SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 21, 1999
ARIZONA PUBLIC SERVICE COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Arizona 1-4473 86-0011170
- ---------------------------- ----------- ----------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
400 North Fifth Street, P.O. Box 53999, Phoenix, Arizona 85004
- -------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(602) 250-1000
----------------------------------------------------
(Registrant's telephone number, including area code)
NONE
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
SETTLEMENT AGREEMENT
As previously reported, on August 26, 1999, the Arizona Corporation
Commission ("ACC") Hearing Officer issued a recommended decision on the
comprehensive Settlement Agreement between Arizona Public Service Company (the
"Company" or "we") and various other parties. See "Proposed Settlement
Agreement" in Item 5 of the Company's Current Report on Form 8-K dated August
26, 1999 (the "August 8-K"). On September 23, 1999, the ACC voted to approve the
Settlement Agreement, with some modifications, which will be effective upon
signing of the written order by the Commissioners.
The following are the major provisions of the Settlement Agreement, as
approved:
* We will reduce rates for standard offer service for customers with
loads less than 3 megawatts in a series of annual rate reductions of
1.5% beginning July 1, 1999 through July 1, 2003, for a total of 7.5%.
The first reduction of approximately $24 million ($14 million after
income taxes) includes the July 1, 1999 retail price decrease of
approximately $10.8 million annually ($6.5 million after income taxes)
related to the 1996 regulatory agreement. For customers having loads 3
megawatts or greater, standard offer rates will be reduced in annual
increments that total 5% through 2002.
* Unbundled rates being charged by us for competitive direct access
service (for example, distribution services) will become effective
upon the signing of the written order by the Commissioners, and will
be subject to annual reductions, that vary by rate class, through
2003.
* There will be a moratorium on retail rate changes for standard offer
and unbundled competitive direct access rates until July 1, 2004,
except for the price reductions described above and certain other
limited circumstances. Neither the ACC nor the Company will be
prevented from seeking or authorizing rate changes prior to July 1,
2004 in the event of conditions or circumstances that constitute an
emergency, such as an inability to finance on reasonable terms, or
material changes in the Company's cost of service for ACC-regulated
services resulting from federal, tribal, state or local laws,
regulatory requirements, judicial decisions, actions or orders.
* We will be permitted to defer for later recovery prudent and
reasonable costs of complying with the ACC electric competition rules,
system benefits costs in excess of the levels included in current
rates, and costs associated with our "provider of last resort" and
standard offer obligations for service after July 1, 2004. These costs
are to be recovered through an adjustment clause or clauses commencing
on July 1, 2004.
* Our distribution system will be open for retail access upon the
signing of the written order by the Commissioners. Customers will be
eligible for retail access in accordance with the phase-in adopted
<PAGE>
by the ACC under the electric competition rules (see "Retail Electric
Competition Rules" below), with an additional 140 megawatts being made
available to eligible non-residential customers. Unless subject to
judicial or regulatory restraint, we will open our distribution system
to retail access for all customers on January 1, 2001.
* We are currently recovering substantially all of our regulatory assets
through July 1, 2004, pursuant to the 1996 regulatory agreement. In
addition, the Settlement Agreement states that we have demonstrated
that our allowable stranded costs, after mitigation and exclusive of
regulatory assets, are at least $533 million net present value. We
will not be allowed to recover $183 million net present value of the
above amounts. The Settlement Agreement provides that we will have the
opportunity to recover $350 million net present value through a
competitive transition charge (CTC) that will remain in effect through
December 31, 2004, at which time it will terminate. Any
over/under-recovery will be credited/debited against the costs subject
to recovery under the adjustment clause described above.
* We will form a separate corporate affiliate or affiliates and transfer
thereto our generating assets and competitive services at book value
as of the date of transfer, which transfer shall take place by
December 31, 2002. Sixty-seven percent of our costs to transfer
generation assets to an affiliate shall be allowed to be deferred for
future collection.
* When the Settlement Agreement approved by the ACC is no longer subject
to judicial review, we will move to dismiss all of our litigation
pending against the ACC as of the date we entered into the Settlement
Agreement.
Upon final ACC order, we will discontinue the application of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation," for our generation operations. This means that regulatory
assets, unless reestablished as recoverable through ongoing regulated cash
flows, are to be eliminated and the generation assets must be tested for
impairment. The regulatory disallowance, which removes $234 million pre-tax
($183 million net present value) from ongoing regulatory cash flows, will be
recorded as a net reduction of regulatory assets. This reduction ($140 million
after income taxes) will be reported in the third quarter as an extraordinary
charge on the income statement. The regulatory assets to be recovered under this
Settlement Agreement will be amortized as follows:
(Millions)
1/1 - 6/30
1999 2000 2001 2002 2003 2004 Total
- ---- ---- ---- ---- ---- ---- ------
$164 $158 $145 $115 $86 $18 $686
<PAGE>
RETAIL ELECTRIC COMPETITION RULES
As previously reported, on August 26, 1999, the ACC Hearing Officer issued
a recommended decision on the rules that provide a framework for the
introduction of retail electric competition in Arizona (the "Rules"). See
"Proposed Retail Electric Competition Rules" in Item 5 of the August 8-K. On
September 21, 1999, the ACC voted to approve the Rules, which will be effective
upon signing of the written order by the Commissioners.
The Rules approved by the ACC include the following major provisions:
* They apply to virtually all Arizona electric utilities regulated by
the ACC, including us.
* The Rules require each affected utility, including us, to make
available at least 20% of its 1995 system retail peak demand for
competitive generation supply beginning when the ACC makes a final
decision on each utility's stranded costs and unbundled rates (Final
Decision Date) or January 1, 2001, whichever is earlier, and 100%
beginning January 1, 2001. Under the Settlement Agreement, the Company
will provide retail access to customers representing the minimum 20%
required by the ACC and an additional 140 megawatts of non-residential
load as of July 1, 1999, and to all customers as of January 1, 2001,
or such other dates as approved by the ACC.
* Subject to the 20% requirement, all utility customers with single
premise loads of one megawatt or greater will be eligible for
competitive electric services on the Final Decision Date, which for
the Company's customers will be the issuance of the final ACC order on
the Settlement Agreement. Customers may aggregate loads to meet this
one megawatt requirement.
* When effective, residential customers will be phased in at 1 1/4% per
quarter calculated beginning on January 1, 1999, subject to the 20%
requirement above.
* Electric service providers that get Certificates of Convenience and
Necessity (CC&Ns) from the ACC can supply only competitive services,
including electric generation, but not electric transmission and
distribution.
* Affected utilities must file ACC tariffs with separate pricing for
electric services provided for noncompetitive services.
* The ACC shall allow a reasonable opportunity for recovery of
unmitigated stranded costs.
* Absent an ACC waiver, prior to January 1, 2001, each affected utility
(except certain electric cooperatives) must transfer all competitive
generation assets and services either to an unaffiliated party or to a
separate corporate affiliate. Under the Settlement Agreement, the
Company received a waiver to allow transfer of its competitive
generation assets and services to affiliates no later than December
31, 2002.
<PAGE>
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 hereunto duly authorized.
ARIZONA PUBLIC SERVICE COMPANY
(Registrant)
Dated: September 24, 1999 By: Nancy C. Loftin
------------------------------------
Nancy C. Loftin
Vice President and General Counsel
