ML20062K510
| ML20062K510 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 12/31/1992 |
| From: | Wiggs D EL PASO ELECTRIC CO. |
| To: | |
| Shared Package | |
| ML17310A857 | List: |
| References | |
| NUDOCS 9312220156 | |
| Download: ML20062K510 (116) | |
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' A B O U T T H E' C O M P A N Y = PIN N A C LE W E S T' C A PITA L C O R P O R ATIO N i
1 l
u Pinnacle West Capital C .
i has consolidated assets of $6.5 billion. Pinnacle West's major subsidiary 4
s is Arizona Public Service Company, the state's largest electric utility serving -
j
.i approximately 1,736,000 people, or about 45 percent of the state's population, j 1
Pinnacle West's other two subsidiaries are SunCor Development Company, j i
developer of' residential and commercial projects on some 12,000 acres in the.
metropolitan Phoenix area, and El Dorado Investment Company, a venture .
- l capital firm with a diversified portfolio. l J
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~ FIN ANCI AL-DVERVIEW = PINN ACLE WEST C APITAL CORPOR ATION
, ' ' ' io'as' NUr$Es"$C0$n.----~~- m2 -- ---~~- m ---- ,1f,8,j, -
, ,,74,
, in3, , g,,
15.75 , im Operating income (1.nss) .$ l 547,477 5 (167.249) 5 463.332 . . . . .
Itta income t Loss) From Continuing . '."
- Operations $ ,. 150.440 5 1340.317) 5 66.712 + .
liarnings (Loss) From . . .
Continuing Operations Per ;
Aserage Common Share 1988 1989 m a 1992 Outstanding $ 1.73 5 (3.91) $ 0.77 PINNACLI WEST CAMTAL CORPORATION Aserage Common Shares BOON VALUE AND MARKET VALUE 87,044,180 PER SHAftt AT YEAR-IND Outstanding M6.937.052 (In Dollars) thw.L %lue Yet Share - a Marker Value at Boo 4 Vulue Yearf:nd _$ 17.00 5 15.23 2 so. ,
The company's financial results from continuing operations for 1992 and 1991 .
are summarized above, To facilitate comparison, the 1991 data have been .
adjusted to exclude the effects of the 1991 rate settlement including write-offs .
and adjustments related to Palo Verde totalling approximately $631 mi!! ion 1.7s
,,73-($407 mill;on after income tax effects). For a further discussion of the rate " l l
settlement effects. refer to the annotated income statement on page 19 - -. .. l
. t20 !
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. ' , . ;W . 198: 1989 1990 1991* 1992
. . D. . .
, PINNACLE WEST CAPITAL CORPORATION 3 naam - * **++ + ' + EARNINGS PER SHARE ICONTINWNG OPERA 110NS)
'.. w,6.' .'
- AND DIVIDENDS PAID PER SHARE '
, ,, Iin Dollan)
, ,, , l %rnine s ext lude M07 millwn after-tax write ofh relawd to rare ca se settlement N 1.PS (Comtinuing Operatum)
,, , a Doidends Verkte
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conclusion l
We are taking these steps now to reshape the Company twcause we believe that if we wait until the industry changes are underway, it will At the end of this process, our Company be too late. In the past, companies who have should emerge smaller but stronger. We can j waited have been left far twhind. We do not succeed m a more competitive marketplace.
intend to let this happen to us. By taking the These steps shoull move us cimer initiative, we will be able to restructure the to our goal oiproviding you, our owner, Company before the majority of changes take with a dividend and an adequate return place within our industry. A streamlined on your investment.
business structure and more responsive regulation will enable us to compete.
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..y ff "We opened ourM.yjgg 1 re-foot cereal gi;J ring facility in 1992.
We chose New Mexico for a lot of reasons, but PNM's special economic development rate helped us decide that New Mexico was where we wanted to be."
Bob Morando Ihnt TechnicalManager General Mills 1
Albuquerque, New Mexico 13 J
' Board of Directors .
)
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Robert R. Rehder John T. Ackerman Vickle L. Fisher, CPA Pm{nva of Organnanmul T;chawr Chairman of the lkurd CFO of1%le, Kelly 8 Rama and Mawgement, The Rohen O. Elected to the Ikard: June 1990 Artomeys ur Law Anderwn Graduate Schmh of Executive Canm(stee, Nominating Elected to the Ikard:
Committee; Presaave c.at CEO DecemLer 1990 Maugement, Unii ersny of N,ew Chair, Audit Committee; Cortware Mexico, Acnquerque, New Mexsco and Public Respmsibility Elected to the Ikurd: April 1975 Committee, Execurite Canmittee Audit Canmittee, Corporate and Public Resynuibility Cmnmittee i
e
, )
Joyce A. Godwin Claude E. Leyendecker Robert M. Price Vice Prcent and Secretary, Chairam of the Ikurd, Unned New Fonner Chairam and CEO, Pinbyrmm Hadzhcare Services, Mexico Ikmk at Mirnbres Valley, Control Data Corpwation, Rcured A#%;ucrque. New Mexico Denung New Mexico Elected to the Ikurd: July 1992 Elected to the Ikurd: May 1959 Elected to the Ikard: July 1970 Finance Cmnmittee, Managanent Desvlopment mul Finance Committee, Nominating Management Detelotnnent arul Cmnperuution Committce; Chair, Cmnmittee Canpouation Conunittee Nmninating Committee; Chair, Corporate and Public Restauibility Committee; Executive Committee
./
a i
h Reynaldo ("Reynie") U. Ortiz Paul F. Roth Robert G. Armstrong Vice Presi&nt, Ccwpwarc Puhlic Policy. Fomier Pren.fent, Greater Dailu PreWJenr. Annstrone UWE ST, lu. Chamber of Commerce, Dallas, Corpwatron, Rosued,Energv New Mextco Elected to the Ikurd: April 1992 Texas, Rcnred Elected to the Ikurd: May 1991 Audit Omnmittee, Management Elected to the Ikurd: May 1991 Mamigement Development and Development and Cmnpanation Omnmittec Executive Committee, Managnnent Canperaation Canmittee, Finance Development and Compnuatism Canmittee, Executive Cmnmittee Onnmittee, Einance Dnnmittee H
4
- 1992 AT A GL ANCE = PINN ACLE WEST C APITAL COHPOR ATION
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FINANCIAL OPERATIONAL ,',,g.
- ll ,
=.... . .. .
= The market price of Pinnacle = The Palo Verde Nuclear . . ,
1 West common stock increased 17.3 Generating Station had its best , , ,
percent in 1992. year ever, generating more
= Electric operating revenues electricity than any other facility . . (
(excluding reversal of a rate refund in the U.S. while bettering its ma ms mo mi mz obligation) increased 8.9 percent. own capacit, factoi records and AH120NA PUBUC SERVICE COMPANY TOTAL NUMBER OF CUSTOMERS
= Consolidated interest expense exceeding national capacity AT YEAR END iTiunuands of Customern decreased $47.8 million, and utility factor averages.
= Palo Vente Unit .Vs scheduled operations and maintenance . . . 77
.n..
M. se . ss expense declined $11.2 million. refueling outage was the shortest _,__;,;
. s2 . c2
= Pinnacle West prepaid $96 :in Palo Verde's history. breaking ;
million of parent-company debt in the old record by 1i days.
1992 and remains on track to restore
- APS coal. fired facilities were -
, f a dividend around the end of 1993, available to praluce power 89 per- , l
= APS refinanced $1 billion of cent of the time in 1992, compared :" '
. l debt (most of it in 1992) resulting with the national average of ; ,
t in annualized interest savings of 82 percent. l
= APS' customer base grew nas isas ma mi m2
$12 million. ,
= At APS, cash income as a 2 6 percent und kilowatt-hour sales . Nt C FAC 0R percentage of earnings was 71,4 increa:.ed almost three percent. , .
percent and net cash flow af ter a Population growth in Arizona dividends was 126 percent of was 2.4 percent compared with .; ,; , ,
' ' 8' '
capital expenditures. the nationa'l asenge of 1.1 percent.
..g.
= Pinnacle West and APS :
si ,
s2 32 s2 credit ratings improved. . -
4 4
4 .
19s8 1989 1990 1991 1992' ARIZON A PUBUC SERVICE COMPANY CDAL. FIRED GENERATING PLANTS .
10UlVALENT AVAILA81UTY FACTORS (Percentage.o wdustry average ruimated.
E Al'S Share nIndsatry A>rrage
, - ~ - - , - .
)
1 LETTER To SH AREHOLDERS . PINN ACLE WEST C APITAL CORPOR ATION l J
a 1
4 The pastyeaiwasmy first one of relative sta-bility here at Pinnacle December 1991 rate settlement, which included a 5.2 percent rate increase, replaced much of our Service Company's nuclear and fossil-fueled plants, which '
again exceeded national perfor-West. The earlier ones were a non-cash income with real dollars. . mance averages and bettered little tumultuous, but also ones our own tough annual performance when much of the groundwork COST MANAGEMENT objectives.
was laid for 1992. There were the The past year was also a t uccess This power plant performance MeraBank and rate case settlements with respect to cost conminment- helped drive down operating -
and associated losses. There were a dominating theme throughout expense and allowed us to take ,;
tht PacifiCorp agreements and the company. advantage of sales opportunities associated opportunities. There Consolidated interest to other utilities, made possible were the serious undertakings to expense declined $47.8 million through long-tenn transmission control costs and to improve due to debt prepayment; aggres- agreements with PacifiCorp.
operations and a good deal more. sive refinancing of high-coupon This groundwork was not only debt; and lower rates on variable- CASH FLOW ,
important for 1992, but absolutely rate debt. Overall, in 1992, we had a healthy critical to what lies beyond. Mc~ Utility operations and mainte- cash flow picture, due to our 1991 about that later, but first let us look nance expense was reduced rate increase, cost management at the past year. by $11,2 million, primarily due to and electric customer growth of company-wide efforts by our 2.6 percent. That increase in '
1992 RESULTS employees to improve our financial customers, at more than twice the Financially and operationally, the performance by improving our . national average, underlines the performance of your company in operating efficiency. significant impact the growth of 1992 was very solid. We contin- On behalf of the entire our state and service territory has . ,
ued working through our agenda company, I congratulate and thank on this company.
to restore and maximize share- all employees who were part of our holder value, and we remain firmly cost management success in 1992. REGULATORY RELATIONS on track to reinstate a dividend They had a fine year and have set in addition to the rate increase pro-around the end of 1993. the foundation for future successes. vided by the 1991 settbment -
Our errnings improved signif- and in some ways mort important icantly in 1992, both in quantity OPERATIONS - were forward-looking asputs of and qua:ity. Consolidated income That employec-driven success the settlement that promote a mutu-from continuing operations was was also very evident in the al focus by us and our regulators on
, the best since 1988, and our performance of Arizona Public cost management targets.
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l Competitive forces will arise i
not only within the industry as we know it today, but also from
. . ;&ti:E :t/ L. external sources of energy.
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, .jp l. ,ws?..ge al is one more example that our i ,pn business will be in the middle of national issues.
Those targets, which we met ment Company are progressing, As the tax proposal now ahead of schedule in 1992, could and we look forward to impro'/ing stands, we base concerns about be arrived at only through a new results from them with increased its fairness and its actual contribu-cooperative spirit between the confidence. Our primary objective tion to meeting objectives such company and state n gulators that for the non-utility subsidiaries is as economic development, co.ner.
is continuing. to optimize and capture the value vation, environmental protection i of their current holdings, and energy independence. The tax l
DEBT REDUCTION These subsidiaries do not burden on us and our customers )
i We prepaid $96 million of parent- require cash from the parent com- could be substantial. As the picture l 1
company debt in 1992. Our goal pany. To the contrary, we expect becomes clearer, we intend to work is to reduce the parent-company them to bolster cash flow to the actively to protect shareholder debt balance of $716 million at parent in the next several years l 1.153 I December 31.1992 to approxi- and facilitate debt reduction. .
l mately 5600 million around the , ,, j end of 1993, or about one-half the LEGISLATIVE ISSUES , j , , s12 , ,
I
%' I
- 716
- i 1990 peak amount. 1992 saw the passage of compre- ,
Notwithstanding an $8.8 hensive national energy legislation million duilar loss from our non- which, along with other changes utility subsidiaries in 1992 -- taking place in the electric utility ,
about half their combined 1991 industry, will in our judgement ,
loss - w e believe that our invest- significantly alter the face of im im im im m2 ments in SunCor Development that industry in the latter part of PINNACLE WEST CAPITAL CORPORATION PARENT COMPANY DEBT AT YEAR END Company and El Dorado invest- this decade, annmn3 of onnars;
p
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.4.s. . . . . . . ., ,
interests through the legislative and regulatory processes. , ,, , ,,
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LOOKING AHEAD
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The sales potential for SunCor's I1.0-1.0 ' 1.0
- 1.0 ' 1.0
- 1.0
- 1.O
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- 11* 11* 11 residential product is commg mto * * * - , .
clearer focus with the pickup in the ,
Arizona economy. While Arizona a m m m m m m m.m en m ARIZONA vs. U.S. POPULATION GROWTH population growth rates are down m.n.r,,wge ch,mye; from the highs of the mid-1980s, " 'k " "
they are still very respectable by and already dominates our strategy: and meeting aggressive cost, national standards as shown in the cost management will remain a return on equity and price goals, graph at the top of this page; that key objective. and improving upon them with also augurs well for the APS Our fanatic attention to cost every opportunity.
service territory. ' containment has three targets. Obviously, some balance is '
Different forces are at work (1) Our shareholders, for required. Obviously, other goals ' ,
on values in the El Dorado part- whom we seek as much room as must be met at the same time:-
folio and on our ability to capture possible and permissible, in the safety, reliability, customer satis-those values, but time is now on way of return on their equity, faction. Obviously, we recognize our side. The portfolio is matur- between our costs of doing busi- and will meet our environmental,-
ing; losers have pretty much been ness, on one hand, and the price social and community responsibili-identified; and values in the gomi of our product, on the other. ties. To failin any of these aspects ones are now starting to emerge (2) Our customers, both is to sacrifice the long-term for the in capturable form. current and prospective, who short, and we will not do that.
We think we are beginning inescasingly have other choices, But as we see the electric to discern the outlines of the elec- and for whom we seek stability industry of the future, the success-tric utility industry that will take and competitiveness in the price ful, long-term participant will be -
form in the next fhe years or so, of our product. the low-cost one. We intend to be and are plotting the course for (3) Our regulators, whose among that number.
