ML17300A301
| ML17300A301 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 08/02/1986 |
| From: | Gehr A ARIZONA PUBLIC SERVICE CO. (FORMERLY ARIZONA NUCLEAR, SNELL & WILMER |
| To: | Knighton G Office of Nuclear Reactor Regulation |
| References | |
| TAC-63145, NUDOCS 8608050316 | |
| Download: ML17300A301 (172) | |
Text
I, REGULA'Y INFORf'fATION DISTR IBUTI SYSTEl'1 (R IDS)
ACCESSION NBR: 8608050316 DOC. DATE: 86/08/02 NOTARIZED:
NO DOCKET FACIL:STN-50-529 Palo Verde Nuclear Stations Unit 2~ Arizona Pub 1 i 05000529 AUTH. NANE AUTHOR AFFILIATION GEHRIG A. C.
Arizona Nucleav'ouev Prospect
( fovmev lg Arj, zona Public Serv QEHR> A. C.
Snel 1 Zc Milmer RECXP. NAI'fE RECIPXENT AFFXLXATXGN KNXQHTON> Q. ll.
PAR Pv object Div ectov ate 7
SUBJECT:
For>ards "Addi Info v e Application in Respect of Sale 5
Leaseback Tv ansactiorvs bg Av izona Public Svc Co>" including 860724 opinion 5 ov dev'f State oF AZ Corporation Commxssion~ pev NRC v eques
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DIBTRIBUTIQN CQDE AQOID CQPIEB RECEIVED: LTR I ENCL
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SIZE:
TITLE:
OR Submittal:
Qeneral Distribution NOTES:Standav'dized plant.
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F FRANK L. SNCLL COWARD JACOB50N J 0 H N P. PH ILLIPS RICHARD MALLCRY JON 5 COHEN OVY O. OELBRON OCOROC H. LYONS BRUCE 0. PINORCC MICHAEL D TERRY ORCO R. NIELSEN WILLIAM R HAYDCN OCRALO MORALCS ROBERT J. OIBSON THCRCSA A OABALDON~ ~
JAMCS R CONDO VAVOHH A CRAWFORD SV?AN N E MSCANN PETER O. SANTIN SHIRLEY J. W*HL JAMCS P MUCHLBCROCR MAROARCT L ~ STCINCR WILLIAMA. CLARKE MATTHCW P, FCCNCY LOIS P. SAVAOC BRUCE P. WHITE OCOROC J COLCMAN JEFFREY B ~ MESSINO YVCTTC E. COHEN DOVOLAS H ALTSCHVLCR JEREMY D MUSSMAN CHCRYL A IKCOAMI THOMAS R ~ HOECKCR DAVID E ~ VIEWED ROBERT J. ROSCPINK CONNIE R, OCARMOND STCPHL'N M. HOPKINS TIMOTHY O. 0 ~ NEILL HCIOI L ~ MSNEIL COF COUNSEL CCON LCAYC OF APSCNCC MARK WILMCR~
FRCDCRICK K ~ STEIN CR, JR.
ARTHUR C OCHR ROBER'T 0 BATES THOMAS J ~ RCILLY J*Y 0. WILEY PCTCR J RATHWCLL STEVEN M ~ WHEELER MARY J,LEADER ROBERT J ~ DCCNY JAMCS W. RCYNOLDS MICHAEL 5 ~ MILROY BARRY 0 HALPCRN JOEL P HOXIC LONNIC J WILLIAMS'R.
RICHARD 0 ~ UNDERWOOD WILLIAM Dr FCARNOW JOHN BERRY DAVID *. SPRCNTALL KIMBCRLYJ ORASCR STEPHEN 0 ~ NCWMARK TIBOR NASTY JR.
RCBCCCA WINTERSCHEIDT VICTOR SOTOMAYOR JOSEPH A, KCNDHAMMER MARIAN C. WALKCR OORDON M ~ WASSON MICHAEL L ~ RHEE5 JODY K ~ TALK TERESA DAVID50N DAVID R BOSS E ANNE L ~ LCARY ERIC M ~ CASPER STCPHCN 0 ~ SHYTH JANET E THOMAS DARY L ~ JONES KEVIN J ~ PARKER JAMES H ~ MARBVROCR JOSL'PH T MCLCT+g,JR.
JOHN J ~ I(PUMA H WILLIAMFOX LORCN W. COVNCC ~ JR WARRCH C, PLATT WILLIAMA. HICKS,III DANIEL J MSAVLIFFC DONALD O.COLBURH OOVOLAS W. SCITC JOSEPH T MCLCCCR HI ROBCRT B.HOFFMAN LAWRCNCC F, WINTHROP CHARLES
- BI5CHOFF CHARLES H, TRACOCR,HI RICHARD W. SHEFFICLO THOMAS J KCNHL'DY ARTHUR T ANDERSON JOYCE KLINC WRIOHT ISABELLC T. MORRIS ROBERT H. OSERBILLIO DORA THOMAS JAMES 0. MILLCR JAMES J. SIENICKI JAMCS 0. CHINOER EILEEN J MOORE PATRICK C HOOD BRYANT 0. BARBER C RAID K ~ WILLIAMS JAMES J OSBORNE SCOTT A ~ HOLCOMB MARTHA C.OIBBS WILLIAMF. DCYOUNO ROBCRT W. MASKINGJR.
J STEPHEN HVFFORD MALA DAS OUPTA JOYCE A KRVCCCK DONALD H. SMI'TH CAROL'YN C STOCKTON August 2, 1986 LAW OFFICES SNELL s WILMER 3IOO VALLEY BANK CENTER PHOENIXF ARIZONA 85073 3IOO (602) 257-72II TELEX I65066 TELCCOPIERS:
MANUAL(602) 257 72II AUTOMATIC (602) 256-2735 r
Director of Nuclear Reactor Regulation Attention:
Mr. George W. Knighton, Project. Director PWR Project Directorate I7 Division of Pressurized Water Reactor Licensing-B Nuclear Regulatory Commission Washington, DC 20555 Re:
Application in Respect of Sale and Leaseback Transactions by Arizona Public Service Company Dated May 2, 1986 Palo Verde Nuclear Generating Station Unit 2 (Docket No.
STN 50-529)
Dear Mr. Knighton:
Arizona Public Service Company (APS) submits herewith three copies of Additional Information with Respect to the Application in Respect of Sale and Leaseback Transactions by Arizona Public Service
- Company, dated May 2, 1986.
The Additional Information consists of Item No.
Descri tion 2 ~
3 ~
Additional Information Requested by NRC Staff Report of AZP Group, Inc., for the First Quarter of 1986 Quarterly Report of APS (Form 10-Q) 4 ~
Opinion and Order of the Arizona Corporation Commission, dated July 24, 1986 5.
Application of PVNGS Funding Corporation for an Order under Section 6(c) of the Investment Company Act of 1940.
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S NELL & Wl LMER Director of Nuclear Reactor Regulation August 2>
1986 Page Two APS is continuing its efforts to secure"equity investors in addition to those identified in Item 1 '(see questions 5 and 7).
Upon receipt of a commitment from any additional equity investor, we promptly advise you and submit the required information.
If we can be of further assistance, please call me.
Very truly yours, SNELL 6 WILMER Arthur C.
G r ACG/smp Enclosures
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A E
S NELL & WILMER Copies with enclosure to:
Edward S. Christenbury, Esq.
'Assistant General Counsel for Hearings Nuclear Regulatory Commission 7735 Old Georgetown Road
- Bethesda, Maryland 20814 Mr. James C. Peterson Nuclear Regulatory Commission Air Rights XXX Building 4550 Montgomery Avenue
- Bethesda, Maryland 20814 Timothy Michael Toy, Esq.
Van Brunt, Jr.
Executive Vice President Arizona Nuclear Power Project Arizona Public Service Company Jaron Norberg, Esq.
Executive Vice President Finance Arizona Public Service Company Mr. Paul Williams Treasurer Arizona Public Service Company
.UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al.,
(Palo Verde Nuclear Generating
- Station, Unit, 2)
DOCKET NO.
STN 50-529 APPLICATION IN RESPECT OF SALE AND LEASEBACK TRANSACTIONS BY ARIZONA PUBLIC SERVICE COMPANY ITEM 1 ADDITIONAL INFORMATION REQUESTED BY NRC STAFF
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Arizona Public Service Company (APS) is currently required to pay 29.1% of all Palo Verde unit 2
(PV2) operating costs and 29.1% of future decommissioning costs to Arizona Nuclear Pow-er Project (ANPP).
Pleas'e explain in detail the source of this 29.1%, share of total PV2 costs under the proposed refi-nancing arrangement.
Include an explanation of the manner in which all increases in operating'and decommissioning costs will be covered following the refinancing'or the terms of the license.
RESPONSE
As indicated in the question, APS is currently required to pay its share of PV2 operating costs and will be required to pay its share of future decommissioning costs under the terms of the ANPP participation agreement, as amended.
This result flows from APS's status as a participant under the ANPP parti-cipation agreement.
The simple answer to the question posed above is that there will be no change in the source of the 29.1% share of total PV2 operating costs under the proposed refinancing arrange-ment.
As indicated in Section 3.6 of the application filed with the commission in this matter, the leases which will be entered into in connection with the refinancing will be "net leases."
This means that APS will be responsible for paying all taxes, insurance
- premiums, operating and maintenance costs and all other similar costs associated with the leased faci-lities (including obligations as a participant under the ANPP participation agreement).
As indicated in the application, the purpose of these provisions is to ensure that the lessors are subject only to normal financing risks and not to opera-tional risks or responsibilities.
The ultimate source of the funds for paying such costs will be revenues from APS's customers.
This is true both before and after the refinancing.
The refinancing itself will not impact operating and decommissioning costs.
With respect to increases in such costs which may otherwise occur, APS will be liable for its share of all increases in operating and de-commissioning costs following the refinancing under the "net lease" concept-.
The source of funds to pay for such increases will be the same sources as mentioned above.
If APS's leases expire and APS does not purchase the facilities from the lessors by exercising its purchase
- option, APS will remain responsible under the ANPP participation agreement for operating and decommissioning costs until a transferee (a
new lessee or a purchaser) from the lessor assumes such obli-gations and the other PV2 participants have consented to a
release of APS from such liabilities.
Under the lease trans-
- action, APS will retain ultimate responsibility for decommis-sioning costs although a transferee may in fact provide some funding for decommissioning.
Also, the NRC will have control
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over responsibilities for decommissioning since a transferee will require action from the NRC in the form, of a license transfer or amendment.
Responsibility for decommissioning costs would assuredly be a consideration by the NRC in such action.
Under the ANPP participation agreement, if APS (or the subse-quent transferee) should default in its obligations, then the nondefaulting participants are required to'ay a pro rata share of such defaulted amounts to assure that such costs will be paid.
If a default continues for the period of time specified in the ANPP participation agreement, then the de-faulting participant may be required to lose its share of the power and energy from PV2 and also lose its representation on the project committees until the defaults are cured.
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Please provide a detailed explanation of the expected finan-cial effects on APS resulting from the refinancing of its PV2 interest.
Include effects on its income statement and
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balance sheet and on its ability to fund its share of PV2 operating and decommissioning costs including any future cost increases.
RESPONSE
APS's proposed sale and leaseback financing of its share of PV2 is expected to have substantial positive economic effects on the company and its customers.
The proceeds of the sale will provide APS with funds which will allow APS to strengthen its balance sheet and to defer previously anticipated future financings.
In addition, the fixed costs to APS of its share of PV2 will be reduced due to the lower cost of the lease financing.
The net result is that APS's ability to fund its share of operating and decommissioning costs (including:any future cost increases) can be expected to improve as a result of the transaction.
If 50% of APS's interest in the facility is sold in the trans-
- action, APS will have available net after-tax cash proceeds of approximately
$ 484 million.
This will allow APS to defer future financings, to reduce its level of short-term debt and to retire some outstanding debt capitalization.
Because the transaction will be an operating lease, APS's balance sheet will be strengthened as the common equity ratio will increase with the retirement of debt and/or elimination of future debt issues.
This will provide APS with greater future financing flexibility and should provide enhanced access to the finan-cial markets.
In the absence of revenue adjustments, APS's income can be expected to be improved because the lease costs are lower than the financing costs under ownership.
The annual lease rentals
($ 56 million) are accounted for as an operating expense.
This is offset by reductions in interest expense
($ 48 million) and depreciation expense (gll million).. The net income increase is about
$ 3.4 million as shown below.
- However, since the company is proposing to pass through this benefit to rate payers, it will result in nearly
$ 39 million first year re-venue savings to the rate payers of the company.
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Lease Ownershi Net Expenses 0
& M Depreciation Operating Income Interest Expense Earnings Before Taxes Income Taxes Net Income 55,440 (55,440)
(48,400)
(7, 040)
(2, 175)
(4, 865)
S 11,429 (ll,429)
(11,429)
(3,190)
(8, 239) 55,440 (ll,429)
(44, Oll)
(48,400) 4,389 1,015 3,374
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Explain the ratemaking authority and responsibility of the Arizona Corporation Commission as it will relate to provision of revenues to cover PV2 operating and decommissioning costs applicable to APS's refinanced ownership interest.
RESPONSE
The proposed refinancing will not result in any change in the existing ratemaking authority and responsibility of the Ari-zona Corporation Commission (the ACC) as it will relate to the provision of revenues for operating and decommissioning costs.
APS will continue as the utility responsible for such costs and subject to the regulation of the ACC with respect to such costs.
With respect to the recovery of decommissioning
- costs, the company intends to recover these costs from its customers over the useful life of the facilities.
Hearings on this topic will be the subject of a separate docket before the com-mission.
- However, the sale-leaseback of PV2 does not absolve the company from responsibility for funding the full cost of decommissioning regardless of whether or not it is in the possession of undivided interest.
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4.
Provide copies of the most recent interim financial statements
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and SEC Form 10-Q for APS and for the First National Bank of Boston.
RESPONSE
First quarter 1986 interim reports to shareholders for APS as well as APS's report on Form 10-Q for the quarter ended March 31, 1986 are attached hereto.
The 1985 Annual Report of the Bank of Boston Corporation and its Annual Report on Form 10-K for the fiscal year ended December 31, 1985 were included as a part of the Application in Respect of Sale and Leaseback Transactions by El Paso Elec-tric Company, dated April 15, 1986, filed in this Docket No.
50-529 and are incorporated by reference.
The Bank of Boston Corporation is the parent corporation of the First National Bank of Boston.
Of course, neither the Bank of Boston Corporation nor the First National Bank of Boston will have any responsibility whatso-ever with respect to operating and decommissioning costs or increases in such costs.
If additional financial statements for the Bank of Boston Cor-poration are required, they will be supplied.
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5.
Indicate the total purchase price for the refinanced PV2 in-terest and a detailed dollar breakdown of the portions to be financed by debt and by investment of each equity investor.
RESPONSE
Currently, the equity investors listed below are participating for a total
~ of
$ 230 million.
Their estimated equity and debt participation is also presented below.
Debt (5 in millions)
Exult Total SPBB Leasing, Inc.
$ 104
$ 26
$ 130 Emerson Finance Co.
80 20 100 APS is currently seeking additional equity commitments from other potential investors.
Information will be provided to the NRC if and when any additional. equity commitments are received.
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6.
Describe the sources of funds and amounts for each equity investor's investment in PV 2.
RESPONSE
The sources of the equity investment, funds to be provided by Security and Emerson have not been made available to APS.
The sources of such funds are not relevant since the purchase price will have been paid to APS at closing and APS will not be looking to such investors for future funding.
We can only assume that the source of funding for the investors'quity participation will be from general corporate funds.
Each equity investor's estimated dollar investment is detailed above in response to question 5.
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Provide copies of the most recent interim and annual financial statements for each equity investor.
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RESPONSE
The equity investors identified in the answer to question 5,
i.e.,
SPBB Leasing, Inc.,
and Emerson Finance Co., are subsi-diaries, of the Security Pacific Bank and Emerson Electric Co.,
respectively.
The 1985 Annual Report and Report on SEC Form 10-Q for the quarter ended March 31, 1986 of Security Pacific Bank, are being transmitted under separate cover.
The Annual
- Report, Form 10-K, for the fiscal year ended September 30,
- 1985, and the Quarterly Report, Form 10-Q, for the quarter ended December 31, 1985, for Emerson Electric Co. were included in the financial information (tabs 5 and
- 6) submitted on behalf of Public Service Company of New Mexico with the letter, dated June 10, 1986 from T. M. Toy to G.
W. Knighton, and are incor-porated herein by reference.
It should be emphasized that the equity investors will not, as a result of their interest in PV2, have any liability for payment of operating and decommissioning costs of the faci-lities.
The leases which will be entered into in connection with the refinancing will be "net leases."
This means that APS will be responsible for paying all taxes, insurance pre-miums, operating and maintenance costs and all other similar costs associated with the leased facilities (including obli-gations as a participant under the ANPP participation agree-ment).
If additional equity commitments are received, similar infor-mation will be provided for the new equity investors.
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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al.,
(Palo Verde Nuclear Generating Station, Unit 2)
DOCKET NO.
STN 50-529 APPLICATION IN RESPECT OF SALE AND LEASEBACK TRANSACTIONS BY ARIZONA PUBLIC SERVICE COMPANY ITEM 2 REPORT OF AZP GROUP g INC ~
g FOR THE FIRST QUARTER OF l98 6
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~'RIZONA PUBLIC SERVICE COMPANY GROUP INC.
PO BCX53900 PHOENIXAZ 85072-3900
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C Summary report ofKeith L. %o'ley AZP and its predecessor companies-including APS-have not missed paying a quarterly dividend since our modern-day corporation was born in 1920, said AZP Chairman and President Keith Turley during the April24 Annual Meeting of Shareholders in Phoenix.
11trley's comments followed an audio-visual pre-sentation which reviewed the company's 100-year history, beginning with the granting ofthe com-pany's first gas and electric franchise on April29, 1886 and leading to shareholder approval ofthe holding company, AZP Group, Inc., in April 1985.
Turley told about 700 shareholders attending AZP's first annual meeting and APS'6th annual meeting that the company's 100th year ofoperation was also one of its best. Among 1985's results: div-idends were $2.72 on an annualized basis; earnings per share were $3.88; cash flowwas 22 percent of
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"aubcattttng a change oraddress card or're<Iucsttng
'other changes whkhiftcctyoiiraccount, beiar'e to nde the'stgnahircs NaI!owners vrhose appear oa the account f
0< ~tiica ~ '~r< Yv ~ "i construction requirements; debt coverage was at 2.3 times, excluding Allowance for Funds Used During Construction; cash earnings were 31 per-cent; and return on equity was 15.9 percent. Turley added that, during recent weeks, AZP common stock had been selling at about 120 percent ofbook value, the highest level since 1967.
