APS 2011 Annual Report Download - page 110

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
85
1. Summary of Significant Accounting Policies
Description of Business and Basis of Presentation
Pinnacle West is a holding company that conducts business through its subsidiaries; APS,
SunCor, El Dorado, and formerly APSES. APS, our wholly-owned subsidiary, is a vertically-
integrated electric utility that provides either retail or wholesale electric service to substantially all of
the state of Arizona, with the major exceptions of about one-half of the Phoenix metropolitan area, the
Tucson metropolitan area and Mohave County in northwestern Arizona. APS accounts for essentially
all of our revenues and earnings, and is expected to continue to do so. SunCor was a developer of
residential, commercial and industrial real estate projects in Arizona, New Mexico, Idaho and Utah but
in 2009 and 2010, essentially all of these assets were sold. All activities for SunCor are now reported
as discontinued operations (see Note 21). APSES provided energy-related projects to commercial and
industrial retail customers in competitive markets in the western United States. APSES was sold in
2011 and is now reported as discontinued operations (see Note 21). El Dorado is an investment firm.
Pinnacle West’s Consolidated Financial Statements include the accounts of Pinnacle West and
our subsidiaries: APS, SunCor, APSES, and El Dorado. APS’s consolidated financial statements
include the accounts of APS and certain VIEs relating to the Palo Verde sale leaseback. Intercompany
accounts and transactions between the consolidated companies have been eliminated.
We consolidate VIEs for which we are the primary beneficiary. We determine whether we are
the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest
holder has the controlling financial interest in the VIE. In performing our primary beneficiary analysis
we consider all relevant facts and circumstances, including the design and activities of the VIE, the
terms of the contracts the VIE has entered into, and which parties participated significantly in the
design or redesign of the entity. We continually evaluate our primary beneficiary conclusions to
determine if changes have occurred which would impact our primary beneficiary assessments. We
have determined that APS is the primary beneficiary of certain VIE lessor trusts relating to the Palo
Verde sale leaseback, and therefore APS consolidates these entities (see Note 20).
In preparing the consolidated financial statements, we have evaluated the events that have
occurred after December 31, 2011 through the date the financial statements were issued.
Our consolidated financial statements reflect all adjustments (consisting only of normal
recurring adjustments except as otherwise disclosed in the notes) that we believe are necessary for the
fair presentation of our financial position, results of operations and cash flows for the periods
presented. These consolidated financial statements and notes have been prepared consistently with the
exception of the reclassification of certain prior year amounts on our Consolidated Statements of
Income, Consolidated Balance Sheets, and Consolidated Statements of Cash Flows in accordance with
accounting requirements for reporting discontinued operations (see Note 21) and the impacts related to
the reclassification of regulatory assets and liabilities for the current portion (see Note 3).
Certain line items are presented in more detail on the Consolidated Statements of Cash Flows
than was presented in the prior years. Other line items are more condensed than the previous
presentation. The prior year amounts were reclassified to conform to the current year presentation.
These reclassifications had no impact on total net cash flow provided by operating activities.