Description of the Settlement Agreement

The Settlement Agreement provides the following resolution of electric energy cost issues:

1. Weighted average energy is capped at an annual cost of $77.00 per MWh.

2. Upon approval of the Settlement Agreement, SCWC will credit to the PPAC Balancing Account the cost differential between $87.41/WMh and $77.00/MWh times the average of actual purchases and prorated adopted purchases for the period April 1, 2001 through the end of the calendar month of the date of such Commission decision.

3. For purposes of designing the PPAC rate, annual scheduling coordination costs are fixed at SCWC's calculation of $77,063.

4. For purposes of designing the PPAC rate, annual Power System Delivery charges will be $2,120,024.¹⁵

5. The PPAC Balancing Account surcharge shall continue at its fixed rate of $0.02246/kWh until August 31, 2011 or when the remaining balance in the PPAC balancing account is less than $100,000, whichever should occur first.

6. SCWC will file an advice letter to initiate review of the PPAC rate when the remaining balance in the PPAC Balancing Account is $1 million, or by August 31, 2011, whichever should occur first.

7. SCWC will pursue its action against Mirant at the Federal Energy Regulatory Commission (FERC). If this action results in purchased power costs lower than $77.00 per MWh, then SCWC will file an advice letter within thirty days to adjust the PPAC rate to reflect such a result.

8. SCWC agrees to forego its previously approved step and attrition increase of $600,000 for its water utility operations in 2002.

Based on these figures, the annual energy revenues are estimated at $9,110,857 and the annual total PPAC revenues are estimated at $11,230,881, resulting in an annual increase over present PPAC revenues ($5,227,693) of $6,003,188. Total current annual BVECSA revenues are $15,791,610.¹⁶ Under the Settlement Agreement total BVECSA revenues will be $21,794,798.

In order to allocate this proposed increase in PPAC revenues, the Settlement Agreement proposes the following rate design changes:

1. No rate increase for permanent-resident domestic customers whose usage level is less than 130% of baseline.

2. A third tier of usage starting at 130% of baseline for all domestic users except customers using Schedule DO.

3. A minimum monthly bill of $23 per month for all DO schedule customers.

Settling Parties refer us to the full text of the Settlement Agreement for all of its provisions and details. In particular, Settling Parties state that this Settlement Agreement is a complete package, indivisible, and each part is interdependent on each and very other part. Settling Parties further state that they agree to negotiate in good faith any Commission-mandated changes to the Settlement Agreement should the Commission require modifications.