PINNACLE WEST CAPITAL CORP, 10-Q filed on 8/2/2011
Quarterly Report
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Thousands, except Per Share data
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
OPERATING REVENUES
 
 
 
 
Regulated electricity segment
$ 798,669 
$ 799,416 
$ 1,446,643 
$ 1,410,841 
Other revenues
1,130 
3,379 
2,003 
4,216 
Total
799,799 
802,795 
1,448,646 
1,415,057 
OPERATING EXPENSES
 
 
 
 
Regulated electricity segment fuel and purchased power
244,049 
251,800 
456,056 
467,340 
Operations and maintenance
210,590 
213,609 
465,619 
419,922 
Depreciation and amortization
106,617 
102,995 
213,200 
203,629 
Taxes other than income taxes
40,155 
31,682 
77,779 
63,405 
Other expenses
1,396 
1,325 
3,216 
2,403 
Total
602,807 
601,411 
1,215,870 
1,156,699 
OPERATING INCOME
196,992 
201,384 
232,776 
258,358 
OTHER INCOME (DEDUCTIONS)
 
 
 
 
Allowance for equity funds used during construction
5,924 
5,504 
11,319 
10,893 
Other income (Note 11)
557 
943 
2,247 
1,892 
Other expense (Note 11)
(3,186)
(5,650)
(4,927)
(7,176)
Total
3,295 
797 
8,639 
5,609 
INTEREST EXPENSE
 
 
 
 
Interest charges
60,140 
60,751 
121,217 
121,518 
Allowance for borrowed funds used during construction
(3,856)
(3,072)
(7,432)
(6,091)
Total
56,284 
57,679 
113,785 
115,427 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
144,003 
144,502 
127,630 
148,540 
INCOME TAXES
50,818 
51,188 
44,813 
43,535 
INCOME FROM CONTINUING OPERATIONS
93,185 
93,314 
82,817 
105,005 
INCOME FROM DISCONTINUED OPERATIONS
 
 
 
 
Net of income tax expense of $773 and $16,922 for three months ended and $906 and $9,013 for six months ended June 30, 2011 and 2010, respectively (Note 13)
654 
26,252 
1,348 
13,664 
NET INCOME
93,839 
119,566 
84,165 
118,669 
Less: Net income attributable to noncontrolling interests (Note 7)
7,154 
4,769 
12,615 
9,886 
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
86,685 
114,797 
71,550 
108,783 
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - BASIC (in shares)
109,044 
107,355 
108,939 
104,431 
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - DILUTED (in shares)
109,718 
107,764 
109,540 
104,857 
EARNINGS PER WEIGHTED-AVERAGE COMMON SHARE OUTSTANDING
 
 
 
 
Income from continuing operations attributable to common shareholders - basic (in dollars per share)
$ 0.79 
$ 0.82 
$ 0.64 
$ 0.91 
Net income attributable to common shareholders - basic (in dollars per share)
$ 0.80 
$ 1.07 
$ 0.66 
$ 1.04 
Income from continuing operations attributable to common shareholders - diluted (in dollars per share)
$ 0.78 
$ 0.82 
$ 0.64 
$ 0.91 
Net income attributable to common shareholders - diluted (in dollars per share)
$ 0.79 
$ 1.07 
$ 0.65 
$ 1.04 
DIVIDENDS DECLARED PER SHARE (in dollars per share)
$ 1.05 
$ 1.05 
$ 1.575 
$ 1.575 
AMOUNTS ATTRIBUTABLE TO COMMON SHAREHOLDERS:
 
 
 
 
Income from continuing operations, net of tax
86,001 
88,536 
70,163 
95,099 
Discontinued operations, net of tax
684 
26,261 
1,387 
13,684 
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
$ 86,685 
$ 114,797 
$ 71,550 
$ 108,783 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) (USD $)
In Thousands
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
 
 
Income tax expense on discontinued operations
$ 773 
$ 16,922 
$ 906 
$ 9,013 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands
Jun. 30, 2011
Dec. 31, 2010
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 92,274 
$ 110,188 
Customer and other receivables
294,532 
324,207 
Accrued unbilled revenues
163,682 
103,292 
Allowance for doubtful accounts
(3,791)
(7,981)
Materials and supplies (at average cost)
194,352 
181,414 
Fossil fuel (at average cost)
26,863 
21,575 
Deferred income taxes
113,243 
124,897 
Assets held for sale
30,540 
2,861 
Income tax receivable (Note 6)
 
2,483 
Assets from risk management activities (Note 8)
38,897 
73,788 
Regulatory assets (Note 3)
56,158 
62,286 
Other current assets
30,103 
25,501 
Total current assets
1,036,853 
1,024,511 
INVESTMENTS AND OTHER ASSETS
 
 
Assets from risk management activities (Note 8)
43,173 
39,032 
Nuclear decommissioning trust (Note 14)
497,671 
469,886 
Other assets
63,726 
116,216 
Total investments and other assets
604,570 
625,134 
PROPERTY, PLANT AND EQUIPMENT
 
 
Plant in service and held for future use
13,351,239 
13,201,960 
Accumulated depreciation and amortization
(4,675,228)
(4,514,204)
Net
8,676,011 
8,687,756 
Construction work in progress
524,870 
459,361 
Palo Verde sale leaseback, net of accumulated depreciation (Note 7)
134,799 
137,956 
Intangible assets, net of accumulated amortization
177,845 
184,952 
Nuclear fuel, net of accumulated amortization
142,697 
108,794 
Total property, plant and equipment
9,656,222 
9,578,819 
DEFERRED DEBITS
 
 
Regulatory assets (Note 3)
983,394 
986,370 
Income tax receivable (Note 6)
67,970 
65,103 
Other
125,071 
113,061 
Total deferred debits
1,176,435 
1,164,534 
TOTAL ASSETS
12,474,080 
12,392,998 
CURRENT LIABILITIES
 
 
Accounts payable
271,759 
236,354 
Accrued taxes (Note 6)
131,727 
104,711 
Accrued interest
55,123 
54,831 
Common dividends payable
57,272 
 
Short-term borrowings
7,300 
16,600 
Current maturities of long-term debt
903,516 
631,879 
Customer deposits
70,196 
68,322 
Liabilities from risk management activities (Note 8)
58,684 
58,976 
Deferred fuel and purchased power regulatory liability (Note 3)
54,359 
58,442 
Other regulatory liabilities (Note 3)
88,557 
80,526 
Other current liabilities
132,801 
139,063 
Total current liabilities
1,831,294 
1,449,704 
LONG-TERM DEBT LESS CURRENT MATURITIES
 
 
Long-term debt less current maturities
2,678,565 
2,948,991 
Palo Verde sale leaseback lessor notes less current maturities (Note 7)
83,130 
96,803 
Total long-term debt less current maturities
2,761,695 
3,045,794 
DEFERRED CREDITS AND OTHER
 
 
Deferred income taxes
1,825,077 
1,863,861 
Regulatory liabilities (Note 3)
695,036 
614,063 
Liability for asset retirements (Note 15)
255,326 
328,571 
Liabilities for pension and other postretirement benefits (Note 4)
869,277 
813,121 
Liabilities from risk management activities (Note 8)
57,073 
65,390 
Customer advances
120,621 
121,645 
Coal mine reclamation
117,651 
117,243 
Unrecognized tax benefits (Note 6)
83,229 
66,349 
Other
142,191 
132,031 
Total deferred credits and other
4,165,481 
4,122,274 
COMMITMENTS AND CONTINGENCIES (SEE NOTES)
 
 
EQUITY (Note 9)
 
 
Common stock, no par value
2,438,256 
2,421,372 
Treasury stock
(5,768)
(2,239)
Total common stock
2,432,488 
2,419,133 
Retained earnings
1,323,892 
1,423,961 
Accumulated other comprehensive loss:
 
 
Pension and other postretirement benefits
(57,332)
(59,420)
Derivative instruments
(85,343)
(100,347)
Total accumulated other comprehensive loss
(142,675)
(159,767)
Total shareholders' equity
3,613,705 
3,683,327 
Noncontrolling interests (Note 7)
101,905 
91,899 
Total equity
3,715,610 
3,775,226 
TOTAL LIABILITIES AND EQUITY
$ 12,474,080 
$ 12,392,998 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands
6 Months Ended
Jun. 30,
2011
2010
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
Net income
$ 84,165 
$ 118,669 
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
245,700 
229,964 
Deferred fuel and purchased power
64,679 
65,249 
Deferred fuel and purchased power amortization
(68,762)
(55,494)
Allowance for equity funds used during construction
(11,319)
(10,893)
Real estate impairment charges
 
16,731 
Deferred income taxes
11,945 
50,972 
Change in mark-to-market valuations
(279)
2,396 
Changes in current assets and liabilities:
 
 
Customer and other receivables
43,271 
(7,133)
Accrued unbilled revenues
(60,390)
(51,470)
Materials, supplies and fossil fuel
(18,226)
13,577 
Other current assets
(37,053)
(8,340)
Accounts payable
37,817 
45,313 
Accrued taxes and income tax receivable-net
29,530 
75,546 
Other current liabilities
3,967 
(26,583)
Expenditures for real estate investments
(40)
(458)
Gains and other changes in real estate assets
 
(2,931)
Change in margin and collateral accounts - assets
21,185 
656 
Change in margin and collateral accounts - liabilities
39,567 
(90,694)
Change in unrecognized tax benefits
18,959 
(62,630)
Change in other long-term assets
(26,185)
(11,015)
Change in other long-term liabilities
57,748 
(48,045)
Net cash flow provided by operating activities
436,279 
201,414 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
Capital expenditures
(387,272)
(378,579)
Contributions in aid of construction
21,905 
15,163 
Allowance for borrowed funds used during construction
(7,432)
(6,395)
Proceeds from sale of district cooling business
 
100,300 
Proceeds from nuclear decommissioning trust sales
299,600 
329,796 
Investment in nuclear decommissioning trust
(308,222)
(342,004)
Proceeds from sale of life insurance policies
55,444 
 
Other
(2,352)
3,850 
Net cash flow used for investing activities
(328,329)
(277,869)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
Issuance of long-term debt
175,000 
 
Repayment of long-term debt
(187,962)
(15,221)
Short-term borrowings and payments - net
(9,300)
(149,099)
Dividends paid on common stock
(112,537)
(106,522)
Common stock equity issuance
14,520 
254,612 
Distributions to noncontrolling interests
(2,610)
(3,286)
Other
(2,975)
1,095 
Net cash flow used for financing activities
(125,864)
(18,421)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(17,914)
(94,876)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
110,188 
145,378 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
92,274 
50,502 
Cash paid during the period for:
 
 
Income taxes, net of (refunds)
 
(3,944)
Interest, net of amounts capitalized
$ 110,659 
$ 115,722 
Consolidation and Nature of Operations
Consolidation and Nature of Operations

1.                                      Consolidation and Nature of Operations

 

The unaudited condensed consolidated financial statements include the accounts of Pinnacle West and our subsidiaries: APS, SunCor Development Company (“SunCor”), APS Energy Services Company, Inc. (“APSES”), and El Dorado Investment Company (“El Dorado”).  See Note 13 for discussion of discontinued operations of APSES.  Intercompany accounts and transactions between the consolidated companies have been eliminated.  The unaudited condensed consolidated financial statements for APS include the accounts of APS and the Palo Verde Nuclear Generating Station (“Palo Verde”) sale leaseback variable interest entities (“VIEs”) (see Note 7 for further discussion).  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.

 

Weather conditions cause significant seasonal fluctuations in our revenues; therefore, results for interim periods do not necessarily represent results expected for the year.

 

In preparing the condensed consolidated financial statements, we have evaluated the events that have occurred after June 30, 2011 through the date the financial statements were issued.

 

Our condensed 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 condensed consolidated financial statements and notes have been prepared consistently with the 2010 Form 10-K with the exception of the reclassification of certain prior year amounts on our Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows in accordance with accounting requirements for reporting discontinued operations (see Note 13) and the impacts related to the reclassification of regulatory assets and liabilities for the current portion (see Note 3).

 

The following tables show the impact of the reclassifications to prior year (previously reported) amounts (dollars in thousands):

 

Statement of Income for the Three
Months Ended June 30, 2010

 

As
previously
reported

 

Reclassifications
for discontinued
operations

 

Amount
reported after
reclassification
for discontinued
operations

 

Operating Revenues

 

 

 

 

 

 

 

Other revenues

 

$

21,178

 

$

(17,799

)

$

3,379

 

Operating Expenses

 

 

 

 

 

 

 

Operations and maintenance

 

215,104

 

(1,495

)

213,609

 

Depreciation and amortization

 

103,017

 

(22

)

102,995

 

Taxes other than income taxes

 

31,684

 

(2

)

31,682

 

Other expenses

 

15,716

 

(14,391

)

1,325

 

Other

 

 

 

 

 

 

 

Other income

 

933

 

10

 

943

 

Other expense

 

(5,660

)

10

 

(5,650

)

Interest Expense

 

 

 

 

 

 

 

Interest charges

 

60,741

 

10

 

60,751

 

Allowance for borrowed funds used during construction

 

(3,104

)

32

 

(3,072

)

Income Taxes

 

51,829

 

(641

)

51,188

 

Income From Continuing Operations

 

94,584

 

(1,270

)

93,314

 

Income From Discontinued Operations

 

24,982

 

1,270

 

26,252

 

 

Statement of Income for the Six
Months Ended June 30, 2010

 

As
previously
reported

 

Reclassifications
for discontinued
operations

 

Amount
reported after
reclassification
for discontinued
operations

 

Operating Revenues

 

 

 

 

 

 

 

Other revenues

 

$

30,108

 

$

(25,892

)

$

4,216

 

Operating Expenses

 

 

 

 

 

 

 

Operations and maintenance

 

422,946

 

(3,024

)

419,922

 

Depreciation and amortization

 

203,670

 

(41

)

203,629

 

Taxes other than income taxes

 

63,408

 

(3

)

63,405

 

Other expenses

 

22,644

 

(20,241

)

2,403

 

Other

 

 

 

 

 

 

 

Other income

 

1,819

 

73

 

1,892

 

Other expense

 

(7,134

)

(42

)

(7,176

)

Interest Expense

 

 

 

 

 

 

 

Interest charges

 

121,446

 

72

 

121,518

 

Allowance for borrowed funds used during construction

 

(6,151

)

60

 

(6,091

)

Income Taxes

 

44,657

 

(1,122

)

43,535

 

Income From Continuing Operations

 

106,567

 

(1,562

)

105,005

 

Income From Discontinued Operations

 

12,102

 

1,562

 

13,664

 

 

Balance Sheets - December 31, 2010

 

As
previously
reported

 

Reclassifications
for regulatory
assets and
liabilities and to
conform to
current year
presentation

 

Amount
reported after
reclassification
for regulatory
assets and
liabilities and to
conform to
current year
presentation

 

 

 

 

 

 

 

 

 

Current Assets — Regulatory assets

 

$

 

$

62,286

 

$

62,286

 

Current Assets — Deferred income taxes

 

94,602

 

30,295

 

124,897

 

Current Assets — Assets held for sale

 

 

2,861

 

2,861

 

Current Assets — Other current assets

 

28,362

 

(2,861

)

25,501

 

Deferred Debits — Regulatory assets

 

1,048,656

 

(62,286

)

986,370

 

Current Liabilities — Deferred fuel and purchased power regulatory liability

 

 

58,442

 

58,442

 

Current Liabilities — Other regulatory liabilities

 

 

80,526

 

80,526

 

Deferred Credits and Other — Deferred income taxes

 

1,833,566

 

30,295

 

1,863,861

 

Deferred Credits and Other — Deferred fuel and purchased power regulatory liability

 

58,442

 

(58,442

)

 

Deferred Credits and Other — Regulatory liabilities

 

694,589

 

(80,526

)

614,063

 

 

Statement of Cash Flows for the Six
Months Ended June 30, 2010

 

As
previously
reported

 

Reclassifications
for regulatory
assets and
liabilities and to
conform to
current year
presentation

 

Amount
reported after
reclassification
for regulatory
assets and
liabilities and to
conform to
current year
presentation

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Other current assets

 

$

(13,796

)

$

5,456

 

$

(8,340

)

Other current liabilities

 

(22,719

)

(3,864

)

(26,583

)

Change in other long-term assets

 

(5,542

)

(5,473

)

(11,015

)

Change in other long-term liabilities

 

(51,926

)

3,881

 

(48,045

)

Long-Term Debt and Liquidity Matters
Long-Term Debt and Liquidity Matters

2.                                      Long-Term Debt and Liquidity Matters

 

Pinnacle West and APS maintain committed revolving credit facilities in order to enhance liquidity and provide credit support for their commercial paper programs.  During the first quarter of 2011, APS refinanced an existing revolving credit facility (as discussed below) that would have otherwise matured in September 2011.

 

Pinnacle West

 

On February 23, 2011, Pinnacle West entered into a $175 million term loan facility that matures February 20, 2015.  Pinnacle West used the proceeds of the loan to repay its 5.91% $175 million Senior Notes.  Interest rates are based on Pinnacle West’s senior unsecured debt credit ratings, or if unavailable, its long-term issuer ratings.  On July 25, 2011, we repaid $25 million of the $175 million term loan facility.

 

At June 30, 2011, Pinnacle West’s $200 million credit facility, which matures in 2013, was available for bank borrowings, support of its $200 million commercial paper program, or for issuances of letters of credit.  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. At June 30, 2011, Pinnacle West had no outstanding borrowings under this credit facility, no outstanding letters of credit and commercial paper borrowings of $7 million.

 

APS

 

On February 14, 2011, APS refinanced its $489 million revolving credit facility that would have matured in September 2011, with a new $500 million facility.  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 APS’s senior unsecured debt credit ratings.

 

At June 30, 2011, APS had two credit facilities totaling $1 billion, including the $500 million credit facility described above and a $500 million facility that matures in February 2013.  These facilities are available to support its $250 million commercial paper program, for bank borrowings or for issuances of letters of credit.  At June 30, 2011, APS had no borrowings outstanding under any of its credit facilities and no outstanding commercial paper.  A $20 million letter of credit was outstanding under APS’s 2011 $500 million credit facility described above.

 

See “Financial Assurances” in Note 10 for discussion of APS’s other letters of credit.

 

Debt Provisions

 

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 June 30, 2011, APS was in compliance with this common equity ratio requirement.  Its total shareholder equity was approximately $3.7 billion, and total capitalization was approximately $7.1 billion. APS would be prohibited from paying dividends if the payment would reduce its total shareholder equity below approximately $2.8 billion, assuming APS’s total capitalization remains the same. This restriction does not materially affect Pinnacle West’s ability to meet its ongoing capital requirements.

Regulatory Matters
Regulatory Matters

3.                                      Regulatory Matters

 

Retail Rate Case Filing with the Arizona Corporation Commission

 

On June 1, 2011, APS filed an application with the ACC for a net retail base rate increase of $95.5 million.  The Company requested that the increase become effective July 1, 2012.  The request would increase the average retail customer bill approximately 6.6%.  The filing is based on a test year ended December 31, 2010, adjusted as described below.  APS’s filing was deemed sufficient by the ACC staff and APS is now awaiting a procedural order from the ACC and expects a hearing will be scheduled for early 2012.

 

The key financial provisions of the request included:

 

·                                          an increase in non-fuel base rates of $194.1 million, before the reclassification into base rates of $44.9 million of revenues related to solar generation projects collected through the Company’s renewable energy surcharge (which will increase base rates) and $143.5 million of lower fuel and purchased power costs currently addressed through the Power Supply Adjustor (the “PSA”) (which will decrease base rates);

 

·                                          a rate base of $5.7 billion, which approximates the ACC-jurisdictional portion of the book value of utility assets, net of accumulated depreciation and other credits, as of December 31, 2010, subject to certain adjustments, including plant additions under construction at the end of the test year that are currently in service or expected to be placed into service before the proposed rates are requested to become effective;

 

·                                          the following proposed capital structure and costs of capital:

 

 

 

Capital Structure

 

Cost of Capital

 

Long-term debt

 

46.1

%

6.38

%

Common stock equity

 

53.9

%

11.00

%

Weighted-average cost of capital

 

 

 

8.87

%

 

·                                          a base rate for fuel and purchased power costs (“Base Fuel Rate”) of $0.03242 per kilowatt-hour (“kWh”) based on estimated 2012 prices (a decrease from the current Base Fuel Rate of $0.03757 per kWh).

 

The Company proposed that its PSA be modified to allow full pass-through of all fuel and purchased power costs, instead of the current 90/10 sharing provision.  In addition, APS proposed two new recovery mechanisms that would adjust electricity rates annually between changes in retail base rates.  The Efficiency and Infrastructure Account, a decoupling mechanism, would address recovery of the Company’s fixed costs after reflecting implementation of ACC-mandated energy efficiency standards and renewable distributed generation.  The Environmental and Reliability Account, a generation infrastructure adjustment mechanism, would allow recovery of the costs associated with generation investments related to new generation additions, generation efficiency projects and environmental compliance requirements.

 

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 in APS’s prior 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 APS’s 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 (APS filed a notification with the ACC on April 29, 2011, demonstrating its compliance with this provision in 2010);

 

·                                          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.

 

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 Arizona Renewable Energy Standard and Tariff (“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 year’s 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 megawatts (“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 APS’s current 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.  On February 11, 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 APS’s 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.

 

On July 1, 2011, APS filed its annual RES implementation plan, covering the 2012-2016  timeframe and requesting 2012 RES funding of $129 million to $152 million.  The range in the funding request arises from APS offering several options for third-party initiatives.  The options involve obtaining 150 MW from third-parties entirely through power purchase agreements (“PPAs”) or through a mix of PPAs and non-residential distributed energy programs.  APS also proposed an additional 100 MW of APS-owned AZ Sun projects and 25 MW of APS-owned facilities on schools.  APS expects a decision from the ACC by year end.

 

Demand-Side Management Adjustor Charge (“DSMAC”).  The settlement agreement related to the 2008 retail rate case 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 program 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.

 

On June 1, 2011, APS filed its 2012 Energy Efficiency Implementation Plan to meet the energy efficiency requirements of the ACC’s Energy Efficiency Rules, which became effective January 1, 2011. The 2012 requirement under such rules is for energy efficiency savings of 1.75% of APS retail sales for the prior year. This energy savings requirement is slightly higher than the goal established by the settlement agreement (1.5% of total energy resources). APS proposed a budget for 2012 of $90 million. When added to the third and final year of the amortization of 2009 program costs discussed above and less the $10 million already being recovered in general rates, the proposed 2012 DSMAC would recover approximately $85 million over a twelve month period beginning March 1, 2012.

