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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ----- TO -----
COMMISSION FILE NUMBER 1-4473
ARIZONA PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
ARIZONA 86-0011170
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
400 North Fifth Street, P.O. Box 53999
Phoenix, Arizona 85072-3999 (602) 250-1000
(Address of principal executive offices, (Registrant's telephone number,
including zip code) including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Adjustable Rate Cumulative Preferred Stock, ..... New York Stock Exchange
Series Q, $100 Par Value
$1.8125 Cumulative Preferred Stock,
Series W, $25 Par Value ................... New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Cumulative Preferred Stock
(Title of class)
(See Note 3 of Notes to Financial Statements in Item 8
for dividend rates, series designations (if any), and par values)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
AGGREGATE MARKET VALUE
OF VOTING STOCK HELD
BY
NON-AFFILIATES OF THE
TITLE OF EACH CLASS SHARES OUTSTANDING REGISTRANT AS OF
OF VOTING STOCK AS OF MARCH 22, 1994 MARCH 22, 1994
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Cumulative Preferred Stock...... 6,708,199 $378,318,769(a)
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(A) COMPUTED, WITH RESPECT TO SHARES LISTED ON THE NEW YORK STOCK EXCHANGE, BY
REFERENCE TO THE CLOSING PRICE ON THE COMPOSITE TAPE ON MARCH 22, 1994, AS
REPORTED BY THE WALL STREET JOURNAL, AND WITH RESPECT TO NON-LISTED SHARES, BY
DETERMINING THE YIELD ON LISTED SHARES AND ASSUMING A MARKET VALUE FOR NON-
LISTED SHARES WHICH WOULD RESULT IN THAT SAME YIELD.
As of March 29, 1994, there were issued and outstanding 71,264,947 shares
of the registrant's common stock, $2.50 par value, all of which were held
beneficially and of record by Pinnacle West Capital Corporation.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement relating to
its annual meeting of shareholders to be held on April 19, 1994, are
incorporated by reference into Part III hereof.
TABLE OF CONTENTS
GLOSSARY................................................................ 1
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
Supplemental Item.
Executive Officers of the Registrant........................ 12
PART II
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters.............................................. 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 47
PART III
Item 10. Directors and Executive Officers of the Registrant......... 47
Item 11. Executive Compensation..................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 47
Item 13. Certain Relationships and Related Transactions............. 47
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement
Schedules,
and Reports on Form 8-K.................................... 48
SIGNATURES.............................................................. 62
GLOSSARY
ACC -- Arizona Corporation Commission
AFUDC -- Allowance for Funds Used During Construction
AMENDMENTS -- Clean Air Act Amendments of 1990
ANPP -- Arizona Nuclear Power Project, also known as Palo Verde
ANPP PARTICIPATION AGREEMENT -- Arizona Nuclear Power Project Participation
Agreement, dated as of August 23, 1973, as amended
APS -- Arizona Public Service Company
CHOLLA -- Cholla Power Plant
CHOLLA 4 -- Unit 4 of the Cholla Power Plant
COMPANY -- Arizona Public Service Company
DOE -- United States Department of Energy
EPA -- United States Environmental Protection Agency
ENERGY ACT -- National Energy Policy Act of 1992
EPEC -- El Paso Electric Company
FASB -- Financial Accounting Standards Board
FERC -- Federal Energy Regulatory Commission
FOUR CORNERS -- Four Corners Power Plant
ITC -- Investment Tax Credit
MORTGAGE -- Mortgage and Deed of Trust dated as of July 1, 1946, as
supplemented and amended
MWH -- Megawatt-hour
NGS -- Navajo Generating Station
NRC -- Nuclear Regulatory Commission
PACIFICORP -- An Oregon-based utility company
PALO VERDE -- Palo Verde Nuclear Generating Station
PINNACLE WEST -- Pinnacle West Capital Corporation, an Arizona corporation,
the Company's parent
SEC -- Securities and Exchange Commission
SFAS NO. 106 -- Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
SFAS NO. 109 -- Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes"
SFAS NO. 112 -- Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits"
SRP -- Salt River Project Agricultural Improvement and Power District
USEC -- United States Enrichment Corporation
PART I
ITEM 1. BUSINESS
THE COMPANY
The Company was incorporated in 1920 under the laws of Arizona and is
engaged principally in serving electricity in the State of Arizona. The
principal executive offices of the Company are located at 400 North Fifth
Street, Phoenix, Arizona 85004 (telephone 602-250-1000). The Company currently
employs approximately 7,050 persons, which includes employees assigned to
joint projects where the Company is project manager.
The Company serves approximately 654,000 customers in an area that
includes all or part of 11 of Arizona's 15 counties. During 1993, no single
purchaser or user of energy accounted for more than 3% of total electric
revenues.
Pinnacle West owns all of the outstanding shares of the Company's common
stock. Pursuant to a Pledge Agreement, dated as of January 31, 1990, between
Pinnacle West and Citibank, N.A., as Collateral Agent (the "Pledge
Agreement"), and as part of a restructuring of substantially all of its
outstanding indebtedness, Pinnacle West granted certain of its lenders a
security interest in all of the Company's outstanding common stock. Until the
Collateral Agent and Pinnacle West receive notice of the occurrence and
continuation of an Event of Default (as defined in the Pledge Agreement),
Pinnacle West is entitled to exercise or refrain from exercising any and all
voting and other consensual rights pertaining to the common stock. As to
matters other than the election of directors, Pinnacle West agreed not to
exercise or refrain from exercising any such rights if, in the Collateral
Agent's judgment, such action would have a material adverse effect on the
value of the common stock. After notice of an Event of Default, the Collateral
Agent would have the right to vote the common stock.
INDUSTRY AND COMPANY ISSUES
The utility industry continues to experience a number of challenges.
Depending on the circumstances of a particular utility, these may include
(i) competition in general from numerous sources; (ii) effects of the National
Energy Policy Act of 1992 (the "Energy Act"); (iii) difficulties in meeting
government imposed environmental requirements; (iv) the necessity to make
substantial capital outlays for transmission and distribution facilities;
(v) uncertainty regarding projected electrical demand growth;
(vi) controversies over electromagnetic fields; (vii) controversies over the
safety and use of nuclear power; (viii) issues related to spent fuel and low
level waste (see "Generating Fuel" below); and (ix) increasing costs of wages
and materials.
The impact on the Company of other utility industry problems is discussed
in this Item under "Environmental Matters." Also see "Water Supply" in this
Item with respect to certain problems specific to the Company and other
utilities.
COMPETITION
Certain territory adjacent to or within areas served by the Company is
served by other investor-owned utilities (notably Tucson Electric Power
Company serving electricity in the Tucson area, Southwest Gas Corporation
serving gas throughout the state, and Citizens Utilities Company serving
electricity and gas in various locations throughout the state) and a number of
cooperatives, municipalities, electrical districts, and similar types of
governmental organizations (principally SRP serving electricity in various
areas in and around Phoenix).
The Company expects increased competition in the future, mostly with
respect to large customers, from entities offering alternative sources of
energy. In recent years, changing laws and governmental regulations, interest
in self-generation, competition from nonregulated energy suppliers, and
aggressive marketing from the gas industry are providing some utility
customers with alternative sources to satisfy their energy needs. This may be
increased as a result of the Energy Act which, among other things, removes
certain previously existing barriers to entry into electric generation. The
Energy Act also permits certain other parties to compete for resale customers
currently served by a particular utility and to use that utility's
transmission facilities in order to do so. The requirements with respect to
implementation of the Energy Act have not yet been completely determined, so
the Company cannot currently predict its impact on the Company's business and
operations.
In order to remain competitive in this changing environment, the Company
has determined that it must be a cost-effective supplier, provide excellent
service, and be knowledgeable about its customers' businesses. The Company is
concentrating on several areas which are key to the success of this strategy,
including effectively managing its operating and maintenance expenses;
reinforcing the importance of customer needs among Company employees; and
working with customers to evaluate, recommend, and provide services which will
optimize their efficiency.
CAPITAL STRUCTURE
The capital structure of the Company (which, for this purpose, includes
short-term borrowings and current maturities of long-term debt) as of December
31, 1993 is tabulated below.
Amount Percentage
---------- ----------
(Thousands
of
Dollars)
Long-Term Debt Less Current Maturities:
First mortgage bonds................................ $1,729,070
Other............................................... 395,584
----------
Total long-term debt less current maturities...... 2,124,654 50.7%
----------
Non-Redeemable Preferred Stock........................ 193,561 4.6
----------
Redeemable Preferred Stock............................ 197,610 4.7
----------
Common Stock Equity:
Common stock, $2.50 par value, 100,000,000 shares
authorized; 71,264,947 shares outstanding......... 178,162
Premiums and expenses............................... 1,037,681
Retained earnings................................... 307,098
----------
Total common stock equity......................... 1,522,941 36.4
----------
Total capitalization............................ 4,038,766
Current Maturities of Long-Term Debt.................. 3,179 .1
Short-Term Borrowings................................. 148,000 3.5
---------- --------
Total........................................... $4,189,945 100.0%
========== ========
See Notes 3, 4, and 5 of Notes to Financial Statements in Item 8.
On March 1, 1994 the Company redeemed all of the outstanding shares of its
$8.80 Cumulative Preferred Stock, Series K ($100 par value), in the amount of
$14.21 million. On March 2, 1994, the Company issued $100 million of its First
Mortgage Bonds, 65/8% Series due 2004 and applied the net proceeds to the
repayment of short-term debt that had been incurred for the redemption of
preferred stock and for general corporate purposes.
So long as any of the Company's first mortgage bonds are outstanding, the
Company is required for each calendar year to deposit with the trustee under
its Mortgage cash in a formularized amount related to net additions to the
Company's mortgaged utility plant; however, the Company may satisfy all or any
part of this "replacement fund" requirement by utilizing redeemed or retired
bonds, net property additions, or property retirements. For 1993, the
replacement fund requirement amounted to approximately $122 million. Many,
though not all, of the bonds issued by the Company under the Mortgage are
redeemable at their par value plus accrued interest with cash deposited by the
Company in the replacement fund, subject in many cases to a period of time
after the original issuance of the bonds during which they may not be so
redeemed and/or to other restrictions on any such redemption. The cash
deposited with the trustee by the Company in partial satisfaction of its 1993
replacement fund requirements will be used to redeem $60.264 million in
aggregate principal amount of the Company's First Mortgage Bonds, 103/4%
Series due 2019, at their principal amount plus accrued interest, on April 4,
1994.
RATES
STATE. The ACC has regulatory authority over the Company in matters
relating to retail electric rates and the issuance of securities. See "Rate
Case Settlement" in Note 2 of Notes to Financial Statements in Item 8 for a
discussion of the December 1991 settlement of the Company's most recent retail
rate case before the ACC.
FEDERAL. The Company's rates for wholesale power sales and transmission
services are subject to regulation by the FERC. During 1993, approximately 8%
of the Company's electric operating revenues resulted from such sales and
charges. For most wholesale transactions regulated by the FERC, a fuel
adjustment clause results in monthly adjustments for changes in the actual
cost of fuel for generation and in the fuel component of purchased power
expense.
ARIZONA CORPORATION COMMISSION PETITION
On May 1, 1990, the ACC approved the filing of a petition with the SEC
requesting the SEC to revoke or modify the exemption of Pinnacle West under
the Public Utility Holding Company Act of 1935 (the "Holding Company Act").
Pinnacle West and its subsidiaries, including the Company, are currently
exempt from registration under the Holding Company Act. The SEC has the power
to terminate Pinnacle West's exemption upon thirty days notice to Pinnacle
West if it determines that a question exists as to whether the exemption may
be detrimental to the public interest or the interests of investors or
consumers. In the event of the exercise of such power by the SEC, if Pinnacle
West were to file an application with the SEC during such thirty day period
requesting an exemption order, Pinnacle West's exemption would remain in place
until the SEC ruled on such application. If Pinnacle West ultimately were to
have its exemption modified, conditioned, or revoked, the Company could be
subject to SEC regulation in many aspects of its business, including those
relating to securities issuances, diversification, and transactions among
affiliates. In a series of responses to the ACC's petition and subsequent ACC
letters to the SEC, Pinnacle West has asked the SEC to refuse to take the
action requested by the ACC. The Company cannot predict what action, if any,
the SEC may take with respect to the ACC petition. The Company does not
believe that the revocation or modification of the Pinnacle West exemption
under the Holding Company Act, if acted on by the SEC, would have a material
adverse effect on the operations or financial position of the Company.
CONSTRUCTION PROGRAM
Although its plans are subject to change, the Company does not presently
intend to construct any new major baseload generating units for at least the
next ten years. Utility construction expenditures for the years 1994 through
1996 are therefore expected to be primarily for expanding transmission and
distribution capabilities to meet customer growth, upgrading existing
facilities, and environmental purposes. Construction expenditures, including
expenditures for environmental control facilities, for the years 1994 through
1996 have been estimated as follows:
(MILLIONS OF DOLLARS)
BY YEAR BY MAJOR FACILITIES
- ---------------------------- ----------------------------------------------
1994 $279 Electric generation $271
1995 302 Electric transmission 92
1996 293 Electric distribution 390
---- General facilities 121
$874 ----
==== $874
====
The amounts for 1994 through 1996 include expenditures for nuclear fuel
but exclude capitalized interest costs and capitalized property taxes. The
Company conducts a continuing review of its construction program. This program
and the above estimates are subject to periodic revisions based upon changes
in assumptions as to system reliability, system load growth, rates of
inflation, the availability and timing of environmental and other regulatory
approvals, the availability and costs of outside sources of capital, and
changes in project construction schedules. During the years 1991 through 1993,
the Company incurred approximately $641 million in construction expenditures
and approximately $31 million in additional capitalized items.
ENVIRONMENTAL MATTERS
Pursuant to the Clean Air Act, the EPA has adopted regulations, applicable
to certain federally-protected areas, that address visibility impairment that
can be reasonably attributed to specific sources. In September 1991, the EPA
issued a final rule that would limit sulfur dioxide emissions at NGS.
Compliance with the emission limitation becomes applicable to NGS Units 1, 2,
and 3 in 1997, 1998, and 1999, respectively. SRP, the NGS operating agent, has
estimated a capital cost of $530 million, most of which will be incurred from
1995 through 1998, and annual operations and maintenance costs of
approximately $10 million per unit, for NGS to meet these requirements. The
Company will be required to fund 14% of these expenditures.
The Clean Air Act Amendments of 1990 (the "Amendments") became effective
on November 15, 1990. The Amendments address, among other things, "acid rain,"
visibility in certain specified areas, toxic air pollutants, and the
nonattainment of national ambient air quality standards. With respect to "acid
rain," the Amendments establish a system of sulfur dioxide emissions
"allowances." Each existing utility unit is granted a certain number of
"allowances." On March 5, 1993, the EPA promulgated rules listing allowance
allocations applicable to Company-owned plants, which allocations will begin
in the year 2000. Based on those allocations, the Company will have sufficient
allowances to permit continued operation of its plants at current levels
without installing additional equipment. In addition, the Amendments require
the EPA to set nitrogen oxides emissions limitations which would require
certain plants to install additional pollution control equipment. On March 22,
1994, the EPA issued rules for nitrogen oxide emissions limitations which will
require the Company to install additional pollution control equipment at Four
Corners. In the year 2000 Four Corners must comply with either these or more
stringent requirements which might be promulgated by the EPA. The EPA has
until 1997 to set more stringent requirements. However, if Four Corners
accelerates to 1997 compliance with these March 22 requirements, it can delay
until 2008 compliance with any more stringent requirements which the EPA may
set. The Company has not yet determined how it will proceed; however, the
Company currently estimates the capital cost of complying by 1997 with the
specified requirements will be approximately $16 million.
With respect to protection of visibility in certain specified areas, the
Amendments require the EPA to complete a study by November 1995 concerning
visibility impairment in those areas and identification of sources
contributing to such impairment. Interim findings of this study have indicated
that any beneficial effect on visibility as a result of the Amendments would
be offset by expected population and industry growth. The EPA has established
a "Grand Canyon Visibility Transport Commission" to complete a study by
November 1995 on visibility impairment in the "Golden Circle of National
Parks" in the Colorado Plateau. NGS, Cholla, and Four Corners are located near
the "Golden Circle of National Parks." Based on the recommendations of the
Commission, the EPA may require additional emissions controls at various
sources causing visibility impairment in the "Golden Circle of National Parks"
and may limit economic development in several western states. The Company
cannot currently estimate the capital expenditures, if any, which may be
required as a result of the EPA studies and the Commission's recommendations.
With respect to hazardous air pollutants emitted by electric utility steam
generating units, the Amendments require two studies. First, there will be a
study to be completed by November 1994 of potential impacts of mercury
emissions from such units and various other sources on public health and on
the environment, including available control technologies. Second, the EPA
will complete a general study by November 1995 concerning the necessity of
regulating such units under the Amendments. Due to the lack of historical
data, and because the Company cannot speculate as to the ultimate requirements
by the EPA, the Company cannot currently estimate the capital expenditures, if
any, which may be required as a result of these studies.
Certain aspects of the Amendments may require related expenditures by the
Company, such as permit fees, none of which the Company expects to have a
material impact on its financial position.
GENERATING FUEL
Coal, nuclear, gas, and other contributions to total net generation of
electricity by the Company in 1993, 1992, and 1991, and the average cost to
the Company of those fuels (in dollars per MWh), were as follows:
COAL NUCLEAR GAS OTHER ALL FUELS
------------------------ ------------------------- ------------------------ ------------------------ ------------
PERCENT OF AVERAGE PERCENT OF AVERAGE PERCENT OF AVERAGE PERCENT OF AVERAGE AVERAGE
GENERATION COST GENERATION COST GENERATION COST GENERATION COST COST
------------- --------- ------------- ---------- ------------- --------- ------------- --------- ------------
1993
(estimate) 62.3% $12.95 32.4% $6.17 5.1% $31.53 0.2% $18.32 $11.70
1992........ 58.8 13.06 36.4 5.84 4.5 31.27 0.3 20.75 11.26
1991........ 59.0 13.62 37.3 7.03 3.4 21.11 0.3 28.69 11.45
Other includes oil and hydro generation.
The Company believes that Cholla has sufficient reserves of low sulfur
coal committed to that plant for the next six years, the term of the existing
coal contract, and sufficient reserves of low sulfur coal available for use to
continue operating it for its useful life. The Company also believes that Four
Corners and NGS have sufficient reserves of low sulfur coal available for use
by those plants to continue operating them for at least thirty years. The
current sulfur content of coal being used at Four Corners, NGS, and Cholla is
0.8%, 0.6%, and 0.4%, respectively. In 1993, average prices paid for coal
supplied from reserves dedicated under the existing contracts were relatively
stable, although applicable contract clauses permit escalations under certain
conditions. In addition, major price adjustments can occur from time to time
as a result of contract renegotiation.
