ML21139A330

Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases

ML21139A330
Person / Time
Site:	Palo Verde
Issue date:	05/19/2021
From:	Weber T Arizona Public Service Co
To:	Document Control Desk, Office of Nuclear Material Safety and Safeguards
References
102-08277-TNW/MSC
Download: ML21139A330 (55)

Text

A member of the STARS Alliance LLC 10 CFR 50.80 10 CFR 50.81 10 CFR 72.50 Palo Verde Nuclear Generating Station 5871 S. Wintersburg Road Tonopah, AZ 85354 102-08277-TNW/MSC May 19, 2021 U.S. Nuclear Regulatory Commission Attn: Document Control Desk One White Flint North 11555 Rockville Pike Rockville, MD 20852-2738

SUBJECT:

Palo Verde Nuclear Generating Station, Units 1 and 2 Docket Nos. STN 50-528, 50-529 and Independent Spent Fuel Storage Installation Docket No. 72-44 Renewed Operating License Nos. NPF-41, NPF-51 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases In accordance with Section 184 of the Atomic Energy Act, 10 CFR 50.80, and 10 CFR 72.50, Arizona Public Service Company (APS), on behalf of the Salt River Project Agricultural Improvement and Power District (SRP) and Public Service Company of New Mexico (PNM) (together, Applicants), respectfully requests that the U.S.

Nuclear Regulatory Commission (NRC) consent to the transfers from PNM to SRP (the Transfers) of a 7.9333330% share of the undivided interests in Palo Verde Nuclear Generating Station (PVNGS) Unit 1 (the Unit 1 Interests), and of a 0.7933333% share of the undivided interests in PVNGS Unit 2 (the Unit 2 Interest).1 The information provided herein and in the attached is provided by SRP and PNM.

PNM and SRP are both PVNGS NRC licensees. Because the transaction only concerns a partial transfer of PNMs total interest in PVNGS, both PNM and SRP will retain their status as NRC licensees post-Transfers. The Transfers will change only the allocation between SRP and PNM of the percentage interests in Unit 1 and Unit 2.

1 The other owners of PVNGS are not participants to this license transfer application as their interests in PVNGS are remaining the same.

102-08277-TNW/MSC ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 2 Description of Transfers PNM currently has a 10.2% interest in PVNGS Units 1, 2, and 3. While most of this interest is directly owned by PNM, the remainderspecifically the Unit 1 Interests and Unit 2 Interestis leased from financial institutions pursuant to sale-leaseback transactions PNM executed in 1985 and 1986 with investment and banking firms. As the lessee, PNM retained all of the leasehold and control rights and responsibility associated therewith. The NRC consented to these sale-leaseback transactions.2 Under the terms of these past transactions, the Unit 1 Interests and the Unit 2 Interest are currently held in trust and leased to PNM pursuant to the NRCs prior orders, license amendments, and creditor regulations, 10 CFR 50.81. The sale-leaseback transactions were structured so that although the investment and banking firms own the Unit 1 Interests and the Unit 2 Interest, none has direct or indirect controlling interest in PVNGS. Instead, under the leases, PNM retains leasehold and control rights and responsibility under the NRC licenses for these interests.

PNM entered into a total of 11 sale-leaseback transactions refinancing portions of its interests in PVNGS Units 1 and 2. Six leases have since expired, leaving five remaining. This Application concerns those remaining five leases, which are approaching their expiration dates and cannot be renewed, with four leases expiring in 2023 and one in 2024.3 The financial institutions have agreed to sell and transfer their interests to SRP starting from 2021 and SRP has agreed to purchase these interests, provided SRP and PNM have secured the requisite approval from the NRC for SRP ownership of the incremental interests once the leases expire.

The chart below summarizes the effective change in PNM and SRP interests in PVNGS following the Transfers and expiration of the leases:

Summary of Transfers of Control Upon Expiration of Leases PVNGS UNIT Interest Transferred from PNM to SRP SRP PNM PNM/SRP Total Before After Before After 1

7.9333330%

17.49%

25.423333%

10.2%

2.266667%

27.69%

2 0.7933333%

17.49%

18.2833333%

10.2%

9.4066667%

27.69%

3 0%

17.49%

17.49%

10.2%

10.2%

27.69%

2 Letter from H.R. Denton to E. E. Van Brunt, Issuance of Amendment No. 11 to Facility Operating License No. NPF-41 for Palo Verde, Unit 1 and Amendment No. 6 to Facility Operating License No.

NPF-51 for Palo Verde, Unit 2 (Dec. 11, 1986) (ADAMS Accession No. ML021680489).

3 Four leases related to the Unit 1 Interests are respectively held by Daimler Capital Services LLC, Citicorp Buffalo Basin, Inc., and Chase Manhattan Realty Leasing Corporation (which has two leases) (all the Unit 1 Interests leases expiring January 15, 2023). One lease pertaining to the Unit 2 Interest is held by Chase Manhattan Realty Leasing Corporation (expiring January 15, 2024).

102-08277-TNW/MSC ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 3 Although the ownership interests in PVNGS will change, significant actions involving operation of the Palo Verde units require unanimity of all owners of PVNGS. Currently, no entity owns 50% or more of the voting interests. The same is true following the transfer of the leased interests. Accordingly, after the effective date of the transactions, there will be no change in the control of operation of PVNGS; APS will continue to make all technical decisions that do not require approval from all owners of PVNGS.

Request for Approval of Transfer of Control The transfer of beneficial interests to SRP from the current financial institutions (owners of the lessor trusts that lease these interests to PNM) in 2021 does not require a license transfer approval, but rather the license condition in Section 2.B.(6)(a) of each license requires prior notice to the NRC regarding the change in ownership. Such Notice is hereby provided.

However, SRP is acquiring the beneficial interests now held in trust so that it will obtain ultimate ownership of these interests under the terms of the lease documents when the leases expire in 2023 and 2024, and the interests transfer to SRP. These transfers of control at the end of the leases require NRC consent. Thus, SRP requests NRC approval for the Transfers of the associated interests at the end of the term of each of the respective leases. SRP will be making a substantial payment to the lessors to acquire the beneficial interests in the lessor trusts. As such, SRP requires NRC approval in 2021 in order to confirm the efficacy of it acquiring the beneficial interests in advance of the actual lease termination dates.

The Applicants therefore request that NRC consent to the Transfers of control of the licenses for these leased interests. Information supporting this request for consent is included in the attached Application for Order Approving Transfers of Control of Minority Interests Subject to Expiring Leases (Application), which is provided as.

SRP is a community-based not-for-profit water and energy company that provides reliable, affordable water and power to more than 2 million people living in central Arizona. SRP has provided these essential resources for more than a century to meet the needs of customers and help the region grow. SRP is a political subdivision of the State of Arizona.

SRP is an existing NRC licensee for PVNGS Units 1, 2 and 3, and it is named on the NRC licenses for its current ownership of a 17.49% share of the undivided ownership interests in each of the three units.

102-08277-TNW/MSC ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 4 PNM also is an existing licensee for PVNGS Units 1, 2 and 3.4 It is named on the licenses due to its interests in the Units, which is based in part upon its undivided ownership interests in each of the three units and based in part upon its leasehold interests pursuant to leases for the Unit 1 Interests and the Unit 2 Interest. The ownership of these interests is held in trust by the lessors. PNM will remain a licensee for its undivided ownership interests in the Units following the transfer of its leased interests to SRP upon expiration of the term of each of the leases.

SRP will remain on the licenses due to its existing ownership interests as well as the interests that will no longer be subject to leases at the end of the lease terms. The ownership percentages of the PVNGS co-owners are not reflected in the licenses.

Thus, no license amendment is required. A license amendment may be processed in the future to delete the PNM sale and leaseback license conditions, which will no longer be relevant following the expiration of the PNM leases.