 

PSA Mechanism and Balance.  The PSA provides for the adjustment of retail rates to reflect variations in retail fuel and purchased power costs.

 

The following table shows the changes in the deferred fuel and purchased power regulatory liability for 2011 and 2010 (dollars in millions):

 

 

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

Beginning balance

 

$

(58

)

$

(87

)

Deferred fuel and purchased power costs-current period

 

(65

)

(65

)

Amounts refunded through revenues

 

69

 

55

 

Ending balance

 

$

(54

)

$

(97

)

 

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 June 30, 2011 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 calculation of the PSA rate for the PSA year beginning February 1, 2012.

 

Transmission Rates and Transmission Cost AdjustorIn July 2008, the United States Federal Energy Regulatory Commission (“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 APS’s 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 transmission cost adjustor (“TCA”).

 

The formula rate is updated each year effective June 1 on the basis of APS’s actual cost of service, as disclosed in APS’s 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 could 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, 2011, APS’s annual wholesale transmission rates for all users of its transmission system increased by approximately $44 million for the twelve-month period beginning June 1, 2011 in accordance with the FERC-approved formula as a result of higher costs and lower revenues reflected in the formula.  Approximately $38 million of this revenue increase relates to transmission services used for APS’s retail customers.  The ACC approved the related increase of APS’s TCA rate on June 21, 2011 and it became effective on July 1, 2011.

 

Regulatory Assets and Liabilities

 

As discussed in Note 1, as of June 30, 2011, the Company revised its presentation of regulatory assets and liabilities to separately reflect current and non-current amounts on the Condensed Consolidated Balance Sheets.  This presentation is reflected in the tables below.

 

The detail of regulatory assets is as follows (dollars in millions):

 

 

 

June 30, 2011

 

December 31, 2010

 

 

 

Current

 

Non-Current

 

Current

 

Non-Current

 

Pension and other postretirement benefits

 

$

 

$

672

 

$

 

$

669

 

Deferred income taxes

 

3

 

72

 

3

 

69

 

Deferred fuel and purchased power — mark-to-market (Note 8)

 

31

 

32

 

42

 

35

 

Transmission vegetation management

 

9

 

36

 

 

46

 

Coal reclamation

 

2

 

36

 

2

 

36

 

Palo Verde VIE (Note 7)

 

 

34

 

 

33

 

Deferred compensation

 

 

34

 

 

32

 

Tax expense of Medicare subsidy

 

2

 

21

 

2

 

21

 

Loss on reacquired debt

 

1

 

20

 

1

 

21

 

Pension and other post-retirement benefits deferral

 

 

6

 

 

 

Demand side management (a)

 

8

 

5

 

12

 

6

 

Other

 

 

15

 

 

18

 

Total regulatory assets (b)

 

$

56

 

$

983

 

$

62

 

$

986

 

 

 

(a)                                 See Cost Recovery Mechanisms discussion above.

(b)                                 There are no regulatory assets for which the ACC has allowed recovery of costs but not allowed a return by exclusion from rate base.  FERC rates are set using a formula rate as described in “Transmission Rates and Transmission Cost Adjustor.”

 

Included in the balance of regulatory assets at June 30, 2011 and December 31, 2010 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 other comprehensive income (“OCI”) and result in lower future earnings.

 

The detail of regulatory liabilities is as follows (dollars in millions):

 

 

 

June 30, 2011

 

December 31, 2010

 

 

 

Current

 

Non-Current

 

Current

 

Non-Current

 

Removal costs (a)

 

$

19

 

$

358

 

$

22

 

$

357

 

Asset retirement obligations (Note 15)

 

 

213

 

 

184

 

Deferred fuel and purchased power (b)(c)

 

54

 

 

58

 

 

Renewable energy standard (b)

 

57

 

 

50

 

 

Income taxes — change in rates

 

 

50

 

 

 

Spent nuclear fuel

 

4

 

43

 

4

 

41

 

Deferred gains on utility property

 

2

 

15

 

2

 

16

 

Other

 

7

 

16

 

3

 

16

 

Total regulatory liabilities

 

$

143

 

$

695

 

$

139

 

$

614

 

 

(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.

Retirement Plans and Other Benefits
Retirement Plans and Other Benefits

4.                                      Retirement Plans and Other Benefits

 

Pinnacle West sponsors a qualified defined benefit and account balance pension plan, a non-qualified supplemental excess benefit retirement plan, and other postretirement benefit plans for the employees of Pinnacle West and our subsidiaries.  Pinnacle West uses a December 31 measurement date for its pension and other postretirement benefit plans.  The market-related value of our plan assets is their fair value at the measurement date.

 

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, billed to electric plant participants or charged to a regulatory asset) (dollars in millions):

 

 

 

Pension Benefits

 

Other Benefits

 

 

 

Three Months
Ended June 30,

 

Six Months
Ended June 30,

 

Three Months
Ended June 30,

 

Six Months
Ended June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

Service cost - benefits earned during the period

 

$

13

 

$

13

 

$

29

 

$

28

 

$

5

 

$

5

 

$

11

 

$

10

 

Interest cost on benefit obligation

 

31

 

30

 

62

 

61

 

12

 

10

 

23

 

21

 

Expected return on plan assets

 

(33

)

(31

)

(67

)

(62

)

(11

)

(10

)

(21

)

(20

)

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transition obligation

 

 

 

 

 

 

(1

)

 

 

Prior service cost

 

 

 

1

 

1

 

 

 

 

 

Net actuarial loss

 

7

 

4

 

13

 

10

 

4

 

2

 

8

 

5

 

Net periodic benefit cost

 

$

18

 

$

16

 

$

38

 

$

38

 

$

10

 

$

6

 

$

21

 

$

16

 

Portion of cost charged to expense

 

$

7

 

$

8

 

$

15

 

$

19

 

$

4

 

$

3

 

$

8

 

$

8

 

 

Contributions

 

The required minimum contribution to our pension plan is zero in 2011 and approximately $68 million in 2012.  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 respective shares of these contributions.  APS’s share is approximately 99% of both plans.

Business Segments
Business Segments

5.                                      Business Segments

 

Pinnacle West’s reportable business segment is our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily retail and wholesale sales supplied to traditional cost-based rate regulation (“Native Load”) customers) and related activities and includes electricity generation, transmission and distribution.

 

Financial data for the three and six months ended June 30, 2011 and 2010 and at June 30, 2011 and December 31, 2010 is provided as follows (dollars in millions):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Operating revenues:

 

 

 

 

 

 

 

 

 

Regulated electricity segment

 

$

799

 

$

800

 

$

1,447

 

$

1,411

 

All other

 

1

 

3

 

2

 

4

 

Total

 

$

800

 

$

803

 

$

1,449

 

$

1,415

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Regulated electricity segment

 

$

86

 

$

88

 

$

71

 

$

95

 

All other (a)

 

1

 

27

 

1

 

14

 

Total

 

$

87

 

$

115

 

$

72

 

$

109

 

 

 

 

As of
June 30, 2011

 

As of
December 31, 2010

 

Assets:

 

 

 

 

 

Regulated electricity segment

 

$

12,398

 

$

12,285

 

All other (a)

 

76

 

108

 

Total

 

$

12,474

 

$

12,393

 

 

 

(a)                                 All other activities relate to APSES, SunCor and El Dorado.

Income Taxes
Income Taxes

6.                                      Income Taxes

 

The $68 million income tax receivable on the Condensed Consolidated Balance Sheets represents the anticipated refunds related to an APS tax accounting method change approved by the Internal Revenue Service (“IRS”) in the third quarter of 2009.  This amount is classified as long-term, as cash refunds are not expected to be received in the next twelve months.

 

On February 17, 2011, Arizona enacted legislation (H.B. 2001) that included a four year phase-in of corporate income tax rate reductions beginning in 2014.  As a result of these tax rate reductions, Pinnacle West has revised the tax rate applicable to reversing temporary items in Arizona.  In accordance with accounting for regulated companies, the benefit of this rate reduction is substantially offset by a regulatory liability. In the first quarter of 2011, Pinnacle West increased regulatory liabilities by a total of $53 million, with a corresponding decrease in accumulated deferred income tax liabilities to reflect the impact of this change in tax law.

 

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 2006.  We do not anticipate that there will be any significant increases or decreases in our unrecognized tax benefits within the next twelve months.

Palo Verde Sale Leaseback Variable-Interest Entities
Palo Verde Sale Leaseback Variable-Interest Entities

7.                                      Palo Verde Sale Leaseback Variable-Interest Entities

 

In 1986, APS entered into agreements with three separate VIE lessor trusts in order to sell and lease back interests in 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 2011 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 asset’s 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, has fair value purchase options, and is obligated to decommission the leased assets.

 

For the reasons discussed above, APS consolidates these VIEs.  Consolidation of these VIEs eliminates the lease accounting 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 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 eliminate rent expense and recognize depreciation and interest expense, resulting in an increase in net income for the three and six months ended June 30, 2011 of $7 million and of $13 million respectively, 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 Condensed Consolidated Statements of Cash Flows, but does not impact net cash flows.

 

Our Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010 include the following amounts relating to the VIEs (in millions):

 

 

 

June 30,
2011

 

December 31,
2010

 

Property plant and equipment, net of accumulated depreciation

 

$

135

 

$

138

 

Current maturities of long-term debt

 

30

 

29

 

Long-term debt less current maturities

 

83

 

97

 

Equity- Noncontrolling interests

 

101

 

91

 

 

For regulatory ratemaking purposes the agreements are treated as operating leases and, as a result, we have recorded a regulatory asset of $34 million as of June 30, 2011 and $33 million as of December 31, 2010.

 

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 United States Nuclear Regulatory Commission (“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 June 30, 2011, APS would have been required to pay the noncontrolling equity participants approximately $145 million and assume $113 million of debt.  Since APS consolidates the VIEs, the debt APS would be required to assume is already reflected in our Condensed Consolidated Balance Sheets.

Derivative Accounting
Derivative Accounting

8.                                      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 period ended June 30, 2011, there was no material trading activity.

 

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 June 30, 2011, 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 Condensed 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 portion of APS’s base rates attributable to fuel and purchased power costs (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 June 30, 2011, we had the following outstanding gross notional amount of derivatives, which represent both purchases and sales (does not reflect net position):

 

Commodity

 

Quantity

 

Power

 

13,226,728

megawatt hours

 

Gas

 

145,891,520

MMBTU (a)

 

 

(a)                                 “MMBTU” is one million British thermal units.

 

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 Condensed Consolidated Statements of Income during the three and six months ended June 30, 2011 and 2010 (dollars in thousands):

 

 

 

Financial Statement

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

Commodity Contracts

 

Location

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Loss Recognized in AOCI on Derivative Instruments (Effective Portion)

 

Accumulated other comprehensive loss-derivative instruments

 

$

(16,324

)

$

(8,588

)

$

(15,335

)

$

(100,255

)

Amount of Loss Reclassified from AOCI into Income (Effective Portion Realized)

 

Regulated electricity segment fuel and purchased power

 

(25,287

)

(29,143

)

(40,133

)

(42,329

)

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

 

(176

)

11,899

 

(164

)

1,432

 

 

 

(a)                                 During the three and six months ended June 30, 2011 and 2010, we had no amounts reclassified from AOCI to earnings related to discontinued cash flow hedges.

 

During the next twelve months, we estimate that a net loss of $89 million before income taxes will be reclassified from AOCI as an offset to the effect of market price changes for the related hedged transactions.  Approximately 90% of the amounts related to derivatives subject to the PSA will be recorded as either a regulatory asset or liability and have no effect on earnings.

 

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 Condensed Consolidated Statements of Income during the three and six months ended June 30, 2011 and 2010 (dollars in thousands):

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

Commodity Contracts

 

Financial Statement
Location

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Net Gain (Loss) Recognized in Income from Derivative Instruments

 

Regulated electricity segment revenue

 

$

(503

)

$

426

 

$

1,004

 

$

595

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Net Loss Recognized in Income from Derivative Instruments

 

Regulated electricity segment fuel and purchased power expense

 

(2,892

)

(29,260

)

(11,919

)

(64,228

)

Total

 

 

 

$

(3,395

)

$

(28,834

)

$

(10,915

)

$

(63,633

)

 

Fair Values of Derivative Instruments in the Condensed 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 Condensed Consolidated Balance Sheets.  These amounts are located in the assets and liabilities from risk management activities lines of our Condensed Consolidated Balance Sheets.  Amounts are as of June 30, 2011 (dollars in thousands):

 

Commodity Contracts

 

Current Assets

 

Investments
and Other Assets

 

Current
Liabilities

 

Deferred Credits
and Other

 

Total Assets
(Liabilities)

 

Derivatives designated as accounting hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$

329

 

$

 

$

11,730

 

$

3,011

 

$

15,070

 

Liabilities

 

(550

)

 

(90,187

)

(57,209

)

(147,946

)

Total hedging instruments

 

(221

)

 

(78,457

)

(54,198

)

(132,876

)

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as accounting hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Assets

 

24,607

 

43,173

 

31,946

 

10,365

 

110,091

 

Liabilities

 

(869

)

 

(94,294

)

(82,903

)

(178,066

)

Total non-hedging instruments

 

23,738

 

43,173

 

(62,348

)

(72,538

)

(67,975

)

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives

 

23,517

 

43,173

 

(140,805

)

(126,736

)

(200,851

)

 

 

 

 

 

 

 

 

 

 

 

 

Margin account

 

2,137

 

 

11,087

 

3,862

 

17,086

 

Collateral provided to counterparties (a)

 

10,000

 

 

81,669

 

65,801

 

157,470

 

Collateral provided from counterparties (a)

 

 

 

(12,145

)

 

(12,145

)

Prepaid option premiums and other

 

3,243

 

 

1,510

 

 

4,753

 

Balance Sheet Total

 

$

38,897

 

$

43,173

 

$

(58,684

)

$

(57,073

)

$

(33,687

)

 

 

(a)                                 Amounts represent collateral relating to non-derivatives and derivative instruments, including those that qualify for scope exceptions.

 

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, 2010 (dollars in thousands):

 

Commodity Contracts

 

Current Assets

 

Investments
and Other Assets

 

Current
Liabilities

 

Deferred Credits
and Other

 

Total Assets
(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 (a)

 

11,556

 

 

125,367

 

66,393

 

203,316

 

Collateral provided from counterparties (a)

 

(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

)

 

 

(a)         Amounts represent collateral relating to non-derivatives and derivative instruments, including those that qualify for scope exceptions.

 

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 64% of Pinnacle West’s $82 million of risk management assets as of June 30, 2011.  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.

 

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 June 30, 2011 was $303 million, for which we had posted collateral of $147 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 ratings were to fall below investment grade (below BBB- for Standard & Poor’s or Fitch or Baa3 for Moody’s).  If the investment grade contingent features underlying these agreements had been fully triggered on June 30, 2011, after off-setting asset positions under master netting arrangements we would have been required to post approximately an additional $106 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 $194 million if our debt credit ratings were to fall below investment grade.

Changes in Equity
Changes in Equity

9.                                      Changes in Equity

 

The following tables show Pinnacle West’s changes in shareholders’ equity and changes in equity of noncontrolling interests for the three and six months ended June 30, 2011 and 2010 (dollars in thousands):

 

 

 

Three Months Ended June 30, 2011

 

Three Months Ended June 30, 2010

 

 

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, April 1

 

$

3,631,411

 

$

97,360

 

$

3,728,771

 

$

3,213,933

 

$

116,067

 

$

3,330,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

86,685

 

7,154

 

93,839

 

114,797

 

4,769

 

119,566

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(16,324

)

 

(16,324

)

(8,588

)

 

(8,588

)

Net reclassification of realized losses to income (b)

 

25,287

 

 

25,287

 

29,143

 

 

29,143

 

Reclassification of pension and other postretirement benefits to income

 

1,046

 

 

1,046

 

1,362

 

 

1,362

 

Net unrealized gains (losses) related to pension and other postretirement benefits

 

974

 

 

974

 

(6,933

)

 

(6,933

)

Net income tax expense related to items of other comprehensive income (loss)

 

(4,337

)

 

(4,337

)

(5,914

)

 

(5,914

)

Total other comprehensive income

 

6,646

 

 

6,646

 

9,070

 

 

9,070

 

Total comprehensive income

 

93,331

 

7,154

 

100,485

 

123,867

 

4,769

 

128,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of capital stock

 

3,505

 

 

3,505

 

255,480

 

 

255,480

 

Other (primarily stock compensation)

 

(33

)

 

(33

)

140

 

 

140

 

Dividends on common stock

 

(114,509

)

 

(114,509

)

(113,872

)

 

(113,872

)

Net capital activities by noncontrolling interests

 

 

(2,609

)

(2,609

)

 

(7,381

)

(7,381

)

Ending balance, June 30

 

$

3,613,705

 

$

101,905

 

$

3,715,610

 

$

3,479,548

 

$

113,455

 

$

3,593,003

 

 

 

 

Six Months Ended June 30, 2011

 

Six Months Ended June 30, 2010

 

 

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, January 1

 

$

3,683,327

 

$

91,899

 

$

3,775,226

 

$

3,316,109

 

$

111,895

 

$

3,428,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

71,550

 

12,615

 

84,165

 

108,783

 

9,886

 

118,669

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(15,335

)

 

(15,335

)

(100,255

)

 

(100,255

)

Net reclassification of realized losses to income (b)

 

40,133

 

 

40,133

 

42,329

 

 

42,329

 

Reclassification of pension and other postretirement benefits to income

 

2,478

 

 

2,478

 

2,755

 

 

2,755

 

Net unrealized gains (losses) related to pension and other postretirement benefits

 

974

 

 

974

 

(6,933

)

 

(6,933

)

Net income tax benefit related to items of other comprehensive income (loss)

 

(11,158

)

 

(11,158

)

24,511

 

 

24,511

 

Total other comprehensive income (loss)

 

17,092

 

 

17,092

 

(37,593

)

 

(37,593

)

Total comprehensive income

 

88,642

 

12,615

 

101,257

 

71,190

 

9,886

 

81,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of capital stock

 

17,065

 

 

17,065

 

258,160

 

 

258,160

 

Purchase of treasury stock, net of reissuances

 

(3,530

)

 

(3,530

)

1,078

 

 

1,078

 

Other (primarily stock compensation)

 

(181

)

 

(181

)

142

 

 

142

 

Dividends on common stock

 

(171,618

)

 

(171,618

)

(167,131

)

 

(167,131

)

Net capital activities by noncontrolling interests

 

 

(2,609

)

(2,609

)

 

(8,326

)

(8,326

)

Ending balance, June 30

 

$

3,613,705

 

$

101,905

 

$

3,715,610

 

$

3,479,548

 

$

113,455

 

$

3,593,003

 

 

 

(a)         These amounts primarily include unrealized losses on contracts used to hedge our forecasted electricity and natural gas requirements to serve Native Load.  These changes are primarily due to changes in forward natural gas prices and wholesale electricity prices.

 

(b)         These amounts primarily include the reclassification of unrealized losses to realized losses for contracted commodities delivered during the period.

Commitments and Contingencies
Commitments and Contingencies

10.                               Commitments and Contingencies

 

Palo Verde Nuclear Generating Station

 

Spent Nuclear Fuel and Waste Disposal

 

APS currently estimates it will incur $122 million (in 2011 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 June 30, 2011, APS had a regulatory liability of $47 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 APS’s interest in the three Palo Verde units, APS’s 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 NEIL’s losses in any policy year exceed accumulated funds.  The maximum amount APS could incur under the current NEIL policies totals approximately $18 million for each retrospective assessment declared by NEIL’s Board of Directors due to losses.  In addition, NEIL policies contain rating triggers that would result in APS providing approximately $46 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.

 

Contractual Obligations

 

As of June 30, 2011, certain contractual obligations have increased approximately $0.5 billion from December 31, 2010 as discussed in the 2010 Form 10-K.  This increase is primarily related to an increase in purchase obligations for an amended agreement for certain transmission rights-of-way and a new contract for the construction of a solar facility.  In addition, there were increased fuel and purchased power commitments and an increase in renewable energy credit obligations.  The updated contractual obligations are as follows (dollars in billions):

 

Year

 

2011

 

2012

 

2013

 

2014

 

2015

 

Thereafter

 

Total

 

Purchase obligations (a)

 

$

0.2

 

$

0.1

 

$

0.1

 

$

 

$

 

$

0.3

 

$

0.7

 

Fuel and purchased power commitments

 

0.5

 

0.4

 

0.5

 

0.5

 

0.6

 

7.0

 

9.5

 

Renewable energy credits

 

0.1

 

 

 

0.1

 

 

0.3

 

0.5

 

 

 

(a)                                 Payments for the transmission rights-of-way are subject to change based on changes in the Consumer Price Index.

 

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 judge’s 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.

 

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 potentially responsible parties (“PRPs”).  PRPs may be strictly, and often are jointly and severally, liable for clean-up.  On September 3, 2003, the United States Environmental Protection Agency (“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.  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.

 

Financial Assurances

 

APS has entered into various agreements that require letters of credit for financial assurance purposes.  At June 30, 2011, approximately $44 million of letters of credit were outstanding to support existing pollution control bonds of a similar amount.  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 letters of credit to support certain equity participants in the Palo Verde sale leaseback transactions (see Note 7 for further details on the Palo Verde sale leaseback transactions).  These letters of credit will expire in 2013, and at June 30, 2011, totaled approximately $54 million.  We expect to renew expiring letters of credit in the ordinary course of business.

 

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.

 

We have issued $5 million of parental guarantees and obtained $98 million of surety bonds on behalf of APSES to offer energy-related products. These bonds relate to current projects and projects under warranty.  Pinnacle West is negotiating the potential sale of its investment in APSES (see Note 13), and will be released of such parental guarantee and surety bond obligations upon closing of the sale.  Pinnacle West has also issued parental guarantees and surety bonds for APS which are not material at June 30, 2011.

