ML17297A651
| ML17297A651 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 02/19/1981 |
| From: | ARIZONA PUBLIC SERVICE CO. (FORMERLY ARIZONA NUCLEAR |
| To: | |
| Shared Package | |
| ML17297A650 | List: |
| References | |
| NUDOCS 8108110403 | |
| Download: ML17297A651 (36) | |
Text
1980 Arizona Public Service Company nnLia
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Annual Report This report is published to provide general information con-cerning the company and not in connection with any sale, offer for sale, or solicitation ofan offer to buy. any securities.
Annual Meeting ofStockholders Allstockholders are invited to attend the company's sixty-first annual meeting. Itwillbe held at 10 a.m. Thursday, April23, in The Grand Ballroom ofDel Webb's Townehouse, 100 West Clarendon, Phoenix, Arizona.
Our Cover:
Pleasant Valley stretches south toward the Sierra Anchas from central Arizona's Mogollon Rim, where winter's storms have more than once bedeviled utilitylinemen.
APS Photographer Paul Escen's picture inspired retiree George Carlin to put his memories into words, on our back cover.
Arizona Public Service Company, 411 North Central Avenue, Phoenix, Arizona(602) 271-7900 Mailingaddress:
P.O. Box 21666, Phoenix, AZ 85036
Highlights 1980 1980 1979 1978 Property and Plant:
Total utilityplant, year end Capital expenditures S3,199,927,000 S2,735,073,000 S2,288,604,000 S
504,120,000 S
468,116,000 S
405,789,000 Sales and Customers:
Total operating revenues Total electric sales (mwh)
Electric customers, year end Total gas sales (m therms)
Gas customers, year end S
765,760,000 S
664,423,000 11,877,722 11,584,898 421,803 401,983 432,277 467,088 340.248 340,343 S
562,217,000 10,912,704 378,553 449,451 339,803 Income, Earnings, Dividends:
Net income Earnings for common stock Average common shares outstanding Earnings (based on average shares outstanding)
Dividends paid per share of common stock S
275 S
S 2.06 S
290 S
3.15 1.94 S
1.73 S
143,290,000 S
121,578,000 S
106,759,000 S
118,228,000 S
99,696,000 S
89,288,000 42,960,655 34,426,346 28,363,223 Shareholders:
Common Preferred Employees, year end:
110.416 6,745 5,538 92,396 7,049 5,263 78,275 7,158 4,951 Contents To our shareholders The year in review Financial data Accountants'pinion Legal matters Page 2
4 14 18 31
To Our Shareholders
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r)M Kclth L. 'Ibrlcy. Ralph M. Bllby On February 19, 1981. Ralph M. Bllbg.for health reasons. sub-mitted hts restgnat ton as chairman ofthe board ofdirectors.
The board reluctantly accepted Mr. Bltbg's resignation, and appointed him ulcc chairman ofthe board, egectiue March 19, 1981. The board also appointed Kelth L. Turteg to succeed Mr. Bttbg as chairman. Mr. Il<r(eg continues as president and chiefexecut tue oglcer.
In the followingpages of this report you willfind a detailed review of management's efforts to secure adequate rate relief dur-ing 1980 so that we could avoid selling a portion ofour share of the Palo Verde Nuclear Generating I
Station. Selling assets such as Palo Verde would have immedi-ately reduced financial pressures on the company, but would result in long-term adverse consequences for our customers and the state ofArizona. As you know, without adequate earnings and sound credit. we would be unable to finance the construction program needed to meet Arizona's future energy needs.
A May, 1980 rate decision by the Arizona Corporation Commis-sion granted only one-third of a requested two-step increase.
As a result of this decision, our board ofdirectors authorized man-agement to proceed with negotia-tions to sell 210 megawatts of our 1109-megawatt share of Palo Verde. An appeal of the May decision to the commission did not result in any additional rate relief during the year.
In contrast to our 1980 experience, 1981 began with a major step forward when, on February 2, the commission granted us a $79.5 millionrate increase, the fullamount of an emergency request made on Jan-uary 13. The commission's deci-sion relieved our need to continue negotiations for the sale of a por-tion of Palo Verde.
We see this most recent deci-sion as clear evidence that the com-mission intends to serve the best interests ofboth investors and con-sumers. Should the commission make the interim increase perma-nent, and demonstrate its determi-nation to permit the company to earn adequate revenue levels in the future, our customers willbe
assured of benefiting fullyfrom the reliable, economic energy the Palo Verde plant willprovide.
The adverse rate situation that prevailed during 1980,coupled with an increase in the number of shares outstanding, resulted in earnings per share of $2.75, com-pared to $2.90 per share the year before.
We were, however, able to achieve a great deal of progress in many areas ofour operations.
These accomplishments, coupled with several favorable external developments and an improving rate picture, offer opportunities for us to better serve our customers and achieve our financial goals.
Here are some highlights of the year:
~ The Nuclear Regulatory Commission (NRC) docketed our application foran operat-ing license for Palo Verde Unit 1 and the review proc-ess has been underway since June 24, 1980. This docket-ing was the first by the NRC since Three Mile Island and we believe its acceptance reflects the thoroughness of our preparation, particularly considering the current regulatory logjam.
~ The Palo Verde Safety Evalu-ation Task Force completed its exhaustive review and, through its in-depth analy-sis, has provided us very positive direction as we work toward the successful opera-tion ofthe state's firstnuclear power plant.
~ T~vo anti-nuclear ballot initi-atives failed to make the November 1980 ballot because their backers were unable to obtain the neces-sary number of signatures.
~ The capacity factor ofour coal-fired generating plants reached an outstanding 73.6 percent, far exceeding indus-try averages and surpassing a long-term corporate goal.
Improved performance at our Four Corners Plant, for instance, directly benefits both the company and our customers by saving millions of dollars in annual fuel costs.
~ The protracted discussion between APS, the State of New Mexico and New Mexico environmental groups on the issue ofsulfur dioxide removal at Four Corners Units 4 and 5 was finally settled when the parties reached a new agreement.
With the approval of the agreement by the Environ-mental Protection Agency, a major uncertainty concern-ing the future of these extremely important facili-ties will have been removed.
~ On the financial front, we were able to hold operating and maintenance budgets to single-digit percentage increases in the face ofdouble-digit inflation. We were also able to improve our capi-talization ratios by reducing the debt portion.
~ At the national level, the change in the federal admin-istration should bring a measure of relief from some of the regulatory and eco-nomic problems that plague us all. We are optimistic that we willfind a more posi-tive reception from the many governmental representa-tives we willbe dealing with in the months ahead.
Allof these positive develop-ments, as well as the improving rate situation, give us confidence that our financial performance willimprove in 1981 and the years beyond.
Generic energy issues with national and statewide implica-tions touched nearly every area ofour business. These issues, which willbecome even more important in the years ahead, form the backdrop against which our efforts to meet Arizona's energy needs and protect the interests of our investors willbe played out.
Through the text that follows, we have included some cogent observations by leading authorities on a variety of issues involving APS and the utilityindustry. We hope that these observations.
as well as our reactions to them, willprovide you with additional insights into the challenges before us. We appreciate, and need, your understanding and support.
~. 8 Ralph M. Bilby Chairman of the Board Keith L. Turley President and Chief Executive Officer February 19, 1981
"lfthe electric utilityindustry wants to emerge in reasonably good financiaL health, its managements and regulators willhave to exercise their stewardship more creatively and dynamically during the 1980's than at any previous time in the industry's history."
Walter G. French Vice President Argus Research The year in review Inadequate rate levels and the need to increase the number of shares outstanding during the year combined to produce 1980 earn-ings per share which were lower than 1979 levels. Thus, while net income rose to $143 million, a
$21 millionincrease over 1979 totals, earnings per share of com-mon stock were down, to $2.75 in 1980, compared to $2.90 per share in 1979.
The positive effects ofour cost-control programs and improved operating efficiencies were offset by our inabilityto receive adequate rate increases during the year.
However a 14 percent emergency increase in electric service rates, granted early in 1981, should pave the way for future improvements in our financial performance.
Dividends paid per common share totaled $2.06 in 1980, up from the $ 1.94 paid in 1979. The current annual dividend rate is
$2.12 per share and represents the fifthconsecutive year in which the company has increased its dividend on common stock.
Rate relief long in
, coming On February 2, 1981 the Ari-zona Corporation Commission approved an emergency request for an immediate 14 percent increase in electric service rates.
The increase willgenerate approximately $79.5 millionin additional annual revenue.
Earnings, Dividends, and Reinvested Earnings per Average Share of Common Stock earnings
$3-reinvested earnings dividends paid
'76
'77
'78
'79
'80 The emergency request was
.the culmination of nearly two years ofeffort to obtain equitable rate treatment. In May,1979 the commission voted to deny hear-ings on an electric and natural gas increase, our first major rate in-crease request since 1976.
Later the same year we filed again for rate relief, asking for a 19.2 percent, two-step electric rate increase and a single 11.7 percent natural gas rate increase.
Hearings on that request were held in February of 1980 and, on May 29, the commission granted a 5.6 percent combined electric and gas rate increase that would produce revenues of$37.4 million.
The electric increase granted was 6.5 percent, less than one-third of the requested amount.
In June, believing that the commission did not consider the fullimpact of its decision on the company's ability to finance its construction program, we filed for a rehearing ofour rate application.
That request was shortly denied and. in August, we appealed the commission's decision to the Mar-icopa County Superior Court.
In the meantime, Moody's Investors Service downgraded our
. commercial paper rating (in Sep-tember) from Prime 2 to Prime 3, though Standard and Poor's main-tained its previous A-2 rating.
Following a denial ofour appeal by the court, and faced with further deterioration ofour Common Stock Price Ranges (Symbol: AZP)
Dividend 1980 High Low Per Share 1st Quarter 818.3/4 S14.5/8 S.50 2nd Quarter 19.5/8 15 '50 3rd Quarter 19-3/8 17
.53 4th Quarter 18-3/8 15-1/2
.53 1979 1st Quarter 821-3/8 S20 S.47 2nd Quarter 20.7/8 18-1/4 A7 3rd Quarter 20-3/8 18-3/4
.50 4th Quarter 19-1/2 16-7/8
.50 financial position, we were forced to file the emergency request, which was granted subject to review in full-scale proceedings to be held later this year.
The commission's approval relieved the company of the need to sell 210 megawatts of capacity from its portion of the Palo Verde Nuclear Generating Station now under construction. The sale was authorized by the board of direc-tors when the commission's inade-quate rate decision in May forced
1 the company to seek ways to reduce its construction budget.
Such a sale would have a heavy, adverse impact on customers.
For instance, through a ten-year period beginning in 1983, the "Inorder to maintain our company's financial integrity and, at the same time, meet cus-tomer's energy demands, we must keep very tight 1I control ofcosts
~ particularly con-
~ struction outlays improve our credit worthiness and find ways for our rates to keep pace with inflation. That's a tremendous chal-lenge, both to our management and to the regulatory system."
Henry B. Sargent, Jr.
Vice President, Finance
~ Long Term Debt Capitalization c
st~ sg ty Ratio Trends Short Temt Debt
~2%
~2%
~1%
4%
7%
8%
14%
35+
1 1%
12%
39%
39%
38%
'76
'77
'78
'79
'80 amount ofadditional oil that would have to be burned would add millions of dollars to custom-ers'nergy bills, as much as $50 million in the highest year, 1989.
Permanent rate increases needed Our need for permanent rate relief continues, though our require-ments have been met, in part, by the commission's granting ofour emergency request. We willresub-mit the filingoriginally made last November and ask that the interim 14 percent rate increase be made permanent. In addition, we will ask that an additional increase be granted, sufficient to satisfy our revenue requirements at least through 1982.
Meanwhile, five-percent elec-tric rate increases, implemented in January of 1978 and 1979, remain subject to refund pending further commission action. Details of this matter are included in the financial section of this report.
In December, we filed with the Federal Energy Regulatory Com-mission for a $ 15 million increase in our wholesale electric sales to non-residential customers.
The second phase of the rate case decided by the commis-sion last Mayto determine how the increases willbe allocated among customer classes began in January ofthis year. We have filed several innovative rate pro-posals which, ifapproved, would benefit both APS and our customers.
The need for additional rate increases continues because of the effect of unprecedented inflation on all our costs, as well as the need to maintain and improve the com-pany's financial condition. This improvement is vital ifthe neces-sary capital is to be available, at reasonable cost, to build the'acili-ties required by a growing Arizona.
We recognize, of course, that our customers are concerned about the size ofthe rate increases we have been seeking and those that willbe required in the years ahead.
"As oiLsupplies diminish, electricity wilLtake on an added share ofUS. energy output... coaL and nuclear fission are the only large-scale intermediate-term options for electricity generation."
