ML20153G247

Arizona Public Svc Co 1987 Annual Rept

ML20153G247
Person / Time
Site:	Palo Verde
Issue date:	12/31/1987
From:	De Michele O, Turley K ARIZONA PUBLIC SERVICE CO. (FORMERLY ARIZONA NUCLEAR
To:
Shared Package
ML17304A436	List: ML20153G247
References
NUDOCS 8809080090
Download: ML20153G247 (34)

Text

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l 1987 ANNUAL REPORT 4

! ARIZONA '

P "BLIC

!, SERVICE COMPANY i

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8009000090 0B0830 l PDR ADOCK O w % 8 E._ _ _x__. i

AllOUT TIIE CO31PANY Arizona Public Service Company (the "Company" or "APS") is encaged principally in the generation and sale of electrielty. APS, a successor to a series of small utility operations originating in 1886, was incorporated in 1920 under the laws of Arizona and has operated under its present name since 1952. The Company's electric service reaches approximately 1,561,000 j people, or about 45 percent of the sta'e's ;.opulation, in an area that includes all or part of 11 of Arizona's 15 counties.

All the shares of common stock of the Company are owned by Pinnacle West Capital

{ Corporation ("Pinnacle West") (formerly AZP Group, Inc.), which became the Company's y

corporate parent, etTective in April 1985, pursuant to a corporate restructuring. The restructuring did not affect the Company's preferred stock or any of its outstanding debt securities, all of which remain obligations of the Company, APS Finance Company N.Y., Dixco, I Inc., and APS Fuels Company are wholly. owned subsidiaries of the Company, APS Finance I Company N.V. was dissolved as of June 30, 1987, APS Fuels Company is in the prxess of dissolution, and Bixco, Inc. is currently inactive.

. ANNUAL,itEPoltT This report is published to provide generalinformation concerning the Company and not in 1 connection with any sale, offer for sale, or solicitation of an otter to buy, any securities.

ANNUAL. SIEETING OF STOCKilOI. dells All stockholders are invited to attend the Company's sixty eighth annual meeting at 10M a.m. on Thursday, April 21,1953 at the Sheraton Phoenix,111 North Central Avenue, Phoenix, Arizona.

i l APS OFFICEllS l 0. 3tark De hilchele,54, President and Chief Executive 0t11cer l Walter F Ekstrom,50, Vice President, Electric Operations l Karl Eller,59, Chairman of the Executive Committee l David W Ellis,49, Vice President, Starketing and Energy Stanagement

Kathryn A. Forbes,37. Vice President and Controlier Joseph A. Gelinas,43. Vice President, Employee Itelations il Jerry G. Ilaynes,53, Vice President Nuclear Production i William J. llemelt,34. Treasurer and Assistant Secretary I ltussell D. Ilulse,60, Vice President, llesnurces Planning

) Jerry lluman,57. Vice President, Customer Services State llegion i i Charles D. Jarman,52, Vice President Construction  ;

1 Donald B. Karner,36, Vice President, Engineering l

Nancy C. Inftin,34, Secretary I Jaron B, Norberg,50 Executive Vice President and Chief Financial Otlicer

, William J. Post,37, Vice President, Finance and llates l Shirley A. Itichard,41, Vice President, Corporate Itelations and Starketing Keith L Turley,64, Chsirman of the Board l Diwin E. Van Brunt, Jr.,56, Executive Vice President, Arizona Nuclear Power Project t

( Age on Annual hieeting date, April 21,19M)  ;

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To Our APS Preferred Shareholders:

Although 19s7 saw many positive accomplishments for your company, the highlight undoubtedly was the December 4 dedication ceremony marking the completion of construction of the Palo Verde Nuclear Generating Station. Commenting at the dedication ceremony, John lierrington, the Secretary of the U.S. Department of Energy, labeled Palo Verde "the energy cornerstone of the Southwest" and stated that it ranks arrong the finest nuclear power plants in the world.

Bringing all three of the Palo Verde units into commercial operation within a two year period is an achievement of whleh we as management are justifiably proud. It is also a feat never before accomplished by any other utility. Ilowever, we recognize that it was made swlble only through the dedicatien of our employees, our partners in the Project, and the support of our investors. With the completion of l'alo Verde, we have the resources to continue to fuel the growing electrical needs of our service territory wellinto the next century.

Obvioasly, uncertainties remain with respect to the rate treatment for Units 2 and 3. At the time this report went to press, we were awaiting regulatory decisions on a phase in plan for the costs of Unit 2 and an accounting order to defer recovery of the costs of Unit 3. Ibth of these '

proposals were designed by the company to minimite the impact on our customers of bringing the Palo Verde units into service. Itegardleu of the outcome of those pending rate matters, however, the marketplace itself has dictated that we take a hard look at how we do bu.+iness now and plan to do business in the future.

The reality is that the utility business is changing. For the first time in our company's history, we're facing intense competition in every segment of our businea - from natural gas suppliers, from promoters of municipal takeeser, from ca generation entrepreneurs, from other utilities Aho may bargain for w holesale custors, and more. Meeting this competition requires a whole new strategy for doing business.

In 1957 we began a strategic marketing plan ter marketing and selling such proiucts as off peak security lighting, industrial heat pumps and thermal storage, praer conditioning, induction cooking, and more. We are devoting more resnurces to increasing economic development in Arizona, thereby enhancing our eletric sales, and insestigating new bulk power marketing opportunities outside our state. ,

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l Frankly, these rate and marketing strategies will probably not be enough, so we are considering a wide range of other options that will reduce our costs in 1988 and beyond. We have ,

already begun streamlining our organir.ational structure and reducing levels of management. l l he enorts, combined with our corporate goal of reducing sta# positions, will lead to k lower l employee level in 1988 than in 1986, j Additionally, we have asked every level of management to review their operations for ways in which costa may be reduced. We are convinced that, through innovation, emei9ney, and f

t 1 productivity improvements, our costs - both capital and operations and maintenance - can be i i

reduced. j 2

At the anme time, we have emphasized to our employees that cutting costs cannot be done i at the expense of servlee quality. To that end, we launched our Service rius program in 1967. {

We're instilling a greater awareness of how each individual hb a#ects the ultimate cost of our i

product and how each employee can help make APS a more productive, emelent, and socially {

{ responsible entit). i i

The completion of Palo Verde brings to a successful conclusion a tremendous challenge of the f 4

past. The uncertain future we face brings formidable challenges as well. We are con 6 dent,  ;

however, that through the creativity and dedication of our employees, those challenges will be j

} successfully met. l l We invite you to study the detailed Anancial information in the following pages and to I j attend our Annual Meeting of Stockholders on April 21 in Phoenix.

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Sincerely, j

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l dL @ J O /4 Keith I. Turley O. Mark De Michele Chairman of the lloard President and Chief Executive Omeer i i

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AltlZONA l'Citi.lc SEltVICE CO3tl'Ah ?

SEl.ECTED CONS 01.IDATED l'INANCI Al, DATA 19s? 19=4 19s5 1944 1943 t!*ollar in Thousand*, f uert Per Share Amounts Electric Operating llevenues $ 1,313.43* $ 1,249,912 $ 1,174 ',02 ,$ 994,967 $ 871,R75 Ehetrie Operating Exten.es; Operat*on aroi maintenance 5'6,*61 541,104 447,985 355,665 349,150 Depreciation an i amortiration 160,216 139,511 99,221 57,494 83,707 Ta ws' , , , 323,201 305,th>9 300,312 285,548 155,606 l'alo Verde cost deferral ( 8 4,2* H (27i526) - - -

Total , 936.074 t*11,032 M 7.514 731,707 618,4c3 Optrating income , , 327,364 290 306,934 263,260 253,412 Ot her income' ., , , , , 126.456 173,447 100,047 100,815 134,459 Interest Deductions Net 156,057 1 M 607 171,60s 156,MN 118,819 Income from Continuing Operations Before Cumulatis e EtYeet of Accounting Change 297,763 278.120 325,123 097,570 269,052 len from Discontinued Operations .

(26,503) (4,255)

Cumulathe Etteet of Accounting Change Net of Tae 16.110 - - - -

Net income 313,*T3 274,120 325,423 271,067 264,797 l' referred Stock Dividen<l l!equirernents 32.950 34,279 44,412 44,375 43,741 Earnings for Common Stock $ 2 0,923 $ 2,11,'41 241,011 $ 202,692 $ 221,056

, mm m m t. .$

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Total Acets 8 5,31 ,5 a $ 5,su3,ua $ 5,251,327 $ 4,653,774 $ 4,3M,312 leng-ttrm Det t and

!!edeem at'le l're fer re,18 toc k $ 2,',nt93 $ 2,107,219 $ 2.425,361 4 1,967,446 $ 1,s92,477 Common stock Data:

IL=4. g rdoe pen phare $ 26.74 $ 25.76 $ 25 42 $ 24.18 $ 23,7s

'?trutags t'w, ?et as vrage comraan unars autttardino cow n;.in ( Op. r At: 8 a itefu e ActwntinJ Change $ 3.71 $ 3 30 $ 3 %i $ 3 65 $ 3.53 pio.nd nu.xi Operr. tion! - - -

(0 39) (0 07)

Cumulsin e Pfr t of Accounting du',ge- Net 0 24 _ _ ;_, - - -

Total $ 3 96 3 46

$_ _ _ . . 3 M_ ._

m - _ 3 _3 o $ m

, __ _.m $. _ _ _3 26 8 Dni, lend dedarri p r ehare $ 2n $ 2 94 $ 2 73 $ 2.60 $ 2.56 Common shares outstanding:

Year.end 71,264947 71,261,947 71,y 4.917 70,1 >,329 66,710,632 A wrage 71,261.947 71,261,947 71,o31,2W 6s,3nd 131 63,865,210 Nund er of common shart ho: ters 1' 1" 1' 124,274 127,3s?

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l'nieral an ! state income taws are indu led in Taws, othtr Income and Cumulatise EtYret of Acevunting Char ge. Tutal income tax e ven-< m a* fullwa s (thou ands of dollars): 1957,

$ 197,314,19 6, $ 156, 20, 19 5, $ 165.2?u,19 1, $ 137,072.19-3, $93,930. l'alo Verde cost deferral ine!aled in Other Inco,ae for 19 7 an i 19 6 w a* $71a*i1 an i $3 ,262, regeetively.

" See Note 2 cf Notrs to ConWilated t'mancial Statements for a de cription of the 19s5 corporate .

ro truct uring.

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i OTHER FINANCIAL, AND OPERATING STATISTICS [

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(inolGE7n Thousands. EITept l'er lleur .EunW Capitalisation:

Common equity . . . . . $ 1,905,577 $ 1,835,616 4 1,811,405 $ 1,695,923 $ 1,5S6,671 Non redeemable I

preferred stock . . . . 168,561 218,561 218,561 218,561 218,561 f Redeemable preferred (

stock ............ 221,978 178,728 219,421 282,740 237,400 l

'ums. term debt .... 2,281,950 1,928,491 2,205,940 1,684,746 1,655,077 t Total ........... $ 4,578,066 $ 4,161,396 $ 4,455,327 $ 3,881,970 $ 3,697,709  !

l i Utility plant-gros 6 ... $ 6,229,446 V 5,880,435 $ 5,712,507 $ 5,088,243 $ 4,761,265 l Utility plant-net . . . . . $ 5,093,035 $ 4,904,325 $ 4,873,823 $ 4,344,083 $ 4,033,500 j i

i Number of employees at

! year. end . . . . . . . . . . 8,926 8,966 8,324 7,358 7,642 L l Average wage per hour . $ 16.09 $ 15.23 $ 14.48 $ 13.61 8 13,11 (

Electric resources (kw) . 3,925,600 3,592,100 3,570,800 3,425,900 3,528,400 3,159,300 3,194,600 3,197,S00 2,970,600 2,599,000 }

1 Peak load (kw) . . . . . . . '

s Electric sales-total 14,769,603 13,863,473 13,971,314 13,054,9s7 12,753,542 i (mwh)............

i Number of customers at 1 year.end . . . . . . . . . . 566,384 545,018 521,567 499,751 468,768 OPERATING REVENUES I

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- (ThousenEt iloitaril I Electrie Residenttal . . . . . . . . 8 505,525 $ 466,816 8 438,265 f 378,536 $ 314,404

! 296,364 Commercial . . . . . . . . 467,643 441,236 401,439 343,971 -

Industrial . . . . , , . . . 146,925 141,729 135,254 126,187 122,184 l irrigation . . . . . . . . . 22,853 25,540 15,113 16,641 21,547 86,394 90,11R

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Other ............ 79,138 80,671 97,728  ;

Total ........... 1,215,872 1,151,999 1,095,539 960,628 838,183  !

i Transmission for ethers . . . . . . . , . . . 14,254 19,692 16,602 13,023 12,555 l Miscellaneous services 83,312 78,221 62,361 21,316 21,137 Total operating revenues $ 1,313,438 $ 1,249,912 8 1,174,502 $ 994,967 8 871,875 f.

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.il ANAGE3 TENT'S DISCUSSION AND ANAL,YSIS OF FINANCIAI.

CONDITION AND itESUI.TS OF OPEllATIONS 1,iquidity and Capital ltesources The Company has capital requirements for its ongoing construction program (see Note 12 of Notes to Consolidated Financial Statements) and for the refunding of maturing securities. Its reliance on external finarcing to meet those requirements is detailed in Notes 4,5, and 6 of Notes to Consolidated Financial Statements. The Company has a degree of flexibility in adjusting its construction program to its financing capability, liowever, that tiexibility is limited and the Company's long term liquidity will depend on its acceu to the capital markets, which in turn will depend on sutilelency of the Company's rates to provide adequate coverages on its senior securities and an adequate rate of return on common stock equity. Adequate earnings and coverages are critical to the maintenance of satisfactory credit ratings on the Company's senior securities and, as calculated in accordance with the governing instruments, are prerequisite to the Company's legal ability to issue such recurities.

See page 5 with respect to the Company's capitallt.ation at December 31,1987. The Company regards common stock equity as its most expensive form of permanent financing, but it intends to maintain that category at approximately the 401 level in order to support the ernlit ratings on its senior securities. If interest and dividend rates on new inues of long term debt and preferred stock rise in the future, the Company's average cost of capital will rise accordingly. During 1986 the Company enteral into sale and leaseback transactions under which it sold and leased back approximately 424 of its 29.1% ownership interest in Unit 2 ("Unit 2")

of the Palo Verde Nuclear Generating Station ("Palo Verde"). The leases are accounted for as operating leases and, accordingly, are not reflected in the Company's consolidated capitalization (see Note 9 of Notas to Consolidated Financial Statements).

See Note 7 of Notes to Consolidated Financial Statements with re<pect to short term borrowings available to the Company (there being a statutory limitation on the amount of such borrowings that can be outstanding without consent from the Arizona Corporation Commission (the "ACC")). The funds available from operations after the payment of dividends, although less than the amount considered appropriate by management, have increased in the last few years as compared to recent periods (see Consolidated Statements of Changes in Financial Position). This situation may deteriorate unless the Company receives adequate and timely rate relief for the reemery of costs of Palo Verde Unit 2. See Note 3 of Notes to Consolidated Financial Statements for further information, in addition, the Company's retention of funds from operations has teen affected by its polley of increasing common stock dividends periodically.

The ACC has regulatory authority over the Company in matters relating to retail electrie rates and the iuuance of swurities, in November 1994, the ACC isc sed an order that set a construction cost limit of $2M billion for the Company's share of Palo Verde, with any amounts I expended abme that figure to be presumed as imprudently incurred for ratemaking purposes (although no presumption of prudence will attach to expenditures made up to such limit). The Company con.siders Palo Verde Unit 3 ("Unit 3") to have commenced commercial operation on January 8, IN, at which time the Company'3 share of total Palo Verde construction costs was estimated to bc $2.77 billion.

On September 4,1986, the ACC issued an order establishing the format for a prudence audit of Palo Verde costs. Ernst & Whinney, a national accounting firm, is overseeing the prudence audit and is expated to complete the audit sometime in 1988. Pursuant to the order, the Company submitted for review ten areas in which it belleses its performance in the construction of Palo Verde exceeds the prudence audit standard of "reasonableness." Any Palo Verde costs disallowed by the ACC for inclusion in the Company's rates (whether as a result of the prudence audit or otherwise) will be recognized as a lou by the Company at such time as it 6

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becomes probable that the costs will be disallowed for ratemaking purposes. Although the Company is unable to predict the ultimate outcome of this matter, management believes that, overall, Palo Verde was constructed and planned in a prudent manner.

Iblo Verde Unit 1 Rate Statters On October 9,19S6, the ACC issued an order in the rate case in which the Company requested an increase in annual retail electric rates premlSed on Palo Verde Unit 1 ("Unit 1") .

being fully included in the Company's rate base. The order provided that those revenues I attributable to the inclusion in the Company's rate base of $210 million of the capital costs of l Unit 1 (repretenting approximately 25% of total Unit I costa) were to be deemed "interim or i

i temporary in nature until further Order of the [ACC)." The Company estimates that up to $47

! million in revenues collected through December 31, 1987 are to be deemed "interim or i temporary" pending the outcome of the Palo Verde prudence audit. The order also granted the Company's request that, for ACC purpo es, the facilities comraon to all three Palo Verde units (the "Common Pacilities") be treated as entering rate base in three equal installment:, each tied to the commercial operation date of a Palo Verde unit. Consequently, for ACC purposes the j

< Company ceases to accrue a carrying charge on, and begins expensing the cost of owning, i l operating, and maintaining, its share of the Common Paellities in one third increments.

Palo Venie Unit 2 Rate 3fatters Palo Verde Unit 2 commenced commerelal orcration on September 19,19S6. On

! December 5,1986, the ACC issued an accounting and ratemaking order (the "December

} Order") that allows the Company, for ACC purposes, to defer cubstantially all operating costs i relating to, and accrue a carrying charge on, its ownership interest in Unit 2 and one. third of the Common Pacilities for the period of time between the commerelal operation date of Unit 2

- and the etTective date of new rates to cover the costs relating to Unit 2. In accordance with l l

Statement of Finanelal Accounting Standards No. 92, llegulated Enterprises-Accounting for l

Phase-in Plans ("SPAS No. 92"), effective January 1,1988, the Company is no longer able to i accrue an equity return on Unit 2 cost deferrals, which will adversely affect net income by l

< approximately $2.7 million per month. The impact, however, should be short term as a decision in the Unit 2 Itate Case (delined below) is expected in early 19AS. See Note 3 of Notes to 1 Consolidated Financial Statements for a discussion of SPAS No. 92.

