Document:

Exhibit 10.1

Exhibit 10.1

AMENDMENT AND SUPPLEMENT NO. 2

TO

SUPPLEMENTAL AND ADDITIONAL INDENTURE OF LEASE

BETWEEN

THE NAVAJO NATION

AND

ARIZONA PUBLIC SERVICE COMPANY,

EL PASO ELECTRIC COMPANY,

PUBLIC SERVICE COMPANY OF NEW MEXICO,

SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT,

SOUTHERN CALIFORNIA EDISON COMPANY

AND

TUCSON ELECTRIC POWER COMPANY

Dated: March 7, 2011

 

 

 

AMENDMENT AND SUPPLEMENT NO. 2 TO

SUPPLEMENTAL AND ADDITIONAL INDENTURE OF LEASE

This Amendment and Supplement No. 2 to the Supplemental and Additional Indenture of Lease
dated March 7, 2011 (this “Amendment”) is by and between the Navajo Nation (formerly known
as The Navajo Tribe of Indians), acting through the Navajo Nation Council, for and on behalf of the
Navajo Nation (hereinafter referred to as the “Nation”), as lessor, and Arizona Public
Service Company (“APS”), El Paso Electric Company, Public Service Company of New Mexico,
Salt River Project Agricultural Improvement and Power District, Southern California Edison Company
(“Edison”), and Tucson Electric Power Company (formerly known as Tucson Gas & Electric
Company) (hereinafter, collectively, together with their successors and assigns, referred to as the
“Lessees,” and each individually referred to as a “Lessee”). The Nation and the
Lessees are hereinafter collectively referred to as the “Parties.”

The Parties agree as follows:

	1	 	BACKGROUND.

	 	1.1	 	APS has leased certain premises from the Nation under that certain Indenture of
Lease dated December 1, 1960 between APS and the Nation, as supplemented and amended by
that certain Supplemental and Additional Indenture of Lease dated July 6, 1966, between
the Nation, APS and the other Lessees, as further supplemented and amended by that
certain Amendment and Supplement No. 1 to Supplemental and Additional Indenture of
Lease dated April 25, 1985, between the Nation, APS and the other Lessees (the
“1985 Lease Supplement”; and such Indenture of Lease, as supplemented and
amended, the “1960 Lease”).

	 	1.2	 	Lessees have leased certain premises from the Nation under that certain
Supplemental and Additional Indenture of Lease dated July 6, 1966, between the Nation
and the Lessees, as supplemented and amended by the 1985 Lease
Supplement (such Supplemental and Additional Indenture of Lease, as supplemented and
amended, the “1966 Lease”).

 

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	 	1.3	 	The Parties desire to amend the 1960 Lease and the 1966 Lease to reflect
certain new terms and conditions.

	 	1.4	 	Edison does not intend to remain a participant in the Four Corners Project
after July 2016. Accordingly, Edison intends to end its tenancy under the Lease upon
the earlier of the sale of its interest in the Four Corners Project or July 6, 2016.
The date on which Edison ends its tenancy, as set forth in the preceding sentence, is
referred to as the “Amendment 2 Termination Date.”

	 	1.5	 	Upon the Amendment 2 Termination Date, this Amendment shall terminate.

	 	1.6	 	The 1960 Lease and the 1966 Lease are amended only as set forth in this
Amendment. To the extent, however, that there is any conflict between the 1960 Lease
and this Amendment or the 1966 Lease and this Amendment, this Amendment shall govern.

	 	1.7	 	This Amendment is not intended to and does not merge the leasehold estates of
the 1960 Lease and the 1966 Lease, or the rights, liabilities, or obligations
(collectively, “Rights”) of the Parties set forth in the 1960 Lease and the
1966 Lease. Further, in no event shall the Lessees (except for APS) have any Rights
under the 1960 Lease or with respect to the leasehold estate demised to APS under the
1960 Lease. Rather, except for APS, all the Lessees’ Rights are limited only to the
Four Corners Project, as set forth in the 1966 Lease.

	2	 	DEFINITIONS.

	 	2.1	 	“§ 323 Grant” or “§ 323 Grants” — One or more grants of rights-of-way
and easements under the Act of February 5, 1948 (62 Stat. 17, 18, 25 U.S.C. § 323-328),
the Act of March 3, 1879 (20 Stat. 394, 5 U.S.C. § 485), as amended, and
the Acts of July 9, 1832, and July 27, 1868 (4 Stat. 564, 15 Stat. 228. 25 U.S.C. §
2) and such regulations promulgated thereunder, as are applicable, including 25
C.F.R. § 1.2 and 25 C.F.R. Part 169.

 

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	2.2	 	“§ 323 Grant Land” — Has the meaning set forth in Section 5.2.

	2.3	 	“Annual Payment” — Except for (i) payments owed to the Nation under
the existing Settlement and Closing Agreements that the Nation has executed with each
individual Lessee, (ii) payments that will be owed to the Nation under the Settlement
and Closing Agreements set forth in Section 14, and (iii) the payment set forth in
Section 4.5, the total and sole payment that shall be made by (X) APS to the Nation, in
consideration for the rights set forth in the 1960 Lease, including, but not limited
to, (a) all leasehold rights, (b) the Existing § 323 Grants, and (c) the Renewed § 323
Grants; and by (Y) the Lessees to the Nation, in consideration for the rights set forth
in the 1966 Lease, including, but not limited to, (a) all leasehold rights, (b) the
Existing § 323 Grants, and (c) the Renewed § 323 Grants.

	2.4	 	“Communication Sites” — The communication sites and related facilities
identified within item 5 of Exhibit B.

	2.5	 	“Existing § 323 Grants” — The § 323 Grants set forth on Exhibit B.
	 
	2.6	 	“Four Corners Project” — Has the meaning set forth in the 1966 Lease.
	 
	2.7	 	“Initial Four Corners Plant” — Has the meaning set forth in the 1966 Lease.
	 
	2.8	 	“Plan” — Has the meaning set forth in Section 7.1.

	2.9	 	“Plant” — For convenience only, and not to merge the leasehold estates
under the 1960 Lease and the 1966 Lease, a reference to the Initial Four Corners Plant
and the Four Corners Project, respectively.

	2.10	 	“Renewed § 323 Grants” — Has the meaning set forth in Section 4.2.

 

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	 	2.11	 	“Navajo Nation Lands” — Has the meaning set forth in the 1966 Lease
for the term “Reservation Lands.”

	 	2.12	 	“Secretary” — The Secretary of the United States Department of the
Interior or his or her duly authorized designee, representative, or successor.

	 	2.13	 	“Transmission Lines” — The electrical transmission lines and related
facilities identified within items 3 and 4 of Exhibit B.

	3	 	TERM.

	 	3.1	 	This Amendment shall become effective when it has been signed by the Lessees
and subsequently signed by the Nation’s duly authorized representative, pursuant to a
Navajo Nation Council Resolution approving this Amendment.

	 	3.2	 	The Navajo Nation Council Resolution approving this Amendment, and signature by
the Nation’s duly authorized representative, shall be deemed to be sufficient legal
approval by the Nation of this Amendment.

	 	3.3	 	This Amendment shall terminate on the Amendment 2 Termination Date.

	 	3.4	 	In the event this Amendment terminates as a result of the arrival of July 6,
2016, Edison shall not be relieved of any of its continuing or accrued and unfulfilled
or unperformed obligations to the Nation under the 1966 Lease, and Edison shall retain
all of its rights under the 1966 Lease with respect to such continuing obligations.

	4	 	NATION’S CONSENT TO § 323 GRANTS BY SECRETARY FOR THE PLANT, TRANSMISSION LINES, AND
COMMUNICATION SITES.

	 	4.1	 	The Nation has previously consented to, and the Secretary has granted, the
Existing § 323 Grants, and the renewal, extension or reissuance of each Existing § 323
Grant will be necessary.

 

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	 	4.2	 	The Nation consents and covenants to consent now, and for the terms of each of
the 1960 Lease and the 1966 Lease (collectively, “Consents”), that the Lessees
shall have the right to obtain, by grant from the Secretary, and the Nation Consents to
the grant by the Secretary, of renewed, extended, or reissued § 323 Grants for the
rights-of-way covered in the Existing § 323 Grants. (Such renewed, extended, or
reissued § 323 Grants are referred to as the “Renewed § 323 Grants”).

	 	4.3	 	The Nation and Lessees will cooperate fully with each other and the Secretary
to obtain the Renewed § 323 Grants.

	 	4.4	 	The Navajo Nation Council Resolution approving this Amendment shall be deemed
to be sufficient legal approval by the Nation for the Renewed § 323 Grants. No further
consideration shall be required by the Nation in order for the Secretary to issue the
Renewed § 323 Grants.

	 	4.5	 	The Lessees shall provide the Nation a copy of applications for the Renewed §
323 Grants, and each application shall be accompanied by a payment of no more than $800
per application.

	 	4.6	 	The Existing § 323 Grants and the Renewed § 323 Grants shall be additional and
supplementary to, separate and independent from, and not conditioned upon the leasehold
rights leased to APS under the 1960 Lease and to the Lessees under the 1966 Lease; and
a termination of either the 1960 Lease or the 1966 Lease for any reason shall not
terminate any §323 Grant, and a termination of any § 323 Grant for any reason, shall
not terminate the 1960 Lease or the 1966 Lease.

 

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	 	4.7	 	The Nation agrees to support the renewal, extension, or reissuance of the
Existing § 323 Grants as categorically excluded under section 3.2A of the Bureau of
Indian Affairs’ 2005 National Environmental Policy Act Handbook. If the Secretary
determines that additional environmental impact analysis is required, the Nation
hereby grants Lessees access to all Navajo Nation Lands necessary to complete such
additional analysis. Lessees will work with the appropriate Navajo Nation agencies
to effectuate any necessary access to any Navajo Nation Lands. The Nation also
agrees to assist the Lessees in completing such analysis and to take reasonable
actions to reduce the time and cost required to complete such analysis.

	 	4.8	 	Except as set forth in the 1960 Lease, APS shall not change the voltages of the
Transmission Lines without the Nation’s prior approval.

	 	4.9	 	Under no circumstances shall any § 323 Grant be interpreted as granting a fee
simple interest to the Lessees or any other property interest, except as set forth in
the § 323 Grant.

	5	 	ADDITIONAL TERMS REGARDING § 323 GRANTS FOR TRANSMISSION LINES.

	 	5.1	 	The provisions of Section 5.2 through Section 5.7, Section 11, and Section 13
below constitute a separate agreement between the Nation and APS. In no event shall
any default, action or omission by APS under Section 5.2 through Section 5.7, Section
11, or Section 13 below have any effect on any other Parties’ rights, privileges,
duties, obligations and liabilities under the remainder of this Amendment.

	 	5.2	 	The Navajo Nation Lands subject to an Existing § 323 Grant or a Renewed § 323
Grant and pertaining only to the Transmission Lines shall hereinafter be referred to as
“§ 323 Grant Land.”

	 	5.3	 	The use of the § 323 Grant Land shall be strictly limited to constructing,
reconstructing, replacing, repairing, operating and maintaining the Transmission Lines.
Any other use of the § 323 Grant Land shall require the consent of the
Nation. The consent of the Nation may be given, given upon conditions, or denied at
the sole discretion of the Nation.

 

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	 	5.4	 	The Nation shall be under no obligation to forego the use of the § 323 Grant
Land or any portion or lands burdened by the § 323 Grant Land, or to refrain from
authorizing any use of said lands by any third party, including but not limited to, the
exploration for and development and transportation of coal, oil, gas, or other natural
resources located within or beneath said lands, except to the extent that such use
physically interferes with the operation and maintenance of the Transmission Lines or
interferes with the purposes of the § 323 Grants.

	 	5.5	 	Upon the Nation’s proposed authorization of the use of the § 323 Grant Lands by
any third party, which new use may occupy the § 323 Grant Lands or otherwise burden the
§ 323 Grant Lands, the Nation agrees to notify APS and commence good faith consultation
with APS prior to the Nation’s final approval of said third party use. Prior to the
Nation’s final approval, the Nation shall require the third party to enter into an
agreement with APS, which agreement must be acceptable to APS, to indemnify, defend,
and hold APS harmless from any and all liability arising from the third party’s use,
interest, and activities within the § 323 Grant Land.

	 	5.6	 	Five years prior to the expiration of a Renewed § 323 Grant, or as soon as
practicable after any earlier termination of a Renewed § 323 Grant, APS and the Nation
shall meet to discuss whether APS will leave in place all, some, or none of the
Transmission Lines. If APS and the Nation cannot agree to terms regarding the
disposition of one or more of the Transmission Lines, APS shall remove the Transmission
Line(s) for which no agreement is reached, in accordance with the 

 

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Lease and applicable
laws and requirements, and shall leave the § 323 Grant Land in good condition. On the expiration date of a Renewed § 323 Grant, APS shall have
ninety (90) days to peaceably and without legal process deliver the possession of
the § 323 Grant Land, with or without the Transmission Lines, as the case may be.
In the event a Renewed § 323 Grant is terminated early, APS shall have six months to
peaceably and without legal process deliver the possession of the § 323 Grant Land
for such terminated § 323 Grant, with or without the Transmission Lines, as the case
may be. If delivery cannot be performed on or before such 90-day period or six
month period, as the case may be, APS and the Nation shall commence good faith
negotiations for compensation, fees or damages to be paid to the Nation for
prospective periods of occupation, use, or burden of the § 323 Grant Lands.

	 	5.7	 	Holding over by APS after the expiration or early termination of a Renewed §
323 Grant shall not constitute an extension/renewal thereof, or give APS any rights in
or to the § 323 Grant Lands. Holding over after expiration or early termination of a
Renewed § 323 Grant shall not give APS any rights via a Renewed § 323 Grant. Following
expiration or early termination of a § 323 Grant, the act of applying for a § 323 Grant
from the Secretary shall not give APS any rights to the § 323 Grant land.

	6	 	NATION’S SUPPORT OF ENVIRONMENTAL REVIEWS AND § 323 GRANTS. 

The Nation shall work
with the Lessees to obtain the necessary regulatory approvals and to advocate on behalf of the
Lessees in support of any National Environmental Policy Act, Endangered Species Act, or
National Historic Preservation Act analyses; § 323 renewals or extensions; or any other
requirements of the Department of the Interior (“DOI”) or the Nation that are
prerequisites necessary to conduct the operations of the Plant, Transmission Lines, and
Communication Sites. In its interactions with the DOI,
the Nation shall support the interests of the Lessees and advocate
positions that support the continued operations of the Plant, Transmission
Lines, and Communication Sites.

 

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	7	 	EMPLOYMENT AT THE FOUR CORNERS GENERATING STATION.

Section 19 of the 1960 Lease, Section 24 of the 1966 Lease and Section 25 of the 1966 Lease
(as amended by Section 12 of the 1985 Lease Supplement) are deleted in their entirety and
replaced as follows:

	 	7.1	 	Without limiting the scope or effectiveness of the provisions of Section 17 of
the 1960 Lease (Operation of Power Plant) or Section 22 of the 1966 Lease (Operation of
Enlarged Four Corners Generating Station), APS and the Lessees shall comply with the
terms of the Four Corners Generating Station Preference Plan (the “Plan”),
attached as Exhibit C.

	 	7.2	 	In the event that, in the opinion of their counsel, federal law develops in the
future to permit APS and the Lessees, respectively, to grant a preference in employment
based on tribal affiliation, as distinguished from a “Native American Indian”
preference in employment, APS and the Lessees shall practice a Navajo preference in
employment at the Plant in accordance with the requirements of this Section 7 and the
Plan.

	 	7.3	 	If, at any time, APS’s then current Collective Bargaining Agreement (which
governs labor at the Plant), as negotiated by APS in its sole discretion, conflicts
with this Section 7 or the Plan, then APS’s Collective Bargaining Agreement shall
take precedence.

 

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	8	 	ADVISORY COMMITTEE.

APS, the Lessees, and the Nation shall establish a Four Corners Advisory Committee for the
purpose of promoting open dialogue between them regarding operations of the Plant.

	 	8.1	 	The Committee shall consist of two members of the Navajo Nation Government with
experience in energy-related matters, one from the executive and one from the
legislative branch, and two senior officials representing APS and the Lessees, who
shall be tasked to work together and in consultation with their respective leaderships
to resolve concerns raised by APS and the Lessees or the Nation in a mutually
beneficial manner. The Committee shall meet regularly, but no less than two times a
year. Discussion topics and updates may include voluntary compliance agreements, the
impact of plant operations on the Nation’s members and surrounding communities and
emerging issues.

	 	8.2	 	APS and the Lessees or the Nation may submit disagreements and disputes to the
Committee for discussion and possible resolution. Decisions of the Committee shall be
in the nature of recommendations and shall not be binding on APS and the Lessees or the
Nation.

	9	 	ANNUAL PAYMENT.

	 	9.1	 	The Annual Payment shall replace all compensation for rents, rights of way, or
otherwise, set forth in the § 323 Grants (as to the § 323 Grant Land), the 1960 Lease
and the 1966 Lease, as applicable. All sections of the aforementioned documents
imposing a payment obligation on APS and the Lessees are hereby deleted.

 

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	 	9.2	 	The Annual Payment, which shall be $7,000,000 (in 2011 dollars), shall begin on
July 6, 2011. All subsequent Annual Payments shall be subject to annual adjustments,
based upon changes in the April Consumer Price Index U.S. City Average for All Urban
Consumers, published by the U.S. Bureau of Labor Statistics (“CPI”). The
annual CPI adjustment for the Annual Payment shall be as set forth in Exhibit D.

	 	9.3	 	On or before July 6 of each year, APS and the Lessees shall submit one check
for the Annual Payment to the Nation and indicate the adjustment required by the CPI.

	 	9.4	 	No Lessee shall be responsible or liable to the Nation for the payment of any
portion of such Annual Payment of any other Lessee. In the event that one or more
Lessees fails to pay the Nation its portion of such Annual Payment at the time such
Annual Payment is submitted to the Nation, APS (or the then operator of the Plant)
shall inform the Nation of the name of the Lessee(s) failing to make the Annual Payment
and the specific amount of each such Lessee’s shortfall. In the event the Nation
incurs costs associated with obtaining the required Annual Payment owed, the Nation
shall be entitled to recover from the defaulting Lessee(s) its associated costs,
including, but not limited to, attorney’s fees, filing fees and interest accrued. A
list of each Lessee’s portion of the Annual Payment shall be provided to the Nation.

	 	9.5	 	The Nation agrees that the Annual Payment payable by APS and the Lessees
constitutes fair and adequate consideration for the rights granted in the 1960 Lease,
the 1966 Lease, the Existing § 323 Grants and the Renewed § 323 Grants.

 

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	 	9.6	 	Upon agreement between the Lessees, the percentage of the Annual Payment owed
by each of APS and the Lessees, respectively, may be changed without the
consent of the Nation. But in no event shall the amount due be less than 100% of
the Annual Payment, as calculated in accordance with Section 9.2. In the event of a
change in payment percentages, an updated list of each Lessee’s portion of the
Annual Payment shall be provided to the Nation.

	 	9.7	 	In consideration of the Annual Payment made by APS and the Lessees,
respectively, the Nation releases APS and the Lessees from all and any kind of claims,
suits, actions, causes of action, rights, liabilities, and obligations (the
aforementioned, collectively referred to as “Claims”), whether past, present,
or future, known or unknown, for or related to compensation due under the 1960 Lease or
1966 Lease, or compensation for the Existing § 323 Grants and the Renewed § 323 Grants.
In consideration of the Annual Payment made by APS and the Lessees, respectively, the
Nation releases APS and the Lessees from and settles all outstanding issues and
potential Claims, under the 1960 Lease or 1966 Lease, or under the Existing § 323
Grants. Notwithstanding the foregoing, the release set forth in this Section 9.7 shall
not apply to any claims arising under Section 11 of this Amendment.

	 	9.8	 	APS and the Lessees release the Nation from and settle all outstanding issues
and potential Claims under the 1960 Lease or the 1966 Lease, or under the Existing §
323 Grants. Notwithstanding the foregoing, the release set forth in this Section 9.8
shall not apply to any claims arising under Section 11 of this Amendment.

	10	 	SURVEY OF PLANT.

	 	10.1	 	APS and the Lessees and the Nation agree that part of the Annual Payment is
based on their understanding that the Plant Site and the Ancillary Facilities, as
identified within items 1 and 2 of Exhibit B (the “Plant Property”), comprise a
total of 3,663 acres (3,600 acres, with an upper margin of error of 63 acres) (the
“Expected Plant Property Acreage”).

 

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	 	10.2	 	APS and the Nation agree that part of APS’s share of the Annual Payment is
based on their understanding that the § 323 Grant Land comprises 10,000 acres (9839.40
acres, with an upper margin of error of 172 acres) (the “Expected § 323 Grant Land
Acreage”).

	 	10.3	 	APS, for the § 323 Grant Land, and APS and the Lessees, for the Plant Property,
shall conduct surveys of the § 323 Grant Land and the Plant Property, respectively,
within twelve months for the § 323 Grant Land, and six months for the Plant Property,
after the effective date of this Amendment. The Nation hereby grants APS and the
Lessees access to all Navajo Nation Lands necessary to complete such surveys, and APS
and the Lessees will work with the appropriate Nation agencies to effectuate any
necessary access to any Navajo Nation Lands. The actual acres for the Plant Property
and the § 323 Grant Land, as determined in such surveys, shall each be referred to as
the “Actual Acreage.” If the Actual Acreage for the Plant Property exceeds the
Expected Plant Property Acreage, or if the Actual Acreage for the § 323 Grant Land
exceeds the Expected § 323 Grant Land Acreage, then Section 10.4 and, if necessary,
Section 10.5 shall apply. If Section 10.4 does not apply, there shall be no adjustment
to the Annual Payment and no other compensation shall be due to the Nation.

	 	10.4	 	If the Actual Acreage for the Plant Property exceeds the Expected Plant
Property Acreage, or if the Actual § 323 Grant Land Acreage exceeds the Expected § 323
Grant Land Acreage, APS (individually) or APS and the Lessees, as the case may be,
shall have 90 days to cure and reduce the respective Actual Acreages to at or below the
Expected Plant Property Acreage or Expected § 323 Grant Land
Acreage, as the case may be. If the Actual Acreages are reduced accordingly, there
shall be no adjustment to the Annual Payment and no other compensation shall be due
to the Nation.

 

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	 	10.5	 	For any Actual Acreage in excess of the Expected Plant Property Acreage or
Expected § 323 Grant Land Acreage that APS (individually) or APS and the Lessees fail
or choose not to cure, the Annual Payment shall be adjusted in the next Annual Payment
as follows: (a) for each one acre the Actual Acreage of the Plant Property exceeds the
Expected Plant Property Acreage, the Annual Payment shall increase by $269, adjusted
annually by the CPI (in 2011 dollars); and (b) for each one acre the Actual Acreage of
the § 323 Grant Land exceeds the Expected § 323 Grant Land Acreage, the Annual Payment
payable by APS shall increase by $612, adjusted annually by the CPI (in 2011 dollars).

	 	10.6	 	Any adjusted Annual Payment shall be prospective only, and there shall be no
true-up required for previous Annual Payments, and the Nation shall have no claims
against the Lessees for additional liabilities or compensation for historic use of the
Plant Property or the § 323 Grant Land related to property survey inaccuracies.

	 	10.7	 	The respective surveys will not be used to acquire additional or different
lands beyond what the surveys demonstrate comprise the current boundaries of the Plant
Property or the § 323 Grant Lands.

	11	 	APS’S 230kV LINES.

APS and the Nation disagree as to whether the provisions of Section 17 of the 1960 Lease
(Operation of Power Plant) or Section 22 of the 1966 Lease (Operation of Enlarged Four
Corners Generating Station) apply to the Existing §323 Grants listed on Exhibit B for the
230kV lines identified as (a) Flagstaff to Leupp and (b) Cholla to Leupp (collectively, the
“Leupp Lines”). APS and the Nation each reserve the right to assert that the
aforementioned sections apply or do not apply to the Leupp Lines, as the case may be.

 

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	12	 	DECOMMISSIONING.

Upon the decommissioning of the Initial Four Corners Plant, the Four Corners Project or any
part of either facility, the final decommissioning obligations of APS as to the Initial Four
Corners Plant and of the Lessees as to the Four Corners Project shall be limited to the
requirements under the applicable federal environmental laws existing at the time of such
decommissioning. All or any part of any such decommissioning may occur at any time during
the term of either the 1960 Lease or the 1966 Lease, as applicable.

	13	 	MOENKOPI SUBSTATION.

In the event that there is a future expansion of the Moenkopi Substation, it shall be
subject to an increase in APS’s portion of the Annual Payment by $1500 per acre (in April
2009 dollars) for up to 100 acres. The $1500 per acre payment shall be adjusted annually by
the CPI (in April 2009 dollars). The expansion shall be subject to all applicable
regulatory requirements.

	14	 	SETTLEMENT AND CLOSING AGREEMENTS.

Except for Edison, each Party shall execute a new Settlement and Closing Agreement in form
and substance substantially similar to the proposed sample Settlement and Closing Agreement
attached as Exhibit F.

	15	 	NO CROSS DEFAULT.

Notwithstanding anything to the contrary in this Amendment, the 1960 Lease or the 1966
Lease, a default by APS under the 1960 Lease, as amended by this Amendment, shall not
constitute a default by Lessees under the 1966 Lease, and a default by Lessees under the
1966 Lease, as amended by this Amendment, shall not constitute a default by APS under the
1960 Lease.

 

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	16	 	PRIMARY FUEL.

The primary fuel used at the Plant shall be coal.
	 
	17	 	NO THIRD PARTY BENEFICIARIES.

The 1960 Lease and the 1966 Lease are not intended to confer upon any third person any
rights, privileges, waivers, obligations, or remedies granted hereunder.

	18	 	EXECUTION IN COUNTERPARTS.

This Amendment may be executed in any number of counterparts, and each executed counterpart
shall have the same force and effect as an original instrument and as if all of the Parties
to the aggregate counterparts had signed the same instrument. Any signature page of this
Amendment may be detached from any counterpart thereof without impairing the legal effect of
any signatures thereon, and may be attached to other counterparts of this Amendment
identical in form hereto but having attached to it one or more additional signature pages.

