FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
400 North Fifth Street, P.O. Box 53999, Phoenix, Arizona 85072-3999
(Address of Eprincipal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 250-1000
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of common stock, $2.50 par value,
outstanding as of November 10, 1994: 71,264,947
Glossary
ACC - Arizona Corporation Commission
ACC Order - Final order of the ACC dated June 1, 1994 approving the Rate
Settlement Agreement between the Company and the ACC Staff dated
May 27, 1994
ACC Staff - Staff of the Arizona Corporation Commission
AFUDC - Allowance for funds used during construction
Company - Arizona Public Service Company
CSW - Central and South West Corporation
EPA - United States Environmental Protection Agency
EPEC - El Paso Electric Company
Four Corners - Four Corners Power Plant
ITCs - Investment tax credits
June 10-Q - Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1994
1991 Settlement - December 1991 retail rate case settlement
1993 10-K - Arizona Public Service Company Annual Report on Form 10-K for
the fiscal year ended December 31, 1993
Palo Verde - Palo Verde Nuclear Generating Station
Pinnacle West - Pinnacle West Capital Corporation
<AUDIT-REPORT>
INDEPENDENT ACCOUNTANTS' REPORT
Arizona Public Service Company:
We have reviewed the accompanying condensed balance sheet of Arizona Public
Service Company as of September 30, 1994 and the related condensed statements
of income for the three-month, nine-month and twelve-month periods ended
September 30, 1994 and 1993 and cash flows for the nine-month periods ended
September 30, 1994 and 1993. These condensed financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Arizona Public Service Company as of December
31, 1993 and the related statements of income, retained earnings, and cash
flows for the year then ended (not presented herein); and in our report dated
February 21, 1994, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of December 31, 1993 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
November 7, 1994
</AUDIT-REPORT>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months
Ended September 30,
----------------------
1994 1993
--------- ---------
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES .......................... $ 570,427 $ 524,483
--------- ---------
FUEL EXPENSES:
Fuel for electric generation ....................... 70,035 67,171
Purchased power ................................. 25,532 28,343
--------- ---------
Total ......................................... 95,567 95,514
--------- ---------
OPERATING REVENUES LESS FUEL EXPENSES .............. 474,860 428,969
--------- ---------
OTHER OPERATING EXPENSES:
Operations excluding fuel expenses ................. 77,555 75,145
Maintenance ........................................ 25,389 26,012
Depreciation and amortization ..................... 58,827 55,837
Income taxes - current ............................. 66,865 41,663
Income taxes - deferred ............................ 25,565 35,885
Other taxes ........................................ 65,544 61,788
--------- ---------
Total ........................................... 319,745 296,330
--------- ---------
OPERATING INCOME ..................................... 155,115 132,639
--------- ---------
OTHER INCOME (DEDUCTIONS):
AFUDC - equity ..................................... 1,014 684
Palo Verde accretion income ........................ -- 18,959
Other - net ........................................ (2,200) (193)
Income taxes - current ............................. 2,978 1,846
Income taxes - deferred .......................... 1,911 (5,557)
--------- ---------
Total ........................................... 3,703 15,739
--------- ---------
INCOME BEFORE INTEREST DEDUCTIONS .................... 158,818 148,378
--------- ---------
INTEREST DEDUCTIONS:
Interest on long-term debt ......................... 40,169 41,370
Interest on short-term borrowings .................. 1,856 2,634
Debt discount, premium and expense ................ 1,927 2,269
AFUDC - debt ....................................... (1,401) (806)
--------- ---------
Total ......................................... 42,551 45,467
--------- ---------
NET INCOME ........................................... 116,267 102,911
PREFERRED STOCK DIVIDEND REQUIREMENTS ................ 5,908 7,294
--------- ---------
EARNINGS FOR COMMON STOCK ............................ $ 110,359 $ 95,617
========= =========
See Notes to Condensed Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
Nine Months
Ended September 30,
-------------------------
1994 1993
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES ........................ $ 1,353,191 $ 1,303,161
----------- -----------
FUEL EXPENSES:
Fuel for electric generation ..................... 188,093 177,208
Purchased power .................................. 51,899 55,416
----------- -----------
Total ........................................ 239,992 232,624
----------- -----------
OPERATING REVENUES LESS FUEL EXPENSES .............. 1,113,199 1,070,537
----------- -----------
OTHER OPERATING EXPENSES:
Operations excluding fuel expenses ............... 219,998 205,698
Maintenance ...................................... 89,011 80,761
Depreciation and amortization ................... 174,401 166,900
Income taxes - current ........................... 95,059 87,535
Income taxes - deferred .......................... 52,949 57,848
Other taxes ...................................... 175,912 167,451
----------- -----------
Total ........................................ 807,330 766,193
----------- -----------
OPERATING INCOME ................................... 305,869 304,344
----------- -----------
OTHER INCOME (DEDUCTIONS):
AFUDC - equity ................................... 2,837 2,094
Palo Verde accretion income ...................... 33,596 55,418
Other - net ...................................... 16,976 (1,576)
Income taxes - current ........................... 4,895 3,436
Income taxes - deferred ......................... (15,506) (18,207)
----------- -----------
Total ........................................ 42,798 41,165
----------- -----------
INCOME BEFORE INTEREST DEDUCTIONS .................. 348,667 345,509
----------- -----------
INTEREST DEDUCTIONS:
Interest on long-term debt ....................... 120,209 124,263
Interest on short-term borrowings ................ 4,990 5,734
Debt discount, premium and expense ............... 6,800 6,843
AFUDC - debt ..................................... (3,918) (2,772)
----------- -----------
Total ......................................... 128,081 134,068
----------- -----------
NET INCOME ......................................... 220,586 211,441
PREFERRED STOCK DIVIDEND REQUIREMENTS .............. 20,390 22,831
----------- -----------
EARNINGS FOR COMMON STOCK .......................... $ 200,196 $ 188,610
=========== ===========
See Notes to Condensed Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
Twelve Months
Ended September 30,
------------------------
1994 1993
----------- -----------
(Thousands of Dollars)
ELECTRIC OPERATING REVENUES .......................... $ 1,736,320 $ 1,701,921
----------- -----------
FUEL EXPENSES:
Fuel for electric generation ....................... 242,319 237,103
Purchased power .................................... 65,595 66,944
----------- -----------
Total .......................................... 307,914 304,047
----------- -----------
OPERATING REVENUES LESS FUEL EXPENSES ................ 1,428,406 1,397,874
----------- -----------
OTHER OPERATING EXPENSES:
Operations excluding fuel expenses ................. 296,960 283,149
Maintenance ....................................... 126,806 111,078
Depreciation and amortization ...................... 230,111 221,952
Income taxes - current ............................ 105,047 119,438
Income taxes - deferred .......................... 65,634 55,141
Other taxes ........................................ 229,835 221,550
----------- -----------
Total ........................................... 1,054,393 1,012,308
----------- -----------
OPERATING INCOME .................................. 374,013 385,566
----------- -----------
OTHER INCOME (DEDUCTIONS):
AFUDC - equity ..................................... 3,069 2,776
Palo Verde accretion income ....................... 53,058 72,943
Other - net ........................................ 16,417 (6,082)
Income taxes - current ............................. 5,824 5,499
Income taxes - deferred ............................ (22,515) (24,491)
----------- -----------
Total ........................................... 55,853 50,645
----------- -----------
INCOME BEFORE INTEREST DEDUCTIONS .................... 429,866 436,211
----------- -----------
INTEREST DEDUCTIONS:
Interest on long-term debt ......................... 160,556 167,449
Interest on short-term borrowings .................. 5,918 6,978
Debt discount, premium and expense ............... 9,160 9,055
AFUDC - debt ...................................... (5,299) (3,675)
----------- -----------
Total ........................................... 170,335 179,807
----------- -----------
NET INCOME ........................................... 259,531 256,404
PREFERRED STOCK DIVIDEND REQUIREMENTS ............... 28,399 30,756
----------- -----------
EARNINGS FOR COMMON STOCK ........................... $ 231,132 $ 225,648
=========== ===========
See Notes to Condensed Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, December 31,
------------ -----------
1994 1993
------------ -----------
(Thousands of Dollars)
UTILITY PLANT:
Electric plant in service and held for
