UNITED STATES OF AMERICA BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

San Diego Gas & Electric Company v.

Sellers of Energy and Ancillary Services

)))

Docket No. EL00-95-000

)Investigation of Practices of the California

Independent System Operator and the California Power Exchange

)))

Docket No. EL00-98-000

)Puget Sound Energy, Inc.

v. Sellers of Energy and/or Capacity

)))

Docket No. EL01-10-000

)Investigation of Anomalous Bidding Behavior

and Practices in Western Markets ))

Docket No. IN03-10-000

)Fact-Finding Investigation Into Possible

Manipulation of Electric and Natural Gas Prices

)))

Docket No. PA02-2-000

)American Electric Power Service Corporation ) Docket Nos. EL03-137-000, et al.

)Enron Power Marketing, Inc. and Enron

Energy Services Inc. ))

Docket Nos. EL03-180-000, et al.

)California Independent System Operator

Corporation ))

Docket No. ER03-746-000

)Northern California Power Agency ) Docket No. EL03-161-000 )Northern California Power Agency ) Docket No. EL03-196-000

______________________

JOINT OFFER OF SETTLEMENT AND REQUEST FOR EXPEDITED DISPOSITION

_________________________

2

Northern California Power Agency (“NCPA”) and the California Parties1 (collectively

the “Parties”) respectfully request that the Federal Energy Regulatory Commission (“FERC” or

“Commission”) approve this Joint Offer of Settlement to (a) resolve claims in the above-

captioned proceedings arising from events and transactions in Western Energy Markets2 during

the period January 1, 2000 through June 20, 2001 (the “Settlement Period”) as they may relate to

NCPA,3 and (b) resolve separate claims between NCPA and PG&E arising from proceedings

associated with the PG&E Bankruptcy Proceeding and with Reliability Must Run (“RMR”) and

Out-of-Market (“OOM”) transactions occurring during the Settlement Period and certain RMR

transactions occurring from January 1, 2000 through October 31, 2007 (the “PG&E-NCPA

Claims”).4

1 For purposes of this pleading, “California Parties” means, collectively, Pacific Gas and Electric Company (“PG&E”), San Diego Gas & Electric Company (“SDG&E”), Southern California Edison Company (“SCE”), the People of the State of California ex rel. Edmund G. Brown Jr., Attorney General (“AG”), and the Public Utilities Commission of the State of California (“CPUC”). For purposes of the January 29, 2010, Settlement and Release of Claims Agreement (“Settlement Agreement”), “California Parties” means the aforementioned entities as well as the California Department of Water Resources acting solely under the authority and powers created by Assembly Bill 1 of the First Extraordinary Session of 2001-2002, codified in Sections 80000 through 80270 of the California Water Code. Under the Settlement Agreement, the California Electricity Oversight Board is an Additional Settling Participant.

2 Except as otherwise defined herein, the capitalized terms used herein have the meaning set forth in Article I of the Settlement Agreement.

3 NCPA disclaims FERC jurisdiction over the Settlement Agreement and the consideration provided thereunder. Nevertheless, the Parties have agreed to condition this settlement on securing FERC’s approval to ensure the release of funds from the California Independent System Operator Corporation and/or California Power Exchange Corporation and to ensure that the Parties’ respective claims pending at FERC are fully resolved.

4 The settlement of the separate PG&E-NCPA Claims is set out primarily in Article IX of the Settlement Agreement and does not create any rights, obligations, or duties as to Parties other than NCPA and PG&E.

3

As provided below, the Parties respectfully request that the Commission approve this

Joint Offer of Settlement on or before April 30, 2010.

JOINT OFFER OF SETTLEMENT

In accordance with Rule 602 of the Commission’s Rules of Practice and Procedure, 18

C.F.R. § 385.602 (2009), the Parties attach hereto the following documents:

• a Joint Explanatory Statement (Attachment A); and

• the Settlement Agreement (Attachment B).

Pursuant to Rule 602(b)(2), the Parties request the Secretary to transmit this Joint

Offer of Settlement to the Commission, before which the above-referenced matters are

pending.

I. GENERAL OVERVIEW OF SETTLEMENT

If the Settlement Agreement is approved, all claims as between NCPA, on the one hand,

and the California Parties, on the other hand, relating to transactions in Western Energy Markets

during the Settlement Period for refunds or other monetary or non-monetary remedies are settled

and resolved (subject to the certain limitations and exceptions). NCPA will assign all of its

claims arising out of the Settlement Period to the California Parties, and will pay additional

money to the California Parties, all in return for an end to the litigation between them. The

California Parties will accept NCPA’s responsibilities and entitlements with respect to those

claims and other claims against NCPA in the Settled Proceedings.

In addition, certain claims arising from and related to bilateral transactions between

PG&E and NCPA, which are pending in the PG&E Bankruptcy Proceedings, will settled and

resolved by the Settlement Agreement. Specifically, PG&E will pay to NCPA a total of

$2,234,110 in full satisfaction of (i) NCPA’s claims for RMR sales, OOM sales, and related

4

invoice disputes, and (ii) the City of Palo Alto’s claims in the PG&E Bankruptcy Proceedings,

which claims have been assigned to NCPA.5 Under the Settlement Agreement, NCPA and

PG&E release each other from all claims relating to NCPA’s RMR sales to PG&E and NCPA’s

sales to PG&E under the Emergency Services Agreement (“ESA”) for the period January 1,

2000 through October 31, 2007. In addition, NCPA and PG&E agree to the reclassification of

certain RMR transactions as OOM transactions.

More broadly, the Settlement Agreement, if approved, will allow the California Power

Exchange Corporation (“PX”) to release proceeds from NCPA’s unpaid receivables from

transactions through markets operated by the PX and the California Independent System

Operator Corporation (“ISO”), plus associated interest. Most of these proceeds, plus a cash

payment by NCPA, will be transferred to escrow accounts to be established by the California

Parties in settlement of claims related to events in the California and Western Energy Markets

during the years 2000 and 2001.

Specifically, the monetary consideration flowing from the other, “global” aspects of the

Settlement Agreement includes (a) NCPA’s ISO and PX receivables (i.e., NCPA’s Receivables

before any refund obligation) estimated to be $5,344,787, (b) the Estimated Interest on

Receivables Amount of $3,695,194 through December 31, 2009, to be updated through and

including the projected date of distribution, and (c) a cash payment by NCPA of $3,246,067 plus

interest at the FERC Interest Rate on such cash consideration from January 1, 2010, to the date

of payment, a portion of which will be paid by PG&E in satisfaction of claims in the PG&E

Bankruptcy Proceedings. The amount of $399,154 shall be retained by the PX as a holdback

5 Here and in other places in the Settlement Agreement, dollar amounts are to be updated

for interest to the date paid.

5

against NCPA’s share of the Interest Shortfall, subject to true-up by way of payment between the

California Parties and the PX upon FERC’s determination, in a FERC order in the FERC

Proceedings, of NCPA’s actual share of the Interest Shortfall. Transfers totaling $12,286,048

(which amount includes estimated interest through December 31, 2009, and which amount shall

be adjusted for interest accruing at the FERC Interest Rate from and after January 1, 2010, until

the date of transfer) will be made to the Settling Supplier Refund Escrow or held by the PX for

the benefit of the California Parties and others.

The Settlement Agreement provides that NCPA shall be entitled (to the same extent as

entities that are not within the scope of Section 201(f) of the Federal Power Act6) to refunds,

interest, credits, and other payments in the FERC proceedings. Under the settlement, NCPA

assigns to the California Parties NCPA’s entitlement to net refunds on purchases made in the

California Markets during the Settlement Period.

The Settlement Agreement permits, but does not require, “Participants” (i.e., entities that

directly sold energy or purchased energy from the ISO and PX during the Settlement Period) to

join NCPA and the California Parties in the Settlement Agreement as “Additional Settling

Participants.” The Settlement Agreement defines the California Parties and Additional Settling

Participants, collectively, as “Settling Participants.” The rights of those parties electing not to

join the Settlement Agreement, “Non-Settling Participants,” are unaffected by the Settlement

Agreement. Such parties will neither receive the benefits of the Settlement Agreement nor be

subject to its obligations.

6 16 U.S.C. § 824(f) (2006).

6

An Allocation Matrix, which is included as Exhibit A to the Settlement Agreement,7

allocates certain proceeds of the settlement among affected Participants. Following approval of

the Joint Offer of Settlement by the Commission, such proceeds will be distributed from the

Settling Supplier Refund Escrow to each of the Settling Participants and/or, in the case of

amounts allocated to any Non-Settling Participants, transferred to the California Parties.

Under the settlement, the California Parties (or certain of them) will assume, subject to

specified limitations, the obligation for (a) true-ups of NCPA Receivables and associated interest

on the NCPA Receivables associated with sales by NCPA with the ISO and PX from May 1,

2000 through June 20, 2001, (b) any refund amounts to non-settling participants FERC orders to

be paid by NCPA in the FERC Proceedings attributable to NCPA sales to the ISO and PX from

May 1, 2000 through June 20, 2001, (c) any third-party refund offsets attributable to NCPA sales

to the ISO and PX from May 1, 2000 through June 20, 2001 (e.g., Fuel Cost Allowance,

Emissions Offset, and Cost Offset) that FERC or a reviewing court determines that NCPA owes,

(d) PX Wind-Up charges attributable to NCPA for periods beginning with PX rate period 17

(NCPA shall reimburse the California Parties in cash for any PX Wind-Up charges deducted by

the PX from the NCPA Receivables after November 2009 for PX rate periods prior to rate period

17), and (e) NCPA’s share of the Interest Shortfall attributable to NCPA sales to the ISO and PX

from May 1, 2000 through June 20, 2001. The California Parties shall bear no responsibility for

paying any amounts that NCPA may be found to owe outside of the FERC Proceedings or for

transactions other than those from May 1, 2000 through June 20, 2001 by NCPA with the ISO,

7 This and other provisions of the Settlement Agreement reflect decisions of the

California Parties. NCPA disclaims responsibility for those provisions, as identified in the Settlement Agreement.

7

PX, or CERS. Notwithstanding the foregoing, the total liability of any California Party to make

payments shall not, in any event, exceed the total amount allocated to that California Party

pursuant to the Settlement Agreement.

Subject to certain limitations, the Settlement Agreement provides for the release of all

Settling Participants’ claims against NCPA and certain of NCPA’s claims against the California

Parties for refunds, disgorgement of profits, or other monetary or non-monetary remedies in the

FERC Proceedings. The Settlement Agreement also provides mutual releases of claims for civil

damages and equitable relief.

II. REQUEST FOR EXPEDITED DISPOSITION

The Settlement Agreement includes certain provisions that will allow the California

Parties and NCPA to terminate litigation, inter alia, in the U.S. District Court for the Eastern

District of California and in the Superior Court of California, County of Los Angeles. In order to

insure the timely termination of this litigation, the Parties respectfully that the Commission

approve this Joint Offer of Settlement on or before April 30, 2010.

III. REQUEST FOR APPROVAL OF SETTLEMENT

The Parties believe that settlement may be considered to benefit customers by resolving

claims for refunds and other remedies as between NCPA and the California Parties relating to

NCPA’s transactions in Western Energy Markets during the period January 1, 2000 through June

20, 2001, and that the settlement reaches a fair and reasonable resolution of issues between

NCPA, on the one hand, and Settling Participants, on the other. Approval of the settlement will

avoid further litigation, provide monetary consideration, eliminate regulatory uncertainty, and

enhance financial certainty. In addition, the settlement fairly protects the rights of Non-Settling

Participants. Both the Commission and the United States Court of Appeals for the Ninth Circuit

8

have actively encouraged settlements of claims related to transactions in the ISO and PX markets

during the crisis period in 2000 and 2001.8 Accordingly, the Parties respectfully request that the

Commission approve this Joint Offer of Settlement as embodied in the attached Settlement

Agreement.

IV. COMMENTS

Comments on this settlement should be filed in the above-captioned proceedings.9 In

accordance with Rules 602(d)(2) and 602(f), 18 C.F.R. §§ 385.602(d)(2) and (f) (2009), initial

comments would be due on February 22, 2010 and reply comments would be due on March 3,

2010.

8 See, e.g., Pub. Utils. Comm’n of Cal., 99 FERC ¶ 61,087 at 61,384 (2002) (“[W]e want

to strongly encourage all parties involved in disputes arising from the California crisis to seriously negotiate settlements.”); Pub. Utils. Comm'n of Cal. v. FERC, No. 01-71051, slip op. at 3 (9th Cir. Oct. 23, 2006) (extending deadlines “to encourage further settlement efforts”).

9 The Commission has indicated that the proceedings in Docket Nos. PA02-2-000 and IN03-10-000 were investigations initiated pursuant to Part 1b of the Commission’s regulations, 18 C.F.R. Part 1b (2005), and has held that there are no parties to such investigations and that comments cannot be filed in those dockets. See, e.g., Fact Finding Investigation of Potential Market Manipulation of Electric and Natural Gas Prices, et al., 105 FERC ¶ 61,063, reh’g denied, 105 FERC ¶ 61,281 (2003), appeal pending.

9

Respectfully submitted,

/s/ Robert C. McDiarmidRobert C. McDiarmid Spiegel & McDiarmid 1333 New Hampshire Ave., NW Washington, DC 20036-1536 Michael F. Dean, General Counsel Meyers Nave 555 Capitol Mall, Suite 1200 Sacramento, CA 95814 Attorneys for Northern California Power Agency

/s/ Richard L. RobertsRichard L. Roberts Joseph E. Stubbs Steptoe & Johnson LLP 1330 Connecticut Avenue, NW Washington, DC 20036 Russell C. Swartz Leon Bass, Jr. Southern California Edison Company 2244 Walnut Grove Avenue Rosemead, CA 91770 Attorneys for Southern California Edison Company

/s/ James R. Dean, Jr.James R. Dean, Jr. Covington & Burling LLP 1201 Pennsylvania Ave., NW Washington, DC 20004-2401 Don Garber San Diego Gas & Electric Company 101 Ash Street San Diego, CA 92101 Attorneys for San Diego Gas & Electric Company

/s/ Stan BermanStan Berman Eric Todderud Sidley Austin LLP 701 5th Avenue, Suite 4200 Seattle, WA 98104 Mark D. Patrizio Joshua S. Levenberg Pacific Gas and Electric Company 77 Beale Street, B30A Post Office Box 7442 San Francisco, CA 94120 Attorneys for Pacific Gas and Electric Company

10

/s/ Diana L. LeeFrank Lindh Mary F. McKenzie Elizabeth M. McQuillan Diana L. Lee Public Utilities Commission of the State of California 505 Van Ness Avenue, Room 4300 San Francisco, CA 94102

Attorneys for the Public Utilities Commission of the State of California

February 1, 2010

/s/ David M. GustafsonEdmund G. Brown Jr. Attorney General of the State of California James M. Humes Chief Deputy Attorney General Matt Rodriquez Chief Assistant Attorney General 1300 I Street, Suite 125 Sacramento, CA 95814 David M. Gustafson Deputy Attorney General Martin Goyette Supervising Deputy Attorney General 1515 Clay Street, 20th Floor Oakland, CA 94612-0550

/s/ Kevin J. McKeon Kevin J. McKeon Lillian S. Harris Craig R. Burgraff Hawke McKeon & Sniscak LLP Harrisburg Energy Center 100 North Tenth Street P.O. Box 1778 Harrisburg, PA 17101 Attorneys for the People of the State of California ex rel. Edmund G. Brown Jr., Attorney General

Attachment A

Joint Explanatory Statement

UNITED STATES OF AMERICA BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

San Diego Gas & Electric Company v.

Sellers of Energy and Ancillary Services

)))

Docket No. EL00-95-000

)Investigation of Practices of the California

Independent System Operator and the California Power Exchange

)))

Docket No. EL00-98-000

)Puget Sound Energy, Inc.

v. Sellers of Energy and/or Capacity

)))

Docket No. EL01-10-000

)Investigation of Anomalous Bidding Behavior

and Practices in Western Markets ))

Docket No. IN03-10-000

)Fact-Finding Investigation Into Possible

Manipulation of Electric and Natural Gas Prices

)))

Docket No. PA02-2-000

)American Electric Power Service Corporation ) Docket Nos. EL03-137-000, et al.

)Enron Power Marketing, Inc. and Enron

Energy Services Inc. ))

Docket Nos. EL03-180-000, et al.

)California Independent System Operator

Corporation ))

Docket No. ER03-746-000

)Northern California Power Agency ) Docket No. EL03-161-000 )Northern California Power Agency ) Docket No. EL03-196-000

_________________________

JOINT EXPLANATORY STATEMENT ________________________

- 2 -

Northern California Power Agency (“NCPA”) and the California Parties1 (collectively

the “Parties”) respectfully submit to the Federal Energy Regulatory Commission (“FERC” or

“Commission”) this Joint Explanatory Statement (“Explanatory Statement”) as part of a Joint

Offer of Settlement to (a) resolve claims in the above-captioned proceedings arising from events

and transactions in Western Energy Markets2 during the period January 1, 2000 through June 20,

2001 (the “Settlement Period”) as they may relate to NCPA,3 and (b) resolve separate claims

between NCPA and PG&E arising from claims pending in the PG&E Bankruptcy Proceeding

arising from Reliability Must Run (“RMR”), Emergency Service Agreement (“ESA”), and Out-

of-Market (“OOM”) transactions occurring during the Settlement Period and certain RMR

transactions occurring from January 1, 2000 through October 31, 2007 (the “PG&E-NCPA

Claims”).4

1 For purposes of this pleading, “California Parties” means, collectively, Pacific Gas and Electric Company (“PG&E”), San Diego Gas & Electric Company (“SDG&E”), Southern California Edison Company (“SCE”), the People of the State of California ex rel. Edmund G. Brown Jr., Attorney General (“AG”), and the Public Utilities Commission of the State of California (“CPUC”). For purposes of the January 29, 2010 Settlement and Release of Claims Agreement (“Settlement Agreement”), “California Parties” means the aforementioned entities as well as the California Department of Water Resources acting solely under the authority and powers created by Assembly Bill 1 of the First Extraordinary Session of 2001-2002, codified in Sections 80000 through 80270 of the California Water Code. Under the Settlement Agreement, the California Electricity Oversight Board is an Additional Settling Participant.

2 Except as otherwise defined herein, the capitalized terms used herein have the meaning set forth in Article I of the Settlement Agreement.

3 NCPA disclaims FERC jurisdiction over the Settlement Agreement and the consideration provided thereunder. Nevertheless, the Parties have agreed to condition this settlement on securing FERC’s approval to ensure the release of funds from the California Independent System Operator Corporation and/or California Power Exchange Corporation and to ensure that the Parties’ respective claims pending at FERC are fully resolved.

4 The settlement of the separate PG&E-NCPA Claims is set out in Article IX of the Settlement Agreement and does not create any rights, obligations, or duties as to Parties other than NCPA and PG&E.

- 3 -

I. INTRODUCTION

This Explanatory Statement is provided solely to comply with Rule 602(c)(1)(ii) of the

Commission’s Rules of Practice and Procedure, 18 C.F.R. § 385.602(c)(1)(ii) (2009). Except as

otherwise defined herein, the capitalized terms used in this Explanatory Statement have the

meanings set forth in Article I of the General Terms and Conditions of the Settlement and

Release of Claims Agreement (“Settlement Agreement”).5 This Explanatory Statement is not

intended to, and does not, alter any of the provisions of the Settlement Agreement. In the event

of an inconsistency between the Explanatory Statement and the Settlement Agreement, the

Settlement Agreement shall control.

II. OVERVIEW OF SETTLEMENT AGREEMENT

If the Settlement Agreement is approved, all claims as between NCPA, on the one hand,

and the California Parties, on the other hand, relating to transactions in Western Energy Markets

during the Settlement Period for refunds or other monetary or non-monetary remedies are settled

and resolved (subject to the certain limitations and exceptions). NCPA will assign all of its

claims arising out of the Settlement Period to the California Parties, and will pay additional

money to the California Parties, all in return for an end to the litigation between them. The

California Parties will accept NCPA’s responsibilities and entitlements with respect to those

claims and other claims against NCPA in the Settled Proceedings.

In addition, certain claims arising from and related to bilateral transactions between

PG&E and NCPA, which are pending in the PG&E Bankruptcy Proceedings, will be settled and

5 The Settlement Agreement is Attachment B to the Joint Offer of Settlement. The

Settlement Agreement includes Exhibit A, Allocation Matrix; Exhibit B, Deemed Distribution Participants; Exhibit C, Prior Settlements; and Exhibit D, Form of Notices of Resolution and Satisfaction of Claim.

- 4 -

resolved by the Settlement Agreement. Specifically, PG&E will pay to NCPA a total of

$2,234,110 in full satisfaction of (i) NCPA’s claims for RMR sales, OOM sales, and related

invoice disputes, and (ii) the City of Palo Alto’s claims in the PG&E Bankruptcy Proceedings,

which claims have been assigned to NCPA.6 Under the Settlement Agreement, NCPA and

PG&E release each other from all claims relating to NCPA’s RMR sales to PG&E and NCPA’s

sales to PG&E under the Emergency Services Agreement (“ESA”) for the period January 1,

2000 through October 31, 2007. In addition, NCPA and PG&E agree to the reclassification of

certain RMR transactions as OOM transactions.

