December 7, 2005

Antonio R. Villaraigosa, Mayor City of Honorable Members of the Board of Harbor Commissioners City Council of the City of Los Angeles CD No. 15 S. David Freeman President SUBJECT: SECOND AMENDMENT TO AGREEMENT NO. 1989 BElWEEN Jerilyn Lopez Mendoza V1ce President THE CITY OF LOS ANGELES AND PACIFIC HARBOR LINES

Kaylynn L. Kim Transmitted herewith, pursuant to Section 606 of the City Charter, is a

Douglas P. Krause copy of Order No. 6830, which was adopted by the Board of Harbor Commissioners at its meeting held Wednesday, August 31, 2005. Joseph R. Radisich RECOMMENDATION:

Bruce E. Seaton The City Council approve Board of Harbor Commissioners Order No. 6830, Interim Executive Director approving and authorizing the Second Amendment to Agreement No. 1989 (assigned Harbor Department Agreement No. 1989-B), between the City of Los Angeles and Pacific Harbor Lines, and return to the Board of Harbor Commissioners for further processing. ENVIRONMENTAL REVIEW: The Director of Environmental Management has determined that the proposed action is exempt from the requirements of the California Environmental Quality Act (CEQA) in accordance with Article II, Section 425 S. Palos Verdes Street 2(f) of the Los Angeles City CEQA Guidelines. Financial Impact: Posl Office Box 151 A transfer from the Unappropriated Balance to Account 59965, Center

San Pedro, CA 90733-0151 0330, Program 636 (Air Quality), Work Order 79236 for Fiscal Year Budget 2005/2006 will be required in the amount of $4,961,875 to cover the TelffDD 310 SEA-PORT 2005/2006 expenses for the Locomotive Fleet Modernization Program. Time Limit: www.portoflosangeles.org After receipt, the City Council has 30 days to act; otherwise the matter will be deemed approved.

Respectfully submitted, ~~ Commission Secretary

cc: Commerce, Energy & Natural Resources Committee Councilman Cardenas, encs. Councilwoman Hahn, encs. Councilman Rosendahl, encs. /Himiki Nishiyama, encs.

An Affirmative Action/ Equal Opportunity Employer Recycled and Recyclable ,.._-{ 6S :\\ WJ ..... REf'flMMENDATION APPROVED; ORDER NO. 6830 AD(ln~ED; RE~ . JTION NO. 6377 ADOPTED; AND AGREEMENT N •89-B Al- • ttOVED BY THE BOARD OF HARBOR COMMISSIOt'iteRS

Executive Director's Report to the · Board of Harbor Commissioners

DATE: August 31, 2005

SUBJECT: SECOND AMENDMENT TO AGREEMENT NO. 1989 BETWEEN THE CITY OF LOS ANGELES AND PACIFIC HARBOR LINES

SUMMARY:

Staff recommends executing the Second Amendment to Agreement No .. 1989 between the City of Los Angeles and , Inc. (PHL) in order to achieve emission reductions, to extend the term of the Operating Agreement an additional ten. (1 0) years, and to make other revisions to the Operating Agreement. Emission reductions would be achieved by implementing an Environmental Management Plan (EMP) and by upgrading the existing fleet of switching locomotives operating in the Ports of Los Angeles andLong Beach to Tier 2 diesel-powered locomotives. The cost to upgrade the fleet would be shared by the Ports and PHL. The ' share would be funded in accordance with the Near Term Air Quality Measures approved by the Board December 15, 2004. For Fiscal Year 2005/2006, up to $5,080,000 is budgeted for the Locomotive Fleet Modernization Program, of which $4,961,857 would be used for the purchase of Tier 2 diesel-powered locomotives. Replacing older locomotives with newer. models with cleaner burning engines would result in substantial emission reductions of Nitrogen Oxides, hydrocarbons, carbon monoxide, and Particulate Matter.

RECOMMENDATIONS:

It is recommended that the Board of Harbor Commissioners:

1. Adopt the Order approving and authorizing the execution of the proposed Second Amendment to Agreement No. 1989 with PJ-IT., (Transmittal!);

2. Authorize the Board Secretary to transmit the proposed Second Amendment to Agreement No. 1989 to the Los Angeles City Council for approval pursuant to Charter Section 606;

3. Authorize the Executive Director and Board Secretary to execute the proposed Second Amendment to Agreement 1989 upon approval by the City Council;

4. Appropriate $4,961,875 from the Unappropriated Balance to Account 59965, Center 0330, Program 636 (Air Quality), Work Order 79236, for Fiscal Year 2005/2006; and DATE August 31, 2005 Page 2 of6

SUBJECT: SECOND AMENDMENT TO AGREEMENT NO. 1989 BETWEEN THE CITY OF LOS ANGELES AND PACIFIC HARBOR LINES

5. For Fiscal Year 2005/2006, authorize payment to PHL of up to $4,961,875 for apportioned purchase of Tier 2 diesel-powered switch engine locomotives, upon approval of this amendment, from the Account 59965, Center 0330, Program 636 (Air Quality), Work Order 79236. .

PREVIOUS BOARD ACTIONS:

On December 1, 1997, the Board made and entered into the San Pedro Bay Harbor Rail Operating Permit (Agreement No. 1989) with PHL, which granted PHL a license to operate on the Port Rail Facilities and the Additiqnal Port Rail Facilities.

On June 26, 2002, the Board executed the First Amendment to Agreement No. 1989 that allows the Port of Los Angeles or its designee to use tracks and facilities that are part of the Red Car Line, in connection with Streetcar Oper;ation ..

