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Thomas A. Loquvam
Thomas L. Mumaw
Melissa M. Krueger
Pinnacle West Capital Corporation
400 North 5111 Street, MS 8695
Phoenix, Arizona 85004
Tel: (602) 250-3630
Fax: (602) 250-3393
E-Mail: Thomas.Loguvam@pinnaclewest.com
Thomas.Mumaw@pinnaclewest.com
Melissa.Krueger@pinnaclewest.com

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Attorneys for Arizona Public Service Company

BEFORE THE ARIZONA CORPORATION COMMISSION
COMMISSIONERS
TOM FORESE, Chairman
BOB BURNS
ANDY TOBIN
BOYDDUNN
JUSTIN OLSON

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IN THE MATTER OF THE
APPLICATION OF ARIZONA PUBLIC
SERVICE COMPANY FOR A HEARING
TO DETERMINE THE FAIR VALUE OF
THE UTILITY PROPERTY OF THE
COMPANY FOR RATEMAKING
PURPOSES, TO FIX A JUST AND.
REASONABLE RATE OF RETURN
THEREON, TO APPROVE RATE
SCHEDULES DESIGNED TO DEVELOP
SUCH RETURN.
IN THE MATTER OF FUEL AND
PURCHASED POWER PROCUREMENT
AUDITS FOR ARIZONA PUBLIC
SERVICE COMPANY.

DOCKET NO. E-01345A-16-0036

ARIZONA PUBLIC SERVICE
COMPANY'S REQUEST FOR
APPROVAL OF A SELECTIVE
CATALYTIC REDUCTION
ADJUSTMENT

DOCKET NO. E-01345A-16-0123

 I.

INTRODUCTION

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As agreed to in APS 's general rate case, Decision No. 76295 (August 18, 20 17),

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APS submits this request for approval of the costs associated with the required

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installation of Selective Catalytic Reduction (SCR) equipment on Four Comers Power

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Plant (Four Comers) Units 4 and 5. APS requests that the Commission approve

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Adjustment Schedule FCA-1 (SCR Adjustment) to permit recovery of a $67.5 million

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annual revenue requirement. 1 This request is consistent with the projections provided

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during the rate case and reflects the costs associated with APS 's share of the installation

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of SCRs on Units 4 and 5 and the related deferred costs as authorized in Decision No.

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76295.

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This request is supported by the attached testimonies of Ms. Barbara Lockwood,

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Ms. Elizabeth Blankenship and Mr. Leland Snook as Exhibits 1-3, respectively. Ms.

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Lockwood provides testimony supporting the prudency of this request, as well as the

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history and importance of this plant to Arizona. Ms. Blankenship describes the various

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rate base and operating income adjustments that comprise the $67.5 million revenue

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requirement, demonstrates that the operating income resulting from this rate adjustment

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will not result in a return on rate base in excess of what was authorized in Decision No.

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76295, and explains how the SCR Adjustment is calculated. Mr. Snook provides

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testimony regarding bill impacts associated with this rate adjustment and why the

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weighted average cost of capital is the appropriate rate of return for this incremental rate

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base adjustment.

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11.

THE NEED FOR THE SCRS

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To comply with the Regional Haze Regulations authorized under the federal

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Clean Air Act and the EPA's Federal Implementation Plan (77 FR 51619 August 24,

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2012), APS was required to install SCRs on Units 4 and 5 of Four Corners. SCRs or

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The revenue requirement has been updated to reflect the newly enacted federal tax legislation.

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2

 ·1

Selective Catalytic Reduction equipment reduce nitrogen oxides (NOx) from the Plant's

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emissions. APS was required to install SCRs because the Regional Haze Regulations

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required use of Best Available Retrofit Technology (BART) to eliminate current and

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prevent future man-made visibility impairments, otherwise known as haze, in certain

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geographic locations. The EPA's Federal Implementation Plan determined that SCRs

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were the BART to reduce the emissions of NOx at Four Corners. The SCRs will permit

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APS to reduce NOx emissions by more than 80%.

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Under the Consent Decree entered on August 17, 2015 , APS is required to have

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the first SCR in operation by March 31, 2018. The second SCR must be in operation by

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July 31 , 2018. APS is on track to meet the compliance deadlines set by the Consent

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Decree. The Company has finished installing the SCR equipment on Unit 5 and it

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became operational on December 17, 2017. APS is in the process of completing the

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installation of SCR equipment on Unit 4 and expects the Unit 4 equipment to be

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completed and fully operational by the end of April 2018.

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Unit 5 SCR Support Structure

Unit 5 SCR

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3

 The size and complexity of this project cannot be understated. To date, APS has

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spent more than 2 million labor hours on the SCR installation. There have been over
4 ,500 engineering drawings, I66 pier foundations drilled, 7,000 tons of steel installed,
6,000 cubic yards of concrete poured, and 5,400 tons of ductwork installed. A computer
simulation demonstrating installation of the SCRs is contained on the CD attached as
BDL-I to Ms. Lockwood's testimony.

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II
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Unit 4 SCR Tie-in Outage Construction

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Installing SCRs at Four Comers allows this important resource to continue its

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long history of providing cost effective electricity for Arizona customers and the
Southwest. The value of Four Comers to APS customers was perhaps highlighted by the
Commission in Decision No. 73I30 (April 24, 2012), wherein Four Comers Units 4 and
5 were described as a "unique value" and "a reliable, low-cost generation resource., !d.
at 23 and 31.
The plant is operated by APS, but is jointly owned by APS, TEP, SRP and others.

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APS is a 63% owner of Units 4 and 5 and receives 970 MW of capacity from this
impmiant resource. This Request reflects APS' s share of the costs of installing the
SCRs.

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4

 1

III.

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Due to the timing of the SCR installation, APS was unable to include the SCR
installation costs as part of the post-test year plant included in the Company's fair value
rate base by Decision No. 76295 . APS did, however, request an accounting order for the
SCRs in its original rate application as well as a mechanism for a step increase when the
SCRs are placed into service. Decision No. 76295 authorized the requested defenal
order and set forth a process for including APS's incremental investment in the
installation of SCRs in rates no later than January 1, 2019. These authorizations were an
integral part of the Settlement Agreement underlying Decision No. 76295 and permitted
the Company to agree to a stay out and other concessions in that proceeding.

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DECISION NO. 76295 AUTHORIZED A DEFERRAL AND
ADJUSTMENT PROCEEDING

The deferral order in Decision No. 76295 authorized the Company to defer all
non-fuel costs (defined as "all O&M, property taxes, depreciation, and a return at APS' s
embedded cost of debt in this proceeding") of owning, operating and maintaining the
SCRs for possible later recovery through rates. See Decision No. 76295 at 108. Decision

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No. 76295 also kept this cunent Docket open for the sole purpose of allowing APS to

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file this Request to adjust rates to reflect the revenue requirement and deferral costs

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associated with the SCRs. !d. at 107.

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IV.

RELIEF REQUESTED
APS seeks to recover in rates those items that the Commission identified in the

rate case, including the costs associated with the installation of SCRs at Units 4 and 5 of
Four Corners, and the deferral balance authorized in Decision No. 76295. The total

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annual revenue requirement for which APS seeks approval to recover in rates is $67.5

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million. This annual revenue requirement increase was calculated using ( 1) APS ' s

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Weighted Average Cost ofCapital established in Decision No. 76295 of7.85% and the
0.8% return on the fair value increment (which increment was zero in this instance) also

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 2
found in that same Decision ; (2) an amortization over five years of the deferral, which

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was itself calculated using the embedded cost of debt established in Decision No. 76295

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of 5.13%; and (3) a 5% depreciation rate on the SCRs based on the straight-line method

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using end-of-life assumptions of 2038, consistent with the identical end of service

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assumption for Four Corners Units 4 and 5 used in Decision No. 76295. As explained by

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APS witness Elizabeth Blankenship, this revenue requirement reflects both the rate base

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adjustments and non-fuel expense effects associated with the installation of the SCRs

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and amortization of the deferral balance.

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APS requests that this revenue requirement be recovered as an equal percentage

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3
adjustment to the base rate portion of customers' bills. That would equate to an

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approximate 2% customer base rate bill impact. Additionally, APS requests that the SCR

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Adjustment become effective as soon as possible, but no later than January 1, 2019, as

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contemplated by the Settlement Agreement and Decision No. 76295. The Agreement

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directed parties to use "good faith eff011s to process this rate adjustment request," and

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APS requests this proceeding be concluded as soon as possible.

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v.

INFORMATION SUPPORTING THE REQUEST

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Consistent with Section 9 .3 of the Settlement Agreement adopted in Decision No.

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76295, this request contains (l) APS's most current balance sheet, attached as EAB-l to

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Ms. Blankenship 's testimony; (2) APS's most cun·ent income statement, attached as

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EAB-2 to Ms. Blankenship's testimony; (3) a Competitively Confidential earnings

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schedule demonstrating that the relief in this Request will not result in a return on rate

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base in excess of what the Commission authorized in Decision No. 76295, attached as

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EAB-3 to Ms. Blankenship' s testimony ; ( 4) a revenue requirement calculation that

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APS claims no additional fair value increment for the SCRs. Thus, full y recognizing the fair value
found in Decision No. 76295 results in a fair value rate of return on the SCRs of7.85%.
3
For AG-X customers, the 2% will be applied only to the APS portion of an AG-X customer' s bill.
4
Attachment EAB-3 to Ms. Blankenship's testimony contains competitively/highly confidential
information and has been filed under seal for the Commission 's confidential re view.

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 includes the amortization of any deferred costs, attached as EAB-4 through EAB-8 to
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Ms. Blankenship's testimony; (5) an adjustment schedule that recovers the rate base and

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non-fuel related expenses associated with the installation of SCRs at Units 4 and 5,

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attached as LRS-1 to Mr. Snook's testimony; and (6) a typical bill analysis under present

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and filed rates, attached as LRS-2 to Mr. Snook's testimony.

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VI.

CONCLUSION

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APS respectfully requests that the Commission grant APS's requested relief by

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approving the SCR Adjustment as soon as possible, but no later than January 1, 2019, as

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contemplated by the Settlement Agreement and Decision No. 76295.

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RESPECTFULLY SUBMITTED this

)

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day of April 2018.

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By:____.;.\___;~=~-=::::;........L..J..;L..-~'----------i
Thomas A. Loquvam
Thomas L. Mumaw
Melissa M. Krueger
Attomeys for Arizona Public Service Company

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 2

ORIGINAL and fifteen ( 15) copies
of the foregoing filed this 2..]
day of
April 2018, with:

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Docket Control
ARIZONA CORPORATION COMMISSION
1200 West Washington Street
Phoenix, Arizona 85007

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COPY of the foregoing emailed/mailed
this 2l
day of April 2018, to:
Elijah Abinah
Utilities Division
Arizona Corporation Commission
1200 W . Washington
Phoenix, AZ 85007

Albert Acken
Ryley Carlock & Applewhite
One N. Central Ave., Ste 1200
Phoenix, AZ 85004-441 7

Ann-Marie Anderson
Wright Welker & Paoule, PLC
10429 South 51st Street, Suite 285
Phoenix, AZ 85009

Brendon Baatz
Manager
ACEEE
529 14th Street N.W. , Suite 600
Washington, DC 20045-1000

Stephen Baron
Consultant
J. Kennedy & Associates
570 Colonial Park Drive, Suite 305
Roswell, GA 30075

Patrick Black
Attorney
Fennemore Craig
2394 East Camelback Road, Suite 600
Phoenix, AZ 850 16

Kurt Boehm
Attorney
Boehm, Kmiz & Lowry
36 East Seventh Street, Suite 1510
Cincinnati, OH 45202

Bradley Carroll
Assistant General Counsel, State
Regulatory
Tucson Electric Power Company
88 East Broadway Blvd.
Mail Stop HQE910
P.O. Box 711
Tucson, AZ 85702

John B. Coffman
John B. Coffman, LLC
871 Tuxedo Blvd.
St. Louis, MO 63119

Steve Chriss
Senior Manager, Energy Regulatory
Analysis
Walmart Stores
2001 Southeast 1Oth Street
Bentonville, AR 72716-5530

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Brittany L. DeLorenzo
Corporate Counsel
IO DATA CENTERS, LLC
615 N. 48th St.
Phoenix, AZ 85008

Jody Cohn
Attorney
Boehm, Kurtz & Lowry
36 E. Seventh St., Suite 1510
Cincinnati, OH 45202

Greg Eisert
Director Government Affairs
Chairman
Sun City Homeowners Association
10401 W . Cog§ins Drive
Sun City, AZ 5351

Jim Downing
PO Box 70
Salome, AZ 85648

Giancarlo Estrada
Kamper Estrada, LLP
3030 N. Third St., Suite 770
Phoenix, AZ 85012

Nicholas Enoch
Attorney
Lubin & Enoch, P.C.
349 North Fourth Ave.
Phoenix, AZ 85003

Denis M . Fitzgibbons
FITZGIBBONS LAW OFFICES,
PLC
P.O. Box 11208
CasaGrande, AZ 85230

Patricia Ferre
P.O. Box433
Payson, AZ 8554 7

Jason D. Gellman
Snell & Wilmer LLP
400 E. Van Buren Street, Suite 800
Phoenix,AZ 85004

Richard Gayer
526 W. Wilshire Dr.
Phoenix, AZ 85003

Meghan Grabel
Attorney
Osborn Maledon, P .A.
2929 North Central Avenue
Phoenix, AZ 850 12

Al Gervenack
Director
Property Owners & Residents
Association
13815 Camino del Sol
Sun City West, AZ 85372

Garry D. Hays
Attorney
Law Offices of Garry D. Hays, PC
2198 E Camelback Rd, Suite 305
Phoenix, AZ 850 16

Tom Harris
Chairman
Arizona Solar Energy Industries
Association
2122 W. Lone Cactus Dr. Suite 2
Phoenix, AZ 85027

Kevin Hengehold
Energy Program Director
Arizona Community Action
Association
2700 n. 3rd St., Suite 3040
Phoenix, AZ 85004

Chris Hendrix
Director of Markets & Compliance
Wal-Mart Stores, Inc.
2011 S.E. 10"' Street
Bentonville, AR 72716

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Timothy Hogan
Attorney
Arizona Center for Law in the Public
Interest
514 W. Roosevelt St.
Phoenix, AZ 85003

Kevin Higgins
Energy Strategies, LLC
215 South State Street, Suite 200
Salt Lake City, UT 84111

Thomas A. Jerigan
139 Barnes Drive, Suite I
Tyndall AFB, FL 32403

Steve Jennings
AARP
16165 N. 83rd Ave, Suite 201
Peoria, AZ 85382

Briana Kobar
Program Director
Vote Solar
360 22nd Street, Suite 730
Oakland, CA 94612

Alan Kierman
Director of Real Estate & Special
Counsel
10 Data Centers
615 N. 48th Street
Phoenix, AZ 85008

Curt Ledford
McDonald Carano Wilson, LLP
2300 West Sahara Avenue, Suite
1200
Las Vegas, NV 89102

Andy Kvesic
Legal Division
Anzona Corporation Commission
1200 W. Washington
Phoenix, AZ 85007

Craig Marks
Attorney
AURA
10645 N . Tatum Blvd. Ste. 200-676
Phoenix, AZ 85028

Samuel L. Lofland
Ryley Carlock & Applewhite
One N. Central Ave., Ste 1200
Phoenix, AZ 85004-44 17

Jay Moyes
Moyes Sellers & Hendricks Ltd.
1850 N . Central Ave. , Suite 1100
Phoenix, AZ 85004

Robert Miller
Utilities Liaison Committee Chairman
Property Owners and Residents
A ssociation

Michael Patten
Attorney
Snell & Wilmer LLP
One Arizona Center
400 E. Van Buren Street, Suite 1900
Phoenix, AZ 85004-2202

Jason Moyes
Moyes Sellers & Hendricks Ltd.
1850 N. Central Ave., Suite 1100
Phoenix, AZ 85004

Ebony Payton
139 Barnes Drive, Suite 1
Tyndall AFB , FL 32403

Greg Patterson
Attorney
Munger Chadwick
9 16 West Adams Suite 3
Phoenix, AZ 85007

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Daniel Pozefsky
Chief Counsel
RUCO
1110 W. Washington, Suite 220
Phoenix, AZ 85007

