SEC Info - Arizona Public Service Co - ‘10-Q’ for 3/31/96

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Arizona Public Service Co – ‘10-Q’ for 3/31/96

As of: Tuesday, 5/14/96 · For: 3/31/96 · Accession #: 950147-96-175 · File #: 1-04473

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/14/96  Arizona Public Service Co         10-Q        3/31/96    4:194K                                   Imperial Fin’l … Corp/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      16     66K 
 2: EX-10.1     Acc Order                                             71±   263K 
 3: EX-15.1     Letter in Lieu of Consent                              1      6K 
 4: EX-27.1     Financial Data Schedule                                2±     9K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Exhibits and Reports on Form 8-K Financial Statements Legal Proceedings Liquidity and Capital Resources Management's Discussion and Analysis of Financial Condition and Results Other Information Property Taxes
1	1st Page - Filing Submission
4	Item 1. Financial Statements
12	Item 2. Management's Discussion and Analysis of Financial Condition and Results
13	Liquidity and Capital Resources
14	Item 1. Legal Proceedings
"	Property Taxes
"	Item 5. Other Information
15	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 16 TOC ↑Top Previous Next ↓Bottom Just 1st
 
 FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                    
SECURITIES EXCHANGE ACT OF 1934                   

For the quarterly period ended       March 31, 1996                             
       ---------------------------
OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                   
SECURITIES EXCHANGE ACT OF 1934                 

For the transition period from                 to                               
                 ---------------    ----------------

Commission file number     1-4473                                               
-------------                     

ARIZONA PUBLIC SERVICE COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)

     Arizona                                                86-0011170
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer  
 incorporation or organization)                              Identification No.)

400 North Fifth Street, P.O. Box 53999, Phoenix, Arizona 85072-3999 
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code:  (602) 250-1000             

--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since           
last report)                                                                    

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.                                              

     Yes  X       No
             -----       -----

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.                                

Number of shares of common stock, $2.50 par value,
outstanding as of May 14, 1996: 71,264,947        

10-Q 2nd Page of 16 TOC 1st Previous Next ↓Bottom Just 2nd
 -i-

Glossary
--------

ACC    - Arizona Corporation Commission                                     

ACC Staff - Staff of the Arizona Corporation Commission                     

AFUDC - Allowance for funds used during construction                        

Company - Arizona Public Service Company                                    

EPA - Environmental Protection Agency                                       

ITC - Investment tax credit                                                 

  1995 10-K - Arizona  Public Service Company Annual Report on Form 10-K for the
fiscal year ended December 31, 1995                 

Palo Verde - Palo Verde Nuclear Generating Station                          

Pinnacle West   - Pinnacle West Capital Corporation                         

PRP's - Potentially Responsible Parties                                     

SEC - Securities and Exchange Commission                                    

Superfund  -  Comprehensive Environmental Response,                         
Compensation, and Liability Act                 

10-Q 3rd Page of 16 TOC 1st Previous Next ↓Bottom Just 3rd
INDEPENDENT ACCOUNTANTS' REPORT                                             

Arizona Public Service Company:                                             

  We have reviewed the  accompanying  condensed  balance sheet of Arizona Public
  Service Company as of March 31, 1996 and the related  condensed  statements of
  income for the three-month and  twelve-month  periods ended March 31, 1996 and
  1995 and cash flows for the three-month periods ended March 31, 1996 and 1995.
  These condensed  financial  statements are the responsibility of the Company's
management.                                                                 

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with  generally  accepted  auditing  standards,  the  objective  of which is the
expression of an opinion  regarding the financial  statements  taken as a whole.
Accordingly, we do not express such an opinion.                                 

  Based on our  review,  we are not  aware of any  material  modifications  that
  should  be made to  such  condensed  financial  statements  for  them to be in
conformity with generally accepted accounting principles.                   

  We have previously  audited,  in accordance with generally  accepted  auditing
  standards,  the balance sheet of Arizona Public Service Company as of December
  31, 1995 and the related  statements of income,  retained  earnings,  and cash
  flows for the year then ended (not presented herein);  and in our report dated
  March 1,  1996,  we  expressed  an  unqualified  opinion  on  those  financial
  statements.  In our opinion,  the  information  set forth in the  accompanying
  condensed  balance  sheet as of December 31, 1995,  is fairly  stated,  in all
  material  respects,  in relation  to the balance  sheet from which it has been
derived.                                                                    

DELOITTE & TOUCHE LLP                                                       
DELOITTE & TOUCHE LLP                                                       
Phoenix, Arizona                                                            
May 2, 1996                                                                 

