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, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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, .................New York Stock Exchange
Series W, $25 Par Value
10% Junior Subordinated Deferrable Interest .........New York Stock Exchange
Debentures, Series A, Due 2025
Securities registered pursuant to Section 12(g) of the Act:
Cumulative Preferred Stock
(Title of class)
(See Note 4 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
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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. [ X ]
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 1, 1996 March 1, 1996
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Cumulative Preferred Stock ...........5,022,814 $245,000,000(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 1, 1996, 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 1, 1996, 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 May 21, 1996, are incorporated by
reference into Part III hereof.
TABLE OF CONTENTS
PAGE
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GLOSSARY ................................................................................. 1
PART I
Item 1. Business .................................................................... 2
Item 2. Properties .................................................................. 9
Item 3. Legal Proceedings ...........................................................13
Item 4. Submission of Matters to a Vote of Security Holders .........................13
Supplemental Item.
Executive Officers of the Registrant ..........................................13
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder Matters ...15
Item 6. Selected Financial Data .....................................................16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................................17
Item 8. Financial Statements and Supplementary Data .................................19
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure ....................................................39
PART III
Item 10. Directors and Executive Officers of the Registrant .........................39
Item 11. Executive Compensation .....................................................39
Item 12. Security Ownership of Certain Beneficial Owners and Management ............39
Item 13. Certain Relationships and Related Transactions .............................39
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedules,
and Reports on Form 8-K ....................................................40
SIGNATURES ...............................................................................54
i
GLOSSARY
ACC -- Arizona Corporation Commission
ACC STAFF -- Staff of the 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
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
FASB -- Financial Accounting Standards Board
FERC -- Federal Energy Regulatory Commission
FOUR CORNERS -- Four Corners Power Plant
GAAP -- Generally accepted accounting principles
ITC -- Investment Tax Credit
KW -- Kilowatt, one thousand watts
KWH -- Kilowatt-hour, one thousand watts per hour
MORTGAGE -- Mortgage and Deed of Trust, dated as of July 1, 1946, as
supplemented and amended
MWH -- Megawatt hours, one million watts per hour
1935 ACT -- Public Utility Holding Company Act of 1935
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. 71 -- Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation"
SFAS NO. 121 -- Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of"
SFAS NO. 123 -- Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation"
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). At December 31, 1995, the Company
employed 6,484 people, which includes employees assigned to joint projects where
the Company is project manager.
The Company serves approximately 705,000 customers in an area that includes
all or part of 11 of Arizona's 15 counties. During 1995, 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 (see "Competition" below); (ii)
difficulties in meeting government imposed environmental requirements; (iii) the
necessity to make substantial capital outlays for transmission and distribution
facilities; (iv) uncertainty regarding projected electrical demand growth; (v)
controversies over electromagnetic fields; (vi) controversies over the safety
and use of nuclear power; (vii) issues related to spent fuel and low-level waste
(see "Generating Fuel" below); and (viii) increasing costs of wages and
materials.
Competition
Although the Company currently serves electricity in particular areas
pursuant to certain retail service territorial rights, the Company is subject to
varying degrees of competition in certain territories adjacent to or within
areas that it serves which are also currently served by other utilities in its
region (such as Tucson Electric Power Company, Southwest Gas Corporation, and
Citizens Utility Company) as well as cooperatives, municipalities, electrical
districts and similar types of governmental organizations (principally SRP). In
addition, the Company is competing for large commercial and industrial projects
which move into Arizona, and faces challenges from low cost hydroelectric power
and natural gas fuel and the access of some utilities to preferential low-priced
federal power and other subsidies.
Partly as a result of the National Energy Policy Act of 1992 (the "Energy
Act"), the electric utility industry is moving toward a more competitive
environment. The Energy Act is designed, among other things, to promote
competition among utility and non-utility generators. The Energy Act also amends
the Federal Power Act to allow the FERC to order electric utilities to transmit,
or "wheel," wholesale power for others. Presently, the Company's primary
competitors are the major utilities in its region as competition for wholesale
transactions in electricity is already intense in the West. As competition in
the electric utility industry continues to evolve, the Company will continue to
pursue strategies to enhance its competitive position.
The FERC has been encouraging increased competition in the wholesale market,
and a proposed FERC rule would require each utility that markets wholesale power
to provide access over its transmission system to other energy providers at
prices and terms comparable to those which the utility applies to itself. The
FERC has also encouraged the formation of regional transmission groups to
enhance coordinated transmission planning and comparable access, as the Company,
other utilities in the Southwest and several power marketers are doing with the
Southwestern Regional Transmission Association. All of the members of this
association will file comparability and market base tariffs with the FERC this
summer.
In 1995, the Company and the ACC Staff proposed a regulatory settlement
agreement which the Company believes lays the groundwork for a responsible
transition to a competitive future. See "1995 Regulatory Agreement" in Note 3 of
Notes to Financial Statements in Item 8.
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, 1995 is tabulated below.
Amount Percentage
------------ ----------
(Thousands
of Dollars)
Long-Term Debt Less Current Maturities:
First mortgage bonds ............................. $1,604,317
Other ............................................ 527,704
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Total long-term debt less current maturities ... 2,132,021 50.7%
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Non-Redeemable Preferred Stock .................... 193,561 4.6
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Redeemable Preferred Stock ........................ 75,000 1.8
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Common Stock Equity:
Common stock, $2.50 par value, 100,000,000 shares
authorized; 71,264,947 shares outstanding ...... 178,162
Premiums and expenses ............................ 1,039,550
Retained earnings ................................ 403,843
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Total common stock equity ....................... 1,621,555 38.6
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Total capitalization ........................... 4,022,137
Current Maturities of Long-Term Debt .............. 3,512 .1
Short-Term Borrowings ............................. 177,800 4.2
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Total .......................................... $4,203,449 100.0%
========== =====
See Notes 4, 5, and 6 of Notes to Financial Statements in Item 8.
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 1995, the
replacement fund requirement amounted to approximately $128 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.
Rates
State. The ACC has regulatory authority over the Company in matters relating
to retail electric rates and the issuance of securities. See Note 3 of Notes to
Financial Statements in Item 8 for a discussion of the 1995 regulatory agreement
between the Company and the ACC Staff.
Federal. The Company's rates for wholesale power sales and transmission
services are subject to regulation by the FERC. During 1995, approximately 6% 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.
1935 Act
Pinnacle West and its subsidiaries, including the Company, are currently
exempt from registration under the 1935 Act; however, the SEC has the authority
to revoke or condition an exemption if it appears that any question exists as to
whether the exemption may be detrimental to the public interest or the interest
of investors or consumers. On June 20, 1995, the SEC issued a Report on the
Regulation of Public Utility Holding Companies in which, as its preferred
option, the SEC recommended to the Congress conditional repeal of the 1935 Act,
with an adequate transition period. The SEC further recommended that legislation
repealing the 1935 Act should include provision for state access to books and
records of all companies in the holding company system, and for federal audit
authority and oversight of affiliate transactions. The Company cannot predict
what action, if any, the Congress may take with respect to the SEC's
recommendation.
Construction Program
During the years 1993 through 1995, the Company incurred approximately $807
million in capitalized expenditures. Utility capitalized expenditures for the
years 1996 through 1998 are expected to be primarily for expanding transmission
and distribution capabilities to meet customer growth, upgrading existing
facilities and for environmental purposes. Capitalized expenditures, including
expenditures for environmental control facilities, for the years 1996 through
1998 have been estimated as follows:
(Millions of Dollars)
By Year By Major Facilities
- ------------------------------------ ------------------------------------
1996 $246 Electric Generation $244
1997 242 Electric Transmission 29
1998 244 Electric distribution 352
----- General facilities 107
$732 -----
===== $732
=====
The amounts for 1996 through 1998 exclude capitalized interest costs and
include capitalized property taxes and about $30 million each year for nuclear
fuel expenditures. The Company conducts a continuing review of its construction
program.
Environmental Matters
EPA Environmental Regulation. Pursuant to the Clean Air Act, the EPA has
adopted regulations that address visibility impairment in certain
federally-protected areas which 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 3, 2, and 1 in 1997, 1998, and 1999, respectively. SRP,
the NGS operating agent, has estimated a capital cost of $500 million, most of
which will be incurred through 1998, and annual operations and maintenance costs
of approximately $14 million for all three units, 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") 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. In March 1995, the EPA issued
revised rules for nitrogen oxides emissions limitations, which may require the
Company to install additional pollution control equipment at Four Corners. In
the year 2000, Four Corners must comply with either these or recently proposed
requirements which the EPA published in January 1996. The EPA has until 1997 to
finalize these proposed requirements. Based on its initial evaluation, the
Company currently estimates its capital cost of complying with the March 1995
rules may be approximately $20 million, the incurrence of which began in 1995
and will continue through 1999, with the highest expenditures expected during
1998.
With respect to protection of visibility in certain specified areas, the
Amendments require the EPA to conduct a study, which the EPA estimates will be
completed in late 1996, 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 May 1996 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. The results of the first
study indicated an impact from mercury emissions from such units in certain
unspecified areas; however, the EPA has not yet stated whether or not emissions
limitations will be imposed. Next, the EPA will complete a general study in late
1996 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.
Purported Navajo Environmental Regulation. Four Corners and NGS are located
on the Navajo Reservation and are held under easements granted by the federal
government as well as leases from the Navajo Nation. The Company is the Four
Corners operating agent and owns a 100% interest in Four Corners Units 1, 2 and
3, and a 15% interest in Four Corners Units 4 and 5. The Company owns a 14%
interest in NGS Units 1, 2 and 3. In July 1995 the Navajo Nation enacted the
Navajo Nation Air Pollution Prevention and Control Act, the Navajo Nation Safe
Drinking Water Act, and the Navajo Nation Pesticide Act (collectively, the
"Acts").
Pursuant to the Acts, the Navajo Nation Environmental Protection Agency is
authorized to promulgate regulations covering air quality, drinking water and
pesticide activities, including those that occur at Four Corners and NGS. By
separate letters dated October 12 and October 13, 1995, the Four Corners
participants and the NGS participants requested the United States Secretary of
the Interior to resolve their dispute with the Navajo Nation regarding whether
or not the Acts apply to operations of Four Corners and NGS. On October 17,
1995, the Four Corners participants and the NGS participants each filed a
lawsuit in the District Court of the Navajo Nation, Window Rock District,
seeking, among other things, a declaratory judgment that (i) their respective
leases and
federal easements preclude the application of the Acts to the operations of Four
Corners and NGS, and (ii) the Navajo Nation and its agencies and courts lack
adjudicatory jurisdiction to determine the enforceability of the Acts as applied
to Four Corners and NGS. On October 18, 1995, the Navajo Nation and the Four
Corners and NGS participants agreed to indefinitely stay the proceedings
referenced in the preceding two sentences so that the parties may attempt to
resolve the dispute without litigation, and the Secretary and the Court have
stayed these proceedings pursuant to a request by the parties. The Company
cannot currently predict the outcome of this matter.
GENERATING FUEL
Coal, nuclear, gas, and other contributions to total net generation of
electricity by the Company in 1995, 1994, and 1993, 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
------------ --------- ------------ --------- ------------ --------- ------------ --------- -----------
1995 (estimate)..... 54.7% $13.83 40.1% $5.21 5.0% $19.52 0.2% $11.84 $10.66
1994 ............... 59.7 13.84 33.8 6.09 6.3 24.64 0.2 16.26 11.90
1993 ............... 62.3 12.95 32.4 6.17 5.1 31.53 0.2 18.32 11.70
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 four years, the term of the existing coal
contract. Sufficient reserves of low sulfur coal are available to continue
operating Cholla 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 their useful lives. The current
sulfur content of coal being used at Four Corners, NGS, and Cholla is
approximately 0.8%, 0.6%, and 0.4%, respectively. In 1995, 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
Nation. 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 Nation and for NGS from a coal supplier with a long-term
lease with the Navajo Nation and the Hopi Tribe. The Company purchases all of
the coal which fuels Cholla from a coal supplier who mines all of the coal under
a long-term lease of coal reserves owned by the Navajo Nation, the federal
government, and private landholders. See Note 11 of Notes to Financial
Statements in Item 8 for information regarding the Company's obligation for coal
mine reclamation.
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 1995, the principal sources of the
Company's natural gas generating fuel were 19 of these companies. The Company is
currently purchasing the majority of its natural gas requirements from twelve
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 2000. Existing
contracts and options could be utilized to meet approximately 80% of
requirements in 2001 and 2002 and 50% of requirements from 2003 through 2007.
