Pacific Gas & Electric (PCG)

3.4   Withdrawal Due to Adverse Tax Action.

        3.4.1    Right to Withdraw Due To Adverse Tax Action.    Subject to Sections 3.4.2 through 3.4.4, in the event an Adverse Tax Action Determination identifies an Impending Adverse Tax Action or an Actual Adverse Tax Action, a Tax Exempt Participating TO may exercise its right to Withdraw for Tax Reasons. The right to Withdraw for Tax Reasons, in accordance with the provisions of this Section 3.4, shall not be subject to any approval by the ISO, the FERC or any other Party.

        3.4.2    Adverse Tax Action Determination.    

        3.4.2.1    A Tax Exempt Participating TO shall provide to all other Parties written notice of an Adverse Tax Action Determination and a copy of the Tax Exempt Participating TO's (or its joint action agency's) nationally recognized bond counsel's opinion or an IRS determination supporting such Adverse Tax Action Determination. Such written notice shall be provided promptly under the circumstances, but in no event more than 15 working days from the date of receipt of such documents.

        3.4.2.2    The Adverse Tax Action Determination shall include (i) the actual or projected date of the Actual Adverse Tax Action and (ii) a description of the transmission lines, associated facilities or Entitlements that were financed in whole or in part with proceeds of the Tax Exempt Debt that is the subject of such Adverse Tax Action Determination. A Tax Exempt Participating TO shall promptly notify all other Parties in writing in the event the actual or projected date of the Actual Adverse Tax Action changes. The Tax Exempt Participating TO's determination of the actual or projected date of the Actual Adverse Tax Action shall be binding upon all Parties.

        3.4.2.3    Any transmission lines, associated facilities or Entitlements of the Tax Exempt Participating TO not identified in both the Adverse Tax Action Determination and the written notice of Withdrawal for Tax Reasons shall remain under the ISO's Operational Control.

        3.4.3    Withdrawal Due to Impending Adverse Tax Action.    A Tax Exempt Participating TO may Withdraw for Tax Reasons prior to an Actual Adverse Tax Action if such Tax Exempt Participating TO provides prior written notice of its Withdrawal for Tax Reasons to all other Parties as required in Sections 3.4.3(i) through 3.4.3(iv).

            i.  In the event the date of the Adverse Tax Action Determination is seven months or more from the projected date of the Actual Adverse Tax Action, then a Tax Exempt Participating TO that exercises its right to Withdraw for Tax Reasons shall provide prior written notice of its

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Withdrawal for Tax Reasons to all other Parties at least six months in advance of the projected date of the Actual Adverse Tax Action.

           ii.  In the event the date of the Adverse Tax Action Determination is less than seven months but more than two months from the projected date of the Actual Adverse Tax Action, then a Tax Exempt Participating TO that exercises its right to Withdraw for Tax Reasons shall provide prior written notice of its Withdrawal for Tax Reasons to all other Parties at least 30 days in advance of the projected date of the Actual Adverse Tax Action.

          iii.  In the event the date of the Adverse Tax Action Determination is between two months and one month from the projected date of the Actual Adverse Tax Action, then a Tax Exempt Participating TO that exercises its right to Withdraw for Tax Reasons shall provide prior written notice of its Withdrawal for Tax Reasons to all other Parties at least 15 days in advance of the projected date of the Actual Adverse Tax Action.

          iv.  In the event the date of the Adverse Tax Action Determination is less than one month from the projected date of the Actual Adverse Tax Action, then a Tax Exempt Participating TO shall have up to 15 days following the date of the Adverse Tax Action Determination to exercise its right to Withdraw for Tax Reasons, and if so exercised shall provide no later than one day thereafter written notice of its Withdrawal for Tax Reasons to all other Parties.