I On December 18, 1985, the Company 61ed an appl! cation with the ACC for an increase in i annual retail estric rates to recover the costs of Unit 2 and other increased costs of service (the "Unit 2 Itate Case"). On December 19,1956, and again on June 10,1957, the Company updated l l Its niing to a requested increase in retail electric rates of approximately $153 million, whleh includes approximately $3.7 million annually for decommissioning Unit 1 and Unit 2, to be  !

l etTective in twn steps: an increase, at the earliest poulble date, of approximately 15.54, which would be partially otiset by a reduction in the Company's cost of fuel (equivalent to a 9.2% base -

rate reduction) and an increase of spproximately 2.64 on January 1,1959. llearings in the Unit i

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l 2 Itate Case began on Starch 19, 1957, and ended on June 22,19s7. A decision in the Unit 2 j llate Case is expected in early 1988. If the ACC does not grant adequate rate relief in the Unit 2 ,

Itate Case, the Company expecta its future earnings to be adversely atiected.

Julo Verde Unit 1 Rate Statters p i The Company considers Unit 3 to have commenced commercial operation on January 8, ,

1988. A specine rate application designed for the recovery of Unit 3 costs has not yet been 61ed

) with the ACC. Ilowever, the Company 6ted on July 24,19si and amended on October 2,1987, an l

l' application with the ACC seeking an accounting and ratemaking order allowing the Company

, to defer substantially all operating costs relating to, and accrue a carrying charge on, its ,

l ownership interest in Unit 3 and one third of the Common Pacilities for the perind of time j between the commercial operation date of Unit 3 and the etTective date of ne~ rates to cover j

' the costs relating to Unit 3. A decision in the Unit 3 accounting and ratemaking proceeding is 1

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4 expected in early 19% Pallure to grant the requested Unit 3 accounting and ratemaking order  !

would adversely atteet the Company's net income by approximately $7.5 million per month from i toe date that Unit 3 has commenced commercial operation, in accordance with SPAS No. 92, '

effective January 8,1988, the Company will not be able to accrue an equity return for Unit 3 I whleh will adversely affect net income by approximately $2.5 million per month. See Note 3 of ,

Notes to Consolidated Finanelal Statements for a discuvion of SPAS No. 92.

) Operating Hesults  !

i Total operating revenues include the etTects of rate increases and adjustment clauses on j prices of units sold. Operating revenues also retteet volume changes in unit sales. The foregoing i factors contributed to annual increases in electric operating revenues over the preceding

} calendar year as follows:  !

i l Year Ended IWember St.  ;

twa7 len 155 '

~ (ThomanUf Inollarsi ~

, Energy related:  ;

Volume increases (1) . . . , , , , , . . . . . . . . . . , , . . . . $ 80,509 $ 3,742 $ 71,169 i j llevenue per KWil increases (decreases) (2) . .... (14,608) 52,718 63,742 l i

Non energy related:

j llevenue increases (decreases) (3) ....... ...... (2,375) 18,950 44,624  !

Total increase ...............,........... $ 63.526 $75.410 $179.535 1

(1) Calculated by summing the prculucts derivnl by multiplying the year to. year increases i in units sold in each customer class by the weighted average of the app!! cable rate levels  !

in etTect for the prior year. i (2) Calculated by summing the products derived by multiplying the year to. year increases I in the weighted average of rate levels in each customer clan times the applicable  !

number of units sold in the current year.

i (3) Includes revenues for miscellaneous services and transmission for others.

1 J In 19s7,1956, and 1985, the volume related increases in electric revenues were primarily  !

1 due to increased customers and aales per customer in the residential and commercial classes. In L 1987, increases in residential sales per customer were largely due to celder weather conditions in j

the winter months of 1987, in 1986, the increase was partially offset by lower sales to resale

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i customers. In 1985, the volume related increases were primarily due to warm weather conditions '

i during the summer of that year Conservation etTorts by customers in response to higher energy costs have atiected unit sales, are expected to continue to do m, and are being aided by the ,

j Company's own load management programs. Price related rever.ue increases and decreases b

retteet the timing and amounts of base rate changes, the operation of the Company's purchasal l

power and fuel adjustment mechanism (the "PPPAM") (See Note 1d of Notes to Consolidated i

! Pinancial Statements), the incentive for customers to migrate over time to that rate which

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produces the lowest bill, and the interaction of weather and reasonal rates on revenues. The year to. year changes in non energy relatal electric revenues retleet changes in the revenues l collectal for the capacity sold to other utilities.

' l Unit fuel costs decreased in 1957 largely due to increased nuclear generation aunciated with  !

I the commercial operation of Unit 2. Puel expenses, however, increaml in 19a7 as increased l

system energy requirements, retiecting increased energy sales, more than otiset lower unit fuel  !'

costs. In 19s6, fuel expenses decreased due to lower unit fuel costs asociated with the commercial operation of Units 1 and 2 which displaced higher cost gas and coal generation. l Variations in purchased power expense rerlect contractual commitments with other utilities  !

for purchasing power as a means of augmenting the Compan>'s own generating sources from

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J j time to time, the testing schedule of the Company's own nuclear generating units, and the operation of the Company's PPFA51, Fluctuations in net interchange expense reflect the market ,

) demand for interchange power purchasing and sales aswelated with varying weather conditions I

and the Company's ability to produce inexpensive energy to sell to neighboring utilities. }

l The decrease in purchased power and interchange expense in 1987 was primarily due to

! reduced purchased power and increased interchange sales due to increased nuclear g. aeration. ,

j in 1986, the increase in rurchased power and interchange expense was primarily due to the  !

d operation of the Company's PPFAh!, partially offset by reduced purchased power due to the (

availability of energy from Unita 1 and 2, the availability of low cost interchange power and i reluced system energy requirements. l f l j Operations, excluding fuel expenses, increased in 1987 due primarily to increased expenses L l resulting from the commercial operation of Unit 2, particularly the lease expense associated with the sale and leaseback of a portion of the Company's interest in that unit. See Note 9 cf lp Notes to Consolidated Financial Statements.

) Depreciation and amortization expenses and ad valorem taxes increase with the site of the l Company's utility plant. See Note 13 cf Notes to Consolidated Finanetal Statements for toth ad (

i valorem and sales taxes (the latter being a function of operating revenues), which are the i

! principal components of other taxes.

i in December 1987, the Financial Acco'mting Standards Board issued Statement of [

Financial Accounting Standards No. 96, Accounting for income Taxes. The Company will adopt t the new standard in 1988 or 1959 and expects it to have little impact on earnings. See Note 10 of I 5

! Notes to Consolidated Financial Statements.

I i Palo Verde cost deferrals result from the deferral of substantially all costs of owning, e i operating, and maintaining Unit 2, and a carrying charge thereon, from the commercial j j operation date (September 19,19M) until the elTective date of new rates to cover those costs.

The increase in 1957 reflects a full year of recorded cost deferrals. See "Liquidity and Capital itesources" above and Note 3 of Notes to Conmlidated Financial Statements.

The aggregate amount of allowance for funds uaed during construction ("AFC") shown as other income and a credit to interest deductions, is primarily a function of the amount of  !

construction work in progress during any given period and eenses to accrue on those portions of I l construction work in progress that are placed in service. See Note le of Notes to Consolidatel Financial Statements for changes in AFC rates.

The decrease in interest on long term debt in 19s7 as comparel to 1956 and 1955 retlects the etTect of refmancing high coupon debt with the proceeds of lower interest rate debt and i releeming high coupon debt with the proceeds of the sale and leaseback of a portion of the (;

Company's interest in Palo Verde Unit 2 in 1936. See "!.iquidity and tapital itesources" ateve and Note 6 of hotes to Consolidated Financial Statements.  !

Effective January 1,1987, the Company changni its method of recording revenues to

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include revenue r-latni to electricity delivered to customers but not yet billni at yesr end. The ,

! eumulative erfat, as of January 1,19si, of the change, net of income taxes, was $16.1 million i I

(50Y .r common share) and is reported as a separate component of 19s7 net income. See Note I id of hotes to Consolids.tni Financial Statements for further discuulon.

J Conmlidated net income represents a composite of cash and non cash items (see Consolidatal Statements of Changes in Financial Position) and, in part, retlects accounting l t

practices unique to regulated public utilities.

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Effects of Inflation In contrast to the analysis of increases in operating revenuen in the table at the beginning of "Operating itesults," it is sometimes ditlicult, in the case of operation and maintenance expenses, to distinguish between effects of volume increases and rises in unit costs.

Certain inflationary etTects, such as thee on costs of generating fuel, are passed through to customers pursuant to rate adjustment procedures. Nevertheless, the Company attempts to -

minimize such effects by means tb: include increasing the availability of its nuclear and coal.

fired units to result in a more economical fuel mix. This increase has been achlesed by an intensive maintenance program, the cost of which is not covered by the adjustment clauses.

There are a number of other major expense items tha' tre also beyond the scope of the adjustment clauses. Intlationary pressures on these item, ove gisen rise to a significant earnings attrition between general rate increases.

f 10

ARIZONA PUBLIC SERVICE COMPANY CONSOLIDAND STATEMENTS OF INCOME Year Ended December 31.

1987 1956 19M (fpollars in Thousands, Escept 17er Share Amounts) l Electric Operating Revenues . . . . . . . . . . . . . . . . . . . $ 1,313,438 $ 1,249,912 $ 1,174,502 Fuel Expenses:

Fuel for electric generation . . . . . . . . . . . . . . . . . . . 180,597 178,814 219,575 Purchased power and interchange - net . . . . . . . . . . 90,435 107,066 16,789 '

i

'I o t al . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271,032 236,364 Operating Revenues Less ruel Expenses . . . . . . . . . . . 1,049,406 285,880 964,032 _ 938,138 i ,

. Other Operating Expenses: t Operations excluding fuel expenses . . . . . . . . . . . . . 213,510 157,196 122,751 i M ain ten a nce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,319 98,032 88,870 Depreciation and amortization . . . . . . . . . . . . . . . . 160,298 139,541 99,221 Income taxes (Note 10) ..............,,..... 178,850 182,316 216,036 Other taxes (Note 13) . . . . . . . . . . . . . . . . . . . . . . . 144,354 123,5bd 104,276 f

, Palo Verde cost deterra! (Note 3) . . . . . . . . ...... (84,289) _ (25,526) -

Total ................................ 71S,042 675,152 631,154

Operating Income . . . . . . . . . . . . . . . . . . . ...... ,

327,364 288,880 306,984 Other income (Deductions):

Allowance for equity funds used during constr etion 59,015 93,7o4 143,612 Palo Verde cost deferral (Note 3) . . . . . . . . . . . . . . 71,961 38,262 -

(6,004) 25,496 50,757 -

Income taxes (Note 10) ... . . . . . . . . . . ......

Other. net . . . . . . . . . ................... . 1,484 16,355 (4,322)

Total . . . . . . . . . . ................ .... 12e 456 173,847 190,047  ;

l Income B'sfore Interest Dedtetions . . . . . . . . ...... 453,820 462.727 497R 1 Interest Deductions

! Ir;ter.tst on long ttrm debt . . . . . , , . . . . . .. ... 190,537 214,029 209,220 '

1r.terest on short, tf tm borrowings . . . . . . ...... 5,122 6,973 6.951 Debt disaocnt., prem!um and sxpense . . . . . . ..... 6,781 5.851 3,613 Allowance for borrowed /u':Je used during  ;

l construction . . . . . . . .... . . . . . . . . . . .. (46,433) _ (38.246) _ (48,176) l 5 To t al . . . . . . . . . . . . . . . . . . , . . . . . ...... ,

156,05J 188,607 171 608 income B2fon, Cumulat've Effect of Accounting '

i Chege .... . . . . . . . ......... . . . . . ...... 297,763 274,120 325,423

! Cumulethe Effect as of.ir.nurry 1,1987 of Accruing i tinhilled Revent.es, Net of Income Taxes of .

$12,460,000 ( Note l) . . . . . . . . . . . . . . . . . . . . . . . . . 16,110 _

N e t i n co m e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313,873 274,120 325,423 t

Preferred Stock Dividend Requirements . . . . . . . . .. 32,950 39,279 44,412 Earnings for Common Stock ...................

Average Common Shares Outstanding . . . . . . . . . . . .

@ @@ 71,264,947 71,264.947 71,031.228 l

Earnings per Average Share of Common Stock Outstand!ng

>

1 Before cumulative effect of accounting change . . . . $ 3.71 $ 3.30 $ 3.96 Cumulative effect as of January 1,1987 of accruing

. unbilled revenues (Note 1) .................. 0.23 - - t To t al . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.91 $ 2.30 $ 3.96 t Dividends Declared per Share of Common Stock . . . . . $ 2.88 $ 2.94 $ 2.73 l

See Notes to Consolidated Financial Statements.

I 11 i

1 1 l

)

4

, . - , ~ _ . - ., m. _ . .,_ , . . - , _ . ,____.,-_.w.m_ , - , , , ~ m..,.m _.,.__m ,.m ,_c..-,. . , . . _ . . _ . , , . . . _ . . ._ . _ .

ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED BALANCE SHEETS ASSL"r8 December 31.

19'67 19M6 Ifliousands of DollE Utility Plant (Notes 6,8 and 9):

Electric plant in service and held for f'iture use . . . . . . . . . . . . $4,993,363 $4,807,226 Less accumulated depreciation and amortization . . . . . . . . . . . 1,088,356 947,555 Total........... ............................ 3,905,007 3,859,671 Construction work in progress ........................ 1,154,829 979,733 Nuclear fuel, net of amortization of $48,055,000 and $28,555,000 33,199 64,921 U tili ty Pla n t - n e t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,093,035 4,904,325 Investments and Other Assets (at cost) . . . . . . . . . . . . . . . . . . . 46,430 40,692 Current Assets:

Cash and marketable securities . . . . . . . . . . . . . . . . . . . . . . . . 13.643 6,770 Special deposits and working funds . . . . . . . . . . . . . . . . . . . . . 3,942 167,212 Accounts receivable:

Service customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,781 76,555 Other ......................................... 34,365 35,143 Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . (2,518) (2,060)

Accrued utility revenues (Note 1) . . . . . . . . . . . . . . . . . . . . . . 34,995 -

Materials and supplies (at average cost) . . . . . . . . . . . . . . . . . 66,766 65,283 Fossil fuel (at average cost) . ................... .... 26,873 30,006 D e fe rr ed fu el . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23,994  ;

Other ... ................................. .... 9,868, S,060  ;

Total Current Arsets ........................... 272,715 410,963 Deferred Debits:

Deferred income taxes ......... .................... 111,% S 94.246 Palo Verde cost deferral (Note 3) . . . . . . . . . . . . . . . . . . . . . . '!19,689 63,6J4 l

Uaamortized costs c1 reacquired bt ...... ... ....... 29,301 31,002 Unamortized dobt issue costs . ....................... 17,643 17,563 Other .......................... .............. 28,387 33,398 Total Deferred Debits ........ .................. 406,403 239,903 Total............................ ........... $5,818,588 g5883, See Notes to Consolidated Financial Statement).

12

AltlZONA l'Ulli lC SEltVICE CO311'ANY CONS 01 lDATED ll AI,ANCE S!!EETS 1.l Allli.lTIES December 31 1957 19*6 (Thousands of Dollars 1 Capitalization (Notes 2,4,5 and 6):

$ 178,162 $ 178,162 Co m m o n s toc k . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......

Premiums and expenses-net . . . . . . . .... ............ 1,034,364 1,040,084 Retained earnings . . . . . . . . . . ... .. ...... ........ 693,051 617,370 Common stock equity .................. .......... 1,905,577 1,835,616 Non redeemable preferred stock . . . . ...... . ......... 16S,561 218,561 Redeemable preferred stock . . . . . . . . . . . . . . . ... ... .. 121,978 178,728 Long term debt less current maturities . . . . . . . . ....... _.J1.950 1 ?28,491 Total Capitalization . . . . . . . . . . . . . , . . . . . ... .... 4,578,066 4,161,396 Current Liabilities:

Commercial paper ... ... ... .. ..... ....

- 37,000 Current maturities of long term debt (Note 6) ..... ...... 17,796 312,554 Accounts payable . . . ........... .. . . ......... 76,612 70,313 64.063 91,792 Accrued taxes ........ ... .. .. . . .. .......

52,162 52,498 Accrued interest ..... . .. ........., .. ....

Deferred fuel . . . . . . . . . . . . . . . ........... ... .... 33.601 -

35.326 48.331 Otiser ................ . .... ... .........

Total Current Liabilities . . . . ... . .. . ..... 279.560 612.488 Deferred Credits and Other:

521.797 373,646 Deferred income taxes . .. .. . . . .

Deferred investment t.ax credit . . . .. . . 201.34E 203.066

1. Unamo;tized gain-sale of utility plant (Note 9) . . .

131,659 141.786 40.270 41,958 Unamortized credit related to sale of tax benefits .

26,077 23,852 Customers' advances for ecnstruction . . .

39,917 37.691 Other ....... . ...... .. . . .

Total Deferred Credits and Other .. . . .... , _960.962 821L- m Comn.rtnients and Contingencies (Notes 3 and 12)

Total . . . . . . ... .. . . . . . .. .. . $5.818.5ss

$5.59.5.883 m

s 13

AltlZONA PUI31,1C SEltVICE COMPANY CONSOLIDATED STATDIENTS OF ItETAINED EAltNINGS Year Ended December 31.

