Pinnacle West(PNW) - 2021 Q3 - Quarterly Report

FORM 10-Q Filing Information Registrant Details and Filing Status This section details the quarterly report filing by Pinnacle West Capital Corporation and Arizona Public Service Company, confirming their SEC compliance and filer statuses Registrant Details (dollars in thousands) | Registrant | Commission File Number | IRS Employer Identification No. | | :----------- | :--------------------- | :------------------------------ | | PINNACLE WEST CAPITAL CORPORATION | 1-8962 | 86-0512431 | | ARIZONA PUBLIC SERVICE COMPANY | 1-4473 | 86-0011170 | Common Stock Trading Symbol | Registrant | Common Stock Trading Symbol | | :----------- | :-------------------------- | | PINNACLE WEST CAPITAL CORPORATION | PNW | | ARIZONA PUBLIC SERVICE COMPANY | N/A (not listed) | Filer Status | Registrant | Filer Status | | :----------- | :------------- | | PINNACLE WEST CAPITAL CORPORATION | Large accelerated filer | | ARIZONA PUBLIC SERVICE COMPANY | Non-accelerated filer | Common Shares Outstanding (as of Oct 29, 2021) | Registrant | Common Shares Outstanding (as of Oct 29, 2021) | | :----------- | :--------------------------------------------- | | PINNACLE WEST CAPITAL CORPORATION | 112,818,823 | | ARIZONA PUBLIC SERVICE COMPANY | 71,264,947 | Forward-Looking Statements General Disclaimer This section provides a cautionary statement regarding forward-looking statements, noting that actual results may differ materially from expectations due to various factors - Forward-looking statements are identified by words such as 'estimate,' 'predict,' 'may,' 'believe,' 'plan,' 'expect,' 'intend,' 'assume,' 'project,' 'anticipate,' 'goal,' 'seek,' 'strategy,' 'likely,' 'should,' 'will,' 'could,' and similar words[14] - Actual results may differ materially from expectations, and readers are cautioned not to place undue reliance on these statements[14] Risk Factors A range of factors could cause future results to differ from expectations, including the ongoing COVID-19 pandemic, regulatory decisions, and economic conditions - Potential effects of the continued Coronavirus (COVID-19) pandemic on demand, economy, employees, supply chain, expenses, capital markets, and liquidity[15][17] - Ability to manage capital expenditures and operations and maintenance costs while maintaining reliability and customer service levels[15][17] - Variations in demand for electricity due to weather, seasonality, economic conditions, customer growth, energy conservation, and technological advancements[15][17] - Potential effects of climate change on the electric system, including extreme weather[15][17] - Regulatory and judicial decisions, developments, and proceedings[15][17] - Ability to achieve timely and adequate rate recovery of costs, including returns on debt and equity capital investment[15][17] - Risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty[15][17] - Direct or indirect effect on facilities or business from cybersecurity threats, data security breaches, terrorist attacks, or other catastrophic events[15][17] - The cost of debt and equity capital and the ability to access capital markets when required[15][17] - Restrictions on dividends or other provisions in credit agreements and Arizona Corporation Commission (ACC) orders[15][17] PART I — FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for Pinnacle West Capital Corporation and its subsidiary, Arizona Public Service Company (APS), for the three and nine months ended September 30, 2021 and 2020, along with combined notes Pinnacle West Condensed Consolidated Statements of Income Pinnacle West's consolidated net income attributable to common shareholders decreased by $6.574 million for the three months ended September 30, 2021, while increasing by $21.186 million for the nine months ended September 30, 2021 Pinnacle West Condensed Consolidated Statements of Income (Unaudited, dollars in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating Revenues | $1,308,254 | $1,254,501 | $3,004,978 | $2,846,021 | | Total Operating Expenses | $878,881 | $799,493 | $2,249,685 | $2,088,717 | | Operating Income | $429,373 | $455,008 | $755,293 | $757,304 | | Net Income Attributable to Common Shareholders | $339,798 | $346,372 | $591,136 | $569,950 | | Basic EPS | $3.01 | $3.07 | $5.24 | $5.06 | | Diluted EPS | $3.00 | $3.07 | $5.22 | $5.05 | Pinnacle West Condensed Consolidated Statements of Comprehensive Income Pinnacle West's comprehensive income attributable to common shareholders for the three months ended September 30, 2021, was $340.710 million, a slight decrease from the prior-year period, while increasing to $594.266 million for the nine months ended September 30, 2021 Pinnacle West Condensed Consolidated Statements of Comprehensive Income (Unaudited, dollars in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Income | $344,104 | $351,245 | $604,054 | $584,570 | | Total Other Comprehensive Income | $912 | $384 | $3,130 | $(395) | | Comprehensive Income Attributable to Common Shareholders | $340,710 | $346,756 | $594,266 | $569,555 | Pinnacle West Condensed Consolidated Balance Sheets Pinnacle West's total assets increased by approximately $1.516 billion from December 31, 2020, to September 30, 2021, primarily due to increases in current assets, investments, and property, plant, and equipment Pinnacle West Condensed Consolidated Balance Sheets (Unaudited, dollars in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Total Current Assets | $1,709,148 | $1,198,319 | | Total Investments and Other Assets | $1,760,513 | $1,485,866 | | Total Property, Plant and Equipment | $15,673,601 | $15,159,210 | | Total Deferred Debits | $2,393,162 | $2,177,026 | | TOTAL ASSETS | $21,536,424 | $20,020,421 | | Total Current Liabilities | $1,649,257 | $1,360,433 | | Long-Term Debt Less Current Maturities | $6,763,146 | $6,314,266 | | Total Deferred Credits and Other | $6,937,557 | $6,592,929 | | Total Equity | $6,186,464 | $5,752,793 | | TOTAL LIABILITIES AND EQUITY | $21,536,424 | $20,020,421 | Pinnacle West Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, Pinnacle West's net cash provided by operating activities decreased by $111.506 million compared to the prior-year period, leading to an overall net decrease in cash and cash equivalents Pinnacle West Condensed Consolidated Statements of Cash Flows (Unaudited, dollars in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $660,513 | $772,019 | | Net Cash Used for Investing Activities | $(962,312) | $(955,503) | | Net Cash Provided by