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Financial Instruments and Investments (Notes)
 12 Months Ended
Dec. 31, 2015
Fair Value Disclosures [Abstract]  
Financial Instruments and Investments
Financial Instruments and Investments
The FASB guidance requires the Company to disclose estimated fair values for its financial instruments. The Company has determined that cash and temporary investments, investment in debt securities, accounts receivable, decommissioning trust funds, long-term debt, short-term borrowings under the RCF, accounts payable and customer deposits meet the definition of financial instruments. The carrying amounts of cash and temporary investments, accounts receivable, accounts payable and customer deposits approximate fair value because of the short maturity of these items. Investments in debt securities and decommissioning trust funds are carried at fair value.
Long-Term Debt and Short-Term Borrowings Under the RCF. The fair values of the Company's long-term debt and short-term borrowings under the RCF are based on estimated market prices for similar issues and are presented below (in thousands):
 
December 31,
 
2015
 
2014
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Pollution Control Bonds
$
193,135

 
$
212,624

 
$
193,135

 
$
213,083

Senior Notes
846,149

 
829,864

 
846,044

 
968,728

RGRT Senior Notes (1)
95,000

 
100,345

 
110,000

 
117,215

RCF (1)
141,738

 
141,738

 
14,532

 
14,532

Total
$
1,276,022

 
$
1,284,571

 
$
1,163,711

 
$
1,313,558

 __________________
(1)
Nuclear fuel financing of $95 million at December 31, 2015 and $110 million at December 31, 2014 is funded through the RGRT Senior Notes and $33.7 million and $14.5 million, respectively under the RCF. As of December 31, 2015, $108 million was outstanding under the RCF for working capital or general corporate purposes. As of December 31, 2014, no amount was outstanding under the RCF for working capital or general corporate purposes. The interest rate on the Company’s borrowings under the RCF is reset throughout the period reflecting current market rates. Consequently, the carrying value approximates fair value.
Treasury Rate Locks. The Company entered into treasury rate lock agreements in 2005 to hedge against potential movements in the treasury reference interest rate pending the issuance of the 6% Senior Notes. The treasury rate lock agreements met the criteria for hedge accounting and were designated as a cash flow hedge. In accordance with cash flow hedge accounting, the Company recorded the loss associated with the fair value of the cash flow hedge, net of tax, as a component of accumulated other comprehensive loss and amortizes the accumulated comprehensive loss to earnings as interest expense over the life of the 6% Senior Notes. In 2016, approximately $0.5 million of this accumulated other comprehensive loss item will be reclassified to interest expense.
Contracts and Derivative Accounting. The Company uses commodity contracts to manage its exposure to price and availability risks for fuel purchases and power sales and purchases and these contracts generally have the characteristics of derivatives. The Company does not trade or use these instruments with the objective of earning financial gains on the commodity price fluctuations. The Company has determined that all such contracts outstanding at December 31, 2015, except for certain natural gas commodity contracts with optionality features, that had the characteristics of derivatives met the "normal purchases and normal sales" exception provided in the FASB guidance for accounting for derivative instruments and hedging activities, and, as such, were not required to be accounted for as derivatives.
Marketable Securities. The Company’s marketable securities, included in decommissioning trust funds in the balance sheets, are reported at fair value which was $239.0 million and $234.3 million at December 31, 2015 and 2014, respectively. These securities are classified as available for sale and recorded at their estimated fair value using the FASB guidance for certain investments in debt and equity securities. The reported fair values include gross unrealized losses on marketable securities whose impairment the Company has deemed to be temporary. The tables below present the gross unrealized losses and the fair value of these securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

 
December 31, 2015
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Description of Securities (1):
 
 
 
 
 
 
 
 
 
 
 
Federal Agency Mortgage Backed Securities
$
9,383

 
$
(97
)
 
$
1,113

 
$
(47
)
 
$
10,496

 
$
(144
)
U.S. Government Bonds
24,094

 
(310
)
 
14,272

 
(623
)
 
38,366

 
(933
)
Municipal Obligations
8,286

 
(160
)
 
7,388

 
(446
)
 
15,674

 
(606
)
Corporate Obligations
6,058

 
(722
)
 
2,307

 
(228
)
 
8,365

 
(950
)
Total Debt Securities
47,821

 
(1,289
)
 
25,080

 
(1,344
)
 
72,901

 
(2,633
)
Common Stock
3,584

 
(344
)
 
—

 
—

 
3,584

 
(344
)
Institutional Funds-International Equity
22,454

 
(768
)
 
—

 
—

 
22,454

 
(768
)
Total Temporarily Impaired Securities
$
73,859

 
$
(2,401
)
 
$
25,080

 
$
(1,344
)
 
$
98,939

 
$
(3,745
)
 ____________________
(1)
Includes approximately 133 securities.
 
