Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Form 10-K 61± 318K
2: EX-3.1 Bylaws 16± 69K
3: EX-3.2 Resolution 1 9K
4: EX-10.1 Amendment No. 1 7± 27K
5: EX-10.2 Amendment No. 1 7± 28K
6: EX-10.3 Amendment No. 2 7± 26K
7: EX-10.4A 1995 Key Employee Variable Pay Plan 1 6K
8: EX-10.5A 1995 Officers Variable Pay Plan 1 6K
9: EX-10.6A Letter Agreement 2± 12K
10: EX-10.7A Retirement Plan 7± 40K
11: EX-10.8AC Executive Agreement 15± 69K
12: EX-10.9AC Executive Agreement 15± 66K
13: EX-23.1 Independent Auditors' Consent 1 7K
14: EX-27 Financial Data Schedule 1 8K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
400 North Fifth Street, P.O. Box 53999
Phoenix, Arizona 85072-3999 (602) 250-1000
(Address of principal executive offices, (Registrant's telephone number,
including zip code) including area code)
--------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
--------------------------------------------------------------------------------
Adjustable Rate Cumulative Preferred Stock, ......... New York Stock Exchange
Series Q, $100 Par Value
$1.8125 Cumulative Preferred Stock, ................. New York Stock Exchange
Series W, $25 Par Value
10% Junior Subordinated Deferrable Interest ......... New York Stock Exchange
Debentures, Series A, Due 2025
Securities registered pursuant to Section 12(g) of the Act:
Cumulative Preferred Stock
(Title of class)
(See Note 3 of Notes to Financial Statements in Item 8 for dividend
rates, series designations (if any), and par values)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate Market Value
of Voting Stock Held by
Non-affiliates of the
Title of Each Class Shares Outstanding registrant as of
of Voting Stock as of March 22, 1995 March 22, 1995
--------------------------------------------------------------------------------
Cumulative Preferred Stock..... 5,624,199 $228,811,223(a)
--------------------------------------------------------------------------------
(a) COMPUTED, WITH RESPECT TO SHARES LISTED ON THE NEW YORK STOCK EXCHANGE, BY
REFERENCE TO THE CLOSING PRICE ON THE COMPOSITE TAPE ON MARCH 22, 1995, AS
REPORTED BY THE WALL STREET JOURNAL, AND WITH RESPECT TO NON-LISTED SHARES, BY
DETERMINING THE YIELD ON LISTED SHARES AND ASSUMING A MARKET VALUE FOR NON-
LISTED SHARES WHICH WOULD RESULT IN THAT SAME YIELD.
As of March 29, 1995, there were issued and outstanding 71,264,947 shares of
the registrant's common stock, $2.50 par value, all of which were held
beneficially and of record by Pinnacle West Capital Corporation.
Documents Incorporated by Reference
Portions of the registrant's definitive proxy statement relating to its
annual meeting of shareholders to be held on May 16, 1995, are incorporated by
reference into Part III hereof.
TABLE OF CONTENTS
GLOSSARY................................................................ 1
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
Supplemental Item.
Executive Officers of the Registrant........................ 12
PART II
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters.............................................. 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 40
PART III
Item 10. Directors and Executive Officers of the Registrant......... 40
Item 11. Executive Compensation..................................... 40
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................................ 40
Item 13. Certain Relationships and Related Transactions............. 40
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement
Schedules,
and Reports on Form 8-K.................................... 41
SIGNATURES.............................................................. 54
GLOSSARY
ACC -- Arizona Corporation Commission
AFUDC -- Allowance for Funds Used During Construction
Amendments -- Clean Air Act Amendments of 1990
ANPP -- Arizona Nuclear Power Project, also known as Palo Verde
ANPP Participation Agreement -- Arizona Nuclear Power Project Participation
Agreement, dated as of August 23, 1973, as amended
Cholla -- Cholla Power Plant
Cholla 4 -- Unit 4 of the Cholla Power Plant
Company -- Arizona Public Service Company
DOE -- United States Department of Energy
EPA -- United States Environmental Protection Agency
Energy Act -- National Energy Policy Act of 1992
EPEC -- El Paso Electric Company
FASB -- Financial Accounting Standards Board
FERC -- Federal Energy Regulatory Commission
Four Corners -- Four Corners Power Plant
ITC -- Investment Tax Credit
kW -- Kilowatt, one thousand watts
kWh -- Kilowatt-hour, one thousand watts per hour
Mortgage -- Mortgage and Deed of Trust, dated as of July 1, 1946, as
supplemented and amended
MWh -- Megawatt hours, one million watts per hour
1935 Act -- Public Utility Holding Company Act of 1935
NGS -- Navajo Generating Station
NRC -- Nuclear Regulatory Commission
PacifiCorp -- An Oregon-based utility company
Palo Verde -- Palo Verde Nuclear Generating Station
Pinnacle West -- Pinnacle West Capital Corporation, an Arizona corporation, the
Company's parent
SEC -- Securities and Exchange Commission
SFAS No. 71 -- Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation"
SFAS No. 106 -- Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions"
SFAS No. 109 -- Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes"
SFAS No. 112 -- Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits"
SRP -- Salt River Project Agricultural Improvement and Power District
USEC -- United States Enrichment Corporation
PART I
ITEM 1. BUSINESS
The Company
The Company was incorporated in 1920 under the laws of Arizona and is
engaged principally in serving electricity in the State of Arizona. The
principal executive offices of the Company are located at 400 North Fifth
Street, Phoenix, Arizona 85004 (telephone 602-250-1000). The Company currently
employs approximately 6,535 people, which includes employees assigned to joint
projects where the Company is project manager.
The Company serves approximately 681,000 customers in an area that includes
all or part of 11 of Arizona's 15 counties. During 1994, no single purchaser or
user of energy accounted for more than 3% of total electric revenues.
Pinnacle West owns all of the outstanding shares of the Company's common
stock. Pursuant to a Pledge Agreement, dated as of January 31, 1990, between
Pinnacle West and Citibank, N.A., as Collateral Agent (the "Pledge Agreement"),
and as part of a restructuring of substantially all of its outstanding
indebtedness, Pinnacle West granted certain of its lenders a security interest
in all of the Company's outstanding common stock. Until the Collateral Agent and
Pinnacle West receive notice of the occurrence and continuation of an Event of
Default (as defined in the Pledge Agreement), Pinnacle West is entitled to
exercise or refrain from exercising any and all voting and other consensual
rights pertaining to the common stock. As to matters other than the election of
directors, Pinnacle West agreed not to exercise or refrain from exercising any
such rights if, in the Collateral Agent's judgment, such action would have a
material adverse effect on the value of the common stock. After notice of an
Event of Default, the Collateral Agent would have the right to vote the common
stock.
Industry and Company Issues
The utility industry continues to experience a number of challenges.
Depending on the circumstances of a particular utility, these may include (i)
competition in general from numerous sources (see "Competition" below); (ii)
difficulties in meeting government imposed environmental requirements; (iii) the
necessity to make substantial capital outlays for transmission and distribution
facilities; (iv) uncertainty regarding projected electrical demand growth; (v)
controversies over electromagnetic fields; (vi) controversies over the safety
and use of nuclear power; (vii) issues related to spent fuel and low-level waste
(see "Generating Fuel" below); and (viii) increasing costs of wages and
materials.
Competition
Certain territory adjacent to or within areas served by the Company is
served by other investor-owned utilities (notably Tucson Electric Power Company
serving electricity in the Tucson area, Southwest Gas Corporation serving gas
throughout the state, and Citizens Utilities Company serving electricity and gas
in various locations throughout the state) and a number of cooperatives,
municipalities, electrical districts, and similar types of governmental
organizations (principally SRP serving electricity in various areas in and
around Phoenix).
Electric utilities have historically operated in a highly-regulated
environment that provides limited opportunities for direct competition in
providing electric service to their customers. The National Energy Policy Act of
1992 (the "Energy Act") has far-reaching implications for the Company by moving
utilities toward a more competitive environment. The Energy Act is designed,
among other things, to promote competition among utility and non- utility
generators by amending the Public Utility Holding Company Act of 1935 (the "1935
Act") to exempt a new class of independent power producers that are not subject
to regulation under the 1935 Act. The Energy Act also amends the Federal Power
Act to allow the FERC to order electric utilities to transmit, or "wheel,"
wholesale power for others. The FERC is prohibited under the Energy Act from
requiring utilities to provide transmission access to retail customers, and
there remains uncertainty about a state's ability to authorize such transmission
access to and for retail electric customers.
One of the issues that must be addressed responsibly is the recovery in a
more competitive environment of the carrying value of assets (including those
referred to in Note 1a of Notes to Financial Statements) acquired or recorded
under the existing regulatory environment. Pursuant to a 1994 rate settlement
(see Note 2 of Notes to Financial Statements), the Company and the ACC staff
will develop certain procedures that are responsive to the competitive forces in
larger customer segments, with the objective of making joint recommendations to
the ACC in 1995. A separate ACC proceeding on competition was opened in mid-1994
and is expected to continue for some months.
As the forces of competition continue to impact the industry, it will become
clearer as to what customer sectors and what regions will be most affected and
what strategies are best to deal with those forces. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Competition" in
Item 7 for a discussion of some of the Company's strategies.
Capital Structure
The capital structure of the Company (which, for this purpose, includes
short-term borrowings and current maturities of long-term debt) as of December
31, 1994 is tabulated below.
Amount Percentage
---------- ----------
(Thousands
of
Dollars)
Long-Term Debt Less Current Maturities:
First mortgage bonds................................ $1,740,071
Other............................................... 441,761
----------
Total long-term debt less current maturities...... 2,181,832 52.5%
----------
Non-Redeemable Preferred Stock........................ 193,561 4.7
----------
Redeemable Preferred Stock............................ 75,000 1.8
----------
Common Stock Equity:
Common stock, $2.50 par value, 100,000,000 shares
authorized; 71,264,947 shares outstanding......... 178,162
Premiums and expenses............................... 1,039,303
Retained earnings................................... 353,655
----------
Total common stock equity......................... 1,571,120 37.8
----------
Total capitalization............................ 4,021,513
Current Maturities of Long-Term Debt.................. 3,428 .1
Short-Term Borrowings................................. 131,500 3.1
---------- --------
Total........................................... $4,156,441 100.0%
---------- --------
---------- --------
See Notes 3, 4, and 5 of Notes to Financial Statements in Item 8.
On January 12, 1995, the Company issued $75 million of its 10% junior
subordinated deferrable interest debentures, Series A (MIDS), due 2025, and
applied the net proceeds to the repayment of short-term borrowings incurred for
the redemption of preferred stock in 1994. On March 2, 1995, the Company
redeemed $49.15 million in aggregate principal amount of the Company's First
Mortgage Bonds, 10.25% Series due 2000 (the "10.25% Bonds").
So long as any of the Company's first mortgage bonds are outstanding, the
Company is required for each calendar year to deposit with the trustee under its
Mortgage cash in a formularized amount related to net additions to the Company's
mortgaged utility plant; however, the Company may satisfy all or any part of
this "replacement fund" requirement by utilizing redeemed or retired bonds, net
property additions, or property retirements. For 1994, the replacement fund
requirement amounted to approximately $125 million. Many, though not all, of the
bonds issued by the Company under the Mortgage are redeemable at their par value
plus accrued interest with cash deposited by the Company in the replacement
fund, subject in many cases to a period of time after the original issuance of
the bonds during which they may not be so redeemed and/or to other restrictions
on any such redemption. The cash deposited with the trustee by the Company in
partial satisfaction of its 1994 replacement fund requirements was used to
redeem the 10.25% Bonds at their principal amount plus accrued interest.
Rates
State. The ACC has regulatory authority over the Company in matters relating
to retail electric rates and the issuance of securities. See Note 2 of Notes to
Financial Statements in Item 8 for a discussion of the 1994 retail rate
settlement agreement between the Company and the ACC.
Federal. The Company's rates for wholesale power sales and transmission
services are subject to regulation by the FERC. During 1994, approximately 6% of
the Company's electric operating revenues resulted from such sales and charges.
For most wholesale transactions regulated by the FERC, a fuel adjustment clause
results in monthly adjustments for changes in the actual cost of fuel for
generation and in the fuel component of purchased power expense.
Arizona Corporation Commission Petition
Pinnacle West and its subsidiaries, including the Company, are currently
exempt from registration under the 1935 Act; however, the SEC has the authority
to revoke or condition an exemption if it appears that any question exists as to
whether the exemption may be detrimental to the public interest or the interest
of investors or consumers. In May 1990, the ACC filed a petition with the SEC
requesting the SEC to revoke or modify the Pinnacle West's exemption under the
1935 Act. To date, the SEC has not taken any action with respect to the ACC
petition. The Company cannot predict what action, if any, the SEC may take with
respect to such petition. The Company does not believe that the revocation or
modification of the Pinnacle West exemption under the 1935 Act, if acted on by
the SEC, would have a material adverse effect on the operations or financial
position of the Company.
Construction Program
Present construction plans exclude any major baseload generating plants.
Utility construction expenditures for the years 1995 through 1997 are therefore
expected to be primarily for expanding transmission and distribution
capabilities to meet customer growth, upgrading existing facilities and for
environmental purposes. Construction expenditures, including expenditures for
environmental control facilities, for the years 1995 through 1997 have been
estimated as follows:
(Millions of Dollars)
By Year By Major Facilities
----------------- ----------------------------------------------------
1995 $300 Electric generation $278
1996 257 Electric transmission 59
1997 236 Electric distribution 367
---- General facilities 89
$793 ----
==== $793
====
The amounts for 1995 through 1997 exclude capitalized interest costs and
capitalized property taxes. These amounts include about $27 million each year
for nuclear fuel expenditures. The Company conducts a continuing review of its
construction program. This program and the above estimates are subject to
periodic revisions based upon changes in projections as to system reliability,
system load growth, rates of inflation, the availability and timing of
environmental and other regulatory approvals, the availability and costs of
outside sources of capital, and changes in project construction schedules.
During the years 1992 through 1994, the Company incurred approximately $728
million in construction expenditures and approximately $31 million in additional
capitalized items.
Environmental Matters
Pursuant to the Clean Air Act, the EPA has adopted regulations, applicable
to certain federally-protected areas, that address visibility impairment that
can be reasonably attributed to specific sources. In September 1991, the EPA
issued a final rule that would limit sulfur dioxide emissions at NGS. Compliance
with the emission limitation becomes applicable to NGS Units 1, 2, and 3 in
1997, 1998, and 1999, respectively. SRP, the NGS operating agent, has estimated
a capital cost of $500 million, most of which will be incurred from 1995 through
1998, and annual operations and maintenance costs of approximately $14 million
for all three units, for NGS to meet these requirements. The Company will be
required to fund 14% of these expenditures.
The Clean Air Act Amendments of 1990 (the "Amendments") became effective on
November 15, 1990. The Amendments address, among other things, "acid rain,"
visibility in certain specified areas, toxic air pollutants, and the
nonattainment of national ambient air quality standards. With respect to "acid
rain," the Amendments establish a system of sulfur dioxide emissions
"allowances." Each existing utility unit is granted a certain number of
"allowances." On March 5, 1993, the EPA promulgated rules listing allowance
allocations applicable to Company-owned plants, which allocations will begin in
the year 2000. Based on those allocations, the Company will have sufficient
allowances to permit continued operation of its plants at current levels without
installing additional equipment. In addition, the Amendments require the EPA to
set nitrogen oxides emissions limitations which would require certain plants to
install additional pollution control equipment. On March 22, 1994, the EPA
issued rules for nitrogen oxides emissions limitations; however, on November 29,
1994, the United States Court of Appeals for the District of Columbia Circuit
vacated the rules and remanded them to the EPA for further consideration. The
EPA has not yet proposed revised rules.
