EXHIBIT 99.1
BEFORE THE ARIZONA CORPORATION COMMISSION
COMMISSIONERS
JEFF HATCH-MILLER, Chairman
MARC SPITZER
WILLIAM A. MUNDELL
MIKE GLEASON
KRISTIN K. MAYES
IN THE MATTER OF THE APPLICATION OF ARIZONA PUBLIC SERVICE DOCKET NO. E-01345A-06-____
COMPANY FOR AN EMERGENCY INTERIM RATE INCREASE AND FOR AN
INTERIM AMENDMENT TO DECISION NO. 67744 APPLICATION FOR EMERGENCY INTERIM RATE
INCREASE AND INTERIM
AMENDMENT TO DECISION NO. 67744
I. INTRODUCTION
Arizona Public Service Company ("APS" or the "Company") hereby
respectfully applies for an interim rate increase of $299 million in additional
annual electric revenues, or approximately a 14% increase, to be effective April
1, 2006 and subject to refund1 pending the Commission's final decision in Docket
No. E-01345A-05-0816.2 This increase represents only the higher annual fuel and
purchased power costs the Company expects to incur based on 2006 prices, as will
be reflected in its updated filing in the permanent rate case docket on or
before January 31, 2006, and thus is not an additional increase. It would result
in an interim base fuel cost of $.031904 per kWh.3 Attached as Exhibit A in
support of the Application is the Affidavit of Donald E. Brandt, the Company's
Chief Financial Officer. Attached as Exhibit B are Rate
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1 APS is proposing that its promise to refund any excess interim revenues as the
"other arrangements satisfactory to the Commission" referenced in A.A.C.
R14-2-103(B) (11) (h).
2 This request is in addition to the pending request for an $80 million Power
Supply Adjustor ("PSA") surcharge and the annual adjustment to the annual PSA
adjustment factor in April of 2006. Together, these three rate adjustments total
just under 21% (14% plus 1.8% plus 5%). APS is aware that there is a Recommended
Order that would deny the $80 million PSA surcharge at this time on procedural
grounds. If adopted, APS could seek a PSA surcharge to be effective April 1,
2006 in accordance with the terms of such Recommended Order. This latter request
would be in addition to the interim increase sought herein and the 4 mill annual
adjustment to the PSA in April 2006.
3 The base fuel cost ($.020743) established by Decision No. 67744 was premised
on 2003 price levels. It reflected natural gas prices of approximately $5.80 per
MMBTU compared with $10.74 per MMBTU during 2006. Similarly, PV peak period
purchased power will have increased from $53.21 per MWH in 2003 to $88.88 per
MWH in 2006. And both gas and purchased power constitute a higher and increasing
percentage of the overall power supply mix than in 2003.
Schedule IR-1 and the accompanying language for the individual APS rate
schedules that reflect the proposed interim increase in the base fuel rate.
APS earns no markup or profit on fuel and purchased power costs. These
costs are both unavoidable and largely uncontrollable. Unavoidable because APS
must have fuel to operate the power plants that serve its customers, and it must
purchase power from others because those plants cannot produce enough power to
meet customer needs. The requested interim base fuel rate also reflects expected
2006 operations at Palo Verde and the other APS power plants and thus is not
impacted by any of the 2005 unplanned Palo Verde outages.4
Finally, the Company's legal right to full recovery of all prudent costs
of providing electric service to the public is unquestioned. In Scates v.
Arizona Corporation Commission, 118 Ariz. 531, 578 P.2d 612 (App. 1978) the
Court held that "rates established by the Commission should meet the overall
operating costs of the utility and produce a reasonable rate of return." Id. As
such, the Court of Appeals followed the Supreme Court's earlier holding in
Arizona Corporation Commission v. Arizona Water Co., 85 Ariz. 198, 335 P.2d 412
(1959), which stated: "it [the utility] is entitled to a fair return on the fair
value of its properties devoted to public use, no more and no less." (Emphasis
supplied.) See also Wisconsin Public Service Corporation v. Public Service
Commission of Wisconsin, 325 N.W. 2d 867 (Wisc. Sup. Ct. 1982) (public service
commission's decision to disallow full recovery of prudently-incurred costs to
reduce burden of cost recovery on ratepayers lacked rational basis, was
arbitrary, and had no basis is sound public policy). Moreover, in setting rates,
the Commission has an equal responsibility to protect both customers and
shareholders of the utility. Arizona Community Action Association v. Arizona
Corporation Commission, 123 Ariz. 228, 599 P.2d 184 (1979); see also Salt River
Valley Canal Co. v. Nelssen, 10 Ariz. 9, 85 P.117 (1909).
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4 The Commission Staff is retaining a consultant to examine the prudence of
these outages. Whether such a determination is made in Docket No.
E-01345A-05-0816 or in a separate proceeding, the Commission retains the ability
to formulate the appropriate remedy for any demonstrated instance of imprudence
resulting in higher fuel or purchased power costs. That remedy can be
implemented at any time pursuant to the provisions of the PSA and should not
serve to delay a ruling on either this Application or implementation of the
April 2006 annual PSA adjustment. In short, there will be multiple opportunities
for the Commission to remove from the PSA any higher costs attributable to any
imprudent actions by APS. But there is just this one opportunity for the
Commission to protect consumers from the very much higher costs attributable to
further delay in addressing the financial crisis facing the Company due to
escalating PSA balances.
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APS further requests that the Commission amend Decision No. 67744 (April
8, 2005), also on an interim basis, to remove the $776.2 million "cap" on total
retail fuel and purchased power costs recoverable in rates. The Company made
this same request, albeit on a permanent basis, in Docket No. E-01345A-05-0816
under the provisions of A.R.S. Section 40-252 because APS expects to reach the
"cap" in the fourth quarter of 2006. It now appears increasingly possible, if
not probable, that the Commission will not issue a final decision in this latter
docket until after that "cap" is reached, thus requiring APS to suffer very
significant financial harm if amounts of prudently-incurred fuel and purchased
power costs above such "cap" can be neither deferred nor recovered.5
II. SUMMARY OF APPLICATION
APS is presently experiencing a substantial operating cash flow deficiency
that has already led to one down rating of its debt securities to the bottom
rung of the investment grade ladder, thus increasing the Company's financing
costs by approximately 10-50 basis points and decreasing the marketability of
its securities. This downgrade has placed APS in the bottom quartile of all U.S.
utilities having rated securities. See Affidavit of Donald E. Brandt.