National Academy ofSciences Committee on Nuclear and Alternative Energy Systems (CONAES)
The yearly-averaged Metro-politan Phoenix Consumer Price Index grew by 46 percent between 1977 and 1980. In that same period, APS'esidential electric rates rose 32 percent.
Our recent rate increase requests have exceeded the rate of inflation in Arizona because of the long delays we have experi-enced in obtaining rate relief.
However, ifwe are successful in establishing proper rate levels this year, we do not expect that our rate requirements willdeviate sub-stantially from the rate of inflation over the next ten years.
In all ofour rate request actions, we believe that we have taken a responsible position with the Arizona Corporation Commis-sion. In so doing, we have striven to make clear the critical connec-tion between adequate revenues and the prudent development of Arizona's energy supplies.
In the November, 1980 elec-tions, two of the three members of the commission stood for reelec-tion. One retained his post while the other was replaced. We intend to continue our efforts before the commission to bring into balance the interests ofour customers and our investors.
millionin 20-year, 12-7/8 percent, first mortgage bonds.
One of our major financial goals is to strengthen capitaliza-tion ratios by reducing the debt portion oftotal capitalization. With the sale of4 million common shares last March, and the issu-ance of 5 millionshares in Septem-ber, we improved our common equity ratio to 39 percent.
"There's no question
...in the years ahead we willuse more coal and uran-ium and less and less scarce, more expensive fuel. That'sjust sound eco-nomics. But we need more than eco-nomic benejits to get thejob done. My hope lies in renewed public confidence in the safety ofnuclear generation, and more public acceptance ofthe enuiron-mental and social impacts ofmining and burning coal."
Russell Hulse Vice President, Resources Planning 1980 Income Dollar Debt and project financing (includ-ing short-term debt) constitute about 48 percent of total capital, with preferred stock making up the balance.
The $141.5 million realized from the 1980 common stock issues, and the $185 million from the bond issue, were used to reduce short-term borrowings in support of the company's construction program.
New permanent financing in 1981 willtotal approximately $375 millionand willbe comprised of two common stock issues, at least one preferred stock issue, and about $150 million in long-term debt.
Operations In 1980 we added 19,820 new electric customers, a 5.7 percent gain from a year ago. Average res-idential electric use was down slightly, to 9,995 kilowatthours, due primarily to unusually mild winter weather. Total electric sales increased 2.5 percent, to 11,877,722 megawatthours.
However, the sys-tem peak demand for electricity Financing higMights To provide increased flexibility in our financing program, the company turned to such options as a two-year, $60 millionEuro-dollar revolving credit line. In addition, we issued $65 million in three-year, 6.60 percent pollution-control bonds to finance equipment additions at the Four Corners Power Plant,'and com-pleted a private placement of,,$ 185 residential customers electric 28C gas BC commercial customers eiectric 26C gas 4C industrial customers electric 12C gas 3C others oiectric 12C gas 2C other income~
Sources 36C 30C 15C 14C Uses 15C 12C 12C 12C 16C
to common shareholders 11C dividends 4C retained earnings.
interest, preferred dividends &
other cost-net income & other taxes wages, sataries
&empioyeo benefits eiectricity purchases
gas purchases fuel for electric generation other operating expenses depreciation
was 2,772,700 kilowatts in 1980.
up 7.5 percent from the previous year, due largely to the addition of new customers and extremely hot weather at the time of the peak.
Electric resources in 1980 totaled 3.307,200 kilowatts, con-sisting of 3,040,700 kilowatts of our own generation, plus 266,500 kilowatts of power available under firm purchase contracts. Our own system's capacity was bolstered by the addition of the 250,000-kilowatt Cholla Unit 3, which began commercial operation in May.APS'atural gas sales decreased by 7.5 percent in 1980, totaling 432,277 therms. The winter months of 1980 were among the warmest on record, a major reason for the decrease.
The growth in Arizona gener-ally reflected by the growth in cus-tomers and in peak demand is expected to continue. Arizona's population has grown 54 percent over the past 10 years, according to the 1980 Census. Arizona Department of Economic Security projections, upon which our load forecasts are based, indicate that population willgrow by a more modest 24 percent in the next 10 years, although other forecasts project larger increases.
Raking into account popula-tion growth and other factors, we expect that our peak demand will increase by an estimated 4.3 per-cent annually during the next dec-ade. Electric sales are expected Total Electrical Sales Actual/Forecast megawatt hours inmillions 16-14-12-10-8-
6" 2>>
'76 actual
'80 forecast
'87 to grow by 5.0 percent annually over the same period, reaching approximately 19,417,840 mega-watthours in 1990, compared to 11,877,722 megawatthours in 1980.
A more efficient operation Our planning for the 80s calls for a blending ofseveral programs, each ofwhich contributes to the overall goal of meeting forecasted energy needs.
The plan includes continua-tion of a comprehensive load management program to control growth in peak demand, increased reliance on the most economical fuels available, and development.
where applicable, ofalternative,
"Traditionally, utilities have builtfor thefuture as a matter ofsociaL responsibil-ity and business prudence, and wilLundoubtedly continue to do so. However, in the past it has been withpublic acceptance generaLLy taken forgranted.
Obviously, this is not the case today. In today's emotionally-charged environment, iiwould be easier for us to sit back and Let public pressures run their course. Itwouldn't be pleasant for knowledgeable and responsible people to watch, but it would make our near-termjob ofmanaging our company a great deaL easier."
Dr. Chauncey Starr, Vice Chairman Electric Power Research Institute renewable energy sources, such as solar energy.
At the end of 1980 our energy mix consisted of 78.4 percent coal, 12.4 percent gas and oil, with pur-chases making up the balance.
By the end of the new decade, we willhave added the new units at Palo Verde, as well as additional coal-fired generating capacity to shore up our base-load generation.
We anticipate that fully92 percent ofour forecasted 1990 load will be met with coal and nuclear fuel.
Even where higher-cost fuels must be used, we make every effort to achieve the most favorable economic advantage for our customers.
For example, in 1981 we will begin a major improvement and expansion ofour energy manage-ment system, an improvement which willprovide even more precise computerized control of electric generation and improved
'onitoring and control of trans-mission and distribution systems.
This new, advanced electronic system willprovide better coordi-nation of power generation with other utilities and better account-ing for power sales and purchases.
Moreover, ongoing efficiency-improvement programs have raised our combined coal-fired power plant capacity factor in 1980 to 73.6 percent, well above the most recently available national average of 59.6 percent.
AtFour Corners, where Unit 2 generated 126,545 megawatthours in August, the highest net gener-ation for a month's period in the unit's 16 years of operation. The unit's capacity factorthe actual generation produced by a unit matched against its rated output reached 97.19 percent, a mark exceeded only once before and a remarkable achievement consid-ering the age of the unit and the presence of environmental equip-ment (scrubbers). The other Four Corners units also demon-Generation Fuel MixTrend Based on 1980 Long-Range Forecast.
20 megawatt hours in millions 15-10-ap nudear
'76 actual
'80 forecast
'87 "From the outse4 our charter has dictated that we meet the energy demands of our customers. This isfar more dificult to do, today; but we have thejob to do and we milldo i4 withsensitivity to our customers and the public, and concern for the environmental and social impacts associated with our efforts."
Tom Woods Executive Vice President strated superior performance to help raise the plant's overall pro-ductivity mark to record levels.
Construction Expenditures for construction projects willbe slightly lower in the coming year than they were in 1980. This follows a record-setting 12-month period in which
$387 million were expended, pri-marily on new generating facilities.
Construction expenditures in 1981 willtotal $377 million, includ-ing an outlay of $209 millionfor new generating facilities. Approxi-mately $188 million willgo for our share of Palo Verde construction costs. The first of three 1,270,000-kilowattunits and its portion of common plant was 80.6 percent complete at year-end 1980. Palo Verde Units 2 and 3 were 50 and 15.6 percent complete, respectively.
Although the first unit won' come into service until 1983, the Palo Verde project continues to bring early economic benefits to the state. The construction work force topped 6,122 in 1980, result-ing in a payroll of $ 135 million.
Long-range. hundreds of millions of dollars willaccrue to Arizona through Palo Verde taxes and pay-roll. and services and materials purchased during and after construction.
Atthe coal-fired Cholla Power Plant, $ 16 million is budgeted in 1981 to complete Unit 4, scheduled for operation in May.
Completion of a 350,000-kilowatt fifthunit at Chollaon which preliminary work already had
started has been postponed until 1990 due to revised load forecasts and our desire to minimize con-struction budgets in the face of tight money markets. The delay willreduce the company's con-struction costs by $315 million over the next five years.
Meanwhile, to more closely match the demand for energy with generating resource development, portions of the output of Cholla 4 willbe sold to neighboring utili-ties through mid-1989. Temporary sales of power from Palo Verde are also being planned.
These temporary sales, or lay-offs, of power provide immediate financial benefits for both APS and its customers. The purchasing utilitybears all the costs of its share of the unit's output, includ-ing fixed charges, thereby lower-ing APS revenue'requirements.
The retrieval of this capacity at a later date means we willhave eco-nomical coal and nuclear genera-tion tomorrow, completed at today's lower construction costs.
Load management The major objective ofour load management effortis to reduce sharp seasonal peak demands on our system, thereby reducing the need for costly new generating facilities and minimizing expendi-tures on expensive fuels required for peaking purposes.
These reductions, in turn, decrease the financial burden on both the company and our customers.
Since the load-management program began in 1977. the cumu-lative reduction in the company's electric peak load forecast totals approximately 116 megawatts.
Today, the company's long-range load management objective is a total reduction of487 megawatts by 1990.
Capital Expenditures Actual/Forecast in millions
$600-400-
'76 actual
'80 forecast
'87 To help meet this goal, new emphasis has been placed on pro-viding economic incentives for our customers to cut their peak electrical demands.
Last November, the Arizona Corporation Commission approved a rate design which willprovide these customer incentives and increase the potential for effective load management.
The newly-approved rate, called the EC-1 (energy-capacity) rate, is mandatory for all new elec-tric air conditioning customers and optional for existing custom-ers. Because the rate takes into account the level of demand, as well as total consumption. cus-tomers are encouraged to control their peak energy use by avoiding the simultaneous operation of large energy-consuming units such as air conditioners, water heaters. etc.
A number of readily available load control devices offercustomers choices for taking advantage of
"The issue is not whether Arizona grows, but how Arizona grows; and whether or not we can, through collective planning and decision-making, accommodate that growth without destroying all ofthe spectrum ofvalues and attractions that caused the growth and sustained it."
Bruce Babbitt Governor ofArizona Arizona Town Hall October 27, 1980 the EC-1 rate. These range from very simple devices, such as inter-locks that prevent simultaneous operation ofair conditioning and electric water heating, to more sophisticated, microprocessor-controlled load-management devices that sense electric load buildup and sequentially interrupt appliance operation to keep the total load below a limitpre-set by the customer.
Several additional rate pro-posals were also considered by the commission in January 1981.
One is a residential rate which would provide substantial saving opportunities for customers whose monthly summertime energy use is consistently below 800 kilowatt-hours. These customers contrib-ute substantially less to summer peak demand than those who use larger amounts of energy.
We also offer an array of cost-effective load management pro-grams, all ofwhich can be carried out with minimum effect on con-sumers'ifestyles. Our Professional Home Energy Analysis Program, forexample, continues to be highly effective. More than 2,000 home-owners asked for audits in 1980, with 60 percent indicating they had taken some action to make reductions in their energy use.
In 1980, we introduced the Computerized Commercial Energy Analysis Program, an onsite audit for small to medium-sized bus-inesses. The program has the potential for reaching 40.000 such customers.
In total, we are offering custom-ers a variety ofpositive approaches 10 to cutting peak energy use and, at the same time, controlling their monthly bills.
Research While we strive to get the most out of today's energy technologies and fuels, we recognize the need to research, develop and put to use, where appropriate, those alter-Long-Range Forecast of Peak Load and Electric Resources megawatts 5,000-4,000-resources peak load 2,000 1,000
'76 actual
'80 forecast
'87 e~).'Our toad forecasts center on two con-tradictory phenom.
ena: conservation and Arizona's rapid growth. As we pro-mote thefirstand planfor the second, ft's vttat that our customers understand the welt-being ofArizona isfirstin our minds. IVe live here, too."
John Ogden, Vice President, Administration and Economic Planning native energy sources which show real promise.
We have completed successful operational testing of a molten salt receiver. a critical step in con-verting Unit One ofour Saguaro Power Plant near Tucson to solar power. This testing is a major step toward final design and con-struction of the solar receiver, which should provide heat suffi-cient to power from 60 to 100 megawatts of the unit's 115-megawatt output, the remainder being fired conventionally by oil or natural gas.
