Document:

EXHIBIT
10.1

 

 

 

FORM OF RECOVERY PROPERTY PURCHASE AND SALE AGREEMENT

 

 

between

 

 

PG&E
ENERGY RECOVERY FUNDING LLC

 

 

Issuer

 

 

and

 

 

PACIFIC
GAS AND ELECTRIC COMPANY

 

 

Seller

 

 

Dated as
of [                      ],
200[    ]

 

 

 

TABLE OF CONTENTS

 

	
   

  	
  Page

  
	
  ARTICLE I DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 1.01.

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 1.02.

  	
  Other Definitional Provisions

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE II CONVEYANCE OF RECOVERY PROPERTY

  	
  6

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 2.01.

  	
  Conveyance of Recovery Property

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 2.02.

  	
  Conditions to the Sale of Recovery
  Property

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE III REPRESENTATIONS AND WARRANTIES
  OF SELLER

  	
  9

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.01.

  	
  Organization and Good Standing

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.02.

  	
  Due Qualification

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.03.

  	
  Power and Authority

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.04.

  	
  Binding Obligation

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.05.

  	
  No Violation and Consistency

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.06.

  	
  No Proceedings

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.07.

  	
  Approvals

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.08.

  	
  The Recovery Property

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.09.

  	
  Change in Law

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.10

  	
  Pending Litigation

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.11.

  	
  Limitations on Representations and
  Warranties

  	
  16

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV COVENANTS OF THE SELLER

  	
  16

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.01.

  	
  Corporate Existence

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.02.

  	
  No Liens

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.03.

  	
  Delivery of Payments

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.04.

  	
  Notice of Liens

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.05.

  	
  Compliance With Law

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.06.

  	
  Covenants Related to Recovery Property

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.07.

  	
  Protection of Title

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.08.

  	
  Nonpetition Covenants

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.09.

  	
  Taxes

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE V THE SELLER

  	
  21

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 5.01.

  	
  Liability of Seller; Indemnities

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 5.02.

  	
  Merger or Consolidation of, or Assumption
  of the Obligations of, Seller

  	
  22

  

 

i

 

	
   

  	
  SECTION 5.03.

  	
  Limitation on Liability of Seller and
  Others

  	
  23

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI MISCELLANEOUS PROVISIONS

  	
  24

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.01.

  	
  Amendment

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.02.

  	
  Notices

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.03.

  	
  Assignment

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.04.

  	
  Limitations on Rights of Others

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.05.

  	
  Severability

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.06.

  	
  Separate Counterparts

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.07.

  	
  Headings

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.08.

  	
  Governing Law

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.09.

  	
  Assignment to Note Trustee

  	
  26

  

 

ii

 

RECOVERY PROPERTY
PURCHASE AND SALE AGREEMENT dated as of [                ],
200[  ], between PG&E ENERGY RECOVERY FUNDING LLC, a Delaware
limited liability company (the “Issuer”), and PACIFIC GAS AND ELECTRIC COMPANY,
a California corporation, as Seller (the “Seller”).

 

WHEREAS the Issuer
desires to purchase the Recovery Property created pursuant to the Statute, the
Financing Order and the Issuance Advice Letter; and

 

WHEREAS the Seller is willing to sell such Recovery
Property to the Issuer.

 

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

 

ARTICLE I

DEFINITIONS

 

SECTION 1.01.  Definitions.  Whenever used in this Agreement, the
following words and phrases shall have the following meanings:

 

“Agreement” means this Recovery Property Purchase and
Sale Agreement, as the same may be amended and supplemented from time to
time.

 

“Basic Documents” means this Agreement, the Servicing
Agreement, the Indenture and [the Swap Agreement].

 

“Bonds” means the Series of Energy Recovery Bonds
issued by the Issuer under the Indenture.

 

“Class” means any one of the classes of Bonds.

 

“Closing Date” means [                                             ].

 

1

 

“Consumers” means the existing and future consumers of
electricity that has been transmitted or distributed by means of electric
transmission or distribution facilities, whether those facilities are owned by
the consumer, PG&E or any other party, to the extent those existing and
future consumers of electricity are located in the service territory in which
the Seller provided electric distribution service as of December 19, 2003,
other than consumers of electricity exempted from the obligation to pay DRC
Charges under the Statute as further implemented by the CPUC pursuant to
Section 848.1(c) of the PU Code.

 

“CPUC” means the California Public Utilities
Commission or any successor in interest.

 

“CPUC Regulations” has the meaning assigned to that
term in the Servicing Agreement.

 

“DRC Charges” means the charges for fixed recovery
amounts authorized to be billed to the Consumers in respect of Recovery
Property pursuant to the Financing Order.

 

“Financing Order” means the order of the CPUC,
Decision 04-11-015, issued on November 19, 2004, which became
effective on November 29, 2004.

 

 “Holders” or “Bondholders”
means the Persons in whose name a Bond is registered on the Bond Register (as
defined in the Indenture).

 

“Indenture” means the Indenture dated as of [           ],
200[  ], between the Issuer and the Trustee, as the same may be
amended and supplemented from time to time.

 

“Insolvency Event” means, with respect to a specified
Person, (a) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of such Person or any substantial part
of its property in an involuntary case under any applicable Federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a receiver,

 

2

 

liquidator, assignee, custodian,
trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person’s affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by
such Person of a voluntary case under any applicable Federal or state
bankruptcy, insolvency or other similar law now or hereafter in effect, or the
consent by such Person to the entry of an order for relief in an involuntary
case under any such law, or the consent by such Person to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official for such Person or for any substantial part of
its property, or the making by such Person of any general assignment for the
benefit of creditors, or the failure by such Person generally to pay its debts
as such debts become due.

 

“Issuance Advice Letter” means Advice [      -   ],
dated [                  ],
200[  ], filed with the CPUC by the Seller pursuant to the Financing
Order.

 

“Issuer” has the meaning set forth in the heading of
this Agreement.

 

“Lien” means a security interest, lien, charge, pledge
or encumbrance of any kind.

 

“Officer’s Certificate” means a certificate signed by
the chairman of the board, the president, the vice chairman of the board, any
vice president, the treasurer, any assistant treasurer, the  secretary or any assistant secretary of the
Seller.

 

“Opinion of Counsel” means one or more written
opinions of counsel who may be an employee of or counsel to the party providing
such opinion of counsel, which counsel shall be reasonably acceptable to the
party receiving such opinion of counsel.

 

“Pending Appeals” has the meaning specified in Section
3.08(f).

 

“Person” means any individual, corporation, limited
liability company, estate, partnership, joint venture, association, joint stock
company, trust, unincorporated organization,

 

3

 

government or any agency
or political subdivision thereof, or any other entity or organization, whether
or not a legal entity.

 

“Plan of Reorganization” has the meaning specified in
Section 3.10.

 

“PG&E” means Pacific Gas and Electric Company, a
California corporation, or any successor.

 

“PU Code” means the California Public Utilities Code,
as amended from time to time.

 

“Rating Agencies” means Moody’s, Standard &
Poor’s and Fitch to the extent each such Rating Agency maintains a rating on
the Bonds at the request of the Issuer. 
If no such organization or successor is any longer in existence, “Rating
Agency” shall be a nationally recognized statistical rating organization or
other comparable Person designated by the Issuer, notice of which designation
shall be given to the Trustee and the Servicer.

 

“Rating Agency Condition” means, with respect to any
action, that each Rating Agency shall have been given ten (10) days prior
notice thereof and that each of the Rating Agencies shall have notified the
Servicer, the Issuer and the Trustee in writing that such action will not
result in a reduction or withdrawal of the then current rating by such Rating
Agency of any Class of Bonds.

 

“Recovery Costs” has the meaning assigned to that term
in Section 848(i) of the PU Code.

 

“Recovery Property” means the “recovery property” as
defined in PU Code Section 848(j) that is identified as “Recovery Property” in
the Issuance Advice Letter and authorized and created pursuant to the Financing
Order.

 

“Seller” has the meaning set forth in the heading
hereto.

 

4

 

“Servicer Default” means an event specified in
Section 7.01 of the Servicing Agreement.

 

“Servicing Agreement” means the Recovery Property
Servicing Agreement, dated as of [                      ],
200[  ] between Pacific Gas and Electric Company, as Servicer, and
the Issuer, as amended and supplemented from time to time.

 

“Settlement Agreement” means the Settlement Agreement
entered into on December 19, 2003, by PG&E, PG&E Corporation and the
CPUC in connection with PG&E’s bankruptcy.

 

“Statute” means Chapter 46, California Statutes
of 2004, codified at Public Utilities Code Section 848 et seq., as further
amended from time to time.

 

[“Swap Agreement” means                                          
entered into between the Issuer and the [                                         ].]

 

“Tariff” means the rate tariff filed with the CPUC as
Advice 2596-E pursuant to the Statute, the Financing Order, and the Issuance
Advice Letter to evidence the DRC Charges, as amended.

 

“Trustee” means the Person acting as trustee under the
Indenture, its successors in interest and any successor trustee under the
Indenture.

 

SECTION 1.02.  Other
Definitional Provisions.

 

(a)  Capitalized terms used herein and not
otherwise defined herein have the meanings assigned to them in the Indenture.

 

(b)  All terms
defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein.

 

5

 

(c)  The words “hereof,”
“herein,” “hereunder” and words of similar import, when used in this Agreement,
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement; Section, Schedule and Exhibit references contained in this
Agreement are references to Sections, Schedules and Exhibits in or to this
Agreement unless otherwise specified; and the term “including” shall mean “including
without limitation”.

 

(d)  The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter forms of such terms.

 

(e)  Each
reference herein to the Servicing Agreement, the Indenture, or any other Basic
Document refers to such agreement as in effect on the Closing Date unless
otherwise agreed to by the Seller and the Issuer.

 

(f)  Any term
used herein that is defined in the Statute and not otherwise defined herein
shall have the meaning set forth in the Statute.

 

ARTICLE
II

CONVEYANCE OF RECOVERY PROPERTY

 

SECTION 2.01.  Conveyance of Recovery Property.

 

(a)           In
consideration of the Issuer’s payment to the Seller of $[                ],
the Seller does hereby irrevocably sell, transfer, assign, set over and
otherwise convey to the Issuer, without recourse except as otherwise set forth
herein, all right, title and interest of the Seller in and to the Recovery
Property (such sale, transfer, assignment, set over and conveyance of the
Recovery Property includes, to the fullest extent permitted by the Statute, the
assignment of all revenues, collections, claims, rights, payments, money or
proceeds

 

6

 

of or arising from the Tariff or constituting
the DRC Charge including the DRC Charge pursuant to the Financing Order and the
Issuance Advice Letter).  Such sale,
transfer, assignment, set over and conveyance is hereby expressly stated to be
a sale and, pursuant to Section 848.4(a) of the PU Code, shall be treated
as an absolute transfer of all of the Seller’s right, title and interest (as in
a true sale), and not as a pledge or other financing, of the Recovery
Property.  This is the statement referred
to in Section 848.4(a) of the PU Code. 
If such sale, transfer, assignment, set over and conveyance is held not
to be a true sale as contemplated by Section 848.4(a) of the PU Code, then
such sale, transfer, assignment, set over and conveyance shall be treated as
the grant of a security interest in the Recovery Property and the Seller hereby
grants to the Issuer a security interest in the Recovery Property and the
proceeds thereof to secure its obligations hereunder.

 

(b)           The
Seller shall not deliver to the Issuer or its assignee any payments in respect
of the DRC Charges or any proceeds thereof that the Financing Order, the
Tariff, an order or decision of the CPUC, or CPUC Regulations provide are to be
retained by the Seller and not remitted to the Issuer. If at any time, an order
or decision of the CPUC shall provide that any such amounts retained by the
Seller are required to be delivered to the Issuer, then within thirty (30) days
of such order or decision becoming final and non-appealable, the Seller shall
pay such amounts to the Issuer or its assignee.

 

SECTION 2.02.  Conditions to the Sale of Recovery
Property.

 

The Issuer’s obligation
to purchase Recovery Property on the Closing Date is subject to the
satisfaction or waiver of each of the following conditions:

 

(a)  On or prior to the Closing Date, the Seller
must duly execute and deliver this Agreement to the Issuer;

 

7

 

(b)  On or prior
to the Closing Date, the Seller must have received the Financing Order from the
CPUC in a form acceptable to the Seller;

 

(c)  On or prior
to the Closing Date, the Seller must have filed the Issuance Advice Letter with
the CPUC, and such letter must be effective;

 

(d)  On the
Closing Date, the Seller must not be insolvent and must not be made insolvent
by the sale of Recovery Property to the Issuer, and the Seller must not be
aware of any pending insolvency with respect to itself;

 

(e)  On the
Closing Date, the representations and warranties made by the Seller in the this
Agreement must be true and correct, the Seller must not have breached any of
its covenants in such Agreement, and the Servicer must not be in default under
the Servicing Agreement;

 

(f)  On the
Closing Date, the Issuer must have sufficient funds available to pay the
purchase price set forth in Section 2.01, and all conditions to the issuance of
the Bonds intended to provide the funds to purchase that Recovery Property must
have been satisfied or waived;

 

(g)  On or prior
to the Closing Date, the Seller must have taken all action required to transfer
ownership of Recovery Property to be conveyed to the Issuer on the Closing
Date, free and clear of all Liens, and the Issuer must have taken any action
required for it to grant the Trustee a first priority perfected security
interest in the collateral described in the Indenture;

 

(h)  The Issuer
and the Trustee for the Bonds must receive an opinion of outside tax counsel in
form and substance reasonably satisfactory to the Issuer and that Trustee;

 

8

 

(i)  On the
Closing Date, the Servicing Agreement, this Agreement, the Indenture, the
Statute, the Financing Order and the Issuance Advice Letter must be in full
force and effect; and

 

(j)  Officer’s
Certificates confirming the satisfaction of each of these conditions must be
delivered to the Issuer and the Trustee.

 

ARTICLE
III

REPRESENTATIONS AND WARRANTIES OF SELLER

 

The Seller makes the following representations and
warranties, as of the Closing Date, on which the Issuer has relied in acquiring
the Recovery Property.  The
representations and warranties shall survive the sale of the Recovery Property
to the Issuer and the grant of a security interest therein to the Trustee
pursuant to the Indenture.

 

SECTION 3.01.  Organization and Good Standing.

 

(a)  The Seller
is duly organized and validly existing and in good standing under the laws of
the State of California, with requisite corporate power and authority to own
its properties as owned on the Closing Date and to conduct its business as
conducted by it on the Closing Date, to obtain the Financing Order and to own,
sell and transfer Recovery Property and to execute, deliver and perform the
terms of this Agreement.

 

(b)  After
giving effect to the sale of the Recovery Property under this Agreement, the
Seller: (i) is solvent and expects to remain solvent, (ii) is adequately
capitalized to conduct its business and affairs considering its size and the
nature of its business and intended purposes, (iii) is not engaged and does not
expect to engage in a business for which its remaining property represents an
unreasonably small capital, and (iv) is able to pay its debts as they mature
and does

 

9

 

not intend to incur, nor
does it believe that it will incur, indebtedness that it will not be able to
repay at its maturity.

