Wholesale Power Supply Agreement

Exhibit 10


AMENDED AND RESTATED


WHOLESALE POWER SUPPLY AGREEMENT


BETWEEN


TUCSON ELECTRIC POWER COMPANY


AND


NAVAJO TRIBAL UTILITY AUTHORITY


DATED JUNE 25, 1997


TABLE OF CONTENTS
-----------------


SECTION


I. PARTIES .................................................1


II. DEFINITIONS..............................................1


III. TERM, TERMINATION AND RIGHT TO REOPEN....................6
A. Term .................................................6
B. Effective Date .......................................6
C. Termination ..........................................6
D. Right to Reopen ......................................6
E. Filing of Amended and Restated Agreement .............7
F. Representations of the Parties ...................7


IV. PHASE I: 1997 - 1999 ENERGY AND CAPACITY................8
A. Hourly Requirements ..................................8
1. Generation Billing Demand ........................8
2. Loss of Coal Mining Load .........................9
3. Generation Demand Charge .........................9
4. Energy Charges ...................................9
5. Transmission Losses ..............................9
B. Wholesale Market Purchases - New Industrial Load .....9
C. CRSP Allocation ......................................9
D. Energy Scheduling and Dispatching ....................10


V. PHASE I: 1997 - 1999 TRANSMISSION.......................10
A. Hourly Requirements ..................................10
B. CRSP Allocation ......................................10
C. Wholesale Market Purchases - New Industrial Load .....11


i


D. Billing for Transmission Service .....................11
E. Transmission Losses ..................................11


VI. PHASE II: 1999 - 2009 ENERGY AND CAPACITY...............11
A. TEP Firm Power Supply ................................11
1. Generation Billing Demand ........................11
2. Generation Demand Charges ........................11
3. Energy Charges ...................................11
4. Energy Scheduling ................................11
5. Transmission Losses .............................12
B. Resource Management of CRSP Allocation ...............12
C. Wholesale Market Purchases ...........................12
1. Initial Selection of Option ......................12
2. Options ..........................................12
a. Option 1 .....................................12
b. Option 2 .....................................12
c. Option 3 .....................................12
3. Subsequent Selection of Options ..................13
4. Coordination of NTUA Resources Under Option 3 ...13
a. Description ..................................13
b. TEP Supplemental Service .....................14
(i) Energy Price.............................14
(ii) Other Charges ...........................14
c. Market Access Service ........................14
(i) Contracts with Third-Party Suppliers.....14
(ii) Contracts with TEP ......................14
(iii)Pricing .................................14
5. Firm Backup Power Supply .........................15
a. Pricing ......................................15
b. Energy .......................................15
6. Management Fee for Market Services ...............15
a. Service Provided .............................15


ii


(i) Fee.......................................15
(ii)Billing ..................................15
D. Combustion Turbine Option ............................16
E. Local Generation .....................................16


VII. PHASE II: 1999 - 2009 TRANSMISSION......................16
A. TEP Firm Power Supply ................................16
B. CRSP Allocation ......................................16
C. Wholesale Market Purchases ...........................16
D. Billing for Transmission Service .....................17
E. Transmission Losses ..................................17


VIII.INDUSTRIAL LOAD RETENTION ...............................17


IX. BILLING AND PAYMENT......................................17
A. Billing ..............................................17
1. Bill Format ......................................17
2. Billing Inquiries ................................18
B. Payment ..............................................18
C. Disputed Bills .......................................18
D. Taxes ................................................19
E. Audit Rights .........................................19


X. AUTHORIZED REPRESENTATIVES...............................19
A. Designation ..........................................19
B. Duties ...............................................20


