Climate change is one of the most significant environmental issues facing our global community. At APS, we recognize that climate change is a real-world problem that needs to be addressed. We also realize, however, that uncertainty surrounds many aspects of climate change policy. Estimates of the degree of restriction, the timing and the cost vary widely. There are enough doubts about – and enough doubters of – global warming that national legislative and regulatory action may not occur quickly. But on the other hand, individual states, cites and regions are taking action, and it cannot be ignored.

In contrast to this scattered activity, we think any climate change policy should be national in scope and comprehensive in its coverage. The utility industry, while a substantial contributor to greenhouse gas emissions should not be targeted exclusively – or burdened excessively. Instead, the utility industry should be provided with incentives to make early reductions to carbon emissions and/or carbon intensity, and any climate change legislation should clearly credit these early actions. This assurance, when combined with the ability to hedge its exposure in a robust “carbon allowances” market, would encourage innovation as well as early action.

Climate change is a long-term problem requiring long-term vision and steadfast effort. APS has been at the forefront of utilities that have taken prudent actions to respond to climate change issues. APS was one of the original signatories to the Department of Energy’s (DOE) Climate Challenge Program in 1994 and was one of the few utilities that committed to maintain system-wide GHG emissions in absolute tons to below the 1990 level at the target year 2000. Not only did APS meet its commitment to DOE in that program but also recently established a voluntary commitment in its 2005-2010 Business Plan to reduce carbon intensity in its power plant emissions by 10 percent in target year 2010 from a baseline year 2000. This goal is particularly noteworthy in light of the company’s rapidly increasing customer base.

Over time, the net effect of customer growth and increased electricity demand has been an increase in the overall company CO2 emissions, but with a corresponding reduction in CO2 intensity (lbs/MWH). This means APS has become more efficient at providing electricity to our customers with fewer CO2 emissions per megawatt-hour generated. This trend is projected to continue through 2012.

Early Green House Gas reduction (GHG) efforts, in the absence of a national regulatory program or a consensus methodology for GHG reduction credit tracking, have a risk of becoming stranded in future regulatory programs. APS is aware of this risk and is making efforts to try to preserve the value of early GHG efforts to the extent possible, including ongoing monitoring and evaluating of evolving GHG reporting programs and registries. 

Coordinating climate change efforts with our generation forecasting and planning efforts better allows APS to evaluate the potential financial and operating impacts of proposed legislation and regulatory programs, including cap and trade programs, and facilitates appropriate early actions for responding to this evolving issue in a competitive manner.

In addition to our efforts in renewable energy, here are some of our climate change response actions:

Ash Sales
U.S. power plants produce millions of tons of coal fly ash annually. APS is using its fly ash to help reduce greenhouse gases while adding to its bottom line. APS sells much of its fly ash to Salt River Materials Group for use in concrete production. This allows them to use the coal ash as a base product in cement production, eliminating their need to produce this material and significantly reducing their energy consumption in cement production. In 2005, APS recycled 658,380 tons of coal ash for cement production, reducing overall greenhouse gas emissions by over 100,000 tons of carbon dioxide in 2005.

EPA SF6 Partnership
In 2004, APS joined the EPA’s SF6 Emission Reduction Partnership for Electric Power Systems. This is a voluntary, collaborative effort between EPA and the electric power industry to identify and implement cost-effective solutions to reduce sulfur hexafluoride (SF6) emissions. SF6 is a highly potent greenhouse gas used for insulation and current interruption in electric transmission and distribution equipment. As part of this partnership, APS is taking voluntary efforts to significantly reduce SF6 emissions. APS' goal in the SF6 partnership is to reduce equipment leak rate from 18.38 percent in the base year of 2001, down to 5 percent by the end of 2008. APS implemented a number of industry-leading steps to reduce the leak rate, including:

• Utilizing SF6 recycling gas carts to minimize atmospheric releases by reclaiming and purifying the SF6, which was placed back into the equipment after service or repair activities
• Use of a laser-imaging camera to effectively identify SF6 leaks and confirm repairs
• Development of an inventory of our top priority SF6 containing equipment for planning the maintenance, repair and replacement activities of SF6 breakers

By the end of 2005, APS had reduced equipment leak rate to 6.8 percent, resulting in estimated reductions of 16,728 pounds of SF6 in 2005. Based on greenhouse gas potential, this reduction of SF6 is equivalent to almost 200,000 tons of carbon dioxide reduction.

PowerTree Carbon Company
To achieve additional CO2 reductions, APS joined 24 other electric utilities in the PowerTree Carbon Company, which plants trees in ecologically sensitive areas of the lower Mississippi Valley in cooperation with local and national, governmental and conservation organizations. Planting began in 2003 and over two million tons of CO2 are expected to be sequestered over the 100-year life of the project. In 2004, APS' share of PowerTree Carbon Company sequestration results was the equivalent of a reduction in 60 short tons of carbon dioxide.

Emission Reduction / Sequestration
APS has an active technology research and development program which is exploring new ways to reduce or sequester carbon dioxide emissions from existing and future electric generation. This includes the development of renewal energy sources, innovate pollution reduction technologies for fossil fuel power plants and other Clean Energy strategies.

In addition, we are looking at other types of innovative (and sometimes unusual) technologies that can help create a sustainable energy future and reduce greenhouse gases. An example of this effort is our Emissions to Fuel project which is evaluating the possibility of using carbon dioxide in stack emissions to grow algae, which will then be used for bio-fuel.  Another example is our Manure to Renewable Energy project, which explores using methane generated from animal wastes from Concentrated Animal Feeding Operations (CAFOs) to generate electricity and lower methane emissions, a powerful source of greenhouse gases.

Trees for the Rim
APS also partnered with Trees for the Rim, an organization dedicated to replanting trees on Arizona’s residential, commercial and community lands damaged by the Rodeo-Chedeski fires of June 2002. APS donated $25,000 and transported trees, provided volunteers, dug holes for the trees and will continue to be involved as the project unfolds.

Changes to Generation Mix
In addition to our other greenhouse gas-reducing projects, changes to APS’ generation mix have helped reduce the intensity of CO2 emissions measured in pounds per megawatt hour of energy. This reduction is illustrated in the chart above. Key to these reductions is the addition of high-efficiency natural gas capacity, increasing emphasis on renewable energy and the continual improvements at the Palo Verde Nuclear Generating Station.

On average, PVNGS displaces more than 32.6 million tons of carbon dioxide annually when compared to the equivalent amount of power produced by coal resources. About 9.5 million tons is APS’ annual share of the offset. By 2007, the plant’s total generating capacity will be increased by 210 MW, and it is estimated that it will avoid an additional 1.71 million tons of carbon dioxide annually. APS’ share of that offset will be about 0.5 million tons per year

Participation in Industry Climate Change Activities
APS employees build their knowledge of climate change issues through active involvement with industry groups with effective Climate Change programs and activities, including the Edison Electric Institute, the Electric Power Research Institute, the Center for Clean Air Policy and others.

Green House Gas Emission Reporting
APS voluntarily reports GHG emissions and GHG reduction results to the U.S. Department of Energy through DOE’s 1605(b) voluntary GHG reporting program. APS also provides an annual report to the EPA (starting in 2005) regarding results in SF6 emission reduction through the EPA Utility SF6 Partnership program.