December 31, 2014
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Description of Securities (2):
 
 
 
 
 
 
 
 
 
 
 
Federal Agency Mortgage Backed Securities
$
—

 
$
—

 
$
2,383

 
$
(57
)
 
$
2,383

 
$
(57
)
U.S. Government Bonds
1,552

 
(2
)
 
20,060

 
(573
)
 
21,612

 
(575
)
Municipal Obligations
6,433

 
(65
)
 
8,570

 
(410
)
 
15,003

 
(475
)
Corporate Obligations
2,455

 
(24
)
 
2,461

 
(111
)
 
4,916

 
(135
)
Total Debt Securities
10,440

 
(91
)
 
33,474

 
(1,151
)
 
43,914

 
(1,242
)
Common Stock
1,475

 
(229
)
 
—

 
—

 
1,475

 
(229
)
Institutional Funds-International Equity
22,736

 
(821
)
 
—

 
—

 
22,736

 
(821
)
Total Temporarily Impaired Securities
$
34,651

 
$
(1,141
)
 
$
33,474

 
$
(1,151
)
 
$
68,125

 
$
(2,292
)
 ______________________
(2)
Includes approximately 106 securities.
The Company monitors the length of time specific securities trade below its cost basis along with the amount and percentage of the unrealized loss in determining if a decline in fair value of marketable securities below recorded cost is considered to be other than temporary. The Company recognizes impairment losses on certain of its securities deemed to be other than temporary. In accordance with the FASB guidance, these impairment losses are recognized in net income, and a lower cost basis is established for these securities. In addition, the Company will research the future prospects of individual securities as necessary. The Company does not anticipate expending monies held in trust before 2044 or a later period when decommissioning of Palo Verde begins.
For the twelve months ended December 31, 2015, 2014, and 2013, the Company recognized other than temporary impairment losses on its available-for-sale securities as follows (in thousands): 
 
2015
 
2014
 
2013
Unrealized holding losses included in pre-tax income
$
(338
)
 
$
—

 
$
—


 





The reported securities also include gross unrealized gains on marketable securities which have not been recognized in the Company’s net income. The table below presents the unrecognized gross unrealized gains and the fair value of these securities, aggregated by investment category (in thousands):
 
 
December 31, 2015
 
December 31, 2014
 
Fair
Value
 
Unrealized
Gains
 
Fair
Value
 
Unrealized
Gains
Description of Securities:
 
 
 
 
 
 
 
Federal Agency Mortgage Backed Securities
$
9,589

 
$
438

 
$
15,388

 
$
665

U.S. Government Bonds
12,033

 
136

 
20,016

 
567

Municipal Obligations
8,671

 
332

 
11,642

 
595

Corporate Obligations
10,110

 
368

 
13,762

 
850

Total Debt Securities
40,403

 
1,274

 
60,808

 
2,677

Common Stock
72,636

 
37,001

 
99,160

 
48,253

Equity Mutual Funds
18,853

 
91

 
—

 
—

Cash and Cash Equivalents
8,204

 
—

 
6,193

 
—

Total
$
140,096

 
$
38,366

 
$
166,161

 
$
50,930


The Company’s marketable securities include investments in municipal, corporate and federal debt obligations. Substantially all of the Company’s mortgage-backed securities, based on contractual maturity, are due in ten years or more. The mortgage-backed securities have an estimated weighted average maturity which generally range from two years to six years and reflects anticipated future prepayments. The contractual year for maturity for these available-for-sale securities as of December 31, 2015 is as follows (in thousands): 
 
Total
 
2016
 
2017
through
2020
 
2021 through 2025
 
2026 and Beyond
Municipal Debt Obligations
$
24,345

 
$
723

 
$
9,196

 
$
11,524

 
$
2,902

Corporate Debt Obligations
18,475

 
352

 
6,757

 
5,983

 
5,383

U.S. Government Bonds
50,399

 
3,418

 
21,970

 
13,719

 
11,292


The Company’s marketable securities in its decommissioning trust funds are sold from time to time and the Company uses the specific identification basis to determine the amount to reclassify out of accumulated other comprehensive income and into net income. The proceeds from the sale of these securities during the twelve months ended December 31, 2015, 2014, and 2013 and the related effects on pre-tax income are as follows (in thousands): 
 
2015
 
2014
 
2013
Proceeds from sales or maturities of available-for-sale securities
$
102,567

 
$
108,311

 
$
56,148

Gross realized gains included in pre-tax income
$
12,379

 
$
7,858

 
$
986

Gross realized losses included in pre-tax income
(927
)
 
(508
)
 
(433
)
Gross unrealized losses included in pre-tax income
(338
)
 
—

 
—

        Net gains in pre-tax income
$
11,114

 
$
7,350

 
$
553

Net unrealized holding gains (losses) included in accumulated other comprehensive income
$
(2,906
)
 
