Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
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Commission |
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Registrants; State of Incorporation; |
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IRS Employer |
File Number |
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Addresses; and Telephone Number |
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Identification No. |
1-8962
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PINNACLE WEST CAPITAL CORPORATION
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86-0512431 |
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(An Arizona corporation) |
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400 North Fifth Street, P.O. Box 53999 |
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Phoenix, Arizona 85072-3999 |
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(602) 250-1000 |
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1-4473
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ARIZONA PUBLIC SERVICE COMPANY
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86-0011170 |
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(An Arizona corporation) |
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400 North Fifth Street, P.O. Box 53999 |
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Phoenix, Arizona 85072-3999 |
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(602) 250-1000 |
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Securities registered pursuant to Section 12(b) of the Act:
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Title Of Each Class |
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Name Of Each Exchange On Which Registered |
PINNACLE WEST CAPITAL CORPORATION
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Common Stock,
No Par Value
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New York Stock Exchange |
ARIZONA PUBLIC SERVICE COMPANY
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None
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None |
Securities registered pursuant to Section 12(g) of the Act:
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ARIZONA PUBLIC SERVICE COMPANY
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Common Stock, Par Value $2.50 per share |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
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PINNACLE WEST CAPITAL CORPORATION
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Yes þ
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No o |
ARIZONA PUBLIC SERVICE COMPANY
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Yes þ
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No o |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
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PINNACLE WEST CAPITAL CORPORATION
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Yes o
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No þ |
ARIZONA PUBLIC SERVICE COMPANY
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Yes o
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No þ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
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PINNACLE WEST CAPITAL CORPORATION
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Yes þ
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No o |
ARIZONA PUBLIC SERVICE COMPANY
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Yes þ
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No o |
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
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PINNACLE WEST CAPITAL CORPORATION
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Yes þ
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No o |
ARIZONA PUBLIC SERVICE COMPANY
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Yes o
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No o |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or in any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
PINNACLE WEST CAPITAL CORPORATION
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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ARIZONA PUBLIC SERVICE COMPANY
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates,
computed by reference to the price at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of each registrants most recently
completed second fiscal quarter:
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PINNACLE WEST CAPITAL CORPORATION
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$3,935,855,234 as of June 30, 2010 |
ARIZONA PUBLIC SERVICE COMPANY
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$0 as of June 30, 2010 |
The
number of shares outstanding of each registrants common stock
as of February 15, 2011
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PINNACLE WEST CAPITAL CORPORATION
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108,780,623 shares |
ARIZONA PUBLIC SERVICE COMPANY
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Common Stock, $2.50 par value,
71,264,947 shares. Pinnacle West
Capital Corporation is the sole holder
of Arizona Public Service Companys
Common Stock. |
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Pinnacle West Capital Corporations definitive Proxy Statement relating to its Annual
Meeting of Shareholders to be held on May 18, 2011 are incorporated by reference into Part III
hereof.
Arizona Public Service Company meets the conditions set forth in General Instruction I(1)(a)
and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format allowed
under that General Instruction.
TABLE OF CONTENTS
This combined Form 10-K is separately filed by Pinnacle West and APS. Each registrant is
filing on its own behalf all of the information contained in this Form 10-K that relates to such
registrant and, where required, its subsidiaries. Except as stated in the preceding sentence,
neither registrant is filing any information that does not relate to such registrant, and therefore
makes no representation as to any such information. The information required with respect to each
company is set forth within the applicable items. Item 8 of this report includes Consolidated
Financial Statements of Pinnacle West and Consolidated Financial Statements of APS. Item 8 also
includes Notes to Pinnacle Wests Consolidated Financial Statements, the majority of which also
relates to APS, and Supplemental Notes, which only relate to APSs Consolidated Financial
Statements.
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GLOSSARY OF NAMES AND TECHNICAL TERMS
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ACC
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Arizona Corporation Commission |
ADEQ
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Arizona Department of Environmental Quality |
AFUDC
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Allowance for Funds Used During Construction |
ANPP
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Arizona Nuclear Power Project, also known as Palo Verde |
APS
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Arizona Public Service Company, a subsidiary of the Company |
APSES
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APS Energy Services Company, Inc., a subsidiary of the Company |
Base Fuel Rate
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The portion of APSs retail base rates attributable to fuel and purchased power costs |
Cholla
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Cholla Power Plant |
DOE
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United States Department of Energy |
El Dorado
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El Dorado Investment Company, a subsidiary of the Company |
EPA
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United States Environmental Protection Agency |
FASB
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Financial Accounting Standards Board |
FERC
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United States Federal Energy Regulatory Commission |
Four Corners
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Four Corners Power Plant |
GWh
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Gigawatt-hour, one billion watts per hour |
IFRS
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International Financial Reporting Standards |
kV
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Kilovolt, one thousand volts |
kWh
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Kilowatt-hour, one thousand watts per hour |
MMBtu
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One million British Thermal Units |
MW
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Megawatt, one million watts |
Native Load
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Retail and wholesale sales supplied under traditional cost-based rate regulation |
Navajo Plant
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Navajo Generating Station |
NRC
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United States Nuclear Regulatory Commission |
OCI
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Other comprehensive income |
Palo Verde
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Palo Verde Nuclear Generating Station |
Pinnacle West
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Pinnacle West Capital Corporation (any use of the words Company, we, and our refer to Pinnacle West) |
Pinnacle West Marketing & Trading
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Pinnacle West Marketing & Trading Co., LLC, a subsidiary of
the Company |
PRP
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Potentially responsible party under Superfund |
PSA
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Power supply adjustor approved by the ACC to provide for
recovery or refund of variations in actual fuel and purchased
power costs compared with the Base Fuel Rate |
RES
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Arizona Renewable Energy Standard and Tariff |
Salt River Project or SRP
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Salt River Project Agricultural Improvement and Power District |
SunCor
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SunCor Development Company, a subsidiary of the Company |
TCA
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Transmission cost adjustor |
VIE
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Variable-interest entity |
West Phoenix
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West Phoenix Power Plant |
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements based on current expectations. These
forward-looking statements are often identified by words such as estimate, predict, may,
believe, plan, expect, require, intend, assume and similar words. Because actual
results may differ materially from expectations, we caution readers not to place undue reliance on
these statements. A number of factors could cause future results to differ materially from
historical results, or from outcomes currently expected or sought by Pinnacle West or APS. In
addition to the Risk Factors described in Item 1A and in Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations, these factors include, but are not
limited to:
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our ability to achieve timely and adequate rate recovery of our costs, including returns on
debt and equity capital; |
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our ability to manage capital expenditures and other costs while maintaining reliability
and customer service levels; |
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variations in demand for electricity, including those due to weather, the general economy,
customer and sales growth (or decline), and the effects of energy conservation measures and
distributed generation; |
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power plant performance and outages; |
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volatile fuel and purchased power costs; |
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fuel and water supply availability; |
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regulatory and judicial decisions, developments and proceedings; |
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new legislation or regulation, including those relating to greenhouse gas emissions,
renewable energy mandates and energy efficiency standards; |
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our ability to meet renewable energy requirements and recover related costs; |
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risks inherent in the operation of nuclear facilities, including spent fuel disposal
uncertainty; |
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competition in retail and wholesale power markets; |
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the duration and severity of the economic decline in Arizona and current real estate market
conditions; |
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the cost of debt and equity capital and the ability to access capital markets when
required; |
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changes to our credit ratings; |
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the investment performance of the assets of our nuclear decommissioning trust, pension, and
other postretirement benefit plans and the resulting impact on future funding requirements; |
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the liquidity of wholesale power markets and the use of derivative contracts in our
business; |
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potential shortfalls in insurance coverage; |
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new accounting requirements or new interpretations of existing requirements; |
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generation, transmission and distribution facility and system conditions and operating
costs; |
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the ability to meet the anticipated future need for additional baseload generation and
associated transmission facilities in our region; |
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the willingness or ability of our counterparties, power plant participants and power plant
land owners to meet contractual or other obligations or extend the rights for continued power
plant operations; |
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technological developments affecting the electric industry; and |
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restrictions on dividends or other burdensome provisions in our credit agreements and ACC
orders. |
These and other factors are discussed in Risk Factors described in Item 1A of this report,
which readers should review carefully before placing any reliance on our financial statements or
disclosures. Neither Pinnacle West nor APS assumes any obligation to update these statements, even
if our internal estimates change, except as required by law.
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PART I
ITEM 1. BUSINESS
Pinnacle West
Pinnacle West is a holding company that conducts business through its subsidiaries. We derive
substantially all of our revenues and earnings from our wholly-owned subsidiary, APS. APS is a
vertically-integrated electric utility that provides either retail or wholesale electric service to
most 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.
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Year Ended December 31, |
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Operating Revenues (in thousands): |
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2010 |
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2009 |
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2008 |
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APS |
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3,180,807 |
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3,149,500 |
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3,133,496 |
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Percentage of Pinnacle West Consolidated |
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97 |
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99 |
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97 |
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Pinnacle Wests other first-tier subsidiaries are SunCor, APSES and El Dorado. Additional
information related to these businesses is provided later in this report.
Our 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. In 2009 our real-estate subsidiary, SunCor, began disposing of its homebuilding
operations, master-planned communities, land parcels, commercial assets and golf courses in order
to reduce its outstanding debt (see Note 23). All of SunCors operations are reflected as
discontinued operations. As a result, the real estate segment is no longer a reportable segment.
See Note 17 for financial information of our business segments.
BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY
APS currently provides electric service to approximately 1.1 million customers. We own or
lease more than 6,290 MW of regulated generation capacity and we hold a mix of both long-term and
short-term purchased power agreements for additional capacity, including a variety of agreements
for the purchase of renewable energy. During 2010, no single purchaser or user of energy accounted
for more than 1.2% of our electric revenues.
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The following map shows APSs retail service territory, including the locations of its
generating facilities and principal transmission lines.
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Energy Sources and Resource Planning
To serve its customers, APS obtains power through its various generation stations and through
purchased power agreements. Resource planning is an important function necessary to meet Arizonas
future energy needs. APSs sources of energy by fuel type during 2010 were as follows:
Generation Facilities
APS has ownership interests in or leases the coal, nuclear, gas, oil and solar
generating facilities described below. For additional information regarding these facilities, see
Item 2.
Coal Fueled Generating Facilities
Four Corners Four Corners is a 5-unit coal-fired power plant located in the northwestern
corner of New Mexico. APS operates the plant and owns 100% of Four Corners Units 1, 2 and 3 and
15% of Units 4 and 5. APS has a total entitlement from Four Corners of 791 MW. The Four Corners
plant site is leased from the Navajo Nation and is also subject to an easement from the federal
government. APS purchases all of Four Corners coal requirements from a supplier with a long-term
lease of coal reserves with the Navajo Nation. The Four Corners coal contract runs through 2016.
On November 8, 2010, APS and Southern California Edison (SCE) entered into an asset purchase
agreement providing for the purchase by APS of SCEs 48% interest in each of Units 4 and 5 of Four
Corners. If consummated, APS would acquire 739 MW from SCE unless any of the other owners of
interests in Units 4 and 5 exercise their rights of first refusal prior to March 8, 2011, in which
case APS would not be able to purchase SCEs entire share of the Units. Completion of the purchase
by APS, which is expected to occur in the second half of 2012, is conditioned upon the receipt of
regulatory approvals from the ACC, the California Public Utilities Commission and the FERC, the
execution of a new coal supply contract for a lease renewal period described below, expiration of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other typical closing
conditions.
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APS, on behalf of the Four Corners participants, has negotiated amendments to an existing
facility lease with the Navajo Nation which would extend the Four Corners leasehold interest to
2041. Execution by the Navajo Nation of the lease amendments is a condition to closing of the
purchase by APS of SCEs interests in Four Corners. The execution of these amendments by the Navajo
Nation requires the approval of the Navajo Nation Council, which
occurred on February 15, 2011 and is awaiting final signature by the
Nations President. The effectiveness of the amendments also
requires the approval of the U.S. Department of the Interior (DOI), as does a related Federal
rights-of-way grant which the Four Corners participants will pursue. A Federal environmental
review will be conducted as part of the DOI review process.
APS has announced that, if APSs purchase of SCEs interests in Units 4 and 5 at Four Corners
is consummated, it will close Units 1, 2 and 3 at the plant. These events will change the plants
overall generating capacity from 2,100 MW to 1,540 MW and APSs entitlement from the plant from 791
MW to 970 MW.
Cholla Cholla is a 4-unit coal-fired power plant located in northeastern Arizona. APS
operates the plant and owns 100% of Cholla Units 1, 2 and 3. PacifiCorp owns Cholla Unit 4, and
APS operates that Unit for PacifiCorp. APS has a total entitlement from Cholla of 647 MW. APS
purchases all of Chollas coal requirements from a coal supplier that mines all of the coal under
long-term leases of coal reserves with the federal government and private landholders. The Cholla
coal contract runs through 2024. APS has the ability under the contract to reduce its annual coal
commitment and purchase a portion of Chollas coal requirements on the spot market to take
advantage of competitive pricing options and to purchase coal required for increased operating
capacity. APS believes that the current fuel contracts and competitive fuel supply options ensure
the continued operation of Cholla for its useful life. In addition, APS has a long-term coal
transportation contract.
Navajo Generating Station The Navajo Plant is a 3-unit coal-fired power plant located in
northern Arizona. Salt River Project operates the plant and APS owns a 14% interest in Navajo
Units 1, 2 and 3. APS has a total entitlement from the Navajo Plant of 315 MW. The Navajo Plants
coal requirements are purchased from a supplier with long-term leases from the Navajo Nation and
the Hopi Tribe. The Navajo Plant is under contract with its coal supplier through 2011, with
options to extend through 2019. The Navajo Plant site is leased from the Navajo Nation and is also
subject to an easement from the federal government.
These coal plants face uncertainties related to existing and potential legislation and
regulation that could significantly impact their economics and operations. See Environmental
Matters below and Managements Discussion and Analysis of Financial Condition and Results of
Operations Overview and Capital Expenditures in Item 7 for environmental and climate change
developments and lease renewal negotiations with the Navajo Nation impacting these coal facilities.
See Note 11 for information regarding APSs coal mine reclamation obligations.
Nuclear
Palo Verde Nuclear Generating Station Palo Verde is a nuclear power plant located about 50
miles west of Phoenix, Arizona. APS operates the plant and owns 29.1% of Palo Verde Units 1 and 3
and about 17% of Unit 2. In addition, APS leases about 12.1% of Unit 2, resulting in a 29.1%
combined interest in that Unit. APS has a total entitlement from Palo Verde of 1,146 MW.
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Palo Verde Leases In 1986, APS entered into agreements with three separate lessor trust
entities in order to sell and lease back about 42% of its share of Palo Verde Unit 2 and certain
common facilities. Prior to 2010, APS accounted for these arrangements as operating leases. Due
to amended VIE accounting guidance, in 2010 APS began consolidating the lessor trust entities, and
eliminated lease accounting for these transactions. The agreements have terms of 29.5 years and
contain options to renew the leases or to purchase the property for fair market value at the end of
the lease terms. APS must give notice to the respective lessor trusts between December 31, 2010
and December 31, 2012 if it wishes to exercise, or not exercise, either of these options. We are
analyzing these options. See Note 20 for additional information regarding the Palo Verde Unit 2
sale leaseback transactions.
Palo Verde Operating Licenses Operation of each of the three Palo Verde Units requires an
operating license from the NRC. The NRC issued full power operating licenses for Unit 1 in June
1985, Unit 2 in April 1986 and Unit 3 in November 1987. The full power operating licenses, each
valid for a period of 40 years, authorize APS, as operating agent for Palo Verde, to operate the
three Palo Verde Units. On December 15, 2008, APS applied for renewed operating licenses for the
Palo Verde Units for a period of 20 years beyond the expirations of the current licenses. The
current NRC schedule for the applications estimates that a final NRC decision will be issued in
April 2011. APS is making preparations to secure resources necessary to operate the plant for the
period of extended operation, including the execution in April 2010 of a Municipal Effluent
Purchase and Sale Agreement that provides effluent water rights necessary for cooling purposes at
Palo Verde through 2050.
Palo Verde Fuel Cycle The fuel cycle for Palo Verde is comprised of the following stages:
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mining and milling of uranium ore to produce uranium concentrates; |
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conversion of uranium concentrates to uranium hexafluoride; |
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enrichment of uranium hexafluoride; |
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fabrication of fuel assemblies; |
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utilization of fuel assemblies in reactors; and |
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storage and disposal of spent nuclear fuel. |
The Palo Verde participants are continually identifying their future nuclear fuel resource
needs and negotiating arrangements to fill those needs. The Palo Verde participants have
contracted for all of Palo Verdes requirements for uranium concentrates through 2011 and 95% of
its requirements through 2017. A new contract is currently being negotiated that will cover Palo
Verdes remaining requirements for uranium concentrates through 2017. The participants have also
contracted for all of Palo Verdes conversion services through 2018, all of Palo Verdes enrichment
services through 2020 and all of Palo Verdes fuel assembly fabrication services through 2016.
Spent Nuclear Fuel and Waste Disposal The Nuclear Waste Policy Act of 1982 (NWPA)
required the DOE to accept, transport, and dispose of spent nuclear fuel and high level waste
generated by the nations nuclear power plants by 1998. The DOEs obligations are reflected in a
Contract for Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste (Standard
Contract) with each nuclear power plant. The DOE failed to begin accepting Palo Verdes spent
nuclear fuel by 1998, and APS (on behalf of itself and the other Palo Verde participants) filed a
lawsuit for DOEs breach of the Palo Verde Standard Contract in the U.S. Court of Federal Claims.
The Court of Federal Claims ruled in favor of APS and in October 2010 awarded $30.2 million in
damages to the Palo Verde participants for costs incurred through December 2006.
7
The DOE had planned to meet its NWPA and Standard Contract disposal obligations by designing,
licensing, constructing, and operating a permanent geologic repository at Yucca Mountain, Nevada.
In June 2008, DOE submitted its application to the NRC to authorize construction of the Yucca
Mountain repository. In March 2010, the DOE filed a motion to dismiss with prejudice its Yucca
Mountain construction authorization application that was pending before the NRC. Several
interested parties have intervened in the NRC proceeding, and the proceeding has not been
conclusively decided by the NRC or the courts. Additionally, a number of interested parties have
filed a variety of lawsuits in different jurisdictions around the country challenging the DOEs
authority to withdraw the Yucca Mountain construction authorization application. None of these
lawsuits have been conclusively decided by the courts.
Palo Verde has sufficient capacity at its on-site independent spent fuel storage installation
(ISFSI) to store all of the nuclear fuel that will be irradiated during the initial operating
license period, which ends in December 2027. Additionally, Palo Verde has sufficient capacity at
its on-site ISFSI to store a portion of the fuel that will be irradiated during the period of
extended operation, which ends in December 2047 (assuming the NRC approves APSs request for
renewed operating licenses, as discussed above). If uncertainties regarding the United States
governments obligation to accept and store spent fuel are not favorably resolved, APS will
evaluate alternative storage solutions that may obviate the need to expand the ISFSI to accommodate
all of the fuel that will be irradiated during the period of extended operation.
In addition to the spent fuel stored at Palo Verdes on-site ISFSI, Palo Verde also generates
certain types of low level radioactive waste that are stored on-site. Currently, the Class B and
Class C waste (the higher radioactivity of the low level wastes) is stored on-site since industry
access to a disposal site was eliminated several years ago. The NRC is considering regulations
that would allow the industry to eliminate much of this waste by blending it with lower level Class
A waste so that it can be disposed of at a facility such as the one Palo Verde utilizes in Utah.
Nuclear Decommissioning Costs APS currently relies on an external sinking fund mechanism to
meet the NRC financial assurance requirements for decommissioning its interests in Palo Verde Units
1, 2 and 3. The decommissioning costs of Palo Verde Units 1, 2 and 3 are currently included in
APSs ACC jurisdictional rates. Decommissioning costs are recoverable through a non-bypassable
system benefits charge (one paid by all retail customers taking service from the APS system), which
allows APS to maintain its external sinking fund mechanism. See Note 12 for additional information
about APSs nuclear decommissioning costs.
Palo Verde Liability and Insurance Matters See Palo Verde Nuclear Generating Station
Nuclear Insurance in Note 11 for a discussion of the insurance maintained by the Palo Verde
participants, including APS, for Palo Verde.
Natural Gas and Oil Fueled Generating Facilities
APS has six natural gas power plants located throughout Arizona, consisting of Redhawk,
located near the Palo Verde Nuclear Generating Station; Ocotillo, located in Tempe; Sundance,
located in Coolidge; West Phoenix, located in southwest Phoenix; Saguaro, located north of Tucson;
and Yucca, located near Yuma. Several of the units at Saguaro and Yucca run on either gas or oil.
APS has one oil only power plant, Douglas, located in the town of Douglas, Arizona. APS owns and
operates each of these plants with the exception of one combustion turbine unit and one steam unit
at Yucca that are operated by APS and owned by the Imperial Irrigation District. APS has a total
entitlement from these plants of 3,389 MW. Gas for these plants is acquired through APSs
hedging program. APS has long-term gas transportation agreements with three different companies,
some of which are effective through 2024. Fuel oil is acquired under short-term purchases
delivered primarily to West Phoenix, where it is distributed to APSs other oil power plants by
truck.
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Solar Facilities
APS owns and operates more than sixty small solar systems around the state. Together they
have the capacity to produce about 5 MW of renewable energy. This fleet of solar systems includes
a 3 MW facility located at the Prescott Airport, a 1 MW facility located at APSs Saguaro power
plant and less than 1 MW of solar photovoltaic distributed energy systems installed as part of the
Community Power Project in Flagstaff, Arizona. The Community Power Project, approved by the ACC on
April 1, 2010, is a pilot program through which, upon completion, APS will own, operate and receive
energy from approximately 1.5 MW of solar photovoltaic distributed energy systems located within a
certain test area in Flagstaff, Arizona.
Purchased Power Contracts
In addition to its own available generating capacity, APS purchases electricity under various
arrangements, including long-term contracts and purchases through short-term markets to supplement
its owned or leased generation and hedge its energy requirements. A substantial portion of APSs
purchased power expense is netted against wholesale sales on the Consolidated Statements of Income.
(See Note 18.) APS continually assesses its need for additional capacity resources to assure
system reliability. APS does not expect to require new conventional generation sources sooner than
2017, due primarily to planned additions of renewable resources and energy efficiency initiatives.
Purchased Power Capacity APSs purchased power capacity under long-term contracts,
including its renewable energy portfolio, is summarized in the tables below. All capacity values
are based on net capacity unless otherwise noted.
|
|
|
|
|
|
|
Type |
|
Dates Available |
|
Capacity (MW) |
|
Purchase Agreement (a) |
|
Year-round through December 2014 |
|
|
104 |
|
Purchase Agreement (b) |
|
Year-round through June 14, 2020 |
|
|
60 |
|
Exchange Agreement (c) |
|
May 15 to September 15 annually through 2020 |
|
|
480 |
|
Tolling Agreement |
|
Year-round through May 2017 |
|
|
500 |
|
Tolling Agreement |
|
Summer seasons through October 2019 |
|
|
560 |
|
Day-Ahead Call Option Agreement |
|
Summer seasons through September 2015 |
|
|
500 |
|
Day-Ahead Call Option Agreement |
|
Summer seasons through summer 2016 |
|
|
150 |
|
Demand Response Agreement (d) |
|
Summer seasons through 2024 |
|
|
100 |
|
Renewable Energy (e) |
|
Various |
|
|
223 |
|
|
|
|
(a) |
|
The capacity under this agreement varies by month, with a maximum capacity of 104 MW. |
|
(b) |
|
Up to 60 MW of capacity is available; however, the amount of electricity available to APS
under this agreement is based in large part on customer demand and is adjusted annually. |
9
|
|
|
(c) |
|
This is a seasonal capacity exchange agreement under which APS receives electricity during
the summer peak season (from May 15 to September 15) and APS returns a like amount of
electricity during the winter season (from October 15 to February 15). |
|
(d) |
|
The capacity under this agreement increases in phases over the first three years to reach the
100 MW level by the summer of 2012. |
|
(e) |
|
Renewable energy purchased power agreements are described in detail below under Current and
Future Resources Renewable Energy Standard Renewable Energy Portfolio. |
Current and Future Resources
Current Demand and Reserve Margin
Electric power demand is generally seasonal. In Arizona, demand for power peaks during the
hot summer months. APSs 2010 peak one-hour demand on its electric system was recorded on July 15,
2010 at 6,936 MW, compared to the 2009 peak of 7,218 MW recorded on July 27, 2009. APSs operable
generating capacity, together with firm purchases totaling 2,974 MW, including short-term seasonal
purchases and unit contingent purchases, resulted in an actual reserve margin, at the time of the
2010 peak demand, of 21.8%. The power actually available to APS from its resources fluctuates from
time to time due in part to planned and unplanned plant and transmission outages.
Future Resources and Resource Plan
Under the ACCs modified resource planning rule, APS will file by April 1st of each
even year its resource plans for the next fifteen-year period. The ACCs modified rule also
requires APS to file its first resource plan within 120 days after the rule becomes effective. The
modified rule became effective in January 2011 and APS will likely file a resource plan in the
first quarter of 2011. The modified rule also requires the ACC to issue an order with its
acknowledgment of APSs resource plan within approximately ten months following its submittal. The
ACCs acknowledgment of APSs resource plan will consider factors such as the total cost of
electric energy services, demand management, analysis of supply-side options, system reliability
and risk management.
10
Renewable Energy Standard
In 2006, the ACC adopted the RES. Under the RES, electric utilities that are regulated by the
ACC must supply an increasing percentage of their retail electric energy sales from eligible
renewable resources, including solar, wind, biomass, biogas and geothermal technologies. The
renewable energy requirement is 3% of retail electric sales in 2011 and increases annually until it
reaches 15% in 2025. In APSs 2009 retail rate case settlement agreement, APS committed to have
1,700 GWh of new renewable resources in service by year-end 2015 in addition to its 2008 renewable
resource commitments. Taken together, APSs commitment is estimated to be 3,400 GWh, or
approximately 10% of retail sales, by year-end 2015, which is double the existing RES target of 5%
for that year. (See Note 3.) A component of the RES is focused on stimulating development of
distributed energy systems (generally speaking, small-scale renewable technologies that are located
on customers properties). Accordingly, under the RES, an increasing percentage of that
requirement must be supplied from distributed energy resources. This distributed energy
requirement is 25% of the overall RES requirement of 3% in 2011 and increases to 30% of the
applicable RES requirement in 2012 and subsequent years. The following table summarizes these
requirement standards and their timing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2015 |
|
|
2020 |
|
|
2025 |
|
|
RES as a % of retail electric sales |
|
|
3 |
% |
|
|
5 |
% |
|
|
10 |
% |
|
|
15 |
% |
Percent of RES to be supplied from
distributed energy resources |
|
|
25 |
% |
|
|
30 |
% |
|
|
30 |
% |
|
|
30 |
% |
Renewable Energy Portfolio. APS has a diverse portfolio of existing and planned renewable
resources totaling 875 MW, including wind, geothermal, solar, biomass and biogas. Of this
portfolio, 288 MW are currently in operation and 587 MW are under contract for development or are
under construction. Renewable resources in operation include 5 MW of facilities owned by APS, 223
MW of long-term purchased power agreements, and an estimated 60 MW of customer-sited, third-party
owned distributed energy resources.
APS continues to actively consider opportunities to enhance its renewable energy portfolio,
both to ensure its compliance with the RES and to meet the needs of its customer base. APSs
strategy to achieve its RES requirements includes executing purchased power contracts for new
facilities, ongoing development of distributed energy resources and procurement of new facilities
to be owned by APS. One of the key programs under which APS will own solar resources is the AZ
Sun Program. As approved by the ACC, the AZ Sun Program will allow APS to own 100 MW of solar
photovoltaic power plants across Arizona by investing up to $500 million through 2014. Under this
program to date, APS has executed contracts for the development of 83 MW of new solar generation,
representing an investment commitment of approximately $377 million. See Note 3 for additional
details about the AZ Sun Program, including the related cost recovery.
The following table summarizes APSs renewable energy sources in operation and under
development. Agreements for the development and completion of future resources are subject to
various conditions, including successful siting, permitting and interconnection of the projects to
the electric grid.
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual/ |
|
|
|
|
|
|
Net |
|
|
Net Capacity |
|
|
|
|
|
|
|
Target |
|
|
|
|
|
|
Capacity |
|
|
Planned/ |
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
In |
|
|
Under |
|
|
|
|
|
|
|
Operation |
|
|
Term |
|
|
Operation |
|
|
Development |
|
|
|
Location |
|
|
Date |
|
|
(Years) |
|
|
(MW) |
|
|
(MW) |
|
APS Owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AZ Sun Program: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paloma |
|
Gila Bend, AZ |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
Cotton Center |
|
Gila Bend, AZ |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
Hyder Phase 1 |
|
Hyder, AZ |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Hyder Phase 2 |
|
Hyder, AZ |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Chino Valley |
|
Chino Valley, AZ |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
19 |
|
Luke AFB |
|
Glendale, AZ |
|
|
2012/2013 |
(a) |
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal AZ Sun Program (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83 |
|
Multiple Facilities |
|
AZ |
|
|
|
Various |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total APS Owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Power Agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solana (c) |
|
Gila Bend, AZ |
|
|
2013 |
|
|
|
30 |
|
|
|
|
|
|
|
250 |
|
RE Ajo |
|
Ajo, AZ |
|
|
2011 |
|
|
|
25 |
|
|
|
|
|
|
|
5 |
|
Sun E AZ 1 |
|
Prescott, AZ |
|
|
2011 |
|
|
|
30 |
|
|
|
|
|
|
|
10 |
|
Solar 1 (d) |
|
Tonopah, AZ |
|
|
2012 |
|
|
|
30 |
|
|
|
|
|
|
|
15 |
|
Wind: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aragonne Mesa |
|
Santa Rosa, NM |
|
|
2006 |
|
|
|
20 |
|
|
|
90 |
|
|
|
|
|
High Lonesome |
|
Mountainair, NM |
|
|
2009 |
|
|
|
30 |
|
|
|
100 |
|
|
|
|
|
Perrin Ranch Wind |
|
Williams, AZ |
|
|
2011 |
|
|
|
25 |
|
|
|
|
|
|
|
99 |
|
Geothermal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salton Sea |
|
Imperial County, CA |
|
|
2006 |
|
|
|
23 |
|
|
|
10 |
|
|
|
|
|
Biomass: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Snowflake |
|
Snowflake, AZ |
|
|
2008 |
|
|
|
15 |
|
|
|
10 |
|
|
|
|
|
Snowflake |
|
Snowflake, AZ |
|
|
2008 |
|
|
|
1 |
|
|
|
10 |
|
|
|
|
|
Biogas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glendale Landfill |
|
Glendale, AZ |
|
|
2010 |
|
|
|
20 |
|
|
|
3 |
|
|
|
|
|
Landfill 1 (d) |
|
Surprise, AZ |
|
|
2012 |
|
|
|
20 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Purchased Power Agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223 |
|
|
|
382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APS Owned (e) |
|
AZ |
|
various |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Third-party Owned (f) |
|
AZ |
|
various |
|
|
|
|
|
|
|
60 |
|
|
|
66 |
|
Agreement 1 |
|
Bagdad, AZ |
|
|
2012 |
|
|
|
25 |
|
|
|
|
|
|
|
15 |
|
Agreement 2 (g) |
|
AZ |
|
|
2012-2014 |
|
|
|
20-25 |
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Distributed Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Renewable Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288 |
|
|
|
587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The timing is dependent on site preparation activities. |
|
(b) |
|
Under the AZ Sun Program, 17 MW remains to be fulfilled. |
|
(c) |
|
Represents contracted capacity. |
|
(d) |
|
Details of these agreements have not yet been publicly announced. |
|
(e) |
|
Reflects Community Power Project. See Note 3. |
|
(f) |
|
Achieved through incentive-based programs. Includes resources with
production-based incentives that have terms of 10-20 years. |
|
(g) |
|
Agreement ramps up to 40 MW over 3 years. |
12
Demand Side Management
Arizona regulators are placing an increased focus on energy efficiency and other demand side
management programs to encourage customers to conserve energy, while incentivizing utilities to aid
in these efforts that ultimately reduce the demand for energy. In December 2009, the ACC initiated
Energy Efficiency rulemaking, with a proposed Energy Efficiency Standard of 22% cumulative annual
energy savings by 2020. This standard was adopted and became effective on January 1, 2011. This
ambitious standard will likely impact Arizonas future energy resource needs. (See Note 3 for
energy efficiency and other demand side management obligations resulting from APSs 2009 retail
rate case settlement.)
Economic Stimulus Projects
Through the American Recovery and Reinvestment Act of 2009 (ARRA), the Federal government
made a number of programs available for utilities to develop renewable resources, improve
reliability and create jobs by using economic stimulus funding. Certain programs are also
available through the State of Arizona.
In 2009, the DOE announced an ARRA commitment to fund the majority of a carbon dioxide
emission reduction research and development project in the amount of $71 million, which was to be
located at our Cholla power plant. Due to the increased resource and funding requirements for a
project of that size, APS elected not to move forward with that award and is now in the process of
closing out the project. However, APS is moving forward with work under the $3 million award from
DOE for a high penetration photovoltaic generation study related to the Community Power Project in
Flagstaff, Arizona. The funding under this DOE award will continue to be contingent upon meeting
certain project milestones, including DOE-established budget parameters, over the next four years.
APS is also continuing its work as a sub-recipient under an ARRA award received through the
State of Arizonas Department of Commerce. This approximately $4 million award is for the
implementation of various distributed energy and energy efficiency programs in Arizona. APS will
be implementing certain solar water heater and photovoltaic-related community projects under this
award.
Competitive Environment and Regulatory Oversight
Retail
The ACC regulates APSs retail electric rates and its issuance of securities. The ACC must
also approve any transfer or encumbrance of APSs property used to provide retail electric service
and approve or receive prior notification of certain transactions between Pinnacle West, APS and
their respective affiliates.
13
APS is subject to varying degrees of competition from other investor-owned electric and gas
utilities in Arizona (such as Southwest Gas Corporation), as well as cooperatives, municipalities,
electrical districts and similar types of governmental or non-profit organizations. In addition,
some customers, particularly industrial and large commercial customers, may own and operate
generation facilities to meet some or all of their own energy requirements. This practice is
becoming more popular with customers installing or having installed products such as roof top solar
panels to meet or supplement their energy needs.
In 1999, the ACC approved rules for the introduction of retail electric
competition in Arizona. As a result, as of January 1, 2001, all of APSs retail customers were
eligible to choose alternate energy suppliers. However, there are currently no active retail
competitors offering unbundled energy or other utility services to APSs customers. In 2000, the
Arizona Superior Court found that the rules were in part unconstitutional and in other respects
unlawful, the latter finding being primarily on procedural grounds, and invalidated all ACC orders
authorizing competitive electric services providers to operate in Arizona. In 2004, the Arizona
Court of Appeals invalidated some, but not all of the rules and upheld the invalidation of the
orders authorizing competitive electric service providers. In 2005, the Arizona Supreme Court
declined to review the Court of Appeals decision.
To date, the ACC has taken no further or substantive action on either the rules or the prior
orders authorizing competitive electric service providers in response to the final Court of Appeals
decision. In 2008, the ACC directed the ACC staff to investigate whether such retail competition
was in the public interest and what legal impediments remain to competition in light of the Court
of Appeals decision referenced above. The ACC staffs report on the results of its investigation
was issued on August 12, 2010. The report stated that additional analysis, discussion and study of
all aspects of the issue are required in order to perform a proper evaluation. While the report
did not make any specific recommendations other than to conduct more workshops, the report did
state that the current retail electric competition rules are incomplete and in need of
modification.
On April 14, 2010, the ACC issued a decision holding that solar vendors that install and
operate solar facilities for non-profit schools and governments pursuant to a specific type of
contract that calculates payments based on the energy produced are not public service
corporations under the Arizona Constitution, and are therefore not regulated by the ACC. A second
matter is pending with the ACC to determine whether that ruling should extend to solar providers
who serve a broader customer base under the same business model. Use of such products by customers
within our territory would result in some level of competition. APS cannot predict when, and the
extent to which, additional electric service providers will enter or re-enter APSs service
territory.
14
Wholesale
The FERC regulates rates for wholesale power sales and transmission services. (See Note 3 for
information regarding APSs transmission rates.) During 2010, approximately 5.8% of APSs electric
operating revenues resulted from such sales and services. APSs wholesale activity primarily
consists of managing fuel and purchased power supplies to serve retail customer energy
requirements. APS also sells, in the wholesale market, its generation output that is not needed
for APSs Native Load and, in doing so, competes with other utilities, power marketers and
independent power producers. Additionally, subject to specified parameters, APS markets, hedges
and trades in electricity and fuels.
Environmental Matters
Climate Change
Legislative Initiatives. In the past several years, the United States Congress has considered
bills that would regulate domestic greenhouse gas emissions. In 2009, the House of Representatives
passed a comprehensive energy and climate change bill, but the Senate did not consider it or a
similar bill in the 111th Congress. With much focus on the economy, it is unclear when
Congress will consider another global warming bill. The actual economic and operational impact of
any legislation on APS depends on a variety of factors, none of which can be fully known until such
legislation passes and the specifics of the resulting program are established. These factors
include the terms of the legislation with regard to allowed emissions; whether any permitted
emissions allowances will be allocated to source operators free of cost or auctioned; the cost to
reduce emissions or buy allowances in the marketplace; and the availability of offsets and
mitigating factors to moderate the costs of compliance. At the present time, we cannot predict
what form of legislation, if any, will ultimately pass.
In addition to federal legislative initiatives, state-specific initiatives may also impact our
business. While Arizona has not yet enacted any state-specific legislation regarding greenhouse
gas emissions, the California legislature enacted AB 32 and SB 1368 in 2006 to address greenhouse
gas emissions. In December 2010, the California Air Resources Board approved regulations that will
establish a cap-and-trade program for greenhouse gas emissions which is scheduled to be launched in
2012 as part of the states program implementing AB32. In addition, the New Mexico Environmental
Improvement Board recently enacted a greenhouse gas cap-and-trade program and emissions cap, to
become effective in 2012 and 2013, respectively.
We are monitoring these and other state legislative developments to understand the extent to
which they may affect our business, including our sales into the impacted states or the ability of
our out-of-state power plant participants to continue their participation in certain coal-fired
power plants. In particular, SCE, a participant in Four Corners, has indicated that SB 1368 may
prohibit it from making emission control expenditures at the plant. (See Energy Sources and
Resource Planning Generation Facilities Coal Fueled Generating Facilities Four Corners
above for details of the pending sale of SCEs interest in Four Corners to APS.)
15
Regulatory Initiatives. In December 2009, the EPA determined that greenhouse gas emissions
endanger public health and welfare. This determination was made in response to a 2007 United
States Supreme Court ruling that greenhouse gases fit within the Clean Air Acts broad definition
of air pollutant and, as a result, the EPA has the authority to regulate greenhouse gas emissions
of new motor vehicles under the Clean Air Act. As a result of the endangerment finding, the EPA
determined that the Clean Air Act required new regulatory requirements for new and modified major
greenhouse
gas emitting sources, including power plants. On June 3, 2010, the EPA issued a rule under the
Clean Air Act, known as the tailoring rule, establishing new greenhouse gas emissions thresholds
that determine when sources, including power plants, must obtain air operating permits or New
Source Review permits. New Source Review is a pre-construction permitting program under the Clean
Air Act that requires analysis of pollution controls prior to building a new stationary source or
making major modifications to an existing stationary source. The tailoring rule became effective
on August 2, 2010 and it became applicable to power plants on January 2, 2011. Several groups have
filed lawsuits challenging the EPAs endangerment finding and the tailoring rule.
APS does not expect the tailoring rule to have a significant impact on its current operations.
The rule will require APS to consider the impact of greenhouse gas emissions as part of its
traditional New Source Review analysis for new sources and major modifications to existing plants.
At the present time, we cannot predict what other rules or regulations may ultimately result from
the EPAs endangerment finding, whether the parties challenging the endangerment finding or the
tailoring rule will be successful, and what impact other potential rules or regulations will have
on APSs operations.
On December 30, 2010, pursuant to its authority under the Clean Air Act, the EPA finalized a
greenhouse gas Federal Implementation Plan (FIP) for Arizona relating to pre-construction permits
for construction of new sources or major modifications of existing sources. As a result of this
action, effective January 2, 2011, the EPA assumed responsibility for acting on permit applications
for only the greenhouse gas portion of such pre-construction permits. State permitting authorities
will continue to retain responsibility for the remaining parts of pre-construction permits that are
unrelated to emissions of greenhouse gasses. To the extent Arizona seeks and receives from the EPA
a delegation of permitting authority for greenhouse gas emissions, the state will assume
responsibility for issuing both the greenhouse gas and non-greenhouse gas portions of
pre-construction permits. The greenhouse gas FIP will remain in place until such time as the EPA
approves a State Implementation Plan that applies pre-construction permit requirements to
greenhouse gas-emitting stationary sources in Arizona. APS does not expect the greenhouse gas FIP
to have a significant impact on its current operations.
The EPA also recently announced its intent to promulgate New Source Performance Standards
(NSPS) for greenhouse gas emissions from certain industrial facilities, under the Clean Air Act.
The EPA intends to propose the new standards by July 2011 and to finalize them by May 2012. The
EPA has indicated that the rules will apply to coal-fired electric generating units (EGUs) and
will establish NSPS for new and modified EGUs and emission guidelines for existing EGUs. The rules
are expected to apply to the Four Corners, Cholla and the Navajo Plant. We cannot currently
predict the impact of these rules on APSs operations.
If any emission reduction legislation or additional regulations are enacted, we will assess
our compliance alternatives, which may include replacement of existing equipment, installation of
additional pollution control equipment, purchase of allowances, retirement or suspension of
operations at certain coal-fired facilities, or other actions. Although associated capital
expenditures or operating costs resulting from greenhouse gas emission regulations or legislation
could be material, we believe that we would be able to recover the costs of these environmental
compliance initiatives through our rates.
16
Regional Initiative. In 2007, six western states (Arizona, California, New Mexico, Oregon,
Utah and Washington) and two Canadian provinces (British Columbia and Manitoba) entered into an
accord, the Western Climate Initiative (WCI), to reduce greenhouse gas emissions from automobiles
and certain industries, including utilities. Montana, Quebec and Ontario have also joined WCI.
WCI
participants set a goal of reducing greenhouse gas emissions 15% below 2005 levels by 2020.
After soliciting public comment, in September 2008 WCI issued the design of a cap-and-trade program
for greenhouse gas emissions. Due in part to the recent activity at the federal level discussed
above, the initiatives momentum and the movement toward detailed proposed rules has slowed. On
February 2, 2010, Arizonas Governor issued an executive order stating that Arizona will continue
to be a member of WCI to monitor its advancements in this area, but it will not implement the WCI
regional cap-and-trade program. As a result, while we continue to monitor the progress of WCI, at
the present time we do not believe it will have a material impact on our operations.
Company Response to Climate Change Initiatives. We have undertaken a number of initiatives to
address emission concerns, including renewable energy procurement and development, promotion of
programs and rates that promote energy conservation, renewable energy use and energy efficiency.
(See Energy Sources and Resource Planning Current and Future Resources above for details of
these plans and initiatives.) APS currently has a diverse portfolio of renewable resources,
including wind, geothermal, solar and biomass and we are focused on increasing the percentage of
our energy that is produced by renewable resources.
In January 2008, APS joined the Climate Registry as a Founding Reporter. Founding Reporters
are companies that voluntarily joined the non-profit organization before May 2008 to measure and
report greenhouse gas emissions in a common, accurate and transparent manner consistent across
industry sectors and borders. Beginning in 2010, APS stopped participating in the Climate Registry
because APS began reporting substantially the same information under the mandatory greenhouse gas
reporting rule issued by the EPA on September 22, 2009. Pinnacle
West prepares an annual Corporate Responsibility Report, which
is available on our website (www.pinnaclewest.com). The
report provides information related to the Company and its approach to sustainability and its
workplace and environmental performance. The information on Pinnacle Wests website, including the
Corporate Responsibility Report, is not incorporated by reference into this report.
Climate Change Lawsuits. In February 2008, the Native Village of Kivalina and the City of
Kivalina, Alaska filed a lawsuit in federal court in the Northern District of California against
nine oil companies, fourteen power companies (including Pinnacle West), and a coal company,
alleging that the defendants emissions of carbon dioxide contribute to global warming and
constitute a public and private nuisance. The plaintiffs also allege that the effects of global
warming will require the relocation of the village and they are seeking an unspecified amount of
monetary damages. In June 2008, the defendants filed motions to dismiss the action, which were
granted. The plaintiffs filed an appeal with the Ninth Circuit Court of Appeals in November 2009,
and Pinnacle West filed its reply on June 30, 2010. The court has not yet scheduled oral
arguments on the plaintiffs appeal. We believe the action is without merit and intend to
continue to defend against the claims.
A similar nuisance lawsuit, American Electric Power Co., Inc. v. Connecticut, is currently
pending in the United States Supreme Court. Another such lawsuit was dismissed by the Fifth
Circuit on procedural grounds. Both cases, as well as the Kivalina case, raise political and legal
considerations, including whether the courts can or should be making climate change policy
decisions. The outcome of the American Electric Power case is
particularly significant because the issues being considered by the
Supreme Court closely overlap with the main issues presented in the
Kivalina appeal. We are not a party to either of these two lawsuits, but are monitoring these
developments and their potential industry impacts.
17
EPA Environmental Regulation
Regional Haze Rules. Over a decade ago, the EPA announced regional haze rules to reduce
visibility impairment in national parks and wilderness areas. The rules require states (or, for
sources located on tribal land, the EPA) to determine what pollution control technologies
constitute the best available retrofit technology (BART) for certain older major stationary
sources. The EPA subsequently issued the Clean Air Visibility Rule, which provides guidelines on
how to perform a BART analysis.
Cholla. In 2007, ADEQ required APS to perform a BART analysis for Cholla pursuant to the
Clean Air Visibility Rule. APS completed the BART analysis for Cholla and submitted its BART
recommendations to ADEQ on February 4, 2008. The recommendations include the installation of
certain pollution control equipment that APS believes constitutes BART. ADEQ has reviewed APSs
recommendations and is expected to submit to EPA Region 9 its proposed BART State Implementation
Plan (SIP) for Cholla and other sources within the state in the near future. On January 19,
2011, a group of environmental organizations notified EPA of its intent to sue the agency as a
result of EPAs alleged failure to promulgate a Federal Implementation Plan for states that have
not yet submitted all or part of the required BART SIPs, including Arizona.
Once APS receives a final determination as to what constitutes BART for Cholla, we will have
five years to complete the installation of the equipment and to achieve the emission limits
established by ADEQ. However, in order to coordinate with the plants other scheduled activities,
APS is currently implementing portions of its recommended plan for Cholla on a voluntary basis.
Costs related to the implementation of these portions of our recommended plan are included in our
environmental expenditure estimates (see Managements Discussion and Analysis of Financial
Condition and Results of Operations Capital Expenditures in Item 7).
Four Corners and the Navajo Plant. EPA Region 9 previously requested that APS, as the
operating agent for Four Corners, and SRP, as the operating agent for the Navajo Plant, perform a
BART analysis for Four Corners and the Navajo Plant, respectively. APS and SRP each submitted an
analysis to the EPA concluding that certain combustion control equipment constitutes BART for these
plants. Based on the analyses and comments received through EPAs rulemaking process, the EPA will
determine what it believes constitutes BART for each plant.
On October 6, 2010, the EPA issued its proposed BART determination for Four Corners. The
proposed rule would require the installation of post-combustion controls on each of Units 1-5 at
Four Corners to reduce nitrogen oxides (NOx) emissions. Current estimates indicate that APSs total
costs for these controls could be up to approximately $400 million for Four Corners. If APSs
purchase of SCEs interest in Units 4 and 5 is consummated and Units 1-3 are closed, APSs total
costs for these controls would be approximately $300 million. (See Energy Sources and Resource
Planning Generation Facilities Coal Fueled Generating Facilities Four Corners for details
of this proposed transaction.) The EPA also indicated in the proposal that it may require the
installation of electrostatic precipitators or baghouses on Units 1, 2 and 3 to reduce particulate
matter emissions. APS estimates that its total costs for such particulate removal equipment is
approximately $220 million, which may also be required under the anticipated mercury rules. (See
Environmental Matters Mercury and Other Hazardous Air Pollutants below for additional
information on these anticipated rules.) The EPA proposed a 10% stack opacity limitation for all
five units and a 20% opacity limitation on certain fugitive dust emissions, although the proposed
fugitive dust provision is unrelated to BART.
18
On November 24, 2010, APS submitted a letter to the EPA proposing an alternative to the EPAs
October BART proposal. Specifically, APS proposed to close Four Corners Units 1, 2 and 3 by 2014
and to install post-combustion pollution controls for NOx on Units 4 and 5 by the end of 2018,
provided that the EPA agrees to a contemporaneous resolution of Four Corners obligations or
liability, if any, under the regional haze and reasonably attributable visibility impairment
programs, the New Source Review program, and NSPS programs of the Clean Air Act.
On February 10, 2011, the EPA signed a Supplemental Notice Requesting Comment, related to the
BART rulemaking for Four Corners. In the Supplemental Notice, the EPA proposed to find that a
different alternative emission control strategy, based upon APSs November 2010 proposal, would
achieve more progress than the EPAs October 2010 BART proposal. The Supplemental Notice proposes
that Units 1, 2 and 3 would close by 2014, post-combustion pollution controls for NOx would be
installed on Units 4 and 5 by July 31, 2018, and the NOx emission limitation for Units 4 and 5
would be 0.098 lbs/MMBtu, rather than the 0.11 lbs/MMBtu proposed by the EPA in October 2010. The
EPA extended the comment deadline for both the October 2010 proposal and the Supplemental Notice to
May 2, 2011. We are currently evaluating both proposals and will be providing comments to the EPA
on both.
The EPA has not yet issued a proposed rule for the Navajo Plant. SRPs recommended plan for
the Navajo Plant includes the installation of combustion control equipment, with an estimated cost
to APS of approximately $6 million based on APSs Navajo Plant ownership interest. If the EPA
determines that post-combustion controls are required, APSs total costs could be up to
approximately $93 million for the Navajo Plant. The Four Corners and the Navajo Plant participants
will have five years after the EPA issues its final determinations to achieve compliance with their
respective BART requirements.
In addition, on February 16, 2010, a group of environmental organizations filed a petition
with the Departments of Interior and Agriculture requesting those agencies to certify to the EPA
that visibility impairment in sixteen national park and wilderness areas is reasonably attributable
to emissions from Four Corners, the Navajo Plant and other non-APS plants. If the agencies certify
impairment, the EPA is required to evaluate and, if necessary, determine BART for Four Corners and
the Navajo Plant under a different haze program known as Reasonably Attributable Visibility
Impairment. On January 19, 2011, a similar group of environmental organizations filed a lawsuit
against the Departments of Interior and Agriculture, alleging among other things that the agencies
failed to act on the February 2010 petition without unreasonable delay and requesting the court
to order the agencies to act on the petition within 30 days. We are currently evaluating the
potential impact of this lawsuit on APS.
The Four Corners and Navajo Plant participants obligations to comply with the EPAs final
BART determinations, coupled with the financial impact of future climate change legislation, other
environmental regulations, the result of the lawsuit mentioned above and other business
considerations, could jeopardize the economic viability of these plants or the ability of
individual participants to continue their participation in these plants.
In order to coordinate with each plants other scheduled activities, the plants are currently
implementing portions of their recommended plans described above on a voluntary basis. APSs share
of the costs related to the implementation of these portions of the recommended plans are included
in our environmental expenditure estimates (see Managements Discussion and Analysis of Financial
Condition and Results of Operations Capital Expenditures in Item 7).
19
Mercury and other Hazardous Air Pollutants. In early 2008, the U.S. Court of Appeals for the
D.C. Circuit vacated the Clean Air Mercury Rule (CAMR), which was adopted by the EPA to regulate
mercury emissions from coal-fired power plants. As a result, the law in effect prior to the
adoption of the CAMR became the applicable law, and the EPA is now required to adopt final maximum
achievable control technology emissions (MACT) standards. Under a consent decree that was
finalized on April 15, 2010, the EPA has agreed to issue final MACT standards for mercury and other
hazardous air pollutants by November 2011. Under the terms of the consent decree, APS will have
three years after the EPA issues its final rule to achieve compliance, which would likely require
APS to install additional pollution control equipment.
APS has installed, and continues to install, certain of the equipment necessary to meet the
anticipated standards. APS estimates that the cost for equipment necessary to meet these
anticipated standards is approximately $220 million for Four Corners Units 1-3 and $89 million for
Cholla Units 1-3. The estimated costs for Four Corners Units 1-3 are not included in our current
environmental expenditure estimates since our estimates assume the consummation of APSs purchase
of SCEs interest in Four Corners Units 4 and 5 and the subsequent shut down of Units 1-3.
Chollas estimated costs for the next three years are included in our environmental expenditure
estimates. (See Managements Discussion and Analysis of Financial Condition and Results of
Operations Capital Expenditures in Item 7 for details of our capital expenditure estimates).
Coal Combustion Waste. On June 21, 2010, the EPA released its proposed regulations governing
the handling and disposal of coal combustion residuals (CCRs), such as fly ash and bottom ash.
APS currently disposes of CCRs in ash ponds and dry storage areas at Cholla and Four Corners, and
also sells a portion of its fly ash for beneficial reuse as a constituent in concrete production.
The EPA proposes regulating CCRs as either non-hazardous waste or hazardous waste and requested
comments on three different alternatives. The hazardous waste proposal would phase out the use of
ash ponds for disposal of CCRs. The other two proposals regulate CCRs as non-hazardous waste and
impose performance standards for ash disposal. One of these proposals would require retrofitting or
closure of currently unlined ash ponds, while the other proposal would not require the installation
of liners or pond closures. The EPA has not yet indicated a preference for any of the alternatives.
APS filed comments on the proposed rule during the public comment period, which ended on
November 19, 2010. We do not know when the EPA will issue a final rule, including required
compliance dates. We cannot currently predict the outcome of the EPAs actions or whether such
actions will have a material adverse impact on our financial position, results of operations or
cash flows.
Ozone National Ambient Air Quality Standards. In March 2008, the EPA adopted new, more
stringent eight-hour ozone standards, known as national ambient air quality standards or NAAQS. In
January 2010, the EPA proposed to adopt even more stringent eight-hour ozone NAAQS. As ozone
standards become more stringent, our fossil generation units may come under increasing pressure to
reduce emissions of nitrogen oxides and volatile organic compounds and/or to generate emission
offsets for new projects or facility expansions. At this time, APS is unable to predict what
impact the adoption of these standards may have on its operations.
20
New Source Review. On April 6, 2009, APS received a request from the EPA under Section 114 of
the Clean Air Act seeking detailed information regarding projects at and operations of Four
Corners. This request is part of an enforcement initiative that the EPA has undertaken under the
Clean
Air Act. The EPA has taken the position that many utilities have made certain physical or
operational changes at their plants that should have triggered additional regulatory requirements
under the New Source Review provisions of the Clean Air Act. Other electric utilities have
received and responded to similar Section 114 requests, and several of them have been the subject
of notices of violation and lawsuits by the EPA. APS responded to the EPAs request in August 2009
and is currently unable to predict the timing or content of the EPAs response, if any, or any
resulting actions.
On May 7, 2010, APS received a Notice of Intent to Sue from Earthjustice, on behalf of several
environmental organizations, related to alleged violations of the Clean Air Act at Four Corners
(the Notice). The Notice alleges New Source Review-related violations and NSPS violations. Under
the Clean Air Act, a citizens group is required to provide 60 days advance notice of its intent to
file a lawsuit. Within that 60-day time period, the EPA may step in and file a lawsuit regarding
the allegations. If the EPA does so, the citizens group is precluded from filing its own lawsuit,
but it may still intervene in the EPAs lawsuit, if it so desires. The 60-day period lapsed in
early July 2010, and the EPA did not take any action. At this time, we cannot predict whether or
when Earthjustice might file a lawsuit.
Endangered Species Act. On January 30, 2011, the Center for Biological Diversity, Dine Citizens
Against Running Our Environment, and San Juan Citizens Alliance field a lawsuit against the Office
of Surface Mining Reclamation and Enforcement (OSM) and the Department of the Interior, alleging
that OSM failed to engage in mandatory Endangered Species Act
(ESA) consultation with the Fish and
Wildlife Service prior to authorizing the renewal of an operating permit for the mine that serves
Four Corners. The lawsuit alleges that activities at the mine, including mining and the disposal of
coal combustion residue, will adversely affect several endangered species and their critical
habitats. The lawsuit requests the court to vacate and remand the mining permit and enjoin all
activities carried out under the permit until OSM has complied with the ESA. Although we are not a
party to the lawsuit, we are evaluating the lawsuit to determine its potential impact on plant
operations.
Superfund. The Comprehensive Environmental Response, Compensation and Liability Act
(Superfund) establishes liability for the cleanup of hazardous substances found contaminating the
soil, water or air. Those who generated, transported or disposed of hazardous substances at a
contaminated site are among those who are PRPs. PRPs may be strictly, and often are jointly and
severally, liable for clean-up. On September 3, 2003, the EPA advised APS that the EPA considers
APS to be a PRP in the Motorola
52nd Street Superfund Site, Operable Unit 3 (OU3) in
Phoenix, Arizona. APS has facilities that are within this Superfund site. APS and Pinnacle West
have agreed with the EPA to perform certain investigative activities of the APS facilities within
OU3. In addition, on September 23, 2009, APS agreed with the EPA and one other PRP to voluntarily
assist with the funding and management of the site-wide groundwater remedial investigation and
feasibility study work plan. APS estimates that its costs related to this investigation and study
will be approximately $1 million, which is reserved as a liability on its financial statements. We
anticipate incurring additional expenditures in the future, but because the overall investigation
is not complete and ultimate remediation requirements are not yet finalized, at the present time we
cannot accurately estimate our total expenditures.
By letter dated April 25, 2008, the EPA informed APS that it may be a PRP in the Gila River
Indian Reservation Superfund Site in Maricopa County, Arizona. APS, along with three other electric
utility companies, owns a parcel of property on which a transmission pole and a portion of a
transmission line are located. The property abuts the Gila River Indian Community boundary and, at
one time, may have been part of an airfield where crop dusting took place. Currently, the EPA is
only seeking payment from APS and four other PRPs for past cleanup-related costs involving
contamination from the crop dusting. Based upon the total amount of cleanup costs reported by the
EPA in its letter to APS, we do not expect that the resolution of this matter will have a material
adverse impact on APSs financial position, results of operations, or cash flows.
Manufactured Gas Plant Sites. Certain properties which APS now owns or which were previously
owned by it or its corporate predecessors were at one time sites of, or sites associated with,
manufactured gas plants. APS is taking action to voluntarily remediate these sites. APS does not
expect these matters to have a material adverse effect on its financial position, results of
operations, cash flows or liquidity.
21
Navajo Nation Environmental Issues
Four Corners and the Navajo Plant are located on the Navajo Reservation and are held under
easements granted by the federal government as well as leases from the Navajo Nation. See Energy
Sources and Resource Planning Generation Facilities Coal Fueled Generating Facilities above
for additional information regarding these plants.
In July 1995, the Navajo Nation enacted the Navajo Nation Air Pollution Prevention and Control
Act, the Navajo Nation Safe Drinking Water Act and the Navajo Nation Pesticide Act (collectively,
the Navajo Acts). The Navajo Acts purport to give the Navajo Nation Environmental Protection
Agency authority to promulgate regulations covering air quality, drinking water and pesticide
activities, including those activities that occur at Four Corners and the Navajo Plant. On October
17, 1995, the Four Corners participants and the Navajo Plant participants each filed a lawsuit in
the District Court of the Navajo Nation, Window Rock District, challenging the applicability of the
Navajo Acts as to Four Corners and the Navajo Plant. The Court has stayed these proceedings
pursuant to a request by the parties, and the parties are seeking to negotiate a settlement.
In April 2000, the Navajo Nation Council approved operating permit regulations under the
Navajo Nation Air Pollution Prevention and Control Act. APS believes the Navajo Nation exceeded
its authority when it adopted the operating permit regulations. On July 12, 2000, the Four Corners
participants and the Navajo Plant participants each filed a petition with the Navajo Supreme Court
for review of these regulations. Those proceedings have been stayed, pending the settlement
negotiations mentioned above. APS cannot currently predict the outcome of this matter.
On May 18, 2005, APS, Salt River Project, as the operating agent for the Navajo Plant, and the
Navajo Nation executed a Voluntary Compliance Agreement to resolve their disputes regarding the
Navajo Nation Air Pollution Prevention and Control Act. As a result of this agreement, APS sought,
and the courts granted, dismissal of the pending litigation in the Navajo Nation Supreme Court and
the Navajo Nation District Court, to the extent the claims relate to the Clean Air Act. The
agreement does not address or resolve any dispute relating to other Navajo Acts. APS cannot
currently predict the outcome of this matter.
Water Supply
Assured supplies of water are important for APSs generating plants. At the present time, APS
has adequate water to meet its needs. However, the Four Corners region, in which Four Corners is
located, has been experiencing drought conditions that may affect the water supply for the plants
if adequate moisture is not received in the watershed that supplies the area. APS is continuing to
work with area stakeholders to implement agreements to minimize the effect, if any, on future
operations of the plant. The effect of the drought cannot be fully assessed at this time, and APS
cannot predict the ultimate outcome, if any, of the drought or whether the drought will adversely
affect the amount of power available, or the price thereof, from Four Corners.
Conflicting claims to limited amounts of water in the southwestern United States have resulted
in numerous court actions, which, in addition to future supply conditions, have the potential to
impact APS operations.
22
San Juan River Adjudication. Both groundwater and surface water in areas important to APSs
operations have been the subject of inquiries, claims and legal proceedings, which will require a
number of years to resolve. APS is one of a number of parties in a proceeding, filed March
13, 1975, before the Eleventh Judicial District Court in New Mexico to adjudicate rights to a
stream system from which water for Four Corners is derived. An agreement reached with the Navajo
Nation in 1985, however, provides that if Four Corners loses a portion of its rights in the
adjudication, the Navajo Nation will provide, for an agreed upon cost, sufficient water from its
allocation to offset the loss.