Robert L. Pickets, Jr.
Sedona City Attorney's Office
l 02 Roadmnner Drive
Sedona, AZ 86336

Pat Quinn
AURA
5521 E. Cholla St.
Scottsdale, AZ 85254

Steven Puck
Director Govemment Affairs
Sun City Homeowners Association
10401 W. Coggins Drive
Sun City, AZ 85351

Court Rich
Attorney
Rose Law Group,
7144 East Stetson rive, Suite 300
Scottsdale, AZ 85251

Kaitlyn A. Redfield-Ortiz
Lubin & Enoch, P.C.
349 N. 4th A venue
Phoenix, AZ 85003

Lawrence Robertson, Jr.
Attorney At Law
210 West Continental Road
Suite 216A
Green Valley, AZ 85622

Rob Robbins
President
Property Owners & Residents
Association
13815 Camino del Sol
Sun City West, AZ 85372

Jeff Schlegel
SWEEP
1167 W . Samalayuca Dr.
Tucson, AZ 85704

Timothy Sabo
Snell & Wilmer
400 East Van Buren
Suite 1900
Phoenix, AZ 85004

Sheryl A. Sweeney
Ryley Carlock & Applewhite
One N . Central Ave., Ste 1200
Phoenix, AZ 85004-4417

Thomas E. Stewart
General Manager
Granite Creek Power & Gas LLC
5316 East Voltaire A venue
Scottsdale, AZ 85254-3643

Emily A. Tomabene
Lunin & Enoch, PC
349 North Fourth A venue
Phoenix, AZ 85003

Gre~ory

W. Tillman
Semor Manager, Energy Regulatory
Analysis
Wal-Mart Stores, Inc.
2011 S.E. l 0"' Street
Bentonville, AR 72716

Paul J. Walker
Executive Director
ConservAmerica
971 South Centerville Road
PMB 139
Sturgis, MI 49091

Scott Wakefield
Attorney
Hienton & Curry, P.L.L.C.
5045 N. 12th Street, Suite 110
Phoenix, AZ 85014-3302

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Charles Wesselhoft
Deputy County Attorney
Pima County
32 North Stone Ave. , Suite 2100
Tucson, AZ 8570 1

Anthony Wanger
President
IO Data Centers
615 N. 48th Street
Phoenix, AZ 85008

Ken Wilson
Western Resource Advocates
2260 Baseline Road, Suite 200
Boulder, CO 80302

Karen White
Attorney
Air Force Utility Law Field Support
Center
AFLONJACL-ULFSC, 139 Barnes
Drive
Tyndall AFB, FL 32403

Gary Yaquinto
President & CEO
Arizona Investment Council
2100 N. Central Avenue, Suite 210
Phoenix, AZ 85004

Warren Woodward
200 Sierra Road
Sedona, AZ 86336

Ellen Zuckerman
Senior Associate
4231 E. Catalina Drive
Phoenix, AZ 85018

Cynthia Zwick
2700 N. 3rd Street, Suite 3040
Phoenix, AZ 85004

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~~c:=::;::.

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DIRECT TESTIMONY OF BARBARA D. LOCKWOOD
On Behalf of Arizona Public Service Company
Docket Nos. E-01345A-16-0036 and E-01345A-16-0123

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April 27, 2018

 1

Table of Contents

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I.

INTRODUCTION .................................................................................................... 1

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II.

SUMMARY ............................................................................................................. 2

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III. CONNECTION OF PRESENT REQUEST TO DECISION NO. 76295................ 4

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IV. HISTORY OF FOUR CORNERS AND IMPORTANCE OF THIS
REQUEST ................................................................................................................ 5

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V.

REVENUE IMPACT ............................................................................................. 10

VI. CONCLUSION ...................................................................................................... 12

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Video Simulation of SCR Construction……………………………..Attachment BDL-1

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i

 1

DIRECT TESTIMONY OF BARBARA D. LOCKWOOD
ON BEHALF OF ARIZONA PUBLIC SERVICE COMPANY
(Docket No. E-01345A-16-0036 and E-01345A-16-0123)

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4

I.

INTRODUCTION

5

Q.

PLEASE STATE YOUR NAME, ADDRESS, AND OCCUPATION.

6

A.

My name is Barbara D. Lockwood. My business address is 400 North 5th Street,

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Phoenix, Arizona 85004. I am Vice President of Regulation for Arizona Public

8

Service Company (APS or Company). I have management responsibility for all

9

matters before the Arizona Corporation Commission (Commission), as well as
the Federal Energy Regulatory Commission (FERC).

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12

Q.

WHAT
IS
YOUR
BACKGROUND?

EDUCATIONAL

AND

PROFESSIONAL

A.

I received a Bachelor of Science degree in Chemical Engineering from Clemson

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University and a Master of Science in Environmental Engineering from Georgia

16

Institute of Technology. I began my career at DuPont in chemical engineering

17

and management roles. I then spent a number of years in environmental

18

consulting and joined APS in 1999. I assumed my current role as Vice President

19

of Regulation in October of 2015.

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Prior to my current position, I served as General Manager of Energy Innovation,

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managing technology and renewable energy programs, including the operation

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and maintenance of the Company’s solar generation fleet. I have served on the

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Board of Directors for the Gridwise Alliance and currently serve on the advisory

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board for the Critical Consumer Issues Forum. I previously served as the

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President of the Board of Directors for Keep Phoenix Beautiful, and I currently

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serve as the Chair of the Board of Trustees for the Arizona Science Center.

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1

 1

Q.

WHAT IS THE PURPOSE OF YOUR DIRECT TESTIMONY IN THIS
PROCEEDING?

A.

The purpose of my testimony is to support the Company’s request to put in rates

2
3

the costs associated with the installation of the selective catalytic reduction (SCR)

4

equipment at Four Corners Power Plant (Four Corners), which was mandated by

5

the federal Environmental Protection Agency (EPA). These plant improvements

6

are necessary to ensure that this valuable resource remains available as a resource

7

for Arizona and the Southwest. Specifically, I outline the Company’s Request

8

and explain its relationship to the current Docket. This Request is an extension

9

of the last APS general rate proceeding and is being filed in compliance with the

10

agreed terms of the Settlement and Decision No. 76295 (August 18, 2017). My

11

testimony describes the importance of the Settlement Agreement and in

12

particular, the provision addressing the rate treatment of the costs for installing

13

the SCRs at Four Corners. In addition, I provide a brief history of Four Corners

14

and explain the reasons why APS was required to install SCR equipment at the

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plant. Lastly, I present an update on the current status of the SCR project.

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II.

SUMMARY

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Q.

PLEASE SUMMARIZE YOUR DIRECT TESTIMONY.

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A.

Installing SCRs at Four Corners was required by the federal EPA and allows this

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important resource to continue its long history of serving Arizona customers and

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the Southwest. In order to facilitate getting these improvements into rate base

23

between full general rate cases, the Settlement and Decision No. 76295

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authorized a deferral order and set forth a process for including APS’s

25

incremental investment in the installation of SCRs in rates prior to the next rate

26

case. These authorizations, along with other concessions, were an integral part of

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the Settlement Agreement and permitted the Company to agree to not file another

2

general rate case for three years from the date of the last application.

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4

My testimony describes the history of Four Corners and the Commission

5

decisions leading up to this point. This Request is the culmination of a long line

6

of decisions approved by the Commission dating back to 2012 when the

7

Commission authorized APS in Decision No. 73130 (April 24, 2012) to pursue

8

the acquisition of Southern California Edison’s (SCE) share of Four Corners

9

Units 4 and 5. In the same Decision, the Commission also authorized APS to

10

defer for possible later recovery through rates all non-fuel costs of owning,

11

operating and maintaining the acquired SCE interest in Four Corners 4 and 5, all

12

unrecovered costs associated with Four Corners Units 1-3, and any additional

13

costs incurred in connection with the closure of Four Corners Units 1-3. One

14

month later, the Commission approved Decision No. 73183 (May 24, 2012)

15

adopting the Settlement in APS’s 2012 rate case. The 2012 Settlement provided

16

that the rate case docket would be held open for the sole purpose of allowing APS

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to file a request with the Commission to reflect in rates the rate base and expense

18

effects associated with the acquisition of SCE’s share of Units 4 and 5. The

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Commission subsequently approved the Four Corners Acquisition Adjustment in

20

Decision No. 74876 (December 23, 2014) and Decision No. 74948. This trilogy

21

of decisions, Decision Nos. 73130, 73183, and 74876, laid the groundwork for

22

the continuation of Four Corners for the foreseeable future.

23
24

The Settlement and Decision No. 76295 (August 18, 2017) builds on those prior

25

decisions and effectuates one of the final steps to ensuring the future of Four

26

Corners, by holding this rate case open to allow APS to include in rates the costs

27

and expenses of critical environmental equipment.

28
3

 1

Finally, I address the revenue requirement requested by the Company.

2
3

III.

CONNECTION OF PRESENT REQUEST TO DECISION NO. 76295

4

Q.

HOW DID THE SETTLEMENT AND DECISION NO. 76295 ADDRESS
THE RATE TREATMENT OF THE COMPANY’S INSTALLATION OF
SCRS AT FOUR CORNERS UNITS 4 AND 5?

A.

Section 9.1 of the Settlement Agreement and Decision No. 76295 stated that:

5
6
7

The parties agree that this Docket shall remain open for the sole purpose

8

of allowing APS to file a request that its rates be adjusted no later than

9

January 1, 2019 to reflect the proposed addition of Selective Catalytic

10

Reduction (“SCR”) equipment at Four Corners, as requested in APS’s

11

application in this Docket.

12
13

Consistent with this provision, APS is solely requesting that the rate base and

14

expense effects associated with the addition of SCR equipment at Four Corners

15

Units 4 and 5 be included in rates. APS does not present any additional issues

16

beyond what is described in Section 9 of the Agreement in compliance with

17

Section 9.4.

18
19

Q.

DID DECISION NO. 76295 INCLUDE AN ACCOUNTING DEFERRAL
ORDER FOR THE INSTALLATION OF SCRS AT FOUR CORNERS?

A.

Yes. Decision No. 76295 authorized APS to defer for later recovery through rates

20
21
22

all non-fuel costs (as defined to include all O&M, property taxes, depreciation,

23

and a return at APS’s embedded cost of debt in this proceeding) of owning,

24

operating, and maintaining the SCR environmental controls at Four Corners.

25
26
27
28
4

 1

Q.

WHY WAS SECTION 9 OF THE SETTLEMENT AGREEMENT
IMPORTANT TO THE COMPANY?

A.

Section 9 was essential for the Company’s ability to accept the overall terms of

2
3
4

the Agreement and importantly, to sustain a three-year stay out also contained in

5

the Agreement. Absent this provision, the Company could not have agreed to a

6

stay out of any length. APS is required to install and begin operating the first

7

SCR by March 31, 2018 and install and begin operating the second SCR by July

8

31, 2018, but could not include the costs of doing so in the most recently

9

concluded general rate case. This deferral and step increase prevent the need for

10

APS to immediately file another general rate case. The importance of this was

11

highlighted by AIC’s witness, who stated that “these mechanisms promote rate

12

gradualism

13

applications…benefit[ing] the Company, its customers, the Commission and the

14

public in general.”

and

prevent

the

Company

from

filing

pancaked

rate

15
16

IV.

HISTORY OF FOUR CORNERS AND IMPORTANCE OF THIS REQUEST

17

Q.

CAN YOU PLEASE PROVIDE A BRIEF PROCEDURAL HISTORY OF
THE FOUR CORNERS POWER PLANT?

18
19

In 2010, the future of the Four Corners Power Plant stood at a crossroads. It was

20

confronted with pressures and uncertainties on several fronts, and plant

21

operations were threatened by the prospect of a forced shut down. SCE, for

22

reasons unique to California utilities, had stated that it could no longer make “life

23

extending” capital investments in the plant and needed to divest or otherwise

24

terminate its 48% ownership share of Units 4 and 5. APS wholly owned Units 1,

25

2 and 3 at Four Corners and was on notice of a Regional Haze ruling by the EPA

26

that would have required an additional investment of $660 million of

27

environmental controls for those three units by 2016.

28
5

 1

APS determined the best solution was for APS to retire Units 1, 2, and 3 (560

2

MW of less efficient generation) and acquire SCE’s share of Units 4 and 5 (739

3

MW). The proposal allowed APS to save customers money, reduce Four Corners’

4

regional carbon dioxide and other pollutant emissions by retiring less efficient

5

coal units and installing environmental upgrades on more efficient ones. At the

6

same time APS was able to save hundreds of jobs and millions of dollars of

7

critical revenue to the Navajo Nation and the local economy, and preserve the

8

diversity of APS’s generation portfolio while also tempering the Company’s

9

exposure to natural gas prices, which has been of concern to this and previous

10

Commissions.

11
12

The Commission had to grant APS authority to acquire SCE’s ownership interest

13

of Four Corners because APS had entered into a self-build moratorium during its

14

2003 rate case, adopted in Decision No. 67744 (April 7, 2005). This moratorium

15

extended through 2014.

16
17

In Decision No. 73130 (April 24, 2012), the Commission found that APS had

18

complied with the self-build provisions contained in Decision No. 67744, and

19

authorized APS to pursue acquisition of SCE’s interest in Four Corners Units 4

20

and 5 and retire Four Corners Units 1-3. Decision No. 73130 also authorized APS

21

to defer for possible later recovery through rates all non-fuel costs of owning,

22

operating and maintain the acquired SCE interest in Four Corners Units 4 and 5,

23

all unrecovered costs associated with Four Corners Units 1-3, and any additional

24

costs incurred in connection with the closure of Four Corners Units 1-3.

25
26
27
28
6

 1

Q.

ARE THERE ANY OTHER COMMISSION DECISIONS REGARDING
FOUR CORNERS?

A.

Yes. The Commission approved Decision No. 73183 (May 24, 2012) adopting

2
3

the Settlement in APS’s 2012 rate case. That Settlement provided that the case

4

would be held open for the sole purpose of allowing APS to file an application

5

with the Commission to reflect in rates the rate base and expense effects

6

associated with the acquisition of SCE’s share of Units 4 and 5 and the closure of

7

Units 1-3. APS’s transaction to purchase SCE’s 48% share in Units 4 and 5

8

closed on December 30, 2013. In compliance with Decision Nos. 73130 and

9

73183, APS filed an application to approve the Four Corners Acquisition

10

Adjustment. Commission Staff found the transaction to be economically sound,

11

and during the hearing Staff’s consultant stated that there was a 99.4% chance

12

that the transaction would have a positive net present value. Decision No. 74876

13

at 17. The Commission determined that the acquisition would allow APS to

14

acquire additional generation consistent with the load growth in APS’s service

15

territory, while allowing APS to maintain a diverse resource portfolio that

16

minimized the risk of fuel price fluctuations, protecting APS customers. Id. at 19.

17

The Commission approved the acquisition of SCE’s share of Units 4 and 5 and

18

the closure of Units 1-3 of Four Corners in Decision No. 74876 (December 23,

19

2014) because “it will help ensure the continued provision of reliable and

20

reasonably priced electricity for customers in APS’s service territory.” Id. At 19-

21

20.

22
23
24

Q.

WAS THERE ADDITIONAL LITIGATION OVER THE FOUR
CORNERS ACQUISITION ADJUSTMENT, AND IS IT NOW
CONCLUDED?

A.

Yes. On February 23, 2015, the Arizona School Boards Association and the

25
26
27

Association of Business Officials filed an appeal of Decision No. 74876 with the

28
7

 1

Arizona Court of Appeals. The Arizona Court of Appeals heard oral argument on

2

this matter on September 14, 2017 and affirmed the ACC’s decision on the Four

3

Corners Acquisition Adjustment on September 26, 2017. In its decision, the

4

Court of Appeals upheld the process used to set the Four Corners Acquisition

5

Adjustment, the same process being used here to set the interim rate to begin

6

recovering the SCR costs.

7

8

Q.

YOU MENTIONED A REGIONAL HAZE RULING EARLIER. CAN
YOU TELL US MORE ABOUT IT AND THE IMPACT TO FOUR
CORNERS?

A.