On December 15, 2004, the Board approved and adopted the Near-Term Air Quality Measures, approved a total amount o_f $4,160,000 towards the Locomotive Fleet Modernization Program through Fiscal Year 200712008, ·and all-ocated $4,040,000 in Fiscal Year 2004/2005. However no money was actu~ly spent in Fiscal.Year 2004/2005. ·

DISCUSSION:

1. Project Background: Agreement 1989_ will automatically terminate on February 15, 2008. Under the provisions of the amendment, the agreement would be extended an additional ten (10) years and would automatically terminate on February 15, 2018 provided that within 90 days prior or subsequent to the execution of this. amendtiient, the City of Long Beach extends the term of its Operating Agreement with PHL to on· or about July 31, 2018, otherwise this amendment shall be null and void.

2. Services to be Performed: Extending . the agreement would achieve more immediate improvements in air quality than would otherwise be required by the locomotive emissions standards of the United States Environmental Protection Agency (EPA) by upgrading the existing fleet of switching locomotives operating in the Ports of Los Angeles and Long Beach. Up to sixteen (16) Tier 2 diesel"'powered locomotives, which are environmentally cleaner and exceed current EPA standards for locomotives, would be purchased to replace the existing fleet. · ------·-··-·----- ..... ------···------.. ...,

DATE August 31,2005 Page 3 of6

SUBJECT: SECOND AMENDMENT TO AGREEMENT NO. 1989 BETWEEN TII:E CITY OF LOS ANGELES AND PACIFIC HARBOR LINES

The Ports of Los Angeles and Long Beach and PHL will jointly fund the purchase of sixteen (16) rebuilt switching locomotives to replace the existing operating fleet in the Ports (Section 16.6). The cost of these locomotives, including spare parts, change orders, delivery charges, applicable taxes, program inspection and oversight costs, manufacturer­ furnished product support, all manuals/documents, etc. and training of engine crew and locomotive maintenance contractor personnel), is estimated to be approximately $20,000,000. The cost of the new locomotives shall be shared as follows: fifty percent (50%) shall be paid by PHL and twenty-five percent (25%) with a not to exceed amount of $4,961,875 shall be paid by each the Ports of Los Angels and Long Beach. Funding includes the use of $3,200,000 in "Moyer Funds" which would be allocated in the same proportions above. PHL would also be required to lease or acquire one (1) liquid natural gas (LNG)-powered locomotive and one (1) diesel-electric hybrid locomotive for use in the Ports. The LNG and diesel-electric hybrid locomotives shall operate in ·a one-year service demonstration program.

On December 15, 2004, the Board adopted seven near-term air quality incentive measures . to be implemented over the next several years at a cost of $52,890,000, and allocated $10,960,000 to implement the seven measures for Fiscal Year 2004/2005. The seven near­ term air quality incentive measures include:

a. Yard Tractor Modernization and Cleaner Fuels Program. b. Cargo Handling Equipmeilt(CHE) Ultra-Low Sulfur Diesel (ULSD) Fuel Improvement Program c. Ocean-Going Vessel (OGV) Auxiliary Engine Fuel hnprovement Program. d. Marine ULSD Fuel hnprovement Program. e. Expanded Gateway Cities Truck Modernization Program. f. Diesel Particulate Filter (DPF) Installations (on model year 1994+). g. Pacific Harbor Lines (PHL) Switch Engine Modernization and ULSD Fuel hnprovement Programs.

Because of uncertainties on several of the near-term measures raised during the NNl process, only the Gateway Cities Truck Modernization Program was a~tually funded during FY 2004/2005 (and was funded at a higher level than originally anticipated). The funding for all other measures was deferred until FY 2005/2006. Gateway Cities funding for 2005/2006 will be decreased accordingly. Tables 1 and 2 show the original and revised funding estimates for the near-term measures. The Locomotive Switch engine Modernization Program is shaded gray. ,·

·'

DATE August 31, 2005 Page 4 of6

SUBJECT: SECOND AMENDMENT TO AGREEMENT NO. 1989 BETWEEN THE CITY OF LOS ANGELES AND PACIFIC HARBOR LINES

TABLE 1: Original estimates to implement four near-term measures.

Fiscal Year Costs (millions) Measure 04/05 05106 06/07 07/08 Total 1. Yard Tractor Modernization and Clean Fuels $3.07 $5.99 $5.25 $4.28 $18.59 2. CHE ULSD Fuel Improvement $0.16 $0.33 $0.06 $0.00 $0.55 3. OGV Auxiliary Engine Fuel Improvement $0.49 $0.99 $1.49 $1.98 $4.95 4. Marine (Harbor Craft) ULSD Fuel Improvement $0.09 $0.13 $0.18 $0.22 $0.62 5. Gateway Cities Truck Fleet Modernization $1.68 $3.36 $3.36 $3.36 $11.76 6. Diesel Particulate Filters $0.00 $0.00 $2.30 $3.06 $5.36

Subtotal $9.53 $10.84 $12.68 $12.94 $45.99 Admin $1.43 $1.63 $1.90 $1.94 $6.90 Total $10.96 $12.47 $14.58 $14.88 $52.89

TABLE 2: Revised estimates to implement four near-term measures.