APS in that industry of the not- ultimate success is going to be Sincerely, i so-distant future. While some measured by their ability to keep particulars have yet to come into our prices low.
sharper focus, one particular has We firmly believe we can Richard Snell been accepted by us as a given achieve our objectives by setting Chairman and President
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Pilmacle West Capital Corporatiot _ ,
A component of the compa-ny's future operating ensironment in 1992, Pinnacle West continued ..
is the state's strategic location in
. .4 to improse as canungs power ; emergmg trade corridors linking
! by reducing the drag of high inter f[ northern hemisphere countries, est cost debt. with a view toward which are now considering ratiti-resuming dividend payments to us - cation of the North American J
shareholders around the end Free Trade Agreement.
v .
of 1993. q. .-
Benefits from the f ree trade l Pinnacle West expects disi-. i /-
agreement will consist primarily i v
dends from APS to the parent to R '
, of economic actisity in the I remain at the current level, and Y company's markets and service looking ahead. cxpects cash flows ,
territory. Electric power sales from its non-utility subsidiaries, "l 3 and purchases between the com-SunCor and El Dorado. pany and Mexican entities are not
~
The magnitude of this contn- n: likely in the foreseeable future bution is sensitive to the activity , y due to a lack of existing transmis-of sarious markets, bu'. cash sion interconnections to facilitate resources are sullicient to allow such actisity, the parent company to maint tin Pinnacle West is confident progress on its current agenda. , ,, .gYi m.,,,,,,.,,
it is well positioned to take advan-Condin.ons m the stock mai - ,
, a q -
tage of the dynamic growth r, , ,
ket and particularly the rnarket i
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characteristics of Arizona and for initial public often.ngs, influ-
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the company's service tenitory.
ence the timing of El Dorado,s ig:c, m.:p
.r.g, - h7 %-g* *,4 - Pinnacle West intends to con-auivity to capture value m. its
[ l } } ' tinue building shareholder value 1
investment portfolio as do a num- market conditions. SunCor's pro- through: supporting operational her of other factors, but present jects hate moved significantly excellence at utility and real estate conditions and the maturity of from the raw land stage to various operations; rebuilding financial the portfolio suggest a relatively deselopment and marketing stages strength through cost management early pickup in that activity, and are poised to take advantage and debt reduction; anticipating Similarly, estimated future of positive momentum in the industry and economic issues cash tlows from SunCor to the Phoenivarea real estate market, which af fect the company; and parent are sensitive to real estate especially the residential sector. resuming dividend payments.
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$rr d the company to succeed in the
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,; er A =" - myolved a re-examination of every ;
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sive retraining of every employee
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cific goals in all functional areas. 'l i 1
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ARIZON A PUBUC SERVICE COMPANY
!.bk ~ !Ns$% n%M/ " @!Q.y lf ? 'if ' #/ 4t:V? #
tmuTY OPERATIONS AND MAINTENANCE EX2ENSE f"f@ffff
\ sn ' e +- ,
heluding fuelDyvnse (Milli.ms of Dollars) l l
l'
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1 l
I COST MANAGEMENT eff orts. Even after the cost of the 87 percent availability factor.
1 in 1992, a goal-focused work gainsharing program, operations Based on their 1992 perfor-force dros e dow n operations and and maintenance expense declined mance, APS coal-fired plants maintenance costs by $11.2 2.8 percent. already are in the top hve among million, while kilowatt-hour sales Savings were generated by 22 "best practice" companies increased almost three percent. employees throughout the company, which were chosen by APS to l
About two-thirds of all depart- and the unit cost of electricity establish its 1995 corporate goals.
ments came in under budget. (measured in cents per kilowatt- The performance of the Cost reductions were accom- hour) continued a downward trend. coal-tired plants is at the heart of plished w hile maintaining high The company's cost per the company's profitability, as standards related to safety, kilowatt-hour sold (" unit cost") their availability to produce reliability and customer service. was 9.22 cents in 1992, compared electricity permitted interchange This company-wide achiese- with 9.S5 ce.us in 1991 and 10.27 sales to other utilities and reduced ment was acknowledged through cents in 1990. the need to run more expensive an innovative employ ee incentive Bey ond their importance to oil and gas plants.
program designed to foster contin- the company's next rate case. ?
uous improsement at the company. these continumg cost containment j Through "gainshanng, employ ees successes are key to APS' goal receise a ponion of every dollar of of becoming the preferred provider P ' ,
operations, maintenance and fuel of electricity in its markets. O j i 5
sasings generated through their AJ OPERATIONS $ .
The performance of APS fossil-fueled and nuclear plants was again exceptional in 199_.
f The average amount of time p iois :102 I. # x so; ;3.as : that APS coal plants were available I to produce power during the year >
t
..s 22 4 lg{
i was 89 percent compared with 7f /
(( an industry average of 82 percent.
2 r
p g r The Cholla facility had a banner up year with an equivalent availability j k ARIZONA PUCUC $ERVICE COMPANY COST 0F PRODUCING AND faClor of 9l.8 perCCnt. and Four %jfeb_ . - '}'f OtuVERING ELECTIUCITY nn per Kauan //,,un Corners recorded a sery strong \ O'h M)[.
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- 4 ;4 & ,s in addition to APS operations and
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< expense decreased 16 percent,
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M[j@yor 537 miHion, because of an j
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,p ' argressive debt reduction and y y n. . - gay c < .'4 '. @g, % :DW g refinancing program, which hgan e J 4 3D g w jW dd. gdM
,' ; lok. ?, T. ' 'M@Mm mid-1991, and lower rates on variable-rate debt.
APS' debt reduction began Efficient operations at fossil units, and for some months. Palo with the'use of the proceeds of the plams also contributed to fuel Verde units held all three top spots. July 1991 sale of Cholla Unit 4 vavings that, including the ef fect = Palo Verde set a national to PacifiCorp and continued l
of tenegotiated coal contracts, recou of 118 days by three-unit because of the company's strong produced $10 million in sasings stations for the longest uninter- cash flow.
for the year. rupted run w ith all three units APS has refinanced approxi-In 1992 Palo Verde strength- concurrently on line - beating mately $1 billion of high-cost ened its position as the energy a 1988 nat.ional record. debt, thereby taking advamage of cornerstone of the southwest, The financial benefit of Palo low prevailing interest rates and producing 27.3 million megawatt- Verde's performance was very credit rating upgradings. The hours of electneity while increas- evident during Unit 3's scheduled annual interest savings from the ing efficiency, reliability and refueling outage, w hich at 68 days refmancings initially will be safety. This output represents the was the shortest in Palo Verde's approximately $12 million; about most electricity generated by any history, beating the old mark half of these sasings were real-U.S. nuclear, fossil or hy droelectric by some iI days. This accom- i/cd in 1992.
p,:ner facility in 1992. piishment is very significant as For the 3 car, APS net cash
= The sue aserage capacity outages can cost the company as flow after dividends as a percent facter for Palo Verde was 77 much as 5100.0tX)(pretax) for of capital expenditures was 126 percent (net) compared with a every day a unit is out of sersice. percent, the best level in 25 national:nerage of 69 percent. In 1993 Units 2 and 1 y ears; cash income as a percent
= Every month in 1992, except are scheduled for refueling begin- of earnings was 71.4 percent, a one. a Palo Verde unit was the top ning in March and September, significant earnings quality producer among U.S. nuclear respectively. improvement.
i l
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l Driving an 8.9 pcreent revenue in short supply during 1992. markets were limited to adjacent increase at APS (excluding rever- . states.13ut, for several months sal of a rate refund obligation) NEW ENERGY MARKETS during 1992, APS was the major were the 5.2 percent rate increase These markets in the northwest winter supplier to some northwest w hich was included in the 1991 were opened up to the company utilities to which the company pre-rate settlement, customer growth through the 1991 agreements with viout,1y had no access. Just as im-of 2.6 percent, and weather differ. PacifiCorp, which among other portant is the company's new access ences. Also contributing was an results, gave the company new to competitively-priced energy
$1I million increase in wholesale transmission paths to northwest during the summer, w hen it is most revenues due primarily to sales to utilities for purchases and sales. needed by Arizona customers.
new markets in the northwest Before the conclusion of the Through the PacifiCorp deal, where hydroelectric power was PacifiCorp agreements, APS power APS has lescraged its system and
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4 4 Weir.*w its off-peak generating capatily for intensify. That new transmission it is the goal of the company to l
the inunediate and long term bene- line is under con-s truction and pursue the shift f rom contentious fit of shareholders and customers scheduled f or completion in ItF15, rate lilings of Ihe past to a new Upgrades in existing transmis- relationship based on a cominon I
sion lines and construction of a STATE REGULATORY RELATIONS interest in reducing its costs new hne to a major transmission The 1991 rate settleinent with the and holJing down the price of interconnection near I.as Vegas staff of the Ari/ona Corporation its product.
Nesada will f urther strengthen Conunission esidences a more The current settlement APS' position in w estern power cooperatise relationship between agreement, with its forward look markets. As demand for energy the company and its regulators. to the nest rate case, allows the throughout the west increases, Through parameters estab- opportunity for the company to so rnay margins on such s.iles, lished in the settlement and proside sharch . Iers with a fair i although conyttition from a num- ongoing efforts to improse com. return uhile prosiding rate l l
ber of energy sources will also munications with the Commission. stability to customers.
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I LOOKING AHEAD important for the future, and APS U Another provision in the rate settle- is active in the research and develop-ment u hich is an indication of ment of solar energy technologies. -
- 1 the new environmental and soci- The emerging energy market- , ..
y
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etal challenges facing the company place with its emphasis on compett- ~
and its regulators is the energy tion, conservation and technological p
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efficiency and solar energy fund, advances is creating new relation-w hich recognites the importance of ships between the company and its promoting efficiency and consena- customers. In response, and in order tion. Through this provision, the to maintain and expand its markets, Conunission now allows the com- APS has developed a new strategic I l
pany to collect $4 million a year marketing plan to fulfill the indivi- I l
from its customers to recover the dual needs of its customers on a cost.
costs of conservation programs. competitive basis.
APS, similar to other utility Surveys reveal that customer cornpanies, is increasingly manag- satisfaction ratings were at all-time StlnCor Development Company ing the demand for its energy as highs in 1992.
well as the supply and, as a result, The company sets short and long- SunCor Development Company, ,
l will eventually need to seek new term objectives to achieve customer Pinnacle West's real estate sub- j i
regulation to replace lost resenues. service excellence as it does in other sidiary,is one of the major real I 1
With no plans to build major areas which represent widely-shared estate firms in the Phoenix area baseload power plants within the m orporaw values, such as protecting with more than $4(N) million of next decade and no excess capa.ity, the environment, workplace safc:y book-value assets and no signifi-APS will meet the growing demand and corporate citizenship. The com- cant long-term debt.
for energy in its senice territory pany's commitment to the communi- SunCor's basic strategy is to through seasonal exchanges of ener- ties in which it does business is develop and sell existing assets i i
gy with other utilities; purchased recognized nationally and through- and provide cash to Pinnacle West power; upgrades of existing plants; out the APS servi.e territory. for debt repayment.
rights to energy from new combus- -
Since 1987, SunCor has sold non turbines (some owned by others); ;
more than $165 million of assets.
expiration of a sales contract with [ not including certain properties j
. ,y
, l another utility; and consenation. E '7 ; placed in trust to facihtate sales or While not currently as significant, ,
held through joint ventures.
renew able energy sources can also be , / Five years ago, most of 4 l \
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}.a s- --J SunCor's assets represented , - ;. . for $9 million in December 1991, undeveloped land. Today, major (f; * . j1 i f .. < ( ) which was less than the cost of the
.....- 3. . y
[y '? .G projects are in various stages of i.c infrastructure improvements made e p.. . . -
development. The company's yde..
. s. . .. c .., f. f.'...S.M. . . . . .
by previous owners. During 1992, h! \ ,[.[f 4- 1 ]C resources are predominantly target- SunCor recouped $4.9 million of ed to the residential sector, by far 4
.i 'O 1
}- ; the purchase price through forma-
,9 $ '
t the strongest segment of the l
jfs.* ' ~ V . \,y']u( , tion of a limited partnership.
Phoenidarea real estate market. , T SunCor will manage the develop-in 1992, the Phoenix housing
')
L-y elk. .
ment of the project for a percent.
l market ranked third in the country, i .# ; . age of the profit.
based on single-family housing -
This is a good example of -
f permits, and population grow th is W SunCor's strategy to leverage its projected to be more than two , i, strength while minimizing its
(
- times the national average for ,M'[.k.n~,
,n 9e - .
financial commitment and risk.
1993 and beyond. Five home builders are now SunCor is very well posi- developed by Robson Communi. on board, models are under con-tioned to take advantage of these ties, which in 1992 began con- struction and pre-selling activities market conditions, which include struction and sales of homes on have begun.
a depletion in the inventory of a 2,200-acre development for finished residential lots aided by active adults. TATUM RANCH 1,400 acres a 30 percent surge in new home Also during the year, SunCor in north Phoenix at Tatum Ranch, sales during 1992 These factors began construction on its own large three subdivisions have been are also beginning to put upward residential project in Palm Valley, sold out and six home builders are pressure on prices. which will include an 18-hole on board. Tatum Ranch is now Actis ity is ongoing at all of public golf course, the number three master-planned SunCor's major projects: At Palm Valley, a community community in the Phoenix college and middle school have metropolitan area, based on 1992 PALM VALLEY ffbnnerly Litchfield) been completed and home construc- sales volume.
/0MO acres tion and sales are ongoing at the SunCor's largest master-pianned 4(Xbacre Litchfield Greens project. MARKETPLACE 420 acres commumty,20 minutes from SunCor's largest commercial downtown Phoenix, is now called SCOTTSDALE MOUNTAIN 1,400 acres and industrial project h>eated in Palm Valley. The largest single In north Scottsdale, the Scottsdale Tempe, southeast of Phoenix, component of the project is being Mountain project was purchased includes Autoplex which added
I Saturn. Dodge and Cadillac deal- TALAVI /40 arres El Dorado IDVCSIWCDI Company erships in 1992 and now has five Phase One of Talavi, a commercial major car dealerships open and and industrial park located in El Dorado Investment Company, one more under construction. Glendale northwest of Phoenis, Pinnacle West's venture capital Other distmet projects at Market- is complete and includes a firm, has $68 million invested in Place include Price Club Plaza, a Walmart store, a lioneywell man- venture capital partnerships and l 185W) square-foot retail pow er ufacturing facility, three build-to- direct imestments.
center, and fiddlesticks, a 20-acre suit projects and a restaurant. Most indisidual investments family entertainment center. are relatiseiy small uith the I
- largest being about $5 million.
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- To further reduce risk, investments
] are diversified by industry sector.
, The primary sectors include health
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- -;. media / communications, profes-
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sional sports, agriculture and
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other services.
A
, ? ,,
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companies are in the Pacific I
%b f region, with 16 percent in the
)[If$%ab [ 2,13 Rocky Mountain states, and the p >
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'A remainder located throughout
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companies are beyond early start-
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and beyond.
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Four of the portfolio compa. !i nies (one high-tech and three .
'i service firms) have recently gone ;
public and their stock price will determine when and at what levels their value will be captured. The -
market value of these public com-panies is currently greater than the ..!
company's investment in them.
El Dorado continues to realize a cash return from its investment -
' in the Phoenix Suns Partnership,
.]
w hich owns the nil A Phoenix '!
C
' Suns and other sports franchises.
