APS 2015 Annual Report Download - page 58

Table of Contents
prices, new generating plants being placed in service in our market areas, changes in our generation resource allocation, our hedging
program for managing such costs and PSA deferrals and the related amortization.
Operations and Maintenance Expenses. Operations and maintenance expenses are impacted by customer and sales growth,
power plant operations, maintenance of utility plant (including generation, transmission, and distribution facilities), inflation, outages,
renewable energy and demand side management related expenses (which are offset by the same amount of operating revenues) and
other factors. On September 30, 2014, Pinnacle West announced plan design changes to the group life and medical postretirement
benefit plan, which reduced net periodic benefit costs. See Note 7.
Depreciation and Amortization Expenses. Depreciation and amortization expenses are impacted by net additions to utility plant
and other property (such as new generation, transmission, and distribution facilities), and changes in depreciation and amortization
rates. See "Capital Expenditures" below for information regarding the planned additions to our facilities. See Note 3 regarding deferral
of certain costs pursuant to an ACC order.
Property Taxes. Taxes other than income taxes consist primarily of property taxes, which are affected by the value of property
in-service and under construction, assessment ratios, and tax rates. The average property tax rate in Arizona for APS, which owns
essentially all of our property, was 11.0% of the assessed value for 2015, 10.7% for 2014 and 10.5% for 2013. We expect property
taxes to increase as we add new generating units and continue with improvements and expansions to our existing generating units,
transmission and distribution facilities. (See Note 3 for property tax deferrals contained in the 2012 Settlement Agreement.)
Income Taxes. Income taxes are affected by the amount of pretax book income, income tax rates, certain deductions and non-
taxable items, such as AFUDC. In addition, income taxes may also be affected by the settlement of issues with taxing authorities.
Interest Expense. Interest expense is affected by the amount of debt outstanding and the interest rates on that debt (see Note
6). The primary factors affecting borrowing levels are expected to be our capital expenditures, long-term debt maturities, equity
issuances and internally generated cash flow. An allowance for borrowed funds used during construction offsets a portion of interest
expense while capital projects are under construction. We stop accruing AFUDC on a project when it is placed in commercial
operation.
RESULTS OF OPERATIONS
Pinnacle West’s only reportable business segment is our regulated electricity segment, which consists of traditional regulated
retail and wholesale electricity businesses (primarily electric service to Native Load customers) and related activities and includes
electricity generation, transmission and distribution.
Operating Results – 2015 compared with 2014.
Our consolidated net income attributable to common shareholders for the year ended December 31, 2015 was $437 million,
compared with $398 million for the prior year. The results reflect an increase of approximately $34 million for the regulated electricity
segment primarily due to the Four Corners-related rate change, lower operations and maintenance expenses, and higher retail sales due
to customer growth and changes in customer usage patterns and related pricing, partially offset by higher depreciation and amortization.
The all other segment's income was higher by $5 million primarily related to El Dorado's investment losses in 2014.
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