VI. Assignment of Proceeding

Geoffrey Brown is the Assigned Commissioner and Sarah R. Thomas is the assigned ALJ in this proceeding.

Findings of Fact

1. The settlement only resolves issues raised in the complaint, and leaves issues of broader policy impact for later resolution.

2. All parties support the settlement.

3. The settlement does not preclude future Commission action.

4. The allocation of the settlement proceeds is consistent with PG&E's tariffs.

5. Hearings are not necessary.

Conclusions of Law

1. The settlement is reasonable in light of the whole record.

2. The settlement is consistent with the law.

3. The settlement is in the public interest.

4. The settlement should be approved.

ORDER

IT IS ORDERED that:

1. The Joint Motion for Approval of Settlement and Proposal by Pacific Gas and Electric Company for Allocation of Settlement Proceeds is approved.

2. The settlement proceeds shall be distributed as set forth in the Settlement Agreement, attached as the Appendix to this decision.

3. Nothing in the Agreement binds the Commission or should be construed to constitute a Commission statement of policy on the conduct alleged in the complaint. The Commission is free in the future to interpret the conduct alleged in the complaint, or like conduct, as it sees fit, consistent with the law.

4. Hearings shall not occur in this proceeding.

This order is effective today.

Dated July 8, 2004, at San Francisco, California.

MICHAEL R. PEEVEY

President

CARL W. WOOD

LORETTA M. LYNCH

GEOFFREY F. BROWN

SUSAN P. KENNEDY

Commissioners

APPENDIX A

SETTLEMENT AGREEMENT AND RELEASE

This Settlement Agreement and Release (including all mutually agreed upon written amendments and modifications by the parties, hereinafter referred to as the "Agreement") is made effective as of January 15, 2004, (the "Effective Date"), by and between Pacific Gas and Electric Company ("PG&E"), complainant, and Calpine Corporation on behalf of itself and Calpine Natural Gas Company, which was merged into Calpine Corporation on April 24, 2002, CPN Pipeline Company ("CPN Pipeline"), and Calpine Energy Services, L.P. (collectively the "Calpine Entities"), and Lodi Gas Storage, L.L.C. ("LGS"), defendants. "Party" means and refers to PG&E, the Calpine Entities or LGS, individually. "Parties" means and refers to PG&E, the Calpine Entities and LGS, collectively.

RECITALS

A. On July 22, 2003, PG&E initiated a complaint proceeding against the Calpine Entities and LGS before the California Public Utilities Commission (the "CPUC"), designated as Case No. C.03-07-031 (the "Complaint"). The Calpine Entities and LGS timely answered the Complaint, each respectively disputing PG&E's claims of any right to relief, and the Parties have thereafter been engaged in the litigation of the Complaint.

B. The Parties now wish to settle, compromise and resolve all claims between and among them, pertaining to the claims and issues contained in the Complaint in accordance with Rule 51, et seq., of the CPUC Rules of Practice and Procedure.

THEREFORE, in consideration of the mutual terms, obligations, covenants, conditions and promises contained herein, the Parties agree as follows:

1. Provisions Effective as of Effective Date

This Agreement shall be effective as of the Effective Date.

2. Stay of Litigation Schedule

The Parties shall at the prehearing conference, now scheduled for January 15, 2004, jointly renew their request that the Assigned Administrative Law Judge stay the litigation schedule in the Complaint proceeding, including discovery, depositions, filing of testimony and motions, pending the filing of a motion for approval and CPUC approval of this Agreement.

3. Payment

Within five (5) business days after satisfaction of the CPUC Approval Condition Precedent, as defined in Paragraph 6 of this Agreement, PG&E shall be paid by wire transfer the total aggregate sum of $2.7 million (the "Settlement Proceeds"), which Settlement Proceeds shall be deemed to include both PG&E's attorneys' fees in an amount not to exceed $500,000, and interest. In the event payment of the full Settlement Proceeds is not made by wire transfer within such five-day period, PG&E reserves its full rights under law to offset up to the full amount, including interest at the then current FERC approved rate (18 CFR part 35, section 35.19a) commencing at the end of the fifth day, of any outstanding Settlement Proceeds from any present or future payments PG&E may otherwise be obligated to make.