XI. UNCONTROLLABLE FORCES....................................20


XII. ASSIGNMENT OF AGREEMENT..................................20


XIII.NO DEDICATION OF FACILITIES..............................21


iii


XIV. NOTICES..................................................21


XV. GOVERNING LAW............................................22


XVI. NO THIRD PARTY RIGHTS....................................22


XVII.WAIVERS..................................................22


XVIII.RESOLUTION OF DISPUTES..................................23


XIX. LIABILITY AND INDEMNITY..................................23


XXX. INTERPRETATION...........................................24
A. Prior Negotiations ...................................24
B. Descriptive Headings .................................24
C. Governing Agreement ..................................24


EXHIBIT A Phase I Rate Schedule 1997 - 1999..................A-1


EXHIBIT B Phase II Rate Schedule 1999 - 2009.................B-1


EXHIBIT C Control Area Services..............................C-1


EXHIBIT D Firm Backup Power Supply Demand Charges............D-1


EXHIBIT E NTUA - TEP Network Transmission Agreement..........E-1


iv


I. PARTIES


The Parties to this Amended and Restated Wholesale Power Supply Agreement ("Agreement") are TUCSON ELECTRIC POWER COMPANY, an Arizona Corporation ("Tucson" or "TEP") and the NAVAJO TRIBAL UTILITY AUTHORITY ("NTUA"), an enterprise and public agency of the Navajo Nation. Tucson and NTUA may collectively be referred to herein as "Parties" or singularly as a "Party."
Tucson is engaged in the generation and distribution of electric power and energy in the states of Arizona and New Mexico. Tucson also sells at wholesale throughout the western United States and provides transmission service pursuant to its Open Access Transmission Tariff.
NTUA is engaged in the distribution of power and energy on the Navajo Reservation in northern Arizona, southern Utah and northwest New Mexico. Electrical system interconnections exist which permit Tucson to sell and deliver to NTUA, and NTUA to purchase and receive power and energy.
Tucson and NTUA previously entered into a Wholesale Power Supply Agreement dated January 5, 1993, effective June 1, 1993, FERC Rate Schedule No. 93. The Parties wish to amend and restate that Agreement to provide for the firm sale and purchase of energy and capacity under different terms, and to separate and unbundle transmission service from the sale of capacity and energy, as required by FERC Orders 888 and 888-A. This amended and restated Agreement, once accepted by FERC, shall replace in its entirety the January 5, 1993, Wholesale Power Supply Agreement.
Tucson desires to sell and NTUA desires to purchase firm capacity and energy from Tucson. NTUA will purchase, pursuant to a separate NTUA-TEP Network Transmission Agreement, transmission for delivery of power and energy to stated Delivery Points pursuant to this Agreement. The Parties therefore, agree as follows:


II. DEFINITIONS
AGGREGATE DEMAND CHARGE: The charge per kilowatt-month for capacity TEP delivers and NTUA receives at the Delivery Points, which includes the price of


1


generation and the price of basic transmission service and ancillary services.
AGREEMENT: This Tucson-NTUA Amended and Restated Wholesale Power Supply Agreement, including all exhibits, attachments and any written amendments to which the Parties may agree from time to time.
AUTHORIZED REPRESENTATIVE: The representative of a Party designated in accordance with Section X.
CAPACITY LOSSES: The capacity required to compensate for transmission losses on third party transmission systems pursuant to Sections IV.A.5, V.E, VI.A.5 and VII.E.
COLLECTED FUNDS: Funds that have been deemed by the recipient bank, in accordance with standard banking practice, to be cleared and therefore immediately available for investment or disbursement.
COMBUSTION TURBINE: A peaking resource planned for and installed by TEP in the Tucson vicinity.
CONTROL AREA SERVICES: The FERC defined Ancillary Services included in Tucson's Open Access Tariff and as detailed in Exhibit C.
CONTRACT YEAR: January 1 through December 31, after the first seven months of Phase II.
CRSP ALLOCATION: Capacity and energy available to NTUA pursuant to Contract No.87-SLC-0013, as amended, between WAPA and NTUA; such Scheduled CRSP Capacity and Energy is delivered directly to NTUA at the Kayenta and Longhouse Valley substations over WAPA's transmission system.
DELIVERY POINTS: The points at which Tucson shall deliver NTUA's capacity and energy as per Exhibit E, NTUA-TEP Network Transmission Agreement, which shall be WAPA's Shiprock 345-kV, San Juan 345-kV, McKinley 345-kV, Four Corners 345-kV, Springerville 345-kV and Saguaro 500-kV. Other Delivery Points may be agreed upon by the Authorized Representatives.
ENERGY CHARGE: The charge per kilowatt-hour for energy TEP delivers and NTUA receives at the Delivery Points.
ENERGY LOSSES: The energy required to compensate for transmission losses on third-party transmission systems pursuant to Section IV.A.5, V.E., VI.A.5, and VII.E.


