APS 2011 Annual Report Download - page 74

50
proposed decision approving the sale, with a final decision expected in March. Closing is also
conditioned on the execution of a new coal supply contract, expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act and other typical closing conditions. Hearings at the
ACC concluded on September 1, 2011. We expect the administrative law judge to issue a recommended
decision in early 2012.
APS, on behalf of the Four Corners participants, has negotiated amendments to an existing
facility lease with the Navajo Nation which would extend the Four Corners leasehold 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 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. APS owns 100% of Units 1-3. These events will
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. When applying for approval to purchase Units 4 and 5, APS also
requested from the ACC recovery of any unrecovered costs associated with the closure of Units 1, 2
and 3. The proposed Settlement Agreement in APS’s current retail rate case allows for the case to
remain open to allow APS to seek a rate adjustment to reflect the Four Corners transaction should the
ACC allow APS to pursue the acquisition and should the transaction thereafter close.
APS cannot predict whether all of the conditions necessary to consummate the purchase of SCE’s
interest will be met such that closing can occur, including whether the parties will receive satisfactory
regulatory approvals.
Transmission and Delivery. In the area of transmission and delivery to its customers, APS had
its best reliability year to date and ranked favorably during 2011, with top quartile performance for
average annual customer outage time and average annual customer interruptions. APS’s 2012 Ten-Year
Transmission Plan filed with the ACC in January 2012 projects that it will invest approximately $550
million in new transmission projects (115 kV and above) over the next ten years, adding 269 miles of
new lines. The first three years of these additions are included in the capital expenditures table presented
in the “Liquidity and Capital Resources” section below along with other transmission costs for upgrades
and replacements. APS is working closely with regulators to identify and plan for transmission needs
resulting from the current focus on renewable energy. APS is also working to establish and expand
smart grid technology throughout its service territory designed to provide long-term benefits both to APS
and its customers. APS is piloting and deploying a variety of technologies that are intended to allow
customers to better monitor their energy use and needs, minimize system outage durations and the
number of customers that experience outages, and facilitate cost savings to APS through improved
reliability and the automation of certain distribution functions, including remote meter reading and
remote connects and disconnects.
Renewable Energy. The ACC approved the RES in 2006. The renewable energy requirement is
3.5% of retail electric sales in 2012 and increases annually until it reaches 15% in 2025. In the
settlement agreement related to the 2008 retail rate case, APS agreed to exceed the RES standards,
committing to 1,700 GWh of new renewable resources to be in service by year-end 2015 in addition to
its 2008 renewable resource commitments. Taken together, APS’s commitment is estimated to be 3,400