APS 2015 Annual Report Download - page 9

Table of Contents
transaction for cost recovery purposes upon the closing of the transaction. On December 23, 2014, the ACC approved rate adjustments
related to APS’s acquisition of SCE’s interest in Four Corners resulting in a revenue increase of $57.1 million on an annual basis. On
February 23, 2015, the ACC decision approving the rate adjustment was appealed. APS has intervened and is actively participating in
the proceeding. The Arizona Court of Appeals has suspended the appeal pending the Arizona Supreme Court's decision in the SIB
matter discussed in Note 3, which could have an effect on the outcome of this Four Corners proceeding. We cannot predict when or
how this matter will be resolved.
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. On February 17, 2015, 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 each of Units 4
and 5 of Four Corners. The cash purchase price, which will be subject to certain adjustments at closing, is immaterial in amount, and the
purchaser will assume El Paso's reclamation and decommissioning obligations associated with the 7% interest. Completion of the
purchase is subject to the receipt of certain regulatory approvals and is expected to occur in July 2016.
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. On December 29, 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
2016 Coal Supply Agreement contains alternate pricing terms for the 7% shortfall obligations in the event NTEC does not purchase the
interest.
EPA, in its final regional haze rule for Four Corners, required the Four Corners’ owners to elect one of two emissions
alternatives to apply to the plant. On December 30, 2013, APS, on behalf of the co-owners, notified EPA that they chose the alternative
BART compliance strategy requiring the permanent closure of Units 1, 2 and 3 by January 1, 2014 and installation and operation of
SCR controls on Units 4 and 5 by July 31, 2018. On December 30, 2013, APS retired Units 1, 2 and 3.
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 required the approval of the DOI, as did a related federal rights-of-way grant. A federal
environmental review was undertaken as part of the DOI review process and culminated in the issuance by the DOI of a record of
decision on July 17, 2015. The record of decision provided the authority for the Bureau of Indian Affairs to sign the lease amendments
and rights-of-way renewals, which occurred in late July 2015.
On December 21, 2015, several environmental groups filed a notice of intent to sue with OSM and other federal agencies under
the Endangered Species Act alleging that OSM's reliance on the Biological Opinion and Incidental Take Statement prepared in
connection with the environmental review described above were not in accordance with applicable law. We are monitoring this matter
and will intervene if a lawsuit is filed. We cannot predict the timing or outcome of this matter.
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