The information in the attached Application demonstrates: (1) SRP will continue to have the requisite managerial, technical, and financial qualifications to continue its role as a PVNGS licensee; (2) SRP and PNM will continue to provide reasonable assurance of funding for decommissioning PVNGS; (3) the terms of the PVNGS licenses will not be affected; and (4) SRP is not subject to any foreign ownership, control or domination (FOCD).

The Applicants respectfully request that the NRC review and complete action expeditiously on the enclosed Application and consent to the proposed Transfers.

Applicants are prepared to work closely with the NRC Staff to facilitate the review of the Application. Applicants request that the NRC issue an Order by October 30, 2021, authorizing the Transfers described in the Application to take place, at any time from the date of issuance until March 1, 2024 (after the expiration of the last lease).

The Applicants recognize that NRCs recent practice has been to limit an applicants time for action on approvals to one year, unless extended for good cause shown. The NRC uses this limitation to avoid requests for approval for speculative transactions and because of the time dependence of information relied on in the agencys basis for granting the approval. In this case neither concern is present.

4 On December 2, 2020, APS, on behalf of PNM and Avangrid, Inc., submitted a license transfer application seeking consent for the indirect transfer of control of PNM and its NRC licenses for PVNGS as part of a planned merger between PNM and Avangrid. Letter from T. Weber, Arizona Public Service Co.,

to NRC Document Control Desk, Application for Order Approving Indirect Transfers of Control of Licenses (Dec. 2, 2020) (ML20337A344). The planned transactions covered by this Application are independent from the PNM-Avangrid merger for which consent is sought in the December 2, 2020 license transfer application.

102-08277-TNW/MSC ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 5 As explained more fully in the enclosed Application, SRP is acquiring the Unit 1 interests and Unit 2 interest from certain banks and institutional investors but retains leasehold and control rights. As a first step, SRP had entered in Beneficial Interest Sale Agreements (ISAs) with these banks and institutional investors whereby SRP will become the owner of the leased interests. At the expiration of the leases, SRP then will acquire the leasehold and control rights currently held by PNM.

The closing of the transactions contemplated by the ISAs in 2021 is conditioned upon the Applicants receipt of NRC consent for the transfer of control of the Unit 1 and Unit 2 interests at the expiration of the leases. SRPs right to acquire the Unit 1 Interests and the Unit 2 Interest at lease end attaches as soon as it acquires the lessors interests in 2021. SRP cannot take the risk of closing the initial transactions under the ISAs without having NRC-approval for ownership at lease ends because doing so puts SRP at risk of being an unlicensed owner at the end of the term of the leases. Additionally, both PNM and SRP are, and will remain, qualified for their respective financial and decommissioning obligations by their status as electric utilities as defined in 10 CFR 50.2. The time period requested coincides with expiration of the leases and provides for an orderly, predictable unwinding of the subject leases.

In summary, the proposed Transfers will not be inimical to the common defense and security or result in any undue risk to public health and safety, and the Transfers will be consistent with the requirements of the Atomic Energy Act and the NRC regulations.5 A public pre-submittal call was held with the NRC staff regarding this application on May 13, 2021.

As a courtesy, a copy of this submittal has been sent to the State of Arizona.

If the NRC has any questions about the proposed transaction described in this letter and in the Application or wishes to obtain any additional information about the proposed Transfers, please contact Matthew S. Cox, Licensing Section Leader, at (623) 393-5753.

5 APS separately leases interests in PVNGS Unit 2 from three financial institutions. The term of the leases expires in December 31, 2033. This submittal does not address the APS Unit 2 leases.

102-08277-TNW/MSC ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 6 Service upon the Applicants of any notices, comments, hearing requests, intervention petitions, or other pleadings should be made to:

Timothy P. Matthews Morgan, Lewis & Bockius LLP 1111 Pennsylvania Ave., NW Washington, D.C. 20005 Phone: 202.739.5524 E-mail: timothy.matthews@morganlewis.com Esther K. Andrews Pinnacle West Capital Corporation 400 North 5th Street Mail Station 8695 Phoenix, AZ 85004 Phone: 602.250.3648 E-mail: esther.andrews@pinnaclewest.com Kenneth J. Lee Salt River Project Agricultural Improvement and Power District P.O. Box 52025 Phoenix, AZ 85072-2025 Phone: 602.236.4525 E-mail: ken.lee@srpnet.com Leonard D. Sanchez PNM Resources, Inc.

414 Silver Avenue, SW Albuquerque, New Mexico 87102-3289 Phone: 505.241.4941 E-mail: Leonard.Sanchez@pnmresources.com

102-08277-TNW/MSC ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 7 In addition, please place the above individuals on the NRC correspondence distribution for all correspondence related to the Application.

This correspondence contains no new regulatory commitments of APS, PNM or SRP.

Sincerely, Thomas N. Weber Director, Nuclear Regulatory Affairs

- Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases cc:

S. A. Morris NRC Region IV Regional Administrator S. P. Lingam NRC NRR Project Manager for PVNGS C. A. Peabody NRC Senior Resident Inspector for PVNGS B. D. Goretzki Arizona Department of Health Services - Bureau of Radiation Control Weber, Thomas N(Z00499)

Digitally signed by Weber, Thomas N(Z00499)

DN: cn=Weber, Thomas N(Z00499)

Reason: I am approving this document Date: 2021.05.19 13:21:06 -07'00'

ENCLOSURE 1 APPLICATION FOR ORDER APPROVING TRANSFERS OF CONTROL OF LICENSES FOR MINORITY INTERESTS SUBJECT TO EXPIRING LEASES Palo Verde Nuclear Generating Station Units 1 and 2 Docket Nos. STN 50-528 and 50-529 Renewed Operating License Nos. NPF-41, NPF-51 Independent Spent Fuel Storage Installation Docket No. 72-44

i ENCLOSURE 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Table of Contents Page

1. Introduction.....................................................................................................1

2. Statement of Purpose of Transfers and Nature of the Transaction Making the Transfers Necessary or Desirable...............................................6

3. General Corporate Information Regarding SRP.............................................8

4. Technical Qualifications..................................................................................8

5. Financial Qualifications...................................................................................9

6. Restricted Data............................................................................................. 11

7. Other Nuclear Regulatory Issues.................................................................. 11

8. Requested Review Schedule and Other Required Approvals....................... 13

9. Environmental Considerations...................................................................... 14

10. Summary..................................................................................................... 14 General Corporate Information Regarding SRP Form of Decommissioning Agreement

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 1 of 15

1. Introduction In accordance with Section 184 of the Atomic Energy Act, 10 CFR 50.80, and 10 CFR 72.50, Arizona Public Service Company (APS), on behalf of the Salt River Project Agricultural Improvement and Power District (SRP) and Public Service Company of New Mexico (PNM) (together, Applicants), respectfully requests that the U.S. Nuclear Regulatory Commission (NRC) consent to the transfers from PNM to SRP (the Transfers) of a 7.9333330% share of the undivided interests in Palo Verde Nuclear Generating Station (PVNGS) Unit 1 (the Unit 1 Interests), and of a 0.7933333% share of the undivided interests in PVNGS Unit 2 (the Unit 2 Interest).1 The information provided herein and in the attached is provided by SRP and PNM.

PNM and SRP are both PVNGS NRC licensees. Because the transaction only concerns a partial transfer of PNMs total interest in PVNGS, both PNM and SRP will retain their status as NRC licensees post-Transfers. The Transfers will change only the allocation between SRP and PNM of the percentage interest in Unit 1 and Unit 2.

PNM currently holds a 10.2% undivided interests in PVNGS Units 1, 2, and 3.

While most of this interest is directly held by PNM, the remainder--specifically the Unit 1 Interests and the Unit 2 Interest--is leased from financial institutions pursuant to sale-leaseback transactions PNM executed in 1985 and 1986 with investment and banking firms. As the lessee, PNM retained all of the leasehold and control rights and 1 The other owners of PVNGS are not participants to this license transfer application as their interests in PVNGS are remaining the same.

