BACKGROUND

A. Under the Act, DWR is authorized to sell electric power and energy to Customers. Amounts payable by DWR under this Servicing Order are payable solely from the Department of Water Resources Electric Power Fund established pursuant to Section 80200 of the California Water Code or other appropriated amounts legally available therefor.

B. Utility is engaged in, among other things, the transmission and distribution of electrical services to customers in its service territory, the billing and collection for electrical services and other charges, and the ownership, installation and reading of electrical meters for such customers.

C. The Act and Applicable Commission Orders allow DWR and the Utility to enter into contracts under which the Utility provides for the transmission and distribution of all power sold or made available for sale by DWR to Customers, and provides billing, collection and related services, as agent for DWR, on terms and conditions that reasonably compensate Utility for its services.

D. On June 22, 2001, the Parties entered into a Servicing Agreement to set forth the terms under which Utility will provide for the transmission and distribution of DWR Power as well as billing and related services.

E. On September 6, 2001, the Commission approved the Servicing Agreement pursuant to Decision 01-09-013, and ordered certain amendments to the Servicing Agreement as described in Ordering Paragraphs 3, 4 and 5 of such decision.

F. On February 21, 2002, the Commission issued Decision 02-02-051, approving and adopting a Rate Agreement between the Commission and DWR.

G. On April 22, 2002, the Commission approved the First Amended and Restated Servicing Agreement pursuant to Decision 02-04-048, which amended the Servicing Agreement to comply with Commission Decision 01-09-013 and to implement certain provisions of the Rate Agreement.

H. On July 17, 2002, the Commission approved Amendment No. 1 to the First Amended and Restated Servicing Agreement ("Amendment No. 1") pursuant to Decision 02-07-038, which amended the First Amended and Restated Servicing Agreement in order to provide for a separate line item on the Consolidated Utility Bills for Bond Charges and to implement the 2002 20/20 Program as ordered by the Commission pursuant to Resolution E-3770.

I. On September 19, 2002, the Commission issued Decision 02-09-053 relating to the allocation of DWR's power contracts, ordering the Parties to modify the Agreement to reflect the new operational arrangements under the contract allocation ordered by the Commission in such decision.

J. This Servicing Order is the result of a desire to comply with Decision 02-09-053 and to incorporate the changes set forth in Amendment No. 1.

NOW, THEREFORE, DWR agrees, and SDG&E is ordered to do as follows: