Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2011

Regulatory Matters

Schedule of proposed capital structure and costs of capital

	Capital Structure		Cost of Capital
Long-term debt	46.1	%	6.38	%
Common stock equity	53.9	%	11.00	%
Weighted-average cost of capital			8.87	%

Changes in the deferred fuel and purchased power regulatory asset (liability)

	Nine Months Ended September 30,
	2011			2010
Beginning balance	$	(58	)	$	(87	)
Deferred fuel and purchased power costs-current period	(31		)	(50		)
Amounts refunded through revenues	121			96
Ending balance	$	32		$	(41	)

Detail of regulatory assets

	September 30, 2011				December 31, 2010
	Current		Non-Current		Current		Non-Current
Pension and other postretirement benefits	$	—	$	663	$	—	$	669
Deferred income taxes	3		82		3		69
Deferred fuel and purchased power — mark-to-market (Note 8)	35		27		42		35
Transmission vegetation management	9		34		—		46
Coal reclamation	2		35		2		36
Palo Verde VIE (Note 7)	—		34		—		33
Deferred compensation	—		34		—		32
Deferred fuel and purchased power (a)	32		—		—		—
Tax expense of Medicare subsidy	2		18		2		21
Loss on reacquired debt	1		19		1		21
Pension and other post-retirement benefits deferral	—		9		—		—
Demand side management (a)	3		2		12		6
Other	—		21		—		18
Total regulatory assets (b)	$	87	$	978	$	62	$	986

(a) See Cost Recovery Mechanisms discussion above.

(b) There are no regulatory assets for which the ACC has allowed recovery of costs but not allowed a return by exclusion from rate base.  FERC rates are set using a formula rate as described in “Transmission Rates and Transmission Cost Adjustor.”

Detail of regulatory liabilities

	September 30, 2011				December 31, 2010
	Current		Non-Current		Current		Non-Current
Removal costs (a)	$	21	$	355	$	22	$	357
Asset retirement obligations (Note 15)	—		202		—		184
Renewable energy standard (b)	58		—		50		—
Income taxes — change in rates	—		50		—		—
Spent nuclear fuel	5		43		4		41
Deferred gains on utility property	2		15		2		16
Income taxes- deferred investment tax credit	—		9		—		1
Deferred fuel and purchased power (b)(c)	—		—		58		—
Other	8		15		3		15
Total regulatory liabilities	$	94	$	689	$	139	$	614

(a) In accordance with regulatory accounting guidance, APS accrues for removal costs for its regulated assets, even if there is no legal obligation for removal.

(b) See Cost Recovery Mechanisms discussion above.

(c) Subject to a carrying charge.