 

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This Amendment has been executed by the duly authorized representatives of the Parties,
effective as set forth in Section 3.1.

	 	 	 	 	 
	 	THE NAVAJO NATION

 	 
	 	By:  	/s/ Ben Shelly
 	 
	 	 	Printed Name:	 Ben Shelly	 
	 	 	Its: President 	 
	 

State of Arizona

County of Apache

The foregoing instrument was acknowledge before me this 7th day of
March, 2011 by Ben Shelly the PRESIDENT of

(Name) 
 (Title) 

 THE NAVAJO NATION, on
behalf of The Navajo Nation.

	 	 	 	 	 
	 

	 	/s/ Angela Cody
 

Notary Public
	 	 

My Commission Expires:

	 	 	 	 	 
	 	ARIZONA PUBLIC SERVICE
 COMPANY, an Arizona
corporation, in its
 individual capacity and as
a Lessee

 	 
	 	By:  	/s/ Mark A. Schiavoni
 	 
	 	 	Printed  Name:	 Mark A. Schiavoni 	 
	 	 	Its: Senior Vice President, Fossil 	 
	 

State of Arizona

County of Maricopa

The foregoing instrument was acknowledge before me this 8th day of
November, 2010  by  Mark A. Schiavoni the Senior
Vice
(Name) 
 (Title) 

President, Fossil of ARIZONA PUBLIC SERVICE  COMPANY, an Arizona corporation,  on
behalf of the corporation.

	 	 	 	 	 
	 

	 	/s/ Norann Asciutto
 

Notary Public
	 	 

	 	 	 
	My Commission Expires:

2-27-14

	 	

 

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	Reviewed and Approved 

Legal Department	 	 	 	EL PASO ELECTRIC COMPANY,

a Texas corporation
	 
	 	 	 	 	 	 	 	 
	/s/ [ILLEGIBLE]	 	 	 	By:	 	/s/ David W. Stevens
	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Printed Name:
	 	David W. Stevens
	 

	 	 	 	 	 	Its: CEO

State of Texas

County of EL Paso

The foregoing instrument was acknowledge before me this 8th day of
November, 2010 by David W. Stevens the CEO of   EL

(Name) 
 (Title) 
 PASO ELECTRIC  COMPANY, a Texas corporation, on behalf of the corporation.

	 	 	 	 	 
	 

	 	/s/ Carolina Pena
 

Notary Public
	 	 

	 	 	 
	My Commission Expires:

3-24-2011

	 	

	 	 	 	 	 
	 	PUBLIC SERVICE COMPANY OF NEW MEXICO, a New
Mexico corporation

 	 
	 	By:  	/s/ Patricia K. Collawn
 	 
	 	 	Printed  Name: 	Patricia K. Collawn 	 
	 	 	Its: President & CEO 	 

State of New Mexico

County of Bernalillo

The foregoing instrument was acknowledge before me this 8th day of
November, 2010 by Patricia K. Collawn the President &

(Name) 
 (Title) 

CEO of PUBLIC SERVICE  COMPANY OF NEW MEXICO, a New Mexico corporation, on behalf of the corporation.

	 	 	 	 	 
	 

	 	/s/ [ILLEGIBLE]
 

Notary Public
	 	 

	 	 	 
	My Commission Expires:

	 	 

 

18

 

	 	 	 	 	 	 	 	 	 
	September 12, 2012	 	 	 	SOUTHERN CALIFORNIA EDISON COMPANY, a

California Corporation
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	/s/ RW Krieger
	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Printed Name:
	 	RW Krieger
	 

	 	 	 	 	 	Its: Vice President

State of California

County of  Los Angeles

The foregoing instrument
 was acknowledge before me this 8th day of
November, 2010 by Jean E. Lambrecht the Notary of

(Name)   (Title) 
SOUTHERN CALIFORNIA    EDISON COMPANY, a California corporation, on behalf of the corporation.

	 	 	 	 	 
	 

	 	/s/ Jean E. Lambrecht
 

Notary Public
	 	 

My Commission Expires:
June 8, 2013

	 	 	 	 	 
	 	TUCSON ELECTRIC POWER COMPANY, an Arizona

Corporation

 	 
	 	By:  	/s/ Michael J. DeConcini
 	 
	 	 	Printed Name: 	 Michael J. DeConcini 	 
	 	 	Its: Senior Vice President
and 
      Chief Operating Officer 	 
	 

State of Arizona

County of Pima

The foregoing instrument was acknowledge before me this 8th day of
November, 2010 by Michael J. DeConcini the Sr. Vice

(Name) 

President & Chief Operating Officer of
TUCSON ELECTRIC POWER COMPANY, an Arizona corporation, on behalf of the 

(Title) 

 corporation.

	 	 	 	 	 
	 

	 	/s/ Janice Spencer
 

Notary Public
	 	 

	 	 	 
	My Commission Expires:

8/8/11

	 	

 

19

 

SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, an agricultural improvement
district organized under the laws of the State of Arizona.

	 	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ David Rousseau	 	 	 	Reviewed by SRP Legal Services	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	David Rousseau, President or	 	 	 	 	 	 	 	 
	 

	 	John R. Hoopes, Vice President
	 	 	 	By:
	 	/s/ Kanlee Ramaley	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Signature	 	 
	Date:

	 	11/23/2010	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Kanlee Ramaley
 

Printed Name
	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Date:
	 	11/23/2010	 	 

Attest and Countersign:

	 	 	 	 	 
	By:

	 	/s/ Terrill A. Lonon
 

Terrill A. Lonon, Secretary or
	 	 
	 

	 	Stephanie K. Reed, Assistant Secretary	 	 
	 
	 	 	 	 
	Date: 11/23/2010	 	 

State of Arizona

County of Maricopa

The
foregoing instrument was acknowledge before me this 23rd  day of
November, 2010 by David Rousseau the President

(Name) 
 (Title) 
of SALT RIVER PROJECT
 AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, an agricultural improvement district organized under
the laws of the State of Arizona.

	 	 	 	 	 
	 

	 	/s/ Stephanie K. Reed
 

Notary Public
	 	 

	 	 	 
	My Commission Expires:

August 5, 2011

	 	

 

20

 

EXHIBIT A

This exhibit intentionally not used.

 

 

 

Exhibit B

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Existing	 	 	 	APS	 	Grant	 	Expiration	 	 	 
	Item	 	§ 323 Grants	 	Property or Facility	 	File #	 	Date	 	Date	 	Acres	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 	1	 	 	Plant Site
	 	Amended Original Lease (Units 1-3)

	 	 	 	12/01/60
	 	07/06/16	 	 	 	 
	 	 	 	 	 	 	New Lease (Units 4-5)

	 	 	 	07/06/66
	 	07/06/16	 	 	 	 
	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	3,466.42	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 	2	 	 	Ancillary Facilities
	 	Utah Mine Haul Road (Communication Lines and Access Road)

	 	IN-13
	 	07/2861
	 	07/28/11
	 	 	19.25	 
	 	 	 	 	 	 	Plant — Coal Lease Area — 69 kV

	 	IN-15
	 	12/15/61
	 	12/15/11
	 	 	3.75	 
	 	 	 	 	 	 	Pumping Station to Plant Access Road & Pipeline

	 	IN-12
	 	04/02/62
	 	04/02/12
	 	 	40.91	 
	 	 	 	 	 	 	River Pumping Station to Plant — 69 kV

	 	IN-11
	 	04/02/62
	 	04/02/12
	 	 	21.74	 
	 	 	 	 	 	 	Plant — EPNG Bridge / Access Rd

	 	IN-16
	 	07/03/63
	 	07/03/13
	 	 	37.57	 
	 	 	 	 	 	 	Pumping Station to Plant Access Road & Pipeline Addition

	 	IN-92
	 	04/21/69
	 	04/21/19
	 	 	10.36	 
	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	133.58	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 	3	 	 	500 kV ROW
	 	El Dorado 500 kV (Navajo portion only)

	 	IN78 INH-79, INH-80
	 	03/22/67
	 	03/22/17
	 	 	3,959.29	 
	 	 	 	 	345 kV ROW
	 	Four Corners to Cholla

	 	IN-17
	 	05/26/61
	 	05/26/11
	 	 	5,658.91	 
	 	 	 	 	230 kV ROW
	 	Flagstaff to Leupp

	 	IN-4
	 	09/12/57
	 	09/12/07
	 	 	102.82	 
	 	 	 	 	 	 	Cholla to Leupp

	 	IN-7
	 	09/21/60
	 	09/21/10
	 	 	249.16	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 	4	 	 	Substation Sites
	 	12 kV line and Roadway to Moenkopi Switchyard

	 	INH-88
	 	04/24/70
	 	04/27/95
	 	 	1.12	 
	 	 	 	 	 	 	Leupp Substation

	 	IN-5
	 	05/06/59
	 	05/06/09
	 	 	.43	 
	 	 	 	 	 	 	Moenkopi Switchyard

	 	INH-83
	 	04/09/68
	 	04/09/18
	 	 	211.09	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 	5	 	 	Communication Sites
	 	Preston Mesa Communication Site

	 	IN-1182
	 	12/30/96
	 	12/30/14
	 	 	0.23	 
	 	 	 	 	 	 	Jacks Peak Communication Site

	 	IN-1181
	 	04/16/02
	 	04/15/17
	 	 	1.75	 
	 	 	 	 	 	 	Dezza Bluff Communication Site

	 	IN-1357
	 	12/15/97
	 	12/14/17
	 	 	0.08	 
	 	 	 	 	 	 	Zilnez Mesa Microwave Site, Navajo Reservation

	 	IN-113
	 	01/03/73
	 	01/03/23
	 	 	2.40	 
	 	 	 	 	 	 	Roof Butte Communication Site

	 	IN-85
	 	07/07/70
	 	07/07/20
	 	 	0.02	 
	 	 	 	 	 	 	Marsh Pass Communication Site

	 	IN-116
	 	01/03/73
	 	01/03/23
	 	 	3.90	 

	 	 	 
	*	 	Certain of the terms used to describe the listed property or facilities have the
meanings given to them in the 1960 Lease and 1966 Lease.

 

 

 

Exhibit C

FOUR CORNERS GENERATING STATION

PREFERENCE PLAN

March 7, 2011

 

 

 

Table of Contents

	 	 	 	 	 
	I. INTRODUCTION
	 	 	1	 
	 
	 	 	 	 
	II. PREFERENCE POLICY STATEMENT
	 	 	1	 
	 
	 	 	 	 
	III. SELECTION
	 	 	1	 
	 
	 	 	 	 
	IV. GOALS
	 	 	2	 
	 
	 	 	 	 
	V. TRAINING
	 	 	3	 
	 
	 	 	 	 
	VI. RECRUITMENT/ADVERTISING FOR REGULAR EMPLOYEES
	 	 	3	 
	 
	 	 	 	 
	VII. ADVERTISING/RECRUITING FOR TEMPORARY EMPLOYEES
	 	 	4	 
	 
	 	 	 	 
	VIII. CONTRACT LABOR/SERVICES
	 	 	4	 
	 
	 	 	 	 
	IX. CROSS CULTURAL COMMUNICATIONS PROGRAM
	 	 	4	 
	 
	 	 	 	 
	X. DISPUTE RESOLUTION FOR EMPLOYEES
	 	 	4	 
	 
	 	 	 	 
	XI. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES
	 	 	5	 
	 
	 	 	 	 

 

 

 

I. INTRODUCTION

The purpose of this Preference Plan is to clarify and delineate Arizona Public Service
Company’s (“APS”) Indian Preference Plan for the Four Corners Generating Station (“Four Corners”)
and specifically, the procedures for giving preference in employment to Indians.

II. PREFERENCE POLICY STATEMENT

Employment at Four Corners is based on qualifications without regard to race, color, creed,
religion, national origin, sex, or age, except that preference will be given to qualified Indians,
provided, however, that to the extent allowed by law (as set forth in Section 7.2 of the Amendment,
to which this Preference Plan is attached), APS will give preference to qualified Navajos rather
than to Indians. Each member of APS’s management is responsible for implementing this policy in
his/her areas and is held accountable for it in the same way each manager is held accountable for
other company policies. In particular, the Plant Manager for Four Corners has overall
accountability and responsibility for implementation of this Preference Plan.

III. SELECTION

In order to conduct operations at Four Corners in a safe and effective manner, all positions
must be filled by persons qualified to perform the work required. APS has procedures to evaluate
the qualifications (knowledge, skills and abilities) required for each job position. In general,
these job qualifications are documented in “job descriptions” maintained by APS’s Human Resource
Department. Employees may also obtain a copy of their job descriptions by contacting their
supervisors.

Job requirements consist of standards which identify the skills, education, and
experience necessary to perform a particular job. These job requirements are the basis for
hiring decisions and are also used to formulate employee training programs for job classifications
with few incumbent-Indian employees. Hence, it is important that the job descriptions describe the
true requirements of the job. For this reason, APS will review its job descriptions to assure that
the job qualifications are relevant to the job requirements.

Qualifications are assessed on the basis of performance reviews, skills evaluations,
experience and education, as appropriate for the position under consideration. Supervisors (and
previous employers, in the case of external applicants) may be contacted. Skills may be evaluated
by written tests, skill demonstrations, or by supervisory interview. Tests will be validated for
job relevancy.

APS is committed to Indian preference in employment. Preference will be given to Indians who
possess the skills and abilities to fulfill the job requirements established above.

 

1

 

IV. GOALS

The purpose of this Preference Plan is to provide a means to increase the employment of
Indians at Four Corners, in both regular full-time and temporary positions. In particular, APS
intends to focus on increasing the overall employment of Indians at Four Corners and promoting
Indians into management positions.

Analysis of Indian employment levels by job classification will lead to establishing goals for
job placement and training. These goals will be reviewed annually to evaluate the progress made
toward the objective, and revised as necessary.

The commitment of APS is to offer available job opportunities to Indians who satisfy job
requirements, whether the person is a current employee or a non-employee identified through
recruitment and advertising. Through the adoption and implementation of training programs at Four
Corners, the long-range goal is to develop a pool of Indian candidates qualified for all positions.

Openings created through resignation, discharge, transfer, promotion, or a newly created
position cause the posting of an internal “bid” and create opportunities for internal movement
through the bid process. Bidding is the established process by which job vacancies are announced,
advertised and filled. When vacancies occur, employees, who feel they have the qualifications for
a particular job, may submit their internal applications (bids) for consideration.

The bid process frequently creates a cascading effect, as employees vacate existing jobs to
fill positions that result from another employee accepting a bid to fill the original vacancy.
When an Indian bidder accepts a position vacated by another Indian, the net effect on the overall
percentage of Indian employment is zero. While Indian bidders will be given preference in
accordance with this Preference Plan, an increase in the total percentage of Indian employees at
Four Corners can be expected only when the cascading effect of the bid system results in the
employment of external Indian candidates.

Nevertheless, the potential for increasing the number of Indian employees is greater in
certain job classifications than in others. Some of these job classifications are:

	 	•	 	First and second level supervision

	 	•	 	Operations (Operator Trainee through Control Operator)

	 	•	 	Machinist

	 	•	 	Plant Mechanic

	 	•	 	Electrician

	 	•	 	Equipment Operator

	 	•	 	Plant Chemist

	 	•	 	Scheduler

 

2

 

Four Corners management will give these job classifications particular attention to increase
employment of Indians. Additionally, technical and professional recruiting will be increased to
locate, identify, and employ suitable Indian candidates for engineers, technicians, and
professional positions.

V. TRAINING

When there are too few qualified Indian bidders, internal training programs to increase the
availability of Indian bidders may be appropriate. Training programs should focus on raising the
level of skills, knowledge and abilities of Indians in “feeder jobs.” These are jobs which
typically provide employees for higher level jobs, particularly when the lower level job has skill,
knowledge and ability requirements that are prerequisites for a higher level job. Training should
continue until the goal has been met. Other “in-place” training programs, such as apprenticeships
and operations training, are on-going and continue to provide trained replacements for journeymen.

Indians will be encouraged to enhance their careers at APS by taking advantage of on-the-job
training, apprenticeships, and in-house and off-the-job educational courses. As a specific part of
this Preference Plan, the following actions will be taken to provide opportunities for Indians to
advance to journeyman-level and supervisory positions.

	 	1.	 	New apprenticeships will be awarded only to qualified Indians.

	 	2.	 	Currently employed Indian journeymen will be selected for supervisory training
to make them better qualified for future opportunities in foreman positions.

Because of the magnitude of the work and its accompanying time constraints, virtually everyone
at Four Corners is affected by an overhaul. Four Corners has chosen to supplement the knowledge,
skills and experience of its regular full-time employees with those of temporary workers with job
specific skills. During an overhaul, where possible, regular full time employees are upgraded to
higher level skill positions including supervisory positions. In this manner, employees may
further expand the practical application of their technical and supervisory skills.

VI. RECRUITMENT/ADVERTISING FOR REGULAR EMPLOYEES

Recruitment is any activity that causes individuals to apply for employment. Advertising is
one method of recruitment. Examples of other methods include meetings with graduating college
seniors, participation in trade fairs, and day programs.

Since most regular full-time jobs at Four Corners are filled internally, a large recruitment
effort is not needed. Thus, recruitment of regular full-time employees should be limited to those
positions which are not filled by Indians internally. For purposes of this Preference Plan,
recruitment will concentrate on jobs in which Indians are underutilized.

 

3

 

In an effort to attract qualified Indian applicants, contacts with key organizations
throughout the Navajo Reservation will be maintained, although contacts within the Western Navajo
Agency will be emphasized. In addition, Four Corners will work with appropriate tribal agencies to
develop other potential recruitment sources.

Universities, vocational schools, Joint Training and Partnership Act classroom training
programs, the Navajo Division of Education, the ONLR, and employment service offices located in the
vicinity of Four Corners will be included in the recruitment and advertising efforts of Four
Corners. Technical and professional jobs will be emphasized in recruitment efforts at colleges,
universities, and in periodic advertisements to attempt to locate and identify suitable Indian
candidates for employment opportunities.

Advertising and recruiting efforts will include a statement that APS at Four Corners
recognizes Indian preference in employment. The following statement will be included in all
advertisements for employment opportunities at Four Corners and on bid sheets posting jobs at Four
Corners:

APS follows a policy of giving preferential treatment to Indians in
connection with employment at the Four Corners Generating Station.

VII. ADVERTISING/RECRUITING FOR TEMPORARY EMPLOYEES

Each year, temporary employees are hired for certain specific assignments at Four Corners.
Only when no qualified Indian applicant is found, after a thorough review of returning Indian
applicants, existing files on temporary Indian employees, and new applications from Indians
(generated by advertising), will a temporary position be filled by a non-Indian.

VIII. CONTRACT LABOR/SERVICES

APS will select qualified Indian-owned businesses, when available, to provide contract labor
or services at Four Corners. APS will notify its vendors (a) of the employment and contracting
preference policy at Four Corners; and (b) that they are expected to comply with applicable laws
and regulations.

IX. CROSS CULTURAL COMMUNICATIONS PROGRAM

APS will develop and implement a cross-cultural program designed to provide a forum for Indian
and non-Indian employees to openly examine and discuss the culturally significant customs, beliefs,
values, and social mores that all individuals bring with them to the workplace.

X. DISPUTE RESOLUTION FOR EMPLOYEES

APS acknowledges the value of maintaining a work environment free of prejudice and
discrimination. Nevertheless, despite even the best of intentions, complaints do arise, and the
parties have determined that complaints of whatever nature are best handled internally, without the
involvement of external agencies. Therefore, employees are encouraged to take advantage of
APS’s existing internal processes. Through this approach, a wide variety of employment
related complaints may be addressed and resolved.

 

4

 

If Navajo Nation officials become aware of an employment concern at Four Corners, the Navajo
Nation must bring the issue to the Advisory Committee, formed pursuant to the Lease (to which this
Preference Plan is attached), for resolution.

XI. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES

This Preference Plan is the entire agreement between the Parties concerning its subject matter
and supersedes all prior agreements and understandings, whether or not written, including without
limitation the letter agreement dated March 8, 1985 between APS and the Navajo Nation and signed by
G. Mark De Michele and Peterson Zah. This Preference Plan also is not intended to confer upon any
person other than the Parties any rights, privileges, waivers, obligations or remedies granted
hereunder.

 

5

 

Exhibit D

Annual Payment for 2012

	 	 	 	 	 	 	 
	 

	 	$7,000,000.00x
	 	CPI for April 2012
 

	 	 
	 

	 	 	April 2011 CPI	 	 

Annual
Payment for all subsequent years

	 	 	 	 	 	 	 
	 

	 	7,000,000.00x
	 	CPI for April in year which Annual Payment is due
 

April 2011 CPI
	 	 

 

 

 

Exhibit E

This exhibit intentionally not used.

 

 

 

Exhibit F

(Includes Exhibits A-D of the Restated and Amended Settlement and Closing Agreement)

DRAFT

11/4/2010 3:30 PM

Restated and Amended Settlement and Closing Agreement

This Restated and Amended Settlement and Closing Agreement (the “Restated Agreement”) amends
the Settlement and Closing Agreement dated August 15, 2002 (“Original Agreement”) and is entered
into as of the Effective Date (as defined in Section 18) by Arizona Public Service Company (“APS”)
and the Office of the Navajo Tax Commission (“ONTC”), acting on its own behalf and, pursuant to
Section 103 of the Navajo Nation Uniform Tax Administration Statute (“UTAS”), on behalf of the
Navajo Nation. APS and the ONTC may be referred to herein individually as a “Party” or
collectively as the “Parties.”

Recitals

A. Pursuant to Section 105 of UTAS, the ONTC, on behalf of the Navajo Nation, issued an
assessment to APS on [Date] seeking to assess the Possessory Interest Tax (“PIT”) on APS in
connection with its ownership and operation of the Four Corners Power Plant (the “Plant”),
switchyards, and transmission and distribution facilities within the Navajo Nation (hereinafter,
the Plant, switchyards, and transmission and distribution facilities within the Navajo Nation are
collectively referred to as the “Facilities”). Pursuant to Regulation 1.125 of the ONTC Tax
Administration Regulations, the ONTC also issued on [Date] a private ruling asserting that it has
jurisdictional authority to impose the Business Activity Tax (“BAT”) upon APS’ activities related
to the Facilities. Pursuant to Section 133 of UTAS, the ONTC is entering into this Restated
Agreement.

B. APS and the other participants in the Plant (collectively, the “Participants”) assert that
neither the Navajo Nation nor the ONTC has jurisdictional authority to impose any tax on APS, the
Participants or the Facilities based on (i) certain agreements between the Navajo Nation, APS and
Participants, including without limitation, certain covenants in leases entered into by APS, the
Participants and the Navajo Nation and approved by the United States (“Leases”) and in federal
grants of rights-of-way issued to APS and the Participants by the United States (“Grants”), (ii)
the location of the Facilities on federally granted rights-of-way, (iii) the non-Indian character
of APS and the Participants, and (iv) relevant case law.

 

1

 

C. The ONTC asserts that it possesses jurisdictional authority to administer taxes enacted by
the Navajo Nation with respect to the Participants, including APS, and the Facilities based on (i)
certain agreements between the Navajo Nation, APS and the Participants, including without
limitation, certain covenants in the Leases and Grants, (ii) the location of the Facilities on
lands held in trust by the United States for the benefit of the Navajo Tribe, and (iii) relevant
case law.

D. The Parties entered into the Original Agreement for purposes of settling the dispute and to
avoid litigation over the question of the jurisdictional authority of the Navajo Nation and ONTC to
tax the Facilities and APS, based on its ownership interest in and operation of the Facilities.

E. The Parties desire to restate, amend and extend the Original Agreement and are thus
entering into this Restated Agreement in accordance with the express terms set forth below.

WHEREFORE, THE PARTIES AGREE AS FOLLOWS:

1. Settlement Payments. Subject to the terms and conditions contained in this
Restated Agreement, APS will make settlement payments as specified below (“Settlement Payments”):

a. PIT Settlement Payments.

(i) Beginning with calendar year 2001 and continuing through July 7, 2041 (the
“Amended Term”), APS will pay to ONTC the following amount as a PIT Settlement
Payment for the APS-owned Facilities, subject to adjustment as provided in
subsection a(ii) of this Section 1:

	 	 	 
	Calendar Year	 	PIT Settlement Payment
	2001
	 	$2,993,515.00
	2002 – 2003
	 	$5,987,030.00 per year
	2004 – 2040
	 	$6,342,600 per year
	2041
	 	$3,171,300.00

 

2

 

(ii) Beginning July 8, 2016 and continuing through July 7, 2041, the PIT
Settlement Payment is subject to reduction in the event APS and/or the Participants
permanently shut down any of the Facilities and/or unit(s) of the Plant in which
APS has an ownership interest, including but not limited to the permanent shut down
of the entire Plant (the “Permanently Shut Down Facilities”). For any Permanently
Shut Down Facilities salvage value will be determinative of value, and
salvage value will be based on 5% of original or acquisition cost of the
Permanently Shut Down Facilities in question. In the event of any permanent shut
down under this Section 1a(ii), the PIT Settlement Payment will be recalculated in
two steps:

	 	a.	 	Step One: PIT Settlement
Payment will be proportionally reduced by multiplying the PIT
Settlement Payment by a factor that represents the ratio of the
original or acquisition cost of the APS-owned Facilities within
the Navajo Nation that are not Permanently Shut Down Facilities
divided by the total original or acquisition cost of the
APS-owned Facilities.

	 	b.	 	Step Two: The
proportionately reduced PIT Settlement Payment derived under Step
One will then be increased by adding the product of a 3%
in-lieu-of tax rate and the salvage value (i.e., 5% of original
or acquisition cost) of the Permanently Shut Down Facilities. A
sample calculation in included as Exhibit D to this Restated
Agreement.

