APS 2012 Annual Report Download - page 170

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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
145
Business Segments for the Year Ended
December 31, 2010
Regulated
Electricity
Segment All other (a)
Total
Operating revenues
$ 3,181
$ 8
$ 3,189
Fuel and purchased power costs
1,047
--
1,047
Other operating expenses
1,009
4
1,013
Operating margin
1,125
4
1,129
Depreciation and amortization
415
--
415
Interest expense
226
2
228
Other expense (income)
(22)
2
(20)
Income from continuing
operations before income taxes
506
--
506
Income taxes
161
--
161
Income from continuing
operations
345
--
345
Income from discontinued
operations – net of income
tax expense of $16 million
(see Note 21)
-- 25 25
Net income
345
25
370
Less: Net income attributable to
noncontrolling interests
20 -- 20
Net income attributable to
common shareholders
$ 325 $ 25 $ 350
Total assets
$ 12,285
$ 108
$ 12,393
Capital expenditures
$ 666
$ 4
$ 670
(a) All other activities relate to SunCor, APSES and El Dorado. Loss from discontinued
operations in 2012 is primarily related to a contribution Pinnacle West expects to
make to SunCor’s estate as part of a negotiated resolution to the bankruptcy (see Note
21). Income from discontinued operations for 2011 is primarily related to the sale of
our investment in APSES. Income from discontinued operations for 2010 is
primarily related to the APSES sale of its district cooling business. None of these
segments is a reportable business segment.
18. Derivative Accounting
We are exposed to the impact of market fluctuations in the commodity price and
transportation costs of electricity, natural gas, coal, emissions allowances and in interest rates. We
manage risks associated with market volatility by utilizing various physical and financial derivative
instruments, including futures, forwards, options and swaps. As part of our overall risk management
program, we may use derivative instruments to hedge purchases and sales of electricity and fuels.
Derivative instruments that meet certain hedge accounting criteria may be designated as cash flow
hedges and are used to limit our exposure to cash flow variability on forecasted transactions. The
changes in market value of such instruments have a high correlation to price changes in the hedged
transactions. We also enter into derivative instruments for economic hedging purposes. While we