7. Other Modifications to the NBC Agreement

In addition to the modification discussed above, we require one other modification to the NBC Agreement.

Section II.E of the NBC Agreement provides that PG&E may apply the amounts paid by the Districts to the NBCs addressed by the NBC Agreement.⁴⁰ Because the NBCs are mandatory charges established to satisfy obligations resulting from electric industry restructuring and the California energy emergency, PG&E should be required to apply the amounts paid by the Districts toward the costs for which the NBCs were established to recover. Therefore, Section II.E of the NBC Agreement should be modified to state:⁴¹

"E. The District's Payment Obligations. The Parties agree that Modesto ID and Merced ID each shall pay PG&E mutually agreed amounts which PG&E may must apply to the NBCs identified in Paragraphs II.A and/or II.B above, that have accrued or will accrue to Existing NMDL Customers and/or New NMDL Customers pursuant to current CPUC decisions and implementing Rate Schedule E-NMDL, subject to the provisions set forth below.

1. Existing NMDL Customers. The Parties agree that, for the Existing NMDL Customers who receive electric service from Modesto ID and/or Merced ID, each District shall pay PG&E amounts which PG&E may must apply to the following categories of NBCs:

a. The `retroactive charges,' which consist of the charges accrued to such customers for the period July 10, 2003 through February 7, 2008 (as reduced consistent with Paragraph II.E.1.c hereto), which retroactive charges may be amortized over a 36-month period, and

b. The `ongoing charges,' which consist of the charges accrued to such customers for the period beginning February 8, 2008, until the expiration of the charges in question (as reduced consistent with Paragraph II.E.1.c hereto)

c. The total amounts that the Districts shall pay to PG&E pursuant to this section shall be the amounts that have accrued or will accrue to Existing NMDL Customers for retroactive charges and ongoing charges, as described in Paragraphs II.E.1.a and II.E.1.b above, but reduced by 45% to reflect PG&E's current collection experiences, combined with the efficiencies associated with Modesto ID and Merced ID paying these amounts, as described in Paragraph II.F. The total amount owed by each District for these charges is set forth in Appendix A hereto.

2. New MDL Customers. The Parties agree that for New NMDL Customers who receive electric distribution service from Modesto ID and/or Merced ID, each District shall pay PG&E amounts which PG&E may must apply to the `ongoing charges,' which consist of the charges accrued to such customers for the period beginning February 8, 2008, or the date that such customers become New NMDL Customers, whichever is later, until the expiration of the charges in question. The total amounts that the Districts shall pay to PG&E pursuant to this section shall be the amounts that have accrued or will accrue to these New NMDL Customers for ongoing charges, as described in the preceding sentence, but reduced by 40% to reflect PG&E's expected future collection experience, combined with the efficiencies associated with Modesto ID and Merced ID paying these amounts, as described in Paragraph II.F. The total amount owed by each District for these charges is set forth in Appendix A hereto."

⁴⁰ Emphasis added.

⁴¹ Deleted text is shown in strikethrough font and inserted text is underlined.