NGS and Four Corners are located on the Navajo Reservation and held under
easements granted by the federal government as well as leases from the Navajo
Tribe. See "Properties" in Item 2. The Company purchases all of the coal which
fuels Four Corners from a coal supplier with a long-term lease of coal
reserves owned by the Navajo Tribe and for NGS from a coal supplier with a
long-term lease with the Navajo and Hopi Tribes. The Company purchases all of
the coal which fuels Cholla from a coal supplier who obtains substantially all
of the coal under a long-term lease of coal reserves owned by the Navajo Tribe
and under a lease with the Bureau of Land Management.
The Company is a party to contracts with twenty-seven natural gas
operators and marketers which allow the Company to purchase natural gas in the
method it determines to be most economic. During 1993, the principal sources
of the Company's natural gas generating fuel were twelve of these companies.
The Company is currently purchasing the majority of its natural gas
requirements from six companies pursuant to contracts. The Company's natural
gas supply is transported pursuant to a firm transportation service contract
between the Company and El Paso Natural Gas Company. The Company continues to
analyze the market to determine the source and method of meeting its natural
gas requirements.
The fuel cycle for Palo Verde is comprised of the following stages:
(1) the mining and milling of uranium ore to produce uranium concentrates,
(2) the conversion of uranium concentrates to uranium hexafluoride, (3) the
enrichment of uranium hexafluoride, (4) the fabrication of fuel assemblies,
(5) the utilization of fuel assemblies in reactors, and (6) the storage of
spent fuel and the disposal thereof. The Palo Verde participants have made
arrangements through contract flexibilities to obtain quantities of uranium
concentrates anticipated to be sufficient to meet operational requirements
through 1996. Existing contracts and options could be utilized to meet
approximately 75% of requirements in 1997 and 50% of requirements from 1998
through 2000. Spot purchases in the uranium market will be made, as
appropriate, in lieu of any uranium that might be obtained through contract
flexibilities and options. The Palo Verde participants have contracted for all
conversion services required through 1994 and for up to 65% of conversion
services required through 1998, with options to continue through the year
2000. The Palo Verde participants, including the Company, have an enrichment
services contract with USEC which obligates USEC to furnish enrichment
services required for the operation of the three Palo Verde units over a term
expiring in November 2014, with annual options to terminate each year of the
contract with ten years prior notice. The participants have exercised this
option, terminating 30% of requirements for 1996 through 1998 and 100% of
requirements during the years 1999 through 2002. In addition, existing
contracts will provide fuel assembly fabrication services for at least ten
years from the date of operation of each Palo Verde unit, and through contract
options, approximately fifteen additional years are available. The Energy Act
includes an assessment for decontamination and decommissioning of DOE's
enrichment facilities. The total amount of this assessment has not yet been
finalized; however, based on preliminary indications, the Company expects that
the annual assessment for Palo Verde will be approximately $3 million, plus
escalation for inflation, for fifteen years. The Company will be required to
fund 29.1% of this assessment.
Existing spent fuel storage facilities at Palo Verde have sufficient
capacity with certain modifications to store all fuel expected to be
discharged from normal operation of all Palo Verde units through at least the
year 2005. Pursuant to the Nuclear Waste Policy Act of 1982, as amended in
1987 (the "Waste Act"), DOE is obligated to accept and dispose of all spent
nuclear fuel and other high-level radioactive wastes generated by all domestic
power reactors. The NRC, pursuant to the Waste Act, also requires operators of
nuclear power reactors to enter into spent fuel disposal contracts with DOE.
The Company, on its own behalf and on behalf of the other Palo Verde
participants, has executed a spent fuel disposal contract with DOE. The Act
also obligates DOE to develop the facilities necessary for the permanent
disposal of all spent fuel generated, and to be generated, by domestic power
reactors and to have the first such facility in operation by 1998 under
prescribed procedures. In November 1989, DOE reported that such permanent
disposal facility will not be in operation until 2010. As a result, under
DOE's current criteria for shipping allocation rights, Palo Verde's spent fuel
shipments to the DOE permanent disposal facility would begin in approximately
2025. In addition, the Company believes that on-site storage of spent fuel may
be required beyond the life of Palo Verde's generating units. The Company
currently believes that alternative interim spent fuel storage methods are or
will be available on-site or off-site for use by Palo Verde to allow its
continued operation beyond 2005 and to safely store spent fuel until DOE's
scheduled shipments from Palo Verde begin.
The off-site facilities for low level waste now being utilized for Palo
Verde may soon be closed to it. The Company is currently exploring means to
either ship the waste to an alternative site or to store it on-site until an
off-site location becomes available. The Company currently believes that
interim low level waste storage methods are or will be available for use
by Palo Verde to allow its continued operation and to safely store low level
waste until a permanent disposal facility is available.
While believing that scientific and financial aspects of the issues with
respect to spent fuel and low level waste can be resolved satisfactorily, the
Company acknowledges that their ultimate resolution in a timely fashion will
require political resolve and action on national and regional scales which it
is less able to predict.
PALO VERDE LIABILITY AND INSURANCE MATTERS
See "Nuclear Insurance" in Note 10 of Notes to Financial Statements in
Item 8 for a discussion of the insurance maintained by the Palo Verde
participants, including the Company, for Palo Verde.
PALO VERDE NUCLEAR GENERATING STATION
By letter dated July 7, 1993, the NRC advised the Company that, as a
result of a Recommended Decision and Order by a Department of Labor
Administrative Law Judge (the "ALJ") finding that the Company discriminated
against a former contract employee at Palo Verde because he engaged in
"protected activities" (as defined under federal regulations), the NRC
intended to schedule an enforcement conference with the Company. Following the
ALJ's finding, the Company investigated various elements of both the
substantive allegations and the manner in which the U.S. Department of Labor
(the "DOL") proceedings were conducted. As a result of that investigation, the
Company determined that one of its employees had falsely testified during the
proceedings, that there were inconsistencies in the testimony of another
employee, and that certain documents were requested in, but not provided
during, discovery. The two employees in question are no longer with the
Company. The Company provided the results of its investigation to the ALJ, who
referred matters relating to the conduct of two former employees of the
Company to the U.S. Attorney's office in Phoenix, Arizona. On December 15,
1993, the Company and the former contract employee who had raised the DOL
claim entered into a settlement agreement, a part of which remains subject to
approval by the Secretary of Labor. By letter dated August 10, 1993, the
Company also provided the results of its investigation to the NRC, and advised
the NRC that, as a result of the Company's investigation, the Company had
changed its position opposing the finding of discrimination. The NRC is
investigating this matter and the Company is fully cooperating with the NRC in
this regard.
See "Palo Verde Tube Cracks" in Note 10 of Notes to Financial Statements
in Item 8 for a discussion of issues relating to the Palo Verde steam
generators.
WATER SUPPLY
Assured supplies of water are important both to the Company (for its
generating plants) and to its customers. However, conflicting claims to
limited amounts of water in the southwestern United States have resulted in
numerous court actions in recent years.
Both groundwater and surface water in areas important to the Company's
operations have been the subject of inquiries, claims, and legal proceedings
which will require a number of years to resolve. The Company is one of a
number of parties in a proceeding before a state court in New Mexico to
adjudicate rights to a stream system from which water for Four Corners is
derived. (State of New Mexico, in the relation of S.E. Reynolds, State
Engineer vs. United States of America, City of Farmington, Utah International,
Inc., et al., San Juan County, New Mexico, District Court No. 75-184). An
agreement reached with the Navajo Tribe in 1985, however, provides that if
Four Corners loses a portion of its rights in the adjudication, the Tribe will
provide, for a then-agreed upon cost, sufficient water from its allocation to
offset the loss.
A summons served on the Company in early 1986 required all water claimants
in the Lower Gila River Watershed in Arizona to assert any claims to water on
or before January 20, 1987, in an action pending in Maricopa County Superior
Court. (In re The General Adjudication of All Rights to Use Water in the Gila
River System and Source, Supreme Court Nos. WC-79-0001 through WC 79-0004
(Consolidated) [WC-1, WC-2, WC-3 and WC-4 (Consolidated)], Maricopa County
Nos. W-1, W-2, W-3 and W-4 (Consolidated)). Palo Verde is located within the
geographic area subject to the summons, and the rights of the Palo Verde
participants, including the Company, to the use of groundwater and effluent at
Palo Verde is potentially at issue in this action. The Company, as project
manager of Palo Verde, filed claims that dispute the court's jurisdiction over
the Palo Verde participants' groundwater rights and their contractual rights
to effluent relating to Palo Verde and, alternatively, seek confirmation of
such rights. Three of the Company's less-utilized power plants are also
located within the geographic area subject to the summons. The Company's
claims dispute the court's jurisdiction over the Company's groundwater rights
with respect to these plants and, alternatively, seek confirmation of such
rights. On December 10, 1992, the Arizona Supreme Court heard oral argument on
certain issues in this matter which are pending on interlocutory appeal, and
as a result, issues important to the Company's claims have been remanded to
the trial court for further action. No trial date concerning the water rights
claims of the Company has been set in this matter.
The Company has also filed claims to water in the Little Colorado River
Watershed in Arizona in an action pending in the Apache County Superior Court.
(In re The General Adjudication of All Rights to Use Water in the Little
Colorado River System and Source, Supreme Court No. WC-79-0006 WC-6, Apache
County No. 6417). The Company's groundwater resource utilized at Cholla is
within the geographic area subject to the adjudication and is therefore
potentially at issue in the case. The Company's claims dispute the court's
jurisdiction over the Company's groundwater rights and, alternatively, seek
confirmation of such rights. The parties are in the process of settlement
negotiations with respect to this matter. No trial date concerning the water
rights claims of the Company has been set in this matter.
Although the foregoing matters remain subject to further evaluation, the
Company expects that the described litigation will not have a materially
adverse impact on its operations or financial position.
ITEM 2. PROPERTIES
The Company's present generating facilities have an accredited capacity
aggregating 4,022,410 kw, comprised as follows:
Capacity(kw)
------------
Coal:
Units 1, 2, and 3 at Four Corners, aggregating........... 560,000
15% owned Units 4 and 5 at Four Corners, representing.... 222,000
Units 1, 2, and 3 at Cholla Plant, aggregating........... 590,000
14% owned Units 1, 2, and 3 at the Navajo Plant,
representing........................................... 315,000
-----------
1,687,000
===========
Gas or Oil:
Two steam units at Ocotillo, two steam units at Saguaro,
and one steam unit at Yucca, aggregating............... 468,400(1)
Eleven combustion turbine units, aggregating............. 500,600
Three combined cycle units, aggregating.................. 253,500
-----------
1,222,500
===========
Nuclear:
29.1% owned or leased Units 1, 2, and 3 at Palo Verde,
representing........................................... 1,108,710
===========
Other........................................................ 4,200
===========
- ----------
(1) West Phoenix steam units (96,300 kw) are currently mothballed.
--------------
The Company's peak one-hour demand on its electric system was recorded on
August 2, 1993 at 3,802,300 kw, compared to the 1992 peak of 3,796,400 kw
recorded on August 17. Taking into account additional capacity then available
to it under purchase power contracts as well as its own generating capacity,
the Company's capability of meeting system demand on August 2, 1993, computed
in accordance with accepted industry practices, amounted to 4,505,000 kw, for
an installed reserve margin of 16.7%. The power actually available to the
Company from its resources fluctuates from time to time due in part to planned
outages and technical problems. The available capacity from sources actually
operable at the time of the 1993 peak amounted to 4,099,500 kw, for a margin
of 13.4%.
NGS and Four Corners are located on land held under easements from the
federal government and also under leases from the Navajo Tribe. The risk with
respect to enforcement of these easements and leases is not deemed by the
Company to be material. The Company is dependent, however, in some measure
upon the willingness and ability of the Navajo Tribe to honor its commitments.
Certain of the Company's transmission lines and almost all of its contracted
coal sources are also located on Indian reservations. See "Generating Fuel" in
Item 1.
Operation of each of the three Palo Verde units requires an operating
license from the NRC. Full power operating licenses for Units 1, 2, and 3 were
issued by the NRC in June 1985, April 1986, and November 1987, respectively.
The full power operating licenses, each valid for a period of approximately 40
years, authorize the Company, as operating agent for Palo Verde, to operate
the three Palo Verde units at full power.
On August 18, 1986 and December 19, 1986, the Company entered into a total
of three sale and leaseback transactions under which it sold and leased back
approximately 42% of its 29.1% ownership interest in Palo Verde Unit 2. The
leases under each of the sale and leaseback transactions have initial lease
terms expiring on December 31, 2015. Each of the leases also allows the
Company to extend the term of the lease and/or to repurchase the leased Unit 2
interest under certain circumstances at fair market value. The leases in the
aggregate require annual payments of approximately $40 million through 1999,
approximately $46 million in 2000, and approximately $49 million through 2015
(see Note 7 of Notes to Financial Statements in Item 8).
See "Water Supply" in Item 1 with respect to matters having possible
impact on the operation of certain of the Company's power plants, including
Palo Verde.
The Company's construction plans are susceptible to changes in forecasts
of future demand on its electric system and in its ability to finance its
construction program. Although its plans are subject to change, the Company
does not presently intend to construct any new major baseload generating units
for at least the next ten years. Important factors affecting the Company's
ability to delay the construction of new major generating units are continuing
efforts to upgrade and improve the reliability of existing generating
stations, system load diversity with other utilities, and continuing efforts
in customer demand-side conservation and load management programs.
In addition to that available from its own generating capacity, the
Company purchases electricity from other utilities under various arrangements.
One of the most important of these is a long-term contract with SRP which may
be canceled by SRP on three years' notice and which requires SRP to make
available, and the Company to pay for, certain amounts of electricity that are
based in large part on customer demand within certain areas now served by the
Company pursuant to a related territorial agreement. The Company believes that
the prices payable by it under the contract are fair to both parties. The
generating capacity available to the Company pursuant to the contract was
302,000 kw until May 1993, at which time the capacity increased to 304,000 kw.
In 1993, the Company received approximately 840,000 MWh of energy under the
contract and paid approximately $40 million for capacity availability and
energy received.
In September 1990, the Company and PacifiCorp entered into certain
agreements relating principally to sales and purchases of electric power and
electric utility assets, and in July 1991, after regulatory approvals, the
Company sold Cholla 4 to PacifiCorp for approximately $230 million. As part of
the transaction, PacifiCorp agreed to make a firm system sale to the Company
for thirty years during the Company's summer peak season in the amount of 175
megawatts for the first five years, increasing thereafter, at the Company's
option, up to a maximum amount equal to the rated capacity of Cholla 4. After
the first five years, all or part of the sale may be converted to a one-for-
one seasonal capacity exchange. PacifiCorp has the right to purchase from the
Company up to 125 average megawatts of energy per year for thirty years.
PacifiCorp and the Company also entered into a 100 megawatt one-for-one
seasonal capacity exchange to be effective upon the latter of January 1, 1996
or the completion of certain new transmission projects. In addition,
PacifiCorp agreed to pay the Company (i) $20 million upon commercial operation
of 150 megawatts of peaking capacity constructed by the Company and (ii) $19
million in connection with the construction of transmission lines and upgrades
that will afford PacifiCorp 150 megawatts of northbound transmission rights.
In addition, PacifiCorp secured additional firm transmission capacity of 30
megawatts over the Company's system. In 1993, the Company received 401,475 MWh
of energy from PacifiCorp under these transactions and paid approximately $19
million for capacity availability and the energy received, and PacifiCorp paid
approximately $2.7 million for 144,171 MWh.
See "El Paso Electric Company Bankruptcy" in Note 10 of Notes to
Financial Statements in Item 8 for a discussion of the filing by EPEC of a
voluntary petition to reorganize under Chapter 11 of the Bankruptcy Code. EPEC
has a joint ownership interest with the Company and others in Palo Verde and
Four Corners Units 4 and 5.
See Notes 4 and 7 of Notes to Financial Statements in Item 8 with respect
to property of the Company not held in fee or held subject to any major
encumbrance.
GRAPHIC
- -------
MAP OF THE STATE OF ARIZONA SHOWING THE COMPANY'S SERVICE AREA, THE LOCATION
OF ITS MAJOR POWER PLANTS AND PRINCIPAL TRANSMISSION LINES, AND THE LOCATION
OF TRANSMISSION LINES OPERATED BY THE COMPANY FOR OTHERS. SEE APPENDIX FOR
DETAILED DESCRIPTION.
ITEM 3. LEGAL PROCEEDINGS
PROPERTY TAXES
On June 29, 1990, a new Arizona state tax law was enacted, effective as of
December 31, 1989, which adversely impacted the Company's earnings in tax
years 1990 through 1993 by an aggregate amount of approximately $82 million,
before income taxes. On December 20, 1990, the Palo Verde participants,
including the Company, filed a lawsuit in the Arizona Tax Court, a division of
the Maricopa County Superior Court, against the Arizona Department of Revenue,
the Treasurer of the State of Arizona, and various Arizona counties, claiming,
among other things, that portions of the new tax law are unconstitutional.
(Arizona Public Service Company, et al. v. Apache County, et al., No. TX
90-01686 (Consol.), Maricopa County Superior Court). In December 1992, the
court granted summary judgment to the taxing authorities, holding that the law
is constitutional. The Company has appealed this decision to the Arizona Court
of Appeals. The Company cannot currently predict the ultimate outcome of this
matter.
See "Water Supply" and "Palo Verde Nuclear Generating Station" in Item 1
and "El Paso Electric Company Bankruptcy" in Note 10 of Notes to Financial
Statements in Item 8 in regard to pending or threatened litigation and other
disputes.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report, through the solicitation of
proxies or otherwise.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS
OF THE REGISTRANT
The Company's executive officers are as follows:
AGE AT
NAME MARCH 1, 1994 POSITION(S) AT MARCH 1, 1994
- ---- ------------- ----------------------------
Richard Snell 63 Chairman of the Board of Directors
(1)
O. Mark De Michele 59 President and Chief Executive
Officer(1)
Jaron B. Norberg 56 Executive Vice President and Chief
Financial Officer(1)
William F. Conway 63 Executive Vice President, Nuclear
Shirley A. Richard 46 Executive Vice President, Customer
Service, Marketing and Corporate
Relations
William J. Post 43 Senior Vice President, Planning,
Information and Financial Services
Jan H. Bennett 46 Vice President, Customer Service
Jack E. Davis 47 Vice President, Generation and
Transmission
Armando B. Flores 50 Vice President, Human Resources
James M. Levine 44 Vice President, Nuclear Production
Richard W. MacLean 47 Vice President, Environmental,
Health and Safety
E. C. Simpson 45 Vice President, Nuclear Support
Jack A. Bailey 40 Assistant Vice President, Nuclear
Engineering and Projects
William J. Hemelt 40 Controller
Nancy C. Loftin 40 Secretary and Corporate Counsel
Nancy E. Newquist 42 Treasurer
- ----------
(1) Member of the Board of Directors.