Turley also lauded recent successes at the Palo Yerde Nuclear Generating Station. Unit 1 began commercial operation on February 13, 1986 and, fContinued pg. 2)
Quarterly dividends unchanged On April24, the AZP board ofdirectors approved a quarterly dividend of68 cents per share on the company's common stock, which is unchanged from the previous quarter. The divi-dends are payable June 1, to shareholders ofrecord at the close ofbusiness May 5.
The board ofdirectors ofAPS-a subsidiary of AZP-declared quarterly dividends at the regular rates on 18 outstanding issues ofcumulative pre-ferred stock. Additionally, a quarterly dividend of
$ 1.8375 was declared on the APS adjustable rate cumulative preferred stock, Series Q. Preferred dividends also are payable June 1, to shareholders ofrecord at the close ofbusiness May 5.
12-month earnings increase AZP Group, Inc. (AZP) earnings for the first quarter ended March 31, 1986, were 65 cents per share, down from 67 cents per share for the same period in 1985. However, earnings for the 12 months ended March 31, 1986, increased to $3.84 per share ofcommon stock, up from $3.70 (from continuing operations) for the previous 12-month period. The improvement in 12-month earnings is due primarily to APS'igher revenues which resulted from higher rates and increased elec-tric sales.
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Highlights Income, Earnings, Dividends Net income Average common shares outstanding Earnings per share ofcommon stock Dividends per share ofcommon stock Electric Sales and Customers Operating revenues Sales (mwh)
Customers, end ofperiod 12 Months Ended March 31, March 31, 1986 1985 280,955,000 73,242,752 3.84 228,015,000 69,130,213 3.30
$ 1,205,480,000 13,843,090 529,661
$ 1,034,582,000 13,412,880 505,634 2.72 2.60 Increase 23.2 5.9 16.4 4.6 16.5 3.2 4.8
'Ihrley summary report (Continued) on April23, 1986, Unit 2 received a Nuclear Regu-latory Commission (NRC) license allowing it to operate at fullpower. In granting the license, one NRC officialcalled Palo Verde "a show place" for the industry, and said it has a good design, is well located and should be a point ofpride. Unit 2 is scheduled for fullcommercial operation by the end ofthe third quarter of 1986, while Unit 3 is sched-uled forcommercial operation in late 1987.
Although Palo Verde is one ofseveral nuclear projects undergoing prudency audits, Ibrley said that "any fair and objective audit willresult in a verdict that the project has been managed pru-dently." The audit was ordered by regulators from four states involved in Palo Verde and was to be funded by all participants based on each utility's share ofthe project. However, 1brley pointed out that Public Service ofNew Mexico and El Paso Electric Company recently withdrew their fund-ing because ofconcerns about the audit's necessity and objectivity.
"Whilewe share the concern, APS is bound by Commission order to continue to pay for29. 1% of the audit's cost," Tbrley said. "Ofcourse, we do not know what the impact ofthe withdrawal ofthe two companies willmean to the audit effort."
1brley also discussed APS'fforts to achieve rate increases to cover Palo Verde's costs. "We are providing the Commission with all necessary information, so it should be clear to them that we are entitled to-and simply must have-a rate increase forUnit 1 and a plan in place forthe other two units."
While earnings per share were up from the same period last year, Ibrley said they would begin to deteriorate ifthe company is not granted a rate increase. "The costs ofoperating Palo Verde Unit 1 for the benefit ofour customers is approximately
$9 millionper month after taxes. Ifwe are unable to achieve sufficient rate increases in a timely fash-ion to cover these costs, we willhave to seek an interim increase subject to refund. Failing that, of course, we would be obligated to seek relieffrom the courts."
1brley said he was giving a worst-possible pic-ture ofthe situation, and assured shareholders that the company's ability to pay dividends in 1986 would not be impaired. He added that, once all three units are fullyreflected in rates, the company would see steady improvement in its financial outlook.
He also said that AZP has moved forward with a strategy for developing significant earnings from its non-regulated subsidiaries. El Dorado Invest-ment Company's most important project for 1986 is to form its own venture capital fund to which it has committed $50 millionover the next five to seven years, and Energy Development Company has entered into a real estate partnership and changed its name to SunCor Development Company. 'Ibrley said that as much as $50 millionin equity capital willbe allocated to the new joint venture over the next five years.
(Continued pg. 3)
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Vsrfey summary report (C0nfinued)
Meanwhile, Malapai Resources Company owns a ranch which has proven uranium reserves and has an option to acquire an adjoining property. A dem-onstration plant and cost analyses for both proj-ects are expected to be completed within the next eight to twelve months.
Turley emphasized that the AZP Stock Purchase and Dividend Reinvestment Plan-not APS rate-payers-is financing these non-utilityactivities. He also thanked shareholders fortheir continued par-ticipation in the plan and noted that, because of their investment, AZP sees no need for additional public offerings ofcommon stock in the foresee-able future.
AXPforms new partnerships Through its subsidiaries, AZP Group has formed partnerships for both a joint real estate venture and a venture capital fund. The real estate partnership was announced in March 1986, while the new venture fund was announced in early May 1986.
The real estate venture, known as SunCor Part-ners, is a partnership with Gerald Diddy, formerly president ofFirst Service Corporation, the devel-opment subsidiary ofMeraBank Inc. Diddy has been named managing partner ofthe new venture and AZP's existing real estate subsidiary, Energy Development Company, has changed its name to SunCor Development Company.
SunCor Partners recently acquired a large tract ofcommercial property, suitable for a regional shopping mall or other commercial development, in Tempe, Arizona. Diddy, an attorney with over 15 years experience in real estate, said the new joint venture willcontinue to invest in a portfoliocon-sisting ofa mix ofdevelopment and income prop-erties. Under his leadership, First Service Corporation's real estate development portfolio had a cumulative retail value ofapproximately
$ 1 billion.
The SunCor Development Company, mean-while, is wrapping up an earlier joint venture involvingthe sale ofa golfcourse and potential resort property at Scottsdale Country Club. This transaction is expected to produce profits ofabout
$2,600,000 after income taxes.
(Continued pg. 4)
UtilityPlant Property. plant and equipment Less accumulated depreciation and amonizaiion Utilityplant-nci Investments and Other Assets Current Assets Cash Temporary cash invesimenis Accounts receivable-nei Fuel and materials D femd fuei Other Total cunent assets Deferred Debits Unamortized gas exploration costs Unamortized debt issue costs Other Total deferred debits
'IIAL LIABILITIES Capitalization Common stock (no par value)
Retained earnings Cominon stock equity Non.redeemable prcfcrred stock of APS Redeemable prefemd stock ofAPS Long.term debt less cumnt maturilies Total capitalization Current Liabilities Commercial paper Cumni maiurities of long-tcrm debt Accounts payable Accrued taxes Accrued interest Accrued dividends on preferred stock Other Total current liabilities Deferred Credits and Other Deferred income taxes Deferred investment iax credit Unainortized credit related io sale of tax benefits Other Total defemd credits gr other 1M'AL fThousands ofDoltars)
$5,845.048
$5,712,507 86!.810 838.684 4.983.238 4.873.823 116.544 90.257 13.304 1,000 107,454 91,145 68,749 12.809 7,338 5.100 126.395 71,95&
74,335 7.215 294.461 292.341 9,994 10,417 16,504 16.705 67,263 41.402 93,761 68.524
$5.488.004
$5.324.945
$ 1.322.252
$ 1.294.623 588.203 590.872 1,910,455 1,885,495 218.561 218,561 209.821 219,421 2,230.333 2.205.940 4.569.170 4.529.417 II&,735 17,456 80.077 71,117 59,733 3,449 28.619 18,000 17,456 87.12!
52,296 72,678 3,566 26.269 379.186 277.386 257,748 177,859 43,224 60.817 230,553 174.503 43,645 69.441
$39.648 518 142
$5,488.004
$5.324.945 AZP GROUP INC.
CONSOLIDATEDBALANCESHEET ftlnahhCh'ted)
Mar. 31, Dec. 319 1986 1985
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SkorcAotdrr AlarpCiodkort. 4 rccidccct o/Sort City, AZ., Actpcd AZP Ckoit ococc orcd Pyccidcrct Ãcitk Tsrtcy crd tAccoocpoopk ccrcfcrcrctot cokofottorriog tkr Aorcool klcctirrd.
would allow AZP to handle the sale ofPlan shares for participants who wish to sell all or a portion of their shares.
According to Corporate Secretary Faye Widen-mann, AZP willsell your requested number of Plan shares, then mail you the proceeds minus the brokerage fee. She added that, due to the large vol-ume ofsales which can be handled by AZP, broker-age fees willbe less than on sales handled by an individual's broker. The company willonly sell shares held in Plan accounts and willnot handle the sale ofstock certificates.
That change, along with others approved during the April24 board meeting, is described in a new Stock Purchase and Dividend Reinvestment Plan Prospectus to be mailed to Plan participants by June l, the date all changes become effective. The new prospectus has also been rewritten in a ques-tion/answer format to allow foreasier reading.
Other changes described in the prospectus include the authorization ofadditional new shares for the Plan and a provision which would allow the company to acquire added Plan shares through open market purchases. AZP does not intend to exercise the open-market option at this time.
AZP partnerships (Conrtnued)
El Dorado Investment Company has formed its partnership with Brent T. Rider, formerly president of Union Venture Capital Corporation, a subsidiary of Union Bank in Los Angeles. The new venture capital fund, known as El Dorado Ventures, will concentrate on investments in the Sun Belt region.
Rider, who earned his Masters ofBusiness Administration at Harvard Business School, is a prominent leader in venture capital and has invested in a variety ofsuccessful businesses.
More information on both subsidiaries, including invest-ment commitments, is included in AZP Chairman Keith 'Ibrley's annual meeting summary.
New dividend reinvestment provisions The AZP board ofdirectors has approved several changes to the AZP Stock Purchase and Dividend Reinvestment Plan, including a provision that PVNGS boasts safe technology Responding to media inquiries after the Soviet nuclear accident in late April,Ed Van Brunt, exec-utive vice president ofthe Arizona Nuclear Power Project, said that "there is almost no similarity between Palo Verde and the Chernobyl nuclear power plant near Kiev."
The Soviet reactor is based on a different tech-nology and used graphite in its design; Palo Verde does not, said Van Brunt. He added that the Sovi-et's nuclear system did not have a heavy-duty reac-tor vessel, as does Palo Verde, to contain the radioactivity being released by damaged fuel.
In addition to the reactor vessel, Palo Verde, like all commercial nuclear plants in the U.S., has a large containment building that encloses all ofthe nuclear equipment. The containmerit structure is constructed to confine any ofthe harmful radioac-tivitythat would be produced by even the worst nuclear accident possible.
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AZP GROUP, INC.
CONSOLIDATEDSTATEMENTS OF CHANGES INFINANCIALPOSITION (Thousands ofDollars) Unaudited Source of Funds:
Fundsfrom ot3erafionsf Continuing Operations:
Income from continuing operations Principal non-fund charges (credits) to income:
Depreciation and amortization Allowance forequity funds used during construction Deferred income taxes net Deferred investment tax credit net Other Total funds from continuing operations Discontinued operations:
Income (loss) from discontinued operations Principal non-fund charges (credits) to income:
Loss on disposal of gas system-noncunent Other net Total funds from discontinued operations Total funds from operations Funds/rom external sourcest Proceeds from saic of gas system Common stock Preferred stock of APS Long-term debt Other items net Total funds from external sources Total source of funds Application of Funds:
Funds used for capital expenditures:
Continuing operations Discontinued operations Investments and other assets Short. term bofrowings net Repayment of tong-term debt Redemption of redeemable preferred stock of APS Dividends on common stock Increase (Dccrcasc) in working capital:u Total application of funds Increase (Decrease) In Working Capltalo Current assets Current liabilities Net increase (decrease)
S 48,327 46,921 28,253 (30,583) 13,486 3,356 (7.972)
(37,213) 11,963 5,709 6,186 54.867 56.972 54.867 56.972 27,629 203,667 (7.473) 223.823 278.690 14,772 266,091 (472) 280.39i 3
337.363 S
112,107 26,287 (100,735) 179,380 106,823 (203) 139,977 61,400 9,600 50,996 1,055 278,690 34,262 45,646 (50.542) 337.363 2,120 (1.065) 1.055 (784) 449,758)
(50.542)
Three Months Ended March 31, 1985 1986 1985 280,955 255,915 104,068 89,463 (136,982) 107,681 34,030 17.203 (138,690) 48,387 51,587 5,392 406.955 311,854 (27,900) 19,513 821 406,955 (7,566) 304,288 116,971 682,606 (8,617) 790.960
$ 1.197.915 114,657 64,003 50,000 523,441 (6,448) 745,653
$ 1,049,941 499,389 49,466 (98,912) 393,401 396,370 23,536 (9,785) 96,994 320,233 38,657 199,441 116,473
$ 1,197,915 38,718 179,415 4,460
$ 1,049,941 99,818 16,655 116.473 (3,475) 7,935 4,460 Twelve Months Ended March 31, uExcluding short-term bonowings net and current maturitics of long-term debt.
Nett: pursuant to orrporate rcsmicturing plan effective April29, 19SS Apg became a subshliary of AZp. Additionally. effective Novemtur I. t9ge ApS sold iu ras distribution system. Accordingly. die Cenielidated Cinancul statements have been adjusted for thc effects of thcsc changes.
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Summa~ report ofMark De Michele In his April24 report, Mark De Michele, presi-dent and chief operating officerofAPS and execu-tive vice president ofAZP, said that, in addition to securing adequate rates, APS was committed to the efficient operation ofits plants, attention to safety, cost effectiveness and concern foremployees.
Afterreviewing APS'hree-phase rate case (see related story), De Michele said that APS was exploring the possibility ofrefinancing Palo Verde Unit 2 by selling all or a portion ofthe unit to investors, then leasing itback as an operating plant. "This is a financing technique that may or may not be feasible; but I want to emphasize that APS willstill control the 29.1 percent interest in Palo Verde we have always had," he said.
De Michele noted that other measures, such as refinancing high coupon debt, have helped reduce the company's interest costs by more than $20 millionannually, and additional refundings are also planned for 1986. APS has also frozen the salaries oftop-management, placed a partial freeze on hiring, and reduced marketing and advertising.
Operating costs are further being reduced by keeping our plants at peak capacity and operating them at their highest efficiency. "Recent studies show that we are saving our customers over $40 milliona year by operating our coal plants 15 per-cent better than the national average," De Michele said. "Scheduling maintenance time properly and ensuring the best mix offuel forour entire system has provided additional savings."
De Michele reiterated APS'ommitment to avoid financing any major new power plants until the next century. He added that, although Arizona is experiencing rapid growth, APS could meet increased electric needs through various load management programs, power purchases from other utilities and continued upgrading of existing plants.
He also emphasized efforts to call the public's attention to the company's many positive stories such as APS'nvolvement in and contributions to the community, cost-saving measures, and pro-grams to increase employee participation through both quality circle and employee suggestion pro-grams. He noted that the company is planning to move its headquarters to a new, larger building, also in downtown Phoenix. The new headquarters would bring employees, currently scattered in sev-eral locations, together in one building, and serve as a focal point fordowntown redevelopment.
Lower interest rates spur refundings On May 1, 1986, APS called $75 millionin 12'/8 percent bonds at a price of 109. 15. The call was part ofa continuing program to refund APS'igh-coupon debt as interest rates and issuance terms of securities permit.
Earlier this year, APS used proceeds from the January sale of$ 100 millionin 30-year, ll percent First Mortgage Bonds to refund $25 millionof7-year, 16 percent Eurobonds and $75 millionof7-year, 16.25 percent Eurobonds, both at a premium of 101 percent. Proceeds from the March sale of
$ 100 millionin 10-year, 9.25 percent First Mort-gage Bonds were used to tender for $79.4 million of 15 percent series First Mortgage Bonds due in 1994 at 123.228 percent.
APS has also filed a shelf registration statement with the Securities and Exchange Commission pro-posing public sales ofup to $350 millionin First Mortgage Bonds. On April28, APS sold
$ 125 millionof 10-year, 9 percent First Mortgage Bonds. Proceeds ofthat issue willbe applied to the redemption of a 12'/e percent series ofFirst Mort-gage Bonds due 2009 and repayment ofshort-term debt incurred in connection with the company's construction programs. Proceeds from additional sales willalso be applied either to the redemption, repayment or retirement ofthe company's out-standing indebtedness or to the financing ofcon-struction expenditures.
In other financing, APS plans the early redemp-tion oftwo preferred issues on June 2, 1986, including $ 10.70 Series I at a price of$ 103 and
$ 11.95 Series M at a price of$ 101.99. APS has also doubled up-from $ 12.33 millionto $24.66 million-on a regular sinking fund due May 15 on its 12~/s percent series First Mortgage Bonds.
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C2tCIUP slNC s APS rate hearings continue Hearings on the main portion ofthe company's Palo Verde Unit I rate case began March 27 with the announcement that APS was reducing its rate request from $78.2 million(8.6 percent) to $54.6 million(6 percent).
The reduction was due to a decrease in the com-pany's requested return on equity from 16.5 per-cent to 15 percent. Henry Sargent, APS executive vice president and chief financial officer, said the lower return on equity reflects significant improve-ments in the capital markets since the request was filed in May 1985.
The revised request would recover the remaining capital and operating costs ofPalo Verde Unit l.
About halfofthe unit's construction costs are cur-rently reflected in rates and the company had hoped to have the remainder added when the unit began commercial operation in February 1986.
Phase Il rate hearings, expected to last through mid-June, are part ofa three-phase rate case. Hear-ings on Phase I-dealing with a purchased power and fuel adjustment clause-were completed March 7, and the company is waiting for a proposed order from the ACC hearing officer. APS has requested'hat the fuel adjustor be increased from four mills per kilowatt-hour to seven mills, allowing the recovery ofapproximately $74 millionin uncollected fuel costs.
Phase IIIhearings-dealing with a proposed accounting order for Palo Verde Unit 2-are expected to begin immediately after completion of Phase IIhearings. The accounting order would allow APS to defer Palo Verde Unit 2 costs until 1987, thus allowing the company to phase-in rates to cover the unit's costs.
The phase-in plan is one oftwo alternatives pre-sented in the Palo Verde Unit 2 rate case which was originally filed in December 1985 using a test year ended May 1985. The ACC hearing officer ordered APS to update the test year to include the remain-der of 1985, and refile the case by April30, 1986.
