-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, EqGvwa7X07iUAQrULBrlglpuZtmNdzvNgJuT/KhZ8MNw5jnLIXOcvDU8YCx36gaU HJ5w71GEUioY/YchspDOow== 0000950147-94-000086.txt : 19940815 0000950147-94-000086.hdr.sgml : 19940815 ACCESSION NUMBER: 0000950147-94-000086 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARIZONA PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000007286 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 860011170 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04473 FILM NUMBER: 94543713 BUSINESS ADDRESS: STREET 1: 400 N FIFTH ST STREET 2: 18TH FLOOR MAIL STATION 9820 CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022501000 10-Q 1 QUARTERLY REPORT FORM 10-Q Securities and Exchange Commission Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 -------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ----------------- Commission file number 1-4473 ----------- ARIZONA PUBLIC SERVICE COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) Arizona 86-0011170 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 North Fifth Street, P.O. Box 53999, Phoenix, Arizona 85072-3999 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (602) 250-1000 - ------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / X / No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of shares of common stock, $2.50 par value, outstanding as of August 12, 1994: 71,264,947 Glossary ACC - Arizona Corporation Commission ACC Order - Final order of the ACC dated June 1, 1994 approving the 1994 Settlement Agreement ACC Staff - Staff of the Arizona Corporation Commission AFUDC - Allowance for funds used during construction cents/kWh - Cents per kilowatt-hour Company - Arizona Public Service Company ITCs - Investment tax credits 1991 Settlement - December 1991 retail rate case settlement 1993 10-K - Arizona Public Service Company Annual Report on Form 10-K for the fiscal year ended December 31, 1993 1994 Settlement Agreement - Rate Settlement Agreement between the Company and the ACC Staff dated May 27, 1994 NRC - Nuclear Regulatory Commission Palo Verde - Palo Verde Nuclear Generating Station Pinnacle West - Pinnacle West Capital Corporation SFAS No. 106 - Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" SFAS No. 112 - Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" INDEPENDENT ACCOUNTANTS' REPORT Arizona Public Service Company: We have reviewed the accompanying condensed balance sheet of Arizona Public Service Company as of June 30, 1994 and the related condensed statements of income for the three-month, six-month and twelve-month periods ended June 30, 1994 and 1993 and cash flows for the six-month periods ended June 30, 1994 and 1993. These condensed financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of Arizona Public Service Company as of December 31, 1993 and the related statements of income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated February 21, 1994, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the condensed balance sheet as of December 31, 1993 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. DELOITTE & TOUCHE Phoenix, Arizona August 11, 1994 PART I - FINANCIAL INFORMATION Item 1. Financial Statements ARIZONA PUBLIC SERVICE COMPANY STATEMENTS OF INCOME (Unaudited) Three Months Ended June 30, -------------------------- 1994 1993 --------- --------- (Thousands of Dollars) ELECTRIC OPERATING REVENUES .................. $ 417,588 $ 407,375 --------- --------- FUEL EXPENSES: Fuel for electric generation ............... 60,090 55,029 Purchased power ............................ 16,304 16,577 --------- --------- Total ................................... 76,394 71,606 --------- --------- OPERATING REVENUES LESS FUEL EXPENSES ........ 341,194 335,769 --------- --------- OTHER OPERATING EXPENSES: Operations excluding fuel expenses ......... 76,107 67,379 Maintenance ................................ 32,337 26,812 Depreciation and amortization .............. 57,664 55,574 Income taxes - current ..................... 15,250 26,495 Income taxes - deferred .................... 19,192 12,817 Other taxes ................................ 57,037 54,428 --------- --------- Total ................................... 257,587 243,505 --------- --------- OPERATING INCOME ............................. 83,607 92,264 --------- --------- OTHER INCOME (DEDUCTIONS): AFUDC - equity ............................. 977 758 Palo Verde accretion income ................ 13,616 18,469 Other - net ................................ 19,572 (853) Income taxes - current ..................... 1,411 1,028 Income taxes - deferred .................... (10,118) (6,373) --------- --------- Total ................................... 25,458 13,029 --------- --------- INCOME BEFORE INTEREST DEDUCTIONS ............ 109,065 105,293 --------- --------- INTEREST DEDUCTIONS: Interest on long-term debt ................. 40,564 41,082 Interest on short-term borrowings .......... 1,539 1,619 Debt discount, premium and expense ......... 2,461 2,308 AFUDC - debt ............................... (1,350) (1,080) --------- --------- Total ................................... 43,214 43,929 --------- --------- NET INCOME ................................... 65,851 61,364 PREFERRED STOCK DIVIDEND REQUIREMENTS ........ 6,972 7,648 --------- --------- EARNINGS FOR COMMON STOCK .................... $ 58,879 $ 53,716 ========= ========= See Notes to Financial Statements. ARIZONA PUBLIC SERVICE COMPANY STATEMENTS OF INCOME (Unaudited) Six Months Ended June 30, --------------------------- 1994 1993 --------- --------- (Thousands of Dollars) ELECTRIC OPERATING REVENUES ................ $ 782,764 $ 778,678 --------- --------- FUEL EXPENSES: Fuel for electric generation ............. 118,058 110,037 Purchased power .......................... 26,367 27,073 --------- --------- Total ................................. 144,425 137,110 --------- --------- OPERATING REVENUES LESS FUEL EXPENSES ...... 638,339 641,568 --------- --------- OTHER OPERATING EXPENSES: Operations excluding fuel expenses ....... 142,443 130,553 Maintenance .............................. 63,622 54,749 Depreciation and amortization ............ 115,574 111,063 Income taxes - current ................... 28,194 45,872 Income taxes - deferred .................. 27,384 21,963 Other taxes .............................. 110,368 105,663 --------- --------- Total ................................. 487,585 469,863 --------- --------- OPERATING INCOME ........................... 150,754 171,705 --------- --------- OTHER INCOME (DEDUCTIONS): AFUDC - equity ........................... 1,823 1,410 Palo Verde accretion income .............. 33,596 36,459 Other - net .............................. 19,176 (1,383) Income taxes - current ................... 1,917 1,590 Income taxes - deferred .................. (17,417) (12,650) --------- --------- Total ................................. 39,095 25,426 --------- --------- INCOME BEFORE INTEREST DEDUCTIONS .......... 189,849 197,131 --------- --------- INTEREST DEDUCTIONS: Interest on long-term debt ............... 80,040 82,893 Interest on short-term borrowings ........ 3,134 3,100 Debt discount, premium and expense ....... 4,873 4,574 AFUDC - debt ............................. (2,517) (1,966) --------- --------- Total ................................. 85,530 88,601 --------- --------- NET INCOME ................................. 104,319 108,530 PREFERRED STOCK DIVIDEND REQUIREMENTS ...... 14,482 15,537 --------- --------- EARNINGS FOR COMMON STOCK .................. $ 89,837 $ 92,993 ========= ========= See Notes to Financial Statements. ARIZONA PUBLIC SERVICE COMPANY STATEMENTS OF INCOME (Unaudited) Twelve Months Ended June 30, -------------------------------- 1994 1993 ----------- ----------- (Thousands of Dollars) ELECTRIC OPERATING REVENUES ............... $ 1,690,376 $ 1,694,398 ----------- ----------- FUEL EXPENSES: Fuel for electric generation ............ 239,455 241,227 Purchased power ......................... 68,406 60,472 ----------- ----------- Total ................................ 307,861 301,699 ----------- ----------- OPERATING REVENUES LESS FUEL EXPENSES 1,382,515 1,392,699 ----------- ----------- OTHER OPERATING EXPENSES: Operations excluding fuel expenses 294,550 276,793 Maintenance ............................. 127,429 108,973 Depreciation and amortization ........... 227,121 221,308 Income taxes - current .................. 79,845 115,825 Income taxes - deferred ................. 75,954 59,512 Other taxes ............................. 226,079 218,414 ----------- ----------- Total ................................ 1,030,978 1,000,825 ----------- ----------- OPERATING INCOME .......................... 351,537 391,874 ----------- ----------- OTHER INCOME (DEDUCTIONS): AFUDC - equity .......................... 2,739 2,961 Palo Verde accretion income ............. 72,017 71,054 Other - net ............................. 18,424 (6,360) Income taxes - current .................. 4,692 5,586 Income taxes - deferred ................. (29,983) (23,567) ----------- ----------- Total ................................ 67,889 49,674 ----------- ----------- INCOME BEFORE INTEREST DEDUCTIONS ......... 419,426 441,548 ----------- ----------- INTEREST DEDUCTIONS: Interest on long-term debt .............. 161,757 169,701 Interest on short-term borrowings ....... 6,696 5,299 Debt discount, premium and expense 9,502 8,919 AFUDC - debt ............................ (4,704) (4,022) ----------- ----------- Total ................................ 173,251 179,897 ----------- ----------- NET INCOME ................................ 246,175 261,651 PREFERRED STOCK DIVIDEND REQUIREMENTS 29,785 31,572 ----------- ----------- EARNINGS FOR COMMON STOCK ................. $ 216,390 $ 230,079 =========== =========== See Notes to Financial Statements. ARIZONA PUBLIC SERVICE COMPANY BALANCE SHEETS ASSETS (Unaudited) June 30, December 31, 1994 1993 ----------- ----------- (Thousands of Dollars) UTILITY PLANT: Electric plant in service and held for future use..................................... $ 6,432,779 $ 6,333,884 Less accumulated depreciation and amortization .. 2,033,180 1,991,143 ----------- ----------- Total ....................................... 4,399,599 4,342,741 Construction work in progress ................... 156,104 197,556 Nuclear fuel, net of amortization ............... 66,549 60,953 ----------- ----------- Utility plant - net ......................... 4,622,252 4,601,250 ----------- ----------- INVESTMENTS AND OTHER ASSETS (at cost): ........... 67,887 63,224 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents ....................... 7,286 7,557 Accounts receivable: Service customers ........................... 94,673 102,745 Other ....................................... 17,617 21,091 Allowance for doubtful accounts ............. (1,568) (2,569) Accrued utility revenues ........................ 70,472 60,356 Materials and supplies (at average cost) ........ 95,031 96,174 Fossil fuel (at average cost) ................... 24,577 34,220 Deferred income taxes ........................... 25,478 29,117 Other ........................................... 14,995 12,653 ----------- ----------- Total current assets ........................ 348,561 361,344 ----------- ----------- DEFERRED DEBITS: Regulatory asset for income taxes ............... 564,841 585,294 Palo Verde Unit 3 cost deferral ................. 297,167 301,748 Palo Verde Unit 2 cost deferral ................. 174,967 177,998 Unamortized costs of reacquired debt ............ 64,975 63,147 Unamortized debt issue costs .................... 16,385 17,999 Other ........................................... 189,417 185,258 ----------- ----------- Total deferred debits ....................... 1,307,752 1,331,444 ----------- ----------- TOTAL ....................................... $ 6,346,452 $ 6,357,262 =========== =========== See Notes to Financial Statements. ARIZONA PUBLIC SERVICE COMPANY BALANCE SHEETS LIABILITIES (Unaudited) June 30, December 31, 1994 1993 ----------- ----------- (Thousands of Dollars) CAPITALIZATION: Common stock ........................... $ 178,162 $ 178,162 Premiums and expense - net ............. 1,038,322 1,037,681 Retained earnings ...................... 268,760 307,098 ----------- ----------- Common stock equity ................. 1,485,244 1,522,941 Non-redeemable preferred stock ......... 193,561 193,561 Redeemable preferred stock ............. 145,000 197,610 Long-term debt less current maturities . 2,163,173 2,124,654 ----------- ----------- Total capitalization ................ 3,986,978 4,038,766 ----------- ----------- CURRENT LIABILITIES: Commercial paper ....................... 119,500 148,000 Current maturities of long-term debt ... 3,402 3,179 Accounts payable ....................... 81,646 81,772 Accrued taxes .......................... 110,016 112,293 Accrued interest ....................... 45,081 45,729 Common dividends payable ............... 65,000 -- Other .................................. 63,594 60,737 ----------- ----------- Total current liabilities .......... 488,239 451,710 ----------- ----------- DEFERRED CREDITS AND OTHER: Deferred income taxes .................. 1,414,639 1,391,184 Deferred investment tax credit ......... 147,073 149,819 Unamortized gain - sale of utility plant 102,948 107,344 Customer advances for construction ..... 16,702 15,578 Other .................................. 189,873 202,861 ----------- ----------- Total deferred credits and other ... 