With respect to protection of visibility in certain specified areas, the
Amendments require the EPA to complete a study by November 1995 concerning
visibility impairment in those areas and identification of sources contributing
to such impairment. Interim findings of this study have indicated that any
beneficial effect on visibility as a result of the Amendments would be offset by
expected population and industry growth. The EPA has established a "Grand Canyon
Visibility Transport Commission" to complete a study by November 1995 on
visibility impairment in the "Golden Circle of National Parks" in the Colorado
Plateau. NGS, Cholla, and Four Corners are located near the "Golden Circle of
National Parks." Based on the recommendations of the Commission, the EPA may
require additional emissions controls at various sources causing visibility
impairment in the "Golden Circle of National Parks" and may limit economic
development in several western states. The Company cannot currently estimate the
capital expenditures, if any, which may be required as a result of the EPA
studies and the Commission's recommendations.
With respect to hazardous air pollutants emitted by electric utility steam
generating units, the Amendments require two studies. The results of the first
study indicated an impact from mercury emissions from such units in certain
unspecified areas; however, the EPA has not yet stated whether or not emissions
limitations will be imposed. Next, the EPA will complete a general study by
November 1995 concerning the necessity of regulating such units under the
Amendments. Due to the lack of historical data, and because the Company cannot
speculate as to the ultimate requirements by the EPA, the Company cannot
currently estimate the capital expenditures, if any, which may be required as a
result of these studies.
Certain aspects of the Amendments may require related expenditures by the
Company, such as permit fees, none of which the Company expects to have a
material impact on its financial position.
Generating Fuel
Coal, nuclear, gas, and other contributions to total net generation of
electricity by the Company in 1994, 1993, and 1992, and the average cost to the
Company of those fuels (in dollars per MWh), were as follows:
[Enlarge/Download Table]
Coal Nuclear Gas Other All Fuels
------------------------ ------------------------- ------------------------ ------------------------ ------------
Percent of Average Percent of Average Percent of Average Percent of Average Average
Generation Cost Generation Cost Generation Cost Generation Cost Cost
------------- --------- ------------- ---------- ------------- --------- ------------- --------- ------------
1994
(estimate) 59.7% $13.84 33.8% $6.09 6.3% $24.64 0.2% $16.26 $11.90
1993........ 62.3 12.95 32.4 6.17 5.1 31.53 0.2 18.32 11.70
1992........ 58.8 13.06 36.4 5.84 4.5 31.27 0.3 20.75 11.26
Other includes oil and hydro generation.
The Company believes that Cholla has sufficient reserves of low sulfur coal
committed to that plant for the next five years, the term of the existing coal
contract. Sufficient reserves of low sulfur coal are available to continue
operating Cholla for its useful life. The Company also believes that Four
Corners and NGS have sufficient reserves of low sulfur coal available for use by
those plants to continue operating them for their useful lives. The current
sulfur content of coal being used at Four Corners, NGS, and Cholla is
approximately 0.8%, 0.6%, and 0.4%, respectively. In 1994, average prices paid
for coal supplied from reserves dedicated under the existing contracts were
relatively stable, although applicable contract clauses permit escalations under
certain conditions. In addition, major price adjustments can occur from time to
time as a result of contract renegotiation.
NGS and Four Corners are located on the Navajo Reservation and held under
easements granted by the federal government as well as leases from the Navajo
Tribe. See "Properties" in Item 2. The Company purchases all of the coal which
fuels Four Corners from a coal supplier with a long-term lease of coal reserves
owned by the Navajo Tribe and for NGS from a coal supplier with a long-term
lease with the Navajo and Hopi Tribes. The Company purchases all of the coal
which fuels Cholla from a coal supplier who mines all of the coal under a
long-term lease of coal reserves owned by the Navajo Tribe, the federal
government, and private landholders.
The Company is a party to contracts with twenty-six natural gas operators
and marketers which allow the Company to purchase natural gas in the method it
determines to be most economic. During 1994, the principal sources of the
Company's natural gas generating fuel were 21 of these companies. The Company is
currently purchasing the majority of its natural gas requirements from twelve
companies pursuant to contracts. The Company's natural gas supply is transported
pursuant to a firm transportation service contract between the Company and El
Paso Natural Gas Company. The Company continues to analyze the market to
determine the source and method of meeting its natural gas requirements.
The fuel cycle for Palo Verde is comprised of the following stages: (1) the
mining and milling of uranium ore to produce uranium concentrates, (2) the
conversion of uranium concentrates to uranium hexafluoride, (3) the enrichment
of uranium hexafluoride, (4) the fabrication of fuel assemblies, (5) the
utilization of fuel assemblies in reactors, and (6) the storage of spent fuel
and the disposal thereof. The Palo Verde participants have made arrangements
through contract flexibilities to obtain quantities of uranium concentrates
anticipated to be sufficient to meet operational requirements through 1997.
Existing contracts and options could be utilized to meet approximately 80% of
requirements in 1998 and 1999 and 70% of requirements from 2000 through 2002.
Spot purchases in the uranium market will be made, as appropriate, in lieu of
any uranium that might be obtained through contract flexibilities and options.
The Palo Verde participants have contracted for all conversion services required
through 2000 and with options for up to 70% through 2002. The Palo Verde
participants, including the Company, have an enrichment services contract with
USEC which obligates USEC to furnish enrichment services required for the
operation of the three Palo Verde units over a term expiring in September 2002,
with options to continue through September 2007. In addition, existing contracts
will provide fuel assembly fabrication services for at least ten years from the
date of operation of each Palo Verde unit, and through contract options,
approximately fifteen additional years are available. The Energy Act includes an
assessment for decontamination and decommissioning of DOE's enrichment
facilities. The total amount of this assessment that the Company expects for
Palo Verde will be approximately $3 million per year, plus escalation for
inflation, for fifteen years beginning in 1993. The Company is required to fund
29.1% of this assessment.
Existing spent fuel storage facilities at Palo Verde have sufficient
capacity with certain modifications to store all fuel expected to be discharged
from normal operation of all Palo Verde units through at least the year 2005.
Pursuant to the Nuclear Waste Policy Act of 1982, as amended in 1987 (the "Waste
Act"), DOE is obligated to accept and dispose of all spent nuclear fuel and
other high-level radioactive wastes generated by all domestic power reactors.
The NRC, pursuant to the Waste Act, also requires operators of nuclear power
reactors to enter into spent fuel disposal contracts with DOE. The Company, on
its own behalf and on behalf of the other Palo Verde participants, has executed
a spent fuel disposal contract with DOE. The Waste Act also obligates DOE to
develop the facilities necessary for the permanent disposal of all spent fuel
generated, and to be generated, by domestic power reactors and to have the first
such facility in operation by 1998 under prescribed procedures. In November
1989, DOE reported that such permanent disposal facility will not be in
operation until 2010. As a result, under DOE's current criteria for shipping
allocation rights, Palo Verde's spent fuel shipments to the DOE permanent
disposal facility would begin in approximately 2025. In addition, the Company
believes that on-site storage of spent fuel may be required beyond the life of
Palo Verde's generating units. The Company currently believes that alternative
interim spent fuel storage methods are or will be available on-site or off-site
for use by Palo Verde to allow its continued operation beyond 2005 and to safely
store spent fuel until DOE's scheduled shipments from Palo Verde begin.
There are no existing off-site facilities for storage or disposal of
low-level waste available for Palo Verde, so the waste is currently being stored
on-site until an off-site location becomes available. The Company currently
believes that interim low-level waste storage methods are or will be available
for use by Palo Verde to allow its continued operation and to safely store
low-level waste until a permanent disposal facility is available.
While believing that scientific and financial aspects of the issues with
respect to spent fuel and low-level waste can be resolved satisfactorily, the
Company acknowledges that their ultimate resolution in a timely fashion will
require political resolve and action on national and regional scales which it is
less able to predict.
Palo Verde Nuclear Generating Station
Regulatory. Operation of each of the three Palo Verde units requires an
operating license from the NRC. Full power operating licenses for Units 1, 2,
and 3 were issued by the NRC in June 1985, April 1986, and November 1987,
respectively. The full power operating licenses, each valid for a period of
approximately 40 years, authorize the Company, as operating agent for Palo
Verde, to operate the three Palo Verde units at full power.
Steam Generators. See "Palo Verde Nuclear Generating Station" in Note 10 of
Notes to Financial Statements in Item 8 for a discussion of issues relating to
the Palo Verde steam generators.
Palo Verde Liability and Insurance Matters. See "Palo Verde Nuclear
Generating Station" in Note 10 of Notes to Financial Statements in Item 8 for a
discussion of the insurance maintained by the Palo Verde participants, including
the Company, for Palo Verde.
Department of Labor Matter. By letter dated July 7, 1993, the NRC advised
the Company that, as a result of a Recommended Decision and Order by a
Department of Labor Administrative Law Judge (the "ALJ") finding that the
Company discriminated against a former contract employee at Palo Verde because
he engaged in "protected activities" (as defined under federal regulations), the
NRC intended to schedule an enforcement conference with the Company. Following
the ALJ's finding, the Company investigated various elements of both the
substantive allegations and the manner in which the U.S. Department of Labor
(the "DOL") proceedings were conducted. As a result of that investigation, the
Company determined that one of its employees had falsely testified during the
proceedings, that there were inconsistencies in the testimony of another
employee, and that certain documents were requested in, but not provided during,
discovery. The two employees in question are no longer with the Company. The
Company provided the results of its investigation to the ALJ, who referred
matters relating to the conduct of two former employees of the Company to the
U.S. Attorney's office in Phoenix, Arizona. On December 15, 1993, the Company
and the former contract employee who had raised the DOL claim entered into a
settlement agreement, which was approved by the Secretary of Labor on March 21,
1994. On May 19, 1994, the Secretary of Labor rescinded the March 21 order and
remanded the matter to the responsible Administrative Law Judges for
clarification. On August 9, 1994 and September 20, 1994 the Administrative Law
Judges again recommended to the Secretary of Labor that the settlement be
approved. By letter dated August 10, 1993, the Company also provided the results
of its investigation to the NRC, and advised the NRC that, as a result of the
Company's investigation, the Company had changed its position opposing the
finding of discrimination. The NRC is investigating this matter and the Company
is fully cooperating with the NRC in this regard.
Water Supply
Assured supplies of water are important both to the Company (for its
generating plants) and to its customers. However, conflicting claims to limited
amounts of water in the southwestern United States have resulted in numerous
court actions in recent years.
Both groundwater and surface water in areas important to the Company's
operations have been the subject of inquiries, claims, and legal proceedings
which will require a number of years to resolve. The Company is one of a number
of parties in a proceeding before a state court in New Mexico to adjudicate
rights to a stream system from which water for Four Corners is derived. (State
of New Mexico, in the relation of S.E. Reynolds, State Engineer vs. United
States of America, City of Farmington, Utah International, Inc., et al., San
Juan County, New Mexico, District Court No. 75-184). An agreement reached with
the Navajo Tribe in 1985, however, provides that if Four Corners loses a portion
of its rights in the adjudication, the Tribe will provide, for a then-agreed
upon cost, sufficient water from its allocation to offset the loss.
A summons served on the Company in early 1986 required all water claimants
in the Lower Gila River Watershed in Arizona to assert any claims to water on or
before January 20, 1987, in an action pending in Maricopa County Superior Court.
(In re The General Adjudication of All Rights to Use Water in the Gila River
System and Source, Supreme Court Nos. WC-79-0001 through WC 79-0004
(Consolidated) [WC-1, WC-2, WC-3 and WC-4 (Consolidated)], Maricopa County Nos.
W-1, W-2, W-3 and W-4 (Consolidated)). Palo Verde is located within the
geographic area subject to the summons, and the rights of the Palo Verde
participants, including the Company, to the use of groundwater and effluent at
Palo Verde is potentially at issue in this action. The Company, as project
manager of Palo Verde, filed claims that dispute the court's jurisdiction over
the Palo Verde participants' groundwater rights and their contractual rights to
effluent relating to Palo Verde and, alternatively, seek confirmation of such
rights. Three of the Company's less-utilized power plants are also located
within the geographic area subject to the summons. The Company's claims dispute
the court's jurisdiction over the Company's groundwater rights with respect to
these plants and, alternatively, seek confirmation of such rights. On December
10, 1992, the Arizona Supreme Court heard oral argument on certain issues in
this matter which are pending on interlocutory appeal. Issues important to the
Company's claims were remanded to the trial court for further action and the
trial court certified its decision for interlocutory appeal to the Arizona
Supreme Court. On September 28, 1994, the Arizona Supreme Court granted review
of the trial court decision. No trial date concerning the water rights claims of
the Company has been set in this matter.
The Company has also filed claims to water in the Little Colorado River
Watershed in Arizona in an action pending in the Apache County Superior Court.
(In re The General Adjudication of All Rights to Use Water in the Little
Colorado River System and Source, Supreme Court No. WC-79-0006 WC-6, Apache
County No. 6417). The Company's groundwater resource utilized at Cholla is
within the geographic area subject to the adjudication and is therefore
potentially at issue in the case. The Company's claims dispute the court's
jurisdiction over the Company's groundwater rights and, alternatively, seek
confirmation of such rights. The parties are in the process of settlement
negotiations with respect to this matter. No trial date concerning the water
rights claims of the Company has been set in this matter.
Although the foregoing matters remain subject to further evaluation, the
Company expects that the described litigation will not have a materially adverse
impact on its operations or financial position.
ITEM 2. PROPERTIES
The Company's present generating facilities have an accredited capacity
aggregating 4,022,410 kW, comprised as follows:
Capacity(kW)
------------
Coal:
Units 1, 2, and 3 at Four Corners, aggregating........... 560,000
15% owned Units 4 and 5 at Four Corners, representing.... 222,000
Units 1, 2, and 3 at Cholla Plant, aggregating........... 590,000
14% owned Units 1, 2, and 3 at the Navajo Plant,
representing........................................... 315,000
-----------
1,687,000
===========
Gas or Oil:
Two steam units at Ocotillo, two steam units at Saguaro,
and one steam unit at Yucca, aggregating............... 468,400(1)
Eleven combustion turbine units, aggregating............. 500,600
Three combined cycle units, aggregating.................. 253,500
-----------
1,222,500
===========
Nuclear:
29.1% owned or leased Units 1, 2, and 3 at Palo Verde,
representing........................................... 1,108,710
===========
Other........................................................ 4,200
===========
----------
(1) West Phoenix steam units (96,300 kW) are currently mothballed.
--------------
The Company's peak one-hour demand on its electric system was recorded on
June 29, 1994 at 4,214,000 kW, compared to the 1993 peak of 3,802,300 kW
recorded on August 2. Taking into account additional capacity then available to
it under purchase power contracts as well as its own generating capacity, the
Company's capability of meeting system demand on June 29, 1994, computed in
accordance with accepted industry practices, amounted to 4,514,300 kW, for an
installed reserve margin of 8.1%. The power actually available to the Company
from its resources fluctuates from time to time due in part to planned outages
and technical problems. The available capacity from sources actually operable at
the time of the 1994 peak amounted to 4,193,500 kW, for a margin of -0.5%. Firm
purchases from neighboring utilities totaling 550 MW were in place at the time
of the 1994 peak, ensuring the Company's ability to meet the load requirement.
NGS and Four Corners are located on land held under easements from the
federal government and also under leases from the Navajo Tribe. The risk with
respect to enforcement of these easements and leases is not deemed by the
Company to be material. The Company is dependent, however, in some measure upon
the willingness and ability of the Navajo Tribe to honor its commitments.
Certain of the Company's transmission lines and almost all of its contracted
coal sources are also located on Indian reservations. See "Generating Fuel" in
Item 1.
On August 18, 1986 and December 19, 1986, the Company entered into a total
of three sale and leaseback transactions under which it sold and leased back
approximately 42% of its 29.1% ownership interest in Palo Verde Unit 2. The
leases under each of the sale and leaseback transactions have initial lease
terms expiring on December 31, 2015. Each of the leases also allows the Company
to extend the term of the lease and/or to repurchase the leased Unit 2 interest
under certain circumstances at fair market value. The leases in the aggregate
require annual payments of approximately $40 million through 1999, approximately
$46 million in 2000, and approximately $49 million through 2015 (see Note 7 of
Notes to Financial Statements in Item 8).
