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 September 30, 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 November 13, 1996: 71,264,947
<PAGE>
i
Glossary
--------
ACC - Arizona Corporation Commission
ACC Order - ACC Order commencing a formal rulemaking process for the adoption
of Proposed Rules regarding the introduction of retail electric
competition in Arizona
ACC Staff - Staff of the Arizona Corporation Commission
AFUDC - Allowance for funds used during construction
Affected Utilities - Utilities affected by the ACC's Proposed Rules on retail
electric competition in Arizona
CC&N - Certificate of convenience and necessity
Company - Arizona Public Service Company
EPA - Environmental Protection Agency
ITC - Investment tax credit
June 10-Q - Arizona Public Service Company Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1996
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
Proposed Rules - Proposed rules issued by the ACC regarding the introduction of
retail electric competition in Arizona
Pinnacle West - Pinnacle West Capital Corporation
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
----------------------------
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
-----------------------------------------------
1996 1995
--------------------- ---------------------
(Thousands of Dollars)
<S> <C> <C>
ELECTRIC OPERATING REVENUES . . . . . . . . . . . . . . . $ 566,899 $ 549,082
--------------------- ---------------------
FUEL EXPENSES:
Fuel for electric generation . . . . . . . . . . . . . . 68,243 68,715
Purchased power . . . . . . . . . . . . . . . . . . . . 39,793 23,539
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 108,036 92,254
--------------------- ---------------------
OPERATING REVENUES LESS FUEL EXPENSES . . . . . . . . . . 458,863 456,828
--------------------- ---------------------
OTHER OPERATING EXPENSES:
Operations excluding fuel expenses . . . . . . . . . . . 74,816 75,807
Maintenance . . . . . . . . . . . . . . . . . . . . . . 25,570 21,758
Depreciation and amortization . . . . . . . . . . . . . 90,431 61,157
Income taxes . . . . . . . . . . . . . . . . . . . . . . 90,994 100,282
Other taxes . . . . . . . . . . . . . . . . . . . . . . 24,745 35,222
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 306,556 294,226
--------------------- ---------------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 152,307 162,602
--------------------- ---------------------
OTHER INCOME (DEDUCTIONS):
AFUDC - equity . . . . . . . . . . . . . . . . . . . . 1,942 1,111
Other - net . . . . . . . . . . . . . . . . . . . . . . (1,988) (14,393)
Income taxes . . . . . . . . . . . . . . . . . . . . . . 14,922 21,305
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 14,876 8,023
--------------------- ---------------------
INCOME BEFORE INTEREST DEDUCTIONS . . . . . . . . . . . . 167,183 170,625
--------------------- ---------------------
INTEREST DEDUCTIONS:
Interest on long-term debt . . . . . . . . . . . . . . . 36,100 39,063
Interest on short-term borrowings . . . . . . . . . . . 2,597 3,275
Debt discount, premium and expense . . . . . . . . . . . 2,023 2,072
AFUDC - debt . . . . . . . . . . . . . . . . . . . . . (2,021) (2,130)
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 38,699 42,280
--------------------- ---------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 128,484 128,345
PREFERRED STOCK DIVIDEND REQUIREMENTS . . . . . . . . . . 4,153 4,775
--------------------- ---------------------
EARNINGS FOR COMMON STOCK . . . . . . . . . . . . . . . . $ 124,331 $ 123,570
===================== =====================
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
-2-
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------------------------------
1996 1995
--------------------- ---------------------
(Thousands of Dollars)
<S> <C> <C>
ELECTRIC OPERATING REVENUES . . . . . . . . . . . . . . . $ 1,338,818 $ 1,266,228
--------------------- ---------------------
FUEL EXPENSES:
Fuel for electric generation . . . . . . . . . . . . . . 167,866 160,248
Purchased power . . . . . . . . . . . . . . . . . . . . 76,197 49,563
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 244,063 209,811
--------------------- ---------------------
OPERATING REVENUES LESS FUEL EXPENSES . . . . . . . . . . 1,094,755 1,056,417
--------------------- ---------------------
OTHER OPERATING EXPENSES:
Operations excluding fuel expenses . . . . . . . . . . . 213,156 207,167
Maintenance . . . . . . . . . . . . . . . . . . . . . . 75,269 76,081
Depreciation and amortization . . . . . . . . . . . . . 207,612 181,996
Income taxes . . . . . . . . . . . . . . . . . . . . . . 172,017 160,817
Other taxes . . . . . . . . . . . . . . . . . . . . . . 93,894 105,821
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 761,948 731,882
--------------------- ---------------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 332,807 324,535
--------------------- ---------------------
OTHER INCOME (DEDUCTIONS):
AFUDC - equity . . . . . . . . . . . . . . . . . . . . 5,620 3,645
Other - net . . . . . . . . . . . . . . . . . . . . . . (5,030) (10,862)
Income taxes . . . . . . . . . . . . . . . . . . . . . . 30,111 29,830
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 30,701 22,613
--------------------- ---------------------
INCOME BEFORE INTEREST DEDUCTIONS . . . . . . . . . . . . 363,508 347,148
--------------------- ---------------------
INTEREST DEDUCTIONS:
Interest on long-term debt . . . . . . . . . . . . . . . 110,860 120,986
Interest on short-term borrowings . . . . . . . . . . . 9,396 6,932
Debt discount, premium and expense . . . . . . . . . . . 6,144 6,082
AFUDC - debt . . . . . . . . . . . . . . . . . . . . . (7,422) (6,481)
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 118,978 127,519
--------------------- ---------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 244,530 219,629
PREFERRED STOCK DIVIDEND REQUIREMENTS . . . . . . . . . . 12,956 14,358
--------------------- ---------------------
EARNINGS FOR COMMON STOCK . . . . . . . . . . . . . . . . $ 231,574 $ 205,271
===================== =====================
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
-3-
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Twelve Months
Ended September 30,
-----------------------------------------------
1996 1995
--------------------- ---------------------
(Thousands of Dollars)
<S> <C> <C>
ELECTRIC OPERATING REVENUES . . . . . . . . . . . . . . . $ 1,687,542 $ 1,608,308
--------------------- ---------------------
FUEL EXPENSES:
Fuel for electric generation . . . . . . . . . . . . . . 216,546 209,258
Purchased power . . . . . . . . . . . . . . . . . . . . 87,504 61,250
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 304,050 270,508
--------------------- ---------------------
OPERATING REVENUES LESS FUEL EXPENSES . . . . . . . . . . 1,383,492 1,337,800
--------------------- ---------------------
OTHER OPERATING EXPENSES:
Operations excluding fuel expenses . . . . . . . . . . . 290,831 279,461
Maintenance . . . . . . . . . . . . . . . . . . . . . . 115,160 106,699
Depreciation and amortization . . . . . . . . . . . . . 267,714 243,703
Income taxes . . . . . . . . . . . . . . . . . . . . . . 190,065 181,011
Other taxes . . . . . . . . . . . . . . . . . . . . . . 129,696 139,827
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 993,466 950,701
--------------------- ---------------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 390,026 387,099
--------------------- ---------------------
OTHER INCOME (DEDUCTIONS):
AFUDC - equity . . . . . . . . . . . . . . . . . . . . 6,957 4,749
Other - net . . . . . . . . . . . . . . . . . . . . . . (11,200) (11,823)
Income taxes . . . . . . . . . . . . . . . . . . . . . . 37,879 31,399
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 33,636 24,325
--------------------- ---------------------
INCOME BEFORE INTEREST DEDUCTIONS . . . . . . . . . . . . 423,662 411,424
--------------------- ---------------------
INTEREST DEDUCTIONS:
Interest on long-term debt . . . . . . . . . . . . . . . 149,906 160,617
Interest on short-term borrowings . . . . . . . . . . . 10,607 8,147
Debt discount, premium and expense . . . . . . . . . . . 8,684 8,136
AFUDC - debt . . . . . . . . . . . . . . . . . . . . . (10,006) (8,005)
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 159,191 168,895
--------------------- ---------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 264,471 242,529
PREFERRED STOCK DIVIDEND REQUIREMENTS . . . . . . . . . . 17,732 19,242
--------------------- ---------------------
EARNINGS FOR COMMON STOCK . . . . . . . . . . . . . . . . $ 246,739 $ 223,287
===================== =====================
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
-4-
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
------------------------
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------ ------------------
(Thousands of Dollars)
<S> <C> <C>
UTILITY PLANT:
Electric plant in service and held for future use . . . $ 6,683,761 $ 6,544,860
Less accumulated depreciation and amortization . . . . . 2,389,447 2,231,614
--------------------- ---------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . 4,294,314 4,313,246
Construction work in progress . . . . . . . . . . . . . 307,251 281,757
Nuclear fuel, net of amortization . . . . . . . . . . . 49,829 52,084
--------------------- ---------------------
