Loading...
Resolution No. 8099i 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 RESOLUTION NO. 8099 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON APPROVING AND AUTHORIZING THE EXECUTION OF A LETTER OF UNDERSTANDING AND MUTUAL RELEASE BY AND BETWEEN THE CITY OF VERNON AND SOUTHERN CALIFORNIA EDISON COMPANY WHEREAS, on September 16, 1997, the City Council of the City of Vernon adopted Resolution No. 7017 approving and authorizing the execution of the Edison -Vernon 1997 Restructuring Agreement (the "Agreement") and Edison -Vernon 1997 Supplemental Restructuring Agreement as well as other various agreements with Southern California Edison Company ("Edison") to implement a new set of arrangements that facilitated both Edison's and Vernon's operating arrangements under the restructured electric industry; and WHEREAS, among other things, the Agreement provided for the obligations of both Vernon and Edison relating to ancillary services, including but not limited to, the calculation of spinning and non - spinning operating reserves as billed by Vernon to Edison; and WHEREAS, the Agreement needs to be amended in order to resolve issues relating to ancillary services under the Agreement'for the service period April 1998 through May 31, 2002, as well as clarifying the interpretation of Section 6.4 of the Agreement respecting ancillary services billable to Edison for the service period'' June 1, 2002 through January 31, 2007; and WHEREAS, by letter dated October 31, 2002, Bruce V. Malkenhorst, City Administrator/City Clerk, recommended that the Agreement be amended and a Letter of Understanding and Mutual Release 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 be approved and executed. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF VERNON AS FOLLOWS: SECTION 1: The City Council of the City of Vernon hereby finds and determines that the recitals contained hereinabove are true and correct. SECTION 2: The City Council of the City of Vernon hereby approves the Letter of Understanding and Mutual Release with Edison, in substantially the same form attached hereto as Exhibit "A" and made a part hereof. SECTION 3: The City Council of the City of Vernon hereby authorizes the Mayor and the City Clerk to execute said Letter of Understanding for, and on behalf of, the City of Vernon. SECTION 4: The City Council of the City of Vernon hereby directs the City Clerk, or his designee, to send one fully executed Letter of Understanding to: Southern California Edison Company Attn. Richard M. Rosenblum, Senior Vice President 2244 Walnut Grove Avenue Rosemead, CA 91770 SECTION 5: The City Clerk of the City of Vernon shall certify to the passage of this resolution, and thereupon and thereafter the same shall be in full force and effect. APPROVED AND ADOPTED this 6th day of November, 2002. ATTEST: BRUCE V. MALKENHORST, City Clerk EONIS C. MALBUR _Mayor - 2 - t 1 STATE OF CALIFORNIA ) ss 2 COUNTY OF LOS ANGELES ) 3 4 I, BRUCE V. MALKENHORST, City Clerk of the City of Vernon, do 5 hereby certify that the foregoing Resolution, being Resolution No. 6 8099, was duly adopted by the City Council of the City of Vernon at a 7 regular meeting of the City Council duly held on Wednesday, November 6, 8 2002, and thereafter was duly signed by the Mayor of the City of 9 Vernon. 10 11 l/ BRUCE V. MALKENHORST, City Clerk 12 13 (SEAL) 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 - EXHIBIT 0 LETTER OF UNDERSTANDING AND MUTUAL RELEASE This Letter of Understanding and Mutual Release ("Letter of Understanding") is entered into by and between the City of Vernon, California (" Vernon"), a municipal corporation, and Southern California Edison Company (" SCE"), a California corporation, (collectively, "Parties"). 1. Recitals. 1.1. Vernon and SCE entered into the Edison -Vernon 1997 Restructuring Agreement ("Restructuring Agreement"), which implemented a new set of arrangements to facilitate both SCE's and Vernon's entry into the new marketplace. 1.2. Paragraph 6.4 of the Restructuring Agreement sets forth provisions for determining the amounts billable to SCE by Vernon for ancillary services. 1.3. Certain claims and disputes exist between the Parties in connection with SCE's and Vernon's obligations relating to ancillary services under the Restructuring Agreement. It is the Parties' mutual desire that all such claims and disputes, both pending and potential, for the service period April 1998 through MamhMay 31, 2002, be resolved by this Letter of Understanding without further expenditure of time or the expense of litigation. This Letter of Understanding is a full release and settlement of all claims asserted or which may be asserted by either Party in connection with SCE's and Vernon's obligations relating to ancillary services under the Restructuring Agreement for the service period April 1998 through May 31, 2002. In addition, this Letter of Understanding resolves the interpretation of Section 6.4 of the Restructuring Agreement for the service period June 1, 2002 through midnight January 31, 2007. 2. Agreement. In consideration of all of the recitals set forth above and the obligations assumed by each Party under this Letter of Understanding, each Parry agrees to be bound by the terms and conditions contained in this Letter of Understanding. 3. Definitions. 3.1. Adjustment Records: Records included in the California Independent System Operator Corporation (" ISO") Settlement Statement File designated by a record type of "A" . These are manual records entered by the ISO staff and they perform the following functions: 1) for charge types that have markets (e.g., Spinning and Non - Spinning Reserves, Regulation Up and Down and Replacement Reserves), Adjustment Records provide corrections to previous records issued by. the ISO; and 2) for charge types that have no market (e.g., Black Start and Voltage Support), Adjustment Records provide the basic charge data. 3.2. AGCDownOb1i2- : As defined in Appendix C, the net Regulation Down obligation for Scheduling Coordinator j in Zone x for Trading Interval t as defined in the Ancillary Services Requirements Protocol. This net obligation equals the obligation minus that self -provided. 