See "Water Supply" in Item 1 with respect to matters having possible impact
on the operation of certain of the Company's power plants, including Palo Verde.
The Company's construction plans are susceptible to changes in forecasts of
future demand on its electric system and in its ability to finance its
construction program. Although its plans are subject to change, present
construction plans exclude any major baseload generating plants. Important
factors affecting the Company's ability to delay the construction of new major
generating units are continuing efforts to upgrade and improve the reliability
of existing generating stations, system load diversity with other utilities, and
continuing efforts in customer demand-side conservation and load management
programs.
In addition to that available from its own generating capacity, the Company
purchases electricity from other utilities under various arrangements. One of
the most important of these is a long-term contract with SRP which may be
canceled by SRP on three years' notice and which requires SRP to make available,
and the Company to pay for, certain amounts of electricity that are based in
large part on customer demand within certain areas now served by the Company
pursuant to a related territorial agreement. The Company believes that the
prices payable by it under the contract are fair to both parties. The generating
capacity available to the Company pursuant to the contract was 304,000 kW until
May, 1994, at which time the capacity increased to 313,000 kW. In 1994, the
Company received approximately 887,650 MWh of energy under the contract and paid
approximately $40 million for capacity availability and energy received.
In September 1990, the Company and PacifiCorp entered into certain
agreements relating principally to sales and purchases of electric power and
electric utility assets, and in July 1991, after regulatory approvals, the
Company sold Cholla 4 to PacifiCorp for approximately $230 million. As part of
the transaction, PacifiCorp agreed to make a firm system sale to the Company for
thirty years during the Company's summer peak season in the amount of 175
megawatts for the first five years, increasing thereafter, at the Company's
option, up to a maximum amount equal to the rated capacity of Cholla 4. After
the first five years, all or part of the sale may be converted to a one-for-one
seasonal capacity exchange. PacifiCorp has the right to purchase from the
Company up to 125 average megawatts of energy per year for thirty years.
PacifiCorp and the Company also entered into a 100 megawatt one-for-one seasonal
capacity exchange to be effective upon the latter of January 1, 1996 or the
completion of certain new transmission projects. In addition, PacifiCorp agreed
to pay the Company (i) $20 million upon commercial operation of 150 megawatts of
peaking capacity constructed by the Company and (ii) $19 million ($9.5 million
of which has been paid) in connection with the construction of transmission
lines and upgrades that will afford PacifiCorp 150 megawatts of northbound
transmission rights. In addition, PacifiCorp secured additional firm
transmission capacity of 30 megawatts, for which approximately $0.5 million was
paid during 1994. In 1994, the Company received 389,110 MWh of energy from
PacifiCorp under these transactions and paid approximately $18 million for
capacity availability and the energy received, and PacifiCorp paid approximately
$0.5 million for approximately 32,000 MWh.
See "El Paso Electric Company Bankruptcy" in Note 10 of Notes to Financial
Statements in Item 8 for a discussion of the filing by EPEC of a voluntary
petition to reorganize under Chapter 11 of the Bankruptcy Code. EPEC has a joint
ownership interest with the Company and others in Palo Verde and Four Corners
Units 4 and 5.
See Notes 4 and 7 of Notes to Financial Statements in Item 8 with respect to
property of the Company not held in fee or held subject to any major
encumbrance.
GRAPHIC
-------
In accordance with Item 304 of Regulation S-T of the Securities Exchange Act of
1934, the Company's Service Territory map contained in this Form 10-K is a map
of the state of Arizona showing the Company's service area, the location of its
major power plants and principal transmission lines, and the location of
transmission lines operated by the Company for others. The major power plants
shown on such map are the Navajo Generating Station located in Coconino County,
Arizona; the Four Corners Power Plant located near Farmington, New Mexico; the
Cholla Power Plant, located in Navajo County, Arizona; the Yucca Power Plant,
located near Yuma, Arizona; and the Palo Verde Nuclear Generating Station,
located about 55 miles west of Phoenix, Arizona (each of which plants is
reflected on such map as being jointly owned with other utilities), as well as
the Ocotillo Power Plant and West Phoenix Power Plant, each located near
Phoenix, Arizona, and the Saguaro Power Plant, located near Tucson, Arizona. The
Company's major transmission lines shown on such map are reflected as running
between the power plants named above and certain major cities in the state of
Arizona. The transmission lines operated for others shown on such map are
reflected as running from the Four Corners Plant through a portion of northern
Arizona to the California border.
ITEM 3. LEGAL PROCEEDINGS
Property Taxes
On June 29, 1990, a new Arizona state tax law was enacted, effective as of
December 31, 1989, which adversely impacted the Company's earnings in tax years
1990 through 1994 by an aggregate amount of approximately $21 million per year,
before income taxes. On December 20, 1990, the Palo Verde participants,
including the Company, filed a lawsuit in the Arizona Tax Court, a division of
the Maricopa County Superior Court, against the Arizona Department of Revenue,
the Treasurer of the State of Arizona, and various Arizona counties, claiming,
among other things, that portions of the new tax law are unconstitutional.
(Arizona Public Service Company, et al. v. Apache County, et al., No. TX
90-01686 (Consol.), Maricopa County Superior Court). In December 1992, the court
granted summary judgment to the taxing authorities, holding that the law is
constitutional. The Company has appealed this decision to the Arizona Court of
Appeals. The Company cannot currently predict the ultimate outcome of this
matter.
See "Water Supply" and "Palo Verde Nuclear Generating Station" in Item 1 and
"El Paso Electric Company Bankruptcy" in Note 10 of Notes to Financial
Statements in Item 8 in regard to pending or threatened litigation and other
disputes.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report, through the solicitation of
proxies or otherwise.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS
OF THE REGISTRANT
The Company's executive officers are as follows:
Age at
Name March 1, 1995 Position(s) at March 1, 1995
---- ------------- ----------------------------
Richard Snell 64 Chairman of the Board of Directors
(1)
O. Mark DeMichele 60 President and Chief Executive
Officer(1)
William J. Post 44 Senior Vice President and Chief
Operating Officer(1)
Jaron B. Norberg 57 Executive Vice President and Chief
Financial Officer(1)
Shirley A. Richard 47 Executive Vice President, Customer
Service, Marketing and Corporate
Relations
William L. Stewart 51 Executive Vice President, Nuclear
Jan H. Bennett 47 Vice President, Customer Service
Jack E. Davis 48 Vice President, Generation and
Transmission
Armando B. Flores 51 Vice President, Human Resources
James M. Levine 45 Vice President, Nuclear Production
Richard W. MacLean 48 Vice President, Environmental,
Health and Safety
E. C. Simpson 46 Vice President, Nuclear Support
Jack A. Bailey 41 Vice President, Nuclear Engineering
and Projects
William J. Hemelt 41 Controller
Nancy C. Loftin 41 Secretary and Corporate Counsel
Nancy E. Newquist 43 Treasurer
----------
(1) Member of the Board of Directors.
----------------------------------------
The executive officers of the Company are elected no less often than
annually and may be removed by the Board of Directors at any time. The terms
served by the named officers in their current positions and the principal
occupations (in addition to those stated in the table and exclusive of
directorships) of such officers for the past five years have been as follows:
Mr. Snell was elected to his present position as of February 1990. He was
also elected Chairman of the Board, President, and Chief Executive Officer of
Pinnacle West at that time. Previously, he was Chairman of the Board (1989-
1992) and Chief Executive Officer (1989-1990) of Aztar Corporation and Chairman
of the Board, President, and Chief Executive Officer of Ramada Inc.
(1981-1989).
Mr. DeMichele was elected President in September 1982 and became Chief
Executive Officer as of January 1988.
Mr. Post was elected to his present position in September 1994. Prior to
that time he was Senior Vice President, Planning, Information and Financial
Services (since June 1993), and Vice President, Finance & Rates (since April
1987).
Mr. Norberg was elected to his present position in July 1986.
Ms. Richard was elected to her present position in January 1989.
Mr. Stewart was elected to his present position in May 1994. Prior to that
time he was Senior Vice President -- Nuclear for Virginia Power (since 1989).
Mr. Bennett was elected to his present position in May 1991. Prior to that
time he was Director, Customer Service (September 1990 to May 1991), and
Manager, State Region -- Customer Service (January 1988 to September 1990).
Mr. Davis was elected to his present position in June 1993. Prior to that
time he was Director, Transmission Systems (January 1993-June 1993); Director,
Fossil Generation (June 1992-December 1992); Director, System Development and
Power Operations (May 1990-May 1992); and Manager, Power Contracts (March
1979-May 1990).
Mr. Flores was elected to his present position in December 1991. Prior to
that time, he was Director -- Human Resources (1990 to 1991) and Manager --
Employment (1989 to 1990) of GENCORP, Propulsion Division, Aerojet Group.
Mr. Levine was elected to his present position in September 1989.
Mr. MacLean was elected to his present position in December 1991. Prior to
that time he held the following positions at General Electric (Corporate
Environmental Programs): Manager, EHS Resource Development (January to
December 1991); and Manager, Environmental Protection (February 1986 to
January 1991).
Mr. Simpson was elected to his present position in February 1990.
Mr. Bailey was elected to his present position in April 1994. Prior to that
time he was Assistant Vice President, Nuclear Engineering and Projects (July
1993-April 1994); Director, Nuclear Engineering (1991-1993); and, Assistant
Plant Manager (1989 to 1991) at Palo Verde.
Mr. Hemelt was elected to his present position in June 1993. Prior to that
time he was Treasurer and Assistant Secretary (since April 1987).
Ms. Loftin was elected Secretary in April 1987 and became Corporate
Counsel in February 1989.
Ms. Newquist was elected to her present position in June 1993. Prior to
that time she was Assistant Treasurer (since October 1992). She is also
Treasurer (since June 1990) and Vice President (since February 1994) of
Pinnacle West. From May 1987 to June 1990, Ms. Newquist served as Pinnacle
West's Director of Finance.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's common stock is wholly-owned by Pinnacle West and is not
listed for trading on any stock exchange. As a result, there is no established
public trading market for the Company's common stock. See "The Company" in Part
I, Item 1 for information regarding the Pledge Agreement to which the common
stock is subject.
The chart below sets forth the dividends declared on the Company's common
stock for each of the four quarters for 1994 and 1993.
Common Stock Dividends
(Thousands of Dollars)
-------------------------------------------------
Quarter 1994 1993
-------------------------------------------------
1st Quarter $42,500 $42,500
2nd Quarter 42,500 42,500
3rd Quarter 42,500 42,500
4th Quarter 42,500 42,500
-------------------------------------------------
After payment or setting aside for payment of cumulative dividends and
mandatory sinking fund requirements, where applicable, on all outstanding issues
of preferred stock, the holders of common stock are entitled to dividends when
and as declared out of funds legally available therefor. See Notes 3 and 4 of
Notes to Financial Statements in Item 8 for restrictions on retained earnings
available for the payment of dividends.
[Enlarge/Download Table]
ITEM 6. SELECTED FINANCIAL DATA
1994 1993 1992 1991 (a) 1990
-------------- -------------- -------------- --------------- --------------
(Thousands of Dollars)
Electric Operating
Revenues (b)..................... $1,626,168 $1,602,413 $1,587,582 $1,385,815 $1,434,750
Fuel and Purchased Power........... 300,689 300,546 287,201 273,771 289,048
Operating Expenses................. 957,046 929,379 908,123 782,788 785,814
-------------- -------------- -------------- --------------- --------------
Operating Income................. 368,433 372,488 392,258 329,256 359,888
Other Income (Deductions).......... 44,510 54,220 48,801 (324,922) 56,713
Interest Deductions -- Net......... 169,457 176,322 194,254 226,983 236,589
-------------- -------------- -------------- --------------- --------------
Net Income (Loss)................ 243,486 250,386 246,805 (222,649) 180,012
Preferred Dividends.............. 25,274 30,840 32,452 33,404 31,060
-------------- -------------- -------------- --------------- --------------
Earnings (Loss) for Common Stock. $ 218,212 $ 219,546 $ 214,353 $ (256,053) $ 148,952
============== ============== ============== =============== ==============
Total Assets....................... $ 6,348,261 $ 6,357,262 $ 5,629,432 $ 5,620,692 $ 6,253,562
============== ============== ============== =============== ==============
Capitalization:
Common Stock Equity.............. $ 1,571,120 $ 1,522,941 $ 1,476,390 $ 1,433,463 $ 1,860,110
Non-Redeemable Preferred Stock... 193,561 193,561 168,561 168,561 168,561
Redeemable Preferred Stock....... 75,000 197,610 225,635 227,278 192,453
Long-Term Debt................... 2,181,832 2,124,654 2,052,763 2,185,363 2,303,953
-------------- -------------- -------------- --------------- --------------
Total.......................... $ 4,021,513 $ 4,038,766 $ 3,923,349 $ 4,014,665 $ 4,525,077
============== ============== ============== =============== ==============
Capital Expenditures............... $ 255,308 $ 234,944 $ 224,419 $ 182,687 $ 259,280
============== ============== ============== =============== ==============
----------
(a) Financial results for 1991 include a $407 million after-tax write-off
related to a rate case settlement.
(b) Consistent with the 1994 presentation, prior years' electric operating
revenues and other taxes have been restated to exclude sales tax on electric
revenues.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1994 Compared with 1993
Earnings in 1994 were $218.2 million compared with $219.5 million in
1993. Electric operating revenues increased primarily due to strong customer
growth and significantly warmer weather in 1994, partially offset by lower
interchange sales and the 1994 rate reduction. Substantially offsetting the
earnings effect of the 1994 rate reduction was a one-time depreciation reversal,
also occasioned by the 1994 rate settlement. (See Note 2 of Notes to Financial
Statements for information regarding the 1994 rate settlement.) Interest expense
declined due to the Company's refinancing efforts in 1994 and 1993. The
Company's effort to refinance high-cost debt, started in 1992, was substantially
completed at the end of 1994.
Substantially offsetting these positive factors were the completion in
May 1994 of the recording of non-cash income related to a 1991 rate settlement
(see Note 1 of Notes to Financial Statements); increased operations and
maintenance expense due primarily to employee severance costs related to various
cost-reduction efforts; and increased nuclear decommissioning costs reflecting
the most recent site-specific study (see Note 1 of Notes to Financial
Statements).
Fuel and purchased power expenses remained relatively unchanged in 1994
compared with 1993. Higher costs to meet increased retail sales were about
offset by lower fuel costs for reduced interchange sales. The Company does not
have a fuel adjustment clause as part of its retail rate structure; therefore,
changes in fuel and purchased power expenses are reflected currently in
earnings.
1993 Compared with 1992
Earnings in 1993 were $219.5 million compared with $214.3 million in
1992. The primary factor that contributed to this increase was lower interest
expense due to refinancing debt at lower rates, lower average debt balances and
lower interest rates on the Company's variable-rate debt. Partially offsetting
the lower interest expense were increased taxes and higher operating expenses.
Operating revenue increased significantly due to customer growth.
Offsetting customer growth were the effects of milder weather and increased fuel
and purchased power costs due to Palo Verde outages and reduced power levels
related to steam generator tube problems (see Note 10 of Notes to Financial
Statements).
Operations and maintenance expense for 1993 increased over 1992 levels
primarily due to the implementation of new accounting standards for
postemployment benefits and postretirement benefits other than pensions, which
added $17.0 million to expense in 1993 (see Note 9 of Notes to Financial
Statements). Partially offsetting these factors were lower power plant operating
costs, lower rent expense and lower costs for an employee cost-saving incentive
plan.