Gila River Adjudication. A summons served on APS in early 1986 required all water claimants
in the Lower Gila River Watershed in Arizona to assert any claims to water on or before January 20,
1987, in an action pending in Maricopa County, Arizona, Superior Court. Palo Verde is located
within the geographic area subject to the summons. APSs rights and the rights of the other Palo
Verde participants to the use of groundwater and effluent at Palo Verde are potentially at issue in
this action. As operating agent of Palo Verde, APS filed claims that dispute the courts
jurisdiction over the Palo Verde participants groundwater rights and their contractual rights to
effluent relating to Palo Verde. Alternatively, APS seeks confirmation of such rights. Five of
APSs other power plants are also located within the geographic area subject to the summons. APSs
claims dispute the courts jurisdiction over its groundwater rights with respect to these plants.
Alternatively, APS seeks confirmation of such rights. In November 1999, the Arizona Supreme Court
issued a decision confirming that certain groundwater rights may be available to the federal
government and Indian tribes. In addition, in September 2000, the Arizona Supreme Court issued a
decision affirming the lower courts criteria for resolving groundwater claims. Litigation on both
of these issues has continued in the trial court. In December 2005, APS and other parties filed a
petition with the Arizona Supreme Court requesting interlocutory review of a September 2005 trial
court order regarding procedures for determining whether groundwater pumping is affecting surface
water rights. The Court denied the petition in May 2007, and the trial court is now proceeding
with implementation of its 2005 order. No trial date concerning APSs water rights claims has been
set in this matter.
Little Colorado River Adjudication. APS has also filed claims to water in the Little Colorado
River Watershed in Arizona in an action pending in the Apache County, Arizona, Superior Court,
which was originally filed on September 5, 1985. APSs groundwater resource utilized at Cholla is
within the geographic area subject to the adjudication and, therefore, is potentially at issue in
the case. APSs claims dispute the courts jurisdiction over its groundwater rights.
Alternatively, APS seeks confirmation of such rights. A number of parties are in the process of
settlement negotiations with respect to certain claims in this matter. Other claims have been
identified as ready for litigation in motions filed with the court. No trial date concerning APSs
water rights claims has been set in this matter.
Although the above matters remain subject to further evaluation, APS does not expect that the
described litigation will have a material adverse impact on its financial position, results of
operations, cash flows or liquidity.
BUSINESS OF OTHER SUBSIDIARIES
The operations of our other first-tier subsidiaries (described below) are not expected to
contribute in any material way to our future financial performance nor will they require any
material amounts of capital over the next three years.
23
APSES
APSES provides energy-related products and services (such as energy master planning, energy
use consultation and facility audits, cogeneration analysis and installation, and project
management) with a focus on energy efficiency and renewable energy to commercial and industrial
retail customers in the western United States. On June 22, 2010, APSES sold its district cooling
business consisting of operations in downtown Phoenix, Tucson, and on certain Arizona State
University campuses. This sale resulted in an after-tax gain of approximately $25 million.
Financial Summary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(dollars in millions) |
|
Net income (loss) |
|
$ |
30 |
|
|
$ |
(2 |
) |
|
$ |
(1 |
) |
Total assets at December 31 |
|
$ |
43 |
|
|
$ |
74 |
|
|
$ |
70 |
|
SunCor
SunCor was a developer of residential, commercial and industrial real estate projects in
Arizona, Idaho, New Mexico and Utah. Due to the continuing distressed conditions in the real
estate markets, in 2009 SunCor undertook a program to dispose of its homebuilding operations,
master-planned communities, land parcels, commercial assets and golf courses in order to eliminate
its outstanding debt.
Financial Summary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(dollars in millions) |
|
Revenues (a) |
|
$ |
102 |
|
|
$ |
158 |
|
|
$ |
242 |
|
Net loss attributable to
common shareholders (b) |
|
$ |
(9 |
) |
|
$ |
(279 |
) |
|
$ |
(26 |
) |
Total assets at December 31 (c) |
|
$ |
16 |
|
|
$ |
166 |
|
|
$ |
547 |
|
|
|
|
(a) |
|
All reported as discontinued operations on Pinnacle Wests Consolidated
Statements of Income. (See Note 22). |
|
(b) |
|
These amounts include $266 million (pre-tax) and $53 million (pre-tax) real
estate impairment charges for 2009 and 2008, respectively. |
|
(c) |
|
The reduction in assets in 2010 is primarily due to asset sales. The $16
million of assets at December 31, 2010 consists primarily of $8 million of intercompany
receivables, $3 million of assets held for sale and $5 million of other assets. |
In 2010 and 2009, income tax benefits related to SunCor operations were recorded by Pinnacle
West in accordance with an intercompany tax sharing agreement. See Liquidity and Capital
Resources Other Subsidiaries SunCor in Item 7 for a discussion of SunCors long-term debt,
liquidity and capital requirements, and the SunCor-related risk factor in Item 1A for a discussion
of risks facing SunCor.
24
El Dorado
El Dorado owns minority interests in several energy-related investments and Arizona
community-based ventures. El Dorados short-term goal is to prudently realize the value of its
existing investments. On a long-term basis, Pinnacle West may use El Dorado, when appropriate, for
investments that are strategic to the business of generating, distributing and marketing
electricity.
Financial Summary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(dollars in millions) |
|
Net income (loss)
|
|
$ |
2 |
|
|
$ |
(7 |
) |
|
$ |
(10 |
) |
Total assets at December 31
|
|
$ |
19 |
|
|
$ |
19 |
|
|
$ |
28 |
|
Income taxes related to El Dorado are recorded by Pinnacle West.
OTHER INFORMATION
Pinnacle West, APS and Pinnacle Wests other first-tier subsidiaries are all incorporated in
the State of Arizona. Additional information for each of these companies is provided below:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
Principal Executive Office |
|
|
Year of |
|
|
Employees at |
|
|
|
Address |
|
|
Incorporation |
|
|
December 31, 2010 |
|
Pinnacle West |
|
400 North Fifth Street Phoenix, AZ 85004 |
|
|
1985 |
|
|
|
80 |
|
|
|
|
|
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APS |
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400 North Fifth Street
P.O. Box 53999
Phoenix, AZ 85072-3999 |
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1920 |
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6,600 |
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|
APSES |
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60 E. Rio Salado Parkway Suite 1001
Tempe, AZ 85281 |
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1998 |
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50 |
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SunCor |
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80 East Rio Salado Parkway
Suite 410
Tempe, AZ 85281 |
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1965 |
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10 |
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El Dorado |
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400 North Fifth Street Phoenix, AZ 85004 |
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1983 |
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Total |
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6,740 |
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The APS number includes employees at jointly-owned generating facilities (approximately 3,100
employees) for which APS serves as the generating facility manager. Approximately 1,940 APS
employees are union employees. The collective bargaining agreement with union employees in the
fossil generation, energy delivery and customer service business areas expires in April 2011,
and the parties began negotiating a successor agreement in February 2011. The agreement with union
employees serving as Palo Verde security officers expires in 2013.
25
WHERE TO FIND MORE INFORMATION
We use our website www.pinnaclewest.com as a channel of distribution for material Company
information. The following filings are available free of charge on our website as soon as
reasonably practicable after they are electronically filed with, or furnished to, the SEC: Annual
Reports on Form 10-K, definitive proxy statements for our annual shareholder meetings, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports. Our board
and committee charters, Code of Ethics for Financial Executives, Ethics Policy and Standards of
Business Practices and other corporate governance information is also available on the Pinnacle
West website. Pinnacle West will post any amendments to the Code of Ethics for Financial
Executives and Ethics Policy and Standards of Business Practices, and any waivers that are required
to be disclosed by the rules of either the SEC or the New York Stock Exchange, on its website. The
information on Pinnacle Wests website is not incorporated by reference into this report.
You can request a copy of these documents, excluding exhibits, by contacting Pinnacle West at
the following address: Pinnacle West Capital Corporation, Office of the Secretary, Station 9068,
P.O. Box 53999, Phoenix, Arizona 85072-3999 (telephone 602-250-3252).
26
ITEM 1A. RISK FACTORS
In addition to the factors affecting specific business operations identified in the
description of these operations contained elsewhere in this report, set forth below are risks and
uncertainties that could affect our financial results. Unless otherwise indicated or the context
otherwise requires, the following risks and uncertainties apply to Pinnacle West and its
subsidiaries, including APS.
REGULATORY RISKS
Our financial condition depends upon APSs ability to recover costs in a timely manner from
customers through regulated rates and otherwise execute its business strategy.
APS is subject to comprehensive regulation by several federal, state and local regulatory
agencies that significantly influence its business, liquidity, results of operations and its
ability to fully recover costs from utility customers in a timely manner. The ACC regulates APSs
retail electric rates and the FERC regulates rates for wholesale power sales and transmission
services. The profitability of APS is affected by the rates it may charge. Consequently, our
financial condition and results of operations are dependent upon the satisfactory resolution of any
APS retail rate proceedings and ancillary matters which may come before the ACC and the FERC.
Arizona, like certain other states, has a statute that allows the ACC to reopen prior decisions and
modify final orders under certain circumstances. The ACC must also approve APSs issuance of
securities and any transfer of APS property used to provide retail electric service, and must
approve or receive prior notification of certain transactions between us, APS and our respective
affiliates. Decisions made by the ACC and the FERC could have a material adverse impact on our
financial condition, results of operations or cash flows.
APSs ability to conduct its business operations and avoid fines and penalties depends upon
compliance with federal, state or local statutes and regulations, and obtaining and maintaining
certain regulatory permits, approvals and certificates.
APS must comply in good faith with all applicable statutes, regulations, rules, tariffs, and
orders of agencies that regulate APSs business, including the FERC, the NRC, the EPA and state and
local governmental agencies. These agencies regulate many aspects of APSs utility operations,
including safety and performance, emissions, siting and construction of facilities, customer
service and the rates that APS can charge retail and wholesale customers. Failure to comply can
subject APS to, among other things, fines and penalties. For example, under the Energy Policy Act
of 2005, the FERC can impose penalties (up to one million dollars per day per violation) for
failure to comply with mandatory electric reliability standards. In addition, APS is required to
have numerous permits, approvals and certificates from these agencies. APS believes the necessary
permits, approvals and certificates have been obtained for its existing operations and that APSs
business is conducted in accordance with applicable laws in all material respects. However,
changes in regulations or the imposition of new or revised laws or regulations could have an
adverse impact on our results of operations. We are also unable to predict the impact on our
business and operating results from pending or future regulatory activities of any of these
agencies.
The operation of APSs nuclear power plant exposes it to substantial regulatory oversight and
potentially significant liabilities and capital expenditures.
The NRC has broad authority under federal law to impose licensing and safety-related
requirements for the operation of nuclear generation facilities. In the event of noncompliance,
the NRC has the authority to impose monetary civil penalties or a progressively increased
inspection regime that could ultimately result in the shut down of a unit, or both, depending upon
the NRCs assessment of the severity of the situation, until compliance is achieved. The increased
costs resulting from penalties, a heightened level of scrutiny and implementation of plans to
achieve compliance with NRC requirements may adversely affect APSs financial condition, results of
operations and cash flows.
APS is subject to numerous environmental laws and regulations, and changes in, or liabilities
under, existing or new laws or regulations may increase APSs cost of operations or impact its
business plans.
APS is subject to numerous environmental laws and regulations affecting many aspects of its
present and future operations, including air emissions, water quality, wastewater discharges, solid
waste, hazardous waste, and coal combustion products, which consist of bottom ash, fly ash and air
pollution control wastes. These laws and regulations can result in increased capital, operating,
and other costs, particularly with regard to enforcement efforts focused on power plant emissions
obligations. These laws and regulations generally require APS to obtain and comply with a wide
variety of environmental licenses, permits, and other approvals. If there is a delay or failure to
obtain any required environmental regulatory approval, or if APS fails to obtain, maintain or
comply with any such approval, operations at affected facilities could be suspended or subject to
additional expenses. In addition, failure to comply with applicable environmental laws and
regulations could result in civil liability or criminal penalties. Both public officials and
private individuals may seek to enforce applicable environmental laws and regulations. APS cannot
predict the outcome (financial or operational) of any related litigation that may arise.
27
Environmental Clean Up. APS has been named as a PRP for a Superfund site in Phoenix, Arizona
and it could be named a PRP in the future for other environmental clean up at sites identified by a
regulatory body. APS cannot predict with certainty the amount and timing of all future
expenditures related to environmental matters because of the difficulty of estimating clean up
costs. There is also uncertainty in quantifying liabilities under environmental laws that impose
joint and several liability on all potentially responsible parties.
Regional Haze. APS is currently awaiting a final rulemaking from the EPA that could impose
new requirements on Four Corners and the Navajo Plant. APS is also awaiting a final rulemaking
from ADEQ that could impose new requirements on Cholla. The EPA and ADEQ will require these plants
to install pollution control equipment that constitutes the best available retrofit technology to
lessen the impacts of emissions on visibility surrounding the plants. Depending upon the agencies
final determinations of what constitutes BART for these plants, the financial impact of installing
the required pollution control equipment could jeopardize the economic viability of the plants or
the ability of individual participants to continue their participation in these plants.
Coal Ash. The EPA released proposed regulations governing the disposal of CCRs, which are
generated as a result of burning coal and consist of, among other things, fly ash and bottom ash.
The EPA proposed regulating CCRs as either non-hazardous or hazardous waste. APS currently
disposes of CCRs in ash ponds and dry storage areas at Four Corners and Cholla, and also sells a
portion of its fly ash for beneficial reuse as a constituent in concrete products. If the EPA
regulates CCRs as a hazardous solid waste or phases out APSs ability to dispose of CCRs through
the use of ash ponds, APS could incur significant costs for CCR disposal and may be unable to
continue its sale of fly ash for beneficial reuse.
New Source Review. The EPA has taken the position that many projects electric utilities have
performed are major modifications that trigger New Source Review requirements under the Clean Air
Act. The utilities generally have taken the position that these projects are routine maintenance
and did not result in emissions increases, and thus are not subject to New Source Review. In 2009,
APS received and responded to a request from the EPA regarding projects and operations of Four
Corners. A civilian organization notified the Four Corners participants that it intends to file a
citizen suit against the participants for alleged violations of New Source Review and the NSPS
program of the Clean Air Act. If the EPA seeks to impose New Source Review requirements at Four
Corners or any other APS plant, or if the citizen suit is filed and the citizens group prevails,
significant capital investments could be required to install new pollution control technologies.
The EPA could also seek civil penalties.
Mercury and other Hazardous Air Pollutants. The EPA is required to adopt maximum achievable
control technology emissions standards for mercury and other hazardous air pollutants by November
2011. Compliance with the new standards will be required three years after the EPA issues its
final rule. Depending on the compliance requirements contained in the final rule, APS may need to
make significant capital investments to install additional pollution control equipment to meet
these new standards.
APS cannot assure that existing environmental regulations will not be revised or that new
regulations seeking to protect the environment will not be adopted or become applicable to it.
Revised or additional regulations that result in increased compliance costs or additional operating
restrictions, particularly if those costs incurred by APS are not fully recoverable from APSs
customers, could have a material adverse effect on its financial condition, results of operations
or cash flows.
28
APS faces physical and operational risks related to climate change, and potential financial risks
resulting from climate change litigation and legislative and regulatory efforts to limit greenhouse
gas emissions.
Concern over climate change, deemed by many to be induced by rising levels of greenhouse gases
in the atmosphere, has led to significant legislative and regulatory efforts to limit
CO2, which is a major byproduct of the combustion of fossil fuel, and other greenhouse
gas emissions. In addition, lawsuits have been filed against companies that emit greenhouse gases,
including a lawsuit filed by the Native Village of Kivalina and the City of Kivalina, Alaska
against us and several other utilities seeking damages related to climate change, which was
dismissed but has been appealed.
Financial Risks Potential Legislation and Regulation. In the past several years, the
United States Congress has considered bills that would regulate domestic greenhouse gas emissions.
It is possible that some form of legislation may occur in the future at the federal level with
respect to greenhouse gas emissions.
If the United States Congress, or individual states or groups of states in which APS operates,
ultimately pass legislation regulating the emissions of greenhouse gases, any resulting limitations
on CO2 and other greenhouse gas emissions could result in the creation of substantial
additional capital expenditures and operating costs in the form of taxes, emissions allowances or
required equipment upgrades and could have a material adverse impact on all fossil fuel fired
generation facilities (particularly coal-fired facilities, which constitute approximately 28% of
APSs generation capacity).
At the state level, the California legislature enacted legislation to address greenhouse gas
emissions and the California Air Resources Board approved regulations that will establish a
cap-and-trade program for greenhouse gas. This legislation, regulation and other state-specific
initiatives may affect APSs business, including sales into the impacted states or the ability of
its out-of-state power plant participants to continue their participation in certain coal-fired
power plants, including Four Corners following expiration of the current lease term in 2016.
In addition, the EPA has determined that greenhouse gas emissions endanger public health and
welfare. This determination was made in response to a 2007 United States Supreme Court ruling that
greenhouse gases fit within the Clean Air Acts broad definition of air pollutant and, as a
result, the EPA has the authority to regulate greenhouse gas emissions of new motor vehicles under
the Clean Air Act. As a result of the endangerment finding, the EPA determined that the Clean Air
Act required new regulatory requirements for new and modified major greenhouse gas emitting
sources, including power plants. Several groups have filed lawsuits challenging the EPAs
endangerment finding. APS cannot predict what rules or regulations may ultimately result from the
EPAs endangerment finding, whether the parties challenging the endangerment finding will be
successful, or what impact other potential rules or regulations will have on APSs operations.
Excessive costs to comply with future legislation or regulations could force APS and other
similarly-situated electric power generators to retire or suspend operations at certain coal-fired
facilities.
Physical and Operational Risks. Assuming that the primary physical and operational risks to
APS from climate change are increased potential for drought or water shortage, and a mild to
moderate increase in ambient temperatures, APS believes it is taking the appropriate steps to
respond to these risks. Weather extremes such as drought and high temperature variations are
common occurrences in the Southwests desert area, and these are risks that APS considers in the
normal course of business in
the engineering and construction of its electric system. Large increases in ambient
temperatures could require evaluation of certain materials used within its system and represent a
greater challenge.
29
If APS cannot meet or maintain the level of renewable energy required under Arizonas increasing
Renewable Energy Standards, APS may be subject to penalties or fines for non-compliance.
The RES requires APS to supply an increasing percentage of renewable energy each year, so that
the amount of retail electricity sales from eligible renewable resources is at least 3% of total
retail sales by 2011. This amount increases annually to 15% by 2025. In its 2009 retail rate case
settlement agreement, APS agreed to exceed these standards and committed to an interim renewable
energy target of 1,700 GWh of renewable resources to be in service by year end 2015 in addition to
its 2008 renewable resource commitments. Taken together, APSs commitment is estimated to be 3,400
GWh, or approximately 10% of retail sales, by year end 2015. A portion of this total renewable
energy requirement must be met with an increasing percentage of distributed energy resources
(generally, small scale renewable technologies located on customers properties). The distributed
energy requirement is 25% of the overall RES requirement of 3% in 2011 and increases to 30% of the
applicable RES requirement in 2012 and subsequent years. If APS fails to implement any of its
annual ACC-approved renewable implementation plans, it may be subject to penalties imposed by the
ACC, including APSs inability to recover certain costs. Compliance with the distributed resource
requirement is contingent upon customer participation. The development of any renewable generation
facilities resulting from the RES is subject to many other risks, including risks relating to
financing, permitting, technology, fuel supply, and the construction of sufficient transmission
capacity to support these facilities.
Deregulation or restructuring of the electric industry may result in increased competition, which
could have a significant adverse impact on APSs business and its results of operations.
In 1999, the ACC approved rules for the introduction of retail electric competition in
Arizona. Retail competition could have a significant adverse financial impact on APS due to an
impairment of assets, a loss of retail customers, lower profit margins or increased costs of
capital. Although some very limited retail competition existed in APSs service area in 1999 and
2000, there are currently no active retail competitors offering unbundled energy or other utility
services to APSs customers. As a result, APS cannot predict if, when, and the extent to which,
additional competitors may re-enter APSs service territory.
In 2010, the ACC issued a decision holding that solar vendors that install and operate solar
facilities for non-profit schools and governments pursuant to a specific type of contract that
calculates payments based on the energy produced are not public service corporations under the
Arizona Constitution, and are therefore not regulated by the ACC. A second matter is pending with
the ACC to determine whether that ruling should extend to solar providers who serve a broader
customer base under the same business model. The use of such products by customers within our
territory would result in some level of competition. APS cannot predict whether the ACC will deem
these vendors public service corporations subject to ACC regulation and when, and the extent to
which, additional service providers will enter APSs service territory, increasing the level of
competition in the market.
30
OPERATIONAL RISKS
APSs results of operations can be adversely affected by various factors impacting demand for
electricity.
Weather Conditions. Weather conditions directly influence the demand for electricity and
affect the price of energy commodities. Electric power demand is generally a seasonal business.
In Arizona, demand for power peaks during the hot summer months, with market prices also peaking at
that time. As a result, APSs overall operating results fluctuate substantially on a seasonal
basis. In addition, APS has historically sold less power, and consequently earned less income,
when weather conditions are milder. As a result, unusually mild weather could diminish APSs
results of operations.
Higher temperatures may decrease the snowpack, which might result in lowered soil moisture and
an increased threat of forest fires. Forest fires could threaten APSs communities and electric
transmission lines. Any damage caused as a result of forest fires could negatively impact APSs
results of operations.
Effects of Energy Conservation Measures and Distributed Energy. The ACC has enacted rules
regarding energy efficiency that mandate a 22% annual energy savings requirement by 2020. This
will likely increase participation by APS customers in energy efficiency and conservation programs
and other demand-side management efforts, which in turn will impact the demand for electricity.
The rules also include a requirement for the ACC to review and address financial disincentives,
recovery of fixed costs and the recovery of net lost income/revenue that would result from lower
sales due to increased energy efficiency requirements. To that end, the ACC passed a policy
statement on per customer revenue decoupling in December of 2010. The policy statement will have
no effect on APSs rates unless implemented in a rate case. The 2009 retail rate case settlement
agreement also establishes energy efficiency goals for APS that begin in 2010 that extend through
2012, subjecting APS to energy efficiency requirements slightly greater for those years than
required under the rules described above.
APS must also meet certain distributed energy requirements. A portion of APSs total
renewable energy requirement must be met with an increasing percentage of distributed energy
resources (generally, small scale renewable technologies located on customers properties). The
distributed energy requirement is 25% of the overall RES requirement of 3% in 2011 and increases to
30% of the applicable RES requirement in 2012 and subsequent years. Customer participation in
distributed energy programs would result in lower demand, since customers would be meeting some or
all of their own energy needs.
Reduced demand due to these energy efficiency and distributed energy requirements, unless
offset through ratemaking mechanisms, could have a material adverse impact on APSs financial
condition, results of operations and cash flows.
The operation of power generation facilities involves risks that could result in unscheduled power
outages or reduced output, which could materially affect APSs results of operations.
The operation of power generation facilities involves certain risks, including the risk of
breakdown or failure of equipment, fuel interruption, and performance below expected levels of
output or efficiency. Unscheduled outages, including extensions of scheduled outages due to
mechanical failures or other complications, occur from time to time and are an inherent risk of
APSs business. If
APSs facilities operate below expectations, especially during its peak seasons, it may lose
revenue or incur additional expenses, including increased purchased power expenses.
31
The lack of access to sufficient supplies of water could have a material adverse impact on APSs
business and results of operations.
Assured supplies of water are important for APSs generating plants. Water in the
southwestern United States is limited and various parties have made conflicting claims regarding
the right to access and use such limited supply of water. Both groundwater and surface water in
areas important to APSs generating plants have been and are the subject of inquiries, claims and
legal proceedings. In addition, the Four Corners region, in which Four Corners is located, has
been experiencing drought conditions that may affect the water supply for the plants if adequate
moisture is not received in the watershed that supplies the area. APSs inability to access
sufficient supplies of water could have a material adverse impact on our business and results of
operations.
The ownership and operation of power generation and transmission facilities on Indian lands could
result in uncertainty related to continued leases, easements and rights-of-way, which could have a
significant impact on our business.
Certain APS power plants, including Four Corners, and portions of the transmission lines that
carry power from these plants are located on Indian lands pursuant to leases, easements or other
rights-of-way that are effective for specified periods. APS is currently unable to predict the
final outcome of discussions with the appropriate Indian tribes and approval by their respective
governing bodies with respect to renewals of these leases, easements and rights-of-way.
There are inherent risks in the ownership and operation of nuclear facilities, such as
environmental, health, fuel supply, spent fuel disposal, regulatory and financial risks and the
risk of terrorist attack.
APS has an ownership interest in and operates, on behalf of a group of participants, Palo
Verde, which is the largest nuclear electric generating facility in the United States. Palo Verde
is subject to environmental, health and financial risks such as the ability to obtain adequate
supplies of nuclear fuel; the ability to dispose of spent nuclear fuel; the ability to maintain
adequate reserves for decommissioning; potential liabilities arising out of the operation of these
facilities; the costs of securing the facilities against possible terrorist attacks; and
unscheduled outages due to equipment and other problems. APS maintains nuclear decommissioning
trust funds and external insurance coverage to minimize its financial exposure to some of these
risks; however, it is possible that damages could exceed the amount of insurance coverage. In
addition, APS may be required under federal law to pay up to $118 million (but not more than $18
million per year) of liabilities arising out of a nuclear incident occurring not only at Palo
Verde, but at any other nuclear power plant in the United States. Although we have no reason to
anticipate a serious nuclear incident at Palo Verde, if an incident did occur, it could materially
and adversely affect our results of operations and financial condition. A major incident at a
nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or
licensing of any domestic nuclear unit.
The operation of Palo Verde requires licenses that need to be periodically renewed and/or
extended. In December 2008, APS applied for renewed operating licenses for all three Palo Verde
units for 20 years beyond the expirations of the current licenses. APS does not anticipate any
problems renewing these licenses. However, as a result of potential terrorist threats and
increased public
scrutiny of utilities, the licensing process could result in increased licensing or compliance
costs that are difficult to predict.
32
The use of derivative contracts in the normal course of our business could result in financial
losses that negatively impact our results of operations.
APSs operations include managing market risks related to commodity prices. APS is exposed to
the impact of market fluctuations in the price and transportation costs of electricity, natural gas
and coal to the extent that unhedged positions exist. We have established procedures to manage
risks associated with these market fluctuations by utilizing various commodity derivatives,
including exchange-traded futures and options and over-the-counter forwards, options, and swaps.
As part of our overall risk management program, we enter into derivative transactions to hedge
purchases and sales of electricity and fuels. The changes in market value of such contracts have a
high correlation to price changes in the hedged commodity. To the extent that commodity markets
are illiquid, we may not be able to execute our risk management strategies, which could result in
greater unhedged positions than we would prefer at a given time and financial losses that
negatively impact our results of operations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which was
signed into law in July 2010, contains measures aimed at increasing the transparency and stability
of the over-the counter, or OTC, derivative markets and preventing excessive speculation. The
Dodd-Frank Act could restrict, among other things, trading positions in the energy futures markets,
require different collateral or settlement positions, or increase regulatory reporting over
derivative positions. Based on the provisions included in the Dodd-Frank Act and the implementation
of regulations yet to be developed, these changes could, among other things, impact our ability to
hedge commodity price and interest rate risk or increase the costs associated with our hedging
programs.
We are exposed to losses in the event of nonperformance or nonpayment by counterparties. We
use a risk management process to assess and monitor the financial exposure of all counterparties.
Despite the fact that the majority of APSs trading counterparties are rated as investment grade by
the rating agencies, there is still a possibility that one or more of these companies could
default, which could result in a material adverse impact on our earnings for a given period.
Changes in technology could create challenges for APSs existing business.
Research and development activities are ongoing to assess alternative technologies that
produce power or reduce power consumption, including clean coal and coal gasification, renewable
technologies including photovoltaic (solar) cells, customer-sited generation (solar) and efficiency
technologies, and improvements in traditional technologies and equipment, such as more efficient
gas turbines. Advances in these, or other technologies could reduce the cost of power production,
making APSs existing generating facilities less economical. In addition, advances in technology
could reduce the demand for power supply, which could adversely affect APSs business.
APS is pursuing and implementing smart grid technologies, including advanced transmission and
distribution system technologies, digital meters enabling two-way communications between the
utility and its customers, and electric usage monitoring devices for customers homes and
businesses. Many of the products and processes resulting from these and other alternative
technologies have not yet been widely used or tested, and their use on large-scale systems is not
as advanced and established as APSs existing technologies and equipment. Uncertainties and
unknowns related to these and other
advancements in technology and equipment could adversely affect APSs business if national
standards develop that do not embrace the current technologies or if the technologies and equipment
fail to perform as expected. In addition, widespread installation and acceptance of these devices
could enable the entry of new market participants, such as technology companies, into the interface
between APS and its customers.
33
We are subject to employee workforce factors that could adversely affect our business and financial
condition.
Like most companies in the electric utility industry, our workforce is aging and a number of
our employees will become eligible to retire within the next few years. Although we have
undertaken efforts to recruit and train new employees, we may not be successful. We are subject to
other employee workforce factors, such as the availability of qualified personnel, the need to
negotiate collective bargaining agreements with union employees and potential work stoppages.
Exposure to these or other employee workforce factors could negatively impact our business,
financial condition or results of operations.
We are subject to information security risks.
In the regular course of our business we handle a range of sensitive security and customer
information. We are subject to laws and rules issued by different agencies concerning safeguarding
and maintaining the confidentiality of this information. A security breach of our information
systems such as theft or the inappropriate release of certain types of information, including
confidential customer information or system operating information could have a material adverse
impact on our business and financial condition.
FINANCIAL RISKS
Financial market disruptions may increase our financing costs or limit our access to the credit and
capital markets, which may adversely affect our liquidity and our ability to implement our
financial strategy.
We rely on access to short-term money markets, longer-term capital markets and the bank market
as a significant source of liquidity and for capital requirements not satisfied by the cash flow
from our operations. We believe that we will maintain sufficient access to these financial
markets. However, certain market disruptions may increase our cost of borrowing or adversely
affect our ability to access one or more financial markets. Such disruptions could include:
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continuation of the current economic downturn; |
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terrorist attacks or threatened attacks; |
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mergers among financial institutions and the overall health of the banking industry;
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the overall health of the utility industry. |
In addition, the credit commitments of our lenders under our bank facilities may not be
satisfied for a variety of reasons, including unexpected periods of financial distress affecting
our lenders, which could materially adversely affect the adequacy of our liquidity sources.
34
Changes in economic conditions could result in higher interest rates, which would increase our
interest expense on our debt and reduce funds available to us for our current plans. Additionally,
an increase in our leverage could adversely affect us by:
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reducing our credit ratings; |
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increasing the cost of future debt financing and refinancing; |
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increasing our vulnerability to adverse economic and industry conditions; and |
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requiring us to dedicate an increased portion of our cash flow from operations to
payments on our debt, which would reduce funds available to us for operations, future
business opportunities or other purposes. |
A reduction in our credit ratings could materially and adversely affect our business, financial
condition and results of operations.
Our current ratings are set forth in Liquidity and Capital Resources Credit Ratings in
Item 7. We cannot be sure that any of our current ratings will remain in effect for any given
period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in
its judgment, circumstances in the future so warrant. Any downgrade or withdrawal could adversely
affect the market price of Pinnacle Wests and APSs securities, limit our access to capital and
increase our borrowing costs, which would diminish our financial results. We would be required to
pay a higher interest rate in future financings, and our potential pool of investors and funding
sources could decrease. In addition, borrowing costs under certain of our existing credit
facilities depend on our credit ratings. A downgrade would also require us to provide substantial
additional support in the form of letters of credit or cash or other collateral to various
counterparties. If our short-term ratings were to be lowered, it could completely eliminate any
possible future access to the commercial paper market. We note that the ratings from rating
agencies are not recommendations to buy, sell or hold our securities and that each rating should be
evaluated independently of any other rating.
Market performance, changing interest rates and other economic factors could decrease the value of
our benefit plan assets and nuclear decommissioning trust funds and increase our related
obligations, resulting in significant additional funding that could negatively impact our business.
Disruptions in the capital markets and/or decline in market value may adversely affect the
values of fixed income and equity investments held in our employee benefit plan trusts and nuclear
decommissioning trusts. We have significant obligations in these areas and hold substantial assets
in these trusts. A decline in the market value of the investments in these trusts may increase our
funding requirements. Additionally, the pension plan and other postretirement benefit liabilities
are impacted by the discount rate, which is the interest rate used to discount future pension and
other postretirement benefit obligations. Declining interest rates impact the discount rate, and
may result in increases in pension and other postretirement benefit costs, cash contributions,
regulatory assets, and charges to other comprehensive income. Changes in demographics, including
increased numbers of retirements or changes in life expectancy assumptions, may also increase the
funding requirements of the obligations related to the pension and other postretirement benefit
plans. A significant portion of the pension costs and other postretirement benefit costs and all
of the nuclear decommissioning costs are recovered in regulated electricity prices. Our inability
to fully recover these costs in a timely manner or any increased funding obligations could
negatively impact our financial condition, results of operations or cash flows.
35
We may be required to adopt IFRS. The ultimate adoption of such standards could negatively
impact our business, financial condition or results of operations.
IFRS is a comprehensive series of accounting standards published by the International
Accounting Standards Board (IASB) that is being considered by the SEC to replace accounting
principles generally accepted in the United States of America (GAAP) for use in preparation of
financial statements. If the SEC requires mandatory adoption of IFRS, we may lose our ability to
use regulatory accounting treatment, and would follow IFRS rather than GAAP for the preparation of
our financial statements beginning in 2014. In the meantime, the FASB and the IASB are working on
several accounting standards jointly to converge certain accounting differences before 2014. The
implementation and adoption of these new standards and the inability to use regulatory accounting
could negatively impact our business, financial condition or results of operations.
Our cash flow largely depends on the performance of APS.
We conduct our operations primarily through our subsidiary, APS. Substantially all of our
consolidated assets are held by APS. Accordingly, our cash flow is dependent upon the earnings and
cash flows of APS and its distributions to us. APS is a separate and distinct legal entity and has
no obligation to make distributions to us.
APSs debt agreements may restrict its ability to pay dividends, make distributions or
otherwise transfer funds to us. In addition, an ACC financing order requires APS to maintain a
common equity ratio of at least 40% and does not allow APS to pay common dividends if the payment
would reduce its common equity below that threshold. The common equity ratio, as defined in the
ACC order, is total shareholder equity divided by the sum of total shareholder equity and long-term
debt, including current maturities of long-term debt.
Pinnacle Wests ability to meet its debt service obligations could be adversely affected because
its debt securities are structurally subordinated to the debt securities and other obligations of
its subsidiaries.
Because Pinnacle West is structured as a holding company, all existing and future debt and
other liabilities of our subsidiaries will be effectively senior in right of payment to our debt
securities. The assets and cash flows of our subsidiaries will be available, in the first
instance, to service their own debt and other obligations. Our ability to have the benefit of
their assets and cash flows, particularly in the case of any insolvency or financial distress
affecting our subsidiaries, would arise only through our equity ownership interests in our
subsidiaries and only after their creditors have been satisfied.
The market price of our common stock may be volatile.
The market price of our common stock could be subject to significant fluctuations in response
to factors such as the following, some of which are beyond our control:
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variations in our quarterly operating results; |
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operating results that vary from the expectations of management, securities analysts
and investors; |
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changes in expectations as to our future financial performance, including financial
estimates by securities analysts and investors; |
36
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developments generally affecting industries in which we operate, particularly the
energy distribution and energy generation industries; |
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announcements by us or our competitors of significant contracts, acquisitions, joint
marketing relationships, joint ventures or capital commitments; |
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announcements by third parties of significant claims or proceedings against us; |
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favorable or adverse regulatory or legislative developments; |
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future sales by the Company of equity or equity-linked securities; and |
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general domestic and international economic conditions. |
In addition, the stock market in general has experienced volatility that has often been
unrelated to the operating performance of a particular company. These broad market fluctuations
may adversely affect the market price of our common stock.
Certain provisions of our articles of incorporation and bylaws and of Arizona law make it difficult
for shareholders to change the composition of our board and may discourage takeover attempts.
These provisions, which could preclude our shareholders from receiving a change of control
premium, include the following:
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restrictions on our ability to engage in a wide range of business combination
transactions with an interested shareholder (generally, any person who owns 10% or
more of our outstanding voting power or any of our affiliates or associates) or any
affiliate or associate of an interested shareholder, unless specific conditions are
met; |
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anti-greenmail provisions of Arizona law and our bylaws that prohibit us from
purchasing shares of our voting stock from beneficial owners of more than 5% of our
outstanding shares unless specified conditions are satisfied; |
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the ability of the Board of Directors to increase the size of the Board and fill
vacancies on the Board, whether resulting from such increase, or from death,
resignation, disqualification or otherwise; and |
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the ability of our Board of Directors to issue additional shares of common stock and shares of preferred stock and to determine the price and, with respect to preferred
stock, the other terms, including preferences and voting rights, of those shares
without shareholder approval. |
While these provisions have the effect of encouraging persons seeking to acquire control of us
to negotiate with our Board of Directors, they could enable the Board to hinder or frustrate a
transaction that some, or a majority, of our shareholders might believe to be in their best
interests and, in that case, may prevent or discourage attempts to remove and replace incumbent
directors.
SunCors continuing wind-down of its real estate business may give rise to various claims.
Since 2009, SunCor has been engaged in a program to dispose of its homebuilding operations,
master-planned communities, land parcels, commercial assets and golf courses in order to reduce its
outstanding debt. As of December 31, 2010, SunCor had no existing bank debt and had total assets
remaining on its books of $16 million, consisting of $8 million of intercompany receivables, $3
million
of assets held for sale and $5 million of other assets. SunCor is focusing on concluding an
orderly wind-down of its business. This effort includes addressing contingent liabilities, such as
warranty and construction claims that may be brought by property owners and potential funding
obligations to local taxing districts that financed infrastructure at certain of its real estate
developments.
Pinnacle West has not guaranteed any of SunCors obligations. SunCors remaining business
operations, and its ability to generate cash from operations, are minimal. As a result, SunCor may
seek judicial protection to effectuate a resolution of any claims that cannot be successfully
addressed by other means. In such event, Pinnacle West could be exposed to the uncertainties and
complexities inherent for parent companies in such proceedings.
37
ITEM 1B. UNRESOLVED STAFF COMMENTS
Neither Pinnacle West nor APS has received written comments regarding its periodic or current reports from the SEC staff that were issued 180 days or more preceding the end of its 2010 fiscal year and that remain unresolved.
38
ITEM 2. PROPERTIES
Generation Facilities
APSs portfolio of owned and leased generating facilities is provided in the table below:
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Principal |
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Primary |
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Owned |
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No. of |
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% |
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Fuels |
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Dispatch |
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Capacity |
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Name |
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Units |
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Owned (a) |
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Used |
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Type |
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(MW) |
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Nuclear: |
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Palo Verde (b) |
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3 |
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29.1 |
% |
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Uranium |
|
Base Load |
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1,146 |
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Total Nuclear |
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1,146 |
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Steam: |
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Four Corners 1, 2, 3 |
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3 |
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Coal |
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Base Load |
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560 |
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Four Corners 4, 5 (c) |
|
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2 |
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15 |
% |
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Coal |
|
Base Load |
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231 |
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Cholla |
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3 |
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Coal |
|
Base Load |
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647 |
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Navajo (d) |
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3 |
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14 |
% |
|
Coal |
|
Base Load |
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|
315 |
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Ocotillo |
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2 |
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Gas |
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Peaking |
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220 |
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Saguaro |
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2 |
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Gas/Oil |
|
Peaking |
|
|
210 |
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Total Steam |
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2,183 |
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Combined Cycle: |
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Redhawk |
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2 |
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Gas |
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Load Following |
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984 |
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West Phoenix |
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5 |
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Gas |
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Load Following |
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|
887 |
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Total Combined Cycle |
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1,871 |
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Combustion Turbine: |
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Ocotillo |
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2 |
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Gas |
|
Peaking |
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|
110 |
|
Saguaro 1, 2 |
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2 |
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Gas/Oil |
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Peaking |
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110 |
|
Saguaro 3 |
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1 |
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Gas |
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Peaking |
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79 |
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Douglas |
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1 |
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Oil |
|
Peaking |
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16 |
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Sundance |
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10 |
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Gas |
|
Peaking |
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|
420 |
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West Phoenix |
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2 |
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Gas |
|
Peaking |
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|
110 |
|
Yucca 1, 2, 3 |
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3 |
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|
Gas/Oil |
|
Peaking |
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|
93 |
|
Yucca 4 |
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1 |
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Oil |
|
Peaking |
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|
54 |
|
Yucca 5, 6 |
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2 |
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Gas |
|
Peaking |
|
|
96 |
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Total Combustion Turbine |
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1,088 |
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Solar: |
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Multiple facilities |
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Solar |
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As Available |
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5 |
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Total Solar |
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5 |
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Total Capacity |
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6,293 |
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(a) |
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100% unless otherwise noted. |
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(b) |
|
See Business of Arizona Public Service Company Energy Sources and Resource Planning
Generation Facilities Nuclear in Item 1 for details regarding leased interests in
Palo Verde. The other participants are Salt River Project (17.49%), SCE (15.8%), El Paso
Electric Company (15.8%), Public Service Company of New Mexico (10.2%), Southern California
Public Power Authority (5.91%), and Los Angeles Department of Water & Power (5.7%). The
plant is operated by APS. |
39
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(c) |
|
The other participants are Salt River Project (10%), Public Service Company of New
Mexico (13%), SCE (48%), Tucson Electric Power Company (7%) and El Paso Electric
Company (7%). The plant is operated by APS. As discussed under Business of Arizona
Public Service Company Energy Sources and Resource Planning Generation Facilities
Coal Fueled Generating Facilities Four Corners in Item 1, APS and SCE have
entered into an agreement by which APS would acquire SCEs interest in Units 4 and 5,
after which APS would close Units 1, 2 and 3. |
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(d) |
|
The other participants are Salt River Project (21.7%), Nevada Power Company (11.3%),
the United States Government (24.3%), Tucson Electric Power Company (7.5%) and Los Angeles
Department of Water & Power (21.2%). The plant is operated by Salt River Project. |
See Business of Arizona Public Service Company Environmental Matters in Item 1 with
respect to matters having a possible impact on the operation of certain of APSs generating
facilities.
See Business of Arizona Public Service Company in Item 1 for a map detailing the location of
APSs major power plants and principal transmission lines.
Transmission and Distribution Facilities
Current Facilities. APSs transmission facilities consist of approximately 5,992 pole miles
of overhead lines and approximately 49 miles of underground lines, 5,769 miles of which are located
in Arizona. APSs distribution facilities consist of approximately 11,098 miles of overhead lines
and approximately 17,417 miles of underground primary cable, all of which are located in Arizona.
APS shares ownership of some of its transmission facilities with other companies. The following
table shows APSs jointly-owned interests in those transmission facilities recorded on the
Consolidated Balance Sheets at December 31, 2010:
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|
Percent Owned |
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|
|
(Weighted Average) |
|
North Valley System |
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|
71.2 |
% |
Palo Verde Estrella 500KV System |
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|
50.0 |
% |
Round Valley System |
|
|
50.0 |
% |
ANPP 500KV System |
|
|
34.0 |
% |
Navajo Southern System |
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|
26.1 |
% |
Four Corners Switchyards |
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|
47.5 |
% |
Palo Verde Yuma 500KV System |
|
|
43.5 |
% |
Phoenix Mead System |
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|
17.5 |
% |
Expansion. Each year APS prepares and files with the ACC a ten-year transmission plan. In
APSs 2011 plan, APS projects it will invest approximately $450 million in new transmission over
the next ten years, which includes 258 miles of new lines. This investment will increase the
import capability into metropolitan Phoenix by approximately 6% and will increase the import
capability into the Yuma area by approximately 39%. One significant project presently nearing
completion is the Morgan Pinnacle Peak project, which consists of 26 miles of 500kV and 230kV
lines.
APS continues to work with regulators to identify transmission projects necessary to support
renewable energy facilities. Two such projects, which are included in APSs 2011 transmission
plan, are the Delany to Palo Verde line and the North Gila to Palo Verde line, both of which are
intended to support the transmission of renewable energy to Phoenix and California.
40
Plant and Transmission Line Leases and Easements on Indian Lands
The Navajo Plant and Four Corners are located on land held under leases from the Navajo Nation
and also under easements from the federal government. The easement and lease for the Navajo Plant
expire in 2019 and the easement and lease for Four Corners expire in 2016. Each of the leases
contains an option to extend for an additional 25-year period from the end of the existing lease
term, for a rental amount tied to the original rent payment adjusted based on an index. The
easements do not contain an express renewal option and it is unclear what conditions to renewal or
extension of the easements may be imposed. APS is currently working with the Navajo Nation to
extend the Four Corners leases and the transmission rights-of-way discussed below for an additional
twenty-five years. (See Business of Arizona Public Service Company Energy Sources and Resource
Planning Generation Facilities Coal Fueled Generating Facilities in Item 1 for details of
this extension and the related required approvals.) The ultimate cost of renewal of the Navajo
Plant and Four Corners leases and easements is uncertain. The coal contracted for use in these
plants is also located on Indian reservations.
Certain portions of the transmission lines that carry power from several of our power plants
are located on Indian lands pursuant to easements or other rights-of-way that are effective for
specified periods. Some of these rights-of-way have expired and our renewal applications have not
yet been acted upon by the appropriate Indian tribes. Other rights expire at various times in the
future and renewal action by the applicable tribe will be required at that time. The majority of
our transmission lines residing on Indian lands are on the Navajo Nation. The Four Corners and
Navajo Plant leases provide Navajo Nation consent to certain of the rights-of-way for transmission
lines related to those plants at a specified rental rate for the original term of the rights-of-way
and for a like payment in any renewal period. In addition, a 1985 amendment to the leases provides
a formula for calculating payments for certain new and renewal rights-of-way. However, some of our
rights-of-way are not covered by the leases, or are granted by other Indian tribes. In recent
negotiations with other utilities or companies for renewal of similar rights-of-way, certain of the
affected Indian tribes have required payments substantially in excess of amounts that we have paid
in the past for such rights-of-way or that are typical for similar permits across non-Indian lands;
however, we are unaware of the underlying agreements and/or specific circumstances surrounding
these renewals. The ultimate cost of renewal of the rights-of-way for our transmission lines is
uncertain. We are monitoring these rights-of-way and easement issues and have had extensive
discussions with the Navajo Nation regarding them. We are currently unable to predict the outcome
of this matter.
ITEM 3. LEGAL PROCEEDINGS
See Business of Arizona Public Service Company Environmental Matters in Item 1 with
regard to pending or threatened litigation and other disputes.
See Note 3 for ACC and FERC-related matters.
See Note 11 for information relating to the FERC proceedings on Pacific Northwest energy
market issues, liability associated with the Motorola 52nd Street Superfund Site and for
information regarding the bankruptcy proceeding involving the landlord for our corporate
headquarters building.
41
EXECUTIVE OFFICERS OF PINNACLE WEST
Pinnacle Wests executive officers are elected no less often than annually and may be removed by
the Board of Directors at any time. The executive officers, their ages at February 18, 2011,
current positions and principal occupations for the past five years are as follows:
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|
Name |
|
Age |
|
Position |
|
Period |
|
|
|
|
|
|
|
Donald E. Brandt |
|
56 |
|
Chairman of the Board and Chief Executive Officer of Pinnacle West; Chairman of the Board of APS |
|
2009-Present |
|
|
|
|
President of Pinnacle West |
|
2008-Present |
|
|
|
|
Chief Executive Officer of APS |
|
2008-Present |
|
|
|
|
Chief Operating Officer of Pinnacle West |
|
2008-2009 |
|
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|
|
President of APS |
|
2006-2009 |
|
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|
Executive Vice President of Pinnacle West; Chief Financial Officer of APS |
|
2003-2008 |
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Chief Financial Officer of Pinnacle West |
|
2002-2008 |
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|
Executive Vice President of APS |
|
2003-2006 |
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|
Donald G. Robinson |
|
57 |
|
President and Chief Operating Officer of APS |
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2009-Present |
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|
Senior Vice President, Planning and Administration of APS |
|
2007-2009 |
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Vice President, Planning of APS |
|
2003-2007 |
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|
|
Denise R. Danner |
|
55 |
|
Vice President, Controller and Chief Accounting Officer of Pinnacle West; Chief Accounting Officer of APS |
|
2010-Present |
|
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|
|
Vice President and Controller of APS |
|
2009-Present |
|
|
|
|
Senior Vice President, Controller and Chief Accounting Officer of Allied Waste Industries, Inc. |
|
2007-2008 |
|
|
|
|
Vice President, Controller and Chief Accounting Officer of Phelps Dodge Corporation |
|
2004-2007 |
|
|
|
|
|
|
|
Randall K. Edington |
|
57 |
|
Executive Vice President and Chief Nuclear Officer of APS |
|
2007-Present |
|
|
|
|
Senior Vice President and Chief Nuclear Officer of APS |
|
2007 |
|
|
|
|
Site Vice President and Chief Nuclear Officer of Cooper Generating Station with Entergy Corporation |
|
2003-2007 |
|
|
|
|
|
|
|
David P. Falck |
|
57 |
|
Executive Vice President, General Counsel and Secretary of Pinnacle West and APS |
|
2009-Present |
|
|
|
|
Senior Vice President Law of Public Service Enterprise Group Inc. |
|
2007-2009 |
|
|
|
|
Partner Pillsbury Winthrop Shaw Pittman LLP |
|
1987-2007 |
42
|
|
|
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|
|
|
Name |
|
Age |
|
Position |
|
Period |
|
|
|
|
|
|
|
James R. Hatfield |
|
53 |
|
Senior Vice President and Chief Financial Officer of Pinnacle West and APS |
|
2008-Present |
|
|
|
|
Treasurer of Pinnacle West and APS |
|
2009-2010 |
|
|
|
|
Senior Vice President and Chief Financial Officer of OGE Energy Corp. |
|
1999-2008 |
|
|
|
|
|
|
|
John Hatfield |
|
45 |
|
Vice President, Communications of APS |
|
2010-Present |
|
|
|
|
Director, Corporate Communications of Southern California Edison |
|
2004-2010 |
|
|
|
|
|
|
|
Lee R. Nickloy |
|
44 |
|
Vice President and Treasurer of Pinnacle West and APS |
|
2010-Present |
|
|
|
|
Assistant Treasurer and Director Corporate Finance of Ameren Corporation |
|
2000-2010 |
|
|
|
|
|
|
|
Mark A. Schiavoni |
|
55 |
|
Senior Vice President, Fossil Operations of APS |
|
2009-Present |
|
|
|
|
Senior Vice President of Exelon Generation and President of Exelon Power |
|
2004-2009 |
|
|
|
|
|
|
|
Lori S. Sundberg |
|
47 |
|
Senior Vice President, Human Resources and Ethics of APS |
|
2011-Present |
|
|
|
|
Vice President, Human Resources and Ethics of APS |
|
2010-2011 |
|
|
|
|
Vice President, Human Resources of APS |
|
2007-2010 |
|
|
|
|
Vice President, Employee Relations, Safety, Compliance & Embrace of American Express Company |
|
2007 |
|
|
|
|
Vice President, HR Relationship Leader, Global Corporate Travel Division of American Express Company |
|
2003-2007 |
43
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Pinnacle Wests common stock is publicly held and is traded on the New York Stock Exchange.
At the close of business on February 15, 2011, Pinnacle Wests common stock was held of record by
approximately 26,953 shareholders.
QUARTERLY STOCK PRICES AND DIVIDENDS PAID PER SHARE
STOCK SYMBOL: PNW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
2010 |
|
High |
|
|
Low |
|
|
Close |
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter |
|
$ |
38.37 |
|
|
$ |
34.62 |
|
|
$ |
37.73 |
|
|
$ |
0.525 |
|
2nd Quarter |
|
|
39.10 |
|
|
|
32.31 |
|
|
|
36.36 |
|
|
|
0.525 |
|
3rd Quarter |
|
|
41.75 |
|
|
|
35.71 |
|
|
|
41.27 |
|
|
|
0.525 |
|
4th Quarter |
|
|
42.68 |
|
|
|
39.97 |
|
|
|
41.45 |
|
|
|
0.525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
2009 |
|
High |
|
|
Low |
|
|
Close |
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter |
|
$ |
35.13 |
|
|
$ |
22.32 |
|
|
$ |
26.56 |
|
|
$ |
0.525 |
|
2nd Quarter |
|
|
30.30 |
|
|
|
25.28 |
|
|
|
30.15 |
|
|
|
0.525 |
|
3rd Quarter |
|
|
33.71 |
|
|
|
28.87 |
|
|
|
32.82 |
|
|
|
0.525 |
|
4th Quarter |
|
|
37.96 |
|
|
|
31.08 |
|
|
|
36.58 |
|
|
|
0.525 |
|
APSs common stock is wholly-owned by Pinnacle West and is not listed for trading on any stock
exchange. As a result, there is no established public trading market for APSs common stock.
The chart below sets forth the dividends paid on APSs common stock for each of the four
quarters for 2010 and 2009.
Common Stock Dividends
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
Quarter |
|
2010 |
|
|
2009 |
|
1st Quarter |
|
$ |
42,500 |
|
|
$ |
42,500 |
|
2nd Quarter |
|
|
56,900 |
|
|
|
42,500 |
|
3rd Quarter |
|
|
56,900 |
|
|
|
42,500 |
|
4th Quarter |
|
|
26,100 |
|
|
|
42,500 |
|
The sole holder of APSs common stock, Pinnacle West, is entitled to dividends when and as
declared out of legally available funds. As of December 31, 2010, APS did not have any outstanding
preferred stock.
44
Issuer Purchases of Equity Securities
The following table contains information about our purchases of our common stock during the
fourth quarter of 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Shares Purchased |
|
|
Maximum Number of |
|
|
|
Number of |
|
|
Average |
|
|
as Part of Publicly |
|
|
Shares that May Yet Be |
|
|
|
Shares |
|
|
Price Paid |
|
|
Announced Plans |
|
|
Purchased Under the |
|
Period |
|
Purchased (1) |
|
|
per Share |
|
|
or Programs |
|
|
Plans or Programs |
|
October 1 October 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1 November 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1 December 31, 2010 |
|
|
1,994 |
|
|
$ |
41.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,994 |
|
|
$ |
41.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents shares of common stock repurchased for rescission of director stock grant. |
45
ITEM 6. SELECTED FINANCIAL DATA
PINNACLE WEST CAPITAL CORPORATION CONSOLIDATED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(dollars in thousands, except per share amounts) |
|
OPERATING RESULTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated electricity segment |
|
$ |
3,180,678 |
|
|
$ |
3,149,187 |
|
|
$ |
3,127,383 |
|
|
$ |
2,918,163 |
|
|
$ |
2,635,036 |
|
Marketing and trading |
|
|
|
|
|
|
|
|
|
|
66,897 |
|
|
|
138,247 |
|
|
|
136,748 |
|
Other revenues |
|
|
82,967 |
|
|
|
26,723 |
|
|
|
25,407 |
|
|
|
34,375 |
|
|
|
24,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
3,263,645 |
|
|
$ |
3,175,910 |
|
|
$ |
3,219,687 |
|
|
$ |
3,090,785 |
|
|
$ |
2,796,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
350,598 |
|
|
$ |
252,558 |
|
|
$ |
278,335 |
|
|
$ |
299,218 |
|
|
$ |
279,586 |
|
Discontinued operations net of income
taxes (a) |
|
|
19,611 |
|
|
|
(179,794 |
) |
|
|
(18,715 |
) |
|
|
23,773 |
|
|
|
61,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
370,209 |
|
|
|
72,764 |
|
|
|
259,620 |
|
|
|
322,991 |
|
|
|
341,521 |
|
Less: Net income attributable to
noncontrolling interests |
|
|
20,156 |
|
|
|
4,434 |
|
|
|
17,495 |
|
|
|
15,848 |
|
|
|
14,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common
shareholders |
|
$ |
350,053 |
|
|
$ |
68,330 |
|
|
$ |
242,125 |
|
|
$ |
307,143 |
|
|
$ |
327,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share year-end |
|
$ |
33.93 |
|
|
$ |
32.69 |
|
|
$ |
34.16 |
|
|
$ |
35.15 |
|
|
$ |
34.48 |
|
Earnings per weighted-average
common share outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations attributable to
common shareholders basic |
|
$ |
3.10 |
|
|
$ |
2.31 |
|
|
$ |
2.59 |
|
|
$ |
2.83 |
|
|
$ |
2.67 |
|
Net income attributable to common
shareholders basic |
|
$ |
3.28 |
|
|
$ |
0.68 |
|
|
$ |
2.40 |
|
|
$ |
3.06 |
|
|
$ |
3.29 |
|
Continuing operations attributable to
common shareholders diluted |
|
$ |
3.08 |
|
|
$ |
2.30 |
|
|
$ |
2.58 |
|
|
$ |
2.81 |
|
|
$ |
2.65 |
|
Net income attributable to common
shareholders diluted |
|
$ |
3.27 |
|
|
$ |
0.67 |
|
|
$ |
2.40 |
|
|
$ |
3.05 |
|
|
$ |
3.27 |
|
Dividends declared per share |
|
$ |
2.10 |
|
|
$ |
2.10 |
|
|
$ |
2.10 |
|
|
$ |
2.10 |
|
|
$ |
2.025 |
|
Weighted-average common shares
outstanding basic |
|
|
106,573,348 |
|
|
|
101,160,659 |
|
|
|
100,690,838 |
|
|
|
100,255,807 |
|
|
|
99,417,008 |
|
Weighted-average common shares
outstanding diluted |
|
|
107,137,785 |
|
|
|
101,263,795 |
|
|
|
100,964,920 |
|
|
|
100,834,871 |
|
|
|
100,010,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
12,362,703 |
|
|
$ |
11,986,324 |
|
|
$ |
11,805,967 |
|
|
$ |
11,355,788 |
|
|
$ |
11,019,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
1,310,736 |
|
|
$ |
1,108,943 |
|
|
$ |
1,527,683 |
|
|
$ |
1,365,192 |
|
|
$ |
943,497 |
|
Long-term debt less current maturities |
|
|
3,045,794 |
|
|
|
3,496,524 |
|
|
|
3,183,386 |
|
|
|
3,300,663 |
|
|
|
3,426,914 |
|
Deferred credits and other |
|
|
4,230,947 |
|
|
|
3,952,853 |
|
|
|
3,523,929 |
|
|
|
3,029,866 |
|
|
|
3,131,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
8,587,477 |
|
|
|
8,558,320 |
|
|
|
8,234,998 |
|
|
|
7,695,721 |
|
|
|
7,502,312 |
|
Total equity |
|
|
3,775,226 |
|
|
|
3,428,004 |
|
|
|
3,570,969 |
|
|
|
3,660,067 |
|
|
|
3,516,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
12,362,703 |
|
|
$ |
11,986,324 |
|
|
$ |
11,805,967 |
|
|
$ |
11,355,788 |
|
|
$ |
11,019,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts primarily related to SunCors real estate impairment charges (see Note 23) and APSES
discontinued operations (see Note 22). |
46
SELECTED FINANCIAL DATA
ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(dollars in thousands) |
|
OPERATING RESULTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric operating revenues |
|
$ |
3,180,807 |
|
|
$ |
3,149,500 |
|
|
$ |
3,133,496 |
|
|
$ |
2,936,277 |
|
|
$ |
2,658,513 |
|
Fuel and purchased power
costs |
|
|
1,046,815 |
|
|
|
1,178,620 |
|
|
|
1,289,883 |
|
|
|
1,151,392 |
|
|
|
969,767 |
|
Other operating expenses |
|
|
1,584,955 |
|
|
|
1,501,081 |
|
|
|
1,376,257 |
|
|
|
1,326,934 |
|
|
|
1,258,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
549,037 |
|
|
|
469,799 |
|
|
|
467,356 |
|
|
|
457,951 |
|
|
|
429,898 |
|
Other income (deductions) |
|
|
20,138 |
|
|
|
13,893 |
|
|
|
836 |
|
|
|
20,870 |
|
|
|
27,584 |
|
Interest deductions net of
AFUDC |
|
|
213,349 |
|
|
|
213,258 |
|
|
|
188,353 |
|
|
|
179,033 |
|
|
|
173,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
355,826 |
|
|
|
270,434 |
|
|
|
279,839 |
|
|
|
299,788 |
|
|
|
283,996 |
|
Less: Net income
attributable to
noncontrolling
interests |
|
|
20,163 |
|
|
|
19,209 |
|
|
|
17,495 |
|
|
|
15,848 |
|
|
|
14,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common shareholder |
|
$ |
335,663 |
|
|
$ |
251,225 |
|
|
$ |
262,344 |
|
|
$ |
283,940 |
|
|
$ |
269,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
12,241,582 |
|
|
$ |
11,681,571 |
|
|
$ |
11,149,451 |
|
|
$ |
10,514,981 |
|
|
$ |
10,150,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
$ |
3,916,037 |
|
|
$ |
3,527,679 |
|
|
$ |
3,416,751 |
|
|
$ |
3,425,328 |
|
|
$ |
3,278,230 |
|
Long-term debt less current
maturities |
|
|
2,948,991 |
|
|
|
3,180,406 |
|
|
|
2,850,242 |
|
|
|
2,876,881 |
|
|
|
2,877,502 |
|
Palo Verde
sale leaseback lessor notes less current maturities |
|
|
96,803 |
|
|
|
126,000 |
|
|
|
151,783 |
|
|
|
173,538 |
|
|
|
194,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
|
6,961,831 |
|
|
|
6,834,085 |
|
|
|
6,418,776 |
|
|
|
6,475,747 |
|
|
|
6,350,013 |
|
Current liabilities |
|
|
1,095,897 |
|
|
|
900,625 |
|
|
|
1,289,523 |
|
|
|
1,076,449 |
|
|
|
826,715 |
|
Deferred credits and other |
|
|
4,183,854 |
|
|
|
3,946,861 |
|
|
|
3,441,152 |
|
|
|
2,962,785 |
|
|
|
2,973,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
12,241,582 |
|
|
$ |
11,681,571 |
|
|
$ |
11,149,451 |
|
|
$ |
10,514,981 |
|
|
$ |
10,150,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with Pinnacle Wests Consolidated
Financial Statements and APSs Consolidated Financial Statements and the related Notes that appear
in Item 8 of this report. For information on the broad factors that may cause our actual future
results to differ from those we currently seek or anticipate, see Forward-Looking Statements at
the front of this report and Risk Factors in Item 1A.
