APS 2011 Annual Report Download - page 121

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
96
 Modification of the TCA to streamline the process for future transmission-related rate
changes; and
 Implementation of various changes to rate schedules, including the adoption of an
experimental “buy-through” rate that could allow certain large commercial and
industrial customers to select alternative sources of generation to be supplied by APS.
If the Settlement Agreement is approved by the ACC, APS expects that its provisions will
become effective on or about July 1, 2012. As is the case with all such agreements, APS cannot
predict whether the Settlement Agreement will be approved in the form filed or what changes may be
ordered by the ACC and accepted by the parties.
2008 General Retail Rate Case Impacts
On December 30, 2009, the ACC issued an order approving a settlement agreement entered
into by APS and twenty-one other parties in APS’s prior general retail rate case, which was originally
filed in March 2008. The settlement agreement included a net retail rate increase of $207.5 million,
which represented a base rate increase of $344.7 million less a reclassification of $137.2 million of fuel
and purchased power revenues from the then-existing PSA to base rates. The new rates were effective
January 1, 2010. The settlement agreement also contained on-going requirements, commitments and
authorizations, including the following:
 Revenue accounting treatment for line extension payments received for new or
upgraded service from January 1, 2010 through year end 2012 (or until new rates are
established in APS’s next general rate case, if that is before the end of 2012);
 An authorized return on common equity of 11%;
 A capital structure comprised of 46.2% debt and 53.8% common equity;
 A commitment from APS to reduce average annual operational expenses by at least $30
million from 2010 through 2014 (APS filed a notification with the ACC on April 29,
2011, demonstrating its compliance with this provision in 2010);
 Authorization and requirements of equity infusions into APS of at least $700 million
during the period beginning June 1, 2009 through December 31, 2014 ($253 million of
which was infused into APS from proceeds of a Pinnacle West equity issuance in the
second quarter of 2010); and
 Various modifications to the existing energy efficiency, demand-side management and
renewable energy programs that require APS to, among other things, expand its
conservation and demand-side management programs and its use of renewable energy,
as well as allow for concurrent recovery of renewable energy expenses and provide for
more concurrent recovery of demand-side management costs and incentives.