APS 2015 Annual Report Download - page 70

Table of Contents
Regulatory Accounting
Regulatory accounting allows for the actions of regulators, such as the ACC and FERC, to be reflected in our financial
statements. Their actions may cause us to capitalize costs that would otherwise be included as an 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 applicable regulatory environment changes and recent rate orders to 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. We had $1,364 million of regulatory
assets and $1,140 million of regulatory liabilities on the Consolidated Balance Sheets at December 31, 2015.
Included in the balance of regulatory assets at December 31, 2015 is a regulatory asset of $619 million for pension benefits.
This regulatory asset represents the future recovery of these costs through retail rates as these amounts are charged to earnings. If these
costs are disallowed by the ACC, this regulatory asset would be charged to OCI and result in lower future earnings.
See Notes 1 and 3 for more information.
Pensions and Other Postretirement Benefit Accounting
Changes in our actuarial assumptions used in calculating our pension and other postretirement benefit liability and expense can
have a significant impact on our earnings and financial position. The most relevant actuarial assumptions are the discount rate used to
measure our liability and net periodic cost, the expected long-term rate of return on plan assets used to estimate earnings on invested
funds over the long-term, the mortality assumptions, and the assumed healthcare cost trend rates. We review these assumptions on an
annual basis and adjust them as necessary.
The following chart reflects the sensitivities that a change in certain actuarial assumptions would have had on the December 31,
2015 reported pension liability on the Consolidated Balance Sheets and our 2015 reported pension expense, after consideration of
amounts capitalized or billed to electric plant participants, on Pinnacle West’s Consolidated Statements of Income (dollars in millions):
Increase (Decrease)
Actuarial Assumption (a)
Impact on
Pension
Liability
Impact on
Pension
Expense
Discount rate:
Increase 1%
$ (329)
$ (11)
Decrease 1%
399
16
Expected long-term rate of return on plan assets:
Increase 1%
—
(13)
Decrease 1%
—
13
(a) Each fluctuation assumes that the other assumptions of the calculation are held constant while the rates are changed by one
percentage point.
67