4. Suspension of CPN Pipeline Interconnections with LGS

Within five (5) business days from the Effective Date, the Calpine Entities and LGS shall render inoperable the existing interconnections between CPN Pipeline and LGS, identified in the Complaint as Interconnections A and B, and further shall refrain from operating the CPN Pipeline interconnections pending either a future CPUC order, decision, resolution or pronouncement issued in accordance with the provisions set forth in Paragraph 7, or the expiration of the nine (9) month specified in Paragraph 7. If the CPUC Approval Condition Precedent is deemed not capable of satisfaction as provided for in Paragraph 6 of this Agreement, this Paragraph 4 shall be deemed null and void.

5. Ryer Island Meter Station Deliveries

a. The Calpine Entities are currently not delivering or selling natural gas to, or exchanging natural gas with, any third party at the Ryer Island Meter Station. In the event that the Calpine Entities intend to commence delivering or selling natural gas to, or exchanging natural gas with, any third party at the Ryer Island Meter Station ("Intended Ryer Island Meter Station Delivery"), the Calpine Entities shall provide PG&E written notice of, and describe, the intended transaction no later than thirty-five (35) calendar days before the commencement of any natural gas deliveries. The Calpine Entities shall not commence the Intended Ryer Island Meter Station Delivery unless and until PG&E provides a written consent, or is deemed to have consented pursuant to subparagraph 5(c), or if the Calpine Entities obtain the applicable authorization pursuant to subparagraph 5(d). Such notice by the Calpine Entities of the Intended Ryer Island Meter Station Delivery shall identify the third party, quantify the volumes of natural gas to be delivered, and specify the facilities through which the third party shall have its natural gas delivered downstream of the Ryer Island Meter Station.

b. PG&E has ten (10) calendar days from the date that the Calpine Entities provide notice to it of the Intended Ryer Island Meter Station Delivery to respond. If PG&E does not, within the ten (10) period, provide a written consent to the Calpine Entities, or does not make any response whatsoever, then PG&E shall be deemed to have objected to the Intended Ryer Island Meter Station Delivery. PG&E may also, within the ten (10) day period, provide a written objection.

c. If PG&E is deemed to have objected to the Intended Ryer Island Meter Station Delivery, pursuant to subparagraph 5(b), then the Calpine Entities may, within ten (10) calendar days of such objection, request in writing that PG&E make a written response setting forth the basis of its objection, if PG&E has not already done so. PG&E will, within ten (10) calendar days of receipt of the written request from the Calpine Entities for such a response, provide a written statement setting forth the basis for its objection to the Intended Ryer Island Meter Station Delivery. If PG&E does not provide such written response within ten (10) calendar days, then PG&E shall be deemed to have provided its written consent, and the Calpine Entities may proceed with the Intended Ryer Island Meter Station Delivery.

d. The Calpine Entities reserve their respective rights at any time to obtain an order or other authorization by the CPUC, or a court, either authorizing the Calpine Entities to engage in the Intended Ryer Island Meter Station Delivery, or finding that the Calpine Entities need no prior governmental authorization to engage in the Intended Ryer Island Meter Station Delivery.

e. If the CPUC Approval Condition Precedent is deemed not capable of satisfaction as provided for in Paragraph 6 of this Agreement, then this Paragraph 5 shall be deemed null and void.

6. CPUC Approval Condition Precedent

a. The Parties shall cooperate fully in the timely preparation and filing of a joint motion for approval of the settlement of the Complaint, for the approval of the terms and conditions of this Agreement, and for the concurrent dismissal of the Complaint with prejudice. The joint motion shall contain as a separate section a proposal by PG&E for the allocation of the Settlement Proceeds with respect to ratepayers, PG&E shareholders and/or governmental entities; this separate allocation section shall be prepared by and offered by PG&E exclusively. The Calpine Entities and LGS acknowledge and agree that the proposal that PG&E will offer for the allocation of the Settlement Proceeds with respect to ratepayers, PG&E shareholders, and/or governmental entities shall be determined by, and shall be the sole responsibility of, PG&E. Consequently, the Calpine Entities and LGS will not oppose directly or indirectly PG&E's proposed or actual allocation of the Settlement Proceeds, and shall remain neutral and express no opinion or position thereon. The Parties shall fully support approval by the CPUC of the terms and conditions of this Agreement and the dismissal of the Complaint with prejudice. Each Party shall bear its own costs in the preparation and prosecution of the joint motion.