More broadly, the Settlement Agreement, if approved, will allow the California Power

Exchange Corporation (“PX”) to release proceeds from NCPA’s unpaid receivables from

transactions through markets operated by the PX and the California Independent System

Operator Corporation (“ISO”), plus associated interest. Most of these proceeds, plus a cash

payment by NCPA, will be transferred to escrow accounts to be established by the California

Parties in settlement of claims related to events in the California and Western Energy Markets

during the years 2000 and 2001.

Specifically, the monetary consideration flowing from the other, “global” aspects of the

Settlement Agreement includes (a) NCPA’s ISO and PX receivables (i.e., NCPA’s Receivables

before any refund obligation) estimated to be $5,344,787, (b) the Estimated Interest on

Receivables Amount of $3,695,194 through December 31, 2009, to be updated through and

including the projected date of distribution, and (c) a cash payment by NCPA of $3,246,067 plus

interest at the FERC Interest Rate on such cash consideration from January 1, 2010, to the date

6 Here and in other places in the Settlement Agreement, dollar amounts are to be updated

for interest to the date paid.

- 5 -

of payment, a portion of which will be paid by PG&E in satisfaction of claims in the PG&E

Bankruptcy Proceedings. The amount of $399,154 shall be retained by the PX as a holdback

against NCPA’s share of the Interest Shortfall, subject to true-up by way of payment between the

California Parties and the PX upon FERC’s determination, in a FERC order in the FERC

Proceedings, of NCPA’s actual share of the Interest Shortfall. Transfers totaling $12,286,048

(which amount includes estimated interest through December 31, 2009, and which amount shall

be adjusted for interest accruing at the FERC Interest Rate from and after January 1, 2010, until

the date of transfer) will be made to the Settling Supplier Refund Escrow or held by the PX for

the benefit of the California Parties and others.

The Settlement Agreement provides that NCPA shall be entitled (to the same extent as

entities that are not within the scope of Section 201(f) of the Federal Power Act7) to refunds,

interest, credits, and other payments in the FERC proceedings. Under the settlement, NCPA

assigns to the California Parties NCPA’s entitlement to net refunds on purchases made in the

California Markets during the Settlement Period.

The Settlement Agreement permits, but does not require, “Participants” (i.e., entities that

directly sold energy or purchased energy from the ISO and PX during the Settlement Period) to

join NCPA and the California Parties in the Settlement Agreement as “Additional Settling

Participants.” The Settlement Agreement defines the California Parties and Additional Settling

Participants, collectively, as “Settling Participants.” The rights of those parties electing not to

join the Settlement Agreement, “Non-Settling Participants,” are unaffected by the Settlement

7 16 U.S.C. § 824(f) (2006).

- 6 -

Agreement. Such parties will neither receive the benefits of the Settlement Agreement nor be

subject to its obligations.

An Allocation Matrix, which is included as Exhibit A to the Settlement Agreement,8

allocates certain proceeds of the settlement among affected Participants. Following approval of

the Joint Offer of Settlement by the Commission, such proceeds will be distributed from the

Settling Supplier Refund Escrow to each of the Settling Participants and/or, in the case of

amounts allocated to any Non-Settling Participants, transferred to the California Parties.

Under the settlement, the California Parties (or certain of them) will assume, subject to

specified limitations, the obligation for (a) true-ups of NCPA Receivables and associated interest

on the NCPA Receivables associated with sales by NCPA with the ISO and PX from May 1,

2000 through June 20, 2001, (b) any refund amounts to non-settling participants FERC orders to

be paid by NCPA in the FERC Proceedings attributable to NCPA sales to the ISO and PX from

May 1, 2000 through June 20, 2001, (c) any third-party refund offsets attributable to NCPA sales

to the ISO and PX from May 1, 2000 through June 20, 2001 (e.g., Fuel Cost Allowance,

Emissions Offset, and Cost Offset) that FERC or a reviewing court determines that NCPA owes,

(d) PX Wind-Up charges attributable to NCPA for periods beginning with PX rate period 17

(NCPA shall reimburse the California Parties in cash for any PX Wind-Up charges deducted by

the PX from the NCPA Receivables after November 2009 for PX rate periods prior to rate period

17), and (e) NCPA’s share of the Interest Shortfall attributable to NCPA sales to the ISO and PX

from May 1, 2000 through June 20, 2001. The California Parties shall bear no responsibility for

8 This and other provisions of the Settlement Agreement reflect decisions of the

California Parties. NCPA disclaims responsibility for those provisions, as identified in the Settlement Agreement.

- 7 -

paying any amounts that NCPA may be found to owe outside of the FERC Proceedings or for

transactions other than those from May 1, 2000 through June 20, 2001 by NCPA with the ISO,

PX, or CERS. Notwithstanding the foregoing, the total liability of any California Party to make

payments shall not, in any event, exceed the total amount allocated to that California Party

pursuant to the Settlement Agreement.

Subject to certain limitations, the Settlement Agreement provides for the release of all

Settling Participants’ claims against NCPA and certain of NCPA’s claims against the California

Parties for refunds, disgorgement of profits, or other monetary or non-monetary remedies in the

FERC Proceedings. The Settlement Agreement also provides mutual releases of claims for civil

damages and equitable relief.

III. DESCRIPTION OF PROCEEDINGS

A. The EL00-95 Proceeding

On August 23, 2000, the Commission instituted formal hearing procedures9 under the

Federal Power Act to investigate, among other things, “the justness and reasonableness of the

rates of public utility sellers into the ISO and the PX markets, and also to investigate whether the

tariffs, contracts, institutional structures and bylaws of the ISO and PX were adversely affecting

the wholesale power markets in California.”10 The dockets in which these inquiries and

proceedings have been conducted (EL00-95 and EL00-98) are defined in the Settlement

Agreement as the “EL00-95 Proceeding.”

9 San Diego Gas & Elec. Co., 92 FERC ¶ 61,172 (2000). 10 San Diego Gas & Elec. Co., 97 FERC ¶ 61,275 at 62,173 (2001).

- 8 -

The Commission issued an initial series of orders11 in the EL00-95 Proceeding, including

a July 25, 2001 Order in which it established “the scope of and methodology for calculating

refunds related to transactions in the spot markets operated by the [ISO] and the [PX] during

the period October 2, 2000 through June 20, 2001.”12 The July 25 Order also provided for a

hearing.13 The parties to the EL00-95 Proceeding thereafter litigated issues relating to the scope

of refunds and the refund methodology. Presiding Administrative Law Judge (“ALJ”) Birchman

issued his proposed findings of fact regarding refund liability on December 12, 2002, and the

Commission issued an order on those proposed findings on March 26, 2003, and subsequent

orders on rehearing on October 16, 2003 and May 12, 2004.14 Various parties filed petitions for

review of those orders. The United States Court of Appeals for the Ninth Circuit (“Ninth

Circuit”) issued opinions on certain issues,15 some of which may be the subject of further

proceedings before the Ninth Circuit while other issues remain pending on review.

B. The EL01-10 Proceeding

On October 26, 2000, Puget Sound Energy, Inc. filed a complaint asking the Commission

to cap the prices at which sellers subject to the Commission’s jurisdiction could sell energy or

11 See San Diego Gas & Elec. Co., 93 FERC ¶ 61,294 (2000); San Diego Gas & Elec.

Co., 94 FERC ¶ 61,245 (2001); San Diego Gas & Elec. Co., 95 FERC ¶ 61,115 (2001); SanDiego Gas & Elec. Co., 95 FERC ¶ 61,418 (2001); San Diego Gas & Elec. Co., 96 FERC ¶ 61,120 (2001) (“July 25 Order”).

12 July 25 Order at 61,499. 13 Id. at 61,520. 14 See San Diego Gas & Elec. Co., 101 FERC ¶ 63,026 (2002), order on review, 102

FERC ¶ 61,317 (2003), order on reh’g, 105 FERC ¶ 61,066 (2003), order on reh’g, 107 FERC ¶ 61,165 (2004).

15 Bonneville Power Admin. v. FERC, 422 F.3d 908 (9th Cir. 2005), cert. denied sub nom. Pac. Gas & Elec. Co. v. Bonneville Power Admin., 128 S. Ct. 804 (2007); Pub. Utils. Comm'n of Cal. v. FERC, 462 F.3d 1027 (9th Cir. 2006), reh’g denied (Apr. 6, 2009).

- 9 -

capacity in the Pacific Northwest’s wholesale power markets. On December 15, 2000, the

Commission dismissed the complaint,16 but subsequently ordered a preliminary evidentiary

hearing to develop a factual record on whether there may have been unjust and unreasonable

charges for spot market bilateral sales in the Pacific Northwest for the period December 25, 2000

through June 20, 2001.17 After conducting the preliminary evidentiary hearing, the ALJ found

that no refunds were merited for sales in the Pacific Northwest during the period at issue and also

found that requests for relief for CERS purchases were outside the scope of the proceeding.18 On

June 25, 2003, the Commission adopted the ALJ’s recommendations that refunds be denied and

that CERS purchases be excluded. The Commission also denied rehearing of the dismissal of the

complaint.19 Various parties sought judicial review of these FERC orders, and on August 24,

2007, the Ninth Circuit found that claims relating to CERS purchases did belong in the case and

remanded the case to the Commission to address the evidence of market manipulation and to

further consider its refund decision.20

C. The PA02-2 Proceeding

On February 13, 2002, the Commission instituted Docket No. PA02-2-000, in which it

directed its Staff to commence a fact-finding investigation of manipulation of electricity and

16 San Diego Gas & Elec. Co., 93 FERC ¶ 61,294 (2000). 17 San Diego Gas & Elec. Co., 96 FERC ¶ 61,120 (2001). 18 Puget Sound Energy, Inc., 96 FERC ¶ 63,044 (2001). 19 Puget Sound Energy, Inc., 103 FERC ¶ 61,348, reh’g denied, 105 FERC ¶ 61,183

(2003), reh’g denied, 106 FERC ¶ 61,109 (2004). 20 Port of Seattle v. FERC, 499 F.3d 1016 (9th Cir. 2007), reh’g denied (Apr. 9, 2009),

cert. denied sub nom. Puget Sound Energy, Inc. v. Cal., No. 09-288, U.S. LEXIS 494 (U.S. Jan. 11, 2010).

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natural gas prices in the West.21 On March 26, 2003, Commission Staff issued its Final Report

on Price Manipulation in Western Markets (“Final Staff Report”).

D. The IN03-10 Proceeding

On June 25, 2003, the Commission issued an order in Docket No. IN03-10-000

responding to the recommendation that the Market Monitoring and Information Protocols

(“MMIP”) contained in the ISO and PX tariffs be found to prohibit certain bidding behavior

discussed in the Final Staff Report.22 The Commission directed its Office of Market Oversight

and Investigation (“OMOI”) to conduct an investigation at the individual market participant

level, and to examine all bids in the ISO and PX markets above $250/MWh in order to determine

whether parties may have violated the MMIP’s prohibition against anomalous market behavior.23

OMOI investigated each entity that bid above $250/MWh in the ISO and PX markets to

determine whether it may have violated the provision of the MMIP prohibiting anomalous

bidding behavior.24 The Commission also directed OMOI to conduct an investigation into the

existence of any physical withholding of power by California generators during the period May

1, 2000 through June 20, 2001.25 On May 12, 2004, FERC notified NCPA that it was

terminating the investigation as to NCPA.

21 Fact-Finding Investigation of Potential Market Manipulation of Electric and Natural

Gas Prices, 98 FERC ¶ 61,165 (2002). 22 Investigation of Anomalous Bidding Behavior and Practices in the Western Markets,

103 FERC ¶ 61,347 (2003). 23 Id. at 62,359. 24 See, e.g., Investigation of Anomalous Bidding Behavior and Practices in the Western

Markets, 110 FERC ¶ 61,369 (2005) (describing certain OMOI determinations and the California Parties’ request for rehearing of same).

25 On August 1, 2003, OMOI issued an undocketed Initial Report on Physical Withholding by Generators Selling into the California Market and Notification to Companies.

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E. The Gaming/Partnership Proceeding

On June 25, 2003, the Commission, acting in Docket Nos. EL03-137-000, et al., issued

an order directing each of 43 named entities, including NCPA, to show cause why it had not

participated in activities that constitute gaming and/or anomalous market behavior (“Gaming

Practices”) in violation of the ISO and PX tariffs.26 The proceeding instituted as to NCPA was

Docket No. EL03-161-000. Several of the California Parties and others requested rehearing of

the Gaming Show Cause Order. The Commission denied such requests27 and the California

Parties sought judicial review.28 On October 30, 2003, FERC Trial Staff filed a motion to

dismiss the show cause order against NCPA and to terminate Docket No. EL03-161. By order

dated January 22, 2004, the Commission approved the motion to dismiss over the objections of

the California Parties.29

Simultaneously with the issuance of the Gaming Show Cause Order, the Commission

directed certain parties, including NCPA, to show cause why their arrangements with certain

other entities did not constitute gaming and/or anomalous market behavior in violation of the

ISO and PX tariffs.30 The proceeding instituted as to NCPA was Docket No. EL03-196-000.

26 Am. Elec. Power Serv. Corp., 103 FERC ¶ 61,345 (2003) (“Gaming Show Cause

Order”). 27 Am. Elec. Power Serv. Corp., 106 FERC ¶ 61,020 (2004). 28 Pac. Gas and Elec. Co. v. FERC, Nos. 05-71008, et al. (9th Cir. Feb. 23, 2004). These

appeals are presently stayed. 29 Ariz. Pub. Serv. Co., 106 FERC ¶ 61,021 (Jan. 22, 2004), reh’g denied, 125 FERC

¶ 61,177 (Nov. 14, 2008), reh’g denied in part and granted in part and granting clarification sub nom. Aquila Merch. Servs. Inc., 127 FERC ¶ 61,218 (Jun. 3, 2009), appeals filed sub nom. Cal ex rel. Brown v. FERC, No. 08-74761 (9th Cir. Nov. 20, 2008) and No. 09-71763 (9th Cir. Jun. 9, 2009).

30 Enron Power Mktg., Inc., 103 FERC ¶ 61,346 (2003) (“Partnership Show Cause Order”).

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Several of the California Parties and others requested rehearing of the Partnership Show Cause

Order. The Commission denied such requests31 and the California Parties sought judicial

review.32 On January 15, 2004, FERC Trial Staff and NCPA filed an Agreement and Stipulation

to resolve the issues consolidated in Docket No. EL03-196. Pursuant to the Agreement and

Stipulation NCPA agreed to pay $22,448 into a deposit fund account established by the

Commission.33 By order dated August 4, 2004, the Commission approved the Agreement and

Stipulation over the objections of the California Parties.34

F. ISO Re-Run Proceeding

On April 15, 2003, the ISO filed with FERC Amendment No. 51 to its tariff.35 The ISO

proposed to conduct a Preparatory Rerun in preparation for the Commission-mandated market

rerun in the EL00-95 Proceeding and requested approval of tariff amendments to “wall off” that

rerun from the settlement processes used to clear the ISO market.36 On June 13, 2003, the

Commission issued an order conditionally accepting and suspending Amendment No. 51, subject

31 Enron Power Mktg., Inc., 106 FERC ¶ 61,020 (2004). 32 Pac. Gas and Elec. Co. v. FERC, Nos. 05-71008, et al. (9th Cir. Feb. 23, 2004). These

appeals are presently stayed.

33 Agreement and Stipulation, Docket No. EL03-196-000 (Jan. 15, 2004).

34 N. Cal. Power Agency, 108 FERC ¶ 61,112 (2004), reh’g denied, 125 FERC ¶ 61,176 (2008), reh’g denied in part and granted in part and granting clarification sub nom. Aquila Merch. Servs. Inc., 127 FERC ¶ 61,218 (2009), appeals filed sub nom. Cal ex rel. Brown v. FERC, No. 08-74761 (9th Cir. Nov. 20, 2008) and No. 09-71763 (9th Cir. Jun. 9, 2009).

35 FERC assigned Docket No. ER03-746 to this filing.

36 Amendment No 51 Transmittal Letter at 3 & n.4.

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to refund.37 Subsequently, the Commission directed the ISO to submit monthly reports detailing

the status of the rerun and the settlement and billing activities for calculating refunds.38

IV. SUMMARY OF SETTLEMENT AGREEMENT

The principal terms of the Settlement Agreement are briefly described below, with

reference to the sections of the Settlement Agreement that contain them.

A. Effective Date

The Parties have executed the Settlement Agreement and it becomes binding as of the

Execution Date. Some of the operative provisions only become effective as of, or in relation to,

the Settlement Effective Date. Section 1.83. The Settlement Effective Date is defined to mean

the date of a FERC order approving the Settlement Agreement, regardless of whether such order

is subject to rehearing or appeal, provided that such order has not been stayed pending such

rehearing or appeal, subject to certain conditions in the event (i) the Commission modifies or

conditions its approval of the Settlement Agreement, and/or (ii) a Good Faith Motion is filed by

NCPA in the Los Angeles Superior Court. Sections 1.37, 1.83, 2.1, 2.2.2, and 4.17.

B. Termination

The Settlement Agreement will terminate on the date of a Final Order rejecting the

Settlement Agreement in whole or in material part or accepting the Settlement Agreement with

material conditions or modifications deemed unacceptable to any adversely affected Party.

Section 2.2. In addition, the Settlement Agreement could terminate if NCPA provides notice that

37 Cal. Indep. Sys. Operator Corp., 103 FERC ¶ 61,331 (2003).

38 Cal. Indep. Sys. Operator Corp., 106 FERC ¶ 61,099 (2004). On May 8, 2009, the ISO submitted its Forty-Third Status Report on Settlement Re-Run Activity in Docket Nos. ER03-746, et al.

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it has elected to terminate the Settlement Agreement because its Good Faith Motion, if any, has

been denied by the Los Angeles Superior Court in The Electric Refund Cases, JCCP No. 4512,

based on an express finding that the settlement is not in good faith. Section 2.2.1.4. The

Settlement Agreement also may terminate if the California Parties fail to receive consideration

that they are due under the Settlement Agreement. Section 4.16.

C. Time Period

The Settlement Agreement with respect to transactions in Western Energy Markets

relates to the Settlement Period, January 1, 2000 through June 20, 2001. Sections 1.84 and 3.1.

The separate agreement between NCPA and PG&E. set forth in Article IX of the Settlement

Agreement, also relates to the Settlement Period, and with respect to certain RMR transactions,

to the period from January 1, 2000 through October 31, 2007. Section 9.1.

D. Disclaimer Regarding FERC Jurisdiction and Acknowledgements

NCPA disclaims FERC jurisdiction over any aspect of the Settlement Agreement.

However, the Parties have agreed to condition the Settlement Agreement on securing the

Commission’s approval to ensure the release of funds from the ISO and/or PX and to ensure that

the Parties’ respective claims pending at FERC are fully resolved. Section 2.3.

E. Participant Ability to Opt In to the Settlement Agreement

Any entity that directly sold energy to or purchased energy from the ISO and/or PX

during the Settlement Period (“Participant”) may elect to be bound by the terms of the Settlement

Agreement as an Additional Settling Participant. Sections 1.2, 1.58, and 8.1. To opt in to the

Settlement Agreement, a Participant must provide notice to the Commission (and serve it on the

parties on the ListServs established for the EL00-95 Proceeding and in Docket Nos. EL03-137,

et al.) no later than five Business Days following the Settlement Effective Date. Section 8.1. If a

Participant does not opt in to the Settlement Agreement (“Non-Settling Participant”) (i) its rights

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will be unaffected by the Settlement Agreement, (ii) it will not be guaranteed certain benefits of

the Settlement Agreement, and (iii) it will be paid the refunds, if any, to which it is ultimately

determined to be due through continued litigation. Sections 1.55, 3.2, and 8.1.

F. Monetary Consideration

NCPA’s ISO and PX Receivables (i.e., Settling Supplier’s Receivables before any refund

obligation) are estimated to be $5,344,787 as of November 30, 2009, plus interest. The

Estimated Interest on Receivables Amount is $3,695,194 through December 31, 2009, and will

be updated through and including the projected date of distribution from the PX. Sections 4.1

and 4.6.3.

If approved, the Settlement Agreement will allow the PX to retain NCPA Receivables in

the amount of $399,154 as the NCPA Interest Shortfall Estimate. That amount plus interest shall

be subject to true-up by way of payment between the California Parties and the PX upon FERC’s

determination of NCPA’s actual share of the Interest Shortfall. Section 4.3. The remaining

NCPA Receivables in the amount of $8,640,827 including estimated interest through December

31, 2009, are assigned under the Settlement Agreement to the California Parties (“Settlement

Proceeds”) and adjusted for interest from January 1, 2010 until the date of transfer to the

California Parties. Sections 1.85 and 4.2.

The NCPA Receivables shall be transferred by the PX to the Settling Supplier Refund

Escrow, subject to withholding certain amounts for Deemed Distributions and the estimated

Interest Shortfall on Refunds. Section 4.6. Under the settlement, NCPA also assigns to the

California Parties NCPA’s entitlement to refunds on purchases made in the Western Energy

Markets during the Settlement Period. Sections 4.11, 4.12, and 4.14. In addition to the transfer

of the NCPA Receivables, NCPA is required pay an additional $3,246,067, a portion of which

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will be funded by PG&E pursuant to the settlement of the PG&E-NCPA Claims. Sections 4.6.2

and 9.2.