 

SECTION 3.02.  Due Qualification.  The Seller is duly qualified to do business
and is in good standing, and has obtained all necessary licenses and approvals,
in all jurisdictions in which the ownership or lease of property or the conduct
of its business shall require such qualifications, licenses or approvals
(except where a failure to qualify or obtain such licenses and approvals would
not be reasonably likely to have a material adverse effect on the Seller’s
business, operations, assets, revenues, 
or properties).

 

SECTION 3.03.  Power and Authority.  The Seller has the requisite corporate power
and authority to execute and deliver this Agreement and to carry out its terms,
and the execution, delivery and performance by the Seller of this Agreement
have been duly authorized by all necessary action on the part of the Seller
under its organizational or governing documents and laws.

 

SECTION 3.04.  Binding Obligation.  This Agreement constitutes a legal, valid and
binding obligation of the Seller, enforceable against the Seller in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other laws relating to or affecting creditors’
or secured parties’ rights generally from time to time in effect and to general
principles of equity (including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing), regardless of whether considered
in a proceeding in equity or law.

 

SECTION 3.05.  No Violation and Consistency.   The consummation by the Seller of the
transactions contemplated by this Agreement (a) do not conflict with the
organizational documents of the Seller or any indenture or other agreement or instrument
to which the Seller is a

 

10

 

party or by which it is bound, nor will
consummation by the Seller of the transactions contemplated hereunder result in
the creation or imposition of any Lien upon its properties pursuant to the
terms of such indenture, agreement or other instrument (other than any that may
be granted under the Basic Documents or the Lien arising under Section 848.3(g)
of the PU Code, the Financing Order and the Issuance Advice Letter) or violate
any existing law or any existing order, rule or regulation applicable to the
Seller (b) and is consistent with PU Code and the Financing Order.

 

SECTION 3.06.  No Proceedings.

 

(a)  Except as
set forth on Schedule 3.06, no proceeding is pending and, to the Seller’s
knowledge, no proceeding is threatened, against the Seller, and, to the Seller’s
knowledge, no investigation is pending or threatened against the Seller before
any governmental authority: (i) asserting the invalidity of the Statute,
the Financing Order, this Agreement, the Bonds or the Basic Documents,
(ii) seeking to prevent the issuance of the Bonds or the consummation of
any of the transactions contemplated by the Basic Documents, (iii) seeking a
determination that could reasonably be expected to materially and adversely
affect the performance by the Seller of its obligations under, or the validity
or enforceability of, the Statute, the Financing Order, the Bonds, this
Agreement or the other Basic Documents, or (iv) seeking to adversely affect the
Federal income tax or state income or franchise tax classification of the Bonds
as debt.

 

(b)  There is no
order by any court or regulatory agency providing for the revocation,
alteration, limitation or other impairment of the Statute, the Financing Order,
the Issuance Advice Letter, the Recovery Property or the DRC Charges or any
rights arising under any of them or that seeks to enjoin the performance of any
obligations under the Financing Order.

 

11

 

SECTION 3.07.  Approvals.  No governmental approvals, authorizations,
consents, orders or other actions or filings, other than filings under the
Statute, are required for the Seller to execute, deliver and perform its
obligations under this Agreement except those which have been obtained or made
or are required to be made by the Seller in the future pursuant to this
Agreement.

 

SECTION 3.08.  The Recovery Property.

 

(a)  Information.  Subject to the assumptions used in
calculating the DRC Charges and any other forecasts, projections and
predictions about events in the future, as of the Closing Date, all written
information, as amended or supplemented from time to time, provided by the
Seller to the Issuer with respect to the Recovery Property is true, correct and
complete in all material respects.

 

(b)  Title.  It is the intention of the parties hereto
that the transfer and assignment herein contemplated constitute a sale of the
Recovery Property from the Seller to the Issuer and that the Recovery Property
not be part of the debtor’s estate in the event of the filing of a bankruptcy
petition by or against the Seller under any bankruptcy law.  No portion of the Recovery Property has been
sold, transferred, assigned, pledged or otherwise conveyed by the Seller to any
Person other than the Issuer, and immediately prior to the sale of such
Recovery Property, the Seller owns the Recovery Property free and clear of all
Liens and rights of any other Person, and no offsets, defenses or counterclaims
exist or have been asserted with respect to the Recovery Property.

 

(c)  Transfer Filings.  On the Closing Date, immediately upon the
sale under this Agreement, the Recovery Property transferred on the Closing
Date shall be validly transferred and sold to the Issuer, the Issuer shall own
all such Recovery Property, free and clear of all Liens,

 

12

 

except for the Lien
arising under Section 848.3(g) of the PU Code, the Financing Order and the
Issuance Advice Letter, and all filings (including filings with the Secretary
of State of California under the Statute) necessary in any jurisdiction to give
the Issuer a perfected ownership interest in the Recovery Property shall have
been made.

 

(d)  Financing
Order and Issuance Advice Letters; Other Approvals.  Under the laws of the State of California
(including the Statute) and the United States in effect on the Closing
Date: (i) the Financing Order and the Issuance Advice Letter pursuant to
which the rights and the interests of the Seller have been created, including
the right to impose, collect and receive the DRC Charges and the interest in
and to the Recovery Property is in full force and effect, and the Seller has
validly and irrevocably consented to the terms of the Financing Order,
(ii) as of the Closing Date, subject to the limitations set forth in
Sections 848.1(g) and 848.7 of the PU Code, the Bonds are entitled to the
protection provided in the first sentence of Section 848.1(g) and the
first sentence of Section 848.2(d) of the PU Code, (iii) as of the
Closing Date, the Tariff has been filed with the CPUC in accordance with the
Financing Order, (iv) the process by which the Financing Order was
approved and the Financing Order, the Issuance Advice Letter and the Tariff
comply with all applicable laws and regulations, (v) the Issuance Advice Letter
and the Tariff have been filed in accordance with the Financing Order,
(vi) no other approval, authorization, consent, order or other action of,
or filing with any governmental authority is required on the part of the Seller
in connection with the creation of the Recovery Property, except those that
have been obtained or made, and (vii) under the “contract clause” of the U.S.
Constitution and the “contract clause” of the California Constitution, Holders
of the Bonds could successfully challenge the constitutionality of any law
enacted by the State of California, whether enacted by legislation or voter
initiative, that, after the Bonds are issued but

 

13

 

prior to the time that
the Bonds are fully paid, repeals, amends or violates the state pledge in a
manner that substantially impairs the Bonds or the Indenture, unless the law is
reasonable and necessary to serve an important public purpose such as remedying
a broad and general social or economic problem.

 

(e)  Assumptions.  Based on information available to the Seller
on the Closing Date, the assumptions used in calculating the DRC Charges as of
the Closing Date are reasonable and are made in good faith.

 

(f)  Creation
of Recovery Property.  Upon the
filing of the Issuance Advice Letter with respect to the Recovery Property
pursuant to the Financing Order, regardless of the outcome of the pending
appeals in Aglet Consumer Alliance v. Public Utilities Commission et al.
and City and County of San Francisco vs. Public Utilities Commission et al.,
pending as Docket Nos. A106157 and A106158 before the California Court of
Appeals First Appellate District, City of Palo Alto v. Official Committee of
Unsecured Creditors et al., USDC Case No. 3:04-cv-00727-VRW, filed on or
about February 23, 2004 in the United States District Court for the Northern
District of California and Loretta M. Lynch et al. v. CPUC et al.,
Court of Appeals Docket Number 04-16493, filed on or about July 29, 2004 in the
United States Ninth Circuit Court of Appeals (collectively, the “Pending
Appeals”):  (i) the related rights and
interests of the Seller under the Financing Order, including the right to
impose, collect and receive the DRC Charges established pursuant to the
Financing Order, will become Recovery Property, (ii) the Recovery Property will
constitute a current property right, (iii) the Recovery Property will include
the right, title and interest of the Seller to the Tariff imposing the DRC
Charges, and the right to obtain periodic true-up adjustments of the DRC
Charges, (iv) the owner of the Recovery Property will be legally entitled to
bill DRC Charges and collect payments in respect of the DRC Charges in

 

14

 

the aggregate amount
sufficient to pay or fund, in accordance with the Indenture, the principal of
the Bonds, all interest thereon, any credit enhancements, and all related fees
and costs with respect to the scheduled payment of the Bonds, as well as other
amounts payable under any interest rate swap agreement or the Indenture, and
(v) the Recovery Property will not be subject to any Lien, except for the lien
arising under Section 848.3(g) of the PU Code, the Financing Order and the
Issuance Advice Letter.

 

(g)  Under existing law as of the Closing
Date, Bondholders will not be responsible for, nor will payments to Bondholders
be reduced by, any sales tax, gross receipts tax, general corporation tax,
single business tax, personal property tax, privilege tax, franchise or license
tax, or other tax imposed on the Seller or the Issuer as a result of the sale
and assignment of the Recovery Property by the Seller to the Issuer, the
acquisition of the Recovery Property by the Issuer or the issuance and sale by
the Issuer of the Bonds, other than withholding of taxes applicable to Bond
payments and any taxes imposed as a result of a failure of the Issuer or the
Seller to properly withhold or remit taxes imposed with respect to payments on
any Bond.

 

SECTION 3.09.  Change in Law.  The representations and warranties in this
Agreement speak as of the Closing Date. 
Any change in the law by legislative enactment, constitutional amendment
or voter initiative that renders untrue any of the representations or
warranties in this Agreement will not constitute a breach under this
Agreement.   For purposes of this Section
3.09, the outcome of appeals relating to the Settlement Agreement or the Plan
of Reorganization pending on the Closing Date in the Pending Appeals will not
be treated as a change in law.

 

SECTION 3.10  Pending Litigation.  The Pending Appeals are the only proceedings
pending in any court on the Closing Date seeking to overturn the Settlement

 

15

 

Agreement or the order of the United States
Bankruptcy Court for the Northern District of California, San Francisco
Division, dated December 22, 2003 (the “Confirmation Order”), confirming the
Plan of Reorganization dated July 31, 2003, as amended by Modifications dated
November 6, 2003, December 19, 2003 and February 19, 2004 and as supplemented
by the Composite Plan Supplement filed as Exhibit B to the Confirmation Order
(the “Plan of Reorganization”).

 

SECTION 3.11.  Limitations on Representations and
Warranties.

 

(a) 
Notwithstanding the above, the Seller makes no representation or
warranty that any amounts actually collected arising from the DRC Charges will
in fact be sufficient to meet payment obligations on the Bonds or that the assumptions
made in calculating the DRC Charges will in fact be realized.

 

(b)  The
representations and warranties made by the Seller survive the execution and
delivery of this Agreement and may not be waived by the Issuer or the Seller
except pursuant to a written agreement as to which the Rating Agency Condition
has been satisfied.

 

ARTICLE
IV

COVENANTS OF THE SELLER

 

SECTION 4.01.  Corporate Existence.  Subject to its right to assign its rights and
obligations under this Agreement, so long as any of the Bonds are outstanding,
the Seller (a) will keep in full force and effect its existence and remain
in good standing under the laws of the jurisdiction of its organization and
(b) will obtain and preserve its qualifications to do business in those
jurisdictions necessary to protect the validity and enforceability of the Basic
Documents to

 

16

 

which the Seller is a party or the extent
necessary to perform its obligations under the Basic Documents to which it is a
party.

 

SECTION 4.02.  No Liens.  Except for the conveyances under this
Agreement or the Lien arising under Section 848.3(g) of the PU Code, the
Financing Order and the Issuance Advice Letter, the Seller will not sell,
pledge, assign or transfer, or grant, create, incur, assume or suffer to exist
any Lien, arising through or under the Seller, on any of the Recovery Property,
or any interest therein, and the Seller shall defend the right, title and
interest of the Issuer and of the Trustee, in, to and under the Recovery
Property against all claims of third parties claiming through or under the
Seller.  The Seller also covenants that
it will not at any time assert any Lien against, or with respect to, any of the
Recovery Property.

 

SECTION 4.03.  Delivery of Payments.  If the Seller receives any payments in
respect of the DRC Charges or the proceeds thereof other than in its capacity
as the Servicer, the Seller agrees to pay all those payments to the Servicer
and to hold such amounts in trust for the Issuer prior to such payment;
provided, however, that notwithstanding any other provision of this Agreement,
the Seller shall not be obligated to remit to the Servicer or any other person
or entity, or to hold in trust, any payments in respect of the DRC Charges or
any proceeds thereof that the Financing Order, the Tariff, an order or decision
of the CPUC, or CPUC Regulations provide are to be retained by the Seller and
not remitted to the Issuer.

 

SECTION 4.04.  Notice of Liens.  The Seller shall notify the Issuer and the
Trustee promptly after becoming aware of any Lien arising through or under it
on any of the Recovery Property other than the conveyances hereunder or the
Lien arising under Section 848.3(g) of the PU Code, the Financing Order and the
Issuance Advice Letter.

 

17

 

SECTION 4.05.  Compliance With Law.  The Seller hereby agrees to comply with its
organizational or governing documents and all laws, treaties, rules,
regulations and determinations of any governmental authority applicable to the
Seller, except to the extent that failure to so comply would not materially
adversely affect the Issuer’s or the Trustee’s interests in the Recovery
Property or under any of the Basic Documents to which the Seller is a party or
the Seller’s performance of its obligations under any of the other Basic
Documents to which it is party.

 

SECTION 4.06.  Covenants Related to Recovery Property.

 

(a)  So long as
any of the Bonds are outstanding: (i) the Seller shall disclose in its
financial statements that the Issuer’s assets are not available to creditors of
the Seller and the Recovery Property is not legally an asset of the Seller, and
(ii) the Seller shall disclose the effects of all transactions between the
Issuer and the Seller in accordance with generally accepted accounting
principles.

 

(b)  The Seller agrees that upon the sale by
the Seller of the Recovery Property to the Issuer pursuant to this Agreement,
(i) to the fullest extent permitted by law, the Issuer shall have all of
the rights originally held by the Seller with respect to such Recovery
Property, including the right to exercise any and all rights and remedies to
collect any amounts payable by any Consumer in respect of such Recovery
Property, notwithstanding any objection or direction to the contrary by the
Seller and (ii) any payment by any Consumer to the Issuer shall discharge
such Consumer’s obligations in respect of such Recovery Property to the extent
of such payment, notwithstanding any objection or direction to the contrary by
the Seller.

 

(c)  So long as any of the Bonds are
outstanding, (i) in all proceedings relating directly or indirectly to the
Recovery Property, the Seller shall affirmatively certify and confirm

 

18

 

that it has sold all of
its rights and interests in and to such property (other than for financial
reporting or tax purposes), (ii) the Seller shall not make any statement
or reference in respect of the Recovery Property that is inconsistent with the
ownership interest of the Issuer (other than for financial reporting or tax
purposes), (iii) the Seller shall not take any action in respect of the
Recovery Property except solely in its capacity as Servicer pursuant to the
Servicing Agreement or as otherwise contemplated by the Basic Documents, and
(iv) the Seller shall not sell recovery property in connection with the
issuance of additional Bonds unless the Rating Agency Condition has been
satisfied.

 

(d)  The Seller
agrees not to withdraw the filing of the Issuance Advice Letter with the CPUC.

 

(e)  The Seller
shall make all reasonable efforts to keep each Tariff that relates to the
Recovery Property in full force and effect.

 

(f)  Promptly
after obtaining knowledge of any breach in any material respect of its
representations and warranties in this Agreement, the Seller shall notify the
Issuer and the Rating Agencies of the breach.

