SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): June 26, 1997
TUCSON ELECTRIC POWER COMPANY
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(Exact name of registrant as specified in its charter)
Arizona 1-5924 86-0062700
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
220 West Sixth Street, Tucson, Arizona 85701
(Address of principal executive office) (Zip Code)
(602) 571-4000
(Registrant's telephone number, including area code)
Item 5. Other Events
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Springerville Coal Contract
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On June 27, 1997, the Company signed an agreement with the
coal supplier for the Springerville Generating Station to
terminate the existing coal supply contract and enter into a
new, more cost effective contract with the same supplier.
The Springerville Generating Station consists of two 380
megawatt (MW) coal fired generating units which account for
38% of the Company's total net generating capability. A $50
million termination fee was incurred by the Company and is
payable in three installments: $30 million paid on June 30,
1997, $10 million due September 30, 1997, and $10 million
due March 31, 1998.
The previous coal supply contract covered the useful lives
of Springerville Units 1 and 2 and contained a bilateral
option to renegotiate the contract price and escalation
procedures in 2009 and at intervals of every five years
thereafter, with various adjustment clauses which would
affect the future cost of delivered coal.
The new coal contract has an initial term of 13 years,
beginning July 1, 1997, and ending June 30, 2010, with an
extended term of ten years thereafter. During the extension
term, the coal supplier has the right of first refusal to
match competing offers for a portion of Springerville coal
requirements. The new contract also contains more favorable
terms to the Company for certain volume, incremental volume,
base price, incremental price and price adjustment mechanism
requirements. The Company estimates that cost savings under
the new contract will be approximately $10 million per year
initially and will increase thereafter, resulting in
approximately $97.5 million of savings on a present value
basis over the life of the contract.
The Company will apply to the Arizona Corporation Commission
(ACC) requesting that the termination fee be treated as a
regulatory asset and amortized to fuel expense over the 13-
year term of the new agreement. In the interim, the Company
has requested an interim accounting order from the ACC to
defer the $50 million expense as a regulatory asset until
the ACC decides whether the $50 million should be recovered
through retail rates. However, if the ACC disallows recovery
or denies the request for the interim accounting order, the
entire $50 million would immediately be expensed. The
Company expects to receive a final determination from the
ACC regarding the regulatory treatment of the termination
payment before the end of the year.
Wholesale Power Contract
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On June 26, 1997, the Company signed an agreement to extend
and restructure its current wholesale power sale agreement
with the Navajo Tribal Utility Authority (NTUA). NTUA is
the Company's second largest wholesale customer, purchasing
approximately 60 MW of power annually since 1993.
The new agreement, which is subject to approval by the
Federal Energy Regulatory Commission (FERC), is responsive
to FERC Order No. 888. FERC Order No. 888, among other
things, requires the unbundling and separate pricing of
transmission and generation services of all new wholesale
market transactions. Under the new arrangement, the Company
will provide generation service pursuant to the Power Supply
Agreement, while providing the transmission and ancillary
services necessary to actually deliver power pursuant to
separate network service and operating agreements.
Under the terms of the Amended and Restated Power Supply
Agreement, firm capacity sales will be provided in two
phases. The first phase runs through May 31, 1999, the
original termination date under the replaced agreement. The
second phase will extend through December 31, 2009.
During phase one, the Company will continue to serve NTUA's
full power requirements in excess of energy and capacity
from NTUA's hydroelectric resource. The new contract also
provides NTUA the opportunity and ability to serve new
industrial loads through purchases in the wholesale
marketplace. Phase two of the agreement calls for NTUA to
continue purchasing firm power from the Company, while
becoming a partial requirements customer with a variety of
options to serve its remaining needs. The Company will
provide 40 MW of firm power to NTUA in the summer months
(May-September) and 50 MW of firm power in the winter months
(October-April). The Company may also serve some or all of
NTUA's remaining requirements during the second phase of the
agreement. Such additional sales would be dependent on
service options chosen by the customer. The energy price
will be fixed with adjustments for the Company's actual fuel
costs.
The Company's current annual revenues from wholesale sales
to NTUA are approximately $16.5 million per year. In phase
one of the restructured agreement, the Company's annual
revenues from sales to NTUA are estimated to be
approximately $15 million per year. In the first year of
phase two, revenues from sales to NTUA are estimated to
range from $9 million to $16 million.
* * *
Statements in this report regarding estimated fuel cost
savings, the expected timing of a regulatory decision on the
coal contract termination fee, and estimated revenues from
sales to the NTUA constitute "forward-looking statements" as
defined in the Securities Litigation Reform Act of 1995.
Such forward-looking statements involve risks and
uncertainties which could cause actual results or outcomes
to differ materially from those expressed in the forward-
looking statements. The estimates and expectations provided
in this report are expressed in good faith and are believed
by the Company to have a reasonable basis, but there can be
no assurance that such estimates or expectations will be
realized. Some of the important factors that could cause
actual results to differ materially from those set forth in
the forward-looking statements include unanticipated changes
in projected coal usage and price escalation rates,
uncertainty regarding the procedural schedule for regulatory
consideration of the coal contract termination fee, and
factors affecting the NTUA's demand for electricity as well
as the availability and cost of alternative supplies to the
NTUA.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
TUCSON ELECTRIC POWER COMPANY
(Registrant)
Date: July 3, 1997 Ira R. Adler
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Ira R. Adler
Senior Vice President and
Principal Financial Officer