APS 2012 Annual Report Download - page 31

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Tribe. The Navajo Plant is under contract with its coal supplier through 2019. The Navajo Plant site is
leased from the Navajo Nation and is also subject to an easement from the federal government.
These coal-fueled plants face uncertainties, including those related to existing and potential
legislation and regulation, that could significantly impact their economics and operations. See
“Environmental Matters” below and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Overview and Capital Expenditures” in Item 7 for developments impacting
these coal-fueled facilities. See Note 11 for information regarding APS’s coal mine reclamation
obligations.
Nuclear
Palo Verde Nuclear Generating Station – Palo Verde is a 3-unit nuclear power plant located
about 50 miles west of Phoenix, Arizona. APS operates the plant and owns 29.1% of Palo Verde Units
1 and 3 and about 17% of Unit 2. In addition, APS leases about 12.1% of Unit 2, resulting in a 29.1%
combined ownership and leasehold interest in that Unit. APS has a total entitlement from Palo Verde
of 1,146 MW.
Palo Verde Leases – In 1986, APS entered into agreements with three separate lessor trust
entities in order to sell and lease back about 42% of its share of Palo Verde Unit 2 and certain common
facilities. In accordance with the VIE accounting guidance, APS consolidates the lessor trust entities
for financial reporting purposes, and eliminates lease accounting for these transactions. The
agreements have terms of 29.5 years (expiring at the end of 2015) and contain options to renew the
leases or to purchase the property for fair market value at the end of the lease terms. APS was required
to give notice to the respective lessor trusts between December 31, 2010 and December 31, 2012 if it
wished to retain the leased assets (without specifying whether it would purchase the leased assets or
extend the leases) or return the leased assets to the lessor trusts. On December 31, 2012, APS gave
notice to the respective lessor trusts informing them it will retain the leased assets. APS must give
notice to the respective lessor trusts by June 30, 2014 notifying them which of the purchase or lease
renewal options it will exercise. We are analyzing these options. See Note 20 for additional
information regarding the Palo Verde Unit 2 sale leaseback transactions.
Palo Verde Operating Licenses – Operation of each of the three Palo Verde Units requires an
operating license from the NRC. The NRC issued full power operating licenses for Unit 1 in June
1985, Unit 2 in April 1986 and Unit 3 in November 1987, and issued renewed operating licenses for
each of the three units in April 2011, which extended the licenses for Units 1, 2 and 3 to June 2045,
April 2046 and November 2047, respectively.
Palo Verde Fuel Cycle – The Palo Verde participants are continually identifying their future
nuclear fuel resource needs and negotiating arrangements to fill those needs. The fuel cycle for Palo
Verde is comprised of the following stages:
• mining and milling of uranium ore to produce uranium concentrates;
• conversion of uranium concentrates to uranium hexafluoride;
• enrichment of uranium hexafluoride;
• fabrication of fuel assemblies;
• utilization of fuel assemblies in reactors; and
• storage and disposal of spent nuclear fuel.