19x7 19se 1955 (Thouunds of Dollars)

Retained earnings at beginning of year . . . . . . . . .... . $617,370 J592,334 $505,414 Add-Net income . . . . . . . . ............ .......... 313,873 274,120 325,423 Total ........... .... ........... ........ 931,243 866,454 830,837 Deduct-Dividends:

Common stock (Notes 4,5 and 6) .... .. .......... 205,242 209,805 194,091 Preferred stock (see below) .. .......... ......... 32.950 39,279 44,412 Total . . . . . . . ............... ........ .... 238,192 249,084 238,503 Retained earnings at end of year . . . . . . . . . . . . . . . . . . . . . $693.051 $617,370 $592,334 Dividends on preferred stock:

$1.10 preferred ............. ... ......... .... $ 172 $ 172 $ 172

$2.50 preferred ........ .......... ... ........ 258 258 258

$2.36 preferred ......... .................. ... 94 94 94

$4.35 preferred ............... ............. . 326 326 326 Serial preferred:

$ 2.4 0 S eri es A . . . . . . . . . . . . . . . . . . . . . . . . .. .. 576 576 576

$2.625 Series C . . . . . . . . ..... . ........ . .. 630 630 630

$2.275 Series D . . . . . . . . . . . . . . ...... .... ... 455 455 455

$3.25 Series E . . . . .. .................. . . 1,040 1,040 1,040

$3.50 Series G . . . .......... .... .. ... .. - -

96

$10.00 Series 11 . ....... ....... . . . . 833 994 1,459

$10.70 Serirs I . . . ....... ..... . . . .... -

942 2,300

$8.32 Series J . . . . .. .. . . ... .. .. .... 4,160 4,160 4,160

$8.80 3eries K . .... . .. .. . . . ... .. 2,686 3,033 3,407

$9.70 Series L . . . . . . . . . . . . . . . .... . ... 853 3,880 4,656

$11.95 Serie2 M . .... . ..... . . . -

426 1,235

$12 90 Series N . . . ........ .. . ... .... 4,835 4,773 4,773

$3.58 Serics 0 ..... ... . ...... .... ... . 2.983 7,160 7,1G0

Adjustab'e Rate Series P , . . . . . . . . . . . . . . .. . 315 1,250 1,250

/.dj.' stable Rate Series Q ...... . . . . .. 3.263 3.360 4,615

$11.50 Series R , ....... ...... .. . 5,824 5,750 5,750

$8.48 3c ries S . . . . . . . . . . . ..... .... .. 2,544 - -

$3.50 Series T . . . . . . . .... .. ... .... . . 1,098 - -

Total .... ...... ............. . ... .. $ 32.950 $ 39.23 $ 44,412 See Consolidated Statements of Income for dividends per share of common stock.

See Notes to Consolidated Financial Statements.

14

ARIZONA PUBLIC SERVICE COMPANY CONSol,lDATED STATEMENTS 0F CHANGES IN FINANCIAL POSITION Year Er.ded December 31.

19M7 19k6 1985 Source of Funds: <Thou ands or Dollare Funds from operations:

Income before cumulative effect of accounting change $ 297,763 $ 274,120 $ 325,423 Principal non-fund charges (credits) to income:

160,298 139,541 99,221 Depreciation and amortir.at'nr . . . . . . . . . . . . . . . .

31,722 21,762 -

Nuclear fuel amortir.ation . . . . . . . . . . . . . . . . . . .

Al'owance for equity funds used during (59,015) (93,734) (143,612) con st ruc tion . . . . . . . . . . . . . . . . . . . . . . . . . . . .

131,009 62,420 106,158 Deferred income taxes-net .................

(1,824) 28,563 36,383 Deferred invedment tax credit-net . . . . . . . . . . .

Palo Verde cost deferral . . . . . . . . . . . . . . . . . . . . (156,250) (63,788) -

Other .................................. (6,953) 396,750 (11,499) 357,385 31,361 454,934

{

To tal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cumulative effect of accounting change-net . . . , . . . 16,110 - -

Total funds from operations . . . . . . . . . . . . . . . . . . 412.S60 357,385 454,934 Funds from external scurces:

Sale of utility plant ......................... - 487,296 -

- - 28,562 Co m m o n s t oc k . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,562 - - s long - t e r m debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383,318 521,738 745,030 23,704 21,416 (160)

Other items-net . . . . . . . . . . . . . . . . . . . . . . . . . . .

Decrease in working capital * .................. 137,078 - -

Total fw.ds from external sources ............ 643,662 1,030,450 , 773,432 Total nurce of funds . . . . . . . . . . . . . . . . . . . . . . . 3 056,522 $

1383 $1,228,36o Application of Funds:

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . $ 399,701 $ 552,991 $ 637,717 ,

Allowance for equity funds t.5ed during construction . . , ,_,Q9,015) (93,7.H ) (143,612)

/

Funds used for capital expenC*ures . . . . . . . . . . . . . 340,686 459,257 194,105 5,738 18,188 (44,7 M )

In$ estments and other assets . . . . ............

h Si,cr t. term borrowings-net . . . . . . . . . . . . . . . . . . . . 37,000 (19,000) 1 0 ,600 Repyment and reacquisition of long term debt . . . . . . 328,156 537,114 275,4%1 E Redemption of preferred stock . . . . . . . . . . . . . ..... 106,750 40,693 63,319 Dividends on preferred and common stock . . . . . . . . . 238,192 249,084 238,503 Increase in working capital * . . . . . ............ ,_

102,499 59,995 To'.al application of funds . . . . . . . . . . . . . . . . . . . go,56d22, 5 $1,387,825 $1g C

Increase (Decrease) in Working Capital *:

Cash, marketable securities, special deposits and working funds ............................ ....... $ (156,397) $ 162,769 $ 309 6,990 (16.915) 22,098 Accounts receivable-net . . . . . . . . . . . . . . . . . . . . . . .

Materials, supplies and fossil fuel . . . . . . . . . . . . . . . . . (1,650) 23,331 (1,147)

Accrued utility revenue, deferred fuel and other assets . 12,809 (46,154) 71,245 Accounts payable and accrued liabilities . . . . . . . . . . . . 21,766 (1,377) (38,846)

__ (20,596) (19,155) 6,336 Deferred fuel and other liabilities ................

Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . $ (137,078) $ 102,499 $ 59,995

' Excluding short-term borrowings-net and current maturities of long term debt.

See Notes to Consolidatea Financial Statements.

15

t AltIZONA PUllLIC SEltVICE COMPANY NOTES TO CONSOI.lDATED FINANCIAI, STATEMENTS

1. Summary of Significant Accounting Policies.

a. System of accounts-The accounting records of Arizona Public Service Company (the "Company") are maintained in accordance with the uniform system of accounts prescribed by the Federal Energy Itegulatory Commission ("FERC").

b. Consolidation-The consolidated financial statements include the accounts of the Company and those of its wholly-owned subsidiaries. All significant intercompan) balances and transactions have been ciiminated. Certain prior year items have been reclassified to conform to 1987 presentation.

c. Plant and depreciation-Property is stated at original cost s defined for regulatory l

purposes. The cost of additions to utility plant and replacement, ef retirement units is l capitalized. Replacements of minor items of property are charged o egense as incurred. in addition to direct costs, capitalized items include the present v'.lue of certain future lease i payments (see Note 6), research and development expenditures pertaining to construction projects, indirect charges for engineering, supervision, transporte tion and similar costs, and an allowance for funds used during construction. Costs of depreciente units of plant retired are diminated from plant accounts and such costs plus removal exp nses less salvage are charged to accumulated depreciation. Contributions in aid of construction .re credited to plant cost.

Depreciation on utility property is provided on a straight-line basis at rates authorized by the Arizona Corporation Commission (the "ACC") anntuuy. The applicable rates for 1985 through 1987 ranged from 0.68T to 9.864.

d. Revenues and fuel costs-EfTective January 1,1987, the Company changed its method of recording revenues. Prior to that date, the Company recorded revenues as billed to its customers on a monthly cycle billing basis. The unbilled revenue for those kilowatt hours delivered to customers after meter reading dates became part of operating revenes in the following month.

In order to better match revenues with expenses, the Company changed its metbl of accounting to accrue an estimate of revenue for sales unbilled at the en 1 of each mor.ch. This change also urr ec to conforra the Company's accouu*.ing treatment with the treatment of

.mbilled re,enuo as taxable under the Tu Reform Act cf 19S6. The cumulative etTeet as of Jmuary L 1987 of the change, net of income taxes, is $16.1 million ($0.23 per common share) and is re;orted as a separate ecmponent of 1987 net income. The pra forma effect of this change on the reported earnings and earnings per share of prior periods presented is not "ignificcnt.

Retail rate whedules include adjustment clauses which per.ni recovery of costs of certain fuel and purchawd power. Regulatory hearings are held periodically to adju<t the cates applicable under fu l adjustment clauses to more nearly match actual fuel costs. Temporary net under or over recoveries of costs resulting from application of the adjustment clauses are recognized ar. a deferred fuel aeset or liability, respectively, with an offsetting amount recognized in purchased power and interchange expense,

e. Allowance for funds use.1 during construction-In accordance with the regulatory accounting practice prescribed b: t he FERC and the ACC, the Company capitalizes an allowance for the cost of funda used to finan e its con 3truction program ("AFC"). AFC, which does not represent current cash earnings :., defined as the cost of borrowed funds and a reasonable rate of return on equity funds used during construction. The calculated amount is capitalized as a part of the cost of utility plant.

AFC has been calculated using composite rates of 12.759 from January DSS through October 1986; 11.251 for November and December 1956; and 11."04 thereafter. The Company compounds AFC semi annually and ceases to accrue AFC when construction is completed and the property is pl..ced in service.

16

l 1

ARIZGNA PUBLIC SERVICE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

f. Income taxes-The Company uses accelerated depreciation methods for income tax purposes. As prescribed by the ACC, deferred income taxes are provided for certain timing differences arising from the recording, for income tax and financial reporting purposes, of depreciation of property placed in service after Janunty 1,1977. In accordance with an ACC order, the Company defers amounts equal to the change in income taxes arising from substantially all other timing differences, which prior to October 1983 were reflected currently in income. At December 31, 1987 the Company had flowed through to income currently I approximately $230 million of income tax benefits arising from income tax timing differences for which deferred taxes have not been provided.

In compliance with an ACC order, the Company defers amounts equal to the reduction in Federal income taxes arising from investment tax credits and amortizes these amounts to other income over the estimated life of the related assets.

In 1981, the Company sold to another corporation certain federal income tax benefits in 1 4 exchange for cash. The Company, pursuant to an order of the ACC, has recorded the proceeds of

' the sale as a deferred credit and is amortizing the amount of such proceeds on a straight line basis over approximately 30 years.

g. Ilesearch and development costs-The Company expenses research and development costs on a current basis, except that costs which may result in additions to utility plant are deferred for subsequent inclusion in plant or to be written off if the applicable p oject is abandoned.

h. Iteacquired debt costs-In accordance with the regulatory accounting practices prescribed by the ACC, the Company defers the excess of the reaquisition price of reacquired debt over the net carrying amount and amortitee these amounts to expense over the remainder cf the originallife of the issues reacquired. t

i. Nuclear fuel and decommissioning costs-Nuclear fuel ir char 2ed to fuel e ; pense using l the unit of production mehed under which the number of units of Oermal energy produced in the current perio.1 ie relatal to the to91 thermal units expected to be produced over the  !

remnining life of the fuel.

Pursuant to the Nuclear Waste Policy Act *d IN ("Act"), contracts have been entered into with the U.S. Department of Energy for disposal of spent nuclear fuel. The Act provideu for an assessment of one mil per kilowatt hour of nuclear generation. This amount is charged to nuclear fuel expense and recovered through the Company'r fuel adjuatment clauses.

! The Company has made no prodshn for decomniissioning costs for the Palo Verde Nuclear

! Generating Station ("Palc Verd=") pending ACC action in its current rate case filing. Total decommissioning costs for all three Palo V"rde units are currently estimated at approximately

$615.000,000 (in 1966 dollars) of wh!ah the Company's share (29.1%) is approximately

$179,000,000,

2. Corporate Hestructuring.

On April 18,1985, the Company's shareholders approved a plan for corporate restructuring to provide fmancial and organizational 11exibility by separating regulated utility operations

. from other attivities. EITective April 29,1985, APS became a subsidiary of a holding company, -

I AZP Group, Inc., which on April 24, 1987 changed its name to Pinnacle West Capital Corporation ("Pinnacle West").

l i

As part of the restructuring, the Company sold to Pinnacle West, at book value of  ;

I $34,703,000, the common stock of three of its previously wholly. owned subsidiaries, Malapal Resources Company, SunCor Development Company (formerly Energy Development Company) and El Dorado Investment Company.

17  ;

l l +

! l i

f i

ARIZONA PUBLIC SERVICE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The corporate restructuring had no effect on the ownership of preferred stock or on debt securities.

3. ACC and Related Matters.

. Prudence Audit On September 4,1986, the ACC issued an order establishing the format for a prudence a, dit of Palo Verde costs. Ernst & Whinney, a national accounting firm, is overseeing the prudence audit and is expected to complete the audit sometime in 1988. Pursuant to the order, the Company submitted for review ten areas in which it believes its performance in the construction of Palo Verde exceeds the prudence audit standard of "reasonableness". Costs ultimately deemed by the ACC to have been imprudently incurred will be recognized as a loss by the Company at such time as it becomes probable that the costs will be disallowed for ratemaking purposes. Although the Company is unable to predict the ultimate outcome of this matter, management believes that overall Palo Verde was constructed and planned in a prudent manner.

Pursuant to an order issued by the ACC in October 1986, the Company estimates that up to

$47 million in revenues attributable to the inclusion of $210 million of capital costs of Palo Verde Unit 1 ("Unit 1") collected through December 31,1987 are to be deemed interim and temporary pending the outcome of the prudence audit.

Construction Cap As an incentive to complete construction and commence operation of Palo Verde, in November 1984, the ACC issued an order that set a construction cost limit of $2.86 billion for the Company's share of Palo Verde. Amounts expended in excess of the construction cost limit are presumed te.b* Imprudently incurred for ratemaking purposes (although no nresumption of prudence will attach to expenditures made up to such limit). The Company considers Palo Verde Unit 3 ("Unit 3") to have commenced ecmmercial opera:lon on January 8,1988, at which time the Company's, share of total Palo Verde construction costs was estimated to be $2.77 billion.

Cost Deferrals Oa October 9,1986, the ACC issued an order allowing the Company, for ACC purrotes, to defer substantially all costs relating to, and accrue a carrying charge on, that portion of common facilitie mutated with Psio Verde Unit 2 ("Unit 2") and Unit 3 from Ja luary 1,1986 until the con nercial neration dates of each unit. 'il:e Company considers Un!t 2 and Unit 3 to have commenced rammercial operation on September 19,1986 and January 8,1988, respectively.

On December 5,1986, the ACC issued an accounting and ratemaking order allowing the Company, for ACC purposes, to defer srbstantially all costs relating to, and secree a carrying charge on, its share of Unit 2 and associated common facilities, for the period of time between Unit 2 going into ecmmercial operation and new retail electric rates gesing into effect to cover these costs. The Company has proposed that the costs of owning and operating Unit 2 be phased into its retail electric rates in 1988 and 1989. The hearing in the Unit 2 rate case was completed in June 1987 with a decision expected in early 1988.

On July 24,1987, the Company filed an application with the ACC requesting an accounting and ratemaking order allowing the Company to defer expenses relating to, and accrue a carrying charge on,l's ownership interest in Unit 3 and related common facilities for the period of time between the commercial operation date of Unit 3 and the effective date of new rates to cover the costs relating to Unit 3. Failure to grant such accounting and ratemaking order would adversely affect the Company's net income by approximately $7.5 million per month from the commercial operation date of Unit 3. A specific rate application designed for recovery of Unit 3 costs has not yet been filed with the ACC.

18

ARIZONA PUBLIC SERVICr3 COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Financial Accounting Standards In October 1987, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 92, Regulated Enterprises-Accounting for Phase-in Plans. SPAS No. 92 will preclude the Company from recording an equity return on cost deferrals, in accordance with an ACC order, the Company has been accruing a carrying charge, which includes an equity return, related to Unit 2 and its associated common facilities. Effective January 1,1988, the Company will not be able to continue accruing an equity return for Unit 2, which will adversely affect net income by approximately

$2.7 million per month. Such impact, however, should be short-term as a decision in the Unit 2 rate case is expected in early 1988. The Company will not be able to accrue an equity return for Unit 3, which will r.dversely affect net income by approximately $2.5 million per month.

Effective January 1,1938, SFAS No. 90, Regulated Enterprises-Accounting for Abandonments and Disallowances of Plant Costs requires any disallowance, direct or indirect, of the cost of a recently completed plant to be recognized as a loss.

4. Common and Non. Redeemable Preferred Stock.

The balances at December 31,1987 and 1956 of common stock and of preferred stock, which is not redeemable except pursuant to call by the Company at its option, are as follows.

Number of Shares l'ar Value Call Outstanding at Outstanding af I' rice December 31, l'n December 31. l'er Authorized 19s7 19s6 Share 1957 19=6 Share (s)

(ThousandA Of NOllart)

Common Stock . . . . . . . . . . 1M,000,000 71,264,947(b) 71,264,947(b) $ 2.50 Eg $178,162 -

Nor. Redeemsble Preferred Stock (cumulative):

$1.10 cr: terr A . . . . . . 160,000 155,945 155,945 $ 25.00 $ 3,S93 $ 3,898 $ 21.50 105,000 103,254 103,254 50.00 5,163 5,163 51.00

$2.50 r:referrcA . . . . . .

i 52 36 prderred . . . . . . . . 1?0.000 40,000 40,000 50.00 2.000 2,000 51.00 54.35 preferred . . . . . . . . 150,000 75,000 75,000 100.00 7,500 7,500 102.00 Serial preferred . . , . . . 1,000,000

$2.40 Series A ...... 240.000 240.000 SA 00 12.000 12.000 50.50

$2.625 Series C , . . . . . . 240,000 240,900 50.00 12.000 12,000 51.00 200,000 200,000 50 00 10,000 10.000 50.50 92.273 Series D . ...

320,000 320,000 50.00 16,000 16,009 51.00

$3.25 Series E . . . .

Serial preferred . . . . . . 4,MO,000(c)

$8.32 Series J . . . . . . . . 500,000 500,000 100.00 50,000 50,000 (d)

Adjustable rate 500,000 500,000 100.00 50,000 50,000 (e)

Series Q . . . . . . . . . . .

Serial preferred ...... 10,000,000

$3.58 Series 0 . . . . . . . - 2,000.000 25.00 - 50,000 (f)

Total . . . . . . . . . 2,374,199 g [g [.?ls,561 (a) In each case plus accrued dividends.

(b) As a result of the 1985 corporate restructuring described in Note 2, these shares are now held by Pinnacle West.

(c) This authorization also covers outstanding redeemable prefe: red shares shown in Note 5, as well as the non. redeemable shares indicated above.

i.

19

AltlZONA l'Ulti,1C SEltVICE COMI'ANY NOTES TO CONSOI.! DATED FINANCI AL STATE 3 TENTS (continuedI (d) At $103.00 through August 31,1992; and at $101.00 thereafter.

