ML18219A548
| ML18219A548 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 10/29/1975 |
| From: | Arizona Public Service Co |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| Download: ML18219A548 (39) | |
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/l et et gp 570 Q 4l I,'w'8 PRELIMINARY PROSPECTUS DATED OCTOBER 29, 1975 PROSPECTUS 500,000 Shares Arizona Public Service Company Cumulative Preferred Stock, Series I
($100 Par Value)
/
The $
Cumulative Preferred Stock, Series I ("Nem Preferred") is not redeemable prior to Decem-ber 1, 1985 through certain refunding operations; otherwise redeemable at the option of the Company at $
per share prior to December 1, 1980; at $
per share thereafter and prior to December 1, 1985; at $'er share thereafter and prior to December 1,
1990; and at $
per share thereafter; in each case plus dividends accrued to the redemption date. See "Description of New Preferred" herein.
A Sinking Fund requires the Company to redeem 15,000 shares at $100 per share on each December 1
beginning in 1981 and is calculated to retire 100% of theissue not later than December 1, 2000.
The Company may, but is not required to, redeem an additional 15,000 shares at $100 per share on December 1 in any year beginning in 1981.
Application willbe made to list the New Preferred on the Netu York Stock Exchange.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACYOF THIS PROSPECTUS. ANYREPRE-SENTATION TO THE CONTRARY IS A CRIMINALOFFENSE.
Per Share Total Price to Public(l)
Underwriting Discounts and Commissions(2/
Proceeds lo Cotnpany(l J(3)
(1) Plus accrued diuidends, ifany, from the date of original issue.
(2) The Company has agreed to indemnify the several Underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933.
(3) Before deduction of expenses payable by the Company estimated at $85,000.
The shares of New Preferred are offered by the seueral Underwriters when, as and ifissued by the Com-pany and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that the New Preferred mill be ready for delivery on or about December 2, 1975.
The First Boston Corporation Blyth Eastman Dillon R Co.
Incorporated Dean Witter 8c Co.
Incorporated The date ofthis Prospectus is November,'1975.
CONTENTS Page 2
2 3
4 4
5 7
8 10 12
~..........
20 21 23 23 24 36 36 37 The Company Application of Proceeds Prospectus Summary.
Industry and Company Problems......
Regulation and Rates Financing Requirements and Construction Program Capitalization Statement of Income Management's Discussion and Analysis of Statement of Income Business and Property Map Description of New Preferred Experts Opinion of Independent Certified Public Accountants Financial Statements Legal Opinions Registration Statement Underwriting of New Preferred.........
Arizona Public Service Company 300,000 Shares Cumulative Preferred Stock, Series I
($ 100 Par Value)
Arhona pubac Saru1ca Company 0
8.
wa carr c How YoU Uva No dealer, salesman or other person has been authorized to give any infor-mation or to make any representation not contained in this Prospectus and, if given or made, such information or rep-resentation must not be relied upon as having been authorized by the Company or the Underwriters. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any of the securities offered hereby in any juris-diction to any person to whom it is unlawful to make such offer in such ju-risdiction.
PROSPECTUS
1
IN CONNECTION WITH THIS OF<F<ERING, THE UNDERWRITERS MAYOVER-.
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAINTHE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE'PEN MARKET. SUC~
STABILIZING,IF< COMMENCED, MAYBE DISCONTINUED AT ANYTIME.
Arizona Public Service Company (the "Company" ) is subject to the informational requirements of the Securities Exchange Act of 1934 and in accordance therewith files reports and other informa-tion with the Securities and Exchange Commission. Information as of particular dates concerning directors and officers, their remuneration and any material interest of such persons in transactions with the Company is disclosed in proxy statements distributed to stockholders of the Company and filed with the Commission. Such reports, proxy statements and other information can be inspected at Room 6101 of the office of the Commission, 1100 L Street, N. W., Washington, D.C., and copies of such material can be obtained from the Commission at prescribed rates. Securities of the Com-pany are listed on the New York and Pacific Stock Exchanges and reports, proxy material and other information concerning the Company may be inspected at the offices of such Exchanges.
THE COMPANY The Company was incorporated in 1920 under the laws of Arizona and is principally engaged in the generation in Arizona and New Mexico, and the sale in Arizona, of electric energy, and in the purchase and sale in Arizona of natural gas. The principal executive offices of the Company are lo-cated at 411 North Central Avenue, Phoenix, Arizona 85004 (telephone 602 271-7900).
APPLICATIONOF PROCEEDS The financing program contemplated herein consists of the Company's issuance on or abo December 2, 1975 of 300,000 shares of its Cumulative Preferred Stock ("New Preferred" ), and its issuance on or about December 3, 1975 of $75,000,000 in aggregate principal amount of its First Mortgage Bonds,
% Series due 2000 ("New Bonds" ) being offered by a separate prospectus.
The net proceeds from the sale of the New Preferred (estimated at 5
) and the New Bonds (estimated at $
) will be applied to payment of short-term borrowings outstanding when the proceeds are received. Such borrowings have been and will be made for construction and other pur-poses. See "Financing Requirements and Construction Program".
While the contemplated financing program is herein presented as extending through the issu-ance of the New Bonds, it should be noted that the issuance of the New Preferred will not be conditioned upon the sale of the New Bonds.
PROSPECTUS
SUMMARY
The following material is qualiTied in its entirety by the detailed information and financial statements appearing elsewhere in this Prospectus.
Service Area
. ~ Allor part of 11 of A Population Served Customers (September 30, 1975)
.. ~ ~. Electric Gas Net Capability to Meet 1975 Peak System Demand (KW)...........................
Sales (Twelve Months Ended September 30, 1975).......... Electric (MWH)
Gas (M Therms)
Operations rizona's 14 counties 1,586,000 323,689 329,104 2,568,700 8,855,996 530,624 Estimated Construction E<xpenditures (1975-77)
$692,000,000 Financial Information Twelve Months Ended Dceembcr 31, 1974 September 30, 1976 Income Statement Data:
Total Operating Revenues Net Income Ratio of E<arnings to Fixed Charges and Preferred Stock Dividend Requirements Combined Pro Forma Ratio of Earnings'o'Fixed Charges Pnd Preferred Stock Dividend Requirements Combined.........
1.66 1.91 1.57
$273,599,000
$346,516,000
, $ 36,957,000
$ 54,475,000 As Adjusted for Ncw Prcfcrred and Ncw Bonds Capitalization:
Long-Term Debt (excluding current maturities)
Preferred Stock Common Stock Equity Total Capitalization.
Short-Term Borrowings Outstanding September 30, 1975 Amount (Thousands of Dollars) 538,988 138,561 377,085
$1,054,634 613,988 168,561 376,085
$1,158,634 52,600 None
- Pcrecnt of C~it li* ti 53.0%
14.5 32.5 100.0%
- E<stimated balance on December 3, 1975 after application of proceeds from the New Preferred and the New Bonds.
INDUSTRYAND COMPANY PROBLEMS The utility industry is experiencing a number of problems affecting its business and financial condition. These include difficultyin obtaining an adequate return on invested capital, in obtaining sufficient capital on reasonable terms, in obtaining adequate supplies of oil and gas at reasonable~
prices and the increased costs and delays attributable to environmental considerations.
The Com~
pany has been confronted with such problems in varying degrees, the more acute of which are summarized below.
Financial The Company does not consider a permanent rate increase recently approved by the Arizona Corporation Commission to be adequate, and intends to apply to the courts for relief. Ifrelief is not forthcoming at an early date, earnings coverages on the Company's senior securities willdeteriorate.
Future financing of the Company's large capital requirements will depend upon the adequacy of such coverages at the time. See "Regulation and Rates" and "Financing Requirements and Con-struction Program".
Funds derived from a 1974 pollution control financing by the~Company have been temporarily invested until required for construction of the facilities financed. The investments include short-term notes issued by New York City (approximately $5 million) and New York State Housing Fi-nance Agency (approximately $20 million), with maturities from November 1975 through March 1976. The collection of these notes when due may be in question. Ifsubsequent developments indi-cate the probability of any loss in an amount that can then be reasonably estimated, such amount will be reflected in the Company's statement of income. See Note 7 of Notes to Financial State-ments.
Other The Company continues to experience increased operation and maintenance
- expenses, short supplies of gas (both for generating fuel and for distribution), high costs of oil fuel, and difficulties in meeting environmental standards and similar regulations.
See "Management's Discussion and Analysis of Statement of Income" and "Business and Property".
REGULATIONAND RATES State The Arizona Corporation Commission ("ACC") has regulatory authority over the Company in matters relating to determination of retail electric and gas rates as well as the issuance of securities.
The Company recently concluded a rate proceeding in which the ACC made permanent an in-crease of approximately 17% that had been in effect on an interim basis since January 16, 1975; as applied to the 1974 test year this increase would have produced approximately $44,701,000 of addi-tional revenues. In'the same proceeding the ACC denied an additional 7% increase the Company had requested.
The Company will petition the ACC for a rehearing on its denial, failing which the Company intends to pursue the statutory procedure for obtaining judicial review of the ACC action by the courts of the State of Arizona. However, even if ultimately successful, that procedure is not ex-pected to afford prompt relief. Accordingly, the Company expects to file in the Federal District Court for Arizona an action seeking to enjoin the ACC from interferring with institution of reason-able rates (subject to refund) by the Company, pending the outcome of its proceedings on the State level. In both the federal and state actions, the Company expects to contend that the ACC's action amounts to confiscation of its property without adequate compensation in violation of its constitu-tional rights.
The Company's rate schedules contain provisions permitting adjustments for changes in the projected costs of generating fuel, purchased power, gas for resale and the rates of excise taxes. Ad-justments are reflected in billings to the Company's customers commencing 30 days after the i
adjustment calculations are filed with the ACC. In its recent rate decision, the ACC modified the Company's adjustment clause to exclude certain items from fuel cost computations. In the Com-pany's opinion, such exclusions willnot have a material effect on its future operations.
Federal The Company is also subject to regulation by the Federal Power Commission ("FPC") in cer-tain matters that include wholesale rates and transmission charges.
For the twelve months ended September 30, 1975, it derived approximately 10% of its electric operating revenues from sales and charges regulated by the FPC.
The Company is currently operating under a fuel adjustment clause applicable to its wholesale sales which it was permitted to place in effect on April 2, 1974, subject to refund depending upon final FPC action. Through September 30, 1975, the Company recorded approximately $5,900,000 of revenues subject to refund, including insubstantial amounts currently being contested before the FPC by two wholesale customers. The Company is seeking rehearing or clarification of an order is-sued by the FPC in a separate action involving steps required to implement adjustment clauses for expenses other than fuel. The Company believes that it will not be adversely affected to any ma-terial degree by the ultimate disposition of the foregoing matters.
FINANCINGREQUIREMENTS AND CONSTRUCTION PROGRAM Short-term borrowings obtained by the Company for construction purposes aggregated
$52,600,000 on September 30, 1975 and are expected to increase to approximately $91,000,000 by December 2, 1975, immediately before application of the proceeds from the New Preferred and the New Bonds.