The mission of El Dorado ,
is to capture the value of current I
holdings by liquidating investments j
't as soon and as advantageously as possible. There are no plans for new committnents by El Dorado "
in the current planning peri xl. .;
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Eiivironment;tl Report i-
- . . . _ _ _ . . . . . _ ~ . _ _ _ _ _ _ _ - , . -
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Pinnacle West is committed g ,
to enhancing and protecting the F 5 ensironment and believes in b d . , .
& jm!j ? s ~* -. g" dem /'
establishing measurable environ-( ,' 4 3ra F I ;
mental objectives that go beyond Gx. Je .,
t-compliance. NN ~; .
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, A' M
The company is faced with a 5 f.--4. ^
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complex array of environmental .( ~- -
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regulations because of diserse h2.. -
.j 1
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operations that include nuclear and [ @f h fossil. fueled plants, a major trans. b>
d c mission system and more than 7< t ,I.
v s ..'
12,000 acres of property for resi- h, M, g .c y s dential and commercial (i. ogdk. .
f., ye development.
At APS. a central theme is under the Clean Air Act, which modifications to reduce sulfur i I
pollution prevention - an envi- requires the U.S. Environmental dioxide emissions. The company's l I
I ronmental ethic that emphasites Protection Agency (EPA) to set estimated cost for its share of reducing or eliminating pollution standards to reduce power plant bringing Navajo into compliance at its sources. This effort includes emissions of sulfur dioxide, is approximately 571 million to be a company-wide ef fort to research nitronen oxides, particulates and incurred in 1993 to 1999.
and find product substitutes other pollutants. In 1975, APS power plants which are more environmentally APS manages some of the produced 22 pounds of pollutants compatible. cleanest burning coal-fired plants for every megawatt-hour of encrgy All APS-managed power in the U.S., and these plants pnduced, compared with 7 pounds plants are in compliance with should also meet future emission per megawatt-hour in 1992. This federal and state regulanons standards scheduled to take effect dramatic reduction reflects not governing emissions, because of in coming years without major only the company's investment in pollution control investments modifications, pollution control equipment, but j totalling more than $298 million by 1999, the Navajo coal-fired also the effects of the Palo Verde made in the 1970s and 1980s. plant,in w hich APS is a 14 percent Nuclear Generating Station These regulations were established owner, will have completed major coming on line in the 1980s.
l
- . ._ - . - -. _ __ __ i
~. - - - -- .
- Palo Verde's nuclear generat- sources are important components future priority given the issue by ing units do not emit " green of the company's environmental govemment agencies or the public house" gasses, said to contribute stewardship, cannot now be determined. ;
to global wanning, or other air Some of the company's However, with new construction, pollutants. Palo Verde also efforts in this area include solar APS uses techniques which miti-preserves America's natural energy research and development; gate EMF exposure. -
resources for future generations rebates to customers for installing Real estate operations at -
and cuts U.S. dependence on energy efficient systems; and SunCor also demonstrate environ-foreign oil, development of electric car and mental sensitivity. At Tatum .
However, a remaining issue battery technologies. Ranch, one of the company's more is the safe disposal of spent In 1992, APS became the developed properties, SunCor nuclear fuel. The company is second company in the nation to pioneered award-winning low water working actively with industry enter a strategic alliance with use techniques for developing prop and government officials to site a the EPA that addresses areas of erties in pristine desert areas.
safe national storage facility for mutual environmental concern At the Scottsdale Mountain . l l
spent nuclear fuel and is support- beyond the area of compliance. master-planned commumty, !
ing education efforts which The alliance includes an environ. which includes the picturesque I
address public concerns. mental showcase home; environ- McDowell Mountains, SunCor Conservation and the devel- mental education; and an effort to set aside for natural reserve more opment of renewable energy address issues related to ozone- than three times the land required
.]
u depleting chlorofluorocarbons. by local ordimmces. ,
There is increased public in- In both utility and real estate ,
,f,' terest about electric and magnetic operations,it is the practice of the I
, ,n. fields (EMPs) from home wiring, comp:my to work with environ. q
~ ' '
appliances and power lines.The mental authorities to remediate.
's' company supports EMF research those properties for which the
. by public agencies and the company is responsible. At this 1 Electric Power Research Institute, time, there are no property remedi -
l an industry association, and is ation issues that are material to committed to providing results . the company.
of that research to the public To the knowledge of El ARtZON A PUBut SERVICE COMPANY j F0WER PLANT EMISSIONS ' when available. Dorado management. no portfolio - ;
Hissaric and Proja ted Trends '
l thiuh rer uepwan Hour) Potential liability to the - company is out of compliance with :
a Particulates 1 s u roxen oxides company from EMFs and the. any environmental regulation.
nSulfurDi<mJe .
A N N O T AT E D IN C O M E S T AT E M E N T = PIN N A C L E WE ST C A PIT A L C O R P 0ll AT10 N Because the December 1991 rate permanent write-offs were recorded, individual line entries in the income settlement made the company's as were a temporary discount of the statement are noted below.
income statement more complex, the . Unit 3 carrying value and a non cash We hope this annotated statement following annotated statement is. reftmd obligation related to Units 1 and makes the financial effects of the rate provided to remind annual report 2; and the amount of the discount and settlement clearer to our readets.
readers of the effects of the settlement, refund obligation are being accreted For a full discussion of the rate
' Aside from the 5.2% rate back to income and electric revenues, settlement effects, see Note 3 of Notes increase, the settlement's principal respectively over a thirty-month period, to Consolidated Financial Statements.
4
- effects were on various aspects of the F,ffects of the settlement and company's interest in Palo Verde: associated tax consequences on Unit 3 cost deferrals were terminated; .,,- Recorded $396 "IIII"" "I P *""""C"i Recorded "in-lieu" -
refund obligation write-offs Remaining Unit 3 cost deferrals bemg anortized N gwi*
'N} N P D ggt Ost' s
'N
- p#s .#'
Recorded $181 mdlion temporary discount gut go# of Unit 3
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Reversal of refund
. obligation being recorded ogj?{f{jh[
-(;eg#p#4& e '
a o"j p*y --, , / l4.;g' h' nA5;!;.h
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rempo,a,, imroirmen, diwount being accreted
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i c ' SELECTED C O N S 01. l D AT E D FIN AN CI AL DATA
- +-- 1990 ------- 1989 -
~
amus m ramm mwr n* suae o*msi --- 1992-- -1991 -1988 4
, , ~. ..... ...-
Operating Results . l Operating revenues .,
. Electric - $ 'I,669.679 ~ 5 1,515,289 $ 1,508,325 - ' $ 1,447,154 $ 1,442,023' '
Provision for rate refund ._. (53,436) -- Real estate 19.959 12,697 81,264 44,492 9,686 L income (loss) from continuing operations - $ ~150,440 j $ (340.317)(a) $ 70,208 $ 124,553 $ ' 152,678 Income (loss) from discontinued operations - net of tax (b) 6,000 ' 153 455 27.125 (675,968)' _ (148.487). Net income (loss) $' 156.440' $ (186.862) $ 97.333 $ (551,415) $ 4.191- ' i
. .-__ _ _ Common SlOCk Data. . _ . . _ _ . . . _ . . . _ _
Ikok vahie per share - year-end ,S: 17.00 ' $ 15.23- $ 17.40 $ 163i $ 23.46 Earnings doss) per average .t common share outstanding 1.73 - 5 Continuing operations $. ~ (3.91) $ 0.81 5 1.44 . $ 1.76 Discontinued operations 0.07 0,31 (7.80) ( l .71) ' 1.76, - Total ;$ ' l .80. $ (2.15) $ 1.12 $ (636) $- 0.05 Dividends declared per sharc . $ -. $ -_
$: 0.80(c) $ 3.20(d)
Common shares outstanding .. . j I Year end ~ 87,161,872 ' 87,009,974 86.873,174 86,723,774.' - 86,723,774 Average :87,044,180 86.937,052 86,769.924 86,720,747 86 621,872 - ;j Total Assets m.__....__.___... .__ __.. __...
$ 6.456,318 - $ 6A82.701 $ '7.010,646 5 7.019.511 $ 6.912.031 i'
s._.._. ... Liabilities
. . _ _. _ _ _and _ .. _Ec $ u.i _t i_y 1
Long-term debt less current , . . maturities S 2,774,305- . $ 2,996,910 $ 3,218,168 - $ 3,423.686 $ 2,840,932 Other liabilities 1.806.092 ? 1,764.550 1,919,519 1,808.911 1,654,793 .
'.4.580,397' 4,761,460 5,137,687 1 232,597 :4.495,725
. Minority interests Non-redeemable preferred ., .. , . .
stock of APS - .
.168,561- 168,561 i168,561 168,561 168.561 Redeemable preferred stock of APS '225.635 237,278 192,453 - 204,021 212,948 Common stock equity 1,481.725 U25,402 1.511,945 1,414,332 2,034,797 - '
Total $ 6,456.318 $ 6,482.701 .$ 7.010.646 $ 7.019,511 ' $ 6,912,031 (a) Ireludes approumately $407 indium of writenff) and ud,itutments, net.of income tax, rd.ded to Palo Verde. See Note 3 of Notes to Conelidated L , Finandal Statenwms. L 'iN ntesub of Mer4 Hank. A Fe&ral Smine liank. and Mafapai Rewurco Company, a urnmum mining company, are clawtied a dkcontinued - operatums in the conwhdated fmancial staicments. See Note 2 of Notes to Consolidated Financial Statementr.. (c) !* hlends to chrcholdcrt of Pmnacle West Capital Corporation were nu3 pen &d by the Ikard of Direuors on October 18,1989.
#d) includu tour quanerly diudends totalhny $2.80 and k fint quaner 1989 dmdend of $0 A0 declared in December 1988 and paid March 1, IVM.
. . . . - ._ ~-, . . - - , . . . - , , - ., ,
i
?
a
?
^
'l 4x u An iv nkiisasoss = 1992 - 1991 - -----1990- -1989 - 1988
?
~!
' Electric Operatilig Reve.nues
.3 Residential 5 . M 8.567 5 590345 5 579,556 5 559,755 L $. 545,082-Conuncreial 63),796. 585,952 571,806 - 521/65 501/66 Industrial . .l78,585 165,822 160.913 172,556 166,346 .;
Irrigation _10,295 12398 13.134 14.424 14,989 ; Sale.s for resale 136.110 125,226 133.725 100372 102,171 .; Other 12,810 12.956 13.015 12.241 12,009 l Total I,618,163 I,492,699 1,472,149 1381.013 1,342,263 , Transmission for others 7,658 7,871 9,321 14.117 17.187 .i i' Miscellaneous services . 43.858- 14,719 26,855 52,024 82,573 Electric operating revenues II669,679 1.515,289 1,508.325 1,447,154 1,442,023-(53,436) __
,Prgision for rate refund -- ~
Net operating revenues $ 1169.679 $ 1.461.853 $ l.5083 25 $ 1.447.154 $ 1.442.023 _- '. Electric Sales (MWHi Residential 6.066,830 5.856,791 5.777.871 5.673,188 5,462,812 'i Commercial 6,904.072- 6.726,350 0.567,728 6.025,634 5,659.527 l Industrial 2.871,440 2,796,572 2.685,469 .2,911.128- 2J55.852 Irrigation 118,536 160.095 172.763 196f 34 2N,857 , Other !73.853 71.650 69.587 62,149 +
._.69.929 .-
Total retail '16.034.731 15,6 I I,458 15,273,760 14,876,171 14.145,197-Sales for resale 4.528.172 4,375.027 4.502,380 2,6123 80' 3,615,699 Total sales JL562.903' 19.986.485 19.776.140 17A88.551 17360,8 % .. ._-_.Cus.t om..e_rs E..n.d._o f Year
]
Residential 562A64 : 547,425 534.413 523.102' 511399 -) Commercial -69A26 68.118 ' 67,129 67,734 (6.570 1 Industrial 2,883 - 3.095 3,1% 2,010 2.068 i Irrigation - 960 970 1,071 1,177' 1,186 , Other 749 751 749. .-- 753 747 Total retail 636.482- 620359 606,558 594,776 581,970 ' Sales for resale 46 43 47 44 33-l Total customers . ' 636,$281 620A02 606/05 594.820 582.003' '
.i Common Stock Price Range
' Stock Sy mbol: PNW omre.m vmrms Pl # Pt R 1992 man ww cam saan 1991 av,n ww cum suars ist Quarter 18 1/4-' 16 3/4 17 5/8 -
1st Quarter 12 1/2 93/4 10 3/4 .- 2nd Quarter 18 3/8- 16 7/8 18 1/8 -- 2nd Quarter iI 1/4 95/8 . 9 '7/8 _- 3rd Quarter ' 20 17 7/8 .19 3/8. .- 3rd Quarter 13 1/8 95/8 13 1/8 -. 4th Quaner ' 201/2-- 19 1/8' 20 3/8 : .- 4th Quaner '17 7/8 12 3/8 17 3/8 _-
@ d
^
M AN AGEMENT'S DISCUSSION AND AN ALYSIS OF FIN ANCI AL CONDITION AND RESULTS OF OPER ATl0NS The following discussion relates principal repayments are required on ;*, to Pinnacle West Capital Corporation such debt until December 1994. , ,, ,. (the Company) and its subsidhries: Management expects Pinnacle West ,' ,,, 'l', ,, Arizona Public Service Company to have cash flow available to effect - <- 2si . 285. 2:1 ( APS), SunCor Development a voluntary reduction of parent com. - zu 33;,y; ;,- , Company and El Dorado Investment pany debt from $716 million at the * ; 217 - ; ,
,172 Company. The discussion also end of 1992 to approximately 3600 , , ,
relates to the discontinued operations million around the end of 1993. , l . of MeraBank. A Federal Savings , Bank and of Malapai Resources NON-UTIU1Y SUBSIDIARIES . . . . . Company. During 1992 and 1991, the non- , utility subsidiaries generally financed ; , all of their operations through inter- ,,gggg,,, Cap,ual Needs and Resources nally-generated funds. Management '--e,,m a - > PAPENT COMPANY During the past three years, Pinnacle combined internal cash flows will be sufficient to fund their operations C0"$ [" West's pnmary cash needs were for the foreseeable future. tures and capitalized property taxes). for the repayment of principal and Such internally-generated funds I interest on its outstanding debt. It is APS represented 126% and 101% of capi-presently contemplated that Pinnacle APS' liquidity is affected primarily tal expenditures in 1992 and 1991, West will reinstate a dhidend on its by construction exrenditures and the respectively, compared with approxi-common stock by the end of 1993, repayment of long-term debt and mately 54% in 1990.. The improve-so that will become a need for cash, preferred stock obligations. The ment in 1991 was due primarily to i as will, to an increasing extent, capital resources available to meet reduced construction expenditures I penalties on the prepayment of debt. these requirements include funds and lower common stc.ek dividend Dividends from APS have been provided by operations and external payments. The improvement in - Pinnacle West's primary source of financings. 1992 was due to improved cash + cash. Tax alk> cations within the Present construction plans earnings from APS's 1991 rate settle-consolidated group and net operating do not include any major baseload ment.- APS estimates that it will loss carryforwards associated with generating plants for the next ter fund substantially all of its capital MeraBank have also been sources. years. In general, most of the expenditures with internally-As part of the 1991 rate settle- construction expenditures are for generated funds, after payment of ment, APS agreed to limit its divi- updating and expanding transmission dividends,in the 1993-1995 period. dend on common stock to Pinnacle and distribution capabilities. The During 1992, .APS redeemed or West to $170 milhon annually anticipated construction expendi. repurchased approximately $1ml ' through December 1993. Manage- tures are $281 million, $285 million billion oflong-term debt and pre-ment does not believe that the limi- and $281 million for 1993.1994 and ferred stock, of which approximately - tation willimpact Pinnacle West's 1995, respectively. These amounts $862 million were optional redemp-ability to meet its cash requirements. include nuclear fuel expenditures, but tions. Refunding obligations for-Pinnacle West prepaid substan- exclude capitalized property taxes preferred stock, long-term debt and tial amounts of its parent-level debt and capitalized interest. a capitalized lease obligation and for : .t in each of the past three years. No In 1992 and 1991, .APS' cash certain anticipated cady redemptions flow from operations, after payment (including premiums) are expected of dividends, exceeded its capital expenditures (construction expendi-s
7 Provisionsin the APS mortgage As of December 31,1992,
, l bond indenture and articles of incor- APS had credit commitments from poration restrict APS from issuing various banks totalling appmximately additional first mortgage tmnds or $372 million, which were available
l,.l preferred stock unless certain cover- either to support the issuance of et - '; age ratios are met. In addition,the commercial paper or to be used
, mortgage bond indenture restrie- for bank borrowings. Borrowings
- 54 l tions limit the amount of additional totalling $195 million were outstand-bonds which may be issued to a per- ing at the end of 1992.