future use..................................... $ 6,458,705 $ 6,333,884
Less accumulated depreciation and amortization . 2,077,656 1,991,143
----------- -----------
Total ....................................... 4,381,049 4,342,741
Construction work in progress .................. 176,249 197,556
Nuclear fuel, net of amortization .............. 56,288 60,953
----------- -----------
Utility plant - net ......................... 4,613,586 4,601,250
----------- -----------
INVESTMENTS AND OTHER ASSETS : ....................... 70,585 63,224
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents ....................... 8,261 7,557
Accounts receivable:
Service customers ............................ 131,267 102,745
Other ........................................ 20,235 21,091
Allowance for doubtful accounts .............. (2,016) (2,569)
Accrued utility revenues ........................ 83,997 60,356
Materials and supplies, at average cost ......... 95,827 96,174
Fossil fuel, at average cost .................... 24,956 34,220
Deferred income taxes ........................... 25,527 29,117
Other ........................................... 14,248 12,653
----------- -----------
Total current assets ........................ 402,302 361,344
----------- -----------
DEFERRED DEBITS:
Regulatory asset for income taxes ............... 554,868 585,294
Palo Verde Unit 3 cost deferral ................. 294,877 301,748
Palo Verde Unit 2 cost deferral ................. 173,451 177,998
Unamortized costs of reacquired debt ............ 63,583 63,147
Unamortized debt issue costs .................... 17,307 17,999
Other ........................................... 188,518 185,258
----------- -----------
Total deferred debits ....................... 1,292,604 1,331,444
----------- -----------
TOTAL ....................................... $ 6,379,077 $ 6,357,262
=========== ===========
See Notes to Condensed Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
LIABILITIES
(Unaudited)
September 30, December 31,
1994 1993
------------- ------------
(Thousands of Dollars)
CAPITALIZATION:
Common stock .............................. $ 178,162 $ 178,162
Premiums and expense - net ................ 1,039,303 1,037,681
Retained earnings ......................... 378,139 307,098
----------- -----------
Common stock equity .................... 1,595,604 1,522,941
Non-redeemable preferred stock ............ 193,561 193,561
Redeemable preferred stock ................ 95,000 197,610
Long-term debt less current maturities .... 2,170,319 2,124,654
----------- -----------
Total capitalization ................... 4,054,484 4,038,766
----------- -----------
CURRENT LIABILITIES:
Commercial paper .......................... 35,500 148,000
Current maturities of long-term debt ...... 3,375 3,179
Accounts payable .......................... 84,959 81,772
Accrued taxes ............................. 180,052 112,293
Accrued interest .......................... 34,821 45,729
Common dividends payable .................. 22,500 --
Other ..................................... 69,956 60,737
----------- -----------
Total current liabilities .............. 431,163 451,710
----------- -----------
DEFERRED CREDITS AND OTHER:
Deferred income taxes ..................... 1,431,558 1,391,184
Deferred investment tax credit ............ 143,884 149,819
Unamortized gain - sale of utility plant .. 100,749 107,344
Customer advances for construction ........ 18,032 15,578
Other ..................................... 199,207 202,861
----------- -----------
Total deferred credits and other ...... 1,893,430 1,866,786
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 6, 7 and 8)
TOTAL .................................. $ 6,379,077 $ 6,357,262
=========== ===========
See Notes to Condensed Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
---------------------
1994 1993
--------- ---------
(Thousands of Dollars)
Cash Flows from Operating Activities:
Net income ........................................... $ 220,586 $ 211,441
Items not requiring cash:
Depreciation and amortization ...................... 174,401 166,900
Nuclear fuel amortization .......................... 23,226 25,430
AFUDC - equity ..................................... (2,837) (2,094)
Deferred income taxes - net ........................ 74,390 81,891
Deferred investment tax credit - net ............... (5,935) (5,835)
Refund obligation - net ............................ (9,308) (16,031)
Palo Verde accretion income ........................ (33,596) (55,418)
Changes in certain current assets and liabilities:
Accounts receivable - net .......................... (28,219) 14,272
Accrued utility revenues ........................... (23,641) (20,472)
Materials, supplies and fossil fuel ................ 9,611 3,191
Other current assets ............................... (1,595) (59,045)
