APS 2012 Annual Report Download - page 124

PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
99
companies will terminate an existing agreement that provides transmission capacity for SCE to transmit
its portion of the output from Four Corners to California. APS expects to file a request with FERC
seeking authorization to cancel the existing agreement and defer a $40 million payment to be made by
APS associated with the termination and recover the payment through amortization over a 29-year
period. APS believes the costs associated with the termination of the existing agreement are
recoverable, but cannot predict whether FERC will approve our request; however, if the recovery is
disallowed by FERC, APS would record a charge to its results of operations at the time of the
disallowance.
Lost Fixed Cost Recovery Mechanism. The LFCR mechanism permits APS to recover on an
after-the-fact basis a portion of its fixed costs that would otherwise have been collected by the Company
in the kWh sales lost due to APS energy efficiency programs and to distributed generation such as roof-
top solar arrays. The fixed costs recoverable by the LFCR mechanism were established in the recent rate
case and amount to approximately 3.1 cents per residential kWh lost and 2.3 cents per non-residential
kWh lost. The kWh’s lost from energy efficiency are based on a third-party evaluation of the
Company’s energy efficiency programs. Distributed generation sales losses are determined from the
metered output from the distributed generation units or if metering is unavailable, through accepted
estimating techniques.
APS filed its first LFCR adjustment on January 15, 2013 and will file for its LFCR adjustment
every January thereafter. On February 12, 2013, the ACC approved an LFCR adjustment of $5.1
million, representing a pro-rated amount for 2012 since the Settlement Agreement went into effect on
July 1, 2012.