3.3. AGCDownRateDAxt: As defined in Appendix C, the Day -Ahead Regulation Down capacity user rate charged to Scheduling Coordinators by the ISO in Zone x for Trading Interval t. 3.4. AGCUpObligL: As defined in Appendix C, the net Regulation Up obligation for Scheduling Coordinator j in Zone x for Trading Interval t as defined in the Ancillary Services Requirements Protocol. This net obligation equals the obligation minus that self -provided. 3.5. AGCUpRateDAxt: As defined in Appendix C, the Day -Ahead Regulation Up capacity user rate charged to Scheduling Coordinators by the ISO in Zone x for Trading Interval t. 3.6. Appendix C: The ISO Tariff Settlements and Billing Protocol Appendix C conformed through Amendment 42. 3.7. DevReplObligjxt: As defined in Appendix C, the deviation Replacement Reserve obligation for Scheduling Coordinator j in Zone x in the Settlement Period t. 3.8. ISO A/S Detail File: The ISO's Ancillary Service Detail File as defined in the ISO Settlement File Specification. This file contains detailed supporting information that is used to derive the ISO's charges to market participants. This file is issued by the ISO in electronic text format. 3.9. ISO Settlement File Specification: The ISO Specification for Settlement Statement Files version 14.1, or later, as published on the ISO's website. 3.10. ISO Settlement Statement File: The ISO's Settlement Statement file as defined in the ISO Settlement File Specification. This file contains the ISO charges and related information for a market participant. This file is issued by the ISO in electronic text format. 3.11. NonSninRateDAxt: As defined in Appendix C, the Day -Ahead Non - Spinning Reserve capacity user rate charged to Scheduling Coordinators by the ISO in Zone x for Trading Interval t. 3.12. RemRepl: As defined in Appendix C, the remaining Replacement Reserve obligation for Scheduling Coordinator j in Zone x for Settlement Period t. Vernon Letter of Understanding June 1,,Aoc er n Bette- �_i3nder a iug _ J-une ---------------------- -------------------------------------------- -hd—oe Vemon-Settlement- J9-11--redline)-. doe 3.13. ReplRateDAxt: As defined in Appendix C, the Day -Ahead Replacement Reserve capacity user rate charged to Scheduling Coordinators by the ISO in Zone x for Trading Interval t. 3.14. SpinRateDAxt: As defined in Appendix C, the Day -Ahead Spinning Reserve capacity user rate charged to Scheduling Coordinators by the ISO in Zone x for Trading Interval t. 4. Terms of Settlement. 4.1. For the service period April 1998 through May 31, 2002, the parties resolve, settle and compromise all disputes and claims regarding SCE's and Vernon's obligations relating to ancillary services under the Restructuring Agreement, including but not limited to, the calculation of spinning and non -spinning operating reserves as billed by Vernon to SCE. 4.2. For the period ApM une 1, 2002 through the term of the Restructuring Agreement, this Letter of Understanding clarifies how ancillary services billable to SCE by Vernon are to be determined. The Parties agree to interpret Section 6.4 of the Restructuring Agreement in accordance with the guidelines set forth below. Ancillary Services shall be defined in accordance with Section 4.2 of the Restructuring Agreement. If the ISO or its successor modifies or adds any Ancillary Services or otherwise meaningfully impacts the Parties' rights under this Letter of Understanding, the Parties shall negotiate in good faith to determine a mutually agreeable method for calculating the amounts billable to SCE by Vernon based on the principles set forth in the Restructuring Agreement, as interpreted by this Letter of Understanding. For purposes of validating the bills submitted by Vernon to SCE, the Parties agree to interpret the definitions provided in Sections 3.2-3.5, 3.7 and 3.11-3.14 above in accordance with Appendix A to this Letter of Understanding. Appendix A contains a table that matches defined terms in the ISO Tariff to specific fields contained in the ISO A/S Detail File. Appendix A may be modified by the Parties upon written agreement. 4.2.1. Spinning Reserves (ISO Charge Type 111). Amounts billable to SCE by Vernon for Spinning Reserves shall be determined as the product of: 1) 0.035; 2) Vernon's Native Load, as defined in Section 4.16 of the Restructuring Agreement; 3) SpinRateDAxt; and 4) 0.48. The determination in an abbreviated form is as follows: Billable Spinning Reserves Cost = 3.5 % * Native Load SpinRateDAxt * 48 % 4.2.2. Non -Spinning Reserves (ISO Charge Type 112). Amounts billable to SCE by Vernon for Non -Spinning Reserves shall be determined as the product of: 1) 0.035; 2) Vernon's Native Load, as defined in Section 4.16 of the Restructuring Agreement; 3) NonSpinRateDAxt; and 4) 0.48. The determination in an abbreviated form is as follows: Vernon -Letter of Understanding June--1,4ocue n %ett� o€ Understand g Eff.Ju -............................................ AaeVernon-Settlement- f 941-redline)-:doe Billable Non -Spinning Reserves Cost = 3.5 % * Native Load * NonSpinRateDAxt * 48 % 4.2.3. Replacement Reserves (ISO Charge Type 114). Amounts billable to SCE by Vernon for Replacement Reserves shall be determined as the product of: 1) Replacement Reserves Billable Quantity; 2) ReplRateDAxt; and 3) 0.48. Replacement Reserves Billable Quantity is the quantity of Replacement Reserves required for Vernon's Native Load (as defined in Section 4.16 of the Restructuring Agreement), as determined by the ISO, before the ISO's adjustment for inter -scheduling coordinator trades or self -provision. Replacement Reserves Billable Quantity is defined as the sum of: A) DevReplObligjxt; and B) RemReplixt. The determination in an abbreviated form is as follows: Billable Replacement Reserves Cost = Replacement Reserves Billable Quantity * ReplRateDAxt * 48 % Where: Replacement Reserves Billable Quantity = DevReplObligjxt + RemReplL 4.2.4. Regulation Up (ISO Charge Type 115). Amounts billable to SCE by Vernon for Regulation Up shall be determined as the product of: 1) Regulation Up Billable Quantity; 2) AGCUpRateDAxt; and 3) 0.48. Regulation Up Billable Quantity is the quantity of Regulation Up required for Vernon's Native Load (as defined in Section 4.16 of the Restructuring Agreement), as determined by the ISO, before the ISO's adjustment for inter -scheduling coordinator trades or self -provision. Regulation Up Billable Quantity is equal to AGCUpObligjxt. The determination in an abbreviated form is as follows: Billable Regulation Up Cost = AGCUpObligjxt AGCUpRateDAxt * 48 % 4.2.5. Regulation Down (ISO Charge Type 116). Amounts billable to SCE by Vernon for Regulation Down shall be determined as the product of: 1) Regulation Down Billable Quantity; 2) AGCDownRateDAxt; and 3) 0.48. Regulation Down Billable Quantity is the quantity of Regulation Down required for Vernon's Native Load (as defined in Section 4.16 of the Restructuring Agreement), as determined by the ISO, before the ISO's adjustment for inter -scheduling coordinator trades or self - provision. Regulation Down Billable Quantity is equal to AGCDownObligjxt. The determination in an abbreviated form is as follows: Billable Regulation Down Cost = AGCDownObligjxt AGCDownRateDAxt * 48 % Vernon -Letter of Understanding June -1 AocuernQn--better--af .of -Understanding E ff June - - ------------------------------ -1-:dfle-V�&r-non-Settlement-{9-- 1-redline)-:doe 4.2.6. Voltage Support (ISO Charge Types 1302 & 1303). Amounts billable to SCE by Vernon for Voltage Support shall be determined as the product of: 1) the Voltage Support costs billed to Vernon by the ISO and required for Vernon's Native Load, as defined in Section 4.16 of the Restructuring Agreement (" Voltage Support Costs"); and 2) 0.48. The determination in an abbreviated form is as follows: Billable Voltage Support Cost = Voltage Support Costs * 48 % 4.2.7. Black Start (ISO Charge Types 1101 & 1353). Amounts billable to SCE by Vernon for Black Start shall be determined as the product of: 1) the Black Start costs billed to Vernon by the ISO and required for Vernon's Native Load, as defined in Section 4.16 of the Restructuring Agreement (" Black Start Costs"); and 2) 0.48. The determination in an abbreviated form is as follows: Billable Black Start Cost = Black Start Costs * 48 % 4.2.8. ISO Adjustment Records. With respect to Regulation Up and Down, and Replacement Reserves, Adjustment Records that incrementally increase or decrease Billable Quantities and/or prices shall be reflected as a cost adjustment as appropriate in accordance with the billing formulas in Sections 4.2.3 through 4.2.5. With respect to Voltage Support and Black Start, Adjustment Records that incrementally increase or decrease the costs of such services required for Vernon's Native Load shall be reflected as a cost adjustment as appropriate in accordance with the billing formulas in Sections 4.2.6 and 4.2.7. Vernon shall, if deemed necessary by SCE, provide additional documentation or information to substantiate such adjustments. 4.3. Information In Support of Invoices. Commencing with service period beginning on Apf4june 1, 2002, Vernon shall provide supporting documentation in electronic file formats for each charge type, date and hour billed to SCE. Such supporting documentation is to consist of. 1) billing schedules in Microsoft Excel format file(s) ("Billing Schedules"), 2) ISO Settlement Statement Files, and, 3) ISO A/S Detail Files. With respect to the ISO Settlement Statement Files and ISO A/S Detail Files, Vernon shall only be required to provide those records that are related to their ancillary service bills to SCE. Vernon and SCE shall mutually agree on the field formats of the Billing Schedules. 4.3.1. For Spinning and Non -Spinning Reserves, the Billing Schedules shall contain for each charge type, date, and hour, the Native Load, the value three and one-half percent multiplied by the Native Load, SpinRateDAxt, NonSpinRateDAxt , and the Billable Cost as defined in Sections 4.2.1 and 4.2.2 above. 4.3.2. For Replacement Reserves, the Billing Schedules shall contain for each charge type, date, and hour, DevReplObligjxt, RemRepl�t, Rep1RateDAxt, and the Billable Cost as defined in Section 4.2.3 above. Vernon -Letter -of Understanding ocVernan I�tter ©€ Understan ing Eff s -1-:d,GeV-emon-Settlement-(9-11---relie)-.cue 4.3.3. For Regulation Up, the Billing Schedules shall contain for each charge type, date, and hour, AGCUpObligjxt, AGCUpRateDAxt, and the Billable Cost as defined in Section 4.2.4 above. 4.3.4. For Regulation Down, the Billing Schedules shall contain for each charge type, date, and hour, AGCDownObligjxt, AGCDownRateDAxt, and the Billable Cost as defined in Section 4.2.5 above. 4.3.5. For Voltage Support and Black Start, the Billing Schedules shall contain for each charge type, date, and hour, the ISO's billed cost to Vernon, and the Billable Cost as defined in Sections 4.2.6 and 4.2.7 above. 