The refiled case also includes two alternatives forbringing Palo Verde Unit 2 in rates: a traditional approach which asks for a single rate increase of 20.1 percent, to take effect at the time Unit 2 goes commercial in the third quarter 1986; and the phase-in plan which asks for three smaller in-creases of6.4 percent each to take effect in Janu-ary of 1987, 1988 and 1989. Hearings on the request are scheduled to begin September 27.
Shareholders tour PVNGS Efforts to keep shareholders informed about AZP Group, Inc. and their investment in the com-pany are continuing this year with a series of regional shareholder meetings and tours ofthe Palo Verde Nuclear Generating Station.
"These meetings not only give shareholders a
better understanding ofhow we'e managing their investment, but also give us a better insight into the needs and concerns ofour shareholders," AZP Chairman and President Keith 11iriey said. Other members ofsenior management are also on hand during regional shareholder meetings. The next meeting is planned forJune 12 in Denver, Colo.
The first tours ofPalo Verde exclusively for shareholders began in December 1985. More than 1,300 AZP shareholders from across Arizona have participated. Other Arizona shareholders, or share-holders who plan to visit Arizona, may still arrange tours by calling AZP's toll-free number.
NRC proposes civilpenalty On May 6, 1986, just before Quarterly went to press, ANPP was notified by the NRC ofa pro-posed.$ 100,000 civilpenalty for violations involv-ittg Palo Verde security. ANPP has 30 days in which to mitigate, appeal or pay the penalty.
The proposed penalty resulted from an NRC inspection this spring which found ANPP failed to comply with certain security guidelines. The items were corrected or compensated for at the time they were identified, and measures have been taken to ensure they do not reoccur.
In releasing the inspection report, an NRC spo-kesperson said there was no violation that compro-mised the plant's overall safety. Information from that report was apparently leaked to non-authorized parties, prompting ANPP to initiate an investiga-tion which included the use ofpolygraph tests.
IfANPP is required to pay the penalty, the cost would be divided among all project participants.
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AZP GROUP, INC.
CONSOLIDATEDSTATEMENTS OF INCOME(Dollars in Thousands Ereept Per Share Amounts) Unaudited Three Months Ended March 31, Twelve Months Ended March 31, 1986 1985 1986 1985 Electric Operating Revenues Fuel Expensesl Fuel for electric generation Purchased power and interchange net Total Operating Revenues less Fuel Expenses Other Operating Expenses:
Operations excluding fuel expenses Maintenance Depreciation and amortization Income taxescurrent Income taxes dcfcrred Other taxes Total Operating Income Other Income (Deductions):
Allowance for equity funds used during construction Income taxes-current income taxes deferred Other net Ibtal Income before Interest and Other Deductions Interest and Other Deductions:
Interest on long-term debt Interest on short. term borrowings Debt discount. premium and expense Allowance for borrowed funds used during constructioncredit Preferred stock dividend requirements of APS Total Income From Continuing Operations DLscontlnued Operatlonsl Income (loss) from operations of gas system net of tax Loss on disposal of gas system net ol'ax Income (Loss) from discontinued operations Net Income Average Common Shares Outstanding Earnings (Loss) Per Average Share of Common Stock:
Continuing operations Discontinued operations Total Dividends Per Common Share S
274.530 S
243.552 41,495 IS.844 57.339 217.191 44,904 4.491 49,395 194.157 30.711 20.564 28.253 4.571 44.428 27.430 155.957 61.234 27.447 28,236 23,406 11,598 29,790 24.228 144,705 49.452 30,583 (425) 13.495 525 44.178 105.412 37,213 (749)
!2,164 132 48.760 98.212 56,095 1.938 1,136 (12,665) 10.581 57.085 48.327 47,909 2,204 789 (11,709) 12.098 51,291 46.921 S
48.327 74.887.388 46.921 70.360.843 0.65 S
0.67 S
0.65 0.67 0.68 S
0.65 S 1.205,480 216.166 28.142 244.308 961,172
$ 1,034.582 191.560 8,880 200.440 834,142 126,015 81,198 104,068 13,938 209,709 107.478 318.766 102.502 76,369 89,463 43,404 156.192 95.631 563.561 270,581 136.982 (1,412) 54,743 (6.310) 184.003 138,690 836 53,732 (772) 192,486 502.769 463,067 217,406 6,685 3,960 (49,132) 42.895 221.814 280,955 192,448 11,488 2,729 (48,863) 49.350 207.152 255.915 S
280.955 73.242.752 (1,430)
(26.470)
(27,900) 228.015 69.130.213 3.84 3.70 (0.40)
S 3.84 S
3.30 2.72 2.60 Note: pursuant to corrsvrate restructurins plan effective April 29. t9t5 Aps became a subsidiary of Azp Additionally. effective November I. f984 Aps sold its rar, distribution system. Accordingly. the comolrdatcd financial statements have been adjusted for thc effects of these chanrcs.
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UNITED STATES OF 'AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al.,
(Palo Verde Nuclear Generating Station, Unit I
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DOCKET NO.
STN 50-529 APPLICATION IN RESPECT OF SALE AND LEASEBACK TRANSACTIONS BY ARIZONA PUBLIC SERVICE COMPANY ITEM 3 QUARTERLY REPORT OF APS
<<(FORM 10-Q)
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.e SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549 FORM 10"Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31 1986 Commission file number 1-4473 ARIZONA PUBLIC SERVICE COMPANY (Exact name of registrant as specified in its charter Arizona (State or other jurisdiction of incorporation or organization) 86-0011170 I.R.S.
Employer Identification No.)
411 North Central Avenue P. 0.
Box 53999 Phoenix Arizona 85072-3999 (Address of principal executive offices)
Zip Code Registrant's telephone
- number, including area code 602-250-1000 Former
- name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to the filing requirements for the past 90 days.
Yes X
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Number of shares of common stock,
$2.50 par value, outstanding as of May 9, 1986:
71,264,947
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OellIiitlts Hlmkim+selllc Suite 1000 First Interstate Bank Plaza Phoenix. Arizona 85003-1893 (602) 257-8333 ITT Telex: 4995608 Arizona Public Service Company:
We have made a review of the consolidated balance sheet of Arizona Public Service Company (the "Company" ) and its subsidiaries as of March 31, 1986 and the related consolidated statements of income for the three-month and twelve-month periods ended March 31, 1986 and 1985 and of changes in financial position for the three-month periods ended March 31, 1986 and 1985, included in the Company's quarterly report on Form lO-Q, in accordance with standards established by the American Institute of Certified Public Accountants.
A review of interim financial information consists principally of obtainingan understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters.
It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of'hich is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
N Based on our review, we are not aware of any material modifi-cations that should be made to the above-mentioned consolidated financial statements for them to be in conformity with generally accepted accounting principles.
May 12, 1986
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F PART I FINANCIAL INFORMATION Item 1. Financial Statements Three Months ARIZONA PUBLIC SERVICE COMPANY Ended March 31 CONSOLIDATED STATEMENTS OF INCOME 1986 1985 Unaudited (Dollars in Thousands, Except Per Share Amounts)
ELECTRIC OPERATING REVENUES 274 530 243 552 FUEL EXPENSES:
Fuel for electric generation.
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Purchased power and interchange net Total OPERATING REVENUES LESS FUEL EXPENSES OTHER OPERATING EXPENSES:
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Operations excluding fuel expenses.
Maintenance Depreciation and amortization
'ncome taxes curr ent Income taxes deferred Other taxes Total OPERATING INCOME
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41,495 15 844 57 339 217 191 30,621 20,564 28,253 4,612 44,428 27 430 155 908 61 283 44,904 4 491 49 395 194 157 27,447 28,236 23,406 11,598 29,790 24 228 144 705 49 452 OTHER INCOME (DEDUCTIONS):
=Allowance for equity funds used Income taxes current Income taxes - deferred Other net Total INCOME BEFORE INTEREST DEDUCTIONS.
0 during construction
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30,583 (391) 13,495 797 44 484 105 767 37 213 (749) 12,164 132 48 760 98 212 INTEREST DEDUCTIONS:
.,Interest on long-term debt Interest on short-term borrowings Debt discount, premium and expense.
Allowance for borrowed funds used duri construction credit Total NET INCOME PREFERRED STOCK DIVIDEND REQUIREMENTS.
0 EARNINGS FOR COMMON STOCK.
ng 56,095 1,938 1,136 12 665 46 504 59,263 10 581 47,909 2,204 789 11 709 39 193 59,019 12 098 48,682 46,921 AVERAGE COMMON SHARES OUTSTANDING.
71,264,947 70,360,843 PER SHARE OF COMMON STOCK:
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Earnings (based on average common shares outstandi Dividends declared e Notes to Consolidated Financial Statements ng) 0.68 0.72 0.67 0.65
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-3" ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED STATEMENTS OF INCOME Unaudited)
CTRIC OPERATING REVENUES FUEL EXPENSES:
Fuel for electric generation.
Purchased power and interchange net Total 216,166 28 142 244 308 191,560 8 880 200 440 Twelve Months Ended March 31 1986 1985 (Dollars in Thousands, Except Per Share Amounts) 1 205 480 1 034 582 OPERATING INCOME t
OTHER INCOME (DEDUCTIONS):
Allowance for equity funds used Income taxes - current Income taxes - deferred Other net Total OME BEFORE INTEREST DEDUCTIONS.
during construction
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OPERATING REVENUES LESS FUEL EXPENSES OTHER OPERATING EXPENSES:
Operations excluding fuel expenses.
'aintenance
'epreciation and amortization Income taxes current
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'ncome taxes - deferred Other taxes Total 961 172 125,925 81,198 104,068 13,979 209,709 107 478 642 357 318 815 136,982 (2,297) 54,743 3 657 185 771 504 586 834 142 102,502 76,369 89,463 43,404 156,192 95 631 563 561 270 581 138,690 836 53,732 772 192 486 463 067 INTEREST DEDUCTIONS:
Interest on long-term debt
, Interest on short-term borrowings Debt discount, premium and expense.
Allowance for borrowed funds used duri construction - credit Tot a 1
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ng 217,406 6,685 3,960 49 132 178 919 192,448
'1,488 2,729 48 863 157 802 INCOME FROM CONTINUING OPERATIONS LOSS FROM DISPOSAL AND OPERATION OF DISCONTINUED GAS
- SYSTEM, NET OF TAX NET INCOME PREFERRED STOCK DIVIDEND REQUIREMENTS.
0 EARNINGS FOR COMMON STOCK.
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325 667 325,667 42 895 282,772 305 265 27 900 277,365 49 350 228,015 AVERAGE COMMON SHARES OUTSTANDING.
PER SHARE OF COMMON STOCK:
Earnings (loss)
(based on average common shares Continuing operations Discontinued operations Total
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3.97 0.00 3.97 3.70 0.40 3.30 71,254,157 69,130,213 outstanding):
Dividends declared See Notes to Consolidated Financial Statements
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ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (Unaudited Three Months Ended March 31 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 net Deferred investment tax credit - net 0ther
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Total funds from operations
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1986 (Thousands 1985 of Dollars) 28,253 23,406 (30,583) 27,060 3,356
~7972 (37,213) 11,963 5,709 6
186 79 377 69 070 59,263 59,019 Funds from external sources:
Common stock Long-term debt Other items - net Decrease in working capital*
203,667 (21,047) 71 14,772 266,091 (472) 50 542 Total funds from external sources Total source of funds 182 691 330 933 6
262,068 6
400,003 APPLICATION OF FUNDS:
Funds used for capital expenditures Investments and other assets
. Short-term borrowings net Repayment of long-term debt Redemption of redeemable preferred stock Dividends on preferred and common stock Total application of funds 112,107 139 (100,735) 179,380 9,600 61 577 6
262,068 106,823 (203) 139,977 61,400 34,262 57 744 400,003 INCREASE (DECREASE)
IN WORKING CAPITAL":
Current assets.
Current liabilities Net decrease 1,204 1 275 6
(71)
(784)
~49 758 (50,542)
- Excluding short-term borrowings - net and current maturities of long-term See Notes to Consolidated Financial Statements debt.
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ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED BALANCE SHEETS ASSETS March 31, December 31,
'986 1985 (Unaudited)
(Thousands of Dollars)
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UTILITY PLANT:
Electric utility plant in service Less accumulated depreciation and Total Construction work in progress
'Nuclear fuel, net of amortization Utility Plant net and held for future amortization
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$4,173,661 861 810 3,311,851 1,628,997 42 390 4 983 238
$2,970,368 838 684 2,131,684 2,742,139 4 873 823 INVESTMENTS AND OTHER ASSETS:
Investments in and receivables from affiliates Other investments and notes receivable.
Total investments and other assets 16,513 6 130 16,513 5 991 22 643 22 504 CURRENT ASSETS:
Cash and marketable securities Special deposits and working funds.
Accounts receivable:
Service customers.
Other.
Allowance for doubtful accounts.
Materials and supplies (at average Fuel (at average cost).
Deferred fuel Total current assets
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cost).
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7,871 3,342 8,474 3,397 84,533 43,415 (1,395) 41,525 30,433 74,335 3 873 71,595 37,850 (1,486) 55,676 35,469 68,749 9 412 289 136 287 932 DEFERRED DEBITS:
Unamortized gas exploration costs Unamortized debt issue costs.
Other Total deferred debits.
TOTAL.
9,994 16,504 65 807 10,417 16,705 39 946 92 305 67 068
$5,387,322
$5,251,327 See Notes to Consolidated Financial Statements
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ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED BALANCE SHEETS LIABILITIES CAPITALIZATION:
Common stock.
Premiums and expenses net Retained earnings Common stock equity.
Non-redeemable preferred stock.
Redeemable preferred stock Long-term debt Total capitalization
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Mar ch 31, 1986 (Unaudited)
(Thousands December 31, 1985 of Dollars) 178,162 1,040,909 592 334 178,162 1,040,909 590 020 1,809,091 218,561 209,821 2 230 333 1,811,405 218,561 219,421 2 205 940 4 467 806 4 455 327 CURRENT LIABILITIES:
Commercial paper Current maturities of long-term Accounts payable.
Accrued taxes Accrued interest.
Accrued dividends Other Total current liabilities.
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debt.
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118,735 17,456 80,077 71,117 60,401 3,449 28 633 18,000 17,456 87,113 52,976 72,678 3,566 26 069 379 868 277 858 DEFERRED CREDITS AND OTHER:
Deferred income taxes Deferred investment tax credit.
Unamortized credit sale of tax benefits Customer advances for construction Other Total deferred credits and other 230,553 174,503 43,645 23,991 45 450 257,748 177,859 43,224 23,779 37 038 539 648 518 142 TOTAL.
$5,387,322
$5,251,327 See Notes to Consolidated Financial Statements e
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ARIZONA PUBLIC SERVICE COMPANY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.
The consolidated financial statements include the accounts of Arizona Public Service 'Company (the "Company" or "APS") and those of two of its wholly-owned subsidiaries, APS Finance Company N.V., organized to serve as a financing corporation to raise funds outside the United States of America, and APS Fuels
- Company, organized to manage investments in certain fuel resources.
All significant intercompany, balances and transactions have been eliminated.
2.
In the opinion of the
- Company, the accompanying unaudited consolidated financial statements contain all adjustments (comprising only normal recurring accruals) necessary to present fairly the financial position of the Company and its subsidiaries as of March 31, 1986, the results of their operations for the three months and twelve months ended March 31, 1986 and 1985 and the changes in their financial position for the three months ended March 31, 1986 and 1985.
3.
The Company's operations are subject to seasonal fluctua-tions with variations occur ring in energy usage by customers from season to season and from month to month within a season, primarily as a result of changing weather conditions.
For this and for other reasons, the results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
4.
The Company sold its gas distribution system effective November 1,
1984.
5.
On April 18, 1985 the Company's shareholders approved a
plan for corporate restructuring.
Effective April 29,
- 1985, APS became a
subsidiary of a holding company, AZP Group, Inc.
6.
See "Construction and Financing Programs" under Part II, Item 5 for changes in capitalization since December 31, 1985.
7.
See "Palo Verde Nuclear Generating Station" under Part II, Item 5 for discussion of the Prudency Audit.
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"8"
'ARIZONA PUBLIC SERYICE COMPANY Item 2.
Mana ement's Discussion and Anal sis of Financial Condition and Results of 0 erations.
Operating Results for the Three Months and Twelve Months Ended March 31, 1986 as Com ared with Corres ondin Periods Ended March 31 1985.
Although the Company has experienced increases and decreases in unit costs of generating fuel and purchased
- power, most of such changes are passed on to customers pursuant to the purchased power and fuel-adjustment mechanism in the Company's rate schedules.
Accordingly, such changes are reflected in fuel revenues and do not materially affect earnings.
- See, however, "Retail Rates" in Part II, Item 5 of this Report for a discussion of the Arizona'orporation Commission (the "ACC")
hearings and other legal proceedings regarding the Company's purchased, power and fue'I adjustment mechanism.
The increases in electric operating revenues of 12.7% and 16.5%
in the three-month and twelve-month periods, respectively, were largely due to an increase in the portion of a coal-fired plant's capacity that is being temporarily sold and to a retail rate increase of 4.98% effective February 1,
1985.
In addition, a 1.5% retail rate increase effective October 1,
1984 contributed to increased revenues in the twelve-month period.
Increased revenues also reflect an increase in rates pursuant to operation of the Company's fuel adjustment clause and increased unit sales to residential, commercial and industrial customers in the 'twelve-month period.
For the three-month and twelve-month periods, the average number of electric customers increased by 4.7% and 4.8%, respectively, with these increases occurring in the residential and commercial customer classes.
Unit sales declined by 4. 1% for the three-month period and increased by 3.2% for the twelve-month period.
Unit sales in the three-month period declined primarily due to decreased residential usage which reflects warmer winter weather conditions, partially offset by the increase in residential customers.
Unit sales increased for the twelve-month period largely due to an increase in customers, increased commercial
- usage, and increased industrial sa'les reflecting the impact of one mining customer.
Sales to resale customei s decreased in both periods largely due to curtailed purchases by two resale customers.
Fuel for electric generation expense decreased by 7.6% during the three-month period primarily due to decreased generation as a result of lower sales, partially offset by an increase in coal prices resulting from an increase in coal royalties.
For the twelve-month period, the fuel for electric generation expense increased by 12.8% primarily due to the increased unit fuel price for coal resulting from a retroactive adjustment to 1981 for coal royalties that was recorded in June 1985.
Purchased power and interchange-net increased in both periods'he primary reason for. the increase in the three-month period is the operation of the Company's fuel adjustment clause partially offset by a decrease in the average price of purchased power resulting from the availability of test energy.
The increase in the twelve-month period was
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largely due to increased purchase power requirements resulting from, increased sales as well as lower interchange sales to other utilities, partially offset by the operation of the Company's fuel adjustment clause.
