APS 2013 Annual Report Download - page 103

Table of Contents
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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- or under-collected
amounts.
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.
Effective June 1, 2013, APS’s annual wholesale transmission rates for all users of its transmission system increased by approximately $26 million
for the twelve-month period beginning June 1, 2013 in accordance with the FERC-approved formula. Pursuant to the 2012 Settlement Agreement (discussed
above), an adjustment to APS’s retail rates to recover FERC-approved transmission charges went into effect automatically on June 1, 2013.
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 APS in the kWh sales lost due to APS energy efficiency programs and to distributed generation such as rooftop solar
arrays. The fixed costs recoverable by the LFCR mechanism were established in the 2012 Settlement Agreement 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 APS’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 a LFCR adjustment every January thereafter. On February 12, 2013, the
ACC approved a LFCR adjustment of $5.1 million, representing a pro-rated amount for 2012 since the 2012 Settlement Agreement went into effect on July 1,
2012. APS filed its 2014 annual LFCR adjustment on January 15, 2014, requesting a LFCR adjustment of $25.3 million, effective March 1, 2014. APS
anticipates that the ACC will consider whether to approve APS’s LFCR adjustment prior to the end of March 2014.
Deregulation
On May 9, 2013, the ACC voted to re-examine the facilitation of a deregulated retail electric market in Arizona. The ACC subsequently opened a
docket for this matter and received comments from a number of interested parties on the considerations involved in establishing retail electric deregulation in
the state. One of these considerations is whether various aspects of a deregulated market, including setting utility rates on a “market” basis, would be
consistent with the requirements of the Arizona Constitution. On September 11, 2013, after receiving legal advice from the ACC staff, the ACC voted 4-1 to
close the current docket and await full Constitutional authority before any further examination of this matter. The motion approved by the ACC also included
opening one or more new dockets in the future to explore options to offer more rate choices to customers and innovative changes within the existing cost-of-
service regulatory model that could include elements of competition. The ACC opened a new docket on November 4, 2013 to explore technological advances
and innovative changes within the electric utility industry. Workshops in this docket are expected to be held in 2014.
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