(iii) In the event APS constructs a new unit or units at the Plant during the
Amended Term, the PIT Settlement Payment will be proportionally increased by an
amount that represents the product obtained by multiplying the original or
acquisition cost of the new APS-owned unit or units by the following factor:

	 	a.	 	The PIT Settlement Payment of
$6,342,600 divided by the original or acquisition cost of the
APS- owned Facilities within the Navajo Nation as of the
Effective Date of this Restated Agreement. A sample calculation
in included as Exhibit 1 to this Restated Agreement

(iv) APS will pay the PIT Settlement Payment specified above (as may be
adjusted pursuant to Section 1a(ii) or Section 1a(iii), above) for calendar years
2002-2040 on a semi-annual basis, with the first half for each calendar year due
November 1 and the second half due May 1 of the following year. APS will pay the
PIT Settlement Payment specified above for calendar year 2041 on or before November
1, 2041. On or before June 1 of each calendar year during the term of this
Restated Agreement, APS will provide to the ONTC, for informational purposes only,
the form attached as Exhibit A.

 

3

 

(v) Interest on any late payment of the PIT Settlement Payment will be
computed from the date the PIT Settlement Payment was first due to the date such
payment is received by the ONTC. The rate of interest on any late payment will be
equal to the rate then being used by the Internal Revenue Service for an
underpayment of taxes by an
individual. If APS fails to timely pay the PIT Settlement Payment, APS also
will pay an additional amount equal to 5% of its PIT Settlement Payment. For each
full month the payment is overdue, APS will pay an additional amount equal to 0.5%
of its PIT Settlement Payment; provided, however, that the maximum additional
amount APS must pay for the failure to timely pay shall not exceed 10% of the PIT
Settlement Payment amount due. If APS fails to timely provide the Report for PIT
Settlement Payment, attached as Exhibit A, as required by Section 1(a)(iv) of this
Restated Agreement, APS will pay an additional 5% of its PIT Settlement Payment due
for the period for each month or fraction thereof that the Report for PIT
Settlement Payment is not provided; provided, however, that the minimum additional
amount to be paid for failure to timely provide such Report for PIT Settlement
Payment shall be $50 and the maximum additional amount shall not exceed 25% of APS’
PIT Settlement Payment for that period. For good cause shown, the ONTC may in its
discretion relieve APS from all or part of the requirements imposed under this
Section 1.a(v).

(vi) APS will provide, within six (6) months of the Effective Date of this
Restated Agreement, a schedule of original or acquisition cost for the Facilities
in which APS has an ownership interest (including the Permanently Shut Down
Facilities) for use in connection with the calculations provided for in Section
1.a(ii). In addition, if APS constructs a new unit or units at the Plant for
purposes of Section 1.a(iii), APS will provide a schedule of original or
acquisition cost for such new unit or units within six (6) months after its/their
completion, for use in connection with the calculations provided for in Section
1.a(iii).

(vii) The ONTC expressly agrees that APS is hereby released from any
obligation and will not be required or requested to make any other payment with
respect to any other amounts that the ONTC asserted or could have asserted were
payable prior to execution of this Restated Agreement.

 

4

 

b. BAT Settlement Payment.

(i) Effective as of July 6, 2001 and continuing through the Amended Term, APS
will calculate its BAT Settlement Payment amount using the following formula:

BAT Settlement Payment =

[ (R * AI * Net KWhrs) less (Deductions) less (10% Standard Deduction) ] * 5%

Where R = $.0256 / KWhr.

Where Net KWhrs = APS’ share of actual net kilowatt hours generated from the Plant during
the quarterly period.

Where Deductions = (1) Salaries and/or other compensation paid to members of the Navajo
Nation; (2) Purchases of Navajo goods and services; and (3) Any payment made to the
government of the Navajo Nation, except for the BAT Settlement Payment paid pursuant to
this Restated Agreement and any penalties or fines.

Where Standard Deduction = an amount equal to the greater of ten percent of (R * AI * Net
KWhrs) or $125,000.00.

As set forth on Exhibit C, APS will include in its Operating Report provided to the ONTC a
statement of actual net generation for each quarter.

Where AI = an adjustment calculated in the 3rd Quarter of each year based upon
a 5-year rolling average of Producer Price Index data published by the Bureau of Labor
Statistics. Annual adjustments shall be cumulative, i.e., the total current year
adjustment shall be equal to the incremental current year adjustment multiplied by the
previous year’s adjustment. The incremental adjustment shall be calculated utilizing the
following methodology:

AI = (75% * Cost Index) plus (25% * Revenue Index).

Where Cost Index =

	 	 	 	 	 
	 

	 	42.3% *
	 	Bituminous Coal and Lignite: West (BLS Series
PCU1211#214)
	 
	 	 	 	 
	 

	 	plus
	 	0.9% * Natural Gas(BLS Series PCU1331#A2)
	 
	 	 	 	 
	 

	 	plus
	 	7.6% * Other Heavy Construction (BLS Series PCUBHVY#)
	 
	 	 	 	 
	 

	 	plus
	 	49.2% * Unit Labor Costs: Non-Farm Business (BLS Series
PRS85006112)

Where Revenue Index =

	 	 	 	 	 	 	 
	 

	 	 	65.2	%	 	* Electric Power and Natural Gas Utilities, Other, Mountain
(BLS Series PCU4981#148)
	 
	 	 	 	 	 	 
	 

	 	plus
	 	34.8% * Electric Power and Natural Gas Utilities, Other,
Pacific (BLS Series PCU4981#149)

 

5

 

If any of the BLS indices used in this calculation are discontinued, the Parties shall
mutually agree upon an equivalent substitute BLS index. The Parties agree that, beginning
January 1, 2002, the Bituminous Coal and Lignite: Surface
Mining (BLS Series PCU1211#1) will be substituted into the calculation in place of
Bituminous Coal and Lignite: West (BLS Series PCU1211#214).

A calculation of AI for the 3rd Quarter 2001 through the 2nd Quarter
2002 BAT Settlement Payments is attached as Exhibit B. The 5-year average of index data
for 1996 through 2000 is used to develop this initial adjustment.

Each subsequent annual adjustment will be made for the 3rd Quarter BAT
Settlement Payment using the 5-year rolling average of index data through the end of the
previous year.

A sample calculation of AI for the 3rd Quarter 2002 through 2nd
Quarter 2003 BAT Settlement Payments using estimated data is included in Exhibit B.
Calculations in subsequent years will follow this same formula.

(ii) APS will make its BAT Settlement Payments on a quarterly basis, with
payments due 45 days after the end of each calendar quarter. APS will, at the time
of making such payments, provide to the ONTC an Operating Report containing the
following information used to calculate APS’ BAT Settlement Payment:

	 	(a)	 	APS revenue requirement, as
adjusted by AI;

	 
	 	(b)	 	Net KWhrs for the quarter;

	 
	 	(c)	 	Deductions as defined
above; and

	 
	 	(d)	 	Standard Deduction.

The format for the Operating Report is set forth in Exhibit C.

(iii) Interest on any late payment of a BAT Settlement Payment will be
computed from the date the BAT Settlement Payment was first due to the date such
payment is received by the ONTC. The rate of interest on any late payments will be
equal to the rate then being used by the Internal Revenue Service for an
underpayment of taxes by an individual. If APS fails to timely pay the BAT
Settlement Payment, APS will pay an additional amount equal to 5% of the BAT
Settlement Payment due. For each full month the payment is overdue, APS will pay
an additional amount equal to 0.5% of the amount of its BAT Settlement Payment;
provided, however, that the maximum additional amount that APS will be required to
pay for the failure to timely pay shall not exceed 10% of the BAT Settlement
Payment amount due. If APS fails to timely provide to the ONTC an Operating Report
required by this Restated Agreement, APS will pay an additional 5% of its BAT
Settlement Payment for each month or fraction thereof that the Operating Report has
not been provided to the ONTC; provided, however, that the minimum additional
amount to be paid for APS’ failure to timely provide such
Operating Report will be $50 and the maximum additional amount will not exceed
twenty-five percent (25%) of APS’ BAT Settlement Payment for that period. For good
cause shown, the ONTC may in its discretion relieve APS from all or part of the
requirements imposed under this Section 2.b(iii).

 

6

 

(iv) The ONTC expressly agrees that APS is hereby released from any obligation
and will not be required or requested to make any other payment with respect to any
other amounts that the ONTC asserted or could have asserted were payable prior to
execution of this Restated Agreement.

2. Releases.

a. APS hereby releases and forever discharges the ONTC, its predecessors, successors,
affiliates, and assigns, of and from any and all claims, demands, damages, actions, causes
of action, or suits of whatsoever kind and nature, existing as of the Effective Date of
this Restated Agreement, whether now known or unknown to the Parties, or whether asserted
or unasserted, related, either directly or indirectly, to any and all PIT and BAT tax
assessments and taxes, and interest and penalties thereon, allegedly owed by the ONTC, its
predecessors, successors, affiliates, and assigns, to APS arising from APS’ ownership
interests or operation of the Facilities.

b. The ONTC hereby releases and forever discharges APS, its predecessors, successors,
affiliates, and assigns, of and from any and all claims, demands, damages, actions, causes
of action, or suits of whatsoever kind and nature, existing as of the Effective Date of
this Restated Agreement, whether now known or unknown to the Parties, or whether asserted
or unasserted, related, either directly or indirectly, to any and all PIT and BAT
tax assessments and taxes, and interest and penalties thereon, allegedly owed by APS, its
predecessors, successors, affiliates, and assigns, to the ONTC or Navajo Nation
arising from APS’ ownership interests or operation of the Facilities.

c. The ONTC expressly covenants that it will not seek to apply or assess the Navajo
Sales Tax, approved by the Navajo Nation Council pursuant to Resolution No. CO-84-01 on
October 18, 2001 (as amended), with respect to any electricity generated at, from or by the
Plant except for retail sales of electricity to persons who purchase electricity for that
person’s own use, including use in that person’s trade or business and not for resale,
redistribution or retransmission, within the Navajo Nation.

3. Case Closure.

The Parties agree that the following cases shall be closed:

Possessory Interest Tax: Case No. 01-042

Business Activity Tax: Case No. 01-056

 

7

 

4. Preservation of Rights.

It is understood and agreed that this is a settlement of disputed claims, whether asserted or
unasserted, and that nothing contained herein shall be construed as an admission of liability,
guilt, or wrongdoing by or on behalf of any of the undersigned Parties, all such liability, guilt,
or wrongdoing being expressly denied. The Parties acknowledge and agree that this Restated
Agreement shall not prejudice or limit in any way the rights or contentions of any Party. The
Parties further agree that this Restated Agreement shall not in any way be deemed a waiver or
amendment of any provisions of any other agreement between the Navajo Nation, APS and/or any of the
Participants, including but not limited to the Leases and Grants. This Restated Agreement, and the
actions of the Parties contemplated hereunder, are not intended, nor shall they be deemed, to
constitute any waiver, consent or admission with respect to the existence or lack of regulatory,
taxing, or adjudicatory authority or jurisdiction of the Navajo Nation or the ONTC over the
Facilities or any Party hereto.

5. Enforcement and Judicial Review.

a. Neither Party shall commence any judicial or administrative action challenging the
validity of this Restated Agreement or any Party’s authority to enter into it. Any
commencement of such an action by a Party shall constitute a material breach of this
Restated Agreement by that Party.

b. Challenge to Validity of the Restated Agreement.

(i) If the ONTC, or any of its representatives, officers, employees,
departments or agents (a) commences any judicial or administrative action
challenging this Agreement or the ONTC’s authority to enter into it, or (b)
otherwise in any manner invalidates or breaches this Restated Agreement or takes
any action contrary to this Restated Agreement, APS may, in its sole discretion,
elect to seek specific performance of or terminate this Restated Agreement. If
the ONTC, or any of its representatives, officers, employees, departments or
agents, repeals the PIT or BAT and enacts a replacement tax that the ONTC seeks to
assert against APS or the Facilities, APS may terminate this Restated Agreement.
The ONTC agrees and recognizes that if APS terminates this Restated Agreement, APS
shall have no further obligation or liability to make any Settlement Payments from
the date of termination forward. The ONTC further agrees and recognizes that in
such circumstance, APS has preserved its rights to contest the
jurisdiction of the ONTC or the Navajo Nation to assert or assess any taxes
against APS with respect to the Facilities, APS’ activities at the Facilities, or
with respect to any other properties or activities within the Navajo Nation.

 

8

 

(ii) If APS, or any of its representatives, officers, employees, departments,
or agents (a) commences any judicial or administrative action challenging this
Restated Agreement or APS’ authority to enter into it, or (b) otherwise in any
manner invalidates or breaches this Restated Agreement or takes any action contrary
to this Restated Agreement, the ONTC may, in its sole discretion, elect to seek
specific performance of or terminate this Restated Agreement. APS agrees and
recognizes that, if the ONTC elects to terminate this Restated Agreement, the ONTC
has preserved its rights to assert jurisdiction to assess taxes against APS from
and after the date of termination with respect to the Facilities, APS’ activities
at the Facilities, or with respect to any other properties or activities of APS
within the Navajo Nation. If the ONTC elects to terminate this Restated Agreement,
the ONTC shall be under no further obligation to accept Settlement Payments in
satisfaction of APS’ obligations.

(iii) If any person or entity not a Party to this Restated Agreement or the
Navajo Nation, or any of their representatives, officers, employees, agencies,
departments or agents, commences any judicial, administrative or other action
challenging in any way the Restated Agreement’s validity, the Parties shall jointly
request that the court, tribunal, agency, or official before which the action is
pending dismiss the action. If the action is not dismissed, either Party may file
an appropriate responsive pleading, or otherwise act as reasonably necessary to
respond to the action or to otherwise protect such Party. If any person, including
the Navajo Nation or ONTC, brings an action or proceeding to assert or challenge
the jurisdictional authority of the Nation or ONTC to tax the Facilities or
activities at the Facilities with respect to such other person other than APS, each
Party agrees not to rely on any ruling in such action or proceeding for purposes of
challenging the validity of this Restated Agreement as long as the other Party is
not in material breach hereof.

(iv) If any court, tribunal, agency or official determines that this Restated
Agreement is non-binding on the ONTC or the Navajo Nation, APS may elect to
terminate this Restated Agreement, and if so terminated, APS shall have no further
obligation or liability to make any Settlement Payments from the date of
termination forward. The ONTC agrees and recognizes that in such circumstance APS
has preserved its rights to contest the jurisdiction of the Navajo Nation and ONTC
to
assert or assess any taxes against APS with respect to the Facilities, APS’
activities at the Facilities, or with respect to any other properties or activities
within the Navajo Nation.

 

9

 

(v) If any court, tribunal, agency or official determines that this Restated
Agreement is non-binding on APS, the ONTC may elect to terminate this Restated
Agreement, and if so terminated, APS agrees and recognizes that in such
circumstance, the ONTC has preserved its rights to assert jurisdiction to assess
any taxes against APS with respect to the Facilities, APS’ activities at the
Facilities, or with respect to any other properties or activities within the Navajo
Nation.

c. Other Taxes. Nothing in this Restated Agreement affects the rights, if any,
of (i) the Navajo Nation or ONTC to seek to enforce taxes other than the Sales Tax (except
as otherwise provided in Section 2(c) above), PIT or BAT on APS or the Facilities or (ii)
APS to challenge any such action by the Navajo Nation or ONTC, including when permitted by
federal law, bringing such an action in federal court.

d. Enforcement of the Restated Agreement. Enforcement of this Restated
Agreement by either Party shall be pursuant to this Restated Agreement and not pursuant to
any Navajo Nation or other law independent of this Restated Agreement. Nothing in this
Restated Agreement shall or may be deemed to limit a Party’s right to seek enforcement of
this Restated Agreement or defend any claim in federal or tribal court where otherwise
permitted by law. Nothing in this Restated Agreement shall or may be deemed as a consent
to federal or tribal court jurisdiction by either Party.

6. Assignment.

APS may transfer or assign, without the consent of the Navajo Nation or ONTC, all or any
portion of its interests and obligations under this Restated Agreement to any parent, subsidiary,
affiliate or successor in interest of APS by merger, acquisition, or consolidation or to any other
current or future owner of the Facilities, provided that the assignee assumes in writing all of
APS’ obligations under this Restated Agreement.

7. Representations.

Each Party represents and warrants as of the Effective Date of this Restated Agreement as
follows:

a. It has full legal right, power and authority to execute, deliver and perform this
Restated Agreement;

b. It has taken all appropriate and necessary action to authorize the execution,
delivery and performance of this Restated Agreement;

 

10

 

c. It has obtained all consents, approvals and authorizations necessary for the valid
execution and delivery of this Restated Agreement;

d. This Restated Agreement constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy or insolvency laws or by limitation upon the availability
of equitable remedies;

e. It is not in violation of any applicable law promulgated or judgment entered by any
federal, state, local or other governmental body, which violations, individually or in the
aggregate, would adversely affect the performance of its obligations under this Restated
Agreement; and

f. The execution, delivery and performance by it of this Restated Agreement, the
compliance with the terms and provisions hereof and the carrying out of the transactions
contemplated hereby, (i) do not conflict with and will not conflict with or result in a
breach or violation of any of the terms and provisions of its organizational documents, and
(ii) to the best of its knowledge, do not conflict with and will not conflict with or
result in a breach or violation of any of the terms and provisions of any law, rule or
regulation, or any order, writ, injunction, judgment or decree by any court or other
governmental body against it or by which it or any of its properties is bound, or any loan
agreement, indenture, mortgage, note, resolution, bond or contract or other agreement or
instrument to which it is a party or by which it or any of its properties is bound, or
constitute or will constitute a default thereunder or will result in the imposition of any
lien upon any of its properties.

8. Successors and Assigns.

This Restated Agreement shall be binding on and inure to the benefit of the Parties hereto and
their successors and assigns.

9. Entire Agreement.

Except for any separate agreement of the Parties settling disputed claims related to
applicability of the BAT to certain transmission and distribution facilities within the Navajo
Nation, this Restated Agreement reflects the entire agreement of the Parties relating to taxation
of the Facilities and no other agreement written or oral shall be used to effect any changes of the
provisions retained herein. No amendment of this Restated Agreement shall be valid unless in
writing and signed by all Parties.

 

11

 

10. Counterparts.

This Restated Agreement may be signed in counterparts, each of which shall be deemed an
original. Facsimile signatures shall be as valid as original signatures until each Party receives
a fully signed counterpart with original signatures. Each Party shall provide the other Party with
original signatures so that each Party shall have a fully signed counterpart within five business
days after the date of the last signature.

 

12

 

11. Relationship of Parties.

Nothing herein may be construed to create an association, joint venture, trust, or
partnership, or to impose a trust or partnership covenant, obligation or liability on or with
regard to any one or more of the Parties.

12. Severability.

Subject to the provisions of and except as otherwise provided in Section 5, Enforcement and
Judicial Review, of this Restated Agreement, if any term or condition of this Restated Agreement is
held to be invalid, void, or unenforceable by any court or tribunal of competent jurisdiction, that
holding shall not affect the validity or enforceability of any other term or condition of this
Restated Agreement, unless either Party determines in its sole discretion that enforcing the
balance of the Restated Agreement would deprive that Party of a fundamental benefit of its bargain.

13. Adjustment of PIT and BAT Settlement Payment Amounts; Termination.

a. One year prior to the expiration of the Amended Term, the Parties shall commence
good faith negotiations to establish PIT and BAT Settlement Payment amounts for APS to run
concurrently with any extension of the Leases and Grants. If the Parties are not able to
reach agreement upon new PIT and BAT Settlement Payment amounts before expiration of the
Amended Term, the Parties will either continue this Restated Agreement in effect with the
PIT and BAT Settlement Payment amounts set forth in Section 1 above, or either Party may
elect to terminate this Restated Agreement.

b. The Parties recognize and agree that, upon termination or expiration of this
Restated Agreement for any reason, (i) each Party has preserved all of its rights and
arguments regarding the question of the jurisdictional authority of the Navajo Nation and
ONTC to tax the Facilities and/or APS and its successors and assigns based on ownership
interests in and operation of the Facilities; (ii) this Restated Agreement shall not in any
way be deemed a waiver or amendment of any provisions of any agreement between the Navajo
Nation, APS and/or any of the Participants, including but not limited to the Leases and
Grants; and (iii) neither Party may assert any claim, demand, damages, action, cause of
action, or suit of whatsoever kind and nature, whether known or unknown to the Parties, or
whether asserted or unasserted, related, either directly or indirectly, to any and all PIT
and BAT tax assessments and taxes, and interest and penalties thereon, that arose or may
have arisen while this Restated Agreement was in effect.

 

13

 

14. No Third Party Beneficiaries.

Nothing herein, either express or implied is intended or may be construed to confer upon or to
give to any person or entity other than the Parties any rights or remedies under or by reason of
this Restated Agreement.

15. Limited Responsibility.

The Parties acknowledge and agree that it is their mutual intent that the obligations,
representations, warranties and undertakings under this Restated Agreement or as a result of the
transactions contemplated by this Restated Agreement are limited to only those expressly set forth
herein, and not enlarged by implication, creation of law, or otherwise.

16. Survival.

The provisions of Sections 2(a) and (b), 4, 7 and 13.b of this Restated Agreement survive
expiration or termination of this Restated Agreement. Provided that the Restated Agreement remains
in effect through the Amended Term, APS’ obligation to make the calendar year 2041 PIT Settlement
Payment specified in this Restated Agreement and APS’ obligation to make BAT Settlement Payments
for any periods prior to expiration or termination of this Restated Agreement also shall survive
expiration or termination of this Restated Agreement.

17. Notices.

Notices shall be deemed to have been given if in writing and (a) hand delivered, (b) delivered
by a reputable overnight courier service (such as but not limited to FedEx and UPS), (c) mailed by
certified or registered mail, return receipts requested, first class postage prepaid, or (d)
transmitted by telecopy or electronic mail, followed within 24 hours by transmittal under option
(a), (b) or (c) above addressed as follows:

If to ONTC:

President

The Navajo Nation

P.O. Box 9000

Window Rock, Arizona 86515

With a copy to:

Attorney General

Navajo Nation Department of Justice

P.O. Drawer 2010

 

14

 

Window Rock, Arizona 86515

Executive Director

Office of the Navajo Tax Commission

P.O. Box 1903

Window Rock, Arizona 86515

If to APS:

Arizona Public Service Corporation

400 North 5th Street

Phoenix, Arizona 85004

Attn: Corporate Secretary

With a copy to:

Pinnacle West Capital Corporation

400 North 5th Street

Phoenix, Arizona 85004

Attn: Executive Vice President and General Counsel

or at such other address as the Parties may, from time to time, designate in writing. Service by
overnight courier or mail shall be deemed made on the first business day delivery is attempted or
upon receipt, whichever is earlier. Service by telecopy or electronic mail shall be deemed made
upon confirmed transmission.

18. Effective Date; Effect of this Restated Agreement.

This Restated Agreement is effective upon the date when duly executed by both Parties (the
“Effective Date”). It is the Parties’ intention that through the Effective Date of this Restated
Agreement, the terms and conditions of the Original Agreement in effect at the date of execution of
this Restated Agreement shall continue to govern the Parties’ rights and obligations thereunder.
Upon and after the Effective Date of this Restated Agreement, the Parties’ right and obligations
shall be governed by the terms and conditions of this Restated Agreement.

 

15

 

By signing, the undersigned certify that they have read and agreed to the terms of this Restated
Agreement.

	 	 	 	 	 	 	 	 	 	 	 
	Arizona Public Service Company 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 

Donald G. Robinson
	 	 	 	Date
	 	 

	 	 
	 

	 	President	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Navajo Nation 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 

Martin Ashley, Executive Director
	 	 	 	Date
	 	 

	 	 
	 

	 	Office of the Navajo Tax Commission	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	APPROVED:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 

Louis Denetsosie, Attorney General
	 	 	 	 	 	 

Date
	 	 
	 

	 	Navajo Nation Department of Justice	 	 	 	 	 	 	 	 

 

16

 

SETTLEMENT AND CLOSING AGREEMENT

EXHIBIT A

REPORT FOR PIT SETTLEMENT PAYMENT

	1.	 	Company Name:       
               
                
               
               
               
                
               
       

	 
	2.	 	Mailing Address:       
               
                
               
               
               
                
               
       

	 
	3.	 	Contact Name:       
               
                
    Contact Phone Number:         
               
                
               
               
           

	 
	4.	 	Name of Power Generating Facility:    
                
               
               
               
               
               
               
           

	 
	5.	 	Name of Plant Operator:      
              
               
               
               
               
               
               
           

	 
	6.	 	Location of Facility/Power Plant (Sec. Twp, Rng):   
                
               
               
               
                 

	 
	7.	 	Term of Lease:       
               
                
    Lease Expiration Date:         
               
                
               
               
           

	 
	8.	 	Percent Participation of Total Plant:   
                
               
               
               
                
               
               
           

	 
	9.	 	Number of Units:       
               
                
               
               
               
                
               
               
               
                 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Production (KWH or MWH)	 	 	 	Year Placed
	Unit#	 	Capacity (KWH, MWH)	 	for Calendar Year	 	% Interest	 	in Service
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 

	 	 	 	Total	 	 	 	 
	 

	 	 	 	 	 	 
	 	 

	10.	 	Type of fuel in use for each unit (coal, gas, etc.):   
                
               
               
               
                
               
               
           

	 
	11.	 	What is the cost per ton of coal used and purchased by the plant:    
                
               
               
               
         
  
       

	 
	12.	 	Total area of plant site including cooling ponds, coal storage, ash disposal area (acres):                                                             

	 
	13.	 	Operating cost($):     
               
($/KWH)                    
 Capital cost($):                     ($/KWH)      
               

	 
	14.	 	Original cost of entire plant($):   
                
               
               
               
              
               
               
            

(Original cost means the actual cost of the asset before depreciation/Refer to the attached New Mexico Property Tax Report)

	 
	15.	 	Material & Supplies($):    
              
               
            Construction Work In Progress($):  
                
               
               

(Refer to the attached New Mexico Property Tax Report)          (Refer to the attached New Mexico Property Tax Report)

	 
	16.	 	Book value of entire plant($)    
              
               
               
               
                
               
               
           

(Book value means the original cost less depreciation./Refer to the attached New Mexico Property Tax Report.)

