APS 2013 Annual Report Download - page 36

Table of Contents
The operation of power generation facilities and transmission systems involves risks that could result in reduced output or unscheduled outages,
which could materially affect APS’s results of operations.
The operation of power generation, transmission and distribution facilities involves certain risks, including the risk of breakdown or failure of
equipment, fuel interruption, and performance below expected levels of output or efficiency. Unscheduled outages, including extensions of scheduled outages
due to mechanical failures or other complications, occur from time to time and are an inherent risk of APS’s business. Because our transmission facilities are
interconnected with those of third parties, the operation of our facilities could be adversely affected by unexpected or uncontrollable events occurring on the
larger transmission power grid, and the operation or failure of our facilities could adversely affect the operations of others. If APS’s facilities operate below
expectations, especially during its peak seasons, it may lose revenue or incur additional expenses, including increased purchased power expenses. Concerns
over physical security of these assets is also increasing, which may require us to incur additional capital and operating costs to address. Damage to certain of
our facilities due to vandalism or other deliberate acts could lead to outages or other adverse effects.
The inability to successfully develop or acquire generation resources to meet reliability requirements, new or evolving standards or regulations
could adversely impact our business.
Potential changes in regulatory standards, impacts of new and existing laws and regulations, including environmental laws and regulations, and the
need to obtain certain regulatory approvals create uncertainty surrounding our generation portfolio. The current abundance of low, stably priced natural gas,
together with environmental and other concerns surrounding coal-fired generation resources, create strategic questions related to the appropriate generation
portfolio and fuel diversification mix. In addition, APS is required by the ACC to meet certain energy resource portfolio requirements such as the EES and the
RES. The development of any generation facility is subject to many risks, including risks related to financing, siting, permitting, technology, the
construction of sufficient transmission capacity to support these facilities and stresses to generation and transmission resources from intermittent generation
characteristics of renewable resources. APS’s inability to adequately develop or acquire the necessary generation resources could have a material adverse
impact on our business and results of operations.
The lack of access to sufficient supplies of water could have a material adverse impact on APS’s business and results of operations.
Assured supplies of water are important for APS’s generating plants. Water in the southwestern United States is limited, and various parties have
made conflicting claims regarding the right to access and use such limited supply of water. Both groundwater and surface water in areas important to APS’s
generating plants have been and are the subject of inquiries, claims and legal proceedings. In addition, the region in which APS’s power plants are located is
prone to drought conditions, which could potentially affect the plants’ water supplies. APS’s inability to access sufficient supplies of water could have a
material adverse impact on our business and results of operations.
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