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 -2-

PART I - FINANCIAL INFORMATION
------------------------------

Item 1. Financial Statements                                            
----------------------------                                            

ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
------------------------------
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                              Three Months      
                                                                             Ended March 31,    
                                                           -------------------------------------
                                                                 1996                 1995      
                                                           ----------------    -----------------
                                                                   (Thousands of Dollars)       

                                                                                                
ELECTRIC OPERATING REVENUES  . . . . . . . . . . . . . . . $       345,261     $        336,968 
                                                           ----------------    -----------------

FUEL EXPENSES:                                                                                  
  Fuel for electric generation . . . . . . . . . . . . . .          42,334               46,710 
  Purchased power  . . . . . . . . . . . . . . . . . . . .          13,938                8,210 
                                                           ----------------    -----------------
     Total . . . . . . . . . . . . . . . . . . . . . . . .          56,272               54,920 
                                                           ----------------    -----------------
OPERATING REVENUES LESS FUEL EXPENSES  . . . . . . . . . .         288,989              282,048 
                                                           ----------------    -----------------

OTHER OPERATING EXPENSES:                                                                       
  Operations excluding fuel expenses . . . . . . . . . . .          63,769               65,566 
  Maintenance  . . . . . . . . . . . . . . . . . . . . . .          23,974               25,866 
  Depreciation and amortization  . . . . . . . . . . . . .          58,386               60,426 
  Income taxes . . . . . . . . . . . . . . . . . . . . . .          31,359               21,622 
  Other taxes  . . . . . . . . . . . . . . . . . . . . . .          33,979               35,354 
                                                           ----------------    -----------------
     Total . . . . . . . . . . . . . . . . . . . . . . . .         211,467              208,834 
                                                           ----------------    -----------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . .          77,522               73,214 
                                                           ----------------    -----------------

OTHER INCOME (DEDUCTIONS):                                                                      
  AFUDC - equity . . . . . . . . . . . . . . . . . . . .             1,675                1,186 
  Other - net  . . . . . . . . . . . . . . . . . . . . . .            (291)               4,784 
  Income taxes . . . . . . . . . . . . . . . . . . . . .             5,650                1,722 
                                                           ----------------    -----------------
     Total . . . . . . . . . . . . . . . . . . . . . . . .           7,034                7,692 
                                                           ----------------    -----------------
INCOME BEFORE INTEREST DEDUCTIONS  . . . . . . . . . . . .          84,556               80,906 
                                                           ----------------    -----------------

INTEREST DEDUCTIONS:                                                                            
  Interest on long-term debt . . . . . . . . . . . . . . .          37,400               41,872 
  Interest on short-term borrowings  . . . . . . . . . . .           2,670                1,224 
  Debt discount, premium and expense . . . . . . . . . . .           2,117                1,974 
  AFUDC - debt . . . . . . . . . . . . . . . . . . . . .            (3,237)              (1,996)
                                                           ----------------    -----------------
     Total . . . . . . . . . . . . . . . . . . . . . . . .          38,950               43,074 
                                                           ----------------    -----------------

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . .          45,606               37,832 
PREFERRED STOCK DIVIDEND REQUIREMENTS  . . . . . . . . . .           4,477                4,807 
                                                           ----------------    -----------------
EARNINGS FOR COMMON STOCK  . . . . . . . . . . . . . . . . $        41,129     $         33,025 
                                                           ================    =================

See Notes to Condensed Financial Statements.                            

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ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
------------------------------
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                              Twelve Months     
                                                                             Ended March 31,    
                                                           -------------------------------------
                                                                 1996                 1995      
                                                           ----------------    -----------------
                                                                   (Thousands of Dollars)       

                                                                                                
ELECTRIC OPERATING REVENUES  . . . . . . . . . . . . . . . $     1,623,245     $      1,617,087 
                                                           ----------------    -----------------

FUEL EXPENSES:                                                                                  
  Fuel for electric generation . . . . . . . . . . . . . .         204,552              225,845 
  Purchased power  . . . . . . . . . . . . . . . . . . . .          66,598               61,733 
                                                           ----------------    -----------------
     Total . . . . . . . . . . . . . . . . . . . . . . . .         271,150              287,578 
                                                           ----------------    -----------------
OPERATING REVENUES LESS FUEL EXPENSES  . . . . . . . . . .       1,352,095            1,329,509 
                                                           ----------------    -----------------