Under the Settlement Agreement, the California Parties and/or California Utilities will

assume responsibility for, subject to specified limitations, the obligation for (a) true-ups of

NCPA Receivables and associated interest on the NCPA Receivables associated with sales by

NCPA with the ISO and PX from May 1, 2000 through June 20, 2001, Section 5.6; (b) any

refund amounts to non-settling participants FERC orders to be paid by NCPA in the FERC

Proceedings attributable to NCPA sales to the ISO and PX from May 1, 2000 through June 20,

2001, Section 3.2; (c) any third-party refund offsets attributable to NCPA sales to the ISO and

PX from May 1, 2000 through June 20, 2001 (e.g., Fuel Cost Allowance, Emissions Offset, and

Cost Offset) that FERC or a reviewing court determines that NCPA owes, Section 4.13; (d) PX

Wind-Up charges attributable to NCPA for periods beginning with PX rate period 17 (NCPA

shall reimburse the California Parties in cash for any PX Wind-Up charges deducted by the PX

from the NCPA Receivables after November 2009 for PX rate periods prior to rate period 17),

Section 4.9; and (e) NCPA’s share of the Interest Shortfall attributable to NCPA sales to the ISO

and PX from May 1, 2000 through June 20, 2001, Section 4.3. The California Parties shall bear

no responsibility for paying any amounts that NCPA may be found to owe outside of the FERC

Proceedings or for transactions other than those from May 1, 2000 through June 20, 2001 by

NCPA with the ISO, PX, or CERS. Notwithstanding the foregoing, the total liability of any

California Party to make payments shall not, in any event, exceed the total amount allocated to

that California Party pursuant to the Settlement Agreement. Section 5.8.

The California Parties are responsible for the costs associated with establishing and

maintaining the two escrow accounts: the Settling Supplier Refund Escrow and the California

Litigation Escrow. Section 4.8.

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G. Disposition and Allocation of Settlement Proceeds

The Settlement Agreement provides for the settlement of claims against NCPA arising

from events and transactions in Western Energy Markets during the Settlement Period as they

relate to NCPA. An Allocation Matrix, which is attached to the Agreement as Exhibit A,

allocates certain proceeds of the settlement as among affected Participants.39 Such proceeds will

be distributed from the Settling Supplier Refund Escrow to each of the Settling Participants

and/or in the case of amounts allocated to any Non-Settling Participants, transferred to the

California Parties. Sections 5.2 and 5.5.

An estimated amount of interest, less a reserve for an estimated Interest Shortfall on

Refunds, each calculated through the date of distribution, will be distributed to the California

Parties and Additional Settling Participants concurrently with the principal amounts. There is,

however, a true-up of the interest and Interest Shortfall distributions to Settling Participants

following the Commission’s determination of interest issues regarding the ISO and PX

settlement rerun and refund calculations. Section 5.3.

The obligation of any of the California Parties to make payments on behalf of NCPA,

under the Settlement Agreement, shall not exceed the total amount allocated and actually paid to

such California Party as set forth in (i) the Allocation Matrix, and (ii) any additional amounts

allocated pursuant to the Allocation Agreement from the amount transferred to the California

Litigation Escrow, Section 5.8, however, such limitations on the California Parties’ obligations

shall not create any liability for NCPA. Section 5.8.3.

39 This and other provisions of the Settlement Agreement reflect decisions of the California Parties. NCPA disclaims responsibility for those provisions, as identified in the Settlement Agreement.

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H. ISO and PX Accounting

Upon occurrence of the Settlement Effective Date, the Commission’s approval of the

Settlement Agreement will constitute the Commission’s authorization and direction to the ISO

and PX to conform their books and records to reflect the distributions, offsets, adjustments,

transfers, and status of accounts provided for in the Settlement Agreement. Section 6.1.40

I. Releases and Waivers

In return for the specified consideration, and subject to specified limitations, the

Settlement Agreement resolves all claims as between the California Parties, on the one hand, and

NCPA, on the other hand, relating to transactions in Western Energy Markets during the

Settlement Period for damages, refunds, disgorgement of profits, costs and attorneys’ fees, or

other remedies in the Settled Proceedings. Sections 3.1 and 7.1.1.

Subject to certain specified limitations, the Settlement Agreement provides for the

California Parties and NCPA to mutually release and discharge each other as of the Settlement

Effective Date from all existing and future claims before FERC and/or under the Federal Power

Act for the Settlement Period that:

(i) NCPA or any California Party charged or collected unjust, unreasonable, or otherwise unlawful rates, terms or conditions for electric capacity, energy, ancillary services, or transmission congestion in the Western Energy Markets during the Settlement Period;

(ii) NCPA or any California Party manipulated the Western Energy Markets in any fashion (including, but not limited to, claims of

40 The California Parties and NCPA note that Section 6.1.3.6 of the Settlement

Agreement is identical to Section 6.1.3.6 of the Settlement Agreement between the California Parties and Los Angeles Department of Water and Power (“LADWP”), the effect of which (as also understood by the ISO) the Commission expressly noted in its approval of that settlement. San Diego Gas & Elec. Co., 129 F.E.R.C. ¶61,257 (2009) at fn. 46. NCPA and the California Parties rely upon that interpretation here as well.

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economic or physical withholding, gaming, forms of electricity market manipulation discussed in the Final Staff Report, or any other forms of electricity market manipulation), or otherwise violated any applicable tariff, regulation, law, rule, or order relating to the Western Energy Markets during the Settlement Period; or

(iii) Any California Party is liable for payments to NCPA for congestion charges, transmission line losses, energy, or ancillary services during the Settlement Period.

Section 7.2.1.

The Settlement Agreement also provides, subject to certain specified limitations, for the

California Parties, on the one hand, and NCPA, on the other hand, mutually to release the other

from all past, existing, and future claims for civil damages and/or equitable relief concerning,

pertaining to, or arising from allegations that:

(i) NCPA or any California Party charged or collected unjust, unreasonable, or otherwise unlawful rates, terms or conditions for capacity, energy, ancillary services, or transmission congestion in the Western Energy Markets during the Settlement Period;

(ii) NCPA or any California Party, during the Settlement Period, manipulated Western Energy Markets in any fashion (including, but not limited to, claims of economic or physical withholding, gaming, forms of market manipulation discussed in the Final Staff Report, or any other forms of market manipulation);

(iii) NCPA or any California Party was unjustly enriched by the foregoing released claims or otherwise violated any applicable tariff, regulation, law, rule, or order relating to transactions in the Western Energy Markets during the Settlement Period; or

(iv) Any California Party is liable for payments to NCPA for congestion charges, transmission line losses, energy, or ancillary services during the Settlement Period.

Section 7.3.1.

Subject to the limitations and exclusions of Section 7.4, Participants that elect to

participate in the Settlement as Additional Settling Participants are deemed to provide and

receive releases with NCPA that the California Parties provide and receive. Sections 7.4 and 8.2.

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J. Resolution of Bilateral PG&E-NCPA Claims

Article IX of the Settlement Agreement resolves separate claims between NCPA and

PG&E pending in the PG&E Bankruptcy Proceeding. Those claims arise from RMR and OOM

transactions occurring during the Settlement Period and certain RMR transactions occurring

from January 1, 2000 through October 31, 2007.

In return for PG&E’s net payment of $2,234,110, plus accrued interest from December

31, 2009, NCPA’s Class 5 and Class 6 Claims in the PG&E Bankruptcy Proceedings, and the

City of Palo Alto’s Claims in the PG&E Bankruptcy Proceedings (which claims were assigned to

NCPA) are settled and resolved as well as all claims between NCPA and PG&E relating to

NCPA’s sales to PG&E, or through PG&E in its role as a scheduling coordinator, occurring

during the period January 1, 2000 through October 31, 2007, of (i) RMR energy and (ii) energy

sold pursuant to the Emergency Services Agreement (“ESA”) between NCPA and PG&E, dated

July 10, 2000. Section 9.1. The particular claims settled and resolved through the Settlement

Agreement are identified in the Settlement Agreement. Sections 9.2.1 and 9.2.2.

The Settlement Agreement provides that PG&E and NCPA shall, as of the Settlement

Effective Date, be deemed to have forever released the other from all past, existing, and future

Claims concerning, pertaining to, or arising from transactions pursuant to the ESA and RMR

transactions (including RMR transactions reclassified as OOM transactions) occurring during the

period January 1, 2000 through October 31, 2007. Section 9.4. The Settlement Agreement also

provides for NCPA to withdraw or resolve certain claims in the PG&E Bankruptcy Proceedings,

specified state court proceedings, and in FERC Docket No. EL00-95. Section 9.5.

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V. HOLD HARMLESS ASSURANCES FOR THE ISO AND PX

In prior orders approving settlements in the FERC Proceedings, the Commission has

provided the ISO and PX with “hold harmless” assurances for the steps taken to implement those

settlements. See, e.g., San Diego Gas & Elec. Co., 129 FERC ¶ 61,257 at P 20 (2009)

(approving hold harmless protection for the ISO and PX in connection with the Los Angeles

Department of Water and Power settlement). The California Parties and NCPA do not oppose

Commission action to provide similar assurances to the ISO and PX with respect to the

Settlement Agreement.

VI. COMMENTS

As stated in the Joint Offer of Settlement (that this Explanatory Statement supports),

comments on the Settlement Agreement should be filed in the above-captioned proceedings.41 In

accordance with Rules 602(d)(2) and 602(f), 18 C.F.R. §§ 385.602(d)(2) and (f) (2009), initial

comments are due 20 days after filing (on February 22, 2010) and reply comments are due 30

days after filing (on March 3, 2010). In the Joint Offer of Settlement, the Parties respectfully

request that the Commission approve the Settlement Agreement on or before April 30, 2010.

February 1, 2010

41 The Commission has indicated that the proceedings in Docket Nos. PA02-2-000 and IN03-10-000 were investigations initiated pursuant to Part 1b of the Commission’s regulations, 18 C.F.R. Part 1b, and has held that there are no parties to such investigations and that comments cannot be filed in those dockets. See, e.g., Fact Finding Investigation of Potential Market Manipulation of Electric and Natural Gas Prices, et al., 105 FERC ¶ 61,063, reh’g denied, 105 FERC ¶ 61,281 (2003) (appeal pending).

Attachment B

Settlement and Release of Claims Agreement

2

Now, therefore, in consideration of the mutual covenants and agreements, and other good and valuable consideration provided for herein, and subject to and upon the terms and conditions hereof, the Parties agree as follows:

ARTICLE I. DEFINITIONS

Unless otherwise expressly provided for herein, the following capitalized terms, when used in this Agreement, including the preamble, Recitals, and exhibits hereto, shall have the meanings specified in this Article I.

1.1 “2010 Accrued Interest” shall have the meaning set forth in Section 9.2.

1.2 “Additional Settling Participant” means and includes (i) the California Electricity Oversight Board, and (ii) any Participant that has elected to be bound by this Agreement in accordance with Article VIII. The Parties to this Agreement are not Additional Settling Participants to this Agreement.

1.3 “Agreement” means this Settlement and Release of Claims Agreement, including all exhibits and amendments hereto.

1.4 “Allocation Agreement” shall have the meaning set forth in Section 5.4.

1.5 “Allocation Matrix” means the matrix, attached to this Agreement as Exhibit A, setting forth the various allocation percentages with respect to certain Settlement Proceeds that are applicable to each Participant pursuant to this Agreement.

1.6 “APX” and “APX Settlement” shall have the meanings set forth in Section 8.3.

1.7 “BPA v. FERC Remand” means proceedings conducted by FERC, in the EL00-95 Proceeding or otherwise upon remand, pursuant to the decision of the U.S. Court of Appeals for the Ninth Circuit in Bonneville Power Administration v. FERC, Nos. 02-70262, et al.

1.8 “Business Day” has the same meaning as provided in California Civil Code Section 9.

1.9 “California Attorney General” means the People of the State of California, ex rel. Edmund G. Brown Jr., Attorney General.

1.10 “California Litigation Escrow” means the escrow established pursuant to Section 4.8.

1.11 “California Markets” means those markets for electric capacity, energy, and/or ancillary services operated by the ISO and/or PX, including the block forward contract market operated by the PX.

3

1.12 “California Parties” means collectively PG&E, SCE, SDG&E, California Attorney General, CERS, and CPUC. Each individually may be referred to as a “California Party.”

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

1.14 “Cash Transfers” means the transfers described in Sections 4.6.1 and 4.6.2.

1.15 “CERS” means the California Department of Water Resources acting solely under the authority and powers created by California Assembly Bill 1 of the First Extraordinary Session of 2001-2002, codified in Sections 80000 through 80270 of the California Water Code, and not under its powers and responsibilities with respect to the State Water Resources Development System.

1.16 “Chargeback Amounts” means amounts collected by the PX from Participants in response to alleged defaults by PG&E and SCE, as generally described in Pacific Gas and Elec. Co. v. California Power Exchange Corp., 95 FERC ¶ 61,020 (Apr. 6, 2001).

1.17 “Claim” or “Claims” means any past, present, future, or potential known or unknown claim, demand, request or demand for payment, order, directive, action, tender, liability, suit, complaint, petition, cause of action, cross-claim, counter-claim, arbitration demand or regulatory proceeding, asserted in any manner whether by civil action, administrative or regulatory proceeding, or otherwise, whether written or not written, formal or informal, whether based on federal or state statute or regulation, principles of law or equity, or whether based on any common law cause of action, whether seeking administrative or regulatory orders, damages, indemnity, contribution, equitable relief, declaratory relief or any other damages or relief.

1.18 “Cost Offset” means an offset (other than an Emissions Offset or a Fuel Cost Allowance) against refunds in the EL00-95 Proceeding based upon costs incurred by the Participant claiming the offset. See, e.g., San Diego Gas & Elec. Co. v. Sellers, et al., 114 FERC ¶ 61,070 (Jan. 26, 2006).

1.19 “CPUC” means the California Public Utilities Commission.

1.20 “CPUC v. FERC Remand” means proceedings conducted by FERC, in the EL00-95 Proceeding or otherwise upon remand, pursuant to the decision of the U.S. Court of Appeals for the Ninth Circuit in Public Utilities Commission of California v. FERC, Nos. 01-71051, et al.

1.21 “Deemed Distribution” means an amount credited to a Settling Participant, identified on Exhibit B to this Agreement, pursuant to Section 5.2.2 as an offset to amounts owed by the Settling Participant to the PX and/or ISO.

1.22 “Deemed Distribution Participant” means a Participant listed on Exhibit B to this Agreement.

4

1.23 “Early Distributions” shall have the meaning set forth in Section 4.6.3.

1.24 “EL00-95 Proceeding” means the FERC proceeding conducted in Docket Nos. EL00-95, et al. and EL00-98, et al. and related appeals of orders in that proceeding and any proceedings upon remand.

1.25 “EL01-10 Proceeding” means the FERC proceeding conducted in Docket Nos. EL01-10, et al. and related appeals of orders in that proceeding and any proceedings upon remand.

1.26 “Emissions Offset” means the Claim for recovery of emissions costs incurred by a Participant’s generating units during the Refund Period made pursuant to FERC Orders in the EL00-95 Proceeding. See, e.g., San Diego Gas & Elec. Co. v. Sellers, et al., 102 FERC ¶ 61,317 at P 5 (BB) (Mar. 26, 2003).

1.27 “Estimated Interest on Receivables Amount” shall have the meaning set forth in Section 4.1.

1.28 “Estimated Receivables Amount” shall have the meaning set forth in Section 4.1.

1.29 “Execution Date” means the date on which this Agreement has been duly executed by NCPA and all California Parties and, if execution occurs on various dates, the Execution Date shall be the date shown on the signature pages of this Agreement that is last in time.

1.30 “FERC” means the Federal Energy Regulatory Commission.

1.31 “FERC Allowances Determination” means the FERC order or orders, including orders on rehearing, directing the payment (including by offset) of Fuel Cost Allowances and/or Emissions Offsets and/or Cost Offsets in the EL00-95 Proceeding, regardless of whether such order or orders is/are subject to requests for stay, rehearing or appeal, provided that such order or orders has/have not been stayed pending such rehearing or appeal.

1.32 “FERC Interest Determination” means the FERC order or orders, including orders on rehearing, determining the amount of Interest Shortfall allocable to different Participants based on the ISO and PX settlement reruns and refund calculations and/or directing that interest be paid, regardless of whether such order or orders is/are subject to requests for stay, rehearing, or appeal, provided that such order or orders has/have not been stayed pending such rehearing or appeal.

1.33 “FERC Interest Rate” shall have the meaning set forth in 18 C.F.R. § 35.19a(a)(2)(iii) or any successor thereto.

1.34 “FERC Proceedings” means the EL00-95 Proceeding; the EL01-10 Proceeding; the Gaming/Partnership Proceeding; the IN03-10 Proceeding; the ISO Re-Run

5

Proceeding; the Physical Withholding Investigation; and the PA02-2 Proceeding, insofar as that proceeding concerns NCPA’s sales into the California Markets, the Pacific Northwest Markets and/or sales to CERS during the Settlement Period.

1.35 “FERC Receivables Determination” means the FERC order or orders, including orders on rehearing, issued in the EL00-95 Proceeding following the Preparatory Rerun establishing the unpaid NCPA Receivables and effectuating the payment of receivables, regardless of whether such order or orders is/are subject to requests for stay, rehearing, or appeal, provided that such order or orders has/have not been stayed pending such rehearing or appeal.

1.36 “FERC Refund Determination” means the FERC order or orders in the EL00-95 Proceeding, the BPA v. FERC Remand, and/or the CPUC v. FERC Remand establishing refunds owed to Non-Settling Participants attributable to NCPA transactions in the California Markets during the Settlement Period (or any portion thereof), taking into account all Mitigation, adjustments, disgorgement, charges, and allowances, or determining that no such refunds are owed to Non-Settling Participants, regardless of whether such order or orders is/are subject to requests for stay, rehearing, or appeal, provided that such order or orders has/have not been stayed pending such rehearing or appeal.

1.37 “FERC Settlement Order” means the FERC order approving this Agreement, regardless of whether such order is subject to rehearing or appeal, provided that such order has not been stayed pending such rehearing or appeal.

1.38 “Final Order” means a FERC order that is no longer subject to further rehearing before FERC regardless of whether such order is subject to appeal, provided that such order has not been stayed pending such appeal. The “date” of a Final Order shall be the date upon which it becomes no longer subject to rehearing.

1.39 “Final Staff Report” means the Final Report issued by FERC staff on March 26, 2003 in Docket No. PA02-2.

1.40 “Fuel Cost Allowance” means the Claim for recovery of fuel costs incurred by a Participant’s generating units during the Refund Period made pursuant to FERC orders in the EL00-95 Proceeding. See, e.g., San Diego Gas & Elec. Co. v. Sellers et al., 110 FERC ¶ 61,293 (Mar. 18, 2005).

1.41 “Gaming/Partnership Proceeding” means the proceeding in FERC Docket Nos. EL03-137, et al., and EL03-180, et al. (including Docket Nos. EL03-161 and EL03-196, which are specific as to NCPA) and any related orders, appeals and/or petitions for review and any proceedings on remand.

1.42 “Good Faith Motion” shall have the meaning set forth in Section 4.17.

1.43 “IN03-10 Proceeding” means the FERC proceeding conducted in Docket No. IN03-10 and any related appeals and/or petitions for review and any proceedings on remand.

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1.44 “Interest Shortfall” means the difference between the interest actually earned on funds held by the PX and/or ISO and the interest that would be earned through application of the FERC Interest Rate.

1.45 “Interest Shortfall on Refunds” means $518,731 (estimated as of December 31, 2009).

1.46 “ISO” means the California Independent System Operator Corporation, a California public benefit corporation.

1.47 “ISO Re-Run Proceeding” means the FERC proceeding conducted in Docket No. ER03-746 concerning ISO re-run activity for the Refund Period, and any related orders, appeals and/or petitions for review and any proceedings on remand.

1.48 “Mitigation” means the obligation to pay or account for refunds, adjustments, allowances or charges, other than those in the Preparatory Rerun, as determined in the EL00-95 Proceeding.

1.49 “NCPA” shall have the meaning set forth in the preamble to this Agreement.

1.50 “NCPA Interest Shortfall Estimate” shall have the meaning set forth in Section 4.3.

1.51 “NCPA Receivables” means all of NCPA’s rights and Claims to payment by or from the PX and/or the ISO, before Mitigation in the EL00-95 Proceeding, for sales of energy and ancillary services into the California Markets during the Settlement Period, and includes any collateral and Chargeback Amounts to which NCPA is entitled.

1.52 “NCPA Refunds” shall have the meaning set forth in Section 5.1.

1.53 “Net Payment” shall have the meaning set forth in Section 9.2.

1.54 “Net Refund Recipients” means those Participants, other than Deemed Distribution Participants, that elect to participate in the settlement either as a Party or pursuant to Section 8.1 and that are owed net refunds after consideration of amounts that the particular Participant may itself owe to the California Markets in the form of refunds (unadjusted for Fuel Cost Allowances, Emissions Offsets, Cost Offsets, or charges for same).

1.55 “Non-Settling Participants” means Participants, other than NCPA, the California Parties, and Additional Settling Participants, that do not elect to be bound by this Agreement pursuant to Section 8.1.

