APS 2012 Annual Report Download - page 75

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2012 and the closing date. The ACC reserved the right to review the prudence of the transaction for
cost recovery purposes in a future proceeding if the purchase closes. The ACC also authorized an
accounting deferral of certain costs associated with the purchase until any such cost recovery
proceeding concludes. The FERC application seeking authorization for the transaction was approved on
November 27, 2012. The principal remaining condition to closing is the negotiation and execution of a
new coal supply contract on terms reasonably acceptable to APS.
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.
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. 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 the ACC approved APS moving forward with the
purchase of Units 4 and 5, it also approved the recovery of any unrecovered costs associated with the
closure of Units 1, 2 and 3. The Settlement Agreement in APS’s most recent retail rate case allows APS
to seek a rate adjustment to reflect the Four Corners transaction should the transaction close (see Note
3).
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.
Transmission and Delivery. APS is working closely with regulators to identify and plan for
transmission needs resulting from the current focus on renewable energy. The capital expenditures table
presented in the “Liquidity and Capital Resources” section below includes the next three years of new
transmission projects along with other transmission costs for upgrades and replacements. APS is also