	 
	17.	 	What is the % rate of return allowed by the state regulatory agency?                                                               
                 

(Only for those companies whose customer rates are regulated by a corporation commission or
public utilties commission)

	 	 	 
	**Note**

	 
	**	 	The amounts reported for items #13 through #16 are reflective of each individual Participant’s
ownership share and are not intended to depict Total Plant **

 

 

 

Transmission & Distribution Property Information

1. Transmission Lines

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Width of Right-	 	 
	KV Rating	 	Year Built	 	Miles	 	of-Way	 	Acres
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 

2. Distribution System

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Width of Right-
	Chapter	 	Urban Meters	 	Rural Miles	 	KV Rating	 	of-Way
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 

3. Substations & Switching Stations

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Transformer	 	 	 	 
	Name	 	Voltage Rating	 	KVA	 	Year Built	 	Acres 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 

Additional Information for Operating Report

	1.	 	Copy of the previous calendar year annual report or the 10-K filed with the Securities and
Exchange Commission

	 
	2.	 	Copy of the previous calendar year FERC Form No. 1 (Only for those companies that are required
to file this report with FERC)

	 
	3.	 	Copy of the New Mexico Property Tax Report

 

 

 

Exhibit B

Calculation of AI (BAT Index) for 2001 and 2002

Price Indexes: Year-to-Year Change

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Electric Power -	 	 	 	 	 	 	Bituminous	 	 	 	 	 	 	 	 	 	 	Unit Labor	 
	 	 	Other -	 	 	Electric Power -	 	 	Coal and	 	 	 	 	 	 	Heavy	 	 	Cost: Non-Farm	 
	 	 	Mountain	 	 	Other - Pacific	 	 	Lignite: West	 	 	Natural Gas	 	 	Construction	 	 	Business	 
	1996
	 	 	105.1	%	 	 	99.3	%	 	 	102.8	%	 	 	136.9	%	 	 	101.9	%	 	 	100.5	%
	1997
	 	 	101.8	%	 	 	102.4	%	 	 	99.3	%	 	 	111.5	%	 	 	101.8	%	 	 	100.9	%
	1998
	 	 	100.0	%	 	 	100.4	%	 	 	96.4	%	 	 	82.5	%	 	 	99.0	%	 	 	102.7	%
	1999
	 	 	99.6	%	 	 	100.1	%	 	 	98.4	%	 	 	108.8	%	 	 	101.1	%	 	 	102.0	%
	2000
	 	 	99.9	%	 	 	104.9	%	 	 	97.9	%	 	 	170.4	%	 	 	103.7	%	 	 	103.1	%
	2001 (estimated)
	 	 	105.2	%	 	 	111.1	%	 	 	103.0	%	 	 	110.7	%	 	 	99.9	%	 	 	103.8	%
	2002 (estimated)
	 	 	99.2	%	 	 	97.9	%	 	 	99.1	%	 	 	52.1	%	 	 	97.7	%	 	 	100.4	%

Note:  Each entry is calculated as the annual average of the appropriate index for the current year
divided by the annual average of the same index for the previous year.

BAT Index Calculation

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Revenue Index	 	 	Cost Index	 	 	Total BAT Index	 	 	5-Year Average	 
	1996
	 	 	103.1	%	 	 	101.9	%	 	 	102.2	%	 	 	—	 
	1997
	 	 	102.0	%	 	 	100.4	%	 	 	100.8	%	 	 	—	 
	1998
	 	 	100.1	%	 	 	99.6	%	 	 	99.7	%	 	 	—	 
	1999
	 	 	99.8	%	 	 	100.5	%	 	 	100.3	%	 	 	—	 
	2000
	 	 	101.7	%	 	 	101.5	%	 	 	101.5	%	 	 	100.9	%
	2001 (estimated*)
	 	 	107.3	%	 	 	103.2	%	 	 	104.2	%	 	 	101.3	%
	2002 (estimated*)
	 	 	98.7	%	 	 	99.2	%	 	 	99.1	%	 	 	101.0	%

Note:

Revenue Index =

65.24% * (BLS Index: Electric Power — Other — Mountain)

plus 34.76% * (BLS Index: Electric Power — Other — Pacific)

Cost Index =

42.29% * (BLS Index: Bituminous Coal and Lignite: West)

plus 0.86% * (BLS Index: Natural Gas)

plus 7.58% * (BLS Index: Heavy Construction)

plus 49.27% * (BLS Index: Unit Labor Costs: Non-Farm Business)

Total BAT Index = (75% * Cost Index) plus (25% * Revenue Index)

AI Calculation

	 	 	 	 	 	 	 	 	 
	AI for BAT Settlement Payments 2001 Q3 through 2002 Q2 =
	 	 	 	 	 	 	 	 
	Average of BAT Index for 1996-2000 =
	 	 	100.9	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	AI (estimated*) for BAT Settlement Payments 2002 Q3 through 2003 Q2 =
	 	 	 	 	 	 	 	 
	AI for 2001 multiplied by average of BAT Index for 1997-2001 =
	 	 	 	 	 	 	 	 
	[ 100.9%* 101.3% ] =
	 	 	102.2	%	 	estimated*
	 
	 	 	 	 	 	 	 	 
	AI for BAT Settlement Payments 2003 Q3 through 2004 Q2 =
	 	 	 	 	 	 	 	 
	AI for 2002 multiplied by average of BAT Index for 1998-2002 =

	 	 	 	 	 	 
	[ 100.9%* 101.3%* 101.0% ] =
	 	 	103.2	%	 	estimated*
	AI for subsequent year BAT Settlement Payments will follow the same formula.
	 	 	 	 	 	 

	 	 	 
	Note:

	 
	*	 	The AI for the 2002 BAT Settlement Payments is estimated using actual BLS data through
November 2001 and estimated data for December 2001. This calculation should be updated when
complete 2001 BLS data is made available. The AI for the 2003 BAT Settlement Payments is a
sample calculation using only data available through March 2002.

 

 

 

Exhibit B(continued)

BLS Price Index Data for AI Calculation

Series Id: PCU1211#214

Industry:  Bituminous coal and lignite

Product:  West

Base  Date: 8112

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Jan	 	 	Feb	 	 	Mar	 	 	Apr	 	 	May	 	 	Jun	 	 	Jul	 	 	Aug	 	 	Sep	 	 	Oct	 	 	Nov	 	 	Dec	 	 	Ann Avg	 
	1995
	 	 	118.7	 	 	 	119.2	 	 	 	119.8	 	 	 	118.5	 	 	 	119.5	 	 	 	122.3	 	 	 	126.4	 	 	 	122.5	 	 	 	119.4	 	 	 	121.6	 	 	 	120.8	 	 	 	120.4	 	 	 	120.8	 
	1996
	 	 	124.7	 	 	 	125.8	 	 	 	127.6	 	 	 	121.6	 	 	 	127.6	 	 	 	120.9	 	 	 	121.1	 	 	 	126.1	 	 	 	126.2	 	 	 	123.9	 	 	 	121.3	 	 	 	122.4	 	 	 	124.1	 
	1997
	 	 	121.6	 	 	 	122.6	 	 	 	126.1	 	 	 	129.7	 	 	 	125.8	 	 	 	122.8	 	 	 	125.3	 	 	 	121.7	 	 	 	119.5	 	 	 	121.3	 	 	 	121.9	 	 	 	119.8	 	 	 	123.2	 
	1998
	 	 	113.8	 	 	 	120.0	 	 	 	118.7	 	 	 	121.8	 	 	 	122.0	 	 	 	120.4	 	 	 	117.4	 	 	 	117.5	 	 	 	118.2	 	 	 	117.0	 	 	 	118.2	 	 	 	120.1	 	 	 	118.8	 
	1999
	 	 	116.9	 	 	 	118.6	 	 	 	118.5	 	 	 	119.4	 	 	 	116.0	 	 	 	116.7	 	 	 	116.1	 	 	 	115.1	 	 	 	117.3	 	 	 	116.4	 	 	 	115.0	 	 	 	116.6	 	 	 	116.9	 
	2000
	 	 	114.6	 	 	 	114.7	 	 	 	115.7	 	 	 	113.3	 	 	 	114.6	 	 	 	114.0	 	 	 	115.9	 	 	 	112.7	 	 	 	113.1	 	 	 	114.9	 	 	 	114.1	 	 	 	115.1	 	 	 	114.4	 
	2001
	 	 	114.6	 	 	 	113.2	 	 	 	114.6	 	 	 	115.9	 	 	 	118.0	 	 	 	116.3	 	 	 	120.1	 	 	 	121.4	 	 	 	119.3	 	 	 	121.5	 	 	 	120.2	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 

Series Id:  PCU1221#1

Industry:  Bituminous coal & lignite surface mining

Product:  Unprepared (raw) bituminous coal and lignite shipped from surface operations

Base Date:  0112

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2002
	 	[ILLEGIBLE]	 	[ILLEGIBLE]	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]

New Coal Index (see Notes, below)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2002
	 	[ILLEGIBLE]	 	[ILLEGIBLE]	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]

Series Id: PCU1331#A2

Industry:  Crude petroleum, natural gas and natural gas liquids

Product:  Natural gas

Base Date:  8406

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Jan	 	 	Feb	 	 	Mar	 	 	Apr	 	 	May	 	 	Jun	 	 	Jul	 	 	Aug	 	 	Sep	 	 	Oct	 	 	Nov	 	 	Dec	 	 	Ann Avg	 
	1995
	 	 	68.4	 	 	 	62.9	 	 	 	61.3	 	 	 	62.3	 	 	 	63.2	 	 	 	64.8	 	 	 	63.2	 	 	 	56.0	 	 	 	57.1	 	 	 	59.7	 	 	 	63.0	 	 	 	68.9	 	 	 	62.6	 
	1996
	 	 	78.4	 	 	 	90.7	 	 	 	80.6	 	 	 	87.2	 	 	 	82.7	 	 	 	74.1	 	 	 	82.0	 	 	 	82.9	 	 	 	72.0	 	 	 	70.7	 	 	 	94.6	 	 	 	132.2	 	 	 	85.7	 
	1997
	 	 	149.9	 	 	 	112.6	 	 	 	73.8	 	 	 	71.0	 	 	 	78.6	 	 	 	83.4	 	 	 	80.6	 	 	 	81.8	 	 	 	91.0	 	 	 	108.8	 	 	 	119.6	 	 	 	95.3	 	 	 	95.5	 
	1998
	 	 	85.4	 	 	 	76.9	 	 	 	81.2	 	 	 	84.7	 	 	 	85.0	 	 	 	76.9	 	 	 	83.7	 	 	 	77.1	 	 	 	65.6	 	 	 	72.9	 	 	 	78.1	 	 	 	78.3	 	 	 	78.8	 
	1999
	 	 	70.2	 	 	 	67.6	 	 	 	63.0	 	 	 	69.5	 	 	 	85.9	 	 	 	83.6	 	 	 	86.4	 	 	 	98.0	 	 	 	107.9	 	 	 	97.8	 	 	 	114.2	 	 	 	84.6	 	 	 	85.7	 
	2000
	 	 	92.1	 	 	 	98.4	 	 	 	99.3	 	 	 	107.8	 	 	 	115.8	 	 	 	159.9	 	 	 	160.2	 	 	 	142.7	 	 	 	166.7	 	 	 	189.5	 	 	 	173.8	 	 	 	247.4	 	 	 	146.1	 
	2001
	 	 	370.1	 	 	 	246.5	 	 	 	202.8	 	 	 	207.3	 	 	 	191.3	 	 	 	144.2	 	 	 	113.8	 	 	 	113.6	 	 	 	87.4	 	 	 	68.5	 	 	 	107.2	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 
	2002
	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]

Series Id:  PCUBHVY#

Industry:  Other heavy construction

Product:  Other heavy construction

Base Date:  8606

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Jan	 	 	Feb	 	 	Mar	 	 	Apr	 	 	May	 	 	Jun	 	 	Jul	 	 	Aug	 	 	Sep	 	 	Oct	 	 	Nov	 	 	Dec	 	 	Ann Avg	 
	1995
	 	 	128.1	 	 	 	128.6	 	 	 	129.0	 	 	 	129.9	 	 	 	129.9	 	 	 	130.1	 	 	 	130.3	 	 	 	130.4	 	 	 	130.5	 	 	 	130.1	 	 	 	130.3	 	 	 	130.5	 	 	 	129.8	 
	1996
	 	 	130.6	 	 	 	130.4	 	 	 	131.0	 	 	 	132.0	 	 	 	133.0	 	 	 	133.0	 	 	 	132.3	 	 	 	132.4	 	 	 	132.9	 	 	 	132.9	 	 	 	133.3	 	 	 	133.6	 	 	 	132.3	 
	1997
	 	 	134.0	 	 	 	134.4	 	 	 	134.5	 	 	 	134.8	 	 	 	135.2	 	 	 	135.0	 	 	 	134.9	 	 	 	135.0	 	 	 	134.9	 	 	 	134.5	 	 	 	134.4	 	 	 	134.0	 	 	 	134.6	 
	1998
	 	 	133.6	 	 	 	133.3	 	 	 	133.3	 	 	 	133.7	 	 	 	133.8	 	 	 	133.6	 	 	 	133.9	 	 	 	133.5	 	 	 	133.4	 	 	 	133.1	 	 	 	132.6	 	 	 	131.9	 	 	 	133.3	 
	1999
	 	 	132.4	 	 	 	132.2	 	 	 	132.6	 	 	 	133.7	 	 	 	134.2	 	 	 	134.5	 	 	 	135.7	 	 	 	136.2	 	 	 	136.4	 	 	 	136.1	 	 	 	136.3	 	 	 	136.9	 	 	 	134.8	 
	2000
	 	 	137.8	 	 	 	139.0	 	 	 	140.0	 	 	 	139.5	 	 	 	139.3	 	 	 	140.5	 	 	 	140.3	 	 	 	139.8	 	 	 	140.8	 	 	 	140.6	 	 	 	140.4	 	 	 	139.7	 	 	 	139.8	 
	2001
	 	 	140.1	 	 	 	140.3	 	 	 	139.9	 	 	 	140.5	 	 	 	141.9	 	 	 	141.7	 	 	 	139.7	 	 	 	139.7	 	 	 	140.4	 	 	 	137.9	 	 	 	137.1	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 
	2002
	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]	 

 

 

 

Exhibit B(continued)

BLS Price Index Data for AI Calculation

Series Id:  PCU4981#148

Industry:  Electric power and natural gas utilities

Product:  Other — Mountain

Base Date:  9012

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Jan	 	 	Feb	 	 	Mar	 	 	Apr	 	 	May	 	 	Jun	 	 	Jul	 	 	Aug	 	 	Sep	 	 	Oct	 	 	Nov	 	 	Dec	 	 	Ann Avg	 
	1995
	 	 	112.0	 	 	 	111.9	 	 	 	110.4	 	 	 	110.4	 	 	 	110.5	 	 	 	114.9	 	 	 	115.1	 	 	 	115.1	 	 	 	115.2	 	 	 	115.2	 	 	 	112.0	 	 	 	111.8	 	 	 	112.9	 
	1996
	 	 	111.7	 	 	 	111.8	 	 	 	110.3	 	 	 	111.5	 	 	 	120.0	 	 	 	123.6	 	 	 	123.7	 	 	 	123.7	 	 	 	123.6	 	 	 	122.9	 	 	 	120.2	 	 	 	120.2	 	 	 	118.6	 
	1997
	 	 	119.9	 	 	 	118.9	 	 	 	118.6	 	 	 	118.6	 	 	 	121.5	 	 	 	122.9	 	 	 	122.8	 	 	 	122.8	 	 	 	122.8	 	 	 	122.8	 	 	 	118.4	 	 	 	118.2	 	 	 	120.7	 
	1998
	 	 	118.4	 	 	 	119.1	 	 	 	119.1	 	 	 	119.1	 	 	 	122.0	 	 	 	123.3	 	 	 	122.5	 	 	 	122.2	 	 	 	122.2	 	 	 	122.2	 	 	 	118.9	 	 	 	118.9	 	 	 	120.7	 
	1999
	 	 	118.3	 	 	 	118.2	 	 	 	118.0	 	 	 	118.0	 	 	 	120.7	 	 	 	122.1	 	 	 	122.0	 	 	 	122.4	 	 	 	122.4	 	 	 	122.1	 	 	 	119.3	 	 	 	119.3	 	 	 	120.2	 
	2000
	 	 	119.2	 	 	 	119.1	 	 	 	118.2	 	 	 	118.2	 	 	 	118.2	 	 	 	121.9	 	 	 	121.6	 	 	 	121.9	 	 	 	122.1	 	 	 	122.2	 	 	 	119.3	 	 	 	119.8	 	 	 	120.1	 
	2001
	 	 	119.9	 	 	 	120.0	 	 	 	124.4	 	 	 	124.7	 	 	 	127.6	 	 	 	129.2	 	 	 	129.0	 	 	 	130.0	 	 	 	130.1	 	 	 	129.7	 	 	 	126.3	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 
	2002
	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]	 

Series Id: PCU4981#149

Industry:  Electric power and natural gas utilities

Product:  Other — Pacific

Base Date:  9012

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Jan	 	 	Feb	 	 	Mar	 	 	Apr	 	 	May	 	 	Jun	 	 	Jul	 	 	Aug	 	 	Sep	 	 	Oct	 	 	Nov	 	 	Dec	 	 	Ann Avg	 
	1995
	 	 	103.6	 	 	 	103.6	 	 	 	102.2	 	 	 	101.5	 	 	 	103.4	 	 	 	113.4	 	 	 	113.5	 	 	 	113.5	 	 	 	113.2	 	 	 	101.5	 	 	 	103.0	 	 	 	103.0	 	 	 	106.3	 
	1996
	 	 	102.6	 	 	 	102.7	 	 	 	100.3	 	 	 	101.2	 	 	 	103.1	 	 	 	111.2	 	 	 	111.6	 	 	 	111.6	 	 	 	111.5	 	 	 	102.6	 	 	 	104.1	 	 	 	104.1	 	 	 	105.6	 
	1997
	 	 	104.6	 	 	 	104.7	 	 	 	102.6	 	 	 	104.1	 	 	 	105.5	 	 	 	113.3	 	 	 	114.2	 	 	 	114.2	 	 	 	116.0	 	 	 	105.8	 	 	 	105.9	 	 	 	106.0	 	 	 	108.1	 
	1998
	 	 	105.8	 	 	 	105.4	 	 	 	103.5	 	 	 	103.5	 	 	 	106.2	 	 	 	114.5	 	 	 	114.6	 	 	 	114.5	 	 	 	115.5	 	 	 	106.0	 	 	 	106.1	 	 	 	106.1	 	 	 	108.5	 
	1999
	 	 	106.1	 	 	 	105.9	 	 	 	102.5	 	 	 	102.6	 	 	 	104.4	 	 	 	113.8	 	 	 	114.2	 	 	 	114.0	 	 	 	116.1	 	 	 	107.9	 	 	 	107.9	 	 	 	107.0	 	 	 	108.5	 
	2000
	 	 	106.9	 	 	 	106.9	 	 	 	105.8	 	 	 	106.1	 	 	 	106.9	 	 	 	117.5	 	 	 	121.2	 	 	 	123.4	 	 	 	123.3	 	 	 	115.8	 	 	 	114.9	 	 	 	117.5	 	 	 	113.9	 
	2001
	 	 	126.0	 	 	 	120.9	 	 	 	122.4	 	 	 	114.0	 	 	 	114.8	 	 	 	134.6	 	 	 	136.0	 	 	 	136.2	 	 	 	136.1	 	 	 	126.5	 	 	 	126.2	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 
	2002
	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]	 

Series Id:  PRS85006113

Duration:  index, 1992 = 100

Measure:  Unit Labor Costs 

Sector:  Nonfarm Business

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Qtr1	 	 	Qtr2	 	 	Qtr3	 	 	Qtr4	 	 	Ann Avg	 
	1995
	 	 	103.1	 	 	 	103.6	 	 	 	104.0	 	 	 	104.0	 	 	 	103.7	 
	1996
	 	 	103.6	 	 	 	103.7	 	 	 	104.5	 	 	 	104.9	 	 	 	104.2	 
	1997
	 	 	105.2	 	 	 	104.5	 	 	 	104.7	 	 	 	106.1	 	 	 	105.1	 
	1998
	 	 	106.7	 	 	 	108.0	 	 	 	108.7	 	 	 	108.6	 	 	 	108.0	 
	1999
	 	 	109.0	 	 	 	110.5	 	 	 	111.1	 	 	 	110.2	 	 	 	110.2	 
	2000
	 	 	112.1	 	 	 	112.5	 	 	 	114.0	 	 	 	115.8	 	 	 	113.6	 
	2001
	 	 	117.2	 	 	 	118.0	 	 	 	118.7	 	 	 	117.9	 	 	 	118.0	 
	2002
	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]	 

Notes:

The PCU1211 series was discontinued at the end of 2001. The new series, PCU 1221#1 (which started
at 100.0 in Dec. 2001), will be substituted in the AI calculation beginning Jan. 2002. Monthly
values for the coal index will be calculated by taking the value of the old coal index on Dec.
2001, 118.4, and multiplying it by the value of the new coal index in each month, then dividing by
100. For example, in Jan. 2002, the value for the coal index used in the AI calculation will be
118.4 * 96.7 / 100 = 114.5.

The PPI data is updated monthly and made available at the BLS website:

http://data.bls.gov/labiava/outside.isp?survey=pc

The labor cost data is updated quarterly and is also available at the BLS website:

http://www.bls.gov/lpc/home./htm

Shaded entries denote preliminary BLS data.

 

 

 

Settlement and Closing Agreement

Exhibit C

Operating Report

	 	 	 	 	 
	Line No.	 	 	 	 
	1. Revenue Requirement
	 	$	X.XXXX /KWhr	 
	2.
	 	x	AI	 
	 
	 	 	 
	3. Subtotal
	 	$	X.XXXX	 
	4.
	 	x	Net KWhrs	 
	 
	 	 	 
	5. Subtotal
	 	$	XXXXX	 
	 
	Less Deductions
	 	 	 	 
	6. Salaries and/or other compensation paid to members of the Navajo Nation (See
Supplemental Schedule I)
	 	$	XXXXX
	7. Purchases of Navajo goods and Services (See Supplemental Schedule II)
	 	$	XXXXX	 
	8. Payments made to the Navajo Nation government (See Supplemental Schedule III)
	 	$	XXXXX	 
	9. Standard Deduction (The greater of $125,000 or 10% of line 5.)
	 	$	XXXXX	 
	 
	 	 	 
	10. Total Deductions
	 	$	XXXXX	 
	 
	11. BAT Settlement Payment Base (Line 5 less Line 10)
	 	$	XXXXX	 
	12. BAT Settlement Payment Rate
	 	x	5	%
	 
	 	 	 
	13. BAT Settlement Payment
	 	$	XXXXX	 

 

 

 

SETTLEMENT & CLOSING AGREEMENT

EXHIBIT C

SUPPLEMENTAL SCHEDULE I

			
	 	 	 
	SALARIES, WAGES, AND OTHER COMPENSATION PAID TO NAVAJOS
	 	Page
_____of _____ 

	 	 	 
	Company Name (Employer)

	 	Quarter Ended

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	1. Employee	 	 	Navajo Census	 	 	2. Salaries or	 	 	3. Other Compensation	 	 	4. Total of Column 2	 
	I.	 	Name	 	 	Number	 	 	Wages Paid	 	 	(e.g. fringe benefits)	 	 	and Column 3	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	II.	 	Total from any additional pages	 	 	 	 	 	 	 	 
	 	 	Total Salaries and Wages Paid, total column 2	 	 	 	 	 	 	 	 
	 	 	Total Other Compensation (e.g. fringe benefits), total column 3	 	 	 	 	 	 	 	 
	III.	 	Total Salaries, Wages, and Other
Compensation, total Col. 4	 	 	 	 	 	 	 	 

 

 

 

SETTLEMENT & CLOSING AGREEMENT

EXHIBIT C

SUPPLEMENTAL SCHEDULE II

			
	 	 	 
	Purchases of Navajo Goods & Services
	 	Page _____of_____

	 	 	 
	Company
Name (Employer)	 	Quarter Ended

Part A — Detail Purchases of Navajo Goods

	 	 	 	 	 	 	 
	Type of Goods Purchased	 	Vendor Name and Address	 	Amount	 
	 
	 	 	 	 	 	 
	 
	 	Total amount	 	 	 	 

Part B — Detail of Purchases of Navajo Services

	 	 	 	 	 	 	 
	Type of Services Purchased	 	Vendor Name and Address	 	Amount	 
	 
	 	 	 	 	 	 
	 
	 	Total amount	 	 	 	 

 

 

 

SETTLEMENT & CLOSING AGREEMENT

EXHIBIT C

SUPPLEMENTAL SCHEDULE III

			
	 	 	 
	Detail of Payments Made to the Navajo Nation Government
	 	Page _____of_____

	 	 	 
	Company Name (Employer)

	 	Quarter Ended

Detail of Payments Made to the Navajo Nation Government

	 	 	 	 	 	 	 	 	 	 	 
	Type of Payment	 	Payee	 	Date of Payment	 	 	Amount	 
	 
	 	 	 	 	 	 	 
	 
	 	Total amount	 	 	 	 	 	 	 

 

 

 

Restated and Amended Settlement and Closing Agreement

Exhibit D — Sample PIT Calculations

Assumptions:

Original Cost of Facilities on Navajo Nation:

	 	 	 	 	 
	Property Group	 	Original Cost*	 
	Units 1 - 3
	 	 	400,000,000	 
	Units 4 - 5
	 	 	200,000,000	 
	Common
	 	 	100,000,000	 
	T & D
	 	 	100,000,000	 
	 
	 	 	 
	TOTAL
	 	 	800,000,000	 
	 
	 	 	 	 
	Current PIT Settlement Payment:
	 	$	6,342,600	 
	 
	 	 	 	 
	Salvage Value = Original Cost x 5%
	 	 	 	 
	 
	 	 	 	 
	In-lieu-of-Tax Rate for Salvage = 3%
	 	 	 	 
	 
	 	 	 	 
	Sample Calculation for Shut Down of Units:
	 	 	 	 
	Assume Permanent Shut Down of Units 1 - 3
	 	 	 	 
	Salvage Value of Units 1 - 3 = Original Cost x 5%
	 	 	 	 
	$400M x 5% =
	 	 	20,000,000	 
	 
	 	 	 	 
	In-lieu-of tax on Units 1 - 3 = Salvage Value x In-lieu-of Tax Rate
	 	 	 	 
	$20M x 3%=
	 	 	600,000	 
	 
	 	 	 	 
	Calc. of PIT for Remaining Property in Service:
	 	 	 	 
	Original Cost of Remaining Property In Service/Total Original Cost
	 	 	 	 
	$400M/800M =
	 	 	50.00	%
	 
	 	 	 	 
	PIT on Remaining Property
	 	 	 	 
	0.50 x $6,342,600=
	 	$	3,171,300	 
	 
	 	 	 	 
	New PIT After Permanent Shut Down of Units 1 - 3:
	 	 	 	 
	 
	 	 	 
	In-lieu-of tax + PIT on Remaining Property =
	 	$	3,771,300	 
	 
	 	 	 
	 
	 	 	 	 
	Sample Calculation if APS Adds a Unit:
	 	 	 	 
	Assume APS Adds $1B Unit
	 	 	 	 
	 
	 	 	 	 
	Calculation of Increase Factor = Current PIT Settlement Payment/Total Original Cost
	 	 	 	 
	$6,342,600/$800M =
	 	 	0.7928	%
	 
	 	 	 	 
	Calculation of PIT on New Unit = Original Cost of New Unit x Factor
	 	 	 	 
	$1B x 0.007928 =
	 	$	7,928,250	 
	Existing PIT =
	 	$	6,342,600	 
	 
	 	 	 
	New PIT After Addition of Unit
	 	$	14,270,850	 
	 
	 	 	 

	 	 	 
	*	 	Original Costs are not actual original costs, these costs are for illustration purposes only.Exhibit 10.2

Exhibit 10.2

AMENDMENT AND SUPPLEMENT NO. 3

TO

SUPPLEMENTAL AND ADDITIONAL INDENTURE OF LEASE

BETWEEN

THE NAVAJO NATION

AND

ARIZONA PUBLIC SERVICE COMPANY,

EL PASO ELECTRIC COMPANY,

PUBLIC SERVICE COMPANY OF NEW MEXICO,

SALT
RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT,

AND

TUCSON ELECTRIC POWER COMPANY

Dated: March 7, 2011

 

 

 

AMENDMENT AND SUPPLEMENT NO. 3 TO

SUPPLEMENTAL AND ADDITIONAL INDENTURE OF LEASE

This Amendment and Supplement No. 3 to the Supplemental and Additional Indenture of Lease
dated March 7, 2011 (this “Amendment”) is by and between the Navajo Nation (formerly known
as The Navajo Tribe of Indians), acting through the Navajo Nation Council for and on behalf of the
Navajo Nation (hereinafter referred to as the “Nation”), as lessor, and Arizona Public
Service Company (“APS”), El Paso Electric Company, Public Service Company of New Mexico,
Salt River Project Agricultural Improvement and Power District, and Tucson Electric Power Company
(formerly known as Tucson Gas & Electric Company) (hereinafter, collectively, together with their
successors and assigns, referred to as the “Lessees,” and each individually referred to as
a “Lessee”). The Nation and the Lessees are hereinafter collectively referred to as the
“Parties.”