1,871,235 1,866,786 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Notes 6 and 7) TOTAL ............................... $ 6,346,452 $ 6,357,262 =========== =========== See Notes to Financial Statements. ARIZONA PUBLIC SERVICE COMPANY STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, ----------------------- 1994 1993 --------- --------- (Thousands of Dollars) Cash Flows from Operating Activities: Net income........................................ $ 104,319 $ 108,530 Items not requiring cash: ........................ Depreciation and amortization .................. 115,574 111,063 Nuclear fuel amortization ...................... 12,848 18,069 AFUDC - equity ................................. (1,823) (1,410) Deferred income taxes - net .................... 47,547 37,332 Deferred investment tax credit - net ........... (2,746) (2,719) Refund obligation - net ........................ (9,308) (10,687) Palo Verde accretion income (33,596) (36,459) Changes in certain current assets and liabilities: Accounts receivable - net ...................... 10,545 40,605 Accrued utility revenues ....................... (10,116) (11,505) Materials, supplies and fossil fuel ............ 10,786 5,102 Other current assets ........................... (2,342) (6,013) Accounts payable ............................... 13,339 (19,645) Accrued taxes .................................. (2,277) 10,196 Accrued interest ............................... (666) 813 Other current liabilities ...................... 8,485 4,743 Other - net ...................................... (10,392) 17,712 --------- --------- Net cash flow provided by operating activities 250,177 265,727 --------- --------- Cash Flows from Financing Activities: Long-term debt ................................... 401,168 147,069 Short-term borrowings - net ...................... (28,500) (48,000) Dividends paid on common stock ................... (62,500) (42,500) Dividends paid on preferred stock ............... (14,945) (15,748) Repayment of preferred stock ..................... (54,096) (28,040) Repayment and reacquisition of long-term debt .... (367,044) (168,231) --------- --------- Net cash flow used for financing activities (125,917) (155,450) --------- --------- Cash Flows from Investing Activities: Capital expenditures.............................. (121,691) (99,942) AFUDC - equity ................................... 1,823 1,410 Other............................................. (4,663) (4,837) --------- --------- Net cash flow used for investing activities... (124,531) (103,369) --------- --------- Net increase (decrease) in cash and cash equivalents (271) 6,908 Cash and cash equivalents at beginning of period ... 7,557 1,152 --------- --------- Cash and cash equivalents at end of period ......... $ 7,286 $ 8,060 ========= ========= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest (excluding capitalized interest) ...... $ 81,106 $ 82,419 Income taxes ................................... $ 29,047 $ 38,479 See Notes to Financial Statements. ARIZONA PUBLIC SERVICE COMPANY NOTES TO FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position of the Company as of June 30, 1994, the results of operations for the three months, six months and twelve months ended June 30, 1994 and 1993, and the cash flows for the six months ended June 30, 1994 and 1993. It is suggested that these financial statements and notes to financial statements be read in conjunction with the financial statements and notes to financial statements included in the 1993 10-K. 2. The Company's operations are subject to seasonal fluctuations, with variations occurring in energy usage by customers from season to season and from month to month within a season, primarily as a result of changing weather conditions. For this and other reasons, the results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. 3. All the outstanding shares of common stock of the Company are owned by Pinnacle West. Pursuant to a Pledge Agreement, dated as of January 31, 1990, and as part of a restructuring of substantially all of its outstanding indebtedness, Pinnacle West granted certain of its lenders a security interest in all of the Company's outstanding common stock. 4. See "Liquidity and Capital Resources" in Part I, Item 2 of this report for changes in capitalization since December 31, 1993. 5. By order dated June 1, 1994 (the "ACC Order"), the ACC approved a Settlement Agreement dated May 27, 1994 (the "1994 Settlement Agreement"), between the Company and ACC Staff. The 1994 Settlement Agreement replaces the agreement dated April 20, 1994. Pursuant to the terms of the 1994 Settlement Agreement, the Company's annual retail rates were reduced by approximately $38.3 million, or approximately 2.7%, effective June 1, 1994. The Company will also be allowed to recover through a surcharge up to an additional $6 million for demand side management and renewable resource programs, effective upon ACC approval of the Company's application for such programs. The reduction in retail rates offset by the demand side management surcharge would result in a net rate reduction of approximately 2.2%. The ACC Order is final and non-appealable. The following description of the ACC Order is a summary and is qualified in its entirety by the ACC Order, a copy of which is attached to this filing as an exhibit. Future Retail Rate Changes Neither the Company nor the ACC Staff will file for a permanent change to the Company's general rates and charges prior to December 31, 1996 (the "Rate Moratorium Period"), except (i) in the event of an emergency, such as the Company's inability to finance on reasonable terms or material increases in the Company's cost of service as a result of federal, tribal, state or local laws, regulatory requirements or orders; (ii) for changes relating to specific rate schedules or terms and conditions of service that do not significantly affect the overall earnings of the Company; and (iii) in the case of certain individual large customers, the ACC Staff will expeditiously review any Company tariff or contract filing for such customers and recommend that such filings be decided promptly by the ACC. If the Company files its next general rate application before January 1, 1998, the ACC will render its decision no later than twelve (12) months after the filing, subject to certain exceptions. If the next general rate proceeding results in no increase in residential rates, the ACC will compare the Company's costs of service during the test period under review for fuel expense and operation and maintenance for all sales (including sales for resale, but excluding interchange and non-traditional sales for resale) to a target cost of service index of 3.63 cents/kWh. Forty-five percent (45%) of any cost savings below the target cost of 3.63 cents/kWh would be added to the Company's otherwise appropriate revenue requirement in such rate proceeding. The Company's cost of service index for these items during 1993 was 3.71 cents/kWh. All three Palo Verde units are, and in future rate cases will be, included in the Company's rate base as "used and useful," less the net prudence disallowance required by the December 1991 rate case settlement (the "1991 Settlement"). As with any of the Company's generating facilities, the ACC can re-examine this position in future general rate cases in the event of significant changes in the operating characteristics, reliability, or efficiency of any or all of the Palo Verde units, or if any unit is derated. In addition, the "in-lieu" refund obligation resulting from the 1991 Settlement was deemed fully discharged as of the date of the ACC Order. See Note 2 of Notes to Financial Statements in Part II, Item 8 of the 1993 10-K for additional information regarding the 1991 Settlement. Decommissioning Funding The rates authorized by the ACC Order would include an annual jurisdictional allowance for decommissioning funding for all three Palo Verde units at the following levels: Unit 1 ($3.621 million); Unit 2 ($3.877 million); and Unit 3 ($3.405 million). See Note 1.e of Notes to Financial Statements in Part II, Item 8 of the 1993 10-K for additional information regarding the Company's decommissioning obligations. Renewable Resources/Demand Side Management The Company will spend specified annual amounts over an indefinite period on renewable resources and demand side management projects and, on or before December 31, 1994, will submit to the ACC Staff a three-year renewable resource plan containing specified elements. See Paragraph K of the ACC Order, incorporated by reference herein, for further details regarding renewable resources and demand side management. Investment Tax Credits; Depreciation Reversal The Company will, upon the receipt of a favorable ruling from the Internal Revenue Service, amortize below the line approximately $137 million of its jurisdictional unamortized investment tax credits ("ITCs") over a five (5) year period beginning with calendar year 1995 instead of the current remaining amortization schedule of approximately twenty-five (25) years. After this five (5) year period all such amortized ITCs will be treated as fully restored to the Company's rate base in any future ratemaking proceedings. The ACC Order also allowed the Company to reverse certain depreciation related to Palo Verde (associated with the 1991 Settlement), which resulted in approximately $15 million of after-tax income during the three-month period ended June 30, 1994. Pricing and Operating Procedures The ACC Staff and the Company will meet in a good faith attempt to develop new pricing and operating procedures that are responsive to market conditions, competitive pressures in the electric utility industry, and the ACC's relationship to regulated utilities and their customers. The parties will submit quarterly updates and a final report to the ACC within twelve (12) months of the ACC Order and seek prompt ACC approval of recommendations that will assist the Company in achieving its residential price stability goals and enhancing its competitiveness related to non-residential customers. 6. The Palo Verde participants have insurance for public liability payments resulting from nuclear energy hazards to the full limit of liability under federal law. This potential liability is covered by primary liability insurance provided by commercial insurance carriers in the amount of $200 million and the balance by an industrywide retrospective assessment program. The maximum assessment per reactor under the retrospective rating program for each nuclear incident is approximately $79 million, subject to an annual limit of $10 million per incident. Based upon the Company's 29.1% interest in the three Palo Verde units, the Company's maximum potential assessment per incident is approximately $69 million, with an annual payment limitation of $8.73 million. The insureds under this liability insurance include the Palo Verde participants and "any other person or organization with respect to his legal responsibility for damage caused by the nuclear energy hazard." The Palo Verde participants maintain "all risk" (including nuclear hazards) insurance for property damage to, and decontamination and decommissioning of, property at Palo Verde in the aggregate amount of $2.75 billion, a substantial portion of which must first be applied to stabilization and decontamination. The Company has also secured insurance against portions of any increased cost of generation or purchased power and business interruption resulting from a sudden and unforeseen outage of any of the three units. The insurance coverage discussed in this and the previous paragraph is subject to certain policy conditions and exclusions. 