$
10,827

 
$
17,699

Net gains reclassified out of accumulated other comprehensive income
(11,114
)
 
(7,350
)
 
(553
)
        Net gains (losses) in other comprehensive income
$
(14,020
)
 
$
3,477

 
$
17,146


Fair Value Measurements. The FASB guidance requires the Company to provide expanded quantitative disclosures for financial assets and liabilities recorded on the balance sheet at fair value. Financial assets carried at fair value include the Company's decommissioning trust investments and investments in debt securities which are included in deferred charges and other assets on the balance sheets. The Company has no liabilities that are measured at fair value on a recurring basis. The FASB guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

•
Level 1 - Observable inputs that reflect quoted market prices for identical assets and liabilities in active markets. Financial assets utilizing Level 1 inputs include the nuclear decommissioning trust investments in active exchange-traded equity securities, mutual funds and U.S. Treasury securities that are in a highly liquid and active market.
•
Level 2 - Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Financial assets utilizing Level 2 inputs include the nuclear decommissioning trust investments in fixed income securities. The fair value of these financial instruments is based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences. The Institutional Funds are valued using the NAV provided by the administrator of the fund. The NAV price is quoted on a restrictive market although the underlying investments are traded on active markets.
•
Level 3 - Unobservable inputs using data that is not corroborated by market data and primarily based on internal Company analysis using models and various other analysis. Financial assets utilizing Level 3 inputs include the Company's investments in debt securities.
The securities in the Company’s decommissioning trust funds are valued using prices and other relevant information generated by market transactions involving identical or comparable securities. The FASB guidance identifies this valuation technique as the "market approach" with observable inputs. The Company analyzes available-for-sale securities to determine if losses are other than temporary.
During the first quarter of 2014, the Company sold its nuclear decommissioning trust investments in equity mutual funds, classified as Level 1, and invested those assets in common collective trusts which are classified as Level 2. The fair value of the Company’s decommissioning trust funds and investments in debt securities, at December 31, 2015 and 2014, and the level within the three levels of the fair value hierarchy defined by the FASB guidance are presented in the table below (in thousands): 
Description of Securities
 
Fair Value as  of
December 31,
2015
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Trading Securities:
 
 
 
 
 
 
 
 
Investments in Debt Securities
 
$
1,543

 
$
—

 
$
—

 
$
1,543

Available for sale:
 
 
 
 
 
 
 
 
U.S. Government Bonds
 
$
50,399

 
$
50,399

 
$
—

 
$
—

Federal Agency Mortgage Backed Securities
 
20,085

 
—

 
20,085

 
—

Municipal Obligations
 
24,345

 
—

 
24,345

 
—

Corporate Obligations
 
18,475

 
—

 
18,475

 
—

Subtotal, Debt Securities
 
113,304

 
50,399

 
62,905

 
—

Common Stock
 
76,220

 
76,220

 
—

 
—

Equity Mutual Funds
 
18,853

 
18,853

 
—

 
—

Institutional Funds-International Equity
 
22,454

 
—

 
22,454

 
—

Cash and Cash Equivalents
 
8,204

 
8,204

 
—

 
—

Total available for sale
 
$
239,035

 
$
153,676

 
$
85,359

 
$
—

 
Description of Securities
Fair Value as  of
December 31,
2014
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Trading Securities:
 
 
 
 
 
 
 
Investments in Debt Securities
$
1,653

 
$
—

 
$
—

 
$
1,653

Available for sale:
 
 
 
 
 
 
 
U.S. Government Bonds
$
41,628

 
$
41,628

 
$
—

 
$
—

Federal Agency Mortgage Backed Securities
17,771

 
—

 
17,771

 
—

Municipal Obligations
26,645

 
—

 
26,645

 
—

Corporate Obligations
18,678

 
—

 
18,678

 
—

Subtotal, Debt Securities
104,722

 
41,628

 
63,094

 
—

Common Stock
100,635

 
100,635

 
—

 
—

Institutional Funds-International Equity
22,736

 
—

 
22,736

 
—

Cash and Cash Equivalents
6,193

 
6,193

 
—

 
—

Total available for sale
$
234,286

 
$
148,456

 
$
85,830

 
$
—


Below is a reconciliation of the beginning and ending balance of the fair value of the investment in debt securities (in thousands): 
 
2015
 
2014
Balance at January 1
$
1,653

 
$
1,555

Net unrealized gains (losses) in fair value recognized in income (a)
(110
)
 
98

Balance at December 31
$
1,543

 
$
1,653

_____________________
(a) These amounts are reflected in the Company's statement of operations as investment and interest income.
There were no transfers in or out of Level 1 and Level 2 fair value measurements categories due to changes in observable inputs during the twelve month periods ending December 31, 2015 and 2014. There were no purchases, sales, issuances, and settlements related to the assets in the Level 3 fair value measurement category during the twelve month periods ending December 31, 2015 and 2014.