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 2000 and with options for up to 70% through 2002. 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 September 2002,
with options to continue through September 2007. In addition, existing contracts
will provide fuel assembly fabrication services until at least 2003 for each
Palo Verde unit, and through contract options, approximately fifteen additional
years are available.
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, requires operators of nuclear
power reactors to enter into spent fuel disposal contracts with DOE, and the
Company, on its own behalf and on behalf of the other Palo Verde participants,
has done so. Under the Waste Act, DOE was to develop the facilities necessary
for the storage and disposal of spent nuclear fuel and to have the first such
facility in operation by 1998. That facility was to be a permanent repository,
but DOE has annouced that such a repository now cannot be completed before 2010.
Several bills have been introduced in Congress contemplating the construction of
a central interim storage facility which could be available in the latter part
of the current decade; however, there is resistance to certain features of these
bills both in Congress and the Administration.
Facility funding is a further complication. While all nuclear utilities pay
into a so-called nuclear waste fund an amount calculated on the basis of the
output of their respective plants, the annual Congressional appropriations for
the permanent repository have been for amounts less than the amounts paid into
the waste fund (the balance of which is being used for other purposes) and,
according to DOE spokespersons, may now be at a level less than needed to
achieve a 2010 operational date for a permanent repository. No funding will be
available for a central interim facility until one is authorized by Congress.
The Company has storage capacity in existing fuel storage pools at Palo Verde
which, with certain modifications, could accomodate all fuel expected to be
discharged from normal operation of Palo Verde through about 2005, and believes
it could augment that wet storage with new facilities for on-site dry storage of
spent fuel for an indeterminate period of operation beyond 2005, subject to
obtaining any required governmental approvals. One way or another, the Company
currently believes that spent fuel storage or disposal methods will be available
for use by Palo Verde to allow its continued operation beyond 2005.
Currently low-level waste is being stored on-site. A new low-level waste
facility was built in 1995 on-site which could store an amount of waste
equivalent to up to ten years of normal operation at Palo Verde. The Company is
currently evaluating whether to ship low-level waste to off-site facilities or
to continue to store the waste on-site. 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 of spent
fuel and low-level waste storage and disposal 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 Nuclear Generating Station
Regulatory. 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.
Nuclear Decommissioning Costs. See Note 12 of Notes to Financial Statements
in Item 8 for a discussion of the Company's nuclear decommissioning costs.
Steam Generators. See "Palo Verde Nuclear Generating Station" in Note 11 of
Notes to Financial Statements in Item 8 for a discussion of issues relating to
the Palo Verde steam generators.
Palo Verde Liability And Insurance Matters. See "Palo Verde Nuclear
Generating Station" in Note 11 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.
Department of Labor Matter. On May 10, 1993, a Department of Labor ("DOL")
Administrative Law Judge ("ALJ") issued a Recommended Decision and Order finding
that the Company discriminated against a former contract employee who worked at
Palo Verde because he engaged in protected activities (as defined under federal
regulations). The Company and the former contract employee who had raised the
DOL claim entered into a settlement agreement which was approved by the
Secretary of Labor in June 1995. By letter dated March 7, 1996, the NRC sent a
Notice of Violation and Proposed Imposition of Civil Penalty notifying the
Company that the NRC proposes to impose a $100,000 civil penalty for a "Severity
Level III" violation of NRC requirements relating to the circumstances
surrounding this matter. The NRC also concluded in its March 7, 1996 letter that
the Company's actions taken and planned to correct the violation have already
been addressed and therefore the Company is not required to respond to the
Notice of Violation. The Company plans to pay the associated penalty within
thirty days.
Water Supply
Assured supplies of water are important both to the Company (for its
generating plants) and to its customers and, at the present time, the Company
has adequate water to meet its needs. 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 Nation in 1985, however, provides that if Four Corners loses a
portion of its rights in the adjudication, the Navajo Nation 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. 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. On September 28, 1994,
the Arizona Supreme Court granted review of the trial court decision. 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 4,025,241 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 ..................... 615,000
14% owned Units 1, 2, and 3 at the Navajo Plant, representing ..... 315,000
---------
1,712,000
=========
Gas or Oil:
Two steam units at Ocotillo, two steam units at Saguaro, and one
steam unit at Yucca, aggregating ................................ 463,400(1)
Eleven combustion turbine units, aggregating ....................... 500,600
Three combined cycle units, aggregating ............................ 253,500
---------
1,217,500
=========
Nuclear:
29.1% owned or leased Units 1, 2, and 3 at Palo Verde, representing 1,091,541
=========
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
July 28, 1995 at 4,420,400 kW, compared to the 1994 peak of 4,214,000 kW
recorded on June 29. 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 July 28, 1995, computed in
accordance with accepted industry practices, amounted to 4,608,941 kW, for an
installed reserve
margin of 6.4%. 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 1995 peak amounted to 4,469,841 kW, for a margin of 1.3%.
NGS and Four Corners are located on land held under easements from the
federal government and also under leases from the Navajo Nation. 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 Nation to honor its commitments. The
lease for Four Corners contains a waiver until 2001 of the requirement that the
Company pay certain taxes to the Navajo Nation. The Company and the Navajo
Nation are currently negotiating an agreement regarding taxes to be assessed
against the Company after the expiration of the waiver. The Company cannot
currently predict the outcome of this matter. 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.
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 8 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.
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 313,000 kW
through May 1995, at which time the capacity decreased to 305,000 kW. In 1995,
the Company received approximately 657,765 MWh of energy under the contract and
paid approximately $30 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. In April
1995 the Company gave PacifiCorp the required three-year notice to change the
existing 175 megawatt purchase to one-for-one seasonal capacity exchange
beginning in the summer of 1998. The Company has one option remaining to
increase the firm purchase to the rated capacity of Cholla 4 (less the current
exchange capacity) and also to convert this increase to one-for-one seasonal
exchange by a three-year written notice prior to May 1, 1996. 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 May 15, 1997 or the completion of certain new transmission projects. In
addition, PacifiCorp agreed to pay the Company (i) $20 million prior to January
15, 1997 and (ii) $19 million ($9.5 million of which has been paid) 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, for which approximately $0.5 million was
paid during 1995. In 1995, the Company received 386,350 MWh of energy from
PacifiCorp under these transactions and paid approximately $18 million for
capacity availability and the energy received.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Capital Needs and Resources" in Item 7 for a discussion of the
Company's construction plans.
See Notes 5 and 8 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.
[MAP PAGE]
ITEM 3. LEGAL PROCEEDINGS
Property Taxes
On June 29, 1990, a new Arizona state property tax law was enacted, effective
as of December 31, 1989, which adversely impacted the Company's earnings before
income taxes in tax years 1990 through 1995 by an aggregate amount of
approximately $21 million per year. 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 appealed this decision to the Arizona
Court of Appeals. In November 1995, the Arizona Court of Appeals reversed that
decision, holding that the law is unconstitutional. The matter has been returned
to the Arizona Tax Court for determination of the appropriate remedy consistent
with the Arizona Court of Appeals decision. Pursuant to the provisions of the
Company's 1995 proposed regulatory settlement agreement (see Note 3 of Notes to
Financial Statements in Item 8), 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 would refund all of the net jurisdictional amount
of such refund to its retail customers. The Company cannot currently predict the
ultimate outcome of this matter.
See "Environmental Matters," "Palo Verde Nuclear Generating Station," and
"Water Supply" in Item 1 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, 1996 Position(s) At March 1, 1996
- ------------------ ------------- -----------------------------------------------
Richard Snell 65 Chairman of the Board of Directors (1)
O. Mark DeMichele 61 President and Chief Executive Officer(1)
William J. Post 45 Senior Vice President and Chief Operating
Officer(1)
Jaron B. Norberg 58 Executive Vice President and Chief Financial
Officer(1)
William L. Stewart 52 Executive Vice President, Nuclear
Jack A. Bailey 42 Vice President, Nuclear Engineering
Jan H. Bennett 48 Vice President, Customer Service
Jack E. Davis 49 Vice President, Generation and Transmission
Edward Z. Fox 42 Vice President, Environmental, Health and
Safety
Armando B. Flores 52 Vice President, Human Resources
James M. Levine 46 Vice President, Nuclear Production
Leslie M. Mesh 49 Vice President, Marketing and Economic
Development
Gregg R. Overbeck 49 Vice President, Nuclear Support
William J. Hemelt 42 Controller
Nancy C. Loftin 42 Secretary and Corporate Counsel
Nancy E. Newquist 44 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. DeMichele was elected President in September 1982 and became Chief
Executive Officer as of January 1988.
Mr. Post was elected to his present position in September 1994. Prior to that
time he was Senior Vice President, Planning, Information and Financial Services
(since June 1993), and Vice President, Finance & Rates (since April 1987). In
July 1995 Mr. Post was appointed Executive Vice President of Pinnacle West.
Mr. Norberg was elected to his present position in July 1986.
Mr. Stewart was elected to his present position in May 1994. Prior to that
time he was Senior Vice President -- Nuclear for Virginia Power (since 1989).
Mr. Bailey was elected to his present position in April 1994. Prior to that
time he was Assistant Vice President, Nuclear Engineering and Projects (July
1993-April 1994); Director, Nuclear Engineering (1991-1993); and Assistant Plant
Manager (1989 to 1991) at Palo Verde.
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).
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); and Director, System Development
and Power Operations (May 1990-May 1992).
Mr. Fox was elected to his present position in October 1995. Prior to that
time he was Director, Arizona Department of Environmental Quality and Chairman,
Wastewater Management Authority of Arizona (July 1991-September 1995) and Senior
Associate, Snell & Wilmer (October 1989-July 1991).
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.
Mr. Levine was elected to his present position in September 1989.
Mr. Mesh was elected to his current position in October 1995. Prior to that
time he was Vice President, Marketing and Business Development, Electronic Data
Systems (November 1993-October 1995) and Vice President, Northern Telecom, Inc.
(April 1984-October 1993).
Mr. Overbeck was elected to his current position in July 1995. Prior to that
time he was Assistant to Vice President of the Company (January 1994-July 1995)
and Director, Nuclear Production Site Technical Support of the Company (January
1991-January 1994).
Mr. Hemelt was elected to his present position in June 1993. Prior to that
time he was Treasurer and Assistant Secretary (since April 1987).
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 1995 and 1994.
COMMON STOCK DIVIDENDS
(THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------
QUARTER 1995 1994
- --------------------------------------------------------------------------------
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 4 and 5 of
Notes to Financial Statements in Item 8 for restrictions on retained earnings
available for the payment of common stock dividends.
ITEM 6. SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Thousands of Dollars)
Electric Operating Revenues .................. $ 1,614,952 $ 1,626,168 $ 1,602,413 $ 1,587,582 $ 1,385,815
Fuel and Purchased Power ..................... 269,798 300,689 300,546 287,201 273,771
Operating Expenses ........................... 963,400 957,046 929,379 908,123 782,788
---------- ----------- ----------- ----------- -----------
Operating Income ..................... 381,754 368,433 372,488 392,258 329,256
Other Income (Deductions) .................... 25,548 44,510 54,220 48,801 (324,922)
Interest Deductions-- Net .................... 167,732 169,457 176,322 194,254 226,983
----------- ----------- ----------- ----------- -----------
Net Income (Loss) .................... 239,570 243,486 250,386 246,805 (222,649)
Preferred Dividends .................. 19,134 25,274 30,840 32,452 33,404
----------- ----------- ----------- ----------- -----------
Earnings (Loss) for Common Stock (a) . $ 220,436 $ 218,212 $ 219,546 $ 214,353 $ (256,053)
=========== =========== =========== =========== ===========
Total Assets ................................. $ 6,418,262 $ 6,348,261 $ 6,357,262 $ 5,629,432 $ 5,620,692
=========== =========== =========== =========== ===========
Capital Structure:
Common Stock Equity .................. $ 1,621,555 $ 1,571,120 $ 1,522,941 $ 1,476,390 $ 1,433,463
Non-Redeemable Preferred Stock ....... 193,561 193,561 193,561 168,561 168,561
Redeemable Preferred Stock ........... 75,000 75,000 197,610 225,635 227,278
Long-Term Debt Less Current Maturities 2,132,021 2,181,832 2,124,654 2,052,763 2,185,363
----------- ----------- ----------- ----------- -----------
Total Capitalization ......... 4,022,137 4,021,513 4,038,766 3,923,349 4,014,665
Current Maturities of Long-Term Debt . 3,512 3,428 3,179 94,217 299,550
Short-Term Debt ...................... 177,800 131,500 148,000 195,000 --
----------- ----------- ----------- ----------- -----------
Total ........................ $ 4,203,449 $ 4,156,441 $ 4,189,945 $ 4,212,566 $ 4,314,215
=========== =========== =========== =========== ===========
(a) Financial results for 1991 include a $407 million after-tax write-off
related to a rate case settlement.