b. The effectiveness of Paragraphs 3, 7, 8 and 9 of this Agreement is expressly subject to a condition precedent of approval of this Agreement and the dismissal of the Complaint with prejudice by the CPUC ("CPUC Approval Condition Precedent"). The CPUC Approval Condition Precedent shall be satisfied by any, and upon the earlier of, the following:

i. The CPUC approving the Agreement and dismissing the Complaint with prejudice with no required modifications or conditions to the Agreement;

ii. No Party serving a timely Notice of Unacceptable Modification as provided for in subparagraph 6(d); or

iii. The Parties, in accordance with the procedures set forth in subparagraph 6(d), renegotiating the Agreement, the CPUC approving (directly or indirectly) the renegotiated Agreement, and the Complaint being dismissed with prejudice.

c. In the event the CPUC issues a decision rejecting the settlement on the terms of this Agreement ("Adverse CPUC Decision"), the Parties will meet and confer within five (5) business days to seek agreement on steps regarding the Agreement and the Adverse CPUC Decision. Absent any such agreement among the Parties to continue to seek approval of this Agreement, the CPUC Approval Condition Precedent shall be deemed not capable of satisfaction.

d. If the decision by the CPUC would approve the Agreement and dismiss the Complaint with prejudice upon the condition(s) that the Parties modify the Agreement, and if a Party determines, in its sole discretion, that such required modification(s) is (are) unacceptable, that Party shall notify the other Parties within five (5) business days after the CPUC mailing of the decision that the decision contains a modification or condition unacceptable to the notifying Party ("Notice of Unacceptable Modification"). Upon delivery of a Notice of Unacceptable Modification, the Parties agree to negotiate in good faith to revise the Agreement in a manner that is acceptable to all Parties and designed to receive CPUC approval. If the Parties are able to renegotiate the terms of this Agreement and the CPUC approves (directly or indirectly) the renegotiated Agreement, the CPUC Approval Condition Precedent shall be deemed satisfied.

e. In the event that the Parties are not able to renegotiate this Agreement by the earlier of ten (10) business days following the sending of a Notice of Unacceptable Modification (provided the Parties may extend this period upon mutual written agreement), or two (2) business days before any deadline the CPUC may impose in its decision for the Parties to accept any modifications to this Agreement, then the CPUC Approval Condition Precedent shall be deemed not capable of satisfaction. In such event, the Parties' respective rights and obligations set forth in this Agreement shall be rendered null and void.

f. If the decision by the CPUC would approve the Agreement and dismiss the Complaint with prejudice only upon the condition(s) that the Parties modify the Agreement, and if no Party serves a timely Notice of Unacceptable Modification, each Party shall be deemed to have waived its respective rights to assert that the CPUC decision contains an unacceptable modification or condition, the Parties shall provide the CPUC any required notice of their acceptance of the Agreement as modified by the CPUC, and the CPUC Approval Condition Precedent shall be deemed satisfied.

7. Future CPUC Proceedings

a. For a period of nine (9) months from the Effective Date, LGS shall do nothing to render Interconnections A or B operable, or to operate said interconnections, or to install or allow to be installed any other interconnections; provided that, if the CPUC Approval Condition Precedent is deemed not capable of satisfaction as provided for in Paragraph 6, this Paragraph 7 shall be deemed null and void. If, at the conclusion of such nine (9) month period, the CPUC has not issued any order, decision, resolution or pronouncement effectively authorizing interconnections by LGS, then LGS shall first notify in writing PG&E's Vice President of California Gas Transmission prior to commencement of any construction activity for new interconnections that LGS may install or the renewed operation of Interconnection A or B. PG&E reserves all rights concerning any actions taken by LGS after the expiration of the nine (9) month period described in this subparagraph 7(a) to render Interconnections A or B operable or to interconnect with any other third party.

b. There is now pending before the CPUC a petition for rulemaking in Case No. P.03-10-046, seeking the establishment of rules governing (i) interconnection of independent storage operators, including among others LGS, with third parties other than incumbent utilities such as PG&E; and (ii) the nature and types of services the independent storage providers can provide to customers through such third-party interconnections. In that or any other proceeding or noticed activity before the CPUC, including, but not limited to, any application by LGS to amend its certificate of public convenience and necessity or to amend its tariffs, each Party reserves the right to advance any proposals or positions that such Party desires to advance. This reservation of rights includes, but is not limited to, the right of any Party to seek or oppose conditions on third party interconnections, and the right of PG&E to file a new complaint in the event that LGS elects to proceed with construction of an interconnection without CPUC authorization after expiration of the nine-month period provided for in Paragraph 7(a) above.

