We recognize that climate change is a real world problem that needs to be addressed. It is a long-term issue requiring long-term vision and steadfast effort. APS has responded to the challenges presented by climate change since 1995 when APS signed the Department of Energy Climate Challenge and committed to limiting emissions to 1990 levels by 2000.  In 2006, the United States Environmental Protection Agency awarded APS with its Climate Protection Award, which recognized the many efforts the company made over the past decade in climate change response. 

We are continuing to build on those past efforts with a comprehensive climate change program that includes a broad range of actions and programs that are designed to respond in a responsible manner to this issue, recognizing the governance, regulatory and strategic risk management aspects of climate change. 

Our climate change program includes:

• A  climate change governance structure that includes Board and Executive management engagement and oversight
• A written company position on climate change, which sets the foundation for APS legislative and regulatory intervention
• Establishment of a voluntary carbon emission intensity reduction goal
• Voluntary inventory and reporting of greenhouse gas (GHG) emissions, including becoming a founding member of The Climate Registry
• Legislative and regulatory monitoring and involvement at the federal and state levels
• Voluntary participation in the EPA’s SF6 Emission Reduction Partnership for Electric Power Systems
• Inclusion of carbon issues as a major component of our Integrated Resource Planning process for future energy sources
• Voluntary actions to reduce emissions at existing generating facilities through improved efficiencies and increased capacity
• Voluntary actions in carbon sequestration, capture and avoidance
• Technology innovation to identify low carbon energy sources, increase efficiencies, conserve energy, as well as innovative technologies to reduce emissions, or sequester, capture or avoid carbon emissions
• Addition of non-carbon emitting renewable energy resources
• An aggressive Demand Side Management / energy efficiency program to reduce electric demand both by our customers and our internal operations
• Engagement with concerned stakeholders through communications such as this report, stakeholder meetings as part of our Integrated Resource Planning process, voluntary participation in the Carbon Disclosure Project, and through the Arizona Corporation Commission regulatory process.
• Identification of potential physical, regulatory and financial risks to our company associated with climate change
• Fleet management activities, including measures to increase fleet miles per gallon and reduce miles traveled.
• Internal energy efficiency measures, includes building all new facilities in accordance with LEED standards.

We are also currently developing a Climate Management Report to comply with an Arizona Corporation Commission (ACC) order in which the ACC directed APS to undertake a climate management plan, carbon emission reduction study and commitment and action plan with public input and ACC review.  We expect to complete the report in 2008.

Climate Change Governance
Our climate change governance structure includes:

APS is a founding member of The Climate Registry

1. Board of Directors and executive management engagement
   and oversight
2. Public Disclosure
3. Emissions accounting
4. Strategic Planning, including incorporation into business operations, establishment of GHG reduction targets, and development and implementation of business strategies to reduce GHG emissions and to minimize exposure to regulatory, operational and other risks from climate change

Pinnacle West/APS Climate Change Position
APS supports a practical, long-term and sustainable approach to addressing climate change. The program must be national in scope and address all major sources of greenhouse gas emissions economy-wide.

Any program to reduce greenhouse gas emissions must realistically address the significant challenges presented by rapid growth in certain areas of the United States, like Arizona, which is one of the fastest growing states in the nation.

Under these rapid growth conditions short term mandates to roll-back greenhouse gas emissions to past levels are not realistic and will be practical only when low and no carbon technologies are commercially available to achieve the mandates AND meet the affordable energy needs of our customers.

Emission reduction goals must be predicated upon the development and commercial deployment of low and no carbon technologies. Timely and successful deployment of new energy technologies will require significant sustained levels of federal and state financial support.

In the short term, strategies should focus on (i) energy efficiency in all sectors of the economy, including transportation, construction, appliances, electric utilities and consumption patterns, (ii) deployment of cost effective renewable resources, and (iii) utilizing low and no carbon generation technologies that are available to address demand growth and fuel diversity risk.

In the longer term, APS supports a market based approach to addressing Climate Change, such as a cap and trade program. Such a program should be (i) phased-in and include a price cap to avoid the economic disruption that will occur in the event that the technology to achieve emission reductions are not developed or deployed, (ii)updated periodically to recognize and account for rapidly growing areas of the United States, (iii) conditioned to require participation by developing nations, and (iv) designed to create new economic opportunities arising from emerging new technologies and processes.

Any federal regulatory process and structure must avoid conflicts and redundancies with state climate change programs and be (i) crafted to allow regulatory rate-based treatment for associated costs, and (ii) developed to provide incentives for utilities to undertake early investment in low and no carbon technologies.

