APS 2015 Annual Report Download - page 97

Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business and Basis of Presentation
Pinnacle West is a holding company that conducts business through its subsidiaries, APS, El Dorado, and BCE. APS, our
wholly-owned subsidiary, is a vertically-integrated electric utility that provides either retail or wholesale electric service to substantially
all of the state of Arizona, with the major exceptions of about one-half of the Phoenix metropolitan area, the Tucson metropolitan area
and Mohave County in northwestern Arizona. APS accounts for essentially all of our revenues and earnings, and is expected to
continue to do so. El Dorado is an investment firm. BCE is a subsidiary that was formed in 2014 that focuses on growth opportunities
that leverage the Company's core expertise in the electric energy industry. BCE is currently pursuing transmission opportunities through
a joint venture arrangement.
Pinnacle West’s Consolidated Financial Statements include the accounts of Pinnacle West and our subsidiaries: APS, El Dorado
and BCE. APS’s consolidated financial statements include the accounts of APS and certain VIEs relating to the Palo Verde sale
leaseback. Intercompany accounts and transactions between the consolidated companies have been eliminated.
We consolidate VIEs for which we are the primary beneficiary. We determine whether we are the primary beneficiary of a VIE
through a qualitative analysis that identifies which variable interest holder has the controlling financial interest in the VIE. In
performing our primary beneficiary analysis, we consider all relevant facts and circumstances, including the design and activities of the
VIE, the terms of the contracts the VIE has entered into, and which parties participated significantly in the design or redesign of the
entity. We continually evaluate our primary beneficiary conclusions to determine if changes have occurred which would impact our
primary beneficiary assessments. We have determined that APS is the primary beneficiary of certain VIE lessor trusts relating to the
Palo Verde sale leaseback, and therefore APS consolidates these entities (see Note 18).
Our consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments, except as
otherwise disclosed in the notes) that we believe are necessary for the fair presentation of our financial position, results of operations
and cash flows for the periods presented.
Accounting Records and Use of Estimates
Our accounting records are maintained in accordance with GAAP. The preparation of financial statements in accordance with
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
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