APS 2012 Annual Report Download - page 112

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
87
1. Summary of Significant Accounting Policies
Description of Business and Basis of Presentation
Pinnacle West is a holding company that conducts business through its subsidiaries; APS and El
Dorado, and formerly SunCor and APSES. APS, our wholly-owned subsidiary, is a vertically-
integrated electric utility that provides either retail or wholesale electric service to substantially all of the
state of Arizona, with the major exceptions of about one-half of the Phoenix metropolitan area, the
Tucson metropolitan area and Mohave County in northwestern Arizona. APS accounts for essentially
all of our revenues and earnings, and is expected to continue to do so. SunCor was a developer of
residential, commercial and industrial real estate projects in Arizona, New Mexico, Idaho and Utah but
in 2009 and 2010, essentially all of these assets were sold. In February 2012, SunCor filed for
protection under the United States Bankruptcy Code to complete an orderly liquidation of its business.
All activities for SunCor are now reported as discontinued operations (see Note 21). APSES provided
energy-related projects to commercial and industrial retail customers in competitive markets in the
western United States. APSES was sold in 2011 and is now reported as discontinued operations (see
Note 21). El Dorado is an investment firm.
Pinnacle West’s Consolidated Financial Statements include the accounts of Pinnacle West and
our subsidiaries: APS and El Dorado, and formerly SunCor and APSES. APS’s consolidated financial
statements include the accounts of APS and certain VIEs relating to the Palo Verde sale leaseback.
Intercompany accounts and transactions between the consolidated companies have been eliminated.
We consolidate VIEs for which we are the primary beneficiary. We determine whether we are
the primary beneficiary of a VIE through a qualitative analysis that identifies which variable interest
holder has the controlling financial interest in the VIE. In performing our primary beneficiary analysis
we consider all relevant facts and circumstances, including the design and activities of the VIE, the
terms of the contracts the VIE has entered into, and which parties participated significantly in the design
or redesign of the entity. We continually evaluate our primary beneficiary conclusions to determine if
changes have occurred which would impact our primary beneficiary assessments. We have determined
that APS is the primary beneficiary of certain VIE lessor trusts relating to the Palo Verde sale leaseback,
and therefore APS consolidates these entities (see Note 20).
Our consolidated financial statements reflect all adjustments (consisting only of normal
recurring adjustments except as otherwise disclosed in the notes) that we believe are necessary for the
fair presentation of our financial position, results of operations and cash flows for the periods presented.
Accounting Records and Use of Estimates
Our accounting records are maintained in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). The preparation of financial statements in
accordance with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.