Common use of PROCUREMENT OBLIGATIONS Clause in Contracts

PROCUREMENT OBLIGATIONS. Either through legislation and/or through a contract between SCE and CDWR (which, if in the form of a contract, shall be a Definitive Agreement), the following will be effected: o Through December 31, 2002, CDWR will assume the entire responsibility for procuring the full net short needs of retail customers within the SCE service area (i.e., the electricity needed to meet SCE's load that is not met by the generation resources owned or under contract to SCE as of January 18, 2001, plus any additions thereafter). CDWR shall also assume responsibility for ancillary services (other than regulation, except to the extent the parties agree pursuant to the next paragraph) associated with CDWR import energy purchases and responsibility for the cost of Reliability Must Run contracts from January 18, 2001. In addition, CDWR will also assume responsibility for ISO charges to SCE for the energy cost component of energy purchased by the ISO since January 18, 2001, to meet the net short requirements in SCE's service area (such energy cost component shall not include charges for underscheduling, capacity charges, ancillary services or PX or similar chargebacks, except to the extent the parties agree pursuant to the next paragraph). o It is the intent of both SCE and CDWR that the overall costs to SCE's retail customers be minimized, and accordingly SCE and CDWR agree that SCE's operation of URG and CDWR's net short procurement should be coordinated. SCE and CDWR will negotiate a mutually-agreeable operational protocol which will address the use of URG for self-scheduling of ancillary services, and will allocate responsibility for procurement and costs of ancillary services. In addition, the operational protocol will allocate cost responsibility for any ISO underscheduling penalties based upon SCE's good faith forecast of the net-short and CDWR's activities to procure sufficient quantities to meet SCE's forecast. SCE shall be entitled to collect revenues through its retail rates sufficient to cover the costs of any ancillary services it is responsible for on a timely basis. o SCE will cooperate with CDWR to achieve operational efficiencies for bundled service customers; and o SCE power purchases, and, until it is creditworthy, utilization of URG, to meet its obligations under interutility contracts will be allowed with an offset for the net proceeds of any sale of power. CDWR desires to be relieved of its obligation to provide for the net short needs of SCE's retail customers, and SCE agrees to resume procurement of the full net short needs and electric requirements for retail customers within the SCE service area after 2002. In addition, after 2002, CDWR may at least assign to SCE the administration of any of CDWR's outstanding procurement contracts. The Parties will work together to minimize the burden on CDWR, without imposing direct or indirect financial risks on SCE for those contracts. The Parties recognize that legislation may be needed to achieve this result. Given the magnitude of the net short and SCE's current financial condition, the practical ability of SCE to resume such procurement responsibility after 2002, and to relieve CDWR of such burden, will depend in substantial part upon prompt restoration of SCE's creditworthiness and its ability to recover such procurement costs in rates on a timely basis. Accordingly, the CPUC Implementing Decisions will include confirmation of SCE's entitlement to recover its reasonable procurement costs on a timely basis and establish procedures (which may include one or more balancing accounts and trigger mechanisms) designed to ensure that any undercollection or overcollection of procurement costs will be reconciled in a timely manner and any undercollection will be able to be financed on reasonable terms consistent with SCE being an investment grade credit, and mechanisms to mitigate the potential risks of retrospective reasonableness review of procurement practices, including the development of a framework and criteria for procurement practices, the submission of an annual procurement plan, and the prompt approval or disapproval of contracts (the "Procurement Cost Recovery Mechanism"). In addition, subject to execution of the Definitive Agreements and adoption of legislation necessary to implement this MOU, SCE shall cooperate with CDWR in the implementation of AB 1X, including provision by SCE of such information as CDWR may reasonably require in connection with the financing of its power purchase program. SCE and CDWR shall also execute a mutually approved servicing agreement (which shall not be treated as a Definitive Agreement hereunder) relating to the distribution, billing and collection of CDWR power for customers in SCE's service area. Upon the securitization of the First Dedicated Rate Component referred to in Section 9 hereof, SCE shall pay CDWR an amount to be agreed upon representing those costs incurred by CDWR in covering that portion of the net short from January 18, 2001 through April 7, 2001 which is attributable to certain QF's not delivering power to SCE, it being agreed that such payments to CDWR shall be added to the net undercollected amount referred to herein and shall not be construed as any admission by SCE. The Parties agree to discuss in good faith the terms pursuant to which SCE, as agent and not as principal, would be willing to assist CDWR in the management of its power purchase contracts, on terms to be resolved in a subsequent agreement. Such subsequent agreement shall not be considered a "Definitive Agreement" as defined herein.

