APS 2012 Annual Report Download - page 153

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Regional Haze Rules – Cholla
APS believes that EPA’s final rule as it applies to Cholla is unsupported and that EPA had no
basis for disapproving Arizona’s SIP and promulgating a FIP that is inconsistent with the state’s
considered BART determinations under the regional haze program. Accordingly, on February 1, 2013,
APS filed a Petition for Review of the final BART rule in the United States Court of Appeals for the
Ninth Circuit. The State of Arizona and three other utilities also filed similar petitions. On February 4,
2013, APS filed a Petition for Reconsideration and Stay of the final BART rule with EPA.
Financial Assurances
APS has entered into various agreements that require letters of credit for financial assurance
purposes. At December 31, 2012, approximately $76 million of letters of credit were outstanding to
support existing pollution control bonds of a similar amount. The letters of credit are available to fund
the payment of principal and interest of such debt obligations. One of these letters of credit expires in
2015 and two expire in 2016. APS has also entered into letters of credit to support certain equity
participants in the Palo Verde sale leaseback transactions (see Note 20 for further details on the Palo
Verde sale leaseback transactions). These letters of credit will expire December 31, 2015, and totaled
approximately $42 million at December 31, 2012. Additionally, APS has issued letters of credit to
support collateral obligations under certain risk management arrangements including certain natural gas
tolling contracts entered into with third parties. At December 31, 2012, $65 million of such letters of
credit were outstanding that will expire in 2013 and 2015.
We enter into agreements that include indemnification provisions relating to liabilities arising
from or related to certain of our agreements; most significantly, APS has agreed to indemnify the equity
participants and other parties in the Palo Verde sale leaseback transactions with respect to certain tax
matters. Generally, a maximum obligation is not explicitly stated in the indemnification provisions and,
therefore, the overall maximum amount of the obligation under such indemnification provisions cannot
be reasonably estimated. Based on historical experience and evaluation of the specific indemnities, we
do not believe that any material loss related to such indemnification provisions is likely.