At a high level, Regional Haze Regulations were authorized under Section 169A

9
10
11

of the Clean Air Act that requires certain “major stationary sources” (like Four

12

Corners) to install “Best Available Retrofit Technology” (BART). Overall, these

13

requirements are part of a federal program intended to eliminate current and

14

prevent future man-made visibility impairments in geographic locations classified

15

as Class I areas, and to achieve “natural background conditions” by 2064. In

16

accordance with the EPA’s Source Specific Federal Implementation Plan (FIP)

17

for implementing BART for Four Corners [77 FR 51619, August 24, 2012], Four

18

Corners must install SCR technology on Units 4 and 5 to reduce the emissions of

19

Oxides of Nitrogen (NOx), a significant contributor to visibility impairing

20

pollution or regional haze, by July 31, 2018. In addition, pursuant to a Consent

21

Decree resolving a dispute with the EPA and certain environmental groups, Four

22

Corners is subject to a stricter NOx emission limit than what was originally

23

imposed in the 2012 BART FIP (i.e., 0.08 lbs/MMBtu instead of 0.098

24

lbs/MMBtu) and with more specific due dates for SCR installation (one unit by

25

March 31, 2018, the other by July 31, 2018).

26
27
28
8

 1

Q.

WHEN DID APS START THE SCR PROJECT?

2

A.

APS started the SCR project in early 2014 using a competitive-bid process to

3

evaluate qualitative and quantitative metrics before completing an Engineering,

4

Procurement and Construction (EPC) contract with a firm experienced in SCR

5

projects. The open book process was used to examine the cost estimates and the

6

cost-estimate basis before completing the contract. The Company previously

7

stated in the 2016 Rate Case Direct Testimony of APS witness Leland R. Snook

8

that APS’s share of the SCR project was projected to be approximately $400

9

million in direct construction costs. Project costs to date continue to be on track

10

with that forecast.

11
12

Q.

WHAT IS THE CURRENT STATUS OF THE SCR PROJECT?

13

A.

The Company finished installing the SCR equipment at Unit 5 and put the

14

equipment in service on December 17, 2017. APS is in the process of installing

15

SCR equipment on Unit 4 and expects the Unit 4 equipment to be completed and

16

in service by April 2018. APS is on track to meet the compliance deadlines set by

17

the federal government.

18
19
20
21
22
23
24
25
26
27
28

Q.

PLEASE BRIEFLY EXPLAIN THE SIZE AND SCOPE OF THIS
PROJECT.
This has been a large and complex project. To date, more than 2 million labor
hours have been spent on the SCR installation. There have been over 4,500
engineering drawings, 166 pier foundations drilled, 7,000 tons of steel installed,
6,000 cubic yards of concrete poured, and 5,400 tons of ductwork installed. Not
only is the project extremely complicated from an engineering perspective, but it
is also extremely large in terms of physical size. It is the tallest SCR installation
in North America. The foundations for the SCRs start 170 feet below ground.
There is then 255 feet of above ground equipment, for a total of 425 vertical feet.
9

 1

In addition, it has the second largest air heaters in the world, each with a diameter

2

of 67 feet. Combined, the four air heaters weigh 4,200 tons.

3
4

A video simulation of the project has been included as Attachment BDL-1 and

5

can also be viewed at AZEnergyFuture.com. This simulation gives an idea of the

6

sheer magnitude and complexity of this construction project.

7

8

V.

REVENUE IMPACT

9

Q.

WHAT IS THE ADDITIONAL REVENUE REQUESTED BY THE
COMPANY?

A.

At a high level, the SCR Adjustment that APS seeks approval of in this

10
11
12

proceeding recovers a $67.5 million annual revenue requirement. APS witness

13

Elizabeth A. Blankenship’s Direct Testimony describes the details of the revenue

14

requirement calculation.

15
16

Q.

DOES THIS ADDITIONAL REVENUE REQUIREMENT INCLUDE THE
COSTS OF THE DEFERRAL?

A.

Yes. Including depreciation expense, property taxes, and capital carrying charge

17
18
19

using the embedded cost of debt established in Decision No. 76295 of 5.13%,

20

APS estimates the total deferral costs for both SCRs are approximately $23.1

21

million.

22
23

Q.

WHAT IS THE AMORTIZATION PERIOD FOR THE DEFERRAL?

24

A.

APS is proposing that the deferral be amortized over 5 years.

25
26
27
28
10

 1

Q.

IF APPROVED, WILL THIS INCREASE CAUSE APS TO EARN MORE
THAN ITS AUTHORIZED RETURN ON FAIR VALUE RATE BASE
DECIDED IN DECISION NO. 76295?

A.

No. The increase will not cause APS to earn more than its authorized return on

2
3
4

fair value rate base from the Company’s last general rate case. In addition,

5

Section 9.3 of the Settlement Agreement required APS to file specific schedules

6

with its Request, including an “earnings schedule that demonstrates that the

7

operating income resulting from the rate adjustment does not result in a return on

8

rate base in excess of that authorized by this Agreement in the period after the

9

rate adjustment becomes effective.” This Competitively Confidential schedule is

10

attached to APS witness Blankenship’s Direct Testimony as Attachment EAB-3.

11
12
13
14

Q.

HAS THE COMPANY INCLUDED ANY OTHER SCHEDULES WITH
ITS REQUEST?

A.

Yes. Per Section 9.3 of the Settlement Agreement, all required schedules have

15

been included as attachments to the Direct Testimony of APS witness

16

Blankenship with the exception of Adjustment Schedule FCA-1 (Schedule 5) and

17

the customer bill impacts (Schedule 6) which have been provided as attachments

18

to the Direct Testimony of APS witness Leland R. Snook.

19
20

Q.

WHAT EFFECTIVE DATE IS APS
ADJUSTMENT TO BE IMPLEMENTED?

A.

APS requests that the Four Corners SCR Adjustment become effective as soon as

21
22
23
24
25
26

PROPOSING

FOR

THE

possible, but no later than January 1, 2019 as contemplated by the Settlement
Agreement and Decision No. 76295. The Agreement directed parties to use
“good faith efforts to process this rate adjustment request,” and APS believes this
proceeding can and should be concluded as soon as possible.

27
28
11

 1

VI.

CONCLUSION

2

Q.

WOULD YOU SUMMARIZE YOUR CONCLUSIONS ABOUT THE
COMPANY’S PRESENT REQUEST?

A.

The Company’s Request should be granted. The installation of SCRs at Four

3
4

Corners Units 4 and 5 is necessary to comply with federal environmental

5

requirements, and will ensure the longevity of a generation facility that is critical

6

to the Southwest and the diversity of APS’s resource portfolio. APS acted

7

prudently at each stage of the construction process and every detail of this plant

8

has been scrutinized over many years and through several Commission

9

proceedings. APS has complied with all previous Commission decisions

10

concerning Four Corners and this Request fulfills the requirement in Decision

11

No. 76295. The Request should be approved without delay.

12
13
14

15

Q.

DOES THAT CONCLUDE YOUR DIRECT TESTIMONY?

A.

Yes.

16
17
18
19
20
21
22
23
24
25
26
27
28
12

 1
2
3
4
5
6
7
8
9
10

DIRECT TESTIMONY OF ELIZABETH A. BLANKENSHIP
On Behalf of Arizona Public Service Company
Docket Nos. E-01345A-16-0036 and E-01345A-16-0123

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

April 27, 2018

 Table of Contents

1
2
3

I.

INTRODUCTION .................................................................................................... 1

4

II.

SUMMARY ............................................................................................................. 2

5

III. FOUR CORNERS SCR ADJUSTMENT REVENUE REQUIREMENT
AND SUPPORTING SCHEDULES ....................................................................... 3

6
7

IV. CALCULATION OF THE FOUR CORNERS REVENUE REQUIREMENT
AND ASSOCIATED PRO FORMA ADJUSTMENTS .......................................... 7
A.

8

Rate Base Pro Forma Adjustments .................................................................. 7

9

1.

Four Corners SCR Fair Value ................................................................. 8

10

2.

Four Corners Deferral Balance ................................................................ 8

B.

11

Income Statement Pro Forma Adjustments ................................................... 10

12

1.

Incremental Operation and Maintenance (O&M) Expenses ................. 10

13

2.

Incremental Property Tax and Other Taxes ........................................... 10

14

3.

Incremental Depreciation and Amortization Expense ........................... 11

15

4.

Amortization of the Four Corners Deferral Balance ............................. 11

16

5.

Interest / Income Tax Adjustment Related to Rate Base Pro Formas ... 12

17

V.

CONCLUSION ...................................................................................................... 12

18
19
20
21

Schedule 1 – APS’s Current Balance Sheet ........................................ Attachment EAB-1
Schedule 2 – APS’s Current Income Statement .................................. Attachment EAB-2

22

Schedule 3 – APS’s Forecast of Earnings Through 2020
COMPETITIVELY/HIGHLY CONFIDENTIAL ...................... Attachment EAB-3

23

Schedule 4 – Four Corners Revenue Requirement Calculation .......... Attachment EAB-4

24

Schedule 4(a) – APS’s Adjusted Balance Sheet .................................. Attachment EAB-5

25

Schedule 4(b) – APS’s Rate Base Pro Forma Adjustments ................ Attachment EAB-6

26

Schedule 4(c) – APS’s Adjusted Income Statement ........................... Attachment EAB-7

27

Schedule 4(d) – APS’s Income Statement Pro Formas ....................... Attachment EAB-8

28
i

 1

Four Corners SCR Fair Value Pro Forma [Rate Base] ....................... Attachment EAB-9

2

Four Corners Deferral Balance Pro Forma [Rate Base] .................... Attachment EAB-10

3

Incremental Operation and Maintenance Expenses Pro Forma ....... Attachment EAB-11

4

Incremental Property Tax and Other Taxes Pro Forma [Income Statement]
………………………… ................................................................... Attachment EAB-12

5
6

Incremental Depreciation and Amortization Expense Pro Forma [Income
Statement] ………………………… ................................................. Attachment EAB-13

7

Amortization of the Four Corners Deferral Balance Pro Forma [Income Statement]
………………………… ................................................................... Attachment EAB-14

8
9

Interest / Income Tax Adjustment Related to Rate Base Pro Forma Forma [Income
Statement] ………………………… ................................................. Attachment EAB-15

10

Calculation of Deferred Costs………… ........................................... Attachment EAB-16

11

Four Corners Revenue Requirement Analysis .................................. Attachment EAB-17

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
ii

 DIRECT TESTIMONY OF ELIZABETH A. BLANKENSHIP
ON BEHALF OF ARIZONA PUBLIC SERVICE COMPANY
(Docket No. E-01345A-16-0036 and E-01345A-0123)

1
2
3
4

I.

INTRODUCTION

5

Q.

PLEASE STATE YOUR NAME, OCCUPATION AND BUSINESS
ADDRESS.

A.

My name is Elizabeth A. Blankenship. I am the Director of Accounting

6
7

Operations for Arizona Public Service Company (APS or Company), a subsidiary

8

of Pinnacle West Capital Corporation (Pinnacle West). I am primarily responsible

9

for overseeing the accounting functions of the generation, transmission,

10

distribution, customer service, and corporate resource areas. I also oversee the

11

accounting systems and budget governance functions at APS. My business

12

address is 400 N. 5th Street, Phoenix, Arizona 85004.

13
14
15
16
17
18
19
20
21
22

Q.

WHAT
IS
YOUR
BACKGROUND?

EDUCATIONAL

AND

PROFESSIONAL

A.

I received a Bachelor of Science degree in Business with a major in Accounting
from Arkansas State University in 1993. From 1993 to 2000, I was employed as
an Accountant for two companies in the long-term healthcare service industry. I
joined APS in October 2000 as a senior accountant and have spent the past 17
years working for APS in the Financial Reporting Department, Accounting
Operations Department, and the Revenue and Regulatory Accounting
Department.

23
24

Prior to my current position as the Director of Accounting Operations, I was

25

responsible for the revenue and regulatory accounting, asset accounting, accounts

26

receivable, and cash control functions at APS as the manager of the Revenue and

27

Regulatory Accounting Department. I am a Certified Public Accountant, a

28
1

 1

member of the Arizona Society of Certified Public Accountants, and a member of

2

the Edison Electric Institute’s Property Accounting Committee.

3
4
5
6

Q.

WHAT IS THE PURPOSE OF YOUR DIRECT TESTIMONY IN THIS
PROCEEDING?

A.

The purpose of my testimony is to support the Company’s request for the

7

recovery of costs of the selective catalytic reduction (SCR) equipment at Four

8

Corners Power Plant (Four Corners), as defined in the APS Settlement

9

Agreement approved by Decision No. 76295 (August 18, 2017). Specifically, my

10

testimony describes the revenue requirement that APS is seeking to recover in the

11

Four Corners SCR Adjustment, including the calculation and amortization of the

12

deferral that was authorized in Decision No. 76295.

13
14
II.

SUMMARY

Q.

PLEASE SUMMARIZE YOUR TESTIMONY.

A.

On June 1, 2016, in Docket Nos. E-01345A-16-0036 and E-01345A-16-0123,

15
16
17
18
19
20
21
22

APS requested the Arizona Corporation Commission (ACC or Commission) to
(1) allow this docket to remain open for the sole purpose of allowing APS to file
a request that its rates be adjusted to reflect the proposed additions of SCR
equipment (2) grant an accounting deferral order and (3) authorize a step increase
for recovery of the SCRs. The Settlement Agreement and Decision No. 76295
provides the following:

23
24

9.1

The parties agree that this Docket shall remain open for the sole purpose

25

of allowing APS to file a request that its rates be adjusted no later than

26

January 1, 2019 to reflect the proposed addition of Selective Catalytic

27
28
2

 1

Reduction ("SCR") equipment at Four Corners, as requested in APS's

2

application in this Docket.

3
9.2

4

APS shall be authorized by the Commission to defer for possible later

5

recovery through rates, all non-fuel costs (as defined to include all O&M,

6

property taxes, depreciation, and a return at APS’s embedded cost of debt

7

in this proceeding) of owning, operating and maintaining the Selective

8

Catalytic Reduction environmental controls at the Four Corners Power

9

Plant from the date such controls go into service until the inclusion of
such costs into rates.

10
11

My testimony provides the revenue requirement needed to include the Four

12

Corners SCR Adjustment in rates as contemplated in the Settlement and Decision

13

No. 76295, including the deferral of costs until the additional equipment is

14

included in rates. Specifically, my testimony includes the calculation of the $67.5

15

million revenue requirement, including all rate base and income statement pro

16

forma adjustments. Consistent with the Company’s request, this revenue

17

requirement assumes a rate effective date no later than January 1, 2019.

18
19
III.

FOUR CORNERS SCR ADJUSTMENT REVENUE REQUIREMENT AND
SUPPORTING SCHEDULES

Q.

HOW WAS THE FOUR CORNERS SCR ADJUSTMENT COMPUTED?

A.

To compute the Four Corners SCR Adjustment, APS started with the approved

20
21
22
23
24
25
26
27

Settlement adjusted 2015 Test Year and made pro forma adjustments to that
starting point to reflect the installation of the SCRs on Four Corners Units 4 and
5. As part of rebuttal testimony, APS will update any forecast and deferral
information, to reflect the most current cost estimates available. To the extent that
these updated costs are themselves different than those actually incurred through

28
3

 1

the rate effective date, APS proposes to record that difference as a regulatory

2

asset or liability and address that balance (plus or minus) in its next general rate

3

case. The rate impact of the SCR Adjustment is discussed in the Direct

4

Testimony of APS witness Leland Snook.

5
6
7

Q.

SECTION 9.3 OF THE SETTLEMENT AGREEMENT REQUIRED
CERTAIN SCHEDULES TO BE FILED WITH THE REQUEST OF THE
ADJUSTMENT. PLEASE DESCRIBE THE SCHEDULES.

A.

The Settlement Agreement requires APS to file the following information with its

8
9
10

request for a rate adjustment:

11

Any filing seeking a rate adjustment pursuant to Section 9.1 shall include

12

the following schedules: (1) the most current APS balance sheet at the

13

time of filing; (2) the most current APS income statement at the time of

14

filing; (3) an earnings schedule that demonstrates that the operating

15

income resulting from the rate adjustment does not result in a return on

16

rate base in excess of that authorized by this Agreement in the period after

17

the rate adjustment becomes effective; (4) a revenue requirement

18

calculation, including the amortization of any deferred costs; (5) an

19

adjusted rate base schedule; and (6) a typical bill analysis under present

20

and filed rates.