I,;'33; centage of net property additions, to property previously pledged as secu-rity for certain bonds that have been redeemed or retired, and/or to cash At that date Pinnacle West had a $50 million liquidity facility as summarized in Note 5 of Notes to Consolidated Financial Statements; deposited with the mortgage bond no borrowings were outstanding ARIZONA PUBLIC SERVICE COMPANY trustee. As of December 31,1992, thereunder. NET CASH FLOW. AFTER DMDENDS, AS A PERCENT OF CAPITAL EXPENDITURES APS estimates that the mortgage (I'mmtaxn) bond indenture and the articles of incorporation would have allowed $t%lkO[@ffllf0!L,_,___, _ to total as much as $112 million, APS to issue up to approximately
$204 million and $152 million in $1.39 billion and $967 million of Pinnacle West reported income from 1993,1994 and 1995, respectively. additional first mortgage bonds and continuing operations of $150.4 On February 9.1993, APS preferred stock, respectively. million in 1992, compared with a issued $150 million of 8% first Prosisions in certain Pinnacle loss of $340.3 million in 1991 and mortgage bonds due 2025 and . West financing agreements limit the income of $70.2 million in 1990, applied the net proceeds to the aggregate amount of additional . The loss reported in 1991 was pri- ,
repayment of short-term debt that long-tenn indebtedness that may be marily the result of $407 million of had been incurred for the redemp- incurred by its subsidiaries to a regulatory write-offs and adjust-tion of outstanding long-term debt specified percentage of consolidated ments made in connection with and for working capital purposes. capitalization (as defined). At APS' rate seidement with the ACC Although its plans are subject to December 31.1992, the amount of Excluding the effects of the regula-change, in 1993 APS does not additional long-term indebtedness tory write-offs, income from contin- j intend to issue any additional long- that could be incurred in accordance uing operations increased $83.7 term debt and intends to issue with these prosisions was approxi- million in 1992 primarily as a result - 1 approximately $50 million of pre- mately $1.41 billion. of several factors, including higher ferred stock. APS currently expects The ACC has authority over revenues, lower interest costs and that substantially all of the net APS with respect to the issuance of lower utility operation and mainte- j proceeds of the securities issued in long-term debt and equity securities. nance expenses. ) 1993 will be used for the redemp- Existing ACC orders allow APS to tion, repurchase, retirement or have up to $2.6 billion of long-tenn repayment of outstanding debt and debt and approximately $501 mil-preferred stock, lion of preferred stock outstanding at any one time. Management does not expect any of the foregoing restrictions to limit APS' ability to meet its capital requirements.
@- o
CONTINUlNG OPERATIONS in 1991, pnmarily due to purchases Operating revenues for the three years ended December 31/1992 were as follows: from PacifiCorp, were nearly offset
- by a decrense in other interchange <nu mnsarualm 1992 -- - - 1991 -- 1990 purchases. The power purchases from PacifiCorp were made under Electric 5 1,669.679 $ 1,515.289 5 1,508.325 a i ngdenn agmement w chtd Provision for rate refund .- (53,436) -
cff et in mid-1991 concurrent with
.R.e..a.l_ estate
- - - =.-- -19.959 ... .. 12 697
~-
81.2M the sale of ChoUa Unit 4 to S 1.689.63x 5 1.474.550 $ 1.589.589 PacifiCorp. Utility operations and mainte. Elecuic operating revenues reflect changes in the volume of units sold and nance costs were lower in 1992 include the effects of rate increases on units sold. An analysis of the changes primarily because of lower operating from the prior year in electric operating revenues follows: costs at Palo Verde, lower fossil plant i motsuonc ixn.us, .. ....... me aul cosa and other miscella.
---1992 =1991 Volume variance 5 48.635 $ 23.823 neous et reductions. These lower Price variance 85.905 (7.759) costs were partially offset by an Reversal of provision for rate refund (a) 19.995 1,379 obligation recorded for an employee (145) (10,479)
_Chi ngin otheJ3peyagnygye,nues(b)_ _ .'gainsharing" plan and higher nuclear 5 154.390 S 6.964 mfu ng outage em Utility operations and mainte-(a) See Note 3 of Notes to Consolidated Financial Statements, nance in 1991 include increased (b) includes revenues for miscellaneous senices and transmission for others. overhaul costs at fossil plants and higher legal costs resulting from increase resulted from customer environmental and other matters.
. growth in the residential and busi- Approximately.$25 million was
^
ness customer classes and increased incurred in 1990 for an organization-L442 1447 - sales per business customer, partial- al restructuring and a special early
. l ly offset by decreases due to milder retirement program.
weather. The price-related increase Real estate revenues increased
+ . . in 1992 was largely due to an in 1992 primarily due to the sale of a I';,',l
'l l inercase in retail base rates and a golf course. Real estate revenues in higher average price for interchange 1990 reflect the sale of the Wigwam
. . sales. The decrease in 1991 in Resort and Country Club.
other operating revenues was pri- Interest on long-term debt marily due to the expiration in mid- decreased in 1991 compared with 1991 of a layoff power sales agree. 1990 and further decreased in 1992 1988 1989 1990 1991 1992 ment covering Cholla Unit 4. as both Pinnacle West and APS Fuel expense increased in 1992 prepaid debt or refinanced debt at tI mc o u n stathuu o/ponary; as a result of increased generation lower rates. The reductions also and higher gas prices. These reflect lower interest rates on APS' The volume-related increase in increases were partially offset by variable-rate debt. 1992 was largely due to customer lower prices for coal and uranium. During 1991, Pinnacle West growth in the residential and busi- Fuel expense decreased in 1991 established resenes for excess ness customer classes plus increased due to lower average unit fuel costs facilities owned or leased for compa-sales resulting from more normal resulting from increased nuclear ny wcupancy w hich were being weather. The 1991 volume-related generation. l Purchased power increased in 1992 due to favorable market prices relative to the cost of gas genera. tion. Increases in purchased power i 1
5 a disposed of and legal costs estimated President Clinton has proposed Accottnting Issues
~ ~ ~ ~ " ~ ~ ~ ~ ~ ~ " ~ ~ ~ ~ ~ ~~~
to be incurred in connection with to increase corporate income taxes
~I ongoing htigation. APS wrote off effective January 1,1993, and to Notes 4 and 9 of Notes to Consoli-costs associated with a proposed impose a phased-in Bru tax on ener. dated Financial Statements describe
. generating unit that it no longer gy sources (see Note 13 of Notes to three new accounting standards intends to build. In 1991, these fac- Consolidated Financial Statements). the Company will adopt in 1993 tors contributed to the increased if enacted along the lines presently and 1994. The presently quantiti. I expenses in the "Othet-net"line on understood by Pinnacle West able effects on the financial the Consolidated Statements of de. spite legislative efforts to the con- statements will be: an increase, .; income. trary, the taxes would require adjust- effective at the beginning of 1993, 4 Effects of the 1991 APS rate ment in APS' rate strategy and of approximately $13 million per settlement affect comparability assure a filing by APS for higher year in expense related to'postretire-of various line items in the Consoli- rates. The recovery of such taxes, ment benefits; the recognition in , dated Statements ofIncome. See and of any other costs involved in 1993 of approximately $19 million Note 3 of Notes to Consolidated the filing, would depend on the of state tax benefits related to ; Financial Statements regarding the outcome and the length of the rate MeraBank's net operating loss rate settlement and the annotated proceeding. carryforwards; and increases in income statement on page 19. Pinnacle West does not believe 1993 of both assets and liabilities ! that recent inflation rates materially on the Consolidated Balance Sheets DISCONTINUED DPERATIONS affect its results of operations or by approximately $$80 million. . income from discontinued operations financial condition. However, APS d of $6.0 million and $153.5 million is subject to a regulatory process in 1992 and 1991, respectively, which introduces a time-lag during { resulted from tax benefits recorded which increased costs of labor, in connection with the MeraBank materials, services and taxes are not ' settlement. Income from discontin- reDected in rates and recovered. hi : ued operations of $27.1 million in addition, regulation allows only the .l 1990 primarily represents tat bene- recovery of historical costs of assets
]
tits arising from 1990 operating through depreciation, even though losses at both MeraBank and Malapai. the costs to replace these assets could substantially exceed their his-torical costs. Governinental Considerations
. ~ .. - - --... - ,. ~ .... - - - - - --
The Clean Air Act Amendments of '? 1990 will be implernented through , regulations to be developed during this decade by federal, state and local - environmental regulatory authorities. Based on information currently avail-able, management does not expect
. APS' costs relating to the implemen- .i
.tation of the amendments to have a material impact on the consolidated i financial statements.
I 6
.L REPORT OF M AN AGEMENT AND lNDEPENDENT AUDITORS' REPORT i
Report of Management .. . _ .. ..... -. ~ ...... ...~- - . ~ .
---- -independent Auditors' Report
-- - -~~--- -- ~ ~ ~
------- j The primary responsibility for the integrity of the PINNACLE WEST CAPITAL CORPORATION Company's financial information rests with management. We have audited the accompanying consolidated balance j Accordingly, management has prepared the accompany- sheets of Pinnacle West Capital Corporation and its sub-ing financial statements and related information. Such sidiaries as of December 31,1992 and 1991 and the related information was prepared in accordance with generally consolidated statements of income and retained earnings i accepted accounting principles appropriate in the circum- and cash flows for each of the three years in the period stances, based on management's best estimates and judg- ended December 31,1992. These financial statements are -
ments and giving due consideration to materiality. These the responsibility of the Company's management. Our financial statements have been audited by independent responsibility is to express an opinion on these financial auditors and their report is included. statements based on our audits in recognition of its responsibility for the financial We conducted our audits in accordance with generally statements, management maintains and relies upon sys- accepted auditing standards. Those sandards require that tems of internal accounting controls. A limiting factor we plan and perform the audit to obtain reasonable assur. inherent in all systems of internal accounting control is ance about whether the financial statements are free of-that the cost of the system should not exceed the benefits material misstatement. An audit includes examining on a to be derived. Management believes that the Company's test basis, evidence supporting the amounts and disclo-system provides the appropriate balance between such sures in the financial statements. An audit also includes costs and benefits. assessing the accounting principles used and significant - Periodically the internal accounting control system estimates made by management, as well as evaluating the is reviewed by both the Company's internal auditors mi overall financial statement presentation. We believe that its independent auditors to test for compliance. Reports our audits provide a reasonable basis for our opinion. issued by the intemal auditors are released to manage- In our opinion, such consolidated financial statements ment, and such reports, or summaries thereof, are trans- present fairly, in all material respects, the financial posi-mitted to the Audit Committee of the Board of Directors tion of Pinnacle West Capital Corporation and its sub-and the independent auditors on a timely basis. sidiaries at December 31,1992 and 1991 and the results The Audit Committee, composed solely of outside of their operations and their cash flows for each of the i directors, meets periodically with internal auditors and three years in the period ended December 31,1992 in independent auditors (as well as management) to review conformity with generally accepted accounting principles, the work of each and ensure that each is properly discharg-ing its responsibilities. The interna' auditors and inder:n- . dent auditors have free access to the Audit Committee, / without management present, to discuss the results of Deloitte & Touche their audit work. . . Phoenix, Arizona Management believes that the Company's policies February 18,1993-and procedures provide reasonable assurance that operations are conducted in confonnity with the law and with management's commitment to a high standard of business conduct. K< AG4u & Richard Snell Henry B. Sargent Chairman & President Executive Vice President
& Chief Financial Officer
. , . _ _ _ . _ ._ _ . _._m ._ _ , ._ . . _ - 'C'U N S O LID AT E D STAT E M E NT S O F IN C O M E 'A N D R ET AIN E D E A R NIN G S .!
YhAlt ENI&D Dt:Cl MHER 11,' ' , amans is wwsom ar in na mane on m ... ... ..... . ... 1992 = - 1991 ----------- 1990 Operating Revenues Electric $ 1,'669,679 $ 1,515,289 $ 1,508.325 Provision for rate refund (Note 3) c. . (53,43c) ..
-?
19l959 l 12,697 81.264., Real. -_ - estate -- Total _ _ __ __]i.689.638 J 1.474.550 1.589.589 : _; Fuel Expenses , Fuel for electric generation i 230,194 f 223,983 242.676 Purchasedfower -57.007 ? 49,788 46,372 Total D287.20i - ' 273.771 ~ 289,048 Operating Expenses . . Utility operations and maintenance 390.$12 ; 401,736 408.347 Real estate operations 27,309) 25,482 88,321 Depreciation and amortization ' _220.076? 219.010 213,89l Taxes other than income taxes (Note 10) 217.063 215.541 198.832 Palo Verde cost deferral (Notes 1 and 3) - .(70,886) (M,379) - Disallowed..P.alo Verde costs (Note 31 - 577.145 - TotalL _ , ___,___ , 854,9U,){_ 1,368.028 _ 845,0,1,2, Oyerat,ing incon e (Loss) _ 547f7,7j (167.249L,, 45.5.52j ; Other Income (Deductions) . . _ , , A:lowance for equity funds used during construction (Note 1) 3,103 3,902 4,042 Palo Verde cost deferral (Notes I and 3) .. 63,068 71,404 ? Palo Verde accretion income (Note 3) 67,421 $,306 - . ! Interest on long-term debt : (272,240) (316.282) (338,521). Other interest .