Fiscal Year Costs (millions) Measure 04/05 05106 06/07 07/08 ·. Total 1. ·Yard Tractor Modernization and Clean Fuels $0.00 $9.06 $5.25 $4.28 $18.59 2. CHE ULSD Fuel Improvement $0.00 $0.49 $0.00 $0.00 $0.49 3. OGV Auxiliary Engine Fuel Improvement $0.00 $1.48 $1.55 $1.98 $5.01 4. Marine (Harbor Craft) ULSD Fuel Improvement $0.00 $0.22 $0.18 $0.22 $0.62 5. Gateway Cities Truck Fleet Modernization 6. Diesel Particulate Filters

Subtotal $4,74 $16.63 $12.68 $12.94 $46.99 Admin $0.50 $1.56 $1.90 $1.94 $5.90 Total $5.24 $18.19 $14.58 $14.88 $52.89 .. :..!:

DATE August 31,2005 Page 5 of6

SUBJECT: SECOND AMENDMENT TO AGREEMENT NO. 1989 BETWEEN THE CITY OF LOS ANGELES AND PACIFIC HARBOR LINES

3. Contract Amount and Term: Funds totaling $4,961,875 from the Unappropriated Balance are required for this Amendment to Agreement No. 1989. The term of the Amendment is for an additional ten years.

4. Contract Requirements: Charter Section 606 requires that the Los Angeles City Council approve all permits over five years, and subsequent amendments thereto. Agreement 1989 is a ten-year agreement originally approved by the City.

ENVIRONMENTAL ASSESSMENT:

The Director of Environmental Management has determined that the proposed action is exempt from the requirements of the California Environmental Quality Act (CEQA) in accordance with Article IT, Section 2(t) of the Los Angeles City CEQA Guidelines.

FINANCIAL IMPACT:

A transfer from the Unappropriated Balance to Account 59965, Center 0330, Program 636 (Air Quality), Work Order 79236 for Fiscal Year Budget 2005/2006 will be required in the amount of $4,961,875 to cover the 2005/2006 expenses for the Locomotive Fleet Modernization Program.

CITY ATTORNEY:

The City Attorney has reviewed the proposed amendment and approved it as to form. DATE August 31, 2005 Page 6 of6

SUBJECT: SECOND AMENDMENT TO AGREEMENT NO. 1989 BETWEEN THE CITY OF LOS ANGELES AND PACIFIC HARBOR LINES

TRANSMITTALS:

1. Proposed Second Amendment to Agreement No. 1989 between the City of Los Angeles and PHL.

DAVID L. MATHEWSON Director of Planning and Environmental Affairs

APPROVED:

BRUCE E. SEATON Interim Executive Director

RGA:PJ:KM:yo ADP No.: 010227-513 File: Y:\.._Board Reports\PAC1FIC HARBOR LINES\AGREEMENT 1989\AMENDMENT 2\BOARD REPORT- FINAL.DOC 8/22/2005 2:45 PM .__ _ ORDER NO. 6.8 3 0

IT IS HEREBY ORDERED by the Board of Harbor Commissioners that the Second Amendment to Agreement No. 1989 granted by the City of Los Angeles, acting by and through its Board of Harbor Commissioners, to Pacific Harbor Line, Inc. is hereby approved and the Interim Executive Director and the Secretary of the Board are hereby authorized and directed to execute and attest to the same on behalf of the City of Los Angeles upon this Order being approved by the City Council as described below.

The Secretary shall certify to the adoption of this Order by the Board of Harbor Commissioners of the City of Los Angeles and shall cause a copy of the same to be presented to the City Council as provided in Section 606 of the Charter of the City of Los Angeles. If the Council shall approve this Order within 30 days after such Order shall have been presented to it, or if the Council shall fail to disapprove this Order within said 30 days, the Order shall be deemed approved and shall become effective upon such approval without publication. The Second Amendment approved by this Order shall become effective immediately upon execution by the Interim Executive Director and Board Secretary after such Council approval of the Order.

I HEREBY CERTIFY that the foregoing Order was adopted by the Board of Harbor ~ommi~sioners Qf th~:City~91 Los Angeles at 1ts meet1ng of AUG I. I Z005 . ~~~~ - (lDRrc4 H. YAMAKI Board Secretary

APPROVED AS TO FORM:

~ 2-~ ,2005 ROCKA J. DELGADILLO, C1ty Attorney

CBB:yo File: Y:I_General Clericai\EMD CONTRACTS\PACIFIC HARBOR LINE\AGR 1989\AMENDMENT 2\0RDER.doc B/23/2005 ..,

SELvND AMENDMENT TO AGREEMEN J. 1~0. 1989-A BETWEEN. THE CITY Q~_LOS AN_QELES Harbor Department-- .. -- ···· -Agreement ·ltffCf--8 AND PACIFIC HARBOR LINE, INC. City of Los Angeles

AGREEMENT NO. 1989-A between the City of Los Angeles (the "Owner") and Pacific Harbor Line, Inc., ("PHL" or "Operator") is hereby amended a second time as follows:

WHEREAS, Pacific Harbor Line, Inc. has successfully performed the services required by Agreement No. 1989-A; and

WHEREAS, Agreement No. 1989-A will automatically terminate on February 15, 2008; and

WHEREAS, the Owner desires to achieve more immediate improvements in air qualitythau would otherwise be required by the locomotive emissions standards of the United States Environmental Protection Agency ("EPA") by upgrading the existing fleet of switching locomotives operating in the Ports of Los Angeles and Long Beach to provide for environmentally cleaner locomotives that exceed EPA's current standards; and

WHEREAS, PHL .in order to accommodate fu,e Owner's desires for better air ~uality and cleaner rail operations, while recognizing that the acquisition of Tier 2 switcher locomotiyes will require a significant capital outlay, and in order to amortize that capital expense, has requested an extension of the term ofthe Operating Agreement No. 1989-A; and

WHEREAS, the Parties desire to continue the successful unified joint rail operations in the Ports of Los Angeles and Long Beach; and

WHEREAS, the Owner also desires to qbtain certain immediate operational improvements in the conduct of the Port rail operations; and .

