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proceeding is now trying to determine what "just and reasonable" rates should have been during specific times.Z The outcome will be an order requiring generators and marketers who overcharged to refund money to purchasers. In principle, the CPUC has the power to recalculate the Direct Access Credit based on the FERC ordered reduction in electricity prices. However, FERC has no jurisdiction over the CPUC and cannot compel such a recalculation. The result of such a recalculation would be a reduction in the amount of Direct Access Credit owed ABAG POWER.3 The CPUC can undertake a regulatory process referred to as ratemaking in which the ultimate result could be the imposition of a surcharge on Electric Program Member accounts to recoup overpaid Direct Access Credits over a specified time period, or immediately. This risk exposure is punctuated by §4 of the Stipulation and Release under which PG&E and ABAG POWER are settling the Direct Access Credit claim (Stipulation and Release). §4 states: "[ABAG POWER] and PG&E expressly agree that this Stipulation and Release is a compromise and settlement of all claims and matters that are disputed as between the parties involving the 1998 RAP for the period through and including June 30, 2001, all issues that were raised, or could have been raised, in the CPUC Complaint, and all issues that were raised, or could have been raised, in the Claim. In the event that the CPUC issues any future ruling relating to the direct access credits at issue in the Claim, the CPUC Complaint or the 1998 RAP, the parties will use their best efforts to preserve the intent of this Stipulation and Re/ease, consistent with applicable law." a (emphasis added) This provision was negotiated when PG&E declined to give ABAG POWER a full indemnity against the possibility that the CPUC will take an action to impose a surcharge to recover Direct Access Credits paid to ABAG POWER (or its electricity members). PG&E agreed that the exposure exists but asserts that it cannot, as an entity regulated by the CPUC, agree to make ABAG POWER whole in the event of an adverse CPUC action. PG&E asserts that an indemnity provision would be characterized as an illegal circumvention (by PG&E) of the CPUC. ABAG POWER acceded to PG&E's argument and §4 is the negotiated compromise. Background On December 22, 2003, the U.S. Bankruptcy Court for Northern California, San Francisco Division confirmed a Plan of Reorganization for PG&E (Confirmed Plan). The Direct Access Credit was paid to ABAG POWER under the Stipulation and Release. The Stipulation and Release was approved by the court and is included in the Confirmed Plan as a Class 7 Claim. During the bankruptcy proceedings, PG&E and the CPUC submitted competing plans for the reorganization of PG&E. Simultaneously, PG&E was pursuing claims challenging certain actions by the CPUC during deregulation (CPUC Proceedings). Further, PG&E filed suit in Federal District Court for Northern California against the CPUC challenging various aspects of the deregulated energy market created under CPUC regulations and guidance. The CPUC 2 Pricing occurred on an hourly basis. s One estimate of the impact of known (in Spring 2003) FERC ordered reductions on ABAG POWER's Direct Access Credit resulted in a reduction of $4-5 million in Direct Access Credits owed. ABAG POWER believes the estimate to be reasonable. The "1998 RAP" is the ratesetting proceeding described below under the same name. The "CPUC Complaint" is ABAG POWER's initial complaint filed with the CPUC for payment of the Direct Access Credit. Wind Up Agreement-Attmt D- 4-28-04 Al]