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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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1993 FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
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 1-8962
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PINNACLE WEST CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
ARIZONA 86-0512431
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
400 East Van Buren Street, Suite 700
Phoenix, Arizona 85004 (602) 379-2500
(Address of principal executive offices, (Registrant's telephone number,
including zip code) including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, New York Stock Exchange
No Par Value..................................... Pacific Stock Exchange
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AGGREGATE MARKET VALUE
OF SHARES HELD BY
TITLE OF EACH CLASS SHARES OUTSTANDING NON-AFFILIATES AS OF
OF VOTING STOCK AS OF MARCH 23, 1994 MARCH 23, 1994
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Common Stock, No Par Value... 87,416,576 $ 1,818,209,400 (a)
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(A) COMPUTED BY REFERENCE TO THE CLOSING PRICE ON THE COMPOSITE TAPE ON MARCH
23, 1994, AS REPORTED BY THE WALL STREET JOURNAL.
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes---------------------- X ----------------------
No---------------------- ----------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement relating to its annual
meeting of shareholders to be held on May 19, 1994 are incorporated by
reference into Part III hereof.
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<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Pinnacle West Capital Corporation (the "Company") was incorporated in 1985
under the laws of the State of Arizona and is engaged in the acquisition and
holding of securities of corporations for investment purposes. The principal
executive offices of the Company are located at 400 East Van Buren Street,
Phoenix, Arizona 85004 (telephone 602-379-2500).
The Company and its subsidiaries employ approximately 7,915 persons. Of
these employees, approximately 7,050 are employees of the Company's principal
subsidiary, Arizona Public Service Company ("APS"), and employees assigned to
joint projects of APS where APS serves as a project manager, and approximately
865 are employees of the Company and its other subsidiaries.
Other subsidiaries of the Company, in addition to APS, include SunCor
Development Company ("SunCor") and El Dorado Investment Company ("El Dorado").
SunCor is engaged primarily in the owning, holding and development of real
property. El Dorado is involved in the business of making equity investments
in other companies. See "Business of Non-Utility Subsidiaries" in this Item
for further information regarding SunCor and El Dorado.
Effective December 16, 1986, the Company acquired MeraBank, A Federal
Savings Bank ("MeraBank"). On January 31, 1990, MeraBank was placed in
receivership, and is therefore considered a discontinued operation of the
Company for financial reporting purposes. See Note 2 of the Notes to the
Consolidated Financial Statements in Item 8 for information regarding the
Company's $450 million cash infusion into MeraBank in settlement of claims
made by certain federal agencies with respect to MeraBank.
CAPITAL REQUIREMENTS. During the past three years, the Company's primary
cash needs were for the repayment of principal and interest on its outstanding
debt. Additional cash needs in 1993 were related to the fourth quarter
restoration of common stock dividends.
As a result of a restructuring of substantially all of its outstanding
debt in 1990, and the prepayment of approximately $112 million, $96 million
and $152 million of its long-term debt in 1991, 1992 and 1993, respectively,
the Company has reduced required principal debt payments for the next three
years. The Company's principal and interest payment obligations during 1994,
1995 and 1996 are expected to total approximately $129 million, $129 million
and $83 million, respectively (based upon certain anticipated prepayments).
See Note 6 of the Notes to the Company's Consolidated Financial Statements in
Item 8 for additional information regarding the Company's and APS' outstanding
long-term debt.
The Company's ability to satisfy its debt service obligations is
substantially dependent upon the receipt of common stock dividends from APS.
The Company has in place a $40 million liquidity facility to assist the
Company in meeting its debt service requirements in the event that cash flow
is less than anticipated. The facility is available for principal and interest
payments on the Company's outstanding debt, with a maximum of $20 million for
principal payments.
The terms and provisions of certain of the Company's financing agreements
place severe restrictions on the Company's ability to incur additional debt,
to make capital infusions into its subsidiaries (excluding APS), to make other
new investments and to pay cash dividends to its shareholders unless certain
conditions are met. While the debt under these financing agreements remains
outstanding, the Company has agreed not to incur new debt, except generally
(and with certain restrictions) for (1) borrowings to reduce, refinance or
prepay existing debt and (2) borrowings under the liquidity facility discussed
in the immediately preceding paragraph. The Company's ability to pay cash
dividends or to make other corporate distributions is dependent upon the
satisfaction of certain financial covenants. The Company restored a dividend
on its common stock in the fourth quarter of 1993.
In the event of a sale of all or substantially all of the assets or shares
of common stock of El Dorado or SunCor, the net cash proceeds must be applied
by the Company to reduce its outstanding debt. Until the Company's lenders are
fully repaid, (1) any new investments by the Company in its subsidiaries
(excluding APS) are generally restricted to $15 million in the aggregate and
(2) any other new investments by the Company are generally restricted to $20
million in the aggregate. As of December 31, 1993, the Company had not made
any such investments.
As part of the Company's 1990 debt restructuring, the Company granted
substantially all of its lenders a security interest in the outstanding common
stock of APS pursuant to a Pledge Agreement, dated as of January 31, 1990 (the
"Pledge Agreement"). At December 31, 1993, the APS common stock secured
approximately $564 million of the Company's outstanding debt. Any borrowings
under the Company's liquidity facility (see above) would also be secured by
the APS common stock owned by the Company. Until the Company and the
collateral agent under the Pledge Agreement (the "Collateral Agent") receive
notice of the occurrence and continuation of an Event of Default (as defined
in the Pledge Agreement), the Company is entitled to exercise or refrain from
exercising any and all voting and other consensual rights pertaining to
the APS common stock. As to matters other than the election of directors, the
Company agreed not to exercise or refrain from exercising any such rights if,
in the Collateral Agent's judgment, such action would have a material adverse
effect on the value of the APS common stock. After notice of an Event of
Default, the Collateral Agent would have the right to vote the APS common
stock.
REGULATION
PUBLIC UTILITY HOLDING COMPANY
The Company currently conducts no significant business activities other
than investing in its subsidiaries and owns no significant assets other than
the common stock of its subsidiaries. The Company and its subsidiaries are
currently exempt from registration under the Public Utility Holding Company
Act of 1935 (the "Holding Company Act"); however, there are limits on the
extent to which the Company can diversify beyond energy-related fields without
affecting its exempt status. In February 1989, the Securities and Exchange
Commission (the "SEC") released for public comment a proposed rule under the
Holding Company Act relating to holding companies, like the Company, that are
exempt under Section 3(a)(1) of the Holding Company Act. The proposed rule, if
finally adopted by the SEC in its present form, could require the divestiture
of a portion of the Company's interests in non-utility businesses within a
three-year period after the rule's adoption in order for the Company to
maintain its Section 3(a)(1) exemption. If the Company failed to maintain this
exemption, the proposed rule would require the Company to divest itself of all
of its interests in non-utility businesses within the same three-year period.
At this time, the Company is unable to predict whether the proposed rule will
be adopted by the SEC and, if so, in what form it will be adopted.
On May 1, 1990, the ACC approved the filing of a petition with the SEC
requesting the SEC to revoke or modify the Company's exemption under the
Holding Company Act. The SEC has the power to terminate the Company's
exemption upon thirty days notice to the Company if it determines that a
question exists as to whether the exemption may be detrimental to the public
interest or the interests of investors or consumers. In the event of the
exercise of such power by the SEC, if the Company were to file an application
with the SEC during such thirty-day period requesting an exemption order, the
Company's exemption would remain in place until the SEC ruled on such
application. If the Company ultimately were to have its exemption modified,
conditioned or revoked, APS could be subject to SEC regulation in many aspects
of its business, including those relating to securities issuances,
diversification and transactions among affiliates. In a series of responses to
the ACC's petition and subsequent ACC letters to the SEC, the Company has
asked the SEC to refuse to take the action requested by the ACC. The Company
cannot predict what action, if any, the SEC may take with respect to the ACC
petition.
ARIZONA CORPORATION COMMISSION REPORTING REQUIREMENTS
On April 29, 1985, the ACC issued an order subjecting the Company and APS
to certain reporting requirements in connection with certain of their
activities. The order requires the Company to report to the ACC on a monthly
basis concerning the Company's diversification activities and plans, financing
arrangements and changes in management. The order also requires monthly
reports describing transactions between APS and the Company or its affiliates.
ARIZONA CORPORATION COMMISSION AFFILIATED INTEREST RULES
On March 14, 1990 the ACC issued an order adopting certain rules
purportedly applicable only to a certain class of public utilities regulated
by the ACC, including APS. The rules define the terms "public utility holding
company" and "affiliate" with respect to public service corporations regulated
by the ACC in such a manner as to include the Company and all of the Company's
non-public service corporation subsidiaries. By their terms, the rules, among
other things, require public utilities, such as APS, to receive ACC approval
prior to (1) obtaining an interest in, or guaranteeing or assuming the
liabilities of, any affiliate not regulated by the ACC; (2) lending to any
such affiliate (except for short-term loans in an amount less than $100,000);
or (3) using utility funds to form a subsidiary or divest itself of any
established subsidiary. The rules also would prevent a utility from
transacting business with an affiliate unless the affiliate agrees to provide
the ACC "access to the books and records of the affiliate to the degree
required to fully audit, examine or otherwise investigate transactions between
the public utility and the affiliate." In addition, the rules provide that an
"affiliate or holding company may not divest itself of, or otherwise
relinquish control of, a public utility without thirty (30) days prior written
notification to the [ACC]" and would require all public utilities subject to
them and all public utility holding companies to annually "provide the [ACC]
with a description of diversification plans for the current calendar year that
have been approved by the Boards of Directors." The order became effective as
to APS on December 1, 1992. The rules have not had, nor does the Company
expect the rules to have, a material adverse impact on the business or
operations of the Company.
BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY
Following is a discussion of the business of APS, the Company's principal
subsidiary.
GENERAL
APS was incorporated in 1920 under the laws of Arizona and is engaged
principally in serving electricity in the State of Arizona. The principal
executive offices of APS are located at 400 North Fifth Street, Phoenix,
Arizona 85004 (telephone 602-250-1000). APS currently employs approximately
7,050 persons, which includes employees assigned to joint projects where APS
is project manager.
APS serves approximately 654,000 customers in an area that includes all or
part of 11 of Arizona's 15 counties. During 1993, no single purchaser or user
of energy accounted for more than 3% of total electric revenues.
INDUSTRY AND COMPANY ISSUES
The utility industry continues to experience a number of challenges.
Depending on the circumstances of a particular utility, these may include
(i) competition in general from numerous sources; (ii) effects of the National
Energy Policy Act of 1992 (the "Energy Act"); (iii) difficulties in meeting
government imposed environmental requirements; (iv) the necessity to make
substantial capital outlays for transmission and distribution facilities;
(v) uncertainty regarding projected electrical demand growth;
(vi) controversies over electromagnetic fields; (vii) controversies over the
safety and use of nuclear power; (viii) issues related to spent fuel and low
level waste (see "Generating Fuel" below); and (ix) increasing costs of wages
and materials.
The impact on APS of other utility industry problems is discussed in this
Item under "Environmental Matters." Also see "Water Supply" in this Item with
respect to certain problems specific to APS and other utilities.
COMPETITION
Certain territory adjacent to or within areas served by APS is served by
other investor-owned utilities (notably Tucson Electric Power Company serving
electricity in the Tucson area, Southwest Gas Corporation serving gas
throughout the state, and Citizens Utilities Company serving electricity and
gas in various locations throughout the state) and a number of cooperatives,
municipalities, electrical districts, and similar types of governmental
organizations (principally the Salt River Project Agricultural Improvement and
Power District ("SRP") serving electricity in various areas in and around
Phoenix).
APS expects increased competition in the future, mostly with respect to
large customers, from entities offering alternative sources of energy. In
recent years, changing laws and governmental regulations, interest in self-
generation, competition from nonregulated energy suppliers, and aggressive
marketing from the gas industry, are providing some utility customers with
alternative sources to satisfy their energy needs. This may be increased as a
result of the Energy Act which, among other things, removes certain previously
existing barriers to entry into electric generation. The Energy Act also
permits certain other parties to compete for resale customers currently served
by a particular utility and to use that utility's transmission facilities in
order to do so. The requirements with respect to implementation of the Energy
Act have not yet been completely determined, so APS cannot currently predict
its impact on APS' business and operations.
In order to remain competitive in this changing environment, APS has
determined that it must be a cost-effective supplier, provide excellent
service and be knowledgeable about its customers' businesses. APS is
concentrating on several areas which are key to the success of this strategy,
including effectively managing its operating and maintenance expenses;
reinforcing the importance of customer needs among APS employees; and working
with customers to evaluate, recommend and provide services which will optimize
their efficiency.
CAPITAL STRUCTURE
The capital structure of APS (which, for this purpose, includes short-term
borrowings and current maturities of long-term debt) as of December 31, 1993
is tabulated below.
Amount Percentage
---------- ----------
(Thousands
of
Dollars)
Long-Term Debt Less Current Maturities:
First mortgage bonds................................ $1,729,070
Other............................................... 395,584
----------
Total long-term debt less current maturities...... 2,124,654 50.7%
----------
Non-Redeemable Preferred Stock........................ 193,561 4.6
----------
Redeemable Preferred Stock............................ 197,610 4.7
----------
Common Stock Equity:
Common stock, $2.50 par value, 100,000,000 shares
authorized; 71,264,947 shares outstanding......... 178,162
Premiums and expenses............................... 1,037,681
Retained earnings................................... 307,098
----------
Total common stock equity......................... 1,522,941 36.4
----------
Total capitalization............................ 4,038,766
Current Maturities of Long-Term Debt.................. 3,179 .1
Short-Term Borrowings................................. 148,000 3.5
---------- --------
Total........................................... $4,189,945 100.0%
========== ========
See Notes 6, 7, and 8 of Notes to the Consolidated Financial Statements in
Item 8.
On March 1, 1994 APS redeemed all of the outstanding shares of its $8.80
Cumulative Preferred Stock, Series K ($100 par value), in the amount of $14.21
million. On March 2, 1994, APS issued $100 million of its First Mortgage
Bonds, 6 5/8% Series due 2004 and applied the net proceeds to the repayment of
short-term debt that had been incurred for the redemption of preferred stock
and for general corporate purposes.
So long as any of APS' first mortgage bonds are outstanding, APS is
required for each calendar year to deposit with the trustee under its mortgage
cash in a formularized amount related to net additions to APS' mortgaged
utility plant; however, APS may satisfy all or any part of this "replacement
fund" requirement by utilizing redeemed or retired bonds, net property
additions, or property retirements. For 1993, the replacement fund requirement
amounted to approximately $122 million. Many, though not all, of the bonds
issued by APS under its mortgage are redeemable at their par value plus
accrued interest with cash deposited by APS in the replacement fund, subject
in many cases to a period of time after the original issuance of the bonds
during which they may not be so redeemed and/or to other restrictions on any
such redemption. The cash deposited with the trustee by APS in partial
satisfaction of its 1993 replacement fund requirements will be used to redeem
$60.264 million in aggregate principal amount of APS' First Mortgage Bonds,
10 3/4% Series due 2019, at their principal amount plus accrued interest, on
April 4, 1994.
RATES
STATE. The ACC has regulatory authority over APS in matters relating to
retail electric rates and the issuance of securities. See "Rate Case
Settlement" in Note 3 of the Notes to the Consolidated Financial Statements
in Item 8 for a discussion of the December 1991 settlement of APS' most recent
retail rate case before the ACC.
FEDERAL. APS' rates for wholesale power sales and transmission services
are subject to regulation by the Federal Energy Regulatory Commission
("FERC"). During 1993, approximately 8% of APS' electric operating revenues
resulted from such sales and charges. For most wholesale transactions
regulated by the FERC, a fuel adjustment clause results in monthly adjustments
for changes in the actual cost of fuel for generation and in the fuel
component of purchased power expense.
CONSTRUCTION PROGRAM
Although its plans are subject to change, APS does not presently intend to
construct any new major baseload generating units for at least the next ten
years. Utility construction expenditures for the years 1994 through 1996 are
therefore expected to be primarily for expanding transmission and distribution
capabilities to meet customer growth, upgrading existing facilities, and for
environmental purposes. Construction expenditures, including expenditures for
environmental control facilities, for the years 1994 through 1996 have been
estimated as follows:
(MILLIONS OF DOLLARS)
BY YEAR BY MAJOR FACILITIES
- ------------------------------ ------------------------------------------
1994 $279 Electric generation $271
1995 302 Electric transmission 92
1996 293 Electric distribution 390
---- General facilities 121
$874 ----
==== $874
====
The amounts for 1994 through 1996 include expenditures for nuclear fuel
but exclude capitalized interest costs and capitalized property taxes. APS
conducts a continuing review of its construction program. This program and the
above estimates are subject to periodic revisions based upon changes in
assumptions as to system reliability, system load growth, rates of inflation,
the availability and timing of environmental and other regulatory approvals,
the availability and costs of outside sources of capital, and changes in
project construction schedules. During the years 1991 through 1993, APS
incurred approximately $641 million in construction expenditures and
approximately $31 million in additional capitalized items.
ENVIRONMENTAL MATTERS
Pursuant to the Clean Air Act, the United States Environmental Protection
Agency ("EPA") has adopted regulations, applicable to certain federally-
protected areas, that address visibility impairment that can be reasonably
attributed to specific sources. In September 1991, the EPA issued a final rule
that would limit sulfur dioxide emissions at the Navajo Generating Station
("NGS"). Compliance with the emission limitation becomes applicable to NGS
Units 1, 2, and 3 in 1997, 1998, and 1999, respectively. SRP, the NGS
operating agent, has estimated a capital cost of $530 million, most of which
will be incurred from 1995-1998, and annual operations and maintenance costs
of approximately $10 million per unit, for NGS to meet these requirements. APS
will be required to fund 14% of these expenditures.
The Clean Air Act Amendments of 1990 (the "Amendments") became effective
on November 15, 1990. The Amendments address, among other things, "acid rain,"
visibility in certain specified areas, toxic air pollutants, and the
nonattainment of national ambient air quality standards. With respect to "acid
rain," the Amendments establish a system of sulfur dioxide emissions
"allowances." Each existing utility unit is granted a certain number of
"allowances." On March 5, 1993, the EPA promulgated rules listing allowance
allocations applicable to Company-owned plants, which allocations will begin
in the year 2000. Based on those allocations, APS will have sufficient
allowances to permit continued operation of its plants at current levels
without installing additional equipment. In addition, the Amendments require
the EPA to set nitrogen oxides emissions limitations which would require
certain plants to install additional pollution control equipment. On March 22,
1994, the EPA issued rules for nitrogen oxide emissions limitations which will
require the Company to install additional pollution control equipment at the
Four Corners Power Plant ("Four Corners"). In the year 2000 Four Corners must
comply with either these or more stringent requirements which might be
promulgated by the EPA. The EPA has until 1997 to set more stringent
requirements. However, if Four Corners accelerates to 1997 compliance with
these March 22, 1994 requirements, it can delay until 2008 compliance with any
more stringent requirements which the EPA may set. APS has not yet determined
how it will proceed; however, APS currently estimates the capital cost of
complying by 1997 with the specified requirements will be approximately $16
million.
With respect to protection of visibility in certain specified areas, the
Amendments require the EPA to complete a study by November 1995 concerning
visibility impairment in those areas and identification of sources
contributing to such impairment. Interim findings of this study have indicated
that any beneficial effect on visibility as a result of the Amendments would
be offset by expected population and industry growth. EPA has established a
"Grand Canyon Visibility Transport Commission" to complete a study by November
1995 on visibility impairment in the "Golden Circle of National Parks" in the
Colorado Plateau. NGS, the Cholla Power Plant ("Cholla"), and Four Corners are
located near the "Golden Circle of National Parks." Based on the
recommendations of the Commission, the EPA may require additional emissions
controls at various sources causing visibility impairment in the "Golden
Circle of National Parks" and may limit economic development in several
western states. APS cannot currently estimate the capital expenditures, if
any, which may be required as a result of the EPA studies and the Commission's
recommendations.
With respect to hazardous air pollutants emitted by electric utility steam
generating units, the Amendments require two studies. First, there will be a
study to be completed by November 1994 of potential impacts of mercury
emissions from such units and various other sources on public health and on
the environment, including available control technologies. Second, the EPA
will complete a general study by November 1995 concerning the necessity of
regulating such units under the Amendments. Due to the lack of historical
data, and because APS cannot speculate as to the ultimate requirements by the
EPA, APS cannot currently estimate the capital expenditures, if any, which may
be required as a result of these studies.
Certain aspects of the Amendments may require related expenditures by APS,
such as permit fees, none of which APS expects to have a material impact on
its financial position.
GENERATING FUEL
Coal, nuclear, gas, and other contributions to total net generation of
electricity by APS in 1993, 1992, and 1991, and the average cost to APS of
those fuels (in dollars per MWh), were as follows:
<TABLE>
<CAPTION>
COAL NUCLEAR GAS OTHER ALL FUELS
------------------------- ------------------------- ------------------------- ------------------------- ------------
PERCENT OF AVERAGE PERCENT OF AVERAGE PERCENT OF AVERAGE PERCENT OF AVERAGE AVERAGE
GENERATION COST GENERATION COST GENERATION COST GENERATION COST COST
------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993
(estimate) 62.3% $12.95 32.4% $6.17 5.1% $31.53 0.2% $18.32 $11.70
1992..... 58.8 13.06 36.4 5.84 4.5 31.27 0.3 20.75 11.26
1991..... 59.0 13.62 37.3 7.03 3.4 21.11 0.3 28.69 11.45
</TABLE>
Other includes oil and hydro generation.