7. The Company has encountered axial tube cracking in the upper regions of the two steam generators in Unit 2 and, to a lesser degree, in Unit 3. This form of tube degradation is uncommon in the industry and, in March 1993, led to a tube rupture in Unit 2 resulting in the extension of a scheduled refueling outage through September 1993. Although its analysis is not yet completed, the Company believes that the axial cracking in the Unit 2 and Unit 3 steam generator tubes is due to the susceptibility of tube materials to a combination of deposits on the tubes and the relatively high temperatures at which all three units are currently designed to operate. The Company also believes that it can retard further tube degradation to acceptable levels by remedial actions, which include chemically cleaning the generators and performing analyses and adjustments that will allow the units to be operated at lower temperatures without appreciably reducing their power output. Chemical cleaning has been completed in Units 2 and 3, and the Company expects to chemically clean the Unit 1 steam generators during its refueling outage in 1995. The Company began operating the units at approximately 86% capacity in October 1993 to reduce the operating temperature, pending the completion of the temperature analyses and appropriate modification of operating procedures. The temperature analyses have been concluded for Units 1 and 3, and these units are operating at or near 100% capacity. The Company anticipates that Unit 2, which is currently operating at 88% capacity, will be returned to full power by late 1994. In March 1994, a mid-cycle inspection outage was completed at Unit 2 to assess the status of the unit's steam generators' tubes and to continue implementing a program of improvements. Unit 2 is scheduled for another mid-cycle inspection outage beginning in September 1994 and a refueling and maintenance outage in early 1995. Palo Verde Unit 3 completed a refueling outage in June 1994 and, in light of the axial cracking that the Company has found to date, Unit 3 is scheduled for a mid-cycle inspection outage beginning in November 1994. Palo Verde Unit 1 is scheduled for a refueling outage beginning in April 1995. In late 1993 the Company concluded that Unit 1 could be safely operated until the 1995 outage and submitted its supporting analysis to the NRC. However, the potential need for a mid-cycle steam generator tube inspection outage in Unit 1 late in 1994 is currently being evaluated. During the six months ended June 30, 1994, the Company incurred replacement power costs totalling approximately $17 million (before income taxes) above normal levels as a result of the Unit 2 mid-cycle outage and operating the units at reduced power. Because a Unit 2 refueling and maintenance outage which was scheduled to begin in late 1994 is now scheduled for 1995, the Company does not expect to incur any additional replacement power costs above normal levels during the remainder of the year. In the event that a mid-cycle inspection outage is necessary in late 1994 for Unit 1 and assuming that such an outage would last about a month, the incremental replacement power costs and operation and maintenance expenses related to the outage are estimated to be approximately $5 million, before income taxes. In comparison, replacement power costs exceeded normal levels in 1993 by approximately $15.5 million (before income taxes) due to Palo Verde outages and reduced power operations. When tube cracks are detected during any outage, the affected tubes are taken out of service by plugging. That has occurred in a number of tubes in all three units, particularly in Unit 2, which is by far the most affected by cracking and plugging. The Company expects that because of its program to control the tube degradation, the rate of plugging will slow to a manageable level. ARIZONA PUBLIC SERVICE COMPANY Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. OPERATING RESULTS The following table summarizes the Company's revenues and earnings for the three-month, six-month and twelve-month periods ended June 30, 1994 and 1993: Periods ended June 30 (Thousands of Dollars) Three Months Six Months Twelve Months ----------------- ------------------- ---------------------- 1994 1993 1994 1993 1994 1993 ---- ---- ---- ---- ---- ---- Operating Revenues $417,588 $407,375 $782,764 $778,678 $1,690,376 $1,694,398 Earnings for common stock $ 58,879 $ 53,716 $ 89,837 $ 92,993 $ 216,390 $ 230,079 OPERATING RESULTS - THREE-MONTH PERIOD ENDED JUNE 30, 1994 COMPARED TO THREE-MONTH PERIOD ENDED JUNE 30, 1993 Earnings increased in the three-month period ended June 30, 1994 primarily due to the reversal of certain previously recorded depreciation related to Palo Verde and increased revenues. Pursuant to the ACC Order, the Company reversed accumulated depreciation related to the portion of Palo Verde written off as a result of the 1991 Settlement. See Note 5 of Notes to Financial Statements in Part I, Item 1 of this report for a detailed discussion of the ACC Order. Operating revenues increased primarily due to customer growth. These positive factors were partially offset by increases in both operation and maintenance expenses and fuel costs. Operation and maintenance expenses were higher primarily due to employee severance costs resulting from various Company cost reduction efforts and fossil plant maintenance costs. Fuel costs were higher primarily due to replacement power related to reduced nuclear generation. OPERATING RESULTS - SIX-MONTH PERIOD ENDED JUNE 30, 1994 COMPARED TO SIX-MONTH PERIOD ENDED JUNE 30, 1993 Earnings decreased in the six-month period ended June 30, 1994 primarily due to increases in operation and maintenance expenses and fuel costs. Operation and maintenance expenses increased due to higher power plant maintenance costs and employee severance costs. Fuel costs were higher primarily due to replacement power related to reduced nuclear generation, offset partially by the effect of lower interchange sales. These negative factors were partially offset by the depreciation reversal related to Palo Verde and increased revenues. Revenues increased due to retail customer growth and higher usage per customer, partially offset by lower interchange sales due to reduced nuclear generation. OPERATING RESULTS - TWELVE-MONTH PERIOD ENDED JUNE 30, 1994 COMPARED TO TWELVE-MONTH PERIOD ENDED JUNE 30, 1993 Earnings decreased in the twelve-month period ended June 30, 1994 primarily due to increased operation and maintenance expenses, higher fuel costs and lower operating revenues. Operation and maintenance expenses increased due to higher power plant maintenance costs, the implementation of SFAS No. 106 and SFAS No. 112 in 1993 (see Note 9 of Notes to Financial Statements in Part II, Item 8 of the 1993 10-K), and employee severance costs. Fuel costs were higher primarily because of replacement power costs due to reduced nuclear generation, partially offset by the effect of lower interchange sales. Operating revenues were down due to lower interchange sales and milder weather partially offset by customer growth. These negative factors were partially offset by the depreciation reversal related to Palo Verde and lower interest costs. OTHER INCOME Net income reflects accounting practices required for regulated public utilities and represents a composite of cash and noncash items, including AFUDC. In accordance with the 1991 Settlement, during the six months ended June 30, 1994, the Company recorded $20.3 million of after-tax accretion income on Palo Verde Unit 3 and $5.6 million of after-tax income resulting from Palo Verde refund obligation reversals. The Company has now recorded all of the Unit 3 accretion income and Palo Verde refund obligation reversals related to the 1991 Settlement. See Note 2 of Notes to Financial Statements in Part II, Item 8 of the 1993 10-K. In accordance with the ACC Order, during the three months ended June 30, 1994, the Company also recorded a one-time depreciation reversal related to Palo Verde in the amount of approximately $15.0 million after tax. See Note 5 of Notes to Financial Statements in Part I, Item 1 of this report. TAX LEGISLATION On April 4, 1994, a comprehensive tax package was signed into Arizona law that, among other things, reduces the assessment ratio for utility property from the current assessment ratio of 30% to 25%. This reduction will be phased in over a five-year period at one percent per year beginning in 1995. This legislation is expected to reduce or offset the historical rate of growth of property tax expense. 1994 SETTLEMENT AGREEMENT See Note 5 of Notes to Financial Statements in Part I, Item 1 of this report for a discussion of the ACC Order. Because of the non-cash earnings (1) that the Company expects to result from the accelerated amortization of ITCs during the 1995-1999 period (subject to Internal Revenue Service approval); and (2) that resulted from the reversal of depreciation related to Palo Verde (associated with the 1991 Settlement), the Company does not expect its earnings to be significantly affected as a result of the ACC Order. LIQUIDITY AND CAPITAL RESOURCES For the six months ended June 30, 1994, the Company incurred approximately $106 million in construction expenditures, accounting for approximately 39% of the most recently estimated 1994 construction expenditures. The Company has estimated total construction expenditures for the years 1994, 1995, and 1996 to be approximately $272 million, $298 million, and $257 million, respectively. Refunding obligations for preferred stock and long-term debt, a capitalized lease obligation, and certain actual and anticipated early redemptions, including premiums thereon, are expected to total approximately $582 million (of which $513 million are optional), $111 million, and $4 million for the years 1994, 1995, and 1996, respectively. During the first six months of 1994, the Company refunded approximately $421 million (72%) of the estimated 1994 total. This amount includes the redemption, refunding, or repurchase of approximately $367 million of long-term debt and the redemption of approximately $54 million of preferred stock, including premiums thereon. During August 1994, the Company purchased on the open market approximately $24 million in aggregate principal amount of its First Mortgage Bonds, 10 1/4% Series due 2000 (the "10 1/4% Bonds"). On September 1, 1994, the Company will redeem at maturity all outstanding shares of its $8.50 Cumulative Preferred Stock, Series T ($100 Par Value) (the "Series T Stock") in the amount of $50 million. Since December 31, 1993, the Company has issued $100 million of its First Mortgage Bonds and incurred approximately $303 million of long-term debt consisting of borrowings from governmental authorities which had funded that amount through the issuance of pollution control bonds. Provisions in the Company's mortgage bond indenture and articles of incorporation require certain coverage ratios to be met before the Company can issue additional first mortgage bonds or preferred stock. In addition, the mortgage bond indenture limits the amount of additional bonds which may be issued to a percentage of net property additions, to property previously pledged as security for certain bonds that have been redeemed or retired and/or cash deposited with the mortgage bond trustee. As of June 30, 1994, and (i) adjusting for the purchase of approximately $24 million of the 10 1/4% Bonds, and (ii) assuming the redemption on September 1, 1994 of $50 million of the Series T Stock, the Company estimates that the mortgage bond indenture and the articles of incorporation would have allowed the Company to issue up to approximately $1.26 billion and $1.04 billion of additional first mortgage bonds and preferred stock, respectively. The ACC has authority over the Company with respect to the issuance of long-term debt and equity securities. Existing ACC orders allow the Company to have up to approximately $2.6 billion in long-term debt and approximately $501 million of preferred stock outstanding at any one time. Management does not expect any of the foregoing restrictions to limit the Company's ability to meet its capital requirements. PART II - OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security-Holders At the Annual Meeting of Shareholders held on April 19, 1994, the shareholders elected all of its directors who will serve for the ensuing year or until their successors are elected or qualified, as follows: Votes Against Broker and Non- Director Votes For Withheld Abstentions Votes - -------- ---------- -------- ----------- ------ Kenneth M. Carr 76,119,727 20,853 N/A N/A O. Mark De Michele 76,125,414 16,501 N/A N/A Martha O. Hesse 76,126,096 15,541 N/A N/A Marianne M. Jennings 76,119,854 20,457 N/A N/A Robert G. Matlock 76,123,863 17,171 N/A N/A Jaron B. Norberg 76,125,690 16,271 N/A N/A John R. Norton III 76,125,560 16,135 N/A N/A Donald M. Riley 76,125,604 15,850 N/A N/A Henry B. Sargent 76,066,353 67,401 N/A N/A Wilma W. Schwada 76,123,990 16,890 N/A N/A Verne D. Seidel 76,123,724 17,272 N/A N/A Richard Snell 76,063,698 69,356 N/A N/A Ben F. Williams, Jr. 76,127,545 14,771 N/A N/A Thomas G. Woods, Jr. 76,126,377 15,686 N/A N/A ITEM 5. Other Information Palo Verde Nuclear Generating Station See Note 7 of Notes to Financial Statements in Part I, Item 1 of this report for a discussion of the tube cracking in the Palo Verde steam generators. Construction and Financing Programs See "Liquidity and Capital Resources" in Part I, Item 2 of this report for a discussion of the Company's construction and financing programs. Water Supply As previously reported, in an action pending in Maricopa County Superior Court relating to claims to water in the Lower Gila Watershed, issues important to the Company's claims were remanded to the trial court for further action. See "Water Supply" in Part I, Item 1 of the 1993 10-K. On June 30, 1994, the trial court rendered its decision with respect to these issues. The trial court has certified its decision for interlocutory appeal to the Arizona Supreme Court, and the Supreme Court has not yet rendered its decision. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description ----------- ----------- 10.1 ACC Order dated June 1, 1994 15.1 Letter in Lieu of Consent Regarding Unaudited Interim Financial Information (b) Reports on Form 8-K During the quarter ended June 30, 1994, and the period ended August 12, 1994 the Company filed the following reports on Form 8-K: Report filed May 9, 1994 regarding the inspection of the Palo Verde Unit 3 steam generators and related issues. Report filed May 24, 1994 regarding the rescission by the Secretary of Labor of a final order approving a settlement agreement between the Company and a former contract employee. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARIZONA PUBLIC SERVICE COMPANY (Registrant) Dated: August 12, 1994 By Jaron B. Norberg --------------- -------------------- Jaron B. Norberg Executive Vice President and Chief Financial Officer (Principal Financial Officer and Officer Duly Authorized to sign this Report) EX-10.1 2 ACC ORDER DATED JUNE 1, 1994 Exhibit 10.1 BEFORE THE ARIZONA CORPORATION COMMISSION MARCIA WEEKS CHAIRMAN RENZ D. JENNINGS COMMISSIONER DALE H. MORGAN COMMISSIONER IN THE MATTER OF THE COMMISSION'S) DOCKET NO. U-1345-94-120 EXAMINATION OF THE RATES AND ) CHARGES OF ARIZONA PUBLIC SERVICE) DECISION NO. 58644 COMPANY ) ORDER Open Meeting May 27, 1994 Phoenix, Arizona FINDINGS OF FACT 1. Arizona Public Service Company ("APS") is an Arizona corporation providing electric utility service within the State of Arizona. 