 

(g)  The Seller
shall use the proceeds of the sale of the Recovery Property in accordance with
the Financing Order and the Statute.

 

(h)  Upon the
request of the Issuer, the Seller shall execute and deliver such further
instruments and do such further acts as may be necessary to carry out the
provisions and purposes of this Agreement.

 

SECTION 4.07.  Protection of Title.  The Seller shall execute and file the filings
required by law to perfect and continue the perfection of the interests of the
Issuer in the Recovery Property.  The
Seller also agrees to take those legal or administrative actions that may

 

19

 

be reasonably necessary to protect the Issuer
from claims, state actions or other actions or proceedings of third parties
which, if successfully pursued, would result in a breach of any representation
or warranty of the Seller set forth in Article III, and the costs of any
such actions or proceedings will be paid by the Seller.

 

SECTION 4.08.  Nonpetition Covenants.  Even if this Agreement or the Indenture is
terminated, the Seller shall not, prior to the date which is one year and one
day after the termination of all indentures under which the Issuer issues
energy recovery bonds, petition or otherwise invoke the process of any court or
government authority for the purpose of commencing or sustaining an involuntary
case against the Issuer under any Federal or state bankruptcy, insolvency or
similar law, appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official for any substantial part of the property
of the Issuer, or ordering the winding up or liquidation of the affairs of the
Issuer.

 

SECTION 4.09.  Taxes. 
So long as any of the Bonds are outstanding, except for taxes,
assessments and governmental charges which the Seller is contesting in good
faith by appropriate proceedings, the Seller shall pay all material taxes,
assessments and  governmental charges
imposed upon it or any of its properties or assets or with respect to any of
its franchises, business, income or property before any penalty accrues if the
failure to pay any such taxes, assessments and governmental charges would,
after any applicable grace periods, notices or other similar requirements,
result in a lien on the Recovery Property.

 

20

 

ARTICLE
V

THE SELLER

 

SECTION 5.01.  Liability of Seller; Indemnities.

 

(a)  The Seller shall be liable in
accordance herewith only to the extent of the obligations specifically
undertaken by the Seller under this Agreement.

 

(b)  The Seller shall indemnify the Issuer
and the Trustee (for itself, for the benefit of the Bondholders and for the
benefit of any Swap Provider) and each of the Issuer’s and the Trustee’s
respective officers, directors, members, employees and agents and defend and
hold harmless each such person from and against (i) any and all amounts of
principal of and interest on the Bonds not paid when due or when scheduled to
be paid in accordance with their terms, (ii) any amounts payable to a Swap
Provider not paid when due or when scheduled to be paid pursuant to the Indenture,
(iii) any other amounts payable to any Person in connection with the Bonds or
in connection with the Recovery Property, including but not limited to Trustee’s
fees and expenses, that are not paid when due or when scheduled to be paid
pursuant to the Indenture, (iv) the amount of any other deposits to the
Collection Account required to have been made in accordance with the terms of
the Basic Documents and retained in the Capital Subaccount, in the
Overcollateralization Subaccount or in the Reserve Subaccount or released to
the Issuer free of the lien of the Indenture, which are not made when so
required, (v) any reasonable costs and expenses incurred by such Person that
are not recoverable pursuant to the Indenture and (vi) any taxes payable by Bondholders
resulting in a breach of Section 3.08(g), in each case to the extent resulting
from the Seller’s breach of any of its representations, warranties or covenants
contained in this Agreement, except to the extent of losses either resulting
from the willful misconduct, bad faith or gross negligence of such indemnified
Persons or resulting from a breach of representation

 

21

 

or warranty made by such
indemnified Persons in the Indenture or any other document that gives rise to
the Seller’s breach.  Indemnification
under this paragraph shall survive the resignation or removal of the
Trustee.

 

(c) 
Notwithstanding Section 5.01(b) above, the Seller shall not be liable
for any loss, damages, liability, obligation, claim, action, suit or payment
resulting solely from a downgrade in the ratings on the Bonds or for any
consequential damages, including any loss of market value of the Bonds
resulting from any default or any downgrade of the ratings of the Bonds.

 

(d)  The
indemnities described in this Section will survive the termination of this
Agreement and include reasonable fees and expenses of investigation and
litigation, including reasonable attorneys’ fees and expenses.

 

SECTION 5.02.  Merger or Consolidation of, or Assumption
of the Obligations of, Seller.  Any
Person (a) into which the Seller may be merged, converted or consolidated
and that succeeds to all or substantially all of the electric distribution
business of the Seller, (b) that results from the division of the Seller into
two or more Persons and succeeds that to all or substantially all of the
electric distribution business of the Seller, (c) that results from any
merger or consolidation to which the Seller shall be a party and that succeeds
to all or substantially all of the electric distribution business of the
Seller, (d) that succeeds to the properties and assets of the Seller
substantially as a whole, or succeeds to all or substantially all of the
electric distribution business of the Seller, or (e) that otherwise succeeds to
all or substantially all of the electric distribution business of the Seller,
shall be the successor to the Seller under this Agreement without further act
on the part of any of the parties to this Agreement; provided, further, that
(i) immediately after giving effect to any transaction referred to above,
no representation or

 

22

 

warranty made by the Seller pursuant to
Article III shall have been breached and, to the extent the Seller is the
Servicer, no default under the Servicing Agreement, and no event, that after
notice or lapse of time, or both, would become a default under the Servicing
Agreement will have occurred and be continuing, (ii) the successor to the
Seller must execute an agreement of assumption to perform every obligation of
the Seller under this Agreement, (iii) the Rating Agencies shall have
received prior written notice of such transaction, and (iv) the Seller shall
have delivered to the Issuer and the Trustee an Officer’s Certificate and an
Opinion of Counsel each stating that such consolidation, merger or succession
and such agreement of assumption comply with this Section and that all
conditions precedent, if any, provided for in this Agreement relating to such
transaction have been complied with.

 

SECTION 5.03.  Limitation on Liability of Seller and
Others.  The Seller and any director
or officer or employee or agent of the Seller may rely in good faith on the
advice of counsel or on any document of any kind, prima facie properly executed
and submitted by any Person, respecting any matters arising hereunder.  The Seller shall not be under any obligation
to appear in, prosecute or defend any legal action that is not incidental to
its obligations under this Agreement, and that in its opinion may involve it in
any expense or liability.

 

23

 

ARTICLE
VI

 

MISCELLANEOUS PROVISIONS

 

SECTION 6.01.  Amendment.  This Agreement may be amended by the Seller
and the Issuer with the prior written consent of the Trustee.  In addition, any amendment will not be
effective unless the Rating Agency Condition is satisfied.  The Issuer shall notify the Rating Agencies
promptly after the execution of any such amendment.

 

SECTION 6.02.  Notices.  All demands, notices and communications upon
or to the Seller, the Issuer, the Trustee or the Rating Agencies under this
Agreement shall be in writing, personally delivered, mailed or sent by telecopy
or other similar form of rapid transmission, and shall be deemed to have been
duly given upon receipt (a) in the case of the Seller, to Pacific Gas and
Electric Company, at 77 Beale Street, San Francisco,
California 94105, Attention of Treasurer, (b) in the case of the
Issuer, to PG&E Energy Recovery Funding LLC, 245 Market Street,
Room 424, San Francisco, California 94105, Attention of
President, (c) in the case of the Trustee, at the Corporate Trust Office,
[                               ]
(d) in the case of Moody’s, to Moody’s Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York,
New York 10007, (e) in the case of Standard & Poor’s,
to Standard & Poor’s Corporation, 55 Water Street, 40th Floor,
New York, New York 10041, Attention of Attention of Asset Backed
Surveillance Department, (f) in the case of Fitch, to Fitch, Inc.,
One State Street Plaza, New York, NY 10004, Attention of
Commercial Asset-Backed Securities, or (g) as to each of the foregoing, at
such other address as shall be designated by written notice to the other parties.

 

24

 

SECTION 6.03.  Assignment.  Notwithstanding anything to the contrary
contained herein, except as provided in Section 5.02, this Agreement may
not be assigned by the Seller.

 

SECTION 6.04.  Limitations on Rights of Others.  The provisions of this Agreement are solely
for the benefit of the Seller, the Issuer, the Trustee and the Bondholders, and
nothing in this Agreement, whether express or implied, shall be construed to
give to any other Person any legal or equitable right, remedy or claim under or
in respect of this Agreement or any covenants, conditions or provisions
contained herein.

 

SECTION 6.05.  Severability.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

SECTION 6.06.  Separate Counterparts.  This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.

 

SECTION 6.07.  Headings.  The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

 

SECTION 6.08.  Governing Law.  This Agreement shall be construed in
accordance with the laws of the State of California, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.

 

25

 

SECTION 6.09.  Assignment to Trustee.  The Seller hereby acknowledges and consents
to the grant of a security interest by the Issuer to the Trustee pursuant to the
Indenture of all right, title and interest of the Issuer in, to and under the
Recovery Property and the proceeds thereof and all of the Issuer’s rights and
obligations hereunder.

 

 

[Signature page follows]

 

26

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective officers as of the date
first above written.

 

 

	
   

  	
  PG&E ENERGY RECOVERY FUNDING
  LLC,

  Issuer,

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PACIFIC GAS AND ELECTRIC COMPANY,

  Seller,

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
								

 

 

[Signature page to
Recovery Property Purchase and Sale Agreement]

 

 

SCHEDULE 3.06

 

No Proceedings

 

[List]EXHIBIT 10.2

 

 

 

FORM OF RECOVERY PROPERTY SERVICING AGREEMENT

 

 

between

 

 

PG&E ENERGY RECOVERY FUNDING LLC

 

 

Issuer

 

 

and

 

 

PACIFIC GAS AND ELECTRIC COMPANY

 

 

Servicer

 

 

Dated as of [date]

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
  ARTICLE I

  	
  Definitions

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 1.01.

  	
  Definitions

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 1.02.

  	
  Other Definitional Provisions

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  Appointment and Authorization

  	
  13

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 2.01.

  	
  Appointment of Servicer; Acceptance
  of Appointment

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 2.02.

  	
  Authorization

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 2.03.

  	
  Dominion and Control Over the
  Recovery Property

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  Billing Services

  	
  14

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.01.

  	
  Duties of Servicer

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.02.

  	
  Servicing and Maintenance Standards

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.03.

  	
  Certificate of Compliance

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.04.

  	
  Annual Report by Independent Public
  Accountants

  	
  18

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  Services Related to True-Up Adjustments

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.01.

  	
  Periodic True-Up Adjustments

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 4.02.

  	
  Limitation
  of Liability

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  The
  Recovery Property

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 5.01.

  	
  Custody
  of Recovery Property Records

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 5.02.

  	
  Duties
  of Servicer as Custodian

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 5.03.

  	
  Effective
  Period and Termination

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 5.04.

  	
  General
  Indemnification of Trustee

  	
  30

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  The
  Servicer

  	
  31

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.01.

  	
  Representations
  and Warranties of Servicer

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.02.

  	
  Indemnities
  of Servicer; Release of Claims

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.03.

  	
  Merger
  or Consolidation of, or Assumption of the Obligations of, Servicer

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.04.

  	
  Limitation
  on Liability of Servicer and Others

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.05.

  	
  Pacific
  Gas and Electric Company Not to Resign as Servicer

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.06.

  	
  Servicing
  Compensation.

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.07.

  	
  Compliance
  With Applicable Law

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.08.

  	
  Access
  to Certain Records and Information Regarding Recovery Property

  	
  38

  
					

 

i

 

	
   

  	
  SECTION 6.09.

  	
  Appointments

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.10.

  	
  No
  Servicer Advances

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 6.11.

  	
  Remittances

  	
  39

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  Default

  	
  42

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 7.01.

  	
  Servicer
  Default

  	
  42

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 7.02.

  	
  Appointment
  of Successor

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 7.03.

  	
  Waiver
  of Past Defaults

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 7.04.

  	
  Notice
  of Servicer Default

  	
  46

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  Miscellaneous
  Provisions

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.01.

  	
  Amendment

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.02.

  	
  Accounts
  and Records

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.03.

  	
  Notices

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.04.

  	
  Assignment

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.05.

  	
  Limitations
  on Rights of Others

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.06.

  	
  Severability

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.07.

  	
  Separate
  Counterparts

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.08.

  	
  Headings

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.09.

  	
  Governing
  Law

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.10.

  	
  Assignment
  to Trustee

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION 8.11.

  	
  Nonpetition
  Covenants

  	
  51

  
					

 

ii

 

	
  Exhibit A

  	
  Annual Certificate of Compliance

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  Form of Quarterly Servicer’s Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  Form of Monthly Servicer’s Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  Form of Daily Servicer’s Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit E

  	
  Form of Annual ERB Charge True-Up Mechanism Advice
  Filing

  
	
   

  	
   

  	
   

  
	
  Exhibit F

  	
  Form of Anniversary ERB Charge True-Up Mechanism
  Advice Filing

  
	
   

  	
   

  	
   

  
	
  Exhibit G

  	
  Expected Amortization Schedule

  
	
   

  	
   

  	
   

  
	
  Exhibit H

  	
  Pending Proceedings

  
	
   

  	
   

  	
   

  
	
  Annex I

  	
  Servicing Procedures

  
	
   

  	
   

  	
   

  
	
   

  	
  Attachment A to Annex I

  	
  Calculation of Aggregate Remittance Amount

  
	
   

  	
   

  	
   

  
	
   

  	
  Attachment B to Annex I

  	
  Calculation of Daily Collections Curve

  
	
   

  	
   

  	
   

  
	
   

  	
  Attachment C to Annex I

  	
  Calculation of Monthly Collections Curve

  
					

 

iii

 

RECOVERY PROPERTY SERVICING AGREEMENT dated as of
[date], between PG&E ENERGY RECOVERY FUNDING LLC, a Delaware limited
liability company (the “Issuer”), and PACIFIC GAS AND ELECTRIC COMPANY, a
California corporation, as the servicer of the Recovery Property (together with
each successor to Pacific Gas and Electric Company (in the same capacity)
pursuant to Section 6.03 or Section 7.02, the “Servicer”).

 

RECITALS

 

A.                                   Pursuant
to the Statute and the Financing Order, the Seller and the Issuer are
concurrently entering into the Sale Agreement pursuant to which the Seller is
selling to the Issuer the Recovery Property created pursuant to the PU Code,
the Financing Order and the Issuance Advice Letter described in such agreement,
and the Seller may sell other Recovery Property to the Issuer pursuant to
Subsequent Sale Agreements.

 

B.                                     In
connection with its ownership of the Recovery Property and in order to collect
the DRC Charges associated with each Series of Bonds, as defined herein, the
Issuer desires to engage the Servicer to carry out the functions described
herein.  The Servicer currently performs
similar functions for itself with respect to its own charges to its customers
and may in the future perform for others. 
In addition, the Issuer desires to engage the Servicer to act on its
behalf in obtaining True-Up Adjustments from the CPUC.  The Servicer desires to perform all of these
activities on behalf of the Issuer.

 

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

 

 

ARTICLE I

 

Definitions

 

SECTION 1.01.                 Definitions.  Whenever used in this Agreement, the
following words and phrases shall have the following meanings:

 

“Actual
DRC Payments” means the actual DRC Payments received by the Servicer
attributable to a particular Billing Period, which are determined by adjusting
Estimated DRC Payments for such Billing Period as specified in Annex I.

