rates in the Settlement.It nevertheless supports the Settlement based on the recognition that it is theproduct of extensive negotiation among Mirant, the CPUC, the EOB and PG&E,which is the Responsible Utility with respect to these RMR Units, and based onthe fact that the Commission will review and approve the Settlement only upon adetermination that it is fair and reasonable and in the public interest.

 

2

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c.                                       For all RMR Units, the continuation of theVOM Rates contained in the 2002-2004 Settlement;

 

d.                                      For all RMR Units, new Owner’s Repair CostObligations; and

 

e.                                       Revised Rate Schedule Sheets to be effectiveJanuary 1, 2005 through December 31, 2005.

 

4.                                       Upon agreement by the Supporting Parties,this Settlement may be extended, without modification, for the period January1, 2006 through December 31, 2008, by providing joint notice of such extensionto the Commission.

 

5.                                       The Supporting Parties have agreed that theSettlement will be deemed to satisfy Mirant’s Schedule F Filing Requirementsfor 2005 and, if the Settlement is extended, for 2006 through 2008.

 

6.                                       Through this Settlement, the SupportingParties consent only to those changes in Mirant’s Limited 205 Filing for 2005discussed herein, and take no position in this Settlement on the other changesset forth in Mirant’s Limited 205 Filing.

 

**III.****                                ****EFFECTIVE DATE**

 

The Settlement shall be effective on thelater of: (1) the date the Settlement is approved by the United StatesBankruptcy Court for the Northern District of Texas, Fort Worth Division, whichapproval will be sought promptly by Mirant after the Commission issues an orderapproving the Settlement without modification or condition or, if modified orconditioned by the Commission, after acceptance of the modification orconditions contained in such order by all of the Supporting Parties; or (2) ifmodified or conditioned by the Bankruptcy Court, upon the date of acceptance ofthe modifications or conditions contained in such order by all of theSupporting Parties (“Effective Date”).

 

**IV.****                               ****REFUNDS**

 

Refunds will be paid pursuant to the termsand conditions of the Settlement.

 

**V.****                                   ****COMMENTS**

 

The Supporting Parties seek expeditedtreatment and request waiver of Rules 602(d)(2) and 602(f) so that initialcomments on the Settlement are due on January 14, 2005, and reply comments aredue on January 21, 2005.

 

**VI.****                               ****POLICY****ISSUES****AND OTHER ISSUES ARISINGUNDER THE****SETTLEMENT**

 

In accordance with the Chief Judge’s October 15,2003 Notice to the Public concerning Information to be Provided with SettlementAgreements, the Parties provide the following information:

 

3

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**1.****                                     ****Underlying Issues and MajorImplications**

 

The Parties wish to resolve all outstandingissues with respect to the: (i) Owner’s Repair Cost Obligations; (ii) AFRRs;and (iii) VOM Rates set forth in Mirant’s Limited 205 Filing for 2005. Throughthis Settlement, the Parties agree that the data contained in Mirant’s Limited205 Filing for 2005 concerning: (i) Owner’s Repair Cost Obligations; (ii)AFRRs; and (iii) VOM Rates are to be accepted as filed, to be effective fromJanuary 1, 2005, through December 31, 2005 and thereafter until changed byCommission order or extended by the Parties pursuant to Section 1.6 of theSettlement. This Settlement does not change any obligation Mirant has under theRMR Agreements to make future filings to change these rates.

 

**2.*****                                     *****Policy Implications**

 

The unopposed changes to Mirant’s RMRAgreements do not raise any policy implications.

 

**3.****                                     ****Pending Cases That May BeAffected**

 

The Settlement will not affect any casescurrently pending before the Commission.

 

**4.****                                     ****Issues of First Impressionand Reversals on**Commission Position**

 

The Settlement does not raise any issues offirst impression and does not propose to reverse any previous Commissiondecisions involving similar issues.

 

**5.****                                     ****Standard of Review**

 

The Parties intend that the standard ofreview for changes to any section of the Settlement proposed by a Party, anon-party or the Commission acting *suasponte,*shall be the “public interest” standard of review set forthin *United Gas Pipe Line Co. v. Mobile GasService Corp.,*350 U.S. 332 (1956) and *Federal Power Commission**v. Sierra Pacific PowerCo.,*350 U.S. 348 (1956) (the *“Mobile-Sierra”*doctrine).

 

4

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**OFFER OFSETTLEMENT**

 

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**OFFER OFSETTLEMENT**

 

This Offer of Partial Settlement (the “Settlement”)is dated as of January 7, 2005, by and among Mirant Delta, LLC (“Mirant Delta”)and Mirant Potrero, LLC (“Mirant Potrero”) (collectively, “Mirant”),(1) theCalifornia Independent System Operator Corporation (“ISO”), the CaliforniaElectricity Oversight Board (“EOB”) and Pacific Gas and Electric Company (“PG&E”).These parties are referred to herein individually as a “Party” and collectivelyas the “Parties” or “Supporting Parties.” The Parties are authorized torepresent that although the California Public Utilities Commission (“CPUC”) isnot a signatory to the Settlement, the CPUC does not oppose the Settlement.

 

**RECITALS**

 

A.                                   Mirant Delta is the owner of the Contra CostaPower Plant located in Antioch, California, and the Pittsburg Power Plantlocated in Pittsburg, California. Mirant Potrero is the owner of the PotreroPower Plant located in San Francisco, California.

 

B.                                     Mirant Delta and Mirant Potrero operategenerating units at their respective power plants subject to Must-Run ServiceAgreements (“RMR Agreements”) with the ISO, the Schedules to which containcertain generation unit-specific terms and conditions. The units subject tosuch obligations under these RMR Agreements are referred to herein as RMRUnits.(2)

 

C.                                     By their express terms, the RMR Agreementsprovide for annual revisions to, among other things, the Annual Fixed RevenueRequirement (“AFRR”) and Variable O&M Rate (“VOM Rate”) for each RMR Unit.Pursuant to Schedule B, Section 7 of the RMR Agreements, the AFRR values aredetermined by the Formula Rate set forth in Schedule F to the RMR Agreements,unless Mirant files a superseding rate schedule filed under Section 205 of theFederal Power Act. The VOM Rate values also are determined by a formula setforth in Schedule F. Schedule F requires that Mirant provide annually to theISO an “Information Package detailing and supporting all calculations” used todetermine the AFRRs and VOM Rates under the respective formulas for theupcoming calendar year (“Schedule F Filing Requirements”). Mirant is requiredto provide a copy of this Information Package to the Commission “in aninformational filing.”

 

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(1)                                  Beginning on July 14, 2003, MirantCorporation and certain of its affiliated entities (collectively, “Mirant”)commenced proceedings under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§101, et seq., in the United States Bankruptcy Court for the Northern Districtof Texas, Fort Worth Division (the “Bankruptcy Court”). In filing thisSettlement, Mirant does not intend to waive any protections which might beafforded to it under the Bankruptcy Code, including but not limited to thoseprotections provided by Section 362 thereof.

 

(2)                                  Specifically, the following units owned byMirant will be subject to RMR Agreements during calendar year 2005: ContraCosta Units 4, 5 and 7; Pittsburg Units 5 and 6; and Potrero Units 3, 4, 5 and6.

 

----

 

D.                                    On October 9, 2001, Mirant submitted, inDocket No. ER02-64-000, an information package in the form of an informationalfiling (“2002 Information Package”) in accordance with Schedule F of its RMRAgreements. The 2002 Information Package contained data and workpapersdetailing Mirant’s calculation of its proposed AFRRs and VOM Rates for calendaryear 2002. PG&E, the ISO, the EOB, and the CPUC filed protests to the 2002Information Package, raising a variety of issues.(3)

 

E.                                      On December 19, 2001, the Commission issuedan order conditionally accepting for filing the revised tariff sheets submittedin Docket No. ER02-198-000, subject to refund and the outcome of the ongoingproceedings in Docket No. ER02-64-000. *MirantDelta, LLC,*97 FERC ¶ 61,284 (2001).

 

F.                                      On November 20, 2002, the Parties enteredinto a stipulation and agreement (the “2002-2004 Settlement”), which fullyresolved all issues in Docket Nos. ER02-64-000 and ER02-198-000. No partyobjected to the 2002-2004 Settlement and the Commission approved the settlementon February 5, 2003.(4) The 2002-2004 Settlement set forth Mirant’s AFRRs and VOMRates for the period January 1, 2002 through December 31, 2004, therebyeliminating the need for Mirant to make Schedule F filings for those calendaryears. The 2002-2004 Settlement also set forth the Owner’s Repair CostObligations for the same period.

 

G.                                     On December 16, 2004, Mirant filed with theCommission various proposed rate and rate schedule changes (referred to as the “Limited205 Filing”). The Limited 205 Filing, among other things, contains theproposed: (i) Owner’s Repair Cost Obligation; (ii) AFRR; and (iii) VOM Rate foreach RMR Unit, to be effective January 1, 2005.

 

H.                                    The Parties wish to resolve all outstandingissues with respect to the: (i) Owner’s Repair Cost Obligations; (ii) AFRRs;and (iii) VOM Rates set forth in Mirant’s Limited 205 Filing for 2005.(5)

 

NOW, THEREFORE, in consideration of therecitals and the mutual covenants and agreements hereinafter set forth, theParties mutually covenant and agree as follows:

 

----

(3)                                  The only other party to respond to thisfiling was the City and County of San Francisco, whose Motion to Interveneraised no substantive issues.

 

(4)                                  *Mirant Delta, LLC andMirant Potrero, LLC,*102FERC ¶ 61,130 (2003).

 

(5)                                  The ISO has not had the opportunity toindependently investigate or evaluate the basis for the rates in theSettlement. It nevertheless supports the Settlement based on the recognitionthat it is the product of extensive negotiation among Mirant, the CPUC, the EOBand PG&E, which is the Responsible Utility with respect to these RMR Units,and based on the fact that the Commission will review and approve theSettlement only upon a determination that it is fair and reasonable and in thepublic interest.

