UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549




                                   FORM 8 - K


                                 CURRENT REPORT
     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

                                  May 23, 2002
                                (Date of Report)

                              DBS Industries, Inc.
             (Exact name of registrant as specified in its charter)


     STATE OF DELAWARE               O-28348                    84-1124675
     -----------------               -------                    ----------
(State or other jurisdiction       (Commission                 (IRS Employer
   of incorporation)               File Number)              Identification No.)


            100 Shoreline Highway, Suite 190A, Mill Valley, CA 94941
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (415) 380-8055


               --------------------------------------------------
          (Former name or former address, if changed since last report)


<PAGE>


Item 5.  Other

     On May  23,  2002,  the  Company  and the  California  Consumer  Power  and
Conservation  Financing Authority  ("California Power Authority") entered into a
Demand Reserves Provider  Agreement.  Under the agreement,  beginning October 1,
2002,  the Company shall provide a minimum of 200 megawatts and a maximum of 360
megawatts of daily available  electrical  demand  reduction at peak or emergency
times from  qualified  end users.  This  minimum and maximum of daily  available
demand  reduction  increases to 400 megawatts and 560  megawatts,  respectively,
effective June 1, 2003.

     Through the Company's  proposed system, the California Power Authority will
be able to  immediately  reduce  non-critical  power  consumption  at  locations
throughout  the state in order to create  energy  reserves  to smooth out energy
usage during peak use or  emergency  times.  The Company  intends to utilize the
Iridium  Satellite  System to  provide  its  services  to the  California  Power
Authority. The Iridium Satellite System is a low earth orbiting satellite
network consisting of 66 satellites. The Company's system utilizes a proprietary
master control system and remote  controller  connected to the Iridium Satellite
System to remotely  monitor and control  roof-top  air  conditioning  systems or
other types of electricity-using devices. Tiax, LLC, formerly Arthur D. Little's
Technology and Innovation  business,  is providing  engineering  services to the
Company.  It is  anticipated  that qualified end users will consist of primarily
large private  commercial energy users such as owners of large retail stores and
shopping centers.

     For  its  services,  the  Company  will be  paid  by the  California  Power
Authority   approximately  $51,000  per  year  per  megawatt  for  "non-spinning
reserves".  A portion of these fees will be remitted to the  qualified end users
as an incentive to participate in the demand reserve program.

     The agreement will terminate in May 2007. In addition, the agreement may be
terminated  earlier  if the  Company  fails  to  provide  the  California  Power
Authority  with the daily  minimum  megawatt of electrical  demand  reduction by
October  1,  2002,  the  California  Power  Authority  fails  to  enter  into  a
Participating Load Agreement with the California  Independent System Operator by
October 1, 2002, or such  Participating  Load Agreement is terminated during the
term of the Demand Reserves Provider  Agreement,  or the Company fails to reduce
energy  usage by its  specified  level for two  consecutive  months  during  the
summer.

     The  Company is  currently  seeking  financing  to  engineer,  install  and
implement the system.  The Company  expects the capital and operating  costs for
full deployment of the system to cost  approximately $15 to $20 million over the
next two years.  The Company is in the process of signing up qualified end users
to participate in the program.

Item 7. (c) Exhibits

10.70    Demand  Reserves Provider  Agreement between  California Consumer Power
         and Conservation Financing Authority and DBS Industries, Inc.


<PAGE>






                                   Signatures


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.


Dated: May 29, 2002                DBS Industries, Inc.


                                   By:       /s/ Fred W. Thompson
                                             ----------------------
                                             Fred W. Thompson
                                             Chief Executive Officer & President


<PAGE>


Exhibit 10.70

                       DEMAND RESERVES PROVIDER AGREEMENT

THIS AGREEMENT (the  "Agreement") is dated May 23, 2002, and is entered into, by
and between:

(1)     CALIFORNIA CONSUMER POWER AND CONSERVATION  FINANCING AUTHORITY
        (the "Authority"), an agency of the State of California located at
        901 P Street, Sacramento, CA

                                        And

(2)     DBS INDUSTRIES, INC., ("Provider"),

         (each individually a "Party" and collectively the "Parties").




                                    RECITALS


     WHEREAS,  the  Authority is  authorized  by the Authority Act to establish,
finance,  purchase,  lease,  own,  operate,  acquire,  or  construct  generating
facilities and other projects and enterprises,  on its own or through agreements
with public and private third  parties or joint  ventures with public or private
entities,  to supplement  private and public sector power supplies,  taking into
account  generation  facilities  in  operation  or under  development  as of the
effective  date of the  Authority  Act, and to ensure a sufficient  and reliable
supply of electricity  for the State's  consumers at just and reasonable  rates;
and

     WHEREAS,  the Authority  developed an Energy  Resource  Investment  Plan as
authorized  by the  Authority  Act  that  included  Demand  Reserves  as a major
component  to meeting the  Authority's  purposes of  ensuring a  sufficient  and
reliable supply of electricity for the State's  consumers at just and reasonable
rates,


     WHEREAS,  the  Authority is entering  into a five-year  contract  (the "DWR


Demand Reserves Provider Agreement -- DBS Industries
<PAGE>

Contract") with the Department of Water Resources (the  "Department") to provide
Demand  Reserves to ensure a sufficient and reliable  supply of electricity  per
the Departments authority to procure power per ABX1 1 (Chapter 4 of the Statutes
of 2001, First Extraordinary  Session), as amended by ABX1 31 (Chapter __ of the
Statutes of 2001, ___  Extraordinary  Session) codified as Section 80000 et seq.
of the Water Code.

     WHEREAS, the Provider is desirous, capable and has the authority to provide
Demand Reserves in a long-term contract, as described in this Agreement,  at one
or more end use meter locations in California

     WHEREAS,  the  Parties  desire  to enter  into this  Agreement  in order to
establish the terms and  conditions on which the Authority and the Provider will
discharge their respective duties and responsibilities supplying California with
Demand Reserves,

NOW THEREFORE,  in consideration  of the mutual covenants set forth herein,  THE
PARTIES AGREE as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section  1.01.  Definitions.  Unless  otherwise  defined  herein  or in any
appendix hereto, the following terms shall have the respective  meanings in this
Agreement:

     "Additional  Capacity  Payment" means an amount which shall be payable with
respect to Additional Hourly Capacity which shall be calculated as follows: with
respect to Additional Hourly Capacity (a) which is Non-Spinning Capacity for the
Summer months, such Additional Hourly Capacity multiplied by the Non-Spin Summer
Price,  (b) which is  Non-Spinning  Capacity  for the  non-Summer  months,  such
Additional  Hourly Capacity  multiplied by the Non-Spin  Non-Summer  Price,  (c)
which is Replacement  Capacity for the Summer  months,  such  Additional  Hourly
Capacity multiplied by the Replacement Summer Price, or (d) which is Replacement
Capacity for the non-Summer months,  such Additional Hourly Capacity  multiplied
by the Replacement Non-Summer Price.

     "Additional  Hourly  Capacity"  shall have the meaning set forth in Section
2.02(b) hereof.

     "Agreement"  means  this  Demand  Reserves   Provider   Agreement  and  the
appendices hereto, which are hereby incorporated herein by reference.

     "Ancillary  Service" means a type of reserve service  accepted by the CAISO
under the tariffs and protocols of the CAISO for maintaining  reliable  electric
service.

     "Applicable Hourly Capacity Price" means, as appropriate,  the (a) Non-Spin
Summer Price,  (b) the Non-Spin  Non-Summer  Price,  (c) the Replacement  Summer
Price, or (d) the Replacement Non-Summer Price.

     "Authority" means the California Consumer Power and Conservation  Financing
Authority, or any successor or assigns

Demand Reserves Provider Agreement -- DBS Industries
<PAGE>


     "Authority Act" means SBX1 6 codified as Section 3300 et seq. of the Public
Utilities Code.

     "Baseline"  means the  amount of Energy the  Qualified  End User would have
been using if the Qualified End User were not reducing Energy in accordance with
Schedules or dispatch  instructions  submitted by the  Department  in accordance
with this Agreement or CAISO for Ancillary Service.  The baseline is compared to
actual Energy use in the  Measurement  Protocols to determine how much Energy is
actually reduced and, in cases where Energy is actually Scheduled or dispatched,
the  Capacity  available  to  the  Department  in  determining   quantities  for
scheduling and billing.

     "Billing  Address" means the billing address  specified in Appendix A or as
otherwise specified by the Authority.

     "Business  Day" means any Day other  than a Saturday  or Sunday or a United
States  holiday.  United States  holidays  shall be holidays as published by the
CAISO from time to time.

     "CAISO" means the California  Independent System Operator, or any successor
thereto.

     "CAISO  Markets"  means the Day Ahead and Hour Ahead  markets for Ancillary
Services  and energy or the  supplemental  or imbalance  markets for energy,  or
their successors, as defined by the CAISO Tariff.

     "CAISO  Participating  Load  Agreement"  means the  agreement,  in form and
substance reasonably acceptable to the Department, executed by the Authority and
CAISO to establish  the terms and  conditions  on which the  Authority and CAISO
will discharge  their  respective  duties and  responsibilities  under the CAISO
Tariff.

     "CAISO  Tariff"  means the CAISO tariff on file with the FERC and in effect
from time to time.

     "Capacity" means the capacity (in MWs as measured at the Metering Point) of
load of  Qualified  End Users that may be reduced  over a Permitted  Period over
which the Authority directly or indirectly has Control.

     "Capacity Adjustment Amount" means (a) in the case of the Monthly Nominated
Capacity an amount equal to the lesser of (i) the Maximum  Capacity Amount minus
the Monthly Nominated Capacity,  and (ii) 20% of the Monthly Nominated Capacity,
or (b) in the case of the Shoulder Hour  Capacity  Amount an amount equal to the
lesser of (i) the Maximum  Capacity  Amount  minus the  Shoulder  Hour  Capacity
Amount, and (ii) 20% of the Shoulder Hour Capacity Amount.

     "Capacity Payment" means the monthly payment for Monthly Nominated Capacity


Demand Reserves Provider Agreement -- DBS Industries
<PAGE>

and Additional Hourly Capacity payable by the Department to the Authority.

     "Capacity  Prices" means the set of prices for Summer and non-Summer months
for Capacity as specified in Section 2.04.

     "Contingency  Reserve"  means a  designation  used by CAISO  for bids  into
CAISO's  Ancillary  Services markets by resources that are limited in the number
of hours they can operate in a Day, month or year.

     "Contracted  Energy"  means  the  MWhs  (or  portions  thereof)  of  Energy
reductions  associated  with the Monthly  Nominated  Capacity and any Additional
Hourly  Capacity  Scheduled or dispatched for reduction by the Department or the
CAISO  during a given  Permitted  Period  for any  purpose,  including,  but not
limited to, as Non-Spinning Ancillary Service.

     "Control"  means the ability  pursuant to contract with Qualified End Users
to reduce Contracted Energy.

     "CPUC" means the Public Utilities Commission of California or any successor
thereto.

     "Day" means the period beginning 12:00 midnight and ending on the following
12:00 midnight (Pacific Time).

     "Defaulting Party" shall have the meaning set forth in Section 7.01.

     "Demand  Reserve  Fund"  means the  Authority's  fund held in trust for the
receipts and disbursements under this Agreement.

     "Department"  means the Department of Water Resources,  with respect to its
responsibilities  pursuant  to  the  Department  Act  (as  hereinafter  defined)
regarding the Fund (as hereinafter  defined)  separate and apart from its powers
and  responsibilities  with  respect to the State  Water  Resources  Development
System, or any successor or assigns.

     "Department  Act" means ABX1 1, as amended by ABX1 31  codified  as Section
80000 et seq. of the Water Code.

     "DWR Contract" means the five-year  Agreement between the Authority and the
Department in which the Authority  agrees to supply the  Department  with Demand
Reserves.

     "Energy"  means electric  energy  measured in MWhs at the Metering Point in
accordance with the metering protocols.

     "Energy Payment" means the monthly payment for Contracted Energy payable by
the Department to the Authority.


Demand Reserves Provider Agreement -- DBS Industries

<PAGE>


     "Energy Price" means the price  specified in Section 2.04(b) for Contracted
Energy.

     "Event of Default" shall have the meaning set forth in Section 7.01.

     "FERC" means the Federal  Energy  Regulatory  Commission  or any  successor
thereto.

     "Force  Majeure"  means an event or  circumstance  which prevents one Party
from performing its obligations  hereunder,  which event or circumstance was not
reasonably foreseeable as of the date of this Agreement, which is not within the
reasonable  control of, or the result of the negligence of, the Claiming  Party,
and which,  by the exercise of due  diligence,  the Claiming  Party is unable to
overcome  or avoid  or  cause to be  avoided,  including,  but not  limited  to:
shortages of materials or supplies (except if caused by the Authority's  failure
to maintain sufficient  inventories and stores of spare parts), strikes or labor
disruptions  (except  strikes or labor  disputes  resulting  from unsafe working
environment  or unfair labor  practices),  interruptions  of fuel supply,  water
supply or  transmission,  damages or breakdown  of  machinery,  drought,  flood,
earthquake,  storm, fire, lightning,  epidemic,  war, riot, civil disturbance or
sabotage.  Force  Majeure  shall not include any events such as, but not limited
to, events arising from (a) economic factors  including the price of services or
materials,  (c) the curtailment or interruption of gas or electric transmission,
(d) the inability to obtain financing,  (e) events that merely increase the cost
of a Party's  performance,  (f)  failure of third  parties  to provide  goods or
services essential to a Party's performance, or (g) litigation.

     "Fund"  means  the  Department  of  Water  Resources  Electric  Power  Fund
established by Water Code Section 80200.

     "Governmental  Authority" means any federal,  state, local,  territorial or
municipal  government and any department,  commission,  board,  bureau,  agency,
instrumentality, judicial or administrative body thereof.

     "Incremental  Non-Spinning  Capacity"  shall have the  meaning set forth in
Section 2.03(c) hereof.

     "Invoice Month" means the calendar month immediately following the month in
which the  Authority  provided  Monthly  Nominated  Capacity and any  Additional
Hourly Capacity or Contracted Energy for which an invoice is being issued.

     "IOU (Investor-Owned Utility)" means the Load Serving Entities regulated by
the  CPUC --  Pacific  Gas and  Electric  Company,  Southern  California  Edison
Company, and San Diego Gas and Electric Company.

     "Law" means any statute,  law, rule or regulation imposed by a Governmental
Authority, whether in effect now or at any time in the future.


Demand Reserves Provider Agreement -- DBS Industries
<PAGE>

     "LSE- Load Serving Entity" means any organization responsible for providing
electricity to the retail end use customer.  In this  Agreement,  LSE's shall be
limited to Investor-Owned Utilities unless otherwise agreed to by the Department
pursuant to Section 2.09(a) hereof.

     "Maximum  Capacity  Amount" means (a) on and after October 1, 2002:  360 MW
(of which at least 216 MW must be  Non-Spinning  Capacity) in the Peak Hours and
216 MW (of  which  at  least  129.6  MW must be  Non-Spinning  Capacity)  in the
Shoulder Hours,  (b) on and after January 1, 2003: 360 MW (of which at least 288
MW must be  Non-Spinning  Capacity)  in the Peak  Hours  and 216 MW (of which at
least 172.8 MW must be Non-Spinning  Capacity) in the Shoulder Hours, and (c) on
and after  June 1, 2003:  560 MW (of which at least 448 MW must be  Non-Spinning
Capacity  ) in the Peak  Hours  and 336 MW (of  which at least  268.8 MW must be
Non-Spinning Capacity ) in the Shoulder Hours. Generally, the Provider's Maximum
Capacity  Amount  will be set  equal  to the  Provider's  Capacity  Share of the
Authority's Maximum Capacity Amount to the Department,  unless the Authority has
reasonable  evidence (including past  non-performance)  that the Provider cannot
deliver such Capacity.

     "Measurement  Protocols"  means the protocols used to measure the amount of
Capacity or energy provided, as defined in Section 3.03.

     "Metering  Point" means an aggregation of meters at a Qualified  End-User's
site for which the Authority  monitors load,  schedules capacity and energy with
the CAISO,  and provides meter data to the CAISO per the CAISO  requirements for
settlement quality meter data in the CAISO Participating Load Agreement.

     "Minimum  Capacity  Amount" means (a) on and after October 1, 2002:  200 MW
(of which at least 120 MW must be  Non-Spinning  Capacity and 80 MW  Replacement
Capacity)  in the Peak Hours and 120 MW (72 MW  Non-Spinning  Capacity and 48 MW
Replacement  Capacity) in the Shoulder Hours,  (b) on and after January 1, 2003:
200 MW (of  which at least  160 MW must be  Non-Spinning  Capacity)  in the Peak
Hours and 120 MW (96 MW Non-Spinning Capacity) in the Shoulder Hours, and (c) on
and after  June 1, 2003:  400 MW (of which at least 320 MW must be  Non-Spinning
Capacity)  in the  Peak  Hours  and 240 MW (of  which  at  least  192 MW must be
Non-Spinning  Capacity)  in the  Shoulder  Hours.  Any  Provider  whose  Minimum
Capacity  Amount  exceeds  50 MW in any  month of the year  shall be  obligated,
unless waived in writing by the Authority,  to provide a Minimum Capacity Amount
in the Non-Summer  months that is at least 70% of the average  Minimum  Capacity
Amounts of the three Summer months.

     "Monthly  Implementation  Schedule" means the rolling  forecast for each of
the next 12 months of MWs that the Provider  expects to have  available  for the
Authority by the first of each month. This Monthly Implementation  Schedule will
provide MW quantities by the type of Capacity (Non-Spinning vs Replacement),  by
the Location of Capacity  (North or South of Path 15) and, after August 1, 2002,
by the Load Serving  Entity of the expected  Qualified  End User.  Such Schedule
will not be binding,  except for the Minimum  Capacity  Amounts,  but shall be a



Demand Reserves Provider Agreement -- DBS Industries

<PAGE>

good faith  estimate of the likely MW of  capacity.  The Monthly  Implementation
Schedule shall be due on tenth of the month, beginning with June, 2002.

     "Monthly  Nominated  Capacity"  shall have the meaning set forth in Section
2.02(a) hereof.

     "Monthly  Payment"  means  the  aggregate  monthly  amount  payable  by the
Authority to the  Provider  consisting  of the  Capacity  Payment and the Energy
Payment.  The Monthly  Payments  shall also  include any amounts  payable by the
Authority to the Provider pursuant to Section 2.05 hereof.

     "MW" means megawatt,  a measure of electric capacity to provide one million
watts of power.

     "MWh" means  megawatt-hour,  a measure of electric energy produced by a one
(1) MW source in one hour.

     "MW-hr" means the megawatts of Capacity made available in one hour.

     "MW-mo" means megawatt-month, a measure of electric capacity from a one (1)
MW source available for all hours in a particular month.

     "NERC" means the North American Electric Reliability Council.

     "Nominated  Capacity"  means,  in any  calendar  month,  the sum of Monthly
Nominated Capacity and any Additional Hourly Capacity.

     "Non-Defaulting Party" shall have the meaning set forth in Section 7.01.

     "Non-Spinning   Ancillary  Service"  means  the  reserve  service,  or  its
successor,  in the  CAISO  tariffs,  in which  the CAISO  requires  a  10-minute
response to ensure system reliability.

     "Non-Spinning  Capacity"  means  any  Capacity  which may be  Scheduled  or
dispatched by the Department or CAISO on a not more than 10-minute  ahead basis,
and may be used for any purpose consistent with such limitation,  including, but
not limited to, Non-Spinning Ancillary Service, self-provided ancillary services
or any Replacement Capacity purpose.

     "Non-Spin Non-Summer Price" means $8 per MW - hr.

     "Non-Spin Summer Price" means $116 per MW - hr.

     "Non-Summer"  means  the nine  months of the year not  including  the three
Summer months.

     "Operating  Parameters" means the parameters that constrain the Schedule or


Demand Reserves Provider Agreement -- DBS Industries
<PAGE>

dispatch  of the  Capacity  under this  Agreement.  These  include  the hours of
Scheduling or dispatch,  which are Monday to Friday 11am to 7pm, and the maximum
cumulative  dispatch hours,  which are 24 hours per month and 150 hours per year
(for the year  2002,  the  maximum  dispatch  hours  shall be 24 hours  for each
remaining month of the year).  Other operating  parameters with respect to CAISO
services,  such as  minimum or maximum  dispatch  length,  ramp up and ramp down
times,  will be specified in Schedule 1 of this  Agreement  which shall have the
form of Schedule 1 of the CAISO  Participating Load Agreement that the Authority
signs with the CAISO. To the extent any such parameters are not specified in the
CAISO  Participating  Load  Agreement,  the  Authority  shall  develop  specific
parameters with the Department's mutual consent.

     "Party" means the Department or the Authority.

     "Peak  Hours" means hours from 2:00 pm to 5:00 pm (3 hours) on any Business
Day.  "Permitted  Periods" means the minimum period Capacity can be scheduled as
permitted by the particular product,  which in the case of Non-Spinning Capacity
shall be 10-minute periods and in the case of Replacement  Capacity shall be one
hour.

     "Project  Initiation  Period"  means the period  from July 1, 2002  through
September 30, 2002.