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 2 of 15 responsibility associated therewith. The NRC consented to these sale-leaseback transactions.2 Under the terms of these past transactions, the Unit 1 Interests and the Unit 2 Interest are currently held in trust and leased to PNM pursuant to the NRCs prior orders, licensed amendments, and creditor regulations, 10 CFR 50.81. The sale-leaseback transactions were structured so that, although the investment and banking firms own the Unit 1 Interests and Unit 2 Interest, none has a direct or indirect controlling interest in PVNGS. Instead, under the terms of the leases, PNM retains leasehold and control rights and responsibility under the NRC licenses for these interests.

PNM entered into a total of 11 sale-leaseback transactions relating to both PVNGS Units 1 and 2. Six have since expired, leaving five remaining. This Application concerns those five remaining leases, which are approaching their expiration dates and cannot be renewed, with four leases expiring in 2023 and one in 2024.3 The financial institutions have agreed to sell and transfer their interests to SRP starting from 2021 and SRP has agreed to purchase these interests, provided SRP and PNM have secured the requisite approval from the NRC for SRPs ownership of the incremental interests once the leases expire.

2 Letter from H.R. Denton to E. E. Van Brunt, Issuance of Amendment No. 11 to Facility Operating License No. NPF-41 for Palo Verde, Unit 1 and Amendment No. 6 to Facility Operating License No.

NPF-51 for Palo Verde, Unit 2 (Dec. 11, 1986) (ADAMS Accession No. ML021680489).

3 Four leases related to the Unit 1 Interests are respectively held by Daimler Capital Services LLC, Citicorp Buffalo Basin, Inc., and Chase Manhattan Realty Leasing Corporation (which has two leases) (all the Unit 1 Interests leases expiring January 15, 2023). One lease pertaining to the Unit 2 Interest is held by Chase Manhattan Realty Leasing Corporation (expiring January 15, 2024).

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 3 of 15 The transaction has been structured so that SRP steps into the shoes of the lessor investment and banking firms starting from 2021.4 As a result, SRP will be a non-controlling lessor of the Unit 1 Interests and the Unit 2 Interest until the lease terms end, no different than the banking or investment firms are currently. Then, upon the expiration of the five leases at the end of their terms in 2023 and 2024, the respective Unit 1 Interests and Unit 2 Interest held under those leases will transfer entirely to SRP.

The leasehold and control rights associated with the Unit 1 Interests and the Unit 2 Interest will likewise flow directly from PNM to SRP without passing through the banking and investment firms (not even for an instant). The chart below summarizes the effective change in PNM and SRP interests in PVNGS following the Transfers and expiration of the leases:

PVNGS UNIT Interest Transferred from PNM to SRP SRP PNM PNM/SRP Total Before After Before After 1

7.9333330%

17.49%

25.423333%

10.2%

2.266667%

27.69%

2 0.7933333%

17.49%

18.2833333%

10.2%

9.4066667 27.69%

3 0%

17.49%

17.49%

10.2%

10.2%

27.69%

Although the ownership interests in PVNGS will change, significant actions involving operation of the Palo Verde units require unanimity of all owners of PVNGS.

Currently, no entity owns 50% or more of the voting interests. The same is true following the transfer of the leased interests. Accordingly, after the effective date of the transactions, there will be no change in the control of the operation of PVNGS; APS will 4

The initial closing on the lessors interests is expected to occur in 2021, following receipt of all required regulatory approvals, including this request to the NRC.

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 4 of 15 continue to make all technical decisions that do not require approval from all owners of PVNGS.

The transfer of beneficial interests to SRP from the current financial institutions (owners of the lessor trusts that lease these interests to PNM) in 2021 does not require a license transfer approval, but rather the license condition in Section 2.B.(6)(a) of each license requires prior notice to the NRC regarding the change in ownership. Such Notice is hereby provided.

However, SRP is acquiring the beneficial interests now held in trust so that it will obtain ultimate ownership of these interests when the leases expire in 2023 and 2024, and the interests transfer to SRP. These transfers of control at the end of the leases require NRC consent. Thus, SRP requests NRC approval for the Transfers of the associated interests at the end of the term of each of the respective leases. SRP will be making a substantial payment to the lessors to acquire the beneficial interests in the lessor trusts. As such, SRP requires NRC approval in 2021 in order to confirm the efficacy of it acquiring the beneficial interests in advance of the actual lease termination dates.

These transactions are each part of an integrated whole, fully resolving the disposition of the Unit 1 Interests and the Unit 2 Interest at the conclusion of the PNM leases. Accordingly, NRC consent for the license transfers is necessary before the parties can complete their initial closing, which is expected to occur in 2021. The term of each of the leases for the Unit 1 Interests expires on January 15, 2023, and the term

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 5 of 15 of the lease for the Unit 2 Interest expires on January 15, 2024.5 The Applicants therefore request that NRC consent to the transfers of control of the licenses for these leased interests. Information supporting this request for consent is provided in this Application.

SRP is a community-based not-for-profit water and energy company that provides reliable, affordable water and power to more than 2 million people living in central Arizona. SRP has provided these essential resources for more than a century to meet the needs of customers and help the region grow. SRP is a political subdivision of the State of Arizona.

SRP is an existing NRC licensee for PVNGS Units 1, 2 and 3, and it is named on the NRC licenses for its current ownership of a 17.49% share of the undivided ownership interests in each of the three units.

PNM also is an existing licensee for PVNGS Units 1, 2 and 3.6 It is named on the licenses due to its ownership interests in the Units, which is based in part upon its undivided ownership interests in each of the three units and based in part upon its leasehold interests pursuant to leases for the Unit 1 Interests and the Unit 2 Interest.

5 Because the lease termination dates occur on a weekend or holiday, by agreement among the parties, the actual transfers are expected to occur as of 12:00 a.m. on January 13, 2023 for the Unit 1 Interests and as of 12:00 a.m. on January 12, 2024 for the Unit 2 Interest.

6 On December 2, 2020, APS, on behalf of PNM and Avangrid, Inc., submitted a license transfer application seeking consent for the indirect transfer of control of PNM and its NRC licenses for PVNGS as part of a planned merger between PNM and Avangrid. Letter from T. Weber, Arizona Public Service Co.,

to NRC Document Control Desk, Application for Order Approving Indirect Transfers of Control of Licenses (Dec. 2, 2020) (ML20337A344). The planned transactions covered by this Application are independent from the PNM-Avangrid merger for which consent is sought in the December 2, 2020 license transfer application.

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 6 of 15 The ownership of these interests is held in trust by the lessors. PNM will remain a licensee for its undivided ownership interests in the Units following the transfer of its leased interests to SRP upon expiration of the term of each of the leases.

SRP will remain on the licenses due to its existing ownership interests as well as the interests that will no longer be subject to leases at the end of the lease terms. The ownership percentages of the PVNGS co-owners are not reflected in the licenses.

Thus, no license amendment is required. A license amendment may be processed in the future to delete the PNM sale and leaseback license conditions, which will no longer be relevant following the expiration of the PNM leases.7

2. Statement of Purpose of Transfers and Nature of the Transaction Making the Transfers Necessary or Desirable The proposed transaction is necessary and desirable because PNM has determined that it does not want to acquire the ownership interests associated with the leased interests at the end of the terms of the leases. The financial institutions also do not desire to take over PNMs current NRC-licensed responsibilities related to the Unit 1 Interests or Unit 2 Interest. SRP is an existing co-owner and licensee for PVNGS, and it is willing to acquire these interests, which support its goal to significantly and steadily reduce greenhouse gas emissions while maintaining a sustainable, reliable and affordable supply of power and water.

7 APS separately leases interest in PVNGS Unit 2 from three financial institutions. The term of the leases expires on December 31, 2033. This Application does not address the APS Unit 2 leases.