PROCUREMENT OBLIGATIONS. Either through legislation and/or through a contract Under the terms set forth in letter agreements between SCE Utility and CDWR (whichCDWR, if in the form of a contract, shall be a Definitive Agreement)among other provisions, the following will be effected: o Through December 31, 2002, agreements obligate CDWR will to assume the entire responsibility during certain periods for procuring the "full net short needs short" power requirements of retail customers within the SCE Utility's service area (i.e., the electricity power needed to meet SCEthe load of Utility's load customers that is not met by the generation resources owned or under contract to SCE as of January 18, 2001, plus any additions thereafterUtility's URG). Substantially concurrently herewith, CDWR shall also assume responsibility for ancillary services (other than regulationand Utility are entering into an amendment to these agreements, except in a form mutually agreeable to the extent parties (the parties agree pursuant "Restated CDWR Letter Agreement"). Notwithstanding anything to the next paragraph) associated with contrary contained in the Restated CDWR import energy purchases and responsibility for the cost of Reliability Must Run contracts from January 18Letter Agreement, 2001. In addition, CDWR will also assume responsibility for ISO charges to SCE for the energy cost component of energy purchased by the ISO since January 18, 2001, to meet the net short requirements in SCE's service area (such energy cost component shall not include charges for underscheduling, capacity charges, ancillary services or PX or similar chargebacks, except to the extent the parties agree pursuant to the next paragraph). o It is the intent of both SCE and CDWR that the overall costs to SCE's retail customers be minimized, and accordingly SCE and CDWR agree that SCE's operation of URG and CDWR's net short procurement should be coordinated. SCE and CDWR will negotiate a mutually-agreeable operational protocol which will address the use of URG for self-scheduling of ancillary services, and will allocate responsibility for procurement and costs of ancillary services. In addition, the operational protocol will allocate cost responsibility for any ISO underscheduling penalties based upon SCE's good faith forecast of the net-short and CDWR's activities to procure sufficient quantities to meet SCE's forecast. SCE Utility shall be entitled to collect revenues through its retail rates sufficient to cover the costs of any ancillary services it is responsible for on a timely basis. o SCE will cooperate with CDWR to achieve operational efficiencies for bundled service customers; and o SCE power purchases, and, until it is creditworthy, utilization of URG, to meet its obligations under interutility contracts will be allowed with an offset for the net proceeds of any sale of power. CDWR desires to be relieved of its obligation to provide for the net short needs of SCE's retail customers, and SCE agrees obligated to resume procurement of the full "residual net short needs and electric short" power requirements for retail customers within the SCE Utility's service area (to the extent the full net short is not covered by power provided under contracts entered into by CDWR that is made available to meet the load of Utility's customers) upon the earlier of January 1, 2003 or such date as is determined by CDWR upon not less than 180 days prior written notice to Utility (which notice may be given prior to and contingent upon the completion of the items in (i) and (ii) below), but any such resumption of procurement prior to January 1, 2003 shall not occur before (i) the CPUC shall have adopted the CPUC Implementing Decisions for the URG Cost Recovery Mechanism and the Procurement Cost Recovery Mechanism and shall have approved the ORA Settlement Agreement (and made the related finding referred to in Section 2), as described in clauses (a), (c) and (e) of Section 11 of this MOU and (ii) at least one of the other two major California-based investor-owned electric utilities shall have resumed procurement of its residual net short. Such date is referred to herein as the "Procurement Resumption Date." The foregoing provision is binding and effective upon the effectiveness of the Restated CDWR Letter Agreement, notwithstanding any other provision of this MOU and notwithstanding any termination of any of the parties' obligations under this MOU. Except as expressly provided in this paragraph, the Restated CDWR Letter Agreement shall be fully effective in accordance with its terms, notwithstanding any of the provisions of this MOU or any termination of any of the parties' obligations under this MOU. CDWR will identify to Utility the power available under contracts entered into by CDWR that is to be made available after 2002the Procurement Resumption Date to meet the load of Utility's customers and will, subject to the express terms set forth in this Section 9, use good faith efforts to assist Utility in connection with an orderly transition to Utility's resumption of the procurement of the residual net short. In addition, after 2002the Procurement