     "Provider  Capacity Share" means the percentage that the Provider's Minimum
Capacity Amount is of the Authority's Minimum Capacity Amount obligations to the
Department of either 250 MW on October 1, 2002 or 500 MW on June 1, 2003, unless
the Authority's  Minimum  Capacity Amount is modified by mutual agreement of the
Department and the Authority.

     "Qualified  Electric  Corporation"  means  an  electrical  corporation,  as
defined by the Department  Act, whose long-term  unsecured  senior debt is rated
BBB or better by  Standard  & Poor's  Corporation  and Baa2 or better by Moody's
Investor Services.

     "Qualified End Users" means any customers of the IOUs or other Load Serving
Entities approved by the Department subject to Section 2.09(a).

     "Qualified End User Agreement"  shall have the meaning set forth in Section
2.09 hereof.

     "Replacement  Agreement"  means any  agreement by and between the Authority
and a Qualified  Electric  Corporation  containing  terms  identical  to the DWR
Contract  excluding  Sections 2.10 and 2.12 and such other  provisions as may be
specifically  excluded  from  a  Replacement   Agreement,   together  with  such
additional  changes as the  Department and the Authority  shall mutually  agree.
Such Replacement Agreement shall state that it is a Replacement Agreement within
the meaning of the DWR  Contract  and that it  constitutes  a novation for which
there is adequate consideration.

     "Replacement  Capacity" means Capacity which may be Scheduled or dispatched

Demand Reserves Provider Agreement -- DBS Industries
<PAGE>

by the Department on a not more than 60 minute ahead basis,  and may be used for
any purpose consistent with such limitation to provide,  among other things, the
reserve service,  or its successor,  defined in the CAISO Tariffs,  in which the
CAISO requires a 60 minute response to ensure system  reliability or to Schedule
Contracted Energy in the CAISO Hour Ahead or Day Ahead markets.

     "Replacement Non-Summer Price" means $2.65 per MW - hr.

     "Replacement Summer Price" means $88 per MW - hr.

     "Revenue  Meter" means the meter used by the LSE to  determine  total usage
for the purpose of calculating electrical bills.

     "Schedule"  means (a) with  respect to  Contracted  Energy,  to  schedule a
reduction of the Contracted  Energy pursuant to a dispatch notice,  and (b) with
respect to Capacity,  to schedule Capacity in connection with Ancillary Services
in accordance with the CAISO Tariff.

     "Shoulder Hours" means hours from 11:00am to 2:00 pm and 5:00 pm to 7:00 pm
(5 hours) on any Business Day.

     "Shoulder Hour Capacity Amount" shall have the meaning set forth in Section
2.02 (a) hereof.

     "State" means the State of California.

     "Summer"  means  the  season  including  the  months  of July,  August  and
September.

     "Term" shall have the meaning set forth in Section 2.11 hereof.

     "2002  Adjusted  Peak Hour  Maximum"  shall have the  meaning  set forth in
Section 2.03(b) hereof.

     "2002  Adjusted  Shoulder Hour Maximum" shall have the meaning set forth in
Section 2.03(b)(ii) hereof.

     "2002  Adjusted  Peak Hour  Minimum"  shall have the  meaning  set forth in
Section 2.03(b)(iv) hereof.

     "2002  Adjusted  Shoulder Hour Minimum" shall have the meaning set forth in
Section 2.03(b)(vi) hereof.

     "2003  Adjusted  Peak Hour  Maximum"  shall have the  meaning  set forth in
Section 2.03(a) hereof.

     "2003  Adjusted  Shoulder Hour Maximum" shall have the meaning set forth in


Demand Reserves Provider Agreement -- DBS Industries
<PAGE>

Section 2.03(a)(ii) hereof.

     "2003  Adjusted  Peak Hour  Minimum"  shall have the  meaning  set forth in
Section 2.03(a)(iv) hereof.

     "2003  Adjusted  Shoulder Hour Minimum" shall have the meaning set forth in
Section 2.03(a)(vi) hereof.

     "Warning/Stage  Alert Hour" means any hour during  which a day-ahead  CAISO
warning of a  potential  stage alert has been issued or any CAISO stage alert is
in effect for such hour.

     Section 1.02. Rules of  Interpretation.  Unless otherwise  provided herein:
(a) words  denoting  the singular  include the plural and vice versa;  (b) words
denoting a gender  include both genders;  (c)  references to a particular  part,
clause,  section,   paragraph,   article,  party,  exhibit,  schedule  or  other
attachment  shall be a  reference  to a part,  clause,  section,  paragraph,  or
article of, or a party, exhibit, schedule or other attachment to the document in
which the  reference is contained;  (d) a reference to any statute,  regulation,
proclamation,   ordinance   or   law   includes   all   statutes,   regulations,
proclamations,   amendments,   ordinances  or  laws  varying,  consolidating  or
replacing the same from time to time, and a reference to a statute  includes all
regulations,  policies, protocols, codes, proclamations and ordinances issued or
otherwise  applicable  under that statute  unless,  in any such case,  otherwise
expressly provided in any such statute or in the document in which the reference
is contained;  (e) a reference to a particular section,  paragraph or other part
of a particular  statute shall be deemed to be a reference to any other section,
paragraph or other part substituted therefor from time to time; (f) a definition
of or reference to any document,  instrument or agreement  includes an amendment
or supplement to, or restatement,  replacement, modification or novation of, any
such  document,  instrument  or  agreement  unless  otherwise  specified in such
definition or in the context in which such reference is used; (g) a reference to
any person  includes such  person's  successors  and  permitted  assigns in that
designated  capacity;  (h) any  reference  to "dollars" or "$" shall mean United
States  dollars  unless  otherwise  specified;  (i) any  reference  to time is a
reference  to the time then  prevailing,  whether  standard or daylight  savings
time, in the specified time zone; (j) if the date as of which any right,  option
or  election  is  exercisable,  or the date  upon  which  any  amount is due and
payable,  is  stated  to be on a date or Day that is not a  Business  Day,  such
right, option or election may be exercised,  and such amount shall be deemed due
and payable,  on the next succeeding Business Day with the same effect as if the
same was exercised or made on such date or Day (without, in the case of any such
payment, the payment or accrual of any interest or other late payment or charge,
provided such payment is made on such next  succeeding  Business Day); (k) words
such as "hereunder,"  "hereto," "hereof" and "herein" and other words of similar
import shall, unless the context requires  otherwise,  refer to the whole of the
applicable  document and not to any  particular  article,  section,  subsection,
paragraph or clause thereof;  and (l) a reference to "including" means including
without limiting the generality of any description preceding such term.

                                   ARTICLE II
               PURCHASE AND SALE OF MONTHLY NOMINATED CAPACITY AND
                   ADDITIONAL CAPACITY AND CONTRACTED ENERGY


     Section  2.01.   Purchase  and  Sale  of  Monthly  Nominated  Capacity  and
Additional Hourly Capacity and Contracted Energy. Subject to the limitations set
forth in Section  2.02 hereof,  on and after July 1, 2002 and for the  remaining
Term of this Agreement thereafter, the Provider shall provide and make available
to the  Authority,  and the  Authority  shall  purchase and pay for, the Monthly
Nominated  Capacity  and any  Additional  Hourly  Capacity,  and if Scheduled or
dispatched by the Department, the Authority or CAISO pursuant to this Agreement,


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<PAGE>

the Provider  shall Schedule or dispatch,  and the Authority  shall purchase and
pay for, the  Contracted  Energy,  and the Authority  shall pay the Provider the
Monthly Payment. The Authority may not Schedule or dispatch Contracted Energy in
excess of the Nominated Capacity.

     Section 2.02.  Procedures for Determining  Monthly  Nominated  Capacity and
Additional  Hourly Capacity;  CAISO Costs. The following  procedures shall apply
from and after September 27, 2002:

     (a) Four Business Days prior to the beginning of each calendar  month,  the
Provider  shall  establish  and  provide to the  Authority  a single MW Capacity
amount  for  the  Peak  Hours  that  shall  apply  to each  Business  Day of the
succeeding  month,  which shall not be less than the Minimum Capacity Amount nor
greater than the Maximum  Capacity  Amount (the "Monthly  Nominated  Capacity").
Except as set forth in (b), the Authroity shall pay the Capacity  Payment on the
basis of the Monthly Nominated  Capacity.  The Authority shall have the right to
Schedule such Monthly Nominated  Capacity or Schedule or dispatch the Contracted
Energy associated therewith in any given Permitted Period during the Peak Hours.
There shall be automatically  established on the basis of the Monthly  Nominated
Capacity a single MW Capacity  amount for the Shoulder Hours that shall apply to
each  Business  Day of the  succeeding  month  that shall be equal to 60% of the
Monthly Nominated Capacity (the "Shoulder Hour Capacity Amount").  The Authority
shall have the right to Schedule or dispatch such Shoulder Hour Capacity  Amount
in any given Permitted Period during the Shoulder Hours.

     (b) On a three-hour ahead basis, the Provider may, upon notification to the
Authority,  adjust (i) the Monthly Nominated  Capacity for any hour upwards (but
not downwards below the Monthly Nominated  Capacity),  or (ii) the Shoulder Hour
Capacity  Amount for any hour upwards (but not downwards below the Shoulder Hour
Capacity  Amount) for any particular  hour (such amount in excess of the Monthly
Nominated  Amount or the Shoulder  Hour  Capacity  Amount  being  defined as the
"Additional  Hourly  Capacity")  and the  Authority  shall pay the  Provider the
Additional  Capacity  Payment  therefor in accordance  with Section 5.02 hereof;
provided,  however, that the Additional Hourly Capacity, for which the Authority
is  obligated  to pay the  Additional  Capacity  Payment,  shall not  exceed the
Capacity  Adjustment  Amount.  The Provider  shall  advise the  Authority of the
Additional  Hourly  Capacity at the  beginning of the previous  Business Day, at
least one hour  ahead of any  requirements  that the  Department  imposes on the
Authority. The Authority shall have the right to Schedule or dispatch Contracted
Energy  associated with such  Additional  Hourly Capacity in any given Permitted
Period during a Peak Hour or Shoulder Hour, as the case may be.

     (c) In addition to any amounts  payable  under  Section  4.01  hereof,  the
Provider shall be responsible  for any costs or charges imposed on or associated
with the Monthly  Nominated  Capacity  and any  Additional  Hourly  Capacity and
Contracted  Energy. In particular,  the Provider will bear any CAISO charges and
penalties  for not making  available  Capacity as bid or Scheduled or Contracted
Energy as Scheduled into the CAISO markets.  These charges include any imbalance
energy charges  arising as a result of any failure to reduce Energy as Scheduled


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<PAGE>

by the Department, the Authority or CAISO.

     Section  2.03.  Adjustment  of Maximum and Minimum  Capacity  Amounts.  (a)
Unless the Department revokes such option from the Authority, the Provider shall
have the option,  but not the  obligation,  on January 29,  2003,  to adjust the
Minimum  Capacity  Amount and the Maximum  Capacity Amount referred to in clause
(c) of the  definition  thereof for the Peak Hours thereof  upwards to an amount
specified by the Authority on January 10, 2003 (such  adjusted  amount being the
"2003  Adjusted Peak Hour  Maximum").  Provider shall have the ability to adjust
Provider's  Maximum  Capacity  Amount up to the Provider  Capacity  Share of the
Authority's  Maximum  Capacity  Amount  obligations  to  the  Department.   Upon
establishment  of such 2003  Adjusted  Peak Hour  Maximum  (i) the  Non-Spinning
Capacity amount referred to in clause (c) of the definition of Maximum  Capacity
Amount for the Peak Hours  shall be  automatically  adjusted  to 80% of the 2003
Adjusted Peak Hour Maximum, unless expressly adjusted by the Authority, (ii) the
Maximum Capacity Amount referred to in clause (c) of the definition  thereof for
the Shoulder Hours shall be  automatically  adjusted to 60% of the 2003 Adjusted
Peak Hour  Maximum  (the  "2003  Adjusted  Shoulder  Hour  Maximum"),  (iii) the
Non-Spinning  Capacity  amount  referred to in clause (c) of the  definition  of
Maximum Capacity Amount for the Shoulder Hours shall be  automatically  adjusted
to 80% of the 2003 Adjusted Shoulder Hour Maximum,  unless expressly adjusted by
the Authority, (iv) the Minimum Capacity Amount referred to in clause (c) of the
definition  thereof for the Peak Hours shall be adjusted to an amount acceptable
to the Authority (the "2002 Adjusted Peak Hour Minimum"),  (v) the  Non-Spinning
Capacity amount referred to in clause (c) of the definition of Minimum  Capacity
Amount for the Peak Hours  shall be  automatically  adjusted  to 80% of the 2003
Adjusted Peak Hour Minimum, unless expressly adjusted by the Authority, (vi) the
Minimum Capacity Amount referred to in clause (c) of the definition  thereof for
the Shoulder Hours shall be  automatically  adjusted to 60% of the 2003 Adjusted
Peak Hour Minimum (the "2003  Adjusted  Shoulder Hour  Minimum"),  and (vii) the
Non-Spinning  Capacity  amount  referred to in clause (c) of the  definition  of
Minimum Capacity Amount for the Shoulder Hours shall be  automatically  adjusted
to 80% of the 2003 Adjusted Shoulder Hour Maximum,  unless expressly adjusted by
the Authority.

     (b) The Provider may, but shall not be obligated  to,  within  twenty-seven
(27) Days of the execution of this  Agreement,  propose in writing an adjustment
to the  Maximum  Capacity  Amount  referred  to in clause (a) of the  definition
thereof  for the Peak  Hours  thereof  upwards  to an amount  acceptable  to the
Authority  (such adjusted  amount being the "2002 Adjusted Peak Hour  Maximum"),
and the Authority shall have the option, but not the obligation,  to accept such
2002 Adjusted Peak Hour Maximum within  twenty-six (26) Days after such proposal
is made. Upon acceptance of such proposal by the Authority, the Maximum Capacity
Amount  referred to in clause (a) of the  definition  thereof for the Peak Hours
shall be the 2002 Adjusted Peak Hour Maximum and (i) the  Non-Spinning  Capacity
amount  referred to in clause (a) of the definition of Maximum  Capacity  Amount
shall be automatically  adjusted to 60% for the period prior to January 1, 2003,
and thereafter to 80% of the 2002 Adjusted Peak Hour Maximum,  unless  expressly
adjusted by the  Authority,  (ii) the  Maximum  Capacity  Amount  referred to in
clause  (a)  of  the  definition   thereof  for  the  Shoulder  Hours  shall  be


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<PAGE>

automatically  adjusted to 60% of the 2002 Adjusted Peak Hour Maximum (the "2002
Adjusted  Shoulder  Hour  Maximum"),  (iii)  the  Non-Spinning  Capacity  amount
referred to in clause (a) of the definition of Maximum  Capacity  Amount for the
Shoulder  Hours  shall be  automatically  adjusted  to 80% of the 2002  Adjusted
Shoulder Hour Maximum,  unless  expressly  adjusted by the  Authority,  (iv) the
Minimum Capacity Amount referred to in clause (a) of the definition  thereof for
the Peak Hours shall be  automatically  adjusted to an amount  specified  by the
Authority (the "2002 Adjusted Peak Hour Minimum"), (v) the Non-Spinning Capacity
amount  referred to in clause (a) of the definition of Minimum  Capacity  Amount
for the Peak Hours shall be  automatically  adjusted to 60% for the period prior
to  January  1,  2003,  and  thereafter  to 80% of the 2002  Adjusted  Peak Hour
Minimum,  unless expressly adjusted by the Authority,  (vi) the Minimum Capacity
Amount  referred to in clause (a) of the  definition  thereof  for the  Shoulder
Hours  shall be  automatically  adjusted to 60% of the 2002  Adjusted  Peak Hour
Minimum (the "2002 Adjusted Shoulder Hour Minimum"),  and (vii) the Non-Spinning
Capacity amount referred to in clause (a) of the definition of Minimum  Capacity
Amount for the Shoulder Hours shall be automatically adjusted to 80% of the 2003
Adjusted Shoulder Hour Maximum, unless expressly adjusted by the Authority.

     (c) The  Non-Spinning  Capacity  amounts  set  forth in the  definition  of
Maximum  Capacity  Amount  and  Minimum  Capacity  Amount are  minimums  and the
Provider  may provide  Non-Spinning  Capacity in excess of such  minimums in any
hour at any time (the  incremental  amount of  Non-Spinning  Capacity above such
minimums being defined as the "Incremental  Non-Spinning  Capacity");  provided,
however,  that unless the Authority  approves any such Incremental  Non-Spinning
Capacity,  the  Authority  shall only be obligated  to pay for such  Incremental
Non-Spinning Capacity as Replacement Capacity at the Capacity Price set forth in
Section 2.04(a)(ii) hereof.

     Section 2.04.  Capacity and Energy Products and Prices.  Commencing July 1,
2002, subject to the Operating  Parameters,  the Authority shall provide and the
Department shall pay for Monthly  Nominated  Capacity and any Additional  Hourly
Capacity  as either  Non-Spinning  Capacity  and  Replacement  Capacity  and for
Contracted Energy as follows:

     (a) Capacity Price. The Authority shall pay (i) for  Non-Spinning  Capacity
$14,000 per MW-mo for Summer months,  and $1,000 per MW-mo for non-Summer months
and (ii) for Replacement  Capacity $11,000 per MW-mo for Summer months, and $330
per MW-mo for  non-Summer  months on a monthly basis in accordance  with Section
5.02 hereof. The parties intend that at least thirty (30) per cent of this price
is to cover the Provider's operating and non-performance risk costs.

     (b) Energy Price.  The Authority shall pay for Contracted  Energy Scheduled
or  dispatched  by the  Department,  the Authority or CAISO $80/MWh on a monthly
basis in accordance with Section 5.02 hereof; provided, however, that no payment
with respect to Contracted Energy shall be required prior to January 1, 2003.


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<PAGE>

     Section 2.05.  Excess Capacity and Energy.  (a) The Provider shall have the
option,  but not the  obligation,  to offer to the Authority,  and the Authority
shall have the option, but not the obligation, to:

     (i) Bid or Schedule Capacity for Ancillary Services or Schedule or dispatch
in any hour Energy  reductions  associated with Capacity offered by the Provider
which is (i) outside  the  Operating  Parameters,  (ii) in excess of the Monthly
Nominated Capacity or Additional Hourly Capacity and the Authority shall pay the
Provider  the  Capacity  Price  therefore  and the  Energy  Price for any Energy
reductions  associated with such Capacity  Scheduled or dispatched for reduction
by the Department, the Authority or CAISO, or

     (ii)  Schedule  or  dispatch  in  any  hour  any  other  Energy  reductions
associated  with  Capacity  offered by the  Provider  which is (i)  outside  the
Operating  Parameters,  (ii) in  excess of the  Monthly  Nominated  Capacity  or
Additional  Hourly  Capacity and the Authority  shall pay the Provider an amount
therefore  based on the  higher  of $60 per MWh or the  CAISO  imbalance  energy
market price.

     (b) The  Authority  will  notify  the  Provider  via an  electronic  medium
provided  by the  Authority  by not  later  than two hours  before  the close of
scheduling  and bidding  into the CAISO day ahead and hour ahead  markets of any
amounts  available  for  purchase  pursuant to this Section  2.05.  Purchases of
Capacity  and Energy  reductions  associated  therewith in excess of the Monthly
Nominated Capacity or, with respect to any hour, the Additional Hourly Capacity,
pursuant  to this  Section  2.05  shall not (i) be taken  into  account  for the
purposes of Article IV, (ii)  adversely  affect the ability of the  Authority to
purchase  the  Monthly  Nominated  Capacity  or, with  respect to any hour,  the
Additional  Hourly Capacity and Contracted  Energy,  (iii) adversely  affect the
ability of the  Department,  the  Authority  or CAISO to  Schedule  or  dispatch
Contracted  Energy 24 hours per month and 150 hours per year, or (iv)  adversely
affect the  ability  of the  Provider  to sell  Capacity  and Energy  reductions
associated  therewith  in  excess  of  the  Monthly  Nominated  Capacity  or the
Additional Hourly Capacity as it may determine.

     Section 2.06.  Determination of Capacity During Project  Initiation Period.
The Authority  will advise the Authority of the Capacity  available on an hourly
basis during the Project  Initiation  Period and the  Authority  may Schedule or
dispatch any Energy  reductions  associated  with such  Capacity  subject to the
limitations  set forth  herein.  The  Authority  shall pay for such Capacity and
Energy  reductions  in arrears upon  verification  of the  availability  of such
Capacity and  associated  Energy  reductions  based on tested meter readings and
historical  data provided  pursuant to Article III or otherwise on a methodology
mutually  acceptable to the Department and the Authority.  Such methodology will
be defined in the Measurement and  Verification  Protocol  Implementation  Guide
under Section 3.03. During the Project Initiation Period the Authority shall pay
an amount equal to the Applicable  Hourly Capacity Price for each MW provided in
each hour of a month.  Capacity  that has been verified by the Authority but not
yet certified by the CAISO shall be paid at the Capacity  Price for  Replacement
Capacity.