1.56 “PA02-2 Proceeding” means the FERC proceeding and investigation conducted in Docket No. PA02-2 and any related appeals and/or petitions for review and any proceedings on remand.

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1.57 “Pacific Northwest Markets” means those markets for electric capacity, energy, and/or ancillary services that are the subject of the EL01-10 Proceeding.

1.58 “Participant” or “Participants” means those entities that directly sold energy to or purchased energy from the ISO and/or PX during part or all of the Settlement Period.

1.59 “Party” or “Parties” shall have the meaning set forth in the preamble to this Agreement.

1.60 “PG&E” shall have the meaning set forth in the Recitals to this Agreement.

1.61 “PG&E Bankruptcy Proceedings” shall have the meaning set forth in the Recitals to this Agreement.

1.62 “Physical Withholding Investigation” means FERC’s undocketed fact-finding investigation regarding alleged physical withholding of generation, as described in Initial Report on Physical Withholding by Generators Selling into the California Market and Notification to Companies, issued by FERC staff on August 1, 2003, and any related orders, appeals and/or petitions for review and any proceedings on remand.

1.63 “Pinnacle West Companies” means, collectively, Arizona Public Service Company, Pinnacle West Capital Corporation and APS Energy Services Company, Inc.

1.64 “Post-January 17, 2001 Period” means the period January 18, 2001 through June 20, 2001.

1.65 “Pre-January 18, 2001 Period” means the period October 2, 2000 through January 17, 2001.

1.66 “Pre-October Period” means the period May 1, 2000 through October 1, 2000.

1.67 “Preparatory Rerun” means the ISO settlements rerun process for the Refund Period, conducted pursuant to FERC Docket No. ER03-746, before and without regard to the calculation of any refunds or Mitigation.

1.68 “Prior Settlements” means, collectively, those settlements memorialized by settlement agreements entered into by the California Parties prior to the Settlement Effective Date that (i) are substantially similar to the terms and conditions of this Agreement, including, without limitation, the settlements identified in Exhibit C, and (ii) have been approved by FERC on or prior to the Settlement Effective Date. Prior Settlements may be referred to individually as a “Prior Settlement.”

1.69 “PX” means the California Power Exchange Corporation, a California public benefit corporation.

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1.70 “PX Bankruptcy Proceedings” means the proceedings associated with the voluntary bankruptcy petition filed under Chapter 11 of the Bankruptcy Code by the PX on March 9, 2001, in the United States Bankruptcy Court for the Central District of California, Los Angeles Division, designated as Case No. LA 01-16577-ES.

1.71 “PX Settlement Clearing Account” means any and all accounts of the PX or the reorganized PX holding funds in trust pursuant to the terms of the PX tariff, the ISO tariff, or a court order. The PX Settlement Clearing Account does not include collateral and funds held for payment of Chargeback Amounts, which are maintained in segregated accounts, as those terms are defined in the PX’s First Amended Chapter 11 Plan.

1.72 “PX Wind-Up Charges” means charges pursuant to the settlement approved by FERC in Docket Nos. ER05-167, et al., California Power Exchange Corp., 113FERC ¶ 61,017 (Oct. 11, 2005), and the United States Bankruptcy Court for the Central District of California on October 19, 2005 (Case No. LA01-16577-ES), and any substantially similar charges assessed against NCPA by the PX pursuant to FERC approval or acceptance.

1.73 “Receivables Excess” shall have the meaning set forth in Section 5.6.1.

1.74 “Receivables Shortfall” shall have the meaning set forth in Section 5.6.1.

1.75 “Refund Excess” shall have the meaning set forth in Section 5.6.1.

1.76 “Refund Offsets” means any Emissions Offset, Fuel Cost Allowance, or Cost Offset.

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

1.78 “Refund Shortfall” shall have the meaning set forth in Section 5.6.1.

1.79 “Required Approval” or “Required Approvals” means the approvals set forth in Section 10.1.

1.80 “SCE” means Southern California Edison Company, a California corporation.

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

1.82 “Settled Proceedings” means (i) litigation that was pending in the United States District Court for the Eastern District of California, Pacific Gas and Elec. Co, et al. v. Arizona Elec. Power Cooperative et al., Case No. 2:06-CV-00559-MCE-KJM and San Diego Gas & Elec. Co. v. Arizona Elec. Power Cooperative, et al.,Case No. 2:06-CV-00592-MCE, which litigation is now on appeal to the U.S. Court of Appeals for the Ninth Circuit and stayed indefinitely (Case No. 07-15638); (ii) litigation in the Superior Court of California, County of Los Angeles, The Electric Refund Cases, JCCP No. 4512, including the coordinated cases

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Pacific Gas and Elec. Co., et al. v. Arizona Elec. Power Cooperative et al., Los Angeles County Superior Court Action No. BC369141, and California ex rel. Lockyer v. Los Angeles Department of Water & Power, Sacramento County Superior Court Action No. 06AS02506; (iii) the PG&E Bankruptcy Proceedings; (iv) the PX Bankruptcy Proceedings; (v) litigation that may have been filed by the California Parties (or any of them) or by an Additional Settling Participant against NCPA but not yet served on NCPA related to transactions in the Western Energy Markets during the Settlement Period; (vi) any other actions that may have been filed by NCPA against CERS but not yet served on CERS related to transactions in the Western Energy Markets during the Settlement Period; (vii) litigation related to any sales and purchases of electricity by NCPA in Western Energy Markets during the Settlement Period; and (viii) the FERC Proceedings.

1.83 “Settlement Effective Date” means the date on which the FERC Settlement Order is issued if (i) the procedures provided in Section 2.2.2 are not invoked by any Party with respect to a material condition or modification in the FERC order addressing acceptance of this Agreement, and (ii) NCPA has not filed a Good Faith Motion pursuant to Section 4.17, or, if NCPA has filed a Good Faith Motion pursuant to Section 4.17, the Good Faith Motion has been granted by the Los Angeles County Superior Court, or has been denied based on a finding other than that the settlement was not in good faith, or pursuant to Section 4.17, NCPA has waived its right to file the Good Faith Motion and/or its right to terminate this Agreement. If a Good Faith Motion is pending pursuant to Section 4.17 on the date of the FERC Settlement Order and/or the procedures provided in Section 2.2.2 are timely invoked by any Party, then the Settlement Effective Date shall be the later of (a) the date the Good Faith Motion pursuant to Section 4.17 is granted by the Los Angeles County Superior Court, or the date the Good Faith Motion has been denied based on a finding other than that the settlement was not in good faith, or the date the condition is waived by NCPA, or (b) the date on which all matters raised with respect to material conditions or modifications are resolved pursuant to Section 2.2.2.

1.84 “Settlement Period” means the period January 1, 2000 through June 20, 2001.

1.85 “Settlement Proceeds” means the sum of (i) the NCPA Receivables in the amount of $9,039,981, which amount includes estimated interest through December 31, 2009, and which amount shall be adjusted for interest accruing at the FERC Interest Rate from and after January 1, 2010, until the date of transfer to the California Parties pursuant to Section 4.6; and (ii) the cash amount of $3,246,067, which amount shall be adjusted for interest accruing at the FERC Interest Rate from and after January 1, 2010 until the date of transfer to the California Parties pursuant to Section 4.6.2. For the avoidance of ambiguity, that cash amount will include the Net Payment and the related 2010 Accrued Interest to be transferred directly from PG&E to the Settling Supplier Refund Escrow pursuant to Section 9.2.

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1.86 “Settling Participants” means the California Parties and Additional Settling Participants.

1.87 “Settling Supplier Refund Escrow” means the escrow identified in Section 4.6.1 and established pursuant to Section 4.8.

1.88 “SRP” means the Salt River Project Agricultural Improvement and Power District, a political subdivision of the State of Arizona.

1.89 “Unsettled NCPA Interest Amount” shall have the meaning set forth in Section 6.1.3.

1.90 “Unsettled NCPA Refund Amount” shall have the meaning set forth in Section 6.1.3.

1.91 “Unsettled Participant Interest Amount” shall have the meaning set forth in Section 6.1.3.1.

1.92 “Unsettled Participant Refund Amount” shall have the meaning set forth in Section 6.1.3.1.

1.93 “Western Energy Markets” means those markets for electric capacity, energy, and/or ancillary services in the territories covered by the Western Electricity Coordinating Council (f/k/a the Western Systems Coordinating Council) including the California Markets and Pacific Northwest Markets.

ARTICLE II. EFFECT OF SETTLEMENT EFFECTIVE DATE; TERMINATION;

DISCLAIMER OF JURISDICTION

2.1 Effect of Settlement Effective Date.

2.1.1 Condition Precedent. It is a condition precedent to (i) the obligation of a Party to make payments, assign receivables and interest due thereon, assume liabilities, or release Claims hereunder, and (ii) the effectiveness of all releases and the withdrawals of Claims and defenses specified hereunder, that the Settlement Effective Date has occurred.

2.1.2 Binding Obligation. Except as provided in Section 2.1.1 and in Section 9.8, this Agreement shall be a binding obligation of each Party upon the occurrence of the Execution Date.

2.1.3 Additional Settling Participant. Each Additional Settling Participant shall be bound to this Agreement as of the Settlement Effective Date.

2.1.4 Notice of Effective Date. The Parties shall promptly notify FERC and each person designated on the ListServ established for the EL00-95

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Proceeding and the ListServ established for Docket Nos. EL03-137, et al. of the occurrence of the Settlement Effective Date.

2.2 Termination, FERC Settlement Order Procedures, and Effect of Termination.

2.2.1 Termination. This Agreement shall terminate on the earliest of the following:

2.2.1.1 The date on which a FERC order rejecting the Agreement becomes a Final Order; or

2.2.1.2 The date on which the FERC Settlement Order is issued with conditions or modifications unacceptable to an adversely affected Party, subject to the procedures specified in Section 2.2.2; or

2.2.1.3 The date on which NCPA provides written notice to the other Parties that it has elected to terminate the Agreement because the Good Faith Motion as described in Section 4.17 has been denied by the Los Angeles Superior Court in The Electric Refund Cases, JCCP No. 4512, based on an express finding that the settlement is not in good faith; or

2.2.1.4 The date of termination set forth in a notice of termination given to NCPA by the California Parties pursuant to Section 4.16, subject to NCPA’s right to cure within 5 Business Days of its receipt of such termination notice as set forth in Section 4.16.

2.2.2 FERC Settlement Order Procedures. These procedures shall apply in the event that the FERC Settlement Order accepts this Agreement with material condition or modification that may adversely affect any Party.

2.2.2.1 Each Party affected shall (i) within 4 Business Days following the issuance of the FERC order addressing acceptance of this Agreement provide notice in writing to the Parties of such condition or modification and (ii) communicate its consent or lack of consent to such condition or modification in writing to the other Parties and the PX no later than 15 Business Days after the date of the FERC order that addresses acceptance of this Agreement and imposes the material condition or modification on FERC’s acceptance of this Agreement.

2.2.2.2 The failure of an adversely affected Party to provide written notice to the other Parties and the PX within 4 Business Days in accordance with Section 2.2.2.1 shall constitute acceptance by such Party of the material change or condition. If written

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notice is provided within 4 Business Days, then the Settlement Effective Date shall not occur unless the adversely affected Party consents in writing to the material condition or modification within 15 Business Days.

2.2.2.3 Effect of Termination. In the event of termination pursuant to Section 2.2, this Agreement shall be null and void and of no further effect, with all rights, duties, and obligations of the Parties and the Additional Settling Participants thereafter restored as if this Agreement had never been executed, including the repayment by the California Parties to the PX of any Cash Transfers received pursuant to Section 4.6.1, the repayment by the California Parties to NCPA of the Cash Transfer received pursuant to Section 4.6.2, and the repayment by the California Parties to PG&E of the Net Payment and 2010 Accrued Interest pursuant to Section 9.2; provided, however, that the Parties may, in the sole discretion of each Party, agree to attempt to modify this Agreement in a manner that would resolve the grounds for which the Required Approval by FERC was denied or that would address the adverse conditions or modifications imposed by FERC in the FERC Settlement Order to the satisfaction of the affected Party or Parties.

2.2.3 Obligations of Parties Upon Termination. Nothing herein shall be construed as obligating any Party to appeal a Final Order rejecting this Agreement or accepting this Agreement with material conditions or modifications unacceptable to any adversely affected Party.

2.3 Disclaimer Regarding FERC Jurisdiction.

2.3.1 NCPA and each Additional Settling Participant that was granted a non-public utility designation by FERC in its December 18, 2008, order in the EL00-95 Proceeding (125 FERC ¶ 61,297 (2008)) expressly disclaims FERC jurisdiction over any aspect of this Agreement or the consideration provided under this Agreement. No provision of this Agreement shall be construed as an acknowledgement or admission on the part of NCPA or any such Additional Settling Participant that: (i) FERC has jurisdiction over any of the transactions involving NCPA that are addressed in this Agreement; (ii) FERC has jurisdiction over the consideration provided under this Agreement; (iii) any of the consideration provided under this Agreement constitutes a refund under the Federal Power Act; or (iv) NCPA or any such Additional Settling Participant owes any refund or is subject to any Mitigation under the Federal Power Act. For purposes of this Agreement, the California Parties take no position on the foregoing disclaimer of FERC jurisdiction, but the Parties have agreed to condition this Agreement on securing the Required Approvals to ensure the release

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of funds from the ISO and/or PX and to ensure that the Parties’ respective Claims pending at FERC are fully resolved.

2.3.2 Notwithstanding NCPA’s disclaimer of jurisdiction in Section 2.3.1, NCPA shall not contest the effectiveness or enforceability of the Settlement Agreement on the ground that FERC lacks jurisdiction over NCPA and/or over the Settlement Agreement.

ARTICLE III. SETTLEMENT AND ACKNOWLEDGEMENT

3.1 Settlement. In return for the consideration specified in more detail elsewhere in this Agreement and the full performance by the Parties of their respective obligations hereunder, and subject to the occurrence of the Settlement Effective Date, all Claims as between NCPA, on the one hand, and the California Parties, on the other hand, relating to transactions in Western Energy Markets during the Settlement Period for damages, refunds, disgorgement of profits, costs and attorneys’ fees, or other monetary or non-monetary remedies are settled and resolved as set forth in Article VII (and subject to the exceptions set forth in Article VII). In addition, certain Claims arising from and related to bilateral transactions between PG&E and NCPA are settled and resolved as set forth in Article IX.

3.2 Non-Settling Participants. No Claims addressed in this Agreement shall be deemed settled as to Non-Settling Participants. All Claims and defenses made or asserted, or that could be made or asserted, by the Parties and Additional Settling Participants against Non-Settling Participants are unaffected by this Agreement and expressly retained and preserved by the Parties and Additional Settling Participants. Subject to Section 5.8, the California Parties shall be responsible for any Settlement Period refunds or Mitigation attributable to NCPA transactions in the California Markets during the Settlement Period that FERC orders NCPA to pay to Non-Settling Participants, as provided in Section 5.5. NCPA agrees, effective as of the Settlement Effective Date, that the California Parties shall be entitled to defend and appeal, on behalf of NCPA, but at their own expense, any refund obligations of NCPA that are assumed by the California Parties pursuant to Section 5.5, and, should the California Parties choose to exercise this right, to control exclusively such defense or appeal with counsel selected by the California Parties.

ARTICLE IV. CONSIDERATION

4.1 NCPA Receivables on ISO and PX Books. The Parties acknowledge: (i) as of November 30, 2009, the unpaid amount of NCPA Receivables, excluding interest, before and without regard to Mitigation, but reflecting reversal of the soft cap, debits for the PX Wind-Up Charges, and adjustments for ISO or PX good faith negotiation dispute resolutions, was stated in the accounts of the ISO and PX to

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be at least $5,344,787 (the “Estimated Receivables Amount”); and (ii) the amount of interest on the Estimated Receivables Amount accrued and unpaid as of December 31, 2009, calculated at the FERC Interest Rate, is $3,695,194 (“Estimated Interest on Receivables Amount”). NCPA warrants and represents that as of the Execution Date, it has not, except as reflected in this Agreement, pledged, hypothecated, sold, transferred, or otherwise assigned, to any third party voluntarily, or involuntarily or by way of setoff or offset, any portion of NCPA Receivables or the associated interest on NCPA Receivables, and covenants that it will not do so following the Execution Date.

4.2 Assignment to California Parties. Effective as of the Settlement Effective Date, (i) NCPA hereby assigns, sells, transfers, conveys, and delivers to the California Parties, free and clear of all Claims, liens, and encumbrances (excluding those expressly assumed by the California Parties herein), all of its right, title, and interest in the NCPA Receivables and all Claims and defenses otherwise available to NCPA in connection with the NCPA Receivables, including any Receivables Excess, and (ii) the California Parties shall, and do hereby, assume, purchase, acquire, and accept, without recourse to NCPA, as tenants in common, all of NCPA’s right, title, and interest in and to the NCPA Receivables and all Claims and defenses available to NCPA in connection with the NCPA Receivables, including any Receivables Excess. NCPA hereby irrevocably authorizes the California Parties, and their respective attorneys, agents, and employees, at any time and from time to time, but only as to property interests transferred to them pursuant to this Agreement, to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (i) describe the assignment and application of funds as stated in this Section 4.2, (ii) describe the assignments described in Sections 4.12 and 7.2.2, and (iii) provide any other information required by Part 5 of Article 9 of the Uniform Commercial Code of the jurisdiction in which such filing is made for the sufficiency or filing office acceptance of such financing statements or amendments, including whether NCPA is an organization, its type of organization, and the charter or organization identification number issued to NCPA.

4.3 Disposition of NCPA Interest Shortfall Estimate. The FERC Settlement Order shall, as of the Settlement Effective Date, constitute direction to the PX to retain from the NCPA Receivables the amount of $399,154 (the “NCPA Interest Shortfall Estimate”). Interest on the NCPA Interest Shortfall Estimate shall accrue at the FERC Interest Rate as calculated pursuant to Section 4.4.2. The NCPA Interest Shortfall Estimate shall be subject to true-up by way of payment between the California Parties and the PX upon FERC’s determination, in a FERC order in the FERC Proceedings, of NCPA’s actual share of the Interest Shortfall in the Interest Shortfall Determination. If NCPA’s actual share of the Interest Shortfall is less than the NCPA Interest Shortfall Estimate plus interest as calculated pursuant to Section 4.4.2, the PX will pay such amount to the California Parties, to the extent that it is not otherwise needed to satisfy the payments of any amounts attributable to NCPA transactions during the Settlement

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Period required by this Agreement. If NCPA’s actual share of the Interest Shortfall is greater than the NCPA Interest Shortfall Estimate plus interest as calculated pursuant to Section 4.2, the California Parties shall pay the difference to the PX or as otherwise ordered by FERC in the FERC Interest Determination.

4.4 Interest Calculations.

4.4.1 No later than 6 Business Days after the Settlement Effective Date, the Parties shall jointly calculate the amount of interest that will accrue at the FERC Interest Rate on the Cash Transfers until the date such transfers are made by the PX and NCPA under Section 4.6.

4.4.2 As soon as practicable after the issuance of the FERC Interest Determination, the California Parties shall calculate the amount of interest that accrued at the FERC Interest Rate on the NCPA Interest Shortfall Estimate from and after the Settlement Effective Date until the date of payment to the California Parties by the PX or to the PX by the California Parties, as applicable under Section 4.3. As soon as practicable after the issuance of the FERC Interest Determination, the California Parties shall notify the PX of the interest calculation determined pursuant to this Section 4.4.2.

4.4.3 With the exception of such interest that shall accrue (a) in the Settling Supplier Refund Escrow, (b) in the California Litigation Escrow, and (c) on amounts withheld from distribution as the NCPA Interest Shortfall Estimate pursuant to Section 4.3, interest shall stop accruing on NCPA Refunds, NCPA Receivables, and the Estimated Interest on Receivables Amount on the dates that such funds are paid by the PX to the Settling Supplier Refund Escrow.

4.5 Notice to ISO and PX. No later than 6 Business Days after the Settlement Effective Date, the Parties shall jointly advise the ISO and PX that the Settlement Proceeds have been assigned to the California Parties pursuant to Section 4.2, and that the Settlement Proceeds shall be applied as provided in this Agreement. The California Parties shall identify for the ISO and PX the amounts of any Deemed Distributions, as provided in Section 5.2.2.

4.6 Cash Transfers.

4.6.1 Transfer by PX to Settling Supplier Refund Escrow. No later than 10 Business Days after the Settlement Effective Date, the PX shall transfer from the PX Settlement Clearing Account to an interest-bearing account designated as the “Settling Supplier Refund Escrow” a cash payment in the amount of the Settlement Proceeds (i) minus the total of Deemed Distributions hereunder, (ii) minus the total estimated Interest Shortfall on Refunds, (iii) minus the amount to be transferred by NCPA to the California Parties pursuant to Section 4.6.2, (iv) minus the Net Payment

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and 2010 Accrued Interest to be transferred by PG&E to the California Parties pursuant to Section 9.2, and (v) plus the amounts owed by Participants with negative allocations hereunder.