 

“Advice
Letter” means any filing made to the CPUC by the Servicer on behalf of the
Issuer with respect to the DRC Charges or any True-Up Adjustment in the form of
an advice letter, including an Issuance Advice Letter, a Routine Annual True-Up
Mechanism Advice Letter, an Anniversary True-Up Mechanism Advice Letter, a
Routine Quarterly True-Up Mechanism Advice Letter or a Non-Routine True-Up
Mechanism Advice Letter.

 

“Aggregate
Remittance Amount” has the meaning set forth in Annex I hereto.

 

“Agreement”
means this Recovery Property Servicing Agreement, together with all Exhibits,
Annexes and Attachments hereto, as the same may be amended and supplemented
from time to time.

 

“Anniversary
True-Up Mechanism Advice Letter” means an Advice Letter filed with the CPUC at
least fifteen days prior to the Financing Order Anniversary Date in respect of
a True-Up Adjustment, substantially in the form of Exhibit F
hereto.  Any True-Up Adjustment required
as a result of the Anniversary True-Up Mechanism Advice Letter will become effective
on the date specified by the CPUC in accordance with the Financing Order.

 

“Annual
Accountant’s Report” has the meaning set forth in Section 3.04.

 

“Annual
Adjustment Filing Date” means each December 15, from and including December 15,
[2005] to and including the last December 15 preceding the Retirement
Date;

 

2

 

provided, however,
that if any such day is not a Servicer Business Day, “Annual Adjustment Filing
Date” shall mean the Servicer Business Day immediately preceding such day.

 

“Applicable
ESP” means, with respect to each Consumer, the ESP, if any, providing “direct
access” service to that Consumer.

 

“Billing
Period” means a calendar month.

 

“Bills”
means each of the regular monthly bills, the summary bills, the opening bills
and the closing bills issued to Consumers or ESPs by Pacific Gas and Electric
Company on its own behalf and in its capacity as Servicer.

 

“Bonds”
means each Series of Bonds issued by the Issuer pursuant to an Indenture, unless
such Indenture specifies such Bonds are subject to a different servicing
agreement.

 

“Capital
Subaccount” has the meaning set forth in the Indenture.

 

“Certificate
of Compliance” has the meaning set forth in Section 3.03.

 

“Closing
Date” means [                                                   ].

 

“Collection
Period” means the calendar month immediately preceding the respective Monthly
Remittance Date.

 

“Collections
Curves” means the Daily Collections Curve together with the Monthly Collections
Curve.

 

“Consolidated
ESP Billing” has the meaning set forth in Annex I hereto.

 

“Consumers”
means the existing and future consumers of electricity that has been
transmitted or distributed by means of electric transmission or distribution
facilities, whether those facilities are owned by the consumer, Pacific Gas and
Electric Company or any other party, to the extent those existing and future
consumers of electricity are located in the service territory

 

3

 

in which the Seller provided electric distribution
service as of December 19, 2003, other than consumers of electricity
exempted from the obligation to pay DRC Charges under the Statute as further
implemented by the CPUC pursuant to Section 848.1(c) of the PU Code.

 

“CPUC”
means the California Public Utilities Commission or any successor governmental
agency that has regulatory authority over the True-Up Adjustments contemplated
by the Statute.

 

“CPUC
Regulations” means all regulations, rules, tariffs and laws applicable to
public utilities or ESPs, as the case may be, and promulgated by, enforced by
or otherwise within the jurisdiction of the CPUC.

 

“Daily
Collections Curve” has the meaning set forth on Attachment B to Annex I hereto.

 

“Daily
Remittance” has the meaning set forth in Section 6.11(d).

 

“Daily
Servicer’s Certificate” means a certificate, substantially in the form of Exhibit D
hereto, completed and executed by a Responsible Officer pursuant to Section 3.01(b)(ii).

 

“DRC
Charges” means, with respect to each Series of Bonds, the charges for fixed
recovery amounts authorized to be billed to Consumers in respect of Recovery
Property pursuant to the Financing Order and the Issuance Advice Letter
relating to each Series of Bonds, as calculated pursuant to the applicable
Issuance Advice Letter and each true-up mechanism advice letter filed with the
CPUC pursuant to the Financing Order.

 

“DRC
Collections” means DRC Payments that are remitted by the Servicer to the
applicable Collection Account.

 

4

 

“DRC
Effective Date” means the date on which the initial DRC Charge goes into effect
pursuant to the terms of the Financing Order and the Issuance Advice Letter.

 

“DRC
End Date” means, depending on the context in which used, either:  (i) the date on which specific DRC Charges in
respect of a Series of Bonds end because such DRC Charges have been replaced
with revised DRC Charges or (ii) the DRC Termination Date.

 

“DRC
Payments” means the payments made by Consumers, or by ESPs on behalf of
Consumers, based on the DRC Charges. 
Notwithstanding any other provision of this Agreement, DRC Payments
shall not include Retained Collections.

 

“DRC
Start Date” means, depending on the context in which used, either:  (i) the DRC Effective Date or (ii) the date
on which specific revised DRC Charges go into effect to replace previously
existing DRC Charges.

 

“DRC
Termination Date” means the date on which the usage of electricity will cease
to give rise to DRC Charges in respect of a Series of Bonds pursuant to the
terms of the Financing Order.

 

“ESP”
means an alternative energy service provider who has entered into an ESP
Service Agreement with the Seller.

 

“ESP
Service Agreement” means an agreement between an ESP and the Seller for the
provision of “direct access” service to customers in accordance with CPUC
Decision 97-10-087 and subsequent decisions.

 

“Estimated
DRC Payments” means the sum of the amounts remitted to the Trustee as DRC
Payments with respect to a Billing Period during the six months following such
Billing Period based on the Collections Curves.

 

5

 

“Excess
Remittance” means the amount, if any, calculated for a particular Monthly
Remittance Date, by which all Estimated DRC Payments remitted to the Collection
Account on and prior to such Monthly Remittance Date with respect to the DRC
Charges billed to Consumers during the sixth preceding Billing Period exceed
Actual DRC Payments received by the Servicer attributable to such Billing
Period.

 

“Expected
Amortization Schedule” means the Expected Amortization Schedule set forth
on Exhibit G hereto, as the same may be amended from time to time
pursuant to Section 4.01(a).

 

“Financing
Order” means the order of the CPUC, Decision 04-11-015, issued on November 19,
2004, which became effective on November 29, 2004.

 

“Financing
Order Anniversary Date” means November 19 of each year.

 

“Indenture”
means each indenture, between the Issuer and the Trustee, as the same may be
amended and supplemented from time to time pursuant to which Bonds are issued.

 

“Initial
Recovery Property” means the Recovery Property described in the Sale Agreement.

 

“Insolvency
Event” means, with respect to a specified Person, (a) the filing of a decree or
order for relief by a court having jurisdiction in the premises in respect of
such Person or any substantial part of its property in an involuntary case
under any applicable Federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person’s affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable Federal or

 

6

 

state bankruptcy, insolvency or other similar law now
or hereafter in effect, or the consent by such Person to the entry of an order
for relief in an involuntary case under any such law, or the consent by such
Person to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official for such Person
or for any substantial part of its property, or the making by such Person of
any general assignment for the benefit of creditors, or the failure by such
Person generally to pay its debts as such debts become due.

 

“Issuance
Advice Letter” means, with respect to each Series of Bonds, the Advice Letter
submitted to the CPUC in connection with and immediately prior to the issuance
of that Series of Bonds.  The first
Issuance Advice Letter will establish the initial DRC Charges in respect of the
first Series of Bonds, and each subsequent Issuance Advice Letter will specify
the DRC Charges relating to the issuance of additional Series of Bonds.

 

“Issuer”
has the meaning set forth in the first paragraph hereof.

 

“Lien”
means a security interest, lien, charge, pledge, equity or encumbrance of any
kind.

 

“Losses”
has the meaning assigned to that term in Section 5.04.

 

“Monthly
Collections Curve” has the meaning set forth on Attachment C to Annex I hereto.

 

“Monthly
Remittance Date” means the twentieth day of each calendar month or, if such day
is not a Business Day, the next succeeding Business Day, commencing in [             ],
2005.

 

“Monthly
Servicer’s Certificate” means a certificate, substantially in the form of Exhibit C
hereto, completed and executed by a Responsible Officer pursuant to Section 3.01(b)(i).

 

7

 

“Non-Routine
True-Up Adjustment” has the meaning set forth in Section 4.01(c)(i).

 

“Non-Routine
True-Up Mechanism Advice Letter” means an Advice Letter filed with the CPUC in
accordance with the Financing Order with respect to any Non-Routine True-Up
Adjustment, pursuant to which the related Non-Routine True-Up Adjustment
generally will become effective at the beginning of the first Quarter that is
at least 90 days after filing.

 

“Officer’s
Certificate” means a certificate signed by a Responsible Officer.

 

“Opinion
of Counsel” means one or more written opinions of counsel who may be employees
of or counsel to the party providing such opinion(s) of counsel, which counsel
shall be reasonably acceptable to the party receiving such opinion(s) of
counsel.

 

“Overcollateralization
Subaccount” has the meaning set forth in the Indenture.

 

“Payment
Date” means, with respect to any Series or Class, each [March 25, June 25,
September 25 and December 26] of each year, provided that if any such
date is not a Business Day, the Payment Date shall be the Business Day
immediately succeeding such date.

 

“Principal
Balance” means, as of any Payment Date, the sum of the outstanding principal
amount of each Class or Series of Bonds.

 

“Projected
Principal Balance” means, as of any Payment Date, the sum of the projected
outstanding principal amount of each Series of Bonds for such Payment Date set
forth in the Expected Amortization Schedule.

 

“PU
Code” means the California Public Utilities Code, as amended from time to time.

 

“Quarter”
means each calendar quarter, specifically:

 

January 1
to and including March 31;

 

8

 

April 1
to and including June 30;

 

July 1
to and including September 30; and

 

October 1
to and including December 31.

 

“Quarterly
Servicer’s Certificate” means a certificate, substantially in the form of Exhibit
B hereto, completed and executed by a Responsible Officer pursuant to Section 4.01(d)(ii).

 

“Recovery
Property” means the Initial Recovery Property and, from and after the
applicable Subsequent Sale Date therefor, any Subsequent Recovery Property
relating to a Series of Bonds.

 

“Recovery
Property Records” has the meaning assigned to that term in Section 5.01.

 

“Remittance
Shortfall” means the amount, if any, calculated for a particular Monthly
Remittance Date, by which Actual DRC Payments received by the Servicer
attributable to DRC Charges billed to Consumers during the sixth preceding
Billing Period exceed all Estimated DRC Payments remitted to the Collection
Account on and prior to such Monthly Remittance Date with respect to such
Billing Period.

 

“Required
Capital Level” means, as of any Payment Date, the sum of 0.5 percent of the
initial principal amount of each then-outstanding Series of Bonds issued
pursuant to each Indenture prior to that Payment Date.

 

“Required
Overcollateralization Level” means, as of any Payment Date, the amount required
to be on deposit in the Overcollateralization Subaccount as specified in each
Indenture.

 

“Reserve
Subaccount” has the meaning set forth in the Indenture.

 

9

 

“Responsible
Officer” means the chairman of the board, the chief executive officer, the
president, the vice chairman of the board, any senior vice president, any vice
president, the treasurer, any assistant treasurer, the secretary, any assistant
secretary or the controller of the Servicer.

 

“Retained
Collections” means payments based on the DRC Charges that the Financing Order,
a Tariff, an order or decision of the CPUC, or CPUC Regulations provide are to
be retained by the Seller or the Servicer and not remitted to the Issuer.

 

“Retirement
Date” means the later of the day on which the final distribution is made to the
Trustee in respect of the last outstanding Bond and the day on which all
amounts required to be paid by DRC Charges have been paid.

 

“Routine
Annual True-Up Mechanism Advice Letter” means an Advice Letter filed with the
CPUC at least fifteen days prior to the end of each calendar year in respect of
an annual True-Up Adjustment, substantially in the form of Exhibit E
hereto.  The Routine Annual True-Up Mechanism
Advice Letter will become effective on the first calendar day of the next
calendar year.

 

“Routine
Quarterly True-Up Mechanism Advice Letter” means an Advice Letter filed with
the CPUC at least fifteen days prior to the end of any of the first three Quarters
of each calendar year in respect of a quarterly True-Up Adjustment.  The Routine Quarterly True-Up Mechanism
Advice Letter will become effective on the first calendar day of the next
Quarter.

 

“Sale
Agreement” means each Recovery Property Purchase and Sale Agreement between
Pacific Gas and Electric Company and the Issuer, as amended and supplemented
from time to time, relating to a Series of Bonds.

 

“SEC”
means the Securities and Exchange Commission or any successor thereto.

 

10

 

“Seller”
means Pacific Gas and Electric Company and its successors in interest to the
extent permitted under the applicable Sale Agreement.

 

“Series”
means, with respect to any Bonds, all Bonds issued on the same Series Issuance
Date pursuant to the same Indenture.

 

“Series
Issuance Date” means the date on which a Series of Bonds is issued.

 

“Servicer”
has the meaning set forth in the first paragraph hereof.

 

“Servicer
Business Day” means any day other than a Saturday, a Sunday or a day (i) on
which banking institutions or trust companies in New York, New York or San
Francisco, California, are authorized or obligated by law, regulation or
executive order to remain closed or (ii) on which the Servicer’s offices in
California are closed for business.

 

“Servicer
Default” means an event specified in Section 7.01.

 

“Servicing
Fee” means the fee payable on each Payment Date to the Servicer for services
rendered during the period from, but not including, the preceding Payment Date
to and including the current Payment Date, determined pursuant to Section 6.06.

 

“Statute”
means Chapter 46, California Statutes of 2004, codified at Public Utilities
Code Section 848 et seq., as further amended from time to time.

 

“Subsequent
Sale Agreement” has the meaning assigned to that term in the definition of
Subsequent Recovery Property.

 

“Subsequent
Sale Date” means any date on which Subsequent Recovery Property is to be sold
to the Issuer pursuant to a Subsequent Sale Agreement.

 

“Subsequent
Recovery Property” means any recovery property (as defined in Section 848
of the PU Code) created under the PU Code and the Financing Order and
specifically described in the related Issuance Advice Letter and sold to the
Issuer by the Seller

 

11

 

pursuant to an agreement substantially similar to the
Sale Agreement (a “Subsequent Sale Agreement”).

 

“Tariff”
means each rate tariff filed with the CPUC pursuant to the Statute to establish
the DRC Charges for each Series of Bonds.

 

“Termination
Notice” has the meaning assigned to that term in Section 7.01.

 

“True-Up
Adjustment” means each adjustment to the DRC Charges made pursuant to the terms
of the Financing Order and in accordance with Section 4.01 hereof or in
connection with the conveyance to the Issuer of Subsequent Recovery Property.

 

“Trustee”
means each Person acting as trustee under an Indenture, its successors in
interest and any successor trustee under such Indenture.

 

“Trust
Officer” means any officer assigned to the Corporate Trust Office, including
any managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the related Trustee
customarily performing functions similar to those performed by any of the above
designated officers and having direct responsibility for the administration of
the relevant Indenture, and also, with respect to a particular matter, any
other officer, to whom such matter is referred because of such officer’s
knowledge of and familiarity with the particular subject.