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<PAGE>


     Section 2.07.  Scheduling;  Bidding Capacity for CAISO Ancillary  Services.
Commencing  on July 1, 2002,  the  Authority  may  Schedule  Capacity and Energy
reductions  associated  with the Capacity and the Provider shall comply with any
such direction to Schedule Capacity and Schedule or dispatch Energy  reductions,
consistent with the Operating Parameters.  Such scheduling shall include the use
of the  CAISO  day-ahead  and  hour-ahead  scheduling  processes,  and any other
scheduling  process that may be implemented  by CAISO.  Such  scheduling  rights
shall  include  the  ability  to  Schedule  or bid to  meet  Ancillary  Services
requirements  and shall not be limited by any factors  other than the  Operating
Parameters.  Until the CAISO modifies its market  operation to include  residual
unit  commitment or some other  methodology  that  explicitly  incorporates  the
Operating  Parameters or other  facilities in its scheduling  and dispatch,  the
Authority  will bid  Non-Spinning  Capacity  into the CAISO  Ancillary  Services
markets as Contingency Reserve or a comparable  designation available from CAISO
at  capacity  and  energy  prices  established  by  the  Authority,  unless  the
Department  and  Authority  mutually  agree on some other  scheduling or bidding
strategy that  recognizes the Operating  Parameters.  In addition,  the Provider
shall make bids or  self-provision  schedules into the CAISO Ancillary  Services
markets as  instructed  by the  Authority,  and shall comply with any  resulting
Scheduling  instructions  from  CAISO  pursuant  to  all  CAISO  protocols.  The
Authority shall establish the capacity or energy price of any Ancillary  Service
bid in the CAISO Markets.  Except for any sales of excess Capacity and Energy as
provided in Section  2.05,  any  resulting  energy or Ancillary  Service-related
revenues  paid by CAISO or other  entities  to the  Authority  with  respect  to
Monthly  Nominated  Capacity or Additional  Hourly Capacity or Contracted Energy
shall  be paid to the  Department.  The  Provider  shall,  in  carrying  out the
provisions of this paragraph, comply with all applicable provisions of the CAISO
Participating Load Agreement.  Section 2.08. CAISO Participating Load Agreement.
The Authority shall, in order to carry out its duties in this Agreement,  sign a
CAISO Participating Load Agreement with the CAISO prior to July 1, 2002 in order
to provide Ancillary Services and Contracted Energy into the CAISO Markets.  The
Provider  will meet all  applicable  conditions  and  requirements  of the CAISO
Participating  Load  Agreement  including,  but not  limited  to: (i)  providing
qualifying  metering  and  communication   systems,  (ii)  certifying  to  CAISO
specifications  the  amount of the  Provider's  Capacity  that can  respond in a
timely manner to meet the CAISO  requirements  for  non-spinning and replacement
Ancillary   Services,   (iii)  using  the  Authority's   designated   scheduling
coordinator  who possesses a current  Ancillary  Service  certificate,  and (iv)
bearing all penalties of non-compliance.  The Provider shall Schedule or bid, in
accordance with the Authority's  directions,  Monthly Nominated Capacity and any
Additional  Hourly  Capacity and  Contracted  Energy under this Agreement in the
CAISO Markets to meet the CAISO requirements.

     Section 2.09.  Agreements with Qualified End Users.  (a) The Provider shall
enter into, or cause to be entered into,  agreements with Qualified End Users to
provide the Monthly  Nominated  Capacity  and any  Additional  Hourly  Capacity,
including  the  amounts  of  Non-Spinning   Capacity  and  Replacement  Capacity
designated  pursuant to Section  2.13 (each a "Qualified  End User  Agreement").
Upon request,  the Provider  shall permit the audit and review of each Qualified
End User  Agreement by the Authority or the  Department.  The Provider shall not


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<PAGE>

enter into any agreements  with, or permit any Capacity or Energy  reductions to
be provided hereunder by, end users outside the service territories of the IOUs,
Energy  Service  Providers to direct  access  retail  customers,  or  California
municipal  utilities to meet its  obligations  under this Agreement  without the
written approval of the Authority.

     (b) Each Qualified End User Agreement shall contain  provisions  reasonably
satisfactory  to the Authority  allowing the Department or the Authority to test
load  control  and  meters and to audit  meter  data and shall  also  contain an
acknowledgement by such Qualified End User to the effect that the Department and
Authority shall not be liable for the failure by the Provider or any other party
to pay amounts received from the Department or Authority  hereunder to Qualified
End User under such  Qualified  End User  Agreement  and a waiver of any and all
claims by such  Qualified  End User against the  Department  or  Authority  with
respect  thereto.  In addition,  the Qualified End User Agreement will contain a
provision  permitting  assignment  to the  Provider's  successor  Providers  who
contract on behalf of the Authority pursuant to Section 2.09(a).  Any failure to
include such provisions in each Qualified End User Agreement shall  constitute a
material breach of this  Agreement.  The Provider shall defend the Authority and
Department,  and  their  elected  officials,   appointed  officers,   employees,
representatives,  agents,  consultants  and  contractors,  from and  against any
claims arising out of any Qualified End User  Agreement.  The provisions of this
Section shall survive termination of this Agreement.  Any Provider entering into
a Qualified End User  Agreement  for or on behalf of the  Authority  pursuant to
Section  2.09(a)  hereof  shall be  required to post  collateral  or a letter of
credit from a financial  institution  having the minimum  short term ratings set
forth in the APX Tab 3, or successor  document,  in an amount  determined by the
Authority to be sufficient to ensure  performance  of each such entity  entering
into a Qualified End User  Agreement  with a Qualified End User for or on behalf
of the Authority.

     (c) The Provider  will work with the Authority to ensure that the end users
do not  receive  duplicative  benefit  from  participating  in  multiple  demand
reduction  programs.  In  particular,  the  Provider  will  provide  the  names,
locations  and meter numbers of all end users who are  participating  as part of
the Provider's  Demand  Reserves so that the Authority can verify with the CPUC,
Load Serving  Entity or other  appropriate  entity that this is a Qualified  End
User and is not receiving  duplicative benefit.  Such information and usage data
shall be kept confidential and shall not be used by the Authority or its service
providers  under this  Agreement to directly  solicit  participation  under this
Agreement.

     (d) Each Qualified End User Agreement will include an authorization for the
Provider,  the Authority or the Automated  Power Exchange or entities  acting on
their behalf to request  Meter Pulse Serve from the Load  Serving  Entity and to
have access to their  interval  data as may be  available on web database by the
Load Serving Entity.

     Section 2.10.  Sources of Payment;  No Debt of State.  The Authority  shall
make payments  hereunder from the Demand Reserve Fund based on revenues received


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<PAGE>

from the  Department's  Fund as an operating  expense of the Fund subject to any
priorities  and  limitations  established  with respect to the Fund's  operating
expenses in any  indenture  providing  for the  issuance of bonds  issued by the
Department  under  Section  80130 et seq.  of the  Water  Code or any  agreement
entered into by the Department with the California  Public Utilities  Commission
pursuant to Section  80110 of the Water Code.  The  obligation  to make payments
hereunder  shall be limited solely to Demand  Reserve Fund and the  Department's
Fund.  Any liability of the Department or Authority  arising in connection  with
this  Agreement or any claim based thereon or with respect  thereto,  including,
but not limited to, any Termination  Payment arising as the result of any breach
or default  or Event of Default  under  this  Agreement,  and any other  payment
obligation  or  liability  of or judgment  against the  Department  or Authority
hereunder,  shall be  satisfied  solely from the these  Funds.  NEITHER THE FULL
FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE ARE OR MAY BE PLEDGED FOR ANY
PAYMENT UNDER THIS  AGREEMENT.  Revenues and assets of the State Water Resources
Development  System shall not be liable for or available to make any payments or
satisfy any obligation arising under this Agreement.

     Section 2.11. Term. Unless earlier terminated  pursuant to Article VII, the
term of this Agreement (the "Term") shall commence at 12:00 a.m.  (Pacific time)
on the date of execution of this Agreement and shall expire May 17, 2007.

     Section 2.12.  Rate  Covenant;  No Impairment.  In accordance  with Section
80134 of the  Water  Code,  the  Department  covenants  that it  will,  at least
annually,  and  more  frequently  as  required,  establish  and  revise  revenue
requirements  sufficient,  together  with any moneys on deposit in the Fund,  to
provide  for the  timely  payment  of all  obligations  which  it has  incurred,
including any payments required to be made by the Department pursuant to the DWR
Contract and the Department Act;  provided,  however,  that the Department shall
not be required to increase the revenue requirement in effect on the date of the
execution of this Agreement with respect to any costs hereunder.  As provided in
Section  80200 of the  Water  Code,  while  any  obligations  of the  Department
pursuant to the DWR  Contract  remain  outstanding  and not fully  performed  or
discharged,  the rights,  powers, duties and existence of the Department and the
CPUC  shall not be  diminished  or  impaired  in any manner  that  would  affect
adversely  the  interests  and rights of the  Authority  or Provider  under this
Agreement.

     Section 2.13.  Location of Capacity.  After the Project  Initiation  Period
approximately  50% of the  Capacity  (of which at least 60% prior to  January 1,
2003 and 80%  thereafter  shall be  Non-Spinning  Capacity)  shall be located in
CAISO congestion zones north of path 15.

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<PAGE>


                                   ARTICLE III
                              MEASURING PERFORMANCE

     Section 3.01.  Meters.  Capacity  shall be measured for each  Qualified End
User at the Revenue  Meter.  The  Department  or Authority  may test any Revenue
Meter for any  Qualified  End User at any timer  upon  reasonable  notice to the
Provider. Other metering methodologies can be used if mutually agreeable to both
Parties. Such metering  methodologies will be defined as part of the Measurement
and Verification Protocol Implementation Guide under Section 3.03.

     Section 3.02.  Metering and Communication.  The metering and communications
systems shall conform to CAISO standards or the  equivalent.  The Provider shall
obtain from the Qualified End Users meter data that shall allow the Authority to
provide CAISO metering  settlement  data to the Department on a monthly basis in
format  and level of  detail,  and,  at the  Department's  option  and  expense,
real-time access to meter data via appropriate telecommunications equipment. The
Provider  shall  provide to the Authority and  Department  sufficient  data with
respect to each  Qualified End User to enable the  Authority  and  Department to
determine  compliance  with the  Measuring  Protocols  described in Section 3.03
hereof.  The  Authority  and  Department  shall be  entitled  to audit  all such
information.

     Section 3.03.  Measurement  Protocols.  All payments  within this Agreement
shall be based upon  Capacity  and Energy  provided as verified  using  mutually
agreed protocols that, at a minimum,  comply with the requirements for measuring
demand and energy  reductions  established in the applicable CAISO protocols and
related  tariffs  and  technical  standards.  No  Capacity  shall be  treated as
Nominated Capacity without testing to certify the Capacity. The Capacity will be
determined  after the installation of the requisite  metering and controls.  The
Provider shall notify the Authority when new Capacity is ready for testing.  The
Authority  shall  within 5  Business  Days  issue a  request  for load  from the
Qualified End User at an hour selected randomly within the Operating Parameters.
The Capacity will be determined  using the actual demand  reduction  measured at
the Revenue Meter adjusted to the Metering Point(s) as settlement  quality meter
data per the CAISO standards and as defined in the mutually agreed  protocols in
accordance  with the procedures  outlined in Attachment B. The Authority and the
Department  shall have the right to conduct  random  tests of this  Capacity  no
fewer than six times per year.  The  Capacity  may be changed  from time to time
based  upon  performance  during  calls  from the CAISO,  the  Authority  or the
Department and subsequent tests. All payments will be based upon the most recent
measurement  of Capacity,  as adjusted by the Authority for normal  seasonal and
business fluctuations.

     The Capacity  provided by some  Qualified  End Users may vary from month to
month and during the time period of the Operating Parameters. The Provider shall
use its best  efforts to factor these  variations  into its  Nominated  Capacity
schedules. The Provider shall allow the Authority and Department to review these
calculations.  The Provider,  Authority and the Department shall incorporate any
reasonably  required  modifications  to  these  calculations  disclosed  by such
review.

     To insure accurate  definition and implementation of the metering,  testing
and  measurement  protocols  defined in  Article  III and  Section  2.06 of this


Demand Reserves Provider Agreement -- DBS Industries
<PAGE>

Agreement,  the Authority and the  Department,  shall develop a Measurement  and
Verification Protocol Implementation Guide within 30 Days after the execution of
this Agreement.


                                   ARTICLE IV
                            GUARANTEES OF PERFORMANCE

     Section 4.01. Non-performance Charges. (a) Except as provided in (b), after
the Project  Initiation Period the Capacity Payment paid or payable in any month
shall be  reduced  by the sum of the  amounts  determined  for each hour in such
month in accordance with the following formula:

                                  (A - B) x C

     (b)  Notwithstanding  the provisions of (a),  after the Project  Initiation
Period,  the  Capacity  Payment paid or payable in any month shall be reduced by
the sum of the  amounts  determined  for each  Warning/Stage  Alert Hour in such
month in accordance with the following formula:

                                (A - B) x (C x 3)

Where, for the purpose of either (a) or (b):

     A = Contracted Energy Scheduled or dispatched by the Authority,  Department
or CAISO for an hour

     B = Contracted Energy actually reduced during an hour


C =  Applicable Hourly Capacity Price

     (c) For those hours after the Project Initiation Period to which (a) or (b)
would not apply because  Contracted  Energy has not been scheduled or dispatched
by the Authority, Department or CAISO, if in any such hour (i) the Department or
Authority  conducts a test of Capacity and determines that such Capacity is less
than the Monthly Nominated Capacity and the Additional Hourly Capacity, (ii) the
Provider  notifies the Authority in accordance  with Section 2.02(a) hereof that
the Monthly Nominated Capacity will be less than the Minimum Capacity Amount, or
(iii) the Provider  notifies the Department on an hour ahead basis that all or a
portion of the Monthly  Nominated  Capacity and the Additional  Hourly  Capacity
will not be available to the Authority,  the Capacity Payment paid or payable in
any month  shall be reduced by the sum of the amounts  determined  for each such
hour in accordance with the following formulae:


Demand Reserves Provider Agreement -- DBS Industries
<PAGE>

     (A) Except as set forth in (B) below,  the reduction shall be calculated in
accordance with the following formula:

                                [(A + B) - C] x D

     (B) In the case  where the sum of A and B is less than C because  Qualified
End Users have either  terminated or are not complying with their  Qualified End
User  Agreements  and the  Authority  does not  accordingly  reduce the  Monthly
Nominated  Capacity and the Additional  Hourly Capacity in an amount so that the
sum of A and B equals C, the reduction  shall be  calculated in accordance  with
the following formula:

                             [(A + B) - C] x (D x 2)

Where, for the purpose of either (a) or (b):

     A = Monthly Nominated Capacity for an hour

     B = Additional Hourly Capacity for such hour, if any

     C = Capacity as tested by the Department

     D = Applicable Hourly Capacity Price

Nothing in this subsection (c) shall affect the Authority's rights under Section
4.02(i) or (ii) hereof.

     (d) For the  purposes of (a) or (b),  to the extent a  Permitted  Period is
less than an hour and Contracted  Energy is Scheduled or dispatched  during such
Permitted Period and such Energy is not actually reduced, such Contracted Energy
shall be treated as  Scheduled or  dispatched  and as not reduced for the entire
hour unless the Authority  again Schedules or dispatches  Contracted  Energy for
reduction for a Permitted Period during such hour and such Contracted  Energy as
Scheduled or dispatched is in fact reduced for such Permitted  Period,  in which
case, for the purposes of (a) or (b) for such hour:

     A = Permitted Periods (in minutes) during an hour

     B = Contracted  Energy actually reduced during each minute of the Permitted
Periods (MWminutes)

     C = Applicable Hourly Capacity Price/60

     (e) At such time as the  Provider  is no longer  subject  to any  imbalance
energy charges for which the Provider would be responsible under Section 2.02(c)


Demand Reserves Provider Agreement -- DBS Industries
<PAGE>

hereof  arising  as a result  of any  failure  to  reduce  Contracted  Energy as
Scheduled or dispatched by the Authority,  Department or CAISO, upon any failure
of the Provider to reduce  Contracted  Energy as Scheduled or  dispatched by the
Authority or Department in accordance with the provisions  hereof,  the Provider
shall pay to the  Authority  an amount in addition to any other  amount  payable
under this Section 4.01 equal to the positive  difference,  if any,  between (i)
the price at which the Authority,  acting in a commercially  reasonable  manner,
purchases  Energy in the amount  which the Provider  fails to reduce  hereunder,
plus costs  reasonably  incurred by the Authority in purchasing  such Energy and
additional transmission charges, if any, reasonably incurred by the Authority to
deliver such Energy,  or at the  Authority's  option,  the market price for such
Energy as determined by Buyer in a commercially  reasonable manner, and (ii) the
Energy Price.

     Section  4.02  Termination  Without  Recourse.  In  addition  to any  other
termination  rights herein,  except for any other  payments  otherwise due under
this Article IV, the Authority shall have the right, but not the obligation,  to
terminate  this  Agreement  without  recourse  against  the  Authority  for  any
termination  payment  or other  costs and  without  any  further  obligation  or
liability of the Authority, if:

        (i)       the Provider fails   to Control 200 MW ( of which at least 120
                  MW must be Non-Spinning  Capacity prior to January 1, 2003 and
                  80 MW must be  Non-Spinning Capacity  thereafter)  in the Peak
                  Hours and 120 MW (consisting of   which at least 72 MW must be
                  Non-Spinning  Capacity prior to January 1, 2003 and 48 MW must
                  be Non-Spinning  Capacity thereafter) in the Shoulder Hours on
                  and after October 1, 2002, or

        (ii)      the Provider fails to Control 400 MW (of which at least 320 MW
                  must be   Non-Spinning Capacity) in  the Peak Hours and 240 MW
                  (of  which at  least 192 MW must be  Non-Spinning Capacity) in
                  the Shoulder Hours on and after June 1, 2003, or

        (iii)     the Authority fails to enter into the CAISO Participating Load
                  Agreement by October 1, 2002, or

        (iv)      the  CAISO  Participating Load  Agreement is  terminated after
                  October 1, 2002, or

        (v)       A divided by B is less than 75% in any two Summer months  in a
                  calendar year after the Project Initiation Period

                  Where:

                  A =  Contracted Energy actually reduced during such month

                  B = Contracted Energy Scheduled or dispatched for reduction by
                  the Authority, Department or CAISO during any month.


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<PAGE>


         (vi)     the  Provider  fails  to comply with  the payment terms in its
                  Qualified End User Agreement.

The Provider may not assert a Force  Majeure  event as the result of any actions
of CAISO or any Governmental Authority other than the Department for the purpose
of  preventing  termination  of this  Agreement  pursuant to this Section  4.02.
Nothing in this Section  4.02 shall  preclude the  Authority  from  pursuing any
remedies  available to it under Article VII with respect to any event  described
in this Section 4.02.

     Section 4.03. Exclusive Remedies for Shortfalls and Delays. Notwithstanding
Article  VII  or  any  other  provision  of  this  Agreement,  and  assuming  no
intentional breach by the Authority hereunder, this Article IV shall provide the
Authority's  exclusive  remedy  in the  event the  Provider  fails to  Schedule,
dispatch  or  provide  all or part of the  Monthly  Nominated  Capacity  and any
Additional Hourly Capacity or Contracted Energy.  Failure to pay any amounts due
under this Article IV shall,  however,  constitute a separate and distinct Event
of Default to which Article VII shall apply.  The Parties agree that Authority's
actual  damages in the event the  Authority  fails to Schedule  or dispatch  the
Monthly  Nominated  Capacity and any  Additional  Hourly  Capacity or Contracted
Energy  in  accordance  with the  terms  of this  Agreement  would be  extremely
difficult or impracticable to determine and that, after negotiation, the Parties
have  agreed  that  the  liquidated  amounts  set  forth in  Section  4.01 are a
reasonable estimate of the damages that the Authority would incur as a result of
such failures.

                                    ARTICLE V
                                    PAYMENTS

     Section 5.01.  Billing Period;  Address.  The accounting and billing period
for  transactions  under this Agreement shall be one (1) calendar  month.  Bills
sent to the Authority shall be sent to the Billing Address.

     Section 5.02. Timing of Payments. All payments for amounts billed hereunder
shall  be paid  so that  such  payments  are  received  by the  Provider  by the
twenty-third  (23rd)  Day of the  Invoice  Month or by tenth  (10th)  Day  after
receipt of the bill,  whichever is later.  Payment  shall be made by  electronic
funds transfer,  or by other mutually agreeable method,  from the Demand Reserve
Fund. If the due date falls on a non-Business Day, then the payment shall be due
on the next following Business Day.

     Section 5.03.  Late  Payments.  Amounts not paid on or before the due date,
including without  limitation  amounts due and not paid under Article IV or VII,
shall be payable with interest accrued at the rate of one percent (1%) above the
Pooled Money Investment  Account rate accrued in accordance with Government Code
Section 927.6(b) not to exceed 15%.

