APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 242 1 (The afternoon session resumed at 1:05 p.m., 2 reported by Colette E. Ross, Certified Reporter.) 3 4 CALJ FARMER: Let's go back on the record. 5 Is APS ready to call your next witness? 6 MS. GRABEL: We are, Your Honor. Call Mr. Mark 7 Schiavoni to the stand. 8 9 MARK SCHIAVONI, 10 called as a witness on behalf of the Applicant, having 11 been first duly sworn by the Certified Reporter to speak 12 the truth and nothing but the truth, was examined and 13 testified as follows: 14 15 DIRECT EXAMINATION 16 BY MS. GRABEL: 17 Q. Mr. Schiavoni, would you please state your full 18 name and business address for the record. 19 A. Mark A. Schiavoni, Senior Vice President Fossil 20 Fuel Generation for Arizona Public Service; address, 400 21 North 4th Street -- no, 5th Street, excuse me -- Arizona 22 85004. 23 Q. You have already noted that you are employed by 24 Arizona Public Service and your capacity. What do you do 25 in that capacity?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 243 1 A. I have responsibility for all the fossil 2 generation within Arizona Public Service as well as the 3 renewable generation that we are bringing on line 4 currently. 5 Q. I believe, sir, you have in front of you two 6 documents that have previously been marked as -- I am 7 going to need help -- I believe it is APS Exhibits 9 and 8 10, is that correct? 9 A. 11 and 12. 10 Q. 11 and 12. Thank you. Do you recognize 11 Exhibit No. 11, sir? 12A. Yes, I do. 13 Q. Can you please describe it for the record. 14A. It is direct testimony of Mark A. Schiavoni on 15 behalf of Arizona Public Service, Docket 16 E-01345alpha-10. 17Q. Was that testimony prepared by you or under your 18 supervision and control? 19 A. Yes, it was. 20 Q. Do you have any corrections or updates to that 21 exhibit at this time? 22A. No, I do not. 23 Q. If I were to ask you the questions contained in 24APS Exhibit No. 11 would your answers today be the same as 25 they were then?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 244 1 A. Yes, they would. 2 Q. And if you will take a look, please, at APS 3 Exhibit No. 12, would you please identify that document 4 for the record. 5 A. Yes. It is rebuttal testimony of Mark A. 6 Schiavoni on behalf of Arizona Public Service Company, 7 Docket E-01345alpha-10-0474. 8 Q. Was that testimony also prepared by you or under 9 your supervision or control? 10 A. Yes, it was. 11Q. Do you have any corrections or updates to APS 12 Exhibit 12 at this time? 13 A. No, I do not. 14Q. And if I were to ask you the questions contained 15 in APS Exhibit 12, would your answers today be the same as 16 those contained within that document? 17A. Yes. 18Q. Do you have any corrections or updates to APS 19 Exhibit 12 at this time? 20 A. No, I do not. 21MS. GRABEL: At this time, Your Honor, I would 22 like to move APS Exhibits 11 and 12 into the record. 23 CALJ FARMER: Are there any objections to APS 24 Exhibits 11 or 12? 25(No response.)APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 245 1 CALJ FARMER: Hearing none, those exhibits are 2 admitted. 3 (Exhibits APS-11 and APS-12 were admitted into 4 evidence.) 5 BY MS. GRABEL: 6 Q. Quickly, Mr. Schiavoni, Judge Farmer yesterday 7 asked Mr. Schlissel to provide her with an update of the 8 status of pending environmental regulation at the Four 9 Corners. Would you like to update your testimony in that 10 regard? 11 A. Yes, I do. First off, what was brought up 12 yesterday talked through CO2, which the Federal Clean Air 13 Act, it is under new source review and new source 14 performance standards. That is anticipated. It will 15 not have one. 16 CCR, which was referred to yesterday in a 17 couple different ways, what that is is the RCRA, for 18 those who are familiar with it, the Resource 19 Conservation Recovery Act, and that is combustion, or 20 coal combustion residuals. And that rule has been in 21 various draft forms and proposed rules. 22 Mercury, the Clean Air Act, again, MACT is the 23 short term, but Maximum Achievable Control Technology, 24 and that is a proposed rule. 25 BART, which is from the Clean Air Act again,APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 246 1 with that is regional haze, Best Available Controllable 2 Technology -- Retrofit Technology. Excuse me. 3 And lastly, 316(b), which is the Clean Water 4 Act, which is for cooling water intakes, that rule has 5 been put out in draft form. Comments, I believe, are 6 due this week in fact. 7 Q. And, Mr. Schiavoni, do you know whether APS 8 considered the cost required by those regulations in the 9 present value revenue requirement analysis that it 10 conducted with respect to this proposed transaction? 11 A. Yes. For all of these proposed rules or these 12 things that are on EPA's agenda, we submitted and looked 13 at all these as part of our analysis of this acquisition 14 with the exception of the 316(b) Clean Water Act rule, 15 which was de minimus, very little cost for us to 16 implement at Four Corners 4 and 5. 17 MS. GRABEL: I have no further questions. He is 18 open for cross. 19 CALJ FARMER: Thank you. 20 Mr. Hogan, do you have questions? 21 MR. HOGAN: No. 22 CALJ FARMER: Mr. Ritchie? 23 MR. RITCHIE: Yes, Your Honor. 24 25APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 247 1 CROSS-EXAMINATION 2 BY MR. RITCHIE: 3 Q. Good afternoon, Mr. Schiavoni. My name is Travis 4 Ritchie for Sierra Club. 5 A. Good afternoon. 6 Q. And, Mr. Schiavoni, did you review the testimony 7 of David Schlissel submitted on behalf of Sierra Club in 8 this proceeding? 9 A. Yes, I did. 10 Q. And did you review both the confidential and 11 nonconfidential versions? 12A. I believe I only reviewed the redacted form. 13 Q. And do you have a copy of that testimony in front 14 of you? 15A. No, I do not. 16Q. If I may provide you one. And, Mr. Schiavoni, 17 could you please identify the document I just handed to 18 you. 19 A. Yes, intervenor testimony of David A. Schlissel 20 on behalf of Sierra Club, Docket E-01345alpha-10-0474. 21Q. And I believe that has been entered as 22 Exhibit SC-1. And that is the confidential version of the 23 testimony. 24Now, Mr. Schiavoni, we discussed this a little 25 bit before. Just to get us back there, how old are FourAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 248 1 Corners Units 4 and 5 right now? 2 A. 4 and 5 went into commission in 1969 and 1970 3 respectively. 4Q. So 41 years old? 5 A. Correct. 6 Q. And is it correct that APS stated in its 7 application that it intends to operate Units 4 and 5 until 8 2038? 9 A. That is correct. 10 Q. And do you know how old those units will be then? 11A. From -- it will be -- 12Q. 68? 13 A. I will be challenged by the math also. 70 plus. 14Q. And so is it your testimony that you believe that 15 there is -- let me back up. 16If you refer to page 4 of your rebuttal 17 testimony, sir -- 18A. Yes. 19 Q. -- line 7 and 8, if you could, please read the 20 sentence that starts there is no reason. 21A. There is no reason to believe that, if the units 22 are properly maintained, this trend will discontinue in 23 decades to come. In fact, the current end of life 24 assumption associated with these units, 2038 -- 25Q. And the trend you were talking about is theAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 249 1 consistent trend of the capacity factor, the historical 2 capacity factor, is that correct? 3 A. The historical performance of the units, that's 4 correct. 5 Q. And that assumption is the same assumption that 6 the levelized cost analysis made in the, in the 7 application submitted by APS, is that correct? 8 A. That is correct. 9 Q. Now, isn't it true, Mr. Schiavoni, that APS' 10 PROMOD analysis shows different trends for that? 11A. I am not sure. I don't have that information in 12 front of me. 13 MR. RITCHIE: Your Honor, I would like to 14 discuss a confidential exhibit that was provided by APS, 15 but I am sensitive to discussing that openly and I was 16 wondering what the procedures were for that. 17CALJ FARMER: Let's go off the record for a 18moment. 19 (An off-the-record discussion ensued.) 20 CALJ FARMER: Okay. Let's go back on the 21 record. 22 BY MR. RITCHIE: 23 Q. Thank you, Mr. Schiavoni. I just handed to you 24 a confidential exhibit that was provided to us by APS. It 25 was also included in Sierra Club confidentialAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 250 1 Exhibit SC-1, which is Mr. Schlissel's confidential 2 version of the testimony, and was included as an 3 attachment to that exhibit. 4 So, Mr. Schiavoni, going back to your statement 5 where you say there is no reason to believe that the 6 units, that the trend, the historical trend wouldn't 7 continue, if I could direct you, sir, to the column for 8 Four Corners Units 4 and 5 on the second graph of the 9 attachment that I handed to you. 10 A. Yes. 11 Q. Can you state what that column is, sir. 12 A. The second column or third column? 13 Q. It is the third column. 14 A. 4 and 5? 15 Q. Yes, Four Corners 4 and 5, correct. 16 A. Okay. It is indication of capacity factors from 17 2015 to 2030. 18 Q. And could you describe the trend of those 19 capacity factors. 20 A. Capacity factors vary from 81 percent to 21 75 percent over that time span. 22 Q. And I believe they actually go as low as 23 64 percent for at least one year in there, is that 24 correct? 25 A. That is correct.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 251 1 Q. So this actually does, wouldn't this show a 2 decreasing trend over that over the future time period of 3 Units 4 and 5 as far as the capacity factor? 4A. Strictly as a number, yes. But there are 5 variables that would cause that to decrease. 6 Q. That would cause the decrease to decrease, or -- 7 sorry. 8 A. Yes, the number to change. Your outage plan 9 schedules, you take defined outage periods. Those 10 outage periods, depending on what is being done during 11 those periods, they take the length of time the unit is 12 out, which contributes to the capacity factor. You have 13 other variables such as fuel prices and future fuel 14 contracts and what they look like and how the unit is 15 dispatched. 16So all this number is is a reflection of the 17 capacity that it is expected to produce in any given 18 year, how much of the total megawatts available are 19 being generated. So there are a lot of things that are 20 getting put in here that from a planning perspective 21 looks at those variables. 22Q. But this is a modeling analysis that APS used and 23 APS did plan that, if this transaction goes through, that 24 this is what it expects the capacity factors to look like 25 going forward?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 252 1 A. That is correct. 2 Q. But that's not using a, the same historical 3 figures that you testified to in your testimony, that we 4 wouldn't expect to see any change, correct? 5 A. That's correct. 6 Q. So, Mr. Schiavoni, you said there were various 7 reasons for why those capacity factors would change. But 8 at the end of the day that would mean that the Four 9 Corners Units 4 and 5 would be generating less power, is 10 that correct? 11A. Yes, they would be generating less based on 12market conditions at that particular point in time, 13 correct. 14Q. And how is it that APS would make up that type of 15 power loss in their portfolio? 16A. Well, normally through the resource planning, 17 you plan. And Mr. Dinkel would testify later and would 18 be better suited to answer that question. But from my 19 perspective, your resource planning dictates as load 20 growth changes, as in our case, we have energy 21 efficiency. We have other initiatives that look at 22 load. So it is much more a picture what happens to load 23 in the future. What the asset mix is in the future will 24 dictate how these units are dispatched. 25Q. Let's assume for -- let's take demand out for oneAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 253 1 second and just talk about power generation. Seeing these 2 numbers and seeing them decreasing actually means that 3 over time, if this modeling is true, you would have to 4 find power to replace what would otherwise be produced at 5 the capacity factors that we are currently seeing at 6 Arizona, or at Four Corners Units 4 and 5, correct? 7 A. If you made the assumption that the units are 8 not dispatching because of material condition, that 9 would be true. But that is not assumptions that are 10 being made here, as you see in the last year, 2030, 11 75 percent capacity factor. 12So it varies year to year based on what is going 13 on, one, with the market; secondly, what is going on 14with generation accessibility; and, third, what is going 15 on from an outage plant perspective. As I mentioned, 16 there are a lot of variables that go into making up 17 these numbers. But the basis of your question, from a 18maintenance perspective, that isn't what this is telling 19 you. 20 Q. So is it your testimony then that APS could 21 choose to continue to operate it at the current capacity 22 factor if they desire? 23 A. Yes. 24Q. But, so then, if you follow this modeling 25 analysis, is it your testimony that APS is requesting toAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 254 1 purchase an asset today that it then won't use as much in 2 the future? 3 A. No, that's not what I am saying at all. Again, 4 the resource planning and what is looked at, it looks at 5 everything as a portfolio, what is in there, what is the 6 best resource for the best application. 7 Again, I don't have the background in what went 8 into the resource planning for these particular numbers, 9 especially towards the end of life or the end of 2030, 10 but the maintenance and what you do dictates how well 11 those plants can run. My suspicion would be those 12 assets will perform, they will be close to 80 percent as 13 they have historically been. 14 Q. And as those plants age, there are operational 15 problems that could hypothetically reduce the capacity 16 factors and the ability to run that plant? 17 A. Absolutely. 18 Q. And what would APS do in that scenario? Would 19 you purchase power from somewhere else or would you find 20 something in your portfolio to replace that lost 21 generation? 22 A. Well, the immediacy of the need would dictate 23 what you would do. If you have a need today, for 24 example, then yes, then you would go into the market to 25 procure, if necessary, generation replacements lostAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 255 1 today. If it is a long-term need, then we -- you make a 2 decision, we do this every day, you make a decision what 3 type of repairs you do, how quickly you do the repair, 4 do you work around the clock, do you back it off, only 5 work day shift. So you are making a lot of decisions 6 real-time on how you handle material condition issues 7 that come up in power plants because you look at doing 8 it in the most cost effective manner. 9 Q. And those costs, even if they are cost effective, 10 those would be something that APS would expect to request 11 from the Commission recovery through rates, is that 12 correct? 13 A. Through our normal budgeting cycles. 14Q. So would APS in this be willing to guarantee the 15 capacity factors that you think are likely to continue for 16 the Arizona Four Corners units? 17A. I am sorry. Could you rephrase or say that 18 question again. 19 Q. I shouldn't have said Arizona in there. You 20 stated before that you believe there is no reason that the 21 units can't continue to operate at their current capacity 22 factors. If there was some operational reason for them to 23 drop below those capacity factors, would APS be willing to 24 essentially make up the difference and cover whatever 25 costs are necessary to make, to cover that gapAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 256 1 essentially? 2 A. It depends what the issue is. Again, I can't 3 see into the future what could be a scenario that would 4 play out that would dictate saying that we are not going 5 to go forward and make the repairs. We have had to do 6 that over the last 40 years of operation and we will 7 continue to do it in the future. So it would be too 8 hard for me to sit here and say if this condition 9 happened then we will take, we will absorb it, that if 10 something else happens, someone else will absorb it. It 11 is dictated by the condition that exists. 12Q. All right. Thank you. 13 Moving on, we discussed quite a bit about natural 14 gas as a different type of generating source. Can natural 15 gas combined cycle units serve as baseload power? 16A. Any generating resource can serve as baseload if 17 you so choose. So if all we have is renewal and you 18 have no other source of generation, de facto it becomes 19 baseload. So it is really predicated on what your 20 generation portfolio is. 21Baseload is normally the lowest cost in your 22 dispatch stack. And that's how it is determined. So 23 baseload, which is -- coal, nuclear, hydro normally fall 24 in the category of baseload because that is the lowest 25 cost generation for megawatts that have to be coveredAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 257 1 off peak, normal, around the clock, minus peak. Beyond, 2 then, you have intermediate, normally your gas falls in 3 intermediate type of dispatch, and then finally your 4 peaking assets. So it is really predicated on what you 5 have for resources to determine what the baseload has, 6 is. Excuse me. 7 Q. Under APS' current resource plan, they rely, or 8 you rely on natural gas as an intermediate source, as you 9 characterize it, is that correct? 10 A. That is correct. 11Q. And does that mean that you, as opposed to a 12 peaker -- it is somewhere between a peaker and baseload. 13 And my understanding, and please correct me if I am wrong 14 on this, is that you essentially turn them on during 15 expected high demand times so there are not necessarily 16 spikes and peaks, but when you know it is going to be, you 17 know, hot during the summer, that's when you plan to use 18 those resources, is that correct? 19 A. The load dictates when those resources are made 20 available and dispatched, that's correct. An example is 21 you have a peak in the morning when businesses are 22 turning on and starting up. You may need that for that 23 particular peak period of time because the load is above 24what the baseload resource it. So you would start the 25 combined cycle or the next lowest generating asset inAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 258 1 the dispatch stack that would come on line to serve that 2 load, and et cetera, all the way through until you get 3 to your CTs, which are the highest cost. 4Q. And so operating natural gas plants as 5 intermediate loads, that means that they are actually idle 6 for quite a bit of time, doesn't it? 7 A. Their capacity factor, our capacity factor is 8 roughly about 30 percent. 9 Q. And that actually brings up, if you would, turn 10 to page 21 of Mr. Schlissel's testimony. 11A. Yes. 12Q. So this is an excerpt from the historical 13 capacity factors in the two west Phoenix combined cycle 14 units, is that correct? 15A. That is correct, Table 3. 16Q. Yes, Table 3. Thank you. 17And so, as you said, it does appear that natural 18 gas, that APS operates its existing natural gas plants at 19 about a range between a 30 percent and a 47 percent 20 capacity factor, is that correct? 21A. Yes, on average, between west Phoenix 11 percent 22 to the 39 percent, that would be correct, about 23 30 percent total. 24Q. But those natural gas plants are capable of 25 operating at much higher capacity factors, isn't thatAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 259 1 correct? 2 A. That is correct. 3 Q. So it is the way that APS chooses to use those to 4meet the load that results in this very low capacity 5 factor? 6 A. It is the way the market dictates how they are 7 used which dictates when these are used. You are not 8 going to intentionally start them if they cost more to 9 put them on line if you have a cheaper resource 10 available. So a cheaper resource won't be displaced by 11 this. 12Q. But from a technical standpoint, if, say, Four 13 Corners was not available, you would be able to operate 14 these existing combined cycle units that APS owns at a 15 higher capacity factor? 16A. That is correct. 17Q. And thereby generating more electricity to meet 18 the load? 19 A. That's correct. 20 Q. Now, Mr. Schiavoni, I would like to reference the 21 Commission Decision No. 67744, which I believe established 22 the self-bid moratorium. And I believe that was 23 referenced in the application. 24A. Okay. 25Q. Are you aware of that decision?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 260 1 A. I am aware. I am not an expert in it by any 2 means. 3 Q. And isn't it correct that that decision, as part 4 of that decision, Pinnacle West, which I believe is APS' 5 parent company, was seeking permission to put, to transfer 6 to APS five natural gas plants to put into rate base, is 7 that correct? 8 A. I believe so. I am not familiar with the 9 details of what took place back then. I wasn't part of 10 the company back at that point in time. 11Q. But to your understanding, the natural gas plants 12 that are currently in APS' portfolio are in rate base? 13 A. Yes, they are. 14Q. And came from Pinnacle West? 15A. Yes. 16Q. Now, do you know if the self-build moratorium in 17 that decision was linked to that allowance for APS to 18 allow those five generating units into rate base? 19 A. I do not know. 20 Q. And, Mr. Schiavoni, we talked about intermediate 21 load generation. Can purchased power meet that need? 22A. Any power resource can meet that need. 23 Q. And APS would then use that as an intermediate, 24 so it is depending on the economics of it? 25A. Price-wise, if it meets price for thatAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 261 1 intermediate, absolutely. 2 Q. So if you were to use a natural gas plant as a 3 baseload plant and continue to operate it, then in order 4 to smooth your load, your load needs -- you could purchase 5 from the open market or could enter into power purchase 6 agreements that could meet intermediate needs? 7 A. If there is a need for it, yes, you could. 8 Q. And, Mr. Schiavoni, does APS have existing 9 long-term purchase agreements right now? 10 A. Yes, we do. 11Q. And those include natural gas or generation, 12 correct? 13 A. Yes, it does. 14Q. When APS negotiates those contracts, do you 15 consider natural gas fuel price volatility? 16A. When those contracts were negotiated, I am not 17 sure how they were negotiated or contracted, again, 18 Mr. Dinkel would be able to explain a little bit more 19 how those were set up or established, when they were 20 negotiated. 21Q. Could you speak to, generally speaking, when a 22 utility negotiates a power purchase agreement, do they 23 consider things like fuel price volatility in those 24 contracts? 25A. Yes. It is normally taken into account as partAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 262 1 of the contract requirements. And normally the provider 2 makes it a pass-through directly to the entity entering 3 in the contract. So if I needed to pass all the fuel 4 volatility to me and I accept the responsibility, fuel 5 volatility is normally the way it is structured in my 6 experience. 7 Q. In your experience the utility is still subject 8 to the risk of fuel price volatility? 9 A. That is correct. 10 Q. But you are not aware of whether or not the 11 existing power purchase agreements have a term that passes 12 through that? 13 A. Again, I am not certain how those are structured 14 for us. 15Q. And Mr. Dinkel is perhaps a better person to 16 answer that? 17A. Yes. 18Q. All right. Now, Mr. Schiavoni, going to your 19 rebuttal testimony on page 5 -- 20 A. Yes. 21Q. -- at lines 11 and 12, could you please state or 22 read the sentence beginning with no one but. 23 A. No one but APS has yet stepped forward to 24purchase SCE's interest, and it is highly unlikely that 25 anyone else will do so on the timeline required.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 263 1 Q. And that interest is referring to Four Corners 2 Units 4 and 5, correct? 3 A. That is correct. 4 Q. So, as far as you are aware, APS is the only 5 interested buyer in Four Corners Units 4 and 5? 6 A. Within -- yes. Southern Cal Edison offered the 7 current, existing owners an opportunity. Beyond that I 8 am not sure what Southern Cal Edison did to market their 9 share of the asset. 10 Q. But you are not aware of anybody else expressing 11 an interest? 12 A. No, I am not. 13 Q. And, now, you are aware, though, that all of the 14 other owners who have a right of first refusal did not 15 exercise that right, is that correct? 16 A. That is correct. 17 Q. And if I could refer you, sir, to that same 18 page 5, line 23 -- 19 A. Yes. 20 Q. -- the sentence starting in addition, if you 21 could, please read that. 22 A. In addition, several of the co-owners of Units 4 23 and 5 are also joint participants in multiple coal 24 facilities that face similar environmental issues as 25 those now facing Four Corners.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 264 1 