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 7 of 15 SRP has entered into Beneficial Interest Sales Agreements (ISAs) pursuant to which it will acquire the beneficial interests held in trust that are associated with the leases for the Unit 1 Interests and Unit 2 Interest. SRP will not acquire these interests until regulatory approvals are obtained, including NRCs consent to the transfer of control of the licenses associated with the corresponding interests upon expiration of the leases and approval from the New Mexico Public Regulation Commission. NRC approval of the Transfers now and closing of the ISAs in 2021 removes uncertainty regarding the licensed ownership of the Unit 1 Interests and Unit 2 Interest in PVNGS upon expiration of the leases.

SRP also has entered into an Asset Purchase and Sale Agreement with PNM.

Pursuant to this agreement, PNM will transfer interests in nuclear fuel, inventory, switchyard facilities, and transmission assets that support SRPs acquisition of the Unit 1 Interests and Unit 2 Interest. PNM will also transfer certain common facility assets associated with these interests that are not subject to the lease arrangements.

The information in this Application demonstrates: (1) SRP will continue to have the requisite managerial, technical, and financial qualifications to continue its role as a PVNGS licensee; (2) SRP and PNM will continue to provide reasonable assurance of funding for decommissioning PVNGS; (3) the terms of the PVNGS licenses will not be affected; and (4) SRP is not subject to any foreign ownership, control or domination (FOCD). In summary, the proposed Transfers will not be inimical to the common defense and security or result in any undue risk to public health and safety, and the

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 8 of 15 Transfers will be consistent with the requirements of the Atomic Energy Act and the NRC regulations.

3. General Corporate Information Regarding SRP

a. General Corporate Information and Description of Business In accordance with the requirements of 10 CFR 50.33(d)(3), general corporate information regarding SRP is provided in Attachment 1.

b. No Foreign Ownership, Control or Domination SRP is controlled by eligible voters within its district, the overwhelming majority of whom are citizens of the State of Arizona. Moreover, SRP is a political subdivision of the State of Arizona. As such, SRP is clearly under U.S. control. It is not subject to any foreign ownership, control of domination. All of the members of its Board, its Officers and its Executive managers are U.S. citizens.

c. No Agency As the licensed entity with possession and responsibility for operating PVNGS, APS will continue to act for itself and the other PVNGS co-owners. Neither APS nor SRP is acting as the agent or representative of any other person in the proposed transfers of the licenses.

4. Technical Qualifications APS will continue to be the entity licensed to operate PVNGS, and its technical qualifications will be entirely unaffected by the proposed license transfers.

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 9 of 15

5. Financial Qualifications Under 10 CFR 50.80(b)(1)(i), an application for a license transfer must contain all the requested information related to financial qualifications as required by 10 CFR 50.33. Thus, Applicants provide the following financial information.

a.

Financial Qualifications under 10 CFR 50.33(f)

An electric utility as defined in 10 CFR 50.2 is exempted from the requirement to submit financial qualifications information under 10 CFR 50.33(f). An electric utility is any entity that generates or distributes electricity and which recovers the cost of this electricity, either directly or indirectly, through rates established by the entity itself or by a separate regulatory authority. The transferee, SRP, is an electric utility as defined in 10 CFR 50.2, because it recovers the cost of electricity through rates established by its Board, and it will continue to do so following the proposed license transfers. As such, the presumption that SRP is financially qualified remains unchanged, and SRP continues to be exempt from the financial qualifications information requirements pursuant to 10 CFR 50.33(f) and in accordance with Section III.1.b of NUREG-1577, Rev. 1. Given this presumption of financial qualification, the NRC should conclude that there is reasonable assurance that SRP will meet its obligations to provide funding for the Unit 1 Interests and Unit 2 Interest in PVNGS.

b.

Financial Assurance for Decommissioning PNM has collected funds from its ratepayers for decommissioning its original 10.2% interests in PVNGS Units 1 and 2 (including license termination costs contemplated by 10 CFR 50.75). These funds are held in PNMs nuclear

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 10 of 15 decommissioning trust funds (NDTs) for these units. PNM intends to continue to maintain its current NDTs for the full 10.2% interests in PVNGS Units 1, 2 and 3 for which it has been historically responsible. Along with retaining the NDTs, PNM is still retaining its 10.2% share of liability and regulatory responsibility for the decommissioning costs for PVNGS Units 1, 2 and 3, including costs for decommissioning the Unit 1 Interests and the Unit 2 Interest.

Because decommissioning funding and responsibility is not changing between PNM and SRP despite the change in ownership, SRP and PNM have agreed to execute a Decommissioning Agreement, which documents PNMs obligations to SRP regarding paying the costs of decommissioning associated with the Unit 1 Interests and Unit 2 Interest, including certain spent fuel management costs during decommissioning and certain costs of decommissioning the PVNGS independent spent fuel storage installation once all spent fuel has been removed from the PVNGS site. A copy of this agreement in a form agreed to by PNM and SRP is provided as Attachment 2.

Section 3.1 of the Decommissioning Agreement specifically makes clear that PNM will retain all liability for paying the Decommissioning Costs associated with the Unit 1 Interests and Unit 2 Interest, including PVNGS, any common facilities, the ISFSI, and NRC-Licensed Site, regardless of the change in ownership.

PNMs and SRPs NDT balances as of December 31, 2020, were reported in APSs biennial Consolidated Decommissioning Funding Status Report - 2020 dated March 26, 2021 (ADAMS Accession No. ML21085A877). That report demonstrates that both PNM and SRP satisfy the prepayment method of providing reasonable assurance

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 11 of 15 of decommissioning funding as set forth in 10 CFR 50.75(e)(1)(i) and 10 CFR 72.30(e)(1) for their ownership interests in PVNGS. No material changes have occurred to the balances of the PNM and SRP NDTs since that report. In addition, PNMs and SRPs ongoing compliance with the decommissioning funding assurance requirements will continue to be subject to NRC review.

6. Restricted Data This Application does not contain any Restricted Data or other classified National Security Information, and it is not expected that any such information will become involved in the licensed activities of SRP. However, in the event that such information does become involved, and in accordance with Section 145(a) of the Atomic Energy Act and 10 CFR 50.37, Agreement Limiting Access to Classified Information, SRP agrees that it will appropriately safeguard such information and will not permit any individual to have access to such information until the individual has been appropriately approved for such access under the provisions of 10 CFR Part 25, Access Authorization, and/or Part 95, Facility Security Clearance and Safeguarding of National Security Information and Restricted Data.

7. Other Nuclear Regulatory Issues

a. Price-Anderson Indemnity and Nuclear Insurance The NRCs Price-Anderson indemnity agreement for PVNGS includes SRP. The licensees for PVNGS will continue to maintain offsite nuclear liability coverage and onsite property damage insurance coverage, in accordance with the requirements of

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 12 of 15 10 CFR 50.54(w) and 10 CFR 140.11. The annual filings required by 10 CFR 50.54(w)(3) and 10 CFR 140.21 will continue to be made.

b. Standard Contract for Disposal of Spent Nuclear Fuel APS maintains and will continue to maintain the Standard Contract for Disposal of Spent Nuclear Fuel and/or High-Level Waste with the Department of Energy (DOE), Contract No. DE-CR01-84RW00005, for the disposal of spent nuclear fuel to be performed by the DOE (Standard Contract), including all rights and obligations under that contract for all of the PVNGS owners. PNM will remain responsible for paying the costs of managing spent nuclear fuel associated with its ownership of the Unit 1 Interests and Unit 2 Interest prior to the proposed Transfers. SRP will assume responsibility for paying the costs of managing spent nuclear fuel associated with its ownership of the Unit 1 Interests and Unit 2 Interest following the proposed Transfers.

c. Exclusion Area Control The proposed license transfers have no impact upon the authority of APS with respect to the PVNGS exclusion area. APS will continue to have the required authority, continue to meet its obligations, and continue to comply with all requirements relating to its exclusion area, entirely unaffected by the proposed license transfers.

d. QA Program The QA Program for PVNGS will not be affected by the proposed transfers of control of licenses. No changes to the QA Program are expected in connection with the proposed Transfers, and any changes that do occur in the ordinary course of business will be made in accordance with 10 CFR 50.54(a).

