EXHIBIT 10.06
SDG&E OPERATING AGREEMENT
Between
STATE OF CALIFORNIA
DEPARTMENT OF WATER RESOURCES
And
SAN DIEGO GAS & ELECTRIC COMPANY
THIS AGREEMENT HAS BEEN FILED WITH AND APPROVED BY THE CALIFORNIA
PUBLIC UTILITIES COMMISSION ("COMMISSION") FOR USE BETWEEN THE STATE OF
CALIFORNIA DEPARTMENT OF WATER RESOURCES ("DWR") AND SAN DIEGO GAS &
ELECTRIC COMPANY ("UTILITY").
Execution Date: April 16 , 2003
Date of Commission Approval:
Effective Date:
OPERATING AGREEMENT
This OPERATING AGREEMENT (this "Agreement") is between the State
of California Department of Water Resources ("DWR"), acting solely
under the authority and powers granted by AB1X, codified as Sections
80000 through 80270 of the Water Code, and not under its powers and
responsibilities with respect to the State Water Resources Development
System, and San Diego Gas & Electric Company, a California corporation
("Utility"). DWR and Utility are sometimes collectively referred to
herein as the "Parties" and individually referred to as a "Party."
Unless otherwise noted, all capitalized terms shall have the meanings
set forth in Article I of this Agreement.
R E C I T A L S
WHEREAS, under the Act, DWR has entered into a number of long-
term power purchase agreements for the purpose of providing the net
short requirements to the retail ratepayers of the State's electrical
corporations, including Utility; and
WHEREAS, the Contract Allocation Order of the Commission provides
that such long-term power purchase agreements are to be operationally
allocated among the State's electrical corporations, including Utility;
solely for the purpose of causing the State's electrical corporations
to perform certain specified functions on behalf of DWR, as DWR's
limited agent, including dispatching, scheduling, billing and
settlements functions, and to sell surplus energy, all as such
functions relate to those certain power purchase agreements that are
operationally allocated to each electrical corporation under the
Contract Allocation Order; and
WHEREAS, DWR wishes to provide for the performance of such
functions under the Allocated Contracts by Utility on behalf of DWR in
accordance with such long-term power purchase agreements as provided in
this Agreement; and
WHEREAS, consistent with the Contract Allocation Order, DWR will
retain legal and financial obligations, together with ongoing
responsibility for any other functions not explicitly provided in this
Agreement to be performed by Utility, with respect to each of the
Allocated Contracts and it is the intent of DWR and the Utility that
the provisions of this Agreement will not constitute an "assignment" of
the Allocated Contracts to Utility.
NOW, THEREFORE, in consideration of the mutual obligations of the
Parties, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. The following terms shall have the
respective meanings in this Agreement:
The following terms, when used herein (and in the attachments
hereto) with initial capitalization, shall have the meaning specified
in this Section 1.01. Certain additional terms are defined in the
attachments hereto. The singular shall include the plural and the
masculine shall include the feminine and neuter, and vice versa.
"Includes" or "including" shall mean "including without limitation."
References to a section or attachment shall mean a section or
attachment of this Agreement, as the case may be, unless the context
requires otherwise, and reference to a given agreement or instrument
shall be a reference to that agreement or instrument as modified,
amended, supplemented or restated through the date as of which such
reference is made (except as otherwise specifically provided herein).
Unless the context otherwise requires, references to Applicable Laws or
Applicable Tariffs shall be deemed references to such laws or tariffs
as they may be amended, replaced or restated from time to time.
References to the time of day shall be deemed references to such time
as measured by prevailing Pacific time.
"Act" means Chapter 4 of Statutes of 2001 (Assembly Bill 1 of the
First 2001-02 Extraordinary Session) of the State of California, as
amended.
"Agreement", means this Operating Agreement, together with all
attached Schedules, Exhibits and Attachments, as such may be amended
from time to time as evidenced by a written amendment executed by the
Parties.
"Allocated Contracts" means the long-term power purchase
agreements operationally allocated to Utility under the Contract
Allocation Order, without legal and financial assignment of such
agreements to Utility, as provided in Schedule 1 attached hereto.
"Allocated Power" means all power and energy, including the use
of such power or energy as ancillary services, delivered or to be
delivered under the Contracts.
"Applicable Commission Orders" means such rules, regulations,
decisions, opinions or orders as the Commission may lawfully issue or
promulgate from time to time, which relate to the subject matter of
this Agreement.
"Applicable Law" means the Act, Applicable Commission Orders and
any other applicable statute, constitutional provision, rule, regulation,
ordinance, order, decision or code of a Governmental Authority.
"Applicable Tariffs" means Utility's tariffs, including all
rules, rates, schedules and preliminary statements, governing electric
energy service to Utility's customers in its service territory, as
filed with and approved by the Commission and, if applicable, the
Federal Energy Regulatory Commission.
"Assign(s)" shall have the meaning set forth in Section 14.01.
"Bonds" shall have the meaning set forth in the Rate Agreement.
"Bond Charges" shall have the meaning set forth in the Rate
Agreement.
"Business Day" means the regular Monday through Friday weekdays
which are customary working days, excluding holidays, as established by
Applicable Tariffs.
"Commission" means the California Public Utilities Commission.
"Confidential Information" shall have the meaning set forth in
Section 11.01(c).
"Contracts" means the Allocated Contracts.
"Contract Allocation Order" means Decision 02-09-053 of the
Commission, issued on September 19, 2002, as such Decision may be
modified, revised, amended, supplemented or superseded from time to
time by the Commission.
"DWR Power" shall have the same meaning set forth in the
Servicing Arrangement with such amendments to incorporate the
Settlement Principles for Remittances and Surplus Revenues as provided
in Exhibit C of this Agreement.
"DWR Revenues" means those amounts required to be remitted to DWR
by Utility in accordance with this Agreement and as further provided in
the Servicing Arrangement.
"Effective Date" means the effective date in accordance with
Section 14.13, as such date is set forth on the cover page hereof.
"Fund" means the Department of Water Resources Electric Power
Fund established by Section 80200 of the California Water Code.
"Good Utility Practice" means any of the practices, methods and
acts engaged in or approved by a significant portion of the electric
utility industry during the relevant time period, or any of the
practices, methods and acts which, in the exercise of reasonable
judgment in light of the facts known at the time the decision was made,
could have been expected to accomplish the desired result at a
reasonable cost consistent with good business practices, reliability,
safety and expedition. Good Utility Practice does not require the
optimum practice, method, or act to the exclusion of all others, but
rather is intended to include acceptable practices, methods, or acts
generally accepted in the Western Electric Coordinating Council region.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to a government, including the Commission.
"Governmental Program" means any program or directive established
by Applicable Law which directly or indirectly affects the rights or
obligations of the Parties under this Agreement and which obligates or
authorizes DWR to make payments or give credits to customers or other
third parties under such programs or directives.
"ISO" means the California Independent System Operator
Corporation.
"Order" means Decision 02-12-069 of the Commission, issued on
December 19, 2002 as such decision may be amended or supplemented from
time to time by the Commission.
"Power Charges" shall have the meaning set forth in the Rate
Agreement.
"Priority Long Term Power Contract" shall have the meaning set
forth in the Rate Agreement.
"Rate Agreement" means the Rate Agreement between DWR and the
Commission adopted by the Commission on February 21, 2001 in
Decision 02-02-051.
"Remittance" means a payment by Utility to DWR or its Assign(s)
in accordance with the Servicing Arrangement.
"Servicing Arrangement" means the First Amended and Restated
Servicing Agreement, dated March 29, 2002, between DWR and Utility, as
amended.
"Supplier" means those certain third parties who are supplying
power pursuant to the Contracts.
"Term" means term provided in Section 2.05 hereof.
"URG" means utility-retained generation, including without
limitation Utility's portfolio of generation resources and power
purchase agreements prior to or after the Effective Date by Utility.
Section 1.02. Undefined Terms. Capitalized terms not otherwise
defined in Section 1.01 herein shall have the meanings set forth in the
Act or the Servicing Arrangement.
ARTICLE II
OPERATIONAL ALLOCATION OF POWER PURCHASE AGREEMENTS; MANAGEMENT OF THE
CONTRACTS; ALLOCATED POWER; TERM
Section 2.01. Operational Allocation and Management of Power
Purchase Agreements. On behalf of DWR, as its limited agent, Utility
will perform certain day-to-day scheduling and dispatch functions,
billing and settlements and surplus energy sales and certain other
tasks with respect to the Allocated Contracts, as more fully set forth
in this Agreement.
As further provided in Contract Administration and Performance
Test Monitoring Protocols set forth in Exhibit E, DWR will continue to
monitor and audit the Supplier performance under the Contracts. Upon
development of a mutually agreeable plan, Utility will monitor the
performance of Suppliers, as further provided in Exhibit E, subject,
however, to DWR's right but not the obligation to audit and monitor all
functions contemplated to be performed by Utility, all as further
provided in this Agreement.
Section 2.02. Standard of Contract Management.
(a) Utility agrees to perform the functions specified in this
Agreement relating to the Allocated Contracts in a commercially
reasonable manner, exercising Good Utility Practice, and in a fashion
reasonably designed to serve the overall best interests of retail
electric customers. Utility shall provide to DWR such information
specifically provided in Exhibit F hereto to facilitate DWR's
verification of Utility's compliance with this Section 2.02. In
addition, the Parties acknowledge that DWR is not subject to the
Commission's jurisdiction, and the Parties agree that none of the
provisions of this Agreement, including Section 13.04 herein, shall be
interpreted to subject DWR to the Commission's jurisdiction or
authority.
(b) To the extent requested by Utility, DWR shall provide
evidence in Commission proceedings describing Utility's and DWR's
performance, rights and obligations under this Agreement.
(c) DWR acknowledges the Commission's exclusive authority over
whether the Utility has managed Allocated Power available under the
Contracts in a just and reasonable manner and DWR and Utility agrees
that none of the provisions of this Agreement shall be interpreted to
reduce, diminish, or otherwise limit the scope of any Commission
authority or to give DWR any authority over such matters.
(d) The Utility acknowledges DWR's separate and independent
right to evaluate and enforce Utility's commercial performance under
this Agreement.
(g) Utility agrees to provide any information not otherwise
required herein that is reasonably necessary to allow DWR to exercise
its rights in subsection (d) above, provided that all such information
shall be used solely for the purposes of exercising such rights.
Section 2.03. Good Faith. Each Party hereby covenants that it
shall perform its actions, obligations and duties in connection with
this Agreement in good faith.
Section 2.04. DWR Power. During the term of this Agreement, the
electric power and energy, including but not limited to capacity, and
output, or any of them from the Contracts delivered to retail end-use
customers in Utility's service area shall constitute DWR Power for all
purposes of the Servicing Arrangement. Utility shall arrange for
transmission service to accommodate surplus sales to the extent that
transmission service is available and cost effective, all as further
provided in Exhibit A.
Section 2.05. Term.
(a) The Term of this Agreement shall commence on the Effective
Date and shall terminate on the earlier of (a) the termination of
the Servicing Arrangement, or (b) the termination of this
Agreement by DWR upon ninety days' written notice to Utility, or
(c) upon consultation with the Commission, the termination of the
Agreement by DWR upon reasonable written notice to Utility no
shorter than 30 days, or (d) pursuant to Article VII hereof, the
termination of this Agreement by a non-defaulting Party after an
Event of Default. In addition, this Agreement will terminate as
to each Contract that terminates in accordance with its terms.