Absent interim rate relief to address the massive undercollection of fuel
and purchased power costs, it is likely that APS will be further downgraded to
non-investment "junk bond" status for the first time in its over 100 year
history of service to the public in Arizona. APS would be among the least
credit-worthy non-bankrupt utilities in America, and the Company's ability to
successfully undertake the multi-billion dollar construction program necessary
to render adequate utility service to its customers at a reasonable cost would
be in serious jeopardy. Id.
In its December 21st decision to downgrade the Company's debt rating,
Standard & Poor's ("S&P") made the following observations:
Specifically, Standard & Poor's is concerned that the Arizona Corporation
Commission (ACC) is not expeditiously addressing APS' growing fuel and
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5 It is not clear whether A.R.S. Section 40-252 is also implicated when there is
a request for an interim amendment to a prior Commission order. Indeed, the
request for an interim base fuel rate of $.031904 per kWh would itself exceed
the "cap," thus implicitly seeking an amendment to this aspect of Decision No.
67744. However, to the extent A.R.S. Section 40-252 is believed applicable, APS
would ask that its interim request for relief from the $776.2 million "cap" be
considered as a request under such statute.
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purchased-power deferrals, which have grown more rapidly than expected in
2005, particularly because of elevated natural gas prices and the
utility's increased dependence on this fuel.
* * *
In November 2005, APS filed for a nearly 20% increase in customer electric
rates, but it appears unlikely that a resolution will be reached until
2007, and may be delayed to mid-2007.
* * *
Recent public statements by the ACC suggest spring 2007 may be the
earliest a decision [in Docket No. E-01345A-05-0816] could be expected.
APS's last rate case took nearly 23 months to conclude, and there is
therefore substantial uncertainty as to when the [rate] case will be
completed.
* * *
The stable [at BBB-] outlook reflects Standard & Poor's expectation that
the ACC will resolve at least a portion of APS's increasing deferred power
costs in January 2006. In addition, the outlook presumes that progress
will be made in addressing APS' general rate case and that any outcome [of
such general rate case] will support the return of consolidated financial
metrics to what until 2004 was a reasonable performance. The stable
outlook is also dependent upon improved 2006 performance at Palo Verde.
Any adverse regulatory development or continued delays in resolving the
--- --
pending surcharge request could result in a downward revision of the
outlook or an adverse rating action. [Emphasis supplied.]
Although Palo Verde is mentioned in the S&P release, it is clear that the
dominant and triggering concerns are regulatory. And as noted earlier, the
Company's interim request has been moderated by incorporating not just "improved
2006 performance at Palo Verde" but a return to the historically superior
performance of that facility.
The "adverse rating action" referenced by S&P is a downgrade of the
Company's rating to the BB or "junk" range. A downgrade of APS to "junk bond"
status would be disastrous for APS customers. Not only would it threaten the
Company's ability to render reliable service to the second fastest growing
service area in the country, it would increase costs to both current and future
electric consumers. These increased costs could be as much as $1 BILLION over a
ten-year period. There would be operating cost increases as well because vendors
of power and other goods and services would require more onerous terms to do
business with APS. See Affidavit of Donald E. Brandt. And these increased costs
would come on top of the higher fuel and purchased power costs that are the
subject of this Application. There is no avoiding the
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latter, but the higher interest and operating costs of a downgrade are entirely
avoidable by timely and decisive Commission action. Id.
Acting sooner rather than later to address the imbalance between base fuel
revenues and actual fuel and purchased power costs will have other tangible
benefits for APS customers. These include the reduction by some $3-4 million in
further carrying charges on the uncollected PSA balances, the promotion of
conservation and energy efficiency (with attendant short and long term benefits
to both consumers and the environment), the possible elimination of the need for
a second PSA surcharge later in 2006, and a reduction in the April 2007 annual
PSA adjustment.
When Decision No. 67744 adopted the $776.2 million cap on fuel and
purchased power costs, it was reasoned that:
We believe APS must have an incentive to file a rate case so we can
determine the accuracy of its assertions about expenses. Decision No.
67744 at 17.
Because the PSA actually adjusts for growth, putting a `cap' on recovery
of these costs will help ensure that APS will file a rate case application
when necessary. Id.
Since there is no moratorium on filing a rate case, APS can file a rate
case to reset base rates if it deems it necessary because that cap is
reached. Id.
Thus, it was clearly anticipated by Decision No. 67744 that the "cap" would be
adjusted or eliminated in the Company's next rate proceeding, which proceeding
would itself be encouraged by the "cap." And in Staff Exhibit S-35, which is
expressly referenced during this discussion in Decision No. 67744 of the "cap,"
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it does not show the "cap" being exceeded under any then believed likely
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scenario prior to 2008 - plenty of time to address the "cap" in such a future
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APS rate case before it could create the potential for automatic and arbitrary
disallowances of otherwise prudent costs. As with other amendments made by the
Commission to the PSA, such as the four mill "lifetime" limit on annual PSA
adjustments or the $100 million "cap" on PSA deferrals (prior to seeking a
surcharge), all which are discussed on the same page of Decision No. 67744,
there was no intent expressed in the order for the "cap" to cause such
disallowances in the absence of the Company's refusal to file another general
rate case.
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Decision No. 67744's discussion of the $776.2 million "cap" is consistent
with the Commission deliberations during the Special Open Meeting to consider
the 2004 APS Settlement. Chairman Hatch-Miller specifically indicated that the
purpose of the "cap" was to require APS to come in for another rate proceeding.
Tr. Vol. I at 43, lines 12-15. And three other Commissioners acknowledged that
these various "caps" were not intended to cause arbitrary disallowances of
otherwise prudent fuel and purchased power costs. Tr. Vol. II at 242, lines 1-7;
256, lines 1-6; 261, lines 13-16; 276, lines 7-11; and 279, lines 13-14.
Similarly, the discussion indicated that given then prevailing fuel prices, it
was not anticipated that the "cap" would be reached until between 2007 (APS
spokesman Steve Wheeler: Tr. Vol. II at 294, lines 19-21) and 2010 (Commissioner
Gleason: Tr. Vol. II at 235, lines 24-25 and 230, lines 1-2).
APS did as directed and has since filed the rate case envisioned by
Decision No. 67744, which also seeks permanent relief from the $776.2 million
"cap." But escalating fuel and purchased power costs during the last half of
2005 and in 2006 will cause APS to reach the $776.2 million annual "cap" on cost
recovery far sooner than had been anticipated when Decision No. 67744 was
entered. In fact, Scenario 11C of Staff Exhibit S-35, referenced in Decision No.