     Section 5.04. Disputes. A Party may, in good faith, dispute the correctness
of any invoice or any adjustment to an invoice, rendered under this Agreement or


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<PAGE>

adjust any invoice for any arithmetic or computational  error within twelve (12)
months of the date the invoice,  or adjustment to an invoice,  was rendered.  In
the event an  invoice  or  portion  thereof,  or any other  claim or  adjustment
arising hereunder, is disputed, payment of the undisputed portion of the invoice
shall be required to be made when due, with notice of the objection given to the
other Party.  Any invoice dispute or invoice  adjustment shall be in writing and
shall state the basis for the  dispute or  adjustment.  Payment of the  disputed
amount shall not be required until the dispute is resolved.  Upon  resolution of
the dispute,  any required payment shall be made within two (2) Business Days of
such resolution along with interest accrued at the rate provided in Section 5.03
from and  including  the due date to but  excluding  the date paid.  Inadvertent
overpayments  shall be returned upon request or deducted by the Party  receiving
such  overpayment  from subsequent  payments,  with interest accrued at the rate
provided in Section 5.03 from and including the date of such  overpayment to but
excluding the date repaid or deducted by the Party  receiving such  overpayment.
Any  dispute  with  respect to an invoice  is waived  unless the other  Party is
notified in  accordance  with this Section 5.04 within  twelve (12) months after
the invoice is rendered or any specific adjustment to the invoice is made. If an
invoice is not rendered  within  twelve (12) months after the close of the month
during which performance occurred,  the right to payment for such performance is
waived.

     Section 5.05. Records Retention and Audit.

     (a) Records Retention.  The Provider and the Authority,  or any third party
representative  thereof,  shall keep  complete and accurate  records,  and shall
maintain  such  records  and other data as may be  necessary  for the purpose of
ascertaining the accuracy of all relevant bills, data, estimates,  or statements
of charges submitted hereunder. Such records shall be maintained for a period of
3 years after the date of receipt of final payment under this Agreement.  Within
three (3) years from the date of receipt of final payment under this  Agreement,
either Party may request in writing  copies of the records of the other Party to
the extent  reasonably  necessary  to verify the  accuracy of any  statement  or
charge.  The  Party  from  which  documents  or data  has been  requested  shall
cooperate in providing the documents and data within a reasonable time period.

     (b) Audit.  The Provider  agrees that the Authority,  the  Department,  The
Department  of General  Services,  the Bureau of State  Audits,  CPUC,  or their
designated representative shall have the right to review and to copy any records
and  supporting  documentation  pertaining  to  sales of the  Monthly  Nominated
Capacity  and  any  Additional  Hourly  Capacity  or  Contracted  Energy  by the
Authority to the Department pursuant to this Agreement.  The Authority agrees to
maintain such records for possible  audit for a minimum of three (3) years after
the final  payment  under  this  Agreement.  The  Authority  agrees to allow the
auditor(s)  access to such records  during  normal  business  hours and to allow
interviews of any employees who might  reasonably  have  information  related to
such  records.  Further,  the Authority  agrees to include  similar right of the
State  to audit  records  and  interview  staff in any  material  contract  with
contractors or suppliers related to performance of this Agreement.


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<PAGE>

                                   ARTICLE VI
                                  FORCE MAJEURE


     Section 6.01. Force Majeure.

     (a) No Breach for Force Majeure. Except as otherwise specifically set forth
in this Agreement, no Party shall be liable for or considered to be in breach of
this  Agreement to the extent that a failure to perform its  obligations  (other
than an  obligation to pay money) under this  Agreement  shall be due to a Force
Majeure.  To the extent either Party is prevented by Force Majeure from carrying
out, in whole or part, its  obligations  hereunder and such Party (the "Claiming
Party") gives notice and details of the Force Majeure to the other Party as soon
as practicable, then the Claiming Party shall be excused from the performance of
its obligations  hereunder  (other than the obligation to make payments then due
or becoming due with respect to  performance  prior to the Force  Majeure).  The
Claiming Party shall remedy the Force Majeure with all reasonable dispatch.

     (b) Payment During Force  Majeure.  The  Authority's  obligation to pay the
Capacity  Payment will not be excused on account of an event of Force Majeure to
the extent that the  Authority  is capable of  providing  the Monthly  Nominated
Capacity  and any  Additional  Hourly  Capacity  or  Contracted  Energy.  If the
Provider is unable to provide all or part of the Monthly Nominated  Capacity and
any Additional Hourly Capacity or Capacity or Contracted Energy as a result of a
Force Majeure,  the Authority  shall pay on a pro-rata basis the Monthly Payment
only to the extent that the Provider is providing the Monthly Nominated Capacity
and any Additional  Hourly  Capacity and the  Authority,  Department or CAISO is
able to Schedule or dispatch Contracted Energy.

     (c) Termination for Force Majeure.  If an event of Force Majeure  continues
uninterrupted for more than twelve (12) months, the Party not claiming the Force
Majeure  event may  terminate  this  Agreement,  without  further  obligation or
liability of either Party or any cost hereunder.

                                   ARTICLE VII
                                EVENTS OF DEFAULT

     Section  7.01.  Events of Default.  An "Event of  Default"  shall mean with
respect to a party ("Defaulting Party") under a Schedule:

     (a) if default shall be made in the due and punctual payment of the Monthly
Payment  when and as the same shall  become due and  payable,  and such  default
shall continue for a period of ten (10) Days after written notice thereof by the
other party (the "Non-Defaulting Party") to the Defaulting Party;

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<PAGE>


     (b) if default shall be made by the Defaulting  Party in the performance or
observance on its part of any other of the covenants or agreements  contained in
this Agreement to be performed, other than as specified in clause (1) above, and
such default shall continue for a period of sixty (60) Days after written notice
thereof to the Defaulting Party by the Non-Defaulting Party; provided,  however,
that if such default shall be such that it cannot be remedied by the  Defaulting
Party  within such sixty (60) Day period,  it shall not  constitute  an Event of
Default if corrective  action is commenced by the  Defaulting  Party within such
period and  diligently  pursued by the  Defaulting  Party  until the  default is
remedied.

     Section 7.02. Remedies for Events of Default.  Subject to the provisions of
Article  IV  hereof,  if an Event  of  Default  occurs  and is  continuing,  the
Non-Defaulting  Party may  exercise  any  remedies  available  to it at law,  in
equity, by statute or otherwise,  including,  but not limited to, termination of
this  Agreement,  the right to seek  injunctive  relief to  prevent  irreparable
injury  to the  Non-Defaulting  Party  or  mandamus  to  compel  performance  of
obligations hereunder.

     Section 7.03. Remedies not Exclusive.  Subject to the provisions of Article
IV hereof,  no remedy by the terms of this Agreement  conferred upon or reserved
to the Non-Defaulting Party is intended to be exclusive of any other remedy, but
each and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or existing at law or in equity or by statute.

     Section  7.04.  Effect  of  Waiver  and  Other  Circumstances.  No delay or
omission of the Non-Defaulting Party to exercise any right or power arising upon
the happening of an Event of Default shall impair any right or power or shall be
construed  to be a waiver of any such default or to be an  acquiescence  therein
and every power and remedy given by this Article to the Non-Defaulting Party may
be  exercised  from time to time and as often as may be deemed  expedient by the
Non-Defaulting  Party.  A  Non-Defaulting  Party  may  waive  any  past  default
hereunder and its consequences. No such waiver shall extend to any subsequent or
other default or impair any right  consequent  thereon.  Nothing in this Section
7.04 shall operate to alter or diminish the  exclusive  remedies set forth above
in Section 4.01 for the events set forth therein.

                                  ARTICLE VIII
                                  MISCELLANEOUS


     Section  8.01.  Governing  Law.  This  Agreement  shall be  governed by and
construed in accordance with the Laws of the State, without regard
to the conflicts of laws rules thereof.

     Section 8.02. Forum and Venue. All actions related to the matters which are
the  subject  of this  Agreement  shall  be  forumed  and  venued  in a court of
competent jurisdiction in the State of California.

     Section 8.03.  Amendment.  Neither this Agreement nor any provision  hereof
may be amended,  waived,  discharged  or  terminated  except by an instrument in


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<PAGE>

writing signed by the Provider and the  Authority.  In the event that changes in
Laws,  regulations or practices,  materially alter the procedures  applicable to
Parties' performance of their respective obligations hereunder, the Parties will
endeavor  in  good  faith  to  negotiate   appropriate  and  mutually  agreeable
amendments to this Agreement or separate protocols to reflect such changes.

     Section 8.04. Counterparts. This Agreement may be executed in any number of
counterparts, and upon execution by the Parties, each executed counterpart shall
have the same force and effect as an original  instrument  and as if the Parties
had signed the same  instrument.  Any  signature  page of this  Agreement may be
detached from any  counterpart  of this  Agreement  without  impairing the legal
effect of any signatures thereon,  and may be attached to another counterpart of
this  Agreement  identical in form hereto but having  attached to it one or more
signature pages.

     Section 8.05.  Limitations of Liability,  Remedies and Damages.  Each Party
acknowledges and agrees that in no event shall any partner, shareholder,  owner,
officer,  director,  member of its governing bodies, employee, hired consultant,
attorney,  or agent,  or affiliate of either Party be liable to any other person
or Party for any payments,  obligations, or performance due under this Agreement
or any breach or  failure of  performance  of either  Party,  or for any loss or
damage to property, loss of earnings or revenues,  personal injury, or any other
direct, indirect, or consequential damages or injury, or punitive damages, which
may occur or result from the performance or  non-performance  of this Agreement,
including  any  negligence  arising   hereunder,   and  the  sole  recourse  for
performance of the obligations  under this Agreement  shall be against  Provider
and each of its assets, or against the Authority in accordance with Section 2.10
hereof, and not against any other person, except for such liability as expressly
assumed by an assignee or guarantor pursuant to an assignment of this Agreement.

     Section 8.06. Transfer of Interest in Agreement.

     (a) General Requirement. No Party shall voluntarily assign or transfer this
Agreement  or  any  portion  thereof,  nor  any  of the  obligations  or  rights
hereunder,  without the prior  written  consent and approval of the other Party,
which consent shall not be unreasonably withheld or delayed.

     (b) Novation.  Notwithstanding the provisions of Section 8.06(a) hereof, at
any time after January 1, 2003, the Authority shall, upon the written request of
the Department,  enter into one or more Replacement Agreements if agreed to by a
Qualified Electric  Corporations.  This Agreement shall terminate upon execution
of the  Replacement  Agreement  except  for such  provisions  that  survive  the
termination of this Agreement by their terms.  The execution of the  Replacement
Agreement shall  constitute a novation that shall relieve the Department and the
Authority of any liability or obligation,  as against each other, arising out of
this Agreement after the date of termination of this Agreement.  The Authority's
obligation  to  enter  into a  Replacement  Agreement  shall be  subject  to the
condition  precedent that the California Public Utilities  Commission shall have
conducted a just and reasonable review under Section 451 of the Public Utilities
Code  with  respect  to such  Replacement  Agreement  and shall  have  issued an


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<PAGE>

appropriate approval, order or other determination  determining that the charges
under such Replacement Agreement are just and reasonable.

     Section 8.07.  Severability.  In the event that any of the terms, covenants
or conditions of this Agreement,  or the application of any such term,  covenant
or  condition,  shall be held  invalid as to any person or  circumstance  by any
court,  regulatory  agency,  or other regulatory body having  jurisdiction,  all
other terms,  covenants or  conditions of this  Agreement and their  application
shall not be affected  thereby,  but shall  remain in force and effect  unless a
court, regulatory agency, or other regulatory body holds that the provisions are
not separable from all other provisions of this Agreement.

     Section 8.08. Relationship of the Parties.

     (a) Nothing  contained  herein shall be construed to create an association,
joint venture, trust, or partnership, or impose a trust or partnership covenant,
obligation,  or  liability  on or with regard to any one or more of the Parties.
Each Party shall be individually responsible for its own covenants, obligations,
and liabilities under this Agreement.

     (b) All rights of the Parties  are  several,  not joint.  No Party shall be
under the  control of or shall be deemed to  control  another  Party.  Except as
expressly  provided in this  Agreement,  no Party shall have a right or power to
bind another Party without its express written consent.

     Section  8.09.  No  Agency.  In  performing  their  respective  obligations
hereunder,  neither  Party is acting,  or is  authorized to act, as agent of the
other Party.

     Section 8.10. Authority to Execute.

     (a) Each  party  hereto  represent  and  warrants  that  (1) they  have all
requisite  power and  authority  to execute  and deliver  the  Agreement  and to
perform  its  obligations  thereunder,  and has  taken or caused to be taken all
necessary  action to authorize the  execution,  delivery and  performance of its
obligations under the Agreement;  (2) the Agreement constitutes the legal, valid
and binding obligation of the parties, enforceable in accordance with its terms;
(3) the  execution and delivery of the  Agreement  and the  consummation  of the
transactions  contemplated  thereby do not and will not:  (a)  conflict  with or
constitute,  on the part of either  party,  a violation  or breach of or default
(with due notice or the passage of time or both) under (i) any  applicable  law,
ordinance or regulation;  (ii) any applicable court or administrative  decree or
order  which  is  directed  or  affects  either  party;  or (iii)  any  material
agreement,  contract or instrument to which  Provider or Authority is a party or
by which  it or its  properties  is  otherwise  subject;  or (b)  result  in the
creation or imposition of any prohibitive  lien,  charge or encumbrance upon any
of the property or assets of either party,  which conflict,  violation,  breach,
default,  lien,  charge  or  encumbrance  might  have  consequences  that  would
materially  and  adversely   affect  the   consummation   of  the   transactions
contemplated by the Agreement.

     (b) The Authority waives its sovereign immunity with respect to any and all

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<PAGE>

claims  arising from or in connection  with this  Agreement or the  transactions
contemplated hereby. The Authority covenants that it shall not assert that it is
entitled to  immunity  from suit or  enforcement  of a judgment on the ground of
sovereignty  or  otherwise  in a  California  or  federal  court in  respect  of
proceedings against it in relation to the Agreement.

     Section  8.11.  Third  Party  Beneficiaries.  This  Agreement  shall not be
construed to create any rights in, or to grant remedies to, any third party as a
beneficiary  of  this  Agreement  or of  any  duty,  obligation  or  undertaking
established herein.

     Section  8.12.  Waivers.  Any waiver at any time by any Party of its rights
with respect to a default under this  Agreement,  or any other matter under this
Agreement,  shall not be deemed a waiver with respect to any subsequent  default
of the same or any other matter.

     Section 8.13. Notices. All formal notice, demand or request provided for in
this  Agreement  shall be made in writing and shall be deemed  properly  served,
given or made if delivered in person,  or sent by either registered or certified
mail,  postage  prepaid,  or prepaid telegram or fax or other means agreed to by
the Parties to the addresses set forth in Appendix A. Notice by overnight United
States mail or courier  shall be effective on the next Business Day after it was
sent. A Party may change its  addresses  or add  additional  noticed  Parties by
providing notice of same in accordance herewith.

     Section 8.14 Waiver of Consequential Damages. In no event, whether based on
contract,  indemnity,  warranty, tort (including,  as the case may be, a Party's
own negligence) or otherwise, shall either Party be liable to the other Party or
to  any  other   person  or  party  for  or  with  respect  to  any  claims  for
consequential,  indirect, punitive,  exemplary, special or incidental damages or
otherwise.

     Section 8.15. Headings. The headings contained in this Agreement are solely
for the  convenience of the Parties and should not be used or relied upon in any
manner in the construction or interpretation of this Agreement.

     Section 8.16. Further Assurances.  Each Party agrees to execute and deliver
such other  instruments  and  documents and to take such other actions as may be
reasonably necessary to complete performance  hereunder and otherwise to further
the purposes and intent of this Agreement.


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<PAGE>



     Section 8.17. Application of Government Code and the Public Contracts Code.
Pursuant to Section  80014(b) of the Water Code,  the  Department has determined
that it would be  detrimental  to  accomplishing  the  purposes  of  Division 27
(commencing  with  Section  80000)  of the Water  Code to make  such  provisions
applicable  to this  Agreement and that such  provisions  and  requirements  are
therefore not applicable to or incorporated in this Agreement.

     IN WITNESS  WHEREOF,  the Parties have caused this Agreement to be executed
by their duly authorized representative as of the 17th Day of May 2002.


     PROVIDER


     DBS INDUSTRIES, INC.

                                   By: /s/ Fred W. Thompson
                                   Name:   Fred W. Thompson
                                   Title:  President and Chief Executive Officer

                                   STATE OF CALIFORNIA CONSUMER POWER
                                   AND CONSERVATION FINANCING
                                   AUTHORITY


                                   By: /s/ S. David Freeman
                                       Name:   S. David Freeman
                                       Title: Chairman



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<PAGE>


                                   Appendix A

                                    Addresses


Authority                                      Provider

All Notices:                                   All Notices:

California Consumer Power and                  DBS Industries, Inc.
Conservation Financing Authority

Street:                                        Street:

901 P Street, Suite 142A                       100 Shoreline Highway, Suite 190A

City, State, Zip:                              City, State, Zip:

Sacramento, Calif 95814                        Mill Valley, CA 94941

Attn:  Chief Executive Officer                 Attn: Chief Executive Officer and
                                                     General Counsel
Phone:  916-651-9750                           Phone: 415-380-8055
Facsimile: (916) 651-9595                      Facsimile: 415-380-8199
                                               Federal Tax ID No 84-1124675

Billing Address:                               Billing Address:
California Power Authority                     same as above
Attn:  Demand Reserve Fund

901 P Street, Suite 142A
Sacramento, Calif.  95814
Phone:  916-651-9750
Facsimile: (916) 651-9595


Demand Reserves Provider Agreement -- DBS Industries
<PAGE>


                                  Attachment B
                   Protocol for Measuring Capacity and Energy
                        Other Than for Ancillary Services

Section 3.03 of the  Agreement  acknowledges  the CAISO  standards for measuring
capacity and energy provided by demand  reduction for Ancillary  Services.  This
Protocol  establishes  the  standards  for  measuring  Capacity  available  when
Contracted  Energy is Scheduled or  dispatched.  When  Contracted  Energy is not
Scheduled or dispatched,  the Capacity shall be the Capacity tested form time to
time in accordance with this Agreement

The Qualified End User's Baseline for measuring  Contracted  Energy reduced will
be  calibrated  to the Qualified End User's load shape to account for the normal
change in  customer's  load during the course of the Day.  The  normalized  load
shape will be  calculated  based on the  average  for the  Qualified  End User's
hourly  demand for that hour (e.g.,  hour ending 2:00 p.m.)  during the past ten
workdays,  excluding  Saturdays  and  Sundays  and  curtailment  Days for either
Ancillary  Services or Scheduled or dispatched  Contracted  Energy and excluding
both the highest and lowest value for each hour.

For  example,  assume  Contracted  Energy is  Scheduled  in the CAISO Hour Ahead
market.  Assume for the following  period that a Contracted  Energy Schedule was
issued in hour 12 for hours 15 through 16:

Hour            9    10   11   12   13     14      15       16      17       18
10-Day Average  10   10   10   11   11     11      12       13      12       11
Metered Amount  11   11   11   12   12     9       1        1       9        11
Baseline        N/A  N/A  N/A  N/A  N/A    N/A     13.2**   14.3**  N/A      N/A
Megawatts       N/A       N/A  N/A  N/A    N/A     12.2     13.3    N/A      N/A

All values in MWs

     To compute the Contracted Energy reduced,  the following procedure would be
followed:

First,  the 10-Day Average  consisting of historical  meter data of load (in MW)
collected by the Authority or its agent of each Qualified End User for the prior
consecutive ten Days (excluding Saturdays and Sundays) is calculated.

Second,  the historical meter data of load (in MW) collected by the Authority or
its agent of each Qualified End User for three  Calibration Hours (which are the
three hours  before the  notification)  is  calculated.  Since the  notification
occurred in hour 12, the  calibration  hours  would be the three hours  before -
hours 9, 10 and 11.


Demand Reserves Provider Agreement -- DBS Industries
<PAGE>

Third,  the ratio of the average of the three  Calibration  Hours  (11MW) to the
10-Day Average (10MW) is computed (11MW/10MW).

Fourth, that ratio (11MW/10MW) is multiplied by the 10-Day Average for each hour
(e.g.,  12 MW for hour 15) to compute the  Baseline  Quantity  (13.2 MW for hour
15).

Fifth, the metered amount for such hour is subtracted from the Baseline quantity
to yield the Energy  reduced  during  that hour (12.2 MW = 13.2MW - 1MW for hour
15).

A similar approach is used when the Energy reduction is Scheduled on a Day Ahead
basis.  In this case, the three  Calibration  Hours will be on the previous Day.
For example, the notification is sent at 1:30 pm on a Tuesday after the close of
the CAISO Day Ahead market for Wednesday.  Then Hours Ending 1100, 1200 and 1300
on Tuesday would be the  Calibration  Hours used to measure  Wednesday's  Energy
reduction.

For the Scheduling of Energy reduction on a Day Ahead basis on Monday, a typical
Sunday-Monday  48-hour  load  profile  would  be  computed  for the  previous  5
weekends. Then the average 48-hour load profile would be calibrated to the three
reference hours on Sunday (HE 1100, 1200, and 1300).
[{"type": "8-K", "sequence": "1", "filename": "form8kfor52302.txt", "description": "FOR 5/23/02", "secsgml_size_bytes": 96395}]
{"company-data": {"conformed-name": "DBS INDUSTRIES INC", "cik": "0000857502", "assigned-sic": "4822", "irs-number": "841124675", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-28348", "film-number": "02666528"}, "business-address": {"street1": "100 SHORELINE HWY", "street2": "STE 100", "city": "MILL VALLEY", "state": "CA", "zip": "94941", "phone": "4153808055"}}
UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 8 - K

                                 CURRENT REPORT
     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

                                  May 23, 2002
                                (Date of Report)

                              DBS Industries, Inc.
             (Exact name of registrant as specified in its charter)

     STATE OF DELAWARE               O-28348                    84-1124675
     -----------------               -------                    ----------
(State or other jurisdiction       (Commission                 (IRS Employer
   of incorporation)               File Number)              Identification No.)