APS believes that Cholla has sufficient reserves of low sulfur coal
committed to that plant for the next six years, the term of the existing coal
contract, and sufficient reserves of low sulfur coal available for use to
continue operating it for its useful life. APS also believes that Four Corners
and NGS have sufficient reserves of low sulfur coal available for use by those
plants to continue operating them for at least thirty years. The current
sulfur content of coal being used at Four Corners, NGS, and Cholla is 0.8%,
0.6%, and 0.4%, respectively. In 1993, average prices paid for coal supplied
from reserves dedicated under the existing contracts were relatively stable,
although applicable contract clauses permit escalations under certain
conditions. In addition, major price adjustments can occur from time to time
as a result of contract renegotiation.
NGS and Four Corners are located on the Navajo Reservation and held under
easements granted by the federal government as well as leases from the Navajo
Tribe. See "Properties" in Item 2. APS purchases all of the coal which fuels
Four Corners from a coal supplier with a long-term lease of coal reserves
owned by the Navajo Tribe and for NGS from a coal supplier with a long-term
lease with the Navajo and Hopi Tribes. APS purchases all of the coal which
fuels Cholla from a coal supplier who obtains substantially all of the coal
under a long-term lease of coal reserves owned by the Navajo Tribe and under a
lease with the Bureau of Land Management.
APS is a party to contracts with twenty-seven natural gas operators and
marketers which allow APS to purchase natural gas in the method it determines
to be most economic. During 1993, the principal sources of APS' natural gas
generating fuel were twelve of these companies. APS is currently purchasing
the majority of its natural gas requirements from six companies pursuant to
contracts. APS' natural gas supply is transported pursuant to a firm
transportation service contract between APS and El Paso Natural Gas Company.
APS continues to analyze the market to determine the source and method of
meeting its natural gas requirements.
The fuel cycle for the Palo Verde Nuclear Generating Station ("Palo
Verde") is comprised of the following stages: (1) the mining and milling of
uranium ore to produce uranium concentrates, (2) the conversion of uranium
concentrates to uranium hexafluoride, (3) the enrichment of uranium
hexafluoride, (4) the fabrication of fuel assemblies, (5) the utilization of
fuel assemblies in reactors, and (6) the storage of spent fuel and the
disposal thereof. The Palo Verde participants have made arrangements through
contract flexibilities to obtain quantities of uranium concentrates
anticipated to be sufficient to meet operational requirements through 1996.
Existing contracts and options could be utilized to meet approximately 75% of
requirements in 1997 and 50% of requirements from 1998 through 2000. Spot
purchases in the uranium market will be made, as appropriate, in lieu of any
uranium that might be obtained through contract flexibilities and options. The
Palo Verde participants have contracted for all conversion services required
through 1994 and for up to 65% of conversion services required through 1998,
with options to continue through the year 2000. The Palo Verde participants,
including APS, have an enrichment services contract with United States
Enrichment Corporation ("USEC") which obligates USEC to furnish enrichment
services required for the operation of the three Palo Verde units over a term
expiring in November 2014, with annual options to terminate each year of the
contract with ten years prior notice. The participants have exercised this
option, terminating 30% of requirements for 1996 through 1998 and 100% of
requirements during the years 1999 through 2002. In addition, existing
contracts will provide fuel assembly fabrication services for at least ten
years from the date of operation of each Palo Verde unit, and through contract
options, approximately fifteen additional years are available. The Energy Act
includes an assessment for decontamination and decommissioning of the
enrichment facilities of the United States Department of Energy ("DOE"). The
total amount of this assessment has not yet been finalized; however, based on
preliminary indications, APS expects that the annual assessment for Palo Verde
will be approximately $3 million, plus escalation for inflation, for fifteen
years. APS will be required to fund 29.1% of this assessment.
Existing spent fuel storage facilities at Palo Verde have sufficient
capacity with certain modifications to store all fuel expected to be
discharged from normal operation of all Palo Verde units through at least the
year 2005. Pursuant to the Nuclear Waste Policy Act of 1982, as amended in
1987 (the "Waste Act"), DOE is obligated to accept and dispose of all spent
nuclear fuel and other high-level radioactive wastes generated by all domestic
power reactors. The Nuclear Regulatory Commission (the "NRC"), pursuant to the
Waste Act, also requires operators of nuclear power reactors to enter into
spent fuel disposal contracts with DOE. APS, on its own behalf and on behalf
of the other Palo Verde participants, has executed a spent fuel disposal
contract with DOE. The Act also obligates DOE to develop the facilities
necessary for the permanent disposal of all spent fuel generated, and to be
generated, by domestic power reactors and to have the first such facility in
operation by 1998 under prescribed procedures. In November 1989, DOE reported
that such permanent disposal facility will not be in operation until 2010. As
a result, under DOE's current criteria for shipping allocation rights, Palo
Verde's spent fuel shipments to the DOE permanent disposal facility would
begin in approximately 2025. In addition, APS believes that on-site storage of
spent fuel may be required beyond the life of Palo Verde's generating units.
APS currently believes that alternative interim spent fuel storage methods are
or will be available on-site or off-site for use by Palo Verde to allow its
continued operation beyond 2005 and to safely store spent fuel until DOE's
scheduled shipments from Palo Verde begin.
The off-site facilities for low level waste now being utilized for Palo
Verde may soon be closed to it. APS is currently exploring means to either
ship the waste to an alternative site or to store it on-site until an off-site
location becomes available. APS currently believes that interim low level
waste storage methods are or will be available for use by Palo Verde to allow
its continued operation and to safely store low level waste until a permanent
disposal facility is available.
While believing that scientific and financial aspects of the issues with
respect to fuel and low level waste can be resolved satisfactorily, APS
acknowledges that their ultimate resolution will require political resolve and
action on national and regional scales which it is less able to predict.
PALO VERDE LIABILITY AND INSURANCE MATTERS
See "Nuclear Insurance" in Note 13 of the Notes to the Consolidated
Financial Statements in Item 8 for a discussion of the insurance maintained by
the Palo Verde participants, including APS, for Palo Verde.
PALO VERDE NUCLEAR GENERATING STATION
By letter dated July 7, 1993, the NRC advised APS that, as a result of a
Recommended Decision and Order by a Department of Labor Administrative Law
Judge (the "ALJ") finding that APS discriminated against a former contract
employee at Palo Verde because he engaged in "protected activities" (as
defined under federal regulations), the NRC intended to schedule an
enforcement conference with APS. Following the ALJ's finding, APS investigated
various elements of both the substantive allegations and the manner in which
the United States Department of Labor (the "DOL") proceedings were conducted.
As a result of that investigation, APS determined that one of its employees
had falsely testified during the proceedings, that there were inconsistencies
in the testimony of another employee, and that certain documents were
requested in, but not provided during, discovery. The two employees in
question are no longer with APS. APS provided the results of its investigation
to the ALJ, who referred matters relating to the conduct of two former
employees of APS to the United States Attorney's office in Phoenix, Arizona.
On December 15, 1993 APS and the former contract employee who had raised the
DOL claim entered into a settlement agreement, a part of which was subject
to approval by the Secretary of Labor. On March 21, 1994 the Secretary of
Labor issued a final order approving the settlement. By letter dated August
10, 1993, APS also provided the results of its investigation to the NRC, and
advised the NRC that, as a result of APS' investigation, APS had changed its
position opposing the finding of discrimination. The NRC is investigating this
matter and APS is fully cooperating with the NRC in this regard.
See "Palo Verde Tube Cracks" in Note 13 of the Notes to the Consolidated
Financial Statements in Item 8 for a discussion of issues relating to
the Palo Verde steam generators.
WATER SUPPLY
Assured supplies of water are important both to APS (for its generating
plants) and to its customers. However, conflicting claims to limited amounts
of water in the southwestern United States have resulted in numerous court
actions in recent years.
Both groundwater and surface water in areas important to APS' operations
have been the subject of inquiries, claims, and legal proceedings which will
require a number of years to resolve. APS is one of a number of parties in a
proceeding before a state court in New Mexico to adjudicate rights to a stream
system from which water for Four Corners is derived. (State of New Mexico, in
the relation of S.E. Reynolds, State Engineer vs. United States of America,
City of Farmington, Utah International, Inc., et al., San Juan County, New
Mexico, District Court No. 75-184). An agreement reached with the Navajo Tribe
in 1985, however, provides that if Four Corners loses a portion of its rights
in the adjudication, the Tribe will provide, for a then-agreed upon cost,
sufficient water from its allocation to offset the loss.
A summons served on APS in early 1986 required all water claimants in the
Lower Gila River Watershed in Arizona to assert any claims to water on or
before January 20, 1987, in an action pending in Maricopa County Superior
Court. (In re The General Adjudication of All Rights to Use Water in the Gila
River System and Source, Supreme Court Nos. WC-79-0001 through WC 79-0004
(Consolidated) [WC-1, WC-2, WC-3 and WC-4 (Consolidated)], Maricopa County
Nos. W-1, W-2, W-3 and W-4 (Consolidated)). Palo Verde is located within the
geographic area subject to the summons, and the rights of the Palo Verde
participants, including APS, to the use of groundwater and effluent at Palo
Verde is potentially at issue in this action. APS, as project manager of Palo
Verde, filed claims that dispute the court's jurisdiction over the Palo Verde
participants' groundwater rights and their contractual rights to effluent
relating to Palo Verde and, alternatively, seek confirmation of such rights.
Three of APS' less-utilized power plants are also located within the
geographic area subject to the summons. APS' claims dispute the court's
jurisdiction over APS' groundwater rights with respect to these plants and,
alternatively, seek confirmation of such rights. On December 10, 1992, the
Arizona Supreme Court heard oral argument on certain issues in this matter
which are pending on interlocutory appeal, and as a result, issues important
to APS' claims have been remanded to the trial court for further action. No
trial date concerning the water rights claims of APS has been set in this
matter.
APS has also filed claims to water in the Little Colorado River Watershed
in Arizona in an action pending in the Apache County Superior Court. (In re
The General Adjudication of All Rights to Use Water in the Little Colorado
River System and Source, Supreme Court No. WC-79-0006 WC-6, Apache County No.
6417). APS' groundwater resource utilized at Cholla is within the geographic
area subject to the adjudication and is therefore potentially at issue in the
case. APS' claims dispute the court's jurisdiction over APS' groundwater
rights and, alternatively, seek confirmation of such rights. The parties are
in the process of settlement negotiations with respect to this matter. No
trial date concerning the water rights claims of APS has been set in this
matter.
Although the foregoing matters remain subject to further evaluation, APS
expects that the described litigation will not have a materially adverse
impact on its operations or financial position.
BUSINESS OF NON-UTILITY SUBSIDIARIES
SUNCOR DEVELOPMENT COMPANY
SunCor was incorporated in 1965 under the laws of the State of Arizona and
is engaged primarily in the owning, holding and development of real property.
The principal executive offices of SunCor are located at 2828 North Central,
Suite 900, Phoenix, Arizona 85004 (telephone 602-285-6800). SunCor and its
subsidiaries, excluding SunCor Resort and Golf Management, Inc. ("Resort
Management"), employ approximately 60 persons. Resort Management, which
manages the Wigwam Resort and Country Club (the "Wigwam"), employs between 400
and 715 persons, depending on the Wigwam's operating season. Resort Management
also operates other golf operations.
On April 4, 1990, SunCor sold the Wigwam and certain other associated
property for $70 million in cash. As noted in the preceding paragraph, Resort
Management, a subsidiary of SunCor, manages the Wigwam. SunCor has also
entered into a joint venture with the purchaser of the Wigwam to develop
certain property located near the Wigwam.
SunCor's assets consist primarily of land and improvements and other real
estate investments. SunCor's holdings include approximately 11,000 acres west
of Phoenix in the area of Goodyear/Litchfield Park, Arizona ("Palm Valley"),
including a private water and sewer company to provide those utility services
to the property. A substantial portion of the undeveloped property is
currently being used for agricultural purposes. SunCor has completed the
master-plan for developing Palm Valley and has begun commercial and
residential development of approximately 640 acres. The initial phase included
the development of an 18-hole championship golf course which was completed in
1993. In addition, within the Palm Valley project, SunCor has entered into
joint ventures to develop 2,200 acres as a retirement community, known as
PebbleCreek, and 350 acres as a planned area development, known as Litchfield
Greens.
SunCor's holdings also include a 1,400 acre master-planned community north
of Phoenix called Tatum Ranch, a 1,400 acre master-planned community northeast
of Phoenix called Scottsdale Mountain, a 140 acre master-planned project for
business use northwest of Phoenix called Talavi and a 420 acre master-planned
project for business use east of Phoenix called MarketPlace.
For the years ended December 31, 1993, 1992 and 1991, SunCor's operating
revenues were approximately $32.2 million, $20.0 million, and $12.7 million,
respectively, and its pre-tax losses were approximately $4.0 million, $6.2
million, and $9.6 million, respectively. During 1994, SunCor estimates that
its capital expenditures will total approximately $33 million. See "The
Company -- Capital Requirements" in this Item for a discussion of restrictions
on the Company's ability to make new investments in SunCor.
At December 31, 1993, SunCor had total assets of approximately $429
million. SunCor intends to continue its focus on real estate development in
residential, commercial and industrial projects.
EL DORADO INVESTMENT COMPANY
El Dorado was incorporated in 1983 under the laws of the State of Arizona
and is engaged in the business of making equity investments in other
companies. El Dorado's offices are located at 400 East Van Buren Street, Suite
650, Phoenix, Arizona 85004 (telephone 602-252-3441).
El Dorado has investments in three major venture capital partnerships
totalling approximately $28.5 million. El Dorado has remaining funding
commitments to these partnerships in the aggregate amount of approximately $6
million through 1995. In addition to the foregoing investments, through 1993
El Dorado had directly invested approximately $22.2 million in other private
and public companies and partnerships with perceived high growth potential.
For the years ended December 31, 1993, 1992 and 1991 El Dorado's pre-tax
losses were approximately $3.9 million, $2.6 million and $6.7 million,
respectively. At December 31, 1993, El Dorado had total assets of
approximately $57.6 million. See "The Company -- Capital Requirements" in this
Item for a discussion of restrictions on the Company's ability to make new
investments in El Dorado.
ITEM 2. PROPERTIES
APS' present generating facilities have an accredited capacity aggregating
4,022,410 kw, comprised as follows:
Capacity(kw)
------------
Coal:
Units 1, 2, and 3 at Four Corners, aggregating........... 560,000
15% owned Units 4 and 5 at Four Corners, representing.... 222,000
Units 1, 2, and 3 at Cholla Plant, aggregating........... 590,000
14% owned Units 1, 2, and 3 at the Navajo Plant,
representing........................................... 315,000
-----------
1,687,000
===========
Gas or Oil:
Two steam units at Ocotillo, two steam units at Saguaro,
and one steam unit at Yucca, aggregating............... 468,400(1)
Eleven combustion turbine units, aggregating............. 500,600
Three combined cycle units, aggregating.................. 253,500
-----------
1,222,500
===========
Nuclear:
29.1% owned or leased Units 1, 2, and 3 at Palo Verde,
representing........................................... 1,108,710
===========
Other........................................................ 4,200
===========
- ----------
(1) West Phoenix steam units (96,300 kw) are currently mothballed.
--------------
APS' peak one-hour demand on its electric system was recorded on August 2,
1993 at 3,802,300 kw, compared to the 1992 peak of 3,796,400 kw recorded on
August 17. Taking into account additional capacity then available to it under
purchase power contracts as well as its own generating capacity, APS'
capability of meeting system demand on August 2, 1993, computed in accordance
with accepted industry practices, amounted to 4,505,000 kw, for an installed
reserve margin of 16.7%. The power actually available to APS from its
resources fluctuates from time to time due in part to planned outages and
technical problems. The available capacity from sources actually operable at
the time of the 1993 peak amounted to 4,099,500 kw, for a margin of 13.4%.
NGS and Four Corners are located on land held under easements from the
federal government and also under leases from the Navajo Tribe. The risk with
respect to enforcement of these easements and leases is not deemed by APS to
be material. APS is dependent, however, in some measure upon the willingness
and ability of the Navajo Tribe to honor its commitments. Certain of APS'
transmission lines and almost all of its contracted coal sources are also
located on Indian reservations. See "Generating Fuel" in Item 1.
Operation of each of the three Palo Verde units requires an operating
license from the NRC. Full power operating licenses for Units 1, 2, and 3 were
issued by the NRC in June 1985, April 1986, and November 1987, respectively.
The full power operating licenses, each valid for a period of approximately 40
years, authorize APS, as operating agent for Palo Verde, to operate the three
Palo Verde units at full power.
On August 18, 1986 and December 19, 1986, APS entered into a total of
three sale and leaseback transactions under which it sold and leased back
approximately 42% of its 29.1% ownership interest in Palo Verde Unit 2. The
leases under each of the sale and leaseback transactions have initial lease
terms expiring on December 31, 2015. Each of the leases also allows APS to
extend the term of the lease and/or to repurchase the leased Unit 2 interest
under certain circumstances at fair market value. The leases in the aggregate
require annual payments of approximately $40 million through 1999,
approximately $46 million in 2000, and approximately $49 million through 2015
(see Note 11 of the Notes to the Consolidated Financial Statements in Item 8).
See "Water Supply" in Item 1 with respect to matters having possible
impact on the operation of certain of APS' power plants, including Palo Verde.
APS' construction plans are susceptible to changes in forecasts of future
demand on its electric system and in its ability to finance its construction
program. Although its plans are subject to change, APS does not presently
intend to construct any new major baseload generating units for at least the
next ten years. Important factors affecting APS' ability to delay the
construction of new major generating units are continuing efforts to upgrade
and improve the reliability of existing generating stations, system load
diversity with other utilities, and continuing efforts in customer demand-side
conservation and load management programs.
In addition to that available from its own generating capacity, APS
purchases electricity from other utilities under various arrangements. One of
the most important of these is a long-term contract with SRP which may be
canceled by SRP on three years' notice and which requires SRP to make
available, and APS to pay for, certain amounts of electricity that are based
in large part on customer demand within certain areas now served by APS
pursuant to a related territorial agreement. APS believes that the prices
payable by it under the contract are fair to both parties. The generating
capacity available to APS pursuant to the contract was 302,000 kw until May
1993, at which time the capacity increased to 304,000 kw. In 1993, APS
received approximately 840,000 MWh of energy under the contract and paid
approximately $40 million for capacity availability and energy received.
In September 1990, APS and PacifiCorp, an Oregon-based utility company,
entered into certain agreements relating principally to sales and purchases of
electric power and electric utility assets, and in July 1991, after regulatory
approvals, APS sold Cholla Unit 4 to PacifiCorp for approximately $230
million. As part of the transaction, PacifiCorp agreed to make a firm system
sale to APS for thirty years during APS' summer peak season in the amount of
175 megawatts for the first five years, increasing thereafter, at APS' option,
up to a maximum amount equal to the rated capacity of Cholla Unit 4. After the
first five years, all or part of the sale may be converted to a one-for-one
seasonal capacity exchange. PacifiCorp has the right to purchase from APS up
to 125 average megawatts of energy per year for thirty years. PacifiCorp and
APS also entered into a 100 megawatt one-for-one seasonal capacity exchange to
be effective upon the latter of January 1, 1996 or the completion of certain
new transmission projects. In addition, PacifiCorp agreed to pay APS (i) $20
million upon commercial operation of 150 megawatts of peaking capacity
constructed by APS and (ii) $19 million in connection with the construction of
transmission lines and upgrades that will afford PacifiCorp 150 megawatts of
northbound transmission rights. In addition, PacifiCorp secured additional
firm transmission capacity of 30 megawatts over APS' system. In 1993, APS
received 401,475 MWh of energy from PacifiCorp under these transactions and
paid approximately $19 million for capacity availability and the energy
received, and PacifiCorp paid approximately $2.7 million for 144,171 MWh.
See "El Paso Electric Company Bankruptcy" in Note 13 of the Notes to the
Consolidated Financial Statements in Item 8 for a discussion of the filing by
El Paso Electric Company ("EPEC") of a voluntary petition to reorganize under
Chapter 11 of the Bankruptcy Code. EPEC has a joint ownership interest with
APS and others in Palo Verde and Four Corners Units 4 and 5.
See Notes 6 and 12 of the Notes to the Consolidated Financial Statements
in Item 8 with respect to property of APS not held in fee or held subject to
any major encumbrance.
See "SunCor Development Company" and "El Dorado Investment Company" under
the heading "Business of Non-Utility Subsidiaries" in Item 1 for a description
of properties held by the non-utility subsidiaries of the Company.
GRAPHIC
- -------
MAP OF THE STATE OF ARIZONA SHOWING APS' SERVICE AREA, THE LOCATION OF ITS
MAJOR POWER PLANTS AND PRINCIPAL TRANSMISSION LINES, AND THE LOCATION OF
TRANSMISSION LINES OPERATED BY APS FOR OTHERS. SEE APPENDIX FOR DETAILED
DESCRIPTION.