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
Results of Operations
1995 Compared with 1994
Earnings in 1995 were $220.4 million compared with $218.2 million in 1994.
Earnings increased primarily due to customer growth, lower fuel expenses,
accelerated amortization of investment tax credits, lower operations and
maintenance expenses, lower preferred stock dividends and a gain recognized on
the sale of a small subsidiary. Fuel expenses decreased due to lower fuel prices
and a more favorable mix resulting from increased nuclear generation. The
Company does not have a fuel adjustment clause as part of its retail rate
structure; therefore, changes in fuel and purchased power expenses are reflected
currently in earnings. The accelerated amortization of investment tax credits
was a result of a 1994 rate settlement (see Note 3 of Notes to Financial
Statements) and is reflected as a $21 million decrease in income tax expense.
Operations and maintenance expense decreased as a result of lower fossil plant
overhaul costs, improved nuclear operations and severance costs incurred in
1994. Preferred stock dividends decreased due to less preferred stock
outstanding.
Substantially offsetting these positive factors were the absence of non-cash
income related to a 1991 rate settlement, milder weather, the reversal in 1994
of certain previously recorded depreciation, a retail rate reduction which
became effective June 1, 1994, and in 1995 a $13 million pretax write-down of an
office building and an $8 million pretax write-down of certain inventory.
1994 Compared with 1993
Earnings in 1994 were $218.2 million compared with $219.5 million in 1993.
Electric operating revenues increased primarily due to strong customer growth
and significantly warmer weather in 1994, partially offset by lower interchange
sales and the 1994 rate reduction. Substantially offsetting the earnings effect
of the 1994 rate reduction was a one-time depreciation reversal, also occasioned
by the 1994 rate settlement (see Note 3 of Notes to Financial Statements).
Interest expense declined due to the Company's refinancing activity in 1994 and
1993.
Substantially offsetting these positive factors were the completion in May
1994 of the recording of non-cash income related to a 1991 rate settlement (see
Note 1 of Notes to Financial Statements); increased operations and maintenance
expense due primarily to employee severance costs; and increased nuclear
decommissioning costs.
Higher fuel and purchased power expenses in 1994 over 1993 to meet increased
retail sales were about offset by lower fuel costs for reduced interchange
sales.
Operating Revenues
Operating revenues reflect changes in both the volume of units sold and
price per kilowatt-hour of electric sales. An analysis of the increases
(decreases) in 1995 and 1994 electric operating revenues compared with the prior
year follows (in millions of dollars):
1995 1994
---- ----
Volume variance:
Customer growth $ 48.4 $ 56.4
Weather (42.0) 42.0
Other 7.8 (11.7)
1994 rate reduction (11.4) (26.5)
Interchange sales (7.2) (19.5)
Reversal of refund obligation (9.3) (12.1)
Other operating revenues 2.5 (4.8)
--------- ---------
Total change $ (11.2) $ 23.8
========= =========
Other Income
Net income reflects accounting practices required for regulated public
utilities and represents a composite of cash and non-cash items, including
AFUDC, accretion income on Palo Verde Unit 3 and the reversal of a refund
obligation arising out of a 1991 rate settlement (see Statements of Cash Flows
and Note 1 of Notes to Financial
Statements). The accretion income and refund reversals, net of income taxes,
totaled $25.9 million and $58.2 million in 1994 and 1993, respectively. Also in
1994 was a one-time depreciation reversal of $15 million, after income taxes,
which was included in "Other -- net" in the Statements of Income (see Note 3 of
Notes to Financial Statements).
Capital Needs and Resources
The Company's capital requirements consist primarily of capital expenditures
and optional and mandatory repayments of long-term debt and preferred stock. The
resources available to meet these requirements include funds provided by
operations and external financings.
Present construction plans through the year 2005 do not include any major
baseload generating plants. In general, most of the capital expenditures are for
expanding transmission and distribution capabilities to meet customer growth,
upgrading existing facilities and for environmental purposes. Capital
expenditures are anticipated to be approximately $246 million, $242 million and
$244 million for 1996, 1997 and 1998, respectively. These amounts include about
$30 million each year for nuclear fuel expenditures.
In the period 1993 through 1995, the Company funded all capital expenditures
with funds provided by operations, after the payment of dividends. For the
period 1996 through 1998, the Company estimates that it will fund substantially
all capital expenditures in the same manner. Subject to approval of the 1995
regulatory agreement (see Note 3 of Notes to Financial Statements), $50 million
annually for the years 1996 through 1999 will be invested in the Company by
Pinnacle West.
During 1995, the Company redeemed $147 million of long-term debt, of which
$144 million was optional. Refunding obligations for preferred stock, long-term
debt, a capitalized lease obligation and certain anticipated early redemptions
are expected to approximate $75 million, $164 million and $114 million for the
years 1996, 1997 and 1998, respectively. As of March 1, 1996, the Company had
redeemed approximately $46 million of its long-term debt and approximately $15
million of its preferred stock.
Although provisions in the Company's bond indenture, articles of
incorporation, and financing orders from the ACC restrict the issuance of
additional first mortgage bonds and preferred stock, management does not expect
any of these restrictions to limit the Company's ability to meet its capital
requirements.
As of December 31, 1995, the Company had credit commitments from various
banks totaling approximately $300 million, which were available either to
support the issuance of commercial paper or to be used as bank borrowings. At
the end of 1995, there were $177.8 million of commercial paper and no bank
borrowings outstanding.
1995 Regulatory Agreement
In December 1995, the Company and the ACC Staff announced an agreement which
includes an economic proposal to be heard by the full ACC in April 1996.
Principal features include an annual rate reduction of approximately $48 million
($29 million after income taxes) and recovery of substantially all of the
Company's present regulatory assets through accelerated amortization over an
eight-year period beginning July 1, 1996, increasing annual amortization by
approximately $120 million ($72 million after income taxes). The agreement also
includes an industry restructuring element. See Note 3 of Notes to Financial
Statements for further discussion of this agreement.
Accounting Matters
Note 2 of Notes to Financial Statements describes two new accounting
standards related to asset impairment and stock-based compensation, which are
effective in 1996. These standards do not have a material impact on the
Company's financial position or results of operations at the time of adoption.
See Note 12 of Notes to Financial Statements for a description of a proposed
standard on accounting for certain liabilities related to closure or removal of
long-lived assets.
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
------
Report of Management ..................................................................20
Independent Auditors' Report ..........................................................21
Statements of Income for each of the three years in the period ended December 31, 1995 23
Balance Sheets -- December 31, 1995 and 1994 ..........................................24
Statements of Cash Flows for each of the three years in the period ended
December 31, 1995 ....................................................................26
Statements of Retained Earnings for each of the three years in the period ended
December 31, 1995 ....................................................................27
Notes to Financial Statements .........................................................27
See Note 13 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.
A limiting factor in all systems of internal accounting control is that the cost
of the system should not exceed the benefits to be derived. Management believes
that the Company's system provides the appropriate balance between such costs
and benefits.
Periodically the internal accounting control system is 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 Review Committee of
the Board of Directors and the independent auditors on a timely basis.
The Audit Review 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 Review 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 DeMichele William J. Post Jaron B. Norberg
O. Mark DeMichele William J. Post Jaron B. Norberg
President and Senior Vice President and Executive Vice President
Chief Executive Officer Chief Operating Officer and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
Arizona Public Service Company:
We have audited the accompanying balance sheets of Arizona Public Service
Company as of December 31, 1995 and 1994 and the related statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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, 1995 and 1994
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Deloitte & Touche LLP
Phoenix, Arizona
March 1, 1996
THIS PAGE INTENTIONALLY LEFT BLANK
ARIZONA PUBLIC SERVICE COMPANY
STATEMENTS OF INCOME
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
Electric Operating Revenues .............. $ 1,614,952 $ 1,626,168 $ 1,602,413
----------- ----------- -----------
Fuel Expenses:
Fuel for electric generation ........... 208,928 237,103 231,434
Purchased power ........................ 60,870 63,586 69,112
----------- ----------- -----------
Total ................................ 269,798 300,689 300,546
----------- ----------- -----------
Operating Revenues Less Fuel Expenses .... 1,345,154 1,325,479 1,301,867
----------- ----------- -----------
Other Operating Expenses:
Operations excluding fuel expenses ..... 284,842 292,292 282,660
Maintenance ............................ 115,972 119,629 118,556
Depreciation and amortization .......... 242,098 236,108 222,610
Income taxes (Note 9) .................. 178,865 168,202 168,056
Other taxes ............................ 141,623 140,815 137,497
----------- ----------- -----------
Total ................................ 963,400 957,046 929,379
----------- ----------- -----------
Operating Income ......................... 381,754 368,433 372,488
----------- ----------- -----------
Other Income (Deductions):
Allowance for equity funds used during
construction ......................... 4,982 3,941 2,326
Income taxes (Note 9) .................. 37,598 (9,042) (20,851)
Palo Verde accretion income (Note 1) ... -- 33,596 74,880
Other--net ............................. (17,032) 16,015 (2,135)
----------- ----------- -----------
Total ................................ 25,548 44,510 54,220
----------- ----------- -----------
Income Before Interest Deductions ........ 407,302 412,943 426,708
----------- ----------- -----------
Interest Deductions:
Interest on long-term debt ............. 160,032 159,840 164,610
Interest on short-term borrowings ...... 8,143 6,205 6,662
Debt discount, premium and expense ..... 8,622 8,854 9,203
Allowance for borrowed funds used during
construction ......................... (9,065) (5,442) (4,153)
----------- ----------- -----------
Total ................................ 167,732 169,457 176,322
----------- ----------- -----------
Net Income ............................... 239,570 243,486 250,386
Preferred Stock Dividend Requirements .... 19,134 25,274 30,840
----------- ----------- -----------
Earnings for Common Stock ................ $ 220,436 $ 218,212 $ 219,546
=========== =========== ===========
See Notes to Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
BALANCE SHEETS
ASSETS
December 31,
------------------
1995 1994
---- ----
(Thousands of Dollars)
Utility Plant (Notes 5, 7 and 8):
Electric plant in service and held for future use $ 6,544,860 $ 6,475,249
Less accumulated depreciation and amortization .. 2,231,614 2,122,439
----------- -----------
Total ................................... 4,313,246 4,352,810
Construction work in progress ................... 281,757 224,312
Nuclear fuel, net of amortization of $68,275
and $80,599 ............................. 52,084 46,951
----------- -----------
Utility Plant--net ...................... 4,647,087 4,624,073
----------- -----------
Investments and Other Assets (Note 12) .................. 97,742 90,105
----------- -----------
Current Assets:
Cash and cash equivalents ....................... 18,389 6,532
Accounts receivable:
Service customers ....................... 100,433 103,711
Other ................................... 28,107 27,008
Allowance for doubtful accounts ......... (1,656) (2,176)
Accrued utility revenues (Note 1) ............... 53,519 55,432
Materials and supplies (at average cost) ........ 78,271 89,864
Fossil fuel (at average cost) ................... 21,722 35,735
Deferred income taxes (Note 9) .................. 5,653 19,114
Other ........................................... 17,839 14,162
----------- -----------
Total Current Assets .................... 322,277 349,382
----------- -----------
Deferred Debits:
Regulatory asset for income taxes (Note 9) ...... 548,464 557,049
Palo Verde Unit 3 cost deferral (Note 1) ........ 283,426 292,586
Palo Verde Unit 2 cost deferral (Note 1) ........ 165,873 171,936
Unamortized costs of reacquired debt ............ 63,518 60,942
Unamortized debt issue costs .................... 17,772 17,673
Other ........................................... 272,103 184,515
----------- -----------
Total Deferred Debits ................... 1,351,156 1,284,701
----------- -----------
Total ................................... $ 6,418,262 $ 6,348,261
=========== ===========
See Notes to Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
BALANCE SHEETS
LIABILITIES
December 31,
----------------------------
1995 1994
---- ----
(Thousands of Dollars)
Capitalization (Notes 4 and 5):
Common stock ...................................................... $ 178,162 $ 178,162
Premiums and expenses-- net ....................................... 1,039,550 1,039,303
Retained earnings ................................................. 403,843 353,655
--------- ---------
Common stock equity ....................................... 1,621,555 1,571,120
Non-redeemable preferred stock .................................... 193,561 193,561
Redeemable preferred stock ........................................ 75,000 75,000
Long-term debt less current maturities ............................ 2,132,021 2,181,832
--------- ---------
Total Capitalization ...................................... 4,022,137 4,021,513
--------- ---------
Current Liabilities:
Commercial paper (Note 6) ......................................... 177,800 131,500
Current maturities of long-term debt (Note 5) ..................... 3,512 3,428
Accounts payable .................................................. 106,583 110,854
Accrued taxes ..................................................... 82,827 89,412
Accrued interest .................................................. 41,549 45,170
Other ............................................................. 53,880 50,487
--------- ---------
Total Current Liabilities ................................. 466,151 430,851
--------- ---------
Deferred Credits and Other:
Deferred income taxes (Note 9) .................................... 1,429,482 1,436,184
Deferred investment tax credit (Note 9) ........................... 115,353 142,994
Unamortized gain-- sale of utility plant (Note 8) ................. 91,514 98,551
Customer advances for construction ................................ 19,846 16,564
Other ............................................................. 273,779 201,604
--------- ---------
Total Deferred Credits and Other .......................... 1,929,974 1,895,897
--------- ---------
Commitments and Contingencies (Note 11)
Total ..................................................... $6,418,262 $6,348,261
========== ==========
ARIZONA PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
Cash Flows from Operations:
Net income .......................................................... $ 239,570 $ 243,486 $ 250,386
Items not requiring cash:
Depreciation and amortization ............................... 242,098 236,108 222,610
Nuclear fuel amortization ................................... 31,587 32,564 32,024
Allowance for equity funds used during construction ......... (4,982) (3,941) (2,326)
Deferred income taxes -- net ................................ 15,344 83,249 102,697
Deferred investment tax credit -- net ....................... (27,641) (6,825) (6,948)
Rate refund reversal ........................................ -- (9,308) (21,374)
Palo Verde accretion income ................................. -- (33,596) (74,880)
Changes in certain current assets and liabilities:
Accounts receivable -- net .................................. 1,659 (7,276) 30,889
Accrued utility revenues .................................... 1,913 4,924 (8,839)
Materials, supplies and fossil fuel ......................... 25,606 4,795 2,252
Other current assets ........................................ (3,677) (1,509) (6,616)
Accounts payable ............................................ 6,333 21,666 (18,622)
Accrued taxes ............................................... (6,585) (22,881) 8,826
Accrued interest ............................................ (3,621) (577) 241
Other current liabilities ................................... 3,393 (9) 7,282
Other-- net ......................................................... 21,328 (418) 18,686
--------- --------- ---------
Net cash provided ........................................... 542,325 540,452 536,288
--------- --------- ---------
Cash Flows from Investing:
Capital expenditures ................................................ (295,772) (245,925) (228,465)
Allowance for borrowed funds used during construction ............... (9,065) (5,442) (4,153)
Other ............................................................... (22,645) (7,251) (4,522)
--------- --------- ---------
Net cash used ............................................... (327,482) (258,618) (237,140)
--------- --------- ---------
Cash Flows from Financing:
Preferred stock ..................................................... -- -- 72,644
Long-term debt ...................................................... 87,130 516,612 520,020
Short-term borrowings -- net ........................................ 46,300 (16,500) (47,000)
Dividends paid on common stock ...................................... (170,000) (170,000) (170,000)
Dividends paid on preferred stock ................................... (19,134) (26,232) (30,945)
Repayment of preferred stock ........................................ -- (124,096) (78,663)
Repayment and reacquisition of long-term debt ....................... (147,282) (462,643) (558,799)
--------- --------- ---------
Net cash used ............................................... (202,986) (282,859) (292,743)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ........................ 11,857 (1,025) 6,405
Cash and cash equivalents at beginning of year .............................. 6,532 7,557 1,152
--------- --------- ---------
Cash and cash equivalents at end of year .................................... $ 18,389 $ 6,532 $ 7,557
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest (excluding capitalized interest) ................... $ 163,592 $ 161,294 $ 161,843
Income taxes ................................................ $ 164,261 $ 121,578 $ 88,239
See Notes to Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
STATEMENTS OF RETAINED EARNINGS
Year Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
Retained earnings at beginning of year ..................... $ 353,655 $ 307,098 $ 259,899
Add: Net income ............................................ 239,570 243,486 250,386
--------- --------- ---------
Total ...................................... 593,225 550,584 510,285
--------- --------- ---------
Deduct:
Dividends:
Common stock (Notes 4 and 5) ............... 170,000 170,000 170,000
Preferred stock (at required rates) (Note 4) 19,134 25,274 30,840
Premium paid on reacquisition of preferred stock ... 248 1,655 2,347
--------- --------- ---------
Total deductions ........................... 189,382 196,929 203,187
--------- --------- ---------
Retained earnings at end of year ........................... $ 403,843 $ 353,655 $ 307,098
========= ========= =========
See Notes to Financial Statements.
APS
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
APS is engaged primarily in the generation and sale of
electricity. The Company serves approximately 705,000 customers in an area that
includes all or part of 11 of Arizona's 15 counties.
Accounting Records
The accounting records are maintained in accordance with
generally accepted accounting principles (GAAP). The preparation of financial
statements in accordance with GAAP requires the use of estimates by management.
Actual results could differ from those estimates.
The Company is regulated by the ACC and the FERC and the accompanying financial
statements reflect the rate-making policies of these commissions. The Company
prepares its financial statements in accordance with the provisions of Statement
of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation." SFAS No. 71 requires a cost-based rate-regulated
enterprise to reflect the impact of regulatory decisions in its financial
statements.
The Company's major regulatory assets are Palo Verde cost deferrals (see "Palo
Verde Cost Deferrals" in this note) and deferred taxes (see Note 9). These
items, combined with miscellaneous regulatory assets and liabilities, amounted
to approximately $1.2 billion and $1.1 billion at December 31, 1995 and 1994,
respectively, most of which are included in "Deferred Debits" on the Balance
Sheets.
The Company's current regulatory orders and regulatory environment support the
recognition of regulatory assets. If rate recovery of these costs becomes
unlikely or uncertain, whether due to competition or regulatory action, the
Company may no longer be able to apply the provisions of SFAS No. 71 to all or a
part of its operations.
Common Stock
All of the outstanding shares of common stock of the Company are owned by
Pinnacle West. See Note 4 of Notes to Financial Statements.
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 removal costs
less salvage realized, is charged to accumulated depreciation. See Note 12 for
information on a proposed accounting standard which impacts accounting for
removal costs.
APS
NOTES TO FINANCIAL STATEMENTS
Depreciation on utility property is recorded on a straight-line basis. The
applicable rates for 1993 through 1995 ranged from 1.77% to 15%, which resulted
in an annual composite rate of 3.44% for 1995.
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 depreciation when completed projects are placed into
commercial operation. AFUDC does not represent current cash earnings.
AFUDC has been calculated using composite rates of 8.52% for 1995; 7.70% for
1994; and 7.20% for 1993. The Company compounds AFUDC semiannually and ceases to
accrue AFUDC when construction is completed and the property is placed in
service.
Revenues
Operating revenues are recognized on the accrual basis and include estimated
amounts for service rendered but unbilled at the end of each accounting period.
In 1991, a refund obligation of $53.4 million ($32.3 million after taxes) was
recorded as a result of a 1991 rate settlement. The refund obligation was used
to reduce the amount of a 1991 rate increase granted rather than require
specific customer refunds and was reversed over the thirty months ended May
1994. The after-tax refund obligation reversals that were recorded as electric
operating revenues amounted to $5.6 million in 1994 and $12.9 million in 1993.
Palo Verde Accretion Income
In 1991, the carrying value of Palo Verde Unit 3 was discounted to reflect the
present value of lost cash flows resulting from a 1991 rate settlement agreement
deeming a portion of the unit to temporarily be excess capacity. In accordance
with generally accepted accounting principles, accretion income was recorded
over a thirty-month period ended May 1994 in the aggregate amount of the
original discount. The after-tax accretion income recorded in 1994 and 1993 was
$20.3 million and $45.3 million, respectively.
Palo Verde Cost Deferrals
As authorized by the ACC, operating costs (excluding fuel) and financing costs
of Palo Verde Units 2 and 3 were deferred from the commercial operation date
(September 1986 and January 1988, respectively) until the date the units were
included in a rate order (April 1988 and December 1991, respectively). The
deferrals are being amortized and recovered through rates over thirty-five year
periods.
Nuclear Fuel
Nuclear fuel is charged to fuel expense using the unit-of-production method
under which the number of units of thermal energy produced in the current period
is related to the total thermal units 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 and assesses $0.001 per kWh of nuclear generation. This amount is
charged to nuclear fuel expense. See Note 12 for information on nuclear
decommissioning costs.
Reacquired Debt Costs
The Company amortizes gains and losses on reacquired debt over the remaining
life of the original debt, consistent with ratemaking.
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.
Reclassifications
Certain prior year balances have been restated to conform to the 1995
presentation.
2. Accounting Matters
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which is effective in 1996. This statement requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss would be recognized if the sum of the estimated future
undiscounted cash flows to be generated by an asset is less than its carrying
value. The amount of the loss would be based on a comparison of book value to
fair value. The standard also amends SFAS No. 71 to require the write-off of a
regulatory asset if it is no longer probable that future revenues will recover
the cost of the asset. SFAS No. 121 does not have a material impact on financial
position or results of operations upon adoption.
APS
NOTES TO FINANCIAL STATEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which is effective in 1996. This
statement establishes a fair-value based method of accounting for stock
compensation plans. The statement encourages but does not require companies to
recognize compensation expense based on the new fair value method. The Company
will not apply the recognition and measurement approach in SFAS No. 123 upon
adoption.
See Note 12 for discussion of a proposed standard on accounting for liabilities
related to closure or removal of long-lived assets.
3. Regulatory Matters
1995 Regulatory Agreement
In December 1995, the Company and the ACC Staff announced an agreement which
includes an economic proposal to be heard by the full ACC beginning on April 9,
1996. In recognition of evolving competition in the electric utility industry
and an ongoing investigation by the ACC Staff into industry restructuring in an
open competition docket involving many parties, the agreement also includes an
element setting out a number of issues which the Company and the ACC Staff agree
the ACC should be requested to consider in developing restructuring policies.
Economic Proposal
The major provisions of the economic proposal are:
o An annual rate reduction of approximately $48 million ($29 million after
income taxes), or 3.25% on average, effective no earlier than July 1, 1996.
o Recovery of substantially all of the Company's present regulatory assets
through accelerated amortization over an eight-year period beginning July 1,
1996, increasing annual amortization by approximately $120 million ($72
million after income taxes). See Note 1.
o A formula for sharing future cost savings between customers and shareholders
referencing a return on equity (as defined) of 11.25%.
o A moratorium on filing for permanent rate changes, except under the sharing
formula and under certain other limited circumstances, prior to July 2, 1999.
o Infusion of $200 million of common equity into the Company by Pinnacle West,
in annual increments of $50 million starting in 1996.
Industry Restructuring
The issues listed by the Company and the ACC Staff in the industry restructuring
element of their agreement include the legal nature of utilities' service rights
and responsibilities, including the obligation to serve in a restructured
environment; compensation for restructuring, taking into account (among other
matters) stranded investment; ACC jurisdiction over market entrants; reciprocity
of access among electricity providers; maintenance of system reliability; the
utility tax structure; and clarification of federal-state jurisdictional
uncertainties.
The Company believes that, after a series of hearings on these and related
issues in the competition docket, the ACC could produce a set of regulatory and
legislative reforms for presentation to the appropriate bodies in 1997. Bills
for industry restructuring or studies thereof have already been introduced in
Congress and the Arizona legislature; the Arizona bill, which is supported by
the Company, would establish a committee to study the issues and to report back
to the legislature by the end of 1997.
Assuming timely resolution of the issues and approval of the economic proposal
in the agreement, the Company therein proposes (independently of the ACC Staff)
a plan whereby it would request the ACC to authorize access by retail customers
of Arizona public service corporations to the broad generation market starting
in the year 2000 for large customers, and thereafter in phased steps up to all
customers in about 2004. Other parties may submit other plans, and the ultimate
outcome is not predictable.