WHEREAS, for the foregoing, it is in the best interest of the City to extend Agreement No. 1989-A an additional ten (10) years to provide cleaner and safer unified rail operations in the Port;

NOW, THEREFORE, Agreement No. 1989-A between the City, acting by and through its Board of Harbor Co:rrunissioners, and Pacific Harbor Line, Inc., shall be amended in order to achieve emission reductions, to extend the term of the Operating Agreement, and to make such other revisions to the Operating Agreement as are beneficial to the parties as follows:

1. ARTICLE 4, Section 4.3, Term of Agreement. The effective date ofthis Second Amendment shall be the date that it is executed by the Executive Director of the Harbor Department of the City of Los Angeles. The term of this Agreement shall hereby be extended an additional ten (1 0) years and shall terminate on February 15, 2018, provided that within

1 ·-' ."--'~-. . 90 days prior or subs ... ._.lent to the execution of this Second Amendment, the City of Long Beach extends the term of its Operating Agreemen~ with the Operator to on or about July 31,2018. If the ___Gity _of Long Beach_ or Operator-fail to ex~cute the Second Ameiidrrienf lo tlie Loni-Beach - Agreement then this Amendment shall be null and void·.

2. · At the conclusion of this pe1iod of extension, or earlier if this amendment becomes null and void, the parties understand and agree that the Owner will issue a Request for Proposals or Bids, thereby pennitting other firms to compete for the rail services in the Port Complex Area.

3. ARTICLE 7. Section 7.8 of the Operating Agreement is hereby added and reads as follows:

a. "7.8 Train Movements Across At-Grade Crossings. In recognition of the public safety, environmental and other community impacts associated with the blockage of at-grade .. crossings in the Port Complex Area by trains either operated or dispatched-by Operator, the Operator shall hereunder have an afflnnative management obligation to minimize both the frequency and duration of such blockages. At Owner's request, Operator will participate in periodic reviews ofissus:s . related to such blockages. To this end, the followitig restrictions on crossing b'lockages shall apply:

b. "7.8.1 Train operations over any at-grade railroad crossing in the Port Complex shall be in accordance with Califo:rriia Public Utility Commission (CPCU) General Order (G.O.) No. 135. In addition, no such at-grade crossing shall be blocked by trains either operated or dispatched by Operator for more than ten (1 0) minutes from the time a vehicle or pedestrian has been first delayed waiting to traverse the crossing for reasons within the reasonable control ofthe Operator, except as otherwise provided in G.O No. 135. Exceptions to this include where the train remains in continuous motion, the Fries Avenue/Pier A Yard lead track crossing, Fries Avenue/West Basin lead track crossing and the Figueroa Street entrance to Berths 136 to 139/West Basin lead track crossings, at. which three crossings the blockage may not exceed twenty (20) minutes. Should transportation improvements occur at these locations during the term of this agreement, then blockages at these intersections shall not exceed ten (1 0) minutes.

c. "There shall be a minimum period of one (1) minute between

2 _._

_Jccessive cro.ssing blockages at any at-graae crossing outside of the Terminal Facilities, and a minimum period of 5 minutes for the . ~-- ~_-:·. exceptions noted in b. above. -- -_

'~In the event that Owner receives or otherwise becomes aware of a verbal or written complaint alleging that a train operated or dispatched by the Operator has blocked an at-grade crossing in the Port Complex Area for more than ten ( 10) minutes, or 20 minutes for the exceptions noted. in b. above, from the time a vehicle or pedestrian has been first delayed waiting to traverse the crossing-the following protocol shall apply:

"(1) Owner acting by and through its Executive Director shall provide written notice to Operator of such alleged crossing blockage (a "Blockage Notice");

"(2) Such notice -shall include the date, time~ location and circumstances of the· alleged blockage as well as the identification of witnesses to same and the source of the compl~t, and if available, the directions of vehicles a.tid trains and identification o,f railroad equipment. "

"(3) Operator shall promptly investigate the circumstances of the alleged blockage and, within ten (1 0) business days from the date ofreceipt ofNotice ofBlockage from Owner, provide the Operator's written assessment ofthe circumstances and extent of the alleged blockages(s);

"(4) On a schedule to be agreed upon by the parties, but no more frequently than quarterly, Owner, acting by and through its Executive Director, and Operator shall meet and confer regarding each ofthe outstanding alleged blockage complaints which have been investigated and reported on by the Operator. In contesting responsibility for any blockage (i.e., in attempting to establish that the reason for such blockage was not within its reasonable control or was justified under the circumstances), the Operator may raise as defenses or factors of mitigation any or all of the following circll!Il:stances, which the Owner shall then consider but need not be bound by in reaching its determination:

(a) derailment(s) or accident(s) (b) instructions from law enforcement

3 .,: :. (c) denied, delayed or impaired access of a train to a· Tenninal Facility .. (d) open draw bridge (e) draw b1idge malfunction(s) (f) dispatch systems malfunction(s) (g) perfonnance of inspections or · other functions mandated by Federal or State law (h) construction, actions or conditions present on the · Alameda Corridor or adjacent yards and trackage controlled by Railroads (i) movements ofRailroads' trains G) · construction or maintenance activity performed on the railroad rights-of-way by Owner or third parties or emergency track repairs performed by Operator; (k) congestion resulting from or incident to any of the above circumstances.

"(5) Subsequent to each such meeting and conference, Owner, acting by and through its Executive Director, shall determine which of the alleged bloCkages were within the reasonabJe control of the Operator.. to avoid, reduce below the "tefi.,. minute" thresholds cite.d above, or otherwise materially reduce such delay. If Owner determines that the alleged blockage was within the reasonable control of the Operator to either avoid, reduce below the relevant thresholds, or otherwise materially reduce such delay, Owner, acting by and through its Executive Director, shall rule in writing that a violation has occurred and notify Operator of its findings related thereto. Disputes between the Owner and Operator as to the application of this section 7.8(5) and any penalties issued ·hereunder are not subject to the provisions of Article . 27.

