UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM U-1
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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PINNACLE WEST CAPITAL CORPORATION
400 EAST VAN BUREN STREET, SUITE 700
PHOENIX, ARIZONA 85004
(Name of company filing this statement and
address of principal executive offices)
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NONE
(Name of top registered holding company parent)
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Herbert I. Zinn Mary Ann K. Huntington
Pinnacle West Capital Corporation Morgan, Lewis & Bockius LLP
400 North Fifth Street 1800 M Street, N.W.
Mail Station 8695 Washington, D.C. 20036
Phoenix, Arizona 85004
(Name and address of agents for service)
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The Commission is requested to send copies of all notices, orders, and
communications in connection with this application to:
Herbert I. Zinn Mary Ann K. Huntington
Pinnacle West Capital Corporation Morgan, Lewis & Bockius LLP
400 North Fifth Street 1800 M Street, N.W.
Mail Station 8695 Washington, D.C. 20036
Phoenix, Arizona 85004
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TABLE OF CONTENTS
ITEM 1 DESCRIPTION OF PROPOSED TRANSACTION 2
A. Description of the Parties 2
1. Pinnacle West Capital Corporation 2
2. Arizona Public Service Company 2
a. Generation 3
b. Power Marketing 6
c. Transmission/Distribution 7
3. Pinnacle West Energy Corporation 8
4. APS Energy Services Company, Inc. 8
5. SunCor Development Company 9
6. El Dorado 9
B. Regulatory Background 9
C. The Reorganization 10
D. Purpose and Anticipated Effects of the Reorganization 12
E. Additional Information 13
ITEM 2 FEES, COMMISSIONS AND EXPENSES 13
ITEM 3 APPLICABLE STATUTORY PROVISIONS 14
A. Approval of the Reorganization under Section 9(a)(2) 14
1. Section 10(b) 15
a. "Detrimental Interlocking Relations" or
"Concentration of Control" -- Section 10(b)(1) 16
b. Fairness of Consideration and Fees -- Section 10(b)(2) 17
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c. Complication of Capital Structure -- Section 10(b)(3) 19
2. Section 10(c) 20
a. Significant Benefits -- Section 10(c)(1) 21
b. Economics and Efficiencies of an Integrated System --
Section 10(c)(2) 22
(i) Economics and Efficiencies 23
(ii) Integrated Public Utility System 23
3. Section 10(f) 24
B. PNW Will Continue to Claim a Section 3(a)(1) Exemption
After the Reorganization 25
ITEM 4 REGULATORY APPROVAL 26
ITEM 5 PROCEDURE 26
ITEM 6 EXHIBITS AND FINANCIAL STATEMENTS 27
A. Exhibits 28
B. Financial Statements 30
ITEM 7 INFORMATION AS TO ENVIRONMENTAL EFFECTS 30
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Pursuant to Sections 9(a)(2) and 10 of the Public Utility Holding Company
Act of 1935 (the "Act"), Pinnacle West Capital Corporation, an Arizona
corporation ("PNW"), hereby requests approval from the Securities and Exchange
Commission (the "Commission") to establish a new public-utility company
subsidiary in connection with the proposed corporate reorganization (the
"Reorganization") involving the relocation of certain generation assets from
Arizona Public Service Company ("APS"), PNW's existing public-utility company
subsidiary, to Pinnacle West Energy Corporation ("PWE"), another wholly-owned
subsidiary of PNW. As a result of this Reorganization, PWE will become an
"electric utility company" and a "public-utility company" within the meaning of
the Act, and, therefore, PNW will acquire an additional public-utility
subsidiary. (However, PWE will not become a public service corporation under
Arizona state law.) PNW will continue to meet the requirements for an intrastate
exemption under Section 3(a)(1) of the Act and will continue to file annual
exemption statements on Form U-3A-2 pursuant to Rule 2 of the Commission's
regulations.
The purpose of the Reorganization is to comply with certain requirements
set forth in rules adopted by the Arizona Corporation Commission ("ACC") that
provide the framework for introduction of retail electric competition in Arizona
(the "Competition Rules"), and in a final ACC order approving APS' settlement
with various parties with respect to implementation of the Competition Rules
(the "Settlement"). Pursuant to the Competition Rules and the Settlement, APS
must separate its generating assets and competitive services from its
transmission and distribution functions no later than December 31, 2002. PNW
seeks Commission approval now, however, because APS intends to move a
substantial portion of its generating assets to PWE during 2001. There may be
some delays in moving particular assets from APS to PWE, pending receipt by APS
of certain consents or waivers from third parties with respect to such assets,
but most of the non-nuclear generating assets are to be moved to PWE during
2001.
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ITEM 1 DESCRIPTION OF PROPOSED TRANSACTION
A. DESCRIPTION OF THE PARTIES
1. PINNACLE WEST CAPITAL CORPORATION: PNW was incorporated in 1985
under the laws of the State of Arizona. Through its subsidiaries, PNW is engaged
in the generation, transmission, and distribution of electricity and the sale of
energy services. Also through subsidiaries, PNW is involved in real estate
development and in venture capital investment. On December 31, 1999, PNW
employed approximately 7,534 people, including the employees of its
subsidiaries. Of these employees, 6,234 were employees of its existing
public-utility subsidiary, APS, and employees assigned to joint projects of APS
where APS serves as a project manager. PNW's principal executive offices are
located at 400 East Van Buren, Phoenix Arizona 85004. PNW is currently a
public-utility holding company exempt from the provisions of the Act, except
Section 9(a)(2), by reason of its filing of annual exemption statements on Form
U-3A-2 pursuant to Rule 2 of the Commission's regulations. 17 C.F.R. ss.
250.2(a). PNW's direct, wholly-owned subsidiaries are described below and a copy
of PNW's most recent Form U-3A-2 is attached as Exhibit G-1.
2. ARIZONA PUBLIC SERVICE COMPANY: APS is a public-utility company
incorporated in 1920 under the laws of the State of Arizona. APS is a
wholly-owned subsidiary of PNW. APS' principal executive offices are located at
400 North Fifth Street, Phoenix Arizona 85004. APS provides retail electric
services principally in the State of Arizona and is actively engaged in the
competitive wholesale electric markets. APS is subject to regulation by the ACC
with respect to retail rates, accounting, service standards, service territory,
issuances of securities, siting of generation and transmission projects and
various other matters.