ITEM 3. LEGAL PROCEEDINGS
APS
On June 29, 1990, a new Arizona state tax law was enacted, effective as of
December 31, 1989, which adversely impacted APS' earnings in tax years 1990
through 1993 by an aggregate amount of approximately $82 million, before
income taxes. On December 20, 1990, the Palo Verde participants, including
APS, filed a lawsuit in the Arizona Tax Court, a division of the Maricopa
County Superior Court, against the Arizona Department of Revenue, the
Treasurer of the State of Arizona, and various Arizona counties, claiming,
among other things, that portions of the new tax law are unconstitutional.
(Arizona Public Service Company, et al. v. Apache County, et al., No. TX
90-01686 (Consol.), Maricopa County Superior Court). In December 1992, the
court granted summary judgment to the taxing authorities, holding that the law
is constitutional. APS has appealed this decision to the Arizona Court of
Appeals. APS cannot currently predict the ultimate outcome of this matter.
See "Water Supply" and "Palo Verde Nuclear Generating Station" in Item 1
and "El Paso Electric Company Bankruptcy" in Note 13 of the Notes to the
Company's Consolidated Financial Statements in Item 8 in regard to other
pending or threatened litigation involving APS.
PINNACLE WEST
A lawsuit was filed in the United States District Court for the District
of Arizona against the Company, its inside directors and certain of its
officers on November 7, 1988 and was amended on December 15, 1988 to add the
remaining directors and additional substantive claims. As amended, the
complaint alleges violations of federal securities laws and Arizona
securities, consumer fraud and other state laws in connection with certain
actions of the Company and statements made on its behalf relating to the
Company's diversification activities, future business prospects and dividends.
The Court certified a class consisting of all purchasers of the Company's
common stock between April 1, 1987 and October 7, 1988 (the alleged "Class
Period"). The complaint sought unspecified compensatory and punitive damages
as well as fees and costs.
On December 20, 1988 a lawsuit was filed in the United States District
Court for the District of Arizona against the Company and certain officers and
directors, alleging violations of federal securities laws and Arizona
securities, consumer fraud and other state laws in connection with certain
actions of the Company and statements made on its behalf relating to the
Company's diversification activities, future business prospects and dividends.
The lawsuit is substantially similar to the lawsuit referenced in the
preceding paragraph. The plaintiffs, two individuals who claim to have
purchased the Company's common stock between April 1, 1987 and October 7, 1988
(the alleged "Class Period"), requested unspecified compensatory and punitive
damages as well as fees and costs. On October 2, 1989, the cases described in
this and the preceding paragraph were consolidated.
On December 15, 1989 a shareholder derivative lawsuit was filed in the
United States District Court for the District of Arizona naming the Company's
directors as defendants and the Company as nominal defendant. The lawsuit
alleges breach of fiduciary duties by the directors in connection with the
Company's diversification activities, and further alleges violation of federal
securities laws by one director in connection with the sale of MeraBank to the
Company in 1986. The plaintiffs requested, on the Company's behalf,
unspecified compensatory and punitive damages.
On April 22, 1991 a lawsuit was filed in the United States District Court
for the District of Arizona by the Resolution Trust Corporation (the "RTC")
against certain former officers and directors of MeraBank. The suit sought,
among other things, damages in excess of $270 million, and alleged negligence,
gross negligence, breach of fiduciary duty, breach of duty of loyalty and
breach of contract with respect to the management and operation of MeraBank by
the defendants beginning in the early 1980s. Although the Company was not a
defendant, the Company agreed to advance reasonable attorneys' fees and
expenses, in various amounts, to those defendants who served on the MeraBank
Board of Directors at the request of the Company. The Company reserved
the right to alter the amount of such advances or to terminate them as the
case developed, and received undertakings from the persons receiving such
advances to repay such amounts in the event that they are ultimately
determined not to be entitled to indemnification. The Company has terminated
future such advances as to certain of those defendants. In addition, in
June and November of 1989 the Company's Board of Directors adopted resolutions
whereby the Company agreed to indemnify the non-officer members of the
MeraBank Board of Directors against claims brought against such individuals in
their capacity as directors of MeraBank, for acts occurring on or after June
and November 1989, the effective dates of the indemnification resolutions.
On December 30, 1993, and as the result of a negotiated settlement, the
United States District Court for the District of Arizona entered orders and
final judgments (1) dismissing the consolidated shareholder class litigation
and shareholder derivative litigation initiated in 1988 and 1989,
respectively, and described in the first three paragraphs under this heading
and (2) partially dismissing the litigation initiated by the RTC and described
in the immediately preceding paragraph. Two non-settling individuals who are
pursuing independent claims against the RTC were not dismissed from the RTC
litigation and have appealed the settlement. These individuals may attempt to
look to the Company, its insurance carriers and others for indemnification of
certain costs and damages. The Company believes that it has no obligation
with respect to any such costs or damages. The settlement provides for
for payments totaling $61.625 million, of which the Company's share is $5.75
million. A litigation reserve previously established by the Company is
sufficient to cover the Company's share of the settlement. The balance of the
settlement payment will be funded by the Company's insurers.
On January 18, 1991 a lawsuit was filed in the United States District
Court, Southern District of Ohio, Western Division, against, among other
parties, the Company and certain of its officers and directors, the Office of
Thrift Supervision ("OTS"), the RTC and the Federal Deposit Insurance
Corporation ("FDIC"). The amended complaint in this lawsuit alleges that the
plaintiff purchased MeraBank subordinated debentures with a face amount of $1
million in 1987 in reliance upon the capital maintenance stipulation executed
by the Company as a condition to the Company's acquisition of MeraBank. The
plaintiff further alleges that the value of such debentures was impaired
because of the Company's release from its purported obligations under the
stipulation and the actions of the OTS in placing MeraBank in receivership.
See Note 2 of the Notes to the Consolidated Financial Statements in Item 8
for additional information regarding the stipulation. The plaintiff is seeking
damages in the approximate amount of $4.8 million. On August 2, 1991 the Ohio
court issued an order dismissing the case with prejudice as to the Company
and the officer/director defendants for lack of personal jurisdiction. The
court also ordered the case dismissed with prejudice as to the OTS, the RTC
and the FDIC. On October 1, 1991 the plaintiff appealed the court's order.
On February 17, 1993, the United States Court of Appeals for the Sixth Circuit
affirmed the entry of summary judgment in favor of the RTC, OTS, and FDIC, but
reversed the district court's dismissal in favor of the Company and certain of
its officers and directors. The Court of Appeals remanded the case to the
district court for a determination of whether plaintiff had adequately pled
its claims so that the district court could exercise personal jurisdiction.
The district court was further instructed to consider whether the Southern
District of Ohio was the proper venue for the suit. On June 8, 1993, the Ohio
court ordered this case to be transferred to the District of Arizona. On
August 17, 1993, the Company was served with a separate complaint filed by the
same plaintiff in the District Court for the District of Arizona alleging
claims under the Arizona Racketeering Act and the Arizona Consumer Fraud Act
seeking compensatory damages in the amount of $1.2 million plus interest,
punitive damages, treble damages, interest, attorneys' fees and costs. The
plaintiff has voluntarily dismissed the Arizona Consumer Fraud Act claims;
however, the Arizona Racketeering Act claims remain pending. The Company and
the individual directors and officers believe that the lawsuit is without
merit and will vigorously defend themselves.
On May 1, 1991, a lawsuit was filed in the United States District Court
for the District of Arizona against the Company by another purchaser of the
same issue of MeraBank subordinated debentures referred to in the immediately
preceding paragraph. This plaintiff also claims to have purchased the
debentures, with a face amount of approximately $12.4 million, in reliance
upon the stipulation. The suit further alleges that the Company induced the
plaintiff to retain its investment in the debentures by representing to the
plaintiff that the Company would keep MeraBank capitalized in accordance with
federal regulatory requirements. The suit alleges violations of federal and
state securities laws, fraud, negligent representation, racketeering and
intentional interference with contractual relations. The plaintiff seeks
unspecified compensatory and punitive damages and has requested that the
compensatory damages be trebled under Arizona's civil racketeering statute.
The Company intends to vigorously defend itself in this action.
On December 22, 1993, Pinnacle West was served with a complaint filed by
another purchaser of MeraBank subordinated debentures alleging claims
substantially similar to the claims described in the preceding paragraph. The
complaint, which was filed in the United States District Court for the
District of Arizona, seeks compensation and punitive damages in an unspecified
amount plus attorneys' fees and costs. The Company intends to vigorously
defend itself in this action.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report, through the solicitation of
proxies or otherwise.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are as follows:
AGE AT
NAME MARCH 1, 1994 POSITION(S) AT MARCH 1, 1994
- ---- ------------- ----------------------------
Michael S. Ash 40 Corporate Counsel
Arlyn J. Larson 59 Vice President of Corporate
Planning and Development
Nancy E. Newquist 42 Vice President and Treasurer
Henry B. Sargent 59 Executive Vice President and
Chief Financial Officer(1)
Richard Snell 63 Chairman of the Board of Directors,
President and Chief Executive Officer(1)
Faye Widenmann 45 Vice President of Corporate Relations
and Administration and Secretary
- ----------
(1) Member of the Board of Directors.
The executive officers of the Company are elected no less often than
annually and may be removed by the Board of Directors at any time. The terms
served by the named officers in their current positions and the principal
occupations (in addition to those stated in the table) of such officers for
the past five years have been as follows:
Mr. Ash was elected Corporate Counsel of the Company in February 1991. He
previously held the positions of Legal Counsel to the Company (December 1986
to February 1991) and Attorney in the APS Law Department (July 1983 to
September 1985).
Mr. Larson was elected Vice President, Corporate Planning and Development
in July 1986.
Ms. Newquist was elected Treasurer in June 1990 and as a Vice President in
February 1994. Ms. Newquist also serves as Treasurer of APS, a position she
was elected to in June 1993 after serving as Assistant Treasurer of APS since
October 1992. From May 1987 to June 1990, Ms. Newquist served as the Company's
Director of Finance.
Mr. Sargent was elected Executive Vice President and Chief Financial
Officer of the Company in April 1985. Mr. Sargent was Executive Vice President
and Chief Financial Officer of APS from September 1981 until July 1986. He is
also a director of Magma Copper Company, Tucson, Arizona.
Mr. Snell was elected Chairman of the Board, President and Chief Executive
Officer of the Company effective February 5, 1990. He was also elected
Chairman of the Board of APS effective the same date. Previously, he was
Chairman of the Board (1989-1992) and Chief Executive Officer (1989-1990) of
Aztar Corporation, and Chairman of the Board, President and Chief Executive
Officer of Ramada Inc., Phoenix, Arizona (1981-1989). Mr. Snell remains a
director of Aztar Corporation and is also a director of Bank One Arizona
Corporation, Phoenix, Arizona.
Ms. Widenmann was elected Secretary of the Company in 1985 and Vice
President of Corporate Relations and Administration in November 1986. She was
Secretary of APS from June 1983 until April 1987.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is publicly held and is traded on the New York
and Pacific Stock Exchanges. At the close of business on March 14, 1994, the
Company's common stock was held of record by approximately 59,795
shareholders.
The chart below sets forth the common stock price ranges on the composite
tape, as reported in the Wall Street Journal for 1993 and 1992. There were no
dividends declared or paid on or in respect of the Company's common stock
during 1992 and the first three quarters of 1993. A dividend of $.20 per share
was declared and paid on the Company's common stock during the fourth quarter
of 1993.
COMMON STOCK PRICE RANGES
- ------------------------------------------------------------------------------
1992 HIGH LOW
- -------------------------------------------
1st Quarter 18 1/4 16 3/4
2nd Quarter 18 3/8 16 7/8
3rd Quarter 20 17 7/8
4th Quarter 20 1/2 19 1/8
- -------------------------------------------
1993
- -------------------------------------------
1st Quarter 21 3/4 19 5/8
2nd Quarter 23 1/2 20 7/8
3rd Quarter 25 1/4 23 1/8
4th Quarter 24 3/8 20 3/8
- -------------------------------------------
<PAGE>
<TABLE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
1993 1992 1991 1990 1989
-------------- -------------- ---------------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating revenues
Electric $ 1,686,290 $ 1,669,679 $ 1,515,289 $ 1,508,325 $ 1,447,154
Provision for rate refund -- -- (53,436) -- --
Real estate 32,248 19,959 12,697 81,264 44,492
Income (loss) from continuing
operations $ 169,978 $ 150,440 $ (340,317) (a) $ 70,208 $ 124,553
Income (loss) from discontinued
operations -- net of tax (b) -- 6,000 153,455 27,125 (675,968)
Cumulative effect of change in
accounting for income taxes (c) 19,252 -- -- -- --
-------------- -------------- ---------------------- -------------- ---------------
Net income (loss) $ 189,230 $ 156,440 $ (186,862) $ 97,333 $ (551,415)
============== ============== ====================== ============== ===============
COMMON STOCK DATA
Book value per share -- year-
end $ 18.87 $ 17.00 $ 15.23 $ 17.40 $ 16.31
Earnings (loss) per average
common share outstanding
Continuing operations $ 1.95 $ 1.73 $ (3.91) $ 0.81 $ 1.44
Discontinued operations -- 0.07 1.76 0.31 (7.80)
Accounting change 0.22 -- -- -- --
-------------- -------------- ---------------------- -------------- ---------------
Total $ 2.17 $ 1.80 $ (2.15) $ 1.12 $ (6.36)
============== ============== ====================== ============== ===============
Dividends declared per share $ $ $
(d) $ 0.20 -- -- -- $ 0.80
Common shares outstanding
Year-end 87,423,817 87,161,872 87,009,974 86,873,174 86,723,774
Average 87,241,899 87,044,180 86,937,052 86,769,924 86,720,747
TOTAL ASSETS $ 6,956,799 $ 6,270,476 $ 6,147,639 $ 6,793,755 $ 6,791,748
============== ============== ====================== ============== ===============
LIABILITIES AND EQUITY
Long-term debt less current
maturities $ 2,633,620 $2,774,305 $ 2,996,910 $ 3,218,168 $ 3,423,686
Other liabilities 2,282,508 1,620,250 1,429,488 1,702,628 1,581,148
-------------- -------------- ---------------------- -------------- ---------------
Total liabilities 4,916,128 4,394,555 4,426,398 4,920,796 5,004,834
Minority interests
Non-redeemable preferred
stock of APS 193,561 168,561 168,561 168,561 168,561
Redeemable preferred stock of
APS 197,610 225,635 227,278 192,453 204,021
Common stock equity 1,649,500 1,481,725 1,325,402 1,511,945 1,414,332
-------------- -------------- ---------------------- -------------- ---------------
Total liabilities and
equity $ 6,956,799 $ 6,270,476 $ 6,147,639 $ 6,793,755 $ 6,791,748
============== ============== ====================== ============== ===============
- ----------
(a) Includes approximately $407 million of write-offs and adjustments, net of income tax,
related to Palo Verde, See Note 3 of Notes to the Consolidated Financial Statements in Item 8.
(b) Results of MeraBank, a Federal Savings Bank, and Malapai Resources Company, a uranium mining
company, are classified as discontinued operations in the consolidated financial statements.
See Note 2 of Notes to the Consolidated Financial Statements in Item 8.
(c) Results of the adoption of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." See Note 4 of Notes to the Consolidated Financial Statements in Item 8.
(d) On October 20, 1993, the Pinnacle West Board of Directors restored a quarterly dividend,
which was previously suspended in October, 1989.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to Pinnacle West Capital Corporation (the
"Company" or "Pinnacle West") and its subsidiaries: Arizona Public Service
Company ("APS"), SunCor Development Company ("SunCor") and El Dorado
Investment Company ("El Dorado"). The discussion also relates to the
discontinued operations of MeraBank, A Federal Savings Bank ("MeraBank").
CAPITAL NEEDS AND RESOURCES
Parent Company
During the past three years, Pinnacle West's primary cash needs were for
the payment of interest and prepayment of principal on its long-term debt (see
Note 6 of Notes to Consolidated Financial Statements). Additional cash needs
in 1993 were related to the fourth quarter restoration of common stock
dividends.
Dividends from APS have been Pinnacle West's primary source of cash. Tax
allocations within the consolidated group and net operating loss carryforwards
associated with MeraBank have also been sources of cash.
The non-utility subsidiaries (SunCor and El Dorado) are also expected to
contribute to Pinnacle West's cash flow.
Pinnacle West prepaid substantial amounts of its parent-level debt in each
of the last three years. Management expects Pinnacle West to have sufficient
cash flow available for mandatory and optional debt repayments to allow parent
company debt to be reduced from $564 million at the end of 1993 to
approximately $300 million by year-end 1995.
At the end of 1993, Pinnacle West had a $40 million liquidity facility as
summarized in Note 5 of Notes to Consolidated Financial Statements; no
borrowings were outstanding thereunder.
APS
APS' capital needs consist primarily of construction expenditures and
required repayments or redemptions of long-term debt and preferred stock. The
capital resources available to meet these requirements include funds provided
by operations and external financings.
Present construction plans exclude any major baseload generating plants
for at least the next ten years. In general, most of the construction
expenditures are for expanding transmission and distribution capabilities to
meet customer growth, upgrading existing facilities, and environmental
purposes. Construction expenditures are anticipated to be $279 million, $302
million and $293 million for 1994, 1995 and 1996, respectively. These amounts
include nuclear fuel expenditures, but exclude capitalized property taxes and
capitalized interest costs.
In the 1991 through 1993 period, APS funded all of its capital
expenditures (construction expenditures and capitalized property taxes) with
internally generated funds, after the payment of dividends. For the period
1994 through 1996, APS estimates that it will fund substantially all of its
capital expenditures with internally generated funds, after the payment of
dividends.
During 1993, APS redeemed or repurchased approximately $637 million of
long-term debt and preferred stock, of which approximately $527 million was
optional. Refunding obligations for preferred stock, long-term debt, a
capitalized lease obligation, and certain anticipated early redemptions are
expected to total approximately $187 million, $135 million and $4 million for
the years 1994, 1995 and 1996, respectively.
APS currently expects to issue in 1994 a total of approximately $125
million of long-term debt (primarily first mortgage bonds) and approximately
$125 million of preferred stock. Of this, APS issued on March 2, 1994, $100
million of its First Mortgage Bonds, 6 5/8% series due 2004, and applied the
net proceeds to the repayment of short-term debt that had been incurred for
the redemption of preferred stock and for general corporate purposes. APS
expects that substantially all of the net proceeds of the balance of the
securities to be issued during 1994 will be used for the retirement of
outstanding debt and preferred stock. On March 1, 1994, APS redeemed all of
the outstanding shares of its $8.80 Cumulative Preferred Stock, Series K ($100
Par Value) in the amount of $14.21 million. As of April 4, 1994, APS will be
redeeming all $60.264 million of its outstanding First Mortgage Bonds, 10 3/4%
Series due 2019.
Provisions in APS' mortgage bond indenture and articles of incorporation
require certain coverage ratios to be met before APS can issue additional
first mortgage bonds or preferred stock. In addition, the mortgage bond
indenture limits the amount of additional bonds which may be issued to a
percentage of net property additions, to property previously pledged as
security for certain bonds that have been redeemed or retired, and/or to cash
deposited with the mortgage bond trustee. After giving effect to the
transactions described in the preceding paragraph, as of December 31, 1993,
APS estimates that the mortgage bond indenture and the articles of
incorporation would have allowed it to issue up to approximately $1.2 billion
and $986 million of additional first mortgage bonds and preferred stock,
respectively.
The Arizona Corporation Commission (the "ACC") has authority over APS with
respect to the issuance of long-term debt and equity securities. Existing ACC
orders allow APS to have up to approximately $2.6 billion in long-term debt
and approximately $501 million of preferred stock outstanding at any one time.
Management does not expect any of the foregoing restrictions to limit APS'
ability to meet its capital requirements.
As of December 31, 1993, APS had credit commitments from various banks
totalling approximately $302 million, which were available either to support
the issuance of commercial paper or to be used for bank borrowings. Commercial
paper borrowings totalling $148 million were outstanding at the end of 1993.
Non-Utility Subsidiaries
During the past three years, the non-utility subsidiaries generally
financed all of their operations through cash flow from operations and
financings that did not involve Pinnacle West.
SunCor's capital needs consist primarily of construction expenditures,
which are expected to approximate $33 million, $18 million and $14 million for
1994, 1995 and 1996, respectively. Capital resources available to meet these
requirements include funds provided by operations and external financings.
On March 2, 1994, SunCor issued $25 million of Collateralized Mortgage
Bonds, due in 2004. The bonds are secured by specified parcels of real
property and bear variable interest based on London Interbank Offered Rate
(LIBOR). Simultaneously, $6 million of 12% debt due in 1997 was prepaid.
Management expects El Dorado's internal cash flows to be sufficient to
fund its operations for the foreseeable future.
RESULTS OF OPERATIONS
1993 Compared to 1992
Pinnacle West reported income from continuing operations of $170.0 million
in 1993 compared to $150.4 million in 1992, for an increase of $19.6 million.
The primary factor contributing to this increase was lower interest expense.
Interest costs in 1993 were $22.5 million lower than 1992 due to refinancing
debt at lower rates, lower average debt balances and lower interest rates on
APS' variable-rate debt. Partially offsetting the lower interest expense were
increased taxes and higher utility operating expenses.
Electric operating revenues were up $16.6 million in 1993 on sales volumes
of 20.1 million megawatt-hours (MWh) compared to 20.6 million MWh in 1992.
Although revenues increased $45.3 million due to growth in the residential and
business customer classes, these increases were largely offset by milder than
normal weather and reduced interchange sales to other utilities.
