APS 2011 Annual Report Download - page 122

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
97
Cost Recovery Mechanisms
APS has received regulatory decisions that allow for more timely recovery of certain costs
through the following recovery mechanisms.
Renewable Energy Standard. In 2006, the ACC approved the RES. Under the RES, electric
utilities that are regulated by the ACC must supply an increasing percentage of their retail electric
energy sales from eligible renewable resources, including solar, wind, biomass, biogas and geothermal
technologies. In order to achieve these requirements, the ACC allows APS to include a RES surcharge
as part of customer bills to recover the approved amounts for use on renewable energy projects. Each
year APS is required to file a five-year implementation plan with the ACC and seek approval for
funding the upcoming year’s RES budget.
On July 1, 2011, APS filed its annual RES implementation plan, covering the 2012-2016
timeframe and requesting 2012 RES funding of $129 million to $152 million. On December 14,
2011, the ACC voted to approve APS’s 2012 RES Plan and authorized a total 2012 RES budget of
$110 million. Within that budget, the ACC authorized APS to, among other items, (i) own an
additional 100 MW under the AZ Sun Program, for a total of 200 MW; (ii) recover revenue
requirements for the second 100 MW as APS did for the first 100 MW of the AZ Sun Program; (iii)
expand APS’s School and Government Program by another 6.25 MW of utility owned distributed
generation; and (iv) own another 25 MW of renewable generation to be described later and installed in
2014 and 2015. In addition, the ACC ordered an initial up front incentive of $0.75 per watt for
residential distributed energy and incentive level step downs throughout 2012 based upon the volume
and timing of residential incentive applications. Under the ACC’s order, residential incentives could
fall to $0.20 or $0.10 per watt by the end of 2012 depending on demand.
Demand-Side Management Adjustor Charge (“DSMAC”). The 2008 retail rate case
settlement agreement requires APS to submit an annual Energy Efficiency Implementation Plan for
review by and approval of the ACC. In 2010, the DSMAC was modified to recover estimated amounts
for use on certain demand-side management programs over the current year. Previously, the DSMAC
allowed for such recovery only on a historical or after-the-fact basis. The surcharge allows for the
recovery of energy efficiency expenses and any earned incentives.
The ACC previously approved recovery of all 2009 program costs plus incentives. The change
from program cost recovery on a historical basis to recovery on a concurrent basis, as authorized in the
2009 retail rate case settlement agreement, resulted in this one-time need to address two years (2009
and 2010) of cost recovery. As requested by APS, 2009 program cost recovery is to be amortized over
a three-year period.
On June 1, 2010, APS filed its 2011 Energy Efficiency Implementation Plan. In order to meet
the energy efficiency goal for 2011 established by the settlement agreement of annual energy savings
of 1.25%, expressed as a percent of total energy resources to meet retail load, APS proposed a total
budget for 2011 of $79 million. On February 17, 2011, a total budget for 2011 of $80 million was
approved and, when added to the amortization of 2009 program costs discussed above less the $10
million already being recovered in general rates, the DSMAC would recover approximately $75
million over a twelve-month period beginning March 1, 2011.