Long-term debt obligations maturing through the end of 1977 consist of $8,500,000 in 1976 and i
$2,500,000 in 1977. In addition, there is a possibility that the Company could be required to redeem p to $30,000,000 in aggregate par value of outstanding preferred stock in 1977 as discussed in Note 2 of Notes to Financial Statements.
Plant expenditures for the years 1975 through 1977 are currently estimated at $692,000,000, in-cluding approximately
$171,000,000 for 1975 (of which $123,000,000 had been spent through September 30), $265,000,000 for 1976 and $256,000,000 for 1977. The plant expenditures by major facilitygroups during the period 1975-77 are currently estimated as follows:
Electric generation(1)
. $505,000,000 Electric transmission 100,000,000 Electric distribution 64,000,000, Gas distribution.
9,000,000 Common facilities.
14,000,000 Total(2)
. $692,000,000 (1) See the second table, and the paragraph that follows it, in "Business and Property Generation".
(2) Including approximately $140,000,000 of expenditures for environmental purposes.
During the years 1972 through 1974 plant expenditures by the Company aggregated approxi-mately $440,000,000. Expenditures in years beyond 1977 are expected to be higher than those for the years 1975 through 1977, as the large generating facilities referred to in the second table in "Business and PropertyGeneration" near completion.
In addition to further issues of long-term debt (in forms that may include pollution control rev-enue bonds of various Arizona and New Mexico authorities to finance facilities to be constructed and owned by the Company), permanent financing through the end of 1976 is expected to include Common Stock. The Company's ability to issue and successfully market its securities in the future willdepend upon its ability to provide earnings adequate to support the rapidly expanding capital structure necessary to finance its monetary needs.
Provisions in the Company's indenture and articles of incorporation restrict it from issuing new first mortgage bonds or preferred stock unless its earnings (as defined) cover by at least the pre-scribed 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. As calculated in accordance with the indenture, the coverage af-forded by earnings for the twelve months ended September 30, 1975 would have allowed the issuance of approximately $181,000,000 in aggregate principal amount of new first mortgage bonds (including the New Bonds). The issuance of the New Preferred and the New Bonds willpreclude an additional preferred stock issue until future earnings provide sufficient coverage.
Ifthe Company should be unable to obtain the necessary financing, it would be forced to curtail its construction program to the extent it is free to do so in view of its contractual commitments (including those to its co-participants in certain projects) and its statutory duties to provide service.
Any substantial curtailment of the construction program would impair the quality and reliability of the Company's service to its customers.
Whether, and to what extent, such impairment would in turn have a material adverse financial effect on the Company would depend on the circumstances of the particular case, including the degree and duration of, and the public and regulatory reaction, to, such impairment.
In recent years the Company has had substantial balances outstanding on short-term borrow-ings obtained for construction purposes (see, for example, Note 5 of Notes to Financial Statements).
The issuance of commercial paper and arrangements with bank trust departments were eliminated as sources of such borrowings after the withdrawal in January 1975 by Moody's Investors Service, Inc. of its rating of the Company's commercial paper. The Company also adopted a policy of placing less reliance on short-term borrowings in its financial program. Nevertheless, such borrowings re-main an important source of funds, particularly between permanent financings. In its recent rate proceeding the ACC expressed interest in imposing a limitation on the amount of short-term bor-rowings the Company may have outstanding. The Company does not presently believe that it would be adversely affected to a material degree by implementation of the limitation in a form substan-'ially similar to that believed by the Company to be under consideration by the ACC.
CAPITALIZATION The capitalization of the Company as of September 30, 1975, and as adjusted to reflect the is-suance and sale of the New Preferred and the New Bonds and the application of the proceeds hereof, is as follows:
Long-Term Debt (1):
First mortgage bonds Notes payable Total long-term debt Preferred Stock, 3,535,000 shares authorized, 2,074,199 shares outstanding, 2,374,199 shares to be outstanding (1)
Common Stock Equity:
Common Stock, $2.50 par value, 30,000,000 shares authorized, 19,000,000 shares outstanding(l).............
Premiums and expenses.
Retained earnings (1)
Total common stock equity Total capitalization Short-Term Borrowings as of September 30, 1975 for Outstanding; as of December 3, 1975 (estimated) for As Adjusted(2)
September 30, Outstanding Amount Percentage (Thousands of Dollars) 138,561 168,561 14.5 47,500 201,645 127,940 377,085
$1,054,634 47,500 200,645(4) 127,940 376,085 32.5
$1,158,634 100.0%
52,600 None 488,988 563,988 50,000 50,000 538,988 613,988 53.0%
t (1) See Notes 2 and 3 of Notes to Financial Statements.
Long-term debt excludes $8,500,000 of current maturities.
(2) See "Application of Proceeds", "Financing Requirements and Construction Program" and Note 5 of Notes to Financial Statements.
(3) The sale of the New Preferred is not conditioned on the sale of the New Bonds. Ifthe New Preferred is sold and the New Bonds are not, the Long-Term Debt would be 49.7%, the Preferred Stock would be 15.6% and the Common Stock Equity would be 34.7% of the Company's capitaliza-tion, and $62,000,000 of Short-Term Borrowings would remain outstanding.
(4)
After giving effect to estimated underwriting discounts and commissions and expenses of the Company related to the New Preferred.
STATEMENT OF INCOME September 30.
Year Ended December 31, 1975 1971 1972 1973 1974 (Unaudited)
(Thousands of Dollars)
'4 Operating Revenues (Note A):
Electric Gas Other.
Total.
Operating Expenses:
Operation and maintenance expenses:
Fuel for electric generation Purchased gas Purchased power and interchange net..................................
Other production expenses Transmission and distribution Maintenance Customers, sales, administrative and general.........................
Total Depreciation and amortization (Note 1).
Taxes other than income.
Income taxes (Notes B and 4)
Total Operating Income Other Income (Deductions):
Allowance for funds used during construction (Note C)............
Income taxes (Note 4)
Othernet Total.
Gross Income.
Interest Deductions:
Interest on long-term debt (Note. D)
Interest on short-term borrowings..
Debt discount, premium and expense Total.
Net Income Preferred Stock Dividend Requirements Earnings for Common Stock Average Common Shares Outstanding Per Share of Common Stock:
Earnings (based on average shares outstanding).........................
Dividends declared and paid Ratio of Earnings to Fixed Charges and Preferred Stock Divid Requirements Combined (Note D).
Numerical note references relate to the Notes see also Note 1 as to significant accounting policies.
1970
$271,G95 74,821 346,510
$213,271 60,328 273.590
$171,025 53,931 224 956
$142,237 46,199 188 430
$117,399 41,899 7
159,305
$ 105,817 39,049 7
144,873 47,512 35,829 35,931 6,548 11,021 23,129 28 190 188,166 31,312 47,373 4,988 271,839 3,314 948 18,820 93 497 41,626 28,171 23,230 5,181 10,187 20,078 24,533 153,006 26,398 38,546 (133) 217,817 55,782 29,626 22,258 12,398 4,181 9,757 16,869 21 775 116,864 23,529 28,401 5,631 174,425 50 531 19,964 19,963 8,522 3,427 9,049 1S,173 10 612 94,710 21,409 26,901 4,452 147,472 40,964 17,107 19,812 102 3,002 7,927 10,676 17 2'76 75,902 19,710 24,983 6,118 126 713 32 592 13,350 16,692 375 2,600 7,428 9,026 14 798 64,269 18,593 21,539 8,524 112,925 31,948 11,888 2,531 2,646 17 065 72,047 6,227 2,117 753 9,097 50 628 3,840 1,169 5 013 45,977 1,535 594 86 2 215 34 807 568 180 (106) 642 32,590 20,929 14,883 78 35,890 36,957 6,258
$ 30,G99 13,102,740 27,965 10,779 278 39,022 54,475 10 101
$ 44,374 16,361,644 22,390 5,915 56 28 361 31,267 3,551
$ 27,716 10,527,397 17,941 2,406 52 20,399 257578 3,551
$ 22,027 9,G12,022 12,326 2,741 35 15 102 19,705 3,551
$ 16,154 9,272,603 11,632 2,653 37 14,322 18,268 3,551
$ 14,717 8,500,000
$2.29
$2.63
$2.34
$2.71
$ 1.12
$ 1.21
$ 1.36
$ 1.3G 1.99 1.93 1.66 1.91 located elsewhere in this Prospectus;
$1.73
$ 1.74
$1.08
$1.08 2.06 2.02 end to Financial Statements The statement of income for the five years ended December 31, 1974 has been examined by Haskins &
Sells, independent certified public accountants, whose opinion with respect thereto appears elsewhere in this Prospectus.
The statement for the twelve months ended September 30, 1975 has not been examined byi~
pendent certified public accountants but, in the opinion of the Company, includes all adjustments (comprise~
only normal recurring accruals) necessary for a fair presentation of the results of operations, subject to the matter discussed in Note 7 of Notes to Financial Statements. This statement should be considered in conjunc-tion with the other financial statements and related notes and the information referred to under "Industry and Company Problems" appearing elsewhere in this Prospectus.
Twclvc Illcnths Ended
Notes to Statement of Income (Information for the Period Ended September 30, 1975 is Unaudited) t A. Revenues include wholesale amounts subject to refund (see "Regulation and Rates" ) as fol-lows: for 1974$2,500,000; and for the twelve months ended September 30, 1975$4,100,000, (aggregating $5,900,000 at September 30, 1975). Revenues collected subject to refund made the fol-
'owing contributions to income for the twelve months ended September 30, 1975: 1.2% of operating revenues, 6.8% of net income and 8.4% of earnings per share of common stock. In the opinion of the Company and its counsel any such wholesale revenues that ultimately would be refunded are not material in relation to total revenues or net income for such periods.
B. Income tax reductions resulting from accelerated depreciation allowable for income tax pur-poses, from certain other timing differences and from investment tax credit are reflected in income currently. Reductions allowed relating to five-year amortization of certain facilities were deferred for later recognition in income. See Notes 1 and 4 of Notes to Financial Statements.
C. In accordance with the accounting practice described in Note 1 of Notes to Financial State-ments, the allowance for funds used during construction (AFC) has been calculated using the following composite rates: 1970 through 1973, 7%; 1974 and 1975, 8%. AFC is defined by the FPC Uniform Systems of Accounts as including the net cost for the period of construction of borrowed funds used for construction and a reasonable rate on other funds when so used. The determination of the components of the composite rate attributable to each source of funds is impracticable. How-ever, assuming that funds used to finance construction during the periods shown above were ob-tained from various sources of capital in the same proportion as the average capitalization during the period 1970 through 1974, that is, 52% from debt, 13% from preferred stock, and 35% from common equity, and basing the AFC attributable to debt and preferred stock upon experienced in-cremental costs of such securities (excluding pollution control bonds) and without giving effect to income taxes related to debt, the common equity component of AFC as related to earnings for common stock amounted to approximately 1%, 2%, 6%, 7%, 14% and 7% for the five years ended l
December 31, 1974 and twelve months ended September 30, 1975, respectively. Although AFC is included in Other Income, it does not represent current cash earnings.