Resumption Date, under conditions to be determined by CDWR but subject to the additional conditions in this paragraph, CDWR may at least elect to assign to SCE the administration of any of Utility, or otherwise subcontract with Utility to assume or satisfy CDWR's outstanding obligations under, power procurement contractscontracts which are identified by the CDWR or other authority or process as contracts which should be assigned or subcontracted to Utility for the benefit of Utility's customers (other than contracts between CDWR and affiliates of Utility). The Parties will work together to minimize the burden on CDWR, achieve this result without imposing direct or indirect financial risks on SCE for Utility in relation to those contracts. The Parties recognize that legislation may be needed to achieve this result. Given the magnitude of the net short and SCE's current financial conditionshort, the practical ability of SCE Utility to resume such procurement responsibility after 2002, and to relieve CDWR of such burden, the Procurement Resumption Date will depend in substantial part upon prompt restoration continuation of SCEUtility's creditworthiness and its ability to recover such procurement costs in rates on a timely basis. Accordingly, the CPUC Implementing Decisions will include confirmation of SCEUtility's entitlement to recover its reasonable procurement costs on a timely basis and establish procedures (which may include one or more balancing accounts and trigger mechanisms) designed to ensure that any undercollection or overcollection of procurement costs will be reconciled in a timely manner and any undercollection will be able to be financed (in the capital or credit markets) on reasonable terms consistent with SCE being Utility continuing to be an investment grade credit, and mechanisms to mitigate the potential risks of retrospective reasonableness review of procurement practices, including the development of a framework and criteria for procurement practices, the submission of an annual procurement plan, and the prompt approval or disapproval of contracts practices (the "Procurement Cost Recovery Mechanism"). The Procurement Cost Recovery Mechanism shall also provide that any contracts, if any, that CDWR assigns or subcontracts to Utility shall be deemed reasonable per se. In addition, subject to execution of the Definitive Agreements and adoption of legislation necessary to implement this MOU, SCE Utility shall cooperate with CDWR in the implementation of AB 1XX1-1, including provision by SCE Utility of such information as CDWR may reasonably require in connection with the financing of its power purchase program. SCE Utility and CDWR shall also execute a mutually approved servicing agreement (which shall not be treated as a Definitive Agreement hereunder) relating to the distribution, billing and collection of CDWR power for customers in SCEUtility's service area. Upon the securitization of the First Dedicated Rate Component referred to in Section 9 hereof, SCE shall pay CDWR an amount to be agreed upon representing those costs incurred by CDWR in covering that portion of the net short from January 18, 2001 through April 7, 2001 which is attributable to certain QF's not delivering power to SCE, it being agreed that such payments to CDWR shall be added to the net undercollected amount referred to herein and shall not be construed as any admission by SCE. The Parties agree to discuss in good faith the terms pursuant to which SCEUtility, as agent and not as principal, would be willing to assist CDWR in the management of its power purchase contracts, on terms to be resolved in a subsequent agreement. Such subsequent agreement shall not be considered a "Definitive Agreement" as defined herein. Pursuant to an agreement to be entered into at such time as CPUC shall have adopted the CPUC Implementing Decisions for the URG Cost Recovery Mechanism and the Procurement Cost Recovery Mechanism, Parent shall commit to cause Utility and Southern California Gas Company to make capital investments in their businesses (exclusive of capital investments relating to Utility's transmission business) of at least $3.0 billion in the aggregate (plus, if the Transmission Sale shall not occur, additional capital investments in Utility's transmission business of at least $200 million (plus an additional $300 million if Utility funds the Valley Rainbow transmission line)) during the 6-year period from 2001 through 2006, or such lesser amount as the CPUC may approve, with the equity component thereof funded from utility retained earnings or, if insufficient, from Parent's equity investment, provided that Utility and Southern California Gas Company will receive a return of and on equity in retail rates in accordance with their respective authorized rates of return and amortization schedules from time to time in effect. Exclusive of capital investments relating to Utility's transmission business, the foregoing commitments represent an increase of approximately $600 million in the aggregate over the capital investments actually made in Utility and Southern California Gas Company during the 6-year period 1995-2000.