### Q. And the next sentence as well, please, sir. 2 

### A. As I see it, uncertainty about the future of 3 

### those other resources makes even more dubious the 4 

### co-owners' interest in investing further in Four 5 

### Corners. 6 

### Q. What are the similar environmental issues that 7 

### are referred to in that statement? 8 

### A. Multiple owners -- and just to refresh, the 9 

### ownership makeup for Four Corners includes Salt River 10 

### Project, Tucson Electric, El Paso Electric, and Public 11 

### Service of New Mexico are other co-owners besides 12 

### Southern Cal Edison and ourselves. 13 

### Multiple owners are involved in different 14 

### projects from San Juan Generating Station located very 15 

### close to where this plant is located, as well as Navajo 16 

### Generating Station, so multiple owners including 17 

### ourselves. We are also part owner in Navajo Generating 18 

### Station. 19 

### Navajo Generating Station is facing much the 20 

### same set of circumstances that was, that we are facing 21 

### with Four Corners. They have an owner that must leave 22 

### the project by a date certain, 2019 in this case. So 23 

### with that project, Navajo Generating Station, it is 24 

### ourselves, Salt River Project, and Tucson Electric. 25 

### They are also co-owners in that project.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 265 1 So you have an ownership change that has to 2 occur. You have the uncertainty around what the BART 3 rule is going to be like for Navajo Generating Station. 4 We have federal draft implementation plans that have 5 already been put forth by the EPA for our facilities. 6 Navajo Generating Station does not have that yet. So 7 there is still uncertainty what the rules will look like 8 for BART for Navajo Generating Station. 9 And San Juan Generating Station is going through 10 the same exercise with the State of New Mexico around 11 their BART process. That ownership share includes 12 Public Service of New Mexico and Tucson Electric. 13 So you have multiple owners that have multiple 14 power plants that are facing similar type issues, 15 whether it is one party has to leave the project or 16 there is environmental regulations that are coming forth 17 and there is uncertainty around those regulations. 18 Four Corners 4 and 5, we have a clear picture of 19 regulation now that we have the draft federal 20 implementation plan. So we have more certainty on what 21 that future looks like for that power plant that the 22 other owners do not have the luxury of at the other 23 facilities currently. 24 Q. But that certainty is with respect to regional 25 haze rule and the BART requirements, correct?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 266 1 A. Regional haze as well as the other rules 2 pending, which we are all facing the same, as well as 3 with any coal plant in the country. 4Q. But the other rules pending, you mentioned, I 5 believe, MACT earlier as well as ozone and coal ash, you 6 don't have the certainty what those regulatory costs would 7 be with respect to Four Corners? 8 A. We have what we believe are worst case 9 scenarios, yes. Certainly you don't know, until you see 10 the final rule, you are not going to know what it is 11 going to look like. But we have modeled various 12 scenarios of what the rule could look like and put in 13 place what we think are the right things. 14Q. And do those create financial risks for investing 15 in this type of asset? 16A. No, because, again, we looked at those with 17 costs as part our model. 18Q. Well, let me rephrase. I didn't say unknown 19 risks. I just said financial risks. And in this case the 20 company may be willing to accept those risks, is that 21 accurate? 22A. I guess I am not sure what you are asking. 23 Would you repeat the question or rephrase it so I can 24 understand and try and -- 25Q. Sure. Let me try that again. These other, theseAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 267 1 additional regulations we talked about that have not been 2 finalized, there is a range of possibilities of what they 3 could require, correct? 4 A. Correct. 5 Q. And that range of possibilities also includes a 6 range of costs that could be imposed on the Four Corners 7 units, correct? 8 A. Correct. 9 Q. And so to the extent that those -- that there is 10 uncertainty of what that range might be, I would 11 characterize that as a financial risk. Is that accurate? 12 A. It is a financial risk if you can't bound it. 13 We think we have bound low and high, just like you do 14 with any investment. You are going to say this is my 15 risk both on the downside and the upside. We have done 16 that, if that's your question. 17 Q. So the risk is there but you believe you have 18 identified it? 19 A. That's correct. 20 Q. But, now, you didn't quantify that in the 21 application currently before this proceeding, is that 22 correct, other than the SCR? 23 A. We quantified -- well, within the, I would have 24 to relook at the application, but within that we have 25 modeled what we expected our costs to be with theAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 268 1 exception of 316(b) as I mentioned earlier. 2 So for mercury we had something what we think is 3 going to be a mercury cost, which is not very much 4 because, again, as was discussed earlier today, we 5 already had the baghouse and scrubbers. So those costs 6 were looked as part of our final analysis of what the 7 value proposition is for this asset. 8 Q. And you use the worst case scenarios in those 9 analyses? 10 A. Just we looked at most probable and have 11 evaluated all various scenarios. 12 Q. Now, moving on in your testimony on page 6, line 13 7 and 9, could you please read the sentence starting with 14 there simply. 15 A. There simply is a limited market for coal at 16 present given the environmental uncertainties and 17 related costs. 18 Q. And did you mean that statement to apply 19 specifically to the southwest or is that nationwide in 20 your understanding? 21 A. Ours was in relationship to, in general, what is 22 going on with coal across the country right now with the 23 number of plant closures, et cetera, as a result of 24 environmental uncertainties. 25 Q. And as you said, so contributing to thoseAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 269 1 environmental uncertainties are like the BART standard, I 2 believe in the east there is the transport rule that 3 recently came out, MACT standards, these various things we 4 have spoken about, those are the environmental 5 uncertainties that you are referring to? 6 A. No. Those are more certain. It is the one like 7 what just came out yesterday. We were waiting for 8 something to come out. You knew it was in the works. 9 And it came out. So now you can start evaluating what 10 the impact is going to be. 11And that's one thing. We are getting more 12 clarity on what the rules are going to look like in a 13 lot of these areas that have been uncertainties for 14years, not just recently, but most of these issues have 15 been longstanding issues 10 years or more that have been 16 ongoing and they are starting to be cleared up as far as 17 what these rules are going to look like. 18Q. But is it fair to say that your testimony at the 19 time you provided this, your rebuttal, is that those 20 uncertainties did create a limited market for coal, 21 correct? 22A. Yes. Uncertainty creates a limited market for 23 anything. It can any type of resource. PSD can create 24 an issue for gas plants, for example. It is an 25 uncertainty until you understand it. So any asset, anyAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 270 1 uncertainty you have can create a problem. In this case 2 environmental has been something that has created an 3 uncertainty. So the answer to your question is yes. 4Q. Now, Mr. Rose testified earlier today, he said 5 buying a coal plant right now is a great deal. Doesn't 6 this contradict the statement that you had in your 7 testimony that there is a limited market for coal right 8 now? 9 A. There may be a limited market. It doesn't 10 change the fact that the deals we are being offered and 11 we are looking at going after is a great deal. 12Q. Well, putting aside this specific deal, I believe 13 Mr. Rose testified to just the markets in general are 14 fantastic for coal at the moment. 15A. They are very low price. So if you are willing 16 to understand the outcomes potentially around 17 environmental, I would suspect it would be a good deal. 18 It is not a market that I am familiar with or involved 19 in. 20 Q. But despite Mr. Rose's characterization -- I will 21 withdraw that. 22So, Mr. Schiavoni, you mentioned that APS looked 23 at the risks of or the potentials for future environmental 24 regulations and calculated those probabilities, correct? 25And you included what I think you stated was the mostAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 271 1 probable analysis in what you submitted before for this 2 application, correct? 3 A. For where we had unknowns we put in what we 4 believe would be the outcomes in most of the cases. 5 And, again, I think Mr. Dinkel can better lay out the 6 variables that were involved, but we took worst case 7 where we thought it was appropriate. 8 Q. And as far as quantifying those, the only ones 9 you quantified were for the SCR pollution controls, 10 correct? 11 A. No. Again, we quantified around mercury. We 12 quantified around SCRs, or BART, which goes beyond just 13 SCR, but BART. We quantified coal ash regulation, 14 potential around coal ash regulation. So we did do more 15 than just SCRs. 16 Q. Did I hear this morning you thought they were de 17 minimus? 18 A. No. What I said, 316(b), Clean Water Act, would 19 be de minimus so it was not included in the analysis. 20 And just to provide clarity, mercury looks the 21 same way for us because of the scrubbers and baghouses, 22 at worst absorbing an injection system, which is again a 23 low cost item. 24 Q. So in my review of your testimony and the 25 information that APS provided, it looked to me like APSAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 272 1 

### predicted 239.6 million of pollution control costs, is 2 

### that correct? 3 

### A. 239, no, that would not be correct. I am not 4 

### sure where you are getting that number from. 5 

### Q. One moment. 6 

### Mr. Schiavoni, can you please identify the 7 

### document that I just handed to you. 8 

### A. This is APS' response to Sierra Club data 9 

### request SC 1.13, capital cost comparison table. 10 

### MR. RITCHIE: Your Honor, I would like to mark 11 

### this exhibit as Sierra Club Exhibit 6 and move it into 12 

### the record. 13 

### CALJ FARMER: Are there any objections to the 14 

### admission of Exhibit SC-6? 15 

### (No response.) 16 

### CALJ FARMER: Hearing none, it is admitted. 17 

### (Exhibit SC-6 was admitted into evidence.) 18 

### BY MR. RITCHIE: 19 

### Q. And, Your Honor, I do want to clarify for 20 

### purposes of this, the text response of this data request 21 

### does reference a confidential exhibit that was also 22 

### provided in the latter part of the question. That 23 

### confidential exhibit is not included here. 24 

### CALJ FARMER: Okay. 25 

### BY MR. RITCHIE:APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 273 1 Q. So, Mr. Schiavoni, if I could refer you to the 2 last page, which is a table titled capital cost 3 comparison, and as you will see there the top number on 4 the left, sir, is the 239.6 million. Does that represent 5 the expected cost for installing an SCR on 4 and 5? 6 A. For Southern California Edison's share, as I am, 7 as I look at this, I believe that's what we are talking 8 about here. So it is not inclusive of our share. 9 Q. Fair enough. For the share that you are 10 proposing to purchase? 11A. Correct. 12Q. Now, do you know the quantification of any other 13 additional pollution control cost in addition to the 14 239.6 million for, we will stick with, Edison's share? 15A. For Edison's share? No, not -- I don't have it 16 in front of me what their cap -- what their overall 17 capital cost was for Edison's share of additional 18 emissions. 19 Q. I guess, sir, what I am getting at, and I will 20 just go ahead, APS has presented that it believes that the 21 upcoming costs for installing pollution controls to Four 22 Corners Units 4 and 5 is this amount of 239.6 million. 23 But you are not asking for recovery of that in this 24proceeding, correct? That would be a later proceeding? 25A. That would be, that's correct.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 274 1 Q. Would you be willing during this proceeding to 2 stipulate to a cost cap at that amount for pollution 3 control retrofits for the lifetime of the Four Corners 4 units? 5 A. No, I would not be willing to do that because, 6 as you know, until you get into the actual rules, we 7 haven't settled on a BART, so I don't know what the 8 finding will look like. I am not sure what the final 9 rule is going to look like. So there is no way I can 10 provide any certainty today that says this is what the 11 costs will be until I see the final proposal from the 12 EPA, the approval proposal from the EPA. 13 Q. So as part of your transaction in this 14 application, you have requested an accounting mechanism to 15 recover, eventually, the purchase price of the Four 16 Corners Units 4 and 5, correct? 17A. That is correct. 18Q. And so that will be separated out from what these 19 pollution control costs would be and you seek to recover 20 those at a later date, correct? 21A. Pollution controls, like existing generation, 22 would be part of our normal doing business in the 23 future. 24Q. So would you agree at least that the purchase 25 price that you are requesting accounting treatment for isAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 275 1 