Utility plant - net . . . . . . . . . . . . . . . . . 4,651,394 4,647,087
--------------------- ---------------------
INVESTMENTS AND OTHER ASSETS :. . . . . . . . . . . . . . . 113,221 97,742
--------------------- ---------------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . 17,815 18,389
Accounts receivable:
Service customers . . . . . . . . . . . . . . . . . . 145,341 100,433
Other . . . . . . . . . . . . . . . . . . . . . . . . 18,848 28,107
Allowance for doubtful accounts . . . . . . . . . . . (1,862) (1,656)
Accrued utility revenues . . . . . . . . . . . . . . . . 74,008 53,519
Materials and supplies, at average cost . . . . . . . . 75,871 78,271
Fossil fuel, at average cost . . . . . . . . . . . . . 15,188 21,722
Deferred income taxes . . . . . . . . . . . . . . . . . 5,614 5,653
Other . . . . . . . . . . . . . . . . . . . . . . . . . 16,132 17,839
--------------------- ---------------------
Total current assets . . . . . . . . . . . . . . . . 366,955 322,277
--------------------- ---------------------
DEFERRED DEBITS:
Regulatory asset for income taxes . . . . . . . . . . . 520,910 548,464
Palo Verde Unit 3 cost deferral . . . . . . . . . . . . 270,131 283,426
Palo Verde Unit 2 cost deferral . . . . . . . . . . . . 157,754 165,873
Unamortized costs of reacquired debt . . . . . . . . . . 71,520 63,518
Unamortized debt issue costs . . . . . . . . . . . . . . 16,204 17,772
Other . . . . . . . . . . . . . . . . . . . . . . . . . 267,872 272,103
--------------------- ---------------------
Total deferred debits . . . . . . . . . . . . . . . . 1,304,391 1,351,156
--------------------- ---------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 6,435,961 $ 6,418,262
===================== =====================
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
-5-
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
------------------------
LIABILITIES
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------ ------------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION:
Common stock . . . . . . . . . . . . . . . . . . . . . . $ 178,162 $ 178,162
Premiums and expenses - net . . . . . . . . . . . . . . . 1,040,681 1,039,550
Retained earnings . . . . . . . . . . . . . . . . . . . 507,801 403,843
--------------------- ---------------------
Common stock equity . . . . . . . . . . . . . . . . . 1,726,644 1,621,555
Non-redeemable preferred stock . . . . . . . . . . . . . 170,391 193,561
Redeemable preferred stock . . . . . . . . . . . . . . . 53,000 75,000
Long-term debt less current maturities . . . . . . . . . 1,924,507 2,132,021
--------------------- ---------------------
Total capitalization . . . . . . . . . . . . . . . . . 3,874,542 4,022,137
--------------------- ---------------------
CURRENT LIABILITIES:
Commercial paper . . . . . . . . . . . . . . . . . . . . 134,500 177,800
Current maturities of long-term debt . . . . . . . . . . 153,643 3,512
Accounts payable . . . . . . . . . . . . . . . . . . . . 116,280 106,583
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 170,372 82,827
Accrued interest . . . . . . . . . . . . . . . . . . . . 25,619 41,549
Customer deposits . . . . . . . . . . . . . . . . . . . 32,130 32,746
Other . . . . . . . . . . . . . . . . . . . . . . . . . 38,729 21,134
--------------------- ---------------------
Total current liabilities . . . . . . . . . . . . . . 671,273 466,151
--------------------- ---------------------
DEFERRED CREDITS AND OTHER:
Deferred income taxes . . . . . . . . . . . . . . . . . . 1,417,881 1,429,482
Deferred investment tax credit . . . . . . . . . . . . . 90,025 115,353
Unamortized gain - sale of utility plant . . . . . . . . 88,083 91,514
Customer advances for construction . . . . . . . . . . . 23,673 19,846
Other . . . . . . . . . . . . . . . . . . . . . . . . . 270,484 273,779
--------------------- ---------------------
Total deferred credits and other . . . . . . . . . . 1,890,146 1,929,974
--------------------- ---------------------
COMMITMENTS AND CONTINGENCIES (Notes 5, 6 and 7)
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 6,435,961 $ 6,418,262
===================== =====================
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
-6-
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------------------------------
1996 1995
--------------------- ---------------------
(Thousands of Dollars)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 244,530 $ 219,629
Items not requiring cash:
Depreciation and amortization . . . . . . . . . . . . 207,612 181,996
Nuclear fuel amortization . . . . . . . . . . . . . . 25,166 24,354
AFUDC - equity . . . . . . . . . . . . . . . . . . . . (5,620) (3,645)
Deferred income taxes - net . . . . . . . . . . . . . 2,768 27,609
Deferred investment tax credit - net . . . . . . . . . (25,328) (24,469)
Changes in certain current assets and liabilities:
Accounts receivable - net . . . . . . . . . . . . . . (35,443) (34,010)
Accrued utility revenues . . . . . . . . . . . . . . . (20,489) (23,419)
Materials, supplies and fossil fuel . . . . . . . . . 8,934 9,154
Other current assets . . . . . . . . . . . . . . . . . 1,707 (1,731)
Accounts payable . . . . . . . . . . . . . . . . . . . 13,340 (65)
Accrued taxes . . . . . . . . . . . . . . . . . . . . 87,545 86,763
Accrued interest . . . . . . . . . . . . . . . . . . . (15,930) (13,557)
Other current liabilities . . . . . . . . . . . . . . 17,277 18,360
Other - net . . . . . . . . . . . . . . . . . . . . . . 12,515 11,999
--------------------- ---------------------
Net cash flow provided by operating activities . . . 518,584 478,968
--------------------- ---------------------
Cash Flows from Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . . (196,641) (209,471)
AFUDC - debt . . . . . . . . . . . . . . . . . . . . . . (7,422) (6,481)
Other . . . . . . . . . . . . . . . . . . . . . . . . . (13,691) (13,354)
--------------------- ---------------------
Net cash flow used for investing activities. . . . . (217,754) (229,306)
--------------------- ---------------------
Cash Flows from Financing Activities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . 100,000 82,863
Short-term borrowings - net . . . . . . . . . . . . . . (43,300) (69,300)
Dividends paid on common stock . . . . . . . . . . . . . (127,500) (112,500)
Dividends paid on preferred stock . . . . . . . . . . . (13,456) (14,358)
Repayment of preferred stock . . . . . . . . . . . . . . (46,083) (4)
Repayment and reacquisition of long-term debt . . . . . (171,065) (119,707)
--------------------- ---------------------
Net cash flow used for financing activities . . . . (301,404) (233,006)
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents . . . (574) 16,656
Cash and cash equivalents at beginning of period . . . . . 18,389 6,532
--------------------- ---------------------
Cash and cash equivalents at end of period . . . . . . . . $ 17,815 $ 23,188
===================== =====================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest (excluding capitalized interest) . . . . . . $ 127,492 $ 135,034
Income taxes . . . . . . . . . . . . . . . . . . . . . $ 102,144 $ 84,599
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
-7-
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
September 30, 1996, the results of operations for the three months, nine months
and twelve months ended September 30, 1996 and 1995, and the cash flows for the
nine months ended September 30, 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.
4. See "Liquidity and Capital Resources" in Part I, Item 2 of this report for
changes in capitalization for the nine months ended September 30, 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:
O 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.
O Recovery of substantially all of the Company's present regulatory
assets through accelerated amortization over an eight-year period
beginning July 1, 1996, increasing annual amortization by approximately
$120 million ($72 million after income taxes).
<PAGE>
-8-
O A formula for sharing future cost savings between customers and
shareholders, referencing a return on equity (as defined) of 11.25%.
O A moratorium on filing for permanent rate changes, except under the
sharing formula and under certain other limited circumstances, prior to
July 2, 1999.
O Infusion of $200 million of common equity into the Company by Pinnacle
West, in annual increments of $50 million starting in 1996.
Competition and Electric Industry Restructuring
In recognition of evolving competition in the electric utility
industry, there has been an ongoing investigation by the ACC Staff into industry
restructuring in an open competition docket involving many parties. 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. On October 9, 1996, the ACC issued an
order (the "ACC Order"), attached hereto and incorporated herein by reference,
initiating a formal rulemaking process for the adoption of rules ("Proposed
Rules") regarding the introduction of retail electric competition in Arizona.
The ACC will hold public comment meetings on the Proposed Rules on December 2,
3, and 4, 1996. The ACC has indicated that, even if it then adopts the Proposed
Rules, issues such as reliability, stranded cost recovery, the phase-in process,
and bundled, unbundled and metering services, as well as legal issues, will
require additional consideration and will be addressed through workshops and
working groups which will issue recommendations to the ACC during 1997.