4.6.2 Transfer by NCPA to the California Parties. No later than 10 Business Days after the Settlement Effective Date, NCPA shall pay to the California Parties by wire transfer to the Settling Supplier Refund Escrow, from funds other than the NCPA Receivables and any amounts representing accrued and unpaid interest on the NCPA Receivables, cash consideration of $3,246,067, plus interest accruing at the FERC Interest Rate from and after January 1, 2010, until the date of transfer to the California Parties pursuant to this Section 4.6.2, minus the amount of the Net Payment plus 2010 Accrued Interest set forth in Section 9.2. The amount of the Net Payment plus 2010 Accrued Interest shall be determined jointly by PG&E and NCPA and notice of that amount shall be provided to the California Parties no later than 6 Business Days after the Settlement Effective Date.

4.6.3 Early Distributions. No later than 4 Business Days after the Settlement Effective Date, NCPA shall provide notice in writing to the California Parties of the amounts of all ISO or PX distributions to NCPA of any part of the NCPA Receivables after November 30, 2009, and before such notice (such amounts being “Early Distributions”). If the ISO or PX distributes to NCPA any Early Distributions, then NCPA will pay to the California Parties the total amount of any such Early Distributions no later than 10 Business Days after the Settlement Effective Date. Any payment of funds by NCPA to the California Parties pursuant to this Section 4.6.3 shall include interest on the amount paid, accruing at the FERC Interest Rate, with the accrual of interest commencing as of the date(s) of the Early Distributions, and ending on the date of such payment to the California Parties.

4.7 ISO and PX Data. NCPA hereby authorizes the ISO and PX to release and provide to the California Parties, upon request, with copies to NCPA, an electronic copy of all refund rerun statements for NCPA, as well as supporting reports, for the Settlement Period.

4.8 Responsibility for Escrows. The California Parties shall, no later than 5 Business Days after the Settlement Effective Date, take such steps as are reasonably necessary to establish and govern the Settling Supplier Refund Escrow and the California Litigation Escrow. The Settling Supplier Refund Escrow shall be maintained in a commercially reasonable interest-bearing account. The costs and maintenance of the Settling Supplier Refund Escrow (including related accounting costs) shall be borne by the California Parties. The amounts transferred to the Settling Supplier Refund Escrow pursuant to Section 4.6.1 will be maintained in a separate subaccount solely attributable to this Agreement and shall be used only in a manner consistent with this Agreement. In the event that both the Settling Supplier Refund Escrow and the California Litigation Escrow

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are not available to begin receiving funds 10 Business Days after the Settlement Effective Date, then all time periods provided in this Agreement for the payment of funds to or from the Settling Supplier Refund Escrow or the California Litigation Escrow shall be extended by the number of days between the tenth Business Day after the Settlement Effective Date and the date on which both the Settling Supplier Refund Escrow and the California Litigation Escrow are available to begin receiving funds. The California Parties shall be solely responsible for administering the Settling Supplier Refund Escrow and the California Litigation Escrow.

4.9 PX Wind-Up Charges. NCPA’s responsibility, if any, for a share of PX Wind-Up Charges shall be governed by the settlement approved by FERC’s order in Docket No. ER05-167, California Power Exchange Corp., 113 FERC ¶ 61,017 (Oct. 11, 2005), 120 FERC ¶ 61,006 (July 2, 2007) (order extending settlement period), and any future FERC orders requiring a substantially similar charge by the PX to be assessed against NCPA. NCPA will be responsible for PX Wind-Up Charges assessed against NCPA for rate periods through PX rate period 16 and the California Parties will be responsible for PX Wind-Up Charges assessed against NCPA for all rate periods beginning with PX rate period 17. NCPA shall, in accordance with the terms of Section 4.6.3 relating to Early Distributions, reimburse the California Parties in cash for any PX Wind-Up charges deducted by the PX from the NCPA Receivables after November 30, 2009 for PX rate periods prior to rate period 17.

4.10 ISO or PX Dispute Resolution Charges. The California Utilities shall assume responsibility for ISO or PX dispute resolution charges allocated to NCPA transactions (e.g., good faith negotiations, alternative dispute resolution adjustments) applicable to transactions during the Settlement Period, to the extent that such allocations are not included in the determination of NCPA Receivables. The California Utilities will pay in cash any such charges that are assessed after the Settlement Effective Date. For ISO or PX dispute resolution charges that are applicable to transactions before or after the Settlement Period, NCPA will be responsible for any such charges allocated to it, and will make separate payment for such charges in cash when due.

4.11 Prior and Future Settlements in the FERC Proceedings.

4.11.1 Opt-in to Future Settlements. Effective as of the Settlement Effective Date, NCPA authorizes the California Parties, on behalf of NCPA, but at their own expense, to opt-in to each and every settlement reached by the California Parties subsequent to the Execution Date of this Agreement with another supplier that in the reasonable judgment of the California Parties is substantially similar to any one or more of the Prior Settlements (that is, participate in such future settlements in the manner in which an Additional Settling Participant participates in this settlement or a Prior Settlement). No non-monetary obligations (other than those imposed by the releases therein) shall be imposed upon NCPA by such subsequent

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settlements. Any amounts that would be owed to or by NCPA under Sections 4.12, 4.13, and 4.14, pursuant to such future settlements are also assigned by NCPA to or assumed by the California Parties. All actions by the California Parties pursuant to this Section 4.11.1 shall be at the California Parties’ expense.

4.11.2 Opt-in to Prior Settlements.

4.11.2.1 Effective as of the Settlement Effective Date, (a) NCPA authorizes the California Parties, on NCPA’s behalf, to attempt to opt-in out-of-time to each Prior Settlement as an additional settling participant to those Prior Settlements that require the agreement of parties other than the California Parties to opt-in late. NCPA consents to and agrees to not oppose any motion the California Parties may file on behalf of NCPA with FERC seeking approval for NCPA to opt-in late as an additional settling participant to Prior Settlements.

4.11.2.2 Effective as of the Settlement Effective Date, NCPA shall, without any further action, be bound by the terms of each Prior Settlement as an additional settling participant to the extent that it is not already so bound and only the agreement of the California Parties is needed to opt-in late to such Prior Settlement.

4.11.2.3 Any amounts owed to or by NCPA pursuant to such Prior Settlements, including amounts that might be owed to or by NCPA pursuant to Sections 4.12 and 4.13, are assigned by NCPA to or assumed by the California Parties. All actions by the California Parties pursuant to this Section 4.11.2 shall be at the California Parties’ expense.

4.12 Refunds from Other Suppliers; Assignment; Claims and Defenses. Except as provided in Section 7.2.2, NCPA shall be entitled to receive refunds for the Settlement Period to the same extent as entities that are not within the scope of Section 201(f) of the Federal Power Act; provided that such refunds shall be calculated using the same methodology FERC uses to calculate refunds for entities not within the scope of Section 201(f), including any netting of refund amounts owed on sales against refund amounts due on purchases. Except as provided in Section 7.2.2, effective as of the Settlement Effective Date, NCPA hereby assigns, sells, transfers, conveys, and delivers to the California Parties, free and clear of all liens, Claims, and encumbrances all of its right, title, and interest in and to all refunds, interest, credits and other payments it is, or becomes, entitled to receive on and after the Execution Date that are either directly or indirectly through others allocated to NCPA and associated with transactions in the California Markets during the Settlement Period.

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4.13 Refund Offsets. Except as provided in Section 4.9, and subject to Section 5.8, the California Parties shall be responsible for any Refund Offsets or other charges related to the California Markets that may be allocated to NCPA in the FERC Proceedings on account of sales by entities other than NCPA.

4.14 Future Settlements. Effective as of the Settlement Effective Date, NCPA hereby assigns, sells, transfers, conveys, and delivers to the California Parties, free and clear of all liens, Claims, and encumbrances all of its right, title, and interest in any amounts owed to NCPA under future settlements entered into by the California Parties in the FERC Proceedings. NCPA represents, warrants, and covenants with and to the California Parties that such assignment is and shall be free and clear of all liens, Claims, and encumbrances.

4.15 Cooperation with California Parties by Providing Access to Information and Witnesses. For the twenty-four month period following the Execution Date, NCPA shall cooperate with the California Parties in their pursuit of Claims or potential Claims relating to the operation of Western Energy Markets from January 1, 2000 through June 20, 2001, by providing access to information and witnesses as described in this Section, provided that such cooperation shall not obligate NCPA to waive any privileges, confidentiality agreements, or its jurisdictional status. NCPA shall make witnesses over which it exercises control available for interviews and depositions by the California Parties at mutually convenient times and locations. The California Parties will seek information in a focused manner, and will work with NCPA to streamline information and requests as appropriate. NCPA will produce relevant, non-privileged documents to the California Parties as requested. FERC’s Office of Enforcement shall be permitted to attend and ask questions at any such interviews or depositions, and shall be provided with copies of any written information provided. The California Parties shall reimburse NCPA for its reasonable costs incurred in connection with providing the cooperation specified in this Section 4.15. Except as specifically provided in this Agreement with respect to seeking FERC approval of this Agreement, nothing in this Agreement requires NCPA to support the California Parties in any proceeding through submission of pleadings or any form of position statement. The sole and exclusive remedy of any Party for breach of any term contained in this Section 4.15 shall be an action to enforce the terms of this Section 4.15.

4.16 Failure of Consideration Due to California Parties. The California Parties may, at their option, subject to NCPA’s cure rights set forth below, immediately terminate this Agreement as provided in Section 2.2 if any of the transfers to the California Parties pursuant to Sections 4.2.2, 4.6, 4.12, 4.14, or 7.2.2: (i) fails as the result of a breach by NCPA of its representations and warranties set forth therein and/or in Section 11.1, or (ii) are not timely made for any reason; or if prior to the transfers required pursuant to Section 4.6, NCPA does any of the following: (A) takes any action in furtherance of filing a voluntary petition for relief under any chapter of the United States Bankruptcy Code (11 U.S.C. § 101 et seq.) or consenting to the entry of any order for relief against it in any involuntary

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case filed or proposed to be filed against it pursuant to Section 303 of said Bankruptcy Code, (B) consents to the appointment of a custodian of it or for all or substantially all of its property, (C) makes a general assignment for the benefit of its creditors, (D) becomes insolvent (however evidenced, and including balance sheet and equitable insolvency), or (E) admits in writing its inability to pay its debts as they become due. All notices of termination delivered pursuant to this Section 4.16 shall be in writing and addressed to NCPA in accordance with the notice provisions set forth in Section 12.1, and shall clearly state the grounds for termination and the date on and after which such termination shall be effective. If the grounds for termination are solely based upon clause (i) or (ii) above and NCPA completely cures all defaults under such clause that are identified in the California Parties’ notice of termination no later than 5 Business Days after NCPA’s receipt of the notice of termination, including payment of interest at the FERC Interest Rate on any payments past due under this Agreement, then this Agreement shall not terminate and all defaults identified in the California Parties’ notice of termination shall be deemed to have been cured.

4.17 NCPA Good Faith Motion. Within 10 Business Days after the Execution Date, NCPA may, if it elects to do so, request authorization from the Los Angeles County Superior Court to file in The Electric Refund Cases, JCCP No. 4512, a motion for determination of a good faith settlement under California Code of Civil Procedure § 877.6 (“Good Faith Motion”). NCPA shall file and prosecute said motion within the timeframe set by the Court. NCPA shall have the right to waive its right to file the Good Faith Motion and/or its right to terminate this Agreement should said motion be denied as provided in Section 2.2.1.3. In either such event, NCPA shall provide written notice of such waiver to the Parties.

4.18 Obligations of Certain California Parties and NCPA to Terminate Litigation and Withdraw Claims.

4.18.1 Within five Business Days after the occurrence of the Settlement Effective Date and completion of the transfers of consideration provided for in Sections 4.6 and 9.2, (a) the California Parties who are named plaintiffs will dismiss NCPA with prejudice from (i) the litigation that was pending in the United States District Court for the Eastern District of California, Sacramento Division, Case No. 2:06-cv-00559-MCE and Case No. 2:06-cv-00592-MCE, which litigation is now on appeal to the Ninth Circuit Court of Appeals from a judgment of dismissal (Ninth Circuit Case No. 07-15638), (ii) the litigation commenced in the Superior Court of California, County of Los Angeles, Case No. BC369141, which is now coordinated in JCCP Case No. 4512 in the Superior Court of California, County of Los Angeles, as well as any bifurcated proceeding associated with such Los Angeles action, and (iii) any other lawsuits that may have been filed by the California Parties (or any of them) against NCPA but not yet served on NCPA related to transactions in the Western Energy Markets during the Settlement Period; and (b) NCPA will dismiss with prejudice (i) all Claims against the California Parties (or any one of them)

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pending in the Superior Court of California, County of Los Angeles, Case No. BC369141, which has been coordinated in JCCP Case No. 4512 in the Superior Court of California, County of Los Angeles, including all Claims set forth in NCPA’s cross-complaint, (ii) any Claims asserted in any bifurcated proceeding associated with such Los Angeles action, and (iii) any other actions against the California Parties (or any one of them), including any not yet served on the California Parties, related to transactions in the Western Energy Markets during the Settlement Period.

4.18.2 No later than 10 Business Days after the Settlement Effective Date, the Settling Participants that are parties to any FERC Proceedings will withdraw any Claims against NCPA relating to NCPA transactions in the Western Energy Markets during the Settlement Period.

ARTICLE V. DISPOSITION AND ALLOCATION OF

SETTLEMENT PROCEEDS

5.1 Allocation of Settlement Proceeds. For purposes of the allocation of the Settlement Proceeds, NCPA shall be deemed to have provided a total principal refund in the amount specified in Section 5.1.5 below (the “NCPA Refunds”), which amount shall be allocated as follows:

5.1.1 Pre-January 18, 2001 Period $3,090,284

5.1.2 Post-January 17, 2001 Period $ 0

5.1.3 Total Refund Period (5.1.1 + 5.1.2) $3,090,284 5.1.4 Pre-October Period $3,965,022

5.1.5 Total of Section 5.1.3 plus Section 5.1.4 $7,055,306 (i.e., the NCPA Refunds)

5.1.6 Allocation to CERS for bilateral transactions $ 582,761

5.1.7 NCPA does not endorse or take any position on the foregoing allocation of Settlement Proceeds, but the Agreement establishes such allocation to ensure the distribution of funds from the ISO, PX and NCPA as contemplated by the California Parties.

5.2 Allocations in Allocation Matrix. The Allocation Matrix sets forth the allocation of the NCPA Refunds as determined by the California Parties in their sole discretion. The Allocation Matrix also sets forth the estimated interest to be distributed to Settling Participants, which includes interest calculated at the FERC

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Interest Rate on the NCPA Refunds, less the estimated Interest Shortfall on Refunds as of December 31, 2009. As provided for below, the NCPA Refunds and associated interest payable to Settling Participants, and the amount allocated to CERS pursuant to Section 5.1.6, shall be distributed either (i) in the case of Net Refund Recipients, as cash distributions from the Settling Supplier Refund Escrow, as provided in Section 5.2.1, or (ii) in the case of Settling Participants that are Deemed Distribution Participants, as Deemed Distributions, as provided in Section 5.2.2. Nothing in this Section 5.2 shall result in any additional costs being payable by NCPA.

5.2.1 Cash Distributions to Net Refund Recipients. NCPA Refunds and associated interest allocated in the Allocation Matrix to Settling Participants that are Net Refund Recipients, as adjusted pursuant to the last sentence of Section 5.3, and amounts allocated to CERS pursuant to Section 5.1.6, shall be paid in cash to CERS and the other Settling Participants that are Net Refund Recipients from the Settling Supplier Refund Escrow. Distributions pursuant to this Section 5.2.1 shall be made to Settling Participants no later than 20 Business Days after the Settlement Effective Date.

5.2.2 Deemed Distributions to Deemed Distribution Participants.

5.2.2.1 Deemed Distribution Participants that are or become Settling Participants shall receive their allocated share of the NCPA Refunds and associated interest, as shown on the Allocation Matrix and as adjusted pursuant to the last sentence of Section 5.3, as an offset against amounts owed to the PX or ISO (a “Deemed Distribution”).

5.2.2.2 FERC’s approval of this Agreement in the FERC Settlement Order shall, as of the Settlement Effective Date, constitute approval of the treatment and allocation of Deemed Distributions as provided herein, and constitutes FERC’s determination that the escrow established by PG&E pursuant to its Plan of Reorganization for payment of its outstanding debts to the PX may be reduced in an amount equal to its allocated share of NCPA Refunds.

5.2.2.3 NCPA’s execution of this Agreement does not constitute NCPA’s endorsement of the treatment, allocation and adjustment of Deemed Distributions provided for in this Section 5.2.2 or elsewhere.

5.2.3 Cost Offset. As of the Execution Date, NCPA has not submitted a Cost Offset filing to FERC, and no Cost Offset is reflected in the Allocation Matrix. NCPA shall not seek any Cost Offset as against the Settling Participants for the Settlement Period.

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5.2.4 Fuel Cost Allowances and Emissions Offsets. The Allocation Matrix reflects the agreed upon Emissions Offset of $438,067 and an agreed upon Fuel Cost Allowance of $0. NCPA shall not seek any additional Fuel Cost Allowance or any additional Emissions Offset as against the Settling Participants for the Settlement Period. Settling Participants are responsible for their ultimate allocable share of the agreed upon Fuel Cost Allowance and Emissions Offset, with the allocation based on the FERC Allowances Determination. The Fuel Cost Allowance and Emissions Offset provided for herein shall, as to the total amounts applicable to the market as a whole, remain fixed as to the Parties and the Additional Settling Participants. The proposed allocation of charges for such allowance to individual Participants shall be subject to adjustment and “true-up” to comply with the FERC Allowances Determination. Because the charges for Fuel Cost Allowances and Emissions Offsets can exceed the refunds due to a Participant, some Participants may be shown as owing money in the Allocation Matrix. Such Participants that become Settling Participants will not receive or be liable for payment until the date on which FERC requires Participants to pay such allowances in the FERC Refund Proceedings, at which time the payments owed to or owing from such Participants will be adjusted based on the FERC Allowances Determination.

5.2.5 Net Payer. Any amount shown on the Allocation Matrix as owed by a Party other than NCPA, or by an Additional Settling Participant, will be reflected on the books of the ISO and PX as an additional amount owed by that Party or Additional Settling Participant.

5.3 Payment of Interest on NCPA Refunds. Estimated interest (adjusted for the NCPA Interest Shortfall Estimate and the estimated Interest Shortfall on Refunds, as provided herein) shall be calculated and distributed concurrently with principal amounts in accordance with this Agreement. As soon as practicable after issuance of the FERC Interest Determination, the California Parties shall pay to, or receive from, the ISO and PX, the difference between (a) the Estimated Interest on Receivables Amount less the NCPA Interest Shortfall Estimate previously withheld from distribution under Section 4.3 as adjusted to reflect the California Parties’ true-up obligation in accordance with Section 4.3, and (b) the amount of interest that the FERC Interest Determination finds to be owing to NCPA on NCPA Receivables. The Allocation Matrix states the amount of estimated Interest Shortfall allocated to each Participant through December 31, 2009, which amounts will be reflected in the calculation of Interest Shortfall ultimately assessed by the ISO and PX to each such Participant, such that the estimated Interest Shortfall, as determined herein for each Settling Participant, will ultimately be trued-up based on each individual Settling Participant’s allocated share of the Interest Shortfall. The Parties shall update all estimated interest calculations through the date that the funds are transferred in accordance with Article IV by adding interest, calculated at the FERC Interest Rate for the period January 1, 2010 through the date that the funds are so transferred.

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5.4 Distribution of California Litigation Escrow. All funds in the California Litigation Escrow shall be distributed in accordance with a separate agreement among the California Parties (the “Allocation Agreement”), which also may provide for reallocation among the California Parties of the California Parties’ share of NCPA Refunds and associated interest. The Allocation Agreement shall provide for the allocation among the California Parties of the California Parties’ financial responsibilities and entitlements under this Agreement. Distributions from the California Litigation Escrow will accrue interest only from the date that the California Litigation Escrow is funded and at the rate of interest earned on the funds held in the California Litigation Escrow.

5.5 Distributions to Non-Settling Participants and Disposition of Escrowed Funds. Amounts specified on the Allocation Matrix as allocated to Participants that, by not making the election provided in Section 8.1, become Non-Settling Participants will be paid to the California Parties. If FERC orders NCPA to pay refunds pursuant to the FERC Refund Determination to any Non-Settling Participant for NCPA’s transactions in the California Markets during the Settlement Period, then such obligation, including any interest on refunds allowed pursuant to the FERC Interest Determination, shall be paid, subject to Section 5.8, by the California Parties in cash within the time established by FERC. If the FERC Refund Determination is changed on rehearing, appeal, or remand in a way that changes the amount of refunds NCPA is ordered to pay to Non-Settling Participants, then, subject to Section 5.8, the California Parties shall be responsible for paying any increase in refunds owed to Non-Settling Participants and shall be entitled to the benefits of any decrease in refunds owed to Non-Settling Participants.