2


Firm Backup Power Supply: The provision of capacity and energy to NTUA to satisfy WSCC and NERC reliability requirements and to backup Market Access Service, TEP Supplemental Service, as well as participation in a combustion turbine project with Tucson or Local Generation resources. See Western Systems Coordinating Council Power Supply Design Criteria, revised March 1997.
GENERATION BILLING DEMAND ("GBD"): The kilowatt demand for which NTUA shall pay the Generation Demand Charge.
GENERATION DEMAND CHARGE: The charge per kilowatt-month for generating capacity TEP delivers and NTUA receives at the Delivery Points.
HOURLY LOAD: The coincident kilowatt demand in any hour as measured at the Metering Points except Other Load.
INDEPENDANT SYSTEM OPERATOR ("ISO"): A regulated organization that may be established in the desert southwest region to, among other things: (i) operate or coordinate the operation of the bulk power transmission in the region so as to assure its reliable and efficient use; and (ii) facilitate non- discriminatory, open access to the regional transmission system.
LOCAL GENERATION: An electric generating resource, the output to which NTUA is solely or partially entitled and which is located in NTUA's service territory and connected to its distribution system.
MANAGEMENT FEE: An assessed charge for the coordination of all market services provided under Section VI.C.6.
MARKET ACCESS SERVICE: Service that allows NTUA to directly access the energy market to serve its retail and wholesale requirements customers at prices that are determined, from time to time, by the energy marketplace.
METERED HIGH DEMAND: The highest Hourly Load during the month.
METERED POINTS: The points at which NTUA shall receive its hourly requirements for purposes of billing and load control and may include the following points: Nenahnezhad 69-kV, Kayenta 230-kV, Long House Valley 69-kV, Yah-Ta-Hey 115-kV, Gray Mountain 69-kV, WAPA's Shiprock 115-kV, Indian Wells 69-kV, Jedditto 69-kV, Leupp 12.5-kV, Gap 69-kV, Copper Mine 69-kV, Lechee 69- kV, Churchrock 13.8-kV, and other metering points as agreed to by the


3


Authorized Representatives.
NATIVE WHOLESALE LOAD CUSTOMER: A customer such as NTUA which has existing transmission service with a term of one year or more who continues to have the right to take transmission service from Tucson when its contract expires, rolls over or is renewed, regardless of whether that customer continues to purchase capacity and energy from Tucson.
NET BACKUP DEMAND: The Metered High Demand less NTUA's CRSP Allocation less the TEP Firm Power Supply plus the coincident output of Local Generation and less any capacity that is credited pursuant to Section VI.C.5. Net Backup Demand is illustrated by the following equation: NBD = MHD - CRSP - TFP + CLG - CRCT/LG Where: NBD = Net Backup Demand
MHD = Metered High Demand
CRSP = NTUA's Colorado River Storage Project Allocation
TFP = TEP Firm Power Supply
CLG = Coincident output of Local Generation
CRCT/LG = Capacity credit for Combustion Turbine or Local Generation pursuant to Section VI.C.5.
NETWORK TRANSMISSION CHARGE ("TN"): The charge per kilowatt-month for basic transmission service and ancillary services that is calculated monthly and billed to NTUA in accordance with the NTUA - TEP Network Transmission Agreement.
NEW INDUSTRIAL LOAD: An industrial load not served by NTUA prior to the execution of this Agreement with an expected or actual peak hourly demand of at least 3 MW.
NTUA-TEP NETWORK TRANSMISSION AGREEMENT: An agreement for use of TEP's transmission system pursuant to TEP's Open Access Transmission Tariff which allows power to be delivered to NTUA under this Agreement and from other sources, a copy of this agreement is attached hereto as Exhibit E.
OTHER LOAD: The electric load at one or more of the following locations where NTUA serves its customers: (i) the electric railroad which is currently used for hauling coal to the Navajo Generating Station, and (ii) remote locations which are isolated from NTUA's main electric distribution system such