Operating Revenues
Operating revenues reflect changes in both the volume of units sold and
price per kilowatt-hour of electric sales. An analysis of the changes in 1994
and 1993 electric operating revenues compared with the prior year follows (in
millions of dollars):
1994 1993
------ ------
Volume variance ................................. $ 86.7 $22.3
1994 rate reduction ............................. (27.4) --
Interchange sales ............................... (19.5) (7.2)
Reversal of refund obligation ................... (12.1) --
Other operating revenues ........................ (3.9) (.3)
------ ------
Total change ................................... $ 23.8 $14.8
====== ======
The volume increase in 1994 primarily reflects the effects on retail
sales of customer growth ($56 million) and warmer weather ($42 million). The
volume increase in 1993 was primarily due to customer growth ($41 million),
partially offset by milder weather ($20 million reduction). Other factors
affecting volumes include changes in usage, unbilled revenue and firm sales for
resale for a net total of $11 million reduction in 1994 and $1 million increase
in 1993.
Other Income/Rate Settlement Impacts
Net income reflects accounting practices required for regulated public
utilities and represents a composite of cash and non-cash items, including
AFUDC, accretion income on Palo Verde Unit 3 and the reversal of a refund
obligation arising out of the 1991 rate settlement (see Statements of Cash Flows
and Note 1 of Notes to Financial Statements). The accretion and refund
reversals, net of income taxes, totaled $25.9 million, $58.2 million and $53.6
million in 1994, 1993 and 1992, respectively. The Company has now recorded all
of the Palo Verde Unit 3 accretion income and refund obligation reversals
related to the 1991 settlement. Also in 1994 was a one-time Palo Verde
depreciation reversal of $15 million, net of income tax, which is included in
"Other -- net" in the Statements of Income (see Note 2 of Notes to Financial
Statements).
The retail rate settlement which was approved by the ACC in May 1994
did not significantly affect 1994 earnings as previously discussed, and is not
expected to significantly affect earnings for the years 1995 through 1999
because the rate reduction will be substantially offset by accelerated
amortization of deferred investment tax credits (see Note 2 of Notes to
Financial Statements).
CAPITAL NEEDS AND RESOURCES
The Company's capital needs consist primarily of construction
expenditures and optional and mandatory repayments or redemptions of long-term
debt and preferred stock. The capital resources available to meet these
requirements include funds provided by operations and external financings.
Present construction plans do not include any major baseload generating
plants. In general, most of the construction expenditures are for expanding
transmission and distribution capabilities to meet customer growth, upgrading
existing facilities and for environmental purposes. Construction expenditures
are anticipated to be approximately $300 million, $257 million and $236 million
for 1995, 1996 and 1997, respectively. These amounts include about $27 million
each year for nuclear fuel expenditures.
In the period 1992 through 1994, the Company funded all of its
construction expenditures and capitalized property taxes with funds provided by
operations, after the payment of dividends. For the period 1995 through 1997,
the Company estimates that it will fund substantially all such expenditures in
the same manner.
During 1994, the Company repurchased or redeemed approximately $587
million of long-term debt and preferred stock, of which approximately $518
million was optional. Refunding obligations for preferred stock, long-term debt,
a capitalized lease obligation and certain anticipated early redemptions are
expected to total approximately $106 million, $4 million and $164 million for
the years 1995, 1996 and 1997, respectively. On March 2, 1995, the Company
redeemed all of its outstanding first mortgage bonds, 10.25% Series due 2000
(the 10.25% Bonds) for approximately $50 million.
The Company currently expects to issue up to $175 million of debt in
1995. Of this amount, on January 12, 1995, the Company issued $75 million of 10%
junior subordinated deferrable interest debentures (MIDS) due 2025, and applied
the net proceeds to the repayment of short-term debt that had been incurred for
the redemption of preferred stock in 1994. The Company expects that
substantially all of the net proceeds of the remaining financing activity in
1995 will be used for the retirement of outstanding debt.
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 bond
indenture limits the amount of additional first mortgage bonds which may be
issued to a percentage of net property additions, to the amount of certain first
mortgage bonds that have been redeemed or retired, and/or to cash deposited with
the mortgage bond trustee. After giving proforma effect to the redemption of the
10.25% Bonds as of December 31, 1994, the Company estimates that the bond
indenture and the articles of incorporation would then have allowed it to issue
up to approximately $1.33 billion and $768 million of additional first mortgage
bonds and preferred stock, respectively.
The ACC has authority over the Company with respect to the issuance of
long-term debt and equity securities. Existing ACC orders allow the Company to
have up to approximately $2.6 billion in long-term debt and approximately $501
million of preferred stock outstanding at any one time.
Management does not expect any of the foregoing restrictions to limit
the Company's ability to meet its capital requirements.
As of December 31, 1994, the Company had credit commitments from
various banks totaling approximately $300 million, which were available either
to support the issuance of commercial paper or to be used as bank borrowings.
There were no bank borrowings outstanding at the end of 1994. Commercial paper
borrowings totaling $131.5 million were then outstanding.
COMPETITION
A significant challenge for the Company will be how well it is able to
respond to increasingly competitive conditions in the electric utility industry,
while continuing to earn an acceptable return for its shareholders. Strategies
emphasize managing costs, stabilizing electric rates, negotiating long-term
contracts with large customers and capitalizing on the growth characteristics of
the Company's service territory.
One of the issues that must be addressed responsibly is the recovery in
a more competitive environment of the carrying value of assets (including those
referred to in Note 1a of Notes to Financial Statements) acquired or recorded
under the existing regulatory environment.
Pursuant to the 1994 rate settlement, APS and the ACC staff will
develop certain procedures that are responsive to the competitive forces in
larger customer segments, with the objective of making joint recommendations to
the ACC in 1995. A separate ACC proceeding on competition was opened in mid-1994
and is expected to continue for some months.
As the forces of competition continue to impact the industry, it will
become clearer as to what customer sectors and what regions will be most
affected and what strategies are best to deal with those forces.
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Management ...................................................... 20
Independent Auditors' Report .............................................. 21
Statements of Income for each of the three years
in the period ended December 31, 1994 .................................... 23
Balance Sheets -- December 31, 1994 and 1993 .............................. 24
Statements of Retained Earnings for each of the
three years in the period ended December 31, 1994 ........................ 26
Statements of Cash Flows for each of the three
years in the period ended December 31, 1994 .............................. 27
Notes to Financial Statements ............................................. 28
See Note 11 of Notes to Financial Statements for the selected quarterly
financial data required to be presented in this Item.
REPORT OF MANAGEMENT
The primary responsibility for the integrity of the Company's financial
information rests with management, which has prepared the accompanying financial
statements and related information. Such information was prepared in accordance
with generally accepted accounting principles appropriate in the circumstances,
based on management's best estimates and judgments and giving due consideration
to materiality. These financial statements have been audited by independent
auditors and their report is included.
Management maintains and relies upon systems of internal accounting
controls. A limiting factor in all systems of internal accounting control is
that the cost of the system should not exceed the benefits to be derived.
Management believes that the Company's system provides the appropriate balance
between such costs and benefits.
Periodically the internal accounting control system is reviewed by both the
Company's internal auditors and its independent auditors to test for compliance.
Reports issued by the internal auditors are released to management, and such
reports, or summaries thereof, are transmitted to the Audit Committee of the
Board of Directors and the independent auditors on a timely basis.
The Audit Committee, composed solely of outside directors, meets
periodically with the internal auditors and independent auditors (as well as
management) to review the work of each. The internal auditors and independent
auditors have free access to the Audit Committee, without management present, to
discuss the results of their audit work.
Management believes that the Company's systems, policies and procedures
provide reasonable assurance that operations are conducted in conformity with
the law and with management's commitment to a high standard of business
conduct.
O. MARK DEMICHELE JARON B. NORBERG
O. Mark DeMichele Jaron B. Norberg
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
WILLIAM J. POST
William J. Post
Senior Vice President and
Chief Operating Officer
INDEPENDENT AUDITORS' REPORT
Arizona Public Service Company:
We have audited the accompanying balance sheets of Arizona Public Service
Company as of December 31, 1994 and 1993 and the related statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1994 and 1993
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 3, 1995
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ARIZONA PUBLIC SERVICE COMPANY
STATEMENTS OF INCOME
Year Ended December 31,
-----------------------
1994 1993 1992
----------- ----------- -----------
(Thousands of Dollars)
Electric Operating Revenues (Note 1) .......................... $ 1,626,168 $ 1,602,413 $ 1,587,582
----------- ----------- -----------
Fuel Expenses:
Fuel for electric generation ................................ 237,103 231,434 230,194
Purchased power ............................................. 63,586 69,112 57,007
----------- ----------- -----------
Total ..................................................... 300,689 300,546 287,201
----------- ----------- -----------
Operating Revenues Less Fuel Expenses ......................... 1,325,479 1,301,867 1,300,381
----------- ----------- -----------
Other Operating Expenses:
Operations excluding fuel expenses .......................... 292,292 282,660 270,838
Maintenance ................................................. 119,629 118,556 119,674
Depreciation and amortization ............................... 236,108 222,610 219,118
Income taxes (Note 8) ....................................... 168,202 168,056 164,620
Other taxes ................................................. 140,815 137,497 133,873
----------- ----------- -----------
Total ..................................................... 957,046 929,379 908,123
----------- ----------- -----------
Operating Income .............................................. 368,433 372,488 392,258
----------- ----------- -----------
Other Income (Deductions):
Allowance for equity funds used during
construction .............................................. 3,941 2,326 3,103
Income taxes (Note 8) ....................................... (9,042) (20,851) (16,735)
Palo Verde accretion income (Note 1) ........................ 33,596 74,880 67,421
Other -- net ................................................ 16,015 (2,135) (4,988)
----------- ----------- -----------
Total ..................................................... 44,510 54,220 48,801
----------- ----------- -----------
Income Before Interest Deductions ............................. 412,943 426,708 441,059
----------- ----------- -----------
Interest Deductions:
Interest on long-term debt .................................. 159,840 164,610 186,915
Interest on short-term borrowings ........................... 6,205 6,662 3,831
Debt discount, premium and expense .......................... 8,854 9,203 8,000
Allowance for borrowed funds used during
construction .............................................. (5,442) (4,153) (4,492)
----------- ----------- -----------
Total ..................................................... 169,457 176,322 194,254
----------- ----------- -----------
Net Income .................................................... 243,486 250,386 246,805
Preferred Stock Dividend Requirements ......................... 25,274 30,840 32,452
----------- ----------- -----------
Earnings for Common Stock ..................................... $ 218,212 $ 219,546 $ 214,353
=========== =========== ===========
See Notes to Financial Statements.
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ARIZONA PUBLIC SERVICE COMPANY
BALANCE SHEETS
ASSETS
December 31,
-------------------------------------
1994 1993
----------- -------------
(Thousands of Dollars)
Utility Plant (Notes 4, 6 and 7):
Electric plant in service and held for future use ................................ $ 6,475,249 $ 6,333,884
Less accumulated depreciation and amortization ........................... 2,122,439 1,991,143
----------- ------------
Total ............................................................ 4,352,810 4,342,741
Construction work in progress ............................................ 224,312 197,556
Nuclear fuel, net of amortization of $80,599,000
and $67,752,000 .................................................. 46,951 60,953
----------- ------------
Utility Plant -- net ..................................... 4,624,073 4,601,250
----------- ------------
Investments and Other Assets ..................................................... 90,105 63,224
----------- ------------
Current Assets:
Cash and cash equivalents ................................................ 6,532 7,557
Accounts receivable:
Service customers ................................................ 103,711 102,745
Other ............................................................ 27,008 21,091
Allowance for doubtful accounts .................................. (2,176) (2,569)
Accrued utility revenues (Note 1) ........................................ 55,432 60,356
Materials and supplies (at average cost) ................................. 89,864 96,174
Fossil fuel (at average cost) ............................................ 35,735 34,220
Deferred income taxes (Note 8) ........................................... 19,114 29,117
Other .................................................................... 14,162 12,653
----------- ------------
Total Current Assets ............................................. 349,382 361,344
----------- ------------
Deferred Debits:
Regulatory asset for income taxes (Note 8) ............................... 557,049 585,294
Palo Verde Unit 3 cost deferral (Note 1) ................................. 292,586 301,748
Palo Verde Unit 2 cost deferral (Note 1) ................................. 171,936 177,998
Unamortized costs of reacquired debt ..................................... 60,942 63,147
Unamortized debt issue costs ............................................. 17,673 17,999
Other .................................................................... 184,515 185,258
----------- ------------
Total Deferred Debits ............................................ 1,284,701 1,331,444
----------- ------------
Total ............................................................ $ 6,348,261 $ 6,357,262
=========== ============
See Notes to Financial Statements.
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ARIZONA PUBLIC SERVICE COMPANY
BALANCE SHEETS
LIABILITIES
December 31,
---------------------------------
1994 1993
---------- ----------
(Thousands of Dollars)
Capitalization (Notes 3 and 4):
Common stock ................................................................. $ 178,162 $ 178,162
Premiums and expenses -- net ................................................. 1,039,303 1,037,681
Retained earnings ............................................................ 353,655 307,098
---------- ----------
Common stock equity .................................................. 1,571,120 1,522,941
Non-redeemable preferred stock ............................................... 193,561 193,561
Redeemable preferred stock ................................................... 75,000 197,610
Long-term debt less current maturities ....................................... 2,181,832 2,124,654
---------- ----------
Total Capitalization ......................................... 4,021,513 4,038,766
---------- ----------
Current Liabilities:
Commercial paper (Note 5) .................................................... 131,500 148,000
Current maturities of long-term debt (Note 4) ................................ 3,428 3,179
Accounts payable ............................................................. 110,854 81,772
Accrued taxes ................................................................ 89,412 112,293
Accrued interest ............................................................. 45,170 45,729
Other ........................................................................ 50,487 60,737
---------- ----------
Total Current Liabilities .................................... 430,851 451,710
---------- ----------
Deferred Credits and Other:
Deferred income taxes (Note 8) ............................................... 1,436,184 1,391,184
Deferred investment tax credit ............................................... 142,994 149,819
Unamortized gain -- sale of utility plant (Note 7) ........................... 98,551 107,344
Customer advances for construction ........................................... 16,564 15,578
Other ........................................................................ 201,604 202,861
---------- ----------
Total Deferred Credits and Other ............................. 1,895,897 1,866,786
---------- ----------
Commitments and Contingencies (Note 10)
Total ........................................................ $6,348,261 $6,357,262
========== ==========
See Notes to Financial Statements.
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ARIZONA PUBLIC SERVICE COMPANY
STATEMENTS OF RETAINED EARNINGS
Year Ended December 31,
--------------------------------------------
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
Retained earnings at beginning of year ....................................... $307,098 $259,899 $215,974
Add: Net income .............................................................. 243,486 250,386 246,805
-------- -------- --------
Total ........................................................ 550,584 510,285 462,779
-------- -------- --------
Deduct:
Dividends:
Common stock (Notes 3 and 4) ................................. 170,000 170,000 170,000
Preferred stock (see below) .................................. 25,274 30,840 32,452
Premium paid on reacquisition of preferred stock ..................... 1,655 2,347 428
-------- -------- --------
Total deductions ..................................... 196,929 203,187 202,880
-------- -------- --------
Retained earnings at end of year ............................................. $353,655 $307,098 $259,899
======== ======== ========
Dividends on preferred stock:
$1.10 preferred ...................................................... $ 172 $ 172 $ 172
$2.50 preferred ...................................................... 258 258 258
$2.36 preferred ...................................................... 94 94 94
$4.35 preferred ...................................................... 326 326 326
Serial preferred:
$2.40 Series A ............................................... 576 576 576
$2.625 Series C .............................................. 630 630 630
$2.275 Series D .............................................. 455 455 455
$3.25 Series E ............................................... 1,040 1,040 1,040
$10.00 Series H .............................................. -- -- 58
$8.32 Series J ............................................... -- 3,364 4,160
$8.80 Series K ............................................... 216 1,454 1,654
$12.90 Series N .............................................. -- -- 1,196
Adjustable Rate Series Q ..................................... 3,000 3,000 3,083
$11.50 Series R .............................................. 1,533 3,630 4,081
$8.48 Series S ............................................... 1,734 3,251 4,240
$8.50 Series T ............................................... 2,833 4,250 4,250
$10.00 Series U .............................................. 5,000 5,000 5,000
$7.875 Series V .............................................. 1,969 1,966 1,179
$1.8125 Series W ............................................. 5,438 1,374 --
-------- -------- --------
Total ................................................ $ 25,274 $ 30,840 $ 32,452
======== ======== ========
See Notes to Financial Statements.