 

2

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**1.****                                     ****IMPLEMENTATION**

 

1.1                                 The Parties agree that the data contained inMirant’s Limited 205 Filing for 2005 concerning: (i) Owner’s Repair CostObligations; (ii) AFRRs; and (iii) VOM Rates are to be accepted as filed, to beeffective from January 1, 2005, through December 31, 2005 and thereafter untilchanged by Commission order or extended by the Parties pursuant to Section 1.6of the Settlement. This Settlement does not change any obligation Mirant hasunder the RMR Agreements to make future filings to change these rates.Specifically, the Parties consent to the following:

 

(a)                                  The AFRR values for the various RMR Unitsshall be as follows:

 
| **RMR  Unit**  | ** ** | **AFRR** | ** ** |
|----------------|------------|----------|------------|
| Contra Costa 4 |       | $        | 456,209    |   |
| Contra Costa 5 |       | $        | 456,209    |   |
| Contra Costa 7 |       | $        | 22,237,027 |   |
| Pittsburg 5    |       | $        | 15,157,190 |   |
| Pittsburg 6    |       | $        | 15,157,190 |   |
| Potrero 3      |       | $        | 17,908,424 |   |
| Potrero 4      |       | $        | 338,285    |   |
| Potrero 5      |       | $        | 451,175    |   |
| Potrero 6      |       | $        | 461,284    |   |

 

(b)                                 The VOM Rates for the RMR Units at the ContraCosta, Pittsburg, and Potrero Facilities shall be as follows:

 
| **RMR  Unit**  | ** ** | **VOM Rate ($/MWh)** | ** ** |
|----------------|------------|----------------------|------------|
| Contra Costa 4 |       | $                    | 0          |   |
| Contra Costa 5 |       | $                    | 0          |   |
| Contra Costa 7 |       | $                    | 0.99       |   |
| Pittsburg  5   |       | $                    | 0.76       |   |
| Pittsburg  6   |       | $                    | 0.76       |   |
| Potrero  3     |       | $                    | 3.16       |   |
| Potrero  4     |       | $                    | 0          |   |
| Potrero  5     |       | $                    | 0          |   |
| Potrero  6     |       | $                    | 0          |   |

 

3

----

 

(c)                                  The Owner’s Repair Cost Obligations for theContra Costa, Pittsburg, and Potrero Facilities shall be as follows:

 
| **Facility** | ** ** | **Owner’s Repair  Cost Obligation** | ** ** |
|--------------|------------|------------------------------------------|------------|
| Contra Costa |       | $                                        | 423,152    |   |
| Pittsburg    |       | $                                        | 552,707    |   |
| Potrero      |       | $                                        | 406,885    |   |

 

1.2                                 The Supporting Parties hereby incorporateinto this Settlement the portions of the Revised Rate Schedule Sheets attachedto Mirant’s Limited 205 Filing for 2005 (“Revised Rate Schedule Sheets”)showing the agreed-upon changes identified in Section 1.1, *supra,*to be effective January 1, 2005.

 

1.3                                 Upon their effectiveness, the Revised RateSchedule Sheets shall supersede and revise the corresponding currently effectiverate schedule sheets that comprise the RMR Agreements previously filed byMirant.

 

1.4                                 The Supporting Parties consent only to thosechanges in Mirant’s Limited 205 Filing for 2005 specified herein, and take noposition in this Settlement on the other changes set forth in Mirant’s Limited205 Filing.

 

1.5                                 If approved by the Commission, thisSettlement fully resolves all issues in this proceeding relating to: (i) Owner’sRepair Cost Obligations; (ii) AFRRs; and (iii) VOM Rates. The SupportingParties have agreed that the Settlement will be deemed to satisfy any ScheduleF Filing Requirements applicable to Mirant for 2005 and, if the Settlement isextended, for 2006 through 2008.

 

4

----

 

1.6                                 Upon agreement by the Supporting Parties,this Settlement may be extended, without modification, for the period January1, 2006 through December 31, 2008, by providing joint notice of such extensionto the Commission.

 

**2.****                                     ****EFFECTIVE DATE**

 

2.1                                 The Settlement shall be effective on thelater of: (1) the date the Settlement is approved by the United StatesBankruptcy Court for the Northern District of Texas, Fort Worth Division, whichapproval will be sought promptly by Mirant after the Commission issues an orderapproving the Settlement without modification or condition or, if modified orconditioned by the Commission, after acceptance of the modifications orconditions contained in such order by all the Supporting Parties; or (2) ifmodified or conditioned by the Bankruptcy Court, upon the date of acceptance ofthe modifications or conditions contained in such order by all of the Parties (“EffectiveDate”).

 

2.2                                 Within ten (10) business days followingeither Commission approval without modification or condition, or if modified orconditioned by the Commission, within ten (10) business days of acceptance ofthe modifications or conditions contained in such order by all of theSupporting Parties, Mirant will file and thereafter diligently prosecute in theBankruptcy Court, a request for approval of the Settlement, thereafter takingall actions necessary to obtain such approval.

 

**3.****                                     ****ACTION BY PARTIES**

 

3.1                                 Except for the Bankruptcy Court Approvalprovided in Section 2, the Parties hereby waive any and all rights to seekrehearing or judicial review of the Commission’s order(s) approving thisSettlement, and shall be bound by and entitled to the benefits of theprovisions of this Settlement; *provided,however,*that if the Commission approves this Settlement with modificationor condition, a Party may seek rehearing or judicial review of the Commission’sorder(s) approving this Settlement solely to challenge the Commission’simposition of modifications or conditions in order to preserve the terms andconditions of this Settlement as filed.

 

3.2                                 The AFRR, VOM Rate and Owner’s Repair CostObligation values in Mirant’s Limited 205 Filing will be effective for theperiod January 1, 2005 through December 31, 2005, and may be extended underSection 1.6 as follows: (a) Owner’s Repair Cost Obligations as contained inSchedule A, Section 13 of the RMR Agreements; (b) AFRRs, as contained in Table B-6of the RMR Agreements; and (c) VOM Rates, as contained in Table C1-18 of theRMR Agreements.

 

3.3                                 Nothing in this Settlement is intended toaffect any obligation of Mirant under the RMR Agreements other than thoseexpressly provided herein, and specifically, Mirant shall continue to submitproposed annual changes to the RMR Agreements in accordance with Section 4.11(a),Schedule B, and Schedule D of the RMR Agreements and consistent with this Settlement.

 

5

----

 

**4.****                                     ****RESERVATIONS**

 

4.1                                 Agreement to or acquiescence in thisSettlement shall not be deemed in any respect to constitute an admission by anyParty hereto that any allegation or contention made by any other Party in theseproceedings is true or valid. In reaching this Settlement, the Parties specificallyagree that this Settlement represents a negotiated agreement for the solepurpose of settling certain issues, as described herein. No Party or affiliateof any of the Parties shall be deemed to have approved, accepted, agreed to, orconsented to any fact, concept, theory, rate methodology, principle, or methodrelating to jurisdiction, prudence, reasonable cost of service, costclassification, cost allocation, rate design, rate schedule provisions, orother matters underlying or purported to underlie any of the resolutions of theissues provided herein. The Commission’s approval of the Settlement shall notconstitute approval of, or precedent regarding, any principle or issue in thisproceeding.

 

4.2                                 The Parties agree that the resolution of anymatter in this Settlement shall not be deemed to be a “settled practice” asthat term was interpreted and applied in *PublicService Commission of the State of New York v. FERC,*642 F.2d 1335(D.C. Cir. 1980).

 

4.3                                 (a)                                  Each Party irrevocably waives its rights,including its rights under §§ 205-206 of the Federal Power Act, unilaterally toseek or support a change in the rate(s), charges, classifications, terms orconditions of this Settlement. By this provision, each Party expressly waives,solely with respect to this Settlement, its right to seek or support: (i) anorder from the Commission finding that the rate(s), charges, classifications,terms or conditions agreed to by the Parties in the Settlement are unjust andunreasonable; or (ii) any refund with respect thereto. Each Party agrees not tomake or support such a filing or request, and that these covenants and waiversshall be binding notwithstanding any regulatory or market changes that mayoccur hereafter.

 

(b)                                 Absent the agreement of all Parties to theproposed change, the standard of review for changes to any section of theSettlement proposed by a Party (to the extent that any waiver in Section (a)above is unenforceable or ineffective as to such Party), a non-party or theCommission acting *sua sponte,*shallbe the “public interest” standard of review set forth in *United Gas Pipe Line Co. v. Mobile Gas Service Corp.,*350 U.S. 332 (1956) and *FederalPower Commission v. Sierra Pacific Power**Co.*,350 U.S. 348 (1956) (the *“Mobile-Sierra”*doctrine).

 

4.4                                 This Settlement does not resolve any issuesrelated to Mirant’s Limited 205 Filing for 2005 not discussed herein nor doesthis Settlement restrict in any way the positions that the Parties may takewith respect to such issues. The Parties specifically reserve their rights and positionstherein. Further, this Settlement is not intended to limit or affect the rightsand remedies of the Parties with respect to any other particular dispute notresolved by this Settlement. Nothing in this Section 4.4 is intended toconflict with Section 4.3.

 

4.5                                 Notwithstanding any provision of thisSettlement, nothing included in this Settlement is intended to limit or affectthe rights and remedies of the Parties with respect to any claim that theamounts invoiced under the RMR Agreements are incorrect, including any dispute involvingthe interpretation or application of the RMR Agreements.

 

6

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**5.****                                     ****MISCELLANEOUS PROVISIONS**

 

5.1                                 The titles and headings of the variousArticles and Sections in this Settlement arc for reference purposes only. Theyare not to be construed or taken into account in interpreting this Settlement,and do not qualify, modify, or explain the effects of this Settlement.

 

5.2                                 The rights conferred and obligations imposedon any Party by this Settlement shall inure to the benefit of and be binding onthat Party’s successors in interest or assignees as if such successor orassignee was itself a Party hereto.

 

5.3                                 This Settlement may be executed incounterparts by each Party, each of which shall be deemed to be an original,but which together shall constitute one and the same instrument.

 

5.4                                 The discussions among the Parties that haveresulted in this Settlement have been conducted on the explicit understandingthat they were undertaken subject to Rule 602(e) of the Commission’s Rules ofPractice and Procedure, 18 C.F.R. § 385.602(e)(2004), and the rights of theParties with respect thereto shall not be impaired by this Settlement.

 

**6.****                                     ****CONCLUSION**

 

The Parties respectfully request that theCommission approve the instant Settlement without modification or condition.

 

Signed and dated this 7th day of January,2005.

 
| The  California Independent System Operator | Mirant Delta, LLC and Mirant Potrero, LLC |
|---------------------------------------------|-------------------------------------------|
| Corporation                                 |                                      |
|                                        |                                      |
| By:                                         | /s/ Mary Anne Sullivan                    |   | By: | /s/  Debra Raggio Bolton |   |   |
|                                        |                                      |   |
| Name:                                       | Mary  Anne Sullivan                       |   | Name: | Debra  Raggio Bolton |   |
|                                        |                                      |   |   |
|                                        | Title:                                    | Associate  General Counsel |   |
|                                        |                                      |   |   |
| Pacific  Gas and Electric Company           | California  Electricity Oversight Board   |
|                                        |                                      |
| By:                                         | /s/  Stuart K. Gardiner                   |   | By: | /s/  Erik N. Saltmarsh |   |
|                                        |                                      |   |   |
| Name:                                       | Stuart  K. Gardiner                       |   | Name: | Erik  N. Saltmarsh |
|                                        |                                      |   |   | Kenneth  L. Glick |
| Title:                                      | Attorney                                  |   |   |   |
|                                        | Title:                                    | General  Counsel |
|                                             |                                           |  |  |  |  |  |  |  |  |  |  |

 

7

----

 

**DRAFT ORDER**

 

----

 

FEDERAL ENERGY REGULATORY COMMISSION

WASHINGTON, D.C. 20426

 

[Date]

 
|   |   | In  Reply refer to:      |
|--------|--------|--------------------------|
|   |   | Docket  No. ER05-343-000 |

 

McDermott Will & Emery LLP

ATTN: Michael A.**Yuffee 

Attorney for Mirant Delta,LLCand Mirant Potrero, LLC

600 13th Street, N.W.