At Saguaro, sunlight reflected from 10,000 computer-controlled mirrors willfocus on the tower-mounted receiver. From there, a molten salt solution willtransfer the 1050'. heat to exchangers which willproduce steam to drive the unit's turbine generators.
Costs of the project, which we have planned for completion by 1985, willbe shared by the com-pany and the federal government.
Plans are also under way for construction ofa solar power plant at Sky Harbor International Air-port in Phoenix. This facilitywill be one ofthe world's largest photo-voltaic solar generation systems.
converting sunlight directly to electricity by means ofphotovoltaic cell concentrator modules.
When completed, the seven-acre installation willprovide 225 kilowatts of electric energy. While this is only about 5 percent of the power needed for the East Terminal of the airport, the project willlay the groundwork forpotential future solar installations.
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Research into other advanced energy sources is also undenvay.
Coal willcontinue to be one ofour major fuel sources, but we are looking for better ways to use this plentiful fuel in existing plants.
Through a proposal to the Depart-ment of Energy, we have solicited a grant to perform a study to determine ifa coal-gasification facilitywould be feasible in Arizona.
We also have confidence that advanced nuclear energy systems offer great possibilities for the future. In cooperation with Gas Cooled Reactor Associates and some 30 other utilities, we are working toward final commercial-ization of high temperature gas cooled nuclear reactors. These reactors can operate on a range of nuclear fuels and could accom-modate changes in national fuel policIes.
Looking toward the better use ofour generation capability, we are gaining operating experi-ence and performance data on a 20-unit fleet of electric vehicles.
The fleet is the largest in the inter-mountain region of the West and is part of a three-year coopera-tive study with the U.S. Depart-ment ofEnergy. The demonstration willprovide valuable information about the maintenance and opera-tion of electric vehicles which displace petroleum fuel and, if widely used, can have a beneficial effect on our electric system load profile.
IN g PgI Safety and environment Throughout our company's operations, we take into consider-ation the impact our actions will have on the environment in which we live and serve and on public health and safety.
In the fall of 1980, the Palo Verde Safety Evaluation Task Force, established to conduct a complete review and analysis of the Three MileIsland accident and it's implications for Palo Verde, "We'lsee major changes in our pat-terns ofenergy production and use ouer the next twen-ty gears. We'e atready developing ways to burn coal more efficiently, solving the puzztes ofadvanced nuclear technology, improuing our command ofemerging alternatiues such as solar
...it witlbe a vital...and challenging... transition."
Bruce Broussard Vice President, Research and Development g/ e.
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l '~
released its final report. The report concludes that the plant "can be operated safely and reliably ifthe project is completed as planned and commitments made by APS are fulfilled."Our management has committed itself to imple-mentation of the Task Force's recommendations.
The Task Force itself, consist-ing of executives from Palo Verde owner-companies, the construc-tion company and its suppliers, two university-level educators and legal counsel, devoted more than 1,000 man-days to the project. An additional 3,500 man-days were absorbed by sup-porting studies in the massive review and analysis.
We continue to work closely with other study groups, including the President's Nuclear Safety Oversight Committee ofwhich Arizona Governor Bruce Babbitt is chairman, to see that Palo Verde is a safe, productive energy producer.
"To gainfullvalue from the voice ofthe consumer, the company must mant io hear from him and must believe ihat he is right untilproved otherwise.
This positive attitude... is a commitment we believe management must adopt ifitis to maximize itssuccess in the increasingly 'consumerist'usiness environment ofthe... 1980's."
Alan R. Andreasen and Arthur Best, Harvard Business Review In 1980 we reached agreement with environmental groups and the State of New Mexico on a new sulfur dioxide (SO,) control regula-tion for the Four Corners Power Plant. Accordingly, the New Mexico Environmental Improvement Board adopted a 72 percent SO2 removal requirement for Four Corners Units 4 and 5, which is 4.5 percentage points higher than was called for by the previous regulation. At the same time, the board extended the date for final compliance with the regulation to December 31, 1984.
Equipment to meet the new regulation willbe installed on Units 4 and 5, in addition to a $ 180 millionparticulate-removal baghouse system now under con-struction and scheduled for opera-tion by December of 1982.
The $500 millioncost ofboth the SO2 and particulate removal systems for Units 4 and 5 willbe divided among the six owners of the units. APS'hare is approxi-mately $75 million.
The new SO2 regulation is subject to approval by the Environ-mental Protection Agency (EPA).
I ailure to obtain that approval would entitle APS to terminate the agreement, but would also expose the company, for some months, to the possibility ofnon-compliance penalties or a unit shut-down period.
We face still other areas ofenvironmental concern. For instance, we are greatly concerned about new visibilityregulations proposed by the EPA, believing their enforcement could lock up as much as 89 percent of the West from energy and resource develop-ment. We have joined with other western utilities in recommending that the EPA adopt a program of study to resolve uncertainties about the causes ofvisibilityimpair-Customer Cost per KwhResidential C/kilowatthour 10-8-
6-current dollars constant dollars "There's no question that our customers find many facets of our business d(ffi-cult to understand, or even irrelevant, as they wage their own battle with inflation. Infact, their battle is our battle... we must make every effort to communicatethis to them in ways they can understand and accept."
O. Mark DeMichele Vice President, Corporate Relations ment and the methods and costs of protection.
Communicating our messages Through our communications, public affairs, community relations and marketing activities, we are dealing assertively and respon-sibly with the groups whose actions affect our business.
The issues are formidable:
nuclear power, rates and rate design, and the impact of laws and regulations on the conduct of our business, to name a few.
In 1980, two propositions which would have effectively elimi-nated the nuclear option in the state, failed to make the ballot.
This failure was due, in part, to our efforts to bring home to Arizo-nans the point that a secure energy future for the state is dependent on the availability of nuclear generation.
This recognition was reflected in a survey ofpublic attitudes toward energy and nuclear issues, taken in November of 1980, among residents of the state's most pop-ulous counties.
The survey made clear that Arizonans recognize the key role of nuclear power and perceive a link between the completion ofPalo Verde and the state's energy future, supporting completion of the project by a two-to-one margin.
12
'76 actual
'80 forecast
'87
We also made it clear, through our open and thorough Palo Verde safety evaluation, that APS is com-mitted, first and foremost, to safe nuclear operations.
In November, our belief in our right and need to speak out pub-liclywas strengthened when the Arizona Corporation Commission decided that more restrictive poli-cies involving recovery of utility advertising expenses would "limit the right ofa company to free expression." The commission expressed its concern that the right of free speech guaranteed under the First Amendment ofthe Consti-tution "not be abridged or compro-mised in any fashion."
Innovative new rates, such as the capacity-orIented EC-l, as well as governmental energy programs which may have to be imple-mented, willrequire substantial customer education. We continue to be strongly committed to in-forming our customers about all the rate options and conservation incentives available to them.
While much ofour activity is issue-oriented, we have not neglected our obligation to ensure that we are keeping faith with our basic service goals. For instance, we have instituted a customer response program which encour-ages customers to directly com-ment on their perceptions of any "We have a great need to attract and hire highly qualified 1 1l./~
individuals. We'Ue stepped up our recruiting and training efforts, especially in the nuclear area.
State-of-the-art control room simulators at our power plants are one indicator ofthe premium we place on training.
Ourjob is getting tougher, but we'e committed to getting it done."
Joe Gelinas Vice President Employee Relations aspect of APS operations. The program helps us evaluate overall customer attitudes, as well as followup on specific service or billingproblems.
We recognize that the energy future ofour state and the nation willbe determined largely by those who speak out on the issues affect-ing that future. We are speaking out, reaching all those whose actions have a bearing on the conduct ofour business.
Finally, about our employees The decisions we make and the actions which must be taken to enhance our company's Ilnan-cial integrity have an impact, on every one of us. Yet in these trying times, our employees have proved their willingness and ability to contribute substantially to this effort. Our successes are directly attributable to the men and women who make our company run.
13
SELECTED FINANCIM DATA 1980 1979 1978 1977 (Thousands of Dollars, Except Per Share Data) 1976 Operating Revenues Operating Expenses:
Operation and maintenance Depreciation and amortization Taxes Total ~,
Operating income Other Income ~
Interest Deductions Net Net Incoine Preferred Dividend Requirements
'arnings for Common Stock Total Assets 432.886 64.412 98,886 371,983 57,021 84,549 291,908 48.295
= 83,314 269,581 40,370 71,885 215,500 36,621 59,617 596,184
'13;553
'23,517 '81.836 311,738 169,576 150,870,
'38,700 111,848 83,041 43,341 69,627 143,290 25,062.
26,760 56,052 121,578 21,882 14.914 46.855 106,759 17,471 12.662 40.499 84,011 14.628 26,301 48,863 60,479 13,311 1 18,228 99,696 89.288 69,383
- 47. 168 2,928,484 2,475,332 2,039,420 1,673,171 1,402.990 765,760 664,423 562,217 493,684 394,779 Long-term Obligations and Redeemable Preferred Stock 1,455.286 1,180,120 991,173 855,534 773,639 26,576,428 22.500,000 22,970,741 19, 105, 191 Common Stock Data:
Book value per share 21 97 22 75 22 56 21 83 20 64 Earnings per share (based on average shares outstanding) 2.75 2:90 3.15 3.02 2.47 Dividends declared per share 2.06 1.94 1.73 1.53 1.39 Shares of common year end 47,813,847 38,181,297 32,777,258 average 42,960,655 34,426,346 28,363,223 Number of common shareholders 110,416 92,396 78,275 66,358 56,011
- Federal and State income taxes are included in Taxes, Other Income and, in 1977, Interest Deductions. Total income tax expense was as follows (in thousands):
1980, $16,519; 1979, $14,422; 1978, $13,937; 1977, $6,265; 1976, $1,554.
OTHER FINANCIALAl%3 OPERATING STATISTICS 1980 1979 1978 1977 1976 Capitalization:
Common equity Non-redeemable preferred stock Redeemable preferred stock Long-term debt Project financing liability Total 118,561 185,280 1,048,500 221,506 118,561 156,000 828,464 195,656 118,561 100,000 763,450 127,723 118,561 100,000 701,917 53,617 68,561 100,000 673,639 S 2,624,498 S 2,167,339 S 1,849,083 S 1,554,265 S 1,306,610 (Thousands of Dollars)
S 1,050,651 S
868,658 S
739,349 S
580,170 S
464,410 UtilityPlant Gross UtilityPlant Depreciated S 3,199,927 S 2,735,073 S 2,288,604 S 1,889,320 S 1,580,672 S 2,694,408 S 2,292,341 S 1,901,044 S 1,547,486 S 1,279,533 Number of Employees at Year End Average Wage per Hour 5,538 S
10.53 S
5,263 920 S
4,951 857 S
4,570 799 S
4,042 7.44 Electric:
Electric resources (kw)
Peak load (kw)
Electric sales total (mwh)
Number of customers at year end 3,307,200 3,077,200 2,772,700 2,579,300 11,877,722 11,584,898 421,803 401,983 3,061,600 2,872.500 2,548,900 2,373,400 10,912,704 10,481,972 378,553 357,884 2,790,700 2, 190,900 9,606,571 342.059 Gas:
Total gas sales (m therms)
Number of customers at year end 432,277 340,248 467,088 340,343 449,451 339,803 463,643 339,949 491,007 339,265 Psge ~
NAVAJOiJ/0)
UTAH COLORADO Fsrmington, N.M.
FOUR CORNERS iJ/Ol
~ Klngmsn 0
Winslow Prescott ~
PALO VERDE ~
)J/0)
YUCCA YUCCA
)J/0)
Ee Turns SAGUARO Tucson 0 LEGEND:
Ar>/CO W Si OCOTILL/ ~ Oiobs PHOT+IX P
CHO LA J
Oougtsett About the Company Arizona Public Service is engaged principally in the generation and sale of electricity and in the purchase and sale of natural gas.
Successor to a series of small utilityoperations originating in 1886, the company was incorporated in 1920 under the laws ofArizona.
The company's service territory includes all or part ofllofArizona's 14 counties. It is estimated that the company's electric and/or natural gas serv-ice reaches approximately 1,889,000 or about 70%, of the state's population.