5. No Admissions. This Letter of Understanding does not constitute an admission by any Party of any violation of federal, state or local law, ordinance or regulation, or any liability or wrongdoing whatsoever. Neither this Letter of Understanding nor anything in this Letter of Understanding shall be construed to be or shall be admissible in any proceeding as evidence of liability or wrongdoing by the Parties. 6. Mutual Release. Each party to this Letter of Understanding - on its own behalf and on behalf of its affiliates, subsidiaries, officers, directors, shareholders, agents, servants, employees, successors and assigns, past, present, and future, and all assigns of such entities or persons - hereby fully releases and forever discharges each other Parry to this Letter of Understanding, as well as all of its parent companies, affiliates, subsidiaries, partners, officers, directors, shareholders, agents, servants, employees, representatives, attorneys, heirs, predecessors -in -interest, successors and assigns, past, present, and future, and all assigns of such entities or persons, and each of them (collectively, the " Releasees " ), from any and all claims, demands, grievances, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, debts, expenses, attorney's fees, damages, judgments, orders, liabilities, costs, and obligations of every kind and nature, known or unknown, fixed or contingent, joint or several, whether at law or in equity, suspected or unsuspected, which now exist or may later accrue, which arise out of, are connected with, or relate to SCE's or Vernon's obligations relating to ancillary services under the Restructuring Agreement for the service period April 1998 through Mar-ehMay 31, 2002. 7. Waiver of Unknown Claims. The Parties understand and intend that the Mutual Release described in Section 5 extends to claims which a Parry does not know or suspect to exist in its favor at the time of executing this Letter of Understanding, which, if known by the Parry, would have materially affected its settlement with the other Parry. In this regard, the Parties hereby waive application of California Civil Code Section 1542: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor VernonLetterof UnderstandingEffJune 1idocVernon--I�etter--of-UndernEff-June ....- -- ------------------------------------------------------ -:doe.ernon- Settlement-49-4-1--redline)-doe at the time of executing the release, which if known by him may have materially affected his settlement with the debtor." The Parties understand and acknowledge that the significance and consequence of this waiver of California Civil Code Section 1542 is that even if they should eventually suffer damages arising out of the facts referred to in this Letter of Understanding, they will not be able to make any claim for those damages. Furthermore, the Parties acknowledge that they intend these consequences even as to claims for damages that may exist as of the date of this Letter of Understanding but which they do not know exist, and which, if known, would materially affect their decision to execute this Letter of Understanding, regardless of whether their lack of knowledge is the result of ignorance, oversight, error, negligence, or any other cause. 8. Regulatory Approval Not Required. Because the Parties only are clarifying a provision of the Restructuring Agreement and are not changing any terms of that Rate Schedule, SCE believes that the Letter of Understanding does not need to be filed with the Federal Energy Regulatory Commission ("FERC"). In the event that it is later found by FERC that the Letter of Understanding should be filed with FERC for its approval, the Parties agree that the failure to file the Letter of Understanding will not be used by either Parry against the other Party. 9. Nonprecedent and Reservation of Rights. The parties intend that none of the principles, methodologies, or interpretations underlying or embodied in this Letter of Understanding shall be deemed by the FERC, the California Public Utilities Commission (" CPUC" ), or any court or other administrative agency (state or federal), any Party hereto, or any third party as precedent in any proceeding or litigation except to the extent specifically stated herein. The Parties have assented to the terms of this Letter of Understanding in order resolve their claims and disputes. Each Party expressly reserves the right to advocate in current and future proceedings, principles, positions, and methodologies which may be different from those underlying this Letter of Understanding, except where participating in such proceedings is prohibited by Sections 5 and 6, and the Parties expressly declare that this Letter of Understanding should not be construed as a precedent for or against either of them in such advocacy. 10. Nonseverability. The Parties understand and agree that this Letter of Understanding is subject to each and every condition set forth herein, and that each term of this Letter of Understanding is in consideration and support of every other term. 11. Governing Law. This Letter of Understanding shall be interpreted, governed and construed under the laws of the State of California. 