APS 2013 Annual Report Download - page 53

Table of Contents
Four Corners
Asset Purchase Agreement and Coal Supply Matters. SCE, a participant in Four Corners, previously indicated that certain California
legislation prohibited it from making emission control expenditures at the plant. On November 8, 2010, APS and SCE entered into the Asset Purchase
Agreement, providing for the purchase by APS of SCE’s 48% interest in each of Units 4 and 5 of Four Corners. On December 30, 2013, APS and SCE
closed this transaction. The final purchase price for the interest was approximately $182 million, subject to certain minor post-closing adjustments.
In connection with APS’s most recent retail rate case with the ACC, the ACC reserved the right to review the prudence of the Four Corners transaction
for cost recovery purposes upon the closing of the transaction. On December 30, 2013, APS filed an application with the ACC to request rate adjustments
prior to its next general rate case related to APS’s acquisition of SCE’s interest in Four Corners. If approved, these would result in an average bill impact to
residential customers of approximately 2%. APS cannot predict the outcome of this request.
Concurrently with the closing of the SCE transaction, BHP Billiton, the parent company of BNCC, the coal supplier and operator of the mine that
serves Four Corners, transferred its ownership of BNCC to NTEC, a company formed by the Navajo Nation to own the mine and develop other energy
projects. BHP Billiton will be retained by NTEC under contract as the mine manager and operator until July 2016. Also occurring concurrently with the
closing, the Four Corners’ co-owners executed the 2016 Coal Supply Agreement. El Paso, a 7% owner in Units 4 and 5 of Four Corners, did not sign the
2016 Coal Supply Agreement. Under the 2016 Coal Supply Agreement, APS has agreed to assume the 7% shortfall obligation. When APS ultimately
acquires a right to EPE’s interest in Four Corners, by agreement or operation of law, NTEC will have an option to purchase the interest within a certain
timeframe pursuant to an option granted by APS to NTEC. The 2016 Coal Supply Agreement contains alternate pricing terms for the 7% shortfall obligations
in the event NTEC does not exercise its option.
Pollution Control Investments and Shutdown of Units 1, 2 and 3. EPA, in its final regional haze rule for Four Corners, required the Four
Corners’ owners to elect one of two emissions alternatives to apply to the plant. On December 30, 2013, APS, on behalf of the co-owners, notified EPA that
they chose the alternative BART compliance strategy requiring the permanent closure of Units 1, 2 and 3 by January 1, 2014 and installation and operation of
SCR controls on Units 4 and 5 by July 31, 2018. On December 30, 2013, APS retired Units 1, 2 and 3.
Lease Extension. 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 are pursuing. A
federal environmental review is underway as part of the DOI review process. APS will also require a PSD permit from EPA to install SCR control technology
at Four Corners. APS cannot predict whether these federal approvals will be granted, and if so on a timely basis, or whether any conditions that may be
attached to them will be acceptable to the Four Corners owners.
Transmission and Delivery. APS is working closely with regulators to identify and plan for transmission needs that continue to support system
reliability, access to markets and renewable energy development. The capital expenditures table presented in the “Liquidity and Capital Resources” section
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