0150-10893-0001TRANSMITTAL

COUNCIL FILE NO.TO DATE

Martin L. Adams, General ManagerMAR 1 3 2120

COUNCIL DISTRICTFROM

The Mayor All

VARIOUS AMENDED AND RESTATED NAVAJO PROJECT AGREEMENTS; MORGAN SWITCHYARD INTERCONNECTION AGREEMENTS; AND THE NAVAJO

PROJECT, PACIFIC NORTHWEST-PACIFIC SOUTHWEST INTERTIE PROJECT AMENDMENT BETWEEN THE LOS ANGELES DEPARTMENT OF WATER AND POWER

AND NAVAJO PROJECT PARTICIPANTS

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Ana GuerreroMAYOR

RHL:IR:10200087

CAO 649-d

OREPORT from

OFFICE OF THE CITY ADMINISTRATIVE OFFICER

Date: March 12, 2020 CAO File No.: Council File No.: Council District:

0150-10893-0001

>To: The Mayor

Richard H. Llewellyn, Jr., City Administrative OfficerFrom:

Reference: Communication from the Department of Water and P referred by the Mayor for report on November 26 20

rer dated November 19,2019;19

VARIOUS AMENDED AND RESTATED NAVAJO PROJECT AGREEMENTS; MORGAN SWITCHYARD INTERCONNECTION AGREEMENTS; AND THE NAVAJO PROJECT, PACIFIC NORTHWEST-PACIFIC SOUTHWEST INTERTIE PROJECT AMENDMENT BETWEEN THE LOS ANGELES DEPARTMENT OF WATER AND NAVAJO PROJECT PARTICIPANTS

Subject:

RECOMMENDATION

That the Mayor:

1. Approve the proposed Resolution and Ordinance authorizing the following Agreements between the:

• Los Angeles Department of Water and Power, the United States of America, Arizona Public Service Company, Nevada Power Company, Salt River Project Agricultural Improvement and Power District, and the Tucson Electric Power Company for the:

A. Amended and Restated Navajo Co-Tenancy Agreement No. BP 19-006;B. Amended and Restated Navajo Southern Transmission System Operating Agreement

No. BP 19-007;C. Amended and Restated Navajo Western Transmission Operating Agreement No. BP

19-008; and,D. Navajo Project Pacific Northwest-Pacific Southwest Intertie Project Amendment No.

Two (DWP No. 10662, Contract No. 14-06-300-2438).

• Navajo Southern Transmission Participants and Morgan-Pinnacle Peak for the:

E. Morgan 500kV Switchyard Interconnection Agreement No. BP 19-002; and,F. Amended and Restated Morgan 500kV Switchyard Interconnection Agreement No. BP

19-010.

2. Delegate limited authority to the Board of Water and Power Commissioners to act on and

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approve all future amendments without further approval by the City Council, provided that such amendments do not increase the cost or extend the term;

3. Upon proper certification, the Chief Accounting Employee is authorized and directed to draw demands on the Power Revenue Fund, in accordance with the terms of this Agreement; and,

4. Return the proposed Resolution and Ordinance to the Department for further processing, including Council consideration.

SUMMARY

The Los Angeles Department of Water and Power (LADWP) requests approval to enter into six various Agreements related to the ownership of the Navajo Project Transmission Systems, the operation and maintenance of the Transmission Systems, the Morgan Interconnection Agreements which establish the terms and conditions and interconnect to the existing Navajo Project, and the Navajo Project Pacific Northwest-Pacific Southwest Intertie Project relative to the Phase Shifting Transformer at Liberty Substation. Collectively, these Agreements allow for the delivery of reliable energy to Arizona, Nevada and California.

The LADWP divested its ownership interest in the Navajo Generating Station (NGS) in 2015, but retained its ownership and participant interest in the Navajo Projects Southern and Western Transmission Systems, (located on the Navajo Nation) under the Navajo Project Co-Tenancy Agreement (CTA). The original CTA and the Transmission System Agreements expired on December 22,2019, and require amendments to restate and accurately reflect the new configuration of the Navajo Project, which excludes the NGS. The contract term is also extended to align with the approved Extension Lease from December 23, 2019 to December 22, 2054. The Morgan Interconnection Agreements requires various amendments to incorporate the provisions of the CTA, and extended contract term. Lastly, the Navajo Project Pacific Northwest-Pacific Southwest Intertie Project is being amended to incorporate the provisions of the CTA, and proposes a nine month extension to September 22, 2020, to allow time for each participant to determine whether or not the Phase Shifting Transformer continues to meet their operational needs now that the NGS is being decommissioned.

The City Attorney has approved the proposed Resolution and Ordinance as to form and legality. The City Council approval is required pursuant to Charter Section 674, for power transmission contracts, subject to approval by ordinance.