APS is also subject to the jurisdiction of the Federal Energy Regulatory
Commission ("FERC") under Parts I, II, and III of the Federal Power Act for
certain phases of its business,
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including regulation of its rates relating to wholesale sales of energy and
interstate transmission, licensing its hydroelectric stations, accounting, and
certain other matters. APS' current business structure consists of three primary
business units: generation; power marketing; and transmission/distribution. The
following briefly describes these business units.
a. GENERATION -- APS currently owns or leases generating
facilities with a total accredited capacity of approximately 4,000 megawatts.
The fuel mix of APS' generation capacity is 41.8% coal; 31.5% gas or oil; 26.5%
nuclear; and less than 1% other. APS' sources of energy during 1999 were
approximately 56.8% from its own generation resources and approximately 43.2%
from purchased power. The Reorganization involves the relocation of a
substantial portion of APS' generating facilities and related facilities, as
well as the transfer of certain of the employees of APS' generation business
unit. The generating assets being moved to PWE during 2001 are briefly described
below.(1) Also, attached, as Exhibit E-1, is a map showing the location of each
of APS' generation facilities.
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(1) In addition to the generating facilities to be moved during 2001, APS also
owns or leases an interest in the Palo Verde Nuclear Generating Station
("PVNGS"), a three-unit nuclear generating facility located in Wintersburg,
Arizona approximately 55 miles west of Phoenix, Arizona. The total
accredited capacity of PVNGS is 3,733 megawatts, of which APS owns or
leases 29.1%, or approximately 1,086 megawatts. APS is also the operator of
the facility. There are six other co-owners of PVNGS, which collectively
own or lease the remaining 70.9%. Ownership is in the form of a co-tenancy,
and the co-owners are not affiliates of one another. APS operates PVNGS
pursuant to an agreement in which each owner pays its proportionate share
of the cost of operating the facility. While the Reorganization involving
APS' non-nuclear generating facilities is contemplated to occur during
2001, APS does not plan to move its interest in PVNGS to PWE until 2002.
The delay in moving the nuclear assets is to ensure additional time to
adequately address complicated contractual arrangements, such as sale and
leaseback provisions between APS and certain owner trusts to which APS has
sold and leased back a portion of its interest in PVNGS Unit 2 and the
PVNGS common facilities. There are also certain financial and economic
considerations that must be resolved before the nuclear assets can be moved
to PWE.
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Four Corners Power Plant ("Four Corners"):
Four Corners is a five-unit coal fired power plant located near Farmington,
New Mexico on the Navajo Reservation. The property underlying the plant is held
under easements granted by the federal government and under leases from the
Navajo Nation. Units 1, 2 and 3 have an accredited capacity of 560 megawatts.
These units are 100% owned and operated by APS. Units 4 and 5 have an accredited
capacity of 1,480 megawatts; APS owns 15% of units 4 and 5, or 222 megawatts.
The remaining interests in units 4 and 5 are co-owned by five other entities.
Ownership of units 4 and 5 is through a co-tenancy arrangement, and the
co-owners are not affiliates of one another. APS operates Four Corners units 4
and 5 pursuant to an agreement in which each owner pays its proportionate share
of the operating cost.
Cholla Power Plant ("Cholla"):
Cholla is a four-unit coal-fired power plant located in Navajo County
approximately 200 miles northeast of Phoenix, Arizona. Units 1, 2 and 3 have an
accredited capacity of 615 megawatts. These units are 100% owned and operated by
APS. Unit 4 has an accredited capacity of 380 megawatts; unit 4 is 100% owned by
another unaffiliated entity. APS is also the operator for this unit.
Navajo Power Plant ("Navajo"):
Navajo is a three-unit coal-fired plant located south of Page, Arizona. The
total accredited capacity for the plant is 2,250 megawatts. APS owns 14%, or 315
megawatts of this plant. The remaining interests in the plant are co-owned by
five other entities which are not affiliated with APS. APS does not operate
Navajo.
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Saguaro Power Plant ("Saguaro"):
Saguaro is a four-unit power plant consisting of two gas/oil-fired steam
units and two gas/oil-fired combustion turbine units and is located 30 miles
north of Tucson, Arizona. The total accredited capacity for the plant is 319
megawatts. Steam units 1 and 2 have a combined capacity of 209 megawatts, and
the two combustion turbines have a combined capacity of 110 megawatts. This
plant is 100% owned and operated by APS.
Ocotillo Power Plant ("Ocotillo"):
Ocotillo is a six-unit multi-fueled generating plant located in Tempe,
Arizona. Two units are gas/oil-fired steam units; two units are gas/oil-fired
combustion turbines; and two units are solar. The total accredited capacity for
steam units 1 and 2 is 226 megawatts; for combustion turbine units 1 and 2, the
accredited capacity is 110 megawatts; and for solar units 1 and 2, the
accredited capacity is 172 kilowatts. This plant is 100% owned and operated by
APS.
Yucca Power Plant ("Yucca"):
Yucca is a five-unit gas/oil combustion turbine plant located near Yuma,
Arizona. The accredited capacity of units 1, 2, 3 and 4 is 147 megawatts. These
units are 100% owned and operated by APS. Unit 5 and a separate steam unit are
owned by a separate, unaffiliated entity but operated by APS.
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West Phoenix Power Plant ("West Phoenix"):
West Phoenix is a six-unit gas/oil-fired steam, combustion turbine, and
combined cycle generation plant located in Phoenix, Arizona. Combustion turbine
units 1 and 2 have an accredited capacity of 110 megawatts; combined cycle units
1, 2 and 3 have an accredited capacity of 255 megawatts; and steam units 4, 5
and 6 have an accredited capacity of 108.3 megawatts. APS owns or leases and
operates 100% of West Phoenix and is entitled to 100% of the output.
Douglas/Fairview Power Plant:
Douglas/Fairview is a single combustion turbine unit with a capacity rating
of 16 megawatts located near Douglas, Arizona. Douglas/Fairview is 100% owned
and operated by APS.
