SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 4, 1995
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PINNACLE WEST CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
Arizona 1-8962 86-0512431
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation Number)
400 E. Van Buren, P.O. Box 52132, Phoenix, AZ 85072-2132
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (602)379-2500
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NONE
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(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. Other Events
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The following information relates to Pinnacle West Capital Corporation (the
"Company") and its principal subsidiary, Arizona Public Service Company ("APS").
Retail Rate Settlement
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On December 4, 1995, APS and the staff (the "ACC Staff") of the Arizona
Corporation Commission (the "ACC") entered into a Rate Reduction Agreement (the
"Rate Agreement"). Pursuant to the terms of the Rate Agreement, APS' annualized
retail rates would be reduced by approximately $48 million (approximately $29
million after tax), or 3.25%, based on adjusted kilowatt-hour ("kWh") sales for
the twelve months ended June 30, 1995. The rate decrease will be effective on
the date the ACC issues a final order approving the Rate Agreement (the "ACC
Order"), but in no event will the decrease be effective earlier than July 1,
1996. If the ACC does not issue the ACC Order on or before July 1, 1996, the
Rate Agreement will be deemed to be automatically withdrawn. The following
description of the Rate Agreement is a summary, and is qualified in its entirety
by the Rate Agreement, a copy of which is incorporated by reference into this
filing as an exhibit.
Cost Savings Incentives and Potential for Future Retail Rate Changes
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To the extent APS is able to lower its average cost per kWh as compared
to the average price per kWh (as defined in Attachment 3 to the Rate Agreement),
for each year following the initial rate reduction, through and including July
1, 1999, APS would reduce its rates as follows: if the average price per kWh
exceeds the average cost per kWh based on results of operations for the
preceding calendar year, then base rate levels will be adjusted prospectively to
reflect fifty-five percent of that difference, effective July 1 of the
then-current year. The cost per kWh includes, among other things, the cost of
capital, which includes a return on equity of 11.25% applied to the average
annual equity balance (including the equity infusion from the Company as
discussed below), and depreciation and amortization (including the accelerated
amortization of regulatory assets discussed below), and does not include the
accelerated investment tax credits provided for by the 1994 rate settlement(see
Note 5 in Notes to Condensed Consolidated Financial Statements in Part I, Item 1
of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1995 (the "September 10-Q")).
Subject to the procedure described above and in Paragraph 2 of the Rate
Agreement, which is incorporated herein by reference, neither APS nor the ACC
Staff would file for a permanent change to APS' retail rates prior to July 2,
1999, except in the event of (i) conditions or circumstances which constitute an
emergency, such as the inability to finance on reasonable terms, or (ii)
material changes in APS' cost of service as a result of federal, tribal, state
or local laws, regulatory requirements, judicial decisions, actions, or orders.
Regulatory Assets
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Substantially all regulatory assets will be recovered by accelerating
their amortization over an eight-year period commencing July 1, 1996. As of
September 30, 1995, regulatory assets totalled approximately $1.3 billion and
included primarily cost deferrals from Palo Verde Nuclear Generating Station
("Palo Verde") Units 2 and 3 and regulatory assets to cover future income tax
liabilities recorded as a result of implementing Financial Accounting Standard
No. 109 in 1993. This acceleration will increase the annual amortization of
regulatory assets by approximately $120 million before income taxes
(approximately $72 million after income taxes).
Equity Infusion
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The Company will infuse into APS $200 million of common equity, in $50
million annual increments, by each year-end beginning in 1996. APS presently
intends to use the additional equity funds primarily to retire outstanding debt
and preferred stock.
Renewable Resources/Demand Side Management
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A total of $7 million will be included in base rates for demand side
management ("DSM") and renewable resources, of which APS shall annually
undertake on average at least $3 million each of renewable resources programs
and DSM. See Paragraph 10 of the Rate Agreement, incorporated by reference
herein, for further details regarding APS' obligation to pursue DSM and
renewable resources.
Overcollected Property Taxes
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As previously reported, in a lawsuit filed by the Palo Verde
participants, including APS, APS appealed the decision of the Maricopa County
Superior Court that an Arizona state tax law, effective December 31, 1989, is
constitutional. See "APS" in Part I, Item 3 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994. In November 1995, the
Arizona Court of Appeals reversed that decision, holding that the law is
unconstitutional. The Arizona Court of Appeals' decision is subject to review by
the Arizona Supreme Court. If any overcollected property taxes are refunded to
APS by the State of Arizona as a result of the disposition of this lawsuit, APS
will refund all of the net jurisdictional amount of such refund to its retail
customers.
Restructuring Issues
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APS and the ACC Staff recognize the national debate about the electric
utility industry and itemized issues which will need to be addressed to enable
such competition to take place in Arizona. These issues include electric public
service corporations' obligations to serve in a restructured competitive
environment; compensation for electric public service corporations moving to a
restructured competitive environment, taking into account, among other matters,
the estimated magnitude of stranded investment; clarification of federal-state
jurisdictional uncertainties; access by Arizona public service corporations to
consumers located in other service territories and the terms for access by
others to the customers of Arizona public service corporations; and the
maintenance of generation, transmission, and distribution system reliability.
See Attachment 8 and Attachment 9 to the Rate Agreement, incorporated by
reference herein, for further discussion regarding these issues and APS'
proposals with respect to these issues.
Pending the satisfactory resolution of the issues raised by the
restructuring of the electric utility industry in Arizona, APS would propose ACC
approval of phased access of large retail customers to the broad generation
market in the years 2000 to 2004. Access for the remaining customers would be
proposed at the appropriate time.
APS anticipates a hearing on the ratemaking portion of the Rate
Agreement in the spring of 1996. APS has suggested that the ACC conduct an
independent series of hearings during 1996 (as contemplated by the ACC Staff in
its generic competition docket (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Competition" in Part I, Item 2
of the September 10-Q)) to develop appropriate legislative and regulatory
solutions to the identified restructuring issues, which APS anticipates could be
presented to the appropriate legislative bodies in 1997.
ITEM 7. Financial Statements and Exhibits
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(c) Exhibits
The Company hereby incorporates the following Exhibit pursuant to Exchange Act
Rule 12b-32 and Regulation 201.24 by reference to the filing set forth below:
Originally Filed Date
Exhibit No. Description as Exhibit File No. Effective
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10.1 Rate Reduction 10.1 to APS' 1-4473 12-14-95
Agreement dated December 14, 1995
December 4, 1995 Report on Form 8-K
between Arizona
Public Service
Company and the
Staff of the
Arizona Corporation
Commission
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PINNACLE WEST CAPITAL CORPORATION
(Registrant)
Dated December 14, 1995 By Nancy E. Newquist
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Nancy E. Newquist
Treasurer