'I Operations excluding fuel expenses increased in both periods due to increased customer service expenses associated with increased customers, increased insurance expenses resulting from rising premiums, and increased operations expenses associated with the start of commercial operation of a new generating unit.
Maintenance expenses were affected in both periods by the timing of scheduled power plant maintenance overhauls and by increased maintenance expenses associated with the start of commercial operation of
-a new generating unit.
Depreciation and amortization expenses increased in the three-month and twelve-month periods ended March 31 reflecting increases in the Company's utility plant in service including a
new generating unit which started commercial operation in February 1986.
Ad valorem taxes, a
function of the size of the Company's utility plant, and sales
- taxes, a
function of operating
- revenues, also increased in both periods.
Sales taxes and ad valorem taxes are the principal components of other taxes.
The increases in income taxes in both periods were largely a
result of increased income.
The aggregate amount of AFC, shown as other income and a credit to interest deductions, decreased in both the three-month and twelve-month periods.
AFC is primarily a function of the amount of construction work in progress during any given period and ceases to accr ue on those portions of construction work in progress that are included in rate base or on those generating facilities transferred to plant in service including those portions of a new generating unit which started commercial operation in February 1986.
See Note le of "Notes to Consolidated Financial Statements" in Part II, Item 8 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1985 (the "1985 10-K").
Interest on long-term debt increased in the three-month and twelve-month periods ended March 31 due primarily to large amounts of new borrowings, partially offset by lower interest rates.
The decrease in interest on short-term borrowings in the same periods resulted primarily from decreased borrowings and the effects of lower interest rates.
Consolidated net income represents a composite of cash and non-cash items and reflects accounting practices unique to regulated public utilities.
For additional information regarding the Company's sources of liquidity and commitments for capital expenditures, see "Construction and Financing Programs" in Part II, Item 5 of this Report, incorporated herein by this reference.
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m her Inf rm i n R
il R In May 1985, the Company filed a request with the Arizona Corporation Commission (the "ACC") for a
$78.2 million (8.6%)
increase in annual retail electric rates premised upon Palo Verde Unit 1 being fully included in the Company's rate base (the "Unit 1 Rate Case" ).
See "Rates-State" in Part I, Item 1
of the Company's Annual Report on Form 10-K for the fiscal year ended 1985 (the "1985 Form 10-K").
On March 27,
- 1986, the Company lowered the request in the Unit 1 Rate Case to 454.6 million (a 6% increase),
reflecting improvements in capital markets since the request was filed in May 1985.
On December 18,
- 1985, the Company filed an application with the ACC for a
$ 193.9 million (19.36%) increase in,annual retail electric rates, to be effective on the date Palo Verde Unit 2 is placed in service (the "Unit 2 Rate Case" ).
On December 30,
- 1985, the ACC instructed the Company to resubmit all schedules relating to the Unit 2 Rate Case on or before April 30,
- 1986, so as to reflect a calendar 1985 test year.
See "Rates-State" in Part I, Item 1 of the 1985 10-K.
On April 30,
- 1986, the Company resubmitted schedules based upon the 1985 test year, which resulted in a revision of the rate request from 4193.9 million to 4202.5 million (20.12%).
Hearings concerning the Unit 2 Rate Case are scheduled to begin September 26, 1986.
Pal V r Nu 1
r n r in On April 24,
- 1986, the Nuclear Regulatory Commission (the "NRC") issued, subject to certain conditions, a full power operating license for Palo Verde Unit 2, thus removing the five percent restriction on generating capability contained in the Unit 2 operating license issued in December 1985.
Unit 2 is scheduled to achieve commercial operation during the third quarter of 1986.
See "Properties" in Part I, Item 2 of the 1985 Form 10-K.
The Company has been evaluating the use of long-term lease financing for its interest in Palo Verde Unit 2.
On April 22,
- 1986, and May 2, 1986, the Company filed separate applications with the ACC and the NRC, respectively, seeking authorization to enter into one or more sale and leaseback transactions relating to all or a portion of the Company's 29.1% undivided
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ownership interest in Palo Verde Unit 2.
Consummation of anY sale and leaseback transaction is subject to further evaluation, general market conditions, and the receipt of regulatory approvals from the ACC, the NRC, and the Securities and Exchange Commission.
'0 By letter dated May 5,
- 1986, the NRC sent a Notice of Violation and Proposed Imposition of Civil Penalty (the "NRC Notice" ) notifying the Company, as operating agent at Palo Verde, that the NRC proposes to impose a
$ 100,000 civil penalty for violations categorized in the aggregate as a "Severity Level lII" problem (on a scale of I to V in accordance with the "General Statement of Policy and Procedure for NRC Enforcement Actions").
The NRC Notice relates to deficiencies noted by the NRC during security inspections at Palo Verde from February ll to March 13, 1986.
The base civil penalty for a Severity Level III problem is
$50,000.
The NRC indicated that the proposed civil penalty was doubled because the Company had prior notice of similar problems and because several violations involved multiple examples.
The NRC requires APS to respond
- and, among other things, either to pay or to protest the civil penalty within 30 days of the NRC Notice.
The Company is currently evaluating its response to the NRC Notice.
In 1984 the utility regulatory bodies of Arizona, California, New Mexico, and Texas formed the Four State Monitoring Committee to oversee an independent construction audit of Palo Verde.
See "Rates-State" in Part I, Item 1 of the 1985 10-K.
In April 1986, Public Service Company of New Mexico
("PNM") and El Paso Electric Company ("El Paso" ), two of the participants in Palo Verde, informed their respective regulatory commissions that they were withdrawing from, and would not fund, the audit because of concerns that the audit will not produce balanced and objective conclusions.
The Company is under order by the ACC to pay for 29.1 percent (the Company's ownership interest in Palo Verde) of all costs incurred in conducting the audit.
n r
i n n
F n n in Pr r
For the three months ended March 31,
- 1986, the Company incurred approximately
$99,000,000 in construction expenditures, accounting for approximately 26+ of the most recently estimated 1986 construction expenditures.
The Company has estimated total construction expenditures for the years
- 1986, 1987, and 1988 at 4386,000,000, 4258,000,000, and 4226,000,000, respectively.
In addition to'unds required for capital expenditures, repayment or refunding obligations of senior securities and
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12 installment obligations, including certain anticipated early redemptions based upon current interest rates, are expected to total 4325,000,000, 4248,000,000, and
$246,000,000 for the years
- 1986, 1987, and 1988, respectively.
The Company refunded or otherwise paid approximately 58< ($189,000,000) of the expected 1986 total during the three months ended March 31, 1986.
In January
- 1986, the Company issued
$ 100 million in 30-year lib first mortgage bonds.
The proceeds were applied to the redemption of outstanding European debentures issued by the Company's wholly-owned finance subsidiary.
In March 1986, the Company issued
$ 100 million in 10-year 9 1/4% first mortgage bonds.
Substantially all of the proceeds were applied to purchase approximately
$ 80 million of the Company's
$ 100 million 15'eries First Mortgage Bonds due 1994 at 123.23% of their principal amount plus accrued interest.
In May 1986, the Company issued
$ 125 million in 10-year 9< first mortgage
- bonds, and applied a portion of the proceeds to redeem the Company's
$ 75 million 12 1/8% Series First Mortgage Bonds due 2009 at 109.15 percent of principal amount plus accrued interest.
Provisions in the Company's Mortgage Bond Indenture and Articles of Incorporation restrict it from issuing additional first mortgage bonds or preferred stock, respectively, unless its earnings (as defined) cover by at least the prescribed number of times the amount of interest (as to bonds) and the amount of interest plus preferred stock dividend requirements (as to preferred stock) on the securities to be outstanding after completion of the new issue.
Operation of the latter such provision has at times limited the Company's ability to issue preferred stock.
As calculated in accordance with the applicable
- document, and assuming 10% as the rate of interest on new bonds or as the dividend requirement on new preferred stock that might have been issued on March 31,
- 1986, and treating the issuance of $125,000,000 of 9 percent series first mortgage bonds as though consummated on.that date, the coverage afforded by defined earnings for the twelve months ended on that date would have allowed the issuance of either
$ 1,643,000,000 in aggregate principal amount of additional first mortgage bonds (as compared to approximately 41,072,000,000 in bonds issuable on the basis of net "property additions" to March 31, 1986), or 4598,000,000 in aggregate par value of additional preferred stock.
Required coverages are 2.0 for bonds and 1.5 for preferred stock.
Coverages afforded by defined earnings for the twelve-month period ended March 31, 1986 were 4.10 for bonds and 1.90 for preferred stock.
I m
Exhi an R
r n F rm (a)
Exhibits
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13 g.'xhi~i 15.1 Letter Regarding Unaudited Interim Financial Information Page Number in Manually Signed Original on Whi Exhi M
F n
18 In addition to the Exhibit shown above, the Company hereby incorporates the following Exhibits pursuant to Exchange Act Rule 12b-32 and Regulation g 201.24 by reference to the filings set forth below:
Exhil~
ri i ll Fil Exhi i 4.1 Mortgage and Deed of Trust Relating to the Company's First Mortgage Bonds, to-gether with twenty-seven indentures supplemental thereto e
Twenty-eighth Supplemental Indenture Twenty-ninth Supplemental Indenture Thirtieth Supplemental Indenture 4.1 to Form S-3 Registration Statement 4.2 to Form S-3 Registration Statement No.
2-84605 by means of July 7, 1983 Form 8-K Report 4.2 to Form S-3 Registration Statement No.
2-86955 by means of October 13, 1983 Form 8-K Report 4.4 to Form S-3 Registration Statement No.
2-86955 by means of June 14, 1984 Form 8-K Report 2-84605 1-4473 1-4473 1-4473 7-6-83 7-7-83 10-14-83 6-15-84
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14 Thirty-first Supplemental Indenture Thirty-second Supplemental Indenture Thirty-third Supplemental Indenture 4.4 to Form S-3 Registration Statements (Nos.
2-86955 and 2-95340) by means of January 24, "1985 Form 8-K Report 4.7 to Form S-3 Registration Statement
- 4. 5 to Form S-3 Registration Statement Nos.
2-95340 and 2-97956 by means of June 6,
1985 Form 8-K Report 1-4473 2-97956 1-4473 1-25-85 5-24-85 6-7-85 Thirty-fourth'upplemental Indenture
- 4. 1 to Form S-3 Registration Statement by means "of Post-Effective Amendment No.
2 2-99739 11-21-85 Thirty-fifth Supplemental Indenture Thirty-sixth Supplemental Indenture Thirty-seventh Supplemental Indenture
- 4. 1 to Form S-3 Registration Statement No.
33-2297 by means of January 22, 1986 Form 8-K Report 4.1 to Form S-3 Registration Statement No.
33-3354 by means of February 24, 1986 Form 8-K Report 4.1 to Registration Statement No.
33-4306 by means of April 29, 1986 Form 8-K Report 1-4473 1-4473 1-4473 1-23-86 2-25-86 4-30-86 (b)
During the quarter ended March 31,
- 1986, the Company filed, on the dates indicated, the following reports on Form 8-K:
Report filed January 20, 1986, relating to (1) delays
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15 in the projected commercial operation dates of Palo Verde Units 2 and 3, (2) the impact on the Company if the ACC does not grant the requested accounting/rate-making order relating to Unit 2,. (3) the court order upholding the ACC's order purporting to subject AZP and its subsidiaries, including the Company, to certain reporting requirements, (4) the ACC's refusal to grant a motion by RUCO involving the emergency rate reduction application filed by RUCO, and (5) the ACC's refusal to grant a motion by RUCO involving a'equested emergency adoption of a new ACC rule to require public service corporations to prove by a preponderance of the evidence that their investments were prudent.
Report filed January 23, 1986 comprised of exhibits to the Company's Registration Statement on Form S-3 (Registration No. 33-2297), relating to the Company's registration of 4100,000,000 in aggregate principal amount of the Company's First Mortgage Bonds.
ll'eport filed February 24, 1986 comprised of exhibits to the Company's Registration Statement on Form S-3 (Registration No. 33-3356), relating to the Company's registration of $ 100,000,000 in aggregate principal amount of the Company's First Mortgage Bonds.
Report filed February 25, 1986 comprised of exhibits to the Company's Registration Statement on Form S-3 (Registration No. 33-3356), relating to the Company's registration of $ 100,000,000 in aggregate principal amount of the Company's First Mortgage Bonds.
Report filed May 6, 1986 comprised of exhibits to the Company's Registration Statement on Form S-3 (Registration No. 33-4306), relating to the Company's registration of 4125,000,000 in aggregate principal amount of the Company's First Mortgage Bonds.
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of
- 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ARIZONA PUBLIC SERVICE COMPANY (Registrant)
Date Ma 9
1986
/s/ Henr B. Sar ent Jr Henry B. Sargent, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer and Officer Duly Authorized to sign this Report)
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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBL'IC SERVICE COMPANY, et al.>
(Palo Verde Nuclear Generating Station, Unit
)
)
)
)
)
)
)
2)
)
)
DOCKET NO.
STN 50-529 APPLICATION IN RESPECT OF SALE AND LEASEBACK TRANSACTIONS BY ARIZONA PUBLIC SERVICE COMPANY ITEM 4 OPINION AND ORDER OF THE ARIZONA CORPORATION COMMISSIONS DATED JULY 24',1986
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BEFORE THE ARIZONA CORPORATION COMMISSION 10 12 13 RENZ D.
JENNINGS CHAIRMAN MARCIA WEEKS COMMISSIONER SHARON B.
MEGDAL COMMISSIONER IN THE MATTER OF THE APPLICATION OF
)
ARIZONA PUBLIC SERVICE COMPANY FOR AN
)
ORDER OR ORDERS:
(1) AUTHORIZING IT TO
)
ENTER INTO VARIOUS TRANSACTIONS AND
)
AGREEMENTS RELATING TO THE SALE AND
)
OPERATING LEASE OF ALL OR A PORTION OF
)
THE COMPANY' UNDIVIDED OWNERSHIP
)
INTEREST IN UNIT 2 OF THE PALO VERDE
)
NUCLEAR GENERATING STATION AND CERTAIN
)
COMMON FACILITIES; (2) AUTHORIZING IT
)
TO ISSUE OR INCUR EVIDENCES OF INDEBTED-)
NESS IN CONNECTION THEREWITH; (3)
CON-
)
FIRMING THAT THE OWNER TRUSTEE AND THE
)
EQUITY INVESTORS WILL NOT BE "PUBLIC
)
SERVICE CORPORATIONS"'4)
CONFIRMING
)
THAT THE LEASES WILL BE "OPERATING
)
LEASES" FOR ACCOUNTING PURPOSES'ND,
)
(5) DESCRIBING THE RATE-MAKING
)
TREATMENT OF THE PROPOSED TRANSACTIONS.
)
)
DOCKET NO. U-1345-86-105 Arizona Corporation Commission DOCKETED JUL 24 1986 DOCKETf.D 5Y 16 DATE OF HEARING:
20 21.
APPEARANCES:
22 PLACE OF HEARING:
PRESIDING OFFICER:
1g IN ATTENDANCE:
OPINION AND ORDER July 10, 1986
- Phoenix, Arizona Thomas L.Mumaw, Chief Hearing Officer Renz D. Jennings, Chairman Marcia Weeks, Commissioner Sharon B. Megdal, Commissioner Jaron B. Norberg, Senior Vice President and Corporate
- Counsel, Raymond
- Heyman, and Snell
& Wilmer, by Steven M. Wheeler, Attorneys for Arizona Public Service.
24 25 26 Elizabeth Kushibab, Attorney, Legal Division, for the Arizona Corporation Commission Staff Steven Avilla, Attorney, for the Residential Utility Consumer Office
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U-1345-Ub-xU>
BY THE COMMISSION:
a On April 22,
- 1986, Arizona Public Service Company
("APS" or "Company" )
filed an Application with the Commission requesting an Order authorizing the
- Company, among other things, to enter into various transactions and agreements relating to the sale and operating lease of all or a portion of the Company's undivided ownership interest in the Palo Verde Unit 2 Facilities as hereinafter defined.
On April 27, and May 21,
- 1986, the Coalition for Responsible Energy Education ("CREE" ) and the Resident'ial Utility Consumer Office
("RUCO")
filed 10 Petitions to Intervene herein.
Both said Petitions were granted by Procedural Order prior to the scheduled hearing on APS's Application.
12 14 I
16 Pursuant to Notice dated June 26,
- 1986, APS's Application came on for hearing before a
duly authorized Hearing Officer of the Commission at its offices in
- Phoenix, Arizona, on July 10, 1986.
- APS, RUCO, and the Commission's Utilities Division Staff {"Staff") appeared through
- counsel, and each presented testimony and exhibits in support of APS's Application.
At the conclusion of a full public
- hearing, this matter was adj orned pending submission of a
Recommende'd Opinion and Order by the Presiding Officer to the 19 20 Commission.
DISCUSSION 21 22 25 26 0
as As indicated
- above, both Staff and Intervenor RUCO supported the Application.
Staff did propose various reporting requirements which would keep the Commission informed as to the details of the sale and leaseback (as well as any material changes in the transaction both prior to and after closing),
and suggested that proceeds derived from such sale and leaseback be placed in a
separate interest bearing bank account.
Staff and RUCO further recommended that the Commission be circumspect in its language approving this matter so as to retain its flexibility to disallow all or part of the operating lease Decision No. 3 D /20
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I e
U-1345-86-105 payments from APS' cost of service in its pending rate proceeding (Docket No.
U-1345-85-367).
- Finally, RUCO noted that recoverability of these lease payments in rates should be subject to performance criteria, and that it would be proposing such criteria in the aforementioned rate Docket.'s in Docket No.
U-1933 86 036, decided this same
- day, we will adopt Staff's reporting requirements and will use the same language generally disclaiming any prior judgement on the recoverability through rates of these 10 12 13 14 16 17 operating lease payments.
We also agree that performance criteria for Palo (Phase I),
also decided this day.
We will not require that APS separately deposit the funds received through the sale and leaseback transaction.
- However, periodic reporting on APS's use of such proceeds will serve to reassure the Commission that the limitations on their use both agreed to by APS and ordered hereinafter are being properly observed.
Having considered the entire record herein and being fully advised in the
- premises, the Commission finds, concludes and orders that:
18 19 20 21 22 24 25 26 27 FINDINGS OF FACT 1.
APS is an Arizona corporation engaged in providing electric service within various portions of Arizona pursuant to authority granted by this Commission.
2.
By its Application and testimony in this
- matter, the Company requests one or more orders granting the following:
(a) authorization to refinance its construction financing for Unit 2 of the Palo Verde Nuclear Generating Station
("Palo Verde" ) by entering into one or more sale and leaseback transactions (the "Lease Transactions" ) relating to (I) all or financing transactions.