4


as Bisti, Red Mesa, and Mexican Hat.
PHASE I: July 1, 1997 through May 31, 1999.
PHASE II: June 1, 1999 through December 31, 2009.
PLAN: An operating plan developed by NTUA and TEP which outlines the acquisition and expected usage of NTUA's resources and the wholesale marketplace to serve NTUA's load requirements for a specified time period pursuant to Option 3 under Phase II of this Agreement.
SCHEDULED CRSP CAPACITY: The maximum capacity available to NTUA in a given month under the CRSP Allocation.
SCHEDULED CRSP ENERGY: The energy available to NTUA from time to time under the CRSP Allocation, including any surplus energy that is made available from time to time.
SUMMER MONTHS: The months of June, July, August and September.
TEP FIRM POWER SUPPLY : The firm obligation which Tucson shall have to supply to NTUA firm capacity and energy at the Delivery Points in the amounts specified in Section IV.A.1 for Phase I and in the amounts as specified in Section VI.A.1 for Phase II. This supply will be neither interrupted nor reduced, unless the integrity of the transmission system or the ability of TEP to provide service to its retail customers or to Salt River Project under the 1990-2011 Power Sale Agreement is jeopardized, and to the extent that such interruptions of service to NTUA are in keeping with good utility practices.
TEP SUPPLEMENTAL SERVICE: A service which allows NTUA to purchase energy from TEP to serve its retail and wholesale requirements customers at prices that are determined hourly by the energy marketplace.
TRANSMISSION: Either non-firm, firm or network transmission service provided pursuant to Tucson's Open Access Transmission Tariff as filed with FERC.
TRANSMISSION BILLING DEMAND ("TBD"): The kilowatt demand for which NTUA shall pay the Network Transmission Charge in accordance with the NTUA-TEP Network Transmission Agreement.
UNCONTROLLABLE FORCES: Any event beyond the control of the Party unable to perform any of its obligations hereunder including, but not limited to,


5


failure of or threat of immediate failure of facilities; flood, earthquake, storm, fire, lightning and other natural catastrophes; epidemic, war, riot, civil disturbance or disobedience; labor dispute, labor or material shortage; sabotage; restraint by court order or public authority; and action or nonaction by, or failure to obtain the necessary authorizations or approvals from any governmental agency or authority, which, by exercise of due diligence, such Party could not reasonably have been expected to avoid and which, by exercise of due diligence, it is unable to overcome.
WAPA: Western Area Power Administration.
Winter Months: All months other than Summer Months.


III. TERM, TERMINATION, RIGHT TO REOPEN, AND EFFECTIVE DATE


A. TERM
The Agreement shall terminate on December 31, 2009, subject to the right of either party to reopen the agreement, as set forth in Section III.D.
B. EFFECTIVE DATE
The Agreement shall be effective upon: (i) acceptance for filing of this Agreement by the Federal Energy Regulatory Commission ("FERC") and (ii) the written approval of the Administrator of the Rural Utilities Service ("RUS") and of the Governor of the National Rural Electric Cooperative Finance Corporation ("CFC").
C. TERMINATION
This Agreement shall not be subject to termination except as provided herein.
D. RIGHT TO REOPEN
1. Each party shall have the right to request reopening of the Agreement for any reason upon twelve months advance written notice, provided however, that such notice cannot be given prior to December 31, 2002. Should the Parties fail to successfully negotiate a new agreement within the twelve- month period after written notice, this Agreement shall terminate. Subject to the notice provision above, the earliest effective termination hereunder shall