5.6 Receivables Shortfalls and Excesses; Refund Shortfalls and Excesses.

5.6.1 Shortfalls and Excesses. For the purposes of this Section 5.6: (i) “Receivables Shortfall” means the positive net amount, if any, by which the actual NCPA Receivables as determined in the FERC Receivables Determination are less than the Estimated Receivables Amount, plus the amount, if any, by which the actual interest on NCPA Receivables as determined in the FERC Interest Determination is less than Estimated Interest on Receivables Amount; (ii) “Receivables Excess” means the positive net amount, if any, by which the actual NCPA Receivables as determined by FERC in the FERC Receivables Determination are more than the Estimated Receivables Amount, plus the amount, if any, by which the actual interest on NCPA Receivables as determined in the FERC Interest Determination is more than the Estimated Interest on Receivables Amount; (iii) “Refund Shortfall” means the amount, if any, by which the funds deposited in the Settling Supplier Refund Escrow for refunds and interest to Non-Settling Participants based on the Allocation Matrix are insufficient to satisfy all refund awards made to Non-Settling Participants for any particular period, i.e., the Pre-October Period, the Pre-January 18, 2001 Period, or the Post-January 17, 2001 Period, as determined by FERC

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in the FERC Refund Determination and the FERC Interest Determination; and (iv) “Refund Excess” means the amount, if any, by which the funds deposited in the Settling Supplier Refund Escrow for refunds and interest to Non-Settling Participants based on the Allocation Matrix exceeds the amounts needed to satisfy all refund awards made to Non-Settling Participants for any particular period, i.e., the Pre-October Period, the Pre-January 18, 2001 Period, or the Post-January 17, 2001 Period, as determined by FERC in the FERC Refund Determination and the FERC Interest Determination.

5.6.2 January 1, 2000 – October 1, 2000 Period. Subject to Section 5.8, the California Utilities shall be responsible, and NCPA shall not be responsible, for any Refund Shortfall or Receivables Shortfall allocated to the period January 1, 2000 through October 1, 2000, inclusive. Any such responsibility shall be deemed to be a reversal of amounts allocated to the California Utilities and shall be paid to the ISO and/or the PX, as appropriate, from the amounts allocated to the California Utilities, on a pro rata basis determined with reference to the principal amount of refunds (including Deemed Distributions) allocated to each of the California Utilities in the Allocation Matrix for that period. The California Utilities, and not NCPA, shall be entitled to payment, by the ISO and/or PX as appropriate, of any Refund Excess or Receivables Excess allocated to such period. Said amount shall be paid into the California Litigation Escrow and, except as may otherwise be provided in the Allocation Agreement, allocated among the California Utilities on a pro rata basis determined with reference to the total principal amount of the refund (including Deemed Distributions) allocated to each of the California Utilities in the Allocation Matrix for that period.

5.6.3 Pre-January 18, 2001 Period. Subject to Section 5.8, the California Utilities shall be responsible, and NCPA shall not be responsible, for any Refund Shortfall or Receivables Shortfall allocated to the Pre-January 18, 2001 Period. Any such responsibility shall be deemed to be a reversal of amounts allocated to the California Utilities under this Agreement and shall be paid to the ISO and/or the PX, as appropriate, from the amounts allocated to the California Utilities, on a pro rata basis determined with reference to the principal amount of refunds (including Deemed Distributions) allocated to each of the California Utilities in the Allocation Matrix for that period. The California Utilities, and not NCPA, shall be entitled to payment of any Refund Excess or Receivables Excess allocated to the Pre-January 18, 2001 Period. Said amount shall be paid into the California Litigation Escrow and, except as may otherwise be provided in the Allocation Agreement, allocated among the California Utilities on a pro rata basis determined with reference to the total principal amount of the refund (including Deemed Distributions) allocated to each of the California Utilities in the Allocation Matrix for that period.

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5.6.4 Post-January 17, 2001 Period. Subject to Section 5.8, CERS shall be responsible, and NCPA shall not be responsible, for any Refund Shortfall or Receivables Shortfall allocated to the Post-January 17, 2001 Period, and CERS shall be entitled to payment of any Refund Excess or Receivables Excess allocated to the Post-January 17, 2001 Period, except as may otherwise be provided in the Allocation Agreement.

5.7 Effect of Subsequent FERC Orders and Appeals.

5.7.1 Changed FERC Interest Determination. If, as a result of an order by a court of appeals that is no longer subject to appeal or a FERC order on remand of such court order, the FERC Interest Determination is changed in a way that increases or decreases the amount of Interest Shortfall allocated to NCPA, the California Parties shall true-up amongst themselves with no liability to NCPA for such change by way of refund or surcharge (or debit or credit to the applicable ISO or PX account, as appropriate), with interest at the FERC Interest Rate or such other rate as FERC may determine to be applicable, to give full effect to the change from the FERC Interest Determination.

5.7.2 Changed FERC Allowances. If, as a result of an order by a court of appeals that is no longer subject to appeal or a FERC order on remand of such a court order, the FERC Allowances Determination is changed in a way that increases or decreases the allocation of Fuel Cost Allowances and/or the allocation of Emissions Offsets and/or the allocation of Cost Offsets among the Settling Participants, stated in the Allocation Matrix, then, subject to Section 5.2.4, the amount of Fuel Cost Allowances and/or Emissions Offsets and/or Cost Offsets paid to or by each Settling Participant pursuant to the Allocation Matrix shall be trued-up among such Settling Participants, by way of refund or surcharge, with interest at the FERC Interest Rate or such other rate as FERC may determine to be applicable, to give full effect to the change from the FERC Allowances Determination.

5.7.3 Payment Procedures. All payments pursuant to this Section 5.7 shall be made at the time and in the manner specified by the court of appeals or, upon remand, by FERC. If neither FERC nor the court of appeals specifies the time and manner for such payments, then such payments shall be made by wire transfer no later than 20 Business Days after the date that the applicable court of appeals order or FERC order on remand changing the FERC Interest Determination or the FERC Allowances Determination has become final and no longer subject to appeal. Subject to Section 5.8, the California Parties shall be responsible for paying any such payments pursuant to this Section 5.7 that would be payable by NCPA, and shall be entitled to receive any payments pursuant to this Section 5.7 that would be receivable by NCPA

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5.8 Limitations on California Parties’ Obligations.

5.8.1 Notwithstanding anything to the contrary contained in this Agreement, the obligation of any of the California Parties to make payments on behalf of NCPA or otherwise under this Agreement: (a) shall, as to Non-Settling Participants, be limited to payment of Claims in the FERC Proceedings arising from NCPA’s transactions in the California Markets during the Settlement Period as ordered by FERC or an appellate court reviewing a FERC order, in either case acting within its lawful jurisdiction, and only to the extent that such payment is ordered to be paid by NCPA and shall not encompass payment of Claims arising from other transactions or in any other proceeding; and (b) shall not, in any event, exceed the total amount allocated to that California Party from the Settlement Proceeds as set forth in (i) the Allocation Matrix, and (ii) the Allocation Agreement from the amount to be transferred to the California Litigation Escrow, provided, however, that to the extent an obligation of any California Party under this Agreement to make payment on behalf of NCPA exceeds the total amount allocated to that California Party from the Settlement Proceeds as set forth in (i) the Allocation Matrix with respect to transactions in the California Markets, and (ii) the Allocation Agreement from the amount to be transferred to the California Litigation Escrow, the remaining California Parties to which Settlement Proceeds are allocated in the Allocation Matrix shall be jointly and severally liable to make such payments up to the amount allocated to each such California Party from the Settlement Proceeds as set forth in (i) the Allocation Matrix, and (ii) the Allocation Agreement from the amount to be transferred to the California Litigation Escrow, and provided further that CERS shall not be liable for any Claims allocated to time periods other than the Post-January 17 Period. Without limiting the foregoing, nothing in this Agreement shall require the California Parties to bear any liability to any party relating to (a) amounts NCPA may be found to owe outside the FERC Proceedings, or (b) for any NCPA transactions prior to January 1, 2000, or after June 20, 2001.

5.8.2 Notwithstanding anything in this Agreement to the contrary, the California Parties shall not be required to make any payment on behalf of NCPA unless NCPA would have been required to make the payment absent this Agreement pursuant to an order of FERC acting within its lawful authority.

5.8.3 The limitations on the California Parties’ obligations set forth in this Section 5.8 shall not create any liability for NCPA.

ARTICLE VI. ISO AND PX ACCOUNTING

6.1 FERC-Directed Compliance. The FERC Settlement Order shall constitute authorization and direction to the ISO and PX to implement the terms of this

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Agreement as of the Settlement Effective Date. As a result of FERC’s approval of this Agreement in the FERC Settlement Order, the ISO and/or PX shall be required to do the following:

6.1.1 General Accounting Treatment. The ISO and PX shall conform their books and records (including to the extent necessary, the PX bankruptcy claims register with respect to any Claims NCPA filed against the PX in the PX Bankruptcy Proceedings), as to each Participant’s accounts, to reflect the distributions, offsets, transfers, assignments, adjustments, and status of accounts provided for in this Agreement.

6.1.2 Accounting Treatment of Assigned NCPA Receivables. The PX and ISO shall reflect on their books and records all distributions from the PX Settlement Clearing Account to the Settling Supplier Refund Escrow and the California Litigation Escrow that represent payments of amounts owed by the ISO and PX to NCPA for the NCPA Receivables. The ISO shall recognize, as a reduction in the amounts payable by the PX to the ISO, all distributions from the PX Settlement Clearing Account to the Settling Supplier Refund Escrow and to the California Litigation Escrow that represent payments of amounts owed by the ISO and PX to NCPA for the NCPA Receivables.

6.1.3 Calculation and Accounting Treatment of Distributions To Settling Participants and Non-Settling Participants. The ISO and PX shall calculate the amount, if any, that NCPA would owe in refunds and/or interest pursuant to FERC’s orders in the EL00-95 Proceeding in the same manner as for entities that are not within the scope of Section 201(f) of the Federal Power Act for each of three time periods: the Pre-October Period (subject to FERC issuing a refund order covering said period); the Pre-January 18, 2001 Period; and the Post-January 17, 2001 Period (“Unsettled NCPA Refund Amount” and/or “Unsettled NCPA Interest Amount,” as applicable), and submit those calculations for approval to FERC at the same time that they submit their calculations of refunds and/or interest for other Participants. NCPA Refunds will not be subject to any refund shortfall methodology established by FERC for refunds associated with entities within the scope of Section 201(f) of the Federal Power Act and none of the Accounting changes provided for in this Section 6.1 will result in amounts payable by NCPA.

6.1.3.1 Calculation of NCPA Refund and Interest Amounts for Individual Participants. Following the date of the FERC Refund Determination and/or the FERC Interest Determination, but prior to the date on which refunds and/or interest are to be paid pursuant to the FERC Refund Determination and/or the FERC Interest Determination, as applicable, the ISO and PX, working with the California Parties, shall determine the portion of the Unsettled NCPA

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Refund Amount or the Unsettled NCPA Interest Amount, as applicable that, absent this Agreement, would be deemed to be owed for NCPA’s sales of energy and ancillary services into the California Markets to each Participant that is entitled to receive refunds (“Unsettled Participant Refund Amount” and/or “Unsettled Participant Interest Amount,” as applicable). The ISO and PX, in cooperation with the California Parties, shall determine the Unsettled Participant Refund Amount for each Participant by multiplying the Unsettled NCPA Refund Amount for each respective time period by each Participant’s percentage share of refunds in the California Markets (combined) for that time period. The ISO and PX, in cooperation with the California Parties, shall determine the Unsettled Participant Interest Amount based upon the Unsettled Participant Refund Amount.

6.1.3.2 Accounting Treatment of Distributions to Settling Participants. The ISO and PX shall reflect on their books and records, including as to each Participant’s accounts, that Settling Participants have, through this Agreement, been paid in full their share of all NCPA Refunds and associated interest allocated to them under this Agreement, subject to the true-ups and adjustments provided for elsewhere in this Agreement, and shall not be entitled to receive the Unsettled Participant Refund Amount or the Unsettled Participant Interest Amount, if different from the amount of NCPA Refunds and associated interest on the amounts of NCPA Refunds allocated to each respective Settling Participant under this Agreement.

6.1.3.3 Accounting Treatment of Deemed Distributions. The PX and ISO shall reflect Deemed Distributions on their books and records as reductions in the amounts owed to the PX and/or ISO by any Settling Participant that receives a Deemed Distribution. The ISO shall recognize, as a reduction in the amounts payable by the PX to the ISO, all Deemed Distributions under Section 5.2.2 by the ISO that are applied to amounts owed to the PX by Deemed Distribution Participants. All Deemed Distributions shall be credited as of the Settlement Effective Date.

6.1.3.4 Reversal of Certain Calculations. Any calculations by the ISO and/or PX relating to the Settlement Period and NCPA’s status as a non-public utility prior to the Settlement Effective Date shall be reversed by the ISO and/or PX.

6.1.3.5 Accounting Treatment of Interest Shortfall. The net interest amount that will be used by the ISO, PX, and FERC to

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determine NCPA’s allocation of the Interest Shortfall will be calculated by offsetting from the interest portion of the NCPA Receivables the settled refund interest amounts specified by the California Parties in the Allocation Matrix.

6.1.3.6 Accounting Treatment of Calculations for Non-Settling Participants. Any Unsettled Participant Refund Amount and any Unsettled Participant Interest Amount that is calculated for a Non-Settling Participant shall be removed from the books and records of the ISO and PX.

6.1.3.7 NCPA Participation in ISO or PX Accounting. As of the Settlement Effective Date, NCPA shall have no obligation to provide information, to facilitate, or otherwise participate in any way in the ISO and PX Accounting set forth in this Section 6.1.3, including, but not limited to, the calculation of, or disputes regarding, the Unsettled NCPA Refund Amount, Unsettled NCPA Interest Amount, Unsettled Participant Refund Amount, or Unsettled Participant Interest Amount and none of the accounting changes provided for in this Section 6.1 will result in amounts payable by NCPA.

6.1.4 Interest Accrual. The PX and ISO shall reflect on their books and records that Settling Participants have, through this Agreement, been paid interest associated with their share of NCPA Refunds allocated to them under this Agreement and that, with respect to Settling Participants, the further accrual of interest at the FERC Interest Rate subject to any allocation of Interest Shortfall as established in the FERC Interest Determination on NCPA Refunds payable to Settling Participants ceases upon the transfer of funds from the PX and/or the ISO to the Settling Supplier Refund Escrow pursuant to this Agreement, or as may be transferred for accounting purposes through the implementation of Deemed Distributions, and, for purposes of the accounts of the PX and the ISO, no interest on such principal amounts shall accrue after transfer except as may be earned on transferred amounts while on deposit in the Settling Supplier Refund Escrow. Interest will continue to accrue, at the FERC Interest Rate, on the NCPA Interest Shortfall Estimate, and on any Receivables Excess as provided under Section 5.6, through the date of their distribution and on any unpaid interest balances until they are paid as provided for herein.

6.2 Duty of Cooperation. Except as otherwise provided in Section 6.1.3.7, each Party shall reasonably and in good faith cooperate with each other and the ISO and PX and take all reasonable steps to secure (i) the release and transfer of funds to the Settling Supplier Refund Escrow and California Litigation Escrow as contemplated by this Agreement, and (ii) any other acts of the PX or the ISO necessary to effectuate the terms of this Agreement. This duty of cooperation

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shall include making individual or joint requests to the PX and/or the ISO, executing appropriate waivers, providing data, and providing other assistance to the PX and the ISO as necessary to implement this Agreement.

6.3 Tariff Waivers. FERC approval of this Agreement in the FERC Settlement Order shall, as of the Settlement Effective Date, constitute a grant of such waivers of the ISO and the PX tariffs as may be necessary for the ISO and the PX to disburse such funds as required by this Agreement, to account for transfers, allocations, and distributions of funds as required by this Agreement, and to otherwise implement this Agreement.

ARTICLE VII. RELEASES AND WAIVERS

7.1 Scope of Settlement and Releases.

7.1.1 In return for the consideration specified elsewhere in this Agreement and full performance by the Parties of their respective obligations hereunder, and subject to the occurrence of the Settlement Effective Date, all Claims as between NCPA, on the one hand, and the California Parties, on the other hand, relating to transactions in the Western Energy Markets during the Settlement Period for damages, refunds, disgorgement of profits, costs and attorneys’ fees, or other monetary or non-monetary remedies shall be deemed settled and resolved, subject to Section 7.4, provided that nothing shall be deemed settled by the Settling Participants as to Non-Settling Participants.

7.1.2 NCPA, the California Parties, and the Additional Settling Participants agree that they will not contest (i) the amount of refund liability and/or offsets or other monetary or non-monetary relief attributable to sales by NCPA in the Western Energy Markets during the Settlement Period in the EL00-95 Proceeding and the EL01-10 Proceeding, or (ii) the outcome of the other FERC Proceedings as they are resolved by this Agreement.

7.1.3 NCPA agrees, effective as of the Settlement Effective Date, that the California Parties shall be entitled to defend and appeal, on behalf of NCPA, but at their own expense, any refund obligations of NCPA to Non-Settling Participants and, should the California Parties choose to exercise this right, to control exclusively such defense or appeal with counsel selected by the California Parties.

7.1.4 With respect to transactions related to sales of electricity and ancillary services by NCPA, or transmission congestion charges applicable to such sales, the Parties waive and release any disputes regarding existing ISO settlements and/or PX settlements for the Settlement Period upon the Settlement Effective Date.

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7.1.5 With respect to CERS, the releases set forth in this Article VII shall constitute a waiver and release of all Claims arising from a bilateral purchase or sale of energy, capacity, and/or ancillary services in Western Energy Markets during the Settlement Period that CERS has or may claim to have against NCPA, and that NCPA has or may claim to have against CERS.

7.1.6 This Agreement shall not limit in any way any Claims, defenses, or arguments that have been or may be asserted by any of the California Parties against parties other than NCPA, or against any member of NCPA to the extent that such member independently from NCPA participated in Western Energy Markets.

7.1.7 Section 9.5.1 shall govern the withdrawal of claims in the PG&E Bankruptcy Proceedings and the PX Bankruptcy Proceedings.

7.2 FERC and Federal Power Act Releases.

7.2.1 Subject to Section 7.4, the California Parties, on the one hand, and NCPA, on the other hand, shall, as of the Settlement Effective Date, be deemed to have released the other from all existing and future Claims concerning, pertaining to, or arising from any allegations that were made or could have been made before FERC and/or under the Federal Power Act that:

(i) NCPA or any California Party charged or collected unjust, unreasonable, or otherwise unlawful rates, terms or conditions for electric capacity, energy, ancillary services, or transmission congestion in the Western Energy Markets during the Settlement Period;

(ii) NCPA or any California Party manipulated the Western Energy Markets in any fashion (including, but not limited to, claims of economic or physical withholding, gaming, forms of electricity market manipulation discussed in the Final Staff Report, or any other forms of electricity market manipulation), or otherwise violated any applicable tariff, regulation, law, rule, or order relating to the Western Energy Markets during the Settlement Period; or,

(iii) Any California Party is liable for payments to NCPA for congestion charges, transmission line losses, energy, capacity, or ancillary services during the Settlement Period.

7.2.2 NCPA agrees to forgo any Claim for refunds resulting from any Mitigation of sales by CERS in the California Markets during the Settlement Period, as well as any interest, credits or other payments associated with such sales. Effective as of the Settlement Effective Date, NCPA hereby assigns, sells, transfers, conveys, and delivers to CERS all

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of its right, title, and interest in and to any such refunds, interest, credits, and other payments that are either directly or indirectly through others allocated to NCPA, and represents, warrants, and covenants with and to CERS that such assignment is and shall be free and clear of all liens, Claims, and encumbrances.

7.3 Civil Claims Releases.

7.3.1 Subject to Section 7.4, the California Parties, on the one hand, and NCPA, on the other hand, shall, as of the Settlement Effective Date, be deemed to have forever released the other from all past, existing, and future Claims concerning, pertaining to, or arising from any allegations that were made or could have been made during the Settlement Period relating to transactions in the Western Energy Markets, including but not limited to the following:

(i) NCPA or any California Party charged or collected unjust, unreasonable, or otherwise unlawful rates, terms or conditions for electric capacity, energy, ancillary services, or transmission congestion in the Western Energy Markets during the Settlement Period;

(ii) NCPA or any California Party, during the Settlement Period, manipulated Western Energy Markets in any fashion (including, but not limited to, claims of economic or physical withholding, gaming, forms of market manipulation discussed in the Final Staff Report, or any other forms of market manipulation);

(iii) NCPA or any California Party was unjustly enriched by the foregoing released Claims or otherwise violated any applicable tariff, regulation, law, rule, or order relating to transactions in the Western Energy Markets during the Settlement Period; or

(iv) Any California Party is liable for payments to NCPA for congestion charges, transmission line losses, energy, capacity, or ancillary services during the Settlement Period.

7.4 Limitations on Releases.

7.4.1 The California Parties and Additional Settling Participants may continue to cooperate with all state and federal investigations and to participate in all matters before FERC, except as expressly provided for in this Agreement; provided that, as of the Settlement Effective Date, the California Parties and Additional Settling Participants shall withdraw from and not prosecute any litigation, administrative proceedings, or

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investigations with respect to NCPA insofar as such prosecution would be inconsistent with the foregoing released Claims.

7.4.2 The releases set forth in Sections 7.2 and 7.3 do not constitute a waiver or release of any Claims by the California Attorney General for any actions of or omissions by NCPA either before or subsequent to the Settlement Effective Date that are either: (a) criminal; or (b) willfully fraudulent; provided, however, that the releases set forth in Sections 7.2 and 7.3 do extend to willfully fraudulent claims (if any) that are based solely upon acts or omissions of NCPA that (i) occurred prior to the Settlement Effective Date, and (ii) are currently known by the California Attorney General’s Office.