Fuel and purchased power costs increased $15.5 million in 1993 due to Palo
Verde outages and reduced power operations (see Note 13 of Notes to
Consolidated Financial Statements). Partially offsetting the $15.5 million
were miscellaneous items resulting in a net increase of $13.3 million over
1992. These increases are reflected currently in earnings because APS does not
have a fuel adjustment clause as part of its retail rate structure. The net
result of electric operating revenues less fuel and purchased power expense
was an increase of $3.3 million comparing 1993 to 1992.
In 1993, utility operations expense increased $11.8 million over 1992
levels primarily due to the implementation of new accounting standards for
postemployment benefits and postretirement benefits other than pensions, which
added $17 million to expense in 1993 (see Note 9 of Notes to Consolidated
Financial Statements). Partially offsetting these factors were lower power
plant operating costs, lower rent expense and lower costs for an employee
gainsharing plan.
Real estate operating revenues and operating expenses were up $12.3
million and $10.9 million, respectively, in 1993 due to increased sales of
residential lots.
1992 Compared to 1991
Income from continuing operations in 1992 was $150.4 million compared to a
loss in 1991 of $340.3 million. This was primarily due to the after-tax write-
offs of $407 million in 1991 resulting from a rate case settlement with the
ACC (see "Rate Case Settlement" in Note 3 of Notes to Consolidated Financial
Statements). Excluding the effects of the write-offs, income from continuing
operations increased by $83.7 million in 1992 as a result of several factors,
including higher revenues, lower interest costs and lower utility operations
expenses. Partially offsetting these factors were higher fuel and purchased
power costs and higher utility maintenance expenses.
Electric operating revenues were up $154.4 million during 1992 on sales
volumes of 20.6 million MWh compared to 20.0 million MWh in 1991. The volume
increase of $48.6 million was largely due to growth in residential and
business customer classes and increased sales due to more normal weather as
compared to 1991. A price-related increase of $85.9 million was largely due to
an increase in retail base rates effective December 6, 1991 and a higher
average price for interchange sales to other utilities. Also contributing to
the increase in 1992 was a $19.9 million reversal of a non-cash refund
obligation recorded in December, 1991 (see Note 3 of Notes to Consolidated
Financial Statements).
Real estate revenues increased in 1992 primarily due to the sale of a golf
course.
Interest costs were $47.8 million lower in 1992 as compared to 1991 due to
lower average debt balances, lower interest rates on APS' variable-rate debt
and lower interest rates on refinanced debt.
Fuel expenses increased in 1992 over 1991 by $13.4 million as a result of
increased generation due to increased retail and interchange sales, and
increased gas prices. These increases were partially offset by lower prices
for coal and uranium. The increase in the purchased power component of fuel
expenses was due to favorable market prices.
Utility operations costs were $15.3 million lower in 1992 as compared to
1991 primarily due to lower operating costs at Palo Verde, lower fossil plant
overhaul costs and other miscellaneous cost reductions. Partially offsetting
these were an obligation recorded for an employee gainsharing plan and higher
nuclear refueling outage costs.
Non-Cash Income
Net income reflects accounting practices required for regulated public
utilities and represents a composite of cash and non-cash items, including
Allowance for Funds Used During Construction (AFUDC), accretion income on Palo
Verde Unit 3 and the reversal of a refund obligation related to the Palo Verde
write-off (see "Consolidated Statements of Cash Flows" and Note 3 of Notes to
Consolidated Financial Statements). APS recorded after-tax accretion income of
$45.3 million, $40.7 million and $3.2 million in 1993, 1992 and 1991,
respectively. APS also recorded refund obligation reversals in electric
operating revenues of $12.9 million after tax in each of the years 1993 and
1992 and $0.9 million in 1991. APS will record after-tax accretion income and
refund obligation reversals of $20.3 million and $5.6 million, respectively,
through June 5, 1994.
Palo Verde Nuclear Generating Station
As APS continues its investigation and analysis of the Palo Verde steam
generators, certain corrective actions are being taken. These include chemical
cleaning, operating the units at reduced temperatures, and for some periods,
operating the units at approximately 86% power. So long as three units are
involved in mid-cycle outages and are operated at the 86% level, APS will
incur an average of approximately $2 million per month (before income taxes)
for additional fuel and purchased power costs. See "Palo Verde Tube Cracks" in
Note 13 of Notes to Consolidated Financial Statements for a more detailed
discussion.
Accounting Issues
Note 4 of Notes to Consolidated Financial Statements describes a new
accounting standard for income taxes which required the recognition in 1993 of
$19.3 million of state tax benefits related to net operating loss
carryforwards.
Discontinued Operations
Income from discontinued operations of $6.0 million and $153.5 million in
1992 and 1991, respectively, resulted from tax benefits recorded in connection
with the MeraBank settlement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
----------
Report of Management.............................................. 25
Independent Auditors' Report...................................... 26
Statements of Income for each of the three years in the period
ended December 31, 1993......................................... 27
Balance Sheets -- December 31, 1993 and 1992...................... 28, 29
Statements of Cash Flows for each of the three years in the period
ended December 31, 1993......................................... 30
Statements of Retained Earnings for each of the three years in the
period ended December 31, 1993.................................. 31
Notes to Financial Statements..................................... 32
Financial Statement Schedules for each of the three years in the
period ended December 31, 1993
Schedule V -- Property, Plant and Equipment.................. 50
Schedule VI -- Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment.............. 53
Schedule VIII -- Valuation and Qualifying Accounts for the
years ended December 31, 1993, 1992 and 1991............... 56
Schedule IX -- Short-Term Borrowings......................... 57
See Note 14 of Notes to Consolidated Financial Statements for the
selected quarterly financial data required to be presented in this Item.
REPORT OF MANAGEMENT
The primary responsibility for the integrity of the Company's financial
information rests with management, which has prepared the accompanying
financial statements and related information. Such information was prepared in
accordance with generally accepted accounting principles appropriate in the
circumstances, based on managements best estimates and judgments and giving
due consideration to materiality. These financial statements have been audited
by independent auditors and their report is included.
Management maintains and relies upon systems of internal accounting
controls, which are periodically reviewed by both the Company's internal
auditors and its independent auditors to test for compliance. Reports issued
by the internal auditors are released to management, and such reports, or
summaries thereof, are transmitted to the Audit Committee of the Board of
Directors and the independent auditors on a timely basis.
The Audit Committee, composed solely of outside directors, meets
periodically with the internal auditors and independent auditors (as well as
management) to review the work of each. The internal auditors and independent
auditors have free access to the Audit Committee, without management present,
to discuss the results of their audit work.
Management believes that the Company's systems, policies and procedures
provide reasonable assurance that operations are conducted in conformity with
the law and with management's commitment to a high standard of business
conduct.
Richard Snell Henry B. Sargent
Chairman & President Executive Vice President
& Chief Financial Officer
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Pinnacle
West Capital Corporation and its subsidiaries as of December 31, 1993 and 1992
and the related consolidated statements of income, retained earnings and cash
flows for each of the three years in the period ended December 31, 1993. Our
audits also included the financial statement schedules listed in the Index at
Item 8. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Pinnacle West Capital
Corporation and its subsidiaries at December 31, 1993 and 1992 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
herein.
As discussed in Note 4 of Notes to Consolidated Financial Statements, the
Company changed its method of accounting for income taxes effective January 1,
1993 to conform with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche
Phoenix, Arizona
February 21, 1994
</AUDIT-REPORT>
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1992 1991
------------- ------------ ------------
Operating Revenues
Electric......................... $ 1,686,290 $ 1,669,679 $ 1,515,289
Provision for rate refund
(Note 3)....................... -- -- (53,436)
Real estate...................... 32,248 19,959 12,697
------------- ------------ ------------
Total........................ 1,718,538 1,689,638 1,474,550
------------- ------------ ------------
Fuel Expenses
Fuel for electric generation..... 231,434 230,194 223,983
Purchased power.................. 69,112 57,007 49,788
------------- ------------ ------------
Total........................ 300,546 287,201 273,771
------------- ------------ ------------
Operating Expenses
Utility operations and
maintenance.................... 401,216 390,512 401,736
Real estate operations........... 38,220 27,309 25,482
Depreciation and amortization.... 223,558 220,076 219,010
Taxes other than income taxes
(Note 11)...................... 222,345 217,063 215,541
Palo Verde cost deferral
(Notes 1 and 3)................ -- -- (70,886)
Disallowed Palo Verde costs
(Note 3)....................... -- -- 577,145
------------- ------------ ------------
Total........................ 885,339 854,960 1,368,028
------------- ------------ ------------
Operating Income (Loss)............ 532,653 547,477 (167,249)
------------- ------------ ------------
Other Income (Deductions)
Allowance for equity funds used
during construction (Note 1)... 2,326 3,103 3,902
Palo Verde cost deferral
(Notes 1 and 3)................ -- -- 63,068
Palo Verde accretion income
(Note 3)....................... 74,880 67,421 5,306
Interest on long-term debt....... (245,961) (272,240) (316,282)
Other interest................... (16,505) (12,718) (16,447)
Allowance for borrowed funds used
during construction (Note 1)... 4,153 4,492 6,636
Preferred stock dividend
requirements of APS............ (30,840) (32,452) (33,404)
Other -- net..................... (2,282) (13,045) (31,463)
------------- ------------ ------------
Total........................ (214,229) (255,439) (318,684)
------------- ------------ ------------
Income (Loss) From Continuing
Operations
Before Income Taxes.............. 318,424 292,038 (485,933)
Income Tax Expense (Benefit)
(Note 4)......................... 148,446 141,598 (145,616)
------------- ------------ ------------
Income (Loss) From Continuing
Operations....................... 169,978 150,440 (340,317)
Income From Discontinued Operations
(Note 2)......................... -- 6,000 153,455
Cumulative Effect of Change in
Accounting for Income Taxes...... 19,252 -- --
------------- ------------ ------------
Net Income (Loss).................. $ 189,230 $ 156,440 $ (186,862)
============= ============ ============
Average Common Shares Outstanding.. 87,241,899 87,044,180 86,937,052
Earnings (Loss) Per Average Common
Share Outstanding
Continuing operations.......... $ 1.95 $ 1.73 $ (3.91)
Discontinued operations........ -- 0.07 1.76
Accounting change.............. 0.22 -- --
------------- ------------ ------------
Total........................ $ 2.17 $ 1.80 $ (2.15)
============= ============ ============
Dividends Declared Per Share....... $ 0.20 $ -- $ --
============= ============ ============
See Notes to Consolidated Financial Statements.
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
DECEMBER 31,
----------------------
1993 1992
---------- ----------
ASSETS
Current Assets
Cash and cash equivalents........................... $ 52,127 $ 87,926
Customer and other receivables -- net............... 126,343 157,433
Accrued utility revenues (Note 1)................... 60,356 51,517
Materials and supplies (at average cost)............ 96,174 95,978
Fossil fuel (at average cost)....................... 34,220 36,668
Other current assets................................ 13,782 8,000
Deferred income taxes (Note 4)...................... 100,234 105,348
---------- ----------
Total current assets.............................. 483,236 542,870
---------- ----------
Investments and Other Assets
Real estate investments -- net...................... 402,873 394,527
Other assets........................................ 136,074 142,309
---------- ----------
Total investments and other assets................ 538,947 536,836
---------- ----------
Utility Plant (Notes 6, 11 and 12)
Electric plant in service, including nuclear fuel... 6,462,589 6,335,327
Construction work in progress....................... 197,556 162,168
---------- ----------
Total utility plant............................... 6,660,145 6,497,495
Less accumulated depreciation and amortization...... 2,058,895 1,973,698
---------- ----------
Net utility plant................................. 4,601,250 4,523,797
---------- ----------
Deferred Debits
Regulatory asset for income taxes (Note 4).......... 585,294 --
Palo Verde Unit 3 cost deferral (Notes 1 and 3)..... 301,748 310,908
Palo Verde Unit 2 cost deferral (Note 1)............ 177,998 184,061
Other deferred debits............................... 268,326 172,004
---------- ----------
Total deferred debits............................. 1,333,366 666,973
---------- ----------
Total Assets.......................................... $6,956,799 $6,270,476
========== ==========
See Notes to Consolidated Financial Statements.
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
DECEMBER 31,
-----------------------
1993 1992
---------- -----------
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable................................... $ 97,489 $ 105,718
Accrued taxes...................................... 96,303 117,694
Accrued interest................................... 57,674 58,579
Short-term borrowings (Note 5)..................... 148,000 195,000
Current maturities of long-term debt (Note 6)...... 78,841 94,217
Other current liabilities.......................... 60,845 78,909
---------- -----------
Total current liabilities........................ 539,152 650,117
---------- -----------
Non-Current Liabilities
Long-term debt less current maturities (Note 6).... 2,633,620 2,774,305
Other liabilities.................................. 8,246 9,449
---------- -----------
Total non-current liabilities.................... 2,641,866 2,783,754
---------- -----------
Deferred Credits and Other
Deferred income taxes (Note 4)..................... 1,278,673 578,020
Deferred investment tax credit..................... 127,331 133,359
Unamortized gain -- sale of utility plant.......... 107,344 116,167
Other deferred credits............................. 221,762 133,138
---------- -----------
Total deferred credits and other................. 1,735,110 960,684
---------- -----------
Commitments and Contingencies (Note 13)
Minority Interests
Non-redeemable preferred stock of APS (Note 7)..... 193,561 168,561
---------- -----------
Redeemable preferred stock of APS (Note 7)......... 197,610 225,635
---------- -----------
Common Stock Equity (Note 8)
Common stock, no par value; authorized 150,000,000
shares; issued and outstanding 87,423,817 in 1993
and 87,161,872 in 1992........................... 1,642,783 1,646,772
Retained earnings (deficit)........................ 6,717 (165,047)
---------- -----------
Total common stock equity........................ 1,649,500 1,481,725
---------- -----------
Total Liabilities and Equity......................... $6,956,799 $6,270,476
========== ===========
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES (Note 1)
Income (loss) from continuing
operations.......................... $ 169,978 $ 150,440 $ (340,317)
Items not requiring cash
Depreciation and amortization....... 258,562 259,637 268,153
Deferred income taxes -- net........ 139,725 84,146 (128,863)
Palo Verde cost deferral (Notes 1
and 3)............................ -- -- (133,954)
Provision for rate refund -- net
(Note 3).......................... (21,374) (21,374) 52,057
Disallowed Palo Verde costs (Note 3) -- -- 577,145
Palo Verde accretion income (Note 3) (74,880) (67,421) (5,306)
Other -- net........................ (168) (1,829) (4,235)
Changes in current assets and
liabilities
Accounts receivable -- net.......... 31,090 (31,715) 18,006
Accrued utility revenues............ (8,839) (7,055) 1,004
Materials, supplies and fossil fuel. 2,252 5,094 (8,490)
Other current assets................ (5,782) 2,042 (478)
Accounts payable.................... (27,196) 9,547 18,866
Accrued taxes....................... (21,391) 45,962 (18,902)
Accrued interest.................... (905) (16,593) (3,588)
Other current liabilities........... (18,408) (16,549) 3,364
Additions to real estate............ (29,290) (12,647) (18,593)
Sales of real estate................ 21,396 14,622 7,787
Other -- net........................ 34,292 5,973 4,407
------------ ----------- -----------
Net Cash Flow Provided By Operating
Activities.......................... 449,062 402,280 288,063
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................. (234,944) (224,419) (182,687)
Allowance for equity funds used during
construction........................ 2,326 3,103 3,902
Sale of property (Note 3)............. 89 5,480 233,875
Other -- net.......................... 1,609 (6,555) (2,630)
------------ ----------- -----------
Net Cash Flow Provided By (Used For)
Investing Activities................ (230,920) (222,391) 52,460
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt............ 535,893 649,165 485,844
Issuance of preferred stock........... 72,644 24,781 49,375
Short-term borrowings -- net.......... (47,000) 195,000 (159,000)
Dividends paid on common stock........ (17,466) -- --
Repayment of long-term debt........... (711,241) (1,109,181) (593,252)
Repayment of preferred stock.......... (78,663) (27,850) (15,175)
Other -- net.......................... (8,108) 2,407 6,042
------------ ----------- -----------
Net Cash Flow Used For Financing
Activities.......................... (253,941) (265,678) (226,166)
------------ ----------- -----------
Net Cash Flow......................... (35,799) (85,789) 114,357
Cash and Cash Equivalents at Beginning
of Year............................. 87,926 173,715 59,358
------------ ----------- -----------
Cash and Cash Equivalents at End of
Year................................ $ 52,127 $ 87,926 $ 173,715
============ =========== ===========
See Notes to Consolidated Financial Statements.
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
----------- ---------- ----------
Retained Earnings (Deficit) at Beginning
of Year................................ $ (165,047) $ (321,487) $ (134,625)
Net Income (Loss)........................ 189,230 156,440 (186,862)
Common Stock Dividends................... (17,466) -- --
----------- ---------- ----------
Retained Earnings (Deficit) at End of
Year................................... $ 6,717 $ (165,047) $ (321,487)
=========== ========== ==========
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. CONSOLIDATION
The consolidated financial statements include the accounts of Pinnacle
West Capital Corporation and its subsidiaries: Arizona Public Service Company,
an electric utility; SunCor Development Company, a real estate development
company; and El Dorado Investment Company, a venture capital firm. Certain
prior year balances have been reclassified to conform to the 1993
presentation.
B. UTILITY PLANT AND DEPRECIATION
Utility plant represents the buildings, equipment and other facilities
used to provide electric service. The cost of utility plant includes labor,
material, contract services and other related items and an allowance for funds
used during construction. The cost of retired depreciable utility plant, plus
removal costs less salvage realized, is charged to accumulated depreciation.
Depreciation on utility property is provided on a straight-line basis. The
applicable rates for 1991 through 1993 ranged from 0.84% to 15.00%, which
resulted in annual composite rates of 3.37%. Depreciation and amortization of
non-utility property and equipment are provided over the estimated useful
lives of the related assets, ranging from 3 to 33.3 years.
C. REVENUES
Electric operating revenues are recognized on the accrual basis and
include estimated amounts for service rendered but unbilled at the end of each
accounting period.
D. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
AFUDC represents the cost of debt and equity funds used to finance
construction of utility plant. Plant construction costs, including AFUDC, are
recovered in authorized rates through depreciation when completed projects are
placed into commercial operation. AFUDC does not represent current cash
earnings.
AFUDC has been calculated using composite rates of 7.20% for 1993, 10.00%
for 1992 and 10.15% for 1991. APS compounds AFUDC semiannually and ceases to
accrue AFUDC when construction work is completed and the property is placed in
service.
E. INCOME TAXES
Pinnacle West and its subsidiaries file a consolidated U.S. income tax
return. Provisions for income tax are made by each subsidiary as if separate
income tax returns were filed. The difference, if any, between these
provisions and consolidated income tax expense is allocated to Pinnacle West.
Investment tax credits were deferred and are being amortized to other income
over the estimated lives of the related assets as directed by the ACC. In
1993, Pinnacle West adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes" (see Note 4).
F. REACQUIRED DEBT COSTS
APS amortizes gains and losses on reacquired debt over the remaining life
of the original debt, consistent with ratemaking.
G. NUCLEAR FUEL AND DECOMMISSIONING COSTS
Nuclear fuel is charged to fuel expense using the unit-of-production
method under which the number of units of thermal energy produced in the
current period is related to the total thermal units expected to be produced
over the remaining life of the fuel.
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1993, APS recorded $6.5 million for decommissioning expense. Based on
the most recent site-specific study to completely remove all facilities, APS
expects to record $11.4 million for decommissioning expense in 1994. APS
estimates it will cost approximately $2.1 billion ($407 million in 1993
dollars), over a thirteen-year period beginning in 2023, to decommission its
29.1% interest in Palo Verde. Decommissioning costs are charged to expense
over the respective units operating license term and included in the
accumulated depreciation balance until Palo Verde is retired from service.
As required by the ACC, APS has established external trust accounts into
which quarterly deposits are made for decommissioning. As of December 31,
1993, APS has deposited a total of $35.0 million. The trust accounts are
included in "Investments and Other Assets" on the Consolidated Balance Sheets
and have accumulated a $44.7 million balance at December 31, 1993, including
investment earnings.
H. STATEMENTS OF CASH FLOWS
Temporary cash investments and marketable securities with an initial
maturity of three months or less are considered to be cash equivalents for
purposes of the Consolidated Statements of Cash Flows. During 1993, 1992 and
1991, Pinnacle West and its subsidiaries paid interest, net of amounts
capitalized, of $243.9 million, $286.4 million and $305.4 million,
respectively. Income taxes paid were $45.3 million, $33.8 million and $19.7
million, respectively; and dividends paid on preferred stock of APS were $30.9
million, $32.6 million and $33.1 million, respectively.
I. PALO VERDE COST DEFERRALS
As authorized by the ACC, APS deferred operating costs (excluding fuel)
and financing costs of Palo Verde Units 2 and 3 from each units commercial
operation date until the date each unit was included in a rate order. The
deferrals are being amortized and recovered through rates over thirty-five
year periods.
2. DISCONTINUED OPERATIONS
In 1989, a settlement was reached which resolved claims made by certain
federal agencies with respect to MeraBank, resulting in a $450 million capital
infusion by Pinnacle West into MeraBank. The settlement released Pinnacle West
from its purported obligations under a capital maintenance stipulation
relating to MeraBank. Because of certain unresolved federal income tax issues,
Pinnacle West could not at the time record an income tax benefit related to
the loss incurred as a result of the settlement. In January 1992, the Internal
Revenue Service issued a ruling which allowed Pinnacle West to deduct, for
federal income tax purposes, its remaining investment in MeraBank including
the capital infusion. As a result, Pinnacle West recorded income from
discontinued operations in 1991 of $153.5 million representing the tax benefit
of a federal net operating loss (NOL) carryforward.
