APS 2013 Annual Report Download - page 20

Table of Contents
Environmental Matters
Climate Change
Legislative Initiatives. There have been no recent attempts by Congress to pass legislation that would regulate greenhouse gas (“GHG”) emissions,
and it is unclear if and when the 113 Congress will consider a climate change bill. In the event climate change legislation ultimately passes, the actual
economic and operational impact of such legislation on APS depends on a variety of factors, none of which can be fully known until a law is enacted and the
specifics of the resulting program are established. These factors include the terms of the legislation with regard to allowed GHG emissions; the cost to reduce
emissions; in the event a cap-and-trade program is established, whether any permitted emissions allowances will be allocated to source operators free of cost or
auctioned (and, if so, the cost of those allowances in the marketplace) and whether offsets and other measures to moderate the costs of compliance will be
available; and, in the event of a carbon tax, the amount of the tax per pound of carbon dioxide (“CO ”) equivalent emitted.
In addition to federal legislative initiatives, state-specific initiatives may also impact our business. While Arizona has no pending legislation and no
proposed agency rule regulating GHGs in Arizona, the California legislature enacted AB 32 and SB 1368 in 2006 to address GHG emissions. In
October 2011, the California Air Resources Board approved final regulations that established a state-wide cap on GHG emissions beginning on January 1,
2013 and established a GHG allowance trading program under that cap. The first phase of the program, which applies to, among other entities, importers of
electricity, commenced on January 1, 2013. Under the program, entities selling electricity into California, including APS, must hold carbon allowances to
cover GHG emissions associated with electricity sales into California from outside the state. APS is authorized to recover the cost of these carbon allowances
through the PSA.
We continue to monitor Arizona regulatory activities and other state legislative developments to understand the extent to which they may affect our
business, including our sales into the impacted states or the ability of our out-of-state power plant participants to continue their participation in certain coal-
fired power plants. In particular, SCE, a prior participant in Four Corners, indicated that SB 1368 may prohibit it from making emission control
expenditures at the plant and, as a result, SCE sold its entire 48% interest in each of Units 4 and 5 of Four Corners to APS on December 30, 2013. (See
“Energy Sources and Resource Planning — Generation Facilities — Coal-Fueled Generating Facilities — Four Corners” above for details of the sale of SCE’s
interest in Four Corners to APS.)
Regulatory Initiatives. In 2009, EPA determined that GHG emissions endanger public health and welfare. This determination was made in
response to a 2007 United States Supreme Court ruling that GHGs fit within the Clean Air Act’s broad definition of “air pollutant” and, as a result, EPA has
the authority to regulate GHG emissions of new motor vehicles under the Clean Air Act. As a result of this “endangerment finding,” EPA determined that the
Clean Air Act required new regulatory requirements for new and modified major GHG emitting sources, including power plants. EPA issued a rule under the
Clean Air Act, known as the “tailoring rule,” establishing new GHG emissions thresholds that determine when sources, including power plants, must obtain
air operating permits or New Source Review permits. “New Source Review,” or “NSR,” is a pre-construction permitting program under the Clean Air Act that
requires analysis of pollution controls prior to building a new stationary source or making major modifications to an existing stationary source. The tailoring
rule became applicable to power plants in January 2011. Several groups filed lawsuits challenging EPA’s endangerment finding and the tailoring rule, but the
D.C. Circuit upheld these rules. Petitioners asked
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