Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2021

Schedule of capital structure and cost of capital

the following proposed capital structure and costs of capital:


	Capital Structure		Cost of Capital
Long-term debt	45.3	%	4.10	%
Common stock equity	54.7	%	10.15	%
Weighted-average cost of capital			7.41	%

Schedule of changes in the deferred fuel and purchased power regulatory asset

The following table shows the changes in the deferred fuel and purchased power regulatory asset for 2021 and 2020 (dollars in thousands):


	Nine Months Ended September 30,
	2021		2020
Beginning balance	$	175,835	$	70,137
Deferred fuel and purchased power costs — current period	224,541		82,679
Amounts (charged) refunded to customers	(25,195)		9,295
Ending balance	$	375,181	$	162,111

Schedule of regulatory assets

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


	Amortization Through	September 30, 2021				December 31, 2020
		Current		Non-Current		Current		Non-Current
Pension	(a)	$	—	$	493,952	$	—	$	469,953
Deferred fuel and purchased power (b) (c)	2022	375,181		—		175,835		—
Income taxes — allowance for funds used during construction (“AFUDC”) equity	2051	7,169		164,567		7,169		158,776
Retired power plant costs	2033	27,244		93,686		28,181		114,214
Ocotillo deferral	N/A	—		139,009		—		95,723
SCR deferral	N/A	—		101,890		—		81,307
Lost fixed cost recovery (b)	2022	58,423		—		41,807		—
Deferred property taxes	2027	8,569		43,199		8,569		49,626
Deferred compensation	2036	—		35,806		—		36,195
Four Corners cost deferral	2024	8,077		18,018		8,077		24,075
Income taxes — investment tax credit basis adjustment	2049	1,113		23,185		1,113		24,291
Palo Verde VIEs (Note 6)	2046	—		21,134		—		21,255
Coal reclamation	2026	1,068		16,198		1,068		16,999
Loss on reacquired debt	2038	1,648		9,716		1,689		10,877
Mead-Phoenix transmission line contributions in aid of construction (“CIAC”)	2050	332		9,131		332		9,380
Tax expense adjustor mechanism (b)	2021	8,614		—		6,226		—
PSA interest	2022	245		—		4,355		—
Deferred fuel and purchased power — mark-to-market (Note 7)	2024	—		—		3,341		9,244

Demand side management (b)	2023	—		—		—		7,268
Other	Various	217		8,207		3,951		4,804
Total regulatory assets (d)		$	497,900	$	1,177,698	$	291,713	$	1,133,987

(a)This asset represents the future recovery of pension benefit obligations through retail rates. If these costs are disallowed by the ACC, this regulatory asset would be charged to other comprehensive income (“OCI”) and result in lower future revenues. See Note 5.

(b)See “Cost Recovery Mechanisms” discussion above.

(c)Subject to a carrying charge.

(d)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, Transmission Cost Adjustor and Other Transmission Matters.”

Schedule of regulatory liabilities

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


	Amortization Through	September 30, 2021				December 31, 2020
		Current		Non-Current		Current		Non-Current
Excess deferred income taxes — ACC - Tax Act (a)	2046	$	41,418	$	980,277	$	41,330	$	1,012,583
Excess deferred income taxes — FERC - Tax Act (a)	2058	7,240		221,878		7,240		229,147
Asset retirement obligations	2057	—		554,820		—		506,049
Other postretirement benefits	(d)	47,798		302,366		37,705		349,588
Deferred fuel and purchased power — mark-to-market (Note 7)	2024	126,502		68,681		—		—
Removal costs	(c)	73,325		51,986		52,844		103,008
Income taxes — change in rates	2050	2,839		63,707		2,839		66,553
Four Corners coal reclamation	2038	5,460		50,151		5,460		49,435
Income taxes — deferred investment tax credit	2049	2,231		46,431		2,231		48,648
Spent nuclear fuel	2027	6,778		40,102		6,768		44,221
Renewable energy standard (b)	2022	32,193		115		39,442		103
FERC transmission true up	2023	11,385		12,257		6,598		3,008
Property tax deferral	N/A	—		19,318		—		13,856
Sundance maintenance	2031	—		13,271		2,989		11,508
Demand side management (b)	2023	7,701		3,713		10,819		—
Tax expense adjustor mechanism (b) (e)	2021	7,398		—		7,089		—
Deferred gains on utility property	2022	1,907		551		2,423		1,544
Active union medical trust	N/A	—		1,481		—		6,057
Other	Various	5,018		107		3,311		4,861
Total regulatory liabilities		$	379,193	$	2,431,212	$	229,088	$	2,450,169

(a)For purposes of presentation on the Statement of Cash Flows, amortization of the regulatory liabilities for excess deferred income taxes are reflected as “Deferred income taxes” under Cash Flows From Operating Activities.

(b)See “Cost Recovery Mechanisms” discussion above.

(c)In accordance with regulatory accounting guidance, APS accrues removal costs for its regulated assets, even if there is no legal obligation for removal.

(d)See Note 5.

(e)Pursuant to Decision 77852, the ACC has authorized APS to return to customers up to $7 million of liability recorded to the TEAM balancing account through December 31, 2021. Should new base rates become effective prior to December 31, 2021, any remaining unreturned balance is anticipated to be included in the new base rates.