Commissioner Carl Kunasek, the sole Republican on the three-member ACC, provided
a concurring statement to the ACC Order in which he expressed concerns about the
Proposed Rules and his intent to make substantive changes in them. As a result
of the recent election, Mr. Kunasek will be joined on the ACC in January 1997 by
Republican Jim Irvin, which will impact the leadership of the ACC and the
composition of the ACC Staff. The positions on the rulemaking that will
actually be taken by the members of the ACC, as evidenced by recently reported
comments, are by no means clear at this time.
The Proposed Rules include the following major provisions:
O The Proposed Rules are intended to apply to virtually all of the
Arizona electric utilities regulated by the ACC (the "Affected
Utilities"), including the Company.
O Each Affected Utility would be required to make available at least 20
percent of its 1995 system retail peak demand for competitive
generation supply to all customer classes not later than January 1,
1999, at least 50 percent not later than January 1, 2001, and all of
its retail demand not later than January 1, 2003.
O "Electric Service Providers" that obtain a "Certificate of Convenience
and Necessity" ("CC&N") from the ACC would be allowed to supply,
market, and or broker specified electric services at retail. These
services would not include most
<PAGE>
-9-
electric distribution services. Affected Utilities would not be
required to apply for CC&N's for any services provided in their
existing service territories.
O On or before December 31, 1997, each Affected Utility would file with
the ACC proposed tariffs for "Standard Offer Bundled Service" and
"Unbundled Service." "Standard Offer Bundled Service" means electric
service elements (i.e., generation, transmission, distribution, and
ancillary services) provided and priced as a package to consumers
within a designated area. "Unbundled Service" means electric service
elements provided and priced separately.
The Proposed Rules indicate that the ACC shall allow recovery by Affected
Utilities of unmitigated Stranded Cost, defined as "the verifiable net
difference between (a) the value of all prudent jurisdictional assets and
obligations necessary to furnish electricity (such as generating plants,
purchased power contracts, fuel contracts, and regulatory assets), acquired or
entered into prior to the adoption of the [Proposed Rules], and (b) the market
value of those assets and obligations directly attributable to the introduction
of competition under the [Proposed Rules]." Each Affected Utility would be
required to take "every feasible, cost-effective measure" to mitigate or offset
Stranded Cost and to file with the ACC estimates of unmitigated Stranded Cost.
The ACC would then, after hearing and consideration of various factors,
determine the magnitude of Stranded Cost and appropriate Stranded Cost recovery
mechanisms and charges on a case-by-case basis.
In comments submitted to the ACC, the Company has stated that certain
provisions of the Proposed Rules are deficient, legally and otherwise, because,
among other things, (i) the ACC has no authority to require or authorize retail
competition between electric utilities or to regulate non-public service
corporations; (ii) the rules fail to address the vested property rights of
Affected Utilities, including the Company, to receive adequate compensation for
the amendment or rescission of CC&N's or for stranded costs; (iii) the rules are
discriminatory because they favor newly-certificated competitors over Affected
Utilities; (iv) the rules do not provide for the fundamental statutory and due
process rights of the Company and other Affected Utilities; (v) specific
measures of the Proposed Rules, including the proposed phase-in, could affect
the Company's ability to maintain system reliability in a cost-effective manner;
and (vi) the status of certain of the Company's potential competitors, including
public power entities and out-of-state utilities, is unclear.
In April 1996, an Arizona law established legislative and advisory
committees to study electric utility industry restructuring issues and report
back to the legislature by the end of 1997. The committees include
representatives of the ACC and the Company.
<PAGE>
-10-
The Company believes that legislation will ultimately be required
before significant implementation of the Proposed Rules (or whatever they may
evolve into) can lawfully occur.
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 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
approximately $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.
<PAGE>
-11-
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, nine-month and twelve-month periods ended September 30, 1996
and 1995:
Periods ended September 30
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
------------------------------- ------------------------------------ ----------------------------------
1996 1995 1996 1995 1996 1995
--------------- --------------- ----------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Operating
revenues $566,899 $549,082 $1,338,818 $1,266,228 $1,687,542 $1,608,308
Earnings for
common stock $124,331 $123,570 $ 231,574 $ 205,271 $ 246,739 $ 223,287
</TABLE>
Operating Results - Three-month period ended September 30, 1996
-----------------------------------------------------------------------
compared with three-month period ended September 30, 1995
---------------------------------------------------------
Earnings were flat in the three-month period ended September 30, 1996.
Results were favorably impacted by increased operating revenues, the write-down
of an office building in 1995, lower property taxes, and lower interest expense.
Operating revenues were higher due to customer growth, warmer weather, and
higher residential usage. Property tax estimates for 1996 were reduced in the
third quarter to reflect a change in tax law. See "Property Taxes" in Part II,
Item 1 of the June 10-Q. Interest expense decreased due to lower average
interest rates and lower debt balances.
Substantially offsetting these positive factors were the accelerated
amortization of regulatory assets, a retail rate reduction, and an increase in
fuel expenses. The accelerated regulatory asset amortization and the rate
reduction were part of a regulatory agreement which became effective July 1,
1996. See Note 5 of Notes to Condensed Financial Statements. Fuel expenses were
higher primarily due to higher natural gas costs, a less favorable mix of fuel
and purchased power, and increased retail sales.
Operating Results - Nine-month period ended September 30, 1996 compared
-----------------------------------------------------------------------
with nine-month period ended September 30, 1995
-----------------------------------------------
Earnings increased in the nine-month period ended September 30, 1996
primarily due to increased operating revenues, the
<PAGE>
-12-
write-down of an office building in 1995, a reduction in property taxes (see
"Property Taxes" in Part II, Item 1 of the June 10-Q), and lower interest
expense. Operating revenues were higher due to customer growth, warmer weather,
and higher residential usage. Interest expense decreased due to lower average
interest rates and lower debt balances.
Partially offsetting these positive factors were an increase in fuel
expenses, the accelerated amortization of regulatory assets, a retail rate
reduction, and a gain on the sale of a small subsidiary in the first quarter of
1995. Fuel expenses were higher primarily due to higher natural gas costs,
increased retail sales, higher coal prices, and a less favorable mix of fuel and
purchased power. The accelerated regulatory asset amortization and the rate
reduction were part of a regulatory agreement which became effective July 1,
1996. See Note 5 of Notes to Condensed Financial Statements.
Operating Results - Twelve-month period ended September 30, 1996
-----------------------------------------------------------------------
compared with twelve-month period ended September 30, 1995
----------------------------------------------------------
Earnings increased in the twelve-month period ended September 30, 1996
primarily due to increased operating revenues, the write-down of an office
building in 1995, a reduction in property taxes (see "Property Taxes" in Part
II, Item 1 of the June 10-Q), and lower interest expense. Operating revenues
were higher due to customer growth, warmer weather, and higher residential
usage. Interest expense decreased due to lower average interest rates and lower
debt balances.
Partially offsetting these positive factors were an increase in fuel
expenses, the accelerated amortization of regulatory assets, increased operation
and maintenance expenses, a retail rate reduction, and a gain on the sale of a
small subsidiary in the first quarter of 1995. Fuel expenses were higher
primarily due to increased retail sales, higher natural gas costs, a less
favorable mix of fuel and purchased power, and higher coal prices. The
accelerated regulatory asset amortization and the rate reduction were part of a
regulatory agreement which became effective July 1, 1996. See Note 5 of Notes to
Condensed Financial Statements. Operations and maintenance expenses were higher
primarily due to the write-down of certain inventory in the fourth 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. See Note 1 of Notes to Financial Statements in Part II, Item 8
of the 1995 10-K.
As part of a 1994 rate settlement agreement with the ACC, the Company
accelerated amortization of substantially all
<PAGE>
-13-
deferred ITCs over a five-year period beginning in 1995, resulting in a decrease
in annual income tax expense of approximately $21 million.
Voluntary Severance Program
- ---------------------------
The Company will take a charge in the fourth quarter of 1996 for a
voluntary severance program. Employees may submit their request to participate
in the program from October 15 through November 15, 1996. The Company cannot
currently estimate the financial impact of this program.
Regulatory Matters
- ------------------
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 and the
Proposed Rules regarding the introduction of retail electric competition in
Arizona.
Liquidity and Capital Resources
- -------------------------------
For the nine months ended September 30, 1996, the Company incurred
approximately $197 million in capital expenditures, accounting for approximately
76% 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 $260 million, $284 million, and $284 million, respectively. These
amounts include about $30 million each year for nuclear fuel expenditures.
Required and optional redemptions of preferred stock and long-term
debt, including premiums thereon, and a capitalized lease obligation are
expected to total approximately $217 million, $164 million, and $114 million for
the years 1996, 1997, and 1998, respectively. During the nine months ended
September 30, 1996, the Company redeemed approximately $171 million of its
long-term debt and approximately $46 million of its preferred stock, and
incurred $100 million of long-term debt under a revolving credit agreement. As a
result of the 1996 regulatory agreement (see Note 5 of Notes to Condensed
Financial Statements), Pinnacle West will invest $50 million in the Company in
each of the years 1996 through 1999. It is the Company's intention over the next
several years to use excess cash flow primarily 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.