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U-1345-86-105 1
a portion of the Company's 29.1X undivided ownership interest in Unit 2, including, without limitation, all or a portion of the Company's generation entitlement share in Unit 2 and (ii) certain real property interests in the Palo Verde plant site and related real property (such interest in Unit 2 and the real property interests being hereinafter collectively referred to as the "Unit 2 Facilities" );
(b) authorization for the Company to issue,
- assume, guarantee, or incur evidences of indebtedness in connection with the Lea'se Transactions; (c) confirmation that the Leases (as hereinafter defined) will be treated as "operating leases" for accounting and rate-m'aking 13
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16 17 18 purposes; (d) conf ixmation of the rate-making treatment of the Lease Transactions;
- and, (e) confirmation that the Lessors and the Equity Investors (as hereinafter defined)'ill not be "public service corporations" subject to regulation under Arizona law by reason of their holding title to, or possessing an interest in, the Unit 2 20 Facilities.
21 22 3 ~
The Lease Transactions will involve the Company' sale of the Unit 2 Facilities to, and then the lease of the Unit 2
Facilities back
- from, institutional investors
("Equity Investors" ).
24 4.
Each of the Equity Investors will form a trust for the purpose of 25 holding title to its undivided interest in the Unit 2 Facilities, and the trustees under the trusts will act as lessors
("Lessors" ) of the Unit 2
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U-1345-86-105 Facilities and will lease the Unit 2 Facilities to APS under one or more leases
("Leases" ).
5.
If the Lease Transactions are completed as to less than all of APS's interest in the Unit 2 Facilities, APS will retain an undivided ownership interest in the remainder of the Unit 2 Facilities, 6.
The Unit 2 Facilities will be sold to the Lessors at a fair market
- price, and prior to the closing of the Lease Transactions, an appraisal will confirm that the purchase price is a reasonable estimate of fair market value in order to comply with certain Internal Revenue Service requirements to preserve certain tax benefits of the transactions.
7.
APS's profit on the sale at fair market value of the Unit 2
Facilities (net of associated income tax) will be amortized as a credit against APS's operating lease expense over the term of the lease
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8.
Lessors will borrow approximately 70X to 80%%d of the purchase price
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15 16 from a funding corporation (the "Funding Corporation" ) formed for that purpose, and the Funding Corporation, in turn, will borrow the debt portion of the purchase price by issuing debt that will be non-recourse to the Lessors and the Equity Investors.
20 21 22 24 25
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.8 9.
The debt referred to in Finding of Fact No.
8, hereinabove, will be indirectly secured by an assignment of the rentals and other payments due from the Company under the Leases.
10.
APS will be named the "Registrant" in any Registration Statement filed with the Securities and Exchange Commission in connection with the issuance of such debt.
ll.
Upon the occurrence of certain events to be described in the leases, APS will be required to assume the Lessors',debt to the Funding Corporation.
12.
Throughout the terms of the
- Leases, APS may direct the Lessors to refund the Lessors'ebt to the Funding Corporation at then prevailing interest Decision No. Q Q /QO I
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- rates, with net benefits of such refunding to be reflected in the Company's rental payments under the Leases.
13 'inancial support in the form of letters of credit or financial guarantees will also be obtained to secure the Equity Investors for the payment of amounts by the Company under the leases and related documents, and APS may be required to issue or incur evidences of indebtedness in connection with such financial support.
14.
Although the Lessors will be the owners of the Unit 2 Facilities, APS will remain responsible for all expenses of operation and maintenance.
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15 18 15.
The initial term of the Leases will be approximately 29 1/2 years, and the Company will have certain renewal options, 16.
APS will have certain options to repurchase the Unit 2 Facilities.
17.
The rent to be paid by APS over the term of the Leases will be a
function of the interest rates payable on the debt issued by the Funding Corporation, the purchase price, marginal tax rates, etc.
18.
Throughout the term of the Leases, APS will be required with respect to the Unit 2 Facilities to be and to act 'as a "participant" under the ANPP Participation Agreement, as
- amended, which governs the construction, operation, and maintenance of Palo Verde and the rights and duties of the joint owners of, and participants in Palo Verde.
22 19.
The Company will also continue to serve as "Operating Agent" of Unit 2 responsible to the other Palo Verde participants, and as the sole licensee responsible to the Nuclear Regulatory Commission (the "NRC"), for the use and operation of Unit 2, including decommissioning.
25 26
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20 'lthough APS will remain liable for its share of the decommissioning cost of Unit 2 under NRC regulations, the Lease Transactions may require the Equity Investors to fund a portion of the estimated costs of decommissioning the portion of the Unit 2 Facilities acquired by the Equity Investors.
Decision No. S3 /ZQ
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U-1345-86-105 21.
Any. addition, betterment, or enlargement of the Unit 2 Facilities, or replacement of units of the property within the Unit 2 Facilities ("Capital Improvements" ) will be APS's obligation under the Leases.
22.APS may, but will not be obligated to, request that the Lessors provide financing under the Leases
("Supplemental Financings")
for their respective shares of Capital Improvements.
23.
The terms and conditions of Supplemental Financing will be subject to mutual agreement between the Company and each Equity Investor, and each Equity Investor will. have the option, but no obligation, to make additional equity investments in Capital Improvements that are the subject of Supplemental 12 g4 15 16 Financings.
24.
If any such Capital Improvement is not funded by an Equity Investor, such Equity Investor will, subject to certain conditions, permit the Lessor to borrow additional funds from the Funding Corporation in an amount sufficient to fund such Equity Investor's share of the Capital Improvement.
25.
Concurrently with any Supplemental Financings, the rent payments will be adjusted to support the amortization of the additional debt issued in connection with the Supplemental Financing and to preserve the Equity y9 Investors'et economic return.
20 26'he Company and the Lessors will enter into support agreements that will provide the Lessors with such rights in parts of the company's interest in Palo Verde not constituting Unit 2 Facilities as may be necessary to enable the Lessors and their successors and assigns to realize the residual values of their interests under the Lease Transactions that may be consummated.
25 27'he proposed Leases will be "operating leases" as defined in accordance with generally accepted accounting principles, and for rate"making
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27 purposes the aggregate amount of Lease payments will be accounted for by the Company as an operating and maintenance
- expense, with the recoverability of
U-13 45-86-10 5 such Lease payments through rates to be decided in Docket U-1345-85-367.
28.
APS intends to use the net proceeds from the Lease Transactions for the redemption, retirement, or refunding of outstanding long-term debt and/or preferred stock that previously financed construction projects
- and, if necessary, the satisfaction of certain of the Company' working capital and other cash requirements, including the financing of APS's ongoing construction program.
29.
The payments under the Leases will be chargeable to the Company's operative expenses or to income.
10 30.
The
- issuance, assumption, guarantee, or incurrence of evidences of indebtedness by the Company in connection with the lease Transactions will be for the purpose of allowing the company to perf orm its obligations and/or exercise its options under the Lease Transactions.
14 e
15 16 31.
It has been estimated by Staff and APS that the expected present value savings to ratepayers resulting from the Lease Transactions will range from roughly '$10,000,000 to 0128,000,000.
32.
The above savings assume the subtraction from APS's rate base of all tax credits generated by the Lease Transactions and retained by APS, subject to 1 9 ratab 1 e rest or ation over a 3 5 year period.
20 33.
The Lease Transactions and the
- issuance, assump't.'ion, guarantee, or incurrence of evidences of indebtedness in connection therewith are compatible with the public interest, with sound financial practices, and with the proper performance by the Company of sevice as a public service corporation and will not impart its ability to perform that service.
25 34.
The Lease Transactions and the
- issuance, assumption, guarantee, or incurrence of evidences of indebtedness in connection therewith are reasonably
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2) as necessary or appropriate for the purposes set forth herein
- and, except as otherwise set forth herein, are not, wholly or in part, reasonably chargeable
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U-1345-86-105 to the Company's'operative expenses or to income.
35.
Performance criteria are specifically required in order to assure that ratepayers pay only the allowable costs under efficient operations.
The Commission expects the parties to present such performance criteria in the rate case involving the sale and leaseback.
CONCLUSIONS OF LAW 9
10 12 l.
APS is a public service corporation within the meaning of Article XV of the Arizona Constitution and A.R.S.
$ 5 40-285 and 40-301, et seq.
2.
The Commission has jurisdiction over APS and of the subject matter of the Application.
3.
The proposed Lease Transactions and the
- issuance, assumption, guarantee, or incurrence of evidences of indebtedness in connection therewith, as well as the other matters set forth in the Application,
- exhibits, and 14
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15 16 17 18 20 21 powers of APS and are compatible with the public interest.
4, APS s
leasehold interest in the Unit 2 Facilities, including its contractual rights under said
- Leases, shall be subject to the Commission' authority under A.R.S.
3 40-285(A) ~
ORDER IT. IS THEREFORE ORDERED that Arizona Public Service-Company is hereby authorized:
(a) to undertake and consummate the Lease Transactions and to testimony relating to this matter are for lawful purposes within the corporate 24 25 26 take all such actions as may be necessary or appropriate in connection therewith; subject to the limitations and conditions contained in this Decision; (b) to issue,
- assume, guarantee, and incur evidences of indebtedness in order to consummate, and to perform its obligations and exercise its options under, the Lease Transactions (including the issuance Decision No..5 D lAC
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U-13 45-86-105 or incurrence of evidences of indebtedness in connection with the financing of Capital Improvements as required or permitted by the terms of the Leases, the costs of which will be reflected in an adjustment to lease rentals) including, but not limited to, (i) the 10 issuance or incurrence of evidences of indebtedness by the Funding Corporation, secured by the direct obligation of the Company; (ii) the issuance or-incurrence of evidences of indebtedness in connection with any letter of credit or financial guarantee securing the Equity Investors for the payment of amounts payable by the Company under the Lease and related documents; (iii) the issuance or incurrence of evidences of indebtedness necessary for any 12 13 14 15 16 18 19 refunding of indebtedness; (iv) the assumption of indebtedness by the Company upon the occurrence of certain events as required by the leases; (v) the adjustment of rents from time to time as required by the Leases; and (vi) the execution of supplements to the Lease as required or permitted by the Leases; and (c) to exercise its options to renew the Leases and to repurchase all or any portion of the Unit 2 Facilities in accordance with 20 the terms of the Leases.
~p, 21 IT IS FURTHER ORDERED that the Leases will be treated as operating leases for both accounting and rate-making purposes and that the aggregate amount of Lease payments will be accounted for by the Company as an operating and 24 25 aintenance expense.
IT IS FURTHER ORDERED that all profit from the sale of the Unit 2
26 Facilities (less associated income tax) should be amortized over the initial term of the lease as a credit against such lease expense.
0-IT IS FURTHER ORDERED that Arizona Public Service Company shall treat any Decision No.WD lg,G
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U-13 45"86-105 ax credits generated by the sale of the Unit 2 Facilities and retained by the I
Company as an offset (deduction) against its "fair value" rate
- base, subject to ateable restoration over a 35 year period.
IT IS FURTHER ORDERED that approval of the requested Lease Transactions as set forth in the Application and authorized hereinabove does not constitute or imply approval or disapproval by the Commission of any particular expenditure 6
for purposes of establishing just and reasonable rates.
7 IT IS FURTHER ORDERED that Arizona Public Service Company shall file a
Plan of Disposition with the Commission within thirty (30) days of the entry of 9
1Q this Decision, which Plan shall indicate the use to be made of the proceeds derived from the transactions authorized herein over the succeeding twelve (12) onth period.
12 13 IT IS FURTHER ORDERED that Arizona Public Service Company shall thereafter annually upda te such Plan and shall keep the Commission informed of any 0
15 16 a terial change in said Plan.
IT IS FURTHER ORDERD that the purpo ses for which the propo sed Lease Transactions are herein authorized are to redeem, retire, or refund outstanding long-term debt and/or preferred stock that previously financed construct:on 18 projects and, if necessary, to satisfy certain of the Company's working captial and other cash requirements, including the financing of Arizona Public Service 20 Company' ongoing construction
- program, regardless of the extent to which such purposes'ay be reasonably chargeable to operative expenses or income.
23 IT IS FURTHER ORDERED that the purpose for which the proposed
- issuance, assumption, guarantee, or incurrence of evidences of indebtedness in connection 24 25 ith the Lease Transactions i.s her ein authorized is to allow Arizona Public 26 Service Company to perform its obligations and/or exercise its options under
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27 the Lease Transactions, which purpose is hereby specifically authorized Deci sion No..3
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U-1345-86-105 expenses or to income.
IT IS FURTHER ORDERED that the terms of the Leases and other documents to be entered into in connection with the Lease Transactions are hereby approved for the specific purpose of enabling each of the Equity Investors and the Lessors to qualify for an exemption by the Securities and Exchange Commission from the Public Utility Holding Company Act of 1935, as amended.
IT IS FURTHER ORDERED tha t Arizona Public Service Company' as sump tion, 10 guarantee, and incurrence of evidences of indebtedness as herein authorized shall be separate and apart from, and not counted against, Arizona Public Service Company' existing Debt limitation, or against such limitation as it may be hereafter modified by the Commission, that limitation presently being 12
$2,698,917,000, as approved in the Commission's Order in Decision No.
55017 (May 6, 1986).
14
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15 IT IS FURTHER ORDERED that the Commission hereby declares that the Lease Transactions will not cause any of the Equity Investors or the Lessors to be.
1'6 deemed to be a
"public service corporation" subject to the jurisdication, 18 19 20 21 22 23 24 25 26 control, or regulation of the Commission under current provisions of Article XV of the Arizona Constitution.
IT IS FURTHER ORDERED that Arizona Public Service Company shall file with the Commission any and all documents executed pursuant to the authorizations granted hereinabove (including amendments to such documents executed subsequent to closing) within five (5) business days of their execution, or with regard to those documents executed prior to the effective date of this Decision,* within five (5) business days of such date.
IT IS FURTHER ORDERED that Arizona Public Service Company shall notify the Commission of any material changes in the terms and conditions of the sale and leaseback transaction authorized hereinabove as soon as is reasonably possible, Decision No.~d,,') /PM
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s but in any event, at least five (5) business days prior to the closing date.
IT IS FURTHER ORDERED that this Decision shall become ef fective
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2 immediately.
3 BY ORDER OF THE ARIZONA CORPORATION COMMISSION.
6 CHA RMAN COMMISSIONER COMMIS ONER 10 IN WITNES S
- WHEREOF, I,
JAME S
- MATTHEWS, Executive Secretary of the Arizona Corporation Commission, have hereunto set my hand and caused the official seal of this Commission to be affixed at the
- Capitol, in the City of
- Phoenix, this~2 day of 1986.
12 MES MATTH S
ecutive Secretary 14
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15 DISSENT TLM/djp 17 19 20 21 25 26 27 as Deci. sion No. 6 D /KC'
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UNITED STATES OF AMERXCA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al.,
(Palo Verde Nuclear Generating Station, Unit 4
)
)
)
)
)
)
)
2)
)
)
DOCKET NO.
STN 50-529 APPLICATION IN RESPECT OF SALE AND LEASEBACK TRANSACTXONS BY ARXZONA PUBLIC SERVICE COMPANY ITEM 5 APPLICATION OF PVNGS FUNDING CORPORATION a
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SECURITIES AND EXCHANGE COMMISSION Washington, D.
C.
Application for an Order Under Section 6(c) of the Investment Company Act of 1940 Exempting PVNGS Funding Corp.,
Inc.
from all Provisions of such Act PVNGS Funding Corp.,
Inc.
(Name of Applicant) 1209 Orange Street Wilmington, Delaware 19801 (Address of Principal Office of Applicant)
May 13, 1986 Please send copies of all communications to:
Teresa Davidson Snell Ec Wilmer 3100 Valley Bank Center
- Phoenix, Arizona 85073 (602) 257-7290
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UNITED STATES OF AMERICA Before the Securities and Exchange Commission In the Matter of PVNGS Fundiag Corp.,
Inc.
Application for an -Order Pursuant to Section 6(c) of the Investment Company Act of 1940 Exempting Applicant from All Pro-visions of the Act The undersigned applicant, PVNGS Funding Corp.,
Inc.
(the "Applicant"), hereby applies, pursuant to Section 6(c) of the Investment Company Act of 1940 (the "Act"),- for an Order unconditionally exempting it from each and every provision of the Act on the ground that such exemption is appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act.
No form having been specifically prescribed for this Application, the Applicant proceeds under Rule 0-2 of the General Rules and Regulations of the Securities and Exchange Commission (the "Commission" ),
under the Act and pursuant to, Release No.
IC-14492, dated April 30, 1985.
I.
FACTUAL BASIS OF APPLICATION The documentation relating to the establishment of the Applicant and the structure and documentation of the transactions for which the Applicant has been formed (as hereinafter described) are not different in any manner mate-rial to the Commission' consideration of this Application from those presented to the Commission by First PV Funding Corporation in its application for an exemptive order under Section 6(c) of the Act (Application filed on September 20, 1985 and amended on November 8 and 20, 1985; Notice:
Release No.
14833; Order dated December 31, 1985:
Release No.
14880).
See also the Application of El Paso Funding Corpora-tion for an Order Pursuant to Section 6(c) of the -Act filed on April 11, 1986.
First PV Funding Corporation was created for the sole purpose of assisting Public Service Company of New Mexi-co ("PNM") in financing and refinancing of property through leveraged lease financing transactions in which PNM is the lessee.
El Paso Funding Corporation was created for the sole purpose of aiding El Paso Electric Company ("El Paso" ) in the financing and refinancing of property through leveraged lease
0 0
financing transactions in which El Paso is the lessee.
Simi-larly, the Applicant has been created for the sole purpose of assisting Arizona Public Service
- Company, an Arizona corpora-tion ("APS"), in the financing and refinancing of property through leveraged, lease financing transactions in which APS will be the lessee.
A statement of the facts relied on as a basis for the action of the Commission herein requested is as follows:
A.
The Applicant and Summary of Transactions The Applicant is organized under the laws of the State of Delaware and will have nominal paid-in capital.
A copy of its Certificate of Incorporation is included herewith as Exhibit A.
The address of the Applicant is Corporation Trust Center, 1209 Orange
- Street, City of Wilmington, Dela-ware 19801.
All of the shares of Common Stock,
$ 1.00 par val-ue, of the Applicant authorized to be issued under the terms of its Certificate of Incorporation will be issued to, and in the future all outstanding shares of such Common Stock are expected to be owned by, The Corporation Trust
- Company, a
Delaware corporation, or a
company controlled by it ("CT").
After such issuance, all of the directors and officers of the Applicant are expected to be officers or other employees of CT.