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 13 of 15

e. Continuation of the Current Licensing Basis The proposed Transfers will have no impact on the licensing basis for PVNGS.

8. Requested Review Schedule and Other Required Approvals The Applicants respectfully request that the NRC review and complete action expeditiously on the enclosed Application. The Applicants are prepared to work closely with the NRC Staff to facilitate the review of the Application. The Applicants request that the NRC issue an Order by October 30, 2021 authorizing the Transfers to take place at any time from the date of issuance until March 1, 2024 (after the expiration of the last lease). The Applicants recognize that NRCs recent practice has been to limit an applicants time for action on approvals to one year, unless extended for good cause shown. The NRC uses this limitation to avoid requests for approval for speculative transactions and because of the time dependence of information relied on in the agencys basis for granting the approval. In this case, neither concern is present. The closing of the transactions contemplated by the ISAs in 2021 is conditioned upon the Applicants receipt of NRC consent for the transfer of control of the Unit 1 and Unit 2 interests at the expiration of the leases. SRPs right to acquire the Unit 1 Interests and Unit 2 Interest at lease end attaches as soon as it acquires the lessors interests. SRP cannot take the risk of closing the initial transactions under the ISAs without having NRC-approval for ownership at lease ends because doing so puts SRP at risk of being an unlicensed owner at the end of the term of the leases. Additionally, both PNM and SRP are, and will remain, qualified for their respective financial and decommissioning obligations by their status as electric utilities as defined in 10 CFR 50.2. The time

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 14 of 15 period requested coincides with expiration of the leases and provides for an orderly, predictable unwinding of the subject leases. The proposed transaction requires regulatory filings with the New Mexico Public Regulation Commission. The parties to the proposed transaction are seeking to obtain these regulatory approvals as soon as possible so that they can consummate the proposed initial closing of the transaction as early as possible in 2021. The Applicants will keep the NRC apprised of any changes to the New Mexico Public Regulation Commissions review schedule.

9. Environmental Considerations This Application is exempt from environmental review, because it falls within the categorical exclusion appearing at 10 CFR 51.22(c)(21), Approvals of direct or indirect transfers of any license issued by NRC and any associated amendments required to reflect the approval of a direct or indirect transfer of an NRC license, for which neither an Environmental Assessment nor an Environmental Impact Statement is required.

10. Summary In summary, the proposed license transfers will be consistent with the requirements of the Atomic Energy Act and NRC regulations. The ongoing operation of PVNGS will be unaffected by the proposed Transfers of control, so there will be no adverse impact on public health and safety. APS is technically qualified and will remain technically qualified without regard to the license transfers. The proposed Transfers also will not impact the financial status of either PNM or SRP, and both PNM and SRP will remain financially qualified. The Transfers of PNMs licenses for the Unit 1 Interests and Unit 2 Interest to SRP will not be inimical to the common defense and security and

Enclosure 1 Application for Order Approving Transfers of Control of Licenses for Minority Interests Subject to Expiring Leases Page 15 of 15 will not involve foreign ownership, control or domination. The Applicants therefore request that the NRC consent to the license transfers in accordance with 10 CFR 50.80 and 72.50.

ATTACHMENT 1 GENERAL CORPORATE INFORMATION REGARDING SRP NAME:

Salt River Project Agricultural Improvement and Power District STATE OF FORMATION:

Arizona BUSINESS ADDRESS:

1500 N. Mill Ave., Tempe, AZ 85281 BOARD OF DIRECTORS:

Kevin J. Johnson Paul E. Rovey Mario J. Herrera Leslie C. Williams Stephen H. Williams Jack M. White Jr.

Keith B. Woods Deborah S. Hendrickson Robert C. Arnett Mark V. Pace Anda G. McAfee Corey J. Hawkey Nicholas R. Brown Randy J. Miller OFFICERS:

David Rousseau, President John Hoopes, Vice President John Felty, Corporate Secretary Brian Koch, Corporate Treasurer Mike Hummel, General Manager & Chief Executive Officer

ATTACHMENT 2 DECOMMISSIONING AGREEMENT BY AND BETWEEN SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT and PUBLIC SERVICE COMPANY OF NEW MEXICO Dated as of [ ], 2021 DECOMMISSIONING AGREEMENT BY AND BETWEEN SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT and PUBLIC SERVICE COMPANY OF NEW MEXICO Dated as of

, 2021 i

TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS; INTERPRETATION; EFFECTIVENESS.................................. 2 1.1 Definitions.............................................................................................................. 2 1.2 Certain Interpretive Matters................................................................................. 10 1.3 Effectiveness; Survival........................................................................................ 11 ARTICLE 2 REPRESENTATIONS AND WARRANTIES.................................................... 11 2.1 SRP Representations and Warranties................................................................... 11 2.2 PNM Representations and Warranties................................................................. 12 ARTICLE 3 PNMS OBLIGATIONS AND RESPONSIBILITIES........................................ 13 3.1 Decommissioning Liabilities............................................................................... 13 3.2 Delayed O&M Costs for Delayed O&M Spent Fuel Activities.......................... 13 3.3 Payment of Spent Nuclear Fuel O&M Costs....................................................... 14 3.4 Delayed O&M Costs for Delayed O&M Environmental Activities.................... 14 3.5 Environmental Liabilities Occurring During Decommissioning......................... 14 3.6 Previously Unidentified Environmental Liabilities............................................. 14 3.7 Disputes as to Date of Occurrence of Previously Unidentified Environmental Liabilities..................................................................................... 15 3.8 Unanticipated Material Liability.......................................................................... 16 3.9 NDTs.................................................................................................................... 16 3.10 Payments.............................................................................................................. 16 3.11 ANPP Participation Agreement........................................................................... 17 3.12 Lease Participation Agreements.......................................................................... 17 3.13 ANPP High Voltage Switchyard......................................................................... 17 3.14 Indemnification.................................................................................................... 17 3.15 Illustrative Examples........................................................................................... 18 ARTICLE 4 MISCELLANEOUS PROVISIONS.................................................................... 18 4.1 Term..................................................................................................................... 18 4.2 Amendment and Modification............................................................................. 18 4.3 Waiver of Compliance; Consents........................................................................ 18 4.4 Assignment.......................................................................................................... 18 ii TABLE OF CONTENTS Page 4.5 Third Party Beneficiaries..................................................................................... 18 4.6 Governing Law.................................................................................................... 18 4.7 Entire Agreement................................................................................................. 18 4.8 No Joint Venture.................................................................................................. 19 4.9 Change in Law..................................................................................................... 19 4.10 Severability.......................................................................................................... 19 4.11 Counterparts......................................................................................................... 19 4.12 LIMITATION ON CONSEQUENTIAL DAMAGES........................................ 19 Attachment A - Examples of the Allocation of Costs for Decommissioning Costs and Delayed O&M Costs for Delayed O&M Environmental Activities Attachment B - Schedule of NDT Administrative Expenses Paid by Public Service Company of New Mexico from 2016-2020 1

DECOMMISSIONING AGREEMENT Agreement into by and between SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND an agricultural improvement district organized and existing under and by SRP PNM).

SRP and Party Parties.

RECITALS spective meanings specified below);

pursuant to which the ownership is held in trus PVNGS);

Lease Documents 2;

ISAs) with the current owners of the beneficial ownership interests leased to PNM that are held in trust and Leased Interests beneficia leased pursuant to the Lease Documents applicable to such Unit; purs more fully specified in the APSA; direct ownership of the Unit 2 Interests upon the expiration of the terms of the applicable lease specified in the Lease Documents and the APSA; 2

been set aside to provide 1 Interests and/or to the Unit 2 Interests; and the Unit 1 Interests and/or to the Unit APSA and the ISAs; and PNM agree as follows:

ARTICLE 1 DEFINITIONS; INTERPRETATION; EFFECTIVENESS 1.1 Definitions.

1.1.1 the meanings specified in this Section 1.1.1.

Agreement has the meaning defined in the Preamble.