### not the total price, the total capital costs that APS 2 

### would be committing itself to in this plant, is that 3 

### correct? 4 

### A. No, I would not say that. The costs of what we 5 

### are paying for the power plant is for the power plant. 6 

### Costs beyond that time, once we have ownership, just 7 

### like we have today, we are the current owner of that 8 

### power plant and current owner within 4 and 5, that cost 9 

### gets dealt with when it comes through and we have a 10 

### process that it gets dealt with. 11 

### So will the cost be more? Yes, it is going to 12 

### be more for environmental controls if we so choose to do 13 

### those things. That is always going to be the case for 14 

### any plant modification that has to be done in the 15 

### future. 16 

### MR. RITCHIE: Your Honor, I have no further 17 

### questions. 18 

### CALJ FARMER: Mr. Robertson, do you have 19 

### questions for this witness? 20 

### MR. ROBERTSON: Yes, I do. Thank you, Your 21 

### Honor. 22 

### Your Honor, I have requested that there be 23 

### marked as Alliance Exhibits 2 and 3 for identification 24 

### copies of two sets of responses provided by APS to data 25 

### requests that were submitted earlier in this proceeding.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 276 1 Alliance Exhibit 2 is a copy of APS' July 5th, 2 2011 responses to data requests submitted by the Arizona 3 Competitive Power Alliance. And Alliance Exhibit 3 is a 4 copy of APS' responses to data requests previously 5 submitted by Southwest Western Power Group when it was a 6 party in this proceeding. And those responses were 7 dated May 19, 2011. 8 Prior to or right at the beginning of our noon 9 recess today, I provided copies of these two sets of 10 data requests and responses to Ms. Grabel. I don't know 11 if the witness has a set with him at this time and I 12 wanted to be sure he did before I began my 13 cross-examination. 14 15 CROSS-EXAMINATION 16 BY MR. ROBERTSON: 17 Q. Mr. Schiavoni, do you have those? And if not, I 18 have got extra copies here for you. 19 A. Mr. Robertson, I do have, I believe, what you 20 just referred to. 21 Q. Okay. Very good. 22 Let me begin my cross-examination then by 23 starting with Alliance Exhibit 2. And let me have you 24 turn to the first data request and response. That's 25 ACPA 1.1.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 277 1 But by way of background and perhaps somewhat by 2 way of foundation, would you describe for me the process 3 that APS uses when it is responding to data requests 4 submitted by various parties and, specifically in this 5 instance, the data requests submitted by the Arizona 6 Competitive Power Alliance. What was your involvement in 7 that process and what was the process that was used? 8 A. My involvement in the process is questions that 9 are directed towards me would come into my office. And 10 then, from there, we would develop our response or data 11 that's needed. And then, from there, it would go to our 12 regulatory staff for appropriate filing. 13 Q. Do I understand you correctly then that you were 14 directly involved in the development of the responses to 15 these data requests where you were identified as the 16 witness for the data request in question? 17A. Directly involved in review of the material that 18 was going forward, that is correct. I didn't write out 19 the responses. 20 Q. Correct. I understand that. And you did see the 21 response in its final form before it was sent back to the 22 party submitting the data request? 23 A. That is correct. 24Q. Okay. Let's start then with the response to 25ACPA 1.1. That response had inquired when Arizona PublicAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 278 1 Service Company first became aware that the State of 2 California had enacted and/or enrolled SB 1368. And the 3 response indicates APS became aware that the State of 4 California had enacted SB 1368 shortly after the 5 legislation was enacted in 2006. 6 Let me ask you. At that point in time, what was 7 APS' understanding of the nature and potential impact of 8 that legislation on Southern California Edison and its 9 participation in the Four Corners plant? 10 A. At that point in time -- let me back up. 11 When this was done in 2006 and when it came in 12 the company, how we looked at it or how APS reviewed 13 this was done internal to APS. I wasn't at APS at the 14 time. So the actual mechanics that they went through in 15 2006 I am not certain of, but I have been informed by my 16 folks, my organization, just as you saw here, they found 17 out about it through normal media and legal reviews that 18 were done with this. 19 Q. At what point in time did you begin your 20 employment with APS? 21 A. 2009. 22 Q. 2009. 23 A. That's correct. 24 Q. With reference to the enactment of SB 1368 in 25 2006, based on your discussions with your people, haveAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 279 1 they shared with you whether APS had any discussions or 2 did any analysis as to how that legislation might impact 3 the ability of Southern California Edison to continue to 4 be a participant in Units 4 and 5? 5 A. Not going back to 2006. When I came in 2009 and 6 was brought into this position, it was one of the 7 reviews that we did, was to better understand what the 8 implications and what types of things were going to 9 happen as a result of not only SB 1368 but, more 10 specifically, the interpretation of how this, how this 11 was being characterized by people in usage. 12We have a co-owners committee that come 13 together. So the six co-owners come together. Southern 14 Cal is part of that. And most of it has been through 15 briefings with Southern Cal Edison as to status as well 16 as our own legal staff and their reviews of this 17 particular bill. 18Q. Do you know whether in 2006 following the 19 enactment of SB 1368 the Four Corners co-owners committee 20 members had occasion to discuss or consider what the 21 impact of that legislation might be on Edison's ability to 22 continue to participate as a co-owner? 23 A. No, I do not. And there are, there are not 24minutes that are taken as part of those minutes, so I 25 have no records to go back and look what was discussedAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 280 1 during that time frame. 2 Q. All right. Let's turn to the next data request 3 response, which is 1.2. And in this data response, 4 inquiry was made as to when APS first became aware of the 5 rules adopted by the California Public Utilities 6 Commission to implement SB 1368. And the response 7 indicates that APS became aware that those emission 8 performance standard rules had been enacted in 2007. 9 So against the background of you telling me when 10 you joined the company, let me ask you: Do you know 11 whether in 2007 the members of the operating committee for 12 Four Corners had occasion to discuss or consider the 13 impact of those rules on the ability of Edison to be able 14 to continue to participate as a co-owner? 15A. No, I do not. 16Q. Let's turn now to the response to data request 17 ACPA 1.3. And here the inquiry was made as to when APS 18 first became aware of southern California Edison's 19 application for an exemption from the rules of the 20 California Public Utilities Commission. And in the 21 response it states: 22SCE indicated to APS that it intended to seek an 23 exemption from the aforesaid rules before SCE filed its 24petition for modification. APS became aware of SCE's 25 application for an exemption shortly after SCE filed itsAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 281 1 application. 2 Do you know whether as of that point in time 3 either internally within APS or among the membership of 4 the co-owners operating committee on the Four Corners 5 Units 4 and 5 discussions were had with regard to the 6 likelihood of Southern California Edison being able to 7 prevail with its petition? 8 A. No, I do not. 9 Q. Okay. And when you say no, you do not, I am 10 assuming that you are also including your state of 11 knowledge that you have acquired since you joined the 12 company in 2009, is that correct? 13 A. That is correct. 14Q. Okay. Let me go back to the response to data 15 request ACPA 1.3 for just a moment. Since joining the 16 company, have you by any chance learned the year and month 17 in which Southern California Edison filed its petition for 18modification, and, similarly, the year and month in which 19 Southern California Edison indicated it was going to be 20 filing such a petition? The response does not indicate a 21 year or a date. 22A. No, I do not when -- excuse me. I do not know 23 when they made that decision or when they decided. My 24 belief is it was filed sometime in 2007, I am not quite 25 certain of the time frame in 2007, with a subsequentAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 282 1 response in 2008 and again in 2010. 2 Q. Okay. Let's proceed now then to the response to 3 ACPA 1.4. And in that response, it states APS became 4 aware of the CPUC's denial of SCE's request for an 5 exemption shortly after the CPUC denied SCE's request for 6 an exemption. And further on in that response, there is 7 an indication in September of 2008 the CPUC denied SCE's 8 petition for modification. 9 Do you know as of that point in time whether 10 there were any discussions internally within APS or within 11 the co-owners operating committee of Units 4 and 5 as to 12 the impact or the likely effect of the California 13 Commission's denial of that petition on the future ability 14 of SCE to continue to participate in Units 4 and 5? 15A. Not from, not for the original decision 16 September 2008, I do not, no. 17Q. Okay. Now, in his same response there is a final 18 sentence that says in May 2010 the CPUC granted in part 19 SCE's petition for modification. 20 Do you know the difference between the original 21 denial in 2008 and then the subsequent granting in part in 22 2010? 23 A. My understanding, the differences were around 24what type of capital investment and the obligation to 25 prove whether life extension or not was the differenceAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 283 1 between the two. I am obviously much more familiar with 2 the 2010 decision and what came out of the 2010, but it 3 was revolving around how Southern Cal Edison could 4 recover their capital investments or their costs. 5 Q. Did the partial granting of the petition for 6 modification in 2010 address the problems that were 7 presented by SCE's original petition in any significant 8 manner? 9 A. Well, it solved the problem of the existing 10 investments they were making and recovering those 11 investments and what type of latitude. And my 12 understanding from the co-owners when I stepped in, what 13 we were trying to do was understand and get clarity 14 around what life extension meant. There was a lot of 15 debate and dialogue around life extension capital. And 16 that was the crux of this issue for us, as the other 17 owners, trying to understand better what can Southern 18 Cal Edison do and what can they not do. 19 Q. And what was the understanding as of May of 2010 20 when that partial granting of the petition for 21 modification occurred? 22 A. Well, all that did was provide clarity to 23 Southern Cal Edison in their minds from the Commission 24 on what costs they can incur, what costs they couldn't 25 incur, and what they have to do for future cost recoveryAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 284 1 on a year-by-year basis. So that just provided clarity 2 for them in how to deal with this. 3 As you are well aware in this, in our responses, 4 and we talk about it was in December of 2009, we had 5 already received, the owners had already received 6 written notification from Southern Cal Edison about 7 their intent with regards to the project. 8 Q. Were there -- strike that. 9 When you joined the company in 2009, were you 10 advised as to this circumstance involving Southern 11 California Edison, the California legislation, and the 12 rules of the California Public Utilities Commission? 13 A. Yes. I was advised that this was out there and 14 this had been an issue for Southern Cal Edison as far as 15 trying to understand what it meant to them as far as 16 their facilities that they were partial owners in 17 already. So my, my knowledge and understanding was much 18 more around the fact of what can Southern Cal Edison do 19 and how long can they stay in the project and what is 20 the implications of the owners with that. 21 Q. And first of all, who advised you of the 22 situation upon your commencement of employment with APS? 23 A. It would have been my predecessor as well as the 24 co-owners in one of our first meetings. 25 Q. And who was that individual?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 285 1 A. My predecessor was John Denman. 2 Q. And, secondly, what were you informed of with 3 regard to the situation you just described in terms of the 4 impact of the legislation and these rules and the action 5 of the California commission upon the anticipated ability 6 or inability of SCE to continue to be a project owner? 7 A. What I was informed of was that there was still 8 a lack of clarity of how the rule was going to be 9 applied and what the implications of the rule were going 10 to be for Four Corners specifically. With that, there 11 was much discussion and conversation around what we, the 12 other owners, felt that rule meant versus what Southern 13 Cal Edison may be interpreting that rule to mean. So 14 for us it was much more time spent trying to understand 15 the implication of the rule more than anything at this 16 point in time. 17Q. And what was the conclusion reached by the other 18 co-owners? 19 A. That there wasn't a conclusion. We continued 20 to, to this day we continue to struggle with some of the 21 implications of that rule. And, as with this 22 transaction, if this transaction doesn't, does not go 23 forward, we have the next three to four years, until 24 2016, to deal with still what we consider some ambiguity 25 in what Southern Cal Edison may be able to invest in orAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 286 1 not invest in. 2 Q. Would it be correct to say as of the point in 3 time that you joined APS in 2009, APS and the other 4 non-SCE owners of Units 4 and 5 were of the view that 5 there was a very real possibility that SCE might not be 6 able to continue its ownership interest in Units 4 and 5? 7 A. There was a point in time that the 8 discussions -- all of our discussions have taken place 9 back and forth. As we do with all ownership interest, 10 we have one owner that went out and looked at what else 11 they could do with themselves as part of this, as their 12 own cost structure, what the outcomes could be from 13 their own cost perspective. 14 We never reached a consensus of what the 15 potential outcome could be beyond the fact that 16 December of 2009 we formally got told what the outcome 17 from Southern Cal Edison's perspective was. So up until 18 that point in time, there was just much more in the way 19 of debate and discussions about the rule versus the 20 mechanics of what do you do if this rule in fact is 21 interpreted or used the way it appeared that it was 22 being used. 23 Q. Would it be correct to say that prior to 24 December of 2009, the non-SCE owners of Units 4 and 5 had 25 identified that there was the very real possibility thatAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 287 1 Edison might not be able to continue as an owner in 2 Units 4 and 5? 3 A. I couldn't tell you what the other owners 4 thought at that point in time as far as what Southern 5 Cal Edison was or was not going to do. As far as the 6 ownership question, again, when I got here in 7 December 2009, it was very clear what their intention 8 was going to be. We were in the middle of the lease 9 negotiation with the Navajo Nation. And they informed 10 us they could not be party, based on the California 11 ruling, to any lease or contractual extensions beyond 12 2016. So that's when we all got formally told that 13 Southern Cal Edison will no longer be part of that 14 project going forward. Up to that point, yes, I mean 15 there were many discussions about that potential. 16 Q. Okay. And that included discussions within APS, 17 is that correct? 18 A. With NAP? 19 Q. Yes, within APS as to the part that Edison might 20 not be able to continue. 21 A. Within my team, yes. 22 Q. Okay. Now, I think you just covered it but I 23 want to be sure. Specifically what did Edison advise the 24 company -- strike that. 25 Let's go to the company's response to dataAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 288 1 request ACPA 1.5. And that data request had inquired as 2 to on what date and by what means did SCE inform the other 3 owners in Units 4 and 5 that SCE, one, would not pay its 4 share of any costs for Units 4 and 5 that could be deemed 5 life extending of Units 4 and 5, and, two, would pull out 6 of the plant entirely by 2016. And the response indicates 7 on December 15, 2009, SCE sent the co-owners a 8 confidential letter notifying them of its intentions with 9 respect to Four Corners. 10 Could you be more specific as to what SCE 11 notified the other owners of at that point in time. 12A. They notified us that, formally, that they no 13 longer could participate in any contractual arrangements 14 that would go beyond the existing contractual 15 arrangements which all expired in 2016. They informed 16 us that capital investments could not be made that could 17 be interpreted as extending plant life by five years, or 18 beyond five years, excuse me. That was two key 19 components of the notification and their intention to 20 leave the project. 21And if there wasn't -- they also as part of the 22 letter notified us that they did not intend to market in 23 the open market their share of Four Corners 4 and 5 and 24 that they would offer the owners an opportunity to 25 acquire their share in an expeditious manner, and if itAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

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### could not be done in an expeditious manner, we should be 2 

### looking at making arrangements for a logical shutdown of 3 

### Units 4 and 5 starting in 2014 -- 4 

### Q. Did -- 5 

### A. -- from their perspective. 6 

### Q. Sorry. I didn't mean to speak before you 7 

### concluded. 8 

### Did Edison indicate why they would not offer 9 

### their share to a third party? 10 

### A. No, not specifically. I believe, as was 11 

### testified earlier by Mr. Rose, our arrangement at Four 12 

### Corners with the multiple owners allows for right of 13 

### first refusal on any owner. And I think for a third 14 

### party to come in and bid on a unit or an asset such as 15 

### this that any owner can match would be something that's 16 

### not normally seen or done. Why would I negotiate so 17 

### that one of those owners can take it away from me and I 18 

### don't have any recourse for that? 19 

### So they were in a position, and as we would 20 

### probably think the same way, why market this, and, 21 

### again, I don't know the facts, but I would surmise why 22 

### market something that at the end of the day the owners 23 

### can step in and take out from underneath someone. It 24 

### just doesn't make a lot of sense. And they didn't feel 25 

### probably there was going to be a willing participant inAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 290 1 there to look at this asset. 2 Q. In their December 2009 notification to the other 3 co-owners, did Edison indicate that if none of the other 4 co-owners were interested in acquiring its ownership 5 interest, then the only course of action that it would 6 consider would be to recommend shutting down the units? 7 A. No. It wasn't as formal as a recommendation. 8 It was what they felt was going to be a logical sequence 9 because of timing and coming up against the expiration 10 of our lease with the Navajo Nation, our fuel contract, 11 as well as the co-tenancy agreement. So their feeling, 12 or stated, was if this is done expeditiously, we will 13 probably be left with no other recourse than to shut 14 down the power plant. 15Q. That was perhaps more in the nature of conjecture 16 upon their part as opposed to intent? 17A. That's correct. This was not factual. We 18 hadn't discussed that as an owners group as a scenario 19 yet. 20 Q. As of that point in time, and we are now in 21 December of 2009, had any of the other owners indicated 22 that they might be interested in acquiring Edison's 23 ownership interest? 24A. We, APS, being the operator, we had a discussion 25 as the co-owners. And it was decided as part of thatAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 291 1 discussion that we individually would not go off and 2 negotiate, as I just indicated, as the ROFR. It would 3 not make a lot of sense to five of us to negotiate 4 separately with Southern Cal Edison. 5 So with that, you know, we, APS, said, well, we 6 are the owner, or the operator, we will take the lead on 7 the negotiation to see what can be had. 8 Individually, myself and another member of my 9 staff, we met with each owner and we had conversations 10 with each owner about their potential interests. There 11 was two schools of thought. Some had expressed 12 potential interest and others had no interest at that 13 particular point in time. But both, all of them said 14 emphatically that they would wait until they see the 15 final numbers, and, secondly, they would wait, that they 16 have an interest in continuing operation of those two 17 units, 4 and 5. So that was part of the conversation 18 that took place during that time frame when we were 19 trying to decide how to move forward with Southern Cal 20 Edison. 21Q. When you said they indicated they would wait 22 until they saw the final numbers, was there an implication 23 by those who made that statement that if APS were to 24 arrive at terms with Southern California Edison that, if 25 implemented, would enable continuation of the plant, thoseAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 292 1 others then implicitly would decline to exercise their 2 right of first refusal? 3 A. No, quite the contrary. In fact, the ROFRs went 4 to the last day in a couple circumstances. And, again, 5 you know, we, we are all owners of various facilities, 6 including this facility. So we are all together in 7 certain circumstances asset by asset. So I wouldn't say 8 that. I think people look very hard at this and were 9 trying to make a decision considering they had decisions 10 to make at two other power plants potentially, or 11 another power plant. So it was multiple. I would view 12 that as multiples were trying to figure out what is the 13 right thing for them strategically to do, not just at 14 Four Corners or the other assets they have in the Four 15 Corners like we do. 16Q. So as of that point in time is it your testimony, 17 and I just want to be sure I understand it, that there 18 were some other co-owners who, by saying they would wait 19 and see what the numbers look like, might possibly have 20 been parties who would potentially be interested in 21 stepping in and acquiring the ownership interest? 22A. It is possible. You know, I don't know what 23 happened in their offices with their staffs and with 24 their board or whatever. It is always possible. 25Q. But as of that point in time they had not takenAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 293 1 that possibility off the table, is that correct? 2 A. Well, they did when they submitted their ROFRs, 3 their right of first refusals. 4Q. That was subsequent, though, correct? 5 A. That is correct. 6 Q. When did these one-on-one discussions occur 7 between you and a member of your Staff and the other 8 co-owners of the plant other than Edison? 9 A. It took place just prior to us getting final 10 parameters of a deal done basically. So it was as we 11 were completing this deal last year. It took place 12 during that time frame. So I would imagine somewhere 13 between -- I can't recollect the exact time, but it was 14 just prior to us consummating this deal we had with 15 Southern Cal Edison. 16Q. Now, the application in this proceeding was filed 17 on November 22nd, 2010. Moving back from that, can you 18 estimate approximately when in 2010? 19 A. It would have been in the fall of 2010. 20 Q. It would have been in the fall of 2010. 21Mr. Rose earlier today expressed his opinion that 22 this was a transaction where the value, as he perceived 23 it, was on the order of $1 billion and yet the assets were 24 available to be acquired for 294 million. Do you know 25 whether the other co-owners of Units 4 and 5, other thanAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 294 1 SCE and APS, viewed the transaction the same way Mr. Rose 2 does? 3 A. I don't know. I would not have any knowledge 4 what the other owners believe of the transaction. 5 Q. Do you know why those other owners decided not to 6 exercise their right of first refusal? 7 A. No, I do not. 8 Q. Okay. Let's go now to data request ACPA 1.6. 9 And I am going to read that into the record and the 10 response just so that we have it all together in one 11 place. 12The data request reads as follows: With 13 reference to Article 1.1.68 and/or Article 8.4 of the 14November 8, 2010 purchase and sale agreement between SCE 15 and APS, would APS exercise its right to terminate and/or 16 withdraw from the agreement if the Arizona Corporation 17 Commission issued a decision, one, deferring final action 18 on APS' request for authorization to acquire SCE's 19 ownership interest in Units 4 and 5, and, two, directing 20 APS to conduct an RFP for proposals to provide APS with an 21 approximately equivalent amount of generation capacity 22 from other sources? 23 And the response indicates the addition of any 24 new process that would delay a resolution of this matter 25 and add new uncertainty to the conditions surroundingAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 295 1 Units 4 and 5 increases the risk that the transaction will 2 not be consummated. 3 Against that background, let me ask you: From 4APS' perspective, what factors would influence a final 5 decision by APS as to whether or not to terminate and/or 6 withdraw from the agreement with Edison? 7 A. The structure we have set up with this 8 transaction with California Edison is there are two 9 off-ramps for APS, one in March of 2011, or, excuse me, 10 2012, and one in December of 2012. California, Southern 11 Cal Edison also has the ability to terminate the 12 agreement in December of 2012. 13 As to your question, I will come to the answer 14 in a way that tries to set the stage for why we are here 15 from an expediency standpoint and why it is important 16 for us to have this resolved sooner rather than later. 17We are in the process of looking at an 18 acquisition of this 4 and 5 and closure of 1, 2 and 3 as 19 part of this transaction. With that said, in order to 20 meet the requirements that the draft BART has imposed or 21 is going to impose on us, that federal implementation 22 plan can go one of two ways. 23 It can require us to make the Units 1 through 5 24 compliant by 2016 environmentally, which then includes 25 controls that would have to be placed on 1, 2 and 3 asAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