12. Confidentiality. This Letter of Understanding is made upon the understanding that it constitutes a negotiated Letter of Understanding and that all prior offers and discussions relating thereto are and shall be privileged and kept confidential and shall be VernonLetterof Understanding_Eff June 1. oc-ern--1,ette-.of-Understanding Eff-June -1-:doeV-e-mon-Settlement-{9-4.1--redline)-: doe without prejudice to the position of any Party. In addition, the Parties shall maintain the confidentiality of and shall not disclose this Letter of Understanding and its terms until midnight January 31, 2007, when SCE's and Vernon's obligations relating to ancillary services under the Restructuring_ Agreement terminate, provided that the terms of the Letter of Understanding may be disclosed in a proceeding to enforce the Letter of Understanding. If any entity outside this Letter of Understanding seeks disclosure of the existence or content of the Letter of Understanding through the Public Records- Act or other statutory means, Vernon agrees to make a good faith effort to resist such disclosure. In the event that a court or other governmental authority of competent jurisdiction issues an order, subpoena or other lawful process requiring the disclosure of this Letter of Understanding, Vernon shall notify SCE immediately upon receipt thereof to facilitate SCE's efforts to prevent such disclosure, or otherwise preserve the confidentiality of the Letter of Understanding. Vernon shall not be in violation of this Letter of Understanding if it complies with an order of such court or governmental authority to disclose the Letter of Understanding, after SCE either has sought to maintain the confidentiality of such information as provided herein, or has notified Vernon in writing that it will take no action to maintain such confidentiality. IN WITNESS WHEREOF, the Parties executed this Letter of Understanding as of the day of , 2002. SOUTHERN CALIFORNIA EDISON COMPANY am Richard M. Rosenblum Senior Vice President CITY OF VERNON La Attest: { 41 eonis C. Malburg {•�i�le}M Vernon -Letter of Understanding ff June_. ,Soce o-n--Letter-of--UndeEs�anding-Eff.Jun . .............. .......................... ..... -hdaeVernon ett�eme�}t {9- redline):doe —Bruce V . Malkenhorst City Clerk Approved as to Form: B Eduardo Olivo City Attorney Vernon -Letter of Understanding-Eff June-1,4docVernan--Lett-©€-i-3nde sta di g -E ff Jerrie ...............--.........------------. ............... -1-:daeV-eMon-Se-ttlemertt-(9-11--- edline)-:doe Rev. 0, July 3, 2002 Appendix A S inRateDAX Pay Ahead Avg Price (for Spin) NonSvinRateDAv, av Ahead Avii Price (for NonSvin) Dev Ahead Avg Price (for AGCU RateDAX Day Ahead Avg Price (for Regulation Up) AGCDownRateDA Day Ahead Avg Price (for Regulation Down) 1 California Independent System Operator ("ISO") Tariff conformed as of March 27,-2002, through Amendment 42. 2 ISO Specification For Settlement Statement Files, June 10, 2002, Version 14.1. Vernon. Letter -of Understanding Eff June--1t(&cVerrion Ietter_af UndeEsta ing-E�ff:June -1-:dwV-ernon-Se-t-tlen"nt,-(9--l-1--redline)-;doe SUPPORTING DOCUMENTS LETTER OF UNDERSTANDING AND MUTUAL RELEASE This Letter of Understanding and Mutual Release ("Letter of Understanding") is entered into by and between the City of Vernon, California ("Vernon"), a municipal corporation, and Southern California Edison Company ("SCE"), a California corporation, (collectively, "Parties"). 1. Recitals. I.I. Vernon and SCE entered into the Edison -Vernon 1997 Restructuring Agreement ("Restructuring Agreement"), which implemented a new set of arrangements to facilitate both SCE's and Vernon's entry into the new marketplace. 1.2. Paragraph 6.4 of the Restructuring Agreement sets forth provisions for determining the amounts billable to SCE by Vernon for ancillary services. 1.3. Certain claims and disputes exist between the Parties in connection with SCE's and Vernon's obligations relating to ancillary services under the Restructuring Agreement. It is the Parties' mutual desire that all such claims and disputes, both pending and potential, for the service period April 1998 through May 31, 2002, be resolved by this Letter of Understanding without further expenditure of time or the expense of litigation. This Letter of Understanding is a full release and settlement of all claims asserted or which may be asserted by either Party in connection with SCE's and Vernon's obligations relating to ancillary services under the Restructuring Agreement for the service period April 1998 through May 31, 2002. In addition, this Letter of Understanding resolves the interpretation of Section 6.4 of the Restructuring Agreement for the service period June 1, 2002 through midnight January 31, 2007. 2. Agreement. In consideration of all of the recitals set forth above and the obligations assumed by each Party under this Letter of Understanding, each Party agrees to be bound by the terms and conditions contained in this Letter of Understanding. 3. Definitions. 3.1. Adjustment Records: Records included in the California Independent System Operator Corporation ("ISO") Settlement Statement File designated by a record type of "A". These are manual records entered by the ISO staff and they perform the following functions: 1) for charge types that have markets (e.g., Spinning and Non -Spinning Reserves, Regulation Up and Down and Replacement Reserves), Adjustment Records provide corrections to previous records issued by the ISO; and 2) for charge types that have no market (e.g., Black Start and Voltage Support), Adjustment Records provide the basic charge data. 3.2.AGCDown0bligjxt: As defined in Appendix C, the net Regulation Down obligation for Scheduling Coordinator j in Zone x for Trading Interval t as defined in the Ancillary Services Requirements Protocol. This net obligation equals the obligation minus that self -provided. 3.3.AGCDownRateDA : As defined in Appendix C, the Day -Ahead Regulation Down capacity user rate charged to Scheduling Coordinators by the ISO in Zone x for Trading Interval t. 3.4.AGCUpObligL: As defined in Appendix C, the net Regulation Up obligation for Scheduling Coordinator j in Zone x for Trading Interval t as defined in the Ancillary Services Requirements Protocol. This net obligation equals the obligation minus that self -provided. 