DWR agrees to notify Utility as to the termination of each
Contract as provided in Section 5.01(e) hereof.
(b) If an event occurs which has the effect of materially
altering and materially adversely impacting the economic position
of the Parties or either of them under this Agreement, then the
affected Party may, by written notice, request that the
Commission approve amendments to this Agreement or other
arrangements incidental to this Agreement as necessary to
preserve or restore the economic position under this Agreement
held by the affected Party immediately prior to such event. Such
notice shall describe the event and shall include reasonable
particulars as to the manner and extent to which the economic
position of the party giving notice has been adversely affected.
ARTICLE III
LIMITED AGENCY / NO ASSIGNMENT
Section 3.01. Limited Agency. Utility is hereby appointed as
DWR's agent for the limited purposes set forth in this Agreement.
Utility shall not be deemed to be acting, and shall not hold itself
out, as agent for DWR for any purpose other than those described in
this Agreement. Utility's duties and obligations shall be limited to
those duties and obligations that are specified in this Agreement.
Section 3.02. No Assignment. DWR shall remain legally and
financially responsible for performance under each of the Contracts and
shall retain liability to the counterparty for any failure of Utility
to perform the functions referred to in this Agreement on behalf of DWR
as its limited agent, under such Contracts in accordance with the terms
thereof. It is the intent of DWR and Utility that the provisions of
this Agreement shall not constitute or result in an "assignment" of the
Allocated Contracts in any respect.
ARTICLE IV
LIMITED DUTIES OF UTILITY
Section 4.01. Limited Duties of Utility as to the Contracts.
During the Term of this Agreement, Utility shall:
(a) On behalf of DWR, as its limited agent, perform the day-to-
day scheduling and dispatch functions, including day-ahead, hour-
ahead and real time trading, scheduling transactions with all
involved parties, under the Allocated Contracts, perform billing
and settlements functions and obtain relevant information for
these functions such as transmission availability and others,
with respect to the Allocated Contracts set forth in Schedule 1
hereto, all as more specifically provided in the Operating
Protocols attached hereto as Exhibit A;
(b) On behalf of DWR, as its limited agent, enter into
transactions for the purchase (or sale, as the case may be) of
gas, gas transmission services, gas storage services and
financial hedges, and perform the operational and administrative
responsibilities for such purchases under gas tolling provisions
under the Allocated Contracts, including the review of fuel plans
and consideration of alternative fuel supply, all as more
specifically provided in the Fuel Management Protocols attached
hereto as Exhibit B;
(c) On behalf of DWR, as its limited agent, perform all
necessary billing and settlement functions under the Allocated
Contracts, in accordance with the terms of the applicable
Contracts. In addition, perform all necessary billing and
settlement functions related to DWR Revenues and remit DWR
Revenues to DWR, consistent with the Settlement Principles for
Remittances and Surplus Revenues attached hereto as Exhibit C and
the Servicing Arrangement;
(d) Assume financial responsibility for the ISO charges listed
on Exhibit D attached hereto;
(e) On behalf of DWR, as its limited agent, upon development of
a mutually agreeable plan, monitor the performance of Suppliers
under the Allocated Contracts and undertake the administration of
the Allocated Contracts, as more specifically provided in the
Contract Administration and Performance Monitoring Protocols
attached hereto as Exhibit E;
(f) Provide to DWR the necessary information required by DWR as
more specifically provided in the DWR Data Requirements From
Utility attached hereto as Exhibit F to facilitate DWR's
continued performance of financial obligations related to
Allocated Contracts and to facilitate DWR's verification, audit
and monitoring related to the Allocated Contracts and reporting
requirements set forth in Applicable Laws or agreements;
(g) At all times in performing its obligations under this
Agreement (i) comply with the provisions of each of the Allocated
Contracts, (ii) follow Good Utility Practice, and (iii) comply
with all Applicable Laws and Applicable Commission Orders;
(h) Appoint a primary and secondary contact person, as set forth
in Schedule 2 hereto, to coordinate the responsibilities listed
in this Section 4.01; and
(i) On behalf of DWR, as its limited agent, make surplus energy
sales as more specifically provided in this Agreement.
Provided, however, in the event that DWR fails to provide or
provides inaccurate information which results in Utility's non-
compliance with its obligations under this Agreement, the
resulting non-compliance by Utility shall not constitute an Event
of Default under Section 7.01 hereof.
Section 4.02. Dispatch or Sale of Allocated Power. Subject to
any existing or new ISO tariff provisions that may affect the dispatch
of such Contracts, Allocated Power from all Contracts shall be
dispatched or sold, as the case may be, by Utility pursuant to the
Operating Protocols attached hereto as Exhibit A.
Section 4.03. DWR Revenues. DWR Revenues shall be accounted and
remitted to DWR consistent with the principles provided in the
Settlement Principles for Remittances and Surplus Revenues attached
hereto as Exhibit C and the provisions of the Servicing Arrangement.
Unless otherwise specifically provided in this Agreement, Utility will
not be required at any time to advance or pay any of its own funds in
the fulfillment of its responsibilities under this Agreement.
Section 4.04. Ownership of Allocated Power. Notwithstanding any
other provision herein, and in accordance with the Act and Section
80110 of the California Water Code, Utility and DWR agree that DWR
shall retain title to all Allocated Power, including DWR Power. In
accordance with the Act and Section 80104 of the California Water Code,
upon the delivery of Allocated Power to Utility's customers, those
customers shall be deemed to have purchased that power from DWR, and
payment for such sale shall be a direct obligation of such customer to
DWR. In addition, Utility and DWR agree that DWR shall retain title to
any surplus Allocated Power sold by Utility as limited agent to DWR as
provided in this Agreement.
ARTICLE V
DUTIES OF DWR
Section 5.01. Duties of DWR. Consistent with the Contract
Allocation Order, during the Term of this Agreement, DWR shall:
(a) Remain legally and financially responsible under each of the
Contracts and cooperate with Utility in the transition from DWR
to Utility the performance of the functions provided in this
Agreement;
(b) Assume legal and financial responsibilities and enter into
or facilitate Utility's entering into transactions as DWR's
limited agent, for the purchase (or sale, as the case may be) of
gas, gas transmission services, gas storage services and
financial hedges, and timely consent to or approve the Utility's
performance of the operational and administrative
responsibilities for such purchases under gas tolling provisions
under the Allocated Contracts, including the review of fuel plans
and consideration of alternative fuel supply, all as more
specifically provided in the Fuel Management Protocols attached
hereto as Exhibit B;
(c) Pay invoices to the Suppliers and perform all necessary
verification, audit and monitoring of the billing and settlement
functions to be performed on DWR's behalf, as its limited agent,
by Utility relating to the Contracts. In addition, perform all
necessary verification, audit and monitoring of the billing and
settlement functions to be performed on DWR's behalf, as its
limited agent, by Utility related to DWR Revenues, consistent
with the principles set forth in the Settlement Principles for
Remittances and Surplus Revenues attached hereto as Exhibit C;
(d) Until such time as a mutually agreed upon plan may be
entered into with Utility and approved by the Commission, and no
earlier than January 1, 2004, continue to monitor the performance
of Suppliers and conduct certain contract administration duties
under the Allocated Contracts, all as more specifically provided
in the Contract Administration and Performance Monitoring
Protocols attached hereto as Exhibit E. In addition, continue to
perform all other administrative functions related to Contracts
not explicitly provided in this Agreement to be performed by
Utility on behalf of DWR, as its limited agent;
(e) Upon the termination of any Contract, submit in writing to
Utility appropriate Schedules and Attachments to Exhibit A
amended to reflect the termination of any Contract. Such amended
Schedules and Attachments shall become effective only upon the
effective date of the termination of such Contract. Provided,
however, rights or obligations of the Parties that arise or
relate to Utility's performance of its duties under this
Agreement in respect of any terminated Contract shall survive
until the expiration of any such right or obligation; and
(f) Appoint a primary and secondary contact person, as set forth
in Schedule 2 hereto, to coordinate the responsibilities listed
in this Section 5.01.
ARTICLE VI
[RESERVED]
Section 6.01. [Intentionally left blank.]
ARTICLE VII`
EVENTS OF DEFAULT
Section 7.01. Events of Default. The following events shall
constitute "Events of Default" under this Agreement:
(a) any material failure by a Party to pay any amount due and
payable under this Agreement that continues unremedied for five
(5) Business Days after the earlier of the day the defaulting
Party receives written notice thereof from the non-defaulting
Party; or
(b) any material failure by Utility to schedule and dispatch
Contracts, consistent with the principles set forth in Exhibit A;
or
(c) any failure (except as provided in (a) or (b)) by a Party to
duly observe or perform in any material respect any other
covenant or agreement of such Party set forth in this Agreement,
which failure continues unremedied for a period of 15 calendar
days after written notice of such failure has been given to such
Party by the non-defaulting Party; or
(d) any material representation or warranty made by a Party
shall prove to be false, misleading or incorrect in any material
respect as of the date made; or
(e) an Event of Default (as defined under the Servicing
Arrangement) shall have occurred and is continuing under the
Servicing Arrangement.
Section 7.02. Consequences of Utility Event of Default. Upon
any Event of Default by Utility, DWR may, in addition to exercising any
other remedies available under this Agreement or under Applicable Law,
(i) terminate this Agreement in whole or in part; and (ii) apply in an
appropriate forum for sequestration and payment to DWR or its Assign(s)
of DWR Revenues or for specific performance of the functions related to
the Contracts to be performed by Utility on behalf of DWR, as its
limited agent, as provided in this Agreement.
Section 7.03. Consequences of DWR Event of Default. Upon an
Event of Default by DWR (other than an Event of Default under 7.01(a)),
Utility shall request that the Commission terminate this Agreement in
whole or in part, Section 2.05 notwithstanding.
Section 7.04. Remedies. Subject to Article XIII of this
Agreement, upon any Event of Default, the non-defaulting Party may
exercise any other legal or equitable right or remedy that may be
available to it under applicable law or under this Agreement.
Section 7.05. Remedies Cumulative. Except as otherwise provided
in this Agreement, all rights of termination, cancellation, or other
remedies in this Agreement are cumulative. Use of any remedy shall not
preclude any other remedy available under this Agreement.
Section 7.06. Waivers. None of the provisions of this Agreement
shall be considered waived by either Party unless the Party against
whom such waiver is claimed gives such waiver in writing. The failure
of either Party to insist in any one or more instances upon strict
performance of any of the provisions of this Agreement or to take
advantage of any of its rights hereunder shall not be construed as a
waiver of any such provisions or the relinquishment of any such rights
for the future, but the same shall continue and remain in full force
and effect. Waiver by either Party of any default by the other Party
shall not be deemed a waiver of any other default.
ARTICLE VIII
PAYMENT OF FEES AND CHARGES
Section 8.01. Utility Fees and Charges. As noted in the
Contract Allocation Order, the details of the amount and recovery of
administrative costs to Utility associated with the Contracts are
expected to be considered in another Commission proceeding. As such,
the Parties agree that the administrative costs to Utility will be
recovered pursuant to such Commission proceeding. Utility shall enter
the cost of such fees and charges in its Purchased Electric Commodity
Account, or its successor or another account designated by the
Commission on a current basis, for recovery in retail rates subject to
subsequent Commission review.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Section 9.01. Representations and Warranties.
(a) Each person executing this Agreement for the respective
Parties expressly represents and warrants that he or she has
authority to bind the Party on whose behalf he or she has
executed this Agreement.
