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Pinnacle West Capital Corporation's CEO Discusses Q2 2012 Results - Earnings Call Transcript

The settlement prevents base rates from increasing for four years, but it is not a rate freeze. Under the agreement, APS may file it’s next general rate case on or after May 31st of 2015 for new base rates to become effective on or after July 1st of 2016. That said, we believe a number of factors will allow us to achieve competitive financial performance during the stay-out period.

Aspects related to that settlement include first APS’s rate adjustment mechanisms. All of APS’s rate adjustment mechanisms will continue to function throughout the stay-out period. These mechanism include, among others, first the preferred formula rates and the related retail transmission costs adjusted, which beginning in 2013 can pass annual changes in the preferred formula rate to APS retail customers without explicit ACC approval because of the settlement.

Next, the renewable energy surcharge, which allows for recovery of AZ Sun plant additions and then the loss fixed cost recovery mechanisms, which was adopted in the settlement to mitigate the loss of certain fixed costs related to energy efficiency programs and distributed generation.

And finally, an enhanced environmental improvement surcharge, which will allow APS to collect up to $5 million annually for certain carrying costs on government-mandated environmental capital projects. Second, a carve out for the proposed Four Corners acquisition. This provision will allow APS to seek rate adjustments as early as mid-2013 if the acquisition is consummated as we currently plan. I will review our progress in the Four Corners plan momentarily.

Third, provisions to mitigate certain cost increases. These features include deferrals of portions of higher property taxes attributable to tax rate increases and 100% pass through of fuel costs through the power supply adjuster.

And finally, without a time-sensitive base rate case litigation process in the next few years, we can focus fully on operational excellence, efficiency and discipline cost management.

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