           v.  With respect to Sections 3.4.3(i) through 3.4.3(iii), upon receipt by the ISO of a notice to Withdraw for Tax Reasons, the ISO shall promptly begin working with the applicable Tax Exempt Participating TO to relinquish the ISO's Operational Control over the affected transmission lines, associated facilities or Entitlements to such Tax Exempt Participating TO, provided that such Operational Control must be relinquished by the ISO no later than five days prior to the projected date of the Actual Adverse Tax Action. With respect to Section 3.4.3(iv), (1) if the notice of Withdrawal for Tax Reasons is received by the ISO at least six days prior to the projected date of the Actual Adverse Tax Action, Operational Control over the affected transmission lines, associated facilities or Entitlements must be relinquished by the ISO to such Tax Exempt Participating TO no later than five days prior to the projected date of the Actual Adverse Tax Action, or (2) if the notice of Withdrawal for Tax Reasons is received by the ISO any time after six days prior to the projected date of the Actual Adverse Tax Action, the ISO shall on the next day relinquish Operational Control over the affected transmission lines, associated facilities or Entitlements to such Tax Exempt Participating TO.

        3.4.4    Withdrawal Due to Actual Adverse Tax Action.    In addition to the foregoing, upon the occurrence of an Actual Adverse Tax Action, the affected Tax Exempt Participating TO may immediately Withdraw for Tax Reasons. The Tax Exempt Participating TO shall have up to 15 days from the date of the Adverse Tax Action Determination with respect to an Actual Adverse Tax Action to exercise its right to Withdraw for Tax Reasons. If the Tax Exempt Participating TO determines to exercise its right to Withdraw for Tax Reasons, upon receipt of the notice of Withdrawal for Tax Reasons, the ISO shall immediately relinquish Operational Control over the affected transmission lines, associated facilities or Entitlements to such Tax Exempt Participating TO.

        3.4.5    Alternate Date To Relinquish Operational Control.    Notwithstanding anything to the contrary in this Section 3.4, the ISO and a Tax Exempt Participating TO who has provided a notice of Withdrawal for Tax Reasons may mutually agree in writing to an alternate date that the ISO shall relinquish Operational Control over the affected transmission lines, associated facilities or Entitlements to such Tax Exempt Participating TO. If the ISO or a Tax Exempt Participating TO who has provided a notice of Withdrawal for Tax Reasons desires an alternate date from the date provided in Sections 3.4.3(i) through 3.4.3(v)(1) for the ISO to relinquish Operational Control over the affected transmission lines, associated facilities or Entitlements to such Tax Exempt Participating TO, such party promptly shall give written notice to the other, and each agrees to negotiate in good faith, for a reasonable

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period of time, to determine whether or not they can reach mutual agreement for such an alternate date; provided, however, such good faith negotiations are not required to be conducted during the five days preceding the date provided in Sections 3.4.3(i) through 3.4.3(v)(1) for the ISO to relinquish Operational Control over the affected transmission lines, associated facilities or Entitlements.

        3.4.6    Procedures to Relinquish Operational Control.    The ISO shall implement a procedure jointly developed by all Parties to relinquish Operational Control over the affected transmission lines, associated facilities, or Entitlements as provided in this Section 3.4.

        3.4.7    Right to Rescind Notice of Withdrawal for Tax Reasons.    At any time up to two days prior to the ISO's relinquishment to the Tax Exempt Participating TO of Operational Control over the affected transmission lines, associated facilities or Entitlements, a Tax Exempt Participating TO may rescind its notice of Withdrawal for Tax Reasons by providing written notice thereof to all other Parties, and such notice shall be effective upon receipt by the ISO.

        3.4.8    Amendment of Agreement.    Following the relinquishment by the ISO of Operational Control of facilities, recognizing Entitlements of a non-public utility in accordance with this Section 3.4, the ISO promptly shall prepare the necessary changes to this Agreement and to the ISO Tariff (if any), make a filing with FERC pursuant to Section 205 of the FPA, and take whatever other regulatory action, if any, that is required to properly reflect the Withdrawal for Tax Reasons.

        3.4.9    Provision of Information by ISO.    To assist Tax Exempt Participating TOs in identifying at the earliest opportunity Impending Adverse Tax Actions or Actual Adverse Tax Actions, the ISO promptly shall provide to Participating TOs any non-confidential information regarding any ISO plans, actions or operating protocols that the ISO believes might adversely affect the tax-exempt status of any Tax Exempt Debt issued by, or for the benefit of, a Tax Exempt Participating TO.

        3.4.10    Publication of Notices.    The ISO shall inform the public through WEnet or the ISO internet website of all notices received under this Section 3.4.