Arizona Public Service Company's principal executive offices are located at 411 North Central Avenue, Phoenix, Arizona. Phone (602) 271-7900.
htejor Aps power picots )J/0 Joint ownership) la Prindgsl APS Trsnsm)stion Lines Trerumiss)on Lines Opersted ior Others 15
LINFMOF BUSIIMXi&S Operating revenues, and operating income before income taxes, attributable to electric and gas operations of the company for the five years ended December 31, 1980 were as follows:
Operating Revenues (Millionsof Dollars)
Electric Gas Operating Income Before Income Taxes (Millionsof Dollars)
Electric Gas Year Ended December 31, Amount Percent Amount Percent Amount Percent Amount Percent 1980 1979 1978 1977 1976
$621.9 533.2 452.4 397.3 312.0 81.2 80.3 80.5 80.5 79.0
$ 143.9 131.2 109.8 96.4 82.8 18.8 19.7 19.5 19.5 21.0
$ 180.5 151.5 141.0 109.2 78.8 96.6 92.2 92.4 91.3 88.0
$ 6.3 12.9 11.6 10.4 10.7 3.4 7.8 7.6 8.7 12.0 OPERATING BEVENtJFD 1980 1979 1978 (Thousands ofDollars) 1977 1976 Electric:
Residential Commercial Industrial Irrigation Other Total Transmission for others Miscellaneous services Total Electric Operating Revenue Gas:
Residential Commercial Industrial Irrigation Other Miscellaneous services Total Gas Operating Revenue Total Operating Revenues
$220,920 210,226 95,644 19,215 59,391 605,396 8,817 7,651 621,864 65,470 31,727 27,145 17,218 1,510 826 143,896
$765,760
$ 191,066 179,534 86,563 14,193 50,402 521,758 8,731 2,696 533,185 64,123 29.371 22,128 13,400 1,324 892 131,238
$664,423
$ 158,383 155,669 72,677 12,252 41,716 440,697 9,021 2,713 452,431 53,879 24.223 17,646 11,969 1,169 900 109,786
$562,217
$ 135,274 135,585 61,617 13,512 39,657 385,645 9,328 2,291
$ 106,334 108,506 47,055 9.799 28.565 300,259 9,591 2,119 397,264 311,969 48,351 20,779 13,219 12,359 860 852 42,922 17,156 10,130 10,979 830 793 96,420 82,810
$493,684
$394,779
MANAGEMENT'SDISCUSSION OF FINANCIALCONSIDERATIONS Liquidity and Captial Resources As indicated earlier in this Annual Report and in Notes 3, 4 and 5 to the Financial Statements, the company needs large amounts of capital for its ongoing construction program and for the refunding of maturing securities, and it is heavily reliant on external financing to meet those requirements.
As also indicted earlier, the company has a degree of flexibilityin adjusting its construction program to its financing capability. However, that degree is limited, and the company's long term liquiditywilldepend on its access to the capital markets, which in turn will depend on sufficiency of the com-pany's rates to provide adequate coverages on its senior securities and an adequate rate of return on its common stock equity.
Adequate earnings coverages are critical to the maintenance (and hopefully the improvement) of credit ratings on the company's senior securities and, as calculated in accordance with the governing instruments, are prerequisite to the company's legal ability to issue such securities.
See page 15 with respect to the company's historical capital struc-ture.
Its target structure would consist of no more than 50%
debt (which, for comparison purposes, would include project financing liability plus current maturities and short-term obligations) and 40% common stock equity, with the balance consisting of preferred stock. The company does not contemplate any major "off-balance sheet" financing arrange-ments in the foreseeable future. The company regards common stock equity as its most expensive form of permanent financing, but it recognizes the desirability of bringing that category to the 40% level In order to main-tain credit ratings on its senior securities, and it plans to achieve approxi ~
mately that level by the end of 1981.
It appears to the company that purchasers of new issues of long-term debt and preferred stock will continue to demand highinterest and dividend rates for some time to come, and that its embedded cost of capital willtherefore rise rapidly as maturing securities, bearing relatively low rates, are refunded and the company's plant expands.
See Note 6 to the Financial Statements with respect to short-termbor-rowings available to the company (there being a statutory limitation on the amount of such borrowings that can be outstanding without an order from the Arizona Corporation Commission).
Funds from operations have con-tributed only marginally to total sources of funds in the last few years (see the Statements of Changes in Financial Position). That situation is expected to continue in some degree until Palo Verde Unit 1 is included in rate base so as to give rise to cash earnings rather than the non-cash allowance for funds used during construction. Another constraint on the company's retention of funds from operations has been the necessity to increase common stock dividends periodically in order to retain investor interest (see the Statements of Income).
Electric:
Volume increases (1)............
Price increases (2)..............
Total increase................
Gas:
Volume increases (decreases)
(1)..
Price increases (2)..............
Net increase.................
(Thousands of Dollars)
$11,098
$25,476
$16,325 77,581 55,278 38,842
$88,679
$80,754
$55,167
$(7,239)
$ 3,668
$(2,951) 19,897 17,784 16,317
$12,658
$21,452
$13,366 Operating Results Total operating revenues reflect effects of rate increases and adjust-ment clauses (see Note 1c to the Financial Statements) on prices of units sold. Operating revenues also reflect the volume changes in unit sales shown on page 15. The foregoing factors contributed to annual increases (decreases) in revenues over revenues for the preceding calendar year as follows:
1980 1979 1978 (1) Derived by multiplying year-to-year increases in units sold by the weighted average of rate levels in effect during 1977.
(2) Year-to-year increases in revenues less the amounts shown for volume increases.
Relative contributions by rate Increases andby effects of the adjustment cfauses vary according to the timing of general rate proceedings and the extent to which accumulated effects of the adjustment clauses are incorporated in new rates.
The increase in unit sales of electricity was higher in 1979 than in other years because of a colder than normal winter. Electric safes were affected in all years by extraordinarily warm summers.
Unit sales of electricity in 1980 were depressed by effects of a copper industry labor strike. Conser-vation efforts by customers in reaction to higher energy costs have affected unit sales, are expected to continue to do so, and are being augmented by the company's own load management program. Unit sales of gas are sub-stantially affected by weather conditions; warmer than normal winters in 1978 and 1980 caused unit sales of gas to decrease from the prior year, whereas the colder than normal winter of 1979 caused the increase in unit safes In that year.
Increases in total operation and maintenance expenses reflect the volume increases in unit sales discussed above.
In addition, the cost of fuel for the generation of a given amount of electricity has risen and is expected to rise further. Cost Increases in 1979 resulted from high-priced purchases of emergency boiler gas and from limited availability of pur-chased power from hydroelectric sources.
Although unit fuel costs con-tinued to rise in 1980, the company's cost of fuel per kilowatt hour remained at 1979 levels largely due to a favorable change in fuel mix resulting from the startup of coal-fired Cholla Unit 3 in May 1980 and significantly improved capacity factors at the company's largest coal-fired plant. The cost of gas for resale has been rising rapidly, and any increased prices of gas (whether for boiler fuel or for resale) or fuel oil that may result from price deregulation would accelerate upward cost trends. See "Effects of Inflation" below.
Variations in purchased power and interchange-net reflect varying degrees of availability of relatively low-priced power from other sources (as, for example, hydroelectric power from the Northwest) and varying needs of the company to augment its own generating sources from time to time. However, the substantial increase in 1980 was due instead to the accounting treatment for over-recovered fuel and purchased power expense which is discussed in Note 1c to the Financial Statements.
See "Effects of Inflation" below in regard to maintenance
- expense, which is also a function of the size of the company's utility plant. Other operating expenses and the "other" portion of other income (deductions) include amortization or write-off of certain assets (primarily consisting of power projects in preliminary stages, including in 1979 Palo Verde Units 4 and 5, in aggregate amounts of $2,905,000 in 1978, $2,161,000 in 1979 and $474,000 in 1980).
Other operating expenses reflect large increases during 1980 in the company's insurance costs and franchise fees ($1,700,000 and $1,800,000, respectively).
Depreciation and amortization expenses increase with the size of the company's utility plant, as do ad valorem taxes which are also affected by growth in the company's operating income as used by the taxing author-ities in computing assessed valuation. Offsetting factors in "taxes-other than income" for 1979 resulted from a court decision invalidating a New Mexico generating tax and the apparent exercise of restraint by several Arizona taxing authorities. See Note 11 to the Financial Statements for both ad valorem and sales taxes (the latter being a function of operating reve-nues)
~ which are the principal "taxes-other than income". Income tax details appear in Note 8 to the Financial Statements.
The aggregate amount of the allowance for funds used during con-struction (AFC), divided between other income and a credit to interest 17
deductions, is primarily a function of the amount of construction work in progress during any given period. See Notes 1d and 10 to the Financial Statements for increased rates of AFC and cessation of its accrual on those portions of construction work in progress that are included In rate base.
See "Liquidityand Capital Resources" above with respect to the non.cash aspect of AFC.
The substantial increase in interest on long-term debt and liability since 1978 reflects large amounts of new borrowings and increases in project financing liability at relatively high interest rates (see "Liquidity and Capital Resources" above and Note 5 to the Financial Statements).
The increase In Interest on short-term borrowings has resulted primarily from increased borrowings and interest rates (see Note 6 to the Financial Statements).
Issues of preferred stock (giving rise to the increased dividend require-ments) and common stock (giving rise to the increased average number of shares outstanding) are summarizedin Notes 2 and 3 to the Financial Statements.
The company's net income and its earnings for common stock repre-sent composites of cash and non-cash items (see the Statements of Changes in Financial Position) and, in part, reflect accounting practices unique to regulated public utilities (see Note 1 to the Financial Statements).
Also see Note 10 to the Financial Statements in regard to possible effects of refundable rates on net income.
Effects of Inflation In contrast to the analysis of increases in operating revenues in the table at the beginning of "Operating Results" above, it is sometimes diffi-cult, in the case of operation and maintenance
- expenses, to distinguish between effects of volume increases and rises in unit costs (which, for purposes of this discussion, are all attributed to inflationary pressures).
Certain inflationary effects, such as those on costs of generating fuel, are passed through to customers pursuant to the rate adjustment proce-dures summarized in Note 1c to the Financial Statements.
Nevertheless, the company attempts to minimize such effects by means that include increasing the availability of its coal-fired units to result in a more econom-ical fuel mix; that increase has been achieved by an intensive maintenance
- program, the cost of which is not covered by the adjustment clauses.
There are a number of other major expense items that are also beyond the scope of the adjustment clauses.
Inflationary pressures on these items have given rise to a significant earnings attrition between general rate increases which, in the company's judgment, has received inadequate regulatory consideration and upon which it based its unsuccessful court appeal of the Arizona Corporation Commission's action in 1980 as dis-cussed earlier in this Annual Report.
See Note 14 to the Financial Statements for perspectives of other effects of inflation.
ACCOUNTANTS'PINION Arizona Public Service Company:
We have examined the balance sheets of Arizona Public Serv-ice Company as of December 31, 1980 and 1979 and the related statements of income, retained earnings and changes in financial position for each of the three years in the period ended December 31, 1980. Our examinations were made in accordance with gen-erally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
As described in Note 10 of Notes to Financial Statements, retail revenues of the company include amounts which may be subject to refund. The ultimate outcome of this uncertainty cannot presently be determined, and no allowance for refunds, if any, that may result has been made in the financial statements.
Deloitte Haskins 8 Sells, Certified Public Accountants Phoenix, Arizona 85003 In our opinion, subject to the effects on the 1980 and 1979 financial statements of such adjustments, if any, as might have been required had the outcome of the uncertainty referred to in the preceding paragraph been known, such financial statements present fairly the financial position of the company at December 31, 1980 and 1979 and the results of its operations and the changes in its financial position for each of the three years in the period ended December 31, 1980, in conformity with generally accepted accounting principles applied on a consistent basis.
I'S~~
February 25, 1981 18
STATEMENTS OF INCOME For the Three Years Ended December 31, 1980 1980 1979 (Thousands of Dollars) 1978 Operating Revenues (Note 10):
Electric Gas 621,864 143,896 533,185 131,238 452,431 109,786 Total Operating Expenses:
Operation and maintenance:
Fuel for electric generation Purchased gas Purchased power and interchange net Other production expenses Transmission and distribution Maintenance Other operating expenses Total Depreciation and amortization Taxes other than income Income taxes (Note 8)
Total Operating Income Other Income (Deductions):
Allowance for equity funds used during construction Income taxes (Note 8)
Othernet Total Gross Income Interest Deductions:
Interest on long-term debt and liability Interest on short-term borrowings Debt discount, premium and expense Allowance for borrowed funds used during construction credit Total Net Income (Note 10)
Preferred Stock Dividend Requirements Earnings for Common Stock 765,760 664,423 562,217 133,557 96,695 65,292 14,831 16,464 51,565 54,482 432,886 64,412 81,677 17,209 596,184 169,576 128,472 81,371 38,727 12,622 14,010 48,338 48,443 371,983 57,021 70,993 13,556 513,553 150,870 88.426 63,314 31,218 10,724 12,985 41,845 43,396 291,908 48,295 69,397 13,917 423,517 138,700 39.076 690 3,575 43,341 212,917 24,696 (866) 2,930 26,760 177,630 16,536 (20)
(1,602) 14,914 153,614 87,609 5,912 665 118,403 8,624 710 66,152 2,566 644 (22,507)
(38,134)
(58,110) 56,052 121,578 21,882 46,855 106,759 17,471 69,627 143,290 25,062 118,228 99,696 89,288 Average Common Shares Outstanding Per Share of Common Stock:
Earnings (based on average shares outstanding)
Dividends declared See Notes to Financial Statements.