67744 in establishing the $776.2 million "cap," had predicted gas prices of just
$7.70 per MMBTU in 2006 and assumed no increased prices for other fuel and
purchased power components of power supply costs after 2003. The Company's
request to modify or eliminate that "cap" in the pending permanent rate
proceeding (Docket No. E-01345A-05-0816) would be effectively denied as would
recovery of over $65 million of prudent costs in excess of the "cap" prior to
the Commission's consideration of such request unless the "cap" is lifted or
otherwise modified on an interim basis. See Affidavit of Donald E. Brandt.
Interim rates are a common regulatory tool in other jurisdictions and,
indeed, are granted routinely by the Federal Energy Regulatory Commission. The
Commission's authority to grant such interim relief also has a solid legal basis
in this state, as will be discussed in more detail later in this Application.
The facts in this case: rapidly escalating costs; a deteriorating financial
condition that jeopardizes service and threatens access to needed capital on
reasonable terms; and the inability to consider permanent rate relief in
sufficient time to prevent irreparable harm
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to APS and, under the circumstances presented herein, the Company's customers,
are classic bases for authorizing interim rates both in Arizona and elsewhere.
III. FACTS AND LAW IN SUPPORT OF THE APPLICATION
In support of this Application, the Company respectfully states and as to
factual assertions, the attached affidavit of its Chief Financial Offer, Donald
Brandt, verifies the following:
A. Introduction and Background
---------------------------
The Company provides electric services in all or part of twelve Arizona
counties. Its has over one million customers. In order to fulfill its obligation
to provide reliable service to its present and future customers, the Company has
embarked on a substantial capital expenditure ("CAPX") program to build
necessary transmission and distribution lines, generation plant improvements,
new environmental control systems, and other service facilities. The Company's
present CAPX budget for the year 2006 is approximately $650 million. Over the
years 2006 through 2009, it is anticipated to be over $3 BILLION. This CAPX
program, together with the Company's need to refinance existing indebtedness as
it matures and the Company's other capital requirements during the same time
period, will require the Company to secure over $1 billion from external capital
sources, even assuming its pending rate request at Docket No. E 01345A-05-0816
is granted in full and on schedule before year's end.
The ability of the Company to raise these funds depends in large measure
on its financial vitality, both present and prospective, and the degree to which
it is viewed by the financial markets as a credit-worthy enterprise. However,
the failure to address the continuing and massive undercollection of fuel and
purchased power costs has already undermined the Company's financial health,
adversely affected its access to the outside capital markets, and threatens the
loss of financial integrity in the very near term absent decisive Commission
action to rectify this situation. Similarly, the prospect that APS may never be
allowed recovery of prudently-incurred fuel and purchased power costs in excess
of $776.2 million simply due to the
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timing of a final decision in Docket No. E-01345A-05-0816 was neither
contemplated at the time the "cap" was imposed nor intended to substantially
reduce an already patently deficient return for 2006, thus further aggravating
the financial struggle in which the Company now finds itself.
II. The Company's Present Financial Condition
-----------------------------------------
By Decision No. 67744, the Commission granted the Company its first
increase in base jurisdictional electric rates since 1991. This increase of
4.21% came on the heals of nine rate reductions during the intervening years.
Although the increase was far less than requested by the Company, the financial
and capital markets were somewhat mollified by the adoption of a PSA rate
mechanism to allow for timely recovery of the Company's already rapidly growing
fuel and purchased power costs. Subsequent to the adoption of the PSA, however,
several events have occurred to initially neutralize and then reverse the
financial market's perception of APS and of the Commission.
First, fuel prices and hence costs, especially but not exclusively of
natural gas, have skyrocketed well beyond those anticipated even as late as the
first quarter of 2005. This has led to a heavy burden on the Company's cash
resources and a rapidly growing pile of regulatory IOUs in the form of PSA
deferrals. Indeed, some 20% of the Company's meager 2006 return on equity of
6.6% will be composed of nothing other than the Commission's assurance that
these IOUs will be honored through actual cash recovery in APS rates.
Second, the Company's first attempt to utilize the PSA through a surcharge
filing in July of 2005, has not led to any relief nearly six months later
despite the fact that the requested surcharge was unopposed. This unexpected
delay has been specifically cited with concern by S&P both before and after its
recent down-rating of the Company's debt securities. The recent Recommended
Order in that proceeding, which suggests at least another two plus month delay
in the Commission's consideration of a PSA surcharge, has already led to
additional concern in the capital markets.
Third, APS filed a general rate case in November of 2005 seeking, among
other things, an increase in base fuel revenues to levels more closely
reflecting current costs. Indeed, fuel and
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purchased power constituted approximately two-thirds of the entire request. If
granted, this request would significantly slow down, but not reverse the growth
in deferrals, improve cash flow indicators to at least modest investment grade
levels, and provide for basic structural reform to a PSA widely perceived by the
financial community as structurally flawed. To date, there has been no
Commission action on this request other than a Procedural Conference to
determine when the case would be considered "filed" for purposes of determining
the maximum time permitted under Commission regulations for its processing. The
capital market's failure to detect any sense of either urgency or concern about
the Company's rapidly deteriorating financial health provided yet another reason
for increasing skepticism in that market about the Commission's willingness to
address the fundamental and increasing imbalance between base fuel revenues and
prudently-incurred fuel and purchased power costs.
The results of this imbalance between cash revenues and cash expenses are
reflected in key cash indicators for APS. Absent interim rate relief, and
assuming no additional PSA revenues - only continued deferrals up to the $776.2
million "cap" - APS's net cash flow in 2006 will cover only 42% of capital
expenditures. This is slightly better than in 2005, but only because of a
temporary decline (from 2005) of planned capital expenditures. As it is, the
percentage of construction covered by internal funds in 2006 will be well below
the 10-year average of just over 100%. And net cash flow itself will decline by
some $20 million from the already perilously low 2005 levels even after a full
year of the higher rates approved by Decision No. 67744. Financial markets
recognize this decline in internal cash generation and easily translate the
inability to finance growth without heavy infusions of outside capital to
escalating interest costs, additional refinancing obligations, and ever
increasing demands on the utility's available cash.
Absent the requested interim increase in the base fuel rate, a second PSA
surcharge in 2006 in addition to the already pending $80 million surcharge and
the regular April 2006 PSA adjustment would be imperative. Under this scenario,
net cash flow for 2006 would barely cover half the Company's CAPX, and as noted
below, this alternative course of action would leave other critical financial
ratios at unacceptably low levels.
