Retirement Plans and Other Benefits

6 Months Ended

Jun. 30, 2012

Retirement Plans and Other Benefits

Retirement Plans and Other Benefits

4.Retirement Plans and Other Benefits

Pinnacle West sponsors a qualified defined benefit and account balance pension plan, a non-qualified supplemental excess benefit retirement plan, and other postretirement benefit plans for the employees of Pinnacle West and our subsidiaries.  Pinnacle West uses a December 31 measurement date for its pension and other postretirement benefit plans.  The market-related value of our plan assets is their fair value at the measurement date.

Certain pension and other postretirement benefit costs in excess of amounts recovered in electric retail rates are deferred as a regulatory asset for future recovery, pursuant to an ACC regulatory order.  We deferred pension and other postretirement benefit costs of approximately $5 million and $3 million for the three months ended June 30, 2012 and 2011, respectively, and approximately $14 million and $6 million for the six months ended June 30, 2012 and 2011, respectively.  The following table provides details of the plans’ net periodic benefit costs and the portion of these costs charged to expense (including administrative costs and excluding amounts capitalized as overhead construction, billed to electric plant participants or charged to the regulatory asset) (dollars in millions):

	Pension Benefits												Other Benefits
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011			2012			2011			2012			2011
Service cost - benefits earned during the period	$	15		$	13		$	32		$	29		$	6		$	5		$	14		$	11
Interest cost on benefit obligation	30			31			60			62			11			12			23			23
Expected return on plan assets	(35		)	(33		)	(71		)	(67		)	(11		)	(11		)	(23		)	(21		)
Amortization of:
Prior service cost	—			—			1			1			—			—			—			—
Net actuarial loss	12			7			22			13			4			4			10			8
Net periodic benefit cost	$	22		$	18		$	44		$	38		$	10		$	10		$	24		$	21
Portion of cost charged to expense	$	8		$	7		$	13		$	15		$	3		$	4		$	6		$	8

Contributions

We expect to contribute to our pension plan approximately $65 million in 2012 (of which $15 million was contributed in July 2012), approximately $150 million in 2013 and approximately $160 million in 2014.  The contributions to our other postretirement benefit plans for 2012, 2013 and 2014 are expected to be approximately $20 million each year.