 

SECTION 1.02.                 Other Definitional Provisions.

 

(a)                                  Capitalized
terms used herein and not otherwise defined herein have the meanings assigned
to them in the Indenture.

 

(b)                                 All
terms defined in this Agreement shall have the defined meanings when used in
any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein.

 

12

 

(c)                                  The
words “hereof,” “herein,” “hereunder” and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; Section, Exhibit, Annex and Attachment
references contained in this Agreement are references to Sections, Exhibits, Annexes
and Attachments in or to this Agreement unless otherwise specified; and the
term “including” shall mean “including without limitation.”

 

(d)                                 The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter forms of such terms.

 

(e)                                  Each
reference herein to the Sale Agreement, the Indenture, or any other Basic
Document refers to such agreement as in effect on the Closing Date unless
otherwise agreed to by the Servicer and the Issuer.

 

(f)                                    Any
term used herein that is defined in the Statute and not otherwise defined
herein shall have the meaning set forth in the Statute.

 

ARTICLE II

 

Appointment and
Authorization

 

SECTION 2.01.                 Appointment of Servicer; Acceptance
of Appointment.  Subject to Section 6.05
and Article VII, the Issuer hereby appoints the Servicer, and the Servicer
hereby accepts such appointment, to perform the Servicer’s obligations pursuant
to this Agreement in accordance with the terms of this Agreement and applicable
law.  This appointment and the Servicer’s
acceptance thereof may not be revoked except in accordance with the express
terms of this Agreement.

 

SECTION 2.02.                 Authorization.  Without
limiting the generality of Section 2.01, the Servicer or its designee is
hereby authorized and empowered, unless such power is

 

13

 

revoked on account of the occurrence of a Servicer
Default pursuant to Section 7.01, (i) to execute and deliver, on behalf of
the Issuer, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable instruments,
with respect to the Recovery Property and, after the delinquency of any
Recovery Property and to the extent permitted under and in compliance with
applicable law and regulations, to commence collection proceedings with respect
to such Recovery Property, and (ii) to make any filings, reports, notices, and
applications with, to seek any consents or authorizations from, and to
participate in any proceedings before, the CPUC or any other governmental
authority to the extent relating to the Recovery Property. The Issuer and the
Trustee upon reasonable request therefor shall furnish the Servicer with any
documents in their possession necessary or appropriate to enable the Servicer
to carry out its servicing and administrative duties hereunder

 

SECTION 2.03.                 Dominion and Control Over the
Recovery Property.  Notwithstanding
any other provision herein, the Servicer and the Issuer agree that the Issuer
shall have dominion and control over the Recovery Property, and the Servicer,
in accordance with the terms hereof, is acting solely as the Servicer with
respect to the Recovery Property and the Recovery Property Records.  The Servicer hereby agrees that it shall not
take any action that is not authorized by this Agreement, that is not
consistent with its customary procedures and practices, or that shall impair
the rights of the Issuer in the Recovery Property, in each case unless such
action is required by law or court or regulatory order.

 

ARTICLE III

 

Billing Services

 

SECTION 3.01.                 Duties of Servicer.  The Servicer shall have the following duties:

 

14

 

(a)                                  Duties
of Servicer Generally.  The Servicer’s
duties in general shall include management, servicing and administration of the
Recovery Property; obtaining meter reads, calculating electric usage, billing,
collections and posting of all payments in respect of the Recovery Property;
responding to inquiries by Consumers, the CPUC, or any federal, local or other
state governmental authorities with respect to the Recovery Property;
delivering Bills to Consumers and ESPs, processing and depositing collections
and making periodic remittances pursuant to the Financing Order and each
Tariff; furnishing periodic reports to the Issuer, the Trustee and the Rating
Agencies; and taking action in connection with True-Up Adjustments as set forth
herein.  Certain of the duties set forth
above may be performed by ESPs pursuant to ESP Service Agreements if such ESPs
satisfy the creditworthiness requirements as set forth in Pacific Gas and
Electric Company’s Electric Rule 22.P., “Credit Requirements.”  Anything to the contrary notwithstanding, the
duties of the Servicer set forth in this Agreement shall be qualified in their
entirety by any CPUC Regulations as in effect at the time such duties are to be
performed.  Without limiting the generality
of this Section 3.01(a), in furtherance of the foregoing, the Servicer
hereby agrees that it shall also have, and shall comply with, the duties and
responsibilities relating to data acquisition, electric usage and bill
calculation, billing, customer service functions, collections, payment processing
and remittance set forth in Annex I hereto.

 

(b)                                 Reporting
Functions.

 

(i)                                     Monthly
Servicer’s Certificate.  On or before
each Monthly Remittance Date, the Servicer shall prepare and deliver to the
Issuer, the Trustee and the Rating Agencies a written report substantially in
the form of Exhibit C hereto setting forth

 

15

 

certain
information relating to DRC Collections during the Collection Period preceding
such Monthly Remittance Date.

 

(ii)                                  Daily
Servicer’s Certificate.  If the
Servicer is required to remit DRC Payments on a daily basis, the Servicer shall
prepare and deliver to the Issuer, the Trustee and the Rating Agencies a
written report substantially in the form of Exhibit D hereto with respect to
each daily remittance, in addition to the monthly reports.

 

(iii)                               Other
Information.  Upon the reasonable
request of the Issuer, the Trustee, or any Rating Agency, the Servicer shall
provide to such Issuer, Trustee, or Rating Agency, as the case may be, any
public financial information in respect of the Servicer, or any material
information regarding the Recovery Property to the extent it is reasonably
available to the Servicer, as may be reasonably necessary and permitted by law
for the Issuer, the Trustee or the Rating Agency to monitor the performance by
the Servicer hereunder.  In addition, so
long as any of the Bonds of any Series are outstanding, the Servicer shall
provide the Issuer and the Trustee, within a reasonable time after written
request therefor, any information available to the Servicer or reasonably
obtainable by it that is necessary to calculate the DRC Charges.

 

(iv)                              Preparation
of Reports to be Filed With the SEC. 
The Servicer shall prepare any reports required to be filed by the Issuer
under the securities laws, including but not limited to a copy of each
Quarterly Servicer’s Certificate described in Section 4.01(d)(ii).

 

SECTION 3.02.                 Servicing and Maintenance Standards.  The Servicer shall (a)  manage, service, administer and make collections
in respect of the Recovery Property with reasonable care and in material
compliance with applicable law, including all applicable CPUC

 

16

 

Regulations and guidelines, using the same degree of
care and diligence that the Servicer exercises with respect to billing and
collection activities for its own account and, if applicable, for others;
(b)  follow customary standards, policies
and procedures for the industry in performing its duties as Servicer; (c)  use all reasonable efforts, consistent with
its customary servicing procedures, to enforce the rights of the Issuer and the
Trustee in respect of the Recovery Property; and (d)  comply in all material respects with all laws
and regulations applicable to and binding on it relating to the Recovery
Property.  The Servicer shall follow such
customary and usual practices and procedures as it shall deem necessary or
advisable in its servicing of all or any portion of the Recovery Property,
which, in the Servicer’s judgment, may include the taking of legal action.

 

SECTION 3.03.                 Certificate of Compliance.  The Servicer shall deliver to the Issuer, the
Trustee, the CPUC and the Rating Agencies on or before September 30 of
each year, commencing September 30, 2005 to and including the September 30
succeeding the Retirement Date, an Officer’s Certificate substantially in the
form of Exhibit A hereto (a “Certificate of Compliance”), stating
that:  (i) a review of the activities of
the Servicer during the twelve months ended the preceding June 30 (or, in
the case of the first Certificate of Compliance to be delivered on or before September 30,
2005, the period of time from the Closing Date until June 30, 2005) and of
its performance under this Agreement has been made under such officer’s
supervision, and (ii) to the best of such officer’s knowledge, based on such
review, the Servicer has fulfilled all of its obligations in all material
respects under this Agreement throughout such twelve months (or, in the case of
the Certificate of Compliance to be delivered on or before September 30,
2005, the period of time from the Closing Date until June 30, 2005), or,
if there has been a default in

 

17

 

the fulfillment of any such material obligation,
specifying each such material default known to such officer and the nature and
status thereof.

 

18

 

 

SECTION 3.04.                 Annual Report by Independent Public
Accountants.

 

(a)                                  The
Servicer shall cause a firm of independent certified public accountants (which
may provide other services to the Servicer or the Seller) to prepare, and the
Servicer shall deliver to the Issuer, the Trustee, the CPUC and the Rating
Agencies, a report addressed to the Servicer (the “Annual Accountant’s Report”),
which may be included as part of the Servicer’s customary auditing activities,
for the information and use of the Issuer and the Trustee, on or before September 30
of each year, beginning September 30, 2005 to and including the September 30
succeeding the Retirement Date, to the effect that such firm has performed
certain procedures in connection with the Servicer’s compliance with its
obligations under this Agreement during the preceding twelve months ended June 30
(or, in the case of the first Annual Accountant’s Report to be delivered on or
before September 30, 2005, the period of time from the Closing Date until June 30,
2005), identifying the results of such procedures and including any exceptions
noted.  In the event such accounting firm
requires the Trustee to agree or consent to the procedures performed by such
firm, the Issuer shall direct the Trustee in writing to so agree; it being
understood and agreed that the Trustee will deliver such letter of agreement or
consent in conclusive reliance upon the direction of the Issuer, and the
Trustee will not make any independent inquiry or investigation as to, and shall
have no obligation or liability in respect of the sufficiency, validity or
correctness of such procedures.

 

(b)                                 The
Annual Accountant’s Report shall also indicate that the accounting firm
providing such report is independent of the Servicer within the meaning of the
Code of Professional Ethics of the American Institute of Certified Public
Accountants.

 

19

 

ARTICLE IV

 

Services Related
to True-Up Adjustments

 

SECTION 4.01.                 Periodic True-Up Adjustments.  From time to time, until the Retirement Date,
the Servicer shall identify the need for True-Up Adjustments and shall take all
reasonable action to obtain and implement such True-Up Adjustments, all in
accordance with the following:

 

(a)                                  Expected
Amortization Schedule.  The initial
Expected Amortization Schedule for the initial Series of Bonds is attached
hereto as Exhibit G.  In
connection with the issuance by the Issuer of any additional Series of Bonds
after the Closing Date, the Servicer, on or prior to the Series Issuance Date
therefor, shall revise Exhibit G to add the Expected Amortization Schedule relating
to each new Series of Bonds setting forth, as of each Payment Date through the
scheduled retirement of the Bonds, the aggregate principal amounts of the Bonds
of that Series, expected to be outstanding on such Payment Date.

 

(b)                                 Routine
True-Up Adjustments and Yearly Filings.

 

(i)                                     Routine
Yearly True-Up Adjustments and Filings.

 

(1)                                  Each
year on or immediately before the Annual Adjustment Filing Date with respect to
each Series of Bonds, the Servicer shall: 
(A) estimate collections through the December 31 immediately
following such Annual Adjustment Filing Date and through December 31 of
the year following the year of such Annual Adjustment Filing Date; (B) update
the assumptions underlying the DRC Charges, including electric usage volume
projected to be sold to Consumers (exclusive of usage relating to any Retained
Collections), the rate of delinquencies and write-offs, the amount of any
Retained Collections that will be withheld or become

 

20

 

eligible to be
remitted to the Trustee during the period, to the extent known, estimated
expenses and fees of the Issuer, to the extent not fixed, and the Collections
Curves; (C) determine the revised DRC Charges that, together with any
funds on deposit in the Reserve Subaccount, would:  (1) cause all accrued and unpaid
interest to be paid in full and the Principal Balance to equal the Projected
Principal Balance, (2) cause the balance in the Overcollateralization
Subaccount to equal the Required Overcollateralization Level, (3) restore the
balance in the Capital Subaccount to the Required Capital Level and (4) cause
all other fees, expenses and indemnities of the Issuer to be paid, in each case
within twelve months after such revised DRC Charges go into effect (and with
respect to any True-Up Adjustments occurring after the last Scheduled Maturity
Date for any Series, determine the revised DRC Charges that would be sufficient
to retire the unpaid Principal Balance of that Series within the earlier of (x)
the end of the then current calendar year and (y) the last Final Maturity Date
for such Series); (D) file a Routine Annual True-Up Mechanism Advice Letter
with the CPUC, substantially in the form attached hereto as Exhibit E,
to notify the CPUC of the DRC Charges for the coming year; and (E) take all
reasonable actions and make all reasonable efforts to secure such True-Up
Adjustment and to enforce the provisions of the Statute which obligate the CPUC
to approve rates at levels sufficient to recover the DRC Payments in accordance
with the Expected Amortization Schedule.

 

21

 

(2)                                  Each
year on or immediately before November 4 of such year, which is the date
that is fifteen days before the Financing Order Anniversary Date, commencing on
November 4, 2005 (or if such date is not a Servicer Business Day, on the
Servicer Business Day immediately preceding such date), the Servicer
shall:  (A) estimate collections through
the end of the Quarter in which the Financing Order Anniversary Date occurs;
(B) if required by the Servicer in its judgment or found to be necessary by the
CPUC, update the assumptions underlying the DRC Charges, including electric
usage volume projected to be sold to Consumers (exclusive of usage relating to
Retained Collections), the rate of delinquencies and write-offs, the amount of
any Retained Collections that will be withheld or will become eligible to be
remitted to the Trustee during the period, to the extent known, and estimated
expenses and fees of the Issuer to the extent not fixed; (C) if required by the
Servicer in its judgment or found to be necessary by the CPUC, determine the
revised DRC Charges that, together with any funds on deposit in the Reserve
Subaccount, would: (1) cause all accrued and unpaid interest to be paid in
full and the Principal Balance to equal the Projected Principal Balance, (2)
cause the balance in the Overcollateralization Subaccount to equal the Required
Overcollateralization Level, (3) restore the balance in the Capital Subaccount
to the Required Capital Level and (4) cause all other fees, expenses and
indemnities of the Issuer to be paid, in each case within twelve months after
such revised DRC Charges go into effect (and with

 

22

 

respect to any
True-Up Adjustments occurring after the last Scheduled Maturity Date for any
Series, determine the revised DRC Charges that would be sufficient to retire
the unpaid Principal Balance of that Series within the earlier of (x) the end
of the then current calendar year and (y) the last Final Maturity Date for
such Series); (D) file an Anniversary True-Up Mechanism Advice Letter with the
CPUC, substantially in the form attached hereto as Exhibit F; and (E)
take all reasonable actions and make all reasonable efforts to secure the
resulting True-Up Adjustment (if such an adjustment is sought by the Servicer
or found to be necessary by the CPUC) and to enforce the provisions of the
Statute which obligate the CPUC to approve rates at levels sufficient to
recover the DRC Payments in accordance with the Expected Amortization Schedule.

 

(3)                                  In
the case of a True-Up Adjustment pursuant to a Routine Annual True-Up Mechanism
Advice Letter, the Servicer shall implement the revised DRC Charges, if any, as
of the first day of the following calendar year.

 

(4)                                  In
the case of a True-Up Adjustment required by the Servicer in its judgment or
found to be necessary by the CPUC pursuant to an Anniversary True-Up Mechanism
Advice Letter, the Servicer shall implement the revised DRC Charges, if any,
within 90 days of the anniversary of the issuance of the Financing Order.

