Superfund Issues
APS was named in 2003 as a Potential Responsible Party in the Motorola 52nd Street Operable Unit 3 Superfund Site located in Phoenix, Arizona. In July 2004, APS completed negotiations with the EPA and signed a formal agreement, an Administrative Order of Consent. The agreement obligates APS to determine the extent, if any, of its contribution to the regional groundwater impacts, and if so, to identify options for addressing the company’s contribution to those impacts under the EPA’s oversight and guidelines.

APS has completed implementing the scope of work specified in the Administrative Order on Consent to evaluate potential groundwater impacts at our facility. The results of the groundwater investigation to date, indicate that volatile organic compounds have been detected in both the up and down gradient monitor wells at the APS facility at concentrations below the EPA’s Maximum Contaminant Level for drinking water with the exception of one downgradient well which has had concentrations of one volatile organic compound just above the Maximum Contaminant Level. APS has submitted a draft Remedial Investigation Repot to EPA for review and approval. Once EPA approves the Remedial Investigation Report it will be finalized. APS will continue to monitor the groundwater as part of the ongoing work specified in the Administrative Order on Consent.

APS continues to provide funding for the clean-up of the Hassayampa Landfill superfund site. APS sent industrial solid waste to this municipal landfill until it closed in the late 1970s. The facility was later designated as a federal superfund site and APS named as one of a number of PRPs. APS’ contribution to this clean-up effort is small, representing approximately 1.5 percent of the total annual assessment.

On April 25, 2008, the EPA informed APS that it may be a PRP in the Gila River Indian Reservation Superfund Site in Maricopa County, Arizona. APS, along with three other electric utility companies, owns a parcel of property on which a transmission pole and a portion of a transmission line are located. The property abuts the Gila River Indian Community boundary and, at one time, may have been part of an airfield where crop dusting took place. Currently, the EPA is only seeking payment from APS and four other PRPs for past clean up-related costs involving contamination from the crop dusting. Based upon the total amount of clean up costs reported by the EPA in its letter to APS, we do not expect that the resolution of this matter will have a material adverse impact on our financial position, results of operations or cash flows.

Manufactured Gas Plants
Manufactured Gas Plants (MGPs) operated from the late 1800s to about 1950, making synthetic gas for domestic heating and lighting purposes. Several predecessors of APS operated plants in Arizona communities including Phoenix, Globe, Miami, Prescott, Douglas and Yuma. The manufactured gas process created by-products including lampblack, tar and oils, some of which remained at the sites after operations ceased.

APS has voluntarily investigated and characterized our historical MGP sites. We have entered the MPG sites into the Arizona Department of Environmental Quality Voluntary Remediation Program, which is a program specificallly addressing the voluntary investigation and remediation of environmentally impacted sites in Arizona. The company began evaluating each site in 1993 to address any remaining material that may have been generated by MGP activities. We began remediating the sites in 1996. Below is the current status of our MGP remediation sites:

The Globe site is the location of a former MGP which operated during the first half of the 20th century. APS completed an environmental remediation of the former MGP site in 2008, under the guidance of the Arizona Department of Environmental Quality (ADEQ) Voluntary Remediation Program (VRP). The environmental remediation included excavation of 28,700 tons of soil and collection of over 85 confirmation soil samples. No contaminants of concern were found in the remaining site soils above residential Soil Remediation Levels or Groundwater Protection Levels. APS is seeking an No Further Action (NFA) determination from ADEQ for polynuclear aromatic hydrocarbons (PAHs), benzene, toluene, ethylbenzene, xylenes (BTEX), and total lead in soil.

Other Remediation Projects
The following table describes the current status of APS’ non-MGP remediation projects.

Toxic Release Inventory
Our company is required by the Environmental Protection Agency (EPA) to report applicable releases of chemicals listed by the EPA through its Toxic Release Inventory (TRI) program. Our reportable releases under the TRI program are primarily contained in our air emissions from coal fired power plants, or are contained within coal ash. While the TRI quantities reported by our company are fairly large (as is the case with most utility companies), the majority of these releases are captured by pollution control equipment, or are contained with our waste coal ash (much of which is recycled for beneficial use).  The below chart lists our 2007 TRI summary (2007 TRI report is due in July 2008 and was not available at the publication of this report).