Solar Power Plants
APS also owns a number of solar units that will be moved to PWE as part of
the Reorganization. These solar units are located around the state (primarily in
the Phoenix metropolitan area) and have a total combined capacity rating of 1
megawatt.
b. POWER MARKETING -- APS' Power Marketing and Trading division
("Power Marketing") primarily engages in the sale and purchase of electric
capacity and energy in the wholesale market. Power Marketing sells excess power
from APS' generation facilities and also purchases energy from other entities to
meet APS' requirements to supply retail and wholesale customers. Power Marketing
also engages in hedging transactions in forward markets for electricity and fuel
and in the purchase and sale of emission allowances as part of APS' effort to
manage risks associated with its generation and distribution activities. The ACC
Competition
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Rules and Settlement contemplate that as a competitive asset, APS will also move
its Power Marketing division to an affiliate. Accordingly, on October 1, 2000,
Power Marketing became a division of PNW.(2)
c. TRANSMISSION/DISTRIBUTION -- APS owns and operates
approximately 5,296 miles of transmission lines, of which all but 140 miles are
located within the State of Arizona. APS' transmission was built primarily to
bring generation from its power plants to its retail electric loads in Arizona.
Ownership and operation of APS' transmission facilities is subject to regulation
by FERC. Transmission rates are prescribed by FERC and the use of and access to
the transmission system is subject to FERC's open access requirements set forth
in FERC Order No. 888. As of December 31, 1999, APS' distribution system served
approximately 827,000 electric retail customers in its service territory within
the State of Arizona. APS provides distribution services in 11 of Arizona's 15
counties, including the metropolitan Phoenix area. Pursuant to the Settlement
approved by the ACC in 1999, which is more fully discussed below, retail rates
have been set until July 1, 2004, subject to conditions or circumstances which
constitute an emergency. APS' transmission and distribution business will remain
with APS under the Reorganization.
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(2) PNW itself did not become an electric utility company when this occured.
The Commission and Staff have both recognized, on numerous occasions, that
marketing activities are not utility activities under the Act. See, e.g.,
UNITIL, Holding Company Act Release No. 26650 (Jan. 21, 1997); SEI
Holdings, Inc., Holding Company Act Release No. 26581 (Sept. 26, 1996);
Sunoco Power Marketing, L.L.C., SEC No-Action Letter, 1997 SEC No-Act.
LEXIS 785 (July 24, 1997); Enron Capital & Trade Resources Corp., SEC
No-Action Letter, 1997 SEC No-Act. LEXIS 287 (Feb. 13, 1997); Eastex Power
Marketing, Inc., SEC No-Action Letter, 1996 SEC No-Act. LEXIS 536 (Apr. 30,
1996); LG&E Power Marketing, Inc., SEC No-Action Letter, 1996 SEC No-Act.
LEXIS 510 (Apr. 26, 1996); Coral Power, L.L.C., SEC No-Action Letter, 1996
SEC No-Act. LEXIS 314 (Feb. 22, 1996); AIG Trading Corp., SEC No-Action
Letter, 1995 SEC No-Act. LEXIS 195 (Jan. 20, 1995); Inter-Coast Power
Marketing Co., SEC No-Action Letter, 1994 SEC No-Act. LEXIS 886 (Dec. 6,
1994); Electric Clearinghouse, Inc., SEC No-Action Letter, 1994; SEC
No-Act. LEXIS 452 (Apr. 13, 1994); CRSS Power Marketing, Inc., SEC
No-Action Letter, 1994 SEC No-Act. LEXIS 431 (Mar. 31, 1994).
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3. PINNACLE WEST ENERGY CORPORATION: PWE was incorporated in Arizona
on September 27, 1999 under the laws of the State of Arizona. PWE is a
wholly-owned subsidiary of PNW. PWE was organized primarily to engage in the
business of developing, owning, and operating generation plants used for the
production and sale of wholesale energy. Currently, PWE is engaged in the
development of approximately 2,600 megawatts of generating capacity in the State
of Arizona and operations in other states are contemplated, too; however, PWE is
not currently an electric utility company or a public-utility company within the
meaning of the Act. Upon consummation of the Reorganization described herein and
the subsequent relocation of APS' nuclear generating facilities, PWE will own or
lease the generation facilities currently owned or leased by APS and will assume
APS' responsibilities as operator of the facilities described above, with the
exception of the Navajo Generating Station, which will continue to be operated
by another, unaffiliated entity.(3) PWE's principal place of business is 400
North Fifth Street, Phoenix, Arizona 85004.
4. APS ENERGY SERVICES COMPANY, INC. ("APSES"): APSES is an Arizona
corporation formed in 1998. APSES is a wholly-owned subsidiary of PNW. APSES was
organized as a retail power marketer to provide retail energy and related retail
energy services to customers throughout Arizona, California, and other states
that have instituted retail direct access. APSES does not own or control
electric power generation, transmission, or distribution facilities.(4) APSES'
principal place of business is 400 East Van Buren Street, Phoenix, Arizona.
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(3) In the future, PWE may also acquire or develop other generating assets. To
the extent necessary for PNW to maintain its intrastate exemption, PWE may
establish exempt wholesale generator ("EWG") subsidiaries to own and/or
operate future assets that may be located out of state.
(4) APSES is not an "electric utility company" or a "public-utility company" as
those terms are defined in the Act. See, e.g., Enron, SEC No-Action Letter
(1997).
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5. SUNCOR DEVELOPMENT COMPANY ("SUNCOR"): SunCor was incorporated in
1965 under the laws of the State of Arizona. SunCor is a wholly-owned subsidiary
of PNW. SunCor is engaged in commercial and residential real estate development.
SunCor is not engaged in generating, transmitting, distributing or selling
electric energy and will not be affected by the Reorganization. SunCor's
principal place of business is 3838 North Central, Suite 1500, Phoenix, Arizona
85012.
6. EL DORADO INVESTMENT COMPANY ("EL DORADO"): El Dorado was
incorporated in 1983 under the laws of the State of Arizona. El Dorado is an
investment company and wholly-owned subsidiary of PNW. El Dorado is not engaged
in the business of generating, transmitting, distributing, or selling electric
energy and will not be affected by the Reorganization. El Dorado's principal
place of business is 400 East Van Buren, Suite 800, Phoenix, Arizona 85004.
B. REGULATORY BACKGROUND
The Reorganization is being undertaken in accordance with the Competition
Rules and Settlement. Specifically, in Arizona, the ACC has adopted the
Competition Rules to expedite the transition to retail electric competition.