OVERVIEW
Pinnacle West owns all of the outstanding common stock of APS. APS is a vertically-integrated
electric utility that provides either retail or wholesale electric service to most 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 substantially all of
our revenues and earnings, and is expected to continue to do so.
Areas of Business Focus
Operational Performance, Reliability and Recent Developments.
Nuclear. In 2010, Palo Verde achieved its best generation year ever, producing over 31
million megawatt-hours, with an overall station capacity factor of 90.5%. The generation from each
Palo Verde operating unit directly reflects the stations currently effective 18-month refueling
cycle. In 2010, Palo Verde successfully refueled both Unit 1 and Unit 3. As part of the 2010
refueling outages, Palo Verde installed new reactor vessel closure heads and simplified head
assembly modifications. These projects are designed to provide safety benefits, eliminate costly
inspections and reduce the duration of future outages.
Coal and Related Environmental Matters. APS-operated coal plants, Four Corners and
Cholla, achieved net capacity factors of 82% and 79%, respectively, in 2010. APS is focused on the
impacts on its coal fleet that may result from potential legislation and increased regulation
concerning greenhouse gas emissions. Recent concern over climate change and other
emission-related issues could have a significant impact on our capital expenditures and operating
costs in the form of taxes, emissions allowances or required equipment upgrades for these plants.
APS is closely monitoring its long range capital management plans, understanding that any resulting
legislation and regulation could impact the economic viability of certain plants, as well as the
willingness or ability of power plant participants to fund any such equipment upgrades. In
particular, on October 6, 2010, the EPA issued its proposed determination for Best Available
Retrofit Technology (BART) requirements for Four Corners that, as proposed, would require
installation of additional pollution control equipment on all five of the plants units. Based on
APSs current ownership share of Four Corners, APS currently estimates that its total costs for the
proposed controls could be up to approximately $400 million for nitrogen oxide controls and about
$220 million for particulate removal equipment. It is currently evaluating the impacts of the
proposed determination and intends to submit comments during the EPAs comment period. See
Business of Arizona Public Service Company Environmental Matters in Item 1 and environmental
and climate change-related risks described in Item 1A for additional environmental and climate
change developments and risks facing APS.
48
In addition, SCE, a participant in Four Corners, has indicated that certain California
legislation may prohibit it from making emission control expenditures at the plant. On November 8,
2010, APS and SCE entered into an asset purchase agreement, providing for the purchase by APS of
SCEs 48% interest in each of Units 4 and 5 of Four Corners. The purchase price is $294 million,
subject to certain adjustments. Completion of the purchase by APS, which is expected to occur in
the second half of 2012, is subject to the receipt of approvals by the ACC, the California Public
Utilities Commission and the FERC. APS and SCE filed applications with their respective
commissions seeking requisite authority or approvals to complete the transaction. Closing is also
conditioned on the execution of a new coal supply contract for the lease renewal period described
below, expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and
other typical closing conditions.
APS, on behalf of the Four Corners participants, has negotiated amendments to an existing
facility lease with the Navajo Nation which would extend the Four Corners leasehold interest to
2041. Execution by the Navajo Nation of the lease amendments is a condition to closing of the
purchase by APS of SCEs interests in Four Corners. The execution of these amendments by the Navajo
Nation requires the approval of the Navajo Nation Council, which
occurred on February 15, 2011 and is awaiting final signature by the
Nations President. The effectiveness of the amendments also
requires the approval of the DOI, as does a related Federal rights-of-way grant which the Four
Corners participants will pursue. A Federal environmental review will be conducted as part of the
DOI review process.
Pursuant to a Co-Tenancy Agreement among the Four Corners participants, the other participants
have a right of first refusal to purchase shares of SCEs interests proportional to their current
ownership percentages. The exercise of this purchase right by any of the other participants must be
exercised by March 8, 2011. If any of the purchase rights are exercised, the amount available for
purchase by APS would be reduced. At this time APS does not know whether any of the other
participants will exercise the right of first refusal.
APS has announced that, if APSs purchase of SCEs interests in Units 4 and 5 at Four Corners
is consummated, it will close Units 1, 2 and 3 at the plant. These events will change the plants
overall generating capacity from 2,100 MW to 1,540 MW and APSs entitlement from the plant from 791
MW to 970 MW. When applying for approval to purchase Units 4 and 5, APS also requested from the ACC
recovery of any unrecovered costs associated with the closure of Units 1, 2 and 3.
Transmission and Delivery. In the area of transmission and delivery to its customers, APS
ranked favorably during 2010, with top quartile performance for average customer outage time and
its best reliability year to date. During 2010, APS undertook several significant transmission
projects, including the Morgan to Pinnacle Peak transmission line scheduled for completion in 2011.
APSs 2011 transmission plan projects that it will invest approximately $450 million in new
transmission over the next ten years, which includes 258 miles of new lines. The first three years
of these additions are included in the capital expenditures table presented in the Liquidity
section below along with other transmission costs for upgrades and replacements. APS is working
closely with regulators to identify and plan for transmission needs resulting from the current
focus on renewable energy. APS is also working to establish and expand smart grid technology
throughout its service territory designed to provide long-term benefits both to APS and its
customers. APS is piloting and deploying a variety of technologies that are intended to allow
customers to better monitor their energy use and needs, minimize system outage durations and the
number of customers that experience outages, and facilitate cost savings to APS through improved
reliability and the automation of certain distribution functions, including remote meter reading
and remote connects and disconnects.
49
Renewable Energy. The ACC approved the RES in 2006, recognizing the importance of renewable
energy to our state. The renewable energy requirement is 3% of retail electric sales in 2011 and
increases annually until it reaches 15% in 2025. In the 2009 retail rate case settlement
agreement, APS agreed to exceed the RES standards, committing to 1,700 GWh of new renewable
resources to be in service by year-end 2015 in addition to its 2008 renewable resource commitments.
Taken together, APSs commitment is estimated to be 3,400 GWh or approximately 10% of APSs retail
energy sales by year-end 2015, which is double the existing RES target of 5% for that year. See
Note 3. A component of the RES is focused on stimulating development of distributed energy systems
(generally speaking, small-scale renewable technologies that are located on customers properties).
APS has a diverse portfolio of existing and planned renewable resources totaling 875 MW,
including solar, wind, geothermal, biomass and biogas. Of this portfolio, 288 MW are currently in
operation and 587 MW are under contract for development or are under construction. Renewable
resources in operation include 5 MW of utility-scale facilities owned by APS, 223 MW of long-term
purchased power agreements, and an estimated 60 MW of customer-sited, third-party owned distributed
energy resources.
To achieve our RES requirements, as mentioned above, to date APS has entered into contracts
for 587 MW of renewable resources that are planned, in development or under construction. APSs
strategy to procure these resources includes new facilities to be owned by APS, purchased power
contracts for new facilities and ongoing development of distributed energy resources. Through the
AZ Sun Program, approved by the ACC on March 3, 2010, APS plans to own 100 MW of solar photovoltaic
power plants across Arizona by investing up to $500 million through 2014. Under this program, APS
has executed contracts for the development of 83 MW of new solar generation, representing an
investment commitment of approximately $377 million. See Note 3 for additional details of the AZ
Sun Program, including the related cost recovery. APS has also entered into long-term purchased
power agreements for 382 MW from solar, wind and biogas facilities currently planned, in
development or under construction, and 122 MW from distributed energy resources. Agreements for
the development and completion of future resources are subject to various conditions, including
successful siting, permitting and interconnection of the project to the electric grid.
APS continues to actively consider opportunities to enhance its renewable energy portfolio,
both to ensure its compliance with the Renewable Energy Standard and to meet the needs of its
customer base.
Demand Side Management. Arizona regulators are placing an increased focus on energy
efficiency and other demand side management programs to encourage customers to conserve energy,
while incentivizing utilities to aid in these efforts that ultimately reduce the demand for energy.
In December 2009, the ACC initiated Energy Efficiency rulemaking, with a proposed Energy
Efficiency Standard of 22% cumulative annual energy savings by 2020. The 22% figure represents the
cumulative reduction in future energy usage through 2020 attributable to energy efficiency
initiatives. On July 27, 2010, the proposed Energy Efficiency Standard was adopted by the ACC,
approved by the Arizona Attorney General and became effective on January 1, 2011. This ambitious
standard will likely impact Arizonas future energy resource needs.
50
Rate Matters. APS needs timely recovery through rates of its capital and operating
expenditures to maintain adequate financial health. APSs retail rates are regulated by the ACC
and its wholesale electric rates (primarily for transmission) are regulated by the FERC. At the
end of 2009, the ACC approved a settlement agreement entered into by APS and twenty-one of the
twenty-three other parties to APSs general retail rate case, with modifications that did not
materially affect the overall economic
terms of the agreement. The rate case settlement authorizes and requires equity infusions
into APS of at least $700 million prior to the end of 2014. The settlement demonstrated
cooperation among APS, the ACC staff, the Residential Utility Consumer Office (RUCO) and other
intervenors to the rate case, and establishes a future rate case filing plan that allows APS the
opportunity to help shape Arizonas energy future outside of continual rate cases. See Note 3 for
a detailed discussion of the settlement agreement terms and information on APSs FERC rates.
APS has several recovery mechanisms in place that provide more timely recovery to APS of its
fuel and transmission costs, and costs associated with the promotion and implementation of its
demand-side management and renewable energy efforts and customer programs. These mechanisms are
described more fully in Note 3.
On October 18, 2010, the Chairman of the ACC issued a draft decoupling policy statement for
consideration by the commission. On December 15, 2010 the ACC unanimously approved a slightly
modified decoupling policy statement supportive of using a revenue-per-customer methodology, which
is the mechanism APS and a number of other parties support. Decoupling refers to a ratemaking
design which reduces or removes the linkage between sales and utility revenues and/or profits,
reducing utility disincentives to the adoption of programs that benefit customers by saving energy.
Mechanically, decoupling compares actual versus authorized revenues or revenue per customer over a
period and either credits or collects any differences from customers in a subsequent period. The
policy permits regulated utilities to file a decoupling proposal in their next general rate case.
APS intends to include a decoupling model consistent with the policy statement for consideration in
its upcoming general rate case, currently expected to be filed in June 2011.
Financial Strength and Flexibility. Pinnacle West and APS currently have ample borrowing
capacity under their respective credit facilities and have been able to access these facilities,
ensuring adequate liquidity for each company. In early February 2010, APS entered into a $500
million revolving credit facility, replacing its $377 million revolving credit facility that
would have otherwise terminated in December 2010. At that same time, Pinnacle West entered into a
$200 million revolving credit facility that replaced its $283 million facility that also would have
otherwise terminated in December 2010. Since March 2010, Pinnacle West and APS have accessed the
commercial paper market, which neither company had utilized since the third quarter of 2008 due to
negative market conditions.
In April 2010, Pinnacle West issued 6,900,000 shares of common stock at an offering price of
$38.00 per share, resulting in net proceeds of approximately $253 million. Pinnacle West
contributed all of the net proceeds from this offering into APS in the form of equity infusions.
APS has used these capital contributions to repay short-term indebtedness, to finance capital
expenditures and for other general corporate purposes.
In early February 2011, APS entered into a $500 million revolving credit facility, replacing
its $489 million revolving credit facility that would have otherwise terminated in September 2011.
SunCor Real Estate Operations. As a result of the continuing distressed conditions in the
real estate markets, during 2009 SunCor undertook a program to dispose of its homebuilding
operations, master-planned communities, land parcels, commercial assets and golf courses in order
to reduce its outstanding debt. At December 31, 2010, SunCor had total remaining assets of about
$16 million, which includes approximately $3 million of assets held for sale. See Liquidity and
Capital Resources Other Subsidiaries SunCor below for information regarding 2010 asset sales
and liquidity matters.
51
District Cooling Business Sale. On June 22, 2010, APSES sold its district cooling business
consisting of operations in downtown Phoenix, Tucson, and on certain Arizona State University
campuses. The sale resulted in an after-tax gain of approximately $25 million. APSES is now
focused on its core business of energy conservation and renewable energy contracting services.
Subsidiaries. The operations of APSES and our other first tier subsidiary, El Dorado, 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 Companys current needs, and to adjust our expectations,
financial budgets and forecasts appropriately.
Electric Operating Revenues. For the years 2008 through 2010, 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, electricity
rates and tariffs, the recovery of PSA deferrals and the operation of other recovery mechanisms.
Off-system sales of excess generation output, purchased power and natural gas are included in
regulated electricity segment revenues and related fuel and purchased power because they are
credited to APSs retail customers through the PSA. These revenue transactions are affected by the
availability of excess generation or other energy resources and wholesale market conditions,
including competition, demand and prices.
Customer and Sales Growth. Customer growth in APSs service territory for the year ended
December 31, 2010 was 0.6% compared with the prior year. For the three years 2008 through 2010,
APSs customer growth averaged 0.9% per year. We currently expect customer growth to average about
1.7% per year for 2011 through 2013 due to anticipated improving economic conditions both nationally and in Arizona.
Retail sales in kilowatt-hours, adjusted to exclude the effects of weather variations, for 2010
declined 1.0% compared to the prior year, reflecting the poor economic conditions in 2010 and the
effects of our energy efficiency programs. For the three years 2008 through 2010, APSs actual
retail electricity sales in kilowatt-hours, adjusted to exclude the effects of weather variations,
declined at an average annual rate of 0.9%. We currently estimate that total retail electricity
sales in kilowatt-hours will remain flat on average per year during 2011 through 2013, including
the effects of APSs energy efficiency programs, but excluding the effects of weather variations.
A continuation of the economic downturn, or the failure of the Arizona economy to rebound in the
near future, could further impact these estimates. The customer and sales growth referred to in
this paragraph apply to Native Load customers.
Actual sales growth, excluding weather-related variations, may differ from our projections as
a result of numerous factors, such as economic conditions, customer growth, usage patterns, impacts
of energy efficiency programs and responses to retail price changes. Our experience indicates that
a reasonable range of variation in our kilowatt-hour sales projection attributable to such economic
factors under normal business conditions can result in increases or decreases in annual net income
of up to $10 million.
Weather. In forecasting the retail sales growth numbers provided above, we assume normal
weather patterns based on historical data. Historical extreme weather variations have resulted in
annual variations in net income in excess of $20 million. However, our experience indicates that
the more
typical variations from normal weather can result in increases or decreases in annual net
income of up to $10 million.
52
Fuel and Purchased Power Costs. Fuel and purchased power costs included on our Consolidated
Statements of Income are impacted by our electricity sales volumes, existing contracts for
purchased power and generation fuel, our power plant performance, transmission availability or
constraints, prevailing market prices, new generating plants being placed in service in our market
areas, 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
growth, power plant operations, maintenance of utility plant (including generation, transmission,
and distribution facilities), inflation, outages, higher-trending pension and other postretirement
benefit costs, renewable energy and demand side management related expenses (which are offset by
the same amount of regulated electricity segment operating revenues) and other factors. In its
2009 retail rate case settlement, APS committed to operational expense reductions from 2010 through
2014 and received approval to defer certain pension and other postretirement benefit cost increases
to be incurred in 2011 and 2012.
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. We have
also applied to the NRC for renewed operating licenses for each of the Palo Verde units. If the
NRC grants the extension, we estimate that our annual pretax depreciation expense will decrease by
approximately $34 million at the later of the license extension date or January 1, 2012.
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 for APS, which currently owns the majority of our property,
was 8.0% of the assessed value in 2010, 7.5% of the assessed value in 2009 and 7.8% of the assessed
value in 2008. We expect property taxes to increase as we add new utility plants (including new
generation, transmission and distribution facilities described below under Capital Additions) and
as we improve our existing facilities.
Income Taxes. Income taxes are affected by the amount of pre-tax book income, income tax
rates, and certain non-taxable items, such as the 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 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.
53
RESULTS OF OPERATIONS
Pinnacle Wests reportable business segment is our regulated electricity segment, which
consists of traditional regulated retail and wholesale electricity businesses (primarily
electricity service to Native Load customers) and related activities and includes electricity
generation, transmission and distribution.
Our reportable business segments reflect a change from previously reported information. As of
December 31, 2010, our real estate activities are no longer considered a segment requiring separate
reporting or disclosure. In 2009 our real estate subsidiary, SunCor, began disposing of its
homebuilding operations, master-planned communities, land parcels, commercial assets and golf
courses in order to reduce its outstanding debt (see Note 23). At December 31, 2010, SunCor had
total remaining assets of about $16 million, which includes approximately $3 million of assets held
for sale. Additionally, all of SunCors operations are reflected in discontinued operations.
Operating Results 2010 compared with 2009
Our consolidated net income attributable to common shareholders for 2010 was $350 million,
compared with $68 million for the comparable prior-year period. The improved results were
primarily due to lower real estate impairment charges recorded in 2010 compared with the prior-year
period by SunCor.
54
In addition, regulated electricity segment net income increased approximately $82 million from
the prior-year period due to increased revenues related to APSs retail rate increases and other
factors. Our consolidated results for 2010 also include a gain of $25 million after income taxes
related to the sale of APSES district cooling business. The following table presents net income
(loss) attributable to common shareholders by business segment compared with the prior-year period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
Net Change |
|
|
|
(dollars in millions) |
|
Regulated Electricity Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues less fuel and
purchased power expenses |
|
$ |
2,134 |
|
|
$ |
1,970 |
|
|
$ |
164 |
|
Operations and maintenance |
|
|
(870 |
) |
|
|
(822 |
) |
|
|
(48 |
) |
Depreciation and amortization |
|
|
(415 |
) |
|
|
(407 |
) |
|
|
(8 |
) |
Taxes other than income taxes |
|
|
(135 |
) |
|
|
(123 |
) |
|
|
(12 |
) |
Other income (expenses), net |
|
|
(4 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
Interest charges, net of allowance for
funds used during construction |
|
|
(204 |
) |
|
|
(212 |
) |
|
|
8 |
|
Income taxes |
|
|
(161 |
) |
|
|
(142 |
) |
|
|
(19 |
) |
Noncontrolling interests (Note 20) |
|
|
(20 |
) |
|
|
(19 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Regulated electricity segment net income |
|
|
325 |
|
|
|
243 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other (a) |
|
|
5 |
|
|
|
(10 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
Attributable to Common Shareholders |
|
|
330 |
|
|
|
233 |
|
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued real estate activities, primarily
impairment charges at SunCor (Note 23) |
|
|
(6 |
) |
|
|
(167 |
) |
|
|
161 |
|
All other discontinued operations (b) |
|
|
26 |
|
|
|
2 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Discontinued Operations
Attributable to Common Shareholders |
|
|
20 |
|
|
|
(165 |
) |
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Common
Shareholders |
|
$ |
350 |
|
|
$ |
68 |
|
|
$ |
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes activities related to APSES and El Dorado. None of the activities of
either of these companies constitutes a reportable segment. |
|
(b) |
|
Income from discontinued operations for 2010 includes a gain of $25 million after income taxes
related to the sale of APSES district cooling business. |
55
Regulated electricity segment
This section includes a discussion of major variances in income and expense amounts for the
regulated electricity segment.
Operating revenues less fuel and purchased power expenses Regulated electricity segment
operating revenues less fuel and purchased power expenses were $164 million higher for the year
ended 2010 compared with the prior year. The following table describes the major components of
this change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
|
|
|
|
|
|
|
Fuel and |
|
|
|
|
|
|
|
|
|
|
purchased |
|
|
|
|
|
|
Operating |
|
|
power |
|
|
|
|
|
|
revenues |
|
|
expenses |
|
|
Net change |
|
|
|
(dollars in millions) |
|
|
Retail regulatory settlement effective
January 1, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
Retail base rate increases, net of deferrals |
|
$ |
269 |
|
|
$ |
128 |
|
|
$ |
141 |
|
Line extension revenues (Note 3) |
|
|
19 |
|
|
|
|
|
|
|
19 |
|
Transmission rate increases |
|
|
6 |
|
|
|
|
|
|
|
6 |
|
Higher demand-side management and renewable
energy surcharges (substantially offset in
operations and maintenance expense) |
|
|
33 |
|
|
|
2 |
|
|
|
31 |
|
Higher fuel and purchased power costs offset by
the effects of higher off-system sales, net of
related PSA deferrals |
|
|
28 |
|
|
|
26 |
|
|
|
2 |
|
Lower retail revenues related to recovery of PSA
deferrals, substantially offset by lower
amortization of fuel and purchased power
expense |
|
|
(270 |
) |
|
|
(276 |
) |
|
|
6 |
|
Lower retail sales primarily due to lower usage
per customer, including the effects of the
Companys energy efficiency programs, but
excluding the effects of weather |
|
|
(28 |
) |
|
|
(9 |
) |
|
|
(19 |
) |
Effects of weather on retail sales, primarily due
to milder weather in the second quarter 2010 |
|
|
(20 |
) |
|
|
(6 |
) |
|
|
(14 |
) |
Miscellaneous items, net |
|
|
(5 |
) |
|
|
3 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
32 |
|
|
$ |
(132 |
) |
|
$ |
164 |
|
|
|
|
|
|
|
|
|
|
|
Operations and maintenance Operations and maintenance expenses increased $48 million for the
year ended 2010 compared with the prior year primarily because of:
|
|
|
An increase of $25 million related to demand-side management and renewable energy
programs, which are primarily offset in operating revenues; |
|
|
|
An increase of $18 million related to employee benefits costs; and |
|
|
|
An increase of $5 million related to other miscellaneous factors. |
56
Depreciation and Amortization Depreciation and amortization expenses were $8 million higher
for the year ended 2010 compared with the prior year primarily because of increased plant in
service partially offset by lower depreciation rates.
Taxes other than income taxes Taxes other than income taxes increased $12 million for the
year ended 2010 compared with the prior year primarily because of higher property tax rates in the
current year.
Interest charges, net of allowance for funds used during construction Interest charges, net
of allowance for funds used during construction, decreased $8 million for the year ended 2010
compared with the prior year primarily because of higher rates in the current year for the
allowance for equity and borrowed funds used during construction, partially offset by higher
interest charges due to higher debt balances. Interest charges, net of allowance for funds used
during construction are comprised of the regulated electricity segment portions of the line items
interest expense and allowance for equity and borrowed funds used during construction from the
Consolidated Statements of Income.
Income taxes Income taxes were $19 million higher for the year ended 2010 compared with the
prior year primarily because of higher pretax income in the current-year period, partially offset
by $17 million of income tax benefits related to prior years that were resolved in the current
year. See Note 4.
All other
All other revenues increased $56 million partially offset by increased other expenses of $41
million resulting primarily from improved margins from APSES products and services business. In
addition, other income was higher due to investment losses at El Dorado in 2009.
Discontinued Operations
Real estate activities During the first quarter of 2009, SunCors Board of Directors
authorized a series of strategic transactions to dispose of SunCors assets. This decision
resulted in impairment charges of approximately $161 million after income taxes in 2009. As of
December 31, 2010, all of SunCors operations have been reclassified to discontinued operations
(see Note 22). The after-tax impacts of the $6 million loss from real estate activities for the
year ended 2010 includes real estate impairment charges of approximately $10 million (see Note 23)
and other costs of $6 million, partially offset by a gain from debt restructuring of approximately
$10 million (see Note 6).
All other All other earnings from discontinued operations were $24 million higher for the
year ended 2010 compared to the prior-year period primarily because of a gain of $25 million after
income taxes related to the sale of APSES district cooling business in 2010.
Operating Results 2009 Compared with 2008
Our consolidated net income attributable to common shareholders for 2009 was $68 million,
compared with $242 million for the prior year period. The decrease in net income was primarily due
to 2009 real estate impairment charges recorded by SunCor, the Companys real estate subsidiary.
57
In addition, regulated electricity segment net income decreased approximately $13 million from
the prior year primarily due to lower retail sales resulting from lower usage per customer; higher
interest charges, net of capitalized financing costs; higher depreciation and amortization
expenses; and the absence of income tax benefits related to prior years recorded in 2008. These
negative factors were partially offset by increased revenues due to an interim rate increase
effective January 1, 2009 and transmission rate increases.
The following table presents net income attributable to common shareholders by business
segment compared with the prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Net Change |
|
|
|
(dollars in millions) |
|
Regulated Electricity Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues less fuel and
purchased power expenses |
|
$ |
1,970 |
|
|
$ |
1,843 |
|
|
$ |
127 |
|
Operations and maintenance |
|
|
(822 |
) |
|
|
(756 |
) |
|
|
(66 |
) |
Depreciation and amortization |
|
|
(407 |
) |
|
|
(391 |
) |
|
|
(16 |
) |
Taxes other than income taxes |
|
|
(123 |
) |
|
|
(125 |
) |
|
|
2 |
|
Other income (expenses), net |
|
|
(2 |
) |
|
|
(21 |
) |
|
|
19 |
|
Interest charges, net of allowance for
funds used during construction |
|
|
(212 |
) |
|
|
(185 |
) |
|
|
(27 |
) |
Income taxes |
|
|
(142 |
) |
|
|
(92 |
) |
|
|
(50 |
) |
Noncontrolling interests (Note 20) |
|
|
(19 |
) |
|
|
(17 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Regulated electricity segment net income |
|
|
243 |
|
|
|
256 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other (a) |
|
|
(10 |
) |
|
|
5 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
Attributable to Common Shareholders |
|
|
233 |
|
|
|
261 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued real estate activities, primarily
impairment charges at SunCor (Note 23) |
|
|
(167 |
) |
|
|
(26 |
) |
|
|
(141 |
) |
All other discontinued operations (a) |
|
|
2 |
|
|
|
7 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
Loss from Discontinued Operations
Attributable to Common Shareholders |
|
|
(165 |
) |
|
|
(19 |
) |
|
|
(146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Common
Shareholders |
|
$ |
68 |
|
|
$ |
242 |
|
|
$ |
(174 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes activities related to marketing and trading, APSES and El Dorado.
Income for 2008 includes income from discontinued operations of $8 million related to
the resolution of certain tax issues associated with the sale of
Silverhawk Power Station (Silverhawk) in 2005.
None of these segments is a reportable segment. |
Regulated electricity segment
This section includes a discussion of major variances in income and expense amounts for the
regulated electricity segment.
58
Operating revenues less fuel and purchased power expenses Regulated electricity segment
operating revenues less fuel and purchased power expenses were $127 million higher for the year
ended 2009 compared with the prior year. The following table describes the major components of
this change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
|
|
|
|
|
|
|
Fuel and |
|
|
|
|
|
|
|
|
|
|
purchased |
|
|
|
|
|
|
Operating |
|
|
power |
|
|
|
|
|
|
revenues |
|
|
expenses |
|
|
Net change |
|
|
|
(dollars in millions) |
|
Higher renewable energy and demand-side
management surcharges (substantially
offset in operations and maintenance expense) |
|
$ |
63 |
|
|
$ |
|
|
|
$ |
63 |
|
Interim retail rate increases effective
January 1, 2009 |
|
|
61 |
|
|
|
|
|
|
|
61 |
|
Transmission rate increases |
|
|
21 |
|
|
|
|
|
|
|
21 |
|
Increased mark-to-market valuations of fuel and
purchased power contracts related to
favorable changes in market prices,
net of related PSA deferrals |
|
|
|
|
|
|
(18 |
) |
|
|
18 |
|
Effects of weather on retail sales, primarily
due to hotter weather in the third
quarter of 2009 |
|
|
12 |
|
|
|
3 |
|
|
|
9 |
|
Lower retail sales primarily due to lower
usage per customer, including the effects of
the Companys energy efficiency programs,
but excluding the effects of weather |
|
|
(58 |
) |
|
|
(26 |
) |
|
|
(32 |
) |
Higher fuel and purchased power costs including
the effects of lower off-system sales, net
of related PSA deferrals |
|
|
(30 |
) |
|
|
(19 |
) |
|
|
(11 |
) |
Lower retail revenues related to recovery of PSA
deferrals, offset by lower amortization of the
same amount recorded as fuel and purchased
power expense (see Note 3) |
|
|
(36 |
) |
|
|
(36 |
) |
|
|
|
|
Miscellaneous items, net |
|
|
(11 |
) |
|
|
(9 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
22 |
|
|
$ |
(105 |
) |
|
$ |
127 |
|
|
|
|
|
|
|
|
|
|
|
Operations and maintenance Operations and maintenance expenses increased $66 million for the
year ended 2009 compared with the prior year primarily because of:
|
|
|
An increase of $62 million related to renewable energy and demand-side management
programs, which are offset in operating revenues; |
|
|
|
An increase of $29 million in generation costs, including more planned maintenance,
partially offset by lower costs at Palo Verde due to cost efficiency measures; and |
|
|
|
A decrease of $25 million associated with cost saving measures and other factors,
including the absence of employee severance costs in 2009. |
59
Depreciation and amortization Depreciation and amortization expenses increased $16 million
for the year ended 2009 compared with the prior year primarily because of increases in utility
plant in service. The increases in utility plant in service are the result of various improvements
to APSs existing fossil and nuclear generating plants and distribution and transmission
infrastructure additions and upgrades.
Interest charges, net of allowance for funds used during construction Interest charges, net
of allowance for funds used during construction increased $27 million for the year ended 2009
compared with the prior year primarily because of higher debt balances, partially offset by the
effects of lower interest rates (see discussion related to APSs debt issuances in Pinnacle West
Consolidated Liquidity and Capital Resources below). Interest charges, net of allowance for
funds used during construction are comprised of the regulated electricity segment portions of the
line items interest expense and allowance for equity and borrowed funds used during construction
from the Consolidated Statements of Income.
Other income (expenses), net Other income (expenses), net improved $19 million for the year
ended 2009 compared with the prior year primarily because of improved investment gains. Other
income (expenses), net is comprised of the regulated electricity segment portions of the line items
other income and other expense from the Consolidated Statements of Income.
Income taxes Income taxes were $50 million higher for the year ended 2009 compared with the
prior year primarily because of $30 million of income tax benefits related to prior years recorded
in 2008 and higher pretax income. See Note 4.
All other
All other earnings from continuing operations were $15 million lower for the year ended 2009
compared with the prior year primarily because of planned reductions of marketing and trading
activities.
Discontinued operations
Real estate activities During the first quarter of 2009, we decided to sell substantially all
of SunCors assets to reduce its outstanding debt. The loss from real estate activities
attributable to common shareholders was $141 million higher for the year ended 2009 compared with
the prior year primarily because of an increase in real estate impairment charges of $213 million
before income taxes (see Note 23 for details of the impairment charges).
All other All other earnings from discontinued operations were $5 million lower for the year
ended 2009 compared with the prior year primarily because of the absence of the 2008 resolution of
certain tax issues associated with the sale of Silverhawk in 2005.
60
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows Pinnacle West Consolidated
The following table presents net cash provided by (used for) operating, investing and
financing activities for the years ended December 31, 2010, 2009 and 2008 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net cash flow provided by operating activities |
|
$ |
750 |
|
|
$ |
1,067 |
|
|
$ |
848 |
|
Net cash flow used for investing activities |
|
|
(576 |
) |
|
|
(705 |
) |
|
|
(815 |
) |
Net cash flow provided by (used for)
financing activities |
|
|
(209 |
) |
|
|
(322 |
) |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents |
|
$ |
(35 |
) |
|
$ |
40 |
|
|
$ |
49 |
|
|
|
|
|
|
|
|
|
|
|
2010 Compared with 2009
The decrease of approximately $317 million in net cash provided by operating activities is
primarily due to voluntary pension contributions in 2010 of approximately $200 million, changes in
collateral and margin cash provided as a result of changes in commodity prices and other changes in
working capital.
The decrease of approximately $129 million in net cash used for investing activities is
primarily due to approximately $100 million of proceeds from the sale of the district cooling
business in June 2010 and the increase in proceeds from the sale of commercial real estate
investments of approximately $29 million.
The decrease of approximately $113 million in net cash used for financing activities is
primarily due to lower repayments of short-term borrowings in 2010 due to lower short-term debt
balances partially offset by lower net sources of equity and long-term debt financing, including
the proceeds of approximately $253 million from the issuance of equity in April 2010 and APSs
issuance of $500 million of unsecured senior notes in 2009.
2009 Compared with 2008
The increase of approximately $219 million in net cash provided by operating activities is
primarily due to a reduction of collateral and margin cash required as a result of changes in
commodity prices and a 2009 income tax refund (see Note 4).
The decrease of approximately $110 million in net cash used for investing activities is
primarily due to lower levels of capital expenditures net of contributions (see table and
discussion below), partially offset by lower real estate sales primarily due to a commercial
property sale in 2008.
The increase of approximately $338 million in net cash used for financing activities is
primarily due to repayments of short-term borrowings, partially offset by APSs issuance of $500
million of unsecured senior notes.
61
Cash Flows Arizona Public Service Company
The following table presents APSs net cash provided by (used for) operating, investing
and financing activities for the years ended December 31, 2010, 2009 and 2008 (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net cash flow provided by operating activities |
|
$ |
695 |
|
|
$ |
995 |
|
|
$ |
820 |
|
Net cash flow used for investing activities |
|
|
(747 |
) |
|
|
(738 |
) |
|
|
(879 |
) |
Net cash flow provided by (used for)
financing activities |
|
|
31 |
|
|
|
(208 |
) |
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents |
|
$ |
(21 |
) |
|
$ |
49 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
2010 Compared with 2009
The decrease of approximately $300 million in net cash provided by operating activities is
primarily due to voluntary pension contributions in 2010 of approximately $200 million, increased
collateral and margin cash provided as a result of changes in commodity prices, and the payment of
income taxes in 2010. These were partially offset by other changes in working capital.
The increase of approximately $9 million in net cash used for investing activities is
primarily due to lower contributions in aid of construction and other cash flows.
The decrease of approximately $239 million in net cash used for financing activities is
primarily due to the repayment of short-term borrowings in 2009, partially offset by lower net
sources of equity and long-term debt financing including the proceeds of approximately $253 million
from the infusion of equity from Pinnacle West in 2010 and by APSs issuance of $500 million of
unsecured senior notes in 2009.
2009 Compared with 2008
The increase of approximately $175 million in net cash provided by operating activities is
primarily due to a reduction of collateral and margin cash required as a result of changes in
commodity prices.
The decrease of approximately $141 million in net cash used for investing activities is
primarily due to lower levels of capital expenditures net of contributions.
The increase of approximately $287 million in net cash used for financing activities is
primarily due to repayments of short-term borrowings, partially offset by APSs issuance of $500
million of unsecured senior notes (see Note 6).
62
Liquidity
Capital Expenditure Requirements
The following table summarizes the actual capital expenditures for 2008, 2009 and 2010 and
estimated capital expenditures for the next three years:
CAPITAL EXPENDITURES
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
Estimated |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
APS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Fuel |
|
$ |
47 |
|
|
$ |
64 |
|
|
$ |
63 |
|
|
$ |
65 |
|
|
$ |
68 |
|
|
$ |
69 |
|
Renewables |
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
236 |
|
|
|
179 |
|
|
|
90 |
|
Environmental |
|
|
96 |
|
|
|
33 |
|
|
|
11 |
|
|
|
11 |
|
|
|
22 |
|
|
|
122 |
|
Four Corners
Units 4 and 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294 |
|
|
|
|
|
Other Generation |
|
|
167 |
|
|
|
144 |
|
|
|
172 |
|
|
|
144 |
|
|
|
152 |
|
|
|
107 |
|
Distribution |
|
|
340 |
|
|
|
246 |
|
|
|
232 |
|
|
|
284 |
|
|
|
350 |
|
|
|
285 |
|
Transmission |
|
|
163 |
|
|
|
193 |
|
|
|
120 |
|
|
|
143 |
|
|
|
220 |
|
|
|
248 |
|
Other (a) |
|
|
43 |
|
|
|
52 |
|
|
|
62 |
|
|
|
78 |
|
|
|
49 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total APS |
|
|
856 |
|
|
|
732 |
|
|
|
666 |
|
|
|
961 |
|
|
|
1,334 |
|
|
|
962 |
|
Other |
|
|
48 |
|
|
|
13 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
904 |
|
|
$ |
745 |
|
|
$ |
670 |
|
|
$ |
961 |
|
|
$ |
1,334 |
|
|
$ |
962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily information systems and facilities projects. |
Generation capital expenditures are comprised of various improvements to APSs existing fossil
and nuclear plants. Examples of the types of projects included in this category are additions,
upgrades and capital replacements of various power plant equipment, such as turbines, boilers and
environmental equipment. Included under Renewables is the AZ Sun Program, which is a significant
component of the increase in capital expenditures from 2010 to 2011. For purposes of this table,
we have assumed the consummation of APSs purchase of SCEs interest in Four Corners Units 4 and 5
and the subsequent shut down of Units 1-3, as discussed in the Overview section above. As a
result, we included the $294 million purchase price under Generation and have not included
environmental expenditures for Units 1-3. We are also monitoring the status of certain
environmental matters, which, depending on their final outcome, could require modification to our
environmental expenditures. (See Business of Arizona Public Service Company Environmental
Matters EPA Environmental Regulation Regional Haze Rules, Mercury and Other Hazardous Air
Pollutants and Coal Combustion Waste in Item 1.)
Distribution and transmission capital expenditures are comprised of infrastructure additions
and upgrades, capital replacements, new customer construction, related information systems and
facility costs. Examples of the types of projects included in the forecast include power lines,
substations, line extensions to new residential and commercial developments and upgrades to
customer information systems.
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.
63
Pinnacle West (Parent Company)
Our primary cash needs are for dividends to our shareholders and principal and interest
payments on our short-term and long-term debt. The level of our common stock dividends and future
dividend growth will be dependent on a number of factors including, but not limited to, payout
ratio trends, free cash flow and financial market conditions.
On January 19, 2011, the Pinnacle West Board of Directors declared a quarterly dividend of
$0.525 per share of common stock, payable on March 1, 2011, to shareholders of record on February
1, 2011.
Our primary sources of cash are dividends from APS, external debt and equity financings. For
the years 2008 through 2010, total distributions from APS were $522 million and there were no
distributions from SunCor. For 2010, cash distributions from APS were $182 million.
An existing ACC order requires APS to maintain a common equity ratio of at least 40%. As
defined in the ACC order, the common equity ratio is total shareholder equity divided by the sum of
total shareholder equity and long-term debt, including current maturities of long-term debt. At
December 31, 2010, APSs common equity ratio, as defined, was 53%. Its total shareholder equity
was approximately $3.8 billion, and total capitalization was approximately $7.2 billion. APS would
be prohibited from paying dividends if the payment would reduce its total shareholder equity below
approximately $2.9 billion, assuming APSs total capitalization remains the same. Based on the
discussion above, this restriction does not materially affect Pinnacle Wests ability to meet its
ongoing capital requirements.
Pinnacle West and APS maintain committed revolving credit facilities in order to enhance
liquidity and provide credit support for the commercial paper programs. During the first quarter
of 2010, Pinnacle West and APS refinanced existing credit facilities that would have otherwise
matured in December 2010.
On February 12, 2010, Pinnacle West refinanced its $283 million revolving credit facility that
would have matured in December 2010, and decreased the size of the facility to $200 million. The
new facility matures in February 2013. Pinnacle West has the option to increase the amount of the
facility up to a maximum of $300 million upon the satisfaction of certain conditions and with the
consent of the lenders. Pinnacle West will use the facility for general corporate purposes,
commercial paper program support and for the issuance of letters of credit. Interest rates are
based on Pinnacle Wests senior unsecured debt credit ratings. As a result of the downsized credit
facility, the Company also reduced the size of its commercial paper program to $200 million from
$250 million.
At December 31, 2010, the $200 million credit facility was available to support the issuance
of up to $183 million in commercial paper or for bank borrowings, including issuances of letters of
credit up to $183 million. At December 31, 2010, Pinnacle West had no outstanding borrowings under
this credit facility, $17 million of commercial paper borrowings and no outstanding letters of
credit.
64
In April 2010, Pinnacle West issued 6,900,000 shares of common stock at an offering price of
$38.00 per share, resulting in net proceeds of approximately $253 million. Pinnacle West
contributed all of the net proceeds from this offering into APS in the form of equity infusions.
APS has used these
contributions to repay short-term indebtedness, to finance capital expenditures and for other
general corporate purposes. Pinnacle West intends to issue equity to provide most of the funds for
the equity infusions into APS required by the retail rate case settlement. Such equity issuances
may occur at any time in the period through 2014, at Pinnacle Wests discretion. See Note 3.
In June 2010, Pinnacle West received approximately $100 million related to the sale of APSES
district cooling business. The net proceeds were used to repay short-term indebtedness.
Pinnacle West expects to receive approximately $132 million of cash tax benefits related to
SunCors strategic asset sales (see Note 23), a majority of which have been realized as of December
31, 2010. Approximately $7 million of these benefits were recorded in 2010 as reductions to income
tax expense related to the current impairment charges. The additional $125 million of tax benefits
were recorded as reductions to income tax expense related to SunCor impairment charges recorded on
or before December 31, 2009.
The $68 million income tax receivables on the Consolidated Balance Sheets represent the
anticipated refunds related to an APS tax accounting method change approved by the IRS in the third
quarter of 2009 and the current year tax benefits related to the SunCor strategic asset sales that
closed in 2010.
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 includes
provisions making qualified property placed into service after September 8, 2010 and before January
1, 2012 eligible for 100% bonus depreciation for federal income tax purposes. In addition,
qualified property placed into service in 2012 is eligible for 50% bonus depreciation for federal
income tax purposes. These provisions of the recent tax legislation are expected to generate
approximately $450-500 million of cash tax benefits for APS through accelerated depreciation. It
is anticipated that these cash benefits will be fully realized by APS by the end of 2013, with a
majority of the benefit realized in 2012 and 2013. The cash generated is an acceleration of tax
benefits that APS would have otherwise received over 20 years.
Pinnacle West sponsors a qualified defined benefit and account balance pension plan and a
non-qualified supplemental excess benefit retirement plan for the employees of Pinnacle West and
our subsidiaries. IRS regulations require us to contribute a minimum amount to the qualified plan.
We contribute at least the minimum amount required under IRS regulations, but no more than the
maximum tax-deductible amount. The minimum required funding takes into consideration the value of
plan assets and our pension obligation. The assets in the plan are comprised of fixed-income,
equity, real estate, and short-term investments. Future year contribution amounts are dependent on
plan asset performance and plan actuarial assumptions. During 2010, we made voluntary
contributions of $200 million to our pension plan. The required minimum contribution to our
pension plan is zero in 2011 and approximately $85 million in 2012. The contribution to our other
postretirement benefit plans in 2010 was approximately $17 million. The contributions to our other
postretirement benefit plans for 2011 and 2012 are expected to be approximately $20 million each
year. APS and other subsidiaries fund their share of the contributions. APSs share is
approximately 98% of both plans.
65
APS
APSs capital requirements consist primarily of capital expenditures and maturities of
long-term debt. APS funds its capital requirements with cash from operations and, to the extent
necessary, external debt financing and equity infusions from Pinnacle West. See Pinnacle West
(Parent Company) above for a discussion of the common equity ratio that APS must maintain in order
to pay dividends to Pinnacle West.
On February 12, 2010, APS refinanced its $377 million credit facility that would have matured
in December 2010, and increased the size of the facility to $500 million. The new credit facility
terminates in February 2013. APS may increase the amount of the facility up to a maximum of $700
million upon the satisfaction of certain conditions and with the consent of the lenders. APS will
use the facility for general corporate purposes, commercial paper program support and for the
issuance of letters of credit. Interest rates are based on APSs senior unsecured debt credit
ratings.
On February 14, 2011, APS refinanced its $489 million credit facility that would have matured
in September 2011, and increased the size of the facility to $500 million. The new credit facility
terminates in February 2015. APS may increase the amount of the facility up to a maximum of $700
million upon the satisfaction of certain conditions and with the consent of the lenders. APS will
use the facility for general corporate purposes, commercial paper program support and for the
issuance of letters of credit. Interest rates are based on APSs senior unsecured debt credit
ratings.
At December 31, 2010, APS had two credit facilities totaling $989 million, consisting of the
$500 million and $489 million credit facilities described above. These facilities were available
either to support the issuance of up to $250 million in commercial paper, or for bank borrowings,
including issuances of letters of credit up to $989 million. At December 31, 2010, APS had no
borrowings outstanding under any of its credit facilities and no outstanding commercial paper. A
$20 million letter of credit was issued under APSs $489 million credit facility in the second
quarter of 2010.
On July 13, 2010, APS changed the interest rate mode for the approximately $33 million of
Coconino County, Arizona Pollution Control Corporation Pollution Control Revenue Bonds (Arizona
Public Service Company Navajo Project) 1994 Series A, due 2029. The rate period for the bonds
changed from a daily rate mode, supported by a letter of credit, to a three-year term rate mode
that will bear interest at a rate of 3.625% per annum for three years. The letter of credit was
terminated in connection with this change, and there is no bank or other third-party credit support
for the bonds in the term rate mode.
On August 10, 2010, APS changed the letter of credit supporting the approximately $17 million
of Coconino County, Arizona Pollution Control Corporation Pollution Control Revenue Bonds (Arizona
Public Service Company Project) Series 1998, due 2033. The bonds were in a daily rate mode
supported by a prior letter of credit and remain in a daily rate mode, supported by a new
three-year letter of credit expiring in August 2013.
66
On October 12, 2010, APS changed the interest rate mode for the approximately $147 million of
City of Farmington, New Mexico Pollution Control Revenue Refunding Bonds (Arizona Public Service
Company Four Corners Project) 1994 Series A and 1994 Series B, due 2024 and City of Farmington, New
Mexico Pollution Control Revenue Bonds (Arizona Public Service Company Four Corners Project) 1994
Series C, due 2024. The rate period for the 1994 Series A bonds and the 1994 Series B bonds
changed from a daily rate mode, supported by letters of credit, to a term rate mode to
maturity, subject to optional redemption after year ten, that will bear interest at a rate of
4.70% per annum until maturity in 2024 unless the optional redemption is exercised by APS. The
rate period for the 1994 Series C bonds changed from a daily rate mode, supported by a letter of
credit, to a three-year term rate mode that will bear interest at a rate of 2.875% per annum until
October 2013. The letters of credit supporting each of these three series of bonds were terminated
in connection with these changes, and there is no bank or other third-party credit support for any
of these bonds.
On January 1, 2010, due to the adoption of amended accounting guidance relating to VIEs, APS
began consolidating the Palo Verde Lessor Trusts (see Note 20) and, as a result of consolidation of
these VIEs, APS has reported the Lessor Trusts long-term debt on its Consolidated Balance Sheets.
Interest rates on these debt instruments are 8% and are fixed for the remaining life of the debt.
As of December 31, 2010 approximately $29 million was classified as current maturities of long-term
debt and $97 million was classified as long-term debt relating to these VIEs. These debt
instruments mature on December 30, 2015 and have sinking fund features that are serviced by the
lease payments. See Note 20 for additional discussion of the VIEs.
Other Financing Matters See Note 3 for information regarding the PSA approved by the ACC.
Although APS defers actual retail fuel and purchased power costs on a current basis, APSs recovery
of the deferrals from its ratepayers is subject to annual and, if necessary, periodic PSA
adjustments.
See Note 3 for information regarding the retail rate case settlement, which includes ACC
authorization and requirements of equity infusions into APS of at least $700 million by December
31, 2014.
See Note 18 for information related to the change in our margin accounts.
Other Subsidiaries
SunCor In 2010, SunCor sold land parcels, commercial assets and master planned home-building
communities for approximately $72 million, which approximated the carrying value of these assets,
resulting in a net gain of zero. In connection with these sales, SunCor negotiated a restructuring
of certain of its credit facilities. The debt restructuring resulted in an after-tax gain of
approximately $10 million. At December 31, 2010, SunCor had total remaining assets of about $16
million, which includes approximately $3 million of assets held for sale. At December 31, 2010,
SunCor had no debt outstanding.
El Dorado El Dorado expects minimal capital requirements over the next three years and
intends to focus on prudently realizing the value of its existing investments.
APSES APSES expects minimal capital expenditures over the next three years.
Debt Provisions
Pinnacle Wests and APSs debt covenants related to their respective bank financing
arrangements include maximum debt to capitalization ratios. Pinnacle West and APS comply with this
covenant and each anticipates it will continue to meet this and other significant covenant
requirements. For both Pinnacle West and APS, this covenant requires that the ratio of
consolidated debt to total consolidated capitalization not exceed 65%. At December 31, 2010, the
ratio was approximately 49%
for Pinnacle West and 46% for APS. Failure to comply with such covenant levels would result in an
event of default which, generally speaking, would require the immediate repayment of the debt
subject to the covenants and could cross-default other debt. See further discussion of
cross-default provisions below.
67
Neither Pinnacle Wests nor APSs financing agreements contain rating triggers that would
result in an acceleration of the required interest and principal payments in the event of a rating
downgrade. However, our bank credit agreements contain a pricing grid in which the interest rates
we pay for borrowings thereunder are determined by our current credit ratings.
All of Pinnacle Wests loan agreements contain cross-default provisions that would result in
defaults and the potential acceleration of payment under these loan agreements if Pinnacle West or
APS were to default under certain other material agreements. All of APSs bank agreements contain
cross-default provisions that would result in defaults and the potential acceleration of payment
under these bank agreements if APS were to default under certain other material agreements.
Pinnacle West and APS do not have a material adverse change restriction for credit facilities
borrowings.
See Notes 5 and 6 for further discussions of liquidity matters.
Credit Ratings
The ratings of securities of Pinnacle West and APS as of February 17, 2011 are shown below.
The ratings reflect the respective views of the rating agencies, from which an explanation of the
significance of their ratings may be obtained. There is no assurance that these ratings will
continue for any given period of time. The ratings may be revised or withdrawn entirely by the
rating agencies if, in their respective judgments, circumstances so warrant. Any downward revision
or withdrawal may adversely affect the market price of Pinnacle Wests or APSs securities and/or
result in an increase in the cost of, or limit access to, capital. Such revisions may also result
in substantial additional cash or other collateral requirements related to certain derivative
instruments, insurance policies, natural gas transportation, fuel supply, and other energy-related
contracts. At this time, we believe we have sufficient liquidity to cover a downward revision to
our credit ratings.
|
|
|
|
|
|
|
|
|
Moodys |
|
Standard & Poors |
|
Fitch |
Pinnacle West |
|
|
|
|
|
|
Senior unsecured (a) |
|
Baa3 (P) |
|
BB+ (prelim) |
|
N/A |
Commercial paper |
|
P-3 |
|
A-3 |
|
F3 |
Outlook |
|
Stable |
|
Positive |
|
Stable |
|
|
|
|
|
|
|
APS |
|
|
|
|
|
|
Senior unsecured |
|
Baa2 |
|
BBB- |
|
BBB |
Secured lease
obligation bonds |
|
Baa2 |
|
BBB- |
|
BBB |
Commercial paper |
|
P-2 |
|
A-3 |
|
F3 |
Outlook |
|
Stable |
|
Positive |
|
Stable |
|
|
|
(a) |
|
Pinnacle West has a shelf registration under SEC Rule 415. Pinnacle West
currently has no outstanding, rated senior unsecured securities. However, Moodys
assigned a provisional (P) rating and Standard & Poors assigned a preliminary (prelim)
rating to the senior unsecured securities that can be issued under such shelf
registration. |
68
Off-Balance Sheet Arrangements
On January 1, 2010 we adopted amended accounting guidance relating to VIEs and, as a result,
we have consolidated certain entities which were previously not consolidated. The consolidation of
these entities has impacted our consolidated financial statements. See Notes 1, 2 and 20 for a
discussion of these impacts.
Guarantees and Surety Bonds
We have issued parental guarantees and obtained surety bonds on behalf of our subsidiaries
including credit support instruments enabling APSES to offer energy-related products and surety
bonds at APS, principally related to self-insured workers compensation. Non-performance or
non-payment under the underlying contract by our subsidiaries would result in a payment liability
on our part under the guarantee or surety bond. No liability is currently recorded on the
Consolidated Balance Sheets related to such instruments. At December 31, 2010, we had no
outstanding claims for payment under any of these instruments. Our guarantees and surety bonds
have no recourse or collateral provisions to allow us to recover amounts paid under these
instruments or surety bonds from our subsidiaries. We generally agree to indemnification
provisions related to liabilities arising from or related to certain of our agreements, with
limited exceptions depending on the particular agreement. See Note 21 for additional information
regarding guarantees and letters of credit.
69
Contractual Obligations
The following table summarizes Pinnacle Wests consolidated contractual requirements as of
December 31, 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012- |
|
|
2014- |
|
|
|
|
|
|
|
|
|
2011 |
|
|
2013 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
Long-term debt payments,
including interest: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APS |
|
$ |
673 |
|
|
$ |
949 |
|
|
$ |
1,071 |
|
|
$ |
2,587 |
|
|
$ |
5,280 |
|
Pinnacle West |
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt payments,
including interest and capital
lease obligations |
|
|
850 |
|
|
|
949 |
|
|
|
1,071 |
|
|
|
2,587 |
|
|
|
5,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt payments,
including interest (b) |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
Fuel and purchased power
commitments (c) |
|
|
381 |
|
|
|
824 |
|
|
|
1,070 |
|
|
|
7,084 |
|
|
|
9,359 |
|
Operating lease payments |
|
|
24 |
|
|
|
38 |
|
|
|
27 |
|
|
|
9 |
|
|
|
98 |
|
Nuclear decommissioning funding
requirements |
|
|
24 |
|
|
|
49 |
|
|
|
49 |
|
|
|
137 |
|
|
|
259 |
|
Renewable energy credits (d) |
|
|
57 |
|
|
|
40 |
|
|
|
40 |
|
|
|
196 |
|
|
|
333 |
|
Purchase obligations (e) |
|
|
214 |
|
|
|
125 |
|
|
|
|
|
|
|
117 |
|
|
|
456 |
|
Noncontrolling interests |
|
|
10 |
|
|
|
28 |
|
|
|
55 |
|
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual commitments |
|
$ |
1,577 |
|
|
$ |
2,053 |
|
|
$ |
2,312 |
|
|
$ |
10,130 |
|
|
$ |
16,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The long-term debt matures at various dates through 2038 and bears interest principally at
fixed rates. Interest on variable-rate long-term debt is determined by using average rates at
December 31, 2010 (see Note 6). |
|
(b) |
|
The short-term debt represents commercial paper borrowings at Pinnacle West (see Note 5). |
|
(c) |
|
Our fuel and purchased power commitments include purchases of coal, electricity, natural gas,
renewable energy and nuclear fuel (see Notes 3 and 11). |
|
(d) |
|
Contracts to purchase renewable energy credits in compliance with the Renewable Energy
Standard. |
|
(e) |
|
These contractual obligations include commitments for capital expenditures and other
obligations. These amounts do not include the purchase of SCEs interest in Four Corners
Units 4 and 5 due to additional approvals required. See discussion in Overview. |
This table excludes $133 million in unrecognized tax benefits because the timing of the future
cash outflows is uncertain. This table also excludes $85 million in estimated minimum pension
contributions in 2012 (see Note 8).
CRITICAL ACCOUNTING POLICIES
In preparing the financial statements in accordance with GAAP, management must often make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures at the date of the financial statements and during the reporting
period. Some of those judgments can be subjective and complex, and actual results could differ
from those estimates.
We consider the following accounting policies to be our most critical because of the
uncertainties, judgments and complexities of the underlying accounting standards and operations
involved.
70
Regulatory Accounting
Regulatory accounting allows for the actions of regulators, such as the ACC and the 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 the
state 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 $1.0 billion of
regulatory assets and $753 million of regulatory liabilities on the Consolidated Balance Sheets at
December 31, 2010.
Included in the balance of regulatory assets at December 31, 2010 is a regulatory asset of
$669 million for pension and other postretirement 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, and the assumed healthcare cost trend rates. We review these
assumptions on an annual basis and adjust them as necessary.
71
The following chart reflects the sensitivities that a change in certain actuarial assumptions
would have had on the December 31, 2010 reported pension liability on the Consolidated Balance Sheets and our 2010 reported pension expense,
after consideration of amounts capitalized or billed
to electric plant participants, on Pinnacle Wests Consolidated Statements of Income (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
|
|
|
Impact on |
|
|
Impact on |
|
|
|
Pension |
|
|
Pension |
|
Actuarial Assumption (a) |
|
Liability |
|
|
Expense |
|
Discount rate: |
|
|
|
|
|
|
|
|
Increase 1% |
|
$ |
(261 |
) |
|
$ |
(8 |
) |
Decrease 1% |
|
|
294 |
|
|
|
10 |
|
Expected long-term rate
of return on plan assets: |
|
|
|
|
|
|
|
|
Increase 1% |
|
|
|
|
|
|
(7 |
) |
Decrease 1% |
|
|
|
|
|
|
7 |
|
|
|
|
(a) |
|
Each fluctuation assumes that the other assumptions of the calculation are held constant while
the rates are changed by one percentage point. |
The following chart reflects the sensitivities that a change in certain actuarial assumptions
would have had on the December 31, 2010 reported other postretirement benefit obligation on the
Consolidated Balance Sheets and our 2010 reported other postretirement benefit expense, after
consideration of amounts capitalized or billed to electric plant participants, on Pinnacle Wests
Consolidated Statements of Income (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
|
|
|
Impact on Other |
|
|
Impact on Other |
|
|
|
Postretirement Benefit |
|
|
Postretirement |
|
Actuarial Assumption (a) |
|
Obligation |
|
|
Benefit Expense |
|
Discount rate: |
|
|
|
|
|
|
|
|
Increase 1% |
|
$ |
(118 |
) |
|
$ |
(5 |
) |
Decrease 1% |
|
|
138 |
|
|
|
6 |
|
Health care cost trend
rate (b): |
|
|
|
|
|
|
|
|
Increase 1% |
|
|
134 |
|
|
|
9 |
|
Decrease 1% |
|
|
(107 |
) |
|
|
(7 |
) |
Expected long-term rate
of return on plan
assets pretax: |
|
|
|
|
|
|
|
|
Increase 1% |
|
|
|
|
|
|
(2 |
) |
Decrease 1% |
|
|
|
|
|
|
2 |
|
|
|
|
(a) |
|
Each fluctuation assumes that the other assumptions of the calculation are held constant
while the rates are changed by one percentage point. |
|
(b) |
|
This assumes a 1% change in the initial and ultimate health care cost trend rate. |
See Note 8 for further details about our pension and other postretirement benefit plans.
72
Derivative Accounting
Derivative accounting requires evaluation of rules that are complex and subject to varying
interpretations. Our evaluation of these rules, as they apply to our contracts, determines whether
we use accrual accounting (for contracts designated as normal) or fair value (mark-to-market)
accounting. Mark-to-market accounting requires that changes in the fair value are recognized
periodically in income unless certain hedge criteria are met. For cash flow hedges, the effective
portion of changes in the fair value of the derivative is recognized in common stock equity (as a
component of other comprehensive income (loss)) and the ineffective portion is recognized in
current earnings.
See Market Risks Commodity Price Risk below for quantitative analysis. See Fair Value
Measurements below for additional information on valuation. See Note 1 for discussion on
accounting policies and Note 18 for a further discussion on derivative accounting.
Fair Value Measurements
We apply recurring fair value measurements to derivative instruments, nuclear decommissioning
trusts, certain cash equivalents and plan assets held in our retirement and other benefit plans.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. We use inputs, or
assumptions that market participants would use, to determine fair market value. The significance of
a particular input determines how the instrument is classified in the fair value hierarchy. We
utilize valuation techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs. The determination of fair value sometimes requires subjective and complex
judgment. Our assessment of the inputs and the significance of a particular input to fair value
measurement may affect the valuation of the instruments and their placement within the fair value
hierarchy. Actual results could differ from our estimates of fair value. See Note 14 for further
fair value measurement discussion, Note 1 for discussion on accounting policies and Note 18 for a
further discussion on derivative accounting.
Our nuclear decommissioning trusts invest in fixed income securities and equity securities.
The fair values of these securities are based on observable inputs for identical or similar assets.
See Note 14 for further discussion of our nuclear decommissioning trusts.
Real Estate Investment Impairments
While we do not have any real estate investments or home inventory at December 31, 2010, we
did have real estate investments of $120 million and $3 million of home inventory on our
Consolidated Balance Sheets at December 31, 2009. For purposes of evaluating impairment, in
accordance with guidance on the impairment and disposal of long-lived assets, we classified our
real estate assets, such as land under development, land held for future development, and
commercial property, as held and used. When events or changes in circumstances indicated that
the carrying value of real estate assets considered held and used were not recoverable, we compared
the undiscounted cash flows that we estimated would be generated by each asset to its carrying
amount. If the carrying amount exceeded the undiscounted cash flows, we adjusted the asset to fair
value and recognized an impairment charge. The adjusted value became the new book value (carrying
amount) for held and used assets. We may have had real estate assets classified as held and used
with fair values that were lower than their carrying amounts, but were not deemed to be impaired
because the undiscounted cash flows exceeded the carrying amounts.
73
Real estate home inventory was considered to be held for sale for the purposes of evaluating
impairment. Home inventories were reported at the lower of carrying amount or fair value less cost
to sell. Fair value less cost to sell was evaluated each period to determine if it had changed.
Losses (and gains not to exceed any cumulative loss previously recognized) were reported as
adjustments to the carrying amount.
We determined fair value for our real estate assets primarily based on the future cash flows
that we estimated would be generated by each asset discounted for market risk. Our impairment
assessments and fair value determinations required significant judgment regarding key assumptions
such as future sales prices, future construction and land development costs, future sales timing,
and discount rates. The assumptions were specific to each project and may have varied among
projects. The discount rates we used to determine fair values at December 31, 2009 ranged from 11%
to 29%. Due to the judgment and assumptions applied in the estimation process, with regard to
impairments, it is possible that actual results could have differed from those estimates.