(b) Each Party represents and warrants that it has the full
power and authority to execute and deliver this Agreement and to
perform its terms, that execution, delivery and performance of
this Agreement have been duly authorized by all necessary
corporate or other action by such Party, and that this Agreement
constitutes such Party's legal, valid and binding obligation,
enforceable against such Party in accordance with its terms.
(c) DWR represents and warrants that all necessary and
appropriate notices, inducements, undertakings, approvals, and
consents have been obtained from each Supplier to the Contract
allocated to Utility in order for Utility to undertake its duties
set forth in this Agreement in a timely and appropriate fashion.
ARTICLE X
LIMITATIONS ON LIABILITY
Section 10.01. Consequential Damages. In no event will either
Party be liable to the other Party for any indirect, special,
exemplary, incidental, punitive, or consequential damages under any
theory. Nothing in this Section 10.01 shall limit either Party's
rights as provided in Article VII above.
Section 10.02. Limited Obligations of DWR. Any amounts payable by
DWR under this Agreement shall be payable solely from moneys on deposit
in the Department of Water Resources Electric Power Fund established
pursuant to Section 80200 of the California Water Code (the "Fund").
Section 10.03. Sources of Payment; No Debt of State. DWR's
obligation to make payments hereunder shall be limited solely to the
Fund and shall be payable as an operating expense of the Fund solely
from Power Charges subject and subordinate to each Priority Long Term
Power Contract in accordance with the priorities and limitations
established with respect to the Fund's operating expenses in any
indenture providing for the issuance of Bonds and in the Rate Agreement
and in the Priority Long Term Power Contracts. Any liability of DWR
arising in connection with this Agreement or any claim based thereon or
with respect thereto, including, but not limited to, any payment
arising as the result of any breach or Event of Default under this
Agreement, and any other payment obligation or liability of or judgment
against DWR hereunder, shall be satisfied solely from the Fund.
NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF
CALIFORNIA ARE OR MAY BE PLEDGED FOR ANY PAYMENT UNDER THIS AGREEMENT.
Revenues and assets of the State Water Resources Development System,
and Bond Charges under the Rate Agreement, shall not be liable for or
available to make any payments or satisfy any obligation arising under
this Agreement. If moneys on deposit in the Fund are insufficient to
pay all amounts payable by DWR under this Agreement, or if DWR has
reason to believe such funds may become insufficient to pay all amounts
payable by DWR under this Agreement, DWR shall diligently pursue an
increase to its revenue requirements as permitted under the Act from
the appropriate Governmental Authority as soon as practicable. To the
extent DWR's obligations are "administrative costs," they will require
annual appropriation by the legislature.
Section 10.04. Cap on Liability. In no event will Utility be
liable to DWR for damages under this Agreement, including
indemnification obligations, whether in contract, warranty, tort
(including negligence), strict liability or otherwise (referred to as
"Damages" for purposes of this Section), in an amount in excess of: 1)
on an annual calendar year basis, $5 million plus ten percent of
Damages in excess of $5 million and 2) for the entire term of this
Agreement, $50 million in total payments of Damages to DWR. For
example, if Damages for an event are $100 million, Utility's total
liability for this event would be $14.5 million ($5 million plus10% of
$95 million) and that would be the full extent of Utility's liability
for such Damages. All Damages associated with an event will apply only
to the annual limit in the first year in which Damages for that event
were assessed. For example, if Damages for an event were paid as
follows: $15 million in year 1 and $10 million in year 2, the Utility
would pay DWR $7 million ($5 million plus10% of $10 million for year 1
and 10% of $10 million for year 2). In this example, the $1 million
paid to DWR in year 2 (10% of $10 million) does not count against the
year 2 $5 million calendar year threshold. DWR hereby releases Utility
from any liability for Damages in excess of the limitations on
liability set forth in this Section 10.04, provided however, that this
limitation on Utility liability shall not apply to the extent the
liability is a result of Utility's gross negligence or willful
misconduct.
ARTICLE XI
CONFIDENTIALITY
Section 11.01. Proprietary Information.
(a) Nothing in this Agreement shall affect Utility's
obligations to observe any Applicable Law prohibiting the
disclosure of Confidential Information regarding its customers.
(b) Nothing in this Agreement, and in particular nothing in
Sections 11.01(e)(x) through 11.01(e)(z) of this Agreement, shall
affect the rights of the Commission to obtain from Utility,
pursuant to Applicable Law, information requested by the
Commission, including Confidential Information provided by DWR to
Utility. Applicable Law, and not this Agreement, will govern what
information the Commission may disclose to third parties, subject
to any confidentiality agreement between DWR and the Commission.
(c) The Parties acknowledge that each Party may acquire
information and material that is the other Party's confidential,
proprietary or trade secret information. As used herein,
"Confidential Information" means any and all technical,
commercial, financial and customer information disclosed by one
Party to the other (or obtained from one Party's inspection of
the other Party's records or documents), including any patents,
patent applications, copyrights, trade secrets and proprietary
information, techniques, sketches, drawings, maps, reports,
specifications, designs, records, data, models, inventions, know-
how, processes, apparati, equipment, algorithms, software
programs, software source documents, object code, source code,
and information related to the current, future and proposed
products and services of each of the Parties, and includes,
without limitation, the Parties' respective information
concerning research, experimental work, development, design
details and specifications, engineering, financial information,
procurement requirements, purchasing, manufacturing, business
forecasts, sales and merchandising, and marketing plans and
information. In all cases, Confidential Information includes
proprietary or confidential information of any third party
disclosing such information to either Party in the course of such
third party's business or relationship with such Party.
Utility's Confidential Information also includes any and all
lists of customers, and any and all information about customers,
both individually and aggregated, including but not limited to
customers' names, street addresses of customer residences and/or
facilities, email addresses, identification numbers, Utility
account numbers and passwords, payment histories, energy usage,
rate schedule history, allocation of energy uses among customer
residences and/or facilities, and usage of DWR Power. All
Confidential Information disclosed by the disclosing Party
("Discloser") will be considered Confidential Information by the
receiving Party ("Recipient") if identified as confidential and
received from Discloser.
(d) Each Party agrees to take all steps reasonably necessary to
hold in trust and confidence the other Party's Confidential
Information. Without limiting the generality of the immediately
preceding sentence, each Party agrees (i) to hold the other
Party's Confidential Information in strict confidence, not to
disclose it to third parties or to use it in any way,
commercially or otherwise, other than as permitted under this
Agreement; and (ii) to limit the disclosure of the Confidential
Information to those of its employees, agents or directly related
subcontractors with a need to know who have been advised of the
confidential nature thereof and who have acknowledged their
express obligation to maintain such confidentiality. DWR shall
not disclose Confidential Information to employees, agents or
subcontractors that are in any respect responsible for power
marketing or trading activities associated with the State Water
Resources Development System.
(e) The foregoing two paragraphs will not apply to any item of
Confidential Information if: (i) it has been published or is
otherwise readily available to the public other than by a breach
of this Agreement; (ii) it has been rightfully received by
Recipient from a third party without breach of confidentiality
obligations of such third party and outside the context of the
provision of services under this Agreement; (iii) it has been
independently developed by Recipient personnel having no access
to the Confidential Information; (iv) it was known to Recipient
prior to its first receipt from Discloser, or (v) it has been
summarized, processed and incorporated for incorporation into
reports, discussions, statements or any other further work
product. In addition, Recipient may disclose Confidential
Information if and to the extent required by law or a
Governmental Authority, provided that (x) Recipient shall give
Discloser a reasonable opportunity to review and object to the
disclosure of such Confidential Information, (y) Discloser may
seek a protective order or confidential treatment of such
Confidential Information, and (z) Recipient shall make
commercially reasonable efforts to cooperate with Discloser in
seeking such protective order or confidential treatment.
Discloser shall pay Recipient its reasonable costs of
cooperating.
Section 11.02. No License. Nothing contained in this Agreement
shall be construed as granting to a Party a license, either express or
implied, under any patent, copyright, trademark, service mark, trade
dress or other intellectual property right, or to any Confidential
Information now or hereafter owned, obtained, controlled by, or which
is or may be licensable by, the other Party.
Section 11.03. Survival of Provisions. The provisions of this
Article XI shall survive the termination of this Agreement.
ARTICLE XII
RECORDS AND AUDIT RIGHTS
Section 12.01. Records. Utility shall maintain accurate records
and accounts relating to the Contracts in sufficient detail to permit
DWR to audit and monitor the functions to be performed by Utility on
behalf of DWR, as its limited agent, under this Agreement. In
addition, Utility shall maintain accurate records and accounts relating
to DWR Revenues to be remitted by Utility to DWR, consistent with the
Settlement Principles for Remittances and Surplus Revenues set forth in
Exhibit C hereto. Utility shall provide to DWR and its Assign(s)
access to such records. Access shall be afforded without charge, upon
reasonable request made pursuant to Section 12.02. Access shall be
afforded only during Business Hours and in such a manner so as not to
interfere unreasonably with Utility's normal operations. Utility shall
not treat DWR Revenues as income or assets of Utility or any affiliate
for any tax, financial reporting or regulatory purposes, and the
financial books or records of Utility and affiliates shall be
maintained in a manner consistent with the absolute ownership of DWR
Revenues by DWR and Utility's holding of DWR Revenues in trust for DWR
(whether or not held together with other monies).
Section 12.02. Audit Rights.
(a) Upon 30 calendar days' prior written notice, DWR may
request an audit, conducted by DWR or its agents (at DWR's
expense), of Utility's records and procedures, which shall be
limited to records and procedures containing information bearing
upon Utility's performance of its obligations under this
Agreement. The audit shall be conducted during Business Hours
without interference with Utility's normal operations, and in
compliance with Utility's security procedures.
(b) As provided in the Act, the State of California Bureau of
State Audits (the "Bureau") shall conduct a financial and
performance audit of DWR's implementation of Division 27
(commencing with Section 80000) of the California Water Code, and
the Bureau shall issue a final report on or before March 31,
2003. In addition, as provided in Section 8546.7 of the
California Government Code, Utility agrees that, pursuant to this
Section 12.02, DWR or the State of California Department of
General Services, the Bureau, or their designated representative
("DWR's Agent") shall have the right to review and to copy (at
DWR's expense) any non-confidential records and supporting
documentation pertaining to the performance of this Agreement and
to conduct an on-site review of any Confidential Information
pursuant to Section 12.03 hereof. Utility agrees to maintain
such records for such possible audit for three years after final
Remittance to DWR. Utility agrees to allow such auditor(s)
access to such records during Business Hours and to allow
interviews of any employees who might reasonably have information
related to such records. Further, Utility agrees to include a
similar right for DWR or DWR's Agent to audit records and
interview staff in any contract between Utility and a
subcontractor directly related to performance of this Agreement.
Section 12.03. Confidentiality. Materials reviewed by either
Party or its agents in the course of an audit may contain Confidential
Information subject to Article XI above. The use of all materials
provided to DWR or Utility or their agents, as the case may be pursuant
to this Article XII, shall comply with the provisions in Article XI and
shall be limited to use in conjunction with the conduct of the audit
and preparation of a report for appropriate distribution of the results
of the audit consistent with Applicable Law.