42,960,655
$2.75
$2.06
$2.90
$ 1.94
$3.15
$ 1.73 34,426,346 28,363,223
BALANCESHE&&
December 31, 1980 and 1979 Assets 1980 1979 (Thousands of Dollars)
UtilityPlant:
Plant in service (Notes 4 and 7):
Electric Gas Common, used in all services Total Less accumulated depreciation and amortization Plant in service depreciated Construction work in progress (Note 5)
Plant held for future use Utilityplantdepreciated
$ 1,869,397 131,844 67,407 2,068,648 505,519 1,563,129 1,123,078 8,201 2,694,408
$ 1,574,313 127.305 57,775 1,759,393 442,732 1,316,661 973,609 2,071 2,292,341 Investments and Other Assets:
Investments in and receivables from subsidiaries Other investments and notes receivable Other physical property (less accumulated depreciation:
1980, $71,000; 1979, $43,000)
Total investments and other assets 35,789 2,540 21,446 59,775 22,560 2,958 906 26,424 Current Assets:
Cash (Note 6)
Special deposits and working funds (Note 6)
Accounts receivable:
Service customers Miscellaneous Allowance for doubtful accounts Materials and supplies (at average cost)
Fuel (at average cost)
Deferred fuel costs and prepayments Total current assets 6,622 3,052 56,109 20,413 (1,684) 32,147 40,128 6,171 162,958 5,819 3,074 54.761 12,387 (1,718) 27,863 35,198 9,357 146,741 Deferred Debits:
Unamortized debt issue costs Other Total deferred debits Total 7,493 3,850 11,343
$2,928,484 5.970 3,856 9.826
$2,475,332 20
Liabilities 1980 1979 (Thousands of Dollars)
Capitalization (Notes 2, 3, 4 and 5):
Common stock Premiums and expenses Retained earnings Common stock equity Non-redeemable preferred stock Redeemable preferred stock Long-term debt less current maturities Project financing liabilityless current maturities Total capitalization 119,535 639,794 291,322 1,050,651 118,561 185.280 1,048,500 221,506 2,624,498 95,453 512,003 261,202 868,658 118,561 156,000 828,464 195,656 2,167,339 Current Liabilities:
Notes payable to banks Commercial paper (Note 6)
Current maturities of long-term debt (Note 4)
Current maturities or project financing liability(Note 5)
Accounts payable Accrued taxes Accrued interest Accrued dividends Deferred fuel revenue and other Total current liabilities 7,000 26,000 3,688 45,001 78,388 44,600 20,953 2,119 44,588 272,337 54,000 86,639 79,342 39,471 17,257 1,866 10,085 288,660 Deferred Credits and Other:
Customers'dvances for construction Deferred income taxes Other Total deferred credits and other 9,241 12,985 9,423 31,649 5,383 7,334 6,616 19,333 Commitments and Contingencies (Note 10)
Total
$2,928,484 32,475,332 See Notes to Financial Statements.
STATEMENTS OF CHAIMGES INFINANCIALPOSITION For the Three Years Ended December 31, 1980 Source of Funds:
Funds from operations:
Net income Principal non-fund charges (credits) to income:
Depreciation and amortization Allowance for equity funds used during construction Deferred income taxes Equity in undistributed (earnings) loss of unconsolidated subsidiaries Total funds from operations Funds from external sources:
Common stock Preferred stock Long-term debt Project financing liability Short-term borrowings net Total funds from external sources Other items net Decrease in working capital*
Total source of funds Application of Funds:
Capital expenditures Allowance for equity funds used during construction Funds used for capital expenditures Repayment of long-term debt Redemption of redeemable preferred stock Dividends on preferred and common stock Increase in working capital*
Total application of funds Increase (Decrease) in Working Capital*:
Cash and temporary cash investments Accounts receivable Materials, supplies and fuel Deferred fuel costs and other Accounts payable and accrued expenses Deferred fuel revenue and other Net increase (decrease)
'Excluding short-term borrowings net and current maturities of long-term debt and project financing liability.
See Notes to Financial Statements.
1980
$ 143,290 64,412 (39,076) 5,651 (299) 173,978 152,332 48,000 223,905 70.851 (21,000) 474,088 9,097 26,410
$683,573
$504, 120 (39,076) 465,044 86,639 18,720 113,170
$683,573 S
781 9.408 9,214 (3,186)
(8,124)
(34,503)
S (26,410) 1979 (Thousands of Dollars)
$ 121,578 57,021 (24,696) 3,733 (196) 157,440 97,061 59,370 152,005 67,933 15,000 391,369 7,840
$556,649
$468, 116 (24,696) 443,420 4,594 4,000 88.306 16,329
$556,649 S
1,718 4,876 24,216 732 (11,606)
(3,607)
S 16,329 1978
$ 106,759 48,295 (16,536) 2,601 1,754 142,873 118,558 66,300 74,106 39,000 297,964 10,946 3,836
$455,619 S405,789 (16,536) 389,253 552 65,814
$455,619 S
132 17,170 140 2,081 (26,619) 3,260 S
(3,836) 22
STATEMENTS OF RETAINEDEARIMINGS I or the Three Years Ended December 31, 1980 Retained earnings at beginning of year AddNet income Total Deduct Dividends:
Preferred stock (see below)
Common stock (Notes 2, 3. 4 and 5)
Total Retained earnings at end of year Dividends on preferred stock:
S1.10 preferred
$2.50 preferred S2.36 preferred
$4.35 preferred Serial preferred:
$2.40 series A
$2.625 series C S2.275 series D
$3.25 series E
$8.50 series F
$8.50 series G
$ 10 series H
$ 10.70 series I
$8.32 series J
$8.80 series K
$9.70 series L Total 1980
$261,202 143,290 404,492 25,062 88,108 113,170
$291,322 S
172 258 94 326 576 630 455 1,040 614 683 3,787 3,210 4,160 5,280 3,777 S 25,062 1979 (Thousands of Dollars)
$227,930 121,578 349,508 21,882 66,424 88,306
$261,202 S
172 258 94 326 576 630 455 1,040 1,737 745 3,947 3,210 4,160 4,532 S 21,882 1978
$ 186,985 106,759 293,744 17,471 48,343 65,814
$227,930 S
172 258 94 326 576 630 455 1,040 1,785 765 4,000 3,210 4,160 S 17471 See Statements of Income for dividends per share of common stock.
See Notes to Financial Statements.
NOTES TO FINANCE STATEMENTS For the Three Years Ended December 31, 1980 1.
Summary of Significant Accounting Policies (a) System of accounts-The accounting records of the company are maintained in accordance with the uniform system of accounts prescribed by the Federal Energy Regulatory Commission (FERC) and used by the Arizona Corporation Commission (ACC).
(b) Plant and depreciation-Property is stated at original cost as defined for regulatory purposes.
The cost of additions to utility plant and replacements of retirement units is capitalized.
Replacements of minor items of property are charged to expense as incurred. In addition to direct costs, capitalized items include the present value of certain future lease payments (see Note 4), research and development expenditures pertaining to construction projects, indirect charges for engineering, supervision, transportation and similar costs, and an allowance for funds used during construction. Costs of depreciable units of plant retired are eliminated from plant accounts and such costs plus removal expenses less salvage are charged to accumulated depreciation. Contributions in aid of construction are credited to plant cost.
Oepreciation is provided on a straight-line basis at rates authorized by the ACC annually, which have ranged from 2.95% to 4.16% for electric plant, 3.25% to 3.49% for gas plant, and 2.85% to 15.50% for common and general plant.
(c) Revenues and recognition of certain costs-Operating revenues are recorded when billed on a monthly cycle billing basis. Adjustment clauses applicable to the recovery of fuel and purchased power expense through retail rates involve a hearing procedure that can give rise to appreciable timing differences-under-recovered expense is deterred to be matched against revenues that will result from the procedure in the subsequent period; and over-recoveries are added to "Purchased power and interchange-net" as an expense item in the statement of income and to "Deferred fuel revenue and other" as a liability item on the balance sheet.
Other procedures apply to the pass-through of tuel costs to wholesale customers, resale gas costs and specified taxes. The estimated cost of gas purchased from the company's supplier, but not billed to gas 23
customers, is deferred to be matched against revenues, in the subse-quent period.
(d) Allowance for funds used during construction In accordance with the regulatory accounting practice prescribed by FERC and the ACC, the company capitalizes an allowance for the cost ot funds used to finance its construction program ("AFC").AFC, which does not represent current cash earnings, is defined as the net cost during the period of construction of borrowed funds used for construction and a reasonable rate on equity funds so used. The calculated amount is capitalized as a part of the cost of utility plant.
AFC has been calculated using composite rates of 9% in 1978 through June 30, 1979, 10%
from July 1, 1979 through December 31, 1979 and 11% in 1980, except for AFC related to project financing which was computed at the actual rate thereon. AFC has ceased to accrue on those portions of construction work in progress included in rate base.
(e) Income taxes-The company uses accelerated depreciation methods for income tax purposes.
As prescribed by the ACC for rate mak/ng and accounting purposes, the company began providing deferred income taxes for the difference between acceterated and straight line tax (AOR) depreciation of property placed in service after January 1, 1977.
Income tax reductions arising from timing differences respecting certain other items of Income and expense reported differently for income tax and financial reporting purposes and from allowable investment tax credits are reflected currently in income, in accordance with orders or practices of the ACC tor rate making purposes.
(f) Investments in subsidiaries Investments in subsidiaries are reported at equity.
(g) Research and development costs-The company expenses research and development costs on a current basis, except that costs which may result in utility plant are deferred for subsequent inclusion in plant or to be written off if the applicable project is abandoned.
2.
Common and Non-Redeemable Preferred Stock The balances at December 31, 1980 and 1979 of common stock, and of preferred stock which is not redeemable except pursuant to call by the company at its option, are shown below.
Authorized Number of Shares Outstanding Per Share Par Value Outstanding Call Price Per Share(b)
Decem-ber 31, 1980 Decem-ber 31, 1979 (Thousands of Dollars)
Decem-Decem-ber 31, ber 31, 1980 1979 Common Stock..
.. 100,000,000 47,813,847 38,181,297 2.50
$119,535
$ 95,453 Non-redeemable Preferred Stock (cumulative)
$ 1.10 preferred...........
$2.50 preferred...........
$2.36 preferred...........
$4.35 preferred...........
Serial preferred............
$2 40seriesA...........
$2.625 series C..........
$2.275series 0......,...
$3.25 series E........,..
Serial preferred........
$8.32 series J...........
Serial preferred............
Total................
160,000 105,000 120,000 150,000 1,000,000 4,OOO,OOO(a) 3,000,000 155,945 155,945 103,254 103,254 40,000 40,000 75,000 75,000 240,000 240,000 240,000 240,000 200,000 200,000 320,000 320,000 500,000 500,000 1,874,199 1,874,199 25.00 3,898 3,898 50.00 5,163 5,163 50.00 2,000 2,000 100.00 7,500 7,500 50.00 12,000 12,000 50.00 12,000 12,000 50.00 10,000 10,000 50.00 16,000 16,000 100.00 50,000 50,000 25.00
$118,561
$ 118,561
$ 27.50 51.00 51.00 102.00 50.50 51.00 50.50 (c)
(d)
(a) This authorization covers the outstanding redeemable preferred shares shown in Note 3, as well as the non-redeemable shares indicated above.
(b) In each case plus accrued dividends.
(c) From $51.50 through February 28, 1983; then to $51.00 thereafter.
(d) Not callable prior to September 1, 1982 through certain refunding operations that would result in a lower rate of cost to the company than the divi-dend rate on the shares to be redeemed; otherwise at $108.32 through August 31, 1982 to $101.00 after August 31, 1992.
The holders of preferred stock are entitled to one vote for each share held of record, as are holders of common stock. Special requirements for favorable votes ot holders of preferred stock, voting by the classes respec-tively prescribed tor the several purposes, pertain to (i) certain conver-sions or exchanges of outstanding preferred stock, (ii) the authorization of any stock ranking prior to the preferred stock, (iii) making any change in the terms and provisions of preferred stock that would adversely affect the rights and preferences of the holders thereof, (iv) the issuance ot any addi-tional shares of preterred stock except under prescribed circumstances or (v) a merger, consolidation or sate of substantially all the assets ot the company. The foregoing voting rights attach to both redeemable and non-redeemable preferred stock, as do the rights that would arise out of divi-dend arrearages as discussed in Note 3.
24
Common and non-redeemable preferred stock sales and changes in premiums and expenses during the three years ended December 31
~ 1980 were as follows (dollars in thousands):
Description Balance, December 31, 1977...