OTHER ACCOUNTING MATTERS
On January 1, 2010 we adopted amended accounting guidance relating to VIEs and, as a
result, we have consolidated certain entities which were previously not consolidated. The
consolidation of these entities has impacted our consolidated financial statements. See Notes 1, 2
and 20 for a discussion of these impacts.
The FASB is currently working on several significant projects with the desire to converge GAAP
with IFRS. These projects include accounting for leases, revenue recognition, and financial
instruments, among other items. Concurrently, the SEC is considering mandating IFRS for U.S.
companies. See Note 2 for a discussion of these potential changes.
MARKET AND CREDIT RISKS
Market Risks
Our operations include managing market risks related to changes in interest rates, commodity
prices and investments held by our nuclear decommissioning trust fund.
Interest Rate and Equity Risk
We have exposure to changing interest rates. Changing interest rates will affect interest
paid on variable-rate debt and the market value of fixed income securities held by our nuclear
decommissioning trust fund (see Note 14). The nuclear decommissioning trust fund also has risks
associated with the changing market value of its investments. Nuclear decommissioning costs are
recovered in regulated electricity prices.
74
The tables below present contractual balances of our consolidated long-term and short-term
debt at the expected maturity dates as well as the fair value of those instruments on December 31,
2010 and 2009. The interest rates presented in the tables below represent the weighted-average
interest rates as of December 31, 2010 and 2009 (dollars in thousands):
Pinnacle West Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-Rate |
|
|
Fixed-Rate |
|
|
|
Short-Term Debt |
|
|
Long-Term Debt |
|
|
Long-Term Debt |
|
|
|
Interest |
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Interest |
|
|
|
|
2010 |
|
Rates |
|
|
Amount |
|
|
Rates |
|
|
Amount |
|
|
Rates |
|
|
Amount |
|
|
2011 |
|
|
0.84 |
% |
|
$ |
16,600 |
|
|
|
0.32 |
% |
|
$ |
26,710 |
|
|
|
6.32 |
% |
|
$ |
605,169 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.41 |
% |
|
|
477,435 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
0.32 |
% |
|
|
16,870 |
|
|
|
4.94 |
% |
|
|
122,828 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.91 |
% |
|
|
502,274 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.79 |
% |
|
|
313,420 |
|
Years thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.69 |
% |
|
|
1,619,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
16,600 |
|
|
|
|
|
|
$ |
43,580 |
|
|
|
|
|
|
$ |
3,640,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
$ |
16,600 |
|
|
|
|
|
|
$ |
43,580 |
|
|
|
|
|
|
$ |
3,869,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinnacle West Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-Rate |
|
|
Fixed-Rate |
|
|
|
Short-Term Debt |
|
|
Long-Term Debt |
|
|
Long-Term Debt |
|
|
|
Interest |
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Interest |
|
|
|
|
2009 |
|
Rates |
|
|
Amount |
|
|
Rates |
|
|
Amount |
|
|
Rates |
|
|
Amount |
|
|
2010 |
|
|
1.09 |
% |
|
$ |
153,715 |
|
|
|
1.66 |
% |
|
$ |
276,636 |
|
|
|
7.90 |
% |
|
$ |
26,840 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
2.00 |
% |
|
|
39,967 |
|
|
|
6.32 |
% |
|
|
605,425 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
5.25 |
% |
|
|
38 |
|
|
|
6.41 |
% |
|
|
477,674 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
5.25 |
% |
|
|
1,774 |
|
|
|
6.77 |
% |
|
|
58,912 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.91 |
% |
|
|
502,499 |
|
Years thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.46 |
% |
|
|
1,817,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
153,715 |
|
|
|
|
|
|
$ |
318,415 |
|
|
|
|
|
|
$ |
3,488,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
$ |
153,715 |
|
|
|
|
|
|
$ |
318,415 |
|
|
|
|
|
|
$ |
3,631,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
The tables below present contractual balances of APSs long-term debt at the expected maturity
dates as well as the fair value of those instruments on December 31, 2010 and 2009. The interest
rates presented in the tables below represent the weighted-average interest rates as of December
31, 2010 and 2009 (dollars in thousands):
APS Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-Rate |
|
|
Fixed-Rate |
|
|
|
Long-Term Debt |
|
|
Long-Term Debt |
|
|
|
Interest |
|
|
|
|
|
|
Interest |
|
|
|
|
2010 |
|
Rates |
|
|
Amount |
|
|
Rates |
|
|
Amount |
|
|
2011 |
|
|
0.32 |
% |
|
$ |
26,710 |
|
|
|
6.48 |
% |
|
$ |
430,169 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
6.41 |
% |
|
|
477,435 |
|
2013 |
|
|
0.32 |
% |
|
|
16,870 |
|
|
|
4.94 |
% |
|
|
122,828 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
5.91 |
% |
|
|
502,274 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
4.79 |
% |
|
|
313,420 |
|
Years thereafter |
|
|
|
|
|
|
|
|
|
|
6.69 |
% |
|
|
1,619,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
43,580 |
|
|
|
|
|
|
$ |
3,465,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
$ |
43,580 |
|
|
|
|
|
|
$ |
3,693,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APS Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-Rate |
|
|
Fixed-Rate |
|
|
|
Long-Term Debt |
|
|
Long-Term Debt |
|
|
|
Interest |
|
|
|
|
|
|
Interest |
|
|
|
|
2009 |
|
Rates |
|
|
Amount |
|
|
Rates |
|
|
Amount |
|
|
2010 |
|
|
0.25 |
% |
|
$ |
196,170 |
|
|
|
7.91 |
% |
|
$ |
26,789 |
|
2011 |
|
|
0.26 |
% |
|
|
26,710 |
|
|
|
6.48 |
% |
|
|
430,398 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
6.41 |
% |
|
|
477,654 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
6.77 |
% |
|
|
58,910 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
5.91 |
% |
|
|
502,499 |
|
Years thereafter |
|
|
|
|
|
|
|
|
|
|
6.46 |
% |
|
|
1,817,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
222,880 |
|
|
|
|
|
|
$ |
3,313,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
|
|
|
$ |
222,880 |
|
|
|
|
|
|
$ |
3,451,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Price Risk
We are exposed to the impact of market fluctuations in the commodity price and transportation
costs of electricity and natural gas. Our risk management committee, consisting of officers and
key management personnel, oversees company-wide energy risk management activities to ensure
compliance with our stated energy risk management policies. We manage risks associated with these
market fluctuations by utilizing various commodity instruments that qualify as derivatives,
including exchange-traded futures and options and over-the-counter forwards, options and swaps. As
part of our risk management program, we use such instruments to hedge purchases and sales of
electricity and fuels. The changes in market value of such contracts have a high correlation to
price changes in the hedged commodities.
76
The following table shows the net pretax changes in mark-to-market of our derivative positions
in 2010 and 2009 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Mark-to-market of net positions at beginning of year |
|
$ |
(169 |
) |
|
$ |
(282 |
) |
Recognized in earnings: |
|
|
|
|
|
|
|
|
Change in mark-to-market losses for future
period deliveries |
|
|
(7 |
) |
|
|
(4 |
) |
Mark-to-market losses realized including
ineffectiveness during the period |
|
|
5 |
|
|
|
11 |
|
Decrease (increase) in regulatory asset |
|
|
(36 |
) |
|
|
76 |
|
Recognized in OCI: |
|
|
|
|
|
|
|
|
Change in mark-to-market losses for future
period deliveries (a) |
|
|
(155 |
) |
|
|
(155 |
) |
Mark-to-market losses realized during the
period |
|
|
123 |
|
|
|
185 |
|
Change in valuation techniques |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market of net positions at end of year |
|
$ |
(239 |
) |
|
$ |
(169 |
) |
|
|
|
|
|
|
|
|
|
|
(a) |
|
The changes in mark-to-market recorded in OCI are due primarily to changes in
forward natural gas prices. |
The table below shows the fair value of maturities of our derivative contracts (dollars in
millions) at December 31, 2010 by maturities and by the type of valuation that is performed to
calculate the fair values. See Note 1, Derivative Accounting and Fair Value Measurements, for
more discussion of our valuation methods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years |
|
|
fair |
|
Source of Fair Value |
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
thereafter |
|
|
value |
|
Prices actively quoted |
|
$ |
(1 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1 |
) |
Prices provided by
other external sources |
|
|
(139 |
) |
|
|
(47 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200 |
) |
Prices based on models
and other valuation
methods |
|
|
(7 |
) |
|
|
(4 |
) |
|
|
(7 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
|
|
(8 |
) |
|
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total by maturity |
|
$ |
(147 |
) |
|
$ |
(51 |
) |
|
$ |
(21 |
) |
|
$ |
(6 |
) |
|
$ |
(6 |
) |
|
$ |
(8 |
) |
|
$ |
(239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
The table below shows the impact that hypothetical price movements of 10% would have on the
market value of our risk management assets and liabilities included on Pinnacle Wests Consolidated
Balance Sheets at December 31, 2010 and 2009 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Gain (Loss) |
|
|
Gain (Loss) |
|
|
|
Price Up 10% |
|
|
Price Down 10% |
|
|
Price Up 10% |
|
|
Price Down 10% |
|
Mark-to-market changes
reported in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity |
|
$ |
|
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
(1 |
) |
Natural gas |
|
|
1 |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
(1 |
) |
Regulatory asset
(liability) or OCI (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity |
|
|
13 |
|
|
|
(13 |
) |
|
|
21 |
|
|
|
(21 |
) |
Natural gas |
|
|
42 |
|
|
|
(42 |
) |
|
|
59 |
|
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
56 |
|
|
$ |
(56 |
) |
|
$ |
82 |
|
|
$ |
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
These contracts are hedges of our forecasted purchases of natural gas and
electricity. The impact of these hypothetical price movements would substantially
offset the impact that these same price movements would have on the physical exposures
being hedged. To the extent the amounts are eligible for inclusion in the PSA, the
amounts are recorded as either a regulatory asset or liability. |
Credit Risk
We are exposed to losses in the event of non-performance or non-payment by counterparties.
See Note 18 for a discussion of our credit valuation adjustment policy.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
See Market and Credit Risks in Item 7 above for a discussion of quantitative and qualitative
disclosures about market risk.
78
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
83 |
|
|
|
|
|
|
|
|
|
84 |
|
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
154 |
|
|
|
|
|
|
|
|
|
156 |
|
|
|
|
|
|
|
|
|
157 |
|
|
|
|
|
|
|
|
|
159 |
|
|
|
|
|
|
|
|
|
160 |
|
|
|
|
|
|
|
|
|
162 |
|
|
|
|
|
|
Financial Statement Schedules for 2010, 2009 and 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
168 |
|
|
|
|
|
|
|
|
|
169 |
|
|
|
|
|
|
|
|
|
170 |
|
|
|
|
|
|
|
|
|
171 |
|
|
|
|
|
|
|
|
|
172 |
|
See Note 13 and S-2 for the selected quarterly financial data (unaudited) required to be presented
in this Item.
79
MANAGEMENTS REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
(PINNACLE WEST CAPITAL CORPORATION)
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f), for Pinnacle West
Capital Corporation. Management conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control Integrated Framework, our management
concluded that our internal control over financial reporting was effective as of December 31, 2010.
The effectiveness of our internal control over financial reporting as of December 31, 2010 has
been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated
in their report which is included herein and also relates to the Companys consolidated financial
statements.
February 18, 2011
80
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Pinnacle West Capital Corporation
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Pinnacle West Capital Corporation
and subsidiaries (the Company) as of December 31, 2010 and 2009 and the related consolidated
statements of income, changes in equity, and cash flows for each of the three years in the period
ended December 31, 2010. Our audits also included the financial statement schedules listed in the
Index at Item 15. We also have audited the Companys internal control over financial reporting as
of December 31, 2010, based on criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys
management is responsible for these financial statements and financial statement schedules, for
maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial Reporting. Our responsibility is to express
an opinion on these financial statements and financial statement schedules and an opinion on the
Companys internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles and
that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.
81
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2010 and 2009, and the
results of their operations and their cash flows for each of the three years in the period ended
December 31, 2010, in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein. Also, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2010,
based on the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
As disclosed in Note 2 to the consolidated financial statements, the Company adopted amended
accounting guidance related to the consolidation of variable interest entities on January 1, 2010.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 18, 2011
82
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(dollars and shares in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
OPERATING REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
Regulated electricity segment |
|
$ |
3,180,678 |
|
|
$ |
3,149,187 |
|
|
$ |
3,127,383 |
|
Marketing and trading |
|
|
|
|
|
|
|
|
|
|
66,897 |
|
Other revenues |
|
|
82,967 |
|
|
|
26,723 |
|
|
|
25,407 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,263,645 |
|
|
|
3,175,910 |
|
|
|
3,219,687 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Regulated electricity segment fuel and purchased power |
|
|
1,046,815 |
|
|
|
1,178,620 |
|
|
|
1,284,116 |
|
Marketing and trading fuel and purchased power |
|
|
|
|
|
|
|
|
|
|
45,572 |
|
Operations and maintenance |
|
|
877,406 |
|
|
|
831,863 |
|
|
|
765,277 |
|
Depreciation and amortization |
|
|
414,555 |
|
|
|
407,463 |
|
|
|
391,190 |
|
Taxes other than income taxes |
|
|
135,334 |
|
|
|
123,277 |
|
|
|
124,853 |
|
Other expenses |
|
|
65,651 |
|
|
|
24,534 |
|
|
|
26,032 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,539,761 |
|
|
|
2,565,757 |
|
|
|
2,637,040 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
723,884 |
|
|
|
610,153 |
|
|
|
582,647 |
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (DEDUCTIONS) |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for equity funds used during construction
(Note 1) |
|
|
22,066 |
|
|
|
14,999 |
|
|
|
18,636 |
|
Other income (Note 19) |
|
|
6,368 |
|
|
|
5,278 |
|
|
|
9,541 |
|
Other expense (Note 19) |
|
|
(9,764 |
) |
|
|
(14,269 |
) |
|
|
(31,576 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18,670 |
|
|
|
6,008 |
|
|
|
(3,399 |
) |
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Interest charges |
|
|
244,174 |
|
|
|
237,527 |
|
|
|
219,916 |
|
Allowance for borrowed funds used during construction
(Note 1) |
|
|
(16,539 |
) |
|
|
(10,430 |
) |
|
|
(14,547 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
227,635 |
|
|
|
227,097 |
|
|
|
205,369 |
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
|
|
514,919 |
|
|
|
389,064 |
|
|
|
373,879 |
|
INCOME TAXES (Note 4) |
|
|
164,321 |
|
|
|
136,506 |
|
|
|
95,544 |
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS |
|
|
350,598 |
|
|
|
252,558 |
|
|
|
278,335 |
|
INCOME (LOSS) FROM DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
Net of income tax expense (benefit) of $12,808,
$(107,596) and $(11,648) (Note 22) |
|
|
19,611 |
|
|
|
(179,794 |
) |
|
|
(18,715 |
) |
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
|
370,209 |
|
|
|
72,764 |
|
|
|
259,620 |
|
Less: Net income attributable to noncontrolling interests (Note 20) |
|
|
20,156 |
|
|
|
4,434 |
|
|
|
17,495 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS |
|
$ |
350,053 |
|
|
$ |
68,330 |
|
|
$ |
242,125 |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC |
|
|
106,573 |
|
|
|
101,161 |
|
|
|
100,691 |
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING DILUTED |
|
|
107,138 |
|
|
|
101,264 |
|
|
|
100,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER WEIGHTED AVERAGE
COMMON SHARE OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to
common shareholders basic |
|
$ |
3.10 |
|
|
$ |
2.31 |
|
|
$ |
2.59 |
|
Net income attributable to common
shareholders
basic |
|
|
3.28 |
|
|
|
0.68 |
|
|
|
2.40 |
|
Income from continuing operations attributable to
common shareholders diluted |
|
|
3.08 |
|
|
|
2.30 |
|
|
|
2.58 |
|
Net income attributable to common shareholders
diluted |
|
|
3.27 |
|
|
|
0.67 |
|
|
|
2.40 |
|
DIVIDENDS DECLARED PER SHARE |
|
$ |
2.10 |
|
|
$ |
2.10 |
|
|
$ |
2.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS ATTRIBUTABLE TO COMMON SHAREHOLDERS: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
330,435 |
|
|
$ |
233,349 |
|
|
$ |
260,840 |
|
Discontinued operations, net of tax |
|
|
19,618 |
|
|
|
(165,019 |
) |
|
|
(18,715 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
$ |
350,053 |
|
|
$ |
68,330 |
|
|
$ |
242,125 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements.
83
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
110,188 |
|
|
$ |
145,378 |
|
Customer and other receivables |
|
|
324,207 |
|
|
|
301,915 |
|
Accrued unbilled revenues |
|
|
103,292 |
|
|
|
110,971 |
|
Allowance for doubtful accounts |
|
|
(7,981 |
) |
|
|
(6,153 |
) |
Materials and supplies (at average cost) |
|
|
181,414 |
|
|
|
176,020 |
|
Fossil fuel (at average cost) |
|
|
21,575 |
|
|
|
39,245 |
|
Deferred income taxes (Note 4) |
|
|
94,602 |
|
|
|
53,990 |
|
Income tax receivable (Note 4) |
|
|
2,483 |
|
|
|
26,005 |
|
Assets from risk management activities (Note 18) |
|
|
73,788 |
|
|
|
50,619 |
|
Other current assets |
|
|
28,362 |
|
|
|
30,747 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
931,930 |
|
|
|
928,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENTS AND OTHER ASSETS |
|
|
|
|
|
|
|
|
Real estate investments net (Notes 1, 6 and 23) |
|
|
|
|
|
|
119,989 |
|
Assets from risk management activities (Note 18) |
|
|
39,032 |
|
|
|
28,855 |
|
Nuclear decommissioning trust (Note 14) |
|
|
469,886 |
|
|
|
414,576 |
|
Other assets |
|
|
116,216 |
|
|
|
110,091 |
|
|
|
|
|
|
|
|
Total investments and other assets |
|
|
625,134 |
|
|
|
673,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT (Notes 1, 6,
9 and 10) |
|
|
|
|
|
|
|
|
Plant in service and held for future use |
|
|
13,201,960 |
|
|
|
12,848,138 |
|
Accumulated depreciation and amortization |
|
|
(4,514,204 |
) |
|
|
(4,340,645 |
) |
|
|
|
|
|
|
|
Net |
|
|
8,687,756 |
|
|
|
8,507,493 |
|
Construction work in progress |
|
|
459,361 |
|
|
|
467,700 |
|
Palo Verde sale leaseback, net of
accumulated depreciation of $213,094 and $204,328 (Note 20) |
|
|
137,956 |
|
|
|
146,722 |
|
Intangible assets, net of accumulated amortization
of $330,584 and $294,724 |
|
|
184,952 |
|
|
|
164,380 |
|
Nuclear fuel, net of accumulated amortization of
$85,270 and $64,544 |
|
|
108,794 |
|
|
|
118,243 |
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
9,578,819 |
|
|
|
9,404,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED DEBITS |
|
|
|
|
|
|
|
|
Regulatory assets (Notes 1, 3 and 4) |
|
|
1,048,656 |
|
|
|
813,161 |
|
Income tax receivable (Note 4) |
|
|
65,103 |
|
|
|
65,103 |
|
Other |
|
|
113,061 |
|
|
|
101,274 |
|
|
|
|
|
|
|
|
Total deferred debits |
|
|
1,226,820 |
|
|
|
979,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
12,362,703 |
|
|
$ |
11,986,324 |
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements.
84
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
236,354 |
|
|
$ |
240,637 |
|
Accrued taxes (Note 4) |
|
|
104,711 |
|
|
|
104,011 |
|
Accrued interest |
|
|
54,831 |
|
|
|
54,596 |
|
Short-term borrowings (Note 5) |
|
|
16,600 |
|
|
|
153,715 |
|
Current maturities of long-term debt (Note 6) |
|
|
631,879 |
|
|
|
303,476 |
|
Customer deposits |
|
|
68,322 |
|
|
|
71,026 |
|
Liabilities from risk management activities (Note 18) |
|
|
58,976 |
|
|
|
55,908 |
|
Other current liabilities |
|
|
139,063 |
|
|
|
125,574 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,310,736 |
|
|
|
1,108,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT LESS CURRENT MATURITIES (Note 6) |
|
|
|
|
|
|
|
|
Long-term debt less current maturities |
|
|
2,948,991 |
|
|
|
3,370,524 |
|
Palo Verde sale leaseback lessor notes less current
maturities (Note 20) |
|
|
96,803 |
|
|
|
126,000 |
|
|
|
|
|
|
|
|
Total long-term debt less current maturities |
|
|
3,045,794 |
|
|
|
3,496,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED CREDITS AND OTHER |
|
|
|
|
|
|
|
|
Deferred income taxes (Note 4) |
|
|
1,833,566 |
|
|
|
1,496,095 |
|
Deferred fuel and purchased power regulatory liability (Note 3) |
|
|
58,442 |
|
|
|
87,291 |
|
Other regulatory liabilities (Notes 1 and 3) |
|
|
694,589 |
|
|
|
679,072 |
|
Liability for asset retirements (Note 12) |
|
|
328,571 |
|
|
|
301,783 |
|
Liabilities for pension and other postretirement
benefits (Note 8) |
|
|
813,121 |
|
|
|
811,338 |
|
Liabilities from risk management activities (Note 18) |
|
|
65,390 |
|
|
|
62,443 |
|
Customer advances |
|
|
121,645 |
|
|
|
136,595 |
|
Coal mine reclamation |
|
|
117,243 |
|
|
|
92,060 |
|
Unrecognized tax benefits (Note 4) |
|
|
66,349 |
|
|
|
142,099 |
|
Other |
|
|
132,031 |
|
|
|
144,077 |
|
|
|
|
|
|
|
|
Total deferred credits and other |
|
|
4,230,947 |
|
|
|
3,952,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (SEE NOTES) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY (Note 7) |
|
|
|
|
|
|
|
|
Common stock, no par value; authorized
150,000,000 shares; issued 108,820,067 at
end of 2010 and 101,527,937 at end of 2009 |
|
|
2,421,372 |
|
|
|
2,153,295 |
|
Treasury stock at cost; 50,410 shares at end of 2010
and 93,239 at end of 2009 |
|
|
(2,239 |
) |
|
|
(3,812 |
) |
|
|
|
|
|
|
|
Total common stock |
|
|
2,419,133 |
|
|
|
2,149,483 |
|
|
|
|
|
|
|
|
Retained earnings |
|
|
1,423,961 |
|
|
|
1,298,213 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
Pension and other postretirement benefits (Note 8) |
|
|
(59,420 |
) |
|
|
(50,892 |
) |
Derivative instruments |
|
|
(100,347 |
) |
|
|
(80,695 |
) |
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
|
(159,767 |
) |
|
|
(131,587 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
3,683,327 |
|
|
|
3,316,109 |
|
Noncontrolling interests (Note 20) |
|
|
91,899 |
|
|
|
111,895 |
|
|
|
|
|
|
|
|
Total equity |
|
|
3,775,226 |
|
|
|
3,428,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
12,362,703 |
|
|
$ |
11,986,324 |
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements.
85
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
370,209 |
|
|
$ |
72,764 |
|
|
$ |
259,620 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of district cooling business |
|
|
(41,973 |
) |
|
|
|
|
|
|
|
|
Depreciation and amortization including nuclear fuel |
|
|
472,807 |
|
|
|
450,864 |
|
|
|
431,672 |
|
Deferred fuel and purchased power |
|
|
93,631 |
|
|
|
(51,742 |
) |
|
|
(80,183 |
) |
Deferred fuel and purchased power amortization |
|
|
(122,481 |
) |
|
|
147,018 |
|
|
|
183,126 |
|
Allowance for equity funds used during construction |
|
|
(22,066 |
) |
|
|
(14,999 |
) |
|
|
(18,636 |
) |
Real estate impairment charge |
|
|
16,731 |
|
|
|
280,188 |
|
|
|
53,250 |
|
Gain on real estate debt restructuring |
|
|
(16,755 |
) |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
260,411 |
|
|
|
105,492 |
|
|
|
158,024 |
|
Change in mark-to-market valuations |
|
|
2,688 |
|
|
|
(6,939 |
) |
|
|
9,074 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Customer and other receivables |
|
|
(67,943 |
) |
|
|
12,292 |
|
|
|
73,446 |
|
Accrued unbilled revenues |
|
|
7,679 |
|
|
|
(10,882 |
) |
|
|
7,388 |
|
Materials, supplies and fossil fuel |
|
|
12,276 |
|
|
|
(12,261 |
) |
|
|
(25,453 |
) |
Other current assets |
|
|
5,246 |
|
|
|
24,647 |
|
|
|
56,775 |
|
Accounts payable |
|
|
9,125 |
|
|
|
(27,328 |
) |
|
|
(69,439 |
) |
Accrued taxes and income tax receivable net |
|
|
24,222 |
|
|
|
(31,792 |
) |
|
|
(13,149 |
) |
Other current liabilities |
|
|
5,204 |
|
|
|
29,274 |
|
|
|
(5,130 |
) |
Expenditures for real estate investments |
|
|
(622 |
) |
|
|
(2,957 |
) |
|
|
(21,168 |
) |
Other changes in real estate assets |
|
|
4,068 |
|
|
|
(4,216 |
) |
|
|
18,211 |
|
Change in margin and collateral accounts assets |
|
|
(9,937 |
) |
|
|
(12,806 |
) |
|
|
17,450 |
|
Change in margin and collateral accounts liabilities |
|
|
(88,315 |
) |
|
|
35,654 |
|
|
|
(132,416 |
) |
Change in long term income tax receivable |
|
|
|
|
|
|
(131,984 |
) |
|
|
|
|
Change in unrecognized tax benefits |
|
|
(73,621 |
) |
|
|
137,898 |
|
|
|
(94,551 |
) |
Change in other regulatory liabilities |
|
|
54,518 |
|
|
|
110,642 |
|
|
|
(12,129 |
) |
Change in other long-term assets |
|
|
(43,189 |
) |
|
|
(47,899 |
) |
|
|
6,104 |
|
Change in other long-term liabilities |
|
|
(101,456 |
) |
|
|
16,377 |
|
|
|
46,207 |
|
|
|
|
|
|
|
|
|
|
|
Net cash flow provided by operating activities |
|
|
750,457 |
|
|
|
1,067,305 |
|
|
|
848,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(748,374 |
) |
|
|
(764,609 |
) |
|
|
(935,577 |
) |
Contributions in aid of construction |
|
|
32,754 |
|
|
|
53,525 |
|
|
|
60,292 |
|
Allowance for borrowed funds used during construction |
|
|
(16,778 |
) |
|
|
(10,745 |
) |
|
|
(18,820 |
) |
Proceeds from the sale of district cooling business |
|
|
100,300 |
|
|
|
|
|
|
|
|
|
Proceeds from nuclear decommissioning trust sales |
|
|
560,469 |
|
|
|
441,242 |
|
|
|
317,619 |
|
Investment in nuclear decommissioning trust |
|
|
(584,885 |
) |
|
|
(463,033 |
) |
|
|
(338,361 |
) |
Proceeds from sale of commercial real estate investments |
|
|
72,038 |
|
|
|
43,370 |
|
|
|
94,171 |
|
Other |
|
|
8,576 |
|
|
|
(4,667 |
) |
|
|
5,517 |
|
|
|
|
|
|
|
|
|
|
|
Net cash flow used for investing activities |
|
|
(575,900 |
) |
|
|
(704,917 |
) |
|
|
(815,159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of long-term debt |
|
|
|
|
|
|
867,469 |
|
|
|
96,934 |
|
Repayment of long-term debt |
|
|
(106,572 |
) |
|
|
(456,882 |
) |
|
|
(202,234 |
) |
Short-term borrowings and payments net |
|
|
(137,115 |
) |
|
|
(516,754 |
) |
|
|
331,741 |
|
Dividends paid on common stock |
|
|
(216,979 |
) |
|
|
(205,076 |
) |
|
|
(204,247 |
) |
Common stock equity issuance |
|
|
255,971 |
|
|
|
3,302 |
|
|
|
3,687 |
|
Noncontrolling interests |
|
|
(11,403 |
) |
|
|
(14,485 |
) |
|
|
(13,782 |
) |
Other |
|
|
6,351 |
|
|
|
171 |
|
|
|
3,891 |
|
|
|
|
|
|
|
|
|
|
|
Net cash flow provided by (used for) financing activities |
|
|
(209,747 |
) |
|
|
(322,255 |
) |
|
|
15,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(35,190 |
) |
|
|
40,133 |
|
|
|
48,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR |
|
|
145,378 |
|
|
|
105,245 |
|
|
|
56,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
$ |
110,188 |
|
|
$ |
145,378 |
|
|
$ |
105,245 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of (refunds) |
|
$ |
(23,447 |
) |
|
$ |
(52,776 |
) |
|
$ |
24,233 |
|
Interest, net of amounts capitalized |
|
$ |
221,728 |
|
|
$ |
216,608 |
|
|
$ |
205,546 |
|
See Notes to Pinnacle Wests Consolidated Financial Statements.
86
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
COMMON STOCK (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
$ |
2,153,295 |
|
|
$ |
2,151,323 |
|
|
$ |
2,135,787 |
|
Issuance of common stock |
|
|
263,297 |
|
|
|
10,620 |
|
|
|
10,845 |
|
Other |
|
|
4,780 |
|
|
|
(8,648 |
) |
|
|
4,691 |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
2,421,372 |
|
|
|
2,153,295 |
|
|
|
2,151,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TREASURY STOCK (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
(3,812 |
) |
|
|
(2,854 |
) |
|
|
(2,054 |
) |
Purchase of treasury stock |
|
|
(82 |
) |
|
|
(2,156 |
) |
|
|
(1,387 |
) |
Reissuance of treasury stock used for stock
compensation |
|
|
1,655 |
|
|
|
1,198 |
|
|
|
587 |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
(2,239 |
) |
|
|
(3,812 |
) |
|
|
(2,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
1,298,213 |
|
|
|
1,444,208 |
|
|
|
1,413,741 |
|
Net income attributable to common shareholders |
|
|
350,053 |
|
|
|
68,330 |
|
|
|
242,125 |
|
Common stock dividends |
|
|
(224,305 |
) |
|
|
(212,386 |
) |
|
|
(211,405 |
) |
Other |
|
|
|
|
|
|
(1,939 |
) |
|
|
(253 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
1,423,961 |
|
|
|
1,298,213 |
|
|
|
1,444,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
(131,587 |
) |
|
|
(146,698 |
) |
|
|
(15,863 |
) |
Pension and other postretirement benefits (Note 8): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized actuarial loss, net of tax benefit of
$(7,738), $(4,223) and $(7,801) |
|
|
(11,795 |
) |
|
|
(6,350 |
) |
|
|
(11,053 |
) |
Amortization to income: |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss, net of tax benefit of $1,870,
$1,705 and $1,578 |
|
|
2,868 |
|
|
|
2,615 |
|
|
|
2,437 |
|
Prior service cost, net of tax benefit of
$201, $215 and $222 |
|
|
308 |
|
|
|
329 |
|
|
|
343 |
|
Transition obligation, net of tax benefit of
$59, $39 and $40 |
|
|
91 |
|
|
|
61 |
|
|
|
62 |
|
Derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss, net of tax
benefit of $(61,348), $(61,329) and $(54,490) |
|
|
(93,939 |
) |
|
|
(93,996 |
) |
|
|
(83,093 |
) |
Reclassification of net realized (gain) loss to
income, net
of tax (expense) benefit of $48,453, $72,877
and $(24,776) |
|
|
74,287 |
|
|
|
112,452 |
|
|
|
(39,531 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
(159,767 |
) |
|
|
(131,587 |
) |
|
|
(146,698 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTERESTS |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
111,895 |
|
|
|
124,990 |
|
|
|
128,456 |
|
Net income attributable to noncontrolling interests |
|
|
20,156 |
|
|
|
4,434 |
|
|
|
17,495 |
|
Net capital activities by noncontrolling interests |
|
|
(40,152 |
) |
|
|
(17,529 |
) |
|
|
(20,961 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
91,899 |
|
|
|
111,895 |
|
|
|
124,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY |
|
$ |
3,775,226 |
|
|
$ |
3,428,004 |
|
|
$ |
3,570,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO
COMMON SHAREHOLDERS |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders |
|
$ |
350,053 |
|
|
$ |
68,330 |
|
|
$ |
242,125 |
|
Other comprehensive income (loss) |
|
|
(28,180 |
) |
|
|
15,111 |
|
|
|
(130,835 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to common shareholders |
|
$ |
321,873 |
|
|
$ |
83,441 |
|
|
$ |
111,290 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements.
87
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Consolidation and Nature of Operations
Pinnacle Wests Consolidated Financial Statements include the accounts of Pinnacle West and
our subsidiaries: APS, SunCor, APSES, El Dorado and Pinnacle West Marketing & Trading. APSs
consolidated financial statements include the accounts of APS and the Palo Verde sale leaseback
VIEs. Intercompany accounts and transactions between the consolidated companies have been
eliminated.
APS 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 substantially all of our revenues and earnings, and is
expected to continue to do so. SunCor was a developer of residential, commercial and industrial
real estate projects in Arizona, New Mexico, Idaho and Utah. All activities for SunCor are now
reported as discontinued operations (see Note 22). APSES provides energy-related projects to
commercial and industrial retail customers in competitive markets in the western United States. In
2008, APSES discontinued its commodity-related energy services (see Note 22). El Dorado is an
investment firm. Pinnacle West Marketing & Trading began operations in early 2007. These
operations were previously conducted by a division of Pinnacle West through the end of 2006. By
the end of 2008, substantially all the contracts were transferred to APS or expired.
In preparing the consolidated financial statements, we have evaluated the events that have
occurred after December 31, 2010 through the date the financial statements were issued.
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. These consolidated financial statements and notes have been prepared
consistently with the exception of the reclassification of certain prior year amounts on our
Consolidated Statements of Income and Consolidated Balance Sheets in accordance with accounting
requirements for reporting discontinued operations (see Note 22), and amended accounting guidance
related to VIEs (see Note 2).
Certain line items are presented in more detail on the Consolidated Statements of Cash Flows
than was presented in the prior years. Other line items are more condensed than the previous
presentation. The prior year amounts were reclassified to conform to the current year
presentation. These reclassifications had no impact on total net cash flow provided by operating
activities.
88
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables show the impact of the reclassifications of prior years (previously reported) amounts (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reported after |
|
|
|
|
|
|
|
Reclassifications |
|
|
|
|
|
|
adoption of |
|
|
|
|
|
|
|
as a result of the |
|
|
|
|
|
|
amended VIE |
|
|
|
|
|
|
|
adoption of |
|
|
|
|
|
|
accounting |
|
|
|
As |
|
|
new VIE |
|
|
Reclassifications |
|
|
guidance and |
|
Statement of Income for the Year |
|
previously |
|
|
accounting |
|
|
for discontinued |
|
|
discontinued |
|
Ended December 31, 2009 |
|
reported |
|
|
guidance |
|
|
operations |
|
|
operations |
|
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate segment |
|
$ |
103,152 |
|
|
$ |
|
|
|
$ |
(103,152 |
) |
|
$ |
|
|
Other revenues |
|
|
44,762 |
|
|
|
|
|
|
|
(18,039 |
) |
|
|
26,723 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate segment operations |
|
|
102,381 |
|
|
|
|
|
|
|
(102,381 |
) |
|
|
|
|
Real estate impairment charge |
|
|
258,453 |
|
|
|
|
|
|
|
(258,453 |
) |
|
|
|
|
Operations and maintenance |
|
|
875,357 |
|
|
|
(39,660 |
) |
|
|
(3,834 |
) |
|
|
831,863 |
|
Depreciation and amortization |
|
|
404,331 |
|
|
|
7,704 |
|
|
|
(4,572 |
) |
|
|
407,463 |
|
Taxes other than income taxes |
|
|
123,663 |
|
|
|
|
|
|
|
(386 |
) |
|
|
123,277 |
|
Other expenses |
|
|
32,523 |
|
|
|
|
|
|
|
(7,989 |
) |
|
|
24,534 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
5,669 |
|
|
|
|
|
|
|
(391 |
) |
|
|
5,278 |
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest charges |
|
|
233,859 |
|
|
|
12,747 |
|
|
|
(9,079 |
) |
|
|
237,527 |
|
Allowance for borrowed funds
used during construction |
|
|
(10,745 |
) |
|
|
|
|
|
|
315 |
|
|
|
(10,430 |
) |
Income Taxes |
|
|
37,827 |
|
|
|
|
|
|
|
98,679 |
|
|
|
136,506 |
|
Income From Continuing Operations |
|
|
67,231 |
|
|
|
19,209 |
|
|
|
166,118 |
|
|
|
252,558 |
|
Loss From Discontinued Operations |
|
|
(13,676 |
) |
|
|
|
|
|
|
(166,118 |
) |
|
|
(179,794 |
) |
Net Income |
|
|
53,555 |
|
|
|
19,209 |
|
|
|
|
|
|
|
72,764 |
|
Net Income (Loss) Attributable To
Noncontrolling Interests |
|
|
(14,775 |
) |
|
|
19,209 |
|
|
|
|
|
|
|
4,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Income for the Year
Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate segment |
|
$ |
74,549 |
|
|
$ |
|
|
|
$ |
(74,549 |
) |
|
$ |
|
|
Other revenues |
|
|
41,729 |
|
|
|
|
|
|
|
(16,322 |
) |
|
|
25,407 |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate segment operations |
|
|
100,102 |
|
|
|
|
|
|
|
(100,102 |
) |
|
|
|
|
Real estate impairment charge |
|
|
18,108 |
|
|
|
|
|
|
|
(18,108 |
) |
|
|
|
|
Operations and maintenance |
|
|
807,852 |
|
|
|
(39,660 |
) |
|
|
(2,915 |
) |
|
|
765,277 |
|
Depreciation and amortization |
|
|
390,093 |
|
|
|
7,704 |
|
|
|
(6,607 |
) |
|
|
391,190 |
|
Taxes other than income taxes |
|
|
125,336 |
|
|
|
|
|
|
|
(483 |
) |
|
|
124,853 |
|
Other expenses |
|
|
34,171 |
|
|
|
|
|
|
|
(8,139 |
) |
|
|
26,032 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
12,797 |
|
|
|
|
|
|
|
(3,256 |
) |
|
|
9,541 |
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest charges |
|
|
215,684 |
|
|
|
14,461 |
|
|
|
(10,229 |
) |
|
|
219,916 |
|
Allowance for borrowed funds
used during construction |
|
|
(18,820 |
) |
|
|
|
|
|
|
4,273 |
|
|
|
(14,547 |
) |
Income Taxes |
|
|
76,897 |
|
|
|
|
|
|
|
18,647 |
|
|
|
95,544 |
|
Income From Continuing Operations |
|
|
231,304 |
|
|
|
17,495 |
|
|
|
29,536 |
|
|
|
278,335 |
|
Income (Loss) From Discontinued
Operations |
|
|
10,821 |
|
|
|
|
|
|
|
(29,536 |
) |
|
|
(18,715 |
) |
Net Income |
|
|
242,125 |
|
|
|
17,495 |
|
|
|
|
|
|
|
259,620 |
|
Net Income Attributable To
Noncontrolling Interests |
|
|
|
|
|
|
17,495 |
|
|
|
|
|
|
|
17,495 |
|
89
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications as a |
|
|
Amounts reported |
|
|
|
|
|
|
|
result of the adoption of |
|
|
after adoption of |
|
|
|
As previously |
|
|
the new VIE accounting |
|
|
amended VIE |
|
Balance Sheets December 31, 2009 |
|
reported |
|
|
guidance |
|
|
accounting guidance |
|
Property, Plant and Equipment Palo
Verde sale leaseback, net of
accumulated depreciation |
|
$ |
|
|
|
$ |
146,722 |
|
|
$ |
146,722 |
|
Deferred Debits Regulatory assets |
|
|
781,714 |
|
|
|
31,447 |
|
|
|
813,161 |
|
Current Liabilities Current maturities
of long-term debt |
|
|
277,693 |
|
|
|
25,783 |
|
|
|
303,476 |
|
Long-Term Debt Less Current Maturities
Palo Verde sale leaseback lessor
notes |
|
|
|
|
|
|
126,000 |
|
|
|
126,000 |
|
Deferred Credits and Other Other |
|
|
200,015 |
|
|
|
(55,938 |
) |
|
|
144,077 |
|
Equity Noncontrolling interests |
|
|
29,571 |
|
|
|
82,324 |
|
|
|
111,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reported |
|
|
|
|
|
|
|
Reclassifications as a |
|
|
after adoption of |
|
|
|
|
|
|
|
result of the adoption of |
|
|
amended VIE |
|
|
|
|
|
|
|
the new VIE accounting |
|
|
accounting |
|
|
|
|
|
|
|
guidance and to |
|
|
guidance and to |
|
Statement of Cash Flows for the |
|
As previously |
|
|
conform to current year |
|
|
conform to current |
|
Year Ended December 31, 2009 |
|
reported |
|
|
presentation |
|
|
year presentation |
|
Cash Flows from Operating
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
53,555 |
|
|
$ |
19,209 |
|
|
$ |
72,764 |
|
Depreciation and amortization
including nuclear fuel |
|
|
443,160 |
|
|
|
7,704 |
|
|
|
450,864 |
|
Other current assets |
|
|
(9,186 |
) |
|
|
33,833 |
|
|
|
24,647 |
|
Home inventory |
|
|
33,833 |
|
|
|
(33,833 |
) |
|
|
|
|
Other long-term liabilities |
|
|
7,050 |
|
|
|
9,327 |
|
|
|
16,377 |
|
Cash Flows from Financing
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt |
|
|
(435,127 |
) |
|
|
(21,755 |
) |
|
|
(456,882 |
) |
Noncontrolling interests |
|
|
|
|
|
|
(14,485 |
) |
|
|
(14,485 |
) |
Supplemental Disclosure of Cash
Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of
amounts capitalized |
|
|
203,860 |
|
|
|
12,748 |
|
|
|
216,608 |
|
90
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reported |
|
|
|
|
|
|
|
Reclassifications as a |
|
|
after adoption of |
|
|
|
|
|
|
|
result of the adoption of |
|
|
amended VIE |
|
|
|
|
|
|
|
the new VIE accounting |
|
|
accounting |
|
|
|
|
|
|
|
guidance and to |
|
|
guidance and to |
|
Statement of Cash Flows for the |
|
As previously |
|
|
conform to current year |
|
|
conform to current |
|
Year Ended December 31, 2008 |
|
reported |
|
|
presentation |
|
|
year presentation |
|
Cash Flows from Operating
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
242,125 |
|
|
$ |
17,495 |
|
|
$ |
259,620 |
|
Depreciation and amortization
including nuclear fuel |
|
|
423,969 |
|
|
|
7,703 |
|
|
|
431,672 |
|
Other current assets |
|
|
8,734 |
|
|
|
48,041 |
|
|
|
56,775 |
|
Home inventory |
|
|
48,041 |
|
|
|
(48,041 |
) |
|
|
|
|
Other long-term liabilities |
|
|
36,880 |
|
|
|
9,327 |
|
|
|
46,207 |
|
Cash Flows from Financing
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt |
|
|
(181,491 |
) |
|
|
(20,743 |
) |
|
|
(202,234 |
) |
Noncontrolling interests |
|
|
|
|
|
|
(13,782 |
) |
|
|
(13,782 |
) |
Supplemental Disclosure of Cash
Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of
amounts capitalized |
|
|
191,085 |
|
|
|
14,461 |
|
|
|
205,546 |
|
Accounting Records and Use of Estimates
Our accounting records are maintained in accordance with accounting principles generally
accepted in the United States of America (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.
Derivative Accounting
We are exposed to the impact of market fluctuations in the commodity price and transportation
costs of electricity and natural gas. We manage risks associated with these market fluctuations by
utilizing various instruments that qualify as derivatives, including exchange-traded futures and
options and over-the-counter forwards, options and swaps. As part of our overall risk management
program, we use such instruments to hedge purchases and sales of electricity and fuels. The
changes in market value of such contracts have a high correlation to price changes in the hedged
transactions.
We account for our derivative contracts in accordance with derivatives and hedging guidance,
which requires that entities recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. See Note 18 for additional information
about our derivative accounting policies.
91
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
We determine and disclose the fair value of certain assets and liabilities in accordance with
fair value guidance. Fair value is the price that would be received for an asset or paid to
transfer a liability
(exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between willing market participants on the measurement date. Inputs to fair
value include observable and unobservable data. We maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.
We determine fair market value using actively-quoted prices for identical instruments when
available. When actively quoted prices are not available for the identical instruments we use
prices for similar instruments or other corroborative market information or prices provided by
other external sources. For options, long-term contracts and other contracts for which price
quotes are not available, we use unobservable inputs, such as models and other valuation methods,
to determine fair market value.
The use of models and other valuation methods to determine fair market value often requires
subjective and complex judgment. Actual results could differ from the results estimated through
application of these methods. Our structured activities are hedged with a portfolio of forward
purchases that protects the economic value of the sales transactions. Our practice is to hedge
within timeframes established by our executive risk committee.
See Note 14 for additional information about fair value measurements.
Regulatory Accounting
APS is regulated by the ACC and the 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 other regulated entities in the same jurisdiction. This determination
reflects the current political and regulatory climate in the state 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.
Utility Plant and Depreciation
Utility plant is the term we use to describe the business property and equipment that supports
electric service, consisting primarily of generation, transmission and distribution facilities. We
report utility plant at its original cost, which includes:
|
|
|
construction overhead costs (where applicable); and |
|
|
|
capitalized interest or an allowance for funds used during construction. |
92
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We expense the costs of plant outages, major maintenance and routine maintenance as incurred.
We charge retired utility plant to accumulated depreciation. Liabilities associated with the
retirement of tangible long-lived assets are recognized at fair value as incurred and capitalized
as part of the related tangible long-lived assets. Accretion of the liability due to the passage
of time is an operating expense and the capitalized cost is depreciated over the useful life of the
long-lived asset. See Note 12.
APS records a regulatory liability for the asset retirement obligations related to its
regulated assets. This regulatory liability represents the difference between the amount that has
been recovered in regulated rates and the amount calculated in accordance with guidance on
accounting for asset retirement obligations. APS believes it can recover in regulated rates the
costs capitalized in accordance with this accounting guidance.
We record depreciation on utility plant on a straight-line basis over the remaining useful
life of the related assets. The approximate remaining average useful lives of our utility property
at December 31, 2010 were as follows:
|
|
|
Fossil plant 18 years; |
|
|
|
Nuclear plant 17 years; |
|
|
|
Other generation 25 years; |
|
|
|
Transmission 40 years; |
|
|
|
Distribution 35 years; and |
For the years 2008 through 2010, the depreciation rates ranged from a low of 1.30% to a high
of 10.20%. The weighted-average rate was 2.98% for 2010, 3.06% for 2009 and 3.08% for 2008. We
depreciate non-utility property and equipment over the estimated useful lives of the related
assets, ranging from 3 to 34 years.
Investments
El Dorado accounts for its investments using either the equity method (if significant
influence) or the cost method (if less than 20% ownership).
Our investments in the nuclear decommissioning trust fund are accounted for in accordance with
guidance on accounting for certain investments in debt and equity securities. See Note 14 for more
information on these investments.
93
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Funds Used During Construction
AFUDC represents the approximate net composite interest cost of borrowed funds and an allowed
return on the equity funds used for construction of regulated utility plant. Both the debt and
equity components of AFUDC are non-cash amounts within the Consolidated Statement of Income. Plant
construction costs, including AFUDC, are recovered in authorized rates through depreciation when
completed projects are placed into commercial operation.
AFUDC was calculated by using a composite rate of 9.2% for 2010, 5.9% for 2009 and 7.0% for
2008. APS compounds AFUDC monthly and ceases to accrue AFUDC when construction work is completed
and the property is placed in service.
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 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 Wests 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.
Effective January 1, 2010, electric revenues also include proceeds for line extension payments
for new or upgraded service in accordance with the 2009 retail rate case settlement agreement (see
Note 3). This revenue treatment continues through 2012, or until new rates are established in
APSs next general retail rate case, if that is before year end 2012. Certain proceeds received
under previous versions of the line extension policy, or for activities not involving an extension
or upgrade of service (e.g., service relocations at the request of governmental entities or
undergrounding of overhead facilities) will continue to be treated as contributions in aid of
construction and will not impact electric revenues.
Allowance for Doubtful Accounts
The allowance for doubtful accounts represents our best estimate of existing accounts
receivable that will ultimately be uncollectible. The allowance is calculated by applying
estimated write-off factors to various classes of outstanding receivables, including accrued
utility revenues. The write-off factors used to estimate uncollectible accounts are based upon
consideration of both historical collections experience and managements best estimate of future
collections success given the existing collections environment.
94
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Real Estate Investments
Real estate investments primarily included SunCors land, home inventory, commercial property
and investments in joint ventures. Land included acquisition costs, infrastructure costs,
capitalized interest and property taxes directly associated with the acquisition and development of
each project. Home inventory consisted of construction costs, improved lot costs, capitalized
interest and property taxes on homes and condos under construction. Homes under construction were
classified as real estate investments on the Consolidated Balance Sheets; upon completion of
construction they transferred to home inventory with the expectation that they would be sold in a
timely manner.
For the purposes of evaluating impairment, in accordance with the provisions on accounting for
the impairment or disposal of long-lived assets, we classified our real estate assets, such as land
under development, land held for future development, and commercial property as held and used.
When events or changes in circumstances indicated that the carrying values of real estate assets
considered held and used would not be recoverable, we compared the undiscounted cash flows that we
estimated would be generated by each asset to its carrying amount. If the carrying amount exceeded
the undiscounted cash flows, we adjusted the asset to fair value and recognized an impairment
charge. The adjusted value became the new book value (carrying amount) for held and used assets.
Our internal models used inputs that we believe were consistent with those that would be used by
market participants.
Real estate home inventory was considered to be held for sale for purposes of evaluating
impairment in accordance with the provisions of accounting guidance for impairment or disposal of
long-lived assets. Home inventories were reported at the lower of carrying amount or fair value
less costs to sell. Fair value less costs to sell was evaluated each period to determine if it had
changed. Losses (and gains not to exceed any cumulative loss previously recognized) were reported
as adjustments to the carrying amount.
Investments in joint ventures for which SunCor did not have a controlling financial interest
were not consolidated, but were accounted for using the equity method of accounting. In addition,
see Note 22 and Note 23.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less at
acquisition to be cash equivalents.
Nuclear Fuel
APS amortizes nuclear fuel by using the unit-of-production method. The unit-of-production
method is based on actual physical usage. APS divides the cost of the fuel by the estimated number
of thermal units it expects to produce with that fuel. APS then multiplies that rate by the number
of thermal units produced within the current period. This calculation determines the current
period nuclear fuel expense.
APS also charges nuclear fuel expense for the interim storage and permanent disposal of spent
nuclear fuel. The DOE is responsible for the permanent disposal of spent nuclear fuel and charges
APS $0.001 per kWh of nuclear generation. See Note 11 for information on spent nuclear fuel
disposal and Note 14 for information on nuclear decommissioning costs.
95
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
Income taxes are provided using the asset and liability approach prescribed by guidance
relating to accounting for income taxes. We file our federal income tax return on a consolidated
basis and we file our state income tax returns on a consolidated or unitary basis. In accordance
with our intercompany tax sharing agreement, federal and state income taxes are allocated to each
first-tier subsidiary as though each first-tier subsidiary filed a separate income tax return. Any
difference between that method and the consolidated (and unitary) income tax liability is
attributed to the parent company. The income tax liability accounts reflect the tax and interest
associated with managements estimate of the largest amount of tax benefit that is greater than 50%
likely of being realized upon settlement for all known and measurable tax exposures. See Note 4.
Intangible Assets
We have no goodwill recorded and have separately disclosed other intangible assets, primarily
APSs software, on Pinnacle Wests Consolidated Balance Sheets. The intangible assets are
amortized over their finite useful lives. Amortization expense was $45 million in 2010, $35
million in 2009 and $33 million in 2008. Estimated amortization expense on existing intangible
assets over the next five years is $40 million in 2011, $36 million in 2012, $29 million in 2013,
$23 million in 2014 and $15 million in 2015. At December 31, 2010, the weighted average remaining
amortization period for intangible assets was 7 years.
2. New Accounting Standards
Variable Interest Entities
On January 1, 2010 we adopted amended accounting guidance relating to the consolidation of
VIEs. This amended guidance significantly changed the consolidation model for VIEs. Under the
prior guidance the consolidation model considered risk absorption using a quantitative approach
when determining the primary beneficiary. The consolidation model under the new guidance requires
a qualitative assessment and focuses on the power to direct activities of the VIE when determining
the primary beneficiary. As a result of applying this qualitative assessment, we have determined
that APS is the primary beneficiary of certain VIEs relating to the Palo Verde Unit 2 sale
leaseback transactions, and is therefore required to consolidate these VIEs. Prior to adopting
this new guidance, APS was not considered the primary beneficiary of these VIEs and did not
consolidate these entities. We have adopted this guidance using retrospective application and have
adjusted prior periods presented to reflect consolidation of the VIEs in those periods (see Note
1). See Note 20 for additional discussion and disclosures.
Future Accounting Changes
The FASB is currently working on several projects with the desire to converge GAAP with IFRS.
These projects include accounting for leases, revenue recognition, and financial instruments, among
other items. The FASBs standard-setting process is ongoing and until new standards have been
finalized and issued, we cannot determine the impact on our financial statements that may result
from any such future changes.
96
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concurrent with these convergence projects, the SEC is considering mandating IFRS for U.S.
companies. At this time, the impacts and timing of potential conversion to IFRS are uncertain and
cannot be determined until final conversion requirements are mandated. The potential preparation of
our financial statements in accordance with IFRS could have a significant impact on our reported
financial statement results.
3. Regulatory Matters
2008 General Retail Rate Case Impacts
On December 30, 2009, the ACC issued an order approving a settlement agreement entered into by
APS and twenty-one other parties to its general retail rate case, which was originally filed in
March 2008. The settlement agreement included a net retail rate increase of $207.5 million, which
represented a base rate increase of $344.7 million less a reclassification of $137.2 million of
fuel and purchased power revenues from the then-existing PSA to base rates. The new rates were
effective January 1, 2010. The settlement agreement also contained on-going requirements,
commitments and authorizations, including the following:
|
|
|
Revenue accounting treatment for line extension payments received for new or
upgraded service from January 1, 2010 through year end 2012 (or until new rates are
established in APSs next general rate case, if that is before the end of 2012); |
|
|
|
An authorized return on common equity of 11%; |
|
|
|
A capital structure comprised of 46.2% debt and 53.8% common equity; |
|
|
|
A commitment from APS to reduce average annual operational expenses by at least $30
million from 2010 through 2014; |
|
|
|
Authorization and requirements of equity infusions into APS of at least $700 million
during the period beginning June 1, 2009 through December 31, 2014 ($253 million of
which was infused into APS from proceeds of a Pinnacle West equity issuance in the
second quarter of 2010); and |
|
|
|
Various modifications to the existing energy efficiency, demand-side management and
renewable energy programs that require APS to, among other things, expand its
conservation and demand-side management programs and its use of renewable energy, as
well as allow for concurrent recovery of renewable energy expenses and provide for more
concurrent recovery of demand-side management costs and incentives. |
The parties also agreed to a rate case filing plan in which APS is prohibited from filing its
next two general rate cases until on or after June 1, 2011 and June 1, 2013, respectively, unless
certain extraordinary events occur. Subject to the foregoing, APS may not request its next general
retail rate increase to be effective prior to July 1, 2012. On February 1, 2011, APS filed a
120-day advanced notice of its intent to file its next rate case on June 1, 2011. The parties
agreed to use good faith efforts to process these subsequent rate cases within twelve months of
sufficiency findings from the ACC staff, which generally occur within 30 days after the filing of a
rate case.
97
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cost Recovery Mechanisms
APS has received regulatory decisions that allow for more timely recovery of certain costs
through the following recovery mechanisms.
Renewable Energy Standard. In 2006, the ACC approved the RES. Under the RES, electric
utilities that are regulated by the ACC must supply an increasing percentage of their retail
electric energy sales from eligible renewable resources, including solar, wind, biomass, biogas and
geothermal technologies. In order to achieve these requirements, the ACC allows APS to include a
RES surcharge as part of customer bills to recover the approved amounts for use on renewable energy
projects. Each year APS is required to file a five-year implementation plan with the ACC and seek
approval for funding the upcoming years RES budget.
During 2009, APS filed its annual RES implementation plan, covering the 2010-2014 timeframe
and requesting 2010 RES funding approval. The plan provided for the acquisition of renewable
generation in compliance with requirements through 2014, and requested RES funding of $87 million
for 2010, which was later approved by the ACC. APS also sought various other determinations in its
plan, including approval of the AZ Sun Program and the Community Power Project in Flagstaff,
Arizona described below.
On March 3, 2010, the ACC approved the AZ Sun Program, which contemplates the addition of 100
MW of APS-owned solar resources through 2014. Through this program, APS plans to invest up to $500
million in solar photovoltaic projects across Arizona, which APS will acquire through competitive
procurement processes. The costs associated with the first 50 MW under this program will be
recovered initially through the RES until such time as the costs are recovered in base rates or
other mechanisms. The costs of the second 50 MW will be recovered through a mechanism to be
determined in APSs next retail rate case.
On April 1, 2010, the ACC approved the Community Power Project, a pilot program in which APS
will own, operate and receive energy from approximately 1.5 MW of solar panels on the rooftops of
up to 200 residential and business customers located within a certain test area in Flagstaff,
Arizona. The capital carrying costs of the program will be recovered through the RES until such
time as these costs are recovered in base rates.
On July 1, 2010, APS filed its annual RES implementation plan, covering the 2011-2015
timeframe and requesting 2011 RES funding of $96 million. The 2011 Plan addressed
enhancements to the residential distributed energy incentive program based on high customer
participation, among other things. On October 13, 2010, APS filed an adjusted RES implementation
plan to reflect the following items, among others: 1) increased clarity relating to customer
project in-service dates and related budget revisions; 2) AZ Sun Program updates; and 3) the
addition of 10 MW of biomass capacity. On December 10, 2010, the ACC approved the 2011 Plan
and associated funding request. In January 2011, the ACC voted to reconsider four aspects of the
approved 2011 Plan, including: (a) approval to proceed with a feed-in tariff filing; (b) approval
for APS to participate in the ownership of distributed energy facilities in the Schools and
Government program; (c) denial of a Rapid Reservation program that allows customers to receive
priority in the incentive reservation process in exchange for receipt of a reduced incentive
amount; and (d) allocation of the budget among various programs and studies. Hearings were held on
January 24, 2011 and January 28, 2011. The ACC amended its original decision that approved the
2011 Plan as follows: the ACC (a) reversed its approval of a
feed-in tariff program; (b) restricted APSs ownership of facilities to only economically
challenged, rural schools and only after a school has received a bid from a third-party solar
installer; (c) approved the Rapid Reservation program; and (d) maintained the original approved
budget with some timing modifications.
98
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Demand-Side Management Adjustor Charge (DSMAC). The 2009 retail rate case settlement
agreement requires APS to submit an annual Energy Efficiency Implementation Plan for review by and
approval of the ACC. On July 15, 2009, APS filed its initial Energy Efficiency Implementation
Plan, requesting approval by the ACC of programs and program elements for which APS had estimated a
budget in the amount of $50 million for 2010. APS received ACC approval of all of its proposed
programs and implemented the new DSMAC on March 1, 2010. A surcharge was added to customer bills
in order to recover these estimated amounts for use on certain demand-side management programs.
The surcharge allows for the recovery of energy efficiency expenses and any earned incentives.
The ACC approved recovery of all 2009 program costs plus incentives. The change from program
cost recovery on a historical basis to recovery on a concurrent basis, as authorized in the
settlement agreement, resulted in this one-time need to address two years (2009 and 2010) of cost
recovery. As requested by APS, 2009 program cost recovery is to be spread over a three-year
period.
On June 1, 2010, APS filed its 2011 Energy Efficiency Implementation Plan. In order to meet
the energy efficiency goal for 2011 established by the settlement agreement of annual energy
savings of 1.25%, expressed as a percent of total energy resources to meet retail load, APS
proposed a total budget for 2011 of $79 million. On February 17, 2011, a total budget for 2011 of
$80 million was approved and when added to the amortization of 2009 costs discussed above less
the $10 million already being recovered in general rates, the DSMAC would recover approximately
$75 million over a twelve month period beginning March 1, 2011. These amounts do not
include approximately $1 million for an electric vehicle charging station program submitted to the
ACC for approval on September 30, 2010.
PSA Mechanism and Balance. The PSA, which the ACC initially approved in 2005 as a part
of APSs 2003 rate case, and which was modified by the ACC in 2007, provides for the adjustment of
retail rates to reflect variations in retail fuel and purchased power costs. The PSA is subject to
specified parameters and procedures, including the following:
|
|
|
APS records deferrals for recovery or refund to the extent actual retail fuel and
purchased power costs vary from the Base Fuel Rate; |
|
|
|
under a 90/10 sharing arrangement, APS defers 90% of the difference between retail
fuel and purchased power costs (excluding certain costs, such as renewable energy
resources and the capacity components of long-term purchased power agreements acquired
through competitive procurement) and the Base Fuel Rate; APS absorbs 10% of the retail
fuel and purchased power costs above the Base Fuel Rate and retains 10% of the benefit
from the retail fuel and purchased power costs that are below the Base Fuel Rate; |
99
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
an adjustment to the PSA rate is made annually each February 1st (unless
otherwise approved by the ACC) and goes into effect automatically unless suspended by
the ACC; |
|
|
|
the PSA uses a forward-looking estimate of fuel and purchased power costs to set the
annual PSA rate, which is reconciled to actual costs experienced for each PSA Year
(February 1 through January 31) (see the following bullet point); |
|
|
|
the PSA rate includes (a) a Forward Component, under which APS recovers or refunds
differences between expected fuel and purchased power costs for the upcoming calendar
year and those embedded in the Base Fuel Rate; (b) a Historical Component, under
which differences between actual fuel and purchased power costs and those recovered
through the combination of the Base Fuel Rate and the Forward Component are recovered
during the next PSA Year; and (c) a Transition Component, under which APS may seek
mid-year PSA changes due to large variances between actual fuel and purchased power
costs and the combination of the Base Fuel Rate and the Forward Component; and |
|
|
|
the PSA rate may not be increased or decreased more than $0.004 per kWh in a year
without permission of the ACC. |
The following table shows the changes in the deferred fuel and purchased power regulatory
asset (liability) for 2010 and 2009 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Beginning balance |
|
$ |
(87 |
) |
|
$ |
8 |
|
Deferred fuel and purchased power costs-current period |
|
|
(93 |
) |
|
|
52 |
|
Amounts recovered through revenues |
|
|
122 |
|
|
|
(147 |
) |
|
|
|
|
|
|
|
Ending balance |
|
$ |
(58 |
) |
|
$ |
(87 |
) |
|
|
|
|
|
|
|
The PSA rate for the PSA year beginning February 1, 2011 is ($0.0057) per kWh as compared to
($0.0045) per kWh for the prior year. The regulatory liability at December 31, 2010 reflects lower
average prices, primarily for natural gas and gas-based generation. Any uncollected
(overcollected) deferrals during the 2011 PSA year will be included in the historical component of
the PSA rate for the PSA year beginning February 1, 2012.
