APS 2013 Annual Report Download - page 132

Table of Contents
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
plants. Based on EPA’s final standards, APS’s 63% share of the cost of these controls for Four Corners Units 4 and 5 would be approximately $350 million.
APS’s share of costs for upgrades at Navajo, based on EPA’s FIP proposal, could be up to approximately $200 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 $200 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 $120 million for Cholla Units 2 and 3. No additional equipment is needed for Four Corners Units 4 and 5 to
comply with these rules. 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, GHG emissions, and other rules or matters involving the Clean Air Act, Clean
Water Act, ESA, 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.
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. We expect briefing in the case to be
completed on February 21, 2014.
New Mexico Tax Matter
On May 23, 2013, the New Mexico Taxation and Revenue Department issued a notice of assessment for coal severance surtax, penalty, and interest
totaling approximately $30 million related to coal supplied under the coal supply agreement for Four Corners (the “Assessment”). APS’s share of the
Assessment is approximately $12 million. For procedural reasons, on behalf of the Four Corners co-owners, including APS, the coal supplier made a partial
payment of the Assessment and immediately filed a refund claim with respect to that partial payment in August 2013. The New Mexico Taxation and Revenue
Department denied the refund claim. On December 19, 2013, the coal supplier and APS, on its own behalf and as operating agent for Four Corners, filed a
complaint with the New Mexico District Court contesting both the validity of the Assessment and the refund claim denial. APS believes the Assessment and
the refund claim denial are without merit, but cannot predict the timing or outcome of this litigation.
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