AGREEMENT REGARDING NON-BYPASSABLE CHARGES UNDER ELECTRIC RATE SCHEDULE E-NMDL BETWEEN PACIFIC GAS AND ELECTRIC COMPANY AND HERCULES MUNICIPAL UTILITY

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1 I. INTRODUCTION AGREEMENT REGARDING NON-BYPASSABLE CHARGES UNDER ELECTRIC RATE SCHEDULE E-NMDL BETWEEN PACIFIC GAS AND ELECTRIC COMPANY AND HERCULES MUNICIPAL UTILITY WHEREAS the California Public Utilities Commission (CPUC) issued a series of decisions in Rulemaking (R.) , including Decisions , , , and , holding customers never previously served by the investor-owned utilities (IOUs) but taking service from a publicly owned utility (POU) within the IOUs historic service territory (New Municipal Departing Load, or NMDL) responsible for certain nonbypassable charges; and WHEREAS the CPUC has approved PG&E Electric Rate Schedule E-NMDL (New Municipal Departing Load), which contains the rates, terms and conditions for the applicability of nonbypassable charges to NMDL Customers, including current and future customers of Hercules Municipal Utility (HMU); and WHEREAS PG&E and HMU (collectively, the Parties) believe that it is expedient and cost-effective to enter into an agreement to provide for a lump-sum payment of all past, present and future nonbypassable charges applicable to the NMDL Customers under Schedule E-NMDL (NMDL Charges); THEREFORE, PG&E and HMU, acting on behalf of itself and the NMDL Customers, desire to enter into this Agreement Regarding Non-Bypassable Charges under Electric Rate Schedule E-NMDL (NMDL Agreement). II. BACKGROUND In a series of decisions in R , the CPUC held that customers never previously served by IOUs but taking service from POUs within the IOUs historic service territory should be responsible for certain nonbypassable charges, subject to various exemptions. The CPUC adopted Resolution E-4064 addressing procedures for billing and collecting NMDL Charges, and on February 7, 2008, the CPUC approved PG&E s Schedule E-NMDL implementing Resolution E Special Condition 1.a of Schedule E-NMDL defines New Municipal Departing Load as (1) electric load that has never been served by PG&E but locates within PG&E s service area as it existed on February 1, 2001, and is served by a Publicly Owned Utility (POU); (2) the party or entity that contracts with a POU for service at premises with New Municipal Departing Load. Special Condition 2 of Schedule E-NMDL provides certain exemptions from the various nonbypassable charges, including the following: New Municipal Departing Load that is served by POUs that were in existence on or prior to July 10, 2003, and serving at least 100 consumers, may be eligible to be excepted from the DWR Power Charge, the PCIA, the RA Charge, and the ECRA Charge. Among the entities found by the CPUC to meet these two criteria was HMU. 1

2 Special Condition 3 anticipates that, in lieu of billing and collecting NMDL Charges pursuant to the tariff, PG&E may enter into bilateral discussions with a POU or POU customer to resolve NMDL Charges. Consistent with this provision, PG&E and HMU began negotiating a bilateral agreement in early This NMDL Agreement represents the product of the negotiations between PG&E and HMU. III. CONDITIONS Subject to the conditions set forth below, this NMDL Agreement addresses the rates, terms and conditions associated with a lump sum payment of all charges under Schedule E- NMDL. 1. This NMDL Agreement embodies the entire understanding and agreement of the Parties with respect to the matters described, and it supersedes prior oral or written agreements, principles, negotiations, statements, representations, or understandings among the Parties with respect to those matters. 2. This NMDL Agreement represents a compromise among the Parties respective litigation positions, not agreement to or endorsement of disputed facts. 3. The Parties agree that this NMDL Agreement is reasonable in light of the information shared by the Parties, consistent with law, and in the public interest. 4. The Parties agree that no provision of this NMDL Agreement shall be construed against either Party because that Party or its counsel or advocate drafted the provision. 5. This NMDL Agreement may be amended or changed only by a written agreement signed by the Parties. 6. The Parties intend this NMDL Agreement to be interpreted and treated as a unified, integrated agreement. IV. TERMS 1. The Parties have thoroughly investigated the past, present and estimated future nonbypassable charges under Schedule E-NMDL, the historic usage amounts (as described in Schedule E-NMDL, Special Condition 4), and other relevant factors, and have concluded that $338,950 represents a reasonable lump-sum payment under Schedule E-NMDL for the NMDL Accounts (Lump Sum Amount). 2. PG&E shall invoice HMU for the Lump Sum Amount within a reasonable time after CPUC approval of this NMDL Agreement. Invoices shall be sent to HMU at the following address: Hercules Municipal Utility Attention: Mike Sakamoto, HMU General Manager City of Hercules 111 Civic Drive Hercules California (facsimile) 2