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ARIZONA PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------------------
1994 1993 1992
----------- ----------- ----------
(Thousands of Dollars)
Cash Flows from Operations:
Net income ..................................................... $ 243,486 $ 250,386 $ 246,805
Items not requiring cash:
Depreciation and amortization .......................... 236,108 222,610 219,118
Nuclear fuel amortization .............................. 32,564 32,024 36,605
Allowance for equity funds used during
construction ................................... (3,941) (2,326) (3,103)
Deferred income taxes -- net ........................... 83,249 102,697 84,097
Deferred investment tax credit -- net .................. (6,825) (6,948) (6,804)
Rate refund reversal ................................... (9,308) (21,374) (21,374)
Palo Verde accretion income ............................ (33,596) (74,880) (67,421)
Changes in certain current assets and liabilities:
Accounts receivable -- net ............................. (7,276) 30,889 (33,965)
Accrued utility revenues ............................... 4,924 (8,839) (7,055)
Materials, supplies and fossil fuel .................... 4,795 2,252 5,094
Other current assets ................................... (1,509) (6,616) 3,795
Accounts payable ....................................... 21,666 (18,622) 7,172
Accrued taxes .......................................... (22,881) 8,826 18,284
Accrued interest ....................................... (577) 241 (16,131)
Other current liabilities .............................. (9) 7,282 5,405
Other -- net ................................................... (418) 18,686 (2,386)
----------- ----------- ----------
Net cash provided .............................. 540,452 536,288 468,136
----------- ----------- ----------
Cash Flows from Financing:
Preferred stock ................................................ -- 72,644 24,781
Long-term debt ................................................. 516,612 520,020 643,360
Short-term borrowings -- net ................................... (16,500) (47,000) 195,000
Dividends paid on common stock ................................. (170,000) (170,000) (170,000)
Dividends paid on preferred stock .............................. (26,232) (30,945) (32,574)
Repayment of preferred stock ................................... (124,096) (78,663) (27,850)
Repayment and reacquisition of long-term debt .................. (462,643) (558,799) (1,013,371)
----------- ----------- ----------
Net cash used .......................................... (282,859) (292,743) (380,654)
----------- ----------- ----------
Cash Flows from Investing:
Capital expenditures ........................................... (255,308) (234,944) (224,419)
Allowance for equity funds used during construction ............ 3,941 2,326 3,103
Other .......................................................... (7,251) (4,522) (4,099)
----------- ----------- ----------
Net cash used .......................................... (258,618) (237,140) (225,415)
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents ................... (1,025) 6,405 (137,933)
Cash and cash equivalents at beginning of year ......................... 7,557 1,152 139,085
----------- ----------- ----------
Cash and cash equivalents at end of year ............................... $ 6,532 $ 7,557 $ 1,152
=========== =========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest (excluding capitalized interest) .............. $ 161,294 $ 161,843 $ 200,986
Income taxes ........................................... $ 121,578 $ 88,239 $ 85,141
See Notes to Financial Statements.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. Accounting Records -- The accounting records are maintained in accordance
with generally accepted accounting principles applicable to rate-regulated
enterprises. The Company is regulated by the ACC and the FERC and the
accompanying financial statements reflect the rate-making policies of these
commissions.
The Company prepares its financial statements in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation". SFAS No. 71
requires a cost-based rate-regulated enterprise to reflect the impact of
regulatory decisions in its financial statements.
The Company's major regulatory assets are Palo Verde cost deferrals (see Note
1j) and deferred taxes (see Note 8). These items, combined with miscellaneous
other items and regulatory liabilities, amounted to approximately $1.1 billion
at December 31, 1994 and 1993, most of which are included in "Deferred Debits"
on the Balance Sheets.
b. Common Stock -- All of the outstanding shares of common stock of the
Company are owned by Pinnacle West.
c. Cash and Cash Equivalents -- For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents.
d. Utility Plant and Depreciation -- Utility plant represents the buildings,
equipment and other facilities used to provide electric service. The cost of
utility plant includes labor, materials, contract services, other related items
and an allowance for funds used during construction. The cost of retired
depreciable utility plant, plus removal costs less salvage realized, is charged
to accumulated depreciation.
Depreciation on utility property is recorded on a straight-line basis. The
applicable rates for 1992 through 1994 ranged from 0.84% to 15.00%, which
resulted in an annual composite rate of 3.43% for 1994.
e. Nuclear Decommissioning Costs -- In 1994, the Company recorded $11.9
million for decommissioning expense. The Company estimates it will cost
approximately $2.1 billion ($425 million in 1994 dollars), over a thirteen-year
period beginning in 2023, to decommission its 29.1% interest in Palo Verde.
Decommissioning costs are charged to expense over the respective unit's
operating license term and are included in the accumulated depreciation balance
until each Palo Verde unit is fully decommissioned. Nuclear decommissioning
costs are currently recovered in rates.
The Company is utilizing a 1992 site-specific study for Palo Verde, prepared
for the Company by an independent consultant, that assumes the prompt
removal/dismantlement method of decommissioning. The study is updated every
three years.
As required by the ACC, the Company has established external trust accounts
into which quarterly deposits are made for decommissioning. As of December 31,
1994, the Company had deposited a total of $45.0 million. The trust accounts are
included in "Investments and Other Assets" on the Balance Sheets at a market
value of $55.2 million on December 31, 1994. The trust funds are invested
primarily in fixed-income securities and domestic stock and are classified as
available for sale. Gains and losses are reflected in accumulated depreciation.
In 1994, FASB added a project to its agenda on accounting for nuclear
decommissioning obligations. Only preliminary views have been discussed at this
time; however, there is some indication the FASB may require the estimated
present value of the cost of decommissioning to be recorded as a liability along
with an offsetting plant asset. The Company is unable to determine what, if any,
impact these deliberations may have on its financial position or results of
operations.
f. Revenues -- Operating revenues are recognized on the accrual basis and
include estimated amounts for service rendered but unbilled at the end of each
accounting period.
In 1991 the Company recorded a refund obligation of $53.4 million ($32.3
million after tax) as a result of a 1991 rate settlement. The refund obligation
was used to reduce the amount of a 1991 rate increase granted rather than
require specific customer refunds and was reversed over the thirty months ended
May 1994. The after-tax refund
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
obligation reversals that were recorded as electric operating revenues by the
Company amounted to $5.6 million in 1994 and $12.9 million in each of the years
1993 and 1992.
Consistent with the 1994 presentation, prior years' electric operating
revenues and other taxes have been restated to exclude sales tax on electric
revenue.
g. Allowance for Funds Used During Construction -- AFUDC represents the cost
of debt and equity funds used to finance construction of utility plant. Plant
construction costs, including AFUDC, are recovered in authorized rates through
depreciation when completed projects are placed into commercial operation. AFUDC
does not represent current cash earnings.
AFUDC has been calculated using composite rates of 7.70% for 1994; 7.20% for
1993; and 10.00% for 1992. The Company compounds AFUDC semiannually and ceases
to accrue AFUDC when construction is completed and the property is placed in
service.
h. Reacquired Debt Costs -- The Company amortizes gains and losses on
reacquired debt over the remaining life of the original debt, consistent with
ratemaking.
i. Nuclear Fuel -- Nuclear fuel is charged to fuel expense using the
unit-of-production method under which the number of units of thermal energy
produced in the current period is related to the total thermal units expected to
be produced over the remaining life of the fuel.
Under federal law, the DOE is responsible for the permanent disposal of spent
nuclear fuel. The DOE assesses $.001 per kWh of nuclear generation. This amount
is charged to nuclear fuel expense and recovered through rates.
j. Palo Verde Cost Deferrals -- As authorized by the ACC, the Company
deferred operating costs (excluding fuel) and financing costs for Palo Verde
Units 2 and 3 from the commercial operation date (September 1986 and January
1988, respectively) until the date the units were included in a rate order
(April 1988 and December 1991, respectively). The deferrals are being amortized
and recovered in rates over thirty-five year periods.
k. Palo Verde Accretion Income -- In 1991, the Company discounted the
carrying value of Palo Verde Unit 3 to reflect the present value of lost cash
flows resulting from a 1991 rate settlement agreement deeming a portion of the
unit to temporarily be excess capacity. In accordance with generally accepted
accounting principles, the Company recorded accretion income over a thirty-month
period ended May 1994 in the aggregate amount of the original discount. The
after-tax accretion income recorded in 1994, 1993 and 1992 was $20.3 million,
$45.3 million and $40.7 million, respectively.
2. Regulatory Matters
In May 1994, the ACC approved a retail rate settlement agreement which was
jointly proposed by the Company and the ACC staff. The major provisions of the
settlement include:
* A net annual rate reduction of approximately $32.3 million ($19 million after
tax), or 2.2% on average, effective June 1, 1994.
* A moratorium on filing for permanent rate changes, except under certain
circumstances, prior to the end of 1996 for both the Company and the ACC
staff.
* A joint APS-ACC study to develop rate principles allowing the Company greater
flexibility to deal with market conditions and increasing competition in the
electric industry.
* All of Palo Verde Unit 3 included in rate base.
* An incentive rewarding reduction in fuel and operating and maintenance cost
per kWh below established targets.
As part of the settlement, the Company reversed approximately $20 million of
depreciation ($15 million after tax) which related to the portion of Palo Verde
which was written off as a result of a 1991 rate settlement. The settlement also
provided for the accelerated amortization of substantially all deferred ITCs
over a five-year period beginning in 1995. Overall, the settlement is not
expected to materially affect the Company's financial position or results of
operations for the years 1995-1999.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
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3. Common and Preferred Stocks
Non-redeemable preferred stock is not redeemable except at the option of the
Company. Redeemable preferred stock is redeemable through sinking fund
obligations in addition to being callable by the Company. The balances at
December 31, 1994 and 1993 of common and preferred stock are shown below:
Number of Shares Par Value
----------------------------------------- ----------------------------------------- Call
Outstanding Outstanding Price
-------------------- Per -------------------------- Per
Authorized 1994 1993 Share 1994 1993 Share(a)
------------ ---------- ---------- ------------ ----------- ----------- -------
(Thousands of Dollars)
Common Stock ................... 100,000,000 71,264,947 71,264,947 $ 2.50 $ 178,162 $ 178,162 --
========== ========== =========== ===========
Preferred Stock:
Non-Redeemable:
$1.10 160,000 155,945 155,945 $ 25.00 $ 3,898 $ 3,898 $ 27.50
$2.50 105,000 103,254 103,254 50.00 5,163 5,163 51.00
$2.36 120,000 40,000 40,000 50.00 2,000 2,000 51.00
$4.35 150,000 75,000 75,000 100.00 7,500 7,500 102.00
Serial preferred ............ 1,000,000
$2.40 Series A ........... 240,000 240,000 50.00 12,000 12,000 50.50
$2.625 Series C .......... 240,000 240,000 50.00 12,000 12,000 51.00
$2.275 Series D .......... 200,000 200,000 50.00 10,000 10,000 50.50
$3.25 Series E ........... 320,000 320,000 50.00 16,000 16,000 51.00
Serial preferred ............ 4,000,000(b)
Adjustable rate --
Series Q .............. 500,000 500,000 100.00 50,000 50,000 (c)
Serial preferred ............ 10,000,000
$1.8125 Series W ......... 3,000,000 3,000,000 25.00 75,000 75,000 (d)
---------- ---------- ----------- -----------
Total .............. 4,874,199 4,874,199 $ 193,561 $ 193,561
========== ========== =========== ===========
Redeemable:
Serial preferred:
$8.80 Series K .............. -- 142,100 $ 100.00 -- $ 14,210
$11.50 Series R ............. -- 284,000 100.00 -- 28,400
$8.48 Series S .............. -- 300,000 100.00 -- 30,000
$8.50 Series T .............. -- 500,000 100.00 -- 50,000
$10.00 Series U ............. 500,000 500,000 100.00 50,000 50,000
$7.875 Series V ............. 250,000 250,000 100.00 25,000 25,000 (e)
========== ========== =========== ===========
Total .............. 750,000 1,976,100 $ 75,000 $ 197,610
========== ========== =========== ===========
(a) In each case plus accrued dividends.
(b) This authorization also covers all outstanding redeemable preferred stock.
(c) Dividend rate adjusted quarterly to 2% below that of certain United States
Treasury securities, but in no event less than 6% or greater than 12% per
annum. Redeemable at par.
(d) Redeemable at par after December 1, 1998.
(e) Redeemable at $106.30 through May 31, 1995, and thereafter declining by a
predetermined amount each year to par after May 31, 2002.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
If there were to be any arrearage in dividends on any of the Company's
preferred stock or in the sinking fund requirements applicable to any of its
redeemable preferred stock, the Company could not pay dividends on its common
stock or acquire any shares thereof for consideration.
The redemption requirements for the above issues for the next five years are:
$0 in 1995 and 1996, and $10.0 million in each of the years 1997 through 1999.
[Enlarge/Download Table]
Redeemable preferred stock transactions during each of the three years in the
period ended December 31, 1994 are as follows:
Number of Shares Par Value
Outstanding Outstanding
-------------------------------------------- --------------------------------------------
(Thousands of Dollars)
Description 1994 1993 1992 1994 1993 1992
------------------------------ ---------- --------- --------- ----------- ---------- ----------
Balance, January 1 ........... 1,976,100 2,256,350 2,272,782 $ 197,610 $ 225,635 $ 227,278
Issuance:
$7.875 Series V ............ -- -- 250,000 -- -- 25,000
Retirements:
$10.00 Series H ............ -- -- (8,677) -- -- (868)
$8.80 Series K ............. (142,100) (45,000) (4,725) (14,210) (4,500) (472)
$12.90 Series N ............ -- -- (213,280) -- -- (21,328)
$11.50 Series R ............ (284,000) (35,250) (39,750) (28,400) (3,525) (3,975)
$8.48 Series S ............. (300,000) (200,000) -- (30,000) (20,000) --
$8.50 Series T ............. (500,000) -- -- (50,000) -- --
---------- --------- --------- ----------- ---------- ----------
Balance, December 31 ......... 750,000 1,976,100 2,256,350 $ 75,000 $ 197,610 $ 225,635
========== ========= ========= =========== ========== ==========
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4. Long-Term Debt
The following table presents long-term debt outstanding as of December 31,
1994 and 1993.
Year Ended December 31,
---------------------------
Maturity Dates Interest Rates 1994 1993
-------------- ---------------- ---------- ----------
(Thousands of Dollars)
First mortgage bonds ........................................ 1997-2028 5.5%-13.25%(a) $1,740,071 $1,729,070
Pollution control indebtedness .............................. 2024-2029 Adjustable(b) 418,824 369,130
Capitalized lease obligation(c) ............................. 1995-2001 7.48% 26,365 29,633
---------- ----------
Total long-term debt ................................ 2,185,260 2,127,833
Less current maturities ..................................... 3,428 3,179
---------- ----------
Total long-term debt less current maturities ........ $2,181,832 $2,124,654
========== ==========
(a) The weighted-average rate at December 31, 1994, and 1993 was 8.04% and
8.25%, respectively. The weighted-average years to maturity at December 31,
1994 and 1993 was 19 years and 20 years, respectively.