Atomic Energy Act means the Atomic Energy Act of Section ANPP means the Arizona Nuclear Power Project which comprises the three PVNGS Units and associated common facilities and which is governed by the ANPP Participation Agreement.

ANPP High Voltage Switchyard means the Arizona Nuclear Power Project High Voltage Switchyard located on the NRC-Licensed Site as more fully specified in the ANPP High Hassayampa Switchyard operated under a common bus arrangement with the on-site ANPP High Voltage Switchyard.

ANPP Participation Agreement includes Amendment Nos. 1-16.

APSA and between SRP and PNM.

Byproduct Material yield 3

or utilizing Special Nuclear Material. Byproduct Material does not include Special Nuclear Material or Source Material.

Commercially Reasonable Efforts means efforts by a reasonable Person in the position liabilities other than expenditures and liabilities which are customary and in nature for parties to the ANPP Participation Agreement in allocating responsibilities under the ANPP Participation Agreement.

Decommission Decommissioning means:

-Licensed Site to a level that permits the release of all or any specified portion of the NRC-Licensed Site consistent with the radiological criteria for license termination specified by the NRC in 10 C.F.R. § 20.1402 for unrestricted use; storage of PVNGS and the NRC-Licensed Site in compliance with all applicable Nuclear Laws ents of the Atomic Energy Act and restoration of the NRC-Licensed Site in accordance with applicable Laws; all other activities necessary to complete the Remediation of all Environmental Liabilities at the NRC-Licensed Site; Nuclear Fuel and HLW from the ISFSI and the PVNGS Site; and any planning and administration activities incidental thereto; provided however Decommissioning Cost Study means a site-specific decommissioning cost study for the the basis for the most current decommissioning cost estimate submitted to the NRC.

Decommissioning Costs means the costs and expenditures incurred for goods and connection with the Decommissioning of PVNGS and the NRC-4 incurred for the operation and maint the removal of all of the Spent Nuclear Fuel and HLW from the ISFSI and the NRC-Licensed Decommissioning Costs includes all costs identified in the most recent Decommissioning Cost Delayed O&M Costs means the costs and expenditures that would have been paid or accrued prior to Decommissioning for goods and services in connection with Delayed O&M Environmental Activities and Delayed O&M Spent Fuel Activities.

Delayed O&M Environmental Activities means the activities related to the any Environmental Liability at the NRC-Licensed Site that first presented itself and arose during the Interim Period and for which Remediation was delayed by the parties to the ANPP Participation Agreement until after the permanent cessation of operations of the previously unidentified Environmental Liabilities discovered during Decommissioning to have occurred during the Interim Period.

Delayed O&M Spent Fuel Activities means any activities for management of Spent necessary during the normal operation of PVNGS on an on-going basis if DOE were performing its obligations under the Standard Contract for Disposal of Spent Nuclear Fuel and/or High-been delayed until such time as DOE is ready to accept shipments and the costs of which should have been paid or accrued on an on-Participation Agreement until after the permanent cessation of operations of the PVNGS.

Department of Energy DOE means the United States Department of Energy and any successor agency thereto.

Environment Environmental Laws Laws relating to Releases 5

-to-d the Arizona Laws governing hazardous materials and solid waste.

Environmental Liabilities Substances from the failure of PVNGS to be in compliance with any Environmental Laws.

FERC means the United States Federal Energy Regulatory Commission or any successor agency thereto.

Fuel Payment Amount has the meaning as defined in the APSA. The Parties agree Schedule Fuel Supply Costs has the meaning as defined in the Schedule Final Closing on January 2024.

Generation Entitlement Share has the meaning set forth in the ANPP Participation provided that listed in the ANPP Participation Agreement for each Parties Generation Entitlement Share shall Governmental Authority general oversight over t Governmental Authority shall nonetheless be excluded from the definition of Governmental Authority in circumstances in which such Body is acting in its capacity as a contracting party to a contract.

Governmental Order l Authority acting in its capacity as a contracting party to a contract.

Greater Than Class C Waste means radioactive waste that contains radionuclide concentrations exceeding the values in Table 1 or Table 2 of 10 6

curren waste disposal facilities.

Hazardous Substances condition or poses a hazard to human health and safety or the Environment and including asbestos-except that Nuclear Material.

High Level Waste HLW the highly radioactive material resulting from aste produced directly in reprocessing Independent Environmental Liabilities Classification has the meaning set forth in Section 3.7.1.

Independent Environmental Liabilities Expert has the meaning set forth in Section 3.7.1.

Independent Environmental Liabilities Expert Panel has the meaning set forth in Section 3.7.1.

Interim Period means the period of time after the Second Closing under the APSA with respect to Unit 1 and after Final Closing under the APSA with respect to Unit 2 until permanent cessation of operations of PVNGS and the beginning of Decommissioning.

ISA has the meaning defined in the Recitals.

ISFSI means the dry spent fuel storage installation on the NRC-Licensed Site where the Spent Nuclear Fuel and HLW from PVNGS is located and stor storage canisters that will be shipped together with the Spent Nuclear Fuel and the HLW when it is removed from the ISFSI and the NRC-Licensed Site.

Law Laws Laws.

Lease Documents has the meaning defined in the Recitals.

7 Lease Participation Agreements means FUNDING CORPORATION Trust No. 1);

ecember Trust No. 3);

OF

1)

Trust No. 4);

Trust No. 11); and Trust No. 12).

The beneficial ownership interests governed by these Participation Agreements are currently owned by Chase Manhattan Realty Leasing Corpor No. 11 and Trust No.

National Association.

Leased Interest has the meaning defined in the Recitals.

Liability Liabilities 8

Low Level Waste is neither Spent Nuclear Fuel nor and in accordance with clause

-level radioactive waste.

NDTs means the Unit the U.S. Internal Revenue Code Section 468A and Treas. Reg. § 1.468A-5 and the Unit 1 and Unit 2 non-PVNGS and the NRC-Mexico Master Decommissioning Trust Agreement for the Palo Verde Nuclear Generating NMPRC means the New Mexico Public Regulation Commission and any successor agency thereto.

NRC means the United States Nuclear Regulatory Commission and any successor agency thereto.

NRC Commitments means all written regulatory commitments made to the NRC.

NRC Licenses means the NRC Renewed Operating License Nos. NPF-NPF-74 for PVNGS and the NRC-NRC-Licensed Site means all of the real property subject to the NRC Licenses. Any reference to the NRC-

-Licensed Site and any

-Licensed S

-Licensed Site.

Nuclear Laws d Special Nuclear 10 C.F.R. 2.4); the enrichment of uranium; the disposal and storage of Spent Nuclear Fuel; contracts for and payments into the Nuclear Waste Fund; and the antitrust Laws and the Federal proposed activities of certain licensees of commercial nuclear reactors. Nuclear Laws include the Atomic Energy Act; the Price-U.S.C. Section Implementation Act of

-351; 96 Stat. 1663); the Foreign Assistance Act of Section 3201); the Low-

-Level C.F.R. Section Nuclear Material 9

Nuclear Waste Fund means the separate fund established in the Treasury of the United Operating Agent as such pursuant to the ANPP Participation Agreement.

Party Parties has the meaning defined in the Preamble.

Permits Governmental Authority in connection with the Decommissioning.

Person PNM means Public Service Company of New Mexico.

PVNGS has the meaning defined in the Recitals.

Release containing Hazardous Substances or Nuclear Materials) into the Environment or within any provided however release to the extent permissible under applicable Environmental Laws or the NRC Licenses.

Remediation those terms are defined in 42 U.S.C. § any corrective action as that term has been construed pursuant to 42 U.S.C. § Hazardous Substances in Nuclear Material.

Second Closing has the meaning as defined in the APSA and is anticipated t place on January Source Material ores which contain by weight one-twentieth of one percent any combination thereof. Source Material does not include Special Nuclear Material or Byproduct Material.

Special Nuclear Material isotope-233 or in the isotope-any material artificially enriched by any of the materials or isotopes provided however uclear Material does not include Source Material.

