APS 2011 Annual Report Download - page 30

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interest from 2016 to 2041. Execution by the Navajo Nation of the lease amendments is a condition to
closing of the purchase by APS of SCE’s interests in Four Corners. The execution of these
amendments by the Navajo Nation requires the approval of the Navajo Nation Council, which became
effective in March 2011. The effectiveness of the amendments also requires the approval of the U.S.
Department of the Interior (“DOI”), as does a related Federal rights-of-way grant, which the Four
Corners participants will pursue. A Federal environmental review is underway as part of the DOI
review process.
APS has announced that, if APS’s purchase of SCE’s interests in Units 4 and 5 at Four Corners
is consummated, it will close Units 1, 2 and 3 at the plant. These events would change the plant’s
overall generating capacity from 2,100 MW to 1,540 MW and APS’s entitlement from the plant from
791 MW to 970 MW.
Cholla – Cholla is a 4-unit coal-fired power plant located in northeastern Arizona. APS
operates the plant and owns 100% of Cholla Units 1, 2 and 3. PacifiCorp owns Cholla Unit 4, and
APS operates that Unit for PacifiCorp. APS has a total entitlement from Cholla of 647 MW. APS
purchases all of Cholla’s coal requirements from a coal supplier that mines all of the coal under long-
term leases of coal reserves with the federal government and private landholders. The Cholla coal
contract runs through 2024. APS has the ability under the contract to reduce its annual coal
commitment and purchase a portion of Cholla’s coal requirements on the spot market to take advantage
of competitive pricing options and to purchase coal required for increased operating capacity. APS
believes that the current fuel contracts and competitive fuel supply options ensure the continued
operation of Cholla for its useful life. In addition, APS has a long-term coal transportation contract.
Navajo Generating Station – The Navajo Plant is a 3-unit coal-fired power plant located in
northern Arizona. Salt River Project operates the plant and APS owns a 14% interest in Navajo Units
1, 2 and 3. APS has a total entitlement from the Navajo Plant of 315 MW. The Navajo Plant’s coal
requirements are purchased from a supplier with long-term leases from the Navajo Nation and the Hopi
Tribe. The Navajo Plant is under contract with its coal supplier through 2019. The Navajo Plant site is
leased from the Navajo Nation and is also subject to an easement from the federal government.
These coal plants face uncertainties, including those related to existing and potential legislation
and regulation, that could significantly impact their economics and operations. See “Environmental
Matters” below and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Overview and Capital Expenditures” in Item 7 for developments impacting these coal
facilities. See Note 11 for information regarding APS’s coal mine reclamation obligations.
Nuclear
Palo Verde Nuclear Generating Station – Palo Verde is a nuclear power plant located about 50
miles west of Phoenix, Arizona. APS operates the plant and owns 29.1% of Palo Verde Units 1 and 3
and about 17% of Unit 2. In addition, APS leases about 12.1% of Unit 2, resulting in a 29.1%
combined ownership and leasehold interest in that Unit. APS has a total entitlement from Palo Verde
of 1,146 MW.
Palo Verde Leases – In 1986, APS entered into agreements with three separate lessor trust
entities in order to sell and lease back about 42% of its share of Palo Verde Unit 2 and certain common
facilities. In accordance with the VIE accounting guidance, APS consolidates the lessor trust entities
for financial reporting purposes, and eliminates lease accounting for these transactions. The