<PAGE>
-14-
PART II - OTHER INFORMATION
---------------------------
ITEM 5. Other Information
- ------------------------------
Environmental Matters
---------------------
As previously reported, the Clean Air Act Amendments of 1990 required
two studies with respect to hazardous air pollutants emitted by electric utility
steam generating units. See "Environmental Matters - EPA Environmental
Regulation" in Part I, Item 1 of the 1995 10-K. The EPA has postponed, for up to
three years, the general study concerning the necessity of regulating such units
and has deferred promulgating regulations relating to mercury emissions.
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.
Competition and Electric Industry Restructuring
-----------------------------------------------
See Note 5 of the Notes to Condensed Financial Statements in Part I,
Item 1 of this report for a discussion of competition and the Proposed Rules
regarding the introduction of retail electric competition in Arizona.
<PAGE>
-15-
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit No. Description
- ----------- -----------
10.1 Arizona Corporation Commission Order, Decision No. 59870,
dated October 9, 1996, including the Proposed Rules regarding
the introduction of retail electric competition in Arizona
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1996, and the period ended
November 13, 1996, the Company filed the following report on Form 8-K:
Report dated August 28, 1996 regarding draft rules of the ACC Staff
relating to the introduction of retail electric competition in Arizona.
<PAGE>
-16-
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: November 13, 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)
EXHIBIT 10.1
BEFORE THE ARIZONA CORPORATION COMMISSION
RENZ D. JENNINGS
Chairman
MARCIA WEEKS
Commissioner
CARL J. KUNASEK
Commissioner
IN THE MATTER OF THE COMPETITION ) DOCKET NO. U-0000-94-165
IN THE PROVISION OF ELECTRIC )
SERVICES THROUGHOUT THE STATE ) DECISION NO. 59870
OF ARIZONA. )
) ORDER
) -----
- --------------------------------------- )
Open Meeting
October 9, 1996
Phoenix, Arizona
BY THE COMMISSION:
FINDINGS OF FACT
----------------
1. On October 1, 1996, the Arizona Corporation Commission Staff
forwarded to the Commission proposed rules R14-2-1601 through R14-2-1615
regarding the introduction of retail electric competition.
2. The proposed rules lay out the procedures for phasing in retail
electric competition.
3. Staff has recommended that the proposed rules be forwarded to the
Secretary of State for Notice of Proposed Rule Making. Staff has also
recommended that the Hearing Division schedule oral proceedings on the proposed
rules on December 2, 3, and 4, 1996, or as soon thereafter as is practicable, in
Phoenix, Tucson, and Kingman, Arizona, respectively.
4. It is the expectation of the Commission that the rates for Standard
Offer service will not increase, relative to existing rates, as a result of
allowing competition. Any rate increase proposed by an Affected Utility for
Standard Offer service must be fully justified through a rate case proceeding.
CONCLUSION OF LAW
-----------------
The Commission has the authority for the proposed rules under the
Arizona Constitution Art. 15, under A.R.S. ss.ss. 40-202, 40-203, 40-250,
40-321, 40-322, 40-331, 40-332, 40-336, 40-361, 40-365, and 40-367, and under
the Arizona Revised Statutes, Title 40, generally.
<PAGE>
Page 2 DOCKET NO. U-0000-94-165
ORDER
-----
THEREFORE, IT IS ORDERED that oral proceedings on this matter are
scheduled as follows:
December 2, 1996 in the Hearing Room of the Arizona Corporation
Commission, 1200 West Washington, Phoenix, Arizona, starting at 10:00
a.m.
December 3, 1996 in the Commission Hearing Room, 400 West Congress
Street, Room 222, Tucson, Arizona, starting at 10:30 a.m.
December 3, 1996 in the City Council Chambers, 180 W. 1st Street, Yuma,
Arizona, starting at 3:30 p.m.
December 4, 1996 in the Coconino County Board of Supervisors Meeting
Room, 219 E. Cherry, Flagstaff, Arizona, starting at 2:00 p.m.
December 4, 1996 in the City Council Chambers, Kingman City Hall, 310
N. 4th St., Kingman, Arizona, starting at 7:00 p.m.
IT IS FURTHER ORDERED that a Notice of Proposed Rule Making be
forwarded to the Secretary of State.
IT IS FURTHER ORDERED that this Decision shall become effective
immediately.
BY ORDER OF THE ARIZONA CORPORATION COMMISSION
RENZ D. JENNINGS MARCIA WEEKS CARL J. KUNASEK
- --------------------------------------------------------------------------------
CHAIRMAN COMMISSIONER COMMISSIONER
IN WITNESS WHEREOF, I, JAMES MATTHEWS, Executive Secretary
of the Arizona Corporation Commission, have hereunto, set
my hand and caused the official seal of this Commission to
be affixed at the Capitol, in the City of Phoenix, this
10 day of October, 1996.
JAMES MATTHEWS
-------------------------------------
JAMES MATTHEWS
Executive Secretary
DISSENT _________________________
GY:DB:KEC:RTW:lhh
Decision No. 59870
-------------
<PAGE>
CONCURRING OPINION
MATTER: Competition in the Provision of Electric Services AGENDA U-1
------------------------------------------------- ---
throughout the State of Arizona
-------------------------------
DOCKET NO. U-0000-94-165 OPEN MEETING DATE: October 9, 1996
------------- ---------------
PREPARED BY: Commissioner Carl J. Kunasek Carl J. Kunasek
-----------------------------
- --------------------------------------------------------------------------------
My record on, and belief in, competition is well documented. I believe
the consumer is the ultimate beneficiary of a competitive free marketplace.
I survived in the highly competitive business field of retail
pharmacies. I played a major role in the Legislature to remove the Certificate
of Need for hospitals. A move, incidentally, that was opposed by big businesses
like Honeywell and Motorola. I led the successful development of the Arizona
Health Care Cost Containment System. This was the first nationally recognized
----------
program in the United States in which the providers of health care had to bid
competitively for the contracts to provide health care to the indigent and low
income patient.
The utility industry is one of the few remaining vestiges of government
controlled monopolies in our nation. The time has come to move them into the
real world.
I remain seriously concerned about many of the provisions, or lack
thereof, in this rule. We've left many issues inadequately addressed. My
preference would be to resolve these issues prior to adoption of these rules,
and I agree that we are in effect putting the cart before the horse. However, I
agree with Commissioner Weeks: We need to send a clear signal that this
Commission supports competition. We need to provide a framework - a time line -
for all parties involved.
Now, I am going to be here another 4 years. I can make several
promises: 1) will make substantive changes to this document; 2) We will address
the issues that are left unresolved to date and we will do so in a manner that
is cooperative and involves all stake holders.
This is a hollow rule. Despite the fact that this is a rule, I view it
as a "formal framework" - a framework that will get better and more complete
with each passing month.
I also see this document as a time line. Competition, or the move
toward competition, will no longer be a moving target. Fair warning to those who
might look to me to delay the implementation of competition: I will not advocate
extending the deadlines in the rule unless there are imminent health and safety
issues involved. And, I will have a very high threshold of proof regarding this.
<PAGE>
U-0000-94-165
October 9, 1996
Page Two
On the other hand, contained in this framework is the ability for
providers to move toward full competition sooner than 2003. And, they will do so
with my blessing and encouragement.
It has always been my hope - my belief - that if we address the issues
of SYSTEM RELIABILITY, STRANDED COST, RECIPROCITY AND PROTECT THE SMALL USERS
LIKE MYSELF AND MY FAMILY we can move forward and implement full competition on
a date much sooner than 2003.
The rule is imperfect - it says so on its face. I would have preferred
issue resolution before rule adoption. But, this is a world of compromise. I am
willing to compromise my views of what makes for a good process in favor of a
document that sets a target and a means by which we can move toward competition.
This document is a skeletal framework. I will spend the rest of my 4
years at the commission fleshing it out for the benefit of all Arizonans. And,
I will vote in the affirmative today with reservations about the process, but
not with reservations about competition itself.
