APS 2011 Annual Report Download - page 47

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a number of years to resolve. APS is one of a number of parties in a proceeding, filed March 13, 1975,
before the Eleventh Judicial District Court in New Mexico to adjudicate rights to a stream system from
which water for Four Corners is derived. An agreement reached with the Navajo Nation in 1985,
however, provides that if Four Corners loses a portion of its rights in the adjudication, the Navajo
Nation will provide, for an agreed upon cost, sufficient water from its allocation to offset the loss.
Gila River Adjudication. A summons served on APS in early 1986 required all water
claimants in the Lower Gila River Watershed in Arizona to assert any claims to water on or before
January 20, 1987, in an action pending in Maricopa County, Arizona, Superior Court. Palo Verde is
located within the geographic area subject to the summons. APS’s rights and the rights of the other
Palo Verde participants to the use of groundwater and effluent at Palo Verde are potentially at issue in
this action. As operating agent of Palo Verde, APS filed claims that dispute the court’s jurisdiction
over the Palo Verde participants’ groundwater rights and their contractual rights to effluent relating to
Palo Verde. Alternatively, APS seeks confirmation of such rights. Five of APS’s other power plants
are also located within the geographic area subject to the summons. APS’s claims dispute the court’s
jurisdiction over its groundwater rights with respect to these plants. Alternatively, APS seeks
confirmation of such rights. In November 1999, the Arizona Supreme Court issued a decision
confirming that certain groundwater rights may be available to the federal government and Indian
tribes. In addition, in September 2000, the Arizona Supreme Court issued a decision affirming the
lower court’s criteria for resolving groundwater claims. Litigation on both of these issues has
continued in the trial court. In December 2005, APS and other parties filed a petition with the Arizona
Supreme Court requesting interlocutory review of a September 2005 trial court order regarding
procedures for determining whether groundwater pumping is affecting surface water rights. The Court
denied the petition in May 2007, and the trial court is now proceeding with implementation of its 2005
order. No trial date concerning APS’s water rights claims has been set in this matter.
Little Colorado River Adjudication. APS has also filed claims to water in the Little Colorado
River Watershed in Arizona in an action pending in the Apache County, Arizona, Superior Court,
which was originally filed on September 5, 1985. APS’s groundwater resource utilized at Cholla is
within the geographic area subject to the adjudication and, therefore, is potentially at issue in the case.
APS’s claims dispute the court’s jurisdiction over its groundwater rights. Alternatively, APS seeks
confirmation of such rights. Other claims have been identified as ready for litigation in motions filed
with the court. No trial date concerning APS’s water rights claims has been set in this matter.
A number of parties, including APS, the Navajo Nation, the Hopi Tribe, and other claimants in
the Little Colorado River Adjudication have been engaged in settlement negotiations to resolve
competing water claims. On June 3, 2011, counsel for all the parties to the settlement discussions,
including APS, signed, on behalf of their respective clients, a document expressing their agreement to
recommend that the settlement be approved by their respective clients. Negotiations among the parties
continue. If ultimately approved by the parties, the United States Congress, and the Arizona
legislature, APS believes this settlement would be beneficial in protecting APS’s interest through its
resolution of any and all claims that the Navajo Nation and the Hopi Tribe may have to the Little
Colorado River system and source in Arizona.
Although the above matters remain subject to further evaluation, APS does not expect that the
described litigation or settlement will have a material adverse impact on its financial position, results of
operations or cash flows.