"(6) The first thirty-six (36) violations by the Operator of the provisions of this Section 7.8, or 8 violations at any one crossing, as determined by the above-described review process, which occur in any cale:qdar year, shall result in a penalty, payable by Operator to Owner, of One Thousand Dollars ($1,000.00) per each such violation. Subsequent violations thus determined in the same calendar year shall result in a penalty of Three Thousand Dollars ($3 ,000.00) per each such violation; and

4 (7) Owner shall separately invoice Operator for each such penalty payments, citing Owner's final dete~inatipp,_ and Operator shall paytheamount(s) due within thirty (30) days of receipt of invoice; and -

"(8) In the event Operator fails to pay any such penalty when due, Owner may declare this Agreement terminated and required Operator to cease all of its activities pursuant to this Agreement."

4. ARTICLE 8. Sections 8.7 and 8.8 are hereby added to the Operating Agreement and read as follows:

a. "8.7 Operator Cooperation on Owner Improvements. Operator -. shall cooperate with the Owner to permit the following proposed improvements, which shall be made by the Owner at Owner's expense, except that Openitor shall continue to bear indemnity and insurance obligations as set forth in Article 22 and Article 23:

~ "(1) Construction of a pedestrian crossing at 0' Farrell Stre~, which may include elimination of a rail joint (through welding or installation of a longer continuous rail as appropriate), in order to permit installation of pedestrian crossing panels;

"(2) Improvements along 1st Street, including tie replacement, and -pavement removal around the crossing in connection with the Promenade construction. This work may include elimina,tion of a rail joint (through welding or installation of a longer continuous rail as appropriate) in order to permit pedestrian crossing panels to be installed;

"(3) Construction of a rail spur at the S.P. Slip for the proposed Red Car Maintenance Facility/Red Car Museum; and

"(4) Construction of vehicular/pedestrian crossing at 7th Street, with accompanying changes to trackage."

b. "8.8 Miscellaneous Operator Responsibilities.

"8.8.1 Provided the applicable costs are included in the approved Train Control- and Maintenance Plan, budgets by the Railroad Oversight Committee, and only for so long as the Operator

5 _.. mducts freight operations south of Swin1.ord Street, the following ·_provisions shall apply: ______'. ~. .

~ "(a) Op~rator shall be responsible at its expense for cleaning the ··~,. rtght-of-way from Swinford Street to 22nd Street from· fence line to fence line on a bi-weekly basis.

"(b) Owner shall provide to Operator access to Owner's trash disposal site for the disposal of items related to such cleaning at no cost to Operator.

"(c) Operator shall at its .expense make all reasonable and necess~upgrades and repairs at the 5th Street and 6th Street crossings, where existing pavement is buckled around the rails, including any sub grade work and tie replacement work • required."

8.8 .2 Upon seven (7) days advance written notice, and subject to the availability of Operator's personnel, Operator shall provide one (1) flagman to support maintenance activities performtd by Owner's employees on or near trackage .for not more than five (5) eight fg.) hour weekday shifts per calendar year (the ''Flagman Threshold") without cost to Owner. Requirements by Owner for such flagmen over and above the Flagman Threshold will be at Operator's standard charge to Owner as may be revised from time to time in Operatot' s sole business judgment. Owner, in the application of this Section 8.8.2, shall apply only to the Harbor Department and not to any other City Department. On an annual basis, Operator shall provide an instructor to provide Railroad and Roadway Worker Training to Owner's employees, contractors and consultants. Owner and the Port ofLong Beach shall coordinate to provide a training venue sufficient to train all employees, contractors and consultants of Owner, as well as the same for the Port of Long Beach in a single session.

5. ARTICLE 10 is hereby amended as follows: Section 10.5 is hereby added to the Operating Agreement and reads as follows:

a. "10.5 Derailment Notification. Operator shall as soon as practicable, but within twenty-four (24) hours of occurrence, or if it occurs on a weekend, then by the end of the first business day thereafter, report by e-mail or fax all derailments within the Port Complex Area to Owner and submit a summary report within seven (7) calendar days of the date of the derailment describing the date,

6 Lime, location, and a general description ofthe incident, including any . corrective measures, if appl!c~bJe _-and available. If_ ~uch incident occurs during noimal busines~fh6Uis, tneri-Operator shall make a preliminary telephonic notification to Owner as soon as practicable thereafter.. .. 6. ARTICLE 11. Badger Avenue Bridge. Section 11.1 is hereby amended and restated as follows:

a. "11.1 Maintenance. Operator shall maintain rail and ties on the Badger A venue Bridge and the rail approaches thereto (including the interlocker, the bridge locking proximity switches, and routine maintenance of the Conley joints), and all other rail track and signal components on the Badger A venue Bridge in accordance with Article 8. Operator shall have no maintenance or other obligations (including, without limitation, payment of utility costs for operating the Badger A venue Bridge) with respect to structural, mechanical and electrical systems and components for the Badger Avenue Bridge. Operator shall not be responsible for the cost of replacement of the Conley joints if replacement is deemed necessary by the Operator with the concurrence of the Rail Oversigl;lt Committee. In the event that the Operator with the concurrence of the Rail Oversight Committee determine that replacement of the Conleyjoints is necessary in orderto avoid the cost of extraordinary repairs or to ensure the safe operati9n of the rail facilities on the Badger Avenue Bridge, then the cost for the replacement shall be borne the Owner if replacement is a Capital Improvement under ARTICLE 12, or by the Operator ifreplacem~nt is necessitated by negligent maintenance or damage resulting fonn negligent railroad operatiop.s.