            100 Shoreline Highway, Suite 190A, Mill Valley, CA 94941
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (415) 380-8055

               --------------------------------------------------
          (Former name or former address, if changed since last report)
Item 5.  Other

     On May  23,  2002,  the  Company  and the  California  Consumer  Power  and
Conservation  Financing Authority  ("California Power Authority") entered into a
Demand Reserves Provider  Agreement.  Under the agreement,  beginning October 1,
2002,  the Company shall provide a minimum of 200 megawatts and a maximum of 360
megawatts of daily available  electrical  demand  reduction at peak or emergency
times from  qualified  end users.  This  minimum and maximum of daily  available
demand  reduction  increases to 400 megawatts and 560  megawatts,  respectively,
effective June 1, 2003.

     Through the Company's  proposed system, the California Power Authority will
be able to  immediately  reduce  non-critical  power  consumption  at  locations
throughout  the state in order to create  energy  reserves  to smooth out energy
usage during peak use or  emergency  times.  The Company  intends to utilize the
Iridium  Satellite  System to  provide  its  services  to the  California  Power
Authority. The Iridium Satellite System is a low earth orbiting satellite
network consisting of 66 satellites. The Company's system utilizes a proprietary
master control system and remote  controller  connected to the Iridium Satellite
System to remotely  monitor and control  roof-top  air  conditioning  systems or
other types of electricity-using devices. Tiax, LLC, formerly Arthur D. Little's
Technology and Innovation  business,  is providing  engineering  services to the
Company.  It is  anticipated  that qualified end users will consist of primarily
large private  commercial energy users such as owners of large retail stores and
shopping centers.

     For  its  services,  the  Company  will be  paid  by the  California  Power
Authority   approximately  $51,000  per  year  per  megawatt  for  "non-spinning
reserves".  A portion of these fees will be remitted to the  qualified end users
as an incentive to participate in the demand reserve program.

     The agreement will terminate in May 2007. In addition, the agreement may be
terminated  earlier  if the  Company  fails  to  provide  the  California  Power
Authority  with the daily  minimum  megawatt of electrical  demand  reduction by
October  1,  2002,  the  California  Power  Authority  fails  to  enter  into  a
Participating Load Agreement with the California  Independent System Operator by
October 1, 2002, or such  Participating  Load Agreement is terminated during the
term of the Demand Reserves Provider  Agreement,  or the Company fails to reduce
energy  usage by its  specified  level for two  consecutive  months  during  the
summer.

     The  Company is  currently  seeking  financing  to  engineer,  install  and
implement the system.  The Company  expects the capital and operating  costs for
full deployment of the system to cost  approximately $15 to $20 million over the
next two years.  The Company is in the process of signing up qualified end users
to participate in the program.

Item 7. (c) Exhibits

10.70    Demand  Reserves Provider  Agreement between  California Consumer Power
         and Conservation Financing Authority and DBS Industries, Inc.
Signatures

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

Dated: May 29, 2002                DBS Industries, Inc.

                                   By:       /s/ Fred W. Thompson
                                             ----------------------
                                             Fred W. Thompson
                                             Chief Executive Officer & President
Exhibit 10.70

                       DEMAND RESERVES PROVIDER AGREEMENT

THIS AGREEMENT (the  "Agreement") is dated May 23, 2002, and is entered into, by
and between:

(1)     CALIFORNIA CONSUMER POWER AND CONSERVATION  FINANCING AUTHORITY
        (the "Authority"), an agency of the State of California located at
        901 P Street, Sacramento, CA

                                        And

(2)     DBS INDUSTRIES, INC., ("Provider"),

         (each individually a "Party" and collectively the "Parties").

                                    RECITALS

     WHEREAS,  the  Authority is  authorized  by the Authority Act to establish,
finance,  purchase,  lease,  own,  operate,  acquire,  or  construct  generating
facilities and other projects and enterprises,  on its own or through agreements
with public and private third  parties or joint  ventures with public or private
entities,  to supplement  private and public sector power supplies,  taking into
account  generation  facilities  in  operation  or under  development  as of the
effective  date of the  Authority  Act, and to ensure a sufficient  and reliable
supply of electricity  for the State's  consumers at just and reasonable  rates;
and

     WHEREAS,  the Authority  developed an Energy  Resource  Investment  Plan as
authorized  by the  Authority  Act  that  included  Demand  Reserves  as a major
component  to meeting the  Authority's  purposes of  ensuring a  sufficient  and
reliable supply of electricity for the State's  consumers at just and reasonable
rates,

     WHEREAS,  the  Authority is entering  into a five-year  contract  (the "DWR

Demand Reserves Provider Agreement -- DBS Industries
Contract") with the Department of Water Resources (the  "Department") to provide
Demand  Reserves to ensure a sufficient and reliable  supply of electricity  per
the Departments authority to procure power per ABX1 1 (Chapter 4 of the Statutes
of 2001, First Extraordinary  Session), as amended by ABX1 31 (Chapter __ of the
Statutes of 2001, ___  Extraordinary  Session) codified as Section 80000 et seq.
of the Water Code.

     WHEREAS, the Provider is desirous, capable and has the authority to provide
Demand Reserves in a long-term contract, as described in this Agreement,  at one
or more end use meter locations in California

     WHEREAS,  the  Parties  desire  to enter  into this  Agreement  in order to
establish the terms and  conditions on which the Authority and the Provider will
discharge their respective duties and responsibilities supplying California with
Demand Reserves,

NOW THEREFORE,  in consideration  of the mutual covenants set forth herein,  THE
PARTIES AGREE as follows:

                                    ARTICLE I
                                   DEFINITIONS

     Section  1.01.  Definitions.  Unless  otherwise  defined  herein  or in any
appendix hereto, the following terms shall have the respective  meanings in this
Agreement:

     "Additional  Capacity  Payment" means an amount which shall be payable with
respect to Additional Hourly Capacity which shall be calculated as follows: with
respect to Additional Hourly Capacity (a) which is Non-Spinning Capacity for the
Summer months, such Additional Hourly Capacity multiplied by the Non-Spin Summer
Price,  (b) which is  Non-Spinning  Capacity  for the  non-Summer  months,  such
Additional  Hourly Capacity  multiplied by the Non-Spin  Non-Summer  Price,  (c)
which is Replacement  Capacity for the Summer  months,  such  Additional  Hourly
Capacity multiplied by the Replacement Summer Price, or (d) which is Replacement
Capacity for the non-Summer months,  such Additional Hourly Capacity  multiplied
by the Replacement Non-Summer Price.

     "Additional  Hourly  Capacity"  shall have the meaning set forth in Section
2.02(b) hereof.

     "Agreement"  means  this  Demand  Reserves   Provider   Agreement  and  the
appendices hereto, which are hereby incorporated herein by reference.

     "Ancillary  Service" means a type of reserve service  accepted by the CAISO
under the tariffs and protocols of the CAISO for maintaining  reliable  electric
service.

     "Applicable Hourly Capacity Price" means, as appropriate,  the (a) Non-Spin
Summer Price,  (b) the Non-Spin  Non-Summer  Price,  (c) the Replacement  Summer
Price, or (d) the Replacement Non-Summer Price.

     "Authority" means the California Consumer Power and Conservation  Financing
Authority, or any successor or assigns

Demand Reserves Provider Agreement -- DBS Industries
"Authority Act" means SBX1 6 codified as Section 3300 et seq. of the Public
Utilities Code.

     "Baseline"  means the  amount of Energy the  Qualified  End User would have
been using if the Qualified End User were not reducing Energy in accordance with
Schedules or dispatch  instructions  submitted by the  Department  in accordance
with this Agreement or CAISO for Ancillary Service.  The baseline is compared to
actual Energy use in the  Measurement  Protocols to determine how much Energy is
actually reduced and, in cases where Energy is actually Scheduled or dispatched,
the  Capacity  available  to  the  Department  in  determining   quantities  for
scheduling and billing.

     "Billing  Address" means the billing address  specified in Appendix A or as
otherwise specified by the Authority.

     "Business  Day" means any Day other  than a Saturday  or Sunday or a United
States  holiday.  United States  holidays  shall be holidays as published by the
CAISO from time to time.

     "CAISO" means the California  Independent System Operator, or any successor
thereto.

     "CAISO  Markets"  means the Day Ahead and Hour Ahead  markets for Ancillary
Services  and energy or the  supplemental  or imbalance  markets for energy,  or
their successors, as defined by the CAISO Tariff.

     "CAISO  Participating  Load  Agreement"  means the  agreement,  in form and
substance reasonably acceptable to the Department, executed by the Authority and
CAISO to establish  the terms and  conditions  on which the  Authority and CAISO
will discharge  their  respective  duties and  responsibilities  under the CAISO
Tariff.

     "CAISO  Tariff"  means the CAISO tariff on file with the FERC and in effect
from time to time.

     "Capacity" means the capacity (in MWs as measured at the Metering Point) of
load of  Qualified  End Users that may be reduced  over a Permitted  Period over
which the Authority directly or indirectly has Control.

     "Capacity Adjustment Amount" means (a) in the case of the Monthly Nominated
Capacity an amount equal to the lesser of (i) the Maximum  Capacity Amount minus
the Monthly Nominated Capacity,  and (ii) 20% of the Monthly Nominated Capacity,
or (b) in the case of the Shoulder Hour  Capacity  Amount an amount equal to the
lesser of (i) the Maximum  Capacity  Amount  minus the  Shoulder  Hour  Capacity
Amount, and (ii) 20% of the Shoulder Hour Capacity Amount.

     "Capacity Payment" means the monthly payment for Monthly Nominated Capacity

Demand Reserves Provider Agreement -- DBS Industries
and Additional Hourly Capacity payable by the Department to the Authority.

     "Capacity  Prices" means the set of prices for Summer and non-Summer months
for Capacity as specified in Section 2.04.

     "Contingency  Reserve"  means a  designation  used by CAISO  for bids  into
CAISO's  Ancillary  Services markets by resources that are limited in the number
of hours they can operate in a Day, month or year.

     "Contracted  Energy"  means  the  MWhs  (or  portions  thereof)  of  Energy
reductions  associated  with the Monthly  Nominated  Capacity and any Additional
Hourly  Capacity  Scheduled or dispatched for reduction by the Department or the
CAISO  during a given  Permitted  Period  for any  purpose,  including,  but not
limited to, as Non-Spinning Ancillary Service.

     "Control"  means the ability  pursuant to contract with Qualified End Users
to reduce Contracted Energy.

     "CPUC" means the Public Utilities Commission of California or any successor
thereto.

     "Day" means the period beginning 12:00 midnight and ending on the following
12:00 midnight (Pacific Time).

     "Defaulting Party" shall have the meaning set forth in Section 7.01.

     "Demand  Reserve  Fund"  means the  Authority's  fund held in trust for the
receipts and disbursements under this Agreement.

     "Department"  means the Department of Water Resources,  with respect to its
responsibilities  pursuant  to  the  Department  Act  (as  hereinafter  defined)
regarding the Fund (as hereinafter  defined)  separate and apart from its powers
and  responsibilities  with  respect to the State  Water  Resources  Development
System, or any successor or assigns.

     "Department  Act" means ABX1 1, as amended by ABX1 31  codified  as Section
80000 et seq. of the Water Code.

     "DWR Contract" means the five-year  Agreement between the Authority and the
Department in which the Authority  agrees to supply the  Department  with Demand
Reserves.

     "Energy"  means electric  energy  measured in MWhs at the Metering Point in
accordance with the metering protocols.

     "Energy Payment" means the monthly payment for Contracted Energy payable by
the Department to the Authority.

Demand Reserves Provider Agreement -- DBS Industries
"Energy Price" means the price  specified in Section 2.04(b) for Contracted
Energy.

     "Event of Default" shall have the meaning set forth in Section 7.01.

     "FERC" means the Federal  Energy  Regulatory  Commission  or any  successor
thereto.

     "Force  Majeure"  means an event or  circumstance  which prevents one Party
from performing its obligations  hereunder,  which event or circumstance was not
reasonably foreseeable as of the date of this Agreement, which is not within the
reasonable  control of, or the result of the negligence of, the Claiming  Party,
and which,  by the exercise of due  diligence,  the Claiming  Party is unable to
overcome  or avoid  or  cause to be  avoided,  including,  but not  limited  to:
shortages of materials or supplies (except if caused by the Authority's  failure
to maintain sufficient  inventories and stores of spare parts), strikes or labor
disruptions  (except  strikes or labor  disputes  resulting  from unsafe working
environment  or unfair labor  practices),  interruptions  of fuel supply,  water
supply or  transmission,  damages or breakdown  of  machinery,  drought,  flood,
earthquake,  storm, fire, lightning,  epidemic,  war, riot, civil disturbance or
sabotage.  Force  Majeure  shall not include any events such as, but not limited
to, events arising from (a) economic factors  including the price of services or
materials,  (c) the curtailment or interruption of gas or electric transmission,
(d) the inability to obtain financing,  (e) events that merely increase the cost
of a Party's  performance,  (f)  failure of third  parties  to provide  goods or
services essential to a Party's performance, or (g) litigation.

     "Fund"  means  the  Department  of  Water  Resources  Electric  Power  Fund
established by Water Code Section 80200.

     "Governmental  Authority" means any federal,  state, local,  territorial or
municipal  government and any department,  commission,  board,  bureau,  agency,
instrumentality, judicial or administrative body thereof.

     "Incremental  Non-Spinning  Capacity"  shall have the  meaning set forth in
Section 2.03(c) hereof.

     "Invoice Month" means the calendar month immediately following the month in
which the  Authority  provided  Monthly  Nominated  Capacity and any  Additional
Hourly Capacity or Contracted Energy for which an invoice is being issued.

     "IOU (Investor-Owned Utility)" means the Load Serving Entities regulated by
the  CPUC --  Pacific  Gas and  Electric  Company,  Southern  California  Edison
Company, and San Diego Gas and Electric Company.

     "Law" means any statute,  law, rule or regulation imposed by a Governmental
Authority, whether in effect now or at any time in the future.

Demand Reserves Provider Agreement -- DBS Industries
"LSE- Load Serving Entity" means any organization responsible for providing
electricity to the retail end use customer.  In this  Agreement,  LSE's shall be
limited to Investor-Owned Utilities unless otherwise agreed to by the Department
pursuant to Section 2.09(a) hereof.

     "Maximum  Capacity  Amount" means (a) on and after October 1, 2002:  360 MW
(of which at least 216 MW must be  Non-Spinning  Capacity) in the Peak Hours and
216 MW (of  which  at  least  129.6  MW must be  Non-Spinning  Capacity)  in the
Shoulder Hours,  (b) on and after January 1, 2003: 360 MW (of which at least 288
MW must be  Non-Spinning  Capacity)  in the Peak  Hours  and 216 MW (of which at
least 172.8 MW must be Non-Spinning  Capacity) in the Shoulder Hours, and (c) on
and after  June 1, 2003:  560 MW (of which at least 448 MW must be  Non-Spinning
Capacity  ) in the Peak  Hours  and 336 MW (of  which at least  268.8 MW must be
Non-Spinning Capacity ) in the Shoulder Hours. Generally, the Provider's Maximum
Capacity  Amount  will be set  equal  to the  Provider's  Capacity  Share of the
Authority's Maximum Capacity Amount to the Department,  unless the Authority has
reasonable  evidence (including past  non-performance)  that the Provider cannot
deliver such Capacity.

     "Measurement  Protocols"  means the protocols used to measure the amount of
Capacity or energy provided, as defined in Section 3.03.

     "Metering  Point" means an aggregation of meters at a Qualified  End-User's
site for which the Authority  monitors load,  schedules capacity and energy with
the CAISO,  and provides meter data to the CAISO per the CAISO  requirements for
settlement quality meter data in the CAISO Participating Load Agreement.

     "Minimum  Capacity  Amount" means (a) on and after October 1, 2002:  200 MW
(of which at least 120 MW must be  Non-Spinning  Capacity and 80 MW  Replacement
Capacity)  in the Peak Hours and 120 MW (72 MW  Non-Spinning  Capacity and 48 MW
Replacement  Capacity) in the Shoulder Hours,  (b) on and after January 1, 2003:
200 MW (of  which at least  160 MW must be  Non-Spinning  Capacity)  in the Peak
Hours and 120 MW (96 MW Non-Spinning Capacity) in the Shoulder Hours, and (c) on
and after  June 1, 2003:  400 MW (of which at least 320 MW must be  Non-Spinning
Capacity)  in the  Peak  Hours  and 240 MW (of  which  at  least  192 MW must be
Non-Spinning  Capacity)  in the  Shoulder  Hours.  Any  Provider  whose  Minimum
Capacity  Amount  exceeds  50 MW in any  month of the year  shall be  obligated,
unless waived in writing by the Authority,  to provide a Minimum Capacity Amount
in the Non-Summer  months that is at least 70% of the average  Minimum  Capacity
Amounts of the three Summer months.

     "Monthly  Implementation  Schedule" means the rolling  forecast for each of
the next 12 months of MWs that the Provider  expects to have  available  for the
Authority by the first of each month. This Monthly Implementation  Schedule will
provide MW quantities by the type of Capacity (Non-Spinning vs Replacement),  by
the Location of Capacity  (North or South of Path 15) and, after August 1, 2002,
by the Load Serving  Entity of the expected  Qualified  End User.  Such Schedule
will not be binding,  except for the Minimum  Capacity  Amounts,  but shall be a

Demand Reserves Provider Agreement -- DBS Industries
good faith  estimate of the likely MW of  capacity.  The Monthly  Implementation
Schedule shall be due on tenth of the month, beginning with June, 2002.

     "Monthly  Nominated  Capacity"  shall have the meaning set forth in Section
2.02(a) hereof.

     "Monthly  Payment"  means  the  aggregate  monthly  amount  payable  by the
Authority to the  Provider  consisting  of the  Capacity  Payment and the Energy
Payment.  The Monthly  Payments  shall also  include any amounts  payable by the
Authority to the Provider pursuant to Section 2.05 hereof.

     "MW" means megawatt,  a measure of electric capacity to provide one million
watts of power.

     "MWh" means  megawatt-hour,  a measure of electric energy produced by a one
(1) MW source in one hour.

     "MW-hr" means the megawatts of Capacity made available in one hour.

     "MW-mo" means megawatt-month, a measure of electric capacity from a one (1)
MW source available for all hours in a particular month.

     "NERC" means the North American Electric Reliability Council.

     "Nominated  Capacity"  means,  in any  calendar  month,  the sum of Monthly
Nominated Capacity and any Additional Hourly Capacity.

     "Non-Defaulting Party" shall have the meaning set forth in Section 7.01.

     "Non-Spinning   Ancillary  Service"  means  the  reserve  service,  or  its
successor,  in the  CAISO  tariffs,  in which  the CAISO  requires  a  10-minute
response to ensure system reliability.

     "Non-Spinning  Capacity"  means  any  Capacity  which may be  Scheduled  or
dispatched by the Department or CAISO on a not more than 10-minute  ahead basis,
and may be used for any purpose consistent with such limitation,  including, but
not limited to, Non-Spinning Ancillary Service, self-provided ancillary services
or any Replacement Capacity purpose.

     "Non-Spin Non-Summer Price" means $8 per MW - hr.

     "Non-Spin Summer Price" means $116 per MW - hr.

     "Non-Summer"  means  the nine  months of the year not  including  the three
Summer months.

     "Operating  Parameters" means the parameters that constrain the Schedule or

Demand Reserves Provider Agreement -- DBS Industries
dispatch  of the  Capacity  under this  Agreement.  These  include  the hours of
Scheduling or dispatch,  which are Monday to Friday 11am to 7pm, and the maximum
cumulative  dispatch hours,  which are 24 hours per month and 150 hours per year
(for the year  2002,  the  maximum  dispatch  hours  shall be 24 hours  for each
remaining month of the year).  Other operating  parameters with respect to CAISO
services,  such as  minimum or maximum  dispatch  length,  ramp up and ramp down
times,  will be specified in Schedule 1 of this  Agreement  which shall have the
form of Schedule 1 of the CAISO  Participating Load Agreement that the Authority
signs with the CAISO. To the extent any such parameters are not specified in the
CAISO  Participating  Load  Agreement,  the  Authority  shall  develop  specific
parameters with the Department's mutual consent.

     "Party" means the Department or the Authority.

     "Peak  Hours" means hours from 2:00 pm to 5:00 pm (3 hours) on any Business
Day.  "Permitted  Periods" means the minimum period Capacity can be scheduled as
permitted by the particular product,  which in the case of Non-Spinning Capacity
shall be 10-minute periods and in the case of Replacement  Capacity shall be one
hour.

     "Project  Initiation  Period"  means the period  from July 1, 2002  through
September 30, 2002.

