ACC Open Meeting – November 18, 2010

Four Corners Power Plant

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BackgroundPlant comprised of 5 generating units (2,100 MW)

Units 1, 2 & 3 solely owned by APS– Total of 560 MW

• Placed in service in 1963-1964

Units 4-5 jointly owned– Each unit is 770 MW

• Participants:– Southern California Edison (SCE)* (48%) – Arizona Public Service (15%) – Public Service of New Mexico (13%) – Salt River Project (10%) – Tucson Electric Power (7%) – El Paso Electric (7%)

• Placed in service in 1969-1970

739 MW231 MW200 MW154 MW108 MW108 MW

* SCE limited in ability to fund capital investment after 2011 is disallowed if “life extension” by

virtue of CPUC May 2010 decision

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Challenges

• Environmental Considerations

– NOx and PM – BART compliance required mid 2016 (all FC units)

– Ash – Implementation starting 2013 (all FC units)

– Mercury – Compliance late 2014 (FC units 1-3)

• Lease Renewal & Right-of-Way Agreement – Tribal Council vote expected soon

• BHP contract renewal– negotiations underway

• Ownership/Participant Considerations – Southern California Edison (“SCE”) must exit ownership of Units 4-5

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Environmental Considerations - BART• Issues

– EPA will be requiring the installation of additional pollution controls at Four Corners for particulate and NOx to improve regional haze in Class I Areas

• Status– On October 19, 2010, EPA published a proposed Regional Haze FIP

– The proposed determination would require:

• SCRs on Units 1-5

• Electrostatic Precipitators or Baghouses on Units 1-3

• Opacity limits for the stacks and on fugitive dust

• Timing– Public Hearings: December 2010

– Final Regional Haze FIP, Summer 2011

– Compliance required, Summer 2016

• Cost Impact– ~$585M Units 1-3 (baghouses + SCR)

– ~$75M Units 4-5 (APS current share)

– ~$240M Units 4-5 (SCE share)

Environmental Considerations - Ash• Issues

– In June 2010 EPA proposed a rule to regulate ash as either non-hazardous waste or hazardous waste; Either proposal will phase out the use of ash ponds for the disposal of ash

• Status

– The public comment period ends on November 19, 2010

• Timing

– Final rule expected in mid 2012

– Implementation could begin within six months following the rule. Certain disposal requirements may not be required for two to five years

• Cost Impact

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Non-Hazardous Hazardous

~$22M Units 1-3 ~$30M Units 1-3

~$20M Units 4-5 (APS & SCE) ~$58M Units 4-5 (APS & SCE)

Environmental Considerations - Mercury

• Issues

– EPA will be requiring mercury reductions from coal fired power plants

• Status

– EPA is gathering technical information to be used in writing these requirements; Four Corners has submitted their input

• Timing

– Proposed mercury rule, late 2010

– Final mercury rule, late 2011

– Compliance will be required by late 2014

• Cost Impact

– ~$235M Units 1-3 (baghouses, included in BART values)

– Units 4-5 are not impacted by this rule

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APS Four Corners Proposal• Purchase SCE’s share of Units 4 & 5• Retire Units 1,2 & 3• Benefits of the proposal:

1) Good for APS customers– Low-cost generating resource– Maintains a diverse portfolio

2) Good for the community– Preserves jobs & tax revenue for the Navajo Nation and local

community

3) Good for the environment– Significant emissions reductions…. lowers overall site emissions

with no increased APS carbon risk

• Proposal contingent upon ACC, CPUC, FERC approval, fuel agreement and lease renewal

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Resource Alternative Cost Comparison

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APS Customer BenefitNPV Savings ($M)

CC Capital Cost1

CO2 Price2

Gas Prices3

$750/kW $1,253/kW

$50/ton $0/ton

$4.00/mmBtu $7.50/mmBtu

$488

-500 -250 0 250 500 750 1000 1250 1500

SAVINGS/BENEFITSCOST

1) Combined cycle cost is for the generation only, i.e., excludes transmission2) CO2 price shown is in 2013. Prices escalate at 2.5% per year over the study period3) Gas prices shown are in 2015 $/MMBtu. Sensitivity represents +/- 30% stress test

$5.75/mmBtu

$20/ton

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Portfolio Diversity

COAL 14%

Community Benefits

Four Corners & BHP Navajo Mine (annually):– Payroll – Local Vendor Support– Taxes, fees, & royalties to Navajo Nation– State, local, and federal taxes

Location TotalNative

American% Native American

Power Plant 549 406 74%

BHP Mine 491 404 82%

Total 1040 810 78%

Four Corners contributes to over 1/3 of the Navajo Nation General Fund

$100M$20M

$65M $40M

Total $225M

Native American hiring preference at Four Corner

Power Plant and BHP Navajo Mine

Employees

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Site Emission Reductions w/ Approval

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Closing Comments

• The APS proposal is advantageous. It provides:

• Benefits to our customers….lowest cost resource alternative

• Benefits to the community….preserving jobs & tax revenue

• Benefits to the environment…. lowers overall site emissions

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