APS 2015 Annual Report Download - page 135

Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Clean Air Act Citizen Lawsuit
On October 4, 2011, Earthjustice, on behalf of several environmental organizations, filed a lawsuit in the United States District
Court for the District of New Mexico against APS and the other Four Corners participants alleging violations of the NSR provisions of
the Clean Air Act. Subsequent to filing its original Complaint, on January 6, 2012, Earthjustice filed a First Amended Complaint adding
claims for violations of the Clean Air Act’s NSPS program. The case was held in abeyance while APS negotiated a settlement with DOJ
and environmental plaintiffs. In March 2015, the parties agreed in principle to settle the case, and on June 24, 2015, DOJ lodged the
proposed consent decree with the United States District Court for the District of New Mexico. On August 17, 2015, the consent decree
was entered by the district court.
The settlement requires installation of pollution control technology and implementation of other measures to reduce sulfur
dioxide and nitrogen oxide emissions from the two Four Corners units, although installation of much of this equipment was already
planned in order to comply with EPA's Regional Haze Rule requirements. The settlement also requires the Four Corners co-owners to
pay a civil penalty of $1.5 million and spend $6.7 million for certain environmental mitigation projects to benefit the Navajo Nation.
APS is responsible for 15 percent of these costs based on its ownership interest in the units at the time of the alleged violations, which
does not result in a material impact on our financial position, results of operations or cash flows.
Environmental Matters
APS is subject to numerous environmental laws and regulations affecting many aspects of its present and future operations,
including air emissions, water quality, wastewater discharges, solid waste, hazardous waste, and CCRs. These laws and regulations can
change from time to time, imposing new obligations on APS resulting in increased capital, operating, and other costs. Associated
capital expenditures or operating costs could be material. APS intends to seek recovery of any such environmental compliance costs
through our rates, but cannot predict whether it will obtain such recovery. The following proposed and final rules involve material
compliance costs to APS.
Regional Haze Rules. APS has received the final rulemaking imposing new requirements on Four Corners, Cholla and the
Navajo Plant. EPA and ADEQ will require these plants to install pollution control equipment that constitutes BART to lessen the
impacts of emissions on visibility surrounding the plants.
Four Corners. Based on EPA’s final standards, APS estimates that its 63% share of the cost of these controls for Four Corners
Units 4 and 5 would be approximately $400 million. In addition, APS and El Paso entered into an asset purchase agreement providing
for the purchase by APS, or an affiliate of APS, of El Paso's 7% interest in Four Corners Units 4 and 5. When APS, or an affiliate of
APS, ultimately acquires El Paso's interest in Four Corners, NTEC has the option to purchase the interest within a certain timeframe
pursuant to an option granted by APS to NTEC. In December 2015, NTEC notified APS of its intent to exercise the option. APS is
negotiating a definitive purchase agreement with NTEC for the purchase of the 7% interest. The cost of the pollution controls related to
the 7% interest is approximately $45 million, which will be assumed by the ultimate owner of the 7% interest.
Navajo Plant. APS estimates that its share of costs for upgrades at the Navajo Plant, based on EPA’s FIP, could be up to
approximately $200 million. In October 2014, a coalition of environmental groups, an Indian tribe and others filed petitions for review
in the United States Court of Appeals for the Ninth Circuit asking the Court to review EPA's final BART rule for the Navajo Plant. We
cannot predict the outcome of this review process.
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