BACKGROUND

The Navajo Project is located on the Navajo Nation outside of Page, Arizona and consists of the NGS, which includes three coal-fired steam generating units, a coal train transportation system, an ash landfill area, a water pumping station located near Lake Powell, and a water pipeline system. The NGS was built and operated by the following project participants including the LADWP, the United States of America - Bureau of Reclamation, Arizona Public Service Company, Nevada Power Company, Salt River Project Agricultural Improvement and Power District (SRP), and Tucson Electric

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Power Company and provided electrical power to customers in Arizona, Nevada and California.

The Fifty Year Indenture of Lease (Original Lease) between the Project Participants and the Navajo Nation became effective December 23, 1969, allowing the Project’s use of tribal land for its operations. However due to California energy legislation limiting power plant emissions, in June 2015 the City Council (Council File No. 15-0645) authorized the sale of the LADWP’s undivided ownership interests in all of the assets, constituting the NGS to SRP, yet LADWP maintained its ownership and participant interest in the Navajo Projects Transmission System under the Navajo Project CTA. The Transmission System includes the Western Transmission System (WTS), and the Southern Transmission System (STS) which allow for the delivery of power via transmission lines to Southern California, Phoenix and the surrounding areas.

In June 2017, the project Participants elected to discontinue the operation of the NGS due to unfavorable market conditions and entered into an Extension Lease Agreement (Council File No. 15­0645) for use of the tribal lands over thirty five years for the WTS and STS from December 23,2019 to December 22, 2054. The existing fifty year old various agreements related to the Navajo Project are all impacted by the decommissioning of the NGS, and the expiration of the Indenture of Lease occurring on December 22, 2019, and require amendments.

Various Navajo Proposed Agreements -

The following Navajo Agreements are expired and require amendments to accurately reflect the new configuration of the Navajo Project. The new configuration will no longer include the NGS, and will only be comprised of the Transmission Systems. The following Agreements are proposed to be amended and restated, and will replace the original agreements as follows:

• Amended and Restated Co-Tenancy Agreement (CTA)

The original CTA governs the overall terms and conditions related to the ownership of the Transmission Systems and established rights and obligations under the various Agreements. The proposed Amended and Restated CTA will supersede and replace in its entirety the original Agreement. The term is effective December 23, 2019 through December 22, 2054, is subject to acceptance by the Federal Energy Regulatory Commission (FERC), and is consistent with the Extension Lease.

• Amended and Restated Navajo Transmission Agreements

The STS and WTS Agreements establish certain terms and conditions relating to the operation and maintenance of the Navajo Transmission System between the parties. The proposed Amended and Restated Navajo Transmission Agreements will supersede and replace in its entirety the existing Agreements. The term is effective December 23, 2019 through December 22, 2054, is subject to acceptance by the FERC, and is consistent with the Extension Lease.

Specifically, the revisions includes definitions and diagrams updated to make them consistent with the new physical configurations of the project and current industry best practices. The STS includes

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several lines and switchyards, including the Morgan Westwing 500kV Line and its associated components. The WTS includes the McCullough and Crystal Facilities, and the Navajo-Crystal 500kV and Crystal-McCullough 500kV Lines, and the Western Transmission Communication Systems.

It should be noted that for the STS and WTS Amended and Restated Agreements, the fiscal impact is unknown at this time. LADWP is currently working with the Navajo Participants to estimate the increased costs for these Amended Agreements due to new operational and maintenance responsibilities agreed to between the parties and approved as part of the Extension Lease. LADWP intends to report back with the increased cost estimates in a subsequent report.

Additional Proposed Agreements

• Morgan Interconnection Agreement

The Morgan Interconnection Agreement governs the interconnection of the Morgan Pinnacle Peak (PP) 500kV line into the STS Morgan switchyard, which is co-owned by the Navajo Participants. In August 2017, the Morgan PP Participants and the Navajo Participants agreed to the terms and conditions of the Interconnection Agreement. Due to internal staffing changes within the LADWP Power Planning, Development and Engineering Division, the original Agreement was never approved by the Board of Water and Power Commissioners and the City Council in 2017, and still requires formal ratification and approval.

• Amended and Restated Morgan Interconnection Agreement

The Amended and Restated Morgan Interconnection Agreement will revise the language, and update the definitions, diagrams, and cost responsibility ratios to make them consistent with Amended and Restated CTA; the Amended Agreement will supersede and replace in its entirety the original Morgan Interconnection Agreement. The term is effective December 23,2019 through December 22, 2054, is subject to acceptance by the FERC, if applicable, and is consistent with the Extension Lease.

The following revisions will be made to:

o Update Insurance Provision language (Article 25);o Update various attachments to account for a potential Third Party Interconnection, if

applicable;o Update the Morgan 500kV Cost Responsibility Rate percentages to assign Pro Rata

Share Cost to a third party from fifty percent to thirty three percent; o Update definitions to make them consistent with the revised and amended CTA.

