Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2023

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	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):


	Nine Months Ended September 30,
	2023		2022
Beginning balance	$	460,561	$	388,148
Deferred fuel and purchased power costs — current period	486,382		228,483
Amounts charged to customers	(420,277)		(171,606)
Ending balance	$	526,666	$	445,025

Schedule of Regulatory Assets

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


	Amortization Through	September 30, 2023		December 31, 2022
Pension	(a)	$	631,307	$	637,656
Deferred fuel and purchased power (b) (c)	2024	526,666		460,561
Income taxes — allowance for funds used during construction (“AFUDC”) equity	2053	188,845		179,631
Ocotillo deferral (e)	2031	131,013		138,143
SCR deferral (e)(f)	2031	91,514		97,624
Retired power plant costs	2033	87,325		98,692
Lease incentives	(h)	39,700		—
Deferred property taxes	2027	34,630		41,057
Deferred compensation	2036	34,492		33,660
Deferred fuel and purchased power — mark-to-market (Note 7)	2026	34,131		—
Income taxes — investment tax credit basis adjustment	2056	33,684		23,977
Palo Verde VIEs (Note 6)	2046	20,812		20,933
Active Union Medical Trust	(g)	17,759		18,226
Power supply adjustor - interest	2024	13,899		1,541
Navajo coal reclamation	2026	11,628		13,862
Four Corners cost deferral	2024	9,941		15,999
Mead-Phoenix transmission line contributions in aid of construction (“CIAC”)	2050	8,799		9,048
Loss on reacquired debt	2038	8,305		9,468
Tax expense adjustor mechanism (b)	2031	5,354		5,845
Lost fixed cost recovery (b)	2023	—		9,547
Other	Various	3,759		6,630
Total regulatory assets (d)		$	1,933,563	$	1,822,100
Less: current regulatory assets		$	630,319	$	538,879
Total non-current regulatory assets		$	1,303,244	$	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.

(h)Amortization periods vary based on specific terms of lease contract. See Note 14.

Schedule of Regulatory Liabilities

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


	Amortization Through	September 30, 2023		December 31, 2022
Excess deferred income taxes — ACC - Tax Act (a)	2046	$	929,420	$	971,545
Excess deferred income taxes — FERC - Tax Act (a)	2058	214,499		221,877
Asset retirement obligations	2057	343,998		354,002
Other postretirement benefits	(d)	234,832		270,604
Removal costs	(c)	96,698		106,889
Income taxes — deferred investment tax credit	2056	67,440		48,035
Income taxes — change in rates	2051	61,879		64,806
Four Corners coal reclamation	2038	54,275		52,592
Renewable energy standard (b)	2024	37,624		35,720
Spent nuclear fuel	2027	33,616		39,217
Demand side management (b)	2023	23,706		8,461
Sundance maintenance	2031	19,215		16,893
Property tax deferral (e)	2024	12,018		15,521
FERC transmission true up (b)	2025	6,087		22,895
Tax expense adjustor mechanism (b) (e)	N/A	4,835		4,835
Deferred fuel and purchased power — mark-to-market (Note 7)	2026	—		96,367
Other	Various	6,128		3,092
Total regulatory liabilities		$	2,146,270	$	2,333,351
Less: current regulatory liabilities		$	226,989	$	271,575
Total non-current regulatory liabilities		$	1,919,281	$	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.