Financing Activities | $267,519 | $355,127 | | Net Increase (Decrease) in Cash and Cash Equivalents | $(34,280) | $171,643 | | Cash and Cash Equivalents at End of Period | $25,688 | $181,926 | Pinnacle West Condensed Consolidated Statements of Changes in Equity Pinnacle West's total equity increased from $5.753 billion at January 1, 2021, to $6.186 billion at September 30, 2021, primarily driven by net income and common stock issuances Pinnacle West Condensed Consolidated Statements of Changes in Equity (Unaudited, dollars in thousands) | Metric | Balance Jan 1, 2021 | Net Income | Other Comprehensive Income | Dividends on Common Stock | Issuance of Common Stock | Purchase of Treasury Stock | Reissuance of Treasury Stock | Capital Activities by Noncontrolling Interests | Other | Balance Sep 30, 2021 | | :-------------------------------- | :------------------ | :--------- | :------------------------- | :------------------------ | :----------------------- | :------------------------- | :--------------------------- | :------------------------------------------- | :---- | :------------------- | | Common Stock Amount | $2,677,482 | — | — | — | $21,070 | $(1,333) | $4,543 | — | — | $2,698,552 | | Retained Earnings | $3,025,106 | $591,136 | — | $(187,165) | — | — | — | — | $(1) | $3,429,076 | | Accumulated Other Comprehensive Loss | $(62,796) | — | $3,130 | — | — | — | — | — | — | $(59,666) | | Noncontrolling Interests | $119,290 | $12,918 | — | — | — | — | — | $(10,628) | $1 | $121,581 | | Total Equity | $5,752,793 | $604,054 | $3,130 | $(187,165) | $21,070 | $(1,333) | $4,543 | $(10,628) | — | $6,186,464 | APS Condensed Consolidated Statements of Income Arizona Public Service Company (APS) reported a slight decrease in net income attributable to common shareholder for the three months ended September 30, 2021, but an increase for the nine-month period, driven by rising operating revenues and expenses APS Condensed Consolidated Statements of Income (Unaudited, dollars in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating Revenues | $1,308,254 | $1,254,501 | $3,004,978 | $2,846,021 | | Total Operating Expenses | $875,871 | $795,942 | $2,239,959 | $2,078,879 | | Operating Income | $432,383 | $458,559 | $765,019 | $767,142 | | Net Income Attributable to Common Shareholder | $343,663 | $350,363 | $598,698 | $582,826 | APS Condensed Consolidated Statements of Comprehensive Income APS's comprehensive income attributable to common shareholder for the three months ended September 30, 2021, was $344.663 million, a slight decrease from the prior-year period, while increasing to $600.784 million for the nine months ended September 30, 2021 APS Condensed Consolidated Statements of Comprehensive Income (Unaudited, dollars in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Income | $347,969 | $355,236 | $611,616 | $597,446 | | Total Other Comprehensive Income | $1,000 | $900 | $2,086 | $1,397 | | Comprehensive Income Attributable to Common Shareholder | $344,663 | $351,263 | $600,784 | $584,223 | APS Condensed Consolidated Balance Sheets APS's total assets increased by approximately $1.516 billion from December 31, 2020, to September 30, 2021, primarily due to increases in property, plant, and equipment, investments, and current assets APS Condensed Consolidated Balance Sheets (Unaudited, dollars in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Total Property, Plant and Equipment | $15,673,266 | $15,158,846 | | Total Investments and Other Assets | $1,709,854 | $1,438,954 | | Total Current Assets | $1,674,977 | $1,158,903 | | Total Deferred Debits | $2,382,397 | $2,167,548 | | TOTAL ASSETS | $21,440,494 | $19,924,251 | | Total Capitalization | $13,027,471 | $12,163,130 | | Total Current Liabilities | $1,503,872 | $1,176,177 | | Total Deferred Credits and Other | $6,909,151 | $6,584,944 | | TOTAL LIABILITIES AND EQUITY | $21,440,494 | $19,924,251 | APS Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, APS's net cash provided by operating activities decreased by $120.134 million compared to the prior-year period, leading to an overall net decrease in cash and cash equivalents APS Condensed Consolidated Statements of Cash Flows (Unaudited, dollars in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $650,697 | $770,831 | | Net Cash Used for Investing Activities | $(969,580) | $(960,707) | | Net Cash Provided by Financing Activities | $280,871 | $361,500 | | Net Increase (Decrease) in Cash and Cash Equivalents | $(38,012) | $171,624 | | Cash and Cash Equivalents at End of Period | $19,298 | $181,793 | APS Condensed Consolidated Statements of Changes in Equity APS's total equity increased from $6.345 billion at January 1, 2021, to $6.761 billion at September 30, 2021, primarily driven by net income, partially offset by dividends paid APS Condensed Consolidated Statements of Changes in Equity (Unaudited, dollars in thousands) | Metric | Balance Jan 1, 2021 | Net Income | Other Comprehensive Income | Dividends on Common Stock | Capital Activities by Noncontrolling Interests | Other | Balance Sep 30, 2021 | | :-------------------------------- | :------------------ | :--------- | :------------------------- | :------------------------ | :------------------------------------------- | :---- | :------------------- | | Common Stock Amount | $178,162 | — | — | — | — | — | $178,162 | | Additional Paid-In Capital | $2,871,696 | — | — | — | — | — | $2,871,696 | | Retained Earnings | $3,216,955 | $598,698 | — | $(187,000) | — | $(1) | $3,628,652 | | Accumulated Other Comprehensive Income (Loss) | $(40,918) | — | $2,086 | — | — | — | $(38,832) | | Noncontrolling Interests | $119,290 | $12,918 | — | — | $(10,628) | $1 | $121,581 | | Total Equity | $6,345,185 | $611,616 | $2,086 | $(187,000) | $(10,628) | — | $6,761,259 | Combined Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the condensed consolidated financial statements of Pinnacle West and APS, covering consolidation principles, revenue recognition, debt, regulatory matters, and other key accounting policies Note 1. Consolidation and Nature of Operations Pinnacle West's consolidated financial statements include its subsidiaries APS, 4C Acquisition, LLC, Bright Canyon Energy Corporation, and El Dorado Investment Company, with APS's statements also including Palo Verde Generating Station sale leaseback variable interest entities - Pinnacle West's consolidated financial statements include APS, 4C Acquisition, LLC, Bright Canyon Energy Corporation, and El Dorado Investment Company[57] - APS's condensed