D. "Earnings" used to compute this ratio represent the aggregate of net income, income taxes and fixed charges. "Fixed Charges" represent interest (adjusted to eliminate the excess of interest income over interest expense associated with pollution control bond funds on deposit with the trus-tee see Note 7 of Notes to Financial Statements),
amortization of debt discount, premium and
- expense, and the estimated interest portion of annual rentals. "Preferred Stock Dividend Require-ments" represent the requirements for dividends on the Company's preferred stock multiplied by the ratio that pre-tax income bears to net income. The pro forma ratio of "earnings" to "fixed charges and preferred stock dividend requirements combined" for the twelve months ended Sep-tember 30, 1975, as defined, would be 1.57, after giving effect to (1) the issuance of the New Preferred at an assumed dividend rate of 10t/~%, (2) the annual interest requirements of the New Bonds at an assumed rate of 10~/~%,
(3) the annual interest requirement on an additional
$33,515,000 of pollution control bond funds currently held by the trustee expected to be expended by September 30, 1976, (4) the issuance and retirement of long-term indebtedness during the twelve months ended September 30, 1975, (5) applicable adjustments for interest on indebtedness to be retired from the proceeds of the New Bonds and the Netv Preferred, and (6) the annual interest requirements on the estimated average short-term indebtedness of $10,000,000 expected to be out-.
1 l'
standing during the twelve months ending September 30, 1976. A change of '/s of 1% in the assumed dividend rate would cause a change in the above ratio of.001. A change of '/s of 1% in the assumed interest rate would cause a change in the above ratio of.002. The sale of the New Preferred is not conditioned on the issuance of the New Bonds; if the New Bonds are not issued, the pro forma ratio would be 1.68.
The annual dividend requirement on the New Preferred willbe $
MANAGEMENT'SDISCUSSION AND ANALYSIS OF STATEMENT OF INCOME Operating Revenues Increases in electric operating revenues and in total operation and maintenance expenses over the period covered by the Statement of Income reflect the increases in unit sales shown in "Business and PropertyOperating Statistics". Total operating revenues also reflect the rate increases and effects of the adjustment clauses referred to in "Regulation and Rates",
as well as earlier general rate increases in May 1972 and October 1973. Effects of the foregoing factors in recent periods are summarized as follows:
Electric:
Rate increases Fuel clause adjustments Unit sales increases Total
$ 5,000 10,000 13,788
$28,788
$ 6,377 21,615 14,254
$42,246
$26,885 24,816 6,723
$58,424 Twelve itfonths Ended Year Ended Dcccmher 31, Septcmher 30, 1973 1974 1979 (Thousands of Dollars)
Gas:
Rate increases..............................
Fuel clause adjustments...
Unit sales increases (decreases)
Total
$ 3,000 2,000 2 732
$ 7,732
$ 1,904 6,352 (1,859)
$ 6,397
$ 4,958 6,943 2,592
$14,493 The rate of increase in unit sales of electricity has slowed in recent months because of customer resistance to higher prices of energy and effects of adverse economic conditions, which are particu-larly evident in the case of the Company's industrial customers. Unit sales of gas are substantially affected by weather conditions, but generally may be expected to decline in future periods with in-creased service curtailments by the Company (see "Business and PropertyEnergy Availability").
10
Operating Expenses In addition to volume increases, the cost of fuel for the generation of a given amount of electric-ity has risen sharply, as indicated in "Business and PropertyEnergy Availability"and "Operating tatistics". A similar cost trend, starting in 1972, is reflected in the expense of purchased power and mterchange (net), although dependence by the Company upon short-term power purchases from other utilities accounts for much of the increase in this item in recent years. Such purchases have increased greatly as the Company has sought alternatives, where available, to the high cost of oper-ating its own generating facilities on fuel oil; however, an important temporary source of purchased power during 1974 is no longer available to the Company. Relative costs of fuel are discussed in "Business and PropertyEnergy Availability",as are other reasons for the Company's dependence on purchased power and for the increase in maintenance expense.
Operating expenses attributable to depreciation and amortization and to taxes other than in-come (primarily consisting of property taxes) increase with the size of the Company's utilityplant.
Generally higher rates of depreciation effective January 1, 1975 (see Note 1 of Notes to Financial Statements) are reflected in results for the twelve months ended September 30, 1975. Much
($5,368,000) of the sharp increase in property taxes from 1973 to 1974 is due to a 25% increase in the assessed valuation of the Company's utilityplant in Arizona pursuant to a change in applicable law. Fluctuations in income tax expense are shown in Note 4 of Notes to Financial Statements.
Other Income The allowance for funds used during construction is primarily a function of the amount of con-struction work in progress during a given period, but was also affected by a change in the composite rate used to calculate the allowance as discussed in Note C of Notes to Statement of Income; "In-come taxes" included in "Other Income" primarily reflects tax benefits from interest attributable to construction work in progress that is capitalized for reporting purposes (see Note 4 of Notes to Fi-nancial Statements).
"Othernet" for 1974 and the twelve months ended September 30, 1975 includes gains ($1,039,000 and $951,000, respectively) on the sale of non-utility assets.
nterest Deductions The substantial increases in interest on short-term borrowings through 1974,are due primarily to greater amounts outstanding; the decline in the twelve months ended September 30, 1975 is a result of the elimination of certain borrowing sources and a policy change as discussed in "Financing Requirements and Construction Program."
See Note 5 of Notes to Financial Statements for amounts borrowed and interest rates thereon in 1974 and the twelve months ended September 30, 1975.
Outstanding Shares Recent issues of preferred stock (giving rise to the increased dividend requirements) and com-mon stock (giving rise to the increased average number of shares outstanding) are summarized in Note 2 of Notes to Financial Statements.
Earnings The,Company's net income and its earnings for common stock represent composites of cash and non-cash items (see the Statement of Changes in Financial Position) and, in part, reflect accounting practices unique to regulated public utilities (see Note C of Notes to Statement of Income and Note 1 of Notes to Financial Statements).
11
BUSINESS AND PROPERTY General The Company's service territory includes all or part of 11 of Arizona's 14 counties. It is esti-mated by the Company that one or both of its services of electricity or natural gas reaches~
approximately 1,586,000 persons, or approximately 70% of the population of Arizona, which is cur-~
rently estimated at over 2,265,000 (as compared with 1,772,482 in 1970). During 1974 no single purchaser or user of energy accounted for more than 3.2% of total electric revenue or for more than 1.7% of total gas revenue.
Certain territory adjacent to or within areas served by the Company is served by other investor-owned utilities (notably Tucson Gas & Electric Company serving both electricity and gas in the Tucson area) and a number of cooperatives, municipalities, electric districts and similar types of governmental organizations (notably Salt River Project Agricultural Improvement and Power Dis-trict serving electricity in various areas in and around Phoenix).
Operating revenues, and operating income before income taxes, attributable to electric and gas operations of the Company during the five years ended December 31, 1974 and twelve months ended September 30, 1975 were as follows:
0 crating Revenues (Dollars in Millions)
Electric Gas Amount Percent Amount Pcrccnt Ot1crating Income Before Income Taxes (Dollars in Millions)
Electric Gas Amount Percent Amount Percent 26.9%
$35.5 87.7%
$5.0 12.3%
26.3 36.6 94.6 2.1 5.4 24.5 40.3 88.8 5.1 11.2 24.0 47.3 84.2 8.9 15.8 22.0 49.6 89.2 6.0 10.8 1970..............................
1971..............................
1972..............................
1973..............................
1974..............................
Twelve Months Ended September 30, 1975...
$105.9 73.1%
$39.0 117.4 73.7 41.9 142.2 75.5 46.2 171.0 76.0 54.0 213.3 78.0 60.3 271.7 78.4 74.8 21.6 70.6 88.6 9.1 11.4 ~
Generation The Company's present generating facilities have an accredited capacity aggregating 2,260,600 kw, comprised as follows:
Coal:
Units 1, 2 and 3 at Four Corners, aggregating 15% owned Units 4 and 5 at Four Corners, representing Unit 1 at the Cholla Plant 14% owned Units 1 and 2 at the Navajo Plant, representing Gas or Oil:
Seven steam units divided among the West Phoenix, Saguaro and Ocotillo Plants, aggregating Eleven turbine units, aggregating Other 572,000 kw 240,000 116,000 210,000 1,138,000 kw 556,700 kw 536,000 1,092,700 kw 29,900 kw 12
, The Company's peak one-hour demand, recorded on August 6, 1975, was 2,068,300 kw, com-pared to a 1974 peak (recorded on June
- 27) of 2,032,000 kw. Taking into account additional capacity then available to it under power purchase contracts (including short-term arrangements) as veil as its own generating
- capacity, the Company's capability of meeting system demand on August 6, 1975, computed in accordance with accepted industry practices, amounted to 2,568,700 kw. The power actually available to the Company from its resources fluctuates from time to time due in part to operational problems of the nature discussed under "Energy Availability".The Com-pany's ability to meet future system demand will, among other things, depend on its success in dealing with those problems and with the new-construction delays mentioned below.
The following table reflects the Company's plans and most recent estimates as of September 30, 1975 with respect to additional generating facilities now under construction or in planning stages:
Type of Facility and Scheduled Com Iction Date Nameplate Capacity
~E Estimated Cost Per E~il n
1 Estimated Cost of Construction (Thousands of Dollars)(1)
Coal:
14% owned Unit 3 (1976) at the Navajo Plant, representing Units 2 (1977) and 3 (1978) at the Cholla Plant, aggregating Unit 4 (1980) at the Cholla Plant...........~......
18% owned Units 1 (1981), 2 (1982), 3 (1983) and 4 (1984) of the ICaiparowits Plant (southern Utah), representing Gas or Oil:
Three combined cycle units (1976),
aggregating umped Storage:
34% owned Montezuma Pumped Storage Plant (1981) (west of Phoenix),
representing.
Nuclear:
28.1% owned Units 1 (1982), 2 (1984) and 3 (1986) of the Palo Verde Nuclear Generating Station (west of Phoenix),
540,000 726 225,000 220 170,000 353 105,000 kw
$390 500,000 566 350,000 637 41,000 283,000 223,000 392,000 54,000 60,000 representing.
1,070,600 725 776,000 Total.
2,960,600 kw
$1,829,000(2)
(1) Excluding costs of related transmission facilities, fuel or fuel sources and allowance for funds used during construction, but including costs of related pollution control facilities.
(2) Including approximately $198,000,000 expended through September 30, 1975.
13
The comparability of the foregoing estimates is affected by the status of the related projects and by the differing sources and review dates of the estimates. No significant contracts have been entered into for construction of Cholla Unit 4 or for any portion of the proposed Kaiparowits and Montezuma Plants (which are in preliminary planning stages only), and firm contracts exist for only~
portions of the Palo Verde Station. Estimates for the Navajo, Kaiparowits and Montezuma Plants~
emanate with project managers other than the Company.
Further inflationary pressures, the factors discussed in "Energy Availability"and "Environ-mental Matters" and changes in the Company's plans (and, in the case of certain projects, changes in the plans of other participants) could cause actual completion dates and construction costs to vary substantially from the foregoing estimates. In some cases, project feasibility could also be'af-fected. Participation in the Kaiparowits Plant is currently under review by the Company. In addition to cost considerations, the site of the Kaiparowits Plant is uncertain, and inability to re-solve that issue with the Department of the Interior (which disapproved the originally proposed site) could jeopardize the project. The Kaiparowits and Montezuma Plants and the Palo Verde Sta-tion are subject to a number of regulatory approvals, and the feasibility, cost and timing of these projects is accordingly uncertain.
