APS 2015 Annual Report Download - page 51

Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with Pinnacle West’s Consolidated Financial Statements and APS’s
Consolidated Financial Statements and the related Notes that appear in Item 8 of this report. For information on factors that may cause
our actual future results to differ from those we currently seek or anticipate, see “Forward-Looking Statements” at the front of this report
and “Risk Factors” in Item 1A.
OVERVIEW
Pinnacle West owns all of the outstanding common stock of APS. APS is a vertically-integrated electric utility that provides
either retail or wholesale electric service to most of the state of Arizona, with the major exceptions of about one-half of the Phoenix
metropolitan area, the Tucson metropolitan area and Mohave County in northwestern Arizona. APS currently accounts for essentially
all of our revenues and earnings.
Areas of Business Focus
Operational Performance, Reliability and Recent Developments.
Nuclear. APS operates and is a joint owner of Palo Verde. The March 2011 earthquake and tsunamis in Japan and the resulting
accident at Japan’s Fukushima Daiichi nuclear power station had a significant impact on nuclear power operators worldwide. In the
aftermath of the accident, the NRC conducted an independent assessment to consider actions to address lessons learned from the
Fukushima events. The independent assessment, named the "Near Term Task Force," recommended a number of proposed
enhancements to U.S. commercial nuclear power plant equipment and emergency plans. The NRC has directed nuclear power plants to
begin implementing some of the Near Term Task Force’s recommendations. To implement these recommendations, Palo Verde expects
to spend approximately $0.5 million for capital enhancements to the plant through 2016 in addition to the approximate $125 million
that has already been spent on capital enhancements as of December 31, 2015 (APS’s share is 29.1%).
Coal and Related Environmental Matters and Transactions. APS is a joint owner of three coal-fired power plants and acts as
operating agent for two of the plants. APS is focused on the impacts on its coal fleet that may result from increased regulation and
potential legislation concerning GHG emissions. On June 2, 2014, EPA proposed a rule to limit carbon dioxide emissions from existing
power plants (the "Clean Power Plan"), and EPA finalized its proposal on August 3, 2015.
EPA’s nationwide CO2 emissions reduction goal is 32% below 2005 emission levels. As finalized for the state of Arizona and
the Navajo Nation, compliance with the Clean Power Plan could involve a shift in generation from coal to natural gas and renewable
generation. Until implementation plans for these jurisdictions are finalized, we are unable to determine the actual impacts to APS. APS
continually analyzes its long-range capital management plans to assess the potential effects of these changes, understanding that any
resulting regulation and legislation could impact the economic viability of certain plants, as well as the willingness or ability of power
plant participants to continue participation in such plants.
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