(e) Bears dividends at a rate, aljusted on a quarterly basis, 27 helow the rate borne by y certain United States Treasury Securities, but in no event less than GT per annum or greater than 12% per annum. Itedeemable on or after March 1,198S at the option of the Company at

$103.00 through February 28,1993; and at $100.00 thereafter. ,

(f) The $3.58 Series 0 was repurchased on June 1,1987 at $27.39 per share plus accrued dividends. .

The holders of preferred stock are entitled to one vote for each share held of record. Special requirements for favorable votes of holders of preferred stock, voting by the classes respectively prescribed for the several purposes, pertain to (1) certain conversions or exchanges of outstanding preferred stock, (ii) the authorization of any stock ranking prior to the preferred stock, (iii) making any change in the terms and provisions of preferred stock that would adversely atiect the rights and preferences of the hohlers thereof, (iv) the issuance of any I additional shares of preferred stock except under prescribed circumstances or (v) a merger, consolidation or sale of substantially all the assets of the Company. The foregoing voting rights attach to both redeemable and non-redeemable preferred stock, as do the rights that would arise out of dividend arrearages as discussed in Note 5. i.

Changes in common and non redeemable preferred stock and premiums and expenses -

during each of the three years in the period ended December 31,1957 are as follows (dollars in thousands):

Non.ltedeemable l' referred Stock I'remiums Crmmon stock t cumulath e n and -

N u ml>cr l'ar \ alue N umb< r l'ar Value Es penm ',':

Deveatie of Share. A rnou n t of Share. A mount Net' .

Lalance, December 31,1954 70,128,329 $175.321 4.374,199 $218,561 $1,015,188 Common Stock ., , , , 1,136,018 2.841 -

a5,721 /

Balance, December 31,1955 ,

E264,947 178.162 4.374,199 218.561 1,040,909 ,

Premimm and Expenses Net __ _

($25)

Ba'a. ice, December 31,1986

. 71,261,917 178,162 _4,3i4,199 __213.561 1,010,034 .>

$3.58 Series O ,. ,

f 2.000.000) (50,000) -

Premiums & Expenses - Net - - - -

(5,720)

Balance, De< ember 31,19s7 . ~ 1y61.917 $ 177,16:. 2.374,199 $168.561 $1.031.364

• 1'remiums and expenses - net also includes those of redeemable preferred sit ' issues (see Note 3).

20

ARIZONA PUBLIC SERVICE COMI'ANY NOTES TO CONSOLIDATED FINANCI AL STATEMENTS (continued)

5. Redeemable Preferred Stock.

The balances at December 31,1987 and 1986 of preferred stock which is redeemable at the option of the holders or pursuant to sinking fund obligations, in addition to being callable by the Company, are SS folloWs. l'ar Value Number of Shares Outstanding at Outstanding at Call December 31. l'er December 31. I' rice 19m7 1956 Share 1951 1956 l'er Share (s)

' Th ""*"d' f D ll*

Redeemable Preferred Stock (cumulative)

Serial preferred: (b)

$10.00 Series 11. . . . . . . 72,677 88,677 $100.00 $ 7,268 $ 8,868 (c)

$8.80 Series K . . . . . . . . 277,100 344,600 100.00 27,710 34,460 (d)

$9.70 Series L . . . . . . . . - 384,000 100.00 - 38,400

$12.90 Series N . . . . . . . 370,000 370,000 100.00 37,000 37,000 (e)

Adjustable Rate Series P . . . . . . . . . . . - 100,000 100 ^3 - 10,000

$11.50 Series R . . . . . . . 500,000 500,000 100.00 50,000 50,000 (f)

$8.48 Series S . . . . . . . . 500,000 -

100.00 50,000 - (g)

$8.50 Series T . . . . . . . . 500,000 -

100.00 50,000 -

(h)

Total . . . . . . . . . . . . . 2,219,777 1,787,277 $221,978 $178,728 (a) In each case plus accrued dividends.

(b) See Note 4 for at.thorized number of shares.

(c) Redeemable at $105.40 through September 1,1988, and thereafter declining by $0.30 per year to par after September 1, 2002. Applicable sinking fund provisions require the redemption of 16,000 shares at par annually (representing annual payments of $1,600,000). ,

(d) Redeemable at $106.00 through February 28,1939: at $103.00 through February 28, 1998; and theteafter delining in steps to $101.00. Applicable sinking fund provisions require the redemption of 22,500 shares at par annually (representing r.nnual payments of $2,250,000). The Company ms), but le not required to, redeem an additirnal 22 600 shares at par on March 1 in any year.

(c) lledeemable after June 1,1992 at the option of the Company at $106.11 through '

June 1,1993, declining by (0.68 per year to $100.00 after June 1,2001. Applicable sink!ng fund provisions require the redemption at par value betw(en 1955 and 2002 of all shares according to a predetermined schedule.

(f) Redeemable after June 1,1994 at the option of the Company at $105.45, declining each year by a predetermined amount to $100.00 after June 1, 2004. Applicable sinking fund provisions require the redemption at par value between 1990 and 2004 of all shares according to a predetermined schedule.

(g) Not redeemable prior to June 1,1992 with the proceeds of borrowed funds or stock issues having a lower cost of money than this Series' dividend rate. Otherwise, redeemable at the option of the Company at $108.48 per share prior to June 1,1992, at $104.24 prior to June 1, 1993, at $102.12 prior to June 1,1994 and at $100.00 per share thereafter. Applicable sinking fund provisions require the redemption at par of 100,000 shares annually beginning June 1, 1993.

(h) All outstanding shares to be redeemed at par on September 1,1994.

/ 21 l

ARIZONA l'UBLIC SERVICE COMPANY NOTES TO CONSOLIDATED FINANCI AL STATEMENTS (continued)

If there were to be any arrearage in dividends on any of its preferred stock or in tha sinking fund requirements applicable to any of its redeemable preferred stock (each such dividend being cumulative and of equal ranking with other such dividends, and each such requirement being cumulative and of equal ranking with other such requirements), the Company could not pay dividends on its common stock or acquire any shares thereof for

, consideration. If any such dividend arrearage were to equal six or more quarterly dividends, the

] holders of preferred stock, in addition to their other voting rights and voting by the classes a prescribed for this purpose, could elect a total of six directors (all series of serial preferred stock, regardless of par value and whether redeemable or non redeemable, comprising one such class and being entitled to elect two of the six directors). See Note 4 in regard to other voting rights of holders of preferred stock.

] ,

The combined aggregate amount of redemption requirements for the above issues each year ,

through 1992 are as follows: $6,440,000 in 1988; $6,440,000 in 1989; $9,873,000 in 1990; $9,873,000 t in 1991; and $9,141,000 in 1992.

Redeemable preferred stock transactions during each of the three years in the period ended December 31,1987 are as follows (dollars in thousands):

Number Par Value Description of Shares Amount Balance, December 31,19S4 . . . . . . . . . . . . . . . . . . . . . . . . . 2,827,400 $282,740

, Hetirements:

$8.50 S e ri es G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,400) (3,840)

$ 10.00 S e ri es 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (199,323) (19,932)

$ 10.7 0 S e ri es : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,066) (3,007)

. $S.80 S e ri es K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (255,400) (05.540)

$11.95 Series M , . . . . . . ....................... (110,0 _00) (11,000) ,

Balanee, D.cember 31,1955 .. ..... ....... .. ..... 2,194,211 219,421 hetirements:

. $ 10.00 Seria 11 . . . . . . . . . . . . . . . . . . ......... .. (16,000) (1,600) i $ 10.70 S eri es I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20),934) (20 093)

, $ 9.70 Se ries b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (96.000) (&,600) i

$11.95 Seri s M . . .... ................... (85,000) t 8,500) ,

Balanee, December 31,1986 ........................ 1,787,277 178,738 I i Juuances: I

$8.48 Series S . . . . . . ......... ....... ..... 500,000 50,000

$8.50 F e rk s T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 50.000 Retirements

i $ 10.00 S e ri es II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,000) (1,600)

$8.80 Series K .......... .................... (67,500) (6,756)

! $ 9.70 S e ri es L , . . . . . . . . . . . . . . . . . . . , . , , . . . . . . . (384,000) (38,400) l

! $12.50 Series P . . . .........................., ,,( 100,000) (10,000) I

Balanee, December 31,1987 ......................... 2,219,777 $221,978 1

i 4 ,

1 l

? - l 1

l

l j l

ARIZONA PUBLIC SERVICE COMPANY NOTES TO CONSOLIDATED FINANCI AL STATEMENTS (continued)

6. long-Term Debt.

Details oflong term debt outstanding at December 31,1987 and 1986 are as follows:

December 31 First Mertgage Bonds: an im Maturing through 1992: (Thousanda or Don.co 5.125% due October 1,1987 ............................. $ - $ 15,000 t 4.7% d ue M a rch l,1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 20,000 ,

4.8% d ue November 1,1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000 4.45% d ue J un e 1,1992 . . . . . . . . . . . . . . . . . . . . . . ......... 25,000 25,000 4.40% due December 1,1992 . . . . . . . . . . . . . .............. 25,000 25,000 Maturing 1993 tbrough 1997 - 4.50% to 12% .................. 515,000 390,000 Maturing 1998 through 2002 - 7.45% to 12.875% . . . . . . . . . . . . . . . . 249,645 277,311 Maturing 2003 through 2007 - 6.20% to 13.25% ................ 218,000 218,000 Maturing 2008 through 2012 - 6% . . . . . . . . . . . . . . . . . . . . . . . . . . 34,000 34,000 Maturing 2013 through 2017 - 9% to 11.5% . . . . . . . . . . . . . . . . . . . 450,090 350,000 Unamortized discount and premium . . . . . . . . . . . . . . . . . . . . . . . . (4,598) (1,487) i Total fi rs t m or t ga g e bo n ds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,567,047 _1,387,824 Pollution Control Indebtelness:

Matu ri ng August 1, 2009 (a ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,930 106,980 i M at u ri n g Dece m be r 1, 2009 ( c ) . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,000 117,000 M a t u r h g May 1, 2013 (c ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,750 65,750 M a t u ri n g M ay 1, 2014 ( d ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,200 55,200 Maturing February 1,2015 (a) ........................... 49,400 49,400 Less securities held by trustee (b) ......................... (11,104) (12,689)

Total pollution control indebtedness . . . . . . . . . . . . . . . . . . . . . 413,226 _ 411,641 Debentures: l 11.75% guaranteed due January 15,1990 (e) . . ............... - 60,000  !

12.5% dua February 1%,1992 . . . . .. .... ........ ....... 75f@ 75,000

! Total debentures ......... . ..... .......... , , 75,000 135,000 Unsecured notes payable due 1987 . . . . . ..... .......... . -. 70,000 Revniving credit agreements (f) . . ...... ..... . ........ 120,000 110,000 ,

3 Term loan due June ;996 (LICOR p!ns 4%) .................... 80,000 80,000

Capitalized lease obligation (g) . .. ............ ..... ..... 43,410 45,222 Other . ............. .. . ... ............. .. . . 1,063 1,636 i

> Unamortized discount . . . .. .... .... ......... ....... -

_,(178) j Total !ong term debt . . . . . . . . ......... . ... ...... 2,299,746 2,241,615 Less current maturities:

5.125% first mortgage bonds due 0etober 1,1037 . . . . . . . . . . . . . . . - 15,000 i l

11.50% first mortgage bonds due June 1,2015 . . . . . . . . . . . . . . . . . - 150,000 i Unsecured notes payable due 1987 , . . . . . . . . . . . . . . . . . . . . . . . . - 70,000 11.75% guaranteed debentures due January 15, 1990 ( e ) . . . . . . . . . - 60,000

Sinking fund requirements on first mortgage bonds . . . . . . . . . . . . 15,333 15,333 l

Capitalized lease obligation (g) . ......................... 1,952 1,748 I

, Other ............................................. 511 473 l 1 Total current maturities ............................. 17,796 312,551 Total long term debt less current maturities . . . . , . . . . . . . . . . l

$2,281,950 g i

! 23 l

4 1

l

_.1

ARIZONA l'UllLIC SEltVICE COMI'ANY NOTES TO CONSOLIDATED FINANCIAI STATEMENTS (continued)

(a) Adjustable rate annual tender pollution control revenue refunding bonds supported by a long term irrevocable letter of credit issued by a bank. The bonds bear an interest rate, determined annually, which will cause the bonds to have a market value which approximates, as nearly as possible, their par value.

(b) Representing pollution control funds deposited with a revenue bond trustee to be disbursed as needed to pay the costs of acquiring, constructing, reconstructing, improving, maintaining, equipping or furnishing the facilities financed.

(c) Consisting of borrowings from a governmental authority which has funded that amount through issuance of a series of par value demand bonds supported b3 a long-term irrevocable letter of credit issued by a bank. These bonds bear interest at such rate, determined weekly, as will cause the bo-ds to have a market value which approximates, as nearly as possible, their par value.

(d) On May 15,1985 the Company borrowed from a governmental authority the proceeds of a $55,200,000 issue of adjustable rate annual tender pollution control revenue refunding bonds for the purpose of refunding $55,200,000 in aggregate principal amount of previously issued pollution control bonds due April 1,1986. The new issue is supported by a long term irrevocable letter of credit issued by a bank. The bonds bear an interest rate, determined annually, which will cause the bonds to have a market value which approximates, as nearly as possible, their par value.

(e) The 11.75"e debentures due January 15, 1990 were redeemed on January 15,1957 at 101%"e plus ecerued interest.

(f) Represents domestic commercial paper and borrowings under a $120,000,000 l Eurocommercial paper program aguement among the cora pan > and various financial I

institutions that is supported b/ a revolvir:g credit agreement which expires in 1991. At December 31, 1987. the outstandi1g balance consisted of $56,000,000 of Eurocommercial paper and $34,000,000 cf domestic commerelal paper. At Dece.nber 31, !986, the outstanding ba?ance I consisted M $100,000,000 of Turn.:omrnercial paper and $10,000,000 on the revolving credit agreement. Interest rates an neutlated at the time of bcrro'ving. Interest rates arplicable to b;rn uings under the revolving credit acrecment are LIBolt plus 0.307 to 0.459 with commitment fees of 0.154 on the unused crecit line.

(g) R2 presents the present value of future lease payrnents (discounted at the interest rate of 7 431) on a combined cycle plant sold and lease i back from the independent owner trustee formed to own the facility. The lease requires semi annual payments of $2,552,000 through June 2001, and includes renewal and purchase options based on fair market value. This plant in included in plant in service at its original cost of $51,405,000; accumulated depreciation at Ihcember 31,1987 was $25,892,000.

Aggregate annual payments due on long term debt and for sinking funit requirements through 1992 are as follows: 1988, $17,796,00rn 1989, $37,9c,000; 1990, $98,193,000; 1991,

$173,365,000 and 1992 $143,551,000. See Note 5 for sinking fund requirements and redt.mptions of redeemable preferred stock.

Substantially all utility plant, other than nuclear fuel, transportation equipment and the combined cycle plant mentioned above, is subject to the lien of the first mortgage binds. The 2i

AltlZONA l'UllLIC SEllVICE COMl'ANY NOTES To CONSOLIDATED FINANCIAL.STATDIENTS (continued) indenture respecting the first mortgage bonds includes provisions which would restrict the payment of dividends on common stock under certain conditions which did not exist at December 31,1987.

7.1,ines of Credit and Compensating Italances.

The Company's lines of credit at December 31,19S7 and 1986 are summarized below. No amounts were outstanding under the lines at December 31,1987 and 1986.

1987 1946 (Thousands of Dollars)

Commercial paper backup lines ....... ............... $200,000 $175,000 Other domestic bank lines (a) . . . . . . . . .............. 226,000 240,000 Total........... . ........................ $426.000 $415.000 (a) Including $20,000,000 available under a credit agreement between the Company and various banks which carries a commitment fee of 4% per annum.

The commitment fees for th; commercial paper backup lines and virtually all of the other bank lines (exclusive of the credit agreement referred to in (a) above) were h% per annum in 1957 and 1956. Compensating balances required (but which were not legally restricted) for a small portion of the other bank lines (exclusive of the credit agreement referred to in (a) above) were 54 of the lines plus 10T of borrowings in 1987, and generally 7MT of the lines plus 59 of burowings in 1956.

By statute the Company's short term borrowings cannot exceed 7% of total capitalization without the consent of the ACC.

25 l

ARIZONA PUllLIC SERVICE COMPANY NOTES TO CONSOI.lDATED FINANCIAL, STATE 3 TENTS (continued 1

8. Jointly Owned Facilities.

At December 31, 1987, the Company owned interests in jointly owned electric generating and transmission facilities are as follows (dollars in thousands):

Percent Net Construction owned by Plant in Accumulated Plant in Work in Company Senice Depreciation Senice Progress Generating Facilities:

Palo Verde Nuclear Generating Station -

Units 1,2 and 3 . . . . (a) $1,600,463 $ 78.890 $1,521,573 $s31,420 Four Corners Steam Generating Plant -

Units 4 and 5 . . . . . . 15.0 % 127,496 25,473 102,023 815 Navajo Steam Generating Plant -

Units 1,2 and 3 . . . . 14.0 % 125,335 46,081 79,254 166 Transmission Facilities:

ANPP Transmission System . . . . . . . . . . . 35.8%(b) 61,470 4,009 57,461 4,922 Navajo Southern i Trr.nsmission System 31.4%(c) 27,887 10,724 17,163 131  !

Palo Verde Yuma 500KV System . . . . . 23.9%(d) 15,376 1,450 13,926 -

Total . . . . . . . . . . . $1,958,027 $166.627 $1.79h400 $837,454

[

(a) The Company owns 29.1% of Units 1 and 3 and approximately 17% of Unit 2 (see Note 9).

(b) Welirhted average of interests varying from 34.6% to 43.95%.

(c) highted average ofinterests varying from 11% to 1001.

(d) 5 /elgnted aserage of interests varying from 11% to 100%.

)

The foregoing dollar amounts correlate to the Company's percentage ir,terest in each facGity. The Company's share of related operating and maintenance expenses is included in Operr.tbg Expenses.

9. leases in 1936, the Company entered into sale and leaseback transactions under which it sold approximately 42% of its 29.1% share of Palo Verde Unit 2 resulting in net proceeds of $187,296,000, The resulting gain of approximately $140,220,000 has been deferred and is being amortized to operations expense over the original lease term. The leases require semi annual payments of approximately $22,061,000 through December 1996, $23,605,000 through June 1997 and $26,963,000 through December 2015 and include options to renew the leases for two additional years and to purchase the property at fair market value at the end of the lease terms. The leases are being accounted for as operating leases. lease expense for 1987 and 1966 amounted to $13,415,000 and

$9,985,000, respectively, of whleh $39,421,000 and $9,060,000 was deferred as allowed by an order from the ACC (see Note 3).