Accounts payable ................................... 16,634 (9,534)
Accrued taxes ...................................... 67,759 67,714
Accrued interest ................................... (10,926) (7,073)
Other current liabilities .......................... 19,353 14,863
Other - net .......................................... (3,022) 33,183
--------- ---------
Net cash flow provided by operating activities ... 486,881 443,383
--------- ---------
Cash Flows from Financing Activities:
Long-term debt ....................................... 498,418 520,020
Short-term borrowings - net .......................... (112,500) (150,000)
Dividends paid on common stock ....................... (105,000) (127,500)
Dividends paid on preferred stock .................... (21,207) (23,042)
Repayment of preferred stock ......................... (104,096) (28,040)
Repayment and reacquisition of long-term debt ........ (457,432) (415,515)
--------- ---------
Net cash flow used for financing activities ..... (301,817) (224,077)
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures ................................. (179,836) (166,671)
AFUDC - equity ....................................... 2,837 2,094
Other ................................................ (7,361) (6,737)
--------- ---------
Net cash flow used for investing activities ...... (184,360) (171,314)
--------- ---------
Net increase (decrease) in cash and cash equivalents ... 704 47,992
Cash and cash equivalents at beginning of period ....... 7,557 1,152
--------- ---------
Cash and cash equivalents at end of period ............. $ 8,261 $ 49,144
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest (excluding capitalized interest) .......... $ 132,050 $ 129,315
Income taxes ....................................... $ 60,151 $ 55,205
See Notes to Condensed Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position of the Company as of
September 30, 1994, the results of operations for the three months, nine months,
and twelve months ended September 30, 1994 and 1993, and the cash flows for the
nine months ended September 30, 1994 and 1993. It is suggested that these
condensed financial statements and notes to condensed financial statements be
read in conjunction with the financial statements and notes to financial
statements included in the 1993 10-K.
2. 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 changing 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.
3. All the outstanding shares of common stock of the Company are owned by
Pinnacle West. Pursuant to a Pledge Agreement, dated as of January 31, 1990, 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.
4. See "Liquidity and Capital Resources" in Part I, Item 2 of this report for
changes in capitalization since December 31, 1993.
5. By order dated June 1, 1994 (the "ACC Order") the ACC approved the terms of a
settlement agreement dated May 27, 1994 between the Company and the ACC Staff.
The ACC Order (a) reduced the Company's annual retail rates by approximately
$38.3 million, or 2.7%, effective June 1, 1994; (b) establishes mandatory
spending levels on renewable resources and demand side management projects that
the Company will be allowed to recover through a surcharge which, when netted
against the rate reduction referenced in clause (a), would result in a rate
reduction of approximately 2.2%; (c) provides that neither the Company nor the
ACC Staff will file for a permanent change to the Company's general rates and
charges before December 31, 1996, except under certain circumstances; (d)
establishes a cost of service target based on fuel and operation and maintenance
expenses that, if met or exceeded by the Company, would entitle the Company to a
percentage of the resulting savings if the next general rate proceeding results
in no increase in residential rates; (e) confirms that all three Palo Verde
units are, and in future rate cases will be, included in the Company's rate
base, unless there are significant changes in the operating characteristics,
reliability, or efficiency of the units; (f) approves higher decommissioning
funding levels for each of the Palo Verde units; (g) allows the Company to
accelerate the amortization of certain ITCs; and (h) allowed the Company to
record a one-time depreciation reversal related to Palo Verde (associated with
the 1991 Settlement) in the amount of approximately $15.0 million after tax.
Because of the non-cash earnings resulting from the items discussed in clauses
(g) and (h) of this Note 5, the Company does not expect its earnings to be
significantly affected by the retail rate reduction resulting from the ACC
Order. The description of the ACC Order in this paragraph is a summary and is
qualified in its entirety by the copy of the ACC Order that is attached as an
exhibit to the June 10-Q.
