Revenue

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Revenue

Revenue

Sources of Revenue

The following table provides detail of Pinnacle West's consolidated revenue disaggregated by revenue sources (dollars in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Retail Electric Revenue
Residential	$	515,128	$	432,568	$	840,201	$	784,134
Non-Residential	381,121		395,929		684,472		728,597
Wholesale energy sales	15,927		21,991		30,595		58,443
Transmission services for others	14,766		15,157		30,693		30,406
Other sources	2,648		3,856		5,559		8,451
Total operating revenues	$	929,590	$	869,501	$	1,591,520	$	1,610,031

Retail Electric Revenue. Pinnacle West's retail electric revenue is generated by wholly owned regulated subsidiary APS's sale of electricity to our regulated customers within the authorized service territory at tariff rates approved by the ACC and based on customer usage. Revenues related to the sale of electricity are generally recognized when service is rendered or electricity is delivered to customers. The billing of electricity sales to individual customers is based on the reading of their meters. We obtain customers' meter data on a systematic basis throughout the month, and generally bill customers within a month from when service was provided. Customers are generally required to pay for services within 15 days of when the services are billed.

Wholesale Energy Sales and Transmission Services for Others. Revenues from wholesale energy sales and transmission services for others represent energy and transmission sales to wholesale customers. These activities primarily consist of managing fuel and purchased power risks in connection with the cost of serving our retail customers' energy requirements. We may also sell into the wholesale markets generation that is not needed for APS’s retail load. Our wholesale activities and tariff rates are regulated by FERC.

In the electricity business, some contracts to purchase energy are settled by netting against other contracts to sell electricity. This is referred to as a book-out, and usually occurs in contracts that have the same terms (product type, quantities, and delivery points) and for which power does not flow. We net these book-outs, which reduces both wholesale revenues and fuel and purchased power costs.

Revenue Activities

Our revenues primarily consist of activities that are classified as revenues from contracts with customers. We derive our revenues from contracts with customers primarily from sales of electricity to our regulated retail customers. Revenues from contracts with customers also include wholesale and transmission activities. Our revenues from contracts with customers for the three and six months ended June 30, 2020 were $915 million and $1,563 million, respectively and for the three and six months ended June 30, 2019 were $858 million and $1,578 million, respectively.

We have certain revenues that do not meet the specific accounting criteria to be classified as revenues from contracts with customers. For the three and six months ended June 30, 2020 our revenues that do not qualify as revenue from contracts with customers were $15 million and $29 million, respectively, and for the three and six months ended June 30, 2019 were $12 million and $32 million, respectively. This relates primarily to certain regulatory cost recovery mechanisms that are considered alternative revenue programs. We recognize revenue associated with alternative revenue programs when specific events permitting recognition are completed. Certain amounts associated with alternative revenue programs will subsequently be billed to customers; however, we do not reclassify billed amounts into revenue from contracts with customers. See Note 4 for a discussion of our regulatory cost recovery mechanisms.

Contract Assets and Liabilities from Contracts with Customers

There were no material contract assets, contract liabilities, or deferred contract costs recorded on the Condensed Consolidated Balance Sheets as of June 30, 2020 or December 31, 2019.

Allowance for Doubtful Accounts

The allowance for doubtful accounts represents our best estimate of accounts receivable and accrued unbilled revenues that will ultimately be uncollectible due to credit loss risk. The allowance is calculated by applying an estimated write-off factor to retail electric revenues. The write-off factor used to estimate uncollectible accounts is based upon consideration of historical collections experience, the current and

forecasted economic environment, changes to our collection policies, and management’s best estimate of future collections success.

During March 2020, due to the COVID-19 pandemic, and to assist customers who may be experiencing economic difficulties, we suspended all service shut-offs due to nonpayment. We are experiencing an increase in the number of customers needing to utilize longer-term payment plans to avoid service disruption. These changes, among others, including the Summer Disconnection Moratorium (defined in Note 4), impacted our write-off factor during the period. We will continue to monitor the impacts of COVID-19 on our write-off factor. See Note 4 for additional details.

The following table provides a rollforward of Pinnacle West’s allowance for doubtful accounts (dollars in thousands):

	June 30, 2020			December 31, 2019
Allowance for doubtful accounts, balance at beginning of period	$	8,171		$	4,069
Bad debt expense	9,197			11,819
Actual write-offs	(5,789		)	(7,717		)
Allowance for doubtful accounts, balance at end of period	$	11,579		$	8,171