Appendix C

Arizona Public Service Company

APS believes the SPS would be improved by the addition of strong incentive-credits for Arizona economic development as proposed in the report. However, in order to improve the cost and sustainability of the SPS, the solar kWh requirement should remain at 0.5% until 2003 when a review should be conducted of the costs of the SPS and the progress the solar industry has made in cost reductions.

Only if that review is favorable should an increase in the SPS be considered. If an increase is warranted, it should then be done on an incremental basis, such as by 0.1% per year until a new target is reached, rather than the doubling to 1% in 2001 as written today. This gradual increase would be beneficial to protect the electric consumers against higher costs, and would avoid unrealistic expectations by the solar suppliers of an increase in demand if their costs do not come down. In addition, this would help the suppliers see a sustainable increase in demand, and gradually increase their production, instead of requiring a sudden increase all in one year.