Energy Availability Coal, gas and oil contributions to total net generation of electricity by the Company during the five years ended December 31, 1974 and twelve months ended September 30, 1975, and the average cost to the Company of those fuels during the periods indicated (in cents per million BTU), were as follows:
Coal Percent of Average Generation Cost Gas Porcent of Average Generation Cost Oil Pcrccnt of Average Gcnc ration Cost AllFuols Average Cost 1970..................
197 1..................
1972..................
1973..................
1974..................
Twelve Months Ended Sep-tember 30, 1975........
83.3%
15.40c 76.1 16.15 66.5 16.66 70.0 17.78 72.5 20.47 16.7%
34.27<
23.5 38.45 31.6 38.08 18.4 41.25 13.7 53.23 0.4%
46.634 1.9 91.31 11.6 98.41 13.8 152.83 18.82c 21.59 32.09 44.82 79.3 25.77 7.7 74.15 13.0 211.88 56.41 Monthly costs of the respective fuels in the periods covered by the foregoing table ranged from
$2.92 to $6.30 per ton of coal, $0.35 to $0.88 per mcf of gas and $4.82 to $16.32 per barrel of oil.
The Four Corners, Cholla and Navajo Plants have ample reserves of low sulfur coal (the sulfur content of which is currently running 0.7%, 0.6% and 0.5%, respectively) committed to those plants under long term contracts believed by the Company to provide sufficient coal for the anticipated useful lives of the plants. Preliminary indications from independent tests on coal leases held by the plant participants in the vicinity of the proposed Kaiparowits Plant indicate the probable existence of sufficient quantities of low sulfur coal (approxilnately 0.5% sulfur) for the anticipated useful life 14
of that plant; however, the degree to which such coal may be recoverable in commercial quantities is subject to additional mining engineering evaluations and plant site and transportation considera-tions.t Coal deliveries from the reserves dedicated to the Navajo Plant have been restricted over the last six months, primarily due to operational problems encountered by the contract supplier. In ad-dition, the railroad between the mine and the Plant, which is owned by the Plant participants, has been operating at reduced capacity and may ultimately require substantial modifications to improve its operation. Presently, railroad deliveries are being supplemented by truck deliveries from the Four Corners area.
The capital cost of coal fired units is increasing substantially as environmental standards re-quire pollution control equipment to be added to existing units and included in new plants.
Operating costs also increase, since pollution control equipment lowers net plant output and entails high maintenance costs. Various technical problems, the more recent of which have been unrelated to the operation of pollution control equipment, have caused numerous service interruptions for unscheduled overhaul and maintenance at the Company's largest generating facility located at Four Corners. System operating expense increases substantially during these shutdowns, when the Com-pany must replace lost capacity with gas or oil fired generation or with purchased power. Although attempting to reduce future operational problems with improved component equipment on certain existing units and with improved design of additional or new equipment for other units now in oper-ation or under construction, the Company expects its coal fired generation to be increasingly costly to build and operate, The Four Corners and Navajo'Plants are located on the Navajo Indian Reservation, as are cer-tain of the Company's transmission lines and related facilities. The Company is therefore dependent in some measure upon the willingness and ability of the Navajo Tribe to protect these properties and means of access thereto against attempted interference by others.
Gas and oil fuels are substantially more costly than coal. Only minor amounts of gas for gener-ating fuel are now available to the Company from its sole supplier, El Paso Natural Gas Company
("El Paso" ), because of declining gas supplies and curtailment priorities established by the FPC.
Accordingly, the Company has had to substitute higher cost oil as the primary fuel for those of its generating units that do not operate on coal. Moreover, the Company may have to incur capital expenditures to accommodate the possible loss of gas for flame stabilization in coal as well as oil.
burning units.
The Company burned 2,320,000 barrels of oil in 1974'and currently estimates its 1975 and 1976 requirements at 2,500,000 and 4,000,000 barrels, respectively. Since the federal oil allocation pro-gram has been in effect, the Company has from'time to time experienced reduced deliveries of residual oil (burned in its steam plants) under its contracts for that fuel, but to date has obtained sufficient quantities to meet its requirements. There are continuing uncertainties regarding the fu-ture of the price control and allocation program. However, whether allocations are continued or not, the Company does not anticipate difficulties in obtaining sufficient quantities of both residual oil and middle distillate fuel (required for oil fired operation of most of its'turbine units) to meet re-quirements through 1976, unless a severe disruption in world supplies reoccurs. The Company has 15
residual oil contracts providing for approximately 2,300,000 barrels in 1976. Other purchases of oil, both residual and middle distillate, are made by the Company on short-term bases as and when the Company's storage capacity (scheduled to be increased from the present 1,525,000 barrels to 1,725,000 barrels by the end of 1975) and means of transport permit it to accept delivery.
The participants in the Palo Verde Nuclear G'enerating Station have contractual commitments from various parties for the supply of uranium and fuel fabrication services required for approxi-mately 20 years'peration of all three nuclear units, assuming that they exercise all of the options available to them under such commitments. In the case of the uranium supply for the last 18 years, the contracting party is Westinghouse Electric Corporation; the position taken by Westinghouse re-lative to its escalated firm-price contracts with others (to the effect that it is excused from performance thereunder) does not apply to the commitment made on a cost-plus basis by Westing-house in regard to the Palo Verde supply and has not been asserted by Westinghouse in that regard.
Contracts have been entered into with the Nuclear Regulatory Commission for necessary uranium enrichment services required for the lifetime operation of the three Palo Verde units. The Company presently has no commitments for reprocessing or off-site storage of fuel discharged from reactors; the extent to which such services may be required, and willbe available, cannot be predicted.
Natural gas for resale is purchased by the Company from El Paso under a contract extending to 1984. Severe limitations of gas reserves available to El Paso have caused the Company to discourage growth of its gas distribution business and to obtain an ACC order pursuant to which it is now re-fusing requests for new gas service commitments. Curtailment plans affecting existing customers have also been adopted by both the FPC and the ACC. The Company curtailed gas service to larger industrial users for a total of 108 days in the 1974-75 heating season, and it expects such curtail-ments not only to increase, but in the future also to affect other customer classes. Legal proceedings relating to priorities and procedures for curtailments of gas deliveries by El Paso are pending, both before the FPC and the appellate courts.
Environmental factors, attendant operational difficulties and the fuel shortages described herein may from time to time necessitate dependence by the Company upon short-term power pur-chases from other utilities. However, since most other major producers of electricity in the southwestern United States face similar problems, the Company may encounter difficultyin finding significant amounts of excess power available for purchase over an extended period of time. The Company's ability to avoid or minimize power shortages in its service area over the longer term will depend upon its success in meeting schedules for new coal fired and nuclear generation in the early 1980's. To meet those schedules, the Company willhave to deal successfully and in a timely manner with a variety of environmental impact and siting studies and regulations and, in the case of the nuclear units, with licensing and operational requirements of the Nuclear Regulatory Commission.
Licensing proceedings now pending before that Commission have elicited petitions to intervene from parties desiring to raise environmental and safety questions.
Based on that and other experi-ences, the Company anticipates opposition to many aspects of its planned facilities that may result in delay.
Environmental Matters The Company's present and future operations are subject to stringent environmental protection measures imposed under federal and state laws and regulations, including those administered by the federal Environmental Protection Agency ("EPA"). The area in which the Company operates ren-ders it particularly sensitive to new EPA regulations designed to prevent "significant deterioration" 16
of air quality in areas where the air is already cleaner than required by existing federal standards.
Although none of its generating units now in operation or under construction would be affected by these new regulations, the Company anticipates that the regulations may have a substantial effect on the feasibility and cost of future coal fired plants, including the Kaiparowits Plant. Contending that the new regulations are inadequate, the Sierra Club has sought review thereof by the Court of Appeals for the District of Columbia, and the Company is among the intervenors in that review pro-cess.
In addition, the Company and other utilities filed a petition seeking review of the new regulations with the Court of Appeals for the Ninth Circuit, from which it was transferred to the District of Columbia Circuit.
The units now in operation or under construction remain subject to state and EPA air quality standards which require the design, installation, testing and operation by various compliance dates of new or additional pollution control equipment. Equipment for sulfur dioxide emission control and the augmentation of particulate emission control is in design stages for Four Corners Units 4 and 5, as is equipment to improve the sulfur dioxide control function of equipment now in operation at Four Corners Units 1, 2 and 3. Among the more stringent federal regulations now in effect with respect to the Company's operations are those that prohibit the emission after July 31, 1977 of sul-fur dioxide in an amount equivalent to 70% of the sulfur content of coal burned at the Four Corners Plant. The State of New Mexico has adopted a regulation prohibiting the emission of sulfur dioxide in amounts equivalent to 85% of the sulfur content of coal burned at Four Corners Units 4 and 5 by July 31, 1977 and 90% of the sulfur content of such coal by 1979. The Company and other partici-pants in the Four Corners project have appealed these regulations to the New Mexico Court of Appeals. EPA is now proposing to adopt the more stringent New Mexico regulation, in substitution for its present prohibition at the 70% level.
The Company's ability to meet compliance dates applicable to the installation and operation of
.control equipment and procedures, and in so doing to minimize the potential for future operational problems is not currently ascertainable, but in the case of the more stringent regulations may be doubtful. While technology appears to be available for the removal of particulate matter and sulfur t
dioxide to the extent presently required by federal and state regulations applicable to the Com-pany's operations, the reliability of such equipment over sustained periods of commercial operation and the reasonableness of the ultimate cost of such technology remain highly questionable.
The Company from time to time is engaged in litigation and other proceedings involving the validity or interpretation of proposed or existing regulations.
The effects of federal and state water quality standards on the Company's generating plants are difficultto assess.
While anticipating adequate incoming supplies of water needed for the operation of its present plants and those under construction, the Company could in the near future be re-quired to meet "zero discharge" standards, requiring significant and costly changes from its present methods of handling discharge water and other materials. Fuel costs of the Company's coal fired plants could also escalate by an indeterminate amount ifstrip mining legislation simila'r to that pre-viously passed by Congress and vetoed by the President is enacted.
Litigation In 1971 an action was filed by certain individual Hopi Indians against the Secretary of the Inte-rior and Peabody Coal Company seeking to invalidate certain of the Peabody coal mining leases on deposits which supply coal for the Navajo Plant on the grounds that they were not validly granted by the Hopi Tribal Council in 1966, and that the Secretary of the Interior, in approving invalidly 17
authorized
- leases, breached his fiduciary duties to the plaintiffs. Following intervention by the Company and the other participants in the Navajo Plant and dismissal of the complaint by the Dis-trict Court on various grounds (including lack of joinder of the Hopi Tribe as an indispensable party), the Court of Appeals affirmed the judgment of the District Court and, on September 18,~
1975, denied the plaintiffs'otion for rehearing; they have 90 days after that date in which to ap-~
peal to the United States Supreme Court.