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In Docket No. E-01345A-05-0520, the Company noted that "funds from
operations as a percent of total debt" ("FFO/Debt") was the single most
important ratings criterion. At the time of the Commission's decision in that
docket, Decision No. 68295 (November 14, 2005), APS was rated as "Business
Profile 5" on a scale where 1 represents the least risky business environment
from the perspective of investors and 10 the most risky. To try to maintain the
Company's FFO/Debt within the minimum investment grade range for Business
Profile 5 (15-22%), APS's parent, Pinnacle West Capital Corporation, is
investing some $450 million of additional equity into APS during 2005 and 2006.
Assuming that the PSA was permitted to operate as intended [approval of the
pending $80 million PSA surcharge request, implementation on April 1 of a 4 mill
PSA adjustment and implementation of a second and larger ($100 million) PSA
surcharge in the fall of 2006], the additional equity infusion would have
increased the Company's 2006 FFO/Debt to 16% - within the range for BBB at
Business Profile 5, albeit at the bottom of that range.
Despite that huge investment in APS by Pinnacle West, on December 21,
2005, S&P lowered APS to a Business Profile 6 for the reasons discussed above.
This raised the minimum acceptable FFO/Debt for a BBB rating to 18%. Even with
the equity infusion and timely PSA adjustments and surcharges, APS will achieve
no more than a 16% FFO/Debt ratio during 2006, which places APS in the "junk"
category. Without the aforementioned PSA rate increases, FFO/Debt is a meager
13.3%, or almost in the single B range - the absolute bottom rating for any U.S.
utility. Thus, as indicated in the attached affidavit of Donald Brandt, APS's
Chief Financial Officer, APS is facing the near term threat for a downgrading to
"junk" unless there is significant and positive action by the Commission to
rectify the under-collection of APS fuel and purchased power costs.
The down grade from BBB to BBB- will result in higher borrowing costs and
more restrictions on APS' access to new investment capital. APS estimates the
former to be in the range of 10-50 basis points on new long-term debt or
$100,000 to $500,000 in additional interest costs each year for each $100
million of borrowing. Higher short-term debt rates and increased bank facility
costs add over another $1 million per year to the eventual burden on customers.
If
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APS were to fall into the "junk" range, the cost to customers increases
dramatically to as much as a BILLION dollars over the next 10 years.
In addition to the prospect of significantly higher interest expenses, the
Company's financing flexibility (i.e., its ability to choose the type, size and
timing of the financings for its external funds requirements) has been curtailed
and will be more so if a further downgrading were to occur. In most cases,
investors have minimum quality standards and are restricted by internal policy
or law to investment in securities rated no less than BBB by the rating
agencies. The Company may even be eventually foreclosed from obtaining any
outside capital under certain economic conditions. As the Company has testified
before this Commission previously, there have been past occasions, which may
well be repeated in the future, when companies with credit ratings similar to
those now facing the Company could not market securities at any price,
regardless of the interest rate offered. If the Company is denied access to the
capital markets, it will be unable to complete its construction program or
refinance its existing indebtedness as it matures.
A downgrading of the Company's credit, and especially a down rating to the
"junk" category, also has operating expense implications. Specifically, it will
become more difficult and more expensive for APS to both purchase power for its
customers' needs and to market surplus APS power off-system. This is because
some entities will simply not transact business with "junk"-rated entities. Many
others will require explicit credit support such as the posting of cash
collateral, letters of credit, etc. Those that do not will roll a premium into
the price they charge APS or demand onerous payment terms. All these changes to
how APS conducts its power trading will increase costs and place even further
strain on the Company's cash resources.
III. Impact of Granting the Requested Interim Relief
-----------------------------------------------
Granting the requested interim rate increase, along with the pending PSA
surcharge request and the regular April 2006 PSA adjustment, will allow for a
FFO/Debt ratio of 20.9% - near the bottom of the BBB range for Business Profile
6 but still a very significant improvement. Thus, as also indicated in the
attached affidavit of Mr. Brandt, granting the
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requested interim increase should prevent any further down rating of APS
(pending conclusion of the Company's rate request in Docket No.
E-01345A-05-0816).
Granting the interim increase in base fuel revenues should also forestall
the need to seek a second PSA surcharge later this year6 and reduce the size of
any needed adjustment to the annual PSA factor in April of 2007. This is because
APS anticipates that the interim increase, when combined with the $80 million
PSA surcharge already before the Commission and the April 2006 adjustment to the
annual PSA charge, will reduce year-end 2006 PSA bank balances from nearly $300
million to under $25 million (excluding the un-recovered portion of the $80
million PSA surcharge). This reduction in the PSA bank balance from its current
projected level reflects an interest savings to APS customers of an additional
$3-4 million.
Finally, the interim increase in base fuel revenues, if eventually made
permanent by a final Commission decision in Docket No. U-01345A-05-0816 would
very significantly reduce the incremental impact of such decision on APS
customers. Higher fuel and purchase power costs account for over two-thirds of
the Company's total requested increase in base rate revenues in that proceeding.
Even if APS universally prevailed both on fuel and non-fuel issues in the final
order in Docket No. E-01345A-05-0816, this would entail a much smaller
incremental increase in 2007 - an increase that may be largely offset by a
reduction of the annual PSA factor.
Bringing the base fuel price more into line with base fuel costs well
prior to the beginning of the season of highest customer use will provide
consumers with a clear and unmistakable signal that we are in a period of high
energy prices. This pro-conservation message will come in time for customers to
make whatever changes in their usage as they find appropriate before the summer
of 2006, when bills are naturally the highest.
The impact of an interim lifting of the $776.2 million "cap" on fuel and
purchased power costs recovery is less apparent from the customer side but quite
significant to the Company. As
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6 This assumes the Recommended Order on the requested $80 million PSA surcharge
is rejected and that surcharge implemented. As noted earlier, if the
Administrative Law Judge's recommendation is adopted, APS could seek a PSA
surcharge to be effective coincident with the requested interim increase in the
base fuel rate and the annual PSA adjustment, i.e., on April 1, 2006.
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noted above, APS has asked for a permanent lifting of this "cap" in Docket No.
E-01345A-05-0816. However, unless a decision is reached in that docket prior to
year end 2006, APS may be forced to forgo recovery of over $65 million in costs
prudently incurred to provide service to its customers. This is true even if the
Commission grants the APS request at a later date. When a party will be
irreparably harmed simply by the delay in reaching a final decision on the
merits of its position, you have a classic example of where interim relief is
appropriate.
But what if the Commission eventually determines in Docket No.
E-01345A-05-0816 that the Company's base fuel cost is something less than
$.031904 per kWh and/or that the $776.2 million "cap" should not be eliminated?