Washington, D.C. 20005

 

Dear Mr. Yuffee:

 

On January 7, 2005, you filed an offer ofsettlement among Mirant Delta, LLC, Mirant Potrero, LLC (collectively, “Mirant”),the California Independent System Operator Corporation (“ISO”), the CaliforniaElectricity Oversight Board (“EOB”) and Pacific Gas and Electric Company (“PG&E”)in the above-referenced dockets.

 

The subject settlement is in the public interestand is hereby approved. The Commission’s approval of this settlement does notconstitute approval of, or precedent regarding, any principle or issue in thisproceeding. The parties agree that the settlement is subject to the publicinterest standard of review.

 
|   | By  direction of the Commission, |
|--------|----------------------------------|
|   |                             |
|   | Magalie  R. Salas,               |
|   | Secretary                        |

 

cc: All Parties

 

----

 

**DRAFTNOTICE**

 

----

 

**UNITEDSTATES OF AMERICA**

**BEFORE THE**

**FEDERALENERGY REGULATORY COMMISSION**

 
| Mirant  Delta, LLC   | ) | Docket No. ER05-343-000 |
|----------------------|---|-------------------------|
| Mirant  Potrero, LLC | ) |                    |

 

NOTICE OF FILING

(January  , 2005)

 

Take notice that, on January 7, 2005, thefollowing parties submitted an Offer of Settlement in the above-referenceddockets: Mirant Delta, LLC, Mirant Potrero, LLC, the California IndependentSystem Operator Corporation, the California Electricity Oversight Board andPacific Gas and Electric Company.

 

Any person desiring to intervene or toprotest this filing must file in accordance with Rules 211 and 214 of theCommission’s Rules of Practice and Procedure (18 CFR 385.211, 385.214).Protests will be considered by the Commission in determining the appropriateaction to be taken, but will not serve to make protestants parties to theproceeding. Any person wishing to become a party must file a notice ofintervention or motion to intervene, as appropriate. Such notices, motions, orprotests must be filed on or before the comment date. Anyone filing a motion tointervene or protest must serve a copy of that document on the Applicant andall the parties in this proceeding.

 

The Commission encourages electronicsubmission of protests and interventions in lieu of paper using the “eFiling”link at http://www.ferc.gov. Persons unable to file electronically shouldsubmit an original and 14 copies of the protest or intervention to the FederalEnergy Regulatory Commission, 888 First Street, N.E., Washington, D.C. 20426.

 

This filing is accessible on-line athttp://www.ferc.gov, using the “eLibrary” link and is available for review inthe Commission’s Public Reference Room in Washington, D.C.   There is an “eSubscription” link on the website that enables subscribers to receive email notification when a document isadded to a subscribed docket(s). For assistance with any FERC Online service,please email FERCOnlineSupport@ferc.gov, or call (866) 208-3676 (toll free).For TTY, call (202) 502-8659.

 

Comment Date: 5:00 pm Eastern Time on January14, 2005. Reply Comment Date: 5:00 pm Eastern Time on January 21, 2005.

 
|   | Magalie  R. Salas |
|--------|-------------------|
|   |              |
|   | Secretary         |

 

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**Exhibit B**

 

Examples of Applicability of Schedule G vs. Modified Schedule G

 

Calculation is done by unit, by year

Applicable for 2005-2012

In this example, using volume (MWh), but logic also applies to contractservice limit hours in the same manner

(Schedule G rates apply for CAlSO calls beyond these volumes)

 

Assume:

Pittsburg 5 # of allowed startups is 20, per actual 2005 RMR contract

Pittsburg 5 volumetric limit is 400,000 MWh (frozen # to be used todetermine applicability of Modified Schedule G rates)

In 2007, the RMR contract for Pittsburg 5 allows for 280,000 MWh underbase rates

 
| Sample #1,  2007 Operation                          | 2007 Costs                                                   |
|-----------------------------------------------------|--------------------------------------------------------------|
| CAISO calls  (combined DA, HA and RT) = 310,000 MWh | CAISO energy  at Schedule C rates for 280,000 MWh            |
| PG&E  calls = 140,000 MWh                       | CAISO energy  at Schedule G rates for 30,000 MWh             |
| CAISO  startups = 15                                | PG&E  energy at Schedule C rates for 120,000 MWh         |
| PG&E  startups = 8                              | PG&E  energy at Modified Schedule G rates for 20,000 MWh |
|                                                | Schedule B  rates for 20 startups                            |
|                                                | Modified  Schedule G rates for 3 startups                    |
|                                                |                                                         |
| Sample #2,  2007 Operation                          | 2007 Costs                                                   |
| CAISO calls  (combined DA, HA and RT) = 220,000 MWh | CAISO energy  at Schedule C rates for 220,000 MWh            |
| PG&E  calls = 210,000 MWh                       | CAISO energy  at Schedule G rates for 0 MWh                  |
| CAISO  startups = 10                                | PG&E  energy at Schedule C rates for 180,000 MWh         |
| PG&E  startups = 8                              | PG&E  energy at Modified Schedule G rates for 30,000 MWh |
|                                                | Schedule B  rates for 18 startups                            |
|                                                | Modified  Schedule G rates for 0 startups                    |
|                                                |                                                         |
| Sample #3,  2007 Operation                          | 2007 Costs                                                   |
| CAISO calls  (combined DA, HA and RT) = 20,000 MWh  | CAISO energy  at Schedule C rates for 20,000 MWh             |
| PG&E  calls = 350,000 MWh                       | CAISO energy  at Schedule G rates for 0 MWh                  |
| CAISO  startups = 25                                | PG&E  energy at Schedule C rates for 350,000 MWh         |
| PG&E  startups = 2                              | PG&E  energy at Modified Schedule G rates for 0 MWh      |
|                                                | Schedule B rates  for 20 startups                            |
|                                                | Schedule G  rates for 5 startups                             |
|                                                | Modified  Schedule G rates for 2 startups                    |
|                                                |                                                         |
| Sample #4,  2007 Operation                          | 2007 Costs                                                   |
| CAISO calls  (combined DA, HA and RT) = 310,000 MWh | CAISO energy  at Schedule C rates for 280,000 MWh            |
| PG&E  calls = 80,000 MWh                        | CAISO energy  at Schedule G rates for 30,000 MWh             |
| CAISO  startups = 17                                | PG&E  energy at Schedule C rates for 80,000 MWh          |
| PG&E  startups = 4                              | PG&E  energy at Modified Schedule G rates for 0 MWh      |
|                                                | Schedule B  rates for 20 startups                            |
|                                                | Modified  Schedule G rates for 1 startups                    |

 

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** **

**Exhibit C – OFO Penalties**

 

Low-Inventory OFO AllocationExamples:

 

Situation 1: Both partiesdeliver volumes short of the tolerance band.

 

The aggregated shortfall ofboth parties is short of the 5% tolerance band set by the Gas Transporter forthe OFO.  Calculate the volume subject topenalty for each party by calculating that party’s shortfall percentage,deducting the 5% allowance (tolerance band) from that shortfall, and applyingthe remaining percentage to that party’s usage. This result is that party’s volume subject to penalty.

 

Situation 2: One party deliversvolumes short of the tolerance band and both parties deliver short of theirusage.

 

The aggregated shortfall ofboth parties is short of the 5% tolerance band set by the Gas Transporter forthe OFO.  Calculate the shortfallattributed to each party.  Since PG&Eis within the 5% tolerance band and Mirant is not, the entire shortfall isallocated to Mirant.  OFO penalties forthis instance are allocated to Mirant. Note that the volume subject to penalty was reduced because PG&E didnot fully use its 5% allocation.

 

High inventory OFO AllocationExample:

 

Situation 3: One party deliversvolumes in excess of the tolerance band and the other party delivers short ofits usage.

 

The aggregated shortfall ofboth parties is in excess of the 5% tolerance band set by the Gas Transporterfor the OFO.  Calculate the excessattributed to each party.  Since Mirantdelivered volumes short of its usage and PG&E delivered volumes in excessof the tolerance band, the entire excess is allocated to PG&E.  OFO penalties for this instance are allocatedto PG&E.  Note that the volumesubject to penalty was reduced because Mirant did not use any of its 5%allocation and in fact, delivered short of its usage.

 

OFO Example

 
| ** **                | ** ** | **Gas  Delivery** | ** ** | **Gas  Usage** | ** ** | **Volume** | ** ** | **%**      | ** ** | **Utility****Tolerance** | ** ** | **Allowed** | ** ** | ** **     | ** ** | ** **     | ** ** | **Gas  Volume Subject to Penalty** | ** ** |
|---------------------------|------------|-------------------|------------|----------------|------------|------------|------------|------------|------------|--------------------------|------------|-------------|------------|----------------|------------|----------------|------------|------------------------------------|------------|
| **Situations**            | ** ** | **Mirant**        | ** ** | **PG&E**   | ** ** | **Total**  | ** ** | **Mirant** | ** ** | **PG&E**             | ** ** | **Total**   | ** ** | **Difference** | ** ** | **Difference** | ** ** | **Band**                           | ** ** | **Volume** | ** ** | **Mirant** | ** ** | **PG&E** | ** ** | **Mirant** | ** ** | **PG&E** | ** ** | **Total** | ** ** |
| Both over  tolerance band |       | 50000             |       | 75000          |       | 125000     |       | 60000      |       | 63000                    |       | 143000      |       | -16000         |       | -12.59         | %          | -5                                 | %          | -71.50 |   | 16.67 | % | -9.64 | % | -7000 |   | -3850 |   | -10650 |   |
|                      |       |              |       |           |       | 0          |       |       |       |                     |       | 0           |       |           |       |           |       |                               |       |   |   |   |   |   |   | 0 |   | 0 |   | 0 |   |
| One Party over            |       | 50000             |       | 81000          |       | 131000     |       | 60000      |       | 63000                    |       | 143000      |       | -12000         |       | -8.39          | %          | -5                                 | %          | -71.50 |   | -16.67 | % | -2.41 | % | -4850 |   | 0 |   | -4850 |   |
|                      |       |              |       |           |       | 0          |       |       |       |                     |       | 0           |       |           |       |           |       |                               |       |   |   |   |   |   |   | 0 |   | 0 |   |   |   |

 

