APS 2011 Annual Report Download - page 39

15
Environmental Matters
Climate Change
Legislative Initiatives. In the past several years, the United States Congress has considered
bills that would regulate domestic greenhouse gas emissions. There have been no attempts by the 112th
Congress to pass legislation that would regulate greenhouse gas emissions. With Congress’s focus on
the economy, it is unclear when it will again consider a climate change bill. In the event climate
change legislation is ultimately passed, the actual economic and operational impact of such legislation
on APS depends on a variety of factors, none of which can be fully known until a law is enacted and
the specifics of the resulting program are established. These factors include the terms of the legislation
with regard to allowed emissions; whether any permitted emissions allowances will be allocated to
source operators free of cost or auctioned; the cost to reduce emissions or buy allowances in the
marketplace; and the availability of offsets and mitigating factors to moderate the costs of compliance.
In addition to federal legislative initiatives, state-specific initiatives may also impact our
business. While Arizona has no pending legislation and no proposed agency rule regulating
greenhouse gases in Arizona, the California legislature enacted AB 32 and SB 1368 in 2006 to address
greenhouse gas emissions. In October 2011, the California Air Resources Board approved final
regulations that will establish a state-wide cap on greenhouse gas emissions beginning on January 1,
2013 and will establish a greenhouse gas allowance trading program under that cap. The first phase of
the program, which will apply to, among other entities, electric utilities and importers of electricity, is
scheduled to commence on January 1, 2013. In addition, in 2010 the New Mexico Environmental
Improvement Board enacted a greenhouse gas cap-and-trade program, which was repealed on
February 6, 2012, and an emissions cap, which is scheduled to become effective in 2013 but is
undergoing further review.
We are monitoring Arizona regulatory activities and other state legislative developments to
understand the extent to which they may affect our business, including our sales into the impacted
states or the ability of our out-of-state power plant participants to continue their participation in certain
coal-fired power plants. In particular, SCE, a participant in Four Corners, has indicated that SB 1368
may prohibit it from making emission control expenditures at the plant. (See “Energy Sources and
Resource Planning – Generation Facilities – Coal Fueled Generating Facilities – Four Corners” above
for details of the pending sale of SCE’s interest in Four Corners to APS.)
Regulatory Initiatives. In December 2009, the EPA determined that greenhouse gas emissions
endanger public health and welfare. This determination was made in response to a 2007 United States
Supreme Court ruling that greenhouse gases fit within the Clean Air Act’s broad definition of “air
pollutant” and, as a result, the EPA has the authority to regulate greenhouse gas emissions of new
motor vehicles under the Clean Air Act. As a result of this “endangerment finding,” the EPA
determined that the Clean Air Act required new regulatory requirements for new and modified major
greenhouse gas emitting sources, including power plants. On June 3, 2010, the EPA issued a rule
under the Clean Air Act, known as the “tailoring rule,” establishing new greenhouse gas emissions
thresholds that determine when sources, including power plants, must obtain air operating permits or
New Source Review permits. “New Source Review” is a pre-construction permitting program under
the Clean Air Act that requires analysis of pollution controls prior to building a new stationary source
or making major modifications to an existing stationary source. The tailoring rule became effective on
August 2, 2010 and it became applicable to power plants on January 2, 2011. Several groups have filed
lawsuits challenging the EPA’s endangerment finding and the tailoring rule, and that litigation