2. The rates and charges currently in effect for APS were determined to be just and reasonable in APS' last general rate case, Decision No. 57649, dated December 6,1991. 3. Since Decision No. 57649, a number of events have occurred which affect APS' expenses, rate base and rate of return. Included among those events are: A. Capital costs for APS have fallen. B. APS has re-financed significant amounts of debt, and has retired old preferred stock and issued new lower-cost preferred stock. C. APS has undertaken several programs to reduce costs and improve efficiency. D. APS has experienced significant growth n kWh sales related to new customers. . . . 4. The Staff of the Commission undertook a preliminary review of these events and their impact on APS. APS provided Staff with substantial amounts of data and supporting documentation, and made personnel available as needed to help explain or interpret the data, to assist Staff in conducting the review. 5. As a result of discussions conducted subsequent to Staff's review, Staff and APS jointly concluded that the rates and charges previously authorized by the Commission for APS should be reduced. Staff and APS also reached agreement on a number of related issues. 6. The particulars of the agreement are memorialized in a written Rate Settlement Agreement ("Agreement"). On April 20, 1994, Staff filed the Settlement Agreement and requested that a procedural order be issued establishing a timetable to present the Agreement to the Commission. 7. On April 21, 1994, a Procedural Order governing the conduct of this proceeding was issued. The Procedural Order, inter alia, required that APS provided notice to its customers as well as to all parties of record in APS' previous rate case (Docket No. U-1345-90-007) and the Commission's current resource planning docket (Docket No. U-0000-93-052), established procedures for intervention, established procedures for discovery, and set a hearing date at which all parties would be able to present witnesses and evidence and cross-examine the witnesses of other parties. 8. Requests for intervention were filed by the Residential Utility Consumers Office ("RUCO") on April 21, 1994, by the Land and Water Fund of the Rockies ("LAW Fund") on April 27, 1994, by Arizona Community Action Association ("ACCA") on May 3, 1994, by Southwest Gas Corporation on May 3, 1994, and by the Arizona Interfaith Coalition on Energy ("AZ ICE") on May 4, 1994. Pursuant to the April 21, 1994, Procedural Order these requests for intervention are granted since no objections were filed. 9. Comments regarding and/or objections to the Agreement were filed by all intervenors. 10. On May 13, May 23, and May 27, 1994, hearings were held on this matter at the Commission's offices in Phoenix, Arizona. 11. On May 23, 1994, Staff and APS entered into an amended Settlement Agreement and on May 27, 1994 they agreed to further revisions at the hearing (collectively referred to as the "Amended Agreement"). 12. Staff and APS believe that the Amended Agreement they have reached is consistent with the best interests of the parties and the public interest generally. The particulars of the Amended Agreement are memorialized in an amended Rate Settlement Agreement, a copy of which is attached hereto as Exhibit 1 and in the transcript of the May 27, 1994 hearing. 13. Pursuant to the Amended Agreement, Staff and APS have agreed to the following: A. REVENUE REDUCTION. For usage on or after the effective date of the Agreement, as determined in accordance with Paragraph S, APS jurisdictional rates will be decreased by approximately 2.7% (approximately $38.3 million annually, based on September 30, 1993 sales as adjusted). B. SETTLEMENT RATES. The revenue decrease provided for in Paragraph A of this Agreement shall be allocated among customer classes by means of a uniform .24(cent)/kWh reduction in the energy charges for all APS rate schedules except those rate schedules set forth in Attachment A. In addition, and concurrent with this rate reduction, APS will be authorized to amend Schedule 1 of its tariffs. These revised tariff sheets re set forth in Attachment B. C. MORATORIUM ON AND PROCEDURES FOR FURTHER RATE CHANGES. i. APS shall not file for a change to its general rates and charges prior to December 31, 1996 ("Rate Moratorium Period"). Staff will likewise be subject to the same moratorium. This moratorium shall not apply to price changes pursuant to Paragraph P of this Agreement. ii. The next general rate application filed by APS will become effective and permanent as soon as practicable after the filing, but in no event later than 12 months after the filing. Such time limit shall not be extended and shall supersede any Commission regulation which provides for a different period of time, unless the Commission determines that such time limit has become unreasonable due either to any amendment to the rate filing made by APS which substantially alters the amount of the requested rate change or substantially alters the facts used as a basis for the requested rate change, or to an extraordinary event not otherwise provided for. APS hereby waives any rights it may possess under the newly enacted Arizona Revised Statutes Section 40-250.01 to a more timely issuance of a final order than is set forth in this subparagraph. The provisions of this subparagraph shall not apply to any general rate application filed by APS after December 31, 1997. iii. Neither APS nor Staff shall be prevented from seeking a change in rates prior to or after December 31, 1996 in the event of conditions or circumstances which constitute an emergency, such as the inability to finance on reasonable terms or material increases in the Company's cost of service as a result of federal, tribal, state or local laws, regulatory requirements or orders. Staff's review of such a request by APS for emergency rates shall focus on the existence of a substantial threat or harm to APS' ability to continue to provide reliable service. D. ESTABLISHMENT OF FUTURE RATE PRINCIPLES. APS will aggressively pursue the cost savings contemplated by Paragraph L of this Agreement with the goal of maintaining average residential prices beyond the Rate Moratorium Period at the proposed 10.41(cent)/kWh level resulting from this settlement rate reduction. To meet this goal, APS will have to further reduce operating costs to offset increases in externally imposed expenses, such as interest and other capital costs, fuel and taxes. In addition, APS will require additional regulatory flexibility and pricing freedom to properly respond to the competitive forces and financial risks inherent in the larger customer market segments. Therefore, Staff will meet with APS in a good faith attempt to develop new pricing and operating procedures that are responsive to market conditions, competitive pressures in the electric utility industry, and the Commission's relationship to regulated utilities and their customers. In this endeavor, the parties agree to consider, inter alia, flexible pricing provisions, innovative procedures, and product pricing principles. The parties agree to file quarterly status reports and obtain input from interested parties and prepare a final written report on their progress to the Commission within 12 months of the date of commission approval of this Agreement and will request prompt Commission approval of recommendations that will assist APS in achieving its residential price stability goals. E. PROPERTY INCLUDED IN RATE BASE. The rates and charges authorized herein fully include a return on the recorded book original cost of all jurisdictional APS assets (net of depreciation, amortization, and deferred income taxes and other deferred credits) as of September 30, 1993, excepting construction work in progress as of such date. However, nothing in this Agreement shall be construed as prohibiting Staff or any other party from pursuing new issues related to expenditures made or actions taken after September 30, 1993. . . . F. AMORTIZATION OF "IN-LIEU" REFUND OBLIGATION AND RESTORATION OF PV-3 TEMPORARY IMPAIRMENT. The "In-Lieu" refund obligation referenced in Decision No. 57649 (December 6, 1991), as well as in the 1991 Settlement, shall be deemed fully discharged as of the date of Commission approval of this Agreement, unless discharged earlier pursuant to the terms of the 1991 Settlement. Likewise, the temporary value impairment of Palo Verde Unit 3 shall be deemed fully restored as of the date of Commission approval of this Agreement, unless restored earlier pursuant to the terms of the 1991 Settlement. G. DECOMMISSIONING. The rates authorized herein expressly include an annual allowance for decommissioning funding for all three Palo Verde Units at the following ACC jurisdictional levels: PV1 $3,621,000 PV2 $3,877,000 PV3 $3,405,000 APS shall fund the amounts specified above through quarterly contributions to the decommissioning trusts. The Commission hereby adopts and approves the decommissioning factors set forth in Attachment C hereto. However, the Commission shall not be bound in any subsequent rate case to adopt the decommissioning funding levels or decommissioning factors adopted and approved herein, but any subsequent change in such levels or factors adopted by the Commission would not be applied retroactively. H. DEPRECIATION. The rates and charges authorized herein include an allowance for depreciation computed at the annual rates and using the methodology indicated in Attachment D hereto. These revised depreciation rates and methodology are hereby expressly approved. The Company's depreciation rates may also be changed from time to time in accordance with the results of depreciation studies performed by or for APS, with such changes to thereafter become effective upon Staff's approval. The Commission shall not be bound in any subsequent rate case to adopt for ratemaking purposes any changes in depreciation rates made pursuant to this provision, but such ratemaking treatment would not be applied retroactively. Any provision of A.A.C. R14-2-102 inconsistent with this paragraph will be expressly waived. I. IMPROVEMENT OF APS' EQUITY RATIO. In Section 2.E of the 1991 Settlement, both Staff and the commission supported APS' goal of continuous progress toward a 40% common equity ratio. Staff continues to support that goal. Therefore, in furtherance of that objective, APS shall, upon receipt of a favorable ruling from the Internal Revenue Service, amortize below the line its unamortized investment tax credits ("ITCs") over a five (5) year period beginning with calendar year 1995. All such amortized ITCs shall thereafter be treated as fully restored to the Company's rate base in any future ratemaking proceedings. J. RATE MIGRATION ADJUSTMENT. The rates and charges authorized herein include the effects of any rate migration occurring as a result of the 1991 Settlement, and provisions of Section 20 of such 1991 Settlement shall be deemed fully satisfied. K. EXPENDITURES ON DEMAND SIDE MANAGEMENT AND RENEWABLE RESOURCES. It is the parties' intent that significant expenditures on both cost effective Demand Side Management ("DSM") and renewable resources development shall be made by APS. APS shall increase its commitment and activities in cost effective Demand Side Management and renewable resources according to the following schedule: i. a. Subject to the provisions of subparagraph v., APS shall spend at least the minimum amount shown below on pre-approved renewable resources and pre-approved DSM projects (including the capital expenditures described in k.vii.g., and expensed program costs for renewables, and DSM program costs, lost net revenues due to DSM, and a reward or incentive for kW deferrals for DSM, all of which collectively shall be referred to as "costs," "expenses" or "expenditures"). . . . . . . YEAR MINIMUM CAP - --------------------------- ----------- ----------- First year $8 million $10 million Second year $10 million $12 million Third year $12 million $18 million Subsequent years until next $14 million $18 million rate case is decided b. APS shall account for, report on, and be entitled to recover costs (as defined above) for all pre-approved DSM and renewables projects through the Energy Efficiency and Solar Energy Fund (EEASE Fund) as described in the Plan of Administration (Subparagraph iv). c. If APS fails to spend the minimum amount in any year, at the time of submission of its annual report on the EEASE Fund, it shall bank the shortfall in expenditures in a special account and APS shall pay into the account interest at a rate of 8.85 percent per year. APS shall use the banked amount (plus interest) for future pre-approved DSM and renewables projects. APS shall not recover the interest paid on the banked amount from ratepayers through the EEASE Fund or any other mechanism. The foregoing will not apply to any situation where APS' failure to spend is due to unreasonable action, inaction, or unreasonable delay in the preapproval process. d. The amount recoverable through the EEASE Fund in any year shall be capped at the amount indicated in the table in Subparagraph i.a. above. ii. In reviewing APS' proposals for DSM and renewables projects, Staff shall obtain input from the public, consistent with the procedures adopted by the Commission in its resource planning order in Docket No. U-0000-93-052. . . . iii. A single EEASE Fund surcharge factor shall