----------------------------------------
The executive officers of the Company are elected no less often than
annually and may be removed by the Board of Directors at any time. The terms
served by the named officers in their current positions and the principal
occupations (in addition to those stated in the table and exclusive of
directorships) of such officers for the past five years have been as follows:
Mr. Snell was elected to his present position as of February 1990. He was
also elected Chairman of the Board, President, and Chief Executive Officer of
Pinnacle West at that time. Previously, he was Chairman of the Board (1989-
1992) and Chief Executive Officer (1989-1990) of Aztar Corporation and
Chairman of the Board, President, and Chief Executive Officer of Ramada Inc.
(1981-1989).
Mr. De Michele was elected President in September 1982 and became Chief
Executive Officer as of January 1988.
Mr. Norberg was elected to his present position in July 1986.
Mr. Conway was elected to his present position in May 1989. Prior to that
time he was Senior Vice President -- Nuclear of Florida Power & Light Company
(1988-1989).
Ms. Richard was elected to her present position in January 1989.
Mr. Post was elected to his present position in June 1993. Prior to that
time he was Vice President, Finance & Rates (since April 1987).
Mr. Bennett was elected to his present position in May 1991. Prior to that
time he was Director, Customer Service (September 1990 to May 1991), and
Manager, State Region -- Customer Service (January 1988 to September 1990).
Mr. Davis was elected to his present position in June 1993. Prior to that
time he was Director, Transmission Systems (January 1993-June 1993); Director,
Fossil Generation (June 1992-December 1992); Director, System Development and
Power Operations (May 1990-May 1992); and Manager, Power Contracts (March
1979-May 1990).
Mr. Flores was elected to his present position in December 1991. Prior to
that time, he was Director -- Human Resources (1990 to 1991) and Manager --
Employment (1989 to 1990) of GENCORP, Propulsion Division, Aerojet Group. He
had previously held the position of Vice President -- Human Resources, AMFAC
(1985 to 1988).
Mr. Levine was elected to his present position in September 1989. Prior to
that time he was Executive Director, Operations Support, System Energy
Resources, Inc. (June 1989-September 1989) and Executive Director, Nuclear
Operations (January 1988-June 1989) of Arkansas Nuclear One, Arkansas Power
and Light Company.
Mr. MacLean was elected to his present position in December 1991. Prior to
that time he held the following positions at General Electric (General
Electric's Corporate Environmental Programs): Manager, EHS Resource
Development (January to December 1991); and Manager, Environmental Protection
(February 1986 to January 1991).
Mr. Simpson was elected to his present position in February 1990. Prior to
that time he was Director, Nuclear Operations Engineering and Projects (1988-
1990) at Florida Power Corporation.
Mr. Bailey was elected to his present position in July 1993. Prior to that
time he was Director, Nuclear Engineering (1991-1993) and Assistant Plant
Manager (1989 to 1991) at Palo Verde. Mr. Bailey was Superintendent of
Operations of Virginia Electric and Power Company from 1986 to 1989.
Mr. Hemelt was elected to his present position in June 1993. Prior to that
time he was Treasurer and Assistant Secretary.
Ms. Loftin was elected Secretary in April 1987 and became Corporate
Counsel in February 1989.
Ms. Newquist was elected to her present position in June 1993. Prior to
that time she was Assistant Treasurer (since October 1992). She is also
Treasurer (since June 1990) and Vice President (since February 1994) of
Pinnacle West. From May 1987 to June 1990, Ms. Newquist served as Pinnacle
West's Director of Finance.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's common stock is wholly-owned by Pinnacle West and is not
listed for trading on any stock exchange. As a result, there is no established
public trading market for the Company's common stock. See "The Company" in
Part I, Item 1 for information regarding the Pledge Agreement to which the
common stock is subject.
The chart below sets forth the dividends declared on the Company's common
stock for each of the four quarters for 1993 and 1992.
COMMON STOCK DIVIDENDS
(THOUSANDS OF DOLLARS)
-------------------------------------------------
Quarter 1993 1992
-------------------------------------------------
1st Quarter $42,500 $42,500
2nd Quarter 42,500 42,500
3rd Quarter 42,500 42,500
4th Quarter 42,500 42,500
-------------------------------------------------
After payment or setting aside for payment of cumulative dividends and
mandatory sinking fund requirements, where applicable, on all outstanding
issues of preferred stock, the holders of common stock are entitled to
dividends when and as declared out of funds legally available therefor. See
Notes 3 and 4 of Notes to Financial Statements in Item 8 for restrictions on
retained earnings available for the payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
1993 1992 1991 (a) 1990 1989
-------------- --------------- --------------- --------------- ---------------
(Thousands of Dollars)
Electric Operating Revenues..... $ 1,686,290 $1,669,679 $1,515,289 $1,508,325 $1,447,154
Refund Obligation............. -- -- (53,436) -- --
-------------- --------------- --------------- --------------- ---------------
Net Operating Revenues...... 1,686,290 1,669,679 1,461,853 1,508,325 1,447,154
-------------- --------------- --------------- --------------- ---------------
Electric Operating Expenses:
Fuel and purchased power...... 300,546 287,201 273,771 289,048 269,078
Operation and maintenance..... 401,216 390,512 401,736 408,347 372,624
Depreciation and amortization. 222,610 219,118 217,198 211,727 202,409
Taxes (b)..................... 389,430 380,590 310,778 303,694 296,887
Palo Verde cost deferral...... -- -- (70,886) (64,379) (68,989)
-------------- --------------- --------------- --------------- ---------------
Total....................... 1,313,802 1,277,421 1,132,597 1,148,437 1,072,009
-------------- --------------- --------------- --------------- ---------------
Operating Income................ 372,488 392,258 329,256 359,888 375,145
Other Income (Deductions) (b)... 54,220 48,801 (324,922) 56,713 56,965
Interest Deductions -- Net...... 176,322 194,254 226,983 236,589 219,756
-------------- --------------- --------------- --------------- ---------------
Net Income (Loss)............... 250,386 246,805 (222,649) 180,012 212,354
Preferred Stock Dividend
Requirements.................. 30,840 32,452 33,404 31,060 32,302
-------------- --------------- --------------- --------------- ---------------
Earnings (Loss) for Common Stock $ 219,546 $ 214,353 $ (256,053) $ 148,952 $ 180,052
============== =============== =============== =============== ===============
Total Assets.................... $ 6,357,262 $5,629,432 $5,620,692 $6,253,562 $6,165,187
Long-Term Debt and Redeemable
Preferred Stock............... $ 2,322,264 $2,278,398 $2,412,641 $2,496,406 $2,510,360
- ----------
(a) See Note 2 of Notes to Financial Statements in Item 8 for a discussion
of the Company's December 1991 rate case settlement and disallowances
of plant costs affecting 1991 financial results.
(b) Federal and state income taxes are included in Taxes and Other Income.
Total income tax expense (benefit) was as follows: 1993, $188,907,000;
1992, $181,355,000; 1991, $(94,750,000); 1990, $126,831,000; and 1989,
$145,678,000. Palo Verde cost deferral included in Other Income for
1991, 1990 and 1989 was $63,068,000, $71,404,000 and $72,861,000,
respectively.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7 for a discussion of certain information in
the foregoing table.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital needs consist primarily of construction expenditures
and required repayments or redemptions of long-term debt and preferred stock.
The capital resources available to meet these requirements include funds
provided by operations and external financings.
Present construction plans exclude any major baseload generating plants
for at least the next ten years. In general, most of the construction
expenditures are for expanding transmission and distribution capabilities to
meet customer growth, upgrading existing facilities, and environmental
purposes. Construction expenditures are anticipated to be $279 million, $302
million, and $293 million for 1994, 1995, and 1996, respectively. These
amounts include nuclear fuel expenditures, but exclude capitalized property
taxes and capitalized interest costs.
In the 1991 through 1993 period, the Company funded all of its capital
expenditures (construction expenditures and capitalized property taxes) with
internally generated funds, after the payment of dividends. For the period
1994 through 1996, the Company currently estimates that it will fund
substantially all of its capital expenditures with internally generated funds,
after the payment of dividends.
During 1993, the Company redeemed or repurchased approximately $637
million of long-term debt and preferred stock, of which approximately $527
million was optional. Refunding obligations for preferred stock, long-term
debt, a capitalized lease obligation, and certain anticipated early
redemptions are expected to total approximately $187 million, $135 million,
and $4 million for the years 1994, 1995, and 1996, respectively.
The Company currently expects to issue in 1994 a total of approximately
$125 million of long-term debt (primarily first mortgage bonds) and
approximately $125 million of preferred stock. Of this, the Company issued on
March 2, 1994, $100 million of its First Mortgage Bonds, 65/8% Series due
2004, and applied the net proceeds to the repayment of short-term debt that
had been incurred for the redemption of preferred stock and for general
corporate purposes. The Company expects that substantially all of the net
proceeds of the balance of the securities to be issued during 1994 will be
used for the retirement of outstanding debt and preferred stock. On March 1,
1994, the Company redeemed all of the outstanding shares of its $8.80
Cumulative Preferred Stock, Series K ($100 Par Value) in the amount of $14.21
million. As of April 4, 1994, the Company will be redeeming all $60.264
million of its outstanding First Mortgage Bonds, 103/4% Series due 2019.
Provisions in the Company's mortgage bond indenture and articles of
incorporation require certain coverage ratios to be met before the Company can
issue additional first mortgage bonds or preferred stock. In addition, the
mortgage bond indenture limits the amount of additional bonds which may be
issued to a percentage of net property additions, to property previously
pledged as security for certain bonds that have been redeemed or retired, and/
or to cash deposited with the mortgage bond trustee. After giving effect to
the transactions described in the preceding paragraph, as of December 31,
1993, the Company estimates that the mortgage bond indenture and the articles
of incorporation would have allowed it to issue up to approximately $1.20
billion and $986 million of additional first mortgage bonds and preferred
stock, respectively.
The ACC has authority over the Company with respect to the issuance of
long-term debt and equity securities. Existing ACC orders allow the Company to
have up to approximately $2.6 billion in long-term debt and approximately $501
million of preferred stock outstanding at any one time.
Management does not expect any of the foregoing restrictions to limit the
Company's ability to meet its capital requirements.
As of December 31, 1993, the Company had credit commitments from various
banks totalling approximately $302 million, which were available either to
support the issuance of commercial paper or to be used as bank borrowings.
Commercial paper borrowings totalling $148 million were outstanding at the end
of 1993.
OPERATING RESULTS
1993 Compared to 1992
Earnings in 1993 were $219.5 million compared to $214.3 million in 1992
for an increase of $5.2 million. The primary factor contributing to this
increase was lower interest expense. Interest costs in 1993 were $18.3 million
lower than 1992 due to the Company refinancing debt at lower rates, lower
average debt balances, and lower interest rates on variable-rate debt.
Partially offsetting the lower interest expense were increased taxes and
higher operating expenses.
Operating revenues were up $16.6 million in 1993 on sales volumes of 20.1
million MWh compared to 20.6 million MWh in 1992. Although revenues increased
$45.3 million due to customer growth in the residential and business classes,
these increases were largely offset by milder than normal weather and reduced
interchange sales to other utilities. Fuel and purchased power costs increased
$15.5 million in 1993 due to Palo Verde outages and reduced power operations
(see Note 10 of Notes to Financial Statements). Partially offsetting the $15.5
million increase were other miscellaneous items resulting in a net increase of
$13.3 million over 1992. These increases are reflected currently in earnings
because the Company does not have a fuel adjustment clause as part of its
retail rate structure. The net result of operating revenues less fuel and
purchased power expense was an increase of $3.3 million comparing 1993 to
1992.
Operations expense for 1993 increased $11.8 million over 1992 levels
primarily due to the implementation of SFAS No. 106 and SFAS No. 112, which
added $17.0 million to expense in 1993. Partially offsetting these factors
were lower power plant operating costs, lower rent expense, and lower costs
for an employee gainsharing plan.
1992 Compared to 1991
Earnings in 1992 were $214.3 million compared with a loss in 1991 of
$256.1 million. This was primarily due to the after-tax write-offs of $407
million in 1991 resulting from a rate case settlement with the ACC (see "Rate
Case Settlement" in Note 2 of Notes to Financial Statements). Excluding the
effects of the write-offs, earnings increased by $63.4 million over 1991
earnings as a result of several factors, including higher revenues, lower
interest costs, and lower operating expenses. Partially offsetting these
factors were higher fuel and purchased power costs and higher maintenance
expense.
Operating revenues were up $154.4 million during 1992 on sales volumes of
20.6 million MWh compared to 20.0 million MWh in 1991. The volume increase of
$48.6 million was largely due to customer growth in residential and business
customer classes and increased sales due to more normal weather as compared to
1991. A price-related increase of $85.9 million was largely due to an increase
in retail base rates effective December 6, 1991 and a higher average price for
interchange sales to other utilities. Also contributing to the increase in
1992 was $19.9 million reversal of a non-cash refund obligation recorded in
December, 1991 (see Note 2 of Notes to Financial Statements).
Interest costs were $34.9 million lower in 1992 as compared to 1991 due to
lower average debt balances resulting from the redemptions of outstanding debt
in 1991 with proceeds from the sale of Cholla 4 and lower interest rates on
both variable-rate debt and refinancings.
Fuel expenses increased in 1992 over 1991 by $13.4 million as a result of
increased generation due to increased retail and interchange sales, and
increased gas prices. These increases were partially offset by lower prices
for coal and uranium. The increase in the purchased power component of fuel
expenses was due to favorable market prices.
Operations expense was $15.3 million lower in 1992 as compared to 1991
primarily due to lower operating costs at Palo Verde, lower fossil plant
overhaul costs, and other miscellaneous cost reductions. Partially offsetting
these were an obligation recorded for an employee gainsharing plan and higher
nuclear refueling outage costs.
Other Income
Net income reflects accounting practices required for regulated public
utilities and represents a composite of cash and noncash items, including
AFUDC, accretion income on Palo Verde Unit 3, and the reversal of a refund
obligation related to the Palo Verde write-off, (see "Statement of Cash Flows"
and Note 2 of Notes to Financial Statements). The Company recorded after-tax
accretion income of $45.3 million, $40.7 million and $3.2 million in 1993,
1992 and 1991, respectively. The Company also recorded refund obligation
reversals in electric operating revenues of $12.9 million after tax in each of
the years 1993 and 1992, and $0.9 million in 1991. The Company will record the
remaining after-tax accretion income and refund obligation reversal of $20.3
million and $5.6 million, respectively, by June 5, 1994.
PALO VERDE NUCLEAR GENERATING STATION
As the Company continues its investigation and analysis of the Palo Verde
steam generators, certain corrective actions are being taken. These include
chemical cleaning, operating the units at reduced temperatures, and for some
periods, operating the units at 86% power. So long as three units are involved
in mid-cycle outages and are operated at 86%, the Company will incur an
average of approximately $2 million per month (before income taxes) for
additional fuel and purchased power costs. See "Palo Verde Tube Cracks" in
Note 10 of Notes to Financial Statements for a more detailed discussion.
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
--------
Report of Management................................................... 20
Independent Auditors' Report........................................... 21
Statements of Income for each of the three years in the period ended
December 31, 1993.................................................... 22
Balance Sheets -- December 31, 1993 and 1992........................... 23
Statements of Retained Earnings for each of the three years in the
period ended December 31, 1993........................................ 25
Statements of Cash Flows for each of the three years in the period ended
December 31, 1993...................................................... 26
Notes to Financial Statements............................................ 27
Financial Statement Schedules for each of the three years in the period
ended December 31, 1993
Schedule V -- Property, Plant and Equipment.......................... 41
Schedule VI -- Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment................................... 44
Schedule IX -- Short-Term Borrowings................................. 47
See Note 12 of Notes to Financial Statements for the selected quarterly
financial data required to be presented in this Item.
REPORT OF MANAGEMENT
The primary responsibility for the integrity of the Company's financial
information rests with management, which has prepared the accompanying
financial statements and related information. Such information was prepared in
accordance with generally accepted accounting principles appropriate in the
circumstances, based on management's best estimates and judgments, and giving
due consideration to materiality. These financial statements have been audited
by independent auditors and their report is included.
Management maintains and relies upon systems of internal accounting
controls, which are periodically reviewed by both the Company's internal
auditors and its independent auditors to test for compliance. Reports issued
by the internal auditors are released to management, and such reports, or
summaries thereof, are transmitted to the Audit Committee of the Board of
Directors and the independent auditors on a timely basis.
The Audit Committee, composed solely of outside directors, meets
periodically with the internal auditors and independent auditors (as well as
management) to review the work of each. The internal auditors and independent
auditors have free access to the Audit Committee, without management present,
to discuss the results of their audit work.
Management believes that the Company's systems, policies and procedures
provide reasonable assurance that operations are conducted in conformity with
the law and with management's commitment to a high standard of business
conduct.
O. MARK DE MICHELE JARON B. NORBERG
O. Mark De Michele Jaron B. Norberg
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
Arizona Public Service Company:
We have audited the accompanying balance sheets of Arizona Public Service
Company as of December 31, 1993 and 1992 and the related statements of income,
retained earnings and cash flows for each of the three years in the period
ended December 31, 1993. Our audits also included the financial statement
schedules listed in the Index at Item 8. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1993 and 1992
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
herein.