Other Income and Other Expense
Other Income and Other Expense

11.          Other Income and Other Expense

 

The following table provides detail of other income and other expense for the three and six months ended June 30, 2011 and 2010 (dollars in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

$

543

 

$

635

 

$

935

 

$

1,572

 

Investment gains — net

 

12

 

 

1,307

 

 

Miscellaneous

 

2

 

308

 

5

 

320

 

Total other income

 

$

557

 

$

943

 

$

2,247

 

$

1,892

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

Non-operating costs

 

$

(1,629

)

$

(1,237

)

$

(3,119

)

$

(3,084

)

Investment losses — net

 

 

(3,561

)

 

(2,339

)

Miscellaneous

 

(1,557

)

(852

)

(1,808

)

(1,753

)

Total other expense

 

$

(3,186

)

$

(5,650

)

$

(4,927

)

$

(7,176

)

Earnings Per Share
Earnings Per Share

12.          Earnings Per Share

 

The following table presents earnings per weighted average common share outstanding for the three and six months ended June 30, 2011 and 2010:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Income from continuing operations attributable to common shareholders

 

$

0.79

 

$

0.82

 

$

0.64

 

$

0.91

 

Income from discontinued operations

 

0.01

 

0.25

 

0.02

 

0.13

 

Earnings per share — basic

 

$

0.80

 

$

1.07

 

$

0.66

 

$

1.04

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Income from continuing operations attributable to common shareholders

 

$

0.78

 

$

0.82

 

$

0.64

 

$

0.91

 

Income from discontinued operations

 

0.01

 

0.25

 

0.01

 

0.13

 

Earnings per share — diluted

 

$

0.79

 

$

1.07

 

$

0.65

 

$

1.04

 

 

Dilutive stock options and performance shares (which are contingently issuable) increased average diluted common shares outstanding by approximately 674,000 shares and 409,000 shares for the three months ended June 30, 2011 and 2010, respectively, and by approximately 601,000 and 426,000 shares for the six months ended June 30, 2011 and 2010, respectively.

 

For the three-month and six-month periods ended June 30, 2011, there were no options to purchase shares of common stock outstanding that were excluded from the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares.  For the three-month and six-month periods ended June 30, 2010, options to purchase 387,800 shares of common stock were outstanding but were excluded from the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares.

Discontinued Operations
Discontinued Operations

13.          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 income statement and prior comparative period income statement amounts are included in discontinued operations.  In 2010, SunCor recorded real estate impairment charges of $17 million in the first and second quarter.  SunCor’s asset sales resulted in no gain for 2010. SunCor has approximately $3 million of assets on its balance sheet classified as assets held for sale at June 30, 2011.

 

APSES (other)Pinnacle West is negotiating the potential sale of its investment in APSES.  As a result, we have classified APSES in discontinued operations at June 30, 2011.  If the sale is consummated, we expect to record an after-tax gain from discontinued operations.  Prior period income statement amounts related to APSES for revenues and costs are reflected in discontinued operations. APSES’s $28 million of assets are classified as held for sale and $6 million of liabilities are held for sale and are included in other current liabilities on the balance sheet as of June 30, 2011.

 

In June 2010, APSES sold its district cooling business consisting of operations in downtown Phoenix, Tucson, and on certain Arizona State University campuses.  As a result of this sale, we recorded an after-tax gain from discontinued operations of approximately $25 million.  Prior period income statement amounts related to this sale and the associated revenues and costs are reflected in discontinued operations.

 

The following table provides revenue, income (loss) before income taxes and income (loss) after taxes classified as discontinued operations in Pinnacle West’s Condensed Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010 (dollars in millions):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenue:

 

 

 

 

 

 

 

 

 

SunCor

 

$

2

 

$

11

 

$

3

 

$

21

 

APSES

 

15

 

22

 

26

 

33

 

Total revenue

 

$

17

 

$

33

 

$

29

 

$

54

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes:

 

 

 

 

 

 

 

 

 

SunCor

 

$

 

$

(2

)

$

(1

)

$

(24

)

APSES

 

1

 

45

 

3

 

47

 

Total income (loss) before taxes

 

$

1

 

$

43

 

$

2

 

$

23

 

 

 

 

 

 

 

 

 

 

 

Income (loss) after taxes:

 

 

 

 

 

 

 

 

 

SunCor (a)

 

$

 

$

(1

)

$

 

$

(14

)

APSES

 

1

 

27

 

1

 

28

 

Total income (loss) after taxes

 

$

1

 

$

26

 

$

1

 

$

14

 

 

 

(a)                                 Includes a tax benefit recognized by the parent company in accordance with an intercompany tax sharing agreement of $1 million for the three months ended June 30, 2010, and $9 million for the six months ended June 30, 2010.

Fair Value Measurements
Fair Value Measurements

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, and transactions in locations where observable market data does not exist.  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.

 

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 as well as 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.

 

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 heat rate options, 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.  Cash equivalents are held in a fixed income security commingled fund.  The commingled funds are valued based on the fund’s net asset value and are classified within Level 2.  We may transact in the equity commingled fund on a semi-monthly basis and the cash equivalent commingled fund on a daily 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 APS’s nuclear decommissioning obligations.

 

Fair Value Tables

 

The following table presents the fair value at June 30, 2011 of our assets and liabilities that are measured at fair value on a recurring basis (dollars in millions):

 

 

 

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs (a)
(Level 3)

 

Counterparty
Netting &
Other (b)

 

Balance at
June 30,
2011

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash Equivalents

 

$

33

 

$

 

$

 

$

 

$

33

 

Risk management activities:

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

 

60

 

63

 

(41

)

82

 

Nuclear decommissioning trust:

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

U.S. commingled funds

 

 

178

 

 

 

178

 

Fixed income securities:

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

82

 

 

 

 

82

 

Cash and cash equivalent funds (c)

 

 

14

 

 

 

14

 

Corporate

 

 

58

 

 

 

58

 

Mortgage-backed

 

 

84

 

 

 

84

 

Municipality

 

 

71

 

 

 

71

 

Other

 

 

18

 

 

(7

)

11

 

  Total

 

$

115

 

$

483

 

$

63

 

$

(48

)

$

613

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Risk management activities:

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

 

$

(214

)

$

(110

)

$

208

 

$

(116

)

 

 

(a)                                 Primarily consists of heat rate options and long-dated electricity contracts.

(b)                                 Risk management activities represent netting under master netting agreements, including margin and collateral (see Note 8).  Nuclear decommissioning trust represents net pending securities sales and purchases.

(c)                                  These cash equivalents are held in a commingled short-term investment fund that invests in short-term, highly liquid, fixed income instruments.

 

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
in Active
Markets for
Identical Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs (a)
(Level 3)

 

Counterparty
Netting &
Other (b)

 

Balance at
December 31,
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 (c)

 

 

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 heat rate options and long-dated electricity contracts.

(b)                                 Risk management activities represent netting under master netting arrangements, including margin and collateral.  See Note 8.  Nuclear decommissioning trust represents net pending securities sales and purchases.

(c)                                  These cash equivalents are held in a commingled short-term investment fund that invests in short-term, highly liquid, fixed income instruments.

 

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 three and six months ended June 30, 2011 and 2010 (dollars in millions):

 

 

 

Three Months
Ended June 30,

 

Six Months
Ended June 30,

 

Commodity Contracts

 

2011

 

2010

 

2011

 

2010

 

Net derivative balance at beginning of period

 

$

(48

)

$

(31

)

$

(38

)

$

(10

)

Total net gains (losses) realized/unrealized:

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

(1

)

1

 

(2

)

Included in OCI

 

(3

)

(3

)

(1

)

(9

)

Deferred as a regulatory asset or liability

 

1

 

(12

)

(6

)

(24

)

Settlements

 

4

 

3

 

4

 

3

 

Transfers into Level 3 from Level 2

 

1

 

8

 

(4

)

8

 

Transfers from Level 3 into Level 2

 

(2

)

(6

)

(3

)

(8

)

Net derivative balance at end of period

 

$

(47

)

$

(42

)

$

(47

)

$

(42

)

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) included in earnings related to instruments still held at end of period

 

$

 

$

 

$

1

 

$

(1

)

 

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 heat rate option models and 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.

 

The following table represents the carrying amount and estimated fair value of our long-term debt, including current maturities (dollars in millions):

 

 

 

As of
June 30, 2011

 

As of
December 31, 2010

 

 

 

Carrying
Amount

 

Fair Value

 

Carrying
Amount

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Pinnacle West

 

$

175

 

$

175

 

$

175

 

$

176

 

APS

 

3,490

 

3,782

 

3,503

 

3,737

 

Total

 

$

3,665

 

$

3,957

 

$

3,678

 

$

3,913

 

 

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 Condensed 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 assetsThe following table summarizes the fair value of APS’s nuclear decommissioning trust fund assets at June 30, 2011 and December 31, 2010 (dollars in millions):

 

 

 

Fair Value

 

Total
Unrealized
Gains

 

Total
Unrealized
Losses

 

June 30, 2011

 

 

 

 

 

 

 

Equity securities

 

$

178

 

$

51

 

$

(1

)

Fixed income securities

 

327

 

15

 

 

Net payables (a)

 

(7

)

 

 

Total

 

$

498

 

$

66

 

$

(1

)

 

 

(a)           Net payables relate to pending securities sales and purchases.

 

 

 

Fair Value

 

Total
Unrealized
Gains

 

Total
Unrealized
Losses

 

December 31, 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.

 

The costs of securities sold are determined on the basis of specific identification.  The following table sets forth approximate realized gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds (dollars in millions):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Realized gains

 

$

2

 

$

2

 

$

3

 

$

14

 

Realized losses

 

(1

)

(1

)

(3

)

(3

)

Proceeds from the sale of securities (a)

 

110

 

171

 

300

 

330

 

 

 

(a)           Proceeds are reinvested in the trust.

 

The fair value of fixed income securities, summarized by contractual maturities, at June 30, 2011 is as follows (dollars in millions):

 

 

 

Fair Value

 

Less than one year

 

$

18

 

1 year - 5 years

 

71

 

5 years - 10 years

 

110

 

Greater than 10 years

 

128

 

Total

 

$

327

Asset Retirement Obligations
Asset Retirement Obligations

15.          Asset Retirement Obligations

 

APS has asset retirement obligations for its Palo Verde nuclear facilities and certain other generation, transmission and distribution assets.  In the first quarter of 2011, a new decommissioning study with updated cash flow estimates was completed for Palo Verde.  This study reflects the twenty-year license extension approved by the NRC on April 21, 2011, which extends the commencement of decommissioning to 2045.  The new study resulted in a $90 million decrease to the liability for asset retirements, a $78 million decrease to electric plant in service, and a $12 million increase to regulatory liabilities.

New Accounting Standards
New Accounting Standards

16.          New Accounting Standards

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued amended guidance to converge fair value measurement and disclosure requirements for U.S. GAAP and international financial reporting standards (“IFRS”). The amended guidance clarifies how certain fair value measurement principles should be applied and requires enhanced fair value disclosures.  The guidance is effective for us on January 1, 2012.  We are currently evaluating this guidance and the impact, if any, it may have on our financial statements.

 

In June 2011, the FASB issued amended guidance on the presentation of comprehensive income intended to increase the prominence of items reported in other comprehensive income and to facilitate convergence with IFRS.  The amended guidance requires entities to present total comprehensive income, which includes components of net income and components of other comprehensive income, in either a single continuous statement of comprehensive income or in two separate but consecutive statements.  The guidance is effective for us on January 1, 2012.  This guidance will change our presentation of comprehensive income, but will not impact our financial statement results.

Consolidation and Nature of Operations (Tables)
Impact of the reclassifications to prior year (previously reported) amounts

 

Statement of Income for the Three
Months Ended June 30, 2010

 

As
previously
reported

 

Reclassifications
for discontinued
operations

 

Amount
reported after
reclassification
for discontinued
operations

 

Operating Revenues

 

 

 

 

 

 

 

Other revenues

 

$

21,178

 

$

(17,799

)

$

3,379

 

Operating Expenses

 

 

 

 

 

 

 

Operations and maintenance

 

215,104

 

(1,495

)

213,609

 

Depreciation and amortization

 

103,017

 

(22

)

102,995

 

Taxes other than income taxes

 

31,684

 

(2

)

31,682

 

Other expenses

 

15,716

 

(14,391

)

1,325

 

Other

 

 

 

 

 

 

 

Other income

 

933

 

10

 

943

 

Other expense

 

(5,660

)

10

 

(5,650

)

Interest Expense

 

 

 

 

 

 

 

Interest charges

 

60,741

 

10

 

60,751

 

Allowance for borrowed funds used during construction

 

(3,104

)

32

 

(3,072

)

Income Taxes

 

51,829

 

(641

)

51,188

 

Income From Continuing Operations

 

94,584

 

(1,270

)

93,314

 

Income From Discontinued Operations

 

24,982

 

1,270

 

26,252

 

 

Statement of Income for the Six
Months Ended June 30, 2010

 

As
previously
reported

 

Reclassifications
for discontinued
operations

 

Amount
reported after
reclassification
for discontinued
operations

 

Operating Revenues

 

 

 

 

 

 

 

Other revenues

 

$

30,108

 

$

(25,892

)

$

4,216

 

Operating Expenses

 

 

 

 

 

 

 

Operations and maintenance

 

422,946

 

(3,024

)

419,922

 

Depreciation and amortization

 

203,670

 

(41

)

203,629

 

Taxes other than income taxes

 

63,408

 

(3

)

63,405

 

Other expenses

 

22,644

 

(20,241

)

2,403

 

Other

 

 

 

 

 

 

 

Other income

 

1,819

 

73

 

1,892

 

Other expense

 

(7,134

)

(42

)

(7,176

)

Interest Expense

 

 

 

 

 

 

 

Interest charges

 

121,446

 

72

 

121,518

 

Allowance for borrowed funds used during construction

 

(6,151

)

60

 

(6,091

)

Income Taxes

 

44,657

 

(1,122

)

43,535

 

Income From Continuing Operations

 

106,567

 

(1,562

)

105,005

 

Income From Discontinued Operations

 

12,102

 

1,562

 

13,664

 

 

Balance Sheets - December 31, 2010

 

As
previously
reported

 

Reclassifications
for regulatory
assets and
liabilities and to
conform to
current year
presentation

 

Amount
reported after
reclassification
for regulatory
assets and
liabilities and to
conform to
current year
presentation

 

 

 

 

 

 

 

 

 

Current Assets — Regulatory assets

 

$

 

$

62,286

 

$

62,286

 

Current Assets — Deferred income taxes

 

94,602

 

30,295

 

124,897

 

Current Assets — Assets held for sale

 

 

2,861

 

2,861

 

Current Assets — Other current assets

 

28,362

 

(2,861

)

25,501

 

Deferred Debits — Regulatory assets

 

1,048,656

 

(62,286

)

986,370

 

Current Liabilities — Deferred fuel and purchased power regulatory liability

 

 

58,442

 

58,442

 

Current Liabilities — Other regulatory liabilities

 

 

80,526

 

80,526

 

Deferred Credits and Other — Deferred income taxes

 

1,833,566

 

30,295

 

1,863,861

 

Deferred Credits and Other — Deferred fuel and purchased power regulatory liability

 

58,442

 

(58,442

)

 

Deferred Credits and Other — Regulatory liabilities

 

694,589

 

(80,526

)

614,063

 

 

Statement of Cash Flows for the Six
Months Ended June 30, 2010

 

As
previously
reported

 

Reclassifications
for regulatory
assets and
liabilities and to
conform to
current year
presentation

 

Amount
reported after
reclassification
for regulatory
assets and
liabilities and to
conform to
current year
presentation

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Other current assets

 

$

(13,796

)

$

5,456

 

$

(8,340

)

Other current liabilities

 

(22,719

)

(3,864

)

(26,583

)

Change in other long-term assets

 

(5,542

)

(5,473

)

(11,015

)

Change in other long-term liabilities

 

(51,926

)

3,881

 

(48,045

)

Regulatory Matters (Tables)

 

 

 

 

Capital Structure

 

Cost of Capital

 

Long-term debt

 

46.1

%

6.38

%

Common stock equity

 

53.9

%

11.00

%

Weighted-average cost of capital

 

 

 

8.87

%

 

 

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

Beginning balance

 

$

(58

)

$

(87

)

Deferred fuel and purchased power costs-current period

 

(65

)

(65

)

Amounts refunded through revenues

 

69

 

55

 

Ending balance

 

$

(54

)

$

(97

)

 

 

 

June 30, 2011

 

December 31, 2010

 

 

 

Current

 

Non-Current

 

Current

 

Non-Current

 

Pension and other postretirement benefits

 

$

 

$

672

 

$

 

$

669

 

Deferred income taxes

 

3

 

72

 

3

 

69

 

Deferred fuel and purchased power — mark-to-market (Note 8)

 

31

 

32

 

42

 

35

 

Transmission vegetation management

 

9

 

36

 

 

46

 

Coal reclamation

 

2

 

36

 

2

 

36

 

Palo Verde VIE (Note 7)

 

 

34

 

 

33

 

Deferred compensation

 

 

34

 

 

32

 

Tax expense of Medicare subsidy

 

2

 

21

 

2

 

21

 

Loss on reacquired debt

 

1

 

20

 

1

 

21

 

Pension and other post-retirement benefits deferral

 

 

6

 

 

 

Demand side management (a)

 

8

 

5

 

12

 

6

 

Other

 

 

15

 

 

18

 

Total regulatory assets (b)

 

$

56

 

$

983

 

$

62

 

$

986

 

 

 

(a)                                 See Cost Recovery Mechanisms discussion above.

(b)                                 There are no regulatory assets for which the ACC has allowed recovery of costs but not allowed a return by exclusion from rate base.  FERC rates are set using a formula rate as described in “Transmission Rates and Transmission Cost Adjustor.”

 

 

 

June 30, 2011

 

December 31, 2010

 

 

 

Current

 

Non-Current

 

Current

 

Non-Current

 

Removal costs (a)

 

$

19

 

$

358

 

$

22

 

$

357

 

Asset retirement obligations (Note 15)

 

 

213

 

 

184

 

Deferred fuel and purchased power (b)(c)

 

54

 

 

58

 

 

Renewable energy standard (b)

 

57

 

 

50

 

 

Income taxes — change in rates

 

 

50

 

 

 

Spent nuclear fuel

 

4

 

43

 

4

 

41

 

Deferred gains on utility property

 

2

 

15

 

2

 

16

 

Other

 

7

 

16

 

3

 

16

 

Total regulatory liabilities

 

$

143

 

$

695

 

$

139

 

$

614

 

 

(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.

Retirement Plans and Other Benefits (Tables)
Net periodic benefit costs and the portion of these costs charged to expense

 

 

 

Pension Benefits

 

Other Benefits

 

 

 

Three Months
Ended June 30,

 

Six Months
Ended June 30,

 

Three Months
Ended June 30,

 

Six Months
Ended June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

Service cost - benefits earned during the period

 

$

13

 

$

13

 

$

29

 

$

28

 

$

5

 

$

5

 

$

11

 

$

10

 

Interest cost on benefit obligation

 

31

 

30

 

62

 

61

 

12

 

10

 

23

 

21

 

Expected return on plan assets

 

(33

)

(31

)

(67

)

(62

)

(11

)

(10

)

(21

)

(20

)

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transition obligation

 

 

 

 

 

 

(1

)

 

 

Prior service cost

 

 

 

1

 

1

 

 

 

 

 

Net actuarial loss

 

7

 

4

 

13

 

10

 

4

 

2

 

8

 

5

 

Net periodic benefit cost

 

$

18

 

$

16

 

$

38

 

$

38

 

$

10

 

$

6

 

$

21

 

$

16

 

Portion of cost charged to expense

 

$

7

 

$

8

 

$

15

 

$

19

 

$

4

 

$

3

 

$

8

 

$

8

Business Segments (Tables)
Financial data by business segment

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Operating revenues:

 

 

 

 

 

 

 

 

 

Regulated electricity segment

 

$

799

 

$

800

 

$

1,447

 

$

1,411

 

All other

 

1

 

3

 

2

 

4

 

Total

 

$

800

 

$

803

 

$

1,449

 

$

1,415

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Regulated electricity segment

 

$

86

 

$

88

 

$

71

 

$

95

 

All other (a)

 

1

 

27

 

1

 

14

 

Total

 

$

87

 

$

115

 

$

72

 

$

109

 

 

 

 

As of
June 30, 2011

 

As of
December 31, 2010

 

Assets:

 

 

 

 

 

Regulated electricity segment

 

$

12,398

 

$

12,285

 

All other (a)

 

76

 

108

 

Total

 

$

12,474

 

$

12,393

 

 

 

(a)                                 All other activities relate to APSES, SunCor and El Dorado.

Palo Verde Sale Leaseback Variable-Interest Entities (Tables)
Amounts relating to the VIEs included in Condensed Consolidated Balance Sheets

 

 

 

June 30,
2011

 

December 31,
2010

 

Property plant and equipment, net of accumulated depreciation

 

$

135

 

$

138

 

Current maturities of long-term debt

 

30

 

29

 

Long-term debt less current maturities

 

83

 

97

 

Equity- Noncontrolling interests

 

101

 

91

Derivative Accounting (Tables)

 

Commodity

 

Quantity

 

Power

 

13,226,728

megawatt hours

 

Gas

 

145,891,520

MMBTU (a)

 

 

(a)                                 “MMBTU” is one million British thermal units.

 

 

 

Financial Statement

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

Commodity Contracts

 

Location

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Loss Recognized in AOCI on Derivative Instruments (Effective Portion)

 

Accumulated other comprehensive loss-derivative instruments

 

$

(16,324

)

$

(8,588

)

$

(15,335

)

$

(100,255

)

Amount of Loss Reclassified from AOCI into Income (Effective Portion Realized)

 

Regulated electricity segment fuel and purchased power

 

(25,287

)

(29,143

)

(40,133

)

(42,329

)

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

 

(176

)

11,899

 

(164

)

1,432

 

 

 

(a)                                 During the three and six months ended June 30, 2011 and 2010, we had no amounts reclassified from AOCI to earnings related to discontinued cash flow hedges.