Among other things, the Competition Rules required that APS separate its
generation assets and competitive business activities from its transmission and
distribution functions. In 1999, the ACC approved the Settlement between APS and
several customer groups and consumer advocates resolving retail electric
competition-related issues and approving unbundled tariffs.(5) Under the terms
of the Competition Rules and the Settlement, retail choice for APS' retail
customers is being phased-in. All of APS' retail customers will be entitled to
choose their retail power supplier beginning January 1, 2001.(6) The retail
rates of customers that continue to take fully bundled service from APS and do
not choose an alternative
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(5) The ACC order approving the Settlement is attached as Exhibit D-5.
(6) See Exhibit D-4.
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supplier will be subject to planned rate reductions that will continue until
July, 2004.(7) Under the Settlement, APS is entitled to apply for a change in
the agreed upon rate reductions only in the event of an emergency or a material
change in its cost of service as a result of specified extraordinary events. The
Settlement also requires APS to complete separation of its generation assets by
December 31, 2002.(8)
C. THE REORGANIZATION
PNW and APS propose to undertake the Reorganization pursuant to the
arrangements described in the Term Sheet,(9) attached as Exhibit B-1 hereto.
The principal transactions associated with the Reorganization are described
below. As previously mentioned, APS and PWE are both currently direct,
wholly-owned subsidiaries of PNW. APS and PWE will be the only two
"public-utility company" (as defined in the Act) subsidiaries of PNW upon the
completion of the Reorganization. It is contemplated that the following
transactions will occur during 2001: First, APS will contribute the bulk of its
fossil and solar generating facilities, assets and related operational
agreements to one or more of these newly-formed subsidiaries (hereafter
"Transitory Subsidiaries") which will be wholly-owned by APS. This transaction
is intended to qualify as a tax-deferred reorganization under Internal Revenue
Code ("IRC") Section 368(a)(1)(D). Second, APS will distribute or cause to be
distributed all of the stock of each Transitory Subsidiary to PNW in a
transaction intended to qualify as a tax-deferred spin-off under IRC Section
355. Third, under state law, the Transitory Subsidiaries will then be merged
into PWE (with PWE as the surviving entity) in a transaction intended to qualify
as a tax-deferred statutory merger under IRC Section 368(a)(1)(A). It is
contemplated that the three aforementioned transactions will occur
simultaneously.
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(7) See Exhibit D-4.
(8) See Exhibit D-4.
(9) Although the term sheet indicates that the Reorganization will take place
"on or before January 1, 2001," the Reorganization is now contemplated to
occur during 2001.
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When the Reorganization is complete and APS' nuclear generating assets have
been moved to PWE, APS' existing divisional structure in which its electric
utility operations are divided along functional lines will be formalized, and
separate corporate entities will engage in the transmission/distribution of
electricity and the generation of electricity. APS will become a "wires" company
and continue to own and operate its existing electric transmission/distribution
system, and PWE will become a "generating" company and will own or lease and
operate APS' existing generation assets and sell the output from these assets at
wholesale to Power Marketing. Power Marketing, in turn, is expected then to sell
power to APS and other non-affiliated power purchasers. APS will continue to
provide transmission and distribution services at regulated rates, as well as
provide energy to those retail customers in APS' existing service territory that
do not elect to use an alternative retail power supplier. A diagram of PNW's
corporate structure, after the Reorganization is complete and the nuclear
generating facilities have been moved to PWE, is shown on Appendix B to Exhibit
D-1 attached hereto.
Consumation of the Reorganization is subject to certain conditions as
stated in the Term Sheet attached as Exhibit B-1. Principally, these conditions
include: (a) the approval of the Commission under Section 9(a)(2) of the Act;
(b) approvals of FERC under Sections 203 and 205 of the Federal Power Act 16
U.S.C.ss.ss.824b and d (1994); and (c) consents and waivers of certain third
parties with respect to contracts associated with the generation assets. The
approval of the ACC has already been granted. (10) No PNW shareholder approval
is required in connection with the Reorganization. Although APS does not believe
that shareholder approval is required for the Reorganization, the approval of
its sole shareholder is being
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(10) Approval from the Nuclear Regulatory Commission ("NRC") will be obtained in
connection with the movement of APS' interest in its nuclear generating
assets, which will occur by year-end 2002. No NRC approval, however, is
necessary in connection with the Reorganization involving APS' non-nuclear
generating facilities. Approval of some plant participants may also be
required.
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obtained.(11) The approval of APS' Board of Directors was obtained prior to the
end of 2000.
D. PURPOSE AND ANTICIPATED EFFECTS OF THE REORGANIZATION
The principal purpose of the Reorganization and the subsequent relocation
of APS' nuclear generating facilities to PWE is to assure compliance with the
provisions of the Competition Rules and the Settlement and provide PNW with
increased financial, managerial, and organizational flexibility which will
enable APS and PWE to effectively compete in a restructured utility industry.
After extensive investigation and analysis, PNW has determined that the proposed
Reorganization offers the best means of positioning the PNW system for future
changes and opportunities and will enable PNW to take advantage of emerging
business opportunities and manage risks to the benefit of both shareholders and
customers. The Reorganization is the first step in a clear functional and
corporate separation between PNW's competitive generation business, and its
distribution and transmission business, enabling each company to focus its
resources on more clearly defined product markets and services. The intent of
the Reorganization and subsequent relocation of APS' nuclear generating
facilities is to create a financially sound and responsive utility system which
can provide utility services effectively and efficiently. Additionally, the
corporate division along functional lines will provide a better structure for
regulators to assure that there is no cross-subsidization of costs or transfer
of business risk from the competitive generation business to the fully-regulated
transmission/distribution business. Moreover, this type of corporate division of
utility operations along functional lines is becoming a highly-desirable form of
conducting both a regulated transmission/distribution business and a competitive
generation business.
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(11) As a wholly-owned subsidiary of PNW, APS' only shareholder is PNW.
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The Reorganization will have no adverse effect on APS' existing electric
utility operations. The Reorganization will not cause substantive changes in
PNW's ultimate interest in existing utility businesses and will not involve the
transfer or acquisition of any additional utility assets beyond those
currently held by APS or those which may be developed or acquired by PWE in the
future. The managers and employees in PNW's existing utility operations will
continue to perform their existing functions -- either as employees of APS, the
transmission/distribution company, or as employees of PWE, the generating
company. Thus, even though day-to-day utility operations would not be affected,
the benefits discussed above will accrue to PNW and its customers and
shareholders as a result of the Reorganization and the subsequent relocation of
APS' nuclear generating facilities to PWE.