As discussed in Note 8 to the Financial Statements, the Company changed
its method of accounting for income taxes effective January 1, 1993 to conform
with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche
Phoenix, Arizona
February 21, 1994
</AUDIT-REPORT>
ARIZONA PUBLIC SERVICE COMPANY
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1992 1991
--------------- --------------- ---------------
(THOUSANDS OF DOLLARS)
Electric Operating Revenues....................... $ 1,686,290 $ 1,669,679 $ 1,515,289
Refund obligation (Note 2)...................... -- -- (53,436)
--------------- --------------- ---------------
Net Operating Revenues........................ 1,686,290 1,669,679 1,461,853
--------------- --------------- ---------------
Fuel Expenses:
Fuel for electric generation.................... 231,434 230,194 223,983
Purchased power................................. 69,112 57,007 49,788
--------------- --------------- ---------------
Total......................................... 300,546 287,201 273,771
--------------- --------------- ---------------
Operating Revenues Less Fuel Expenses............. 1,385,744 1,382,478 1,188,082
--------------- --------------- ---------------
Other Operating Expenses:
Operations excluding fuel expenses.............. 282,660 270,838 286,167
Maintenance..................................... 118,556 119,674 115,569
Depreciation and amortization................... 222,610 219,118 217,198
Income taxes (Note 8)........................... 168,056 164,620 96,273
Other taxes (Note 11)........................... 221,374 215,970 214,505
Palo Verde cost deferral (Notes 1 and 2)........ -- -- (70,886)
--------------- --------------- ---------------
Total......................................... 1,013,256 990,220 858,826
--------------- --------------- ---------------
Operating Income.................................. 372,488 392,258 329,256
--------------- --------------- ---------------
Other Income (Deductions):
Allowance for equity funds used during
construction.................................. 2,326 3,103 3,902
Palo Verde cost deferral (Notes 1 and 2)........ -- -- 63,068
Income taxes (Note 8)........................... (20,851) (16,735) (11,393)
Disallowed Palo Verde costs (Note 2)............ -- -- (577,145)
Income taxes on disallowed Palo Verde costs
(Note 8)...................................... -- -- 202,416
Palo Verde accretion income (Note 2)............ 74,880 67,421 5,306
Other -- net.................................... (2,135) (4,988) (11,076)
--------------- --------------- ---------------
Total......................................... 54,220 48,801 (324,922)
--------------- --------------- ---------------
Income Before Interest Deductions................. 426,708 441,059 4,334
--------------- --------------- ---------------
Interest Deductions:
Interest on long-term debt...................... 164,610 186,915 217,261
Interest on short-term borrowings............... 6,662 3,831 10,363
Debt discount, premium and expense.............. 9,203 8,000 5,995
Allowance for borrowed funds used during
construction.................................. (4,153) (4,492) (6,636)
--------------- --------------- ---------------
Total......................................... 176,322 194,254 226,983
--------------- --------------- ---------------
Net Income (Loss)................................. 250,386 246,805 (222,649)
Preferred Stock Dividend Requirements............. 30,840 32,452 33,404
--------------- --------------- ---------------
Earnings (Loss) for Common Stock.................. $ 219,546 $ 214,353 $ (256,053)
=============== =============== ===============
See Notes to Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
BALANCE SHEETS
ASSETS
DECEMBER 31,
--------------------------------
1993 1992
--------------- ---------------
(THOUSANDS OF DOLLARS)
Utility Plant (Notes 4, 6 and 7):
Electric plant in service and held for future use........... $ 6,333,884 $ 6,197,459
Less accumulated depreciation and amortization.............. 1,991,143 1,897,433
--------------- ---------------
Total..................................................... 4,342,741 4,300,026
Construction work in progress............................... 197,556 162,168
Nuclear fuel, net of amortization of $67,752,000 and
$76,266,000............................................... 60,953 61,603
--------------- ---------------
Utility Plant -- net.................................... 4,601,250 4,523,797
--------------- ---------------
Investments and Other Assets (at cost)........................ 63,224 58,702
--------------- ---------------
Current Assets:
Cash and cash equivalents................................... 7,557 1,152
Accounts receivable:
Service customers......................................... 102,745 120,109
Other..................................................... 21,091 34,203
Allowance for doubtful accounts........................... (2,569) (2,156)
Accrued utility revenues (Note 1)........................... 60,356 51,517
Materials and supplies (at average cost).................... 96,174 95,978
Fossil fuel (at average cost)............................... 34,220 36,668
Deferred income tax (Note 8)................................ 29,117 37,902
Other....................................................... 12,653 6,037
--------------- ---------------
Total Current Assets...................................... 361,344 381,410
--------------- ---------------
Deferred Debits:
Regulatory asset for income taxes (Note 8).................. 585,294 --
Palo Verde Unit 3 cost deferral (Notes 1 and 2)............. 301,748 310,908
Palo Verde Unit 2 cost deferral (Note 1).................... 177,998 184,061
Unamortized costs of reacquired debt........................ 63,147 52,709
Unamortized debt issue costs................................ 17,999 17,107
Other....................................................... 185,258 100,738
--------------- ---------------
Total Deferred Debits..................................... 1,331,444 665,523
--------------- ---------------
Total..................................................... $ 6,357,262 $ 5,629,432
=============== ===============
See Notes to Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
BALANCE SHEETS
LIABILITIES
DECEMBER 31,
------------------------------
1993 1992
-------------- --------------
(THOUSANDS OF DOLLARS)
Capitalization (Notes 3 and 4):
Common stock.................................................. $ 178,162 $ 178,162
Premiums and expenses -- net.................................. 1,037,681 1,038,329
Retained earnings............................................. 307,098 259,899
-------------- --------------
Common stock equity......................................... 1,522,941 1,476,390
Non-redeemable preferred stock................................ 193,561 168,561
Redeemable preferred stock.................................... 197,610 225,635
Long-term debt less current maturities........................ 2,124,654 2,052,763
-------------- --------------
Total Capitalization...................................... 4,038,766 3,923,349
-------------- --------------
Current Liabilities:
Notes payable to banks (Note 5)............................... -- 130,000
Commercial paper (Note 5)..................................... 148,000 65,000
Current maturities of long-term debt (Note 4)................. 3,179 94,217
Accounts payable.............................................. 81,772 82,062
Accrued taxes................................................. 112,293 103,467
Accrued interest.............................................. 45,729 44,842
Other (Note 2)................................................ 60,737 75,089
-------------- --------------
Total Current Liabilities................................. 451,710 594,677
-------------- --------------
Deferred Credits and Other:
Deferred income taxes (Note 8)................................ 1,391,184 711,978
Deferred investment tax credit................................ 149,819 156,767
Unamortized gain -- sale of utility plant (Note 7)............ 107,344 116,167
Customer advances for construction............................ 15,578 13,665
Other......................................................... 202,861 112,829
-------------- --------------
Total Deferred Credits and Other.......................... 1,866,786 1,111,406
-------------- --------------
Commitments and Contingencies (Notes 2 and 10)
Total..................................................... $6,357,262 $5,629,432
============== ==============
See Notes to Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
STATEMENTS OF RETAINED EARNINGS
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1992 1991
------------ ------------ --------------
(THOUSANDS OF DOLLARS)
Retained earnings at beginning of year................... $ 259,899 $ 215,974 $ 647,587
Add: Net income (loss)................................... 250,386 246,805 (222,649)
------------ ------------ --------------
Total.............................................. 510,285 462,779 424,938
------------ ------------ --------------
Deduct:
Dividends:
Common stock (Notes 3 and 4)......................... 170,000 170,000 170,000
Preferred stock (see below).......................... 30,840 32,452 33,404
Premium paid on reacquisition of preferred stock....... 2,347 428 5,560
------------ ------------ --------------
Total deductions................................... 203,187 202,880 208,964
------------ ------------ --------------
Retained earnings at end of year......................... $ 307,098 $ 259,899 $ 215,974
============ ============ ==============
Dividends on preferred stock:
$1.10 preferred........................................ $ 172 $ 172 $ 172
$2.50 preferred........................................ 258 258 258
$2.36 preferred........................................ 94 94 94
$4.35 preferred........................................ 326 326 326
Serial preferred:
$2.40 Series A....................................... 576 576 576
$2.625 Series C...................................... 630 630 630
$2.275 Series D...................................... 455 455 455
$3.25 Series E....................................... 1,040 1,040 1,040
$10.00 Series H...................................... -- 58 193
$8.32 Series J....................................... 3,364 4,160 4,160
$8.80 Series K....................................... 1,454 1,654 1,794
$12.90 Series N...................................... -- 1,196 2,994
Adjustable Rate Series Q............................. 3,000 3,083 3,321
$11.50 Series R...................................... 3,630 4,081 4,720
$8.48 Series S....................................... 3,251 4,240 4,240
$8.50 Series T....................................... 4,250 4,250 4,250
$10.00 Series U...................................... 5,000 5,000 4,181
$7.875 Series V...................................... 1,966 1,179 --
$1.8125 Series W..................................... 1,374 -- --
------------ ------------ --------------
Total.............................................. $ 30,840 $ 32,452 $ 33,404
============ ============ ==============
See Notes to Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1992 1991
-------------- ---------------- --------------
(THOUSANDS OF DOLLARS)
Cash Flows from Operations:
Net income (loss)................................... $ 250,386 $ 246,805 $ (222,649)
Items not requiring cash:
Depreciation and amortization..................... 222,610 219,118 217,198
Nuclear fuel amortization......................... 32,024 36,605 43,990
Allowance for equity funds used during
construction.................................... (2,326) (3,103) (3,902)
Deferred income taxes -- net...................... 102,697 84,097 (128,904)
Deferred investment tax credit -- net............. (6,948) (6,804) (15,393)
Palo Verde cost deferral.......................... -- -- (133,954)
Refund obligation -- net.......................... (21,374) (21,374) 52,057
Disallowed Palo Verde costs....................... -- -- 577,145
Palo Verde accretion income....................... (74,880) (67,421) (5,306)
Changes in certain current assets and liabilities:
Accounts receivable -- net........................ 30,889 (33,965) 19,757
Accrued utility revenues.......................... (8,839) (7,055) 1,004
Materials, supplies and fossil fuel............... 2,252 5,094 (8,490)
Other current assets.............................. (6,616) 3,795 (312)
Accounts payable.................................. (18,622) 7,172 10,317
Accrued taxes..................................... 8,826 18,284 (5,376)
Accrued interest.................................. 241 (16,131) (4,358)
Other current liabilities......................... 7,282 5,405 3,175
Other -- net........................................ 18,686 (2,386) 2,562
-------------- ---------------- --------------
Net cash provided............................... 536,288 468,136 398,561
-------------- ---------------- --------------
Cash Flows from Financing:
Preferred stock..................................... 72,644 24,781 49,375
Long-term debt...................................... 520,020 643,360 319,463
Short-term borrowings -- net........................ (47,000) 195,000 (159,000)
Dividends paid on common stock...................... (170,000) (170,000) (170,000)
Dividends paid on preferred stock................... (30,945) (32,574) (33,127)
Repayment of preferred stock........................ (78,663) (27,850) (15,175)
Repayment and reacquisition of long-term debt....... (558,799) (1,013,371) (314,457)
-------------- ---------------- --------------
Net cash used..................................... (292,743) (380,654) (322,921)
-------------- ---------------- --------------
Cash Flows from Investing:
Capital expenditures................................ (234,944) (224,419) (182,687)
Allowance for equity funds used during construction. 2,326 3,103 3,902
Sale of property (Note 2)........................... -- -- 233,504
Other............................................... (4,522) (4,099) (1,994)
-------------- ---------------- --------------
Net cash provided (used).......................... (237,140) (225,415) 52,725
-------------- ---------------- --------------
Net increase (decrease) in cash and cash equivalents.. 6,405 (137,933) 128,365
Cash and cash equivalents at beginning of period...... 1,152 139,085 10,720
-------------- ---------------- --------------
Cash and cash equivalents at end of period............ $ 7,557 $ 1,152 $ 139,085
============== ================ ==============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest (excluding capitalized interest)......... $ 161,843 $ 200,986 $ 220,908
Income taxes...................................... $ 88,239 $ 85,141 $ 63,104
See Notes to Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Records -- The accounting records are maintained in
accordance with generally accepted accounting principles applicable to rate-
regulated enterprises. The Company is regulated by the ACC and the FERC and
the accompanying financial statements reflect the rate-making policies of
these commissions.
b. Common Stock -- All of the outstanding shares of common stock of the
Company are owned by Pinnacle West.
c. Cash and Cash Equivalents -- For purposes of the statements of cash
flows, the Company considers all highly liquid debt instruments purchased with
an initial maturity of three months or less to be cash equivalents.
d. Utility Plant and Depreciation -- Utility plant represents the
buildings, equipment and other facilities used to provide electric service.
The cost of utility plant includes labor, materials, contract services, other
related items and an allowance for funds used during construction. The cost of
retired depreciable utility plant, plus costs of removal minus salvage
realized, is charged to accumulated depreciation.
Depreciation on utility property is recorded on a straight-line basis. The
applicable ACC approved rates for 1991 through 1993 ranged from 0.84% to
15.00% which resulted in annual composite rates of 3.37%.
e. Nuclear Decommissioning Costs -- In 1993, the Company recorded $6.5
million for decommissioning expense. Based on a more recent site-specific
study to completely remove all facilities, the Company expects to record $11.4
million for decommissioning expense in 1994. The Company estimates it will
cost approximately $2.1 billion ($407 million in 1993 dollars), over a
thirteen year period beginning in 2023, to decommission its 29.1% interest in
Palo Verde. Decommissioning costs are charged to expense over the respective
unit's operating license term and included in the accumulated depreciation
balance until Palo Verde is retired from service.
As required by the ACC, the Company has established external trust
accounts into which quarterly deposits are made for decommissioning. As of
December 31, 1993, the Company has deposited a total of $35.0 million. The
trust accounts are included in "Investments and Other Assets" on the Company's
balance sheet and have accumulated, with interest, a $44.7 million balance at
December 31, 1993.
f. Revenues -- Revenues are recognized on the accrual basis and include
estimated amounts for service rendered but unbilled at the end of each
accounting period.
g. Allowance for Funds Used During Construction -- AFUDC represents the
cost of debt and equity funds used to finance construction of utility plant.
Plant construction costs, including AFUDC, are recovered in authorized rates
through related depreciation when completed projects are placed into
commercial operation. AFUDC does not represent current cash earnings.
AFUDC has been calculated using composite rates of 7.20% for 1993; 10.00%
for 1992; and 10.15% for 1991. The Company compounds AFUDC semiannually and
ceases to accrue AFUDC when construction is completed and the property is
placed in service.
h. Reacquired Debt Costs -- Gains and losses on reacquired debt are
deferred and amortized over the remaining original life of the debt,
consistent with ratemaking.
i. Nuclear Fuel -- Nuclear fuel cost is amortized to fuel expense based on
the relationship of the quantity of heat produced in the current period to the
total quantity of heat expected to be produced over the remaining life of the
fuel.
Under Federal law, the DOE is responsible for the permanent disposal of
spent nuclear fuel. The DOE assesses $.001 per kilowatt-hour of nuclear
generation. This amount is charged to nuclear fuel expense and recovered
through rates.
j. Palo Verde Cost Deferrals -- As authorized by the ACC, the Company
deferred operating costs (excluding fuel) and financing costs for Palo Verde
Units 2 and 3 (including their share of facilities common to all units) from
the commercial operation date (September 1986 and January 1988, respectively)
until the date the units
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
were included in a rate order (April 1988 and
December 1991, respectively). The deferrals are being amortized and recovered
in rates over thirty-five year periods.
k. Reclassification -- certain prior year balances have been reclassified
to conform to the 1993 presentation.
2. REGULATORY MATTERS
RATE CASE SETTLEMENT
In December 1991, the Company and the ACC reached a settlement in a retail
rate case that had been pending before the ACC since January 1990. The ACC
authorized an annual net revenue increase of $66.5 million, or approximately
5.2%. In turn, the Company wrote off $577.1 million of costs associated with
Palo Verde and recorded a refund obligation of $53.4 million. The after-tax
impact of these adjustments reduced 1991 net income by $407 million. A
discussion of the components of the disallowance follows.
Prudence Audit
The ACC closed its prudence audit of Palo Verde and the Company wrote off
$142 million ($101.3 million after tax) of construction costs relating to Palo
Verde Units 1, 2, and 3 and $13.3 million ($8.6 million after tax) of deferred
costs relating to the prudence audit.
Interim or Temporary Revenues
The ACC removed the interim and temporary designation on $385 million of
revenues collected by the Company from 1986 through 1991 that had been
previously authorized for Palo Verde Units 1 and 2. The Company recorded a
refund obligation to customers of $53.4 million ($32.3 million after tax)
related to the Palo Verde write-off discussed above. The refund obligation has
been used to reduce the amount of annual rate increase granted rather than
require specific customer refunds and is being reversed over thirty months
beginning December 1991. The after-tax refund obligation reversals recorded as
electric operating revenue by the Company amounted to $0.9 million in 1991 and
$12.9 million in each of the years 1992 and 1993 and will amount to $5.6
million after tax in 1994.
Temporary Excess Capacity -- Palo Verde Unit 3
The ACC deemed a portion of Palo Verde Unit 3 to be excess capacity and,
accordingly, did not recognize the related Unit 3 costs for ratemaking
purposes. This action effectively disallows for thirty months a return on
approximately $475 million of the Company's investment in Unit 3. The Company
recognized a charge of $181.2 million ($109.5 million after tax), representing
the present value of the lost cash flow and to that extent temporarily
discounted the carrying value of Unit 3.
In accordance with generally accepted accounting principles, the Company
is recording over the thirty-month period accretion income on Unit 3 in the
aggregate amount of the discount. The Company recorded after-tax accretion
income of $3.2 million, $40.7 million, and $45.3 million in 1991, 1992, and
1993, respectively, and will record after-tax accretion income of $20.3
million in 1994.
In December 1991, the Company stopped deferring Unit 3 costs and recorded
a $240.6 million ($155.3 million after tax) write-off of Unit 3 cost deferrals
due to Unit 3 being deemed excess capacity. At that time the Company began
amortizing to expense and recovering in rates the remaining $320 million
balance of deferrals over a thirty-five year period as approved by the ACC.
Future Retail Rate Increase
The Company agreed not to file a new rate application before December 1993
and the ACC agreed to expedite the processing of a future rate application.
The Company and the ACC also agreed on an average unit sales price ceiling of
9.585 cents per kilowatt-hour in this future rate application, if filed prior
to January 1,
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1995. The Company's 1993 average unit sales price was
approximately 9 cents per kilowatt-hour. This ceiling may be adjusted for the
effects of significant changes in laws, regulatory requirements, or the
Company's cost of equity capital. Management believes that the unit sales
price ceiling will not adversely impact the Company's future earnings and has
not yet determined when a rate case may be filed.
Dividend Payments
The Company agreed to limit its annual common stock dividends to Pinnacle
West to $170 million through December 1993.