1994 Settlement Agreement
In May 1994, the ACC approved a retail rate settlement agreement which provided
for a net annual retail rate reduction of 2.2% on average, or approximately $32
million ($19 million after taxes), effective June 1, 1994. As part of the
settlement, in 1994 the Company reversed approximately $20 million of
APS
NOTES TO FINANCIAL STATEMENTS
depreciation ($15 million after income taxes) related to a 1991 Palo Verde
write-off. The 1994 rate settlement also provided for the accelerated
amortization of substantially all deferred ITCs over a five-year period
beginning in 1995.
4. Common and Preferred Stocks
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. Common and preferred
stock balances at December 31 are shown below:
Number of Shares Par Value
---------------- ---------
Call
Outstanding Outstanding Price
---------------------- Per --------------------- Per
Authorized 1995 1994 Share 1995 1994 Share(a)
---------- ---------- ---------- ----- ------ ------ --------
(Thousands of Dollars)
Common Stock ............ 100,000,000 71,264,947 71,264,947 $ 2.50 $ 178,162 $ 178,162 --
========== ========== ========= =========
Preferred Stock:
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)
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 3,000,000 25.00 75,000 75,000 (d)
--------- --------- --------- ---------
Total ................ 4,874,199 4,874,199 $ 193,561 $ 193,561
========= ========= ========= =========
Redeemable:
Serial preferred:
$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 (e)
--------- ---------- --------- ---------
Total 750,000 750,000 $ 75,000 $ 75,000
========= ========== ========= =========
- ----------
(a) In each case plus accrued dividends.
(b) This authorization also covers all outstanding 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 $105.51 through May 31, 1996, and thereafter declining by a
predetermined amount each year to par after May 31, 2002.
APS
NOTES TO FINANCIAL STATEMENTS
If there were to be any arrearage in dividends on any of its 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: $0 in 1996 and $10.0 million in each of the
years 1997 through 2000.
Redeemable preferred stock transactions during each of the three years in the
period ended December 31 are as follows:
Number of Shares Par Value
Outstanding Outstanding
------------------------------------- -------------------------------------
(Thousands of Dollars)
Description 1995 1994 1993 1995 1994 1993
----------- ----- ---- ---- ---- ---- ----
Balance, January 1 ............ 750,000 1,976,100 2,256,350 $75,000 $ 197,610 $ 225,635
Retirements:
$8.80 Series K ..... -- (142,100) (45,000) -- (14,210) (4,500)
$11.50 Series R .... -- (284,000) (35,250) -- (28,400) (3,525)
$8.48 Series S ..... -- (300,000) (200,000) -- (30,000) (20,000)
$8.50 Series T ..... -- (500,000) -- -- (50,000) --
------- -------- --------- ------- ------------- ----------
Balance, December 31 .......... 750,000 750,000 1,976,100 $75,000 $ 75,000 $ 197,610
======= ======== ========= ======= ============= ==========
5. Long-Term Debt
The following table presents long-term debt outstanding:
December 31,
------------
Maturity Dates Interest Rates 1995 1994
-------------- -------------- ---- ----
(Thousands of Dollars)
First mortgage bonds 1997-2028 5.5%-13.25%(a) $1,604,317 $1,740,071
Pollution control indebtedness 2024-2029 Adjustable(b) 433,280 418,824
Debentures(c) 2025 10% 75,000 --
Capitalized lease obligation(d) 1995-2001 7.48% 22,936 26,365
---------- ----------
Total long-term debt 2,135,533 2,185,260
Less current maturities 3,512 3,428
---------- ----------
Total long-term debt less current maturities $2,132,021 $2,181,832
========== ==========
- ----------
(a)The weighted-average rate at December 31, 1995 and 1994 was 7.79% and 8.04%,
respectively. The weighted-average years to maturity at December 31, 1995 and
1994 was 19 years.
(b)The weighted-average rates for the years ended December 31, 1995 and 1994
were 4.31% and 3.91%, respectively. Changes in short-term interest rates
would affect the costs associated with this debt.
(c)Junior subordinated deferrable interest debentures due in 2025, redeemable
at the option of the Company as a whole or in part on or after January 31,
2000 at par plus accrued interest.
(d)Represents the present value of future lease payments (discounted at an
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 8).
Aggregate annual principal payments due on long-term debt and for sinking fund
requirements through 2000 are as follows: 1996, $3.5 million; 1997, $153.8
million; 1998, $104.1 million; 1999, $104.4 million; and 2000, $104.7 million.
See Note 4 for redemption and sinking fund requirements of redeemable preferred
stock of the Company.
APS
NOTES TO FINANCIAL STATEMENTS
Substantially all utility plant (other than nuclear fuel, transportation
equipment and the combined cycle plant) is subject to the lien of the mortgage
bond indenture. The mortgage bond indenture includes provisions which would
restrict the payment of common stock dividends under certain conditions which
did not exist at December 31, 1995.
6. Lines of Credit
The Company had committed lines of credit with various banks of $300 million at
December 31, 1995 and 1994, which were available either to support the issuance
of commercial paper or to be used for bank borrowings. The commitment fees at
December 31, 1995 and 1994 on $200 million of these lines were 0.15% and 0.20%
per annum, respectively, and on $100 million were 0.10% and 0.15% per annum,
respectively. The Company had commercial paper borrowings outstanding of $177.8
million at December 31, 1995 and $131.5 million at December 31, 1994. The
weighted average interest rate on commercial paper borrowings was 6.06% on
December 31, 1995 and 6.25% on December 31, 1994. By Arizona statute, the
Company's short-term borrowings cannot exceed 7% of its total capitalization
without the consent of the ACC.
7. Jointly-Owned Facilities
At December 31, 1995, 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 Construction
Owned by Plant in Accumulated Work in
Company Service Depreciation Progress
------- ------- ------------ --------
(Thousands of Dollars)
Generating Facilities:
Palo Verde Nuclear Generating Station
Units 1 and 3 ..................... 29.1% $1,823,062 $ 477,569 $ 18,743
Palo Verde Nuclear Generating Station
Unit 2 (see Note 8) ............... 17.0% 556,236 149,837 9,925
Four Corners Steam Generating Station
Units 4 and 5 ..................... 15.0% 142,449 54,349 1,208
Navajo Steam Generating Station
Units 1, 2 and 3 .................. 14.0% 139,607 78,490 38,633
Cholla Steam Generating Station
Common Facilities (a) ............. 62.8%(b) 70,761 35,900 734
Transmission Facilities:
ANPP 500KV System ................... 35.8%(b) 62,607 16,589 1,106
Navajo Southern System .............. 31.4%(b) 26,737 15,561 23
Palo Verde-Yuma 500KV System ........ 23.9%(b) 11,375 3,483 9
Four Corners Switchyards ............ 27.5%(b) 3,068 1,561 53
Phoenix-Mead System ................. 17.1%(b) -- -- 39,918
- ----------
(a)The Company is the operating agent for Cholla Unit 4, which is owned by
PacifiCorp. The common facilities at the Cholla Plant are jointly-owned.
(b) Weighted average of interests.
APS
NOTES TO FINANCIAL STATEMENTS
8. 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 and certain common
facilities. The gain of approximately $140.2 million 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 to be paid each year
approximate $40.1 million through 1999, $46.3 million in 2000 and $49.0 million
through 2015. Options to renew for two additional years and to purchase the
property at fair market value at the end of the lease terms are also included.
Consistent with the ratemaking treatment, an amount equal to the annual lease
payments is included in rent expense. A regulatory asset (totaling approximately
$56.9 million at December 31, 1995) has been established for the difference
between lease payments and rent expense calculated on a straight-line basis.
Lease expense for 1995, 1994 and 1993 was $41.7 million, $42.2 million and $41.8
million, respectively.
The Company has a capital lease on a combined cycle plant which it sold and
leased back. The lease requires semiannual payments of $2.6 million 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 $54.4 million;
accumulated amortization at December 31, 1995 was $42.4 million.
In addition, the Company leases certain land, buildings, equipment and
miscellaneous other items through operating rental agreements with varying
terms, provisions and expiration dates. Rent expense for 1995, 1994 and 1993 was
approximately $9.9 million, $10.1 million and $11.1 million, respectively.
Annual future minimum rental commitments, excluding the Palo Verde and combined
cycle leases, for the period 1996 through 2000 range between $12 million and $13
million. Total rental commitments after the year 2000 are estimated at $115
million.
9. 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. Beginning in 1995, substantially all of the unamortized ITCs are
being amortized over a five-year period in accordance with the 1994 rate
settlement agreement (see Note 3). Prior to 1995, ITCs were deferred and
amortized to other income over the estimated lives of the related assets as
directed by the ACC.
The Company follows the liability method of accounting for income taxes which
requires that deferred income taxes be recorded for all temporary differences
between the tax bases of assets and liabilities and the amounts recognized for
financial reporting. Deferred taxes are recorded using currently enacted tax
rates. In accordance with SFAS No. 71, a regulatory asset has been established
for certain temporary differences, primarily AFUDC equity, that are flowed
through for regulatory purposes. This regulatory asset is being amortized as the
related differences reverse.
The components of income tax expense are as follows:
Year Ended December 31,
-----------------------------
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
Current:
Federal ........................ $ 120,196 $ 74,272 $ 69,243
State .......................... 33,368 26,447 23,915
--------- ---------- --------
Total current .............. 153,564 100,719 93,158
Deferred ......................... 17,933 83,350 102,697
Change in valuation allowance .... (2,589) -- --
Investment tax credit amortization (27,641) (6,825) (6,948)
--------- ---------- --------
Total expense .............. $ 141,267 $ 177,244 $188,907
========= ========== ========
APS
NOTES TO FINANCIAL STATEMENTS
Income tax expense differed from the amount computed by multiplying income
before income taxes by the statutory federal income tax rate due to the
following:
Year Ended December 31,
--------------------------
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
Federal income tax expense at statutory rate, 35% ..........$ 133,293 $ 147,256 $ 153,753
Increase (reductions) in tax expense resulting from:
Tax under book depreciation ........................ 18,186 17,236 17,671
ITC amortization ................................... (27,641) (6,825) (6,922)
State income tax-- net of federal income tax benefit 21,770 24,947 27,005
Other .............................................. (4,341) (5,370) (2,600)
---------- ---------- ----------
Income tax expense .........................$ 141,267 $ 177,244 $ 188,907
========== ========== ==========
The components of the net deferred income tax liability were as follows:
December 31,
------------------
1995 1994
---- ----
(Thousands of Dollars)
Deferred tax assets:
Deferred gain on Palo Verde Unit 2 sale/leaseback ......... $ 60,686 $ 63,720
Alternative minimum tax ................................... -- 14,089
Other ..................................................... 78,021 73,084
Valuation allowance ....................................... (12,483) (15,072)
----------- -----------
Total deferred tax assets ......................... 126,224 135,821
----------- -----------
Deferred tax liabilities:
Plant related ..................................... 813,229 802,645
Income taxes recoverable through future rates-- net 548,464 557,049
Palo Verde deferrals .............................. 148,395 153,410
Other ............................................. 39,965 39,787
----------- -----------
Total deferred tax liabilities ............ 1,550,053 1,552,891
----------- -----------
Accumulated deferred income taxes-- net ................... $ 1,423,829 $ 1,417,070
=========== ===========
10. Pension Plan and Other Benefits
Pension Plan
The Company sponsors a defined benefit pension plan covering
substantially all employees. Benefits are based on years of service and
compensation utilizing a final average pay benefit formula. The funding policy
is to contribute the net periodic cost accrued each year. However, the
contribution will not be less than the minimum required contribution nor greater
than the maximum tax-deductible contribution. Plan assets consist primarily of
domestic and international common stocks and bonds and real estate. Pension
cost, including administrative cost, for 1995, 1994 and 1993 was approximately
$21.1 million, $25.4 million and $14.0 million, respectively, of which
approximately $9.6 million, $11.9 million and $6.5 million, respectively, was
charged to expense. The remainder was either capitalized or billed to others.