OTHER OPERATING EXPENSES:                                                                       
  Operations excluding fuel expenses . . . . . . . . . . .         283,045              291,522 
  Maintenance  . . . . . . . . . . . . . . . . . . . . . .         114,080              114,210 
  Depreciation and amortization  . . . . . . . . . . . . .         240,058              238,624 
  Income taxes . . . . . . . . . . . . . . . . . . . . .           188,602              168,688 
  Other taxes  . . . . . . . . . . . . . . . . . . . . . .         140,248              141,965 
                                                           ----------------    -----------------
     Total . . . . . . . . . . . . . . . . . . . . . . . .         966,033              955,009 
                                                           ----------------    -----------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . .         386,062              374,500 
                                                           ----------------    -----------------

OTHER INCOME (DEDUCTIONS):                                                                      
  AFUDC - equity . . . . . . . . . . . . . . . . . . . .             5,471                4,281 
  Palo Verde accretion income  . . . . . . . . . . . . .                --               13,616 
  Other - net  . . . . . . . . . . . . . . . . . . . . . .         (22,107)              21,195 
  Income taxes . . . . . . . . . . . . . . . . . . . . .            41,526                 (527)
                                                           ----------------    -----------------
     Total . . . . . . . . . . . . . . . . . . . . . . . .          24,890               38,565 
                                                           ----------------    -----------------
INCOME BEFORE INTEREST DEDUCTIONS  . . . . . . . . . . . .         410,952              413,065 
                                                           ----------------    -----------------

INTEREST DEDUCTIONS:                                                                            
  Interest on long-term debt . . . . . . . . . . . . . . .         155,560              162,236 
  Interest on short-term borrowings  . . . . . . . . . . .           9,589                5,834 
  Debt discount, premium and expense . . . . . . . . . . .           8,765                8,416 
  AFUDC - debt . . . . . . . . . . . . . . . . . . . . .           (10,306)              (6,271)
                                                           ----------------    -----------------
     Total . . . . . . . . . . . . . . . . . . . . . . . .         163,608              170,215 
                                                           ----------------    -----------------

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . .         247,344              242,850 
PREFERRED STOCK DIVIDEND REQUIREMENTS  . . . . . . . . . .          18,804               22,571 
                                                           ----------------    -----------------
EARNINGS FOR COMMON STOCK  . . . . . . . . . . . . . . . . $       228,540     $        220,279 
                                                           ================    =================

See Notes to Condensed Financial Statements.                            

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ARIZONA PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
------------------------

ASSETS
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                 March 31,          December 31,  
                                                                   1996                 1995      
                                                               --------------       --------------

                                                                       (Thousands of Dollars)     
                                                                                                  
UTILITY PLANT:                                                                                    
    Electric plant in service and held for future use  . . . $     6,559,022     $      6,544,860 
    Less accumulated depreciation and amortization . . . . .       2,279,736            2,231,614 
                                                             ----------------    -----------------
       Total . . . . . . . . . . . . . . . . . . . . . . . .       4,279,286            4,313,246 
    Construction work in progress  . . . . . . . . . . . . .         300,552              281,757 
    Nuclear fuel, net of amortization  . . . . . . . . . . .          59,788               52,084 
                                                             ----------------    -----------------
       Utility plant - net . . . . . . . . . . . . . . . . .       4,639,626            4,647,087 
                                                             ----------------    -----------------

INVESTMENTS AND OTHER ASSETS :. . . . . . . . . . . . . . .          104,355               97,742 
                                                             ----------------    -----------------

CURRENT ASSETS:                                                                                   
    Cash and cash equivalents  . . . . . . . . . . . . . . .          20,300               18,389 
    Accounts receivable:                                                                          
       Service customers . . . . . . . . . . . . . . . . . .          86,595              100,433 
       Other . . . . . . . . . . . . . . . . . . . . . . . .          18,753               28,107 
       Allowance for doubtful accounts . . . . . . . . . . .          (1,288)              (1,656)
    Accrued utility revenues . . . . . . . . . . . . . . . .          44,090               53,519 
    Materials and supplies, at average cost  . . . . . . . .          77,660               78,271 
    Fossil fuel, at average cost   . . . . . . . . . . . . .          21,284               21,722 
    Deferred income taxes  . . . . . . . . . . . . . . . . .           5,637                5,653 
    Other  . . . . . . . . . . . . . . . . . . . . . . . . .          17,412               17,839 
                                                             ----------------    -----------------
       Total current assets  . . . . . . . . . . . . . . . .         290,443              322,277 
                                                             ----------------    -----------------

DEFERRED DEBITS:                                                                                  
    Regulatory asset for income taxes  . . . . . . . . . . .         546,881              548,464 
    Palo Verde Unit 3 cost deferral  . . . . . . . . . . . .         281,135              283,426 
    Palo Verde Unit 2 cost deferral  . . . . . . . . . . . .         164,358              165,873 
    Unamortized costs of reacquired debt . . . . . . . . . .          67,431               63,518 
    Unamortized debt issue costs . . . . . . . . . . . . . .          17,483               17,772 
    Other  . . . . . . . . . . . . . . . . . . . . . . . . .         273,713              272,103 
                                                             ----------------    -----------------
       Total deferred debits . . . . . . . . . . . . . . . .       1,351,001            1,351,156 
                                                             ----------------    -----------------

       TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $     6,385,425     $      6,418,262 
                                                             ================    =================

See Notes to Condensed Financial Statements.                                    

