APS 2012 Annual Report Download - page 114

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
89
Allowance for Doubtful Accounts
The allowance for doubtful accounts represents our best estimate of existing accounts receivable
that will ultimately be uncollectible. The allowance is calculated by applying estimated write-off
factors to various classes of outstanding receivables, including accrued utility revenues. The write-off
factors used to estimate uncollectible accounts are based upon consideration of both historical
collections experience and management’s best estimate of future collections success given the existing
collections environment.
Utility Plant and Depreciation
Utility plant is the term we use to describe the business property and equipment that supports
electric service, consisting primarily of generation, transmission and distribution facilities. We report
utility plant at its original cost, which includes:
• material and labor;
• contractor costs;
• capitalized leases;
• construction overhead costs (where applicable); and
• allowance for funds used during construction.
We expense the costs of plant outages, major maintenance and routine maintenance as incurred.
We charge retired utility plant to accumulated depreciation. Liabilities associated with the retirement of
tangible long-lived assets are recognized at fair value as incurred and capitalized as part of the related
tangible long-lived assets. Accretion of the liability due to the passage of time is an operating expense
and the capitalized cost is depreciated over the useful life of the long-lived asset. See Note 12.
APS records a regulatory liability on its regulated assets for the difference between the amount
that has been recovered in regulated rates and the amount calculated in accordance with guidance on
accounting for asset retirement obligations. APS believes it can recover in regulated rates the costs
capitalized in accordance with this accounting guidance.
We record depreciation on utility plant on a straight-line basis over the remaining useful life of
the related assets. The approximate remaining average useful lives of our utility property at
December 31, 2012 were as follows:
• Fossil plant – 16 years;
• Nuclear plant – 27 years;
• Other generation – 26 years;
• Transmission – 39 years;
• Distribution – 35 years; and
• Other – 7 years.
APS applied for twenty-year extensions of its operating licenses for each of the three Palo Verde
units in December 2008. On April 21, 2011, the NRC approved the extensions of the Palo Verde
licenses. The nuclear plant remaining life takes into consideration an ACC decision which authorizes
the new Palo Verde Nuclear plant lives, effective January 1, 2012.