As a result of action instituted by the Company, the Arizona State Board of Tax Appeals re-duced the 1974 assessed valuation of the Company's properties in Arizona so as to result in a reduction of approximately $2,200,000 in 1974 Arizona property taxes. The Arizona Department of Revenue appealed that ruling to the Superior Court of Maricopa County, which dismissed the ap-peal on October 27, 1975. The Company does not know whether the Department of Revenue will attempt to proceed further in the matter. While the issues involved are not free from question, the Company and its counsel believe that the arguments for the Company's position are of greater merit and persuasion than those that may be advanced by the Department in support of its position.
The State of New Mexico has enacted an "electrical generation tax", effective July 1, 1975. This excise tax applies to all electricity generated in New Mexico and consumed outside that state. The Company and four other utilities have filed for a declaratory judgment in the state District Court of New Mexico seeking a declaration that the tax is unconstitutional. The State of Arizona has filed suit in the United States Supreme Court against the State of New Mexico, similarly seeking a decla-ration that the tax is unconstitutional. The Company is currently protesting the tax and not making payment, and the Tax Commissioner of New Mexico has informed the Company that no penalty will be assessed for late payment, pending the outcome of the litigation. However, the Company is including the amount of the tax (approximately $2,000,000 per year from July 1, 1975) in current expense in its financial statements, but is not collecting that amount from its customers pursuant to the adjustment clauses referred to in "Regulation and Rates" and does not know whether it willt ever be permited to do so by the ACC.
Also see "Regulation and Rates" and "Environmental Matters".
18
Operating Statistics t
Electric Operations:
Number of Customers (end of period):
Residential Commercial Industrial Irrigation
'ther Total Customers Electric Sales (MWH):
Residential Commercial Industrial Irrigation Other Total Electric Sales..............................
Operating Revenues (000):
Residential Commercial Industrial.
Irrigation Other Total Transmission for Others................................
Miscellaneous Services Total Electric Operating Revenues Revenue Per IOVH (Cents):
Residential Commercial Industrial Costs Per IOVH Generated (Cents):
Fuel Total Electric Operating Expense................
t Gas Operations:
Number of Customers (end of period):
Residential Commercial Industrial Irrigation Other Total Customers Gas Sales (MTherms):
Residential Commercial Industrial Irrigation Other Total Gas Sales Operating Revenues (000):
Residential Commercial Industrial Irrigation Other.
Miscellaneous services Total Gas Operating Revenues Revenue Per Therm (Cents):
Residential Commercial Industrial..
1970 213,179 34,571 1,798 1,127 G54 5
1971 228,664 36,025 1,852 1,183 768 Z~45 1972 246,019 37,646 1,974 1,239 802 H~v,e 5 1973 264,792 39,643 2,057 1,309 842 580843 1,49G,869 1,884,37G 1,290,646 241,382 526,520 55A3.5,793 1,G93,119 2,057,989 1,381,371 255,200 682,589 gVFÃ8 2,032,040 2,347,289 1,659,667 298,370 861,581 7,198,947 2,336,173 2,582,025 1,791,392 287,344 1.101,778 8,098,712 8 35,042 37,903 16,263 2,758 4,873 96,839 7,583 1,395
~205 17
$ 39,244 41,399 17,519 2,950 6,815 107,927 7,947 I 525 M117,555
$ 49,036 49,24G 21,011 3,647 8,712 131,652 8,649 1 936
~142,2 7
$ 59,852 58,972 25,502 4,066 12,004 160,396 8,G40 1 989
~11 025 2.34C 2.01 1.26 2.32C 2.01 1.27 2.41C 2.10 1.27 2.56C 2.28 1.42 0.20c 0.23c 1.14 1.16 0.27c 146 0.36c 1.55 2G0,104 21,610 922 1,390 1
284,027 275,837 22,436 965 1,412 1
300,651 288,359 23,163 999 1,406 1
313,928 301,970 23,935 1,048 1,452 1
328,406 18G,G87 105,719 99,278 75,514 8,009 475,207 205,575 117/110 100,936 76,339 7,428 507,388 206,390 121)307 93,871 76,990 8.016 506.574 229,657 133,07G 99,961 75,920 8,454 547,068 8 21,936 6,877 4,758 4,771 325 382
~3t,045 8 23,327 7,785 5,132 4,895 333 427
~41,8 5
$ 26,082 8,627 5,208 5,314 382 586
~46,19 8 30,815 10,304 6,013 5,637 441 721 2 53.981 11.75C 6.50 4.79 11.35C 6.65 5.08 12.64C 7.11 5.55 13.42C 7.74 6.02 Year Ended December 31,
'197t 277,794 40,934 2,061 1,444 8G1 323,094 Twelve 4il on ths Ended September
- 30. 1975 278,036 41,200 2,036 1,486 931 223 689 2,540,177 2,675,151 1,780,488 379,215 1,317,270 r697257 2,598,840 2,774,G58 1,749,817 390,774 1,341,907 fHm96 8 74,348 71,220 31,502 G,387 18,425 201,882 9,216 2,173
~248 71
$ 94,996 93,4G5 40,124 9,308 21,323 259,21G 10,301 2,178
~71 93 2.93c 2.66 1.77 3.GGC 3.37 2.29 308,175 24,236 1,071 1,425 1
334,908 302,588 24,026 1,035 1,454 1
329,104 200,447 119,937 104,542 87,816 6,257 518,999 224,47G
~129,330 84,G2G 84,751 7,441 530,624 8 32,058 11,412 7,818 7,877 441 722 r 60,328
$ 40,299 14,804 8,073 10,281 632 732 2 74,821 15.99c 9.51 7.48 17.95c 11.45 9.54 0.51c '.63c 2.00 2.69
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Area Served by APS 0 Electric 8 Gas D Combined Major APS Power Plants (J / 0 = Joint Ownership)
Principal APS Transmission Lines (-Operated for Others)
Transmission Lines Owned By Others Interconnections With Out-of-State Utilities Selected Cities 20
General DESCRIPTION OF'NEW PREFERRED The information set forth below, is, with certain exceptions, summarized from the Articles of corporation of the Company, as amended, and the Certificate of the Company with respect to the New Preferred pursuant to Section 10-152.01, Arizona Revised
- Statutes, to which reference is hereby made for further information, the following being expressly qualified by such reference. Ref-erence is also made to Note 2 of the Financial Statements for information concerning the authorized and outstanding issues of cumulative preferred stock of the Company, including seven outstanding series of Serial Preferred Stock. The Board of Directors is authorized, within the limitations and restrictions set forth in the Articles, to issue Serial Preferred Stock from time to time in series and t
to fix from time to time before issuance the designations, preferences, privileges and voting powers of each series and the restrictions or qualifications thereof.
Dividends The New Preferred, in preference to the Common Stock, but pari passu with the outstanding Preferred Stock, will be entitled to receive cumulative cash dividends at the annual rate per share per year appearing in the Series designation of the New Preferred as set forth on the cover of this Prospectus, payable quarterly on the first day of March, June, September and December of each year commencing March 1, 1976 when and as declared by the Board of Directors out of funds le-gally available for such payment. Dividends on the New Preferred willbegin accruing on the date of original issue.
I Redemption The New Preferred will not be refundable, directly or indirectly, prior to December 1, 1985 with the proceeds of borrowed funds, or of the issue of any stock ranking prior to or on a parity with the New Preferred, having a lower cost of money to the Company than the dividend rate on the New Preferred. Itwillotherwise be subject to redemption, at any time in whole or in part, on at least irty days prior written notice, at the applicable redemption price (as set forth on the cover page of this Prospectus) plus accrued dividends. Except for provisions requiring ratable dividend and liqui-dation payments on shares of Preferred
- Stock, there is no restriction on the repurchase or redemption of the New Preferred while there is any arrearage in the payment of dividends.
Sinking Fund Provisions The New Preferred will be entitled to a Sinking Fund which requires the Company to r'etire 15,000 shares of the New Preferred on December 1 in each year beginning in 1981. At its option, the Company may redeem through the Sinking Fund on December 1 in each such year not more than 15,000 additional shares. The right to redeem additional shares in any year is not.cumulative and does not reduce the Sinking Fund requirement of any subsequent year; provided, however, that ifin any year the required number of shares shall not be redeemed because of a lack of legally available funds, or for any other reason, the amount required to be redeemed shall be carried forward until such obligation is fully discharged. The price at which shares will be called for redemption through the Sinking Fund is $100 per share, plus an amount equal to dividends accrued and unpaid to the date of redemption. However, the Sinking Fund may be satisfied in whole or in part by crediting 21
I shares of the New Preferred purchased or otherwise acquired by the Company. Shares of the New Preferred shall be selected for redemption pursuant to the Sinking Fund by lot in such manner as the Company shall determine.
Liquidation The New Preferred, in preference to the Common Stock but pari passu with the outstanding Preferred Stock, will be entitled to receive the then current redemption price in the event of volun-tary dissolution or liquidation of the Company, or the par value thereof in the event of involuntary dissolution or liquidation, plus accrued dividends in each case.
Voting So long as any shares of Serial Preferred Stock are outstanding, the Company may not, without the affirmative vote or consent of the holders of at least two-thirds of the outstanding shares of Se-rial Preferred Stock:
(a) Authorize, by amendment of the Articles of Incorporation, any stock ranking prior in any respect to the Serial Preferred Stock; or (b) Make any change in the terms and provisions of the Serial Preferred Stock that would ad-versely affect the rights and preferences of the holders thereof (provided that if less than all series are affected, only the consent of the affected series is required); or (c) Issue any additional shares of Serial Preferred Stock or shares of any stock pari passu with the Serial Preferred, other than in exchange for, or for the purpose of effecting the redemp-tion or other retirement of, not less than an equal aggregate par value of shares of Serial Preferred Stock, or of any stock pari passu therewith, at the time outstanding, unless the net income available for fixed charges of the Company for a period preceding the first dayt of the month in which additional stock is issued is at least one and one-half times the sum (i) the interest requirements for one year on the long-term debt of the Company to be out-standing immediately after the date of issue of such additional shares and (ii) the dividend requirements for one year on all shares of Serial Preferred Stock and of all other classes of stock ranking on a parity with or prior to the Serial Preferred Stock in respect of dividends or assets, to be outstanding immediately after such proposed issue of additional shares.
Subject to the foregoing provisions, any class of the Company's stock may be increased at any time upon vote of the holders of a majority of the total number of shares issued and outstanding and entitled to vote thereon.
So long as any of the shares of Serial Preferred Stock are outstanding, the Company may not,
, without the affirmative vote of the holders of a majority of the shares of each series, merge or con-solidate with any other corporation or sell substantially all of the Company's property; these restrictions do not apply to a mortgage of all or substantially all of the Company's property or to the purchase by it of the assets or franchises of another corporation.
22
The holders of Serial Preferred Stock will be entitled to one vote for each share held and, vot-ing as a class, to elect two directors ifsix or more quarterly dividends accrued thereon shall not have t
been paid. Votes may be cumulated in electing Directors.
Other The New Preferred willnot have any conversion rights or any pre-emptive or other subscription rights. All of the shares of capital stock of the Company now outstanding are, and the New Pre-ferred willbe, fullpaid and nonassessable.
