APS 2011 Annual Report Download - page 119

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
94
3. Regulatory Matters
Retail Rate Case Filing with the Arizona Corporation Commission
On June 1, 2011, APS filed an application with the ACC for a net retail base rate increase of
$95.5 million. APS requested that the increase become effective July 1, 2012. The request would
increase the average retail customer bill approximately 6.6%. The filing is based on a test year ended
December 31, 2010, adjusted as described below. On January 6, 2012, APS and other parties to APS’s
pending general retail rate case entered into an agreement (the “Settlement Agreement”) detailing the
terms upon which the parties have agreed to settle the rate case. The Settlement Agreement requires
the approval of the ACC. Evidentiary hearings on the matter were completed on February 3, 2012.
Opening briefs from parties are due February 29, 2012 and responsive briefs are due March 14, 2012.
See below for details regarding the Settlement Agreement.
The key financial provisions of APS’s original request included:
 an increase in non-fuel base rates of $194.1 million, before the reclassification into base
rates of $44.9 million of revenues related to solar generation projects collected through
APS’s renewable energy surcharge (which will increase base rates) and $143.5 million
of lower fuel and purchased power costs currently addressed through the PSA (which
will decrease base rates);
 a rate base of $5.7 billion, which approximates the ACC-jurisdictional portion of the
book value of utility assets, net of accumulated depreciation and other credits, as of
December 31, 2010, subject to certain adjustments, including plant additions under
construction at the end of the test year that are currently in service or expected to be
placed into service before the proposed rates are requested to become effective;
 the following proposed capital structure and costs of capital:
Capital Structure Cost of Capital
Long-term debt 46.1% 6.38%
Common stock equity 53.9% 11.00%
Weighted-average cost of capital 8.87%
 a Base Fuel Rate of $0.03242 per kWh based on estimated 2012 prices (a decrease
from the current Base Fuel Rate of $0.03757 per kWh).
APS proposed that its PSA be modified to allow full pass-through of all fuel and purchased
power costs, instead of the current 90/10 sharing provision. In addition, APS proposed a decoupling
mechanism, which would address recovery of APS’s fixed costs after reflecting implementation of
ACC-mandated energy efficiency standards and renewable distributed generation.
Settlement Agreement
The Settlement Agreement provides for a zero net change in base rates, consisting of: (1) a
non-fuel base rate increase of $116.3 million; (2) a fuel-related base rate decrease of $153.1 million (to
be implemented by a change in the base fuel rate from $0.03757 to $0.03207 per kWh); and (3) the