Investments in Nuclear Decommissioning Trusts and Other Special Use Funds

9 Months Ended

Sep. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Investments in Nuclear Decommissioning Trusts and Other Special Use Funds

Investments in Nuclear Decommissioning Trust and Other Special Use Funds

We have investments in debt and equity securities held in nuclear decommissioning trust, 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 Trust - To fund the future costs APS expects to incur to decommission Palo Verde, APS established an external decommissioning trust in accordance with NRC regulations.  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 trust. 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 other-than-temporary impairments) 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 reclamation costs in rates, and in accordance with the regulatory treatment, APS has deferred realized and unrealized gains and losses (including other-than-temporary impairments) in other regulatory liabilities. Activities relating to APS coal 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 were transferred from APS other postretirement benefit trust assets into the active union employee medical trust in January 2018 (see Note 7 in the 2018 Form 10-K). These investments may be used to pay active union employee medical costs incurred in the current and future periods. In August 2019, the Company was reimbursed $15 million 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 other-than-temporary impairments) in other regulatory assets. Activities relating to active union employee medical account investments are included within the other special use funds in the table below.

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 trust and other special use fund assets at September 30, 2019 and December 31, 2018 (dollars in thousands):  

	September 30, 2019
	Fair Value								Total Unrealized Gains		Total Unrealized Losses
Investment Type:	Nuclear Decommissioning Trust			Other Special Use Funds		Total
Equity securities	$	485,467		$	1,982	$	487,449		$	297,032	$	—
Available for sale-fixed income securities	483,528			240,582		724,110		(a)	28,750		(476		)
Other	(1,322		)	1,418		96		(b)	—		—
Total	$	967,673		$	243,982	$	1,211,655		$	325,782	$	(476	)

(a) As of September 30, 2019, the amortized cost basis of these available-for-sale investments is $696 million.

(b) Represents net pending securities sales and purchases.

	December 31, 2018
	Fair Value							Total Unrealized Gains		Total Unrealized Losses
Investment Type:	Nuclear Decommissioning Trust		Other Special Use Funds		Total
Equity securities	$	402,008	$	45,130	$	447,138		$	222,147	$	(459	)
Available for sale-fixed income securities	446,978		190,378		637,356		(a)	8,634		(6,778		)
Other	2,148		593		2,741		(b)	—		—
Total	$	851,134	$	236,101	$	1,087,235		$	230,781	$	(7,237	)

(a) As of December 31, 2018, the amortized cost basis of these available-for-sale investments is $635 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 for the three and nine months ended September 30, 2019 and 2018 (dollars in thousands):

	Three Months Ended September 30,
	Nuclear Decommissioning Trust			Other Special Use Funds		Total
2019
Realized gains	$	4,732		$	4	$	4,736
Realized losses	(2,360		)	—		(2,360		)
Proceeds from the sale of securities (a)	155,386			56,255		211,641
2018
Realized gains	$	653		$	—	$	653
Realized losses	(1,965		)	—		(1,965		)
Proceeds from the sale of securities (a)	148,150			25,127		173,277

(a) Proceeds are reinvested in the nuclear decommissioning trust and coal reclamation escrow account.

	Nine Months Ended September 30,
	Nuclear Decommissioning Trust			Other Special Use Funds		Total
2019
Realized gains	$	8,478		$	4	$	8,482
Realized losses	(5,465		)	—		(5,465		)
Proceeds from the sale of securities (a)	371,538			149,458		520,996
2018
Realized gains	$	2,951		$	1	$	2,952
Realized losses	(6,990		)	—		(6,990		)
Proceeds from the sale of securities (a)	401,396			41,644		443,040

(a) Proceeds are reinvested in the nuclear decommissioning trust and coal reclamation escrow account.

The fair value of APS's fixed income securities, summarized by contractual maturities, at September 30, 2019, is as follows (dollars in thousands):

	Nuclear Decommissioning Trust (a)		Coal Reclamation Escrow Account		Active Union Medical Trust		Total
Less than one year	$	40,309	$	32,628	$	37,013	$	109,950
1 year – 5 years	133,488		25,928		140,895		300,311
5 years – 10 years	103,973		720		—		104,693
Greater than 10 years	205,758		3,398		—		209,156
Total	$	483,528	$	62,674	$	177,908	$	724,110

(a)

Includes certain fixed income investments that are not due at a single maturity date. These investments have been allocated within the table based on the final payment date of the instrument.