E. ADDITIONAL INFORMATION
No associate company or affiliate of PNW or APS, or any affiliate of any
associate company of PNW or APS, has any direct or indirect material interest in
the proposed Reorganization except as stated herein.
ITEM 2 FEES, COMMISSIONS AND EXPENSES
The fees, commission and expenses to be paid or incurred by PNW and APS in
connection with the Reorganization are estimated as follows:
Auditors' Fee .............................................................. *
Legal Fees ................................................................. *
Miscellaneous............................................................... *
Total ............................................................. *
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* To be filed by amendment
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ITEM 3 APPLICABLE STATUTORY PROVISIONS
Sections 9(a)(2) and 10 of the Act are applicable to the proposed
Reorganization. As a result of the proposed Reorganization, PNW will have two
wholly-owned, public-utility company subsidiaries, APS and PWE. Section 9(a)(2)
of the Act requires Commission approval before a person may acquire more than 5%
of the outstanding voting securities of more than one "public-utility company."
The standards for approval of a transaction under Section 9(a)(2) of the Act are
set forth in Section 10 of the Act. The relevant standards under Section 10 are
set forth in Section 10(b), 10(c) and 10(f).
For the reasons explained below, the Commission should approve the
Reorganization pursuant to Section 9(a)(2) of the Act because it complies with
the applicable standards of Section 10. PNW respectfully requests that the
Commission issue an order approving the Reorganization by March 1, 2001, so that
PNW has sufficient time to complete the Reorganization during 2001.(12) PNW
anticipates moving most of the assets and personnel during 2001 (13) and
believes that the time between the requested approval date of March 1, 2001, and
the contemplated Reorganization is necessary to allow the transfer of personnel
and to implement other aspects of the Reorganization.
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(12) In the event the Commission does not issue its order prior to the
anticipated date of Reorganization, PWE intends to file an application with
FERC for EWG status and limit its activities exclusively to the ownership
and operation of eligible facilities and sale of power at wholesale in
order to maintain EWG status until the Commission issues an order approving
the Reorganization.
(13) As noted above, certain generating assets, such as PVNGS, may be moved to
PWE at a later date.
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A. APPROVAL OF THE REORGANIZATION UNDER SECTION 9(a)(2).
Section 9(a)(2) makes it unlawful, without approval of the Commission under
Section 10, "for any person . . . to acquire, directly or indirectly, any
security of any public-utility company, if such person is an affiliate . . . of
such company and of any other public utility or holding company, or will by
virtue of such acquisition become such an affiliate." By virtue of the proposed
Reorganization, PNW will own more than 5% of the outstanding voting securities
of two "public-utility companies" (APS and PWE) thus becoming an affiliate of
both of these public-utility companies. Under Section 2(a)(5) of the Act, a
"public-utility company" is an "electric utility company" or a "gas utility
company." Under Section 2(a)(3) of the Act, an "electric utility company" is
defined as "any company which owns or operates facilities used for the
generation, transmission, or distribution of electric energy for sale . . . ."
Upon completion of the Reorganization, PWE will own and operate certain of APS'
existing facilities for the generation of electric energy for sale, and APS will
continue to own and operate its existing facilities for the transmission and
distribution of electric energy for sale, as well as its nuclear generating
facilities. Therefore, both PWE and APS will be public-utility companies within
the meaning of the Act.
1. SECTION 10(B)
Section 10(b) provides that the Commission shall approve an acquisition
pursuant to Section 9(a)(2) unless the Commission finds that:
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public-utility companies, of a kind or to
an extent detrimental to the public interest or the interest of
investors, or consumers;
(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or indirectly,
in connection with such acquisition is not reasonable or does not bear
a fair relation to the sums invested in or the earning capacity of the
utility
15
<PAGE>
assets to be acquired or the utility assets underlying the securities
to be acquired; or
(3) such acquisition will unduly complicate the capital structure of the
holding-company system of the applicant or will be detrimental to the
public interest or the interest of investors or consumers or the
proper functioning of such holding-company system.
PNW respectfully submits that no adverse findings should be made under any of
these provisions.
a. "DETRIMENTAL INTERLOCKING RELATIONS" OR "CONCENTRATION OF
CONTROL" -- SECTION 10(b)(1)
Consistent with Section 10(b)(1) of the Act, PNW submits that the
Reorganization will not tend towards interlocking relations or the concentration
of control of public-utility companies, of a kind or to an extent detrimental to
the public interest or the interest of investors or customers. The
Reorganization involves the first step in the ultimate segregation of APS'
existing utility assets and operations along functional lines into a generation
company (PWE) and a transmission and distribution company (APS).
While there may be certain common directors and officers of PNW and the
public-utility subsidiaries, these relations normally exist in public-utility
holding company systems among affiliated and associated companies and should not
be considered detrimental to the public interest or the interest of investors or
consumers. See Central Maine Power Company, et al., Holding Co. Act Release No.
26903 (Aug. 7, 1998); CIPSCO, Inc., Holding Co. Act Release No. 25152, 47 SEC
Docket 174 (Sept. 18, 1990).
Similarly, the Reorganization should not, within the meaning of Section
10(b)(1), be deemed to tend towards any "concentration of control of
public-utility companies" that might be detrimental to the public interest,
consumers or investors. The Reorganization will not involve
16
<PAGE>
the acquisition or control of any utility assets or operations which are not
already owned or controlled by PNW or its existing public-utility subsidiary,
APS, or being developed by PWE, and "will therefore have no effect on the
concentration of control of public-utility companies." Central Maine Power
Company, et al., Holding Co. Act Release No. 26903 (Aug. 7, 1998); accord BEC
Energy, et al., Holding Co. Act Release No. 26874 (May 15, 1998); Energy East
Corp., Holding Co. Act Release No. 26834 (March 4, 1998); Wisconsin Energy
Corp., Holding Co. Act Release No. 24267 (Dec. 18, 1996).
b. FAIRNESS OF CONSIDERATION AND FEES -- SECTION 10(b)(2)
Section 10(b)(2) of the Act requires the Commission to determine whether
the consideration paid in connection with a proposed acquisition of securities
is reasonable and bears a fair relation to the investment in and earning
capacity of the utility assets underlying the securities being acquired.