26

AllIZONA PUllLIC SEltVICE CO.TIPANY NOTES TO CONSOLIDATED l'INANCI A L STATE.\lENTS (continued 1

10. Income Tax Expense.

The components of income tax expense for each of the three years in the period ended December 31,1987 are as follows:

Year Ended Decernber 31.

1947 1956 19s5 (Thousands of Isollars)

Currently payable:

Fed e ral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,073 $ 46,463 $ 10,095 State .............................. 3,428 17,951 10,664 Other .............................. 235 1,643 2,861 Total c u r re n t . . . . . . . . . . . . . . . . . . . . . . . 53,736 66.057 23.620 Deferred:

Depreciation-net . . . . . . . . . . . . . . . . . . .. 86,128 62,347 57,273 Taxes, pension costs and other-net . . . . . . . . 59,274 84,550 48,003 Sale of utility plant . . . . . . . . . . . . . . . . . . . . -

(84.697) -

Investment tax credit-net . . . . . . . . . . . . . . (1,82J ) 23,563 36,383 Total d eferred . . . . . . . . . . . . . . . . . . .. 143,578 90,763 141,659 Total ........................... $197,314 $156.820 $165.279 The difTerence between income tax expense and the amount obtained by multiplying income before income taxes by the statutory federal income tax rate for each of the three years in the period ended December 31,1987 are as follows:

Year Ended llecember 31.

1947 19*4 1955 (Theutaads of Dollars)

Federal income tax expense at statutory rate (401 in 1987 and 46% in 1986 and 1985) . . . . . . . . .. ... $t04,175 $198.232 $225,723 Increases (reductiens) in tax expense resulting feora:

Tax under book depreciation . . . ............ 30,935 18,855 16,431 Allowance for funds used during con struction . .. (27,430) (60.711) (88.222)

Palo Verde cost deferral . . . . . . .... . .. . (20.965) (11,505) -

Investment tax credit amortization . . . . . . . . . . . (8,273) (5,975) (2,955)

State income tax-net of federal income tax benefit ........... ................... 18,481 13,239 11,815 Other ................................. 91 4,685 2,487 Total provision for federal and state income tax expense ........................ .... $197,314 $156f20 $165.279 In December 1987, the FASilissued SPAS No. 96. Accounting for Income Taxes. SFAS No.

96 retains the concept of comprehensive interperiod tax allocation, however, the way in which deferred income taxes are computed has changed from the existing "deferred" method to a

, liability concept. The new statement will be effective beginnir.g in 19s9, although earlier adoption is encouraged. SPAS No. 96 will be implemented by recording a cumulative effect adjustment as of the beginning of the year in which SPAS No. 96 is filst adopted. The Company expects adoption of SPAS No. 96 to have little impact on earnings and has not yet made a determination as to the timing of implementation.

27

ARIZONA PUllLIC SERVICE COMPANY NOTES TO CON 801.lDATED FIN ANCI Al, STATDIENTS (continued)

11. Pension Plan and Other llenefits.

The Company's pension plan, a defined benefit plan, covers virtually all employees. The I benefits are based on years of service and compensation utilizing the final average pay plan benefit formula. It is the Company's policy to fund the plan on a current basis to the extent I

deductible under existing tax regulations. Pendon cost, including administrative cost, for 1987,

! 1986, and 1935 was approximately $1,484,000, $2,751,000, and $15,458,000, respectively, of which approximately $601,000, $6M,000, and $5,081,000, respectively was charged to expense; the remainder was either capitallzed as a component of construction costs or billed to participants of jointly owned facilities. Plan assets consist primarily of common stocks, U.S. obligations and bonds.

In 1986, the Company adopted SPAS No. 87, Employers Accounting for Pensions. Net periodic pension cost under SPAS No. 87 is made up of the components listed below at determir.xl using the projected unit credit actuarial cost method. For prior years, the Company's net periodic pension cost was normal cost as determined using the aggregate actuarial cost method.

Net periodic pension cost (income) included the following (thousands of dollars):

1947 19s6 Service cost benefits earned during the period . . . . . . . . . $ 12,580 $10,253 l

i Interest cost on projected benefit obligation . . . . . . . . . . . . 20,095 18,5S7 I Return on plan assets . . . . . ........ .......... . (17,634) (54,441)

Net amorcization and deferral . . . . . . ... ..... .... (15,790) 26,171 Net periodic pension cost (income) .... ...... ... . {(749) $ 570 The following table sets forth the plan's funded status and amounts recognized in the Company's balance sheets (thousands of dollars):

1957 19=4 Actuarial present value of benefit obHgation, including vested Fenefits of $137,857 and $152,884 . . ....... $165,863 $173,825 Effect of projected future compensation increases . . . . . . 79.852 68,319 Projected benefit obligation . . . . .... .. . ... ... 245,721 242,144 Plan assets, at fair value . . . .. ... . . ...... ... 299,073 291,934 Plan assets in excess of prokted benefit obligation . .. 53.352 52,790 Unrecognized net loss from past experience ditTerent from that assumed .............. ... ............. 959 4,241 Unrecognized prior service cost . . . . . . ..... . .. . 90 -

Unrecognized net asset at January 1,1986 being recognized over 20.2 years . . . . . . . . . . . . . . . . . . . . . . . (5$,541) (62,005)

Accrued pension liability included in other deferred c r ed i t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,110) _$ (4,974) l l

2s I

ARIZONA PUBLIC SERVICE COMPANY NOTES TO CONSOLIDATED FINANCI AL STATEMENTS ;continuedi 1947 19M Principal actuarial assumptions used were: j Discount rate ............................... 9.0% 8.0%

Rate of ineraase in compensation levels . . . . . . . . . . . . . 6A% 5.5%

Expected long term rate of return on assets . . . . . . . . . 10.15 % 10.15 %

In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for active and retired employees. Life insurance benefits are provided through a'. Insurance company whereas health care costs are paid as expenses are incurred under a self insured plan. The cost of providing those benefits for both active and retired employees amounted to approximately $22,721,000, $18,591,000 and $14,509,000, of whleh

approximately $8,922,000, $6,285,000 and $5,825,000 was charged to expense in 1987,1986 and 1985, respectively. Remaining amounts were either capitalized as a component of construction ,

costs or billed to participants of jo!ntly owned facilities. The cost of providing such benefits solely to retired employees is not significant. <

12. Commitments and Contingencies.

. Nuclear Insurance The Palo Verde participants have insurance for public liability payments resulting from -

nuclear energy hazards to the fulllimit ($720 million as of January 1,19S8) of liability under l

federallaw (such law being commonly referred to as the "Price Anderson Act.") The maximum amount of insurance available from private carriers of $160 million has been purchased. The p j balance of the coverage ($560 million as of January 1,1988) is provided through a secondary >

f

financial protection program using an industry retrospective rating plan, under which the Palo i Verde participants could be assessed deferred premium charges of up to $5 million (of which the 3

Company's share would be 29.1%) for each Palo Verde unit licensed by the NRC in the event the  !

total liability arising from any nuclear incident involving any licensed facility in the nation l exceeds $160 million. In the event of more than one incident, the potential $5 million assessment would apply to each incident, subject to a maximum annual assessment of $10 million (of which the Company's share would be 29.1%) for each Palo Verde unit for all incidents. The insureds '

1 under the liability insurance include the Palo Verde participants and "any other person or i organization with respect to his legal responsibility for damage caused by the nuclear energy 1 hazard."

$ The Palo Verde participants maintain "all ris',c" tincluding nuclear hazards) insurance for ,

i nuclear property damage to, and decontamination of, property at Palo Verde in the aggregate (

amount of $1.525 billion as of January 1,19S3, a substantial portion of which must first be f

! applied to decontamination. The Cempany has also syured insurance against the increased cost f l of generation or purchased power resulting from the accidental outage of Units 1,2, and 3 i

! which, after a 26 week deductible period, will pay up to approximately $813,000 per week for I j

Unit 1, approximately $851,000 per week for Unit 2, and approximately $662,000 per weck for f Unit 3 for 52 weeks and up to 50% of the respective amounts for an additional 52 weeks. In the e j event that the incident affects more than one unit, the indemnity is reduced by 20% for esch additionally affected unit (i.e., two units simultaneously out of service result in 801 of single j unit recovery for the second unit; three units simultaneously out of service result in 60% of j

single unit recovery for the third unit). [

j in addition to the above described policies of insurance, the Palo Verde participants are j parties to an indemnity agreement with the NitC containing an undertaking by the NitC to ,

! indemnify the Palo Verde participants and any other person who may be legally liable for public j 29 1

f

)

i i i

i

ARIZONA PUlit,1C SERVICE CO.itPANY NOTES TO CONS 0lJDATED FINANCIAL STATE >f ENTS (cortinued t liability arising from nuclear incidents. The maximum aggregate indemnity for each nuclear incident is $500 million less the amount by which the amount of required financial protection exceeds $60 million. The indemnity agreement is not currently operative and will remain inoperative unless or until the level of financial protection (i.e., the aggregate amount of primary and secondary levels of hability protection) required of Palo Verde participants falls below $560 million.

The provisions of the Price Anderson Act relating to the authority of the NRC to enter into

, new indemnity agreements with licensees of nuclear power plants expired or August 1,1987. I Ilowever, the Comptroller General of the United States has delivered an opinion stating that, l until new legislation le adopted, the provisions of the Price Anderson Act relating to the retrospective rating plan and the limitation of lisbility will continue to be applicable to nuclear power plants licensed for construction or operation prior to that date. The 100th Congress has {

considered exte slon of the expired provisions of the Price Anderson Act as well as amendment or elimination of other provisions thereof. If the Price Anderson Act is modified to increase or eliminate the limit of liability, the Company's potential assessment in the event of a nuclear incident would be significantly increased.

Litigation The Company is a party to various claims, legal actions and complaints arising in the ordinary course of business, including a lawsuit seeking to invalidate the Company's contract with various municipalbs for the purchase of enluent to be used as cooling water for Palo Verde. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the operations or financial position of the Company.

Purehase com mitments The C<,mpany has significsnt purchase commitments in connection with its continuing construction program. Construction expenditures in 1958 have been estimated at $310f>00,000.

13. Supplementary income Statement Information.

Other taxes charged to operations during each o the three years in the period ended December 31,1937 are as follows:

Year Ended Denmber 31.

197 194 1951 (Thousands of Dollars)

A d v alor e m . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,357 $ 55,793 $ 45,5St Sales ............ .... ..... ......... 62,783 58,606 51,433 Other ................ . ..... ...... 10,214 0,189 7,2A4 Total ot h e r ta xes . . . . . . . . . . . . . . . . . . . . . .. 4144,356 $123,593 ~$101.276 30

l l

ARIZONA PUllLIC SERVICE COMPANY NOTES TO CONSOI.lDATED FINANCIAL, STATEMENTS (continued)

14. Selected Quarterly Financial Data (Unaudited).

Earnings l'er Operating Operating Net Earnings for Share of Het enuee Income income Common Stock Common Stock Quarter (Dollars in Thousand4. Escept l'er Share Amounts) 1987 First $290,325 $ 65,171 $ 74,320(a) $65,109(a) $0.91(a)

Second 326,820 81,122 75,185 67,267 0.94 Third 392,792 108,539 101,453 94,068 1.32 Fourth 303,501 72,532 62,915 54,479 0.76 1986 First $274,530 $ 61,317 $ 59,263 $48,682 $0.68 Second 295,452 60,103 53,689 43,662 0.61 Third 391,738 99,942 102,223 92,874 1.30 Fourth 288,192 67,513 58,945 49,623 0.70 (a) Includes cumulative effect as of January 1,1987 of accruing unbilled revenues, net of income taxes, of $16,110,000 ($0.23 per common share).

ACCOUNTANT 8' Ol' INION Arizona Public Service Company:

We have examined the consolidated balance sheets of Ar.wna Public Service Company and its subsidiaries as of December 31,1987 and 1986 and tae related consolidated statements of income, retained earnings and changes in Snancial position for each of the three years in the periix! ended Dteember 31, 1937. Our examinations were made in accordance with generally accepted auditing standards and, accordingly,ine'uded such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances, in our opinion, such consolidated financial statements present fairly the Snancial position of Arizona l'ublic Service Company gnd its subsidiaries at December 31,1987 and 1986 and the results of their operations and the changes in their financial position for each of the three years in the perimi ended December 31, 1987, in conformity with generally accepted accounting principles consistently applied during the period except for the change, with which we concur,in

!!'87 in the methat of accounting for unbilled revenues as dexribed in Note 1 to the censolidated financial statements, bM Ab$W /Ms l'hoenix, Arizona February 16,1988 31

1 l I l L j APS DIREMORS Joe Acosta,64, Campbell, Sindlinger and Strassels, Ltd., C.P.A.s, P.A., Phoenix, Arizona .

l Dino DeConcini,54, attorney at law, Phoenix, Arizona 4

8 O. Mark De Michele, 54, president and chief executive officer of the Cc'npany, Phoenix, Arizona 2 Karl Eller,58, chairman of the board, The Circle K Corporation, Phoenix, Arir.ona ,

8 Marianne Moody Jennings,34, professor of business law, Colles , of Business Administration, .

Arizona State University, Tempe, Arizona.  !

, Jack M. Morgan,64, attorney at law and state senator in New Mexico, Farmington, New  ;

i Mexico l

Marvin R. Morrison, 64, farmer, cattle feeder and dairyman, Morrison Brothers Ranch,  !

Higley, Arizona  !

4 Jaron B. Norberg,50, executive vice president and chief financial officer of the Company, i Phoenix, Arizona L i L J

' John R. Norton 111, 58, chairman and chief executive officer, J. R. Norton Company r j (agricultural production), Phoenix, Arizona j

{

8 Donald M. Riley, 44, president and general manager, Gilpin's Enterprises, Inc. (general (

! contractor), Yuma, Arizona ,

t Wilma W. Schwada,61, civic leader and homemaker, Terrpe, Arizona l l

8 Verne D. Seidel, 62, managing partner of IIMS Properties (property management), t F;agstaff, Arizona l

' 2 Richard Snell,57, chairman of the board and president, Ramada Inc., Phoenix, Arizona i i Keith L. Turley, 64, chairman of the board of the Company; chairman of the board and [

president of Pinnacle West Capital Corporation, Phoenix, Arizona ,

8 Morrison F. Warren,64, profensor emeritus of education, Arizona State University, Tempe, -

j Arizona j

• Ben F. Williams, Jr.,58, mayor of the City of Douglas and attorney at law, Douglas, Arizona j

! Thomas G. Woods, Jr.,61, formerly executive vice president of the Company for the Arizona  !

I Nuclear Power Project (retired February 1985), Phoenix, Arizona l l

l ( Age on Annual Meeting date, April 21,1988) f l  !

8 Member of the Executive Committee, l f

! 8 Elected to the Ibard, of Directors as of March 19,1937.

8 E!ceted to the Ibard of Directors as of June 16,1987.  !

William T. Garland, Pamela Grant, John J. Rhodes, Donald N. Soldwedel, Maurlee R. Tanner,  !

1 and Douglas J. Wall served as directors to April 23,1937. l l

l 32  !

J

)

I._- ,,--. _ ______ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ , _ _ . _ _ _

SilAREllOLDER INFORM ATION

Stock Listing The adjustable rate cumulative preferred stock, Series Q (Symbol ARPQ) is listed for trading on the New York Stock Exchange. The common stock of the Company is wholly owned by Pinnacle 1

West and as a result is not listed for trading on any stock exchange. Prior to April 29,1985 the i Company's common stock was publicly held and was traded on the New York and Pacific Stock i Exchanges. At the close of business on April 28,1985 the Company's common stock was held by  ;

123,776 shareholders. i The chart below sets forth the dividends per share paid on the Company's common stock for each of the four quarters of 1987 and 1986.

Common Stock Dividends Per Share Quarter 1997 19m4 1st Quarter $0.72 $0.72 i 2nd Quarter 0.72 0.72 l 3rd Quarter 0.72 0.74 4th Quarter 0.72 0.76

\ Transfer Agent and Registrar ,

} Pinnacle West Capital Corporation Stock Transfer Department P.O. Box 52134 i Phoenix, Arizona 85072 2134 f t

(602) 222 6951 .

l General Cou nsel Snell & Wilmer Phoenix, Arizona Auditors Deloitte liaskins & Sells Phoenix, Arizona j i

i Pinnacle West Capital Corporation Stock Purchase and Idridend Reinvestma nt Plan  ;

} A Prospectus describing this plan is available upon request. Write: Omee of the Secretary, Sta.

j 1930, at the address below. ,

Form 10 K i A copy of our Annual lleport to the Securities and Exchange Commission, Form 10 K, will be i

! available after March 31, 1988, without charge, upon written request of shareholders. Write: ,

Of!1ce of the Secretary, Sta.1930, at the ad iress below. ,

MAII,1NG ADDRESS: [

l P.O. Box 53999 I Phoenix Arizona 85072 3999 I

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Introduction The Southern California Public Power Authority (Author-ity)is comprised of all 11 public power agencies in South-ern California. SCPPA has proved to be a reliable and economic source of energy for member communities by financing projects for the generation and transmission of electric energy for its member agencies.

The municipalities of Anaheim, Azusa, Banning, Burbank, Colton, Glendale, los Angeles, Pasadena, Riverside and Vernon, as well as the Imperial irrigation ,

District comprise the vast area of the Authority.These member agencies serve more than 1.7 million customers

-from the rural areas of Banning and the Imperial irrigation District to metropolitan Los Angeles-and i the growing, sprawling communities in between.

With combined sales of more than 32 million megawatt hours-which had non-coincidental peak i requirements of more than 7,500 megawatts-the mem.

ber agencies of the Authority have received in excess of  ;

$1.9 billion in annual revenue.

j Since initially going to market in 1982, the Authority l has issued more than $5 billion in bonds and notes

including refunding issues. This has been achieved l

l due to the Authority's high level of acceptance in the financial community.