     "Provider  Capacity Share" means the percentage that the Provider's Minimum
Capacity Amount is of the Authority's Minimum Capacity Amount obligations to the
Department of either 250 MW on October 1, 2002 or 500 MW on June 1, 2003, unless
the Authority's  Minimum  Capacity Amount is modified by mutual agreement of the
Department and the Authority.

     "Qualified  Electric  Corporation"  means  an  electrical  corporation,  as
defined by the Department  Act, whose long-term  unsecured  senior debt is rated
BBB or better by  Standard  & Poor's  Corporation  and Baa2 or better by Moody's
Investor Services.

     "Qualified End Users" means any customers of the IOUs or other Load Serving
Entities approved by the Department subject to Section 2.09(a).

     "Qualified End User Agreement"  shall have the meaning set forth in Section
2.09 hereof.

     "Replacement  Agreement"  means any  agreement by and between the Authority
and a Qualified  Electric  Corporation  containing  terms  identical  to the DWR
Contract  excluding  Sections 2.10 and 2.12 and such other  provisions as may be
specifically  excluded  from  a  Replacement   Agreement,   together  with  such
additional  changes as the  Department and the Authority  shall mutually  agree.
Such Replacement Agreement shall state that it is a Replacement Agreement within
the meaning of the DWR  Contract  and that it  constitutes  a novation for which
there is adequate consideration.

     "Replacement  Capacity" means Capacity which may be Scheduled or dispatched

Demand Reserves Provider Agreement -- DBS Industries
by the Department on a not more than 60 minute ahead basis,  and may be used for
any purpose consistent with such limitation to provide,  among other things, the
reserve service,  or its successor,  defined in the CAISO Tariffs,  in which the
CAISO requires a 60 minute response to ensure system  reliability or to Schedule
Contracted Energy in the CAISO Hour Ahead or Day Ahead markets.

     "Replacement Non-Summer Price" means $2.65 per MW - hr.

     "Replacement Summer Price" means $88 per MW - hr.

     "Revenue  Meter" means the meter used by the LSE to  determine  total usage
for the purpose of calculating electrical bills.

     "Schedule"  means (a) with  respect to  Contracted  Energy,  to  schedule a
reduction of the Contracted  Energy pursuant to a dispatch notice,  and (b) with
respect to Capacity,  to schedule Capacity in connection with Ancillary Services
in accordance with the CAISO Tariff.

     "Shoulder Hours" means hours from 11:00am to 2:00 pm and 5:00 pm to 7:00 pm
(5 hours) on any Business Day.

     "Shoulder Hour Capacity Amount" shall have the meaning set forth in Section
2.02 (a) hereof.

     "State" means the State of California.

     "Summer"  means  the  season  including  the  months  of July,  August  and
September.

     "Term" shall have the meaning set forth in Section 2.11 hereof.

     "2002  Adjusted  Peak Hour  Maximum"  shall have the  meaning  set forth in
Section 2.03(b) hereof.

     "2002  Adjusted  Shoulder Hour Maximum" shall have the meaning set forth in
Section 2.03(b)(ii) hereof.

     "2002  Adjusted  Peak Hour  Minimum"  shall have the  meaning  set forth in
Section 2.03(b)(iv) hereof.

     "2002  Adjusted  Shoulder Hour Minimum" shall have the meaning set forth in
Section 2.03(b)(vi) hereof.

     "2003  Adjusted  Peak Hour  Maximum"  shall have the  meaning  set forth in
Section 2.03(a) hereof.

     "2003  Adjusted  Shoulder Hour Maximum" shall have the meaning set forth in

Demand Reserves Provider Agreement -- DBS Industries
Section 2.03(a)(ii) hereof.

     "2003  Adjusted  Peak Hour  Minimum"  shall have the  meaning  set forth in
Section 2.03(a)(iv) hereof.

     "2003  Adjusted  Shoulder Hour Minimum" shall have the meaning set forth in
Section 2.03(a)(vi) hereof.

     "Warning/Stage  Alert Hour" means any hour during  which a day-ahead  CAISO
warning of a  potential  stage alert has been issued or any CAISO stage alert is
in effect for such hour.

     Section 1.02. Rules of  Interpretation.  Unless otherwise  provided herein:
(a) words  denoting  the singular  include the plural and vice versa;  (b) words
denoting a gender  include both genders;  (c)  references to a particular  part,
clause,  section,   paragraph,   article,  party,  exhibit,  schedule  or  other
attachment  shall be a  reference  to a part,  clause,  section,  paragraph,  or
article of, or a party, exhibit, schedule or other attachment to the document in
which the  reference is contained;  (d) a reference to any statute,  regulation,
proclamation,   ordinance   or   law   includes   all   statutes,   regulations,
proclamations,   amendments,   ordinances  or  laws  varying,  consolidating  or
replacing the same from time to time, and a reference to a statute  includes all
regulations,  policies, protocols, codes, proclamations and ordinances issued or
otherwise  applicable  under that statute  unless,  in any such case,  otherwise
expressly provided in any such statute or in the document in which the reference
is contained;  (e) a reference to a particular section,  paragraph or other part
of a particular  statute shall be deemed to be a reference to any other section,
paragraph or other part substituted therefor from time to time; (f) a definition
of or reference to any document,  instrument or agreement  includes an amendment
or supplement to, or restatement,  replacement, modification or novation of, any
such  document,  instrument  or  agreement  unless  otherwise  specified in such
definition or in the context in which such reference is used; (g) a reference to
any person  includes such  person's  successors  and  permitted  assigns in that
designated  capacity;  (h) any  reference  to "dollars" or "$" shall mean United
States  dollars  unless  otherwise  specified;  (i) any  reference  to time is a
reference  to the time then  prevailing,  whether  standard or daylight  savings
time, in the specified time zone; (j) if the date as of which any right,  option
or  election  is  exercisable,  or the date  upon  which  any  amount is due and
payable,  is  stated  to be on a date or Day that is not a  Business  Day,  such
right, option or election may be exercised,  and such amount shall be deemed due
and payable,  on the next succeeding Business Day with the same effect as if the
same was exercised or made on such date or Day (without, in the case of any such
payment, the payment or accrual of any interest or other late payment or charge,
provided such payment is made on such next  succeeding  Business Day); (k) words
such as "hereunder,"  "hereto," "hereof" and "herein" and other words of similar
import shall, unless the context requires  otherwise,  refer to the whole of the
applicable  document and not to any  particular  article,  section,  subsection,
paragraph or clause thereof;  and (l) a reference to "including" means including
without limiting the generality of any description preceding such term.

                                   ARTICLE II
               PURCHASE AND SALE OF MONTHLY NOMINATED CAPACITY AND
                   ADDITIONAL CAPACITY AND CONTRACTED ENERGY

     Section  2.01.   Purchase  and  Sale  of  Monthly  Nominated  Capacity  and
Additional Hourly Capacity and Contracted Energy. Subject to the limitations set
forth in Section  2.02 hereof,  on and after July 1, 2002 and for the  remaining
Term of this Agreement thereafter, the Provider shall provide and make available
to the  Authority,  and the  Authority  shall  purchase and pay for, the Monthly
Nominated  Capacity  and any  Additional  Hourly  Capacity,  and if Scheduled or
dispatched by the Department, the Authority or CAISO pursuant to this Agreement,

Demand Reserves Provider Agreement -- DBS Industries
the Provider  shall Schedule or dispatch,  and the Authority  shall purchase and
pay for, the  Contracted  Energy,  and the Authority  shall pay the Provider the
Monthly Payment. The Authority may not Schedule or dispatch Contracted Energy in
excess of the Nominated Capacity.

     Section 2.02.  Procedures for Determining  Monthly  Nominated  Capacity and
Additional  Hourly Capacity;  CAISO Costs. The following  procedures shall apply
from and after September 27, 2002:

     (a) Four Business Days prior to the beginning of each calendar  month,  the
Provider  shall  establish  and  provide to the  Authority  a single MW Capacity
amount  for  the  Peak  Hours  that  shall  apply  to each  Business  Day of the
succeeding  month,  which shall not be less than the Minimum Capacity Amount nor
greater than the Maximum  Capacity  Amount (the "Monthly  Nominated  Capacity").
Except as set forth in (b), the Authroity shall pay the Capacity  Payment on the
basis of the Monthly Nominated  Capacity.  The Authority shall have the right to
Schedule such Monthly Nominated  Capacity or Schedule or dispatch the Contracted
Energy associated therewith in any given Permitted Period during the Peak Hours.
There shall be automatically  established on the basis of the Monthly  Nominated
Capacity a single MW Capacity  amount for the Shoulder Hours that shall apply to
each  Business  Day of the  succeeding  month  that shall be equal to 60% of the
Monthly Nominated Capacity (the "Shoulder Hour Capacity Amount").  The Authority
shall have the right to Schedule or dispatch such Shoulder Hour Capacity  Amount
in any given Permitted Period during the Shoulder Hours.

     (b) On a three-hour ahead basis, the Provider may, upon notification to the
Authority,  adjust (i) the Monthly Nominated  Capacity for any hour upwards (but
not downwards below the Monthly Nominated  Capacity),  or (ii) the Shoulder Hour
Capacity  Amount for any hour upwards (but not downwards below the Shoulder Hour
Capacity  Amount) for any particular  hour (such amount in excess of the Monthly
Nominated  Amount or the Shoulder  Hour  Capacity  Amount  being  defined as the
"Additional  Hourly  Capacity")  and the  Authority  shall pay the  Provider the
Additional  Capacity  Payment  therefor in accordance  with Section 5.02 hereof;
provided,  however, that the Additional Hourly Capacity, for which the Authority
is  obligated  to pay the  Additional  Capacity  Payment,  shall not  exceed the
Capacity  Adjustment  Amount.  The Provider  shall  advise the  Authority of the
Additional  Hourly  Capacity at the  beginning of the previous  Business Day, at
least one hour  ahead of any  requirements  that the  Department  imposes on the
Authority. The Authority shall have the right to Schedule or dispatch Contracted
Energy  associated with such  Additional  Hourly Capacity in any given Permitted
Period during a Peak Hour or Shoulder Hour, as the case may be.

     (c) In addition to any amounts  payable  under  Section  4.01  hereof,  the
Provider shall be responsible  for any costs or charges imposed on or associated
with the Monthly  Nominated  Capacity  and any  Additional  Hourly  Capacity and
Contracted  Energy. In particular,  the Provider will bear any CAISO charges and
penalties  for not making  available  Capacity as bid or Scheduled or Contracted
Energy as Scheduled into the CAISO markets.  These charges include any imbalance
energy charges  arising as a result of any failure to reduce Energy as Scheduled

Demand Reserves Provider Agreement -- DBS Industries
by the Department, the Authority or CAISO.

     Section  2.03.  Adjustment  of Maximum and Minimum  Capacity  Amounts.  (a)
Unless the Department revokes such option from the Authority, the Provider shall
have the option,  but not the  obligation,  on January 29,  2003,  to adjust the
Minimum  Capacity  Amount and the Maximum  Capacity Amount referred to in clause
(c) of the  definition  thereof for the Peak Hours thereof  upwards to an amount
specified by the Authority on January 10, 2003 (such  adjusted  amount being the
"2003  Adjusted Peak Hour  Maximum").  Provider shall have the ability to adjust
Provider's  Maximum  Capacity  Amount up to the Provider  Capacity  Share of the
Authority's  Maximum  Capacity  Amount  obligations  to  the  Department.   Upon
establishment  of such 2003  Adjusted  Peak Hour  Maximum  (i) the  Non-Spinning
Capacity amount referred to in clause (c) of the definition of Maximum  Capacity
Amount for the Peak Hours  shall be  automatically  adjusted  to 80% of the 2003
Adjusted Peak Hour Maximum, unless expressly adjusted by the Authority, (ii) the
Maximum Capacity Amount referred to in clause (c) of the definition  thereof for
the Shoulder Hours shall be  automatically  adjusted to 60% of the 2003 Adjusted
Peak Hour  Maximum  (the  "2003  Adjusted  Shoulder  Hour  Maximum"),  (iii) the
Non-Spinning  Capacity  amount  referred to in clause (c) of the  definition  of
Maximum Capacity Amount for the Shoulder Hours shall be  automatically  adjusted
to 80% of the 2003 Adjusted Shoulder Hour Maximum,  unless expressly adjusted by
the Authority, (iv) the Minimum Capacity Amount referred to in clause (c) of the
definition  thereof for the Peak Hours shall be adjusted to an amount acceptable
to the Authority (the "2002 Adjusted Peak Hour Minimum"),  (v) the  Non-Spinning
Capacity amount referred to in clause (c) of the definition of Minimum  Capacity
Amount for the Peak Hours  shall be  automatically  adjusted  to 80% of the 2003
Adjusted Peak Hour Minimum, unless expressly adjusted by the Authority, (vi) the
Minimum Capacity Amount referred to in clause (c) of the definition  thereof for
the Shoulder Hours shall be  automatically  adjusted to 60% of the 2003 Adjusted
Peak Hour Minimum (the "2003  Adjusted  Shoulder Hour  Minimum"),  and (vii) the
Non-Spinning  Capacity  amount  referred to in clause (c) of the  definition  of
Minimum Capacity Amount for the Shoulder Hours shall be  automatically  adjusted
to 80% of the 2003 Adjusted Shoulder Hour Maximum,  unless expressly adjusted by
the Authority.

     (b) The Provider may, but shall not be obligated  to,  within  twenty-seven
(27) Days of the execution of this  Agreement,  propose in writing an adjustment
to the  Maximum  Capacity  Amount  referred  to in clause (a) of the  definition
thereof  for the Peak  Hours  thereof  upwards  to an amount  acceptable  to the
Authority  (such adjusted  amount being the "2002 Adjusted Peak Hour  Maximum"),
and the Authority shall have the option, but not the obligation,  to accept such
2002 Adjusted Peak Hour Maximum within  twenty-six (26) Days after such proposal
is made. Upon acceptance of such proposal by the Authority, the Maximum Capacity
Amount  referred to in clause (a) of the  definition  thereof for the Peak Hours
shall be the 2002 Adjusted Peak Hour Maximum and (i) the  Non-Spinning  Capacity
amount  referred to in clause (a) of the definition of Maximum  Capacity  Amount
shall be automatically  adjusted to 60% for the period prior to January 1, 2003,
and thereafter to 80% of the 2002 Adjusted Peak Hour Maximum,  unless  expressly
adjusted by the  Authority,  (ii) the  Maximum  Capacity  Amount  referred to in
clause  (a)  of  the  definition   thereof  for  the  Shoulder  Hours  shall  be

Demand Reserves Provider Agreement -- DBS Industries
automatically  adjusted to 60% of the 2002 Adjusted Peak Hour Maximum (the "2002
Adjusted  Shoulder  Hour  Maximum"),  (iii)  the  Non-Spinning  Capacity  amount
referred to in clause (a) of the definition of Maximum  Capacity  Amount for the
Shoulder  Hours  shall be  automatically  adjusted  to 80% of the 2002  Adjusted
Shoulder Hour Maximum,  unless  expressly  adjusted by the  Authority,  (iv) the
Minimum Capacity Amount referred to in clause (a) of the definition  thereof for
the Peak Hours shall be  automatically  adjusted to an amount  specified  by the
Authority (the "2002 Adjusted Peak Hour Minimum"), (v) the Non-Spinning Capacity
amount  referred to in clause (a) of the definition of Minimum  Capacity  Amount
for the Peak Hours shall be  automatically  adjusted to 60% for the period prior
to  January  1,  2003,  and  thereafter  to 80% of the 2002  Adjusted  Peak Hour
Minimum,  unless expressly adjusted by the Authority,  (vi) the Minimum Capacity
Amount  referred to in clause (a) of the  definition  thereof  for the  Shoulder
Hours  shall be  automatically  adjusted to 60% of the 2002  Adjusted  Peak Hour
Minimum (the "2002 Adjusted Shoulder Hour Minimum"),  and (vii) the Non-Spinning
Capacity amount referred to in clause (a) of the definition of Minimum  Capacity
Amount for the Shoulder Hours shall be automatically adjusted to 80% of the 2003
Adjusted Shoulder Hour Maximum, unless expressly adjusted by the Authority.

     (c) The  Non-Spinning  Capacity  amounts  set  forth in the  definition  of
Maximum  Capacity  Amount  and  Minimum  Capacity  Amount are  minimums  and the
Provider  may provide  Non-Spinning  Capacity in excess of such  minimums in any
hour at any time (the  incremental  amount of  Non-Spinning  Capacity above such
minimums being defined as the "Incremental  Non-Spinning  Capacity");  provided,
however,  that unless the Authority  approves any such Incremental  Non-Spinning
Capacity,  the  Authority  shall only be obligated  to pay for such  Incremental
Non-Spinning Capacity as Replacement Capacity at the Capacity Price set forth in
Section 2.04(a)(ii) hereof.

     Section 2.04.  Capacity and Energy Products and Prices.  Commencing July 1,
2002, subject to the Operating  Parameters,  the Authority shall provide and the
Department shall pay for Monthly  Nominated  Capacity and any Additional  Hourly
Capacity  as either  Non-Spinning  Capacity  and  Replacement  Capacity  and for
Contracted Energy as follows:

     (a) Capacity Price. The Authority shall pay (i) for  Non-Spinning  Capacity
$14,000 per MW-mo for Summer months,  and $1,000 per MW-mo for non-Summer months
and (ii) for Replacement  Capacity $11,000 per MW-mo for Summer months, and $330
per MW-mo for  non-Summer  months on a monthly basis in accordance  with Section
5.02 hereof. The parties intend that at least thirty (30) per cent of this price
is to cover the Provider's operating and non-performance risk costs.

     (b) Energy Price.  The Authority shall pay for Contracted  Energy Scheduled
or  dispatched  by the  Department,  the Authority or CAISO $80/MWh on a monthly
basis in accordance with Section 5.02 hereof; provided, however, that no payment
with respect to Contracted Energy shall be required prior to January 1, 2003.

Demand Reserves Provider Agreement -- DBS Industries
Section 2.05.  Excess Capacity and Energy.  (a) The Provider shall have the
option,  but not the  obligation,  to offer to the Authority,  and the Authority
shall have the option, but not the obligation, to:

     (i) Bid or Schedule Capacity for Ancillary Services or Schedule or dispatch
in any hour Energy  reductions  associated with Capacity offered by the Provider
which is (i) outside  the  Operating  Parameters,  (ii) in excess of the Monthly
Nominated Capacity or Additional Hourly Capacity and the Authority shall pay the
Provider  the  Capacity  Price  therefore  and the  Energy  Price for any Energy
reductions  associated with such Capacity  Scheduled or dispatched for reduction
by the Department, the Authority or CAISO, or

     (ii)  Schedule  or  dispatch  in  any  hour  any  other  Energy  reductions
associated  with  Capacity  offered by the  Provider  which is (i)  outside  the
Operating  Parameters,  (ii) in  excess of the  Monthly  Nominated  Capacity  or
Additional  Hourly  Capacity and the Authority  shall pay the Provider an amount
therefore  based on the  higher  of $60 per MWh or the  CAISO  imbalance  energy
market price.

     (b) The  Authority  will  notify  the  Provider  via an  electronic  medium
provided  by the  Authority  by not  later  than two hours  before  the close of
scheduling  and bidding  into the CAISO day ahead and hour ahead  markets of any
amounts  available  for  purchase  pursuant to this Section  2.05.  Purchases of
Capacity  and Energy  reductions  associated  therewith in excess of the Monthly
Nominated Capacity or, with respect to any hour, the Additional Hourly Capacity,
pursuant  to this  Section  2.05  shall not (i) be taken  into  account  for the
purposes of Article IV, (ii)  adversely  affect the ability of the  Authority to
purchase  the  Monthly  Nominated  Capacity  or, with  respect to any hour,  the
Additional  Hourly Capacity and Contracted  Energy,  (iii) adversely  affect the
ability of the  Department,  the  Authority  or CAISO to  Schedule  or  dispatch
Contracted  Energy 24 hours per month and 150 hours per year, or (iv)  adversely
affect the  ability  of the  Provider  to sell  Capacity  and Energy  reductions
associated  therewith  in  excess  of  the  Monthly  Nominated  Capacity  or the
Additional Hourly Capacity as it may determine.

     Section 2.06.  Determination of Capacity During Project  Initiation Period.
The Authority  will advise the Authority of the Capacity  available on an hourly
basis during the Project  Initiation  Period and the  Authority  may Schedule or
dispatch any Energy  reductions  associated  with such  Capacity  subject to the
limitations  set forth  herein.  The  Authority  shall pay for such Capacity and
Energy  reductions  in arrears upon  verification  of the  availability  of such
Capacity and  associated  Energy  reductions  based on tested meter readings and
historical  data provided  pursuant to Article III or otherwise on a methodology
mutually  acceptable to the Department and the Authority.  Such methodology will
be defined in the Measurement and  Verification  Protocol  Implementation  Guide
under Section 3.03. During the Project Initiation Period the Authority shall pay
an amount equal to the Applicable  Hourly Capacity Price for each MW provided in
each hour of a month.  Capacity  that has been verified by the Authority but not
yet certified by the CAISO shall be paid at the Capacity  Price for  Replacement
Capacity.