6. 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 and
decommissioning 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.
7. The other joint owners of Palo Verde and Four Corners Units 4 and 5 include
El Paso Electric Company ("EPEC"), which is currently operating under Chapter 11
of the Bankruptcy Code. A plan whereby EPEC would become a wholly-owned
subsidiary of Central and South West Corporation ("CSW") (the "EPEC Plan") would
resolve certain issues to which the Company could be exposed by the bankruptcy,
including potential claims by EPEC arising out of the Company's role as Palo
Verde operating agent in connection with the 1989-90 Palo Verde outages. In the
disclosure statement relating to the EPEC Plan, EPEC stated that these claims
may be of "significant value." EPEC has granted the Company a release for these
potential claims, but the release will become effective only if, among other
things, the EPEC Plan becomes effective.
In September 1994 EPEC received a letter from CSW stating that CSW
believes certain matters constitute a failure of certain closing conditions
under the merger agreement between the parties that would preclude the closing
of the merger unless the matters are timely resolved. EPEC subsequently advised
CSW that EPEC did not believe that a failure of any closing condition had
occurred. The Company cannot predict when or if the EPEC Plan will become
effective, or, if the EPEC Plan does not become effective, whether EPEC would
assert any claims against the Company arising out of the 1989-90 Palo Verde
outages or the size of any such claims. The Company does not expect, however,
that any such claims, if asserted, would have a materially adverse impact on its
operations or financial position.
8. The Company has encountered axial tube cracking in the upper regions of the
two steam generators in Unit 2 and, to a lesser degree, in Unit 3. The Company
believes that this form of tube degradation, the location of which is uncommon
in the industry, is due to the susceptibility of tube materials to a combination
of deposits on the tubes and the relatively high temperatures at which all three
units are designed to operate. The Company has taken, and will continue to take,
remedial actions that it believes will retard further tube degradation to
acceptable levels. These actions have included chemically cleaning the Unit 2
and 3 steam generators, and improving the water quality and reducing the
operating temperature in all three units.
All of the Palo Verde units are now operating at or near 100% capacity.
In March and October 1994 the Company performed mid-cycle inspection outages at
Unit 2. The October outage revealed that the number of steam generator tubes
with indications of degradation was well within the Company's projections. Unit
2 is scheduled for a refueling and maintenance outage in early 1995. Palo Verde
Unit 3 completed a refueling outage in June 1994 and is scheduled for a
mid-cycle inspection outage beginning in November 1994. Unit 1 is scheduled for
a refueling outage beginning in April 1995.
When tube 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 all
three units, particularly in Unit 2, which is by far the most affected by
cracking and plugging. The Company expects that the remedial actions referenced
above will slow the rate of plugging to an acceptable level. The Company
currently believes that the Palo Verde steam generators are capable of operating
for their designed life of forty years, although, at some point in the future,
long-term economic considerations may make steam generator replacement a
desirable option.
ARIZONA PUBLIC SERVICE COMPANY
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Operating Results
The following table summarizes the Company's revenues and earnings for the
three-month, nine-month, and twelve-month periods ended September 30, 1994 and
1993:
Periods ended September 30
(Thousands of Dollars)
Three Months Nine Months Twelve Months
------------------ ---------------------- ----------------------
1994 1993 1994 1993 1994 1993
------------------ ---------------------- ----------------------
Operating
Revenues ... $570,427 $524,483 $1,353,191 $1,303,161 $1,736,320 $1,701,921
Earnings
for common
stock ...... $110,359 $ 95,617 $ 200,196 $ 188,610 $ 231,132 $ 225,648
Operating Results - Three-month period ended September 30, 1994 compared
------------------------------------------------------------------------
to three-month period ended September 30, 1993
----------------------------------------------
Earnings increased in the three-month period ended September 30, 1994
primarily due to increased operating revenues. Operating revenues were up
significantly due to higher sales resulting from warmer weather and continued
customer growth. Partially offsetting the increased operating revenues were the
absence of non-cash income related to the 1991 Settlement, which the Company
completed recording in May 1994, and a retail rate reduction which became
effective June 1, 1994 (see Note 5 of Notes to Condensed Financial Statements in
Part I, Item 1 of this report). Although generation was up to meet the increased
sales, total fuel costs remained relatively flat between the two periods due
primarily to improved nuclear operations.