21
22

My testimony addresses each of the required schedules, except Schedules 5 and

23

6, which are attached to the Direct Testimony of Leland R. Snook.

24



25
26

Schedule 1: the most current APS balance sheet at the time of filing.
Attachment EAB-1 is the balance sheet as of December 31, 2017, the most
recently available financial filing for the Company. The balance sheet

27
28
4

 1

reflects all additional plant placed in-service by December 31, 2017,

2

including the Four Corners Unit 5 SCR.

3
4



Schedule 2: the most current APS income statement at the time of filing.

5

Attachment EAB-2 is the income statement for the year ended December

6

31, 2017, the most recently available financial filing for the Company.

7



8

Schedule 3: an earnings schedule that demonstrates that the operating
income resulting from the rate adjustment does not result in a return on

9

rate base in excess of that authorized by this Agreement in the period after

10

the rate adjustment becomes effective. Attachment EAB-3 is a forecast of

11

APS’s earnings through 2020. APS’s anticipated earnings do not exceed

12

the 10% ROE authorized in Decision No. 76295. Schedule 3 is

13

Competitively Confidential and has been filed under seal.

14
15



Schedule 4: a revenue requirement calculation, including the amortization

16

of any deferred costs. Attachment EAB-4 is the requested rate base

17

increase for the Four Corners SCRs. The schedule shows the adjusted

18

2015 Test Year rate of return under ACC Jurisdiction. This reflects no

19

changes to the approved Settlement adjusted Test Year except for the

20

SCRs and associated impacts, including a lower federal lower tax rate as a

21

result of tax reform. Schedule 4 also shows the increase to ACC

22

Jurisdictional Original Cost Rate Base (OCRB) from the 2015 Test Year

23

attributable to the Four Corners SCRs. The OCRB increases from $6.8

24

billion to $7.2 billion post-adjustment. This schedule is similar to an “A-1”

25

Standard Filing Requirement (SFR). In addition, attached are support

26

Schedules 4(a) through 4(d), which provide additional information. Each

27
28
5

 1

of the supplemental schedules are discussed below and its rate case SFR

2

equivalent is identified for ease of reference.

3
4



Schedule 4(a): APS’s adjusted balance sheet. Attachment EAB-5 is

5

similar to SFR schedule B-1. It shows the change in APS’s rate base from

6

the 2015 Test Year adjusted OCRB to an adjusted OCRB that includes the

7

Four Corners SCR Adjustment, in the total amount of $7.2 billion ACC

8

jurisdiction, using the same jurisdictional allocation factors accepted in

9

Decision No. 76295.

10



11

Schedule 4(b): APS’s rate base pro forma adjustments. Attachment EAB-6
is equivalent to SFR schedule B-2. This attachment shows each rate base

12

pro forma adjustment, including a description of the adjustment and its

13

impact on rate base.

14
15



Schedule 4(c): APS’s adjusted income statement. Attachment EAB-7 is

16

equivalent to SFR schedule C-1. It reflects the Company’s adjusted

17

operating income. Specifically, this schedule shows the operating income

18

authorized in the Settlement Agreement and the effects on that operating

19

income as a result of the Four Corners SCRs. The adjustment produces a

20

$474.3 million adjusted net income for Total Company and $538.0 million

21

for ACC Jurisdiction.

22
23
24
25



Schedule 4(d): APS’s income statement pro forma adjustments.
Attachment EAB-8 is similar to SFR schedule C-2. This attachment shows
each income statement pro forma adjustment including a description of the
adjustment and its impact on the operating income.

26
27
28
6

 1



2

Schedule 5: an adjustment that recovers the rate base and non-PSA
related expenses associated with the Four Corners SCR additions, which

3

shall become effective no later than January 1, 2019. Please see the

4

Direct Testimony of Leland R. Snook, Attachment LRS-1.

5


6

Schedule 6: a typical bill analysis under present and filed rates. Please see

7

the Direct Testimony of APS witness Leland R. Snook, Attachment LRS-

8

2.

9
10

IV.

CALCULATION OF THE FOUR CORNERS REVENUE REQUIREMENT
AND ASSOCIATED PRO FORMA ADJUSTMENTS

Q.

PLEASE DESCRIBE HOW APS CALCULATED THE FOUR CORNERS
SCR REVENUE REQUIREMENT.

A.

In order to determine the annual revenue requirement, two major types of

11
12
13
14

adjustments were made to the Settlement adjusted Test Year of the Company: (1)

15

rate base pro forma adjustments, and (2) income statement pro forma

16

adjustments. My testimony is separated into two subsections to describe the

17

individual pro forma adjustments in each category. The starting point for all

18

adjustments was the adjusted 2015 Test Year, as approved by the Commission in

19

the Settlement Agreement. See Attachment EAB-4 and EAB-17 for revenue

20

requirement calculations.

21
A.

22

Rate Base Pro Forma Adjustments

23
24

Q.

PLEASE SUMMARIZE THE RATE BASE PRO FORMA ADJUSTMENTS
ASSOCIATED WITH THE ADJUSTMENT.

A.

The collective purpose of the adjustments is to accurately reflect the Company’s

25
26
27

adjusted rate base resulting from the installation of the SCR equipment, and also

28
7

 1

adjusting for the deferral of the costs from when the SCRs are in service through

2

the anticipated rate effective date of January 1, 2019. No other adjustments to the

3

Adjusted 2015 Test Year rate base are being proposed by the Company.

4
5
1.

Four Corners SCR Fair Value

6
7

Q.

PLEASE DESCRIBE THE PRO FORMA ADJUSTMENT FOR THE FAIR
VALUE OF THE SCR ADDITIONS.

A.

The adjustment reflects the investment of the SCRs. The total adjustment results

8
9
10

in an increase to rate base of $369.9 million. See Attachment EAB-6 (page 1

11

column C) and attachment EAB-9. Because the reconstruction cost of the SCRs is

12

identical to its original cost, there is no difference between the original cost and

13

the fair value of the SCRs. For additional information on the fair value rate of

14

return, please see the Direct Testimony of Leland R. Snook.

15
2.

Four Corners Deferral Balance

16
17
18

Q.

PLEASE EXPLAIN THE NON-FUEL COSTS OF OWNING, OPERATING
AND MAINTAINING THE SCRS.

A.

There are four basic categories of non-fuel costs explained below:

19
20
21
22
23
24
25
26

1) Operations and Maintenance (O&M)
APS used its forecast information to estimate additional O&M costs associated
with the SCR additions. APS will continue to incur additional costs which will be
deferred from the in-service date of the SCRs until the date in which the
investment is included in customer rates. This deferral amortization period was
estimated to last for 5 years for the purpose of this adjustment. The deferral
amount associated with operating and maintaining the SCRs is $0.5 million.

27
28
8

 1
2
3
4
5
6
7
8

2) Book Depreciation and Amortization
Depreciation – Depreciation expense will be incurred on the net book value of
APS’s share of the SCR additions beginning on the in-service dates (Unit 5 inservice date of December 19, 2017 and Unit 4 in-service date in April 2018). The
depreciation rate used in this pro forma is based on the straight-line method using
an end-of life assumption of 2038, consistent with the end-of-life assumption
used in the depreciation study and approved in Decision No. 76295. It results in
an increase to the deferral amount of $4.7 million.

9
10
11
12
13
14
15
16
17
18
19

Amortization – APS proposes that the deferral occur from when the SCRs are
in-service through December 2018, and that the step increase occur no later than
January 1, 2019. APS proposes amortizing the deferral over 5 years. Including
depreciation expense, property taxes, and a capital carrying charge (APS
calculated this charge using the embedded cost of debt established earlier in this
proceeding), APS estimates the total deferral costs for both SCRs are
approximately $23.1 million. After the step increase occurs, the annual revenue
requirement associated with projects is $67.5 million. This includes the
depreciation expense, property taxes, debt and equity return, and the taxes
associated with the equity return.

20
21
22
23
24

3) Property and Other Taxes
The deferral calculation also includes the increased New Mexico property taxes
for the SCR additions. The total property and other taxes included in the deferral
are $1.7 million.

25
26
27
28
9

 1

4) Deferred Debt Return

2

The increase in the rate base investment is $369.9 million. To calculate the

3

Commission-approved debt return, APS applied the embedded cost of debt of

4

5.13% (as approved in Decision No. 76295) to the increase in rate base to

5

determine the deferred debt return of $16.1 million. See Attachment EAB-16 at

6

line 6 and line 7.

7
8

Collectively, the sum of these four cost categories results in a deferral balance of

9

$23.1 million Total Company; ACC Jurisdiction is $23.0 million. APS will

10

amortize the balance over 5 years, as discussed later in my testimony. See

11

Attachment EAB-6 (page 1 column E) and Attachment EAB-10.

12
13
B.

Income Statement Pro Forma Adjustments

14
15

1.

Incremental Operation and Maintenance (O&M) Expenses

16
17
18

Q.

PLEASE DESCRIBE THE PRO FORMA ADJUSTMENT FOR
INCREMENTAL O&M EXPENSE RELATED TO THE SCR ADDITIONS.

A.

This adjustment used the Settlement adjusted 2015 Test Year income statement

19

as a starting point and then reduced the pre-tax operating income by $0.7 million

20

to reflect the increase in O&M related to the SCR additions. See Attachment

21

EAB-8 (page 1 column A) and Attachment EAB-11.

22
2.

23
24

Q.

PLEASE DESCRIBE THE PRO FORMA ADJUSTMENT FOR
INCREMENTAL PROPERTY TAX EXPENSE RELATED TO THE SCR
ADDITIONS.

A.

Similar to the O&M expense adjustment, this pro forma seeks to include the

25
26
27

Incremental Property Tax and Other Taxes

additional property tax expense that results from the addition of the SCRs. The

28
10

 1

adjustment reduces pre-tax operating income by $3.4 million on a Total Company

2

basis. See Attachment EAB-8 (page 1 column C) and Attachment EAB-12.

3
4
Q.

IN SECTION 11 OF THE SETTLEMENT AGREEMENT, APS IS
AUTHORIZED TO DEFER PROPERTY TAXES WHEN THE RATE
RISES. DOES SUCH DEFERRAL HAVE AN EFFECT ON THIS PRO
FORMA ADJUSTMENT?

A.

No. The Settlement Agreement authorized APS to defer property tax expenses

5
6
7
8

resulting from a change in Arizona composite property tax rates. Four Corners is

9

located in New Mexico and is additional property specifically contemplated to be

10

recovered on an incremental basis by Section 9 of the Settlement Agreement.

11
12
3.

Incremental Depreciation and Amortization Expense

13
14

Q.

PLEASE DESCRIBE THE PRO FORMA ADJUSTMENT FOR
INCREMENTAL DEPRECIATION AND AMORTIZATION EXPENSE
RELATED TO THE SCR ADDITIONS.

A.

There will be additional depreciation and amortization expense associated with

15
16
17

the additional plant book value resulting from the installation of the SCR

18

equipment. Depreciation and amortization is calculated over the remaining life of

19

the SCR assets. The depreciation and amortization results in a pre-tax reduction

20

to operating income of $21.5 million. See Attachment EAB-8 (page 1 column E)

21

and Attachment EAB-13.

22
23
4.

Amortization of the Four Corners Deferral Balance

24
25
26
27

Q.

PLEASE DESCRIBE THE PRO FORMA ADJUSTMENT TO AMORTIZE
THE FOUR CORNERS DEFERRAL.

A.

The amortization of the deferral is the income statement side of the rate base pro
forma adjustment of the same title. This adjustment takes the ACC jurisdiction

28
11

 1

rate base adjustment of $17.3 million and amortizes it over a 5-year period. The

2

adjustment reduces the pre-tax operating income by $4.6 million per year for five

3

years. The deferred balance included in the revenue requirement is premised on a

4

5-year deferral. See Attachment EAB-8 (page 2 column G) and Attachment EAB-

5

14.

6
7

5.

Interest / Income Tax Adjustment Related to Rate Base Pro Formas

8
Q.

PLEASE DESCRIBE THE PRO FORMA ADJUSTMENT PERTAINING
TO INTEREST AND INCOME TAXES.

A.

This pro forma identifies the additional interest expense associated with the

9
10
11

additional rate base related to the installation of the SCRs. This additional interest

12

expense reduces income taxes and results in an increase of after-tax operating

13

income of $2.2 million. See Attachment EAB-8 (page 2 column I) and

14

Attachment EAB-15.

15
16
17

Q.

DOES THAT CONCLUDE THE ADJUSTMENTS USED TO DERIVE
THE FOUR CORNERS SCR ADJUSTMENT?

A.

Yes.

V.

CONCLUSION

Q.

DO YOU HAVE ANY CONCLUDING REMARKS?

A.

Yes. The calculation of the Four Corners SCR Adjustment and the deferral are

18
19
20
21
22

consistent with Commission’s Decision No. 76295.

23
24
25

Q.

DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?

A.

Yes.

26
27
28
12

 Attachment 

 

 

 

 

 

 

 

 

 

 

 

Page 1 of 2
ARIZONA PUBLIC SERVICE COMPANY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
2017 2016
ASSETS
PROPERTY. PLANT AND EQUIPMENT (Notes 1. 6 and 9)
Plant in service and held for future use 17,654,078 17,228,787
Accumulated depreciation and amortization (6.041.965) (5.881.941)
Net 11,612,113 11,346,846
Construction work in progress 1.266.636 989.497
Palo Verde sale leaseback, net of accumulated depreciation of $241,405 and $237,535 (Note 18) 109,645 113,515
Intangible assets. net of accumulated amortization of $581.135 and $603.637 257.028 89.868
Nuclear fuel, net of accumulated amortization of $144,070 and $147,202 117,403 119,004
Total property. plant and equipment 13.362.830 12.6587 30
INVESTMENTS AND OTHER ASSETS
Nuclear decommissioning trust (Notes 13 and 19) 871.000 779.586
Assets from risk management activities (Note 16) 51 1
Other assets 67.103 48.320
Total investments and other assets 938.154 827.907
CURRENT ASSETS
Cash and cash equivalents 13,851 8,840
Customer and other receivables 292.791 262.611
Accrued unbilled revenues 1 12,434 107,949
Allowance for doubtful accormts (2-513) (3-037)
Materials and supplies (at average cost) 262,630 252,777
Fossil fuel (at average cost) 25.258 28.608
Income tax receivable 11,174
Assets from risk management activities (Note 16) 1.931 19.694
Deferred fuel and purchased power regulatory asset (Note 3) 75,637 12,465
Other regulatory assets (Note 3) 172.451 94,410
Other current assets 41,055 41,849
Total current assets 995.525 837.340
DEFERRED DEBITS
Regulatory assets (Notes 1. 3. and 4) 1.202.302 1.313.428
Assets for other postretirement bene?ts (Note 7) 265,139 162,911
Other 129.801 130.859
Total deferred debits 1,597,242 1,607,198
TOTAL ASSETS 16.893.751 15.931.175

 

 

 

Schedule 1

Attachment 

 

 

 

 

 

 

 

 

 

 

 

Page 2 of 2
ARIZONA PUBLIC SERVICE COMPANY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
2017 2016
LIABILITIES AND EQUITY
CAPITALIZATION
Common stock 178,162 178,162
Additional paid-in capital 2.5 71.696 2.421.696
Retained earnings 2,533,954 2,331,245
Accrunulated other comprehensive loss (Note 20) (26.983) (25.423)
Total shareholder equity 5,256,829 4,905,680
Noncontrolling interests (Note 18) 129.040 132.290
Total equity 5,385,869 5,037,970
Long-temi debt less current maturities (Note 6) 4.491.292 4.021.785
Total capitalization 9,877,161 9,059,755
CURRENT LIABILITIES
Short-term borrowings (Note 5) 135,500
Current maturities of long-term debt (Note 6) 82.000 
Accounts payable 247,852 259,161
Accrued taxes (Note 4) 157.349 130.576
Accrued interest 55,533 52,525
Common dividends payable 77.700 72.900
Customer deposits 70,388 82,520
Liabilities from risk management activities (Note 16) 59.252 25.836
Liabilities for asset retirements (Note 11) 4.192 8.703
Regulatory liabilities (Note 3) 100.086 99.899
Other current liabilities 243,922 226,417
Total current liabilities 1.098.274 1.094.037
DEFERRED CREDITS AND OTHER
Deferred income taxes (Note 4) 1.742.485 2.999.295
Regulatory liabilities (Notes 1, 3, and 4) 2.452.536 948.916
Liabilities for asset retirements (Note 11) 666.527 607.234
Liabilities for pension bene?ts (Note 7) 306.542 488.253
Liabilities from risk management activities (Note 16) 37.170 47.238
Customer advances 1 13,996 88,672
Coal mine reclamation 215.830 206.645
Deferred investment tax credit 205.575 210.162
Unrecognized tax bene?ts (Note 4) 43.876 37.408
Other 133,779 143,560
Total deferred credits and other 5.918.316 5.777.383
COMMITMENTS AND CONTINGENCIES (SEE NOTES)
TOTAL LIABILITIES AND EQUITY 16.893.751 15.931.175

