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August 2021

ACC Recommended Order's Impact on APS Revenue

On our latest call, folks were asking how the Hearing Officer's Recommended Opinion and Order (if adopted by the ACC) would affect APS's total bottom line.  That turns out to be a difficult question.  The ROO provides for a $4 million dollar rate increase.  However, APS has a negative fuel adjustment that works into the equation as well.  

Here's an excellent explanation from the transcript of the latest earnings call.  

Ted N. Geisler -- Senior Vice President and Chief Financial Officer

High level, so you've got the $4 million net sort of revenue increase as proposed in the ROO, that includes fuel. So we've got to get that down to non-fuel. So you back out about $33 million of fuel related increases that takes you to a total non-fuel revenue decrease of $29 million. You add to that incremental cost that we've stated for a while now will hit the income statement once rates go into effect of about $110 million and then you tax effect that, that gets you to the $90 million estimated annual impacts to ongoing earnings. And again, we expect that to be up to $90 million and that's an estimate at this time.

Fitch: APS Rating Outlook Negative

On our last Zoom call, we discussed the Hearing Officer's Recommended Opinion and Order in the APS Rate Case.  The judge rejected the company's request to put the Four Corners SCRs into rate base.  The Commissioners can, of course, amend the order to put the SCRs into rates, but it takes three votes to amend the order and there's a lot of inertia.   If the ACC adopts the  judge's recommendation, APS will not recover the investment of nearly $500 million. 

Here's what Fitch said:

The Negative Outlook reflects heightened regulatory risk in Arizona with an adverse outcome in APS's pending general rate case (GRC) being the main concern. A final order in APS's pending GRC consistent with a recent administrative law judge (ALJ) recommendation, which Fitch views as more onerous than previously expected, will be detrimental to credit quality and could lead to a one-notch rating downgrade at APS and parent Pinnacle West Capital Corp. (PNW, IDR: A-/Negative).