The Applicant represents that there has been, and under-takes that in the future there will be, no public offering of the Applicant's Common Stock or of any other equity security of the Applicant.
The Applicant represents that there is, and in the future there will be, no class of equity securi-ties of the Applicant authorized other than its Common Stock.
The Applicant has been created for the sole purpose of assisting APS in the refinancing, in whole or in part, of APS's 29.1% undivided ownership interest in the Palo Verde Nuclear Generating Station
("PVNGS").
PVNGS consists primar-ily of three 1,270 megawatt electric generating units, each containing a pressurized water reactor nuclear steam supply
- system, certain facilities the use of which is common to all three units, certain related transmission facilities, and
- pipeline, and of which, the latter three components may or may not be included in the refinancing.
PVNGS is located approximately 55 miles west of downtown Phoenix, Arizona.
APS participates in PVNGS with three other investor-owned utilities -- El Paso (15.8%),
Southern 'California Edison Company (15.8%)
and PNM (10.2%)
and three public utilities--
Salt River Agricultural Improvement and Power District (17.14%),
Southern California Public Power Authority (5.91%),
and the Department of Water and Power of the City of Ios
0
Angeles (5.7%).
Ownership of PVNGS is governed by the Arizo-na Nuclear Power Project Participation Agreement, dated August 23,
- 1973, as
- amended, among the owners of PVNGS.
Un-der such Project Participation Agreement, APS is authorized to act as agent for the other owners of PVNGS, and has re-sponsibility and control over construction, operation and maintenance of PVNGS.
APS was incorporated in.1920 under the laws of Ari-zona and is engaged principally in providing electricity in all or a part of the 11 of the 15 counties of the State of Arizona.
APS is subject to, and during the preceding 12 months has filed all documents required to.be filed pursuant to, the reporting requirements of Section 13 of the Securi-ties Exchange Act of 1934 (the "1934 Act")
(See Commission File Number 1-4473),
and has securities registered under Sec-tions 12 (b) and 12 (g) of the 1934 Act.
The Applicant will assist APS'inancing and refi-nancing'of APS'wnership interest in PVNGS by participating as lender in one or more leveraged lease transactions to be selected by APS in which APS is lessee (in such capacity, the "Lessee" ).
APS will make an initial determination as to whether or not the financing or refinancing of any unit of PVNGS will be accomplished in whole or in part through one or more leveraged lease financing transactions and whether or not the debt portion of such transaction will be funded through the Applicant's sale of one or more series of its debt securities
("Debt Securities" ).
With respect to PVNGS Unit 2, APS has determined to utilize such transactions and so to use the Applicant.
Because significant capital im-provements (additions, betterments, enlargements of property in place, and replacements of such property with other prop-erty) will be required to be installed at PVNGS from time to
- time, each leveraged lease financing transaction may also provide for the financing thereunder (via lease supplements) of capital improvements relating to property subject to such transaction.
Such leveraged lease financing transactions, including any applicable supplemental financings, are herein-after individually called a
"Lease" and collectively the "Leases."
The participation of the Applicant as lender in the Leases will be limited to making loans to the lessors under such Leases which will be repayable from rentals and other payments by the Lessee pursuant to such Leases.
It is ex-pected that such lessors (the "Lessors" ) will be grantor trusts formed exclusively for the purpose of the lease fi-nancing.
The beneficiary of such a grantor trust may be an institutional or other investor or a direct or indirect sub-sidiary of APS.
The loans to be made by the Applicant will
4
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be without recourse to the general credit of the Lessors or their respective beneficiaries and will be evidenced by non-recourse obligations of the respective Lessors (the "Les-sor Notes" ) which will be secured as more fully described herein.
Each of the Leases will be required to provide for the payment of rentals and other. payments by the Lessee in amounts and at times sufficient to provide'or the payment and performance of all the obligations of the related Lessor under its Lessor Note.
Such obligation of the Lessee will be required to be absolute and unconditional, without right of counterclaim, set off, deduction, or defense.
In this re-
- gard, the terms of the Lessor Notes, the Leases, and the ob-ligations of the Lessee to make payments under the Leases will be typical of those in customary leveraged lease financ-ing transactions.
Neither APS nor its subsidiaries will have any right by 'stock ownership,
- contract, or otherwise to control the management or operation of the Applicant. It is expect-ed,
- however, that the Applicant will enter into a commitment agreement (the "Commitment Agreement" ) with APS pursuant to which the Applicant will agree to participate in one or more Leases relating to PVNGS.
Such participation will be more specifically identified with respect to each Lease by the terms of a Participation Agreement relating to such Lease in which the Applicant will agree to make loans to the Lessor therein designated.
Such loans will have interest
- rates, maturities, sinking fund provisions, and other terms as shall be approved by the Lessee and the Lessor to which the loan is to be made.
The obligation of the Applicant to participate in such Leases and to make such loans will be subject to cer-tain terms and conditions, including (a) the ability of the Applicant to issue Debt; Securities on such terms and condi-tions as shall, in the opinion of the Applicant after consul-tation with its financial advisor, permit the Applicant to make such loans on a financially prudent basis, (b) the exe-cution and delivery by each Lessor to which a loan is 'to be made of a Lease Indenture (as defined below) or Lease Inden-ture supplement and one or more related Lessor Notes, (c) the receipt by the trustee
("Trustee" ) under the Collateral Trust Indenture (as defined below) of the original Lessor Note and copies of the agreements relating thereto, (d) the -receipt by the trustee under the Lease Indenture of the original execut-ed counterpart of the related Lease or Lease supplement, (e) the receipt by the Applicant of opinions of counsel for the
- Lessee, the related Lessor and/or its beneficiaries with re-spect to, among other things, the due authorization, execu-
- tion, delivery, and binding effect of agreements and documents and the priority of the assignment of rentals under the Lease Indenture and (f) such other matters as the Appli-cant may reasonably request.
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The Applicant intends to acquire the funds,neces-sary for the purchase of the Lessor Notes through the issu-ance of its Debt Securities which may or may not be secured on a parity basis by a first lien on, and security interest in, all of the assets of the Applicant, consisting primarily of the Lessor Notes so acquired and theretofore acquired (if so secured, the Debt Securities may be referred to as "Lease Obligation Bonds" ).
Lessor Notes acquired and held by the Applicant may include only Lessor Notes issued in connection with any Leases to which APS is a party, as lessee, in con-nection with its ownership interest in PVNGS.
B.
The Leases It is expected that the Lessor in each of the Leas-es will be a bank or trust company acting as trustee for one or more beneficiaries pursuant to a trust agreement (a "Trust Agreement" ) entered into exclusively for the purpose of the particular lease financing.
A portion of the purchase price of the property owned by the Lessor and leased to the Lessee pursuant to a Lease will be paid by the beneficiaries of the grantor trust that acts as Lessor as the beneficiaries'qui-ty investment in the property.
The balance of the purchase price of such property will be borrowed from the Applicant by the Lessor, which borrowings will be evidenced by one or more Lessor Notes issued by such Lessor pursuant to either a loan and security agreement
("Loan and Security Agreement" ) or a
trust indenture and security agreement
("Trust Indenture and Security Agreement" ) (in either case a
"Lease Indenture" ).
It is expected that the Lessor Notes will be issued under circumstances making such transactions exempt from registra-tion under the Securities Act of 1933, as amended (the "Secu-rities Act"). The Applicant will receive assurances from each Lessor and each beneficiary thereof that at the time the Ap-plicant acquires Lessor Notes issued by such Lessor and so long as the Iessor Notes issued by such Lessor are outstand-ing (a) neither such Lessor nor any beneficiary thereof is or will be an investment company within the meaning of Section 3(a) of the Act or (b) such Lessor and any beneficiary there-of are and will be deemed to be excluded from the definition of an investment company by virtue of the provisions of Sec-tion 3(b) or Section 3(c) of the Act.
Each Iease will provide for the payment of rentals and other payments by the Lessee in amounts and at times suf-ficient to provide for the payment and performance of all of the obligations of the related Lessor under its Lessor Note or Notes and its Lease Indenture.
Each Lease will be a net lease and the obligations and liabilities of the Lessee thereunder will be required to be absolute and unconditional without any right of counterclaim,
- setoff, deduction, or
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defense on the part, of the Lessee.
Each Lease will include, without limitation, as events of default (a) failure by the Lessee to make payments customarily referred to as basic
- rent, stipulated loss value, or casualty value that are in-tended to be the source of payment of the related Lessor
- Notes, (b) failure by the Lessee to make payments customarily referred to as supplemental rent or other payments thereun-
'er, and (c) certa'in bankruptcy-related events involving the Lessee.
Under each
- Lease, the Lessee will be obligated to make rental payments sufficient to pay the principal of, the premium, if any, and the interest on the Lessor Notes issued in connection therewith and such rental payments are also anticipated to provide an investment return to the benefi-ciaries of the Lessor which provide equity financing for the property that is the subject of such Lease.
C.
The Lease Indentures and the Lessor Notes Lessor Notes 'will be issued by the applicable Les-sor under and pursuant to the terms of separate but substan-tially identical Lease Indentures with the Applicant being the secured party thereunder if such Lease Indentures are Loan and Security Agreements or with a bank or trust company acting as trustee for the holder of the Lessor Notes issued thereunder if such Lease Indentures are Trust Indentures and Security Agreements.
Each Lease Indenture will require the Lessor to grant to the Applicant or the trustee under the Lease Indenture, as the case may be, an assignment of rents, including basic rentals and certain other
- payments, to be made by the Lessee under the applicable Lease.
The Applicant or the trustee under the Iease Indenture may have a lien on or security interest in the property which is the subject of the Lease (the "Leased Property" ).
In the event that no such lien or security interest is created or granted the Lessor will covenant that, so long as any Iessor Note is outstand-ing, it will not create or permit the creation of a lien on or otherwise encumber its interest in the Leased Property (except for certain permitted encumbrances)
~
The Applicant will be precluded from purchasing any Lessor Note unless (i) such Lessor Note is issued in respect of Leased Property hav-ing a fair market sales value at the time of purchase at least equal to 110% of the original principal amount of such Lessor Note or (ii) such Lessor Note and all other Lessor Notes (if any) of the relevant Iessor are issued in respect of Leased Property having an aggregate fair market value (measured, in each case, as of the date such Leased Property was first financed under the Lease) at least equal to 110% of the original principal amount of such Lessor Note and such other Lessor Notes.
For example, if the initial financing
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under a particular Lease involved
$ 100 million of Leased Property and the issuance of
$ 85 million in Iessor Notes (117.6% coverage of the Lessor Notes by Leased Property) and one year later
$ 10 million in capital improvements were to be financed under such
- Lease, the entire
$ 10 million could be'inanced with Lessor Notes and Debt Securities in accordance with clause (ii) of the preceding sentence because the re-sulting percentage overall would be 115.8%
($ 95 million in Lessor Notes-secured by
$ 110 million in Leased Property).
Each Lease Indenture will include as events of default, with-out limitation, payment defaults on the Lessor Notes issued thereunder and events of default under the related Lease.
The aggregate of the principal amount of all Lessor Notes issued pursuant to all Lease Indentures will be re-quired to be equal to the sum of the aggregate principal amount of the related Debt Securities issued to fund the loans evidenced by such Lessor Notes.
The interest payable with respect to each Lessor Note will be the related Lessor's share of the Applicant's "Cost of Money" as of any interest payment date for such Lessor Notch The Applicant's "Cost of Money" in respect of any period will be equal to the total interest and other costs and expenses which the Applicant has incurred or accrued with respect to the Debt Securities and its obligations incurred in the performance of its agreements under the Lease Indenture, reduced by any income which it has received or expects to receive on or prior to the next suc-ceeding payment on the Debt Securities and not expended as of such date resulting from the temporary investment of payments made in respect of Lessor Notes prior to the date on which payments are required in respect of Debt Securities.
The Lessor Notes and the Lease Indentures will pro-vide that, upon the occurrence of certain casualty
- events, termination
- events, deemed loss
- events, and special loss
- events, either (i) APS shall assume the obligations repre-sented by the Lessor Notes or (ii) APS shall purchase from the beneficiaries the beneficial interest in the trusts cre-ated by the Trust Agreements and the Lessors will grant a
lien and security interest in the Leased Property to the Ap-plicant (if the Iease Indentures are Zoan and Security Agree-ments) or the trustee under the Lease Indentures (if the Lease Indentures are Trust Indentures and Security Agree-ments) to secure the Lessor Notes.
The assumption or pur-chase described in the preceding sentence will be in partial satisfaction of APS'bligation to make payments required of it upon early termination of the Leases in consequence of any such event.
In the event that the Lessor issuing a Lessor Note does not grant a lien on or security interest in the property
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purchased with the proceeds of such
- Note, the Lessor will covenant that (i) it will not incur any other debt not con-stituting Lessor Notes or otherwise in connection with the Leased Property and (ii) except for certain limited permitted liens, it will not create any lien on or security interest in such property.
These two covenants, taken together, will insure that, upon a default by the*Lessor on its Lessor Note, the Leased Property will be available to satisfy the claims of the Collateral Trust Trustee as pledgee of the'essor Notes.
The most significant difference under this structure is that, in order to receive the value of the Leased Proper-ty, the Collateral Trust Trustee would first have to cause the obligation on the Lessor Notes to be reduced to judgment and thereafter seek execution of such judgment, rather than proceeding directly against the Leased Property.
D.
Debt Securities The various series of Debt Securities will have terms which may differ as to maturity dates, interest rates, sinking fund obligations of the Applicant, the right of the Applicant to redeem such Debt Securities, and other matters.
Such Debt Securities, which may include commercial paper and intermediate-term and long-term obligations, may be issued in the private or public markets in the United States, and in offerings outside the United States under circumstances re-sonably designed to assure that such Debt Securities are not offered or sold to citizens and/or residents of the United States.
Individual series of Debt Securities may be supported by bank letters of credit, bank lines of credit, bonds of in-surance or other credit or liquidity support facilities.
The terms and manner of offering of Debt Securities of a particular series will be determined by prevailing market conditions.
The terms of the Lessor Notes held or to be acquired by the Ap-plicant with the proceeds of such Debt Securities will re-flect the terms of such Debt Securities, although there will be no requirement that the scheduled payment dates on the Debt Securities match the payment dates on the Lessor Notes.
In addition, the Applicant may engage in interest rate swaps with respect to one or more series or maturities of Debt Securities.
All Debt Securities will be issued under a
common indenture and a separate supplemental indenture for each se-ries (other than the initial series)
(collectively called the "Collateral Trust Indenture" ) which will establish the terms of the Debt Securities of that series.
It is expected that the trustee under the Collateral Trust Indenture (hereinafter called the "Trustee') will be a bank or trust company not af-filiated with any of the Lessor and will not be a trustee under any indenture of APS or its subsidiaries.
All series of Debt Securities of the Applicant will be issued under the Collateral Trust Indenture and will be pari passu.
If the registration requirements of the Securities Act are
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applicable to a particular issuance of Debt Securities, APS will file a registration statement under the Securities Act covering such Debt Securities.
The Applicant proposes that the initial issuance of Debt Securities will be through an underwritten public offer-ing or private placement of one or more series having an ag-gregate* principal amount of approximately
$ 1.1 billion (assuming a total sales price for APS'9.1% interest in PVNGS Unit 2 and the common facilities of $ 1.3 billion, how-
- ever, such amount may vary according to market conditions).
The initial series of Debt Securities may be registered under the Securities
- Act, and it is expected that the Collateral Trust Indenture will be qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act").
Although APS will not be the actual obligor of the Debt Securities, it will be considered the issuer thereof for purposes of the Securities Act and the obligor with respect thereto for purposes of the 1939 Act.
Any registration statement filed under the Securi-ties Act relating to the Debt Securities will name APS as the sole registrant and will be signed on behalf of APS, as the sole registrant, by such officers and directors of APS as may be required under the Securities Act and the rules, regula-tions and forms of the Commission thereunder, all in accor-dance with such practice and procedures as the Commission shall from time to time require or permit.
The net proceeds to the Applicant from the initial issuance of Debt Securities will be used by the Applicant principally to purchase Lessor Notes issued by the Lessors in connection with the currently contemplated leveraged lease financings of PVNGS Unit 2.
The Applicant may seek approval for the listing of one or more series of Debt Securities on one or more national securities exchanges if the Applicant and such series of'ebt Securities meet the requirements of such an exchange for the listing of securities thereon.
In connection with any such
- listing, such series of Debt Securities will be registered with the Commission pursuant to Section 12 of the 1934 Act.
As security for the due and punctual payment, of the principal of, premium, if any, and interest on all Debt Secu-rities, the Applicant will assign and pledge to the Trustee under the Collateral Trust Indenture, as security for the equal and ratable benefit of the holders from time to time of all Debt Securities, the Lessor Notes and any other assets held by the Applicant.
Each such Lessor Note will in turn be secured by a security interest in the related Lease and an assignment of rentals arising under the related Lease and may be secured by the Leased Property thereunder.
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Except to the extent payable from the proceeds of refunding Debt Securities, the proceeds of Temporary Holdings (defined below) or the proceeds of the initial issuance of Debt Securities where the relevant closing date for a lever-aged lease financing transaction (the "Lease Closing Date
)
does not occur as described
- below, due to the nonrecourse nature of the Lessor Notes and the limited scope of the Ap-plicant's activities, payment of the principal of, premium, if any, and interest on the.Debt Securities will be made ex-clusively from amounts paid by the Lessee under the Leases.
The interest
- rates, maturities, principal amounts, and other terms of each series of Debt Securities will be established on the basis of prevailing market conditions and the Applicant expects to have the flexibilityto take advan-tage of changing market conditions by issuing Debt Securities from time to time in such markets and on such terms as are required under the terms of the Commitment Agreement and are, in the judgment of the Applicant, after consultation with its financial advisor, financially prudent to the Applicant. Fur-
- thermore, as mentioned
- above, there will be no requirement that the payment dates on the Debt Securities correspond ex-actly to the scheduled payment dates on the Lessor Notes.
As a consequence, the cash flow of the Applicant derived from payments of principal of and premium, if any, and interest on the Lessor Notes may from time to time exceed the cash re-quirements of the Applicant at such times for the payment of principal of, premium, if any, and interest on the Debt Secu-rities.
Until such funds ("Temporary Funds" ) are required by the Applicant for the payment of principal of, premium, if
- any, and interest on the Debt Securities, the Applicant will be permitted to invest Temporary Funds in permitted invest-ments ("Permitted Investments"
) (the investment of Temporary Funds in Permitted Investments resulting in "Temporary Hold-ings"), in each case maturing at such times a's are required to pay the Applicant's obligations under the Debt Securities, after taking into account the then scheduled payments under the Lessor Notes.