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

Commodity Contracts

 

Financial Statement
Location

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Net Gain (Loss) Recognized in Income from Derivative Instruments

 

Regulated electricity segment revenue

 

$

(503

)

$

426

 

$

1,004

 

$

595

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Net Loss Recognized in Income from Derivative Instruments

 

Regulated electricity segment fuel and purchased power expense

 

(2,892

)

(29,260

)

(11,919

)

(64,228

)

Total

 

 

 

$

(3,395

)

$

(28,834

)

$

(10,915

)

$

(63,633

)

 

Commodity Contracts

 

Current Assets

 

Investments
and Other Assets

 

Current
Liabilities

 

Deferred Credits
and Other

 

Total Assets
(Liabilities)

 

Derivatives designated as accounting hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$

329

 

$

 

$

11,730

 

$

3,011

 

$

15,070

 

Liabilities

 

(550

)

 

(90,187

)

(57,209

)

(147,946

)

Total hedging instruments

 

(221

)

 

(78,457

)

(54,198

)

(132,876

)

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as accounting hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

Assets

 

24,607

 

43,173

 

31,946

 

10,365

 

110,091

 

Liabilities

 

(869

)

 

(94,294

)

(82,903

)

(178,066

)

Total non-hedging instruments

 

23,738

 

43,173

 

(62,348

)

(72,538

)

(67,975

)

 

 

 

 

 

 

 

 

 

 

 

 

Total derivatives

 

23,517

 

43,173

 

(140,805

)

(126,736

)

(200,851

)

 

 

 

 

 

 

 

 

 

 

 

 

Margin account

 

2,137

 

 

11,087

 

3,862

 

17,086

 

Collateral provided to counterparties (a)

 

10,000

 

 

81,669

 

65,801

 

157,470

 

Collateral provided from counterparties (a)

 

 

 

(12,145

)

 

(12,145

)

Prepaid option premiums and other

 

3,243

 

 

1,510

 

 

4,753

 

Balance Sheet Total

 

$

38,897

 

$

43,173

 

$

(58,684

)

$

(57,073

)

$

(33,687

)

 

 

(a)                                 Amounts represent collateral relating to non-derivatives and derivative instruments, including those that qualify for scope exceptions.

 

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, 2010 (dollars in thousands):

 

Commodity Contracts

 

Current Assets

 

Investments
and Other Assets

 

Current
Liabilities

 

Deferred Credits
and Other

 

Total Assets
(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 (a)

 

11,556

 

 

125,367

 

66,393

 

203,316

 

Collateral provided from counterparties (a)

 

(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

)

 

 

(a)         Amounts represent collateral relating to non-derivatives and derivative instruments, including those that qualify for scope exceptions.

Changes in Equity (Tables)
Changes in shareholders' equity and changes in equity of noncontrolling interests

 

 

 

Three Months Ended June 30, 2011

 

Three Months Ended June 30, 2010

 

 

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, April 1

 

$

3,631,411

 

$

97,360

 

$

3,728,771

 

$

3,213,933

 

$

116,067

 

$

3,330,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

86,685

 

7,154

 

93,839

 

114,797

 

4,769

 

119,566

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(16,324

)

 

(16,324

)

(8,588

)

 

(8,588

)

Net reclassification of realized losses to income (b)

 

25,287

 

 

25,287

 

29,143

 

 

29,143

 

Reclassification of pension and other postretirement benefits to income

 

1,046

 

 

1,046

 

1,362

 

 

1,362

 

Net unrealized gains (losses) related to pension and other postretirement benefits

 

974

 

 

974

 

(6,933

)

 

(6,933

)

Net income tax expense related to items of other comprehensive income (loss)

 

(4,337

)

 

(4,337

)

(5,914

)

 

(5,914

)

Total other comprehensive income

 

6,646

 

 

6,646

 

9,070

 

 

9,070

 

Total comprehensive income

 

93,331

 

7,154

 

100,485

 

123,867

 

4,769

 

128,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of capital stock

 

3,505

 

 

3,505

 

255,480

 

 

255,480

 

Other (primarily stock compensation)

 

(33

)

 

(33

)

140

 

 

140

 

Dividends on common stock

 

(114,509

)

 

(114,509

)

(113,872

)

 

(113,872

)

Net capital activities by noncontrolling interests

 

 

(2,609

)

(2,609

)

 

(7,381

)

(7,381

)

Ending balance, June 30

 

$

3,613,705

 

$

101,905

 

$

3,715,610

 

$

3,479,548

 

$

113,455

 

$

3,593,003

 

 

 

 

Six Months Ended June 30, 2011

 

Six Months Ended June 30, 2010

 

 

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, January 1

 

$

3,683,327

 

$

91,899

 

$

3,775,226

 

$

3,316,109

 

$

111,895

 

$

3,428,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

71,550

 

12,615

 

84,165

 

108,783

 

9,886

 

118,669

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(15,335

)

 

(15,335

)

(100,255

)

 

(100,255

)

Net reclassification of realized losses to income (b)

 

40,133

 

 

40,133

 

42,329

 

 

42,329

 

Reclassification of pension and other postretirement benefits to income

 

2,478

 

 

2,478

 

2,755

 

 

2,755

 

Net unrealized gains (losses) related to pension and other postretirement benefits

 

974

 

 

974

 

(6,933

)

 

(6,933

)

Net income tax benefit related to items of other comprehensive income (loss)

 

(11,158

)

 

(11,158

)

24,511

 

 

24,511

 

Total other comprehensive income (loss)

 

17,092

 

 

17,092

 

(37,593

)

 

(37,593

)

Total comprehensive income

 

88,642

 

12,615

 

101,257

 

71,190

 

9,886

 

81,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of capital stock

 

17,065

 

 

17,065

 

258,160

 

 

258,160

 

Purchase of treasury stock, net of reissuances

 

(3,530

)

 

(3,530

)

1,078

 

 

1,078

 

Other (primarily stock compensation)

 

(181

)

 

(181

)

142

 

 

142

 

Dividends on common stock

 

(171,618

)

 

(171,618

)

(167,131

)

 

(167,131

)

Net capital activities by noncontrolling interests

 

 

(2,609

)

(2,609

)

 

(8,326

)

(8,326

)

Ending balance, June 30

 

$

3,613,705

 

$

101,905

 

$

3,715,610

 

$

3,479,548

 

$

113,455

 

$

3,593,003

 

 

 

(a)         These amounts primarily include unrealized losses on contracts used to hedge our forecasted electricity and natural gas requirements to serve Native Load.  These changes are primarily due to changes in forward natural gas prices and wholesale electricity prices.

 

(b)         These amounts primarily include the reclassification of unrealized losses to realized losses for contracted commodities delivered during the period.

Commitments and Contingencies (Tables)
Schedule of updated contractual obligations

 

Year

 

2011

 

2012

 

2013

 

2014

 

2015

 

Thereafter

 

Total

 

Purchase obligations (a)

 

$

0.2

 

$

0.1

 

$

0.1

 

$

 

$

 

$

0.3

 

$

0.7

 

Fuel and purchased power commitments

 

0.5

 

0.4

 

0.5

 

0.5

 

0.6

 

7.0

 

9.5

 

Renewable energy credits

 

0.1

 

 

 

0.1

 

 

0.3

 

0.5

 

 

 

(a)                                 Payments for the transmission rights-of-way are subject to change based on changes in the Consumer Price Index.

Other Income and Other Expense (Tables)
Detail of other income and other expense

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

$

543

 

$

635

 

$

935

 

$

1,572

 

Investment gains — net

 

12

 

 

1,307

 

 

Miscellaneous

 

2

 

308

 

5

 

320

 

Total other income

 

$

557

 

$

943

 

$

2,247

 

$

1,892

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

Non-operating costs

 

$

(1,629

)

$

(1,237

)

$

(3,119

)

$

(3,084

)

Investment losses — net

 

 

(3,561

)

 

(2,339

)

Miscellaneous

 

(1,557

)

(852

)

(1,808

)

(1,753

)

Total other expense

 

$

(3,186

)

$

(5,650

)

$

(4,927

)

$

(7,176

)

Earnings Per Share (Tables)
Schedule of earnings per weighted average common share outstanding

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

Income from continuing operations attributable to common shareholders

 

$

0.79

 

$

0.82

 

$

0.64

 

$

0.91

 

Income from discontinued operations

 

0.01

 

0.25

 

0.02

 

0.13

 

Earnings per share — basic

 

$

0.80

 

$

1.07

 

$

0.66

 

$

1.04

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

Income from continuing operations attributable to common shareholders

 

$

0.78

 

$

0.82

 

$

0.64

 

$

0.91

 

Income from discontinued operations

 

0.01

 

0.25

 

0.01

 

0.13

 

Earnings per share — diluted

 

$

0.79

 

$

1.07

 

$

0.65

 

$

1.04

Discontinued Operations (Tables)
Revenue, income (loss) before income taxes and income (loss) after taxes from discontinued operations

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenue:

 

 

 

 

 

 

 

 

 

SunCor

 

$

2

 

$

11

 

$

3

 

$

21

 

APSES

 

15

 

22

 

26

 

33

 

Total revenue

 

$

17

 

$

33

 

$

29

 

$

54

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes:

 

 

 

 

 

 

 

 

 

SunCor

 

$

 

$

(2

)

$

(1

)

$

(24

)

APSES

 

1

 

45

 

3

 

47

 

Total income (loss) before taxes

 

$

1

 

$

43

 

$

2

 

$

23

 

 

 

 

 

 

 

 

 

 

 

Income (loss) after taxes:

 

 

 

 

 

 

 

 

 

SunCor (a)

 

$

 

$

(1

)

$

 

$

(14

)

APSES

 

1

 

27

 

1

 

28

 

Total income (loss) after taxes

 

$

1

 

$

26

 

$

1

 

$

14

 

 

 

(a)                                 Includes a tax benefit recognized by the parent company in accordance with an intercompany tax sharing agreement of $1 million for the three months ended June 30, 2010, and $9 million for the six months ended June 30, 2010.

Fair Value Measurements (Tables)

 

 

 

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs (a)
(Level 3)

 

Counterparty
Netting &
Other (b)

 

Balance at
June 30,
2011

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash Equivalents

 

$

33

 

$

 

$

 

$

 

$

33

 

Risk management activities:

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

 

60

 

63

 

(41

)

82

 

Nuclear decommissioning trust:

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

U.S. commingled funds

 

 

178

 

 

 

178

 

Fixed income securities:

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

82

 

 

 

 

82

 

Cash and cash equivalent funds (c)

 

 

14

 

 

 

14

 

Corporate

 

 

58

 

 

 

58

 

Mortgage-backed

 

 

84

 

 

 

84

 

Municipality

 

 

71

 

 

 

71

 

Other

 

 

18

 

 

(7

)

11

 

  Total

 

$

115

 

$

483

 

$

63

 

$

(48

)

$

613

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Risk management activities:

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

 

$

(214

)

$

(110

)

$

208

 

$

(116

)

 

 

(a)                                 Primarily consists of heat rate options and long-dated electricity contracts.

(b)                                 Risk management activities represent netting under master netting agreements, including margin and collateral (see Note 8).  Nuclear decommissioning trust represents net pending securities sales and purchases.

(c)                                  These cash equivalents are held in a commingled short-term investment fund that invests in short-term, highly liquid, fixed income instruments.

 

 

 

 

 

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs (a)
(Level 3)

 

Counterparty
Netting &
Other (b)

 

Balance at
December 31,
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 (c)

 

 

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 heat rate options and long-dated electricity contracts.

(b)                                 Risk management activities represent netting under master netting arrangements, including margin and collateral.  See Note 8.  Nuclear decommissioning trust represents net pending securities sales and purchases.

(c)                                  These cash equivalents are held in a commingled short-term investment fund that invests in short-term, highly liquid, fixed income instruments.

 

 

 

Three Months
Ended June 30,

 

Six Months
Ended June 30,

 

Commodity Contracts

 

2011

 

2010

 

2011

 

2010

 

Net derivative balance at beginning of period

 

$

(48

)

$

(31

)

$

(38

)

$

(10

)

Total net gains (losses) realized/unrealized:

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

(1

)

1

 

(2

)

Included in OCI

 

(3

)

(3

)

(1

)

(9

)

Deferred as a regulatory asset or liability

 

1

 

(12

)

(6

)

(24

)

Settlements

 

4

 

3

 

4

 

3

 

Transfers into Level 3 from Level 2

 

1

 

8

 

(4

)

8

 

Transfers from Level 3 into Level 2

 

(2

)

(6

)

(3

)

(8

)

Net derivative balance at end of period

 

$

(47

)

$

(42

)

$

(47

)

$

(42

)

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) included in earnings related to instruments still held at end of period

 

$

 

$

 

$

1

 

$

(1

)

 

 

 

As of
June 30, 2011

 

As of
December 31, 2010

 

 

 

Carrying
Amount

 

Fair Value

 

Carrying
Amount

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Pinnacle West

 

$

175

 

$

175

 

$

175

 

$

176

 

APS

 

3,490

 

3,782

 

3,503

 

3,737

 

Total

 

$

3,665

 

$

3,957

 

$

3,678

 

$

3,913

 

 

 

Fair Value

 

Total
Unrealized
Gains

 

Total
Unrealized
Losses

 

June 30, 2011

 

 

 

 

 

 

 

Equity securities

 

$

178

 

$

51

 

$

(1

)

Fixed income securities

 

327

 

15

 

 

Net payables (a)

 

(7

)

 

 

Total

 

$

498

 

$

66

 

$

(1

)

 

 

(a)           Net payables relate to pending securities sales and purchases.

 

 

 

Fair Value

 

Total
Unrealized
Gains

 

Total
Unrealized
Losses

 

December 31, 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.

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Realized gains

 

$

2

 

$

2

 

$

3

 

$

14

 

Realized losses

 

(1

)

(1

)

(3

)

(3

)

Proceeds from the sale of securities (a)

 

110

 

171

 

300

 

330

 

 

 

(a)           Proceeds are reinvested in the trust.

 

 

 

Fair Value

 

Less than one year

 

$

18

 

1 year - 5 years

 

71

 

5 years - 10 years

 

110

 

Greater than 10 years

 

128

 

Total

 

$

327

Consolidation and Nature of Operations (Details) (USD $)
In Thousands
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Dec. 31, 2010
Operating Revenues
 
 
 
 
 
Other revenues
$ 1,130 
$ 3,379 
$ 2,003 
$ 4,216 
 
Operating Expenses
 
 
 
 
 
Operations and maintenance
210,590 
213,609 
465,619 
419,922 
 
Depreciation and amortization
106,617 
102,995 
213,200 
203,629 
 
Taxes other than income taxes
40,155 
31,682 
77,779 
63,405 
 
Other expenses
1,396 
1,325 
3,216 
2,403 
 
Other
 
 
 
 
 
Other income
557 
943 
2,247 
1,892 
 
Other expense (Note 11)
(3,186)
(5,650)
(4,927)
(7,176)
 
Interest Expense
 
 
 
 
 
Interest charges
60,140 
60,751 
121,217 
121,518 
 
Allowance for borrowed funds used during construction
(3,856)
(3,072)
(7,432)
(6,091)
 
Income Taxes
50,818 
51,188 
44,813 
43,535 
 
Income From Continuing Operations
93,185 
93,314 
82,817 
105,005 
 
Income From Discontinued Operations
654 
26,252 
1,348 
13,664 
 
Balance Sheets
 
 
 
 
 
Current Assets - Regulatory assets
56,158 
 
56,158 
 
62,286 
Current Assets - Deferred income taxes
113,243 
 
113,243 
 
124,897 
Current Assets - Assets held for sale
30,540 
 
30,540 
 
2,861 
Current Assets - Other current assets
30,103 
 
30,103 
 
25,501 
Deferred Debits - Regulatory assets
983,394 
 
983,394 
 
986,370 
Current Liabilities - Deferred fuel and purchased power regulatory liability
54,359 
 
54,359 
 
58,442 
Current Liabilities - Other regulatory liabilities
88,557 
 
88,557 
 
80,526 
Deferred Credits and Other - Deferred income taxes
1,825,077 
 
1,825,077 
 
1,863,861 
Deferred Credits and Other - Regulatory liabilities
695,036 
 
695,036 
 
614,063 
Cash Flows from Operating Activities
 
 
 
 
 
Other current assets
 
 
(37,053)
(8,340)
 
Other current liabilities
 
 
3,967 
(26,583)
 
Change in other long-term assets
 
 
(26,185)
(11,015)
 
Change in other long-term liabilities
 
 
57,748 
(48,045)
 
Reclassifications for discontinued operations
 
 
 
 
 
Operating Revenues
 
 
 
 
 
Other revenues
 
(17,799)
 
(25,892)
 
Operating Expenses
 
 
 
 
 
Operations and maintenance
 
(1,495)
 
(3,024)
 
Depreciation and amortization
 
(22)
 
(41)
 
Taxes other than income taxes
 
(2)
 
(3)
 
Other expenses
 
(14,391)
 
(20,241)
 
Other
 
 
 
 
 
Other income
 
10 
 
73 
 
Other expense (Note 11)
 
10 
 
(42)
 
Interest Expense
 
 
 
 
 
Interest charges
 
10 
 
72 
 
Allowance for borrowed funds used during construction
 
32 
 
60 
 
Income Taxes
 
(641)
 
(1,122)
 
Income From Continuing Operations
 
(1,270)
 
(1,562)
 
Income From Discontinued Operations
 
1,270 
 
1,562 
 
Reclassifications for regulatory assets and liabilities and to conform to current year presentation
 
 
 
 
 
Balance Sheets
 
 
 
 
 
Current Assets - Regulatory assets
 
 
 
 
62,286 
Current Assets - Deferred income taxes
 
 
 
 
30,295 
Current Assets - Assets held for sale
 
 
 
 
2,861 
Current Assets - Other current assets
 
 
 
 
(2,861)
Deferred Debits - Regulatory assets
 
 
 
 
(62,286)
Current Liabilities - Deferred fuel and purchased power regulatory liability
 
 
 
 
58,442 
Current Liabilities - Other regulatory liabilities
 
 
 
 
80,526 
Deferred Credits and Other - Deferred income taxes
 
 
 
 
30,295 
Deferred Credits and Other - Deferred fuel and purchased power regulatory liability
 
 
 
 
(58,442)
Deferred Credits and Other - Regulatory liabilities
 
 
 
 
(80,526)
Cash Flows from Operating Activities
 
 
 
 
 
Other current assets
 
 
 
5,456 
 
Other current liabilities
 
 
 
(3,864)
 
Change in other long-term assets
 
 
 
(5,473)
 
Change in other long-term liabilities
 
 
 
3,881 
 
As previously reported
 
 
 
 
 
Operating Revenues
 
 
 
 
 
Other revenues
 
21,178 
 
30,108 
 
Operating Expenses
 
 
 
 
 
Operations and maintenance
 
215,104 
 
422,946 
 
Depreciation and amortization
 
103,017 
 
203,670 
 
Taxes other than income taxes
 
31,684 
 
63,408 
 
Other expenses
 
15,716 
 
22,644 
 
Other
 
 
 
 
 
Other income
 
933 
 
1,819 
 
Other expense (Note 11)
 
(5,660)
 
(7,134)
 
Interest Expense
 
 
 
 
 
Interest charges
 
60,741 
 
121,446 
 
Allowance for borrowed funds used during construction
 
(3,104)
 
(6,151)
 
Income Taxes
 
51,829 
 
44,657 
 
Income From Continuing Operations
 
94,584 
 
106,567 
 
Income From Discontinued Operations
 
24,982 
 
12,102 
 
Balance Sheets
 
 
 
 
 
Current Assets - Deferred income taxes
 
 
 
 
94,602 
Current Assets - Other current assets
 
 
 
 
28,362 
Deferred Debits - Regulatory assets
 
 
 
 
1,048,656 
Deferred Credits and Other - Deferred income taxes
 
 
 
 
1,833,566 
Deferred Credits and Other - Deferred fuel and purchased power regulatory liability
 
 
 
 
58,442 
Deferred Credits and Other - Regulatory liabilities
 
 
 
 
694,589 
Cash Flows from Operating Activities
 
 
 
 
 
Other current assets
 
 
 
(13,796)
 
Other current liabilities
 
 
 
(22,719)
 
Change in other long-term assets
 
 
 
(5,542)
 
Change in other long-term liabilities
 
 
 
(51,926)
 
Amount reported after reclassification
 
 
 
 
 
Operating Revenues
 
 
 
 
 
Other revenues
 
3,379 
 
4,216 
 
Operating Expenses
 
 
 
 
 
Operations and maintenance
 
213,609 
 
419,922 
 
Depreciation and amortization
 
102,995 
 
203,629 
 
Taxes other than income taxes
 
31,682 
 
63,405 
 
Other expenses
 
1,325 
 
2,403 
 
Other
 
 
 
 
 
Other income
 
943 
 
1,892 
 
Other expense (Note 11)
 
(5,650)
 
(7,176)
 
Interest Expense
 
 
 
 
 
Interest charges
 
60,751 
 
121,518 
 
Allowance for borrowed funds used during construction
 
(3,072)
 
(6,091)
 
Income Taxes
 
51,188 
 
43,535 
 
Income From Continuing Operations
 
93,314 
 
105,005 
 
Income From Discontinued Operations
 
26,252 
 
13,664 
 
Balance Sheets
 
 
 
 
 
Current Assets - Regulatory assets
 
 
 
 
62,286 
Current Assets - Deferred income taxes
 
 
 
 
124,897 
Current Assets - Assets held for sale
 
 
 
 
2,861 
Current Assets - Other current assets
 
 
 
 
25,501 
Deferred Debits - Regulatory assets
 
 
 
 
986,370 
Current Liabilities - Deferred fuel and purchased power regulatory liability
 
 
 
 
58,442 
Current Liabilities - Other regulatory liabilities
 
 
 
 
80,526 
Deferred Credits and Other - Deferred income taxes
 
 
 
 
1,863,861 
Deferred Credits and Other - Regulatory liabilities
 
 
 
 
614,063 
Cash Flows from Operating Activities
 
 
 
 
 
Other current assets
 
 
 
(8,340)
 
Other current liabilities
 
 
 
(26,583)
 
Change in other long-term assets
 
 
 
(11,015)
 
Change in other long-term liabilities
 
 
 
$ (48,045)
 
Long-Term Debt and Liquidity Matters (Details) (USD $)
Jun. 30, 2011
Dec. 31, 2010
Feb. 23, 2011
Pinnacle West
1 Months Ended
Jul. 31, 2011
Pinnacle West
Term loan facility
1 Months Ended
Feb. 28, 2011
Pinnacle West
5.91% Senior Notes
Feb. 23, 2011
Pinnacle West
5.91% Senior Notes
Jun. 30, 2011
Pinnacle West
Credit facility maturing in 2013
Jun. 30, 2011
ARIZONA PUBLIC SERVICE COMPANY
Dec. 31, 2010
ARIZONA PUBLIC SERVICE COMPANY
Jun. 30, 2011
ARIZONA PUBLIC SERVICE COMPANY
Line of credit facilities
Jun. 30, 2011
ARIZONA PUBLIC SERVICE COMPANY
Credit facility maturing in 2013
Jun. 30, 2011
ARIZONA PUBLIC SERVICE COMPANY
New Revolving credit facility maturing in 2015
Feb. 14, 2011
ARIZONA PUBLIC SERVICE COMPANY
New Revolving credit facility maturing in 2015
1 Months Ended
Feb. 28, 2011
ARIZONA PUBLIC SERVICE COMPANY
Revolving credit facility maturing in 2011
Jun. 30, 2011
ARIZONA PUBLIC SERVICE COMPANY
ACC
Jun. 30, 2011
Line of credit facilities
Long-Term Debt and Liquidity Matters
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Term loan facility
 