Transmission Rates and Transmission Cost Adjustor. In July 2008, the FERC approved an Open
Access Transmission Tariff for APS to move from fixed rates to a formula rate-setting methodology
in order to more accurately reflect and recover the costs that APS incurs in providing transmission
services. A large portion of the rate represents charges for transmission services to serve APSs
retail customers (Retail Transmission Charges). In order to recover the Retail Transmission
Charges, APS must file an application with, and obtain approval from, the ACC to reflect changes in
Retail Transmission Charges through the TCA.
100
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The formula rate is updated each year effective June 1 on the basis of APSs actual cost of
service, as disclosed in APSs FERC Form 1 report for the previous fiscal year. Items to be
updated include actual capital expenditures made as compared with previous projections,
transmission revenue credits and other items. The resolution of proposed adjustments can result in
significant volatility in the revenues to be collected. APS reviews the proposed formula rate
filing amounts with the ACC staff. Any items or adjustments which are not agreed to by APS and the
ACC staff can remain in dispute until settled or litigated at FERC. Settlement or litigated
resolution of disputed issues could require an extended period of time and have a significant
effect on the Retail Transmission Charge because any adjustment, though applied prospectively, may
be calculated to account for previously over-collected amounts.
Effective June 1, 2010, APSs annual wholesale transmission rates for all users of its
transmission system were reduced by approximately $12 million in accordance with the FERC-approved
formula as a result of lower costs reflected in the formula. Approximately $10 million of this
revenue reduction relates to transmission services used for APSs retail customers. On May 20,
2010, APS filed with the ACC an application for the related reduction of its TCA rate. The ACC
approved the TCA reduction on July 27, 2010.
Regulatory Assets and Liabilities
The detail of regulatory assets is as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Pension and other postretirement benefits (Note 8) |
|
$ |
669 |
|
|
$ |
532 |
|
Deferred fuel and purchased power mark-to-market (Note 18) |
|
|
77 |
|
|
|
41 |
|
Deferred income taxes (Note 4) |
|
|
72 |
|
|
|
59 |
|
Transmission vegetation management |
|
|
46 |
|
|
|
34 |
|
Coal reclamation |
|
|
38 |
|
|
|
16 |
|
Palo Verde VIE (Note 20) |
|
|
33 |
|
|
|
31 |
|
Deferred compensation |
|
|
32 |
|
|
|
31 |
|
Tax expense of Medicare subsidy (Note 8) |
|
|
23 |
|
|
|
|
|
Loss on reacquired debt |
|
|
22 |
|
|
|
23 |
|
Demand side management (a) |
|
|
18 |
|
|
|
18 |
|
Other |
|
|
19 |
|
|
|
28 |
|
|
|
|
|
|
|
|
Total regulatory assets (b) |
|
$ |
1,049 |
|
|
$ |
813 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
See Cost Recovery Mechanisms discussion above. |
|
(b) |
|
There are no regulatory assets for which regulators have allowed recovery of
costs but not allowed a return by exclusion from rate base. |
Included in the balance of regulatory assets at December 31, 2010 and 2009 is a regulatory
asset for pension and other postretirement 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.
101
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The detail of regulatory liabilities is as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Removal costs (Note 1) (a) |
|
$ |
379 |
|
|
$ |
385 |
|
Asset retirement obligations (Note 12) |
|
|
184 |
|
|
|
156 |
|
Deferred fuel and purchased power (b)(c) |
|
|
58 |
|
|
|
87 |
|
Renewable energy standard (b) |
|
|
50 |
|
|
|
51 |
|
Spent nuclear fuel (Note 11) |
|
|
45 |
|
|
|
34 |
|
Deferred gains on utility property |
|
|
18 |
|
|
|
20 |
|
Tax benefit of Medicare subsidy (Note 8) |
|
|
|
|
|
|
17 |
|
Other |
|
|
19 |
|
|
|
16 |
|
|
|
|
|
|
|
|
Total regulatory liabilities |
|
$ |
753 |
|
|
$ |
766 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In accordance with regulatory accounting guidance, APS accrues for removal costs for
its regulated assets, even if there is no legal obligation for removal. |
|
(b) |
|
See Cost Recovery Mechanisms discussion above. |
|
(c) |
|
Subject to a carrying charge. |
4. Income Taxes
Certain assets and liabilities are reported differently for income tax purposes than they are
for financial statements purposes. The tax effect of these differences is recorded as deferred
taxes. We calculate deferred taxes using the current income tax rates.
APS has recorded regulatory assets and regulatory liabilities related to income taxes on its
Balance Sheets in accordance with accounting guidance for regulated operations. The regulatory
assets are for certain temporary differences, primarily the allowance for equity funds used during
construction and pension and other postretirement benefits. The regulatory liabilities relate to
deferred taxes resulting primarily from investment tax credits. APS amortizes these amounts as the
differences reverse.
Pinnacle West expects to recognize approximately $132 million of cash tax benefits related to
SunCors strategic asset sales (see Note 23), a majority of which have been realized as of December
31, 2010. Approximately $7 million of these benefits were recorded in 2010 as reductions to income
tax expense related to the current impairment charges. The additional $125 million of tax benefits
were recorded as reductions to income tax expense related to SunCor impairment charges recorded on
or before December 31, 2009.
The $68 million income tax receivables on the Consolidated Balance Sheets represent the
anticipated refunds related to an APS tax accounting method change approved by the IRS in the third
quarter of 2009 and the current year tax benefits related to the SunCor strategic asset sales that
closed in 2010. A majority of this amount is classified as long-term, as cash refunds are not
expected to be received in the next twelve months.
102
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits,
excluding interest and penalties, at the beginning and end of the year that are included in accrued
taxes and unrecognized tax benefits (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Total unrecognized tax benefits, January 1 |
|
$ |
201,216 |
|
|
$ |
63,318 |
|
|
$ |
157,869 |
|
Additions for tax positions of the current year |
|
|
7,551 |
|
|
|
44,094 |
|
|
|
12,923 |
|
Additions for tax positions of prior years |
|
|
|
|
|
|
98,942 |
|
|
|
32,510 |
|
Reductions for tax positions of prior years
for: |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in judgment |
|
|
(11,017 |
) |
|
|
|
|
|
|
(4,454 |
) |
Settlements with taxing authorities |
|
|
(62,199 |
) |
|
|
(4,089 |
) |
|
|
(35,812 |
) |
Lapses of applicable statute of
limitations |
|
|
(7,956 |
) |
|
|
(1,049 |
) |
|
|
(99,718 |
) |
|
|
|
|
|
|
|
|
|
|
Total unrecognized tax benefits, December 31 |
|
$ |
127,595 |
|
|
$ |
201,216 |
|
|
$ |
63,318 |
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2010, the Company reached a settlement with the IRS with regard to
the examination of tax returns for the years ended December 31, 2005 through 2007. As a result of
this settlement, net uncertain tax positions decreased $62 million, including approximately $3
million which decreased our effective tax rate. Additionally, the settlement resulted in the
recognition of net interest benefits of approximately $4 million through the effective tax rate.
Included in the balances of unrecognized tax benefits at December 31, 2010, 2009 and 2008 were
approximately $7 million, $16 million and $16 million, respectively, of tax positions that, if
recognized, would decrease our effective tax rate.
As of the balance sheet date, the tax year ended December 31, 2008 and all subsequent tax
years remain subject to examination by the IRS. With few exceptions, we are no longer subject to
state income tax examinations by tax authorities for years before 1999. We do not anticipate that
there will be any significant increases or decreases in our unrecognized tax benefits within the
next twelve months.
We reflect interest and penalties, if any, on unrecognized tax benefits in the Consolidated
Statements of Income as income tax expense. The amount of interest recognized in the Consolidated
Statement of Income related to unrecognized tax benefits was a pre-tax benefit of $2 million for
2010, a pre-tax expense of $2 million for 2009 and a pre-tax benefit of $51 million for 2008.
The total amount of accrued liabilities for interest recognized in the consolidated Balance
Sheets related to unrecognized tax benefits was $6 million as of December 31, 2010, $8 million as
of December 31, 2009 and $6 million as of December 31, 2008. To the extent that matters are
settled favorably, this amount could reverse and decrease our effective tax rate. Additionally, as
of December 31, 2010, we have recognized $5 million of interest income to be received on the
overpayment of income taxes for certain adjustments that we have filed, or will file, with the IRS.
103
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of income tax expense are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(108,827 |
) |
|
$ |
(38,502 |
) |
|
$ |
(85,866 |
) |
State |
|
|
25,545 |
|
|
|
(38,080 |
) |
|
|
11,738 |
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
(83,282 |
) |
|
|
(76,582 |
) |
|
|
(74,128 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
271,147 |
|
|
|
105,492 |
|
|
|
158,024 |
|
Discontinued operations |
|
|
(10,736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
260,411 |
|
|
|
105,492 |
|
|
|
158,024 |
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense |
|
|
177,129 |
|
|
|
28,910 |
|
|
|
83,896 |
|
Less: income tax expense (benefit) on
discontinued operations |
|
|
12,808 |
|
|
|
(107,596 |
) |
|
|
(11,648 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense continuing
operations |
|
$ |
164,321 |
|
|
$ |
136,506 |
|
|
$ |
95,544 |
|
|
|
|
|
|
|
|
|
|
|
The following chart compares pretax income from continuing operations at the 35% federal
income tax rate to income tax expense continuing operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Federal income tax expense at 35%
statutory rate |
|
$ |
180,222 |
|
|
$ |
136,172 |
|
|
$ |
130,858 |
|
Increases (reductions) in tax expense
resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income tax net of federal income
tax benefit |
|
|
17,878 |
|
|
|
14,837 |
|
|
|
12,640 |
|
Credits and favorable adjustments
related to prior years resolved in
current year |
|
|
(17,300 |
) |
|
|
|
|
|
|
(28,873 |
) |
Medicare Subsidy Part-D (see Note 8) |
|
|
1,311 |
|
|
|
(2,095 |
) |
|
|
(1,993 |
) |
Allowance for equity funds used during
construction (see Note 1) |
|
|
(6,563 |
) |
|
|
(4,265 |
) |
|
|
(5,755 |
) |
Palo Verde VIE noncontrolling interest
(see Note 20) |
|
|
(7,057 |
) |
|
|
(6,723 |
) |
|
|
(6,123 |
) |
Other |
|
|
(4,170 |
) |
|
|
(1,420 |
) |
|
|
(5,210 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense continuing operations |
|
$ |
164,321 |
|
|
$ |
136,506 |
|
|
$ |
95,544 |
|
|
|
|
|
|
|
|
|
|
|
104
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the net deferred income tax liability recognized on the Consolidated
Balance Sheets (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Current asset |
|
$ |
94,602 |
|
|
$ |
53,990 |
|
Long-term liability |
|
|
(1,833,566 |
) |
|
|
(1,496,095 |
) |
|
|
|
|
|
|
|
Deferred income taxes net |
|
$ |
(1,738,964 |
) |
|
$ |
(1,442,105 |
) |
|
|
|
|
|
|
|
The components of the net deferred income tax liability were as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
DEFERRED TAX ASSETS |
|
|
|
|
|
|
|
|
Risk management activities |
|
$ |
124,731 |
|
|
$ |
87,404 |
|
Regulatory liabilities: |
|
|
|
|
|
|
|
|
Asset retirement obligation and removal
costs |
|
|
222,448 |
|
|
|
213,814 |
|
Deferred fuel and purchased power |
|
|
23,089 |
|
|
|
34,463 |
|
Renewable energy standard |
|
|
18,749 |
|
|
|
|
|
Other |
|
|
28,360 |
|
|
|
21,613 |
|
Pension and other postretirement liabilities |
|
|
321,182 |
|
|
|
306,515 |
|
Real estate investments and assets held for
sale |
|
|
19,855 |
|
|
|
113,082 |
|
Renewable energy incentives |
|
|
37,327 |
|
|
|
|
|
Credit and loss carryforwards |
|
|
42,971 |
|
|
|
3,423 |
|
Other |
|
|
68,684 |
|
|
|
57,015 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
907,396 |
|
|
|
837,329 |
|
|
|
|
|
|
|
|
DEFERRED TAX LIABILITIES |
|
|
|
|
|
|
|
|
Plant-related |
|
|
(2,210,976 |
) |
|
|
(1,951,262 |
) |
Risk management activities |
|
|
(30,125 |
) |
|
|
(20,863 |
) |
Regulatory assets: |
|
|
|
|
|
|
|
|
Allowance for equity funds used during
construction |
|
|
(28,276 |
) |
|
|
(23,285 |
) |
Deferred fuel and purchased power
mark-to-market |
|
|
(30,276 |
) |
|
|
(16,167 |
) |
Pension and other postretirement
benefits |
|
|
(264,313 |
) |
|
|
(210,080 |
) |
Other |
|
|
(77,078 |
) |
|
|
(57,210 |
) |
Other |
|
|
(5,316 |
) |
|
|
(567 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(2,646,360 |
) |
|
|
(2,279,434 |
) |
|
|
|
|
|
|
|
Deferred income taxes net |
|
$ |
(1,738,964 |
) |
|
$ |
(1,442,105 |
) |
|
|
|
|
|
|
|
A majority of the deferred tax assets for credit and loss carryforwards relate to federal
general business credits and federal net operating losses. These federal credits and losses first
begin to expire in 2029.
105
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Lines of Credit and Short-Term Borrowings
Pinnacle West and APS maintain committed revolving credit facilities in order to enhance
liquidity and provide credit support for the commercial paper programs. During the first quarter of
2010, Pinnacle West and APS refinanced revolving credit facilities existing at the time that would
have otherwise matured in December 2010. Since March 2010, Pinnacle West and APS have accessed the
commercial paper markets, which neither company had utilized since the third quarter of 2008 due to
negative market conditions.
The table below presents these credit facilities and amounts available and outstanding and
other short-term borrowings as of December 31, 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
of |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
Credit |
|
|
|
Amount |
|
|
Credit |
|
|
Short-Term |
|
|
Unused |
|
|
Interest |
|
|
Commitment |
|
Facility |
|
Expiration |
|
Committed |
|
|
Used |
|
|
Borrowings |
|
|
Amount |
|
|
Rate |
|
|
Fees |
|
PNW Revolving
Credit Facility |
|
February 2013 |
|
$ |
200 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
183 |
|
|
|
|
|
|
|
0.625 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PNW Commercial Paper |
|
January 2011 |
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
0.840 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APS Revolving
Credit Facility |
|
February 2013 |
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
0.500 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APS Revolving
Credit Facility |
|
September 2011 |
|
|
489 |
|
|
|
20 |
|
|
|
|
|
|
|
469 |
|
|
|
|
|
|
|
0.100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
1,189 |
|
|
$ |
20 |
|
|
$ |
17 |
|
|
$ |
1,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinnacle West
On February 12, 2010, Pinnacle West refinanced its $283 million revolving credit facility that
would have matured in December 2010, and decreased the size of the facility to $200 million.
Pinnacle West has the option to increase the amount of the facility up to a maximum of $300 million
upon the satisfaction of certain conditions and with the consent of the lenders. Pinnacle West
will use the facility for general corporate purposes, commercial paper program support of up to
$200 million, or for the issuance of letters of credit. Interest rates are based on Pinnacle
Wests senior unsecured debt credit ratings.
APS
On February 12, 2010, APS refinanced its $377 million credit facility that would have matured
in December 2010, and increased the size of the facility to $500 million. APS may increase the
amount of the facility up to a maximum of $700 million upon the satisfaction of certain conditions
and
with the consent of the lenders. APS will use the facility for general corporate purposes,
commercial paper program support and for the issuance of letters of credit. Interest rates are
based on APSs senior unsecured debt credit ratings.
106
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 14, 2011, APS refinanced its $489 million revolving credit facility that would
have matured in September 2011, and increased the size of the facility to $500 million. The new
revolving credit facility terminates in February 2015. APS may increase the amount of the facility
up to a maximum of $700 million upon the satisfaction of certain conditions and with the consent of
the lenders. APS will use the facility for general corporate purposes, commercial paper program
support and for the issuance of letters of credit. Interest rates are based on APSs senior
unsecured debt credit ratings.
At December 31, 2010, APS had two credit facilities totaling $989 million, consisting of the
$500 million and $489 million credit facilities described above. These facilities were available
either to support the issuance of up to $250 million in commercial paper, or for bank borrowings,
including issuances of letters of credit. See Note 21 for discussion of APSs letters of credit.
SunCor
SunCor had no short-term borrowings at December 31, 2010 and approximately $5 million at
December 31, 2009.
The table below presents the consolidated credit facilities and amounts available
and outstanding and other short-term borrowings as of December 31, 2009 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Credit |
|
|
|
Amount |
|
|
Short-Term |
|
|
Unused |
|
|
Average |
|
|
Commitment |
|
Facility |
|
Expiration |
|
Committed |
|
|
Borrowings |
|
|
Amount |
|
|
Interest Rate |
|
|
Fees |
|
PNW Revolving
Credit Facility |
|
December 2010 |
|
$ |
283 |
|
|
$ |
149 |
|
|
$ |
134 |
|
|
|
0.982 |
% |
|
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APS Revolving
Credit Facility |
|
December 2010 |
|
|
377 |
|
|
|
|
|
|
|
377 |
|
|
|
|
|
|
|
0.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APS Revolving
Credit Facility |
|
September 2011 |
|
|
489 |
|
|
|
|
|
|
|
489 |
|
|
|
|
|
|
|
0.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SunCor
Short-term Borrowings |
|
January 2010 |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
LIBOR plus 2.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
1,149 |
|
|
$ |
154 |
|
|
$ |
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinnacle West
At December 31, 2009, the Pinnacle West credit facility was available to support the issuance
of up to $250 million in commercial paper or bank borrowings, including issuances of letters of
credit,
up to $94 million. At December 31, 2009, Pinnacle West had borrowings of approximately $149
million under its credit facility, no letters of credit and no other short-term borrowings.
107
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APS
At December 31, 2009, the APS credit facilities were available either to support the issuance
of up to $250 million in commercial paper or to be used for bank borrowings, including issuances of
letters of credit, up to $583 million. At December 31, 2009, APS had no borrowings or letters of
credit under its revolving credit facilities or other short-term borrowings.
Debt Provisions
Although provisions in APSs articles of incorporation and ACC financing orders establish
maximum amounts of preferred stock and debt that APS may issue, APS does not expect any of these
provisions to limit its ability to meet its capital requirements. On October 30, 2007, the ACC
issued a financing order in which it approved APSs request, subject to specified parameters and
procedures, to increase (a) APSs short-term debt authorization from 7% of APSs capitalization to
(i) 7% of APSs capitalization plus (ii) $500 million (which is required to be used for purchases
of natural gas and power) and (b) APSs long-term debt authorization from approximately $3.2
billion to $4.2 billion in light of the projected growth of APS and its customer base and the
resulting projected financing needs. This financing order expires December 31, 2012; however, all
debt previously authorized and outstanding on December 31, 2012 will remain authorized and valid
obligations of APS.
108
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Long-Term Debt and Liquidity Matters
Substantially all of Pinnacle Wests and APSs debt is unsecured. The following table
presents the components of long-term debt on the Consolidated Balance Sheets outstanding at
December 31, 2010 and 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity |
|
|
Interest |
|
|
December 31, |
|
|
|
Dates (a) |
|
|
Rates |
|
|
2010 |
|
|
2009 |
|
APS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pollution control bonds Variable |
|
|
2024-2038 |
|
|
|
(b |
) |
|
$ |
43,580 |
|
|
$ |
222,880 |
|
Pollution control bonds Fixed |
|
|
2029-2034 |
|
|
|
(c |
) |
|
|
522,275 |
|
|
|
342,975 |
|
Pollution control bonds with senior
notes |
|
|
2029 |
|
|
|
5.05 |
% |
|
|
90,000 |
|
|
|
90,000 |
|
Unsecured notes |
|
|
2011 |
|
|
|
6.375 |
% |
|
|
400,000 |
|
|
|
400,000 |
|
Unsecured notes |
|
|
2012 |
|
|
|
6.50 |
% |
|
|
375,000 |
|
|
|
375,000 |
|
Unsecured notes |
|
|
2014 |
|
|
|
5.80 |
% |
|
|
300,000 |
|
|
|
300,000 |
|
Unsecured notes |
|
|
2015 |
|
|
|
4.650 |
% |
|
|
300,000 |
|
|
|
300,000 |
|
Unsecured notes |
|
|
2016 |
|
|
|
6.25 |
% |
|
|
250,000 |
|
|
|
250,000 |
|
Unsecured notes |
|
|
2019 |
|
|
|
8.75 |
% |
|
|
500,000 |
|
|
|
500,000 |
|
Unsecured notes |
|
|
2033 |
|
|
|
5.625 |
% |
|
|
200,000 |
|
|
|
200,000 |
|
Unsecured notes |
|
|
2035 |
|
|
|
5.50 |
% |
|
|
250,000 |
|
|
|
250,000 |
|
Unsecured notes |
|
|
2036 |
|
|
|
6.875 |
% |
|
|
150,000 |
|
|
|
150,000 |
|
Secured note |
|
|
2014 |
|
|
|
6.00 |
% |
|
|
|
|
|
|
1,075 |
|
Palo Verde sale leaseback lessor
notes |
|
|
2015 |
|
|
|
8.00 |
% |
|
|
126,000 |
|
|
|
151,783 |
|
Unamortized discount |
|
|
|
|
|
|
|
|
|
|
(6,183 |
) |
|
|
(7,185 |
) |
Capitalized lease obligations |
|
|
2011-2012 |
|
|
|
(d |
) |
|
|
2,001 |
|
|
|
2,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal (e) |
|
|
|
|
|
|
|
|
|
|
3,502,673 |
|
|
|
3,529,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUNCOR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
|
2011 |
|
|
|
(f |
) |
|
|
|
|
|
|
95,535 |
|
Capitalized lease obligations |
|
|
2011-2012 |
|
|
|
(g |
) |
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PINNACLE WEST |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes |
|
|
2011 |
|
|
|
5.91 |
% |
|
|
175,000 |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
|
|
|
|
|
|
|
|
3,677,673 |
|
|
|
3,800,000 |
|
Less current maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APS |
|
|
|
|
|
|
|
|
|
|
456,879 |
|
|
|
222,959 |
|
SunCor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,517 |
|
Pinnacle West |
|
|
|
|
|
|
|
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
631,879 |
|
|
|
303,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LONG-TERM DEBT
LESS CURRENT MATURITIES |
|
|
|
|
|
|
|
|
|
$ |
3,045,794 |
|
|
$ |
3,496,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This schedule does not reflect the timing of redemptions that may occur prior to
maturities. |
|
(b) |
|
The weighted-average rate for the variable rate pollution control bonds was 0.32% at
December 31, 2010 and 0.25% at December 31, 2009. |
|
(c) |
|
The bonds fixed rate of interest ranged from 2.875% to 6.00% at December 31, 2010. The bonds
fixed interest ranged from 5.00% to 6.00% at December 31, 2009. Approximately $343 million
are subject to mandatory tender dates. See discussion of the refinancing of pollution control
bonds below. |
|
(d) |
|
The weighted-average interest rate was 5.29% at December 31, 2010 and 5.50% at December 31,
2009. |
|
(e) |
|
APSs long-term debt less current maturities was $3.046 billion at December 31, 2010 and
$3.306 billion at December 31, 2009. |
109
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
(f) |
|
SunCor had no debt outstanding at December 31, 2010 and $57 million outstanding at December
31, 2009 under its secured revolver that matured on January 30, 2010. The weighted average
interest rate at December 31, 2009 was 5.00%. SunCor had no debt outstanding at December 31,
2010 and $39 million at December 31, 2009 of other debt under other long-term facilities. At
December 31, 2009, the remaining debt was primarily classified as current maturities of
long-term debt and consisted of multiple notes with variable interest rates of prime plus
2.00% and LIBOR plus 1.70%, 2.00%, 2.25% and 2.50%. |
|
(g) |
|
The weighted-average interest rate was 4.90% December 31, 2009. |
Credit Facilities and Debt Issuances
Pinnacle West
In June 2010, Pinnacle West received approximately $100 million related to the sale of APSES
district cooling business. The net proceeds were used to repay short-term indebtedness.
APS
On July 13, 2010, APS changed the interest rate mode for the approximately $33 million of
Coconino County, Arizona Pollution Control Corporation Pollution Control Revenue Bonds (Arizona
Public Service Company Navajo Project) 1994 Series A, due 2029. The rate period for the bonds
changed from a daily rate mode, supported by a letter of credit, to a three-year term rate mode
that will bear interest at a rate of 3.625% per annum for three years. The letter of credit was
terminated in connection with this change, and there is no bank or other third-party credit support
for the bonds in the term rate mode.
On August 10, 2010, APS changed the letter of credit supporting the approximately $17 million
of Coconino County, Arizona Pollution Control Corporation Pollution Control Revenue Bonds (Arizona
Public Service Company Project) Series 1998, due 2033. The bonds were in a daily rate mode
supported by a prior letter of credit and remain in a daily rate mode, supported by a new
three-year letter of credit expiring in August 2013.
On October 12, 2010, APS changed the interest rate mode for the approximately $147 million of
City of Farmington, New Mexico Pollution Control Revenue Refunding Bonds (Arizona Public Service
Company Four Corners Project) 1994 Series A and 1994 Series B, due 2024 and City of Farmington, New
Mexico Pollution Control Revenue Bonds (Arizona Public Service Company Four Corners Project) 1994
Series C, due 2024. The rate period for the 1994 Series A bonds and the 1994 Series B bonds changed
from a daily rate mode, supported by letters of credit, to a term rate mode to maturity, subject to
optional redemption after year ten, that will bear interest at a rate of 4.70% per annum until
maturity in 2024 unless the optional redemption is exercised by APS. The rate period for the 1994
Series C bonds changed from a daily rate mode, supported by a letter of credit, to a three-year
term rate mode that will bear interest at a rate of 2.875% per annum until October 2013. The
letters of credit supporting each of these three series of bonds were terminated in connection with
these changes, and there is no bank or other third-party credit support for any of these bonds.
On January 1, 2010, due to the adoption of amended accounting guidance relating to VIEs, APS
began consolidating the Palo Verde Sale Leaseback Trusts. As a result of consolidation of these
VIEs, APS has reported the Lessor Trusts long-term debt on its Consolidated Balance Sheets.
Interest rates on these debt instruments are 8% and are fixed for the remaining life of the debt.
As of December 31, 2010, approximately $29 million was classified as current maturities of long-term debt and
approximately $97 million was classified as long-term debt relating to these VIEs. These debt
instruments mature on December 30, 2015 and have sinking fund features that are serviced by the
lease payments. See Note 20 for additional discussion of the VIEs.
110
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SunCor
In 2010, SunCor sold land parcels, commercial assets and master planned home-building
communities for approximately $72 million, which approximated the carrying value of these assets,
resulting in a net gain of zero. In connection with these sales, SunCor negotiated a restructuring
of certain of its credit facilities. The debt restructuring resulted in an after-tax gain of
approximately $10 million. At December 31, 2010, SunCor had no debt outstanding.
Debt Provisions
Pinnacle Wests and APSs debt covenants related to their respective bank financing
arrangements include maximum debt to capitalization ratios. Pinnacle West and APS comply with this
covenant and each anticipates it will continue to meet this and other significant covenant
requirements. For both Pinnacle West and APS, this covenant requires that the ratio of
consolidated debt to total consolidated capitalization not exceed 65%. At December 31, 2010, the
ratio was approximately 49% for Pinnacle West and 46% for APS. Failure to comply with such covenant
levels would result in an event of default which, generally speaking, would require the immediate
repayment of the debt subject to the covenants and could cross-default other debt. See further
discussion of cross-default provisions below.
Neither Pinnacle Wests nor APSs financing agreements contain rating triggers that would
result in an acceleration of the required interest and principal payments in the event of a rating
downgrade. However, our bank credit agreements contain a pricing grid in which the interest rates
we pay for borrowings thereunder are determined by our current credit ratings.
All of Pinnacle Wests loan agreements contain cross-default provisions that would result in
defaults and the potential acceleration of payment under these loan agreements if Pinnacle West or
APS were to default under certain other material agreements. All of APSs bank agreements contain
cross-default provisions that would result in defaults and the potential acceleration of payment
under these bank agreements if APS were to default under certain other material agreements.
Pinnacle West and APS do not have a material adverse change restriction for credit facility
borrowings.
An existing ACC order requires APS to maintain a common equity ratio of at least 40%. As
defined in the ACC order, the common equity ratio is total shareholder equity divided by the sum of
total shareholder equity and long-term debt, including current maturities of long-term debt. At
December 31, 2010, APSs common equity ratio, as defined, was 53%. Its total shareholder equity was
approximately $3.8 billion, and total capitalization was approximately $7.2 billion. APS would be
prohibited from paying dividends if the payment would reduce its total shareholder equity below
approximately $2.9 billion, assuming APSs total capitalization remains the same. This restriction
does not materially affect Pinnacle Wests ability to meet its ongoing capital requirements.
111
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows principal payments due on Pinnacle Wests and APSs total long-term
debt and capitalized lease requirements (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Consolidated |
|
Year |
|
Pinnacle West |
|
|
APS |
|
2011 |
|
$ |
632 |
|
|
$ |
457 |
|
2012 |
|
|
477 |
|
|
|
477 |
|
2013 |
|
|
140 |
|
|
|
140 |
|
2014 |
|
|
502 |
|
|
|
502 |
|
2015 |
|
|
313 |
|
|
|
313 |
|
Thereafter |
|
|
1,620 |
|
|
|
1,620 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,684 |
|
|
$ |
3,509 |
|
|
|
|
|
|
|
|
7. Common Stock and Treasury Stock
Our common stock and treasury stock activity during each of the three years 2010, 2009 and
2008 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Treasury Stock |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
Balance at December 31, 2007 |
|
|
100,525,470 |
|
|
$ |
2,135,787 |
|
|
|
(39,505 |
) |
|
$ |
(2,054 |
) |
Common stock issuance |
|
|
422,966 |
|
|
|
10,845 |
|
|
|
|
|
|
|
|
|
Purchase of treasury stock (a) |
|
|
|
|
|
|
|
|
|
|
(39,022 |
) |
|
|
(1,387 |
) |
Reissuance of treasury stock
for stock compensation |
|
|
|
|
|
|
|
|
|
|
18,700 |
|
|
|
587 |
|
Other |
|
|
|
|
|
|
4,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
100,948,436 |
|
|
|
2,151,323 |
|
|
|
(59,827 |
) |
|
|
(2,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance |
|
|
579,501 |
|
|
|
10,620 |
|
|
|
|
|
|
|
|
|
Purchase of treasury stock (a) |
|
|
|
|
|
|
|
|
|
|
(66,173 |
) |
|
|
(2,156 |
) |
Reissuance of treasury stock
for stock compensation |
|
|
|
|
|
|
|
|
|
|
32,761 |
|
|
|
1,198 |
|
Other |
|
|
|
|
|
|
(8,648 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
101,527,937 |
|
|
|
2,153,295 |
|
|
|
(93,239 |
) |
|
|
(3,812 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance (b) |
|
|
7,292,130 |
|
|
|
263,297 |
|
|
|
|
|
|
|
|
|
Purchase of treasury stock (a) |
|
|
|
|
|
|
|
|
|
|
(1,994 |
) |
|
|
(82 |
) |
Reissuance of treasury stock
for stock compensation |
|
|
|
|
|
|
|
|
|
|
44,823 |
|
|
|
1,655 |
|
Other |
|
|
|
|
|
|
4,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
108,820,067 |
|
|
$ |
2,421,372 |
|
|
|
(50,410 |
) |
|
$ |
(2,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily represents shares of common stock withheld from certain stock awards
for tax purposes. |
|
(b) |
|
In April 2010, Pinnacle West issued 6,900,000 shares of common stock at an
offering price of $38.00 per share, resulting in net proceeds of approximately $253
million. Pinnacle West contributed all of the net proceeds from this offering into APS
in the
form of equity infusions. APS has used these contributions to repay short-term
indebtedness, to finance capital expenditures and for other general corporate
purposes. |
112
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Retirement Plans and Other Benefits
Pinnacle West sponsors a qualified defined benefit and account balance pension plan and a
non-qualified supplemental excess benefit retirement plan for the employees of Pinnacle West and
its subsidiaries. All new employees participate in the account balance plan. Defined benefit
plans specify the amount of benefits a plan participant is to receive using information about the
participant. The pension plan covers nearly all employees. The supplemental excess benefit
retirement plan covers officers of the Company and highly compensated employees designated for
participation by the Board of Directors. Our employees do not contribute to the plans. Generally,
we calculate the benefits based on age, years of service and pay.
We also sponsor other postretirement benefits for the employees of Pinnacle West and our
subsidiaries. We provide medical and life insurance benefits to retired employees. Employees must
retire to become eligible for these retirement benefits, which are based on years of service and
age. For the medical insurance plans, retirees make contributions to cover a portion of the plan
costs. For the life insurance plan, retirees do not make contributions. We retain the right to
change or eliminate these benefits.
Pinnacle West uses a December 31 measurement date each year for its pension and other
postretirement benefit plans. The market-related value of our plan assets is their fair value at
the measurement date. See Note 14 for discussion of how fair values are determined. Due to
subjective and complex judgments, which may be required in determining fair values, actual results
could differ from the results estimated through the application of these methods.
A significant portion of the changes in the actuarial gains and losses of our pension and
postretirement plans is attributable to APS and therefore is recoverable in rates. Accordingly,
these changes are recorded as a regulatory asset. In its 2009 retail rate case settlement, APS
received approval to defer a portion of pension and other postretirement benefit cost increases
incurred in 2011 and 2012.
On March 23, 2010, the President signed into law comprehensive health care reform legislation
under the Patient Protection and Affordable Care Act (the Act). One feature of the Act is the
elimination of the tax deduction for prescription drug costs that are reimbursed as part of the
Medicare Part D subsidy. Although this tax increase does not take effect until 2013, we are
required to recognize the full accounting impact in our financial statements in the period in which
the Act is signed. In accordance with accounting for regulated companies, the loss of this
deduction is substantially offset by a regulatory asset that will be recovered through future
electric revenues. In the first quarter of 2010, Pinnacle West charged regulatory assets and
liabilities for a total of $42 million, with a corresponding increase in accumulated deferred
income tax liabilities, to reflect the impact of this change in tax law.
113
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides details of the plans net periodic benefit costs and the portion
of these costs charged to expense (including administrative costs and excluding amounts capitalized
as overhead construction or billed to electric plant participants) (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
Other Benefits |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Service cost-benefits
earned during the
period |
|
$ |
59,064 |
|
|
$ |
54,288 |
|
|
$ |
54,576 |
|
|
$ |
19,236 |
|
|
$ |
18,285 |
|
|
$ |
17,793 |
|
Interest cost on benefit
obligation |
|
|
122,724 |
|
|
|
118,282 |
|
|
|
110,207 |
|
|
|
42,428 |
|
|
|
39,180 |
|
|
|
37,897 |
|
Expected return on plan
assets |
|
|
(124,161 |
) |
|
|
(116,535 |
) |
|
|
(118,309 |
) |
|
|
(39,257 |
) |
|
|
(34,428 |
) |
|
|
(43,609 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition
obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
452 |
|
|
|
3,005 |
|
|
|
3,005 |
|
Prior service
cost (credit) |
|
|
1,705 |
|
|
|
2,080 |
|
|
|
2,455 |
|
|
|
(539 |
) |
|
|
(125 |
) |
|
|
(125 |
) |
Net actuarial
loss |
|
|
18,833 |
|
|
|
14,216 |
|
|
|
11,145 |
|
|
|
10,317 |
|
|
|
10,320 |
|
|
|
2,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit
cost |
|
$ |
78,165 |
|
|
$ |
72,331 |
|
|
$ |
60,074 |
|
|
$ |
32,637 |
|
|
$ |
36,237 |
|
|
$ |
17,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion of cost charged
to expense |
|
$ |
37,933 |
|
|
$ |
36,484 |
|
|
$ |
28,854 |
|
|
$ |
15,839 |
|
|
$ |
18,278 |
|
|
$ |
8,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APS share of cost
charged to expense |
|
$ |
36,840 |
|
|
$ |
34,850 |
|
|
$ |
27,491 |
|
|
$ |
15,382 |
|
|
$ |
17,459 |
|
|
$ |
7,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the plans changes in the benefit obligations and funded
status for the years 2010 and 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
Other Benefits |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Change in Benefit Obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1 |
|
$ |
2,074,131 |
|
|
$ |
1,884,656 |
|
|
$ |
700,535 |
|
|
$ |
655,265 |
|
Service cost |
|
|
59,064 |
|
|
|
54,288 |
|
|
|
19,236 |
|
|
|
18,285 |
|
Interest cost |
|
|
122,724 |
|
|
|
118,282 |
|
|
|
42,428 |
|
|
|
39,180 |
|
Benefit payments |
|
|
(93,776 |
) |
|
|
(77,577 |
) |
|
|
(20,421 |
) |
|
|
(18,959 |
) |
Actuarial loss |
|
|
183,365 |
|
|
|
94,482 |
|
|
|
98,094 |
|
|
|
6,764 |
|
Plan amendments |
|
|
(448 |
) |
|
|
|
|
|
|
(11,975 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at December 31 |
|
|
2,345,060 |
|
|
|
2,074,131 |
|
|
|
827,897 |
|
|
|
700,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
January 1 |
|
|
1,461,808 |
|
|
|
1,430,372 |
|
|
|
490,455 |
|
|
|
429,306 |
|
Actual return on plan assets |
|
|
190,380 |
|
|
|
96,511 |
|
|
|
60,255 |
|
|
|
61,101 |
|
Employer contributions |
|
|
200,000 |
|
|
|
|
|
|
|
16,700 |
|
|
|
15,506 |
|
Benefit payments |
|
|
(76,592 |
) |
|
|
(65,075 |
) |
|
|
|
|
|
|
(15,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
December 31 |
|
|
1,775,596 |
|
|
|
1,461,808 |
|
|
|
567,410 |
|
|
|
490,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status at December 31 |
|
$ |
(569,464 |
) |
|
$ |
(612,323 |
) |
|
$ |
(260,487 |
) |
|
$ |
(210,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
114
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the projected benefit obligation and the accumulated benefit
obligation for the pension plan in excess of plan assets as of December 31, 2010 and 2009 (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Projected benefit obligation |
|
$ |
2,345,060 |
|
|
$ |
2,074,131 |
|
Accumulated benefit obligation |
|
|
2,065,091 |
|
|
|
1,824,661 |
|
Fair value of plan assets |
|
|
1,775,596 |
|
|
|
1,461,808 |
|
The following table shows the amounts recognized on the Consolidated Balance Sheets as of
December 31, 2010 and 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
Other Benefits |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Current liability |
|
$ |
(16,830 |
) |
|
$ |
(11,065 |
) |
|
$ |
|
|
|
$ |
|
|
Noncurrent liability |
|
|
(552,634 |
) |
|
|
(601,258 |
) |
|
|
(260,487 |
) |
|
|
(210,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(569,464 |
) |
|
$ |
(612,323 |
) |
|
$ |
(260,487 |
) |
|
$ |
(210,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the details related to accumulated other comprehensive loss as of
December 31, 2010 and 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
Other Benefits |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net actuarial loss |
|
$ |
502,938 |
|
|
$ |
404,619 |
|
|
$ |
261,071 |
|
|
$ |
194,301 |
|
Prior service cost (credit) |
|
|
5,712 |
|
|
|
7,865 |
|
|
|
(4,571 |
) |
|
|
(794 |
) |
Transition obligation |
|
|
|
|
|
|
|
|
|
|
903 |
|
|
|
9,015 |
|
APSs portion recorded as a regulatory
asset |
|
|
(419,774 |
) |
|
|
(336,728 |
) |
|
|
(249,255 |
) |
|
|
(195,389 |
) |
Income tax benefit |
|
|
(35,106 |
) |
|
|
(29,902 |
) |
|
|
(2,498 |
) |
|
|
(2,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
53,770 |
|
|
$ |
45,854 |
|
|
$ |
5,650 |
|
|
$ |
5,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the estimated amounts that will be amortized from accumulated other
comprehensive loss and regulatory assets into net periodic benefit cost in 2011 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Pension |
|
|
Benefits |
|
Net actuarial loss |
|
$ |
25,660 |
|
|
$ |
13,736 |
|
Prior service cost (credit) |
|
|
1,400 |
|
|
|
(539 |
) |
Transition obligation |
|
|
|
|
|
|
452 |
|
|
|
|
|
|
|
|
Total amounts estimated to be
amortized from accumulated
other comprehensive income
and regulatory assets in 2011 |
|
$ |
27,060 |
|
|
$ |
13,649 |
|
|
|
|
|
|
|
|
115
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the weighted-average assumptions used for both the pension and other
benefits to determine benefit obligations and net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligations |
|
|
Benefit Costs |
|
|
|
As of December 31, |
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Discount rate-pension |
|
|
5.31 |
% |
|
|
5.90 |
% |
|
|
5.90 |
% |
|
|
6.11 |
% |
|
|
6.25 |
% |
Discount rate-other benefits |
|
|
5.49 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
|
|
6.13 |
% |
|
|
6.31 |
% |
Rate of compensation
increase |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
4.00 |
% |
Expected long-term return
on plan assets |
|
|
N/A |
|
|
|
N/A |
|
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
9.00 |
% |
Initial health care cost trend
rate |
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
8.00 |
% |
|
|
8.00 |
% |
Ultimate health care cost
trend rate |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
5.00 |
% |
Number of years to ultimate
trend rate |
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
In selecting the pretax expected long-term rate of return on plan assets we consider past
performance and economic forecasts for the types of investments held by the plan. For the year
2011, we are assuming a 7.75% long-term rate of return on plan assets, which we believe is
reasonable given our asset allocation in relation to historical and expected performance.
Assumed health care cost trend rates have a significant effect on the amounts reported for the
health care plans. In selecting our health care trend rate, we consider past performance and
forecasts of health care costs. A one percentage point change in the assumed initial and ultimate
health care cost trend rates would have the following effects (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
1% Increase |
|
|
1% Decrease |
|
Effect on other postretirement
benefits expense, after
consideration of amounts
capitalized or billed to
electric plant participants |
|
$ |
9 |
|
|
$ |
(8 |
) |
Effect on service and interest
cost components of net periodic
other postretirement benefit
costs |
|
|
12 |
|
|
|
(9 |
) |
Effect on the accumulated other
postretirement benefit
obligation |
|
|
134 |
|
|
|
(107 |
) |
116
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plan Assets
The Board of Directors has delegated oversight of the plans assets to an Investment
Management Committee, which has adopted an investment policy. The investment policys overall
strategy is to achieve an adequate level of trust assets relative to the benefit obligation. To
achieve this objective, the plans investment policies provide for a mix of investments in
long-term fixed income assets and return-generating assets. Long-term fixed income assets are
designed to offset changes in benefit obligations due to changes in discount rates and inflation.
Return-generating assets are intended to provide a reasonable long-term rate of investment return
with a prudent level of volatility. The determination of total allocation between
return-generating and long-term fixed income assets is
reviewed on at least an annual basis. Other investment strategies include the prohibition of
investments in Pinnacle West securities and the external management of the plans assets.
Long-term fixed income assets consist primarily of fixed income debt securities issued by the
U.S. Treasury, other government agencies, and corporations. Long-term fixed income assets may also
include interest rate swaps, U.S. Treasury futures and other instruments. The investment policy
does not provide for a specific mix of long-term fixed income assets, but does require the average
credit rating of such assets to be considered upper medium grade or above. The 2010 year-end
long-term fixed income asset strategy focused on investments in corporate bonds of primarily
investment-grade U.S. issuers and long-term treasuries, with total long-term fixed income assets
representing 41% of total pension plan assets and 39% of other benefit plans assets.
Return-generating assets in the pension plan and other benefit plans target a mix of
approximately 64% U.S. equities, 27% international equities, and 9% alternative investments. The
2010 year-end U.S. equity holdings were invested primarily in large-cap companies in diverse
industries. International equities include investments in emerging and developing markets.
Return-generating assets also include investments in securities through commingled funds in common
and collective trusts. Alternative investments primarily include investments in real estate. The
2010 year-end return-generating assets represented 59% of total pension plan assets and 61% of
other benefit plans assets.
117
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
See Note 14 for a discussion on the fair value hierarchy and how fair value methodologies are
applied. The fair value of Pinnacle Wests pension plan and other postretirement benefit plan
assets at December 31, 2010, by asset category, are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
|
|
|
|
Balance at |
|
|
|
Assets |
|
|
Inputs |
|
|
Netting and |
|
|
December 31, |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
Other (a) |
|
|
2010 |
|
Pension Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,375 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,375 |
|
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
508,946 |
|
|
|
|
|
|
|
508,946 |
|
U.S. Treasury |
|
|
163,313 |
|
|
|
|
|
|
|
|
|
|
|
163,313 |
|
Other (b) |
|
|
|
|
|
|
53,358 |
|
|
|
|
|
|
|
53,358 |
|
Equities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Companies |
|
|
462,973 |
|
|
|
|
|
|
|
|
|
|
|
462,973 |
|
International Companies |
|
|
129,094 |
|
|
|
|
|
|
|
|
|
|
|
129,094 |
|
Other investments |
|
|
|
|
|
|
5,549 |
|
|
|
8,071 |
|
|
|
13,620 |
|
Common and collective trusts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Equities |
|
|
|
|
|
|
146,705 |
|
|
|
|
|
|
|
146,705 |
|
International Equities |
|
|
|
|
|
|
177,114 |
|
|
|
|
|
|
|
177,114 |
|
Real estate |
|
|
|
|
|
|
92,454 |
|
|
|
|
|
|
|
92,454 |
|
Short-term investments |
|
|
|
|
|
|
25,644 |
|
|
|
|
|
|
|
25,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pension Plan |
|
$ |
757,755 |
|
|
$ |
1,009,770 |
|
|
$ |
8,071 |
|
|
$ |
1,775,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
243 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
243 |
|
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
118,660 |
|
|
|
|
|
|
|
118,660 |
|
U.S. Treasury |
|
|
74,049 |
|
|
|
|
|
|
|
|
|
|
|
74,049 |
|
Other (b) |
|
|
|
|
|
|
24,456 |
|
|
|
|
|
|
|
24,456 |
|
Equities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Companies |
|
|
179,655 |
|
|
|
|
|
|
|
|
|
|
|
179,655 |
|
International Companies |
|
|
25,121 |
|
|
|
|
|
|
|
|
|
|
|
25,121 |
|
Other investments |
|
|
|
|
|
|
365 |
|
|
|
2,034 |
|
|
|
2,399 |
|
Common and collective trusts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Equities |
|
|
|
|
|
|
54,144 |
|
|
|
|
|
|
|
54,144 |
|
International Equities |
|
|
|
|
|
|
61,455 |
|
|
|
|
|
|
|
61,455 |
|
Real Estate |
|
|
|
|
|
|
7,357 |
|
|
|
|
|
|
|
7,357 |
|
Short-term investments |
|
|
|
|
|
|
19,871 |
|
|
|
|
|
|
|
19,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Benefits |
|
$ |
279,068 |
|
|
$ |
286,308 |
|
|
$ |
2,034 |
|
|
$ |
567,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents netting of plan receivables and payables. |
|
(b) |
|
This category consists primarily of municipal securities. |
118
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of Pinnacle Wests pension plan and other postretirement benefit plan assets at
December 31, 2009, by asset category, are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Balance at |
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
Netting and |
|
|
December 31, |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Other (a) |
|
|
2009 |
|
Pension Plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
519 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
519 |
|
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
590,343 |
|
|
|
|
|
|
|
|
|
|
|
590,343 |
|
Other (b) |
|
|
|
|
|
|
66,281 |
|
|
|
|
|
|
|
|
|
|
|
66,281 |
|
Interest rate swaps |
|
|
|
|
|
|
20,512 |
|
|
|
|
|
|
|
(20,103 |
) |
|
|
409 |
|
Equities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Companies |
|
|
341,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341,318 |
|
International Companies |
|
|
83,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,492 |
|
Other investments |
|
|
|
|
|
|
6,747 |
|
|
|
|
|
|
|
10,177 |
|
|
|
16,924 |
|
Common and collective trusts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Equities |
|
|
|
|
|
|
144,016 |
|
|
|
|
|
|
|
|
|
|
|
144,016 |
|
International Equities |
|
|
|
|
|
|
132,168 |
|
|
|
|
|
|
|
|
|
|
|
132,168 |
|
Real estate |
|
|
|
|
|
|
|
|
|
|
64,212 |
|
|
|
|
|
|
|
64,212 |
|
Short-term investments |
|
|
|
|
|
|
22,126 |
|
|
|
|
|
|
|
|
|
|
|
22,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
(20,103 |
) |
|
|
|
|
|
|
20,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pension Plan |
|
$ |
425,329 |
|
|
$ |
962,090 |
|
|
$ |
64,212 |
|
|
$ |
10,177 |
|
|
$ |
1,461,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
156 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
156 |
|
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
173,895 |
|
|
|
|
|
|
|
|
|
|
|
173,895 |
|
Other (b) |
|
|
|
|
|
|
20,280 |
|
|
|
|
|
|
|
|
|
|
|
20,280 |
|
Interest rate swaps |
|
|
|
|
|
|
2,091 |
|
|
|
|
|
|
|
(2,049 |
) |
|
|
42 |
|
Equities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Companies |
|
|
170,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,293 |
|
International Companies |
|
|
9,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,721 |
|
Other investments |
|
|
|
|
|
|
383 |
|
|
|
|
|
|
|
(785 |
) |
|
|
(402 |
) |
Common and collective trusts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Equities |
|
|
|
|
|
|
49,363 |
|
|
|
|
|
|
|
|
|
|
|
49,363 |
|
International Equities |
|
|
|
|
|
|
52,670 |
|
|
|
|
|
|
|
|
|
|
|
52,670 |
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
6,504 |
|
|
|
|
|
|
|
6,504 |
|
Short-term investments |
|
|
|
|
|
|
7,933 |
|
|
|
|
|
|
|
|
|
|
|
7,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
(2,049 |
) |
|
|
|
|
|
|
2,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Benefits |
|
$ |
180,170 |
|
|
$ |
304,566 |
|
|
$ |
6,504 |
|
|
$ |
(785 |
) |
|
$ |
490,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents netting under master netting arrangements and plan receivables and
payables. |
|
(b) |
|
This category consists primarily of municipality issued debt securities, but
also includes U.S. Treasuries and asset-backed securities such as collateralized mortgage
obligations. |
119
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the changes in fair value for assets that are measured at fair value
on a recurring basis using significant unobservable inputs (Level 3) for the years ended December
31, 2010 and December 31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Other |
|
Common and Collective Trusts Real Estate |
|
Pension |
|
|
Benefits |
|
|
Pension |
|
|
Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1 |
|
$ |
64,212 |
|
|
$ |
6,504 |
|
|
$ |
88,379 |
|
|
$ |
8,951 |
|
Actual
return on assets still held (a) |
|
|
(204 |
) |
|
|
(23 |
) |
|
|
(29,590 |
) |
|
|
(2,991 |
) |
Purchases, sales, and settlements |
|
|
18,003 |
|
|
|
45 |
|
|
|
5,423 |
|
|
|
544 |
|
Transfers in
and/or out of Level 3 (b) |
|
|
(82,011 |
) |
|
|
(6,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31 |
|
$ |
|
|
|
$ |
|
|
|
$ |
64,212 |
|
|
$ |
6,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The return for December 31, 2010 represents the return on assets held as of March
31, 2010, the beginning of the period in which all the assets were transferred out of Level 3.
The return for December 31, 2009 represents the return on assets held as of December
31, 2009, as no transfers occurred into or out of Level 3 during the year. |
|
(b) |
|
Transfers into and out of Level 3 are measured at the beginning of the period in which
the transfer occurs. Transfers out of Level 3 during 2010 relate to our Real Estate
Common and Collective Trust being transferred to a Level 2 investment. During 2009 the
Real Estate Common and Collective Trust had special redemption restrictions in place,
which limited our ability to transact at the funds net asset value. During 2010 these
special redemption restrictions were lifted, and we were able to transact in the fund at the
net asset value according to the funds normal redemption policy. |
Contributions
The required minimum contribution to our pension plan is zero in 2011 and approximately $85
million in 2012. In 2010, we made voluntary contributions of $200 million to our pension plan.
The contribution to our other postretirement benefit plans in 2010 was approximately $17 million.
The contributions to our other postretirement benefit plans for 2011 and 2012 are expected to be
approximately $20 million each year. APS and other subsidiaries fund their share of the
contributions. APSs share is approximately 98% of both plans.
120
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimated Future Benefit Payments
Benefit payments, which reflect estimated future employee service, for the next five years and
the succeeding five years thereafter are estimated to be as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
Year |
|
Pension |
|
|
Other Benefits (a) |
|
2011 |
|
$ |
106,556 |
|
|
$ |
23,197 |
|
2012 |
|
|
116,615 |
|
|
|
25,713 |
|
2013 |
|
|
129,031 |
|
|
|
28,619 |
|
2014 |
|
|
141,815 |
|
|
|
31,484 |
|
2015 |
|
|
154,185 |
|
|
|
34,176 |
|
Years 2016-2020 |
|
|
972,338 |
|
|
|
216,736 |
|
|
|
|
(a) |
|
The expected future other benefit payments take into account the Medicare Part
D subsidy. |
Employee Savings Plan Benefits
Pinnacle West sponsors a defined contribution savings plan for eligible employees of Pinnacle
West and its subsidiaries. In 2010, costs related to APSs employees represented 98% of the total
cost of this plan. In a defined contribution savings plan, the benefits a participant receives
result from regular contributions participants make to their own individual account, the Companys
matching contributions and earnings or losses on their investments. Under this plan, the Company
matches a percentage of the participants contributions in cash which is then invested in the same
investment mix as participants elect to invest their own future contributions. Pinnacle West
recorded expenses for this plan of approximately $9 million for 2010, $9 million for 2009 and $8
million for 2008.
9. Leases
We lease certain vehicles, land, buildings, equipment and miscellaneous other items through
operating rental agreements with varying terms, provisions and expiration dates.
Total lease expense recognized in the Consolidated Statements of Income was $23 million in
2010, $28 million in 2009 and $28 million in 2008. APSs lease expense was $19 million in 2010,
$19 million in 2009 and $21 million in 2008.
Estimated future minimum lease payments
for Pinnacle Wests and APSs operating leases,
excluding purchased power agreements, are approximately as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Pinnacle West |
|
|
|
|
Year |
|
Consolidated |
|
|
APS |
|
2011 |
|
$ |
24 |
|
|
$ |
20 |
|
2012 |
|
|
21 |
|
|
|
17 |
|
2013 |
|
|
17 |
|
|
|
14 |
|
2014 |
|
|
14 |
|
|
|
11 |
|
2015 |
|
|
13 |
|
|
|
10 |
|
Thereafter |
|
|
9 |
|
|
|
7 |
|
|
|
|
|
|
|
|
Total future lease
commitments |
|
$ |
98 |
|
|
$ |
79 |
|
|
|
|
|
|
|
|
121
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1986, APS entered into agreements with three separate lessor trust entities in order to
sell and lease back interests in Palo Verde Nuclear Generating Station (Palo Verde) Unit 2 and
related common facilities. Prior to January 1, 2010 the arrangements were accounted for as
operating leases.
On January 1, 2010, due to the adoption of amended accounting guidance related to VIEs these
agreements were deemed variable interests and consolidated. We adopted this accounting change
using retrospective application and have adjusted prior periods presented. Consolidation of the
lessor trust entities eliminates the lease accounting we previously reported and results in changes
in our consolidated assets, debt, equity, and net income. The above disclosures exclude the
impacts of these transactions, as lease accounting for these agreements is eliminated upon
consolidation. See Note 20 for a discussion of VIEs.
10. Jointly-Owned Facilities
APS shares ownership of some of its generating and transmission facilities with other
companies. Our share of operations and maintenance expense and utility plant costs related to
these facilities is accounted for using proportional consolidation. The following table shows
APSs interests in those jointly-owned facilities recorded on the Consolidated Balance Sheets at
December 31, 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
Percent |
|
|
Plant in |
|
|
Accumulated |
|
|
Work in |
|
|
|
Owned |
|
|
Service |
|
|
Depreciation |
|
|
Progress |
|
Generating facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palo Verde Units 1 and 3 |
|
|
29.1 |
% |
|
$ |
2,056,977 |
|
|
$ |
1,112,159 |
|
|
$ |
58,272 |
|
Palo Verde Unit 2 (a) |
|
|
17.0 |
% |
|
|
705,996 |
|
|
|
342,640 |
|
|
|
28,162 |
|
Palo Verde Sale Leaseback |
|
|
(a |
) |
|
|
351,050 |
|
|
|
213,094 |
|
|
|
|
|
Four Corners Units 4 and 5 |
|
|
15.0 |
% |
|
|
167,076 |
|
|
|
102,918 |
|
|
|
1,971 |
|
Four Corners common |
|
|
28.3 |
% |
|
|
11,585 |
|
|
|
5,738 |
|
|
|
531 |
|
Navajo Generating Station
Units 1, 2 and 3 |
|
|
14.0 |
% |
|
|
260,590 |
|
|
|
163,281 |
|
|
|
11,041 |
|
Cholla common facilities (b) |
|
|
63.3 |
%(c) |
|
|
140,041 |
|
|
|
48,815 |
|
|
|
3,229 |
|
Transmission facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ANPP 500KV System |
|
|
34.0 |
%(c) |
|
|
85,359 |
|
|
|
27,211 |
|
|
|
4,863 |
|
Navajo Southern System |
|
|
26.1 |
%(c) |
|
|
50,021 |
|
|
|
14,022 |
|
|
|
201 |
|
Palo Verde Yuma 500KV
System |
|
|
43.5 |
%(c) |
|
|
9,408 |
|
|
|
4,165 |
|
|
|
1,462 |
|
Four Corners Switchyards |
|
|
47.5 |
%(c) |
|
|
8,691 |
|
|
|
2,721 |
|
|
|
2,810 |
|
Phoenix Mead System |
|
|
17.5 |
%(c) |
|
|
39,153 |
|
|
|
14,670 |
|
|
|
287 |
|
Palo Verde Estrella 500KV
System |
|
|
50.0 |
%(c) |
|
|
85,622 |
|
|
|
7,469 |
|
|
|
805 |
|
North Valley System |
|
|
71.2 |
%(c) |
|
|
69,497 |
|
|
|
293 |
|
|
|
24,113 |
|
Round Valley System |
|
|
50.0 |
%(c) |
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
|
(a) |
|
See Notes 9 and 20. |
|
(b) |
|
PacifiCorp owns Cholla Unit 4 and APS operates the unit for PacifiCorp. The common
facilities at Cholla are jointly-owned. |
|
(c) |
|
Weighted average of interests. |
122
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Commitments and Contingencies
Palo Verde Nuclear Generating Station
Spent Nuclear Fuel and Waste Disposal
APS currently estimates it will incur $132 million (in 2010 dollars) over the
current life of Palo Verde for its share of the costs related to the on-site interim storage of
spent nuclear fuel. At December 31, 2010, APS had a regulatory liability of $45 million that
represents amounts recovered in retail rates in excess of amounts spent for on-site interim spent
fuel storage.
Nuclear Insurance
The Palo Verde participants are insured against public liability for a nuclear incident up to
$12.6 billion per occurrence. As required by the Price Anderson Nuclear Industries Indemnity Act,
Palo Verde maintains the maximum available nuclear liability insurance in the amount of $375
million, which is provided by commercial insurance carriers. The remaining balance of $12.2
billion is provided through a mandatory industry wide retrospective assessment program. If losses
at any nuclear power plant covered by the program exceed the accumulated funds, APS could be
assessed retrospective premium adjustments. The maximum assessment per reactor under the program
for each nuclear incident is approximately $118 million, subject to an annual limit of $18 million
per incident, to be periodically adjusted for inflation. Based on APSs interest in the three Palo
Verde units, APSs maximum potential assessment per incident for all three units is approximately
$103 million, with an annual payment limitation of approximately $15 million.
The Palo Verde participants maintain all risk (including nuclear hazards) insurance for
property damage to, and decontamination of, property at Palo Verde in the aggregate amount of $2.75
billion, a substantial portion of which must first be applied to stabilization and decontamination.
APS has also secured insurance against portions of any increased cost of generation or purchased
power and business interruption resulting from a sudden and unforeseen accidental outage of any of
the three units. The property damage, decontamination, and replacement power coverages are
provided by Nuclear Electric Insurance Limited (NEIL). APS is subject to retrospective
assessments under all NEIL policies if NEILs losses in any policy year exceed accumulated funds.
The maximum amount APS could incur under the current NEIL policies totals approximately $16 million
for each retrospective assessment declared by NEILs Board of Directors due to losses. In
addition, NEIL policies contain rating triggers that would result in APS providing approximately
$44 million of collateral assurance within 20 business days of a rating downgrade to non-investment
grade. The insurance coverage discussed in this and the previous paragraph is subject to certain
policy conditions and exclusions.