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Management

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Cale A.Drews Electrkal ttility Director

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MY City of Colton Vice President

= W E. Cameron Gale A. Drews, W E. Cameron, Eldon A Cotton Directur of Public Sen Kes Prev $e*t V<e Prewt Eerretn City of Glendale

, . M retary

. Eldon A. Cotton Assistant Chief Encowr - hmer O Los Ang+ les Departnwnt of

• Mter and Rmar-.

City of los Angdes Herace W Rup;L Jr Arthur i Devine.

Awa-t Secetry Esecutw Di'e t:<

Awistant k raary Horace W Rupit Jc Encneer of Power Contrats lxs Angdes thpartnient of Leer and i% er -

Ce) of Irs Ang. des Ewt uta e Dirn f or Arthur T. Devine Fornwcr Awstant CJy Attorney C ty of les Anc In Fornxr E:ntra 2! En(no r les Arc::e s [ Apartment <>f Wer and 1%cr~

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President's Message Since its formation in November 1981, the Southern California Public Power Authority (Authority) has effi-ciently served the needs of member agencies. SCPPA received a strong endorsement as one of the most effec-tive joint action agencies in the nation with a financial rating upgrade to AA from an A + rate in September 1987. This action translates into reduced borrowing costs for Authority fund!ng due to lower interest rates. We are proud that the Authority is one of the few joint action agencies in the U.S. to carry an AA rating.

During the past fiscal year, the Authority completed funding for the floover Uprating Project in Nevada and the Palo Verde Nuclear Generating Station in Arizona.

The floover Uprate, a project of the federal government scheduled for 1992 completion, is designed to increase the output rating of Hoover Power Plant generators and, in exchange, will provide capacity and energy allocations to Authority members, among others.

Unit 3 of the Palo Verde Station is expected to go on-line in early 198S. Ten Authority members are receiving electrical generation from Units 1 and 2 which were placed into commercial operation during 1956.

1he Southern Transmission System (SB), placed into commerc:a! operation last year, ahead of schedule, is being utilized to a greater extem with the operation of the second unit of the Intermountain Generating Stvion in Utah in by 1987. The STS prcvides six Autnority members Mth transmission for additional energy and capacity, so raembers rely less on gas and oil fired gen-eration in the Los Angeles Basin.

The Authority has borrowed funds for the Mead-Phr>enix DC Intertie Project, and the feasibility study continued during the year.

During the past fiscal year, the Authorii.v moved for-wrd on all of its projects, and I have been pleased to te associated with these accomplishments. I want to espe-cially thank the staff, Board of Directors, and all those responsible for the strength of this organization.

J

()4Aa Gale A. D -

President 3

___ . .. ___= _ _ . _ - - _ . _ _ _ _ - _ _ _ _ .__ _ _ _ - . . - . . . . - _ - _ _ _ _ . - . _ _ _ _ . . _ _ _ _ - _ .

i l

Member Citics i

amanaw-m---wnm amswam.mwwunauma mm+m~ -a~~1mem

(

Anaheim The city had been a!most  ; * " -

tT

~

'd1

located 25 miles southeast of exclusively dependent on .,

- gt__

los Angeles. Anaheim is best w holesale power from Edison know n as the home of Disnt.p until receiving its Palo Verde ,

f land and other popular tourist Generating Station and lle er ,

attractions. The tourism indus- Power Plant entitlements '

I

\

try induding hundreds of hotels, motch, and restaurants.

w hith helped to displace a por.

tion of the power being pur-n .,-

~l.

'- }

l l

as w ell as the 6E000 gross chasol from Edison. lmt year, ,

' f

• square foot Anahe'm . Cons en- the utihty sold approximately .

tion Center, and a strong pres. 167,000 megawatt hours. ,

i

..,^

ente of high tech defense with a peak demand of 13 l .

p ,4 .-

l businesses are the economic base for Anaheim.

megaw atts. ,

g h h.

'f -

! The aty's power needs are Banning A , .

supplied by its ow nership gra.4 ecoach 'fhw n U.S A ',' as .

. .t interest in San Onofre Nuclear Hanning is still know n today. ,-

l - -

f. , , ,

Genenting Station l'aits 2 and res cah the city's early roots. , .

3, non firm sources. the inter- lxcatel 8') miles east of Los - '

7 j' mountain Generating Sta r n Angeles. Banning is hnderhi -

and its enhtlement in the north and viuth by mountain -

Ikwn er Power Plant,in a< di-j ranges--ihe San Gorgonio and , .

. ~-

' ion to [ow er purchased irom San Jacinto. respa. tis e'v. The I

W Southerl) Cahfornia Edison "' #

, jly was incorpOIated H; 1913

^ -

f ,

Company (Edison) In fiwal and now has > population of I

M7, pow ei purchases j ;p,o living w i>hin its 17 l and geoerahon of ? MSC square n-.ik s Banning s eco-megwcan hours mu the nomic foundatw n is built on needs at Araheim's 91 Ot o a.aricuhum light manuf.atur-j customers, with a record ing and rwreahon.

l y s!tul peak demarid of Banning is using its ent'ths- ,

l $\A mt gawa!!s. gg,gts (7gg pg (ggh,(,ggg7, Th" n'y's g epu!aton of ahng Smion ..nd R,. o r l 2 N d o ranks it as the largnt Power PI mt to oHsd some of A en : w' a mt hm uty in Orang" Co ety, one of i9 pun hel Piwt r. H had

' % t'; # ' "# #' ' ' ' ' '

the fastal growmc p pubtio" n Inal cu luu'.ch, on Edm >u. dD*O " # C'

) ^

(enters in the liuted Sta!" pun haung pow [r at ..hdes..b I'= # W "

of,aem,, h' ."t 4 : .

rates Ibnning had a jicak g 9 7 g q _,. g y l

' Arusa demand of Iw *> nu g twau; gg pp q 5,p 3 3) g j Situaksi 20 miles east of l> iluring the pr. and di n .mne.,

! Angeln near the Angt In 4proximan ly 70 m o i

National Forest. Azusa was nu o wau hours ifRilrjultatulin 1\% Pniniits lMNintungs as a .\h(hhiille lf)diall \ id.tge. Alusa tf mias hh a populanon of 30.100 withm its 11 vplare nuh s b

l i

i I

l t

i

-_ - _ ~ - . - - - - _ . _ . _ - . - - . - - . _ - - - - -.-.--_ --

i e m w n ,.n. w m m w. wu n n.n-m m m a ~ ~ -o -m - m n , - ~ ~ w m m n u m m m a nu m c' '

Burbank The city of Colton purchases

n The city of Burbank is at the baw of the Wrdugo Moun-

he n.ajori'y of its energy from Edison and additional energy (X

- x* '

4 i tains. slightly northw est of Las requirements are met through < ,

, Angeles While the city had a its entitlements in the Pa'o - -

1 I

popu!ation of KO when it was Verde Generating Station and ,,

I incorporated in 1887, today thover Powor Plant. Ce l ton '

• Butbank has M 000 residentt had a peak demand of 39 s - =,

Thiuity sen es as head- megaw atts and total energy ,

requirements of 159D 0 i

quaners for Burbank Studios, Columbia Pktures, V alt Disney megawatt hotrs.

Prmiuctions. National Broad- '

l casting Company, Warner Glendale Bng., and In kheed Ainraft. The original 150 acre townsite Burhank industries empWy of G!enda!e. formed in isS t.

m ;te than 70Ak) people. had grow n almost ten times in Burbank supplies electricity size v hen it was incorpotated to its customers through a com- in 1906. Today, thb c;ty just

bination of oil and gavf aed north of los Angtles has generating f acilities in the los grown to 30 square nules with l ' ngeles Basir., entitlemrats a population of more than Inco , 'oos ec ibwer Plant. Palo 154.001 j erac Generating Station and G!endale most rtu ntly

! the Intermountain Generating tegan rxeis ing its entitle-

! Stat;on and purthues from meats from the intermountain

! the Bonnes ille Power Admini. Generatir g Station and the stration and other utihtie s in Palo Verde Generating Station. x1,3 n3m w e, sg

, the Pacific Northwest and G!cndale rtteis es pow er from pas a Wg recuaten I the Southw est. ses eral different morces ed ant 55 000 wmn es 5 The city had a peak demand inch thng oil- and g wfin. i m 3erees ne u m s of 22S megawatts during the generation in the lm Angeles te sev; t*e reess cf year w hile generating and pus Basin, hy dnielettric generation m1,sh sme 19C5

(

(hasing 9819 0 megawatt- f rom lhiover Power Plant and

hoursof energy. t archases from the Ibnnesille l Power Admini tration and t

Coltt,n other unhties j

j Colt , n quk kly became estats G!codale purchased and

'ishi d as the llub Cits" w hen generated a total of apprusi-

]

, one square mile of lan'd was 'n stely 914 O(4) megawatt-d wdeti to the Southern Pacific hours in the fiol y ear, sen ing i Railroad in 1875. Today the ahnost 7390 customers and l had a puk demand of 232 San Bernardmo Count [v com.

munity. 55 miles east of los megaw att v l

i AnReles is on the main line of I

three majer railneh and the l intersettmg point for three l major 1.ighw ays l

l l

i l

,1 d

a t

I l

4 1

i nn.u m u m s w ~ m w m e.sra A ns w c> w mm - a wn ss -

- 9 , ~rn ~ a t -a Los Angeles Pasadena

- A pueblo fcunded in 1761 The horne of the annual Tour.

along the tu Angeles river, narnent of Roses Parade and the city of im Angeks has Rose Bo si couege football

,, , /ow n to a puaulation of 3 2 competition eat h New Year's million. the n ation's second ILy Pasadena was founded in

' largest city. Water and energv

, 1575 and incorporated the fol-8 e needs are serwd by the Los lowing y ear, Recognized as a a i Angeles Depcutment of Water major economie, cuttu ral. resi-

= and ibw er (Depart ment). t he dential and recreahonal center.

. largest U.S. municipal utility. the city is hicated northeast of

. The Departnient service 3 los Angeles at the base of the l

~

$ about 1.3 million elettcie San Gabriel Mountains.

customers throughout tus Among Pasadenis most Angelei vast #6 square miles prestigious emp;oy ers are the

• 1m Angeles recenes power Cahfornia Institute of Tethnol-I a ,,'

from by droeletinc generating ogy; one of the worldi maior l , ,

stations, coal. oil. and p wfir"d scient fic research centers.

l ,

- . ' . f a.:ihties, a nuclear gerIeratmg Paudena supplies electric-l , _

ity through a ombinThon of st en; and pu rthases power J & . ,

oil and gavfired generation in fo ' Pacific Northwest and j ,

Sou ~. west ntihties During the the los Angeles Basin, by dro-fisc i year, l.os Ange:es expeti. elec tnc generation f rom f ihiowr Ibwcr Plant and pur-i p/ t, g- ea I a peak dem'nd of 1.713 me.. matts w hile a total of 23 (hases from the Bonneville H e n me m ah.n _ ,e ro - de m ,,- n.e - H g.m rated The Department as ter"iv* : m crititlement pros ides a rct dependah!c s3 s. from the ititt ' mountain Gener-

! tem (apabihty of 7.231 mega. ating Stations and Palo Ve rde.

watts Pasadt na generated and ins Angt les is bent f; ting purchased a total of approu-

' through its association with the matel) 1 tmhion inegawatt-Allt hf in,, f rt eln tw o new pilw er bOUI4 fI Ibe )t'aI. aIld ils peak sourm- t he Inter mountam demand was 232 meg twatts bs A*p is h5 es'50 she$ ,

t uin in tah.

Cse f is 3'1 Fere,3*n whN C:', INcgh 03 Fe7e'.

((3MII$ lied kN MJy IbI and j V C m the !s,t*(v *, (c5 tlie Palo Vt rde Nullear Geta r.

A9 es is te:e<, ng p:..m atina Station in Arizona. l.os i':el VI35 . 3 tre $,' Item Angeies has a!1 entitlenit nt in I'a*s*'5s71 $5'f m 3Sj the Stiut hern Transnussh ui

%T the Pr] M 'je Sy stent w hic h enahh it to

's4 f 3' b*e'a'o; $T 09 transmit power ! nun the Inter-

'e N(t ns ;7.v; %eas mountain Gem ratma Station I

j lo its sen ice terntors and ,'.as

) an enti!!ement throu4h the

) Authonty of approsma!d lli j megawath f rom the Pa!o Verde i Nut! ear Generahr g Stanon a

i l

j 6 i

(_ _ _ _

, -- - - - ~ ~ ~ .. - ._ - - - - - _ - _ ;.

Riverside RiversMe has more than The Vernon Electrical Sys. Shortly afterward llD became Riversideislocated about 45 1,600 circuit miles of subtrans- tem, established in 1931, the distributor of electric miles east of Los Angeles and mission and distribution lines receives most of its energy energy in '.mperial County, and le 72 square miles in area with as well as 18 substations to from Edison. The remainder is part of the Coachella Valley of a population of more than meet the needs of its more supplied from its entitlements Riverside County.

175,000. It is the home of the than 75.000 customers. The in the Palo Verde Generating in addition to its hydroelec.

University of Cal ,ornia, city had a peak demand of 323 Station. Hoover Ibwer Plant tric plants,llD generates power Riverside, megawatts and total energy and a city operated d;esel gen- from oil fired units, gas tur-The city was incorporated in requirements cf 1.2 million crating plant. During the year, bines and diesel generators. It 1883 in order to ensure an megawatt hourt Vernon had a peak demand of is receiving power from the adequate water supply by 193 megawatts and a total palo Verde Generating Station, annexinglands owned by Vernon energy requirement of 1.15 has geothermal generation an irrigation company. The Vernon, a planned industrial million megawatt-hours. from the Heber Plant anc present municipal utility, the city, has a small residential purchases power from other oldest in California, had its population w hich swells to Imperiallrrigation District utilities in the Southwest.

beginning when a small hydr

• more than 55,000 pwple dur- TheImperiallrrigation District 110 produced and purchased electric plant was opened on a ing working hours. Four miles (llD) provides power to 60,000 1.393,000 megawatt hours canalin 1888, and in 1896 the south of Los Angeles, the city, customers in Imperial and during the year, with a peak city started to di< tribute electric ncorporated in 1905, provides Riversidecounties,oneof the demand of 413 megawatts power from a more modern a home for all types ofindustry most productive agricultural hydroelectric plant. within its five square miles. areas in the courtry.

Riverside purchases power More than 525 manufactur. Formed in 1911,llD origi-from Edison at wholesale rates, ing plants and another 400 naliy delivered water to has ownership in Units 2 and 3 establishments engage in the 500.000 acres of farmlana in of the San Onofre Nuclear Gen- wholesale retail trade. It is Impella! County from distribu-erating Station, and receives served by four railroads operat. tion canalt Hydroelectric power from an entitlement ing 114 miles ofline within the plants were developed along in the Palo Verde Generating city. Es ery industry or business the waterways, and the proper.

Station. Hoover Ibwer Plant is on a direct transcontinental ties of a private power com-and the Intermountain railway in Vernon, and 77 pany were purchawd in 1943.

Generating Station. truckinglines have terminals in the city.

7

Authority Operations l

eamn:.aucomm mww=a a mrae umsr wewme e mumw eemm-weNw& Je u "N8 Palo Verde Generating Station Palo Wrde Project Participation Southern Tran:rnission Systerns Three refunding sales were j Unit 3 of the Palo Verde c.. w With the completion of l' nit 2 completed by the Authority in Nuclear Generating Station #*ct C***N of the Intermountain General- 1955 and 1956 w hich totalk d  ;

(Palo Verde)in Arizona is ing Station (IGS) during 1987, approximately $1 billion. This I scheduled to go on line in An

• m mm ihe 1500 kilosott direct cur- action transhtes in.o a gross  !

early 195S. ll ruts I and 2 went I*P"!dl rent Southe n Trarnmission debt service sasings of approxi- 1 into commercial operation dur- [;("t 6st 14 n- System (513) has been officially mately $73 million os er the ing 1986. Each of the three Ig rated at a 1920 megaw att life of the project.

M@ 5n generatiqq units at the site, ("P^ N Vernon 49t 10 61 located 50 miles west of Phoe- Six Authority members are Hoover Uprating Project Burbank 44% 9 53 nix, has a nominal capacity of receiving power over the STS, The U.S. Bureau of Reclama-1.270 megawatts The Author- *"#" 4" 9" carried 4SS miles across moun* tion s (Bureaul plan to aprate ity has a 5.91 percent interest Pasadena 4n 99 tain and desert from the coal- the 17 criginal generators at m Palo Verde and will receive Aruu 1nt 2 16 f red IGS in l'tah Alternating the Hoover Pow er Plant is fully about 216 megaw atts (bawd on Banning in1 2 16 current produced from the gen- underway. Generator capacity the licensed reactor thermal cotton 1nt 2 16 erating station is changed into is being lacreased by installing power les el per unit of 1221 Total lon 0 % 216.4s direct current at an adjacent modern stator windings ano MW)w hen the facihty is conserter station. After trans- upgrading vanous anxiliary completed Palo Verde .is expected to mission os er the line, it is equ4 ment. Other modifica.

Ten member agencies have bas e a net annual energy out. changed back to alternatin4 tions to the pow er plant to contracted with the Authonty put of more than 22 milhon current at the Adelanto Con- increase its efficiency include far entitlement in Palo Verde. megawatt hours by the early verter Station in Southern Cali-the replacement of existing This capauts will be used to 19% The Authcoty s mterrst fornia and then deln ered to transformer ban ks, consohda-meet growth to replace more in the genereng station is pro-project participants. tion of control room, and expensise purchawd power, jected to deln er approximately im Angeles was appointed and to dnplace oil or gas-fir d 207 megawatts of capacity after project ruanager and operating gene ation. anow ing for tranunMion agent by the Intermountain The project is managtd and lowes and 1.271,777 megawatt-Power Agency. a pohtical sub-operated by Arizona Pubhc hours of energe per year at the daisian of the State of l!tah A Sers ke Company, w ith the I"us pointwf debe5 total of 3fi utihties in Cahfornia, switchyard portEn operated by The Authority issued Nevada and l'tah are o <t ising the Salt Rn er Projett. The ^ PPD'Omately 5600 rnMon in power f rom the gem ..g Authority w til use a t ertain refunding bonds in 19G and station Wrtion of the pn ieet transmis. the first hMf of 1%6. taking Power transmitted by the sion system. ads antage of lower interest

' prWect will be tad by Author-rates w hich resulted in a g'""

ity panicipants to meet load debt sasings of $130 mimon t gIowth, dnplate im Angeles participating members es er the basin oil and gavfueled gent r-hfe of the proicct. Total financ-ation. and. forSome. to reduce ing for the project arnounted t port haws from EdNon.

