APS 2011 Annual Report Download - page 120

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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transfer of cost recovery for certain renewable energy projects from the RES surcharge to base rates in
an estimated amount of $36.8 million.
APS also agreed not to file its next general rate case before May 31, 2015, and not to request
that its next general retail rate increase be effective prior to July 1, 2016. The Settlement Agreement
allows APS to request a change to its base rates during the stay-out period in the event of an
extraordinary event that, in the ACC’s judgment, requires base rate relief in order to protect the public
interest. Nor is APS precluded from seeking rate relief, or any other party to the Settlement Agreement
precluded from petitioning the ACC to examine the reasonableness of APS’s rates, in the event of
significant regulatory developments that materially impact the financial results expected under the
terms of the Settlement Agreement.
Other key provisions of the Settlement Agreement include the following:
 An authorized return on common equity of 10.0%;
 A capital structure comprised of 46.1% debt and 53.9% common equity;
 A test year ended December 31, 2010, adjusted to include plant that is in service as of
March 31, 2012;
 Deferral for future recovery or refund of property taxes above or below a specified
2010 test year level caused by changes to the Arizona property tax rate as follows:
 Deferral of 25% in 2012, 50% in 2013 and 75% for 2014 and subsequent years
if Arizona property tax rates increase; and
 Deferral of 100% in all years if Arizona property tax rates decrease;
 A procedure to allow APS to request rate adjustments prior to its next general rate case
related to APS’s proposed acquisition (should it be consummated) of additional
interests in Units 4 and 5 and the related closure of Units 1-3 of the Four Corners
Power Plant;
 Implementation of a “Lost Fixed Cost Recovery” rate mechanism to support energy
efficiency and distributed renewable generation;
 Modifications to the Environmental Improvement Surcharge (“EIS”) to allow for the
recovery of carrying costs for capital expenditures associated with government-
mandated environmental controls, subject to an existing cents per kWh cap on cost
recovery that could produce approximately $5 million annually;
 Modifications to the PSA, including the elimination of the current 90/10 sharing
provision;
 Allowing a negative credit that currently exists in the PSA to continue until February
2013, rather than being reset on the anticipated July 1, 2012 rate effective date;