The Parties agree as follows:

	1	 	BACKGROUND.

	 	1.1	 	APS has leased certain premises from the Nation under that certain Indenture of
Lease dated December 1, 1960 between APS and the Nation, as supplemented and amended by
that certain Supplemental and Additional Indenture of Lease dated July 6, 1966, between
the Nation, APS, and the other Lessees, as further supplemented and amended by that
certain Amendment and Supplement No. 1 to Supplemental and Additional Indenture of
Lease dated April 25, 1985, between the Nation, APS and the other Lessees (the
“1985 Lease Supplement”; and such Indenture of Lease, as supplemented and
amended, the “1960 Lease”).

	 	1.2	 	Lessees have leased certain premises from the Nation under that certain
Supplemental and Additional Indenture of Lease dated July 6, 1966, between the Nation,
Southern California Edison Company (“SCE”), and the Lessees, as
supplemented and amended by the 1985 Lease Supplement (such Supplemental and
Additional Indenture of Lease, as supplemented and amended, the “1966
Lease”).

 

1

 

	 	1.3	 	The Parties desire to extend the respective terms of and otherwise amend the
1960 Lease and the 1966 Lease to reflect certain new terms and conditions.

	 	1.4	 	The 1960 Lease and the 1966 Lease are amended only as set forth in this
Amendment. To the extent, however, that there is any conflict between the 1960 Lease
and this Amendment or the 1966 Lease and this Amendment, this Amendment shall govern.

	 	1.5	 	This Amendment is not intended to and does not merge the leasehold estates of
the 1960 Lease and the 1966 Lease, or the rights, liabilities, or obligations
(collectively, “Rights”) of the Parties set forth in the 1960 Lease and the
1966 Lease. Further, in no event shall the Lessees (except for APS) have any Rights
under the 1960 Lease or with respect to the leasehold estate demised to APS under the
1960 Lease. Rather, except for APS, all the Lessees’ Rights are limited only to the
Four Corners Project, as set forth in the 1966 Lease.

	2	 	DEFINITIONS.

	 	2.1	 	“§ 323 Grant” or “§ 323 Grants” — One or more grants of rights-of-way
and easements under the Act of February 5, 1948 (62 Stat. 17, 18, 25 U.S.C. §323-328),
the Act of March 3, 1879 (20 Stat. 394, 5 U.S.C. § 485), as amended, and the Acts of
July 9, 1832, and July 27, 1868 (4 Stat. 564, 15 Stat. 228. 25 U.S.C. §2) and such
regulations promulgated thereunder, as are applicable, including 25 C.F.R. §1.2 and 25
C.F.R. Part 169.

	 	2.2	 	“§ 323 Grant Land” — Has the meaning set forth in Section 5.2.

 

2

 

	 	2.3	 	“Affiliate” — With respect to any Lessee hereto, any entity, including
but not limited to a corporation, company, partnership, LLC/LLP or joint venture that
directly or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with such Lessee. For purposes of this definition, the term
“control” (including “controlled by” and “under common control with”) shall mean the
possession, direct or indirect, of the power to direct or cause the direction of the
management and policies of an entity, whether through the ownership of voting
securities, regardless of percentage by written contract, or otherwise.

	 	2.4	 	“Annual Payment” — Except for (i) payments owed to the Nation under
the existing Settlement and Closing Agreements that the Nation has executed with each
individual Lessee (ii) the payments that will be owed to the Nation under the
Settlement and Closing Agreements set forth in Section 14; (iii) the negotiation
premium set forth in Section 3.4; and (iv) the payment set forth in Section 4.5, the
total and sole payment that shall be made by (X) APS to the Nation, in consideration
for the rights set forth in the 1960 Lease, including, but not limited to, (a) all
leasehold rights, (b) the Existing § 323 Grants, and (c) the Renewed § 323 Grants; and
by (Y) the Lessees to the Nation, in consideration for the rights set forth in the 1966
Lease, including, but not limited to, (a) all leasehold rights, (b) the Existing § 323
Grants, and (c) the Renewed § 323 Grants.

	 	2.5	 	“Communication Sites” — The communication sites and related facilities
identified within item 5 of Exhibit B.

	 	2.6	 	“Existing § 323 Grants” — The § 323 Grants set forth on Exhibit B.

	 	2.7	 	“Four Corners Project” — Has the meaning set forth in the 1966 Lease.

	 	2.8	 	“Initial Four Corners Plant” — Has the meaning set forth in the 1966 Lease.

 

3

 

	 	2.9	 	“Plan” — Has the meaning set forth in Section 7.1.

	 	2.10	 	“Plant” — For convenience only, and not to merge the leasehold estates
under the 1960 Lease and the 1966 Lease, a reference to the Initial Four Corners Plant
and the Four Corners Project, respectively.

	 	2.11	 	“Renewed § 323 Grants” — Has the meaning set forth in Section 4.2.

	 	2.12	 	“Navajo Nation Lands” — Has the meaning set forth in the 1966 Lease
for the term “Reservation Lands.”

	 	2.13	 	“Secretary” — The Secretary of the United States Department of the
Interior or his or her duly authorized designee, representative, or successor.

	 	2.14	 	“Transmission Lines” — The electrical transmission lines and related
facilities identified within items 3 and 4 of Exhibit B.

	3	 	TERM.

	 	3.1	 	This Amendment shall become effective (the “Amendment Effective Date”)
upon the earlier of SCE’s sale of its interest in the Four Corners Project or July 6,
2016 (the “Amendment 2 Termination Date,” as defined in the Amendment and
Supplement No. 2 to the Supplemental and Additional Indenture of Lease, attached as
Exhibit A).

	 	3.2	 	The Navajo Nation Council Resolution approving this Amendment, and signature by
the Nation’s duly authorized representative, shall be deemed to be sufficient legal
approval by the Nation of this Amendment.

	 	3.3	 	The 1960 Lease and the 1966 Lease (and the Annual Payments payable thereunder)
are extended to July 6, 2041, whether or not the Initial Four Corners Plant or the Four
Corners Project are operating or the Renewed § 323 Grants are terminated.

 

4

 

	 	3.4	 	The Nation will engage in good-faith negotiations for an additional extension
of both the 1960 Lease and the 1966 Lease beyond 2041, provided that such negotiations
begin no later than July 2029 and conclude by July 2031. Any mutual agreement to
continue the negotiations beyond July 2031, which such negotiations are not
successfully completed, will extend the term of both the 1960 Lease and the 1966 Lease
equally beyond July 2041, provided that (i) the negotiation extension period shall not
exceed three years; and (ii) APS with respect to the 1960 Lease and the Lessees with
respect to the 1966 Lease shall pay the Nation a pre-negotiated premium (above the
Annual Payment) for the period the negotiations are extended.

	4	 	NATION’S CONSENT TO § 323 GRANTS BY SECRETARY FOR THE PLANT, TRANSMISSION LINES, AND
COMMUNICATION SITES.

	 	4.1	 	The Nation has previously consented to, and the Secretary has granted, the
Existing § 323 Grants, and the renewal, extension or reissuance of each Existing § 323
Grant will be necessary.

	 	4.2	 	The Nation consents and covenants to consent now, and for the terms of each of
the 1960 Lease and the 1966 Lease (collectively, “Consents”), that the Lessees
shall have the right to obtain, by grant from the Secretary, and the Nation Consents to
the grant by the Secretary, of renewed, extended, or reissued § 323 Grants for the
rights-of-way covered in the Existing § 323 Grants. (Such renewed, extended, or
reissued § 323 Grants are referred to as the “Renewed § 323 Grants”).

	 	4.3	 	The Nation and Lessees will cooperate fully with each other and the Secretary
to obtain the Renewed § 323 Grants.

 

5

 

	 	4.4	 	The Navajo Nation Council Resolution approving this Amendment shall be deemed
to be sufficient legal approval by the Nation for the Renewed § 323 Grants. No further
consideration shall be required by the Nation in order for the Secretary to issue the
Renewed § 323 Grants.

	 	4.5	 	The Lessees shall provide the Nation a copy of applications for the Renewed §
323 Grants, and each application shall be accompanied by a payment of no more than $800
per application.

	 	4.6	 	The Existing § 323 Grants and the Renewed § 323 Grants shall be additional and
supplementary to, separate and independent from, and not conditioned upon the leasehold
rights leased to APS under the 1960 Lease and to the Lessees under the 1966 Lease; and
a termination of either the 1960 Lease or the 1966 Lease for any reason shall not
terminate any §323 Grant, and a termination of any § 323 Grant for any reason, shall
not terminate the 1960 Lease or the 1966 Lease.

	 	4.7	 	The Nation agrees to support the renewal, extension, or reissuance of the
Existing § 323 Grants as categorically excluded under section 3.2A of the Bureau of
Indian Affairs’ 2005 National Environmental Policy Act Handbook. If the Secretary
determines that additional environmental impact analysis is required, the Nation hereby
grants Lessees access to all Navajo Nation Lands necessary to complete such additional
analysis. Lessees will work with the appropriate Navajo Nation agencies to effectuate
any necessary access to any Navajo Nation Lands. The Nation also agrees to assist the
Lessees in completing such analysis and to take reasonable actions to reduce the time
and cost required to complete such analysis.

	 	4.8	 	Except as set forth in the 1960 Lease, APS shall not change the voltages of the
Transmission Lines without the Nation’s prior approval.

	 	4.9	 	Under no circumstances shall any § 323 Grant be interpreted as granting a fee
simple interest to the Lessees or any other property interest, except as set forth in
the § 323 Grant.

 

6

 

	5	 	ADDITIONAL TERMS REGARDING § 323 GRANTS FOR TRANSMISSION LINES.

	 	5.1	 	The provisions of Section 5.2 through Section 5.7 and Section 10 and Section 12
below constitute a separate agreement between the Nation and APS. In no event shall
any default, action or omission by APS under Section 5.2 through Section 5.7, Section
10, or Section 12 below have any effect on any other Parties’ rights, privileges,
duties, obligations and liabilities under the remainder of this Amendment.

	 	5.2	 	The Navajo Nation Lands subject to an Existing § 323 Grant or a Renewed § 323
Grant and pertaining only to the Transmission Lines shall hereinafter be referred to as
“§ 323 Grant Land.”

	 	5.3	 	The use of the § 323 Grant Land shall be strictly limited to constructing,
reconstructing, replacing, repairing, operating and maintaining the Transmission Lines.
Any other use of the § 323 Grant Land shall require the consent of the Nation. The
consent of the Nation may be given, given upon conditions, or denied at the sole
discretion of the Nation.

	 	5.4	 	The Nation shall be under no obligation to forego the use of the § 323 Grant
Land or any portion or lands burdened by the § 323 Grant Land, or to refrain from
authorizing any use of said lands by any third party, including but not limited to, the
exploration for and development and transportation of coal, oil, gas, or other natural
resources located within or beneath said lands, except to the extent that
such use physically interferes with the operation and maintenance of the
Transmission Lines or interferes with the purposes of the § 323 Grants.

 

7

 

	 	5.5	 	Upon the Nation’s proposed authorization of the use of the § 323 Grant Lands by
any third party, which new use may occupy the § 323 Grant Lands or otherwise burden the
§ 323 Grant Lands, the Nation agrees to notify APS and commence good faith consultation
with APS prior to the Nation’s final approval of said third party use. Prior to the
Nation’s final approval, the Nation shall require the third party to enter into an
agreement with APS, which agreement must be acceptable to APS, to indemnify, defend,
and hold APS harmless from any and all liability arising from the third party’s use,
interest, and activities within the § 323 Grant Land.

	 	5.6	 	Five years prior to the expiration of a Renewed § 323 Grant, or as soon as
practicable after any earlier termination of a Renewed § 323 Grant, APS and the Nation
shall meet to discuss whether APS will leave in place all, some, or none of the
Transmission Lines. If APS and the Nation cannot agree to terms regarding the
disposition of one or more of the Transmission Lines, APS shall remove the Transmission
Line(s) for which no agreement is reached, in accordance with the Lease and applicable
laws and requirements, and shall leave the § 323 Grant Land in good condition. On the
expiration date of a Renewed § 323 Grant, APS shall have ninety (90) days to peaceably
and without legal process deliver the possession of the § 323 Grant Land, with or
without the Transmission Lines, as the case may be. In the event a Renewed § 323 Grant
is terminated early, APS shall have six months to peaceably and without legal process
deliver the possession of the § 323 Grant Land for such terminated § 323 Grant, with or
without the Transmission Lines, as the case may be. If delivery cannot be
performed on or before such 90-day period or six month period, as the case may be,
APS and the Nation shall commence good faith negotiations for compensation, fees or
damages to be paid to the Nation for prospective periods of occupation, use, or
burden of the § 323 Grant Lands.

 

8

 

	 	5.7	 	Holding over by APS after the expiration or early termination of a Renewed §
323 Grant shall not constitute an extension/renewal thereof, or give APS any rights in
or to the § 323 Grant Lands. Holding over after expiration or early termination of a
Renewed § 323 Grant shall not give APS any rights via a Renewed § 323 Grant. Following
expiration or early termination of a § 323 Grant, the act of applying for a § 323 Grant
from the Secretary shall not give APS any rights to the § 323 Grant land.

	6	 	NATION’S SUPPORT OF ENVIRONMENTAL REVIEWS AND § 323 GRANTS.

The Nation shall work
with the Lessees to obtain the necessary regulatory approvals and to advocate on behalf of the
Lessees in support of any National Environmental Policy Act, Endangered Species Act, or
National Historic Preservation Act analyses; § 323 renewals or extensions; or any other
requirements of the Department of the Interior (“DOI”) or the Nation that are
prerequisites necessary to conduct the operations of the Plant, Transmission Lines, and
Communication Sites. In its interactions with the DOI, the Nation shall support the interests
of the Lessees and advocate positions that support the continued operations of the Plant,
Transmission Lines, and Communication Sites.

 

9

 

	7	 	EMPLOYMENT AT THE FOUR CORNERS GENERATING STATION.

Section 19 of the 1960 Lease, Section 24 of the 1966 Lease and Section 25 of the 1966 Lease
(as amended by Section 12 of the 1985 Lease Supplement) are deleted in their entirety and
replaced as follows:

	 	7.1	 	Without limiting the scope or effectiveness of the provisions of Section 17 of
the 1960 Lease (Operation of Power Plant) or Section 22 of the 1966 Lease (Operation of
Enlarged Four Corners Generating Station), APS and the Lessees shall comply with the
terms of the Four Corners Generating Station Preference Plan (the “Plan”),
attached as Exhibit C.

	 	7.2	 	In the event that, in the opinion of their counsel, federal law develops in the
future, to permit APS and the Lessees, respectively, to grant a preference in
employment based on tribal affiliation, as distinguished from a “Native American
Indian” preference in employment, APS and the Lessees shall practice a Navajo
preference in employment at the Plant in accordance with the requirements of this
Section 7 and the Plan.

	 	7.3	 	If, at any time, APS’s then current Collective Bargaining Agreement (which
governs labor at the Plant), as negotiated by APS, in its sole discretion, conflicts
with this Section 7 or the Plan, then APS’s Collective Bargaining Agreement shall take
precedence.

 

10

 

	8	 	ADVISORY COMMITTEE.

APS, the Lessees, and the Nation shall establish a Four Corners Advisory Committee for the
purpose of promoting open dialogue between them regarding operations of the Plant.

	 	8.1	 	The Committee shall consist of two members of the Navajo Nation Government with
experience in energy-related matters, one from the executive and one from
the legislative branch, and two senior officials representing APS and the Lessees,
who shall be tasked to work together and in consultation with their respective
leaderships to resolve concerns raised by APS and the Lessees or the Nation in a
mutually beneficial manner. The Committee shall meet regularly, but no less than
two times a year. Discussion topics and updates may include voluntary compliance
agreements, the impact of plant operations on the Nation’s members and surrounding
communities and emerging issues.

	 	8.2	 	APS and the Lessees or the Nation may submit disagreements and disputes to the
Committee for discussion and possible resolution. Decisions of the Committee shall be
in the nature of recommendations and shall not be binding on APS and the Lessees or the
Nation.

	9	 	ANNUAL PAYMENT.

	 	9.1	 	The Annual Payment shall replace all compensation for rents, rights of way, or
otherwise, set forth in the § 323 Grants (as to the § 323 Grant Land), the 1960 Lease
and the 1966 Lease, as applicable. All sections of the aforementioned documents
imposing a payment obligation on APS and the Lessees are hereby deleted.

	 	9.2	 	The Annual Payment shall be $7,000,000, as adjusted from the April 2011 CPI
(defined below), and shall begin on the Amendment Effective Date. All subsequent
Annual Payments shall be subject to annual adjustments, based upon changes in the April
Consumer Price Index U.S. City Average for All Urban Consumers, published by the U.S.
Bureau of Labor Statistics (“CPI”). The annual CPI adjustment for the Annual
Payment shall be as set forth in Exhibit D.

 

11

 

	 	9.3	 	On or before July 6 of each year, APS and the Lessees shall submit one check
for the Annual Payment to the Nation and indicate the adjustment required by the CPI.

	 	9.4	 	No Lessee shall be responsible or liable to the Nation for the payment of any
portion of such Annual Payment of any other Lessee. In the event that one or more
Lessees fails to pay the Nation its portion of such Annual Payment at the time such
Annual Payment is submitted to the Nation, APS (or the then operator of the Plant)
shall inform the Nation of the name of the Lessee(s) failing to make the Annual Payment
and the specific amount of each such Lessee’s shortfall. In the event the Nation
incurs costs associated with obtaining the required Annual Payment owed, the Nation
shall be entitled to recover from the defaulting Lessee(s) its associated costs,
including, but not limited to, attorney’s fees, filing fees and interest accrued. A
list of each Lessee’s portion of the Annual Payment shall be provided to the Nation.

	 	9.5	 	The Nation agrees that the Annual Payment payable by APS and the Lessees
constitutes fair and adequate consideration for the rights granted in the 1960 Lease,
the 1966 Lease, the Existing § 323 Grants and the Renewed § 323 Grants.

	 	9.6	 	Upon agreement between the Lessees, the percentage of the Annual Payment owed
by each of APS and the Lessees, respectively, may be changed without the consent of the
Nation. But in no event shall the amount due be less than 100% of the Annual Payment,
as calculated in accordance with Section 9.2. In the event of a change in payment
percentages, an updated list of each Lessee’s portion of the Annual Payment shall be
provided to the Nation. In consideration of the Annual Payment made by APS and the
Lessees, respectively, the Nation releases APS and the Lessees from all and any kind of
claims, suits, actions, causes of action, rights,
liabilities, and obligations (the aforementioned, collectively referred to as
“Claims”), whether past, present, or future, known or unknown, for or
related to compensation due under the 1960 Lease or 1966 Lease, or compensation for
the Existing § 323 Grants and the Renewed § 323 Grants.

 

12

 

	 	9.7	 	In consideration of the Annual Payment made by APS and the Lessees,
respectively, the Nation releases APS and the Lessees from and settles all outstanding
issues and potential Claims, under the 1960 Lease or 1966 Lease, or under the Existing
§ 323 Grants. Notwithstanding the foregoing, the release set forth in this Section 9.7
shall not apply to any claims arising under Section 10 of this Amendment.

	 	9.8	 	APS and the Lessees release the Nation from and settle all outstanding issues
and potential Claims under the 1960 Lease or the 1966 Lease, or under the Existing §
323 Grants. Notwithstanding the foregoing, the release set forth in this Section 9.8
shall not apply to any claims arising under Section 10 of this Amendment.

	10	 	APS’S 230kV LINES.

APS and the Nation disagree as to whether the provisions of Section 17 of the 1960 Lease
(Operation of Power Plant) or Section 22 of the 1966 Lease (Operation of Enlarged Four
Corners Generating Station) apply to the Existing §323 Grants listed on Exhibit B for the
230kV lines identified as (a) Flagstaff to Leupp and (b) Cholla to Leupp (collectively, the
“Leupp Lines”). APS and the Nation each reserve the right to assert that the
aforementioned sections apply or do not apply to the Leupp Lines, as the case may be.

	11	 	DECOMMISSIONING.

Upon the decommissioning of the Initial Four Corners Plant, the Four Corners Project or any
part of either facility, the final decommissioning obligations of APS as to the Initial Four
Corners Plant and of the Lessees as to the Four Corners Project shall be limited to
the requirements under the applicable federal environmental laws existing at the time of
such decommissioning. All or any part of any such decommissioning may occur at any time
during the term of either the 1960 Lease or the 1966 Lease, as applicable.

 

13

 

	12	 	MOENKOPI SUBSTATION.

In the event that there is a future expansion of the Moenkopi Substation, it shall be
subject to an increase in APS’s portion of the Annual Payment by $1500 per acre (in April
2009 dollars) for up to 100 acres. The $1500 per acre payment shall be adjusted annually by
the CPI (in April 2009 dollars). The expansion shall be subject to all applicable
regulatory requirements.

	13	 	ASSIGNMENTS.

The second paragraph of Section 19 of the 1966 Lease is deleted and replaced as follows:
Except as set forth in the first paragraph of Section 19 of the 1966 Lease and in Section
9.6 of this Amendment, and except for any assignment, sublease or other transfer by a Lessee
to its Affiliate, all other assignments, subleases, or other transfers of rights (including
operating rights) of APS related to the 1960 Lease or the Lessees related to the 1966 Lease
shall be subject to the prior written consent of the Nation, which consent shall not be
unreasonably withheld, nor conditioned on any payments or changes to the terms and
conditions of the respective leases, other than nominal administration fees.

	14	 	SETTLEMENT AND CLOSING AGREEMENTS.

Each Party shall execute a new Settlement and Closing Agreement in form and substance
substantially similar to the proposed sample Settlement and Closing Agreement attached as
Exhibit F. Once executed, the Settlement and Closing Agreement will be effective as of July
6, 2016.

 

14

 

	15	 	NO CROSS DEFAULT.

Notwithstanding anything to the contrary in this Amendment, the 1960 Lease or the 1966
Lease, a default by APS under the 1960 Lease, as amended by this Amendment, shall not
constitute a default by Lessees under the 1966 Lease, and a default by Lessees under the
1966 Lease, as amended by this Amendment, shall not constitute a default by APS under the
1960 Lease.

	16	 	PRIMARY FUEL.

The primary fuel used at the Plant shall be coal.

	17	 	THIRD PARTY BENEFICIARIES.

The 1960 Lease and the 1966 Lease are not intended to confer upon any third person any
rights, privileges, waivers, obligations, or remedies granted hereunder. If, on or before
July 6, 2018, SCE has sold its share of the Four Corners Project (“SCE’s Share”),
the Nation agrees that, without any additional consent or compensation, such buyer(s) of
SCE’s Share (“Buyers”) shall (a) automatically, upon the closing of such a sale,
become a Lessee(s) under the 1966 Lease and (2) assume the portion of the Annual Payment
attributable to SCE’s Share. Upon the closing of such transaction, all such Buyers shall be
express third party beneficiaries under this Section 17, and such Buyers and the Nation
shall have first party rights to enforce full performance of this Section 17 against each
other.

	18	 	EXECUTION IN COUNTERPARTS.

This Amendment may be executed in any number of counterparts, and each executed counterpart
shall have the same force and effect as an original instrument and as if all of the Parties
to the aggregate counterparts had signed the same instrument. Any signature page of this
Amendment may be detached from any counterpart thereof without impairing the legal effect of
any signatures thereon, and may be attached to other
counterparts of this Amendment identical in form hereto but having attached to it one or
more additional signature pages.