51 bilhon.

8

A2-_aam.o rmmm -maem m.m_._m mm,nA s

9 m

ru .

e l The t 500 Ment j deeCt current l Sawern Transmis-5 0n Sistem br:ngs i

l [0M f it09 the l Ime'mo nta:9 Gen-e'atng StaSon in U ah to Sodern Ca'hm.a j

1

l. l).

.. ; ;. i

\ s'f(

i

+ ' An d, . g

' t's n W.

W 4 IFe C3E30f t( Of 1"e ge*e'3!73 8t Haw Paw Pant are te3; ncreased TI'T' T J T '. . t' 77' ~

Prov;h an Upf at.rg .,

D 4*,tc MMef q

, pro,e t ANch wiD j Staton en the edge ane. t wy .,

i of t"e Pk;r.e Des- 9,. 3, .3 g ee t e .e.,, . .

l Cf the SC&them Cat- a. . . - . -

l dy %J it3*s%%C9 ' - ' ,

'

• F' - ->M

$ 6*.t

• n l -g 9 1

! C m Nc'onhas te e, Com; eted at

(

l *

• e P3 0 'A'Oe k.C t3' Ce'e'3! "Q S:a::en in Arua j

i 9 I

w w mn .m nwne , - w ~ ~n., + nm modernization to provide for through the Authority will be f acilitate economy energy /

automatic ano remote control. allocated 91 megawatts of the capacity transactions with The Dureau determined that additional output w hen the other utilities in the inland-the nameplate capacity of the project is completed in 1992. Sout hwest. The other utilities 30-year-old facility can be up- The energy and capacity enti- participating in the studies ne rated to 1,931 megiwatts at tlements are now available to Salt Ris er Project, %S R and 198 feet of head, resulting in participants, and increasingly the Western Area Power 503 megawatts of Uprate more amounts will be made Administration.

capacity, available as the project if the participants ektt to Bonds w ere issued for advances until full entitlement construct a two terminal proj-appu -imately $34.5 million is received in 1992. ect, the Authority's participa-to advat.. - the costs to the tion would be 1500 mega-Bureau of ti,'six Authority Mead-Phoenix DC Intertie w aus with a potential increase to 2,Uti2 megawatts if the Hoover Uprating Prciect .

Project Participation Studies continue by the pmpt .is expanded to ,2200 Assoc sted Authority and ather Southwest *"E3" dM '-

C"'**** F '"' utilities as to the feasibdity of Partic9aats Capac tv foergy and oper-

\tWh const ating a ructing, ow n' ng'lt. direct 51%. .t 15(k) kiloso Anaheim 40 0 44 40 52 000 current transmission line. The sumwy H Raerside 30 0 36.30 '19 000 Transmimn Project intertie between I>hoeni\,

p m nce Burbank 15 0 5 07 5.442 Arizona and Boulder City, Bord Propam Azuu 40 4 t3 5 nuo Nevada, is a two-terminal ,, m . n. a s Colton 30 3 72 41'00 1,600 megawatts projett w h"h -~~ ---~ ' ~ ~ "'~ ~ ~*

ww cm te s.w. 5.,m Banning 20 1 56 2.000 17.ter could be expanded to y,_,___, _

e

_. ~,6. f s,, v_, y _ _ _ _ _ ,

Total '. 200 n.egawatts. 2 910 _100 n0 107.412 The intertie is c urrently ,e .

"*'.L__[-.--

-. m ,

members participating in the Authority portion of the proi-scneduksi for completion in the mid 1990s and would be " * - -

- - - - - ~ - - -

\1 ~ - - ,

- + - - " l i

ect. The members financing used to transmit Palo Wrde I

' ~ ~

~ ' ~ ~

generation entitlements for the 4 2 i b_ M , I_.

Authority participants and ,, , ,

s-,,, a == = =- =- =' 1 PcurPenett l R m ni.e i' Bond Prt ram ei u t

,n___._ _ .

_ . _ . _ _ _ . _ _ . _ _ _ _ . _._ _ _ _s u m,s _,

m_.._ _ ._.__ _._ __. _. _ _ _ .__ _ _ . am au tr e s.csa _ _4.u

.- . s .

,m.y- _ . _. . .

. __.. _. . 4- m n . . .. .. .~"_..______. ._ _._ w n__. _. ._ . _ . - - - _

. . w

.. wx.=.. n w =H.g w=1% ,,.~ .. v 10

Sepember 30,1987 To tha Board of Directors of Southern Cahfornia Public Power Authority in our opinion, the accompanying combined balance sheet and the related combined statements of operations and of changes in financial position present fairly the financial position of the South-ern Cahfornia l'ablic Ibwer Authority (Authority) at June 30,1987 and 1986, and the results of its operations and the changes in its financial po ition for the years then ended, in conformity with generally accepted accounting principles consistently applied. Our examinations of these statements were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing pmcedures as we considered necessary in the circumstances.

In our opinion, the accompanying separate batance sheets and the related separate statements of changes in financial position of the Authonty's Palo Verde Project, Southern Transmission Project.

Hoover Uprating Project and Mead Phoenix Project, and the sepa-rate statements of operatioris of the Palo Verde Project, Southern Transmission Project and Hoos er Uprating Project present fairly the financia! position of each of the Projects at June 30,1987, and the changes in each of their financial positions and the results of operations of the Palo Verde Project. Southern Transmission Proint and Hoover Uprating Project for the year then ended, in conformity w ni generally accepted accounting principles consist-ently applied. Our examinations of these statements were made in accordance with genc rally accepted auditmg standards and accordingly included such tests of the accounting record.s and such other auditing pn(edures as we considered netessary in the circumstances Our examinations were made for the purpose of forming an opinion on the basic financial statements taken as a w hole. The supplemental knancial data and schedules, as listed in the accom-panying index, are presented for purposes of additional analysis and are not a required part of the basic financial staternenti Such supplemental hnancial data and schedules hase been subh red to the auditing procedures applied in the examinations of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic finaacial statement <,

taken as a w hole.

1

% (Addn Price Waterhouse i

11

i Southern California Puh!W Power Authority Combined Balance Sh~

(In thousands) ~

June 30.19A7 ,

Southern Hooter Alead-ndo wrde Transmission Uprating I'hoenir June 30,1986 AS%ETS hviect nuiect noiect nniect T<dal Total i

l'tility plant Production 5 368.755 5 36x.755 5 203.247  !

Transmis4on 3.512 5 633.034 636.316 1.864 '

Ceneral SM I M.0M 18 126 33 I 372.325 651.102 IAr21427 205,144  ;

Im- Accumulated Deprec iahon 15.943 18.089 34.072 3.340  ;

356.342 633.013 9w.355 201.N14 Construction work in progress 224.h09 5 3.064 511,703 239.576 9W3.653 ,

Nuclear fuel. at amortized cost 36.415 36.415 37.412 ,

kt utility plant 617.5t,6 t 33.013 3 064 11.703 1.265.3 M l.228.Xb9 hpecial funds (Notes C, D and E) _ _

ins estments 222.229 156,146 30.96' '.910 412.547 497,788 {

Advance to Intermountain Power Agency 20.981 29.981 ,

Interest receivable 1.753 2.9M 502 5.223 4.547 , i Cash 538 5 546 211 t 224.520 I N1.395 31.464 2.915 439.297 502.546 Accounts receivable 2.859 2.t42 66 5.5M7 5.442 i Costs recos erable from future billings t a participants (Note F) 26.0ti9 58 241 s4.310 7.3 80 [

Defirred costa l

(?ttamortized debt egenses,less accumulated amortization of $28.178

(

arid 514.492 in 1987 and 1986 218.503 1671wi 1.212 3 35f.502 316.099  !

Other de'ferred cows  !

1.542 1.542 1.972 220D45 167.054 1212 3 av.544 31x.071 f 51.tel .059 51.041.3 6 535.N 6 514.h24 52.182 M4 5 2.062.2 e.M [

l LIABILITlFS '

Long term debt (Notes C, D and E) 51.039.335 5 999.556 534.293 514.144 52.057.332 51.87M.593 Current liabilities.(Notes C and D)

Jond anticipahon notes 75.000  !

Acc rued interest 37.4 *> l 3 A.611 689 426 _*7.180 91.762 l Accounts payable and actrued eyenws 14270 3 228 824 50 18.372 16 913 i 51.724 41.h39 1.51's 4 7t> 95.552 181675 l

Commitments and contingencies f S I .tel .059 51.e41.395 535.N m 514 t>24 52.182.m 4 52.t 62.2t a i i

The =wnwanpng mes are an u*gral part of thev Im4nual siatements f

f l

l I

l t 12

r - _ _ - --__ ----- -----

i Southern California Public Power Authority Combined Statement of Operations livr endedfunc 30, / 9ST (In thouund>) _

&n:thern Pah> Trans. Ihmr lintended H'rde mission iprahng June 30 1%)nt Proint Protect Total 1986 Operating resenues Salo of electre energi 5 51.949 St h 5 52.015 5 10.012 S 40.617 40.617 JCes of tr.msmiuinn services Ta'ai operatma revenuts 5 51.949 540f17 566 5 9.'.tal 5 10.012 9P"_atp[tyspenses Nuclear fuel expenw 5 7.239 5 7.259 $ 2,022 Other opration 10.162 5 7.036 166 17.264 3.395 Maintenance 3.192 3M2 6 274 1.410 Dentniatrin 12.643 18.059 30.732 3.340 Expense t haren1 to proietts d_urina construction (370) (370) (1.056) br la operatir.q eyenes ,

32.e6 23.207 t>6 61.159 9.141 Debt espenses in:cre't on debt net 75.2W) 70.651 14% 941 54.294 (40 4?S) (40.495) (76.053)

__'yllowante far introwsd funds used durina construdion Net detyt evenw 37.792 70.b51 105.443 5.241 70.673 93.535 t ,6 lei 9.t,02 17.332 Costs reemerable from future bl.A t I R.729) (58 211) (76.970) (7.3401 3 glo participants (Note F)

Ltal eyenes $ 51.9 49 5 40 t l7 St t; 5 92.td2 5 80.012 Tbc a companpng nc'en are an integrat part d mo finawal watements 13

Southern California Public Pown Authority Combined Statement of Changes in Financial Position (In thouunds) kar endedlune JQ 1987 Polo Southern Hooter AIead- Wavended wrde Transmission Uprating Phoenit June 341956 Project hoject hoject Protect 7btal Total Funds prosided by (used (or)

J)perations Fb enues 5 51.949 $ 40.617 5 (A 3 92.632 $ 10,042 l Expenses (70.678) (98.854) (66) (169.602) (17.3x2) l Charges not invohing funds:

Depreciation and arnortit, tion 19.098 18.059 37.187 5. 3 6.'

Ciber, net 9.723 8.052 17.775 7.933 10 092 (32.1001 0 (22.00x1 5.955 l'inancing Sale of rev que ronds 34 293 34 293 Sale of refunding bonds 679.434 679.434 1.343.525 Defenance of res enue tends (508.703) (508.703) (1,130.929)

Defeaunce of tend anticipation notes (2tR000)

Reduction in long term debt (75.0t0) i Bond iuue cmts (106 259) (l.2001 (107.549) (232.270) 64.442 33.03.1 97.475 (294.674)

('tthtv plant 155.131) (14.395) (3164) $(1,073) ( 73.t,63) (191.950)

Other, net 23.157 45 12 23 217 (1.033)

$ 19.403 St23.33N $30.017 $(1,061) 5 25.021 5 (451.702) l Increase (Decrease in funds) l Investme nts 5 (52.336) $(63.100) 530.962 5 (766) $ (55.240) $ (434017) l Adsance to Interrnountain f%er Acency - 20.981 20.981 Interest receis able (515) 690 502 677 (21.910)

Cash 340 66 (5) ~ 401 (56)

Acounts recen able (2.5fe) 2,649 (10) 79 (1.233)

Bond antKipation notes 75 000 75MO (75.000) kcrued interest pay able 4.529 11.107 (649) (365) 14.5*2 6 2f4 kcounts pay able and accruesi expenses '5 055) 4.335 (424) 55 (1.459) 48243 5 19.403 $l23.338) 530.017 $(1.061) $ 25.021 5 (451.702)

The mu.rnpanpr g n.dri are an integral part of thew f!namial sTements

,e

Notes to Finmci:1 Statements ~ .

.o

. SOTE A-Organtiation and purpose: yearr< Nuclear fuel is amortized and charged to expense on the basis of Southern California Public Ibwer Authority (Authority), a public entity actual thermal energy produced relative to total ihermal energy exprtW organized under the laws of the State of California, was formed by a joint to be produced over the hfe of the fuel A contract has been entend Ibwers Agreement dated as of Novemter 1,1980 pursuant to the joint into with the United States Department of Energy for disposal of the Exercise of Ibwers Act of the State of Cahlornia The Authority's partici, spent fuel.

pant memtership consts of ten Southern Cahfornia cities and one pub- The cosa awociated with the $15 project are included as Utility Plant in lic district of the State of California. The Authonty was formW for the hh WMah h puided using the st'aightline method over the purpose of planning, financing, do cloping, acquiring, constructing, assets euimated useful lis es of primarily thirty-five years.

operahng and ma niaining prostts for tSe generation and transmhsion Nuclear decommissioning -Decommiuioning of ITNGS is pro-of elettric energy lot sale to its participant ( The Joint ibwers Agreement htted to commence sometime after 2022. Estimated future dtwmmis-has a term of fifty 3 ears, sioning cous are provided oser the commercial hfe of PVNGS thniugh Nelo l'erde Pm/crt-The Authority, pursuant to an auignment annual charges to expense, agreement dated as of August 14,1931 with the Salt River Project Agricut. Dellrmd roots - Deferred costs are show n net of accumulated amor-tural Improvement and ibwer District (Salt Rh er Progx1), has purchased tization, Unamortized debt inv. costs, irwiuding the cost of refunding, a 5 S1 % internt in the Palo Verde Nuclear Generating Station (PVNGS), a are amortized oser the terms of the respitive iwuet Other deferred costs 3)(10 megawatt nuclear fueled generating station being constructed near are amonized gennaHy over the years, Phoenix, Arizona, and a 6 55% share of the right to use certain portions /nrestments-Investments include United States G >vernment and of the Arizona Nuaar ibwer Pmiert Valkt Transmiwion System (colke gmernmentM agency seturities and repurchase agreements whkh are thely, the Palo Verde Projectl Units I and'2 of the Palo Verde Prokst collateralized by such securities. These investments are stated at amor-tized cost, As discussed in Notes C and D. all of the im estments are began commercial operation in January and September 1986, resnt, thely. Unit 3 is xheduled lor commercial operation in January 1938. nwricted as to their use.

Investments. in thousands, were as follow t Mead Phoenix Pm/cet-The Authority is also studying the feasibil-ity of constructing the promwed Mead-Phoenix DC Intertie Projext (Mead- j,,, 3g*

Phoenix Project), a trammiwion line from Arizona to Nevada The I" I"'

Authorityi present inte*est in the Mead Phoenix Project is 9315%.

Southern hnsmission Pm/cct-The Authority, pursuant to an carr3 lns carr3 tna agreement dated as of May 1,1983 with the Intermou'n tain Fbwer Agency Project Value Waket Value Market (IPAL has agreed to make pm ments-in-aid of comtruction to IPA to defray Palo Verde $222.229 $232.845 5274.565 5291,969 all the costs of acquisition and comtruction of the kuthernTrammiwion Southern Sptem Prokst (SM a transmission hne w hkh will prm ide for the %ns. Tran minion 177,427 189.351 219,546 233,641 miubon c4 energy in>m the intermountain fbwer Project in Utah ;o South- Hoover Uprating 30.962 30,651 ern Cahfornia The Authority entered into an agreement also dated as of Mead-Phoenix 2.910 2.910 3,677 3.679 May 1,1953 with six of its members pursuant to w hich each rnemter $ 433.528 $ 455,757 $ 497,78A $529,2 9 auigned its entitlement to capacity of the Southern Transmiwien Pront to the Authority in return for the Authorityi agnement to make Arsenues- Rn enues consht of bilhngs to participants for the sales of paymentwireaid of construction to IPA. STS commenced commercial operations in July 19% electric energs and of transmiwinn sen ice in accordance with the partici-Honeerl'pratlag Pmfert-On Augu413,19% six participant pation agreement ( Generally, rttenues are fixed at a in el to ritover all members of the Authority entered into an agreement with the Bureau of opnating and detd sen ke cosh os er the commercial hfe of the plant.