Permitted Investments will be defined un-der the Collateral Trust Indenture as follows:
(i) direct obligations of the United States of America, or (ii) obligations.
fully guaranteed by the United States of America, or (iii) certificates of deposit issued by, or bankers'cceptances of, or time deposits with, any bank, trust com-pany or national banking association in-corporated or doing business under the laws of the United States of America or one of the States thereof (but not ex-ceeding
$ 15,000,000 in principal amount 0
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or in deposits at any given time for any one bank, trust company or national bank-ing association) having a combined capi-tal and surplus of at least
$300,000,000 (including the Trustee, a trustee under any Lease Indenture, a
Lessor and any paying agent if such conditions are met),
or (iv) commercial paper of companies incorporated or doing business under the laws of the United States of America or one of the States thereof (but not ex-ceeding
$ 15,000,000 in principal amount at any given time for any one company) and in each case having a rating assigned to such commercial paper by Standard Poor's Corporation or Moody's Investors
- Service, Inc. (or, if neither such organ-ization shall rate such commercial paper at any time, by any nationally recognized rating organization in the United States of America) equal to the highest rating assigned by such organization, or (v) repurchase agreements fully collateral-ized by an obligation of the type de-scribed in clauses (i) through (iv)
- above, pursuant to which a bank, trust company or national banking association referred to in clause (iii) above or an-other financial institution having a net worth of at least
$200,000,000 is obli-gated to repurchase any such obligation not later than 90 days after the purchase of any such obligation.
Temporary Funds of the Applicant may also be used to acquire all or a portion of the Debt Securities of any series in order to meet required sinking fund redemptions.
During any fiscal year of the Applicant, the average of the daily balance of the amount of the Temporary Holdings plus the amount of Temporary Funds will not exceed ten percent of the average of the daily balance of the aggregate principal amount of the Debt Securities outstanding during. such fiscal year.
Temporary Funds and Temporary Holdings arising in con-nection with the issuance of Debt Securities prior to the acquisition of the related Iessor Notes as described in the preceding paragraph are to be disregarded for purposes of this ten percent limitation.
In order to provide flexibility so that the Appli-cant may be able to take advantage of market conditions with-out being tied to a particular Lease Closing Date, it is
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proposed that the issue, sale and deliver'y of a particular series of Debt Securities may take place up to two months prior to the Lease Closing Date applicable to the property being financed with the proceeds thereof.
Pending the Lease Closing Date, the net proceeds from sale of the Debt Securi-ties would be held by the Trustee pursuant to the terms of the Collateral Trust Indenture, which would permit the in-vestment of such proceeds in Temporary Holdings.
If Debt Securities have been sold in advance of the Lease Closing Date for the property financed thereby,
- then, pending the Lease Closing Date, such Debt Securities, and any other Debt Securities theretofore issued, will be secured by (i) the pioceeds of the sale of such Debt Securities, (ii)
Temporary Holdings and Temporary Funds, if any, (iii) Lessor "Notes previously pledged to the Trustee under the Collateral Trust Indenture and (iv) with respect to the new series of Debt Securities
- only, an obligation of the Lessee which will expire on the related Lease Closing Date and which will'pro-vide for the payment of amounts sufficient for the payment of such series of Debt Securities.
On the applicable Lease Closing Date, APS will pay to the Trustee an amount equal to the difference between (i) the interest accrued on the new series of Debt Securities from the date of issuance to such Lease Closing Date and (ii) the income derived from Temporary Holdings, if any, through such Lease Closing Date.
In the event that the Lease Closing Date does not occur by the date which is two months from issuance of such new series of Debt Securities, APS may at any time (but must by the date which is three months after the expiration of such two month peri-od) cause (and, if necessary, provide funds necessary for) the redemption of all Debt Securities of such series only.
On each Lease Closing Date, pursuant to a supple-ment to the Collateral Trust Indenture (Indenture Supple-ment), the Lessor Notes issued on such date will be subjected to the lien of the Collateral Trust Indenture (securing all outstanding Debt Securities, including the new series) and will serve as the basis for the release from such lien of the net cash proceeds held by the Trustee under the Collateral Trust Indenture which are necessary to purchase such Lessor Notes.
The Indenture Supplement and the mechanics of this release will be in accordance with the 1939 Act and the terms of the Collateral Trust Indenture (which will have been qual-ified under such Act). )3
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E.
Interrelation of the Lease Indentures and the Collateral Trust Indenture for the Protection of Holders of Debt Securities.
On each Lease Closing Date, the Lessor Notes will be pledged and assigned directly to the Trustee who will hold the Lessor Notes under. the terms of the Collateral Trust In-denture as security for the Debt Securities.
As a holder of the Lessor Notes, the Trustee will have the right to exercise any voting powers and give consents and waivers in respect of such Lessor Notes and the Lease Indentures under which such Lessor Notes are issued and to exercise the rights and reme-dies afforded a holder of such Lessor Notes under the respec-tive Lease Indentures, including the right to exercise remedies under the Leases and with respect to the Lease ren-tals and other payments in lieu thereof securing such Lessor
- Notes, provided such Leases are then in default.
To the extent that the Trustee under the Collateral Trust Indenture has the right to exercise any voting powers in respect of the-Lessor Notes, to give any consents or waiv-ers with respect thereto, or to exercise any rights or reme-dies in respect
- thereof, the Trustee will be obligated to give immediate notice of such fact to the holders of the Debt Securities.
The Collateral Trust Indenture under which the Debt Securities will be issued will authorize the holders of Debt Securities to direct by notice to the Trustee within a specific period of time that it take any action or cast any vote in its capacity as the holder of the Lessor Notes.
As a result of this pass-through voting mechanism, the rights and remedies of the holders of the Lessor Notes will be exercis-able directly by the holders of Debt Securities through their fiduciary, the Trustee.
The principal amount of the Lessor Notes directing any action or being voted for or against any proposal will be the principal amount of the Debt Securities taking the corresponding position.
To the extent that the Trustee has not received any such instructions it would be required to take such action with respect to the Lessor Notes as a prudent man would take in respect of his own property.
Thus, if APS were to default in the payment of rent (or were otherwise in default under any Lease),
the Applicant (if the Lease Ind'enture was a
Loan Agreement and Security Agreement) or the trustee (if the Lease Indenture was a Trust Indenture and Security Agreement) under the related Lease Indenture would have the right,
- and, upon the direction of a majority in principal amount of the Lessor Notes relating to such Lease (which by virtue of the pass-through voting mecha-
- nism, would be a majority of the principal amount of the Debt Securities),
would be required to declare all of such Lessor Notes to be due and payable and to exercise the remedies
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available under such Lease Indenture.
These remedies include the right to demand after a specified grace period that APS pay all unpaid basic rent plus a stipulated amount which, in all cases, will be sufficient to pay the principal of, premi-um, if any, and interest on all such Lessor Notes.
To the extent that the Trustee has not received any such instruc-tions in the event of a default in payment under any Lease, it would be required to cause such action to be taken by the Applicant or the trustee under the Lease Indenture with re-spect to assigned rentals and other assigned payments under such Lease as a prudent man would take in respect of his own property.
The amounts payable by APS under the
- Leases, at least to the extent of the amount of the principal of, inter-est and premium, if any, on the related Lessor Notes, will be required to be pai'd directly to the Trustee for distribution to the holders of Debt Securities.
'he holders of Debt Securities would therefore have access under the Collateral Trust Indenture and the Lease Indentures to the credit of APS.
In addition, by exer-cising such rights, holders of Debt Securities would be enti-tled to realize on the security afforded by the assignment of rentals up to the aggregate unpaid amount of the relevant Lessor Notes secured by such assignment of rentals, free of any rights of APS or any creditor thereof.
Based on the foregoing and the other information included in this Application, the Applicant believes that the combination of the Lessor Notes and the Leases ultimately constitutes an obligation of APS with respect to the debt service on the Debt Securities and serves as a functional equivalent of a guaranty by APS.
In light of the nature of APS'bligations in this financing and the remedies available to the holders of Debt Securities, it is appropriate to view the Debt Securities as essentially the debt of APS for pur-poses of the Act.
II.
ORDER REQUESTED The Applicant may be deemed to be an "investment company" as defined in either Section 3(a)(1) or 3(a)(3) of the Act (i) by reason of its proposed acquisition. of the Les-sor Notes, which will constitute substantially all of its assets and (ii) because the Debt Securities which it intends to offer may be held by more than 100 persons.
The Applicant respectfully requests that the Com-mission consider this Application and issue an Order pursuant to Section 6(c) of the Act unconditionally exempting it from each and every provision of the Act.
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III.
REASONS FOR GRANTING THE ORDER REQUESTED Subsection 6(c) of the Act provides that the Com-mission upon application may by order conditionally or uncon-ditionally exempt any person from the provisions of the Act if the exemption would be (i) either necessary or appropriate in the public interest; (ii) consistent with the protection of investors; and (iii) consistent with the purposes fairly intended by the policy and provisions of the Act.
On the basis of the facts stated in this Application and the reasons set forth below, Applicant believes that the exemption re-quested in this Application would fulfilleach of these three conditions.
Because the Applicant will not be engaged in the business of issuing "redeemable securities",
"face-amount certifica'tes of the installment type" or "periodic payment plan certificates" (as such terms are defined in the Act) and will be'rimarily engaged in purchasing the Lessor Notes which will represent a portion of the sales price of the property leased to the Lessee under the Leases, pursuant to the provisions of Section 3(c)(5) of the Act the Applicant would appear to be excluded from the definition of investment company.
The activities of the Applicant are essentially those of a special purpose finance company which will advance funds to, or acquire notes of, the purchasers of property constituting merchandise, or which will purchase or otherwise acquire mortgages and other liens on and interests in real
- property, which merchandise and real property are to be leased to the Lessee by such purchasers.
The Lessor Notes will represent loans to the Lessors, as purchasers, incurred to finance a portion of the purchase price of such property.
Notwithstanding the exemption provided by Section 3(c)(5) of the Act, because of the complexity of the structure of the proposed issuance of the Applicant's Debt Securities and in order to eliminate any uncertainty as to the status of the Applicant as an investment company under the Act, it seeks an exemption from all of the provisions of the Act pursuant to Section 6(c) thereof.
The Applicant believes that the response of the Commission to this Application should be governed by the po-sition taken by the Commission on December 31, 1985 (Invest-ment Company Act Release No.
14880) in granting the Order requested in the First PV Funding Corporation Application pursuant to Section 6(c) of the Act.
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A.
Order is Necessary or Appropriate in the Pub-lic Interest and Consistent with the Purposes Fairly Intended by the Policy and Provisions of the Act The business in which the Applicant proposes to engage is not of the type intended to be regulated by the Act.
The activities of the Applicant are similar to those of certain finance subsidiaries which the Commission has exempt-ed from the Act under Rule 3a-5 promulgated pursuant to the Act. 'lthough the Applicant is not a subsidiary of, or in any way affiliated with, APS or any of its subsidiaries and the Applicant's Debt Securities will not be guaranteed by APS or any of its subsidiaries, as a special purpose corporation engaged only in the business of the issuance of the Debt Se-
- curities, the Applicant and its activity come within the gen-eral policies expressed in Rule 3a-5.
APS is obligated to make payments under the respective "come hell or high water" Leases.
Although these Lease obligations are technically not a guarantee of the Debt Securities, the flow-through of such obligations under the related Lessor Notes and ultimately the Debt Securities makes such Lease obligations the functional equivalent of a guaranty by APS.
The
- Leases, pursuant to which rental payments by APS will be applied to payment of the Lessor Notes and ultimately to payment of the Applicant's Debt Securities, provide the mechanism by means of which holders of the Applicant's Debt, Securities will look to APS for their assurance of repayment.
The grant to the Applicant of an exemption from all of the provisions of the Act is appropriate in the public interest.
Leveraged leases are a widely accepted form of fi-nancing designed to provide business, financial, and other benefits to the lessees,
- lessors, and lenders involved.
Such transactions provide companies such as'PS with a financially favorable method of acquiring the use of capital assets nec-essary to conduct their. businesses.
Heretofore, parties to leveraged lease financings have faced a limited source of debt financing for the purchase of leased property, particu-larly when the term of -the debt is in excess of 20 years.
Such financing has been obtainable almost exclusively from the institutional private placement market.
As -a conse-
- quence, lessees, whose rental payments must be sufficient to service the debt incurred by their lessors in connection with such financings, have been generally confined to structuring their financing transactions on the basis of the terms of-fered by the institutional private placement market.
The proposed issuance of the Applicant's Debt Securities would provide a convenient mechanism for APS to obtain the benefits of access to public as well as other segments of the debt capital markets.
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B.
Order is Consistent with the Protection of Investors The grant to the Applicant of an exemption from all of the provisions of 'the Act would also be consistent with the protection of investors and the purposes intended by the policy and provisions of the Act.
The Applicant's operations do not lend themselves to the abuses against which the Act was directed--excessive management and brokerage fees, insid-er loans at highly favorable terms, investments in companies in which the managers of the investment company have a per-sonal interest, pyramiding of control, issuances of new secu-
- rities, reorganizations, and excessive borrowings in derogation of the rights of holders of existing securities, and operation without adequate assets or reserves.
Because all of the securities issued by the Applicant, other than its outstanding Common Stock, 'will be pari passu secured debt securities, none of the inherent conflicts between holders of different classes of securities will exist.
The debt securi-ties will not be redeemable at the option of the holder at a
price based on the net asset value of the Applicant.
Valua-tion questions and similar problems raised by such redeemable securities will not be present in respect of the Applicant's Debt Securities.
Similarly, the Applicant will not purchase or hold securities of other investment companies so there will be no pyramiding of control of investment companies or other ineq-uitable methods of control.
The financial statements of the Applicant will be reported on by independent auditors.
In the case of the Applicant's Debt Securities which may be pub-licly offered in the United States, disclosure with respect.
to the Applicant, the terms of such securities, the security
- therefor, and the underlying arrangements with the Lessors and with APS pursuant to the Leases will be made in a pro-spectus forming part of a registration statement that will have been declared effective under the Securities Act.
By virtue of the Collateral Trust Indenture, the Lease Indentures, the Lessor Notes, and the Leases, the pur-chasers of the Debt Securities will have access to the credit of APS.
As the assignee of rentals and other payments under the Leases as security for payment of the Lessor
- Notes, the trustees under the Lease Indentures or the Applicant as se-cured party under the Lease Indentures directly will be enti-tied to exercise, subject to the provisions of the Lease Indentures, on behalf of and for the benefit of all holders of the Applicant's Debt Securities, all of the rights and remedies against APS provided in the Leases with respect to such assigned payments.
The exercise of such rights and reme-dies will be at the direction of holders of the Debt 0
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Securities through the Trustee's instructions to the trustees under the Lease Indentures or as pledges of the Applicant's interest in the Lease Indentures.
Purchasers of the Debt Se-curities will enjoy comparable assurances that the principal.
of, premium, if any, and interest on these obligations will be paid when due as purchasers of similar obligations issued directly by APS would have.
Because investors will be well protected under the proposed arrangements which are indepen-dent of the applicability of the Act, the protection of in-vestors does not require subjecting the Applicant to the Act
- and, accordingly, it is appropriate for the Applicant to be exempted from the Act.
CONCLUSION The Applicant's proposed activities are necessary or appropriate in the public interest and are consistent with the protection of investors and the purposes of the Act.
Denial of this Application would advance no interests sought to be achieved by the Act.
WHEREFORE, the Applicant requests that the Commis-sion enter an order pursuant to Section 6(c) of the Act un-conditionally exempting the Applicant from all of the provisions of the Act.
AUTHORIZATION REQUIRED BY RULE 0-2 UNDER THE ACT Section 141(a) of the General Corporation Law of the State of Delaware provides in pertinent part that:
"The business and affairs of every Corpo-ration organized under this chapter shall be managed by or under the direction of a board of directors, except as may otherwise be pro-vided in this chapter or in its certificate of incorporation."
Section 1 of Article III of the By-Laws of the Ap-plicant provides in pertinent part that:
"The business and affairs of the Corpora-tion shall be managed by or under the direction of the Board of Directors."
The Board of'irectors of the Applicant duly adopt-ed on May 13, 1986 the following resolution authorizing the filing of this Application:
"RESOLVED, that the President, any Vice President or the Secretary of the O.
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Corporation and any Assistant Treasurer or Assistant Secretary
-and each hereby is, authorized to take any action which such officer seems necessary or desirable on behalf of the Corporation in connec-tion with an application to be filed with the Securities and Exchange Commission for an Order under Section 6(c) of the Investment Company Act of 1940 exempting the Corporation from each and every pro-vision of said Act including, without limiting the generality of the foregoing, full power and authority to execute and deliver applications and documents, and any amendments
- thereto, and to make per-sonal appearance for and on behalf of the Corporation in connection therewith."
The Applicant therefore respectfully submit's that all the reauirements in Rule 0-2 of the General Rules and Regulations of the Commission under the Act have been com-plied with and that Secretary of the Applicant, who signed and filed this Application, is duly authorized to do so.
Pursuant to Rule 0-2(g) of the General Rules and Regulations of the Commission under the Act, the Applicant attaches hereto as Exhibit B a proposed Notice of Application For an Order Pursuant to Section 6(c) of the Act Exempting Applicant From All Provisions of the Act.
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ZV.
COMMUNICATIONS Please direct any questions and send all communica-tions relating to this Application to the following:
Dated:
May 13, 1986 Teresa Davidson Snell 6 Wilmer 3100 Valley Bank Center
- Phoenix, Arizona 8S073
{602) 2S7>>7290 PVNGS FUNDING CORP.g INCA BySecretary STATE OF DE~K
)
)
ss.
MW CASILE COUNTY
)
The undersigned, being duLy sworn deposes and says that he has duly executed the attached Application dated May 13, 1986, for and on behalf of PVNGS FUNDING CORP., INC., that he is Secretary. of such company; and that all actions by stock-holders, directors, and other bodies necessary to authorize deponent to execute and file such instrument has been taken.
Deponent further states that he is familiar with such instrument, and the contents
- thereof, and that the facts set forth therein are true to the best of his knowledge, information, and belief.
Subscribed and sworn to before me, a notary public, this 13th day of May,'986.
Public No
[Notary Seal]
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CERTIFICATE OF INCORPORATION OF PVNGS FUNDING CORP.,
INC.
FIRST:
The name of the corporation (hereinafter referred to as the Corporation) is:
PVNGS Funding Corp.,
Inc.
SECOND:
The registered office of the Corporation is to be located at Corporation Trust Center, 1209 Orange
- Street, Wilmington, Delaware 19801.
The name of its regis-tered agent at such address is The Corporation Trust Company.