In such instance, APS customers are protected because any revenues received by
APS as a result of this grant of interim relief would be subject to refund at
the time of the Commission's final decision in the permanent rate increase
docket. The specific nature of any such refund (refund checks, negative
surcharge, restated PSA bank balances, etc.) would be left to the Commission's
discretion in that same docket.
The protection afforded customers is not reciprocal. If the Commission
determines in its final order in Docket No. E-01345A-05-0816 that the base fuel
rate should be higher than $.031904 per kWh, APS will have no similar
entitlement to retroactive relief.
IV. Relief Requested and Legal Basis
--------------------------------
The Commission should award the Company an interim rate increase of $299
million in annual electric revenues through an interim increase in the base fuel
cost to $.031904 per kWh. The increase should effective April 1, 2006 and would
be subject to refund. Without such interim rate relief, the Company will not be
able to finance construction on reasonable terms and its obligation to its
customers cannot be adequately discharged.
Similarly, if the $776.2 million "cap" on total fuel and purchased power
cost recovery is not lifted on an interim basis, the Company will suffer
irreparable and significant financial harm should the Commission eventually
grant this same request on a permanent basis in Docket No. E-01345A-05-0816.
Even if the Commission's order in that docket were retroactive, it would not
prevent write-offs in 2006 of over $65 million.
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It is a basic regulatory requirement in Arizona that public service
corporations be allowed to recover all prudent costs of providing service and
given a reasonable opportunity to earn a reasonable return on the "fair value"
of their property. Scates v. Arizona Corporation Commission, supra. When this
cannot be accomplished through the normal ratemaking process or accomplished in
a reasonable time given the circumstances, regulatory bodies and, if necessary
the courts must intervene.
The inability to process a general rate request in a reasonable period of
time, led the Arizona Supreme Court to permit a utility to establish interim
rates. Arizona Corporation Commission v. Mountain States Telephone & Telegraph
Co., 71 Ariz. 404, 228 P. 2d 749 (1951). The Court described that commission's
failure to act as a "callous disregard of their duty, to the Company's financial
detriment." It went on to label the Hobson's choice facing Mountain States of
either continuing to operate indefinitely with insufficient revenue to recover
its costs or suspending operations as "truly appalling." Id. at 408.
Based in part on the Mountain States decision, the concept of interim rate
relief is later discussed in a 1971 Opinion of the Arizona Attorney General, Op.
Atty. Gen. 71-17. Op. Atty. Gen. 71-17 was referenced with approval in Scates.
In his Opinion, the Attorney General concluded that the Commission had the
inherent Constitutional power to impose interim rates in an "emergency." He went
on to give examples of an "emergency" (e.g., ability to render adequate service
without interim relief, inability to act on a request for permanent relief
within a reasonable time under the circumstances presented) and of the
circumstances (rapidly escalating costs) that could give rise to an "emergency,"
but nowhere defines the term. Clearly, however, the concept of an "emergency"
must encompass the notion of irreparable harm to the utility or its customers or
both. For example, in a Commission decision involving Arizona Water Company, the
prospect of losing current and future income tax benefits, a prospect bad for
both the utility and its customers, was found to be a sufficient basis for the
grant of interim rates. See Decision No. 53349 (December 21, 1982).
Op.Atty. Gen. 71-17 also tells us important things about the process to be
used in granting interim relief. First, no finding of fair value, test period
earnings, etc., is required or
-14-
contemplated. Second, the Commission need not conduct a hearing or even permit
intervention because consumer interests are fully protected by the refund
obligation.
In Pueblo Del Sol Water Company v. Arizona Corporation Commission, 160
Ariz. 285, 772 P.2d 1138 (App. 1998) the Court again found that the Commission
had the inherent authority to impose interim rates under appropriate
circumstances and that the Commission need not even conclude that an "emergency"
exists. For example, in Pueblo Del Sol, the inability to conduct a general rate
review in a reasonable time was sufficient. This was also cited as an
appropriate use of interim rates in Op. Atty. Gen. 71-17: "the inability of the
Commission to grant permanent rate relief within a reasonable time would be
grounds for granting interim relief."7
The inability to finance on reasonable terms and/or to adequately serve
customers, as well as delays in the ordinary rate setting process are all
recognized reasons for granting interim rate relief. As stated earlier, many
jurisdictions grant interim relief. FERC does so routinely even though it also
permits future test periods for rate filings. In some instances, interim relief
(either generally or in specific circumstances such as higher fuel costs) is
called for by statute or regulation [e.g., Alaska, Alabama, Arkansas,
Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Maine, Minnesota,
Mississippi, Nevada, New Hampshire, New Jersey, New York, Oregon, Pennsylvania,
Texas, Utah and Wisconsin (both Utah and Wisconsin have specific regulations
allowing interim rates for higher fuel costs),]. In other cases, the regulatory
agency, like this Commission, was held to have this inherent power. See Friends
of Earth v. Public Service Commission, 254 N.W.2d 299 (Wisc. Sup. Ct. 1977)
(interim rates generally appropriate even without express refund provision);
Grindstone Butte Mutual Canal Co. v. Idaho Power Co., 574 P.2d 902 (Idaho Sup.
Ct. 1978) (interim rates within inherent power of commission); Toward Utility
Rate Normalization v. Public Utilities Commission, 750 P.2d 787 (Cal. Sup. Ct.
- ----------
7 Pueblo Del Sol was decided by Division 2 of the Court of Appeals while both
Scates and a later decision in Residential Utility Consumer Office v. Arizona
Corporation Commission, 199 Ariz. 588, 20 P.3d 1169 were Division 1 decisions.
RUCO agreed with the result in Pueblo Del Sol but quibbled with some of the
Division 2 court's language. RUCO did not, however, affect the Commission's
discretion to determine when it believes an "emergency" exists, only holding
that it must make that determination. To the extent these decisions are viewed
by the Commission as partially inconsistent, APS notes that they are both Court
of Appeals decisions, and one is not more binding upon the Commission than the
other.
-15-
1988) (interim rates permitted upon commercialization of Diablo Canyon nuclear
plant even though no final prudence determination had been made.) In proceedings
more like the present circumstances, higher fuel and purchased power costs were
permitted recovery on interim basis pending a full hearing on the utility's
general rate application. State of North Carolina Utilities Commission v.
Edmisten, 230 S.E.2d 651 (N.C. Sup.Ct. 1976); and also City of Grosse Pointe v.
Public Service Commission, 287 N.W.2d 1 (Mich. App.1979).