Fuel and Purchased Power Commitments and Purchase Obligations
APS is party to purchase obligations and various fuel and purchased power contracts with terms
expiring between 2011 and 2042 that include required purchase provisions. APS estimates the
contract requirements to be approximately $594 million in 2011; $529 million in 2012; $419 million
in 2013; $544 million in 2014; $526 million in 2015; and $7.2 billion thereafter. However, these
amounts may vary significantly pursuant to certain provisions in such contracts that permit us to
decrease required purchases under certain circumstances.
123
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Of the various fuel and purchased power contracts mentioned above, some of those contracts
have take-or-pay provisions. The contracts APS has for its coal supply include take-or-pay
provisions. The current take-or-pay coal contracts have terms that expire in 2024.
The following table summarizes our actual and estimated take-or-pay commitments (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
Estimated (a) |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
Coal take-or-pay
commitments |
|
$ |
81 |
|
|
$ |
93 |
|
|
$ |
66 |
|
|
$ |
76 |
|
|
$ |
78 |
|
|
$ |
80 |
|
|
$ |
82 |
|
|
$ |
85 |
|
|
$ |
204 |
|
|
|
|
(a) |
|
Total take-or-pay commitments are approximately $605 million. The total net
present value of these commitments is approximately $435 million. |
Renewable Energy Credits
APS has entered into contracts to purchase renewable energy credits to comply with
the Renewable Energy Standard. APS estimates the contract requirements to be approximately $57
million in 2011; $20 million in 2012; $20 million in 2013; $20 million in 2014; $20 million in
2015; and $196 million thereafter.
Coal Mine Reclamation Obligations
APS must reimburse certain coal providers for amounts incurred for coal mine reclamation.
APSs coal mine reclamation obligation was approximately $117 million at December 31, 2010 and $92
million at December 31, 2009.
FERC Market Issues
On July 25, 2001, the FERC ordered an evidentiary proceeding to discuss and evaluate possible
refunds for wholesale sales in the Pacific Northwest. The FERC affirmed the administrative law
judges conclusion that the prices in the Pacific Northwest were not unreasonable or unjust and
refunds should not be ordered in this proceeding. This decision was appealed to the U.S. Court of
Appeals for the Ninth Circuit. On August 24, 2007, the Ninth Circuit issued an opinion that
remanded the proceeding to the FERC for further consideration. Although the FERC has not yet
determined whether any refunds will ultimately be required, we do not expect that the resolution of
these issues will have a material adverse impact on our financial position, results of operations
or cash flows.
124
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Superfund
Superfund establishes liability for the cleanup of hazardous substances found contaminating
the soil, water or air. Those who generated, transported or disposed of hazardous substances at a
contaminated site are among those who are PRPs. PRPs may be strictly, and often are jointly and
severally, liable for clean-up. On September 3, 2003, the EPA advised APS that the EPA considers
APS to be a PRP in the Motorola 52nd Street Superfund Site, Operable Unit 3 (OU3) in
Phoenix, Arizona. APS has facilities that are within this Superfund site. APS and Pinnacle West
have agreed with the EPA to perform certain investigative activities of the APS facilities within
OU3. In addition,
on September 23, 2009, APS agreed with the EPA and one other PRP to voluntarily assist with the
funding and management of the site-wide groundwater remedial investigation and feasibility study
work plan. We estimate that our costs related to this investigation and study will be
approximately $1 million, which is reserved as a liability on our financial statements. We
anticipate incurring additional expenditures in the future, but because the overall investigation
is not complete and ultimate remediation requirements are not yet finalized, at the present time we
cannot accurately estimate our total expenditures.
Landlord Bankruptcy
On April 16, 2009, the landlord for our corporate headquarters building announced that it is
seeking relief under Chapter 11 of the United States Bankruptcy Code. We currently have several
assets on our books related to our landlord, the most significant of which is an asset related to
levelized rent payments for the building of approximately $71 million. This amount will continue
to increase to approximately $93 million as a result of the lease terms until 2015, when this
amount will begin to decrease over the remaining life of the lease. In November 2010, our landlord
exited bankruptcy and our leases were assumed and reinstated. This matter is now closed.
12. Asset Retirement Obligations
APS has asset retirement obligations for its Palo Verde nuclear facilities and certain other
generation, transmission and distribution assets. The Palo Verde asset retirement obligation
primarily relates to final plant decommissioning. This obligation is based on the NRCs
requirements for disposal of radiated property or plant and agreements APS reached with the ACC for
final decommissioning of the plant. The non-nuclear generation asset retirement obligations
primarily relate to requirements for removing portions of those plants at the end of the plant life
or lease term.
Some of APSs transmission and distribution assets have asset retirement obligations because
they are subject to right of way and easement agreements that require final removal. These
agreements have a history of uninterrupted renewal that APS expects to continue. As a result, APS
cannot reasonably estimate the fair value of the asset retirement obligation related to such
distribution and transmission assets.
Additionally, APS has aquifer protection permits for some of its generation sites that require
the closure of certain facilities at those sites. The asset retirement obligations associated with
our non-regulated assets are immaterial.
125
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following schedule shows the change in our asset retirement obligations for 2010 and 2009
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Asset retirement obligations at the
beginning of year |
|
$ |
302 |
|
|
$ |
276 |
|
Changes attributable to: |
|
|
|
|
|
|
|
|
Liabilities settled |
|
|
|
|
|
|
(1 |
) |
Accretion expense |
|
|
22 |
|
|
|
20 |
|
Estimated cash flow revisions |
|
|
5 |
|
|
|
7 |
|
|
|
|
|
|
|
|
Asset retirement obligations at the
end of year |
|
$ |
329 |
|
|
$ |
302 |
|
|
|
|
|
|
|
|
In accordance with regulatory accounting, APS accrues removal costs for its regulated utility
assets, even if there is no legal obligation for removal. See detail of regulatory liabilities in
Note 3.
13. Selected Quarterly Financial Data (Unaudited)
Consolidated quarterly financial information for 2010 and 2009 is as follows (dollars in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Quarter Ended |
|
|
2010 |
|
|
|
March 31, (a) |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
620,355 |
|
|
$ |
820,594 |
|
|
$ |
1,139,085 |
|
|
$ |
683,611 |
|
|
$ |
3,263,645 |
|
Operations and maintenance |
|
|
207,842 |
|
|
|
215,104 |
|
|
|
221,469 |
|
|
|
232,991 |
|
|
|
877,406 |
|
Operating income |
|
|
57,668 |
|
|
|
203,273 |
|
|
|
403,625 |
|
|
|
59,318 |
|
|
|
723,884 |
|
Income taxes |
|
|
(7,172 |
) |
|
|
51,829 |
|
|
|
123,486 |
|
|
|
(3,822 |
) |
|
|
164,321 |
|
Income from continuing
operations |
|
|
11,983 |
|
|
|
94,584 |
|
|
|
231,828 |
|
|
|
12,203 |
|
|
|
350,598 |
|
Net income (loss)
attributable to
common shareholders |
|
|
(6,014 |
) |
|
|
114,797 |
|
|
|
233,920 |
|
|
|
7,350 |
|
|
|
350,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations attributable to common shareholders |
|
$ |
0.07 |
|
|
$ |
0.84 |
|
|
$ |
2.09 |
|
|
$ |
0.07 |
|
|
$ |
3.10 |
|
Net income (loss)
attributable to common
shareholders |
|
|
(0.06 |
) |
|
|
1.07 |
|
|
|
2.15 |
|
|
|
0.07 |
|
|
|
3.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations attributable to common shareholders |
|
$ |
0.07 |
|
|
$ |
0.83 |
|
|
$ |
2.08 |
|
|
$ |
0.06 |
|
|
$ |
3.08 |
|
Net income (loss)
attributable to common
shareholders |
|
|
(0.06 |
) |
|
|
1.07 |
|
|
|
2.14 |
|
|
|
0.07 |
|
|
|
3.27 |
|
|
|
|
(a) |
|
The March 31, 2010 results were adjusted for the effect of reclassifications for
discontinued operations. The adjustments resulted in a reduction in operating revenues of
$13,236, a reduction in operations and maintenance of $2,149, an increase in operating
income of $20,034, an increase in income taxes of $8,308, and an increase in income from
continuing operations of $12,755. The adjustments also resulted in an increase in income
from continuing operations basic and diluted earnings per share of $0.13. |
126
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended |
|
|
2009 |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As originally reported in
the 2009 10-K: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
625,867 |
|
|
$ |
835,972 |
|
|
$ |
1,142,205 |
|
|
$ |
693,057 |
|
|
$ |
3,297,101 |
|
Operations and maintenance |
|
|
207,531 |
|
|
|
226,245 |
|
|
|
208,769 |
|
|
|
232,812 |
|
|
|
875,357 |
|
Operating income (loss) |
|
|
(204,923 |
) |
|
|
162,007 |
|
|
|
345,397 |
|
|
|
19,292 |
|
|
|
321,773 |
|
Income taxes |
|
|
(95,004 |
) |
|
|
39,579 |
|
|
|
103,507 |
|
|
|
(10,255 |
) |
|
|
37,827 |
|
Income (loss) from
continuing operations |
|
|
(165,993 |
) |
|
|
74,027 |
|
|
|
188,065 |
|
|
|
(28,868 |
) |
|
|
67,231 |
|
Net income (loss)
attributable to common
shareholders |
|
|
(156,510 |
) |
|
|
68,347 |
|
|
|
186,652 |
|
|
|
(30,159 |
) |
|
|
68,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palo Verde VIE
reclassifications
(see Note 20): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and maintenance |
|
$ |
(9,915 |
) |
|
$ |
(9,914 |
) |
|
$ |
(9,916 |
) |
|
$ |
(9,915 |
) |
|
$ |
(39,660 |
) |
Operating income |
|
|
7,989 |
|
|
|
7,989 |
|
|
|
7,989 |
|
|
|
7,989 |
|
|
|
31,956 |
|
Income from continuing
operations |
|
|
4,650 |
|
|
|
4,651 |
|
|
|
4,953 |
|
|
|
4,955 |
|
|
|
19,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
reclassifications
(see Note 22): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
(18,489 |
) |
|
$ |
(17,384 |
) |
|
$ |
(53,169 |
) |
|
$ |
(32,149 |
) |
|
$ |
(121,191 |
) |
Operations and maintenance |
|
|
(790 |
) |
|
|
(786 |
) |
|
|
(823 |
) |
|
|
(1,435 |
) |
|
|
(3,834 |
) |
Operating income |
|
|
220,888 |
|
|
|
1,898 |
|
|
|
14,021 |
|
|
|
19,617 |
|
|
|
256,424 |
|
Income taxes |
|
|
81,820 |
|
|
|
1,421 |
|
|
|
6,271 |
|
|
|
9,167 |
|
|
|
98,679 |
|
Income from continuing
operations |
|
|
140,651 |
|
|
|
2,352 |
|
|
|
10,310 |
|
|
|
12,805 |
|
|
|
166,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
607,378 |
|
|
$ |
818,588 |
|
|
$ |
1,089,036 |
|
|
$ |
660,908 |
|
|
$ |
3,175,910 |
|
Operations and maintenance |
|
|
196,826 |
|
|
|
215,545 |
|
|
|
198,030 |
|
|
|
221,462 |
|
|
|
831,863 |
|
Operating income |
|
|
23,954 |
|
|
|
171,894 |
|
|
|
367,407 |
|
|
|
46,898 |
|
|
|
610,153 |
|
Income taxes |
|
|
(13,184 |
) |
|
|
41,000 |
|
|
|
109,778 |
|
|
|
(1,088 |
) |
|
|
136,506 |
|
Income (loss) from
continuing operations |
|
|
(20,692 |
) |
|
|
81,030 |
|
|
|
203,328 |
|
|
|
(11,108 |
) |
|
|
252,558 |
|
Net income (loss)
attributable to common
shareholders |
|
|
(156,510 |
) |
|
|
68,347 |
|
|
|
186,652 |
|
|
|
(30,159 |
) |
|
|
68,330 |
|
127
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended |
|
|
2009 |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As originally reported in the 2009
10-K Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations attributable to common shareholders |
|
$ |
(1.50 |
) |
|
$ |
0.73 |
|
|
$ |
1.86 |
|
|
$ |
(0.29 |
) |
|
$ |
0.81 |
|
Net income (loss) attributable to
common shareholders |
|
|
(1.55 |
) |
|
|
0.68 |
|
|
|
1.84 |
|
|
|
(0.30 |
) |
|
|
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After reclassifications Basic
earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations attributable to common shareholders |
|
$ |
(0.25 |
) |
|
$ |
0.76 |
|
|
$ |
1.96 |
|
|
$ |
(0.16 |
) |
|
$ |
2.31 |
|
Net income (loss) attributable to
common shareholders |
|
|
(1.55 |
) |
|
|
0.68 |
|
|
|
1.84 |
|
|
|
(0.30 |
) |
|
|
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As originally reported in the 2009
10-K Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations attributable to common shareholders |
|
$ |
(1.50 |
) |
|
$ |
0.74 |
|
|
$ |
1.86 |
|
|
$ |
(0.29 |
) |
|
$ |
0.81 |
|
Net income (loss) attributable to
common shareholders |
|
|
(1.55 |
) |
|
|
0.68 |
|
|
|
1.84 |
|
|
|
(0.30 |
) |
|
|
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After reclassifications Diluted
earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations attributable to common shareholders |
|
$ |
(0.25 |
) |
|
$ |
0.75 |
|
|
$ |
1.96 |
|
|
$ |
(0.16 |
) |
|
$ |
2.30 |
|
Net income (loss) attributable to
common shareholders |
|
|
(1.55 |
) |
|
|
0.68 |
|
|
|
1.84 |
|
|
|
(0.30 |
) |
|
|
0.67 |
|
14. Fair Value Measurements
We disclose the fair value of certain assets and liabilities according to a fair value
hierarchy. This hierarchy ranks the quality and reliability of the inputs used to determine fair
values, which are then classified and disclosed in one of three categories. The three levels of
the fair value hierarchy are:
Level 1 Quoted prices in active markets for identical assets or liabilities. Active
markets are those in which transactions for the asset or liability occur in sufficient
frequency and volume to provide information on an ongoing basis. This category includes
derivative instruments that are exchange-traded such as futures, cash equivalents invested
in exchange-traded money market funds, exchange-traded equities, and nuclear decommissioning
trust investments in Treasury securities.
Level 2 Quoted prices in active markets for similar assets or liabilities; quoted prices
in markets that are not active; and model-derived valuations whose inputs are observable.
This category includes nonexchange-traded contracts such as forwards, options, and swaps.
This category also includes investments, in common and commingled funds that are redeemable
and valued based on the funds net asset values.
Level 3 Model-derived valuations with significant unobservable inputs that are supported
by little or no market activity. Instruments in this category include long-dated derivative
transactions where models are required due to the length of the transaction, options,
transactions in locations where observable market data does not exist, and common and
collective trusts with significant restrictions on our ability to transact in the fund. The
valuation models we employ utilize spot prices, forward prices, historical market data and
other factors to forecast future prices. The primary valuation technique we use to
calculate the fair value of contracts where price quotes are not available is based on the
extrapolation of forward pricing curves using observable market data for more liquid
delivery points in the same region and actual transactions at the more illiquid delivery
points.
128
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and liabilities are classified in their entirety based on the lowest level of input
that is significant to the fair value measurement. We maximize the use of observable inputs and
minimize the use of unobservable inputs. If market data is not readily available, inputs may
reflect our own assumptions about the inputs market participants would use. Our assessment of the
significance of a particular input to the fair value measurement requires judgment, and may affect
the valuation of fair value assets and liabilities and their placement within the fair value
hierarchy levels. Thus, a valuation may be classified in Level 3 even though the valuation may
include significant inputs that are readily observable. We assess whether a market is active by
obtaining observable broker quotes, reviewing actual market transactions, and assessing the volume
of transactions. We consider broker quotes observable inputs when the quote is binding on the
broker, we can validate the quote with market transactions, or we can determine that the inputs the
broker used to arrive at the quoted price are observable.
Recurring Fair Value Measurements
We apply recurring fair value measurements to derivative instruments, nuclear decommissioning
trusts, certain cash equivalents and plan assets held in our retirement and other benefit plans
(see Note 8).
Cash Equivalents
Cash equivalents represent short-term investments in exchange-traded money market funds that
are valued using quoted prices in active markets.
Risk Management Activities
Exchange-traded contracts are valued using quoted prices in active markets. For non-exchange
traded contracts, we calculate fair market value based on the average of the bid and offer price,
discounted to reflect net present value. We maintain certain valuation adjustments for a number of
risks associated with the valuation of future commitments. These include valuation adjustments for
liquidity and credit risks based on the financial condition of counterparties. The liquidity
valuation adjustment represents the cost that would be incurred if all unmatched positions were
closed-out or hedged.
129
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The credit valuation adjustment represents estimated credit losses on our overall exposure to
counterparties, taking into account netting arrangements, expected default experience for the
credit rating of the counterparties and the overall diversification of the portfolio.
Counterparties in the portfolio consist principally of major energy companies, municipalities,
local distribution companies and financial institutions. We maintain credit policies that
management believes minimize overall credit risk. Determination of the credit quality of
counterparties is based upon a number of factors,
including credit ratings, financial condition, project economics and collateral requirements.
When applicable, we employ standardized agreements that allow for the netting of positive and
negative exposures associated with a single counterparty.
Some of our derivative instrument transactions are valued based on unobservable inputs due to
the long-term nature of contracts or the unique location of the transactions. Our long-dated
energy transactions consist of observable valuations for the near term portion and unobservable
valuations for the long-term portions of the transaction. When the unobservable portion is
significant to the overall valuation of the transaction, the entire transaction is classified as
Level 3. Our classification of instruments as Level 3 is primarily reflective of the long-term
nature of our energy transactions, and is not reflective of material inactive markets.
Nuclear Decommissioning Trust
The nuclear decommissioning trust invests in fixed income securities directly and equity
securities indirectly through commingled funds. The commingled equity funds are valued based on
the funds net asset value (NAV) and are classified within Level 2. We may transact in the fund
on a semi-monthly basis. Our trustee provides valuation of our nuclear decommissioning trust
assets by using pricing services to determine fair market value. We assess these valuations and
verify that pricing can be supported by actual recent market transactions. The trust fund
investments have been established to satisfy APSs nuclear decommissioning obligations.
130
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Tables
The following table presents the fair value at December 31, 2010 of our assets and liabilities
that are measured at fair value on a recurring basis (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
Counterparty |
|
|
Balance at |
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs (a) |
|
|
Netting & |
|
|
December 31, |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Other (b) |
|
|
2010 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
35 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
35 |
|
Risk management activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
|
|
|
|
|
80 |
|
|
|
61 |
|
|
|
(28 |
) |
|
|
113 |
|
Nuclear decommissioning
trust: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. commingled funds |
|
|
|
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
168 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
Cash and cash
equivalent funds |
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
22 |
|
Corporate |
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
60 |
|
Mortgage-backed |
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
81 |
|
Municipality |
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
79 |
|
Other |
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
(10 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
85 |
|
|
$ |
510 |
|
|
$ |
61 |
|
|
$ |
(38 |
) |
|
$ |
618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
$ |
(1 |
) |
|
$ |
(280 |
) |
|
$ |
(99 |
) |
|
$ |
256 |
|
|
$ |
(124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily consists of long-dated electricity contracts. |
|
(b) |
|
Risk management activities represent netting under master netting arrangements,
including margin and collateral. See Note 18. Nuclear decommissioning trust
represents net pending securities sales and purchases. |
131
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the fair value at December 31, 2009 of our assets and liabilities
that are measured at fair value on a recurring basis (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
Counterparty |
|
|
Balance at |
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs (a) |
|
|
Netting & |
|
|
December 31, |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Other (b) |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
97 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
97 |
|
Risk management activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
|
1 |
|
|
|
100 |
|
|
|
42 |
|
|
|
(64 |
) |
|
|
79 |
|
Nuclear decommissioning
trust: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. commingled funds |
|
|
|
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
167 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55 |
|
Corporate |
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
62 |
|
Mortgage-backed |
|
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
60 |
|
Municipality |
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
49 |
|
Other |
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
1 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
153 |
|
|
$ |
459 |
|
|
$ |
42 |
|
|
$ |
(63 |
) |
|
$ |
591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
$ |
(14 |
) |
|
$ |
(246 |
) |
|
$ |
(52 |
) |
|
$ |
194 |
|
|
$ |
(118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily consists of long-dated electricity contracts. |
|
(b) |
|
Primarily represents netting under master netting arrangements, including
margin and collateral. See Note 18. |
132
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the changes in fair value for assets and liabilities that are
measured at fair value on a recurring basis using Level 3 inputs for the years ended December 31,
2010 and 2009 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Net risk management activities at beginning of period |
|
$ |
(10 |
) |
|
$ |
(7 |
) |
Total net gains (losses) realized/unrealized: |
|
|
|
|
|
|
|
|
Included in earnings |
|
|
(1 |
) |
|
|
3 |
|
Included in OCI |
|
|
(14 |
) |
|
|
(2 |
) |
Deferred as a regulatory asset or liability |
|
|
(38 |
) |
|
|
19 |
|
Settlements |
|
|
19 |
|
|
|
(2 |
) |
Transfers into Level 3 from Level 2 |
|
|
5 |
|
|
|
(25 |
) |
Transfers from Level 3 into Level 2 |
|
|
1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
Net risk management activities at end of period |
|
$ |
(38 |
) |
|
$ |
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) included in earnings
related to instruments still held at end of period |
|
$ |
(1 |
) |
|
$ |
3 |
|
Amounts included in earnings are recorded in either regulated electricity segment revenue or
regulated electricity segment fuel and purchased power depending on the nature of the underlying
contract.
Transfers reflect the fair market value at the beginning of the period and are triggered by a
change in the lowest significant input as of the end of the period. We had no significant Level 1
transfers to or from any other hierarchy level. Transfers in or out of Level 3 are typically
related to our long-dated energy transactions that extend beyond available quoted periods.
Nonrecurring Fair Value Measurements
We may be required to record other assets at fair value on a nonrecurring basis.
These nonrecurring fair value measurements typically involve write-downs of individual assets due
to impairment.
Financial Instruments Not Carried at Fair Value
The carrying value of our net accounts receivable, accounts payable and short-term borrowings
approximate fair value. Our long-term debt fair value estimates are based on quoted market prices
of the same or similar issues. Certain of our debt instruments contain third-party credit
enhancements and, in accordance with GAAP, we do not consider the effect of these credit
enhancements when determining fair value.
133
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents the carrying amount and estimated fair value of our long-term
debt, including current maturities (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinnacle West |
|
$ |
175 |
|
|
$ |
176 |
|
|
$ |
175 |
|
|
$ |
180 |
|
APS |
|
|
3,503 |
|
|
|
3,737 |
|
|
|
3,530 |
|
|
|
3,674 |
|
SunCor |
|
|
|
|
|
|
|
|
|
|
95 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,678 |
|
|
$ |
3,913 |
|
|
$ |
3,800 |
|
|
$ |
3,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nuclear Decommissioning Trust
To fund the costs APS expects to incur to decommission Palo Verde, APS established external
decommissioning trusts in accordance with NRC regulations. Third-party investment managers are
authorized to buy and sell securities per their stated investment guidelines. The trust funds are
invested in fixed income securities and domestic equity securities. APS classifies investments in
decommissioning trust funds as available for sale. As a result, we record the decommissioning
trust funds at their fair value on our Consolidated Balance Sheets. Because of the ability of APS
to recover decommissioning costs in rates and in accordance with the regulatory treatment for
decommissioning trust funds, we have recorded the offsetting amount of gains or losses on
investment securities in other regulatory liabilities or assets. The following table
summarizes the fair value of APSs nuclear decommissioning trust fund assets at December 31, 2010
and December 31, 2009 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Gains |
|
|
Losses |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
168 |
|
|
$ |
43 |
|
|
$ |
(1 |
) |
Fixed income securities |
|
|
312 |
|
|
|
12 |
|
|
|
(2 |
) |
Net payables (a) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
470 |
|
|
$ |
55 |
|
|
$ |
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net payables relate to pending securities sales and purchases. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Total |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Gains |
|
|
Losses |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
167 |
|
|
$ |
37 |
|
|
$ |
(6 |
) |
Fixed income securities |
|
|
247 |
|
|
|
11 |
|
|
|
(1 |
) |
Net receivables (a) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
415 |
|
|
$ |
48 |
|
|
$ |
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net receivables relate to pending securities sales and purchases. |
134
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The costs of securities sold are determined on the basis of specific identification. The
following table sets forth approximate gains and losses and proceeds from the sale of securities by
the nuclear decommissioning trust funds (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
17 |
|
|
$ |
10 |
|
|
$ |
7 |
|
Realized losses |
|
|
(4 |
) |
|
|
(7 |
) |
|
|
(8 |
) |
Proceeds from the sale of securities (a) |
|
|
560 |
|
|
|
441 |
|
|
|
318 |
|
|
|
|
(a) |
|
Proceeds are reinvested in the trust. |
The fair value of fixed income securities, summarized by contractual maturities, at December
31, 2010 is as follows (dollars in millions):
|
|
|
|
|
|
|
Fair Value |
|
Less than one year |
|
$ |
25 |
|
1 year - 5 years |
|
|
58 |
|
5 years - 10 years |
|
|
102 |
|
Greater than 10 years |
|
|
127 |
|
|
|
|
|
Total |
|
$ |
312 |
|
|
|
|
|
15. Earnings Per Share
The following table presents earnings per weighted-average common share outstanding for the
years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common shareholders |
|
$ |
3.10 |
|
|
$ |
2.31 |
|
|
$ |
2.59 |
|
Income (loss) from discontinued
operations |
|
|
0.18 |
|
|
|
(1.63 |
) |
|
|
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings per share basic |
|
$ |
3.28 |
|
|
$ |
0.68 |
|
|
$ |
2.40 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
attributable to common shareholders |
|
$ |
3.08 |
|
|
$ |
2.30 |
|
|
$ |
2.58 |
|
Income (loss) from discontinued
operations |
|
|
0.19 |
|
|
|
(1.63 |
) |
|
|
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted |
|
$ |
3.27 |
|
|
$ |
0.67 |
|
|
$ |
2.40 |
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options and performance shares (which are contingently issuable) increased
average common shares outstanding by approximately 565,000 shares in 2010, 103,000 shares in 2009
and 274,000 shares in 2008. Total average common shares outstanding for the purposes of
calculating diluted earnings per share were 107,137,785 shares in 2010, 101,263,795 shares in
2009 and 100,964,920 shares in 2008.
135
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options to purchase 192,542 shares of common stock during 2010 were not included in the
computation of diluted earnings per share because the options exercise prices were greater than
the average market price of the common shares. Options to purchase shares of common stock that
were not included in the computation of diluted earnings per share were 572,301 during 2009 and
687,375 during 2008.
16. Stock-Based Compensation
We have a 2007 long-term incentive plan (2007 Plan) that allows the Company to grant
restricted stock, restricted stock units, performance shares, stock grants, incentive and stock
options, stock appreciation rights, performance share units, performance cash awards, dividend
equivalents and stock to eligible individuals.
Restricted Stock Unit Awards and Stock Grants
Stock grants were issued to non-officer members of the Board of Directors in 2009 and 2008
under the 2007 Plan and were paid in fully transferable shares of stock. In 2010, non-officer
members of the Board of Directors were given the option to elect to receive a stock grant, or to
defer receipt and receive restricted stock units in lieu of the stock grant. The 2010 stock grants
and deferred restricted stock units were issued under the 2007 Plan. The election to receive a
stock grant or to defer, and the related elections were made on or before December 31, 2009.
Participants had to elect to receive their deferred grant as of the last business day of the month
following the month in which they separate service from the Board of Directors, or as of a date
specified by them in 2011 or later. The deferral has the election to receive payment in either 50%
cash and 50% fully transferable shares of stock, or 100% in fully transferable shares of stock, in
exchange for each restricted stock unit. Each restricted stock unit payable in cash represents the
right to receive a cash payment equal to the fair market value of one share of Pinnacle Wests
common stock. The deferral will also include dividend equivalent payments in either 50% cash and
50% fully-transferable shares of stock or in 100% fully-transferable shares of stock per the
participants election equal to the amount of dividends that they would have received if the
participant had owned the stock to which the restricted stock units relate from the date of grant
to the date of payment plus interest.
Restricted stock unit awards were granted to officers and key employees in 2010, 2009 and 2008
under the 2007 Plan. For 2009 and 2008 officers and key employees elected to receive payment in
either cash or in fully transferable shares of stock, in exchange for each restricted stock unit on
pre-established valuation dates. For the 2010 award the election for the awards is either 50% cash
and 50% fully transferable shares of stock, or 100% in fully transferable shares of stock, in
exchange for each restricted stock unit. Each restricted stock unit payable in cash represents the
right to receive a cash payment equal to the fair market value of one share of Pinnacle Wests
common stock.
136
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted stock unit awards vest and settle in annual installments over a four-year period.
In addition, officers and key employees will receive a cash payment equal to the amount of
dividends that they would have received if they had owned the stock to which the restricted stock
units relate from the date of grant to the date of payment plus interest. For the 2010 award the
officers and key employees will receive either a 50% cash payment and 50% fully transferrable
shares of stock, or 100% in fully transferable shares of stock equal to the amount of dividends that they would
have received if they had owned the stock to which the restricted stock units relate from the date
of grant to the date of payment plus interest. The dividend equivalents payout election has to be
the same as the election for the payout of restricted stock units. For any employee that was
eligible to retire before the settlement date, the employees restricted stock unit awards vest by
retirement date and the compensation expense is recognized by retirement eligibility. As the
restricted stock unit award is accounted for as a liability award, compensation costs, initially
measured based on the Companys stock price on the grant date, are remeasured at each balance sheet
date, using Pinnacle Wests closing stock price.
Restricted stock unit awards were granted to a selected set of key employees of Pinnacle West
on October 21, 2008, February 18, 2009, March 18, 2009, April 13, 2009, July 29, 2009, January 19,
2010, February 22, 2010, April 1, 2010 and November 2, 2010 under the 2007 Plan. The award of the
restricted stock units follows the same vesting schedule as the 2007, 2008, 2009 and 2010
restricted stock unit awards.
The following table is a summary of granted restricted stock units and stock grants and the
weighted average fair value for the three years ended 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Units granted |
|
|
202,341 |
|
|
|
261,006 |
|
|
|
224,658 |
|
Grant date fair value (a) |
|
$ |
37.47 |
|
|
$ |
30.25 |
|
|
$ |
36.26 |
|
|
|
|
(a) |
|
weighted average fair value |
The following table is a summary of the status of restricted stock units and stock grants, as
of December 31, 2010 and changes during the year. This table represents only the stock portion of restricted stock units, per the election on payment discussed in the paragraph above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
Nonvested shares |
|
Shares |
|
|
Grant-Date Fair Value |
|
Nonvested at January 1, 2010 |
|
|
145,339 |
|
|
$ |
33.57 |
|
Granted |
|
|
146,391 |
|
|
|
37.46 |
|
Vested |
|
|
59,409 |
|
|
|
35.16 |
|
Forfeited |
|
|
8,640 |
|
|
|
34.18 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2010 |
|
|
223,681 |
|
|
|
35.69 |
|
|
|
|
|
|
|
|
|
The amount of cash required to settle the payment for the 2007 grant on February 20, 2010,
February 20, 2009 and February 20, 2008 was $0.9 million, $0.8 million and $1.0 million
respectively. The amount of cash required to settle the payment for the 2008 grant on February 20,
2010 and February 20, 2009 was $1.5 million and $1.3 million respectively. The amount of cash
required to settle the payment for the 2009 grant on February 20, 2010 was $1.4 million.
137
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Share Awards
Performance share awards were granted to officers and key employees in 2010, 2009 and 2008
under the 2007 Plan. Performance share awards for 2008 contain performance criteria that affect
the number of shares ultimately received. Generally, each recipient of performance shares is
entitled to receive shares of common stock after the end of a three-year performance period. The
number of shares each recipient ultimately receives, if any, is based upon the percentile ranking
of Pinnacle Wests earnings per share growth rate at the end of the three-year period as compared
with the earnings per share growth rate of all relevant companies in a specified utilities index.
Performance share awards for 2009 also contain performance criteria that affect the number of
shares that ultimately vest; 50% of the award is based on the same percentile ranking as the 2008
award and the other 50% of the award is based on six non-financial separate performance metrics.
Performance share awards for 2010 also contain performance criteria that affects the number of
shares that ultimately vest; 50% of the award is based upon the percentile ranking of Pinnacle
Wests total shareholder return at the end of the three-year performance period as compared with
the total shareholder return of all relevant companies in a specified utilities index and the other
50% of the award is based on six non-financial separate performance metrics.
For any employee that was eligible to retire before the settlement date, the employees
performance share awards vest by retirement date and the compensation expense is recognized by
retirement eligibility. Performance share awards are accounted for as liability awards, as
employees are not required to withhold at the minimum statutory required rate. Compensation costs,
initially measured based on the Companys stock price on the grant date, are remeasured at each
balance sheet date, using Pinnacle Wests closing stock price. Management also evaluates the
probability of meeting the performance criteria at each balance sheet date. If the goals are not
achieved, no compensation cost is recognized and any previously recognized compensation cost is
reversed.
Performance shares were granted to officers and key employees of Pinnacle West on October 21,
2008, February 18, 2009, March 18, 2009, April 13, 2009, July 29, 2009, January 19, 2010, February
22, 2010, April 1, 2010 and November 2, 2010 under the 2007 Plan.
The following table is a summary of the Performance shares granted and the weighted average
fair value for the three years ended 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Units granted |
|
|
178,722 |
|
|
|
240,624 |
|
|
|
226,242 |
|
Grant date fair value (a) |
|
$ |
37.57 |
|
|
$ |
30.19 |
|
|
$ |
36.24 |
|
|
|
|
(a) |
|
weighted average grant date fair value |
138
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table is a summary of the status of performance shares, as of December 31, 2010
and changes during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
Nonvested shares |
|
Shares |
|
|
Grant-Date Fair Value |
|
Nonvested at January 1, 2010 |
|
|
358,943 |
|
|
$ |
32.34 |
|
Granted |
|
|
178,722 |
|
|
|
37.57 |
|
Vested |
|
|
127,673 |
|
|
|
36.29 |
|
Forfeited |
|
|
14,680 |
|
|
|
33.20 |
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2010 |
|
|
395,312 |
|
|
|
33.44 |
|
|
|
|
|
|
|
|
|
Retention Units
The retention unit awards have fully vested and settled on January 4, 2010; for any employee
that was eligible to retire before that date, the employees retention units vested by retirement
date and the compensation expense was recognized by retirement eligibility. Retention unit awards
were granted to key employees in 2006 and 2007. Each retention unit award represented the right to
receive a cash payment equal to the fair market value of one share of Pinnacle Wests common stock,
determined on pre-established valuation dates. Each retention unit award vested and settled in
equal annual installments over a four-year period. In addition, the employee received a cash
payment equal to the amount of dividends that the employee would have received if the employee had
owned the stock from the date of grant to the date of payment plus interest. As this award was
accounted for as a liability award, compensation costs, initially measured based on the Companys
stock price on the grant date, were remeasured at each balance sheet date, using Pinnacle Wests
closing stock price.
The amount of cash to settle the payment on the first business day of 2010 was $1.3 million,
2009 was $1.1 million, and 2008 was $1.3 million.
Incentive Shares
On January 21, 2009, the Human Resources Committee approved under the 2007 Plan payment of
2008 incentive awards to officers in the form of a Pinnacle West common stock grant. A total of
138,756 shares were issued for this stock grant with a grant date fair value of $32.58 per share.
The stock grant was included in stock compensation expense in 2008.
Stock Options
We have issued stock options in the past, but have not granted stock options since 2004. The
term of outstanding options cannot be longer than 10 years and options cannot be repriced during
their terms.
139
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the option activity under our equity incentive plans for the
year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Value (dollars |
|
Options |
|
Shares |
|
|
Exercise Price |
|
|
Term (Years) |
|
|
in thousands) |
|
Outstanding at
January 1, 2010 |
|
|
432,699 |
|
|
$ |
41.20 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
119,725 |
|
|
|
38.03 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
230,750 |
|
|
|
43.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2010 |
|
|
82,224 |
|
|
|
39.37 |
|
|
|
1.3 |
|
|
$ |
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
December 31, 2010 |
|
|
82,224 |
|
|
|
39.37 |
|
|
|
1.3 |
|
|
$ |
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from options exercised under our share-based payment arrangements was $4.6
million for 2010, $3 million for 2009, and zero for 2008. The tax benefit realized for the tax
deductions from option exercises of the share-based payment arrangements were immaterial for 2010
and 2009, and zero for 2008.
The intrinsic value of options exercised was immaterial for 2010 and 2009, and zero for 2008.
As of December 31, 2010, there was $13.5 million of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the plans. That cost is
expected to be recognized over a weighted-average period of 2.0 years. The total fair value of
shares vested during 2010 was $11 million, 2009 was $10 million, and 2008 was $5 million.
We have reserved 8 million shares of common stock for issuance under the 2007 Plan. Under the
2007 Plan, any shares of stock that are potentially deliverable under the 2002 long term incentive
plan will be added to the number of shares available for grant under the 2007 Plan if the award is
cancelled, forfeited, or terminated such that those shares are returned to the Company.
The compensation cost that has been charged against Pinnacle Wests income for share-based
compensation plans was $15 million in 2010, $5 million in 2009, and $8 million in 2008. The
compensation cost that Pinnacle West has capitalized is immaterial for 2010, 2009 and 2008.
Pinnacle Wests total income tax benefit recognized in the Consolidated Statements of Income for
share-based compensation arrangements was $6 million in 2010, $2 million in 2009, and $3 million in
2008. APSs share of compensation cost that has been charged against income was $15 million in
2010, $4 million in 2009, and $7 million in 2008.
Pinnacle Wests current policy is to issue new shares to satisfy share requirements for stock
compensation plans and it does not expect to repurchase any shares except to satisfy tax
withholding obligations upon the vesting of restricted stock during 2011.
140
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Business Segments
Pinnacle Wests reportable business segment is our regulated electricity segment, which
consists of traditional regulated retail and wholesale electricity businesses (primarily
electricity service to Native Load customers) and related activities and includes electricity
generation, transmission and distribution.
Our reportable business segments reflect a change from previously reported information. As of
December 31, 2010, our real estate activities are no longer considered a segment requiring separate
reporting or disclosure. In 2009 our real estate subsidiary, SunCor, began disposing of its
homebuilding operations, master-planned communities, land parcels, commercial assets and golf
courses in order to reduce its outstanding debt (see Note 23). The remaining assets held for sale
at December 31, 2010 were approximately $3 million. Additionally, all of SunCors operations are
reflected in discontinued operations.
Financial data for 2010, 2009 and 2008 is provided as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segments for the Year Ended |
|
|
|
December 31, 2010 |
|
|
|
Regulated |
|
|
|
|
|
|
|
|
|
Electricity |
|
|
|
|
|
|
|
|
|
Segment |
|
|
All other (a) |
|
|
Total |
|
Operating revenues |
|
$ |
3,181 |
|
|
$ |
83 |
|
|
$ |
3,264 |
|
Fuel and purchased power costs |
|
|
1,047 |
|
|
|
|
|
|
|
1,047 |
|
Other operating expenses |
|
|
1,009 |
|
|
|
69 |
|
|
|
1,078 |
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
1,125 |
|
|
|
14 |
|
|
|
1,139 |
|
Depreciation and amortization |
|
|
415 |
|
|
|
|
|
|
|
415 |
|
Interest expense |
|
|
226 |
|
|
|
2 |
|
|
|
228 |
|
Other expense (income) |
|
|
(22 |
) |
|
|
3 |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
|
506 |
|
|
|
9 |
|
|
|
515 |
|
Income taxes |
|
|
161 |
|
|
|
3 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
345 |
|
|
|
6 |
|
|
|
351 |
|
Income from discontinued
operations net of income
tax expense of $13 million
(see Note 22) |
|
|
|
|
|
|
19 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
345 |
|
|
|
25 |
|
|
|
370 |
|
Less: Net income attributable to
noncontrolling interests |
|
|
20 |
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
common shareholders |
|
$ |
325 |
|
|
$ |
25 |
|
|
$ |
350 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
12,255 |
|
|
$ |
108 |
|
|
$ |
12,363 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
666 |
|
|
$ |
4 |
|
|
$ |
670 |
|
|
|
|
|
|
|
|
|
|
|
141
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segments for the Year Ended |
|
|
|
December 31, 2009 |
|
|
|
Regulated |
|
|
|
|
|
|
|
|
|
Electricity |
|
|
|
|
|
|
|
|
|
Segment |
|
|
All other (a) |
|
|
Total |
|
Operating revenues |
|
$ |
3,149 |
|
|
$ |
27 |
|
|
$ |
3,176 |
|
Fuel and purchased power costs |
|
|
1,179 |
|
|
|
|
|
|
|
1,179 |
|
Other operating expenses |
|
|
948 |
|
|
|
32 |
|
|
|
980 |
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
1,022 |
|
|
|
(5 |
) |
|
|
1,017 |
|
Depreciation and amortization |
|
|
407 |
|
|
|
|
|
|
|
407 |
|
Interest expense |
|
|
226 |
|
|
|
1 |
|
|
|
227 |
|
Other expense (income) |
|
|
(16 |
) |
|
|
10 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
405 |
|
|
|
(16 |
) |
|
|
389 |
|
Income taxes |
|
|
143 |
|
|
|
(7 |
) |
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations |
|
|
262 |
|
|
|
(9 |
) |
|
|
253 |
|
Loss from discontinued
operations net of income
tax benefit of $108 million
(see Note 22) |
|
|
|
|
|
|
(180 |
) |
|
|
(180 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
262 |
|
|
|
(189 |
) |
|
|
73 |
|
Less: Net income (loss)
attributable to noncontrolling
interests |
|
|
19 |
|
|
|
(14 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
common shareholders |
|
$ |
243 |
|
|
$ |
(175 |
) |
|
$ |
68 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
11,691 |
|
|
$ |
295 |
|
|
$ |
11,986 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
732 |
|
|
$ |
13 |
|
|
$ |
745 |
|
|
|
|
|
|
|
|
|
|
|
142
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segments for the Year Ended |
|
|
|
December 31, 2008 |
|
|
|
Regulated |
|
|
|
|
|
|
|
|
|
Electricity |
|
|
|
|
|
|
|
|
|
Segment |
|
|
All other (a) |
|
|
Total |
|
Operating revenues |
|
$ |
3,127 |
|
|
$ |
93 |
|
|
$ |
3,220 |
|
Fuel and purchased power costs |
|
|
1,284 |
|
|
|
46 |
|
|
|
1,330 |
|
Other operating expenses |
|
|
888 |
|
|
|
28 |
|
|
|
916 |
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
955 |
|
|
|
19 |
|
|
|
974 |
|
Depreciation and amortization |
|
|
391 |
|
|
|
|
|
|
|
391 |
|
Interest expense |
|
|
204 |
|
|
|
1 |
|
|
|
205 |
|
Other expense (income) |
|
|
(5 |
) |
|
|
9 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes |
|
|
365 |
|
|
|
9 |
|
|
|
374 |
|
Income taxes |
|
|
92 |
|
|
|
4 |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations |
|
|
273 |
|
|
|
5 |
|
|
|
278 |
|
Loss from discontinued
operations net of income
tax benefit of $12 million
(see Note 22) |
|
|
|
|
|
|
(19 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
273 |
|
|
|
(14 |
) |
|
|
259 |
|
Less: Net income attributable to
noncontrolling interests |
|
|
17 |
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
common shareholders |
|
$ |
256 |
|
|
$ |
(14 |
) |
|
$ |
242 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
11,137 |
|
|
$ |
669 |
|
|
$ |
11,806 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
856 |
|
|
$ |
48 |
|
|
$ |
904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
All other activities relate to SunCor, APSES and El Dorado. Income from
discontinued operations for 2010 is primarily related to the APSES sale of its district
cooling business. Loss from discontinued operations for 2009 and 2008 is primarily
related to real estate impairment charges at SunCor (see Note 23). In addition, income
from discontinued operations for 2008 includes the resolution of certain tax issues
associated with the sale of Silverhawk in 2005. None of these segments is a reportable
business segment. |
18. Derivative Accounting
We are exposed to the impact of market fluctuations in the commodity price and transportation
costs of electricity, natural gas, coal, emissions allowances and in interest rates. We manage
risks associated with these market fluctuations by utilizing various derivative instruments,
including futures, forwards, options and swaps. As part of our overall risk management program, we
may use such instruments to hedge purchases and sales of electricity, fuels, and emissions
allowances and credits. Derivative instruments that are designated as cash flow hedges are used to
limit our exposure to cash flow variability on forecasted transactions. The changes in market
value of such contracts have a high correlation to price changes in the hedged transactions. We may
also invest in derivative instruments for trading purposes; however, for the year ended December
31, 2010, there was no material trading activity.
143
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our derivative instruments are accounted for at fair value; see Note 14 for a discussion of
fair value measurements. Derivative instruments for the physical delivery of purchase and sale
quantities transacted in the normal course of business qualify for the normal purchase and sales
scope exception and are accounted for under the accrual method of accounting. Due to the scope
exception, these derivative instruments are excluded from our derivative instrument discussion and
disclosures below.
We also enter into derivative instruments for economic hedging purposes. While we believe the
economic hedges mitigate exposure to fluctuations in commodity prices, some of these instruments
may not meet the specific hedge accounting requirements and are not designated as accounting
hedges. Economic hedges not designated as accounting hedges are recorded at fair value on our
balance sheet with changes in fair value recognized in the statement of income as incurred. These
instruments are included in the non-designated hedges discussion and disclosure below.
Hedge effectiveness is the degree to which the derivative instrument contract and the hedged
item are correlated and is measured based on the relative changes in fair value of the derivative
instrument contract and the hedged item over time. We assess hedge effectiveness both at inception
and on a continuing basis. These assessments exclude the time value of certain options. For
accounting hedges that are deemed an effective hedge, the effective portion of the gain or loss on
the derivative instrument is reported as a component of accumulated other comprehensive income
(AOCI) and reclassified into earnings in the same period during which the hedged transaction
affects earnings. We recognize in current earnings, subject to the PSA, the gains and losses
representing hedge ineffectiveness, and the gains and losses on any hedge components which are
excluded from our effectiveness assessment. As of December 31, 2010, we hedged the majority of
certain exposures to the price variability of commodities for a maximum of 39 months.
In the electricity business, some contracts to purchase energy are netted against other
contracts to sell energy. This is called book-out and usually occurs in 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 in our Consolidated
Statements of Income, but this does not impact our financial condition, net income or cash flows.
For its regulated operations, APS defers for future rate treatment approximately 90% of
unrealized gains and losses on certain derivatives pursuant to the PSA mechanism that would
otherwise be recognized in income. Realized gains and losses on derivatives are deferred in
accordance with the PSA to the extent the amounts are above or below the Base Fuel Rate (see Note
3). Gains and losses from derivatives in the following tables represent the amounts reflected in
income before the effect of PSA deferrals.
As of December 31, 2010, we had the following outstanding gross notional amount of
derivatives, which represent both purchases and sales (does not reflect net position):
|
|
|
|
|
|
|
Commodity |
|
Quantity |
Power |
|
|
13,530,414 |
|
|
megawatt hours |
Gas |
|
|
141,493,336 |
|
|
MMBtu |
144
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Instruments in Designated Accounting Hedging Relationships
The following table provides information about gains and losses from derivative instruments in
designated accounting hedging relationships and their impact on our Consolidated Statements of
Income during the year ended December 31, 2010 and December 31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statement |
|
Year Ended |
|
|
Year Ended |
|
Commodity Contracts |
|
Location |
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Amount of Loss Recognized
in AOCI on Derivative Instruments (Effective Portion) |
|
Accumulated other comprehensive loss-derivative instruments |
|
$ |
(155,287 |
) |
|
$ |
(155,325 |
) |
Amount of Loss Reclassified from
AOCI into Income
(Effective Portion Realized) |
|
Regulated electricity segment fuel and purchased power |
|
|
(122,740 |
) |
|
|
(185,329 |
) |
Amount of Gain (Loss) Recognized
in Income from Derivative
Instruments (Ineffective
Portion and Amount Excluded
from Effectiveness Testing) (a) |
|
Regulated electricity segment fuel and purchased power |
|
|
3,680 |
|
|
|
(19,902 |
) |
|
|
|
(a) |
|
During the year ended December 31, 2009, $192 thousand was reclassified from AOCI
to earnings related to discontinued cash flow hedges. This amount was zero in 2010. |
During the next twelve months, we estimate that a net loss of $106 million before income taxes
will be reclassified from AOCI as an offset to the effect of market price changes for the related
hedged transactions. In accordance with the PSA, certain of these amounts will be recorded as
either a regulatory asset or liability and have no effect on earnings.
145
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Instruments Not Designated as Accounting Hedges
The following table provides information about gains and losses from derivative instruments
not designated as accounting hedging instruments and their impact on our Consolidated Statements of
Income during the year ended December 31, 2010 and December 31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statement |
|
Year Ended |
|
|
Year Ended |
|
Commodity Contracts |
|
Location |
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
Amount of Net Gain
Recognized in Income from Derivative
Instruments |
|
Regulated electricity segment revenue |
|
$ |
1,436 |
|
|
$ |
2,484 |
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Net Loss
Recognized
in Income
from
Derivative
Instruments |
|
Regulated electricity segment fuel and purchased power expense |
|
|
(107,690 |
) |
|
|
(16,740 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
(106,254 |
) |
|
$ |
(14,256 |
) |
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments in the Consolidated Balance Sheets
The following table provides information about the fair value of our derivative instruments,
margin account and cash collateral reported on a gross basis. Transactions with counterparties
that have master netting arrangements are reported net on the balance sheet. These amounts are
located in the assets and liabilities from risk management activities lines of our Consolidated
Balance Sheets. Amounts are as of December 31, 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
Current |
|
|
Deferred Credits |
|
|
Total Assets |
|
Commodity Contracts |
|
Current Assets |
|
|
and Other Assets |
|
|
Liabilities |
|
|
and Other |
|
|
(Liabilities) |
|
Derivatives designated
as accounting hedging
instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
1,234 |
|
|
$ |
142 |
|
|
$ |
9,062 |
|
|
$ |
4,913 |
|
|
$ |
15,351 |
|
Liabilities |
|
|
(602 |
) |
|
|
(1,933 |
) |
|
|
(107,784 |
) |
|
|
(71,109 |
) |
|
|
(181,428 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hedging
instruments |
|
|
632 |
|
|
|
(1,791 |
) |
|
|
(98,722 |
) |
|
|
(66,196 |
) |
|
|
(166,077 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not
designated as accounting
hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
36,831 |
|
|
|
40,927 |
|
|
|
27,322 |
|
|
|
19,886 |
|
|
|
124,966 |
|
Liabilities |
|
|
(312 |
) |
|
|
(33 |
) |
|
|
(112,535 |
) |
|
|
(85,473 |
) |
|
|
(198,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-hedging
instruments |
|
|
36,519 |
|
|
|
40,894 |
|
|
|
(85,213 |
) |
|
|
(65,587 |
) |
|
|
(73,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
37,151 |
|
|
|
39,103 |
|
|
|
(183,935 |
) |
|
|
(131,783 |
) |
|
|
(239,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin account |
|
|
24,579 |
|
|
|
|
|
|
|
997 |
|
|
|
|
|
|
|
25,576 |
|
Collateral provided to
counterparties |
|
|
11,556 |
|
|
|
|
|
|
|
125,367 |
|
|
|
66,393 |
|
|
|
203,316 |
|
Collateral provided
from counterparties |
|
|
(1,750 |
) |
|
|
|
|
|
|
(1,250 |
) |
|
|
|
|
|
|
(3,000 |
) |
Prepaid option
premiums and other |
|
|
2,252 |
|
|
|
(71 |
) |
|
|
(155 |
) |
|
|
|
|
|
|
2,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Total |
|
$ |
73,788 |
|
|
$ |
39,032 |
|
|
$ |
(58,976 |
) |
|
$ |
(65,390 |
) |
|
$ |
(11,546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information about the fair value of our derivative
instruments, margin account and cash collateral reported on a gross basis at December 31, 2009
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
Current |
|
|
Deferred Credits |
|
|
Total Assets |
|
Commodity Contracts |
|
Current Assets |
|
|
and Other Assets |
|
|
Liabilities |
|
|
and Other |
|
|
(Liabilities) |
|
Derivatives designated
as accounting hedging
instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
329 |
|
|
$ |
|
|
|
$ |
3,242 |
|
|
$ |
75 |
|
|
$ |
3,646 |
|
Liabilities |
|
|
(3,436 |
) |
|
|
(256 |
) |
|
|
(72,899 |
) |
|
|
(77,953 |
) |
|
|
(154,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hedging
instruments |
|
|
(3,107 |
) |
|
|
(256 |
) |
|
|
(69,657 |
) |
|
|
(77,878 |
) |
|
|
(150,898 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not
designated as accounting
hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
31,220 |
|
|
|
29,807 |
|
|
|
34,645 |
|
|
|
44,631 |
|
|
|
140,303 |
|
Liabilities |
|
|
(4,123 |
) |
|
|
(696 |
) |
|
|
(81,722 |
) |
|
|
(71,408 |
) |
|
|
(157,949 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-hedging
instruments |
|
|
27,097 |
|
|
|
29,111 |
|
|
|
(47,077 |
) |
|
|
(26,777 |
) |
|
|
(17,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
23,990 |
|
|
|
28,855 |
|
|
|
(116,734 |
) |
|
|
(104,655 |
) |
|
|
(168,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin account |
|
|
8,643 |
|
|
|
|
|
|
|
12,464 |
|
|
|
104 |
|
|
|
21,211 |
|
Collateral provided to
counterparties |
|
|
17,986 |
|
|
|
|
|
|
|
49,412 |
|
|
|
42,108 |
|
|
|
109,506 |
|
Collateral provided
from counterparties |
|
|
|
|
|
|
|
|
|
|
(1,050 |
) |
|
|
|
|
|
|
(1,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Total |
|
$ |
50,619 |
|
|
$ |
28,855 |
|
|
$ |
(55,908 |
) |
|
$ |
(62,443 |
) |
|
$ |
(38,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Risk and Credit Related Contingent Features
We are exposed to losses in the event of nonperformance or nonpayment by counterparties. We
have risk management contracts with many counterparties, including two counterparties for which our
exposure represents approximately 44% of Pinnacle Wests $113 million of risk management assets as
of December 31, 2010. This exposure relates to long-term traditional wholesale contracts with
counterparties that have very high credit quality. Our risk management process assesses and
monitors the financial exposure of all counterparties. Despite the fact that the great majority of
trading counterparties debt is rated as investment grade by the credit rating agencies, there is
still a possibility that one or more of these companies could default, resulting in a material
impact on consolidated earnings for a given period. Counterparties in the portfolio consist
principally of financial institutions, major energy companies, municipalities and local
distribution companies. We maintain credit policies that we believe minimize overall credit risk
to within acceptable limits. Determination of the credit quality of our counterparties is based
upon a number of factors, including credit ratings and our evaluation of their financial condition.
To manage credit risk, we employ collateral requirements and standardized agreements that allow
for the netting of positive and negative exposures associated with a single counterparty.
Valuation adjustments are established representing our estimated credit losses on our overall
exposure to counterparties.
147
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain of our derivative instrument contracts contain credit-risk-related contingent features
including, among other things, investment grade credit rating provisions, credit-related cross
default provisions, and adequate assurance provisions. Adequate assurance provisions allow a
counterparty with reasonable grounds for uncertainty to demand additional collateral based on
subjective events and/or conditions. The aggregate fair value of all derivative instruments with
credit-risk-related contingent features that were in a liability position on December 31, 2010 was
$349 million, for which we had posted collateral of $192 million in the normal course of business.
For those derivative instruments in a net liability position, with investment grade credit
contingencies, the counterparties could demand additional collateral if our debt credit rating were
to fall below investment grade (below BBB- for Standard & Poors or Fitch or Baa3 for Moodys),
which would be a violation of the credit rating provisions. If the investment grade contingent
features underlying these agreements had been triggered on December 31, 2010, after off-setting
asset positions under master netting arrangements we would have been required to post approximately
an additional $125 million of collateral to our counterparties; this amount includes those
contracts which qualify for scope exceptions, which are excluded from the derivative details in the
above footnote. We also have energy related non-derivative instrument contracts with investment
grade credit-related contingent features which could also require us to post additional collateral
of approximately $205 million if our debt credit ratings were to fall below investment grade.
19. Other Income and Other Expense
The following table provides detail of other income and other expense for 2010, 2009 and 2008
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
3,255 |
|
|
$ |
1,617 |
|
|
$ |
7,539 |
|
Investment gains net |
|
|
2,778 |
|
|
|
2,516 |
|
|
|
|
|
Miscellaneous |
|
|
335 |
|
|
|
1,145 |
|
|
|
2,002 |
|
|
|
|
|
|
|
|
|
|
|
Total other income |
|
$ |
6,368 |
|
|
$ |
5,278 |
|
|
$ |
9,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating costs |
|
$ |
(6,649 |
) |
|
$ |
(6,593 |
) |
|
$ |
(13,030 |
) |
Investment losses net |
|
|
|
|
|
|
|
|
|
|
(17,702 |
) |
Miscellaneous |
|
|
(3,115 |
) |
|
|
(7,676 |
) |
|
|
(844 |
) |
|
|
|
|
|
|
|
|
|
|
Total other expense |
|
$ |
(9,764 |
) |
|
$ |
(14,269 |
) |
|
$ |
(31,576 |
) |
|
|
|
|
|
|
|
|
|
|
20. Variable-Interest Entities
See Note 2 for a discussion of the amended accounting guidance relating to VIEs adopted on
January 1, 2010.
148
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Palo Verde Sale Leaseback Trusts
In 1986, APS entered into agreements with three separate VIE lessor trusts in order to sell
and lease back interests in Palo Verde Nuclear Generating Station (Palo Verde) Unit 2 and related
common facilities. The VIE lessor trusts are single-asset leasing entities. APS will pay
approximately $49 million per year for the years 2010 to 2015 related to these leases. The leases
do not contain fixed price purchase options or residual value guarantees. However, the lease
agreements include fixed rate renewal periods which may have a significant impact on the VIEs economic
performance. We have concluded that these fixed rate renewal periods may give APS the ability to
utilize the asset for a significant portion of the assets economic life, and therefore provide APS
with the power to direct activities of the VIEs that most significantly impact the VIEs economic
performance. In addition to the fixed rate renewal periods, our primary beneficiary analysis also
considered that APS is the operating agent for Palo Verde, is obligated to decommission the leased
assets and has fair value purchase options.
Under the previous quantitative VIE consolidation model, APS was not considered the primary
beneficiary of the lessor trusts, as APS did not absorb the majority of the entities expected
losses or did not receive a majority of the residual returns. Prior to January 1, 2010 the
arrangements were accounted for as operating leases.
Consolidation of these VIEs eliminates the lease accounting we previously reported and results
in changes in our consolidated assets, debt, equity, and net income. Assets of the VIEs are
restricted and may only be used to settle the VIEs debt obligations and for payment to the
noncontrolling interest holders. Other than the VIEs assets now reported on our consolidated
financial statements, the creditors of the VIEs have no other recourse to the assets of APS or
Pinnacle West, except in certain circumstances such as a default by
APS under the lease. As a result of consolidation we have eliminated rent expense, and have recognized
depreciation and interest expense, resulting in an increase in net income for 2010 of $20 million
entirely attributable to the noncontrolling interests. Income attributable to Pinnacle West
shareholders remains the same. Consolidation of these VIEs also results in changes to our
Consolidated Statements of Cash Flows, but does not impact net cash flows.
Our Consolidated Balance Sheets at December 31, 2010 and December 31, 2009 include the
following amounts relating to the VIEs (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Property plant and equipment, net of accumulated
depreciation |
|
$ |
138 |
|
|
$ |
147 |
|
Long-term debt including current maturities |
|
|
126 |
|
|
|
152 |
|
Equity- Noncontrolling interests |
|
|
91 |
|
|
|
82 |
|
For regulatory ratemaking purposes the leases continue to be treated as operating leases and,
as a result, we have recorded a regulatory asset of $33 million as of December 31, 2010 and $31
million at December 31, 2009.
APS is exposed to losses relating to these lessor trust VIEs upon the occurrence of certain
events that APS does not consider to be reasonably likely to occur. Under certain circumstances
(for example, the NRC issuing specified violation orders with respect to Palo Verde or the
occurrence of specified nuclear events), APS would be required to make specified payments to the
VIEs noncontrolling equity participants, assume the VIEs debt, and take title to the leased Unit
2 interests, which, if appropriate, may be required to be written down in value. If such an event
had occurred as of December 31, 2010, APS would have been required to pay the noncontrolling equity
participants approximately $146 million and assume $126 million of debt. Since APS now
consolidates the VIEs, the debt APS would be required to assume is already reflected in our
Consolidated Balance Sheets.
149
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We also have certain long-term purchased power agreements to purchase substantially all of an
entitys output from a specified facility for a specified period. We have evaluated these
arrangements under the VIE accounting guidance and have determined that these agreements do not
represent variable interests. If these agreements had been deemed variable interests, we would not
be considered the primary beneficiary, as we do not have the power to direct the entities
activities in a manner that would significantly impact their economic performance and, therefore,
would not consolidate the entities. The adoption of the amended VIE accounting guidance has not
changed how we account for these arrangements.
