Business Context and Reporting Period
This Form 8-K is a current report filed by Pinnacle West Capital Corporation and its subsidiary, Arizona Public Service Company (APS), on October 31, 2019. The filing discloses a regulatory event wherein APS submitted an application to the Arizona Corporation Commission (ACC) for an annual increase in retail base rates.
Key Financial Metrics and Rate Case Details
The filing focuses on the financial components of the 2019 retail rate case application rather than historical operating results. Key figures include:
- Requested Base Rate Increase: $69 million.
- Proposed Total Revenue Increase: $184 million.
- Net Credit to Base Rates: Approximately $115 million, primarily due to the prospective inclusion of rate refunds via the Tax Expense Adjustment Mechanism.
- Customer Bill Impact: Average annual increase of 5.6% (5.4% for a typical residential customer).
- Rate Base: Original cost rate base of $8.87 billion.
- Capital Structure: 45.3% long-term debt and 54.7% common stock equity.
- Cost of Capital: 4.10% for long-term debt, 10.15% for common stock equity, resulting in a weighted-average cost of capital of 7.41%.
Material Changes and Proposed Adjustments
The application includes several material adjustments and program changes:
- Test Year: Twelve months ended June 30, 2019.
- Project Recoveries: Includes recovery of deferral and rate base effects for the Four Corners Power Plant selective catalytic reduction project and the Ocotillo Power Plant modernization project.
- Navajo Generating Station: Continued recovery of remaining investment and costs related to the retirement and closure of the station.
- Rate Design Changes: Introduction of a super off-peak period for winter time-of-use rates, a flat bill/subscription rate pilot program, and an experimental market pricing program for up to 200 megawatts of commercial customers.
- Customer Assistance: Additional $1.25 million in funding for the limited-income crisis bill program.
Guidance, Outlook, and Risks
APS requested that the rate increase become effective December 1, 2020. The filing explicitly states that APS cannot predict the outcome of its request. The document contains forward-looking statements regarding expectations for the rate case, noting that actual results may differ materially due to regulatory decisions and other uncertainties. Investors are directed to the company's Form 10-K and 10-Q filings for a detailed discussion of risks.
Important Facts for Investor Verification
- Verify the final ruling by the Arizona Corporation Commission (Docket E-01345A-19-0236) to determine the approved revenue increase versus the requested $184 million.
- Confirm the effective date of any approved rate changes, as the requested date was December 1, 2020.
- Monitor the status of the separate proceeding regarding the Four Corners Power Plant selective catalytic reduction project.
- Review the impact of the $115 million net credit on future cash flows and the Tax Expense Adjustment Mechanism.
- Assess the regulatory approval of the proposed capital structure and cost of capital assumptions.