APS 2012 Annual Report Download - page 123

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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component of $0.0023 per kWh. The Settlement Agreement allowed APS to exceed the $0.004 per
kWh cap to PSA rate changes in this instance. Any uncollected (overcollected) deferrals during the
2013 PSA year will be included in the calculation of the PSA rate for the PSA year beginning
February 1, 2014.
Transmission Rates and Transmission Cost Adjustor. In July 2008, FERC approved an Open
Access Transmission Tariff for APS to move from fixed rates to a formula rate-setting methodology in
order to more accurately reflect and recover the costs that APS incurs in providing transmission
services. A large portion of the rate represents charges for transmission services to serve APS’s retail
customers (“Retail Transmission Charges”). In order to recover the Retail Transmission Charges, APS
was previously required to file an application with, and obtain approval from, the ACC to reflect
changes in Retail Transmission Charges through the TCA. Under the terms of the Settlement
Agreement (discussed above), however, an adjustment to rates to recover the Retail Transmission
Charges will be made annually each June 1 beginning in 2013 and will go into effect automatically
unless suspended by the ACC.
The formula rate is updated each year effective June 1 on the basis of APS’s actual cost of
service, as disclosed in APS’s FERC Form 1 report for the previous fiscal year. Items to be updated
include actual capital expenditures made as compared with previous projections, transmission revenue
credits and other items. The resolution of proposed adjustments can result in significant volatility in the
revenues to be collected. APS reviews the proposed formula rate filing amounts with the ACC staff.
Any items or adjustments which are not agreed to by APS and the ACC staff can remain in dispute until
settled or litigated at FERC. Settlement or litigated resolution of disputed issues could require an
extended period of time and could have a significant effect on the Retail Transmission Charge because
any adjustment, though applied prospectively, may be calculated to account for previously over-
collected amounts.
Effective June 1, 2011, APS’s annual wholesale transmission rates for all users of its
transmission system increased by approximately $44 million for the twelve-month period beginning
June 1, 2011 in accordance with the FERC-approved formula as a result of higher costs and lower
revenues reflected in the formula. Approximately $38 million of this revenue increase relates to Retail
Transmission Charges. The ACC approved the related increase of APS’s TCA rate on June 21, 2011
and it became effective on July 1, 2011.
Effective June 1, 2012, APS’s annual wholesale transmission rates for all users of its
transmission system increased by approximately $16 million for the twelve-month period beginning
June 1, 2012 in accordance with the FERC-approved formula. Because of higher relative system
demand by APS’s retail customers, the approximately $16 million increase reflects roughly a $2 million
decrease for wholesale customers and an $18 million increase for APS retail customers.
On May 14, 2012, APS filed an application with the ACC to implement the FERC-approved
transmission rates for retail customers discussed above. On July 18, 2012, the ACC approved the
application authorizing the implementation of the FERC-approved transmission rates for retail
customers, which became effective August 2012.
As part of APS’s proposed acquisition of SCE’s interest in Units 4 and 5 of Four Corners, APS
and SCE agreed that upon closing of the acquisition (or in 2016 if the closing does not occur), the