THIRD:
The nature of the business or purposes to be conducted or promoted by the Corporation are:
(1)
To lend funds on a non-recourse basis to each Owner Trust or corporation acting as lessor on one or more leveraged lease transactions in which Arizona Public Service
- Company, an Arizona corporation (APS), acts as lessee and which relates to any portion of APS's 29.1% undivided ownership interest in each of three 1,270 megawatt electric generating units, each containing a pressurized water reactor nuclear steam supply
- system, certain facilities the use of which is common to all such units, and certain related trans-mission facilities and pipeline, such units, facilities, transmission facilities and pipelines being known variously as Palo Verde Nuclear Generating Station and Arizona Nuclear Power Project in commercial operation or under construction at a site located approximately 55 miles west of downtown
- Phoenix, Arizona, and to acquire, own, hold, sell, transfer,
- assign, pledge,
- finance, exercise any and all rights with respect to and otherwise deal with such loans, including ex-ercising all rights and remedies upon the occurrence of a
default with respect to any thereof, such rights and remedies to include the foreclosure upon or other acquisition of the collateral securing such loans.
(2)
To authorize,
- issue, sell and deliver
- notes, bonds or other evidences of indebtedness (or warrants, options or other rights to purchase any such bonds, notes or other evidences of'ndebtedness) other than "redeemable secu-rities" (as that term is defined in the Investment Company Act of 1940, as amended) in order to provide funds for the purpose described in clause (1) of this Article THIRD; and (3)
To engage in any activity permitted to corporations under the laws of the State of Delaware, but only to the extent that such activities are incidental to any
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of the foregoing or are necessary or convenient for the accomplishment of any of the foregoing.
FOURTH:
The total number of shares of stock which the Corporation shall have authority to issue is one thousand (1,000), all or which are to be of
$ 1 par value per share and of one class, which class is hereby designated as Common Stock.
FIFTH:
The name and mailing address of the sole incorporator is J.
A.
- Barbera, 1209 Orange
- Street, Wilmington, Delaware 19801.
SIXTH:
Notwithstanding any other provision of this Certificate and any provision of law that may otherwise so empower the Corporation, the Corporation shall not, without the prior written consent of each trustee from time to time under any'ndenture pursuant to which the Corporation shall issue and have outstanding
- notes, bonds or other evidences of indebtedness (which consent must be given in accordance with the terms of the applicable indenture),
do any of the following:
part; (1)
Dissolve or liquidate, in whole or in (2)
Merge into or consolidate with, or sell all of any part of its assets to, any person, firm, corpora-tion, partnership or other entity unless, in the case of a merger or consolidation, the surviving corporation in such merger or the'orporation resulting from such consolidation shall have a certificate of incorporation containing provi-sions identical to the provisions of Article THIRD and this Article SIXTH and, in the case of a sale of assets, the. ac-quiring corporation shall have assumed all of the liabilities and obligations of the Corporation and shall have a certifi-cate of incorporation containing provisions identical to the provisions of Article THIRD and this Article SIXTH, provided that nothing herein contained shall prevent or restrict in any manner the Corporation from assigning or pledging its assets to secure its outstanding indebtedness; (3)
Declare or pay any dividend on any of the Corporation's stock; or (4)
Amend this Certificate to alter in any manner or to delete Article THIRD or this Article SIXTH.
SEVENTH:
Subject to the limitation provided in Article SIXTH of this Certificate, the Corporation reserves the right to amend the provisions contained in this A-2
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Certificate and in any certificate amendatory hereof in the manner now or hereafter prescribed by law, and all rights conferred on stockholders or other hereunder of thereunder are granted subject to such reservation.
IN WITNESS
- WHEREOF, the undersigned, the incorpo-rator hereinbefore
- named, does hereby certify that the facts herein stated are true, and has accordingly hereunto set his name the 13th day of May, 1986.
/s/ J.
A. Barbera J. A. Barbera A-3
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UNITED STATES OF AMERICA BEFORE THE SECURITIES AND EXCHANGE COMMISSION INVESTMENT COMPANY ACT OF 1940 Release No.
1986 In the Matter of PVNGS FUNDING CORP.,
INC.
(File No. 812-NOTICE OF APPLICATION FOR AN ORDER PURSUANT TO SECTION 6(c)
OF THE ACT FOR EXEMPTION FROM ALL PROVISIONS OF THE ACT NOTICE IS HEREBY GIVEN that, PVNGS Funding Corp.,
Inc.
(Applicant),
a Delaware corporation, filed an applica-tion on May 16, 1986, for an order of the Commission pursuant to Section 6(c) of the Investment Company Act of 1940 (the "Act"), exempting Applicant from all provisions of the Act.
All interested persons are referred to the application on file with the Commission for a statement of the representa-tions made therein, which are summarized
- below, and to the Act for the text of its relevant provisions.
According to the application, Applicant is a Delaware corporation and expects to have all of its shares of common stock owned by The Corporation Trust
- Company, or a
company controlled by it.
Applicant represents that there has been, and undertakes that in the future there will be, no public offering or Applicant's common stock or of any other equity security.
Applicant further represents that there is, and in the future will be, no class of equity securities of Appli-cant other than its common stock.
Applicant has been created to participate as lender in one or more leveraged lease transactions.
("Leases" ),
in which Arizona Public Service
- Company, an Arizona corporation
("APS"), is the lessee
("Lessee" ).
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Applicant's sole purpose is to assist APS in the financing and refinancing, in whole or in part, of APS's 29.1% undivided ownership interest in the Palo Verde Nuclear Generating Station
('PVNGS').
- PVNGS, located near
- Phoenix, Arizona, consists primarily of three 1,270 megawatt electric generating units, e'ach containing a pressurized water nuclear steam supply system, certain related common facilities, cer-tain transmission facilities, and pipeline, and of which, the latter three components may or may not be included in such financings.
Ownership of PVNGS is governed by the Arizona Nuclear Power Project Participation Agreement, dated August 23,
- 1973, as
- amended, and pursuant
- thereto, Arizona Public Service
- Company, an Arizona utility, is authorized to act as agent for the owners of PVNGS, and has responsibility and control over construction, operation and maintenance of PVNGS.
'pplicant states that its participation as lender in the Leases will be limited to making loans pursuant to a
loan and security agreement
("Loan and Security Agreement,")
or a trust indenture and security agreement
("Trust Indenture and Security Agreement" ) (in either
- case, a "Lease Inden-ture") to certain lessors
("Lessors"
) under such Leases which will be payable primarily from rentals and other payments by the Lessee.
Applicant expects that the Lessors will be a
bank or trust company acting as trustee for one or more bene-ficiaries pursuant to a trust agreement, formed exclusively for the purpose of the lease financing.
Applicant states that a portion of the purchase price of the property owned by the Lessors and leased to the Lessee
("Leased Property" ) will be paid by the beneficiaries of the grantor trust that acts as Lessor and that amount will constitute their equity in-vestment in the Leased Property.
The loans by Applicant will be without recourse to the general credit of the Iessors of their respective beneficiaries, and will be evidenced by non-recourse obligations or the respective Lessors
("Lessor Notes" ).
Applicant states that under each
- Lease, the Lessee will be obligated to make rental payments sufficient to pay principal of and premiums, if any, and interest on the Lessor notes issued in connection therewith.
Applicant further states that such obligations or the Lessee will be required to be absolute and unconditional, without right.of counter-claim, setoff, deduction or defenses Applicant expects to enter into'n agreement (the "Commitment Agreement" ) with APS pursuant to which Applicant will agree to make loans to one or more Lessors designated by APS from time to time.
Applicant intends to acquire the funds necessary for the purchase of the Lessor Notes through the issuance of its debt securities in one or more series with differing ma-turities ("Debt Securities" ) which may or may not be secured B-2
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on a parity basis by a first lien on, and a security interest in, all of the assets of the Applicant, consisting primarily of the Lessor Notes so acquired and previously acquired and which may included a lien on or security interest in the Leased Property (if so
- secured, the Debt Securities may be referred to as "Lease Obligation Bonds" ).
Lessor Notes held by Applicant may only consist of Lessor Notes issued in con-nection with any Leases to which APS is a party, as
- lessee, in conjunction with its ownership interest in PVNGS.
Applicant states that the Debt Securities will be issued under a common indenture and a separate supplemental
'ndenture for each series other than the initial series (col-lectively, the 'Collateral Trust Indenture')
which will estab-lish the terms of the Debt Securities of that series.
It is expected that the trustee under the Collateral Trust Inden-ture (,"Trustee" ) will be a bank or trust company not affili-ated with'ny of the Lessors and will not be a trustee under any indenture of APS or its subsidiaries.
At each Lease closing'the Lessor Notes will be pledged and assigned direct-ly to the Trustee.
Applicant expects that the Lessor Notes will be issued under circumstances making such transactions exempt from the registration requirements under the Securi-ties Act of 1933 ("Securities Act").
Applicant states that the Lease Indentures will set, forth the terms and conditions under which the Lessor Notes will be issued.
Applicant represents that each Lease Inden-ture will require the Lessor to grant to the Applicant (if the Lease Indenture is a Loan and Security Agreement) or (a
trustee under the Lease Indenture ("Lease Indenture Trustee" )
if the Lease Indenture is a Trustee Indenture and Security Agreement),
an assignment of rents, including basic rentals and certain other
- payments, to be made by the Lessee under the applicable Lease.
The Lease Indenture Trustee or the Applicant may have a lien on or security interest in, the Leased Property.
In the event no such lien or security in-terest is created, the Lessor will covenant that, so long as any Lessor Note is outstanding, it will not incur any other debt constituting Lessor Notes or otherwise in connection with the Leased Property, and except for certain limited per-mitted liens, it will not create any lien or security inter-est in such property.
- Thus, Applicant states, these two covenants combined ensure that if a Lessor defaults on a Les-sor Note, the Leased Property will be available to satisfy the claims or the Trustee, acting for the benefit of 'holders of Debt securities.
Applicant states that it will be precluded from purchasing any Lessor Note unless (i) such Lessor Note is issued in respect of Leased Property having a
fair market sales value at the time of purchase at least equal to 110% of the original principal amount of such Lessor B-3
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Note or, (ii ) such Lessor Note and all other Lessor Notes (if any) issued by the relevant Lessor are issued in respect of Leased Property having an aggregate fair market, value (mea-
- sured, in each
- case, as of the date such Leased Property was first financed under the Lease) at least equal to 110% of the original principal'amount of such Lessor Note and such other Lessor Notes.
Further, Applicant states that each Lease In-denture will include as events of default, without, limita-tion:
(a) payment defaults on the Lessor Notes issued thereunder and (b) events of default under the related Lease.
According to the Application, the various series of Debt Securities will have terms which may differ as to inter-est rates, sinking fund obligations of Applicant, the right of Applicant to redeem such Debt Securities, and other mat-ters.
The interest
- rates, maturities and principal amounts of each series of Debt Securities will be established based on prevailing market conditions, thereby giving Applicant flexibilityto take advantage of changing market conditions.
If the maturity dates and cash flow of the Lessor Notes ex-ceed the cash requirements of Applicant's obligations under the Debt Securities, the resulting funds (-"Temporary Funds" )
will be invested by Applicant in certain investments
('ermit-ted Investments"~,
in each case maturing at such time as nec-essary to pay Applicant's obligations under the Debt Securities.
Applicant states that Debt Securities, which may include commercial paper and intermediate-term and long-term obligations, will be issued in the private or public markets in the United States,'nd in offerings outside the United States under circumstances reasonably designed to assure that such Debt Securities are not offered or sold to citizens and/or residents of the United States.
Applicant proposes that the initial issuance of Debt Securities willibe through an underwritten public offer-ing or private placement of one or more series having an ag-gregate principal amount of approximately
$ 1.1 billion (assuming a total sales price for APS's 29.1% interest in PVNGS Unit 2
and the common facilities of
$ 1.3 billion).
Applicant represents
- that, although APS will not be the actu-al issuer of the Debt Securities, it will be considered the "issuer" thereof for purposes of the Securities Act.
Any registration statement filed under the Securities Act relat-ing to the Debt Securities will name APS as the sole regis-trant and will be signed on behalf of APS as the sole registrant by such officers and directors of APS as may be required under the Securities Act and the rules, regulations and forms of the Commission thereunder.
Applicant represents that it will assign and pledge to the Trustee under the Collateral Trust Indenture, as B-4
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security for the payment of the principal of and premium, if
- any, and interest on all Debt Securities, the Lessor Notes and other assets held by the Applicant including any lien or security interest it may have in the Leased Property.
Each such Lessor Note will. in turn be secured by the assigned ren-tals and other assigned payments under such Lease and may be secured by a lien or security interest in the Leased Proper-ty.
Applicant states that the Trustee will give immediate notice to the Debt Securities holders of any rights granted by the Collateral Trust Indenture to it, which will include the right to exercise voting powers in respect of the Lessor
- Notes, to give any consents or waivers with respect thereto or to exercise any rights and remedies in respect thereof.
The Collateral Trust Indenture will authorize the Debt Secu-rities holders to direct by notice to the Trustee within a specific period of time, that it take any action or cast any vote in its capacity as a holder of the Lessor, Notes.
As a
result of this pass-through voting mechanism, the rights and remedies of Lessor Noteholders will be exercisable directly by the Debt Securities holders through their fiduciary, the Trustee.
The principal amount of Lessor Notes directing any action or being voted for or against any proposal will be the principal amount of the Debt Securities holders taking the corresponding position.
To the extent the Trustee does re-ceive instruction, it will take such action with respect to the Lessor Notes as a prudent man would in the care of his own pr'operty.
Applicant states that in the event APS defaults in the payment of rent or otherwise under any Lease Indenture, the Applicant or the Lease Indenture Trustee, as the case may be, would have the right to exercise, subject to the provi-sions of the Lease Indenture, all of the rights and remedies against APS provided in the related Lease.
The exercise of such rights and remedies would be at the direction of the holders of the Debt Securities through the Trustee's instruc-tions to the Lease Indenture Trustee or as pledgee of the Applicant's interest in such Lease Indenture.
Applicant states that among the rights and remedies of a holder of Lessor Notes included under the Lease Inden-ture is the right to demand, after a specified grace period, that APS pay all unpaid basic rent plus a stipulated amount which, in all cases, will be sufficient to pay the principal of, premium, if any, and interest on the related Lessor Notes.
Amounts payable by APS under the
- Leases, to the ex-tent of the amount of the principal, interest, and premium, if any, on the relevant Lessor Notes, will be paid directly to the Trustee for distribution to the holders of the Debt Securities.
Applicant thus asserts that holders of the Debt Securities will have access under the Collateral Trust B-5
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Indenture and the Lease Indentures to the credit of APS.
Moreover, Applicant asserts that holders of the Debt Securi-ties will be entitled to realize on the security afforded by the assignment of rentals to realize to the aggregate unpaid amount of the relevant Lessor Notes and. the obligation of APS under the
- Leases, Applicant asserts, grants holders of Debt Securities access to'he general credit of APS and is thus the equivalent of a general unsecured obligation of APS with-out limitation as to source of payment.
The Lessor Notes and the Lease Indenture will provide that, upon the occurrence of certain casualty events, and certain other events which re-quire the collapsing of the lease transaction, either (i) APS shall assume the obligations represented by the Lessor Notes or (ii) APS shall purchase from the beneficiaries or the trusts issuing the Lessor Notes the beneficial interest in such trusts and the Lessors will grant a lien and security interest in the Leased Property to secure the Lessor Notes.
The assumption'r purchase described in the preceding sen-tence will be in partial satisfaction of APS's obligation to make payments required of it upon early termination of the Leases in consequence of any such event.
Applicant asserts that in circumstances where the Lessor Notes are not secured by the Leased Property, there will be no need to prepay the Lessor Notes in the event of a casualty.
The preservation of a right for APS to assume the Lessor Notes in certain circum-stances assure that APS will not be faced with an accelerated obligation to prepay the Lessor Notes under the provisions of the Leases.
Applicant states that the issue, sale and delivery of a particular series of Debt Securities may be effected, at
- maximum, two months prior to the date for the consummation of the Leases
("Lease Closing Date" ) applicable to the Leased Property financed with the Debt Securities proceeds.
Pending the Lease Closing Date, the net proceeds of the Debt Securi-ties will be held by the Trustee, pursuant to the terms of the Collateral Trust Indenture.
The Trustee may invest pro-ceeds in Permitted Investments, which include direct obliga-tions of the United States or obligations fully guaranteed by the United States, certificates of deposit issued by or bank-ers'cceptances or, time deposits with, banks organized un-der United States law and limited to amounts of less than
$ 15 million in principal at any one time and from any one bank, or commercial paper of companies incorporated in or doing business under the laws of the United States or one State, in an amount not exceeding
$ 15 million in principal amount at any one time from any one company.
The co'mmercial paper will also have the highest rating by a nationally recognized rat-ing organization.
Permitted Investments, Applicant states, also include repurchase agreements, fully collateralized by the Permitted investments, pursuant to which a United States B-6
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bank, trust company or national banking association having a
net worth or at least
$ 200 million is obligated to repurchase the obligation not later than 90 days after its purchase.
Except to the extent payable from the proceeds of refunding Debt Securities, proceeds of Temporary Investments or the proceeds of the initial issuance of the Debt Securi-
- ties, where the relevant Lease Closing Date does not occur simultaneously, due to the nonrecourse nature of Lessor Notes and the limited scope of Applicant's activities, payment of the principal of, premium, if any, and interest on the Debt Securities will be made exclusively from amounts paid by the Lessee under the Leases'pplicant asserts that its proposed activities are appropriate in the public interest because the proposed issu-ance of Debt Securities would provide a convenient mechanism for APS tb obtain access to segments of the debt capital mar-ket other than the institutional private placement market.
Applicant further asserts that an exemption would be consis-tent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act because, among other things, investors will be protected under the proposed arrangements to the same extent as under equivalent arrangements where the Act is inapplicable.
NOTICE IS FURTHER GIVEN that any interested person wishing to request a hearing on the application may, not lat-er than 1986, at 5:30 p.m.,
do so by submit-ting a written request setting forth the nature of his/her
- interest, the reasons 'for the request, and the specific is-sues of fact or law that are disputed, to the Secretary, Se-curities and Exchange of Commission, Washington, D.C.
20549.
A copy of the request should be served personally or by mail upon Applicant at the address stated above with a copy to Teresa
- Davidson, Snell 6 Wilmer, 3100 Valley Bank Center,
- Phoenix, Arizona 85073.
Proof of service (by affidavit or, in the case of an attorney-at-law, by certificate shall be filed with the request.
After said date, an order disposing of the application will.be issued unless the Commission or-ders a hearing upon request or upon its own motion.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
John Wheeler Secretary 04TDD1045 B-7
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