Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 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)

	Year EndedDecember 31,
	2011			2010
Beginning balance	$	(58	)	$	(87	)
Deferred fuel and purchased power costs-current period	(69		)	(93		)
Amounts refunded through revenues	155			122
Ending balance	$	28		$	(58	)

Detail of regulatory assets

	Remaining Amortization	December 31, 2011				December 31, 2010
	Period	Current		Non-Current		Current		Non-Current
Pension and other postretirementbenefits	(a)	$	—	$	1,023	$	—	$	669
Income taxes —AFUDC equity	2041	3		81		3		69
Deferred fuel and purchasedpower — mark-to-market(Note 18)	2016	43		34		42		35
Transmission vegetationmanagement	2016	9		32		—		46
Coal reclamation	2026	2		35		2		36
Palo Verde VIE (Note 20)	2015	—		35		—		33
Deferred compensation	2036	—		33		—		32
Deferred fuel and purchasedpower (b)	2012	28		—		—		—
Income taxes — Medicare subsidy	2024	2		18		2		21
Loss on reacquired debt	2034	1		19		1		21
Income taxes — investmenttax credit basis adjustment	2044	—		15		—		—
Pension and other postretirementbenefits deferral	2015	—		12		—		—
Demand side management	2013	7		1		12		6
Other	Various	2		14		—		18
Total regulatory assets (c)		$	97	$	1,352	$	62	$	986

(a)This asset represents the future recovery in earnings of under-funded pension and other postretirement benefits obligation costs through retail rates.  If these costs are disallowed by the ACC, this regulatory asset would be charged to OCI and result in lower future revenues.

(b)See “Cost Recovery Mechanisms” discussion above.

(c)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

	Remaining Amortization	December 31, 2011				December 31, 2010
	Period	Current		Non-Current		Current		Non-Current
Removal costs	(a)	$	22	$	349	$	22	$	357
Asset retirement obligations	(a)	—		225		—		184
Renewable energy standard (b)	2012	54		—		50		—
Income taxes — change in rates	2041	—		59		—		—
Spent nuclear fuel	2047	5		44		4		41
Deferred gains on utility property	2019	2		14		2		16
Income taxes-unamortizedinvestment tax credit	2044	1		30		—		1
Deferred fuel and purchasedpower (b)(c)		—		—		58		—
Other	Various	4		16		3		15
Total regulatory liabilities		$	88	$	737	$	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.  See Note 12.

(b)See “Cost Recovery Mechanisms” discussion above.

(c)Subject to a carrying charge.