<PAGE>
TITLE 14. PUBLIC SERVICE CORPORATIONS; CORPORATIONS AND
ASSOCIATIONS; SECURITIES REGULATIONS
CHAPTER 2. CORPORATION COMMISSION - FIXED UTILITIES
ARTICLE 16. RETAIL ELECTRIC COMPETITION
Section
R14-2-1601. Definitions
R14-2-1602. Filing of Tariffs by Affected Utilities
R14-2-1603. Certificates of Convenience and Necessity
R14-2-1604. Competitive Phases
R14-2-1605. Competitive Services
R14-2-1606. Services Required To Be Made Available by Affected
Utilities
R14-2-1607. Recovery of Stranded Cost of Affected Utilities
R14-2-1608. System Benefits Charges
R14-2-1609. Solar Portfolio Standard
R14-2-1610. Spot Markets and Independent System Operation
R14-2-1611. In-State Reciprocity
R14-2-1612. Rates
R14-2-1613. Service Quality, Consumer Protection, Safety, and
Billing Requirements
R14-2-1614. Reporting Requirements
R14-2-1615. Administrative Requirements
R14-2-1616. Legal Issues
<PAGE>
ARTICLE 16. RETAIL ELECTRIC COMPETITION
R14-2-1601. Definitions
In this Article, unless the context otherwise requires:
1. "Affected Utilities" means the following public service corporations
providing electric service:
Tucson Electric Power Company, Arizona Public Service Company, Citizens
Utilities Company, Arizona Electric Power Cooperative, Trico Electric
Cooperative, Duncan Valley Electric Cooperative, Graham County Electric
Cooperative, Mohave Electric Cooperative, Sulphur Springs Valley
Electric Cooperative, Navopache Electric Cooperative, Ajo Improvement
Company, and Morenci Water and Electric Company.
In the event that modifications are made to existing law that would allow
the application of this Article to the Salt River Project Agricultural
Improvement and Power District ("SRP"), then Affected Utilities shall also
include SRP.
2. "Bundled Service" means electric service provided as a package to the
consumer including all generation, transmission, distribution, ancillary
and other services necessary to deliver and measure useful electric energy
and power to consumers.
3. "Buy-through" refers to a purchase of electricity by an Affected Utility at
wholesale for a particular retail consumer or aggregate of consumers or at
the direction of a particular retail consumer or aggregate of consumers.
4. "Distribution Service" means the delivery of electricity to a retail
consumer through wires, transformers, and other devices that are not
classified as transmission services subject to the jurisdiction of the
Federal Energy Regulatory Commission; Distribution Service excludes meters
and meter reading.
5. "Electric Service Provider" means a company supplying, marketing, or
brokering at retail any of the services described in R14-2-1605 or
R14-2-1606.
6. "Eligible Demand" means the total consumer kilowatts of demand which an
Affected Utility must make available to competitive generation under the
terms of this Article or the consumer kilowatts of demand provided
competitively in an Affected Utility's distribution territory, whichever is
greater.
7. "Standard Offer" means Bundled Service offered to all consumers in a
designated area at regulated rates.
8. "Stranded Cost" means the verifiable net difference between:
a. the value of all the prudent jurisdictional assets and obligations
necessary to furnish electricity (such as generating plants, purchased
power contracts, fuel contracts, and regulatory assets), acquired or
entered into prior to the adoption of this Article, under traditional
regulation of Affected Utilities, and
b. the market value of those assets and obligations directly
attributable to the introduction of competition under this Article.
9. "System Benefits" means Commission-approved utility low income, demand side
management, environmental, renewables, and nuclear power plant
decommissioning programs.
10. "Unbundled Service" means electric service elements provided and priced
separately, including, but not limited to, such service elements as
generation, transmission, distribution, and ancillary services. Unbundled
Service may be sold to consumers or to other Electric Service Providers.
<PAGE>
R14-2-1602. Filing of Tariffs by Affected Utilities
Each Affected Utility shall file tariffs consistent with this Article by
December 31, 1997.
R14-2-1603. Certificates of Convenience and Necessity
A. Any Electric Service Provider intending to supply services described in
R14- 2-1605 or R-14-2-1606, other than services subject to federal
jurisdiction, shall obtain a Certificate of Convenience and Necessity from
the Commission pursuant to this Article; however, a Certificate is not
required to offer information services or billing and collection services.
An Affected Utility does not need to apply for a Certificate of Convenience
and Necessity for any service provided as of the date of adoption of this
Article within its distribution service territory.
B. Any company desiring such a Certificate of Convenience and Necessity shall
file with the Docket Control Center the required number of copies of an
application. Such Certificates shall be restricted to geographical areas
served by the Affected Utilities as of the date this Article is adopted and
to service areas added under the provisions of R14-2-1611(B). In support of
the request for a Certificate of Convenience and Necessity, the following
information must be provided:
1. A description of the electric services which the applicant intends to
offer;
2. The proper name and correct address of the applicant, and
a. The full name of the owner if a sole proprietorship,
b. The full name of each partner if a partnership,
c. A full list of officers and directors if a corporation, or
d. A full list of the members if a limited liability corporation;
3. A tariff for each service to be provided that states the maximum rate
and terms and conditions that will apply to the provision of the
service;
4. A description of the applicant's technical ability to obtain and
deliver electricity and provide any other proposed services;
5. Documentation of the financial capability of the applicant to provide
the proposed services, including the most recent income statement and
balance sheet, the most recent projected income statement, and other
pertinent financial information. Audited information shall be provided
if available;
6. A description of the form of ownership (e.g., partnership,
corporation);
7. Such other information as the Commission or the Staff may request.
C. At the time of filing for a Certificate of Convenience and Necessity, each
applicant shall notify the Affected Utilities in whose service territories
it wishes to offer service of the application by serving a complete copy of
the application on the Affected Utilities.
D. The Commission may deny certification to any applicant who:
1. Does not provide the information required by this Article;
2. Does not possess adequate technical or financial capabilities to
provide the proposed services;
3. Fails to provide a performance bond, if required.
E. Every Electric Service Provider obtaining a Certificate of Convenience and
Necessity under this Article shall obtain certification subject to the
following conditions:
1. The Electric Service Provider shall comply with all Commission rules,
orders,
<PAGE>
and other requirements relevant to the provision of electric service
and relevant to resource planning;
2. The Electric Service Provider shall maintain accounts and records as
required by the Commission;
3. The Electric Service Provider shall file with the Director of the
Utilities Division all financial and other reports that the Commission
may require and in a form and at such times as the Commission may
designate;
4. The Electric Service Provider shall maintain on file with the
Commission all current tariffs and any service standards that the
Commission shall require;
5. The Electric Service Provider shall cooperate with any Commission
investigation
of customer complaints;
6. The Electric Service Provider shall obtain all necessary permits and
licenses;
7. Failure to comply with any of the above conditions may result in
recision of the Electric Service Provider's Certificate of Convenience
and Necessity.
F. In appropriate circumstances, the Commission may require, as a precondition
to certification, the procurement of a performance bond sufficient to cover
any advances or deposits the applicant may collect from its customers, or
order that such advances or deposits be held in escrow or trust.
R14-2-1604. Competitive Phases
A. Each Affected Utility shall make available at least 20 percent of its 1995
system retail peak demand for competitive generation supply to all customer
classes (including residential and small commercial consumers) not later
than January 1, 1999. If data permit, coincident annual peak demand shall
be used; otherwise noncoincident peak data may be used.
1. No more than 1/2 of the Eligible Demand may be procured by consumers,
each of whose total competitive contract demand is greater than 3 MW.
2. At least 15% of the Eligible Demand shall be reserved for residential
consumers.
3. Aggregation of loads of multiple consumers shall be permitted.
B. Each Affected Utility shall make available at least 50% of its 1995
system retail peak demand for competitive generation supply to all customer
classes (including residential and small commercial consumers) not later
than January 1, 2001. If data permit, coincident peak annual demand shall
be used; otherwise noncoincident peak data may be used.
1. No more than 1/2 of the Eligible Demand may be procured by consumers,
each of whose total competitive contract demand is greater than 3 MW.
2. At least 30 % of the Eligible Demand shall be reserved for residential
consumers.
3. Aggregation of loads of multiple consumers shall be permitted.
C. Prior to 2001, no single consumer shall receive more than 20% of the
Eligible Demand in a given year in an Affected Utility's service territory.
D. Each Affected Utility shall make available all of its retail demand for
competitive generation supply not later than January 1, 2003.
<PAGE>
E. By the date indicated in R14-2-1602, Affected Utilities shall propose for
Commission review and approval how customers will be selected for
participation in the competitive market prior to 2003.
1. Possible selection methods are first-come, first-served; random
selection via a lottery among volunteering consumers; or designation of
geographic areas.
2. The method for selecting customers to participate in the competitive
market must fairly allow participation by a wide variety of customers
of all sizes of loads.
3. All customers who produce or purchase at least 10% of their annual
electricity consumption from photovoltaic or solar thermal resources
installed in Arizona after January 1, 1997 shall be selected for
participation in the competitive market if those customers apply for
participation in the competitive market. Such participants count toward
the minimum requirements in R14-2- 1604(A) and R14-2-1604(B).
4. The Commission Staff shall commence a series of workshops on selection
issues within 45 days of the adoption of this Article and Staff shall
submit a report to the Commission discussing the activities and
recommendations of participants in the workshops. The report shall be
due not later than 90 days prior to the date indicated in R14-2-1602.
F. Retail consumers served under existing contracts are eligible to
participate in the competitive market prior to expiration of the existing
contract only if the Affected Utility and the consumer agree that the
retail consumer may participate in the competitive market.
