AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 2002
REGISTRATION NO. 333-90824
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ARIZONA PUBLIC SERVICE COMPANY
(Exact name of Registrant as specified in its charter)
ARIZONA 86-0011170
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
400 North Fifth Street
Phoenix, Arizona 85004
(602) 250-1000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES)
MATTHEW P. FEENEY
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004
(602) 382-6239
(Name, address, including zip code and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement, as determined
by market conditions and other factors.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 464(c)
under the Securities Act, check the following and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE AN OFFER OR SALE IS PROHIBITED.
SUBJECT TO COMPLETION, DATED AUGUST 27, 2002
Prospectus
ARIZONA PUBLIC SERVICE COMPANY
$500,000,000
First Mortgage Bonds
Debt Securities
We may offer and sell first mortgage bonds and debt securities from time to
time in one or more offerings. This prospectus provides you with a general
description of the first mortgage bonds and debt securities we may offer.
Each time we sell first mortgage bonds or debt securities, we will provide
a supplement to this prospectus that contains specific information about the
offering and the terms of the first mortgage bonds or debt securities. The
supplement may also add, update, or change information contained in this
prospectus. You should carefully read this prospectus and any supplement before
you invest in any of our first mortgage bonds or debt securities.
INVESTING IN OUR FIRST MORTGAGE BONDS OR DEBT SECURITIES INVOLVES RISK
FACTORS THAT ARE DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 3 OF
THIS PROSPECTUS.
Our principal executive offices are located at 400 North Fifth Street,
Phoenix, AZ 85004. Our telephone number is (602) 250-1000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is __________, 2002
TABLE OF CONTENTS
Page
----
Risk Factors...................................................................3
About This Prospectus..........................................................8
Forward-Looking Statements.....................................................8
Where You Can Find More Information............................................9
Business of Arizona Public Service Company....................................10
Ratio of Earnings to Fixed Charges............................................10
Use of Proceeds...............................................................10
Description of First Mortgage Bonds...........................................10
Description of Debt Securities................................................14
Global Securities.............................................................22
Regarding the Trustees........................................................23
Plan of Distribution..........................................................24
Experts.......................................................................24
Legal Opinions................................................................24
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RISK FACTORS
Before purchasing our first mortgage bonds or debt securities you should
carefully consider the following risk factors as well as the other information
contained in this prospectus and the information incorporated by reference in
order to evaluate an investment in our first mortgage bonds or debt securities.
REGULATORY MATTERS
We are subject to complex government regulation which may have a negative
impact on our business and our results of operations.
We are subject to comprehensive regulation by several federal, state and
local regulatory agencies, which significantly influence our operating
environment and may affect our ability to recover costs from utility customers.
We are required to have numerous permits, approvals and certificates from the
agencies that regulate our business. We believe the necessary permits, approvals
and certificates have been obtained for our existing operations; however, we are
unable to predict the impact on our operating results from the future regulatory
activities of any of these agencies. Changes in regulations or the imposition of
additional regulations could have an adverse impact on our results of
operations.
The Federal Energy Regulatory Commission ("FERC"), the Nuclear Regulatory
Commission ("NRC"), the Environmental Protection Agency ("EPA"), and the Arizona
Corporation Commission ("ACC") regulate many aspects of our utility operations,
including siting and construction of facilities, customer service and the rates
that we can charge customers.
We are unable to predict the impact on our business and operating results
from future regulatory activities of these federal, state and local agencies
(see "Competition" below). Changes in regulations or the imposition of
additional regulations could have a negative impact on our business and results
of operations.
COMPETITION
Deregulation or restructuring of the electric industry may result in
increased competition, which could have a significant adverse impact on our
business and our financial results.
RETAIL COMPETITION
Retail competition and the unbundling of regulated energy could have a
significant adverse financial impact on us due to an impairment of assets, a
loss of retail customers, lower profit margins or increased costs of capital. In
1999, the ACC approved rules that provide a framework for the introduction of
retail electric competition in Arizona. Under the rules, as modified by a 1999
settlement agreement among us and various parties, we are required to transfer
all of our competitive electric assets and services to an unaffiliated party or
parties or to a separate corporate affiliate or affiliates no later than
December 31, 2002. Consistent with that requirement, we have been addressing the
legal and regulatory requirements necessary to complete the transfer of our
generation assets to Pinnacle West Energy Corporation, another Pinnacle West
subsidiary ("Pinnacle West Energy") on or before that date. Legal challenges to
the rules and ACC regulatory developments have raised uncertainty about the
status and pace of retail electric competition in Arizona, including our
transfer of generation assets to Pinnacle West Energy. As a result, we cannot
predict when, and the extent to which, additional competitors will enter our
service territory. These matters are discussed in detail in the documents filed
by us with the SEC. See "Where You Can Find More Information" below.
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WHOLESALE COMPETITION
As a result of changes in federal law and regulatory policy, competition in
the wholesale electricity market has greatly increased due to a greater
participation by traditional electricity suppliers, non-utility generators,
independent power producers, and wholesale power marketers and brokers. This
increased competition could affect our load forecasts, plans for power supply
and wholesale energy sales and related revenues. As a result of the changing
regulatory environment and the relatively low barriers to entry, we expect
wholesale competition to increase. As competition continues to increase, our
financial position and results of operations could be adversely affected.
REGIONAL TRANSMISSION ORGANIZATIONS
The uncertain outcome regarding the creation of regional transmission
organizations, or RTOs, may materially impact our operations, cash flows or
financial position. In a December 1999 order, the FERC set minimum
characteristics and functions that must be met by utilities that participate in
RTOs. The characteristics for an acceptable RTO include independence from market
participants, operational control over a region large enough to support
efficient and nondiscriminatory markets, and exclusive authority to maintain
short-term reliability. On October 16, 2001, we and other owners of electric
transmission lines in the Southwest filed with the FERC a request for a
declaratory order confirming that our proposal to form WestConnect RTO, LLC
would satisfy the FERC's requirements for the formation of an RTO. The FERC has
not yet issued an order regarding the WestConnect proposal. In addition, on July
31, 2002, the FERC issued a Notice of Proposed Rulemaking regarding a standard
market design for the electric utility industry. We are reviewing the proposed
rulemaking and cannot currently predict what, if any, impact there may be to the
WestConnect proposal or to us if the FERC adopts the proposed rule. These
matters are discussed in detail in the documents filed by us with the SEC. See
"Where You Can Find More Information" below.
ENVIRONMENTAL MATTERS
We are subject to numerous environmental laws and regulations which may
increase the cost of operations, impact our business plans, or expose us to
environmental liabilities.
We are subject to numerous environmental regulations affecting many aspects
of our present and future operations, including air emissions, water quality,
wastewater discharges, solid waste, and hazardous waste. These laws and
regulations can result in increased capital, operating, and other costs,
particularly with regard to enforcement efforts focused on power plant emissions
obligations. These laws and regulations generally require us to obtain and
comply with a wide variety of environmental licenses, permits, inspections and
other approvals. Both public officials and private individuals may seek to
enforce applicable environmental laws and regulations. We cannot predict the
outcome (financial or operational) of any related litigation that may arise.