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ARIZONA PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
------------------------

 LIABILITIES
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                   March 31,          December 31,  
                                                                     1996                 1995      
                                                                 --------------       --------------

                                                                         (Thousands of Dollars)     
                                                                                                    
CAPITALIZATION:                                                                                     
    Common stock . . . . . . . . . . . . . . . . . . . . . .   $       178,162     $        178,162 
    Premiums and expense - net . . . . . . . . . . . . . . .         1,039,515            1,039,550 
    Retained earnings  . . . . . . . . . . . . . . . . . . .           402,472              403,843 
                                                               ----------------    -----------------
       Common stock equity . . . . . . . . . . . . . . . . .         1,620,149            1,621,555 
    Non-redeemable preferred stock . . . . . . . . . . . . .           174,089              193,561 
    Redeemable preferred stock . . . . . . . . . . . . . . .            72,000               75,000 
    Long-term debt less current maturities . . . . . . . . .         1,961,679            2,132,021 
                                                               ----------------    -----------------
       Total capitalization  . . . . . . . . . . . . . . . . .       3,827,917            4,022,137 
                                                               ----------------    -----------------

CURRENT LIABILITIES:                                                                                
    Commercial paper . . . . . . . . . . . . . . . . . . . .           159,600              177,800 
    Current maturities of long-term debt . . . . . . . . . .           153,512                3,512 
    Accounts payable . . . . . . . . . . . . . . . . . . . .            73,457              106,583 
    Accrued taxes  . . . . . . . . . . . . . . . . . . . . .           146,474               82,827 
    Accrued interest . . . . . . . . . . . . . . . . . . . .            29,430               41,549 
    Customer deposits  . . . . . . . . . . . . . . . . . . .            32,819               32,746 
    Other  . . . . . . . . . . . . . . . . . . . . . . . . .            30,377               21,134 
                                                               ----------------    -----------------
       Total current liabilities . . . . . . . . . . . . . .           625,669              466,151 
                                                               ----------------    -----------------

DEFERRED CREDITS AND OTHER:                                                                         
    Deferred income taxes  . . . . . . . . . . . . . . . . . .       1,429,059            1,429,482 
    Deferred investment tax credit . . . . . . . . . . . . .           109,898              115,353 
    Unamortized gain - sale of utility plant . . . . . . . .            90,371               91,514 
    Customer advances for construction . . . . . . . . . . .            20,730               19,846 
    Other  . . . . . . . . . . . . . . . . . . . . . . . . .           281,781              273,779 
                                                               ----------------    -----------------
       Total deferred credits and other  . . . . . . . . . .         1,931,839            1,929,974 
                                                               ----------------    -----------------

COMMITMENTS AND CONTINGENCIES  (Notes 6 and 7)                                                      

       TOTAL . . . . . . . . . . . . . . . . . . . . . . . .   $     6,385,425     $      6,418,262 
                                                               ================    =================

See Notes to Condensed Financial Statements.                                    

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ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
 (Unaudited)

                                                        [Enlarge/Download Table]

                                                                        Three Months            
                                                                       Ended March 31,          
                                                           -------------------------------------
                                                                 1996                 1995      
                                                           ----------------    -----------------
                                                                     (Thousands of Dollars)     
                                                                                                
