SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 4, 1995
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ARIZONA PUBLIC SERVICE COMPANY
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(Exact name of registrant as specified in its charter)
Arizona 1-4473 86-0011170
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation Number)
400 North Fifth Street, P.O. Box 53999, Phoenix, AZ 85004
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (602)250-1000
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NONE
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(Former name or former address, if changed since last report)
ITEM 5. Other Events
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Retail Rate Settlement
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On December 4, 1995, Arizona Public Service Company (the "Company") and
the staff (the "ACC Staff") of the Arizona Corporation Commission (the "ACC")
entered into a Rate Reduction Agreement (the "Rate Agreement"). Pursuant to the
terms of the Rate Agreement, the Company's annualized retail rates would be
reduced by approximately $48 million (approximately $29 million after tax), or
3.25%, based on adjusted kilowatt-hour ("kWh") sales for the twelve months ended
June 30, 1995. The rate decrease will be effective on the date the ACC issues a
final order approving the Rate Agreement (the "ACC Order"), but in no event will
the decrease be effective earlier than July 1, 1996. If the ACC does not issue
the ACC Order on or before July 1, 1996, the Rate Agreement will be deemed to be
automatically withdrawn. The following description of the Rate Agreement is a
summary, and is qualified in its entirety by the Rate Agreement, a copy of which
is attached to this filing as an exhibit.
Cost Savings Incentives and Potential for Future Retail Rate Changes
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To the extent the Company is able to lower its average cost per kWh as
compared to the average price per kWh (as defined in Attachment 3 to the Rate
Agreement, attached hereto), for each year following the initial rate reduction,
through and including July 1, 1999, the Company would reduce its rates as
follows: if the average price per kWh exceeds the average cost per kWh based on
results of operations for the preceding calendar year, then base rate levels
will be adjusted prospectively to reflect fifty-five percent of that difference,
effective July 1 of the then-current year. The cost per kWh includes, among
other things, the cost of capital, which includes a return on equity of 11.25%
applied to the average annual equity balance (including the equity infusion from
Pinnacle West Capital Corporation as discussed below), and depreciation and
amortization (including the accelerated amortization of regulatory assets
discussed below), and does not include the accelerated investment tax credits
provided for by the 1994 rate settlement(see Note 5 in Notes to Condensed
Financial Statements in Part I, Item 1 of the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1995 (the "September 10-Q")).
Subject to the procedure described above and in Paragraph 2 of the Rate
Agreement, which is incorporated herein by reference, neither the Company nor
the ACC Staff would file for a permanent change to the Company's retail rates
prior to July 2, 1999, except in the event of (i) conditions or circumstances
which constitute an emergency, such as the inability to finance on reasonable
terms, or (ii) material changes in the Company's cost of service as a result of
federal, tribal, state or local laws, regulatory requirements, judicial
decisions, actions, or orders.
Regulatory Assets
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Substantially all regulatory assets will be recovered by accelerating
their amortization over an eight-year period commencing July 1, 1996. As of
September 30, 1995, regulatory assets totalled approximately $1.3 billion and
included primarily cost deferrals from Palo Verde Nuclear Generating Station
("Palo Verde") Units 2 and 3 and regulatory assets to cover future income tax
liabilities recorded as a result of implementing Financial Accounting Standard
No. 109 in 1993. This acceleration will increase the annual amortization of
regulatory assets by approximately $120 million before income taxes
(approximately $72 million after income taxes).
Equity Infusion
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Pinnacle West Capital Corporation will infuse into the Company $200
million of common equity, in $50 million annual increments, by each year-end
beginning in 1996. The Company presently intends to use the additional equity
funds primarily to retire outstanding debt and preferred stock.
Renewable Resources/Demand Side Management
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A total of $7 million will be included in base rates for demand side
management ("DSM") and renewable resources, of which the Company shall annually
undertake on average at least $3 million each of renewable resources programs
and DSM. See Paragraph 10 of the Rate Agreement, incorporated by reference
herein, for further details regarding the Company's obligation to pursue DSM and
renewable resources.
Overcollected Property Taxes
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As previously reported, in a lawsuit filed by the Palo Verde
participants, including the Company, the Company appealed the decision of the
Maricopa County Superior Court that an Arizona state tax law, effective December
31, 1989, is constitutional. See "Property Taxes" in Part I, Item 3 of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994. In November 1995, the Arizona Court of Appeals reversed that decision,
holding that the law is unconstitutional. The Arizona Court of Appeals' decision
is subject to review by the Arizona Supreme Court. If any overcollected property
taxes are refunded to the Company by the State of Arizona as a result of the
disposition of this lawsuit, the Company will refund all of the net
jurisdictional amount of such refund to its retail customers.
Restructuring Issues
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The Company and the ACC Staff recognize the national debate about the
electric utility industry and itemized issues which will need to be addressed to
enable such competition to take place in Arizona. These issues include electric
public service corporations' obligations to serve in a restructured competitive
environment; compensation for electric public service corporations moving to a
restructured competitive environment, taking into account, among other matters,
the estimated magnitude of stranded investment; clarification of federal-state
jurisdictional uncertainties; access by Arizona public service corporations to
consumers located in other service territories and the terms for access by
others to the customers of Arizona public service corporations; and the
maintenance of generation, transmission, and distribution system reliability.
See Attachment 8 and Attachment 9 to the Rate Agreement, incorporated by
reference herein, for further discussion regarding these issues and the
Company's proposals with respect to these issues.
Pending the satisfactory resolution of the issues raised by the
restructuring of the electric utility industry in Arizona, the Company would
propose ACC approval of phased access of large retail customers to the broad
generation market in the years 2000 to 2004. Access for the remaining customers
would be proposed at the appropriate time.
The Company anticipates a hearing on the ratemaking portion of the Rate
Agreement in the spring of 1996. The Company has suggested that the ACC conduct
an independent series of hearings during 1996 (as contemplated by the ACC Staff
in its generic competition docket (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Competition" in Part I, Item 2
of the September 10-Q)) to develop appropriate legislative and regulatory
solutions to the identified restructuring issues, which the Company anticipates
could be presented to the appropriate legislative bodies in 1997.
ITEM 7. Financial Statement, Pro Forma Financial
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Information and Exhibits
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(c) Exhibits
Exhibit No. Description
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10.1 Rate Reduction Agreement dated December 4,
1995 between Arizona Public Service Company
and the Staff of the Arizona Corporation
Commission
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARIZONA PUBLIC SERVICE COMPANY
(Registrant)
Dated December 14, 1995 By Nancy E. Newquist
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Nancy E. Newquist
Treasurer