3.5.AGCUpRateDAxt: As defined in Appendix C, the Day -Ahead Regulation Up capacity user rate charged to Scheduling Coordinators by the ISO in Zone x for Trading Interval t. 3.6. Appendix C: The ISO Tariff Settlements and Billing Protocol Appendix C conformed through Amendment 42. 3.7. DevReplObligj2q: As defined in Appendix C, the deviation Replacement Reserve obligation for Scheduling Coordinator j in Zone x in the Settlement Period t. 3.8. ISO A/S Detail File: The ISO's Ancillary Service Detail File as defined in the ISO Settlement File Specification. This file contains detailed supporting information that is used to derive the ISO's charges to market participants. This file is issued by the ISO in electronic text format. 3.9. ISO Settlement File Specification: The ISO Specification for Settlement Statement Files version 14.1, or later, as published on the ISO's website. 3.10. ISO Settlement Statement File: The ISO's Settlement Statement file as defined in the ISO Settlement File Specification. This file contains the ISO charges and related information for a market participant. This file is issued by the ISO in electronic text format. 3.11. NonSpinRateDAxt: As defined in Appendix C, the Day -Ahead Non -Spinning Reserve capacity user rate charged to Scheduling Coordinators by the ISO in Zone x for Trading Interval t. 3.12. RemReLix t: As defined in Appendix C, the remaining Replacement Reserve obligation for Scheduling Coordinator j in Zone x for Settlement Period t. 3.13. ReplRateDAxt: As defined in Appendix C, the Day -Ahead Replacement Reserve capacity user rate charged to Scheduling Coordinators by the ISO in Zone x for Trading Interval t. K 3.14. SpinRateDAt: As defined in Appendix C, the Day -Ahead Spinning Reserve capacity user rate charged to Scheduling Coordinators by the ISO in Zone x for Trading Interval t. 4. Terms of Settlement. 4.1. For the service period April 1998 through May 31, 2002, the parties resolve, settle and compromise all disputes and claims regarding SCE's and Vernon's obligations relating to ancillary services under the Restructuring Agreement, including but not limited to, the calculation of spinning and non -spinning operating reserves as billed by Vernon to SCE. 4.2. For the period June 1, 2002 through the term of the Restructuring Agreement, this Letter of Understanding clarifies how ancillary services billable to SCE by Vernon are to be determined. The Parties agree to interpret Section 6.4 of the Restructuring Agreement in accordance with the guidelines set forth below. Ancillary Services shall be defined in accordance with Section 4.2 of the Restructuring Agreement. If the ISO or its successor modifies or adds any Ancillary Services or otherwise meaningfully impacts the Parties' rights under this Letter of Understanding, the Parties shall negotiate in good faith to determine a mutually agreeable method for calculating the amounts billable to SCE by Vernon based on the principles set forth in the Restructuring Agreement, as interpreted by this Letter of Understanding. For purposes of validating the bills submitted by Vernon to SCE, the Parties agree to interpret the definitions provided in Sections 3.2-3.5, 3.7 and 3.11-3.14 above in accordance with Appendix A to this Letter of Understanding. Appendix A contains a table that matches defined terms in the ISO Tariff to specific fields contained in the ISO A/S Detail File. Appendix A may be modified by the Parties upon written agreement. 4.2.1. Spinning Reserves (ISO Charge Type 111). Amounts billable to SCE by Vernon for Spinning Reserves shall be determined as the product of: 1) 0.035; 2) Vernon's Native Load, as defined in Section 4.16 of the Restructuring Agreement; 3) SpinRateDAxt; and 4) 0.48. The determination in. an abbreviated form is as follows: Billable Spinning Reserves Cost = 3.5% * Native Load SpinRateDAxt * 48% 4.2.2. Non -Spinning Reserves (ISO Charge Type 112). Amounts billable to SCE by Vernon for Non -Spinning Reserves shall be determined as the product of 1) 0.035; 2) Vernon's Native Load, as defined in Section 4.16 of the Restructuring Agreement; 3) NonSpinRateDAxt; and 4) 0.48. The determination in an abbreviated form is as follows: Billable Non -Spinning Reserves Cost = 3.5% * Native Load * NonSpinRateDAxt * 48% 3 4.2.3. Replacement Reserves (ISO Charge Type 114). Amounts billable to SCE by Vernon for Replacement Reserves shall be determined as the product of. 1) Replacement Reserves Billable Quantity; 2) ReplRateDAxt; and 3) 0.48. Replacement Reserves Billable Quantity is the quantity of Replacement Reserves required for Vernon's Native Load (as defined in Section 4.16 of the Restructuring Agreement), as determined by the ISO, before the ISO's adjustment for inter -scheduling coordinator trades or self -provision. Replacement Reserves Billable Quantity is defined as the sum of A) DevReplObligjxt; and B) RemReplixt. The determination in an abbreviated form is as follows: Billable Replacement Reserves Cost = Replacement Reserves Billable Quantity * RepiRateDAxt * 48% Where: Replacement Reserves Billable Quantity = DevReplObligjxt + RemRepljxt 4.2.4. Regulation Up (ISO Charge Type 115). Amounts billable to SCE by Vernon for Regulation Up shall be determined as the product of. 1) Regulation Up Billable Quantity; 2) AGCUpRateDAxt; and 3) 0.48. Regulation Up Billable Quantity is the quantity of Regulation Up required for Vernon's Native Load (as defined in Section 4.16 of the Restructuring Agreement), as determined by the ISO, before the ISO's adjustment for inter -scheduling coordinator trades or self -provision. Regulation Up Billable Quantity is equal to AGCUpObligjxt. The determination in an abbreviated form is as follows: Billable Regulation Up Cost = AGCUpObligjxt AGCUpRateDAxt * 48% 4.2.5. Regulation Down (ISO Charge Type 116). Amounts billable to SCE by