V. Conclusion
The Company is facing an operating cash flow emergency under any
reasonable definition of that term. It is facing an imminent down grade to "junk
bond" status, which will make it unable to secure financing or transact business
on reasonable terms and without very significant additional costs to APS
customers. The lack of any reasonable prospect for resolution of Docket No.
E-01345A-05-0816 prior to the Company reaching the $776.2 million "cap" means
the potential for tens of millions of prudently-incurred costs becoming
unrecoverable by any means during the fourth quarter of this year. Clearly, now
is the time for decisive and positive action to rectify the underlying cause of
both these problems, namely the imbalance between base fuel revenues and current
fuel and purchased power costs.
* * * *
WHEREFORE, for the foregoing reasons, the Company requests that
the Commission:
1. Approve emergency interim rates, subject to refund, in the amounts and
in the manner described above and with an effective date of April 1, 2006;
2. Authorize such interim rates to remain in effect until the Commission
set new permanent rates pursuant to the full rate hearing to be held in Docket
No. E-01345A-05-0816;
3. Lift the $776.2 million "cap" imposed by Decision No. 67744 on the
recoverability of fuel and purchased power costs, also on an interim basis; and,
4. Grant such further relief as the Commission deems appropriate.
RESPECTFULLY SUBMITTED this 6th day of January, 2006.
-16-
PINNACLE WEST CAPITAL CORPORATION
Law Department
/s/ Thomas L. Mumaw
--------------------
Thomas L. Mumaw
Karilee S. Ramaley
and
SNELL & WILMER L.L.P.
Deborah Scott
Attorneys for Arizona Public Service Company
Original and 13 copies of the foregoing filed this 6th day of January 2006,
with:
Docket Control
Arizona Corporation Commission
1200 West Washington
Phoenix, AZ 85007
A COPY of the foregoing was hand-delivered this 6th day of January, 2006, to:
Lyn Farmer
Chief Administrative Law Judge
Hearing Division
ARIZONA CORPORATION COMMISSION
1200 West Washington
Phoenix, Arizona 85007
Christopher C. Kempley, Chief Counsel
Legal Division
ARIZONA CORPORATION COMMISSION
1200 West Washington Street
Phoenix, Arizona 85007
Ernest G. Johnson, Director
Utilities Division
ARIZONA CORPORATION COMMISSION
1200 West Washington Street
Phoenix, Arizona 85007
/s/ Birdie Cobb
- ----------------------------
Birdie Cobb
-17-
EXHIBIT A
BEFORE THE
ARIZONA CORPORATION COMMISSION
IN THE MATTER OF THE APPLICATION OF DOCKET NO. E-01345A-06-____
ARIZONA PUBLIC SERVICE COMPANY FOR
AN EMERGENCY INTERIM RATE INCREASE
AND FOR AN INTERIM AMENDMENT TO
DECISION No. 67744
AFFIDAVIT OF DONALD E. BRANDT
GENERAL
1. My name is Donald E. Brandt. I am Executive Vice President and Chief
Financial Officer for both Pinnacle West Capital Corporation ("Pinnacle West")
and Arizona Public Service Company ("APS" or "Company"). I am responsible for
the finance, treasury, accounting, tax, investor relations, financial planning,
and power marketing and trading functions at Pinnacle West and APS.
2. The assertions of fact contained within the Application of the
Company for emergency interim rate relief and for an interim lifting of the
$776.2 million "cap" on purchased power and fuel cost recovery are true and
correct to my knowledge and belief.
3. The purpose of this affidavit also is to testify, from my personal
experience and involvement as the Chief Financial Officer, regarding the
financial basis for the interim rate relief request, Standard & Poor's ("S&P")
recent downgrade of the APS's credit ratings, the likelihood of further adverse
actions by the credit rating agencies, and the impacts on APS and its customers
of such actions. If the emergency interim rate relief is approved, it should
prevent a further downgrade of the Company's credit ratings. If the emergency
interim rate relief requested by the Company is denied, APS's credit ratings
likely will be downgraded to below investment grade (i.e., non-investment grade
or "junk"). Such an action will have an immediate and dramatic adverse impact on
the Company and its customers in terms of severely restricted access to
financing, dramatically increased financing costs, and decreased operational
flexibility.
SPECIFIC BACKGROUND FACTS
4. In Decision No. 67744 (April 7, 2005), the Arizona Corporation
Commission ("Commission") granted APS a Power Supply Adjustment Mechanism
("PSA").
5. The credit rating agencies viewed the approval of the PSA as one of
the critical elements of Decision No. 67744. They viewed the existence of the
PSA as reducing the Company's financial risk because they recognized that the
PSA was designed to permit APS to recover its fuel and purchased power costs
incurred to serve customers. On the other hand, the rating agencies were
disappointed that the PSA approved in Decision No. 67744 has certain significant
limitations, which S&P referred to as "structural weaknesses." S&P Research
Update: Outlook on PWCC and APS's Ratings to Stable on Resolution of Rate Case
(April 1, 2005).
6. The rating agencies based their analysis of Decision No. 67744 on
the belief that the Commission would implement the PSA in a manner that would
allow the Company to recover its fuel and purchased power costs in a timely
manner. The agencies noted, however, that if APS were to lose the PSA or fail to
receive timely and fair recovery of its fuel and purchased power costs, APS's
financial profile would be significantly weakened. As S&P recently noted:
A relatively weak power supply adjustment mechanism, in combination
with rapidly escalating and volatile gas prices, as well as the
potential for a protracted surcharge proceeding, could cause
deterioration in financial performance which, year to date, has
been sub par for the rating.
S&P, Research Summary, Arizona Public Service Co. (October 4, 2005).
7. As I discuss further below, on December 21, 2005, Standard & Poor's
("S&P") downgraded APS's credit ratings from BBB to BBB-, the absolute lowest
investment grade credit rating. S&P noted, however, that its decision to
maintain APS's new, lower credit ratings at "stable" was based on an
"expectation that the ACC will resolve at least a portion of APS's increasing
deferred power costs in January 2006." Standard & Poor's, Research Update:
Pinnacle West Capital's, Arizona Public Service's Ratings Lowered to `BBB-`;
Outlook Stable
-2-
(December 21, 2005). With the recent issuance of the Recommended Opinion and
Order in Docket No. E-01345A-05-0526, I fully expect S&P and Moody's Investor
Services ("Moody's") to take negative action on APS's credit ratings unless
there is some other substantial form of timely rate relief. Once such negative
credit rating actions are taken, it would take dramatic and sustained regulatory
support to reverse them.