Common Stock Common Stock Par Value Amount
$ 66,441 15,502 Number of Shares
...26,576,428 6,200,830 Non-Redeemable Preferred Stock (cumulative)
Number of Shares Par Value Amount 1,874
~ 199
$ 118,561 Premiums and Expenses Net*
$326,744 102,732 Balance, December 31, 1978 Common Stock
...32,777,258 5,404,039 81,943 13,510 1,874
~ 199 118,561 429,476 82,527 Balance, December 31
~ 1979..
Common Stock Balance, December 31, 1980..
.. 38,181,297
. 9,632,550 95,453 24,082 1,874,199 118,561
.. 47,813,847
$119,535 1,874,199
$ 118,561 512,003 127,791
$639,794
- Premiums and expenses-net include those of the redeemable preferred stock issues shown in the second table in Note 3.
The company has a dividend reinvestment and stock purchase plan whereby newly issued shares of its common stock may be purchased at market on the applicable dates by any participant in the plan. It also has an employee savings plan under which its own periodic contributions probably would, and the investment of certain funds contributed by participating employees could, involve its issuance of new shares of common stock.
On February 27, 1981, subsequent to the date of the accountants'pinion, the company filed a preliminary prospectus relating to the issu-ance of 4,000,000 shares of its common stock. The proceeds are planned to be used to reduce or repay short-term borrowings primarily incurred for, and temporary investment or deposit pending application to, the construc-tion program.
3.
Redeemable Preferred Stock The balances at December 31, 1980 and December 31
~ 1979 of preferred stock which is redeemable at the option of the holders or pursuant to sink-ing fund obligations, in addition to being callable by the company, are shown below.
Number of Shares Outstanding at December 31, 1980 1979 Per Share Par Value Outstanding at December 31, 1980 1979 (Thousands of Dollars)
Call Price Per Share(b)
Redeemable Preferred Stock (cumulative) serial preferred (a)
$8.50 series F....
$8.50 series G....
$ 10 series H.....
$10.70 series I...
$8.80 series K....
$9.70 series L....
Total..........
29,200 75,600 368,000 300,000 600,000 480,000 1,852,800 193,200 82,800 384,000 300,000 600,000 1,560,000
$100.00 100.00 100.00 100.00 100.00 100.00 2,920 7,560 36,800 30,000 60,000 48,000
$185,280
$ 19,320 8,280 38,400 30,000 60,000
$156,000 (c)
(c)
(d)
(e)
(I)
(g)
(a) There is no specific authorized number of redeemable shares.
See Note 2.
(b) In each case plus accrued dividends.
(c) Redeemable at par at the option of either the company or the respective holders, in the case of series F at any time, or in the case of series G after May 30, 1982, (or earlier under certain conditions that could require the company to repurchase series G shares, which conditions did not exist at December 31, 1980), in every case upon 120 days notice.
Sinking fund provisions applicable to series F require the redemption of a total of 8,400 shares at par semiannually (representing annual payments of
$1,680,000). Sinking fund provisions applicable to series G require the redemption of a total of 3,600 shares at par semiannually (representing annual payments of $720,000).
(d) Not callable by the company prior to September 1, 1984 through certain refunding operations that would involve the issuance of common stock or result in a lower rate of cost to the company than the dividend rate on the shares to be redeemed; otherwise at $107.90 through September 1, 1981 to par after September 1, 2002. Applicable sinking fund provisions require the redemption of 16,000 shares at par annually (representing annual payments of $1,600,000).
(e) Not callable by the company prior to December 1, 1985, through certain refunding operations that would result in a lower rate of cost to the company than the dividend rate on the shares to be redeemed; otherwise at $107 through November 30, 1985 to $101.00 after November 30, 1990.
Applicable sinking fund provisions require the redemption of 15,000 shares at par annually commencing December 1, 1981 (representing annual payments of $1,500,000). The company may, but is not required to, redeem an additional 15,000 shares at par on December 1 in any year.
(f) Not callable by the company prior to March 1, 1984 through certain refunding operations that would result in a lower rate of cost to the com-pany than the dividend rate on the shares to be redeemed; otherwise at
$108.80 through February 28, 1984 to $101.00 after March 1 ~, 1994.
Applicable sinking fund provisions require the redemption of 22,500 shares at par annually commencing March 1, 1986 (representing annual 25
payments of $2,250,000).
The company may, but is not required to, redeem an additional 22,500 shares at par on March 1 in any year begin.
ning in 1986.
(g) Not callable by the company prior to March 1, 1983; thereafter at
$106.47 through February 29, 1984 to $101.07 after March 1, 1989.
Applicable sinking fund provisions require the redemption of 96,000 shares at par annually commencing March 1, 1986 (representing annual payments of $9,600,000).
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 redeem-able preferred stock (each such dividend being cumulative and of equal ranking with other such dividends, and each such requirement being cumulative and of equal ranking with other such requirements),
the company could not pay dividends on its common stock or acquire any shares thereof for consideration.
If any such dividend arrearage were to equal six or more quarterly dividends, the holders of preferred stock, in addition to their other voting rights and voting by the classes prescribed for this purpose, could elect a total of six directors (all series of serial preferred
- stock, regardless of par value and whether redeemable or non-redeemable, comprising one such class and being entitled to elect two of the six directors).
See Note 2 in regard to other voting rights of holders of preferred stock.
The combined aggregate amount of sinking fund requirements for the above issues each year for the next five years will be as follows:
$5,500,000 in 1981,
$5,060,000 in 1982 and
$3,820,000 in 1983 through 1985.
Redeemable preferred stock transactions during the three years ended December 31, 1980 were as follows (dollars in thousands):
Number Par Value of Shares Amount Description Balance, December 31, 1977...
Balance, December 31, 1978...
Redeemable preferred stock
$8.80series K..........
Sinking fund retirements:
$8.50seriesF..........
$8.50series G..........
$ 10 series H............
Balance, December 31, 1979...
$9.70 series L..........
Sinking fund retirements:
$8.50 series F..........
$8.50seriesG..........
$ 10 series H............
Balance, December 31, 1980, 1,000,000
$100,000 1,000,000 600,000 100,000 60,000 (16,800)
(7,200)
(16,000) 1,560,000 480,000 (164,000)
(7,200)
(16,000)
(1,680)
(720)
(1,600)
$156,000 48,000 (16,400)
(720)
(1,600) 1,852,800
$185,280 Premiums and expenses-net of redeemable preferred stock issues are included in the amounts presented in the second table in Note 2.
1980 1979 First mortgage bonds:
2//o series due February 1
~ 1980.... $
9.80/o series due June 1
~ 1980......
2/,'/o series due December 1 ~ 1980....
9.50'/o series due February 15, 1982..
3~/,~/o series due February 1
~ 1983....
3'$/o series due November 1, 1983....
3/'/o series due March 1, 1984......
5'/,~/o series due October 1, 1987.....
4.70/o series due March 1, 1989.....
4.80/o series due November 1, 1991..
4.45/o series due June 1, 1992......
4.40~/o series due December 1, 1992..
4.50/o series due September 1, 1993..
6.25/o series due September 1, 1997..
12.875/o series due May 15, 2000....
10.625~/o series due November 15, 2000..............
7.45/o series due March 15, 2002....
9.95~/o series due March 1, 2004.....
6.20~/o series due April 1, 2004......
6.45/o series due April 15 ~ 2007......
6/o series due January 15, 2008.....
12/,~/o series due October 15, 2009...
Unamortized discount and premium....
Total first mortgage bonds......
6.60'/o pollution control indebtedness due October 1
~ 1983 (a).............
Less securities held by trustee (b).....
Unsecured notes payable (c)...........
Capitalized lease obligation (d)..........
Total long-term debt...........
Less current maturities:
2'/,'/o series due February 1, 1980.....
9.80/o series due June 1, 1980.......
2~/,~/o series due December 1, 1980....
Sinking fund requirement on 10.625/o series due November 15, 2000 Capitalized lease obligation...........
Total long-term debt less current maturities...........
(Thousands of Dollars) 100,000 14,500 5,723 15,000 15,000 20,000 35,000 25,000 25,000 15,000 25,000 185,000 75,000 60,000 75,000 50,000 43,000 34,000 75,000 (1,082) 5,000 75,000 6,000 100,000 14,500 5,723 15,000 15,000 20,000 35,000 25,000 25,000 15,000 25,000 75,000 60,000 75,000 50,000 43,000 34,000 75,000 (1
~ 192) 891,141 792,031 65,000 (26,386) 70,000 52,433 70,000 53,072 1,052
~ 188 915,103 (5,000)
(75,000)
(6,000)
(3000)
(688)
(639)
$ 1,048,500
$828,464 4.
Long-Term Debt Details of long-term debt outstanding at December 31, 1980 and December 31, 1979 are as follows:
26 (a) Secured by a long-term letter of credit from a bank.
(b) Representing pollution control funds deposited with a revenue bond trustee and to be disbursed as construction progresses on the facil-ities financed.
(c) Consisting of $30,000,000 payable in thirteen equal quarterly installments of $2,143,000 commencing June 1, 1983 and a final install-ment on September 1, 1986 or, under certain conditions, in ten equal quarterly installments commencing June 1, 1984, with interest through August 31, 1982 at 105/o of prime (107/o thereafter); and $40,000,000 due February 1, 1985, with interest through December 31, 1981 at 105/o (107/o thereafter) of the higher of prime or 'h /o above the current rate on 90 to 119-day, dealer-placed commercial paper.
(d) Represents the present value of future lease payments (discounted at the interest rate of 7.48~/o) on a combined cycle plant sold and leased back from the independent owner-trustee formed to own the facility. The lease requires semi-annual payments of $2,299,000 through June 1983 and then $2,582,000 through June 2001, and includes renewal and pur-chase options based on fair market value. This plant is included in plant
in service at its original cost of $54,405,000; accumulated amortization at December 31, 1980 was $10,085,000.
Aggregate annual payments which willbe due on long-term debt and for sinking fund requirements through 1985 are as follows: 1981,
$3,688,000;
- 1982,
$ 103,740,000;
- 1983,
$95,731,000;
- 1984,
$28,026,000;
- 1985,
$53,137,000.
Other sinking fund requirements for each year through 1985 for the outstanding first mortgage bonds willbe as follows: 1981 and 1982, $2,552,000; 1983, $2,350,000; 1984 and 1985, $2,200,000; as allowed in the bond indenture, requirements of this type have in the past been satisfied by certification of property additions of 1~/ times the amount stated and the company expects to meet similar requirements in that manner in the future. For sinking fund requirements and redemptions at the option of the holders of redeemable preferred stock, see Note 3; for requirements under the current project financing arrangement and the anticipated refinancing thereof, see Note 5.
Substantially all utility plant, other than the combined cycle plant mentioned above and the construction work in progress for Cholla Unit 4 (see Note 5), is subject to the lien of the first mortgage bonds. The inden-ture respecting the first mortgage bonds includes provisions which would restrict the payment of dividends on common stock under certain condi ~
tions which did not exist at December 31, 1980.
5.
Project Financing In 1977 the company sold the construction work in progress for Unit 4 of its Cholla Plant to an unrelated corporation ("owner" ), which appointed the company as its agent to complete construction of the unit and agreed to resell it to the company. The company is unconditionally obligated to repurchase the unit at or about the time of its completion (presently sched-uled for May 31, 1981), and in no event later than July 31, 1981, for an amount equal to the owner's cost of acquiring, completing and financing the unit.
Financing of the unit has been provided to the owner by bank loans in two categories.
The first consists of up to $263,500,000 to be dis-bursed as construction progresses,
$218,500,000 of which is to bear interest at 105/o of prime and $45,000,000 of which is to bear interest at prime, and all of which is to become due on the date the company is obli-gated to repurchase the unit; such loans can then be refinanced by the company (with interest on $45,000,000 thereof remaining at prime until increasing to 105~/o of prime on December 31, 1981, there to remain until increasing, together with interest on the remaining $218,500,000 to 107/o of prime on December 31, 1983) for payment in five equal install-ments (one in 1981, and two each in1983 and1984).
Loans in the second category aggregate
$41,500,000 of pollution control financing provided through a governmental authority to the owner; these loans currently bear interest at 70~/o of prime and are due in 1987, but in effect would become due when the company is obligated to repurchase Unit 4 unless assumed by the company at that time. However, it now appears that the pollution control loans willbe prepaid witha portion of the proceeds of a $57,000,000, five-year, tax exempt arrangement to be established pursuant to the terms outlined in a letter of intent executed by the company and a certain bank in January 1981.