 

 

 

Schedule 1

Attachment EAB-2
Page 1 of 2

ARIZONA PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
Year Ended December 31,
2017

ELECTRIC OPERATING REVENUES

$

OPERATING EXPENSES
Fuel and purchased power
Operations and maintenance
Depreciation and amortization
Income taxes (Note 4)
Taxes other than income taxes
Total
OPERATING INCOME

3,554,139

2016

$

992,744
891,129
532,423
275,295
182,979
2,874,570
679,569

3,489,754

2015

$

1,082,625
879,108
484,909
259,353
165,779
2,871,774
617,980

3,492,357

1,101,298
853,135
494,298
260,143
171,499
2,880,373
611,984

OTHER INCOME (DEDUCTIONS)
Income taxes (Note 4)
Allowance for equity funds used during construction (Note 1)
Other income (Note 17)
Other expense (Note 17)
Total

6,127
47,011
6,526
(23,380)
36,284

13,511
42,140
8,607
(17,514)
46,744

14,302
35,215
2,834
(19,019)
33,332

INTEREST EXPENSE
Interest on long-term debt
Interest on short-term borrowings
Debt discount, premium and expense
Allowance for borrowed funds used during construction (Note 1)
Total

200,211
9,119
4,833
(22,112)
192,051

189,828
7,983
4,760
(19,481)
183,090

180,123
7,376
4,793
(16,183)
176,109

NET INCOME

523,802

481,634

469,207

19,493

19,493

18,933

Less: Net income attributable to noncontrolling interests (Note 18)
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDER

$

504,309

$

462,141

$

450,274

Schedule 2

 Attachment EAB-2
Page 2 of 2

ARIZONA PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Year Ended December 31,
2017

NET INCOME

$

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Derivative instruments:
Net unrealized loss, net of tax benefit (expense) of $24, $(585), and $(342)
(Note 16)
Reclassification of net realized loss, net of tax benefit of $1,294, $985, and
$1,801 (Note 16)
Pension and other postretirement benefits activity, net of tax benefit (expense)
of $977, $293, and $(11,776) (Note 7)
Total other comprehensive income (loss)

523,802

$

(35)

COMPREHENSIVE INCOME
Less: Comprehensive income attributable to noncontrolling interests
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON
SHAREHOLDER

2016

481,634

$

(538)

469,207

(957)

2,225

2,941

4,187

(3,750)
(1,560)

(729)
1,674

18,006
21,236

522,242
19,493

$

2015

502,749

483,308
19,493

$

463,815

490,443
18,933

$

471,510

Schedule 2

 Attachment(s) Intentionally Omitted - Contains Competitively/ Highly Confidential
Information

Attachment EAB-4
Page 1 of 2
ARIZONA PUBLIC SERVICE COMPANY
Schedule 4 - FOUR CORNERS SCR ADJUSTMENT
COMPUTATION OF INCREASE IN GROSS REVENUE REQUIREMENTS
ACC JURISDICTION
ADJUSTED TEST YEAR ENDED 12/31/2015
(Thousands of Dollars)
Settlement
Line
No.

Description

1.

Adjusted Rate Base

2.

Adjusted Operating Income

3.

Fair Value Adjustment Embedded in Operating Income

4.

Adjusted Operating Income without Fair Value Adjustment
(Line 2 - Line 3)

5.

Current Rate of Return (Line 4 / Line 1)

6.

Required Operating Income (Line 7 * Line 1)

7.

Required Rate of Return

8.

Adjusted Operating Income Deficiency (Line 4 - Line 6)

9.

Gross Revenue Conversion Factor (f)

10.

Requested Increase in Base Revenue Requirements (Line
8 * Line 9)

11. 2015 Adjusted Base Revenues
12. Percentage Base Rate Increase (Line 10 / Line 11)

Settlement (with Four Corners SCR Adjustment)

RCND

Fair Value

Line
No.

7,170,901

$ 13,580,645

$ 10,375,773

1.

537,991

537,991

537,991

2.

25,796

25,796

25,796

25,796

3.

532,677

512,196

512,196

512,196

4.

Original Cost

RCND

$ 6,785,689

$ 13,195,433

558,472

558,472

558,472

25,796

25,796

532,677

532,677

7.85%
532,677
7.85% (e)

4.04%
532,677
4.04% (e)

Four Corners
Pro Forma
Adjustments

Fair Value

$ 9,990,561 (a) $

5.33% (d)
532,677
5.33% (e)

Original Cost

385,212 (b) $
(20,481) (c)

7.14%
562,916

3.77%
562,916

7.85% (e)

4.14% (e)

4.94%
562,916
5.43% (e)

5.
6.
7.

-

-

-

50,720

50,720

50,720

8.

1.6178

1.6178

1.6178

1.3317

1.3317

1.3317

9.

-

-

-

67,544

67,544

67,544

10.

3,226,932

3,226,932

$ 3,226,932

11.

2.09%

2.09%

2.09%

12.

Notes:
(a) See Decision No. 76295 Page 21
(b) See Schedule 4.a, Column E, Line 21
(c) See Schedule 4.c, Page 2, Column B, Line 23
(d) Current rate of return for adjusted test year 2015 is calculated by dividing the adjusted rate base by the after tax adjusted operating income.
(e) The required rate of return for OCRB, RCND and fair value does not reflect any return on the difference between fair value rate base and original cost rate base, but
is simply a mathematical derivation based upon the original cost rate of return.
(f) See Settlement Schedule C-3 and TEAM Adjustor Filing Schedule C-3

Schedule 4

 ARIZONA PUBLIC SERVICE COMPANY
COMPUTATION OF GROSS REVENUE CONVERSION FACTOR
ADJUSTED TEST YEAR ENDED 12/31/2015

Line
No.

Description

Attachment EAB-4
Page 2 of 2

Settlement

Settlement
(with Four Corners
SCR Adjustment)

Percentage of
Incremental
Gross Revenues

Percentage of
Incremental
Gross Revenues

Line
No.

1

Gross Revenue

100%

100%

1

2

Less uncollectible revenue

0.14%

0.14%

2

3

Taxable revenue as a percent

99.86%

99.86%

3

4

Federal Income Taxes

34.95%

21.00%

4

5

State Income Taxes Net of Federal Tax Benefit

3.10%

3.77%

5

6

Total
Total
Tax Tax
Percentage
Percentage

38.05%

24.77%

6

7

Operating Income = Taxable Revenue - Tax Percentage

61.81%

75.09%

7

8

1/Operating Income % = Gross Revenue Conversion Factor

1.6178

1.3317 (a)

8

Notes:
(a) Revenue Conversion Factor incorporates a lower federal tax rate as a result of tax reform which was reflected in the TEAM adjustor.

Schedule 4

 Attachment EAB-5
Page 1 of 1
ARIZONA PUBLIC SERVICE COMPANY
Schedule 4.a FOUR CORNERS SCR ADJUSTMENT
SUMMARY OF ORIGINAL COST RATE BASE ELEMENTS
TOTAL COMPANY AND ACC JURISDICTION
TEST YEAR ENDED 12/31/2015
(Thousands of Dollars)

Original Cost
Line
No.

Description

Settlement (a)
(A)

1.
2.
3.

Gross utility plant in service
Less: Accumulated depreciation & amortization
Net utility plant in service

4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Deductions:
Deferred income taxes
Investment tax credits
Customer advances for construction
Customer deposits
Pension and other postretirement liabilities
Liability for asset retirements
Other deferred credits
Coal mine reclamation
Unrecognized tax benefits
Regulatory liabilities

2,846,063
187,080
115,609
72,622
426,442
443,576
42,847
201,984
35,251
787,438

14.

Total deductions

5,158,912

15.
16.
17.
18.
19.

Additions:
Regulatory assets
Deferred debit income tax receivable
Other deferred debits
Decommissioning trust accounts
Allowance for working capital

1,117,614
121,338
735,196
182,625
316,554

20.

Total additions

2,473,327

21.

Total rate base

Notes:
(a) See
(b) See
(c) See
(d) See
(e) See
(f) See

Schedule 4.b, Page 1, Column A
Schedule 4.b, Page 1, Column G
Schedule 4.b, Page 1, Column I
Schedule 4.b, Page 1, Column B
Schedule 4.b, Page 1, Column H
Schedule 4.b, Page 1, Column J

$

$

17,578,662
6,872,597
10,706,065

8,020,480

Total Company
Four Corners
Pro Forma (b)
(B)
$

452,709
4,994
447,715

Adjusted
Settlement (c)
(C)
$

Line
No.

450,264
4,967
445,297

$ 15,543,239
6,097,838
9,445,401

1.
2.
3.

$ 15,092,975
6,092,871
9,000,104

60,411

2,906,474
187,080
115,609
72,622
426,442
443,576
42,847
201,984
35,251
787,438

2,334,319
186,047
94,903
72,622
394,050
441,181
41,426
200,611
29,523
756,476

60,085

2,394,404
186,047
94,903
72,622
394,050
441,181
41,426
200,611
29,523
756,476

4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

60,411

5,219,323

4,551,158

60,085

4,611,243

14.

1,117,614
121,338
735,196
182,625
316,554

1,025,911
113,265
731,226
168,753
297,588

1,025,911
113,265
731,226
168,753
297,588

15.
16.
17.
18.
19.

2,473,327

2,336,743

2,336,743

20.

7,170,901

21.

387,304

$

8,407,784

$

6,785,689

$

Adjusted
Settlement (f)
(F)

18,031,371
6,877,591
11,153,780

$

Settlement (d)
(D)

ACC
Four Corners
Pro Forma (e)
(E)

$

385,212

$

Schedule 4.a

 ARIZONA PUBLIC SERVICE COMPANY
Schedule 4.b - FOUR CORNERS SCR ADJUSTMENT
ORIGINAL COST RATE BASE PRO FORMA ADJUSTMENTS
TEST YEAR ENDED 12/31/2015
(Thousands of Dollars)

Line
No.

Description

1.

Gross Utility Plant in Service

2.

Less: Accumulated Depreciation & Amort.

3

Net Utility Plant in Service

4.

(1)

(2)

(3)

(4)

(5)

Settlement
Test Year 12/31/2015

Four Corners
Fair Value Adjustment

Four Corners
Deferral Balance

Total Four Corners Rate Base
Pro Forma Adjustments

Adjusted Settlement
Test Year 12/31/2015

Total Co.
(A)
$

17,578,662

ACC
(B)
$

15,092,975

Total Co.
(C)
$

429,621

ACC
(D)
$

Total Co.
(E)

427,302

6,872,597

6,092,871

4,994

4,967

10,706,065

9,000,104

424,627

Less: Total Deductions

5,158,912

4,551,158

54,692

5.

Total Additions

2,473,327

2,336,743

6.

Total Rate Base

$

WITNESS:

Attachment EAB-6
Page 1 of 1

8,020,480

$

6,785,689

$

369,935

$

$

ACC
(F)

23,087

$

Total Co.
(G)

22,962

-

-

422,335

23,087

54,397
367,938

BLANKENSHIP

$

$

ACC
(H)

452,709

$

Total Co.
(I)

450,264

$

18,031,371

ACC
(J)
$

15,543,239

4,994

4,967

6,877,591

6,097,838

22,962

447,715

445,297

11,153,780

9,445,401

5,719

5,688

60,411

60,085

5,219,323

4,611,243

-

-

-

-

2,473,327

2,336,743

17,368

$

17,274

$

387,304

$

385,212

$

8,407,784

$

7,170,901

BLANKENSHIP

(1) Original Cost Rate base per Settlement Decision No. 76295. Refer to Schedule 4.
(2) Adjustment to rate base to reflect the increase in the accounting fair value associated with the SCR additions.
(3) Deferred balance of unrecovered costs for the addition of SCRs on Four Corners Units 4 and 5. Deferral balance covers amounts deferred from December 17, 2017 through December 31, 2018.

Schedule 4.b

 Attachment EAB-7
Page 1 of 2

ARIZONA PUBLIC SERVICE COMPANY
Schedule 4.c - FOUR CORNERS SCR ADJUSTMENT
TOTAL COMPANY
ADJUSTED TEST YEAR INCOME STATEMENT
TEST YEAR ENDED 12/31/2015
(Thousands of Dollars)

Total Company

Line
No.

Description

1.
2.
3.
4.

Electric Operating Revenues
Revenues from Base Rates
Revenues from Surcharges
Other Electric Revenues
Total

5.
6.
7.
8.
9.
10.

Operating expenses:
Electric fuel and purchased power
Operations and maintenance excluding fuel expenses
Depreciation and amortization
Income taxes
Other taxes
Total

11.

Settlement
(A)

$

3,295,565
170,101
3,465,666

Pro Forma
Adjustments (a)
(B)

$

-

Settlement
Results After
Pro Forma
Adjustments
(C)

$

Line
No.

3,295,565
170,101
3,465,666

1.
2.
3.
4.

1,007,037
772,982
555,716
281,027
211,792
2,828,554

730
26,098
(9,672)
3,437
20,593

1,007,037
773,712
581,814
271,355
215,229
2,849,147

5.
6.
7.
8.
9.
10.

Operating income

637,112

(20,593)

616,519

11.

12.
13.
14.
15.
16.

Other income (deductions):
Income taxes
Allowance for equity funds used during construction
Other income
Other expense
Total

14,302
35,215
2,834
(19,019)
33,332

-

14,302
35,215
2,834
(19,019)
33,332

12.
13.
14.
15.
16.

17.

Income before interest deductions

670,444

(20,593)

649,851

17.

18.
19.
20.
21.
22.

Interest deductions:
Interest on long-term debt
Interest on short-term borrowings
Debt discount, premium and expense
Allowance for borrowed funds used during construction
Total

179,563
7,376
4,793
(16,183)
175,549

-

179,563
7,376
4,793
(16,183)
175,549

18.
19.
20.
21.
22.

23.

Net income

474,302

23.

$

494,895

$

(20,593)

$

Notes:
(a) See Schedule 4.d, Page 2, Column K

Schedule 4.c

 Attachment EAB-7
Page 2 of 2

ARIZONA PUBLIC SERVICE COMPANY
Schedule 4.c - FOUR CORNERS SCR ADJUSTMENT
ACC JURISDICTION
ADJUSTED TEST YEAR INCOME STATEMENT
TEST YEAR ENDED 12/31/2015
(Thousands of Dollars)

ACC Jurisdiction

Line
No.

Description

1.
2.
3.
4.

Electric Operating Revenues
Revenues from Base Rates
Revenues from Surcharges
Other Electric Revenues
Total

5.
6.
7.
8.
9.
10.

Operating expenses:
Electric fuel and purchased power
Operations and maintenance excluding fuel expenses
Depreciation and amortization
Income taxes
Other taxes
Total

11.

Operating income

12.
13.
14.
15.
16.

Other income (deductions):
Income taxes
Allowance for equity funds used during construction
Other income
Other expense
Total

17.

Income before interest deductions

18.
19.
20.
21.
22.

Interest deductions:
Interest on long-term debt
Interest on short-term borrowings
Debt discount, premium and expense
Allowance for borrowed funds used during construction
Total

23.

Net income

Pro Forma
Adjustments (a)
(B)

Settlement
(A)

$

3,251,480
158,549
3,410,029

$

$

Line
No.

3,251,480
158,549
3,410,029

1.
2.
3.
4.