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### well as 4 and 5. 2 

### The second piece is that compliance then would, 3 

### if you back it up, for just compliance in that space 4 

### would require us to start making capital investments in 5 

### 2012. So us as an owners group, we have to start 6 

### deciding are we going to make capital investments on 4 7 

### and 5 in 2012 without certainty that there is a 8 

### transaction that can be supported by APS or APS is not 9 

### going to walk or Southern Cal Edison is not going to 10 

### walk from this deal. No one is going to make that type 11 

### of investment without some sort of certainty of this. 12 

### The second piece of the capital is, if I close 13 

### 1, 2 and 3, in turn, we take auxiliary steam from 1, 2 14 

### and 3 to start up 4 and 5, I have put an auxiliary 15 

### boiler in place of those three remaining units. That 16 

### auxiliary boiler has to be permitted. And in order to 17 

### get permitted, our permits go through the federal 18 

### government. We don't have -- because it is on the 19 

### reservation, so the federal government controls the air 20 

### permits or permits at that site in conjunction or 21 

### consultation with the Navajo Nation. 22 

### In order to do that, to meet a 2013 or '14 or 23 

### '15 closure of 1, 2 or 3, again, permits take 24 

### approximately 12 to 18 months to put in place, which 25 

### then pushes out to 2000 -- mid 2013 if this isn't doneAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

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### by the beginning of next year, for example, and just 2 

### continues to move it out, which then delays closure of 3 

### 1, 2 and 3 and then delays closure of 1, 2 and 3. 4 

### What ends up happening is we may have no wiggle 5 

### room or no room -- excuse me, wiggle room is an 6 

### incorrect term -- no room in dealing with the EPA as far 7 

### as compliance space goes with new regulation with 8 

### regards to BART. So that's first off. 9 

### Second is the EPA, as I mentioned. The EPA has 10 

### issued our draft federal implementation plans. There 11 

### are two plans out there right now. One plan says 12 

### retrofit and make all five units meet BART and do that 13 

### by 2016. The second plan was part of a proposal that we 14 

### had made which was in conjunction with this that says we 15 

### will put SCRs or do the compliance for Units 4 and 5 in 16 

### 2018 and close 1, 2 and 3 by 2014. With that closure, 17 

### again, it gets muddied up or makes it more difficult if 18 

### I don't have an auxiliary boiler and I don't have the 19 

### things in place to be able to meet those compliance 20 

### dates or that offer we are asking for to move out SCRs 21 

### on 4 and 5 as well as closing 1, 2 and 3 earlier. So 22 

### EPA is the second part of it. 23 

### Which FIP will we want to use? This deal isn't 24 

### done. Then we will use the FIP that says keep all of 25 

### them open until 2016 and then go from there, becauseAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

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### then we would be talking about the owners. Do we close 2 

### 4 and 5? Do we retrofit 1, 2 and 3? We will have 3 

### different decisions we have to make. 4 

### Lastly is fuel contracts. We are in the middle 5 

### of negotiation of fuel contracts. Fuel contracts are 6 

### based on take. Well, if I am closing three units and I 7 

### have 4 and 5, my take on fuel is going to be different 8 

### than all five units available. If the power plant is 9 

### going to close in 2016, there is no need to negotiate a 10 

### new fuel agreement. So that agreement has to take place 11 

### or is in place right now and being negotiated, which 12 

### will have some finality to this by February of next year 13 

### potentially, 2012. 14 

### So it is important with all these moving pieces 15 

### that we sat back and we said how quickly do we have to 16 

### move, what do we have to do in order to make this 17 

### transaction work. There are a lot of moving pieces to 18 

### this. So that is why we say that the uncertainty that 19 

### can be caused by a decision by the Commission that would 20 

### not allow us potentially to have the deferral, as well 21 

### as looking at the RFP process, which, again, would take 22 

### time as it was explained by Mr. Rose this morning, 23 

### really would make this a much more difficult transaction 24 

### to consummate and it pretty much sets in motion 25 

### something that may ultimately cause a closure of FourAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 299 1 Corners altogether. 2 Long-winded answer to your question. 3 Q. You have imparted a lot of information and a lot 4 of moving pieces in that answer. And I am not sure I am 5 dealing with moving pieces or a maze, but let me see if I 6 can work my way through it a little bit. 7 Have the owners of Units 4 and 5 other than 8 Edison discussed what they would do if the Commission 9 denied APS' request for authorization to acquire Units 4 10 and 5? 11A. We are in process of contingency planning for 12 that eventuality now. 13 Q. Now, do the current EPA proposals or the 14 alternatives as you outlined it, I believe there were 15 three, do they dictate which way the owners, other than 16 SCE and Units 4 and 5, would go over or what their options 17 are if the Commission did not approve APS' request in this 18 proceeding? 19 A. No, not necessarily. And I would just make a 20 minor correction. There are only two proposals, two 21 federal implementation plans that have been proposed. 22 One is retrofit all five. The other one is close 1, 2 23 and 3, retrofit just 4 and 5. So that's the two 24proposals. 25That in itself has not dictated our course ofAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 300 1 action. That is just another economic decision that 2 gets made by each individual owner on what they want to 3 invest. 4 The circumstances are somewhat different because 5 of Southern Cal Edison's position or Southern California 6 Edison's need to leave the asset because they cannot be 7 engaged in a contractual engagement beyond 2016. Any 8 owner, including APS, at any point can say I want to 9 sell my share of the asset and do that. They have the 10 right to do that. 11 So each owner is individually making up their 12 own mind or looking at this from their own perspective 13 on what they are going to do, things or factors they are 14 going to take into account to continue to stay in this 15 process as they would in any generating project. 16 Q. If I understood a portion of your response 17 correctly a few moments ago, at the present time the 18 non-SCE co-owners of Units 4 and 5 are having contingency 19 plan discussions on what to do if the Commission did not 20 approve APS' request as to Units 4 and 5 in this 21 proceeding, is that correct? 22 A. We are starting that. We have not -- in fact, 23 we have a meeting the 2nd of August, and that's one of 24 the agenda items, to start looking at our contingencies 25 just on 4 and 5. Remember, the owners have no -- theyAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 301 1 are not owners in 1, 2 and 3. That's wholly owned by 2 APS. So that's our decision to make, not theirs. 3 Q. Right. That was my understanding. Would those 4 contingency plans impact APS' decision with regard to 5 Units 1, 2 and 3? 6 A. They may. We would have to look at it 7 economically again like we do with any decision we make 8 and what is the right thing for our customers. And 9 that's what drives our decisions. 10 Q. Okay. Now, this date of 2016, how does that come 11 about as a significant date? Is that a result of the 12 California legislation and the regulations of the 13 California commission or is that a date which arises from 14 a contract or an expiration of a contract or what? 15A. Yes, it is interesting. July of 2016 was used 16 for a lot of different things as part of this co-tenancy 17 and co-ownership agreement. The operating agreement 18 which designates us as operating agent expires in 2016. 19 The co-tenancy agreement, how we do business 20 collectively, expires in 2016. Our fuel agreement 21 expires in 2016. Our lease with the Navajo Nation was 22 set to expire in 2016. We agreed to the extension to 23 2041. That now needs to be approved by the Department 24 of Interior, but that also was set to expire in 2016. 25 So there were a lot of moving pieces that all were setAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 302 1 to expire at the same time. 2 What brought this then to a challenge or an 3 issue that we had is, again, Southern Cal Edison sending 4 us the letter that basically says they can't enter into 5 contracts that would extend beyond 2016. So all of 6 those agreements in place, including our lease with the 7 Navajo Nation, Southern Cal Edison is only a party to 8 that lease until 2016 or the consummation of this 9 transaction, nothing beyond that. So we have a separate 10 agreement signed by the remaining owners for 2016 and 11 beyond with the Nation. 12Q. With regard to the operating agreement and the 13 co-tenancy agreement, you indicated that they expire in 14 2016. Do they contain provisions that are frequently 15 found in agreements that provide for a year-to-year 16 extension in the absence of agreement upon termination or 17 a new agreement by the parties? 18A. Not that I am aware. The agreement ends in 19 July of '16. 20 Q. Okay. Is APS the likely entity to continue to be 21 the operator of Units 4 and 5 beyond 2016, regardless of 22 the transaction that's before the Commission in this 23 proceeding? 24A. Yes. 25Q. Okay. Let's go to data request ACPA 1.7. AndAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 303 1 here the inquiry is a little bit different. The data 2 request references the same provisions of the purchase and 3 sale agreement with Edison referred to in ACPA 1.6. But 4 the question posed is: Would APS exercise its right to 5 terminate and/or withdraw from the agreement if the ACC 6 issued a decision denying APS the type of accounting order 7 APS has requested in its application with respect to 8 Units 1, 2 and 3 at Four Corners? 9 And the response indicates the denial of any of 10 the requests made in the company's application increases 11 the risk that the transaction will not be consummated. 12Now, when that response refers to transaction, we 13 are talking about the transaction with respect to Units 4 14 and 5, correct? 15A. I believe so. This was Mr. Guldner's response. 16Q. Oh, I am sorry. I should have looked at the 17 bottom of the page. I will withdraw this line of inquiry 18 and save that for Mr. Guldner. 19 A. Thank you. 20 Q. Thank you. I got so wrapped up in the moving 21 parts. 22Let's move to Alliance Exhibit 3, which is the 23 company's responses to data requests which have been 24 submitted by Southwestern Power Group when it was a party 25 in this proceeding. And let me ask you by way ofAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 304 1 background and foundation, to your knowledge was the 2 process used in preparing the company's responses to this 3 data request the same that you have described was used in 4 responding to the data requests submitted by the Arizona 5 Competitive Power Alliance? 6 A. I am sorry. I do not have that, Mr. Robertson. 7 The Southwest, I do not have it. 8 Q. You don't have Alliance-3? 9 A. I do now. 10 Q. You do now. 11A. I believe I do now. 12Q. Because I have got an extra copy here. 13 A. No, I have it now. I am sorry. Could you 14 repeat your question. 15Q. Yes. My question at this point was by way of 16 background and foundation. Was the process that was used 17 in the company for preparing responses to these data 18 requests that you previously described the same as the 19 process that was used in connection with the data requests 20 submitted by the Alliance? 21A. Yes. 22Q. Okay. I do have a few questions with regard to 23 those data requests where you are indicated as the 24 responsive witness. Let's start with the response to 25 SWPG 1.1. And the data request had inquired whether anyAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 305 1 of the owners of Units 4 and 5 other than APS and SCE had 2 expressed any interest in acquiring all or a portion of 3 SCE's ownership interest in Units 4 and 5. And you 4 previously addressed that in your testimony. 5 And the response indicates: 6 No. The other owners at Four Corners had a right 7 of first refusal that expired March 8, 2011. None of the 8 owners exercised their rights of first refusal. 9 Against that background let me ask you this 10 question. Do you know whether any of the owners of 11 Units 4 and 5, other than Edison, have discussed the 12 possibility of shutting either Unit 4 or 5 and using the 13 remaining unit to satisfy their collective needs? 14A. There had been, well, discussions around a 15 scenario that may allow, that may -- I am sorry, a 16 scenario that would provide for partitioning. Our 17 co-tenancy agreement does not allow for partitioning. 18Q. You say it does or does not? 19 A. Does not. 20 Q. But that is something that could be addressed 21 through an amendment of the co-tenancy agreement? 22A. It is something we would have to look at from a 23 legal standpoint what could be done there. 24Q. Is that one of the topics that's going to be 25 addressed in these forthcoming contingency planningAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 306 1 discussions? 2 A. It very well may be. 3 Q. Okay. Let's take a look at the response to data 4 request SWPG 1.2. And the data request had inquired 5 whether the owners of Units 4 and 5 other than SCE had 6 reached a decision as to whether to continue the operation 7 of those units beyond 2016 in the event the Commission 8 does not approve APS' application in this proceeding. And 9 the response states the owners of Units 4 and 5 have not 10 reached a decision as to whether to continue to operate 11 those units beyond 2016 in the event the Commission does 12 not approve APS' application. 13 Now, you have indicated in your testimony this 14 afternoon there are some contingency discussions that are 15 planned with the first meeting beginning in August. That 16 would embrace the inquiry posed here, is that correct -- 17A. That is correct. 18Q. -- whether or not to continue? 19 Let's go to the response to data request 20 SWPG 1.3. And that data request inquired: In terms of 21 additional years, what would be the extended life of 22 Units 1, 2 and 3 at the Four Corners Generating Station if 23 they were retrofitted to comply with anticipated 24 environmental regulations applicable to such units? 25And the response says the life of the units wouldAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 307 1 be constrained by the term of the lease, 2041. And a 2 subset to the response goes on to state the cost is shown 3 on page 10, lines 9 to 14 of the application, the total 4 cost for units 1 through 3 would be approximately 5 $586 million. 6 Let me ask you this question. Given the 7 considerations indicated in this response, why would APS 8 make such an investment regardless of the Commission's 9 decision on APS' request as to Units 4 and 5? 10 A. Not implying that we would, it is something we 11 would evaluate. We would have to look at it from 12 economic decisions based on our resource plan that we 13 have and then make decisions from there. 14 Q. Let's turn to data request SWPG 1.6. And this 15 data request makes inquiry as to the assumptions 16 underlying APS' conclusion that new transmission 17 infrastructure would be needed in connection with the use 18 of combined cycle generation to replace the generating 19 capacity of Units 4 and 5. 20 And in the response it states as follows: 21 Most existing gas generation locations, as well 22 as the assumed location of new gas generation, is west of 23 Phoenix outside of the Phoenix load pocket. This region 24 is typically identified as the Palo Verde area. Assuming 25 all transmission infrastructure is built as identified inAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 308 1 the APS 10-year transmission plan, APS would need 2 additional Palo Verde-East transmission capacity beginning 3 in 2018 if the Four Corners transaction is not 4 consummated. 5 It goes on to say the upgrades necessary would 6 involve the permitting and construction of additional 7 lines to increase the scheduling capability. 8 Let me ask you, first of all: Why is it assumed 9 that new gas generation would be located west of Phoenix? 10 A. I think the assumption is not necessarily that 11 that's the only place. We have looked and we do 12 continue to look at all available sites and resources 13 potentially for the generation. 14I would defer to Mr. Dinkel when he is 15 testifying to give you more specificity around 16 locational, but it is part of just the resource planning 17 to look at it. 18Q. Are you familiar with the Bowie project which has 19 received a certificate of environmental capacity for a 20 location near Bowie in southeastern Arizona? 21A. No, I am not. 22Q. How much additional Palo Verde-East transmission 23 capacity would be needed in 2018? 24A. I do not know. 25Q. Do you know whether or not there are any non-APSAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 309 1 transmission projects currently proposed or in the works 2 that might provide the needed capacity east of Palo Verde? 3 A. I do not know that. 4Q. Do you know whether the additional lines to which 5 reference is made in the response to the data request mean 6 new structures or, rather, reconductoring on existing 7 structures? 8 A. I do not know that. I just took it off the 9 transmission plan. 10 Q. I will move away from the data requests now, 11 Mr. Schiavoni, and see what I have got on my other list. 12 Let me take just a minute to review my notes. 13 When APS and the other non-SCE co-owners of 14 Units 4 and 5 were advised in December of 2009 by Edison 15 that Edison in essence would be pulling out of the 16 project, did APS as of that point in time or any time 17 thereafter give consideration to options or alternatives 18 to the capacity represented by Edison's ownership interest 19 in Units 4 and 5 that might be available to APS? 20 A. Without specificity to 4 and 5, I would say that 21 our -- we continually look at the resource plan to 22 understand what we can and can't do. So from that 23 perspective, yes, it is always looked at and understood. 24The uniqueness of this circumstance, because of 25 the timing on it, predicated us to move very quickly ifAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 310 1 this was the right deal or not. And this very well 2 could have been the wrong deal. The pricing could have 3 been something that would have been exorbitant and made 4 this not an issue for us at all. But because of the 5 attractiveness and how this pricing was and how quickly 6 we could close on something like this, you get it done 7 in order to support what needed to done for long-term 8 certainty at the Four Corners area, this made the right 9 sense from my perspective. 10 Now, again, Mr. Dinkel will be testifying later. 11 He is the resource planning person. So he would have 12 that direct responsibility to look at that resource 13 adequacy and what we would potentially do to fill those 14 resource needs. 15 Q. Now, you have testified that Edison notified the 16 other co-owners of Units 4 and 5 in December of 2009 that 17 basically Edison was not going to be able to continue 18 beyond 2016, correct? 19 A. That is correct. 20 Q. And I believe the response in one or more of the 21 data requests that APS provided indicated a date of 22 November 8th, 2010 for the agreement that was agreed to 23 between Edison and APS, correct? 24 A. Yes. 25 Q. Within that time frame between December of 2009APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 311 1 