consolidated financial statements include the Palo Verde Generating Station sale leaseback variable interest entities[57] - A FERC waiver for the Allowance for Funds Used During Construction (AFUDC) rate calculation, initially due to COVID-19, was extended until March 31, 2022, using a simplified approach not expected to materially impact financial statements[60] Note 2. Revenue Pinnacle West's operating revenues increased for both the three and nine months ended September 30, 2021, driven by non-residential retail electric revenue, wholesale energy sales, and transmission services, while the allowance for doubtful accounts also increased due to the COVID-19 pandemic Pinnacle West Consolidated Revenue by Source (dollars in thousands) | Revenue Source | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Retail Electric Revenue - Residential | $681,918 | $726,231 | $1,554,473 | $1,566,432 | | Retail Electric Revenue - Non-Residential | $480,671 | $461,168 | $1,216,449 | $1,145,640 | | Wholesale Energy Sales | $108,539 | $45,631 | $144,143 | $76,226 | | Transmission Services for Others | $35,816 | $18,000 | $77,388 | $48,693 | | Other Sources | $1,310 | $3,471 | $12,525 | $9,030 | | Total Operating Revenues | $1,308,254 | $1,254,501 | $3,004,978 | $2,846,021 | - Revenues from contracts with customers for the three and nine months ended September 30, 2021, were $1,304 million and $2,967 million, respectively, compared to $1,244 million and $2,806 million for the same periods in 2020[67] Pinnacle West Allowance for Doubtful Accounts (dollars in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :------------------------------------ | :----------- | :----------- | | Balance at beginning of period | $19,782 | $8,171 | | Bad debt expense | $17,336 | $20,633 | | Actual write-offs | $(11,815) | $(9,022) | | Balance at end of period | $25,303 | $19,782 | - The allowance for doubtful accounts increased due to the COVID-19 pandemic, the Summer Disconnection Moratorium, and related write-offs of customer delinquent accounts[72] Note 3. Long-Term Debt and Liquidity Matters Pinnacle West and APS maintain committed revolving credit facilities to ensure liquidity, with APS issuing $450 million in senior notes in August 2021 and both companies replacing their credit facilities with new ones maturing in May 2026 - Pinnacle West repaid a $31 million term loan on April 27, 2021[75] - Pinnacle West replaced its $200 million revolving credit facility with a new one maturing on May 28, 2026, with an option to increase to $300 million, and had no outstanding borrowings or commercial paper at September 30, 2021[77] - APS issued $450 million of 2.2% unsecured senior notes maturing December 15, 2031, to repay short-term debt and fund capital expenditures[79] - APS replaced its two $500 million revolving credit facilities with two new $500 million facilities totaling $1 billion, maturing on May 28, 2026, with an option to increase to $1.4 billion, and had $125 million in outstanding commercial paper borrowings at September 30, 2021[80] Estimated Fair Value of Long-Term Debt (dollars in thousands) | Registrant | Carrying Amount (Sep 30, 2021) | Fair Value (Sep 30, 2021) | Carrying Amount (Dec 31, 2020) | Fair Value (Dec 31, 2020) | | :----------- | :----------------------------- | :------------------------ | :----------------------------- | :------------------------ | | Pinnacle West | $646,934 | $651,160 | $496,321 | $509,050 | | APS | $6,266,212 | $7,080,893 | $5,817,945 | $7,103,791 | | Total | $6,913,146 | $7,732,053 | $6,314,266 | $7,612,841 | Note 4. Regulatory Matters This section details various regulatory proceedings and their financial implications for APS, including the ongoing impacts of the COVID-19 pandemic, the 2019 Retail Rate Case, and the status of several cost recovery mechanisms COVID-19 Pandemic APS voluntarily suspended customer disconnections and waived late payment fees from March 2020 to December 2020 due to COVID-19, leading to increased bad debt expense and delayed rate adjustments - APS voluntarily suspended customer disconnections for nonpayment and waived late payment fees from March 13, 2020, to December 31, 2020[84] - The suspension of disconnections led to an increase in bad debt expense[84] - The 2021 PSA reset was delayed and implemented in two phases: 50% effective April 2021 and the remaining 50% effective November 2021[85] - APS refunded approximately $43 million to customers from the Demand Side Management (DSM) Adjustor Charge[86] - APS spent over $15 million to assist customers and non-profits with COVID-19 impacts, including $12.4 million directly for bill assistance programs (COVID Customer Support Fund)[87] 2019 Retail Rate Case Filing with the Arizona Corporation Commission APS filed a 2019 Rate Case seeking a $69 million increase in annual retail base rates, but the ACC ultimately approved a total annual revenue decrease of $4.8 million and an 8.70% return on equity, which APS intends to challenge - APS filed an application on October 31, 2019, seeking a $69 million increase in annual retail base rates, including recovery for the Four Corners SCR project and a net credit from the Tax Expense Adjustment Mechanism (TEAM)[88] Proposed Capital Structure and Costs of Capital in 2019 Rate Case | Metric | Capital Structure | Cost of Capital | | :---------------------- | :---------------- | :-------------- | | Long-term debt | 45.3% | 4.10% | | Common stock equity | 54.7% | 10.15% | | Weighted-average cost of capital | N/A | 7.41% | - The Administrative Law Judge (ALJ) recommended a $111 million decrease in annual revenue requirements and a 9.16% return on equity[97] - The ACC, through amendments, approved a total annual revenue decrease for APS of $4.8 million (excluding temporary CCT payments) and a return on equity of 8.70%[98] - APS intends to file an application for rehearing and, if denied, appeal the ACC's decision in the 2019 Rate Case[99] 2016 Retail Rate Case Filing with the Arizona Corporation Commission In 2016, APS filed for a retail base rate increase, which was settled in 2017 for a net increase of $94.6 million, with new rates effective August 19, 2017 - APS filed an application for an annual increase in retail base rates on June 1, 2016[101] - A settlement agreement (2017 Settlement Agreement) was reached, providing for a net retail base rate increase of $94.6 million, excluding adjustor balance transfers[101] - Authorized return on common equity: 10.0%[102] - Capital structure: 44.2% debt and 55.8% common equity[102] - Cost