In addition, we may be a responsible party for environmental clean up at
sites identified by a regulatory body. We cannot predict with certainty the
amount and timing of all future expenditures related to environmental matters
because of the difficulty of estimating clean-up costs. There is also
uncertainty in quantifying liabilities under environmental laws that impose
joint and several liability on all potentially responsible parties.
We cannot be sure that existing environmental regulations will not be
revised or that new regulations seeking to protect the environment will not be
adopted or become applicable to us. Revised or additional regulations that
result in increased compliance costs or additional operating restrictions,
particularly if those costs are not fully recoverable from our customers, could
have a material adverse effect on our results of operations.
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ENERGY MARKET ISSUES
Recent events in the energy markets that are beyond our control may have
negative impacts on our business.
As a result of the energy crisis in California during the summer of 2001,
the recent volatility of natural gas prices in North America, the filing of
bankruptcy by the Enron Corporation, and investigations by governmental
authorities into energy trading activities, companies generally in the regulated
and unregulated utility businesses have been under an increased amount of public
and regulatory scrutiny. The capital markets and ratings agencies also have
increased their level of scrutiny. We believe that we are complying with all
applicable laws, but it is difficult or impossible to predict or control what
effect these or related issues may have on our business or our access to the
capital markets.
WEATHER EFFECTS
Our results of operations can be affected by changing weather conditions.
Weather conditions in our service territory directly influence the demand for
electricity and affect the price of energy commodities.
Electric power demand is generally a seasonal business. In Arizona, demand
for power peaks during the hot summer months, with market prices also peaking at
that time. As a result, our overall operating results fluctuate substantially on
a seasonal basis. In addition, we have historically sold less power, and
consequently earned less income, when weather conditions are milder. As a
result, unusually mild weather could diminish our results of operations and harm
our financial condition.
NUCLEAR PLANTS
We have an ownership interest in and operate the Palo Verde Nuclear
Generating Station ("Palo Verde"). Palo Verde is subject to environmental,
health and financial risks such as the ability to dispose of spent nuclear fuel,
the ability to maintain adequate reserves for decommissioning, potential
liabilities arising out of the operation of these facilities, and the costs of
securing the facilities against possible terrorist attacks. We maintain
decommissioning trusts and external insurance coverage to minimize our financial
exposure to these risks; however, it is possible that damages could exceed the
amount of our insurance coverage.
The NRC has broad authority under federal law to impose licensing and
safety-related requirements for the operation of nuclear generation facilities.
In the event of noncompliance, the NRC has the authority to impose fines or shut
down a unit, or both, depending upon its assessment of the severity of the
situation, until compliance is achieved. In addition, although we have no reason
to anticipate a serious nuclear incident at Palo Verde, if an incident did
occur, it could materially and adversely affect our results of operations or
financial condition. A major incident at a nuclear facility anywhere in the
world could cause the NRC to limit or prohibit the operation or licensing of any
domestic nuclear unit.
The operation of Palo Verde requires licenses that need to be periodically
renewed and/or extended. We do not anticipate any problems renewing these
licenses. However, as a result of potential terrorist threats and increased
public scrutiny of utilities, the licensing process could result in increased
licensing or compliance costs that are difficult or impossible to predict.
DERIVATIVES
The use of derivative contracts in the normal course of our business could
result in financial losses that negatively impact our results of operations. Our
operations include managing market risks related to commodity prices, changes in
interest rates, and investments held by our nuclear decommissioning trust fund.
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We are exposed to the impact of market fluctuations in the price and
transportation costs of electricity, natural gas, coal, and emissions
allowances. We employ established procedures to manage risks associated with
these market fluctuations by utilizing various commodity derivatives, including
exchange-traded futures and options and over-the-counter forwards, options, and
swaps. As part of our overall risk management program, we enter into derivative
transactions to hedge purchases and sales of electricity, fuels, and emissions
allowances and credits. The changes in market value of such contracts have a
high correlation to price changes in the hedged commodity.
As of June 30, 2002, a hypothetical adverse price movement of 10% in the
market price of our risk management and trading assets and liabilities would
have decreased the fair market value of these contracts by approximately $16
million. A hypothetical favorable price movement of 10% would have increased the
fair market value of these contracts by approximately $18 million.
We are exposed to losses in the event of nonperformance or nonpayment by
counterparties. We use a risk management process to assess and monitor the
financial exposure of all counterparties. Despite the fact that the great
majority of trading counterparties are rated as investment grade by the credit
rating agencies, there is still a possibility that one or more of these
companies could default, resulting in a material adverse impact on our earnings
for a given period.
Changing interest rates will affect interest paid on variable-rate debt and
interest earned by our nuclear decommissioning trust fund. Our policy is to
manage interest rates through the use of a combination of fixed-rate and
floating-rate debt. The nuclear decommissioning fund also has risks associated
with changing market values of equity investments.
ACCESS TO CAPITAL MARKETS
We rely on access to both short-term money markets and longer-term capital
markets as a significant source of liquidity and for capital requirements not
satisfied by the cash flow from our operations. If we are not able to access
capital at competitive rates, our ability to implement our strategy will be
adversely affected. We believe that we will maintain sufficient access to these
financial markets based upon current credit ratings. However, certain market
disruptions or a downgrade of our credit rating may increase our cost of
borrowing or adversely affect our ability to access one or more financial
markets. Such disruptions could include:
* an economic downturn;
* capital market conditions generally;
* the bankruptcy of an unrelated energy company;
* market prices for electricity and gas;
* terrorist attacks or threatened attacks on our facilities or unrelated
energy companies; or
* the overall health of the utility industry.
Changes in economic conditions could result in higher interest rates, which
would increase our interest expense on our floating rate debt and reduce funds
available to us for our current plans. Additionally, an increase in our leverage
could adversely affect us by:
* increasing the cost of future debt financing;
* increasing our vulnerability to adverse economic and industry
conditions;
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* requiring us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, which would reduce funds available
to us for operations, future business opportunities or other purposes;
and
* placing us at a competitive disadvantage compared to our competitors
that have less debt.
CREDIT RISKS
Any reduction in our credit ratings could materially and adversely affect
our business, financial condition and results of operations. We cannot be sure
that any of our current ratings will remain in effect for any given period of
time or that a rating will not be lowered or withdrawn entirely by a rating
agency if, in its judgment, circumstances in the future so warrant. Any
downgrade could increase our borrowing costs which would diminish our financial
results. We would likely be required to pay a higher interest rate in future
financings, and our potential pool of investors and funding sources could
decrease. A downgrade could require additional support from letters of credit
or cash collateral and otherwise have a material adverse effect on our business,
financial condition and results of operations. If our short-term ratings were to
be lowered, it could limit our access to the commercial paper market. We note
that the ratings from credit agencies are not recommendations to buy, sell or
hold our securities and that each rating should be evaluated independently of
any other rating.
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ABOUT THIS PROSPECTUS
This prospectus is part of a shelf registration statement that we filed
with the United States Securities and Exchange Commission, or the SEC. You
should rely only on the information contained or incorporated by reference in
this prospectus and in any supplement. We have not authorized any other person
to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We will not make an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus and the supplement to this prospectus is accurate as of the dates on
their covers. Our business, financial condition, results of operations, and
prospects may have changed since those dates.
FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement, and the additional
information described under the heading "Where You Can Find More Information"
may contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are subject to risks
and uncertainties and are based on the beliefs and assumptions of our
management, based on information currently available to our management. When we
use words such as "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "should," or similar expressions, we are making forward-looking
statements.
Forward-looking statements are not guarantees of performance. They involve
risks, including those described under "Risk Factors" above, uncertainties, and
assumptions. Our future results may differ materially from those expressed in
these forward-looking statements. Many of the factors that will determine these
results are beyond our ability to control or predict. These factors include, but
are not limited to:
* the ongoing restructuring of the electric industry, including the
introduction of retail electric competition in Arizona;
* the outcome of regulatory and legislative proceedings relating to the
restructuring;
* state and federal regulatory and legislative decisions and actions,
including the price mitigation plan adopted by the FERC;
* regional economic and market conditions, including the California
energy situation and completion of generation construction in the
region, which could affect customer growth and the cost of power
supplies;
* the cost of debt and equity capital;
* weather variations affecting local and regional customer energy usage;
* conservation programs;
* power plant performance;
* our ability to compete successfully outside traditional regulated
markets (including the wholesale market);
* technological developments in the electric industry; and
* other uncertainties, all of which are difficult to predict and many of
which are beyond our control.
You are cautioned not to put undue reliance on any forward-looking
statements. We claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 for
any forward-looking statements contained in this prospectus and any prospectus
supplement.
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WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
We file annual, quarterly, and current reports, and other information with
the SEC. Our SEC filings are available to the public over the Internet at the
SEC's web site: http://www.sec.gov. You may also read and copy any document we
file at the SEC's public reference room, which is located at 450 Fifth Street
NW, Washington, D.C. 20036. You may call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Reports and other information
concerning us can also be inspected and copied at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York 10005.
INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and later information that we file with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we make with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until all securities are sold under this prospectus.
* Annual Report on Form 10-K for the fiscal year ended December 31,
2001;
* Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31
and June 30, 2002; and
* Current Reports on Form 8-K dated December 14, 2001 and February 8,
February 26, April 19, April 26, May 22, June 5, July 11, July 23 and
August 13, 2002.
You may request a copy of these filings and will receive a copy of these
filings, at no cost, by writing or telephoning us at the following address:
Arizona Public Service Company
Office of the Secretary
Station 9046
P.O. Box 53999
Phoenix, Arizona 85072-3999
(602) 250-5608
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BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY
We were incorporated in 1920 under the laws of Arizona and we are an
electric utility, with more than 874,000 customers. We are a wholly-owned
subsidiary of Pinnacle West Capital Corporation. We provide either retail or
wholesale electric service to substantially all of the state of Arizona, with
the major exceptions of the Tucson metropolitan area and about one-half of the
Phoenix metropolitan area. We also generate and, through Pinnacle West Capital
Corporation's power marketing division, sell and deliver electricity to
wholesale customers in the western United States. Our principal executive
offices are located at 400 North Fifth Street, Phoenix, Arizona 85004,
602-250-1000.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratio of our earnings to
fixed charges for each of the indicated periods:
Six Months
Ended Twelve Months Ended
June 30, December 31,
---------- --------------------------------------------------
2002 2001 2000 1999 1998 1997
------ ------ ------ ------ ------ ------
2.89 3.77 3.79 3.24 3.11 3.01
For the purposes of these computations, earnings are defined as the sum of
our pre-tax income plus our fixed charges and the fixed charges of our
subsidiaries. Fixed charges consist of interest on debt, amortization of debt
discount, premium, and expense, and an estimated interest factor in rentals.
USE OF PROCEEDS
We will add the net proceeds from any sale of first mortgage bonds or debt
securities to our general corporate funds. We will use the net proceeds to repay
debt and for general corporate purposes. Each prospectus supplement will include
specific uses of the net proceeds.
DESCRIPTION OF FIRST MORTGAGE BONDS
GENERAL
The following description highlights the general terms of the first
mortgage bonds. When we offer first mortgage bonds in the future, the prospectus
supplement will explain the particular terms of those securities and the extent
to which these general provisions will not apply.
Our mortgaged property will secure the first mortgage bonds. The first
mortgage bonds will be issued under a Mortgage and Deed of Trust, dated as of
July 1, 1946, between us and The Bank of New York. The Mortgage allows us to
issue first mortgage bonds in one or more series.
We have summarized selected provisions of the Mortgage below. The summary
is not complete. We have filed the form of the Mortgage as an exhibit to the
registration statement and you should read any provisions of the Mortgage that
may be important to you.
You should refer to the prospectus supplement attached to this prospectus
for the following information about a new series of first mortgage bonds:
* the aggregate principal amount of the first mortgage bonds;
* the date on which the first mortgage bonds mature;
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* the interest rate;
* when the interest on the first mortgage bonds accrues and is payable;
* whether and when we can redeem the first mortgage bonds, and at what
price;
* the record dates for the payment of interest and principal;
* whether the first mortgage bonds will be issued in the form of one or
more global securities; and
* any other terms.
We will pay interest to the person in whose name the first mortgage bonds
are registered at the close of business on the record date that precedes the
interest payment date. The supplemental indenture to the Mortgage that contains
the terms of the first mortgage bonds will also contain the record date. We will
issue the first mortgage bonds as fully registered bonds, without coupons, in
$1,000 denominations and multiples thereof. The holders of the first mortgage
bonds may transfer them at any time without any service or other charge, except
for transfer taxes and other governmental charges, if any. We, the trustee, and
any of our agents may treat the registered holder of a debt security as the
absolute owner for the purpose of making payments, giving notices, and for all
other purposes.
Other than the protections described in this prospectus and in the
prospectus supplement, holders of first mortgage bonds would not be protected by
the covenants in the Mortgage from a highly-leveraged transaction.
REDEMPTION
Unless indicated differently in a prospectus supplement, we may redeem the
first mortgage bonds at their principal amount plus accrued interest to the
redemption date in any of the following ways:
* in whole or in part using the proceeds when any of our mortgaged
property is taken under eminent domain;
* in whole or in part using the proceeds of the sale or other
disposition of property that is released from the lien of the
Mortgage;
* in whole, together with all other first mortgage bonds then
outstanding, within twelve months of a transaction involving the
transfer of substantially all of the property subject to the lien of
the Mortgage; or
* in whole or in part with cash deposited in a replacement fund.
SECURITY
The first mortgage bonds will rank on an equal basis with all first
mortgage bonds at any time outstanding under the Mortgage, except for any
sinking fund or similar fund that is provided for in a particular series. The
Mortgage creates a first mortgage lien on substantially all the property we own.
However, the lien does not cover interests in Unit 2 of the Palo Verde Nuclear
Generating Station that we lease, or any other property specifically excluded
from the Mortgage. The Mortgage lien and the title to some of our properties are
subject to excepted encumbrances, minor leases, defects, irregularities, and
deficiencies, and are subject to the considerations discussed below regarding
the Four Corners Plant and Navajo Plant locations. The Mortgage lien also
extends to all property acquired after the effective date of the Mortgage, other
than specifically excluded property, for which proper filings and recordings
have been made. In the case of property acquired after the effective date of the
Mortgage lien, however, the Mortgage lien is subject to encumbrances and to
liens existing or placed on the property at the time we acquire it.
