APS 2013 Annual Report Download - page 56

Table of Contents
alternate arrangement under which SCE will assign its 1,555 MW capacity rights over the Arizona Transmission System to third-parties, including 300 MW
to APS’s marketing and trading group for transmission of the additional power received from Four Corners. This arrangement becomes effective upon FERC
approval and will remain in effect until the net payments received by SCE in connection with the assignments reach $40 million, at which time the
arrangement and the Transmission Agreement will terminate. APS believes that FERC will approve the alternate arrangement as filed but, if not approved,
SCE and APS will again be subject to the terms of the Transmission Termination Agreement. APS believes that the original denial by FERC of rate recovery
under the Transmission Termination Agreement constitutes the failure of a condition that relieves APS of its obligations under that agreement. If APS and SCE
were unable to determine a resolution through negotiation, the Transmission Termination Agreement requires that disputes be resolved through arbitration.
APS is unable to predict the outcome of this matter if it proceeds to arbitration.
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.
Financial Strength and Flexibility. Pinnacle West and APS currently have ample borrowing capacity under their respective credit facilities, and
may readily access these facilities ensuring adequate liquidity for each company. Capital expenditures will be funded with internally generated cash and
external financings, which may include issuances of long-term debt and Pinnacle West common stock.
El Dorado. The operations of El Dorado, our only other operating subsidiary, are not expected to have any material impact on our financial results,
or to require any material amounts of capital, over the next three years.
Key Financial Drivers
In addition to the continuing impact of the matters described above, many factors influence our financial results and our future financial outlook,
including those listed below. We closely monitor these factors to plan for the Company’s current needs, and to adjust our expectations, financial budgets and
forecasts appropriately.
Electric Operating Revenues. For the years 2011 through 2013, retail electric revenues comprised approximately 93% of our total electric operating
revenues. Our electric operating revenues are affected by customer growth or decline, variations in weather from period to period, customer mix, average usage
per customer and the impacts of energy efficiency programs, distributed energy additions, electricity rates and tariffs, the recovery of PSA deferrals and the
operation of other recovery
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