1,000,176
927,665
498,258
249,866
175,592
2,851,557

726
25,957
(9,620)
3,418
20,481

1,000,176
928,391
524,215
240,246
179,010
2,872,038

5.
6.
7.
8.
9.
10.

558,472

(20,481)

537,991

11.

-

-

558,472

558,472

-

(20,481)

$

-

Settlement
Results After
Pro Forma
Adjustments
(C)

537,991

$

(20,481)

$

537,991

12.
13.
14.
15.
16.
17.

18.
19.
20.
21.
22.
23.

Notes:
(a) See Schedule 4.d, Page 2, Column L

Schedule 4.c

 ARIZONA PUBLIC SERVICE COMPANY
Schedule 4.d - FOUR CORNERS SCR ADJUSTMENT

Attachment EAB-8
Page 1 of 2

INCOME STATEMENT PRO FORMA ADJUSTMENTS
TEST YEAR ENDED 12/31/2015
(Thousands of Dollars)
(1)
(2)

Incremental Operation and Maintenance
Expenses Related to the SCR Additions
Line
No.

Description

Total Co.
(A)

1.
2.
3.
4.

Electric Operating Revenues
Revenues from Base Rates
Revenues from Surcharges
Other Electric Revenues
Total Electric Operating Revenues

5.
6.

Electric Fuel and Purchased Power Costs
Oper Rev Less Fuel & Purch Pwr Costs

7.
8.
9.

Other Operating Expenses:
Operations Excluding Fuel Expense
Maintenance
Subtotal

$

$

Total Co.
(C)
-

Incremental Depreciation and
Amortization Expense Related to the
SCR Additions

Incremental Property Tax & Other Taxes
Related to the SCR Additions

ACC
(B)
-

(3)

$

ACC
(D)
-

$

Total Co.
(E)
-

$

ACC
(F)

-

-

-

$

-

-

-

-

-

-

-

730
730

726
726

-

-

-

-

10.
11.
12.
13.
14.

Depreciation and Amortization
Amortization of Gain
Administrative and General
Other Taxes
Total

730

726

3,437
3,437

3,418
3,418

21,481
21,481

21,365
21,365

15.

Operating Income Before Income Tax

(730)

(726)

(3,437)

(3,418)

(21,481)

(21,365)

16.
17.

Interest Expense
Taxable Income

(730)

(726)

(3,437)

(3,418)

(21,481)

(21,365)

18.

Composite Income Tax Rate

(181)

(180)

(851)

(847)

(5,321)

(5,292)

19.

Operating Income (line 15 minus line 18)

- 24.77%

WITNESS:

$

(549)

$

BLANKENSHIP

(546)

$

(2,586)

$

BLANKENSHIP

(2,571)

$

(16,160)

$

(16,073)

BLANKENSHIP

(1) Adjustment to Test Year operation and maintenance expense to reflect the increased cost associated with the SCR additions.

(2) Adjustment to Test Year property tax values to reflect the increase in tax owed to the Navajo Nation and New Mexico due to the SCR
additions.
(3) Adjustment to Test Year depreciation and amortization expense to reflect additional expenses associated with the SCR additions.

Schedule 4.d

 ARIZONA PUBLIC SERVICE COMPANY
Schedule 4.d - FOUR CORNERS SCR ADJUSTMENT

Attachment EAB-8
Page 2 of 2

INCOME STATEMENT PRO FORMA ADJUSTMENTS
TEST YEAR ENDED 12/31/2015
(Thousands of Dollars)
(4)
(5)

Amortization of Four Corners
Deferral Balance
Line
No.

Description

Total Co.
(G)

Electric Operating Revenues
Revenues from Base Rates
Revenues from Surcharges
Other Electric Revenues
Total Electric Operating Revenues

5.
6.

Electric Fuel and Purchased Power Costs
Oper Rev Less Fuel & Purch Pwr Costs

-

7.
8.
9.

Other Operating Expenses:
Operations Excluding Fuel Expense
Maintenance
Subtotal

$

Interest/Income Tax Adjustment
Related to Rate Base Pro Formas

ACC
(H)

1.
2.
3.
4.

-

$

(6)

Total Co.
(I)
-

$

Total Income Statement Adjustments

ACC
(J)

Total Co.
(K)
$

ACC
(L)

-

-

-

$

-

-

-

-

-

-

-

-

-

-

730
730

726
726

10.
11.
12.
13.
14.

Depreciation and Amortization
Amortization of Gain
Administrative and General
Other Taxes
Total

4,617
4,617

4,592
4,592

-

-

26,098
3,437
30,265

25,957
3,418
30,101

15.

Operating Income Before Income Tax

(4,617)

(4,592)

-

-

(30,265)

(30,101)

16.
17.

Interest Expense
Taxable Income

(4,617)

(4,592)

8,782
(8,782)

8,735
(8,735)

8,782
(39,047)

8,735
(38,836)

18.

Composite Income Tax Rate

(1,144)

(1,137)

(2,175)

(2,164)

(9,672)

(9,620)

19.

Operating Income (line 15 minus line 18)

- 24.77%

WITNESS:

$

(3,473)

$

BLANKENSHIP

(3,455)

$

2,175

$

2,164

$

(20,593)

$

(20,481)

BLANKENSHIP

(4) Deferred balance of operating costs associated with the SCR additions. Deferral balance covers amounts deferred from
December 17, 2017 through December 31, 2018, amortized over 5 years.
(5) Adjustment to interest expense and income taxes to reflect the increase in rate base associated with the SCR additions.

Schedule 4.d

 Attachment EAB-9
Page 1 of 1

ARIZONA PUBLIC SERVICE COMPANY
Detail of Pro Forma Adjustments to Original Cost Rate Base as Shown on Schedule 4.b, page 1, column C
Total Company
(Thousands of Dollars)
Pro Forma Adjustment: Four Corners Fair Value of SCR Additions
Adjustment to rate base to reflect the increase in the accounting fair value associated with the SCR
additions to Units 4 & 5.
Line
No.

Total Company
Amount

Description

1.

Gross Utility Plant in Service

2.

Less: Accumulated Depreciation and Amortization

3.

Net Utility Plant in Service

4.

Less: Total Deductions

5.

Total Additions

6.

Total Rate Base

$

429,621
4,994
424,627
54,692
-

$

369,935

 Attachment EAB-10
Page 1 of 1

ARIZONA PUBLIC SERVICE COMPANY
Detail of Pro Forma Adjustments to Original Cost Rate Base as Shown on Schedule 4.b, page 1, column E
Total Company
(Thousands of Dollars)
Pro Forma Adjustment: Four Corners SCR Deferral Balance
Deferred balance of unrecovered costs for the addition of SCRs on Four Corners Units 4 & 5.
Deferral balance covers amounts deferred from December 17, 2017 through December 31,
2018.
Line
No.

Total Company
Amount

Description

1.

Gross Utility Plant in Service

2.

Less: Accumulated Depreciation and Amortization

3.

Net Utility Plant in Service

4.

Less: Total Deductions

5.

Total Additions

6.

Total Rate Base

$

23,087
23,087
5,719
-

$

17,368

 Attachment EAB-11
Page 1 of 1
ARIZONA PUBLIC SERVICE COMPANY
Detail of Pro Forma Adjustments to Operating Income as Shown on Schedule 4.d, page 1, column A
Total Company
(Thousands of Dollars)
Pro Forma Adjustment:

Line
No.

Incremental Operation and Maintenance Expenses Related to the SCR additions
Adjustment to Test Year operation and maintenance expense to reflect the increased cost
associated with the SCR additions

Description

Total Company
Amount

1.
2.
3.
4.

Electric Operating Revenues
Revenues in base rates
Surcharge revenue
Other electric revenue
Total electric operating revenues

5.
6.
7.
8.
9.

Operating Expenses
Electric fuel and purchased power
Operations and maintenance excluding fuel expenses
Depreciation and amortization
Other taxes
Total Operating Expenses

10.

Operating Income (before income tax)

(730)

11.

Current Income Tax Rate - 24.77%

(181)

12.

Operating Income After Tax

$

730
730

$

(549)

 Attachment EAB-12
Page 1 of 1
ARIZONA PUBLIC SERVICE COMPANY
Detail of Pro Forma Adjustments to Operating Income as Shown on Schedule 4.d, page 1, column C
Total Company
(Thousands of Dollars)
Pro Forma Adjustment:

Line
No.

Incremental Property Tax and Other Taxes Related to the SCR Additions
Adjustment to Test Year property tax values to reflect the increase in tax owed to the Navajo
Nation and New Mexico due to the SCR additions

Description

1.
2.
3.
4.

Electric Operating Revenues
Revenues in base rates
Surcharge revenue
Other electric revenue
Total electric operating revenues

5.
6.
7.
8.
9.

Operating Expenses
Electric fuel and purchased power
Operations and maintenance excluding fuel expenses
Depreciation and amortization
Other taxes
Total Operating Expenses

10.

Operating Income (before income tax)

11.

Current Income Tax Rate - 24.77%

12.

Operating Income After Tax

Total Company
Amount
$

3,437
3,437
(3,437)
(851)

$

(2,586)

 Attachment EAB-13
Page 1 of 1
ARIZONA PUBLIC SERVICE COMPANY
Detail of Pro Forma Adjustments to Operating Income as Shown on Schedule 4.d, page 1, column E
Total Company
(Thousands of Dollars)
Pro Forma Adjustment:

Line
No.

Incremental Depreciation and Amortization Expense Related to the SCR Additions
Adjustment to Test Year depreciation and amortization expense to reflect additional expenses
associated with the SCR additions

Description

Total Company
Amount

1.
2.
3.
4.

Electric Operating Revenues
Revenues in base rates
Surcharge revenue
Other electric revenue
Total electric operating revenues

5.
6.
7.
8.
9.

Operating Expenses
Electric fuel and purchased power
Operations and maintenance excluding fuel expenses
Depreciation and amortization
Other taxes
Total Operating Expenses

10.

Operating Income (before income tax)

(21,481)

11.

Current Income Tax Rate - 24.77%

(5,321)

12.

Operating Income After Tax

$

21,481
21,481

$

(16,160)

 Attachment EAB-14
Page 1 of 1
ARIZONA PUBLIC SERVICE COMPANY
Detail of Pro Forma Adjustments to Operating Income as Shown on Schedule 4.d, page 2, column G
Total Company
(Thousands of Dollars)
Pro Forma Adjustment:

Line
No.

Amortization of Four Corners Deferral Balance
Deferred balance of operating costs associated with the SCR additions. Deferral balance covers
amounts deferred from December 17, 2017 through December 31, 2018, amortized over 5 years.

Description

Total Company
Amount

1.
2.
3.
4.

Electric Operating Revenues
Revenues in base rates
Surcharge revenue
Other electric revenue
Total electric operating revenues

5.
6.
7.
8.
9.

Operating Expenses
Electric fuel and purchased power
Operations and maintenance excluding fuel expenses
Depreciation and amortization
Other taxes
Total Operating Expenses

10.

Operating Income (before income tax)

(4,617)

11.

Current Income Tax Rate - 24.77%

(1,144)

12.

Operating Income After Tax

$

4,617
4,617

$

(3,473)

 Attachment EAB-15
Page 1 of 1

ARIZONA PUBLIC SERVICE COMPANY
Detail of Pro Forma Adjustments to Operating Income as Shown on Schedule 4.d, page 2, column I
Total Company
(Thousands of Dollars)
Pro Forma Adjustment:

Line
No.

Interest / Income Tax Adjustment Related to Rate Base Pro Formas
Adjustment to interest expense and income taxes related to the increase in rate base associated
with the SCR additions

Description

Total Company
Amount

1.
2.
3.
4.

Electric Operating Revenues
Revenues in base rates
Surcharge revenue
Other electric revenue
Total electric operating revenues

5.
6.
7.
8.
9.

Operating Expenses
Electric fuel and purchased power
Operations and maintenance excluding fuel expenses
Depreciation and amortization
Other taxes
Total Operating Expenses

-

10.

Operating Income (before income tax)

-

$

-

11.
12.

Interest Expense
Taxable Income

8,782
(8,782)

13.

Current Income Tax Rate - 24.77%

(2,175)

14.

Operating Income After Tax

$

2,175

 Attachment EAB-16
Page 1 of 1

ARIZONA PUBLIC SERVICE COMPANY
FOUR CORNERS SCR ADJUSTMENT

COST DEFERRAL WITH FINANCING DEFERRALS @ 100% x 5.13% EMBEDDED LTD RATE, NO COMPOUNDING
UNIT 5 IN SERVICE DECEMBER 2017, UNIT 4 IN SERVICE APRIL 2018
TOTAL COMPANY AND ACC JURISDICTION
ADJUSTED TEST YEAR ENDED 12/31/2015
(Thousands of Dollars)
Unit 5
Dec
2017
(b)

(a)

Unit 5
Jan 2018 Dec 2018¹
(c)

Unit 5
Dec 2017 Dec 2018
(d)

Unit 4
Apr 2018 Dec 2018
(e)

Total
(f)

A.

1 Operation & Maintenance

$

-

$

304

$

304

$

243

$

547

B.

2 Book Depreciation and Amortization

$

-

$

2,792

$

2,792

$

1,930

$

4,722

C.

3 Property and Other Taxes

$

-

$

1,683

$

1,683

$

$

1,683

D.

4 Deferred Debt Return
5
Increase in Rate Base for SCR Investment
6
Embedded Cost of Debt

$

7

$

E.

Deferred Debt Return (Line 5 * Line 6)

166,767
5.130%
328

$

172,021
5.130%

$

172,021
5.130%

-

$ 197,914
5.130%

$

369,935
5.130%

$

8,825

$

9,153

$

6,982

$

16,135

$

$

$

9,155
99.46%
9,105

$

$

13,932
99.46%
13,857

$

$

13,604
99.46%
13,530

$

23,087
99.46%
22,962

$
$

3,351
10,179

$
$

3,432
10,424

$
$

2,255
6,850

$
$

5,688
17,274

8 Cost Deferral
9
Pre-Tax Cost Deferral Total Company (Line 1 + Line 2 + Line 3 + Line 7)
10
ACC Share
11
Pre-Tax Cost Deferral ACC Share

$

12
13

Deferred Taxes
After-Tax Cost Deferral ACC Share (Line 11 - Line 12)

$
$

14
15

Cumulative Pre-Tax ACC Cost Deferrals at End of Period (Line 11)
Cumulative After-Tax ACC Cost Deferrals at End of Period (Line 13)

$
$

13,857
10,424

$
$

9,105
6,850

$
$

22,962
17,274

16

Annual ACC Jurisdiction Deferral Amortization Starting 1/1/2019 (Line 26 amortized over 5 years)

$

2,771

$

1,821

$

4,592

17

Total Company Deferral Amortization (Line 16/.9946)

$

2,786

$

1,831

$

4,617

$

328
99.46%
326
81
246

 Attachment EAB-17
Page 1 of 1

ARIZONA PUBLIC SERVICE COMPANY
FOUR CORNERS SCR ADJUSTMENT

REVENUE REQUIREMENT ANALYSIS
TOTAL COMPANY AND ACC JURISDICTION
ADJUSTED TEST YEAR ENDED 12/31/2015
(Thousands of Dollars)

Line
No.

A. RATE BASE¹

TOTAL COMPANY

ACC JURISDICTION

1)

Four Corners Unit 4 SCR

$197,914

$196,846

2)

Four Corners Unit 5 SCR

$172,021

$171,092

3)

Four Corners Deferral Balance

$17,368

$17,274

4)

Total Rate Base

$387,304

$385,212

5)

Settlement Allowed Rate of Return @ 7.85%

6)

Return on Rate Base (Line 4 * Line 5)

$30,403

$30,239

$7,116

$7,077

$127

$126

$0

$0

$730

$726

$26,098

$25,957

$3,437

$3,418

$30,265

$30,101

$67,911

$67,544

B. COMPUTATION OF INCOME TAXES
7)

Weighted Cost of Long Term Debt @ 2.27%

8)

Tax Rate @ 24.77%

9)

Income Taxes ((Line 5 - Line 7)(Line 4)(Line 8))/(1 - Line 8)

10)

Settlement Revenue Conversion Factor Adjustment

C. EXPENSES²
11)

Electric Fuel and Purchased Power

12)

Operations and Maintenance

13)

Depreciation and Amortization

14)

Other Taxes

15)

Total Expenses

D. REVENUE REQUIREMENT @7.85%
16)

RETURN, INCOME TAXES, and EXPENSES (Line 6 + Line 9 + Line 10 + Line 15)

Notes:
¹Attachment EAB-6, Schedule 4.b
²Attachment EAB-7, Schedule 4.c

 1
2
3
4
5
6
7
8

DIRECT TESTIMONY OF LELAND R. SNOOK
On Behalf of Arizona Public Service Company

9
10

Docket Nos. E-01345A-16-0036 and E-01345A-16-0123

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

April 27, 2018

 Table of Contents

1
2

I.