The generating assets will be recorded on the books of PWE at net book
value. In addition, PWE will assume certain outstanding debt associated with the
generating assets being moved. The valuation of PNW's investment in the
securities of PWE and APS will be adjusted accordingly to reflect the movement
of these assets and the associated debt to PWE.(14)
----------
(14) Specifically, PWE will assume APS' rights and obligations with respect to
approximately $180 million in pollution control bonds issued by Navajo
County, Arizona, Pollution Control Corporation and Coconino County,
Arizona, Pollution Control Corporation. These two series of bonds were
issued by the respective pollution control corporations under two separate
Indentures of Trust dated as of August 1, 1993 between the issuer and an
independent trustee. In each case, the issuer loaned the proceeds of the
bonds to APS under a Loan Agreement dated as of August 1, 1993, and APS is
responsible to repay the loan by making payments on the bonds when due.
APS' obligations are secured by First Mortgage Bonds issued by APS and
delivered to the Trustee for the pollution control bonds. At the time
generating assets are moved to PWE, APS will assign its rights and
obligations under the Loan Agreements to PWE, and PWE will assume such
obligations. APS will remain primarily liable for such obligations and the
First Mortgage Bonds will remain outstanding.
PWE will also assume APS' obligations under another approximately $60
million of pollution control bond debt, releasing APS from such
obligations. No bondholder consent is required in connection with PWE's
assumption of this debt. However, APS must give advance notice to the
bondholders and any bondholder who does not wish to continue to hold the
bonds may tender its bonds for purchase. In addition, if the issuance of a
new letter of credit in substitution for the existing letter of credit
supporting the bonds causes the ratings on the bonds to be lower than the
existing rating, the bonds will be subject to a mandatory tender on the
substitution date, and all the bonds will be subject to mandatory
repurchase and remarketing on that date.
17
<PAGE>
Since the Reorganization involves an entirely intra-company movement of
existing assets from one wholly-owned subsidiary to another and not the
acquistion of new assets or securities, PNW believes that the valuation
established for the purposes of this asset transition is reasonable and bears a
fair relationship to the sums invested in the assets. PNW, as the sole owner of
both APS and PWE, can expect to earn a fair return on its investment in APS and
its investment in PWE.
An estimate of the fees and expenses to be paid in connection with the
Reorganization is stated in Item 2 above. Such fees and expenses will be
reasonable and customary for a transaction of this kind and will not be material
when measured against PNW's consolidated book value or the earning capacity of
its assets. See, e.g., Energy East Corp., Holding Co. Act Release No. 27128
(Feb. 2, 2000).
18
<PAGE>
c. COMPLICATION OF CAPITAL STRUCTURE -- SECTION 10(b)(3)
Section 10(b)(3) of the Act requires the Commission to determine whether
the transaction will unduly complicate the capital structure of the PNW system,
be detrimental to the public interest, the interest of the investors or
consumers, or the proper functioning of the holding-company system. No such
effect will result from the Reorganization.
The Reorganization will not involve the creation of any ownership interests
other than those necessary to maintain the basic corporate relationships of the
reorganized holding-company system. Pursuant to the Reorganization, PNW will
continue to be the only issuer of publicly owned equity securities in the
system. PNW will continue to own all of the outstanding common stock of PWE,
APS, and PNW's existing non-utility subsidiaries; there will be no minority
equity interest in any of PNW's public-utility subsidiaries. As noted above,
certain pollution control bonds issued by APS will be assumed by PWE, but this
will in no way complicate the capital structure of PNW, APS, or PWE. This type
of capital structure is typical of a contemporary holding company system and is
within the traditional standards of the Act.
Moreover, the Reorganization is a significant step toward the ultimate goal
of creating separate entities to perform PNW's transmission/distribution
business and its generation business in compliance with the ACC's Competition
Rules and the Settlement. Consequently, because the Reorganization does not
complicate the capital structure of PNW, APS, or PWE, the standards of Section
10(b)(3) of the Act are satisfied.
19
<PAGE>
2. SECTION 10(c)
The relevant provisions of Section 10(c) of the Act state that the
Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any other
interest, which is unlawful under the provisions of Section 8 or
is detrimental to the carrying out of the provisions of Section
11; or
(2) the acquisition of securities or utility assets of a
public-utility or holding company unless the Commission finds
that such acquisition will serve the public interest by tending
towards the economical and the efficient development of an
integrated public-utility system . . . .
APS and PNW respectfully submit that no adverse determination should be made
under either of these provisions.
20
<PAGE>
a. SIGNIFICANT BENEFITS -- SECTION 10(c)(1)
Section 10(c)(1) prohibits an acquisition of securities which is "unlawful
under the provisions of Section 8" or "detrimental to the carrying out of the
provisions of Section 11." By their express terms, Sections 8 and 11 apply only
to registered holding companies and do not apply to exempt holding companies.
After the Reorganization, PNW will continue to be exempt from all provisions of
the Act, except Section 9(a)(2), pursuant to Section 3(a)(1) of the Act since
PNW and its utility subsidiaries, APS and PWE, will each be predominantly
intrastate in character, carry on their businesses substantially in Arizona, and
be organized in Arizona. Accordingly, Section 8 of the Act is inapplicable to
the Reorganization.
For the purposes of the Commission's review of the proposed reorganization
of a holding company, the relevant provision of Section 11 is Section 11(b)(2),
which requires the Commission to find that "the corporate structure . . . of any
company in the holding-company system does not unduly or unnecessarily
complicate the structure . . . of such holding-company system." In that
connection, the Commission has construed this requirement, "to mean that the
structural change must result in significant benefits to the holding-company
system." CIPSCO Inc., Holding Co. Act Release No. 25152, 47 SEC Docket at 178
(Sept. 18, 1990); accord Central Maine Power Company, et al., Holding Co. Act
Release No. 26903 (Aug. 7, 1998); BEC Energy, et al., Holding Co. Act Release
No. 26874 (May 15, 1998); Energy East Corp., Holding Co. Act Release No. 26834
(March 4, 1998).
