Pacific Gas & Electric (PCG)

4.1.  TO Facilities and Rights Provided to the ISO.

        4.1.1    ISO Controlled Grid.    Subject to Section 4.1.2 and the treatment of Existing Contracts under Sections 2.4.3 and 2.4.4 of the ISO Tariff and subject to the applicable interconnection, integration, exchange, operating, joint ownership and joint participation agreements, each Participating TO shall place under the ISO's Operational Control the transmission lines and associated facilities forming part of the transmission network that it owns or to which it has Entitlements, except that Western shall only be required to place under the ISO's Operational Control the transmission lines and associated facilities that it owns or to which it has Entitlements as set forth in Appendix A (Western). The Initial Transmission Owners identified in Section 2.1.1 shall be deemed to have placed such transmission lines and associated facilities under the ISO's Operational Control as of the date the CPUC or its delegate declares to be the start date for direct access pursuant to CPUC Decisions 97-12-131 and 98-01-053. Any transmission lines or associated facilities that the ISO determines not to be necessary to fulfill the ISO's responsibilities under the ISO Tariff in accordance with Section 4.1.3 of this Agreement shall not be treated as part of a Participating TO's network for the purposes of this Section 4.1. The ISO shall recognize the rights and obligations of owners of jointly-owned facilities which are placed under the ISO's Operational Control by one or more but not all of the joint owners. The ISO shall, in exercise of Operational Control transferred to it, ensure that the operating obligations, as specified by the Participating TO pursuant to Section 6.4.2 of this Agreement, for the contracts referenced in Appendix B are performed. Any other terms of such contracts shall not be the

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responsibility of the ISO. The following transmission lines and associated facilities are also deemed not to form part of a Participating TO's transmission network:

            i.  directly assignable radial lines and associated facilities interconnecting generation (other than those facilities which may be identified from time to time interconnecting ISO Controlled Grid Critical Protective Systems or Generators contracted to provide Black Start or Voltage Support) and

           ii.  lines and associated facilities classified as "local distribution" facilities in accordance with FERC's applicable technical and functional test and other facilities excluded consistent with FERC established criteria for determining facilities subject to ISO Operational Control.

        4.1.2    Transfer of Facilities by Local Furnishing Participating TOs.    This Section 4.1.2 is applicable only to the enlargement of transmission capacity by Local Furnishing Participating TOs. The ISO shall not require a Local Furnishing Participating TO to enlarge its transmission capacity except pursuant to an order under Section 211 of the FPA directing the Local Furnishing Participating TO to enlarge its transmission capacity as necessary to provide transmission service as determined pursuant to Section 3.2.9 of the ISO Tariff. If an application under Section 211 of the FPA is filed by an eligible entity (or the ISO acting as its agent), the Local Furnishing Participating TO shall thereafter, within 10 days of receiving a copy of the Section 211 application, waive its right to a request for service under Section 213(a) of the FPA and to the issuance of a proposed order under Section 212(c) of the FPA. Upon receipt of a final order from FERC under Section 211 of the FPA that is no longer subject to rehearing or appeal, such Local Furnishing Participating TO shall enlarge its transmission capacity to comply with that FERC order and shall transfer to the ISO Operational Control over its expanded transmission facilities in accordance with this Section 4.

        4.1.3    Refusal of Facilities.    The ISO may refuse to exercise Operational Control over certain of an applicant's transmission lines, associated facilities or Entitlements if it determines during the processing of an application under Section 2.2 that any one or more of the following conditions exist:

            i.  The transmission lines, associated facilities or Entitlements do not meet or do not permit the ISO to meet the Applicable Reliability Criteria and the applicant fails to give the ISO a written undertaking to take all good faith actions necessary to ensure that those transmission lines, facilities or Entitlements, as the case may be, meet the Applicable Reliability Criteria within a reasonable period from the date of the applicant's application under Section 2.2 as determined by the ISO.

           ii.  The transmission lines, associated facilities or Entitlements are subject to Encumbrances that unduly impair the ISO's ability to exercise its Operational Control over them in accordance with the ISO Tariff and the applicant fails to give the ISO a written undertaking to negotiate in good faith to the extent permitted by the applicable contract the removal of the Encumbrances identified by the ISO which preclude it from using unused capacity on the relevant transmission lines. If the applicant provides such written undertaking but is unable to negotiate the removal of such Encumbrances to the extent required by the ISO, the ADR Procedure shall be used to resolve any disputes between the ISO and the applicant. For this purpose, Non-Participating TOs may utilize ISO ADR procedures on a voluntary basis.

          iii.  The transmission lines, associated facilities and Entitlements are located in a Control Area outside of California, are operated under the direction of another Control Area or independent system operator, and cannot be integrated into the ISO Controlled Grid due to technical considerations.

        If the ISO refuses to accept any of an applicant's transmission lines, facilities or Entitlements, then that applicant shall have the right to notify the ISO within a reasonable period from being notified of such refusal that it will not proceed with its application under Section 2.2.

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        4.1.4    Facilities Initially Placed Under the ISO's Operational Control.    The transmission lines, associated facilities and Entitlements which each Participating TO places under the ISO's Operational Control on the date that this Agreement takes effect with respect to it shall be identified in Appendix A.

        4.1.5    Warranties.    Each Participating TO warrants that as of the date on which it becomes a Participating TO pursuant to Section 2.2.5:

            i.  the transmission lines and associated facilities that it is placing under the ISO's Operational Control and the Entitlements that it is making available for the ISO's use are correctly identified in Appendix A (as amended in accordance with this Agreement); that the Participating TO has all of the necessary rights and authority to place such transmission lines and associated facilities under the ISO's Operational Control subject to the terms and conditions of all agreements governing the use of such transmission lines and associated facilities; and that the Participating TO has the necessary rights and authority to transfer the use of such Entitlements to the ISO subject to the terms and conditions of all agreements governing the use of such Entitlements;

           ii.  the transmission lines and associated facilities that it is placing under the ISO's Operational Control are not subject to any Encumbrances except as disclosed in Appendix B (as amended in accordance with this Agreement);

          iii.  the transmission lines and associated facilities that it is placing under the ISO's Operational Control meet the Applicable Reliability Criteria (ARC) for the relevant Participating TO except as disclosed in writing to the ISO. As to the Local Reliability Criteria component of ARC, each Participating TO has provided the ISO with such information required to identify such Participating TO's Local Reliability Criteria.