deferral order for Ocotillo modernization project and Four Corners SCR equipment[102] - Expansion of the Power Supply Adjustor (PSA) to include environmental chemical and third-party energy storage costs[102] - New AZ Sun II program (APS Solar Communities) for utility-owned solar distributed generation, with $10-15 million annual capital costs recoverable through RES[102] - Increase to the environmental improvement surcharge cap from $0.00016 to $0.00050 per kWh[102] - The ACC approved the 2017 Settlement Agreement on August 15, 2017, and new rates became effective on August 19, 2017[105] ACC Review of APS 2017 Rate Case Decision The ACC initiated a rate review of APS's 2017 Rate Case Decision in December 2018, requiring APS to file a new rate case by October 2019 and implement customer education programs, ultimately closing the docket in November 2020 without adjusting current rates - ACC Commissioners initiated a rate review of APS's 2017 Rate Case Decision in December 2018 due to customer complaints about higher-than-anticipated rate increases[108] - APS was required to file a rate case by October 31, 2019, using a June 30, 2019 test year[110] - APS must provide information on customer bills showing the most economical rate based on actual usage[110] - APS customers can switch rate plans during a six-month open enrollment period[110] - APS must identify customers with bills increased by more than 9% and not on the most economical rate, providing targeted education and an opportunity to switch plans[110] - APS must fund and implement a supplemental customer education and outreach program[110] - APS must fund and organize a stakeholder group to suggest better ways to communicate adjustor cost recovery mechanisms and educate customers on rate plans and energy usage[110] - Despite allegations of non-compliance and over-earning, the ACC voted to administratively close the docket on November 4, 2020, without making any adjustments to APS's current rates[113] Cost Recovery Mechanisms APS utilizes several regulatory mechanisms for timely cost recovery outside general rate cases, including the Renewable Energy Standard (RES), Demand Side Management (DSM) Adjustor Charge, Power Supply Adjustor (PSA), Environmental Improvement Surcharge (EIS), Transmission Cost Adjustor (TCA), Lost Fixed Cost Recovery (LFCR), and Tax Expense Adjustor Mechanism (TEAM) Renewable Energy Standard The RES requires APS to source an increasing percentage of retail electricity from eligible renewable resources, with the 2021 plan approved for a $84.7 million budget and new clean energy rules requiring 100% clean energy by 2070 - The Renewable Energy Standard (RES) requires electric utilities regulated by the ACC to supply an increasing percentage of retail electric energy sales from eligible renewable resources[115] - The 2021 RES Implementation Plan, with a budget of approximately $84.7 million, was approved by the ACC on June 7, 2021, authorizing APS to collect $68.3 million through the Renewable Energy Adjustment Charge[118] - In June 2021, the ACC adopted clean energy rules requiring 100% clean energy by 2070, with interim carbon reduction targets (50% by 2032, 65% by 2040, 80% by 2050, 95% by 2060); supplemental rulemaking is required before these rules become effective[119][169] Demand Side Management Adjustor Charge The DSM Adjustor Charge allows APS to recover costs for energy efficiency programs, with the 2021 DSM Plan approved for a $63.7 million budget, including enhanced assistance for COVID-19 impacted customers - The ACC Electric Energy Efficiency Standards require APS to submit an annual DSM Plan for review and approval[121] - The amended 2020 DSM Plan, with a budget of $51.9 million, was approved on September 23, 2020[124] - APS refunded approximately $43 million to customers in June 2020 from unallocated DSM Adjustor Charge funds[125] - The amended 2021 DSM Plan, with a requested budget of $63.7 million, was approved on July 13, 2021, focusing on peak demand reduction, load shifting, storage, electrification, and COVID-19 assistance[126] Power Supply Adjustor Mechanism and Balance The PSA adjusts retail rates for variations in fuel and purchased power costs, with the deferred fuel and purchased power regulatory asset increasing significantly from $175.835 million at the beginning of 2021 to $375.181 million by September 30, 2021 - The Power Supply Adjustor (PSA) mechanism adjusts retail rates to reflect variations primarily in retail fuel and purchased power costs[128] Deferred Fuel and Purchased Power Regulatory Asset (dollars in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Beginning balance | $175,835 | $70,137 | | Deferred fuel and purchased power costs — current period | $224,541 | $82,679 | | Amounts (charged) refunded to customers | $(25,195) | $9,295 | | Ending balance | $375,181 | $162,111 | - The 2021 PSA rate, a $0.004 per kWh increase (the maximum permitted), was implemented in two phases: 50% in April 2021 and the remaining 50% in November 2021, due to COVID-19 impacts[131] - The ACC approved the recovery of costs related to two energy storage power purchase tolling agreements through the PSA, with an application for three additional projects filed in October 2021[132] Environmental Improvement Surcharge The EIS allows APS to recover capital carrying costs and incremental operations and maintenance expenses for environmental improvements, with an overall cap of $0.0005 per kWh (approximately $13-14 million annually) - The Environmental Improvement Surcharge (EIS) permits APS to recover capital carrying costs and incremental operations and maintenance expenses for environmental improvements[133] - The EIS has an overall cap of $0.0005 per kWh (approximately $13 million to $14 million per year)[133] - APS's February 1, 2021, application requested an increase in the charge to $10.3 million, which became effective in April 2021[133] Transmission Rates, Transmission Cost Adjustor ("TCA") and Other Transmission Matters APS uses a FERC-approved formula rate-setting methodology for transmission services, with the annual wholesale transmission revenue requirement increasing by approximately $4 million effective June 1, 2021, while retail customer rates decreased by $28.4 million due to TCA adjustments - APS uses a FERC-approved formula rate-setting methodology for transmission services, updated annually, to reflect and recover costs[134] - Effective June 1, 2021, APS's annual wholesale transmission revenue requirement increased by approximately $4 million, but retail customer rates decreased by $28.4 million due to TCA adjustments[140] Lost Fixed Cost Recovery Mechanism The LFCR mechanism allows APS to recover a portion of fixed costs lost due to energy efficiency programs and distributed generation, with recoverable fixed costs at 2.5 cents per kWh and an annual cap of 1% of retail revenues - The Lost Fixed Cost Recovery (LFCR) mechanism permits APS to recover a portion of fixed costs lost due to energy efficiency programs and distributed generation[141] - Recoverable fixed costs are 2.5 cents for both lost residential and non-residential kWh, with a year-over-year cap of 1% of retail revenues[141] - The ACC did not approve APS's requested $11.8 million increase for the 2021 LFCR adjustment, and this amount will be maintained in the LFCR regulatory asset balancing account for future recovery[143] - The 2019 Rate Case decision requires an earnings test as part of annual LFCR calculations, which could set recovery to zero if the prior year's rate of return exceeds the authorized amount[144] Tax Expense Adjustor Mechanism The TEAM is a rate adjustment mechanism to pass through federal income tax effects to customers, particularly from the Tax Cuts and Jobs Act (Tax Act) of 2017, with Phase I reducing rates by $119.1 million annually and Phase II returning an additional $86.5 million in tax savings - The Tax Expense Adjustor Mechanism (TEAM) is a rate adjustment mechanism to pass through certain income tax effects to customers, particularly from the Tax Act of 2017[145] - TEAM Phase I reduced rates by $119.1 million annually, effective March 2018[146] - TEAM Phase II returned an additional $86.5 million in tax savings, effective April 2019[148] - TEAM Phase III provided a one-time $64 million bill credit in December 2019 and a monthly bill credit of $39.5 million through December 2020, which was extended through December 31, 2021[150] - As part of the 2019 Rate Case, all Tax Act impacts were removed from the TEAM and incorporated into APS's base rates, with the TEAM retained for future tax law changes[151] Net Metering APS's 2017 Rate Case Decision established a Resource Comparison Proxy (RCP) methodology for payments to distributed generation (DG) solar facilities, based on the five-year rolling average price of utility-scale solar projects, with the fourth-year export energy price of 9.4 cents per kWh effective October 1, 2021 - Payments for energy exported to the grid from distributed generation (DG) solar facilities are determined using a Resource Comparison Proxy (RCP) methodology, based on the most recent five-year rolling average price APS pays for utility-scale solar projects[152] - The RCP price is updated annually and cannot decrease by more than 10% per year[152] - The ACC eliminated the requirement to develop a forecasted avoided cost methodology in May 2021, confirming the RCP methodology for exported energy pricing[154] - The fourth-year export energy price of 9.4 cents per kWh became effective on October 1, 2021, reflecting the 10% annual reduction[155] Subpoena from Former Arizona Corporation Commissioner Robert Burns Former ACC Commissioner Robert Burns issued subpoenas to APS and Pinnacle West in 2016, seeking financial records related to marketing, donations, lobbying, and political contributions, with the Arizona Supreme Court currently reviewing the outcome of legal challenges - Former ACC Commissioner Robert Burns issued subpoenas to APS and Pinnacle West in August 2016, requesting records on marketing, advertising, charitable donations, lobbying, and political contributions from 2011-2016[158] - APS filed a motion to quash the subpoenas, leading to a legal dispute that was ultimately dismissed by the Superior Court in December 2018[159][162] - The Arizona Court of Appeals affirmed the trial court's dismissal in March 2021, concluding Burns could not overturn the ACC's 4-1 vote refusing to enforce his subpoenas[164] - Burns filed a petition for review with the Arizona Supreme Court in May 2021, and the outcome is currently unpredictable[164] Information Requests from Arizona Corporation Commissioners In early 2019, ACC Commissioners initiated dockets and issued subpoenas to investigate campaign expenditures, political participation, and charitable contributions of APS and Pinnacle West, to which APS voluntarily responded, with its CEO committing to no future participation in ACC campaign elections - ACC Commissioners initiated dockets and issued subpoenas in early 2019 to investigate campaign expenditures and political participation of APS and Pinnacle West, as well as charitable contributions related to the ACC[165] - APS and Pinnacle West voluntarily responded to these information requests[165] - In January 2020, APS's CEO committed that Pinnacle West and its affiliated companies would not participate in ACC campaign elections through financial or in-kind contributions during his tenure[166] Energy Modernization Plan The Energy Modernization Plan, proposed in 2018, aims to establish energy policies focused on clean energy sources and expanded energy planning, with the ACC adopting clean energy rules in June 2021 requiring 100% clean energy by 2070, pending supplemental rulemaking procedures - The Energy Modernization Plan, proposed in January 2018, aims to establish energy policies tied to clean energy sources and expanded energy planning through the Integrated Resource Plan (IRP) process[167] - In June 2021, the ACC adopted clean energy rules with a final standard of 100% clean energy by 2070 and interim carbon reduction targets (50% by 2032, 65% by 2040, 80% by 2050, 95% by 2060)[169] - Supplemental rulemaking procedures are required before the adopted clean energy rules can become effective, and APS cannot predict the outcome[169] Integrated Resource Planning ACC rules require utilities to develop 15-year Integrated Resource Plans (IRPs) outlining how they will serve customer load, but the ACC has taken no further action on APS's 2020 IRP, leaving the outcome uncertain - ACC rules require utilities to develop 15-year Integrated Resource Plans (IRPs) describing how they plan to serve customer load[170] - The ACC did not acknowledge any of the 2017 IRPs[170] - APS filed its final IRP on June 26, 2020, and the ACC Staff requested additional time for assessment and engaged a third-party consultant[170] - The ACC has taken no further action on APS's IRP, and the outcome is unpredictable[170] Public Utility Regulatory Policies Act Under PURPA, qualifying