7. ARTICLE 12. The following sentence is added immediately before the last sentence in Section 12.4:

"Operator shall advise its train crews of any tracks which are out of service owing to construction projects in the Port Complex Area."

8. ARTICLE 16 is amended as follows:

a. The first sentence in Section 16.3 is amended as follows:

(1) The existing sentence which reads: "Operator shall, at no cost to the Owner, provide its own equipment to perform all of its duties· and obligations hereunder (except for equipment

7 .· . ~. ·, . necessary to operate the Badger Avenue Bridge from the bridge control booth)." is hereby deleted.

(2) . Inserted to replace that which was deleted in ( 1) immediately •. .above is the following: "Except as provided in Section 16.6 .. ··"below (and except for the equipment necessary to operate the Badger Avenue Bridge from the bridge control booth), Operator shall, at no cost to Owner, provide its own equipment to perform all of its duties and obligations hereunder."

b. Section 16.3, Operator's Equipment. "1) 5 switcher or road - switcher locomotives" is deleted. fuserted in its place is: "1) Sixteen (16) Tier 2 switcher locomotives and the demonstration .. of one (1) diesel-electric hybrid locomotive and one liquid natural gas (LNG) powered locomotive for one (1) year, more particularly described below." c. Section 16.6 is inserted as follow's: .. "Section 16.6 New Locomotives.

"16.6.1 General. Commensurate with the effective date of the . Becond Amendment, Operator and Owner shall jointly fund aiid Operator shall timely purchase sixteen (16) rebuilt diesel switching locomotives to replace Operator's existing locomotive fleet operating in the Ports of Los Angeles and Long Beach. The schedule for the purchase and delivery of such locomotives is set forth in Exhibit I attached hereto and incorPorated by this reference. Such locomotives shall be fully compliant with ''Tier 2" locomotive emissions standards for switching locomotives of the United States Environmental Protection Agency ("EPA"). In addition to the above switching locomotives and independent of the sixteen (16) rebuilt diesel referenced above, Operator at its own expense shall timely lease or acquire the use of one (1) liquid natural gas (LNG)-powered locomotive and one (1) diesel-electric hybrid locomotive for use in the Ports of Long Beach and Los Angeles, to demonstrate the suitability and emissions reduction characteristics of these ·locomotives. Operator shall acquire the LNG and diesel-electric hybrid locomotives and commence operation within one (I) year of the effective date of this Second Amendment. The LNG and diesel­ electric hybrid locomotives shall operate in a one (1) year service

8 ~..:monstration program to be approved by Owner. At a minimum, this program shall document the emissionsJ fuel consumption, .... · availability, reliability, service capability, maintenance, and support requirement characteristics ofthese locomotives.

Further, upon· completion of the purchase of the sixteen (16)' rebuilt diesel switching locomotives, all locomotives subsequently acquired by Operator prior to 2012 shall meet EPA Tier 3 emission standards (anticipated in 2012) or until such standards are promulgated, shall meet the following emission requirements: NOx:3.0 g/bhp/hr and PM: 0.0225 g/bhplhr. If Operator believes that it is not feasible to acquire locomotives, which meet such standards or emission requirements, Operator shall demonstrate to Owner that such acquisition is not feasible. Feasibility shall be based on technical and operational considerations. Any disputes as to feasibility shall be subject to the provisions of Article 27. Under no circumstances, either prior to 2012 or after 2011, shall Operator after execution of this Agreement acquire locomotives for use in the Ports of Long Beach and/or Los Angeles, Watson yard, Dolores yard, Mead and/or the Rail Corridor which exceed the emission standards of the theJJ.- prevailing EPA requirements fo\ new locomotives. "

"16.6.2 Locomotive Acquisition Cost/Funding. The purchase price of the sixteen (16) diesel-powered switch engines (including spare parts, change orders, delivery charges, applicable taxes, program inspection and oversight costs, manufacturer-furnished product support, all manuals/documents, etc. and training of Operator's engine crew and locomotive maintenance contractor personnel) ("Diesel Acquisition Program''), is estimated to cost approximately $ 231>"-1-'7 ).crQ Se.eExhibitJ. The parties shall share the cost of theDfesel A~quisition Program as follows: Fifty percent (50%) shall be paid by Operator and twenty-five percent (25%) shall be paid by Owner with a not to exceed amount of Five Million Dollars ($5 ,000,000). The parties understand that the remaining twenty-five percent (25%) shall be paid by the City of Long Beach, acting by and through its Board of Harbor Commissioners, with a not-to-exceed amount of $5 Million Dollars ("Long Beach Maximum Contribution"). The parties agree that their respective shares of the funding of the program may include the use of up to one hundred percent (100%) of some $3.2 Million or more, in "Moyer Funds" granted to Operator for use in reducing locomotive emissions. Ifsuch funds are used, they shall be allocated to Operator and Owner in the same proportions described above. Operator may seek to obtain

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"v.foyer Funds, in excess of$3.2 million or other similar grants and any such funds or grants shall be allocated solely to Operator. Owner, at no expense to Owrier, shall cooperate with Operator to obtain such additional funds or grants._Notwithstanding the foregoing, Owner's ' maximum contribution is Five Million Dollars ($5,000,000), exclusive of Moyer Funds (the ''Maximum Owner Contribution•. ") Likewise, the parties understand that the maximum contribution by the City of Long Beach to the Diesel Acquisition Program is Five Million Dollars ($5,000,000) exclusive of Moyer Funds (the "Long Beach Maximum Contribution.") Further, and notwithstanding the foregoing, if the cost of the Diesel Acquisition Program, to wit, purchasing sixteen (16) Tier 2 diesel-powered switch engines is such that Owner and the City of Long Beach make their maximum contributions, Operator shall pay all additional monies necessary to purchase the sixteen (16) diesel-powered switch engines even if such payments cause Operator to pay more than fifty percent (50%) of the cost of purchasing and/or leasing or acquiring all such locomotives. Neither Operator's (nor its affiliate's) lender(s) shall acquire liens in · the locomotives without the prior written approval of Owner, which approval shall not be unreasonablY' withheld.