.(12,718) (16,447) '(19,054)
Allowance for borrowed funds used during construction (Note 1) 14,492 < 6,636 8,705 Preferred stock di,idend requirements of APS K (32,452F (33,404)' . (31.060) Other - net .(13A15) (31,463) - O.148) . - Total .. . . -- L(.255.,439F (318.684i - (307.632F Income (Loss) From Continuing Operations Before income Taxes 292,038.l (485,933) ~ 147,897 .- :! Income Tax Expense (Benefit) (Note 4)- , :141.598_ (145.616) ~ 77.689
. . Income (Loss) From Continuing Operations :150,440 (340,317) 70,208
.In.c.ome Fro.m Discontinued Operatio..n.s (.N..ot.e.2..)
. . 7 6m) .
153.455 27.125-:
- Net Income (Loss) ' 1156.440 ? (186,862) 97,333 Retained Earnings (Deficit) at Beginning of Year
- (321,487) (134,625) ' f 231,958)
Common Stock DiviJends ' .s
~ ' ~ '
Iceb~m~ulated Deficit at End of Year .5 otl65I(n7) $ (321487)~ "$~~~~~~~5-(l34.6 Average Common Shares Outstanding - 87,044.1R0 5 86,937.052- 86,769,924 Earnings (Loss) Per Average Common Share Outstanding Continuing operations ; $" -.1,73 ! _$ - (3.91) __$'_. O.81 E Discontinued operations . 0.07 1.76 ~ 0.31 Total ;5 1.80 $ ' (2.15) 5 . l.12. . Dividends Declared Per Share -$ -: $ $. ~ ; r See Notes to Consolidated Financial Statements
-'q r-- --
y r'----one fe-,---e n 4 --_,,___--t,--,-_--
.-+
i CONS OLID ATED B AL ANCE-S HEETS MCEMut R .41, miousens or vonAnm...-.. - ---- ------------ -- -- - -- ------ 1992 -- -------- 1991 4
~ . . Assets l *' Current Assets Cash and cash equivalents 5: 87,926i $ - 173,715 -
Customer and other receivables - net 157.433 L 125,819 ; , Accrued utility revenues (Note 1) '51,5171 44,462 L NIaterials and supplies (at average cost) ;95,9781 107,225 l'ossil fuel (at average cost) .36,668; 30,515 -
. .. 8,000 10.042:'
.O.ther cu.r.r.e.nt assets
;437,522- 491.778 :
.....T.otal . current as.sen
- .- _.. -- - - - . 3 investments and Other Assets i Real estate investments . net $ 394,527 .389,176:
Other assets :142,309 148,798* c # ( Total investments and other assets . 7536.836? 537,974-' + l Utility Plant (Notes 6,11 and 12) . .
- . Electric plant in service, including nuclear fuel
- .6335,327.. 6,212.249-L Construction work in progress __
-1162,168;= 197.643.
Total utility plant ( 6,497,495 - 6,409,892 l r- Less accumulated depreciation and amortization . 1.973,698 L 1.922.768 ~ 5 Net ut.ility plant . 4.523,797/ ' 4.487.124-
..... . = -
f Deferred Debits
- Deferred income tases ? 291,1901 335,062- ; Palo Verde. Unit 3 cost deferral (Notes I and 3) /310,908 -: 320,070 '
Palo Verde Un.it 2 cost deferral (Note 1) ' 184,06t L ;190,123 a .i172.001' - 120,570 l
...Oth.e.r deferred debits __
~
- ... ? 958fl63J , 96.5.,825
. . . Total deferred.d.e.b.ih. .
t k t
$ '6.456.3 Ili : $ - 6,482.701 -
Total Anets -
- 1 See Notes to Consolidated Fin mcial Statements.
- ) .1
'l.
n e 1 # ep .' "- 99 1 t fr
etnsaa n: nuwsrsouw txnAns).-- . .. ...., ~. - 1992.-- 1991' . ...... ! . 9.!II. .. .Y. .$ - Current Liabilities Accounts payable 5-::105,718- $ 104,686 Accrued taxes ' i17,~694: 71,7321 Accrued interest " 58,579 75,172 Short-term borrowings (Note 5) .
-195,000. ..
Current maturities of long-term debt (Note 6) 94,217 299,550 - Other current liabilities .- . 78.9093 90,448.. Total current liabilities .... .. -
. J 650.117 - . M1.588 Non-Current Liabilities Long-term debt less current maturities (Note 6) ~ 2,774305 ; '2,996 910 '
Other liabilities J 9,449 :- 10,334
.... .=
Total non-current liabilities . 2,783.754 ' 3.007,244--
- Deferred Credits and Other Deferred income taxes i.76),862 i / 729,588 .
Deferred investment tax credit 133,359 138,933 Unamortized gain; sale of utility plant ,116,167( 126,669 ' Other deferred credits < 133,138 117,438 -
. .1,146.526
- 1,112,628 Tota.l. deferred credits and other
_ -_... .= _-. Commitments and Contingencies (Note 13) Minority inten:sts -
-Non redeemable preferred stock of APS (Note 7) .. 168.561! 168,561 Redeemable preferred stock of APS (Note 7) . 225.635 227.'c78.
Common Stock Equity (Note 8) Common stock, no par value; authorized 150,000,000 shares; issued and outstanding 87,16',872 in 1992 . . . _ and 87,009,974 in 1991 ?1;646,772?., 1,646,889 Accumulated deficit- -
.. . .. , . (165.047) :
~( 321.487)
Total conymon stock equity ' _,_ _ _,_j1gh72,5g,,33,25402 '
- btal Liabilities and Equity 6 5 6.456.318 5 - $ ' ' .482.701 -
@ :.1
_M
- . _ . . , _ . . ~_ _,- ..
I l j CONSOLID ATED STATEMENTS OF C ASH FLOWS 1 i .i vra m+o temtenoi. 4
.l; aiow.nwe tu uasi- . _ . - - - -
. 1992 - --- 1991.. ..-- 1990 ]
s1 Cash FlowsOpe _.......... ...-...-............... From ra.ti ..... n e A. c.r. t i v i t i es ( Note 1 ) Income (loss) from continuing operations : $ .150,410 ' $ (340,317) $ 70,20f items not requiring cash . ' Depreciation and amortization M59.637 - 268,153 262513' Deferred income taxes - net o ',; %~ (l28,863) 107,4I1 Palo Verde cost deferral (Notes 1 and 3) - (133,954) (135,783)- Provnion for rate refund - net (Note 3) .(21,374) 52,057 .. Disalicwed Palo Verde costs (Note 3) .
~ 577,145 --
Palo Verde accretion income (Note 3) :(67,421) (5,306) -- Other . net ~( 1.829)- (4,235) 13.994 - Changes in current assets and liabilities o; Accounts receivable - net (31,715) 18,006 (15,854) Accrued utility revenues ;(7,055) 1,004. (3,048) Materials, supplies and fossil fuel 5.094 - (8,490) (15,318)- Other current assets 2,N2 e (478) 5,500 Accounts payabt . ~ 9,547 - 18.866 (9305) l Accrued taxes 45,962 (18,902) 46398 . Accrued interest -(16.593) (3,588) I1.203 Other current liabilities (16,549). 3,364 (10,833) Additions to real estate (12,647) (18.593) (656) Sales of real estate - 14.622 - 7,787 5,232 Other - net 5.973 4,407 (2.589) Net Cash Flow Provided By Operating Activities _ _ _ _4,02,,280 - 288,063 329.173
~ . .
eA w....._.._.C._a_sh...Flo. w. s.F..r.o..m_.I.n..v.e.s.t.i.n.m..c..t.i.v.i t.i.e._s Capital expenditures -(224,419) (182,687) (259,280) Allowance for equity funds used during construction z 3,103 '3,902 4N2 Sale of property (Note 3) 5,48u 233,875 73,248 Other net ' (6,555) (2.630) (9.930) Net c.nllprywided by discontinued operations ~.- - 38Jn) f
. (153,920)-
Net Cash Flow Provided b,v (Used For) Investing Activities _
' (222.39 t h 52.460 .
Cash Flows From Fi ncine Activities _....__._..................-._na......e._.~._. _ I Issuance of long-term debt "M9,155 - . 485,844 642,665 Issuance of preferred stock 24,781- 49,375 .. t Short-term borrowings - net . 195.000 . (159J300) (81,000) , Repayment of long-term debt. (1,109,181 L (593.252). (797,194). F Repayment of preferred stock - (27.850) - (15.175) (l1,568). ; Other . net ' - 2,407 6.042 1,639 i a
.N..e_t C,a..sh.Flo.w. Used For Fmancing Activities _=..... -
' (265.678)- ---(226,166) .( 245,458) I g
Net Cash Flow l (85,789)- 114357 l(70205)
- Cash and Cash Equivalents at Heginning of Year _, 173,715 , ,59J58'__ 129, % 3 Cash and Cash Equivalents at End of Year 5 87.926 - $ 173,715 5 593.'8 See Notes to Consolidated Financial Statements.
1
@ j
^ NOTES TO CONSOLID ATED FIN ANCI AL STATEMENTS t,
- 1. Sununary of Significant Accounting Policies tions and consolidated income tax expense is allocated to A. CONSOLIDATION The consolidated financial statements include the accounts F. REACQUIRED DEBT COSTS of Pinnacle West Capital Corporation and its subsidiaries: APS amortizes gains and losses on reacquired debt over Arizona Public Service Company, an electric utility; Sun- the remaining life of '.ne original debt, consistent with Cor Desclopment Company, a real estate development ratemaking.
company; and El Dorado Investment Company, a venture capital limt Certain prior year balances have been reclas- O. NUCLEAR FUEL AND DECOMMISSIONING COSTS , 7 _ sified to conform to the 1992 presentation. Nuclear fuel is charged to fuel expense using the unit of production method under which the number of units of J r B. UTILITY PLANT AND DEPRECIATION thermal energy produced in the current period is related Utility plant represents the buildings, equipment and to the total thermal units expected to be produced over i other facilities used to pmvide electric service. 'Ihe c( <t the life of the fuel. of utility plant includes labor, material, contract services The estimated cost of decommissioning APS' 29.1% , and other related items and an allowance for funds used share m J.L":" Wrde Nuclear Generating Station and during construction. The cost of retired depreciable utility completely removing all IC'ities is approximately $2.1 plant, plus removal costs less salvage realized, is charged billion ($390 million in 1992 dollars) and will be incurred - to accumulated depreciation. over a thirteen-year perimi beginning in 2023. This esti-Depreciation on utility property is provided on a mate is based on a 1992 site-specific study which would ' straight-line basis. The applicable rates for 1990 through produce an annual cost requirement of approximately $11 y 1992 ranged from 0.84% to 15.00%, which resulted in million as compared to the $6.5 million etirrently approsed annual composite rates of 3.37E Depreciation and by the ACC. As approved by the ACC, the cost is charged amortiration of non-utility property and equipment are to expense over each unit's operating license term and prmided over the estimated useful lives of the related included in the accumulated depreciation balance. assets, ranging from 3 to 38 years. APS deposits the ACC approved amount into external trust accounts. The trusts are included in " Investments , C. REVENUES and Other Assets" on the Consolidated Balance Sheets lilectric operating revenues are r cognized on the accrual and totalled $33.5 million at December 31,1992. . basis and include estimated amounts for service rendered 'i but unbilled at the end of each accounting period. H. STATEMENTS OF CASH FLOWS Temporary cash investments and marketable securities 0 D. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION are considered to be cash equivalents for purposes of the AFUDC represents the cost of debt and equity funds Consolidated Statements of Cash Flows. During 1992, < used to finance construction of utility plant. Phnt con- 1991 and 1990 Pinnacle West and its subsidiaries paid struction costs, including AFUDC, are recovered in interest, net of amounts capitalized, of $286.4 million, authorized rates through depreciation when completed $305.4 million and $301.9 million, respectively. Income projects are placed into commercial operation. AFUDC taxes paid were $33.8 million. $19,7 million, and $0.2 - U does not represent current cash earnings. million respectively, and dividends paid on preferred stock - AFUDC has been calculated using composite rates of of APS were $32.6 million. $33.1 million and $32.1 mil-10% for 1992,10.15% for 1991, and 10% for 1990. APS lion, respectively. 'l compounds AFUDC semi annually and ceases to accrue :i AFUDC h hen construction work is completed and the L PALD VERDE COST DEFERRALS _ i property is pixed in service. As authorized by the ACC, APS deferred operating costs' _(excluding fuel) and financing costs of Palo Verde Units + E. INCOME TAXES 2 and 3 from each unit's commercial operation date until - Pinnacle West and its subsidiaries file a consolidated U.S. the date that the units were included in a rate order. The E income tax retum Consolidated income taxes are allocat- deferrals are being amortized and recovered through ed among subsidiaties as if separate income tax returns rates over thirty-five year periods. were filed. The dilTerence,if any, between those alhica-
~
_1 _. , _ _ _ - _ . . ,
- _ ...1. _.Discontil1 Lied Operations Verde Units I and 2. APS recorded a refund obligation to customers of $53A million ($32.3 million after tax) related to in 1989, a settlement was reached which resolved claims the Palo Verde write-off discussed above. The refund obliga-made by certain federal agencies with respect to MeraBank, tion has been used to reduce the amount of annual rate increase resuhing in a $450 million capital infusion by Pinnacle granted rather than require specific customer refunds and is L West into MeraBank. He settlement released Pinnacle being reversed over thirty months beginning December 199 L West from hs purported obligations under a capital mainte-nance stipulation relating to MeraBank. Because of certain Excess Capacity Issuc unresolved federal income tax issues. Pinnacle West could The ACC deemed a portion of Palo Verde Unit 3 to be . ,
not at the time record an income tax benefit related to the excess capacity and, accordingly, did not recognize 'he related - loss incurred as a result of the settlement. In January 1991, Unit 3 costs for ratemaking purposes. This action etTe@ : > the Internal Revenue Service issued a ruling w hich allowed disallows for thirty months a return on approximatey m' Pinnacle West to deduct. for federal income tax purposes, r,dPion of APS' imestment in Unit 3. APS recognized a 7 its remaining investment in MeraBank including the capital charge of $181.2 million ($109.5 million after tax), represent. infusion. As a result, Pinnacle West recorded income from ing the present Yalue of the lost cash flow and to that extent .. discontinued operations in 1991 of $153.5 miUion repre- temporarily discounted the carrying value of Unit 3, "! senting a federal net operating loss carryforward. In accordance with generally accepted accounting princi. In 1992, Pinnacle West recorded $6 million of income ples, APS is n cording, over the thirty-month period, accretion !