• Navajo Pacific Northwest-Pacific Southwest Intertie Project - Liberty Amendment No. Two

The Navajo Participants entered into the Liberty Agreement in 1974 to install a phase shifting transformer to the Liberty Substation located in Maricopa County, Arizona to control the powerflow

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between the Mead-Liberty line and the Navajo Project to improve reliability. The Agreement was subsequently amended in 1979 to change the advance payment date and adjustment of payments to reflect actual operational workload. In the Board’s transmittal dated November 19, 2019, LADWP included a preliminary draft Amendment and requested that delegation of authority be provided to the Board to approve the Amendment at a later date, along with various updates required to ensure alignment with the Amended and Restated CTA, and provisions related to replacement of a phase shifting transformer at the Liberty Substation.

Subsequent to the Board’s transmittal, staff now indicate negotiations are pending as some of the involved parties now require additional time to determine if this request still meets their operational needs due to the decommissioning of NGS. At this time revisions will be limited to:

o Extend the term of Agreement by nine months from December 22, 2019 to June 22, 2020; and,

o Incorporate the provisions of the Amended and Restated CTA;

There is no fiscal impact as a result of these changes. The package includes an updated Resolution and Ordinance.

Governance

For each of these Agreements, the Resolution and Ordinance proposes to delegate limited authority to the Board to act on and approve all future amendments without further approval by the City Council, provided that such amendments do not increase the costs (excluding inflationary adjustments) or extend the term of said Agreements. Should any substantive changes transpire among the Navajo Participants in the future, these changes will require approval by City Council.

Under the City Charter Section 674, the Board shall have the power to contract with the United States or any of its agencies, any state or state agency, and any corporation, public, or private, located inside or outside of the City or State of California; for the construction, ownership, operation, and maintenance of facilities for the generation, transformation, and transmission of electric energy.

FISCAL IMPACT STATEMENT

There is no General Fund impact. Approval of the proposed Resolution and Ordinance will impact the LADWP Power Revenue Fund. The fiscal impact for the Navajo Transmission Agreements is unknown at this time and a future determination regarding compliance will be provided in a subsequent report. All costs associated with the Morgan Interconnection Agreements are paid by the Morgan PP Participants and, the Liberty Amendment is a time only extension and does not have a fiscal impact. These proposed requests comply with the LADWP’s adopted Financial Policies.

RHL: IR:10200087

Attachments

Eric Garcetti, MayorLos Angeles Department of

S PowerLA Board of Commissioners

Mel Levine, President Cynthia McClain-Hill, Vice President

Jill Banks Barad Susana Reyes

Susan A. Rodriguez, Secretary

E2ECUSTOMERS FIRST

Martin L. Adams, General Manager and Chief Engineer

November 19, 2019

The Honorable Eric Garcetti Mayor, City of Los Angeles Room 303, City Hall Mail Stop 370

Attention: Ms. Heleen Ramirez, Legislative Coordinator

Dear Mayor Garcetti:

Subject: Amended and Restated Navajo Co-Tenancy Agreement (DWP No. BP IQ-006), Amended and Restated Navajo Southern Transmission System Operating Agreement (DWP No. BP 19-007), Amended and Restated Navajo Western Transmission System Operating Agreement (DWP No. BP 19-008VMorgan 500kV Switchyard Interconnection Agreement (DWP No. BP 19-002) anciAmended and Restated Morgan 500kV Switchyard Interconnection Agreement (DWP No. BP 19­010); and Delegation of Authority for Amendment No. 2 to Navajo Project, Pacific Northwest-Pacific Southwest Intertie Project (DWP No. 10662, Contract No. 14-06­300-2438)

In accordance with Executive Directive No. 4, enclosed is a copy of a Board letter and supporting documents recommending approval and transmittal to the Los Angeles City Council of the Amended and Restated Navajo Transmission Agreements (DWP Nos. BP 19-006,BP 19-007, and BP 19-008); Interconnection Agreements (DWP Nos. BP 19-002 and DWP No. BP 19-010); and Amendment No. 2 to Navajo Project, Pacific Northwest Pacific Southwest Intertie Project.

It is respectfully requested that your review be completed as soon as possible. Once the required City Administrative Officer report has been received, the matter will be scheduled for action by the Los Angeles Board of Water and Power Commissioners and forwarded to the Los Angeles City Council for final consideration.

Please contact Ms. Winifred J. Yancy, Director of Legislative and Intergovernmental Affairs, at (213) 367-0025 upon completion of the review, if the review will take longer than 30 days, or if there are any questions regarding this item.

Sincerely,

Martin L. AdamsGeneral Manager and Chief Engineer

JA:abEnclosurec/enc: Ms. Liz Crosson, Office of the Mayor

Dr. Frederick H. Pickel, Office of Public Accountability Board of Water and Power Commissioners

Ms. Winifred J. Yancy

Hi N. Hope Shc-eL l os Angeles. California 90012-2607 Marling Address: PO Bo* 5HH. Los Angeles. CA 90051-5700Telephone (213) 367-4211 Lidvvp.com