Eco-efficiency is a management philosophy that aims at minimizing ecological damage while maximizing efficiency of the firm's production processes.  While eco-efficiency at PNW takes many forms in our sustainability efforts, for the purpose of this report we are focusing on four primary areas that have some of the greatest potential in providing a cost effective energy future to our customers while continuing to reduce the environmental impacts and resource utilization associated with our product. These are forward looking, innovative approaches that look for new solutions or approaches to continually improve our sustainability effort.  Key areas in which we accomplish that include:

Renewable Energy
Renewable energy will be an increasing important part of our overall energy mix into the future.  It can provide a carbon-free source of energy, while at the same time diversifying our fuel mix and reducing exposure to price volatility and other concerns associated with fossil fuels.

Technology Innovation
The use of innovative new products and technologies will play a critical role in providing a sustainable energy future, providing new ways to deliver our product in a cost effective manner, improve customer service and system reliability and reduce negative impacts to our environment.

Demand Side Management / Energy Efficiency
Demand Side Management/energy efficiency is also a critical component of our overall program to achieve a sustainable energy future. We are helping our customers to understand how they can more effectively use energy, and providing resources and incentives for them to accomplish that goal.  By reducing the overall usage of electricity, we are preventing the emissions and use of resources needed to generate that electricity.

Supply Chain Management
Effective management of the materials and services provided by our suppliers is a critical aspect of sustainability.  This includes extending the focus upstream towards the suppliers and manufacturers, as well as downstream towards our customers and our recycling and reuse efforts.  By considering the environmental, social and economical facets of our supply chain, our company can help improve the environmental and social aspects of our communities, as well as achieving cost reductions and service improvements to our customers.  Our supply chain sustainability management is discussed primarily in the Supplier and Material & Chemical Management sections of this report.

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Under the RES,  in 2007 APS is required to have 5 percent of retail energy sold to come from renewable sources by 2015 and further increasing by 1 percent each year until 2025, when it reaches 15 percent.  APS renewable energy results in 2007 were communicated to the ACC in a Renewable Energy Programs Compliance Report. There is no specific obligation to fulfill any portion of that 15 percent with a particular renewable resource. The standard does require that nearly one-third of the total renewable portfolio consist of distributed energy. Distributed energy includes customer-owned, customer-generated electricity, such as solar photovoltaic (PV) rooftop systems.The distributed generation requirement begins at 5 percent in 2007, increasing 5 percent each year until it reaches 30 percent in 2012. In addition to this requirement, one-half of the distributed generation must come from residential applications, the other half from non-residential projects.

If all goes as planned, by 2025, around 4.5 percent (30 percent of 15 percent) of APS’ total energy sales will be generated by customers. Since it’s not practical to put up a windmill or start a biogas plant in most backyards, a large proportion of the residential distributed generation requirement likely will be met with solar projects. One measure of the popularity of APS’ distributed renewable incentive program, primarily roof-top solar installations, is the number of incentive payments that have been processed. Through the end of 2007, APS has provided over $12 million dollars to almost 1,600 APS customers.