I think they are contractually obligated to taking the runner-up from PAC12 play if the PAC12 champion is playing in the CFP.
From the Rose Bowl's website:
"The 103rd Rose Bowl Game will be held on January 2, 2017 at the Rose Bowl Stadium. The game will feature the champion of the Pac-12 and Big Ten Conference. If the Conference champion is selected to participate in the College Football Playoff Semifinal, the Rose Bowl Game will select the next best team in the conference."
I guess "next best team" could be an arbitrary decision made by the Bowl based on ratings and ticket sales but I think it means the runner-up. After that, the Bowl selection process is done by "preference", not by order of finish