EXPERTS The balance sheet as of December 31, 1974 and the related statements of income, retained earnings and changes in financial position for the five years then ended included in this Prospectus have been examined by Haskins & Sells, independent certified public accountants, as stated in their opinion appearing herein, and have been so included in reliance upon such opinion given upon* the authority of that firm as experts in accounting and auditing.
Statements made as to matters of law and legal conclusions under "Regulation and Rates", "Fi-nancing Requirements and Construction Program", "Business and Property", and "Description of New Preferred Stock" have been prepared under the supervision of, and reviewed by, Snell & Wil-mer, 3100 Valley Center, Phoenix, Arizona 85073, counsel for the Company, and, insofar as the laws of New Mexico are concerned, have been reviewed by Keleher & McLeod, Public Service Building, Albuquerque, New Mexico 87101. All of such statements are set forth herein in reliance upon the opinions of such firms.
OPINION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have examined the balance sheet of Arizona Public Service Company as of December 31, 1974 and the related statements of income, retained earnings and changes in financial position for the five years then ended. Our examination was made in accordance with generally accepted audit-ing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the above-mentioned financial statements present fairly the financial position of the Company at December 31, 1974 and the results of its operations and the changes in its financial position for the five years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.
Phoenix, Arizona February 11, 1975 HASKINS EC SELLS 23
ARIZONAPUBLIC SERVICE COMPANY BALANCESHEET ASSETS September 30,~
Dcccmber 31, 1975 1974 (Unaudited)
(Thousands of Dollars)
UtilityPlant:
Plant in service at original cost (Note 3):
Electric Gas
~
~ ~ ~
~ ~ ~ ~
ao ~ ~ ~ ~ ~ ~ ~ ~ ~
Common, used in all services Total...............
Less accumulated depreciation and amortization.~.............~...~...~...
Plant in servicedepreciated Construction work in progress Plant held for future use UtilityPlantDepreciated Investments and Other Assets:
Investments (at equity) in and receivables from subsidiaries Tax exempt securities held by trustee (Note 7)..............................
Other investments and funds Other physical property (less accumulated depreciation:
1974, $23,000; September 30, 1975, $19,000).........~......................
Notes and contracts receivable Total Investments and Other Assets.
Current Assets:
Cash (Note 5)
Special deposits and working funds (Note 5).
Notes receivable.. ~
Accounts receivable:
Service customers Miscellaneous Allowance for doubtful accounts Materials and supplies (at average cost)
Prepayments and other.............................................,...........,
Total Current Assets Deferred Debits:
Deferred interest (Note 3)
Unamortized debt issue costs Total Deferred Debits Total 821,020 118,999 33,660 973,679 235,000 738,679 214,567 894 954,140 894,549 121,875 33,010 1,049,434 257,435 791,999 270,668 1,136 1,063,803 10,211 968 9,463 26,182 1,881 1,296 1,995 14,470',231 425 39,182 2,345 924 1,151 22,593 7,718 (400) 27,497 7,489 69,317 1,989 11134 156 ~
28,732 5,949 (411) 32,471 6,723 76,743 3,015 2,036 5,906 10,957 3,661 3,827 5,814 13,302
$1,048,884
$1,193,030 The accompanying Notes to Financial Statements, including Note 1 as to significant accounting policies, are an integral part of this statement.
24
ARIZONAPUBLIC SERVICE COMPANY BALANCESHEET LIABILITIES September 30, Dcccmber 31, 1075 1974
~Udice d)
(Thousands or Dollars)
Capitalization:
Common stock (Note 2)
Premiums and expenses (Note 2)......
Retained earnings (Note 2).
Common stock equity Preferred stock (Note 2)
Long-term debt (Note 3).
37,500 155,472 109,037 302,009 138,561 340,976 47,500 201,645 127,940 377,085 138,561 538,988 Total Capitalization Current Liabilities:
Notes payable to banks (Note 5).
Commercial paper (Note 5).
Current maturities of long-term debt (Note 3)....
Accounts payable Advances from subsidiary Accrued taxes Accrued interest.
Dividends accrued...
Payable to employees'ension plan (Note 6)
Customers'eposits Other Total Current Liabilities..
Other Non-Current Liabilities 109,552 52,550
, 38,250 28,938 1,244 16,627 8,382 842 937 1,852 706 52,600 8,500 23 372 18 32,939 8,955 842 810 2,040 837 259,880 130,913 566 633 781,546, 1,054,634 Deferred Credits and Reserves:
Customers'dvances for construction Other deferred credits and reserves Deferred income taxesaccelerated amortization Total Deferred Credits and Reserves.
Commitments and Contingencies (Note 7)
Total.
4,517 982 1,393 6,892
$1,048,884 4,542 1,073 1,235 6,850
$1,193,030 The accompanying Notes to Financial Statements, including Note 1 as to significant accounting policies, are an integral part of this statement.
25
Year Ended December 31, 1970 1971 1972 1973 1974 (Thousands of Dollars)
ARIZONAPUBLIC SERVICE COMPANY STATEMENTOF RETAINEDEARNINGS Twelve ~
Months~
Ended September 30, 1975
~Udit d)
Retained earnings at beginning of period.
AddNet income.......~........~.............
$57,919
$63,456
$69,620
$ 81,007
$ 96,018
$105,496 18,268 19,705 25,578 31,267 36,957 54,475 Total 76,187 83,161 95,198 112,274 132,975 159,971 DeductDividends:
Preferred stock (see below)......
Common stock 3,551 3,551 3,551 3,551 6,258 10,101 9,180 9,990 10,640 12,705 17,680 21,930 Total'2,731 13,541 14,191 16,256 23,938 32,031 Retained earnings at end of period (Note 2)
$63,456
$69,620
$81,007
$ 96,018
$109,037
$127,940 Dividends on preferred stock:
$1.10 preferred...........................
$2.50 preferred...... ~,...................
$2.36 preferred...............,...........
$4.35 preferred......................,
Serial preferred:
$2.40 series A....... ~. ~..~............
$2.625 series C........~..............
$2.275 series D..........
~. ~. ~ ~.......
$3.25 series E.........................
$8.50 series F.................,....
$8.50 series G.........................
$10 series H.
576 630 455 1,040 576 630 455 1,040 576 630 455 1,040 576 630 455 1,040 576 630 455 1,040 923 395 1,389 172 172 172 172 172 258 258 258 258 258 94 94 94 94 94 326 326 326 326 326 172 258 94 326.
630 455 1,040 1,785 765 4,000 Total.
$ 3,551
$ 3,551
$ 3,551 3,551 6,258
$ 10,101 The accompanying Notes to Financial Statements, including Note 1 as to significant accounting policies, are an integral part of this statement.
26
ARIZONAPUBLIC SERVICE COMPANY STATEMENT OF CHANGES IN FINANCIALPOSITION 1970 Year Ended December 31, 1971 1972 1973 (Thousands of Dollars)
Twelve ilfonths Ended September 30, 197f2 2U di4 d1 Source of Funds:
Funds from operations:
Net income Principal non.cash charges (credits) to income:
Depreciation and amortization.........
Equity in undistributed (earnings) loss of unconsolidated subsidiaries Deferred income taxes............,......,..
Allowance for funds used during construction.......................................
Total funds from operations Funds from external sources:
Common stock.
Preferred stock
= Long-term debt........................................
Notes payable to banks net.................
Commercial paper-net..........................
Total funds from external sources....
Other itemsnet.
Decrease in working capital'.....................
Total source of funds..........................
Application of Funds:
Plant additions and replacements, excluding allowance for funds used during construction....................................
1 Repayment of long-term debt.....................
Repayment of short-term borrowingsnet Dividends on preferred and common stock Investments in and receivables from subsidiaries and other assets Other itemsnet.
Increase in working capital'......................
Total application of funds.................
Increase (Decrease) in KVorkingCapital':
Cash Notes receivable.
Accounts receivable......................................
Materials and supplies.................................
Accounts payable Accrued expenses.
Other-net...,,
Net increase (decrease) 18,593 (210)
(568) 36,083 19,710 180 (210)
(1,535) 37,850 21,409 366 405 (3,840) 43,918 23,529 (95) 490 (6,227) 48,964 30,087 30,087 1>495 4,374
$72 030 21,525 1,500 31,545 17 350 71,920 1,666
$ 111 436 22,800 123,975 146,775 3,071 1,113
$194,877 34,400 45,925 28 000 100,325 6,441
$163,730
$46,237 11,150 12,731 1,921
$72,039
$ 91,704 13,541 3,296 2,895
$111,436
$117,016 62,545 14,191 1,125
$194,877
$ 142,751 16,256 71 4 652 5163,730 (605) 5 2,046 941 (2,666)
(3,639)
(456)
S (4,374) 1,205 (20) 945
'l95 (1,742) 609 1 103 8
2895 S
(699) 43 3,177 1,653 (3,865)
(1,112)
(310) 41 1137 993 91 4,789 6,459 (6,063)
(1,451)
(166) 4,652
$ 18,268 S 19,705
$ 25,578
$ 31,267
$ 36,957 26,398 (585)
(1,525)
(11,888) 49,357 30,278 69,755 9,061 63,627 2550 175,271
$224 628
$182,969 7,750 23,938 1,646 933 7 392
$224,628 (408) 847 7,226'2,463 (9,427)
(6,355) 3 046 5
7,302
$ 54,475 31,312 671 (539)
(14,558) 71,361 72,718 181,236 253,954 4,987 5,006
$335 308
$1'l8,533 38,250 85,130 32,031 1,364
$335,308 (1,258)
(862) 4,367 13 708 (12,125)
(11,825) 2,989 8
(5,006)
- Excluding notes payable to banks, commercial paper and current maturities of long-term debt.
The accompanying Notes to Financial Statements, including Note I as to significant accounting policies, are an integral part of this statement.
27
ARIZONAPUBLIC SERVICE COMPANY NOTES TO FINANCIALSTATEMENTS (Information for the Period Ended September 30, 1976 is Unaudited) t
- 1. Summary of Significant Accounting Policies.
- a. System of accounts The accounting records of the Company are maintained in accordance with the uniform system of accounts prescribed by the Federal Power Commission and used by the Arizona Corporation Commission.
- b. Plant and depreciation Property is stated at original cost as defined for regulatory pur-poses. The cost of additions to utility plant and replacements of retirement units is capitalized.
Replacements of minor items of property are charged to expense as incurred. In addition to direct costs, capitalized items include research and development expenditures pertaining to construction projects, indirect charges for engineering, supervision, transportation, and similar costs, and an al-lowance for funds used during construction (see c. below). Costs of depreciable units of plant retired are eliminated from utility plant accounts and such costs plus removal expenses less salvage are charged to accumulated depreciation. Contributions in aid of construction are credited to plant cost.
Depreciation is provided on a straight-line basis at rates authorized by the Arizona Corporation Commission as follows: through December 31, 1974, composite of 3.25%; beginning January 1, 1975, generally 2.80% to 4.00% for electric plant, 3.25% for gas plant, and 3.00% to 15.50% for common plant. The effect of this change in depreciation rates made as of January 1, 1975 on the results of operations for the twelve months ended September 30, 1975 was to increase depreciation expense and reduce net income by $2,105,000 ($0.13 per common share).