In 1992, Pinnacle West recorded $6 million of income from discontinued
operations representing the recognition of a portion of the state NOL
carryforward.
3. REGULATORY MATTERS
RATE CASE SETTLEMENT
In December 1991, APS and the ACC reached a settlement in the retail rate
case that had been pending before the ACC since January 1990. The ACC
authorized an annual net revenue increase of $66.5 million, or approximately
5.2%. In turn, APS wrote off $577.1 million of costs associated with Palo
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Verde and recorded a refund obligation of $53.4 million. The after-tax impact
of these adjustments reduced 1991 net income by $407 million. A discussion of
the components of the disallowance follows.
Prudence Audit
The ACC closed its prudence audit of Palo Verde and APS wrote off $142
million ($101.3 million after tax) of construction costs relating to Palo
Verde Units 1, 2 and 3 and $13.3 million ($8.6 million after tax) of deferred
costs relating to the prudence audit.
Interim or Temporary Revenues
The ACC removed the interim and temporary designation on $385 million of
revenues collected by APS from 1986 through 1991 that had been previously
authorized for Palo Verde Units 1 and 2. APS recorded a refund obligation to
customers of $53.4 million ($32.3 million after tax) related to the Palo Verde
write-off discussed above. The refund obligation has been used to reduce the
amount of annual rate increase granted rather than require specific customer
refunds and is being reversed over thirty months beginning December 1991.
During 1993, 1992 and 1991 after-tax refund obligation reversals recorded by
APS as electric operating revenue were $12.9 million, $12.9 million and $0.9
million, respectively. APS will record $5.6 million after tax in 1994.
Excess Capacity Issue
The ACC deemed a portion of Palo Verde Unit 3 to be excess capacity and,
accordingly, did not recognize the related Unit 3 costs for ratemaking
purposes. This action effectively disallows for thirty months a return on
approximately $475 million of APS' investment in Unit 3. APS recognized a
charge of $181.2 million ($109.5 million after tax), representing the present
value of the lost cash flow and to that extent temporarily discounted the
carrying value of Unit 3.
In accordance with generally accepted accounting principles, APS is
recording, over the thirty-month period, accretion income on Unit 3 in the
aggregate amount of the discount. During 1993, 1992 and 1991 APS recorded
after-tax accretion income of $45.3 million, $40.7 million and $3.2 million,
respectively. APS will record $20.3 million after tax in 1994.
In December 1991, APS stopped deferring Unit 3 costs and recorded a $240.6
million ($155.3 million after tax) write-off of Unit 3 cost deferrals due to a
portion of Unit 3 being deemed excess capacity. At that time, APS began
amortizing to expense and recovering in rates the remaining $320 million
balance of the deferrals over a thirty-five year period as approved by the
ACC.
Future Retail Rate Increase
APS agreed not to file a new rate application before December 1993 and the
ACC agreed to expedite the processing of a future rate application. APS and
the ACC also agreed on an average unit sales price ceiling of 9.585 cents per
kilowatt-hour in this future rate application, if filed prior to January 1,
1995. APS' 1993 average unit sales price was approximately 9 cents per
kilowatt-hour. This ceiling may be adjusted for the effects of significant
changes in laws, regulatory requirements or APS' cost of equity capital.
Management believes that the unit sales price ceiling will not adversely
impact APS' future earnings and has not yet determined when a rate case may be
filed.
Dividend Payments
APS agreed to limit its annual common stock dividends to Pinnacle West to
$170 million through December 1993.
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SALE OF CHOLLA 4
July 1991, APS sold Unit 4 of the Cholla Power Plant to PacifiCorp for
approximately $230 million. The resulting after-tax gain of approximately $20
million was deferred and is being amortized as a reduction to operations
expense over a four-year period in accordance with an ACC order. The
transaction also provides for transmission access and electrical energy sales
and exchanges between APS and PacifiCorp.
4. INCOME TAX EXPENSE
Effective January 1, 1993, Pinnacle West adopted the provisions of SFAS
No. 109, "Accounting for Income Taxes," which requires the use of the
liability method of accounting for income taxes. The cumulative effect on
prior years of this change in accounting principle resulted in an increase to
net income of $19.3 million, due primarily to the recognition of deferred tax
benefits relating to state NOL carryforwards of Pinnacle West. As a result of
adopting SFAS No. 109, APS recorded additional deferred income taxes related
to the equity comoponent of AFUDC; the debt component of AFUDC net-of-tax; and
other temporary differences for which deferred income taxes had not been
provided. Deferred tax balances were also adjusted for changes in tax rates.
The adoption of SFAS No.109 increased deferred income tax liabilities by
$585.3 million at December 31, 1993. Historically, the FERC and the ACC have
allowed revenues sufficient to pay for these deferred tax liabilities and, in
accordance with SFAS No. 109, a regulatory asset was established in a
corresponding amount.
The components of income tax expense (benefit) from continuing operations
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
------------- ------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C>
Current
Federal.............................................. $ 43,065 $ 30,418 $ 2,500
State................................................ 816 624 --
------------- ------------- --------------
Total current.......................................... 43,881 31,042 2,500
------------- ------------- --------------
Deferred
Depreciation -- net.................................. 58,844 76,175 58,310
Palo Verde cost deferral............................. (5,015) (5,015) 47,527
Disallowed Palo Verde costs.......................... -- -- (213,394)
Refund obligation.................................... 8,454 8,454 (21,273)
Investment tax credit (ITC) -- net................... (6,028) (5,574) (9,275)
Alternative minimum tax.............................. (53,212) (40,434) (2,500)
Palo Verde start-up costs............................ (1,335) (28,976) (1,381)
Palo Verde accretion income.......................... 29,618 26,668 2,168
NOL and ITC carryforward utilized.................... 81,494 81,180 --
Loss on reacquired debt.............................. 4,288 10,266 (1,066)
Change in federal tax rate........................... (4,855) -- --
Taxes, pension costs and other -- net................ (7,688) (12,188) (7,232)
------------- ------------- --------------
Total deferred......................................... 104,565 110,556 (148,116)
------------- ------------- --------------
Total.................................................. $ 148,446 $ 141,598 $ (145,616)
============= ============= ==============
</TABLE>
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income tax expense (benefit) differed from the amount computed by
multiplying income from continuing operations before income taxes by the
statutory federal income tax rate due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1992 1991
---------- --------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income tax expense (benefit) at
statutory rate (35% in 1993, 34% in 1992
and 1991)................................ $ 111,448 $ 99,293 $ (165,217)
Increases (reductions) in tax expense
resulting from:
Tax under book depreciation.............. 17,671 17,499 21,814
Palo Verde cost deferral................. -- -- (4,063)
Disallowed Palo Verde costs.............. -- -- 22,236
Preferred stock dividends of APS......... 10,794 11,034 11,357
ITC amortization......................... (6,002) (6,124) (9,275)
State income tax net of federal income
tax benefit............................ 21,604 21,589 (16,307)
Change in federal tax rate............... (4,855) -- --
Other.................................... (2,214) (1,693) (6,161)
---------- --------- ----------
Income tax expense (benefit)............... $148,446 $141,598 $ (145,616)
========== ========= ==========
</TABLE>
The components of the net deferred income tax liability at December 31,
1993, were as follows:
<TABLE>
<CAPTION>
1993
---------------
(THOUSANDS OF
DOLLARS)
<S> <C>
Deferred tax assets:
NOL and ITC carryforwards.............................................. $ 159,490
Alternative minimum tax (can be carried forward indefinitely).......... 100,461
Deferred gain on Palo Verde Unit 2 sale/leaseback...................... 66,754
Other.................................................................. 126,905
Valuation allowance.................................................... (43,818)
---------------
Total deferred tax assets............................................ 409,792
---------------
Deferred tax liabilities:
Plant-related.......................................................... 751,520
Income taxes recoverable through future rates -- net................... 585,294
Palo Verde deferrals................................................... 158,424
Other.................................................................. 92,993
---------------
Total deferred tax liabilities....................................... 1,588,231
---------------
Accumulated deferred income taxes -- net................................. $ 1,178,439
===============
</TABLE>
At December 31, 1993, Pinnacle West had federal NOL carryforwards of
approximately $304 million which may be used through 2005 and state NOL
carryforwards of approximately $218 million which expire in 1994 through 1996.
Pinnacle West also had ITC carryforwards of approximately $41 million which
expire in 2000 through 2005.
See Note 2 for tax benefits recorded in connection with discontinued
operations.
<PAGE>
5. LINES OF CREDIT
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APS had committed lines of credit with various banks totalling $302
million at December 31, 1993 and 1992 which were available either to support
the issuance of commercial paper or to be used for bank borrowings. The
commitment fees on these lines were 0.1875% per annum through April 29, 1992
and 0.25% thereafter through December 31, 1993. APS had commercial paper
borrowings outstanding of $148 million at December 31, 1993 and bank
borrowings of $130 million at December 31, 1992.
In 1992, APS also had a $70 million letter of credit commercial paper
program. Under this program, which expired in November 1993, APS had $65
million of borrowings outstanding at December 31, 1992. The commitment fees
for this program were 0.30% per year.
By Arizona statute, APS' short-term borrowings cannot exceed 7% of its
total capitalization without the consent of the ACC.
Pinnacle West had a liquidity facility of $40 million at December 31, 1993
and $50 million at December 31, 1992. The facility is available for payments
of principal and interest on Pinnacle West's outstanding debt with a maximum
of $20 million for principal payments. Any borrowings on this facility would
be secured by the APS common stock owned by Pinnacle West and would bear
interest, at Pinnacle West's option, at rates based on the prime rate or on
LIBOR. Pinnacle West pays a 0.3125% commitment fee on the facility based on
existing long-term credit ratings. There were no borrowings outstanding under
the liquidity facility at December 31, 1993 or 1992.
6. LONG-TERM DEBT
In January 1990, Pinnacle West restructured the majority of its long-term
debt. Pinnacle West granted the affected lenders a security interest in the
outstanding common stock of APS and agreed not to incur new debt except to
reduce, refinance or prepay existing debt. Pinnacle Wests ability to pay
dividends is dependent upon the satisfaction of specified interest coverage
ratios. Additionally, cumulative dividend payments for the period April 1,
1990 through any dividend declaration date are limited to 50% of cumulative
consolidated net income (as defined) for the same period. As of December 31,
1993, Pinnacle West could have declared dividends of approximately $241
million based on this formula. Pinnacle West's aggregate investments in its
existing subsidiaries (excluding APS) and new investments are generally
limited to $15 million and $20 million, respectively, until the lenders are
repaid. Pinnacle West must maintain certain interest coverage ratios and meet
certain funded debt tests. Additionally, Pinnacle West would be required to
use the net cash proceeds from the sale of SunCor or El Dorado or
substantially all of their assets to repay debt. The following table presents
long-term debt outstanding as of December 31, 1993 and 1992.
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
December 31,
Maturity Dates Interest Rates 1993 1992
------------------ -------------------------------- -------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
APS
First mortgage
bonds........... 1997-2028 5.5%-13.25%(a) $ 1,729,070 $ 1,615,602
Pollution control
indebtedness.... 2009-2015 Adjustable(b) 369,130 424,330
Revolving credit.. 1993 LIBOR plus 0.30% to 0.45%(c) -- 75,000
Capitalized lease
obligation...... 1994-2001 7.48% 29,633 (d) 32,048 (d)
--------------------- --------------
2,127,833 2,146,980
--------------------- --------------
PINNACLE WEST
Bank term loans... 1996-1997 8.91-10.56% 112,663 170,326
Debentures........ 1994-2000 11.36-11.61%(e) 451,029 451,029
Notes payable..... 1997 10.5% -- 94,382
--------------------- --------------
563,692 715,737
--------------------- --------------
SUNCOR
Notes payable..... 1994-1998 (f) 20,936 5,805
--------------------- --------------
Total long-term
debt............ 2,712,461 2,868,522
Less current
maturities...... 78,841 94,217
--------------------- --------------
Total long-term
debt less
current
maturities...... $ 2,633,620 $ 2,774,305
===================== ==============
- ----------
(a) The weighted-average rate at December 31, 1993 and 1992 was 8.25% and 8.70%, respectively.
(b) The interest rates at year-end varied from 2.80% to 3.50% for 1993 and from 3.20% to 4.40%
for 1992.
(c) The weighted-average rate at the end of 1992 was 4.41%.
(d) Represents the present value of future lease payments (discounted at the interest rate of
7.48%) on a combined cycle plant sold and leased back from the independent owner-trustee
formed to own the facility. See Note 11.
(e) Includes $310,411,000 of 11.6% senior secured debentures at December 31, 1993 and 1992,
which are due in 2000 and are redeemable at the option of Pinnacle West pursuant to a make-
whole formula related to U.S. Treasuries.
The balance of $140,618,000 represents senior debentures of which $65,618,000 is due in 1994
with the remainder due in 1995. The weighted-average interest rate was 11.36% at December
31, 1993.
(f) Includes $8,065,000 of fixed-rate notes with year-end rates from 10.25% to 12% in 1993;
interest rates on the balance vary with the lenders prime rates. The 1992 balance consists
of fixed-rate notes bearing interest at 12%.
</TABLE>
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Aggregate annual principal payments due on total long-term debt and for
sinking fund requirements through 1998 are as follows: 1994, $78,841,000;
1995, $82,625,000; 1996, $43,858,000; 1997, $231,543,000; and 1998,
$110,297,000. See Note 7 for redemption and sinking fund requirements of
redeemable preferred stock of APS.
Substantially all utility plant other than nuclear fuel, transportation
equipment and the combined cycle plant, is subject to the lien of the first
mortgage bonds. The first mortgage bond indenture includes provisions which
would restrict the payment of dividends on APS common stock under certain
conditions which did not exist at December 31, 1993.
Pinnacle West and its subsidiaries incurred interest expense of
$264,306,000, $286,347,000 and $333,923,000 in 1993, 1992 and 1991, of which
$1,840,000, $1,389,000 and $1,194,000 was capitalized in each year,
respectively.
APS had approximately $370 million of variable-rate long-term debt
outstanding at December 31, 1993. Changes in interest rates would affect the
costs associated with this debt.
<PAGE>
7. PREFERRED STOCK OF APS
Non-redeemable preferred stock is not redeemable except at the option of
APS. Redeemable preferred stock is redeemable through sinking fund obligations
in addition to being callable by APS. The balances at December 31, 1993 and
1992, of preferred stock of APS are shown below:
<TABLE>
<CAPTION>
Number of Shares Par Value
---------------------------------------------- -----------------------------------------
Outstanding at Outstanding at
December 31, December 31,
---------------------------- --------------------------
Call
Price Per
Authorized 1993 1992 Per Share 1993 1992 Share(a)
---------------- ------------- ------------- ------------- ------------ ------------ -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
NON-REDEEMABLE:
$1.10 preferred 160,000 155,945 155,945 $ 25.00 $ 3,898 $ 3,898 $ 27.50
$2.50 preferred 105,000 103,254 103,254 50.00 5,163 5,163 51.00
$2.36 preferred 120,000 40,000 40,000 50.00 2,000 2,000 51.00
$4.35 preferred 150,000 75,000 75,000 100.00 7,500 7,500 102.00
Serial preferred 1,000,000
$2.40 Series A 240,000 240,000 50.00 12,000 12,000 50.50
$2.625 Series C 240,000 240,000 50.00 12,000 12,000 51.00
$2.275 Series D 200,000 200,000 50.00 10,000 10,000 50.50
$3.25 Series E 320,000 320,000 50.00 16,000 16,000 51.00
Serial preferred 4,000,000(b)
$8.32 Series J -- 500,000 100.00 -- 50,000
Adjustable rate
Series Q 500,000 500,000 100.00 50,000 50,000 (c)
Series preferred 10,000,000
$1.8125 Series W 3,000,000 -- 25.00 75,000 -- (d)
------------- ------------- ------------ ------------
Total............. 4,874,199 2,374,199 $ 193,561 $ 168,561
============= ============= ============ ============
REDEEMABLE:
Serial preferred:
$8.80
$8.80 Series K 142,100 187,100 $ 100.00 $ 14,210 $ 18,710 (e)
$11.50 Series R 284,000 319,250 100.00 28,400 31,925 (f)
$8.48 Series S 300,000 500,000 100.00 30,000 50,000 (g)
$8.50 Series T 500,000 500,000 100.00 50,000 50,000
$10.00 Series U 500,000 500,000 100.00 50,000 50,000
$7.875 Series V 250,000 250,000 100.00 25,000 25,000 (h)
------------- ------------- ------------ ------------
Total............. 1,976,100 2,256,350 $ 197,610 $ 225,635
============= ============= ============ ============
- ----------
(a) In each case plus accrued dividends.
(b) This authorization covers both outstanding non-redeemable and all redeemable preferred
shares.
(c) Dividend rate adjusted quarterly to 2% below that of certain United States Treasury
securities, but in no event less than 6% or greater than 12% per annum. Redeemable at par.
(d) Redeemable at par after December 1, 1998.
(e) Redeemable at $103 through February 28, 1994 and at $101 thereafter.
(f) Redeemable after June 1, 1994 at $105.45, declining by a predetermined amount each year to
par after June 1, 2003.
(g) Redeemable at $102.12 through May 31, 1994, and at par thereafter.
(h) Redeemable at $107.09 through May 31, 1994, and thereafter declining by a predetermined
amount each year to par after May 31, 2002.
</TABLE>
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
If there were to be any arrearage in dividends on any of its preferred
stock or in the sinking fund requirements applicable to any of its redeemable
preferred stock, APS could not pay dividends on its common stock or acquire
any shares thereof for consideration. The combined aggregate amount of
preferred stock redemption requirements for the next five years are: 1994,
$65,775,000; 1995, $13,525,000; 1996, $13,525,000; 1997, $13,525,000; and
1998, $13,525,000.
Redeemable preferred stock transactions of APS during each of the three
years in the period ended December 31, 1993, are as follows:
NUMBER OF PAR VALUE
SHARES AMOUNT
---------- ---------
(THOUSANDS OF
DOLLARS)
Balance, December 31, 1990............................. 1,924,532 $192,453
Issuance
$10.00 Series U...................................... 500,000 50,000
Retirements
$10.00 Series H...................................... (16,000) (1,600)
$8.80 Series K....................................... (40,275) (4,027)
$12.90 Series N...................................... (24,975) (2,498)
$11.50 Series R...................................... (70,500) (7,050)
---------- ---------
Balance, December 31, 1991............................. 2,272,782 227,278
Issuance
$7.875 Series V...................................... 250,000 25,000
Retirements
$10.00 Series H...................................... (8,677) (868)
$8.80 Series K....................................... (4,725) (472)
$12.90 Series N...................................... (213,280) (21,328)
$11.50 Series R...................................... (39,750) (3,975)
---------- ---------
Balance, December 31, 1992............................. 2,256,350 225,635
Retirements
$8.80 Series K....................................... (45,000) (4,500)
$11.50 Series R...................................... (35,250) (3,525)
$8.48 Series S....................................... (200,000) (20,000)
---------- ---------
Balance, December 31, 1993............................. 1,976,100 $ 197,610
========== =========
8. COMMON STOCK
Pinnacle West's common stock issued during each of the three years in the
period ended December 31, 1993, is as follows:
NUMBER OF PAR VALUE
SHARES AMOUNT
---------- -----------
Balance, December 31, 1990........................... 86,873,174 $1,646,570
Common stock issued................................ 136,800 319
---------- -----------
Balance, December 31, 1991........................... 87,009,974 1,646,889
Common stock issued................................ 151,898 (117)
---------- -----------
Balance, December 31, 1992........................... 87,161,872 1,646,772
Common stock issued................................ 261,945 (3,989)
---------- -----------
Balance, December 31, 1993........................... 87,423,817 $1,642,783
========== ===========
- ----------
(a) Including premiums and expenses of preferred stock issues of APS.
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Pinnacle West Stock Purchase and Dividend Reinvestment Plan provides
that any participant may purchase shares of Pinnacle West common stock
directly from Pinnacle West.
Both Pinnacle West and APS have employee savings plans under which
contributions by participating employees and contributions by employers could
involve the issuance of new shares of Pinnacle West common stock.
Contributions made by Pinnacle West and APS to their respective employee
retirement plans may also involve one or more such issuances of common stock.
However, Pinnacle West plans to continue making market purchases of its
outstanding stock to meet its needs related to the Stock Purchase and Dividend
Reinvestment Plan, the employee savings plans and the employee retirement
plans.
Under the Pinnacle West Stock Option and Incentive Plan, non-qualified
stock options (NQSOs), incentive stock options (ISOs) and restricted stock
awards may be granted to officers and key employees of Pinnacle West and
subsidiaries up to an aggregate of 3 million shares of Pinnacle West common
stock. The plan also provides for the granting of stock appreciation rights,
performance shares, dividend equivalents or any combination thereof. Another
plan provides for the granting of NQSOs to Pinnacle Wests directors up to an
aggregate of 500,000 shares of stock. As of December 31, 1993, approximately
333,000 restricted shares, 1,789,000 NQSOs, 10,000 ISOs and 30,000 dividend
equivalent shares were outstanding under the plans.
