APS 2012 Annual Report Download - page 30

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On December 19, 2012, BHP Billiton, the parent company of BNCC, the coal supplier and
operator of the mine that serves Four Corners, announced that it has entered into a Memorandum of
Understanding with the Navajo Nation setting out the key terms under which full ownership of BNCC
would be sold to the Navajo Nation. BHP Billiton would be retained by BNCC under contract as the
mine manager and operator until July 2016. Key terms of the new coal supply contract are being
finalized by the Navajo Nation and APS and the other Four Corners co-owners.
As a result of this proposed change in ownership of BNCC, APS now expects that a new coal
supply contract would be executed upon completion of negotiations and following the endorsement of
the transfer of ownership of the stock of BNCC to a new Navajo Nation commercial enterprise to be
established by the Navajo Nation Tribal Council. The decision of the Tribal Council is currently
expected to occur in the second quarter of 2013.
Pursuant to the Asset Purchase Agreement, either APS or SCE has a right to terminate the
Agreement if satisfaction of the closing conditions had not occurred by December 31, 2012, unless the
party seeking to terminate is then in breach of the Agreement.
The Four Corners plant site is leased from the Navajo Nation and is also subject to an easement
from the federal government. APS, on behalf of the Four Corners participants, negotiated amendments
to an existing facility lease with the Navajo Nation which extends the Four Corners leasehold interest
from 2016 to 2041. The Navajo Nation approved these amendments 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. These events would 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.
APS cannot predict whether the mutual right to terminate in the Asset Purchase Agreement will
be exercised by a party to that agreement in the future, whether BHP Billiton and the Navajo Nation
will consummate the transfer of ownership of BNCC, or whether the coal supply contract will be
finalized and executed, such that closing of APS’s purchase of SCE’s interest in Four Corners can
occur.
Cholla – Cholla is a 4-unit coal-fired power plant located in northeastern Arizona. APS
operates the plant and owns 100% of Cholla Units 1, 2 and 3. PacifiCorp owns Cholla Unit 4, and
APS operates that unit for PacifiCorp. APS has a total entitlement from Cholla of 647 MW. APS
purchases all of Cholla’s coal requirements from a coal supplier that mines all of the coal under long-
term leases of coal reserves with the federal government and private landholders. The Cholla coal
contract runs through 2024. APS believes that the current fuel contracts ensure the continued operation
of Cholla for its useful life. In addition, APS has a long-term coal transportation contract.
Navajo Generating Station – The Navajo Plant is a 3-unit coal-fired power plant located in
northern Arizona. Salt River Project operates the plant and APS owns a 14% interest in Navajo Units
1, 2 and 3. APS has a total entitlement from the Navajo Plant of 315 MW. The Navajo Plant’s coal
requirements are purchased from a supplier with long-term leases from the Navajo Nation and the Hopi