Demand Reserves Provider Agreement -- DBS Industries
Section 2.07.  Scheduling;  Bidding Capacity for CAISO Ancillary  Services.
Commencing  on July 1, 2002,  the  Authority  may  Schedule  Capacity and Energy
reductions  associated  with the Capacity and the Provider shall comply with any
such direction to Schedule Capacity and Schedule or dispatch Energy  reductions,
consistent with the Operating Parameters.  Such scheduling shall include the use
of the  CAISO  day-ahead  and  hour-ahead  scheduling  processes,  and any other
scheduling  process that may be implemented  by CAISO.  Such  scheduling  rights
shall  include  the  ability  to  Schedule  or bid to  meet  Ancillary  Services
requirements  and shall not be limited by any factors  other than the  Operating
Parameters.  Until the CAISO modifies its market  operation to include  residual
unit  commitment or some other  methodology  that  explicitly  incorporates  the
Operating  Parameters or other  facilities in its scheduling  and dispatch,  the
Authority  will bid  Non-Spinning  Capacity  into the CAISO  Ancillary  Services
markets as Contingency Reserve or a comparable  designation available from CAISO
at  capacity  and  energy  prices  established  by  the  Authority,  unless  the
Department  and  Authority  mutually  agree on some other  scheduling or bidding
strategy that  recognizes the Operating  Parameters.  In addition,  the Provider
shall make bids or  self-provision  schedules into the CAISO Ancillary  Services
markets as  instructed  by the  Authority,  and shall comply with any  resulting
Scheduling  instructions  from  CAISO  pursuant  to  all  CAISO  protocols.  The
Authority shall establish the capacity or energy price of any Ancillary  Service
bid in the CAISO Markets.  Except for any sales of excess Capacity and Energy as
provided in Section  2.05,  any  resulting  energy or Ancillary  Service-related
revenues  paid by CAISO or other  entities  to the  Authority  with  respect  to
Monthly  Nominated  Capacity or Additional  Hourly Capacity or Contracted Energy
shall  be paid to the  Department.  The  Provider  shall,  in  carrying  out the
provisions of this paragraph, comply with all applicable provisions of the CAISO
Participating Load Agreement.  Section 2.08. CAISO Participating Load Agreement.
The Authority shall, in order to carry out its duties in this Agreement,  sign a
CAISO Participating Load Agreement with the CAISO prior to July 1, 2002 in order
to provide Ancillary Services and Contracted Energy into the CAISO Markets.  The
Provider  will meet all  applicable  conditions  and  requirements  of the CAISO
Participating  Load  Agreement  including,  but not  limited  to: (i)  providing
qualifying  metering  and  communication   systems,  (ii)  certifying  to  CAISO
specifications  the  amount of the  Provider's  Capacity  that can  respond in a
timely manner to meet the CAISO  requirements  for  non-spinning and replacement
Ancillary   Services,   (iii)  using  the  Authority's   designated   scheduling
coordinator  who possesses a current  Ancillary  Service  certificate,  and (iv)
bearing all penalties of non-compliance.  The Provider shall Schedule or bid, in
accordance with the Authority's  directions,  Monthly Nominated Capacity and any
Additional  Hourly  Capacity and  Contracted  Energy under this Agreement in the
CAISO Markets to meet the CAISO requirements.

     Section 2.09.  Agreements with Qualified End Users.  (a) The Provider shall
enter into, or cause to be entered into,  agreements with Qualified End Users to
provide the Monthly  Nominated  Capacity  and any  Additional  Hourly  Capacity,
including  the  amounts  of  Non-Spinning   Capacity  and  Replacement  Capacity
designated  pursuant to Section  2.13 (each a "Qualified  End User  Agreement").
Upon request,  the Provider  shall permit the audit and review of each Qualified
End User  Agreement by the Authority or the  Department.  The Provider shall not

Demand Reserves Provider Agreement -- DBS Industries
enter into any agreements  with, or permit any Capacity or Energy  reductions to
be provided hereunder by, end users outside the service territories of the IOUs,
Energy  Service  Providers to direct  access  retail  customers,  or  California
municipal  utilities to meet its  obligations  under this Agreement  without the
written approval of the Authority.

     (b) Each Qualified End User Agreement shall contain  provisions  reasonably
satisfactory  to the Authority  allowing the Department or the Authority to test
load  control  and  meters and to audit  meter  data and shall  also  contain an
acknowledgement by such Qualified End User to the effect that the Department and
Authority shall not be liable for the failure by the Provider or any other party
to pay amounts received from the Department or Authority  hereunder to Qualified
End User under such  Qualified  End User  Agreement  and a waiver of any and all
claims by such  Qualified  End User against the  Department  or  Authority  with
respect  thereto.  In addition,  the Qualified End User Agreement will contain a
provision  permitting  assignment  to the  Provider's  successor  Providers  who
contract on behalf of the Authority pursuant to Section 2.09(a).  Any failure to
include such provisions in each Qualified End User Agreement shall  constitute a
material breach of this  Agreement.  The Provider shall defend the Authority and
Department,  and  their  elected  officials,   appointed  officers,   employees,
representatives,  agents,  consultants  and  contractors,  from and  against any
claims arising out of any Qualified End User  Agreement.  The provisions of this
Section shall survive termination of this Agreement.  Any Provider entering into
a Qualified End User  Agreement  for or on behalf of the  Authority  pursuant to
Section  2.09(a)  hereof  shall be  required to post  collateral  or a letter of
credit from a financial  institution  having the minimum  short term ratings set
forth in the APX Tab 3, or successor  document,  in an amount  determined by the
Authority to be sufficient to ensure  performance  of each such entity  entering
into a Qualified End User  Agreement  with a Qualified End User for or on behalf
of the Authority.

     (c) The Provider  will work with the Authority to ensure that the end users
do not  receive  duplicative  benefit  from  participating  in  multiple  demand
reduction  programs.  In  particular,  the  Provider  will  provide  the  names,
locations  and meter numbers of all end users who are  participating  as part of
the Provider's  Demand  Reserves so that the Authority can verify with the CPUC,
Load Serving  Entity or other  appropriate  entity that this is a Qualified  End
User and is not receiving  duplicative benefit.  Such information and usage data
shall be kept confidential and shall not be used by the Authority or its service
providers  under this  Agreement to directly  solicit  participation  under this
Agreement.

     (d) Each Qualified End User Agreement will include an authorization for the
Provider,  the Authority or the Automated  Power Exchange or entities  acting on
their behalf to request  Meter Pulse Serve from the Load  Serving  Entity and to
have access to their  interval  data as may be  available on web database by the
Load Serving Entity.

     Section 2.10.  Sources of Payment;  No Debt of State.  The Authority  shall
make payments  hereunder from the Demand Reserve Fund based on revenues received

Demand Reserves Provider Agreement -- DBS Industries
from the  Department's  Fund as an operating  expense of the Fund subject to any
priorities  and  limitations  established  with respect to the Fund's  operating
expenses in any  indenture  providing  for the  issuance of bonds  issued by the
Department  under  Section  80130 et seq.  of the  Water  Code or any  agreement
entered into by the Department with the California  Public Utilities  Commission
pursuant to Section  80110 of the Water Code.  The  obligation  to make payments
hereunder  shall be limited solely to Demand  Reserve Fund and the  Department's
Fund.  Any liability of the Department or Authority  arising in connection  with
this  Agreement or any claim based thereon or with respect  thereto,  including,
but not limited to, any Termination  Payment arising as the result of any breach
or default  or Event of Default  under  this  Agreement,  and any other  payment
obligation  or  liability  of or judgment  against the  Department  or Authority
hereunder,  shall be  satisfied  solely from the these  Funds.  NEITHER THE FULL
FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE ARE OR MAY BE PLEDGED FOR ANY
PAYMENT UNDER THIS  AGREEMENT.  Revenues and assets of the State Water Resources
Development  System shall not be liable for or available to make any payments or
satisfy any obligation arising under this Agreement.

     Section 2.11. Term. Unless earlier terminated  pursuant to Article VII, the
term of this Agreement (the "Term") shall commence at 12:00 a.m.  (Pacific time)
on the date of execution of this Agreement and shall expire May 17, 2007.

     Section 2.12.  Rate  Covenant;  No Impairment.  In accordance  with Section
80134 of the  Water  Code,  the  Department  covenants  that it  will,  at least
annually,  and  more  frequently  as  required,  establish  and  revise  revenue
requirements  sufficient,  together  with any moneys on deposit in the Fund,  to
provide  for the  timely  payment  of all  obligations  which  it has  incurred,
including any payments required to be made by the Department pursuant to the DWR
Contract and the Department Act;  provided,  however,  that the Department shall
not be required to increase the revenue requirement in effect on the date of the
execution of this Agreement with respect to any costs hereunder.  As provided in
Section  80200 of the  Water  Code,  while  any  obligations  of the  Department
pursuant to the DWR  Contract  remain  outstanding  and not fully  performed  or
discharged,  the rights,  powers, duties and existence of the Department and the
CPUC  shall not be  diminished  or  impaired  in any manner  that  would  affect
adversely  the  interests  and rights of the  Authority  or Provider  under this
Agreement.

     Section 2.13.  Location of Capacity.  After the Project  Initiation  Period
approximately  50% of the  Capacity  (of which at least 60% prior to  January 1,
2003 and 80%  thereafter  shall be  Non-Spinning  Capacity)  shall be located in
CAISO congestion zones north of path 15.

Demand Reserves Provider Agreement -- DBS Industries
ARTICLE III
                              MEASURING PERFORMANCE

     Section 3.01.  Meters.  Capacity  shall be measured for each  Qualified End
User at the Revenue  Meter.  The  Department  or Authority  may test any Revenue
Meter for any  Qualified  End User at any timer  upon  reasonable  notice to the
Provider. Other metering methodologies can be used if mutually agreeable to both
Parties. Such metering  methodologies will be defined as part of the Measurement
and Verification Protocol Implementation Guide under Section 3.03.

     Section 3.02.  Metering and Communication.  The metering and communications
systems shall conform to CAISO standards or the  equivalent.  The Provider shall
obtain from the Qualified End Users meter data that shall allow the Authority to
provide CAISO metering  settlement  data to the Department on a monthly basis in
format  and level of  detail,  and,  at the  Department's  option  and  expense,
real-time access to meter data via appropriate telecommunications equipment. The
Provider  shall  provide to the Authority and  Department  sufficient  data with
respect to each  Qualified End User to enable the  Authority  and  Department to
determine  compliance  with the  Measuring  Protocols  described in Section 3.03
hereof.  The  Authority  and  Department  shall be  entitled  to audit  all such
information.

     Section 3.03.  Measurement  Protocols.  All payments  within this Agreement
shall be based upon  Capacity  and Energy  provided as verified  using  mutually
agreed protocols that, at a minimum,  comply with the requirements for measuring
demand and energy  reductions  established in the applicable CAISO protocols and
related  tariffs  and  technical  standards.  No  Capacity  shall be  treated as
Nominated Capacity without testing to certify the Capacity. The Capacity will be
determined  after the installation of the requisite  metering and controls.  The
Provider shall notify the Authority when new Capacity is ready for testing.  The
Authority  shall  within 5  Business  Days  issue a  request  for load  from the
Qualified End User at an hour selected randomly within the Operating Parameters.
The Capacity will be determined  using the actual demand  reduction  measured at
the Revenue Meter adjusted to the Metering Point(s) as settlement  quality meter
data per the CAISO standards and as defined in the mutually agreed  protocols in
accordance  with the procedures  outlined in Attachment B. The Authority and the
Department  shall have the right to conduct  random  tests of this  Capacity  no
fewer than six times per year.  The  Capacity  may be changed  from time to time
based  upon  performance  during  calls  from the CAISO,  the  Authority  or the
Department and subsequent tests. All payments will be based upon the most recent
measurement  of Capacity,  as adjusted by the Authority for normal  seasonal and
business fluctuations.

     The Capacity  provided by some  Qualified  End Users may vary from month to
month and during the time period of the Operating Parameters. The Provider shall
use its best  efforts to factor these  variations  into its  Nominated  Capacity
schedules. The Provider shall allow the Authority and Department to review these
calculations.  The Provider,  Authority and the Department shall incorporate any
reasonably  required  modifications  to  these  calculations  disclosed  by such
review.

     To insure accurate  definition and implementation of the metering,  testing
and  measurement  protocols  defined in  Article  III and  Section  2.06 of this

Demand Reserves Provider Agreement -- DBS Industries
Agreement,  the Authority and the  Department,  shall develop a Measurement  and
Verification Protocol Implementation Guide within 30 Days after the execution of
this Agreement.

                                   ARTICLE IV
                            GUARANTEES OF PERFORMANCE

     Section 4.01. Non-performance Charges. (a) Except as provided in (b), after
the Project  Initiation Period the Capacity Payment paid or payable in any month
shall be  reduced  by the sum of the  amounts  determined  for each hour in such
month in accordance with the following formula:

                                  (A - B) x C

     (b)  Notwithstanding  the provisions of (a),  after the Project  Initiation
Period,  the  Capacity  Payment paid or payable in any month shall be reduced by
the sum of the  amounts  determined  for each  Warning/Stage  Alert Hour in such
month in accordance with the following formula:

                                (A - B) x (C x 3)

Where, for the purpose of either (a) or (b):

     A = Contracted Energy Scheduled or dispatched by the Authority,  Department
or CAISO for an hour

     B = Contracted Energy actually reduced during an hour

C =  Applicable Hourly Capacity Price

     (c) For those hours after the Project Initiation Period to which (a) or (b)
would not apply because  Contracted  Energy has not been scheduled or dispatched
by the Authority, Department or CAISO, if in any such hour (i) the Department or
Authority  conducts a test of Capacity and determines that such Capacity is less
than the Monthly Nominated Capacity and the Additional Hourly Capacity, (ii) the
Provider  notifies the Authority in accordance  with Section 2.02(a) hereof that
the Monthly Nominated Capacity will be less than the Minimum Capacity Amount, or
(iii) the Provider  notifies the Department on an hour ahead basis that all or a
portion of the Monthly  Nominated  Capacity and the Additional  Hourly  Capacity
will not be available to the Authority,  the Capacity Payment paid or payable in
any month  shall be reduced by the sum of the amounts  determined  for each such
hour in accordance with the following formulae:

Demand Reserves Provider Agreement -- DBS Industries
(A) Except as set forth in (B) below,  the reduction shall be calculated in
accordance with the following formula:

                                [(A + B) - C] x D

     (B) In the case  where the sum of A and B is less than C because  Qualified
End Users have either  terminated or are not complying with their  Qualified End
User  Agreements  and the  Authority  does not  accordingly  reduce the  Monthly
Nominated  Capacity and the Additional  Hourly Capacity in an amount so that the
sum of A and B equals C, the reduction  shall be  calculated in accordance  with
the following formula:

                             [(A + B) - C] x (D x 2)

Where, for the purpose of either (a) or (b):

     A = Monthly Nominated Capacity for an hour

     B = Additional Hourly Capacity for such hour, if any

     C = Capacity as tested by the Department

     D = Applicable Hourly Capacity Price

Nothing in this subsection (c) shall affect the Authority's rights under Section
4.02(i) or (ii) hereof.

     (d) For the  purposes of (a) or (b),  to the extent a  Permitted  Period is
less than an hour and Contracted  Energy is Scheduled or dispatched  during such
Permitted Period and such Energy is not actually reduced, such Contracted Energy
shall be treated as  Scheduled or  dispatched  and as not reduced for the entire
hour unless the Authority  again Schedules or dispatches  Contracted  Energy for
reduction for a Permitted Period during such hour and such Contracted  Energy as
Scheduled or dispatched is in fact reduced for such Permitted  Period,  in which
case, for the purposes of (a) or (b) for such hour:

     A = Permitted Periods (in minutes) during an hour

     B = Contracted  Energy actually reduced during each minute of the Permitted
Periods (MWminutes)

     C = Applicable Hourly Capacity Price/60

     (e) At such time as the  Provider  is no longer  subject  to any  imbalance
energy charges for which the Provider would be responsible under Section 2.02(c)

Demand Reserves Provider Agreement -- DBS Industries
hereof  arising  as a result  of any  failure  to  reduce  Contracted  Energy as
Scheduled or dispatched by the Authority,  Department or CAISO, upon any failure
of the Provider to reduce  Contracted  Energy as Scheduled or  dispatched by the
Authority or Department in accordance with the provisions  hereof,  the Provider
shall pay to the  Authority  an amount in addition to any other  amount  payable
under this Section 4.01 equal to the positive  difference,  if any,  between (i)
the price at which the Authority,  acting in a commercially  reasonable  manner,
purchases  Energy in the amount  which the Provider  fails to reduce  hereunder,
plus costs  reasonably  incurred by the Authority in purchasing  such Energy and
additional transmission charges, if any, reasonably incurred by the Authority to
deliver such Energy,  or at the  Authority's  option,  the market price for such
Energy as determined by Buyer in a commercially  reasonable manner, and (ii) the
Energy Price.

     Section  4.02  Termination  Without  Recourse.  In  addition  to any  other
termination  rights herein,  except for any other  payments  otherwise due under
this Article IV, the Authority shall have the right, but not the obligation,  to
terminate  this  Agreement  without  recourse  against  the  Authority  for  any
termination  payment  or other  costs and  without  any  further  obligation  or
liability of the Authority, if:

        (i)       the Provider fails   to Control 200 MW ( of which at least 120
                  MW must be Non-Spinning  Capacity prior to January 1, 2003 and
                  80 MW must be  Non-Spinning Capacity  thereafter)  in the Peak
                  Hours and 120 MW (consisting of   which at least 72 MW must be
                  Non-Spinning  Capacity prior to January 1, 2003 and 48 MW must
                  be Non-Spinning  Capacity thereafter) in the Shoulder Hours on
                  and after October 1, 2002, or

        (ii)      the Provider fails to Control 400 MW (of which at least 320 MW
                  must be   Non-Spinning Capacity) in  the Peak Hours and 240 MW
                  (of  which at  least 192 MW must be  Non-Spinning Capacity) in
                  the Shoulder Hours on and after June 1, 2003, or

        (iii)     the Authority fails to enter into the CAISO Participating Load
                  Agreement by October 1, 2002, or

        (iv)      the  CAISO  Participating Load  Agreement is  terminated after
                  October 1, 2002, or

        (v)       A divided by B is less than 75% in any two Summer months  in a
                  calendar year after the Project Initiation Period

                  Where:

                  A =  Contracted Energy actually reduced during such month

                  B = Contracted Energy Scheduled or dispatched for reduction by
                  the Authority, Department or CAISO during any month.

Demand Reserves Provider Agreement -- DBS Industries
(vi)     the  Provider  fails  to comply with  the payment terms in its
                  Qualified End User Agreement.

The Provider may not assert a Force  Majeure  event as the result of any actions
of CAISO or any Governmental Authority other than the Department for the purpose
of  preventing  termination  of this  Agreement  pursuant to this Section  4.02.
Nothing in this Section  4.02 shall  preclude the  Authority  from  pursuing any
remedies  available to it under Article VII with respect to any event  described
in this Section 4.02.

     Section 4.03. Exclusive Remedies for Shortfalls and Delays. Notwithstanding
Article  VII  or  any  other  provision  of  this  Agreement,  and  assuming  no
intentional breach by the Authority hereunder, this Article IV shall provide the
Authority's  exclusive  remedy  in the  event the  Provider  fails to  Schedule,
dispatch  or  provide  all or part of the  Monthly  Nominated  Capacity  and any
Additional Hourly Capacity or Contracted Energy.  Failure to pay any amounts due
under this Article IV shall,  however,  constitute a separate and distinct Event
of Default to which Article VII shall apply.  The Parties agree that Authority's
actual  damages in the event the  Authority  fails to Schedule  or dispatch  the
Monthly  Nominated  Capacity and any  Additional  Hourly  Capacity or Contracted
Energy  in  accordance  with the  terms  of this  Agreement  would be  extremely
difficult or impracticable to determine and that, after negotiation, the Parties
have  agreed  that  the  liquidated  amounts  set  forth in  Section  4.01 are a
reasonable estimate of the damages that the Authority would incur as a result of
such failures.

                                    ARTICLE V
                                    PAYMENTS

     Section 5.01.  Billing Period;  Address.  The accounting and billing period
for  transactions  under this Agreement shall be one (1) calendar  month.  Bills
sent to the Authority shall be sent to the Billing Address.

     Section 5.02. Timing of Payments. All payments for amounts billed hereunder
shall  be paid  so that  such  payments  are  received  by the  Provider  by the
twenty-third  (23rd)  Day of the  Invoice  Month or by tenth  (10th)  Day  after
receipt of the bill,  whichever is later.  Payment  shall be made by  electronic
funds transfer,  or by other mutually agreeable method,  from the Demand Reserve
Fund. If the due date falls on a non-Business Day, then the payment shall be due
on the next following Business Day.

     Section 5.03.  Late  Payments.  Amounts not paid on or before the due date,
including without  limitation  amounts due and not paid under Article IV or VII,
shall be payable with interest accrued at the rate of one percent (1%) above the
Pooled Money Investment  Account rate accrued in accordance with Government Code
Section 927.6(b) not to exceed 15%.