 
$ 175,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate (as a percent)
 
 
 
 
 
5.91% 
 
 
 
 
 
 
 
 
 
 
Repayment of debt
 
 
 
25,000,000 
175,000,000 
 
 
 
 
 
 
 
 
 
 
 
Current borrowing capacity on credit facility
 
 
 
 
 
 
200,000,000 
 
 
1,000,000,000 
500,000,000 
500,000,000 
 
 
 
 
Refinanced credit facility
 
 
 
 
 
 
 
 
 
 
 
 
 
489,000,000 
 
 
Maximum commercial paper support available under credit facility
 
 
 
 
 
 
200,000,000 
 
 
250,000,000 
 
 
 
 
 
 
Maximum borrowing capacity on credit facility upon satisfaction of certain conditions and consent of lenders
 
 
 
 
 
 
300,000,000 
 
 
 
 
700,000,000 
 
 
 
 
Commercial paper borrowings
 
 
 
 
 
 
7,000,000 
 
 
 
 
 
 
 
 
 
Number of line of credit facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Letter of credit
 
 
 
 
 
 
 
 
 
 
 
 
20,000,000 
 
 
 
Debt Provisions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Required minimum common equity ratio ordered by ACC (as a percent)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40.00% 
 
Total shareholder equity
3,613,705,000 
3,683,327,000 
 
 
 
 
 
3,746,067,000 
3,824,953,000 
 
 
 
 
 
3,700,000,000 
 
Total capitalization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7,100,000,000 
 
Dividend restrictions, minimum total shareholder equity required
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 2,800,000,000 
 
Regulatory Matters (Details) (USD $)
6 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
ARIZONA PUBLIC SERVICE COMPANY
2010
ARIZONA PUBLIC SERVICE COMPANY
1 Months Ended
Jun. 30, 2011
ARIZONA PUBLIC SERVICE COMPANY
ACC
2011 General retail rate case
USDPerkWh
Jun. 2, 2011
ARIZONA PUBLIC SERVICE COMPANY
ACC
2011 General retail rate case
6 Months Ended
Jun. 30, 2011
ARIZONA PUBLIC SERVICE COMPANY
ACC
2010 RES
Mar. 3, 2010
ARIZONA PUBLIC SERVICE COMPANY
ACC
2010 RES
mW
1 Months Ended
Jun. 30, 2011
ARIZONA PUBLIC SERVICE COMPANY
FERC
Transmission Rates and Transmission Cost Adjustor
1 Months Ended
Dec. 31, 2009
ARIZONA PUBLIC SERVICE COMPANY
2008 General retail rate case
6 Months Ended
Jun. 30, 2010
ARIZONA PUBLIC SERVICE COMPANY
2008 General retail rate case
Dec. 30, 2009
ARIZONA PUBLIC SERVICE COMPANY
2008 General retail rate case
12 Months Ended
Dec. 31, 2009
ARIZONA PUBLIC SERVICE COMPANY
2010 RES
Apr. 2, 2010
ARIZONA PUBLIC SERVICE COMPANY
2010 RES
mW
Mar. 3, 2010
ARIZONA PUBLIC SERVICE COMPANY
2010 RES
mW
1 Months Ended
Jul. 31, 2010
ARIZONA PUBLIC SERVICE COMPANY
2011 RES
Oct. 13, 2010
ARIZONA PUBLIC SERVICE COMPANY
2011 RES
mW
1 Months Ended
Jul. 31, 2011
ARIZONA PUBLIC SERVICE COMPANY
2012 RES
Jul. 2, 2011
ARIZONA PUBLIC SERVICE COMPANY
2012 RES
mW
1 Months Ended
Mar. 31, 2010
ARIZONA PUBLIC SERVICE COMPANY
2010 DSMAC
1 Months Ended
Jul. 31, 2009
ARIZONA PUBLIC SERVICE COMPANY
2010 DSMAC
1 Months Ended
Feb. 28, 2011
ARIZONA PUBLIC SERVICE COMPANY
2011 DSMAC
1 Months Ended
Jun. 30, 2010
ARIZONA PUBLIC SERVICE COMPANY
2011 DSMAC
Feb. 17, 2011
ARIZONA PUBLIC SERVICE COMPANY
2011 DSMAC
Jun. 2, 2010
ARIZONA PUBLIC SERVICE COMPANY
2011 DSMAC
1 Months Ended
Jun. 30, 2011
ARIZONA PUBLIC SERVICE COMPANY
2012 DSMAC
Jun. 2, 2011
ARIZONA PUBLIC SERVICE COMPANY
2012 DSMAC
1 Months Ended
Feb. 28, 2011
Power Supply Adjustor (PSA)
2011
Power Supply Adjustor (PSA)
2010
Power Supply Adjustor (PSA)
Regulatory Matters
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net retail rate increase
 
 
 
 
$ 95,500,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Approximate percentage of increase in the average retail customer bill (as a percent)
 
 
 
 
6.60% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-fuel base rate increase
 
 
 
 
194,100,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reclassification of revenues to base rates
 
 
 
 
44,900,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Base rate decrease
 
 
 
 
143,500,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rate base
 
 
 
 
5,700,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proposed capital structure and costs of capital
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of long-term debt in capital structure (as a percent)
 
 
 
 
 
46.10% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of common stock equity in capital structure (as a percent)
 
 
 
 
 
53.90% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of capital, long-term debt (as a percent)
 
 
 
 
 
6.38% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of capital, common stock equity (as a percent)
 
 
 
 
 
11.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average cost of capital (as a percent)
 
 
 
 
 
8.87% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proposed base fuel rate (in dollars per kWh)
 
 
 
 
0.03242 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current base fuel rate (in dollars per kWh)
 
 
 
 
0.03757 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current sharing provision of fuel and purchased power costs
 
 
 
 
90/10 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of new recovery mechanisms that would adjust electricity rates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Approved Settlement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of other parties to the settlement agreement
 
 
 
 
 
 
 
 
 
 
 
21 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net retail rate increase
 
 
 
 
 
 
 
 
 
207,500,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Base rate increase
 
 
 
 
 
 
 
 
 
344,700,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reclassification of fuel and purchased power revenues from the then-existing PSA to base rates
 
 
 
 
 
 
 
 
 
137,200,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Authorized return on common equity (as a percent)
 
 
 
 
 
 
 
 
 
 
 
11.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of debt in capital structure (as a percent)
 
 
 
 
 
 
 
 
 
 
 
46.20% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of common equity in capital structure (as a percent)
 
 
 
 
 
 
 
 
 
 
 
53.80% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Minimum amount of reduction of average annual operational expenses from 2010 through 2014
 
 
 
 
 
 
 
 
 
30,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Authorization and requirements of equity infusions into APS beginning June 1, 2009 through December 31, 2014
 
 
 
 
 
 
 
 
 
700,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity infusions into APS
 
 
 
252,833,000 
 
 
 
 
 
 
253,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plan term (in years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Funding request
 
 
 
 
 
 
 
 
 
 
 
 
87,000,000 
 
 
96,000,000 
 
 
 
 
50,000,000 
 
79,000,000 
 
 
90,000,000 
 
 
 
 
Funding request, low end of range
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
129,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
Funding request, high end of range
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
152,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
Capacity from third-parties entirely through power purchase agreements (PPAs) or through a mix of PPAs and non-residential distributed energy programs (in MW)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
150 
 
 
 
 
 
 
 
 
 
 
 
Additional capacity from APS-owned AZ Sun projects (in MW)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100 
 
 
 
 
 
 
 
 
 
 
 
Additional capacity from APS-owned facilities on schools (in MW)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25 
 
 
 
 
 
 
 
 
 
 
 
Addition of owned solar resources (in MW)
 
 
 
 
 
 
 
100 
 
 
 
 
 
1.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum future investment planned in solar photovoltaic projects across Arizona
 
 
 
 
 
 
 
 
 
 
 
 
 
 
500,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs associated with program to be recovered through base rates or other mechanisms (in MW)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs associated with program to be recovered through next retail rate base (in MW)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of residential and business customers with solar paneled rooftops
 
 
 
 
 
 
 
 
 
 
 
 
 
200 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Addition of biomass capacity (in MW)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period covered by cost recovery program (in years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period over which program costs will be recovered (in years)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of energy savings for prior year (as a percent)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.75% 
 
 
 
Percentage of annual energy savings to meet energy efficiency goal for 2011 (as a percent)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.25% 
 
1.50% 
 
 
 
Amount of approved budget
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
80,000,000 
 
 
 
 
 
 
Costs already being recovered in general rates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10,000,000 
 
 
 
10,000,000 
 
 
 
 
Demand-side management adjustor charge (DSMAC)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75,000,000 
 
 
 
85,000,000 
 
 
 
 
Increase in annual wholesale transmission rates
 
 
 
 
 
 
 
 
44,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue increase related to transmission services used for APS's retail customers
 
 
 
 
 
 
 
 
38,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in the deferred fuel and purchased power regulatory asset (liability)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
(58,442,000)
 
(58,442,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(58,000,000)
(87,000,000)
Deferred fuel and purchased power costs-current period
64,679,000 
65,249,000 
64,679,000 
65,249,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(65,000,000)
(65,000,000)
Amounts refunded through revenues
(68,762,000)
(55,494,000)
(68,762,000)
(55,494,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
69,000,000 
55,000,000 
Ending balance
$ (54,359,000)
 
$ (54,359,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ (54,000,000)
$ (97,000,000)
PSA rate (in dollars per kWh)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(0.0057)
 
 
PSA rate for prior year (in dollars per kWh)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(0.0045)
 
 
Regulatory Matters (Details 2) (USD $)
In Thousands
Jun. 30, 2011
Dec. 31, 2010
Detail of regulatory assets
 
 
Regulatory assets, current
$ 56,158 
$ 62,286 
Regulatory assets, non-current
983,394 
986,370 
Pension and other postretirement benefits
 
 
Detail of regulatory assets
 
 
Regulatory assets, non-current
672,000 
669,000 
Deferred income taxes
 
 
Detail of regulatory assets
 
 
Regulatory assets, current
3,000 
3,000 
Regulatory assets, non-current
72,000 
69,000 
Deferred Fuel and Purchased Power MTM Costs
 
 
Detail of regulatory assets
 
 
Regulatory assets, current
31,000 
42,000 
Regulatory assets, non-current
32,000 
35,000 
Transmission vegetation management
 
 
Detail of regulatory assets
 
 
Regulatory assets, current
9,000 
 
Regulatory assets, non-current
36,000 
46,000 
Coal reclamation
 
 
Detail of regulatory assets
 
 
Regulatory assets, current
2,000 
2,000 
Regulatory assets, non-current
36,000 
36,000 
Consolidation of VIEs
 
 
Detail of regulatory assets
 
 
Regulatory assets, non-current
34,000 
33,000 
Deferred compensation
 
 
Detail of regulatory assets
 
 
Regulatory assets, non-current
34,000 
32,000 
Tax expense of Medicare subsidy
 
 
Detail of regulatory assets
 
 
Regulatory assets, current
2,000 
2,000 
Regulatory assets, non-current
21,000 
21,000 
Loss on reacquired debt
 
 
Detail of regulatory assets
 
 
Regulatory assets, current
1,000 
1,000 
Regulatory assets, non-current
20,000 
21,000 
Pension and other post-retirement benefits deferral
 
 
Detail of regulatory assets
 
 
Regulatory assets, non-current
6,000 
 
Demand side management
 
 
Detail of regulatory assets
 
 
Regulatory assets, current
8,000 
12,000 
Regulatory assets, non-current
5,000 
6,000 
Other.
 
 
Detail of regulatory assets
 
 
Regulatory assets, non-current
$ 15,000 
$ 18,000 
Regulatory Matters (Details 3) (USD $)
Jun. 30, 2011
Dec. 31, 2010
Detail of regulatory liabilities
 
 
Regulatory liabilities, current
$ 143,000,000 
$ 139,000,000 
Regulatory liabilities, non-current
695,036,000 
614,063,000 
Removal costs
 
 
Detail of regulatory liabilities
 
 
Regulatory liabilities, current
19,000,000 
22,000,000 
Regulatory liabilities, non-current
358,000,000 
357,000,000 
Asset retirement obligations.
 
 
Detail of regulatory liabilities
 
 
Regulatory liabilities, non-current
213,000,000 
184,000,000 
Deferred Fuel and Purchased Power Costs
 
 
Detail of regulatory liabilities
 
 
Regulatory liabilities, current
54,000,000 
58,000,000 
Renewable energy standard
 
 
Detail of regulatory liabilities
 
 
Regulatory liabilities, current
57,000,000 
50,000,000 
Deferred income taxes
 
 
Detail of regulatory liabilities
 
 
Regulatory liabilities, non-current
50,000,000 
 
Spent nuclear fuel
 
 
Detail of regulatory liabilities
 
 
Regulatory liabilities, current
4,000,000 
4,000,000 
Regulatory liabilities, non-current
43,000,000 
41,000,000 
Deferred gains on utility property
 
 
Detail of regulatory liabilities
 
 
Regulatory liabilities, current
2,000,000 
2,000,000 
Regulatory liabilities, non-current
15,000,000 
16,000,000 
Other,
 
 
Detail of regulatory liabilities
 
 
Regulatory liabilities, current
7,000,000 
3,000,000 
Regulatory liabilities, non-current
$ 16,000,000 
$ 16,000,000 
Retirement Plans and Other Benefits (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Pinnacle West |
Pension Benefits
 
 
 
 
Net periodic benefit costs and the portion of these costs charged to expense
 
 
 
 
Net periodic benefit cost charged to expense
$ 7 
$ 8 
$ 15 
$ 19 
Pension Benefits
 
 
 
 
Net periodic benefit costs and the portion of these costs charged to expense
 
 
 
 
Service cost - benefits earned during the period
13 
13 
29 
28 
Interest cost on benefit obligation
31 
30 
62 
61 
Expected return on plan assets
(33)
(31)
(67)
(62)
Amortization of prior service cost
 
 
Amortization of net actuarial loss
13 
10 
Net periodic benefit cost
18 
16 
38 
38 
Contributions
 
 
 
 
Expected contribution to benefit plans in the current fiscal year
 
 
Expected contributions for next fiscal period
68 
 
68 
 
Pinnacle West |
Other Benefits
 
 
 
 
Net periodic benefit costs and the portion of these costs charged to expense
 
 
 
 
Net periodic benefit cost charged to expense
Other Benefits
 
 
 
 
Net periodic benefit costs and the portion of these costs charged to expense
 
 
 
 
Service cost - benefits earned during the period
11 
10 
Interest cost on benefit obligation
12 
10 
23 
21 
Expected return on plan assets
(11)
(10)
(21)
(20)
Amortization of transition obligation
 
(1)
 
 
Amortization of net actuarial loss
Net periodic benefit cost
10 
21 
16 
Contributions
 
 
 
 
Expected contribution to benefit plans in the current fiscal year
20 
 
20 
 
Expected contributions for next fiscal period
$ 20 
 
$ 20 
 
ARIZONA PUBLIC SERVICE COMPANY
 
 
 
 
Contributions
 
 
 
 
APS's share of contributions to the plans (as a percent)
99.00% 
 
99.00% 
 
Business Segments (Details) (USD $)
In Thousands
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Dec. 31, 2010
Financial data by business segment
 
 
 
 
 
Operating revenues
$ 799,799 
$ 802,795 
$ 1,448,646 
$ 1,415,057 
 
Net income attributable to common shareholders
86,685 
114,797 
71,550 
108,783 
 
Assets
12,474,080 
 
12,474,080 
 
12,392,998 
Regulated electricity segment
 
 
 
 
 
Financial data by business segment
 
 
 
 
 
Operating revenues
799,000 
800,000 
1,447,000 
1,411,000 
 
Net income attributable to common shareholders
86,000 
88,000 
71,000 
95,000 
 
Assets
12,398,000 
 
12,398,000 
 
12,285,000 
All other
 
 
 
 
 
Financial data by business segment
 
 
 
 
 
Operating revenues
1,000 
3,000 
2,000 
4,000 
 
Net income attributable to common shareholders
1,000 
27,000 
1,000 
14,000 
 
Assets
$ 76,000 
 
$ 76,000 
 
$ 108,000 
Income Taxes (Details) (USD $)
3 Months Ended
Mar. 31, 2011
6 Months Ended
Jun. 30, 2011
Dec. 31, 2010
Income Taxes
 
 
 
Income tax receivables
 
$ 67,970,000 
$ 65,103,000 
Phase-in period of corporate income tax rate reductions beginning in 2014 (in years)
 
 
Decrease in deferred income tax liabilities
53,000,000 
 
 
Increase to regulatory liabilities
53,000,000 
 
 
ARIZONA PUBLIC SERVICE COMPANY
 
 
 
Income Taxes
 
 
 
Income tax receivables
 
68,365,000 
65,498,000 
Period over which the cash refunds are not expected to be received (in months)
 
12 
 
Increase to regulatory liabilities
$ 12,000,000 
 
 
Palo Verde Sale Leaseback Variable-Interest Entities (Details) (USD $)
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Dec. 31, 2010
Palo Verde Sale Leaseback Variable-Interest Entities
 
 
 
 
 
Increase in net income due to consolidation of Palo Verde Sale Leaseback Trusts
$ 7,154,000 
$ 4,769,000 
$ 12,615,000 
$ 9,886,000 
 
Amounts relating to the VIEs included in Condensed Consolidated Balance Sheets
 
 
 
 
 
Property plant and equipment, net of accumulated depreciation
134,799,000 
 
134,799,000 
 
137,956,000 
Current maturities of long-term debt
903,516,000 
 
903,516,000 
 
631,879,000 
Long-term debt less current maturities
83,130,000 
 
83,130,000 
 
96,803,000 
Equity-Noncontrolling interests
101,905,000 
 
101,905,000 
 
91,899,000 
Regulatory assets
983,394,000 
 
983,394,000 
 
986,370,000 
ARIZONA PUBLIC SERVICE COMPANY
 
 
 
 
 
Palo Verde Sale Leaseback Variable-Interest Entities
 
 
 
 
 
Number of VIE lessor trusts
 
 
 
Lease payments per year
 
 
49,000,000 
 
 
Increase in net income due to consolidation of Palo Verde Sale Leaseback Trusts
7,184,000 
4,778,000 
12,654,000 
9,906,000 
 
Amounts relating to the VIEs included in Condensed Consolidated Balance Sheets
 
 
 
 
 
Property plant and equipment, net of accumulated depreciation
134,799,000 
 
134,799,000 
 
137,956,000 
Current maturities of long-term debt
903,516,000 
 
903,516,000 
 
456,879,000 
Long-term debt less current maturities
83,130,000 
 
83,130,000 
 
96,803,000 
Equity-Noncontrolling interests
101,128,000 
 
101,128,000 
 
91,084,000 
Regulatory assets
983,394,000 
 
983,394,000 
 
986,370,000 
ARIZONA PUBLIC SERVICE COMPANY |
Consolidation of VIEs
 
 
 
 
 
Palo Verde Sale Leaseback Variable-Interest Entities
 
 
 
 
 
Increase in net income due to consolidation of Palo Verde Sale Leaseback Trusts
7,000,000 
 
13,000,000 
 
 
Amounts relating to the VIEs included in Condensed Consolidated Balance Sheets
 
 
 
 
 
Property plant and equipment, net of accumulated depreciation
135,000,000 
 
135,000,000 
 
138,000,000 
Current maturities of long-term debt
30,000,000 
 
30,000,000 
 
29,000,000 
Long-term debt less current maturities
83,000,000 
 
83,000,000 
 
97,000,000 
Equity-Noncontrolling interests
101,000,000 
 
101,000,000 
 
91,000,000 
Regulatory assets
34,000,000 
 
34,000,000 
 
33,000,000 
Maximum payment to the VIEs' noncontrolling equity participants upon the occurrence of certain unlikely events
 
 
145,000,000 
 
 
VIE debt to be assumed upon the occurrence of certain unlikely events
 
 
$ 113,000,000 
 
 
Derivative Accounting (Details)
6 Months Ended
Jun. 30, 2011
mWh
MMBTU
Derivative Accounting
 
Maximum hedge period of majority of certain exposures (in months)
39 months 
Outstanding gross notional amount of derivatives
 
Outstanding gross notional amount of derivative instruments
145,891,520 
British thermal units equivalent to one MMBTU
1,000,000 
ARIZONA PUBLIC SERVICE COMPANY
 
Derivative Accounting
 
Percentage of unrealized gains and losses on certain derivatives deferred for future rate treatment (as a percent)
90.00% 
Derivative Accounting (Details 2) (Commodity Contracts, USD $)
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Designated accounting hedging relationships
 
 
 
 
Gains and losses from derivative instruments
 
 
 
 
Amount of Loss Recognized in AOCI on Derivative Instruments (Effective Portion)
$ (16,324,000)
$ (8,588,000)
$ (15,335,000)
$ (100,255,000)
Amount of Loss Reclassified from AOCI into Income (Effective Portion Realized)
(25,287,000)
(29,143,000)
(40,133,000)
(42,329,000)
Amount of Gain (Loss) Recognized in Income from Derivative Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing)
(176,000)
11,899,000 
(164,000)
1,432,000 
Estimated net loss before income taxes to be reclassified from AOCI
 
 
(89,000,000)
 
Percentage of amounts related to derivatives subject to the PSA that will be recorded as either a regulatory asset or liability (as a percent)
90.00% 
 
90.00% 
 
Regulated electricity segment |
Not designated as accounting hedges |
Revenue
 
 
 
 
Gains and losses from derivative instruments
 
 
 
 
Amount of Net Gain (Loss) Recognized in Income from Derivative Instruments
(503,000)
426,000 
1,004,000 
595,000 
Not designated as accounting hedges
 
 
 
 
Gains and losses from derivative instruments
 
 
 
 
Amount of Net Gain (Loss) Recognized in Income from Derivative Instruments
(3,395,000)
(28,834,000)
(10,915,000)
(63,633,000)
Not designated as accounting hedges |
Fuel and purchased power expense
 
 
 
 
Gains and losses from derivative instruments
 
 
 