### and November of 2010, at what point did APS have a good 2 

### idea of what the purchase price was going to be, setting 3 

### aside the other transactional details? 4 

### A. That's an interesting question. I think from a 5 

### pricing standpoint, the 294 I think we were pretty much 6 

### in agreement, because the structure of this deal was to 7 

### keep, keep people whole. I mean that's what this was 8 

### looked at, not one penny more, not one penny less. 9 

### So when this deal got done with 2012 as a goal, 10 

### October 2012, the thought process was Southern Cal 11 

### Edison, they got kept whole for their customers from 12 

### that period to the 2016 date. From our perspective, we 13 

### looked at it from a value proposition, saying our 14 

### customers reap the benefit from that same point in time 15 

### now, '12 to '16. 16 

### So for us, if we can work to that kind of 17 

### guideline, which is what Southern California Edison 18 

### proposed to us, all we want out of this is to make sure 19 

### our customers are kept whole until 2016, as long as 20 

### that's done, then we can complete this transaction, 21 

### which made it a very beneficial transaction for both 22 

### parties and for us with our customers. So we knew from 23 

### basically that point in time that December '11, because 24 

### they put that in the letter kind of as a guidepost to 25 

### what they wanted to achieve, so we knew that that wasAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 312 1 

### kind of the model this was going to be developed around, 2 

### was keep their customers whole, and if you can do that 3 

### and provide value for ours, we can get a deal done. 4 

### And, quite frankly, that's how it happened. 5 

### So to put a target to say the 294 was X date, 6 

### that actual number probably late summer, maybe mid 7 

### summer of last year, 2010, but we had the framework 8 

### always in place from their letter in 2009 that that's 9 

### what was being asked of from them. So we felt, as all 10 

### the owners did, that was going to be a pretty good deal 11 

### for anybody that can step up and buy that share. 12 

### Q. And then, if I understand you correctly, as to 13 

### the actual number for the deal, you had that as mid to 14 

### late summer of 2010, correct? 15 

### A. Yes, plus or minus. I am not -- I don't 16 

### recollect the exact time that we came to that number and 17 

### said this is it. But I do know the last month or two, 18 

### or the last month was the legal documentation to get 19 

### everything straightened out, so backing up from October, 20 

### somewhere prior to October. But as I recall, it was 21 

### sometime in mid summer sometime that we came up with 22 

### that pricing and said this will work and now let's go 23 

### fix all the little things that had to be addressed as 24 

### part of that agreement. 25 

### Q. Okay. Very good.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 313 1 What is the level of confidence you have that 2 federal and/or state regulations will allow continued 3 operation of Units 4 and 5 beyond three different points 4 in time? I am going to include in my question and I would 5 like you to respond to each, 2020, 2030, and 2040. 6 A. As with any regulation, there has not been 7 forced closures. The closures of power plants are based 8 on business decisions, the economics. So regulation 9 itself is not going to force the closure. It is going 10 to be, it is going to be up to individual owners to make 11 a decision economically is it right to continue. 12With your mileposts for what we know today, you 13 know, if I was to sit back 25 years ago and say what was 14 I going to know in 2011, I couldn't predict, wouldn't 15 know, but back then we all felt very strongly there were 16 a lot of environmental regulations coming forward that, 17 you know, challenge the industry. That has held true 18 but economically continues to survive because you can 19 always do the material condition things to configure a 20 power plant the way you want it to meet the compliance 21 of the regulations. No regulation traditionally has 22 ever been established that says you can never meet this 23 requirement. 24So I think it is much more of what is the 25magnitude of a regulation in the future than whether youAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 314 1 can get compliance. Now, of course, you set a zero 2 emission of carbon, yeah, no one will ever meet that. 3 But I don't see that as a reality. So I think we can 4meet compliance 2020, 2030, 2040. 5 Q. Assuming it makes business sense, correct? 6 A. Correct. 7 Q. And would you agree as you move into the future 8 what does and does not make business sense would include 9 consideration not only of cost of compliance with the 10 regulations then in effect or to be in effect but also 11 what the cost is for alternative power, sources of power? 12A. Absolutely. 13 Q. Okay. I think your last answer or your last two 14 answers may have addressed this question but I want to be 15 sure I don't overlook it. What is your level of 16 confidence that the owners of Units 4 and 5 will be 17 willing to continue to pay for the cost of operating Units 18 4 and 5 up to and beyond 2020, 2030, and 2040? 19 A. I cannot, I can't predict what the other owners 20 may be thinking or what they will be thinking in those 21 time frames. So, again, they always have the option, as 22 we do, to leave the project at some point in time if it 23 is not financially the right project to be in, just like 24we do in any other assets. It would be unfair of me to 25 guess what they may be thinking.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 315 1 Q. Okay. One last area. What weighting would you 2 give -- let me rephrase that. 3 What weighting would you recommend that the 4 Commission give in connection with its deliberations in 5 this proceeding to the following considerations. And 6 there are five. And I will mention them and then you can 7 take them in sequence as you like: Cost, environmental, 8 Navajo community interest, the Commission's policy to 9 foster and maintain a viable competitive wholesale 10 electric market in Arizona, and any other you care to 11 mention. 12 A. I don't know that I will mention any more. 13 That's interesting you pick the first three that you 14 did, because that was the basis for this transaction. 15 This transaction, because of the set of circumstances 16 that presented itself, was unique inasmuch as we have 17 people in the Navajo Nation that are so dependent on the 18 operation of this facility. So for them it is a 19 livelihood. It is things that provide for education and 20 other things for the Nation. And with the high 21 unemployment rate, it is one of the things that is 22 stable up in the Nation. They rely on both the coal as 23 well as these power plants for an economic engine for 24 the Nation. 25 The environment, as has been mentionedAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 316 1 

### repeatedly, was extremely important to us. And that's 2 

### why we proffered to the EPA the structure of a different 3 

### alternative to the FIP that they proposed. Their 4 

### original proposal was all five plants by 2016, make them 5 

### compliant. We came back and said we will close 1, 2 and 6 

### 3 early and we will go ahead and do the retrofit on 4 7 

### and 5. As was testified earlier today, it is better 8 

### than the EPA laid out to us. So the environment is 9 

### important to us. And we felt this makes a move and puts 10 

### us in the right direction of improving the visibility of 11 

### the parks up in that area. 12 

### And lastly, cost, last only because from my 13 

### perspective as part of this earlier discussion, cost 14 

### comes back to the customer, how much is the customer 15 

### willing to pay for the power they receive. And the 16 

### customer ultimately decides what is the right cost. Our 17 

### job is to pick resources and give them choices. Once 18 

### you start taking away choices, then I think it makes it 19 

### harder for the customer to understand why their electric 20 

### bills are what they are. And going to a sole fuel 21 

### supply takes away choice. We look at how do we provide 22 

### full diversity. And that's important to us that we do 23 

### that. 24 

### But ultimately, and to your last point, policy, 25 

### which is established by Commission, they make theAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 317 1 ultimate decision what the resource looks like. So that 2 is their, their right, and that is what they are here 3 for. So that is the number one issue obviously from a 4 Commission standpoint with all the other three being 5 influencers in a lot of ways. 6 So this transaction was so important to us from 7 that perspective as we balance those first three things, 8 because ultimately everybody -- does everybody get what 9 they want in this transaction? Absolutely not. But it 10 is the best thing for the customers, best thing for the 11 Navajo Nation, and best thing for the environment given 12 the set of circumstances that were presented. 13 Q. It sounds as though in your response you are 14 identifying the various considerations and expanding far 15 beyond the labels that I assigned, but you are not 16 actually presuming to suggest specific weightings for each 17 of those to the Commission. Is that correct? 18A. I wouldn't presume to tell the Commission how to 19 weigh their decisions. I think these are all factors 20 they take into account in their decision making. 21MR. ROBERTSON: Mr. Schiavoni, today in this 22 hearing room is the first time you and I have had 23 occasion to meet one another, so to speak. We chatted 24 informally previously. I would just like to say for 25myself it has been most enjoyable, and I appreciate yourAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 318 1 directness in responding to questions. That concludes 2 my cross and thank you. 3 THE WITNESS: Thank you. I am not sure that 4 having a lawyer saying they appreciate me siting here is 5 a good thing either. 6 CALJ FARMER: Let's take a break here and return 7 at 3:15. 8 (A recess ensued from 2:54 p.m. to 3:13 p.m.) 9 CALJ FARMER: Okay. Let's go back on the 10 record. 11 Mr. Robertson. 12 MR. ROBERTSON: Yes, Your Honor. I had a very 13 brief procedural matter. Specifically I would like to 14 move the admission into evidence of Alliance Exhibits 2 15 and 3. 16 CALJ FARMER: Any objection to the admission of 17 Alliance Exhibits 2 or 3? 18 (No response.) 19 CALJ FARMER: Hearing none, they are admitted. 20 (Exhibits Alliance-2 and Alliance-3 were 21 admitted into evidence.) 22 MR. ROBERTSON: Thank you, Your Honor. 23 CALJ FARMER: RUCO. 24 MR. POZEFSKY: Thank you, Your Honor. 25APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 319 1 2 CROSS-EXAMINATION 3 BY MR. POZEFSKY: 4Q. Good morning, or good afternoon, Mr. Schiavoni. 5 Let me start by going, covering some ground that you have 6 already covered, ask some additional questions on some 7 ground that you already covered. 8 One of the exhibits that was handed out was a 9 Sierra Club exhibit. And it was SC 1.13. On the back of 10 it there was a capital cost comparison that you talked 11 about. 12A. Thank you. Okay. 13 Q. I just wanted to clarify a few points you made so 14 I understand. You had talked about that 239.6 million in 15 the first column next to SCRs. Is it my understanding 16 that that was the total cost of regulatory compliance that 17 APS anticipates as we go forward with this? 18A. No. This is just the SCRs and it was just 19 Southern Cal Edison's share. 20 Q. Okay. Is there an additional amount beyond the 21 SCRs that that was, I know you were asked quite a bit 22 about the quantitative, but is there an additional amount 23 that APS anticipates beyond the SCRs that you can quantify 24 for us? 25A. For Units 4 and 5?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 320 1 Q. Yes. 2 A. Yes, there is. But it is part of a normal 3 capital spend program that you have for the project. 4 And I think Mr. Dinkel, when he is doing his testimony, 5 has the basis for the numbers that were used. I can 6 give you environmental costs and those type of things if 7 needed. 8 Q. I am just trying to get an idea of the total 9 anticipated costs. So if you have them handy, if you 10 could. And if I have any questions further on it, I will 11 ask Mr. Dinkel. 12 A. For, just for the additional things I would put 13 in is 316(b), as I mentioned, which was not part of the 14 analysis. That's $3 million. Mercury, MACT, which was 15 part of it, is $4 million. And we talked about SCRs. 16 That's the other cost components that I had as part of 17 it. 18 Q. Okay. I am sorry. What was the first one, the 19 one before the mercury, MACT? 20 A. 316(b), which is the water. 21 Q. And how much was that, sir? 22 A. That was 3 million, 3.1 million. 23 Q. Okay. You also talked earlier about APS, like 24 any business, would look at the risk from the low end to 25 the high end. Are these figures that you are talkingAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 321 1 about here, are they the low end? The high end? What are 2 they? 3 A. No, these figures that we provided for the SCR 4 that I talked about for mercury, there are some 5 certainty around those because those rules are further 6 along. And so there is better clarity around what those 7 would look like. So those are just like any 8 construction cost. There is going to be a little 9 variance but not that much of a variance. 10 So for rules that are promulgated we can get 11more certainty of the costs until final rules -- like 12 BART, I can't tell you total BART costs, for example. I 13 can tell you what an SCR cost but I can't tell you the 14 total BART cost until I see the final rule. 15Q. Okay. I am going to ask you some questions, 16 Mr. Schiavoni. I don't know if you are really the right 17 person to answer them as we go through this. It is going 18 to probably either be you or Mr. Dinkel. But if it isn't 19 you, please let me know. 20 You are the senior vice president of fossil 21 generation, correct? 22A. That's correct. 23 Q. I want to talk to you a little bit about 24 long-term gas contracts as an alternative option. The gas 25 that would be purchased pursuant to any such contractAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 322 1 would be purchased and not produced by assets that the 2 company owns, correct? 3 A. Correct. 4Q. So APS would therefore have no ownership interest 5 or control on that gas generation, correct? 6 A. In the gas, the generation itself, that's 7 correct. 8 Q. And, of course, and again I know you are not an 9 attorney, but if there is a purchased power agreement, 10 there is always a possibility that a party could breach 11 the contract, is that correct? 12A. I would assume so. 13 Q. And if so, a breach of contract could place at 14 risk APS' obligation to serve at least temporarily, is 15 that correct? 16A. That's correct. 17Q. Are gas PPAs structured in a way that limits the 18 risks associated with gas price volatility? 19 A. If you are -- if the question is for gas 20 generation, I want to make sure we are not confusing gas 21 hedge for pipeline capacity versus the actual generating 22 asset and the gas that's used to burn the generation. 23 So I am talking about the actual generation itself. 24Q. Right. 25A. Under normal circumstances my experience hasAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 323 1 been that gas is a pass-through. So basically the owner 2 of the asset does not pay for the gas. It is paid by 3 the customer. 4Q. Are there other risks associated with long-term 5 gas contracts? 6 A. Again, from a PPA standpoint, on an off-take for 7 generation, yes. It is the volatility of the gas price, 8 because you retain that exposure. That exposure is not 9 held by the owner of the generation. 10 Q. The plant that's in question here, APS' proposal 11 of Units 4 and 5, that plant is substantially depreciated, 12 is that correct? 13 A. That's correct. 14Q. What is the depreciable life? 15A. The depreciable life, I believe, and I am not 16 certain, so it is 2035, I believe, or 2030 or 2031. I 17 am guessing but I think it is 2031. 18Q. So how many years before it would be fully 19 depreciated? 20 A. 20 more years. 21Q. 20 more years? Let's move on to the Navajo 22 Nation. Four Corners plant is a big employer of the 23 Navajo Nation, correct? 24A. Yes, it is. 25Q. You would agree that if the plant were closed inAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 324 1 its entirety it would have a substantial impact on the 2 Nation's economy, correct? 3 A. Yes, it would. 4 Q. Can you shed some more light on just how much of 5 an impact it would have on the economy? 6 A. During the time frame we were negotiating with 7 the Nation the lease, the Nation, one, was very clear on 8 presenting the significance of this facility and the 9 attendant coal contracts to the economics of the Nation. 10 President Shirley, the previous president, called it 11 cataclysmic. If this transaction or this lease was not 12 renewed and continued to operate, it would be 13 cataclysmic to the economy of the Navajo Nation, which 14 then President Shirley had stated. 15 I don't want to speak for the Nation but I just 16 do know that in my interactions over the last two and a 17 half years in negotiating the lease, we have seen the 18 impact to the Nation from unemployment. We have seen it 19 in the chapter houses. I visited the chapter houses. 20 We speak to the people in chapters, their needs. There 21 is a significant need. And we take something that 22 contributes as much as it does to their economy, 23 65 million directly to their annual coffers, it will 24 escalate with CPI over time, you take into account the 25 amount of employee, employees that are working there andAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 325 1 the impact to that, all said and done, it is about 2 $225 million on the conservative side of impact to that 3 area. And there is not another significant economic 4 driver for the Nation at this point in time. 5 They are working very hard to develop an 6 economic plan for the future. And I know the new 7 council, it is a priority of theirs. But suffice it is 8 not in place today and it is something that they are 9 challenged by and they would be challenged from the loss 10 of revenue coming from this facility. 11 Q. Is it the largest in the Nation? 12 A. Between BHP and the facility, yes. So between 13 the mine and the power plant it is the largest Navajo 14 employer on the reservation. 15 Q. And what percentage of the employees are Navajo? 16 A. Between the mine and ourselves, anywhere between 17 75 to 80 percent of the employees are Navajo. 18 Q. And how many people in all in Navajo? 19 A. A thousand -- excuse me. I don't know the exact 20 number of the population, if that's what you are asking. 21 Q. Let's talk a little bit about the lease. The 22 land at the Four Corners sits on is owned by the Nation, 23 correct? 24 A. That is correct. 25 Q. And it is the subject of the lease between theAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 326 1 Nation and the utilities, correct? 2 A. That's correct. 3 Q. And that lease, as I understand it, at least when 4 I went to view the plant, it was up for negotiation, is 5 that correct? 6 A. Yes, it was. 7 Q. What is the status of the negotiation? 8 A. That negotiation with the Navajo Nation has been 9 completed. It has been signed and was forwarded from 10 the council. The speaker had signed it, forwarded it to 11 the president. The president signed it. So now it is 12 waiting to go back from the Navajo Nation to the 13 Department of Interior. 14The Department of Interior has final signatory 15 authority on the lease. They will undergo a NEPA 16 process, which can take anywhere from three to five 17 years potentially -- could be longer, it could be 18 shorter, hopefully shorter -- prior to the Department of 19 Interior doing a final approval of the lease. But we 20 are treating the lease and we are taking action on the 21 lease as if it has already been approved. We made our 22 first annual payment just this past last week with the 23 new terms and conditions that were in the lease. 24Q. Can you shed some light on some of the more 25 important terms, like the length of the lease?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 327 1 A. The lease runs through 2041. We pay the Nation 2 $7 million a year. That is adjusted for inflation on an 3 annual basis. With that, we have provided for the 4 standing committees to address both Nation as well as 5 our plant concerns with the administration of the lease, 6 and not only today but going forward in the future. 7 With the lease, the Nation has retained certain 8 rights with respect, with respect to how the final 9 condition of the facility is left when we eventually 10 leave the facility. There are certain conditions we 11 have to meet. Those are probably the most significant 12 features of the lease. There are many other conditions 13 within the lease but those are probably the most 14 significant. 15 Q. And how would the lease be affected if in fact 16 this transaction as proposed was not approved? 17 A. The lease does not -- the lease will continue if 18 those plants were closed. So we will continue to pay 19 the Nation $7 million a year for the lease all the way 20 through 2041, but they lose all the other revenue 21 stream. Obviously the more significant revenue that 22 comes from royalties, taxes, employees, et cetera, that 23 goes away. 24 Q. Do you anticipate that APS would attempt to 25 recover the terms of the lease in that situation fromAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 328 1 ratepayers? 2 A. I haven't contemplated it. 3 Q. Okay. Let me ask you, Mr. -- sir, even if it 4 could be sure that replacing the capacity with gas 5 generation capacity could be done at the same or even a 6 lower cost, there still are considerable reasons why APS' 7 proposal would still be better for ratepayers, is that 8 true? 9 A. Well, first off, I would say that I don't know 10 of any scenario that we are going to find or anybody 11 would find a lower cost gas generating plant to supplant 12 Four Corners. 13 With that said, I think that it is good for the 14 ratepayers. Again, the customers get the value of 15 long-term stability for baseload resources, which is 16 important to the mix of generation that you need in 17 order to operate in this environment. So as gas prices 18 surge or decrease, you have the ability to move in and 19 out from a resource perspective what resources are being 20 used as we build a renewable portfolio to meet our 21 requirements for renewables. You need baseload to back 22 things up. 23 It is, it is a resource. Again, as I earlier 24 testified, you can establish baseload wherever you want. 25 You can say $50, whatever comes in at $50 to cover thisAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 329 1 megawatts is part of baseload. But the customer has got 2 to pay for that then. So it always comes back to the 3 same issue, what is the cost to the customer. And this 4 is a lower cost provider even if everything else was 5 equal. 6 Q. Isn't it true that EPA's rule which would require 7 the filing of SCRs in Unit 4 and 5 has not become final 8 yet? 9 A. That's correct, it has not been finalized, 10 finalized inasmuch as it is, it is put out in a final 11 rule. They have issued draft federal implementation 12 plans, which have been out for now, I believe, since 13 January. 14Q. When is it expected to be final? 15A. I would expect, we have no timeline, but I would 16 expect it to finalize sometime this fall. 17Q. On page 12 of your rebuttal testimony, line 16 18 through 23, you state that the engineering procurement 19 construction work would take slightly more than three 20 years to complete. 21Given that you will have five years from the 22 publication of the rule to implement the changes, wouldn't 23 you agree that this new EPA rule does not make it 24mandatory that APS finalize this purchase in October 2012? 25A. Well, the EPA itself is not a factor in this.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 330 1 