Section 12.04. Annual Certifications. At least annually, and in
no event later than the tenth Business Day after the end of the
calendar year, Utility shall deliver to DWR a certificate of an
authorized representative certifying that to the best of such
representative's knowledge, after a review of Utility performance under
this Agreement, Utility has fulfilled its obligations under this
Agreement in all material respects and is in compliance herewith in all
material respects.
Section 12.05. Additional Applicable Laws. Each Party shall
make an effort to promptly notify the other Party in writing to the
extent such Party becomes aware of any new Applicable Laws or changes
(or proposed changes) in Applicable Tariffs hereafter enacted, adopted
or promulgated that may have a material adverse effect on either
Party's ability to perform its duties under this Agreement. A Party's
failure to so notify the other Party pursuant to this Section 12.05
will not constitute a material breach of this Agreement, and will not
give rise to any right to terminate this Agreement or cause either
Party to incur any liability to the other Party or any third party.
Section 12.06. Other Information. Upon the reasonable request
of DWR or its Assign(s), Utility shall provide to DWR or its Assign(s)
any public financial information in respect of Utility applicable to
services provided by Utility under this Agreement, to the extent such
information is reasonably available to Utility, which (i) is reasonably
necessary and permitted by Applicable Law to monitor the performance by
Utility hereunder, or (ii) otherwise relates to the exercise of DWR's
rights or the discharge of DWR's duties under this Agreement or any
Applicable Law. In particular, but without limiting the foregoing,
Utility shall provide to DWR any such information that is necessary or
useful to calculate DWR's revenue requirements (as described in
Sections 80110 and 80134 of the California Water Code).
Section 12.07. Data and Information Retention. All data and
information associated with the provision and receipt of services
pursuant to this Agreement shall be maintained for the greater of (a)
the retention time required by Applicable Law or Applicable Tariffs for
maintaining such information, or (b) three (3) years.
ARTICLE XIII
DISPUTE RESOLUTION
Section 13.01. Dispute Resolution. Should any dispute arise
between the Parties or should any dispute between the Parties arise
from the exercise of either Party's audit rights contained in Section
12.02 hereof, the Parties shall remit any undisputed amounts and agree
to enter into good faith negotiations as soon as practicable to resolve
such disputes within (10) Business Days so as to resolve such disputes,
as appropriate, within the timeframes provided under this Agreement, or
as soon as possible thereafter. For any disputed Remittances, if such
resolution cannot be made before the remittance date, Utility shall
remit the undisputed portion to DWR. In addition, the disputed portion
of the Remittances shall be deposited into an escrow account held by a
qualified, independent escrow holder. Upon resolution of such
disputes, the Party that escrowed the disputed amount shall reimburse
the other Party from the escrow account as necessary.
Section 13.02. ISO Settlements Disputes. Utility shall review,
validate and verify all ISO charges/credits contained on all ISO
settlement statements, including any charges/credits resulting from
functions related to the Contracts to be performed by Utility as
provided in this Agreement. Utility shall inform DWR of any
discrepancies and shall dispute any such discrepancies with the ISO in
accordance with the ISO's tariff and protocols. Except as provided in
Section 13.03, if any ISO charge type settlement amount appearing on a
Preliminary or Final Settlement Statement (as defined in the ISO
tariff) resulting or relating to the Utility's performance of functions
related to the Contracts under this Agreement is in dispute, it shall
be the responsibility of Utility, on behalf of DWR, as its limited
agent, to seek resolution of said dispute through the ISO dispute
resolution process as provided in the ISO's tariff.
For disputes affecting Utility's Remittances to DWR, including
disputes on ISO charges to non-DWR parties that would affect
Remittances to DWR, Utility shall provide to DWR: a) notification of
submission of the dispute through the ISO dispute resolution process,
identifying, among other items, the dispute type, quantity, price and
allocation; b) a copy of the submitted dispute and all supporting data;
and c) a copy of all ensuing documentation resulting from the ongoing
dispute resolution process. Utility shall track and validate all
disputed ISO charges involving any financial responsibility of DWR.
Section 13.03. Supplier Invoice Disputes. DWR shall continue to
be responsible for all dispute resolution relating to Supplier
invoices. In addition, except as specifically provided in Exhibit E of
this Agreement, all other contract administration functions shall
remain DWR's responsibility.
Section 13.04. Good-Faith Negotiations. Should any dispute
arise between the Parties relating to this Agreement, the Parties shall
undertake good-faith negotiations to resolve such dispute. If the
Parties are unable to resolve such dispute through good-faith
negotiations, either Party may submit a detailed written summary of the
dispute to the other Party. Upon such written presentation, each Party
shall designate an executive with authority to resolve the matter in
dispute. If the Parties are unable to resolve such dispute within 30
days from the date that a detailed summary of such dispute is presented
in writing to the other Party, then either Party may, at its sole
discretion, submit the dispute to the Commission for resolution, in
accordance with Applicable Law. Nothing herein shall preclude either
Party from challenging the decision or action which such Party deems
may adversely affect its interests in any appropriate forum of the
Party's choosing.
Section 13.05. Costs. Each Party shall bear its own respective
costs and attorney fees in connection with respect to any dispute
resolution process undertaken by it pursuant to this Article.
Provided, however, DWR shall reimburse Utility all reasonably incurred
costs, including, but not limited to, in-house and retained attorneys,
consultants, witnesses, and arbitration costs, arising from or
pertaining to all disputes relating to ISO charges/credits contained on
all ISO settlement statements resulting from the operational, dispatch
and administrative functions related to the Contracts performed by
Utility on behalf of DWR, as its limited agent, pursuant to the
standards set forth in Section 2.02 herein and consistent with the
provisions of the ISO tariff, as may be amended from time to time,
including disputes on ISO charges to non-DWR parties that would affect
Remittances to DWR. These costs shall be recorded and invoiced in the
manner set forth in Section 8.01 hereof.
ARTICLE XIV
MISCELLANEOUS
Section 14.01. Assignment
(a) Except as provided in paragraphs (b) and (c) below, neither
Party shall assign or otherwise dispose of this Agreement, its
right, title or interest herein or any part hereof to any part
hereof to any entity, without the prior written consent of the
other Party. No assignment of this Agreement shall relieve the
assigning Party of any of its obligations under this Agreement
until such obligations have been assumed by the assignee. When
duly assigned in accordance with this Section 14.01(a) and when
accepted by the assignee, this Agreement shall be binding upon
and shall inure to the benefit of the assignee. Any assignment
in violation of this Section 14.01(a) shall be void.
(b) Utility acknowledges and agrees that DWR may assign or
pledge its rights to receive performance hereunder to a trustee
or another party ("Assign(s)") in order to secure DWR's
obligations under its bonds (as that term is defined in the Act),
and any such Assign shall be a third party beneficiary of this
Agreement; provided, however, that this authority to assign or
pledge rights to receive performance hereunder shall in no event
extend to any person or entity that sells power or other goods or
services to DWR.
(c) Any person (i) into which Utility may be merged or
consolidated, (ii) which may result from any merger or
consolidation to which Utility shall be a party or (iii) which
may succeed to the properties and assets of Utility substantially
as a whole, which person in any of the foregoing cases executes
an agreement of assumption to perform every obligation of Utility
hereunder, shall be the successor to Utility under this Agreement
without further act on the part of any of the Parties to this
Agreement; provided, however, that Utility shall have delivered
to DWR and DWR its Assign(s) an opinion of counsel reasonably
acceptable to DWR stating that such consolidation, merger or
succession and such agreement of assumption complies with this
Section 13.01(c) and that all of Utility's obligations hereunder
have been validly assumed and are binding on any such successor
or assign.
(d) Notwithstanding anything to the contrary herein, DWR's
rights and obligations hereunder shall be transferred, without
any action or consent of either Party hereto, to any entity
created by the State legislature which is required under
Applicable Law to assume the rights and obligations of DWR under
Division 27 of the California Water Code.
Section 14.02. Force Majeure. Neither Party shall be liable for
any delay or failure in performance of any part of this Agreement
(including the obligation to remit money at the times specified herein)
from any cause beyond its reasonable control, including but not limited
to, unusually severe weather, flood, fire, lightning, epidemic,
quarantine restriction, war, sabotage, act of a public enemy,
earthquake, insurrection, riot, civil disturbance, strike, restraint by
court order or Government Authority, or any combination of these
causes, which by the exercise of due diligence and foresight such Party
could not reasonably have been expected to avoid and which by the
exercise of due diligence is unable to overcome.
Section 14.03. Severability. In the event that any one or more
of the provisions of this Agreement shall for any reason be held to be
unenforceable in any respect under applicable law, such
unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such
unenforceable provision or provisions had never been contained herein.
Section 14.04. Survival of Payment Obligations. Upon
termination of this Agreement, each Party shall remain liable to the
other Party for all amounts owing under this Agreement. Utility shall
continue to collect and remit, pursuant to the terms of the Servicing
Arrangement and the principles provided in the Settlement Principles
for Remittances and Surplus Revenues provided in Exhibit C hereto and
any DWR Charges billed to customers or any DWR Surplus Energy Sales
Revenues attributable to sales entered into before the effective date
of termination of the Servicing Arrangement.
Section 14.05. Third-Party Beneficiaries. The provisions of
this Agreement are exclusively for the benefit of the Parties and any
permitted assignee of either Party and there are no third party
beneficiaries under this Agreement.
Section 14.06. Governing Law. This Agreement shall be
interpreted, governed and construed under the laws of the State of
California without regard to choice of law provisions.
Section 14.07. Multiple Counterparts. This Agreement may be
executed in multiple counterparts, each of which shall be an original.
Section 14.08. Section Headings. Section and paragraph headings
appearing in this Agreement are inserted for convenience only and shall
not be construed as interpretations of text.
Section 14.09. Amendments. No amendment, modification, or
supplement to this Agreement shall be effective unless it is in writing
and signed by the authorized representatives of both Parties and
approved as required, and by reference incorporates this Agreement and
identifies the specific portions that are amended, modified, or
supplemented or indicates that the material is new. No oral
understanding or agreement not incorporated in this Agreement is
binding on either of the Parties.
Section 14.10. Amendment Upon Changed Circumstances. The
Parties acknowledge that compliance with any Commission decision,
legislative action or other governmental action (whether issued before
or after the Effective Date of this Agreement) affecting the operation
of this Agreement, including but not limited to (i) dissolution of the
ISO, (ii) changes in the ISO market structure, (iii) a decision
regarding direct access currently pending before the Commission,
(iv) the establishment of other Governmental Programs, or (v) a
modification to the Contract Allocation Agreement may require that
amendment(s) be made to this Agreement. The Parties therefore agree
that if either Party reasonably determines that such a decision or
action would materially affect the services to be provided hereunder or
the reasonable costs thereof, then upon the issuance of such decision
or the approval of such action (unless and until it is stayed), the
Parties will negotiate the amendment(s) to this Agreement that is (or
are) appropriate in order to effectuate the required changes in
services to be provided or the reimbursement thereof. If the Parties
are unable to reach agreement on such amendments within 60 days after
the issuance of such decision or approval of such action, either Party
may, in the exercise of its sole discretion, submit the disagreement to
the Commission for proposed resolution. Nothing herein shall preclude
either Party from challenging the decision or action which such Party
deems may adversely affect its interests in any appropriate forum of
the Party's choosing.
The Parties agree that, if the rating agencies request changes to
this Agreement which the Parties reasonably determine are necessary and
appropriate, the Parties will negotiate in good faith, but will be
under no obligation to reach agreement or to ask the Commission to
amend this Agreement to accommodate the rating agency requests and will
cooperate in obtaining any required approvals of the Commission or
other entities for such amendments.
