Electrical generation is at the heart of our business. We obtain our energy from both APS-owned generating sources and from purchased power from merchant power producers (mostly natural gas plants).  In 2008, 20.3 percent of our total energy sources were from purchased power, generally under long-term contracts with merchant generators. In 2008, APS' coal-powered plants achieved a combined capacity factor of 86 percent, outpacing the industry average of 75 percent. The Palo Verde Nuclear Generating Station, which APS operates, achieved an overall capacity factor of 84 percent in 2008

APS Energy Mix
APS maintains a diversified fuel mix including coal, natural gas, oil and nuclear as well as renewable sources.  The projected energy mix in 2009 is:

• 38 percent Coal
• 31percent Natural Gas
• 27 percent Nuclear
• 2 percent Renewable
• 2 percent New Energy Efficiency

This fuel mix is part of our overall enterprise risk management efforts, and allows the company to better manage fuel-price volatility and allows us to enter into long-term fuel-purchasing agreements with our suppliers, reducing our costs and providing stable fuel sources into the future. In addition, it gives us operational flexibility so we can respond to changing markets and current events. Our fuel mix has been a significant factor in our ability to decrease our air-emissions intensity while continuing to add generation resources to meet our rapid customer growth. This is discussed in more detail in the Air Emissions section of this report. 

The majority of our renewable energy comes from purchased power, and is primarily reflected in the purchased energy section of the below Long-Term Resources chart.  Renewable energy is discussed in more detail in the Renewable Energy section of this report. 

We purchase approximately 97 percent of our coal locally. When feasible, energy is produced from local and regional fuel sources in an effort to limit the economic and environmental impact of transportation. More detail on our generating stations, fuel supply and purchased power may be found in the Investors section of our Pinnacle West Web site, including the 10K report.

APS-owned generating capacity and purchased power agreements in 2008 are shown below:

Generating Energy From Nuclear Power
Nuclear energy is an important part of our generation mix, and will be into the future, providing economic and environmental benefits, including significant air emissions avoidance.  APS nuclear generation is from the Palo Verde Nuclear Generating Station, located about 50 miles west of Phoenix, Arizona. Palo Verde is the largest nuclear generation facility in the United States and its three units produce about 30,000 GWh of energy annually (total plant). APS operates the plant and owns 29.1 percent of Palo Verde's Units 1 and 3 and about 17 percent of Unit 2.  In addition, APS leases about 12.1 percent of Unit 2, resulting in a 29.1 percent combined interest in that Unit. 

Nuclear power is a critical aspect of our climate change response, generating large amounts of electricity with essentially no carbon emissions.  Each year the electricity generated at Palo Verde helps avoid 31.7 million tons of CO2 emissions when compared to equivalent generation from a coal-fired power plant.  New, carbon-free nuclear energy is also identified as a potential source of future new generation,  as discussed in the Integrated Resource Plan section of this report.

In addition, recent major equipment-replacement projects completed at all three Palo Verde units resulted in the rating of the three units increasing from 3,810 MW to 4,008 MW, an increase of 198 MW in net generating capacity. This increased the efficiency of the nuclear plant and the carbon reduction benefits of the plant in our overall generation mix.

Nuclear power plant operators are required to enter into spent-fuel-disposal contracts with the Department of Energy (DOE), and the DOE is required to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Although the Nuclear Waste Policy Act required the DOE to develop a permanent repository for the storage and disposal of spent nuclear fuel by 1998, the DOE has announced that the repository cannot be completed before at least 2017.

Palo Verde Nuclear and other nuclear power plants produce two forms of radioactive waste: high-level waste and low-level waste. High-level waste consists primarily of spent nuclear fuel. This spent fuel is highly radioactive for many years, but can be safely stored in spent-fuel storage pools or specially designed and licensed spent-fuel storage casks.

We have existing spent fuel-storage pools at Palo Verde and are using a facility for on-site dry cask storage of spent fuel while we are awaiting the completion of a DOE Nuclear Waste Storage facility. With the existing storage pools and the addition of the on-site, dry-cask storage facility, we believe spent fuel-storage methods will be available for use by Palo Verde on-site to allow continued safe operation through the term of the operating license for each of Palo Verde’s three units. On average, Palo Verde replaces about 200 fuel assemblies annually.

Some low-level waste has been stored on-site in a low-level waste facility; however APS is currently shipping low-level waste to off-site disposal facilities which are permitted to accept these types of wastes. Examples of low-level waste include used protective clothing, resins and filters.

The increase in low-level wastes in 2008 was due primarily to approximately 900 cubic meters of low-level waste materials associated with a one-time removal project of a retention basin.

Nuclear Performance and Safety
In 2006, the performance at the Palo Verde Nuclear Generating Station dropped to disappointing levels, well below its previous world-class standards, and moved to Column 4 of the Nuclear Regulatory Commission's Action Matrix. Working closely with the NRC, in 2007 we implemented a performance-improvement program to restore the plant’s operations to previous levels of excellence.

On March 24, 2009, APS received a letter from NRC stating that Palo Verde has cleared the Confirmatory Action Letter and will move to Column 1 of the NRC Action Matrix. The communication noted that in addition to closing the Yellow Finding, the NRC also closed both substantive cross-cutting issues in human performance and problem identification and resolution

"Based on the results of these inspections, NRC has concluded that you have effectively addressed the causes which led to the safety performance decline and have notably improved safety performance, " said Elmo E. Collins, NRC's Region IV Administrator in a letter to APS. "Also, you have established programs and procedures which, if effectively implemented, provide a reasonable assurance that the performance improvements are sustainable. The commitments described in the CAL have been completed and these actions have been effective in addressing the specific performance issues."

Emergency Planning
Emergency planning for Palo Verde is a cooperative effort involving Pinnacle West Capital Corporation/Arizona Public Service Company (Operating Manager for Palo Verde), the State of Arizona, Maricopa County and the Town of Buckeye. All planning activities represent a comprehensive response to federal regulations and guidelines. The Arizona Division of Emergency Management's Radiological Emergency Preparedness Program has detailed information on emergency planning for Palo Verde.

Further discussion on NRC oversight and inspections at Palo Verde can also be found in our PNW 10K Report.