APS 2015 Annual Report Download - page 28

Table of Contents
Conflicting claims to limited amounts of water in the southwestern United States have resulted in numerous court actions,
which, in addition to future supply conditions, have the potential to impact APS’s operations.
San Juan River Adjudication. Both groundwater and surface water in areas important to APS’s operations have been the subject
of inquiries, claims, and legal proceedings, which will require a number of years to resolve. APS is one of a number of parties in a
proceeding, filed March 13, 1975, before the Eleventh Judicial District Court in New Mexico to adjudicate rights to a stream system
from which water for Four Corners is derived. An agreement reached with the Navajo Nation in 1985, however, provides that if Four
Corners loses a portion of its rights in the adjudication, the Navajo Nation will provide, for an agreed upon cost, sufficient water from
its allocation to offset the loss. In addition, APS is a party to a water contract that allows the company to secure water for Four Corners
in the event of a water shortage and is a party to a shortage sharing agreement, which provides for the apportionment of water supplies
to Four Corners in the event of a water shortage in the San Juan River Basin.
Gila River Adjudication. A summons served on APS in early 1986 required all water claimants in the Lower Gila River
Watershed in Arizona to assert any claims to water on or before January 20, 1987, in an action pending in Arizona Superior Court. Palo
Verde is located within the geographic area subject to the summons. APS’s rights and the rights of the other Palo Verde participants to
the use of groundwater and effluent at Palo Verde are potentially at issue in this action. As operating agent of Palo Verde, APS filed
claims that dispute the court’s jurisdiction over the Palo Verde participants’ groundwater rights and their contractual rights to effluent
relating to Palo Verde. Alternatively, APS seeks confirmation of such rights. Several of APS’s other power plants are also located within
the geographic area subject to the summons. APS’s claims dispute the court’s jurisdiction over APS’s groundwater rights with respect to
these plants. Alternatively, APS seeks confirmation of such rights. In November 1999, the Arizona Supreme Court issued a decision
confirming that certain groundwater rights may be available to the federal government and Indian tribes. In addition, in September
2000, the Arizona Supreme Court issued a decision affirming the lower court’s criteria for resolving groundwater claims. Litigation on
both of these issues has continued in the trial court. In December 2005, APS and other parties filed a petition with the Arizona Supreme
Court requesting interlocutory review of a September 2005 trial court order regarding procedures for determining whether groundwater
pumping is affecting surface water rights. The Arizona Supreme Court denied the petition in May 2007, and the trial court is now
proceeding with implementation of its 2005 order. No trial date concerning APS’s water rights claims has been set in this matter.
Little Colorado River Adjudication. APS has filed claims to water in the Little Colorado River Watershed in Arizona in an action
pending in the Apache County, Arizona, Superior Court, which was originally filed on September 5, 1985. APS’s groundwater resource
utilized at Cholla is within the geographic area subject to the adjudication and, therefore, is potentially at issue in the case. APS’s claims
dispute the court’s jurisdiction over its groundwater rights. Alternatively, APS seeks confirmation of such rights. Other claims have
been identified as ready for litigation in motions filed with the court. No trial date concerning APS’s water rights claims has been set in
this matter.
Although the above matters remain subject to further evaluation, APS does not expect that the described litigation will have a
material adverse impact on its financial position, results of operations, or cash flows.
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