SALE OF CHOLLA UNIT 4
In July 1991, the Company sold Cholla 4 to PacifiCorp for approximately
$230 million. The resulting after-tax gain of approximately $20 million was
deferred and is being amortized as a reduction to operations expense over a
four year period in accordance with an ACC order. The transaction also
provides for transmission access and electrical energy sales and exchanges
between the Company and PacifiCorp.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COMMON AND PREFERRED STOCKS
Number of Shares Par Value
-------------------------------------------------- --------------------------------------- Call
Outstanding Outstanding Price
------------------------------ Per -------------------------- Per
Authorized 1993 1992 Share 1993 1992 Share(a)
------------------ -------------- -------------- ----------- ------------ ------------ -----------
(Thousands of Dollars)
COMMON STOCK.......... 100,000,000 71,264,947 71,264,947 $ 2.50 $ 178,162 $ 178,162 --
============== ============== ============ ============
PREFERRED STOCK (CUMULATIVE):
NON-REDEEMABLE:
$1.10............... 160,000 155,945 155,945 $ 25.00 $ 3,898 $ 3,898 $ 27.50
$2.50............... 105,000 103,254 103,254 50.00 5,163 5,163 51.00
$2.36............... 120,000 40,000 40,000 50.00 2,000 2,000 51.00
$4.35............... 150,000 75,000 75,000 100.00 7,500 7,500 102.00
Serial preferred.... 1,000,000
$2.40 Series A.... 240,000 240,000 50.00 12,000 12,000 50.50
$2.625 Series C... 240,000 240,000 50.00 12,000 12,000 51.00
$2.275 Series D... 200,000 200,000 50.00 10,000 10,000 50.50
$3.25 Series E.... 320,000 320,000 50.00 16,000 16,000 51.00
Serial preferred.... 4,000,000(b)
$8.32 Series J.... -- 500,000 100.00 -- 50,000
Adjustable rate --
Series Q........ 500,000 500,000 100.00 50,000 50,000 (c)
Serial preferred.... 10,000,000
$1.8125 Series W.. 3,000,000 -- 25.00 75,000 -- (d)
-------------- -------------- ------------ ------------
Total......... 4,874,199 2,374,199 $ 193,561 $ 168,561
============== ============== ============ ============
REDEEMABLE:
Serial preferred:
$8.80 Series K.... 142,100 187,100 $100.00 $ 14,210 $ 18,710 (e)
$11.50 Series R... 284,000 319,250 100.00 28,400 31,925 (f)
$8.48 Series S.... 300,000 500,000 100.00 30,000 50,000 (g)
$8.50 Series T.... 500,000 500,000 100.00 50,000 50,000
$10.00 Series U... 500,000 500,000 100.00 50,000 50,000
$7.875 Series V... 250,000 250,000 100.00 25,000 25,000 (h)
-------------- -------------- ------------ ------------
Total......... 1,976,100 2,256,350 $ 197,610 $ 225,635
============== ============== ============ ============
Non-redeemable preferred stock is not redeemable except at the option of
the Company. Redeemable preferred stock is redeemable through sinking fund
obligations in addition to being callable by the Company.
(a) In each case plus accrued dividends.
(b) This authorization covers both outstanding non-redeemable and all
redeemable preferred stock.
(c) Dividend rate adjusted quarterly to 2% below that of certain United
States Treasury securities, but in no event less than 6% or greater
than 12% per annum. Redeemable at par.
(d) Redeemable at par after December 1, 1998.
(e) Redeemable at $103.00 through February 28, 1994 and at $101.00
thereafter.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(f) Redeemable after June 1, 1994 at $105.45, declining by a
predetermined amount each year to par after June 1, 2003.
(g) Redeemable at $102.12 through May 31, 1994, and at par thereafter.
(h) Redeemable at $107.09 through May 31, 1994, and thereafter declining
by a predetermined amount each year to par after May 31, 2002.
If there were to be any arrearage in dividends on any of the Company's
preferred stock or in the sinking fund requirements applicable to any of its
redeemable preferred stock, the Company could not pay dividends on its common
stock or acquire any shares thereof for consideration.
The redemption requirements for the above issues for the next five years
are: 1994, $65,775,000; 1995, $13,525,000; 1996, $13,525,000; 1997,
$13,525,000; and 1998, $13,525,000.
CHANGES IN REDEEMABLE PREFERRED STOCK
Number of Shares Par Value
Outstanding Outstanding
---------------------------------------------- -------------------------------------------
(Thousand of Dollars)
Description 1993 1992 1991 1993 1992 1991
- ----------------------- -------------- -------------- -------------- ------------- ------------- -------------
Balance, January 1..... 2,256,350 2,272,782 1,924,532 $ 225,635 $ 227,278 $ 192,453
Issuance:
$10.00 Series U.... -- -- 500,000 -- -- 50,000
$7.875 Series V.... -- 250,000 -- -- 25,000 --
Retirements:
$10.00 Series H.... -- (8,677) (16,000) -- (868) (1,600)
$8.80 Series K..... (45,000) (4,725) (40,275) (4,500) (472) (4,027)
$12.90 Series N.... -- (213,280) (24,975) -- (21,328) (2,498)
$11.50 Series R.... (35,250) (39,750) (70,500) (3,525) (3,975) (7,050)
$8.48 Series S..... (200,000) -- -- (20,000) -- --
-------------- -------------- -------------- ------------- ------------- -------------
Balance, December 31... 1,976,100 2,256,350 2,272,782 $ 197,610 $ 225,635 $ 227,278
============== ============== ============== ============= ============= =============
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
Year Ended December 31,
------------------------------
Maturity Dates Interest Rates 1993 1992
------------------ ----------------------------- -------------- --------------
(Thousands of Dollars)
First mortgage bonds 1997-2028 5.5%-13.25%(a) $ 1,729,070 $ 1,615,602
Pollution control
indebtedness 2009-2015 Adjustable(b) 369,130 424,330
Revolving Credit 1993 LIBOR + 0.30% to 0.45%(c) -- 75,000
Capitalized lease
obligation 1994-2001 7.48%(d) 29,633 32,048
-------------- --------------
Total long-term debt 2,127,833 2,146,980
Less current maturities 3,179 94,217
-------------- --------------
Total long-term debt less
current maturities $ 2,124,654 $ 2,052,763
============== ==============
(a) The weighted average rate on outstanding debt at year-end for 1993
and 1992 was 8.25% and 8.70%, respectively.
(b) The interest rates at year-end varied from 2.80% to 3.50% for 1993
and from 3.20% to 4.40% for 1992.
(c) The weighted average rate on outstanding borrowings at year-end 1992
was 4.41%.
(d) Represents the present value of future lease payments (discounted at
the interest rate of 7.48%) on a combined cycle plant sold and leased
back from the independent owner-trustee formed to own the facility.
See Note 7.
Aggregate annual payments due on long-term debt and for sinking fund
requirements through 1998 are as follows: 1994, $3,179,000; 1995, $3,408,000;
1996, $3,512,000; 1997, $153,780,000; and 1998, $109,068,000.
The Company had approximately $370 million of variable-rate long-term debt
outstanding at December 31, 1993. Changes in interest rates would affect the
costs associated with this debt.
Substantially all utility plant (other than nuclear fuel, transportation
equipment, and the combined cycle plant) is subject to the lien of the first
mortgage bond indenture. The first mortgage bond indenture includes provisions
which would restrict the payment of common stock dividends under certain
conditions which did not exist at December 31, 1993.
5. LINES OF CREDIT
APS had committed lines of credit with various banks of $302 million at
December 31, 1993 and 1992 which were available either to support the issuance
of commercial paper or to be used for bank borrowings. The commitment fees on
these lines were 0.1875% per annum through April 29, 1992 and 0.25% thereafter
through December 31, 1993. The Company had commercial paper borrowings
outstanding of $148 million at December 31, 1993 and bank borrowings of $130
million at December 31, 1992.
In 1992, the Company also had a $70 million letter of credit commercial
paper program. Under this program, which expired in November, 1993, the
Company had $65 million of borrowings outstanding at December 31, 1992. The
commitment fees for this program were 0.30% per year.
By Arizona statute, the Company's short-term borrowings cannot exceed 7%
of total capitalization without the consent of the ACC.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. JOINTLY-OWNED FACILITIES
At December 31, 1993, the Company owned interests in the following
jointly-owned electric generating and transmission facilities. The Company's
share of related operating and maintenance expenses is included in Operating
Expenses.
Percent
Owned by Plant in Accumulated Construction
Company Service Depreciation Work in Progress
------------ -------------- --------------- ----------------
(Dollars in Thousands)
GENERATING FACILITIES:
Palo Verde Nuclear
Generating Station --
Units 1 & 3.......................... 29.1% $ 1,825,842 $ 371,818 $ 17,995
Palo Verde Nuclear
Generating Station --
Unit 2............................... 17.0% 552,798 114,118 17,946
Four Corners Steam
Generating Station --
Units 4 & 5.......................... 15.0% 140,408 46,884 1,220
Navajo Steam
Generating Station --
Units 1, 2 & 3....................... 14.0% 135,073 70,397 11,865
Cholla Steam
Generating Station --
Common Facilities only(a)............ 62.8% 69,678 30,440 1,324
TRANSMISSION FACILITIES:
ANPP 500KV System...................... 35.8%(b) 62,619 13,849 910
Navajo Southern System................. 31.4%(b) 26,742 14,386 6
Palo Verde-Yuma 500KV System........... 23.9%(b) 11,411 3,006 --
Four Corners Switchyards............... 27.5%(b) 3,045 1,790 3
Phoenix-Mead System.................... 17.1%(b) -- -- 8,983
(a) The Company is the operating agent for Cholla 4, which is owned by
PacifiCorp. The common facilities at the Cholla Plant are jointly-owned.
(b) Weighted average of interests.
7. LEASES
In 1986, the Company entered into sale and leaseback transactions under
which it sold approximately 42% of its share of Palo Verde Unit 2. The gain of
approximately $140,220,000 has been deferred and is being amortized to
operations expense over the original lease term. The leases are being
accounted for as operating leases. The amounts paid each year approximate
$40,134,000 through December 1999, $46,285,000 through December 2000 and
$48,982,000 through December 2015. The leases include options to renew for two
additional years and to purchase the property at fair market value at the end
of the lease terms. Consistent with the ratemaking treatment, an amount equal
to the annual lease payments is included in rent expense. A regulatory asset
(totalling approximately $49 million at December 31, 1993) has been
established for the difference between lease payments and rent expense
calculated on a straight-line basis. Lease expense for 1993, 1992 and 1991 was
$41,750,000, $45,838,000 and $45,633,000, respectively.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company has a capital lease on a combined cycle plant which it sold
and leased back. The lease requires semiannual payments of $2,582,000 through
June 2001 and includes renewal and purchase options based on fair market
value. This plant is included in plant in service at its original cost of
$54,405,000; accumulated depreciation at December 31, 1993 was $37,315,000.
In addition, the Company also leases certain land, buildings, equipment
and miscellaneous other items through operating rental agreements with varying
terms, provisions and expiration dates. Rent expense for 1993, 1992, and 1991
were approximately $11,096,000, $14,733,000 and $16,046,000, respectively.
Annual future minimum rental commitments, excluding the Palo Verde and
combined cycle leases, for the period 1994 through 1998 range between $11
million and $13 million. Total rental commitments after 1998 are estimated at
$129 million.
8. INCOME TAXES
The Company is included in the consolidated income tax returns of Pinnacle
West. Income taxes are allocated to the Company based on its separate company
taxable income or loss. Approximately $17.3 million of income taxes were
payable to Pinnacle West at December 31, 1993. Investment tax credits were
deferred and are being amortized to other income over the estimated life of
the related assets as directed by the ACC.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109, which requires the use of the liability method in accounting for income
taxes. Upon adoption the Company recorded deferred income tax liabilities
related to the equity component of AFUDC, the debt component of AFUDC recorded
net of tax, and other temporary differences for which deferred income taxes
had not been provided. Deferred income tax balances were also adjusted for
changes in tax rates. The adoption of SFAS No. 109 had no material effect on
net income but increased deferred income tax liabilities by $585.3 million at
December 31, 1993. Historically the FERC and ACC have allowed revenues
sufficient to pay for these deferred tax liabilities, and, in accordance with
SFAS No. 109, a regulatory asset has been established in a corresponding
amount.
The components of income tax expense (benefit) are:
Year Ended December 31,
--------------------------------
1993 1992 1991
--------- --------- ----------
(Thousands of Dollars)
Current:
Federal................................... $ 69,243 $ 80,921 $ 39,446
State..................................... 23,915 23,141 11,010
--------- --------- ----------
Total current........................... 93,158 104,062 50,456
--------- --------- ----------
Deferred:
Depreciation -- net....................... 58,844 75,931 56,478
Palo Verde cost deferral.................. (5,015) (5,015) 46,004
Alternative minimum tax................... 13,661 7,732 (10,565)
Disallowed Palo Verde costs (including
ITC).................................... -- -- (202,416)
Refund obligation......................... 8,454 8,454 (20,591)
Palo Verde accretion income............... 29,618 26,668 2,099
Loss on reacquired debt................... 4,288 10,266 (1,032)
Palo Verde start-up costs................. (1,335) (28,976) (1,337)
Investment tax credit -- net.............. (6,948) (6,804) (11,117)
Other -- net.............................. (5,818) (10,963) (2,729)
--------- --------- ----------
Total deferred.......................... 95,749 77,293 (145,206)
--------- --------- ----------
Total................................. $ 188,907 $ 181,355 $ (94,750)
========= ========= ==========
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Total income tax expense (benefit) differed from the amount computed by
multiplying income before income taxes by the statutory federal income tax
rate due to the following:
Year Ended December 31,
--------------------------------
1993 1992 1991
--------- --------- ----------
(Thousands of Dollars)
Federal income tax expense (benefit) at
statutory rate (35% in 1993, 34% in 1992
and 1991)................................. $ 153,753 $ 145,574 $(107,916)
Increase (reductions) in tax expense
resulting from:
Tax under book depreciation............... 17,671 17,465 21,776
Palo Verde cost deferral.................. -- -- (4,063)
Disallowed Palo Verde costs (including
ITC).................................... -- -- 22,236
Investment tax credit amortization........ (6,922) (7,036) (11,117)
State income tax -- net of federal income
tax benefit............................. 27,005 27,036 (9,820)
Other..................................... (2,600) (1,684) (5,846)
--------- --------- ----------
Total................................. $ 188,907 $ 181,355 $ (94,750)
========= ========= ==========
The components of the net deferred income tax liability at December 31,
1993, were as follows (in thousands of dollars):
Deferred tax assets:
Deferred gain on Palo Verde Unit 2 sale/leaseback.............. $ 66,754
Alternative minimum tax (can be carried forward indefinitely).. 35,514
Other.......................................................... 86,745
Valuation allowance............................................ (15,413)
-----------
Total deferred tax assets.................................. 173,600
-----------
Deferred tax liabilities:
Plant related.................................................. 751,520
Income taxes recoverable through future rates -- net........... 585,294
Palo Verde deferrals........................................... 158,424
Other.......................................................... 40,429
-----------
Total deferred tax liabilities............................. 1,535,667
-----------
Accumulated deferred income taxes -- net......................... $1,362,067
===========
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. PENSION PLAN AND OTHER BENEFITS
Pension Plan
The Company has a defined benefit pension plan covering substantially all
employees. Benefits are based on years of service and compensation using a
final average pay plan benefit formula. The plan is funded on a current basis
to the extent deductible under existing tax regulation. Plan assets consist
primarily of domestic and international common stocks and bonds, and real
estate. Pension cost, including administrative cost, for 1993, 1992 and 1991
was approximately $13,950,000, $14,022,000 and $10,590,000, respectively, of
which approximately $6,516,000, $3,917,000 and $4,939,000, respectively, was
charged to expense; the remainder was either capitalized as a component of
construction costs or billed to owners of facilities for which the Company is
operating agent.
The components of net periodic pension costs are as follows (in thousands
of dollars):
1993 1992 1991
------------- ------------- -------------
Service cost-benefits earned during the period....... $ 16,754 $ 16,903 $ 14,559
Interest cost on projected benefit obligation........ 34,724 33,333 30,964
Return on plan assets................................ (51,597) (23,058) (64,884)
Net amortization and deferral........................ 13,420 (15,002) 28,747
------------- ------------- -------------
Net periodic pension cost............................ $ 13,301 $ 12,176 $ 9,386
============= ============= =============
A reconciliation of the funded status of the plan to the amounts
recognized in the balance sheet is presented below (in thousands of dollars):
1993 1992
--------- ---------
Plan assets at fair value............................... $ 417,938 $ 388,790
--------- ---------
Less actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $347,603 and $286,588................. 372,364 307,003
Effect of projected future compensation increases... 127,388 105,027
--------- ---------
Total projected benefit obligation.............. 499,752 412,030
--------- ---------
Plan assets less than projected benefit obligation...... (81,814) (23,240)
Plus: Unrecognized net loss from past experience
different from that assumed..................... 51,361 8,288
Unrecognized prior service cost................... 14,717 15,733
Unrecognized net transition asset................. (39,242) (42,458)
--------- ---------
Accrued pension liability included in other deferred
credits............................................... $ (54,978) $ (41,677)
========= =========
Principal actuarial assumptions used were:
Discount rate....................................... 7.50% 8.25%
Rate of increase in compensation levels............. 5.00% 5.00%
Expected long-term rate of return on assets......... 9.50%(a) 9.50%
(a) The Company will assume a 9% rate of return on plan assets for
computing the net periodic pension cost in 1994.
In addition to the defined benefit pension plan described above, the
Company also sponsors two qualified defined contribution plans. Substantially
all employees are eligible to participate in one or the other of these two
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
plans. Both plans provide for employee contributions and partial employer
matching contributions after certain eligibility requirements are met. The
cost of these plans for 1993, 1992 and 1991 was $6,283,000, $5,311,000 and
$2,708,000, of which $3,006,000, $2,514,000 and $1,344,000 was charged to
expense.
Postretirement Plans
The Company provides medical and life insurance benefits to its retired
employees. Employees may become eligible for these retirement benefits based
on years of service and age. The retiree medical insurance plan is
contributory; the retiree life insurance plan is noncontributory. In
accordance with the governing plan documents, the Company retains the right to
change or eliminate these benefits.
During 1993, the Company adopted SFAS No. 106, which requires that the
cost of postretirement benefits be accrued during the years that the employees
render service. Prior to 1993, the costs of retiree benefits were recognized
as expense when claims were paid. This change had the effect of increasing
1993 retiree benefit costs from approximately $6 million to $34 million; the
amount charged to expense increased from approximately $2 million to $17
million for an increase of $15 million, including the amortization (over 20
years) of the initial postretirement benefit obligation estimated at January
1, 1993 to be $183 million. Funding is based upon actuarially determined
contributions that take into account the tax consequences.