be applied to all jurisdictional sales (except those on existing special contracts which exclude the surcharge). To equitably distribute DSM and renewables costs, APS shall explore a full range of DSM and renewables programs for all customer classes and propose for pre-approval, where applicable, customer service charges for DSM and renewables in which the participating customer pays APS for some or all of APS' DSM and renewables costs attributable to that customer. iv. APS shall file a revised "Plan of Administration" for the EEASE Fund within thirty (30) days of the effective date of this order and the plan shall be effective upon a Staff determination that the plan is in compliance with the Commission's order adopting this Settlement. The plan shall include provisions for a balancing account to reflect both the accumulated balance of pre-approved expenditures and the annual recovery thereof through the EEASE Fund surcharge. The plan shall also include a process to bank shortfalls in DSM and renewables costs below the minimum, including the payment of interest on the banked amount by APS. Prior to the second year of the "Plan of Administration", Staff will convene interested parties to discuss the possible capitalization and amortization of DSM and renewables and other cost recovery mechanisms. v. To be eligible to meet the goals and cost recovery mechanism described in Subparagraphs i. and ii., a renewable or DSM program proposed by APS under the terms of the plan of administration described in Subparagraph iv must have been pre-approved in accordance with the provisions for such pre-approval established in Docket No. U-0000-93-052 (unless such program has aready been pre-approved in accordance with the procedures established in Docket No. U-1345-90-007). vi. APS shall expend a minimum of $250,000 on a low income DSM pilot program. vii. On or before December 31, 1994, APS shall file, and provide a notice of filing to interested parties, a three-year renewable resource plan for the review of Staff and interested parties, such plan to include: a. an aggressive program to identify, install and operate cost-effective applications of renewables within the APS system by the end of the three-year plan period; b. an aggressive program to identify, install and operate cost-effective applications of renewables (which are expected to be cost-effective within a few years) by the end of the three-year plan period; c. a mix of technologies that must include photovoltaics and solar thermal energy systems; d. research and development projects such as resource assessments of for and test installations of wind energy systems, geothermal systems, biomass systems, and other innovative renewable technologies; and e. a mix of off-grid applications, grid-connected end use applications, distribution and transmission support, and generation. f. APS shall work cooperatively with Staff to develop the plan. g. Subject to the provisions of subparagraphs ii and v, APS shall commit to spend at least $9 million on renewables over the next three years as part of its obligation under Subparagraph i, ii and ix herein. h. Nothing in this Subparagraph vii. shall be construed as obliging APS to exceed the spending levels required by Subparagraph i. . . . . . . viii. APS shall report annually to staff on its renewable resources activities. This report shall include a formal presentation at a workshop and a written report. ix. APS' goal of achieving 12 MW of renewables by December 31, 2000 as stated in the Resource Planning hearing (Docket No. U-0000-93-052) shall not be affected by this Agreement. Expenditures made by APS on pre-approved projects during the next three years for the purpose of achieving this goal are eligible for recovery through the EEASE Fund pursuant to Subparagraphs i. and ii. L. ADJUSTMENT FOR EFFECTIVE COST CONTAINMENT. In furtherance of the Commission's goal to establish regulatory procedures which encourage superior utility performance, the Company shall have the opportunity to earn a reward in its next general rate proceeding if that rate proceeding results in no increase in residential rates. In that proceeding, the Commission shall compare the costs of service for fuel expense and operation and maintenance, for the test period under review, with the target cost of service index for fuel expense and operation and maintenance for all sales including sales for resale (but excluding interchange and non-traditional sales) of 3.63 cents/kWh to determine if the Company has achieved additional cost savings. Any achieved cost savings that result in a price index below 3.63 cents/kWh for fuel expense and operation and maintenance for all sales including sales for resale (but excluding interchange and non-traditional sales) shall be allocated in such rate proceeding between the Company's customers and its shareholders by first adding to the Company's otherwise appropriate jurisdictional revenue requirement 45% of such savings. M. RATE TREATMENT OF PALO VERDE. Based on current Staff analysis of APS' loads and resources, all three Palo Verde generating units are used and useful and are included in rate base, less the net prudence disallowance required by the 1991 Settlement. The rates established in this Agreement include only the costs of normal, full power operation of Palo Verde and do not include recovery of the recently announced estimated $13 million in replacement power and operation and maintenance costs associated with possible additional outages or reduced power output resulting from investigation of steam generator tubes at Palo Verde. In subsequent rate cases, all three Palo Verde units shall likewise be included in rate base and their fair value shall be based upon the depreciated original cost value and reconstruction values, less the net prudence disallowance adjustment in the 1991 Settlement, in the same manner as other APS generating facilities. Notwithstanding the foregoing, in the event that significant changes in the operating characteristics, reliability or efficiency of any or all of the Palo Verde units occur, or any unit is derated, the Commission may re-examine in subsequent APS general rate cases the extent to which such unit continues to be used and useful. N. AFFILIATE TRANSACTION REQUIREMENTS. APS and its affiliates shall remain subject to the provision of A.A.C. R14-2-801, et seq., as modified by Decision No. 58063 (November 3, 1992). However, the additional reporting and prior approval provisions of Commission Decision Nos. 54504 (April 29,1985) and 55196 (September 18, 1986) are no longer necessary and are hereby expressly revoked. O. POST-RETIREMENT EMPLOYEE BENEFITS. The rates and charges herein do not include an allowance for Post-Retirement Employee Benefits ("OPEBs") as required under SFAS 106. APS however, is funding OPEBs using external funds. Although the Commission has not permitted recovery of this liability accounting approach for any Arizona regulated entity, Staff will consider recovery of these expenses in future rate proceedings. P. INNOVATIVE RATES FOR "AT RISK" CUSTOMERS. In today's competitive environment, APS and Staff agree that traditional ratemaking based on fully-allocated embedded cost of service may be inappropriate for certain of the company's larger customers. APS faces a significantly larger risk that such customers may decide to leave the APS system for all or part of their electric service needs, thus imposing the responsibility for stranded fixed costs on others. This competitive challenge must be met by timely permitting innovative rate structures and agreements that allow APS maximum flexibility in responding to competition, while at the same time benefiting its remaining customers. Therefore, consistent with the above acknowledgements and in furtherance of the provisions of Paragraph D, Staff will expeditiously review any APS tariff or contract filing for such customers and recommend that such filings be decided promptly by the Commission. Staff agrees that such tariffs or contracts may contain price adjustment provisions which shall be effective in accordance with their terms, provided that such prices are at or above APS' marginal costs for service to such customers. Q. MISCELLANEOUS RATE CHANGES. This Agreement shall not preclude changes during the Rate Moratorium Period to specific rate schedules or terms and conditions of service, or the approval of new rates or terms or conditions of service, that do not significantly affect the overall earnings of the Company. R. FAIR VALUE. For rate making purposes, and in accordance with the terms of this Agreement, APS' "fair value rate base" is $5,019,405,000 as of September 30, 1993. A fair rate of return on APS' fair value rate base is 7.35%. Staff and APS stipulate to the adoption of the above stated fair value rate base and fair rate of return and agree that the resultant revenue decrease, as reflected in Paragraph A above, results in just and reasonable rates for the Company. The determinations made in this section are made solely or the purpose of the settlement contemplated by this Agreement. S. EFFECTIVE DATE. Each provision of this Agreement is in consideration and support of all the other provisions. This Agreement shall not become effective until the issuance of a final Commission Order approving this Agreement without change or alteration on or before June 1, 1994 in the form of the Proposed Order attached hereto as Attachment E. In the event that the Commission fails to adopt this Agreement according to its terms on or before June 1, 1994, this Agreement shall be deemed automatically withdrawn, the rate reduction provisions of this Agreement shall not take effect, and APS and Staff shall be free to pursue their respective positions without prejudice. In addition, if any appeal is taken or other judicial review is sought of a final Commission order approving this Agreement, then the parties shall no longer be bound by the terms of this Agreement and this Agreement shall automatically become null and void, in which case: (1) the rate reduction specified in Paragraph A. shall immediately cease; (2) all bills rendered on or after that date shall be at the rates existing immediately prior to the Commission's approval of this Agreement; and (3) the revenue reduction theretofore experience by APS pursuant to Paragraph A. shall be recovered through the EEASE surcharge mechanism. T. AGREEMENT NOT PRECEDENTIAL. The terms and provisions of this Agreement apply solely to and are binding only in the context of the purposes and results of this Agreement and none of the positions taken herein by APS may be referred to, cited or relied upon by any other party in any fashion as precedent or otherwise in any other proceeding before this Commission or any other regulatory agency or before any court of law for any purpose except in furtherance of the purposes and results of this Agreement. Nothing in this Agreement shall be construed as imposing a cap on the Company's otherwise reasonable and prudent cost of service for purposes of setting just and reasonable rates. U. AGREEMENT AND COMPROMISE. This Agreement represents an attempt to compromise and settle disputed claims regarding the prospective just and reasonable rate levels for APS in a manner consistent with the public interest and applicable legal requirements. Nothing contained in this Agreement is an admission by APS that its current rate levels or rate design are unjust or unreasonable. V. PROPOSED FORM OR ORDER. A proposed form of order is appended hereto as Attachment E, and is acceptable to both APS and Staff. CONCLUSIONS OF LAW 1. APS is a public service corporation within the meaning of Article 15 of the Arizona Constitution and A.R.S. ss. 40-250,40-25 and 40-367. 2. The Commission has jurisdiction over APS, over the subject matter of this proceeding, and over the Agreement submitted by the Staff and APS. 3. APS provided notice of this matter in accordance with law. 4. The Amended Agreement resolves all matters contained therein in a manner which is just and reasonable, and which promotes the public interest. 5. The Commission's acceptance and approval of the terms of this Amended Agreement between Staff and APS are in the public interest. 6. Based on the Amended Agreement of APS and Staff, for purposes of this proceeding, APS' fair value rate base as of September 30, 1993 is $5,019,405,000, and a fair and reasonable rate of return on that fair value rate base is 7.35%. 7. Based on the Amended Agreement between APS and Staff, it is appropriate to reduce APS' authorized revenues by $38.3 million from September 30, 1993 sales as adjusted. 8. APS should be directed to file revised tariffs consistent with the Amended Agreement and the findings contained herein. 