SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of Earliest Event Reported): November 30, 1995
TUCSON ELECTRIC POWER COMPANY
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(Exact name of registrant as specified in its charter)
Arizona 1-5924 86-0062700
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
220 West Sixth Street, Tucson, Arizona 85701
(Address of principal executive office) (Zip Code)
(520) 571-4000
(Registrant's telephone number, including area code)
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Item 5. Other Events
On November 30, 1995, the Company reached an agreement with the
Staff of the Arizona Corporation Commission ("ACC"), proposing to
resolve the Company's application for a rate increase filed on
June 13, 1995, and the Company's notice of intent to form a
holding company, which was filed on February 16, 1995. The
settlement agreement is subject to final approval by the full
Commission. A hearing on the settlement agreement is scheduled
for January 17, 1996.
Rate Application
If approved by the ACC, the settlement agreement will provide the
Company with a 2%, or $10.4 million, across-the-board base rate
increase, and will allow the Company to participate in various
segments of the expanding electric energy business. The
settlement represents a rate of return on fair value rate base of
6.81 percent; a return on original cost rate base of 7.99
percent, and a return on common equity of 11.00 percent. The
Company had requested returns of 7.00 percent on fair value rate
base; 8.20 percent on fair value rate base and 11.50 percent on
common equity.
The settlement agreement establishes a moratorium period.
Neither the Company nor Staff may file for a change in base rates
before January 1, 2000, except for conditions or circumstances
which constitute an emergency, or for sharing of benefits with
customers of cost containment efforts where appropriate, or in
the event the Company is acquired by, or merged with another
company.
The rate changes are intended to recover in retail rates the
operating and capital costs of the remaining 37.5% of Unit 2 of
the Springerville Generating Station which is not currently being
recovered. The ACC Staff has agreed the entire plant is "used
and useful" to serve retail customers. The unit has been in
operation since 1990.
In addition to the rate changes, the settlement agreement
includes the following:
Time-of-Use Rates. The agreement provides customers the
opportunity to better manage their energy costs through the
addition of Time of Use rates for certain residential
customers. In addition, charges and rates for existing Time-
of-Use customers were adjusted for peak periods. Time-of-
Use rates are designed for customers to achieve savings by
shifting usage from peak periods of the day, primarily
weekday afternoons, to off-peak times.
Pricing flexibility. The agreement will allow the Company
to negotiate a specific rate for all commercial and
industrial customers. This will limit the amount the
Company charges retail customers to approved tariff levels,
while permitting the Company to enter into special contracts
at lower rates, if there is a demonstrated need for special
contracts in order to retain or attract retail customers.
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Incentive regulation. The agreement does not establish, but
will allow consideration of incentive regulation options.
Discussions will include establishment of targets for fuel
and operating and maintenance costs per kilowatt-hour. The
Company had proposed that any achieved savings from cost-
reduction measures initiated by the Company would be shared
by retail customers and the Company.
Jurisdictional Allocation. The Company and the Staff agreed
to review prior to the next rate case the concept of
jurisdictional allocation procedures for the costs of
wholesale sales. The Company had proposed to allocate any
new wholesale long-term power sale costs at marginal cost,
rather than average cost, to properly reflect economic
incentives to make wholesale sales which could benefit
customers through lower average costs and a sharing of
incremental revenues.
Holding Company Application
Under the agreement, the ACC would neither approve nor disapprove
the Company's notice of intent to form a holding company. The
agreement provides that the Company be allowed to participate in
various segments of the expanding electric energy business for a
period of 18 months from the date of ACC approval of the
settlement agreement. If, after that time, the Company
determines that a holding company structure is still appropriate,
the Company may resubmit its request to the ACC.
During the 18-month period, the Company will be allowed to invest
up to $50 million annually in energy-related business activities
without ACC approval. Any unexpended funds may be carried over
to subsequent years. The Company may seek ACC approval to invest
more than $50 million annually. The Company agreed to use 50% of
all after-tax net profits from any such activities either pay
down debt or increase equity. The remaining 50% may remain at
the subsidiary level for reinvestment and general corporate
purposes. Additionally, no TEP affiliate will conduct any
material business activity that is not part of the "electric
energy business" without ACC approval.
The Company is currently considering a number of opportunities in
the domestic and international energy markets, including the
provision of expanded energy services to retail customers and the
development of independent power production (IPP) projects,
including, for example, cogeneration facilities designed to serve
the energy needs of large industrial customers.
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Signature
Pursuant to the requirements 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.
TUCSON ELECTRIC POWER COMPANY
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(Registrant)
Date: December 8, 1995 Ira R. Adler
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Ira R. Adler
Senior Vice President and
Principal Financial Officer