Section 14.11 Indemnification.
(a) Indemnification of DWR. Utility (the "Indemnitor") shall
at all times protect, indemnify, defend and hold harmless DWR,
and its elected officials, appointed officers, employees,
representatives, agents and contractors (each, an "Indemnified
Party" or an "Indemnitee") from and against (and pay the full
amount of) any and all claims (whether in tort, contract or
otherwise), demands, expenses (including, without limitation, in-
house and retained attorneys' fees) and liabilities for losses,
damage, injury and liability of every kind and nature and however
caused, and taxes (of any kind and by whomsoever imposed), to
third parties arising from or in connection with (or alleged to
arise from in connection with): (1) any failure by Utility to
perform its material obligations under this Agreement; (2) any
material representation or warranty made by Utility shall prove
to be false, misleading or incorrect in any material respect as
of the date made; (3) the gross negligence or willful misconduct
of Utility or any of its officers, directors, employees, agents,
0representatives, subcontractors or assignees in connection with
this Agreement; and (4) any violation of or failure by Utility or
Indemnitor to comply with any Applicable Commission Orders or
Applicable Law; provided, however, that the foregoing
indemnifications and protections shall not extend to any losses
arising from gross negligence or willful misconduct of any
Indemnified Party.
(b) Obligation of Utility. Consistent with the Contract
Allocation Order, Utility shall not, in acting as limited agent
of DWR hereunder be required to perform any obligations of any
Supplier under any Allocated Contract or to make any payments on
behalf of such Supplier or as the result of the failure of such
Supplier to perform under any Allocated Contract.
(c) Indemnification of Utility. To the extent permitted by law,
DWR ("Indemnitor") shall at all times protect, indemnify, defend
and hold harmless Utility, and its officers, employees,
representatives, agents and contractors (each, an "Indemnified
Party" or "Indemnitee"), from and against (and pay the full
amount of) any and all claims (whether in tort, contract or
otherwise), demands, expenses (including, without limitation, in-
house and retained attorneys' fees) and liabilities for losses,
damage, injury and liability of every kind and nature and however
caused, and taxes (of any kind and by whomsoever imposed), to
third parties arising from or in connection with (or alleged to
arise from on in connection with): (1) any failure by DWR to
perform its material obligations under this Agreement or any
Allocated Contract; (2) any material representation or warranty
made by DWR shall prove to be false, misleading or incorrect in
any material respect as of the date made; (3) the gross
negligence or willful misconduct of the DWR or any of its
officers, directors or employees, agents, representatives,
subcontractors or assignees in connection with this Agreement;
(4) any action claiming Utility failed to perform any Supplier's
obligations under an Allocated Contract; and (5) any violation of
or failure by DWR or Indemnitor to comply with any Applicable
Law; and provided, however, that the foregoing indemnifications
and protections shall not extend to any losses arising from the
gross negligence or willful misconduct of any Indemnified Party.
(d) Indemnification Procedures. Indemnitee shall promptly give
notice to Indemnitor of any claim or action to which it seeks
indemnification from Indemnitor. Indemnitor shall defend any
such claim or action brought against it, and may also defend such
claim or action on behalf of the Indemnitee (with counsel
reasonably satisfactory to Indemnitor) unless there is any actual
or potential conflict between Indemnitor and Indemnitee with
respect to such claim or action. If there is any actual or
potential conflict between Indemnitor and Indemnitee with respect
to such claim or action, Indemnitee shall have the opportunity to
assume (at Indemnitor's expense) defense of any claim or action
brought against Indemnitee by a third party; however, failure by
Indemnitee to request defense of such claim or action by the
Indemnitor shall not affect Indemnitee's right to indemnity under
this Section 14.11. In any action or claim involving Indemnitee,
Indemnitor shall not settle or compromise any claim without the
prior written consent of Indemnitee.
Section 14.12. Notices and Demands. (a) Except as otherwise
provided under this Agreement, all notices, demands, or requests
pertaining to this Agreement shall be in writing and shall be deemed to
have been given (i) on the date delivered in person, (ii) on the date
when sent by facsimile (with receipt confirmed by telephone by the
intended recipient or his or her authorized representative) or
electronic transmission (with receipt confirmed telephonically or
electronically by the intended recipient or his or her authorized
representative) or by special messenger, or (iii) 72 hours following
delivery to a United States post office when sent by certified or
registered United States mail postage prepaid, and addressed as set
forth below:
Utility: San Diego Gas & Electric Company
8330 Century Park Court, CP32D
San Diego, California 92123
Attn: Lad Lorenz
Vice President, Electric and Gas Procurement
Telephone: (858) 650-6150
Facsimile: (858) 650-6191
Email: llorenz@SDGE.com
DWR: State of California
The Resources Agency
Department of Water Resources
California Energy Resources Scheduling Division
3310 El Camino Avenue, Suite 120
Sacramento, California 95821
Attn: Peter S. Garris
Deputy Director
Telephone: (916) 574-2733
Facsimile: (916) 574-0301
Email: pgarris@water.ca.gov
(b) Each Party shall be entitled to specify as its proper
address any other address in the United States, or specify any
change to the above information, upon written notice to the other
Party complying with this Section 14.12.
(c) Each Party shall designate on Attachment A the person(s) to
be contacted with respect to specific operational matters. Each
Party shall be entitled to specify any change to such person(s)
upon written notice to the other Party complying with this
Section 14.12.
Section 14.13. Approval. This Agreement shall be effective upon
the execution by both Parties and approval of such executed agreement
by the Commission. Except as expressly provided otherwise herein,
neither Party may commence performance hereunder until such date. Any
delay in the commencement of performance hereunder as a consequence of
waiting for such approval(s) shall not be a breach or default under
this Agreement.
Section 14.14. Government Code and Public Contract Code
Inapplicable. DWR has determined, pursuant to Section 80014(b) of the
California Water Code, that application of certain provisions of the
Government Code and Public Contract Code applicable to State contracts,
including but not limited to advertising and competitive bidding
requirements and prompt payment requirements, would be detrimental to
accomplishing the purposes of Division 27 (commencing with
Section 80000) of the California Water Code and that such provisions
and requirements are therefore not applicable to or incorporated in
this Agreement.
Section 14.15. Annual Review. The provisions of the Exhibits are
subject to annual review by DWR and Utility to ensure their relevance
and usefulness. In the event that the Parties mutually agree that
certain provisions of the Exhibits should be amended or supplemented,
an amendment to the Exhibit should be executed and Utility shall submit
to the Commission for approval.
Section 14.16 Other Operating Agreement. It is DWR's intent to
have a consistent operating agreement with all three investor-owned
utilities (IOUs). Should DWR reach an operating agreement with another
IOU relating to the subject matter of this Agreement, that in Utility's
judgment is more favorable on the whole than this Agreement, Utility
shall have the right to receive the same terms and conditions as such
other IOU. This provisions specifically does not allow Utility to
select particular portions or provisions of such other IOU's operating
agreement. In addition, if Utility elects to be subject to such other
IOU's operating agreement's terms and conditions, Utility shall be
subject to such other IOU's operating agreement with only such
modifications agreed to by DWR as necessary to address operating
differences between that other IOU and Utility. Utility shall exercise
the foregoing right within 60 days following Commission approval of
such other operating agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on
the date or dates indicated below, to be effective as of the Effective
Date.
CALIFORNIA STATE DEPARTMENT SAN DIEGO GAS & ELECTRIC
OF WATER RESOURCES, acting solely under COMPANY, a California corporation
the authority and powers granted by ABIX,
codified as Sections 80000 through 80270
of the Water Code, and not under its
powers and responsibilities with respect
to the State Water Resources Development
System
By: ____________________________ By: ________________________________
Name: ___________________________ Name:___JAMES P. AVERY____________
Title: __________________________ Title:____SENIOR VICE PRESIDENT____
Date:___________________________ Date:_______________________________
Schedule 1
ALLOCATED CONTRACTS
Schedule 2
REPRESENTATIVES AND CONTACTS
LAD LORENZ
SAN DIEGO GAS & ELECTRIC
ELECTRIC & GAS PROCURMENT VP
8413 CENTURY PARK CP41D
SAN DIEGO CA 92123
MIKE McCLENAHAN
SAN DIEGO GAS & ELECTRIC
ELECTRIC PROCUREMENT MANAGER
8413 CENTURY PARK CT CP41D
SAN DIEGO CA 92123
SDG&E EXHIBIT A
OPERATING PROTOCOLS
EXHIBIT A
OPERATING PROTOCOLS
Pursuant to Section 4.01 of this Agreement, on behalf of DWR as
its limited agent, Utility shall perform the day-to-day
scheduling and dispatch functions, including day-ahead, hour-
ahead and real-time trading, scheduling of transactions with all
involved parties, making surplus energy sales and obtaining
relevant information for these functions such as transmission
availability and others, with respect to the Allocated Contracts
set forth in Schedule 1 to the Agreement, all as more
specifically provided below and in compliance with the provisions
of each of the Contracts:
I. Resource Commitment and Dispatch. Utility agrees to use good
faith efforts to dispatch Allocated Contracts, based on the
principle of "least cost dispatch" to retail customers,
consistent with the Contract Allocation Order and other
Applicable Commission Orders. Utility shall undertake these
least cost dispatch functions both of Allocated Contracts and
its URG so as to minimize the cost of service to retail
customers based on circumstances known or that reasonably
could have been known by Utility at the time dispatch
decisions are made. DWR shall have no role in enforcement or
review of Utility least cost dispatch under this Agreement and
all issues of Utility compliance with least cost dispatch
shall be within the sole review of the Commission.
A. Annual, Quarterly and Weekly Load and Resource
Assessment Studies. Utility shall provide to DWR copies
of its annual and quarterly load and resource assessment
studies. Provided that Utility submits substantially
the same information to the Commission, copies of the
Commission submission will be simultaneously sent to DWR
to satisfy requirements of this section. In addition,
Utility will provide a weekly commitment and dispatch
plan for informational purposes to DWR in the same form
that such plan is used internally.
B. Scheduling Protocols.
1. DWR is responsible for notifying the counter-party
to each of the Allocated Contracts that scheduling
under the Allocated Contracts will be performed by
Utility before the first day that schedules are due
to be submitted by Utility. DWR is responsible for
notifying Utility of any changes to the Allocated
Contracts that it has negotiated, including changes
to the scheduling terms. DWR agrees to provide such
notice as soon as possible following the negotiation
of any changed provisions and in any case prior to
the time that any changed provisions become
effective.
2. Utility agrees to schedule Contracts in accordance
with their terms and in accordance with the
requirements of the Control Area operator or
operators with whom the Contract must be scheduled to
provide for power delivery.
II. ISO Ancillary Service (AS) Market. Among the Contracts are
resources that are or may be qualified to be bid into the
ISO's Ancillary Services ("AS") market or that Utility may use
in its self-provision of AS. Utility is authorized to develop
protocols and procedures for the use of DWR resources for AS.
Utility shall, upon DWR's request, provide to DWR such
information concerning Utility's intended use of DWR resources
for AS as DWR may reasonably request for planning and revenue
requirement purposes.