9. PENSION PLANS AND OTHER BENEFITS
Pension plans
Pinnacle West and its subsidiaries have defined benefit pension plans
covering substantially all employees. Benefits are based on years of service
and compensation utilizing a final average pay plan benefit formula. The plans
are funded on a current basis to the extent deductible under existing tax
regulations. Plan assets consist primarily of domestic and international
common stocks and bonds and real estate. Pension cost, including
administrative cost, for 1993, 1992 and 1991 was approximately $14,267,000,
$14,384,000 and $10,913,000, respectively, of which approximately $6,833,000,
$4,279,000 and $5,262,000, respectively, was charged to expense; the remainder
was either capitalized as a component of construction cost or billed to other
owners of facilities for which APS is operating agent.
The components of net periodic pension costs are as follows:
1993 1992 1991
--------- -------- --------
(THOUSANDS OF DOLLARS)
Service cost -- benefits earned during the
period....................................... $17,051 $17,227 $14,831
Interest cost on projected benefit obligation.. 35,046 33,633 31,216
Return on plan assets.......................... (52,026) (23,225) (65,262)
Net amortization and deferral.................. 13,547 (15,097) 28,924
--------- -------- --------
Net consolidated periodic pension cost......... $13,618 $12,538 $ 9,709
========= ======== ========
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.50% in 1993 and 8.25% in 1992. The rate of
increase in future compensation levels used was 5.0% in 1993 and 1992. The
expected long-term rate of return on assets was 9.5% in 1993 and 1992; in
1994, the company will assume a 9% rate of return.
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the funded status of the plan to the amounts
recognized in the balance sheet is presented below:
1993 1992
--------- ---------
(THOUSANDS OF
DOLLARS)
Plan assets at fair value............................... $ 421,563 $ 391,827
--------- ---------
Less actuarial present value of benefit obligation,
including vested benefits of $350,812 and $288,456 in
1993 and 1992, respectively........................... 375,800 309,607
Effect of projected future compensation increases....... 128,797 106,218
--------- ---------
Total projected benefit obligation...................... 504,597 415,825
--------- ---------
Plan assets less than projected benefit obligation...... (83,034) (23,998)
Plus: Unrecognized net loss from past experience
different from that assumed........................... 51,551 8,097
Unrecognized prior service cost................... 14,866 15,893
Unrecognized net transition asset................. (39,371) (42,597)
--------- ---------
Accrued pension liability............................... $ (55,988) $ (42,605)
========= =========
In addition to the defined benefit pension plans described above, Pinnacle
West and its subsidiaries also sponsor qualified defined contribution plans.
Collectively, these plans cover substantially all employees. The plans provide
for employee contributions and partial employer matching contributions after
certain eligibility requirements are met. The cost of these plans for 1993,
1992 and 1991 was $6,391,000, $5,404,000 and $2,756,000, of which $3,114,000,
$2,607,000 and $1,392,000 was charged to expense.
Postretirement Plans
Pinnacle West and its subsidiaries provide medical and life insurance
benefits to their retired employees. Employees may become eligible for these
retirement benefits based on years of service and age. The retiree medical
insurance plan is contributory; the retiree life insurance plan is
noncontributory. In accordance with the governing plan documents, the
companies retain the right to change or eliminate these benefits.
During 1993, Pinnacle West adopted SFAS No. 106, "Employers Accounting for
Postretirement Benefits Other Than Pensions," which requires that the cost of
postretirement benefits be accrued during the years that the employees render
service. Prior to 1993, the costs of retiree benefits were recognized as
expense when claims were paid. This change had the effect of increasing 1993
retiree benefit costs from approximately $6 million to $35 million; the amount
charged to expense increased from approximately $2 million to $17 million for
an increase of $15 million including the amortization (over 20 years) of the
initial postretirement benefit obligation estimated at January 1, 1993 to be
$184 million. Funding is based upon actuarially determined contributions that
take tax consequences into account.
The components of the estimated postretirement benefit costs for 1993 are:
(THOUSANDS OF DOLLARS)
Service cost -- benefits earned during the period.... $ 9,710
Interest cost on accumulated benefit obligation...... 15,755
Net amortization and deferral........................ 9,212
-------
Net consolidated periodic postretirement benefit cost $34,677
=======
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the funded status of the plan to the amounts
recognized in the balance sheet for 1993 is presented below:
Plan assets at fair value, funded at December 31, 1993.. $ 28,154
----------
Less accumulated postretirement benefit obligation:
Retirees............................................ 49,493
Fully eligible plan participants.................... 13,671
Other active plan participants...................... 138,364
----------
Total accumulated postretirement obligation............. 201,528
----------
Plan assets less than accumulated benefit obligation.... (173,374)
Plus: Unrecognized transition obligation................ 175,023
Unrecognized net gain from past experience
different from that assumed and from
from changes in assumptions...................... (2,089)
----------
Accrued postretirement liability included in other
deferred credits...................................... $ (440)
==========
Principal actuarial assumptions used were:
Discount rate......................................... 7.50%
Initial health care cost trend rate under age 65...... 12.00%
Initial health care cost trend rate -- age 65 and over 9.00%
Ultimate health care cost trend rate
(reached in the year 2003).......................... 5.50%
Annual salary increases for life insurance obligation. 5.00%
Assuming a one percent increase in the health care cost trend rate, the
Company's 1993 cost of postretirement benefits other than pensions would
increase by $6.9 million and the accumulated benefit obligation as of December
31, 1993 would increase by $40.8 million.
In 1993, Pinnacle West adopted SFAS No. 112, "Employers Accounting for
Postemployment Benefits." The new standard requires a change from a cash
method to an accrual method in accounting for benefits (such as long-term
disability) provided to former or inactive employees after employment but
before retirement. The adoption of this new standard resulted in an increase
in 1993 postemployment benefit costs of approximately $2 million.
10. SUPPLEMENTAL INCOME STATEMENT INFORMATION
Other taxes charged to operations during each of the three years in the
period ended December 31, 1993 are as follows:
1993 1992 1991
--------- -------- --------
(THOUSANDS OF DOLLARS)
Ad valorem..................................... $124,630 $119,173 $121,936
Sales.......................................... 84,901 83,185 80,815
Other.......................................... 12,814 14,705 12,790
--------- -------- --------
Total other taxes.............................. $222,345 $217,063 $215,541
========= ======== ========
11. LEASES
In 1986, APS entered into sale and leaseback transactions under which it
sold approximately 42% of its share of Palo Verde Unit 2. The gain of
approximately $140,220,000 has been deferred and is being amortized to expense
over the original lease term. The leases are being accounted for as operating
leases. The amounts paid each year approximate $40,134,000 through December
1999; $46,285,000 through December 2000; and $48,982,000 through December
2015. Options to renew the leases for two additional years and to purchase the
property at fair market value at the end of the lease terms are also included.
Lease expense for 1993, 1992 and 1991 was $41,750,000, $45,838,000 and
$45,633,000, respectively.
APS has a capital lease on a combined cycle plant which it sold and leased
back. The lease requires semiannual payments of $2,582,000 through June 2001,
and includes renewal and purchase options based on fair market value. This
plant is included in electric plant in service at its original cost of
$54,405,000; accumulated depreciation at December 31, 1993 was $37,315,000.
In addition, Pinnacle West and its subsidiaries lease certain land,
buildings, equipment and miscellaneous other items through operating rental
agreements with varying terms, provisions and expiration dates. Rent expense
for 1993, 1992 and 1991 was approximately $21,535,000, $26,104,000 and
$28,185,000, respectively. Annual future minimum rental commitments, excluding
the Palo Verde and combined cycle leases, through 1998 are as follows: 1994,
$22,879,000; 1995, $17,183,000; 1996, $14,146,000; 1997, $14,120,000; and
1998, $14,126,000. Total rental commitments after 1998 are estimated at $198
million.
12. JOINTLY-OWNED FACILITIES
At December 31, 1993, APS owned interests in the following jointly-owned
electric generating and transmission facilities. APS' share of related
operating and maintenance expenses is included in utility operations and
maintenance.
<TABLE>
<CAPTION>
Construction
Percent Plant in Accumulated Work in
Owned By APS Service Depreciation Progress
---------------- -------------- --------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
GENERATING FACILITIES
Palo Verde Nuclear Generating
Station -- Units 1 and 3......... 29.1% $1,825,842 $371,818 $17,995
Palo Verde Nuclear Generating
Station -- Unit 2 (See Note 11).. 17.0% 552,798 114,118 17,946
Four Corners Steam Generating
Station -- Units 4 and 5......... 15.0% 140,408 46,884 1,220
Navajo Steam Generating Station --
Units 1, 2 and 3................. 14.0% 135,073 70,397 11,865
Cholla Steam Generating Station --
Common Facilities (a)............ 62.8% 69,678 30,440 1,324
TRANSMISSION FACILITIES
ANPP 500 KV System................. 35.8%(b) 62,619 13,849 910
Navajo Southern System............. 31.4%(b) 26,742 14,386 6
Palo Verde-Yuma 500 KV System...... 23.9%(b) 11,411 3,006 --
Four Corners Switchyards........... 27.5%(b) 3,045 1,790 3
Phoenix-Mead System................ 17.1%(b) -- -- 8,983
- ----------
(a) APS is the operating agent for Cholla Unit 4, which is owned by PacifiCorp. The common
facilities at the Cholla Plant are jointly-owned.
(b) Weighted average of interests.
</TABLE>
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
Litigation
Pinnacle West and its subsidiaries are parties to various claims, legal
actions and complaints arising out of the normal course of business. Various
claims have been asserted against Pinnacle West and against present and former
directors of Pinnacle West and MeraBank. A settlement agreement that would
resolve the preponderance of these claims has been approved by the court. An
appeal of the settlement by two non-settling individuals is pending. In the
opinion of management, the ultimate resolution of these claims will not have a
material adverse effect on the operations or financial position of Pinnacle
West.
Palo Verde Tube Cracks
Tube cracking in the Palo Verde steam generators adversely affected
operations in 1993, and will continue to do so in 1994 and probably into 1995,
because of the cost of replacement power and maintenance expense associated
with unit outages and corrective actions required to deal with the issue.
The operation of Palo Verde Unit 2 has been particularly affected by this
issue. APS has encountered axial tube cracking in the upper regions of the two
steam generators in Unit 2. This form of tube degradation is uncommon in the
industry and, in March 1993, led to a tube rupture and an outage of the unit
that extended to September 1993, during which the unit was refueled. Unit 2 is
currently completing a mid-cycle inspection outage which revealed further tube
degradation. Unit 2 will have another mid-cycle inspection outage later in
1994.
The steam generators of Units 1 and 3 were inspected late in 1993, but did
not show signs of axial cracking in their upper regions. All three units have,
however, experienced cracking in the bottom of the steam generators of the
types which are common in the industry.
Although its analysis is not yet completed, APS believes that the axial
cracking in Unit 2 is due to deposits on the tubes and to the relatively high
temperatures at which all three units are now designed to operate. APS also
believes that it can retard further tube degradation to acceptable levels by
remedial actions which include chemically cleaning the generators and
performing analyses and adjustments that will allow the units to be operated
at lower temperatures without appreciably reducing their output. The
temperature analyses should be concluded within the next several months. In
the meantime, the lower temperatures will be achieved by operating the units
at less than full power (86%).
Chemical cleaning was performed during Unit 2's current mid-cycle outage,
and will be performed in the next refueling outage of Unit 3 (which will begin
shortly) and of Unit 1 (which is scheduled for March 1995). APS has concluded
that Unit 1 can be safely operated until the 1995 outage and has submitted its
supporting analysis to the Nuclear Regulatory Commission, but a mid-cycle
inspection later in 1994 is possible.
As a result of these corrective actions, all three units should be
returned to full power by mid-1995, and one or more of the units could be
returned to full power during 1994. So long as the three units are involved in
mid-cycle outages and are operated at 86%, APS will incur additional fuel and
purchased power costs averaging approximately $2 million per month (before
income taxes).
Because of schedule changes associated with the tube issues and other
circumstances, it now appears that all three units will be down for refueling
outages at various times during 1995.
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
When significant cracks are detected during any outage, the affected tubes
are taken out of service by plugging. That has occurred in a number of tubes
in Unit 2, which is by far the most affected by cracking and plugging. APS
expects that this will slow considerably because of the foregoing remedial
actions and that, while it may ultimately reach some limit on plugging, it can
operate the present steam generators over a number of years.
Construction Program
Total construction expenditures in 1994 are estimated at $312 million,
excluding capitalized property taxes and capitalized interest.
Fuel and Purchased Power Commitments
APS is a party to various fuel and purchased power contracts with terms
expiring from 1994 through 2020. APS estimates its 1994 contract requirements
at approximately $136 million. However, this amount may vary significantly
pursuant to certain provisions in such contracts which permit APS to decrease
its required purchases under certain circumstances.
Nuclear Insurance
The Palo Verde participants have insurance for public liability resulting
from nuclear energy hazards to the full limit of liability under federal law.
This potential liability is covered by primary liability insurance provided by
commercial insurance carriers in the amount of $200 million, and the balance
by an industry-wide retrospective assessment program. The maximum assessment
per reactor under the retrospective rating program for each nuclear incident
is approximately $79 million, subject to an annual limit of $10 million per
incident. Based upon APS' 29.1% interest in the three Palo Verde units, APS'
maximum potential assessment per incident is approximately $69 million, with
an annual payment limitation of $8.73 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. APS has also
secured insurance against portions of any increased cost of generation or
purchased power and business interruption resulting from a sudden and
unforeseen outage of any of the three units. The insurance coverage discussed
in this and the previous paragraph is subject to certain policy conditions and
exclusions.
El Paso Electric Company Bankruptcy
The other joint owners in the Palo Verde and Four Corners facilities (see
Note 12) include El Paso Electric Company, which currently is operating under
Chapter 11 of the Bankruptcy Code. A plan whereby El Paso would become a
wholly-owned subsidiary of Central and South West Corporation would resolve
certain issues to which APS could be exposed by the bankruptcy, including El
Paso allegations regarding the 1989-1990 Palo Verde outages. The plan has been
confirmed by the bankruptcy court, but cannot become fully effective until
several additional or related approvals are obtained. If they are not
obtained, the plan could be withdrawn or terminate, thereby reintroducing the
APS exposures.
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Consolidated quarterly financial information for 1993 and 1992 is as
follows:
<TABLE>
<CAPTION>
1993
-------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------ ---------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
QUARTER ENDED
Operating revenues
Electric.................................. $ 371,303 $ 407,375 $ 524,483 $ 383,129
Real estate............................... 3,799 6,277 10,093 12,079
Operating income (a)........................ $ 107,335 $ 129,155 $ 207,954 $ 88,209
Income from continuing operations........... $ 27,474 $ 38,899 $ 86,734 $ 16,871
Cumulative effect of change in accounting
for income taxes.......................... 19,252 -- -- --
------------ ------------ -------------- --------------
Net income.................................. $ 46,726 $ 38,899 $ 86,734 $ 16,871
============ ============ ============== ==============
Earnings per average share of common stock
outstanding
Continuing operations..................... $ 0.32 $ 0.45 $ 0.99 $ 0.19
Accounting change......................... 0.22 -- -- --
------------ ------------ -------------- --------------
Total................................. $ 0.54 $ 0.45 $ 0.99 $ 0.19
============ ============ ============== ==============
Dividends declared per share................ $ -- $ -- $ -- $ 0.20
============ ============ ============== ==============
<CAPTION>
1992
-------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------ ---------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED
<S> <C> <C> <C> <C>
Operating revenues
Electric.................................. $ 344,947 $ 409,012 $ 516,960 $ 398,760
Real estate............................... 2,323 3,894 9,372 4,370
Operating income (a)........................ $ 87,408 $ 138,079 $ 214,623 $ 107,367
Income from continuing operations........... $ 7,763 $ 38,726 $ 85,306 $ 18,645
Income from discontinued operations......... -- -- -- 6,000 (b)
------------ ------------ -------------- --------------
Net income.................................. $ 7,763 $ 38,726 $ 85,306 $ 24,645
============ ============ ============== ==============
Earnings per average share of common stock
outstanding
Continuing operations..................... $ 0.09 $ 0.44 $ 0.98 $ 0.21
Discontinued operations................... -- -- -- 0.07
------------ ------------ -------------- --------------
Total................................. $ 0.09 $ 0.44 $ 0.98 $ 0.28
============ ============ ============== ==============
Dividends declared per share................ $ -- $ -- $ -- $ --
============ ============ ============== ==============
- ----------
(a) APS' operations are subject to seasonal fluctuations primarily as a result of weather
conditions. The results of operations for interim periods are not necessarily indicative of
the results to be expected for the full year.
(b) Represents income tax benefits related to the disposal of MeraBank. See Note 2.
</TABLE>
PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Pinnacle West estimates that the carrying amounts of its cash equivalents
and commercial paper are reasonable estimates of their fair values at December
31, 1993 and 1992 due to their short maturities. The December 31, 1993 and
1992 fair values of debt and equity investments, determined by using quoted
market values or by discounting cash flows at rates equal to the Company's
costs of capital, approximate their carrying amounts.
It was not practicable to estimate the fair values of several investments
in joint ventures and untraded equity securities because costs to do so would
be excessive. The carrying value of these investments totalled $45.6 million
and $63.6 million at year-end 1993 and 1992, respectively.
On December 31, 1993, the carrying amount of long-term debt liabilities
(excluding $30 million of capital lease obligations) was $2.682 billion and
its estimated fair value was approximately $2.911 billion. On December 31,
1992, the carrying amount of long-term debt (excluding $32 million of capital
lease obligations was $2.848 billion and its estimated fair value was
approximately $3.020 billion. The fair value estimates were determined by
independent sources using quoted market rates where available. Where market
prices were not available, the fair values were estimated by discounting
future cash flows using rates available for debt of similar terms and
remaining maturities. The carrying amounts of long-term debt bearing variable
interest rates approximate their fair values at December 31, 1993 and 1992.
<PAGE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993(A)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
BALANCE AT OTHER CHANGES --
BEGINNING ADDITIONS ADD (DEDUCT) -- BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE END OF PERIOD
-------------- -------------- ------------ --------------- -------------------- -----------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Utility Plant:
Electric Plant In Service
Intangible.............. $ 110,831 $ 7,013 $ 6,743 $ 62 $ 111,163
Steam Production........ 1,026,924 8,261 1,307 (174) 1,033,704
Nuclear Production...... 2,305,746 17,290 10,447 1,818 2,314,407
Other Production........ 137,376 6,499 916 405 143,364
Transmission............ 703,900 3,865 3,703 (12) 704,050
Distribution............ 1,530,421 131,766 23,905 (2,890)(b) 1,635,392
General................. 347,735 14,274 6,613 (604) 354,792
Nuclear Fuel In Reactor... 137,802 31,623 40,538 (182) 128,705
Nuclear Fuel In Stock..... 67 31,556 -- (31,623)(c) --
---------- -------- ------- --------- ----------
Total Electric Plant
In Service 6,300,802 252,147 94,172 (33,200) 6,425,577
---------- -------- ------- --------- ----------
Construction Work In
Progress:
Nuclear Fuel In Progress 27,582 30,913 -- (31,556)(d) 26,939
Other Work In Progress.. 134,586 229,385 -- (193,354)(e) 170,617
---------- -------- ------- --------- ----------
Total Construction
Work In Progress.... 162,168 260,298 -- (224,910) 197,556
---------- -------- ------- --------- ----------
Plant Held For Future Use. 34,526 2,682 -- (196) 37,012
---------- -------- ------- --------- ----------
Total Utility Plant......... $6,497,496 $515,127 $94,172 $(258,306) $6,660,145
========== ======== ======= ========= ==========
- ----------
(a) Depreciation is provided on a straight-line basis at rates authorized by the ACC; for 1993
those rates ranged from 0.84% to 15% which resulted in a composite rate of 3.37%.
(b) Includes the sale of certain streetlight and distribution facilities.
(c) To record the transfer to "Nuclear Fuel In Reactor."
(d) To record the transfer to "Nuclear Fuel In Stock" of completed nuclear fuel assemblies.
(e) Primarily transfers to "Plant In Service" and "Plant Held for Future Use."
</TABLE>
<PAGE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992(A)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
BALANCE AT OTHER CHANGES --
BEGINNING ADDITIONS ADD (DEDUCT) -- BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE END OF PERIOD
-------------- -------------- ------------ --------------- -------------------- -----------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Utility Plant:
Electric Plant In Service
Intangible.............. $ 107,198 $ 6,806 $ 3,492 $ 319 $ 110,831
Steam Production........ 1,018,712 12,317 4,105 -- 1,026,924
Nuclear Production...... 2,253,577 62,260 10,091 -- 2,305,746
Other Production........ 127,950 4,333 1,293 6,386 (b) 137,376
Transmission............ 695,790 11,804 3,564 (130) 703,900
Distribution............ 1,446,897 103,673 19,134 (1,015)(c) 1,530,421
General................. 355,711 15,951 23,879 (48) 347,735
Nuclear Fuel In Reactor... 160,204 45,332 67,734 -- 137,802
Nuclear Fuel In Stock..... 14,663 30,736 -- (45,332)(d) 67
---------- -------- -------- --------- ----------
Total Electric Plant
In Service.......... 6,180,702 293,212 133,292 (39,820) 6,300,802
---------- -------- -------- --------- ----------
Construction Work In
Progress:
Nuclear Fuel In Progress 30,364 27,954 -- (30,736)(e) 27,582
Other Work In Progress.. 167,279 198,447 -- (231,140)(f) 134,586
---------- -------- ------- --------- ----------
Total Construction
Work In Progress.... 197,643 226,401 -- (261,876) 162,168
---------- -------- -------- --------- ----------
Plant Held For Future Use. 31,547 9,553 -- (6,574)(b) 34,526
---------- -------- -------- --------- ----------
Total Utility Plant......... $6,409,892 $529,166 $133,292 $(308,270) $6,497,496
========== ======== ======== ========= ==========
- ----------
(a) Depreciation is provided on a straight-line basis at rates authorized by the ACC; for 1992
those rates ranged from 0.84% to 15% which resulted in a composite rate of 3.37%.