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Both the Four Corners Plant and the Navajo Plant are located on property
held under leases from the Navajo Tribe and easements from the Secretary of the
Interior. The leases extend from their effective dates in 1966 and 1969 for
terms of 50 years with rights of renewal for up to 25 additional years. The
easements are for 50-year terms from the same effective dates. Although we own
the rights granted to us by the leases from the Navajo Tribe, we do not make any
representation about the Navajo Tribe's interest in the lands leased, but we are
not aware of any assertion of a contesting claim to the lands. We also do not
make any representations about the enforceability of the leases against the
Navajo Tribe.
The Mortgage requires us to keep our encumbered property in good repair and
working order as an operating system. However, we are permitted to permanently
discontinue or reduce the capacity of any property if:
* in the judgment of our Board of Directors, it is desirable in the
conduct of our business;
* a regulatory authority orders us to do so; or
* we are going to sell or dispose of the property.
If we are not in default under the Mortgage, we may obtain a release from
the Mortgage lien of:
* unserviceable, obsolete, or unnecessary property, but only if we
replace the property with property of equal value; or
* other property that we have sold or otherwise disposed of, but only if
we:
* deposit with the trustee cash in an amount equal to the released
property's fair value;
* use redeemed or retired first mortgage bonds in an amount equal
to the released property's fair value; or
* use as a credit additional property we acquired within the
preceding five years that has fair value equal to the released
property's fair value.
The trustee may, and upon our request must, cancel and discharge the
Mortgage lien and all supplemental indentures to the Mortgage when we have
repaid all of the debt secured by the Mortgage.
ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
We may issue additional first mortgage bonds under the Mortgage in a
principal amount equal to:
* 60% of net property additions;
* the principal amount of redeemed or retired first mortgage bonds;
and/or
* deposited cash,
but only if our adjusted net earnings over the twelve-month period within
fifteen months preceding the month in which we issue the bonds are at least two
times the annual interest on all outstanding first mortgage bonds after the
issuance and on debt secured by prior liens. There are exceptions to this
earnings coverage requirement for first mortgage bonds issued on the basis of
redeemed or retired first mortgage bonds when the redeemed or retired first
mortgage bonds had a higher rate of interest and when other conditions are
satisfied.
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We can support the issuance of new first mortgage bonds by using property
located on leaseholds or easements, such as the Four Corners and Navajo Plants,
if the leasehold or easement has an unexpired term of, or the term is extendable
at our option for, at least 30 years after the date of issuance, or if we may
remove the property without compensation.
As of June 30, 2002, we estimate that the Mortgage would have allowed us to
issue up to approximately $3.29 billion of additional first mortgage bonds. In
addition to complying with the Mortgage restrictions placed on the issuance of
additional first mortgage bonds, we must obtain the approval of the Arizona
Corporation Commission, which we refer to as the ACC, before incurring long-term
debt. Existing ACC orders allow us to have approximately $2.6 billion in
principal amount of long-term debt outstanding at any one time. We do not expect
these orders to limit our ability to meet our capital requirements.
REPLACEMENT FUND
So long as any of our first mortgage bonds are outstanding, the Mortgage
requires us to deposit cash with the trustee each calendar year in an amount
related to net additions to our mortgaged utility plant. However, we may satisfy
all or any part of this requirement by using redeemed or retired first mortgage
bonds, property additions, or property retirements. For 2001, our replacement
fund requirement was about $155 million. Any cash that we deposit may, upon our
request, be applied to the redemption or repurchase of first mortgage bonds. We
may withdraw the cash from the trustee by using additional property we acquire
or redeemed or retired first mortgage bonds. If we do not withdraw the cash from
the trustee within five years of deposit, the trustee must use the cash to
redeem outstanding first mortgage bonds. The prospectus supplement relating to a
particular series of first mortgage bonds may describe restrictions on our
ability to redeem the first mortgage bonds with cash we deposit with the trustee
to meet our replacement fund requirements.
EVENTS OF DEFAULT
The following are events of default under the Mortgage:
* our failure to pay the principal of any first mortgage bond when due
and payable;
* our failure to pay interest on any first mortgage bond within 60 days
after it is due and payable;
* our failure to pay any installment of any fund required to be applied
to the purchase or redemption of first mortgage bonds within 60 days
after it is due and payable;
* bankruptcy, insolvency, and reorganization events involving us; and
* our failure to perform any other covenant of the Mortgage which
continues for 90 days after notice by the trustee or holders of 15% in
principal amount of eligible bonds.
The Mortgage allows the trustee to withhold notice of defaults if the
trustee determines in good faith that withholding the notice is in the interests
of the bondholders. The trustee may not withhold notice of any default in the
payment of principal or interest or any sinking, improvement, replacement, or
purchase fund installment.
Those holding at least a majority in principal amount of the first mortgage
bonds may direct the time, method, and place of conducting any proceeding for
any remedy available to the trustee. However, the trustee may decline to follow
any direction under some circumstances, including the trustee's good faith
determination that it will not be sufficiently indemnified for any expenditures.
We are required to file with the trustee, on or before July 1 of each year, a
certificate stating we have complied with all of the provisions of the Mortgage
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and that we are not in default and, if we have not complied, stating all known
defaults.
MODIFICATION OF THE MORTGAGE
The Mortgage and the rights of bondholders may be modified if the following
parties consent to the modification:
* us;
* the trustee, if the trustee is affected by the modification;
* holders of at least 70% in principal amount of the first mortgage
bonds, if all series are affected by the modification; or
* holders of at least 70% in principal amount of any series of first
mortgage bonds affected by the modification, if all series are not
affected.
However, the holder of each first mortgage bond affected must consent to
any modification that would:
* affect the rights of the holder to receive payment of the principal,
premium, or interest on any first mortgage bonds on the dates due or
to institute suit to enforce such right;
* permit the creation of an additional lien ranking prior or equal to
the lien of the Mortgage to any of the mortgaged property;
* deprive any nonassenting bondholder of a lien upon the mortgaged
property for the security of the holder's first mortgage bonds; or
* reduce the percentage of bondholders required to consent to a
modification.
RESTRICTIONS ON DIVIDENDS
The Mortgage restricts the payment of dividends on our common stock under
conditions that have not existed in the past and do not currently exist. Under
the Mortgage, we may pay dividends on our common stock if there is a sufficient
amount "available" from retained earnings and the excess of cumulative book
depreciation (since the Mortgage's inception) over Mortgage depreciation, which
is the cumulative amount of additional property pledged each year to address
collateral depreciation. As of December 31, 2001, the amount "available" under
the Mortgage would have allowed us to pay approximately $2.5 billion of
dividends compared to our current annual common stock dividends of $170 million.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The following description highlights the general terms of the debt
securities. When we offer debt securities in the future, the prospectus
supplement will explain the particular terms of those securities and the extent
to which any of these general provisions will not apply.
The debt securities will be our unsecured obligations. The debt securities
may be issued in one or more new series under:
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* an Indenture, dated as of January 1, 1995, between The Bank of New
York and us, in the case of subordinated debt securities; or
* an Indenture, dated as of January 15, 1998, between JPMorgan Chase
Bank and us, in the case of senior debt securities.