Vernon for Regulation Down- shall be determined as the product of: 1) Regulation Down Billable Quantity; 2) AGCDownRateDAxt; and 3) 0.48. Regulation Down Billable Quantity is the quantity of Regulation Down required for Vernon's Native Load (as defined in Section 4.16 of the Restructuring Agreement), as determined by the ISO, before the ISO's adjustment for inter -scheduling coordinator trades or self - provision. Regulation Down Billable Quantity is equal to AGCDownObligjxt. The determination in an abbreviated form is as follows: Billable Regulation Down Cost = AGCDownObligjxt AGCDownRateDAxt * 48% 4.2.6. Voltage Support (ISO Charge Types 1302 & 1303). Amounts billable to SCE by Vernon for Voltage Support shall be determined as the product of 1) the Voltage Support costs billed to Vernon by the ISO and required for Vernon's Native Load, as defined in Section 4.16 of the Restructuring Agreement ("Voltage Support Costs"); and 2) 0.48. The determination in an abbreviated form is as follows: Gl Billable Voltage Support Cost = Voltage Support Costs * 48% 4.2.7. Black Start (ISO Charge Tunes 1101 & 1353). Amounts billable to SCE by Vernon for Black Start shall be determined as the product of. 1) the Black Start costs billed to Vernon by the ISO and required for Vemon's Native Load, as defined in Section 4.16 of the Restructuring Agreement ("Black Start Costs"); and 2) 0.48. The determination in an abbreviated form is as follows: Billable Black Start Cost = Black Start Costs * 48% 4.2.8. ISO Adjustment Records. With respect to Regulation Up and Down, and Replacement Reserves, Adjustment Records that incrementally increase or decrease Billable Quantities and/or prices shall be reflected as a cost adjustment as appropriate in accordance with the billing formulas in Sections 4.2.3 through 4.2.5. With respect to Voltage Support and Black Start, Adjustment Records that incrementally increase or decrease the costs of such services required for Vernon's Native Load shall be reflected as a cost adjustment as appropriate in accordance with the billing formulas in Sections 4.2.6 and 4.2.7. Vernon shall, if deemed necessary by SCE, provide additional documentation or information to substantiate such adjustments. 4.3. Information In Support of Invoices. Commencing with service period beginning on June 1, 2002, Vernon shall provide supporting documentation in electronic file formats for each charge type, date and hour billed to SCE. Such supporting documentation is to consist of: 1) billing schedules in Microsoft Excel format file(s) ("Billing Schedules"), 2) ISO Settlement Statement Files, and, 3) ISO A/S Detail Files. With respect to the ISO Settlement Statement Files and ISO A/S Detail Files, Vernon shall only be required to provide those records that are related to their ancillary service bills to SCE. Vernon and SCE shall mutually agree on the field formats of the Billing Schedules. 4.3.1. For Spinning and Non -Spinning Reserves, the Billing Schedules shall contain for each charge type, date, and hour, the Native Load, the value three and one-half percent multiplied by the Native Load, SpinRateDAxt, NonSpinRateDAxt , and the Billable Cost as defined in Sections 4.2.1 and 4.2.2 above. 4.3.2. For Replacement Reserves, the Billing Schedules shall contain for each charge type, date, and hour, DevReplObligjxt, RemReplj,,t, ReplRateDAxt, and the Billable Cost as defined in Section 4.2.3 above. 4.3.3. For Regulation Up, the Billing Schedules shall contain for each charge type, date, and hour, AGCUpObligjxt, AGCUpRateDAxt, and the Billable Cost as, defined in Section 4.2.4 above. 4.3.4. For Regulation Down, the Billing Schedules shall contain for each charge type, date, and hour, AGCDownObligjxt, AGCDownRateDAxt, and the Billable Cost as defined in Section 4.2.5 above. 5 4.3.5. For Voltage Support and Black Start, the Billing Schedules shall contain for each charge type, date, and hour, the ISO's billed cost to Vernon, and the Billable Cost as defined in Sections 4.2.6 and 4.2.7 above. 5. No Admissions. This Letter of Understanding does not constitute an admission by any Party of any violation of federal, state or local law, ordinance or regulation, or any liability or wrongdoing whatsoever. Neither this Letter of Understanding nor anything in this Letter of Understanding shall be construed to be or shall be admissible in any proceeding as evidence of liability or wrongdoing by the Parties. 6. Mutual Release. Each party to this Letter of Understanding — on its own behalf and on behalf of its affiliates, subsidiaries, officers, directors, shareholders, agents, servants, employees, successors and assigns, past, present, and future, and all assigns of such entities or persons — hereby fully releases and forever discharges each other Party to this Letter of Understanding, as well as all of its parent companies, affiliates, subsidiaries, partners, officers, directors, shareholders, agents, servants, employees, representatives, attorneys, heirs, predecessors -in -interest, successors and assigns, past, present, and future, and all assigns of such entities or persons, and each of them (collectively, the "Releasees'), from any and all claims, demands, grievances, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, debts, expenses, attorney's fees, damages, judgments, orders, liabilities, costs, and obligations of every kind and nature, known or unknown, fixed or contingent, joint or several, whether at law or in equity, suspected or unsuspected, which now exist or may later accrue, which arise out of, are connected with, or relate to SCE's or Vernon's obligations relating to ancillary services under the Restructuring Agreement for the service period April 1998 through May 31, 2002. 