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**EXHIBIT D**

**NOTICES**

 
| Mirant                                                                                                         | PG&E                                                                                                                         |
|----------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                           |                                                                                                                             |
| **NOTICES:**                                                                                                   | **NOTICES:**                                                                                                                     |
| 1155  Perimeter Center WAtlanta,  GA 30338-5416Attention:  Legal  Phone: 678.579.6900  Facsimile: 678.579.5988 | P.O.  Box 770000, MCN12E  San Francisco, CA 94177Attention: Director,  Power ContractsPhone: 415.973.0070Facsimile: 415.973.9176 |
|                                                                                                           |                                                                                                                             |
| **PAYMENT:**                                                                                                   | **PAYMENT:**                                                                                                                     |
| Bank  of America, N.A.ABA  # 11000012Account  Number 3751003269                                                | By  Wire Transfer:Mellon  Trust of New England, N.A.Account  Title: PG&EAccount  Number: 059994  ABA Number: 011001234       |
|                                                                                                           |                                                                                                                             |
| **CREDIT:**                                                                                                    | **CREDIT:**                                                                                                                      |
| Attention: Credit  DepartmentPhone: 678.579.3061  Facsimile: 678.579.5823                                      | Attention: Credit  DepartmentPhone: 415.972.5244Facsimile: 415.973.7301                                                          |
|                                                                                                           |                                                                                                                             |
| **SCHEDULING:**                                                                                                | **SCHEDULING:**                                                                                                                  |
| 24  Hour Desk: 678.579.310024  Hour Desk Fax: 678.579.5541                                                     | Day  Ahead Desk: 415.973.622224  Hour Desk: 415.973.7900  24 Hour Fax: 415.972.5340                                              |

 

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**EXHIBIT E**

FORM OF LETTER OF CREDIT

**ISSUING BANK LETTERHEAD**

**ADDRESS**

 
| Issuing  Bank;                                                | [insert  name     |              |
|---------------------------------------------------------------|-------------------|-------------------|
|                                                          | Insert address]   |              |
|                                                          |              |              |
|                                                          |              |              |
| Date:                                                         | [insert  date]    |              |
|                                                          |              |              |
| Irrevocable  Standby Letter of Credit Number: [insert number] |              |
|                                                          |              |              |
| Beneficiary:                                                  |              |              |
|                                                          |              |              |
| Applicant: [insert name                                       |              |              |
|                                                          | insert  address]  |              |
| Advising  Bank:                                               | [insert  name     |              |
|                                                          | insert  address   | (if  applicable)] |
|                                                          |              |              |
| Confirming  Bank:                                             | [insert  name     |              |
|                                                          | Insert  address   |              |
|                                                          | (if  applicable)] |              |

 

At therequest of [insert name of Applicant] and for the account of [insert name ofaccount party which may be the same as Applicant] (the “Account Party”), We,[insert name of Issuing Bank], hereby issue our irrevocable standby letter ofcredit (“Letter of Credit”), Number [insert number] in your favor available fordraw in the amount of United States Dollars [spell out the amount followed by (US$xxxxxxxx.xx)](hereinafter, as may be reduced from time to time in accordance with the provisionshereof, the (“Stated Amount”)), effective immediately and expiring at ouroffice at the address indicated above with our close of business at 5:00 PM[insert City] time on [insert date] (“Expiration Date”) unless terminatedearlier in accordance with the provisions hereof.

 

Funds under this Letter of Credit will bemade available to you by payment against presentation of the following documents:

 

1.               Your drawing requestmarked “drawn under [insert name of Issuing Bank], Letter of Credit Number [insertnumber], dated [insert date]”;

 

***AND***

 

2.               A Beneficiary Certificatepurportedly signed by an authorized representative of the [insert name ofBeneficiary] stating either:

 

----

 

(i) “This Letter of Credit will expire in twenty(20) calendar days or less and [insert nameof Account Party] has not provided alternate security acceptable to [insertname of Beneficiary] and the amount being drawn of United States Dollars [spellout the amount followed by (US$xxxxxxxx.xx)]does not exceed the amount of security that [insert name of Account Party] is required to post to[insert name of Beneficiary] under the terms of that certain Power Purchase and Sale Agreement (FirstWraparound Agreement) by and among Mirant Delta, LLC and Mirant Potrero, LLCand Pacific Gas and Electric Company, dated December   , 2004.”;

 

OR

 

(ii) “The amount of the accompanying drawing requestrepresents the amount owed by [insert name of Applicant] to [insert name ofBeneficiary] in accordance with the terms of that certain Power Purchase and Sale Agreement(First Wraparound Agreement) by and among Mirant Delta, LLC and Mirant Potrero, LLC andPacific Gas and Electric Company, dated December    , 2004, whichamount was not paid when due, and such failure to pay was not remedied within theapplicable cure period and the amount owed remains unpaid.”

 

SpecialConditions:

 

1.                   Partial drawing(s) arepermitted.

2.                 This Letter of Creditshall terminate upon the earlier of:

 

(i)                       THE MAKINGBY YOU OF THE FINAL DRAWING AVAILABLE TO BE MADE HEREUNDER;

(ii)                    THE SURRENDEROF THIS ORIGINAL LETTER OF CREDIT ACCOMPANIED BY YOUR LETTER ACKNOWLEDGINGTERMINATION OF THIS LETTER OF CREDIT; AND

(iii)                 THE EXPIRATIONDATE.

 

3.         All banking charges associated with this Letterof Credit are for the account of the Applicant.

4.         This Letter of Credit is not transferable.

5.         Each drawing request honored by us shall reducethe Stated Amount by the amount honored.

 

Wehereby engage with you that drawing requests drawn under and in compliance withtheterms of this Letter of Credit will be duly honored if drawn and presented forpayment at any time before the close of business [Time], Eastern PrevailingTime at our counters located at [address] on or before the Expiration Date orin the event of Force Majeure, as defined under Article 17 of the UniformCustoms and Practice for Documentary Credits (1993 Revision) InternationalChamber of Commerce Publication No. 500 (“UCP”), that interrupts our business,within fifteen (15) days after resumption of our business, whichever is later.

 

----

 

Exceptas otherwise stated herein, this credit is subject to the UCP and, with respectto mattersnot so covered, this Letter of Credit is subject to and governed by the laws ofthe Stateof New York.

 

If you**have any questionsregarding this Letter of Credit, please call [Telephone No.] or write to theattention of [Insert Department name and address] citing the Letter of Creditnumber quoted above.

 
| By:    |                  |   |   |
|--------|-----------------------|--------|--------|
|   | Authorized  Signature |   |   |
| Name:  |                  |   |   |
| Title: |                  |   |   |
|   |                  |   |   |
|   |                  |   |   |
| By:    |                  |   |   |
|   | Authorized  Signature |   |   |
| Name:  |                  |   |   |
| Title: |                  |   |   |
|        |                       |        |        |  |  |

 

----

**Exhibit F - Payment and Invoicing Estimated Timeline for RMR and MarketPayments**

Trade Month: Tto T + 30
| T - T+30          | *January*  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| T+30 - T+60       | *February* | T+40  Est RMR Invoice                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| T+60 - T+90       | *March*    | T+60  Revised Est RMR Invoice

 

T+65  RMR Settlement for Trade Month T to T+30  PG&E pays Mirant:

Monthly Option Payment (Condition 2 Rates),  Sect 12.1(1) (a) & (b)

Variable Costs (Schedule C) for ‘market  path’  and fuel charges, Sect 12.1 (2) (d) & (e)

Schedule G Sect 12.2 & Modified  Schedule G Sect 12.3

Make Whole RMR, Sect 25.1

 

Mirant credits PG&E:

Monthly Option Payment (Condition 1 Rates),  Sect 12.4(1)

Variable Costs (Schedule C) for ‘contract  path’  incl ISO fuel charges, Sect 12.4(5) &(6)

Gas Reimbursement, Sect 12.4(7)

Schedule D charges for Startups, Sect  12.4(8)

Payment for fuel burned to create steam for  Pittsburg 7, Sect 12.4(11)

 

T+70

Est RMR Invoice for trade month T+30 to T+60

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| T+90 - T+120      | *April*    | T+90

Revised Est RMR Invoice for trade month T+30 to T+40

Preliminary GMC and Market Invoice [Mirant to PG&E]

 

T+95

RMR Settlement for Trade Month T+30 to T+60  PG&E pays Mirant:

Monthly Option Payment (Condition 2 Rates),  Sect 12.1(1) (a) & (b)  Variable Costs (Schedule C) for ‘market path’ excl fuel charges, Sect 12.1(2)  (d) & (e) Schedule G (Sect 12.2) & Modified Schedule G Sect 12.3  Make Whole RMR, Sect 25.1

 

Mirant credits PG&E:

Monthly Option Payment (Condition 1 Rates),  Sect 12.4(1)  Variable Costs (Schedule C) for ‘contract path’ and ISO fuel charges, Sect  12.4(5) & (6)  Gas Reimbursement, Sect 12.4(7)  Schedule D charges for Startups, Sect 12.4(8)  Payment for fuel burned to create steam for Pittsburg 7, Sect 12.4(11)

 

Market Settlement for Trade Month T to T+30 (Preliminary)

PG&E pays Mirant:  Energy dispatch for Reg down Ancillary Service, Sect 12.1 (1) (c)  Energy dispatch for Supplemental Energy Dec Bids, Sect 12.1 (1) (d)  UDP Sect 7.4  Delta Dispatch Mitigation Fees, Sect 8  Schedule G for Must Offer, Sect 10  Gas for UDP Sect 11.7

 

Mirant credits PG&E:

Ancillary Services capacity amended by the  ISO, Sect 12.4 (2)  Ancillary Services Energy, Sect 12.4 (3)  Energy from Supplemental Energy Inc. [ILLEGIBLE], Sect 12.4 (4)  Minimum Load Cost Compensation Sect 12.4 (9)

 

T+105  Market Settlement for T to T+30 [Final] |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| T+120 - T+150     | *May*      | T+125  Same as T+95, based on actuals  RMR Settlement for T+60 to T+90  Market Settlement for T+30 to T+60

 

T+135  Revised Adj Invoice for T to T+30

 

T+140  Revised Adj Settlement for T to T+30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| T+150 & above | *June*     | T+155

RMR Settlement for T+90 to T+120  Market Settlement for T+60 to T+90  True ops for T to T+30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

----

 

**EXHIBITG - ESTIMATED NET EXPOSURE**

 

Assuming Condition 1 Term(energy delivery) starts on January 1, 2006

Calculation of Net Exposurebased on definition in PPA and does not necessarily reflect expected settlementamounts

For example, Gas Exposure mayhave $0 being settled, as it is only a potential exposure, whereas gastransportation will get settled but is not included in the Net Exposurecalculation.