facilities can sell energy/capacity to utilities at long-term avoided cost rates, with the ACC mandating an 18-year minimum contract length for facilities over 100 kW in December 2019, and FERC revising PURPA regulations in July 2020 - The Public Utility Regulatory Policies Act of 1978 (PURPA) grants qualifying facilities the right to sell energy and/or capacity to utilities[171] - In December 2019, the ACC mandated a minimum contract length of 18 years for qualifying facilities over 100 kW, with rates based on long-term avoided cost[171] - APS entered into two 18-year power purchase agreements (PPAs) for 80 MW solar facilities in 2020, approved by the ACC in March 2021[171] - FERC issued a final rule revising PURPA regulations in July 2020, effective December 31, 2020, and APS is monitoring its impact[172] Residential Electric Utility Customer Service Disconnections In June 2019, APS voluntarily suspended residential electric disconnections, and the ACC enacted an emergency Summer Disconnection Moratorium, with final rules approved in November 2021 allowing utilities to choose between temperature or calendar thresholds for moratoriums - In June 2019, APS voluntarily suspended residential electric disconnections, and the ACC enacted an emergency Summer Disconnection Moratorium (June 1 – October 15)[173] - During the moratorium, APS could not charge late fees or interest on past due amounts, and customer deposits had to be used for delinquent amounts before disconnection[173] - Due to COVID-19, APS voluntarily suspended disconnections and waived late payment fees from March 13, 2020, until December 31, 2020, leading to increased bad debt expense[176] - In November 2021, the ACC approved final rules for customer disconnections, allowing utilities to choose between temperature or calendar thresholds for moratoriums, pending review by the Arizona Attorney General[175] Retail Electric Competition Rules The ACC is re-examining the facilitation of a deregulated retail electric market in Arizona, with ongoing discussions and proposed draft rules, including an application from Green Mountain Energy to provide competitive service and a proposed pilot program for competitive electricity suppliers - The ACC is re-examining the facilitation of a deregulated retail electric market in Arizona, with ongoing discussions and proposed draft rules[177] - In August 2021, Green Mountain Energy filed an application to provide competitive electric generation service in APS's territory, which APS opposes and intends to contest[178] - An ACC Commissioner proposed a 200-300 MW pilot program to allow residential and small commercial customers of APS to elect a competitive electricity supplier[179] - APS cannot predict whether these efforts will result in changes to retail electric competition rules or their impact on the company[177][179] Rate Plan Comparison Tool and Investigation APS's rate plan comparison tool experienced an integration error from February to November 2019, affecting rate plan recommendations, leading to $25 refunds and inconvenience payments to approximately 13,000 customers, and a $24.75 million settlement with the Arizona Attorney General - APS's rate plan comparison tool had an integration error from February 4, 2019, to November 14, 2019, affecting rate plan recommendations[180] - APS provided refunds and $25 inconvenience payments to approximately 13,000 potentially impacted customers, and an additional 3,800 customers after an independent third-party review[180] - APS settled an investigation with the Arizona Attorney General for $24.75 million, with approximately $24 million returned to customers as restitution[181] - While the matter is resolved with the Attorney General, APS cannot predict whether additional inquiries or actions may be taken by the ACC[181] Four Corners SCR Cost Recovery APS sought recovery for its Four Corners SCR project costs in the 2019 Rate Case, with the ACC approving recovery of approximately $194 million, resulting in a partial disallowance of $215.5 million, which APS intends to legally challenge - APS included recovery of the deferral and rate base effects of the Four Corners SCR project in its 2019 Rate Case[182] - The 2019 Rate Case Recommended Opinion and Order (ROO) recommended a disallowance of approximately $399 million of SCR plant investments and $61 million of SCR cost deferrals[184] - The ACC approved an amendment allowing recovery of approximately $194 million, resulting in a partial disallowance of $215.5 million on investments and deferrals[184] - APS intends to legally challenge the $215.5 million disallowance and has not reflected an impairment or write-off as of September 30, 2021; if upheld, a charge of up to $215.5 million may be required[184] - As of September 30, 2021, SCR plant investments and cost deferral balances are approximately $331 million and $77 million, net of accumulated deferred income taxes, respectively[184] Cholla APS announced in 2014 its plan to close Cholla Unit 2 and cease burning coal at Units 1 and 3 by the mid-2020s, with Unit 2 closed in October 2015 and Unit 4 retired in December 2020, while continuing to recover Unit 2's net book value and decommissioning costs - APS announced in 2014 its plan to close Cholla Unit 2 and cease burning coal at Units 1 and 3 by the mid-2020s[185] - Cholla Unit 2 was closed on October 1, 2015, and Unit 4 was retired on December 24, 2020[185] - APS is allowed continued recovery of the net book value and decommissioning costs of Unit 2 ($44.8 million as of September 30, 2021) in base rates[186] - The 2017 Settlement Agreement shortened the depreciation lives of Cholla Units 1 and 3 to 2025[186] Navajo Plant The Navajo Plant ceased operations in November 2019, with APS recovering depreciation and a return on its net book value ($64.6 million as of September 30, 2021) and other retirement-related costs, including a coal reclamation regulatory asset ($17.3 million) - The Navajo Plant ceased operations in November 2019[187] - APS is recovering depreciation and a return on its net book value ($64.6 million as of September 30, 2021) and other retirement-related costs, including a coal reclamation regulatory asset ($17.3 million)[188] - The 2019 Rate Case ROO, adopted by the ACC in November 2021, requires APS to record 15% of the annual amortization of the regulatory asset as a non-operating expense, which is not expected to have a material financial impact[189] Regulatory Assets and Liabilities Pinnacle West and APS maintain various regulatory assets