PWCC, Annual Report 2001 :: A Look at Financial Reporting

Pinnacle West Capital Corporation, A Look at Financial Reporting

We have increased the type and extent of information we make available to investors to facilitate better understanding of our business performance and our financial results. The quality of our disclosure is a reflection of who we are and our attitude about the need to be open and clear about our business operations and their effects on our financial results. Considerable detail about our operating statistics and financial performance is provided in our quarterly statistics section.

All public companies will face tougher analysis and a demand for greater financial transparency to develop investor trust and confidence. Changes in accounting standards, closer scrutiny by the SEC and rating agencies, and more rigor from investors and analysts seem inevitable. Such changes should result in more confidence in numbers reported by corporate America. We welcome this trend.

Since our power marketing and trading activities have contributed significantly to our bottom line in the last two years, we have expanded our disclosures to include more data on those operations. In addition to required disclosure in the financial statements and management’s discussion of financial position and results of operations, some of the key data is explained below.

Place your cursor over the underlined items below to view additional information.



marketing and trading gross margin summary(a)

(millions of dollars, before income taxes)	2001	2000

realized and mark-to-market components (b)
Current period effects
Realized margin on delivered commodities
Electricity
Generation sales other than native load	$ 79	$ 54
Other electricity marketing and trading	119	69

Total electricity	198	123
Other commodities	(14)	(9)

Total realized margin	184	114

Prior-period mark-to-market (gains) losses on contracts
delivered during current period
Electricity	(15)	(2)
Other commodities	27	–
Charge related to trading activities with Enron
and its affiliates	(8)	–

Subtotal	6	(2)

Total current period effects	190	112

Change in mark-to-market gains (losses) for future
period deliveries (c)
Electricity	146	7
Other commodities	(19)	7

Total future period effects	127	14
Total gross margin before income taxes	$ 317	$ 126

By commodity sold or traded
Electricity	$ 329	$ 128
Other commodities	(12)	(2)

Total gross margin before income taxes	$ 317	$ 126

accumulated mark-to-market gains (losses)
at end of year (c)	$ 138	$ 11

Gross margin equals electric operating revenues minus purchased power and fuel expenses, before income taxes. Generally accepted accounting principles (GAAP) require that the book value of certain contracts for sales or purchases of commodities be adjusted to reflect changes in their fair value caused by changes in prevailing market prices. This process is called mark-to-market. Mark-to-market represents non-cash gains or losses. Essentially all of our marketing and trading activities are structured activities, meaning our portfolio of forward sales positions is hedged with a portfolio of forward purchases that protects the economic value of the sales transactions against market price changes.