     Section 5.04. Disputes. A Party may, in good faith, dispute the correctness
of any invoice or any adjustment to an invoice, rendered under this Agreement or

Demand Reserves Provider Agreement -- DBS Industries
adjust any invoice for any arithmetic or computational  error within twelve (12)
months of the date the invoice,  or adjustment to an invoice,  was rendered.  In
the event an  invoice  or  portion  thereof,  or any other  claim or  adjustment
arising hereunder, is disputed, payment of the undisputed portion of the invoice
shall be required to be made when due, with notice of the objection given to the
other Party.  Any invoice dispute or invoice  adjustment shall be in writing and
shall state the basis for the  dispute or  adjustment.  Payment of the  disputed
amount shall not be required until the dispute is resolved.  Upon  resolution of
the dispute,  any required payment shall be made within two (2) Business Days of
such resolution along with interest accrued at the rate provided in Section 5.03
from and  including  the due date to but  excluding  the date paid.  Inadvertent
overpayments  shall be returned upon request or deducted by the Party  receiving
such  overpayment  from subsequent  payments,  with interest accrued at the rate
provided in Section 5.03 from and including the date of such  overpayment to but
excluding the date repaid or deducted by the Party  receiving such  overpayment.
Any  dispute  with  respect to an invoice  is waived  unless the other  Party is
notified in  accordance  with this Section 5.04 within  twelve (12) months after
the invoice is rendered or any specific adjustment to the invoice is made. If an
invoice is not rendered  within  twelve (12) months after the close of the month
during which performance occurred,  the right to payment for such performance is
waived.

     Section 5.05. Records Retention and Audit.

     (a) Records Retention.  The Provider and the Authority,  or any third party
representative  thereof,  shall keep  complete and accurate  records,  and shall
maintain  such  records  and other data as may be  necessary  for the purpose of
ascertaining the accuracy of all relevant bills, data, estimates,  or statements
of charges submitted hereunder. Such records shall be maintained for a period of
3 years after the date of receipt of final payment under this Agreement.  Within
three (3) years from the date of receipt of final payment under this  Agreement,
either Party may request in writing  copies of the records of the other Party to
the extent  reasonably  necessary  to verify the  accuracy of any  statement  or
charge.  The  Party  from  which  documents  or data  has been  requested  shall
cooperate in providing the documents and data within a reasonable time period.

     (b) Audit.  The Provider  agrees that the Authority,  the  Department,  The
Department  of General  Services,  the Bureau of State  Audits,  CPUC,  or their
designated representative shall have the right to review and to copy any records
and  supporting  documentation  pertaining  to  sales of the  Monthly  Nominated
Capacity  and  any  Additional  Hourly  Capacity  or  Contracted  Energy  by the
Authority to the Department pursuant to this Agreement.  The Authority agrees to
maintain such records for possible  audit for a minimum of three (3) years after
the final  payment  under  this  Agreement.  The  Authority  agrees to allow the
auditor(s)  access to such records  during  normal  business  hours and to allow
interviews of any employees who might  reasonably  have  information  related to
such  records.  Further,  the Authority  agrees to include  similar right of the
State  to audit  records  and  interview  staff in any  material  contract  with
contractors or suppliers related to performance of this Agreement.

Demand Reserves Provider Agreement -- DBS Industries
ARTICLE VI
                                  FORCE MAJEURE

     Section 6.01. Force Majeure.

     (a) No Breach for Force Majeure. Except as otherwise specifically set forth
in this Agreement, no Party shall be liable for or considered to be in breach of
this  Agreement to the extent that a failure to perform its  obligations  (other
than an  obligation to pay money) under this  Agreement  shall be due to a Force
Majeure.  To the extent either Party is prevented by Force Majeure from carrying
out, in whole or part, its  obligations  hereunder and such Party (the "Claiming
Party") gives notice and details of the Force Majeure to the other Party as soon
as practicable, then the Claiming Party shall be excused from the performance of
its obligations  hereunder  (other than the obligation to make payments then due
or becoming due with respect to  performance  prior to the Force  Majeure).  The
Claiming Party shall remedy the Force Majeure with all reasonable dispatch.

     (b) Payment During Force  Majeure.  The  Authority's  obligation to pay the
Capacity  Payment will not be excused on account of an event of Force Majeure to
the extent that the  Authority  is capable of  providing  the Monthly  Nominated
Capacity  and any  Additional  Hourly  Capacity  or  Contracted  Energy.  If the
Provider is unable to provide all or part of the Monthly Nominated  Capacity and
any Additional Hourly Capacity or Capacity or Contracted Energy as a result of a
Force Majeure,  the Authority  shall pay on a pro-rata basis the Monthly Payment
only to the extent that the Provider is providing the Monthly Nominated Capacity
and any Additional  Hourly  Capacity and the  Authority,  Department or CAISO is
able to Schedule or dispatch Contracted Energy.

     (c) Termination for Force Majeure.  If an event of Force Majeure  continues
uninterrupted for more than twelve (12) months, the Party not claiming the Force
Majeure  event may  terminate  this  Agreement,  without  further  obligation or
liability of either Party or any cost hereunder.

                                   ARTICLE VII
                                EVENTS OF DEFAULT

     Section  7.01.  Events of Default.  An "Event of  Default"  shall mean with
respect to a party ("Defaulting Party") under a Schedule:

     (a) if default shall be made in the due and punctual payment of the Monthly
Payment  when and as the same shall  become due and  payable,  and such  default
shall continue for a period of ten (10) Days after written notice thereof by the
other party (the "Non-Defaulting Party") to the Defaulting Party;

Demand Reserves Provider Agreement -- DBS Industries
(b) if default shall be made by the Defaulting  Party in the performance or
observance on its part of any other of the covenants or agreements  contained in
this Agreement to be performed, other than as specified in clause (1) above, and
such default shall continue for a period of sixty (60) Days after written notice
thereof to the Defaulting Party by the Non-Defaulting Party; provided,  however,
that if such default shall be such that it cannot be remedied by the  Defaulting
Party  within such sixty (60) Day period,  it shall not  constitute  an Event of
Default if corrective  action is commenced by the  Defaulting  Party within such
period and  diligently  pursued by the  Defaulting  Party  until the  default is
remedied.

     Section 7.02. Remedies for Events of Default.  Subject to the provisions of
Article  IV  hereof,  if an Event  of  Default  occurs  and is  continuing,  the
Non-Defaulting  Party may  exercise  any  remedies  available  to it at law,  in
equity, by statute or otherwise,  including,  but not limited to, termination of
this  Agreement,  the right to seek  injunctive  relief to  prevent  irreparable
injury  to the  Non-Defaulting  Party  or  mandamus  to  compel  performance  of
obligations hereunder.

     Section 7.03. Remedies not Exclusive.  Subject to the provisions of Article
IV hereof,  no remedy by the terms of this Agreement  conferred upon or reserved
to the Non-Defaulting Party is intended to be exclusive of any other remedy, but
each and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or existing at law or in equity or by statute.

     Section  7.04.  Effect  of  Waiver  and  Other  Circumstances.  No delay or
omission of the Non-Defaulting Party to exercise any right or power arising upon
the happening of an Event of Default shall impair any right or power or shall be
construed  to be a waiver of any such default or to be an  acquiescence  therein
and every power and remedy given by this Article to the Non-Defaulting Party may
be  exercised  from time to time and as often as may be deemed  expedient by the
Non-Defaulting  Party.  A  Non-Defaulting  Party  may  waive  any  past  default
hereunder and its consequences. No such waiver shall extend to any subsequent or
other default or impair any right  consequent  thereon.  Nothing in this Section
7.04 shall operate to alter or diminish the  exclusive  remedies set forth above
in Section 4.01 for the events set forth therein.

                                  ARTICLE VIII
                                  MISCELLANEOUS

     Section  8.01.  Governing  Law.  This  Agreement  shall be  governed by and
construed in accordance with the Laws of the State, without regard
to the conflicts of laws rules thereof.

     Section 8.02. Forum and Venue. All actions related to the matters which are
the  subject  of this  Agreement  shall  be  forumed  and  venued  in a court of
competent jurisdiction in the State of California.

     Section 8.03.  Amendment.  Neither this Agreement nor any provision  hereof
may be amended,  waived,  discharged  or  terminated  except by an instrument in

Demand Reserves Provider Agreement -- DBS Industries
writing signed by the Provider and the  Authority.  In the event that changes in
Laws,  regulations or practices,  materially alter the procedures  applicable to
Parties' performance of their respective obligations hereunder, the Parties will
endeavor  in  good  faith  to  negotiate   appropriate  and  mutually  agreeable
amendments to this Agreement or separate protocols to reflect such changes.

     Section 8.04. Counterparts. This Agreement may be executed in any number of
counterparts, and upon execution by the Parties, each executed counterpart shall
have the same force and effect as an original  instrument  and as if the Parties
had signed the same  instrument.  Any  signature  page of this  Agreement may be
detached from any  counterpart  of this  Agreement  without  impairing the legal
effect of any signatures thereon,  and may be attached to another counterpart of
this  Agreement  identical in form hereto but having  attached to it one or more
signature pages.

     Section 8.05.  Limitations of Liability,  Remedies and Damages.  Each Party
acknowledges and agrees that in no event shall any partner, shareholder,  owner,
officer,  director,  member of its governing bodies, employee, hired consultant,
attorney,  or agent,  or affiliate of either Party be liable to any other person
or Party for any payments,  obligations, or performance due under this Agreement
or any breach or  failure of  performance  of either  Party,  or for any loss or
damage to property, loss of earnings or revenues,  personal injury, or any other
direct, indirect, or consequential damages or injury, or punitive damages, which
may occur or result from the performance or  non-performance  of this Agreement,
including  any  negligence  arising   hereunder,   and  the  sole  recourse  for
performance of the obligations  under this Agreement  shall be against  Provider
and each of its assets, or against the Authority in accordance with Section 2.10
hereof, and not against any other person, except for such liability as expressly
assumed by an assignee or guarantor pursuant to an assignment of this Agreement.

     Section 8.06. Transfer of Interest in Agreement.

     (a) General Requirement. No Party shall voluntarily assign or transfer this
Agreement  or  any  portion  thereof,  nor  any  of the  obligations  or  rights
hereunder,  without the prior  written  consent and approval of the other Party,
which consent shall not be unreasonably withheld or delayed.

     (b) Novation.  Notwithstanding the provisions of Section 8.06(a) hereof, at
any time after January 1, 2003, the Authority shall, upon the written request of
the Department,  enter into one or more Replacement Agreements if agreed to by a
Qualified Electric  Corporations.  This Agreement shall terminate upon execution
of the  Replacement  Agreement  except  for such  provisions  that  survive  the
termination of this Agreement by their terms.  The execution of the  Replacement
Agreement shall  constitute a novation that shall relieve the Department and the
Authority of any liability or obligation,  as against each other, arising out of
this Agreement after the date of termination of this Agreement.  The Authority's
obligation  to  enter  into a  Replacement  Agreement  shall be  subject  to the
condition  precedent that the California Public Utilities  Commission shall have
conducted a just and reasonable review under Section 451 of the Public Utilities
Code  with  respect  to such  Replacement  Agreement  and shall  have  issued an

Demand Reserves Provider Agreement -- DBS Industries
appropriate approval, order or other determination  determining that the charges
under such Replacement Agreement are just and reasonable.

     Section 8.07.  Severability.  In the event that any of the terms, covenants
or conditions of this Agreement,  or the application of any such term,  covenant
or  condition,  shall be held  invalid as to any person or  circumstance  by any
court,  regulatory  agency,  or other regulatory body having  jurisdiction,  all
other terms,  covenants or  conditions of this  Agreement and their  application
shall not be affected  thereby,  but shall  remain in force and effect  unless a
court, regulatory agency, or other regulatory body holds that the provisions are
not separable from all other provisions of this Agreement.

     Section 8.08. Relationship of the Parties.

     (a) Nothing  contained  herein shall be construed to create an association,
joint venture, trust, or partnership, or impose a trust or partnership covenant,
obligation,  or  liability  on or with regard to any one or more of the Parties.
Each Party shall be individually responsible for its own covenants, obligations,
and liabilities under this Agreement.

     (b) All rights of the Parties  are  several,  not joint.  No Party shall be
under the  control of or shall be deemed to  control  another  Party.  Except as
expressly  provided in this  Agreement,  no Party shall have a right or power to
bind another Party without its express written consent.

     Section  8.09.  No  Agency.  In  performing  their  respective  obligations
hereunder,  neither  Party is acting,  or is  authorized to act, as agent of the
other Party.

     Section 8.10. Authority to Execute.

     (a) Each  party  hereto  represent  and  warrants  that  (1) they  have all
requisite  power and  authority  to execute  and deliver  the  Agreement  and to
perform  its  obligations  thereunder,  and has  taken or caused to be taken all
necessary  action to authorize the  execution,  delivery and  performance of its
obligations under the Agreement;  (2) the Agreement constitutes the legal, valid
and binding obligation of the parties, enforceable in accordance with its terms;
(3) the  execution and delivery of the  Agreement  and the  consummation  of the
transactions  contemplated  thereby do not and will not:  (a)  conflict  with or
constitute,  on the part of either  party,  a violation  or breach of or default
(with due notice or the passage of time or both) under (i) any  applicable  law,
ordinance or regulation;  (ii) any applicable court or administrative  decree or
order  which  is  directed  or  affects  either  party;  or (iii)  any  material
agreement,  contract or instrument to which  Provider or Authority is a party or
by which  it or its  properties  is  otherwise  subject;  or (b)  result  in the
creation or imposition of any prohibitive  lien,  charge or encumbrance upon any
of the property or assets of either party,  which conflict,  violation,  breach,
default,  lien,  charge  or  encumbrance  might  have  consequences  that  would
materially  and  adversely   affect  the   consummation   of  the   transactions
contemplated by the Agreement.

     (b) The Authority waives its sovereign immunity with respect to any and all

Demand Reserves Provider Agreement -- DBS Industries
claims  arising from or in connection  with this  Agreement or the  transactions
contemplated hereby. The Authority covenants that it shall not assert that it is
entitled to  immunity  from suit or  enforcement  of a judgment on the ground of
sovereignty  or  otherwise  in a  California  or  federal  court in  respect  of
proceedings against it in relation to the Agreement.

     Section  8.11.  Third  Party  Beneficiaries.  This  Agreement  shall not be
construed to create any rights in, or to grant remedies to, any third party as a
beneficiary  of  this  Agreement  or of  any  duty,  obligation  or  undertaking
established herein.

     Section  8.12.  Waivers.  Any waiver at any time by any Party of its rights
with respect to a default under this  Agreement,  or any other matter under this
Agreement,  shall not be deemed a waiver with respect to any subsequent  default
of the same or any other matter.

     Section 8.13. Notices. All formal notice, demand or request provided for in
this  Agreement  shall be made in writing and shall be deemed  properly  served,
given or made if delivered in person,  or sent by either registered or certified
mail,  postage  prepaid,  or prepaid telegram or fax or other means agreed to by
the Parties to the addresses set forth in Appendix A. Notice by overnight United
States mail or courier  shall be effective on the next Business Day after it was
sent. A Party may change its  addresses  or add  additional  noticed  Parties by
providing notice of same in accordance herewith.

     Section 8.14 Waiver of Consequential Damages. In no event, whether based on
contract,  indemnity,  warranty, tort (including,  as the case may be, a Party's
own negligence) or otherwise, shall either Party be liable to the other Party or
to  any  other   person  or  party  for  or  with  respect  to  any  claims  for
consequential,  indirect, punitive,  exemplary, special or incidental damages or
otherwise.

     Section 8.15. Headings. The headings contained in this Agreement are solely
for the  convenience of the Parties and should not be used or relied upon in any
manner in the construction or interpretation of this Agreement.

     Section 8.16. Further Assurances.  Each Party agrees to execute and deliver
such other  instruments  and  documents and to take such other actions as may be
reasonably necessary to complete performance  hereunder and otherwise to further
the purposes and intent of this Agreement.

             [The remainder of this page intentionally left blank.]

Demand Reserves Provider Agreement -- DBS Industries
Section 8.17. Application of Government Code and the Public Contracts Code.
Pursuant to Section  80014(b) of the Water Code,  the  Department has determined
that it would be  detrimental  to  accomplishing  the  purposes  of  Division 27
(commencing  with  Section  80000)  of the Water  Code to make  such  provisions
applicable  to this  Agreement and that such  provisions  and  requirements  are
therefore not applicable to or incorporated in this Agreement.

     IN WITNESS  WHEREOF,  the Parties have caused this Agreement to be executed
by their duly authorized representative as of the 17th Day of May 2002.

     PROVIDER

     DBS INDUSTRIES, INC.

                                   By: /s/ Fred W. Thompson
                                   Name:   Fred W. Thompson
                                   Title:  President and Chief Executive Officer

                                   STATE OF CALIFORNIA CONSUMER POWER
                                   AND CONSERVATION FINANCING
                                   AUTHORITY

                                   By: /s/ S. David Freeman
                                       Name:   S. David Freeman
                                       Title: Chairman

Demand Reserves Provider Agreement -- DBS Industries
Appendix A

                                    Addresses

Authority                                      Provider

All Notices:                                   All Notices:

California Consumer Power and                  DBS Industries, Inc.
Conservation Financing Authority

Street:                                        Street:

901 P Street, Suite 142A                       100 Shoreline Highway, Suite 190A

City, State, Zip:                              City, State, Zip:

Sacramento, Calif 95814                        Mill Valley, CA 94941

Attn:  Chief Executive Officer                 Attn: Chief Executive Officer and
                                                     General Counsel
Phone:  916-651-9750                           Phone: 415-380-8055
Facsimile: (916) 651-9595                      Facsimile: 415-380-8199
                                               Federal Tax ID No 84-1124675

Billing Address:                               Billing Address:
California Power Authority                     same as above
Attn:  Demand Reserve Fund

901 P Street, Suite 142A
Sacramento, Calif.  95814
Phone:  916-651-9750
Facsimile: (916) 651-9595

Demand Reserves Provider Agreement -- DBS Industries
Attachment B
                   Protocol for Measuring Capacity and Energy
                        Other Than for Ancillary Services

Section 3.03 of the  Agreement  acknowledges  the CAISO  standards for measuring
capacity and energy provided by demand  reduction for Ancillary  Services.  This
Protocol  establishes  the  standards  for  measuring  Capacity  available  when
Contracted  Energy is Scheduled or  dispatched.  When  Contracted  Energy is not
Scheduled or dispatched,  the Capacity shall be the Capacity tested form time to
time in accordance with this Agreement

The Qualified End User's Baseline for measuring  Contracted  Energy reduced will
be  calibrated  to the Qualified End User's load shape to account for the normal
change in  customer's  load during the course of the Day.  The  normalized  load
shape will be  calculated  based on the  average  for the  Qualified  End User's
hourly  demand for that hour (e.g.,  hour ending 2:00 p.m.)  during the past ten
workdays,  excluding  Saturdays  and  Sundays  and  curtailment  Days for either
Ancillary  Services or Scheduled or dispatched  Contracted  Energy and excluding
both the highest and lowest value for each hour.

For  example,  assume  Contracted  Energy is  Scheduled  in the CAISO Hour Ahead
market.  Assume for the following  period that a Contracted  Energy Schedule was
issued in hour 12 for hours 15 through 16:

Hour            9    10   11   12   13     14      15       16      17       18
10-Day Average  10   10   10   11   11     11      12       13      12       11
Metered Amount  11   11   11   12   12     9       1        1       9        11
Baseline        N/A  N/A  N/A  N/A  N/A    N/A     13.2**   14.3**  N/A      N/A
Megawatts       N/A       N/A  N/A  N/A    N/A     12.2     13.3    N/A      N/A

All values in MWs

     To compute the Contracted Energy reduced,  the following procedure would be
followed:

First,  the 10-Day Average  consisting of historical  meter data of load (in MW)
collected by the Authority or its agent of each Qualified End User for the prior
consecutive ten Days (excluding Saturdays and Sundays) is calculated.

Second,  the historical meter data of load (in MW) collected by the Authority or
its agent of each Qualified End User for three  Calibration Hours (which are the
three hours  before the  notification)  is  calculated.  Since the  notification
occurred in hour 12, the  calibration  hours  would be the three hours  before -
hours 9, 10 and 11.

Demand Reserves Provider Agreement -- DBS Industries
Third,  the ratio of the average of the three  Calibration  Hours  (11MW) to the
10-Day Average (10MW) is computed (11MW/10MW).

Fourth, that ratio (11MW/10MW) is multiplied by the 10-Day Average for each hour
(e.g.,  12 MW for hour 15) to compute the  Baseline  Quantity  (13.2 MW for hour
15).

Fifth, the metered amount for such hour is subtracted from the Baseline quantity
to yield the Energy  reduced  during  that hour (12.2 MW = 13.2MW - 1MW for hour
15).

A similar approach is used when the Energy reduction is Scheduled on a Day Ahead
basis.  In this case, the three  Calibration  Hours will be on the previous Day.
For example, the notification is sent at 1:30 pm on a Tuesday after the close of
the CAISO Day Ahead market for Wednesday.  Then Hours Ending 1100, 1200 and 1300
on Tuesday would be the  Calibration  Hours used to measure  Wednesday's  Energy
reduction.

For the Scheduling of Energy reduction on a Day Ahead basis on Monday, a typical
Sunday-Monday  48-hour  load  profile  would  be  computed  for the  previous  5
weekends. Then the average 48-hour load profile would be calibrated to the three
reference hours on Sunday (HE 1100, 1200, and 1300).