7. Waiver of Unknown Claims. The Parties understand and intend that the Mutual Release described in Section 5 extends to claims which a Party does not know or suspect to exist in its favor at the time of executing this Letter of Understanding, which, if known by the Party, would have materially affected its settlement with the other Party. In this regard, the Parties hereby waive application of California Civil Code Section 1542: "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 may have materially affected his settlement with the debtor." The Parties understand and acknowledge that the significance and consequence of this waiver of California Civil Code Section 1542 is that even if they should eventually suffer damages arising out of the facts referred to in this Letter of Understanding, they will not be able to make any claim for those damages. Furthermore, the Parties acknowledge that they intend these consequences even as to claims for damages that may exist as of the date of this Letter of Understanding but which they do not know exist, and 0 which, if known, would materially affect their decision to execute this Letter of Understanding, regardless of whether their lack of knowledge is the result of ignorance, oversight, error, negligence, or any other cause. 8. Regulatory Approval Not Required. Because the Parties only are clarifying a provision of the Restructuring Agreement and are not changing any terms of that Rate Schedule, SCE believes that the Letter of Understanding does not need to be filed with the Federal Energy Regulatory Commission ("FERC"). In the event that it is later found by FERC that the Letter of Understanding should be filed with FERC for its approval, the Parties agree that the failure to file the Letter of Understanding will not be used by either Party against the other Party. 9. Nonprecedent and Reservation of Rights. The parties intend that none of the principles, methodologies, or interpretations underlying or embodied in this Letter of Understanding shall be deemed by the FERC, the California Public Utilities Commission ("CPUC"), or any court or other administrative agency (state or federal), any Party hereto, or any third party as precedent in any proceeding or litigation except to the extent specifically stated herein. The Parties have assented to the terms of this Letter of Understanding in order resolve their claims and disputes. Each Party expressly reserves the right to advocate in current and future proceedings, principles, positions, and methodologies which may be different from those underlying this Letter of Understanding, except where participating in such proceedings is prohibited by Sections 5 and 6, and the Parties expressly declare that this Letter of Understanding should not be construed as a precedent for or against either of them in such advocacy. 10. Nonseverability. The Parties understand and agree that this Letter of Understanding is subject to each and every condition set forth herein, and that each term of this Letter of Understanding is in consideration and support of every other term. 11. Governing Law. This Letter of Understanding shall be interpreted, governed and construed under the laws of the State of California. 12. Confidentiality. This Letter of Understanding is made upon the understanding that it constitutes a negotiated Letter of Understanding and that all prior offers and discussions relating thereto are and shall be privileged and kept confidential and shall be without prejudice to the position of any Party. In addition, the Parties shall maintain the confidentiality of and shall not disclose this Letter of Understanding and its terms until midnight January 31, 2007, when SCE's and Vernon's obligations relating to ancillary services under the Restructuring Agreement terminate, provided that the terms of the Letter of Understanding may be disclosed in a proceeding to enforce the Letter of Understanding. If any entity outside this Letter of Understanding seeks disclosure of the existence or , content of the Letter of Understanding through the Public Records Act or other statutory means, Vernon agrees to make a good faith effort to resist such disclosure. In the event that a court or other governmental authority of competent jurisdiction issues an order, subpoena or other lawful process requiring the disclosure of this Letter of Understanding, 7 Vernon shall notify SCE immediately upon receipt thereof to facilitate SCE's efforts to prevent such disclosure, or otherwise preserve the confidentiality of the Letter of Understanding. Vernon shall not be in violation of this Letter of Understanding if it complies with an order of such court or governmental authority to disclose the Letter of Understanding, after SCE either has sought to maintain the confidentiality of such information as provided herein, or has notified Vernon in writing that it will take no action to maintain such confidentiality. IN WITNESS WHEREOF, the Parties executed this Letter of Understanding as of the — day of 2002. STEPHEN E. PICKETT Sr. Vice President and General Counsel B EDISON COMPANY i Richard M. Rosenblum Senior Vice President CITY OF VERNON By: `Le s C. Malburg—� Mayor Attest: Bruce V. Malkenhorst City Clerk Approved as to Form: By: Eduardo Olivo City Attorney Rev. 0, July 3, 2002 Appendix A KeplKateDA,{t Day Ahead Avg Price (for Replacement) AGCUpObligjXt Base Obligation (for Regulation Up) AGCDownObligjXt Base Obligation (for Regulation Down) AGCUpRateDAXt Day Ahead Avg Price (for Regulation Up) AGCDownRateDA,,t Day Ahead Avg Price (for Regulation Down) = uatuorma independent System Operator ("ISO") Tariff conformed as of March 27, 2002, through Amendment 42. z ISO Specification For Settlement Statement Files, June 10, 2002, Version 14.1. 0