9. The rates and charges authorized herein are just and reasonable. ORDER IT IS THEREFORE ORDERED that APS shall decrease its rates and charges for all usage on or after the effective date of this Order consistent with the Findings of Fact and Conclusions of Law contained herein so as to result in an annual decrease of $38.3 million. IT IS FURTHER ORDERED that this Order incorporates the Agreement executed May 23,1994, between APS and Staff as modified at the May 27, 1994 hearing, and such Order is expressly conditioned thereon. IT IS FURTHER ORDERED that the terms and conditions of the Amended Agreement be and the same are hereby adopted and approved. IT IS FURTHER ORDERED that APS is authorized and directed to file revised schedules of rates and charges consistent with the Findings and Conclusions of this Order. IT IS FURTHER ORDERED that neither APS nor Commission Staff shall file any application to initiate a general rate change prior to December 31, 1996. IT IS FURTHER ORDERED that any general rate change proposed by the Company on or after December 31, 1996, but not later than December 31, 1997, if substantiated after appropriate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . notice and hearing and authorized by the Commission, will become effective within twelve months following the filing of the proposed rate change. IT IS FURTHER ORDERED that this Order shall become effective immediately. BY ORDER OF THE ARIZONA CORPORATION COMMISSION /s/ Marcia Weeks /s/ Renz D. Jennings /s/ Dale H. Morgan - ------------------------------------------------------------------------------- CHAIRMAN COMMISSIONER COMMISSIONER IN WITNESS WHEREOF, I, JAMES MATTHEWS, Executive Secretary of the Arizona Corporation Commission, have hereunto, set my hand and caused the official seal of this Commission to be affixed at the Capitol, in the City of Phoenix, this 1 day of June, 1994. /s/ James Matthews ------------------------------------------ JAMES MATTHEWS Executive Secretary DISSENT______________________________ EXHIBIT 1 RATE SETTLEMENT AGREEMENT May 23, 1994 This rate settlement agreement ("Agreement") is entered into as of April 20, 1994, and amended as of May 23, 1994, by Arizona Public Service Company ("APS" or the "Company") and the Staff of the Arizona Corporation Commission ("Staff") for the purpose of establishing revised rates and charges and related procedures for APS that are just, reasonable, and in the public interest. INTRODUCTION In 1991, the Arizona Corporation Commission ("Commission" or "ACC") approved a comprehensive and innovative settlement (the "1991 Settlement") between Staff and APS that sought to keep APS' customer rates as low as possible by directing the Company to further reduce its costs and operate more efficiently. Since the 1991 Settlement, APS has taken a number of aggressive steps to meet the Commission's goal of expense reduction and improved service. One of the fundamental principles underlying the 1991 Settlement was the Company's commitment to contain its costs, and thus its rates, through disciplined cost management. This commitment was underscored, at Staff's request, by the establishment of target price and cost levels which APS must meet without deterioration in service. The 1991 Settlement also set forth in detail the procedures for determining target price and cost levels and the regulatory and rate consequences of failing to meet those targets. Finally, the 1991 Settlement included a two-year moratorium on APS' ability to file for a permanent rate increase and set forth procedures for determining how APS' future rate filings would be handled. The rate moratorium required by the 1991 Settlement ended in December 1993. In addition, the procedures for limiting future rate increases will likewise lapse unless APS files a permanent rate increase application prior to January l, 1995. APS has indicated it has no present intention of filing such a rate increase application by that time and therefore the target pricing provisions contained therein will be of no further force and effect unless a new agreement is reached. The settlement described below represents the Staff's "report card" on APS' performance that the Commission ordered in the 1991 Settlement. APS has exceeded the Commission's cost reduction goals and has improved customer service. These accomplishments were only possible through the cooperative alignment of regulatory and corporate goals, the public commitment and accountability to such goals, and the dedicated efforts of Staff and APS. This progress toward improved utility performance should continue. The settlement described below is in the public interest and provides the company's customers with substantial benefits that would otherwise not be achieved either at all, or at least not without significant expenditure of public and private resources in protracted litigation. These benefits include (l) an immediate rate reduction of approximately 2.7%; (2) an additional moratorium on further permanent rate applications; (3) a comprehensive study of the impacts increasing competition in the electric utility industry may have on APS and its customers; (4) an increase in expenditures on renewable resources and DSM programs, and (5) a provision that will encourage APS to continue effective cost containment by allowing the Company to share with ratepayers cost savings achieved in the next several years. In addition, Staff has carefully reviewed APS' current financial condition, and believes the provisions of this Agreement should not adversely affect the Company's financial health; rather, it will sharpen management's focus on the challenges of the future in a manner that is beneficial to its customers and its shareholders. NOW, THEREFORE, Staff and APS agree to the following provisions which they both believe to be fair and reasonable and in the public interest: TERMS OF AGREEMENT A. REVENUE REDUCTION. For usage on or after the effective date of the Agreement, as determined in accordance with Paragraph S, APS jurisdictional rates will be decreased by approximately 2.7% (approximately $38.3 million annually, based on September 30, 1993 sales as adjusted). B. SETTLEMENT RATES. The revenue decrease provided for in Paragraph A of this Agreement shall be allocated among customer classes by means of a uniform .24(cent)/kWh reduction in the energy charges for all APS rate schedules except those rate schedules set forth in Attachment A. In addition, and concurrent with this rate reduction, APS will be authorized to amend Schedule 1 of its tariffs. These revised tariff sheets are set forth in Attachment B. C. MORATORIUM ON AND PROCEDURES FOR FURTHER RATE CHANGES. i. APS shall not file for a change to its general rates and charges prior to December 31, 1996 ("Rate Moratorium Period"). Staff will likewise be subject to the same moratorium. This moratorium shall not apply to price changes pursuant to Paragraph P of this Agreement. ii. The next general rate application filed by APS will become effective and permanent as soon as practicable after the filing, but in no event later than 12 months after the filing. Such time limit shall not be extended and shall supersede any Commission regulation or legislative enactment which provides for a different period of time, unless the Commission determines that such time limit has become unreasonable due either to any amendment to the rate filing made by APS which substantially alters the amount of the requested rate change or substantially alters the facts used as a basis for the requested rate change, or to an extraordinary event not otherwise provided for. The provisions of this subparagraph shall not apply to any general rate application filed by APS after December 31, 1997. iii. Neither APS nor Staff shall be prevented from seeking a change in rates prior to or after December 31, 1996 in the event of conditions or circumstances which constitute an emergency, such as the inability to finance on reasonable terms or material increases in the Company's cost of service as a result of federal, tribal, state or local laws, regulatory requirements or orders. Staff's review of such a request by APS for emergency rates shall focus on the existence of a substantial threat or harm to APS' ability to continue to provide reliable service. D. ESTABLISHMENT OF FUTURE RATE PRINCIPLES. APS will aggressively pursue the cost savings contemplated by Paragraph L of this Agreement with the goal of maintaining average residential prices beyond the Rate Moratorium Period at the proposed 10.41(cent)/kWh level resulting from this settlement rate reduction. To meet this goal, APS will have to further reduce operating costs to offset increases in externally imposed expenses, such as interest and other capital costs, fuel and taxes. In addition, APS will require additional regulatory flexibility and pricing freedom to properly respond to the competitive forces and financial risks inherent in the larger customer market segments. Therefore, Staff will meet with APS in a good faith attempt to develop new pricing and operating procedures that are responsive to market conditions, competitive pressures in the electric utility industry, and the Commission's relationship to regulated utilities and their customers. In this endeavor, the parties agree to consider, inter alia, flexible pricing provisions, innovative procedures, and product pricing principles. The parties agree to file quarterly status reports and obtain input from interested parties and prepare a final written report on their progress to the Commission within 12 months of the date of commission approval of this Agreement and will request prompt Commission approval of recommendations that will assist APS in achieving its residential price stability goals. E. PROPERTY INCLUDED IN RATE BASE. The rates and charges authorized herein fully include a return on the recorded book original cost of all jurisdictional APS assets (net of depreciation, amortization, and deferred income taxes and other deferred credits) as of September 30, 1993, excepting construction work in progress as of such date. However, nothing in this Agreement shall be construed as prohibiting Staff or any other party from pursuing new issues related to expenditures made or actions taken after September 30, 1993. F. AMORTIZATION OF "IN-LIEU" REFUND OBLIGATION AND RESTORATION OF PV-3 TEMPORARY IMPAIRMENT. The "In-Lieu" refund obligation referenced in Decision No. 57649 (December 6, 1991), as well as in the 1991 Settlement, shall be deemed fully discharged as of the date of Commission approval of this Agreement, unless discharged earlier pursuant to the terms of the l99l Settlement. Likewise, the temporary value impairment of Palo Verde Unit 3 shall be deemed fully restored as of the date of Commission approval of this Agreement, unless restored earlier pursuant to the terms of the 1991 Settlement. G. DECOMMISSIONING. The rates authorized herein expressly include an annual allowance for decommissioning funding for all three Palo Verde Units at the following ACC jurisdictional levels: PV 1 $3,621,000 PV 2 $3,877,000 PV 3 $3,405,000 APS shall fund the amounts specified above through quarterly contributions to the decommissioning trusts. The Commission hereby adopts and approves the decommissioning factors set forth in Attachment C hereto. However, the Commission shall not be bound in any subsequent rate case to adopt the decommissioning funding levels or decommissioning factors adopted and approved herein, but any subsequent change in such levels or factors adopted by the Commission would not be applied retroactively. H. DEPRECIATION. The rates and charges authorized herein include an allowance for depreciation computed at the annual rates and using the methodology indicated in Attachment D hereto. These revised depreciation rates and methodology are hereby expressly approved. The Company's depreciation rates may also be changed from time to time in accordance with the results of depreciation studies performed by or for APS, with such changes to thereafter become effective upon Staff's approval. The Commission shall not be bound in any subsequent rate case to adopt for ratemaking purposes any changes in depreciation rates made pursuant to this provision, but such ratemaking treatment would not be applied retroactively. Any provision of A.A.C. R14-2-102 inconsistent with this paragraph will be expressly waived. I. IMPROVEMENT OF APS' EQUITY RATIO. In Section 2.E of the l99l Settlement, both Staff and the commission supported APS' goal of continuous progress toward a 40% common equity ratio. Staff continues to support that goal. Therefore, in furtherance of that objective, APS shall, upon receipt of a favorable ruling from the Internal Revenue Service, amortize below the line its unamortized investment tax credits ("ITCs") over a five (5) year period beginning with calendar year 1995. All such amortized ITCs shall thereafter be treated as fully restored to the Company's rate base in any future ratemaking proceedings. J. RATE MIGRATION ADJUSTMENT. The rates and charges authorized herein include the effects of any rate migration occurring as a result of the 1991 Settlement, and provisions of Section 20 of such 1991 Settlement shall be deemed fully satisfied. K. EXPENDITURES ON DEMAND SIDE MANAGEMENT AND RENEWABLE RESOURCES. It is the parties' intent that significant expenditures on both cost effective Demand Side Management ("DSM") and renewable resources development shall be made by APS. APS shall increase its commitment and activities in cost effective Demand Side Management and renewable resources according to the following schedule: i. a. Subject to the provisions of subparagraph v., APS shall spend at least the minimum amount shown below on pre-approved renewable resources and preapproved DSM projects (including capital and expensed program costs for renewables, and DSM program costs, lost net revenues due to DSM, and a reward or incentive for kW deferrals for DSM, all of which collectively shall be referred to as "costs," "expenses" or "expenditures"). Year Minimum Cap - --------------------------- ----------- ----------- First year $8 million $10 million Second year $10 million $12 million Third year $12 million $18 million Subsequent years until next $14 million $18 million rate case is decided b. APS shall account for, report on, and be entitled to