and liabilities, with total regulatory assets at $1.676 billion and total regulatory liabilities at $2.810 billion as of September 30, 2021, reflecting future recovery or refund of costs in retail rates Regulatory Assets (dollars in thousands) | Regulatory Asset | Amortization Through | Current (Sep 30, 2021) | Non-Current (Sep 30, 2021) | Current (Dec 31, 2020) | Non-Current (Dec 31, 2020) | | :------------------------------------------ | :------------------- | :--------------------- | :------------------------- | :--------------------- | :------------------------- | | Pension | N/A | $0 | $493,952 | $0 | $469,953 | | Deferred fuel and purchased power | 2022 | $375,181 | $0 | $175,835 | $0 | | Income taxes — AFUDC equity | 2051 | $7,169 | $164,567 | $7,169 | $158,776 | | Retired power plant costs | 2033 | $27,244 | $93,686 | $28,181 | $114,214 | | Ocotillo deferral | N/A | $0 | $139,009 | $0 | $95,723 | | SCR deferral | N/A | $0 | $101,890 | $0 | $81,307 | | Lost fixed cost recovery | 2022 | $58,423 | $0 | $41,807 | $0 | | Deferred property taxes | 2027 | $8,569 | $43,199 | $8,569 | $49,626 | | Deferred compensation | 2036 | $0 | $35,806 | $0 | $36,195 | | Four Corners cost deferral | 2024 | $8,077 | $18,018 | $8,077 | $24,075 | | Income taxes — investment tax credit basis adjustment | 2049 | $1,113 | $23,185 | $1,113 | $24,291 | | Palo Verde VIEs | 2046 | $0 | $21,134 | $0 | $21,255 | | Coal reclamation | 2026 | $1,068 | $16,198 | $1,068 | $16,999 | | Loss on reacquired debt | 2038 | $1,648 | $9,716 | $1,689 | $10,877 | | Mead-Phoenix transmission line CIAC | 2050 | $332 | $9,131 | $332 | $9,380 | | Tax expense adjustor mechanism | 2021 | $8,614 | $0 | $6,226 | $0 | | PSA interest | 2022 | $245 | $0 | $4,355 | $0 | | Deferred fuel and purchased power — mark-to-market | 2024 | $0 | $0 | $3,341 | $9,244 | | Demand side management | 2023 | $0 | $0 | $0 | $7,268 | | Other | Various | $217 | $8,207 | $3,951 | $4,804 | | Total regulatory assets | | $497,900 | $1,177,698 | $291,713 | $1,133,987 | Regulatory Liabilities (dollars in thousands) | Regulatory Liability | Amortization Through | Current (Sep 30, 2021) | Non-Current (Sep 30, 2021) | Current (Dec 31, 2020) | Non-Current (Dec 31, 2020) | | :------------------------------------------ | :------------------- | :--------------------- | :------------------------- | :--------------------- | :------------------------- | | Excess deferred income taxes — ACC - Tax Act | 2046 | $41,418 | $980,277 | $41,330 | $1,012,583 | | Excess deferred income taxes — FERC - Tax Act | 2058 | $7,240 | $221,878 | $7,240 | $229,147 | | Asset retirement obligations | 2057 | $0 | $554,820 | $0 | $506,049 | | Other postretirement benefits | N/A | $47,798 | $302,366 | $37,705 | $349,588 | | Deferred fuel and purchased power — mark-to-market | 2024 | $126,502 | $68,681 | $0 | $0 | | Removal costs | N/A | $73,325 | $51,986 | $52,844 | $103,008 | | Income taxes — change in rates | 2050 | $2,839 | $63,707 | $2,839 | $66,553 | | Four Corners coal reclamation | 2038 | $5,460 | $50,151 | $5,460 | $49,435 | | Income taxes — deferred investment tax credit | 2049 | $2,231 | $46,431 | $2,231 | $48,648 | | Spent nuclear fuel | 2027 | $6,778 | $40,102 | $6,768 | $44,221 | | Renewable energy standard | 2022 | $32,193 | $115 | $39,442 | $103 | | FERC transmission true up | 2023 | $11,385 | $12,257 | $6,598 | $3,008 | | Property tax deferral | N/A | $0 | $19,318 | $0 | $13,856 | | Sundance maintenance | 2031 | $0 | $13,271 | $2,989 | $11,508 | | Demand side management | 2023 | $7,701 | $3,713 | $10,819 | $0 | | Tax expense adjustor mechanism | 2021 | $7,398 | $0 | $7,089 | $0 | | Deferred gains on utility property | 2022 | $1,907 | $551 | $2,423 | $1,544 | | Active union medical trust | N/A | $0 | $1,481 | $0 | $6,057 | | Other | Various | $5,018 | $107 | $3,311 | $4,861 | | Total regulatory liabilities | | $379,193 | $2,431,212 | $229,088 | $2,450,169 | Note 5. Retirement Plans and Other Postretirement Benefits Pinnacle West sponsors defined benefit and account balance pension plans, a non-qualified supplemental excess benefit retirement plan, and other postretirement benefit plans, with net periodic benefit costs showing a credit for both three and nine months ended September 30, 2021 - Pinnacle West sponsors a qualified defined benefit and account balance pension plan, a non-qualified supplemental excess benefit retirement plan, and other postretirement benefit plans (group life and medical, and a post-65 retiree health reimbursement arrangement (HRA))[194] - In January 2021, approximately $106 million of assets were transferred from the other postretirement benefit plan into the Active Union Employee Medical Account due to an increase in the over-funded status of the HRA[196] Net Periodic Benefit Costs (Credits) (dollars in thousands) | Metric | Three Months Ended Sep 30, 2021 (Pension) | Three Months Ended Sep 30, 2020 (Pension) | Nine Months Ended Sep 30, 2021 (Pension) | Nine Months Ended Sep 30, 2020 (Pension) | Three Months Ended Sep 30, 2021 (Other Benefits) | Three Months Ended Sep 30, 2020 (Other Benefits) | Nine Months Ended Sep 30, 2021 (Other Benefits) | Nine Months Ended Sep 30, 2020 (Other Benefits) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Service cost | $15,309 | $14,058 | $45,927 | $42,174 | $4,449 | $5,559 | $13,347 | $16,677 | | Non-service costs (credits) | $(22,029) | $(8,568) | $(66,010) | $(25,487) | $(18,181) | $(15,949) | $(53,243) | $(49,446) | | Net periodic benefit cost/(benefit) | $(6,720) | $5,492 | $(20,159) | $16,476 | $(13,732) | $(7,390) | $(41,199) | $(22,169) | | Portion charged to expense | $(7,803) | $736 | $(24,428) | $2,349 | $(9,765) | $(5,286) | $(28,901) | $(15,798) | - Pinnacle West made voluntary contributions of $100 million to its pension plan year-to-date in 2021, and minimum required contributions for the pension plan are zero for the next three years, with no contributions expected for other postretirement benefit plans during this period[198] Note 6. Palo Verde Sale Leaseback Variable Interest Entities APS consolidates three Variable Interest Entities (VIEs) related to the sale and leaseback of interests in Palo Verde Unit 2, with an amended lease agreement extending one lease term to 2033, and APS exposed to potential losses of up to $501 million under certain nuclear incident scenarios - APS consolidates three separate VIE lessor trust entities related to the sale and leaseback of interests in Palo Verde Unit 2 and related common facilities, as APS is deemed the primary