8. PG&E Release of Claims

In consideration of the payments and promises contained in this Agreement and effective upon the satisfaction of the CPUC Approval Condition Precedent, PG&E and its respective agents, officers, employees, attorneys, representatives, successors, affiliates, parents, subsidiaries and assigns, and each and all of them, relinquish, release, waive, quit and forever discharge the Calpine Entities, individually and collectively, and LGS, and each of their respective agents, officers, employees, attorneys, representatives, successors, affiliates, parents, subsidiaries and assigns, and each and all of them, from any and all claims that PG&E has, had or may have for damages, costs, expenses, restitution, reparations, liabilities, attorneys' fees, demands, debts, and causes of action, whether actual or contingent, legal or equitable, known or unknown of any kind or nature whatsoever against the Calpine Entities and/or LGS, and each of their respective agents, officers, employees, attorneys, representatives, successors, affiliates, parents, subsidiaries and assigns as of, or prior to, the Effective Date, which relate to the allegations or claims contained in the Complaint. Notwithstanding the foregoing, PG&E reserves all rights: (1) to pursue claims related to use of any interconnections to LGS without prior CPUC approval after the Effective Date, (2) to pursue any claim of unauthorized public utility activity against the Calpine Entities and/or LGS in a new proceeding with respect to matters not raised in the Complaint, or (3) to pursue claims with respect to a change in the facts and circumstances relating to alleged unauthorized public utility activity from those facts and circumstances existing as of the Effective Date. PG&E agrees that, prior to filing any new complaint based upon such a change in facts and circumstances, PG&E shall first meet and confer in good faith with the Calpine Entities and/or LGS in an effort to resolve any dispute.

9. Release by LGS and the Calpine Entities

In consideration of the promises contained in this Agreement, the Calpine Entities and LGS, and each of them, and their respective agents, officers, employees, attorneys, representatives, successors, affiliates, parents, subsidiaries and assigns and each and all of them relinquish, release, waive, quit and forever discharge PG&E and its respective agents, officers, employees, attorneys, representatives, successors, affiliates, parents, subsidiaries and assigns and each and all of them from any and all claims that the Calpine Entities and LGS, and each of them, have, had or may have for damages, costs, expenses, liabilities, attorneys' fees, demands, debts, and causes of action, whether actual or contingent, legal or equitable, known or unknown, of any kind or nature whatsoever against PG&E and its agents, officers, employees, attorneys, representatives, successors, affiliates, parents, subsidiaries and assigns, which would be within the jurisdiction of a state or federal court for civil damages or equitable relief arising from and directly related to the facts alleged by PG&E in the Complaint with respect to unauthorized public utility activity; the natural gas deliveries that the Calpine Entities made to the Ryer Island Meter Station; and Interconnections A and B between the Calpine Entities and LGS, including but not limited to the act of interconnecting, the construction and operation of the interconnections, and the natural gas that flowed through them. This release specifically does not release, preclude or limit in any manner whatsoever any claim, action, contention, argument or advocacy position that the Calpine Entities or LGS, and each of them, make or wish to make in any future hearing, proceeding, investigation or matter involving PG&E at the CPUC, or any other regulatory, administrative or legislative forum; provided further that the Calpine Entities and LGS reserve their respective rights to pursue any claim against PG&E before any court or agency of competent jurisdiction arising from or relating to matters not raised in the Complaint or with respect to a change in the facts and circumstances from those existing as of the Effective Date.

10. Release of Unknown Claims

Each of the Parties to this Agreement represents and agrees that it has read and fully understands California Civil Code § 1542, which provides as follows:

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

Each of the Parties expressly and specifically waives any and all the rights and/or remedies provided by such statute, whether known or unknown; provided that the Parties do not waive those claims, remedies or rights arising after the Effective Date, or expressly reserved or retained, or not released, by the Parties pursuant to the terms of this Agreement.

11. No Admission of Wrongdoing / Non-Liability for Compliance with Agreement Terms

This Agreement represents a compromise of disputed claims, and this Agreement and its terms shall not constitute nor be taken to indicate an admission of liability or wrongdoing by any Party, or that any Party's position on any issue lacks merit. No Party shall be liable on any claim for damages or other relief based on alleged injury or loss resulting from any Party's compliance with the terms of this Agreement or its operation, in the event that the CPUC Approval Condition Precedent is not satisfied. Notwithstanding any other term or condition of this Agreement, this Paragraph 11 shall remain in full force and effect, and shall continue to be binding upon the Parties hereto, after the expiration of the other terms of this Agreement, regardless of the actions or decisions of the CPUC.