Operating Results - Nine-month period ended September 30, 1994 compared
-----------------------------------------------------------------------
to nine-month period ended September 30, 1993
---------------------------------------------
Earnings increased in the nine-month period ended September 30, 1994
primarily due to increased operating revenues and the reversal of certain
previously recorded depreciation related to Palo Verde (see Note 5 of Notes to
Condensed Financial Statements in Part I, Item 1 of this report). Operating
revenues were up significantly due to higher sales resulting from warmer weather
and continued customer growth. Partially offsetting the increased operating
revenues were increases in operations and maintenance expenses, lower non-cash
income related to the 1991 Rate Settlement, a retail rate reduction, higher fuel
costs, and lower interchange sales to other utilities. Operations and
maintenance expenses increased due primarily to employee severance costs
resulting from various Company cost-reduction efforts and higher power plant
maintenance costs. The increase in power plant maintenance costs was primarily
due to the timing of scheduled outages for certain fossil plants and certain
remedial actions at Palo Verde (see Note 8 of Notes to Condensed Financial
Statements in Part I, Item 1 of this report). Fuel costs were higher due to
replacement power related to reduced nuclear generation in the first half of
1994 and to the increased generation needed to meet higher sales. These fuel
increases were partially offset by fewer interchange sales and improved nuclear
operations in the third quarter of 1994.
Operating Results - Twelve-month period ended September 30, 1994 compared
-------------------------------------------------------------------------
to twelve-month period ended September 30, 1993
-----------------------------------------------
Earnings increased in the twelve-month period ended September 30, 1994
primarily due to increased operating revenues and the reversal of certain
previously recorded depreciation related to Palo Verde (see Note 5 of Notes to
Condensed Financial Statements in Part I, Item 1 of this report). Operating
revenues were up due to continued customer growth and warmer weather. Partially
offsetting the increased operating revenues were increased operations and
maintenance costs, lower non-cash income related to the 1991 Settlement, higher
fuel costs, lower interchange sales, and a retail rate reduction. Operations and
maintenance costs increased primarily due to higher power plant maintenance
costs and employee severance costs. The increase in power plant maintenance
costs was primarily due to the timing of scheduled outages for certain fossil
plants and certain remedial actions taken at Palo Verde (see Note 8 of Notes to
Condensed Financial Statements in Part I, Item 1 of this report). Fuel costs
were higher due to replacement power related to reduced nuclear generation plus
the increased generation needed to meet higher sales. These fuel increases were
partially offset by fewer interchange sales and improved nuclear operations in
the third quarter of 1994. Lower interest costs also contributed to the earnings
increase.
Other Income
------------
Other income reflects accounting practices required for regulated public
utilities and represents a composite of cash and noncash items, including AFUDC.
Included in the nine months ended September 30, 1994 other income amounts are
$20.3 million of after-tax accretion income on Palo Verde Unit 3 and $5.6
million of after-tax income resulting from Palo Verde refund obligation
reversals recorded by the Company in accordance with the 1991 Settlement. The
Company has now recorded all of the Unit 3 accretion income and Palo Verde
refund obligation reversals related to the 1991 Settlement. See Note 2 of Notes
to Financial Statements in Part II, Item 8 of the 1993 10-K. Also included in
the nine months ended September 30, 1994 other income amounts is a one-time
depreciation reversal related to Palo Verde in the amount of approximately $15.0
million after tax recorded by the Company in accordance with the ACC Order (see
Note 5 of Notes to Condensed Financial Statements in Part I, Item 1 of this
report).
1994 Settlement Agreement
- -------------------------
See Note 5 of Notes to Condensed Financial Statements in Part I, Item 1
of this report for a discussion of the ACC Order. Because of the non-cash
earnings (1) that will result from the accelerated amortization of ITCs during
the 1995-1999 period; and (2) that resulted from the reversal of depreciation
related to Palo Verde (associated with the 1991 Settlement), the Company does
not expect its earnings to be significantly affected by the retail rate
reduction resulting from the ACC Order.