 

15

 

This Amendment has been executed by the duly authorized representatives of the Parties,
effective as of the Amendment Effective Date.

	 	 	 	 	 	 	 	 	 
	 	 	THE NAVAJO NATION	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Ben Shelly	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Printed Name:
	 	Ben Shelly	 	 
	 

	 	 	 	Its: President
	 	 

State of Arizona

County of Apache

The foregoing instrument was acknowledge before me this 7th day of
March, 2011 by Ben Shelly the President of 
(Name)   (Title) 

 THE NAVAJO NATION, on
behalf of The Navajo Nation.

	 	 	 	 	 
	 

	 	/s/ Angela Cody
 

Notary Public
	 	 

My Commission Expires:

	 	 	 	 	 	 	 	 	 
	 	 	ARIZONA PUBLIC SERVICE COMPANY, an Arizona
corporation, in its individual capacity and as
a Lessee	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Mark A. Schiavnoi	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Printed Name:
	 	Mark A. Schiavnoi	 	 
	 

	 	 	 	Its: Senior Vice President, Fossil
	 	 

State of Arizona

County of Maricopa

The foregoing instrument was acknowledge before me this 8th day of
November, 2010 by Mark A. Schiavnoi the  
(Name)   

Senior Vice President, Fossil of  ARIZONA PUBLIC SERVICE COMPANY, an Arizona corporation, on behalf of the corporation.

(Title) 

	 	 	 	 	 
	 

	 	/s/ Norann Asciutto
 

Notary Public
	 	 
	My Commission Expires: 

2-27-14

	 		 	 

 

16

 

	 	 	 	 	 	 	 	 	 
	My Commission Expires:	 	Notary Public	 	 
	 
	Reviewed and Approved	 	EL PASO ELECTRIC COMPANY, a	 	 
	Legal Department	 	Texas corporation	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ [ILLEGIBLE]	 	By:	 	/s/ David W. Stevens	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Printed Name:
	 	David W. Stevens	 	 
	 

	 	 	 	Its: CEO
	 	 

State of Texas

County of EL PASO

The foregoing instrument was acknowledge before me this 8th day of
November, 2010 by David W. Stevens the CEO of 
(Name)   (Title) 

EL PASO ELECTRIC COMPANY, a Texas corporation, on behalf of the corporation.

	 	 	 	 	 	 	 	 	 
	 	 	/s/ Carolina Pena	 	 
	 	 	 	 	 
	 	 	Notary Public	 	 
	 
	 	 	 	 	 	 	 	 
	My Commission Expires: 

3-24-2011	 		 	 
	 
	 	 	 	 	 	 	 	 
	 	 	PUBLIC SERVICE COMPANY OF NEW MEXICO,	 	 
	 	 	a New Mexico corporation	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Patricia K. Collawn	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Printed Name:
	 	Patricia K. Collawn	 	 
	 

	 	 	 	Its: President & CEO
	 

State of New Mexico

County of Bernalillo

The foregoing instrument was acknowledge before me this 8th day of
November, 2010 by Patricia K. Collawn the President &  
(Name)   (Title) 

CEO of PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation, on behalf of the corporation.

	 	 	 	 	 	 	 	 	 
	 	 	/s/ [ILLEGIBLE]	 	 
	 	 	 	 	 
	 	 	Notary Public	 	 

 

17

 

My Commission Expires:
September 12, 2012

	 	 	 	 	 	 	 	 	 
	 	 	TUCSON ELECTRIC POWER COMPANY,	 	 
	 	 	an Arizona Corporation	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Michael J. Deconcini	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Printed Name:
	 	Michael J. Deconcini	 	 
	 

	 	 	 	Its: Chief Operating Officer
	 	 

State of Arizona

County of Pima

The foregoing instrument was acknowledge before me this 8th day of
November, 2010 by Michael J. Deconcini the  
(Name) 

Sr. Vice President & Chief Operating Officer of
TUCSON ELECTRIC POWER COMPANY, an Arizona corporation, on
behalf of

(Title)

the corporation.

	 	 	 	 	 
	 

	 	/s/ Janice Spencer
 

Notary Public
	 	 
	My Commission Expires: 

8/8/11

	 		 	 

 

18

 

SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, an agricultural improvement
district organized under the laws of the State of Arizona.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Reviewed by SRP Legal Services	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ David Rousseau
 

David Rousseau, President or

John R. Hoopes, Vice President
	 	By: 
	 	/s/ Kanlee Ramaley
 

Signature
	 	 
	 

	 	 
	 	 	 	/s/ Kanlee Ramaley  
	 	 
	Date:

	 	11/23/2010	 	 	 	Printed Name	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	Date:
	 	11/23/2010	 	 

Attest and Countersign:

	 	 	 	 	 
	By:

	 	/s/ Terrill A. Lonon
 

Terrill A. Lonon, Secretary or
	 	 
	 

	 	Stephanie K. Reed, Assistant Secretary	 	 
	 
	 	 	 	 
	Date:

	 	11/23/2010	 	 

State of Arizona

County of Maricopa

The foregoing instrument was acknowledge before me this 23rd day of
November, 2010 by David Rousseau the President of 
(Name)   (Title) 

SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, an agricultural improvement district organized under
the laws of the State of Arizona.

	 	 	 	 	 
	 

	 	/s/ Stephanie K. Reed
 

Notary Public
	 	 
	 
	 	 	 	 
	My Commission Expires: 

August 5, 2011

	 		 	 

 

19

 

EXHIBIT A

See Amendment 2

 

 

 

Exhibit B

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Existing	 	 	 	APS	 	Grant	 	Expiration	 	 	 
	Item	 	§ 323 Grants	 	Property or Facility	 	File #	 	Date	 	Date	 	Acres	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	1
	 	Plant Site	 	Amended Original Lease (Units 1-3)	 	 	 	12/01/60	 	07/06/16	 	 	 	 
	 
	 	 	 	New Lease (Units 4-5)	 	 	 	07/06/66	 	07/06/16	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	3,466.42	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2
	 	Ancillary Facilities	 	Utah Mine Haul Road (Communication Lines and Access Road)	 	IN-13	 	07/2861	 	07/28/11	 	 	19.25	 
	 
	 	 	 	Plant — Coal Lease Area — 69 kV	 	IN-15	 	12/15/61	 	12/15/11	 	 	3.75	 
	 
	 	 	 	Pumping Station to Plant Access Road & Pipeline	 	IN-12	 	04/02/62	 	04/02/12	 	 	40.91	 
	 
	 	 	 	River Pumping Station to Plant — 69 kV	 	IN-11	 	04/02/62	 	04/02/12	 	 	21.74	 
	 
	 	 	 	Plant — EPNG Bridge / Access Rd	 	IN-16	 	07/03/63	 	07/03/13	 	 	37.57	 
	 
	 	 	 	Pumping Station to Plant Access Road & Pipeline Addition	 	IN-92	 	04/21/69	 	04/21/19	 	 	10.36	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	133.58	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	3
	 	500 kV ROW	 	El Dorado 500 kV (Navajo portion only)	 	IN78 INH-79, INH-80	 	03/22/67	 	03/22/17	 	 	3,959.29	 
	 
	 	345 kV ROW	 	Four Corners to Cholla	 	IN-17	 	05/26/61	 	05/26/11	 	 	5,658.91	 
	 
	 	230 kV ROW	 	Flagstaff to Leupp	 	IN-4	 	09/12/57	 	09/12/07	 	 	102.82	 
	 
	 	 	 	Cholla to Leupp	 	IN-7	 	09/21/60	 	09/21/10	 	 	249.16	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	4
	 	Substation Sites	 	12 kV line and Roadway to Moenkopi Switchyard	 	INH-88	 	04/24/70	 	04/27/95	 	 	1.12	 
	 
	 	 	 	Leupp Substation	 	IN-5	 	05/06/59	 	05/06/09	 	 	.43	 
	 
	 	 	 	Moenkopi Switchyard	 	INH-83	 	04/09/68	 	04/09/18	 	 	211.09	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	5
	 	Communication Sites	 	Preston Mesa Communication Site	 	IN-1182	 	12/30/96	 	12/30/14	 	 	0.23	 
	 
	 	 	 	Jacks Peak Communication Site	 	IN-1181	 	04/16/02	 	04/15/17	 	 	1.75	 
	 
	 	 	 	Dezza Bluff Communication Site	 	IN-1357	 	12/15/97	 	12/14/17	 	 	0.08	 
	 
	 	 	 	Zilnez Mesa Microwave Site, Navajo Reservation	 	IN-113	 	01/03/73	 	01/03/23	 	 	2.40	 
	 
	 	 	 	Roof Butte Communication Site	 	IN-85	 	07/07/70	 	07/07/20	 	 	0.02	 
	 
	 	 	 	Marsh Pass Communication Site	 	IN-116	 	01/03/73	 	01/03/23	 	 	3.90	 

	 	 	 
	*	 	Certain of the terms used to describe the listed property or facilities have the
meanings given to them in the 1960 Lease and 1966 Lease.

 

 

 

Exhibit C

FOUR CORNERS GENERATING STATION

PREFERENCE PLAN

March 7, 2011

 

 

 

Table of Contents

	 	 	 	 	 
	I. INTRODUCTION
	 	 	1	 
	 
	 	 	 	 
	II. PREFERENCE POLICY STATEMENT
	 	 	1	 
	 
	 	 	 	 
	III. SELECTION
	 	 	1	 
	 
	 	 	 	 
	IV. GOALS
	 	 	2	 
	 
	 	 	 	 
	V. TRAINING
	 	 	3	 
	 
	 	 	 	 
	VI. RECRUITMENT/ADVERTISING FOR REGULAR EMPLOYEES
	 	 	3	 
	 
	 	 	 	 
	VII. ADVERTISING/RECRUITING FOR TEMPORARY EMPLOYEES
	 	 	4	 
	 
	 	 	 	 
	VIII. CONTRACT LABOR/SERVICES
	 	 	4	 
	 
	 	 	 	 
	IX. CROSS CULTURAL COMMUNICATIONS PROGRAM
	 	 	4	 
	 
	 	 	 	 
	X. DISPUTE RESOLUTION FOR EMPLOYEES
	 	 	4	 
	 
	 	 	 	 
	XI. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES
	 	 	5	 

 

 

 

I. INTRODUCTION

The purpose of this Preference Plan is to clarify and delineate Arizona Public Service
Company’s (“APS”) Indian Preference Plan for the Four Corners Generating Station (“Four Corners”)
and specifically, the procedures for giving preference in employment to Indians.

II. PREFERENCE POLICY STATEMENT

Employment at Four Corners is based on qualifications without regard to race, color, creed,
religion, national origin, sex, or age, except that preference will be given to qualified Indians,
provided, however, that to the extent allowed by law (as set forth in Section 7.2 of the Amendment,
to which this Preference Plan is attached), APS will give preference to qualified Navajos rather
than to Indians. Each member of APS’s management is responsible for implementing this policy in
his/her areas and is held accountable for it in the same way each manager is held accountable for
other company policies. In particular, the Plant Manager for Four Corners has overall
accountability and responsibility for implementation of this Preference Plan.

III. SELECTION

In order to conduct operations at Four Corners in a safe and effective manner, all positions
must be filled by persons qualified to perform the work required. APS has procedures to evaluate
the qualifications (knowledge, skills and abilities) required for each job position. In general,
these job qualifications are documented in “job descriptions” maintained by APS’s Human Resource
Department. Employees may also obtain a copy of their job descriptions by contacting their
supervisors.

Job requirements consist of standards which identify the skills, education, and
experience necessary to perform a particular job. These job requirements are the basis for
hiring decisions and are also used to formulate employee training programs for job classifications
with few incumbent-Indian employees. Hence, it is important that the job descriptions describe the
true requirements of the job. For this reason, APS will review its job descriptions to assure that
the job qualifications are relevant to the job requirements.

Qualifications are assessed on the basis of performance reviews, skills evaluations,
experience and education, as appropriate for the position under consideration. Supervisors (and
previous employers, in the case of external applicants) may be contacted. Skills may be evaluated
by written tests, skill demonstrations, or by supervisory interview. Tests will be validated for
job relevancy.

APS is committed to Indian preference in employment. Preference will be given to Indians who
possess the skills and abilities to fulfill the job requirements established above.

 

1

 

IV. GOALS

The purpose of this Preference Plan is to provide a means to increase the employment of
Indians at Four Corners, in both regular full-time and temporary positions. In particular, APS
intends to focus on increasing the overall employment of Indians at Four Corners and promoting
Indians into management positions.

Analysis of Indian employment levels by job classification will lead to establishing goals for
job placement and training. These goals will be reviewed annually to evaluate the progress made
toward the objective, and revised as necessary.

The commitment of APS is to offer available job opportunities to Indians who satisfy job
requirements, whether the person is a current employee or a non-employee identified through
recruitment and advertising. Through the adoption and implementation of training programs at Four
Corners, the long-range goal is to develop a pool of Indian candidates qualified for all positions.

Openings created through resignation, discharge, transfer, promotion, or a newly created
position cause the posting of an internal “bid” and create opportunities for internal movement
through the bid process. Bidding is the established process by which job vacancies are announced,
advertised and filled. When vacancies occur, employees, who feel they have the qualifications for
a particular job, may submit their internal applications (bids) for consideration.

The bid process frequently creates a cascading effect, as employees vacate existing jobs to
fill positions that result from another employee accepting a bid to fill the original vacancy.
When an Indian bidder accepts a position vacated by another Indian, the net effect on the overall
percentage of Indian employment is zero. While Indian bidders will be given preference in
accordance with this Preference Plan, an increase in the total percentage of Indian employees at
Four Corners can be expected only when the cascading effect of the bid system results in the
employment of external Indian candidates.

Nevertheless, the potential for increasing the number of Indian employees is greater in
certain job classifications than in others. Some of these job classifications are:

	 	•	 	First and second level supervision

	 	•	 	Operations (Operator Trainee through Control Operator)

	 	•	 	Machinist

	 	•	 	Plant Mechanic

	 	•	 	Electrician

	 	•	 	Equipment Operator

	 	•	 	Plant Chemist

	 	•	 	Scheduler

 

2

 

Four Corners management will give these job classifications particular attention to increase
employment of Indians. Additionally, technical and professional recruiting will be increased to
locate, identify, and employ suitable Indian candidates for engineers, technicians, and
professional positions.

V. TRAINING

When there are too few qualified Indian bidders, internal training programs to increase the
availability of Indian bidders may be appropriate. Training programs should focus on raising the
level of skills, knowledge and abilities of Indians in “feeder jobs.” These are jobs which
typically provide employees for higher level jobs, particularly when the lower level job has skill,
knowledge and ability requirements that are prerequisites for a higher level job. Training should
continue until the goal has been met. Other “in-place” training programs, such as apprenticeships
and operations training, are on-going and continue to provide trained replacements for journeymen.

Indians will be encouraged to enhance their careers at APS by taking advantage of on-the-job
training, apprenticeships, and in-house and off-the-job educational courses. As a specific part of
this Preference Plan, the following actions will be taken to provide opportunities for Indians to
advance to journeyman-level and supervisory positions.

	 	1.	 	New apprenticeships will be awarded only to qualified Indians.
	 
	 	2.	 	Currently employed Indian journeymen will be selected for supervisory training
to make them better qualified for future opportunities in foreman positions.

Because of the magnitude of the work and its accompanying time constraints, virtually everyone
at Four Corners is affected by an overhaul. Four Corners has chosen to supplement the knowledge,
skills and experience of its regular full-time employees with those of temporary workers with job
specific skills. During an overhaul, where possible, regular full time employees are upgraded to
higher level skill positions including supervisory positions. In this manner, employees may
further expand the practical application of their technical and supervisory skills.

VI. RECRUITMENT/ADVERTISING FOR REGULAR EMPLOYEES

Recruitment is any activity that causes individuals to apply for employment. Advertising is
one method of recruitment. Examples of other methods include meetings with graduating college
seniors, participation in trade fairs, and day programs.

Since most regular full-time jobs at Four Corners are filled internally, a large recruitment
effort is not needed. Thus, recruitment of regular full-time employees should be limited to those
positions which are not filled by Indians internally. For purposes of this Preference Plan,
recruitment will concentrate on jobs in which Indians are underutilized.

 

3

 

In an effort to attract qualified Indian applicants, contacts with key organizations
throughout the Navajo Reservation will be maintained, although contacts within the Western Navajo
Agency will be emphasized. In addition, Four Corners will work with appropriate tribal agencies to
develop other potential recruitment sources.

Universities, vocational schools, Joint Training and Partnership Act classroom training
programs, the Navajo Division of Education, the ONLR, and employment service offices located in the
vicinity of Four Corners will be included in the recruitment and advertising efforts of Four
Corners. Technical and professional jobs will be emphasized in recruitment efforts at colleges,
universities, and in periodic advertisements to attempt to locate and identify suitable Indian
candidates for employment opportunities.

Advertising and recruiting efforts will include a statement that APS at Four Corners
recognizes Indian preference in employment. The following statement will be included in all
advertisements for employment opportunities at Four Corners and on bid sheets posting jobs at Four
Corners:

APS follows a policy of giving preferential treatment to Indians in
connection with employment at the Four Corners Generating Station.

VII. ADVERTISING/RECRUITING FOR TEMPORARY EMPLOYEES

Each year, temporary employees are hired for certain specific assignments at Four Corners.
Only when no qualified Indian applicant is found, after a thorough review of returning Indian
applicants, existing files on temporary Indian employees, and new applications from Indians
(generated by advertising), will a temporary position be filled by a non-Indian.

VIII. CONTRACT LABOR/SERVICES

APS will select qualified Indian-owned businesses, when available, to provide contract labor
or services at Four Corners. APS will notify its vendors (a) of the employment and contracting
preference policy at Four Corners; and (b) that they are expected to comply with applicable laws
and regulations.

IX. CROSS CULTURAL COMMUNICATIONS PROGRAM

APS will develop and implement a cross-cultural program designed to provide a forum for Indian
and non-Indian employees to openly examine and discuss the culturally significant customs, beliefs,
values, and social mores that all individuals bring with them to the workplace.

X. DISPUTE RESOLUTION FOR EMPLOYEES

APS acknowledges the value of maintaining a work environment free of prejudice and
discrimination. Nevertheless, despite even the best of intentions, complaints do arise, and the
parties have determined that complaints of whatever nature are best handled internally, without the
involvement of external agencies. Therefore, employees are encouraged to take advantage of
APS’s existing internal processes. Through this approach, a wide variety of employment
related complaints may be addressed and resolved.

  

4

 

If Navajo Nation officials become aware of an employment concern at Four Corners, the Navajo
Nation must bring the issue to the Advisory Committee, formed pursuant to the Lease (to which this
Preference Plan is attached), for resolution.

XI. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES

This Preference Plan is the entire agreement between the Parties concerning its subject matter
and supersedes all prior agreements and understandings, whether or not written, including without
limitation the letter agreement dated March 8, 1985 between APS and the Navajo Nation and signed by
G. Mark De Michele and Peterson Zah. This Preference Plan also is not intended to confer upon any
person other than the Parties any rights, privileges, waivers, obligations or remedies granted
hereunder.

 

5

 

Exhibit D

Annual Payment for 2016 and all subsequent years:

	 	 	 
	7,000,000.00 x  
	CPI for April in year which Annual Payment is due	 
	CPI for April 2011	 

 

 

 

Exhibit E

This exhibit intentionally not used.

 

 

 

Exhibit F

(Includes Exhibits A-D of the Restated and Amended Settlement and Closing Agreement)

DRAFT

11/4/2010 3:30 PM

Restated and Amended Settlement and Closing Agreement

This Restated and Amended Settlement and Closing Agreement (the “Restated Agreement”) amends
the Settlement and Closing Agreement dated August 15, 2002 (“Original Agreement”) and is entered
into as of the Effective Date (as defined in Section 18) by Arizona Public Service Company (“APS”)
and the Office of the Navajo Tax Commission (“ONTC”), acting on its own behalf and, pursuant to
Section 103 of the Navajo Nation Uniform Tax Administration Statute (“UTAS”), on behalf of the
Navajo Nation. APS and the ONTC may be referred to herein individually as a “Party” or
collectively as the “Parties.”

Recitals

A. Pursuant to Section 105 of UTAS, the ONTC, on behalf of the Navajo Nation, issued an
assessment to APS on [Date] seeking to assess the Possessory Interest Tax (“PIT”) on APS in
connection with its ownership and operation of the Four Corners Power Plant (the “Plant”),
switchyards, and transmission and distribution facilities within the Navajo Nation (hereinafter,
the Plant, switchyards, and transmission and distribution facilities within the Navajo Nation are
collectively referred to as the “Facilities”). Pursuant to Regulation 1.125 of the ONTC Tax
Administration Regulations, the ONTC also issued on [Date] a private ruling asserting that it has
jurisdictional authority to impose the Business Activity Tax (“BAT”) upon APS’ activities related
to the Facilities. Pursuant to Section 133 of UTAS, the ONTC is entering into this Restated
Agreement.

B. APS and the other participants in the Plant (collectively, the “Participants”) assert that
neither the Navajo Nation nor the ONTC has jurisdictional authority to impose any tax on APS, the
Participants or the Facilities based on (i) certain agreements between the Navajo Nation, APS and
Participants, including without limitation, certain covenants in leases entered into by APS, the
Participants and the Navajo Nation and approved by the United States (“Leases”) and in federal
grants of rights-of-way issued to APS and the Participants by the United States (“Grants”), (ii)
the location of the Facilities on federally granted rights-of-way, (iii) the non-Indian character
of APS and the Participants, and (iv) relevant case law.

 

1

 

C. The ONTC asserts that it possesses jurisdictional authority to administer taxes enacted by
the Navajo Nation with respect to the Participants, including APS, and the Facilities based on (i)
certain agreements between the Navajo Nation, APS and the Participants, including without
limitation, certain covenants in the Leases and Grants, (ii) the location of the Facilities on
lands held in trust by the United States for the benefit of the Navajo Tribe, and (iii) relevant
case law.

D. The Parties entered into the Original Agreement for purposes of settling the dispute and to
avoid litigation over the question of the jurisdictional authority of the Navajo Nation and ONTC to
tax the Facilities and APS, based on its ownership interest in and operation of the Facilities.

E. The Parties desire to restate, amend and extend the Original Agreement and are thus
entering into this Restated Agreement in accordance with the express terms set forth below.

WHEREFORE, THE PARTIES AGREE AS FOLLOWS:

1. Settlement Payments. Subject to the terms and conditions contained in this
Restated Agreement, APS will make settlement payments as specified below (“Settlement Payments”):

a. PIT Settlement Payments.

(i) Beginning with calendar year 2001 and continuing through July 7, 2041 (the
“Amended Term”), APS will pay to ONTC the following amount as a PIT Settlement
Payment for the APS-owned Facilities, subject to adjustment as provided in
subsection a(ii) of this Section 1:

	 	 	 
	Calendar Year	 	PIT Settlement Payment
	2001
	 	$2,993,515.00
	2002 – 2003
	 	$5,987,030.00 per year
	2004 – 2040
	 	$6,342,600 per year
	2041
	 	$3,171,300.00

 

2

 

(ii) Beginning July 8, 2016 and continuing through July 7, 2041, the PIT
Settlement Payment is subject to reduction in the event APS and/or the Participants
permanently shut down any of the Facilities and/or unit(s) of the Plant in which
APS has an ownership interest, including but not limited to the permanent shut down
of the entire Plant (the “Permanently Shut Down Facilities”). For any Permanently
Shut Down Facilities salvage value will be determinative of value, and
salvage value will be based on 5% of original or acquisition cost of the
Permanently Shut Down Facilities in question. In the event of any permanent shut
down under this Section 1a(ii), the PIT Settlement Payment will be recalculated in
two steps:

	 	a.	 	Step One: PIT Settlement
Payment will be proportionally reduced by multiplying the PIT
Settlement Payment by a factor that represents the ratio of the
original or acquisition cost of the APS-owned Facilities within
the Navajo Nation that are not Permanently Shut Down Facilities
divided by the total original or acquisition cost of the
APS-owned Facilities.

	 	b.	 	Step Two: The
proportionately reduced PIT Settlement Payment derived under Step
One will then be increased by adding the product of a 3%
in-lieu-of tax rate and the salvage value (i.e., 5% of original
or acquisition cost) of the Permanently Shut Down Facilities. A
sample calculation in included as Exhibit D to this Restated
Agreement.

(iii) In the event APS constructs a new unit or units at the Plant during the
Amended Term, the PIT Settlement Payment will be proportionally increased by an
amount that represents the product obtained by multiplying the original or
acquisition cost of the new APS-owned unit or units by the following factor:

	 	a.	 	The PIT Settlement Payment of
$6,342,600 divided by the original or acquisition cost of the
APS- owned Facilities within the Navajo Nation as of the
Effective Date of this Restated Agreement. A sample calculation
in included as Exhibit 1 to this Restated Agreement

(iv) APS will pay the PIT Settlement Payment specified above (as may be
adjusted pursuant to Section 1a(ii) or Section 1a(iii), above) for calendar years
2002-2040 on a semi-annual basis, with the first half for each calendar year due
November 1 and the second half due May 1 of the following year. APS will pay the
PIT Settlement Payment specified above for calendar year 2041 on or before November
1, 2041. On or before June 1 of each calendar year during the term of this
Restated Agreement, APS will provide to the ONTC, for informational purposes only,
the form attached as Exhibit A.

 

3

 

(v) Interest on any late payment of the PIT Settlement Payment will be
computed from the date the PIT Settlement Payment was first due to the date such
payment is received by the ONTC. The rate of interest on any late payment will be
equal to the rate then being used by the Internal Revenue Service for an
underpayment of taxes by an
individual. If APS fails to timely pay the PIT Settlement Payment, APS also
will pay an additional amount equal to 5% of its PIT Settlement Payment. For each
full month the payment is overdue, APS will pay an additional amount equal to 0.5%
of its PIT Settlement Payment; provided, however, that the maximum additional
amount APS must pay for the failure to timely pay shall not exceed 10% of the PIT
Settlement Payment amount due. If APS fails to timely provide the Report for PIT
Settlement Payment, attached as Exhibit A, as required by Section 1(a)(iv) of this
Restated Agreement, APS will pay an additional 5% of its PIT Settlement Payment due
for the period for each month or fraction thereof that the Report for PIT
Settlement Payment is not provided; provided, however, that the minimum additional
amount to be paid for failure to timely provide such Report for PIT Settlement
Payment shall be $50 and the maximum additional amount shall not exceed 25% of APS’
PIT Settlement Payment for that period. For good cause shown, the ONTC may in its
discretion relieve APS from all or part of the requirements imposed under this
Section 1.a(v).