APS
NOTES TO FINANCIAL STATEMENTS
The components of net periodic pension costs (excluding the costs of special
termination benefits of $1.4 million in 1994) are as follows:
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
Service cost-benefits earned during the period $ 16,038 $ 20,345 $ 16,754
Interest cost on projected benefit obligation 39,328 39,377 34,724
Return on plan assets ........................ (82,209) 6,105 (51,597)
Net amortization and deferral ................ 45,976 (44,000) 13,420
-------- -------- --------
Net periodic pension cost .................... $ 19,133 $ 21,827 $ 13,301
======== ======== ========
A reconciliation of the funded status of the plan to the amounts recognized in
the balance sheet is presented below:
1995 1994
---- ----
(Thousands of Dollars)
Plan assets at fair value ............................................. $ 469,820 $ 388,010
---------- ----------
Less:
Accumulated benefit obligation, including vested benefits
of $396,138 and $308,474 in 1995 and 1994, respectively 428,258 333,564
Effect of projected future compensation increases ............. 149,836 112,780
--------- ---------
Total projected benefit obligation .................................... 578,094 446,344
--------- ---------
Plan assets less than projected benefit obligation .................... (108,274) (58,334)
Plus:
Unrecognized net loss (gain) from past experience
different from that assumed ........................... 44,614 (9,372)
Unrecognized prior service cost ............................... 23,800 25,527
Unrecognized net transition asset ............................. (32,809) (36,025)
--------- ---------
Accrued pension liability ............................................. $ (72,669) $ (78,204)
========= =========
Principal actuarial assumptions used were:
Discount rate ................................................. 7.25% 8.75%
Rate of increase in compensation levels ....................... 4.50% 5.00%
Expected long-term rate of return on assets ................... 9.00% 9.00%
In addition to the defined benefit pension plan, the Company also sponsors
qualified defined contribution plans. Collectively, these plans cover
substantially all employees. The plans provide for employee contributions and
partial employer matching contributions after certain eligibility requirements
are met. The cost of these plans for 1995, 1994 and 1993 was $6.9 million, $6.8
million and $6.3 million, respectively, of which $3.1 million, $3.2 million and
$3.0 million, respectively, 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 plans are 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.
Funding is based upon actuarially determined contributions that take tax
consequences into account. Plan assets consist primarily of domestic stocks and
bonds. The postretirement benefit cost for 1995, 1994 and 1993 was approximately
$23 million, $28 million and $34 million, respectively, of which approximately
$13 million, $13 million and $17 million was charged to expense. The remainder
was either capitalized or billed to others.
APS
NOTES TO FINANCIAL STATEMENTS
The components of net periodic postretirement benefit costs are as follows:
1995 1994 1993
---- ---- ----
(Thousands of Dollars)
Service cost-benefits earned during the period $ 6,735 $ 8,785 $ 9,510
Interest cost on accumulated benefit obligation 13,743 14,026 15,630
Return on plan assets ......................... (15,133) (6,459) --
Net amortization and deferral ................. 17,142 11,619 9,146
-------- -------- --------
Net periodic postretirement benefit cost ...... $ 22,487 $ 27,971 $ 34,286
======== ======== ========
A reconciliation of the funded status of the plan to the amounts recognized in
the balance sheet is presented below:
1995 1994
---- ----
(Thousands of Dollars)
Plan assets at fair value ...................................................... $ 81,309 $ 49,666
--------- ---------
Less accumulated postretirement benefit obligation:
Retirees ............................................................... 90,222 65,552
Fully eligible plan participants ....................................... 15,497 9,128
Other active plan participants ......................................... 106,568 87,201
--------- ---------
Total accumulated postretirement benefit obligation ......... 212,287 161,881
--------- ---------
Plan assets less than accumulated benefit obligation ........................... (130,978) (112,215)
Plus:
Unrecognized transition obligation ..................................... 155,481 164,627
Unrecognized net gain from past experience different from that
assumed ........................................................ (24,561) (52,470)
--------- ---------
Accrued postretirement liability ............................................... $ (58) $ (58)
========= =========
Principal actuarial assumptions used were:
Discount rate .......................................................... 7.25% 8.75%
Annual salary increases for life insurance obligation .................. 4.50% 5.00%
Weighted average expected long-term rate of return on assets-- after tax 7.64% 7.71%
Initial health care cost trend rate-- under age 65 ..................... 9.50% 11.50%
Initial health care cost trend rate-- age 65 and over .................. 8.50% 8.50%
Ultimate health care cost trend rate (reached in the year 2002) ........ 5.50% 5.50%
Assuming a one percent increase in the health care cost trend rate, the 1995
cost of postretirement benefits other than pensions would increase by
approximately $4.5 million and the accumulated benefit obligation as of December
31, 1995 would increase by approximately $33.3 million.
11. Commitments and Contingencies
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
resolution of these matters will not have a material adverse effect on the
operations or financial position of the Company.
Palo Verde Nuclear Generating Station
The Company has encountered tube cracking in steam generators and has taken, and
will continue to take, remedial actions that it believes have slowed the rate of
tube degradation. The projected service life of the steam generators is
reassessed periodically in conjunction with inspections made during scheduled
outages at the Palo Verde units. The Company's ongoing analyses indicate that it
will be economically desirable for the Company to replace the Unit 2 steam
generators, which have been most affected by tube
APS
NOTES TO FINANCIAL STATEMENTS
cracking, in five to ten years. The Company expects that the steam generator
replacement can be accomplished within financial parameters established before
replacement was a consideration, and the Company estimates that its share of the
replacement costs (in 1995 dollars and including installation and replacement
power costs) will be between $30 million and $50 million, most of which will be
incurred after the year 2000. The Company expects that the replacement would be
performed in conjunction with a normal refueling outage in order to limit
incremental outage time to approximately 50 days. Based on the latest available
data, the Company estimates that the Unit 1 and Unit 3 steam generators should
operate for the license periods (until 2025 and 2027, respectively), although
the Company will continue its normal periodic assessment of these steam
generators.
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 industry-wide retrospective assessment program. If losses at any
nuclear power plant covered by this program exceed the accumulated funds for
this program, the Company could be assessed retrospective premium adjustments.
The maximum assessment per reactor under the 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 for all three units is
approximately $69 million, with an annual payment limitation of approximately $9
million.
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.
Construction Program
Total capital expenditures in 1996 are estimated at $246 million.
Fuel and Purchased Power Commitments
The Company is a party to various fuel and purchased power contracts with terms
expiring from 1996 through 2020 that include required purchase provisions. The
Company estimates its 1996 contract requirements to be approximately $99
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.
Additionally, the Company is contractually obligated to reimburse certain coal
providers for amounts incurred for coal mine reclamation. The Company's share of
the total obligation is estimated at $123 million. The portion of the coal mine
reclamation obligation related to coal already burned was recorded in 1995 on
the Balance Sheets as "Deferred Credits -- Other" with a corresponding
regulatory asset for approximately $74 million.
12. Nuclear Decommissioning Costs
In 1995, the Company recorded $11.7 million for decommissioning expense. The
Company estimates it will cost approximately $2.0 billion ($421 million in 1995
dollars), over a fourteen year period beginning in 2024, to decommission its
29.1% interest in Palo Verde. Decommissioning costs are charged to expense over
the respective unit's operating license term and are included in the accumulated
depreciation balance until each unit is retired. Nuclear decommissioning costs
are currently recovered in rates.
The Company is utilizing a 1995 site-specific study for Palo Verde, prepared for
the Company by an independent consultant, that assumes the prompt
removal/dismantlement method of decommissioning. The Company is required to
update the study every three years.
As required by regulation, the Company has established external trust accounts
into which quarterly deposits are made for decommissioning. As of December 31,
1995, the Company had deposited a total of $56.7 million. The trust accounts are
included in "Investments and Other Assets" on the Balance Sheets at a market
value of $74.5 million on December 31, 1995. The trust funds are invested
primarily in fixed-income securities and domestic
APS
NOTES TO FINANCIAL STATEMENTS
stock and are classified as available for sale. Realized and unrealized gains
and losses are reflected in accumulated depreciation.
In 1994, FASB added a project to its agenda on accounting for nuclear
decommissioning obligations. FASB recently issued an exposure draft "Accounting
for Certain Liabilities Related to Closure or Removal of Long-Lived Assets"
(formerly Nuclear Decommissioning) which would require the estimated present
value of the cost of decommissioning and certain other removal costs to be
recorded as a liability, along with an offsetting plant asset when a
decommissioning or other removal obligation is incurred. FASB has requested
comments on its proposed statement. The expected effective date is 1997. The
Company is unable at this time to determine what impact the final statement may
have on its financial position or results of operation.
13. Selected Quarterly Financial Data (Unaudited)
Quarterly financial information for 1995 and 1994 is as follows:
Electric
Operating Operating Net Earnings for
Quarter Revenues Income(a) Income Common Stock
- ------- -------- --------- ------ ------------
(Thousands of Dollars)
1995
First $ 336,968 $ 73,214 $ 37,832 $ 33,025
Second 380,178 88,719 53,452 48,676
Third 549,082 162,602 128,345 123,570
Fourth 348,724 57,219 19,941 15,165
1994
First $ 346,049 $ 67,147 $ 38,468 $ 30,958
Second 397,156 83,607 65,851 58,879
Third 540,883 155,115 116,267 110,359
Fourth 342,080 62,564 22,900 18,016
- ----------
(a)The Company's operations are subject to seasonal fluctuations primarily as a
result of weather conditions. The results of operations for interim periods
are not necessarily indicative of the results to be expected for the full
year.
14. 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,
1995 and 1994 due to their short maturities. Investments in debt and equity
securities are held for purposes other than trading. The December 31, 1995 and
1994 fair values of debt and equity investments, determined by using quoted
market values or by discounting cash flows at rates equal to the Company's cost
of capital, approximate their carrying amounts.
The carrying value of long-term debt (excluding a capitalized lease obligation)
on December 31, 1995 and 1994 was $2.11 billion and $2.16 billion, respectively,
and the estimated fair value was $2.14 billion and $1.99 billion, respectively.
The fair value estimates are based on quoted market prices of the same or
similar issues.
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 May 21,
1996 (the "1996 Proxy Statement") and to the Supplemental Item -- "Executive
Officers of the Registrant" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Reference is hereby made to the fourth paragraph under the heading "The Board
and its Committees," and to "Executive Compensation" in the 1996 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 1996 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 1996 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
See the Index to Financial Statements in Part II, Item 8 on page 19 .
EXHIBITS FILED
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 -- Bylaws, amended as of February 20, 1996
10.1(a) -- 1996 Senior Management Variable Pay Plan
10.2(a) -- 1996 Officers Variable Pay Plan
10.3 -- Amendment No. 1 dated April 5, 1995 to the Long-Term Power Transactions Agreement
and Asset Purchase and Power Exchange Agreement between PacifiCorp and the
Company
10.4 -- Restated Transmission Agreement between PacifiCorp and the Company dated April 5,
1995
10.5 -- Contract among PacifiCorp, the Company and United States Department of Energy
Western Area Power Administration, Salt Lake Area Integrated Projects for Firm
Transmission Service dated May 5, 1995
10.6 -- Reciprocal Transmission Service Agreement between the Company and PacifiCorp
dated as of March 2, 1994
10.7(a) -- Letter Agreement dated as of January 1, 1996 between the Company and Kenneth M.
Carr for consulting services
10.8(a) -- Letter Agreement dated as of January 1, 1996 between the
Company and Robert G.
Matlock & Associates, Inc. for consulting services
10.9(a) -- First Amendment to the Arizona Public Service Company Severance Plan as adopted
on August 19, 1994
10.10(a) -- Pinnacle West Capital Corporation, Arizona Public Service Company, SunCor
Development Company and El Dorado Investment Company Deferred Compensation Plan
as amended and restated effective January 1, 1996
10.11(a) -- Arizona Public Service Company Supplemental Excess Benefit Retirement Plan as
amended and restated on December 20, 1995
23.1 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule
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
----------- ----------- --------------------------- ------- --------------
3.2 Resolution of Board of 3.2 to 1994 Form 10-K 1-4473 3-30-95
Directors temporarily Report
suspending Bylaws in part
3.3 Articles of Incorporation, 4.2 to Form S-3 1-4473 9-29-93
restated as of May 25, 1988 Registration Nos.