10 Spent Nuclear Fuel means nuclear fuel that has been used to the extent it can no longer and has not been chemically separated into its constituent elements by located at the ISFSI; or any other location other than PVNGS but where the parties to the ANPP Participation Agreement retain responsibility for the costs of managing such Spent Nuclear Fuel.

SRP means the Salt River Project Agricultural Improvement and Power District.

Termination Obligation means obligations in respect of decommissioning and removing fro Agreement.

Unit means Unit 1 or Unit 2 as applicable.

Unit 1 1 at PVNGS. Unit 1 is the generating unit that is licensed to be operated by the Operating Agent pursuant to the Unit 1 License.

Unit 1 Interests Trust No.

4 and Trust No.

f the leased pursuant to the Lease Documents applicable to Unit 1.

Unit 2 2 at PVNGS. Unit 2 is the generating unit that is licensed to be operated by the Operating Agent pursuant to the Unit 2 License.

Unit 2 Interests No.

associated common facilities to the extent leased pursuant to the Lease Documents applicable to Unit 2.

1.2 Certain Interpretive Matters.

1.2.1 The singular shall reference occurs.

Agreement as a whole and not to any particular section or s 11 All references to a particular entity shall include such entitys permitted successors and permitted assigns unless otherwise specifically provided herein.

All references herein to any Law or to any contract or other emented or modified from time to time unless otherwise specifically provided herein.

1.2.2 The table of contents and the titles or headings of the Articles and Sections hereof and Attachments hereto have been inserted as a matter of convenience of reference only and shall not control or affect the meaning or construction of any of the terms or provisions hereof.

1.2.3 This Agreement was negotiated and prepared by the Parties with advice of counsel to the extent deemed necessary by each Party; the Parties have agreed to the wording of this Agreement; and none of the provisions hereof shall be construed against one Party on the ground that such Party is the author of this Agreement or any part hereof.

1.3 Effectiveness; Survival. This Agreement shall be effective as of the date hereof.

The representations and warranties of the Parties set forth in this Agreement and the other provisions hereof shall be in effect and shall survive during the term of this Agreement.

ARTICLE 2 REPRESENTATIONS AND WARRANTIES.

2.1 SRP Representations and Warranties.

2.1.1 Organization; Qualification. SRP is an agricultural improvement district organized and validly existing under and by virtue of the laws of the State of Arizona. SRP has operties and to carry on its business as it is now being conducted. SRP is and at all times during the terms of this 2.1.2 Authority Relative to this Agreement. SRP has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement has been duly and validly authorized by all necessary corporate proceedings on the part of SRP are necessary to authorize this Agreement or to perform its obligations hereunder. This Agreement constitutes the valid and Laws of principles.

12 2.1.3 No Violation. Neither the execution and delivery of this Agreement by conflict with or result in any breach of any provision of the Order of the Maricopa County Board of Supervisors dated under any of t violate in any material respect any Laws applicable to SRP.

2.2 PNM Representations and Warranties. PNM represents and warrants to SRP as follows:

2.2.1 Organization; Qualification. PNM is a corporation validly existing and in properties and to carry on its business as is to PVNGS as curr 2.2.2 Authority Relative to this Agreement. PNM has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement has been duly and validly authorized by all necessary PNM are necessary to authorize this Agreement or to perform its obligations hereunder. This st PNM in accordance with its similar Laws of general applicability relating to or affecting creditors rights and to general 2.2.3 No Violation. Neither the execution and delivery of this Agreement by conflict with or result in any breach of any provision of the Articles of Incorporation or By-c) violate in any material respect any Laws applicable to PNM.

2.2.4

. PNM has not received any written any of the material Permits 13 any Law applicable to PVNGS or activities at PVNGS. PNM is in compliance in all material respects with all such Permits and Laws applicable to PVNGS or activities at PVNGS.

2.2.5 NDTs.

Deco March the NDTs are in compliance in all material respects with hority.

ARTICLE 3 PNMS OBLIGATIONS AND RESPONSIBILITIES 3.1 Decommissioning Liabilities. Notwithstanding anything to the contrary in any Agreement regarding the obligation to pay Decommissioning Costs for its Generation Entitlement Share after the Second Closing and the Final Closing with respect to Unit 1 and Unit associated with the Unit 1 Interes the Unit 1 Interests and the Unit 2 Interests. This liability includes all Decommissioning Costs the NRC-Interests. SRP is not obligated under any circumstances to contribute to the NDTs or otherwise contribute to the payment for any Decommissioning Costs associated with the Unit 1 Interests or associated with the Unit 2 Interests.

3.2 Delayed O&M Costs for Delayed O&M Spent Fuel Activities. PNM and SRP agree that responsibility for Delayed O&M Costs for Delayed O&M Spent Fuel Activities for Spent Nuclear Fuel burned at and discharged from Unit 1 and Unit 2 shall continue to be the responsibility of PNM and SRP in proportion to the Generation Entitlement Shares of SRP and PNM as of the date of discharge of the Spent Nuclear Fuel and that amounts reimbursed by DOE for such costs and expenditures shall be allocated based on the Generation Entitlement Shares of SRP and PNM as of the date of discharge.

3.2.1 For purposes of allocating Delayed O&M Costs for Delayed O&M Spent Fuel Activities for Spent Nuclear Fuel in the reactor vessel for Unit 1 at the time of the Second Closing and in the reactor vessel for Unit of any amounts from was loaded into the reactor.

Efforts to attach the final Fuel Payment Amount and Fuel Supply Costs to this Agreement when such amounts are finally determined pursuant to the APSA.

14 3.2.2 Unless otherwise participants to the ANPP Participation Agreement shall be binding on the Parties as to whether a particular spent fuel management activity would have been necessary during the normal operation of PVNGS on an on-going basis if DOE were performing its obligations under the Standard Contract for Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste and therefore is a Delayed O&M Spent Fuel Activity.

3.3 Payment of Spent Nuclear Fuel O&M Costs. SRP and PNM will be responsible to the Operating Agent under the ANPP Participation Agreement for payment of costs for Delayed O&M Costs for Delayed Spent Fuel ent Nuclear Fuel into a DOE-supplied neration Entitlement Shares of each of SRP and PNM at payments to the Operating Agent as those costs are charged based on Generation Entitlement Shares and will be en cooperate using Commercially Reasonable Efforts to arrange for the Operating Agent to adjust 3.4 Delayed O&M Costs for Delayed O&M Environmental Activities.

3.4.1 If an Environmental Liability with respect to Unit 1 or Unit 2 occurs during the Interim Period and the Remediation of such liability is fully completed by the participants to the ANPP Participation Ag shall neither be Delayed O&M Environmental Activities nor a part of Decommissioning.

3.4.2 SRP shall be responsible for paying the Delayed O&M Costs for such Delayed O&M Environmental Activities for the transferred Generation Entitlement Share as if the resolution of such Environmental Liability was fully completed by the participants to the ANPP Participation Agreement during the Interim Period. SRP will pay the Operating Agent under the ANPP Participation Agreement directly for such Delayed O&M Costs for the resolution of such Delayed O&M Environmental Activities as if the Delayed O&M Environmental Activity were fully addressed by the current ownership during the Interim Period.

The Parties shall cooperat Agent to adjust invoicing for the costs for the Remediation of Environmental Liabilities that are subject to Section 3.4.2 3.5 Environmental Liabilities Occurring During Decommissioning. If an Environmental Liability occurs during the Decommissioning of PVNGS or arises as a direct Environmental Liability as a Decommissioning Cost.

3.6 Previously Unidentified Environmental Liabilities. If a previously unidentified Environmental Liability is discovere then SRP and PNM will use Commercially Reasonable Efforts to collaborate to determine the 15 3.6.1 If the occurrence date of such Environmental Liability is determined to Environmental Liability shall be as set forth in Section 3.4.

3.6.2 If the occurrence date of such Environmental Liability is determined to Environmental Liability shall be as set forth in Section 3.5.