 

23

 

 

(ii)                                  Routine
Quarterly True-Up Adjustments.

 

(1)                                  The
Servicer may file Routine Quarterly True-Up Mechanism Advice Letters.  Except as provided in
Sections 4.01(b)(ii)(2) and 4.01(b)(ii)(3), the Servicer shall not be
obligated to file Routine Quarterly True-Up Mechanism Advice Letters.

 

(2)                                  If
the Issuance Advice Letter with respect to a Series of Bonds provides that the
Servicer will file Routine Quarterly True-Up Mechanism Advice Letters, then the
Servicer shall make such filings in accordance with the Financing Order.

 

(3)                                  If
the principal amount of any Series of Bonds remains outstanding after the last
Scheduled Maturity Date for such Series, the Servicer shall file Routine
Quarterly True-Up Mechanism Advice Letters until all classes of Bonds of such
Series and other amounts to be paid from DRC Charges relating to such Series
have been paid in full.  Each such
Routine Quarterly True-Up Mechanism Advice Letter shall request adjustments to
the DRC Charges projected to pay all amounts required to be paid by such DRC
Charges by the earlier of the end of the then current calendar year or the
latest Final Legal Maturity Date for the related Series of Bonds.

 

(c)                                  Non-Routine
True-Up Adjustments.

 

(i)                                     Whenever
the Servicer determines that the existing model for calculating the DRC Charges
should be amended or revised, the Servicer shall file a Non-Routine True-Up
Mechanism Advice Letter with the CPUC designating the adjustments to the

 

24

 

model and any
corresponding adjustments to the DRC Charges (collectively, a “Non-Routine
True-Up Adjustment”).

 

(ii)                                  The
Servicer shall take all reasonable actions and make all reasonable efforts to
secure any Non-Routine True-Up Adjustments.

 

(iii)                               The
Servicer shall implement any resulting adjustments to the model and any
resulting revised DRC Charges as of the first day of the Quarter that begins at
least 90 days after the Non-Routine True-Up Mechanism Advice Letter is filed.

 

(d)                                 Reports.

 

(i)                                     Notification
of Advice Letter Filings and True-Up Adjustments.  Whenever the Servicer files an Advice Letter
with the CPUC, the Servicer shall send a copy of such filing (together with a
copy of all notices and documents which, in the Servicer’s reasonable judgment,
are material to the adjustments effected by such Advice Letter) to the Issuer,
the Trustee and the Rating Agencies concurrently therewith.  If any True-Up Adjustment requested in any
such Advice Letter filing does not become effective on the applicable date as
provided by the Financing Order, the Servicer shall notify the Issuer, the
Trustee and the Rating Agencies by the end of the second Servicer Business Day
after such applicable date.

 

(ii)                                  Periodic
Servicer’s Certificate.  Not later
than the Monthly Remittance Date immediately prior to each Payment Date, the
Servicer shall deliver a written report substantially in the form of Exhibit
B hereto to the Issuer, the Trustee and the Rating Agencies.

 

25

 

(iii)                               Bill
Presentation and Notices to Consumers:

 

(A)                              After
each revised DRC Charge has gone into effect pursuant to a True-Up Adjustment,
the Servicer shall, only to the extent and in the manner and time frame
required by applicable CPUC Regulations, if any, cause to be prepared and
delivered to Consumers a notice announcing such revised DRC Charges.

 

(B)                                The
Servicer may combine the amounts of all of the DRC Charges for each Series of
Bonds and the Energy Recovery Bond Balancing Account (ERBBA) charge authorized
by the Financing Order (collectively, the “Bond Charges”) into a single line
item on Consumers’ bills, titled “Energy Cost Recovery Amount,” and the back of
Consumers’ bills shall have a definition of the “Energy Cost Recovery Amount”
that states substantially as follows:

 

Energy Cost Recovery Amount:  These charges are approved by the CPUC and
authorized by California Public Utilities Code Section 848 et seq.  The purpose of these charges is to pay the
principal, interest, and other costs associated with Energy Recovery Bonds
(Bonds) that were issued by a Special Purpose Entity (SPE).  One of these charges is the Dedicated Rate
Component (DRC), which is $0.00XXX per kWh. 
The right to receive DRC revenues has been transferred to the SPE and
does not belong to PG&E.  This right
is called Recovery Property.  PG&E
collects the DRC on behalf of the SPE, which uses these funds to pay Bond
principal, interest, and other Bond related costs.  The SPE transferred the net Bond proceeds to
PG&E to purchase Recovery Property from PG&E.  PG&E used the proceeds from the sale of
Recovery Property to refinance its bankruptcy Regulatory Asset, which was
established by the Commission to help finance PG&E’s emergence from
bankruptcy.

 

(C)                                Except
to the extent that applicable CPUC Regulations make the Applicable ESP
responsible for such costs, the Servicer shall pay from its own funds all costs
of preparation and delivery incurred in connection with clauses (A) and (B)
above, including but not limited to printing and postage costs as the same may increase
or decrease from time to time.

 

26

 

(iv)                              ESP
Reports.  The Servicer shall provide
to the Rating Agencies any publicly available reports filed by the Servicer
with the CPUC (or otherwise made publicly available by the Servicer) relating
to ESPs and any other non-confidential and non-proprietary information relating
to ESPs reasonably requested by the Rating Agencies.

 

SECTION 4.02.                 Limitation of Liability.

 

(a)                                  The
Issuer and the Servicer expressly agree and acknowledge that:

 

(i)                                     In
connection with any True-Up Adjustment, the Servicer is acting solely in its
capacity as the Servicer hereunder.

 

(ii)                                  Neither
the Servicer nor the Issuer is responsible in any manner for, and shall have no
liability whatsoever as a result of any action, decision, ruling or other
determination made or not made, or any delay (other than any delay resulting
from the Servicer’s failure to file the applications required by Section 4.01
in a timely and correct manner or other breach by the Servicer of its duties
under this Agreement), by the CPUC in any way related to the Recovery Property
or in connection with any True-Up Adjustment, the subject of any filings under Section 4.01,
any proposed True-Up Adjustment, or the approval of any revised DRC Charges and
the scheduled adjustments thereto.

 

(iii)                               The
Servicer shall have no liability whatsoever relating to the calculation of any
revised DRC Charges and the scheduled adjustments thereto, including as a
result of any inaccuracy of any of the assumptions made in such calculation
regarding expected electric usage volume, the rate of delinquencies and
write-offs and the amount of any Retained Collections, so long as the Servicer
has acted in good faith and has not acted in

 

27

 

a grossly
negligent manner in connection therewith, nor shall the Servicer have any
liability whatsoever as a result of any Person, including the Bondholders, not
receiving any payment, amount or return anticipated or expected or in respect
of any Bond generally, except only to the extent that the same is caused by the
Servicer’s gross negligence, willful misconduct or bad faith.

 

(b)                                 Notwithstanding
the foregoing, the Servicer hereby acknowledges that the terms of this Section 4.02
are not intended to, and shall not, relieve the Servicer of liability for any
misrepresentation by the Servicer under Section 6.01 or for any breach by
the Servicer of its other obligations under this Agreement.

 

ARTICLE V

 

The Recovery Property

 

SECTION 5.01.                 Custody of Recovery Property
Records.  To assure uniform quality
in servicing the Recovery Property and to reduce administrative costs, the
Issuer hereby revocably appoints the Servicer, and the Servicer hereby accepts
such appointment, to act as custodian of any and all documents and records that
the Seller shall keep on file, in accordance with its customary procedures,
relating to the Recovery Property, including copies of the Financing Order and
Advice Letters relating thereto and all documents filed with the CPUC in
connection with any True-Up Adjustment (collectively, the “Recovery Property
Records”), which are hereby constructively delivered to the Trustee, as pledgee
of the Issuer (or, in the case of the Subsequent Recovery Property, will as of
the applicable Subsequent Sale Date be constructively delivered to the Trustee,
as pledgee of the Issuer) with respect to all Recovery Property.

 

28

 

SECTION 5.02.                 Duties of Servicer as Custodian.

 

(a)                                  Safekeeping.  The Servicer shall hold the Recovery Property
Records and maintain such accurate and complete accounts, records and computer
systems pertaining to the Recovery Property Records as shall enable the
Servicer to comply with this Agreement. 
In performing its duties as custodian the Servicer shall act with
reasonable care, using that degree of care and diligence that the Servicer
exercises with respect to comparable assets that the Servicer services for
itself or, if applicable, for others. 
The Servicer shall promptly report to the Issuer and the Trustee any
failure on its part to hold the Recovery Property Records and maintain its
accounts, records and computer systems as herein provided and promptly take
appropriate action to remedy any such failure. 
Nothing herein shall be deemed to require an initial review or any
periodic review by the Issuer or the Trustee of the Recovery Property
Records.  The Servicer’s duties to hold
the Recovery Property Records as set forth in this Section 5.02, to the
extent such Recovery Property Records have not been previously transferred to a
successor Servicer pursuant to Article VII, shall terminate three years
after the earlier of the date on which (i) the Servicer is succeeded by a
successor Servicer in accordance with Article VII hereof and (ii) no Bonds
of any Series are outstanding.

 

(b)                                 Maintenance
of and Access to Records.  The
Servicer shall maintain the Recovery Property Records at 77 Beale Street, San
Francisco, California or at such other office as shall be specified to the
Issuer and the Trustee by written notice at least 30 days prior to any change
in location.  The Servicer shall make
available for inspection to the Issuer and the Trustee or their respective duly
authorized representatives, attorneys or auditors the Recovery Property Records
at such times during normal business hours as the Issuer or the Trustee shall
reasonably request and which do not unreasonably interfere with the Servicer’s
normal operations.  Nothing in this Section 5.02(b)
shall affect the obligation of the Servicer to observe any applicable law

 

29

 

(including any CPUC Regulations) prohibiting
disclosure of information regarding the Consumers, and the failure of the
Servicer to provide access to such information as a result of such obligation
shall not constitute a breach of this Section 5.02(b).

 

(c)                                  Release
of Documents.  Upon instruction from
the Trustee and subject to Section 6.08, the Servicer shall release any
Recovery Property Records to the Trustee, the Trustee’s agent or the Trustee’s
designee, as the case may be, at such place or places as the Trustee may
designate, as soon as practicable.

 

(d)                                 Defending
Recovery Property Against Claims. 
The Servicer agrees to take such legal or administrative actions,
including defending against or instituting and pursuing legal actions and
appearing or testifying at hearings or similar proceedings, as may be
reasonably necessary (i) to block or overturn any attempts to cause a repeal,
modification or supplement to the Statute or the Financing Order or the rights
of holders of Recovery Property by legislative enactment, voter initiative or
constitutional amendment that would be materially adverse to Bondholders and
(ii) to compel performance by the CPUC or the State of California of any of
their obligations or duties under the PU Code, the Financing Order or any
Advice Letter.  The costs of any such
action shall be payable from DRC Collections as an Operating Expense in
accordance with the priorities set forth in Section 8.02(d) of the
Indenture.  The Servicer’s obligations
pursuant to this Section 5.02 shall survive and continue notwithstanding
the fact that the payment of Operating Expenses pursuant to Section 8.02(d)
of the Indenture may be delayed (it being understood that the Servicer may be
required to advance its own funds to satisfy its obligations hereunder).

 

(e)                                  Seeking
to Prevent Expansion of Exemptions. 
The Servicer agrees to take such legal or administrative actions, including
defending against or instituting and pursuing legal

 

30

 

actions and appearing or testifying at hearings or
similar proceedings, as may be reasonably necessary to attempt to prevent the
granting by the State of California or the CPUC, after the Closing Date, of any
material exemptions from the obligation to pay DRC Charges that are not
expressly provided for in the Statute, other than an exemption for the Bay Area
Rapid Transit District, and that violate the State Pledge or any other
obligations of the State of California or the CPUC under the Statute.  The Servicer shall have no obligations under
this paragraph if it is not being reimbursed on a current basis for its costs
and expenses in taking such actions, and shall not be required to advance its
own funds to satisfy its obligations hereunder.

 

SECTION 5.03.                 Effective Period and Termination.  The Servicer’s appointment as custodian shall
become effective as of the Closing Date and shall continue in full force and
effect until terminated pursuant to this Section.  If any Servicer shall resign as Servicer in
accordance with the provisions of this Agreement or if all of the rights and
obligations of any Servicer shall have been terminated under Section 7.01,
the appointment of such Servicer as custodian shall be simultaneously
terminated automatically.

 

SECTION 5.04.                 General Indemnification of Trustee.  The Servicer hereby agrees to indemnify and
hold harmless the Trustee and its directors, officers, employees and agents
from and against any and all liabilities, obligations, losses, damages,
payments, claims, costs or expenses of any kind whatsoever (collectively, “Losses”)
incurred by or asserted against any such Person as a result of or in connection
with the transactions contemplated by this Agreement or any Basic Document,
other than any Loss incurred by reason or result of the negligence or willful
misconduct of the Trustee.  The
obligations of the Servicer set forth in this Section shall survive the termination
of this Agreement or the earlier resignation or removal of the Trustee under
the Indenture.

 

31

 

ARTICLE VI

 

The Servicer

 

SECTION 6.01.                 Representations and Warranties of
Servicer.  The Servicer makes the
following representations and warranties, as of the Closing Date, as of each
Subsequent Sale Date relating to the sale of Subsequent Recovery Property
pursuant to a Subsequent Sale Agreement, and as of such other dates as
expressly provided in this Section 6.01, on which the Issuer and the
Trustee are deemed to have relied in entering into this Agreement relating to
the servicing of the Recovery Property. 
The representations and warranties shall survive the execution and
delivery of this Agreement and the pledge thereof to the Trustee pursuant to
the Indenture.

 

(a)                                  Organization
and Good Standing.  The Servicer is
duly organized and validly existing as a corporation in good standing under the
laws of the state of its incorporation, with the requisite corporate power and
authority to own its properties and to conduct its business as such properties
are currently owned and such business is presently conducted, and to execute,
deliver and carry out the terms of this Agreement.

 

(b)                                 Due
Qualification.  The Servicer is duly
qualified to do business, is in good standing and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or lease of
property or the conduct of its business (including the servicing of the Recovery
Property as required by this Agreement) requires such qualifications, licenses
or approvals (except where the failure to so qualify would not be reasonably
likely to have a material adverse effect on the Servicer’s business,
operations, assets, revenues or properties or adversely affect the servicing of
the Recovery Property).

 

(c)                                  Power
and Authority.  The Servicer has the
requisite power and authority to execute and deliver this Agreement and to
carry out its terms; and the execution, delivery and

 

32

 

performance of this Agreement have been duly
authorized by the Servicer by all necessary corporate action.

 

(d)                                 Binding
Obligation.  This Agreement
constitutes a legal, valid and binding obligation of the Servicer enforceable
against the Servicer in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors’ rights generally from time to time in
effect and to general principles of equity (including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing),
regardless of whether considered in a proceeding in equity or at law.

 

(e)                                  No
Violation.  The consummation by the
Servicer of the transactions contemplated by this Agreement and the fulfillment
by the Servicer of the terms hereof shall not conflict with, result in any
breach of any of the terms and provisions of, nor constitute (with or without
notice or lapse of time) a material default under, the articles of
incorporation or bylaws of the Servicer, or any indenture, material agreement
or other instrument to which the Servicer is a party or by which it or any of
its property is bound; nor result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument other than the Basic Documents or any lien
created pursuant to the Statute; nor violate any existing law or any order,
rule or regulation applicable to the Servicer of any court or of any Federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Servicer or its properties.