~"
from discontinued operatious representing the realization income on Unit 3 in the aggregate amount of the discount. of a portioiof the state NOLcarryforward. APS recorded after-tax accretion income of $3.2 million and The.1900 income from discoritinued operations resulted $40.7 million in 1991 and 1992, respectively, and will record - fmm a N2.2 million tax benefit relating to a portion of after-tax accretion income of $45.3 million and $20.3 million i Mercank's 1990 operating hiss and $4.9 million relating in 1993 and 1994, respectively. te .he sale of Malapai. In December 1991, APS stopped deferring Unit 3 costs and recorded a $240.6 million ($155.3 million after tax) write-off of Unit 3 cost deferrals due to a portion of Unit 3
.. _ . _- _3, ne.luiatory M_atters being deemed excess capacity. Ai thai time, Aes began RATE CASE SETTLEMENT $320 million balance of the deferrals tver a 6irty-fiv 3 year: .I In December 1991, the ACC approved a settlement period as approved by the ACC.
reached by APS in the retail rate case that had been pend-ing before the ACC since January 199(L The ACC autho- Future Retail Rate Increase rized an annual net revenue increase of $66.5 million or APS agreed not to file a new rate application before December - l approximately 5.2% in turn, APS wrote off $577.1 mil- 1993 and the ACC agreed to expedite the processing of that : lion of costs associated with Palo Verde and recorded a. rate application. APS and the ACC also agreed on an average : refund obligation of $53.4 million. The after tax impact of _ unit sales price ceiling of 9 585 cents per kilowatt-hour in this : these adjustments reduced net income by $407 million. A future rate application, which was based on APS meeting . I discussion of the components of the disallowance follows. certain cost targets established by its management. . APS' 1992 average unit sales price was approximately 9 cents per l Prudence Audit kilowatt-hour. De ceiling may be adjusted for the etTects of - u The ACC closed its prudence audit of Palo Verde and significant changes in laws regulatory requirements or APS' l
' APS wrote off $142 million($101.3 million after tax) of cost of equity capital Management believes that the un. Dales -
construction costs relating to Palo Verde Units 1,' 2 and 3 price ceiling will not adversely impact APS' future earn ngs. . I and $13.3 million ($8.6 million after tao of deferred costs relating to the prudence audit. - Diridend Payments .e APS agreed to limit its annual common stock dividends to . Interim or Temporary Revenues Pinnacle West to $170 million through December 1993.: The ACC removed the interim and temporary designation on $385 million of revenues collected by APS from 1986 through 1991 that had been previously authorized for Palo
- . - - .~ - . . - , - -- . . _ ~ .
d L i SALE OF CHOLLA 4 The differences between income tax expense (benefit ) . In July 1991. APS sold Unit 4 of the Cholla Power Plant and the amount obtained by multiplying income imm con-to PacifiCorp for approximately $230 million. The tinuing operations before income taxes by the statutory J resulting after: lax gain of approximately $20 million was federalincome tax rate for each of the three years in the < deferred and is being amortized as a reduction to opera- period ended December 31,1992, are as follows: tions expense over a four-year period in accordance w ith ummmrumm n. ' an'ACC order. The transaction also provides for trans- c,,,, y,nm> W2 ------- 1991 ------ 1990 J< mission access and electrical energy sales and exchanges Federalincome tax ' between APS and PacifiCorp. expense (benefit) at _
- statutory rate. $ 99,293 $(165,217) $ 50,285
^
lacreases (reductioas)
- 4. II1C0111e.. . ..__ _.'IItX EX pC!lse in tax expense resulting fre Ta The con soonents of income tax expense (benefit) from g continuing nperations for each of the three years m the < 6r fd -
All i period ended December 31,1992, are as follows: us > "ng '
- yre,mn m num n costruction . .(1,055) - (1,326) (1,374) ma rsans or ouu m> +--------1992 ------ 1991 - 1990
- 3) g Current Disallowed Palo ,
Federal 5 30,418 $ 2.500 $ -- Verde costs -- 22,236 - State 624 -- - Preferred stock il.034 11,357 10.560 - Total current -31,042 2,500 Investment tax credit amortication - (6,12 4) ' (9.275) . (1I,337)' Deferred State income tax - Depreciation - net 76,175 58,310 56,665 net of federalin- , Palo Verde cost come tax benefit 21,589 (16,307) 13,445 ' deferral (5,0'15 ) 47,527 40,472 ' Disallowed Palo 0% M38) R835) 1,947 Verde costs - (213.394) - Income tax expense Refund obligation 8,454 (21,273) --
$ l'41,598 $ (145,616) $ 77,689 (benefit) investment tax credit - net - (5,574) (9,275) (10.996) . >
. Deferred income taxes are, provided for substantially 'all .
Ahernative minimum tax (40.434) (2,500) .. timing differences arising fror.i the recognition of revenues Palo Verde start-up .' and expenses in dilTerent periods ,*or tax and timmeial costs .(28,976) t1,381) (2,lM) reporting purposes. Prior to October 1983, APS reflected Palo Verde acu ..on the tat effects of certain timing differences in income cur-
- income - 26,668 2,168 --
rently in accordarwe with an ACC order. At December 31f NOL carryforward - , , 1992, ,\ PS had flowed through to income approximatelyJ utilized 'l71.164 - - Loss on reacquired $115 mihion of income tax benefits arising fmm timing dif- , debt' .10,266? (1,066) 54 ferences for w hich deferred taxes had not been provided.
~
Taxes, pension costs .. . A t Decembe.431,1992, Pinnacle West had federal netD < and other - net (2,172) (7,232) (6,342) operaua lomarryforwards of approximately $470 mil-
, i10,556 . (148,116) 77,689 lion u hich may lx used through 2005. For financial . ,
Total deferred = ~ ~ ~ ~ ~ ~ reporting purposes, the tax benefit of the operating losses Total 5 141.598 5 (145.616) $ 77.689 . has been recognized primarily as an offset to 'dcrerred tax 'l x @ , 4I.? E
l liabilities.- State NOL carryforwards of approximately 1991. The facility is available for payments of principal'.
. $360 million, which may be used through 1995, have not and interest on Pinnacle West's outstanding debt with a .
yet been recognized for financial reporting purposes. maximum of $20 million for principal payments. Any , , in February 1992, the Financial Accounting Standards borrowings on this facility will be secured by the APS Board (FASB) issued Statement of Financial Accounting common stock owned by Pinnacle West and will bear Standards (SFAS) No.109, " Accounting for Income interest, at Pinnacle. West's option, at rates based on the. - Taxes". SFAS No.109 requires that the liability method prime rate or rates based on LIBOR. Additionally, be used in calculating deferred income taxes. When Pinnacle West pays a 0.3125% commitment fee on the SFAS No.109 is adopted in 1993, APS will record facility when no borrowings are outstanding or from deferred income tu liabilities related to the equity com- 0.25% to 0.375% on the unused portion in a period when ~ ' ponent of AFUDC, the debt compiment of AFUDC borrowings are outstanding. There were no borrowings recorded net-of-tax, and other temporary differences for outstanding under the liquidity facility at December 31, which deferred taxes have not been provided. Deferred 1992 or 1991. income tax balances will ako 'ce adjusted for changes in By Arizona statute, APS'short-term borrowings can-tax rates and for the defered tax effects of unamortized not exceed 7% of its total capitalization without the con-investment tu credits. It is gected that the additional sent of the ACC. deferred income tax liabilities will be offset primarily by regulatory assets representing the future revenue require-E ment impact of these adjustments. . Adoption of SFAS ~~~6. Long-Terrii Debt
- ~
No.109 is expected to increase assets and liabilities by approximately $580 million and will result in the recog- in January 1990, Pinnacle West restructured the majority nition of appmsimately $19 million of tax benefits relat- ofits long-term debt. Pinnacle West granted the affected ed to the remaining state NOL carryforward. lenders a security interest in the outstanding common - See Note 2 for tax benefits recorded in connection stock of APS and agreed not to incur new debt except to with discontinued operations, reduce, ref'mance or prepay existing debt. Pinnacle West's ability to pay dividends is dependent up(m the satisfaction of specified interest coverage ratios. Any
' . _ . _ _ . , U9.k .9Ch investments by Pinnacle West in its subsidiaries, exclud- )'
ing APS, are generally restricted to $15 million in the APS had committed lines of credit with various banks of aggregate until the lenders are fully repaid. Any new
$302 million at December 31,1992 and 1991. The out- investments by Pinnacle West are generally reMricted to .
standing borrowings were $130 million at December 31, $20 million in the aggregate until the lenders are fully . 1992; no borrowings were outstanding December 31, repaid and may not be made until Pinnacle West is able j 1991. The commitment fees on these lines were 0.1875% to meet the dividend test. Pinnacle West muk maintain ~ per annum through April 29,1992 and 0.25% thereafter - certain interest coverage ratios and meet certai,n funded through December 31,1992. debt tests. Additionally, Pinnacle. West would be Additionally, APS had a $70 million' commercial - required to use the net cash proceeds frgm the sale of all paper program backed by a letter of credit at December or substantially all of SunCor or El Dorado or from the l 31,1992 and 199L Outstanding borrowings under the sale of substantially all of those subsidiaries' assets toi program weir $65 million at December 31,1992; no bor- repay debt. The ft,Ilowing table presents,long-term debt? rowings were outstanding at December 31,1991. The outstanding as of Decembei 31,1992 and 1991 commitment fees were 0.30% per annum in both years. Pinnacle West had a liquidity facility of $50 million at December 31,1992 and $75 million at December 31, 4 1 s o .-c-- f
l unitirrY dan 3 - INTuu5r R AM5 nwt swas or rmaasi ------------- -- --- - - =----1992 - 1991 APS nirst mortgage bonds - 1992-2024 4.4 %-13.25 % $ 1415,002 - $ 1,844,917 ldution controlindebtedness 2tX)9-2015 Adjustable (a) 14 24,330 424.330 Hank term loans 1992 LillOR plus .25% (b) -- 36,000 Debentures . 1992 12.50 % .
- 70.000 :
75,000 ~ 75,000 - ! Revolving credit 1993 LIBOR plus .30% to .45%(c) Capitalized lease obligation 1992-2001 7.489 (d) 32,(48 -34,666
~~ ^
}^ ~~'t 2 ~F,,930 ' 2 1484,913 PINNACLE WEST . . ,
, Bank term loans 1996-1997 (e) 170,326 185,327 Debentures 19 % 2002 10.0%-11.61% (f) 451,029 529,839-Notesy,ayable 1997 10.5 % -94.382'. . 96,381.
- 715,737 811.547.
SUNCOR pggpayable __ l997_, 12 % 5.805_ -- Total long-term debt 2,86S,522 3,296,460 Less current maturities ' 94,217 : 299,550 Total long-tenn debt less current maturitles S 2.774.305 c $ 2.996,910 , (a) The interest rates at year-end varied from 3.20% Aggregate annual payments due on total long-term to 4.40% for 1992 and from 4.90% to 7.254 for 1991. debt and for sinking fund requirements through 1997 are , (b) The weighted average interest rate on outstanding as follows: 1993, $94,217,000; 1994, $71,939,000; borrowings at the end of 1991 was 6.52%, 1995, $81,6!4,tXX); 1996, $103,526,000 and 1997,- l (c) The weighted average interest rates on outstand- $350,538,(XX). See Note 7 for redemptions and sinking ing borrowings at the end of 1992 and 1991 were 4.41% fund requirements of redeemable preferred stock of APS. and 6.82%, respectively. Substantially all utility plant, other than nuclear fuel, (d) Represents the present value of future lease pay- transportation equipment, and the combined cycle plant, ments (discounted at the interest rate of 7.48%) on a is subject to the lien of the first mortgage bonds. The combined cycle plant sold and leased back from the first mortgage bond indenture includes provisions w hich independent owner-trustee formed to own the facility, would restrict the payment of dividends on APS common See Note 12. stock under certain conditions which did not exist at (e) The 1991 balance inc:ludes $15 million with a December 31,1992, weighted average interest rite of 8.47%. The remainder Pinnacle West and its subsidiaries incurred interest in both years is composed of term loans with fixed rates expense of $286.347,000, $333,923,000 and $364,574,000 of 8.83% to 10.56%. in 1992,1991 and 1990, of which $1.389,000,' (f) Includes $310,411,000 of senior secured deben- $1,194,000 and $6,999,000 was capitalized in each year, - tures at December 31,1992 and 1991 u hich are due in respectively. ; 2000 and bear interest at i1.61% per annum. These On February 9,1993. APS issued $150,000,00()of 8% debentures are redeemable at the option of Pinnacle first mortgage bonds due February 1,2025, ' Westfon or after March 22,1993, pursuant to a U.S. APS had approximately $500 million of variable-rate - 3 Treasury make-whole formula.' long-term debt outstanding at December 31,1992. The 1991 balance includes $75 million of subordinat- Changes'in interest rates would affect the costs associat; , ed convertible debentures. The debentures were ed with this debt. redeemed in 1992, The balance of $140,618,000 in 1992 and $144,428,(XX) in 1991 represents senior debentures of which -
- $65,618,030 is due in '1994 with the remainder due in
- 1995.. Under terms of the debt restructuring, the weight- ;
ed average interest rate of this debt was 10.89% at December 31,1992,
d 5 d ..At . 4 Jr ,n yb 1s: 4 A a.. Ac m, g # 4 [
- 7 Preferred Stock of APS Non-redeemable preferred stock is not redeemable except to being callable by APS The balances at December 31,1992 at the option of APS. Redeemable preferred stock is and 1991, of preferred stock of APS are shown below:
redeemable through sinking fund obligations in addition 1 - PAR YAlfE Nt'Ml}} R OF 5HARf5 _ OUTSTANDING AT Ot*TSTANDlMCI AT DERM 8f R 41. TH'EMDI-R 31. c43g
*~
' PRKT PtiR
^* " """
1992 1991 - 1992 _1931-.~I ** miousons m ora tans, . NON-REDEEMABLE S t.10 preferred 160,000 155,945 !$5,945 $ 25.00 .$ 3,898 $ 3,898 . $ 2 L 27.50 -
$2.50 preferred 105,000 103,254- 103,254 50.00 ' 5,163 - 5,163 51.00
$2.36 preferred 120,000 40,000- 40.000 50.00 '2.000 2,000 31.00
$4.35 preferred 150,000 75,000 75,000 100.00 7.500 7,500 '102.00 :
Serial preferred . 1,00t),000
$2.40 Series A 240,000 240,000 50.00 12,000 12,000 '50.50 -
$2.625 Series C 3 240.000 240,000 50.00 12JXW) . 12,000 51.00 .i
$2.275 Series D 200,000 200,000 50.00 : 10,000 ' 10,000 50.50
- $3.25 Series E '320.000 320,000 50.00 16,000 16.000 51 00 Serial preferred 4 000,000i b)
$8.32 Series J 500,000 500,000 100.00 50,(x10 50,000 101.00 '
, Adjustable rate . Series Q .500.000 500.000 100.00 .50,(XX) . 50,000 (c) Serial preferred 10,000,000 . 25.00 - - Total 2.374,199' 2.374,199 $ 168.561 - $ 168,561 REDEEMABLE - Serial preferred .. ,
$10.00 Series 11 ~ 8,677 $ 100.00 $ --
$. 868
$8.80 Series K 187,100 191.825 100.00 .I8,710 19,182 -(d)
$12.90 Series N --
213.280 100.00 - 21.328.