Prior to the refinancing or repayment thereof, both categories of loans will be secured by Unit 4 and the company's repurchase obligation. The two categories are subject in varying degrees to cessation in funding or to acceleration, and interest on the existing pollution control loans is subject to increase, under certain conditions which did not exist at December 31
~
1980. Pursuant to the loan documents, the declaration of any dividend on common stock, if the per share dividend thus declared would exceed the previous per share dividend, is subject to certain restrictions related to earnings; for the year ended December 31, 1980 up to $ 100,494,000 could have been paid in dividends on common stock compared to the
$88,108,000 actually paid.
The company includes costs of construction of Unit 4 in construction work in progress on its balance sheet.
Net outstanding balances of the aforementioned bank loans, together with capitalized interest and related fees thereon (totalling 13.3~/o for the year ended December 31, 1980 but
- ceasing, in the case of capitalized interest, for the portion of construction costs included In the rate base)
~ appear as a liability. In addition to the construction costs financed by the owner through December 31, 1980, the company incurred construction costs of approximately $14,358,000 which will be reimbursed by the owner.
6.
Short-Term Borrowlngs and Compensating Balances The company had bank lines of credit of $120,605,000 at December 31, 1979, increasing to $ 1 30,705,000 in mid-1980 and remaining there at December 31, 1980. On December 31, 1979, all such lines were unused, although the company regarded that portion of the line equal to the
$54,000,000 of its then outstanding commercial paper to be committed as backup.
In 1980, the company's lines of credit were segregated into commer-cial paper backup lines of $79,705,000, for which commitment fees (at rates ranging from Ya~/o per annum to 5/o of prime) totalling $344,000 were paid, and working lines of $51,000,000. On December 31
~ 1980, the company had outstanding $26,000,000 of commercial paper (at an effec-tive rate of 21.01~/o) and $7,000,000 of borrowings (at an effective rate of 20.17/o) under the working lines.
Compensating balances required at banks for the working lines in 1980, and for all lines in 1979, but which were not legally restricted, were generally 10/o of the line plus 5'/o (104/o in some instances) of borrowings.
Substantially all cash shown in the Balance Sheets is considered compen-sating baTances.
The December 31, 1980 arrangements referred to above have been left in place and augmented by a $60,000,000 credit facility with foreign banks. The commitment fee for the facility is /,/o per annum, and the rate of interest payable for borrowings thereunder is to fluctuate at 'h~/o over the London Interbank Offering Pate.
7.
Jointly-Owned Facilities At December 31, 1980, the company owned the following Percent owned by Company interest in jointly-owned electric generating and transmission facilities:
Net Construction Plant in Accumulated Plant in Work in Service Depreciation Service Progress Navajo Plant Four Corners Units 4 and 5.......
Palo Verde Nuclear Generating Station Units 1, 2 and 3........
Certain transmission lines from the Navajo Plant (the company's interest in which varies from 14o/o to 100o/o)
Total 29.1 31.4
$112,768 30,622 27,955
$171,345 4,654
$31,607 23,301
$139,738 (Thousands of Dollars)
$16,937
$ 95,831 10,016 20,606 1,587 12,092 733,136 58
$746,873 The foregoing dollar amounts correlate to the company's percentage company.
Its share of related operating and maintenance expenses is interest in each facility. Financing for all such interests is provided by the included in its corresponding operating expenses.
27
8.
Income Tax Expense The components of income tax expense for each of the three years ended December 31, 1980 are as follows:
1980 1979 1978 Currently payable:
Federal State Total current..
Deferred:
Federal State Total deferred..
Total
$ 7,128
$ 6,751 S 5,816 3,740 3,938 5,520 10,868 10,689 11,336 3,630 2,452 1,249 2,021 1,281 1,352 5,651 3,733 2,601
$16,519
$14,422
$13,937 Operating expenses..
Other income Total 1980 1979 1978
.. $17,209
$13,556
$ 13,917 (690) 866 20
$16,519
$14,422
$13,937 Following is a summary of the difference between income tax expense and the amount obtained by multiplying income before income taxes by the statutory federal income tax rate of 46% in1980and1979 and 48% in 1978.
Year ended December 31, 1980 1979 1978 Federal Income tax at statutory rate..
Increases (reductions) in taxes resulting from:
Tax (over) under book depreciation.............
Allowance for funds used during construction........
Investment tax credit........
Taxes, pension costs and other items capitalized.....
State income tax-net of federal income tax benefit...
Other Total provision for federal and state income tax...
$73,512
$62,560
$57,934 1,895 777 (3,260)
(29,232)
(19,420)
(13529)
(25,481)
(24,944)
(28,986)
(6,202)
(5,122)
(4,935) 3,107 (1,080) 2,612 (2,041) 3,569 3,144
$16,519
$14,422
$13,937 At December 31, 1980 the company had approximately $60,000,000 of investment tax credit carryforwards which willexpire through 1987. Of this amount, approximately $22,000,000 has been recognized as a reduc-tion of deferred taxes.
Deferred income tax expense results from the difference between accelerated depreciation used for income tax purposes and straight-line tax (ADR) depreciation, as prescribed by the ACC.
Federal and state income taxes are included in the components of net income as follows:
9.
Pension Plan The company's pension plan covers virtually all employees.
Pension expense for 1980, 1979 and 1978 was $10,434,000,
$9,567,000 and
$8,318,000 respectively.
The company makes annual contributions to the plan equal to the amounts allowed for pension expense.
The accumu-lated plan benefits and plan net assets for the company's defined benefit plan as of January 1, 1980, the date of the most recent actuarial valuation, are as follows:
Actuarial present value (assuming an 8.75%
cumulated plan benefits:
Vested Non-vested Total Net assets available for benefits rate of return) of ac-
$64,594,000 3,251,000
$67,845,000
$84 ~ 184,000 The actuarial present value of accumulated plan benefits presented above has not been calculated with reference to the effects of projected inflation, whereas such effects are considered by the company with refer-ence to the adequacy of plan assets; accordingly, the company considers the utility of the comparison suggested to be extremely limited.
11.
Supplementary Income Statement Information General taxes and rents during the three years ended December 31
~
1980 are as follows:
Year ended December 31, 1980 1979 1978 (Thousands of Dollars) 10.
Commitments and Contingencies Operating revenues for 1980, 1979 and 1978 include a total of
$80,386,000 collected prior to May 29, 1980 pursuant to the 1978 and 1979 step increases discussed in "Legal Matters" which may be subject to refund if ordered by the ACC. These increases were premised in part upon the addition to rate base of certain construction work In progressand the concurrent cessation of the allowance for funds used therefore; had such allowance not ceased, it would have contributed $10,925,000 to net income during the period in which the related revenues were collected.
Giving pro forma effect to a refund of such revenues, assuming that such a refund, with interest, is ultimately required and deducting the amount of the allowance that presumably would be restored and the tax benefits the company would derive in the event of a refund, pro forma net income for 1980, 1979 and 1978 would respectively be $18,306,000,
$28,871,000 and $10,337,000 less than the net income shown for those periods in the Statements of Income.
Operating revenues for the three year period ended December 31
~
1980 include approximately $13,800,000 in dispute with a wholesale cus-tomer, as well as approximately $3,400,000 subject to refund, as dis-cussed in "Legal Matters;" also see "Legal Matters" in regard to certain other legal and regulatory proceedings involving the company. Based upon the opinion of its counsel, Snell 8 Wilmer, the company believes that the ultimate resolution of these matters would not be material In relation to its 1980, 1979 or 1978 operating results or its financial position at December 31, 1980 or 1979.
The company has significant purchase commitments in connection with its continuing construction program. Construction expenditures in 1981 have been estimated at $377,000,000.
Taxes, other than income taxes:
Ad valorem...............
Sales Rents
$48,191
$45,084
$43 ~ 239 29,273 26,415 21,860 3,325 2,330 2,368 28
12.
Business Segments Listed below is selected information relating to the company's electric and gas operations:
Year Ended or as of December 31, 1979 1978 Electric Gas Electric Gas Electric Gas Operating revenues Operating income before income taxes..
Utilityplant Accumulated depreciation...........
Capital expenditures 621,864 180,455 3,055,697 444,537 483,392
$ 143,896 6,330 144,230 60,982 20,728 (Thousands of Dollars) 533,185
$131,238 151,480 12,946 2,597,139 137,934 386,503 56,229 449,104 19,012 452,431 141,043 2,152,937 335,533 401,475
$109,786 11,574 135,667 52,027 4,314 13.
Selected Quarterly Financial Data (Unaudited)
Guarter Operating Revenues Operating Income Net Income Earnings for Common Stock Earnings per Share of Common Stock (Thousands of Dollars Except Per Share Data) 1980 First Second Third Fourth 1979 First Second Third Fourth See Note 10 of Notes to
$ 171,772 174,208 234,601 185,179 154,440 145,921 192,943 171,119 Financial Statements for
$29,023 26,370 68,527 45,656 24,663 27,347 56,505 42,355 revenues which may be
$23,995 19,801 59,879 39,615 17,277 19,719 49,142 35,440 subject to refund.
$18,168 13,349 53,470 33,241 12,337 14,040 43,493 29,826
$0.47 0.31 1.26 0.70 0.38 0.43 1.23 0.82 14.
Supplementary Information to Disclose the Effects of Changing Prices (Unaudited)
The following supplementary information is furnished pursuant to Statement No. 33 of the Financial Accounting Standards Board for the pur-pose of illustrating the effects of changing prices in an inflationary environ-ment. It offers some perspectives of approximated effects of inflation, and is not intended as precise measurements of those effects.
The company and other public utilities similarly situated are subject to rate-making procedures which, by law and practice, in large part utilize the historical cost of utility plant in the determination of the allowed recovery (through depreciation) of the investment therein and return thereon. This precludes or restricts a rate-making response to the effects of realizing such recovery and return in inflated dollars, compared to those in which the investment was made. The first table below presents two approximate measurements of those effects from the perspective of that portion of the investment, restated on alternative bases to reflect interven-ing cost escalation, which was not reflected in 1980 depreciation or in the company's return, and which is therefore not "recoverable."
For these presentations, "constant dollar" and "current cost" amounts were calculated by applying certain indices (or ratios derived therefrom) to certain historical or other amounts.
In the case of constant dollars, the index was the Consumer Price Index for AllUrban Consumers, which approximates the upward trend of prices in general during the indi~
cated periods.
In the case of current costs, the primary index was the Handy Whitman Index of Public UtilityConstruction Costs (an estimate of which was used for the last half of 1980), although the Consumer Price Index was used for construction work in progress. The company believes that the Handy Whitman Index is the more accurate of the two in estimating the prices it would incur to duplicate at various times its utility plant in service at the indicated dates. Over the period up to 1979 which is relevant to the information presented below, that index rose faster than the Con-sumer Price Index, but the reverse occurred in 1979 and 1980.
Depreciation expense for 1980 was recalculated by applying the com-pany's composite depreciation rate to depreciable base determined by indexing the historical cost of the company's utilityplant (or, in the case of the Current Cost presentation, certain appraised values thereof in 1969) from the times of construction (or appraisal).
The amount by which the expense so recalculated exceeds that shown on the company's1980 State-ment of Income appears as an adjustment to income from operations. The Current Cost adjustment is the larger of the two because the accumulated Handy Whitman rise through 1980 exceeded the rise in the Consumer Price Index in the same period, thus producing a greater depreciable base (referred to in the discussion below as "UtilityPlant at Current Cost" ).
The sum of the depreciation adjustment in the Constant Dollar column and the figure shown lower in that column as the "reduction to net recov-erable cost" was derived through application of 1980 increases in the Consumer Price Index to historical costs of the company's utility plant.
The comparable sum in the Current Cost column, again consisting of the depreciation adjustment plus the "reduction to net recoverable cost",
reflects the larger depreciation adjustment referred to above, which is more than offset by the diiference between the two measurements of cost (or price) escalation in 1980 which are described in the next paragraph.
The first such measurement is that of a hypothetical increase in the dollar value of the company's utility plant, and was derived by applying 1980 index rises (primarily in the Handy Whitman Index) to the Utility Plant at Current Cost, and subtracting the depreciation adjustmenl shown in the column. The second measurement is that of an assumed, unrecov-erable dollar amount computed by applying the 1980 rise in the Consumer Price Index (which exceeded the corresponding rise in the Handy Whitman Index) to the UtilityPlant at Current Cost.
In neither measurement did the company make any adjustments to asset values, or related income statement amounts, other than those dis-cussed above in regard to utility plant and depreciation thereon.
Fuel fnventories and fuel and purchased gas expenses are, in effect, monetary items, due to applicable rate-making procedures which include adjust-ment clauses.
In accordance with Statement No. 33, income taxes were not adjusted.
29
As contrasted to the assumed net value losses which, in the presen-tation below, are associated with the holding of assets committed to a regulated business, there is an assumed "holding gain" associated with borrowings that will be repaid with inflated dollars. The 1980 decline in the purchasing power of net amounts owed by the company (measured by the Consumer Price Index) appears in both columns, to result in a "net" difference between the assumed holding losses and gain.