recover costs (as defined above) for all preapproved DSM and renewables projects through the Energy Efficiency and Solar Energy Fund (EEASE Fund) as described in the Plan of Administration (Subparagraph iv). c. If APS fails to spend the minimum amount in any year, at the time of submission of its annual report on the EEASE Fund, it shall bank the shortfall in expenditures in a special account and APS shall pay into the account interest at a rate of 8.85 percent per year. APS shall use the banked amount (plus interest) for future pre-approved DSM and renewables projects. APS shall not recover the interest paid on the banked amount from ratepayers through the EEASE Fund or any other mechanism. The foregoing will not apply to any situation where APS' failure to spend is due to unreasonable action, inaction, or unreasonable delay in the preapproval process. d. The amount recoverable through the EEASE Fund in any year shall be capped at the amount indicated in the table in Subparagraph i.a., above. ii. In reviewing APS' proposals for DSM and renewables projects, Staff shall obtain input from the public, consistent with the procedures adopted by the Commission in its resource planning order in Docket No. U-0000-93-052. iii. A single EEASE Fund surcharge factor shall be applied to all jurisdictional sales (except those on existing special contracts which exclude the surcharge). To equitably distribute DSM and renewables costs, APS shall explore a full range of DSM and renewables programs for all customer classes and propose for pre-approval, where applicable, customer service charges for DSM and renewables in which the participating customer pays APS for some or all of APS' DSM and renewables costs attributable to that customer. iv. APS shall file a revised "Plan of Administration" for the EEASE Fund within thirty (30) days of the effective date of this order and the plan shall be effective upon a Staff determination that the plan is in compliance with the Commission's order adopting this Settlement. The plan shall include provisions for a balancing account to reflect both the accumulated balance of pre-approved expenditures and the annual recovery thereof through the EEASE Fund surcharge. The plan shall also include a process to bank shortfalls in DSM and renewables costs below the minimum, including the payment of interest on the banked amount by APS. v. To be eligible to meet the goals and cost recovery mechanism described in Subparagraphs i. and ii., a renewable or DSM program proposed by APS under the terms of the plan of administration described in Subparagraph iv must have been pre-approved in accordance with the provisions for such pre-approval established in Docket No. U-0000-93-052 (unless such program has already been pre-approved in accordance with the procedures established in Docket No. U-1345-90-007). vi. APS shall expend a minimum of $250,000 on a low income DSM pilot program. vii. On or before December 31, 1994, APS shall file, and provide a notice of filing to interested parties, a three-year renewable resource plan for Staff review and comment that includes: a. an aggressive program to identify, install and operate cost-effective applications of renewables within the APS system by the end of the three-year plan period; b. an aggressive program to identify, install and operate cost-effective applications of renewables (which are expected to be cost-effective within a few years) by the end of the three-year plan period; c. a mix of technologies that must include photovoltaics and solar thermal energy systems; d. research and development projects such as resource assessments for and test installations of wind energy systems, geothermal systems, biomass systems, and other innovative renewable technologies; and e. a mix of off-grid applications, grid-connected end use applications, distribution and transmission support, and generation. f. APS shall work cooperatively with Staff to develop the plan. g. Subject to the provisions of subparagraphs ii and v, APS shall commit to spend at least $9 million on renewables over the next three years as part of its obligation under Subparagraph i, ii and ix herein. h. Nothing in this Subparagraph vii. shall be construed as obliging APS to exceed the spending levels required by Subparagraph i. viii. APS shall report annually to staff on its renewable resources activities. This report shall include a formal presentation at a workshop and a written report. ix. APS' goal of achieving 12 MW of renewables by December 31, 2000 as stated in the Resource Planning hearing (Docket No. U-0000-93-052) shall not be affected by this Agreement. Expenditures made by APS on pre-approved projects during the next three years for the purpose of achieving this goal are eligible for recovery through the EEASE Fund pursuant to Subparagraphs i. and ii. L. ADJUSTMENT FOR EFFECTIVE COST CONTAINMENT. In furtherance of the Commission's goal to establish regulatory procedures which encourage superior utility performance, the Company shall have the opportunity to earn a reward in its next general rate proceeding if that rate proceeding results in no increase in residential rates. In that proceeding, the Commission shall compare the costs of service for fuel expense and operation and maintenance, for the test period under review, with the target cost of service index for fuel expense and operation and maintenance for all sales including sales for resale (but excluding interchange and non-traditional sales) of 3.63 cents/kWh to determine if the Company has achieved additional cost savings. Any achieved cost savings that result in a price index below 3.63 cents/kWh for fuel expense and operation and maintenance for all sales including sales for resale (but excluding interchange and non-traditional sales) shall be allocated in such rate proceeding between the Company's customers and its shareholders by first adding to the Company's otherwise appropriate jurisdictional revenue requirement 45% of such savings. M. FUTURE RATE TREATMENT OF PALO VERDE. Based on current Staff analysis of APS' loads and resources, all three Palo Verde generating units are used and useful and are included in rate base, less the net prudence disallowance required by the 1991 Settlement. The rates established in this Agreement include only the costs of normal, full power operation of Palo Verde and do not include recovery of the recently announced estimated $13 million in replacement power and operation and maintenance costs associated with possible additional outages or reduced power output resulting from investigation of steam generator tubes at Palo Verde. In subsequent rate case, all three Palo Verde units shall likewise be included in rate base and their fair value shall be based upon the depreciated original cost value and reconstruction values, less the net prudence disallowance adjustment in the 1991 Settlement, in the same manner as other APS generating facilities. Notwithstanding the foregoing, in the event that significant changes in the operating characteristics, reliability or efficiency of any or all of the Palo Verde units occur, or any unit is derated, the Commission may re-examine in subsequent APS general rate cases the extent to which such unit continues to be used and useful. N. AFFILIATE TRANSACTION REQUIREMENTS. APS and its affiliates shall remain subject to the provision of A.A.C. R14-2-801, et seq., as modified by Decision No. 58063 (November 3, 1992). However, the additional reporting and prior approval provisions of Commission Decision Nos. 54504 (April 29, 1985) and 55196 (September 18, 1986) are no longer necessary and are hereby expressly revoked. O. POST-RETIREMENT EMPLOYEE BENEFITS. The rates and charges herein do not include an allowance for Post-Retirement Employee Benefits ("OPEBs") as required under SFAS 106. APS, however, is funding OPEBs using external funds. Although the Commission has not permitted recovery of this liability accounting approach for any Arizona regulated entity, Staff will consider recovery of these expenses in future rate proceedings. P. INNOVATIVE RATES FOR "AT RISK" CUSTOMERS. In today's competitive environment, APS and Staff agree that traditional ratemaking based on fully-allocated embedded cost of service may be inappropriate for certain of the company's larger customers. APS faces a significantly larger risk that such customers may decide to leave the APS system for all or part of their electric service needs, thus imposing the responsibility for stranded fixed costs on others. This competitive challenge must be met by timely permitting innovative rate structures and agreements that allow APS maximum flexibility in responding to competition, while at the same time benefiting its remaining customers. Therefore, consistent with the above acknowledgements and in furtherance of the provisions of Paragraph D, Staff will expeditiously review any APS tariff or contract filing for such customers and recommend that such filings be decided promptly by the Commission. Staff agrees that such tariffs or contracts may contain price adjustment provisions which shall be effective in accordance with their terms, provided that such prices are at or above APS' marginal costs for service to such customers. Q. MISCELLANEOUS RATE CHANGES. This Agreement shall not preclude changes during the Rate Moratorium Period to specific rate schedules or terms and conditions of service, or the approval of new rates or terms or conditions of service, that do not significantly affect the overall earnings of the Company. R. FAIR VALUE. For rate making purposes, and in accordance with the terms of this Agreement, APS' "fair value rate base" is $5,019,405,000 as of September 30, 1993. A fair rate of return on APS' fair value rate base is 7.35%. Staff and APS stipulate to the adoption of the above stated fair value rate base and fair rate of return and agree that the resultant revenue decrease, as reflected in Paragraph A above, results in just and reasonable rates for the Company. The determinations made in this section are made solely for the purpose of the settlement contemplated by this Agreement. S. EFFECTIVE DATE. Each provision of this Agreement is in consideration and support of all the other provisions. This Agreement shall not become effective until the issuance of a final Commission Order approving this Agreement without change or alteration on or before June 1, 1994 in the form of the Proposed Order attached hereto as Attachment E. In the event that the Commission fails to adopt this Agreement according to its terms on or before June 1, 1994, this Agreement shall be deemed automatically withdrawn, the rate reduction provisions of this Agreement shall not take effect, and APS and Staff shall be free to pursue their respective positions without prejudice. In addition, if any appeal is taken or other judicial review is sought of a final Commission order approving this Agreement, then the parties shall no longer be bound by the terms of this Agreement and this Agreement shall automatically become null and void, in which case: (1) the rate reduction specified in Paragraph A. shall immediately cease; (2) all bills rendered on or after that date shall be at the rates existing immediately prior to the Commission's approval of this Agreement; and (3) the revenue reduction theretofore experienced by APS pursuant to Paragraph A. shall be recovered through the EEASE surcharge mechanism. T. AGREEMENT NOT PRECEDENTIAL. The terms and provisions of this Agreement apply solely to and are binding only in the context of the purposes and results of this Agreement and none of the positions taken herein by APS may be referred to, cited or relied upon by any other party in any fashion as precedent or otherwise in any other proceeding before this Commission or any other regulatory agency or before any court of law for any purpose except in furtherance of the purposes and results of this Agreement. Nothing in this Agreement shall be construed as imposing a cap on the Company's otherwise reasonable and prudent cost of service for purposes of setting just and reasonable rates. U. AGREEMENT AND COMPROMISE. This Agreement represents an attempt to compromise and settle disputed claims regarding the prospective just and reasonable rate levels for APS in a manner consistent with the public interest and applicable legal requirements. Nothing contained in this Agreement is an admission by APS that its current rate levels or rate design are unjust or unreasonable. V. PROPOSED FORM OF ORDER. A proposed form of order is appended hereto as Attachment E, and is acceptable to both APS and Staff. DATED at Phoenix, Arizona, this 23rd day of May, 1994. STAFF OF ARIZONA ARIZONA PUBLIC SERVICE COMPANY CORPORATION COMMISSION By /s/ Gary Yaquinto By /s/ William J. Post --------------------------------- --------------------- Title Director, Utilities Division Title SVP - ----------------------------------- ------------------- ARIZONA PUBLIC SERVICE COMPANY ACC Approved Contracts with Provisions For Exemption from General Rate Case Changes
Customer Nature of Contract Docket No. Decision Date -------- ------------------ ---------- -------- ---- 1. Cyprus Bagdad Copper Mine Subject to inflation adjustment U-1345-94-041 58870 3-16-94 2. Stone Container Corporation Daily sale at incremental cost U-1345-89-320 56770 1-11-90 3. El Paso Natural Gas, Seligman Fixed price "opportunity sale" U-1345-90-292 57127 10-22-90 4. El Paso Natural Gas, Leupp Fixed price "opportunity sale" U-1345-90-292 57127 10-22-90 5. Phelps Dodge Corporation 1-year fixed priced "opportunity sale" U-1345-93-304 58501 1-13-94