Cash Flows from Operating Activities:                                                           
  Net income . . . . . . . . . . . . . . . . . . . . . . . $        45,606     $         37,832 
  Items not requiring cash:                                                                     
    Depreciation and amortization  . . . . . . . . . . . .          58,386               60,426 
    Nuclear fuel amortization  . . . . . . . . . . . . . .           8,357                7,723 
    AFUDC - equity . . . . . . . . . . . . . . . . . . . .          (1,675)              (1,186)
    Deferred income taxes - net  . . . . . . . . . . . . .           1,176                4,531 
    Deferred investment tax credit - net . . . . . . . . .          (5,455)              (3,858)
  Changes in certain current assets and liabilities:                                            
    Accounts receivable - net  . . . . . . . . . . . . . .          22,824               26,895 
    Accrued utility revenues . . . . . . . . . . . . . . .           9,429                9,885 
    Materials, supplies and fossil fuel  . . . . . . . . .           1,049               (1,035)
    Other current assets . . . . . . . . . . . . . . . . .             427               (2,829)
    Accounts payable . . . . . . . . . . . . . . . . . . .         (29,941)             (26,184)
    Accrued taxes  . . . . . . . . . . . . . . . . . . . .          63,647               53,529 
    Accrued interest . . . . . . . . . . . . . . . . . . .         (12,119)             (10,719)
    Other current liabilities  . . . . . . . . . . . . . .           9,617               10,302 
  Other - net  . . . . . . . . . . . . . . . . . . . . . .          12,608              (12,566)
                                                           ----------------    -----------------
      Net cash flow provided by operating activities . . .         183,936              152,746 
                                                           ----------------    -----------------

Cash Flows from Investing Activities:                                                           
  Capital expenditures . . . . . . . . . . . . . . . . . .         (60,138)             (69,548)
  Sale of Property . . . . . . . . . . . . . . . . . . . .           2,824                   -- 
  AFUDC - debt . . . . . . . . . . . . . . . . . . . . . .          (3,237)              (1,996)
  Other  . . . . . . . . . . . . . . . . . . . . . . . . .          (6,613)              (1,449)
                                                           ----------------    -----------------
      Net cash flow used for investing activities. . . . .         (67,164)             (72,993)
                                                           ----------------    -----------------

Cash Flows from Financing Activities:                                                           
  Long-term debt . . . . . . . . . . . . . . . . . . . . .          25,006               73,811 
  Short-term borrowings - net  . . . . . . . . . . . . . .         (18,200)             (51,000)
  Dividends paid on common stock . . . . . . . . . . . . .         (42,500)             (42,500)
  Dividends paid on preferred stock  . . . . . . . . . . .          (4,778)              (4,827)
  Repayment of preferred stock . . . . . . . . . . . . . .         (23,410)                  (4)
  Repayment and reacquisition of long-term debt  . . . . .         (50,979)             (51,867)
                                                           ----------------    -----------------
      Net cash flow used for financing activities  . . . .        (114,861)             (76,387)
                                                           ----------------    -----------------

Net increase in cash and cash equivalents  . . . . . . . .           1,911                3,366 
Cash and cash equivalents at beginning of period . . . . .          18,389                6,532 
                                                           ----------------    -----------------
Cash and cash equivalents at end of period . . . . . . . . $        20,300     $          9,898 
                                                           ================    =================

Supplemental Disclosure of Cash Flow Information:                                               
  Cash paid during the period for:                                                              
    Interest (excluding capitalized interest)  . . . . . . $    48,444         $         51,900 
    Income taxes . . . . . . . . . . . . . . . . . . . . . $       --          $             -- 

See Notes to Condensed Financial Statements.                                    

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ARIZONA PUBLIC SERVICE COMPANY

 NOTES TO CONDENSED FINANCIAL STATEMENTS

1. In the opinion of the Company, the accompanying unaudited condensed financial
statements  contain all adjustments  (consisting of normal  recurring  accruals)
necessary to present  fairly the  financial  position of the Company as of March
31, 1996, the results of operations for the three months and twelve months ended
March 31, 1996 and 1995, and the cash flows for the three months ended March 31,
1996 and 1995. It is suggested  that these  condensed  financial  statements and
notes  to  condensed  financial  statements  be read  in  conjunction  with  the
financial  statements  and notes to  financial  statements  included in the 1995
10-K.  Certain  prior year balances have been restated to conform to the current
year presentation.                                                              

2.  The  Company's  operations  are  subject  to  seasonal  fluctuations,   with
variations occurring in energy usage by customers from season to season and from
month to month  within a  season,  primarily  as a result  of  changing  weather
conditions.  For this and other  reasons,  the results of operations for interim
periods are not  necessarily  indicative  of the results to be expected  for the
full year.                                                                      

3. All the  outstanding  shares  of  common  stock of the  Company  are owned by
Pinnacle West. Pursuant to a Pledge Agreement, dated as of January 31, 1990, and
as part of a restructuring of substantially all of its outstanding indebtedness,
Pinnacle West granted  certain of its lenders a security  interest in all of the
Company's outstanding common stock.                                             

4. See  "Liquidity  and Capital  Resources" in Part I, Item 2 of this report for
changes in capitalization for the three months ended March 31, 1996.            