(b) Primarily the transfer of a gas turbine to "Plant In Service" from "Plant Held for Future
Use."
(c) Includes the sale of certain streetlight facilities.
(d) To record the transfer to "Nuclear Fuel In Reactor."
(e) To record the transfer to "Nuclear Fuel In Stock" of completed nuclear fuel assemblies.
(f) Primarily transfers to "Plant In Service" and "Plant Held for Future Use."
</TABLE>
<PAGE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991(A)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
BALANCE AT OTHER CHANGES --
BEGINNING ADDITIONS ADD (DEDUCT) -- BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE END OF PERIOD
-------------- -------------- ------------ --------------- -------------------- -----------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Utility Plant:
Electric Plant In Service:
Intangible.............. $ 102,597 $ 8,468 $ 6,850 $ 2,983 $ 107,198
Steam Production........ 1,339,817 16,426 3,036 (334,495)(b) 1,018,712
Nuclear Production...... 2,393,222 4,670 2,336 (141,979)(c) 2,253,577
Other Production........ 126,781 1,507 338 -- 127,950
Transmission............ 682,159 19,133 2,757 (2,745) 695,790
Distribution............ 1,374,690 86,809 13,911 (691) 1,446,897
General................. 349,941 12,926 6,448 (708) 355,711
Nuclear Fuel In Reactor... 169,679 15,741 23,946 (1,270) 160,204
Nuclear Fuel In Stock..... -- 30,404 -- (15,741)(d) 14,663
---------- -------- ------- --------- ----------
Total Electric Plant
In Service.......... 6,538,886 196,084 59,622 (494,646) 6,180,702
---------- -------- ------- --------- ----------
Construction Work In
Progress:
Nuclear Fuel In Progress 46,577 26,634 -- (42,847)(e) 30,364
Other Work In Progress.. 162,689 161,253 -- (156,663)(f) 167,279
---------- -------- ------- --------- ----------
Total Construction
Work In Progress.... 209,266 187,887 -- (199,510) 197,643
---------- -------- ------- --------- ----------
Plant Held For Future Use. 48,536 4,044 11 (21,022)(g) 31,547
---------- -------- ------- --------- ----------
Total Utility Plant......... $6,796,688 $388,015 $59,633 $(715,178) $6,409,892
========== ======== ======= ========= ==========
- ----------
(a) Depreciation is provided on a straight-line basis at rates authorized by the ACC; for 1991
those rates ranged from 0.84% to 15.00% which resulted in a composited rate of 3.37%.
(b) Primarily the sale of Cholla Unit 4 and related common facilities to PacifiCorp. (See Note 3)
(c) To record the Palo Verde prudence disallowance. (See Note 3)
(d) To record the transfer to "Nuclear Fuel In Reactor."
(e) Primarily the transfer to "Nuclear Fuel In Stock" of completed nuclear fuel assemblies.
(f) Primarily transfers to "Plant In Service," and "Plant Held For Future Use."
(g) Primarily the transfer of Saguaro Steam Plant to "Plant In Service" and the write-off of
costs associated with a proposed generating unit.
</TABLE>
<PAGE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions
Balance at Charged to Other Changes -- Balance at
Beginning Cost and Add (Deduct) -- End of
Description Of Period Expense Retirements Describe(a) Period
----------- -------------- --------------- --------------- -------------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Accumulated Depreciation and
Amortization of Utility
Plant:
Electric Plant in
Service:
Steam Production...... $ 481,873 $ 35,281 $ 1,307 $ (88) $ 515,759
Nuclear Production.... 500,117 77,112(b) 10,447 (75,000)(c) 491,782
Other Production...... 85,660 4,389 916 2,896 92,029
Transmission.......... 254,434 20,139 3,703 (150) 270,720
Distribution.......... 355,006 47,764 23,905 (2,343) 376,522
General............... 206,188 37,772 13,356 (428) 230,176
Nuclear Fuel in Reactor. 76,266 32,024 40,538 -- 67,752
---------- -------- ------- -------- ----------
Total Electric Plant
in Service........ 1,959,544 254,481 94,172 (75,113) 2,044,740
---------- -------- ------- -------- ----------
Plant Held For Future
Use................... 14,155 -- -- -- 14,155
---------- -------- ------- -------- ----------
Total Utility Plant....... $1,973,699 $254,481 $94,172 $(75,113) $2,058,895
========== ======== ======= ======== ==========
- ----------
(a) Includes removal and salvage-net.
(b) Includes decommissioning accrual and decommissioning fund income.
(c) Primarily the restoration of the carrying value of Palo Verde Unit 3. See "Rate Case
Settlement" in Note 3.
</TABLE>
<PAGE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions
Balance at Charged to Other Changes -- Balance at
Beginning Cost and Add (Deduct) -- End of
Description Of Period Expense Retirements Describe(a) Period
----------- -------------- --------------- --------------- -------------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Accumulated Depreciation and
Amortization of Utility
Plant:
Electric Plant in
Service:
Steam Production...... $ 451,324 $ 35,089 $ 4,105 $ (435) $ 481,873
Nuclear Production.... 504,269 74,042(b) 10,091 (68,103)(c) 500,117
Other Production...... 78,072 4,131 1,293 4,750 (d) 85,660
Transmission.......... 237,877 19,968 3,564 153 254,434
Distribution.......... 329,950 45,162 19,134 (972) 355,006
General............... 195,455 37,851 27,371 253 206,188
Nuclear Fuel in Reactor. 107,395 36,605 67,734 -- 76,266
---------- -------- -------- -------- ----------
Total Electric Plant
in Service........ 1,904,342 252,848 133,292 (64,354) 1,959,544
---------- -------- -------- -------- ----------
Plant Held For Future
Use................... 18,426 -- -- (4,271)(d) 14,155
---------- -------- -------- -------- ----------
Total Utility Plant....... $1,922,768 $252,848 $133,292 $(68,625) $1,973,699
========== ======== ======== ======== ==========
- ----------
(a) Includes removal and salvage-net.
(b) Includes decommissioning accrual and decommissioning fund income.
(c) Primarily the restoration of the carrying value of Palo Verde Unit 3. See "Rate Case
Settlement" in Note 3.
(d) Primarily the Transfer of a Gas Turbine to "Plant in Service" from "Plant Held for Future
Use."
</TABLE>
<PAGE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions
Balance at Charged to Other Changes -- Balance at
Beginning Cost and Add (Deduct) -- End of
Description Of Period Expense Retirements Describe(a) Period
----------- -------------- --------------- --------------- -------------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Accumulated Depreciation and
Amortization of Utility
Plant:
Electric Plant in
Service:
Steam Production...... $ 512,915 $ 40,369 $ 3,036 $ (98,924)(b) $ 451,324
Nuclear Production.... 276,784 75,673(c) 2,336 154,148 (d) 504,269
Other Production...... 74,453 4,000 338 (43) 78,072
Transmission.......... 217,765 19,696 2,757 3,173 237,877
Distribution.......... 300,399 43,126 13,911 336 329,950
General............... 169,853 37,950 13,298 950 195,455
Nuclear Fuel in Reactor. 87,699 43,642 23,946 -- 107,395
---------- -------- ------- -------- ----------
Total Electric Plant
in Service........ 1,639,868 264,456 59,622 59,640 1,904,342
---------- -------- ------- -------- ----------
Plant Held For Future
Use................... 30,359 -- 11 (11,922)(e) 18,426
---------- -------- ------- -------- ----------
Total Utility Plant....... $1,670,227 $264,456 $59,633 $ 47,718 $1,922,768
========== ======== ======= ======== ==========
- ----------
(a) Includes removal and salvage -- net.
(b) Includes the sale of Cholla Unit 4 and the transfer of Saguaro Steam Plant from "Plant Held
for Future Use" to "Plant in Service."
(c) Includes decommissioning accrual and decommissioning fund income.
(d) Primarily the adjustment for ACC deemed excess capacity. See "Rate Case Settlement" in Note 3.
(e) To transfer Saguaro Steam Plant to "Plant in Service."
</TABLE>
<PAGE>
<TABLE>
PINNACLE WEST CAPITAL CORPORATION
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Column A Column B Column C Column D Column E
Additions
----------------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
----------- -------------- -------------- ------------ -------------- ------------
(Thousands of Dollars)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Real Estate Valuation Reserves $84,000 $ -- $ -- $ -- $84,000
YEAR ENDED DECEMBER 31, 1992
Real Estate Valuation Reserves $84,000 $ -- $ -- $ -- $84,000
YEAR ENDED DECEMBER 31, 1991
Real Estate Valuation Reserves $84,000 $ -- $ -- $ -- $84,000
</TABLE>
<PAGE>
PINNACLE WEST CAPITAL CORPORATION
SCHEDULE IX -- SHORT-TERM BORROWINGS
Column A Column B Column C (b) Column D Column E (a) Column F (b)
Weighted Weighted
average Maximum Average average
Category of Balance interest amount amount interest
aggregate at end rate outstanding outstanding rate
short-term of at end of during the during the during the
borrowings period period period period period
---------- -------- ------------ ----------- ------------ ------------
(Dollars in Thousands)
YEAR ENDED DECEMBER 31, 1993
Bank
Borrowings $ -- -- % $130,000 $63,616 3.97%
Commercial
Paper 148,000 3.48 148,000 23,049 3.36
YEAR ENDED DECEMBER 31, 1992
Bank
Borrowings $130,000 4.28% $175,000 $ 9,372 5.25%
Commercial
Paper 65,000 3.73 70,000 12,682 3.75
YEAR ENDED DECEMBER 31, 1991
Bank
Borrowings $ -- -- % $100,000 $26,973 7.44%
Commercial
Paper -- -- 70,000 24,077 6.74
- ----------
(a) Average daily balance during the period.
(b) Total applicable interest in the period divided by average daily
balance.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT
Reference is hereby made to "Election of Directors" in the Company's Proxy
Statement relating to the annual meeting of shareholders to be held on May 19,
1994 (the "1994 Proxy Statement") and to the Supplemental Item -- "Executive
Officers of the Company" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Reference is hereby made to the last two paragraphs under the heading "The
Board and its Committees," and to "Summary Compensation Table," "Option Grants
1993," "Option Exercises and Year-End Values," and "Executive Benefit Plans"
in the 1994 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is hereby made to "Certain Securities Ownership" in the 1994
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
See the Index to Financial Statements and Financial Statement Schedules in
Part II, Item 8.
EXHIBITS FILED
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 -- Summary of the Pinnacle West Capital Corporation 1994
Bonus Plan
22 -- Subsidiaries of the Company
23.1 -- Consent of Deloitte & Touche
In addition to those Exhibits shown above, the Company hereby incorporates
the following Exhibits pursuant to Exchange Act Rule 12b-32 and Regulation
(S) 201.24 by reference to the filings set forth below:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION ORIGINALLY FILED AS EXHIBIT: FILE NO. DATE EFFECTIVE
- ----------- ----------- ---------------------------- -------- --------------
<S> <C> <C> <C> <C>
3.1 Bylaws, amended as of October 23, 1991 3.1 to the Company's January 27, 1992 1-8962 2-10-92
Form 8-K Report
3.2 Articles of Incorporation, restated as of 19.1 to the Company's September 1988 1-8962 11-14-88
July 29, 1988 Form 10-Q Report
3.3 Agreement, dated March 21, 1994, relating 4.1 to APS' 1993 Form 10-K Report 1-4473 3-30-94
to the filing of instruments defining the
rights of holders of APS long-term debt
not in excess of 10% of APS' total assets
4.1 Mortgage and Deed of Trust Relating to 4.1 to APS' September 1992 Form 10-Q 1-4473 11-9-92
APS' First Mortgage Bonds, together with Report
forty-eight indentures supplemental
thereto
Forty-ninth Supplemental Indenture 4.1 to APS' 1993 Form 10-K Report 1-4473 3-30-93
Fiftieth Supplemental Indenture 4.2 to APS' 1993 Form 10-K Report 1-4473 3-30-93
Fifty-second Supplemental Indenture 4.1 to APS' September 30, 1993 Form 1-4473 9-27-93
Report
Fifty-third Supplemental Indenture 4.5 to APS' Registration Statement No. 1-4473 3-1-94
33-61228 by means of February 23, 1994
Form 8-K Report
4.2 Portions of the Debenture Agreement, 4.1 to the Company's 1989 Form 10-K 1-8962 3-31-90
dated as of March 22, 1990, among the Report
Company and the Purchasers named
therein relating to the declaration
or payment of dividends or the making
of other corporate distributions on or
the purchase by the Company of its
common stock
4.3 Portions of the Master Extension and 4.1 to the Company's January 31, 1990 1-8962 2-6-90
Modification Agreement, dated as of Form 8-K Report
January 19, 1990, by and among the
Company and the institutions listed
therein relating to the declaration
and payment of dividends or the
making of other distributions on or
the purchase by the Company of its
common stock
4.4 Rights Agreement, amended as of 4.1 to the Company's 1990 Form 10-K 1-8962 3-28-91
November 14, 1990, between the Report
Company and The Valley National Bank
of Arizona, as Rights Agent, which
includes the Certificate of
Designation of Series A Participating
Preferred Stock as Exhibit A,
the form of Rights Certificate as
Exhibit B and the Summary of Rights
as Exhibit C
4.5 Specimen Certificate of Pinnacle 4.2 to the Company's 1988 Form 10-K 1-8962 3-31-89
West Capital Corporation Common Report
Stock, no par value
4.6 Agreement, dated March 29, 1988, 4.1 to the Company's 1987 Form 10-K 1-8962 3-30-88
relating to the filing of instruments Report
defining the rights of holders of
the Company's long-term debt not in
excess of 10% of the Company's total
assets
10.2 Agreement, dated December 6, 1989, 4.1 to the Company's December 6, 1989 1-8962 12-7-89
between the Company and the Office Form 8-K Report
of Thrift Supervision, United States
Department of Treasury, and related
documents
10.3 Release from the Office of Thrift 10.1 to the Company's 1989 Form 10-K 1-8962 3-31-89
Supervision, United States Report
Department of the Treasury, to the
Company, dated March 22, 1990,
releasing the Company from its
purported obligations under the
Stipulation and under any other
source of alleged obligation of the
Company to infuse equity capital
into MeraBank
10.4 Release from the Federal Deposit 10.2 to the Company's 1989 Form 10-K 1-8962 3-31-89
Insurance Corporation to the Report
Company, dated March 22, 1990,
releasing the Company from its
purported obligations under the
Stipulation and under any other
source of alleged obligation of the
Company to infuse equity capital
into MeraBank
10.5 Release from the Resolution Trust 10.3 to the Company's 1989 Form 10-K 1-8962 3-31-89
Corporation (in its corporate Report
capacity) to the Company, dated
March 21, 1990, releasing the
Company from its purported
obligations under the Stipulation
and under any other source of
alleged obligation of the Company
to infuse equity capital into
MeraBank
10.6 Release from the Resolution Trust 10.4 to the Company's 1989 Form 10-K 1-8962 3-31-89
Corporation (in its capacity as Report
Receiver of MeraBank) to the
Company, dated March 21, 1990,
releasing the Company from its
purported obligations under the
Stipulation and under any other
source of alleged obligation to the
Company to infuse equity capital
into MeraBank
10.7ac Form of Key Executive Employment 10.5 to the Company's 1989 Form 10-K 1-8962 3-31-89
and Severance Agreement between Report
the Company and each of its
executive officers
10.8 Employment Agreement, effective as 10.1 to the Company's 1990 Form 10-K 2-96386 3-28-91
of February 5, 1990, between Report
Richard Snell and the Company
10.9 Two separate Decommissioning Trust 10.2 to APS' September 1991 Form 10-Q 1-4473 11-14-91
Agreements (relating to PVNGS Units 1 and Report
3, respectively), each dated July 1,
1991, between APS and Mellon Bank, N.A.,
as Decommissioning Trustee
10.10 Amended and Restated Decommissioning 10.1 to the Company's 1991 Form 10-K 1-8962 3-26-92
Trust Agreement (PVNGS Unit 2) dated as Report
of January 31, 1992, among APS, Mellon
Bank, N.A., as Decommissioning Trustee,
and The First National Bank of Boston, as
Owner Trustee under two separate Trust
Agreements, each with a separate Equity
Participant, and as Lessor under two
separate Facility Leases, each relating
to an undivided interest in PVNGS Unit 2
10.11 First Amendment to Amended and Restated 10.2 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Decommissioning Trust Agreement (PVNGS
Unit 2), dated as of November 1, 1992
10.12 Asset Purchase and Power Exchange 10.1 to APS' June 1991 Form 10-Q 1-4473 8-8-91
Agreement dated September 21, 1990 Report
between APS and PacifiCorp, as amended as
of October 11, 1990 and as of July 18,
1991
10.13 Long-Term Power Transactions Agreement 10.2 to APS' June 1991 Form 10-Q 1-4473 8-8-91
dated September 21, 1990 between APS and Report
PacifiCorp, as amended as of October 11,
1990, and as of July 8, 1991
10.14 Uranium Enrichment Services Contract, 10.33 to the Company's Form S-14 2-96386 3-13-85
dated November 15, 1984 with DOE, ANPP Registration Statement
10.15 Supplemental Agreements, Modification 10.2 to APS' 1986 Form 10-K Report 1-4473 3-9-87
Numbers 1, 2, and 3, dated September 30,
1985, May 27, 1986, and April 7, 1986,
respectively, to Uranium Enrichment
Services Contract, dated November 15,
1984 with DOE, ANPP
10.16 Supplemental Agreements, Modification 19.1 to APS' March 1987 Form 10-Q 1-4473 5-8-87
Numbers 4, 5, and 6, dated September 29, Report
1986, August 8, 1986, and February 20,
1987, respectively, to Uranium Enrichment
Services Contract dated November 15, 1984
with DOE, ANPP
10.17 Supplemental Agreements, Modification 10.3 to the Company's 1988 Form 10-K 1-8962 3-31-89
Numbers 7 and 8, dated September 29, 1988 Report
and September 22, 1988, respectively, to
Uranium Enrichment Services Contract
dated November 15, 1984 with DOE, ANPP
10.18 Supplemental Agreements, Modification 10.1 to APS' March 1990 Form 10-Q 1-4473 5-9-90
Numbers 9, 10, and 11 dated April 12, Report
1989, April 16, 1990 and February 20,
1990, respectively, to Uranium Enrichment
Services Contract dated November 15, 1984
with DOE, ANPP
10.19 Supplemental Agreement, Modification No. 10.1 to APS' September 1991 Form 10-Q 1-4473 11-14-91
12, dated August 16, 1991 to Uranium Report
Enrichment Services Contract, dated
November 15, 1984 with DOE, ANPP
10.20 Letter Supplement dated December 5, 1985 19.2 to APS' March 1987 Form 10-Q 1-4473 5-8-87
to Uranium Enrichment Services Contract Report
dated November 15, 1984 with DOE, ANPP
10.21 Contract, dated July 21, 1984, with DOE 10.31 to the Company's Form S-14 2-96386 3-13-85
providing for the disposal of nuclear Registration Statement
fuel and/or high-level radioactive waste,
ANPP
10.22 Indenture of Lease with Navajo Tribe of 5.01 to APS' Form S-7 Registration 2-59644 9-1-77
Indians, Four Corners Plant Statement
10.23 Supplemental and Additional Indenture of 5.02 to APS' Form S-7 Registration 2-59644 9-1-77
Lease, including amendments and Statement
supplements to original lease with Navajo
Tribe of Indians, Four Corners Plant
10.24 Amendment and Supplement No. 1 to 10.36 to the Company's Registration 1-8962 7-25-85
Supplemental and Additional Indenture of Statement on Form 8-B
Lease, Four Corners, dated April 25, 1985
10.25 Application and Grant of multi-party 5.04 to APS' Form S-7 Registration 2-59644 9-1-77
rights-of-way and easements, Four Corners Statement
Plant Site
10.26 Application and Amendment No. 1 to Grant 10.37 to the Company's Registration 1-8962 7-25-85
of multi-party rights-of-way and Statement on Form 8-B
easements, Four Corners Power Plant Site,
dated April 25, 1985
10.27 Application and Grant of Arizona Public 5.05 to APS' Form S-7 Registration 2-59644 9-1-77
Service Company rights-of-way and Statement
easements, Four Corners Plant Site
10.28 Application and Amendment No. 1 to Grant 10.38 to the Company's Registration 1-8962 7-25-85
of Arizona Public Service Company rights- Statement on Form 8-B
of-way and easements, Four Corners Power
Plant Site, dated April 25, 1985
10.29 Indenture of Lease, Navajo Units 1, 2, 5(g) to APS' Form S-7 Registration 2-36505 3-23-70
and 3 Statement
10.30 Application and Grant of rights-of-way 5(h) to APS' Form S-7 Registration 2-36505 3-23-70
and easements, Navajo Plant Statement
10.31 Water Service Contract Assignment with 5(l) to APS' Form S-7 Registration 2-39442 3-16-71
the United States Department of Interior, Statement
Bureau of Reclamation, Navajo Plant
10.32 Arizona Nuclear Power Project 10.1 to APS' 1988 Form 10-K Report 1-4473 3-8-89
Participation Agreement, dated August 23,
1973, among APS, Salt River Project
Agricultural Improvement and Power
District, Southern California Edison
Company, Public Service Company of New
Mexico, El Paso Electric Company,
Southern California Public Power
Authority, and Department of Water and
Power of the City of Los Angeles, and
amendments 1-12 thereto
10.33 Amendment No. 13, dated as of April 22, 10.1 to APS' March 1991 Form 10-Q 1-4473 5-15-91
1991, to Arizona Nuclear Power Project Report
Participation Agreement, dated August 23,