G. An Affected Utility may engage in Buy-throughs with individual or
aggregated consumers. Any contract for a Buy-through effective prior to the
date indicated in R14-2-1604(A) must be approved by the Commission.
H. Schedule Modifications for Cooperatives
1. An electric cooperative may request that the Commission modify the
schedule described in R14-2-1604(A) through R14-2-1604(D) so as to
preserve the tax exempt status of the cooperative or to allow time to
modify contractual arrangements pertaining to delivery of power
supplies and associated loans.
2. As part of the request, the cooperative shall propose methods to
enhance consumer choice among generation resources.
3. The Commission shall consider whether the benefits of modifying the
schedule exceed the costs of modifying the schedule.
R14-2-1605. Competitive Services
A properly certificated Electric Service Provider may offer any of the following
services under bilateral or multilateral contracts with retail consumers:
A. Generation of electricity from generators at any location whether owned by
the Electric Service Provider or purchased from another generator or
wholesaler of electric generation.
B. Any service described in R14-2-1606, except Distribution Service and except
services required by the Federal Energy Regulatory Commission to be
monopoly services. Billing and collection services and information services
do not require a
<PAGE>
Certificate of Convenience and Necessity.
R14-2-1606. Services Required To Be Made Available by Affected Utilities
A. Until the Commission determines that competition has been substantially
implemented for a particular class of consumers (residential, commercial,
industrial) so that all consumers in that class have an opportunity to
participate in the competitive market, and until all Stranded Costs
pertaining to that class of customers have been recovered, each Affected
Utility shall make available to all consumers in that class in its service
area, as defined on the date indicated in R14-2-1602, Standard Offer
bundled generation, transmission, ancillary, distribution, and other
necessary services at regulated rates.
1. An Affected Utility may request that the Commission determine that
competition has been substantially implemented to allow discontinuation
of Standard Offer service and shall provide sufficient documentation to
support its request.
2. The Commission may, on its own motion, investigate whether competition
has been substantially implemented and whether Standard Offer service
may be discontinued.
B. Standard Offer Tariffs
1. By the date indicated in R14-2-1602, each Affected Utility may file
proposed tariffs to provide Standard Offer Bundled Service and such
rates shall not become effective until approved by the Commission. If
no such tariffs are filed, rates and services in existence as of the
date in R14-2-1602 shall constitute the Standard Offer.
2. Affected Utilities may file proposed revisions to such rates. It is the
expectation of the Commission that the rates for Standard Offer
service will not increase, relative to existing rates, as a result of
allowing competition. Any rate increase proposed by an Affected Utility
for Standard Offer service must be fully justified through a rate case
proceeding.
3. Such rates shall reflect the costs of providing the service.
4. Consumers receiving Standard Offer service are eligible for future rate
reductions authorized by the Commission, such as reductions authorized
in Decision No. 59601.
C. By the date indicated in R14-2-1602, each Affected Utility shall file
Unbundled Service tariffs to provide the services listed below to all
eligible purchasers on a nondiscriminatory basis:
1. Distribution Service;
2. Metering and meter reading services;
3. Billing and collection services;
4. Open access transmission service (as approved by the Federal Energy
Regulatory Commission, if applicable);
5. Ancillary services in accordance with Federal Energy Regulatory
Commission Order 888 (III FERC Stats. & Regs. P. 31,036, 1996)
incorporated herein by reference;
6. Information services such as provision of customer information to other
Electric Service Providers;
7. Other ancillary services necessary for safe and reliable system
operation.
D. To manage its risks, an Affected Utility may include in its tariffs deposit
requirements and advance payment requirements for Unbundled Services.
E. The Affected Utilities must provide transmission and ancillary services
according to the following guidelines:
1. Services must be provided consistent with applicable tariffs filed with
the Federal Energy Regulatory Commission.
2. Unless otherwise required by federal regulation, Affected Utilities
must accept power and energy delivered to their transmission systems by
others and offer transmission and related services comparable to
services they provide to
<PAGE>
themselves.
F. Customer Data
1. Upon authorization by the customer, an Electric Service Provider shall
release in a timely and useful manner that customer's demand and energy
data for the most recent 12 month period to a customer-specified
Electric Service Provider.
2. The Electric Service Provider requesting such customer data shall
provide an accurate account number for the customer.
3. The form of data shall be mutually agreed upon by the parties and such
data shall not be unreasonably withheld.
G. Rates for Unbundled Services
1. The Commission shall review and approve rates for services listed in
R14-2-1606(C) and requirements listed in R14-2-1606(D), where it has
jurisdiction, before such services can be offered.
2. Such rates shall reflect the costs of providing the services.
3. Such rates may be downwardly flexible if approved by the Commission.
H. Electric Service Providers offering services under this R14-2-1606 shall
provide adequate supporting documentation for their proposed rates. Where
rates are approved by another jurisdiction, such as the Federal Energy
Regulatory Commission, those rates shall be provided to this Commission.
I. Within 90 days of the adoption of this Article, the Commission Staff shall
commence a series of workshops to explore issues in the provision of
Unbundled Service and Standard Offer service.
1. Parties to be invited to participate in the workshops shall include
utilities, consumers, organizations promoting energy efficiency, and
other Electric Service Providers.
2. Among the issues to be reviewed in the workshops are: metering
requirements; metering protocols; designation of appropriate test
years; the nature of adjustments to test year data; de-averaging of
rates; service characteristics such as voltage levels; revenue
uncertainty; line extension policies; and the need for performance
bonds.
3. A report shall be submitted to the Commission by the Staff on the
activities and recommendations of the participants in the workshops not
later than 60 days prior to the date indicated in R14-2-1602. The
Commission shall consider any recommendations regarding Unbundled
Service and Standard Offer service tariffs.
R14-2-1607. Recovery of Stranded Cost of Affected Utilities
A. The Affected Utilities shall take every feasible, cost-effective measure to
mitigate or offset Stranded Cost by means such as expanding wholesale or
retail markets, or offering a wider scope of services for profit, among
others.
B. The Commission shall allow recovery of unmitigated Stranded Cost by
Affected Utilities.
C. A working group to develop reccomendations for the analysis and recovery of
Stranded Cost shall be established.
1. The working group shall commence activities within 15 days of the date
of adoption of this Article.
2. Members of the working group shall include representatives of Staff,
the Residential Utility Consumer Office, consumers, utilities, and
other Electric Service Providers. In addition, the Executive and
Legislative Branches shall be invited to send representatives to be
members of the working group.
3. The working group shall be coordinated by the Director of the Utilities
Division of the Commission or by his or her designee.
D. In developing its recommendations, the working group shall consider at
least the following factors:
1. The impact of Stranded Cost recovery on the effectiveness of
competition;
2. The impact of Stranded Cost recovery on customers of the Affected
Utility who do not participate in the competitive market;
3. The impact, if any, on the Affected Utility's ability to meet debt
obligations;
4. The impact of Stranded Cost recovery on prices paid by consumers who
participate in the competitive market;
5. The degree to which the Affected Utility has mitigated or offset
Stranded Cost;
6. The degree to which some assets have values in excess of their book
values;
7. Appropriate treatment of negative Stranded Cost;
8. The time period over such Stranded Cost charges may be recovered. The
Commission shall limit the application of such changes to a specified
time period;
9. The ease of determining the amount of Stranded Cost;
10. The applicability of Stranded Cost to interruptible customers;
11. The amount of electricity generated by renewable generating resources
owned by the Affected Utility.
E. The working group shall submit to the Commission a report on the activities
and recommendations of the working group no later than 90 days prior to the
date indicated in R14-2-1602.
F. The Commision shall consider the recommendations and decide what actions,
if any, to take based on the recommendations.
G. The Affected Utilities shall file estimates of unmitigated Stranded Cost.
Such estimates shall be fully supported by analyses and by records of
market transactions undertaken by willing buyers and willing sellers.
<PAGE>
H. An Affected Utility shall request Commission approval of distribution
charges or other means of recovering unmitigated Stranded Cost from
customers who reduce or terminate service from the Affected Utility as a
direct result of competition governed by this Article, or who obtain lower
rates from the Affected Utility as a direct result of the competition
governed by this Article.
I. The Commission shall, after hearing and consideration of analyses and
recommendations presented by the Affected Utilities, Staff, and
intervenors, determine for each Affected Utility the magnitude of Stranded
Cost, and appropriate Stranded Cost recovery mechanisms and charges. In
making its determination of mechanisms and charges, the Commission shall
consider at least the following factors:
1. The impact of Stranded Cost recovery on the effectiveness of
competition;
2. The impact of Stranded Cost recovery on customers of the Affected
Utility who do not participate in the competitive market;
3. The impact, if any, on the Affected Utility's ability to meet debt
obligations;
4. The impact of Stranded Cost recovery on prices paid by consumers who
participate in the competitive market;
5. The degree to which the Affected Utility has mitigated or offset
Stranded Cost;
6. The degree to which some assets have values in excess of their book
values;
7. Appropriate treatment of negative Stranded Cost;
8. The time period over which such Stranded Cost charges may be recovered.
The Commission shall limit the application of such charges to a
specified time period;
9. The ease of determining the amount of Stranded Cost;
10. The applicability of Stranded Cost to interruptible customers;
11. The amount of electricity generated by renewable generating resources
owned by the Affected Utility.