5.       Regulatory Matters                                                     

Regulatory Agreement                                                            

         In April 1996,  the ACC  approved a  regulatory  agreement  between the
Company  and the ACC Staff.  This  agreement  is  substantially  the same as the
agreement  proposed by the Company and the ACC Staff in December 1995. The major
provisions of the 1996 regulatory agreement are:                                

*     An annual rate reduction of approximately $48.5 million ($29 million after
      income  taxes),  or an  average  3.4%  for all  customers  except  certain
contract customers, effective July 1, 1996.                         

*     Recovery of substantially all of the Company's  present  regulatory assets
      through accelerated  amortization over an eight-year period beginning July
      1, 1996, increasing annual amortization by approximately $120 million ($72
million after income taxes).                                        

*     A  formula  for  sharing  future  cost  savings   between   customers  and
shareholders, referencing a return on equity (as defined) of 11.25%.

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-8- 

*     A  moratorium  on filing for  permanent  rate  changes,  except  under the
      sharing  formula and under certain other limited  circumstances,  prior to
July 2, 1999.                                                       

*     Infusion  of $200  million of common  equity  into the Company by Pinnacle
West, in annual increments of $50 million starting in 1996.         

         In recognition of evolving competition in the electric utility industry
and an ongoing investigation by the ACC Staff into industry  restructuring in an
open competition  docket involving many parties,  the agreement also includes an
element setting out a number of issues which the Company and the ACC Staff agree
the ACC should be requested to consider in  developing  restructuring  policies.
See Note 3 of Notes to Financial  Statements in Part II, Item 8 of the 1995 10-K
for further discussion of the industry restructuring element of the agreement.  

1994 Settlement Agreement                                                       

         In May 1994, the ACC approved a retail rate settlement  agreement which
provided for a net annual  retail rate  reduction of  approximately  $32 million
($19 million after income taxes), or 2.2% on average, effective June 1, 1994. As
part of the settlement,  in 1994 the Company reversed  approximately $20 million
of  depreciation  ($15 million after income taxes)  related to a 1991 Palo Verde
write-off.   The  1994  rate   settlement  also  provided  for  the  accelerated
amortization  of  substantially  all  deferred  ITCs  over  a  five-year  period
beginning  in 1995,  resulting  in a decrease  in annual  income tax  expense of
approximately $21 million.                                                      

6. The Palo Verde  participants  have  insurance for public  liability  payments
resulting  from  nuclear  energy  hazards to the full limit of  liability  under
federal law. This potential  liability is covered by primary liability insurance
provided by commercial  insurance carriers in the amount of $200 million and the
balance by an industry-wide  retrospective  assessment program. If losses at any
nuclear power plant  covered by this program  exceed the  accumulated  funds for
this program, the Company could be assessed  retrospective  premium adjustments.
The maximum  assessment per reactor under the program for each nuclear  incident
is  approximately  $79  million,  subject to an annual  limit of $10 million per
incident. Based upon the Company's 29.1% interest in the three Palo Verde units,
the Company's  maximum  potential  assessment per incident is approximately  $69
million, with an annual payment limitation of approximately $9 million.         

         The Palo Verde  participants  maintain  "all risk"  (including  nuclear
hazards) insurance for property damage to, and  decontamination  of, property at
Palo Verde in the aggregate  amount of $2.75 billion,  a substantial  portion of
which must first be applied to stabilization  and  decontamination.  The Company
has also secured  insurance against portions of any increased cost of generation
or  purchased  power  and  business  interruption  resulting  from a sudden  and
unforeseen outage of any of the three units. The insurance coverage discussed in
this and the previous  paragraph  is subject to certain  policy  conditions  and
exclusions.                                                                     

7. The Company has encountered  tube cracking in the Palo Verde steam generators
and has taken, and will continue to take, remedial actions that                 

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it believes have slowed the rate of tube degradation. The projected service life
of  the  steam  generators  is  reassessed   periodically  in  conjunction  with
inspections made during scheduled outages of the Palo Verde units. The Company's
ongoing analyses indicate that it will be economically desirable for the Company
to replace the Unit 2 steam  generators,  which have been most  affected by tube
cracking,  in five to ten years.  The Company  expects that the steam  generator
replacement can be accomplished within financial  parameters  established before
replacement was a consideration, and the Company estimates that its share of the
replacement  costs (in 1996 dollars and including  installation  and replacement
power costs) will be between $30 million and $50 million,  most of which will be
incurred after the year 2000. The Company expects that the replacement  would be
performed  in  conjunction  with a  normal  refueling  outage  in order to limit
incremental  outage time to approximately 50 days. Based on the latest available
data, the Company  estimates that the Unit 1 and Unit 3 steam generators  should
operate for the license  periods (until 2025 and 2027,  respectively),  although
the  Company  will  continue  its  normal  periodic  assessment  of these  steam
generators.                                                                     