Liquidity and Capital Resources
- -------------------------------
For the nine months ended September 30, 1994, the Company incurred
approximately $163 million in construction expenditures, accounting for
approximately 60% of the most recently estimated 1994 construction expenditures.
The Company has estimated total construction expenditures for the years 1994,
1995, and 1996 to be approximately $272 million, $298 million, and $257 million,
respectively.
Refunding obligations for preferred stock and long-term debt, a
capitalized lease obligation, and certain actual and anticipated early
redemptions, including premiums thereon, are expected to total approximately
$587 million (of which $518 million are optional), $106 million, and $4 million
for the years 1994, 1995, and 1996, respectively. During the first nine months
of 1994, the Company refunded approximately $562 million (96%) of the estimated
1994 total. This amount includes the redemption, refunding, or repurchase of
approximately $456 million of long-term debt and the redemption of approximately
$104 million of preferred stock, including premiums thereon. In October 1994 the
Company repurchased approximately $5 million of its First Mortgage Bonds and
incurred approximately $11 million of long-term debt in connection with a
tax-exempt financing. On October 24, 1994, the Company redeemed all $20 million
of its outstanding $8.48 Cumulative Preferred Stock, Series S (the "Series S
Stock"). Since December 31, 1993, the Company has issued $100 million of its
First Mortgage Bonds and incurred approximately $412 million of long-term debt
in connection with tax-exempt financings.
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 cash
deposited with the mortgage bond trustee. As of September 30, 1994, and
adjusting for the (i) purchase of approximately $5 million of First Mortgage
Bonds, (ii) incurrence of approximately $11 million of long-term debt in
connection with a tax-exempt financing, and (iii) redemption of $20 million of
the Series S Stock, the Company estimates that the mortgage bond indenture and
the articles of incorporation would have allowed the Company to issue up to
approximately $1.29 billion and $981 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.
PART II - OTHER INFORMATION
ITEM 5. Other Information
- --------------------------
Palo Verde Nuclear Generating Station
-------------------------------------
See Note 8 of Notes to Condensed Financial Statements in Part I, Item 1
of this report for a discussion of issues relating to the Palo Verde steam
generators.
Construction and Financing Programs
-----------------------------------
See "Liquidity and Capital Resources" in Part I, Item 2 of this report
for a discussion of the Company's construction and financing programs.
Water Supply
------------
As previously reported, in an action pending in Maricopa County Superior
Court relating to claims to water in the Lower Gila Watershed, issues
important to the Company's claims were remanded to the trial court for further
action and the trial court certified its decision for interlocutory appeal to
the Arizona Supreme Court. See "Water Supply" in Part II, Item 5 of the June
10-Q. On September 28, 1994, the Arizona Supreme Court granted review of the
June 30, 1994, trial court decision.
Environmental Matters
---------------------
As previously reported, 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. See "Environmental
Matters" in Part I, Item 1 of the 1993 10-K. The Company has determined that
it will accelerate to 1997 compliance with these requirements. The Company
estimates that the cost of such compliance will be approximately $20 million,
most of which will be incurred during 1995.
ITEM 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1 Third Amendment to the Arizona
Public Service Company Directors'
Deferred Compensation Plan
10.2 Fourth Amendment to the
Arizona Public Service Company
Deferred Compensation Plan
15.1 Letter in Lieu of Consent
Regarding Unaudited Interim
Financial Information
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1994, and the period ended
November 10, 1994 the Company filed the following reports on Form 8-K:
Report dated October 19, 1994 comprised of an exhibit to the Company's
Registration Statements (Registration Nos. 33-61228 and 33-55473).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARIZONA PUBLIC SERVICE COMPANY
(Registrant)
Dated: November 10, 1994 By Jaron B. Norberg
--------------------- ----------------------------
Jaron B. Norberg
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer
and Officer Duly Authorized
to sign this Report)