The components of the postretirement benefit costs for 1993 are as follows
(in thousands of dollars):
Service cost -- benefits earned during the period........... $ 9,510
Interest cost on accumulated benefit obligation............. 15,630
Net amortization and deferral............................... 9,146
------------
Net periodic postretirement benefit cost.................... $ 34,286
============
A reconciliation of the funded status of the plan to the amounts
recognized in the balance sheet is presented below (in thousands of dollars):
Plan assets at fair value, funded at December 31, 1993........ $ 28,154
------------
Less accumulated postretirement benefit obligation:
Retirees.................................................. 49,296
Fully eligible plan participants.......................... 13,504
Other active plan participants............................ 137,113
------------
Total accumulated postretirement benefit obligation... 199,913
------------
Plan assets less than accumulated benefit obligation.......... (171,759)
Plus: Unrecognized transition obligation...................... 173,773
Unrecognized net gain from past experience different
from that assumed and from changes in assumptions..... (2,072)
------------
Accrued postretirement liability included in other deferred
credits................................................... $ (58)
============
Principal actuarial assumptions used were:
Discount rate............................................. 7.50%
Initial health care cost trend rate -- under age 65....... 12.00%
Initial health care cost trend rate -- age 65 and over.... 9.00%
Ultimate health care cost trend rate
(reached in the year 2003)........................... 5.50%
Annual Salary increase for life insurance obligation...... 5.00%
Assuming a one percent increase in the health care cost trend rate, the
Company's 1993 cost of postretirement benefits other than pensions would
increase by $6.8 million and the accumulated benefit obligation as of December
31, 1993 would increase by $40.6 million.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In 1993, the Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." The new standard requires a change from a cash
method to an accrual method in accounting for benefits (such as long-term
disability) provided to former or inactive employees after employment but
before retirement. The adoption of this new standard resulted in an increase
in 1993 postemployment benefit costs of approximately $2 million.
10. COMMITMENTS AND CONTINGENCIES
Nuclear Insurance
The Palo Verde participants have insurance for public liability payments
resulting from nuclear energy hazards to the full limit of liability under
federal law. This potential liability is covered by primary liability
insurance provided by commercial insurance carriers in the amount of $200
million and the balance by an industrywide retrospective assessment program.
The maximum assessment per reactor under the retrospective rating program for
each nuclear incident is approximately $79 million, subject to an annual limit
of $10 million per incident. Based upon the Company's 29.1% interest in the
three Palo Verde units, the Company's maximum potential assessment per
incident is approximately $69 million, with an annual payment limitation of
$8.73 million. The insureds under this liability insurance include the Palo
Verde participants and "any other person or organization with respect to his
legal responsibility for damage caused by the nuclear energy hazard."
The Palo Verde participants maintain "all risk" (including nuclear
hazards) insurance for property damage to, and decontamination of, property at
Palo Verde in the aggregate amount of $2.75 billion, a substantial portion of
which must first be applied to stabilization and decontamination. The Company
has also secured insurance against portions of any increased cost of
generation or purchased power and business interruption resulting from a
sudden and unforeseen outage of any of the three units. The insurance coverage
discussed in this and the previous paragraph is subject to certain policy
conditions and exclusions.
El Paso Electric Company Bankruptcy
The other joint owners in the Palo Verde and Four Corners facilities (see
Note 6) include El Paso Electric Company, which currently is operating under
Chapter 11 of the Bankruptcy Code. A plan whereby EPEC would become a wholly-
owned subsidiary of Central and South West Corporation would resolve certain
issues to which the Company could be exposed by the bankruptcy, including EPEC
allegations regarding the 1989-90 Palo Verde outages. The plan has been
confirmed by the bankruptcy court, but cannot become fully effective until
several additional or related approvals are obtained. If they are not
obtained, the plan could be withdrawn or terminate, thereby reintroducing the
Company's exposures.
Palo Verde Tube Cracks
Tube cracking in the Palo Verde steam generators adversely affected
operations in 1993, and will continue to do so in 1994 and probably into 1995,
because of the cost of replacement power and maintenance expense associated
with unit outages and corrective actions required to deal with the issue.
The operation of Palo Verde Unit 2 has been particularly affected by this
issue. The Company has encountered axial tube cracking in the upper regions of
the two steam generators in Unit 2. This form of tube degradation is uncommon
in the industry and, in March 1993, led to a tube rupture and an outage of the
unit that extended to September 1993, during which the unit was refueled. Unit
2 is currently completing a mid-cycle inspection outage which revealed further
tube degradation. Unit 2 will have another mid-cycle inspection outage later
in 1994.
The steam generators of Units 1 and 3 were inspected late in 1993, but did
not show signs of axial cracking in their upper regions. All three units have,
however, experienced cracking in the bottom of the steam generators of the
types which are common in the industry.
Although its analysis is not yet completed, the Company believes that the
axial cracking in Unit 2 is due to deposits on the tubes and to the relatively
high temperatures at which all three units are now designed to
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
operate. The
Company also believes that it can retard further tube degradation to
acceptable levels by remedial actions which include chemically cleaning the
generators and performing analyses and adjustments that will allow the units
to be operated at lower temperatures without appreciably reducing their
output. The temperature analyses should be concluded within the next several
months. In the meantime, the lower temperatures will be achieved by operating
the units at less than full power (86%).
Chemical cleaning was performed during Unit 2's current mid-cycle outage,
and will be performed in the next refueling outage of Unit 3 (which will begin
shortly) and of Unit 1 (which is scheduled for March 1995). The Company has
concluded that Unit 1 can be safely operated until the 1995 outage and has
submitted its supporting analysis to the NRC, but a mid-cycle inspection later
in 1994 is possible.
As a result of these corrective actions, all three units should be
returned to full power by mid-1995, and one or more of the units could be
returned to full power during 1994. So long as the three units are involved in
mid-cycle outages and are operated at 86%, the Company will incur additional
fuel and purchased power costs averaging approximately $2 million per month
(before income taxes).
Because of schedule changes associated with the tube issues and other
circumstances, it now appears that all three units will be down for refueling
outages at various times during 1995.
When significant cracks are detected during any outage, the affected tubes
are taken out of service by plugging. That has occurred in a number of tubes
in Unit 2, which is by far the most affected by cracking and plugging. The
Company expects that this will slow considerably because of the foregoing
remedial actions and that, while it may ultimately reach some limit on
plugging, it can operate the present steam generators over a number of years.
Litigation
The Company is a party to various claims, legal actions, and complaints
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect
on the operations or financial position of the Company.
Construction Program
Expenditures in 1994 for the Company's continuing construction program
have been estimated at $279 million, excluding capitalized property taxes and
capitalized interest.
Fuel and Purchased Power Commitments
The Company is a party to various fuel and purchased power contracts with
terms expiring from 1994 through 2020 that include required purchase
provisions. The Company estimates its contract requirements during 1994 to be
approximately $136 million. However, this amount may vary significantly
pursuant to certain provisions in such contracts which permit the Company to
decrease its required purchases under certain circumstances.
11. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Other taxes charged to operations during each of the three years in the
period ended December 31, 1993 are as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991
------------ ------------ ------------
(THOUSANDS OF DOLLARS)
Property................................................... $ 123,659 $ 118,080 $ 120,900
Sales...................................................... 84,901 83,185 80,815
Other...................................................... 12,814 14,705 12,790
------------ ------------ ------------
Total other taxes........................................ $ 221,374 $ 215,970 $ 214,505
============= ============ ============
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
ELECTRIC
OPERATING OPERATING NET EARNINGS FOR
QUARTER(a) REVENUES INCOME INCOME COMMON STOCK
- ---------------- ------------ ------------ ------------ ----------------
(THOUSANDS OF DOLLARS)
1993
First $371,303 $ 79,441 $ 47,166 $ 39,277
Second 407,375 92,264 61,364 53,716
Third 524,483 132,639 102,911 95,617
Fourth 383,129 68,144 38,945 30,936
1992
First $344,947 $ 70,867 $ 30,911 $ 22,587
Second 409,012 101,222 62,773 54,680
Third 516,960 138,947 108,158 100,048
Fourth 398,760 81,222 44,963 37,038
(a) The Company's operations are subject to seasonal fluctuations with
variations occurring in energy usage by customers from season to
season and from month to month within a season, primarily as a result
of weather conditions. For this and other reasons, the results of
operations for interim periods are not necessarily indicative of the
results to be expected for the full year.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the carrying amounts of its cash equivalents
and commercial paper are reasonable estimates of their fair values at December
31, 1993 and 1992 due to their short maturities. The December 31, 1993 and
1992 fair values of debt and equity investments, determined by using quoted
market values or by discounting cash flows at rates equal to its cost of
capital, approximate their carrying amounts.
On December 31, 1993 the carrying amount of long-term debt liabilities
(excluding $30 million of capital lease obligations) was $2.098 billion and
its estimated fair value was approximately $2.257 billion. On December 31,
1992 the carrying amount of long-term debt (excluding $32 million of capital
lease obligations) was $2.115 billion and its estimated fair value was
approximately $2.226 billion. The fair value estimates were determined by
independent sources using quoted market rates where available. Where market
prices were not available, the fair values were estimated by discounting
future cash flows using rates available for debt of similar terms and
remaining maturities. The carrying amounts of long-term debt bearing variable
interest rates approximate their fair values at December 31, 1993 and 1992,
respectively.
ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993(a)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
BALANCE AT OTHER CHANGES --
BEGINNING ADDITIONS ADD (DEDUCT) -- BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE END OF PERIOD
-------------- -------------- ------------ --------------- -------------------- -----------------
(THOUSANDS OF DOLLARS)
Utility Plant:
Electric Plant In Service
Intangible.............. $ 110,831 $ 7,013 $ 6,743 $ 62 $ 111,163
Steam Production........ 1,026,924 8,261 1,307 (174) 1,033,704
Nuclear Production...... 2,305,746 17,290 10,447 1,818 2,314,407
Other Production........ 137,376 6,499 916 405 143,364
Transmission............ 703,900 3,865 3,703 (12) 704,050
Distribution............ 1,530,421 131,766 23,905 (2,890)(b) 1,635,392
General................. 347,735 14,274 6,613 (604) 354,792
-------------- ------------ ------------- -------------- ----------------
Total Electric Plant
In Service.......... 6,162,933 188,968 53,634 (1,395) 6,296,872
-------------- ------------ ------------- -------------- ----------------
Nuclear Fuel In Reactor... 137,802 31,623 40,538 (182) 128,705
-------------- ------------ ------------- -------------- ----------------
Nuclear Fuel In Stock..... 67 31,556 -- (31,623)(c) --
-------------- ------------ ------------- -------------- ----------------
Construction Work In
Progress:
Nuclear Fuel In Progress 27,582 30,913 -- (31,556)(d) 26,939
Other Work In Progress.. 134,586 229,385 -- (193,354)(e) 170,617
-------------- ------------ ------------- -------------- -----------------
Total Construction
Work in Progress.... 162,168 260,298 -- (224,910) 197,556
-------------- ------------ ------------- -------------- -----------------
Plant Held For Future Use. 34,526 2,682 -- (196) 37,012
-------------- ------------ ------------- -------------- -----------------
Total Utility Plant......... $ 6,497,496 $ 515,127 $ 94,172 $ (258,306) $ 6,660,145
============== ============ ============= ============== =================
Non-Utility Plant........... $ 12,915 $ 2,227 $ -- $ (2,209) $ 12,933
============== ============ ============= ============== =================
- ----------
(a) Depreciation is provided on a straight-line basis at rates authorized by the ACC; for 1993
those rates ranged from 0.84% to 15% which resulted in a composite rate of 3.37%.
(b) Includes the sale of certain streetlight and distribution facilities.
(c) To record the transfer to "Nuclear Fuel In Reactor."
(d) To record the transfer to "Nuclear Fuel In Stock" of completed nuclear fuel assemblies.
(e) Primarily transfers to "Plant In Service" and "Plant Held for Future Use."
ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992(a)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
BALANCE AT OTHER CHANGES --
BEGINNING ADDITIONS ADD (DEDUCT) -- BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE END OF PERIOD
-------------- -------------- ------------ --------------- -------------------- -----------------
(THOUSANDS OF DOLLARS)
Utility Plant:
Electric Plant In Service
Intangible.............. $ 107,198 $ 6,806 $ 3,492 $ 319 $ 110,831
Steam Production........ 1,018,712 12,317 4,105 -- 1,026,924
Nuclear Production...... 2,253,577 62,260 10,091 -- 2,305,746
Other Production........ 127,950 4,333 1,293 6,386 (b) 137,376
Transmission............ 695,790 11,804 3,564 (130) 703,900
Distribution............ 1,446,897 103,673 19,134 (1,015)(c) 1,530,421
General................. 355,711 15,951 23,879 (48) 347,735
-------------- ------------ -------------- -------------- ----------------
Total Electric Plant
In Service.......... 6,005,835 217,144 65,558 5,512 6,162,933
-------------- ------------ -------------- -------------- ----------------
Nuclear Fuel In Reactor... 160,204 45,332 67,734 -- 137,802
-------------- ------------ -------------- -------------- ----------------
Nuclear Fuel In Stock..... 14,663 30,736 -- (45,332)(d) 67
-------------- ------------ -------------- -------------- ----------------
Construction Work In
Progress:
Nuclear Fuel In Progress 30,364 27,954 -- (30,736)(e) 27,582
Other Work In Progress.. 167,279 198,447 -- (231,140)(f) 134,586
-------------- ------------ -------------- -------------- ----------------
Total Construction
Work in Progress.... 197,643 226,401 -- (261,876) 162,168
-------------- ------------ -------------- -------------- ----------------
Plant Held For Future Use. 31,547 9,553 -- (6,574)(b) 34,526
-------------- ------------ -------------- -------------- ----------------
Total Utility Plant......... $ 6,409,892 $ 529,166 $ 133,292 $ (308,270) $ 6,497,496
============== ============ ============== ============== ================
Non-Utility Plant........... $ 10,895 $ 2,193 $ -- $ (173) $ 12,915
============== ============ ============== ============== ================
- ----------
(a) Depreciation is provided on a straight-line basis at rates authorized by the ACC; for 1992
those rates ranged from 0.84% to 15% which resulted in a composite rate of 3.37%.
(b) Primarily the transfer of a gas turbine to "Plant In Service" from "Plant Held for Future
Use."
(c) Includes the sale of certain streetlight facilities.
(d) To record the transfer to "Nuclear Fuel In Reactor."
(e) To record the transfer to "Nuclear Fuel In Stock" of completed nuclear fuel assemblies.
(f) Primarily transfers to "Plant In Service" and "Plant Held for Future Use."
ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991(a)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
BALANCE AT OTHER CHANGES --
BEGINNING ADDITIONS ADD (DEDUCT) -- BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE END OF PERIOD
-------------- -------------- ------------ --------------- -------------------- -----------------
(THOUSANDS OF DOLLARS)
Utility Plant:
Electric Plant In Service:
Intangible.............. $ 102,597 $ 8,468 $ 6,850 $ 2,983 $ 107,198
Steam Production........ 1,339,817 16,426 3,036 (334,495)(b) 1,018,712
Nuclear Production...... 2,393,222 4,670 2,336 (141,979)(c) 2,253,577
Other Production........ 126,781 1,507 338 -- 127,950
Transmission............ 682,159 19,133 2,757 (2,745) 695,790
Distribution............ 1,374,690 86,809 13,911 (691) 1,446,897
General................. 349,941 12,926 6,448 (708) 355,711
------------- ------------ ------------- -------------- ----------------
Total Electric Plant
In Service.......... 6,369,207 149,939 35,676 (477,635) 6,005,835
------------- ------------ ------------- -------------- ----------------
Nuclear Fuel In Reactor... 169,679 15,741 23,946 (1,270) 160,204
------------- ------------ ------------- -------------- ----------------
Nuclear Fuel In Stock..... -- 30,404 -- (15,741)(d) 14,663
------------- ------------ ------------- -------------- ----------------
Construction Work In
Progress:
Nuclear Fuel In Process. 46,577 26,634 -- (42,847)(e) 30,364
Other Work In Progress.. 162,689 161,253 -- (156,663)(f) 167,279
------------- ------------ ------------- -------------- ----------------
Total Construction
Work in Progress.... 209,266 187,887 -- (199,510) 197,643
------------- ------------ ------------- -------------- ----------------
Plant Held For Future Use. 48,536 4,044 11 (21,022)(g) 31,547
------------- ------------ ------------- -------------- ----------------
Total Utility Plant......... $ 6,796,688 $ 388,015 $ 59,633 $ (715,178) $ 6,409,892
------------- ------------ ------------- -------------- ----------------
Non-Utility Plant........... $ 10,142 $ 373 $ -- $ 380 $ 10,895
============= ============ ============= ============== ================
- ----------
(a) Depreciation is provided on a straight-line basis at rates authorized by the ACC; for 1991
those rates ranged from 0.84% to 15.00% which resulted in a composited rate of 3.37%.
(b) Primarily the sale of Cholla Unit 4 and related common facilities to PacifiCorp. (See Note
2)
(c) To record the Palo Verde prudence disallowance. (See Note 2)
(d) To record the transfer to "Nuclear Fuel In Reactor."
(e) Primarily the transfer to "Nuclear Fuel In Stock" of completed nuclear fuel assemblies.
(f) Primarily transfers to "Plant In Service," and "Plant Held For Future Use."
(g) Primarily the transfer of Saguaro Steam Plant to "Plant In Service" and the write-off of
costs associated with a proposed generating unit.
ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
Column A Column B Column C Column D Column E Column F
Additions
Balance at Charged to Other Changes -- Balance at
Beginning Cost and Add (Deduct) -- End of
Description Of Period Expense Retirements Describe(a) Period
----------- -------------- --------------- --------------- -------------------- --------------
(Thousands of Dollars)
Accumulated Depreciation and
Amortization of Utility
Plant:
Electric Plant in
Service:
Steam Production...... $ 481,873 $ 35,281 $ 1,307 $ (88) $ 515,759
Nuclear Production.... 500,117 77,112(b) 10,447 (75,000)(c) 491,782
Other Production...... 85,660 4,389 916 2,896 92,029
Transmission.......... 254,434 20,139 3,703 (150) 270,720
Distribution.......... 355,006 47,764 23,905 (2,343) 376,522
General............... 206,188 37,772 13,356 (428) 230,176
-------------- ------------ ------------- -------------- --------------
Total Electric Plant
in Service........ 1,883,278 222,457 53,634 (75,113) 1,976,988
-------------- ------------ ------------- -------------- --------------
Nuclear Fuel in Reactor. 76,266 32,024 40,538 -- 67,752
-------------- ------------ ------------- -------------- --------------
Plant Held For Future
Use................... 14,155 -- -- -- 14,155
-------------- ------------ ------------- -------------- --------------
Total Utility Plant....... $ 1,973,699 $ 254,481 $ 94,172 $ (75,113) $ 2,058,895
============== ============ ============= ============== ==============
Accumulated Depreciation -- --
of Non-Utility Property. $ 314 $ 113 $ $ $ 427
============== ============ ============= ============== ==============
- ----------
(a) Includes removal and salvage-net.