21. Guarantees and Surety Bonds
We have issued parental guarantees and obtained surety bonds on behalf of our subsidiaries,
including credit support instruments enabling APSES to offer energy-related products and surety
bonds at APS, principally related to self-insured workers compensation. Non-performance or
non-payment under the underlying contract by our subsidiaries would result in a payment liability
on our part under the guarantee or surety bond. No liability is currently recorded on the
Consolidated Balance Sheets related to such instruments. At December 31, 2010, we had no
outstanding claims for payment under any of these instruments. Our guarantees and surety bonds
have no recourse or collateral provisions to allow us to recover amounts paid under these
instruments. The amounts and approximate terms of our guarantees and surety bonds for each
subsidiary at December 31, 2010 are as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees |
|
|
Surety Bonds |
|
|
|
|
|
|
|
Term |
|
|
|
|
|
|
Term |
|
|
|
Amount |
|
|
(in years) |
|
|
Amount |
|
|
(in years) |
|
APSES |
|
$ |
5 |
|
|
|
1 |
|
|
$ |
48 |
|
|
|
1 |
|
APS |
|
|
3 |
|
|
|
1 |
|
|
|
9 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8 |
|
|
|
|
|
|
$ |
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APS has entered into various agreements that require letters of credit for financial assurance
purposes. At December 31, 2010, approximately $44 million of letters of credit were outstanding to
support existing pollution control bonds of similar amounts. The letters of credit are available
to fund the payment of principal and interest of such debt obligations. These letters of credit
expire in 2011 and 2013. APS has also entered into approximately $61 million of letters of credit
to support certain equity lessors in the Palo Verde sale leaseback transactions (see Note 7 for
further details on the Palo Verde sale leaseback transactions). These letters of credit were
amended and extended in April 2010, and will expire in 2013.
We enter into agreements that include indemnification provisions relating to liabilities
arising from or related to certain of our agreements; most significantly, APS has agreed to
indemnify the equity participants and other parties in the Palo Verde sale leaseback transactions
with respect to certain tax matters. Generally, a maximum obligation is not explicitly stated in
the indemnification provisions and, therefore, the overall maximum amount of the obligation under
such indemnification provisions cannot be reasonably estimated. Based on historical experience and
evaluation of the specific indemnities, we do not believe that any material loss related to such
indemnification provisions is likely.
150
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. Discontinued Operations
SunCor
(real estate segment) In 2009, our real estate subsidiary, SunCor, began disposing of
its homebuilding operations, master-planned communities, land parcels, commercial assets and golf
courses in order to reduce its outstanding debt. All activity for the 2010 income statement and
prior comparative period income statement amounts were reclassified to discontinued operations. In
2008, 2009 and 2010, SunCor recorded real estate impairment charges (see Note 23). SunCors asset
sales resulted in no gain for 2010 and 2009 due to the impairment charges discussed above, and a
$24 million after tax gain in 2008. At December 31, 2010, SunCor had approximately $3 million of
assets on its balance sheet classified as assets held for sale which are included in other current
assets.
Silverhawk Includes activities related to the resolution of certain tax issues in 2008
associated with the sale of Silverhawk in 2005.
APSES (other) In 2010, our subsidiary, APSES, sold its district cooling business consisting
of operations in downtown Phoenix, Tucson, and on certain Arizona State University campuses. As a
result of the sale, we recorded an after-tax gain from discontinued operations of approximately $25
million in June 2010. Prior period income statement amounts related to this sale and the associated
revenues and costs are reflected in discontinued operations in 2010, 2009, and 2008. APSES also
includes activities related to the APSES discontinued commodity-related energy services in 2008,
and the associated revenues and costs that were reclassified to discontinued operations in 2008.
The following table provides revenue, income (loss) before income taxes and income (loss)
after taxes classified as discontinued operations in Pinnacle Wests Consolidated Statements of
Income for the years ended December 31, 2010, 2009 and 2008 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
SunCor |
|
$ |
30 |
|
|
$ |
114 |
|
|
$ |
129 |
|
Other (primarily APSES) |
|
|
52 |
|
|
|
18 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
82 |
|
|
$ |
132 |
|
|
$ |
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
SunCor |
|
$ |
(10 |
) |
|
$ |
(276 |
) |
|
$ |
(43 |
) |
Silverhawk |
|
|
|
|
|
|
|
|
|
|
13 |
|
Other (primarily APSES) |
|
|
42 |
|
|
|
3 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Total income (loss) before taxes |
|
$ |
32 |
|
|
$ |
(273 |
) |
|
$ |
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) after taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
SunCor |
|
$ |
(6 |
) |
|
$ |
(167 |
) |
|
$ |
(26 |
) |
Silverhawk |
|
|
|
|
|
|
|
|
|
|
8 |
|
Other (primarily APSES) |
|
|
26 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Total income (loss) after taxes (a) |
|
$ |
20 |
|
|
$ |
(165 |
) |
|
$ |
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes a tax benefit recognized by the parent company in accordance with an
intercompany tax sharing agreement of $4 million for the year ended December 31, 2010,
and $113 million for the year ended December 31, 2009. |
151
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. Real Estate Impairment Charge
In 2009, SunCor undertook and completed a review of its assets and strategies within its
various markets as a result of the distressed conditions in real estate and credit markets. Based
on the results of the review, on March 27, 2009, SunCors Board of Directors authorized a series of
strategic transactions to dispose of SunCors homebuilding operations, master-planned communities,
land parcels, commercial assets and golf courses in order to reduce SunCors outstanding debt. As
a result, SunCor took impairment charges in 2008, 2009 and 2010. All SunCors operations are
reflected in discontinued operations (see Note 22). The detail of the impairment charge is as
follows (dollars in millions, and before income taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding and master-planned communities |
|
$ |
1 |
|
|
$ |
170 |
|
|
$ |
21 |
|
Land parcels and commercial assets |
|
|
11 |
|
|
|
87 |
|
|
|
25 |
|
Golf courses |
|
|
1 |
|
|
|
23 |
|
|
|
7 |
|
Other |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
17 |
|
|
|
280 |
|
|
|
53 |
|
Less noncontrolling interests |
|
|
|
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17 |
|
|
$ |
266 |
|
|
$ |
53 |
|
|
|
|
|
|
|
|
|
|
|
152
MANAGEMENTS REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
(ARIZONA PUBLIC SERVICE COMPANY)
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f), for Arizona Public
Service Company. Management conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation
under the framework in Internal Control Integrated Framework, our management concluded that our
internal control over financial reporting was effective as of December 31, 2010. The effectiveness
of our internal control over financial reporting as of December 31, 2010 has been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report
which is included herein and also relates to the Companys financial statements.
February 18, 2011
153
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of
Arizona Public Service Company
Phoenix, Arizona
We have
audited the accompanying consolidated balance sheets of Arizona
Public Service Company and subsidiary (the
Company) as of December 31, 2010 and 2009, and the related consolidated statements of income,
changes in equity, and cash flows for each of the three years in the period ended December 31,
2010. Our audits also included the financial statement schedule listed in the Index at Item 15. We
also have audited the Companys internal control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for
these financial statements and financial statement schedule, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on these financial statements and
financial statement schedule and an opinion on the Companys internal control over financial
reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles and
that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.
154
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 2010 and 2009, and the
results of its operations and its cash flows for each of the three years in the period ended
December 31, 2010, in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein. Also, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2010,
based on the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
As disclosed in Note 2 to the consolidated financial statements of Pinnacle West Capital
Corporation, the Company adopted amended accounting guidance related to the consolidation of
variable interest entities on January 1, 2010.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 18, 2011
155
ARIZONA PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ELECTRIC OPERATING REVENUES |
|
$ |
3,180,807 |
|
|
$ |
3,149,500 |
|
|
$ |
3,133,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Fuel and purchased power |
|
|
1,046,815 |
|
|
|
1,178,620 |
|
|
|
1,289,883 |
|
Operations and maintenance |
|
|
860,712 |
|
|
|
812,903 |
|
|
|
747,610 |
|
Depreciation and amortization |
|
|
414,336 |
|
|
|
407,159 |
|
|
|
390,802 |
|
Income taxes (Notes 4 and S-1) |
|
|
175,440 |
|
|
|
158,661 |
|
|
|
113,799 |
|
Taxes other than income taxes |
|
|
134,467 |
|
|
|
122,358 |
|
|
|
124,046 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,631,770 |
|
|
|
2,679,701 |
|
|
|
2,666,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
549,037 |
|
|
|
469,799 |
|
|
|
467,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (DEDUCTIONS) |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (Notes 4 and S-1) |
|
|
4,975 |
|
|
|
6,087 |
|
|
|
6,538 |
|
Allowance for equity funds used
during construction (Note 1) |
|
|
22,066 |
|
|
|
14,999 |
|
|
|
18,636 |
|
Other income (Note S-3) |
|
|
8,956 |
|
|
|
10,808 |
|
|
|
6,231 |
|
Other expense (Note S-3) |
|
|
(15,859 |
) |
|
|
(18,001 |
) |
|
|
(30,569 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
20,138 |
|
|
|
13,893 |
|
|
|
836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST DEDUCTIONS |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt |
|
|
217,002 |
|
|
|
212,654 |
|
|
|
184,532 |
|
Interest on short-term borrowings |
|
|
8,267 |
|
|
|
6,315 |
|
|
|
13,432 |
|
Debt discount, premium and expense |
|
|
4,559 |
|
|
|
4,675 |
|
|
|
4,702 |
|
Allowance for borrowed funds used
during construction (Note 1) |
|
|
(16,479 |
) |
|
|
(10,386 |
) |
|
|
(14,313 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
213,349 |
|
|
|
213,258 |
|
|
|
188,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
|
355,826 |
|
|
|
270,434 |
|
|
|
279,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income
attributable to noncontrolling
interests (Note 20) |
|
|
20,163 |
|
|
|
19,209 |
|
|
|
17,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO COMMON
SHAREHOLDER |
|
$ |
335,663 |
|
|
$ |
251,225 |
|
|
$ |
262,344 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements and Supplemental Notes to
Arizona Public Service Companys Consolidated Financial Statements.
156
ARIZONA PUBLIC SERVICE COMPANY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT (Notes 1, 6, 9 and 10) |
|
|
|
|
|
|
|
|
Plant in service and held for future use |
|
$ |
13,197,254 |
|
|
$ |
12,781,256 |
|
Accumulated depreciation and amortization |
|
|
(4,510,591 |
) |
|
|
(4,326,908 |
) |
|
|
|
|
|
|
|
Net |
|
|
8,686,663 |
|
|
|
8,454,348 |
|
|
|
|
|
|
|
|
|
|
Construction work in progress |
|
|
459,316 |
|
|
|
460,748 |
|
Palo Verde sale leaseback, net of accumulated
depreciation of $213,094 and $204,328 (Note 20) |
|
|
137,956 |
|
|
|
146,722 |
|
Intangible assets, net of accumulated amortization of
$329,444 and $293,450 |
|
|
184,768 |
|
|
|
164,183 |
|
Nuclear fuel, net of accumulated amortization of
$85,270 and $64,544 |
|
|
108,794 |
|
|
|
118,243 |
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
9,577,497 |
|
|
|
9,344,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENTS AND OTHER ASSETS |
|
|
|
|
|
|
|
|
Nuclear decommissioning trust (Note 14) |
|
|
469,886 |
|
|
|
414,576 |
|
Assets from risk management activities (Note 18) |
|
|
39,032 |
|
|
|
28,855 |
|
Other assets |
|
|
71,428 |
|
|
|
68,839 |
|
|
|
|
|
|
|
|
Total investments and other assets |
|
|
580,346 |
|
|
|
512,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
99,937 |
|
|
|
120,798 |
|
Customer and other receivables |
|
|
288,323 |
|
|
|
280,226 |
|
Accrued unbilled revenues |
|
|
103,292 |
|
|
|
110,971 |
|
Allowance for doubtful accounts |
|
|
(7,646 |
) |
|
|
(6,063 |
) |
Materials and supplies (at average cost) |
|
|
181,414 |
|
|
|
176,020 |
|
Fossil fuel (at average cost) |
|
|
21,575 |
|
|
|
39,245 |
|
Assets from risk management activities (Note 18) |
|
|
73,788 |
|
|
|
50,619 |
|
Deferred income taxes (Notes 4 and S-1) |
|
|
74,747 |
|
|
|
53,990 |
|
Other current assets |
|
|
25,135 |
|
|
|
25,724 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
860,565 |
|
|
|
851,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED DEBITS |
|
|
|
|
|
|
|
|
Regulatory assets (Notes 1, 3, 4 and S-1) |
|
|
1,048,656 |
|
|
|
813,161 |
|
Income tax receivable (Notes 4 and S-1) |
|
|
65,498 |
|
|
|
65,498 |
|
Unamortized debt issue costs |
|
|
20,530 |
|
|
|
20,959 |
|
Other |
|
|
88,490 |
|
|
|
73,909 |
|
|
|
|
|
|
|
|
Total deferred debits |
|
|
1,223,174 |
|
|
|
973,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
12,241,582 |
|
|
$ |
11,681,571 |
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements and Supplemental Notes to Arizona
Public Service Companys Consolidated Financial Statements.
157
ARIZONA PUBLIC SERVICE COMPANY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION |
|
|
|
|
|
|
|
|
Common stock |
|
$ |
178,162 |
|
|
$ |
178,162 |
|
Additional paid-in capital |
|
|
2,379,696 |
|
|
|
2,126,863 |
|
Retained earnings |
|
|
1,403,390 |
|
|
|
1,250,126 |
|
Accumulated other comprehensive (loss): |
|
|
|
|
|
|
|
|
Pension and other postretirement benefits (Note 8) |
|
|
(35,961 |
) |
|
|
(29,114 |
) |
Derivative instruments |
|
|
(100,334 |
) |
|
|
(80,682 |
) |
|
|
|
|
|
|
|
Total shareholder equity |
|
|
3,824,953 |
|
|
|
3,445,355 |
|
Noncontrolling interests (Note 20) |
|
|
91,084 |
|
|
|
82,324 |
|
|
|
|
|
|
|
|
Total equity |
|
|
3,916,037 |
|
|
|
3,527,679 |
|
Long-term debt less current maturities (Note 6) |
|
|
2,948,991 |
|
|
|
3,180,406 |
|
Palo Verde sale leaseback lessor notes less current
maturities (Notes 6 and 20) |
|
|
96,803 |
|
|
|
126,000 |
|
|
|
|
|
|
|
|
Total capitalization |
|
|
6,961,831 |
|
|
|
6,834,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Current maturities of long-term debt (Note 6) |
|
|
456,879 |
|
|
|
222,959 |
|
Accounts payable |
|
|
218,491 |
|
|
|
213,833 |
|
Accrued taxes (Notes 4 and S-1) |
|
|
106,431 |
|
|
|
158,051 |
|
Accrued interest |
|
|
54,638 |
|
|
|
54,099 |
|
Customer deposits |
|
|
68,312 |
|
|
|
70,780 |
|
Liabilities from risk management activities (Note 18) |
|
|
58,976 |
|
|
|
55,908 |
|
Other current liabilities |
|
|
132,170 |
|
|
|
124,995 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,095,897 |
|
|
|
900,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED CREDITS AND OTHER |
|
|
|
|
|
|
|
|
Deferred income taxes (Notes 4 and S-1) |
|
|
1,865,359 |
|
|
|
1,582,945 |
|
Deferred fuel and purchased power regulatory liability
(Notes 1 and 3) |
|
|
58,442 |
|
|
|
87,291 |
|
Other regulatory liabilities (Notes 1, 3, 4, and S-1) |
|
|
694,589 |
|
|
|
679,072 |
|
Liability for asset retirements (Note 12) |
|
|
328,571 |
|
|
|
301,783 |
|
Liabilities for pension and other postretirement
benefits (Note 8) |
|
|
770,611 |
|
|
|
766,378 |
|
Liabilities from risk management activities (Note 18) |
|
|
65,390 |
|
|
|
62,443 |
|
Customer advances |
|
|
121,645 |
|
|
|
136,595 |
|
Coal mine reclamation |
|
|
117,243 |
|
|
|
92,060 |
|
Unrecognized tax benefits (Notes 4 and S-1) |
|
|
65,363 |
|
|
|
140,638 |
|
Other |
|
|
96,641 |
|
|
|
97,656 |
|
|
|
|
|
|
|
|
Total deferred credits and other |
|
|
4,183,854 |
|
|
|
3,946,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (SEE NOTES) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
12,241,582 |
|
|
$ |
11,681,571 |
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements and Supplemental Notes to
Arizona Public Service Companys Consolidated Financial Statements.
158
ARIZONA PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
355,826 |
|
|
$ |
270,434 |
|
|
$ |
279,839 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization including nuclear fuel |
|
|
471,226 |
|
|
|
445,988 |
|
|
|
424,414 |
|
Deferred fuel and purchased power |
|
|
93,631 |
|
|
|
(51,742 |
) |
|
|
(80,183 |
) |
Deferred fuel and purchased power amortization |
|
|
(122,481 |
) |
|
|
147,018 |
|
|
|
183,126 |
|
Allowance for equity funds used during
construction |
|
|
(22,066 |
) |
|
|
(14,999 |
) |
|
|
(18,636 |
) |
Deferred income taxes |
|
|
224,095 |
|
|
|
192,914 |
|
|
|
145,157 |
|
Change in mark-to-market valuations |
|
|
2,688 |
|
|
|
(6,939 |
) |
|
|
7,792 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Customer and other receivables |
|
|
(49,956 |
) |
|
|
2,603 |
|
|
|
40,782 |
|
Accrued unbilled revenues |
|
|
7,679 |
|
|
|
(10,882 |
) |
|
|
6,784 |
|
Materials, supplies and fossil fuel |
|
|
12,276 |
|
|
|
(12,261 |
) |
|
|
(25,453 |
) |
Other current assets |
|
|
589 |
|
|
|
(9,427 |
) |
|
|
128 |
|
Accounts payable |
|
|
18,066 |
|
|
|
(22,129 |
) |
|
|
(5,915 |
) |
Accrued taxes |
|
|
(51,620 |
) |
|
|
(61,078 |
) |
|
|
(12,377 |
) |
Other current liabilities |
|
|
(570 |
) |
|
|
26,907 |
|
|
|
20,527 |
|
Change in margin and collateral accounts assets |
|
|
(9,937 |
) |
|
|
(13,206 |
) |
|
|
17,850 |
|
Change in margin and collateral accounts liabilities |
|
|
(88,315 |
) |
|
|
35,654 |
|
|
|
(132,416 |
) |
Change in regulatory liabilities |
|
|
54,518 |
|
|
|
110,642 |
|
|
|
(12,129 |
) |
Change in long-term income tax receivable |
|
|
|
|
|
|
(132,379 |
) |
|
|
|
|
Change in unrecognized tax benefits |
|
|
(73,189 |
) |
|
|
137,478 |
|
|
|
(92,064 |
) |
Change in other long-term assets |
|
|
(41,989 |
) |
|
|
(53,734 |
) |
|
|
14,340 |
|
Change in other long-term liabilities |
|
|
(85,136 |
) |
|
|
14,097 |
|
|
|
58,219 |
|
|
|
|
|
|
|
|
|
|
|
Net cash flow provided by operating activities |
|
|
695,335 |
|
|
|
994,959 |
|
|
|
819,785 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(747,967 |
) |
|
|
(754,301 |
) |
|
|
(910,189 |
) |
Contributions in aid of construction |
|
|
32,754 |
|
|
|
53,525 |
|
|
|
60,292 |
|
Allowance for borrowed funds used during construction |
|
|
(16,479 |
) |
|
|
(10,386 |
) |
|
|
(14,313 |
) |
Proceeds from nuclear decommissioning trust sales |
|
|
560,469 |
|
|
|
441,242 |
|
|
|
317,619 |
|
Investment in nuclear decommissioning trust |
|
|
(584,885 |
) |
|
|
(463,033 |
) |
|
|
(338,361 |
) |
Other |
|
|
8,576 |
|
|
|
(4,667 |
) |
|
|
5,517 |
|
|
|
|
|
|
|
|
|
|
|
Net cash flow used for investing activities |
|
|
(747,532 |
) |
|
|
(737,620 |
) |
|
|
(879,435 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of long-term debt |
|
|
|
|
|
|
863,780 |
|
|
|
|
|
Repayment of long-term debt |
|
|
(27,694 |
) |
|
|
(365,696 |
) |
|
|
(48,460 |
) |
Short-term borrowings and payments net |
|
|
|
|
|
|
(521,684 |
) |
|
|
303,684 |
|
Equity infusion |
|
|
252,833 |
|
|
|
|
|
|
|
7,601 |
|
Dividends paid on common stock |
|
|
(182,400 |
) |
|
|
(170,000 |
) |
|
|
(170,000 |
) |
Noncontrolling interests |
|
|
(11,403 |
) |
|
|
(14,485 |
) |
|
|
(13,782 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flow provided by (used for) financing
activities |
|
|
31,336 |
|
|
|
(208,085 |
) |
|
|
79,043 |
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(20,861 |
) |
|
|
49,254 |
|
|
|
19,393 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
|
|
120,798 |
|
|
|
71,544 |
|
|
|
52,151 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
$ |
99,937 |
|
|
$ |
120,798 |
|
|
$ |
71,544 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds |
|
$ |
81,339 |
|
|
$ |
13,555 |
|
|
$ |
56,728 |
|
Interest, net of amounts capitalized |
|
$ |
208,251 |
|
|
$ |
194,346 |
|
|
$ |
182,053 |
|
See Notes to Pinnacle Wests Consolidated Financial Statements and Supplemental Notes to Arizona
Public Service Companys Consolidated Financial Statements.
159
ARIZONA PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK |
|
$ |
178,162 |
|
|
$ |
178,162 |
|
|
$ |
178,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
2,126,863 |
|
|
|
2,117,789 |
|
|
|
2,105,466 |
|
Equity infusion |
|
|
252,833 |
|
|
|
|
|
|
|
7,601 |
|
Other |
|
|
|
|
|
|
9,074 |
|
|
|
4,722 |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
2,379,696 |
|
|
|
2,126,863 |
|
|
|
2,117,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
1,250,126 |
|
|
|
1,168,901 |
|
|
|
1,076,557 |
|
Net income attributable to common shareholder |
|
|
335,663 |
|
|
|
251,225 |
|
|
|
262,344 |
|
Dividends on common stock |
|
|
(182,400 |
) |
|
|
(170,000 |
) |
|
|
(170,000 |
) |
Other |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
1,403,390 |
|
|
|
1,250,126 |
|
|
|
1,168,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
(109,796 |
) |
|
|
(125,702 |
) |
|
|
(8,744 |
) |
Pension and other postretirement benefits (Note 8): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized actuarial loss, net of tax benefit of
$(6,344), $(2,938) and $(5,075) |
|
|
(9,684 |
) |
|
|
(4,571 |
) |
|
|
(7,597 |
) |
Amortization to income: |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss, net of tax benefit of
$1,658, $1,387 and $1,393 |
|
|
2,541 |
|
|
|
2,126 |
|
|
|
2,130 |
|
Prior service cost, net of tax benefit of
$193, $190 and $189 |
|
|
295 |
|
|
|
291 |
|
|
|
289 |
|
Derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss), net of tax (benefit)
of $(61,358), $(61,317) and $(56,149) |
|
|
(93,929 |
) |
|
|
(94,008 |
) |
|
|
(85,670 |
) |
Reclassification of net realized (gains) losses to
income, net of tax (expense) benefit of
$48,462, $73,261 and $(16,890) |
|
|
74,278 |
|
|
|
112,068 |
|
|
|
(26,110 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
(136,295 |
) |
|
|
(109,796 |
) |
|
|
(125,702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTERESTS |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
82,324 |
|
|
|
77,601 |
|
|
|
73,887 |
|
Net income attributable to noncontrolling interests |
|
|
20,163 |
|
|
|
19,209 |
|
|
|
17,495 |
|
Net capital activities by noncontrolling interests |
|
|
(11,403 |
) |
|
|
(14,486 |
) |
|
|
(13,781 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
91,084 |
|
|
|
82,324 |
|
|
|
77,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY |
|
$ |
3,916,037 |
|
|
$ |
3,527,679 |
|
|
$ |
3,416,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO
COMMON SHAREHOLDER |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholder |
|
$ |
335,663 |
|
|
$ |
251,225 |
|
|
$ |
262,344 |
|
Other comprehensive income (loss) |
|
|
(26,499 |
) |
|
|
15,906 |
|
|
|
(116,958 |
) |
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to common
shareholders |
|
$ |
309,164 |
|
|
$ |
267,131 |
|
|
$ |
145,386 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements and Supplemental Notes to
Arizona Public Service Companys Consolidated Financial Statements.
160
Certain notes to Arizona Public Service Companys consolidated financial statements are
combined with the notes to Pinnacle West Capital Corporations consolidated financial statements.
Listed below are the consolidated notes to Pinnacle West Capital Corporations consolidated
financial statements, the majority of which also relate to Arizona Public Service Companys
consolidated financial statements. In addition, listed below are the supplemental notes which are
required disclosures for Arizona Public Service Company and should be read in conjunction with
Pinnacle West Capital Corporations Consolidated Notes.
|
|
|
|
|
|
|
|
|
APSs |
|
|
Consolidated |
|
Supplemental |
|
|
Footnote |
|
Footnote |
|
|
Reference |
|
Reference |
Summary of Significant Accounting Policies |
|
Note 1 |
|
|
New Accounting Standards |
|
Note 2 |
|
|
Regulatory Matters |
|
Note 3 |
|
|
Income Taxes |
|
Note 4 |
|
Note S-1 |
Lines of Credit and Short-Term Borrowings |
|
Note 5 |
|
|
Long-Term Debt and Liquidity Matters |
|
Note 6 |
|
|
Common Stock and Treasury Stock |
|
Note 7 |
|
|
Retirement Plans and Other Benefits |
|
Note 8 |
|
|
Leases |
|
Note 9 |
|
|
Jointly-Owned Facilities |
|
Note 10 |
|
|
Commitments and Contingencies |
|
Note 11 |
|
|
Asset Retirement Obligations |
|
Note 12 |
|
|
Selected Quarterly Financial Data (Unaudited) |
|
Note 13 |
|
Note S-2 |
Fair Value Measurements |
|
Note 14 |
|
|
Earnings Per Share |
|
Note 15 |
|
|
Stock-Based Compensation |
|
Note 16 |
|
|
Business Segments |
|
Note 17 |
|
|
Derivative Accounting |
|
Note 18 |
|
|
Other Income and Other Expense |
|
Note 19 |
|
Note S-3 |
Variable Interest Entities |
|
Note 20 |
|
|
Guarantees and Surety Bonds |
|
Note 21 |
|
|
Discontinued Operations |
|
Note 22 |
|
|
Real Estate Impairment Charge |
|
Note 23 |
|
|
161
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
S-1. Income Taxes
APS is included in Pinnacle Wests consolidated tax return. However, when Pinnacle West
allocates income taxes to APS, it is done based upon APSs taxable income computed on a stand-alone
basis, in accordance with the tax sharing agreement.
Certain assets and liabilities are reported differently for income tax purposes than they are
for financial statements purposes. The tax effect of these differences is recorded as deferred
taxes. We calculate deferred taxes using the current income tax rates.
APS has recorded regulatory assets and regulatory liabilities related to income taxes on its
Balance Sheets in accordance with accounting guidance for regulated operations. The regulatory
assets are for certain temporary differences, primarily the allowance for equity funds used during
construction and pension and other postretirement benefits. The regulatory liabilities relate to
deferred taxes resulting primarily from investment tax credits. APS amortizes these amounts as the
differences reverse.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits,
excluding interest and penalties, at the beginning and end of the year that are included in accrued
taxes and unrecognized tax benefits (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Total unrecognized tax benefits, January 1 |
|
$ |
199,887 |
|
|
$ |
62,409 |
|
|
$ |
154,473 |
|
Additions for tax positions of the current
year |
|
|
7,551 |
|
|
|
44,094 |
|
|
|
12,893 |
|
Additions for tax positions of prior years |
|
|
|
|
|
|
98,269 |
|
|
|
32,481 |
|
Reductions for tax positions of prior
years for: |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in judgment |
|
|
(10,964 |
) |
|
|
|
|
|
|
(4,547 |
) |
Settlements with taxing authorities |
|
|
(61,820 |
) |
|
|
(4,089 |
) |
|
|
(35,812 |
) |
Lapses of applicable statute of
limitations |
|
|
(7,956 |
) |
|
|
(796 |
) |
|
|
(97,079 |
) |
|
|
|
|
|
|
|
|
|
|
Total unrecognized tax benefits,
December 31 |
|
$ |
126,698 |
|
|
$ |
199,887 |
|
|
$ |
62,409 |
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2010, the Company reached a settlement with the IRS with regard to
the examination of tax returns for the years ended December 31, 2005 through 2007. As a result of
this settlement, net uncertain tax positions decreased $62 million, including approximately $3
million which decreased our effective tax rate. Additionally, the settlement resulted in the
recognition of net interest benefits of approximately $4 million through the effective tax rate.
Included in the balance of unrecognized tax benefits at December 31, 2010, 2009 and 2008 were
approximately $6 million, $15 million and $15 million, respectively, of tax positions that, if
recognized, would decrease our effective tax rate.
162
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of the balance sheet date, the tax year ended December 31, 2008 and all subsequent tax
years remain subject to examination by the IRS. With few exceptions, we are no longer subject to
state income tax examinations by tax authorities for years before 1999. We do not anticipate that
there will be any significant increases or decreases in our unrecognized tax benefits within
the next twelve months.
We reflect interest and penalties, if any, on unrecognized tax benefits in the statement of
income as income tax expense. The amount of interest recognized in the Statement of Income related
to unrecognized tax benefits was a pre-tax benefit of $2 million for 2010, a pre-tax expense of $2
million for 2009 and a pre-tax benefit of $51 million for 2008.
The total amount of accrued liabilities for interest recognized in the Balance Sheets related
to unrecognized tax benefits was $6 million as of December 31, 2010, $8 million as of December 31,
2009 and $5 million as of December 31, 2008. To the extent that matters are settled favorably,
this amount could reverse and decrease our effective tax rate. Additionally, as of December 31,
2010, we have recognized $5 million of interest income to be received on the overpayment of income
taxes for certain adjustments that we have filed, or will file, with the IRS.
The components of APSs income tax expense are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(71,036 |
) |
|
$ |
(8,667 |
) |
|
$ |
(54,719 |
) |
State |
|
|
17,406 |
|
|
|
(31,673 |
) |
|
|
16,823 |
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
(53,630 |
) |
|
|
(40,340 |
) |
|
|
(37,896 |
) |
Deferred |
|
|
224,095 |
|
|
|
192,914 |
|
|
|
145,157 |
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense |
|
$ |
170,465 |
|
|
$ |
152,574 |
|
|
$ |
107,261 |
|
|
|
|
|
|
|
|
|
|
|
On the APS Statements of Income, federal and state income taxes are allocated between
operating income and other income.
163
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following chart compares APSs pretax income at the 35% federal income tax rate to income
tax expense (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax expense at 35%
statutory rate |
|
$ |
184,202 |
|
|
$ |
148,053 |
|
|
$ |
135,485 |
|
Increases (reductions) in tax expense
resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income tax net of federal
income tax benefit |
|
|
19,186 |
|
|
|
16,691 |
|
|
|
14,956 |
|
Credits and favorable adjustments
related to prior years resolved in
current year |
|
|
(17,300 |
) |
|
|
|
|
|
|
(28,873 |
) |
Medicare Subsidy Part-D (see Note 8) |
|
|
889 |
|
|
|
(2,025 |
) |
|
|
(1,921 |
) |
Allowance for equity funds used
during construction (see Note 1) |
|
|
(6,563 |
) |
|
|
(4,265 |
) |
|
|
(5,755 |
) |
Palo Verde VIE noncontrolling
interest (see Note 20) |
|
|
(7,057 |
) |
|
|
(6,723 |
) |
|
|
(6,123 |
) |
Other |
|
|
(2,892 |
) |
|
|
843 |
|
|
|
(508 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
170,465 |
|
|
$ |
152,574 |
|
|
$ |
107,261 |
|
|
|
|
|
|
|
|
|
|
|
The following table shows the net deferred income tax liability recognized on the APS Balance
Sheets (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Current asset |
|
$ |
74,747 |
|
|
$ |
53,990 |
|
Long-term liability |
|
|
(1,865,359 |
) |
|
|
(1,582,945 |
) |
|
|
|
|
|
|
|
Deferred income taxes net |
|
$ |
(1,790,612 |
) |
|
$ |
(1,528,955 |
) |
|
|
|
|
|
|
|
164
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred income tax liability were as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
DEFERRED TAX ASSETS |
|
|
|
|
|
|
|
|
Regulatory liabilities: |
|
|
|
|
|
|
|
|
Asset retirement obligation and
removal costs |
|
$ |
222,448 |
|
|
$ |
213,814 |
|
Deferred fuel and purchased power |
|
|
23,089 |
|
|
|
34,463 |
|
Renewable Energy Standard |
|
|
18,749 |
|
|
|
|
|
Other |
|
|
28,360 |
|
|
|
21,613 |
|
Risk management activities |
|
|
124,731 |
|
|
|
87,404 |
|
Pension and other postretirement
liabilities |
|
|
303,055 |
|
|
|
288,769 |
|
Renewable energy incentives |
|
|
37,327 |
|
|
|
|
|
Other |
|
|
97,989 |
|
|
|
104,416 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
855,748 |
|
|
|
750,479 |
|
|
|
|
|
|
|
|
DEFERRED TAX LIABILITIES |
|
|
|
|
|
|
|
|
Plant-related |
|
|
(2,210,976 |
) |
|
|
(1,951,262 |
) |
Risk management activities |
|
|
(30,125 |
) |
|
|
(20,863 |
) |
Regulatory assets: |
|
|
|
|
|
|
|
|
Allowance for equity funds used
during construction |
|
|
(28,276 |
) |
|
|
(23,285 |
) |
Deferred fuel and purchased
power
mark-to-market |
|
|
(30,276 |
) |
|
|
(16,167 |
) |
Pension and other postretirement
benefits |
|
|
(264,313 |
) |
|
|
(210,080 |
) |
Other |
|
|
(77,078 |
) |
|
|
(57,210 |
) |
Other |
|
|
(5,316 |
) |
|
|
(567 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(2,646,360 |
) |
|
|
(2,279,434 |
) |
|
|
|
|
|
|
|
Deferred income taxes net |
|
$ |
(1,790,612 |
) |
|
$ |
(1,528,955 |
) |
|
|
|
|
|
|
|
A majority of the deferred tax assets for credit and loss carryforwards relate to federal
general business credits and federal net operating losses. These federal credits and losses first
begin to expire in 2029.
165
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
S-2. Selected Quarterly Financial Data (Unaudited)
Quarterly financial information for 2010 and 2009 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Quarter Ended, |
|
|
2010 |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
611,476 |
|
|
$ |
799,467 |
|
|
$ |
1,116,220 |
|
|
$ |
653,644 |
|
|
$ |
3,180,807 |
|
Operations and maintenance |
|
|
203,881 |
|
|
|
211,310 |
|
|
|
217,044 |
|
|
|
228,477 |
|
|
|
860,712 |
|
Operating income |
|
|
65,435 |
|
|
|
146,249 |
|
|
|
277,009 |
|
|
|
60,344 |
|
|
|
549,037 |
|
Net income (Loss)
attributable to common
shareholders |
|
|
10,984 |
|
|
|
90,220 |
|
|
|
226,648 |
|
|
|
7,811 |
|
|
|
335,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended, |
|
|
2009 |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
Total |
|
As originally reported in the
2009 10-K: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
602,660 |
|
|
$ |
812,587 |
|
|
$ |
1,083,825 |
|
|
$ |
650,428 |
|
|
$ |
3,149,500 |
|
Operations and maintenance |
|
|
201,100 |
|
|
|
221,128 |
|
|
|
203,446 |
|
|
|
226,889 |
|
|
|
852,563 |
|
Operating income |
|
|
29,125 |
|
|
|
122,385 |
|
|
|
245,104 |
|
|
|
41,229 |
|
|
|
437,843 |
|
Net income (Loss) |
|
|
(15,479 |
) |
|
|
78,544 |
|
|
|
197,065 |
|
|
|
(8,905 |
) |
|
|
251,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended, |
|
|
2009 |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
Total |
|
Palo Verde VIE
reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and maintenance |
|
$ |
(9,915 |
) |
|
$ |
(9,914 |
) |
|
$ |
(9,916 |
) |
|
|
(9,915 |
) |
|
$ |
(39,660 |
) |
Operating income |
|
|
7,989 |
|
|
|
7,989 |
|
|
|
7,989 |
|
|
|
7,989 |
|
|
|
31,956 |
|
Net income attributable to
noncontrolling interests |
|
|
4,650 |
|
|
|
4,651 |
|
|
|
4,953 |
|
|
|
4,955 |
|
|
|
19,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended, |
|
|
2009 |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
Total |
|
After Palo Verde VIE
reclassifications (see Note
20): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
602,660 |
|
|
$ |
812,587 |
|
|
$ |
1,083,825 |
|
|
$ |
650,428 |
|
|
$ |
3,149,500 |
|
Operations and maintenance |
|
|
191,185 |
|
|
|
211,214 |
|
|
|
193,530 |
|
|
|
216,974 |
|
|
|
812,903 |
|
Operating income |
|
|
37,114 |
|
|
|
130,374 |
|
|
|
253,093 |
|
|
|
49,218 |
|
|
|
469,799 |
|
Net income attributable to
noncontrolling interests |
|
|
4,650 |
|
|
|
4,651 |
|
|
|
4,953 |
|
|
|
4,955 |
|
|
|
19,209 |
|
Net income (Loss)
attributable to common
shareholders |
|
|
(15,479 |
) |
|
|
78,544 |
|
|
|
197,065 |
|
|
|
(8,905 |
) |
|
|
251,225 |
|
166
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
S-3. Other Income and Other Expense
The following table provides detail of APSs other income and other expense for 2010, 2009 and
2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
668 |
|
|
$ |
502 |
|
|
$ |
3,863 |
|
SO2 emission
allowance sales and
other (a) |
|
|
|
|
|
|
1,439 |
|
|
|
392 |
|
Investment gains net |
|
|
2,334 |
|
|
|
6,673 |
|
|
|
|
|
Miscellaneous |
|
|
5,954 |
|
|
|
2,194 |
|
|
|
1,976 |
|
|
|
|
|
|
|
|
|
|
|
Total other income |
|
$ |
8,956 |
|
|
$ |
10,808 |
|
|
$ |
6,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating costs (a) |
|
$ |
(9,855 |
) |
|
$ |
(7,368 |
) |
|
$ |
(10,538 |
) |
Asset dispositions |
|
|
(612 |
) |
|
|
(656 |
) |
|
|
(5,779 |
) |
Investment losses net |
|
|
|
|
|
|
|
|
|
|
(9,438 |
) |
Miscellaneous |
|
|
(5,392 |
) |
|
|
(9,977 |
) |
|
|
(4,814 |
) |
|
|
|
|
|
|
|
|
|
|
Total other expense |
|
$ |
(15,859 |
) |
|
$ |
(18,001 |
) |
|
$ |
(30,569 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As defined by the FERC, includes below-the-line non-operating utility income
and expense (items excluded from utility rate recovery). |
167
Schedule
PINNACLE WEST CAPITAL CORPORATION HOLDING COMPANY
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
$ |
2,810 |
|
|
$ |
1,156 |
|
|
$ |
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Fuel and purchased power |
|
|
|
|
|
|
|
|
|
|
(19,970 |
) |
Other operating expenses |
|
|
9,880 |
|
|
|
10,420 |
|
|
|
8,979 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
9,880 |
|
|
|
10,420 |
|
|
|
(10,991 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(7,070 |
) |
|
|
(9,264 |
) |
|
|
11,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (losses) of
subsidiaries |
|
|
358,527 |
|
|
|
(37,214 |
) |
|
|
226,893 |
|
Other income |
|
|
883 |
|
|
|
2,776 |
|
|
|
1,248 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
359,410 |
|
|
|
(34,438 |
) |
|
|
228,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
14,346 |
|
|
|
14,129 |
|
|
|
17,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
337,994 |
|
|
|
(57,831 |
) |
|
|
221,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
(9,015 |
) |
|
|
(13,885 |
) |
|
|
(12,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
net of income taxes |
|
|
347,009 |
|
|
|
(43,946 |
) |
|
|
234,008 |
|
Income from discontinued operations
net of income taxes |
|
|
3,044 |
|
|
|
112,276 |
|
|
|
8,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common
shareholders |
|
$ |
350,053 |
|
|
$ |
68,330 |
|
|
$ |
242,125 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements.
168
PINNACLE WEST CAPITAL CORPORATION HOLDING COMPANY
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7,725 |
|
|
$ |
17,284 |
|
Customer and other receivables |
|
|
75,745 |
|
|
|
77,570 |
|
Current deferred income taxes |
|
|
19,855 |
|
|
|
|
|
Income tax receivable |
|
|
3,736 |
|
|
|
64,317 |
|
Other current assets |
|
|
61 |
|
|
|
49 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
107,122 |
|
|
|
159,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments and other assets |
|
|
|
|
|
|
|
|
Investments in subsidiaries |
|
|
3,901,935 |
|
|
|
3,572,472 |
|
Deferred income taxes |
|
|
|
|
|
|
89,842 |
|
Other assets |
|
|
58,071 |
|
|
|
22,520 |
|
|
|
|
|
|
|
|
Total investments and other assets |
|
|
3,960,006 |
|
|
|
3,684,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
4,067,128 |
|
|
$ |
3,844,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,981 |
|
|
$ |
10,923 |
|
Accrued taxes |
|
|
4,216 |
|
|
|
5,157 |
|
Short-term borrowings |
|
|
16,600 |
|
|
|
149,086 |
|
Current maturities of long-term debt |
|
|
175,000 |
|
|
|
|
|
Other current liabilities |
|
|
28,101 |
|
|
|
9,950 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
228,898 |
|
|
|
175,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt less current maturities |
|
|
|
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
Deferred credits and other |
|
|
|
|
|
|
|
|
Pension and other postretirement liabilities |
|
|
28,607 |
|
|
|
29,343 |
|
Other |
|
|
34,397 |
|
|
|
36,591 |
|
|
|
|
|
|
|
|
Total deferred credits and other |
|
|
63,004 |
|
|
|
65,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equity |
|
|
|
|
|
|
|
|
Common stock |
|
|
2,419,133 |
|
|
|
2,149,483 |
|
Accumulated other comprehensive loss |
|
|
(159,767 |
) |
|
|
(131,587 |
) |
Retained earnings |
|
|
1,423,961 |
|
|
|
1,298,213 |
|
|
|
|
|
|
|
|
Total Pinnacle West Shareholders equity |
|
|
3,683,327 |
|
|
|
3,316,109 |
|
Noncontrolling interests |
|
|
91,899 |
|
|
|
111,895 |
|
|
|
|
|
|
|
|
Total Equity |
|
|
3,775,226 |
|
|
|
3,428,004 |
|
|
|
|
|
|
|
|
Total Liabilities and Equity |
|
$ |
4,067,128 |
|
|
$ |
3,844,054 |
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements.
169
PINNACLE WEST CAPITAL CORPORATION HOLDING COMPANY
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
350,053 |
|
|
$ |
68,330 |
|
|
$ |
242,125 |
|
Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries net |
|
|
(358,527 |
) |
|
|
37,214 |
|
|
|
(226,893 |
) |
Depreciation and amortization |
|
|
143 |
|
|
|
127 |
|
|
|
210 |
|
Deferred income taxes |
|
|
40,342 |
|
|
|
(106,536 |
) |
|
|
31,954 |
|
Change in mark-to-market valuations |
|
|
|
|
|
|
|
|
|
|
(19,975 |
) |
Customer and other receivables |
|
|
(18,175 |
) |
|
|
(2,303 |
) |
|
|
38,938 |
|
Accounts payable |
|
|
7,468 |
|
|
|
466 |
|
|
|
(14,134 |
) |
Accrued taxes and income tax receivables net |
|
|
59,640 |
|
|
|
44,625 |
|
|
|
(5,230 |
) |
Change in margin and collateral accounts net |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends received from subsidiaries |
|
|
207,000 |
|
|
|
170,000 |
|
|
|
170,000 |
|
Other net |
|
|
423 |
|
|
|
(2,379 |
) |
|
|
(7,914 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flow provided by operating activities |
|
|
288,367 |
|
|
|
209,544 |
|
|
|
209,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries |
|
|
(183,544 |
) |
|
|
(4,967 |
) |
|
|
(18,765 |
) |
Repayments of loans from subsidiaries |
|
|
98,406 |
|
|
|
25,240 |
|
|
|
10,194 |
|
Advances of loans to subsidiaries |
|
|
(119,293 |
) |
|
|
(21,587 |
) |
|
|
(22,554 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flow used for investing activities |
|
|
(204,431 |
) |
|
|
(1,314 |
) |
|
|
(31,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and payments net |
|
|
(132,487 |
) |
|
|
4,566 |
|
|
|
28,729 |
|
Dividends paid on common stock |
|
|
(216,979 |
) |
|
|
(205,076 |
) |
|
|
(204,247 |
) |
Repayment of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equity issuance |
|
|
255,971 |
|
|
|
3,302 |
|
|
|
3,687 |
|
|
|
|
|
|
|
|
|
|
|
Net cash flow used for financing activities |
|
|
(93,495 |
) |
|
|
(197,208 |
) |
|
|
(171,831 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(9,559 |
) |
|
|
11,022 |
|
|
|
6,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
17,284 |
|
|
|
6,262 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
7,725 |
|
|
$ |
17,284 |
|
|
$ |
6,262 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Pinnacle Wests Consolidated Financial Statements.
170
PINNACLE WEST CAPITAL CORPORATION
SCHEDULE II RESERVE FOR UNCOLLECTIBLES
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
Column E |
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
Charged |
|
|
|
|
|
|
Balance |
|
|
|
beginning |
|
|
cost and |
|
|
to other |
|
|
|
|
|
|
at end of |
|
Description |
|
of period |
|
|
expenses |
|
|
accounts |
|
|
Deductions |
|
|
period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for uncollectibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
4,573 |
|
|
$ |
6,905 |
|
|
$ |
|
|
|
$ |
6,769 |
|
|
$ |
4,709 |
|
2009 |
|
|
3,383 |
|
|
|
7,617 |
|
|
|
|
|
|
|
6,427 |
|
|
|
4,573 |
|
2008 |
|
|
4,782 |
|
|
|
6,177 |
|
|
|
|
|
|
|
7,576 |
|
|
|
3,383 |
|
171
ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE II RESERVE FOR UNCOLLECTIBLES
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
Column E |
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
Charged |
|
|
|
|
|
|
Balance |
|
|
|
beginning |
|
|
cost and |
|
|
to other |
|
|
|
|
|
|
at end of |
|
Description |
|
of period |
|
|
expenses |
|
|
accounts |
|
|
Deductions |
|
|
period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for uncollectibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
$ |
4,483 |
|
|
$ |
6,756 |
|
|
$ |
|
|
|
$ |
6,863 |
|
|
$ |
4,376 |
|
2009 |
|
|
3,155 |
|
|
|
7,062 |
|
|
|
|
|
|
|
5,734 |
|
|
|
4,483 |
|
2008 |
|
|
4,265 |
|
|
|
5,924 |
|
|
|
|
|
|
|
7,034 |
|
|
|
3,155 |
|
172
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
The term disclosure controls and procedures means controls and other procedures of a company
that are designed to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Securities Exchange Act of 1934 (the Exchange Act) (15 U.S.C.
78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in
the SECs rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by a company
in the reports that it files or submits under the Exchange Act is accumulated and communicated to a
companys management, including its principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Pinnacle Wests management, with the participation of Pinnacle Wests Chief Executive Officer
and Chief Financial Officer, have evaluated the effectiveness of Pinnacle Wests disclosure
controls and procedures as of December 31, 2010. Based on that evaluation, Pinnacle Wests Chief
Executive Officer and Chief Financial Officer have concluded that, as of that date, Pinnacle Wests
disclosure controls and procedures were effective.
APSs management, with the participation of APSs Chief Executive Officer and Chief Financial
Officer, have evaluated the effectiveness of APSs disclosure controls and procedures as of
December 31, 2010. Based on that evaluation, APSs Chief Executive Officer and Chief Financial
Officer have concluded that, as of that date, APSs disclosure controls and procedures were
effective.
(b) Managements Annual Reports on Internal Control Over Financial Reporting
Reference is made to Managements Report on Internal Control Over Financial Reporting
(Pinnacle West Capital Corporation) on page 80 of this report and Managements Report on Internal
Control Over Financial Reporting (Arizona Public Service Company) on page 153 of this report.
(c) Attestation Reports of the Registered Public Accounting Firm
Reference is made to Report of Independent Registered Public Accounting Firm on page 81 of
this report and Report of Independent Registered Public Accounting Firm on page 154 of this
report on the internal control over financial reporting of Pinnacle West and APS, respectively.
(d) Changes In Internal Control Over Financial Reporting
The term internal control over financial reporting (defined in SEC Rule 13a-15(f)) refers to
the process of a company that is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in
accordance with GAAP.
173
No change in Pinnacle Wests or APSs internal control over financial reporting occurred
during the fiscal quarter ended December 31, 2010 that materially affected, or is reasonably likely
to materially affect, Pinnacle Wests or APSs internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE OF PINNACLE WEST
Reference is hereby made to Information About Our Board and Corporate Governance, Proposal
1 Election of Directors and to Section 16(a) Beneficial Ownership Reporting Compliance in the
Pinnacle West Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 18,
2011 (the 2011 Proxy Statement) and to the Executive Officers of Pinnacle West section in Part
I of this report.
Pinnacle West has adopted a Code of Ethics for Financial Executives that applies to financial
executives including Pinnacle Wests Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer, Controller, Treasurer, and persons holding substantially equivalent positions
at Pinnacle Wests subsidiaries. The Code of Ethics for Financial Executives is posted on Pinnacle
Wests website at www.pinnaclewest.com. Pinnacle West intends to satisfy the requirements under
Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of the
Code of Ethics for Financial Executives by posting such information on Pinnacle Wests website.
ITEM 11. EXECUTIVE COMPENSATION
Reference is hereby made to Directors Compensation, Report of the Human Resources
Committee, Executive Compensation, Overall Compensation Program and Human Resources Committee
Interlocks and Insider Participation in the 2011 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Reference is hereby made to Shares of Pinnacle West Stock Owned by Management and Large
Shareholders in the 2011 Proxy Statement.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information as of December 31, 2010 with respect to our
compensation plans and individual compensation arrangements under which our equity securities are
authorized for issuance.
174
EQUITY COMPENSATION PLAN INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available |
|
|
|
|
|
|
|
|
|
|
|
for future issuance |
|
|
|
Number of securities |
|
|
Weighted-average |
|
|
under equity |
|
|
|
to be issued upon |
|
|
exercise price of |
|
|
compensation plans |
|
|
|
exercise of |
|
|
outstanding |
|
|
(excluding securities |
|
|
|
outstanding options, |
|
|
options, warrants |
|
|
reflected in column |
|
|
|
warrants and rights |
|
|
and rights |
|
|
(a)) |
|
Plan Category |
|
(a)1 |
|
|
(b)2 |
|
|
(c)3 |
|
Equity compensation
plans approved by
security holders |
|
|
1,406,262 |
|
|
$ |
39.37 |
|
|
|
5,782,718 |
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,406,262 |
|
|
$ |
39.37 |
|
|
|
5,782,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
This amount includes shares subject to outstanding options as well as shares subject
to outstanding performance share awards and restricted stock unit awards at the maximum amount of
shares issuable under such awards. However, payout of the performance share awards is contingent
on the Company reaching certain levels of performance during a three-year performance period. If
the performance criteria for these awards are not fully satisfied, the award recipient will receive
less than the maximum number of shares available under these grants and may receive nothing from
these grants. |
|
2 |
|
The weighted average exercise price in this column does not take performance share
awards or restricted stock unit awards into account, as those awards have no exercise price. |
|
3 |
|
Awards can take the form of options, stock appreciation rights, restricted stock,
performance shares, performance share units, performance cash, stock grants, dividend equivalents,
and restricted stock units. |
Equity Compensation Plans Approved By Security Holders
Amounts in column (a) in the table above include shares subject to awards outstanding under
three equity compensation plans that were approved by our shareholders: (a) the Pinnacle West
Capital Corporation 1994 Long-Term Incentive Plan, under which no new stock awards may be granted;
(b) the Pinnacle West Capital Corporation 2002 Long-Term Incentive Plan (the 2002 Plan), under
which no new stock awards may be granted; and (c) the Pinnacle West Capital Corporation 2007
Long-Term Incentive Plan (the 2007 Plan), which was approved by our shareholders at our 2007
annual meeting of shareholders. Although we cannot issue additional awards under the 2002 Plan,
shares subject to outstanding awards under the 2002 Plan that expire or are cancelled or terminated
will be available for issuance under the 2007 Plan. See Note 16 of the Notes to Consolidated
Financial Statements for additional information regarding these plans.
175
Equity Compensation Plans Not Approved By Security Holders
The Company does not have any equity compensation plans under which shares can still be issued
that have not been approved by shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Reference is hereby made to Information About Our Board and Corporate Governance and
Related Party Transactions in the 2011 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES
Pinnacle West
Reference is hereby made to Proposal 3 Ratification of the Selection of Deloitte & Touche
LLP as Independent Accountants of the Company Audit Fees and Pre-Approval Policies in the
2011 Proxy Statement.
APS
The following fees were paid to APSs independent registered public accountants, Deloitte &
Touche LLP, for the last two fiscal years:
|
|
|
|
|
|
|
|
|
Type of Service |
|
2009 |
|
|
2010 |
|
Audit Fees (1) |
|
$ |
1,698,325 |
|
|
$ |
1,330,173 |
|
Audit-Related Fees (2) |
|
|
380,695 |
|
|
|
138,247 |
|
Tax Fees |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The aggregate fees billed for services rendered for the audit of annual financial statements
and for review of financial statements included in Reports on Form 10-Q. |
|
(2) |
|
The aggregate fees billed for assurance services that are reasonably related to the
performance of the audit or review of the financial statements that are not included in Audit
Fees reported above, which primarily consist of fees for an IFRS Assessment for work performed
in 2009 and employee benefit plan audits performed in 2010 and 2009. |
Pinnacle Wests Audit Committee pre-approves each audit service and non-audit service to be
provided by APSs registered public accounting firm. The Audit Committee has delegated to the
Chairman of the Audit Committee the authority to pre-approve audit and non-audit services to be
performed by the independent public accountants if the services are not expected to cost more than
$50,000. The Chairman must report any pre-approval decisions to the Audit Committee at its next
scheduled meeting. All of the services performed by Deloitte & Touche LLP for APS were
pre-approved by the Audit Committee.
176
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements and Financial Statement Schedules
See the Index to Financial Statements and Financial Statement Schedule in Part II, Item 8.
Exhibits Filed
The documents listed below are being filed or have previously been filed on behalf of Pinnacle
West or APS and are incorporated herein by reference from the documents indicated and made a part
hereof. Exhibits not identified as previously filed are filed herewith.
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
3.1
|
|
Pinnacle West
|
|
Articles of
Incorporation,
restated as of May
21, 2008
|
|
3.1 to Pinnacle West/APS June 30, 2008
Form 10-Q Report, File No. 1-8962
|
|
8-7-08 |
|
|
|
|
|
|
|
|
|
3.2
|
|
Pinnacle West
|
|
Pinnacle West
Capital Corporation
Bylaws, amended as
of May 19, 2010
|
|
3.1 to Pinnacle West/APS June 30, 2010
Form 10-Q Report, File No. 1-8962
|
|
8-3-10 |
|
|
|
|
|
|
|
|
|
3.3
|
|
APS
|
|
Articles of
Incorporation,
restated as of May
25, 1988
|
|
4.2 to APSs Form 18 Registration Nos.
33-33910 and 33-55248 by means of
September 24, 1993 Form 8-K Report, File
No. 1-4473
|
|
9-29-93 |
|
|
|
|
|
|
|
|
|
3.4
|
|
APS
|
|
Arizona Public
Service Company
Bylaws, amended as
of December 16,
2008
|
|
3.4 to Pinnacle West/APS December 31,
2008 Form 10-K, File No. 1-4473
|
|
2-20-09 |
|
|
|
|
|
|
|
|
|
4.1
|
|
Pinnacle West
|
|
Specimen
Certificate of
Pinnacle West
Capital Corporation
Common Stock, no
par value
|
|
4.12 to Pinnacle West April 29, 2005
Form 8-K Report, File No. 1-8962
|
|
5-2-05 |
177
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
4.2
|
|
Pinnacle West
APS
|
|
Indenture dated as
of January 1, 1995
among APS and The
Bank of New York
Mellon, as Trustee
|
|
4.6 to APSs Registration Statement Nos.
33-61228 and 33-55473 by means of
January 1, 1995 Form 8-K Report, File
No. 1-4473
|
|
1-11-95 |
|
|
|
|
|
|
|
|
|
4.2a
|
|
Pinnacle West
APS
|
|
First Supplemental
Indenture dated as
of January 1, 1995
|
|
4.4 to APSs Registration Statement Nos.
33-61228 and 33-55473 by means of
January 1, 1995 Form 8-K Report, File
No. 1-4473
|
|
1-11-95 |
|
|
|
|
|
|
|
|
|
4.3
|
|
Pinnacle West
APS
|
|
Indenture dated as
of November 15,
1996 between APS
and The Bank of New
York, as Trustee
|
|
4.5 to APSs Registration Statements
Nos. 33-61228, 33-55473, 33-64455 and
333-15379 by means of November 19, 1996
Form 8-K Report, File No. 1-4473
|
|
11-22-96 |
|
|
|
|
|
|
|
|
|
4.3a
|
|
Pinnacle West
APS
|
|
First Supplemental
Indenture dated as
of November 15,
1996
|
|
4.6 to APSs Registration Statements
Nos. 33-61228, 33-55473, 33-64455 and
333-15379 by means of November 19, 1996
Form 8-K Report, File No. 1-4473
|
|
11-22-96 |
|
|
|
|
|
|
|
|
|
4.3b
|
|
Pinnacle West
APS
|
|
Second Supplemental
Indenture dated as
of April 1, 1997
|
|
4.10 to APSs Registration Statement
Nos. 33-55473, 33-64455 and 333-15379 by
means of April 7, 1997 Form 8-K Report,
File No. 1-4473
|
|
4-9-97 |
|
|
|
|
|
|
|
|
|
4.3c
|
|
Pinnacle West
APS
|
|
Third Supplemental
Indenture dated as
of November 1, 2002
|
|
10.2 to Pinnacle Wests March 31, 2003
Form 10-Q Report, File No. 1-8962
|
|
5-15-03 |
178
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
4.4
|
|
Pinnacle West
|
|
Indenture dated as
of December 1, 2000
between the Company
and The Bank of New
York, as Trustee,
relating to Senior
Unsecured Debt
Securities
|
|
4.1 to Pinnacle Wests Registration
Statement No. 333-52476
|
|
12-21-00 |
|
|
|
|
|
|
|
|
|
4.5
|
|
Pinnacle West
|
|
Indenture dated as
of December 1, 2000
between the Company
and The Bank of New
York, as Trustee,
relating to
Subordinated
Unsecured Debt
Securities
|
|
4.2 to Pinnacle Wests Registration
Statement No. 333-52476
|
|
12-21-00 |
|
|
|
|
|
|
|
|
|
4.6
|
|
Pinnacle West
APS
|
|
Indenture dated as
of January 15, 1998
between APS and The
Bank of New York
Mellon Trust
Company N.A.
(successor to
JPMorgan Chase
Bank, N.A.,
formerly known as
The Chase Manhattan
Bank), as Trustee
|
|
4.10 to APSs Registration Statement
Nos. 333-15379 and 333-27551 by means of
January 13, 1998 Form 8-K Report, File
No. 1-4473
|
|
1-16-98 |
|
|
|
|
|
|
|
|
|
4.6a
|
|
Pinnacle West
APS
|
|
Fifth Supplemental
Indenture dated as
of October 1, 2001
|
|
4.1 to APSs September 30, 2001 Form
10-Q, File No. 1-4473
|
|
11-6-01 |
|
|
|
|
|
|
|
|
|
4.6b
|
|
Pinnacle West
APS
|
|
Sixth Supplemental
Indenture dated as
of March 1, 2002
|
|
4.1 to APSs Registration Statement Nos.
333-63994 and 333-83398 by means of
February 26, 2002 Form 8-K Report, File
No. 1-4473
|
|
2-28-02 |
|
|
|
|
|
|
|
|
|
4.6c
|
|
Pinnacle West
APS
|
|
Seventh
Supplemental
Indenture dated as
of May 1, 2003
|
|
4.1 to APSs Registration Statement No.
333-90824 by means of May 7, 2003 Form
8-K Report, File No. 1-4473
|
|
5-9-03 |
179
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
4.6d
|
|
Pinnacle West
APS
|
|
Eighth Supplemental
Indenture dated as
of June 15, 2004
|
|
4.1 to APSs Registration Statement No.
333-106772 by means of June 24, 2004
Form 8-K Report, File No. 1-4473
|
|
6-28-04 |
|
|
|
|
|
|
|
|
|
4.6e
|
|
Pinnacle West
APS
|
|
Ninth Supplemental
Indenture dated as
of August 15, 2005
|
|
4.1 to APSs Registration Statements
Nos. 333-106772 and 333-121512 by means
of August 17, 2005 Form 8-K Report, File
No. 1-4473
|
|
8-22-05 |
|
|
|
|
|
|
|
|
|
4.6f
|
|
APS
|
|
Tenth Supplemental
Indenture dated as
of August 1, 2006
|
|
4.1 to APSs July 31, 2006 Form 8-K
Report, File No. 1-4473
|
|
8-3-06 |
|
|
|
|
|
|
|
|
|
4.6g
|
|
Pinnacle West
APS
|
|
Eleventh
Supplemental
Indenture dated as
of February 26,
2009
|
|
4.1 to Pinnacle Wests/APSs February
23, 2009 Form 8-K Report, File Nos.
