APS 2012 Annual Report Download - page 152

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
127
other Four Corners participants filed motions to dismiss, which are pending. We are unable to
determine a range of potential losses that are reasonably possible of occurring.
Environmental Matters
APS is subject to numerous environmental laws and regulations affecting many aspects of its
present and future operations, including air emissions, water quality, wastewater discharges, solid waste,
hazardous waste, and CCR. These laws and regulations can change from time to time, imposing new
obligations on APS resulting in increased capital, operating, and other costs. Associated capital
expenditures or operating costs could be material. APS intends to seek recovery of any such
environmental compliance costs through our rates, but cannot predict whether it will obtain such
recovery. The following proposed and final rules involve material compliance costs to APS.
Regional Haze Rules. APS has received final rulemaking imposing new requirements on Four
Corners and Cholla and is currently awaiting a final rulemaking from EPA that could impose new
requirements on the Navajo Plant. EPA and ADEQ will require these plants to install pollution control
equipment that constitutes the best available retrofit technology to lessen the impacts of emissions on
visibility surrounding the plants. Based on EPA’s final standards, APS’s share of its total costs for
Four Corners (assuming the consummation of its purchase of SCE’s interest in Units 4 and 5 and
subsequent shut down of Units 1-3) could be approximately $300 million. APS’s share of costs for
upgrades at Navajo, based on EPA’s FIP proposal, could be up to approximately $158 million. APS has
filed a Petition for Review of EPA’s rule as it applies to Cholla, which, if not successful, will require
installation of controls with a cost to APS of approximately $187 million.
Mercury and Other Hazardous Air Pollutants. In 2011, EPA issued rules establishing
maximum achievable control technology standards to regulate emissions of mercury and other
hazardous air pollutants from fossil-fired plants. APS estimates that the cost for the remaining
equipment necessary to meet these standards is approximately $124 million for Cholla Units 1-3.
Estimated costs for Four Corners Units 1-3 are not included in our current environmental expenditure
estimates since our estimates assume the consummation of APS’s purchase of SCE’s interest in Four
Corners Units 4 and 5 and the subsequent shut down of Units 1-3. SRP, the operating agent for the
Navajo Plant, is still evaluating compliance options under the rules.
Other future environmental rules that could involve material compliance costs include those
related to cooling water intake structures, coal combustion waste, effluent limitations, ozone national
ambient air quality, greenhouse gas emissions and other rules or matters involving the Clean Air Act,
Endangered Species Act, the Navajo Nation, and water supplies for our power plants. The financial
impact of complying with these and other future environmental rules could jeopardize the economic
viability of our coal plants or the willingness or ability of power plant participants to fund any required
equipment upgrades or continue their participation in these plants. The economics of continuing to own
certain resources, particularly our coal plants, may deteriorate, warranting early retirement of those
plants, which may result in asset impairments. APS would seek recovery in rates for the book value of
any remaining investments in the plants as well as other costs related to early retirement, but cannot
predict whether it would obtain such recovery.