APS 2013 Annual Report Download - page 92

Table of Contents
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Regulatory Accounting
APS is regulated by the ACC and FERC. The accompanying financial statements reflect the rate-making policies of these commissions. As a result,
we capitalize certain costs that would be included as expense in the current period by unregulated companies. Regulatory assets represent incurred costs that
have been deferred because they are probable of future recovery in customer rates. Regulatory liabilities generally represent expected future costs that have
already been collected from customers.
Management continually assesses whether our regulatory assets are probable of future recovery by considering factors such as changes in the
applicable regulatory environment and recent rate orders applicable to APS or other regulated entities in the same jurisdiction. This determination reflects the
current political and regulatory climate in Arizona and is subject to change in the future. If future recovery of costs ceases to be probable, the assets would be
written off as a charge in current period earnings.
See Note 3 for additional information.
Electric Revenues
We derive electric revenues primarily from sales of electricity to our regulated Native Load customers. Revenues related to the sale of electricity are
generally recorded when service is rendered or electricity is delivered to customers. The billing of electricity sales to individual Native Load customers is based
on the reading of their meters, which occurs on a systematic basis throughout the month. Unbilled revenues are estimated by applying an average
revenue/kWh by customer class to the number of estimated kWhs delivered but not billed. Differences historically between the actual and estimated unbilled
revenues are immaterial. We exclude sales taxes and franchise fees on electric revenues from both revenue and taxes other than income taxes.
Revenues from our Native Load customers and non-derivative instruments are reported on a gross basis on Pinnacle West’s Consolidated Statements
of Income. In the electricity business, some contracts to purchase energy are netted against other contracts to sell energy. This is called a “book-out” and
usually occurs for contracts that have the same terms (quantities and delivery points) and for which power does not flow. We net these book-outs, which
reduces both revenues and fuel and purchased power costs.
For the period January 1, 2010 through June 30, 2012, electric revenues also include proceeds for line extension payments for new or upgraded
service in accordance with the 2009 Settlement Agreement (see Note 3). Effective July 1, 2012, as a result of the 2012 Settlement Agreement, these amounts are
now recorded as contributions in aid of construction and are not included in electric revenues.
Some of our cost recovery mechanisms are alternative revenue programs. For alternative revenue programs that meet specified accounting criteria, we
recognize revenues when the specific events permitting billing of the additional revenues have been completed.
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