1-8962 and 1-4473
|
|
2-25-09 |
|
|
|
|
|
|
|
|
|
4.7
|
|
Pinnacle West
|
|
Second Amended and
Restated Pinnacle
West Capital
Corporation
Investors Advantage
Plan dated as of
June 23, 2004
|
|
4.4 to Pinnacle Wests June 23, 2004
Form 8-K Report, File No. 1-8962
|
|
8-9-04 |
|
|
|
|
|
|
|
|
|
4.7a
|
|
Pinnacle West
|
|
Third Amended and
Restated Pinnacle
West Capital
Corporation
Investors Advantage
Plan dated as of
November 25, 2008
|
|
4.1 to Pinnacle Wests Form S-3
Registration Statement No. 333-155641,
File No. 1-8962
|
|
11-25-08 |
|
|
|
|
|
|
|
|
|
4.8
|
|
Pinnacle West
|
|
Agreement, dated
March 29, 1988,
relating to the
filing of
instruments
defining the rights
of holders of
long-term debt not
in excess of 10% of
the Companys total
assets
|
|
4.1 to Pinnacle Wests 1987 Form 10-K
Report, File No. 1-8962
|
|
3-30-88 |
180
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
4.8a
|
|
Pinnacle West
APS
|
|
Agreement, dated
March 21, 1994,
relating to the
filing of
instruments
defining the
rights of holders
of APS long-term
debt not in excess
of 10% of APSs
total assets
|
|
4.1 to APSs 1993 Form 10-K Report, File
No. 1-4473
|
|
3-30-94 |
|
|
|
|
|
|
|
|
|
10.1.1
|
|
Pinnacle West
APS
|
|
Two separate
Decommissioning
Trust Agreements
(relating to PVNGS
Units 1 and 3,
respectively), each
dated July 1, 1991,
between APS and
Mellon Bank, N.A.,
as Decommissioning
Trustee
|
|
10.2 to APSs September 30, 1991 Form
10-Q Report, File No. 1-4473
|
|
11-14-91 |
|
|
|
|
|
|
|
|
|
10.1.1a
|
|
Pinnacle West
APS
|
|
Amendment No. 1 to
Decommissioning
Trust Agreement
(PVNGS Unit 1),
dated as of
December 1, 1994
|
|
10.1 to APSs 1994 Form
10-K Report, File No. 1-4473
|
|
3-30-95 |
|
|
|
|
|
|
|
|
|
10.1.1b
|
|
Pinnacle West
APS
|
|
Amendment No. 1 to
Decommissioning
Trust Agreement
(PVNGS Unit 3),
dated as of
December 1, 1994
|
|
10.2 to APSs 1994 Form
10-K Report, File No. 1-4473
|
|
3-30-95 |
|
|
|
|
|
|
|
|
|
10.1.1c
|
|
Pinnacle West
APS
|
|
Amendment No. 2 to
APS Decommissioning
Trust Agreement
(PVNGS Unit 1)
dated as of July 1,
1991
|
|
10.4 to APSs 1996 Form
10-K Report, File No. 1-4473
|
|
3-28-97 |
181
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.1.1d
|
|
Pinnacle West
APS
|
|
Amendment No. 2 to
APS Decommissioning
Trust Agreement
(PVNGS Unit 3)
dated as of July 1,
1991
|
|
10.6 to APSs 1996 Form
10-K Report, File No. 1-4473
|
|
3-28-97 |
|
|
|
|
|
|
|
|
|
10.1.1e
|
|
Pinnacle West
APS
|
|
Amendment No. 3 to
the Decommissioning
Trust Agreement
(PVNGS Unit 1),
dated as of March
18, 2002
|
|
10.2 to Pinnacle Wests March 31, 2002
Form 10-Q Report, File No. 1-8962
|
|
5-15-02 |
|
|
|
|
|
|
|
|
|
10.1.1f
|
|
Pinnacle West
APS
|
|
Amendment No. 3 to
the Decommissioning
Trust Agreement
(PVNGS Unit 3),
dated as of March
18, 2002
|
|
10.4 to Pinnacle Wests March 2002 Form
10-Q Report, File No. 1-8962
|
|
5-15-02 |
|
|
|
|
|
|
|
|
|
10.1.1g
|
|
Pinnacle West
APS
|
|
Amendment No. 4 to
the Decommissioning
Trust Agreement
(PVNGS Unit 1),
dated as of
December 19, 2003
|
|
10.3 to Pinnacle Wests 2003 Form 10-K
Report, File No. 1-8962
|
|
3-15-04 |
|
|
|
|
|
|
|
|
|
10.1.1h
|
|
Pinnacle West
APS
|
|
Amendment No. 4 to
the Decommissioning
Trust Agreement
(PVNGS Unit 3),
dated as of
December 19, 2003
|
|
10.5 to Pinnacle Wests 2003 Form 10-K
Report, File No. 1-8962
|
|
3-15-04 |
|
|
|
|
|
|
|
|
|
10.1.1i
|
|
Pinnacle West
APS
|
|
Amendment No. 5 to
the Decommissioning
Trust Agreement
(PVNGS Unit 1),
dated as of May 1,
2007
|
|
10.1 to Pinnacle West/APS March 31, 2007
Form 10-Q Report, File Nos. 1-8962 and
1-4473
|
|
5-9-07 |
|
|
|
|
|
|
|
|
|
10.1.1j
|
|
Pinnacle West
APS
|
|
Amendment No. 5 to
the Decommissioning
Trust Agreement
(PVNGS Unit 3),
dated as of May 1,
2007
|
|
10.2 to Pinnacle West/APS March 31, 2007
Form 10-Q Report, File Nos. 1-8962 and
104473
|
|
5-9-07 |
182
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.1.2
|
|
Pinnacle West
APS
|
|
Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2)
dated as of January
31, 1992, among
APS, Mellon Bank,
N.A., as
Decommissioning
Trustee, and State
Street Bank and
Trust Company, as
successor to The
First National
Bank of Boston, as
Owner Trustee under
two separate Trust
Agreements, each
with a separate
Equity Participant,
and as Lessor under
two separate
Facility Leases,
each relating to an
undivided interest
in PVNGS Unit 2
|
|
10.1 to Pinnacle Wests 1991 Form 10-K
Report, File No. 1-8962
|
|
3-26-92 |
|
|
|
|
|
|
|
|
|
10.1.2a
|
|
Pinnacle West
APS
|
|
First Amendment to
Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of
November 1, 1992
|
|
10.2 to APSs 1992 Form
10-K Report, File No. 1-4473
|
|
3-30-93 |
|
|
|
|
|
|
|
|
|
10.1.2b
|
|
Pinnacle West
APS
|
|
Amendment No. 2 to
Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of
November 1, 1994
|
|
10.3 to APSs 1994 Form
10-K Report, File No. 1-4473
|
|
3-30-95 |
|
|
|
|
|
|
|
|
|
10.1.2c
|
|
Pinnacle West
APS
|
|
Amendment No. 3 to
Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of June
20, 1996
|
|
10.1 to APSs June 30, 1996 Form 10-Q
Report, File No. 1-4473
|
|
8-9-96 |
183
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.1.2d
|
|
Pinnacle West
APS
|
|
Amendment No. 4 to
Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2)
dated as of
December 16, 1996
|
|
APS 10.5 to APSs 1996 Form 10-K Report,
File No. 1-4473
|
|
3-28-97 |
|
|
|
|
|
|
|
|
|
10.1.2e
|
|
Pinnacle West
APS
|
|
Amendment No. 5 to
the Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of June
30, 2000
|
|
10.1 to Pinnacle Wests March 31, 2002
Form 10-Q Report, File No. 1-8962
|
|
5-15-02 |
|
|
|
|
|
|
|
|
|
10.1.2f
|
|
Pinnacle West
APS
|
|
Amendment No. 6 to
the Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of March
18, 2002
|
|
10.3 to Pinnacle Wests March 31, 2002
Form 10-Q Report, File No. 1-8962
|
|
5-15-02 |
|
|
|
|
|
|
|
|
|
10.1.2g
|
|
Pinnacle West
APS
|
|
Amendment No. 7 to
the Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of
December 19, 2003
|
|
10.4 to Pinnacle Wests 2003 Form 10-K
Report, File No. 1-8962
|
|
3-15-04 |
|
|
|
|
|
|
|
|
|
10.1.2h
|
|
Pinnacle West
APS
|
|
Amendment No. 8 to
the Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of April
1, 2007
|
|
10.1.2h to Pinnacle Wests 2007 Form
10-K Report, File No. 1-8962
|
|
2-27-08 |
184
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.2.1b
|
|
Pinnacle West
APS
|
|
Arizona Public
Service Company
Deferred
Compensation Plan,
as restated,
effective January
1, 1984, and the
second and third
amendments thereto,
dated December 22,
1986, and December
23, 1987
respectively
|
|
10.4 to APSs 1988 Form
10-K Report, File No. 1-4473
|
|
3-8-89 |
|
|
|
|
|
|
|
|
|
10.2.1ab
|
|
Pinnacle West
APS
|
|
Third Amendment to
the Arizona Public
Service Company
Deferred
Compensation Plan,
effective as of
January 1, 1993
|
|
10.3A to APSs 1993 Form
10-K Report, File No. 1-4473
|
|
3-30-94 |
|
|
|
|
|
|
|
|
|
10.2.1bb
|
|
Pinnacle West
APS
|
|
Fourth Amendment to
the Arizona Public
Service Company
Deferred
Compensation Plan
effective as of May
1, 1993
|
|
10.2 to APSs September 30, 1994 Form
10-Q Report, File No. 1-4473
|
|
11-10-94 |
|
|
|
|
|
|
|
|
|
10.2.1cb
|
|
Pinnacle West
APS
|
|
Fifth Amendment to
the Arizona Public
Service Company
Deferred
Compensation Plan
effective January
1, 1997
|
|
10.3A to APSs 1996 Form 10-K Report,
File No. 1-4473
|
|
3-28-97 |
|
|
|
|
|
|
|
|
|
10.2.1db
|
|
Pinnacle West
APS
|
|
Sixth Amendment to
the Arizona Public
Service Company
Deferred
Compensation Plan
effective January
1, 2001
|
|
10.8A to Pinnacle Wests 2000 Form 10-K
Report, File No. 1-8962
|
|
3-14-01 |
185
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.2.2b
|
|
Pinnacle West
APS
|
|
Arizona Public
Service Company
Directors Deferred
Compensation Plan,
as restated,
effective January
1, 1986
|
|
10.1 to APSs June 30, 1986 Form 10-Q
Report, File No. 1-4473
|
|
8-13-86 |
|
|
|
|
|
|
|
|
|
10.2.2ab
|
|
Pinnacle West
APS
|
|
Second Amendment to
the Arizona Public
Service Company
Directors Deferred
Compensation Plan,
effective as of
January 1, 1993
|
|
10.2A to APSs 1993 Form
10-K Report, File No. 1-4473
|
|
3-30-94 |
|
|
|
|
|
|
|
|
|
10.2.2bb
|
|
Pinnacle West
APS
|
|
Third Amendment to
the Arizona Public
Service Company
Directors Deferred
Compensation Plan,
effective as of May
1, 1993
|
|
10.1 to APSs September 30, 1994 Form
10-Q Report, File No. 1-4473
|
|
11-10-94 |
|
|
|
|
|
|
|
|
|
10.2.2cb
|
|
Pinnacle West
APS
|
|
Fourth Amendment to
the Arizona Public
Service Company
Directors Deferred
Compensation Plan,
effective as of
January 1, 1999
|
|
10.8A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
|
|
3-30-00 |
|
|
|
|
|
|
|
|
|
10.2.3b
|
|
Pinnacle West
APS
|
|
Trust for the
Pinnacle West
Capital
Corporation,
Arizona Public
Service Company and
SunCor Development
Company Deferred
Compensation Plans
dated August 1,
1996
|
|
10.14A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
|
|
3-30-00 |
186
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.2.3ab
|
|
Pinnacle West
APS
|
|
First Amendment
dated December 7,
1999 to the Trust
for the Pinnacle
West Capital
Corporation,
Arizona Public
Service Company and
SunCor Development
Company Deferred
Compensation Plans
|
|
10.15A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
|
|
3-30-00 |
|
|
|
|
|
|
|
|
|
10.2.4b
|
|
Pinnacle West
APS
|
|
Pinnacle West
Capital
Corporation,
Arizona Public
Service Company,
SunCor Development
Company and El
Dorado Investment
Company Deferred
Compensation Plan
as amended and
restated effective
January 1, 1996
|
|
10.10A to APSs 1995 Form 10-K Report,
File No. 1-4473
|
|
3-29-96 |
|
|
|
|
|
|
|
|
|
10.2.4ab
|
|
Pinnacle West
APS
|
|
First Amendment
effective as of
January 1, 1999, to
the Pinnacle West
Capital
Corporation,
Arizona Public
Service Company,
SunCor Development
Company and El
Dorado Investment
Company Deferred
Compensation Plan
|
|
10.7A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
|
|
3-30-00 |
187
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.2.4bb
|
|
Pinnacle West
APS
|
|
Second Amendment
effective January
1, 2000 to the
Pinnacle West
Capital
Corporation,
Arizona Public
Service Company,
SunCor Development
Company and El
Dorado Investment
Company Deferred
Compensation Plan
|
|
10.10A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
|
|
3-30-00 |
|
|
|
|
|
|
|
|
|
10.2.4cb
|
|
Pinnacle West
APS
|
|
Third Amendment to
the Pinnacle West
Capital
Corporation,
Arizona Public
Service Company,
SunCor Development
Company and El
Dorado Investment
Company Deferred
Compensation Plan,
effective as of
January 1, 2002
|
|
10.3 to Pinnacle Wests March 31, 2003
Form 10-Q Report, File No. 1-8962
|
|
5-15-03 |
|
|
|
|
|
|
|
|
|
10.2.4db
|
|
Pinnacle West
APS
|
|
Fourth Amendment to
the Pinnacle West
Capital
Corporation,
Arizona Public
Service Company,
SunCor Development
Company and El
Dorado Investment
Company Deferred
Compensation Plan,
effective January
1, 2003
|
|
10.64 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-13-06 |
|
|
|
|
|
|
|
|
|
10.2.5b
|
|
Pinnacle West
APS
|
|
Schedules of
William J. Post and
Jack E. Davis to
Arizona Public
Service Company
Deferred
Compensation Plan,
as amended
|
|
10.3A to Pinnacle West 2002 Form 10-K
Report, File No. 1-8962
|
|
3-31-03 |
188
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.2.6b
|
|
Pinnacle West
APS
|
|
Deferred
Compensation Plan
of 2005 for
Employees of
Pinnacle West
Capital Corporation
and Affiliates
|
|
10.2.6 to Pinnacle West/APS 2008 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
2-20-09 |
|
|
|
|
|
|
|
|
|
10.2.6ab
|
|
Pinnacle West
APS
|
|
First Amendment to
the Deferred
Compensation Plan
of 2005 for
Employees of
Pinnacle West
Capital Corporation
and Affiliates
|
|
10.2.6a to Pinnacle West/APS 2009 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
2-19-10 |
|
|
|
|
|
|
|
|
|
10.3.1b
|
|
Pinnacle West
APS
|
|
Pinnacle West
Capital Corporation
Supplement Excess
Benefit Retirement
Plan, amended and
restated as of
January 1, 2003
|
|
10.7A to Pinnacle Wests 2003 Form 10-K
Report, File No. 1-8962
|
|
3-15-04 |
|
|
|
|
|
|
|
|
|
10.3.1ab
|
|
Pinnacle West
APS
|
|
Pinnacle West
Capital Corporation
Supplemental Excess
Benefit Retirement
Plan, as amended
and restated, dated
December 18, 2003
|
|
10.48b to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-13-06 |
|
|
|
|
|
|
|
|
|
10.3.2b
|
|
Pinnacle West
APS
|
|
Pinnacle West
Capital Corporation
Supplemental Excess
Benefit Retirement
Plan of 2005
|
|
10.3.2 to Pinnacle West/APS 2008 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
2-20-09 |
|
|
|
|
|
|
|
|
|
10.4.1b
|
|
Pinnacle West
APS
|
|
Letter Agreement
dated December 21,
1993, between APS
and William L.
Stewart
|
|
10.6A to APSs 1994 Form 10-K Report,
File No. 1-4473
|
|
3-30-95 |
|
|
|
|
|
|
|
|
|
10.4.2b
|
|
Pinnacle West
APS
|
|
Letter Agreement
dated August 16,
1996 between APS
and William L.
Stewart
|
|
10.8 to APSs 1996 Form
10-K Report, File No. 1-4473
|
|
3-28-97 |
189
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.4.3b
|
|
Pinnacle West
APS
|
|
Letter Agreement
dated October 3,
1997 between APS
and William L.
Stewart
|
|
10.2 to APSs September 30, 1997 Form
10-Q Report, File No. 1-4473
|
|
11-12-97 |
|
|
|
|
|
|
|
|
|
10.4.4b
|
|
Pinnacle West
APS
|
|
Letter Agreement
dated December 13,
1999 between APS
and William L.
Stewart
|
|
10.9A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
|
|
3-30-00 |
|
|
|
|
|
|
|
|
|
10.4.4ab
|
|
Pinnacle West
APS
|
|
Amendment to Letter
Agreement,
effective as of
January 1, 2002,
between APS and
William L. Stewart
|
|
10.1 to Pinnacle Wests June 30, 2002
Form 10-Q Report, File No. 1-8962
|
|
8-13-02 |
|
|
|
|
|
|
|
|
|
10.4.5b
|
|
Pinnacle West
APS
|
|
Letter Agreement
dated June 28, 2001
between Pinnacle
West Capital
Corporation and
Steve Wheeler
|
|
10.4A to Pinnacle Wests 2002 Form 10-K
Report, File No. 1-8962
|
|
3-31-03 |
|
|
|
|
|
|
|
|
|
10.4.6b
|
|
APS
|
|
Letter Agreement
dated December 20,
2006 between APS
and Randall K.
Edington
|
|
10.78 to Pinnacle West/APS 2006 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
2-28-07 |
|
|
|
|
|
|
|
|
|
10.4.7b
|
|
APS
|
|
Letter Agreement
dated July 22, 2008
between APS and
Randall K. Edington
|
|
10.3 to Pinnacle West/APS June 30, 2008
Form 10-Q Report, File No. 1-4473
|
|
8-07-08 |
|
|
|
|
|
|
|
|
|
10.4.8b
|
|
Pinnacle West
APS
|
|
Letter Agreement
dated June 17, 2008
between Pinnacle
West/APS and James
R. Hatfield
|
|
10.1 to Pinnacle West/APS June 30, 2008
Form 10-Q Report, File Nos. 1-8962 and
1-4473
|
|
8-07-08 |
|
|
|
|
|
|
|
|
|
10.4.9b
|
|
APS
|
|
Description of 2008
Palo Verde Specific
Compensation
Opportunity for
Randall K. Edington
|
|
10.7 to Pinnacle West/APS June 30, 2008
Form 10-Q Report, File No. 1-4473
|
|
8-07-08 |
190
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.4.10b
|
|
APS
|
|
Supplemental
Agreement dated
December 26, 2008
between APS and
Randall K. Edington
|
|
10.4.10 to Pinnacle West/APS 2008 Form
10-K Report, File No. 1-4473
|
|
2-20-09 |
|
|
|
|
|
|
|
|
|
10.4.11 b
|
|
APS
|
|
Description of 2009
Palo Verde Specific
Compensation
Opportunity for
Randall K. Edington
|
|
10.2 to Pinnacle West/APS March 31, 2009
Form 10-Q Report, File No. 1-4473
|
|
5-5-09 |
|
|
|
|
|
|
|
|
|
10.4.12 b
|
|
Pinnacle West
APS
|
|
Career Recognition
Award Agreement
dated April 14,
2009 between
Pinnacle West
Capital Corporation
and William J. Post
|
|
10.1 to Pinnacle West/APS March 31, 2009
Form 10-Q Report, File Nos. 1-8962 and
1-4473
|
|
5-5-09 |
|
|
|
|
|
|
|
|
|
10.4.13b
|
|
APS
|
|
Description of 2010
Palo Verde Specific
Compensation
Opportunity for
Randall K. Edington
|
|
10.4.13 to Pinnacle West/APS 2009 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
2-19-10 |
|
|
|
|
|
|
|
|
|
10.4.14 b
|
|
Pinnacle West
|
|
Letter Agreement
dated May 21, 2009,
between Pinnacle
West Capital
Corporation and
David P. Falck
|
|
10.4 to Pinnacle West/APS March 31, 2010
Form 10-Q Report, File No. 1-8962
|
|
5-6-10 |
191
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.5.1bd
|
|
Pinnacle West
APS
|
|
Key Executive
Employment and
Severance Agreement
between Pinnacle
West and certain
executive officers
of Pinnacle West
and its
subsidiaries
|
|
10.77 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-13-06 |
|
|
|
|
|
|
|
|
|
10.5.1abd
|
|
Pinnacle West
APS
|
|
Form of Amended and
Restated Key
Executive
Employment and
Severance Agreement
between Pinnacle
West and certain
officers of
Pinnacle West and
its subsidiaries
|
|
10.4 to Pinnacle West/APS September 30,
2007 Form 10-Q Report, File Nos. 1-8962
and 1-4473
|
|
11-6-07 |
|
|
|
|
|
|
|
|
|
10.5.2bd
|
|
Pinnacle West
APS
|
|
Form of Key
Executive
Employment and
Severance Agreement
between Pinnacle
West and certain
officers of
Pinnacle West and
its subsidiaries
|
|
10.3 to Pinnacle West/APS September 30,
2007 Form 10-Q Report, File Nos. 1-8962
and 1-4473
|
|
11-6-07 |
|
|
|
|
|
|
|
|
|
10.5.3bd
|
|
Pinnacle West
APS
|
|
Form of Key
Executive
Employment and
Severance Agreement
between Pinnacle
West and certain
officers of
Pinnacle West and
its subsidiaries
|
|
10.5.3 to Pinnacle West/APS 2009 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
2-19-10 |
|
|
|
|
|
|
|
|
|
10.6.1b
|
|
Pinnacle West
APS
|
|
Pinnacle West
Capital Corporation
1994 Long- Term
Incentive Plan,
effective as of
March 23, 1994
|
|
Appendix A to the Proxy Statement for
the Plan Report for Pinnacle Wests 1994
Annual Meeting of Shareholders, File
No. 1-8962
|
|
4-15-94 |
192
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.6.1ab
|
|
Pinnacle West
APS
|
|
First Amendment
dated December 7,
1999 to the
Pinnacle West
Capital Corporation
1994 Long-Term
Incentive Plan
|
|
10.12A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
|
|
3-30-00 |
|
|
|
|
|
|
|
|
|
10.6.2b
|
|
Pinnacle West
APS
|
|
Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
|
|
10.5A to Pinnacle Wests 2002 Form 10-K
Report
|
|
3-31-03 |
|
|
|
|
|
|
|
|
|
10.6.2abd
|
|
Pinnacle West
APS
|
|
Performance Share
Agreement under the
Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
|
|
10.1 to Pinnacle West/APS December 9,
2005 Form 8-K Report, File Nos. 1-8962
and 1-4473
|
|
12-15-05 |
|
|
|
|
|
|
|
|
|
10.6.2bbd
|
|
Pinnacle West
APS
|
|
Performance Share
Agreement under the
Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
|
|
10.1 to Pinnacle West/APS December 31,
2005 Form
8-K Report, File Nos. 1-8962 and 1-4473
|
|
2-1-06 |
|
|
|
|
|
|
|
|
|
10.6.2cd
|
|
Pinnacle West
APS
|
|
Performance
Accelerated Stock
Option Agreement
under Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
|
|
10.98 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-16-05 |
|
|
|
|
|
|
|
|
|
10.6.2dbd
|
|
Pinnacle West
APS
|
|
Stock Ownership
Incentive Agreement
under Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
|
|
10.99 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-16-05 |
|
|
|
|
|
|
|
|
|
10.6.2ebd
|
|
Pinnacle West
APS
|
|
Performance Share
Agreement under the
Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
|
|
10.91 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-13-06 |
193
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.6.2fbd
|
|
Pinnacle West
APS
|
|
Performance Share
Agreement under the
Pinnacle West
Capital Corporation
2007 Long-Term
Incentive Plan
|
|
10.3 to Pinnacle West/APS March 31, 2009
Form 10-Q Report, File Nos. 1-8962 and
1-4473
|
|
5-5-09 |
|
|
|
|
|
|
|
|
|
10.6.2gbd
|
|
Pinnacle West
|
|
Form of Performance
Share Agreement
under the Pinnacle
West Capital
Corporation 2007
Long-Term Incentive
Plan
|
|
10.1 to Pinnacle West/APS June 30, 2010
Form 10-Q Report, File No. 1-8962
|
|
8-3-10 |
|
|
|
|
|
|
|
|
|
10.6.2hbd
|
|
Pinnacle West
|
|
Form of Restricted
Stock Unit
Agreement under the
Pinnacle West
Capital Corporation
2007 Long-Term
Incentive Plan
|
|
10.2 to Pinnacle West/APS June 30, 2010
Form 10-Q Report, File No. 1-8962
|
|
8-3-10 |
|
|
|
|
|
|
|
|
|
10.6.3b
|
|
Pinnacle West
|
|
Pinnacle West
Capital Corporation
2000 Director
Equity Plan
|
|
99.1 to Pinnacle Wests Registration
Statement on Form S-8 (No. 333-40796),
File No. 1-8962)
|
|
7-3-00 |
|
|
|
|
|
|
|
|
|
10.6.4b
|
|
Pinnacle West
|
|
Pinnacle West
Capital Corporation
2007 Long-Term
Incentive Plan
|
|
Appendix B to the Proxy Statement for
Pinnacle Wests 2007 Annual Meeting of
Shareholders, File No. 1-8962
|
|
4-20-07 |
|
|
10.6.4ab
|
|
Pinnacle West
|
|
First Amendment to
the Pinnacle West
Capital Corporation
2007 Long-Term
Incentive Plan
|
|
10.2 to Pinnacle West/APS April 18, 2007
Form 8-K Report, File No. 1-8962
|
|
4-20-07 |
|
|
|
|
|
|
|
|
|
10.6.4bb
|
|
Pinnacle West
|
|
Description of
Annual Stock Grants
to Non-Employee
Directors
|
|
10.1 to Pinnacle West/APS September 30,
2007 Form 10-Q Report, File No. 1-8962
|
|
11-6-07 |
|
|
|
|
|
|
|
|
|
10.6.4cb
|
|
Pinnacle West
|
|
Description of
Stock Grant to W.
Douglas Parker
|
|
10.2 to Pinnacle West/APS September 30,
2007 Form 10-Q Report, File No. 1-8962
|
|
11-6-07 |
194
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.6.4db
|
|
Pinnacle West
|
|
Description of
Annual Stock Grants
to Non-Employee
Directors
|
|
10.2 to Pinnacle West/APS June 30, 2008
Form 10-Q Report, File No. 1-8962
|
|
8-07-08 |
|
|
|
|
|
|
|
|
|
10.6.5bd
|
|
Pinnacle West
APS
|
|
Summary of 2011 CEO
Variable Incentive
Plan and Officer
Variable Incentive
Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7.1
|
|
Pinnacle West
APS
|
|
Indenture of Lease
with Navajo Tribe
of Indians, Four
Corners Plant
|
|
5.01 to APSs Form S-7 Registration
Statement, File No. 2-59644
|
|
9-1-77 |
|
|
|
|
|
|
|
|
|
10.7.1a
|
|
Pinnacle West
APS
|
|
Supplemental and
Additional
Indenture of Lease,
including
amendments and
supplements to
original lease with
Navajo Tribe of
Indians, Four
Corners Plant
|
|
5.02 to APSs Form S-7 Registration
Statement, File No. 2-59644
|
|
9-1-77 |
|
|
|
|
|
|
|
|
|
10.7.1b
|
|
Pinnacle West
APS
|
|
Amendment and
Supplement No. 1 to
Supplemental and
Additional
Indenture of Lease
Four Corners, dated
April 25, 1985
|
|
10.36 to Pinnacle Wests Registration
Statement on Form 8-B Report, File No.
1-8962
|
|
7-25-85 |
|
|
|
|
|
|
|
|
|
10.7.2
|
|
Pinnacle West
APS
|
|
Application and
Grant of
multi-party
rights-of-way and
easements, Four
Corners Plant Site
|
|
5.04 to APSs Form S-7 Registration
Statement, File No. 2-59644
|
|
9-1-77 |
|
|
|
|
|
|
|
|
|
10.7.2a
|
|
Pinnacle West
APS
|
|
Application and
Amendment No. 1 to
Grant of
multi-party
rights-of-way and
easements, Four
Corners Power Plant
Site dated April
25, 1985
|
|
10.37 to Pinnacle Wests Registration
Statement on Form 8-B, File No. 1-8962
|
|
7-25-85 |
195
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.7.3
|
|
Pinnacle West
APS
|
|
Application and
Grant of Arizona
Public Service
Company rights-
of-way and
easements, Four
Corners Plant Site
|
|
5.05 to APSs Form S-7 Registration
Statement, File No. 2-59644
|
|
9-1-77 |
|
|
|
|
|
|
|
|
|
10.7.3a
|
|
Pinnacle West
APS
|
|
Application and
Amendment No. 1 to
Grant of Arizona
Public Service
Company
rights-of-way and
easements, Four
Corners Power Plant
Site dated April
25, 1985
|
|
10.38 to Pinnacle Wests Registration
Statement on Form 8-B, File No. 1-8962
|
|
7-25-85 |
|
|
|
|
|
|
|
|
|
10.7.4
|
|
Pinnacle West
APS
|
|
Four Corners
Project Co-Tenancy
Agreement Amendment
No. 6
|
|
10.7 to Pinnacle Wests 2000 Form 10-K
Report, File No. 1-8962
|
|
3-14-01 |
|
|
|
|
|
|
|
|
|
10.8.1
|
|
Pinnacle West
APS
|
|
Indenture of Lease,
Navajo Units 1, 2,
and 3
|
|
5(g) to APSs Form S-7 Registration
Statement, File No. 2-36505
|
|
3-23-70 |
|
|
|
|
|
|
|
|
|
10.8.2
|
|
Pinnacle West
APS
|
|
Application of
Grant of
rights-of-way and
easements, Navajo
Plant
|
|
5(h) to APS Form S-7 Registration
Statement, File No. 2-36505
|
|
3-23-70 |
|
|
|
|
|
|
|
|
|
10.8.3
|
|
Pinnacle West
APS
|
|
Water Service
Contract Assignment
with the United
States Department
of Interior, Bureau
of Reclamation,
Navajo Plant
|
|
5(l) to APSs Form S-7 Registration
Statement, File No. 2-394442
|
|
3-16-71 |
196
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.8.4
|
|
Pinnacle West
APS
|
|
Navajo Project
Co-Tenancy
Agreement dated as
of March 23, 1976,
and Supplement No.
1 thereto dated as
of October 18,
1976, Amendment No.
1 dated as of July
5, 1988, and
Amendment No. 2
dated as of June
14, 1996; Amendment
No. 3 dated as of
February 11, 1997;
Amendment No. 4
dated as of January
21, 1997; Amendment
No. 5 dated as of
January 23, 1998;
Amendment No. 6
dated as of July
31, 1998
|
|
10.107 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-13-06 |
|
|
|
|
|
|
|
|
|
10.8.5
|
|
Pinnacle West
APS
|
|
Navajo Project
Participation
Agreement dated as
of September 30,
1969, and Amendment
and Supplement No.
1 dated as of
January 16, 1970,
and Coordinating
Committee Agreement
No. 1 dated as of
September 30, 1971
|
|
10.108 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-13-06 |
197
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.9.1
|
|
Pinnacle West
APS
|
|
Arizona Nuclear
Power Project
Participation
Agreement, dated
August 23, 1973,
among APS Salt
River Project
Agricultural
Improvement and
Power District,
Southern California
Edison Company,
Public Service
Company of New
Mexico, El Paso
Electric Company,
Southern California
Public Power
Authority, and
Department of Water
and Power of the
City of Los
Angeles, and
amendments 1-12
thereto
|
|
10. 1 to APSs 1988 Form
10-K Report, File No. 1-4473
|
|
3-8-89 |
|
|
|
|
|
|
|
|
|
10.9.1a
|
|
Pinnacle West
APS
|
|
Amendment No. 13,
dated as of April
22, 1991, to
Arizona Nuclear
Power Project
Participation
Agreement, dated
August 23, 1973,
among APS, Salt
River Project
Agricultural
Improvement and
Power District,
Southern California
Edison Company,
Public Service
Company of New
Mexico, El Paso
Electric Company,
Southern California
Public Power
Authority, and
Department of Water
and Power of the
City of Los Angeles
|
|
10.1 to APSs March 31, 1991 Form 10-Q
Report, File No. 1-4473
|
|
5-15-91 |
198
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.9.1b
|
|
Pinnacle West
APS
|
|
Amendment No. 14 to
Arizona Nuclear
Power Project
Participation
Agreement, dated
August 23, 1973,
among APS, Salt
River Project
Agricultural
Improvement and
Power District,
Southern California
Edison Company,
Public Service
Company of New
Mexico, El Paso
Electric Company,
Southern California
Public Power
Authority, and
Department of Water
and Power of the
City of Los Angeles
|
|
99.1 to Pinnacle Wests June 30, 2000
Form 10-Q Report, File No. 1-8962
|
|
8-14-00 |
|
|
|
|
|
|
|
|
|
10.9.1c
|
|
Pinnacle West
APS
|
|
Amendment No. 15,
dated November 29,
2010, to Arizona
Nuclear Power
Project
Participation
Agreement, dated
August 23, 1973,
among APS, Salt
River Project
Agricultural
Improvement and
Power District,
Southern California
Edison Company,
Public Service
Company of New
Mexico, El Paso
Electric Company,
Southern California
Public Power
Authority, and
Department of Water
and Power of the
City of Los Angeles |
|
|
|
|
199
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.10.1
|
|
Pinnacle West
APS
|
|
Asset Purchase and
Power Exchange
Agreement dated
September 21, 1990
between APS and
PacifiCorp, as
amended as of
October 11, 1990
and as of July 18,
1991
|
|
10.1 to APSs June 30, 1991 Form 10-Q
Report, File No. 1-4473
|
|
8-8-91 |
|
|
|
|
|
|
|
|
|
10.10.2
|
|
Pinnacle West
APS
|
|
Long-Term Power
Transaction
Agreement dated
September 21, 1990
between APS and
PacifiCorp, as
amended as of
October 11, 1990,
and as of July 8,
1991
|
|
10.2 to APSs June 30, 1991 Form 10-Q
Report, File No. 1-4473
|
|
8-8-91 |
|
|
|
|
|
|
|
|
|
10.10.2a
|
|
Pinnacle West
APS
|
|
Amendment No. 1
dated April 5, 1995
to the Long-Term
Power Transaction
Agreement and Asset
Purchase and Power
Exchange Agreement
between PacifiCorp
and APS
|
|
10.3 to APSs 1995 Form 10-K Report,
File No. 1-4473
|
|
3-29-96 |
|
|
|
|
|
|
|
|
|
10.10.3
|
|
Pinnacle West
APS
|
|
Restated
Transmission
Agreement between
PacifiCorp and APS
dated April 5, 1995
|
|
10.4 to APSs 1995 Form
10-K Report, File No. 1-4473
|
|
3-29-96 |
|
|
|
|
|
|
|
|
|
10.10.4
|
|
Pinnacle West
APS
|
|
Contract among
PacifiCorp, APS and
United States
Department of
Energy Western Area
Power
Administration,
Salt Lake Area
Integrated Projects
for Firm
Transmission
Service dated May
5, 1995
|
|
10.5 to APSs 1995 Form
10-K Report, File No. 1-4473
|
|
3-29-96 |
200
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.10.5
|
|
Pinnacle West
APS
|
|
Reciprocal
Transmission
Service Agreement
between APS and
PacifiCorp dated as
of March 2, 1994
|
|
10.6 to APSs 1995 Form
10-K Report, File No. 1-4473
|
|
3-29-96 |
|
|
|
|
|
|
|
|
|
10.11.1
|
|
Pinnacle West
APS
|
|
Three-Year Credit
Agreement dated as
of February 12,
2010 between APS,
as Borrower, Wells
Fargo Bank,
National
Association, as
Agent, and the
lenders and other
parties thereto
|
|
10.11.3 to Pinnacle West/APS 2009 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
2-19-10 |
|
|
|
|
|
|
|
|
|
10.11.2
|
|
Pinnacle West
|
|
$200,000,000 Senior
Notes Uncommitted
Master Shelf
Agreement dated as
of February 28,
2006
|
|
10.96 to Pinnacle West 2005 Form 10-K
Report, File No. 1-8962
|
|
3-13-06 |
|
|
|
|
|
|
|
|
|
10.11.3
|
|
Pinnacle West
|
|
Three-Year Credit
Agreement dated as
of February 12,
2010 among Pinnacle
West Capital
Corporation, as
Borrower, Bank of
America, N.A, as
Agent, and the
lenders and other
parties thereto
|
|
10.11.5 to Pinnacle West/APS 2009 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
2-19-10 |
201
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.11.4
|
|
APS
|
|
$500,000,000
Four-Year Credit
Agreement dated as of
February 14, 2011
among Arizona
Public Service
Company as
Borrower, Barclays
Bank PLC, as Agent
and Issuing Bank,
Credit Suisse
Securities (USA)
LLC, as Syndication
Agent, Credit
Suisse AG, Cayman
Islands Branch, as
Issuing Bank, Bank
of America, N.A.
and Wells Fargo
Bank, National
Association, as
Co-Documentation
Agents and the
other parties
thereto
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.11.5
|
|
Pinnacle West
APS
|
|
Reimbursement
Agreement among
APS, the Banks
party thereto, and
JPMorgan Chase
Bank, N.A., as
Administrative
Agent and Issuing
Bank, dated as of
April 16, 2010
|
|
10.2 to Pinnacle West/APS March 31, 2010
Form 10-Q Report, File Nos. 1-8962 and
1-4473
|
|
5-6-10 |
|
|
|
|
|
|
|
|
|
10.11.6
|
|
Pinnacle West
APS
|
|
Reimbursement
Agreement among
APS, the Banks
party thereto, and
JPMorgan Chase
Bank, N.A., as
Administrative
Agent and Issuing
Bank, dated as of
April 16, 2010
|
|
10.3 to Pinnacle West/APS March 31, 2010
Form 10-Q Report, File Nos. 1-8962 and
1-4473
|
|
5-6-10 |
202
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.12.1c
|
|
Pinnacle West
APS
|
|
Facility Lease,
dated as of August
1, 1986, between
U.S. Bank National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, in its
capacity as Owner
Trustee, as Lessor,
and APS, as Lessee
|
|
4.3 to APSs Form 18 Registration
Statement, File No. 33-9480
|
|
10-24-86 |
|
|
|
|
|
|
|
|
|
10.12.1ac
|
|
Pinnacle West
APS
|
|
Amendment No. 1,
dated as of
November 1, 1986,
to Facility Lease,
dated as of August
1, 1986, between
U.S. Bank National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, in its
capacity as Owner
Trustee, as Lessor,
and APS, as Lessee
|
|
10.5 to APSs September 30, 1986 Form
10-Q Report by means of Amendment No. 1
on December 3, 1986 Form 8, File No.
1-4473
|
|
12-4-86 |
|
|
10.12.1bc
|
|
Pinnacle West
APS
|
|
Amendment No. 2
dated as of June 1,
1987 to Facility
Lease dated as of
August 1, 1986
between U.S. Bank
National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as
Lessor, and APS, as
Lessee
|
|
10.3 to APSs 1988 Form
10-K Report, File No. 1-4473
|
|
3-8-89 |
203
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.12.1cc
|
|
Pinnacle West
APS
|
|
Amendment No. 3,
dated as of March
17, 1993, to
Facility Lease,
dated as of August
1, 1986, between
U.S. Bank National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as
Lessor, and APS, as
Lessee
|
|
10.3 to APSs 1992 Form
10-K Report, File No. 1-4473
|
|
3-30-93 |
|
|
|
|
|
|
|
|
|
10.12.2
|
|
Pinnacle West
APS
|
|
Facility Lease,
dated as of
December 15, 1986,
between U.S. Bank
National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, in its
capacity as Owner
Trustee, as Lessor,
and APS, as Lessee
|
|
10.1 to APSs November 18, 1986 Form 8-K
Report, File No. 1-4473
|
|
1-20-87 |
|
|
|
|
|
|
|
|
|
10.12.2a
|
|
Pinnacle West
APS
|
|
Amendment No. 1,
dated as of August
1, 1987, to
Facility Lease,
dated as of
December 15, 1986,
between U.S. Bank
National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as
Lessor, and APS, as
Lessee
|
|
4.13 to APSs Form 18 Registration
Statement No. 33-9480 by means of August
1, 1987 Form 8-K Report, File No. 1-4473
|
|
8-24-87 |
204
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.12.2b
|
|
Pinnacle West
APS
|
|
Amendment No. 2,
dated as of March
17, 1993, to
Facility Lease,
dated as of
December 15, 1986,
between U.S. Bank
National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as
Lessor, and APS, as
Lessee
|
|
10.4 to APSs 1992 Form
10-K Report, File No. 1-4473
|
|
3-30-93 |
|
|
|
|
|
|
|
|
|
10.13.1
|
|
Pinnacle West
APS
|
|
Agreement between
Pinnacle West
Energy Corporation
and Arizona Public
Service Company for
Transportation and
Treatment of
Effluent by and
between Pinnacle
West Energy
Corporation and APS
dated as of the
10th day
of April, 2001
|
|
10.102 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-16-05 |
|
|
|
|
|
|
|
|
|
10.13.2
|
|
Pinnacle West
APS
|
|
Agreement for the
Transfer and Use of
Wastewater and
Effluent by and
between APS, SRP
and PWE dated June
1, 2001
|
|
10.103 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-16-05 |
|
|
|
|
|
|
|
|
|
10.13.3
|
|
Pinnacle West
APS
|
|
Agreement for the
Sale and Purchase
of Wastewater
Effluent dated
November 13, 2000,
by and between the
City of Tolleson,
Arizona, APS and
SRP
|
|
10.104 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-16-05 |
205
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.13.4
|
|
Pinnacle West
APS
|
|
Operating Agreement
for the
Co-Ownership of
Wastewater Effluent
dated November 16,
2000 by and between
APS and SRP
|
|
10.105 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
|
|
3-16-05 |
|
|
|
|
|
|
|
|
|
10.13.5
|
|
Pinnacle West
APS
|
|
Municipal Effluent
Purchase and Sale
Agreement dated
April 29, 2010, by
and between City of
Phoenix, City of
Mesa, City of
Tempe, City of
Scottsdale, City of
Glendale, APS and
Salt River Project
Agricultural
Improvement and
Power District
|
|
10.1 to Pinnacle West/APS March 31, 2010
Form 10-Q Report, File Nos. 1-8962 and
1-4473
|
|
5-6-10 |
|
|
|
|
|
|
|
|
|
10.14.1
|
|
Pinnacle West
APS
|
|
Contract, dated
July 21, 1984, with
DOE providing for
the disposal of
nuclear fuel and/or
high-level
radioactive waste,
ANPP
|
|
10.31 to Pinnacle Wests Form S-14
Registration Statement, File No. 2-96386
|
|
3-13-85 |
|
|
|
|
|
|
|
|
|
10.15.1
|
|
Pinnacle West
APS
|
|
Territorial
Agreement between
APS and Salt River
Project
|
|
10.1 to APSs March 31, 1998 Form 10-Q
Report, File No. 1-4473
|
|
5-15-98 |
|
|
|
|
|
|
|
|
|
10.15.2
|
|
Pinnacle West
APS
|
|
Power Coordination
Agreement between
APS and Salt River
Project
|
|
10.2 to APSs March 31, 1998 Form 10-Q
Report, File No. 1-4473
|
|
5-15-98 |
|
|
|
|
|
|
|
|
|
10.15.3
|
|
Pinnacle West
APS
|
|
Memorandum of
Agreement between
APS and Salt River
Project
|
|
10.3 to APSs March 31, 1998 Form 10-Q
Report, File No. 1-4473
|
|
5-15-98 |
206
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
10.15.3a
|
|
Pinnacle West
APS
|
|
Addendum to
Memorandum of
Agreement between
APS and Salt River
Project dated as of
May 19, 1998
|
|
10.2 to APSs May 19, 1998 Form 8-K
Report, File No. 1-4473
|
|
6-26-98 |
|
|
|
|
|
|
|
|
|
10.16
|
|
Pinnacle West
APS
|
|
Purchase and Sale
Agreement dated
November 8, 2010 by
and between
Southern California
Edison Company and
APS
|
|
10.1 to Pinnacle West/APS November 8,
2010 Form 8-K Report, File Nos. 1-8962
and 1-4473
|
|
11-8-10 |
|
|
|
|
|
|
|
|
|
12.1
|
|
Pinnacle West
|
|
Ratio of Earnings
to Fixed Charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
12.2
|
|
APS
|
|
Ratio of Earnings
to Fixed Charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
12.3
|
|
Pinnacle West
|
|
Ratio of Earnings
to Combined Fixed
Charges and
Preferred Stock
Dividend
Requirements |
|
|
|
|
|
|
|
|
|
|
|
|
|
21.1
|
|
Pinnacle West
|
|
Subsidiaries of
Pinnacle West |
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
Pinnacle West
|
|
Consent of Deloitte
& Touche LLP |
|
|
|
|
|
|
|
|
|
|
|
|
|
23.2
|
|
APS
|
|
Consent of Deloitte
& Touche LLP |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Pinnacle West
|
|
Certificate of
Donald E. Brandt,
Chief Executive
Officer, pursuant
to Rule 13a-14(a)
and Rule 15d-14(a)
of the Securities
Exchange Act, as
amended |
|
|
|
|
207
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
31.2
|
|
Pinnacle West
|
|
Certificate of
James R. Hatfield,
Chief Financial
Officer, pursuant
to Rule 13a-14(a)
and Rule 15d-14(a)
of the Securities
Exchange Act, as
amended |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.3
|
|
APS
|
|
Certificate of
Donald E. Brandt,
Chief Executive
Officer, pursuant
to Rule 13a-14(a)
and Rule 15d-14(a)
of the Securities
Exchange Act, as
amended |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.4
|
|
APS
|
|
Certificate of
James R. Hatfield,
Chief Financial
Officer, pursuant
to Rule 13a-14(a)
and Rule 15d-14(a)
of the Securities
Exchange Act, as
amended |
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
Pinnacle West
|
|
Certification of
Chief Executive
Officer and Chief
Financial Officer,
pursuant to 18
U.S.C. Section
1350, as adopted
pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2
|
|
APS
|
|
Certification of
Chief Executive
Officer and Chief
Financial Officer,
pursuant to 18
U.S.C. Section
1350, as adopted
pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002 |
|
|
|
|
208
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
99.1
|
|
Pinnacle West
APS
|
|
Collateral Trust
Indenture among
PVNGS II Funding
Corp., Inc., APS
and Chemical Bank,
as Trustee
|
|
4.2 to APSs 1992 Form 10-K Report, File
No. 1-4473
|
|
3-30-93 |
|
|
|
|
|
|
|
|
|
99.1a
|
|
Pinnacle West
APS
|
|
Supplemental
Indenture to
Collateral Trust
Indenture among
PVNGS II Funding
Corp., Inc., APS
and Chemical Bank,
as Trustee
|
|
4.3 to APSs 1992 Form 10-K Report, File
No. 1-4473
|
|
3-30-93 |
|
|
99.2c
|
|
Pinnacle West
APS
|
|
Participation
Agreement, dated as
of August 1, 1986,
among PVNGS Funding
Corp., Inc., Bank
of America National
Trust and Savings
Association, State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, in its
individual capacity
and as Owner
Trustee, Chemical
Bank, in its
individual capacity
and as Indenture
Trustee, APS, and
the Equity
Participant named
therein
|
|
28.1 to APSs September 30, 1992 Form
10-Q Report, File No. 1-4473
|
|
11-9-92 |
209
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
99.2ac
|
|
Pinnacle West
APS
|
|
Amendment No. 1
dated as of
November 1, 1986,
to Participation
Agreement, dated as
of August 1, 1986,
among PVNGS Funding
Corp., Inc., Bank
of America National
Trust and Savings
Association, State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, in its
individual capacity
and as Owner
Trustee, Chemical
Bank, in its
individual capacity
and as Indenture
Trustee, APS, and
the Equity
Participant named
therein
|
|
10.8 to APSs September 30, 1986 Form
10-Q Report by means of Amendment No.
1, on December 3, 1986 Form 8, File No.
1-4473
|
|
12-4-86 |
|
|
|
|
|
|
|
|
|
99.2bc
|
|
Pinnacle West
APS
|
|
Amendment No. 2,
dated as of March
17, 1993, to
Participation
Agreement, dated
as of August 1,
1986, among PVNGS
Funding Corp.,
Inc., PVNGS II
Funding Corp.,
Inc., State Street
Bank and Trust
Company, as
successor to The
First National Bank
of Boston, in its
individual
capacity and as
Owner Trustee,
Chemical Bank, in
its individual
capacity and as
Indenture Trustee,
APS, and the Equity
Participant named
therein
|
|
28.4 to APSs 1992 Form
10-K Report, File No. 1-4473
|
|
3-30-93 |
210
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
99.3c
|
|
Pinnacle West
APS
|
|
Trust Indenture,
Mortgage, Security
Agreement and
Assignment of
Facility Lease,
dated as of August
1, 1986, between
State Street Bank
and Trust Company,
as successor to The
First National Bank
of Boston, as Owner
Trustee, and
Chemical Bank, as
Indenture Trustee
|
|
4.5 to APSs Form 18 Registration
Statement, File No. 33-9480
|
|
10-24-86 |
|
|
|
|
|
|
|
|
|
99.3ac
|
|
Pinnacle West
APS
|
|
Supplemental
Indenture No. 1,
dated as of
November 1, 1986 to
Trust Indenture,
Mortgage, Security
Agreement and
Assignment of
Facility Lease,
dated as of August
1, 1986, between
State Street Bank
and Trust Company,
as successor to The
First National Bank
of Boston, as
Owner Trustee, and
Chemical Bank, as
Indenture Trustee
|
|
10.6 to APSs September 30, 1986 Form
10-Q Report by means of Amendment No. 1
on December 3, 1986 Form 8, File No.
1-4473
|
|
12-4-86 |
211
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
99.3bc
|
|
Pinnacle West
APS
|
|
Supplemental
Indenture No. 2 to
Trust Indenture,
Mortgage, Security
Agreement and
Assignment of
Facility Lease,
dated as of August
1, 1986, between
State Street Bank
and Trust Company,
as successor to The
First National Bank
of Boston, as Owner
Trustee, and
Chemical Bank, as
Lease Indenture
Trustee
|
|
4.4 to APSs 1992 Form
10-K Report, File No. 1-4473
|
|
3-30-93 |
|
|
|
|
|
|
|
|
|
99.4c
|
|
Pinnacle West
APS
|
|
Assignment,
Assumption and
Further Agreement,
dated as of August
1, 1986, between
APS and State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as Owner
Trustee
|
|
28.3 to APSs Form 18 Registration
Statement, File No. 33-9480
|
|
10-24-86 |
|
|
|
|
|
|
|
|
|
99.4ac
|
|
Pinnacle West
APS
|
|
Amendment No. 1,
dated as of
November 1, 1986,
to Assignment,
Assumption and
Further Agreement,
dated as of August
1, 1986, between
APS and State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as
Owner Trustee
|
|
10.10 to APSs September 30, 1986 Form
10-Q Report by means of Amendment No. l
on December 3, 1986 Form 8, File No.
1-4473
|
|
12-4-86 |
212
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
99.4bc
|
|
Pinnacle West
APS
|
|
Amendment No. 2,
dated as of March
17, 1993, to
Assignment,
Assumption and
Further Agreement,
dated as of August
1, 1986, between
APS and State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as Owner
Trustee
|
|
28.6 to APSs 1992 Form
10-K Report, File No. 1-4473
|
|
3-30-93 |
|
|
|
|
|
|
|
|
|
99.5
|
|
Pinnacle West
APS
|
|
Participation
Agreement, dated as
of December 15,
1986, among PVNGS
Funding Report
Corp., Inc., State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, in its
individual capacity
and as Owner
Trustee, Chemical
Bank, in its
individual capacity
and as Indenture
Trustee under a
Trust Indenture,
APS, and the Owner
Participant named
therein
|
|
28.2 to APSs September 30, 1992 Form
10-Q Report, File No. 1-4473
|
|
11-9-92 |
213
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
|
Date |
No. |
|
Registrant(s) |
|
Description |
|
Previously Filed as Exhibit: a |
|
Filed |
|
|
|
|
|
|
|
|
|
99.5a
|
|
Pinnacle West
APS
|
|
Amendment No. 1,
dated as of August
1, 1987, to
Participation
Agreement, dated as
of December 15,
1986, among PVNGS
Funding Corp., Inc.
as Funding
Corporation, State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as Owner
Trustee, Chemical
Bank, as Indenture
Trustee, APS, and
the Owner
Participant named
therein
|
|
28.20 to APSs Form 18 Registration
Statement No. 33-9480 by means of a
November 6, 1986 Form 8-K Report, File
No. 1-4473
|
|
8-10-87 |
|
|
|
|
|
|
|
|
|
99.5b
|
|
Pinnacle West
APS
|
|
Amendment No. 2,
dated as of March
17, 1993, to
Participation
Agreement, dated as
of December 15,
1986, among PVNGS
Funding Corp.,
Inc., PVNGS II
Funding Corp.,
Inc., State Street
Bank and Trust
Company, as
successor to The
First National Bank
of Boston, in its
individual capacity
and as Owner
Trustee, Chemical
Bank, in its
individual capacity
and as Indenture
Trustee, APS, and
the Owner
Participant named
therein
|
|
28.5 to APSs 1992 Form
10-K Report, File No. 1-4473
|
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3-30-93 |
214
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Exhibit |
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Date |
No. |
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Registrant(s) |
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Description |
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Previously Filed as Exhibit: a |
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Filed |
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99.6
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Pinnacle West
APS
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Trust Indenture,
Mortgage Security
Agreement and
Assignment of
Facility Lease,
dated as of
December 15, 1986,
between State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as Owner
Trustee, and
Chemical Bank, as
Indenture Trustee
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10.2 to APSs November 18, 1986 Form
10-K Report, File No. 1-4473
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1-20-87 |
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99.6a
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Pinnacle West
APS
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Supplemental
Indenture No. 1,
dated as of August
1, 1987, to Trust
Indenture,
Mortgage, Security
Agreement and
Assignment of
Facility Lease,
dated as of
December 15, 1986,
between State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as Owner
Trustee, and
Chemical Bank, as
Indenture Trustee
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4.13 to APSs Form 18 Registration
Statement No. 33-9480 by means of August
1, 1987 Form 8-K Report, File No. 1-4473
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8-24-87 |
215
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Exhibit |
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Date |
No. |
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Registrant(s) |
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Description |
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Previously Filed as Exhibit: a |
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Filed |
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99.6b
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Pinnacle West
APS
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Supplemental
Indenture No. 2 to
Trust Indenture
Mortgage, Security
Agreement and
Assignment of
Facility Lease,
dated as of
December 15, 1986,
between State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as Owner
Trustee, and
Chemical Bank, as
Lease Indenture
Trustee
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4.5 to APSs 1992 Form 10-K Report, File
No. 1-4473
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3-30-93 |
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99.7
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Pinnacle West
APS
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Assignment,
Assumption and
Further Agreement,
dated as of
December 15, 1986,
between APS and
State Street Bank
and Trust Company,
as successor to The
First National Bank
of Boston, as Owner
Trustee
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10.5 to APSs November 18, 1986 Form 8-K
Report, File No. 1-4473
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1-20-87 |
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99.7a
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Pinnacle West
APS
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Amendment No. 1,
dated as of March
17, 1993, to
Assignment,
Assumption and
Further Agreement,
dated as of
December 15, 1986,
between APS and
State Street Bank
and Trust Company,
as successor to The
First National Bank
of Boston, as Owner
Trustee
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28.7 to APSs 1992 Form
10-K Report, File No. 1-4473
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3-30-93 |
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99.8c
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Pinnacle West
APS
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Indemnity Agreement
dated as of March
17, 1993 by APS
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28.3 to APSs 1992 Form
10-K Report, File No. 1-4473
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3-30-93 |
216
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Exhibit |
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Date |
No. |
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Registrant(s) |
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Description |
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Previously Filed as Exhibit: a |
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Filed |
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99.9
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Pinnacle West
APS
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Extension Letter,
dated as of August
13, 1987, from the
signatories of the
Participation
Agreement to
Chemical Bank
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28.20 to APSs Form 18 Registration
Statement No. 33-9480 by means of a
November 6, 1986 Form 8-K Report, File
No. 1-4473
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8-10-87 |
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99.10
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Pinnacle West
APS
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Arizona Corporation
Commission Order,
Decision No. 61969,
dated September 29,
1999, including the
Retail Electric
Competition Rules
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10.2 to APSs September 30, 1999 Form
10-Q Report, File No. 1-4473
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11-15-99 |
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99.11
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Pinnacle West
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Purchase Agreement
by and among
Pinnacle West
Energy Corporation
and GenWest, L.L.C.
and Nevada Power
Company, dated June
21, 2005
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99.5 to Pinnacle West/APS June 30, 2005
Form 10-Q Report, File Nos. 1-8962 and
1-4473
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8-9-05 |
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101.INS
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Pinnacle West
APS
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XBRL Instance
Document |
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101.SCH
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Pinnacle West
APS
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XBRL Taxonomy
Extension Schema
Document |
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101.CAL
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Pinnacle West
APS
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XBRL Taxonomy
Extension
Calculation
Linkbase Document |
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101.LAB
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Pinnacle West
APS
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XBRL Taxonomy
Extension Label
Linkbase Document |
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217
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Exhibit |
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Date |
No. |
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Registrant(s) |
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Description |
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Previously Filed as Exhibit: a |
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Filed |
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101.PRE
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Pinnacle West
APS
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XBRL Taxonomy
Extension
Presentation
Linkbase Document |
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101.DEF
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Pinnacle West
APS
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XBRL Taxonomy
Definition Linkbase
Document |
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a |
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Reports filed under File No. 1-4473 and 1-8962 were filed in the office of the
Securities and Exchange Commission located in Washington, D.C. |
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b |
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Management contract or compensatory plan or arrangement to be filed as an exhibit
pursuant to Item 15(b) of Form 10-K. |
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c |
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An additional document, substantially identical in all material respects to this
Exhibit, has been entered into, relating to an additional Equity Participant. Although such
additional document may differ in other respects (such as dollar amounts, percentages, tax indemnity matters, and dates
of execution), there are no material details in which such document differs from this Exhibit. |
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d |
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Additional agreements, substantially identical in all material respects to this
Exhibit have been entered into with additional persons. Although such additional documents may
differ in other respects (such as dollar amounts and dates of execution), there are no material
details in which such agreements differ from this Exhibit. |
218
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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PINNACLE WEST CAPITAL CORPORATION
(Registrant)
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Date: February 18, 2011 |
/s/ Donald E. Brandt
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(Donald E. Brandt, Chairman of |
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the Board of Directors, President and
Chief Executive Officer) |
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Power of Attorney
We, the undersigned directors and executive officers of Pinnacle West Capital Corporation,
hereby severally appoint James R. Hatfield and David P. Falck, and each of them, our true and
lawful attorneys with full power to them and each of them to sign for us, and in our names in the
capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
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Signature |
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Title |
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Date |
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/s/ Donald E. Brandt
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Principal Executive Officer and Director
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February 18, 2011 |
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(Donald E. Brandt, Chairman |
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of the Board of Directors, President |
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and Chief Executive Officer) |
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/s/ James R. Hatfield
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Principal Financial Officer
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February 18, 2011 |
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Senior Vice President and |
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Chief Financial Officer) |
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/s/ Denise R. Danner
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Principal Accounting Officer
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February 18, 2011 |
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Vice President, Controller and |
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Chief Accounting Officer) |
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219
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Signature |
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Title |
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Date |
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/s/ Edward N. Basha, Jr.
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Director
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February 18, 2011 |
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/s/ Susan Clark-Johnson
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Director
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February 18, 2011 |
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/s/ Denis A. Cortese
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Director
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February 18, 2011 |
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/s/ Michael L. Gallagher
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Director
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February 18, 2011 |
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/s/ Pamela Grant
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Director
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February 18, 2011 |
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/s/ Roy A. Herberger, Jr.
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Director
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February 18, 2011 |
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/s/ Dale E. Klein
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Director
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February 18, 2011 |
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/s/ Humberto S. Lopez
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Director
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February 18, 2011 |
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Director
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February 18, 2011 |
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/s/ Bruce J. Nordstrom
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Director
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February 18, 2011 |
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/s/ W. Douglas Parker
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Director
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February 18, 2011 |
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220
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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ARIZONA PUBLIC SERVICE COMPANY
(Registrant)
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Date: February 18, 2011 |
/s/ Donald E. Brandt
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(Donald E. Brandt, Chairman of |
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the Board of Directors and Chief
Executive Officer) |
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Power of Attorney
We, the undersigned directors and executive officers of Arizona Public Service Company, hereby
severally appoint James R. Hatfield and David P. Falck, and each of them, our true and lawful
attorneys with full power to them and each of them to sign for us, and in our names in the
capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
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Signature |
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Title |
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Date |
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/s/ Donald E. Brandt
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Principal Executive Officer and Director
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February 18, 2011 |
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(Donald E. Brandt, Chairman |
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of the Board of Directors and |
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Chief Executive Officer) |
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/s/ James R. Hatfield
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Principal Financial Officer
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February 18, 2011 |
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Senior Vice President and Chief |
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Financial Officer) |
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/s/ Denise R. Danner
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Principal Accounting Officer
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February 18, 2011 |
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Vice President, Controller and |
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Chief Accounting Officer) |
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221
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Signature |
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Title |
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Date |
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/s/ Edward N. Basha, Jr.
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Director
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February 18, 2011 |
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/s/ Susan Clark-Johnson
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Director
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February 18, 2011 |
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/s/ Denis A. Cortese
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Director
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February 18, 2011 |
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/s/ Michael L. Gallagher
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Director
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February 18, 2011 |
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/s/ Pamela Grant
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Director
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February 18, 2011 |
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/s/ Roy A. Herberger, Jr.
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Director
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February 18, 2011 |
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/s/ Dale E. Klein
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Director
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February 18, 2011 |
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/s/ Humberto S. Lopez
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Director
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February 18, 2011 |
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Director
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February 18, 2011 |
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/s/ Bruce J. Nordstrom
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Director
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February 18, 2011 |
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/s/ W. Douglas Parker
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Director
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February 18, 2011 |
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222