33-33910 and 33-55248
by means of September 24,
1993 Form 8-K Report
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
3.4 Certificates pursuant to 4.3 To Form S-3 Registration 1-4473 9-29-93
Sections 10-152.01 and 10-016, Nos. 33-33910 and 33-55248
Arizona Revised Statutes, by means of September 24,
establishing Series A 1993 Form 8-K Report
through V of the Company's
Serial Preferred Stock
3.5 Certificate pursuant to 4.4 to Form S-3 Registration 1-4473 9-29-93
Section 10-016, Arizona Nos. 33-33910 and 33-55248
Revised Statutes, by means of September 24,
establishing Series W 1993 Form 8-K Report
of the Company's Serial
Preferred Stock
4.1 Mortgage and Deed of Trust 4.1 to September 1992 Form 1-4473 11-9-92
Relating to the Company's First 10-Q Report
Mortgage Bonds, together with
forty-eight indentures
supplemental thereto
4.2 Forty-ninth Supplemental 4.1 to 1992 Form 10-K Report 1-4473 3-30-93
Indenture
4.3 Fiftieth Supplemental Indenture 4.2 to 1993 Form 10-K Report 1-4473 3-30-94
4.4 Fifty-first Supplemental 4.1 to August 1, 1993 Form
Indenture 8-K Report 1-4473 9-27-93
4.5 Fifty-second Supplemental 4.1 to September 30, 1993 1-4473 11-15-93
Indenture Form 10-Q Report
4.6 Fifty-third Supplemental 4.5 to Registration 1-4473 3-1-94
Indenture Statement No. 33-61228 by
means of February 23, 1994
Form 8-K Report
4.7 Agreement, dated March 21, 4.1 to 1993 Form 10-K Report 1-4473 3-30-94
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
4.8 Indenture dated as of January 4.6 to Registration 1-4473 1-11-95
1, 1995 among the Company and Statement Nos. 33-61228 and
The Bank of New York, 33-55473 by means of January
as Trustee 1, 1995 Form 8-K Report
4.9 Agreement of Resignation, 4.1 to September 25, 1995
Appointment, Acceptance and Form 8-K Report 1-4473 10-24-95
Assignment dated as of August
18, 1995 by and among the
Company, Bank of America
National Trust and Savings
Association and The Bank of
New York
10.12 Two separate Decommissioning 10.2 to September 1991 Form 1-4473 11-14-91
Trust Agreements (relating to 10-Q
PVNGS Units 1 and 3,
respectively), each
dated July 1, 1991,
between the Company
and Mellon Bank, N.A., as
Decommissioning Trustee
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
10.13 Amendment No. 1 to 10.1 to 1994 Form 10-K 1-4473 3-30-95
Decommissioning Trust Agreement Report
(PVNGS Unit 1) dated as of
December 1, 1994
10.14 Amendment No. 1 to 10.2 to 1994 Form 10-K 1-4473 3-30-95
Decommissioning Trust Agreement Report
(PVNGS Unit 3) dated as of
December 1, 1994
10.15 Amended and Restated 10.1 to Pinnacle West 1991 1-8962 3-26-92
Decommissioning Trust Agreement Form 10-K Report
(PVNGS Unit 2) dated as of
January 31, 1992, among the
Company, Mellon Bank, N.A., as
Decommissioning Trustee, and
State Street Bank and Trust
Company, as successor to 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
10.16 First Amendment to Amended and 10.2 to 1992 Form 10-K 1-4473 3-30-93
Restated Decommissioning Trust Report
Agreement (PVNGS Unit 2), dated
as of November 1, 1992
10.17 Amendment No. 2 to Amended and 10.3 to 1994 Form 10-K 1-4473 3-30-95
Restated Decommissioning Trust Report
Agreement (PVNGS Unit 2) dated
as of November 1, 1994
10.18 Asset Purchase and Power 10.1 to June 1991 Form 10-Q 1-4473 8-8-91
Exchange Agreement dated Report
September 21, 1990 between the
Company and PacifiCorp, as
amended as of October 11, 1990
and as of July 18, 1991
10.19 Long-Term Power Transactions 10.2 to June 1991 Form 10-Q 1-4473 8-8-91
Agreement dated September 21, Report
1990 between the Company and
PacifiCorp, as amended as of
October 11, 1990 and as of July
8, 1991
10.20 Contract, dated July 21, 1984, 10.31 to Pinnacle West's 2-96386 3-13-85
with DOE providing for the Form S-14 Registration
disposal of nuclear fuel and/or Statement
high-level radioactive waste,
ANPP
10.21 Indenture of Lease with Navajo 5.01 to Form S-7 2-59644 9-1-77
Tribe of Indians, Four Corners Registration Statement
Plant
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
10.22 Supplemental and Additional 5.02 to Form S-7 2-59644 9-1-77
Indenture of Lease, including Registration Statement
amendments and supplements to
original lease with Navajo
Tribe of Indians, Four Corners
Plant
10.23 Amendment and Supplement No. 1 10.36 to Registration 1-8962 7-25-85
to Supplemental and Additional Statement on Form 8-B of
Indenture of Lease, Four Pinnacle West
Corners, dated April 25, 1985
10.24 Application and Grant of 5.04 to Form S-7 2-59644 9-1-77
multi-party rights-of-way and Registration Statement
easements, Four Corners Plant
Site
10.25 Application and Amendment No. 1 10.37 to Registration 1-8962 7-25-85
to Grant of multi-party Statement on Form 8-B of
rights-of-way and easements, Pinnacle West
Four Corners Power Plant Site,
dated April 25, 1985
10.26 Application and Grant of 5.05 to Form S-7 2-59644 9-1-77
Arizona Public Service Company Registration Statement
rights-of-way and easements,
Four Corners Plant Site
10.27 Application and Amendment No. 1 10.38 to Registration 1-8962 7-25-85
to Grant of Arizona Public Statement on Form 8-B of
Service Company rights-of-way Pinnacle West
and easements, Four Corners
Power Plant Site, dated April
25, 1985
10.28 Indenture of Lease, Navajo 5(g) to Form S-7 2-36505 3-23-70
Units 1, 2, and 3 Registration Statement
10.29 Application and Grant of 5(h) to Form S-7 2-36505 3-23-70
rights-of-way and easements, Registration Statement
Navajo Plant
10.30 Water Service Contract 5(l) to Form S-7 2-39442 3-16-71
Assignment with the United Registration Statement
States Department of Interior,
Bureau of Reclamation, Navajo
Plant
10.31 Arizona Nuclear Power Project 10.1 to 1988 Form 10-K 1-4473 3-8-89
Participation Agreement, dated Report
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
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
10.32 Amendment No. 13 dated as of 10.1 to March 1991 Form 10-Q 1-4473 5-15-91
April 22, 1991, to Arizona Report
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
10.33(b) Facility Lease, dated as of 4.3 to Form S-3 Registration 33-9480 10-24-86
August 1, 1986, between State Statement
Street Bank and Trust Company, as
successor to The First National
Bank of Boston, in its capacity
as Owner Trustee, as Lessor,
and the Company, as Lessee
10.34(b) Amendment No. 1, dated as of 10.5 to September 1986 Form 1-4473 12-4-86
November 1, 1986, to Facility 10-Q Report by means of
Lease, dated as of August 1, Amendment No. 1 on December
1986, between State Street Form 8
Bank and Trust Company, as
successor to The First
National Bank of Boston, in
its capacity as Owner Trustee,
as Lessor, and the Company,
as 3, 1986 Lessee
10.35(b) Amendment No. 2 dated as of 10.3 to 1988 Form 10-K 1-4473 3-8-89
June 1, 1987 to Facility Lease Report
dated as of August 1, 1986
between State Street Bank and
Trust Company, as successor to
The First National Bank of
Boston, as Lessor, and APS, as
Lessee
10.36(b) Amendment No. 3, dated as of 10.3 to 1992 Form 10-K 1-4473 3-30-93
March 17, 1993, to Facility Report
Lease, dated as of August 1,
1986, between State Street
Bank and Trust Company,
as successor to The First
National Bank of Boston, as
Lessor, and the Company, as
Lessee
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
10.37 Facility Lease, dated as of 10.1 to November 18, 1986 1-4473 1-20-87
December 15, 1986, between Form 8-K Report
State Street Bank and Trust
Company, as successor to The
First National Bank of Boston,
in its capacity as Owner
Trustee, as Lessor, and the
Company, as Lessee
10.38 Amendment No. 1, dated as of 4.13 to Form S-3 1-4473 8-24-87
August 1, 1987, to Facility Registration Statement No.
Lease, dated as of December 33-9480 by means of August
15, 1986, between State Street 1, 1987 Form 8-K Report
Bank and Trust Company, as
successor to The First
National Bank of Boston, as
Lessor, and the Company, as
Lessee
10.39 Amendment No. 2, dated as of 10.4 to 1992 Form 10-K 1-4473 3-30-93
March 17, 1993, to Facility Report
Lease, dated as of December
15, 1986, between State Street
Bank and Trust Company, as
successor to The First
National Bank of Boston, as
Lessor, and the Company, as
Lessee
10.40(a) Directors' Deferred 10.1 to June 1986 Form 10-Q 1-4473 8-13-86
Compensation Plan, as Report
restated, effective January 1,
1986
10.41(a) Second Amendment to the 10.2 to 1993 Form 10-K 1-4473 3-30-94
Arizona Public Service Company Report
Directors' Deferred
Compensation Plan, effective
as of January 1, 1993
10.42(a) Third Amendment to the Arizona 10.1 to September 1994 Form 1-4473 11-10-94
Public Service Company 10-Q
Directors' Deferred
Compensation Plan effective as
of May 1, 1993
10.43(a) Arizona Public Service Company 10.4 to 1988 Form 10-K 1-4473 3-8-89
Deferred Compensation Plan, as Report
restated, effective January 1,
1984, and the second and third
amendments thereto, dated
December 22, 1986, and
December 23, 1987,
respectively
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
10.44(a) Third Amendment to the Arizona 10.3 to 1993 Form 10-K 1-4473 3-30-94
Public Service Company Deferred Report
Compensation Plan, effective as
of January 1, 1993
10.45(a) Fourth Amendment to the Arizona 10.2 to September 1994 Form 1-4473 11-10-94
Public Service Company Deferred 10-Q Report
Compensation Plan effective as
of May 1, 1993
10.46(a) Pinnacle West Capital 10.7 to 1994 Form 10-K 1-4473 3-30-95
Corporation and Arizona Public Report
Service Company Directors'
Retirement Plan effective as of
January 1, 1995
10.47(a) Letter Agreement dated December 10.6 to 1994 Form 10-K 1-4473 3-30-95
21, 1993, between the Company Report
and William L. Stewart
10.48(a) Agreement for Utility 10.6 to 1988 Form 10-K 1-4473 3-8-89
Consulting Services, dated Report
March 1, 1985, between the
Company and Thomas G. Woods,
Jr., and Amendment No. 1
thereto, dated January 6, 1986
10.49(a) Letter Agreement, dated April 10.7 to 1988 Form 10-K 1-4473 3-8-89
3, 1978, between the Company Report
and O. Mark DeMichele,
regarding certain retirement
benefits granted to Mr.