8. S&P recently noted that the Company's "need for fuel cost recovery
is becoming critical." S&P, Bulletin: No Immediate Rating Change from Draft
Decision on Arizona Public Svc. Cost Recovery (January 5, 2006). That need is
further highlighted by the fact that due to the recent dramatic increases in
fuel prices, the Company will reach the $776.2 million "cap" on fuel and
purchased power costs well before the Commission will rule on the Company's
pending rate case application. Without the lifting of the "cap" the Company's
financial situation clearly will worsen even further.
APS'S FINANCIAL CONDITION AND CREDIT RATINGS
9. Each year, APS must access the capital markets to issue debt to fund
a portion of the costs of the Company's infrastructure additions and
improvements required to meet customer needs, including new and upgraded
transmission and distribution facilities, generation plant improvements, new
environmental control systems, and other service facilities. The Company's
capital expenditure ("CAPX") budget for 2006 is approximately $650 million. Over
the years 2006 through 2009, the CAPX budget is more than $3 billion. Over those
same years, the Company will need to access the capital markets to issue over $1
billion of debt to fund the projects that make up that budget, even assuming its
pending rate request in Docket No. E-01345A-05-0816 is granted in full and on
schedule before year end.
10. The cost that APS must pay for the debt it must issue to fund
capital expenditures is based on the credit ratings it is assigned. Every
decrease in APS's credit rating increases the cost to the Company, and its
customers, for the debt that must be issued. Those costs increase dramatically
when a company's credit rating falls to a non-investment ("junk") grade level.
For
-3-
that reason, both APS and its customers have a strong interest in maintaining
investment grade credit ratings.
11. Credit rating agencies base their credit ratings of companies on
certain financial criteria that measure a company's financial health,
performance and risk. The rating agencies have established financial metrics as
guidelines for determining a credit rating. The key financial metric examined by
the credit rating agencies is the ratio of Funds from Operations to debt
("FFO/Debt"). FFO/Debt measures the sufficiency of a company's cash flow to
service both debt interest and debt principal over time.
12. As a result of the Company's continued inability to collect in a
timely manner a significant portion of its fuel and purchased power costs, an
imbalance has developed between cash revenue and cash expense. Due to this
deterioration in cash flow, the FFO/Debt ratio continues to worsen.
13. To maintain a BBB credit rating, S&P expects a company to maintain
a FFO/Debt of 15% to 22% for a Business Profile 5 and 18% to 28% for a Business
Profile 6. The Business Profile assigned to a company reflects S&P's assessment
of the business environment in which the company operates, on a scale where 1
represents the least risky environment from an investment perspective and 10 the
most risky.
14. On December 21, 2005, S&P changed APS to a Business Profile 6,
reflecting its assessment that APS faces increased regulatory risk. S&P also
downgraded APS's debt as follows:
FROM TO
---- --
Senior Unsecured Debt BBB BBB-
Secured Lease Obligation BBB BBB-
Commercial Paper A-2 A-3
Ratings Outlook Stable Stable
15. S&P expressed concern "that the Arizona Corporation Commission
(ACC) is not expeditiously addressing APS's growing fuel and purchased-power
cost deferrals...." S&P, Research Update: Pinnacle West Capital's, Arizona
Public Service's Ratings Lowered to
-4-
`BBB-`; Outlook Stable (December 21, 2005). Put simply, S&P downgraded APS
because of the substantial cash flow deficiency caused by the Company's
inability to timely recover its rapidly escalating fuel and purchased power
costs. Moreover, the "stable" ratings outlook was conditioned on S&P's
expectation that the Commission would take steps to resolve some of the
Company's deferred power costs in January 2006 in a positive manner, as well as
take other steps to shore up the Company's financial metrics.
16. Without the approval of the emergency interim rate relief requested
by the Company, APS's financial condition will suffer severe and continued
deterioration, likely resulting in a credit ratings downgrade to the
non-investment grade level. If the interim rate relief is denied, APS's FFO/Debt
remains in the BB "junk bond" range at 16.0% at the end of 2006, even if the $80
million surcharge is granted in the first quarter of 2006 and the PSA adjustor
takes place on April 1, 2006. If the $80 million surcharge and the April 1, 2006
PSA adjustment are not granted, the Company's FFO/Debt declines even further to
end 2006 at 13.3%, which is almost at the single B level.
17. The December 21, 2005 S&P rating action has placed APS's credit
rating in the bottom quartile of all U.S. utilities. APS's borrowing costs have
increased $1 million per year as a result of the S&P downgrade to BBB-. The
increased costs are as a result of higher interest rates on commercial paper
borrowings and increased bank facility costs. In addition, APS will incur an
incremental 10-50 basis points or $100,000 to $500,000 in additional interest
costs per year for each $100 million of long-term borrowing that is needed.
Further, the downgrade has imposed onerous restrictions on the Company's ability
to access funds needed for its construction program.
POTENTIAL FUTURE ADVERSE CREDIT RATING ACTIONS
18. Absent emergency interim rate relief, as requested in the
Application, I believe that APS likely will be further downgraded to
non-investment grade, "junk bond" status. Such a negative rating action will
result in dramatic negative impacts to APS and its customers.
-5-
19 Once a utility is rated below investment grade, financing
alternatives become extremely limited and the costs are exorbitant. In addition,
at times the market for non-investment grade debt, the so-called "high-yield" or
"junk bond" market, is closed for indefinite periods of time. If APS were to
fall to a "junk" credit rating, there is absolutely no reason to have any
confidence that APS could successfully issue the billions of dollars of "junk"
bonds that would be required over the next ten years.
