Investments in Nuclear Decommissioning Trusts and Other Special Use Funds

6 Months Ended

Jun. 30, 2021

Investments, Debt and Equity Securities [Abstract]

Investments in Nuclear Decommissioning Trusts and Other Special Use Funds

We have investments in debt and equity securities held in Nuclear Decommissioning Trusts, Coal Reclamation Escrow Account, and an Active Union Employee Medical Account. Investments in debt securities are classified as available-for-sale securities. We record both debt and equity security investments at their fair value on our Condensed Consolidated Balance Sheets. See Note 11 for a discussion of how fair value is determined and the classification of the investments within the fair value hierarchy. The investments in each trust or account are restricted for use and are intended to fund specified costs and activities as further described for each fund below.

Nuclear Decommissioning Trusts — APS established external decommissioning trusts in accordance with NRC regulations to fund the future costs APS expects to incur to decommission Palo Verde. Third-party investment managers are authorized to buy and sell securities per stated investment guidelines. The trust funds are invested in fixed income securities and equity securities. Earnings and proceeds from sales and maturities of securities are reinvested in the trusts. Because of the ability of APS to recover decommissioning costs in rates, and in accordance with the regulatory treatment, APS has deferred realized and unrealized gains and losses (including credit losses) in other regulatory liabilities.

Coal Reclamation Escrow Account — APS has investments restricted for the future coal mine reclamation funding related to Four Corners. This escrow account is primarily invested in fixed income securities. Earnings and proceeds from sales of securities are reinvested in the escrow account. Because of the ability of APS to recover coal mine reclamation costs in rates, and in accordance with the regulatory treatment, APS has deferred realized and unrealized gains and losses (including credit losses) in other regulatory liabilities. Activities relating to APS coal mine reclamation escrow account investments are included within the other special use funds in the table below.

Active Union Employee Medical Account — APS has investments restricted for paying active union employee medical costs. These investments may be used to pay active union employee medical costs incurred in the current and future periods. In 2020 and 2019, APS was reimbursed $14 million and $15 million, respectively, for prior year active union employee medical claims from the active union employee medical account. The account is invested primarily in fixed income securities. In accordance with the ratemaking treatment, APS has deferred the unrealized gains and losses (including credit losses) in other regulatory liabilities. Activities relating to active union employee medical account investments are included within the other special use funds in the table below. On January 4, 2021, an additional $106 million of investments were transferred from APS other postretirement benefit trust assets into the active union employee medical account (see Note 5).

APS

The following tables present the unrealized gains and losses based on the original cost of the investment and summarizes the fair value of APS’s nuclear decommissioning trusts and other special use fund assets (dollars in thousands):


	June 30, 2021
	Fair Value							Total Unrealized Gains		Total Unrealized Losses
Investment Type:	Nuclear Decommissioning Trusts		Other Special Use Funds		Total
Equity securities	$	725,585	$	19,904	$	745,489		$	510,432	$	—
Available for sale-fixed income securities	507,009		337,580		844,589		(a)	31,269		(1,357)
Other	(9,506)		952		(8,554)		(b)	—		—
Total	$	1,223,088	$	358,436	$	1,581,524		$	541,701	$	(1,357)

(a)As of June 30, 2021, the amortized cost basis of these available-for-sale investments is $815 million.

(b)Represents net pending securities sales and purchases.


	December 31, 2020
	Fair Value							Total Unrealized Gains		Total Unrealized Losses
Investment Type:	Nuclear Decommissioning Trusts		Other Special Use Funds		Total
Equity securities	$	639,851	$	37,337	$	677,188		$	421,666	$	—
Available for sale-fixed income securities	516,412		216,668		733,080		(a)	46,581		(398)
Other	(17,828)		504		(17,324)		(b)	—		—
Total	$	1,138,435	$	254,509	$	1,392,944		$	468,247	$	(398)

(a)As of December 31, 2020, the amortized cost basis of these available-for-sale investments is $687 million.

(b)Represents net pending securities sales and purchases.

The following table sets forth APS’s realized gains and losses relating to the sale and maturity of available-for-sale debt securities and equity securities, and the proceeds from the sale and maturity of these investment securities (dollars in thousands):


	Three Months Ended June 30,
	Nuclear Decommissioning Trusts		Other Special Use Funds		Total
2021
Realized gains	$	1,406	$	—	$	1,406
Realized losses	(1,146)		—		(1,146)
Proceeds from the sale of securities (a)	190,340		17,524		207,864
2020
Realized gains	$	4,500	$	—	$	4,500
Realized losses	(1,621)		—		(1,621)
Proceeds from the sale of securities (a)	176,942		19,830		196,772

(a) Proceeds are reinvested in the nuclear decommissioning trusts and other special use funds, excluding amounts reimbursed to the Company for active union employee medical claims from the active union employee medical account.


	Six Months Ended June 30,
	Nuclear Decommissioning Trusts		Other Special Use Funds		Total
2021
Realized gains	$	4,374	$	—	$	4,374
Realized losses	(5,294)		—		(5,294)
Proceeds from the sale of securities (a)	425,068		162,774		587,842
2020
Realized gains	$	7,813	$	—	$	7,813
Realized losses	(3,848)		—		(3,848)
Proceeds from the sale of securities (a)	355,138		36,721		391,859

Fixed Income Securities Contractual Maturities

The fair value of APS’s fixed income securities, summarized by contractual maturities, at June 30, 2021, is as follows (dollars in thousands):


	Nuclear Decommissioning Trust		Coal Reclamation Escrow Account		Active Union Employee Medical Account		Total
Less than one year	$	28,151	$	26,123	$	40,263	$	94,537
1 year – 5 years	133,054		35,880		162,728		331,662
5 years – 10 years	131,462		2,676		61,288		195,426
Greater than 10 years	214,342		8,622		—		222,964
Total	$	507,009	$	73,301	$	264,279	$	844,589