APS 2011 Annual Report Download - page 138

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
113
to receive using information about the participant. The pension plan covers nearly all employees. The
supplemental excess benefit retirement plan covers officers of the Company and highly compensated
employees designated for participation by the Board of Directors. Our employees do not contribute to
the plans. Generally, we calculate the benefits based on age, years of service and pay.
Pinnacle West also sponsors another postretirement benefit plan (Pinnacle West Capital
Corporation Group Life and Medical Plan) for the employees of Pinnacle West and its subsidiaries.
This plan provides medical and life insurance benefits to retired employees. Employees must retire to
become eligible for these retirement benefits, which are based on years of service and age. For the
medical insurance plan, retirees make contributions to cover a portion of the plan costs. For the life
insurance plan, retirees do not make contributions. We retain the right to change or eliminate these
benefits.
Pinnacle West uses a December 31 measurement date each year for its pension and other
postretirement benefit plans. The market-related value of our plan assets is their fair value at the
measurement date. See Note 14 for discussion of how fair values are determined. Due to subjective
and complex judgments, which may be required in determining fair values, actual results could differ
from the results estimated through the application of these methods.
A significant portion of the changes in the actuarial gains and losses of our pension and
postretirement plans is attributable to APS and therefore is recoverable in rates. Accordingly, these
changes are recorded as a regulatory asset. In its 2009 retail rate case settlement, APS received
approval to defer a portion of pension and other postretirement benefit cost increases incurred in 2011
and 2012. During 2011, we deferred pension and other postretirement benefit costs of approximately
$12 million.
On March 23, 2010, the President signed into law comprehensive health care reform legislation
under the Patient Protection and Affordable Care Act (the “Act”). One feature of the Act is the
elimination of the tax deduction for prescription drug costs that are reimbursed as part of the Medicare
Part D subsidy. Although this tax increase does not take effect until 2013, we are required to recognize
the full accounting impact in our financial statements in the period in which the Act is signed. In
accordance with accounting for regulated companies, the loss of this deduction is substantially offset
by a regulatory asset that will be recovered through future electric revenues. In the first quarter of
2010, Pinnacle West charged regulatory assets for a total of $42 million, with a corresponding increase
in accumulated deferred income tax liabilities, to reflect the impact of this change in tax law.
The following table provides details of the plans’ net periodic benefit costs and the portion of
these costs charged to expense (including administrative costs and excluding amounts capitalized as
overhead construction, billed to electric plant participants or charged to the regulatory asset) (dollars in
thousands):