"16.6.3 Payment for Diesel Switching Locomotives. Prior to Operator's agreement with the manufacturer for the purchase of each locomotive, one hundred percent (100%) of the total of required :funds therefore shall be placed in escrow by the parties, in the respective portions described above. Funds shall be released from the escrow account only in accordance with the payment schedule contained in the locomotive purchase agreement between Operator and the manufacturer and then only with the approval of both Operator and Owner. Interest, which accrues on the escrowed funds shall be credited to each party depositing such funds.

"16.6.4 Disposition of Existing Locomotives. Approximately commensurate with the conditional acceptance of each locomotive acquired hereunder, the Operator shall remove from service in the Ports of Los Angeles and Long Beach, the Watson Yard, the Dolores Yard, the Mead Yard and the Rail Corridor (as defined in Harbor Department Agreement No. 2206 of the City of Los Angeles, previously amending this Agreement No. 1989-A) one (1) or more of its existing locomotives. (See Exhibit ''H" hereto.) The locomotives removed from service shall be scrapped or placed in a locomotive museum, or not be used or operated within the State of California.

10 "16.6.5 Sales. of New Locomotives. In response to changing business conditions (i.e., a decrease in Operator's business volume in the· Ports of Los Angeles or Long Beach) or improved locomotive .•. tec}mQlQgy(i.e. availability of more prod.uctive, long-lived or reliable ·· "Tier 2'·1~~om!Jliant or better locomotives), Operator may, from time to time during the term of this Agreement, as amended from time to time, sell one. (1) or more of the locomotives acquired hereunder; provided, however, that if Operator desires to sell such locomotive(s), and such sale(s) occur(s), Operator shall either i) pay to Owner twenty-five percent (25%) of the net proceeds of such sale(s) (which shall be calculated exclusive of any satisfaction of liens or other indebtedness then secured by the locomotive[s]) or ii) within thirty (30)days of such sale(s) replace the sold locomotives, on a one-for- one or other basis as may be agreed to by the parties and at no cost to the Owner, with other locomotive(s) in conformance with the requirements of Section 16. 6.1 of this Agreement.

After 2011, newly acquired locomotives shall meet then-prevailing EPA requirements for new or newly acquired locomotives, in additiQn to the requirements set forth in S,ection 16.6.8 below. "

''Upon expiration or earlier termination of this Agreement, Owner shall have the right of first refusal and option to purchase one-half (1/2) of the locomotives acquired hereunder, whether as part oftli.e initial purchase or as a replacement of a locomotive initially purchased, inqluding any and all spare parts or other inventory items, maintenance and repair manuals, and the like, etc., for fifty percent (50%) oftheir then-current fair market value (''FMV"), as determined by the valuation process set forth below. The parties understand that the remaining one-half(l/2) of such locomotives shall be subject to a right of first refusal and option to purchase held by the City of Long Beach. Owner and the City of Long Beach shall decide among themselves which locomotives are subject to purchase by Owner and which are subject to purchase by the City of Long Beach. Should Owner, at termination, decline to exercise its right of first refusal and option to purchase said locomotives and related parts and materials, Operator shall pay to Owner fifty percent (50%) of the FMV of such locomotives and related materials, i.e., spare parts, as determined by the valuation process described below, in fair compensation for the Owner's interest in the locomotives and related materials.

11 _..5.6.6 Valuation of the Locomotives. In the event that Owner either desires to exercise its option to purchase Operator's interest in locomotive(s) and related materials or declines to exercise such ·option(s), the FMV of the locomotives shall be deterinined pursuant to the procedures set forth in Section 21.4 ofthis Agreement. The purchase price for any item shall compensate the Owner for Owner's interest in the locomotives in accordance with Section 16.6.5 above. Section 21.3 ofthis Agreement shall also govern Owner's rights after termination or expiration of this Agreement.

"16.6.7 Use and Maintenance of the Locomotives. For the period beginning with the conditional acceptance of the locomotives acquired hereunder and ending with the expiration or early termination of this Agreement, Operator shall not operate such locomotives outside of the Port Complex Area, Watson Yard, Dolores Yard, the Mead Yard, Ports of Los Angeles or Long Beach or the Rail Corridor (as defined in Harbor Department Agreement No. 2206 of the City of Los Angeles, previously amending this Agreement No. 1989-A) without the prior written consent of Owner. Notwithstanding the foregoing, Operator may move the locomotivt;:s to, from and over other trackage }l.D.d facilities, as necessary, for tile purposes oflocomotive repairs, maintenance and/or overhaul.

"Operator shall inspect, maintain and repair each locomotive hereunder substantially in accordance with the original equipment manufactures' (OEM) recommendations and manuals and keep said locomotive in good repair during the term of this Agreement, unless the locomotive is either damaged beyond econo:rllic ,repair. or repossessed by a lender, in which case(s) such locomotive(s) shall be promptly replaced on a one-for-one basis with locomotive(s) in conformance with the requirements of Section 16.6.1 of this Agreement, at Operator's sole cost and expense. Operator shall not tamper with or disable emissions limiting devices installed on such locomotives. After 2011, newly acquired locomotives must meet or exceed then prevailing EPA requirements for new or newly acquired locomotives.