7.4.3 Nothing in this Agreement shall be construed as restricting in any way the ability of any Settling Participant to express or pursue any position regarding the method or methods for calculating or allocating Refund Offsets.

7.4.4 Except with respect to (i) Claims in the EL01-10 Proceeding, (ii) transactions in the California Markets, and (iii) the Claims released pursuant to Article IX, the releases set forth in this Article VII do not constitute a waiver or release of any Claims arising from a bilateral purchase or sale of energy, capacity and/or ancillary services that any Settling Participant, excluding CERS, has or may claim to have against NCPA, or that NCPA has or may claim to have against any Settling Participant, other than CERS, nor do the releases in this Article VII constitute a waiver or release of any Claims arising under a bilateral agreement for transmission or interconnection service or a bilateral agreement providing for the interconnection of two or more transmission systems.

7.5 Waiver of Appeals and Requests for Rehearing.

7.5.1 Each of the Settling Participants shall (i) forego any rights to seek rehearing of, or appeal, any and all of the Claims released and matters settled herein by each of them with respect to NCPA, and (ii) take appropriate steps to withdraw any pending requests for rehearing or appeals (including interventions in appeals) with respect to such released Claims and matters as against NCPA. Nothing herein shall affect Settling Participants’ rights to maintain such rehearing or appeals with respect to parties other than NCPA.

7.5.2 NCPA shall (i) forego any rights to seek rehearing of, or appeal, any and all of the Claims released and matters settled herein by NCPA with respect to any of the Settling Participants, and (ii) take appropriate steps to withdraw any pending requests for rehearing or appeals (including interventions in appeals) with respect to such released Claims as against

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any such Settling Participants. Nothing herein shall affect NCPA’s rights to maintain such rehearing or appeals as to Non-Settling Participants.

7.5.3 Nothing in this Agreement shall preclude any of the California Parties from participating fully in any request for rehearing or appellate proceeding to the extent those proceedings relate to Claims by such California Party against entities other than NCPA or to Claims against a California Party by any entity other than NCPA.

7.6 Effectiveness of Releases; Waiver of Unknown Claims. The Parties acknowledge and agree that, except as expressly reserved in Section 7.4, it is their intention that the releases granted pursuant to this Article VII and, as to NCPA and PG&E pursuant to Article IX, shall be effective as a bar to all Claims specified in this Article VII and in Article IX. In furtherance of this intention, NCPA, on the one hand, and the California Parties, on the other hand, with respect to the Settled Proceedings, the matters addressed in Article IX as to NCPA and PG&E, and the specific matters released herein, each knowingly, voluntarily, intentionally, and expressly waive, as against each other, any and all rights and benefits conferred by California Civil Code Section 1542 and any law of any state or territory of the United States or principle of common law that is similar to Section 1542. Section 1542 provides:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

In connection with such waiver and relinquishment, the Parties each acknowledge that they are aware that they may hereafter discover facts in addition to or different from those that they know or believe to be true and with respect to the subject matter of this Agreement, but that it is their intention hereby, except as expressly reserved in Section 7.4, to fully, finally, and forever settle and release all Claims that are set forth in this Article VII and, as to NCPA and PG&E in Article IX. This Agreement is intended to include in its effect, without limitation, other than the limitations set forth in Section 7.4, all Claims encompassed within the settlement and releases set forth in this Article VII and, as to NCPA and PG&E in Article IX, including those that the Parties may not know or suspect to exist at the time of execution of this Agreement, and this Agreement contemplates the extinguishment of all such Claims, except as expressly reserved in Section 7.4. The releases set forth in this Article VII and as to NCPA and PG&E in Article IX shall be, and remain in effect as, full and complete releases, notwithstanding the discovery or existence of any such additional or different facts relating to the subject matter of this Agreement. Notwithstanding the waiver of California Civil Code Section 1542, the Parties acknowledge and agree that the

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releases provided for in this Agreement are specific to the matters set forth in this Article VII and in Article IX and are not intended to create general releases as to all potential Claims, between the California Parties, or any of them, and NCPA.

ARTICLE VIII. PARTICIPANTS’ ELECTION TO PARTICIPATE IN SETTLEMENT

8.1 Election to Participate in Settlement. The Parties acknowledge and agree that, upon the filing of this Agreement at FERC, any Participant that elects to be bound by this Agreement may become an Additional Settling Participant and shall be bound by its terms by notifying FERC that the Participant wishes to become a Settling Participant or that the Participant does not oppose the application of this Agreement to that Participant. Electronic copies of such notice shall be served on each person designated on the ListServ established for the EL00-95 Proceeding and the ListServ established for Docket Nos. EL03-137, et al. in accordance with FERC’s rules. Any Participant that has not provided such notice on or prior to the date that is 5 Business Days following the Settlement Effective Date shall have no right to participate in the settlement contemplated under this Agreement, absent the written agreement of the California Parties, and shall be deemed a Non-Settling Participant for purposes of this Agreement.

8.2 Releases. Each Additional Settling Participant shall be deemed to have provided all of the releases of Claims that such Additional Settling Participant may have against NCPA as set forth in Article VII for damages, refunds, disgorgement of profits, costs and attorneys' fees, or other monetary or non-monetary remedies. The releases NCPA provides in Article VII to the California Parties shall apply to SRP, provided that SRP becomes an Additional Settling Participant, and to the California Electricity Oversight Board. Nothing in this Section 8.2 shall be construed to provide a release of Claims by NCPA relating to an Additional Settling Participant’s (excluding the California Electricity Oversight Board and SRP) transactions and actions in the Western Energy Markets during the Settlement Period. Non-Settling Participants shall not be deemed to have provided or received any of the releases set forth in this Agreement.

8.3 APX. On March 1, 2007, FERC approved the APX Settlement and Release of Claims Agreement among APX, Inc. (“APX”) (f/k/a Automated Power Exchange) and certain of its participants, San Diego Gas & Elec. Co. v. Sellers, 118 FERC ¶ 61,168 (2007) (“APX Settlement”). The APX Settlement provides,inter alia, for the release to APX from the ISO and PX of an estimate of the refunds to be paid to APX for the Refund Period in the EL00-95 Proceeding, which amount includes APX’s estimated share of refunds to be paid by NCPA. If APX becomes an Additional Settling Participant pursuant to Section 8.1, no payments shall be made to APX under this Agreement unless and until APX repays to the ISO and/or PX a good faith estimate not opposed by the APX net buyers after reasonable consultation, in an amount agreed to by the California Parties, of the portion of the refunds paid to APX pursuant to the APX Settlement that represents APX’s share of refunds to be paid by NCPA for the Refund Period

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in the EL00-95 Proceeding. In no event will NCPA be liable for APX’s share of refunds.

8.4 Opts-Ins to This Settlement Agreement Authorized by Other Prior California Party Settlements.

8.4.1 Opt-In Elections and Notices. Pursuant to the terms of Section 8.1 of this Agreement and the additional authority referenced below, CERS and the California Parties, as applicable, hereby elect, on behalf of each of the following Participants, to become an Additional Settling Participant under the terms of this Agreement effective as of the Settlement Effective Date, and give notice to FERC that each such Participant has elected to become an Additional Settling Participant under the terms of this Agreement effective as of the Settlement Effective Date:

(i) the Pinnacle West Companies, by CERS pursuant to Section 4.1.5 of the Settlement and Release of Claims Agreement by and between the California Parties and the Pinnacle West Companies approved by FERC in San Diego Gas & Elec. Co., 123 FERC ¶ 61,315 (2008);

(ii) the City of Vernon, California, by the California Parties pursuant to Section 4.1.7.2 of the Settlement and Release of Claims Agreement by and between the California Parties and the City of Vernon, California, approved by FERC in San Diego Gas & Elec. Co., 125 FERC ¶ 61,085 (2008);

(iii) Puget Sound Energy, Inc., by the California Parties pursuant to Section 4.1.7 of the Settlement and Release of Claims Agreement by and between the California Parties and Puget Sound Energy, Inc., approved by FERC in San Diego Gas & Elec. Co., 128 FERC ¶ 61,002 (2009);

(iv) Comisión Federal de Electricidad, by the California Parties pursuant to Section 4.1.7 of the Settlement and Release of Claims Agreement by and between the California Parties and Comisión Federal de approved by FERC in San Diego Gas & Elec. Co., 129FERC ¶ 61,256 (2009);

(v) the City of Los Angeles acting by and through the Department of Water and Power (“LADWP”) pursuant to Section 4.10 of the Settlement and Release of Claims Agreement by and between the California Parties and LADWP approved by FERC in San Diego Gas & Elec. Co., 129 FERC ¶ 61,257 (2009);

(vi) Cargill Power Markets, LLC, by the California Parties pursuant to Section 4.1.7 of the Settlement and Release of Claims Agreement by and between the California Parties and Cargill Power Markets,

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LLC approved by FERC in San Diego Gas & Elec. Co., 129 FERC ¶ 61,258 (2009); and

(vii) PECO/Exelon, by the California Parties pursuant to Section 4.1.7 of the Settlement and Release of Claims Agreement by and between the California Parties and PECO/Exelon approved by FERC in San Diego Gas & Elec. Co., 129 FERC ¶ 61,259 (2009).

8.4.2 Effect of Opt-In Elections and Notices. No further action shall be required by CERS or the California Parties, as applicable, or any of the Participants identified above in Section 8.4.1 to make the opt-in elections set forth therein effective on the Settlement Effective Date.

ARTICLE IX. RESOLUTION OF DISPUTES ARISING FROM THE PG&E

BANKRUPTCY PROCEEDINGS

9.1 Settlement of Disputed Claims in PG&E Bankruptcy Proceedings. In return for PG&E’s payment of the Net Payment plus 2010 Accrued Interest pursuant to Section 9.2 below, NCPA’s Class 5 and Class 6 Claims in the PG&E Bankruptcy Proceedings, including the City of Palo Alto’s Proof of Claim No. 12385 (“Palo Alto Claim”), which has been assigned to NCPA, are settled and resolved as set forth in this Article IX, and all Claims between NCPA and PG&E relating to NCPA’s sales to PG&E, or through PG&E in its role as a scheduling coordinator, occurring during the period January 1, 2000 through October 31, 2007, of (i) Reliability Must Run (“RMR”) energy and (ii) energy sold pursuant to the Emergency Services Agreement (“ESA”) between NCPA and PG&E, dated July 10, 2000, are settled and resolved as set forth in this Article IX.

9.2 Net Payment. Within ten Business Days after the Settlement Effective Date, PG&E shall pay, by wire transfer into the Settling Supplier Refund Escrow, a total of $2,234,110 (“Net Payment”), plus interest on the Net Payment accruing at the FERC Interest Rate from January 1, 2010 to, but not including, the date on which PG&E transfers the Net Payment to the Settling Supplier Refund Escrow ("2010 Accrued Interest"). The Net Payment includes all Claims for interest that has accrued through December 31, 2009. PG&E’s payment of the Net Payment plus 2010 Accrued Interest constitutes full satisfaction of NCPA’s Class 5 and Class 6 Claims in the PG&E Bankruptcy Proceedings, including the Palo Alto Claim. Sections 9.2.1 and 9.2.2 below set forth the individual Claims resolved in this Article IX and the payments and credits for such Claims:

9.2.1 ESA Claims. The Net Payment includes a payment by PG&E to NCPA of $2,129,824 shall be applied in full satisfaction of Claims related to (i) sales made by NCPA under the ESA for the months of December 2000 (net $2,002,980 after Mitigation) and January 2001 (net $126,844 after Mitigation) (referred to as “Known Claim B” in NCPA’s proof of claim No. 13331), and (ii) the similar component claimed by the City of Palo

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Alto, a member of NCPA, referred to as “Known Claim 2” in the Palo Alto Claim. For the avoidance of ambiguity, only a single Net Payment shall be made by PG&E to NCPA (but not to the City of Palo Alto) which fully satisfies both NCPA’s “Known Claim B” and the City of Palo Alto’s “Known Claim 2” in proofs of claim Nos. 13331 and 12385, respectively.

9.2.2 RMR Claims. The Net Payment includes a payment by PG&E to NCPA of $104,285 in full satisfaction of NCPA’s RMR claims, and the similar RMR Claim by the City of Palo Alto, referred to as “Known Claim 1” in the Palo Alto Claim, and other disputes between NCPA and PG&E, as identified in clauses i) through iv) below, reflecting the following amounts:

(i) A payment by PG&E of $65,189 for rate adjustments for the period 2001-2004, comprised of $48,000 principal and $17,189 interest;

(ii) A payment by PG&E of $613,300 for unpaid invoices, comprised of $371,000 principal and $242,300 interest;

(iii) A payment by NCPA to PG&E (i.e., a credit against amounts paid pursuant to clauses (i) and (ii) above) of $503,933 (comprised of $301,246 in principal and $202,687 in interest), reflecting that (a) transactions occurring in December 2000 that initially were classified as RMR transactions shall be classified as RMR transactions, and (b) that transactions occurring in January 2001 that initially were classified as RMR transactions, then were reclassified as Out-of-Market (“OOM”) transactions, shall remain re-classified as OOM transactions; and

(iv) A credit to PG&E of $70,272 for invoice disputes for the period 2005-2007, comprised of $55,000 principal and $15,272 interest.

9.3 Allowed Claim. Effective as of the Settlement Effective Date, NCPA shall have an allowed claim in the PG&E Bankruptcy in the amount of the Net Payment ($2,234,110, inclusive of interest accrued through 12/31/09), and shall also be entitled to interest accruing from 1/1/2010 to the actual date of payment at FERC Interest Rate. Upon payment of the Net Payment and 2010 Accrued Interest pursuant to Section 9.2, NCPA shall have no claim or right to funds remaining in any of the disputed claims escrows in the PG&E Bankruptcy Proceedings and all remaining funds in such disputed claims escrows with respect to the Class 5 Claims of NCPA and the Palo Alto Claim shall be paid to PG&E in addition to amounts paid to PG&E pursuant to Section 5.2.2.2.

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9.4 Mutual Releases. Each of PG&E and NCPA shall, as of the Settlement Effective Date, be deemed to have forever released the other from all past, existing, and future Claims concerning, pertaining to, or arising from transactions pursuant to the ESA and RMR transactions (inlcluding RMR transactions reclassified as OOM transactions) occurring during the period January 1, 2000 through October 31, 2007. This Agreement shall constitute full resolution and complete satisfaction of all of NCPA’s Claims and the Palo Alto Claim in the PG&E Bankruptcy.

9.5 Withdrawal of Actions.

9.5.1 PG&E Bankruptcy Proceedings. No later than three Business Days after the transfer of the Net Payment and Accrued 2010 Interest pursuant to Section 9.2, NCPA shall take the following actions:

9.5.1.1 NCPA shall file Notices of Resolution and Satisfaction of Claim in the PG&E Bankruptcy Proceedings, in a form reasonably acceptable to PG&E (in substantially the form set forth in Exhibit D attached hereto). Such Notices of Resolution and Satisfaction of Claims shall withdraw and dismiss with prejudice all respective Claims filed by or assigned to NCPA in the PG&E Bankruptcy Proceedings and classified in Class 5 or Class 6 in the PG&E Plan of Reorganization, including (i) Proof of Claim No. 13331 filed by NCPA, and (ii) the Palo Alto Claim.

9.5.1.2 NCPA shall withdraw with prejudice all Claims filed by or assigned to NCPA in the PX Bankruptcy Proceedings.

9.5.2 FERC Proceedings. Within three Business Days after PG&E’s payment of the Net Payment plus 2010 Accrued Interest pursuant to Section 9.2, and to the extent not otherwise required pursuant to Article VII, NCPA shall dismiss with prejudice all claims raised and in FERC Docket No. EL00-95, including all related proceedings and appeals, to the extent that such proceedings relate to transactions pursuant to the ESA and RMR transactions occurring during the period January 1, 2000 through October 31, 2007.

9.6 Accounting Treatment. The ISO and PX shall conform their books and records (including to the extent necessary, the PX bankruptcy claims register with respect to any Claims NCPA filed against the PX in the PX Bankruptcy Proceedings), to reflect that (i) transactions occurring in December 2000 that initially were classified as RMR transactions shall be classified as RMR transactions, and (ii) that transactions occurring in January 2001 that initially were classified as RMR transactions, then were reclassified as OOM transactions, shall remain re-classified as OOM transactions.

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9.7 Term Sheet Superseded. The binding term sheet executed by NCPA and PG&E on December 18, 2009, is terminated effective as of the Execution Date and its terms superseded by this Agreement.

9.8 Effect on Other Parties. Nothing in this Article IX shall create any rights, obligations or duties as to Parties other than NCPA and PG&E, provided that this Section 9.8 shall not diminish, expand, or otherwise have any effect on the releases that are provided in Article VII.

ARTICLE X. REQUIRED APPROVALS

10.1 Required Approvals. The settlement made pursuant to this Agreement shall be subject to approval by:

10.1.1 FERC in the FERC Settlement Order;

10.1.2 The CPUC, whose approval shall be effective as of the Execution Date and evidenced by the CPUC entering into this Agreement as a Party. The CPUC’s approval shall constitute permission for SCE to consummate this Agreement; and

10.1.3 To the extent PG&E determines necessary, approval by the United States Bankruptcy Court for the Northern District of California, San Francisco Division, of the settlement described in Article IX.

10.2 Parties’ Cooperation. The Parties shall cooperate in the preparation and submission of the application or other form of filing necessary to obtain the FERC Settlement Order. NCPA and the California Parties will use reasonable best efforts to file this Agreement with FERC on or before January 29, 2010, or as soon thereafter as is reasonably possible.

ARTICLE XI. REPRESENTATIONS AND WARRANTIES

11.1 Representations of all Parties and Additional Settling Participants. Each Party and Additional Settling Participant (excluding the California Electricity Oversight Board) makes the following representations and warranties, for itself only, to each other Party and Additional Settling Participant, to be effective from and after (i) for the Parties, the Execution Date, and (ii) for each Additional Settling Participant, the Settlement Effective Date:

11.1.1 Organizational Status, Power, and Authority. Except for governmental parties, it is a corporation, limited partnership, or limited liability company duly organized, validly existing, and in good standing under the laws of the jurisdiction of its formation. It possesses all necessary power and authority to execute, deliver, and perform its obligations under this Agreement.

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11.1.2 Authority to Execute. The execution, delivery, election to participate, and performance of this Agreement (i) are within its powers, (ii) have been duly authorized by all necessary action on its behalf and all necessary consents or approvals have been obtained and are in full force and effect, and (iii) do not violate any of the terms and conditions of any applicable law, or materially violate any contracts to which it is a party.

11.1.3 Binding Obligation. This Agreement constitutes its legal, valid, and binding obligation, enforceable against it in accordance with its terms.

11.1.4 Ownership of Claims. It is the sole owner of the Claims that are being resolved and compromised by it pursuant to this Agreement, and except as provided in this Agreement, there has been no sale, assignment, transfer, pledge, or hypothecation, or attempted sale, assignment, transfer, pledge, or hypothecation, by it of any such rights or Claims, whether directly, indirectly, by operation of law, or otherwise.

11.2 Additional NCPA Representation and Warranty. NCPA represents and warrants that it is the sole owner of the NCPA Receivables.

ARTICLE XII. MISCELLANEOUS

12.1 Notices. All notices, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given: (i) when personally delivered; (ii) upon actual receipt (as established by confirmation of receipt or otherwise) during normal business hours, otherwise on the first Business Day thereafter, if transmitted by facsimile or telecopier with confirmation of receipt; (iii) on the date of receipt when mailed by certified mail, return receipt requested, postage prepaid; or (iv) on the first Business Day thereafter when sent by overnight courier; in each case, to the addresses set forth in Section 12.2, or to such other addresses as a Party may from time to time specify by notice to the other Parties given pursuant hereto.