INTRODUCTION .................................................................................................... 1

3

II.

SUMMARY ............................................................................................................. 2

4

III. WACC IS THE ONLY APPROPRIATE RATE OF RETURN FOR THE
RATE BASE ADDITION OF THE SCR EQUIPMENT ........................................ 3

5
IV. BILL IMPACT ....................................................................................................... 10
6
V.

CONCLUSION ...................................................................................................... 11

7
8
9

Schedule 5 – Adjustment Schedule FCA-1 (Tariff)…………………..Attachment LRS-1
Schedule 6 – Sample Bill Impact Analysis…………………………...Attachment LRS-2

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i

 1

DIRECT TESTIMONY OF LELAND R. SNOOK
ON BEHALF OF ARIZONA PUBLIC SERVICE COMPANY
(Docket Nos. E-01345A-16-0036 and E-01345A-16-0123)

2
3
4

I.

INTRODUCTION

5

Q.

PLEASE STATE YOUR NAME, OCCUPATION AND BUSINESS
ADDRESS.

A.

My name is Leland R. Snook. My business address is 400 North 5 th Street,

6
7

Phoenix, Arizona, 85004. I am Director of Rates and Rate Strategy for Arizona
8
Public Service Company. I have management responsibility for all aspects
9
relating to rates and pricing.
10
11

Q.

WHAT
IS
YOUR
BACKGROUND?

A.

I have held my current position as Director of Rates and Rate Strategy at APS for

12
13

EDUCATIONAL

AND

PROFESSIONAL

14

approximately nine years. Prior to assuming my current position, I served as the

15

Director of Federal Regulation at APS. I have a Bachelor of Science Degree in

16

Electrical Engineering from Texas Tech University, and I am a registered

17

professional electrical engineer in Arizona. My areas of expertise include

18

development and analysis of electric utility revenue requirements, modeling of

19

cost of service, rate schedule design, embedded and marginal cost analysis and

20

formulation of utility service policies. I have previously testified before the

21

Arizona Corporation Commission (ACC or Commission) on cost of service,

22

customer contracts, cost recovery mechanisms, fair value of utility property, rate

23

schedules and pricing.

24

Q.

WHAT IS THE PURPOSE OF YOUR DIRECT TESTIMONY IN THIS
PROCEEDING?

A.

The purpose of my Direct Testimony is to illustrate why the Weighted Average

25
26
27

Cost of Capital (WACC) that resulted from the initial phase of the APS rate case

28
1

 1

that authorized this proceeding (Decision No. 76295) is the appropriate rate of

2

return to use for the incremental rate base addition of the Four Corners Selective

3

Catalytic Reduction (SCR) equipment. Additionally, I sponsor Adjustment

4

Schedule FCA-1 and the bill impact analysis resulting from APS’s updated

5

revenue requirement calculation.

6
7

II.

SUMMARY

8

Q.

PLEASE SUMMARIZE YOUR DIRECT TESTIMONY.

9

A.

Fair Value Rate of Return (FVROR) in this proceeding is the output of a static

10

formula. It is designed to demonstrate that a utility’s rates accounted for the fair

11

value of the utility’s property in a material way. Because it is an output, it cannot

12

be used in isolation to determine the amount of the return on rate base. Instead, a

13

utility’s WACC is the cornerstone of that return. WACC is the key input into the

14

static formula from which the FVROR is ultimately derived. Thus, APS’s WACC

15

of 7.85% is the only figure that can be used to determine the proper amount of

16

return on APS’s investment in the Four Corners SCR project.

17
18

The exact formula for determining FVROR is as follows:

19
20

FVROR = [(WACC x Original Cost Rate Base) + (% Return on Fair Value

21

Increment x Fair Value Increment)] ÷ Fair Value Rate Base

22
23

Per the Settlement and Decision No. 76295, the WACC is 7.85%, and the return

24

on the Fair Value Increment (FVI) is 0.8%. However, each of the other three

25

numbers, Original Cost Rate Base (OCRB), Fair Value Rate Base (FVRB) and

26

FVI change with the incremental addition of the Four Corners SCRs. With this

27

incremental addition, the resulting overall FVROR becomes 5.68%.

28
2

 1

To apply the FVROR established in Decision No. 76295 to the incremental SCR

2

investment, rather than the WACC, would be inconsistent with Decision No.

3

76295. It would also fail to properly recognize the fair value of APS’s

4

investment, constitute confiscatory ratemaking in violation of Arizona law, and

5

not be in the public interest.

6
7

APS is proposing an equal percentage increase of slightly over 2% on all base

8

rates with some exceptions discussed later in my Direct Testimony and as shown

9

on Attachment LRS-1. The percent impact on total customer bills will be slightly

10

lower due to the impact of revenue-related taxes and assessments as well as

11

adjustments to base rates such as the Power Supply Adjuster.

12
III.

WACC IS THE ONLY APPROPRIATE RATE OF RETURN FOR THE RATE
BASE ADDITION OF THE SCR EQUIPMENT

15

Q.

WHAT IS THE PURPOSE OF THE WACC?

16

A.

The WACC is the number used to determine the return on a utility’s rate base for

13
14

17

purposes of calculating a revenue requirement. It is the cost of a utility’s capital

18

after accounting for (or being weighted by) a utility’s capital structure. In other

19

words, it is the actual cost to incur the debt and equity necessary to make

20

incremental investments like the SCRs. And like any other legitimate cost of

21

providing service, this cost must be recovered in rates.

22
23
24
25
26

Q.

HOW WAS APS’S WACC OF 7.85% CALCULATED?

A.

As a result of Decision No. 76295, APS’s return on equity was 10% and its
embedded cost of debt was set as 5.13%. In addition, its capital structure was
recognized as 44.2% debt and 55.8% equity. To arrive at the WACC of 7.85%,
one would weight 44.2% of APS’s capital structure at the 5.13% embedded cost

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28
3

 1

of debt and weight the remaining 55.8% at the 10% cost of equity. The resulting

2

sum would be the 7.85% WACC.

3
4

Q.

HOW SHOULD THE WACC BE USED IN THIS PROCEEDING?

5

A.

The amount of investment needed to install the SCRs (the rate base addition

6

caused by the SCRs) should be multiplied by the WACC to determine the return

7

component of the incremental revenue requirement that will result from this

8

proceeding.

9
10

Q.

BY CONTRAST, WHAT IS THE PURPOSE OF THE FVROR?

A.

The FVROR is an output of the ratemaking equation that demonstrates that the

11

rates established by the Commission for a particular utility materially recognized

12

the fair value of that utility’s rate base and satisfy the Arizona Constitution.

13
14

Q.

DOES THE FVROR REFLECT WHAT IT COSTS A UTILITY TO
ACQUIRE CAPITAL OR FUND AN INVESTMENT?

A.

No. Utilities acquire capital through either debt or equity. They use a combination

15
16

of both sources to fund investments. It is a utility’s WACC, which is a weighted

17

average of the utility’s debt and equity costs, that is the only appropriate way to

18

establish the utility’s cost to fund an investment. By contrast, an unadjusted

19

FVROR has only an indirect relationship to a utility’s cost of debt or equity.

20
21

Q.

WHY IS IT INCORRECT TO APPLY THE FVROR CALCULATED IN
THE SETTLEMENT TO THE INCREMENT OF RATE BASE
REPRESENTED BY THE FOUR CORNERS SCR EQUIPMENT?

A.

Because doing so would not properly reflect the full “rate base and expense

22
23
24

effects” of the Four Corners SCR equipment, and in doing so, would fail to
25

properly recognize the fair value of APS’s property devoted to public use. It

26
results in a FVROR on the new Four Corners asset that is incorrect as a matter of
27
mathematics and will result in an undercollection of costs.
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4

 1

In Section 9 of the Settlement, the parties agreed to hold open the underlying rate

2

case to allow APS to seek to add the Four Corners SCR equipment to rate base as

3

if the new asset had been a part of the Company’s original rate case filing. To

4

recognize the rate base and expense effects of the SCRs as the Settlement

5

requires, one cannot simply cut and paste the 5.59% FVROR calculated using the

6

Company’s Settlement-authorized rate base and apply it to the new acquisition as

7

a stand-alone asset.

8
9

Q.

WHY CAN YOU NOT APPLY THE 5.59% FVROR TO THE SCR
INVESTMENT AS A STAND-ALONE ASSET?

A.

Before answering that question, it is important to first understand what FVROR

10
11
12
13
14
15
16
17
18
19

is. FVROR is the output of a formula whose components will change as items are
added to or subtracted from rate base. Here is the formula used in the Settlement
per my filed Direct Settlement Testimony:
Capital Structure with 0.8% FV Increment
Long-Term Debt
Preferred Stock
Common Equity
Short-Term Debt
FVRB Increment
Total

Amount
$
2,999,275
3,786,414
3,204,872
$
9,990,561

%
30.02%
0.00%
37.90%
0.00%
32.08%
100.00%

Cost Rate
Weighted Avg
5.13%
1.54%
0.00%
0.00%
10.00%
3.79%
0.00%
0.00%
0.80%
0.26%
5.5900%

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21

The inputs to this formula will change as rate base changes. Specifically, FVRB

22

is calculated by adding the OCRB to the “reconstruction cost new less

23

depreciation” (RCND) of that original cost number and dividing that sum by 2.

24

FVRB will thus necessarily change with a change in the value to either the OCRB

25

or the RCND rate base.

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27
28
5

 1

Q.

WHY IS THE CHANGE IN FVRB FROM ADDING A NEW ASSET
IMPORTANT?

A.

The FVI is calculated by subtracting the OCRB from the FVRB. As shown above

2
3

and without the Four Corners SCR equipment, the OCRB and FVRB authorized

4

in the Settlement resulted in a FVROR that equaled 5.59% given the WACC and

5

return on FVI also authorized by the Settlement. But both of those rate base

6

numbers change when the new Four Corners SCR equipment is added to rate

7

base, as contemplated by the Settlement.

8
9

The following table walks through multiple calculations of the FVROR formula:

10

one with the Original Settlement calculation, a stand-alone Four Corners SCR

11

calculation and the combination of the Settlement and the Four Corners SCR

12

addition.

13

Figure A: Settlement and Four Corners SCR Revenue Requirement to
Calculate the FVROR1

14
15
16

Four Corners
SCRs

Settlement

17

(dollars in thousands)

18

1. OCRB

19

2. WACC
3. Resulting Operating Income (line 1 * line 2)

20

4. FVRB
Fair Value Increment, i.e., Incremental
5.
FVRB Over OCRB (line 4 - line 1)

21
22

6. Return on Fair Value Increment
Return on Fair Value Increment * Fair
7.
Value Increment (line 6 * line 5)

23
24

8.

25

OCRB + FVRB Required Operating
Income (line 3 + line 7)

6,785,689
7.85%
532,677 $

$
385,212 $
7.85%
30,239 $

$

9,990,561

$

385,212

$

10,375,773

$

3,204,872

$

0

$

3,204,872

$
$

0.80%

0.80%

0.80%

25,796

$

0

$

25,796

$

558,472

$

30,239

$

588,712

5.59%

7.85%

27
1

7,170,901
7.85%
562,916

$

9. FVROR (line 8 / line 4)

26

28

Settlement +
Four Corners

As illustrated in this table, there are small numerical differences due to rounding.

6

5.68%

 1

Each of these calculations effectively recognize the 7.85% WACC and 0.8%

2

return on the Fair Value Increment used in the Settlement. The slight increase to

3

the FVROR percentage in the Four Corners plus Settlement scenario is not

4

caused by any enhanced return on that asset, but simply reflects how the math

5

changed when the rate base changed. APS still recovers only a 7.85% WACC

6

and earns only a 0.8% return on the Fair Value increment, the numbers already

7

used in the Settlement. Notably, the Fair Value increment for the SCRs is zero.

8

This is because they are new assets and the original cost to build the SCRs (i.e.,

9

OCRB) and the cost to reconstruct them, less depreciation (i.e., RCND), are

10

assumed to be the same. This makes FVRB the same as OCRB or RCND,

11

because FVRB is (OCRB + RCND)/2 and the resulting FVI for these particular

12

assets is zero.

13
14

Q.

HOW WOULD THE PREVIOUS TABLE CHANGE IF YOU SIMPLY
APPLY THE 5.59% FVROR INSTEAD OF THE WACC TO THE FOUR
CORNERS SCR ADDITION?

A.

As you will see, if the FVROR is substituted in place of the WACC for the Four

15
16
17

Corners SCRs, the resulting allowance for the WACC of the combined

18

Settlement plus Four Corners SCRs column is actually only 7.73% rather than

19

7.85% due to the approximately $8.7 million reduction in operating income.

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21
22
23
24
25
26
27
28
7

 1
2

Figure B: Settlement and Four Corners SCR Revenue Requirement using FVROR
of 5.59% rather than WACC2
Four Corners
SCRs

3
Settlement

4

Settlement +
Four Corners

(dollars in thousands)

5

1. OCRB

6

2. WACC
3. Resulting Operating Income (line 1 * line 2)

7

4. FVRB
Fair Value Increment, i.e., Incremental
5.
FVRB Over OCRB (line 4 - line 1)

8
9

6. Return on Fair Value Increment
Return on Fair Value Increment * Fair
7.
Value Increment (line 6 * line 5)

10
11

8.

12

OCRB + FVRB Required Operating
Income (line 3 + line 7)

6,785,689
7.85%
532,677 $

$
385,212 $
5.59%
21,533 $

$

9,990,561

$

385,212

$

10,375,773

$

3,204,872

$

0

$

3,204,872

$
$

0.80%

0.80%

7,170,901
7.73%
554,210

0.80%

$

25,796

$

0

$

25,796

$

558,472

$

21,533

$

580,005

9. FVROR (line 8 / line 4)

5.59%

5.59%

5.59%

13
14

This $8.7 million is the undercollection that results from applying the FVROR,

15

rather than the WACC, to the SCR investment to determine the revenue

16

requirement in this proceeding.

17
18

Q.

IS APS’S DERIVATION OF THE REVENUE REQUIREMENT FOR THE
FOUR CORNERS SCRS USING THE WACC CONSISTENT WITH
PRIOR ACC PRECEDENT?

A.

Yes. The formula used to calculate FVROR in Decision No. 76295 was far from

19
20
21

unique. To APS’s knowledge, that formula has been used in almost every case

22

since the Commission began to value a FVRB Increment. It can be found at pages

23

49 and 50 of Staff witness David Parcell’s Direct Testimony in this docket. And

24

even before that time, the Commission acknowledged that the FVROR must be

25

sufficient to allow the utility to recover its WACC. In particular, the Commission

26

recognized that:

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28

2

As illustrated in this table, there are small numerical differences due to rounding.

8

 1

The beginning point of our inquiry [concerning Fair Value Rate of

2

Return] must be the cost of capital. It is difficult to imagine a

3

situation in which a reasonable return on FVRB would yield less

4

than the cost of capital which comprises that rate base.

5

In re Arizona Water Company, Decision No. 53537 (April 27, 1983) at 15

6

(emphasis in original).

7
Performing the calculation using the FVROR from Decision No. 76295 of 5.59%

8

would cause the WACC to be lower than APS’s actual WACC of 7.85% for the

9

Four Corners SCR equipment. This would inappropriately reduce the return on

10

that equipment by approximately $8.7 million per year, denying APS the ability
11

to earn a reasonable return on FVRB and failing to recognize the full fair value of

12

APS’s investment called for by Decision No. 76295.

13
14

Q.

WHY WOULD RECOGNIZING THE FULL FAIR VALUE OF APS’S
INVESTMENT BE IN THE PUBLIC INTEREST?

A.

As discussed in the rate case testimony of APS’s return on equity expert, Dr.