(b) The weighted-average rate for the years ended December 31, 1994, and 1993
was 2.99% and 2.64%, respectively. Changes in short-term interest rates
would affect the costs associated with this debt.
(c) Represents the present value of future lease payments (discounted at an
interest rate of 7.48%) on a combined cycle plant sold and leased back from
the independent owner-trustee formed to own the facility. See Note 7.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
Aggregate annual principal payments due on long-term debt and for sinking
fund requirements through 1999 are as follows: 1995, $3.4 million; 1996, $3.5
million; 1997, $153.8 million; 1998, $109.1 million; and 1999, $109.4 million.
See Note 3 for redemption and sinking fund requirements of redeemable preferred
stock of the Company.
On January 12, 1995, the Company issued $75 million of 10% junior
subordinated deferrable interest debentures (MIDS) due 2025.
Substantially all utility plant (other than nuclear fuel, transportation
equipment, and the combined cycle plant) is subject to the lien of the mortgage
bond indenture. The mortgage bond indenture includes provisions which would
restrict the payment of common stock dividends under certain conditions which
did not exist at December 31, 1994.
5. Lines of Credit
The Company had committed lines of credit with various banks of $300 million
at December 31, 1994, and $302 million at December 31, 1993, which were
available either to support the issuance of commercial paper or to be used for
bank borrowings. The commitment fees on these lines were 0.25% per annum through
June 30, 1994, 0.20% per annum on $200 million and 0.15% per annum on $100
million thereafter, through December 31, 1994. The Company had commercial paper
borrowings outstanding of $131.5 million at December 31, 1994, and $148.0
million at December 31, 1993. The weighted average interest rate on commercial
paper borrowings was 6.25% on December 31, 1994, and 3.48% on December 31, 1993.
By Arizona statute, the Company's short-term borrowings cannot exceed 7% of its
total capitalization without the consent of the ACC.
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6. Jointly-Owned Facilities
At December 31, 1994, the Company owned interests in the following
jointly-owned electric generating and transmission facilities. The Company's
share of related operating and maintenance expenses is included in operating
expenses.
Percent Construction
Owned by Plant in Accumulated Work in
Company Service Depreciation Progress
-------- --------- -------------- ------------
(Thousands of Dollars)
Generating Facilities:
Palo Verde Nuclear Generating Station
Units 1 and 3 ......................................... 29.1% $1,832,522 $ 425,908 $ 14,181
Palo Verde Nuclear Generating Station
Unit 2 (see Note 7) ................................... 17.0% 563,115 131,764 13,415
Four Corners Steam Generating Station
Units 4 and 5 ......................................... 15.0% 142,297 50,414 497
Navajo Steam Generating Station
Units 1, 2 and 3 ...................................... 14.0% 139,648 74,513 17,035
Cholla Steam Generating Station
Common Facilities (a) ................................. 62.8%(b) 70,657 33,967 335
Transmission Facilities:
ANPP 500KV System ..................................... 35.8%(b) 62,607 15,313 1,013
Navajo Southern System ........................ 31.4%(b) 26,737 15,038 15
Palo Verde-Yuma 500KV System .................. 23.9%(b) 11,411 3,304 20
Four Corners Switchyards ...................... 27.5%(b) 2,796 1,635 53
Phoenix-Mead System ........................... 17.1%(b) -- -- 18,036
(a) The Company is the operating agent for Cholla Unit 4, which is owned by
PacifiCorp. The common facilities at the Cholla Plant are jointly-owned.
(b) Weighted average of interests.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
7. Leases
In 1986, the Company entered into sale and leaseback transactions under which
it sold approximately 42% of its share of Palo Verde Unit 2 and certain common
facilities. The gain of approximately $140.2 million has been deferred and is
being amortized to operations expense over the original lease term. The leases
are being accounted for as operating leases. The amounts paid each year
approximate $40.1 million through December 1999, $46.3 million through December
2000, and $49.0 million through December 2015. Options to renew for two
additional years and to purchase the property at fair market value at the end of
the lease terms are also included. Consistent with the ratemaking treatment, an
amount equal to the annual lease payments is included in rent expense. A
regulatory asset (totaling approximately $52.8 million at December 31, 1994) has
been established for the difference between lease payments and rent expense
calculated on a straight-line basis. Lease expense for 1994, 1993 and 1992 was
$42.2 million, $41.8 million and $45.8 million, respectively.
The Company has a capital lease on a combined cycle plant which it sold and
leased back. The lease requires semiannual payments of $2.6 million through June
2001, and includes renewal and purchase options based on fair market value. This
plant is included in plant in service at its original cost of $54.4 million;
accumulated amortization at December 31, 1994, was $40.3 million.
In addition, the Company also leases certain land, buildings, equipment and
miscellaneous other items through operating rental agreements with varying
terms, provisions and expiration dates. Rent expense for 1994, 1993 and 1992 was
approximately $10.1 million, $11.1 million and $14.7 million, respectively.
Annual future minimum rental commitments, excluding the Palo Verde and combined
cycle leases, for the period 1995 through 1999 range between $11 million and $12
million. Total rental commitments after 1999 are estimated at $122 million.
8. Income Taxes
The Company is included in the consolidated income tax returns of Pinnacle
West. Income taxes are allocated to the Company based on its separate company
taxable income or loss. Approximately $1.8 million of income tax overpayments
were due from Pinnacle West at December 31, 1994. Investment tax credits were
deferred and are being amortized to other income over the estimated lives of the
related assets as directed by the ACC. Beginning in 1995, the ACC portion of the
unamortized investment tax credits will be amortized over a five-year period in
accordance with the 1994 rate settlement agreement (see Note 2).
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109, which requires the use of the liability method of accounting for income
taxes. Upon adoption the Company recorded deferred income taxes related to the
equity component of AFUDC; the debt component of AFUDC recorded net-of-tax; and
other temporary differences for which deferred income taxes had not been
provided. Deferred tax balances were also adjusted for changes in tax rates. The
adoption of SFAS No. 109 had no material effect on net income but increased net
deferred income tax liabilities by $585.3 million at December 31, 1993.
Historically the FERC and the ACC have allowed revenues sufficient to pay for
these deferred tax liabilities and, in accordance with SFAS No. 109, a
regulatory asset was established in a corresponding amount.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
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The components of income tax expense are as follows:
Year Ended December 31,
-----------------------------------------------------
1994 1993 1992
--------- --------- ---------
(Thousands of Dollars)
Current:
Federal .................................................. $ 74,272 $ 69,243 $ 80,921
State .................................................... 26,447 23,915 23,141
--------- --------- ---------
Total current .................................... 100,719 93,158 104,062
--------- --------- ---------
Deferred:
Depreciation -- net ...................................... 56,450 58,844 75,931
Alternative minimum tax .......................... 21,425 13,661 7,732
Palo Verde accretion income ...................... 13,288 29,618 26,668
Pension costs .................................... (9,302) (5,768) (4,622)
Loss on reacquired debt .......................... (903) 4,288 10,266
Palo Verde start-up costs ........................ (1,590) (1,335) (28,976)
Investment tax credit -- net ..................... (6,825) (6,948) (6,804)
Other -- net ..................................... 3,982 3,389 (2,902)
--------- --------- ---------
Total deferred ................................... 76,525 95,749 77,293
--------- --------- ---------
Total .................................... $ 177,244 $ 188,907 $ 181,355
========= ========= =========
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Income tax expense differed from the amount computed by multiplying income
before income taxes by the statutory federal income tax rate due to the
following:
Year Ended December 31,
------------------------------------------------
1994 1993 1992
--------- --------- ---------
(Thousands of Dollars)
Federal income tax expense at statutory rate
(35% in 1994 and 1993, 34% in 1992) ............................... $ 147,256 $ 153,753 $ 145,574
Increase (reductions) in tax expense resulting from:
Tax under book depreciation ....................................... 17,236 17,671 17,465
Investment tax credit amortization ................................ (6,825) (6,922) (7,036)
State income tax -- net of federal income tax benefit ............. 24,947 27,005 27,036
Other ............................................................. (5,370) (2,600) (1,684)
--------- --------- ---------
Income tax expense ........................................ $ 177,244 $ 188,907 $ 181,355
========= ========= =========
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
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The components of the net deferred income tax liability were as follows:
December 31,
--------------------------------
1994 1993
----------- -----------
(Thousands of Dollars)
Deferred tax assets:
Deferred gain on Palo Verde Unit 2 sale/leaseback .............................. $ 63,720 $ 66,754
Alternative minimum tax (can be carried forward indefinitely) .................. 14,089 35,514
Other .......................................................................... 73,084 86,745
Valuation allowance ............................................................ (15,072) (15,413)
----------- -----------
Total deferred tax assets ...................................... 135,821 173,600
----------- -----------
Deferred tax liabilities:
Plant related .................................................................. 802,645 751,520
Income taxes recoverable through future rates -- net ........................... 557,049 585,294
Palo Verde deferrals ........................................................... 153,410 158,424
Other .......................................................................... 39,787 40,429
----------- -----------
Total deferred tax liabilities ................................. 1,552,891 1,535,667
----------- -----------
Accumulated deferred income taxes -- net ............................................... $ 1,417,070 $ 1,362,067
=========== ===========
9. Pension Plan and Other Benefits
Pension Plan
The Company sponsors a defined benefit pension plan covering substantially
all employees. Benefits are based on years of service and compensation utilizing
a final average pay benefit formula. The plan is funded on a current basis to
the extent deductible under existing tax regulations. Plan assets consist
primarily of domestic and international common stocks and bonds and real estate.
Pension cost, including administrative cost, for 1994, 1993 and 1992 was
approximately $25.4 million, $14.0 million and $14.0 million, respectively, of
which approximately $11.9 million, $6.5 million and $3.9 million, respectively,
was charged to expense. The remainder was either capitalized or billed to
others.
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Excluding the costs of special termination benefits of $1.4 million in 1994,
the components of net periodic pension costs are as follows:
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
Service cost-benefits earned during the period ...................... $ 20,345 $ 16,754 $ 16,903
Interest cost on projected benefit obligation ....................... 39,377 34,724 33,333
Return on plan assets ............................................... 6,105 (51,597) (23,058)
Net amortization and deferral ....................................... (44,000) 13,420 (15,002)
-------- -------- --------
Net periodic pension cost ........................................... $ 21,827 $ 13,301 $ 12,176
======== ======== ========
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
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A reconciliation of the funded status of the plan to the amounts recognized
in the balance sheet is presented below:
1994 1993
--------- ---------
(Thousands of Dollars)
Plan assets at fair value: ............................................................. $ 388,010 $ 417,938
--------- ---------
Less:
Accumulated benefit obligation, including vested benefits
of $308,474 and $347,603 in 1994 and 1993, respectively ................ 333,564 372,364
Effect of projected future compensation increases .............................. 112,780 127,388
--------- ---------
Total projected benefit obligation ..................................................... 446,344 499,752
--------- ---------
Plan assets less than projected benefit obligation ..................................... (58,334) (81,814)
Plus:
Unrecognized net loss (gain) from past experience
different from that assumed ............................................ (9,372) 51,361
Unrecognized prior service cost ................................................ 25,527 14,717
Unrecognized net transition asset .............................................. (36,025) (39,242)
--------- ---------
Accrued pension liability .............................................................. $ (78,204) $ (54,978)
========= =========
Principal actuarial assumptions used were:
Discount rate .................................................................. 8.75% 7.50%
Rate of increase in compensation levels ........................................ 5.00% 5.00%
Expected long-term rate of return on assets .................................... 9.00% 9.50%
In addition to the defined benefit pension plan described above, the Company
also sponsors qualified defined contribution plans. Collectively, these plans
cover substantially all employees. The plans provide for employee contributions
and partial employer matching contributions after certain eligibility
requirements are met. The cost of these plans for 1994, 1993 and 1992 was $6.8
million, $6.3 million and $5.3 million, respectively, of which $3.2 million,
$3.0 million and $2.5 million, respectively, was charged to expense.
Postretirement Plans
The Company provides medical and life insurance benefits to its retired
employees. Employees may become eligible for these retirement benefits based on
years of service and age. The retiree medical insurance plans are contributory;
the retiree life insurance plan is noncontributory. In accordance with the
governing plan documents, the Company retains the right to change or eliminate
these benefits.
During 1993, the Company adopted SFAS No. 106, which requires the cost of
postretirement benefits be accrued during the years employees render service.
Prior to 1993, the costs of retiree benefits were recognized as expense when
claims were paid. This change had the effect of increasing 1994 and 1993 retiree
benefit costs from approximately $6 million in each year to $28 million and $34
million, respectively. The amount charged to expense for 1994 increased from
about $3 million to $13 million, and for 1993 increased from about $2 million to
$17 million. The balance was either capitalized or billed to others. The above
amounts include the amortization (over 20 years) of the initial postretirement
benefit obligation estimated at January 1, 1993, to be $183 million. Funding is
based upon actuarially determined contributions that take tax consequences into
account. Plan assets consist primarily of domestic stocks and bonds.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
The components of the net periodic postretirement benefit costs are as follows:
1994 1993
-------- --------
(Thousands of Dollars)
Service cost -- benefits earned during the period ..... $ 8,785 $ 9,510
Interest cost on accumulated benefit obligation ....... 14,026 15,630
Return on plan assets ................................. (6,459) --
Net amortization and deferral ......................... 11,619 9,146
-------- --------
Net periodic postretirement benefit cost .............. $ 27,971 $ 34,286
======== ========
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A reconciliation of the funded status of the plan to the amounts recognized
in the balance sheet is presented below:
1994 1993
--------- ---------
(Thousands of Dollars)
Plan assets at fair value .................................................................. $ 49,666 $ 28,154
--------- ---------
Less accumulated postretirement benefit obligation:
Retirees ................................................................... 65,552 86,972
Fully eligible plan participants ........................................... 9,128 10,013
Other active plan participants ............................................. 87,201 102,928
--------- ---------
Total accumulated postretirement benefit obligation ................ 161,881 199,913
--------- ---------
Plan assets less than accumulated benefit obligation ....................................... (112,215) (171,759)
Plus:
Unrecognized transition obligation ......................................... 164,627 173,773
Unrecognized net gain from past experience different from that
assumed ............................................................ (52,470) (2,072)
--------- ---------
Accrued postretirement liability ........................................................... $ (58) $ (58)
========= =========
Principal actuarial assumptions used were:
Discount rate .............................................................. 8.75% 7.50%
Annual salary increases for life insurance obligation ...................... 5.00% 5.00%
Expected long-term rate of return on assets ................................ 9.00% --
Initial health care cost trend rate -- under age 65 ........................ 11.50% 12.00%
Initial health care cost trend rate -- age 65 and over ..................... 8.50% 9.00%
Ultimate health care cost trend rate (reached in the year 2003) ............ 5.50% 5.50%
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
Assuming a one percent increase in the health care cost trend rate, the 1994
cost of postretirement benefits other than pensions would increase by
approximately $5 million and the accumulated benefit obligation as of December
31, 1994, would increase by approximately $31 million.
In 1993, the Company adopted SFAS No. 112. This standard required a change
from a cash method to an accrual method in accounting for benefits (such as
long-term disability) provided to former or inactive employees after employment
but before retirement. The adoption of this standard resulted in an increase in
1993 postemployment benefit expense of approximately $2 million.
10. Commitments and Contingencies
Litigation
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
ultimate resolution of these matters will not have a material adverse effect on
the operations or financial position of the Company.
Palo Verde Nuclear Generating Station
The Company has encountered tube cracking in steam generators and has taken,
and will continue to take, remedial actions that it believes have slowed further
tube problems to manageable levels. The Company believes that the Palo Verde
steam generators are capable of operating for their designed life of 40 years,
although at some point, long-term economic considerations may make steam
generator replacement desirable. All of the Palo Verde units were operating at
full power at December 31, 1994.