"16.6.8 Additional Locomotives. During the term of this Agreement, as amended from time to time, Operator's operations in the Ports of Long Beach and Los Angeles may require additional locomotives. The acquisition of such additional locomotives shall be at Operator's sole cost and expense. Further, any and all such additional locomotives shall comply with all requirements hereof, including

12 vv1th limitations, those of Section 16.6.1 above and Sections 16.6.9 below, (NOx: 3.0 glbhplhr and PM: 0.0225 g/bhplhr), or if infeasible then at minimum Tier 2 compliant. Locomotives acquired or used by the Operator in the Port Complex Area..after January 1; 20.11 must meet then prevailing EPA requirement for new or newly 'acquired locomotives.

"16.6.9 Environmental Management Plan. Within thirty(30) days of the date of this Second Amendment, Operator shall adopt and maintain a comprehensive Environmental Management Plan ("E11P") which includes, without limitation, the following elements.

"16.6.9.1 Use of Emulsified Diesel Fuel. Upon execution of this Second Amendment, PHL shall immediately begin the use of emulsified fuel verified for use by the California Air Resources Board. Operator shall continue the use of emulsified fuel in all ffieael locomotives using diesel fuel, unless the Operator can demonstrate technical infeasibility for the use of such fuel. The determination of technical infeasibility will be made by an expert selected by the Owner and Operator in accord®ce with the arbitrator selectiqn provision ofArticle 2 7. Iftechni.~al infeasibility of emulsified fuel 'is demonstrated, the Operator shalf be required to use diesel fuel with a maximum sulfur content of fifteen (15) parts per million, commonly referred to as ultra-low sulfur diesel.

"16.6.9.2 Testing and Use of a Diesel Oxidation Catalyst. Within six (6) months of the delivery of the :first new diesel switching locomotive, Operator shall submit a proposal to the Owner· for Owner's approval to test, at Operator's sole expense, the use of a Diesel Oxidation Catalyst. (DOC) for a period of one (1) year. Should the use of the catalyst during this test period prove successful, Operator shall, at its sole expense, equip the remaining "Tier 2"­ compliant locomotives to op<::rate with DOC. The successful nature of the DOC test shall be determined in the sole judgment of the Owner, unless the Operator can demonstrate technical infeasibility for the use of this exhaust after treatment, to be determined by an expert selected by Owner and Operator in accordance with the arbitrator selection provisions of Article 27.

"16.6.9.3 Locomotive Idle Limitation Device. All locomotives acquired hereunder shall be equipped with an idle limitation device, which will shut down the locomotive after a maximum period of

13 ·' v1.mtinuous id_le of fifteen (15) minutes. Such devices shall. be maintained in good working order and shall not be disabled by Operator's employees, or contract maintenance personnel, except that the device may be overridden by contract maintenance personnel for the limited periods of time required to perform maintenance and inspections.

"16.6.9.4 Locomotive Data. All locomotives acquired hereunder shall be equipped with a device or devices, which produce both on a periodic and on an inquiry basis, the following locomotive data:

"(a) Locomotive duty cycle(s), as represented by the percentage of time over a specified period which the locomotive operates in each throttle or "run" setting;

~'(b) Locomotive fuel consumption;

"Owner shall detennine and furnish to Operator the reporting frequency for and required formatting of the· data produced with the above device(s) (i.e., the underlying data management system). Pri,.or to purchase Of after purchase of. locomotives, owners, at their OWn expense have the right and may elect to have installed GPS devices and any equipment necessary for the remote collection of data via wireless communication and downloading.

"16.6.9.5 Re-verification of Tier 2 Compliance. Operator shall, at five (5) year intervals commencing as of conditional acceptance of each locomotive, verify that the locomotives acquired hereunder continue to meet "Tier 2" emissions requirements for· switching locomotives. Locomotives failing to meet such periodic re-:­ verification requirements shall not operate within the Ports of Los Angeles and Long Beach and the Rail Corridor (as defined in Harbor Department Agreement No. 2206 of the City of Los Angeles, previously amending this Agreement No. 1989-A) until such compliance can be verified. Operator shall, at· its own cost and expense, promptly provide locomotive(s) in conformance with the requirements of Section 16.6.1 of this Agreement, needed to offset the unavailability of locomotives acquired hereunder which are not re-veri.fied as "Tier 2" compliant."

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Except as amended herein, all remaining terms and conditions of Agreement No. 1989-A remain in full force and effect. · .. •· IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment to Agreement No. 1989-A between the City of Los Angeles and Pacific Harbor Line, Inc. on the dates to the left oftheir signatures.

THE CITY OF LOS ANGELES, by its Board of Harbor Commissioners

Dated: ______, 2005 By ______

Executive Director ·,

Attest------Secretary

...... ~u:\?'/7) • • • • • • q ••• ...... Attest~~~~~~~~~~-~--­ .hwf/1.1> G- 1~ 1 1J1a? .,fJtfS'./JEt. (Print/type name rand title) ·

Account# 5"f"'~S' W.O.# 'l"\'2..3/P APPROVED AS TO FORM Ctr/Div# 03!Z> Job Fac. # <037-0'0 Proj/Prog # "3'-

------' 2005 Budget FY: Atnmount: ROCKARD J. DELGADILLO, City Attorney 0)~, #'{ '1~1 81) By ______CHRISTOPHER B. BOBO, Deputy

CBB:rga For Acct2. Div. Use Only: 06127105 Verified Funds Available: ------

Date Approved:

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