APS 2015 Annual Report Download - page 144

Table of Contents
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
long-term nature of our energy transactions and the use of option valuation models with significant unobservable inputs.
Our energy risk management committee, consisting of officers and key management personnel, oversees our energy risk
management activities to ensure compliance with our stated energy risk management policies. We have a risk control function that is
responsible for valuing our derivative commodity instruments in accordance with established policies and procedures. The risk control
function reports to the chief financial officer’s organization.
Investments Held in our Nuclear Decommissioning Trust
The nuclear decommissioning trust invests in fixed income securities and equity securities. Equity securities are held indirectly
through commingled funds. The commingled funds are valued based on the concept of NAV, which is a value primarily derived from
the quoted active market prices of the underlying equity securities. We may transact in these commingled funds on a semi-monthly
basis at the NAV. We classify these investments as Level 2. The commingled funds are maintained by a bank and hold investments in
accordance with the stated objective of tracking the performance of the S&P 500 Index. Because the commingled fund shares are
offered to a limited group of investors, they are not considered to be traded in an active market.
Cash equivalents reported within Level 1 represent investments held in a short-term investment exchange-traded mutual fund,
which invests in certificates of deposit, variable rate notes, time deposit accounts, U.S. Treasury and Agency obligations, U.S. Treasury
repurchase agreements, and commercial paper.
Fixed income securities issued by the U.S. Treasury held directly by the nuclear decommissioning trust are valued using quoted
active market prices and are typically classified as Level 1. Fixed income securities issued by corporations, municipalities, and other
agencies, including mortgage-backed instruments, are valued using quoted inactive market prices, quoted active market prices for
similar securities, or by utilizing calculations which incorporate observable inputs such as yield curves and spreads relative to such
yield curves. These instruments are classified as Level 2. Whenever possible, multiple market quotes are obtained which enables a
cross-check validation. A primary price source is identified based on asset type, class, or issue of securities.
We price securities using information provided by our trustee for our nuclear decommissioning trust assets. Our trustee uses
pricing services that utilize the valuation methodologies described to determine fair market value. We have internal control procedures
designed to ensure this information is consistent with fair value accounting guidance. These procedures include assessing valuations
using an independent pricing source, verifying that pricing can be supported by actual recent market transactions, assessing hierarchy
classifications, comparing investment returns with benchmarks, and obtaining and reviewing independent audit reports on the trustee’s
internal operating controls and valuation processes. See Note 19 for additional discussion about our nuclear decommissioning trust.
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