Regulatory Matters (Tables)

3 Months Ended

Mar. 31, 2023

Schedule of Capital Structure and Cost of Capital

he following proposed capital structure and costs of capital:


	Capital Structure		Cost of Capital
Long-term debt	48.07	%	3.85	%
Common stock equity	51.93	%	10.25	%
Weighted-average cost of capital			7.17	%

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 2023 and 2022 (dollars in thousands):


	Three Months Ended March 31,
	2023		2022
Beginning balance	$	460,561	$	388,148
Deferred fuel and purchased power costs — current period	90,305		6,110
Amounts charged to customers	(80,904)		(39,442)
Ending balance	$	469,962	$	354,816

Schedule of Regulatory Assets

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


	Amortization Through	March 31, 2023		December 31, 2022
Pension	(a)	$	628,727	$	637,656
Deferred fuel and purchased power (b) (c)	2024	469,962		460,561
Income taxes — allowance for funds used during construction (“AFUDC”) equity	2053	179,818		179,631
Ocotillo deferral (e)	2031	135,766		138,143
SCR deferral (e)(f)	2031	95,588		97,624
Retired power plant costs	2033	94,903		98,692
Deferred fuel and purchased power — mark-to-market (Note 7)	2025	61,858		—
Deferred property taxes	2027	38,915		41,057
Deferred compensation	2036	34,492		33,660
Income taxes — investment tax credit basis adjustment	2056	24,095		23,977
Palo Verde VIEs (Note 6)	2046	20,893		20,933
Active Union Medical Trust	(g)	15,010		18,226
Four Corners cost deferral	2024	13,979		15,999
Navajo coal reclamation	2026	13,117		13,862
Loss on reacquired debt	2038	9,238		9,468
Mead-Phoenix transmission line contributions in aid of construction (“CIAC”)	2050	8,965		9,048
Tax expense adjustor mechanism (b)	2031	5,681		5,845
Lost fixed cost recovery (b)	2023	—		9,547
Other	Various	8,458		8,171
Total regulatory assets (d)		$	1,859,465	$	1,822,100
Less: current regulatory assets		$	600,802	$	538,879
Total non-current regulatory assets		$	1,258,663	$	1,283,221

(a)This asset represents the future recovery of pension benefit obligations and expense through retail rates. If these costs are disallowed by the ACC, this regulatory asset would be charged to OCI and result in lower future revenues. As a result of the 2019 Rate Case Decision, the amount authorized for inclusion in rate base was determined using an averaging methodology, which resulted in a reduced return in retail rates. See Note 5 for further discussion.

(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.”

(e)Balance includes amounts for future regulatory consideration and amortization period determination.

(f)See “Four Corners SCR Cost Recovery” discussion above.

(g)Collected in retail rates.

Schedule of Regulatory Liabilities

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


	Amortization Through	March 31, 2023		December 31, 2022
Excess deferred income taxes — ACC - Tax Act (a)	2046	$	970,578	$	971,545
Excess deferred income taxes — FERC - Tax Act (a)	2058	221,708		221,877
Asset retirement obligations	2057	396,107		354,002
Other postretirement benefits	(d)	258,955		270,604
Removal costs	(c)	106,102		106,889
Income taxes — change in rates	2051	64,739		64,806
Four Corners coal reclamation	2038	53,348		52,592
Income taxes — deferred investment tax credit	2056	49,031		48,035
Spent nuclear fuel	2027	37,313		39,217
Renewable energy standard (b)	2024	30,188		35,720
Sundance maintenance	2031	17,667		16,893
Property tax deferral (e)	2024	14,353		15,521
Demand side management (b)	2023	14,207		8,461
FERC transmission true up (b)	2025	12,597		22,895
Tax expense adjustor mechanism (b) (e)	N/A	4,835		4,835
Deferred fuel and purchased power — mark-to-market (Note 7)	2025	3,396		96,367
Other	Various	7,415		3,092
Total regulatory liabilities		$	2,262,539	$	2,333,351
Less: current regulatory liabilities		$	202,266	$	271,575
Total non-current regulatory liabilities		$	2,060,273	$	2,061,776

(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)Balance includes amounts for future regulatory consideration and amortization period determination.