APS 2013 Annual Report Download - page 9

Table of Contents
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 a long-term agreement for the supply of coal to Four Corners from July 2016, when the current coal supply
agreement expires, through 2031 (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.
The Four Corners plant site is leased from the Navajo Nation and is also subject to an easement from the federal government. 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 Prevention of Significant Deterioration (“PSD”) permit from EPA to install selective catalytic reduction (“SCR”)
control technology at Four Corners, as described below under “Environmental Matters — EPA Environmental Regulation.” 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.
Cholla — Cholla is a 4-unit coal-fired power plant located in northeastern Arizona. APS operates the plant and owns 100% of Cholla Units 1, 2 and
3. PacifiCorp owns Cholla Unit 4, and APS operates that unit for PacifiCorp. APS has a total entitlement from Cholla of 647 MW. APS purchases all of
Cholla’s coal requirements from a coal supplier that mines all of the coal under long-term leases of coal reserves with the federal and state governments and
private landholders. The Cholla coal contract runs through 2024. In addition, APS has a long-term coal transportation contract.
Navajo Generating Station — The Navajo Plant is a 3-unit coal-fired power plant located in northern Arizona. Salt River Project operates the plant
and APS owns a 14% interest in Navajo Units 1, 2 and 3. APS has a total entitlement from the Navajo Plant of 315 MW. The Navajo Plant’s coal
requirements are purchased from a supplier with long-term leases from the Navajo Nation and the Hopi Tribe. The Navajo Plant is under contract with its
coal supplier through 2019, with extension rights through 2026. The Navajo Plant site is leased from the Navajo Nation and is also subject to an easement
from the federal government. The current lease expires in 2019.
These coal-fueled plants face uncertainties, including those related to existing and potential legislation and regulation, that could significantly impact
their economics and operations. See “Environmental Matters” below and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Overview and Capital Expenditures” in Item 7 for developments impacting these coal-fueled facilities. See Note 11 for information regarding
APS’s coal mine reclamation obligations.
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