The Palo Verde participants have insurance for public liability payments
resulting from nuclear energy hazards to the full limit of liability under
federal law. This potential liability is covered by primary liability insurance
provided by commercial insurance carriers in the amount of $200 million and the
balance by an industry-wide retrospective assessment program. 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 for all three
units is approximately $69 million, with an annual payment limitation of
approximately $9 million.
The Palo Verde participants maintain "all risk" (including nuclear hazards)
insurance for property damage to, and decontamination of, property at Palo Verde
in the aggregate amount of $2.78 billion, a substantial portion of which must
first be applied to stabilization and decontamination. The Company has also
secured insurance against portions of any increased cost of generation or
purchased power and business interruption resulting from a sudden and unforeseen
outage of any of the three units. The insurance coverage discussed in this and
the previous paragraph is subject to certain policy conditions and exclusions.
El Paso Electric Company Bankruptcy
El Paso Electric Company (EPEC), one of the joint owners of Palo Verde and
Four Corners, has been operating under Chapter 11 of the Bankruptcy Code since
1992. A plan whereby EPEC would become a wholly-owned subsidiary of Central and
South West Corporation (CSW) has been confirmed by the bankruptcy court, but
cannot become fully effective until several other approvals are obtained. Under
the plan, certain issues, including EPEC allegations regarding the 1989-90 Palo
Verde outages, would be resolved, and EPEC would assume the joint facilities
operating agreements. CSW has stated that several matters have arisen which may
impede completion of the merger. If the plan is not approved, the Company does
not expect that there would be a material adverse effect on its operations or
financial position.
ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
Construction Program
Total construction expenditures in 1995 are estimated at $300 million,
excluding capitalized property taxes and capitalized interest.
Fuel and Purchased Power Commitments
The Company is a party to various fuel and purchased power contracts with
terms expiring from 1995 through 2020 that include required purchase provisions.
The Company estimates its 1995 contract requirements to be approximately $127
million. However, this amount may vary significantly pursuant to certain
provisions in such contracts which permit the Company to decrease its required
purchases under certain circumstances.
11. Selected Quarterly Financial Data (Unaudited)
Quarterly financial information for 1994 and 1993 is as follows:
Electric
Operating Operating Net Earnings for
Quarter Revenues(a) Income(b) Income Common Stock
------- ----------- --------- -------- -------------
(Thousands of Dollars)
1994
First ........... $346,049 $ 67,147 $ 38,468 $ 30,958
Second .......... 397,156 83,607 65,851 58,879
Third ........... 540,883 155,115 116,267 110,359
Fourth .......... 342,080 62,564 22,900 18,016
1993
First ........... $353,891 $ 79,441 $ 47,166 $ 39,277
Second .......... 387,871 92,264 61,364 53,716
Third ........... 497,282 132,639 102,911 95,617
Fourth .......... 363,369 68,144 38,945 30,936
(a) Consistent with the presentation for the quarter ended December 31, 1994,
prior quarters' electric operating revenues and other taxes have been
restated to exclude sales tax on electric revenues.
(b) The Company's operations are subject to seasonal fluctuations primarily as a
result of weather conditions. The results of operations for interim periods
are not necessarily indicative of the results to be expected for the full
year.
12. Fair Value of Financial Instruments
The Company estimates that the carrying amounts of its cash equivalents and
commercial paper are reasonable estimates of their fair values at December 31,
1994 and 1993 due to their short maturities. The December 31, 1994 and 1993 fair
values of debt and equity investments, determined by using quoted market values
or by discounting cash flows at rates equal to its cost of capital, approximate
their carrying amounts. Investments in debt and equity securities are held for
purposes other than trading.
On December 31, 1994, the carrying amount of long-term debt (excluding $26
million of capital lease obligations) was $2.16 billion and its estimated fair
value was approximately $1.99 billion. On December 31, 1993, the carrying amount
of long-term debt (excluding $30 million of capital lease obligations) was $2.10
billion and its estimated fair value was approximately $2.26 billion. The fair
value estimates were determined by independent sources using quoted market rates
where available. Where market prices were not available, the fair values were
based on market values of comparable instruments.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT
Reference is hereby made to "Election of Directors" in the Company's Proxy
Statement relating to the annual meeting of shareholders to be held on May 16,
1995 (the "1995 Proxy Statement") and to the Supplemental Item -- "Executive
Officers of the Registrant" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Reference is hereby made to the fourth paragraph under the heading "The
Board and its Committees," and to "Executive Compensation" in the 1995 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is hereby made to "Principal Holders of Voting Securities" and
"Ownership of Pinnacle West Securities by Management" in the 1995 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the last paragraph under the heading "The Board
and its Committees" in the 1995 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements
See the Index to Financial Statements in Part II, Item 8 on page 19.
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Exhibits Filed
Exhibit No. Description
----------- -----------
3.1 -- Bylaws, amended as of November 19, 1991
3.2 -- Resolution of Board of Directors temporarily suspending Bylaws in part
10.1 -- Amendment No. 1 to Decommissioning Trust Agreement (PVNGS Unit 1) dated as of December
1, 1994
10.2 -- Amendment No. 1 to Decommissioning Trust Agreement (PVNGS Unit 3) dated as of December
1, 1994
10.3 -- Amendment No. 2 to Amended and Restated Decommissioning Trust Agreement (PVNGS Unit 2)
dated as of November 1, 1994
10.4a -- 1995 Key Employee Variable Pay Plan
10.5a -- 1995 Officers Variable Pay Plan
10.6a -- Letter Agreement dated December 21, 1993, between the Company and William L. Stewart
10.7a -- Pinnacle West Capital Corporation and Arizona Public Service Company Directors'
Retirement Plan
10.8ac -- Second revised form of Key Executive Employment and Severance Agreement between the
Company and certain key employees of the Company
10.9ac -- Second revised form of Key Executive Employment and Severance Agreement between the
Company and certain executive officers of the Company
23.1 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule
In addition to those Exhibits shown above, the Company hereby incorporates
the following Exhibits pursuant to Exchange Act Rule 12b-32 and Regulation
ss201.24 by reference to the filings set forth below:
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Exhibit No. Description Originally Filed as Exhibit: File No. Date Effective
----------- ----------- ---------------------------- -------- --------------
3.3 Articles of Incorporation, restated as of 4.2 to Form S-3 Registration Nos. 1-4473 9-29-93
May 25, 1988 33-33910 and 33-55248 by means of
September 24, 1993 Form 8-K Report
3.4 Certificates pursuant to Sections 4.3 to Form S-3 Registration Nos. 1-4473 9-29-93
10-152.01 and 10-016, Arizona Revised 33-33910 and 33-55248 by means of
Statutes, establishing Series A through V September 24, 1993 Form 8-K Report
of the Company's Serial Preferred Stock
3.5 Certificate pursuant to Section 10-016, 4.4 to Form S-3 Registration Nos. 1-4473 9-29-93
Arizona Revised Statutes, establishing 33-33910 and 33-55248 by means of
Series W of the Company's Serial Preferred September 24, 1993 Form 8-K Report
Stock
4.1 Mortgage and Deed of Trust Relating to the 4.1 to September 1992 Form 10-Q Report 1-4473 11-9-92
Company's First Mortgage Bonds, together
with forty-eight indentures supplemental
thereto
4.2 Forty-ninth Supplemental Indenture 4.1 to 1992 Form 10-K Report 1-4473 3-30-93
4.3 Fiftieth Supplemental Indenture 4.2 to 1993 Form 10-K Report 1-4473 3-30-94
4.4 Fifty-first Supplemental Indenture 4.1 to August 1, 1993 Form 8-K Report 1-4473 9-27-93
4.5 Fifty-second Supplemental Indenture 4.1 to September 30, 1993 Form 10-Q 1-4473 11-15-93
Report
4.6 Fifty-third Supplemental Indenture 4.5 to Registration Statement No. 1-4473 3-1-94
33-61228 by means of February 23, 1994
Form 8-K Report
4.7 Agreement, dated March 21, 1994, relating 4.1 to 1993 Form 10-K Report 1-4473 3-30-94
to the filing of instruments defining the
rights of holders of long-term debt not in
excess of 10% of the Company's total
assets
10.10 Two separate Decommissioning Trust 10.2 to September 1991 Form 10-Q 1-4473 11-14-91
Agreements (relating to PVNGS Units 1 and Report
3, respectively), each dated July 1,
1991, between the Company and Mellon
Bank, N.A., as Decommissioning Trustee
10.11 Amended and Restated Decommissioning Trust 10.1 to Pinnacle West 1991 Form 10-K 1-8962 3-26-92
Agreement (PVNGS Unit 2) dated as of Report
January 31, 1992, among the Company,
Mellon Bank, N.A., as Decommissioning
Trustee, and the First National Bank of
Boston, as Owner Trustee under two
separate Trust Agreements, each with a
separate Equity Participant, and as
Lessor under two separate Facility
Leases, each relating to an undivided
interest in PVNGS Unit 2
10.12 First Amendment to Amended and Restated 10.2 to 1992 Form 10-K Report 1-4473 3-30-93
Decommissioning Trust Agreement (PVNGS
Unit 2), dated as of November 1, 1992
10.13 Asset Purchase and Power Exchange 10.1 to June 1991 Form 10-Q Report 1-4473 8-8-91
Agreement dated September 21, 1990 between
the Company and PacifiCorp, as amended as
of October 11, 1990 and as of July 18,
1991
10.14 Long-Term Power Transactions Agreement 10.2 to June 1991 Form 10-Q Report 1-4473 8-8-91
dated September 21, 1990 between the
Company and PacifiCorp, as amended as of
October 11, 1990, and as of July 8, 1991
10.15 Contract, dated July 21, 1984, with DOE 10.31 to Pinnacle West's Form S-14 2-96386 3-13-85
providing for the disposal of nuclear fuel Registration Statement
and/or high-level radioactive waste, ANPP
10.16 Indenture of Lease with Navajo Tribe of 5.01 to Form S-7 Registration 2-59644 9-1-77
Indians, Four Corners Plant Statement
10.17 Supplemental and Additional Indenture of 5.02 to Form S-7 Registration 2-59644 9-1-77
Lease, including amendments and Statement
supplements to original lease with Navajo
Tribe of Indians, Four Corners Plant
10.18 Amendment and Supplement No. 1 to 10.36 to Registration Statement on 1-8962 7-25-85
Supplemental and Additional Indenture of Form 8-B of Pinnacle West
Lease, Four Corners, dated April 25, 1985
10.19 Application and Grant of multi-party 5.04 to Form S-7 Registration 2-59644 9-1-77
rights-of-way and easements, Four Corners Statement
Plant Site
10.20 Application and Amendment No. 1 to Grant 10.37 to Registration Statement on 1-8962 7-25-85
of multi-party rights-of-way and Form 8-B of Pinnacle West
easements, Four Corners Power Plant Site,
dated April 25, 1985
10.21 Application and Grant of Arizona Public 5.05 to Form S-7 Registration 2-59644 9-1-77
Service Company rights-of-way and Statement
easements, Four Corners Plant Site
10.22 Application and Amendment No. 1 to Grant 10.38 to Registration Statement on 1-8962 7-25-85
of Arizona Public Service Company rights- Form 8-B of Pinnacle West
of-way and easements, Four Corners Power
Plant Site, dated April 25, 1985
10.23 Indenture of Lease, Navajo Units 1, 2, and 5(g) to Form S-7 Registration 2-36505 3-23-70
3 Statement
10.24 Application and Grant of rights-of-way and 5(h) to Form S-7 Registration 2-36505 3-23-70
easements, Navajo Plant Statement
10.25 Water Service Contract Assignment with the 5(l) to Form S-7 Registration 2-39442 3-16-71
United States Department of Interior, Statement
Bureau of Reclamation, Navajo Plant
10.26 Arizona Nuclear Power Project 10.1 to 1988 Form 10-K Report 1-4473 3-8-89
Participation Agreement, dated August 23,
1973, among the Company, Salt River
Project Agricultural Improvement and Power
District, Southern California Edison
Company, Public Service Company of New
Mexico, El Paso Electric Company, Southern
California Public Power Authority, and
Department of Water and Power of the City
of Los Angeles, and amendments 1-12
thereto
10.27 Amendment No. 13 dated as of April 22, 10.1 to March 1991 Form 10-Q Report 1-4473 5-15-91
1991, to Arizona Nuclear Power Project
Participation Agreement, dated August 23,
1973, among the Company, Salt River
Project Agricultural Improvement and
Power District, Southern California
Edison Company, Public Service Company of
New Mexico, El Paso Electric Company,
Southern California Public Power
Authority, and Department of Water and
Power of the City of Los Angeles
10.28b Facility Lease, dated as of August 1, 4.3 to Form S-3 Registration Statement 33-9480 10-24-86
1986, between The First National Bank of
Boston, in its capacity as Owner Trustee,
as Lessor, and the Company, as Lessee
10.29b Amendment No. 1, dated as of November 1, 10.5 to September 1986 Form 10-Q 1-4473 12-4-86
1986, to Facility Lease, dated as of Report by means of Amendment No. 1 on
August 1, 1986, between The First National December 3, 1986 Form 8
Bank of Boston, in its capacity as Owner
Trustee, as Lessor, and the Company, as
Lessee
10.30b Amendment No. 2 dated as of June 1, 1987 10.3 to 1988 Form 10-K Report 1-4473 3-8-89
to Facility Lease dated as of August 1,
1986 between The First National Bank of
Boston, as Lessor, and APS, as Lessee
10.31b Amendment No. 3, dated as of March 17, 10.3 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Facility Lease, dated as of
August 1, 1986, between The First
National Bank of Boston, as Lessor, and
the Company, as Lessee
10.32 Cure and Assumption Agreement dated as of 10.1 to 1993 Form 10-K Report 1-4473 3-30-94
November 19, 1993 among the Company, Salt
River Project Agricultural Improvement and
Power District, Southern California Edison
Company, Public Service Company of New
Mexico, Southern California Public Power
Authority, Department of Water and Power
of the City of Los Angeles, and El Paso
Electric Company, and certain schedules
thereto
10.33 Facility Lease, dated as of December 15, 10.1 to November 18, 1986 Form 8-K 1-4473 1-20-87
1986, between The First National Bank of Report
Boston, in its capacity as Owner Trustee,
as Lessor, and the Company, as Lessee
10.34 Amendment No. 1, dated as of August 1, 4.13 to Form S-3 Registration 1-4473 8-24-87
1987, to Facility Lease, dated as of Statement No. 33-9480 by means of
December 15, 1986, between The First August 1, 1987 Form 8-K Report
National Bank of Boston, as Lessor, and
the Company, as Lessee
10.35 Amendment No. 2, dated as of March 17, 10.4 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Facility Lease, dated as of
December 15, 1986, between The First
National Bank of Boston, as Lessor, and
the Company, as Lessee
10.36a Directors' Deferred Compensation Plan, as 10.1 to June 1986 Form 10-Q Report 1-4473 8-13-86
restated, effective January 1, 1986
10.37a Second Amendment to the Arizona Public 10.2 to 1993 Form 10-K Report 1-4473 3-30-94
Service Company Directors' Deferred
Compensation Plan, effective as of January
1, 1993
10.38a Third Amendment to the Arizona Public 10.1 to September 1994 Form 10-Q 1-4473 11-10-94
Service Company Directors' Deferred
Compensation Plan
10.39a Arizona Public Service Company Deferred 10.4 to 1988 Form 10-K Report 1-4473 3-8-89
Compensation Plan, as restated, effective
January 1, 1984, and the second and third
amendments thereto, dated December 22,
1986, and December 23, 1987, respectively