We have summarized selected provisions of the Indentures below. The summary
is not complete. We have filed the forms of the Indentures as exhibits to the
registration statement. You should read the Indentures in their entirety,
including the definitions of certain terms, together with this prospectus and
the prospectus supplement before you make any investment decision. Although
separate Indentures are used for subordinated debt securities and senior debt
securities, the description of the Indenture in this section applies to both
Indentures, unless otherwise noted.
You should refer to the prospectus supplement attached to this prospectus
for the following information about a new series of debt securities:
* title of the debt securities;
* the aggregate principal amount of the debt securities or the series of
which they are a part;
* the date on which the debt securities mature;
* the interest rate;
* when the interest on the debt securities accrues and is payable;
* the record dates;
* places where principal, premium, or interest will be payable;
* periods within which, and prices at which we can redeem debt
securities at our option;
* any obligation on our part to redeem or purchase debt securities
pursuant to a sinking fund or at the option of the holder;
* denominations and multiples at which debt securities will be issued if
other than $1,000;
* any index or formula from which the amount of principal or any premium
or interest may be determined;
* any allowance for alternative currencies and determination of value;
* whether the debt securities are defeasible under the terms of the
Indenture;
* whether we are issuing the debt securities as global securities;
* any additional or different events of default and any change in the
right of the trustee or the holders to declare the principal amount
due and payable if there is any default;
* any addition to or change in the covenants in the Indenture; and
* any other terms.
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We may sell the debt securities at a substantial discount below their
principal amount. The prospectus supplement may describe special federal income
tax considerations that apply to debt securities sold at an original issue
discount or to debt securities that are denominated in a currency other than
United States dollars.
Other than the protections described in this prospectus and in the
prospectus supplement, holders of debt securities would not be protected by the
covenants in the Indenture from a highly-leveraged transaction.
SUBORDINATION
The Indenture relating to the subordinated debt securities states that,
unless otherwise provided in a supplemental indenture or a board resolution, the
debt securities will be subordinate to all senior debt. This is true whether the
senior debt is outstanding as of the date of the Indenture or is incurred
afterwards. The balance of the information under this heading assumes that a
supplemental indenture or a board resolution results in a series of debt
securities being subordinated obligations.
The Indenture states that we cannot make payments of principal, premium, or
interest on the subordinated debt if:
* the principal, premium or interest on senior debt is not paid when due
and the applicable grace period for the default has ended and the
default has not been cured or waived; or
* the maturity of any senior debt has been accelerated because of a
default.
The Indenture provides that we must pay all senior debt in full before the
holders of the subordinated debt securities may receive or retain any payment if
our assets are distributed to our creditors upon any of the following:
* dissolution;
* winding-up;
* liquidation;
* reorganization, whether voluntary or involuntary;
* bankruptcy;
* insolvency;
* receivership; or
* any other proceedings.
The Indenture provides that when all amounts owing on the senior debt are
paid in full, the holders of the subordinated debt securities will be subrogated
to the rights of the holders of senior debt to receive payments or distributions
applicable to senior debt.
The Indenture defines senior debt as the principal, premium, interest and
any other payment due under any of the following, whether outstanding at the
date of the Indenture or thereafter incurred, created or assumed:
* all of our debt evidenced by notes, debentures, bonds, or other
securities we sell for money, including all of our first mortgage
bonds;
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* all debt of others of the kinds described in the preceding bullet
point that we assume or guarantee in any manner; and
* all renewals, extensions, or refundings of debt of the kinds described
in either of the two preceding bullet points.
However, the preceding will not be considered senior debt if the document
creating the debt or the assumption or guarantee of the debt states that it is
not superior to or that it is on equal footing with the subordinated debt
securities.
The Indenture does not limit the aggregate amount of senior debt that we
may issue. As of June 30, 2002, there was approximately $1.7 billion of senior
debt outstanding and there was no subordinated debt outstanding.
FORM, EXCHANGE, AND TRANSFER
Each series of debt securities will be issuable only in fully registered
form and without coupons. In addition, unless otherwise specified in a
prospectus supplement, the debt securities will be issued in denominations of
$1,000 and multiples of $1,000. We, the trustee, and any of our agents may treat
the registered holder of a debt security as the absolute owner for the purpose
of making payments, giving notices, and for all other purposes.
The holders of debt securities may exchange them for any other debt
securities of the same series, in authorized denominations, and equal principal
amount. However, this type of exchange will be subject to the terms of the
Indenture and any limitations that apply to global securities.
A holder may transfer debt securities by presenting the endorsed security
at the office of a security registrar or at the office of any transfer agent we
designate. The holder will not be charged for any exchange or registration of
transfer, but we may require payment to cover any tax or other governmental
charge in connection with the transaction. We have appointed the trustee under
each Indenture as security registrar. A prospectus supplement will name any
transfer agent we designate for any debt securities if different from the
security registrar. We may designate additional transfer agents or rescind the
designation of any transfer agent or approve a change in the office through
which any transfer agent acts at any time, except that we will maintain a
transfer agent in each place of payment for debt securities.
If the debt securities of any series are to be redeemed in part, we will
not be required to do any of the following:
* issue, register the transfer of, or exchange any debt securities of
that series and/or tenor beginning 15 days before the day of mailing
of a notice of redemption of any debt security that may be selected
for redemption and ending at the close of business on the day of the
mailing; or
* register the transfer of or exchange any debt security selected for
redemption, except for an unredeemed portion of a debt security that
is being redeemed in part.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable prospectus supplement, we will
pay interest on a debt security on any interest payment date to the person in
whose name the debt security is registered.
Unless otherwise indicated in the applicable prospectus supplement, the
principal, premium, and interest on the debt securities of a particular series
will be payable at the office of the paying agents that we may designate.
However, we may pay any interest by check mailed to the address, as it appears
in the security register, of the person entitled to that interest. Also, unless
otherwise indicated in the applicable prospectus supplement, the corporate trust
office of the trustee in The City of New York will be our sole paying agent for
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payments with respect to debt securities of each series. Any other paying agent
that we initially designate for the debt securities of a particular series will
be named in the applicable prospectus supplement. We may at any time designate
additional paying agents or rescind the designation of any paying agent or
approve a change in the office through which any paying agent acts, except that
we will maintain a paying agent in each place of payment for the debt securities
of a particular series.
All money that we pay to a paying agent for the payment of the principal,
premium, or interest on any debt security that remains unclaimed at the end of
two years after the principal, premium, or interest has become due and payable
will be repaid to us, and the holder of the debt security may look only to us
for payment.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
Unless otherwise indicated in the applicable prospectus supplement, we may
not:
* consolidate with or merge into any other entity;
* convey, transfer, or lease our properties and assets substantially as
an entirety to any entity; or
* permit any entity to consolidate with or merge into us or convey,
transfer, or lease its properties and assets substantially as an
entirety to us, unless the following conditions are met:
* the successor entity is a corporation, partnership, trust, or
other entity organized and validly existing under the laws of any
domestic jurisdiction and assumes our obligations on the debt
securities and under the Indenture;
* immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time or
both, would become an event of default, shall have occurred and
be continuing; and
* other conditions are met.