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ARIZONA PUBLIC SERVICE COMPANY

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         -----------------------------------------------------------------------
of Operations.                                                                  
--------------                                                                  

Operating Results                                                               
-----------------                                                               

The  following  table  summarizes  the  Company's  revenues and earnings for the
three-month and twelve-month periods ended March 31, 1996 and 1995:             

                                                        [Enlarge/Download Table]

                                                 Periods ended March 31                                      
                                                 (Thousands of Dollars)                                      

                                     Three Months                                 Twelve Months              
                           ----------------------------------        ----------------------------------------
                                 1996             1995                      1996                1995         
                           ----------------- ----------------        ------------------- --------------------
                                                                                                             
Operating revenues         $345,261          $336,968                $1,623,245          $1,617,087          

Earnings for common stock  $ 41,129          $ 33,025                $  228,540          $  220,279          

         Operating  Results -  Three-month  period ended March 31, 1996 compared
         -----------------------------------------------------------------------
with three-month period ended March 31, 1995                  
--------------------------------------------                  

         Earnings  increased  in the  three-month  period  ended  March 31, 1996
primarily due to customer growth, lower operations and maintenance expenses, and
lower interest  expense.  Operations and maintenance  expenses  decreased due to
fewer nuclear  refueling outage days.  Interest  expense  decreased due to lower
rates and lower  average debt  balances.  Partially  offsetting  these  positive
factors was a decrease in other income  caused by the  recognition  of a gain on
the sale of a small subsidiary in 1995.                                         

         Operating  Results - Twelve-month  period ended March 31, 1996 compared
         -----------------------------------------------------------------------
with twelve-month period ended March 31, 1995                 
---------------------------------------------                 

         Earnings  increased  in the  twelve-month  period  ended March 31, 1996
primarily   due  to  customer   growth,   accelerated   investment   tax  credit
amortization,  lower fuel costs, and lower operations and maintenance  expenses.
The accelerated investment tax credit amortization was a result of the 1994 rate
settlement  (see Note 5 of Notes to Condensed  Financial  Statements  in Part I,
Item 1 of this  report) and is  reflected  as a decrease in income tax  expense.
Fuel  expense  decreased  due  largely  to lower  fuel  prices.  Operations  and
maintenance expenses decreased due to employee severance costs incurred in 1994,
lower fossil plant overhaul costs, and improved nuclear operations.             

         Partially  offsetting these positive  factors were milder weather,  the
reversal  in 1994 of certain  previously-recorded  depreciation  related to Palo
Verde,  the absence of non-cash  accretion  income and revenue refund  reversals
related to a 1991 rate settlement  (see Note 1 of Notes to Financial  Statements
in Part II,  Item 8 of the 1995 10-K),  write-downs  of an office  building  and
certain inventory, and a decrease in other income                               

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caused by the  recognition  of a gain on the sale of a small  subsidiary  in the
first quarter of 1995.                                                          

Other Income                                                  
------------                                                  

         Other income  reflects  accounting  practices  required  for  regulated
public  utilities  and  represents  a  composite  of cash  and  non-cash  items,
including  AFUDC and  accretion  income on Palo Verde Unit 3, which the  Company
completed recording in May 1994. See Note 1 of Notes to Financial  Statements in
Part II, Item 8 of the 1995 10-K.                                               

Regulatory Agreement                                                            
--------------------                                                            

         See Note 5 of Notes to Condensed Financial Statements in Part I, Item 1
of this report and Note 3 of Notes to Financial Statements in Part II, Item 8 of
the 1995 10-K for a discussion of the Company's regulatory agreement.           

Liquidity and Capital Resources                                                 
-------------------------------                                                 

         For the  three  months  ended  March 31,  1996,  the  Company  incurred
approximately $58 million in capital expenditures,  accounting for approximately
24% of the most recently  estimated 1996 capital  expenditures.  The Company has
estimated  total capital  expenditures  for the years 1996,  1997 and 1998 to be
approximately $246 million, $242 million, and $244 million, respectively.  These
amounts include about $30 million each year for nuclear fuel expenditures.      

         Obligations  for  redemptions of preferred  stock and long-term debt, a
capitalized  lease   obligation,   and  certain  actual  and  anticipated  early
redemptions,  including  premiums thereon,  are expected to total  approximately
$123 million, $164 million, and $114 million for the years 1996, 1997, and 1998,
respectively. During the three months ended March 31, 1996, the Company redeemed
approximately $51 million of its long-term debt and approximately $23 million of
its  preferred  stock,  and  incurred  $25  million  of  long-term  debt under a
revolving credit agreement.  It is the Company's present intention over the next
several years to use excess cash flow to retire debt and preferred stock.       