beneficiary[199][200] - An amended lease agreement in April 2021 extended one lease term to 2033, ensuring APS retains assets under all three lease agreements through 2033, with total annual payments of approximately $21 million[199] - Consolidation of VIEs resulted in an increase in net income attributable to noncontrolling interests of $4 million for the three months and $13 million for the nine months ended September 30, 2021[201] VIE-Related Amounts on Condensed Consolidated Balance Sheets (dollars in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :------------------------------------------------ | :----------- | :----------- | | Palo Verde sale leaseback property, plant and equipment, net | $95,133 | $98,036 | | Equity — Noncontrolling interests | $121,581 | $119,290 | - APS is exposed to potential losses of approximately $307 million (beginning 2021) up to $501 million (over lease terms) if certain nuclear events or NRC violation orders occur, requiring APS to make payments and take title to leased assets[203] Note 7. Derivative Accounting APS uses derivative financial instruments to manage exposure to commodity price and transportation costs of electricity, natural gas, and emissions allowances, recording them at fair value, with unrealized gains and losses on regulated operations deferred for future rate treatment via the PSA mechanism - APS uses derivative financial instruments (futures, forwards, options, swaps) to manage exposure to commodity price and transportation costs of electricity, natural gas, and emissions allowances[205] - For regulated operations, 100% of unrealized gains and losses on derivatives are deferred for future rate treatment via the PSA mechanism[207] Outstanding Gross Notional Volume of Derivatives (does not reflect net position) | Commodity | Unit of Measure | Sep 30, 2021 | Dec 31, 2020 | | :---------- | :-------------- | :----------- | :----------- | | Power | GWh | — | 368 | | Gas | Billion cubic feet | 161 | 205 | Gains and Losses from Derivative Instruments Not Designated as Accounting Hedges (dollars in thousands) | Financial Statement Location | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Fuel and purchased power | $147,712 | $49,611 | $269,686 | $14,639 | Fair Value of Risk Management Activities on Condensed Consolidated Balance Sheets (dollars in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :------------------------------------------ | :----------- | :----------- | | Total Assets from risk management activities | $195,277 | $4,749 | | Total Liabilities from risk management activities | $(1,652) | $(18,619) | - APS is exposed to losses from nonperformance by counterparties, with two counterparties representing approximately 28% of Pinnacle West's $195 million risk management assets; credit risk is managed through collateral requirements and master netting arrangements[217] Note 8. Commitments and Contingencies This section outlines various commitments and contingencies, including spent nuclear fuel disposal, nuclear insurance, contractual obligations, Superfund-related matters, environmental regulations, and financial assurances, with APS pursuing damages from the DOE for spent nuclear fuel disposal and maintaining substantial nuclear liability and property damage insurance - APS filed a second breach of contract lawsuit against the DOE in 2012 for failing to accept Palo Verde's spent nuclear fuel; a settlement agreement in 2014 provides a method for submitting claims, with $111.8 million paid by DOE to Palo Verde owners (APS's share: $32.5 million) for claims through June 2020[221][222] - Palo Verde participants are insured against public liability for nuclear incidents up to approximately $13.5 billion, with $450 million from commercial sources and $13.1 billion from an industry-wide retrospective premium program; APS's maximum retrospective premium per incident for all three units is approximately $120.1 million[223] - As of September 30, 2021, fuel and purchased power and purchase obligation commitments increased by approximately $695 million from the 2020 Form 10-K, primarily due to new purchased power and energy storage commitments[226] - APS is a Potentially Responsible Party (PRP) in the Motorola 52nd Street Superfund Site, with estimated investigation and study costs of approximately $3 million; ultimate remediation costs are not yet reasonably estimable[228] - The ACC approved recovery of approximately $194 million of Four Corners SCR related plant investments and cost deferrals, resulting in a partial disallowance of $215.5 million; APS intends to legally challenge this disallowance[233] - APS's 63% share of the cost of required pollution controls for Four Corners Units 4 and 5 was approximately $400 million, which has been incurred[236] - APS estimates its share of incremental costs to comply with Coal Combustion Residual (CCR) rules for Four Corners is approximately $27 million and for Cholla is approximately $16 million; corrective action and monitoring costs at Four Corners are estimated to range from $10 million to $15 million over 30 years[243][244] - Pinnacle West guarantees certain obligations of NTEC to other Four Corners owners and Equity Contribution Guarantees and PTC Guarantees for BCE's wind farm acquisitions[249][253][254] Note 9. Other Income and Other Expense Pinnacle West's consolidated other income decreased for both the three and nine months ended September 30, 2021, compared to 2020, primarily due to lower interest income and the absence of investment gains, while other expense increased due to higher non-operating costs and investment losses Pinnacle West Consolidated Other Income and Other Expense (dollars in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total Other Income | $12,083 | $13,881 | $36,719 | $42,888 | | Total Other Expense | $(6,182) | $(5,838) | $(15,219) | $(14,426) | APS Other Income and Other Expense (dollars in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total Other Income | $11,597 | $13,328 | $35,120 | $38,233 | | Total Other Expense | $(2,196) | $(2,799) | $(9,807) | $(11,326) | Note 10. Earnings Per Share Pinnacle West's basic earnings per share (EPS) for the three months ended September 30, 2021, decreased to $3.01 from $3.07 in the prior-year period, while for the nine months ended September 30, 2021, basic EPS increased to $5.24 from $5.06 Pinnacle West Earnings Per Share (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income attributable to common shareholders | $339,798 | $346,372 | $591,136 | $569,95