APS 2013 Annual Report Download - page 19

Table of Contents
1999 and 2000, there are currently no active retail competitors offering unbundled energy or other utility services to APS’s customers. In 2000, the Arizona
Superior Court found that the rules were in part unconstitutional and in other respects unlawful, the latter finding being primarily on procedural grounds, and
invalidated all ACC orders authorizing competitive electric services providers to operate in Arizona. In 2004, the Arizona Court of Appeals invalidated some,
but not all of the rules and upheld the invalidation of the orders authorizing competitive electric service providers. In 2005, the Arizona Supreme Court
declined to review the Court of Appeals’ decision.
In 2008, the ACC directed the ACC staff to investigate whether such retail competition was in the public interest and what legal impediments remain
to competition in light of the Court of Appeals’ decision referenced above. The ACC staff’s report on the results of its investigation was issued on August 12,
2010. The report stated that additional analysis, discussion and study of all aspects of the issue are required in order to perform a proper evaluation. While
the report did not make any specific recommendations other than to conduct more workshops, the report did state that the current retail electric competition
rules are incomplete and in need of modification.
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 Arizona 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.
Wholesale
FERC regulates rates for wholesale power sales and transmission services. (See Note 3 for information regarding APS’s transmission rates.) During
2013, approximately 5.4% of APS’s electric operating revenues resulted from such sales and services. APS’s wholesale activity primarily consists of
managing fuel and purchased power supplies to serve retail customer energy requirements. APS also sells, in the wholesale market, its generation output that
is not needed for APS’s Native Load and, in doing so, competes with other utilities, power marketers and independent power producers. Additionally, subject
to specified parameters, APS hedges both electricity and fuels. The majority of these activities are undertaken to mitigate risk in APS’s portfolio.
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