III. Surplus Energy Sales and Energy Exchanges
A. Over-generation. If the ISO announces an over-
generation situation Utility will back down resources in
accordance with the ISO tariff and Good Utility
Practice. In order to reduce the need for physical
curtailment in over-generation situations, DWR and
Utility shall develop pay for curtailment protocols and
procedures that will enable Utility to instruct a must-
take resource not to deliver energy under specified
conditions. The costs and charges associated with
mitigation of an over-generation situation shall be
allocated among the Parties on a pro-rata basis
consistent with the surplus sales allocation principles
set forth in Exhibit C.
B. Energy Exchange Arrangements. Existing non-DWR/CERS
exchanges and those that might be transacted post-2002,
will be considered URG exchanges. The accounting of
energy necessary to support energy exchanges is
addressed in Exhibit C.
C. Surplus Energy Sales Arrangement. Utility shall on a
monthly basis prepare a sales plan addressing all
surplus sales, including without limitation sales to
manage over-generation, contemplated by the Utility for
review by DWR. Such plan shall address sales of power
from the combined portfolio of URG resources and
Allocated Contracts, which will be administered by
Utility on its own behalf and acting as DWR's limited
agent. As specified in Section 2.02 of the Agreement,
Utility shall pursue surplus sales in a fashion
reasonably designed to serve the overall best interests
of retail electric customers based on information known
or could have been known by Utility at the time.
Utility agrees to include sufficient details in the
sales plans to allow DWR to satisfy its financial
management and reporting requirements. To the extent
there is surplus power uncommitted to a forward energy
surplus sales transaction, Utility shall be required to
bid such surplus energy in the day-ahead, hour-ahead or
real-time market. Utility shall arrange for
transmission service to accommodate surplus sales to the
extent that transmission service is available and cost
effective. The costs of transmission service, ISO
charges and the costs of firm transmission rights
associated with such surplus energy sales transactions
shall be treated in accordance with the Settlement
Principles for Remittances and Surplus Revenues attached
hereto as Exhibit C.
IV. Outage Coordination and Determination of Resource Availability
of Contracts. Utility shall communicate with the Scheduling
Coordinator of each Contract to coordinate, approve, document
and report planned Contract outages. For those Contracts
where resource availability affects capacity payments, Utility
will use good faith efforts to verify supplier actual resource
availability, and keep records of resource availability as
reported by Supplier. In addition, Utility shall document all
outages (forced and planned) and notices of outages of DWR
contract resources and provide such documents to DWR within
five (5) business days after the end of each calendar month.
SDG&E EXHIBIT B
FUEL MANAGEMENT PROTOCOLS
EXHIBIT B
FUEL MANAGEMENT PROTOCOLS
Certain of the Contracts listed on Schedule 1 of this Agreement
provide DWR the option of either (i) letting the Supplier provide
the necessary natural gas for its generating units at an index-
based price or agreed upon fixed price or (ii) DWR procuring the
gas supply and causing such supply to be delivered to the
Supplier under a tolling arrangement ("Fuel Option"). Certain of
the Contracts with Fuel Option provide that DWR can decide on a
monthly basis whether to procure the gas and others provide that
the decision be made annually or semi-annually when DWR reviews
the Supplier's proposed fuel plan.
The purpose of this Exhibit B is to describe the relationship
which will exist between DWR and Utility and the specific
responsibilities of each as they all relate to managing the
natural gas provisions of the Contracts which include Fuel
Options. Specifically, this Exhibit B will address
responsibilities for the following activities: (i) determining
types and lengths of gas contracts, (ii) nominating deliveries,
(iii) contracting for gas transportation and storage, (iv)
managing imbalances, (v) reviewing, authorizing and making
payment of gas invoices and (vi) determining and implementing
hedge strategies, as appropriate.
I. Operating Relationship Between DWR and Utility
While DWR will retain legal and financial responsibility for
gas and related services, Utility shall, as a limited agent
acting for DWR, perform the administrative and operational
activities, as further specified below, required to ensure
adequate gas is supplied to Suppliers' generating units,
consistent with the tolling provisions included in the
Contracts. The intent of this relationship is to provide
Utility sufficient flexibility and authority to execute normal
day-to-day activities associated with managing the fuel
provisions of tolling Contracts and procurement of natural gas
and related services, as a limited agent acting on behalf of
DWR without direct involvement by DWR but in a manner
consistent with Utility Gas Supply Plans which have been
reviewed and approved by DWR and the Commission.
II. Fuel Activities
Consistent with the terms of the Contracts with Fuel Options,
Utility shall have administrative and operational authority to
act, as a limited agent, for fuel supply related activities,
consistent with the following goals and guidelines whenever
Utility has recommended, and DWR has reviewed and approved
such recommendation that gas for a Contract with Fuel Option
be caused to be supplied by Utility from a list of approved
providers.
1. Utility shall use reasonable commercial efforts to secure
delivery of gas in a reliable manner and consistent with
gas requirements for producing scheduled energy.
2. Utility shall develop a portfolio of gas supply for the
Contracts that contain Fuel Options and where Utility is to
supply gas, acting as limited agent on behalf of DWR,
consistent with the approved Utility Gas Supply Plans.
Such portfolio should be diversified in terms of price
mechanism, period of performance, and gas suppliers.
3. Utility shall develop a portfolio of supply, which is
reasonably priced relative to the market and in accordance
with an approved Utility Gas Supply Plan.
III. Review of Supplier Fuel Plans
In accordance with the terms of each of the Contracts with
Fuel Options, Utility, acting as a limited agent on behalf of
DWR, shall review each fuel plan prepared and submitted by the
Supplier, and forwarded to the Utility by DWR, and determine
whether to recommend (i) approval of the Supplier Fuel Plan
and authorization for the Supplier to provide gas to its
generating unit(s), or (ii) procurement and management of gas
supplies to the generating unit(s) by Utility. Utility,
acting as a limited agent on behalf of DWR, shall advise DWR
and the Commission on a timely basis of its recommendation
regarding responsibility for supplying natural gas. DWR
shall, on a timely basis, review Utility's recommendation and
either approve or identify requested changes. Once approved,
Utility shall advise the Supplier in accordance with the time
requirements included in the appropriate Contract with Fuel
Option. In addition, for any Supplier Fuel Plans which have
been implemented and are operative as of the Effective Date,
and where DWR has previously elected to be responsible for gas
supply, Utility may advise DWR that it would rather have
Supplier provide the gas as of the Effective Date. DWR shall
coordinate with Utility and Supplier to revise such Supplier
Fuel Plans, to the extent possible, prior to the Effective
Date.
IV. Fuel Procurement Strategies
Under the Contracts with Fuel Option, upon Utility's
recommendation, and DWR's review and approval of such
recommendation, Utility will be responsible for procuring the
natural gas fuel from a list of approved gas providers.
Utility shall, acting as the limited agent of DWR, have
administrative and operational responsibility for determining
its gas procurement strategies, including but not limited to
(i) types of contracts, (ii) length of contracts, (iii)
pricing terms, (iv) use of storage, (v) types of gas
transportation, (vi) delivery point(s), (vii) whether and how
to obtain gas price forecasts, (viii) if and what risk
management tools are to be used, and (ix) how to maintain
current market intelligence.
Utility shall consolidate these strategies and submit them to
DWR and the Commission as a "Utility Gas Supply Plan" by April
17, 2003 and, thereafter on a semi-annual basis during the
Term. Utility may also provide a copy of such Gas Supply Plan
to DWR in advance of the filing with the Commission so as to
be able to indicate DWR's approval of such plan. Utility
shall indicate in its Advice letter filing to the Commission
whether DWR has approved such plan as appropriate. DWR shall
also formally notify the Commission when it has approved such
plan.
DWR and the Commission will review and approve the Utility Gas
Supply Plans. In the event of conflicting guidance between
the Commission and DWR regarding various aspects of the Gas
Supply Plan they respectively approve or reject, where DWR
only approves a subset of what the Commission approves, then
Utility shall operate within the sphere of DWR's approval.
If, however, the Commission explicitly rejects portions of the
Gas Supply Plan that DWR would authorize, then Utility must
operate within the limitations of the Commission's decision.
After a reasonable period of time operating within the
framework of the Gas Supply Plans and the Commission's and
DWR's respective approval and/or rejection of various pieces
of the Gas Supply Plan, the Parties agree to meet and confer
to determine whether the approval process may need to be
revised in some manner, and Utility shall submit to Commission
any such proposed revisions. Once approved, Utility may act
within such Utility Gas Supply Plan without further DWR
involvement, except as provided below.
V. Gas Purchasing
Utility and DWR shall jointly determine a list of approved gas
providers who can be used to supply gas under the Contracts
with Fuel Options. Master agreements intended to cover normal
day-to-day volumes will then be executed with such approved
providers. While DWR will be the executing party under all
DWR gas contracts, such agreements shall specifically
authorize Utility to act for and on behalf of DWR, as a
limited agent, in negotiating specific prices, quantities and
delivery periods for specific purchases under such master
agreements; provided however, on the earliest practicable date
after the execution of this Agreement, DWR agrees to provide
to Utility in writing and in advance of such negotiations any
limits, including without limitation any terms, that may be
required by DWR. If Utility determines it would be beneficial
to enter into any DWR gas contract which exceeds 3 months or
have a total value exceeding $10 million, it shall negotiate
such agreement(s) and submit them to DWR for advance approval
and execution.
VI. Gas Transportation
Utility shall have responsibility for recommending to DWR
which pipelines should transport gas if Utility, acting as
limited agent on behalf of DWR is to supply gas under a
Contract with Fuel Option. Following approval of or revision
of Utility Gas Supply Plan, Utility shall negotiate firm
and/or interruptible agreements with such pipelines,
consistent with the Utility Gas Supply Plan and submit them to
DWR for execution. While DWR will be the executing party,
such agreements with pipelines shall specifically authorize
Utility to act for and on behalf of DWR in nominating gas
deliveries, making imbalance trades and managing gas volumes
transported under such agreements; provided, however, on the
earliest practicable date after the execution of this
Agreement, DWR agrees to provide to Utility in writing and in
advance of such negotiations any limits, including without
limitation any terms, that may be required by DWR.
VII. Gas Scheduling
If permitted under the Allocated Contracts, the Utility shall
have full administrative and operational responsibility for
scheduling gas deliveries, whether to a specific generating
plant or to storage for all gas contracts entered into by DWR
or by Utility on DWR's behalf pursuant to this Exhibit B.
This function includes use of interstate and intrastate gas
pipeline provider websites, confirming via telephone, and all
other activities required to move gas from the designated
delivery point, as determined by the Utility, to its
destination, as determined by the Utility.
VIII. Storage Capacity, Injections and Withdrawals
Utility shall have responsibility for devising plans for gas
storage, if Utility, acting as limited agent on behalf of DWR,
is to supply gas under Contracts with Fuel Option from a list
of approved providers. Following approval of the Utility Gas
Supply Plans, Utility shall negotiate firm and/or
interruptible agreements with such storage service providers
and submit them to DWR for execution. While DWR will be the
executing party with DWR remaining the principal under such
contracts, such agreements with storage service providers
shall specifically authorize Utility to act for and on behalf
of DWR in nominating gas injections and withdrawals under such
agreements; provided, however, on the earliest practicable
date after the execution of this Agreement, DWR agrees to
provide to Utility in writing and in advance of such
negotiations any limits, including without limitation any
terms, that may be required by DWR.