6


be December 31, 2003.
2. Each Party shall also have the right to request, in writing, reopening of the Agreement at any time after June 1, 1999, if in any twelve month period, the twelve month average firm on-peak Palo Verde Index as published in the Wall Street Journal, is less than 1.2 cents per kWh or greater than 4.0 cents per kWh. Such request must be made within 180 days of the occurrence of an average Palo Verde Index price outside the above-described bandwith. Should the Parties fail to negotiate a new Agreement within twelve months after written notice is given, this Agreement shall terminate at either Party's request. If the termination occurs at NTUA's request, then on the tenth day of each month following the termination of this Agreement, NTUA will make payment of $60,000 to Tucson in each month from the date of termination through December 31, 2003; such payments to Tucson are to be separate from other payments due either Party pursuant to this Agreement.
3. This Agreement recognizes that the formation of an Independent System Operator ("ISO") may affect certain provisions of this Agreement. The Parties agree to negotiate in good faith to amend this Agreement as necessary to accommodate an ISO should such ISO be approved by the FERC.
E. FILING OF AMENDED AND RESTATED AGREEMENT
Tucson shall file this Agreement with FERC. NTUA shall support Tucson's filing by intervening in support of that filing at FERC. NTUA will file and seek approval of this Agreement with the RUS and CFC.
If, after filing this Agreement, FERC requires any material modifications to this Agreement which are unacceptable to either Party, TEP shall cause the submittal of this Agreement for filing with FERC to be withdrawn. If, after filing this Agreement, RUS or CFC requires any material modifications to this Agreement that are unacceptable to either Party, NTUA shall cause the submittal of this Agreement for filing with such parties to be withdrawn.
However, until all necessary regulatory approvals of this Agreement have been obtained, the Wholesale Power Sale Agreement, shall remain in full force and effect, and NTUA shall pay all charges thereunder. If this Agreement does not receive all necessary approvals, the Wholesale Power Sale Agreement, dated


7


January 5, 1993, shall remain in effect throughout its term. If all regulatory approvals are obtained, the Agreement shall be deemed to have been effective July 1, 1997. Within 30 days of receipt of all approvals, TEP shall refund to NTUA the difference between monies paid under the Wholesale Power Sale Agreement dated January 5, 1993, since July 1, 1997 and monies that would have been paid pursuant to this Agreement since July 1, 1997.
F. REPRESENTATIONS OF THE PARTIES
1. Tucson hereby represents, warrants and covenants to NTUA as follows:
a) Tucson is an Arizona corporation duly organized, validly existing and in good standing under the laws of the State of Arizona and has corporate power and authority to execute and deliver this Agreement and perform its obligations hereunder, and to carry on its business as it is now being conducted and as it is contemplated hereunder to be conducted during the term hereof.
b) The execution, delivery and performance of this Agreement by Tucson has been duly and effectively authorized by all requisite corporate action.
2. NTUA hereby represents, warrants and covenants to Tucson as follows:
a) NTUA is an enterprise and public agency of the Navajo Nation; is duly organized, validly existing and in good standing under the laws of the Navajo Nation; and has the requisite power and authority to execute this Agreement, to perform its obligations hereunder, and to carry on its business as it is now being conducted and as it is contemplated hereunder to be conducted during the term hereof and this Agreement has been duly executed and delivered by NTUA and is the legal, valid and binding obligation of NTUA, enforceable against it in accordance with its terms.
b) Subject to the provisions of Section III.E, the execution, delivery and performance of this Agreement by NTUA have been duly and effec- tively authorized by all requisite action.