As discussed above in Section D of Item 1, the corporate structure
resulting from the Reorganization will yield significant benefits. Most
importantly, the Reorganization and subsequent move of APS' nuclear generating
facilities to PWE will enable APS to implement the requirements of ACC
Competition Rules and Settlement. In addition, segregation of the separate
21
<PAGE>
utility functions into separate corporations dedicated solely to those functions
will: (1) enable the executives, officers, and managers of APS and PWE to
concentrate on the delivery of cost efficient and effective utility services
responsive to the needs of customers; (2) allow PNW's subsidiaries and
affiliates to be more competitive in their businesses; (3) segregate the
financial and legal risks associated with those businesses; (4) ensure that
there is no cross-subsidization of costs or business risk; and (5) aid the
investment community in analyzing and valuing individual lines of business. In
cases involving corporate reorganizations or the formation of holding companies,
the Commission has held that the existence of these kinds of potential benefits
satisfies the statutory standard of Section 10(c)(1). See, e.g., Central Maine
Power Company, Holding Co. Act Release No. 26903 (Aug. 7, 1998); Atlanta Gas
Light Company, Holding Co. Act Release No. 26482, 61 SEC Docket 1057 (March 5,
1996); SIGCORP, Inc., Holding Co. Act Release No. 26431, 60 SEC Docket 90 (Dec.
14, 1995); PP&L Resources, Inc., Holding Co. Act Release No. 26248, 58 SEC
Docket 2634 (March 10, 1995); CIPSCO Inc., Holding Co. Act Release No. 25152, 47
SEC Docket 174 (Sept. 18, 1990); Wisconsin Energy Corp., Holding Co. Act Release
No. 24267 (Dec. 18, 1996).
b. ECONOMICS AND EFFICIENCIES OF AN INTEGRATED SYSTEM - SECTION
10(c)(2)
Under Section 10(c)(2), the Commission must find that the Reorganization
tends towards the economical and efficient development of an integrated public
utility system. PNW respectfully submits that this standard is met in this case.
22
<PAGE>
(i) ECONOMICS AND EFFICIENCIES
A number of economies and efficiencies will result from the PNW structure.
Some of these benefits are described in Section D of Item 1 and Section A.2.a of
Item 3, above. Overall, the Reorganization will permit a more efficient way to
take advantage of competitive opportunities in the electric utility industry.
Separating the competitive generation business from the regulated
transmission/distribution operations will increase the ability of the system to
take advantage of market opportunities and enable each entity to focus its
resources on more clearly defined product markets and services.
(ii) INTEGRATED PUBLIC UTILITY SYSTEM
The electric utility system of PNW is presently "integrated" within the
meaning of Section 2(a)(29) of the Act and will remain so after the
Reorganization.
The standards that must be met for an electric utility system to be
integrated within the meaning of Section 2(a)(29) of the Act are:
(1) the utility assets are to be physically interconnected or capable of
physical interconnection and under normal conditions may be
economically operated as a single interconnected and coordinated
system;
(2) the operations of the system are confined to a single area or region,
that is not so large as to impair the advantages of localized
management, efficient operation, and the effectiveness of regulation.
The Reorganization will not affect the physical interconnections associated with
PNW's existing utility system. All of APS' existing interconnections will remain
intact after the Reorganization. The Reorganization will maintain a continuous,
geographically compact system with the same physical interconnections as exist
today. Similarly, the area of operations of the system will not be affected by
the Reorganization and will continue to be primarily confined to a single area
(e.g., APS' existing service territory in Arizona) that is not so large as to
impair the advantages of
23
<PAGE>
continuing localized management, efficient operation, and effective regulation.
See CP&L Energy, Inc., Holding Co. Act Release No. 27188 (June 15, 2000);
Central Maine Power Company, et al., Holding Co. Act Release No. 26903 (Aug. 7,
1998).
3. SECTION 10(f)
Section 10(f) provides that "[t]he Commission shall not approve any
acquisition . . . under this Section unless it appears to the satisfaction of
the Commission that such State laws as may apply in respect of such acquisition
have been complied with, except where the Commission finds that compliance with
such State laws would be detrimental to the carrying out of the provisions of
Section 11 . . . ."
The Reorganization is conditioned on full compliance with the laws of the
Arizona. APS is currently and will remain subject to the jurisdiction of the ACC
with respect to the provision of retail electric service. APS and PNW have
received the necessary approval from the ACC to proceed with the Reorganization.
Copies of this ACC approval is filed as Exhibit D-5 hereto.
For the reasons stated above, the proposed Reorganization meets the
standards set forth in Sections 9(a)(2) and 10. The Reorganization involves the
first step in the segregation of APS' existing utility assets and operations
along functional lines into a wires company and a generation company. The
Reorganization will not unduly complicate the capital structure of the PNW
system; nor will the Reorganization be detrimental to the public interest, the
interests of investors or consumers, or the proper functioning of this system.
Also, the Reorganization will yield significant benefits by allowing PNW's
public-utility subsidiaries to more effectively compete in the electric utility
industry. Therefore, the Commission should by order approve the Reorganization.
24
<PAGE>
B. PNW WILL CONTINUE TO CLAIM A SECTION 3(a)(1) EXEMPTION AFTER THE
REORGANIZATION.
Section 3(a)(1) of the Act makes an exemption from all of the provisions of
the Act, except for Section 9(a)(2), available to a holding company, if "such
holding company, and every subsidiary company thereof which is a public-utility
company from which such holding company derives, directly or indirectly, any
material part of its income, are predominately intrastate in character and carry
on their business substantially in a single State in which such holding company
and every such subsidiary company thereof are organized." After the
Reorganization is complete, PNW and its two public-utility subsidiaries -- APS
and PWE -- will be predominantly intrastate in character and will carry on their
business substantially in Arizona, the state in which they are all
organized.(15) In this regard, PNW will continue to claim an exemption pursuant
to Section 3(a)(1) of the Act and Rule 2 of the Commission's regulations, by
filing annual exemption statements on Form U-3A-2 following the Reorganization.