- c. Allowance for funds used during construction In accordance with the uniform system of accounts, an allowance for funds used during construction is included in construction work in prog-ress and credited to income using a composite rate (increased from 7% to 8% effective January 1,
1974), applied to construction work in progress, which assumes that funds used for construction were provided by borrowings, preferred stock and common equity. This accounting practice results in the inclusion in utilityplant in service of amounts considered by regulatory authorities as an ap-propriate cost of funds for the purpose of establishing rates for charges to customers.
- d. Subsidiaries The Company's investment in its subsidiaries is stated at equity, starting in 1971. The subsidiaries are not consolidated inasmuch as their assets, revenues, net income and re-tained earnings are not significant in relation to those of the Company.
- e. Bond premium or discount and issue expenses Bond issuance premium or discount and related expenses are amortized over the lives of the issues to which they pertain.
- f. Income taxes The Company uses accelerated depreciation methods for income tax pur-poses. The reductions in income taxes resulting from this practice and from allowable investment tax credits are reflected currently in income, together with reductions arising from timing differ-ences respecting certain other items of income and expense reported differently for income tax and financial purposes.
Such accounting methods are in accordance with orders or practices of the Ari-zona Corporation Commission.
Income tax reductions relating to the five-year amortization of emergency facilities in previous years were deferred, with the deferred amount being restored to income over a twenty-year period.
Income tax reductions relating to the five-year amortization of pollution control facilities which 28
ARIZONAPUBLIC SERVICE COMPANY NOTES TO FINANCIALSTATEMENTS (continued)
(Information for thc Period Ended September 30, 1976 is Unaudited) t were deferred in 1972 were reclassified in 1973, and those deferred in 1973 were reclassified in 1974, as taxes currently payable, since the Company did not elect to certify the facilities to be eligible for five-year amortization.
Income taxes included in utility operating expenses, starting in 1971, are reported before tax reductions due to interest expense applicable to construction work in progress; the effects of such reductions are included in other income since construction work in progress is not considered utility operating property until placed in service. Income taxes related to non-utility operations are also reflected in other income.
The Company and its subsidiaries file consolidated tax returns, and income taxes are allocated to the several entities based on the taxable income or loss of each.
- g. E'mployees'ension planThe Company's policy is to accrue and fund the current and prior service costs of its pension plan. Prior service costs are amortized over a fifteen-year period.
- h. Revenues and recognition of certain costs Operating revenues are recorded on a monthly cycle billing basis. Under its approved rate schedules, the Company may pass on to its customers increases in specified taxes, purchased power and fuel costs, and resale gas costs. Effective with the
. fourth quarter of the year ended December 31, 1974, such increases in purchased power and electric fuel costs chargeable to retail customers in the following period are deferred to be matched against revenue of such period. The Company defers the estimated cost of gas purchased from its supplier but not billed to its customers, a procedure adopted in 1972 and revised in 1973. None of the forego-t ing changes materially affected income in these periods.
- i. Research and development costsThe Company expenses research and development costs on a current basis, except that costs which may result in utility plant are deferred for subsequent inclusion in plant or to be written offifthe applicable project is abandoned.
29
ARIZONAPUBLIC SERVICE COMPANY NOTES TO FINANCIALSTATEMENTS (continued)
(Information for the Period Ended September 30, 1975 is Unaudited) t
- 2. Capital Stock.
Details of capital stock outstanding at December 31, 1974 and September 30, 1975 are shown below:
Common Stock...
Number of Shares Outstanding Authorized Dec. 31, 1974 Sept. 30, 1975 30,000,0M(a) 15.000 000 19,M0,000 Per Share 2.50 Par Value Outstanding Dcc. 31, Sept. 30, 1974 1975 (Thousands of Dollars)
$ 37,500
$ 47,500 Call Price Pcr Sharo (Before Adding Accumulated Dividends)
Cumulative Preferred Stock:
$1.10 preferred.........
$2.50 preferred.........
$2.36 preferred.........
$4.35 preferred.......,
Serial preferred........
$2.40 series A.......
$2.625 series C.....
$2.275 series D....
$3.25 series E.......
Serial preferred........
$8.50 series F.......
$8.50 series G......
$ 10 series H.........
Total................
160,000 105,000 120,000 150,000 1,000,000 2,000,000(a) 3,535,000 155,945 103,254 40,000 75,000 240,000 240,000 200,000 320,000 210,000 90,000 4~00 000 2,074,199 155,945 103,254 40,000 75,000 240,000 240,000 200,000 320,000 210,000 90,000 400,000 2,074,199
$ 25.00 50.00 50.00 100.00 50.00 50.00 50.00 50.00 100.00 100.00 100.00 3,898 5,163 2,000 7,500 12,000 12,000 10,000 16,000 21,000 9,000
~40 000
$138,561 3,898 5,163 2,000 7,500 12,000 12,000 10,000 16,000 21,000 9,000 40,000
$138,561
$ 27.50 51.00 51.00 102.00 50.50 51.00 (b)
(c)
(d)
(d)
(e)
(a) On April 24, 1975, the stockholders of the Company approved amendments to its Articles of Incorporation increasing its authorized Common Stock from 20,000,000 to 30,000,000 shares an increasing its authorized Serial Preferred Stock, $100 par value, from 1,000,000 shares to 2,000,000 shares.
(b) From $51.00 through February 29, 1980 to $50.50 after February 29, 1980.
(c) From $52.50 through February 28, 1978 to $51.00 after February 28, 1983.
(d) Redeemable at par after May 30, 1979 (series F) or May 30, 1982 (series G) at the option of either the Company or the holders. Both series are also subject to redemption at par at the de-mand of the holders prior to the foregoing dates under certain conditions, including a condition that would occur if dividend payments on preferred stock (including series F and G) of the Company exceed its "earnings and profits" for federal income tax purposes; that condition could occur so as to require redemption as early as 1977 ifthe Company does not theretofore obtain adequate rate relief (see "Regulation and Rates" ). Sinking fund provisions applicable to the two series require the re-tirement of a total of 12,000 shares at par semiannually commencing June 1, 1979.
(e) From $109.65 through September 1, 1976 to par after September 1, 2002. Not refundable at a lower cost of money through September 1, 1984. Applicable sinking fund provisions require the retirement of 16,000 shares at par annually commencing September 1, 1979.
30
Cumulatlvo Preferred Stock Common Stock Premiums and (Expenses)
-Not
$ 63,475 18,932 82,407 20 222 102,620 29,352 131,981 23,849 (111)
(47)
(200) 155,472 46,173
$201,645 Number of Shares Number Par Value of Shares Amount 8,500,000
$21,250 1,000,000 2,500 9,500,000 23,750 1 MO MO 2,500 10,500,MO 26,250 2.000,000 5,000 12,500,000 31,250 2,500,000 6,250 Par Valuo Amount
$ 68,561 68,561 68,561
~D* e 1 ll Balance, December 31, 1969 and 1970..............................
Common Stock Balance, December 31, 1971 Common Stock Balance, December 31, 1972 Common Stock Balance, December 31, 1973 Common Stock Cumulative Preferred Stock, $8.50 series F.................
Cumulative Preferred Stock, $8.50 series G.................
Cumulative Preferred Stock, $10 series H....................
Balance, December 31, 1974 Common Stock.
t Balance, September 30, 1975.
. Long-Term Debt.
Details of long-term debt outstanding follows:
1,374,199 1,374,199
'>374,199 1,374,199 210,000 90,000 400,000 2,074,199 2,074,199 68,561 21,000 9,000 40,000 138,561 3136 561 15,000,000 4,000,000 37,500 10,000
$47,500 19,000.000 at December 31, 1974 and September 30, 1975 were as ARIZONAPUBLIC SERVICE COMPANY NOTES TO FINANCIALSTATEMENTS (continued)
(Information for the Period Ended September 30, 1975 is Unaudited)
In the opinion of counsel, amounts paid in any redemption of capital stock funded other than ith the proceeds of a concurrent new issue of capital stock would reduce the amount of retained earnings available under Arizona law for the payment of dividends. Because of the option of the holders thereof to require redemption of the series F and G shares as indicated in note (d) above, the Company considers that a portion of its retained earnings which is equal to the aggregate par value of such series ($30,000,000) is unavailable for dividend payments.
Capital stock sales and changes in premiums and expenses during the five years ended December 31, 1974 and nine months ended September 30, 1975 were as follows (dollars in thou-sands):
First Mortgage Bonds:
8.50% series due April 1, 1975 2%% series due July 1, 1976 3'/s% series due December 1, 1977..............
3% series due April 1, 1979 2s/4% series due February 1, 1980 9.80% series due June 1, 1980 27/s% series due December 1, 1980 9.50% series due February 15, 1982 3t/s% series due February 1, 1983 3t/s% series due November 1, 1983.
3'/4 % series due March 1, 1984
$ 30,000 8,500 2,500 4,000 5,000 6,000 14,500 5,723 15,000 8,500 2,500 4,000 5,000 75,000 6,000 100,000 14,500 5,723 15,000 December 31, Scptcmbcr 30, 1974 1975 (Thousands of Dollars) 31
5'/s% series due 4.70% series due 4.80% series due 4.45% series due 4.40% series due 4.50% series due 6.25% series due 7.45% series due 6.20% series due Less certain s Unamortized dis Unamortized pr Total First Less current maturities:
8.50% series due April 1, 1975.
2s/~% series due July 1, 1976 Remainder Unsecured Notes Payable:
6.375% to 6.50% due May and July 1975.
Due September 1, 1979(b)
Total Unsecured Notes Payable Less current maturities:
6.375% to 6.50% due 1975 Remainder Total Long-Term Debt (30,000)
(8,500) 290,976 488,988 8,250 50,000 50,000 50,000 58,250 (8,250) 50,000
$538,988 50,000
$340,976 ARIZONAPUBLIC SERVICE COMPANY NOTES TO FINANCIALSTATEMENTS (continued)
(Information for the Period Ended September SO, 1975 is Unaudited)
December 31, September 30, I
1974 1975 (Thousands of Dollars)
October 1, 1987 15,000 15,000 March 1, 1989 20,000 20,000 November 1, 1991 35,000 35,000 June 1, 1992 25,000 25,000 December 1, 1992 25,000 25,000 September 1, 1993.
15,000
'5,000 September 1, 1997 25,000 25,000 March 15, 2002 60,000 60,000 April 1, 2004 50,000 50,000 ecurities held by trustee (40,314)
(8,321)(a) count (458) emium 67 44 Mortgage Bonds 320,976 497,488 (a) Reflects a reclassification of certain securities acquired in 1975 see Note 7.
(b) $30,000,000 bears interest at 114% of prime rate plus l/4 of 1% to September 1, 1977, then 114% of prime rate plus
~/>> of 1% to September 1, 1979. $20,000,000 bears interest at 119% of prime rate to September 1, 1976, then at various percentages of prime from 120% to 122%. The actual interest rate to final maturity of these loans is not to exceed 7'/2% per annum; payments in excess of this amount are carried as deferred interest.