IX. Managing Gas Delivery/Usage Imbalances
For gas that it purchases and transports on behalf of DWR,
Utility shall have full administrative and operational
responsibility for monitoring and managing the daily status of
gas usage vs. gas deliveries (i.e. gas imbalances). In
addition, to the extent that gas transportation providers
issue operational flow orders or require adjustments in
scheduled gas deliveries due to system constraints, Utility,
acting as limited agent on behalf of DWR, shall be responsible
for compliance with such orders. Utility shall also be
responsible for any penalties imposed by gas transportation
providers for imbalances caused by Utility, due to its failure
to exercise prudent gas management practices.
X. Invoice Review, Approval and Payment
For natural gas, pipeline transportation and storage services
it purchases in accordance with this Exhibit B, Utility,
acting as limited agent on behalf of DWR, shall have
responsibility for receiving invoices from gas, transportation
and storage suppliers, reviewing them for accuracy,
approving/rejecting invoices for payment and forwarding to DWR
for payment; provided, however, on the earliest practicable
date after the execution of this Agreement, DWR agrees to
cause Utility to be authorized to receive such information
from Suppliers. Utility shall provide DWR sufficient
documentation to verify payment of the invoices.
XI. Forecasting
Utility shall be responsible for all gas price, demand and
supply forecasts which Utility believes are consistent with
any accepted gas supply responsibilities.
XII. Risk Management
Utility shall develop and include in its Gas Supply Plans,
plans for the hedging of DWR Fuel Supply costs. Final
decisions relating to the use or non-use of financial tools
such as futures, options and swaps to hedge future gas price
exposure on any gas volumes not hedged by Utility under the
Utility Gas Supply Plans shall be made and implemented by DWR.
Any such contracts executed by DWR on a "portfolio basis"
should be utility-specific.
XIII. Market Intelligence
Any and all efforts to obtain, analyze and utilize market
intelligence for decision-making purposes shall be the
responsibility of Utility.
XIV. Payment of Gas Costs
For natural gas, pipeline transportation, financial hedges and
storage services that are purchased and provided by a Supplier
under an approved Fuel Supply Plan, DWR shall pay such gas
related costs as part of the invoice for commodity, product,
or services submitted by the Supplier. For natural gas,
pipeline transportation and storage services provided under
DWR contracts and administered by Utility on behalf of DWR,
DWR shall pay invoices after they have been reviewed and
approved for payment by Utility.
XV. Allocation of Existing DWR Gas Contracts
DWR has entered into gas supply, transportation and storage
contracts as provided in Attachment 1 to this Exhibit B that
have expiration dates after the Effective Date of this
Agreement. The administrative and operational control of the
contracts listed on Attachment 1 to this Exhibit B will become
the responsibility of Utility. This shall include (i)
scheduling gas transportation, (ii) confirming gas deliveries,
(iii) nominating gas withdrawals from and injections into
storage, if applicable, (iv) and reviewing and approving
invoices for payment. When approved, invoices shall be
transmitted to DWR for payment within 10 days of receipt of
invoice from the gas supplier, gas storage or gas
transportation provider.
XVI. Pre-existing Financial Hedge Instruments
If DWR has entered into any financial hedge transactions that
will remain operable after the Effective Date of this
Agreement, DWR shall retain full administrative and
operational control over such transactions.
SDG&E EXHIBIT C
SETTLEMENT PRINCIPLES
FOR REMITTANCES AND
SURPLUS REVENUES
EXHIBIT C
SETTLEMENT PRINCIPLES FOR REMITTANCES AND SURPLUS REVENUES
This Exhibit C outlines the principles by which Utility will calculate
revenues associated with surplus energy sales and DWR energy delivered
to retail customers. This Exhibit C also addresses the information
that Utility will provide to DWR to support DWR payment of Contract
invoices, and invoices from natural gas supplier(s) for fuel provided
to service DWR Contracts where tolling options have been implemented.
This Exhibit C works in conjunction with the applicable Servicing
Arrangement with Utility for purposes of determining the remittance
amounts by Utility, which will serve as DWR's billing and collection
agent.
In accordance with the Contract Allocation Order, this Exhibit C
provides that:
- -- Revenues will be allocated for both surplus sales and retail
customer deliveries
- -- Revenues will be allocated pro rata, based on dispatched
quantities of energy
- -- The principle of balancing least cost economic dispatch while
maintaining reliability is reinforced through these revenue
allocation protocols.
- -- Surplus sales quantities will be calculated as the difference
between Utility's Energy Delivery Obligations (EDO) and the
combination of energy from URG and energy dispatched from
Contracts.
Where Utility's Energy Delivery Obligations is defined as: (1)
Utility's retail load which includes distribution losses, (2) all
pumping load, (3) all energy exchange transactions between Utility and
counter parties, (3) wholesale obligations existing as of January 1,
2003, (4) transmission losses.
The principles herein, together with the applicable methods and
calculations contained in the Servicing Arrangement, form a substantive
component of the accounting protocols required to implement the
Contract Allocation Order. This Exhibit should also be read in
conjunction with Exhibit F ("Data Requirements").
Utility Remittance to DWR
Utility shall remit to DWR an Energy Payment for the delivery of
Contract energy to Utility retail customers and a separate payment
for DWR's share of Surplus Energy Sales Revenues. The principles
for the remittances to DWR of Surplus Energy Sales Revenue and
Energy Payment are contained in Sections A and B of this Exhibit C,
respectively. The details for determination of the remittances to
DWR by Utility are contained in the Servicing Arrangement between
the Utility and DWR.
A. Utility Remittance to DWR of Revenue from Surplus Energy Sales
Surplus Energy and Revenues
Surplus energy exists when dispatched supply from Utility
portfolio and DWR Contracts exceeds Utility's Energy Delivery
Obligations. When such a condition exists, the revenues from the
sale of surplus energy shall be shared between Utility and DWR.
Surplus sale revenues can occur either through a forward market
sale or a delivery of the excess energy into the ISO real time
market. In addition to the sharing of surplus energy revenues,
the quantity of any surplus energy shall likewise be shared
between Utility and DWR, and used in the determination of the
Hourly Percentage Factor described in Section I(B).
Surplus energy sales revenues shall be placed by Utility into a
separate account (Surplus Sales Fund) to be held in trust and
shall be disbursed by Utility to DWR in accordance with the pro-
rata allocation principles in Exhibit C and consistent with the
provisions of Attachment J of the Servicing Arrangement. For
surplus energy sales to third parties, Utility shall apply
reasonable credit risk management criteria that is consistent
with industry accepted credit standards.
Surplus Energy Quantity
The Surplus Energy quantity shall be determined by subtracting
Utility's Energy Delivery Obligations from the sum of dispatched
URG energy and dispatched DWR Supply. URG energy shall include
dispatched energy from URG, new Utility contracts and Utility
market purchases plus adjustments for Ancillary Services and ISO
Instructed Energy as described under "Definitions and
Adjustments." DWR Supply shall include dispatched energy from
DWR must take and dispatchable contracts net of adjustments
described below.
DWR Surplus Energy quantity shall be the product of Surplus
Energy quantity multiplied by the DWR Surplus Energy Percentage.
Utility Surplus Energy quantity shall be the remaining portion of
Surplus Energy. Both Utility and DWR Surplus Energy quantities
shall be applied to the respective Party's energy supply
quantities for determination of the Hourly Percentage Factor
described in Section (B).
Surplus Energy Sales Revenues
Surplus Energy Sales Revenues shall be shared between Utility and
DWR in the same manner as Surplus Energy.
Forward Market Sale
DWR share of revenues from a forward market sale of surplus
energy shall be the product of the net revenue multiplied by the
DWR Surplus Energy Percentage. Utility share of these revenues
shall be net revenue less DWR share of net revenues. Revenues
from a forward market sale shall not be distributed to the
Parties until after Utility receives the revenues from the sales
and pays sale-related charges. Shared revenues from forward
market sales shall be net of transmission costs and broker fees.
ISO Real Time Market Sales
Revenues from delivery of surplus energy to the ISO real time
market shall be determined from the product of positive load or
supply deviation multiplied by the ISO real time market price.
These revenues will be netted against any ISO charges related to
the load deviation, including a negative ISO price. Load
deviation is determined by subtracting the Utility metered load
from the Final Hour Ahead Load Schedule, however only positive
quantities, where schedule exceeds meter, reflect surplus
conditions for revenue sharing. Supply deviation is determined
by subtracting the Final Hour Ahead Supply Schedule (adjusted by
real time instructions) from metered supply, however, only
positive quantities, where meter exceeds the adjusted schedule,
reflect surplus conditions for revenue sharing.
DWR share of revenues from delivery of surplus energy to ISO real
time market shall be the product of the net revenues multiplied
by the DWR Surplus Energy Percentage. Utility share of these net
revenues shall be the net revenue less DWR share of net revenues.
Revenues from delivery of surplus energy to the ISO real-time
market shall not be distributed to the Parties until after the
Utility received payment for final monthly invoice from the ISO
for the month in which the surplus energy was delivered.
Over-generation Periods
During periods of over-generation condition as announced by the
ISO, surplus sales may be made at very low, zero or even negative
prices. In such conditions, the surplus sale revenue
calculations as described above still hold. However it is
recognized that the sales may result in little or no revenue.
Sales could even be done at a cost to the seller. That seller
could be Utility or the ISO selling in an "out-of-market"
condition. During these conditions, ISO-related charges assigned
to Utility for such sales (e.g. - ISO selling out-of-market) are
included in the surplus sales revenue as a cost. During over-
generation conditions there may be no market in which to sell
surplus energy. In that event, or in expectation of that event,
Utility shall declare that no valid market exists for surplus
energy and shall begin curtailing must-take resources in
accordance with Utility's procedures for mitigating over-
generation conditions. Such mitigation measures shall be
consistent with good utility practice, specifically hydroelectric
facilities at spill or near-spill conditions and nuclear
facilities scheduled by Utility are the last resources to be
reduced in power output.
Over-generation for purposes of this Exhibit C is defined as the
condition in which total supply exceeds total loads in the ISO
control area.
Revenues or costs from delivery of surplus energy to the ISO real
time market under an over-generation condition shall not be
distributed to the Parties until after Utility receives payment
for final monthly invoice from the ISO for the month in which the
surplus energy was delivered.
Calculation of Surplus Energy Percentage
DWR Surplus Energy Percentage shall be equal to the pro rata
share of DWR Supply to the sum of Utility Supply and DWR Supply,
expressed as follows:
DWR Surplus Energy Percentage = DWR Supply / (Utility Supply +
DWR Supply)
Where:
DWR Supply is total energy dispatched from DWR Contracts with
adjustments for transmission losses. Ancillary Services and ISO
Instructed Energy transactions described below.
Utility Supply is total energy dispatched from URG, new Utility
contracts and Utility market purchases with adjustments for
transmission losses, existing wholesale obligations, Ancillary
Services and ISO Instructed Energy, exchange transactions, all
pumping loads, and ISO Uninstructed Energy as described below.
B. Definitions and Adjustments
Certain energy and capacity transactions, which may be conducted
by Utility in its normal course of business, may affect the
Utility and DWR Supply quantities used in pro rata calculations.
Exchanges are transactions where energy is delivered to a
third party in one period and a similar, but not
necessarily equal, amount of energy is returned by third
party in a different period. For the purposes of pro rata
share calculation, exchanges use energy from the Utility's
URG.
Forward Sales are transactions where energy is sold in a
forward market to balance supply with demand. In general,
for the purposes of remittance determination, forward sales
are made using energy from the joint Utility/DWR portfolio.