### It is our decision on what has to be done in order to 2 

### support what we have to do to continue to operate the 3 

### facility. SCR is one part of it. 4 

### As I mentioned earlier, one plan that's out 5 

### there is compliance by 2016. You back that up three 6 

### years to do the construction, it puts you in 2013. You 7 

### have got to work it around major outages. And so you 8 

### would have to start implementation earlier in order to 9 

### support the major outage schedules you have. That's one 10 

### component. 11 

### The second component comes in, if I am going to 12 

### close 1, 2 and 3, I have got to provide another source 13 

### of auxiliary steam which is used for start-up of 4 and 14 

### 5. In order to do that, I need to get a new air permit 15 

### for an aux boiler. A new air permit typically takes a 16 

### year to 18 months to receive. Hoping to fast track it, 17 

### but with that timing, if I started my air permit when 18 

### this is approved October of next year, that's '13. Then 19 

### I got to build it, which takes a year, puts me in '14, 20 

### which is closure time I am supposed to have for 1, 2 and 21 

### 3. 22 

### So all these things start compounding as far as 23 

### investing capital. And this isn't, I am not even 24 

### discussing the certainty that owners need in order to 25 

### make those investments. My co-owners, I would not speakAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 331 1 for them, but I would think they would find it difficult 2 to make investments, major investments in capital next 3 year with no certainty around this transaction being 4 completed. 5 Q. What I think I hear you saying is the rule 6 doesn't require it but the implementation of the rule 7 would require it -- 8 A. That's correct. 9 Q. -- from APS' standpoint? 10 A. That's correct. 11Q. APS has not shown or even alleged an extreme need 12 for the additional 170 million megawatts of baseload the 13 transaction will provide, isn't that true? 14A. I think that would be a better question for 15 Mr. Dinkel. 16Q. Under the terms of the agreement, Mr. Schiavoni, 17 delay would result in a 7.5 million reduction in the 18 purchase price for each month after October 2012, is that 19 correct? 20 A. That's correct. 21Q. If the deal does not close in October 2012, SCE 22 will still be able to use the power generated from Units 4 23 and 5, is that correct? 24A. That is correct. 25Q. But is it also true that SCE is no longerAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 332 1 entitled to the generation at the time of the closing? 2 A. That is correct. 3 Q. So let's take the hypothetical that the deal 4 closes in October 2012, APS pays the 294 million. In 5 January 2013, SCE would not have a right to the generation 6 that is being generated at Four Corners, is that correct? 7 A. That's correct. 8 Q. That would be used to provide service to APS, 9 correct? 10 A. To our customers, that's correct. 11Q. When would SCE be required to leave Four Corners 12 in that situation? 13 A. Upon close of the transaction. 14Q. Do you know, Mr. Schiavoni, has SCE made 15 arrangements to replace the generation it will lose at 16 Four Corners? 17A. I do not know. 18Q. So you wouldn't know when its replacement 19 generation, if it even had any, would come on line? 20 A. Yeah. I don't know the reserve margins that 21 they have. So they may have generation available to 22 them today that, when this asset closes in October or 23 this deal closes in October, that they can take it right 24 off the reserve. I am not sure how they are set up 25 currently. Their market structure, as you know, is veryAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 333 1 different than others. They are managed through the 2 ISO. So they may go to real-time markets to fulfill 3 needs also. 4 Q. At what point does APS retire Units 1, 2 and 3? 5 A. Under what we have laid out here, we would 6 propose that no later than '14. But, again, it is 7 driven on a couple different things here. 8 One, it is driven by me being able to get an aux 9 boiler in place in order to run 4 and 5, as I already 10 talked about. 11 The second thing is EPA rulemaking, as we talked 12 about, for mercury compliance or for BART would require 13 baghouse and scrubbers which don't exist on 1, 2 and 3. 14 Mercury, MACT, may, may be effective as early as three 15 years from final rulemaking, which potentially could be 16 2014 they would have to come into compliance. So we 17 have to make that decision on 1, 2 and 3 now to say we 18 are going to go spend, because in order to get compliant 19 on three units and put baghouses and SCR, we are already 20 late, we would need to be moving quickly to invest the 21 capital to put on those units. 22 So 2014, the EPA rule may in fact -- we won't be 23 able to be compliant and then we would force ourselves 24 into a shutdown. So there are a couple variables that 25 drive the timing.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 334 1 Timing earlier than that is really much more 2 driven by, one, Commission desire as well as what we are 3 looking at from a perspective of investment. You know, 4 so anywhere before 2014 is feasible. 5 Q. Well, the judge asked a question. It is getting 6 late in the afternoon so I don't even remember who she 7 asked it of. She asked a question that I think one of the 8 Commissioners wanted to know. And that was why retire, 9 why not sell. And I think the answer I heard from the 10 witness was the reason we do that is because of the right 11 of first refusal. But if you are telling me that you are 12 not looking to retire it until 2014 but you are looking to 13 close by October 2012, why not sell them? 14A. Potentially whether there is a market for 1, 2 15 or 3 I don't know, but, again, keeping in what we were 16 trying to do from an economic standpoint, if it doesn't 17make economic sense for us to make the investment, why 18 would it make economic sense for someone else to make 19 that investment considering what we are putting on the 20 table as the alternative? 21It may very well make economic sense to somebody 22 else, but we are trying to deal with the EPA as well, as 23 was mentioned, which the second federal implementation 24program put on the table is you don't have SCRs on until 25 2018 for 4 and 5, which is good for all of us, becauseAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 335 1 that gives us more time, because we are concerned -- 2 concern is probably too strong a word. We are not 3 operating under a final approved lease by Department of 4 Interior. Until that gets done, you know, we are still 5 operating under a lease that we have signed with the 6 Nation but Interior still hasn't approved which is still 7 three to five years away. So if I can push out the 8 investments on 4 and 5 that I have to make at a later 9 point in time, that's probably better for us overall. 10 1, 2 and 3, though, is what gets sacrificed in 11 there because that is part of what EPA is proposing, 12 close 1, 2 and 3 as part of the deal to reduce the 13 overall emissions footprint and, as has been talked 14 about by others, the impact to the national parks, et 15 cetera. 16 Q. What makes economic sense to one utility can be 17 different to another utility. You would agree with me, 18 right? 19 A. I would agree with you, but what is on the table 20 with the EPA today, we could not sell 1, 2 and 3 with 21 the structure of the 2014 and 2018 dates that I alluded 22 to. So the only scenario that we could go forward under 23 the EPA structure would be the federal implementation 24 plan draft that says you have to retrofit all five units 25 and 1, 2 and 3 have to be compliant by '14 for mercury.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 336 1 So you have two hurdles on 1, 2 and 3 that someone would 2 have to pick up. That is putting a baghouse and 3 scrubber on the unit by 2014 on all three, as well as 4 getting an SCR onto 1, 2 and 3 by 2016. That just 5 feasibly, I think that would be almost impossible for a 6 third party to complete a transaction, get it approved, 7 and get that done. The approval process alone would be 8 a couple years in making. 9 Q. But you could throw the proposal out there, 10 couldn't you? 11 A. I will defer to Mr. Dinkel. He would be the one 12 making those decisions. I just don't see it as 13 something you would do. I really don't. 14 Q. And if you were able to sell it, the money that 15 you could get out of it could be used to offset the 16 purchase price and eventually lead to lower rates to the 17 ratepayers, couldn't it? 18 A. If you could obtain a deal like that, 19 absolutely. I just don't think that's a very likely 20 scenario. 21 Q. If the transfer is authorized but the transfer 22 date is postponed, is there any reason why APS could not 23 proceed with engineering and retrofitting Units 4 and 5? 24 A. Well, again, in order to be able to exercise our 25 rights, we would have to be the owner. And if we areAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 337 1 saying we will say yes on the self-build moratorium, 2 which is what we are asking for, but we are not going to 3 allow you to go forward until 2016 or some other date, 4 there is not much we are going to be able to do in order 5 to put the capital structure together. The owners are 6 not going to participate. I would not think they would 7 participate unless this thing was done and SCE was out 8 of the transaction altogether. 9 Q. Has APS retrofitted any other units with the 10 proposed SCRs? 11A. No, no. We have done baghouse and scrubbers on 12 these units at 4 and 5 historically as well as Cholla 1 13 and 3 have been done, and Cholla 2 is scheduled next 14year as starting, so upgrades. 15Q. Is it your belief that if the transaction is not 16 approved pursuant to APS' proposal that SCE will pull out 17 of Units 4 and 5 prior to the current lease expiring in 18 2016? 19 A. Well, one, I can't, I can't speak for Southern 20 Cal Edison, but they can't pull out of the ownership 21 agreement prior to 2016, if that's your question. So if 22 this transaction does not go through, they are still an 23 owner through at least 2016 when the co-tenancy expires. 24Q. So if they did pull out, it would be a breach, or 25 wouldn't be?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 338 1 A. I would believe so. I am not a lawyer but I 2 would think so. 3 Q. Section 10.1 G of the contract does give both the 4 seller and the purchaser the right to terminate the 5 contract if not finalized by December 31st, 2012. 6 I am sorry. I will slow down. 7 Is there any provision that would mandate they do 8 so if the transfer is delayed beyond that date? 9 A. No. It is strictly the option of either party. 10 There is conditions for termination that is not a listed 11 condition, but the structure, and, again, I don't have 12 the contract in front of me, but the structure was such 13 as in normal contracts, that you close as soon as 14practical after approval of the transaction. 15Q. Has SCE told APS that it would terminate the 16 contract if the closing was delayed beyond December 2012? 17A. No, they have not. 18Q. Has APS asked SCE whether it would terminate the 19 contract if the closing was delayed? 20 A. No, we have not, or I haven't. Excuse me. 21Q. So what is the hurry to close by 2012 if APS does 22 not need the generation and by simply following a purchase 23 agreement APS could reduce its capital investment? 24A. Again, the sense of urgency around 2012, I would 25 like to have it closed in 2011 quite frankly, but theAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 339 1 

### sense of urgency comes from the capital investments that 2 

### have to be made in the facility to become compliant with 3 

### the environmental regulation in front of us. 4 

### So for the owners, it is unanimous vote of all 5 

### owners in order to spend or change operations or do 6 

### anything. The owners -- quite frankly, we would not 7 

### vote if another owner was in the same situation. And in 8 

### this case Southern Cal Edison would have the right to 9 

### vote no and they are not going to invest, which is kind 10 

### of where we are at or where we think we are going to be 11 

### this coming year. 12 

### Edison is going to say we are not going to 13 

### approve any more capital that could be considered life 14 

### extension as determined by the CPUC. And we are getting 15 

### in a position where no capital will be invested in the 16 

### power plant. Power plants would then start to 17 

### potentially degrade over time and you would not be able 18 

### to be compliant and still be operational at the time 19 

### EPA's rules went into effect. And that's, that is very 20 

### important. 21 

### I mean we could, you could theoretically say, 22 

### okay, you can do this and shut down in 2016 when 23 

### Southern Cal Edison is out of the project and then spend 24 

### two years or two and a half, or how many ever years, 25 

### retrofitting. But that's a time period not producingAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 340 1 any generation, so you are wasting, wasting basically 2 our customers' money, I believe, at that point in time. 3 Q. The $7.5 million monthly reduction occurs if the 4 company contract or if the transaction isn't closed by 5 October 2012. How did that figure come about? 6 A. You are never certain on a date when something 7 is going to happen. So what we looked at is what is 8 probable, what is realistic. Can you get to an 9 October close, and, if it goes on either side, what is 10 the compensation to either party both ways, if it closes 11 early or if it closes late. 12 It was based on what potential gas prices could 13 be, quite frankly, because that's going to be the 14 replacement power of choice. So it is looking at what 15 would it cost to replace that power in that time frame. 16 If gas prices are at that price, seven and a 17 half million works and let's run the scenario. We are 18 not going to close until November. So seven and a 19 half million comes off our purchase price from that 20 perspective. If gas prices are high, elevated, that's a 21 good deal for Southern Cal Edison. They are getting 22 cheap for you for seven and a half million. If gas 23 prices are real low, it is not necessarily a good deal. 24 That's all you are trying to do, put a number to 25 what gas prices could potentially be for replacementAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 341 1 generation in that time period, and then for every 2 month, and we did it by months, not days or years, but 3 every month what is the impact. And this is how you 4make the adjustment to price. That's all that was 5 looked at. So it was nothing rocket science or 6 something very scientific in looking at this. It was 7 looking at gas strips. 8 Q. You might have answered this but I just have a 9 few more questions. I am going to ask this anyway. Given 10 that the other owners have already waived their right of 11 first refusal, do you have any idea what the other owners 12 would do with their shares if the deal was delayed or not 13 approved? 14A. No, I do not. 15Q. More questions on SCE. On page 14, lines 12 16 through 7 of your rebuttal, lines 12 through 17 of your 17 rebuttal testimony, you state that SCE may not be able to 18 contribute to do any capital improvements due to the CPUC 19 filing. 20 Could you please state what capital improvements 21 have had to be delayed due to the CPUC ruling? 22A. No capital projects to this point in time have 23 been delayed as a result of this. The impact will start 24 in 2012 as stated by their commission. 25Q. Are there any capital improvements that youAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 342 1 already -- are there any capital improvements that you can 2 identify that would have to be implemented in 2012 through 3 '13 and could not be postponed until a later date? 4A. Well, the most significant capital would be for 5 SCRs and starting the work on SCRs, as well as, again, 6 the aux boiler would have to be done. And then you 7 would have your normal maintenance items that you would 8 be deferring as a result of that, such as, you know, 9 working on the turbine or pump change-out or something 10 like that. 11Q. Does the use of the term may in your rebuttal 12 testimony on page 14, line 15 indicate there are capital 13 improvements SCE could still participate in? 14A. Yes. Again, what SCE has, what Southern Cal 15 Edison has to do, they have to provide to the Commission 16 all of their budget. So anything that they are 17 proposing to be spent on Four Corners they have to 18 present prior to being allowed to spend. 19 Q. Wouldn't their contribution lower the expenditure 20 to APS and ultimately to their customers? 21A. From what perspective? A reliability 22 perspective? Maybe I am missing the question here. 23 MR. POZEFSKY: Yeah, I don't think I articulated 24 it right. And actually I am not -- I can't remember how 25 I -- what I was thinking when I wrote it. So I thinkAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 343 1 that's it. 2 All right. Thank you, sir. Thank you. 3 CALJ FARMER: Okay. Staff. 4MR. HESLA: Thank you, Your Honor. 5 6 CROSS-EXAMINATION 7 BY MR. HESLA: 8 Q. Good afternoon, Mr. Schiavoni. 9 A. Good afternoon. 10 Q. I would like to begin by walking through the 11 timeline between when APS first learned that SCE was going 12 to sell its share of Units 4 and 5. And you testified 13 earlier that was on December 15th, 2009, is that correct? 14A. It was the date of -- 15Q. The letter? 16A. It is in my testimony, the letter we received 17 from Southern Cal Edison which formally informed us that 18 they were exiting the project. 19 Q. And when did APS decide internally that it would 20 consider pursuing that interest in 4 and 5? 21A. At that time we, not necessarily Cal Edison, but 22 we were looking at the environmental pieces and starting 23 to formulate a plan of what do we do with BART as BART 24was coming forward. 25When Southern Cal Edison sent us the letter,APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 344 1 