$11.50 Series R ' 319,250 359.000 100.00 l31,925 35,900 (e)
$8.48 Series S 2300,000- 500/XX) 100.00 ' '50,000 50,000 (f)
$8.50 Series T .500.000' 500,IXX) 100.00 ' 50,000 . 50,000
- $10.00 Series U : 500.000 500,000 . .100.00 50.000 50.000
.$7.875 Series V 250,000 --
100.00 _ 25JXX) - (g). Total 2,256,350 2,272.782 $ 225.635 $ 227,278 (a) in :ach case plus accrued dividends. (c) Redeemable after June 1,1994 at $105.45, declin-(b) This authorization covers both outstanding - . ing each year by a predetermined amount to par after '- 4 redeemable and non-redeemable preferred shares. . June 1,2003.
. (c)
Dears disidends at a rate,
adjusted on a quarterly - (f) Redeemable at $104.24 through May 31,1993 - basis,2% below the rate bome by certain United States and thereafter declining by $2,12 each year to par after l Treasury securities, but in no event less than 6% or May 31,1994.' .. greater than 12% per annumi Redeemable at $103.00 - (g) Redeemable at $107.88'through May 31,1993; , through February 28,- 1993, and at par thereafter. and thereafter declining by a predetermined amount each ' (dt Redeemable at $103.00 through February 28, year to par after May 31,2002. 1994, and at $101.00 thereafter. a
.--. . - . - . - . . . - . ~ , ,
t W If there were to be any arrearage in dividends on any of 8. Col 11111on Stock .
~ " " ~ ~ ~ " ~ ~ " ~ ~ ~ ~ ~ ~ " " " ~ ~ ~ ~ ~ " " " " ~ ' " ~ " "
its preferned stock or in the sinking fund requirements appli-cable to any of its redeemable preferred stock, APS could Pinnacle West's common stock issued during each of the not pay dividends on its common stock or acquire any three > cars in the period ended December 31,1992, is as shares thereof for consideration. The combined aggregate follows; amount of redemption requirements for the above issues ""MP :~ for the next five years are: 1993, $15,775JX)0; 1994, TlUsC mwr(o " ~"'~~~~~
$65,775,000; 1995, $ 15,775.000; 1996, $ 15,775,(XX); and llalance, December 31,1989 86,723,774 $ 1 M6,290.
1997, $25,775 JX~X). Common Stock issued i49.400 280 - Redeemable preferred stock transactions of APS during Balance. Decemt.er 31,1990 86,873,174-- 1,646,570 each of the 'bree years in the period ended December 31, Common Stock issued 136.srx) '319
~
1992, ate as follows: }jalance, December 31,199[77[X5,N74 1,646,889 ' Common Stock issued 151.898 (I17)
<rx u us is niom,s>------ -
1lEP Ey - Balance. December 31,1992 87,161.872 $ 1.646,772 Hatance, December 31,1989 2/MO,213 $ 204,02l Retirements issues of APS.
$10.00 Series 11 (16.000) (l.600)
The Pinnacle West Stock Purchase and Dividend Rein. ( rie N (2 (2,
$11.50 Series R (70,500) (7.0$0) vegnient Plan provides that any participant may purchase -
~ ~
Ylidance, December 31,1990 193,~45] shares of Pinnacle West common stock. directly fmm
'1 [24I532 Pmnacle West.
Issuance Both Pinnacl'eWest and APS have employee savings
$10.00 Series U 3rxuxY) 50,000 plans under which entributions by participating employ- -
ces and contributions by on,byers could involve the Retirements issuance of new sha<es of Pinnae West common stock,
$10.00 Series 11 (16.000) (l#x))
$8.80 Series K (40,275) (4,027) Contributions made by Pinnacle West and APS to their -
$12,90 Series N (24,975) (2,498) respective employee retirement plans may also involve one -
$11,50 Series R_ _ _
0 0.500) _ (7.050) or moie such issuances of common stock. Balance, December 31,1991 _ 2,272,782 227,278 Under the Pinnacle West Capital Corporation Stock Option and Incentive Plan, non-qualified (NQSO) and , 8 5 Series V 250lxx) 25,000 incentis e (ISO) stock options and restricted stock awards i may be granted to officers and key employees of Pinnacle - Retirements West and subsidiaries up to an aggregate of 3 million .
$10.00 Series 11 (8.677) 368). shares of Pinnacle West common stockc The plan also
$8 80 Series K (4,725) (4 Q provides for the granting of stock appreciation rights,per-fermance shares, dividend equivalents or any bombination .
'$ ) eR . . . . . - -
I)
- = . . ~ . -
)5 6 reof. Another plan provides for the granting of NQSOs l
Balance. December 31,1992 2.256350 $ 225.635 to Pinnacle West's directors up to an aggregate of 500J)00 shares of stock. As of December 31,1992; approximately - .'64J)00 restricted shares,2,086,000 NQSOs,10,000 ISOs -
"md 29,(XX) dividend equivalents were outstanding under the plans, i
1
1 $ i
- 9. Pension Plan and Other Benefils The following table sets forth the plans' funded status and amounts recognized in the accompanying consolidated Pinnacle Wed and its subsidiaries have defined benefit balance sheets:
pension plans covering substantially all employees. Bene-fits are based on years of service and compensation utiliz- . , n,xu. oy ,xti,,3 ._ _ .---- '_iS92-~-~~199 8 ' ing a final average pay formulaf The plans are funded on a
' current basis to the extent deductible under existing tax Plan assets at fair value $ 391.827 5 391,218
. regulations. Pension con, including administrative cost, Actuarial present value of for 1992,1991 and 1990 was approximately $14,384,000, benefit obligation, including
$10.913,000, and $14.932,000, respectisely, of w hich [270,4 6
$279,734 in
! approximately $4,279,000, $5,262.000, and $7,893,000. '309,607 1992 and 1991, respectively :299,021-r ' respectively, was charged to expense; the remainder was ~ Effect of projected future . either capitalized as a component of construction cost or compensation increases ]tJ6,2{ 104,584 billed to participants ofjointly-owned facilities. Plan . assets consist primarily of domestic and intemational com- pyected benefit obligation f 415A25 403.6,05, - mon stocks and bonds and real estate. Plan assets less than projected in 1990, APS implemented a voluntary work force - benefit obligation [(23,99S) (12,387) reduction plan. As part of this phm, APS offered a special U'nrecognited net loss from , early retirement program to employees who met certain past experience different from . sligibility requirements. APS also offered an enhanced that assumed 8.097 10,901' , Unrecogmzed prior service cost - 15.893 16,726 . severance plan to selected employees. The total add. .itional Unrecognized net asset at .lanuary' 1,: pension cost recorded for these programs was $8,232,000, of 1986 being recognized over . which $5,152,000 was charged to expense. 20.2 years ' (42,597) (45,825)
~~~ """" '
, Net periodic pension cost is deter,anea ung the project- , ed unit credit actuarial cost runod Excluding the costs of Accrued pension liability : 1 (42,605) $ (30.585) J the early retirement program and Ae enhanced seserance plan, the components of pecsion cost are as follows: In addition to providing pension benefits, Pinnacle West ' and its subsidiaries provide certain health care and life
,wwuw tem ..--- 1992 ------ 1991 -- - -1990 insurance benefits for active and retired employees. All benefits are provided through a combination'of insurance Service cost benefits policies and self-insured plans. The cost of providing camed during the ~
. those benefits for both active and retired employees period $ 17.227. $ 14.831 5 16.345 Interest cost on pro. am unted to $27,404,000, $28,625,000 and $29,425.000, jected benefit of which $14.454,000, $ 13,197,000, and $13,692,000 was -
obligatiun 133,633 31,216 30.054 charged to expense, in 1992,1991 and 1990, respectively. Return on plan assets (23.225) (65;262) 9,512 At December 31,1992, Pinnacle \Wst and its subsidiaries
' Net amortization and .
were providing these benefits to 7,121 active employees deferral .__...... il 5 097.)_ 28,924 (50,973) and I,$70 retirees. Net consolidated The FASB has issued SFAS No.106," Employers' periodic pension cost $ 12.538 $ 9.709 $ 4,938 Accounting for Postretirement Benefits Other Than Pen-sions '* This Statement will require accrual of postretite-The discount rate used in determining the actuarial pre- ment benefits, such as health care benefits,.during the sent vahie of the projected benefit obligation was 8.25% in l years an employee provider, services. This is a significant ; 1992 and 1991. The rate ofincrease in future compensa- change from the current policy of recognizing the costs of tion levels used was 5.0% in 1992 and15% in 1991, The these benefits as they are paid, Pinnacle West will adopt j
~
expected long-term rate of return ort assets used was 9.5% the standard in 1993 and plans to amortize the accumnlat. in 1992 and 10.00% in 1991, ed benefit obligation beginning at that tirne over a twenty-r
@ l
-. ~ . . ,. . -
k i? year period. Based on an actuarial review of the current 10. SupplementalIncome Statement plans, the accumulated benefit obligation at December 31, Int'orillation
"" ~ F 1992 is approximately $188 million. Based on current esti-nutes, the adoption of the standard will result in an Other taxes charged to operations during each of the increase in 1993 annual potretirement benefit costs of three years in the period ended December 31,1992, are approximately $30 million, of which approximately $13 as follows:
mill. ion.will be charged to expense. Other increased costs _3_g , _g __ g will generally be capitalized as a component of construe-tion costs or billed to participants of jointly-owned facili- Ad salorem .$J l19,173 5 121,936 . $ 113.452 Sales 83,185 80,815 174,015 ties These estimates are , subject to change based on a , Other - -Ll4.705 ~ 12,790 11,365 . number of factors used in the calculations. -- . In November 1992 the FASB issued SFAS No.112, Total other taxes ~$ ' 217.063 $ 215.541 5 198.832 -
" Employers' Accounting for Postemployment Benefits" which is effectise in 1994. The new standard requires n change from a cash method to an accrual method in accounting for benefits (such as long term disability) provided to former or inactive employees after employ-ment but before retirement. The impact of this new 11. Jointly-Owried Facilities
~ ' ~ ~ ~ ~ " ~ " " ~ " " ~ ~ ~ ~ ~ ~ "
standard has not been fully determined, but the change will result in earlier cost recognition for these benefits. At December 31,1992, APS owned interests in the Management has not yet made a determination as to the followiu , jointly-owned electric generating and transmis-timing of implementation. sion facilities. APS' share of related operating and maintenance expenses is included in utility operations and maintenance. 4 Pt INTNT CONSTRt CTk)N OW NEp pY PL ANTIN AtTtMtlLAT1.D WOW K W . AP5 $1 RVKT [8ftR5 CI A DON couausnu m ny---- ......._ . HERHR._
--m GENERATING FACluTIES Palo Verde Nuclear Generating Station - Units I and 3 29.1% $ 1.8l9,921 5 317,704 $ .14,163 Palo Verde Nuclear Generating Station - Unit 2 (See Note 12) 17.0% 547,751 96.576 13.384 Four Corners Steam Generating Plant - Units 4 and 5 15.0% 139,338 -42,597 718-Navajo Steam Generating' Plant - Units I,2 and 3 14.0 % 134,101 65,711 ' 7,464 Cholla Steam Generating Plant - Conunon Facilities (a) 62.8 % 68.509 28,130 1.461-TRANSMISSION FACluTIES ANPP 500 KV System 35.89(b) 62,557 12,356 848-Navajo Southern System 31.4%(b) 28.209 15.115 43 Palo Verde-Yuma 500 KV System 23.99(b) 11,389 2.674 --
Four Comers Switchyards 27.5%(b) 2,948 t,705 -
- Phoenix-Mead System 15.39(b) .- 4,945;
- (a) APS is the operating agent for Cholla 4, which is owned by PacifiCorp. The common facilities at the Cholla Plant -
are jointly-owned. - (b) Weighted as erage of interests. n 9
1 a 4 l
- _ _ ~ . . S. - .3N O.N. b S9 - Sb$9$ . _ --., _ ,
In 1986. APS entered into sale and leaseback transac- UTIGATION
, tions under which it sold approximately 42'7c ofits share Pinnacle West and its subsidiaries are parties to various .
of Palo Verde Unit 2. The gain of approximately claims, legal actions and complaints arising out of the
$140,220JXK) has been deferred and is being amortized nonnal course of business. In the opinion of manage-to expense os er the original lease term. The leases are ment, the ultimate disposition of these matters will not being accounted for as operating leases and require have a material adverse effect on the financial position of -
semi. annual payments of approximately $22J)61,000 Pinnacle West. through December 1996, $23,605,000 through June 1997 Various claims have been asserted against Pinnacle . t and $26,963,000 through December 2015. Options to West sad against present and former directors of Pinnacle renew the leases for tw o additional years and to purchase West and MeraBank, many of whom look to Pinnacle . the property at fair market value at the end of the lease - , West and its inyurance carriers for indemnification of : terms are also included. Lease expense for 1992,1991 defense costs and damages. The claims seek damages
- l. and l990 was $45,838JXX),545,633,000 and resulting from alleged deficiencies in Pinnacle West's
! $45,458,000. respectively. public communication and financial reporting between APS has a capital lease on a combined cycle plant April 1987 and October 1988; from the acquisition, which it sold and leased back. The lease requires semi- operation and divestiture of MeraBank; and from the [ annual payments of $2,582,000 through June 2001, and responses by Pinnacle West and its directors to the various includes renewal and purchase options based on fair buyout offers of PacifiCorp. Class action certification has market value. This plant is included in plant in service been granted in one pending case. In the opinion of at its original cost of $54,405,000; accumulated depreci- management, the ultimate resolution of these claims will ation at December 31.1992, was $35,591,000. not have a material adverse effect on Pinnacle West's in addition, Pinnacle West and its subsidiaries lease financial position. certain land, buildings, equipment and miscellaneous , other items through operating rental agreements with CONSTRUCTION PROGRAM varying tenns, provisions and expiration dates. Rent Expenditures in l993 for Pinnacle West's continuing . expense for 1992,1991 and 1990 was approximately construction program have been estimated at $301 million,
$26.1044K)0 $28,185,000, and $17,720fXX), respectively. excluding capitalized property taxes and capitalized Annual future minimum rental commitments, excluding interest.
the Palo Verde and combined cycle leases, through 1997 are as follows: 1993, $25,832JXX); 1994. $24,259,000; FUEL AND PURCHASED POWER COMMITMENTS ' 1995, $18,531JXX); 1996, $ 15,552JXX); and 1997, APS is a party to various fuel and purchased power con-
$15EJX)0. Total rental comnatments after 1997 are tracts with terms expiring from 1993 through 2020. APS estimated at $183 million. estimates that the amount of fuel and purchased power that it is required to purchase pursuant to these contracts during 1993 totals approximately _5150 million. Howev.
er, this amount may vary signi0cantly pursuant to certain provisions in such contracts which permit APS to decrease its required purchases under certain circumstances. h {
. . _ . . _ - ~. .