----------
(15) While APS' existing power marketing division was moved to PNW, and
continues to perform its power marketing activities on a nationwide basis,
PNW's utility operations are still predominately intrastate in character
and conducted primarily in Arizona. As noted above, the Commission Staff
has indicated in a series of no-action letters that power marketers are not
considered "electric utility companies" under Section 2(a)(3) of the Act
and, therefore, are not "public-utility companies" under Section 2(a)(5) of
the Act. See, e.g., Sunoco Power Marketing, L.L.C., SEC No-Action Letter,
1997 SEC No-Act. LEXIS 785 (July 24, 1997); Enron Capital & Trade Resources
Corp., SEC No-Action Letter, 1997 SEC No-Act. LEXIS 287 (Feb. 13, 1997).
25
<PAGE>
ITEM 4 REGULATORY APPROVAL
The Reorganization will require the approval of the ACC and FERC. APS has
received an order approving the Reorganization from the ACC, a copy of which is
attached hereto as Exhibit D-5. APS also filed an application for approval of
the proposed Reorganization with the FERC, a copy of which is attached as
Exhibit D-1. A copy of the final FERC order pursuant thereto was filed by
amendment on December 8, 2000, as Exhibit D-2. Other than such enumerated
approvals and the approval of the Commission hereunder, no other approvals of
utility regulatory authorities are required for the Reorganization and the
movement of the non-nuclear generating assets to PWE.(16)
ITEM 5 PROCEDURE
PNW respectfully requests that there be no 30-day waiting period between
the issuance of the Commission's order and the date on which it is to become
effective. PNW also requests that there be no hearing on this application and
that the Commission issue its order as soon as practicable after the filing
hereof. PNW respectfully requests that the Commission issue and publish the
requisite notice under Rule 23 with respect to the filing of this application
not later than January 22, 2001, such notice to specify a date not later than
February 22, 2001, by which comments may be entered and a date not later than
March 1, 2001, as the date after which an order of the Commission granting and
permitting this application to become effective may be entered by the
Commission. A form of Notice is filed herewith as Exhibit H-1.
Without prejudice to its right to modify the same if a hearing should be
ordered on this application, PNW hereby makes the following specifications
required by paragraph (b) of Item 5 of Form U-1:
----------
(16) As noted above, approval from the NRC will be obtained in connection with
the relocation of APS' nuclear generating facilities to PWE. See supra
n.10.
26
<PAGE>
(1) There should not be a recommended decision by a hearing officer or any
other responsible officer of the Commission.
(2) There should not be a 30-day waiting period between issuance of the
Commission's order and the date on which the order is to become
effective.
(3) PNW consents to the Division of Investment Management assisting in the
preparation of the Commission's decision or order in this matter,
unless such Division opposes this application.
ITEM 6 EXHIBITS AND FINANCIAL STATEMENTS
It is requested that the Commission send copies of all communications to
PNW as follows:
Herbert I. Zinn Mary Ann K. Huntington
Pinnacle West Capital Corporation Morgan, Lewis & Bockius LLP
400 North Fifth Street 1800 M Street, N.W.
Mail Station 8695 Washington, D.C. 20036
Phoenix, Arizona 85004
27
<PAGE>
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT METHOD OF FILING
----------- ----------------------- ----------------
<S> <C> <C>
A-1 Restated Articles of Incorporation of PNW. Incorporated by reference; File No.
1-8962, PNW Form 10-K for the year
ended December 31, 1999.
A-2 Restated Articles of Incorporation of APS. Incorporated by reference; File No.
1-4473, APS Form 8-K (Sept. 23, 1993)
A-3 Articles of Incorporation of PWE. Filed herewith.
B-1 Form of Term Sheet Filed herewith.
D-1 Application of APS, PNW and PWE to FERC for Authorization Filed herewith.
to Transfer Jurisdictional Facilities.
D-2 Order of FERC. Filed by amendment on December 8, 2000.
D-3 Retail Electric Competition Rules Incorporated by reference; File No.
1-4473, filed as Exhibit 10.2 to APS
Sept. 30, 1999 Form 10-Q Report
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
D-4 Comprehensive Settlement Agreement Related to the Incorporated by reference; File No.
Implementation of Retail Electric Competition, filed with 1-4473, filed as Exhibit 10.1 to APS'
the Arizona Corporation Commission. May 14, 1999 Form 8-K Report.
D-5 ACC Approval of the Settlement Agreement. Incorporated by reference; File No.
1-4473, filed as Exhibit 10.1 to APS'
Sept. 1999 10-Q Report.
D-6 Amended Settlement Agreement Filed herewith.
E-1 Map showing location of the generating facilities of APS Filed herewith.
that are being moved to PWE along with their related
transmission facilities.
F-1 Signed initial opinion of counsel. Filed by amendment on December 8, 2000.
F-2 Past-tense opinion of counsel. To be filed by amendment.
G-1 PNW, Form U-3A-2, "Statement by Holding Company Claiming Incorporated by reference; File No.
Exemption under Rule U-2 from the Provisions of the Public 69-306, dated Feb. 29, 2000.
Utility Holding Company Act of 1935."
H-1 Form of Notice Filed herewith.
</TABLE>
29
<PAGE>
B. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT NO. DESCRIPTION OF DOCUMENT METHOD OF FILING
------------- ----------------------- ----------------
<S> <C> <C>
FS-1 Historical consolidated financial statements of PNW Incorporated by reference to Annual
Reports on Form 10-K for the years
ended 1999, 1998 and 1997
FS-2 Historical consolidated financial statements of APS Incorporated by reference to Annual
Reports on Form 10-K for the years
ended 1999, 1998 and 1997
</TABLE>
Although separate financial statements for PWE have not been included, PWE's
financial information is included in the consolidated financial statements of
PNW.
ITEM 7 INFORMATION AS TO ENVIRONMENTAL EFFECTS
None of the matters that are the subject of this application and
declaration involves a "major federal action" nor do any of them "significantly
affect the quality of the human environment" as those terms are used in Section
102(2)(C) of the National Environmental Policy Act. The transaction that is the
subject of this application will not result in changes in the operation of the
company that will have an impact on the environment. Neither APS nor PNW are
aware of any federal agency that has prepared or is preparing an environmental
impact statement with respect to the transactions that are the subject of this
application.
30
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this Application to be signed on
its behalf by the undersigned thereunto duly authorized.
PINNACLE WEST CAPITAL CORPORATION
By: Barbara M. Gomez
-------------------------------------
Its: Treasurer
------------------------------------
Date: January 17, 2001
Phoenix, Arizona
31