### that prompted more detailed discussions in-house as far 2 

### as alternatives and what type of scenario can we see 3 

### ourselves acquiring, because we didn't need the 4 

### resource. Our baseload resource was fine. So it wasn't 5 

### a resource that we said we need this today, so let's go 6 

### look at it. 7 

### Again, it was kind of stepping back and saying 8 

### we have a lot of moving parts with a lease expiring, 9 

### with all these other agreements expiring, this may be an 10 

### opportunity to do something, as I iterated earlier, that 11 

### is good for a lot of different constituents and meets 12 

### the overall goal which we are trying to achieve, which 13 

### is a low cost resource. 14 

### So I won't say it was any one day. It started 15 

### with that letter formalizing Southern Cal Edison's 16 

### position and formalizing that we did not intend to 17 

### market the asset, that they would offer the opportunity 18 

### to owners, that we internally started looking at this 19 

### saying how could we look at this and should we be 20 

### involved, quite frankly. 21 

### Q. And would you agree with me it was a complex 22 

### process then to -- 23 

### A. Extremely. It still is. 24 

### Q. Mr. Schiavoni, do you have a date certain when 25 

### you made that determination, if you are aware?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 345 1 A. No. I mean I think you said the 15th. I 2 thought the letter was like the 9th of December or 3 whatever. But it was sometime after the first year 4 after I got the letter. And we had talked to Southern 5 Cal Edison. We had an owners meeting for them to have 6 more clarity around it. 7 They told us prior to the letter they were going 8 to let us know what their intentions were. So we knew 9 that they were going to tell us something. What it was 10 going to look like or shape it was going to look like we 11 weren't sure. So I couldn't tell you an exact date, on 12 this date let's go forward, but that started the wheels. 13 Q. And you testified earlier that you arrived at the 14prospective purchase price in the summer of 2010? 15A. Late summer, early fall, as I said, all the -- 16 we completed the deal on paper in November. It took a 17month plus for legal to look at the contract and 18 rewriting, so on, so prior to that point in time, end of 19 summer, beginning of fall. 20 Q. And when did you begin your negotiations with 21 SCE? 22A. We began actual negotiations, as I recall, 23 sometime in January of '10. February of '10 we actually 24 started to have a discussion with them of what a deal 25 would look like.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 346 1 Q. And when was that agreement to purchase SCE's 2 interest in 4 and 5, when was that consummated and 3 executed? 4A. November of 2010. 5 Q. Okay. And when was this application filed? 6 A. Shortly thereafter. I don't know the exact date 7 off the top of my head. 8 Q. Do you believe APS moved expeditiously in 9 pursuing SCE's share in 4 and 5? 10 A. Yes, we did. 11Q. I would like to switch gears, Mr. Schiavoni, if I 12 can. Is it your understanding that RUCO is suggesting 13 that APS delay the transaction? 14A. Through their testimony, that's what I 15 understand. I don't know what it looks like today, but 16 through the testimony, yes. 17Q. Do you foresee any problems with delaying the 18 transactions? 19 A. Absolutely. 20 Q. What are those problems? 21A. As I stated, capital decisions, investments in 22 power plant have to be made starting next year. And we 23 have targets for compliance with the EPA regardless of 24which plan we go with for the EPA. And if this 25 transaction is delayed it will potentially impactAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 347 1 meeting compliance dates which then would lead to 2 shutting down the facility. So it is critical that this 3 is done sooner rather than later in order to support the 4 investments that need to be made to continue operations 5 of Four Corners 4 and 5. 6 Q. In light of those problems, do you believe that 7 RUCO's suggesting to delay the transaction is realistic? 8 A. No, I do not. 9 Q. Do you believe the purchase sale agreement 10 permits APS to delay the transaction at their discretion? 11 A. I am not a lawyer. I think the contractual 12 terms of the settlement or the contract between us and 13 APS, or, excuse me, Southern Cal Edison, gives each 14 owner the right in December of 2012 to terminate the 15 agreement if certain conditions aren't met. And one of 16 the conditions that are set forth is that we have 17 reached, we have gained the approval of the Corporation 18 Commission for that to happen. Beyond that, that's the 19 extent of my knowledge of what you can and can't do as 20 far as that contract, but they have that right if we 21 don't have terms satisfactory to APS through the 22 Commission findings. 23 Q. And you mentioned under the purchase and sale 24 contract that either party has the option to terminate 25 after -- is it December 31st, 2012?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 348 1 

### A. That is correct. 2 

### Q. Do you believe there is a risk that SCE would 3 

### terminate the contract if APS delayed past 4 

### December 31st, 2012? 5 

### A. I think there is a risk, absolutely, not spoken 6 

### to me. But, again, much like RUCO, for our consumers, 7 

### you know, their equivalent is going to continually look 8 

### at this deal. I think the longer this gets delayed, and 9 

### who knows where gas prices are going to be a year and a 10 

### half from now, if they are 3 to $4 more than what they 11 

### are today, they may have a very different perspective of 12 

### this transaction than what they have today. That's a 13 

### risk. Conversely, not that gas can go $3 lower, but if 14 

### it can, I am with you, but it can't today, we would look 15 

### at it differently. So it is really where you are at 16 

### that point in time that's going to predicate what your 17 

### thoughts are. 18 

### MR. HESLA: Thank you, Mr. Schiavoni. That 19 

### concludes our examination. 20 

### CALJ FARMER: Thank you. 21 22 

### EXAMINATION 23 

### BY CALJ FARMER: 24 

### Q. I have some questions for you from Commissioner 25 

### Newman.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 349 1 The eastern United States has many older coal 2 plants. Has the capacity factor of those plants between 3 the ages of 45, 50 and 60 years old declined? 4A. As I understand the question, eastern United 5 States age of power plants and capacity factors, I do 6 not know what that population would look like and what 7 has happened with their capacity factors. 8 What I could say in response to that, my prior 9 employment was with an eastern US facility or company 10 that had coal facilities and similar in age and vintage. 11And those capacity factors were going up. Those were 12merchant plants. And when gas prices went up, they were 13 extremely competitive, more competitive into the market. 14 So I saw the opposite in my own personal experience, so, 15 when I was employed out that way. But beyond that, I 16 don't have any direct knowledge. 17Q. Okay. Could you turn to your rebuttal testimony 18 at page 10, please. Specifically looking at lines 18 to 19 21, Commissioner Newman asks: Doesn't Xcel have a 20 coal/CSP hybrid in service since July 2010? 21A. My understanding, there is a small facility that 22 is in commission, that's correct. 23 Q. The 44 megawatt cameo plant has 4 megawatts of 24 CSP attached, thereby increasing the plant's efficiency an 25 estimated 5 percent. Are you familiar with that?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 350 1 A. I am not familiar with the 5 percent on the 2 efficiency, but the rest of it, yes. 3 Q. Okay. This is continuing with his question. He 4 asks: Why not try a hybrid as a pilot? Has APS looked at 5 the cost? 6 A. To look at something, first, I think most 7 producers take a perspective that no one wants to be the 8 first in any technology. You would rather have 9 technology be developed and have all of the bugs worked 10 out, if you will, before you make any type of investment 11 in technology. 12But in this case, we have been looking at doing 13 a hybrid or doing a pilot. I think that's a separate 14 discussion. It is not necessarily tied to an 15 acquisition we are trying to make because we are not 16 supplanting the megawatts that are being procured here 17 with either of these types of projects that are being 18 talked about. 19 Whether we want to look at them in the future, I 20 think we are always open to look at new projects and we 21 have looked at new projects in the future. But beyond 22 that, we haven't really spent a lot of time in this 23 technology just because it is small scale and isn't 24proven yet. 25Q. Okay. Could you please turn to page 14,APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 351 1 specifically lines 4 through 8. Could you please explain 2 what would happen if the California Public Utility 3 Commission decides to retire Units 4 and 5 as per Mohave. 4 A. Yeah. I don't think they would formally say 5 that -- you know, it is probably not the best use of 6 words here that I used here, but retirement is not their 7 option. Their option is not to approve the transaction 8 to sell. And if they fail to approve that transaction 9 to sell, it in effect causes the same thing. Then we 10 run up to the end of the co-tenancy agreement in 2016. 11 We have one of our owners or 48 percent share of 12 one of the plants that no longer is party to the plant's 13 operation or to the plant itself. I think that at that 14 point in time it is much more a legal discussion that 15 would take place of what recourse, if any, we have and 16 what can we as owners do as a result of that. So this 17 question we have looked at. 18 We have looked at Mohave and some of the 19 circumstances surrounding Mohave. There are a lot of 20 similarities. But one thing that was evident with 21 Mohave was that time got to them. And the continual 22 time it took to get to solutions for their problems 23 environmentally created this perfect storm, if you will, 24 that it came to a point where they could not meet the 25 commitments and were closing a power plant as a resultAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 352 1 of that. 2 A lot of this plays to that same type of set of 3 circumstances. And, again, that's why the sense of 4 urgency to complete this transaction, so we don't put 5 ourselves in the same position of uncertainty and 6 ambiguity with all the owners that no decisions are made 7 and just, as a result of that, you naturally go to a 8 point where you can't be compliant with environmental 9 rules and you end up with a forced shutdown and then it 10 becomes economically not feasible to restore these 11 units. 12 Q. Can you tell me what the status of that 13 proceeding is at the CPUC? 14 A. My understanding at this point in time is they 15 have had their hearing similar to this. And that's 16 about the extent of where I know where they are at right 17 now. It has -- no ruling has been made. They had the 18 public, not the public hearing, but this hearing and 19 they are waiting now. 20 Q. Did APS participate in that hearing? 21 A. Not directly, no, we did not. 22 Q. That concludes Commissioner Newman's questions. 23 I do have a few of my own for you. 24 A. Okay. 25 Q. Could you explain for me what steps APS needs toAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 353 1 do to retire Units 1, 2 and 3. 2 A. In order to retire 1, 2 and 3, basically what we 3 do and we would look at, we would put the units into 4 what we call a harvest mode. So basically we would stop 5 spending capital, major capital or really any capital, 6 on Units 1, 2 and 3. We will use as an example we are 7 going to close it January 1st, 2014, just for picking a 8 date. We would stop making any type of major 9 investments in it. That would be the first thing to do, 10 so put it into a harvest mode. 11 Q. I am sorry? 12 A. We call it a harvest mode. 13 Q. Harvest, okay. 14 A. The second thing we would do is we look at all 15 of our required liability that we may have, asbestos, 16 oils, fluids, how you -- those types of things that for 17 a long term you are not going to leave in that power 18 plant. So the second thing we would do is identify, and 19 we have been doing this already, identify what we have 20 to do upon immediate closure of that facility. And then 21 we would go forward and we would start putting it into 22 an environmentally safe condition. 23 From an outside view of that, the date selection 24 will be driven through negotiations and conversations of 25 when we would make the formal closing of the site andAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 354 1 

### how we would make our formal notification to the 2 

### Commission on what we were doing. 3 

### Beyond that it is not a very hard process. It 4 

### is pretty much like turning out the lights. Our 5 

### employees, as we have talked about in our, in my 6 

### discussions with the Navajo Nation, we are not going 7 

### force any layoffs at 1, 2 and 3. We believe our 8 

### demographics are such that attrition will help us get to 9 

### where we need to be long term for the right staffing 10 

### levels for Units 4 and 5, which is, which was very 11 

### important to us in our discussions with the Nation. So 12 

### employees are not going to be impacted as a result of 13 

### this. 14 

### So it really becomes much more of a mechanical 15 

### closure than it is traditionally we would have with some 16 

### of the softer issues that we have with a closure of any 17 

### facility, whether it is a power plant or manufacturing 18 

### facility. 19 

### Q. Is the word closure synonymous with stop 20 

### producing electricity? 21 

### A. That's correct. 22 

### Q. Can you explain -- I heard you say something 23 

### about getting, it sounded like, an alternative boiler. 24 

### But what is that? 25 

### A. Okay. In order to start up a power plant, aAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 355 1 steam plant, you need steam to do it. Most power plants 2 are built with an auxiliary boiler, is what it is 3 called, nothing but a steam unit. So it is built with 4 the steam unit that is normally gas fired or oil fired. 5 In our case it would be gas fired. 6 Gas fired, it produces steam. That steam then 7 goes to components in the plant. You are trying to 8 start up, and it is normally around -- I don't want to 9 get too into the weeds here -- but in order to have a 10 turbine roll, you need a place for steam to go through. 11 So the steam that's produced by the start-up in the 12 power plant goes through the turbine and goes to what is 13 called a condenser. In order for that condenser to 14 operate effectively, you have, you have a lot of system 15 and components that need to be sealed correctly because 16 it is a vacuum. That is what it is drawing. 17 So this condenser has got a vacuum. It is under 18 a vacuum. It helps to draw, helps the efficiency of the 19 turbine, draws it through the turbine, gets condensed, 20 gets pumped, gets cold, goes back in the boiler for that 21 cycle to start all over again. 22 In order for that to happen, you have all those 23 places where steam is used and seals and so on. The 24 turbine being a major example, you have to seal it in 25 order to be able to draw that vacuum. So you need aAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 356 1 