3.7 Disputes as to Date of Occurrence of Previously Unidentified Environmental Liabilities with the Operating Agent determine the occurrence date of a previously unidentified Environmental Liability within forty-hen:

3.7.1 Independent Environmental Liabilities Expert) to complete an assessment to determine the occurrence date of the Environmental Liability Independent Environmental Liabilities Classification). Should the Parties be unable to agree Independent Environmental Liabilities Expert and such two Independent Environmental Independent Environmental Liabilities Expert Panel).

3.7.2 iness Days after the selection of the Independent Environmental Liabilities Expert or the determination of Independent Environmental Liabilities grounds and documents with respect to the occurrence date of any such previously unidentified Environmental Liability.

3.7.3 The Independent Environmental Liabilities Expert or Independent mination on Environmental Liabilities Classification to the Independent Environmental Liabilities Expert or Independent Environmental Liabilities Expert or Independent Environmental Liabilities Expert o be agreed to by the Parties and shall become final and at the time of such determination).

3.7.4 Any fees or expenses charged by the Independent Environmental Li connection with the resolution of any such Independent Environmental Liabilities Classification 16 3.7.5 By mutual of the Independent Environmental Liabilities Expert or Independent Environmental Liabilities Classification by notifying the Independent Environmental Liabilities Expert or Independent 3.7.6 For purposes of any determination as of the occurrence date for any previously unidentified Environmental Liability under this Section 3.7 h liability is a Decommissioning liability and that PNM shall have responsibility for such Decommissioning Costs in accordance with Section 3.5.

3.7.7 If a determination is not made by the Parties or the Independent Section 3.7 NM and provided herein.

3.8 Unanticipated Material Liability. In the event of a material Liability arising from an event or circumstance with respect to Delayed O&M Spent Fuel Activities or Delayed O&M onfer with respect to the allocation of responsibility for such Delayed O&M Costs and whether any adjustment to the method of funding provided in this Agreement.

3.9 NDTs.

3.9.1 maintain NDTs for the Unit 1 Interests and Unit 2 Interests that are in compliance with the es 3.9.2 provide for the payment of Decommissioning Costs associated with the Unit 1 Interests and Unit interests in Unit 1 and Unit PNM in the NDTs for both its interests in PVNGS and the Unit 1 Interests and Unit 2 Interests ement.

3.10 Payments Decommissioning Costs attributable to the Unit 1 Interests or the Unit 2 Interests in accordance 17 with the terms of the ANPP Participation Agreement. Such Payments may be made by directing that the payments be made from the NDTs.

3.11 ANPP Participation Agreement notwithstanding termination of the Leased Interest or anything in the ANPP Participation PNM will retain and perform and discharge the Termination Obligations otherwise allocable or chargeable to the Leased Interests. This Agreement is intended to address only Termination Obligations re nothing in this Agreement to alter in any manner the obligations and liabilities of SRP in respect of decommissioning and removal from service of a PVNGS generating unit to the extent that such obligations and liabilities relate to interests in such PVNGS generating unit that are not Leased Interests. The Parties agree to cooperate and use all Commercially Reasonable Efforts to have the ANPP Participation Agreement reflect the allocation of Termination Obligations set forth in this Agreement.

3.12 Lease Participation Agreements. Upon consummation of the closings under the beneficial owner and owner participant in respect of the Trust No.

Trust No. 11 and Trust No.

Association in its respective capacities as owner trustee in relation to Trust No.

Trust No. 4 and Trust No.

respective capacities as owner trustee in relation to Trust No.

terms of this Agreement supersede and act in lieu to any other Lease Document).

3.13 ANPP High Voltage Switchyard. SRP and PNM agree that the dismantlement ge Switchyard are matters addressed in the ANPP High Voltage Switchyard Participation Agreement and shall be determined and resolved without regard to the provisions of this Agreement. Nothing in this ANPP High Voltage Switchyard Agreement.

3.14 Indemnification ds associated with the pro rata to the Unit 1 Interests and/or to the Unit 2 Interests.

18 3.15 Illustrative Examples. Attachment A provides illustrative examples with respect to the Parties obligations with respect to Decommissioning Costs and Delayed O&M Costs related to Delayed O&M Environmental Activities.

ARTICLE 4 MISCELLANEOUS PROVISIONS 4.1 Term. This Agreement shall remain in full force and effect until the

-Licensed Site is complete in compliance with all applicable Nuclear Laws and Environmental Laws. In no event shall this Agreement terminate before the NRC terminates the NRC Licenses and releases the NRC-Licensed Site for unrestricted use.

4.2 Amendment and Modification ted only by written agreement of PNM and SRP.

4.3 Waiver of Compliance; Consents. Except as otherwise provided in this or condition herein may be waived by the Party entitled to the benefits thereof only by a written failure to comply therewith.

4.4 Assignment. This Agreement and all of the provisions hereof shall be binding but no Party may assign this Agreement or its rig foregoing sentence shall be null and void and without legal effect on the rights and obligations of the Parties.

4.5 Third Party Beneficiaries hereunder.

4.6 Governing Law. This Agreement shall be governed by and construed in remedies.

4.7 Entire Agreement agreement and understanding of the Parties in respect of the transactions contemplated by this Agreement and shall supersede all 19 4.8 No Joint Venture. Nothing in this Agreement creates or is intended to create an respect representative of any other Party.

4.9 Change in Law. If and to the extent that any Laws or regulations that govern any aspect of this Agreement shal changing the overall benefits or consideration expected hereunder by any Party.

4.10 Severability. Any term or provision of this Agreement that is held invalid or unenforceable in any situation shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation; provided however Agreement may be enforced only to the extent that such enforcement in the absence of any deprivation of a Party of a material aspect of e result.

4.11 Counterparts same instrument.

4.12 LIMITATION ON CONSEQUENTIAL DAMAGES. NOTWITHSTANDING CLAIMING THROUGH THEM OR UNDER THIS AGREEMENT) PURSUANT TO THIS RELATED TO THE SUBJECT WHETHER

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respective duly authorized officers as of the date first written above.

SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT:

By:

Name:

Title:

PUBLIC SERVICE COMPANY OF NEW MEXICO COMPANY:

By:

Name:

Title:

1 Attachment A Examples of the Allocation of Costs for Decommissioning Costs and Delayed O&M Costs for Delayed O&M Environmental Activities The values set forth below are intended to be used for illustrative purposes only.

1.

disposal of the replaced steam generators. The cost to dispose of the removed steam generators at the time of Decommissioning is $5 million. The cost to dispose of the two operating Unit 1 steam generators at the time of Decommissioning is $8 million.

Cost allocation at time of Decommissioning:

1 of $8 million = $0.816 million 2 of $8 million = $1.399 million 3.4.2)) of $5 million

= $1.271 million

2.

replacements for the existing steam generators. The two removed steam generators are participants as Unit 1 O&M costs. The cost to dispose of the two operating Unit 1 steam generators at the time of Decommissioning is $8 million.

During Decommissioning:

During the Interim Period:

3.4.2)) of $5 million

= 1.271 million 1

Section references are to the Decommissioning Agreement.

2 Throughout this Attachment A (other than Example 4), ANPP PA refers to the ANPP Participation Agreement and the allocation of costs pursuant to Generation Entitlement Share.

2

3.

-radiological material associated with Unit 1 is discovered. It allocated to the Interim Period. The cost of Remediation is $100 million.

million

$19.870 million

4.

-radiological mage is The cost of Remediation is $100 million.

3 llion x

5. Unit 1 experiences an accident during the Interim Period. The plant permanently ceases ng Agent commences Remediation and Decommissioning activities. The cost of Remediation due to the accident is $500 million. The remaining Decommissioning Cost is $853.384 million.

SRP 3

References to ANPP PA in Example 4 refer to site common ownership share.

1 Attachment B Schedule of NDT Administrative Expenses Paid by Public Service Company of New Mexico from 2016-2020