12.2 Notice to Parties. Notices required under this Agreement shall be delivered to:

If to NCPA:

David Dockham Asst. Gen. Mgr., Power Management Northern California Power Agency 651 Commerce Drive Roseville, CA 95678-6411 Phone: (916) 781-3636 Fax: (916) 783-7693 Email: daved@ncpa.com

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and

Michael F. Dean, General Counsel MEYERS NAVE 555 Capitol Mall, Suite 1200 Sacramento, CA 95814 Phone (916) 556-1531 Fax (916) 556-1516 Email: mdean@meyersnave.com

With a copy to:

Robert C. McDiarmid Spiegel & McDiarmid LLP 1333 New Hampshire Ave., NW Washington, DC 20036-1536 Phone: (202) 879-4040 Fax: (202) 393-2866 Email: robert.mcdiarmid@spiegelmcd.com

If to PG&E:

Mark Patrizio Physical address:PG&E Corporation Legal Department 77 Beale Street San Francisco, CA 94105

Mailing address: Mail Code B30A P.O. Box 7442 San Francisco, CA 94120-7442 Telephone: (415) 973-6344 Fax: (415) 973-5520 E-Mail: MDP5@pge.com With a copy to: Stan Berman Sidley Austin LLP 701 Fifth Ave., Suite 4200 Seattle, WA 98104 Telephone: (206) 262-7681 Fax: (415) 772-7400 E-mail: sberman@sidley.com

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If to SCE:

Russell Swartz Southern California Edison Company 2244 Walnut Grove Avenue Rosemead, CA 91770 Telephone: (626) 302-3925 Fax: (626) 302-1904 E-Mail: russell.swartz@sce.com

With a copy to:

Richard Roberts Steptoe & Johnson LLP 1330 Connecticut Avenue, N.W. Washington, DC 20036-1795 Telephone: (202) 429-6756 Fax: (202) 429-3902 E-Mail: rroberts@steptoe.com

If to SDG&E:

Don Garber San Diego Gas & Electric Company 101 Ash Street San Diego, CA 92101-3017 Telephone: (619) 696-4539 Fax: (619) 699-5027 E-Mail: dgarber@sempra.com

If to CERS:

California Department of Water Resources 2033 Howe Avenue, Suite 220 Sacramento, CA 95825 Attn: Deputy Director Telephone: (916) 574-0311 Fax: (916) 574-2214 Email: jpacheco@water.ca.gov With a copy to: Office of the Chief Counsel California Department of Water Resources 2033 Howe Avenue, Suite 220 Sacramento, CA 95825

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Attn: Katherine S. Killeen, Senior Staff Counsel Telephone: (916) 574-2234 Fax: (916) 574-0301 E-Mail: kkilleen@water.ca.gov

If to CPUC:

Diana L. Lee California Public Utilities Commission 505 Van Ness Avenue San Francisco, CA 94102 Telephone: (415) 703-4342 Fax: (415) 703-2262 E-Mail: dil@cpuc.ca.gov

If to California Attorney General:

Martin Goyette Supervising Deputy Attorney General P.O. Box 70550 1515 Clay St., 20th Fl. Oakland, CA 94612-0550 Telephone: (510) 622-2207 Fax: (510) 622-2270 E-Mail: martin.goyette@doj.ca.gov

12.3 Governing Law. To the extent not governed by federal law, this Agreement and

the rights and duties of the Parties and the Additional Settling Participants hereunder will be governed by and construed, enforced, and performed in accordance with the laws of the State of California, without giving effect to principles of conflicts of laws that would require the application of laws of another jurisdiction.

12.4 Entire Agreement. This Agreement and any other documents with respect to the subject matter hereof executed contemporaneously herewith by the Parties constitute the entire agreement of the Parties.

12.5 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and Additional Settling Participants hereto and their permitted successors and assigns.

12.6 Costs. Except as provided in this Agreement, each of the Parties and Additional Settling Participants shall pay its own costs and expenses, including attorneys’ fees, incurred in connection with the disputes that are settled herein and the negotiation and preparation of this Agreement and its implementation, including but not limited to costs and expenses incurred in preparing stipulations, making motions, and seeking the Required Approvals.

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12.7 Execution. This Agreement may be executed in counterparts, each of which will be deemed to be an original and all of which taken together shall constitute a single instrument. This Agreement may be executed by signature via facsimile transmission or PDF file image, which shall be deemed the same as an original signature.

12.8 Modifications. This Agreement may be modified only if in writing and signed by each of the Parties affected by the proposed modification. No waiver of any provision of this Agreement or departure from any term of this Agreement shall be effective unless in writing and signed by the California Parties with respect to any waiver requested by NCPA, and by NCPA with respect to any waiver requested by the California Parties.

12.9 Assignment. No Party shall have the right to assign this Agreement or its rights hereunder without the prior written consent of the other Parties; provided, however, that any Party may, without the consent of the other Parties (and without relieving itself from liability hereunder), transfer or assign this Agreement to any person or entity succeeding to all or substantially all of the assets of such Party, in which case the assignee shall agree in writing to be bound by the terms and conditions hereof.

12.10 Ambiguities Neutrally Construed. This Agreement is the result of negotiations among, and has been reviewed by, each Party and its respective counsel. Accordingly, this Agreement shall be deemed to be the product of each Party, and no ambiguity shall be construed in favor of or against any Party.

12.11 No Third-Party Beneficiaries; No Admissions. This Agreement is not intended to confer upon any person or entity that is not a Party or an Additional Settling Participant any rights or remedies hereunder, and no one, other than a Party or an Additional Settling Participant, is entitled to rely on any representation, warranty, covenant, release, waiver, or agreement contained herein. Moreover, except for the purpose of enforcing the terms and conditions of this Agreement as between and among the Parties and the Additional Settling Participants, nothing herein shall establish any facts or precedents as between the Parties, the Additional Settling Participants, and any third parties as to the resolution of any dispute. Each Settling Participant and NCPA expressly denies any wrongdoing or culpability with respect to the Claims against it released in this Agreement, or any other matter addressed in this Agreement, and does not, by execution of this Agreement, admit or concede any actual or potential fault, wrongdoing, or liability in connection with any facts or Claims that have been or could have been alleged against it with respect thereto. Neither this Agreement, nor any act performed or document executed pursuant to or in furtherance of this Agreement: (i) is or may be deemed to be, or may be used by a Settling Participant or NCPA as, an admission of, or evidence of, the validity of any released Claim, or of any wrongdoing or liability of any of the Parties or Additional Settling Participants; (ii) is or may be deemed to be, or may be used by a Settling Participant or NCPA as, an admission of, or evidence of, any fault or omission of any of the Parties or

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Additional Settling Participants in any civil, criminal, regulatory, or administrative proceeding in any court, administrative agency, regulatory authority, or other tribunal; or (iii) shall be offered in evidence or alleged in any pleading by any Settling Participant or NCPA, except to obtain the Required Approvals, or to enforce the terms of and obtain the benefits of this Agreement. In no event shall this Agreement, any of its provisions or any negotiations, statements, or court proceedings relating to this Agreement or the Settlement in any way be construed as, offered as, received as, used as, or deemed to be evidence of any kind in any action, or in any judicial, administrative, regulatory, or other proceeding, except in a proceeding to enforce the terms or obtain the benefits of this Agreement or to obtain the Required Approvals.

12.12 No Joint and Several Liability. Except as may be expressly provided for herein, nothing in this Agreement shall be deemed to create any joint and several liability among any of the Settling Participants or among NCPA and the Settling Participants or any of them.

12.13 Term Sheet Superseded. The binding term sheet executed by NCPA and the California Parties on December 18, 2009, is terminated effective as of the Execution Date and its terms are superseded by this Agreement

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized officers or representatives as of the dates set forth under their respective signatures. Signatures appear on the pages that follow.

EXHIBIT A

Allocation Matrix

Allocation of Refunds from Northern California Power Agency - Exhibit A

(Allocation percentages rounded to nearest 100th of a percent); Interest is accrued through 12/31/09

Interest (Net of 30% Shortfall)

Interest (Net of 30% Shortfall) SUBTOTAL

Oct 2 - Jan 17

Line Market Participants % 3,090,284$ 1,405,985$ % (438,067)$ (195,612)$ 3,862,590$

1 Pacific Gas and Electric Company 0.5958 1,841,191 837,686 0.4268 (186,966) (83,487) 2,408,425 2 Southern California Edison Company 0.2607 805,637 366,540 0.3527 (154,503) (68,991) 948,683 3 San Diego Gas & Electric 0.1065 329,115 149,737 0.0734 (32,155) (14,358) 432,339 4 California Department of Water Resources - CERS - - - - - - - 5 Salt River Project 0.0176 54,389 24,745 0.0189 (8,291) (3,702) 67,141 6 New Energy Inc. 0.0015 4,635 2,109 0.0057 (2,500) (1,117) 3,127 7 Comision Federal De Electricidad - - - - - - - 8 Automated Power Exchange 0.0005 1,545 703 0.0062 (2,720) (1,214) (1,686) 9 American Electric Power Service Corporation 0.0023 7,108 3,234 - - - 10,341

10 Sacramento Municipal Utility District - - - 0.0009 (395) (176) (571) 11 Aquila Power Corporation 0.0070 21,632 9,842 - - - 31,474 12 Arizona Public Service Company 0.0047 14,524 6,608 0.0040 (1,755) (784) 18,594 13 California Polar Power Brokers LLC 0.0019 5,872 2,671 0.0008 (351) (157) 8,035 14 Pacific Gas and Electric Energy Services Company - - - - - - - 15 Cargill Alliant, LLC - - - - - - - 16 Illinova Energy Partners, Inc 0.0008 2,472 1,125 0.0003 (132) (59) 3,407 17 Strategic Energy, LLC 0.0004 1,236 562 0.0008 (351) (157) 1,291 18 City of Banning 0.0001 309 141 0.0004 (175) (78) 196 19 City of Vernon - - - 0.0054 (2,369) (1,058) (3,427) 27 City of Seattle, City Light Department - - - 0.0004 (175) (78) (254) 28 City of Anaheim - - - 0.0018 (790) (353) (1,142) 29 City of Pasadena - - - 0.0008 (351) (157) (508) 30 Idaho Power Company - - 0.0009 (395) (176) (571) 31 Coral Power, LLC - - - 0.0010 (439) (196) (635) 32 PacifiCorp - - - 0.0011 (483) (215) (698) 33 City of Azusa - - - 0.0011 (483) (215) (698) 34 Dynegy Power Marketing Inc. - - - 0.0019 (833) (372) (1,206) 35 City of Riverside 0.0002 618 281 0.0056 (2,457) (1,097) (2,654) 35 Western Area Power Administration (WAPA / WAMP) - - 0.0054 (2,369) (1,058) (3,427) 36 British Columbia Power Exchange Corporation - - - 0.0059 (2,588) (1,156) (3,744) 36 Enron Power Marketing, Inc. - - - 0.0368 (16,100) (7,189) (23,289) 37 California Department of Water Resources (SWP) - - - 0.0410 (17,942) (8,012) (25,954)

38 Total Allocated Refunds and Offsets 1.0000 3,090,284$ 1,405,985$ 1.0000 (438,067)$ (195,612)$ 3,862,590$

1 Oct 2 - Jan 17 Refunds include PX DA/DO Refunds through January 31, 2001.

2

3

A participant who owes market refunds or payables to the market, post-mitigation, in the EL00-95 (phase II) proceeding shall receive a deemed distribution by off-set of the payables or refunds it is determined to owe to the ISO and/or PX. See Exhibit B.SCE and SDG&E shares in the refund period (October 2, 2000 to January 17, 2001) and the summer period (May 1 to October 1, 2000) require adjustment to reflect SDG&E's 20% ownership of SONGS. This adjustment results in a 2.35% increase in SCE's share and a 2.35% decrease in SDG&E's share for both periods. The allocation percentages for SCE and SDG&E in both periods include this adjustment.

Refunds (PreJanuary 18, 2001) Fuel Cost Allowance Claim

Oct 2 - Jan 17

1

(Allocation percentages rounded to nearest 100th of a percent); Interest is accrued through 12/31/09

Line Market Participants

1 Pacific Gas and Electric Company2 Southern California Edison Company3 San Diego Gas & Electric4 California Department of Water Resources - CERS5 Salt River Project6 New Energy Inc.7 Comision Federal De Electricidad8 Automated Power Exchange9 American Electric Power Service Corporation

10 Sacramento Municipal Utility District11 Aquila Power Corporation12 Arizona Public Service Company13 California Polar Power Brokers LLC14 Pacific Gas and Electric Energy Services Company15 Cargill Alliant, LLC16 Illinova Energy Partners, Inc17 Strategic Energy, LLC18 City of Banning19 City of Vernon27 City of Seattle, City Light Department28 City of Anaheim29 City of Pasadena30 Idaho Power Company31 Coral Power, LLC32 PacifiCorp33 City of Azusa34 Dynegy Power Marketing Inc.35 City of Riverside35 Western Area Power Administration (WAPA / WAMP)36 British Columbia Power Exchange Corporation36 Enron Power Marketing, Inc.37 California Department of Water Resources (SWP)

38 Total Allocated Refunds and Offsets

Interest CERS' Bilateral Claim

Total Principal (Net of FCA)

Total Interest Net of Shortfall

Total Disbursed Amounts

Interest Shortfall on Refunds

Jan 18 - Jun 20

% 3,965,022$ 2,957,790$ 582,761$ 7,200,000$ 4,168,163$ 11,368,163$ 518,731$

0.4970 1,970,616 1,470,021 3,624,841 2,224,221 5,849,062 323,228 0.3181 1,261,273 940,873 1,912,407 1,238,422 3,150,829 127,521 0.1094 433,773 323,582 730,733 458,961 1,189,694 58,020 - - - 582,761 582,761 - 582,761 -

0.0171 67,802 50,578 113,900 71,621 185,521 9,018 0.0203 80,490 60,043 82,625 61,036 143,660 425 0.0093 36,875 27,507 36,875 27,507 64,382 - 0.0095 37,668 28,099 36,493 27,588 64,081 (219) 0.0077 30,531 22,775 37,638 26,009 63,647 1,386 0.0085 33,703 25,141 33,308 24,965 58,273 (76) - - - 21,632 9,842 31,474 4,218

0.0005 1,983 1,479 14,752 7,303 22,056 2,496 - - - 5,521 2,515 8,035 1,078

0.0011 4,362 3,254 4,362 3,254 7,615 - 0.0007 2,776 2,070 2,776 2,070 4,846 - - - - 2,341 1,066 3,407 457 - - - 885 406 1,291 174

0.0001 397 296 530 358 888 27 0.0006 2,379 1,775 10 717 727 (453) - - - (175) (78) (254) (34)

0.0001 397 296 (393) (57) (450) (151) - - - (351) (157) (508) (67)

(395) (176) (571) (76) - - - (439) (196) (635) (84) - - - (483) (215) (698) (92) - - - (483) (215) (698) (92) - - - (833) (372) (1,206) (160) - - - (1,839) (816) (2,654) (350) - - - (2,369) (1,058) (3,427) (453) - - - (2,588) (1,156) (3,744) (495) - - - (16,100) (7,189) (23,289) (3,081) - - - (17,942) (8,012) (25,954) (3,434)

1.0000 3,965,022$ 2,957,790$ 582,761$ 7,200,000$ 4,168,163$ 11,368,163$ 518,731$

May 01, 2000 - June 20, 2001

Refunds (Pre-October)

May 1, 2001 - October 1, 2000

2

EXHIBIT B

Deemed Distribution Participants

Aquila Power Corporation California Polar Power Brokers LLC Illinova Energy Partners, Inc. Pacific Gas and Electric Company Pacific Gas and Electric Energy Services Company Sacramento Municipal Utility District

1

1

EXHIBIT C

Prior Settlements

1. Settlement agreements requiring the agreement of the California Parties and the settling

supplier(s) with whom the California Parties settled to opt-in out of time:

a. Williams Companies, as approved in San Diego Gas & Elec. Co., 108 FERC ¶ 61,002 (2004);

b. The Dynegy Parties, as approved in San Diego Gas & Elec. Co., et al., 109 FERC ¶ 61,071 (2004);

c. The Duke Parties or Duke, as approved in San Diego Gas & Elec. Co., et al., 109 FERC ¶ 61,257 (2004);

d. The Mirant Parties, as approved in San Diego Gas & Elec. Co., et al., 111 FERC ¶ 61,017 (2005);

e. The Enron Parties, as approved in San Diego Gas & Elec. Co., et al., 113 FERC ¶ 61,171 (2005) and as later amended, San Diego Gas & Elec. Co., et al., 119 FERC ¶ 61,135 (2007);

f. Public Service Company of Colorado, as approved in San Diego Gas & Elec. Co., et al., 113 FERC ¶ 61,235 (2005);

g. The Reliant Parties, as approved in San Diego Gas & Elec. Co., et al., 113 FERC ¶ 61,308 (2005);

h. Idacorp (Idaho Power Company and IDACORP Energy L.P.), as approved in San Diego Gas & Elec. Co., et al., 115 FERC ¶ 61,230 (2006);

i. Eugene Water & Electric Board, as approved in San Diego Gas & Elec. Co., et al., 119 FERC ¶ 61,092 (2007);

j. Portland General Electric Company, as approved in San Diego Gas & Elec. Co., et al., 119 FERC ¶ 61,151 (2007);

k. El Paso Corporation and El Paso Marketing L.P. (f/k/a El Paso Merchant Energy L.P.), as approved in San Diego Gas & Elec. Co., 119 FERC ¶ 61,297 (2007) (providing opportunity to opt out that was exercised by NCPA);

l. PacifiCorp, as approved in San Diego Gas & Elec. Co., et al., 119 FERC ¶ 61,296 (2007);

m. PPM Energy, Inc., as approved in San Diego Gas & Elec. Co., et al., 121 FERC ¶ 61,014 (2007);

2

n. Conectiv Energy Supply, Inc., as approved in San Diego Gas & Elec. Co., et al., 122 FERC ¶ 61,008 (2008);

o. Midway Sunset Cogeneration Company, as approved in San Diego Gas & Elec. Co., et al., 123 FERC ¶ 61,004 (2008);

p. Public Utility District No. 2 of Grant County, Washington, as approved in San Diego Gas & Elec. Co., et al., 123 FERC ¶ 61,200 (2008);

q. City of Riverside, California, as approved in San Diego Gas & Elec. Co., et al., 123 FERC ¶ 61,242 (2008);

r. City of Anaheim, California, as approved in San Diego Gas & Elec. Co., et al., 123 FERC ¶ 61,243 (2008);

s. City of Azusa, California, as approved in San Diego Gas & Elec. Co., et al., 123 FERC ¶ 61,244 (2008);

t. Strategic Energy, LLC, as approved in San Diego Gas & Elec. Co., et al., 123 FERC ¶ 61,316 (2008);

u. NEGT Energy Trading-Power, L.P. (f/k/a PG&E energy Trading Power, L.P.), as approved in San Diego Gas & Elec. Co., 126 FERC ¶ 61,007 (2009) (providing opportunity to opt-out that was exercised by NCPA).

v. AES Placerita, Inc., as approved in San Diego Gas & Elec. Co., et al., 128 FERC ¶ 61,004 (2009);

w. Constellation Energy Commodities Group, Inc. and Constellation NewEnergy, Inc., as approved in San Diego Gas & Elec. Co., et al., 128 FERC ¶ 61,242 (2009); and

x. Comisión Federal de Electricidad, as approved in San Diego Gas & Elec. Co., 128 FERC ¶ 61,256 (2009).

2 Settlement agreements requiring the agreement of the California Parties only to opt-in out of time

a. City of Vernon, California, as approved in San Diego Gas & Elec. Co., 125 FERC

¶ 61,085 (2008);

b. Puget Sound Energy, Inc., as approved in San Diego Gas & Elec. Co., 128 FERC ¶ 61,002 (2009);

c. PECO/Exelon, as approved in San Diego Gas & Elec. Co., 128 FERC ¶ 61,259 (2009);

d. Cargill Power Markets, LLC (f/k/a Cargill-Alliant, LLC), as approved in San Diego Gas & Elec. Co., 128 FERC ¶ 61,258 (2009); and

3

e. City of Los Angeles acting by and through the Department of Water and Power, as approved in San Diego Gas & Electric Co., 128 FERC ¶ 61,257 (2009).

EXHIBIT D

Form of Notices of Resolution and Satisfaction of Claim

To be filed in the PG&E Bankruptcy Proceedings

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12

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1 NOTICE OF WITHDRAWAL OF CLAIM OF NORTHERN CALIFORNIA POWER AGENCY 1280869v2 03791/0109

Mark Gorton (099312) Mary E. Olden (109373) McDONOUGH HOLLAND & ALLEN PC Attorneys at Law 500 Capitol Mall, 18th Floor Sacramento, CA 95814 Phone: 916.444.3900 Fax: 916.444.8334 Email: mgorton@mhalaw.com molden@mhalaw.com Attorneys for Creditor Northern California Power Agency

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

San Francisco Division

In re PACIFIC GAS AND ELECTRIC COMPANY, a California corporation,

Debtor.

Federal I.D. No. 94-0742640

) ) ) ) ) ) ) ) ) ) ) ) )

Case No. 01-30923 DM Chapter 11 Case NOTICE OF RESOLUTION, SATISFACTION, WITHDRAWAL AND DISMISSAL OF CLAIMS OF NORTHERN CALIFORNIA POWER AGENCY, INCLUDING PROOF OF CLAIM NOS. 12385 AND 13331 [NO HEARING REQUESTED]

PLEASE TAKE NOTICE that pursuant to the Settlement and Release of Claims

Agreement dated , 2010, by and among the Northern California Power

Agency ("NCPA"), Pacific Gas and Electric Company and other settling parties, approved by the

Order Approving Settlement of the Federal Energy Regulatory Commission, FERC ¶

( , 2010), all claims filed by or assigned to NCPA, including Proof of

Claim Nos. 12385 and 13331, have been resolved and satisfied and are hereby withdrawn and

dismissed with prejudice.

Dated: , 2010 McDONOUGH HOLLAND & ALLEN PC Attorneys at Law By: Mark Gorton MARK GORTON Attorneys for Northern California Power Agency

CERTIFICATE OF SERVICE

I hereby certify that I have this day served an electronic copy of the foregoing

document upon each person designated on the ListServs established in Docket Nos. EL00-95,

et al., EL03-137, et al., and EL03-180, et al. I have served an electronic copy or a paper copy

via first class mail upon each person designated on the official service lists established in

Docket Nos. EL01-10 and ER03-746 who is not otherwise served via the above ListServs.

Dated at Washington, DC this first day of February, 2010.

/s/ Kevin HaggertyKevin Haggerty Steptoe & Johnson LLP 1330 Connecticut Avenue, NW Washington, DC 20036 (202) 429-6745 khaggerty@steptoe.com