Upon any merger, consolidation, or transfer or lease of properties, the
successor person will be substituted for us under the Indenture, and,
thereafter, except in the case of a lease, we will be relieved of all
obligations and covenants under the Indenture and the debt securities.
EVENTS OF DEFAULT
Each of the following will be an event of default under the Indenture with
respect to debt securities of any series:
* our failure to pay principal of or any premium on any debt security of
that series when due;
* our failure to pay any interest on any debt securities of that series
when due, and the continuance of that failure for 30 days;
* our failure to deposit any sinking fund payment, when due, in respect
of any debt securities of that series;
* our failure to perform any of our other covenants in the Indenture
relating to that series and the continuance of that failure for 90
days after written notice has been given by the trustee or the holders
of at least 25% in principal amount of the outstanding debt securities
of that series;
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* bankruptcy, insolvency, or reorganization events involving us; and
* any other event of default for that series described in the applicable
prospectus supplement.
If an event of default occurs and is continuing other than an event of
default relating to bankruptcy, insolvency, or reorganization, either the
trustee or the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of the affected series may declare the principal
amount of the debt securities of that series to be due and payable immediately.
In the case of any debt security that is an original issue discount security or
the principal amount of which is not then determinable, the trustee or the
holders of at least 25% in aggregate principal amount of the outstanding debt
securities of that series may declare the portion of the principal amount of the
debt security specified in the terms of such debt security to be immediately due
and payable upon an event of default.
If an event of default involving bankruptcy, insolvency, or reorganization
occurs, the principal amount of all the debt securities of the affected series
will automatically, and without any action by the trustee or any holder, become
immediately due and payable. After any acceleration, but before a judgment or
decree based on acceleration, the holders of a majority in aggregate principal
amount of the outstanding debt securities of that series may rescind and annul
the acceleration if all events of default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Indenture.
The trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders,
unless the holders have offered the trustee reasonable indemnity. Subject to
provisions for the indemnification of the trustee, the holders of a majority in
principal amount of the outstanding debt securities of any series will have the
right to direct the time, method, and place of conducting any proceeding for any
remedy available to the trustee, or exercising any trust or power conferred on
the trustee, with respect to the debt securities of that series.
No holder of a debt security of any series will have any right to institute
any proceeding under the Indenture, or for the appointment of a receiver or a
trustee, or for any other remedy under the Indenture, unless:
* the holder has previously given the trustee written notice of a
continuing event of default with respect to the debt securities of
that series;
* the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made written request,
and the holder or holders have offered reasonable indemnity, to the
trustee to institute the proceeding as trustee; and
* the trustee has failed to institute the proceeding, and has not
received from the holders of a majority in aggregate principal amount
of the outstanding debt securities of that series a direction
inconsistent with the request within 60 days after the notice,
request, and offer.
The limitations provided above do not apply to a suit instituted by a holder of
a debt security for the enforcement of payment of the principal, premium, or
interest on the debt security on or after the applicable due date.
We are required to furnish to the trustee annually a certificate of various
officers stating whether or not we are in default in the performance or
observance of any of the terms, provisions, and conditions of the Indenture and,
if so, specifying all known defaults.
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MODIFICATION AND WAIVER
In limited cases the trustee, as well as us, may make modifications and
amendments to the Indenture without the consent of the holders of any series of
debt securities. The trustee may make modifications and amendments to the
Indenture with the consent of the holders of not less than 66-2/3% in aggregate
principal amount of the outstanding debt securities of each series affected by
the modification or amendment. However, without the consent of the holder of
each outstanding debt security affected, no modification or amendment may:
* change the stated maturity of the principal of, or any installment of
principal of or interest on, any debt security;
* reduce the principal amount of, or any premium or interest on, any
debt security;
* reduce the amount of principal of an original issue discount security
or any other debt security payable upon acceleration of the maturity
of the security;
* change the place or currency of payment of principal of, or any
premium or interest on, any debt security;
* impair the right to institute suit for the enforcement of any payment
on or with respect to any debt security; or
* reduce the percentage in principal amount of outstanding debt
securities of any series, the consent of whose holders is required for
modification or amendment of the Indenture necessary for waiver of
compliance with certain provisions of the Indenture or of certain
defaults, or modify the provisions of the Indenture relating to
modification and waiver.
Compliance with certain restrictive provisions of the Indenture may be
waived by the holders of not less than 66-2/3% in aggregate principal amount of
the outstanding debt securities of any series. The holders of a majority in
principal amount of the outstanding debt securities of any series may waive any
past default under the Indenture, except:
* a default in the payment of principal, premium, or interest; and
* a default under covenants and provisions of the Indenture which cannot
be amended without the consent of the holder of each outstanding debt
security of the affected series.
In determining whether the holders of the requisite principal amount of the
outstanding debt securities have given or taken any direction, notice, consent,
waiver, or other action under the Indenture as of any date:
* the principal amount of an outstanding original issue discount
security will be the amount of the principal that would be due and
payable upon acceleration of the maturity on that date,
* if the principal amount payable at the stated maturity of a debt
security is not determinable, the principal amount of the outstanding
debt security will be an amount determined in the manner prescribed
for the debt security; and
* the principal amount of an outstanding debt security denominated in
one or more foreign currencies will be the U.S. dollar equivalent of
the principal amount of the debt security or, in the case of a debt
security described in the previous clause above, the amount described
in that clause.
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If debt securities have been fully defeased or if we have deposited money
with the trustee to redeem debt securities, they will not be considered
outstanding.
Except in limited circumstances, we will be entitled to set any day as a
record date for the purpose of determining the holders of outstanding debt
securities of any series entitled to give or take any direction, notice,
consent, waiver, or other action under the Indenture. In limited circumstances,
the trustee will be entitled to set a record date for action by holders. If a
record date is set for any action to be taken by holders of a particular series,
the action may be taken only by persons who are holders of outstanding debt
securities of that series on the record date. To be effective, the action must
be taken by holders of the requisite principal amount of the debt securities
within a specified period following the record date. For any particular record
date, this period will be 180 days or any other shorter period as we may
specify. The period may be shortened or lengthened, but not beyond 180 days.
DEFEASANCE AND COVENANT DEFEASANCE
We may elect to have the provisions of the Indenture relating to defeasance
and discharge of indebtedness, or defeasance of restrictive covenants in the
Indenture, applied to the debt securities of any series, or to any specified
part of a series. The prospectus supplement describing a series of debt
securities will state whether we can make these elections for that series.
DEFEASANCE AND DISCHARGE
We will be discharged from all of our obligations with respect to the debt
securities of a series if we deposit with the trustee money in an amount
sufficient to pay the principal, premium, and interest on the debt securities of
that series when due in accordance with the terms of the Indenture and the debt
securities. We can also deposit securities that will provide the necessary
monies. However, we will not be discharged from the obligations to exchange or
register the transfer of debt securities, to replace stolen, lost, or mutilated
debt securities, to maintain paying agencies, and to hold moneys for payment in
trust. The defeasance or discharge may occur only if we deliver to the trustee
an opinion of counsel stating that we have received from, or there has been
published by, the United States Internal Revenue Service a ruling, or there has
been a change in tax law, in either case to the effect that holders of such debt
securities:
* will not recognize gain or loss for federal income tax purposes as a
result of the deposit, defeasance, and discharge; and
* will be subject to federal income tax on the same amount, in the same
manner, and at the same times as would have been the case if the
deposit, defeasance, and discharge were not to occur.