 

(f)                                    No
Proceedings.  Except as set forth on Exhibit
H, there are no proceedings or investigations pending or, to the Servicer’s
best knowledge, threatened, against the Servicer, before any court, Federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Servicer or its properties
involving or

 

33

 

relating to the Servicer or the Issuer or, to the
Servicer’s knowledge, any other Person: 
(i) asserting (A) the invalidity of this Agreement, or (B) the
invalidity of the Indenture, any of the other Basic Documents or the Bonds,
(ii) seeking to prevent the issuance of the Bonds or the consummation of any of
the transactions contemplated by this Agreement, the Indenture or any of the
other Basic Documents, (iii) seeking any determination or ruling that might
materially and adversely affect the performance by the Servicer of its
obligations under, or the validity or enforceability against the Servicer of,
this Agreement, the Indenture, any of the other Basic Documents or the Bonds or
(iv) relating to the Servicer and that might adversely affect the Federal or
State of California income or franchise tax attributes of the Bonds.

 

(g)                                 Approvals.  No approval, authorization, consent, order or
other action of, or filing with, any court, Federal or state regulatory body,
administrative agency or other governmental instrumentality is required in
connection with the execution and delivery by the Servicer of this Agreement,
the performance by the Servicer of the transactions contemplated hereby or the
fulfillment by the Servicer of the terms hereof, except those that have been
obtained or made and those that the Servicer is required to make in the future
pursuant to Article IV hereof.

 

(h)                                 Collections
Curves.  Each Collections Curve used
in connection with Attachment A to Annex I hereto is accurate in all material
respects, and the future delivery of each revised Collections Curve shall
constitute a representation and warranty that each such revised Collections
Curve is accurate in all material respects.

 

(i)                                     Assumptions.  The assumptions set forth in Attachment A to
Annex I hereto are reasonable based upon historical performance and will be
reasonable at any time that they are changed by the Servicer.

 

34

 

(j)                                     Reports
and Certificates.  Each report and
certificate delivered in connection with an Advice Letter will constitute a
representation and warranty by the Servicer that each such report or
certificate, as the case may be, is true and correct or, to the extent that any
such report or certificate is based in part upon or contains assumptions,
forecasts or other predictions of future events, such assumptions, forecasts or
other predictions of future events are reasonable based upon historical
performance and the facts known to the Servicer on the date such report or
certificate was or is delivered.

 

SECTION 6.02.                 Indemnities of Servicer; Release of
Claims.

 

(a)                                  The
Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically undertaken by the Servicer under this Agreement.

 

(b)                                 The
Servicer shall indemnify the Issuer, the Trustee, the Seller and the
Bondholders and each of their respective officers, directors, employees and
agents for, and defend and hold harmless each such Person from and against, any
and all Losses that may be imposed on, incurred by or asserted against any such
Person as a result of (i) the Servicer’s willful misconduct, bad faith or gross
negligence in the performance of its duties or observance of its covenants
under this Agreement or the Servicer’s reckless disregard of its obligations
and duties under this Agreement or (ii) the Servicer’s breach of any of its
representations or warranties in this Agreement; provided, however, that the Servicer will not be liable for any Losses
resulting from the willful misconduct or negligence or breach of a
representation or warranty in any of the Basic Documents of the party seeking
indemnification.

 

(c)                                  Indemnification
under Section 6.02(b) shall survive the resignation or removal of the
Trustee or the termination of this Agreement and shall include reasonable fees
and expenses of investigation and litigation (including reasonable attorneys
fees and expenses).

 

35

 

SECTION 6.03.                 Merger or Consolidation of, or
Assumption of the Obligations of, Servicer. 
Any Person (a) into which the Servicer may be merged or consolidated and
that succeeds to all or substantially all of the electric distribution business
of the Servicer, (b) that results from the division of the Servicer into two or
more entities and succeeds to all or substantially all of the electric
distribution business of the Servicer, (c) that may result from any merger or
consolidation to which the Servicer shall be a party and succeeds to all or
substantially all of the electric distribution business of the Servicer, or (d)
that may otherwise succeed to all or substantially all of the electric
transmission or distribution business of the Servicer, shall be the successor
to the Servicer under this Agreement; provided,
however, that (i) such successor must execute an agreement of assumption to
perform every obligation of the Servicer hereunder, (ii) immediately after
giving effect to such transaction, no Servicer Default and no event that, after
notice or lapse of time, or both, would become a Servicer Default shall have
occurred and be continuing, (iii) the Servicer shall have delivered to the
Issuer, the Trustee and the Rating Agencies an Officers’ Certificate and an
Opinion of Counsel each stating that such consolidation, merger or succession
and such agreement of assumption complies with this Section and that all
conditions precedent provided for in this Agreement relating to such
transaction have been complied with and (iv) prior written notice shall have
been delivered to the Rating Agencies. 
Notwithstanding anything herein to the contrary, the execution of the
foregoing agreement of assumption and compliance with clauses (i) and (ii)
above shall be conditions to the consummation of the transactions referred to
in clauses (a), (b), (c) and (d) above. 
If all the conditions to any such assumption are met, then the prior
Servicer will automatically be released from all of its obligations under this
Agreement, other than those that specifically survive a termination of this
Agreement.

 

36

 

SECTION 6.04.                 Limitation on Liability of Servicer
and Others.  Neither the Servicer nor
any of the directors or officers or employees or agents of the Servicer shall
be liable to the Issuer, the Trustee, the Bondholders or any other Person,
except as provided under this Agreement, for any action taken or for refraining
from the taking of any action pursuant to this Agreement or for errors in
judgment; provided, however, that this
provision shall not protect the Servicer or any such person against any
liability that would otherwise be imposed by reason of willful misconduct, bad
faith or gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties under this Agreement.  The Servicer and any director, officer,
employee or agent of the Servicer may rely in good faith on the advice of counsel
or on any document of any kind, prima facie properly executed and submitted by
any Person, respecting any matters arising under this Agreement.

 

Except
as provided in this Agreement, the Servicer shall not be under any obligation
to appear in, prosecute or defend any legal action that shall not be related to
or incidental to its duties to service the Recovery Property in accordance with
this Agreement, and that in its opinion may involve it in any expense or
liability.

 

SECTION 6.05.                 Pacific Gas and Electric Company
Not to Resign as Servicer.  Subject
to the provisions of Section 6.03, Pacific Gas and Electric Company shall
not resign from the obligations and duties hereby imposed on it as Servicer
under this Agreement except upon either (a) a determination that the
performance of its duties under this Agreement shall no longer be permissible
under applicable law or (b) satisfaction of the following: (i) the Rating
Agency Condition shall have been satisfied and (ii) the CPUC shall have
approved such resignation.  Notice of any
such determination permitting the resignation of Pacific Gas and Electric
Company pursuant to clause (a) shall be communicated to the Issuer, the Trustee
and the

 

37

 

Rating Agencies at the earliest practicable time (and,
if such communication is not in writing, shall be confirmed in writing at the
earliest practicable time) and any such determination shall be evidenced by an
Opinion of Counsel to such effect delivered to the Issuer and the Trustee, with
a copy to the CPUC, concurrently with or promptly after such notice.  No such resignation shall become effective
until a successor Servicer shall have assumed the responsibilities and
obligations of Pacific Gas and Electric Company in accordance with Section 7.02.

 

SECTION 6.06.                 Servicing Compensation.

 

(a)                                  In
consideration for its services hereunder, until the Retirement Date, the
Servicer shall receive a fee (the “Servicing Fee”) quarterly on each Payment
Date in an amount equal to one-fourth of 0.09 percent of the initial aggregate
principal balance of each Series of Bonds serviced hereunder.  The Servicer also shall be entitled to retain
as additional compensation (i) any interest earnings on DRC Payments received
by the Servicer and invested by the Servicer pursuant to Section 6(d) of
Annex I hereto during each Collection Period prior to remittance to the
Collection Account and (ii) all late payment charges, if any, collected from
Consumers or ESPs.

 

(b)                                 The
Servicing Fee set forth in Section 6.06(a) above shall be paid to the
Servicer by the Trustee, on each Payment Date in accordance with the priorities
set forth in Section 8.02(d) of the Indenture, by wire transfer of
immediately available funds from the Collection Account to an account
designated by the Servicer.  Any portion
of the Servicing Fee not paid on such date shall be added to the Servicing Fee
payable on the subsequent Payment Date.

 

(c)                                  Except
as provided in Section 5.02(d), the Servicer shall be required to pay from
its own account all expenses incurred by it in connection with its activities
hereunder

 

38

 

(including any fees to and disbursements by
accountants, counsel, or any other Person, any taxes imposed on the Servicer
and any expenses incurred in connection with reports to Bondholders) out of the
compensation retained by or paid to it pursuant to this Section 6.06, and
shall not be entitled to any extra payment or reimbursement therefor.

 

SECTION 6.07.                 Compliance With Applicable Law.  The Servicer covenants and agrees, in
servicing the Recovery Property, to comply with all laws applicable to, and
binding upon, the Servicer and relating to such Recovery Property the
noncompliance with which would have a material adverse effect on the value of
the Recovery Property; provided, however,
that the foregoing is not intended to, and shall not, impose any liability on
the Servicer for noncompliance with any law that the Servicer is contesting in
good faith in accordance with its customary standards and procedures.

 

SECTION 6.08.                 Access to Certain Records and
Information Regarding Recovery Property. 
The Servicer shall provide to the Bondholders and the Trustee access to
the Recovery Property Records in its possession in such cases where the
Bondholders and the Trustee shall be required by applicable law to be provided
access to such records.  Access shall be
afforded without charge, but only upon reasonable request and during normal
business hours at the respective offices of the Servicer.  Nothing in this Section shall affect the
obligation of the Servicer to observe any applicable law (including any CPUC
Regulation) prohibiting disclosure of information regarding the Consumers, and
the failure of the Servicer to provide access to such information as a result
of such obligation shall not constitute a breach of this Section or any
other provision of this Agreement.

 

SECTION 6.09.                 Appointments.  The Servicer may at any time appoint any
Person to perform all or any portion of its obligations as Servicer hereunder; provided,  however,

 

39

 

that if such Person is not an affiliate of the
Servicer, the Rating Agency Condition shall have been satisfied in connection
therewith; provided further that the Servicer shall remain obligated and be
liable to the Issuer, the Trustee and the Bondholders for the servicing and
administering of the Recovery Property in accordance with the provisions hereof
without diminution of such obligation and liability by virtue of the
appointment of such Person and to the same extent and under the same terms and
conditions as if the Servicer alone were servicing and administering the
Recovery Property; and provided further, however, that nothing herein shall
preclude the execution by the Servicer of an ESP Service Agreement with
ESPs.  The fees and expenses of such
Person shall be as agreed between the Servicer and such Person from time to
time and none of the Issuer, the Trustee, the Bondholders or any other Person
shall have any responsibility therefor or right or claim thereto.  Any such appointment shall not constitute a
Servicer resignation under Section 6.05.

 

SECTION 6.10.                 No Servicer Advances.  The Servicer shall not make any advances of
interest or principal on the Bonds.

 

SECTION 6.11.                 Remittances.

 

(a)                                  Subject
to clause (d) below, on each Monthly Remittance Date, the Servicer shall cause
to be made a wire transfer of immediately available funds equal to the
Aggregate Remittance Amount for the applicable Collection Period to the Trustee
for deposit to the General Subaccount of the applicable Collection
Account.  Prior to each remittance to the
General Subaccount of any Collection Account pursuant to this Section, the
Servicer shall provide written notice to the Trustee of each such remittance
(including the exact dollar amount to be remitted).

 

40

 

(b)                                 The
Servicer agrees and acknowledges that it holds all DRC Payments collected by it
for the benefit of the Issuer and that all DRC Payments collected by it will be
remitted by the Servicer in accordance with this Section without any
surcharge, fee, offset, charge or other deduction except (i) as set forth in
clauses (c) or (d) below and (ii) for late fees permitted by Section 6.06.  The Servicer further agrees not to make any
claim to reduce its obligation to remit all DRC Payments collected by it in
accordance with this Agreement except (i) as set forth in clauses (c) or (d)
below and (ii) for late fees permitted by Section 6.06.

 

(c)                                  If
on any Monthly Remittance Date there is an Excess Remittance with respect to
any Series, the Servicer shall be entitled either (i) to reduce the amount that
the Servicer remits to the General Subaccount of the Collection Account for
that Series on such Monthly Remittance Date by the amount of such Excess
Remittance, the amount of such reduction becoming the property of the Servicer
or (ii) immediately to be paid from the Collection Account for that Series
or any subaccount therein the amount of such Excess Remittance, such payment
becoming the property of the Servicer. 
If on any Monthly Remittance Date there is a Remittance Shortfall with
respect to any Series, the amount that the Servicer remits to the General
Subaccount of the Collection Account for that Series on such Monthly Remittance
Date will be increased by the amount of such Remittance Shortfall, such
increase coming from the Servicer’s own funds.

 

(d)                                 Notwithstanding
the foregoing clauses (a), (b) and (c), during any period in which either (i) a
Servicer Default  has occurred and is
continuing or (ii) the Servicer’s short-term debt ratings are not  A-1 or better by Standard & Poor’s, P-1
or better by Moody’s and F-1 or better by Fitch, the Servicer shall remit to
the Trustee for deposit to the General Subaccount of the Collection Account by
wire transfer of immediately available funds the total DRC Payments

 

41

 

estimated to have been received by the Servicer from
Consumers on a given Servicer Business Day in respect of all previously billed
DRC Charges within two Servicer Business Days of receipt thereof by the
Servicer (the “Daily Remittance”).

 

(e)                                  On
or before each Monthly Remittance Date during any period when Daily Remittances
are required, the Servicer shall compare the amount of Daily Remittances
remitted during the preceding Collection Period with the amount that would have
been remitted for that month based on the Monthly Collections Curve (the “Required
Monthly Remittance”), and (i) if the aggregate amount of Daily Remittances is
greater than the Required Monthly Remittance, the Servicer shall reduce the
amount that the Servicer remits to the General Subaccount of the Collection
Account on such Monthly Remittance Date and any subsequent date by the amount
of such excess, the amount of such reduction becoming the property of the
Servicer and (ii) if the aggregate amount of Daily Remittances is less
than the Required Monthly Remittance, the amount that the Servicer remits to
the General Subaccount of the Collection Account on such Monthly Remittance
Date will be increased by the amount of such shortfall, such increase coming
from the Servicer’s own funds.

 

(f)                                    On
or before each Monthly Remittance Date during any period when Daily Remittances
are required, the Servicer shall calculate the amount of any Remittance
Shortfall or Excess Remittance and follow the procedures set forth in clause
(c) above with respect to any such Remittance Shortfall or Excess Remittance,
provided that if an Excess Remittance exists, the Servicer shall reduce the
amount of each Daily Remittance (beginning with the Daily Remittance occurring
on the Monthly Remittance Date) by the outstanding amount of such Excess
Remittance until the balance of the Excess Remittance has been reduced to zero.