8


IV. PHASE I: 1997 - 1999 ENERGY AND CAPACITY


During Phase I of this Agreement, the Parties intend that NTUA shall satisfy its load requirements, except Other Load, from two sources: (i)TEP Firm Power Supply pursuant to this Agreement, and (ii) its CRSP Allocation. NTUA may satisfy New Industrial Load through market purchases. To satisfy the first source, the Parties agree that:
A. HOURLY REQUIREMENTS
The Parties agree that for Phase I, Tucson shall sell and NTUA shall purchase a TEP Firm Power Supply for NTUA's Hourly Load, excluding market purchases for New Industrial Load and loads served with NTUA's CRSP Allocation, upon the following terms:
1. GENERATION BILLING DEMAND: For Phase I, the Generation Billing Demand shall be 60 MW. For this Generation Billing Demand, Tucson agrees to deliver TEP Firm Power Supply in amounts up to 69 MW in Summer Months, and higher amounts, as required, in Winter Months. If the TEP Firm Power Supply in the Summer Months exceeds 69 MW, the Generation Billing Demand will ratchet on a twelve-month basis to 60 MW plus any amounts in excess of 69 MW. Generation Billing Demand in Winter Months shall be the same as the Summer Generation Billing Demand. In Phase I TEP Firm Power Supply is the actual Hourly Load plus Capacity Losses, less Scheduled CRSP Capacity, less NTUA market purchases for New Industrial Load.
2. LOSS OF COAL MINING LOAD: If NTUA anticipates long-term (greater than six consecutive months) loss of coal mining loads in the aggregate of 9 MW or greater, NTUA shall give Tucson sixty days prior written notice of the anticipated date and amounts of load loss. Tucson shall reduce the Generation Billing Demand effective the next billing period after the reduction in load or shutdown, by one-half of the amount of load lost. This reduction shall only apply during Phase I.
3. GENERATION DEMAND CHARGE: The Generation Demand Charges for Phase I are set forth in Exhibit A, Phase I Rate Schedule.
4. ENERGY CHARGES: For Phase I, the Energy Charge shall be as stated


9


in Exhibit A, for the amount of the total energy usage recorded monthly at all Metering Points, plus Energy Losses, less Scheduled CRSP Energy, less energy from NTUA market purchases for New Industrial Load to the extent such energy is recorded at the Metering Points.
5. TRANSMISSION LOSSES: Tucson shall supply and be responsible for transmission losses to the Delivery Points. Tucson shall supply Capacity Losses and Energy Losses to compensate for transmission losses from the Delivery Points to the Metering Points as specifically required by arrangements between NTUA and third-party transmission owners.
B. WHOLESALE MARKET PURCHASES - NEW INDUSTRIAL LOAD
NTUA shall have the right to seek alternate suppliers for New Industrial Load.
C. CRSP ALLOCATION
Tucson shall manage NTUA's CRSP Allocation such that: (i) it satisfies a portion of NTUA's load, and (ii) NTUA receives full credit in the calculation of Generation Billing Demand. It is understood that NTUA's CRSP Allocation is delivered over WAPA's transmission system and does not involve or require the use of Tucson's transmission system.
D. ENERGY SCHEDULING AND DISPATCHING
1. In Phase I, Tucson shall manage NTUA's CRSP Allocation, TEP Firm Power Supply, and market purchases for New Industrial Load to serve NTUA's total load requirements except Other Load. The Authorized Representatives shall make procedural modifications as necessary for this management, including all necessary billing procedure modifications.
2. Semiannually, NTUA shall provide Tucson with an estimate of the monthly energy deliveries under its CRSP Allocation. Tucson shall schedule NTUA's CRSP Allocation with WAPA.


10


3. In the event that either Party determines that it is adversely impacted by the scheduling and dispatching procedures, the Authorized Representatives will agree to modify the procedures if at all possible, or to discontinue such procedures if it becomes necessary. In the latter case, Tucson shall schedule and dispatch according to guidelines provided by NTUA. The Authorized Representatives will coordinate any changes affecting hourly scheduling requirements.
4. Tucson shall maintain records of Hourly Loads and schedules of energy transactions for accounting and operating purposes and upon request will furnish co ...