(vi) APS will provide, within six (6) months of the Effective Date of this
Restated Agreement, a schedule of original or acquisition cost for the Facilities
in which APS has an ownership interest (including the Permanently Shut Down
Facilities) for use in connection with the calculations provided for in Section
1.a(ii). In addition, if APS constructs a new unit or units at the Plant for
purposes of Section 1.a(iii), APS will provide a schedule of original or
acquisition cost for such new unit or units within six (6) months after its/their
completion, for use in connection with the calculations provided for in Section
1.a(iii).

(vii) The ONTC expressly agrees that APS is hereby released from any
obligation and will not be required or requested to make any other payment with
respect to any other amounts that the ONTC asserted or could have asserted were
payable prior to execution of this Restated Agreement.

b. BAT Settlement Payment.

(i) Effective as of July 6, 2001 and continuing through the Amended Term, APS
will calculate its BAT Settlement Payment amount using the following formula:

BAT Settlement Payment =

[ (R * AI * Net KWhrs) less (Deductions) less (10% Standard Deduction) ] * 5%

 

4

 

Where R = $.0256 / KWhr.

Where Net KWhrs = APS’ share of actual net kilowatt hours generated from the Plant during
the quarterly period.

Where Deductions = (1) Salaries and/or other compensation paid to members of the Navajo
Nation; (2) Purchases of Navajo goods and services; and (3) Any payment made to the
government of the Navajo Nation, except for the BAT Settlement Payment paid pursuant to
this Restated Agreement and any penalties or fines.

Where Standard Deduction = an amount equal to the greater of ten percent of (R * AI * Net
KWhrs) or $125,000.00.

As set forth on Exhibit C, APS will include in its Operating Report provided to the ONTC a
statement of actual net generation for each quarter.

Where AI = an adjustment calculated in the 3rd Quarter of each year based upon
a 5-year rolling average of Producer Price Index data published by the Bureau of Labor
Statistics. Annual adjustments shall be cumulative, i.e., the total current year
adjustment shall be equal to the incremental current year adjustment multiplied by the
previous year’s adjustment. The incremental adjustment shall be calculated utilizing the
following methodology:

AI = (75% * Cost Index) plus (25% * Revenue Index).

Where Cost Index =

	 	 	 
	42.3%

	 	* Bituminous Coal and Lignite: West (BLS Series PCU1211#214) 
	 
	plus

	 	0.9% * Natural Gas (BLS Series PCU1331#A2) 
	 
	plus

	 	7.6% * Other Heavy Construction (BLS Series PCUBHVY#) 
	 
	plus

	 	49.2% * Unit Labor Costs: Non-Farm Business (BLS Series PRS85006112) 

Where Revenue Index =

	 	 	 
	65.2%

	 	* Electric Power and Natural Gas Utilities, Other, Mountain (BLS Series PCU4981#148) 
	 
	plus

	 	34.8% * Electric Power and Natural Gas Utilities, Other, Pacific (BLS Series PCU4981#149) 

 

5

 

If any of the BLS indices used in this calculation are discontinued, the Parties shall
mutually agree upon an equivalent substitute BLS index. The Parties agree that, beginning
January 1, 2002, the Bituminous Coal and Lignite: Surface
Mining (BLS Series PCU1211#1) will be substituted into the calculation in place of
Bituminous Coal and Lignite: West (BLS Series PCU1211#214).

A calculation of AI for the 3rd Quarter 2001 through the 2nd Quarter
2002 BAT Settlement Payments is attached as Exhibit B. The 5-year average of index data
for 1996 through 2000 is used to develop this initial adjustment.

Each subsequent annual adjustment will be made for the 3rd Quarter BAT
Settlement Payment using the 5-year rolling average of index data through the end of the
previous year.

A sample calculation of AI for the 3rd Quarter 2002 through 2nd
Quarter 2003 BAT Settlement Payments using estimated data is included in Exhibit B.
Calculations in subsequent years will follow this same formula.

(ii) APS will make its BAT Settlement Payments on a quarterly basis, with
payments due 45 days after the end of each calendar quarter. APS will, at the time
of making such payments, provide to the ONTC an Operating Report containing the
following information used to calculate APS’ BAT Settlement Payment:

	 	(a)	 	APS revenue requirement, as adjusted by AI;
	 
	 	(b)	 	Net KWhrs for the quarter;
	 
	 	(c)	 	Deductions as defined above; and
	 
	 	(d)	 	Standard Deduction.

The format for the Operating Report is set forth in Exhibit C.

(iii) Interest on any late payment of a BAT Settlement Payment will be
computed from the date the BAT Settlement Payment was first due to the date such
payment is received by the ONTC. The rate of interest on any late payments will be
equal to the rate then being used by the Internal Revenue Service for an
underpayment of taxes by an individual. If APS fails to timely pay the BAT
Settlement Payment, APS will pay an additional amount equal to 5% of the BAT
Settlement Payment due. For each full month the payment is overdue, APS will pay
an additional amount equal to 0.5% of the amount of its BAT Settlement Payment;
provided, however, that the maximum additional amount that APS will be required to
pay for the failure to timely pay shall not exceed 10% of the BAT Settlement
Payment amount due. If APS fails to timely provide to the ONTC an Operating Report
required by this Restated Agreement, APS will pay an additional 5% of its BAT
Settlement Payment for each month or fraction thereof that the Operating Report has
not been provided to the ONTC; provided, however, that the minimum additional
amount to be paid for APS’ failure to timely provide such
Operating Report will be $50 and the maximum additional amount will not exceed
twenty-five percent (25%) of APS’ BAT Settlement Payment for that period. For good
cause shown, the ONTC may in its discretion relieve APS from all or part of the
requirements imposed under this Section 2.b(iii).

 

6

 

(iv) The ONTC expressly agrees that APS is hereby released from any obligation
and will not be required or requested to make any other payment with respect to any
other amounts that the ONTC asserted or could have asserted were payable prior to
execution of this Restated Agreement.

2. Releases.

a. APS hereby releases and forever discharges the ONTC, its predecessors, successors,
affiliates, and assigns, of and from any and all claims, demands, damages, actions, causes
of action, or suits of whatsoever kind and nature, existing as of the Effective Date of
this Restated Agreement, whether now known or unknown to the Parties, or whether asserted
or unasserted, related, either directly or indirectly, to any and all PIT and BAT tax
assessments and taxes, and interest and penalties thereon, allegedly owed by the ONTC, its
predecessors, successors, affiliates, and assigns, to APS arising from APS’ ownership
interests or operation of the Facilities.

b. The ONTC hereby releases and forever discharges APS, its predecessors, successors,
affiliates, and assigns, of and from any and all claims, demands, damages, actions, causes
of action, or suits of whatsoever kind and nature, existing as of the Effective Date of
this Restated Agreement, whether now known or unknown to the Parties, or whether asserted
or unasserted, related, either directly or indirectly, to any and all PIT and BAT
tax assessments and taxes, and interest and penalties thereon, allegedly owed by APS, its
predecessors, successors, affiliates, and assigns, to the ONTC or Navajo Nation
arising from APS’ ownership interests or operation of the Facilities.

c. The ONTC expressly covenants that it will not seek to apply or assess the Navajo
Sales Tax, approved by the Navajo Nation Council pursuant to Resolution No. CO-84-01 on
October 18, 2001 (as amended), with respect to any electricity generated at, from or by the
Plant except for retail sales of electricity to persons who purchase electricity for that
person’s own use, including use in that person’s trade or business and not for resale,
redistribution or retransmission, within the Navajo Nation.

 

7

 

3. Case Closure.

The Parties agree that the following cases shall be closed:

Possessory Interest Tax: Case No. 01-042

Business Activity Tax: Case No. 01-056

4. Preservation of Rights.

It is understood and agreed that this is a settlement of disputed claims, whether asserted or
unasserted, and that nothing contained herein shall be construed as an admission of liability,
guilt, or wrongdoing by or on behalf of any of the undersigned Parties, all such liability, guilt,
or wrongdoing being expressly denied. The Parties acknowledge and agree that this Restated
Agreement shall not prejudice or limit in any way the rights or contentions of any Party. The
Parties further agree that this Restated Agreement shall not in any way be deemed a waiver or
amendment of any provisions of any other agreement between the Navajo Nation, APS and/or any of the
Participants, including but not limited to the Leases and Grants. This Restated Agreement, and the
actions of the Parties contemplated hereunder, are not intended, nor shall they be deemed, to
constitute any waiver, consent or admission with respect to the existence or lack of regulatory,
taxing, or adjudicatory authority or jurisdiction of the Navajo Nation or the ONTC over the
Facilities or any Party hereto.

5. Enforcement and Judicial Review.

a. Neither Party shall commence any judicial or administrative action challenging the
validity of this Restated Agreement or any Party’s authority to enter into it. Any
commencement of such an action by a Party shall constitute a material breach of this
Restated Agreement by that Party.

b. Challenge to Validity of the Restated Agreement.

(i) If the ONTC, or any of its representatives, officers, employees,
departments or agents (a) commences any judicial or administrative action
challenging this Agreement or the ONTC’s authority to enter into it, or (b)
otherwise in any manner invalidates or breaches this Restated Agreement or takes
any action contrary to this Restated Agreement, APS may, in its sole discretion,
elect to seek specific performance of or terminate this Restated Agreement. If
the ONTC, or any of its representatives, officers, employees, departments or
agents, repeals the PIT or BAT and enacts a replacement tax that the ONTC seeks to
assert against APS or the Facilities, APS may terminate this Restated Agreement.
The ONTC agrees and recognizes that if APS terminates this Restated Agreement, APS
shall have no further obligation or liability to make any Settlement Payments from
the date of termination forward. The ONTC further agrees and recognizes that in
such circumstance, APS has preserved its rights to contest the
jurisdiction of the ONTC or the Navajo Nation to assert or assess any taxes
against APS with respect to the Facilities, APS’ activities at the Facilities, or
with respect to any other properties or activities within the Navajo Nation.

 

8

 

(ii) If APS, or any of its representatives, officers, employees, departments,
or agents (a) commences any judicial or administrative action challenging this
Restated Agreement or APS’ authority to enter into it, or (b) otherwise in any
manner invalidates or breaches this Restated Agreement or takes any action contrary
to this Restated Agreement, the ONTC may, in its sole discretion, elect to seek
specific performance of or terminate this Restated Agreement. APS agrees and
recognizes that, if the ONTC elects to terminate this Restated Agreement, the ONTC
has preserved its rights to assert jurisdiction to assess taxes against APS from
and after the date of termination with respect to the Facilities, APS’ activities
at the Facilities, or with respect to any other properties or activities of APS
within the Navajo Nation. If the ONTC elects to terminate this Restated Agreement,
the ONTC shall be under no further obligation to accept Settlement Payments in
satisfaction of APS’ obligations.

(iii) If any person or entity not a Party to this Restated Agreement or the
Navajo Nation, or any of their representatives, officers, employees, agencies,
departments or agents, commences any judicial, administrative or other action
challenging in any way the Restated Agreement’s validity, the Parties shall jointly
request that the court, tribunal, agency, or official before which the action is
pending dismiss the action. If the action is not dismissed, either Party may file
an appropriate responsive pleading, or otherwise act as reasonably necessary to
respond to the action or to otherwise protect such Party. If any person, including
the Navajo Nation or ONTC, brings an action or proceeding to assert or challenge
the jurisdictional authority of the Nation or ONTC to tax the Facilities or
activities at the Facilities with respect to such other person other than APS, each
Party agrees not to rely on any ruling in such action or proceeding for purposes of
challenging the validity of this Restated Agreement as long as the other Party is
not in material breach hereof.

(iv) If any court, tribunal, agency or official determines that this Restated
Agreement is non-binding on the ONTC or the Navajo Nation, APS may elect to
terminate this Restated Agreement, and if so terminated, APS shall have no further
obligation or liability to make any Settlement Payments from the date of
termination forward. The ONTC agrees and recognizes that in such circumstance APS
has preserved its rights to contest the jurisdiction of the Navajo Nation and ONTC
to
assert or assess any taxes against APS with respect to the Facilities, APS’
activities at the Facilities, or with respect to any other properties or activities
within the Navajo Nation.

 

9

 

(v) If any court, tribunal, agency or official determines that this Restated
Agreement is non-binding on APS, the ONTC may elect to terminate this Restated
Agreement, and if so terminated, APS agrees and recognizes that in such
circumstance, the ONTC has preserved its rights to assert jurisdiction to assess
any taxes against APS with respect to the Facilities, APS’ activities at the
Facilities, or with respect to any other properties or activities within the Navajo
Nation.

c. Other Taxes. Nothing in this Restated Agreement affects the rights, if any,
of (i) the Navajo Nation or ONTC to seek to enforce taxes other than the Sales Tax (except
as otherwise provided in Section 2(c) above), PIT or BAT on APS or the Facilities or (ii)
APS to challenge any such action by the Navajo Nation or ONTC, including when permitted by
federal law, bringing such an action in federal court.

d. Enforcement of the Restated Agreement. Enforcement of this Restated
Agreement by either Party shall be pursuant to this Restated Agreement and not pursuant to
any Navajo Nation or other law independent of this Restated Agreement. Nothing in this
Restated Agreement shall or may be deemed to limit a Party’s right to seek enforcement of
this Restated Agreement or defend any claim in federal or tribal court where otherwise
permitted by law. Nothing in this Restated Agreement shall or may be deemed as a consent
to federal or tribal court jurisdiction by either Party.

6. Assignment.

APS may transfer or assign, without the consent of the Navajo Nation or ONTC, all or any
portion of its interests and obligations under this Restated Agreement to any parent, subsidiary,
affiliate or successor in interest of APS by merger, acquisition, or consolidation or to any other
current or future owner of the Facilities, provided that the assignee assumes in writing all of
APS’ obligations under this Restated Agreement.

7. Representations.

Each Party represents and warrants as of the Effective Date of this Restated Agreement as
follows:

a. It has full legal right, power and authority to execute, deliver and perform this
Restated Agreement;

b. It has taken all appropriate and necessary action to authorize the execution,
delivery and performance of this Restated Agreement;

 

10

 

c. It has obtained all consents, approvals and authorizations necessary for the valid
execution and delivery of this Restated Agreement;

d. This Restated Agreement constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy or insolvency laws or by limitation upon the availability
of equitable remedies;

e. It is not in violation of any applicable law promulgated or judgment entered by any
federal, state, local or other governmental body, which violations, individually or in the
aggregate, would adversely affect the performance of its obligations under this Restated
Agreement; and

f. The execution, delivery and performance by it of this Restated Agreement, the
compliance with the terms and provisions hereof and the carrying out of the transactions
contemplated hereby, (i) do not conflict with and will not conflict with or result in a
breach or violation of any of the terms and provisions of its organizational documents, and
(ii) to the best of its knowledge, do not conflict with and will not conflict with or
result in a breach or violation of any of the terms and provisions of any law, rule or
regulation, or any order, writ, injunction, judgment or decree by any court or other
governmental body against it or by which it or any of its properties is bound, or any loan
agreement, indenture, mortgage, note, resolution, bond or contract or other agreement or
instrument to which it is a party or by which it or any of its properties is bound, or
constitute or will constitute a default thereunder or will result in the imposition of any
lien upon any of its properties.

8. Successors and Assigns.

This Restated Agreement shall be binding on and inure to the benefit of the Parties hereto and
their successors and assigns.

9. Entire Agreement.

Except for any separate agreement of the Parties settling disputed claims related to
applicability of the BAT to certain transmission and distribution facilities within the Navajo
Nation, this Restated Agreement reflects the entire agreement of the Parties relating to taxation
of the Facilities and no other agreement written or oral shall be used to effect any changes of the
provisions retained herein. No amendment of this Restated Agreement shall be valid unless in
writing and signed by all Parties.

 

11

 

10. Counterparts.

This Restated Agreement may be signed in counterparts, each of which shall be deemed an
original. Facsimile signatures shall be as valid as original signatures until each Party receives
a fully signed counterpart with original signatures. Each Party shall provide the other Party with
original signatures so that each Party shall have a fully signed counterpart within five business
days after the date of the last signature.

 

12

 

11. Relationship of Parties.

Nothing herein may be construed to create an association, joint venture, trust, or
partnership, or to impose a trust or partnership covenant, obligation or liability on or with
regard to any one or more of the Parties.

12. Severability.

Subject to the provisions of and except as otherwise provided in Section 5, Enforcement and
Judicial Review, of this Restated Agreement, if any term or condition of this Restated Agreement is
held to be invalid, void, or unenforceable by any court or tribunal of competent jurisdiction, that
holding shall not affect the validity or enforceability of any other term or condition of this
Restated Agreement, unless either Party determines in its sole discretion that enforcing the
balance of the Restated Agreement would deprive that Party of a fundamental benefit of its bargain.

13. Adjustment of PIT and BAT Settlement Payment Amounts; Termination.

a. One year prior to the expiration of the Amended Term, the Parties shall commence
good faith negotiations to establish PIT and BAT Settlement Payment amounts for APS to run
concurrently with any extension of the Leases and Grants. If the Parties are not able to
reach agreement upon new PIT and BAT Settlement Payment amounts before expiration of the
Amended Term, the Parties will either continue this Restated Agreement in effect with the
PIT and BAT Settlement Payment amounts set forth in Section 1 above, or either Party may
elect to terminate this Restated Agreement.

b. The Parties recognize and agree that, upon termination or expiration of this
Restated Agreement for any reason, (i) each Party has preserved all of its rights and
arguments regarding the question of the jurisdictional authority of the Navajo Nation and
ONTC to tax the Facilities and/or APS and its successors and assigns based on ownership
interests in and operation of the Facilities; (ii) this Restated Agreement shall not in any
way be deemed a waiver or amendment of any provisions of any agreement between the Navajo
Nation, APS and/or any of the Participants, including but not limited to the Leases and
Grants; and (iii) neither Party may assert any claim, demand, damages, action, cause of
action, or suit of whatsoever kind and nature, whether known or unknown to the Parties, or
whether asserted or unasserted, related, either directly or indirectly, to any and all PIT
and BAT tax assessments and taxes, and interest and penalties thereon, that arose or may
have arisen while this Restated Agreement was in effect.

 

13

 

14. No Third Party Beneficiaries.

Nothing herein, either express or implied is intended or may be construed to confer upon or to
give to any person or entity other than the Parties any rights or remedies under or by reason of
this Restated Agreement.

15. Limited Responsibility.

The Parties acknowledge and agree that it is their mutual intent that the obligations,
representations, warranties and undertakings under this Restated Agreement or as a result of the
transactions contemplated by this Restated Agreement are limited to only those expressly set forth
herein, and not enlarged by implication, creation of law, or otherwise.

16. Survival.

The provisions of Sections 2(a) and (b), 4, 7 and 13.b of this Restated Agreement survive
expiration or termination of this Restated Agreement. Provided that the Restated Agreement remains
in effect through the Amended Term, APS’ obligation to make the calendar year 2041 PIT Settlement
Payment specified in this Restated Agreement and APS’ obligation to make BAT Settlement Payments
for any periods prior to expiration or termination of this Restated Agreement also shall survive
expiration or termination of this Restated Agreement.

17. Notices.

Notices shall be deemed to have been given if in writing and (a) hand delivered, (b) delivered
by a reputable overnight courier service (such as but not limited to FedEx and UPS), (c) mailed by
certified or registered mail, return receipts requested, first class postage prepaid, or (d)
transmitted by telecopy or electronic mail, followed within 24 hours by transmittal under option
(a), (b) or (c) above addressed as follows:

If to ONTC:

President

The Navajo Nation

P.O. Box 9000

Window Rock, Arizona 86515

With a copy to:

Attorney General

Navajo Nation Department of Justice

P.O. Drawer 2010

Window Rock, Arizona 86515

 

14

 

Executive Director

Office of the Navajo Tax Commission

P.O. Box 1903

Window Rock, Arizona 86515

If to APS:

Arizona Public Service Corporation

400 North 5th Street

Phoenix, Arizona 85004

Attn: Corporate Secretary

With a copy to:

Pinnacle West Capital Corporation

400 North 5th Street

Phoenix, Arizona 85004

Attn: Executive Vice President and General Counsel

or at such other address as the Parties may, from time to time, designate in writing. Service by
overnight courier or mail shall be deemed made on the first business day delivery is attempted or
upon receipt, whichever is earlier. Service by telecopy or electronic mail shall be deemed made
upon confirmed transmission.

18. Effective Date; Effect of this Restated Agreement.

This Restated Agreement is effective upon the date when duly executed by both Parties (the
“Effective Date”). It is the Parties’ intention that through the Effective Date of this Restated
Agreement, the terms and conditions of the Original Agreement in effect at the date of execution of
this Restated Agreement shall continue to govern the Parties’ rights and obligations thereunder.
Upon and after the Effective Date of this Restated Agreement, the Parties’ right and obligations
shall be governed by the terms and conditions of this Restated Agreement.

 

15

 

By signing, the undersigned certify that they have read and agreed to the terms of this Restated
Agreement.

Arizona Public Service Company 

	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	 	 

Donald G. Robinson
	 	 
	 	 

Date
	 	 
	 

	 	President	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Navajo Nation 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	 	 

Martin Ashley, Executive Director
	 	 
	 	 

Date
	 	 
	 

	 	Office of the Navajo Tax Commission	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	APPROVED:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	 	 

Louis Denetsosie, Attorney General
	 	 
	 	 

Date
	 	 
	 

	 	Navajo Nation Department of Justice	 	 	 	 	 	 

 

16

 

SETTLEMENT AND CLOSING AGREEMENT

EXHIBIT A

REPORT FOR PIT SETTLEMENT PAYMENT

	1.	 	Company Name:              
                      
                      
                      
                    
                    
                    
                   
          

	 
	2.	 	Mailing Address:             
                      
                      
                      
                      
                      
                      
                      
    

	 
	3.	 	Contact Name:             
                    Contact Phone Number:    
                      
                      
                      
                      
         

	 
	4.	 	Name of Power Generating Facility:           
                      
                      
                      
                      
                           
  

	 
	5.	 	Name of Plant Operator:             
                      
                      
                      
              
                      
                      
                
  

	 
	6.	 	Location of Facility/Power Plant (Sec. Twp, Rng):        
                      
                      
                      
                      
              
   

	 
	7.	 	Term of Lease: ____________  Lease Expiration Date:        
                      
                      
                      
                      
             

	 
	8.	 	Percent Participation of Total Plant:          
                      
                      
                      
                      
                      
                  
   

	 
	9.	 	Number of Units:             
                      
                      
                      
                      
                      
                      
                      

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Production (KWH or MWH)	 	 	 	Year Placed
	Unit #	 	Capacity (KWH.MWH)	 	for Calendar Year	 	% Interest	 	in Service
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 

	 	 	 	Total	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 

	10.	 	Type of fuel in use for each unit (coal, gas, etc.):        
                      
                      
                      
                      
                      
   

	 
	11.	 	What is the cost per ton of coal used and purchased by the plant:      
                      
                      
                               

	 
	12.	 	Total area of plant site including cooling ponds,
coal storage, ash disposal area (acres):                
                     
                     
   

	 
	13.	 	Operating cost($):             
         ($/KWH)            
         Capital cost($):           
           (S/KWH)          
                     
         

	 
	14.	 	Original cost of entire plant($):           
                      
                      
                      
                      
                    
                    
  

(Original cost means the actual cost of the asset before depreciation/Refer to the attached New Mexico Property Tax Report)

	 
	15.	 	Material & Supplies($):                                               Construction Work In Progress($):                     
                    

(Refer to the attached New Mexico Property Tax Report)           (Refer to the attached New Mexico Property Tax Report)

	 
	16.	 	Book value of entire plant($)            
                      
                      
                      
                      
                   
                    
  

(Book value means the original cost less depreciation./Refer to the attached New Mexico Property Tax Report.)

	 
	17.	 	What is the % rate of return allowed by the state regulatory agency?                                                                
                 

(Only for those companies whose customer rates are regulated by a corporation commission or public utilities commission)

	 	 	 
	**Note**

	 
	**	 	The amounts reported for items #13 through #16 are reflective of each individual Participant’s ownership share and are not intended to depict Total Plant **

 

 

 

Transmission & Distribution Property Information

1. Transmission Lines

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Width of	 	 
	KV Rating	 	Year Built	 	Miles	 	Right-of-Way	 	Acres
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 

2. Distribution System

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Width of
	Chapter	 	Urban Meters	 	Rural Miles	 	KV Rating	 	Right-of-Way
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 

3. Substations & Switching Stations

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Transformer	 	 	 	 
	Name	 	Voltage Rating	 	KVA	 	Year Built	 	Acres
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 
	 	 

Additional Information for Operating Report

	1.	 	Copy of the previous calendar year annual report or the 10-K filed with the Securities and
Exchange Commission

	 
	2.	 	Copy of the previous calendar year FERC Form No. 1 (Only for those companies that are required
to file this report with FERC)

	 
	3.	 	Copy of the New Mexico Property Tax Report

 

 

 

Exhibit B

Calculation of AI (BAT Index) for 2001 and 2002

Price Indexes: Year-to-Year Change

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Electric Power-	 	 	 	 	 	 	Bituminous	 	 	 	 	 	 	 	 	 	 	Unit Labor	 
	 	 	Other-	 	 	Electric Power-	 	 	Coal and	 	 	 	 	 	 	Heavy	 	 	Cost: Non-Farm	 
	 	 	Mountain	 	 	Other -.Pacific	 	 	Lignite: West	 	 	Natural Gas 	 	 	Construction	 	 	Business	 
	1996
	 	 	105.1	%	 	 	99.3	%	 	 	102.8	%	 	 	136.9	%	 	 	101.9	%	 	 	100.5	%
	1997
	 	 	101.8	%	 	 	102.4	%	 	 	99.3	%	 	 	111 .5	%	 	 	101.8	%	 	 	100.9	%
	1998
	 	 	100.0	%	 	 	100.4	%	 	 	96.4	%	 	 	82.5	%	 	 	99.0	%	 	 	102.7	%
	1999
	 	 	99.6	%	 	 	100.1	%	 	 	98.4	%	 	 	108.8	%	 	 	101.1	%	 	 	102.0	%
	2000
	 	 	99.9	%	 	 	104.9	%	 	 	97.9	%	 	 	170.4	%	 	 	103.7	%	 	 	103.1	%
	2001 (estimated)
	 	 	105.2	%	 	 	111.1	%	 	 	103.0	%	 	 	110.7	%	 	 	99.9	%	 	 	103.8	%
	2002 (estimated)
	 	 	99.2	%	 	 	97.9	%	 	 	99.1	%	 	 	52.1	%	 	 	97.7	%	 	 	100.4	%

Note: Each entry is calculated as the annual average of the appropriate index for the
current year divided by the annual average of the same index for the previous year.