20. Any further degradation in APS's credit ratings from its current
BBB- rating to below investment grade would cause an immediate additional annual
increase in interest expense in the range of $10 million to $15 million. The
amount of additional annual interest expense would grow to $115 million to $230
million by 2015. On a cumulative basis, this translates to an additional $625
million to $1.2 billion in interest expense between 2006 and 2015 -- an increase
that eventually would be passed onto customers. (The ranges of additional
interest expense reflect estimated financing costs calculated using the upper
and lower limits of historical interest rates for non-investment grade utility
debt financings.) The impact of a downgrading from APS's current credit rating
to non-investment grade would be costly on the following fronts:
a. Over the next ten years APS will need to issue almost $5
billion of additional long-term debt to finance essential
generation, environmental control, transmission and
distribution construction programs and to refinance existing
long-term debt as it matures. APS would have no alternative
but to turn to the "junk" bond market to finance this capital
need. As a result, by 2015, the Company's annual financing
------
costs that are recoverable from customers would increase
between $110 million and $225 million over what they would
have been if APS had not suffered the credit ratings downgrade
to "junk" status.
b. APS has $539 million of tax-exempt debt outstanding under
remarketing programs whereby the securities are effectively
issued with a daily or weekly maturity, with the intention
that the securities will be continuously remarketed
-6-
until their ultimate maturities in 2024 through 2034. The
annual interest rate on this debt currently is in the 3.0%
area. Thus, the Company currently is able to take advantage of
extremely attractive short-term, tax-exempt interest rates,
under the "umbrella" of a very long-term debt instrument. This
debt requires bank letters of credit ("LOCs") or insurance to
support its creditworthiness. The LOCs and insurance pricing
are based on APS's credit ratings. Any further degradation in
the ratings would increase such costs. Additionally, the
investors would require a higher yield due to the increased
risk associated with the lower ratings. The increased fees and
additional interest would increase financing costs an
additional $4 million per year that would need to be recovered
from customers.
c. Given the seasonal nature of APS's cash flows, there is a
heavy reliance on commercial paper for working capital needs.
APS expects to average about $200 million of commercial paper
outstanding and could face peak liquidity needs of up to $400
million. As a result of the recent downgrade by S&P, APS's
access to the commercial paper markets has been extremely
curtailed. APS's commercial paper rating is currently A-3 and
P-2 by S&P and Moody's, respectively. There is a significant
investor base whose investment policies prohibit investments
in "Third Tier" (A-3) paper. Given that limited investor base,
APS can no longer count on daily liquidity and, at best, can
borrow up to one week, whereas typically commercial paper can
be issued up to one year. If APS were further downgraded to
non-investment grade, its access to the commercial paper
market would be eliminated. At a non-investment grade ratings
----------
level, there are no investors for commercial paper. Thus, the
daily liquidity that the commercial paper market offers would
be lost. Rather than taking advantage of the daily flexibility
afforded by the commercial paper markets, APS would be forced
to turn to its more costly revolving credit agreement to
satisfy its daily working capital needs. Such a situation
would increase APS's overall cost of borrowing
-7-
by about $1 million per year, ultimately leading to increased
costs for APS's customers.
21. A credit rating downgrade to "junk" would bring about additional
negative impacts that, while difficult to quantify, carry the following
additional costs and risks:
i. APS places significant reliance on bank credit agreements that
are subject to renewal on a periodic basis. The non-investment
grade credit rating and forecasted weak cash flow and
financial metrics, along with the unsupportive regulatory
environment, would cause most banks to "run for the hills"
when the credit agreements were up for renewal. The few banks
that might renew would charge significantly higher prices and
would add extremely onerous covenants that, in the event of
further financial stress, could potentially take APS to the
brink of default and bankruptcy.
ii. APS's marketing and trading function would suffer as a result
of the downgrade of APS to a non-investment grade rating. As
is typical in the energy trading business, most of APS's
agreements with energy trading counterparties require, in the
event of a downgrade that would take APS's credit rating below
investment grade, that APS provide the counterparty with cash
collateral to cover the difference between the contract price
and the then-existing market price of the commodity. These
contractual provisions are referred to as "collateral calls."
This could place a significant liquidity strain on APS at a
time when the Company is least able to access the markets.
iii. In addition to cash collateral calls, energy trading
counterparties place other onerous terms on their dealings
with non-investment grade companies. APS would be forced to
prepay for a large amount of the Company's power plant fuel
needs. Any form of longer-term commodity agreement would
require the Company to provide up-front cash collateral. APS's
costs of doing business in the wholesale markets would
increase significantly and make it much more difficult to
-8-
hedge the Company's commodity positions, further increasing
the Company's risk profile.
THE $776.2 MILLION "CAP" ON FUEL AND PURCHASED POWER
22. In Decision No. 67744, the Commission imposed a $776.2 million
"cap" on the amount of fuel and purchased power costs that the Company may pass
through to customers. As a result of the recent and dramatic increases in fuel
and purchased power costs, the Company will hit that "cap" later this year, far
sooner than anyone had anticipated.
23. Unless a decision is reached in APS's pending rate case, Docket No.
E-01345A-05-0816, before year end 2006 that permanently lifts that cap, APS will
be forced to forgo recovery of over $65 million in costs that were prudently
incurred to provide service to its customers. Such an event would further
increase the risk that APS would be downgraded to non-investment grade.
This concludes my affidavit.
STATE OF ARIZONA )
) SS.
COUNTY OF MARICOPA )
I, Donald E. Brandt, having been first duly sworn, state that I have
read the foregoing affidavit and that the same is true and correct to the best
of my knowledge, information and belief.
/s/ Donald E. Brandt
----------------------------------
Donald E. Brandt
Subscribed and sworn before me this 6th day of January, 2006
Norann Asciutto
----------------------------------
Notary Public
My commission expires
Feb. 12, 2006.
-9-
[APS LOGO] ADJUSTMENT SCHEDULE IR-1
INTERIM RATE ADJUSTMENT
APPLICATION
The Interim Rate Adjustment ("IR-1") charge shall apply to all Standard Offer
retail electric schedules, with the exception of Rate Schedules Solar-1,
Solar-2, SP-1, and E-36. All provisions of the customer's current applicable
rate schedule will apply in addition to this charge.
INTERIM ADJUSTMENT
In accordance with A.C.C. Decision No. XXXX, an interim rate adjustment will
be made through the IR-1 charge. The adjustment will be applied to all
kilowatthour sales under applicable electric schedules.
RATE
The charge shall be calculated at the following rate:
IR-1 Charge
All kWh $0.011161 per kWh
- --------------------------------------------------------------------------------
ARIZONA PUBLIC SERVICE COMPANY A.C.C. No. XXX
Phoenix, Arizona Adjustment Schedule IR-1
Filed by: David J. Rumolo Original
Title: Manager, Regulation and Pricing Effective: XXXX
Page 1 of 1
The following language shall be inserted as a separate paragraph in the
"Adjustments" section of all applicable rate schedules:
"The bill is subject to the Interim Rate Adjustment factor as set forth in the
Company's Rate Schedule IR-1 pursuant to Arizona Corporation Commission Decision
No. XXXXX."
Rate schedules to be revised are as follows:
E-10
E-12
EC-1
ECT-1R
ET-1
E-20
E-21
E-22
E-23
E-24
E-30
E-32
E-32TOU
E-34
E-35
E-38
E-38-8T
E-40
E-47
E-51
E-52
E-55
E-58
E-59
E-67
E-221
E-221-8T