I NUCLEAft INSURANCE approval of the bankruptcy court, EPEC agreed to pay 'l The Palo Verde participants have insurance for public lia- its proportionate share of all Palo Vente invoices bility resulting from nuclear energy hazards to the full delivered to EPEC after February 6,1992 until such . , limit of liability under federal law. This potential liabili- time, if ever, as an order is entered by the court autho-rizing or directing EPEC's rejection of the Arizona '1 ty is covered by primary liability insurance provided by commercial insurance carriers in the amount of $200 Nuclear Power Project (ANPP, also known as Palo million, and the balance by an industry-wide retrospec. Verde) Participation Agreement, tive assessment program. The maximum assessment per In connection with the bankruptcy proceedings, reactor under the retrospective rating program for each EPEC has indicated that its leases of portions of Palo nuclear incident is approximately $66 million, subject to Verde may be rejected. Although APS cannot cur- ,] an annual limit of $10 million per incident. Based upon rently predict the outcome of this issue, the ANPP APS' 29.1% interest in the three Palo Verde units, APS' Participation Agreement provides that EPEC may , j maximum potential assessment per incident is approxi- not be released from its share of the Palo Verde costs l mately $58 million, with an annual payment limitation of associated with such leased portions Wthout the
$833 million. consent of the other P:do Verde participants, even if
'1he Palo Verde participants maintain "all risk" (includ- the leases are rejected in the bankruptcy proceeding ing nuclear hazards) insurance for nuclear damage to, and or a lessor thereunder seeks to transfer its Palo Verde decontamination of, property at Palo Verde in the interest to a transferee engaged in the distribution >
aggregate amount of $2.625 billion, a substantial portion of energy. of which must first be applied to stabilization and decon. As pan of the bankruptcy proceeding, EPEC has tamination. APS has also secun d insunmce against indicated that it is evaluating potential claims against portions of any increased cost of generation or purchased APS arising out of APS' role as Palo Venie operating power and business interruptiori resulting from the acci- agent, specifically as a result of the 1989 90 Palo dental outage of any of the three units if the outage Verde outages. APS cannot predict whether EPEC exceeds 21 weeks, will bring such a claim or the size of any such claim. EPEC BANKRUPTCY TAX PROPOSAL APS owns or leases a 29.1% interest in Palo Verde and In February 1993 President Clinton announced a tax owns a 15% interest in Four Corners Units 4 and 5. proposal, including an increased corporate income El Paso Electric Company (EPEC) owns or leases a 15.8% tax and a Btu tax on energy sources. Ifimposed, .i interest in Palo Verde and owns a 7% interest in Four Cor- such taxes would, in APS' opinion, involve a " sign!11-nets Units 4 und 5. On January 8,1992 EPEC filed a cant change in law" for purposes of a future retail rate soluntary petition to reorganize under Chapter 1 i of the increase (see Note 3). As more information becomes - Bankruptcy Code. Each Palo Verde and Four Corners par- available, APS will fommlate an appropriate murse ticipant is required to fund its proportionate share of speci- of action. fied costs relating to Palo Verde and Four Comers Units 4 ar,d 5, respectively. APS estimates EPEC's total monthly share of these costa to be approximately $10 million, $9 million of which relates to its share of Palo Verde costs. If a participant fails to meet its payment obligations, each . , non-defaulting participant pays its proportionate share of
- payments owed by the defaulting participant. With the .
2
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- 14. Selected Quarterly Financial Data (Ullaudited) . ....... -.... ..
Consolidated quarterly financial information for 1992 anti 1991 is as follows; r
.s mnmia ov tnun txcwr eta nnn 4wurn.. .- .-.......~..............1932~...-...-.a.-a..-.. <
QUARTER ENDED
. ..M.Anooi . . .....~n.*..no..o..'
...u.m...u.n.r.a.F. . . ~ o.f.c.r.u.ns.n..- . -
Operating Revenues . ' lilectric > $ . 344,947f .. $1409,012 : $ 516,960 ~ $ i 398,760 ' Real estate 2,323 3,8N , . 9,372 J4470 i Operating income (a) 5 '.87,408 $ L ' 138,079 : $ 214,623 : : $ .107,367 7 income from continuing operations $ ' 7.763 . $ . 138,726 :$ [85,306) ' $ '.l8 M5 :. '! Income from discontinue.d.oLw.r.a.tio.ns
-m . - - .
. .. .. 4000(ht Net inecme $. 7,763 $ 38,726- .$- -- 85.306 ' ' ' $ - ; 24.645 J ,
Earnings per average share of common stock .
~
Continuing operations 5' 0 09 $ 0.44 $ : 0.98 : '$'. 0.211 , ...Di.sc..ontinued
~ - op.e.r.a.ti.o.n.s.
. - -.. ...... .- - . . . . ~ 4.. . . . . . . . , . . . . ..... ... ..~....0. .07.::.
Total $ Om - 5 0 44 $- 0.98: $- ' O 28: , Cash dividends declared per share "$ -
$1 ,-
$' .: I $' -
i nnawour runns, txcer n a suoe Au.x urs> ...........--- - . -
- 19 91..-. . .~ .~..~. . ~ . . . ~ ..
QUARTER ENDED w unos mm m smuna e tutunan Operating Revenues IWctric $ 330,646 $ = 358.245 - $ 471,384 $ 355,014 ' Provisien for rate refund -- -- -. (53,436)' , Real estao 1,6 76 4,227. 3,352 3,442
, Operating inct.me (loss)(a) $ 88,318 $ '1N,680 $ 206,960 - $ - (567,207)
Income (loss) from continuing operations $ 5.5N - $ 13,795 $ 77,452 $ (437,068)(c) . Incom.e..fror.
.. - - . . d.i.sc.ont.in..u.e.d ole.r.a.t.io.ns
...... . _. .................. -. _. - _153,455. (b) . -
Net income (less).~ $ - 5.504 $ 13,795 $ '77.452 $ (2H3.613) .
' Eamings (loss) per average share of common stock Continuing operations $ 0.06 -$ 0.16 $ 0.89 $_ - (5.02)-
Discontin.u.e.d.o.f# rations ..
-- I,76 -
=
Total $ 0.06 5 0.16 5 0.89 -$ (3.26) Cash dividends declared per share 'S -- (a) APS' operations are subject to seasonal fluctua- (c) includes approximately $407 million of write-offs tions primarily as a result of weather conditions. The and adjustments, net of income tax, related to Palo ' , resuhs of operations for interim perioch are not necessari. Verde. See Note 3. ly indicative of the results to be expected for the full year. (b) Represents income tax benefits related to the dis. posal of Meraliank. See Note 2;
}\
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- 15. Fair Value of Financial Instruments The following disclosure of the estimated fair value of interpreting market data to develop the estimates.
financial instruments is made in accordance with the Accordingly, the estimates presented herein are not nec-requirements of SFAS No.107," Disclosure About Fair essarily indicative of the amounts that Pinnacle West Value of Financial htstnmients." The estimated fair value could realite in a current market exchange nor do they 6 mounts have been deterrnined by Pinnacle West and reflect changes occurring after December 3',1992., independent sources using available market information The carrying amounts and estimated fair value of the - as of December 31.1992 and valuation methodologies Company's financial instruments at Dece mber 31,1992 describcd below. Considerable judgement is required in are as follows: CAR R YlNO F5t!M41TD AMfCNT FAllt val.UE rniOUSANDS < >F LNHLARN - :*.+- -- 4 ASSETS Cash and Cash Equivalents $ 87,926 $ 87,926 Debt and Equity investments (a) Practicable to Estimate Fair Value 55.059 58,487(b) Not Practicable 63,562 (c) UABluTIES Notes Payable to Banks 130.000 130.000 Commercial Paper 65.000 65,000 ; 1.ong Term Debt (d) 2,848,447 3,019.812(e) (a) These investments are classified as " Investments (d) The carrying value of debt excludes $32 million and Other Assets" on the Company's Consolidated of obligations under capital leases and the unamortized : Balance Sheets. balance of debt discounts classilled as debt on the (b) The fair value of debt investments was estimated Consolidated Balance Sheets. using quoted market salues from an independent source (c) The fair value of fised-rate long-term debt was , or by discounting future cash flows at current equivalent estimated by independent sources using quoted market , market interest rates. The fair value of equity imest- prices where available. Where market prices were not , ments was established by discounting future cash Dows available, the fair value was established by discounting using the APS cost of capital. _ future cash flows using rates currently available for debt , (c) It was not practicable to estimate the value of of similar terms and remaining maturities. The carrying - several investments in joint ventures and untraded equity value of long _ term debt bearing interest at variable rates , securities, because of excessive costs that would be ' tied to broad market rates was assumed to approiimate j incurred in attempting to do so. fair market value. , 1
. . ~ - . - - . -. . - . - _ - . -
DO ARD OF DIRECTORS = PINN ACLE WEST C APITAL CORPOR ATION i i i i Back Row Front Row I PAMELA GRANT RICHARD SNELL l President. TableScapes, Inc. Chairman & President -l [ (Party Supply Rentals) j HENRYB.SARGENT l DOUGLAS J. WALL Executive Viec President & ; Of Counsel to the I.aw Firm of Chief Financial Officer Mangum, Wall Stoops & Warden MARTHA 0. HESSE DONALD N. SOLDWEDEL President. Elesse Gas Company, d Chairman of the lloard. Houston Texas; & Dolan Energy Western New spapers, Inc. Corporation & Sierra Blanca Gas Company Chicago, Illinois BILL JAMIESON, JR. (Marketing of gas & other fuels; Archdeacon Episcopal Diocese of energy investment) i Arizona & llutter Professor, School
.l
, of Theology at Claremont O. MARK DE M!CHELE , President & Chief Executive l ROY A. HERBERGER,JR. Of fleer. APS i President, American Graduate School of JOHN A NORTON lli International Management Chairmn & Chief Executhe Offi .er. J.R. Wrton Company ( Agrieuitural Pmduction)
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0 F FICER S = Pf N N ACLE WE ST C APITAL C ORPO R ATIO N AND S U B SIDI A RIE S Pinnacle West Ari/una Public Service SunCor RICHARD SNELL RICHARD $NELL RICHARD SNELL Chairman & President Chairnian of the Board Chairman of the lioard HENRY B. S ARGENT 0. MARK DE MICHELE JOHN C. OGDEN Ihecutive Vice President & hesidera & Chief Ikecutis e Officer President & Chief Executise Officer Chief I inancial Officer WILLIAM F. CONWAY HENRY B. SARGENT MICHAEL S. ASH Execulise Vice President. Nuclear lhecutise Vice President Corporate Coun .el WALTER F. EKSTROM GEOFFREY L APPLEYARD ARLYN J. LARSON thecutise Vice President. Vice President Finance Vice President of Corporate Engineering. Operations & Planning & Desclopment Construction DLIANE BLACK Vice President NANCY E. NEWOUIST JARON B. NORBERG Construction - Deselopment Treasurer Executive Vice President & Chief Financial Of ficer ANTHONY CAMBERLANGO FAYE WIDENMANN Vice President Vice President of Cori orate SHIRLEY A. RICHARD M;uketing - Acquisilion Relations & Admimstration & Executive Vice President. Customer Secretary Sersice. Marketing & Corporate STEVEN GERVAIS Relations Vice President & General Counsel JAN H. BENNETT MARGARET E. KIRCH Viec President, Customer Sersice Vice President Commercial Des elopment ARMANDO B. FLORES Vice President. Iluman itesources g;j g . g JAMES M. LEVINE Vice President. Nuclear Production RICHARD SNELL Chairman of the Board RICHARD W MACLEAN Vice President. Ensironmental. HENRYB.SARGENT lleahh & Safety Prc.ident & Chief thecutise Ofticer WILLIAM J. POST GREGORY S. ANDERSON Vice President Finance & liates Vice President & General Manager E.C. SIMPSON Vice President. Nuclear Engineering
& Projects WILUAM J. HEMELT Treasurer & Assistant Secretary NANCY C. LOFTIN Secretary & Corporate Counsel NANCY E. NEWQUIST Assistant Treasurer
SH AREHOLDER INFORM ATION = PINN ACLE WEST C APITAL CORPOR l I l S[I!I_. J....._______.............___..~..
. Nb . J Y I2O _ . ,-.. . _ _ _ _ _ _ . . . _ _ _ _ _ _ _ . .. . .
Pinnacle West's Annual Report to the Securities and Ticker symbol: PNW on New York Stock Excimge and Exchange Commission on Form 10 K will be available Pacific Stock Exchange after April 1,1993 to shareholders upon written request, New spaper financial listings: PinWst without charge. Write: Office of the Secretary. Annual Meetine of Shareholders _..___.___..__s_________..._________'~ Transfe Agents m. ... ..__.. and cistrars_ Re __..____.r n _ . _ ...__ . Wednesday, May 19,1993 COMMON AND APS PREFERitED STOCK 10:00 a.m. Pinnacle Wett Capital Corporation Wigwam flallamm Stock Transfer Department Wigwam Resort P.O. Box 52134 300 East Indian School Road Phoenix, Arizona 85072-2134 Litchfield Park, Arizona Telephone: (602) 379-2519 PINNACLEWEST COMMON STOCK ONLY
. ,[ _ . 9.j}{rd,,,,,,___,,________,,__,_,,_,___ The First National Bank of Iloston Transfer Processing A detailed Statistical Repon for Financial Analysis for Mail Stop 45 01-05 1987-1992 will be available in April upon request. RO. Box 644 Wnte: Imestor Relations Department. Boston, Massachusetts 02102-0644 Shareholders Association Shareholder Account and Pinnacle West stockt olders may join the Pm.nacle Wes' .A_ _d _m_ _u.. ..ustranve
_ _ _ _ _ . _ Infonnation Shareholders Asweiation. If. m terested, send your name and address to: Shareholders may call or write to the Shareholder Shareholders Association Services Department regarding: P.O. Ilox 34805 Phoenit. Arizona 85067 = Stock transfer and name-change requirements a Notices of lost or destroyed stock certificates
= Address changes
. 2[P9.ry,g,@,agjuarters, ,
, a Taxpayer identificatmn number (Social Security number) submission or changes Street address: = Duplicate 1099 forms and W-9 tax certification forms 400 East Wn Buren Street = Other shareholder account information Phoenix, Arizona 85004 Shareholder Services telephone number Mailing address: (toll-free): 1-800-457 2983 PO Ilox 52132 5 Phoenix. Arizona 85072 2132 fI]_3S.tg{p,@pj]n@}},qag{,,,_,,,,,,,,_ _,,,,,, l_
a Mam telephone number: (602) 379-2500
- Rebecca L. Ilickman !
Manager, Investor Relations C,OITespondence Regard.mE h Telephone: (602)379 2568 2 Cor orate Issues _._p___......_-_____..___...._..........__-- 3 0 S t Please write to the Corporate Relations Department. M f e e i 1<
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