APS 2015 Annual Report Download - page 11

Table of Contents
Palo Verde Leases — In 1986, APS entered into agreements with three separate lessor trust entities in order to sell and lease
back approximately 42% of its share of Palo Verde Unit 2 and certain common facilities. The leaseback was originally scheduled to
expire at the end of 2015 and contained options to renew the leases or to purchase the leased property for fair market value at the end
of the lease terms. On July 7, 2014, APS exercised the fixed rate lease renewal options. The length of the renewal options resulted in
APS retaining the assets through 2023 under one lease and 2033 under the other two leases. At the end of the lease renewal periods,
APS will have the option to purchase the leased assets at their fair market value, extend the leases for up to two years, or return the
assets to the lessors. See Note 18 for additional information regarding the Palo Verde Unit 2 sale leaseback transactions.
Palo Verde Operating Licenses — Operation of each of the three Palo Verde Units requires an operating license from the NRC.
The NRC issued full power operating licenses for Unit 1 in June 1985, Unit 2 in April 1986 and Unit 3 in November 1987, and issued
renewed operating licenses for each of the three units in April 2011, which extended the licenses for Units 1, 2 and 3 to June 2045,
April 2046 and November 2047, respectively.
Palo Verde Fuel Cycle — The Palo Verde participants are continually identifying their future nuclear fuel resource needs and
negotiating arrangements to fill those needs. The fuel cycle for Palo Verde is comprised of the following stages:
•mining and milling of uranium ore to produce uranium concentrates;
• conversion of uranium concentrates to uranium hexafluoride;
• enrichment of uranium hexafluoride;
• fabrication of fuel assemblies;
• utilization of fuel assemblies in reactors; and
• storage and disposal of spent nuclear fuel.
The Palo Verde participants have contracted for 100% of Palo Verde’s requirements for uranium concentrates and conversion
services through 2018 and 45% of its requirements in 2019-2025. The participants have also contracted for 100% of Palo Verde’s
enrichment services through 2020 and 20% of its enrichment services for 2021-2026; and all of Palo Verde’s fuel assembly fabrication
services through 2022.
Spent Nuclear Fuel and Waste Disposal — The Nuclear Waste Policy Act of 1982 (“NWPA”) required the DOE to accept,
transport, and dispose of spent nuclear fuel and high level waste generated by the nation’s nuclear power plants by 1998. The DOE’s
obligations are reflected in a contract for Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste (the “Standard
Contract”) with each nuclear power plant. The DOE failed to begin accepting spent nuclear fuel by 1998. APS is directly and
indirectly involved in several legal proceedings related to DOE’s failure to meet its statutory and contractual obligations regarding
acceptance of spent nuclear fuel and high level waste.
APS Lawsuit for Breach of Standard Contract — In December 2003, APS, acting on behalf of itself and the participant owners
of Palo Verde, filed a lawsuit against DOE in the U.S. Court of Federal Claims for damages incurred due to DOE’s breach of the
Standard Contract. The Court of Federal Claims ruled in favor of APS and the Palo Verde participants in October 2010 and awarded
$30.2 million in damages to APS and the Palo Verde participants for costs incurred through December 2006.
On December 19, 2012, APS, acting on behalf of itself and the participant owners of Palo Verde, filed a second breach of
contract lawsuit against the DOE. This lawsuit sought to recover damages incurred due to DOE’s failure to accept Palo Verde’s spent
nuclear fuel for the period beginning January 1, 2007 through June 30, 2011. On August 18, 2014, APS and DOE entered into a
settlement agreement, stipulating to a dismissal of the lawsuit and payment of $57.4 million by DOE to the Palo Verde owners for
certain specified
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