12. Governmental Approvals

This Agreement, and the binding effect of it and its terms on each Party, is not conditioned or dependent upon any governmental or other regulatory approval, except to the extent that this Agreement is subject to the CPUC Approval Condition Precedent, in accordance with the terms contained in Paragraph 6.

13. Entire Agreement

Each of the undersigned Parties understands and agrees that this Agreement contains the entire agreement between and among the Parties hereto with respect to the subject matter of this Agreement; and that the terms of the Agreement supersede any prior discussions, oral understandings, oral agreements or written documents between or among any of the Parties relative to the subject matter hereof. The terms of this Agreement are intended to constitute a binding contract between and among the Parties for the express benefit of those Parties, and this Agreement is not based on any representations, conditions or understandings not contained in this Agreement. Any subsequent amendments or changes to this Agreement shall be in writing and signed by the Parties.

14. Each Party Represented by Counsel

Each of the undersigned Parties represents and acknowledges that it has been represented in the negotiations and review of this Agreement by counsel of its choice; it has fully read and understood the terms of this Agreement, and has had the opportunity for the full legal effect and consequences of this Agreement to be explained by its counsel.

15. Rule of Construction

Each of the undersigned Parties and their attorneys have reviewed this Agreement and agree that any legal rule of construction or interpretation to the effect that ambiguities or uncertainties in written instruments are to be resolved against the drafting Party shall not apply to the construction or interpretation of this Agreement.

16. Benefit of Parties

All representations, covenants, obligations and agreements contained in this Agreement shall be binding upon and inure to the benefit of the Parties, and their respective successors and assigns.

17. Agreement Voluntary

Each of the undersigned Parties represents and agrees that this Agreement has been entered into voluntarily and free from duress or undue influence on the part of any other Party to, or any person released by, this Agreement, or any third party.

18. Counterparts

This Agreement may be executed in one or more counterparts.

19. Authority

Each Party represents and warrants that it has the authority to enter into and be bound by this Agreement, and that the person executing this Agreement on behalf of each Party is duly authorized to do so. Calpine Corporation has the authority and is signing on behalf of Calpine Natural Gas Company, which merged into Calpine Corporation as of April 24, 2002, and which thus no longer exists.

20. Governing Law

The law of the State of California shall govern any dispute relating to this Agreement.

21. Notices

a. All notices required under the Agreement shall be made to the following:

i. For PG&E: Michael Katz (Vice President of California Gas Transmission), or his successor, at the following address: 245 Market Street, N14F, San Francisco, CA 94105, with copy to: Frank Lindh, PG&E Law Department, 77 Beale Street, B30A, San Francisco, CA 94105.

ii. For LGS: Thomas R. Dill (President), or his successor, at the following address: 14811 St. Mary's Lane, Suite 150, Houston, TX 77079.

iii. For the Calpine Entities: B.A. Berilgen (Executive Vice President of Calpine Corporation) or his successor, at the following address: 717 Texas Avenue, Houston, TX 77002 with a copy to: General Counsel, Calpine Corporation, 50 West San Fernando, San Jose, CA 95113.

IN WITNESS HEREOF, each of the undersigned Parties has signed this Agreement on the date indicated herein.

Dated: ____	CALPINE CORPORATION
By:
Its:

Dated: ____	CPN PIPELINE COMPANY
By:
Its:

Dated: ____	CALPINE ENERGY SERVICES, L.P.
By:
Its:

Dated: ____	CALPINE NATURAL GAS COMPANY by Calpine Corporation
By:
Its:

Dated: ____	LODI GAS STORAGE, L.L.C.
By:	Thomas R. Dill
Its:	President

Dated: ____	PACIFIC GAS AND ELECTRIC COMPANY
By:
Its:

APPROVED AS TO FORM:

Dated: ____
	Frank Lindh
	Pacific Gas and Electric Law Department
	Attorneys for Complainant
	PACIFIC GAS AND ELECTRIC COMPANY

Dated: ____
	Steven F. Greenwald
	Davis Wright Tremaine LLP
	Attorneys for Defendants
	CALPINE CORPORATION, CPN PIPELINE COMPANY, CALPINE ENERGY SERVICES and CALPINE NATURAL GAS COMPANY

Dated: ____
	Dan L. Carroll
	Downey Brand LLP
	Attorneys for Defendant
	LODI GAS STORAGE, L.L.C.