DEFEASANCE OF COVENANTS
We may elect to omit compliance with restrictive covenants in the Indenture
and any additional covenants that may be described in the applicable prospectus
supplement for a series of debt securities. This election will preclude some
actions from being considered defaults under the Indenture for the applicable
series. In order to exercise this option, we will be required to deposit, in
trust for the benefit of the holders of debt securities, funds in an amount
sufficient to pay the principal, premium and interest on the debt securities of
the applicable series. We may also deposit securities that will provide the
necessary monies. We will also be required to deliver to the trustee an opinion
of counsel to the effect that holders of the debt securities will not recognize
gain or loss for federal income tax purposes as a result of such deposit and
defeasance of certain obligations and will be subject to federal income tax on
the same amount, in the same manner and at the same times as would have been the
case if the deposit and defeasance were not to occur. If we exercise this option
with respect to any debt securities and the debt securities are declared due and
payable because of the occurrence of any event of default, the amount of funds
deposited in trust would be sufficient to pay amounts due on the debt securities
at the time of their respective stated maturities but may not be sufficient to
pay amounts due on the debt securities on any acceleration resulting from an
event of default. In that case, we would remain liable for the additional
payments.
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GOVERNING LAW
The law of the State of New York will govern the Indenture and the debt
securities.
GLOBAL SECURITIES
Some or all of the first mortgage bonds or debt securities of any series
may be represented, in whole or in part, by one or more global securities, which
will have an aggregate principal amount equal to that of the first mortgage
bonds or debt securities they represent. We will register each global security
in the name of a depositary or nominee identified in a prospectus supplement and
deposit the global security with the depositary or nominee. Each global security
will bear a legend regarding the restrictions on exchanges and registration of
transfer referred to below and other matters specified in a supplemental
indenture to the Mortgage or the Indenture.
No global security may be exchanged for first mortgage bonds or debt
securities registered, and no transfer of a global security may be registered,
in the name of any person other than the depositary for the global security or
any nominee of the depositary, unless:
* the depositary has notified us that it is unwilling or unable to
continue as depositary for the global security or has ceased to be
qualified to act as depositary;
* a default has occurred and is continuing with respect to the first
mortgage bonds or debt securities represented by the global security;
or
* any other circumstances exist that may be described in the applicable
supplemental indenture and prospectus supplement.
We will register all securities issued in exchange for a global security or
any portion of a global security in the names specified by the depositary.
As long as the depositary or its nominee is the registered holder of a
global security, the depositary or nominee will be considered the sole owner and
holder of the global security and the first mortgage bonds or debt securities
that it represents. Except in the limited circumstances referred to above,
owners of beneficial interests in a global security will not:
* be entitled to have the global security or first mortgage bonds or
debt securities registered in their names;
* receive or be entitled to receive physical delivery of certificated
first mortgage bonds or debt securities in exchange for a global
security; and
* be considered to be the owners or holders of the global security or
any first mortgage bonds or debt securities for any purpose under the
Mortgage or the Indenture.
We will make all payments of principal, premium, and interest on a global
security to the depositary or its nominee. The laws of some jurisdictions
require that purchasers of securities take physical delivery of securities in
definitive form. These laws make it difficult to transfer beneficial interests
in a global security.
Ownership of beneficial interests in a global security will be limited to
institutions that have accounts with the depositary or its nominee, referred to
as Participants, and to persons that may hold beneficial interests through
Participants. In connection with the issuance of any global security, the
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depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of first mortgage bonds or debt securities
represented by the global security to the accounts of its Participants.
Ownership of beneficial interests in a global security will only be shown on
records maintained by the depositary or the Participant. Likewise, the transfer
of ownership interests will be effected only through the same records. Payments,
transfers, exchanges, and other matters relating to beneficial interests in a
global security may be subject to various policies and procedures adopted by the
depositary from time to time. Neither we, the trustee, nor any of our agents
will have responsibility or liability for any aspect of the depositary's or any
Participant's records relating to, or for payments made on account of,
beneficial interests in a global security, or for maintaining, supervising, or
reviewing any records relating to the beneficial interests.
REGARDING THE TRUSTEES
The Bank of New York is the trustee under the Mortgage and the trustee
under the Indenture relating to the subordinated debt securities. We maintain
normal banking arrangements with The Bank of New York, which include:
* a $15.6 million commitment by The Bank of New York pursuant to a
revolving credit agreement, none of which was outstanding at June 30,
2002.
The Bank of New York also serves as:
* trustee for the holders of several issues of pollution control bonds
issued on our behalf;
* trustee under our senior note indenture;
* investment manager for our nonunion post-retirement medical fund; and
* custodian of international fixed-income assets for our pension plan.
An affiliate of The Bank of New York is the remarketing agent for a series
of our pollution control bonds.
JPMorgan Chase Bank is the trustee under the Indenture relating to the
senior debt securities. We maintain normal banking arrangements with JPMorgan
Chase Bank. JPMorgan Chase Bank also:
* serves as trustee for the holders of several series of bonds issued by
a party unaffiliated with us, secured by, among other things, our
payments under our Palo Verde Nuclear Generating Station leases;
* serves as administrative agent and issuing bank with respect to a
reimbursement agreement related to a letter of credit securing our
payments under our Palo Verde Nuclear Generating Station leases
("Letter of Credit");
* has a $31.9 million credit commitment under the Letter of Credit, none
of which was outstanding as of June 30, 2002;
* serves as fiscal agent for certain of our privately-placed notes;
* serves as an issuing and paying agent with respect to our commercial
paper program; and
* has a commitment to lend us up to $56.3 million under a revolving
credit agreement, none of which was outstanding as of June 30, 2002.
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In addition, an affiliate of JPMorgan Chase Bank is the owner participant
under a trust to which we sold and leased back a portion of Unit 2 of the Palo
Verde Nuclear Generating Station.
PLAN OF DISTRIBUTION
We intend to sell up to $500,000,000 in aggregate principal amount of the
offered securities to or through underwriters or dealers, and may also sell the
offered securities directly to other purchasers or through agents, as described
in the prospectus supplement relating to an issue of first mortgage bonds or
debt securities.
We may distribute the offered securities from time to time in one or more
transactions at a fixed price or prices, which may be changed, or at market
prices prevailing at the time of sale, at prices related to prevailing market
prices, or at negotiated prices.
In connection with the sale of the offered securities, underwriters may
receive compensation from us or from purchasers of offered securities for whom
they act as agents in the form of discounts, concessions, or commissions.
Underwriters may sell offered securities to or through dealers, and the dealers
may receive compensation in the form of discounts, concessions, or commissions
from the underwriters and/or commissions from the purchasers for whom they act
as agents. Underwriters, dealers, and agents who participate in the distribution
of offered securities may be considered to be underwriters, and any discounts or
commissions received by them from us and any profit on the resale of offered
securities by them may be considered to be underwriting discounts and
commissions under the Securities Act of 1933. We will identify any person
considered to be an underwriter, and we will describe any compensation received
from us in the prospectus supplement.
