APS 2011 Annual Report Download - page 95

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Fair Value Measurements
We account for derivative instruments, investments held in our nuclear decommissioning trust,
certain cash equivalents and plan assets held in our retirement and other benefit plans at fair value on a
recurring basis. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. We use inputs,
or assumptions that market participants would use, to determine fair market value. The significance of
a particular input determines how the instrument is classified in a fair value hierarchy. We utilize
valuation techniques that maximize the use of observable inputs and minimize the use of unobservable
inputs. The determination of fair value sometimes requires subjective and complex judgment. Our
assessment of the inputs and the significance of a particular input to fair value measurement may affect
the valuation of the instruments and their placement within a fair value hierarchy. Actual results could
differ from our estimates of fair value. See Note 1 for discussion on accounting policies and Note 14
for further fair value measurement discussion.
OTHER ACCOUNTING MATTERS
See Note 2 for discussion regarding the adoption of amended accounting guidance in the first
quarter of 2012 relating to fair value measurements and disclosures, and the presentation of
comprehensive income.
MARKET AND CREDIT RISKS
Market Risks
Our operations include managing market risks related to changes in interest rates, commodity
prices and investments held by our nuclear decommissioning trust fund.
Interest Rate and Equity Risk
We have exposure to changing interest rates. Changing interest rates will affect interest paid
on variable-rate debt and the market value of fixed income securities held by our nuclear
decommissioning trust fund (see Note 14). The nuclear decommissioning trust fund also has risks
associated with the changing market value of its investments. Nuclear decommissioning costs are
recovered in regulated electricity prices.
The tables below present contractual balances of our consolidated long-term and short-term
debt at the expected maturity dates as well as the fair value of those instruments on December 31, 2011
and 2010. The interest rates presented in the tables below represent the weighted-average interest rates
as of December 31, 2011 and 2010 (dollars in thousands):