1973, among APS, Salt River Project
Agricultural Improvement and Power
District, Southern California Edison
Company, Public Service Company of New
Mexico, El Paso Electric Company,
Southern California Public Power
Authority, and Department of Water and
Power of the City of Los Angeles
10.34 Facility Lease, dated as of August 1, 4.3 to APS' Form S-3 Registration 33-9480 10-24-86
1986, between The First National Bank of Statement
Boston, in its capacity as Owner Trustee,
as Lessor, and APS, as Lessee
10.35 Amendment No. 1, dated as of November 1, 10.5 to APS' September 1986 Form 10-Q 1-4473 12-4-86
1986, to Facility Lease, dated as of Report by means of Amendment No. 1 on
August 1, 1986, between The First December 3, 1986 Form 8
National Bank of Boston, in its capacity
as Owner Trustee, as Lessor, and APS, as
Lessee
10.36 Amendment No. 2 dated as of June 1, 1987 10.3 to APS' 1988 Form 10-K Report 1-4473 3-8-89
to Facility Lease dated as of August 1,
1986 between The First National Bank of
Boston, as Lessor, and APS, as Lessee
10.37 Amendment No. 3, dated as of March 17, 10.3 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Facility Lease, dated as of
August 1, 1986, between The First
National Bank of Boston, as Lessor, and
APS, as Lessee
10.38 Facility Lease, dated as of December 15, 10.1 to APS' November 18, 1986 Form 1-4473 1-20-87
1986, between The First National Bank of 8-K Report
Boston, in its capacity as Owner Trustee,
as Lessor, and APS, as Lessee
10.39 Amendment No. 1, dated as of August 1, 4.13 to APS' Form S-3 Registration 1-4473 8-24-87
1987, to Facility Lease, dated as of Statement No. 33-9480 by means of
December 15, 1986, between The First August 1, 1987 Form 8-K Report
National Bank of Boston, as Lessor, and
APS, as Lessee
10.40 Amendment No. 2, dated as of March 17, 10.4 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Facility Lease, dated as of
December 15, 1986, between The First
National Bank of Boston, as Lessor, and
APS, as Lessee
10.41 Cure and Assumption Agreement dated 10.1 to APS' 1993 Form 10-K Report 1-4473 3-30-94
November 19, 1993 among APS, Salt
River Project Agricultural Improvement
and Power District, Southern California
Edison Company, Public Service Company of
New Mexico, Southern California Public
Power Authority, Department of Water and
Power of the City of Los Angeles, and El
Paso Electric Company
10.42a Directors' Deferred Compensation Plan, as 10.1 to APS' June 1986 Form 10-Q 1-4473 8-13-86
restated, effective January 1, 1986 Report
10.43a Second Amendment to the Arizona Public 10.2 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Service Company Directors' Compensation
Plan, effective as of January 1, 1993
10.44a Third Amendment to the Arizona Public 10.3 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Service Company Director's Deferred
Compensation Plan, effective as of
January 1, 1993
10.45a Deferred Compensation Plan, as restated, 10.4 to APS' 1988 Form 10-K Report 1-4473 3-8-89
effective January 1, 1984, and the second
and third amendments thereto, dated
December 22, 1986, and December 23, 1987,
respectively
10.46a Agreement for Utility Consulting 10.6 to APS' 1988 Form 10-K Report 1-4473 3-8-89
Services, dated March 1, 1985, between
APS and Thomas G. Woods, Jr., and
Amendment No. 1 thereto, dated January 6,
1986
10.47a Letter Agreement, dated April 3, 1978, 10.7 to APS' 1988 Form 10-K Report 1-4473 3-8-89
between APS and O. Mark De Michele,
regarding certain retirement benefits
granted to Mr. De Michele
10.48a Deferred Compensation Agreement dated May 10.2 to APS' 1989 Form 10-K Report 1-4473 3-8-90
8, 1989, between APS and William Conway
10.49ac Key Executive Employment and Severance 10.3 to APS' 1989 Form 10-K Report 1-4473 3-8-90
Agreement between APS and certain
executive officers of APS
10.50ac Revised form of Key Executive Employment 10.4 to APS' 1993 Form 10-K Report 1-4473 3-30-94
and Severance Agreement between APS and
certain key employees of APS
10.51ac Key Executive Employment and Severance 10.4 to APS' 1989 Form 10-K Report 1-4473 3-8-90
Agreement between APS and certain
managers of APS
10.52ac Revised form of Key Executive Employment 10.5 to APS' 1993 Form 10-K Report 1-4473 3-30-94
and Severance Agreement between APS and
certain executive officers of APS
10.53a Arizona Public Service Company 10.5 to APS' 1989 Form 10-K Report 1-4473 3-8-90
Performance Review Severance Pay Plan,
effective January 1, 1990
10.54a Arizona Public Service Company Severance 10.1 to APS' September 30, 1993 Form 1-4473 11-15-93
Plan 10-Q Report
10.55a Pinnacle West Capital Corporation Stock 10.1 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Option and Incentive Plan
10.56a Pinnacle West Capital Corporation, 10.1 to APS' 1991 Form 10-K Report 1-4473 3-19-92
Arizona Public Service Company, SunCor
Development Company, and El Dorado
Investment Company Deferred Compensation
Plan, effective January 1, 1992
10.57a Amendment to Pinnacle West Corporation, 10.6 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Arizona Public Service Company, SunCor
Development Company, El Dorado Investment
Company Deferred Compensation Plan,
effective as of December 4, 1992
10.58a Pinnacle West Capital Corporation, 10.7 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Arizona Public Service Company, SunCor
Development Company, and El Dorado
Investment Company Supplemental Executive
Benefit Plan as amended and restated on
December 31, 1992, effective as of January
1, 1992
10.59a Arizona Public Service Company 10.8 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Supplemental Excess Benefit Retirement
Plan and the First, Second, and Third
Amendments thereto
10.60a 1994 Arizona Public Service Key Employees 10.9 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Variable Pay Plan
10.61a 1994 Arizona Public Service Officers 10.10 to APS' 1993 Form 10-K Report 1-4473 3-30-94
Variable Pay Plan
10.62 Agreement No. 13904 (Option and Purchase 10.3 to APS' 1991 Form 10-K Report 1-4473 3-19-92
of Effluent) with Cities of Phoenix,
Glendale, Mesa, Scottsdale, Tempe, Town
of Youngtown, and Salt River Project
Agricultural Improvement and Power
District, dated April 23, 1973
10.63 Agreement for the Sale and Purchase of 10.4 to APS' 1991 Form 10-K Report 1-4473 3-19-92
Wastewater Effluent with City of Tolleson
and Salt River Agricultural Improvement
and Power District, dated June 12, 1981,
including Amendment No. 1 dated as of
November 12, 1981 and Amendment No. 2
dated as of June 4, 1986
99.1 Collateral Trust Indenture among PVNGS II 4.2 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Funding Corp., Inc., APS and Chemical
Bank, as Trustee
99.2 Supplemental Indenture to Collateral 4.3 to APS' 1993 Form 10-K Report 1-4473 3-30-93
Trust Indenture among PVNGS II Funding
Corp., Inc., APS and Chemical Bank, as
Trustee
99.3b Participation Agreement, dated as of 28.1 to APS' September 1992 Form 10-Q 1-4473 11-9-92
August 1, 1986, among PVNGS Funding Report
Corp., Inc., Bank of America National
Trust and Savings Association, The First
National Bank of Boston, in its
individual capacity and as Owner Trustee,
Chemical Bank, in its individual capacity
and as Indenture Trustee, APS, and the
Equity Participant named therein
99.4b Amendment No. 1 dated as of November 1, 10.8 to APS' September 1986 Form 10-Q 1-4473 12-4-86
1986, to Participation Agreement, dated Report by means of Amendment No. 1, on
as of August 1, 1986, among PVNGS Funding December 3, 1986 Form 8
Corp., Inc., Bank of America National
Trust and Savings Association, The First
National Bank of Boston, in its
individual capacity and as Owner Trustee,
Chemical Bank, in its individual capacity
and as Indenture Trustee, APS, and the
Equity Participant named therein
99.5b Amendment No. 2, dated as of March 17, 28.4 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Participation Agreement, dated
as of August 1, 1986, among PVNGS Funding
Corp., Inc., PVNGS II Funding Corp.,
Inc., The First National Bank of Boston,
in its individual capacity and as Owner
Trustee, Chemical Bank, in its individual
capacity and as Indenture Trustee, APS,
and the Equity Participant named therein
99.6b Trust Indenture, Mortgage, Security 4.5 to APS' Form S-3 Registration 33-9480 10-24-86
Agreement and Assignment of Facility Statement
Lease, dated as of August 1, 1986,
between The First National Bank of
Boston, as Owner Trustee, and Chemical
Bank, as Indenture Trustee
99.7b Supplemental Indenture No. 1, dated as of 10.6 to APS' September 1986 Form 10-Q 1-4473 12-4-86
November 1, 1986 to Trust Indenture, Report by means of Amendment No. 1 on
Mortgage, Security Agreement and December 3, 1986 Form 8
Assignment of Facility Lease, dated as of
August 1, 1986, between The First
National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Indenture
Trustee
99.8b Supplemental Indenture No. 2 to Trust 28.14 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease, dated
as of August 1, 1986, between The First
National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Lease
Indenture Trustee
99.9b Assignment, Assumption and Further 28.3 to APS' Form S-3 Registration 33-9480 10-24-86
Agreement, dated as of August 1, 1986, Statement
between APS and The First National Bank
of Boston, as Owner Trustee
99.10b Amendment No. 1, dated as of November 1, 10.10 to APS' September 1986 Form 10-Q 1-4473 12-4-86
1986, to Assignment, Assumption and Report by means of Amendment No. 1 on
Further Agreement, dated as of August 1, December 3, 1986 Form 8
1986, between APS and The First National
Bank of Boston, as Owner Trustee
99.11b Amendment No. 2, dated as of March 17, 28.6 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Assignment, Assumption and
Further Agreement, dated as of August 1,
1986, between APS and The First National
Bank of Boston, as Owner Trustee
99.12 Participation Agreement, dated as of 28.2 to APS' September 1992 Form 10-Q 1-4473 11-9-92
December 15, 1986, among PVNGS Funding Report
Corp., Inc., The First National Bank of
Boston, in its individual capacity and as
Owner Trustee, Chemical Bank, in its
individual capacity and as Indenture
Trustee under a Trust Indenture, APS, and
the Owner Participant named therein
99.13 Amendment No. 1, dated as of August 1, 28.20 to APS' Form S-3 Registration 1-4473 8-10-87
1987, to Participation Agreement, dated Statement No. 33-9480 by means of a
as of December 15, 1986, among PVNGS November 6, 1986 Form 8-K Report
Funding Corp., Inc. as Funding
Corporation, The First National Bank of
Boston, as Owner Trustee, Chemical Bank,
as Indenture Trustee, APS, and the Owner
Participant named therein
99.14 Amendment No. 2, dated as of March 17, 28.5 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Participation Agreement, dated
as of December 15, 1986, among PVNGS
Funding Corp., Inc., PVNGS II Funding
Corp., Inc., The First National Bank of
Boston, in its individual capacity and as
Owner Trustee, Chemical Bank, in its
individual capacity and as Indenture
Trustee, APS, and the Owner Participant
named therein
99.15 Trust Indenture, Mortgage, Security 10.2 to APS' November 18, 1986 Form 1-4473 1-20-87
Agreement and Assignment of Facility 8-K Report
Lease, dated as of December 15, 1986,
between The First National Bank of
Boston, as Owner Trustee, and Chemical
Bank, as Indenture Trustee
99.16 Supplemental Indenture No. 1, dated as of 4.13 to APS' Form S-3 Registration 1-4473 8-24-87
August 1, 1987, to Trust Indenture, Statement No. 33-9480 by means of
Mortgage, Security Agreement and August 1, 1987 Form 8-K Report
Assignment of Facility Lease, dated as of
December 15, 1986, between The First
National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Indenture
Trustee
99.17 Supplemental Indenture No. 2 to Trust 4.5 to APS' 1992 Form 10-K Report 1-4473 3-30-93
Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease, dated
as of December 15, 1986, between The
First National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Lease
Indenture Trustee
99.18 Assignment, Assumption and Further 10.5 to APS' November 18, 1986 Form 1-4473 1-20-87
Agreement, dated as of December 15, 1986, 8-K Report
between APS and The First National Bank
of Boston, as Owner Trustee
99.19 Amendment No. 1, dated as of March 17, 28.7 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993, to Assignment, Assumption and
Further Agreement, dated as of December
15, 1986, between APS and The First
National Bank of Boston, as Owner Trustee
99.20b Refinancing Agreement, as amended, 28.1 to APS' 1992 Form 10-K Report 1-4473 3-30-93
including Exhibits thereto, among the
Equity Participant named therein, as
Equity Participant, PVNGS Funding Corp.,
Inc., as Old Funding Corporation, PVNGS
II Funding Corp., Inc., as Funding Corp.,
Chemical Bank, as Lease Indenture
Trustee, The First National Bank of
Boston, as Owner Trustee, and APS, as
Lessee
99.21 Refinancing Agreement, as amended, 28.2 to APS' 1992 Form 10-K Report 1-4473 3-30-93
including Exhibits thereto, among the
Owner Participant named therein, as Owner
Participant, PVNGS Funding Corp., Inc.,
as Old Funding Corporation, PVNGS II
Funding Corp., Inc., as Funding Corp.,
Chemical Bank, as Lease Indenture
Trustee, The First National Bank of
Boston, as Owner Trustee, and APS, as
Lessee
99.22b Indemnity Agreement dated as of March 17, 28.3 to APS' 1992 Form 10-K Report 1-4473 3-30-93
1993 by APS
99.23a Amendment No. 2 dated as of July 18, 1991 28.5 to APS' Form S-3 Registration 1-4473 2-10-93
to Reimbursement Agreement dated as of Statement No. 33-57822
August 1, 1986, between APS and Morgan
Guaranty Trust Company of New York
99.24 Extension Letter, dated as of August 13, 28.20 to APS' Form S-3 Registration 1-4473 8-10-87
1987, from the signatories of the Statement No. 33-9480 by means of a
Participation Agreement to Chemical Bank November 6, 1986 Form 8-K Report
99.25 Pledge Agreement dated as of January 31, 28.1 to APS' January 21, 1990 Form 8-K 1-4473 2-15-90
1990, between Pinnacle West Capital Report
Corporation as Pledgor and Citibank, N.A.
as Collateral Agent
99.26 Arizona Corporation Commission Order 28.1 to APS' 1991 Form 10-K Report 1-4473 3-19-92
dated December 6, 1991
- ----------
(a) Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) An additional document, substantially identical in all material
respects to this Exhibit, has been entered into, relating to an additional
Equity Participant. Although such additional document may differ in other
respects (such as dollar amounts, percentages, tax indemnity matters, and
dates of execution), there are no material details in which such document
differs from this Exhibit.
(c) Additional agreements, substantially identical in all material
respects to this Exhibit have been entered into with additional persons.
managers of APS. Although such additional documents may differ in other
respects (such as dollar amounts and dates of execution), there are no
material details in which such agreements differ from this Exhibit.
</TABLE>
REPORTS ON FORM 8-K
During the quarter ended December 31, 1993, and the period ended March 30,
1994, the Company filed the following Reports on Form 8-K:
Report dated December 15, 1993, regarding (i) inspections of the steam
generators of the Palo Verde units and related issues and (ii) APS' settlement
agreement with a former contract employee.
Report dated January 24, 1994 regarding the settlement and dismissal of
certain lawsuits involving the Company, one of the lawsuits being partially
dismissed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PINNACLE WEST CAPITAL CORPORATION
(Registrant)
Date: March 30, 1994 RICHARD SNELL
----------------------------------------------------
(Richard Snell, Chairman of the Board of Directors,
President and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
RICHARD SNELL Principal Executive March 30, 1994
- ---------------------------------------- Officer and Director
(Richard Snell, Chairman of the Board of
Directors,
President and Chief Executive Officer)
H. B. SARGENT Principal Financial March 30, 1994
- ---------------------------------------- Officer, Principal
(H. B. Sargent, Executive Vice President Accounting Officer
and Chief Financial Officer) and Director
O. MARK DE MICHELE Director March 30, 1994
- ----------------------------------------
(O. Mark De Michele)
PAMELA GRANT Director March 30, 1994
- ----------------------------------------
(Pamela Grant)
ROY A. HERBERGER, JR. Director March 30, 1994
- ----------------------------------------
(Roy A. Herberger, Jr.)
MARTHA O. HESSE Director March 30, 1994
- ----------------------------------------
(Martha O. Hesse)
WILLIAM S. JAMIESON, JR. Director March 30, 1994
- ----------------------------------------
(William S. Jamieson, Jr.)
JOHN R. NORTON, III Director March 30, 1994
- ----------------------------------------
(John R. Norton, III)
DONALD N. SOLDWEDEL Director March 30, 1994
- ----------------------------------------
(Donald N. Soldwedel)
DOUGLAS J. WALL Director March 30, 1994
- ----------------------------------------
(Douglas J. Wall)
APPENDIX
In accordance with Item 304 of Regulation S-T of the Securities Exchange
Act of 1934, APS' Service Territory map contained in this Form 10-K is a map
of the state of Arizona showing APS' service area, the location of its major
power plants and principal transmission lines, and the location of
transmission lines operated by APS for others. The major power plants shown on
such map are the Navajo Generating Station located in Coconino County,
Arizona; the Four Corners Power Plant located near Farmington, New Mexico; the
Cholla Power Plant, located in Navajo County, Arizona; the Yucca Power Plant,
located near Yuma, Arizona; and the Palo Verde Nuclear Generating Station,
located about 55 miles west of Phoenix, Arizona (each of which plants is
reflected on such map as being jointly owned with other utilities), as well as
the Ocotillo Power Plant and West Phoenix Power Plant, each located near
Phoenix, Arizona, and the Saguaro Power Plant, located near Tucson, Arizona.
APS' major transmission lines shown on such map are reflected as running
between the power plants named above and certain major cities in the state of
Arizona. The transmission lines operated for others shown on such map are
reflected as running from the Four Corners Plant through a portion of northern
Arizona to the California border.
COMMISSION FILE NUMBER 1-8962
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
EXHIBITS TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
--------------
PINNACLE WEST CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
10.1 -- Summary of the Pinnacle West Capital Corporation 1994 Bonus
Plan
22 -- Subsidiaries of the Company
23.1 -- Consent of Deloitte & Touche
Under the Pinnacle West Capital Corporation 1994 Bonus Plan, upon the
recommendation of the Human Resources Committee, the Board establishes on an
annual basis certain financial and other goals to be met, designating
parameters of performance and assigning relative weights. The principal
measures of performance during 1994 include per-share earnings, net cash
flow before dividends and debt retirement.
Subsidiaries of Pinnacle West Capital Corporation
-------------------------------------------------
Arizona Public Service Company
State of Incorporation: Arizona
Bixco, Inc.
State of Incorporation: Arizona
APS Foundation, Inc.
State of Incorporation: Arizona
Stagg Systems, Inc.
State of Incorporation: Arizona
SunCor Development Company
State of Incorporation: Arizona
SunCor Resort and Golf Management, Inc.
State of Incorporation: Arizona
Litchfield Park Service Company
State of Incorporation: Arizona
SunCor Homes, Inc.
State of Incorporation: Arizona
SCM, Inc.
State of Incorporation: Arizona
Golf de Mexico, S.A. DE C.V.
Jurisdiction of Incorporation: Mexico
El Dorado Investment Company
State of Incorporation: Arizona
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No.
1 to Registration Statement No. 33-15190 on Form S-3, Registration Statement
Nos. 33-39235, 33-47534 and 33-58372 on Form S-8, Post Effective Amendment
No. 1 to Registration Statement No. 33-1720 on Form S-8, Post Effective
Amendment No. 2 to Registration Statement No. 33-10442 on Form S-8, and
Post-Effective Amendment No. 3 on Form S-3 to Registration Statement No.
2-96386 on Form S-14, all of Pinnacle West Capital Corporation, of our
report dated February 21, 1994, (which expresses an unqualified opinion and
includes an explanatory paragraph relating to the Company's change in method
of accounting for income taxes discussed in Note 4 to those financial
statements) appearing in this Annual Report on Form 10-K of Pinnacle West
Capital Corporation for the year ended December 31, 1993.
Deloitte & Touche
Deloitte & Touche
Phoenix, Arizona
March 28, 1994
