APS 2011 Annual Report Download - page 123

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
98
On June 1, 2011, APS filed its 2012 Energy Efficiency Implementation Plan to meet the energy
efficiency requirements of the ACC’s Energy Efficiency Rules, which became effective January 1,
2011. The 2012 requirement under such rules is for energy efficiency savings of 1.75% of APS retail
sales for the prior year. This energy savings requirement is slightly higher than the goal established by
the settlement agreement related to APS’s 2008 retail rate case (1.5% of total energy resources). APS
proposed a budget for 2012 of $90 million. When added to the third and final year of the amortization
of 2009 program costs authorized in 2009 and less the $10 million already being recovered in general
rates, the proposed 2012 DSMAC would recover approximately $85 million over a twelve month
period beginning March 1, 2012. APS expects a decision from the ACC prior to March 31, 2012.
PSA Mechanism and Balance. The PSA provides for the adjustment of retail rates to reflect
variations in retail fuel and purchased power costs. The PSA is subject to specified parameters and
procedures, including the following:
 APS records deferrals for recovery or refund to the extent actual retail fuel and
purchased power costs vary from the Base Fuel Rate;
 under a 90/10 sharing arrangement, APS defers 90% of the difference between retail
fuel and purchased power costs (excluding certain costs, such as renewable energy
resources and the capacity components of long-term purchased power agreements
acquired through competitive procurement) and the Base Fuel Rate; APS absorbs 10%
of the retail fuel and purchased power costs above the Base Fuel Rate and retains 10%
of the benefit from the retail fuel and purchased power costs that are below the Base
Fuel Rate (see “Settlement Agreement” above for information regarding the
elimination of this arrangement);
 an adjustment to the PSA rate is made annually each February 1st (unless otherwise
approved by the ACC) and goes into effect automatically unless suspended by the
ACC;
 the PSA uses a forward-looking estimate of fuel and purchased power costs to set the
annual PSA rate, which is reconciled to actual costs experienced for each PSA Year
(February 1 through January 31) (see the following bullet point);
 the PSA rate includes (a) a “Forward Component,” under which APS recovers or
refunds differences between expected fuel and purchased power costs for the upcoming
calendar year and those embedded in the Base Fuel Rate; (b) a “Historical
Component,” under which differences between actual fuel and purchased power costs
and those recovered through the combination of the Base Fuel Rate and the Forward
Component are recovered during the next PSA Year; and (c) a “Transition
Component,” under which APS may seek mid-year PSA changes due to large variances
between actual fuel and purchased power costs and the combination of the Base Fuel
Rate and the Forward Component; and
 the PSA rate may not be increased or decreased more than $0.004 per kWh in a year
without permission of the ACC.