J. Stranded Cost may only be recovered from customer purchases made in the
competitive market using the provisions of this Article. Any reduction in
electricity purchases from an Affected Utility resulting from
self-generation, demand side management, or other demand reduction
attributable to any cause other than the retail access provisions of this
Article shall not be used to calculate or recover any Stranded Cost from a
consumer.
K. The Commission may order an Affected Utility to file estimates of Stranded
Cost and mechanisms to recover or, if negative, to refund Stranded Cost.
L. The Commission may order regular revisions to estimates of the magnitude of
Stranded Cost.
R14-2-1608. System Benefits Charges
A. By the date indicated in R14-2-1602, each Affected Utility shall file for
<PAGE>
Commission review non-bypassable rates or related mechanisms to recover the
applicable pro-rata costs of System Benefits from all consumers located in
the Affected Utility's service area who participate in the competitive
market. In addition, the Affected Utility may file for a change in the
System Benefits charge at any time. The amount collected annually through
the System Benefits charge shall be sufficient to fund the Affected
Utilities' present Commission-approved low income, demand side management,
environmental, renewables, and nuclear power plant decommissioning
programs.
B. Each Affected Utility shall provide adequate supporting documentation for
its proposed rates for System Benefits.
C. An Affected Utility shall recover the costs of System Benefits only upon
hearing and approval by the Commission of the recovery charge and
mechanism. The Commission may combine its review of System Benefits Charges
with its review of filings pursuant to R14-2-1606.
D. Methods of calculating System Benefits charges shall be included in the
workshops described in R14-2-1606(I).
R14-2-1609. Solar Portfolio Standard
A. Starting on January 1, 1999, any Electric Service Provider selling
electricity under the provisions of this Article must derive at least 1/2
of 1% of the total retail energy sold competitively from new solar
resources, whether that solar energy is purchased or generated by the
seller. Solar resources include photovoltaic resources and solar thermal
resources that generate electricity. New solar resources are those
installed on or after January 1, 1997.
B. Solar portfolio standard after December 31, 2001:
1. Starting on January 1, 2002, any Electric Service Provider selling
electricity under the provisions of this Article must derive at least
1% of the total retail energy sold competitively from new solar
resources, whether that solar energy is purchased or generated by the
seller. Solar resources include photovoltaic resources and solar
thermal resources that generate electricity. New solar resources are
those installed on or after January 1, 1997.
2. The Commission may change the solar portfolio percentage applicable
after December 31, 2001, taking into account, among other factors, the
costs of producing solar electricity and the costs of fossil fuel for
conventional power plants.
C. Any Electric Service Provider certificated under the provisions of this
Article shall be able to credit 2 times the electric energy it generated,
or caused to be generated under contract, before January 1, 1999 using
photovoltaics or solar thermal resources installed on or after January 1,
1997 in Arizona to the electric energy requirements of R14-2-1609(A) or
R14-2-1609(B).
D. Electric Service Providers selling electricity under the provisions of this
Article shall provide reports on sales and solar power as required in this
Article, clearly demonstrating the output of solar resources, the
installation date of solar resources, and the transmission of energy from
those solar resources to Arizona consumers. The Commission may conduct
necessary monitoring to ensure the accuracy of these data.
E. If an Electric Service Provider selling electricity under the provisions of
this Article fails to meet the requirement in R14-2-1609(A) or
R14-2-1609(B) in any year, the Commission may impose a penalty on that
Electric Service Provider up to
<PAGE>
$0.30 per kWh for deficiencies in the provision of solar energy. In
addition, if the provision of solar energy is consistently deficient, the
Commission may void an Electric Service Provider's contracts negotiated
under this Article.
F. Photovoltaic or solar thermal resources that are located on the consumer's
premises shall count toward the solar portfolio standard applicable to the
current Electric Service Provider serving that consumer.
G. The solar portfolio standard described in this section is in addition to
renewable resource goals for Affected Utilities established in Decision No.
58643.
R14-2-1610. Spot Markets and Independent System Operation
A. The Commission shall conduct an inquiry into spot market development and
independent system operation for the transmission system.
B. The Commission may support development of a spot market or independent
system operator(s) for the transmission system.
C. The Commission may work with other entities to help establish spot markets
and independent system operators.
R14-2-1611. In-State Reciprocity
A. The service territories of Arizona electric utilities which are not
Affected Utilities shall not be open to competition under the provisions of
this Article, nor shall Arizona electric utilities which are not Affected
Utilities be able to compete for sales in the service territories of the
Affected Utilities.
B. An Arizona electric utility, subject to the jurisdiction of the Commission,
which is not an Affected Utility may voluntarily participate under the
provisions of this Article if it makes its service territory available for
competing sellers, if it agrees to all of the requirements of this Article,
and if it obtains an appropriate Certificate of Convenience and Necessity.
C. The Commission shall pursue, on its own or in cooperation with the Joint
Legislative Study Committee on Electric Industry Competition established by
House Bill 2504 (1996), legislation to address the role of electric
utilities of Arizona political subdivisions or municipal corporations in a
competitive market. The Commission shall further make available, as
appropriate, Staff assistance to the Legislature if the Legislature
requests such assistance for the purpose of determining the proper role of
electric utilities of Arizona political subdivisions or municipal
corporations in a competitive market.
D. An Arizona electric utility, not subject to the jurisdiction of the
Commission, which is not an Affected Utility, may voluntarily participate
under the provisions of this Article if it makes its service territory
available for competing sellers, if it agrees to all of the requirements of
this Article other than any requirement to obtain a Certificate of
Convenience and Necessity, if adequate enforcement mechanisms can be
established, and if all other Affected Utilities consent in writing.
R14-2-1612. Rates
A. Market determined rates for competitively provided services as defined in
R14-2-1605 shall be deemed to be just and reasonable.
B. Each Electric Service Provider selling services under this Article shall
have on file with the Commission tariffs describing such services and
maximum rates for those services, but the services may not be provided
until the Commission has approved the tariffs.
C. Prior to the date indicated in R14-2-1604(D), competitively negotiated
contracts governed by this Article customized to individual customers which
comply with approved tariffs do not require further Commission approval.
However, all such
<PAGE>
contracts whose term is one year or more and for service of 1 MW or more
must be filed with the Director of the Utilities Division as soon as
practicable. If a contract does not comply with the provisions of this
Article it shall not become effective without a Commission order.
D. Contracts entered into on or after the date indicated in R14-2-1604(D)
which comply with approved tariffs need not be filed with the Director of
the Utilities Division. If a contract does not comply with the provisions
of this Article it shall not become effective without a Commission order.
E. An Electric Service Provider holding a Certificate pursuant to this Article
may price its competitive services, as defined in R14-2-1605, at or below
the maximum rates specified in its filed tariff, provided that the price is
not less than the marginal cost of providing the service.
F. Requests for changes in maximum rates or changes in terms and conditions of
previously approved tariffs may be filed. Such changes become effective
only upon Commission approval.
R14-2-1613. Service Quality, Consumer Protection, Safety, and Billing
Requirements
A. Except as indicated elsewhere in this Article, R14-2-201 through R14-2-212,
inclusive, are adopted in this Article by reference. However, where the
term "utility" is used in R14-2-201 through R14-2-212, the term "utility"
shall pertain to Electric Service Providers providing the services
described in each paragraph of R14-2-201 through R14-2-212. R14-2-212(G)(2)
shall pertain only to Affected Utilities. R14-2-212(G)(4) shall apply only
to Affected Utilities. R14-2-212(H) shall pertain only to Electric Service
Providers who provide distribution service.
B. The following shall not apply to this Article:
1. R14-2-202 in its entirety,
2. R14-2-212(F)(1),
3. R14-2-213.
C. No consumer shall be deemed to have changed suppliers of any service
authorized in this Article (including changes from supply by the Affected
Utility to another supplier) without written authorization by the consumer
for service from the new supplier. If a consumer is switched to a different
("new") supplier without such written authorization, the new supplier shall
cause service by the previous supplier to be resumed and the new supplier
shall bear all costs associated with switching the consumer back to the
previous supplier.
D. Each Electric Service Provider providing service governed by this Article
shall be responsible for meeting applicable reliability standards and shall
work cooperatively with other companies with whom it has interconnections,
directly or indirectly, to ensure safe, reliable electric service.
E. Each Electric Service Provider shall provide at least 30 days notice to all
of its affected consumers if it is no longer obtaining generation,
transmission, distribution, or ancillary services necessitating that the
consumer obtain service from another supplier of generation, transmission,
distribution, or ancillary services.