         Although  provisions  in the  Company's  bond  indenture,  articles  of
incorporation,  and  financing  orders  from the ACC  restrict  the  issuance of
additional first mortgage bonds and preferred stock,  management does not expect
any of these  restrictions  to limit the  Company's  ability to meet its capital
requirements.                                                                   

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 PART II - OTHER INFORMATION
 ---------------------------

ITEM 1.      Legal Proceedings                                              
------------------------------                                              

Property Taxes                                                  
--------------                                                  

        As previously  reported,  in November 1995, the Arizona Court of Appeals
held that an Arizona  state  property tax law,  effective  December 31, 1989, is
unconstitutional  and a lawsuit filed by the Palo Verde participants,  including
the  Company,  was  returned to the Arizona Tax Court for  determination  of the
appropriate  remedy consistent with that decision.  See "Property Taxes" in Part
I, Item 3 of the 1995 10-K. On April 23, 1996, the parties  reached an agreement
to settle the pending  litigation.  Pursuant to the  tentative  settlement,  the
Company  will  relinquish  its claims for relief with respect to prior years and
the  defendants  will not  challenge the Court of Appeals'  decision  concerning
prospective  relief (for tax years 1996 and  thereafter).  The Company  does not
expect  this  matter to have a  material  impact on its  financial  position  or
results of operations.                                                          

ITEM 5.      Other Information                                              
------------------------------                                              

Palo Verde Nuclear Generating Station                           
-------------------------------------                           

        See Note 7 of Notes to Condensed Financial  Statements in Part I, Item 1
  of this  report for a  discussion  of issues  regarding  the Palo Verde  steam
generators.                                                                 

Construction and Financing Programs                             
-----------------------------------                             

        See  "Liquidity  and Capital Resources" in Part I, Item 2 of this report
for a discussion of the Company's  construction  and financing programs.    

Environmental Matters                                           
---------------------                                           

        The Comprehensive  Environmental Response,  Compensation,  and Liability
Act ("Superfund")  establishes liability for the cleanup of hazardous substances
found contaminating the soil, water, or air. Those who generated, transported or
disposed of hazardous  substances at a contaminated site are among those who are
potentially  responsible  parties ("PRP's") and may be each strictly,  and often
jointly and severally,  liable for the cost of any necessary  remediation of the
substances.  The EPA had  previously  advised the Company that the EPA considers
the  Company to be a PRP in the Indian  Bend Wash  Superfund  Site,  South Area,
where the  Company's  Ocotillo  Power  Plant is  located.  The Company is in the
process of  conducting a voluntary  investigation  to  determine  the extent and
scope of  contamination at the Plant site. Based on the information to date, the
Company does not expect this matter to have a material  impact on its  financial
position or results of operations.                                              

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ITEM 6.  Exhibits and Reports on Form 8-K                                   
-----------------------------------------                                   

(a)  Exhibits                                                 

Exhibit No.                Description                                      
-----------                -----------                                      

10.1   Arizona Corporation Commission Order dated April 24, 1996            

  15.1   Letter  in  Lieu  of  Consent  Regarding  Unaudited  Interim  Financial
Information                                                   

27.1   Financial Data Schedule                                              

(b)  Reports on Form 8-K                                      

         During the quarter  ended March 31, 1996,  and the period ended May 14,
1996, the Company did not file any reports on Form 8-K.                         

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SIGNATURES

                Pursuant to the  requirements of the Securities  Exchange Act of
1934,  the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.                                          

                                      ARIZONA PUBLIC SERVICE COMPANY
                                (Registrant)

Dated:     May 14, 1996                     By Jaron B. Norberg                 
----------------------------           ----------------         
                          Jaron B. Norberg
                                      Executive Vice President and
                                 Chief Financial Officer
                                      (Principal Financial Officer
                                     and Officer Duly Authorized
                              to sign this Report)

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	7/2/99	10
	7/1/96	9
Filed on:	5/14/96	1	16
	5/2/96	3
	4/24/96	15
	4/23/96	14
For Period End:	3/31/96	1	15
	3/1/96	3
	12/31/95	2	3	10-K405, 11-K, DEF 14A
	3/31/95	3	12	10-Q
	6/1/94	10
				List all Filings

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Arizona Public Service Co – ‘10-Q’ for 3/31/96

As of: Tuesday, 5/14/96 · For: 3/31/96 · Accession #: 950147-96-175 · File #: 1-04473

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