We may agree to indemnify underwriters, dealers, and agents who participate
in the distribution of the offered securities against liabilities, including
liabilities under the Securities Act of 1933.
EXPERTS
The financial statements as of December 31, 2001 and 2000, and for each of
the three years in the period ended December 31, 2001, and the related financial
statement schedule incorporated by reference in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, incorporated herein, and have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
LEGAL OPINIONS
Snell & Wilmer L.L.P., One Arizona Center, Phoenix, Arizona 85004 will
opine on the validity of the offered securities. We currently anticipate that
Sullivan & Cromwell, 1888 Century Park East, Los Angeles, California 90067 will
opine on the validity of the offered securities for any underwriters of
securities. In giving their opinions, Sullivan & Cromwell and Snell & Wilmer
L.L.P. may rely as to matters of New Mexico law upon the opinion of Keleher &
McLeod, P.A., Albuquerque Plaza, 201 Third NW, 12th Floor, Albuquerque, New
Mexico 87102. Snell & Wilmer L.L.P. may rely as to all matters of New York law
upon the opinion of Sullivan & Cromwell. Sullivan & Cromwell may rely as to all
matters of Arizona law upon the opinion of Snell & Wilmer L.L.P.
24
$500,000,000
ARIZONA PUBLIC SERVICE COMPANY
FIRST MORTGAGE BONDS
DEBT SECURITIES
--------------------
APS
--------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission registration fee................. $ 46,000
Printing, engraving, and postage expenses........................... 20,000*
Legal fees.......................................................... 150,000*
Accounting fees..................................................... 15,000*
Rating Agency fees.................................................. 209,000*
Trustee's fees and expenses......................................... 5,000*
Blue Sky fees and expenses.......................................... 15,000*
Miscellaneous....................................................... 10,000*
--------
Total...................................................... $470,000*
========
- ----------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The law of Arizona permits extensive indemnification of present and former
directors, officers, employees or agents of an Arizona corporation, whether or
not authority for such indemnification is contained in the indemnifying
corporation's articles of incorporation or bylaws. Specific authority for
indemnification of present and former directors and officers, under certain
circumstances, is contained in Article Fifth of the Company's Articles of
Incorporation. In addition, Section 7.01 of the Company's bylaws provides that
the Company will indemnify present and former directors and officers to the
fullest extent permitted by Arizona law.
Under the Arizona Business Corporation Act (the "ABCA"), in order for a
corporation to indemnify a director or officer, a majority of the corporation's
disinterested directors, independent legal counsel, or the shareholders must
find that the conduct of the individual to be indemnified was in good faith and
that the individual reasonably believed that the conduct was in the
corporation's best interests (in the case of conduct in an "official capacity"
with the corporation) or that the conduct was at least not opposed to the
corporation's best interests (in all other cases). In the case of any criminal
proceeding, the finding must be to the effect that the individual had no
reasonable cause to believe the conduct was unlawful. Indemnification is
permitted with respect to expenses, judgments, fines, and amounts paid in
settlement by such individuals.
Indemnification under the ABCA is permissive, except in the event of a
successful defense, in which case a director or officer must be indemnified
against reasonable expenses, including attorneys' fees, incurred in connection
with the proceeding. In addition, the ABCA requires Arizona corporations to
indemnify any "outside director" (a director who is not an officer, employee, or
holder of five percent or more of any class of the corporation's stock) against
liability unless (i) the corporation's articles of incorporation limit such
indemnification, (ii) the outside director is adjudged liable in a proceeding by
or in the right of the corporation or in any other proceeding charging improper
personal benefit to the director, or (iii) a court determines, before payment to
the outside director, that the director failed to meet the standards of conduct
described in the preceding paragraph. A court may also order that an individual
be indemnified if the court finds that the individual is fairly and reasonably
entitled to indemnification in light of all of the relevant circumstances,
whether or not the individual has met the standards of conduct in this and the
preceding paragraph.
In connection with the offering made by the prospectus which is a part of
this registration statement, as it may be amended or supplemented, the
underwriters of the securities, pursuant to the relevant underwriting agreement,
will severally agree to indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed this registration statement, and
each person, if any, who controls the Company within the meaning of the
Securities Act of 1933, as amended (the "Act"), against certain losses, claims,
II-1
damages, or liabilities, including liabilities under the Act, that arise out of
or are based upon written information furnished by such underwriters to the
Company for use in this registration statement or in such prospectus.
Insurance is maintained on a regular basis (and not specifically in
connection with this offering) against liabilities arising on the part of
directors and officers out of their performance in such capacities or arising on
the part of the Company out of its foregoing indemnification provisions, subject
to certain exclusions and to the policy limits.
ITEM 16. LIST OF EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
12.2 Computation of Ratio of Earnings to Fixed Charges.
23.3 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (see page II-6 in Registration Statement
No. 333-90824 filed on June 20, 2002).
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
notwithstanding the foregoing, any increase or decrease in the volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided
however, that paragraphs (1)(i) and (1)(ii) do not apply only if the
registration statement is on Form S-3 and Form S-8 and if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Act, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
II-2
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the provisions referred to in Item 15 of
this Registration Statement, or otherwise, the Company has been advised that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(6) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(7) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona on the 26th day of August,
2002.
ARIZONA PUBLIC SERVICE COMPANY
By William J. Post
-----------------------------------------
(William J. Post, Chairman of the Board
of Directors and Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Chris N. Froggatt, Barbara M. Gomez, and Michael V. Palmeri
and each of them, as attorneys-in-fact, to sign in his or her name and behalf,
individually and in each capacity designated below, and to file any amendments,
including post-effective amendments, to this registration statement, and any
related Rule 462(b) registration statement or amendment thereto.
Signature Title Date
--------- ----- ----
William J. Post Principal Executive Officer August 26, 2002
- ----------------------------- and Director
(William J. Post, Chairman
of the Board of Directors and
Chief Executive Officer)
Jack E. Davis Principal Accounting Officer, August 26, 2002
- ----------------------------- President and Director
(Jack E. Davis, President)
Michael V. Palmeri Principal Financial Officer August 26, 2002
- -----------------------------
(Michael V. Palmeri,
Vice President, Finance)
* Director
- -----------------------------
(Edward N. Basha, Jr.)
* Director
- -----------------------------
(Michael L. Gallagher)
* Director
- -----------------------------
(Pamela Grant)
II-4
* Director
- -----------------------------
(Roy A. Herberger, Jr.)
* Director
- -----------------------------
(Martha O. Hesse)
* Director
- -----------------------------
(William S. Jamieson, Jr.)
* Director
- -----------------------------
(Humberto S. Lopez)
* Director
- -----------------------------
(Robert G. Matlock)
* Director
- -----------------------------
(Kathryn L. Munro)
* Director
- -----------------------------
(Bruce J. Nordstrom)
* Director and President
- -----------------------------
(William L. Stewart)
Barbara M. Gomez August 26, 2002
- -----------------------------
*Barbara M. Gomez
Attorney-in-Fact
II-5
Registration No. 333-90824
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
EXHIBITS TO
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------
ARIZONA PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
================================================================================
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
12.2 Computation of Ratio of Earnings to Fixed Charges.
23.3 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (see page II-6 in Registration Statement
No. 333-90824 filed on June 20, 2002).