 

Estimated Net Exposure on January 15, 2006
| 1. RMR  Exposure    |       | $     | 930,633         |       | 1a - to be based on Est RMR invoice -  number here based on assumption of 5% contract path in December 2005 -  PG&E owes Mirant                                                                                                                                                |
|---------------------|------------|-------|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       | $     | 3,500,000       |       | 1b - Current month - PG&E will owe  Mirant - based on 50% Fixed Option Payment Factor and Surcharge Payment  Factor, but subject to change                                                                                                                                     |
|                |       | $     | 3,500,000       |       | 1b - Prompt month - PG&E will owe  Mirant - based on 50% Fixed Option Payment Factor and Surcharge Payment  Factor, but subject to change                                                                                                                                      |
|                |       | $     | (2,569,367)     |       | 1c - Estimated as 966 MW * 31 days in Jan *  24 h/day * 5%* 11 MMBtu/MWh * $6.50/MMBtu - Mirant will owe PG&E                                                                                                                                                                  |
|                |       | $     | (2,320,718)     |       | 1c - Estimated as 966 MW * 28 days in Feb *  24 h/day * 5%* 11 MMBtu/MWh * $6.50/MMBtu - Mirant will owe PG&E  use last published NGI Bidweek Spot Gas Prices, California, PG&E Citygate  Average; assume 5% capacity factor until actual data available                   |
| 2. Market  Exposure |       | $     | (5,625,000)     |       | estimate of $1.875 million per month * 3  for previous, current and prompt month due to no data and no past exposure -  Mirant will owe PG&E if Mirant and/or PG&E are able to roughly  estimate a market payment for February and agree, could multiply that by 3 instead |
| 3. Gas  Exposure    |       | $     | (3,173,923)     |       | Estimated as (-1) *160,097 MDQ * 5% * 61  days * $6.50/MMBtu, but will use updated MDQs when available - Mirant potentially  owes PG&E MDQ based on Pittsburg 7 and Contra Costa 6; use last published  NGI monthly index for PG&E Citygate just like in 1c                |
| **NET  EXPOSURE**   | ** ** | **$** | **(5,758,376)** | ** ** | **PG&E  exposed to Mirant**                                                                                                                                                                                                                                                    |

 

Estimated Net Exposure on February 15, 2006
| 1. RMR  Exposure    |       | $     | 930,633         |       | 1a - to be based on Est RMR invoice -  number here based on assumption of 5% contract path in January - PG&E  owes Mirant                                                                                                                                                       |
|---------------------|------------|-------|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       | $     | 3,500,000       |       | 1b - Current month - PG&E will owe  Mirant - based on 50% Fixed Option Payment Factor and Surcharge Payment  Factor, but subject to change                                                                                                                                      |
|                |       | $     | 3,500,000       |       | 1b - Prompt month - PG&E will owe  Mirant - based on 50% Fixed Option Payment Factor and Surcharge Payment  Factor, but subject to change                                                                                                                                       |
|                |       | $     | (2,320,718)     |       | 1c - Estimated as 966 MW * 28 days in Feb *  24 h/day * 5% * 11 MMBtu/MWh * $6.50/MMBtu - Mirant will owe PG&E                                                                                                                                                                  |
|                |       | $     | (2,569,367)     |       | 1c - Estimated as 966 MW * 31 days in March  * 24 h/day * 5% * 11 MMBtu/MWh * $6.50/MMBtu - Mirant will owe PG&E  use last published NGI Bidweek Spot Gas Prices, California, PG&E Citygate  Average; assume 5% capacity factor until actual data available                 |
| 2. Market  Exposure |       | $     | (5,625,000)     |       | estimate of $1.875 million per month * 3  for previous, current, and prompt month due to no data and no past exposure -  Mirant will owe PG&E if Mirant and/or PG&E are able to roughly  estimate a market payment for February and agree, could multiply that by 3 instead |
| 3. Gas  Exposure    |       | $     | (3,173,923)     |       | Estimated as (-1) *160,097 MDQ * 5% * 61  days * $6.50/MMBtu, but will use updated MDQs when available - Mirant potentially  owes PG&E MDQ based on Pittsburg 7 and Contra Costa 5; use last published  NGI monthly index to PG&E Citygate just like in 1c                  |
| **NET  EXPOSURE**   | ** ** | **$** | **(5,758,375)** | ** ** | **PG&E  exposed to Mirant**                                                                                                                                                                                                                                                     |

 

Estimated Net Exposure on March 15, 2006
| 1. RMR  Exposure    |       | $     | 1,179,282       |       | 1a - to be based on Est RMR invoice -  number here based on assumption of 5% contract path in February - PG&E  owes Mirant                                                                                                                                                       |
|---------------------|------------|-------|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       | $     | 3,500,000       |       | 1b - Current month - PG&E will owe  Mirant - based on 50% Fixed Option Payment Factor and Surcharge Payment  Factor, but subject to change                                                                                                                                       |
|                |       | $     | 3,500,000       |       | 1b - Prompt month - PG&E will owe  Mirant - based on 50% Fixed Option Payment Factor and Surcharge Payment  Factor, but subject to change                                                                                                                                        |
|                |       | $     | (2,569,367)     |       | 1c - Estimated as 966 MW * 31 days in March  * 24 h/day * 5% * 11 MMBtu/MWh * $6.50/MMBtu - Mirant will owe PG&E                                                                                                                                                                 |
|                |       | $     | (2,486,484)     |       | 1c - Estimated as 966 MW * 30 days in April  * 5% * 11 MMBtu/MWh * $6.50/MMBtu - Mirant will owe PG&E  use last published NGI Bidweek Spot Gas Prices, California, PG&E Citygate  Average; assume 5% capacity factor until actual data available                             |
| 2. Market  Exposure |       | $     | (5,625,000)     |       | estimate of $1.875 million per month * 3  for previous, current, and prompt month due to no data and no past exposure -  Mirant will owe PG&E if Mirant and/or PG&E are able to roughly estimate  a market payment for February or March and agree, could multiply that by 3 |
| 3. Gas  Exposure    |       | $     | (3,173,923)     |       | Estimated as (-1)*160,097 MDQ * 5% * 61  days * $6.50/MMBtu, but will use updated MDQs when available - Mirant potentially  owes PG&E MDQ based on Pittsburg 7 and Contra Costa 6; use last published  NGI monthly index for PG&E Citygate just like in 1c                   |
| **NET  EXPOSURE**   | ** ** | **$** | **(5,675,492)** | ** ** | **PG&E  exposed to Mirant**                                                                                                                                                                                                                                                      |

 

Estimated Net Exposure on April15, 2006

 

----

 

 
| Boston  Brussels Chicago Düsseldorf London los Angeles Miami Milan munich new  york Orange County Rome San Diego Silicon Valley Washington, D.C. | FILED  OFFICE OF THE  SECRETARY  2005 JAN – 7 P 3:55  FEDERAL ENERGY  REGULATORY COMMISSION | Michael A. YuffeeAttorney at Lawmyuffee@mwe.com202.756.8066 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|-------------------------------------------------------------|
|                                                                                                                                                            |

 

January7, 2005

 

BY HAND DELIVERY

 

Hon. Magalie R. Salas

Secretary

Federal Energy RegulatoryCommission

888First Street, N.E.

Washington, D.C. 20426

 

Re:                               *Mirant Delta, LLC andMirant Potrero, LLC*,**Docket No. ER05-343-000

 

DearSecretary Salas:

 

Pursuantto Rule 602 of the Federal Energy Regulatory Commission’s Rules of Practice andProcedure, 18 C.F.R. § 385.602 (2004), Mirant Delta, LLC (“Mirant Delta”) andMirant Potrero, LLC (“Mirant Potrero”) (collectively, “Mirant”),(1) hereby submit an original and 14 copiesof an Offer of Partial Settlement (“Settlement”) among the following parties(collectively, the “Supporting Parties”): Mirant, the CaliforniaIndependent System Operator Corporation (“ISO”), the California ElectricityOversight Board (“EOB”) and Pacific Gas and Electric Company (“PG&E”). ThisSettlement represents an integrated and complete resolution of all issues in this proceeding relating to: (i) Owner’sRepair Cost Obligations; (ii) Annual Fixed Revenue Requirements(“AFRRs”); and (iii) Variable O&M Rates (“VOM Rates”) for Contra CostaUnits 4, 5 and 7, Pittsburg Units 5 and 6, and Potrero Units 3, 4, 5 and 6. Inaddition, this Settlement conditionallyextends the settlement of these issues through 2008.

 

TheSupporting Parties are authorized to represent that although the CaliforniaPublic Utilities Commission (“CPUC”) is nota signatory to the Settlement, the CPUC does not oppose the Settlement.

 

----

(1)                                        Beginning on July 14,2003, Mirant Corporation and certain of its affiliated entities (collectively, “Mirant”) commenced proceedings under Chapter11 of the Bankruptcy Code, 11 U.S.C. §§101, *etseq*.,**in the United States BankruptcyCourt for the Northern District of Texas, Fort Worth Division (the “BankruptcyCourt”). In filing this Explanatory Statement and related Settlement, Mirantdoes not intend to waive any protections which might be afforded to it underthe Bankruptcy Code, including but not limited to those protections provided bySection 362 thereof.

 

----

 

The Settlement consists of:

 

(i) this transmittal letter;

 

(ii) an Explanatory Statement concerning theSettlement;

 

(iii) the Offer of Partial Settlement by andbetween the Supporting Parties;

 

(iv) a proposed order approving theSettlement; and

 

(v) a draft notice of filing.

 

Mirant respectfully requests that theSecretary transfer the Settlement to the Commission pursuant to Rule 602(b)(2)(ii). Mirant submitsthat this Settlement is in the public interest and should be accepted by theCommission as it is the result of in-depth negotiations among Mirant, PG&E,CPUC and EOB and resolves all issues in this proceeding relating to: (i)Owner’s Repair Cost Obligations;(ii) AFRRs; and (iii) VOM Rates. Accordingly, Mirant requests that the Commission approve the Settlement.

 
|   | Respectfully submitted,                   |
|--------|-------------------------------------------|
|   |                                      |
|   | /s/ Michael  A. Yuffee                    |   |
|   | Michael A.  Yuffee                        |
|   | Bruce A. Bedwell                          |
|   | MCDERMOTT  WILL & EMERY LLP           |
|   |                                      |
|   | Debra Raggio Bolton                       |
|   | Mirant Corporation                        |
|   |                                      |
|   | Attorneys for                             |
|   | Mirant Delta, LLC and Mirant Potrero, LLC |

 

Attachments

 

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**CERTIFICATE OF SERVICE**

 

I hereby certify that I have this day servedcopies of the foregoing document upon each person designated on the officialservice list as compiled by the Secretary in this proceeding in accordance with the requirements of Rule 2010 ofthe Rules of Practice and Procedure, 18 C.F.R. 385.2010 (2004).