Finally, any legislation must recognize early action/investments to mitigate greenhouse gas emissions including the recognition of domestic and international greenhouse gas offsets.

APS Voluntary Climate Change Goal
We have established an internal voluntary climate change goal in our 2005-2010 business plan.
The goal: To reduce carbon intensity from electricity generated from APS owned power plant and APS purchased renewable generation by 10 percent in target year 2010 from a baseline year 2000.  The carbon intensity for this goal has reduced to 1,258 lbs/MWh in 2007 from 1,324 lb/MWh in baseline year 2000.  This is a 5 percent reduction. (Note that the carbon intensity number for the goal is different than the carbon intensity in the CO2 Emissions Rate graph below since the goal includes purchased renewable power, while the emissions graph is only APS owned generation. 

We will continue to work towards our 2010 goal to reduce CO2 emissions intensity.  In this short term time period our efforts primarily will be through increasing use of non-emitting renewable energy in our energy mix; increasing use of lower emitting natural gas; and improvements in power plant efficiencies and capacity which allows us to generate more electricity for the fuel burned.

We have considered an actual reduction goal, but with our continued growth in customers and energy demand, we wll need to increase supplies such as lower carbon natural gas peaking units, at least in the short term until new technology becomes commercially available. 

APS GHG Emissions Inventory
Based on an internal evaluation of APS direct emissions of greenhouse gases, more than 98 percent of GHG emissions at APS owned facilities is carbon dioxide coming from smokestack emissions at our fossil fuel power plants. About one percent of our overall GHG emissions are from sulfur hexafluoride (SF6) emissions from electrical equipment located across our system (SF6 is discussed further below). The remaining small contribution is from activities such as our fleet transportation (line trucks, bucket trucks and other company vehicles).  We have a number of programs in place to address each of these areas, examples of which are discussed in this report.

APS has participated since 1995 in the Department of Energy 1605(b) voluntary greenhouse gas emissions reporting program.  In 2007, APS became a founding member of The Climate Registry, and will begin reporting to the Registry with our 2008 GHG inventory.  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.

EPA SF6 Emission Reduction Partnership for Electric Power Systems
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....Read more

APS actions in carbon sequestration, capture and avoidance
From using algae to capture carbon emissions, to selling coal combustion byproducts for concrete production (reducing carbon emissions by the cement manufacturer), APS has a number of innovative programs exploring opportunities to reduce carbon burden in the atmosphere... Read more.

Up-Rating at PVNGS and Avoided GHG Emissions
The Palo Verde Nuclear Generating Station is the largest nuclear power plant in the U.S.  It is owned by a consortium of utilities, including APS, which holds the largest share (29.1 percent) and operates the plant. On average, the plant displaces about 30 million tons of CO2 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 end of 2007, the plant’s total generating capacity will be increased by 198 MW (to a total of 4,008MW), and it is estimated that it will avoid an additional 1.71 million tons of CO2 annually. APS’ share of that offset will be about 0.5 million tons per year. 

We have also implementing efficiency upgrades at our Cholla Power Plant.  An improved design of the steam turbine blades has improved the mechanical efficiency of the turbine, allowing the same amount of coal burn and same amount of steam flow to be used more efficiently to produce more power (watts). This results in more megawatts being provided to the customers per ton of coal being burned and thus, less CO2 being emitted per megawatt hour produced.

Potential physical, regulatory and financial risks to our company associated with climate change
Changes in the global climate may result in regional changes that might impact the physical or operational environment of an electric utility such as APS...Read more

Western Climate Initiative
In 2007, six western states, including Arizona, and two Canadian provinces entered into an accord, the Western Climate Initiative (WCI), to reduce greenhouse gas (GHG) emissions from automobiles and certain industries, including utilities.  In August 2007, the WCI set a goal of reducing GHG emissions 15% below 2005 levels by 2020.  By August 2008, the WCI intends to develop a plan for implementation of this goal, which includes a cap and trade program.  Any such implementation would require independent action by each individual state's or province's legislature or Governor to adopt a version of the plan.  APS has participated in an advisory capacity in the WCI process and will continue to monitor the impact of this Initiative.  As stated in our climate change position, above, APS believes that climate change programs, including cap and trade programs, should best be undertaken at the federal level rather than at the state level.  Having different state climate management programs across the country is neither efficient nor sustainable for this type of global issue.  It now appears that federal climate change legislation is likely within the next couple of years, and is supported by all of the presidential candidates.  If Arizona is going to adopt regional programs like the WCI, the program should include legislative involvement and approval.