 
Amount of Net Gain (Loss) Recognized in Income from Derivative Instruments
$ (2,892,000)
$ (29,260,000)
$ (11,919,000)
$ (64,228,000)
Derivative Accounting (Details 3) (USD $)
Jun. 30, 2011
Dec. 31, 2010
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Balance Sheet Total
$ 38,897,000 
$ 73,788,000 
Balance Sheet Total
43,173,000 
39,032,000 
Balance Sheet Total
(58,684,000)
(58,976,000)
Balance Sheet Total
(57,073,000)
(65,390,000)
Designated accounting hedging relationships |
Commodity Contracts
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Assets
15,070,000 
15,351,000 
Liabilities
(147,946,000)
(181,428,000)
Total derivatives
(132,876,000)
(166,077,000)
Designated accounting hedging relationships |
Commodity Contracts |
Current Assets
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Assets
329,000 
1,234,000 
Liabilities
(550,000)
(602,000)
Total derivatives
(221,000)
632,000 
Designated accounting hedging relationships |
Commodity Contracts |
Investments and Other Assets
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Assets
 
142,000 
Liabilities
 
(1,933,000)
Total derivatives
 
(1,791,000)
Designated accounting hedging relationships |
Commodity Contracts |
Current Liabilities
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Assets
11,730,000 
9,062,000 
Liabilities
(90,187,000)
(107,784,000)
Total derivatives
(78,457,000)
(98,722,000)
Designated accounting hedging relationships |
Commodity Contracts |
Deferred Credits and Other
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Assets
3,011,000 
4,913,000 
Liabilities
(57,209,000)
(71,109,000)
Total derivatives
(54,198,000)
(66,196,000)
Not designated as accounting hedges |
Commodity Contracts
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Assets
110,091,000 
124,966,000 
Liabilities
(178,066,000)
(198,353,000)
Total derivatives
(67,975,000)
(73,387,000)
Not designated as accounting hedges |
Commodity Contracts |
Current Assets
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Assets
24,607,000 
36,831,000 
Liabilities
(869,000)
(312,000)
Total derivatives
23,738,000 
36,519,000 
Not designated as accounting hedges |
Commodity Contracts |
Investments and Other Assets
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Assets
43,173,000 
40,927,000 
Liabilities
 
(33,000)
Total derivatives
43,173,000 
40,894,000 
Not designated as accounting hedges |
Commodity Contracts |
Current Liabilities
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Assets
31,946,000 
27,322,000 
Liabilities
(94,294,000)
(112,535,000)
Total derivatives
(62,348,000)
(85,213,000)
Not designated as accounting hedges |
Commodity Contracts |
Deferred Credits and Other
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Assets
10,365,000 
19,886,000 
Liabilities
(82,903,000)
(85,473,000)
Total derivatives
(72,538,000)
(65,587,000)
Commodity Contracts
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Total derivatives
(200,851,000)
(239,464,000)
Margin account
17,086,000 
25,576,000 
Collateral provided to counterparties
157,470,000 
203,316,000 
Collateral provided from counterparties
(12,145,000)
(3,000,000)
Prepaid option premiums and other
4,753,000 
2,026,000 
Balance Sheet Total
(33,687,000)
(11,546,000)
Credit Risk and Credit-Related Contingent Features
 
 
Concentration of credit risk, number of counterparties
 
Concentration of risk with two counterparties, as a percentage of risk management assets (as a percent)
64.00% 
 
Risk management assets
82,000,000 
 
Aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position
303,000,000 
 
Posted collateral
147,000,000 
 
Additional collateral to counterparties for derivative instruments in a net liability position
106,000,000 
 
Additional collateral to counterparties for energy related non-derivative instrument contracts
194,000,000 
 
Commodity Contracts |
Current Assets
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Total derivatives
23,517,000 
37,151,000 
Margin account
2,137,000 
24,579,000 
Collateral provided to counterparties
10,000,000 
11,556,000 
Collateral provided from counterparties
 
(1,750,000)
Prepaid option premiums and other
3,243,000 
2,252,000 
Balance Sheet Total
38,897,000 
73,788,000 
Commodity Contracts |
Investments and Other Assets
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Total derivatives
43,173,000 
39,103,000 
Prepaid option premiums and other
 
(71,000)
Balance Sheet Total
43,173,000 
39,032,000 
Commodity Contracts |
Current Liabilities
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Total derivatives
(140,805,000)
(183,935,000)
Margin account
11,087,000 
997,000 
Collateral provided to counterparties
81,669,000 
125,367,000 
Collateral provided from counterparties
(12,145,000)
(1,250,000)
Prepaid option premiums and other
1,510,000 
(155,000)
Balance Sheet Total
(58,684,000)
(58,976,000)
Commodity Contracts |
Deferred Credits and Other
 
 
Fair value of derivative instruments, margin account and cash collateral reported on a gross basis
 
 
Total derivatives
(126,736,000)
(131,783,000)
Margin account
3,862,000 
 
Collateral provided to counterparties
65,801,000 
66,393,000 
Balance Sheet Total
$ (57,073,000)
$ (65,390,000)
Changes in Equity (Details) (USD $)
In Thousands
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Changes in equity
 
 
 
 
Balance at beginning of period
$ 3,728,771 
$ 3,330,000 
$ 3,775,226 
$ 3,428,004 
Net Income
93,839 
119,566 
84,165 
118,669 
Other comprehensive income (loss):
 
 
 
 
Net unrealized losses on derivative instruments
(16,324)
(8,588)
(15,335)
(100,255)
Net reclassification of realized losses to income
25,287 
29,143 
40,133 
42,329 
Reclassification of pension and other postretirement benefits to income
1,046 
1,362 
2,478 
2,755 
Net unrealized gains (losses) related to pension and other postretirement benefits
974 
(6,933)
974 
(6,933)
Net income tax benefit (expense) related to items of other comprehensive income
(4,337)
(5,914)
(11,158)
24,511 
Total other comprehensive income (loss)
6,646 
9,070 
17,092 
(37,593)
Total comprehensive income
100,485 
128,636 
101,257 
81,076 
Issuance of capital stock
3,505 
255,480 
17,065 
258,160 
Purchase of treasury stock, net of reissuances
 
 
(3,530)
1,078 
Other (primarily stock compensation)
(33)
140 
(181)
142 
Dividends on common stock
(114,509)
(113,872)
(171,618)
(167,131)
Net capital activities by noncontrolling interests
(2,609)
(7,381)
(2,609)
(8,326)
Balance at end of period
3,715,610 
3,593,003 
3,715,610 
3,593,003 
Shareholder equity
 
 
 
 
Changes in equity
 
 
 
 
Balance at beginning of period
3,631,411 
3,213,933 
3,683,327 
3,316,109 
Net Income
86,685 
114,797 
71,550 
108,783 
Other comprehensive income (loss):
 
 
 
 
Net unrealized losses on derivative instruments
(16,324)
(8,588)
(15,335)
(100,255)
Net reclassification of realized losses to income
25,287 
29,143 
40,133 
42,329 
Reclassification of pension and other postretirement benefits to income
1,046 
1,362 
2,478 
2,755 
Net unrealized gains (losses) related to pension and other postretirement benefits
974 
(6,933)
974 
(6,933)
Net income tax benefit (expense) related to items of other comprehensive income
(4,337)
(5,914)
(11,158)
24,511 
Total other comprehensive income (loss)
6,646 
9,070 
17,092 
(37,593)
Total comprehensive income
93,331 
123,867 
88,642 
71,190 
Issuance of capital stock
3,505 
255,480 
17,065 
258,160 
Purchase of treasury stock, net of reissuances
 
 
(3,530)
1,078 
Other (primarily stock compensation)
(33)
140 
(181)
142 
Dividends on common stock
(114,509)
(113,872)
(171,618)
(167,131)
Balance at end of period
3,613,705 
3,479,548 
3,613,705 
3,479,548 
NONCONTROLLING INTERESTS
 
 
 
 
Changes in equity
 
 
 
 
Balance at beginning of period
97,360 
116,067 
91,899 
111,895 
Net Income
7,154 
4,769 
12,615 
9,886 
Other comprehensive income (loss):
 
 
 
 
Total comprehensive income
7,154 
4,769 
12,615 
9,886 
Net capital activities by noncontrolling interests
(2,609)
(7,381)
(2,609)
(8,326)
Balance at end of period
$ 101,905 
$ 113,455 
$ 101,905 
$ 113,455 
Commitments and Contingencies (Details) (ARIZONA PUBLIC SERVICE COMPANY, USD $)
6 Months Ended
Jun. 30, 2011
ARIZONA PUBLIC SERVICE COMPANY
 
Palo Verde Nuclear Generating Station
 
Estimated share of the costs related to on-site interim storage of spent nuclear fuel
$ 122,000,000 
Regulatory liability of amounts recovered in retail rates in excess of amounts spent for on-site interim spent fuel storage
47,000,000 
Maximum insurance against public liability per occurrence for a nuclear incident
12,600,000,000 
Maximum available nuclear liability insurance
375,000,000 
Remaining nuclear liability insurance through mandatory industry wide retrospective assessment program
12,200,000,000 
Maximum assessment per reactor for each nuclear incident
118,000,000 
Annual limit per incident with respect to maximum assessment
18,000,000 
Number of VIE lessor trusts
Maximum potential assessment per incident of APS
103,000,000 
Annual payment limitation with respect to maximum potential assessment
15,000,000 
Amount of "all risk" (including nuclear hazards) insurance for property damage to, and decontamination of, property at Palo Verde
2,750,000,000 
Maximum amount that APS could incur under the current NEIL policies for each retrospective assessment
18,000,000 
Collateral assurance provided based on rating triggers
$ 46,000,000 
Period to provide collateral assurance based on rating triggers (in days)
20 
Commitments and Contingencies (Details 2) (USD $)
6 Months Ended
Jun. 30, 2011
Contractual Obligations
 
Contractual obligations increase
$ 500,000,000 
Costs related to investigation and study under Superfund site
1,000,000 
Purchase obligations
 
Contractual Obligations
 
2011
200,000,000 
2012
100,000,000 
2013
100,000,000 
Thereafter
300,000,000 
Total
700,000,000 
Fuel and purchased power commitments
 
Contractual Obligations
 
2011
500,000,000 
2012
400,000,000 
2013
500,000,000 
2014
500,000,000 
2015
600,000,000 
Thereafter
7,000,000,000 
Total
9,500,000,000 
Renewable energy credits
 
Contractual Obligations
 
2011
100,000,000 
2014
100,000,000 
Thereafter
300,000,000 
Total
500,000,000 
ARIZONA PUBLIC SERVICE COMPANY
 
Financial Assurances
 
Outstanding letters of credit to support existing pollution control bonds
44,000,000 
Letters of credit to support certain equity lessors in the Palo Verde sale leaseback transactions
54,000,000 
APSES
 
Financial Assurances
 
Guarantees, Amount
5,000,000 
Surety Bonds, Amount
$ 98,000,000 
Other Income and Other Expense (Details) (USD $)
In Thousands
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Other income:
 
 
 
 
Interest income
$ 543 
$ 635 
$ 935 
$ 1,572 
Investment gains - net
12 
 
1,307 
 
Miscellaneous
308 
320 
Total other income
557 
943 
2,247 
1,892 
Other expense:
 
 
 
 
Non-operating costs
(1,629)
(1,237)
(3,119)
(3,084)
Investment losses - net
 
(3,561)
 
(2,339)
Miscellaneous
(1,557)
(852)
(1,808)
(1,753)
Total other expense
$ (3,186)
$ (5,650)
$ (4,927)
$ (7,176)
Earnings Per Share (Details) (USD $)
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Basic earnings per share:
 
 
 
 
Income from continuing operations attributable to common shareholders
$ 0.79 
$ 0.82 
$ 0.64 
$ 0.91 
Income from discontinued operations
$ 0.01 
$ 0.25 
$ 0.02 
$ 0.13 
Earnings per share - basic
$ 0.80 
$ 1.07 
$ 0.66 
$ 1.04 
Diluted earnings per share:
 
 
 
 
Income from continuing operations attributable to common shareholders
$ 0.78 
$ 0.82 
$ 0.64 
$ 0.91 
Income from discontinued operations
$ 0.01 
$ 0.25 
$ 0.01 
$ 0.13 
Earnings per share - diluted
$ 0.79 
$ 1.07 
$ 0.65 
$ 1.04 
Dilutive stock options and performance shares (in shares)
674,000 
409,000 
601,000 
426,000 
Options to purchase shares of common stock outstanding excluded from computation of diluted earnings per share due to its antidilutive effect (in shares)
 
387,800 
 
387,800 
Discontinued Operations (Details) (USD $)
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
1 Months Ended
Jun. 30, 2010
2011
2010
2011
2010
Discontinued Operations
 
 
 
 
 
After-tax gain from discontinued operations
 
 
 
 
$ 41,973,000 
Revenue
 
17,000,000 
33,000,000 
29,000,000 
54,000,000 
Income (loss) before taxes
 
1,000,000 
43,000,000 
2,000,000 
23,000,000 
Income (loss) after taxes
 
684,000 
26,261,000 
1,387,000 
13,684,000 
SunCor
 
 
 
 
 
Discontinued Operations
 
 
 
 
 
Real estate impairment charges
 
 
 
 
17,000,000 
Assets held for sale
 
3,000,000 
 
3,000,000 
 
Revenue
 
2,000,000 
11,000,000 
3,000,000 
21,000,000 
Income (loss) before taxes
 
 
(2,000,000)
(1,000,000)
(24,000,000)
Income (loss) after taxes
 
 
(1,000,000)
 
(14,000,000)
Tax benefit in accordance with an intercompany tax sharing agreement
 
 
1,000,000 
 
9,000,000 
APSES
 
 
 
 
 
Discontinued Operations
 
 
 
 
 
Assets held for sale
 
28,000,000 
 
28,000,000 
 
After-tax gain from discontinued operations
25,000,000 
 
 
 
 
Liabilities held for sale
 
6,000,000 
 
6,000,000 
 
Revenue
 
15,000,000 
22,000,000 
26,000,000 
33,000,000 
Income (loss) before taxes
 
1,000,000 
45,000,000 
3,000,000 
47,000,000 
Income (loss) after taxes
 
$ 1,000,000 
$ 27,000,000 
$ 1,000,000 
$ 28,000,000 
Fair Value Measurements (Details) (USD $)
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Dec. 31, 2010
Assets
 
 
 
 
 
Nuclear decommissioning trust
$ 497,671,000 
 
$ 497,671,000 
 
$ 469,886,000 
Changes in fair value for assets and liabilities that are measured at fair value on a recurring basis using Level 3 inputs
 
 
 
 
 
Net derivative balance at beginning of period
(48,000,000)
(31,000,000)
(38,000,000)
(10,000,000)
 
Total net gains (losses) realized/unrealized:
 
 
 
 
 
Included in earnings
 
(1,000,000)
1,000,000 
(2,000,000)
 
Included in OCI
(3,000,000)
(3,000,000)
(1,000,000)
(9,000,000)
 
Deferred as a regulatory asset or liability
1,000,000 
(12,000,000)
(6,000,000)
(24,000,000)
 
Settlements
4,000,000 
3,000,000 
4,000,000 
3,000,000 
 
Transfers into Level 3 from Level 2
1,000,000 
8,000,000 
(4,000,000)
8,000,000 
 
Transfers from Level 3 into Level 2
(2,000,000)
(6,000,000)
(3,000,000)
(8,000,000)
 
Net derivative balance at end of period
(47,000,000)
(42,000,000)
(47,000,000)
(42,000,000)
 
Net unrealized gains (losses) included in earnings related to instruments still held at end of period
 
 
1,000,000 
(1,000,000)
 
Fair value measurement on a recurring basis |
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
 
 
 
Assets
 
 
 
 
 
Cash equivalents
33,000,000 
 
33,000,000 
 
35,000,000 
Total assets
115,000,000 
 
115,000,000 
 
85,000,000 
Liabilities
 
 
 
 
 
Risk management activities: commodity contracts
 
 
 
 
(1,000,000)
Fair value measurement on a recurring basis |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
U.S. Treasury
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
82,000,000 
 
82,000,000 
 
50,000,000 
Fair value measurement on a recurring basis |
Significant Other Observable Inputs (Level 2)
 
 
 
 
 
Assets
 
 
 
 
 
Risk management activities: commodity contracts
60,000,000 
 
60,000,000 
 
80,000,000 
Total assets
483,000,000 
 
483,000,000 
 
510,000,000 
Liabilities
 
 
 
 
 
Risk management activities: commodity contracts
(214,000,000)
 
(214,000,000)
 
(280,000,000)
Fair value measurement on a recurring basis |
Significant Other Observable Inputs (Level 2) |
Equity securities, U.S. commingled funds
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
178,000,000 
 
178,000,000 
 
168,000,000 
Fair value measurement on a recurring basis |
Significant Other Observable Inputs (Level 2) |
Cash and cash equivalent funds
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
14,000,000 
 
14,000,000 
 
22,000,000 
Fair value measurement on a recurring basis |
Significant Other Observable Inputs (Level 2) |
Corporate
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
58,000,000 
 
58,000,000 
 
60,000,000 
Fair value measurement on a recurring basis |
Significant Other Observable Inputs (Level 2) |
Mortgage-backed
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
84,000,000 
 
84,000,000 
 
81,000,000 
Fair value measurement on a recurring basis |
Significant Other Observable Inputs (Level 2) |
Municipality
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
71,000,000 
 
71,000,000 
 
79,000,000 
Fair value measurement on a recurring basis |
Significant Other Observable Inputs (Level 2) |
Other
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
18,000,000 
 
18,000,000 
 
20,000,000 
Fair value measurement on a recurring basis |
Significant Unobservable Inputs (Level 3)
 
 
 
 
 
Assets
 
 
 
 
 
Risk management activities: commodity contracts
63,000,000 
 
63,000,000 
 
61,000,000 
Total assets
63,000,000 
 
63,000,000 
 
61,000,000 
Liabilities
 
 
 
 
 
Risk management activities: commodity contracts
(110,000,000)
 
(110,000,000)
 
(99,000,000)
Fair value measurement on a recurring basis |
Counterparty Netting and Other
 
 
 
 
 
Assets
 
 
 
 
 
Risk management activities: commodity contracts
(41,000,000)
 
(41,000,000)
 
(28,000,000)
Total assets
(48,000,000)
 
(48,000,000)
 
(38,000,000)
Liabilities
 
 
 
 
 
Risk management activities: commodity contracts
208,000,000 
 
208,000,000 
 
256,000,000 
Fair value measurement on a recurring basis |
Counterparty Netting and Other |
Other
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
(7,000,000)
 
(7,000,000)
 
(10,000,000)
Fair value measurement on a recurring basis |
Fair Value
 
 
 
 
 
Assets
 
 
 
 
 
Cash equivalents
33,000,000 
 
33,000,000 
 
35,000,000 
Risk management activities: commodity contracts
82,000,000 
 
82,000,000 
 
113,000,000 
Total assets
613,000,000 
 
613,000,000 
 
618,000,000 
Liabilities
 
 
 
 
 
Risk management activities: commodity contracts
(116,000,000)
 
(116,000,000)
 
(124,000,000)
Fair value measurement on a recurring basis |
Fair Value |
Equity securities, U.S. commingled funds
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
178,000,000 
 
178,000,000 
 
168,000,000 
Fair value measurement on a recurring basis |
Fair Value |
U.S. Treasury
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
82,000,000 
 
82,000,000 
 
50,000,000 
Fair value measurement on a recurring basis |
Fair Value |
Cash and cash equivalent funds
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
14,000,000 
 
14,000,000 
 
22,000,000 
Fair value measurement on a recurring basis |
Fair Value |
Corporate
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
58,000,000 
 
58,000,000 
 
60,000,000 
Fair value measurement on a recurring basis |
Fair Value |
Mortgage-backed
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
84,000,000 
 
84,000,000 
 
81,000,000 
Fair value measurement on a recurring basis |
Fair Value |
Municipality
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
71,000,000 
 
71,000,000 
 
79,000,000 
Fair value measurement on a recurring basis |
Fair Value |
Other
 
 
 
 
 
Assets
 
 
 
 
 
Nuclear decommissioning trust
$ 11,000,000 
 
$ 11,000,000 
 
$ 10,000,000 
Fair Value Measurements (Details 2) (USD $)
In Millions
Jun. 30, 2011
Dec. 31, 2010
Long-term debt, including current maturities
 
 
Carrying amount of long-term debt, including current maturities
$ 3,665 
$ 3,678 
Fair value of long-term debt, including current maturities
3,957 
3,913 
Pinnacle West
 
 
Long-term debt, including current maturities
 
 
Carrying amount of long-term debt, including current maturities
175 
175 
Fair value of long-term debt, including current maturities
175 
176 
ARIZONA PUBLIC SERVICE COMPANY
 
 
Long-term debt, including current maturities
 
 
Carrying amount of long-term debt, including current maturities
3,490 
3,503 
Fair value of long-term debt, including current maturities
$ 3,782 
$ 3,737 
Fair Value Measurements (Details 3) (USD $)
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Dec. 31, 2010
Nuclear decommissioning trust fund assets
 
 
 
 
 
Fair Value
$ 497,671,000 
 
$ 497,671,000 
 
$ 469,886,000 
Realized gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds
 
 
 
 
 
Realized gains
2,000,000 
2,000,000 
3,000,000 
14,000,000 
 
Realized losses
(1,000,000)
(1,000,000)
(3,000,000)
(3,000,000)
 
Proceeds from the sale of securities
110,000,000 
171,000,000 
299,600,000 
329,796,000 
 
Fair value of fixed income securities, summarized by contractual maturities
 
 
 
 
 
Total
497,671,000 
 
497,671,000 
 
469,886,000 
ARIZONA PUBLIC SERVICE COMPANY
 
 
 
 
 
Nuclear decommissioning trust fund assets
 
 
 
 
 
Fair Value
497,671,000 
 
497,671,000 
 
469,886,000 
Unrealized Gains
66,000,000 
 
66,000,000 
 
55,000,000 
Unrealized Losses
(1,000,000)
 
(1,000,000)
 
(3,000,000)
Net payables from securities purchases
(7,000,000)
 
(7,000,000)
 
(10,000,000)
Realized gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds
 
 
 
 
 
Proceeds from the sale of securities
 
 
299,600,000 
329,796,000 
 
Fair value of fixed income securities, summarized by contractual maturities
 
 
 
 
 
Total
497,671,000 
 
497,671,000 
 
469,886,000 
ARIZONA PUBLIC SERVICE COMPANY |
Equity securities
 
 
 
 
 
Nuclear decommissioning trust fund assets
 
 
 
 
 
Fair Value
178,000,000 
 
178,000,000 
 
168,000,000 
Unrealized Gains
51,000,000 
 
51,000,000 
 
43,000,000 
Unrealized Losses
(1,000,000)
 
(1,000,000)
 
(1,000,000)
Fair value of fixed income securities, summarized by contractual maturities
 
 
 
 
 
Total
178,000,000 
 
178,000,000 
 
168,000,000 
ARIZONA PUBLIC SERVICE COMPANY |
Fixed income securities.
 