BAT Index Calculation

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Revenue Index	 	 	Cost Index	 	 	Total BAT Index	 	 	5-Year Average	 
	1996
	 	 	103.1	%	 	 	101.9	%	 	 	102.2	%	 	 	—	 
	1997
	 	 	102.0	%	 	 	100.4	%	 	 	100.8	%	 	 	—	 
	1998
	 	 	100.1	%	 	 	99.6	%	 	 	99.7	%	 	 	—	 
	1999
	 	 	99.8	%	 	 	100.5	%	 	 	100.3	%	 	 	—	 
	2000
	 	 	101.7	%	 	 	101.5	%	 	 	101.5	%	 	 	100.9	%
	2001 (estimated*)
	 	 	107.3	%	 	 	103.2	%	 	 	104.2	%	 	 	101.3	%
	2002 (estimated*)
	 	 	98.7	%	 	 	99.2	%	 	 	99.1	%	 	 	101.0	%

Note:

Revenue Index =

65.24% * (BLS Index: Electric Power — Other — Mountain)

plus 34.76% * (BLS Index: Electric Power — Other — Pacific)

Cost Index =

42.29% * (BLS Index: Bituminous Coal and Lignite: West)

plus 0.86% * (BLS Index: Natural Gas)

plus 7.58% * (BLS Index: Heavy Construction)

plus 49.27% * (BLS Index: Unit Labor Costs: Non-Farm Business)

Total
BAT Index = (75% * Cost Index) plus (25% * Revenue Index)

AI Calculation

	 	 	 	 	 	 	 	 	 
	AI for BAT Settlement Payments 2001 Q3 through 2002 Q2 =
	 	 	 	 	 	 	 	 
	Average of BAT Index for 1996-2000 =
	 	 	100.9	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	AI (estimated*) for BAT Settlement Payments 2002 Q3 through 2003 Q2 =
	 	 	 	 	 	 	 	 
	AI for 2001 multiplied by average of BAT Index for 1997-2001 =
	 	 	 	 	 	 	 	 
	[100.9%* 101.3%] =
	 	 	102.2	%	 	estimated*
	 
	 	 	 	 	 	 	 	 
	AI for BAT Settlement Payments 2003 Q3 through 2004 Q2 =
	 	 	 	 	 	 	 	 
	AI for 2002 multiplied by average of BAT Index for 1998-2002 =
	 	 	 	 	 	 	 	 
	[100.9% * 101.3% * 101.0%] =
	 	 	103.2	%	 	estimated*

AI for subsequent year BAT Settlement Payments will follow the same formula.

	 	 	 
	Note:

	 
	*	 	The AI for the 2002 BAT Settlement Payments is estimated using actual BLS data through
November 2001 and estimated data for December 2001. This calculation should be updated when
complete 2001 BLS data is made available. The AI for the 2003 BAT Settlement Payments is a
sample calculation using only data available through March 2002.

 

 

 

Exhibit B(continued)

BLS Price Index Data for AI Calculation

Series Id: PCU1211#214

Industry: Bituminous coal and lignite

Product: West

Base Date: 8112

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Jan	 	 	Feb	 	 	Mar	 	 	Apr	 	 	May	 	 	Jun	 	 	Jul	 	 	Aug	 	 	Sep	 	 	Oct	 	 	Nov	 	 	Dec	 	 	Ann Avg	 
	1995
	 	 	118.7	 	 	 	119.2	 	 	 	119.8	 	 	 	118.5	 	 	 	119.5	 	 	 	122.3	 	 	 	126.4	 	 	 	122.5	 	 	 	119.4	 	 	 	121.6	 	 	 	120.8	 	 	 	120.4	 	 	 	120.8	 
	1996
	 	 	124.7	 	 	 	125.8	 	 	 	127.6	 	 	 	121.6	 	 	 	127.6	 	 	 	120.9	 	 	 	121.1	 	 	 	126.1	 	 	 	126.2	 	 	 	123.9	 	 	 	121.3	 	 	 	122.4	 	 	 	124.1	 
	1997
	 	 	121.6	 	 	 	122.6	 	 	 	126.1	 	 	 	129.7	 	 	 	125.8	 	 	 	122.8	 	 	 	125.3	 	 	 	121.7	 	 	 	119.5	 	 	 	121.3	 	 	 	121.9	 	 	 	119.8	 	 	 	123.2	 
	1998
	 	 	113.8	 	 	 	120.0	 	 	 	118.7	 	 	 	121.8	 	 	 	122.0	 	 	 	120.4	 	 	 	117.4	 	 	 	117.5	 	 	 	118.2	 	 	 	117.0	 	 	 	118.2	 	 	 	120.1	 	 	 	118.8	 
	1999
	 	 	116.9	 	 	 	118.6	 	 	 	118.5	 	 	 	119.4	 	 	 	116.0	 	 	 	116.7	 	 	 	116.1	 	 	 	115.1	 	 	 	117.3	 	 	 	116.4	 	 	 	115.0	 	 	 	116.6	 	 	 	116.9	 
	2000
	 	 	114.6	 	 	 	114.7	 	 	 	115.7	 	 	 	113.3	 	 	 	114.6	 	 	 	114.0	 	 	 	115.9	 	 	 	112.7	 	 	 	113.1	 	 	 	114.9	 	 	 	114.1	 	 	 	115.1	 	 	 	114.4	 
	2001
	 	 	114.6	 	 	 	113.2	 	 	 	114.6	 	 	 	115.9	 	 	 	118.0	 	 	 	116.3	 	 	 	120.1	 	 	 	121.4	 	 	 	119.3	 	 	 	121.5	 	 	 	120.2	 	 	 	[ILLEGIBLE]	 	 	 	[ILLEGIBLE]	 

Series Id: PCU1221#1

Industry: Bituminous coal & lignite surface mining

Product: Unprepared (raw) bituminous coal and lignite shipped from surface operations

Base Date: 0112

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2002

	 	[ILLEGIBLE]
	 	[ILLEGIBLE]
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]

New Coal Index (see Notes, below)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2002

	 	[ILLEGIBLE]
	 	[ILLEGIBLE]
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]

Series Id: PCU1331#A2

Industry: Crude petroleum, natural gas and natural gas liquids

Product: Natural gas

Base Date: 8406

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Jan	 	 	Feb	 	 	Mar	 	 	Apr	 	 	May	 	 	Jun	 	 	Jul	 	 	Aug	 	 	Sep	 	 	Oct	 	 	Nov	 	 	Dec	 	 	Ann Avg	 
	1995
	 	 	68.4	 	 	 	62.9	 	 	 	61.3	 	 	 	62.3	 	 	 	63.2	 	 	 	64.8	 	 	 	63.2	 	 	 	56.0	 	 	 	57.1	 	 	 	59.7	 	 	 	63.0	 	 	 	68.9	 	 	 	62.6	 
	1996
	 	 	78.4	 	 	 	90.7	 	 	 	80.6	 	 	 	87.2	 	 	 	82.7	 	 	 	74.1	 	 	 	82.0	 	 	 	82.9	 	 	 	72.0	 	 	 	70.7	 	 	 	94.6	 	 	 	132.2	 	 	 	85.7	 
	1997
	 	 	149.9	 	 	 	112.6	 	 	 	73.8	 	 	 	71.0	 	 	 	78.6	 	 	 	83.4	 	 	 	80.6	 	 	 	81.8	 	 	 	91.0	 	 	 	108.8	 	 	 	119.6	 	 	 	95.3	 	 	 	95.5	 
	1998
	 	 	85.4	 	 	 	76.9	 	 	 	81.2	 	 	 	84.7	 	 	 	85.0	 	 	 	76.9	 	 	 	83.7	 	 	 	77.1	 	 	 	65.6	 	 	 	72.9	 	 	 	78.1	 	 	 	78.3	 	 	 	78.8	 
	1999
	 	 	70.2	 	 	 	67.6	 	 	 	63.0	 	 	 	69.5	 	 	 	85.9	 	 	 	83.6	 	 	 	86.4	 	 	 	98.0	 	 	 	107.9	 	 	 	97.8	 	 	 	114.2	 	 	 	84.6	 	 	 	85.7	 
	2000
	 	 	92.1	 	 	 	98.4	 	 	 	99.3	 	 	 	107.8	 	 	 	115.8	 	 	 	159.9	 	 	 	160.2	 	 	 	142.7	 	 	 	166.2	 	 	 	189.5	 	 	 	173.8	 	 	 	247.4	 	 	 	146.1	 
	2001
	 	 	370.1	 	 	 	246.5	 	 	 	202.8	 	 	 	207.3	 	 	 	191.3	 	 	 	144.2	 	 	 	113.8	 	 	 	113.6	 	 	 	87.4	 	 	 	68.5	 	 	 	107.2	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 
	2002
	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]	 

Series Id: PCUBHVY#

Industry: Other heavy construction

Product: Other heavy construction

Base Date: 8606

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Jan	 	 	Feb	 	 	Mar	 	 	Apr	 	 	May	 	 	Jun	 	 	Jul	 	Aug	 	 	Sep	 	 	Oct	 	 	Nov	 	 	Dec	 	 	Ann Avg	 
	1995
	 	 	128.1	 	 	 	128.6	 	 	 	129.0	 	 	 	129.9	 	 	 	129.9	 	 	 	130.1	 	 	 	130.3	 	 	130.4	 	 	 	130.5	 	 	 	130.1	 	 	 	130.3	 	 	 	130.5	 	 	 	129.8	 
	1996
	 	 	130.6	 	 	 	130.4	 	 	 	131.0	 	 	 	132.0	 	 	 	133.0	 	 	 	133.0	 	 	 	132.3	 	 	132.4	 	 	 	132.9	 	 	 	132.9	 	 	 	133.3	 	 	 	133.6	 	 	 	132.3	 
	1997
	 	 	134.0	 	 	 	134.4	 	 	 	134.5	 	 	 	134.8	 	 	 	135.2	 	 	 	135.0	 	 	 	134.9	 	 	135.0	 	 	 	134.9	 	 	 	134.5	 	 	 	134.4	 	 	 	134.0	 	 	 	134.6	 
	1998
	 	 	133.6	 	 	 	133.3	 	 	 	133.3	 	 	 	133.7	 	 	 	133.8	 	 	 	133.6	 	 	 	133.9	 	 	133.5	 	 	 	133.4	 	 	 	133.1	 	 	 	132.6	 	 	 	131.9	 	 	 	133.3	 
	1999
	 	 	132.4	 	 	 	132.2	 	 	 	132.6	 	 	 	133.7	 	 	 	134.2	 	 	 	134.5	 	 	 	135.7	 	 	136.2	 	 	 	136.4	 	 	 	136.1	 	 	 	136.3	 	 	 	136.9	 	 	 	134.8	 
	2000
	 	 	137.8	 	 	 	139.0	 	 	 	140.0	 	 	 	139.5	 	 	 	139.3	 	 	 	140.5	 	 	 	140.3	 	 	139.8	 	 	 	140.8	 	 	 	140.6	 	 	 	140.4	 	 	 	139.7	 	 	 	139.8	 
	2001
	 	 	140.1	 	 	 	140.3	 	 	 	139.9	 	 	 	140.5	 	 	 	141.9	 	 	 	141.7	 	 	 	139.7	 	 	139.7	 	 	 	140.4	 	 	 	137.9	 	 	 	137.1	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 
	2002
	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]	 

 

 

 

Exhibit B(continued)

BLS Price Index Data for AI Calculation

Series Id: PCU4981#148

Industry: Electric power and natural gas utilities

Product:   Other — Mountain

Base Date: 9012

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Jan	 	 	Feb	 	 	Mar	 	 	Apr	 	 	May	 	 	Jun	 	 	Jul	 	Aug	 	 	Sep	 	 	Oct	 	 	Nov	 	 	Dec	 	 	Ann Avg	 
	1995
	 	 	112.0	 	 	 	111.9	 	 	 	110.4	 	 	 	110.4	 	 	 	110.5	 	 	 	114.9	 	 	 	115.1	 	 	115.1	 	 	 	115.2	 	 	 	115.2	 	 	 	112.0	 	 	 	111.8	 	 	 	112.9	 
	1996
	 	 	111.7	 	 	 	111.8	 	 	 	110.3	 	 	 	111.5	 	 	 	120.0	 	 	 	123.6	 	 	 	123.7	 	 	123.7	 	 	 	123.6	 	 	 	122.9	 	 	 	120.2	 	 	 	120.2	 	 	 	118.6	 
	1997
	 	 	119.9	 	 	 	118.9	 	 	 	118.6	 	 	 	118.6	 	 	 	121.5	 	 	 	122.9	 	 	 	122.8	 	 	122.8	 	 	 	122.8	 	 	 	122.8	 	 	 	118.4	 	 	 	118.2	 	 	 	120.7	 
	1998
	 	 	118.4	 	 	 	119.1	 	 	 	119.1	 	 	 	119.1	 	 	 	122.0	 	 	 	123.3	 	 	 	122.5	 	 	122.2	 	 	 	122.2	 	 	 	122.2	 	 	 	118.9	 	 	 	118.9	 	 	 	120.7	 
	1999
	 	 	118.3	 	 	 	118.2	 	 	 	118.0	 	 	 	118.0	 	 	 	120.7	 	 	 	122.1	 	 	 	122.0	 	 	122.4	 	 	 	122.4	 	 	 	122.1	 	 	 	119.3	 	 	 	119.3	 	 	 	120.2	 
	2000
	 	 	119.2	 	 	 	119.1	 	 	 	118.2	 	 	 	118.2	 	 	 	118.2	 	 	 	121.9	 	 	 	121.6	 	 	121.9	 	 	 	122.1	 	 	 	122.2	 	 	 	119.3	 	 	 	119.8	 	 	 	120.1	 
	2001
	 	 	119.9	 	 	 	120.0	 	 	 	124.4	 	 	 	124.7	 	 	 	127.6	 	 	 	129.2	 	 	 	129.0	 	 	130.0	 	 	 	130.1	 	 	 	129.7	 	 	 	126.3	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 
	2002
	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]	 

Series Id: PCU4981#149

Industry: Electric power and natural gas utilities

Product: Other — Pacific

Base Date: 9012

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Jan	 	 	Feb	 	 	Mar	 	 	Apr	 	 	May	 	 	Jun	 	 	Jul	 	 	Aug	 	 	Sep	 	 	Oct	 	 	Nov	 	 	Dec	 	 	Ann Avg	 
	1995
	 	 	103.6	 	 	 	103.6	 	 	 	102.2	 	 	 	101.5	 	 	 	103.4	 	 	 	113.4	 	 	 	113.5	 	 	 	113.5	 	 	 	113.2	 	 	 	101.5	 	 	 	103.0	 	 	 	103.0	 	 	 	106.3	 
	1996
	 	 	102.6	 	 	 	102.7	 	 	 	100.3	 	 	 	101.2	 	 	 	103.1	 	 	 	111.2	 	 	 	111.6	 	 	 	111.6	 	 	 	111.5	 	 	 	102.6	 	 	 	104.1	 	 	 	104.1	 	 	 	105.6	 
	1997
	 	 	104.6	 	 	 	104.7	 	 	 	102.6	 	 	 	104.1	 	 	 	105.5	 	 	 	113.3	 	 	 	114.2	 	 	 	114.2	 	 	 	116.0	 	 	 	105.8	 	 	 	105.9	 	 	 	106.0	 	 	 	108.1	 
	1998
	 	 	105.8	 	 	 	105.4	 	 	 	103.5	 	 	 	103.5	 	 	 	106.2	 	 	 	114.5	 	 	 	114.6	 	 	 	114.5	 	 	 	115.5	 	 	 	106.0	 	 	 	106.1	 	 	 	106.1	 	 	 	108.5	 
	1999
	 	 	106.1	 	 	 	105.9	 	 	 	102.5	 	 	 	102.6	 	 	 	104.4	 	 	 	113.8	 	 	 	114.2	 	 	 	114.0	 	 	 	116.1	 	 	 	107.9	 	 	 	107.9	 	 	 	107.0	 	 	 	108.5	 
	2000
	 	 	106.9	 	 	 	106.9	 	 	 	105.8	 	 	 	106.1	 	 	 	106.9	 	 	 	117.5	 	 	 	121.2	 	 	 	123.4	 	 	 	123.3	 	 	 	115.8	 	 	 	114.9	 	 	 	117.5	 	 	 	113.9	 
	2001
	 	 	126.0	 	 	 	120.9	 	 	 	122:4	 	 	 	114.0	 	 	 	114.8	 	 	 	134.6	 	 	 	136.0	 	 	 	136.2	 	 	 	136.1	 	 	 	126.5	 	 	 	126.2	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 
	2002
	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]	 

Series Id: PRS85006113

Duration: index, 1992 = 100

Measure: Unit Labor Costs

Sector: Nonfarm Business

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	Qtr1	 	 	Qtr2	 	 	Qtr3	 	 	Qtr4	 	 	Ann Avg	 
	1995
	 	 	103.1	 	 	 	103.6	 	 	 	104.0	 	 	 	104.0	 	 	 	103.7	 
	1996
	 	 	103.6	 	 	 	103.7	 	 	 	104.5	 	 	 	104.9	 	 	 	104.2	 
	1997
	 	 	105.2	 	 	 	104.5	 	 	 	104.7	 	 	 	106.1	 	 	 	105.1	 
	1998
	 	 	106.7	 	 	 	108.0	 	 	 	108.7	 	 	 	108.6	 	 	 	108.0	 
	1999
	 	 	109.0	 	 	 	110.5	 	 	 	111.1	 	 	 	110.2	 	 	 	110.2	 
	2000
	 	 	112.1	 	 	 	112.5	 	 	 	114.0	 	 	 	115.8	 	 	 	113.6	 
	2001
	 	 	117.2	 	 	 	118.0	 	 	 	118.7	 	 	 	117.9	 	 	 	118.0	 
	2002
	 	[ILLEGIBLE]	 	 	 	 	 	 	 	 	 	 	 	 	 	 	[ILLEGIBLE]	 

Notes:

The PCU1211 series was discontinued at the end of 2001. The new series, PCU 1221#1 (which started
at 100.0 in Dec. 2001), will be substituted in the AI calculation beginning Jan. 2002. Monthly
values for the coal index will be calculated by taking the value of the old coal index on Dec.
2001, 118.4, and multiplying it by the value of the new coal index in each month, then dividing by
100. For example, in Jan. 2002, the value for the coal index used in the AI calculation will be
118.4 * 96.7 /100 = 114.5.

The PPI data is updated monthly and made available at the BLS website:

http://data.bls.gov/labiava/outside.jsp?survey-pc

The labor cost data is updated quarterly and is also available at the BLS website:

http://www.bls.gov./lpc/home.htm

Shaded entries denote prelimenary BLS data

 

 

 

Settlement and Closing Agreement

Exhibit C

Operating Report

	 	 	 	 	 
	Line No.	 	 	 	 
	1. Revenue Requirement
	 	 	$X.XXXX /KWhr	 
	2.
	 	x	AI	 
	 
	 	 	 
	3. Subtotal
	 	$	X.XXXX	 
	4.
	 	x	Net KWhrs	 
	 
	 	 	 
	5. Subtotal
	 	$	XXXXX	 
	 
	 	 	 	 
	Less Deductions
	 	 	 	 
	6. Salaries and/or other compensation paid to members of the Navajo Nation (See Supplemental Schedule I)
	 	$	XXXXX	 
	7. Purchases of Navajo goods and Services (See Supplemental Schedule II)
	 	$	XXXXX	 
	8. Payments made to the Navajo Nation government (See Supplemental Schedule III)
	 	$	XXXXX	 
	9. Standard Deduction (The greater of $125,000 or 10% of line 5.)
	 	$	XXXXX	 
	 
	 	 	 
	10. Total Deductions
	 	$	XXXXX	 
	 
	 	 	 	 
	11. BAT Settlement Payment Base (Line 5 less Line 10)
	 	$	XXXXX	 
	12. BAT Settlement Payment Rate
	 	x	 5	%
	 
	 	 	 
	13. BAT Settlement Payment
	 	$	XXXXX	 

 

 

 

SETTLEMENT & CLOSING AGREEMENT

EXHIBIT C

SUPPLEMENTAL SCHEDULE I

			
	 	 	 
	SALARIES, WAGES, AND OTHER COMPENSATION PAID TO NAVAJOS
	Page
 _____ 
of
 _____ 

	 	 	 
	Company Name (Employer)

	 	Quarter Ended

	 	 	 	 	 	 	 	 	 	 	 
	 	 	1. Employee	 	Navajo Census	 	2. Salaries or	 	3. Other Compensation	 	4. Total of Column 2
	I.	 	Name	 	Number	 	Wages Paid	 	(e.g. fringe benefits)	 	and Column 3
	 
	 	 	 	 	 	 	 	 	 	 
	II.	 	Total from any additional pages...	 	 	 	 	 	 
	 	 	Total Salaries and Wages Paid, total column 2	 	 	 	 	 	 
	 	 	Total Other Compensation (e.g. fringe benefits), total column 3	 	 	 	 	 	 
	III.	 	Total Salaries, Wages, and Other Compensation, total Col. 4	 	 	 	 	 	 

 

 

 

SETTLEMENT & CLOSING AGREEMENT

EXHIBIT C

SUPPLEMENTAL SCHEDULE II

			
	 	 	 
	Purchases of Navajo Goods & Services
	 	Page
 _____ 
of
 _____ 

	 	 	 
	Company Name (Employer)

	 	Quarter Ended

Part A — Detail Purchases of Navajo Goods

	 	 	 	 	 
	Type of Goods Purchased	 	Vendor Name and Address	 	Amount
	 
	 	 	 	 
	 

	 	Total amount	 	 

Part B — Detail of Purchases of Navajo Services

	 	 	 	 	 
	Type of Services Purchased	 	Vendor Name and Address	 	Amount
	 
	 	 	 	 
	 

	 	Total amount	 	 

 

 

 

SETTLEMENT & CLOSING AGREEMENT

EXHIBIT C

SUPPLEMENTAL SCHEDULE III

			
	 	 	 
	Detail of Payments Made to the Navajo Nation Government
	 	Page
 _____ 
of
 _____ 

	 	 	 
	Company Name (Employer)

	 	Quarter Ended

Detail of Payments Made to the Navajo Nation Government

	 	 	 	 	 	 	 
	Type of Payment	 	Payee	 	Date of Payment	 	Amount
	 
	 	 	 	 	 	 
	 

	 	Total amount	 	 	 	 

 

 

 

Restated and Amended Settlement and Closing Agreement

Exhibit D — Sample PIT Calculations

Assumptions:

Original Cost of Facilities on Navajo Nation:

	 	 	 	 	 
	Property Group	 	Original Cost*	 
	Units 1 - 3
	 	 	400,000,000	 
	Units 4 - 5
	 	 	200,000,000	 
	Common
	 	 	100,000,000	 
	T & D
	 	 	100,000,000	 
	 
	 	 	 
	TOTAL
	 	 	800,000,000	 
	 
	 	 	 	 
	Current PIT Settlement Payment:
	 	$	6,342,600	 
	 
	 	 	 	 
	Salvage Value = Original Cost x 5%
	 	 	 	 
	 
	 	 	 	 
	In-lieu-of-Tax Rate for Salvage = 3%
	 	 	 	 
	 
	 	 	 	 
	Sample Calculation for Shut Down of Units:
	 	 	 	 
	Assume Permanent Shut Down of Units 1 - 3
	 	 	 	 
	Salvage Value of Units 1 - 3 = Original Cost x 5%
	 	 	 	 
	$400M x 5% =
	 	 	20,000,000	 
	 
	 	 	 	 
	In-lieu-of tax on Units 1 - 3 = Salvage Value x In-lieu-of Tax Rate
	 	 	 	 
	$20M x 3%=
	 	 	600,000	 
	 
	 	 	 	 
	Calc. of PIT for Remaining Property in Service:
	 	 	 	 
	Original Cost of Remaining Property In Service/Total Original Cost
	 	 	 	 
	$400M/800M =
	 	 	50.00	%
	 
	 	 	 	 
	PIT on Remaining Property
	 	 	 	 
	0.50 x $6,342,600=
	 	$	3,171,300	 
	 
	 	 	 	 
	New PIT After Permanent Shut Down of Units 1 - 3:
	 	 	 	 
	 
	 	 	 
	In-lieu-of tax + PIT on Remaining Property =
	 	$	3,771,300	 
	 
	 	 	 
	 
	 	 	 	 
	Sample Calculation if APS Adds a Unit:
	 	 	 	 
	Assume APS Adds $1B Unit
	 	 	 	 
	 
	 	 	 	 
	Calculation of Increase Factor = Current PIT Settlement Payment/Total Original Cost
	 	 	 	 
	$6,342,600/$800M =
	 	 	0.7928	%
	 
	 	 	 	 
	Calculation of PIT on New Unit = Original Cost of New Unit x Factor
	 	 	 	 
	$1B x 0.007928 =
	 	$	7,928,250	 
	Existing PIT =
	 	$	6,342,600	 
	 
	 	 	 
	New PIT After Addition of Unit
	 	$	14,270,850	 
	 
	 	 	 

	 	 	 
	*	 	Original Costs are not actual original costs, these costs are for illustration purposes only.

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