Ancillary Services are transactions where capacity from
certain qualifying resources is sold to ISO for ancillary
services rather than being used as energy to serve retail
load. Resources from both Utility portfolio and DWR
Contracts may qualify for use as ancillary services. Since
the capacity used for ancillary services does not serve
retail energy load, ancillary service capacity is not
considered as a joint Utility/DWR portfolio transaction for
the purpose of remittance determination. If Utility or DWR
Contract resource capacity is used for ancillary services,
the capacity quantity will not be included in the supply
quantity of the owning party for the purpose of pro rata
share calculations, and owning party will retain all the
revenues from the ancillary services as well as all
associated transaction costs and ISO charges.
ISO Instructed Energy is a transaction where certain
qualifying resources are able to sell energy from unused
capacity to the ISO in the real time market. The energy
delivered from these resources is directed by the ISO in
real time to balance supply and load imbalances on the
grid. Either Utility portfolio or DWR Contracts may
contain resources that have ability to provide instructed
energy to ISO. Since instructed energy is resource
specific and does not directly serve the retail load of any
utility, instructed energy is not considered as a joint
Utility/DWR portfolio transaction for the purpose of
remittance determination. If Utility or DWR Contract
resources are dispatched as instructed energy, the energy
quantity will not be included in the supply quantity of the
owning party for the purpose of pro rata share
calculations, and owning party will retain all the revenues
from the instructed energy as well as all associated
transaction costs and ISO charges.
ISO Uninstructed Energy is a transaction where energy is
delivered or received from the ISO grid in the real time
based on the actual consumption of retail load and actual
deliveries of supply resources.
Uninstructed Retail Load Deviations--Uninstructed retail Load
Deviations are the difference between scheduled load and
metered load. If retail load deviations are positive
(schedule exceeds meter), it is considered that any excess
supply (less any positive uninstructed supply deviation)
was dispatched from the joint Utility/DWR portfolio in
excess of quantity needed to serve retail load, and that
the ISO credit for the excess supply should be shared pro
rata as described above. If retail load deviations are
negative (meter exceed schedule), to the extent deviations
are not compensated by a positive uninstructed supply
deviation, it is considered that Utility had to procure
additional supply from ISO real time market. The negative
load deviation quantity procured from ISO real time market
is considered a Utility market purchase and the quantity
will be included in Utility Supply for pro rata share
calculation purposes.
Uninstructed Supply Deviations
Uninstructed Supply Deviations are the difference between
scheduled supply and metered supply plus an ISO allocation
for transmission losses. If Utility's net supply
deviations are positive (meter exceeds schedule), to the
extent not needed to compensate a negative uninstructed
retail load deviation, it is considered that excess supply
was a Utility market sale and will not be included in
Utility Supply for pro rate calculation purposes. If
Utility's net supply deviations are negative (schedule
exceeds meter), to the extent not balanced by a positive
uninstructed retail load deviation, it is considered that
Utility had to procure additional supply from the ISO real
time market. The negative supply deviation quantity
procured from the ISO real time market is considered a
Utility market purchase and the quantity will be included
in Utility Supply for pro rata share calculation purposes.
C. Utility Remittance to DWR for Sales of DWR Energy to
Utility Retail Customers -Energy Payment
Utility shall remit to DWR its Energy Payments according to the
terms of each Utility's respective Servicing Arrangement.
The DWR Energy Payment is billed by each utility to customers in
accordance with the terms of each applicable Utility Servicing
Arrangement. The DWR Energy Payment is billed kWhs served by Net
DWR Supply at the applicable CPUC approved DWR rate. Net DWR
Supply is total DWR Supply less DWR share of surplus energy. The
DWR Energy Payment is allocated based on the percentage of energy
supplied by DWR to Utility, which is the "Hourly Percentage
Factor" multiplied by the retail load of each customer. The
Hourly Percentage Factor is determined by calculating the
percentage of net energy supplied by DWR to Utility to serve
retail load, as expressed below:
Hourly Percentage Factor = Net DWR Supply / (Net Utility Supply +
Net DWR Supply)
Where:
Net DWR Supply is DWR Supply quantity used for the determination
of DWR Surplus Energy Percentage less DWR share of surplus energy
quantity, which is determined by the product of surplus energy
multiplied by DWR Surplus Energy Percentage.
Net Utility Supply is Utility Supply quantity used for the
determination of DWR Surplus Energy Percentage less Utility share
of surplus energy quantity, which is total surplus energy less
the DWR share of surplus energy quantity.
In the Event of any conflict between the formulas and procedures
in this Exhibit C and the formulas and procedures in Utility's
Servicing Arrangement, those contained in Utility's Servicing
Arrangement shall govern.
II. Bilateral Settlement
Under the Contract Allocation Order DWR remains financially
obligated for the Contracts. DWR will continue to pay suppliers and
this requires DWR to apply appropriate procedures and controls to
ensure that payments are made accurately and in a timely manner.
Information supporting Contract settlements will be provided by
Utility, and additional information may also be required to address
contract performance issues (such as availability and other items as
discussed in Exhibit E) and to allow DWR to settle disputes in an
appropriate manner.
DWR requires sufficient information to support payment requests so
that it can meet the accountability requirements of the State
Controller's Office and the State Auditor, and simultaneously comply
with the applicable statutes concerning disbursement of public
monies. The Utility shall reconcile schedules with suppliers
invoice. DWR shall make the associated payments to suppliers after
performing its verification, and Utility will provide the data as
required in Exhibit F to allow it to perform these duties in a
timely manner as set forth herein.
DWR shall continue to perform validation of settlement data and
invoices and pay Contract costs directly to the suppliers upon
validation of invoices.
III. Fuel Cost Verification and Settlement
Exhibit B provides a detailed discussion concerning Utility's
responsibility for fuel management. DWR will continue to pay fuel
suppliers and others involved in providing fuel management services
for the delivery of fuel for those DWR Contracts where the Fuel
Option has been elected. Consistent with the above, Utility will
perform settlements activities to reconcile quantities and
associated charges, and DWR will perform verification, audit and
monitoring to support its disbursement of funds. Utility will
comply with the requirements contained in Exhibit F to provide DWR
with the necessary information to apply appropriate procedures and
controls to ensure that fuel payments and payments for fuel
management services are made accurately and in a timely manner and
to allow DWR to settle disputes in an appropriate manner.
SDG&E EXHIBIT D
ISO SCHEDULING COORDINATOR CHARGES
EXHIBIT D
ISO SCHEDULING COORDINATOR CHARGES
The financial obligation for ISO charges incurred after the
Effective Date will be allocated to the Utility, unless otherwise
extended under the existing letter agreement with DWR related to
the ISO charges and any future Applicable Commission Orders.
Unless specifically provided in Exhibit C hereto, all ISO charges
incurred after the Effective Date attributable to load and
resources shall be the responsibility of Utility.
Utility agrees that any refunds, reruns or credits through
the ISO attributable to costs incurred by DWR for trade dates
beginning February 7, 2001 up to the Effective Date shall belong
to DWR and Utility shall take all necessary action to remit such
refunds or credits to DWR within reasonable time. In addition,
DWR shall be responsible for any ISO charges incurred during this
period pursuant to the existing letter agreement between the
Parties. Utility shall invoice DWR for such ISO charges within a
reasonable period of time and DWR shall pay Utility for such ISO
charges within 10 days of receipt of such invoice. Without
making any assurances as to Commission action, DWR agrees to take
appropriate action to ensure that such refunds or credits are
applied consistent with DWR's Revenue Requirement cost allocation
method for the same trade dates.
SDG&E EXHIBIT E
CONTRACT MANAGEMENT AND
ADMINISTRATION PROTOCOLS
EXHIBIT E
CONTRACT MANAGEMENT AND ADMINISTRATION PROTOCOLS
DWR will retain all contract management, administration and
monitoring responsibilities for the Contracts, including due
diligence, performance testing, contract performance assessment,
formal correspondence and notifications with Suppliers, exercise
of contract options, contract interpretation and dispute
resolution, and financial reporting. Upon development by Utility
and DWR in the future to a transition plan that transfers the Due
Diligence and Performance Test Monitoring functions set forth in
this Exhibit E from DWR to the Utility, , including a transition
schedule, and a transition plan , Utility agrees to submit such
transition plan to the Commission as an amendment to this
Exhibit E for approval by the Commission. Upon agreement of the
Parties to an acceptable transition plan and the Commission
approval of Utility submitted transition plan, the agreed upon
functions will transfer from DWR to the Utility ("the Transition
Date").
I. Due-Diligence
The Due Diligence function assesses the progress of
permitting, construction and performance capability of new
generating facilities under to the Contracts. Due Diligence
includes (i) monitoring activities associated with the
development, construction, and performance of new generating
facilities; (ii) identification and tracking of key projects
milestones including permitting, equipment procurement,
construction, commissioning, and performance testing; (iii)
coordination with permitting agencies and the Suppliers,
review of project documents, physical inspections, and
witnessing of acceptance tests, (iv) verification that the new
facilities can perform in a manner that is consistent with the
obligations under the appropriate Contract and (v) review and
approval of commercial operation dates and documentation.
II. Performance Test Monitoring
A. Annual Performance Tests
Annual Performance Tests verify ongoing compliance with the
Contracts and establish plants capacities and efficiencies
that are used to calculate contract payments, either for
capacity or energy. Annual Performance Test
responsibilities generally consist of (i) verification of
testing procedures, (ii) witness of performance tests,
(iii) review of test results and test reports for
compliance with Contract terms and conditions, and (iv)
identification of contract non-compliance for dispute
resolution with the Supplier. Prior to the Transition
Date, the Utility will cooperate and assist DWR with
scheduling of upcoming Annual Performance Tests, and the
Utility may have its staff witness such testing.
B. Scheduled Performance Tests
Prior to the Transition Date, on occasion, DWR may request
that Utility schedule a peaking or dispatchable generating
facility for testing (to assure that such generation
facility is available according to the terms of the
contract between such generation facility and DWR). The
utility will cooperate and shall coordinate with the DWR on
a mutually acceptable date for performance of the test. On
the date agreed upon, the Utility shall schedule the
specified facility or unit for operation to test the
availability, reliability, and performance of the scheduled
unit.
C. Test Procedures and Protocols
Prior to January 1, 2003, Utility shall meet with DWR staff
to review, discuss, and verify test procedures and
protocols developed by DWR.
III. Contract Performance Assessments
DWR shall continue to perform an after-the-fact review
("Performance Assessment") of each Contract on a periodic
basis. The purpose of the Performance Assessment is to
assess, analyze, and document the overall performance of each
Supplier, assure that the Supplier is satisfying the terms and
conditions of their respective contract(s), and identify
potential issues, disputes, and other matters that may require
corrective action by either Utility or DWR as part of contract
administration.
IV. Other Administrative Matters
A. Correspondence with Suppliers
Utility and DWR agree to copy each other on all written
correspondence and written notifications sent to or
received from a Supplier of an Allocated Contract or
Interim Contract related to the activities described in
this Exhibit E. The Parties agree to provide additional
information as requested related to verification and
support of the activities described in this Exhibit E.
B. Reports
Results of the activities described in this Exhibit E will
be documented by DWR in written reports ("Reports") and
shall be discussed periodically between DWR and the
Utility. Such Reports may include, but are not limited to,
summary of test results, status of projects,
recommendations for operational changes, procedural
changes, dispute resolution, and results of Performance
Assessments.
Such Reports, documentation, or other material developed by
either Party shall be shared and reviewed with the other
Party on a timely basis.