 

42

 

(g)                                 Any
amounts collected by the Servicer that represent partial payments of the total
amount billed will be allocated between the Issuer and the Servicer, based on
the ratio of the billed amount for the DRC Charges to the total billed
amount.  If such amounts are billed and
collected by the Servicer for an ESP pursuant to a consolidated billing
arrangement, the total charges due to the ESP will also be included in the proportional
allocation of any partial payment to the extent such proportional allocation is
provided for in the Servicer’s applicable tariffs.

 

(h)                                 Notwithstanding
any other provision of this Agreement, the Servicer shall not be obligated to
remit to the Issuer, the Trustee, or any other person or entity, or to hold in
trust, any Retained Collections. If at any time, an order or decision of the
CPUC shall provide that any Retained Collections retained by the Servicer are
required to be delivered to the Issuer or the Trustee, then within sixty (60)
days of such order or decision becoming final and non-appealable, the Servicer
shall pay such amounts to the Trustee.

 

ARTICLE VII

 

Default

 

SECTION 7.01.                 Servicer Default.  If any one of the following events (a “Servicer
Default”) shall occur and be continuing:

 

(a)                                  any
failure by the Servicer to remit to the Trustee for deposit in the Collection
Account for the applicable Series any required remittance for a Series of Bonds
that shall continue unremedied for a period of five Business Days after written
notice of such failure is received by the Servicer from the Issuer or the
Trustee or after discovery of such failure by an officer of the Servicer; or

 

(b)                                 any
failure by the Servicer to duly perform its obligations to make DRC Charge
true-up adjustment filings for the applicable Series of Bonds in the time and
manner set

 

43

 

forth in this Agreement, which failure continues
unremedied for a period of five Business Days after written notice of that
failure is received by the Servicer from the Issuer or the Trustee;

 

(c)                                  any
failure on the part of the Servicer duly to observe or to perform in any
material respect any other covenants or agreements of the Servicer set forth in
this Agreement (including Section 4.01) or any other Basic Document to
which it is a party, which failure shall (i) materially and adversely affect
the rights of Bondholders and (ii) continue unremedied for a period of 60 days
after the date on which written notice of such failure, requiring the same to
be remedied, shall have been given (A) to the Servicer by the Issuer or (B) to
the Servicer by the Trustee or by the Holders of Bonds evidencing not less than
25 percent of the Outstanding Amount of the Bonds of all Series; or

 

(d)                                 any
representation or warranty made by the Servicer in this Agreement shall prove
to have been incorrect when made, that has a material adverse effect on the
Issuer or the Bondholders and which material adverse effect continues
unremedied for a period of 60 days after the date on which written notice
thereof, requiring the same to be remedied, shall have been delivered to the
Servicer by the Issuer or the Trustee; or

 

(e)                                  an
Insolvency Event occurs with respect to the Servicer or the Seller; then, and
in each and every case, so long as the Servicer Default shall not have been
remedied, either the Trustee, or the Holders of Bonds evidencing not less than
a majority of the Outstanding Amount of the Bonds of each affected Series, by
notice then given in writing to the Servicer (and to the Trustee if given by
the Bondholders) (a “Termination Notice”) may terminate all the rights and
obligations of the Servicer under this Agreement with respect to that Series,
subject to compliance with Section 7.02. 
In addition, upon a Servicer Default described in Section 7.01(a),
each of the following shall be entitled to apply to the CPUC for sequestration

 

44

 

and payment of revenues arising with respect to the
Recovery Property:  (i) the holders of
any Bonds and any Trustee or representative thereof as beneficiaries of any
statutory or other Lien permitted by the PU Code; (ii) the Issuer or its
assignees; or (iii) pledgees or transferees, including transferees under Section 848.4
of the PU Code, of the Recovery Property. 
On or after the receipt by the Servicer of a Termination Notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Bonds, the Recovery Property, the DRC Charges or otherwise, shall, without
further action, pass to and be vested in such successor Servicer as may be
appointed under Section 7.02; and, without limitation, the Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the
predecessor Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such Termination Notice,
whether to complete the transfer of the Recovery Property Records and related
documents, or otherwise.  The predecessor
Servicer shall cooperate with the successor Servicer, the Issuer and the
Trustee in effecting the termination of the responsibilities and rights of the
predecessor Servicer under this Agreement, including the transfer to the
successor Servicer for administration by it of all cash amounts that shall at
the time be held by the predecessor Servicer for remittance, or shall
thereafter be received by it with respect to the Recovery Property or the DRC Charges.  All reasonable costs and expenses (including
reasonable attorneys fees and expenses) incurred in connection with
transferring the Recovery Property Records to the successor Servicer and
amending this Agreement to reflect such succession as Servicer pursuant to this
Section shall be paid by the predecessor Servicer upon presentation of
reasonable documentation of such costs and expenses.

 

45

 

SECTION 7.02.                 Appointment of Successor.

 

(a)                                  Upon
the Servicer’s receipt of a Termination Notice pursuant to Section 7.01 or
the Servicer’s resignation or removal in accordance with the terms of this
Agreement, the predecessor Servicer shall continue to perform its functions as
Servicer under this Agreement, and shall be entitled to receive the requisite
portion of the Servicing Fee, until a successor Servicer shall have assumed in
writing the obligations of the Servicer hereunder as described below.  In the event of the Servicer’s termination
hereunder, the Issuer shall appoint a successor Servicer with the Trustee’s
prior written consent thereto (which consent shall not be unreasonably
withheld) and the written approval of the CPUC, and the successor Servicer
shall accept its appointment by a written assumption in form acceptable to the
Issuer and the Trustee.  If within 30
days after the delivery of the Termination Notice, the Issuer shall not have
obtained such a new Servicer, the Trustee may petition the CPUC or a court of competent
jurisdiction to appoint a successor Servicer under this Agreement.  A Person shall qualify as a successor
Servicer only if (i) such Person is permitted under CPUC Regulations to perform
the duties of the Servicer, (ii) the Rating Agency Condition shall have been
satisfied and (iii) such Person enters into a servicing agreement with the
Issuer having substantially the same provisions as this Agreement.

 

(b)                                 Upon
appointment, the successor Servicer shall be the successor in all respects to
the predecessor Servicer and shall be subject to all the responsibilities,
duties and liabilities arising thereafter relating thereto placed on the
predecessor Servicer and shall be entitled to the Servicing Fee and all the
rights granted to the predecessor Servicer by the terms and provisions of this Agreement.

 

46

 

SECTION 7.03.                 Waiver of Past Defaults.  The Holders of Bonds evidencing not less than
a majority of the Outstanding Amount of the Bonds of each Series may, on behalf
of all Bondholders of that respective Series, waive in writing any default by
the Servicer in the performance of its obligations hereunder and its
consequences, except a default in making any required remittances to the
Trustee for deposit to the Collection Account in accordance with this
Agreement.  Upon any such waiver of a
past default, such default shall cease to exist, and any Servicer Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement.  No such waiver shall
extend to any subsequent or other default or impair any right consequent
thereto.

 

SECTION 7.04.                 Notice of Servicer Default.  The Servicer shall deliver to the Issuer, the
Trustee, the CPUC and the Rating Agencies, promptly after having obtained
knowledge thereof, but in no event later than five Business Days thereafter,
written notice in an Officers’ Certificate of any event that with the giving of
notice or lapse of time, or both, would become a Servicer Default under Section 7.01(a)
or (b).

 

ARTICLE VIII

 

Miscellaneous
Provisions

 

SECTION 8.01.                 Amendment.

 

(a)                                  This
Agreement may be amended in writing by the Servicer and the Issuer with five
Business Days’ prior written notice given to the Rating Agencies and the prior
written consent of the Trustee, which consent will not be unreasonably
withheld, delayed or conditioned, but without the consent of any of the
Bondholders, (i) to cure any ambiguity, to correct or supplement any provisions
in this Agreement, (ii) to add additional Recovery Property under this
Agreement or (iii) for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions in this Agreement or of
modifying in any manner the rights of

 

47

 

the Bondholders; provided,
however, that any such amendment pursuant to clause (iii) shall not, as
evidenced by an Officer’s Certificate delivered to the Issuer and the Trustee,
adversely affect in any material respect the interests of any Bondholder.  For purposes of this paragraph (a), any amendment
that increases the Servicing Fee payable to a successor Servicer shall not be
treated as adversely affecting the interests of any Bondholder so long as the
Servicing Fee is within the range approved in the Financing Order.

 

(b)                                 This
Agreement may also be amended in writing from time to time by the Servicer and
the Issuer with prior written notice given to the Rating Agencies and the prior
written consent of the Trustee and the prior written consent of the Holders of
Bonds evidencing not less than a majority of the Outstanding Amount of the
Bonds of each Series affected by any such amendment, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Bondholders of such Series; provided, however,
that no such amendment shall (i) increase or reduce in any manner the amount
of, or accelerate or delay the timing of, DRC Collections or (ii) reduce
the aforesaid percentage of the Outstanding Amount of any Series of Bonds, the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all the outstanding Bonds of each such Series.

 

Promptly
after the execution of any such amendment and the requisite consents, the
Issuer shall furnish written notification of the substance of such amendment to
the Trustee and each of the Rating Agencies.

 

It
shall not be necessary for the consent of Bondholders pursuant to this Section to
approve the particular form of any proposed amendment or consent, but it shall
be sufficient if such consent shall approve the substance thereof.

 

48

 

(c)                                  Prior
to its consent to any amendment to this Agreement, the Trustee shall be
entitled to receive and conclusively rely upon an Opinion of Counsel stating
that such amendment is authorized or permitted by this Agreement.  The Trustee may, but shall not be obligated
to, enter into any such amendment which affects the Trustee’s own rights, duties
or immunities under this Agreement or otherwise.

 

(d)                                 Notwithstanding
Sections 8.01(a) or 8.01(b), or anything to the contrary in this Agreement, the
Servicer and the Issuer may amend Annex I to this Agreement in writing with
prior written notice given to the Trustee, the CPUC and the Rating Agencies,
but without the consent of the Trustee, the CPUC, any Rating Agency or any
Bondholder, solely to address changes to the Servicer’s method of calculating
DRC Payments received as a result of changes to the Servicer’s current
computerized customer information system; provided that any such amendment
shall not have or cause a material adverse effect on the Bondholders.

 

SECTION 8.02.                 Accounts and Records.

 

(a)                                  The
Servicer shall maintain separate accounts and records as to the Initial
Recovery Property and to Subsequent Recovery Property relating to any
additional Series of Bonds accurately and in accordance with its standard
accounting procedures and in sufficient detail to permit reconciliation between
DRC Payments received by the Servicer and DRC Collections from time to time
remitted to the Trustee for deposit in the Collection Account for each Series.

 

(b)                                 The
Servicer shall permit the Trustee and its agents at any time during normal
business hours, upon reasonable notice to the Servicer and to the extent it
does not unreasonably interfere with the Servicer’s normal operations, to
inspect, audit and make copies of and abstracts from the Servicer’s records
regarding the Recovery Property and the DRC Charges.

 

49

 

Nothing in this Section 8.02(b) shall affect the
obligation of the Servicer to observe any applicable law (including any CPUC
Regulation) prohibiting disclosure of information regarding the Consumers, and
the failure of the Servicer to provide access to such information as a result
of such obligation shall not constitute a breach of this Section 8.02(b).

 

SECTION 8.03.                 Notices.  All demands, notices and communications upon
or to the Servicer, the Issuer, the Trustee or the Rating Agencies under this
Agreement shall be in writing and personally delivered, sent by overnight mail
or sent by telecopy or other similar form of rapid transmission, and shall be
deemed to have been duly given upon receipt (a) in the case of the Servicer, to
Pacific Gas and Electric Company, at 77 Beale Street, San Francisco, CA 94105,
Attention:  Treasurer, (b) in the case of
the Issuer, to PG&E Energy Recovery Funding LLC, at 245 Market Street, Room
424, San Francisco, CA 94105, Attention: 
President, (c) in the case of the Trustee, at the Corporate Trust Office
[address], (d) in the case of Moody’s, to Moody’s Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007, (e) in the
case of Standard & Poor’s, to Standard & Poor’s Corporation, 55 Water
Street, 40th Floor, New York, New York 10041, Attention of Asset Backed
Surveillance Department, (f) in the case of Fitch, to Fitch, Inc., One State
Street Plaza, New York, NY 10004, Attention of Commercial Asset-Backed
Securities, (g) in the case of the CPUC, to California Public Utilities
Commission, 505 Van Ness Avenue, San Francisco, California 94102, Attention of
General Counsel, or (h) as to each of the foregoing, at such other address as
shall be designated by written notice to the other parties.

 

SECTION 8.04.                 Assignment.  Notwithstanding anything to the contrary
contained herein, except as provided in Section 6.03 and as provided in
the provisions of this

 

50

 

Agreement concerning the resignation of the Servicer,
this Agreement may not be assigned by the Servicer.

 

SECTION 8.05.                 Limitations on Rights of Others.  The provisions of this Agreement are solely
for the benefit of the Servicer and the Issuer and, to the extent provided
herein or in the Basic Documents, the Trustee and the Bondholders and nothing
in this Agreement, whether express or implied, shall be construed to give to
any other Person any legal or equitable right, remedy or claim in the Recovery
Property or under or in respect of this Agreement or any covenants, conditions
or provisions contained herein.

 

SECTION 8.06.                 Severability.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

SECTION 8.07.                 Separate Counterparts.  This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.

 

SECTION 8.08.                 Headings.  The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

 

SECTION 8.09.                 Governing Law.  This Agreement shall be construed in
accordance with the laws of the State of California, without reference to its
conflict of law

 

51

 

provisions, and the obligations, rights and remedies
of the parties hereunder shall be determined in accordance with such laws.

 

SECTION 8.10.                 Assignment to Trustee.  The Servicer hereby acknowledges and consents
to the collateral assignment of any or all of the Issuer’s rights and
obligations hereunder to the Trustee.

 

SECTION 8.11.                 Nonpetition Covenants.  Notwithstanding any prior termination of this
Agreement or the Indenture, but subject to the CPUC’s right to order the
sequestration and payment of revenues arising with respect to the Recovery
Property notwithstanding any bankruptcy, reorganization or other insolvency
proceedings with respect to the debtor, pledgor or transferor of the Recovery
Property pursuant to Section 848.3(e) and (g) of the PU Code, the Servicer
shall not, prior to the date that is one year and one day after the termination
of all indentures for all series of energy recovery bonds issued by the Issuer,
acquiesce, petition or otherwise invoke or cause the Issuer to invoke the
process of any court or governmental authority for the purpose of commencing or
sustaining a case against the Issuer under any Federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Issuer or any
substantial part of the property of the Issuer or ordering the winding up or
liquidation of the affairs of the Issuer.

 

52

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers as of the date first above written.

 

 

	
   

  	
  PG&E ENERGY
  RECOVERY FUNDING

  LLC,

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PACIFIC GAS AND
  ELECTRIC

  COMPANY,

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Acknowledged and
  Accepted:

  	
   

  
	
   

  	
   

  
	
  DEUTSCHE BANK
  NATIONAL TRUST COMPANY,

  	
   

  
	
  not in

  	
   

  
	
  its individual
  capacity

  	
   

  
	
  but solely as
  Trustee

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title

  	
   

  
						

 

53

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00076-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00076-of-00352.parquet"}]]