(b) Includes decommissioning accrual and decommissioning fund income.
(c) Primarily the restoration of the carrying value of Palo Verde Unit 3. See "Rate Case
Settlement" in Note 2 of Notes to Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
Column A Column B Column C Column D Column E Column F
Additions
Balance at Charged to Other Changes -- Balance at
Beginning Cost and Add (Deduct) -- End of
Description Of Period Expense Retirements Describe(a) Period
----------- -------------- --------------- --------------- -------------------- --------------
(Thousands of Dollars)
Accumulated Depreciation and
Amortization of Utility
Plant:
Electric Plant in
Service:
Steam Production...... $ 451,324 $ 35,089 $ 4,105 $ (435) $ 481,873
Nuclear Production.... 504,269 74,042(b) 10,091 (68,103)(c) 500,117
Other Production...... 78,072 4,131 1,293 4,750 (d) 85,660
Transmission.......... 237,877 19,968 3,564 153 254,434
Distribution.......... 329,950 45,162 19,134 (972) 355,006
General............... 195,455 37,851 27,371 253 206,188
-------------- ------------ -------------- -------------- --------------
Total Electric Plant
in Service........ 1,796,947 216,243 65,558 (64,354) 1,883,278
-------------- ------------ -------------- -------------- --------------
Nuclear Fuel in Reactor. 107,395 36,605 67,734 -- 76,266
-------------- ------------ -------------- -------------- --------------
Plant Held For Future
Use................... 18,426 -- -- (4,271)(d) 14,155
-------------- ------------ -------------- -------------- --------------
Total Utility Plant....... $ 1,922,768 $ 252,848 $ 133,292 $ (68,625) $ 1,973,699
============== ============ ============== ============== ==============
Accumulated Depreciation
of Non-Utility Property. $ 235 $ 80 $ -- $ (1) $ 314
============== ============ ============== ============== ==============
- ----------
(a) Includes removal and salvage-net.
(b) Includes decommissioning accrual and decommissioning fund income.
(c) Primarily the restoration of the carrying value of Palo Verde Unit 3. See "Rate Case
Settlement" in Note 2 of Notes to Financial Statements.
(d) Primarily the Transfer of a Gas Turbine to "Plant in Service" from "Plant Held for Future
Use."
ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
Column A Column B Column C Column D Column E Column F
Additions
Balance at Charged to Other Changes -- Balance at
Beginning Cost and Add (Deduct) -- End of
Description Of Period Expense Retirements Describe(a) Period
----------- -------------- --------------- --------------- -------------------- --------------
(Thousands of Dollars)
Accumulated Depreciation and
Amortization of Utility
Plant:
Electric Plant in
Service:
Steam Production...... $ 512,915 $ 40,369 $ 3,036 $ (98,924)(b) $ 451,324
Nuclear Production.... 276,784 75,673(c) 2,336 154,148 (d) 504,269
Other Production...... 74,453 4,000 338 (43) 78,072
Transmission.......... 217,765 19,696 2,757 3,173 237,877
Distribution.......... 300,399 43,126 13,911 336 329,950
General............... 169,853 37,950 13,298 950 195,455
-------------- ------------ ------------- -------------- --------------
Total Electric Plant
in Service........ 1,552,169 220,814 35,676 59,640 1,796,947
-------------- ------------ ------------- -------------- --------------
Nuclear Fuel in Reactor. 87,699 43,642 23,946 -- 107,395
-------------- ------------ ------------- -------------- --------------
Plant Held For Future
Use................... 30,359 -- 11 (11,922)(e) 18,426
-------------- ------------ ------------- -------------- --------------
Total Utility Plant....... $ 1,670,227 $ 264,456 $ 59,633 $ 47,718 $ 1,922,768
============== ============ ============= ============== ==============
Accumulated Depreciation
of Non-Utility Property. $ 177 $ 58 $ -- $ -- $ 235
============== ============ ============= ============== ==============
- ----------
(a) Includes removal and salvage -- net.
(b) Includes the sale of Cholla Unit 4 and the transfer of Saguaro Steam Plant from "Plant Held
for Future Use" to "Plant in Service."
(c) Includes decommissioning accrual and decommissioning fund income.
(d) Primarily the adjustment for ACC deemed excess capacity. See "Rate Case Settlement" in Note
2 of Notes to Financial Statements.
(e) To transfer Saguaro Steam Plant to "Plant in Service."
ARIZONA PUBLIC SERVICE COMPANY
SCHEDULE IX -- SHORT-TERM BORROWINGS
Column A Column B Column C (b) Column D Column E (a) Column F (b)
Weighted Maximum Average Weighted
Category of average amount amount average
aggregate Balance interest rate outstanding outstanding interest rate
short-term at end of at end of during the during the during the
borrowings period period period period period
----------- ------------ ---------------- --------------- ---------------- ----------------
(Dollars in Thousands)
YEAR ENDED DECEMBER 31, 1993
Bank Borrowings $ -- -- % $130,000 $63,616 3.97%
Commercial Paper 148,000 3.48 148,000 23,049 3.36
YEAR ENDED DECEMBER 31, 1992
Bank Borrowings $130,000 4.28% $175,000 $ 9,372 5.25%
Commercial Paper 65,000 3.73 70,000 12,682 3.75
YEAR ENDED DECEMBER 31, 1991
Bank Borrowings $ -- -- % $100,000 $26,973 7.44%
Commercial Paper -- -- 70,000 24,077 6.74
- ----------
(a) Average daily balance during the period.
(b) Total applicable interest in the period divided by average daily balance.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT
Reference is hereby made to "Election of Directors" in the Company's Proxy
Statement relating to the annual meeting of shareholders to be held on April
19, 1994 (the "1994 Proxy Statement") and to the Supplemental Item --
"Executive Officers of the Registrant" in Part I of this report. During 1993,
Mr. Woods, a Director of the Company, transferred shares of the Company's
$2.625 Series C Preferred Stock directly owned by him to a trust under which
he is a beneficiary and a trustee. This transfer technically required Mr.
Woods to file with the SEC an amended securities ownership report (reflecting
his indirect, rather than direct, ownership of the shares) and a new ownership
report in his capacity as trustee under the trust. These reports were filed,
but not within the required timeframe.
ITEM 11. EXECUTIVE COMPENSATION
Reference is hereby made to the fourth paragraph under the heading "The
Board and its Committees," and to "Executive Compensation," "Report of the
Human Resources Committee," and "Performance Graphs" in the 1994 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is hereby made to "Principal Holders of Voting Securities" and
"Ownership of Pinnacle West Securities by Management" in the 1994 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the last paragraph under the heading "The
Board and its Committees" in the 1994 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
See the Index to Financial Statements and Financial Statement Schedules in
Part II, Item 8 on page 19.
EXHIBITS FILED
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.1 -- Agreement, dated March 21, 1994, relating to the filing of instruments defining the
rights of holders of long-term debt not in excess of 10% of the Company's total assets
4.2 -- Fiftieth Supplemental Indenture
10.1 -- Cure and Assumption Agreement dated as of November 19, 1993 among the Company, Salt
River Project Agricultural Improvement and Power District, Southern California Edison
Company, Public Service Company of New Mexico, Southern California Public Power
Authority, Department of Water and Power of the City of Los Angeles, and El Paso
Electric Company, and certain schedules thereto
10.2a -- Second Amendment to the Arizona Public Service Company Directors' Deferred Compensation
Plan, effective as of January 1, 1993
10.3a -- Third Amendment to the Arizona Public Service Company Deferred Compensation Plan,
effective as of January 1, 1993
10.4ac -- Revised form of Key Executive Employment and Severance Agreement between the Company and
certain key employees of the Company
10.5ac -- Revised form of Key Executive Employment and Severance Agreement between the Company and
certain executive officers of the Company
10.6a -- Amendment to Pinnacle West Capital Corporation, Arizona Public Service Company, SunCor
Development Company, and El Dorado Investment Company Deferred Compensation Plan,
effective as of December 4, 1992
10.7a -- Pinnacle West Capital Corporation, Arizona Public Service Company, SunCor Development
Company, and El Dorado Investment Company Supplemental Executive Benefit Plan as amended
and restated on December 31, 1992 effective as of January 1, 1992
10.8a -- Arizona Public Service Company Supplemental Excess Benefit Retirement Plan and the
First, Second, and Third Amendments thereto
10.9a -- 1994 Key Employees Variable Pay Plan
10.10a -- 1994 Officers Variable Pay Plan
23.1 -- Consent of Deloitte & Touche
In addition to those Exhibits shown above, the Company hereby incorporates
the following Exhibits pursuant to Exchange Act Rule 12b-32 and Regulation
Section 201.24 by reference to the filings set forth below:
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
- ----------- ----------- ---------------------------- -------- --------------
3.1 Bylaws, amended as of November 19, 1991 3.1 to November 19, 1991 Form 8-K 1-4473 1-28-92
Report
3.2 Articles of Incorporation, restated as of 4.2 to Form S-3 Registration Nos. 1-4473 9-29-93
May 25, 1988 33-33910 and 33-55248 by means of
September 24, 1993 Form 8-K Report
3.3 Certificates pursuant to Sections 4.3 to Form S-3 Registration Nos. 1-4473 9-29-93
10-152.01 and 10-016, Arizona Revised 33-33910 and 33-55248 by means of
Statutes, establishing Series A through V September 24, 1993 Form 8-K Report
of the Company's Serial Preferred Stock
3.4 Certificate pursuant to Section 10-016, 4.4 to Form S-3 Registration Nos. 1-4473 9-29-93
Arizona Revised Statutes, establishing 33-33910 and 33-55248 by means of
Series W of the Company's Serial Preferred September 24, 1993 Form 8-K Report
Stock
4.3 Mortgage and Deed of Trust Relating to the 4.1 to September 1992 Form 10-Q Report 1-4473 11-9-92
Company's First Mortgage Bonds, together
with forty-eight indentures supplemental
thereto
4.4 Forty-ninth Supplemental Indenture 4.1 to 1992 Form 10-K Report 1-4473 3-30-93
4.5 Fifty-first Supplemental Indenture 4.1 to August 1, 1993 Form 8-K Report 1-4473 9-27-93
4.6 Fifty-second Supplemental Indenture 4.1 to September 30, 1993 Form 10-Q 1-4473 11-15-93
Report
4.7 Fifty-third Supplemental Indenture 4.5 to Registration Statement No. 1-4473 3-1-94
33-61228 by means of February 23, 1994
Form 8-K Report
10.11 Two separate Decommissioning Trust 10.2 to September 1991 Form 10-Q 1-4473 11-14-91
Agreements (relating to PVNGS Units 1 and Report
3, respectively), each dated July 1, 1991,
between the Company and Mellon Bank, N.A.,
as Decommissioning Trustee
10.12 Amended and Restated Decommissioning Trust 10.1 to Pinnacle West 1991 Form 10-K 1-8962 3-26-92
Agreement (PVNGS Unit 2) dated as of Report
January 31, 1992, among the Company,
Mellon Bank, N.A., as Decommissioning
Trustee, and the First National Bank of
Boston, as Owner Trustee under two
separate Trust Agreements, each with a
separate Equity Participant, and as Lessor
under two separate Facility Leases, each
relating to an undivided interest in PVNGS
Unit 2
10.13 First Amendment to Amended and Restated 10.2 to 1992 Form 10-K Report 1-4473 3-30-93
Decommissioning Trust Agreement (PVNGS
Unit 2), dated as of November 1, 1992
10.14 Asset Purchase and Power Exchange 10.1 to June 1991 Form 10-Q Report 1-4473 8-8-91
Agreement dated September 21, 1990 between
the Company and PacifiCorp, as amended as
of October 11, 1990 and as of July 18,
1991
10.15 Long-Term Power Transactions Agreement 10.2 to June 1991 Form 10-Q Report 1-4473 8-8-91
dated September 21, 1990 between the
Company and PacifiCorp, as amended as of
October 11, 1990, and as of July 8, 1991
10.16 Uranium Enrichment Services Contract, 10.33 to Pinnacle West's Form S-14 2-96386 3-13-85
dated November 15, 1984 with DOE, ANPP Registration Statement
10.17 Supplemental Agreements, Modification 10.2 to 1986 Form 10-K Report 1-4473 3-9-87
Numbers 1, 2, and 3, dated September 30,
1985, May 27, 1986, and April 7, 1986,
respectively, to Uranium Enrichment
Services Contract, dated November 15, 1984
with DOE, ANPP
10.18 Supplemental Agreements, Modification 19.1 to March 1987 Form 10-Q Report 1-4473 5-8-87
Numbers 4, 5, and 6, dated September 29,
1986, August 8, 1986, and February 20,
1987, respectively, to Uranium Enrichment
Services Contract dated November 15, 1984
with DOE, ANPP
10.19 Supplemental Agreements, Modification 10.3 to Pinnacle West Capital 1-8962 3-31-89
Numbers 7 and 8, dated September 29, 1988 Corporation 1988 Form 10-K Report
and September 22, 1988, respectively, to
Uranium Enrichment Services Contract dated
November 15, 1984 with DOE, ANPP
10.20 Supplemental Agreements, Modification 10.1 to March 1990 Form 10-Q Report 1-4473 5-9-90
Numbers 9, 10, and 11 dated April 12,
1989, April 16, 1990 and February 20,
1990, respectively, to Uranium Enrichment
Services Contract dated November 15, 1984
with DOE, ANPP
10.21 Supplemental Agreement, Modification No. 10.1 to September 1991 Form 10-Q 1-4473 11-14-91
12, dated August 16, 1991 to Uranium Report
Enrichment Services Contract, dated
November 15, 1984 with DOE, ANPP
10.22 Letter Supplement dated December 5, 1985 19.2 to March 1987 Form 10-Q Report 1-4473 5-8-87
to Uranium Enrichment Services Contract
dated November 15, 1984 with DOE, ANPP
10.23 Contract, dated July 21, 1984, with DOE 10.31 to Pinnacle West's Form S-14 2-96386 3-13-85
providing for the disposal of nuclear fuel Registration Statement
and/or high-level radioactive waste, ANPP
10.24 Indenture of Lease with Navajo Tribe of 5.01 to Form S-7 Registration 2-59644 9-1-77
Indians, Four Corners Plant Statement
10.25 Supplemental and Additional Indenture of 5.02 to Form S-7 Registration 2-59644 9-1-77
Lease, including amendments and Statement
supplements to original lease with Navajo
Tribe of Indians, Four Corners Plant
10.26 Amendment and Supplement No. 1 to 10.36 to Registration Statement on 1-8962 7-25-85
Supplemental and Additional Indenture of Form 8-B of Pinnacle West
Lease, Four Corners, dated April 25, 1985
10.27 Application and Grant of multi-party 5.04 to Form S-7 Registration 2-59644 9-1-77
rights-of-way and easements, Four Corners Statement
Plant Site
10.28 Application and Amendment No. 1 to Grant 10.37 to Registration Statement on 1-8962 7-25-85
of multi-party rights-of-way and Form 8-B of Pinnacle West
easements, Four Corners Power Plant Site,
dated April 25, 1985
10.29 Application and Grant of Arizona Public 5.05 to Form S-7 Registration 2-59644 9-1-77
Service Company rights-of-way and Statement
easements, Four Corners Plant Site
10.30 Application and Amendment No. 1 to Grant 10.38 to Registration Statement on 1-8962 7-25-85
of Arizona Public Service Company rights- Form 8-B of Pinnacle West
of-way and easements, Four Corners Power
Plant Site, dated April 25, 1985
10.31 Indenture of Lease, Navajo Units 1, 2, and 5(g) to Form S-7 Registration 2-36505 3-23-70
3 Statement
10.32 Application and Grant of rights-of-way and 5(h) to Form S-7 Registration 2-36505 3-23-70
easements, Navajo Plant Statement
10.33 Water Service Contract Assignment with the 5(l) to Form S-7 Registration 2-39442 3-16-71
United States Department of Interior, Statement
Bureau of Reclamation, Navajo Plant
10.34 Arizona Nuclear Power Project 10.1 to 1988 Form 10-K Report 1-4473 3-8-89
Participation Agreement, dated August 23,
1973, among the Company, Salt River
Project Agricultural Improvement and Power
District, Southern California Edison
Company, Public Service Company of New
Mexico, El Paso Electric Company, Southern
California Public Power Authority, and
Department of Water and Power of the City
of Los Angeles, and amendments 1-12
thereto
10.35 Amendment No. 13 dated as of April 22, 10.1 to March 1991 Form 10-Q Report 1-4473 5-15-91
1991, to Arizona Nuclear Power Project
Participation Agreement, dated August 23,
1973, among the Company, Salt River
Project Agricultural Improvement and Power
District, Southern California Edison
Company, Public Service Company of New
Mexico, El Paso Electric Company, Southern
California Public Power Authority, and
Department of Water and Power of the City
of Los Angeles
10.36b Facility Lease, dated as of August 1, 4.3 to Form S-3 Registration Statement 33-9480 10-24-86
1986, between The First National Bank of
Boston, in its capacity as Owner Trustee,
as Lessor, and the Company, as Lessee
10.37b Amendment No. 1, dated as of November 1, 10.5 to September 1986 Form 10-Q 1-4473 12-4-86
1986, to Facility Lease, dated as of Report by means of Amendment No. 1 on
August 1, 1986, between The First National December 3, 1986 Form 8
Bank of Boston, in its capacity as Owner
Trustee, as Lessor, and the Company, as
Lessee
10.38 Amendment No. 2 dated as of June 1, 1987 10.3 to 1988 Form 10-K Report 1-4473 3-8-89
to Facility Lease dated as of August 1,
1986 between The First National Bank of
Boston, as Lessor, and APS, as Lessee
10.39b Amendment No. 3, dated as of March 17, 10.3 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Facility Lease, dated as of
August 1, 1986, between The First National
Bank of Boston, as Lessor, and the
Company, as Lessee
10.40 Facility Lease, dated as of December 15, 10.1 to November 18, 1986 Form 8-K 1-4473 1-20-87
1986, between The First National Bank of Report
Boston, in its capacity as Owner Trustee,
as Lessor, and the Company, as Lessee
10.41 Amendment No. 1, dated as of August 1, 4.13 to Form S-3 Registration 1-4473 8-24-87
1987, to Facility Lease, dated as of Statement No. 33-9480 by means of
December 15, 1986, between The First August 1, 1987 Form 8-K Report
National Bank of Boston, as Lessor, and
the Company, as Lessee
10.42 Amendment No. 2, dated as of March 17, 10.4 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Facility Lease, dated as of
December 15, 1986, between The First
National Bank of Boston, as Lessor, and
the Company, as Lessee