DeMichele
10.50(a) Letter Agreement dated July 28, 10.1 to September 1995 10-Q 1-4473 11-14-95
1995, between the Company and Report
Jaron B. Norberg regarding
certain of Mr. Norberg's
retirement benefits
10.51(a)(c) Key Executive Employment and 10.3 to 1989 Form 10-K 1-4473 3-8-90
Severance Agreement between the Report
Company and certain executive
officers of the Company
10.52(a)(c) Revised form of Key Executive 10.5 to 1993 Form 10-K 1-4473 3-30-94
Employment and Severance Report
Agreement between the Company
and certain executive officers
of the Company
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
10.53(a)(c) Second revised form of Key 10.9 to 1994 Form 10-K 1-4473 3-30-95
Executive Employment and Report
Severance Agreement between the
Company and certain executive
officers of the Company
10.54(a)(c) Key Executive Employment and 10.4 to 1989 Form 10-K 1-4473 3-8-90
Severance Agreement between the Report
Company and certain managers of
the Company
10.55(a)(c) Revised form of Key Executive 10.4 to 1993 Form 10-K 1-4473 3-30-94
Employment and Severance Report
Agreement between the Company
and certain key employees of
the Company
10.56(a)(c) Second revised form of Key 10.8 to 1994 Form 10-K 1-4473 3-30-95
Executive Employment and Report
Severance Agreement between the
Company and certain key
employees of the Company
10.57(a) Arizona Public Service Company 10.5 to 1989 Form 10-K 1-4473 3-8-90
Performance Review Severance Report
Pay Plan, effective January 1,
1990
10.58(a) Arizona Public Service Company 10.1 to September 30, 1993 1-4473 11-15-93
Severance Plan as adopted on Form 10-Q Report
June 22, 1993
10.59(a) Pinnacle West Capital 10.1 to 1992 Form 10-K 1-4473 3-30-93
Corporation Stock Option and Report
Incentive Plan
10.60(a) Pinnacle West Capital A to the Proxy Statement for 1-8962 4-16-94
Corporation 1994 Long-Term the Plan Report Pinnacle
Incentive Plan effective as of West 1994 Annual Meeting of
March 23, 1994 Shareholders
10.61(a) Pinnacle West Capital 10.7 to 1993 Form 10-K 1-4473 3-30-94
Corporation, Arizona Public Report
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
10.62 Agreement No. 13904 (Option and 10.3 to 1991 Form 10-K 1-4473 3-19-92
Purchase of Effluent) with Report
Cities of Phoenix, Glendale,
Mesa, Scottsdale, Tempe, Town
of Youngtown, and Salt River
Project Agricultural
Improvement and Power District,
dated April 23, 1973
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
10.63 Agreement for the Sale and 10.4 to 1991 Form 10-K 1-4473 3-19-92
Purchase of Wastewater Report
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 4.2 to 1992 Form 10-K Report 1-4473 3-30-93
among PVNGS II Funding Corp.,
Inc., the Company and Chemical
Bank, as Trustee
99.2 Supplemental Indenture to 4.3 to 1992 Form 10-K Report 1-4473 3-30-93
Collateral Trust Indenture
among PVNGS II Funding Corp.,
Inc., the Company and Chemical
Bank, as Trustee
99.3(b) Participation Agreement, dated 28.1 to September 1992 Form 1-4473 11-9-92
as of August 1, 1986, among 10-Q Report
PVNGS Funding Corp., Inc.,
Bank of America National
Trust and Savings Association,
State Street Bank and Trust
Company, as successor to
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 10.8 to September 1986 Form 1-4473 12-4-86
November 1, 1986, to Participation 10-Q Report by means of
Agreement, dated as of August 1, Amendment No. 1, on December
1986, among PVNGS Funding Corp., 3, 1986 Form 8
Inc., Bank of America National
Trust and Savings Association,
State Street Bank and Trust
Company, as successor to 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
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
99.5(b) Amendment No. 2, dated as 28.4 to 1992 Form 10-K 1-4473 3-30-93
of March 17, 1993, to Report
Participation Agreement,
dated as of August 1, 1986,
among PVNGS Funding Corp.,
Inc., PVNGS II Funding Corp.,
Inc., State Street Bank
and Trust Company, as successor
to 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, 4.5 to Form S-3 Registration 33-9480 10-24-86
Security Agreement and Statement
Assignment of
Facility Lease, dated as
of August 1, 1986, between
State Street Bank and Trust
Company, as successor to
The First National Bank of
Boston, as Owner Trustee, and
Chemical Bank, as Indenture
Trustee
99.7(b) Supplemental Indenture No. 1, 10.6 to September 1986 Form 1-4473 12-4-86
dated as of November 1, 1986 10-Q Report by means of
to Trust Indenture, Mortgage, Amendment No. 1 on
Security Agreement and December 3, 1986 Form 8
Assignment of Facility Lease,
dated as of August 1, 1986,
between State Street Bank and
Trust Company, as successor
to The First National Bank of
Boston, as Owner Trustee, and
Chemical Bank, as Indenture
Trustee
99.8(b) Supplemental Indenture No. 2 4.4 to 1992 Form 10-K Report 1-4473 3-30-93
to Trust Indenture, Mortgage,
Security Agreement and
Assignment of Facility Lease,
dated as of August 1, 1986,
between State Street Bank
and Trust Company, as successor
to The First National Bank of
Boston, as Owner Trustee,
and Chemical Bank, as Indenture
Trustee
99.9(b) Assignment, Assumption and 28.3 to Form S-3 33-9480 10-24-86
Further Agreement, dated as of Registration Statement
August 1, 1986, between the
Company and State Street Bank
and Trust Company, as successor
to The First National Bank of
Boston, as Owner Trustee
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
99.10(b) Amendment No. 1, dated as of 10.10 to September 1986 Form 1-4473 12-4-86
November 1, 1986, to 10-Q Report by means of
Assignment, Assumption and Amendment No. 1 on December
Further Agreement, dated as of 3, 1986 Form 8
August 1, 1986, between the
Company and State Street Bank
and Trust Company, as successor
to The First National Bank of
Boston, as Owner Trustee
99.11(b) Amendment No. 2, dated as of 28.6 to 1992 Form 10-K 1-4473 3-30-93
March 17, 1993, to Assignment, Report
Assumption and Further
Agreement, dated as of August
1, 1986, between the
Company and State Street Bank
and Trust Company, as successor
to The First National Bank of
Boston, as Owner Trustee
99.12 Participation Agreement, dated 28.2 to September 1992 Form 1-4473 11-9-92
as of December 15, 1986, among 10-Q Report
PVNGS Funding Corp., Inc., State
Street Bank and Trust Company, as
successor to 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 28.20 to Form S-3 1-4473 8-10-87
August 1, 1987, to Registration Statement No.
Participation Agreement, dated 33-9480 by means of a
as of December 15, 1986, among November 6, 1986 Form 8-K
PVNGS Funding Corp., Inc. as Report
Funding Corporation, State
Street Bank and Trust Company,
as successor to The First
National Bank of Boston, as
Owner Trustee, Chemical Bank,
as Indenture Trustee, the
Company, and the Owner
Participant named therein
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
99.14 Amendment No. 2, dated as 28.5 to 1992 Form 10-K 1-4473 3-30-93
of March 17, 1993, to Report
Participation Agreement,
dated as of December 15, 1986,
among PVNGS Funding Corp.,
Inc., PVNGS II Funding Corp.,
Inc., State Street Bank and
Trust Company, as successor to
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, 10.2 to November 18, 1986 1-4473 1-20-87
Security Agreement and Assignment Form 8-K Report
of Facility Lease, dated as
of December 15, 1986, between
State Street Bank and Trust
Company, as successor to The
First National Bank of Boston,
as Owner Trustee, and
Chemical Bank, as Indenture
Trustee
99.16 Supplemental Indenture No. 1, 4.13 to Form S-3 1-4473 8-24-87
dated as of August 1, 1987, to Registration Statement No.
Trust Indenture, Mortgage, 33-9480 by means of August
Security Agreement and 1, 1987 Form 8-K Report
Assignment of Facility Lease,
dated as of December 15, 1986,
between State Street Bank and
Trust Company, as successor to
The First National Bank of
Boston, as Owner Trustee, and
Chemical Bank, as Indenture
Trustee
99.17 Supplemental Indenture No. 2 4.5 to 1992 Form 10-K Report 1-4473 3-30-93
to Trust Indenture, Mortgage,
Security Agreement and
Assignment of Facility
Lease, dated as of December
15, 1986, between State Street
Bank and Trust Company, as
successor to The First National
Bank of Boston, as Owner Trustee,
and Chemical Bank, as Indenture
Trustee
99.18 Assignment, Assumption and 10.5 to November 18, 1986 1-4473 1-20-87
Further Agreement, dated as of Form 8-K Report
December 15, 1986, between the
Company and State Street Bank
and Trust Company, as
successor to The First
National Bank of Boston, as
Owner Trustee
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
----------- ----------- --------------------------- ------- --------------
99.19 Amendment No. 1, dated as of 28.7 to 1992 Form 10-K 1-4473 3-30-93
March 17, 1993, to Report
Assignment, Assumption and
Further Agreement, dated as
of December 15, 1986, between
the Company and State Street
Bank and Trust Company, as
successor to The First
National Bank of Boston, as
Owner Trustee
99.20(b) Indemnity Agreement dated as 28.3 to 1992 Form 10-K 1-4473 3-30-93
of March 17, 1993 by the Report
Company
99.21 Extension Letter, dated as of 28.20 to Form S-3 1-4473 8-10-87
August 13, 1987, from the Registration Statement No.
signatories of the 33-9480 by means of a
Participation Agreement to November 6, 1986 Form 8-K
Chemical Bank Report
99.22 Pledge Agreement dated as of 28.1 to January 21, 1990 1-4473 2-15-90
January 31, 1990, between Form 8-K Report
Pinnacle West Capital Report
Corporation as Pledgor and
Citibank, N.A. as Collateral
Agent
99.23 Arizona Corporation 28.1 to 1991 Form 10-K 1-4473 3-19-92
Commission Order dated Report
December 6, 1991
99.24 Arizona Corporation 10.1 to June Form 10-Q 1-4473 8-12-94
Commission Order dated Report
June 1, 1994
99.25 Rate Reduction Agreement 10.1 to December 4, 1995 1-4473 12-14-95
dated December 4, 1995 Form 8-K Report
between the Company and the
ACC Staff
<FN>
- ----------
(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.
</FN>
REPORTS ON FORM 8-K
During the quarter ended December 31, 1995, and the period ended March 29,
1996, the Company filed the following Reports on Form 8-K:
Report filed October 24, 1995 regarding the resignation of Bank of America
National Trust and Savings Association as trustee under the Company's Mortgage
and Deed of Trust dated as of July 1, 1946, and the appointment of The Bank of
New York as the successor trustee.
Report filed December 14, 1995 regarding the Company's Rate Reduction
Agreement with the ACC Staff dated December 4, 1995.
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, 1996 O. MARK DEMICHELE
--------------------------------------
(O. Mark DeMichele, 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 DEMICHELE
----------------------------------------------- Principal Executive Officer
(O. Mark DeMichele, President) and Director March 29, 1996
WILLIAM J. POST
-----------------------------------------------
(William J. Post, Senior Vice President Principal Accounting Officer
and Chief Operating Officer) and Director March 29, 1996
JARON B. NORBERG
-----------------------------------------------
(Jaron B. Norberg, Executive Vice President Principal Financial Officer
and Chief Financial Officer) and Director March 29, 1996
KENNETH M. CARR
-----------------------------------------------
(Kenneth M. Carr) Director March 29, 1996
MARTHA O. HESSE
-----------------------------------------------
(Martha O. Hesse) Director March 29, 1996
MARIANNE MOODY JENNINGS
-----------------------------------------------
(Marianne Moody Jennings) Director March 29, 1996
ROBERT G. MATLOCK
-----------------------------------------------
(Robert G. Matlock) Director March 29, 1996
JOHN R. NORTON III
-----------------------------------------------
(John R. Norton III) Director March 29, 1996
DONALD M. RILEY
-----------------------------------------------
(Donald M. Riley) Director March 29, 1996
SIGNATURE TITLE DATE
- ----------------------------------------------- -------------------------------- ------------------
HENRY B. SARGENT
-----------------------------------------------
(Henry B. Sargent) Director March 29, 1996
WILMA W. SCHWADA
-----------------------------------------------
(Wilma W. Schwada) Director March 29, 1996
VERNE D. SEIDEL
-----------------------------------------------
(Verne D. Seidel) Director March 29, 1996
RICHARD SNELL
-----------------------------------------------
(Richard Snell) Director March 29, 1996
DIANNE C. WALKER
-----------------------------------------------
(Dianne C. Walker) Director March 29, 1996
BEN F. WILLIAMS, JR.
-----------------------------------------------
(Ben F. Williams, Jr.) Director March 29, 1996
THOMAS G. WOODS, JR.
-----------------------------------------------
(Thomas G. Woods, Jr.) Director March 29, 1996
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
================================================================================
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, 1995
----------
ARIZONA PUBLIC SERVICE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
================================================================================
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 -- Bylaws, amended as of February 20, 1996
10.1(a) -- 1996 Senior Management Variable Pay Plan
10.2(a) -- 1996 Officers Variable Pay Plan
10.3 -- Amendment No. 1 dated April 5, 1995 to the Long-Term Power Transactions
Agreement and Asset Purchase and Power Exchange Agreement between PacifiCorp
and the Company
10.4 -- Restated Transmission Agreement between PacifiCorp and the Company dated April
5, 1995
10.5 -- Contract among PacifiCorp, the Company and United States Department of Energy
Western Area Power Administration, Salt Lake Area Integrated Projects for Firm
Transmission Service dated May 5, 1995
10.6 -- Reciprocal Transmission Service Agreement between the Company and PacifiCorp
dated as of March 2, 1994
10.7(a) -- Letter Agreement dated as of January 1, 1996 between the Company and Kenneth M.
Carr for consulting services
10.8(a) -- Letter Agreement dated as of January 1, 1996 between the
Company and Robert G. Matlock & Associates, Inc. for consulting services
10.9(a) -- First Amendment to the Arizona Public Service Company Severance Plan as adopted
on August 19, 1994
10.10(a) -- Pinnacle West Capital Corporation, Arizona Public Service Company, SunCor
Development Company and El Dorado Investment Company Deferred Compensation Plan
as amended and restated effective January 1, 1996
10.11(a) -- Arizona Public Service Company Supplemental Excess Benefit Retirement Plan as
amended and restated on December 20, 1995
23.1 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule
<FN>
- ----------
(a) Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
</FN>
For a description of the Exhibits incorporated in this filing by reference,
see Part IV, Item 14.