 

In addition, copies of this filing have been served on the followingpersons:

 
| Deborah A. Le Vine                     | Charles F. Robinson                    |
|----------------------------------------|----------------------------------------|
| Director of Contracts                  | Vice  President and General Counsel    |
| California ISO Corporation             | California ISO Corporation             |
| 151 Blue Ravine Road                   | 151 Blue Ravine Road                   |
| Folsom, CA 95630                       | Folsom, CA 95630                       |
|                                   |                                   |
| Robert C. Kott                         | Mary Anne Sullivan                     |
| Manager of Reliability Contracts       | Hogan &* *Hartson             |
| California ISO Corporation             | 555 Thirteenth Street, NW              |
| 151 Blue Ravine Road                   | Washington, DC 20004                   |
| Folsom, CA 95630                       |                                   |
|                                   |                                   |
| Laura  Douglass                        | Stuart K. Gardiner                     |
| Team Lead, Reliability Strategy        | Law Department, B30A                   |
| Pacific Gas and Electric Company       | Pacific Gas and Electric Company       |
| Mail Code N12E                         | P.O. Box 7442                          |
| P.O. Box 770000                        | San Francisco, CA 94120                |
| San Francisco, CA 94177-0001           |                                   |
|                                   |                                   |
| Kenneth L. Glick                       | Laurence G. Chaset                     |
| Staff Counsel                          | Legal Division                         |
| California Electricity Oversight Board | California Public Utilities Commission |
| 770 L. Street                          | 505 Van Ness Avenue                    |
| Suite 1250                             | San Francisco, CA 94102                |
| Sacramento, CA 95814                   |                                   |

 

DATED at Washington, D.C., this 7th day ofJanuary, 2005.

 
|   | /s/ Bruce A.  Bedwell |   |
|--------|-----------------------|--------|
|   | Bruce A.  Bedwell     |

 

----

 

**EXPLANATORY STATEMENT**

 

----

 

**EXPLANATORY STATEMENT(1)**

 

**I.****                                        ****PROCEDURALHISTORY**

 

1.                   Mirant Delta is the owner of the Contra CostaPower Plant located in Antioch, California,and the Pittsburg Power Plant located in Pittsburg, California.  Mirant Potrero is the owner of the PotreroPower Plant located in San Francisco, California.

 

2.                   Mirant Delta and Mirant Potrero operategenerating units at their respective power plants subject to Must-Run Service Agreements (“RMR Agreements”) withthe ISO, the Schedules to which contain certain generation unit-specific termsand conditions. The units subject tosuch obligations under these RMR Agreements are referred to herein as RMRUnits.(2)

 

3.                   By their express terms, the RMR Agreementsprovide for annual revisions to, among other things, the AFRR and the VariableO&M Rate (“VOM Rate”) for each RMR Unit. Pursuant to Schedule B, Section 7of the RMR Agreements, the AFRR values are determined by the Formula Rate set forth in Schedule F to theRMR Agreements, unless Mirant files a supersedingrate schedule under Section 205 of the Federal Power Act. The VOM Rates alsoare determined by a formula set forthin Schedule F. Schedule F requires that Mirant provide annually to the ISO an“Information Package detailing and supporting all calculations” used to determine the AFRRs and VOM Rates under therespective formulas for the upcoming calendar year (“Schedule F Filing Requirements”).  Mirant is required to provide a copy of this InformationPackage to the ISO “in printed form and a suitable electronic format” and tothe Commission “in an informational filing.”

 

4.                   On October 9, 2001, Mirant submitted, in DocketNo. ER02-64-000, an informationpackage in the form of an informational filing (“2002 Information Package”) in accordance with Schedule F of its RMR Agreements.The 2002 Information Package contained dataand workpapers detailing Mirant’s calculation of its proposed AFRRs and VOMRates for calendar year 2002.PG&E, the ISO, the EOB, and the CPUC (collectively, the “Joint Parties”)(3)filed protests to the 2002Information Package, raising a variety of issues.

 

5.                   On December 19, 2001, the Commission issued anorder conditionally accepting forfiling the revised tariff sheets submitted in Docket No. ER02-198-000, subjectto refund and

 

----

(1)                                  This ExplanatoryStatement is not intended to alter any of the specific provisions of the Settlement, includingits exhibits and attachments, and is provided solely to comply with the Commission’s rules.

 

(2)                                  Specifically, thefollowing units owned by Mirant will be subject to RMR Agreements during calendar year 2005:Contra Costa Units 4, 5 and 7; Pittsburg Units 5 and 6; and Potrero Units 3, 4,5 and 6.

 

(3)                                  The only other party torespond to this filing was the City and County of San Francisco, whose Motion to Interveneraised no substantive issues.

 

----

 

theoutcome of the ongoing proceedings in Docket No. ER02-64-000. *Mirant Delta, LLC,*97 FERC ¶ 61,284 (2001).

 

6.                   On November 20, 2002, the Supporting Partiesentered into a stipulation and agreement (the “2002-2004 Settlement”), whichfully resolved all issues in Docket Nos. ER02-64-000and ER02-198-000. No party objected to the 2002-2004 Settlement and theCommission approved the settlement onFebruary 5, 2003.(4) The 2002-2004 Settlement set forth Mirant’s AFRRsand VOM Rates for the period January 1, 2002 through December 31, 2004, therebyeliminating the need for Mirant to make Schedule F filings for those calendaryears. The 2002-2004 Settlement also set forth Mirant’s Owner’s Repair CostObligations for the same period.

 

7.                   On December 16, 2004,Mirant filed with the Commission various proposed rate and rate schedulechanges (referred to as the “Limited 205 Filing”).  The Limited 205 Filing, among other things,contains the proposed: (i) Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii) VOM Rates foreach RMR Unit, to be effective January 1, 2005.

 

**II.****                                    ****DESCRIPTIONOF SETTLEMENT**

 

1.                                       In anticipation of theSchedule F Filing Requirements and the Limited 205 Filing, Mirant, PG&E,CPUC and EOB initiated informal settlement discussions to resolve any potentialissues relating to the AFRRs andVOM Rates for calendar year 2005. As a result of these informal settlementdiscussions, the Supporting Parties submit the attached Settlement, pursuant to which the Supporting Parties consent to the:(i) Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii) VOM Rates asset forth in Mirant’s Limited 205 Filing for 2005.(5)

 

2.                    Pursuant to the Settlement, the AFRR, VOMRate and Owner’s Repair Cost Obligationvalues in Mirant’s Limited 205 Filing will be effective for the period January1, 2005, through December 31, 2005 asfollows: (a) Owner’s Repair Cost Obligations as contained in Schedule A, Section 13 of the RMR Agreements; (b)AFRRs, as contained in Table B-6 of the RMR Agreements; and (c) VOM Rates, as contained in Table C1-18 of theRMR Agreements.

 

3.                                     Specifically, theSupporting Parties consent to the following, as reflected in Mirant’s Limited 205 Filing for 2005:

 

a.                                       New AFRRs for Contra Costa Unit 7, PittsburgUnits 5-6, and Potrero Units 3-6;

 

b.                                      For Contra Costa Units4-5, the continuation of the AFRRs contained in the 2002-2004 Settlement;

 

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(4)*                                  **MirantDelta, LLC and Mirant Potrero, LLC,*102 FERC ¶ 61,130 (2003).

 

(5)                                   The ISO has not had the opportunity toindependently investigate or evaluate the basis for the rates in the Settlement. It nevertheless supports the Settlement basedon the recognition that it is the productof extensive negotiation among Mirant, the CPUC, the EOB and PG&E, which isthe Responsible Utility with respect to these RMR Units, and based onthe fact that the Commission will review and approve the Settlement only upon adetermination that it is fair and reasonable and in the public interest.

 

2

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c.                   Forall RMR Units, the continuation of the VOM Rates contained in the 2002-2004Settlement;

 

d.                   Forall RMR Units, new Owner’s Repair Cost Obligations; and

 

e.                   RevisedRate Schedule Sheets to be effective January 1, 2005 through December 31, 2005.

 

4.                    Upon agreement by the Supporting Parties, thisSettlement may be extended, withoutmodification, for the period January 1, 2006 through December 31, 2008, byproviding joint notice of suchextension to the Commission.

 

5.                    The Supporting Parties have agreed that theSettlement will be deemed to satisfy Mirant’sSchedule F Filing Requirements for 2005 and, if the Settlement is extended, for2006 through 2008.

 

6.                    Throughthis Settlement, the Supporting Parties consent only to those changes in Mirant’s Limited 205 Filing for 2005 discussedherein, and take no position in this Settlement on the other changes set forth in Mirant’s Limited205 Filing.

 

**III.****                                 ****EFFECTIVEDATE**

 

The Settlementshall be effective on the later of: (1) the date the Settlement is approved by the United States Bankruptcy Court for theNorthern District of Texas, Fort Worth Division, which approval will be soughtpromptly by Mirant after the Commission issues an order approving the Settlement without modification orcondition or, if modified or conditioned by the Commission, after acceptance ofthe modification or conditions contained in such order by all of the SupportingParties; or (2) if modified or conditioned by the Bankruptcy Court, upon thedate of acceptance of the modifications or conditions contained in such orderby all of the Supporting Parties(“Effective Date”).

 

**IV.****                                ****REFUNDS**

 

Refunds will be paid pursuant to the termsand conditions of the Settlement.

 

**V.****                                      ****COMMENTS**

 

The Supporting Parties seek expeditedtreatment and request waiver of Rules 602(d)(2) and 602(f) so that initial comments on theSettlement are due on January 14, 2005, and reply comments are due on January 21, 2005.

 

**VI.****                                ****POLICY****ISSUES****AND OTHER ISSUES ARISING UNDER THE SETTLEMENT**

 

In accordance with the Chief Judge’s October15, 2003 Notice to the Public concerning Information to be Provided with Settlement Agreements, the Partiesprovide the following information:

 

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**1.****                                           ****UnderlyingIssues and****Major Implications**

 

The Parties wish to resolve all outstandingissues with respect to the: (i) Owner’s Repair Cost Obligations; (ii) AFRRs;and (iii) VOM Rates set forth in Mirant’s Limited 205 Filing for 2005. Throughthis Settlement, the Parties agree that the data contained in Mirant’s Limited205 Filing for 2005concerning: (i) Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii) VOM Rates are to be accepted as filed, to be effectivefrom January 1, 2005, through December 31, 2005 and thereafter until changed byCommission order or extended by the Parties pursuant to Section 1.6 of the Settlement. This Settlementdoes not change any obligation Mirant has under the RMR Agreements to makefuture filings to change these rates.

 

**2.****                                   ****Policy Implications**

 

The unopposed changes to Mirant’s RMRAgreements do not raise any policy implications.

 

**3.****                                    PendingCases That May Be Affected**

 

The Settlement will not affect any casescurrently pending before the Commission.

 

**4.****                                 ****Issuesof First Impression and****Reversals****on Commission Position**

 

The Settlement does not raise any issues offirst impression and does not propose to reverse any previous Commissiondecisions involving similar issues.

 

**5.****                                   ****Standardof Review**

 

The Parties intend that the standard ofreview for changes to any section of the Settlement proposed by a Party, a non-party or the Commissionacting *sua sponte*,**shallbe the “public interest” standard of review set forth in *United Gas Pipe Line Co. v. Mobile Gas Service Corp.*,**350 U.S. 332 (1956) and *Federal Power Commission v. Sierra Pacific Power Co.*,**350U.S. 348 (1956) (the *“Mobile-Sierra”*doctrine).