10.40a Third Amendment to the Arizona Public 10.3 to 1993 Form 10-K Report 1-4473 3-30-94
Service Company Deferred Compensation
Plan, effective as of January 1, 1993
10.41a Fourth Amendment to the Arizona Public 10.2 to September 1994 Form 10-Q 1-4473 11-10-94
Service Company Deferred Compensation Plan Report
10.42a Agreement for Utility Consulting Services, 10.6 to 1988 Form 10-K Report 1-4473 3-8-89
dated March 1, 1985, between the Company
and Thomas G. Woods, Jr., and Amendment
No. 1 thereto, dated January 6, 1986
10.43a Letter Agreement, dated April 3, 1978, 10.7 to 1988 Form 10-K Report 1-4473 3-8-89
between the Company and O. Mark DeMichele,
regarding certain retirement benefits
granted to Mr. DeMichele
10.44ac Key Executive Employment and Severance 10.3 to 1989 Form 10-K Report 1-4473 3-8-90
Agreement between the Company and certain
executive officers of the Company
10.45ac Revised form of Key Executive Employment 10.5 to 1993 Form 10-K Report 1-4473 3-30-94
and Severance Agreement between the
Company and certain executive officers of
the Company
10.46ac Key Executive Employment and Severance 10.4 to 1989 Form 10-K Report 1-4473 3-8-90
Agreement between the Company and certain
managers of the Company
10.47ac Revised form of Key Executive Employment 10.4 to 1993 Form 10-K Report 1-4473 3-30-94
and Severance Agreement between the
Company and certain key employees of the
Company
10.48a Arizona Public Service Company Performance 10.5 to 1989 Form 10-K Report 1-4473 3-8-90
Review Severance Pay Plan, effective
January 1, 1990
10.49a Arizona Public Service Company Severance 10.1 to September 30, 1993 Form 10-Q 1-4473 11-15-93
Plan Report
10.50a Pinnacle West Capital Corporation Stock 10.1 to 1992 Form 10-K Report 1-4473 3-30-93
Option and Incentive Plan
10.51a Pinnacle West Capital Corporation 1994 A to the Proxy Statement for the 1-8962 4-16-94
Long-Term Incentive Plan Pinnacle West 1994 Annual Meeting of
Shareholders
10.52a Pinnacle West Capital Corporation, Arizona 10.1 to 1991 Form 10-K Report 1-4473 3-19-92
Public Service Company, SunCor Development
Company, and El Dorado Investment Company
Deferred Compensation Plan, effective
January 1, 1992
10.53a Amendment to Pinnacle West Capital 10.6 to 1993 Form 10-K Report 1-4473 3-30-94
Corporation, Arizona Public Service
Company, SunCor Development Company, and
El Dorado Investment Company Deferred
Compensation Plan, effective as of
December 4, 1992
10.54a Pinnacle West Capital Corporation, Arizona 10.7 to 1993 Form 10-K Report 1-4473 3-30-94
Public Service Company, SunCor Development
Company, and El Dorado Investment Company
Supplemental Executive Benefit Plan as
amended and restated on December 31, 1992
effective as of January 1, 1992
10.55a Arizona Public Service Company 10.8 to 1993 Form 10-K Report 1-4473 3-30-94
Supplemental Excess Benefit Retirement
Plan and the First, Second, and Third
Amendments thereto
10.56 Agreement No. 13904 (Option and Purchase 10.3 to 1991 Form 10-K Report 1-4473 3-19-92
of Effluent) with Cities of Phoenix,
Glendale, Mesa, Scottsdale, Tempe, Town of
Youngtown, and Salt River Project
Agricultural Improvement and Power
District, dated April 23, 1973
10.57 Agreement for the Sale and Purchase of 10.4 to 1991 Form 10-K Report 1-4473 3-19-92
Wastewater Effluent with City of Tolleson
and Salt River Agricultural Improvement
and Power District, dated June 12, 1981,
including Amendment No. 1 dated as of
November 12, 1981 and Amendment No. 2
dated as of June 4, 1986
99.1 Collateral Trust Indenture among PVNGS II 4.2 to 1992 Form 10-K Report 1-4473 3-30-93
Funding Corp., Inc., the Company and
Chemical Bank, as Trustee
99.2 Supplemental Indenture to Collateral Trust 4.3 to 1992 Form 10-K Report 1-4473 3-30-93
Indenture among PVNGS II Funding Corp.,
Inc., the Company and Chemical Bank, as
Trustee
99.3 b Participation Agreement, dated as of 28.1 to September 1992 Form 10-Q 1-4473 11-9-92
August 1, 1986, among PVNGS Funding Corp., Report
Inc., Bank of America National Trust and
Savings Association, The First National
Bank of Boston, in its individual
capacity and as Owner Trustee, Chemical
Bank, in its individual capacity and as
Indenture Trustee, the Company, and the
Equity Participant named therein
99.4 b Amendment No. 1 dated as of November 1, 10.8 to September 1986 Form 10-Q 1-4473 12-4-86
1986, to Participation Agreement, dated as Report by means of Amendment No. 1, on
of August 1, 1986, among PVNGS Funding December 3, 1986 Form 8
Corp., Inc., Bank of America National
Trust and Savings Association, The First
National Bank of Boston, in its
individual capacity and as Owner Trustee,
Chemical Bank, in its individual capacity
and as Indenture Trustee, the Company,
and the Equity Participant named therein
99.5 b Amendment No. 2, dated as of March 17, 28.4 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Participation Agreement, dated as
of August 1, 1986, among PVNGS Funding
Corp., Inc., PVNGS II Funding Corp.,
Inc., The First National Bank of Boston,
in its individual capacity and as Owner
Trustee, Chemical Bank, in its individual
capacity and as Indenture Trustee, the
Company, and the Equity Participant named
therein
99.6 b Trust Indenture, Mortgage, Security 4.5 to Form S-3 Registration Statement 33-9480 10-24-86
Agreement and Assignment of Facility
Lease, dated as of August 1, 1986, between
The First National Bank of Boston, as
Owner Trustee, and Chemical Bank, as
Indenture Trustee
99.7 b Supplemental Indenture No. 1, dated as of 10.6 to September 1986 Form 10-Q 1-4473 12-4-86
November 1, 1986 to Trust Indenture, Report by means of Amendment No. 1 on
Mortgage, Security Agreement and December 3, 1986 Form 8
Assignment of Facility Lease, dated as of
August 1, 1986, between The First National
Bank of Boston, as Owner Trustee, and
Chemical Bank, as Indenture Trustee
99.8 b Supplemental Indenture No. 2 to Trust 4.4 to 1992 Form 10-K Report 1-4473 3-30-93
Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease, dated as
of August 1, 1986, between The First
National Bank of Boston, as Owner Trustee,
and Chemical Bank, as Indenture Trustee
99.9 b Assignment, Assumption and Further 28.3 to Form S-3 Registration 33-9480 10-24-86
Agreement, dated as of August 1, 1986, Statement
between the Company and The First National
Bank of Boston, as Owner Trustee
99.10b Amendment No. 1, dated as of November 1, 10.10 to September 1986 Form 10-Q 1-4473 12-4-86
1986, to Assignment, Assumption and Report by means of Amendment No. 1 on
Further Agreement, dated as of August 1, December 3, 1986 Form 8
1986, between the Company and The First
National Bank of Boston, as Owner Trustee
99.11b Amendment No. 2, dated as of March 17, 28.6 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Assignment, Assumption and
Further Agreement, dated as of August 1,
1986, between the Company and The First
National Bank of Boston, as Owner Trustee
99.12 Participation Agreement, dated as of 28.2 to September 1992 Form 10-Q 1-4473 11-9-92
December 15, 1986, among PVNGS Funding Report
Corp., Inc., The First National Bank of
Boston, in its individual capacity and as
Owner Trustee, Chemical Bank, in its
individual capacity and as Indenture
Trustee under a Trust Indenture, the
Company, and the Owner Participant named
therein
99.13 Amendment No. 1, dated as of August 1, 28.20 to Form S-3 Registration 1-4473 8-10-87
1987, to Participation Agreement, dated as Statement No. 33-9480 by means of a
of December 15, 1986, among PVNGS Funding November 6, 1986 Form 8-K Report
Corp., Inc. as Funding Corporation, The
First National Bank of Boston, as Owner
Trustee, Chemical Bank, as Indenture
Trustee, the Company, and the Owner
Participant named therein
99.14 Amendment No. 2, dated as of March 17, 28.5 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Participation Agreement, dated as
of December 15, 1986, among PVNGS Funding
Corp., Inc., PVNGS II Funding Corp.,
Inc., The First National Bank of Boston,
in its individual capacity and as Owner
Trustee, Chemical Bank, in its individual
capacity and as Indenture Trustee, the
Company, and the Owner Participant named
therein
99.15 Trust Indenture, Mortgage, Security 10.2 to November 18, 1986 Form 8-K 1-4473 1-20-87
Agreement and Assignment of Facility Report
Lease, dated as of December 15, 1986,
between The First National Bank of Boston,
as Owner Trustee, and Chemical Bank, as
Indenture Trustee
99.16 Supplemental Indenture No. 1, dated as of 4.13 to Form S-3 Registration 1-4473 8-24-87
August 1, 1987, to Trust Indenture, Statement No. 33-9480 by means of
Mortgage, Security Agreement and August 1, 1987 Form 8-K Report
Assignment of Facility Lease, dated as of
December 15, 1986, between The First
National Bank of Boston, as Owner Trustee,
and Chemical Bank, as Indenture Trustee
99.17 Supplemental Indenture No. 2 to Trust 4.5 to 1992 Form 10-K Report 1-4473 3-30-93
Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease, dated as
of December 15, 1986, between The First
National Bank of Boston, as Owner Trustee,
and Chemical Bank, as Indenture Trustee
99.18 Assignment, Assumption and Further 10.5 to November 18, 1986 Form 8-K 1-4473 1-20-87
Agreement, dated as of December 15, 1986, Report
between the Company and The First National
Bank of Boston, as Owner Trustee
99.19 Amendment No. 1, dated as of March 17, 28.7 to 1992 Form 10-K Report 1-4473 3-30-93
1993, to Assignment, Assumption and
Further Agreement, dated as of December
15, 1986, between the Company and The
First National Bank of Boston, as Owner
Trustee
99.20b Indemnity Agreement dated as of March 17, 28.3 to 1992 Form 10-K Report 1-4473 3-30-93
1993 by the Company
99.21 Extension Letter, dated as of August 13, 28.20 to Form S-3 Registration 1-4473 8-10-87
1987, from the signatories of the Statement No. 33-9480 by means of a
Participation Agreement to Chemical Bank November 6, 1986 Form 8-K Report
99.22 Pledge Agreement dated as of January 31, 28.1 to January 21, 1990 Form 8-K 1-4473 2-15-90
1990, between Pinnacle West Capital Report
Corporation as Pledgor and Citibank, N.A.
as Collateral Agent
99.23 Arizona Corporation Commission Order dated 28.1 to 1991 Form 10-K Report 1-4473 3-19-92
December 6, 1991
99.24 Rate Settlement Agreement dated April 30, 10.1 to March 1994 Form 10-Q Report 1-4473 5-16-94
1994, between the Company and the Arizona
Corporation Commission staff
99.25 Arizona Corporation Commission Order dated 10.1 to June 1994 Form 10-Q Report 1-4473 8-12-94
June 1, 1994
----------
a Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
b An additional document, substantially identical in all material respects
to this Exhibit, has been entered into, relating to an additional Equity
Participant. Although such additional document may differ in other respects
(such as dollar amounts, percentages, tax indemnity matters, and dates of
execution), there are no material details in which such document differs from
this Exhibit.
c Additional agreements, substantially identical in all material respects to
this Exhibit have been entered into with additional officers and key employees
of the Company. Although such additional documents may differ in other respects
(such as dollar amounts and dates of execution), there are no material details
in which such agreements differ from this Exhibit.
Reports on Form 8-K
During the quarter ended December 31, 1994, and the period ended March 29,
1995, the Company filed the following Reports on Form 8-K:
Report filed January 11, 1995 comprised of exhibits to the Company's
Registration Statements (Registration Nos. 33-61228 and 33-55473) relating to
the Company's offering of $75 million of its Junior Subordinated Deferrable
Interest Debentures.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARIZONA PUBLIC SERVICE COMPANY
(Registrant)
Date: March 29, 1995 O. MARK DEMICHELE
--------------------------------
(O. Mark DeMichele, President
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
O. MARK DEMICHELE Principal Executive Officer March 29, 1995
------------------------------- and Director
(O. Mark DeMichele,
President
and Chief Executive Officer)
WILLIAM J. POST Principal Accounting Officer March 29, 1995
------------------------------- and Director
(William J. Post, Senior
Vice President
and Chief Operating Officer)
JARON B. NORBERG Principal Financial Officer March 29, 1995
------------------------------- and Director
(Jaron B. Norberg, Executive
Vice President
and Chief Financial Officer)
KENNETH M. CARR Director March 29, 1995
-------------------------------
(Kenneth M. Carr)
MARTHA O. HESSE Director March 29, 1995
-------------------------------
(Martha O. Hesse)
MARIANNE MOODY JENNINGS Director March 29, 1995
-------------------------------
(Marianne Moody Jennings)
ROBERT G. MATLOCK Director March 29, 1995
-------------------------------
(Robert G. Matlock)
JOHN R. NORTON III Director March 29, 1995
-------------------------------
(John R. Norton III)
DONALD M. RILEY Director March 29, 1995
-------------------------------
(Donald M. Riley)
HENRY B. SARGENT Director March 29, 1995
-------------------------------
(Henry B. Sargent)
WILMA W. SCHWADA Director March 29, 1995
-------------------------------
(Wilma W. Schwada)
VERNE D. SEIDEL Director March 29, 1995
-------------------------------
(Verne D. Seidel)
RICHARD SNELL Director March 29, 1995
-------------------------------
(Richard Snell)
DIANNE C. WALKER Director March 29, 1995
-------------------------------
(Dianne C. Walker)
BEN F. WILLIAMS, JR. Director March 29, 1995
-------------------------------
(Ben F. Williams, Jr.)
THOMAS G. WOODS, JR. Director March 29, 1995
-------------------------------
(Thomas G. Woods, Jr.)
Commission File Number 1-4473
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
EXHIBITS TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
--------------
Arizona Public Service Company
(Exact name of registrant as specified in charter)
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INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
3.1 -- Bylaws, amended as of November 19, 1991
3.2 -- Resolution of Board of Directors temporarily suspending Bylaws in
part
10.1 -- Amendment No. 1 to Decommissioning Trust Agreement (PVNGS Unit 1)
dated as of December 1, 1994
10.2 -- Amendment No. 1 to Decommissioning Trust Agreement (PVNGS Unit 3)
dated as of December 1, 1994
10.3 -- Amendment No. 2 to Amended and Restated Decommissioning Trust
Agreement (PVNGS Unit 2) dated as of November 1, 1994
10.4a -- 1995 Key Employee Variable Pay Plan
10.5a -- 1995 Officers Variable Pay Plan
10.6a -- Letter Agreement dated December 21, 1993, between the Company and
William L. Stewart
10.7a -- Pinnacle West Capital Corporation and Arizona Public Service
Company Directors' Retirement Plan
10.8ac -- Second revised form of Key Executive Employment and Severance
Agreement between the Company and certain key employees of the
Company
10.9ac -- Second revised form of Key Executive Employment and Severance
Agreement between the Company and certain executive officers of the
Company
23.1 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule
----------
a Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
b An additional document, substantially identical in all material respects
to this Exhibit, has been entered into, relating to an additional Equity
Participant. Although such additional document may differ in other respects
(such as dollar amounts, percentages, tax indemnity matters, and dates of
execution), there are no material details in which such document differs from
this Exhibit.
c Additional agreements, substantially identical in all material respects to
this Exhibit have been entered into with additional officers and key employees
of the Company. Although such additional documents may differ in other respects
(such as dollar amounts and dates of execution), there are no material details
in which such agreements differ from this Exhibit.
For a description of the Exhibits incorporated in this filing by reference,
see Part IV, Item 14.
Dates Referenced Herein and Documents Incorporated by Reference
4 Subsequent Filings that Reference this Filing
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