10.43a Directors' Deferred Compensation Plan, as 10.1 to June 1986 Form 10-Q Report 1-4473 8-13-86
restated, effective January 1, 1986
10.44a Deferred Compensation Plan, as restated, 10.4 to 1988 Form 10-K Report 1-4473 3-8-89
effective January 1, 1984, and the second
and third amendments thereto, dated
December 22, 1986, and December 23, 1987,
respectively
10.45a Agreement for Utility Consulting Services, 10.6 to 1988 Form 10-K Report 1-4473 3-8-89
dated March 1, 1985, between the Company
and Thomas G. Woods, Jr., and Amendment
No. 1 thereto, dated January 6, 1986
10.46a Letter Agreement, dated April 3, 1978, 10.7 to 1988 Form 10-K Report 1-4473 3-8-89
between the Company and O. Mark De
Michele, regarding certain retirement
benefits granted to Mr. De Michele
10.47a Deferred Compensation Agreement dated May 10.2 to 1989 Form 10-K Report 1-4473 3-8-90
8, 1989, between the Company and William
Conway
10.48ac Key Executive Employment and Severance 10.3 to 1989 Form 10-K Report 1-4473 3-8-90
Agreement between the Company and certain
executive officers of the Company
10.49ac Key Executive Employment and Severance 10.4 to 1989 Form 10-K Report 1-4473 3-8-90
Agreement between the Company and certain
managers of the Company
10.50a Arizona Public Service Company Performance 10.5 to 1989 Form 10-K Report 1-4473 3-8-90
Review Severance Pay Plan, effective
January 1, 1990
10.51a Arizona Public Service Company Severance 10.1 to September 30, 1993 Form 10-Q 1-4473 11-15-93
Plan Report
10.52a Pinnacle West Capital Corporation Stock 10.1 to 1992 Form 10-K Report 1-4473 3-30-93
Option and Incentive Plan
10.53a Pinnacle West Capital Corporation, Arizona 10.1 to 1991 Form 10-K Report 1-4473 3-19-92
Public Service Company, SunCor Development
Company, and El Dorado Investment Company
Deferred Compensation Plan, effective
January 1, 1992
10.54 Agreement No. 13904 (Option and Purchase 10.3 to 1991 Form 10-K Report 1-4473 3-19-92
of Effluent) with Cities of Phoenix,
Glendale, Mesa, Scottsdale, Tempe, Town of
Youngtown, and Salt River Project
Agricultural Improvement and Power
District, dated April 23, 1973
10.55 Agreement for the Sale and Purchase of 10.4 to 1991 Form 10-K Report 1-4473 3-19-92
Wastewater Effluent with City of Tolleson
and Salt River Agricultural Improvement
and Power District, dated June 12, 1981,
including Amendment No. 1 dated as of
November 12, 1981 and Amendment No. 2
dated as of June 4, 1986
99.1 Collateral Trust Indenture among PVNGS II 4.2 to 1992 Form 10-K Report 1-4473 3-30-93
Funding Corp., Inc., the Company and
Chemical Bank, as Trustee
99.2 Supplemental Indenture to Collateral Trust 4.3 to 1993 Form 10-K Report 1-4473 3-30-93
Indenture among PVNGS II Funding Corp.,
Inc., the Company and Chemical Bank, as
Trustee
99.3 b Participation Agreement, dated as of 28.1 to September 1992 Form 10-Q 1-4473 11-9-92
August 1, 1986, among PVNGS Funding Corp., Report
Inc., Bank of America National Trust and
Savings Association, The First National
Bank of Boston, in its individual capacity
and as Owner Trustee, Chemical Bank, in
its individual capacity and as Indenture
Trustee, the Company, and the Equity
Participant named therein
99.4 b Amendment No. 1 dated as of November 1, 10.8 to September 1986 Form 10-Q 1-4473 12-4-86
1986, to Participation Agreement, dated as Report by means of Amendment No. 1, on
of August 1, 1986, among PVNGS Funding December 3, 1986 Form 8
Corp., Inc., Bank of America National
Trust and Savings Association, The First
National Bank of Boston, in its individual
capacity and as Owner Trustee, Chemical
Bank, in its individual capacity and as
Indenture Trustee, the Company, and the
Equity Participant named therein
99.5 b Amendment No. 2, dated as of March 17, 28.4 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Participation Agreement, dated as
of August 1, 1986, among PVNGS Funding
Corp., Inc., PVNGS II Funding Corp., Inc.,
The First National Bank of Boston, in its
individual capacity and as Owner Trustee,
Chemical Bank, in its individual capacity
and as Indenture Trustee, the Company, and
the Equity Participant named therein
99.6 b Trust Indenture, Mortgage, Security 4.5 to Form S-3 Registration Statement 33-9480 10-24-86
Agreement and Assignment of Facility
Lease, dated as of August 1, 1986, between
The First National Bank of Boston, as
Owner Trustee, and Chemical Bank, as
Indenture Trustee
99.7 b Supplemental Indenture No. 1, dated as of 10.6 to September 1986 Form 10-Q 1-4473 12-4-86
November 1, 1986 to Trust Indenture, Report by means of Amendment No. 1 on
Mortgage, Security Agreement and December 3, 1986 Form 8
Assignment of Facility Lease, dated as of
August 1, 1986, between The First National
Bank of Boston, as Owner Trustee, and
Chemical Bank, as Indenture Trustee
99.8 b Supplemental Indenture No. 2 to Trust 4.4 to 1992 Form 10-K Report 1-4473 3-30-93
Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease, dated as
of August 1, 1986, between The First
National Bank of Boston, as Owner Trustee,
and Chemical Bank, as Indenture Trustee
99.9 b Assignment, Assumption and Further 28.3 to Form S-3 Registration 33-9480 10-24-86
Agreement, dated as of August 1, 1986, Statement
between the Company and The First National
Bank of Boston, as Owner Trustee
99.10b Amendment No. 1, dated as of November 1, 10.10 to September 1986 Form 10-Q 1-4473 12-4-86
1986, to Assignment, Assumption and Report by means of Amendment No. 1 on
Further Agreement, dated as of August 1, December 3, 1986 Form 8
1986, between the Company and The First
National Bank of Boston, as Owner Trustee
99.11b Amendment No. 2, dated as of March 17, 28.6 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Assignment, Assumption and
Further Agreement, dated as of August 1,
1986, between the Company and The First
National Bank of Boston, as Owner Trustee
99.12 Participation Agreement, dated as of 28.2 to September 1992 Form 10-Q 1-4473 11-9-92
December 15, 1986, among PVNGS Funding Report
Corp., Inc., The First National Bank of
Boston, in its individual capacity and as
Owner Trustee, Chemical Bank, in its
individual capacity and as Indenture
Trustee under a Trust Indenture, the
Company, and the Owner Participant named
therein
99.13 Amendment No. 1, dated as of August 1, 28.20 to Form S-3 Registration 1-4473 8-10-87
1987, to Participation Agreement, dated as Statement No. 33-9480 by means of a
of December 15, 1986, among PVNGS Funding November 6, 1986 Form 8-K Report
Corp., Inc. as Funding Corporation, The
First National Bank of Boston, as Owner
Trustee, Chemical Bank, as Indenture
Trustee, the Company, and the Owner
Participant named therein
99.14 Amendment No. 2, dated as of March 17, 28.5 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Participation Agreement, dated as
of December 15, 1986, among PVNGS Funding
Corp., Inc., PVNGS II Funding Corp., Inc.,
The First National Bank of Boston, in its
individual capacity and as Owner Trustee,
Chemical Bank, in its individual capacity
and as Indenture Trustee, the Company, and
the Owner Participant named therein
99.15 Trust Indenture, Mortgage, Security 10.2 to November 18, 1986 Form 8-K 1-4473 1-20-87
Agreement and Assignment of Facility Report
Lease, dated as of December 15, 1986,
between The First National Bank of Boston,
as Owner Trustee, and Chemical Bank, as
Indenture Trustee
99.16 Supplemental Indenture No. 1, dated as of 4.13 to Form S-3 Registration 1-4473 8-24-87
August 1, 1987, to Trust Indenture, Statement No. 33-9480 by means of
Mortgage, Security Agreement and August 1, 1987 Form 8-K Report
Assignment of Facility Lease, dated as of
December 15, 1986, between The First
National Bank of Boston, as Owner Trustee,
and Chemical Bank, as Indenture Trustee
99.17 Supplemental Indenture No. 2 to Trust 4.5 to 1992 Form 10-K Report 1-4473 3-30-93
Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease, dated as
of December 15, 1986, between The First
National Bank of Boston, as Owner Trustee,
and Chemical Bank, as Indenture Trustee
99.18 Assignment, Assumption and Further 10.5 to November 18, 1986 Form 8-K 1-4473 1-20-87
Agreement, dated as of December 15, 1986, Report
between the Company and The First National
Bank of Boston, as Owner Trustee
99.19 Amendment No. 1, dated as of March 17, 28.7 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Assignment, Assumption and
Further Agreement, dated as of December
15, 1986, between the Company and The
First National Bank of Boston, as Owner
Trustee
99.20b Refinancing Agreement, as amended, 28.1 to 1992 Form 10-K Report 1-4473 3-30-93
including Exhibits thereto, among the
Equity Participant named therein, as
Equity Participant, PVNGS Funding Corp.,
Inc., as Old Funding Corporation, PVNGS II
Funding Corp., Inc., as Funding Corp.,
Chemical Bank, as Indenture Trustee, The
First National Bank of Boston, as Owner
Trustee, and the Company, as Lessee
99.21 Refinancing Agreement, as amended, 28.2 to 1992 Form 10-K Report 1-4473 3-30-93
including Exhibits thereto, among the
Owner Participant named therein, as Owner
Participant, PVNGS Funding Corp., Inc., as
Old Funding Corporation, PVNGS II Funding
Corp., Inc., as Funding Corp., Chemical
Bank, as Indenture Trustee, The First
National Bank of Boston, as Owner Trustee,
and the Company, as Lessee
99.22b Indemnity Agreement dated as of March 17, 28.3 to 1992 Form 10-K Report 1-4473 3-30-93
1993 by the Company
99.23b Amendment No. 2 dated as of July 18, 1991 28.5 to Form S-3 Registration 1-4473 2-10-93
to Reimbursement Agreement dated as of Statement No. 33-57822
August 1, 1986, between the Company and
Morgan Guaranty Trust Company of New York
99.24 Extension Letter, dated as of August 13, 28.20 to Form S-3 Registration 1-4473 8-10-87
1987, from the signatories of the Statement No. 33-9480 by means of a
Participation Agreement to Chemical Bank November 6, 1986 Form 8-K Report
99.25 Pledge Agreement dated as of January 31, 28.1 to January 21, 1990 Form 8-K 1-4473 2-15-90
1990, between Pinnacle West Capital Report
Corporation as Pledgor and Citibank, N.A.
as Collateral Agent
99.26 Arizona Corporation Commission Order dated 28.1 to 1991 Form 10-K Report 1-4473 3-19-92
December 6, 1991
- ----------
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) An additional document, substantially identical in all material
respects to this Exhibit, has been entered into, relating to an
additional Equity Participant. Although such additional document may
differ in other respects (such as dollar amounts, percentages, tax
indemnity matters, and dates of execution), there are no material
details in which such document differs from this Exhibit.
(c) Additional agreements, substantially identical in all material
respects to this Exhibit have been entered into with additional
officers and key employees of the Company. Although such additional
documents may differ in other respects (such as dollar amounts and
dates of execution), there are no material details in which such
agreements differ from this Exhibit.
REPORTS ON FORM 8-K
During the quarter ended December 31, 1993, and the period ended March 29,
1994, the Company filed the following Reports on Form 8-K:
Report filed February 17, 1994, regarding (i) inspections of the steam
generators of the Palo Verde units and related issues, and (ii) the Company's
settlement agreement with a former contract employee.
Report filed March 1, 1994 comprised of exhibits to the Company's
Registration Statement (Registration No. 33-61228) relating to the Company's
offering of $100 million of its First Mortgage Bonds.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ARIZONA PUBLIC SERVICE COMPANY
(Registrant)
Date: March 29, 1994 O. MARK DE MICHELE
--------------------------------
(O. Mark De Michele, President
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
O. MARK DE MICHELE Principal Executive Officer March 29, 1994
- ------------------------------- and Director
(O. Mark De Michele,
President
and Chief Executive Officer)
JARON B. NORBERG Principal Financial Officer March 29, 1994
- ------------------------------- and Director
(Jaron B. Norberg, Executive
Vice President
and Chief Financial Officer)
WILLIAM J. POST Principal Accounting Officer March 29, 1994
- -------------------------------
(William J. Post, Senior
Vice President)
KENNETH M. CARR Director March 29, 1994
- -------------------------------
(Kenneth M. Carr)
MARTHA O. HESSE Director March 29, 1994
- -------------------------------
(Martha O. Hesse)
MARIANNE MOODY JENNINGS Director March 29, 1994
- -------------------------------
(Marianne Moody Jennings)
JACK M. MORGAN Director March 29, 1994
- -------------------------------
(Jack M. Morgan)
ROBERT G. MATLOCK Director March 29, 1994
- -------------------------------
(Robert G. Matlock)
MARVIN R. MORRISON Director March 29, 1994
- -------------------------------
(Marvin R. Morrison)
JOHN R. NORTON III Director March 29, 1994
- -------------------------------
(John R. Norton III)
DONALD M. RILEY Director March 29, 1994
- -------------------------------
(Donald M. Riley)
HENRY B. SARGENT Director March 29, 1994
- -------------------------------
(Henry B. Sargent)
WILMA W. SCHWADA Director March 29, 1994
- -------------------------------
(Wilma W. Schwada)
VERNE D. SEIDEL Director March 29, 1994
- -------------------------------
(Verne D. Seidel)
RICHARD SNELL Director March 29, 1994
- -------------------------------
(Richard Snell)
MORRISON F. WARREN Director March 29, 1994
- -------------------------------
(Morrison F. Warren)
BEN F. WILLIAMS, JR. Director March 29, 1994
- -------------------------------
(Ben F. Williams, Jr.)
THOMAS G. WOODS, JR. Director March 29, 1994
- -------------------------------
(Thomas G. Woods, Jr.)
APPENDIX
In accordance with Item 304 of Regulation S-T of the Securities Exchange
Act of 1934, the Company's Service Territory map contained in this Form 10-K
is a map of the state of Arizona showing the Company's service area, the
location of its major power plants and principal transmission lines, and the
location of transmission lines operated by the Company for others. The major
power plants shown on such map are the Navajo Generating Station located in
Coconino County, Arizona; the Four Corners Power Plant located near
Farmington, New Mexico; the Cholla Power Plant, located in Navajo County,
Arizona; the Yucca Power Plant, located near Yuma, Arizona; and the Palo Verde
Nuclear Generating Station, located about 55 miles west of Phoenix, Arizona
(each of which plants is reflected on such map as being jointly owned with
other utilities), as well as the Ocotillo Power Plant and West Phoenix Power
Plant, each located near Phoenix, Arizona, and the Saguaro Power Plant,
located near Tucson, Arizona. The Company's major transmission lines shown on
such map are reflected as running between the power plants named above and
certain major cities in the state of Arizona. The transmission lines operated
for others shown on such map are reflected as running from the Four Corners
Plant through a portion of northern Arizona to the California border.
COMMISSION FILE NUMBER 1-4473
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
EXHIBITS TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
--------------
ARIZONA PUBLIC SERVICE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.1 -- Agreement, dated March 21, 1994,
relating to the filing of instruments
defining the rights of holders of long-
term debt not in excess of 10% of the
Company's total assets
4.2 -- Fiftieth Supplemental Indenture
10.1 -- Cure and Assumption Agreement dated as
of November 19, 1993 among the Company,
Salt River Project Agricultural
Improvement and Power District,
Southern California Edison Company,
Public Service Company of New Mexico,
Southern California Public Power
Authority, Department of Water and
Power of the City of Los Angeles, and
El Paso Electric Company, and certain
schedules thereto
10.2a -- Second Amendment to the Arizona Public
Service Company Directors' Deferred
Compensation Plan, effective as of
January 1, 1993
10.3a -- Third Amendment to the Arizona Public
Service Company Deferred Compensation
Plan, effective as of January 1, 1993
10.4ac -- Revised form of Key Executive
Employment and Severance Agreement
between the Company and certain
key employees of the Company
10.5ac -- Revised form of Key Executive
Employment and Severance Agreement
between the Company and certain
executive officers of the Company
10.6a -- Amendment to Pinnacle West Capital
Corporation, Arizona Public Service
Company, SunCor Development Company,
and El Dorado Investment Company
Deferred Compensation Plan, effective
as of December 4, 1992
10.7a -- Pinnacle West Capital Corporation,
Arizona Public Service Company, SunCor
Development Company, and El Dorado
Investment Company Supplemental
Executive Benefit Plan as amended and
restated on December 31, 1992 effective
as of January 1, 1992
10.8a -- Arizona Public Service Company
Supplemental Excess Benefit Retirement
Plan and the First, Second, and Third
Amendments thereto
10.9a -- 1994 Key Employees Variable Pay Plan
10.10a -- 1994 Officers Variable Pay Plan
23.1 -- Consent of Deloitte & Touche
- ----------
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) An additional document, substantially identical in all material
respects to this Exhibit, has been entered into, relating to an
additional Equity Participant. Although such additional document may
differ in other respects (such as dollar amounts, percentages, tax
indemnity matters, and dates of execution), there are no material
details in which such document differs from this Exhibit.
(c) Additional agreements, substantially identical in all material
respects to this Exhibit have been entered into with additional
officers and key employees of the Company. Although such additional
documents may differ in other respects (such as dollar amounts and
dates of execution), there are no material details in which such
agreements differ from this Exhibit.
For a description of the Exhibits incorporated in this filing by reference
see Part IV, Item 14.