Regulatory Matters (Tables)

6 Months Ended

Jun. 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)

	Six Months Ended June 30,
	2011			2010
Beginning balance	$	(58	)	$	(87	)
Deferred fuel and purchased power costs-current period	(65		)	(65		)
Amounts refunded through revenues	69			55
Ending balance	$	(54	)	$	(97	)

Detail of regulatory assets

	June 30, 2011				December 31, 2010
	Current		Non-Current		Current		Non-Current
Pension and other postretirement benefits	$	—	$	672	$	—	$	669
Deferred income taxes	3		72		3		69
Deferred fuel and purchased power — mark-to-market (Note 8)	31		32		42		35
Transmission vegetation management	9		36		—		46
Coal reclamation	2		36		2		36
Palo Verde VIE (Note 7)	—		34		—		33
Deferred compensation	—		34		—		32
Tax expense of Medicare subsidy	2		21		2		21
Loss on reacquired debt	1		20		1		21
Pension and other post-retirement benefits deferral	—		6		—		—
Demand side management (a)	8		5		12		6
Other	—		15		—		18
Total regulatory assets (b)	$	56	$	983	$	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

	June 30, 2011				December 31, 2010
	Current		Non-Current		Current		Non-Current
Removal costs (a)	$	19	$	358	$	22	$	357
Asset retirement obligations (Note 15)	—		213		—		184
Deferred fuel and purchased power (b)(c)	54		—		58		—
Renewable energy standard (b)	57		—		50		—
Income taxes — change in rates	—		50		—		—
Spent nuclear fuel	4		43		4		41
Deferred gains on utility property	2		15		2		16
Other	7		16		3		16
Total regulatory liabilities	$	143	$	695	$	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.