Inferences which, in the case of some industries, may be drawn from information in the nature of that presented below as to the adequacy of future cash flows in relation to future plant replacement requirements are believed by the company to be less valid in the case of public utilities which, like itself, should be ab! e to establish rates to cover increased costs of new plant. However, the information may provide some indication of the expanded capital structure that will be required for making plant replace-ments and additions with inflated dollars.
Income from Operations Adjusted for Changing Prices for the Year Ended December 31, 1980 Net Income, as reported in Statements of Income Adjustment to restate depreciation expense Income from operations (excluding reduction to net recoverable cost)
Income per common share (after preferred stock dividend requirements and excluding reduction to net recoverable cost).
Increase in specific prices (current cost) of ulilityplant held during the year (b)
Reduction to net recoverable cost Effect of increase in general price level.
Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost...
Gain from decline in purchasing power of net amounts owed Net
$1.57
$1.30
$377,812 (238,819)
(137,517)
(467,341)
(227,046) 170,554 170,554
$(68,265)
$(56,492)
Constant Dollar Current Cost Average Average 1980 Dollars 1980 Dollars (Thousands of Dollars, Except Per Share Amounts)
$143,290
$143,290 (50,647)
(62,420)
S 92,643(a)
S 80,870 (a) Including the reduction to recoverable net cost, operations on a constant dollar basis would have resulted in a loss of $146,176,000 for 1980.
(b) At December 31, 1980 Utility Plant at Current Cost was $4,392,511,000 while historical cost, or net cost recoverable through depreciation, was $2,694,408,000.
Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effect of Changing Prices Year Ended December 31, 1980 1979 1978 1977 1976 Operating revenues Historical cost information adjusted for general inflation (1)
Income from operations (excluding reduction to net recoverable cost)
Income per common share (after dividend requirements on preferred stock and excluding reduction to net recoverable cost)
Net assets at year-end at net recoverable cost (2).
Reduction to net recoverable cost Current cost information (1)
Income from operations (excluding reduction to net recoverable cost)
Income per common share (after dividend requirements on preferred stock and excluding reduction to net recoverable cost).
Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost.
Net assets at year-end at net recoverable cost (2).
Reduction to net recoverable cost General Information Gain from decline in purchasing power of net amounts owed(1)...........
Cash dividends declared per common share Market price per common share at year-end Average consumer price index (1) Not required for years prior to 1979.
(2) Consisting of common stock equity and non-redeemable preferred stock.
30 (Average 1980 Dollars in Thousands, Except for Per Share Amounts)
S 765,760 S
754,276
$710,108
$671,301
$571,445 S
92,643 94,111 1.57 2.01
$1,116,724
$ 1,059,787 238,819 251,813 S
80,870 79,052 S
1 30 1 58 S (227,046)
$ (236,754)
$ 1
~ 116,724
$1,059,789 137,517 86,123 170,554 173,865 S
2.06 S
2.20 S
2.19 S
2.08 S
2.01 S
16.83 S
18.52 S
24.78 S
28.18 S
27.79 246.8 217.4 195.4 181.5 170.5
LEGALMATTERS Note 10 to the Financial Statements refers to two pending rate matters.
The first arises out of two 5% step increases in retail rates that went into effect in January 1978 and January 1979 pursuant to a 1977 order of the Arizona Corporation Commission. On appeal of that order by intervenors, the Arizona Supreme Court disapproved and remanded for further pro-ceedings those aspects of the order dealing with the step increases.
In May 1980 the commission approved future collections pursuant to the two increases, but reserved for later review the refundability of the
$80,386,000 of collections made prior to the May order. Such a review has not yet occurred. The possibility and legality of a refund order by the com-mission are presently unclear to APS and its counsel, although it does appear clear that the commission could reexamine the propriety of the two step increases and confirm all or any portion thereof which it finds to be justified.
The second matter arises out of the assertion by a large wholesale customer of contract rights which allegedly preclude the collection of rate increases from it before they have been fully approved by the Federal Energy Regulatory Commission. Legal counsel to the company has assessed its contingent liability for approximately one-half of the $13,800,000 in dispute at December 31, 1980 as remote and for the remaining compon-ents as substantially less than probable.
As discussed on page 12 ~ the necessity for EPA approval of the new sulfur dioxide regulation agreed upon by APS, environmental groups and the State of New Mexico results in some continuing uncertainty with res-pect to Four Corners Units 4 and 5. Additional uncertainty with respect to those units arises out of 1978 EPA citations alleging excess emissions of particulate matter and breach of opacity standards, by virtue of which the EPA might attempt to exact fines from participants in the units of up to
$25,000 per pollutant per day in which past violations have occurred.
The EPA also might attempt to impose non-compliance penalties on future operation of the units pending completion of their pollution control equip-ment {now scheduled for the end of 1982), the company's share of which penalties could be several million dollars a day.
The Four Corners and Navajo plants of the company are located on the Navajo Indian Reservation, as are certain of its transmission lines and all of its contracted coal sources. The Tribal Council has adopted three resolu-tions, two of which purport to impose taxes that, if valid, would cost APS an estimated $2,000,000 per quarter. The company has obtained an order from the Arizona Corporation Commission that should allow it to recover from its retail customers the amounts of such taxes that are allocable to them if the payment thereof is ultimately required.
The third Tribal resolution, which becomes effective only if and when certain action is taken by the Secretary of the Interior, purports to regulate sulfur emissions through a permit and fee system; if validly imposed, the fee would appear to be in an amount that would make it less costly {but nevertheless extremely expensive) to attempt to remove more sulfur dioxide from plant emissions than is required by federal and state law, so as to minimize the fee. AIIthree Navajo resolutions are being contested in court.
jI i~
L I
J jjil' ItitIIf t~
New Directors Four prominent Arizonans Joined the company's board ofdirec-tors during 1980.
Joe Acosta is president and senior executive in the Phoenix accounting firmofAcosta. Cordova and Pittman.
James P. Simmons is chairman of the board ofUnited Bank of Arizona, Phoenix.
Dino DeConcini is managing partner of the Phoenix law office ofDeConcini, McDonald, Brammer, Yetwin and Lacy.
Pamela Grant Korfis president and chief executive officer ofGold-waters. Scottsdale.
Acosta and DeConcini are natives ofArizona; all four new members are active in a variety of business and civic activities both locally and nationally.
Acosta, Simmons, DeConcinl. Korf w
Officer Named G. Carl Andognini Joined the company in September of 1980 as a vice president in electric operation.
focusing on nuclear matters and has since assumed responsibility forall electric operations, including power production. Andognini was manager of nuclear operations for Boston Edison Company for five years. Prior to that service he was assistant to the vice presi-dent for operations at Yankee Atomic Electric Company, where he was responsible for a variety of nuclear operations and engineer-ing functions.
32
BOARD OF DIRECTORS tJoe Acosta, 57, President, Acosta, Cordova &Pittman, P.A.,
Phoenix, Arizona
<<Ralph M. Bilby, 63, Chairman of the Board of the company.
Phoenix, Arizona Dino DeConcini, 47, Member of Law Firm ofDeConcinl, McDonald, Brammer, Yetwin
&Lacy, P.C.. Phoenix, Arizona
- KarlEller, 52, President, Columbia Pictures Communications, Phoenix, Arizona
'WilliamT. Garland, 64, Chairman of the Board.
Garland-Rhuart Development Corporation (land development),
Sedona, Arizona Pamela Grant Korf, 42, President
&Chief Executive Officer, Goldwaters (General Mercantile).
Scot tsdale, Arizona
- VictorH. Lytle, 69, Chartered Life Undcnvritcr, Prescott.
Arizona Marvin R. Morrison, 57, Farmer and Cattle Feeder, Morrison Brothers Ranch, Higley, Arizona Henry B. Sargent, Jr., 46, Financial Vice President of thc company, Phoenix, Arizona Wilma W. Schwada, 54, Civic Leader, Homemaker, Tempe, Arizona James P. Simmons, 56, Chairman of the Board, United Bank ofArizona, Phoenix.
Arizona Richard Snell, 50, Member of Snell &Wilmer (general counsel to the company)
~ Phoenix, Arizona
<<Donald N. Soldwedel, 56, President, Western Newspapers, Inc.. Prcscott, Arizona: Publisher and General Manager, Yuma Daily Sun, Yuma. Arizona
'Maurice R. 'Ihnner, 59, Chairman of the Board and Chief Executive OAiccr, The Tanner Companies (construction and materials supply), Phoenix, Arizona
- KeithL. Turley, 57, President and Chief Executive Officer of the company, Phoenix. Arizona tDouglas J. Wall, 54, Member of the Law Firm of Mangum, Wall, Stoops and Warden, Flagstaff, Arizona tMorrison F. Warren, 57, Director of Experimental Programs.
College of Education, Arizona State University. Tempe, Arizona tBen F. Williams, Jr., 51, Attorney at Law, Douglas, Arizona Thomas G. Woods, Jr., 54, Executive Vice President of thc company. Phoenix, Arizona Member ol Exeeuuvc Commatcc f member of Auda Review Commatcc DIRECTOR EMERITUS E. Ray Cowden, Cattle Feeding and Investments, Phoenix.
Arizona OFFICERS G. Carl Andognini, 45, Vice President, Electric Operations Ralph M. Bilby, 63, Chairman of the Board D.L. Broussard, 60, Vice President, Research and Development O. Mark De Michele, 47, Vice Prcsidcnt. Corporate Relations Karl Eller, 52, Chairman ol'he Executive Commlttcc Joseph A. Gelinas, 36, Vice President, Employee Relations Gerald J. Griffin,60, Assistant Secretary Howard F. Hersey, 52, Vice President. Gas Operations Russell D. Hulse, 53, Vice President. Rcsourccs Planning Jerry P. Human, 50, Vlcc President. Customer Services Charles D. Jarman, 45, Vice President. Enginccring and Construction Lyman K. Mundth, 63, Vlcc President. Electric Operations.
(Rct.. 1-30-81)
John C. Ogden, 35, Vice Prcsfdcnt.
Administration and Economic Planning Wm. T. Quinsler, 56, Secretary and Assistant Treasurer Henry B. Sargent, Jr., 46, Financial Vlcc President Keith L. Turley, 57, President and Chief Executive Omccr Edwin E. Van Brunt, Jr., 49, Vice Prcsidcnt. Nuclear Project Management Thomas G. Woods, Jr., 54, Executive Vice Prcsidcnt, Operations (Numerals arc ages at annual mecung da(c.
April 23. 198l l Shareholder Information Stocklisting (Symbol: AZP)
Common stock ofthe company and the 810.70 cumulative preferred stock. Series I, are listed for trading on the New York Stock Exchange.
Common stock is also listed on the Pacific Stock Exchange.
Transfer Agents First Natfonal Bank of Arizona.
Phoenix. Arizona Thc First National Bank ofBoston.
Boston, MA (common stock only)
Registrars The Valley National Bank of Arizona. Phoenix, Arizona The First National Bank of Boston, Boston, MA (common stock only)
General Counsel Snell &. Wilmer, Phoenix, Arizona Auditors Deloltte Haskins & Sells, Phoenix, Arizona Dividend Reinvestment and Stock Purchase Plan A Prospectus describing this plan for holders of the company's corn.
mon stock is available to sharehold-ers upon request. Write: Office of the Secretary, Sta. 1892, at the address below.
Form 10-K A copy ofour Annual Rcport to thc Securities and Exchange Commis-sion, Form IO-IC, willbc available after March 31 ~ 1981 without charge. upon written request of sharcholdcrs. Write: Oflice of the Secretary, Sta. 1892. at the address below.
Statistical Report A detailed Statistical Report for Financial Analysis 1970-1980 willbc available by mid-Aprilon request. Write: Omce of the liea-surer, Sta. 1820. at the address below.
MAILINGADDRESS:
P.O. Box 21666.
Phoenix. Arizona 85036
The Legacy Below the Rim, where Warm valley air holds back The winter storm, the lines Sweep down in the sun. But here, Unseen midst firand pine, ice grips the wires.
The lineman walks the snow on Webbed feet and curses the cold. Ears stinging, He feels the fool and prays his son won't follow his way.
No man should work in this frozen place, he mutters, Where mud turns to rock and hands freeze to wire. Then the sun breaks through!
No words can describe it...when wires squirm like snakes on the run And ice falls in a shower of silver. Each crewman's voice Rises in a cheer... then speaks softly, "How lucky I am to witness this beauty So few may see. I'lwork the lines, by heaven. 'til I retire, And then I'l leave my hat and tools right here to mark this spot for those Who follow. Perhaps my son willcome this way."
George Carlin Retired Arizona Public Service Company P.O. Box 21666 Phoenix, Arizona 85036 Do Not Return