<PAGE>
F. All Electric Service Providers rendering service under this Article shall
submit accident reports as required in R14-2-101.
G. An Electric Service Provider providing firm electric service governed by
this Article shall make reasonable efforts to reestablish service within
the shortest possible time when service interruptions occur and shall work
cooperatively with other companies to ensure timely restoration of service
where facilities are not under the control of the Electric Service Provider
H. Each Electric Service Provider shall ensure that bills rendered on its
behalf include the toll free telephone numbers for billing, service, and
safety inquiries and the telephone number of the Consumer Services Section
of the Arizona Corporation Commission Utilities Division. Each Electric
Service Provider shall ensure that billing and collection services rendered
on its behalf comply with R14-2-1613(A) and R14-2- 1613(B).
I. Additional Provisions for Metering and Meter Reading Services
1. An Electric Service Provider who provides metering or meter reading
services pertaining to a particular consumer shall provide access to
meter readings to other Electric Service Providers serving that same
consumer.
2. A consumer or an Electric Service Provider relying on metering
information provided by another Electric Service Provider may request a
meter test according to the tariff on file and approved by the
Commission. However, if the meter is found to be in error by more than
3%, no meter testing fee will be charged.
3. Protocols for metering shall be developed subsequent to the workshops
described in R14-2-1606(I).
J. Working Group on System Reliability and Safety:
1. If it has not already done so, the Commission shall establish, by
separate order, a working group to monitor and review system
reliability and safety.
a. The working group may establish technical advisory panels to
assist it.
b. The working group shall commence activities within 15 days of the
date of adoption of this Article.
c. Members of the working group shall include representatives of
Staff, consumers, the Residential Utility Comsumer Office,
utilities, other Electric Service Providers and organizations
promoting energy efficiency.
d. The working group shall be coordinated by the Director of the
Utilities Division of the Commission or by his or her designee.
2. All Electric Service Providers governed by this Article shall cooperate
and participate in any investigation conducted by the working group,
including provision of data reasonably related to system reliability or
safety.
3. The working group shall report to the Commission on system reliability
and safety regularly, and shall make recommendations to the Commission
regarding improvements to reliability or safety.
K. Electric Service Providers shall comply with applicable reliability
standards and practices established by the Western Systems Coordinating
Council and the North American Electric Reliability Council or successor
organizations.
L. Electric Service Providers shall provide notification and informational
materials to
<PAGE>
consumers about competition and consumer choices, such as a standardized
description of services, as ordered by the Commission.
R14-2-1614. Reporting Requirements
A. Reports covering the following items shall be submitted to the Director of
the Utilities Division by Affected Utilities and all Electric Service
Providers granted a Certificate of Convenience and Necessity pursuant to
this Article. These reports shall include the following information
pertaining to competitive service offerings, Unbundled Services, and
Standard Offer services in Arizona:
1. Type of services offered;
2. kW and kWh sales to consumers, disaggregated by customer class (e.g.,
residential, commercial, industrial);
3. Solar energy sales (kWh) and sources for grid connected solar
resources; kW capacity for off-grid solar resources;
4. Revenues from sales by customer class (e.g., residential, commercial,
industrial);
5. Number of retail customers disaggregated as follows: aggregators,
residential, commercial under 100 kW, commercial 100 kW to 2999 kW,
commercial 3000 kW or more, industrial less than 3000 kW, industrial
3000 kW or more, agricultural (if not included in commercial), and
other;
6. Retail kWh sales and revenues disaggregated by term of the contract
(less than 1 year, 1 to 4 years, longer than 4 years), and by type of
service (for example, firm, interruptible, other);
7. Amount of and revenues from each service provided under R14-2- 1605,
and, if applicable, R14-2-1606;
8. Value of all Arizona specific assets and accumulated depreciation;
9. Tabulation of Arizona electric generation plants owned by the Electric
Service Provider broken down by generation technology, fuel type, and
generation capacity;
10. Other data requested by Staff or the Commission;
11. In addition, prior to the date indicated in R14-2-1604(D), Affected
Utilities shall provide data demonstrating compliance with the
requirements of R14-2-1604;
B. Reporting Schedule
1. For the period through December 31, 2003, semi-annual reports shall be
due on April 15 (covering the previous period of July through December)
and October 15 (covering the previous period of January through June).
The first such report shall cover the period January 1 through June 30,
1999.
2. For the period after December 31, 2003, annual reports shall be due on
April 15 (covering the previous period of January through December).
The first such report shall cover the period January 1 through December
31, 2004.
C. The information listed above may be provided on a confidential basis.
However, Staff or the Commission may issue reports with aggregate
statistics based on confidential information that do not disclose data
pertaining to a particular seller or purchases by a particular buyer.
<PAGE>
D. Any Electric Service Provider governed by this Article which fails to file
the above data in a timely manner may be subject to a penalty imposed by
the Commission or may have its Certificate rescinded by the Commission.
E. Any Electric Service Provider holding a Certificate pursuant to this
Article shall report to the Director of the Utilities Division the
discontinuation of any competitive tariff as soon as practicable after the
decision to discontinue offering service is made.
F. In addition to the above reporting requirements, Electric Service Providers
governed by this Article shall participate in Commission workshops or other
forums whose purpose is to evaluate competition or assess market issues.
G. Reports filed under the provisions of this section shall be submitted in
written format and in electronic format. Electric Service Providers shall
coordinate with the Commission Staff on formats.
R14-2-1615. Administrative Requirements
A. Any Electric Service Provider certificated under this Article may propose
additional electric services at any time by filing a proposed tariff with
the Commission describing the service, maximum rates, terms and conditions.
The proposed new electrical service may not be provided until the
Commission has approved the tariff.
B. Contracts filed pursuant to this Article shall not be open to public
inspection or made public except on order of the Commission, or by the
Commission or a Commissioner in the course of a hearing or proceeding.
C. The Commission may consider variations or exemptions from the terms or
requirements of any of the rules in this Article upon the application of an
affected party. The application must set forth the reasons why the public
interest will be served by the variation or exemption from the Commission
rules and regulations. Any variation or exemption granted shall require an
order of the Commission. Where a conflict exists between these rules and an
approved tariff or order of the Commission, the provisions of the approved
tariff or order of the Commission shall apply.
D. The Commission may develop procedures for resolving disputes regarding
implementation of retail electric competition.
R14-2-1616. Legal Issues
A. A working group to identify, analyze and provide recommendations to the
Commission on legal issues relevant to this Article shall be established.
1. The working group shall commence activities within 15 days of the date
of adoption of this Article.
2. Members of the working group shall include representatives of Staff,
the Residential Utility Consumer Office, consumers, utilities, and
other Electric Service Providers. In addition, the Executive and
Legislative Branches and the Attorney General shall be invited to send
representatives to be members of the working group.
3. The working group shall be coordinated by the Director of the Legal
Division of the Commission or by his or her designee.
B. The working group shall submit to the Commission a report on the activities
and recommendations of the working group no later than 90 days prior to the
date indicated in R14-2-1602.
C. The Commission shall consider the recommendations and decide what actions,
if any, to take based on the recommendations.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
PUBLIC UTILITY COMPANIES AND PUBLIC UTILITY HOLDING
COMPANIES
(THOUSANDS OF DOLLARS)
FISCAL YEAR ENDED DECEMBER, 31, 1996
FOR PERIOD JANUARY 1, 1996 THROUGH SEPTEMBER 30, 1996
NINE MONTHS ENDED
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,651,394
<OTHER-PROPERTY-AND-INVEST> 113,221
<TOTAL-CURRENT-ASSETS> 366,955
<TOTAL-DEFERRED-CHARGES> 1,304,391
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,435,961
<COMMON> 178,162
<CAPITAL-SURPLUS-PAID-IN> 1,040,681
<RETAINED-EARNINGS> 507,801
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,726,644
53,000
170,391
<LONG-TERM-DEBT-NET> 1,924,507
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 134,500
<LONG-TERM-DEBT-CURRENT-PORT> 153,643
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,273,276
<TOT-CAPITALIZATION-AND-LIAB> 6,435,961
<GROSS-OPERATING-REVENUE> 1,338,818
<INCOME-TAX-EXPENSE> 172,017
<OTHER-OPERATING-EXPENSES> 833,994
<TOTAL-OPERATING-EXPENSES> 1,006,011
<OPERATING-INCOME-LOSS> 332,807
<OTHER-INCOME-NET> 30,701
<INCOME-BEFORE-INTEREST-EXPEN> 363,508
<TOTAL-INTEREST-EXPENSE> 118,978
<NET-INCOME> 244,530
12,956
<EARNINGS-AVAILABLE-FOR-COMM> 231,574
<COMMON-STOCK-DIVIDENDS> 127,500
<TOTAL-INTEREST-ON-BONDS> 105,410
<CASH-FLOW-OPERATIONS> 518,584
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