 

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**OFFER OF SETTLEMENT**

 

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**OFFER OF SETTLEMENT**

 

This Offer of Partial Settlement (the“Settlement”) is dated as of January 7, 2005, by and among Mirant Delta, LLC(“Mirant Delta”) and Mirant Potrero, LLC (“Mirant Potrero”) (collectively,“Mirant”),(1) the California Independent System Operator Corporation (“ISO”),the California Electricity Oversight Board (“EOB”) and Pacific Gas and ElectricCompany (“PG&E”). Theseparties arc referred to herein individually as a “Party” and collectively asthe “Parties” or “Supporting Parties.” The Parties are authorized to representthat although the California PublicUtilities Commission (“CPUC”) is not a signatory to the Settlement, the CPUCdoes not oppose the Settlement.

 

**RECITALS**

 

A.                                   Mirant Delta is the owner of the Contra CostaPower Plant located in Antioch, California, and the Pittsburg Power Plantlocated in Pittsburg, California. Mirant Potrero is the owner of the PotreroPower Plant located in San Francisco, California.

 

B.                                     Mirant Delta and Mirant Potrero operategenerating units at their respective power plants subject to Must-Run Service Agreements (“RMR Agreements”) withthe ISO, the Schedules to which contain certain generation unit-specific termsand conditions. The units subject tosuch obligations under these RMR Agreements are referred to herein as RMRUnits.(2)

 

C.                                     By their express terms, the RMR Agreements providefor annual revisions to, among otherthings, the Annual Fixed Revenue Requirement (“AFRR”) and Variable O&M Rate(“VOM Rate”) for each RMR Unit.Pursuant to Schedule B, Section 7 of the RMR Agreements, the AFRR values are determined by the Formula Rateset forth in Schedule F to the RMR Agreements, unless Mirant files asuperseding rate schedule filed under Section 205 of the Federal Power Act. TheVOM Rate values also are determined by a formula set forth in Schedule F. Schedule F requires that Mirantprovide annually to the ISO an “Information Package detailing and supporting all calculations” used to determinethe AFRRs and VOM Rates under therespective formulas for the upcoming calendar year (“Schedule F Filing Requirements”). Mirant is required to provide acopy of this Information Package to the Commission “in an informationalfiling.”

 

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(1)                                  Beginning on July 14,2003, Mirant Corporation and certain of its affiliated entities (collectively, “Mirant”)commenced proceedings under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§101, et seq., in the United States Bankruptcy Court for the Northern District ofTexas, Fort Worth Division (the “Bankruptcy Court”). In filing this Settlement, Mirantdoes not intend to waive any protections which might be afforded to it under the Bankruptcy Code,including but not limited to those protections provided by Section 362 thereof.

 

(2)*                                 *Specifically, thefollowing units owned by Mirant will be subject to RMR Agreements during calendaryear 2005: Contra Costa Units 4, 5 and 7; Pittsburg Units 5 and 6; and PotreroUnits 3, 4, 5 and 6.

 

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D.                                  On October 9, 2001, Mirant submitted, in DocketNo. ER02-64-000, an information packagein the form of an informational filing (“2002 Information Package”) inaccordance with Schedule F of its RMRAgreements. The 2002 Information Package contained data and workpapersdetailing Mirant’s calculation of its proposed AFRRs and VOM Rates for calendaryear 2002. PG&E, the ISO, the EOB, and the CPUC filed protests to the 2002Information Package, raising avariety of issues.(3)

 

E.                                     On December 19, 2001, the Commission issued anorder conditionally accepting forfiling the revised tariff sheets submitted in Docket No. ER02-198-000, subjectto refund and the outcome of theongoing proceedings in Docket No. ER02-64-000. *MirantDelta, LLC,*97 FERC ¶ 61,284(2001).

 

F.                                     On November 20, 2002, the Parties entered into astipulation and agreement (the “2002-2004 Settlement”), which fully resolvedall issues in Docket Nos. ER02-64-000 and ER02-198-000. No party objected to the 2002-2004 Settlement and theCommission approved the settlement onFebruary 5, 2003.(4) The 2002-2004 Settlement set forth Mirant’s AFRRs and VOM Rates for the period January 1, 2002 throughDecember 31, 2004, thereby eliminating the need for Mirant to make Schedule Ffilings for those calendar years. The 2002-2004 Settlement also set forth the Owner’s Repair Cost Obligationsfor the same period.

 

G.                                    On December 16, 2004, Mirant filed with theCommission various proposed rate andrate schedule changes (referred to as the “Limited 205 Filing”). The Limited205 Filing, among other things, contains the proposed: (i) Owner’s Repair CostObligation; (ii) AFRR; and (iii) VOM Rate for each RMR Unit, to be effectiveJanuary 1, 2005.

 

H.                                    The Parties wish to resolve all outstanding issueswith respect to the: (i) Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii)VOM Rates set forth in Mirant’s Limited 205 Filing for 2005.(5)

 

NOW, THEREFORE, in consideration of therecitals and the mutual covenants and agreements hereinafter set forth, the Parties mutually covenant andagree as follows:

 

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(3)                                   The only other party torespond to this filing was the City and County of San Francisco, whose Motionto Intervene raised no substantive issues.

 

(4)                                    *MirantDelta, LLC and Mirant Potrero, LLC,*102 FERC ¶**61,130(2003).

 

(5)*                                   *The ISO has not had theopportunity to independently investigate or evaluate the basis for the rates in the Settlement.It nevertheless supports the Settlement based on the recognition that it is theproduct ofextensive negotiation among Mirant, the CPUC, the EOB and PG&E, which isthe Responsible Utility with respect to these RMR Units, and based on the fact that theCommission will review and approve the Settlement only upon a determinationthat it is fair and reasonable and in the public interest.

 

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**1.             IMPLEMENTATION**

 

1.1           TheParties agree that the data contained in Mirant’s Limited 205 Filing for 2005concerning: (i) Owner’s Repair Cost Obligations; (ii) AFRRs; and (iii) VOMRates are to be accepted as filed, to be effective from January 1, 2005,through December 31, 2005 and thereafter until changed by Commission order orextended by the Parties pursuant to Section 1.6 of the Settlement. ThisSettlement does not change any obligation Mirant has under the RMR Agreementsto make future filings to change these rates. Specifically, the Parties consentto the following:

 

(a)           TheAFRR values for the various RMR Units shall be as follows:

 
| **RMR Unit**   | ** ** | **AFRR** | ** ** |
|----------------|------------|----------|------------|
| Contra Costa 4 |       | $        | 456,209    |   |
| Contra Costa 5 |       | $        | 456,209    |   |
| Contra Costa 7 |       | $        | 22,237,027 |   |
| Pittsburg 5    |       | $        | 15,157,190 |   |
| Pittsburg 6    |       | $        | 15,157,190 |   |
| Potrero 3      |       | $        | 17,908,424 |   |
| Potrero 4      |       | $        | 338,285    |   |
| Potrero 5      |       | $        | 451,175    |   |
| Potrero 6      |       | $        | 461,284    |   |

 

(b)           TheVOM Rates for the RMR Units at the Contra Costa, Pittsburg, and PotreroFacilities shall be as follows:

 
| **RMR Unit**   | ** ** | **VOM Rate  ($/MWh)** | ** ** |
|----------------|------------|-----------------------|------------|
| Contra Costa 4 |       | $                     | 0          |   |
| Contra Costa 5 |       | $                     | 0          |   |
| Contra Costa 7 |       | $                     | 0.99       |   |
| Pittsburg 5    |       | $                     | 0.76       |   |
| Pittsburg 6    |       | $                     | 0.76       |   |
| Potrero 3      |       | $                     | 3.16       |   |
| Potrero 4      |       | $                     | 0          |   |
| Potrero 5      |       | $                     | 0          |   |
| Potrero 6      |       | $                     | 0          |   |
|                |            |                       |            |  |  |  |  |

 

3

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(c)           TheOwner’s Repair Cost Obligations for the Contra Costa, Pittsburg, and PotreroFacilities shall be as follows:

 
| **Facility** | ** ** | **Owner’s Repair  Cost Obligation** | ** ** |
|--------------|------------|------------------------------------------|------------|
| Contra Costa |       | $                                        | 423,152    |   |
| Pittsburg    |       | $                                        | 552,707    |   |
| Potrero      |       | $                                        | 406,885    |   |

 

1.2           The Supporting Parties herebyincorporate into this Settlement the portions of the Revised Rate ScheduleSheets attached to Mirant’s Limited 205 Filing for 2005 (“Revised Rate ScheduleSheets”) showing the agreed-upon changes identified in Section 1.1, *supra,*to be effective January 1, 2005.

 

1.3           Upon their effectiveness, the RevisedRate Schedule Sheets shall supersede and revise the corresponding currentlyeffective rate schedule sheets that comprise the RMR Agreements previouslyfiled by Mirant.

 

1.4           The Supporting Parties consent onlyto those changes in Mirant’s Limited 205 Filing for 2005 specified herein, andtake no position in this Settlement on the other changes set forth in Mirant’sLimited 205 Filing.

 

1.5           If approved by the Commission, this Settlement fullyresolves all issues in this proceeding relating to: (i) Owner’s Repair CostObligations; (ii) AFRRs; and (iii) VOM Rates. The Supporting Parties haveagreed that the Settlement will be deemed to satisfy any Schedule F FilingRequirements applicable to Mirant for 2005 and, if the Settlement is extended,for 2006 through 2008.

 

4

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1.6           Upon agreement bythe Supporting Parties, this Settlement may be extended, without modification,for the period January 1, 2006 through December 31, 2008, by providing jointnotice of such extension to the Commission.

 

**2.             EFFECTIVE DATE**

 

2.1           The Settlement shall be effective onthe later of: (1) the date the Settlement is approved by the United StatesBankruptcy Court for the Northern District of Texas, Fort Worth Division, whichapproval will be sought promptly by Mirant after the Commission issues an orderapproving the Settlement without modification or condition or, if modified orconditioned by the Commission, after acceptance of the modifications orconditions contained in such order by all the Supporting Parties; or (2) ifmodified or conditioned by the Bankruptcy Court, upon the date of acceptance ofthe modifications or conditions contained in such order by all of the Parties (“EffectiveDate”).

 

2.2           Within ten (10) business daysfollowing either Commission approval without modification or condition, or ifmodified or conditioned by the Commission, within ten (10) business days ofacceptance of the modifications or conditions contained in such order by all ofthe Supporting Parties, Mirant will file and thereafter diligently prosecute inthe Bankruptcy Court, a request for approval of the Settlement, thereaftertaking all actions necessary to obtain such approval.

 

**3.             ACTIONBY PARTIES**

 

3.1           Except for the Bankruptcy CourtApproval provided in Section 2, the Parties hereby waive any and all rights toseek rehearing or judicial review of the Commission’s order(s) approving thisSettlement, and shall be bound by and entitled to the benefits of theprovisions of this Settlement; *provided,however,*that if the Commission approves this Settlement with modificationor condition, a Party may seek rehearing or judicial review of the Commission’sorder(s) approving this Settlement solely to challenge the Commission’simposition of modifications or conditions in order to preserve the terms andconditions of this Settlement as filed.