3 HMU shall pay the Lump Sum Amount in four installments pursuant to the following schedule: PAYMENT SCHEDULE 30 days from First installment payment receipt of invoice ($113,000) On or before 1/1/10 Second installment payment ($113,000) On or before 1/1/11 Third installment payment ($112,950) Payments shall be made to PG&E by wire transfer to the following: Mellon Trust of New England, N.A. Boston, MA ABA Routing Number: For credit to: PG & E Depository Account Account number: The Parties agree that the payment made by HMU of the Lump Sum Amount, as described in Section 3, shall be a full and complete satisfaction of the obligations of all NMDL Customers within the City of Hercules for charges under Schedule E- NMDL. PG&E expressly waives any and all claims for additional payment of nonbypassable charges from the NMDL Customers, it being understood that this NMDL Agreement constitutes a full and complete settlement of PG&E s past and future claims against the NMDL Customers for charges under Schedule E-NMDL. 5. The Parties agree that all workpapers and documentation relative to this NMDL Agreement, whether in written or electronic form, and the substantive content of the discussions and related communications, whether written or verbal, leading up to this NMDL Agreement, shall be considered Confidential Information and shall not be disclosed by either Party during the term of this NMDL Agreement, except to such employees and agents of each Party who need access to the Confidential Information in order to ensure performance of this NMDL Agreement. In the event that a Party is required by law or regulatory authority to disclose any Confidential Information, such Party will provide the other Party with prompt written notice so that the other Party may seek a protective order or other remedy. In the event such protective order or other remedy is not obtained or that the Party waives compliance with the provisions of this Section 5, the first Party will furnish only that portion of the Confidential Information that is legally required. If a Party elects to contest the disclosure of any Confidential Information, that Party may, at its own cost and expense, assume the defense of such claim or litigation. The Parties agree to abide by the final decision of a court of competent jurisdiction in connection with such claim. Notwithstanding the foregoing, the Parties hereby acknowledge that HMU is a local government agency and is subject to provisions of the California Public Records Act (California Government Code Sections 6250 et seq.) and the Ralph M. Brown Act (California Government Code Sections et seq.), and that HMU will be entitled to make 3

4 records related to this NMDL Agreement public to the extent required under these statutory provisions. 6. Each Party expressly agrees to waive the provisions of California Civil Code section 1542, which section provides as follows: 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. 7. While this Agreement is between PG&E and HMU, it is understood that it fully satisfies the NMDL charge obligations of the NMDL Customers, and PG&E agrees that it will have no right to seek further payment or pursue any claim against NMDL Customers for charges under Schedule E-NMDL. 8. In no event shall either Party be liable to the other Party for any indirect, special, consequential, or punitive damages of any kind whatsoever, whether in contract, tort, or special liability. 9. Except as otherwise provided for in this NMDL Agreement, any dispute arising between the Parties relating to interpretation of the provisions of this NMDL Agreement or to the performance of either Party of its obligations hereunder shall be reduced to writing and referred to the Parties duly appointed representatives for resolution, as indicated below: For PG&E: For HMU: Ann Kim PG&E Law Department 77 Beale Street San Francisco, CA Phone: (415) ahk4@pge.com City Manager City of Hercules 111 Civic Drive Hercules, CA In the event of a disagreement between the Parties arising out of this Agreement ( Disagreement ), then: 1. Notice. The Party alleging a Disagreement ( Alleging Party ) shall provide written notice to the other Party ( Responding Party ) in which it sets forth the facts giving rise to the Disagreement ( Notice ). Within 15 days of receipt of such Notice, the Responding Party shall respond in writing to the allegations set forth in the Alleging Party s notice ( Response ). 2. Meet and Confer. If the Parties have not resolved the Disagreement within 15 days of the Response, then business-persons from PG&E and the involved District(s) with sufficient authority to resolve the Disagreement shall meet and confer in person (the Business-Person Meet and Confer ) to discuss and in good faith attempt to resolve the Disagreement. Any Party, or all Parties, may choose to have counsel attend the Business-Person Meet and Confer, but attendance of counsel shall not be mandatory. 4

5 3. Voluntary Mediation. If the Parties do not resolve the Disagreement during the Business-Person Meet and Confer, or within 10 days thereafter, PG&E and the involved District or Districts shall in good faith discuss whether to retain a mediator to help the Parties attempt to resolve the Disagreement; however, neither Party shall be obligated to enter into mediation. In the event that the Parties do in fact choose to mediate the Disagreement, then they shall bear equally the costs of such mediation. V. EXECUTION Each Party represents and warrants that (1) it has the full power and authority to execute and deliver this NMDL Agreement and to perform its terms and conditions; (2) the execution, delivery and performance of this NMDL Agreement have been duly authorized by all necessary corporate, municipal, or other action by such Party; and (3) this NMDL Agreement constitutes such Party s legal, valid, and binding obligation, enforceable against such Party in accordance with its terms. This NMDL Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This NMDL Agreement shall become effective on the date the last Party executes this NMDL Agreement, as indicated below. In witness whereof, intending to be legally bound, the Parties hereto have duly executed this NMDL Agreement on behalf of the Parties they represent. Pacific Gas and Electric Company By: Title: Date: In witness whereof, intending to be legally bound, the Parties hereto have duly executed this NMDL Agreement on behalf of the Parties they represent. Hercules Municipal Utility By: Title: Date: 5