SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 15, 2002
ARIZONA PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Arizona 1-4473 86-0011170
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
400 NORTH FIFTH STREET, P.O. BOX 53999, PHOENIX, ARIZONA 85004
(Address of principal executive offices) (Zip Code)
(602) 250-1000
(Registrant's telephone number, including area code)
NONE
(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS
TRACK A ORDER MATTERS; FINANCING APPLICATION
As previously reported, on September 10, 2002, the Arizona Corporation
Commission (the "ACC") issued the "Track A Order," which, among other things,
directed Arizona Public Service Company ("APS" or the "Company") not to transfer
its generation assets to Pinnacle West Energy Corporation ("Pinnacle West
Energy"). See "Track A Order" in Note 5 of Notes to Condensed Financial
Statements in the Company's Report on Form 10-Q for the fiscal quarter ended
September 30, 2002 (the "September 10-Q"). On November 15, 2002, APS filed
appeals of the Track A Order with the Maricopa County, Arizona Superior Court
and with the Arizona Court of Appeals. ARIZONA PUBLIC SERVICE COMPANY VS.
ARIZONA CORPORATION COMMISSION, CV 2002-0222 32. ARIZONA PUBLIC SERVICE COMPANY
VS. ARIZONA CORPORATION COMMISSION, 1CA CC 02-0002.
Also as previously reported, on September 16, 2002, APS filed an
application (the "Financing Application") with the ACC requesting the ACC to
allow APS to borrow up to $500 million and to lend the proceeds to Pinnacle West
Energy or to Pinnacle West Capital Corporation ("Pinnacle West"); to guarantee
up to $500 million of Pinnacle West Energy's or Pinnacle West's debt; or a
combination of both, not to exceed $500 million in the aggregate. See "ACC
Applications" in Note 5 of Notes to Condensed Financial Statements in the
September 10-Q.
On December 13, 2002, APS and the ACC staff agreed to principles for
resolving certain issues raised by APS in its appeals of the Track A Order. APS
and the ACC are the only parties to the Track A Order appeals. These principles
are contained in a document entitled "Track 'A' Appeals Issues - Principles for
Resolution," a copy of which is incorporated by reference in this Report. The
major provisions of this document include, among other things, the following:
* The parties agreed that it would be appropriate for the ACC to
consider the following matters in APS' upcoming general rate case,
anticipated to be filed before June 30, 2003:
* the generating assets to be included in APS' rate base, including
the question of whether certain power plants currently owned by
Pinnacle West Energy (specifically, Redhawk Units 1 and 2, West
Phoenix Combined Cycle Units 4 and 5, and Saguaro Combustion
Turbine 3) should be included in APS' rate base;
* the appropriate treatment of the $234 million pre-tax asset
write-off agreed to by APS as part of a 1999 settlement agreement
approved by the ACC among APS and various parties related to the
implementation of retail competition in Arizona; and
* the appropriate treatment of costs incurred by APS in preparation
for the previously anticipated transfer of generation assets to
Pinnacle West Energy.
* Upon the ACC's issuance of a final decision that is no longer subject
to appeal approving the Financing Application, with appropriate
conditions, APS' appeals of the Track A Order would be limited to the
issues described in the preceding bullet points, each of which would
be presented to the ACC for consideration prior to any final judicial
resolution.
On December 13, 2002, the ACC staff filed its testimony in connection with
APS' Financing Application. In its testimony, the ACC staff recommends approval
of the Financing Application, subject to the following principal conditions:
* APS should be permitted to loan up to $500 million to Pinnacle West
Energy (the "APS Loan"), but APS should not be permitted to lend this
money to Pinnacle West or guarantee the debt of either Pinnacle West
Energy or Pinnacle West;
* the APS Loan should be callable and secured by certain Pinnacle West
Energy assets;
* the APS Loan should bear interest at a rate equal to 264 basis points
(subject to possible adjustment) above the interest rate on debt
issued and sold on equivalent terms as the APS Loan (including, but
not limited to, maturity and security);
* the difference in interest income and interest expense should be
capitalized as a deferred credit and used to affect retail rates in
the future, with the deferred credit balance bearing an interest rate
of six percent;
* the APS Loan should have a maturity date of not more than four years,
unless otherwise ordered by the ACC;
* any demonstrable increase in APS' cost of capital as a result of the
transaction (such as from a decline in bond rating) will be extracted
from future rate cases; and
* APS should maintain a common equity ratio of at least forty percent
and should not be allowed to pay dividends if such payment would
reduce its common equity below that threshold, unless otherwise waived
by the ACC. The ACC would process any waiver request within sixty
days, and for this sixty-day period this condition would be suspended.
However, this condition, which would be continued indefinitely, would
not be permanently waived without an order of the ACC.
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The ACC hearing on the Financing Application is scheduled to begin on January 8,
2003. The Company cannot predict the outcome of that hearing.
ACCOUNTING MATTERS
As previously reported, the Financial Accounting Standards Board Emerging
Issues Task Force ("EITF") at its October 2002 meeting, reached a consensus
related to energy trading activities in EITF 02-03, "Issues Involved in
Accounting for Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management Activities." See Note 8 in Notes
to Condensed Financial Statements in the September 10-Q. This guidance rescinds
EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities." This guidance became effective immediately for all new
contracts and on January 1, 2003 for existing contracts. As such, energy trading
contracts which are not derivatives or which meet the mark-to-market exceptions
under Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivatives and Hedging Activities," will be accounted for on an accrual
basis with the associated revenues and costs recorded at the time the contracted
commodities are delivered or received. The contracts that are derivatives and
are required to be marked to market as derivatives under SFAS No. 133 or if
allowed by other guidance will be classified into trading and non-trading. We
expect to adopt this new guidance effective October 1, 2002. While we are in the
process of evaluating existing contracts, we currently do not expect this
guidance to have a material impact on net income.
FORWARD-LOOKING STATEMENTS
This Report on Form 8-K contains forward-looking statements based on
current expectations, and the Company assumes no obligation to update these
statements. Because actual results may differ materially from expectations, the
Company cautions readers not to place undue reliance on these statements. A
number of factors could cause future results to differ materially from
historical results, or from results or outcomes currently expected or sought by
the Company. These factors include the ongoing restructuring of the electric
industry, including the introduction of retail electric competition in Arizona
and decisions impacting wholesale competition; the outcome of regulatory and
legislative proceedings relating to the restructuring; state and federal
regulatory and legislative decisions and actions, including price caps and other
market constraints imposed 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 and access to the capital
markets; weather variations affecting local and regional customer energy usage;
the effect of conservation programs on energy usage; power plant performance;
our ability to compete successfully outside traditional regulated markets
(including the wholesale market); our ability to manage our marketing and
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trading activities and the use of derivative contracts in our business;
technological developments in the electric industry; the performance of the
stock market, which affects the amount of our required contributions to our
pension plan and nuclear decommissioning trust funds; and other uncertainties,
all of which are difficult to predict and many of which are beyond our control.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
Originally Filed Date
Exhibit No. Description as Exhibit: File No.(1) Effective
- ----------- ----------- ----------- ----------- ---------
99.1 Track 'A' Appeals 99.1 to Pinnacle West's 1-8962 12/16/02
Issues - Principles for November 15, 2002
Resolution Form 8-K
- ----------
(1) Reports filed under File No. 1-8962 were filed in the office of the
Securities and Exchange Commission located in Washington, D.C.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARIZONA PUBLIC SERVICE COMPANY
(Registrant)
Dated: December 19, 2002 By: Barbara M. Gomez
---------------------------------
Barbara M. Gomez
Treasurer
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