15
16
17

Bente Villadsen, the amount of return that APS received for its investment is an

18

important signal to the investment community. The amount of capital that

19

investors will invest with utilities is finite, and utilities like APS must compete

20

for that capital. The amount of return that utilities can demonstrate is often the

21

deciding factor for where investors will deploy their capital. If APS’s authorized

22

fair value is not fully recognized, Dr. Villadsen’s testimony suggests that

23

investors may be less inclined to invest as much in Arizona. Conversely, if APS

24

is provided the opportunity to earn its full return on its fair value rate base, it may

25

result in a stronger signal to investors that they should consider investing more in

26

Arizona.

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9

 1

Q.

DIDN’T THE COMMISSION REJECT THE COMPANY’S ARGUMENT
ON THIS ISSUE IN DECISION NO. 74876 (DECEMBER 23, 2014)?

A.

The Commission did not adopt the Company’s position. However, the issue came

2
3

up somewhat late in the proceeding, and APS was frankly surprised that there was

4

any controversy over its position. The Company therefore believes the record was

5

not fully developed and that a more fulsome evidentiary record will warrant a

6

different result.

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8
9

IV.

BILL IMPACT

Q.

WHAT IS THE UPDATED REVENUE REQUIREMENT REQUESTED
BY THE COMPANY AND WHAT WILL BE THE IMPACT ON
CUSTOMERS?

A.

APS witness Elizabeth A. Blankenship’s Direct Testimony describes the details

10
11
12

of the updated revenue requirement calculation, but APS is seeking recovery of
13
$67.5 million. The Four Corners SCR Adjustment will be applied to all
14

customers’ bills on an equal percentage basis to the base rate portion of the bill.

15
The percentage applied to recover this amount is 2.09%, which will result in an
16
approximate overall bill impact of 1.93% (for a typical residential customer). See
17
Attachment LRS-2.
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19

Q.

WHAT IS THE PERCENTAGE INCREASE TO BE APPLIED TO
CUSTOMERS’ BASE BILLS AND WHAT IS THE OVERALL IMPACT
TO CUSTOMERS?

A.

While the overall bill impact for a typical residential customer is 1.93%, the

20
21
22

adjustment will only be applied to the base portion of customer bills.3 The

23

percentage that will be applied to customer base bills to recover the necessary

24

revenue requirement is 2.09%, as shown on Ms. Blankenship’s Attachment EAB-

25

4 and in Adjustment Schedule FCA-1, which is attached to my Testimony as

26
27
28

3

The base portion of customer bills excludes taxes, assessments and the following adjustors: DSMAC,
REAC, LFCR, EIS, TCA, PSA and TEAM.

10

 1

Attachment LRS-1. The difference in bill impact and the base bill percentage is

2

because the 2.09% is only applied to the base portion of their bill and not

3

adjustors.4 A sample bill impact analysis is attached to my Testimony as

4

Attachment LRS-2. This Attachment also satisfies Section 9.3 of the Settlement

5

Agreement’s requirement to file a typical bill analysis under present and filed

6

rates. In addition, APS requests that this percentage increase be applied to the

7

“APS” portion of an AG-X customer’s bill, but not to the portion representing a

8

pass through of charges from such customer’s Alternative Generation Provider.

9
10

Q.

WHAT IS APS PROPOSING AS THE EFFECTIVE DATE FOR THE SCR
ADJUSTMENT TO BE IMPLEMENTED?

A.

APS has assumed that the SCR Adjustment will become effective as of January 1,

11
12

2019 for purposes of calculating the deferral. As noted in APS witness

13

Blankenship’s testimony, if the SCR Adjustment is implemented after that date,

14

there will be additional cost deferrals to recover, although it is the Company’s

15

recommendation that any deferrals not captured in the Commission’s final order

16

in this matter be carried over until the Company’s next general rate proceeding.

17
18

V.

CONCLUSION

19

Q.

DO YOU HAVE ANY FINAL COMMENTS?

20

A.

Yes. The appropriate method to calculate the return for the Four Corners SCR

21

equipment addition is to apply the WACC from the Settlement to the OCRB or

22

FVRB, which are the same value. Using the FVROR form the Settlement directly

23

is mathematically incorrect and will result in a return on rate base that is $8.7

24

million less than required and will deny APS the ability to recover a reasonable

25

return on its FVRB.

26
27
28

4

If adjustors increase subsequent to this Application, the 1.93% will go down, and if the converse is
true, the 1.93% will go up. But in either case the dollar impact on customer bills will not change.

11

 1

Q.

DOES THAT CONCLUDE YOUR DIRECT TESTIMONY?

2

A.

Yes.

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4
5
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7
8
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12

 ADJUSTMENT SCHEDULE FCA-1
FOUR CORNERS SCR ADJUSTMENT

Attachment LRS-1
Schedule 5
Page 1 of 1

APPLICATION
The Four Corners SCR Adjustment Schedule (“FCA”) shall apply to all retail Standard Offer service
except as noted below.
Schedule FCA-1 recovers costs associated with investment and expenses for APS’s purchase and
installation of selective catalytic reduction technology for Four Corners Generating Station Units 4 and 5
as approved in Decision No. 76295.
All provisions of the customer’s current applicable rate schedule shall apply in addition to charges under
this adjustment schedule. Schedule FCA-1 shall be effective with the first billing cycle in January 2019
without proration and remain in effect until the conclusion of APS’s next rate case.
RATE
The FCA will be applicable to the customer’s monthly billed amount, excluding all other adjustments,
sales tax, regulatory assessment and franchise fees. The resulting charged amount shall not be less than
zero. In addition, the charge shall not apply to:






The generation service and imbalance service charges in Rate Rider Schedule AG-X
Customers served under rate schedules HLF-1, HLF-2, and HLF-3
The energy and ancillary service charge in Rate Schedule E-36 XL
Credits for the purchase of excess generation under rate rider schedules EPR-2, EPR-6, EPR-6
Legacy, RCP, and E-56R
Voluntary charges under rate rider schedules GPS-1, GPS-2, and GPS-3

FCA

2.09%

ARIZONA PUBLIC SERVICE COMPANY
Phoenix, Arizona
Filed by: Jessica E. Hobbick
Title: Manager, Regulation and Pricing

A.C.C. No. 5991
Adjustment Schedule FCA-1
Original
Effective: January 1, 2019
Page 1 of 1

 Attachment LRS-2
Page 1 of 3

ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE 6 - FOUR CORNERS SCR ADJUSTMENT
Estimated Monthly Bill Impacts of Four Corners Adjustment
AVERAGE MONTHLY BILL IMPACTS
Proposed

Current

Residential (Avg - All Rates)
Average kWh per Month
Base Rates
PSA
TCA
RES
DSMAC
EIS

$
$
$
$
$
$

Four Corners

$

LFCR
TEAM
Total

$
$
$

Commercial XS (E-32)
Average kWh per Month
Base Rates
PSA
TCA
RES
DSMAC
EIS

Average
Monthly

Average
Monthly

Bill 1

Bill 1
$
$
$
$
$
$

-

$

2.85 $

3.20 $
(5.23) $
147.98 $

3.20
(5.23)
150.83 $

Average
Monthly
1
Bill
$
$
$
$
$
$

Four Corners

$

LFCR
TEAM
Total

$
$
$

$ Impact

1,064
136.24
4.85
3.47
4.28
1.05
0.12

% Impact

136.24
4.85
3.47
4.28
1.05
0.12

Average
Monthly
1
Bill

$
$
$
$
$
$

2.85
2.85

$ Impact

1,430
217.02
6.51
1.33
15.29
1.41
0.16

$
$
$
$
$
$

-

$

4.54 $

4.31 $
(7.03) $
239.00 $

4.31
(7.03)
243.54 $

1.93%

$

1.93%

$
$
$

% Impact

217.02
6.51
1.33
15.29
1.41
0.16

$
$
$
$
$
$

4.54
4.54

1.90%

$

1.90%

$
$
$

Current

SEASONAL BILL IMPACTS
Proposed
Current

Proposed

Summer
Monthly

Summer
Monthly

Winter
Monthly

Winter
Monthly

Bill

Bill

Bill

Bill

1,299
169.25
5.92
4.24
4.28
1.28
0.14

-

$
$
$
$

1,299
169.25
5.92
4.24
4.28
1.28
0.14

$

3.54

$

3.91
(6.38)
192.56

$
$
$

$

3.91 $
(6.38) $
189.02 $
Summer
Monthly
Bill
1,575
247.65
7.17
1.46
16.84
1.55
0.17

-

$
$
$
$
$
$

Summer
Monthly
Bill

$
$
$
$

1,575
247.65
7.17
1.46
16.84
1.55
0.17

$

5.18

$

4.74
(7.74)
277.02

$
$
$

$

4.74 $
(7.74) $
271.84 $

$
$
$
$
$
$

828
103.22
3.77
2.70
4.28
0.81
0.09

$
$
$
$
$
$

828
103.22
3.77
2.70
4.28
0.81
0.09

-

$

2.16

2.49 $
(4.07) $
113.29 $
Winter
Monthly
Bill
1,285
186.39
5.85
1.19
13.74
1.26
0.14

-

2.49
(4.07)
115.45
Winter
Monthly
Bill

$
$
$
$
$
$

1,285
186.39
5.85
1.19
13.74
1.26
0.14

$

3.90

3.87 $
(6.31) $
206.13 $

3.87
(6.31)
210.03

 Attachment LRS-2
Page 2 of 3

ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE 6 - FOUR CORNERS SCR ADJUSTMENT
Estimated Monthly Bill Impacts of Four Corners Adjustment
AVERAGE MONTHLY BILL IMPACTS
Proposed

Current

Commercial S (E-32)
Average kWh per Month
Averge kW per Month
Base Rates
PSA
TCA
RES
DSMAC
EIS

Average
Monthly
1
Bill

$
$
$
$
$
$

Four Corners

$

LFCR
TEAM
Total

$
$
$

Commercial - M (E-32)
Average kWh per Month
Averge kW per Month
Base Rates
PSA
TCA
RES
DSMAC
EIS

$
$
$
$
$
$

Four Corners

$

LFCR
TEAM
Total

$
$
$

Average
Monthly
1
Bill

7,182
23.7
920.64
32.71
5.31
76.81
8.37
0.79

$
$
$
$
$
$

920.64
32.71
5.31
76.81
8.37
0.79

-

$

19.27 $

18.30 $
(35.28) $
1,027.65 $

18.30
(35.28)
1,046.92 $

Average
Monthly
Bill 1
62,238
195.7
7,101.78
283.50
43.83
267.35
69.07
6.85

Average
Monthly
Bill 1
62,238
$
$
$
$
$
$

7,101.78
283.50
43.83
267.35
69.07
6.85

$

148.65 $

151.04 $
(305.71) $
7,617.71 $

151.04
(305.71)
7,766.36 $

-

Current

$ Impact

% Impact

$
$
$
$
$
$

19.27
19.27

$ Impact

1.88%

$

1.88%

$
$
$

% Impact

$
$
$
$
$
$

148.65
148.65

1.95%

$

1.95%

$
$
$

Summer
Monthly
Bill
7,752
26.8
1,075.95
35.31
6.00
82.90
9.46
0.85

-

-

Proposed

Summer
Monthly
Bill

Winter
Monthly
Bill

$
$
$
$
$
$

7,752
26.8
1,075.95
35.31
6.00
82.90
9.46
0.85

$

22.52

$

20.69
(38.08)
1,215.60

$
$
$

20.69 $
(38.08) $
1,193.08 $
Summer
Monthly
Bill
68,381
209.5
8,159.93
311.48
46.93
267.35
73.95
7.52

SEASONAL BILL IMPACTS
Proposed
Current

$
$
$
$
$
$

$
$
$
$
$
$

Summer
Monthly
Bill
68,381
209.5
8,159.93
311.48
46.93
267.35
73.95
7.52

$

170.80

$

161.73
(335.89)
8,863.80

$
$
$

161.73 $
(335.89) $
8,693.00 $

$
$
$
$
$
$

Winter
Monthly
Bill
6,612
20.6
765.32
30.11
4.61
70.71
7.27
0.73

-

$
$
$
$
$
$

6,612
20.6
765.32
30.11
4.61
70.71
7.27
0.73

$

16.02

15.90 $
(32.48) $
862.17 $
Winter
Monthly
Bill
56,094
181.8
6,043.62
255.51
40.72
267.35
64.18
6.17

-

15.90
(32.48)
878.19

$
$
$
$
$
$

Winter
Monthly
Bill
56,094
181.8
6,043.62
255.51
40.72
267.35
64.18
6.17

$

126.50

140.35 $
(275.53) $
6,542.37 $

140.35
(275.53)
6,668.87

 Attachment LRS-2
Page 3 of 3

ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE 6 - FOUR CORNERS SCR ADJUSTMENT
Estimated Monthly Bill Impacts of Four Corners Adjustment
AVERAGE MONTHLY BILL IMPACTS
Proposed

Current

Commercial - L (E-32)
Average kWh per Month
Averge kW per Month
Base Rates
PSA
TCA
RES
DSMAC
EIS

$
$
$
$
$
$

Average
Monthly
1
Bill
290,507
716.5
27,170.32
1,323.26
160.50
534.70
252.93
31.96

Average
Monthly
1
Bill
290,507
$
$
$
$
$
$

Four Corners

$

-

$

568.71 $

$
$
$

$
(1,426.97) $
28,046.70 $

(1,426.97)
28,615.41 $

Industrial - XL (E-34,35)
Average kWh per Month
Averge kW per Month
Base Rates
PSA
TCA
RES
DSMAC
EIS

$
$
$
$
$
$

% Impact

27,170.32
1,323.26
160.50
534.70
252.93
31.96

LFCR
TEAM
Total

Average
Monthly
1
Bill
3,693,932
6,369.5
272,543.36
16,825.86
1,923.59
3,475.00
2,248.43
406.34

$ Impact

Average
Monthly
1
Bill
3,693,932
$
$
$
$
$
$

272,543.36
16,825.86
1,923.59
3,475.00
2,248.43
406.34

Four Corners

$

-

$

5,704.70 $

LFCR
TEAM
Total

$
$
$

$
(18,144.60) $
279,277.98 $

(18,144.60)
284,982.68 $

$
$
$
$
$
$

568.71
568.71

$ Impact

Notes:
1
Bill excludes regulatory assessment charge, taxes and fees. All Adjustment levels in effect as of April 1, 2018.

Proposed

Summer
Monthly
Bill
314,925
795
32,337.13
1,434.48
178.08
534.70
280.64
34.64

$
$
$
$
$
$

Summer
Monthly
Bill
314,925
795
32,337.13
1,434.48
178.08
534.70
280.64
34.64

$
$
$
$
$
$

Winter
Monthly
Bill
266,089
638
22,003.51
1,212.03
142.91
534.70
225.21
29.27

$

676.86

$

-

$

460.56

(1,546.91)
33,929.62

$
$
$

$
(1,307.03) $
22,840.60 $

$

-

2.03%

$
$
$

$
(1,546.91) $
33,252.76 $

$
$
$
$
$
$

5,704.70

SEASONAL BILL IMPACTS
Proposed
Current

2.03%

% Impact

5,704.70

Current

Summer
Monthly
Bill
3,841,873
6,681
289,124.21
17,499.73
2,017.66
3,475.00
2,358.39
422.61

$
$
$
$
$
$

Winter
Monthly
Bill
266,089
638
22,003.51
1,212.03
142.91
534.70
225.21
29.27

$
$
$
$
$
$

Summer
Monthly
Bill
3,841,873
6,681
289,124.21
17,499.73
2,017.66
3,475.00
2,358.39
422.61

$

6,051.76

$

-

(18,871.28)
302,078.08

$
$
$

$
(17,417.91) $
262,529.63 $

2.04%

$

-

2.04%

$
$
$

$
(18,871.28) $
296,026.32 $

$
$
$
$
$
$

Winter
Monthly
Bill
3,545,992
6,058
255,962.50
16,151.99
1,829.52
3,475.00
2,138.47
390.06

(1,307.03)
23,301.16

$
$
$
$
$
$

Winter
Monthly
Bill
3,545,992
6,058
255,962.50
16,151.99
1,829.52
3,475.00
2,138.47
390.06

$

5,357.64
(17,417.91)
267,887.27