Aggregate annual payments which will be due on long-term debt through '1980 are as follows:
1976, $8,500,000; 1977, $2,500,000; 1979, $54,000,000; 1980, $86,000,000. The annual sinking fund requirements for the outstanding First Mortgage Bonds in 1975 through 1980 will be as follows:
1975, $2,212,230; 1976, $2,127,230; 1977 and 1978, $2,702,230; 1979, $2,662,230; 1980, $2,552,230.
Sinking fund requirements on presently outstanding bonds, as provided in the bond indentures, have in the past been satisfied by certification of property additions of ls/3 times the amount stated and the Company expects to meet future requirements on such bonds in that manner.
32
ARIZONAPUBLIC SERVICE COMPANY NOTES TO FINANCIALSTATEMENTS (continued)
(Information for thc Period Ended September 30, 1975 is Unaudited)
Substantially all utilityplant is subject to the lien of the First Mortgage Bonds. The indenture respecting the First Mortgage Bonds includes provisions which would restrict the payment of divi-dends on Common Stock under certain conditions which did not exist at September 30, 1975.
- 4. Income Tax Expense.
Details of factors related to income taxes during the five years ended December 31, 1974 and twelve months ended September 30, 1975 were as follows (see Note 1):
1970 Year Ended Dcccmbcr 31, 1971 1972 1973 (Thousands of Dollars)
Twclvo Months Ended Scptcmbor 30, 1974 1975 Computed "expected" income tax expense Federal and State.............................
Reductions in taxes resulting from:
Timing differences:
Tax over book depreciation............................
Allowance for funds used during construction capitalized................................
Otherprincipally taxes, pensions and other items capitalized Other items Investment credits Taxes currently payable (refundable).....
Deferred taxes included in expenses:
Deferred.I Restored Total deferred Total Federal and State income taxes.........................
(3,372)
(3,642)
(4,744)
(6,352)
(6,875)
(6,392)
(291)
(769)
(1,924)
(3,120)
(5,730)
(7,296)
(617)
(62)
(735) 8,554 (1,490) 12 (1,019) 5,734 (2,582) 133 (2.468) 2,878 (2,246)
(113)
(2,573) 3,024 (3,012)
(1,004)
(1,047)
(1,139)
(4,507)
(1,035)
(6,756) 2,213 615 (210)
(210)
(210)
(210)
(210) 405 700 (210) 490 (1,315)
(210)
(1,525)
(329)
(210)
(539)
$ 8,344
$ 5,524
$ 3,283 S 3,514
$ (2,664)
$ 1,674
$ 13,631
$ 12,642
$14,463
$17,428
$16,529
$28,199 Federrl and State income taxes included in:
Operating expenses (credit)............................
Other income (credit)
Total S 8,524
$ 6,118 S 4,452
$ 5,631 S
(133)
(180)
(594)
(1,169)
(2,117)
(2,531)
$ 8,344
$ 5,524
$ 3,283
$ 3,514
$(2,664)
$ 4,988 (3,314)
S 1,674 Taxes currently payable (refundable):
Federal State Total Deferred taxes:
Federal State Total
$ 7,777 777
$ 8,554 S
(201)
(9)
S (210)
S 5,133 601 8 5,734 S
(201)
(9)
(210)
$ 2,280 598
$ 2,878 364 41 405 S 2,314 710 S 3,024 443 47 490
$(1,190) 51
$(1,139)
$(1,409)
(116)
$(1,525) 523 1,690 S 2,213 (503)
(36)
S (539)
The Company anticipates that investment tax credit, applied in accordance with the 1975 Tax Re-duction Act, willeliminate substantially all 1975 Federal income tax liability.
33
ARIZONAPUBLIC SERVICE COMPANY NOTES TO FINANCIALSTATEMENTS (continued)
(Information for the Period Ended September 30, 1975 is Unaudited)
As of September 30,1975 the Company had approximately $2,000,000 of unused investment ta credit which can be carried forward through 1981.
- 5. Short-Term Borrowings and Compensating Balances.
The Company had the following arrangements for short-term borrowings at the dates shown (see "Financing Requirements and Construction Program" for current short-term borrowing ar-rangements and the effects of loss of commercial paper rating):
December 31, 1974 Scptembcr 30, 1975 Bank lines of credit (unused: December 31, $20,000,000; September 30, $54,000,000).....................
$97,000,000
$106,600,000 Bank lines in support of commercial paper (unused:
December 31, $30,000,000)
$30,000,000 Bank trust department loans (borrowings: December 31,
$32,552,000)
.................~..........................
$35,000,000 Weighted average interest rates on short-term borrowings outstanding at December 31, 1974 and September 30, 1975 were: notes payable to banks, 10.82% and 7.49%, respectively; commercial paper, 10.60% at December 31 (no commercial paper being outstanding at September 30). Average aggregate short-term borrowings outstanding during 1974 and the twelve months ended Sep-tember 30, 1975 were $140,569,000 and $112,464,000, respectively; weighted daily average interest rates on such amounts were 10.35% and 9.35%, respectively. Maximum amounts of short-term bor-rowings outstanding at any month end aggregated
$ 165,497,000 in 1974 and $179,027,000 in the twelve months ended September 30, 1975.
Compensating balances required at banks, but which were not legally restricted, were: for bank loans, generally 10% of the line plus 5% (10% in some instances) of borrowings; for lines in support of commercial paper in 1974, 4% of the line as to $10,000,000 and 15% plus a commitment fee of 0.5% of the line as to $20,000,000. The bank trust department loans required no compensating bal-ances. Substantially all cash shown in the balance sheet is considered compensating balances.
- 6. Pension Plan.
The Company's pension plan covers all employees.
Contributions to the plan were as follows:
- 1970,
$2,333,000;
- 1971,
$2,866,000;
- 1972,
$3,290,000;
- 1973,
$3,993,000;
- 1974,
$5,137,000; twelve months ended September 30, 1975, $5,874,000. The plan was amended in 1973 to eliminate in stages the social security offset from benefits provided under the plan. Anticipated changes in the plan to conform to the 1974 Pension Reform Act willnot have a significant effect on the Company's pension expense or funding. The liability for unfunded past service costs at June 30, 1975 was $2,421,000 which is expected to be completely funded by 1981.
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ARIZONAPUBLIC SERVICE COMPANY NOTES TO FINANCIALSTATEMENTS (continued)
(Information for the Period Ended September 30, 1975 is Unaudited) t Commitments and Contingencies.
"Tax exempt securities held by trustee" of $26,182,000 represent certain short-term notes, and related accrued interest of $988,000, purchased from those proceeds of a 1974 issue of pollution con-trol revenue bonds (6.20% Series Due April 1, 2004) that were retained by the revenue bond trustee pending application to the costs of a pollution control project being constructed by the Company over a period extending through 1977. These
- notes, which were acquired in March 1975, are
$20,176,000 New York State Housing Finance Agency Notes ($4,568,000 maturing November 14, 1975 and $15,608,000 maturing February 17, 1976) and $5,018,000 New York City Bond Anticipa-tion Notes maturing March 12, 1976. The collection of these notes when due is currently in question. Ifthe notes are not paid by the time the funds are needed by the Company it would have to resort to other sources for funding the pollution control facilities, while remaining obligated for the payment, when due, of.the full principal and interest requirements of the revenue bonds. Pend-ing determination of their collectibility, these notes have been reclassified in the September 30, 1975 balance sheet as investments and are not shown as a reduction of long-term debt. Other investments held by the trustee, amounting to $40,314,000 at December 31, 1974 and
$8,321,000 at Septem-ber 30, 1975, the collectibility of which was not in question, have been reported as a reduction of long-term debt.
The Company is advised by its independent certified public accountants that if such accoun-tants were otherwise prepared to render an opinion as to whether the unaudited financial statements for the twelve months ended September 30, 1975 are fairly presented in accordance with generally accepted accounting principles (which such accountants are not prepared to do, inasmuch as they have not examined such financial statements), their opinion would be subject to the effects of the determination of the collectibilityof the aforementioned notes upon the Company. Ifsubse-quent developments indicate the probability of any loss in an amount that can then be reasonably imated, such amount willbe reflected in the Company's statement of income.
Commitments under contracts for plant additions were approximately
$213,000,000 at September 30, 1975, Annual rentals under noncancellable leases were not material.
The Company is involved in certain litigation (see "Business and Property Litigation").
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ARIZONAPUBLIC SERVICE COMPANY NOTES TO FINANCIALSTATEMENTS (continued)
(Information for tho Period Ended September 30, 1075 is Unaudited)
- 8. Supplementary Income Statement Information.
General taxes and rents during the five years ended December 31, 1974 and twelve'onths ended September 30, 1975 were as follows:
1070 1071 1972 1973 (Thousands of Dollars)
Year Ended December 31, 1971 Twelve illonths Ended Sept. 30, 1073 Taxes, other than income taxes:
Ad valorem.....................
$16,606 Sales................................
3,873 Rents....................
2,022
$19,488 4,290 1,938
$20,509
$20,461 5,533 6,673 1,862 1,986
$27,693
$31,886 9,240 13,168 1,702 1,776 LEGALOPINIONS The validity of the New Preferred will be passed upon for the Company by Snell & Wilmer, and for the Underwriters by Sullivan & Cromwell, 48 Wall Street, New York, New York 10005. In giving their opinions, Sullivan & Cromwell may rely as to all matters of Arizona law upon the opin-ion of Snell & Wilmer, and as to matters of New Mexico law covered thereby, upon the opinion of Keleher & McLeod. Snell & Wilmer may also rely as to matters of New Mexico law upon the opin-ion of Keleher & McLeod.
Mr. Richard Snell, a director of the Company, is a member of the firm of Snell & Wilmer.
September 25, 1975, attorneys in that firm were the beneficial owners, directly or indirectly, of ap-proximately 14,300 shares of the Company's common stock, 465 shares of its preferred stock and
$ 145,000 in principal amount of pollution control revenue bonds secured by a first mortgage bond of the Company's issue.
REGISTRATION STATEMENT This Prospectus omits certain information contained in the Registration Statement which the Company has filed with the Securities and Exchange Commission under the Securities Act of 1933, and to which reference is hereby made for further information with respect to the Company and the New Preferred.
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Number or Shares UNDERWRITINGOF NEW PREFERRED The Underwriters named below have severally agreed to purchase from the Company the fol-lowing respective numbers of shares of New Preferred.
t Numher Underwriter of Shares underwriter The First Boston Corporation.............
Blyth Eastman Dillon & Co.
Incorporated Dean Witter & Co. Incorporated........
Total...
300,000 The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, and that the Underwriters will be obligated to purchase all of the shares of New Preferred ifany are purchased.
The Company has been advised by The First Boston Corporation, Blyth Eastman Dillon & Co.
Incorporated and Dean Witter & Co. Incorporated, as Representatives of the Underwriters, that the Underwriters propose to offer the New Preferred to the public initiallyat the public offering price set forth on the cover page of this Prospectus and, through the Representatives, to certain dealers at such price less a concessi'on of c per share; that the Underwriters and such dealers may allow a discount of c per share on sales to other dealers; and that the public offering price and conces-sions and discounts to dealers may be changed by the Representatives.
37