 

3.2           The AFRR, VOM Rate and Owner’s RepairCost Obligation values in Mirant’s Limited 205 Filing will be effective for theperiod January 1, 2005 through December 31, 2005, and may be extended underSection 1.6 as follows: (a) Owner’s Repair Cost Obligations as contained inSchedule A, Section 13 of the RMR Agreements; (b) AFRRs, as contained in Table B-6of the RMR Agreements; and (c) VOM Rates, as contained in Table C1-18 of theRMR Agreements.

 

3.3           Nothing in this Settlement isintended to affect any obligation of Mirant under the RMR Agreements other thanthose expressly provided herein, and specifically, Mirant shall continue tosubmit proposed annual changes to the RMR Agreements in accordance with Section4.11(a), Schedule B, and Schedule D of the RMR Agreements and consistent withthis Settlement.

 

5

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**4.             RESERVATIONS**

 

4.1           Agreement to or acquiescence in thisSettlement shall not be deemed in any respect to constitute an admission by anyParty hereto that any allegation or contention made by any other Party in theseproceedings is true or valid. In reaching this Settlement, the Parties specificallyagree that this Settlement represents a negotiated agreement for the solepurpose of settling certain issues, as described herein. No Party or affiliateof any of the Parties shall be deemed to have approved, accepted, agreed to, orconsented to any fact, concept, theory, rate methodology, principle, or methodrelating to jurisdiction, prudence, reasonable cost of service, cost classification,cost allocation, rate design, rate schedule provisions, or other matters underlyingor purported to underlie any of the resolutions of the issues provided herein.The Commission’s approval of the Settlement shall not constitute approval of,or precedent regarding, any principle or issue in this proceeding.

 

4.2           The Parties agree that the resolutionof any matter in this Settlement shall not be deemed to be a “settled practice”as that term was interpreted and applied in *PublicService Commission of the State of New York v. FERC,*642 F.2d 1335(D.C. Cir. 1980).

 

4.3           (a)           EachParty irrevocably waives its rights, including its rights under §§ 205-206 ofthe Federal Power Act, unilaterally to seek or support a change in the rate(s),charges, classifications, terms or conditions of this Settlement. By thisprovision, each Party expressly waives, solely with respect to this Settlement,its right to seek or support: (i) an order from the Commission finding that therate(s), charges, classifications, terms or conditions agreed to by the Partiesin the Settlement are unjust and unreasonable; or (ii) any refund with respectthereto. Each Party agrees not to make or support such a filing or request, andthat these covenants and waivers shall be binding notwithstanding anyregulatory or market changes that may occur hereafter.

 

(b)           Absent the agreementof all Parties to the proposed change, the standard of review for changes toany section of the Settlement proposed by a Party (to the extent that anywaiver in Section (a) above is unenforceable or ineffective as to such Party),a non-party or the Commission acting *suasponte,*shall be the “public interest” standard of review set forthin *United Gas Pipe Line Co. v. Mobile GasService Corp.*,**350 U.S. 332 (1956) and *Federal Power Commission**v*. *Sierra Pacific PowerCo.*,**350 U.S. 348 (1956) (the *“Mobile-Sierra”*doctrine).

 

4.4           This Settlement does not resolve anyissues related to Mirant’s Limited 205 Filing for 2005 not discussed herein nordoes this Settlement restrict in any way the positions that the Parties maytake with respect to such issues. The Parties specifically reserve their rightsand positions therein. Further, this Settlement is not intended to limit oraffect the rights and remedies of the Parties with respect to any otherparticular dispute not resolved by this Settlement. Nothing in this Section 4.4is intended to conflict with Section 4.3.

 

4.5           Notwithstanding any provision of thisSettlement, nothing included in this Settlement is intended to limit or affectthe rights and remedies of the Parties with respect to any claim that theamounts invoiced under the RMR Agreements are incorrect, including any dispute involvingthe interpretation or application of the RMR Agreements.

 

6

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**5.             MISCELLANEOUSPROVISIONS**

 

5.1           The titles andheadings of the various Articles and Sections in this Settlement are forreference purposes only. They are not to be construed or taken into account ininterpreting this Settlement, and do not qualify, modify, or explain theeffects of this Settlement.

 

5.2           The rights conferredand obligations imposed on any Party by this Settlement shall inure to thebenefit of and be binding on that Parry’s successors in interest or assigneesas if such successor or assignee was itself a Party hereto.

 

5.3           This Settlement maybe executed in counterparts by each Party, each of which shall be deemed to bean original, but which together shall constitute one and the same instrument.

 

5.4           The discussions amongthe Parties that have resulted in this Settlement have been conducted on theexplicit understanding that they were undertaken subject to Rule 602(e) of theCommission’s Rules of Practice and Procedure, 18 C.F.R. § 385.602(e)(2004),and the rights of the Parties with respect thereto shall not be impaired bythis Settlement.

 

**6.            ****CONCLUSION**

 

The Partiesrespectfully request that the Commission approve the instant Settlement withoutmodification or condition.

 

Signed anddated this 7th day of January, 2005.

 

 
| The  California Independent System Operator  Corporation | Mirant  Delta, LLC and Mirant Potrero, LLC         |
|----------------------------------------------------------|----------------------------------------------------|
|                                                     |                                               |
| By:                                                      | /s/ Mary  Anne Sullivan                            |   | By: | /s/ Debra  Raggio Bolton |   |
|                                                     |                                               |   |   |   |   |
| Name:  Mary Anne Sullivan                           | Name:  Debra Raggio Bolton                    |
|                                                     |                                               |
|                                                     | Title:    Associate General Counsel |
|                                                     |                                               |
| Pacific Gas and Electric Company                         | California Electricity Oversight Board             |
|                                                     |                                               |
| By:                                                      | /s/ Stuart  K. Gardiner                            |   | By: | /s/ Erik N.  Saltmarsh |   |
|                                                     |                                               |   |   |   |   |
| Name:  Stuart K. Gardiner                           | Name:   Erik N. Saltmarsh  Kenneth L. Glick   |
|                                                     |                                               |
| Title:   Attorney                              | Title:   General Counsel                 |

 

7

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**DRAFT ORDER**

 

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FEDERAL ENERGY REGULATORY COMMISSIONWASHINGTON, D.C. 20426

 

[Date]

 
|   |   | In Reply refer to:      |
|--------|--------|-------------------------|
|   |   | Docket No. ER05-343-000 |

 

McDermottWill & Emery LLPATTN: Michael A. YuffeeAttorney for Mirant Delta, LLC  and Mirant Potrero, LLC600 13th Street, N.W.Washington, D.C. 20005

 

Dear Mr. Yuffee:

 

On January 7, 2005, you filed an offer of settlement among MirantDelta, LLC, Mirant Potrero, LLC (collectively, “Mirant”), the California IndependentSystem Operator Corporation (“ISO”), the California Electricity Oversight Board(“EOB”) and Pacific Gas and Electric Company (“PG&E”) in theabove-referenced dockets.

 

The subject settlement is in the public interest and is herebyapproved. The Commission’s approval of this settlement does not constituteapproval of, or precedent regarding, any principle or issue in this proceeding.The parties agree that the settlement is subject to the public intereststandard of review.

 

 
|   | By direction of the Commission, |
|--------|---------------------------------|
|   |                            |
|   | Magalie R. Salas,  Secretary    |

 

 

cc: All Parties

 

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**DRAFTNOTICE**

 

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**UNITEDSTATES OF AMERICABEFORE THEFEDERAL ENERGY REGULATORY COMMISSION**

 
| Mirant Delta, LLC   | ) | Docket No. ER05-343-000 |
|---------------------|---|-------------------------|
| Mirant Potrero, LLC | ) |                    |

 

NOTICE OF FILING(January    , 2005)

 

Take notice that, on January 7, 2005, thefollowing parties submitted an Offer of Settlement in the above-referenceddockets: Mirant Delta, LLC, Mirant Potrero, LLC, the California IndependentSystem Operator Corporation, the California Electricity Oversight Board andPacific Gas and Electric Company.

 

Any person desiring to intervene or toprotest this filing must file in accordance with Rules 211 and 214 of theCommission’s Rules of Practice and Procedure (18 CFR 385.211, 385.214).Protests will be considered by the Commission in determining the appropriateaction to be taken, but will not serve to make protestants parties to theproceeding. Any person wishing to become a party must file a notice ofintervention or motion to intervene, as appropriate. Such notices, motions, orprotests must be filed on or before the comment date. Anyone filing a motion tointervene or protest must serve a copy of that document on the Applicant andall the parties in this proceeding.

 

The Commission encourages electronicsubmission of protests and interventions in lieu of paper using the “eFiling”link at http://www.ferc.gov. Persons unable to file electronically shouldsubmit an original and 14 copies of the protest or intervention to the FederalEnergy Regulatory Commission, 888 First Street, N.E., Washington, D.C. 20426.

 

This filing is accessible on-line athttp://www.ferc.gov, using the “eLibrary” link and is available for review inthe Commission’s Public Reference Room in Washington, D.C.   There is an “eSubscription” link on the website that enables subscribers to receive email notification when a document isadded to a subscribed docket(s). For assistance with any FERC Online service,please email FERCOnlineSupport@ferc.gov, or call (866) 208-3676 (toll free). ForTTY, call (202) 502-8659.

 

Comment Date: 5:00 pm Eastern Time on January14, 2005. Reply Comment Date: 5:00 pm Eastern Time on January 21, 2005.

 
|   | Magalie R. Salas  Secretary |
|--------|-----------------------------|

 

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| STATE OF CALIFORNIA – THE RESOURCES AGENCY                                                               | **ARNOLD SCHWARZENEGGER,**Governor |
|---------------------------------------------------------------------------------------------------------------|------------------------------------|
| **DEPARTMENT OF WATER RESOURCES**1416 NINTH STREET,  P.O. BOX 942836  SACRAMENTO, CA 94236-0001(916) 653 5791 |                                    |

 

January 12, 2005

 

 

**Via Overnight Mail**

 

Mr. Douglas L. MillerGeneral CounselMirant Corporation1155 Perimeter Center WestAtlanta, Georgia30338

 

Re:          Settlement andRelease of Claims Agreement Opt-In

 

Dear Mr. Miller:

 

The purpose of this letter is to advise you that the CaliforniaDepartment of Water Resources, acting in its capacity as the State WaterResources Development System and the State Water Project, hereby commits to theMirant Parties, as such term is defined in the Settlement and Release of ClaimsAgreement attached hereto and made a part hereof (the “Settlement Agreement”),to opt in to the settlement described therein as an Additional SettlingParticipant in accordance with the terms of Article XI of said SettlementAgreement on or before the opt in deadline set forth therein, and to be boundby the terms of the Settlement Agreement as an Additional Settling Participantin accordance with said Settlement Agreement’s terms.

 
| Sincerely,      |
|-----------------|
|            |
| /s/ Tom Glover  |   |
| Tom Glover      |
| Deputy Director |

 

 

cc:                                 Hugh Davenport, Esq.(Via Facsimile)Debra Bolton, Esq. (Via Facsimile)

 

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