2.6 SECURITY DEPOSITS Existing: 2.6.3 Cash deposits held by the Company six (6) months or longer shall earn interest at the rate of six (6) percent per year. Deposits on inactive accounts are applied to the final bill and the balance, if any, is refunded to the Customer of record within thirty (30) days. New: 2.6.3 Cash deposits held by the Company six (6) months/183 days or longer shall earn interest at the established one year Treasury Bill rate as published in the Wall Street Journal, as determined annually, as of January 1 of each year. Deposits on inactive accounts are applied to the final bill and the balance, if any, is refunded to the Customer of record within thirty (30) days. 4.4 RETURNED CHECKS Existing: 4.4 Returned checks. If Company is notified by the Customer's bank that the bank will not honor a check tendered by Customer for payment of any bill because: (i) there are insufficient funds to cover the check; (ii) the checking account has been closed; (iii) Customer has sent a "stop payment" request on the check; or (iv) any other reason the bank will not honor Customer's check, Company may require the Customer to make payment in cash, by money order, certified check, or other means which guarantee the Customer's payment to the Company. 4.4.1 Customer shall be charged a fee of eight dollars ($8.00) for each instance where Customer tenders payment of a bill with a check which is not honored by Customer's bank. 4.4.2 The tender of a dishonored check shall in no way (i) relieve Customer of the obligation to render payment to Company under the original terms of the bill, or (ii) defer Company's right to terminate service for nonpayment of bills. New: 4.4 Returned checks. If Company is notified by the Customer's bank that the bank will not honor a check tendered by Customer for payment of any bill because: (i) there are insufficient funds to cover the check; (ii) the checking account has been closed; (iii) Customer has sent a "stop payment" request on the check; or (iv) any other reason the bank will not honor Customer's check, Company may require the Customer to make payment in cash, by money order, certified check, or other means which guarantee the Customer's payment to the Company. 4.4.1 Customer shall be charged a fee of ten dollars ($10.00) for each instance where Customer tenders payment of a bill with a check which is not honored by Customer's bank. 4.4.2 The tender of a dishonored check shall in no way (i) relieve Customer of the obligation to render payment to Company under the original terms of the bill, or (ii) defer Company's right to terminate service for nonpayment of bills. 4.4.3 Where the Customer has tendered two (2) or more dishonored checks in the past twelve (12) consecutive months, Company may require Customer to make payment in cash, money order or cashier's check for the next six (6) consecutive months. DECOMMISSIONING FACTORS PALO VERDE (Thousands of Dollars) (APS Share)
LINE TYPE OF FUNDING UNIT 1 UNIT 2 UNIT 3 - ---- ------------------------------------ --------------- ------ ------ ------ 1 Proposed method of decommissioning. Prompt removal/ dismantlement 2 Year in which substantial decommissioning costs will first be incurred. 2023 2025 2027 3 Year in which decommissioning will be substantially complete. 2031 2033 2035 4 Total costs of decommissioning ($ 1992). $ 128,665 $ 126,599 $ 133,710 5 Total costs of decommissioning (future dollars) (see item #6) $ 625,554 $ 670,385 $ 782,066 6 For each year between 2 and 3, the 2023 $ 1,235 $ -- $ -- annual cost of decommissioning 2024 2,555 -- -- (future dollars). 2025 33,229 245 -- 2026 106,498 4,247 -- 2027 111,291 38,792 3,414 2028 116,299 113,438 4,638 2029 121,532 122,723 34,075 2030 55,621 128,246 107,665 2031 47,294 134,017 136,074 2032 -- 83,183 142,198 2033 -- 45,494 148,596 2034 -- -- 123,529 2035 -- -- 81,877 --------- --------- --------- $ 625,554 $ 670,385 $ 782,066 7 Methodology used to convert current dollars to future dollars. Annual Rate 4.5% 4.5% 4.5% 8 After-tax rate of return (compounded annually). 6.5% 6.5% 6.5% 9 Period over which decommissioning costs will be included in cost of service. 1988-2024 1988-2015 1988-2024 10 For each year in 9, above, projected amount to be included in cost of service. See: Schedule of Decommissioning amounts (attached) 11 Estimated date on which the plant will no longer be included in rate base. 12/31/2024 12/31/2025 12/31/2026 12 Cost study upon which decommissioning cost estimates are based. TLG Engineering 1992 APS ownership share is 29.1%; ACC jurisdictional share is approximately 95.27%
ARIZONA PUBLIC SERVICE COMPANY SCHEDULE OF DECOMMISSIONING AMOUNTS INCLUDED IN COST OF SERVICE PALO VERDE UNIT I (Thousands of dollars) (APS Share) Annual Contribution ACC 1/ Required to Jurisdiction Line Year Decommission Amount - ---- ---- ------------ -------- 1 1988 $1,496 $1,425 2 1989 $1,982 $1,888 3 1990 $1,982 $1,888 4 1991 $1,993 $1,899 5 1992 $2,140 $2,039 6 1993 $3,801 $3,621 7 1994 $3,801 $3,621 8 1995 $3,801 $3,621 9 1996 $3,801 $3,621 10 1997 $3,801 $3,621 11 1998 $3,801 $3,621 12 1999 $3,801 $3,621 13 2000 $3,801 $3,621 14 2001 $3,801 $3,621 15 2002 $3,801 $3,621 16 2003 $3,801 $3,621 17 2004 $3,801 $3,621 18 2005 $3,801 $3,621 19 2006 $3,801 $3,621 20 2007 $3,801 $3,621 21 2008 $3,801 $3,621 22 2009 $3,801 $3,621 23 2010 $3,801 $3,621 24 2011 $3,801 $3,621 25 2012 $3,801 $3,621 26 2013 $3,801 $3,621 27 2014 $3,801 $3,621 28 2015 $3,801 $3,621 29 2016 $3,801 $3,621 30 2017 $3,801 $3,621 31 2018 $3,801 $3,621 32 2019 $3,801 $3,621 33 2020 $3,801 $3,621 34 2021 $3,801 $3,621 35 2022 $3,801 $3,621 36 2023 $3,801 $3,621 37 2024 $3,801 $3,621 -------- -------- $131,225 $125,011 1/ ACC jurisdictional share is approximately 95.27%. ARIZONA PUBLIC SERVICE COMPANY SCHEDULE OF DECOMMISSIONING AMOUNTS INCLUDED IN COST OF SERVICE PALO VERDE UNIT II (Thousands of dollars) (APS Share) Annual Contribution ACC 1/ Required to Jurisdiction Line Year Decommission Amount - ---- ---- ------------ ---------- 1 1988 $1,360 $1,296 2 1989 $1,802 $1,717 3 1990 $1,802 $1,717 4 1991 $1,839 $1,752 5 1992 $2,320 $2,210 6 1993 $4,069 $3,877 7 1994 $4,069 $3,877 8 1995 $4,069 $3,877 9 1996 $4,069 $3,877 10 1997 $4,069 $3,877 11 1998 $4,069 $3,877 12 1999 $4,069 $3,877 13 2000 $4,069 $3,877 14 2001 $4,069 $3,877 15 2002 $4,069 $3,877 16 2003 $4,069 $3,877 17 2004 $4,069 $3,877 18 2005 $4,069 $3,877 19 2006 $4,069 $3,877 20 2007 $4,069 $3,877 21 2008 $4,069 $3,877 22 2009 $4,069 $3,877 23 2010 $4,069 $3,877 24 2011 $4,069 $3,877 25 2012 $4,069 $3,877 26 2013 $4,069 $3,877 27 2014 $4,069 $3,877 28 2015 $4,069 $3,877 29 2016 30 2017 31 2018 32 2019 33 2020 34 2021 35 2022 36 2023 37 2024 ________ _______ $102,710 $97,862 1/ ACC jurisdictional share is approximately 95.27%. ARIZONA PUBLIC SERVICE COMPANY SCHEDULE OF DECOMMISSIONING AMOUNTS INCLUDED IN COST OF SERVICE PALO VERDE UNIT III (Thousands of dollars) (APS Share) Annual Contribution ACC 1/ Required to Jurisdiction Line Year Decommission Amount - ---- ---- ------------ --------- 1 1988 $1,435 $1,367 2 1989 $1,901 $1,811 3 1990 $1,901 $1,811 4 1991 $1,912 $1,822 5 1992 $2,052 $1,955 6 1993 $3,574 $3,405 7 1994 $3,574 $3,405 8 1995 $3,574 $3,405 9 1996 $3,574 $3,405 10 1997 $3,574 $3,405 11 1998 $3,574 $3,405 12 1999 $3,574 $3,405 13 2000 $3,574 $3,405 14 2001 $3,574 $3,405 15 2002 $3,574 $3,405 16 2003 $3,574 $3,405 17 2004 $3,574 $3,405 18 2005 $3,574 $3,405 19 2006 $3,574 $3,405 20 2007 $3,574 $3,405 21 2008 $3,574 $3,405 22 2009 $3,574 $3,405 23 2010 $3,574 $3,405 24 2011 $3,574 $3,405 25 2012 $3,574 $3,405 26 2013 $3,574 $3,405 27 2014 $3,574 $3,405 28 2015 $3,574 $3,405 29 2016 $3,574 $3,405 30 2017 $3,574 $3,405 31 2018 $3,574 $3,405 32 2019 $3,574 $3,405 33 2020 $3,574 $3,405 34 2021 $3,574 $3,405 35 2022 $3,574 $3,405 36 2023 $3,574 $3,405 37 2024 $3,574 $3,405 ------ ------- $130,717 $124,536 1/ ACC jurisdictional share is approximately 95.27%. ARIZONA PUBLIC SERVICE COMPANY SUMMARY OF DEPRECIATION STUDY DATA AS OF DECEMBER 31, 1992
_______________ ____ ___________ _______ __________ ______ __________ ____________ CURRENT CURRENT ASL ASL DIFFERENCE: FERC DEPREC ANNUAL DEPREC ANNUAL ASL VS CURR FACILITY ACCT DESCRIPTION RATES ACRUAL RATES ACCRUAL ACCRUAL _______________ ____ ___________ _______ __________ ______ __________ ____________ TOTAL STM PROD. 311 STRUCTURES 3.36% 2,959,194 2.93% 2,577,695 (381,499) 312 BOILER PLANT 3.47% 21,882,957 3.16% 19,914,719 (1,968,238) 314 TURBOGENERATORS 3.36% 5,195,391 2.79% 4,315,109 (880,282) 315 ACCESSORY ELECTRIC 3.36% 4,068,955 3.00% 3,632,996 (435,959) 316 MISC. POWER PLANT 3.83% 1,100,596 3.87% 1,112,369 11,773 ----------- ----- ---------- ----------- TOTAL STM PROD. 35,207,093 3.15% 31,552,888 (3,654,205) ----------- ----- ---------- ----------- TOTAL NUCLEAR 321 STRUCTURES 2.86% 17,571,218 2.63% 16,167,849 (1,403,369) 322 REACTOR PLANT 2.86% 26,234,301 2.89% 26,470,174 235,873 322.01 STEAM GENERATORS 2.86% 1,255,693 8.84% 3,882,157 2,626,464 323 TURBOGENERATORS 2.86% 9,511,302 2.73% 9,078,071 (433,231) 324 ACCESSORY ELECTRIC 2.86% 7,555,323 2.81% 7,411,496 (143,827) ----------- ----- ---------- ----------- TOTAL NUCLEAR 65,846,735 3.83% 67,028,899 1,182,164 ----------- ----- ---------- ----------- HYDRAULIC PROD. 331 STRUCTURES 0.00% 0 2.16% 1,609 1,609 332 RESERVOIRS & DAMS 2.61% 25,890 2.16% 21,395 (4,495) 333 WATER WHEELS & 2.76% 4,339 2.16% 3,391 (948) TURBINES 334 ACCESSORY ELECTRIC 3.06% 13,892 2.16% 9,792 (4,100) 335 MISC. POWER PLANT 6.24% 6,804 2.16% 2,352 (4,452) 336 ROADS & BRIDGES 3.32% 1,639 2.16% 1,065 (574) ----------- ----- ---------- ----------- TOTAL HYDRAULIC 52,562 2.16% 39,602 (12,960) ----------- ----- ---------- ----------- 341 STRUCTURES 3.45% 119,420 4.71% 171,185 51,765 342 FUEL HOLDERS 3.03% 362,573 4.62% 580,476 217,903 344 GENERATORS 3.23% 1,615,002 4.55% 2,275,003 660,001 345 ACCESSORY ELECTRIC 3.13% 202,687 4.56% 295,288 92,601 346 MISC. POWER PLANT 4.00% 42,667 7.12% 75,946 33,279 ----------- ----- ---------- ----------- TOTAL COMB. CYCLE 2,342,348 5.11% 3,397,898 1,055,550 ----------- ----- ---------- ----------- TOTAL OTHER PROD. 341 STRUCTURES 3.45% 53,399 3.26% 39,203 (14,196) 342 FUEL HOLDERS 3.03% 194,771 3.26% 192,080 (2,691) 343 PRIME MOVERS 3.03% 967,531 2.96% 939,168 (28,363) 344 GENERATORS 3.23% 467,442 3.26% 528,126 60,684 345 ACCESSORY ELECTRIC 3.13% 211,811 3.11% 214,048 2,237 346 MISC. POWER PLANT 4.00% 68,904 3.39% 56,877 (12,027) ----------- ----- ---------- ----------- TOTAL OTHER PROD. 1,963,858 3.21% 1,969,502 5,644 ----------- ----- ---------- ----------- TRANSMISSION 352 STRUCTURES 2.00% 371,131 2.10% 389,687 18,557 353 STATION EQUIPMENT 3.09% 8,432,837 2.66% 7,251,538 (1,181,299) 354 TOWERS & FIXTURES 2.17% 1,536,838 2.17% 1,534,477 (2,361) 355 POLES & FIXTURES 3.71% 4,054,810 3.02% 3,304,239 (750,571) 356 OVERHEAD CONDUCTORS 2.60% 3,856,484 2.36% 3,505,895 (350,589) 357 UNDERGROUND CONDUIT 2.10% 108,368 2.10% 108,368 (0) 358 UNDERGROUND CONDUCTORS 3.00% 376,184 2.10% 263,328 (112,855) ----------- ----- ---------- ----------- TOTAL TRANSMISSION 18,736,651 2.36% 16,357,533 (2,379,118) ----------- ----- ---------- ----------- DISTRIBUTION 361 STRUCTURES 2.50% 345,743 2.88% 397,605 51,861 362 STATION EQUIPMENT 3.39% 3,485,087 3.85% 3,954,035 468,949 364 POLES, TOWERS, & 3.09% 6,463,800 2.97% 6,218,998 (244,802) FIXTURES 365 OVERHEAD CONDUCTORS 2.00% 2,664,056 2.08% 2,764,586 100,530 366 UNDERGROUND CONDUIT 2.27% 1,766,205 1.83% 1,426,450 (339,755) 367 UNDERGROUND CONDUCTORS 3.33% 14,107,834 4.07% 17,260,169 3,152,334 368.1 LINE XFMRS-POLE TOP 3.13% 4,089,994 3.00% 3,920,122 (169,872) 368.2 LINE XFMRS-PAD MOUNTED 3.13% 5,183,492 3.28% 5,433,972 250,480 369 SERVICES 3.50% 3,919,625 3.43% 3,844,966 (74,660) 370 METERS 2.57% 2,485,532 3.85% 3,719,742 1,234,210 371 INSTAL. ON CUSTOMER 6.43% 727,710 4.33% 490,421 (237,288) PREM. 373 STREET LIGHTS 3.00% 1,230,351 3.75% 1,537,939 307,588 ----------- ----- ---------- ----------- TOTAL DISTRIBUTION 46,469,428 3.28% 50,969,004 4,499,576 ----------- ----- ---------- ----------- 390 STRUCTURES 2.62% 2,174,566 3.50% 2,904,955 730,389 391 OFFICE FURNITURE 5.00% 998,562 3.96% 790,861 (207,701) 391.1 COMPUTER EQUIPMENT 12.50% 9,330,555 12.50% 9,330,555 0 391.2 OFFICE EQUIPMENT 11.11% 517,027 7.07% 329,084 (187,943) 393 STORES EQUIPMENT 2.50% 32,258 2.50% 32,258 0 394 TOOLS, SHOP & GARAGE 7.31% 992,895 4.00% 543,308 (449,587) 395 LAB EQUIPMENT 6.67% 78,930 6.67% 78,890 (39) 397 COMMUNICATIONS 6.25% 4,206,807 4.76% 3,205,187 (1,001,621) 398 MISC. EQUIPMENT 5.00% 66,613 5.00% 66,613 0 ----------- ----- ---------- ----------- TOTAL GENERAL PLANT 18,398,214 5.55% 17,281,711 (1,116,503) ----------- ----- ---------- ----------- TOTAL DEPREC. PLANT IN SERVICE 189,016,890 188,597,037 (419,853) =========== ===== =========== ===========
EX-15.1 3 LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION Exhibit 15.1 August 11, 1994 Arizona Public Service Company Post Office Box 53999 Phoenix, Arizona 85072-3999 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Arizona Public Service Company for the periods ended June 30, 1994 and 1993, as indicated in our report dated August 11, 1994; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, is incorporated by reference in Registration Statement Nos. 33-51085, 33-57822 and 33-61228 on Form S-3. We are also aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act, is not considered a part of the registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. DELOITTE & TOUCHE Phoenix, Arizona -----END PRIVACY-ENHANCED MESSAGE-----