### steam supply which, when is on line or operating, it 2 

### supplies its own steam until that point in time you need 3 

### an external source of steam in order to seal all these 4 

### particular components so you can draw a vacuum. That's 5 

### what this aux boiler gets used for. 6 

### It is a small boiler. It is not a very large 7 

### boiler, if you will. If you don't have that, then you 8 

### have to keep one of the larger units, 1, 2 or 3, which 9 

### are very inefficient up for producing that steam as it 10 

### does currently today. So that's what this aux boiler 11 

### does, if that helps clarify it for you. Or did I 12 

### confuse you more? 13 

### Q. But which plant needs this boiler? 14 

### A. 4 and 5. All power plants need an auxiliary or 15 

### a second steam supply in order to start up our steam 16 

### plants. So if we close 1, 2 and 3, 4 and 5 still need 17 

### an aux steam supply. That's what this would be. 18 

### Q. And they don't have it currently? 19 

### A. No. There was an auxiliary boiler at the 20 

### facility at one point in time that was decommissioned 21 

### many years ago. Because you had 1, 2 and 3, there 22 

### wasn't a need for another steam boiler there. 23 

### Q. Okay. SCE's share of Units 4 and 5 is about 24 

### 739 megawatts, is that correct? 25 

### A. Yes.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 357 1 Q. And Units 1, 2 and 3 put out 560 megawatts? 2 A. That's correct. 3 Q. Okay. So if this transaction were to close in 4 October of '12 but Units 1, 2 and 3 aren't going to retire 5 until 2014, what will APS do with that additional 6 739 megawatts of output? 7 A. I will leave that for Mr. Dinkel to answer. But 8 '14 is the latest date. So it can close, we feel -- as 9 soon as I can get an aux boiler in place, it can close. 10 So it can close much earlier than that. In all 11 likelihood our preference would be to close it as soon 12 as we can. 13 Q. If by -- 14A. 1, 2 and 3. 15Q. 1, 2 and 3, okay. 16On page 14 of your rebuttal, this is at lines 22 17 down through about 25, you are discussing your 18 negotiations for a new fuel supply agreement. Can you 19 update the Commission on the status of those negotiations. 20 A. The negotiations are ongoing. We expect those 21 negotiations to conclude in, the formal part of the 22 negotiation, by February of 2012. We will have a 23 definitive pricing from BHP at that point in time. So 24 in the interim we are continuing to work with and 25 negotiate with BHP over a pricing.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 358 1 Q. Okay. 2 A. Which, if I may add, Your Honor, it is, again, 3 it is another complexity on the necessity for sooner 4 rather than later, because you need to have that fuel 5 agreement in place for the long term, 2016 and beyond. 6 And the longer this approval doesn't take place, we 7 wouldn't enter into a fuel agreement February of next 8 year if I don't have any certainty what is going on with 9 those assets. So you need certainty on the assets in 10 order to be able to negotiate a fuel agreement for the 11 future. 12Q. Okay. On page 13, lines 21 through 24 about, you 13 are talking about the other regulatory approvals that must 14 be obtained. And I have asked you about the California 15 Public Utilities Commission and the status of that. Can 16 you update me on the status at FERC and at the California 17 ISO. 18A. FERC has not received it. It hasn't been filed 19 yet. And California ISO, it has been received and it 20 was provided, I think, in one of the requests for 21 information. That has been completed. 22We have not filed yet with Justice or Federal 23 Trade Commission with regards to Hart-Scott-Rodino 24 because that has a clock on it post-issuing to have a 25 transaction complete. So until we get certainty whenAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 359 1 this transaction will be complete, we will make it 2 complete, then we will make a filing for HSR. 3 Q. And when do you expect the Commission to make a 4 decision? 5 A. We would expect that we would be able to close a 6 transaction in October of '12 or sooner. 7 Q. Maybe I will ask Mr. Guldner that then. 8 A. Probably better suited for that. 9 MR. ROBERTSON: Your Honor, excuse me. May I 10 have that question and answer read back where you asked 11 the witness when he expected the transaction -- the 12 Commission to act on the matter. 13 CALJ FARMER: Yes. The court reporter can read 14 that. 15 (The record was read by the reporter as 16 requested.) 17 MR. ROBERTSON: Thank you. 18 BY CALJ FARMER: 19 Q. Has APS put Units 1, 2 and 3 into the harvest 20 mode as of today? 21 A. We have, not necessarily full harvest. We have 22 been very careful with our spend. To understand, we 23 weren't making spends that we didn't feel we could get 24 return back in the next two to three years. So we are 25 starting down the path without being full blown into aAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 360 1 harvest mode, should have been much more judicious on 2 the things we are working on right now. 3 Q. I think you explained that the EPA had Plan 1 4 which was that all five units had to be in compliance by 5 2016. 6 A. That's correct. 7 Q. Is that correct? And is that the same time frame 8 that the co-tenancy agreement expires? 9 A. It could be. Actually, the way the, the way the 10 BART is written, it is five years from issuance. So 11 2016, if it gets issued this year, then it will be 2016. 12 So just coincidental, it wasn't planned that way. 13 Q. And I think I heard you say that under the 14 agreement, operating agreement, all owners have to agree 15 on the capital budget, is that correct? 16A. It requires unanimous approval of just about 17 everything we do. All five or six, however many owners 18 there are, have to -- if there is one dissent, we don't 19 go forward with the project or with a line item, if you 20 will. We haven't run into that circumstance, but that's 21 the way the co-tenancy agreement is written. 22Q. That seems odd, like one could sabotage your 23 whole plant. 24A. Yes, it is. 25Q. Do you know how the O&M expenses associated withAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 361 1 Units 1, 2 and 3 compare to the O&M expenses associated 2 with Unit 4 and 5? 3 A. On an actual cost basis, they are pretty similar 4 depending year to year. You may have little variations. 5 We don't necessarily look at that O&M cost and 6 that type of breakdown. We look at it much more by 7 unit, what is the cost by unit, other than people, but 8 maintenance dollars by each individual unit. And they 9 are pretty comparable, because they are very similar 10 plants. Even though size is different, they are similar 11 in the number of people it takes to operate, what type 12 of components there are, and those types of things. So 13 they are comparable to each other. But on a megawatt 14 weighted basis, 4 and 5 are much cheaper in O&M space. 15 Q. How many employees does APS have working at all 16 units? 17 A. Today we have a little bit over 500 people 18 there. We have been much higher than that in the past. 19 But, again, per my discussion around the demographics, 20 from a harvest perspective, that's one of the things 21 where we are allowing that attrition to take place. We 22 are being careful. We don't want put ourselves in a 23 position where we don't have decisions and we have to 24 continue operating for an extended period of time where 25 we are going to have to rehire, get employees in toAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 362 1 bring the staffing up. I can't let it go to a danger 2 level from a safety perspective. So right now we are 3 just allowing attrition to take place and trying to 4manage that so at the end we don't have to worry about 5 how many people we have at that site. 6 Q. So APS bills the other owners for their share of 7 those O&M costs associated with Units 4 and 5? 8 A. That's correct. 9 Q. On page 6 of your direct testimony, if you could 10 go there, please. 11A. Okay. 12Q. Okay. On the last sentence you say APS will also 13 assume certain of SCE's current obligations, such as plant 14 decommissioning and mine reclamation liabilities. How 15much are you talking about there? 16A. I think it is in the testimony that currently 17 about $32 million is set aside, 9 million for 18 decommissioning, 23 million for reclamation. 19 Q. And that's just the 48 percent SCE ownership 20 cost? 21A. My understanding, that's correct. 22CALJ FARMER: Okay. Thank you. 23 Does APS have redirect for the witness? 24MS. GRABEL: I do, Your Honor. Thank you. 25APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 363 1 2 REDIRECT EXAMINATION 3 BY MS. GRABEL: 4Q. Mr. Schiavoni, when did the opportunity to 5 acquire SCE's share of Units 4 and 5 first arise? 6 A. First arose in December of '09 when we received 7 notification of their intent. 8 Q. Did that notification follow shortly after the 9 CPUC issued a proposed order that denied SCE's request for 10 an exemption from the California regs implementing State 11 Bill 1368? 12A. That's correct. 13 Q. Did APS act on that opportunity as quickly as 14possible after learning of it? 15A. Yes, we did. 16Q. Did APS believe it could lose that opportunity if 17 it did not act quickly? 18A. Yes, we did. 19 Q. Why did so much time pass between the 20 December 2009 date on which the opportunity to purchase 21 SCE's share first arose and the November 8th, 2010 22 contractual execution date? 23 A. Well, it was a negotiation. And as we had 24 talked about, there was many moving parts in this 25 negotiation that had to take place. So it wasn't due toAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 364 1 lack of effort or not a desire to get this done sooner 2 rather than later, but it was just a function of getting 3 a negotiation done that drove the timing on this thing. 4Q. I believe Mr. Robertson asked you about the 5 possibility of partitioning Units 4 and 5. And please 6 correct me if I am wrong, but I believe you indicated your 7 belief that the operating agreement did not permit 8 partitioning, is that correct? 9 A. I don't have the operating agreement in front of 10 my but my belief or my recollection, there was language 11 in the operating agreement concerning partitioning. But 12 without the contract I can't tell you with certainty how 13 it is written, how it is stated. 14Q. Might the terms, then, be different than you 15 presently recall? 16A. Yes. 17Q. The contract aside, do any other operational 18 challenges exist with respect to the partition option? 19 A. Well, partitioning, for those that are not aware 20 of it, partitioning is just you have two units. 21 48 percent share that belongs to Southern Cal Edison 22 equates to one whole unit being gone. So 50 percent of 23 the two units is the same size equivalent you would be 24with a single unit. 25And from all the economies that were talkedAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 365 1 about by Mr. Rose and by testimony, a single unit is not 2 a cost effective way to operate any facility, let alone 3 a coal facility. It will affect your fuel contracts. 4 It will affect obviously the Navajo Nation and royalties 5 and things that happen from a financial perspective. It 6 would impact the number of employees that are needed for 7 it. It increases your risk with regards to the 8 management of the facility. Just from the sheer single 9 unit outage, it is much more difficult from a management 10 perspective than having the capability of multiple units 11 to be put in place from a marketing and trades 12 perspective. 13 So going to a single unit operation is just much 14more challenging. It doesn't mean it can't be done. It 15 just means you do it at a higher cost than you would for 16 two units. 17Q. Mr. Schiavoni, you were asked a series of 18 questions by both Mr. Ritchie and Mr. Robertson, I 19 believe, about the company's production model and what is 20 and is not reflected in the company's economic analysis. 21 Do you recall that? 22A. Yes, I do. 23 Q. Are you the APS witness who is best positioned to 24 respond to questions on those topics? 25A. No, I am not. That would be Mr. Dinkel.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 366 1 Q. Would you defer to Mr. Dinkel, then, in his 2 testimony on those issues? 3 A. Yes, I would. 4Q. I would like to ask you another question about 5 the impact of delay on this proceeding. Are you aware, 6 and I am sure you are aware but I am going to remind you, 7 that CPUC as issued an order that purports to deny 8 recovery in rates of capital expenditures from three 9 units, 4 and 5 at Four Corners that are forecasted to be 10 incurred beginning in January, beginning January 1st, 2012 11 and beyond? 12A. Yes, I am. 13 Q. And might SCE become increasingly reticent about 14 approving capital expenditures at Four Corners during and 15 after 2012 given that order? 16A. Yes. I would expect them to have much more 17 difficulty approving any transactions beyond the one 18 January 12. 19 Q. How would that difficulty affect operations at 20 the plant? 21A. As I alluded to earlier, a capital budget or an 22 O&M budget gets built, it is being built right now for 23 next year. Each owner has to take it and approve it. 24And if a single owner does not approve it, it puts it 25 into basically a holding pattern until you can negotiateAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 367 1 or figure out a way to get a budget approved. 2 This, quite frankly, would be unchartered 3 territory for us where we have an owner that would 4 refuse to approve a budget. But they have that right by 5 the co-tenancy agreement to do that. So it could make 6 it very difficult. 7 Q. I believe this is my final question, unless 8 anyone comes to me. You spoke, sir, about a $7 million 9 lease payment made under the renewed lease agreement with 10 the Navajo Nation. That lease agreement is spread along 11 all the parties to the renewed lease agreement, is that 12 correct? 13 A. That is correct. 14MS. GRABEL: That's all I have. 15CALJ FARMER: Any further questions for this 16 witness? 17Mr. Robertson. 18 19 RECROSS-EXAMINATION 20 BY MR. ROBERTSON: 21Q. Mr. Schiavoni, during her redirect examination of 22 you, Ms. Grabel referred to an order that apparently was 23 recently issued by the California Public Utilities 24 Commission. Do you recall that line of questioning? 25A. Yes, I do.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 368 1 Q. Do you know when that order was issued? 2 A. No, I do not know the date. 3 Q. Was it issued subsequent to the filing of your 4 rebuttal testimony in this proceeding? 5 A. No. 6 Q. Okay. Would you be willing through the company's 7 counsel to provide a copy of that order to all of the 8 parties so that they may have it available and in 9 connection with the resumption of hearings in this 10 proceeding as well as briefing? 11MS. GRABEL: Mr. Robertson, it is actually 12 alluded to in the testimony of Ms. Furrey. 13 MR. ROBERTSON: I'm sorry. I couldn't 14 hear Ms. Grabel. 15MS. GRABEL: I am sorry. Ms. Furrey refers to 16 it in her testimony. I am happy to give you a copy of 17 it, but you might be able to get the docket number from 18 Ms. Furrey's testimony. 19 MR. ROBERTSON: That's fine, as long as I can 20 get it before the resumption of the hearings on 21August 9th and the briefing. 22 BY MR. ROBERTSON: 23 Q. Are you familiar with the general contents of 24 that order, Mr. Schiavoni? 25A. I have not read the order.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 369 1 Q. Okay. Ms. Grabel also asked you about the 2 activities that occurred subsequent to the company's 3 receipt of the letter from Southern California Edison in 4 December of 2009. 5 What did APS specifically do subsequent to its 6 receipt of that letter as it relates to the negotiations 7 which led to the November 8th agreement which is the 8 subject of this proceeding? 9 A. As I believe I talked about earlier, once we 10 received the letter, we took it, we looked at what the 11 letter meant, what is the background. The co-owners got 12 together. We had a dialogue with Southern Cal Edison 13 when Southern Cal Edison was walking us through with 14 what this meant to them. 15 And then I think, as I alluded to earlier, late 16 January APS, as a result of the conversation with all 17 the owners, instead of all us off individually 18 negotiating, we would go ahead and lead the negotiation 19 with Southern Cal Edison to see if there was something 20 there that would be worthwhile with all owners. And 21 that, I believe, commenced in January. 22 Q. Now, when you say it was determined that APS 23 would lead the negotiations to see if there was something 24 that was worthwhile there for all owners, was the 25 understanding that APS would be negotiating on behalf ofAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 370 1 all of the owners or just on behalf of APS? 2 A. I don't think the specificity was there from 3 that perspective. The idea was it was a ROFR. So 4 whoever, it didn't matter if it was APS, Tucson 5 Electric, whoever negotiated a deal with Southern Cal 6 Edison, the other owners had a right to it. So the 7 thought process was for the five of us not to negotiate 8 against each other. And so we said we would go ahead 9 and we would enter in and start this dialogue with them. 10 But it didn't preclude any other owner from doing it if 11 they so chose to do that. 12 Q. Was the purpose of taking that approach to see 13 whether or not there was a deal there that was worthwhile 14 from the perspective of all of the other owners? 15 A. The original intent was to go into this to keep 16 4 and 5 running and keep it. Because we all, including 17 Southern Cal Edison, believe there is tremendous value 18 in that asset. And they stated it more than once that, 19 if they weren't being forced into this position, they 20 would never -- they would not be thinking about selling 21 that asset today. 22 So from our perspective as a group of owners, it 23 was looking at what are all the possibilities to 24 potentially keep an asset open that has tremendous 25 value. And APS, we went and did our own independentAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 371 1 look at this to figure out where we thought. And as I 2 alluded to earlier, then all the compounding factors 3 that were taking place with the Navajo Nation, EPA, et 4 cetera, it just kind of led us down a path that we could 5 do something that kind of, not kind of, but do something 6 different, do something that creates tremendous value 7 for three constituents that are important to us. 8 Q. At what point in time did this consensus amongst 9 other owners and APS occur? It sounds from your testimony 10 like it was early in 2010. Can you give us an idea of how 11 early in 2010? 12A. Well, I think we all have had ownership of that 13 facility. All of us know the value to each of us of 14 that facility. So it wasn't like you were dealing with 15 parties that don't understand how it has been operated, 16 how it has been maintained, what the asset value is. 17 You are dealing with people that knew exactly what the 18 value of that asset was. 19 So it wasn't a lot of dialogue around what do we 20 do to -- do we make a decision to close it or not back 21 then. As I said, we were just starting that contingency 22 planning now. So back then it was much more this is a 23 valuable asset to all of us; if the right deal is 24 struck, is there something here that us, as owners, or a 25 third party would have an interest in. So I don't knowAPS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 372 1 that it was an exact point in time where we all came to 2 the same conclusion. I think it is a, it was a foregone 3 conclusion walking in we all thought there was a value. 4Q. Now, earlier today during my previous 5 cross-examination of you you indicated that sometime 6 during mid to late summer, as a result of APS' 7 negotiations with Edison, you were able to assign a price 8 to go with the deal on the order of 294 million. Now, had 9 the other owners in Units 4 and 5 declined to exercise 10 their right of first refusal as of that point in time or 11 not? 12A. No, they actually couldn't exercise the right of 13 first refusal until Southern Cal Edison gave them 14 basically the transaction. So they had to have a term 15 sheet signed. So they executed in November. They had 16 until March to execute their ROFR. 17MR. ROBERTSON: Okay. Very good. I think 18 that's all I have. 19 Thank you, Your Honor. 20 CALJ FARMER: Okay. Thank you. 21Anything further for this witness? 22(No response.) 23 CALJ FARMER: Thank you, sir, for your testimony 24 today. 25THE WITNESS: Thank you.APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 373 1 

### CALJ FARMER: Given the lateness of the 2 

### afternoon, I don't believe we will start another witness 3 

### now. But let's talk for a few minutes about scheduling. 4 

### Okay. We can go off the record for this 5 

### discussion. Then we will come back on. 6 

### (An off-the-record discussion ensued.) 7 

### CALJ FARMER: Let's go back on the record. And 8 

### let the record reflect that we had a discussion off the 9 

### record concerning scheduling. 10 

### And we will be reconvening the hearing on 11 

### Monday, August 8th, at 11:00 a.m., or upon the 12 

### conclusion of the Southwest Gas prehearing conference, 13 

### beginning with the remaining APS witnesses, potentially 14 

### taking Staff witness Ms. Little, and potentially 15 

### Mr. Patterson, and then continuing on Tuesday, the 9th, 16 

### with Dr. Berry and the RUCO witnesses. And thereafter 17 

### we will have to figure out what dates we need if we 18 

### don't finish all our witnesses by that date. 19 

### Other procedural issues, APS? 20 

### MS. GRABEL: Yes, Your Honor. I neglected 21 

### yesterday to move APS Exhibit No. 5 into the record, 22 

### which is the Sierra Club's response to our data request 23 

### to it. 24 

### CALJ FARMER: Are there any objections to APS 25 

### Exhibit 5?APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 374 1 MR. RITCHIE: No objection to that exhibit, Your 2 Honor. Although I did want to clarify Exhibits 4, 6 and 3 7 were not moved into the record, correct? 4 CALJ FARMER: I will go ahead and admit APS 5 Exhibit 5. 6 (Exhibit APS-5 was admitted into evidence.) 7 CALJ FARMER: And I do show 4 -- 8 MS. GRABEL: 4 and 7 were not moved into the 9 record yet pursuant to our conversation, Your Honor. 10 And I did not offer Exhibit 6. 11 CALJ FARMER: And 8 you haven't offered yet 12 because it is Mr. Dinkel's? 13 MS. GRABEL: It is Mr. Dinkel's testimony, 14 correct. 15 CALJ FARMER: Anything further we need to put on 16 the record now? 17 (No response.) 18 CALJ FARMER: Okay. Thank you, all. We will 19 see you August 8th at 11:00 p.m. 20 (The hearing recessed at 4:50 p.m.) 21 22 23 24 25APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 375 1 

### INDEX TO EXAMINATIONS 2 

### WITNESSES PAGE 3 

### JUDAH L. ROSE 4 

### Direct Examination by Ms. Grabel 133 5 

### Cross-Examination by Mr. Ritchie 140 Cross-Examination by Mr. Robertson 168 6 

### Cross-Examination by Mr. Pozefsky 178 Cross-Examination by Mr. Van Cleve 200 7 

### Examination by CALJ Farmer 208 Redirect Examination by Ms. Grabel 220 8 

### Recross-Examination by Mr. Ritchie 227 Recross-Examination by Mr. Robertson 228 9 

### Recross-Examination by Mr. Van Cleve 229 10 

### BRUCE V. POLKOWSKY 11 

### Direct Examination by Mr. Hogan 231 12 

### Cross-Examination by Ms. Grabel 232 Cross-Examination by Mr. Ritchie 233 13 

### Cross-Examination by Mr. Robertson 235 Cross-Examination by Mr. Pozefsky 236 14 

### Examination by CALJ Farmer 238 15 

### MARK SCHIAVONI 16 

### Direct Examination by Ms. Grabel 242 17 

### Cross-Examination by Mr. Ritchie 247 Cross-Examination by Mr. Robertson 276 18 

### Cross-Examination by Mr. Pozefsky 319 Cross-Examination by Mr. Hesla 343 19 

### Examination by CALJ Farmer 348 Redirect Examination by Ms. Grabel 363 20 

### Recross-Examination by Mr. Robertson 367 21 22 23 24 25APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011

Court Reporting & Videoconferencing Center Phoenix, AZ Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 376 1 

### INDEX TO EXHIBITS 2 

### NO. DESCRIPTION IDENTIFIED ADMITTED 3 

### APS-5 APS-SC 1.10, Sierra Club's Response to APS' First 4 

### Set of Data Requests 56 374 5 

### APS-9 Rebuttal Testimony of Judah L. Rose 134 135 6 

### CONFIDENTIAL 7 

### APS-10 Rebuttal Testimony of Judah L. Rose 134 135 8 9 

### APS-11 Direct Testimony of Mark A. Schiavoni 243 245 10 

### APS-12 Rebuttal Testimony of 11 

### Mark A. Schiavoni 244 245 12 

### SC-4 Excerpt of Rebuttal Testimony of Judah L. 13 

### Rose on Behalf of Entergy Louisiana 145 146 14 

### SC-5 Excerpt of Report and 15 

### Recommendation Concerning the Little Gypsy Unit 3 16 

### Repowering Project 148 148 17 

### SC-6 SC 1.13, APS' Response to Sierra Club's First 18 

### Set of Data Requests 272 272 19 

### EDF-1 Prefiled Testimony of Bruce Polkowsky 232 238 20 

### Alliance-2 ACPA's First Set of Data 21 

### Requests to APS 276 318 22 

### Alliance-3 SWPG's First Set of Data 276 318 Requests to APS 23 24 25WITNESS my hand this day 18th day of July, 

# id 'Itil,

GARY W. HILL Certified Reporter Certificate No. 50812

COLETTE E. ROSS Certified Reporter Certificate No. 50658 APS - Financing and Accounting Re Four Corners Volume II E-01345A-10-0474 7/15/2011 377 1 STATE OF ARIZONA ) )

### ss. 2 COUNTY OF MARICOPA ) 3 4 5 6 7 We, GARY W. HILL, Certified Reporter 8 No. 50812, and COLETTE E. ROSS, Certified Reporter 9 No. 50658, for the State of Arizona, do hereby certify 10 that the foregoing printed pages constitute a full, true 11 and accurate transcript of the proceedings had in the 12 foregoing matter, all done to the best of our skill and 13 ability. 14 15 16 2011. 17 18 19 20 21 22 23 24 25 Arizona Reporting Service, Inc. www.az-reporting.com 602-274-9944 Court Reporting & Videoconferencing Center Phoenix, AZ