Nuclear Decommissioning Trusts

12 Months Ended

Dec. 31, 2012

Nuclear Decommissioning Trusts

Nuclear Decommissioning Trusts

22. Nuclear Decommissioning Trusts

To fund the costs APS expects to incur to decommission Palo Verde, APS established external decommissioning trusts in accordance with NRC regulations.  Third-party investment managers are authorized to buy and sell securities per their stated investment guidelines.  The trust funds are invested in fixed income securities and equity securities.  APS classifies investments in decommissioning trust funds as available for sale.  As a result, we record the decommissioning trust funds at their fair value on our Consolidated Balance Sheets.  See Note 14 for a discussion of how fair value is determined and the classification of the nuclear decommissioning trust investments within the fair value hierarchy.  Because of the ability of APS to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, we have deferred realized and unrealized gains and losses (including other-than-temporary impairments on investment securities) in other regulatory liabilities.  The following table includes the unrealized gains and losses based on the original cost of the investment and summarizes the fair value of APS’s nuclear decommissioning trust fund assets at December 31, 2012 and December 31, 2011 (dollars in millions):

	Fair Value			Total Unrealized Gains		Total Unrealized Losses
December 31, 2012
Equity securities	$	204		$	67	$	—
Fixed income securities	371			24		—
Net payables (a)	(4		)	—		—
Total	$	571		$	91	$	—

	Fair Value			Total Unrealized Gains		Total Unrealized Losses
December 31, 2011
Equity securities	$	175		$	44	$	(1	)
Fixed income securities	340			23		(1		)
Net payables (a)	(1		)	—		—
Total	$	514		$	67	$	(2	)

(a) Net payables relate to pending securities sales and purchases.

The costs of securities sold are determined on the basis of specific identification.  The following table sets forth approximate gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds (dollars in millions):

	Year Ended December 31,
	2012			2011			2010
Realized gains	$	7		$	8		$	17
Realized losses	(4		)	(5		)	(4		)
Proceeds from the sale of securities (a)	418			498			560

(a) Proceeds are reinvested in the trust.

The fair value of fixed income securities, summarized by contractual maturities, at December 31, 2012 is as follows (dollars in millions):

	Fair Value
Less than one year	$	14
1 year — 5 years	97
5 years — 10 years	109
Greater than 10 years	151
Total	$	371

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f), for Arizona Public Service Company.  Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2012.  The effectiveness of our internal control over financial reporting as of December 31, 2012 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein and also relates to the Company’s financial statements.