 
 
 
 
Nuclear decommissioning trust fund assets
 
 
 
 
 
Fair Value
327,000,000 
 
327,000,000 
 
312,000,000 
Unrealized Gains
15,000,000 
 
15,000,000 
 
12,000,000 
Unrealized Losses
 
 
 
 
(2,000,000)
Fair value of fixed income securities, summarized by contractual maturities
 
 
 
 
 
Less than one year
18,000,000 
 
18,000,000 
 
 
1 year - 5 years
71,000,000 
 
71,000,000 
 
 
5 years - 10 years
110,000,000 
 
110,000,000 
 
 
Greater than 10 years
128,000,000 
 
128,000,000 
 
 
Total
$ 327,000,000 
 
$ 327,000,000 
 
$ 312,000,000 
Asset Retirement Obligations (Details) (USD $)
In Millions, unless otherwise specified
1 Months Ended
Apr. 30, 2011
3 Months Ended
Mar. 31, 2011
Asset Retirement Obligations
 
 
Increase to regulatory liabilities
 
$ 53 
ARIZONA PUBLIC SERVICE COMPANY
 
 
Asset Retirement Obligations
 
 
Period of license extension approved by the NRC (in years)
20 
 
Decrease to the liability for asset retirements
 
90 
Decrease to electric plant in service
 
78 
Increase to regulatory liabilities
 
$ 12 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (APSC) (USD $)
In Thousands
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
ELECTRIC OPERATING REVENUES
$ 798,669 
$ 799,416 
$ 1,446,643 
$ 1,410,841 
OPERATING EXPENSES
 
 
 
 
Fuel and purchased power
244,049 
251,800 
456,056 
467,340 
Operations and maintenance
210,590 
213,609 
465,619 
419,922 
Depreciation and amortization
106,617 
102,995 
213,200 
203,629 
Taxes other than income taxes
40,155 
31,682 
77,779 
63,405 
Total
602,807 
601,411 
1,215,870 
1,156,699 
OPERATING INCOME
196,992 
201,384 
232,776 
258,358 
OTHER INCOME (DEDUCTIONS)
 
 
 
 
Allowance for equity funds used during construction
5,924 
5,504 
11,319 
10,893 
Other income (Note S-2)
557 
943 
2,247 
1,892 
Other expense (Note S-2)
(3,186)
(5,650)
(4,927)
(7,176)
Total
3,295 
797 
8,639 
5,609 
INTEREST EXPENSE
 
 
 
 
Allowance for borrowed funds used during construction
(3,856)
(3,072)
(7,432)
(6,091)
Total
56,284 
57,679 
113,785 
115,427 
NET INCOME
93,839 
119,566 
84,165 
118,669 
Less: Net income attributable to noncontrolling interests (Note 7)
7,154 
4,769 
12,615 
9,886 
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
86,685 
114,797 
71,550 
108,783 
ARIZONA PUBLIC SERVICE COMPANY
 
 
 
 
ELECTRIC OPERATING REVENUES
798,686 
799,467 
1,446,680 
1,410,943 
OPERATING EXPENSES
 
 
 
 
Fuel and purchased power
244,048 
251,800 
456,056 
467,340 
Operations and maintenance
208,597 
211,310 
461,203 
415,191 
Depreciation and amortization
106,594 
102,970 
213,152 
203,579 
Income taxes
54,259 
55,688 
48,255 
50,248 
Taxes other than income taxes
39,788 
31,450 
77,038 
62,901 
Total
653,286 
653,218 
1,255,704 
1,199,259 
OPERATING INCOME
145,400 
146,249 
190,976 
211,684 
OTHER INCOME (DEDUCTIONS)
 
 
 
 
Income taxes
1,565 
1,654 
225 
2,497 
Allowance for equity funds used during construction
5,924 
5,504 
11,319 
10,893 
Other income (Note S-2)
1,233 
1,827 
3,211 
2,445 
Other expense (Note S-2)
(4,651)
(6,091)
(8,243)
(8,552)
Total
4,071 
2,894 
6,512 
7,283 
INTEREST EXPENSE
 
 
 
 
Interest on long-term debt
54,754 
53,220 
109,491 
107,972 
Interest on short-term borrowings
2,521 
2,879 
4,829 
3,721 
Debt discount, premium and expense
1,164 
1,118 
2,321 
2,255 
Allowance for borrowed funds used during construction
(3,857)
(3,072)
(7,432)
(6,091)
Total
54,582 
54,145 
109,209 
107,857 
NET INCOME
94,889 
94,998 
88,279 
111,110 
Less: Net income attributable to noncontrolling interests (Note 7)
7,184 
4,778 
12,654 
9,906 
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
$ 87,705 
$ 90,220 
$ 75,625 
$ 101,204 
CONDENSED CONSOLIDATED BALANCE SHEETS (APSC) (USD $)
In Thousands
Jun. 30, 2011
Dec. 31, 2010
PROPERTY, PLANT AND EQUIPMENT
 
 
Plant in service and held for future use
$ 13,351,239 
$ 13,201,960 
Accumulated depreciation and amortization
(4,675,228)
(4,514,204)
Net
8,676,011 
8,687,756 
Construction work in progress
524,870 
459,361 
Palo Verde sale leaseback, net of accumulated depreciation (Note 7)
134,799 
137,956 
Intangible assets, net of accumulated amortization
177,845 
184,952 
Nuclear fuel, net of accumulated amortization
142,697 
108,794 
Total property, plant and equipment
9,656,222 
9,578,819 
INVESTMENTS AND OTHER ASSETS
 
 
Nuclear decommissioning trust (Note 14)
497,671 
469,886 
Assets from risk management activities (Note 8)
43,173 
39,032 
Other assets
63,726 
116,216 
Total investments and other assets
604,570 
625,134 
CURRENT ASSETS
 
 
Cash and cash equivalents
92,274 
110,188 
Customer and other receivables
294,532 
324,207 
Accrued unbilled revenues
163,682 
103,292 
Allowance for doubtful accounts
(3,791)
(7,981)
Materials and supplies (at average cost)
194,352 
181,414 
Fossil fuel (at average cost)
26,863 
21,575 
Assets from risk management activities (Note 8)
38,897 
73,788 
Regulatory assets (Note 3)
56,158 
62,286 
Deferred income taxes
113,243 
124,897 
Other current assets
30,103 
25,501 
Total current assets
1,036,853 
1,024,511 
DEFERRED DEBITS
 
 
Regulatory assets (Note 3)
983,394 
986,370 
Income tax receivable (Note 6)
67,970 
65,103 
Other
125,071 
113,061 
Total deferred debits
1,176,435 
1,164,534 
TOTAL ASSETS
12,474,080 
12,392,998 
CAPITALIZATION
 
 
Common stock
2,432,488 
2,419,133 
Retained earnings
1,323,892 
1,423,961 
Accumulated other comprehensive loss:
 
 
Pension and other postretirement benefits
(57,332)
(59,420)
Derivative instruments
(85,343)
(100,347)
Total shareholder equity
3,613,705 
3,683,327 
Noncontrolling interests (Note 7)
101,905 
91,899 
Total equity
3,715,610 
3,775,226 
Long-term debt less current maturities
2,678,565 
2,948,991 
Palo Verde sale leaseback lessor notes less current maturities (Note 7)
83,130 
96,803 
CURRENT LIABILITIES
 
 
Current maturities of long-term debt
903,516 
631,879 
Accounts payable
271,759 
236,354 
Accrued taxes (Note 6)
131,727 
104,711 
Accrued interest
55,123 
54,831 
Common dividends payable
57,272 
 
Customer deposits
70,196 
68,322 
Liabilities from risk management activities (Note 8)
58,684 
58,976 
Deferred fuel and purchased power regulatory liability (Note 3)
54,359 
58,442 
Other regulatory liabilities (Note 3)
88,557 
80,526 
Other current liabilities
132,801 
139,063 
Total current liabilities
1,831,294 
1,449,704 
DEFERRED CREDITS AND OTHER
 
 
Deferred income taxes
1,825,077 
1,863,861 
Regulatory liabilities (Note 3)
695,036 
614,063 
Liability for asset retirements (Note 15)
255,326 
328,571 
Liabilities for pension and other postretirement benefits (Note 4)
869,277 
813,121 
Liabilities from risk management activities (Note 8)
57,073 
65,390 
Customer advances
120,621 
121,645 
Coal mine reclamation
117,651 
117,243 
Unrecognized tax benefits (Note 6)
83,229 
66,349 
Other
142,191 
132,031 
Total deferred credits and other
4,165,481 
4,122,274 
COMMITMENTS AND CONTINGENCIES (SEE NOTES)
 
 
TOTAL LIABILITIES AND EQUITY
12,474,080 
12,392,998 
ARIZONA PUBLIC SERVICE COMPANY
 
 
PROPERTY, PLANT AND EQUIPMENT
 
 
Plant in service and held for future use
13,347,328 
13,197,254 
Accumulated depreciation and amortization
(4,671,739)
(4,510,591)
Net
8,675,589 
8,686,663 
Construction work in progress
524,870 
459,316 
Palo Verde sale leaseback, net of accumulated depreciation (Note 7)
134,799 
137,956 
Intangible assets, net of accumulated amortization
177,690 
184,768 
Nuclear fuel, net of accumulated amortization
142,697 
108,794 
Total property, plant and equipment
9,655,645 
9,577,497 
INVESTMENTS AND OTHER ASSETS
 
 
Nuclear decommissioning trust (Note 14)
497,671 
469,886 
Assets from risk management activities (Note 8)
43,173 
39,032 
Other assets
29,597 
71,428 
Total investments and other assets
570,441 
580,346 
CURRENT ASSETS
 
 
Cash and cash equivalents
85,818 
99,937 
Customer and other receivables
291,240 
288,323 
Accrued unbilled revenues
163,682 
103,292 
Allowance for doubtful accounts
(3,580)
(7,646)
Materials and supplies (at average cost)
194,352 
181,414 
Fossil fuel (at average cost)
26,863 
21,575 
Assets from risk management activities (Note 8)
38,897 
73,788 
Regulatory assets (Note 3)
56,158 
62,286 
Deferred income taxes
93,388 
105,042 
Other current assets
29,821 
25,135 
Total current assets
976,639 
953,146 
DEFERRED DEBITS
 
 
Regulatory assets (Note 3)
983,394 
986,370 
Income tax receivable (Note 6)
68,365 
65,498 
Unamortized debt issue costs
19,304 
20,530 
Other
100,797 
88,490 
Total deferred debits
1,171,860 
1,160,888 
TOTAL ASSETS
12,374,585 
12,271,877 
CAPITALIZATION
 
 
Common stock
178,162 
178,162 
Additional paid-in capital
2,379,696 
2,379,696 
Retained earnings
1,307,416 
1,403,390 
Accumulated other comprehensive loss:
 
 
Pension and other postretirement benefits
(33,874)
(35,961)
Derivative instruments
(85,333)
(100,334)
Total shareholder equity
3,746,067 
3,824,953 
Noncontrolling interests (Note 7)
101,128 
91,084 
Total equity
3,847,195 
3,916,037 
Long-term debt less current maturities
2,503,565 
2,948,991 
Palo Verde sale leaseback lessor notes less current maturities (Note 7)
83,130 
96,803 
Total capitalization
6,433,890 
6,961,831 
CURRENT LIABILITIES
 
 
Current maturities of long-term debt
903,516 
456,879 
Accounts payable
266,018 
218,491 
Accrued taxes (Note 6)
142,252 
106,431 
Accrued interest
54,979 
54,638 
Common dividends payable
57,300 
 
Customer deposits
70,182 
68,312 
Liabilities from risk management activities (Note 8)
58,684 
58,976 
Deferred fuel and purchased power regulatory liability (Note 3)
54,359 
58,442 
Other regulatory liabilities (Note 3)
88,557 
80,526 
Other current liabilities
118,366 
132,170 
Total current liabilities
1,814,213 
1,234,865 
DEFERRED CREDITS AND OTHER
 
 
Deferred income taxes
1,856,415 
1,895,654 
Regulatory liabilities (Note 3)
695,036 
614,063 
Liability for asset retirements (Note 15)
255,326 
328,571 
Liabilities for pension and other postretirement benefits (Note 4)
827,314 
770,611 
Liabilities from risk management activities (Note 8)
57,073 
65,390 
Customer advances
120,621 
121,645 
Coal mine reclamation
117,651 
117,243 
Unrecognized tax benefits (Note 6)
82,246 
65,363 
Other
114,800 
96,641 
Total deferred credits and other
4,126,482 
4,075,181 
COMMITMENTS AND CONTINGENCIES (SEE NOTES)
 
 
TOTAL LIABILITIES AND EQUITY
$ 12,374,585 
$ 12,271,877 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (APSC) (USD $)
In Thousands
6 Months Ended
Jun. 30,
2011
2010
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
Net income
$ 84,165 
$ 118,669 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization including nuclear fuel
245,700 
229,964 
Deferred fuel and purchased power
64,679 
65,249 
Deferred fuel and purchased power amortization
(68,762)
(55,494)
Allowance for equity funds used during construction
(11,319)
(10,893)
Deferred income taxes
11,945 
50,972 
Change in mark-to-market valuations
(279)
2,396 
Changes in current assets and liabilities:
 
 
Customer and other receivables
43,271 
(7,133)
Accrued unbilled revenues
(60,390)
(51,470)
Materials, supplies and fossil fuel
(18,226)
13,577 
Other current assets
(37,053)
(8,340)
Accounts payable
37,817 
45,313 
Other current liabilities
3,967 
(26,583)
Change in margin and collateral accounts - assets
21,185 
656 
Change in margin and collateral accounts - liabilities
39,567 
(90,694)
Change in unrecognized tax benefits
18,959 
(62,630)
Change in other long-term assets
(26,185)
(11,015)
Change in other long-term liabilities
57,748 
(48,045)
Net cash flow provided by operating activities
436,279 
201,414 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
Capital expenditures
(387,272)
(378,579)
Contributions in aid of construction
21,905 
15,163 
Allowance for borrowed funds used during construction
(7,432)
(6,395)
Proceeds from sale of life insurance policies
55,444 
 
Proceeds from nuclear decommissioning trust sales
299,600 
329,796 
Investment in nuclear decommissioning trust
(308,222)
(342,004)
Other
(2,352)
3,850 
Net cash flow used for investing activities
(328,329)
(277,869)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
Repayment of long-term debt
(187,962)
(15,221)
Dividends paid on common stock
(112,537)
(106,522)
Noncontrolling interests
(2,610)
(3,286)
Net cash flow provided by (used for) financing activities
(125,864)
(18,421)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(17,914)
(94,876)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
110,188 
145,378 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
92,274 
50,502 
Cash paid during the period for:
 
 
Income taxes, net of (refunds)
 
(3,944)
Interest, net of amounts capitalized
110,659 
115,722 
ARIZONA PUBLIC SERVICE COMPANY
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
Net income
88,279 
111,110 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization including nuclear fuel
245,617 
228,513 
Deferred fuel and purchased power
64,679 
65,249 
Deferred fuel and purchased power amortization
(68,762)
(55,494)
Allowance for equity funds used during construction
(11,319)
(10,893)
Deferred income taxes
11,488 
58,225 
Change in mark-to-market valuations
(279)
2,396 
Changes in current assets and liabilities:
 
 
Customer and other receivables
11,104 
(4,062)
Accrued unbilled revenues
(60,390)
(51,470)
Materials, supplies and fossil fuel
(18,226)
13,577 
Other current assets
(9,458)
(10,786)
Accounts payable
49,939 
43,451 
Other current liabilities
32,321 
(33,793)
Change in margin and collateral accounts - assets
21,185 
656 
Change in margin and collateral accounts - liabilities
39,567 
(90,694)
Change in long-term income tax receivable
(2,867)
 
Change in unrecognized tax benefits
18,972 
(62,198)
Change in other long-term assets
(22,137)
(12,676)
Change in other long-term liabilities
66,290 
(36,857)
Net cash flow provided by operating activities
456,003 
154,254 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
Capital expenditures
(387,932)
(378,239)
Contributions in aid of construction
21,905 
15,163 
Allowance for borrowed funds used during construction
(7,432)
(6,091)
Proceeds from sale of life insurance policies
44,183 
 
Proceeds from nuclear decommissioning trust sales
299,600 
329,796 
Investment in nuclear decommissioning trust
(308,222)
(342,004)
Other
(2,352)
1,074 
Net cash flow used for investing activities
(340,250)
(380,301)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
Repayment of long-term debt
(12,962)
(9,296)
Equity infusion
 
252,833 
Dividends paid on common stock
(114,300)
(99,400)
Noncontrolling interests
(2,610)
(3,286)
Net cash flow provided by (used for) financing activities
(129,872)
140,851 
NET DECREASE IN CASH AND CASH EQUIVALENTS
(14,119)
(85,196)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
99,937 
120,798 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
85,818 
35,602 
Cash paid during the period for:
 
 
Income taxes, net of (refunds)
 
65,498 
Interest, net of amounts capitalized
$ 106,546 
$ 106,485 
Changes in Equity (APSC)
6 Months Ended
Jun. 30, 2011
Changes in Equity
ARIZONA PUBLIC SERVICE COMPANY
 
Changes in Equity

9.                                      Changes in Equity

 

The following tables show Pinnacle West’s changes in shareholders’ equity and changes in equity of noncontrolling interests for the three and six months ended June 30, 2011 and 2010 (dollars in thousands):

 

 

 

Three Months Ended June 30, 2011

 

Three Months Ended June 30, 2010

 

 

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, April 1

 

$

3,631,411

 

$

97,360

 

$

3,728,771

 

$

3,213,933

 

$

116,067

 

$

3,330,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

86,685

 

7,154

 

93,839

 

114,797

 

4,769

 

119,566

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(16,324

)

 

(16,324

)

(8,588

)

 

(8,588

)

Net reclassification of realized losses to income (b)

 

25,287

 

 

25,287

 

29,143

 

 

29,143

 

Reclassification of pension and other postretirement benefits to income

 

1,046

 

 

1,046

 

1,362

 

 

1,362

 

Net unrealized gains (losses) related to pension and other postretirement benefits

 

974

 

 

974

 

(6,933

)

 

(6,933

)

Net income tax expense related to items of other comprehensive income (loss)

 

(4,337

)

 

(4,337

)

(5,914

)

 

(5,914

)

Total other comprehensive income

 

6,646

 

 

6,646

 

9,070

 

 

9,070

 

Total comprehensive income

 

93,331

 

7,154

 

100,485

 

123,867

 

4,769

 

128,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of capital stock

 

3,505

 

 

3,505

 

255,480

 

 

255,480

 

Other (primarily stock compensation)

 

(33

)

 

(33

)

140

 

 

140

 

Dividends on common stock

 

(114,509

)

 

(114,509

)

(113,872

)

 

(113,872

)

Net capital activities by noncontrolling interests

 

 

(2,609

)

(2,609

)

 

(7,381

)

(7,381

)

Ending balance, June 30

 

$

3,613,705

 

$

101,905

 

$

3,715,610

 

$

3,479,548

 

$

113,455

 

$

3,593,003

 

 

 

 

Six Months Ended June 30, 2011

 

Six Months Ended June 30, 2010

 

 

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, January 1

 

$

3,683,327

 

$

91,899

 

$

3,775,226

 

$

3,316,109

 

$

111,895

 

$

3,428,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

71,550

 

12,615

 

84,165

 

108,783

 

9,886

 

118,669

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(15,335

)

 

(15,335

)

(100,255

)

 

(100,255

)

Net reclassification of realized losses to income (b)

 

40,133

 

 

40,133

 

42,329

 

 

42,329

 

Reclassification of pension and other postretirement benefits to income

 

2,478

 

 

2,478

 

2,755

 

 

2,755

 

Net unrealized gains (losses) related to pension and other postretirement benefits

 

974

 

 

974

 

(6,933

)

 

(6,933

)

Net income tax benefit related to items of other comprehensive income (loss)

 

(11,158

)

 

(11,158

)

24,511

 

 

24,511

 

Total other comprehensive income (loss)

 

17,092

 

 

17,092

 

(37,593

)

 

(37,593

)

Total comprehensive income

 

88,642

 

12,615

 

101,257

 

71,190

 

9,886

 

81,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of capital stock

 

17,065

 

 

17,065

 

258,160

 

 

258,160

 

Purchase of treasury stock, net of reissuances

 

(3,530

)

 

(3,530

)

1,078

 

 

1,078

 

Other (primarily stock compensation)

 

(181

)

 

(181

)

142

 

 

142

 

Dividends on common stock

 

(171,618

)

 

(171,618

)

(167,131

)

 

(167,131

)

Net capital activities by noncontrolling interests

 

 

(2,609

)

(2,609

)

 

(8,326

)

(8,326

)

Ending balance, June 30

 

$

3,613,705

 

$

101,905

 

$

3,715,610

 

$

3,479,548

 

$

113,455

 

$

3,593,003

 

 

 

(a)         These amounts primarily include unrealized losses on contracts used to hedge our forecasted electricity and natural gas requirements to serve Native Load.  These changes are primarily due to changes in forward natural gas prices and wholesale electricity prices.

 

(b)         These amounts primarily include the reclassification of unrealized losses to realized losses for contracted commodities delivered during the period.

S-1.         Changes in Equity

 

The following tables show APS’s changes in shareholder equity and changes in equity of noncontrolling interests for the three and six months ended June 30, 2011 and 2010 (dollars in thousands):

 

 

 

Three Months Ended June 30, 2011

 

Three Months Ended June 30, 2010

 

 

 

Shareholder
Equity

 

Noncontrolling
Interests

 

Total

 

Shareholder
Equity

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, April 1

 

$

3,766,131

 

$

96,554

 

$

3,862,685

 

$

3,366,986

 

$

87,452

 

$

3,454,438

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

87,705

 

7,184

 

94,889

 

90,220

 

4,778

 

94,998

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(16,324

)

 

(16,324

)

(8,588

)

 

(8,588

)

Net reclassification of realized losses to income (b)

 

25,287

 

 

25,287

 

29,143

 

 

29,143

 

Reclassification of pension and other postretirement benefits to income

 

893

 

 

893

 

1,264

 

 

1,264

 

Net unrealized gains (losses) related to pension benefits

 

1,268

 

 

1,268

 

(6,862

)

 

(6,862

)

Net income tax expense related to items of other comprehensive income

 

(4,394

)

 

(4,394

)

(5,905

)

 

(5,905

)

Total other comprehensive income

 

6,730

 

 

6,730

 

9,052

 

 

9,052

 

Total comprehensive income

 

94,435

 

7,184

 

101,619

 

99,272

 

4,778

 

104,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on common stock

 

(114,500

)

 

(114,500

)

(113,800

)

 

(113,800

)

Equity infusion

 

 

 

 

252,833

 

 

252,833

 

Net capital activities by noncontrolling interests

 

 

(2,610

)

(2,610

)

 

(3,286

)

(3,286

)

Other

 

1

 

 

1

 

1

 

 

1

 

Ending balance, June 30

 

$

3,746,067

 

$

101,128

 

$

3,847,195

 

$

3,605,292

 

$

88,944

 

$

3,694,236

 

 

 

 

Six Months Ended June 30, 2011

 

Six Months Ended June 30, 2010

 

 

 

Shareholder
Equity

 

Noncontrolling
Interests

 

Total

 

Shareholder
Equity

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, January 1

 

$

3,824,953

 

$

91,084

 

$

3,916,037

 

$

3,445,355

 

$

82,324

 

$

3,527,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

75,625

 

12,654

 

88,279

 

101,204

 

9,906

 

111,110

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(15,335

)

 

(15,335

)

(100,255

)

 

(100,255

)

Net reclassification of realized losses to income (b)

 

40,133

 

 

40,133

 

42,329

 

 

42,329

 

Reclassification of pension and other postretirement benefits to income

 

2,181

 

 

2,181

 

2,328

 

 

2,328

 

Net unrealized gains (losses) related to pension benefits

 

1,268

 

 

1,268

 

(6,862

)

 

(6,862

)

Net income tax benefit (expense) related to items of other comprehensive income

 

(11,159

)

 

(11,159

)

24,659

 

 

24,659

 

Total other comprehensive income (loss)

 

17,088

 

 

17,088

 

(37,801

)

 

(37,801

)

Total comprehensive income

 

92,713

 

12,654

 

105,367

 

63,403

 

9,906

 

73,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on common stock

 

(171,600

)

 

(171,600

)

(156,300

)

 

(156,300

)

Equity infusion

 

 

 

 

252,833

 

 

252,833

 

Net capital activities by noncontrolling interests

 

 

(2,610

)

(2,610

)

 

(3,286

)

(3,286

)

Other

 

1

 

 

1

 

1

 

 

1

 

Ending balance, June 30

 

$

3,746,067

 

$

101,128

 

$

3,847,195

 

$

3,605,292

 

$

88,944

 

$

3,694,236

 

 

 

(a)                                 These amounts primarily include unrealized losses on contracts used to hedge our forecasted electricity and natural gas requirements to serve Native Load.  These changes are primarily due to changes in forward natural gas prices and wholesale electricity prices.

 

(b)                                 These amounts primarily include the reclassification of unrealized losses to realized losses for contracted commodities delivered during the period.

Other Income and Other Expense (APSC)
6 Months Ended
Jun. 30, 2011
Other Income and Other Expense
ARIZONA PUBLIC SERVICE COMPANY
 
Other Income and Other Expense

11.          Other Income and Other Expense

 

The following table provides detail of other income and other expense for the three and six months ended June 30, 2011 and 2010 (dollars in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

$

543

 

$

635

 

$

935

 

$

1,572

 

Investment gains — net

 

12

 

 

1,307

 

 

Miscellaneous

 

2

 

308

 

5

 

320

 

Total other income

 

$

557

 

$

943

 

$

2,247

 

$

1,892

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

Non-operating costs

 

$

(1,629

)

$

(1,237

)

$

(3,119

)

$

(3,084

)

Investment losses — net

 

 

(3,561

)

 

(2,339

)

Miscellaneous

 

(1,557

)

(852

)

(1,808

)

(1,753

)

Total other expense

 

$

(3,186

)

$

(5,650

)

$

(4,927

)

$

(7,176

)

S-2.         Other Income and Other Expense

 

The following table provides detail of APS’s other income and other expense for the three and six months ended June 30, 2011 and 2010 (dollars in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

$

89

 

$

143

 

$

219

 

$

211

 

Investment gains — net

 

268

 

 

1,418

 

 

Miscellaneous

 

876

 

1,684

 

1,574

 

2,234

 

Total other income

 

$

1,233

 

$

1,827

 

$

3,211

 

$

2,445

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

Non-operating costs (a)

 

$

(2,400

)

$

(1,751

)

$

(4,214

)

$

(3,708

)

Asset dispositions

 

 

 

(823

)

 

Investment losses — net

 

 

(2,700

)

 

(1,535

)

Miscellaneous

 

(2,251

)

(1,640

)

(3,206

)

(3,309

)

Total other expense

 

$

(4,651

)

$

(6,091

)

$

(8,243

)

$

(8,552

)

 

 

(a)                                 As defined by FERC, includes below-the-line non-operating utility expense (items excluded from utility rate recovery).

Changes in Equity (APSC) (Tables)
6 Months Ended
Jun. 30, 2011
Changes in shareholders' equity and changes in equity of noncontrolling interests
ARIZONA PUBLIC SERVICE COMPANY
 
Changes in shareholders' equity and changes in equity of noncontrolling interests

 

 

 

Three Months Ended June 30, 2011

 

Three Months Ended June 30, 2010

 

 

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, April 1

 

$

3,631,411

 

$

97,360

 

$

3,728,771

 

$

3,213,933

 

$

116,067

 

$

3,330,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

86,685

 

7,154

 

93,839

 

114,797

 

4,769

 

119,566

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(16,324

)

 

(16,324

)

(8,588

)

 

(8,588

)

Net reclassification of realized losses to income (b)

 

25,287

 

 

25,287

 

29,143

 

 

29,143

 

Reclassification of pension and other postretirement benefits to income

 

1,046

 

 

1,046

 

1,362

 

 

1,362

 

Net unrealized gains (losses) related to pension and other postretirement benefits

 

974

 

 

974

 

(6,933

)

 

(6,933

)

Net income tax expense related to items of other comprehensive income (loss)

 

(4,337

)

 

(4,337

)

(5,914

)

 

(5,914

)

Total other comprehensive income

 

6,646

 

 

6,646

 

9,070

 

 

9,070

 

Total comprehensive income

 

93,331

 

7,154

 

100,485

 

123,867

 

4,769

 

128,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of capital stock

 

3,505

 

 

3,505

 

255,480

 

 

255,480

 

Other (primarily stock compensation)

 

(33

)

 

(33

)

140

 

 

140

 

Dividends on common stock

 

(114,509

)

 

(114,509

)

(113,872

)

 

(113,872

)

Net capital activities by noncontrolling interests

 

 

(2,609

)

(2,609

)

 

(7,381

)

(7,381

)

Ending balance, June 30

 

$

3,613,705

 

$

101,905

 

$

3,715,610

 

$

3,479,548

 

$

113,455

 

$

3,593,003

 

 

 

 

Six Months Ended June 30, 2011

 

Six Months Ended June 30, 2010

 

 

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

Common
Shareholders

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, January 1

 

$

3,683,327

 

$

91,899

 

$

3,775,226

 

$

3,316,109

 

$

111,895

 

$

3,428,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

71,550

 

12,615

 

84,165

 

108,783

 

9,886

 

118,669

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(15,335

)

 

(15,335

)

(100,255

)

 

(100,255

)

Net reclassification of realized losses to income (b)

 

40,133

 

 

40,133

 

42,329

 

 

42,329

 

Reclassification of pension and other postretirement benefits to income

 

2,478

 

 

2,478

 

2,755

 

 

2,755

 

Net unrealized gains (losses) related to pension and other postretirement benefits

 

974

 

 

974

 

(6,933

)

 

(6,933

)

Net income tax benefit related to items of other comprehensive income (loss)

 

(11,158

)

 

(11,158

)

24,511

 

 

24,511

 

Total other comprehensive income (loss)

 

17,092

 

 

17,092

 

(37,593

)

 

(37,593

)

Total comprehensive income

 

88,642

 

12,615

 

101,257

 

71,190

 

9,886

 

81,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of capital stock

 

17,065

 

 

17,065

 

258,160

 

 

258,160

 

Purchase of treasury stock, net of reissuances

 

(3,530

)

 

(3,530

)

1,078

 

 

1,078

 

Other (primarily stock compensation)

 

(181

)

 

(181

)

142

 

 

142

 

Dividends on common stock

 

(171,618

)

 

(171,618

)

(167,131

)

 

(167,131

)

Net capital activities by noncontrolling interests

 

 

(2,609

)

(2,609

)

 

(8,326

)

(8,326

)

Ending balance, June 30

 

$

3,613,705

 

$

101,905

 

$

3,715,610

 

$

3,479,548

 

$

113,455

 

$

3,593,003

 

 

 

(a)         These amounts primarily include unrealized losses on contracts used to hedge our forecasted electricity and natural gas requirements to serve Native Load.  These changes are primarily due to changes in forward natural gas prices and wholesale electricity prices.

 

(b)         These amounts primarily include the reclassification of unrealized losses to realized losses for contracted commodities delivered during the period.

 

 

 

Three Months Ended June 30, 2011

 

Three Months Ended June 30, 2010

 

 

 

Shareholder
Equity

 

Noncontrolling
Interests

 

Total

 

Shareholder
Equity

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, April 1

 

$

3,766,131

 

$

96,554

 

$

3,862,685

 

$

3,366,986

 

$

87,452

 

$

3,454,438

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

87,705

 

7,184

 

94,889

 

90,220

 

4,778

 

94,998

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(16,324

)

 

(16,324

)

(8,588

)

 

(8,588

)

Net reclassification of realized losses to income (b)

 

25,287

 

 

25,287

 

29,143

 

 

29,143

 

Reclassification of pension and other postretirement benefits to income

 

893

 

 

893

 

1,264

 

 

1,264

 

Net unrealized gains (losses) related to pension benefits

 

1,268

 

 

1,268

 

(6,862

)

 

(6,862

)

Net income tax expense related to items of other comprehensive income

 

(4,394

)

 

(4,394

)

(5,905

)

 

(5,905

)

Total other comprehensive income

 

6,730

 

 

6,730

 

9,052

 

 

9,052

 

Total comprehensive income

 

94,435

 

7,184

 

101,619

 

99,272

 

4,778

 

104,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on common stock

 

(114,500

)

 

(114,500

)

(113,800

)

 

(113,800

)

Equity infusion

 

 

 

 

252,833

 

 

252,833

 

Net capital activities by noncontrolling interests

 

 

(2,610

)

(2,610

)

 

(3,286

)

(3,286

)

Other

 

1

 

 

1

 

1

 

 

1

 

Ending balance, June 30

 

$

3,746,067

 

$

101,128

 

$

3,847,195

 

$

3,605,292

 

$

88,944

 

$

3,694,236

 

 

 

 

Six Months Ended June 30, 2011

 

Six Months Ended June 30, 2010

 

 

 

Shareholder
Equity

 

Noncontrolling
Interests

 

Total

 

Shareholder
Equity

 

Noncontrolling
Interests

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, January 1

 

$

3,824,953

 

$

91,084

 

$

3,916,037

 

$

3,445,355

 

$

82,324

 

$

3,527,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

75,625

 

12,654

 

88,279

 

101,204

 

9,906

 

111,110

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized losses on derivative instruments (a)

 

(15,335

)

 

(15,335

)

(100,255

)

 

(100,255

)

Net reclassification of realized losses to income (b)

 

40,133

 

 

40,133

 

42,329

 

 

42,329

 

Reclassification of pension and other postretirement benefits to income

 

2,181

 

 

2,181

 

2,328

 

 

2,328

 

Net unrealized gains (losses) related to pension benefits

 

1,268

 

 

1,268

 

(6,862

)

 

(6,862

)

Net income tax benefit (expense) related to items of other comprehensive income

 

(11,159

)

 

(11,159

)

24,659

 

 

24,659

 

Total other comprehensive income (loss)

 

17,088

 

 

17,088

 

(37,801

)

 

(37,801

)

Total comprehensive income

 

92,713

 

12,654

 

105,367

 

63,403

 

9,906

 

73,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on common stock

 

(171,600

)

 

(171,600

)

(156,300

)

 

(156,300

)

Equity infusion

 

 

 

 

252,833

 

 

252,833

 

Net capital activities by noncontrolling interests

 

 

(2,610

)

(2,610

)

 

(3,286

)

(3,286

)

Other

 

1

 

 

1

 

1

 

 

1

 

Ending balance, June 30

 

$

3,746,067

 

$

101,128

 

$

3,847,195

 

$

3,605,292

 

$

88,944

 

$

3,694,236

 

 

 

(a)                                 These amounts primarily include unrealized losses on contracts used to hedge our forecasted electricity and natural gas requirements to serve Native Load.  These changes are primarily due to changes in forward natural gas prices and wholesale electricity prices.

 

(b)                                 These amounts primarily include the reclassification of unrealized losses to realized losses for contracted commodities delivered during the period.

Other Income and Other Expense (APSC) (Tables)
6 Months Ended
Jun. 30, 2011
Detail of other income and other expense
ARIZONA PUBLIC SERVICE COMPANY
 
Detail of other income and other expense

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

$

543

 

$

635

 

$

935

 

$

1,572

 

Investment gains — net

 

12

 

 

1,307

 

 

Miscellaneous

 

2

 

308

 

5

 

320

 

Total other income

 

$

557

 

$

943

 

$

2,247

 

$

1,892

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

Non-operating costs

 

$

(1,629

)

$

(1,237

)

$

(3,119

)

$

(3,084

)

Investment losses — net

 

 

(3,561

)

 

(2,339

)

Miscellaneous

 

(1,557

)

(852

)

(1,808

)

(1,753

)

Total other expense

 

$

(3,186

)

$

(5,650

)

$

(4,927

)

$

(7,176

)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Other income:

 

 

 

 

 

 

 

 

 

Interest income

 

$

89

 

$

143

 

$

219

 

$

211

 

Investment gains — net

 

268

 

 

1,418

 

 

Miscellaneous

 

876

 

1,684

 

1,574

 

2,234

 

Total other income

 

$

1,233

 

$

1,827

 

$

3,211

 

$

2,445

 

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

 

Non-operating costs (a)

 

$

(2,400

)

$

(1,751

)

$

(4,214

)

$

(3,708

)

Asset dispositions

 

 

 

(823

)

 

Investment losses — net

 

 

(2,700

)

 

(1,535

)

Miscellaneous

 

(2,251

)

(1,640

)

(3,206

)

(3,309

)

Total other expense

 

$

(4,651

)

$

(6,091

)

$

(8,243

)

$

(8,552

)

 

 

(a)                                 As defined by FERC, includes below-the-line non-operating utility expense (items excluded from utility rate recovery).

Changes in Equity (APSC) (Details) (USD $)
In Thousands
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Changes in equity
 
 
 
 
Balance at beginning of period
$ 3,728,771 
$ 3,330,000 
$ 3,775,226 
$ 3,428,004 
Net Income
93,839 
119,566 
84,165 
118,669 
Other comprehensive income (loss):
 
 
 
 
Net unrealized losses on derivative instruments
(16,324)
(8,588)
(15,335)
(100,255)
Net reclassification of realized losses to income
25,287 
29,143 
40,133 
42,329 
Reclassification of pension and other postretirement benefits to income
1,046 
1,362 
2,478 
2,755 
Net unrealized gains (losses) related to pension benefits
974 
(6,933)
974 
(6,933)
Net income tax benefit (expense) related to items of other comprehensive income
(4,337)
(5,914)
(11,158)
24,511 
Total other comprehensive income (loss)
6,646 
9,070 
17,092 
(37,593)
Total comprehensive income (loss)
100,485 
128,636 
101,257 
81,076 
Dividends on common stock
(114,509)
(113,872)
(171,618)
(167,131)
Net capital activities by noncontrolling interests
(2,609)
(7,381)
(2,609)
(8,326)
Other
33 
(140)
181 
(142)
Balance at end of period
3,715,610 
3,593,003 
3,715,610 
3,593,003 
ARIZONA PUBLIC SERVICE COMPANY
 
 
 
 
Changes in equity
 
 
 
 
Balance at beginning of period
3,862,685 
3,454,438 
3,916,037 
3,527,679 
Net Income
94,889 
94,998 
88,279 
111,110 
Other comprehensive income (loss):
 
 
 
 
Net unrealized losses on derivative instruments
(16,324)
(8,588)
(15,335)
(100,255)
Net reclassification of realized losses to income
25,287 
29,143 
40,133 
42,329 
Reclassification of pension and other postretirement benefits to income
893 
1,264 
2,181 
2,328 
Net unrealized gains (losses) related to pension benefits
1,268 
(6,862)
1,268 
(6,862)
Net income tax benefit (expense) related to items of other comprehensive income
(4,394)
(5,905)
(11,159)
24,659 
Total other comprehensive income (loss)
6,730 
9,052 
17,088 
(37,801)
Total comprehensive income (loss)
101,619 
104,050 
105,367 
73,309 
Dividends on common stock
(114,500)
(113,800)
(171,600)
(156,300)
Equity infusion
 
252,833 
 
252,833 
Net capital activities by noncontrolling interests
(2,610)
(3,286)
(2,610)
(3,286)
Other
Balance at end of period
3,847,195 
3,694,236 
3,847,195 
3,694,236 
ARIZONA PUBLIC SERVICE COMPANY |
Shareholder equity
 
 
 
 
Changes in equity
 
 
 
 
Balance at beginning of period
3,766,131 
3,366,986 
3,824,953 
3,445,355 
Net Income
87,705 
90,220 
75,625 
101,204 
Other comprehensive income (loss):
 
 
 
 
Net unrealized losses on derivative instruments
(16,324)
(8,588)
(15,335)
(100,255)
Net reclassification of realized losses to income
25,287 
29,143 
40,133 
42,329 
Reclassification of pension and other postretirement benefits to income
893 
1,264 
2,181 
2,328 
Net unrealized gains (losses) related to pension benefits
1,268 
(6,862)
1,268 
(6,862)
Net income tax benefit (expense) related to items of other comprehensive income
(4,394)
(5,905)
(11,159)
24,659 
Total other comprehensive income (loss)
6,730 
9,052 
17,088 
(37,801)
Total comprehensive income (loss)
94,435 
99,272 
92,713 
63,403 
Dividends on common stock
(114,500)
(113,800)
(171,600)
(156,300)
Equity infusion
 
252,833 
 
252,833 
Other
Balance at end of period
3,746,067 
3,605,292 
3,746,067 
3,605,292 
ARIZONA PUBLIC SERVICE COMPANY |
NONCONTROLLING INTERESTS
 
 
 
 
Changes in equity
 
 
 
 
Balance at beginning of period
96,554 
87,452 
91,084 
82,324 
Net Income
7,184 
4,778 
12,654 
9,906 
Other comprehensive income (loss):
 
 
 
 
Total comprehensive income (loss)
7,184 
4,778 
12,654 
9,906 
Net capital activities by noncontrolling interests
(2,610)
(3,286)
(2,610)
(3,286)
Balance at end of period
101,128 
88,944 
101,128 
88,944 
Shareholder equity
 
 
 
 
Changes in equity
 
 
 
 
Balance at beginning of period
3,631,411 
3,213,933 
3,683,327 
3,316,109 
Net Income
86,685 
114,797 
71,550 
108,783 
Other comprehensive income (loss):
 
 
 
 
Net unrealized losses on derivative instruments
(16,324)
(8,588)
(15,335)
(100,255)
Net reclassification of realized losses to income
25,287 
29,143 
40,133 
42,329 
Reclassification of pension and other postretirement benefits to income
1,046 
1,362 
2,478 
2,755 
Net unrealized gains (losses) related to pension benefits
974 
(6,933)
974 
(6,933)
Net income tax benefit (expense) related to items of other comprehensive income
(4,337)
(5,914)
(11,158)
24,511 
Total other comprehensive income (loss)
6,646 
9,070 
17,092 
(37,593)
Total comprehensive income (loss)
93,331 
123,867 
88,642 
71,190 
Dividends on common stock
(114,509)
(113,872)
(171,618)
(167,131)
Other
33 
(140)
181 
(142)
Balance at end of period
3,613,705 
3,479,548 
3,613,705 
3,479,548 
NONCONTROLLING INTERESTS
 
 
 
 
Changes in equity
 
 
 
 
Balance at beginning of period
97,360 
116,067 
91,899 
111,895 
Net Income
7,154 
4,769 
12,615 
9,886 
Other comprehensive income (loss):
 
 
 
 
Total comprehensive income (loss)
7,154 
4,769 
12,615 
9,886 
Net capital activities by noncontrolling interests
(2,609)
(7,381)
(2,609)
(8,326)
Balance at end of period
$ 101,905 
$ 113,455 
$ 101,905 
$ 113,455 
Other Income and Other Expense (APSC) (Details) (USD $)
In Thousands
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2011
2010
2011
2010
Other income:
 
 
 
 
Interest income
$ 543 
$ 635 
$ 935 
$ 1,572 
Investment gains - net
12 
 
1,307 
 
Miscellaneous
308 
320 
Total other income
557 
943 
2,247 
1,892 
Other expense:
 
 
 
 
Non-operating costs
(1,629)
(1,237)
(3,119)
(3,084)
Investment losses - net
 
(3,561)
 
(2,339)
Miscellaneous
(1,557)
(852)
(1,808)
(1,753)
Total other expense
(3,186)
(5,650)
(4,927)
(7,176)
ARIZONA PUBLIC SERVICE COMPANY
 
 
 
 
Other income:
 
 
 
 
Interest income
89 
143 
219 
211 
Investment gains - net
268 
 
1,418 
 
Miscellaneous
876 
1,684 
1,574 
2,234 
Total other income
1,233 
1,827 
3,211 
2,445 
Other expense:
 
 
 
 
Non-operating costs
(2,400)
(1,751)
(4,214)
(3,708)
Asset dispositions
 
 
(823)
 
Investment losses - net
 
(2,700)
 
(1,535)
Miscellaneous
(2,251)
(1,640)
(3,206)
(3,309)
Total other expense
$ (4,651)
$ (6,091)
$ (8,243)
$ (8,552)
Document and Entity Information
6 Months Ended
Jun. 30, 2011
Jul. 26, 2011
Document and Entity Information
 
 
Entity Registrant Name
PINNACLE WEST CAPITAL CORP 
 
Entity Central Index Key
0000764622 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 2011 
 
Amendment Flag
FALSE 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
109,110,950 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q2