Raiamation of the UnittU States of Amerka (Bureau) to make advance (See Lte F) payments toward the unt of uprating the Homer Dam Facihtyi generat. Dehi cxPenees - Debt expenses include interest on detA, the amorte ing equiprnent Construction is scheduled for completion by Septernber zation of tond premiums and dhcounts, and debt inue and refundmg P192. The Authority will has e an is 68 % interest in contingent capacity costs income from im estments is recorded as a reduction of detd cd the Hoowr Uprating Projevt. Seseral 'uprated" generators of the *

• P'"

Hoos er Uprating Progt commencal mmmercial operations in June 1937. SulE C-long-term debt:

Arlo l'rrde Pm/crt-To financs he purchase arxi constrmtion of the NOIE 11-%mmary of nignificant anvunting policies: Authontyi share of the Palo Verde Project.the Authonty sissued The Authority maintains its nterds substantiany in acwrdance with ibwer Pruktt Revenue Ibnds and Ibwer Pront Bond Anapanon htes actuuntmg principles and methods prew ribed tw Ihe Fnieral Energy pursuant to the AuthorityiIndenture of Trust datn1 as of July 1,1931 Regulatory Commiwion and the Cahlornia Pubhc Utihties Commiwion. (Bond Indenture), as amended and supplemented, and the Authorityi The Authonty is not sutyect to regulatyn ty such comminions ibwer Proiect Bond Antwipation Ete Rt solution (hte Resolutioni I tility plant- All egenditures including general adnunistratne and adoptni August 13,1982, as amendn1 and supplemented Reference other merhead espemes pa)ments in-aid of comtruction, interest net of n made to the Combined Supplemental Ss hniule of Rnenue and relatni imestment incorne. deferrt4 cost angartization and the fair s alue Ref undmg Bonds Payable at June 3n.19%7 for detaih related to of test p>wer generated and deln cred to the partecipants are t apitalimi oubtandmg bondt as utihty plant comtru(tron work in progress unni a facihty tegins The Bond indenture provides that the Rn enue Ebnduhall be s;rcid commercial operation hmited oNigations of the Autherity payaNe solely f rem and sotured The Author,tyi share el cosa amiarni with PVNGS Unih 1 and 2 is wiely by (1) prome from the sale of bonds (21 all rnenues in(vmes includni as Utthty Flam in Sen ke. Deprtdahon is prm kled using the rents and rneiph attributaNe to the Palo Verde Progt (wr hte FJ and straight-Ime method our the .nsets eshmated useful hvewf thirty-fre mterest on all monn s or wcurities (other than in the Comtruction Fimd}

15

r Notes to Financial Statements held pursuant to the Bond indenture and (3) all funds established by the years succeeding June 30,19si are 52.260. wig in 19%9,53fSS AO in Ibnd indenture (excludmg the Decommiwioning Account in the Resene 1990. 57,9 G5 Min in 1991 and 5 %4559V1 in 1992. No principal maturi-and Contingency func ). subint to the provisions of the Palo Verde Pro). ties of bonds outstand:ng at June 30.1957 are scheduled for facal 19S&

nt Wand incenture prosiding for the apphcation therenf. The Note Reso. The efhdive interest rate on outstanding debt during 19U was 7J A lution prosides that the Bond Anticipation Notes shall be spuial, hmited The special funds required by the Bond indenture contain balances. In obhgahons of the Authonty payable from the prcxeeds of adddional thouunds as follow s fundt notes or loanubtained under the Revohing Credit Agreement. ,

During incal 1957, the Bond Anticipation Notes were defeased and are June 30, ,

considered extinguishel for purposes of hnancial statement presentation. 19N7 19N6 ,

Alloutstand ng Ptmer Proktt Rnerme Term Bonde at the option of tFe Construction Fund-Initial Facilities Account 5 18,638 5 94)37 Author,ty, are subint to redemption pnor to rnatunt Debt Servke Fund-The Bond indenture rtyuires mandatory sinking f und instalments to Debt Senice Account 3 i 623 35305 be made trginning in incal 1998 for the 1952 Serin A Bonds.19% for Debt Senice Resene Account 91,192 91.262 the 1982 Series B Bonds and the 19s3 Serin A Bonds. 2001 for the 19s4 Ro enue Fund 1 Series A Bonds and 1985 Series A Bonds 2005 for the 1955 Series B Operating Fund 6 249 Bonds and 20n3 for the 19%6 Senes A Bonds the 1986 Serin B Bonds General Resen e Fund 4fll and the 1947 Series A Ponds Scheduled pnncipal matuntin for the Palo Verde Proktt during the fne fiscal years succeedmg June 30.1947 are TgaQpjalgnds_ . .]g(( $22g2]

$13.095 AM in 19% $13370Rio in 1990. 514 J 11000 in 1991 and

$15J90.000 in 1992 % prindpal matunties of tunds outstandmg at June 30,1947 are sc heduled for hscal 194. The ef fectn e internt rate on In add. hon. 520.981.000 has been advanced during fwal y ear 19si to outstanding debt during 19C was 8 4 L IPA for SCPPA's share of the initial working capital for the Southern The funds required by the Ibad indenture contain balances. in Transmiwion Pndect. The advance w ill be returned to SCPPA at the end thou ands as followv of the project June 30 Hooter UpratIng Project- Pursuant to the Authonty's Indenture of Trust dated as of Wrch 1.19s6(Bond indenturet the Authority iwued

$34.435Dio of Hydroelectne Power Project Res enue Ibnds 1946 Series Construction Fund-Initial Fa(iht:es Account 5 3i454 5 52326 A to fmance ads ance pay ments to the U.S Bureau of Reclamation for Debt Senice Fund - apphcation to the costs of the Hocaer Uprating Project. The Bond Inden-Debt Senit e Account 67J11 105.473 ture provides that the Revenue Bonds shall be special, limited obhgations Debt Sen ice Reserve Auvunt 90.235 912W of the Authonty pay ab'e scdely from and suured solely by (1)the pro-Ibnd Antkipation %te Fund 30 6.0 % ceeds of the sale of the tunds.(2) all revenues from salm of energy to Rnenue Fund 1 2320 project prtkipants. (3) interest or other ra ripts denved f rom any i Operatmg Fund 15J39 5.016 money s or wcurities held pursuant to the Bond Indenture, and (4) all Rnene and Conhngen(y Fund 1 169 6.272 funds estabbshed by the Indenture of Trust (ewept for the Intenm General Rewrve Fund 41%1 345 Advance Pa) menti Anount in the Advance Pa) ment Fund!

Total Special Funds $224.520 5277.n31 subint to the provnions of the Ibnd Indenture pruudmg for the applicanon thereof All outstandmq H3 dnielntric Power Protect Rn enue Term Bonds. at the ophon of the Authority, art subject to rniemphon pnor to matun') .

l Southrrn Transminion Profert-To finance pay mentvin aid of The Bond indenture requires mandatory unking f und instalments to construction to IPA for construction of the Southern Transmiwion Proh te made beginning in fiscal 2002 for the 19s6 Ser es A ibnds % w hed-evt. the Authonty has iwurd Transmmion Pn tect Rn enue Ibnds purso.

ant to the Authontu indenture of Trust d*d amf WV 1,19s3 tIbnd u pn pal matunnes f bonds outstandmg at June 30.19M are schedukd for fxal 19s% through fncal 1992. The efintn e internt rate Indenturel Rt forence is made to the Supph mental St hedule of Rn enue i and Refunding lbods Pa)able at June 30.1957 for details related to the

"" " ^

outstand.ng tends thousandt as follows The Bond Indenture prosides that the Rn enue Ibnds shall be pecial.

hnutni obhgations of the Authonty pay ab!c solely from and wrured June 30, solely by (l) prut eeds f roin the sale of tonds (2) all rn enuet incomes. p rents and receip% attributable to the Sauthern Transmnuon Proiethwe

%te Eland internt on all moneys or saunhn(other than in the Con. Advan(e Pa) ments Fund 527.277 struction Fund) held punuant to the Ibnd indenture and (3) all funds M4 "UM e-ta%hnt by the Bond ladenture, suby ct to the prosiuons of the Ibnd Debt Seruce Account 932 Indenture proudmg for the apphc ahon thereof Debt Senice Resene Account 3 255 Alloutstand;ng Transm%on Proint Resenue Term ibnds at the Total SPcial Funds $31.464

- ~~~~- ~ ~ ~ ~ ~- - - -- - - - ~

opt %n of the Authontv, are wbiect to redemption pnor to matunty.

The Ibnd indenture requiris mandaten smkmg f und instalments to tv made beg.nning in facal 2non for the 19%I Senes A lbndt 2nn1 for Summary o/S twelat funds-The Ibnd indentures a id %te Rew the 1984 Senes B Bonds and the 1935 Series A Bonds 2on3 for the 19% lution for eA h of the three protuts require the above hsted special funds Series A lbnds and 2002 for the 19% St ries B Bonds Sc hedu'ed pnnu- to te ntabinhrd to account for the Authoots s rempts and dnburse-pal matuntin for the Southe en Transm Asion Proint dunne the fa e incal ments The monen and imntmenu hcld it, tt eu funds are restnc ed in 16 1

Nous to Financial Statements use to the purposes shpulated in the bond indentures and note remlu- NOII: 1% Power sales and transmission sen ice contrat to tion. A summary of these funds follows.

The Authority has sold its entitlement to the output of the Palo Verde Fund lleid by purpose I'"ject punuant to puwer sales contracts with ten member partkipants (we Note G). Under the terms of the power sales contracts the purchawrs Construdmn Trustee To disburse funds for the at quistion and are entitled to power output frorn the Palo Verde Nudear Generatirg Sta-conoruct on of the Proicct _ lion and are obhgated to make payrnents on a "take or My" bass for their Debt Sen ke Trustee To pay internt and principal related to proportionate share of operating and maintenarKe expenws and debt the Revenue Bonds servk e on ibwer Pn mrt Rn en ie Ibnds and other de bt, w hether or not Bond Anticipation Trustee To pay internt relami to the [bnd the Palo Verde Progt of any part thereof has been cornpleted. is operat-Note AntEipation Note ing or operable, or its output is sugended interfered with, rnius ed or curtailed or terminated The contratts expire in 2030 and, as long as any Rn enue Trustee To m.ma. lly recche all revenues and ,9,.er Prokst Res enue Ibnds are outstanding. cannet be terminated or' dqborw them to of her funds ame nded in any manner w hith will impair or adserwly affat the rights Operating Trustee To pay operating expenses of the tundholders Roen e and Trustee To pay capital impros ements and rnake The Authonty has +nterni into transmnson sen ke contracts w ah six Contingency '

up ddaiencies in other funds and, in member participants ( ce Note G) Under the terms of the transmhuon the case of the Palo Verde Proktt, accu. v nice contracts the projwt participants are entitled to transminion mulate funds for decommiwioning wn ice utilizing the Siuthern Transminion Preiet t and are obbgated to General Rnen e Trustee To make up any deficencies in other *'k' P*> **" " * "k" ' PdF" I*I' I"' 'h"" P'"P""nate sha re of operaung and maintenance expenws and debt sen ice on Transm, mon I""b Project Res enue Bonds and other debt, w hether or not the Siuthern Advance Trustee To daburse funds for the cost of acquisi- Transmission Proint or any part thern>f has teen completed,is operating Payments , tion capacity of the progt or is operable, or ituen ice is suspended. interfered w dh, rtduted or cur-tailed or te rminated The contracts expire in 2027 and. as long as any Transm: won Prohrt Res enue Ibnds are outstandmggannot be termi-Rehmding bonds - During incal 19M the prweeds f rom the sale of nated or amended in any manner w h k h w t!! impair or adu rsely a%rt

$707.273Jino of Ibwer Pront Refunding Ekmds w( re u,ed to adunce the rights of the tondholders refund $CM120ikk of proiously iwued tundt in connation therewith, the net pruteeds of the icfunding twnds base teen in ested in secuntre* MH E F-Cosu m oserable from f utura hillings to pas tklpantv of the llnited States Gwernment, the pnncipal and internt trorn w hich . .

will tie sufficient to 'und the remaining prmcipit internt and (all pre. M mest partxipants are detgned to rn ou r . (osty , ad hned t8 the mium pa) ments on all refunded bonds unt:1 the stated fint cati d#es of power saln and uansmMon me amments he NW am stmo tured to systematga!!y proude k.t the debt rntuirements operatmg funds the tripectne iwon Accordmgly, all anmunts related to the refunded and roenn b anordance w dh thne agramentt Thow expenws bonds base tw en remomi from the balance sherts and the wst of refund-1 ing the debt n included in unamortaed debt expenws at June 3n.19M xrved,ng to genera!!) accepted accountmg pnnciples whk h are not At June 30. lW7 the Lategate amount of debt conWde red to te extm- indoded as Tosti am Menni to w h per Wh as they are miended to tie renn ered through bilhngt gunhed wat il MS 030.0n0.

"" '"P'@I'"""U""

Nol E lb-long term tank imn paphle:

l'nder the terms of the urous contraits the Author ts reimburwd the At June 30. IM7.the Authot ty had horrowed $141b.9o to fmante the bu ntde b md MrM a i b msytn'e prontts The leabihty study and onelopment costs of the Mead-Phoena Pront Thn Department of Water and Nwer of the City of La Angeln has perbrmed hon t can inte rnt at approximately 67 % of the prime rate. howes er. the admmatrata e and other work for the Author,ty totahng 5 M9 inin and interest rate cannot eumi 12 A The aserage internt rate on this kun 5310WO sur f acal 1937 and 13% The Arizona Pubhc 5en xe Company was 5 2% and 61 % during 1947 and 19w A runt manager of the Palo Verde Propd tJn1 the Authonty The pnueds of the kon were del %ted in a [helopment F und for W mmonstruction. operahng and mamtenarxe wsts totahng w hk h the lender is the tru tre and can on!) be umi for pa) ment of $369GWO and 35R101MO for fiscal IW7 and 1%6 The Intermoun-Mead-Phoena Progt dm rhyrient mts cmtud iwuance of the hun. ta n Nwer Authority biUed the Authonty for pay mentvin-a d of con-includmg general and adminieratne egensn of the Author;ty related to struction operatma and mamtenanse coes relatmg to the Southern the Mead-Phoena Protect. and hun pnnopal and internt At June 30' Trmm%on Pront anwuntmg to $2i267.t* O and $62M19 o for in-1967 and 19s6, the tu!atwe in tht* De selopment t,und was 52.9b 910 d IM7 M N The M Mm d kWts e pre maw W and $3,690 mig of w hk h substanhau) a:1 were ins read m snuritin of W ber Upratmg Pront. hiUed the Authonts for unous construction the l'n:ted States Cuernment mes totahng 52.4 b OiMor hsca! 1%7. The Sa:t Riu r Proint as des el-li the Mead Ptmenix Progt n termmated for any reawn prmt to the opment manager of the Mead-Plwena Proixt. bWed the Authonty for iwaatu of long ter m tonds to ref marwe the k>an, ten Cahfernia utie' unous des dorment tosts amountmg to 5 4709 toa nd 51,161tm for the Salt Raer Proiect and the United Stato Department of Energv. Wee- fxal 1%7 and 1%6 een Area Powrr Admmhtrahon. hase contrxtni to make pay ments to the M artopants has e the tolbwing partopatmn pertentae m Aathonty tused on their partaipation percentage suthatnt to retire the the Authority s internt m the four pront4we Note A) kun and aarued mternt thereon The hun h murtd soiety by the rotr Atai aswts and the anos e menhuntd contracts 17

Not:s to Financial Statements l

rr. pet P rwiP.iio rereeni se Southern California Public Power Authority i

, wr index to Supplemental Financial Data i

Palo Southern t'preting Mead.

l Participant Verde Treneenisolon Praket Phoenia and Schedules City of Los Angeles 67.0 % 59.5% 61.2 %

Cityof Anaheim 17.6 42.6 % 15.0 Combined Supplemental Schedule of Res enue and Refunding Bonds City of Rwerside 5.4 10 2 31.9 6.0 Payable at June 30,1987.

Impeelallrngation Palo Verde Peoject Distrkt 6.5 Supplemental tulance Sheet at June 30.1967 and 1986.

City of Vernon 4.9 30 Supplemental Statement of Operabons for the Years Ended June 30  ;

City of Aruu 1.0 42 .6 19s7 and 1966.

City of Banning 1.0 2.1 .6 Supplemental Statement of Changes In Financial Positmn for the Years '

City of Colton 1.0 32 .6 Ended June 30,1987 and 1966 City of Burbank 4.4 4.5 16.0 50 Supplemental Schedule of Receipts and Disbursements in Funds  !

City of CAendale 4.4 2.3 50 Required By The Bond indenture for the Year Ended June 30,19s7, City of Paudena 44 5.9 3.0 100.0 % 100 0 % 100 0 % 100.0 %

bh TranMash P@

Suppkmental Balance Sheet at June 30.1987 and 19%6.

i Supplemental Statement of Operatons for the Year Ended June 30 1987.

SOIF. Il-Commitments and runtingencira:

Suppleru ntal Statement of Changes In Financial Position for the Years !

The Authority estimates that the total financing requirements for its Inter. Ended June 30,1957 and 1956.

est in the Ikover Uprating Project will approximate $34 million. of w hich Supplemental Schedule of Receipts and Disbursements in Funds  :

substantially all will be expended for payments for capacity and aw<i. Required By The Bond Indenture for the Year Ended Jane 30.1987.

ated firm energy and the acquisition of entitlements to capability.

Construction is w heduled for completion in Setemter 1992.

The Authonty is im oh ed in various 1.1;al actions. In the opinion of management, the outcome of such litigation or claims will not has e a i material effect on the financial position of the Authority or the res;ntise j l separate projects I

i L-l l I

t i

i h

I 1

1 ,

I i

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18 l

i i

Souther,i California Public Power Authority Combined Supplemental Scheduto of Revenue and Refunding Bonds Payable  !

At June 30,1987 N EIN#" #  !

(in Ihousands) of intern! Afatunty ott Senes Sale Rate Jutv's fidal Id'l0 Wrde Pr9pt R6~enue and Retunding BO'eds 19M2A M/13/M2 10.9 % 19M 10 20] 7 $ 2tt32$

1982B 11/12/82 7.7 % 19M8 to 2017 44.445 >

19MA 4/ 4/&3 8k% 19% to 2017 36.015 l

1984A 7/18/s4 10 3 % 1990 to 2004 24.090 i 19h5A 5/22/55 A7% 19d to 2014 12.515 1955H 7/ 2/M5 9.1% 19M to 2017 101.815  !

19s6A 3/13/k6 M2% 19u to 2015 157.645 o 19%B 12/16/86 72% 19AUo 2017 354.630 19%7A 2/11/%7 69% 19% tt,2017 352ii5 l.110.125

{

i Southern Dansminion PnvM R6enue and Refunding Bonds 19AIA 2/ 9/84 93% 1990 to 2004 65.945 19M4B 10/17/84 10 2 % 1990100000 18.770 l 1945A R/15/65 89% 1959 to 2021 121,600 80%

l 1956A 3/18/s6 19%Mto2021 371.720 19%B 4r29/86 75% 19% to 2023 4Mt010 1.054065 Hoover LYtattne Proiect Revenue Bonds 19A6A R/13r56 s1% 1993 to 2017 34.435  ;

Total Principal Amount 2202425 Les UnamortizN tbnd Dwount-Palo Verde Progt R6 enue and Rc!unding Ebnds 70.790

.%mthern Dansmimon Protert Revenue and Refunding Bonds 58.509 Fke rt ltratine F%er Pnnt Resenue Ibnds 142 [

T.dal l'namort' red Ebnd Discount Ia44I hdal R6enue and Relanding ik nos Lew Amom M Bond Duotmt 52.0731 A4 ime tefrn det4 reprewr. tars a had loan cd il 4145 ru o W the Mem! Preen:u Prom and tainds whkh haie tern refunded aer ndudni from this k t edule l f

i  !

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i j i 19 L

Soutbtn California Public Poen Authority Palo Verde Project Supplemental Balanco Sheet (In thouunds)

June 3Q 1987 1986 Ashi'TS Utility plant _

Protut e n 5 36%.755 5203.247 Transmisuon 3 512 1.h6 4 Cancral 5% 33 372 3J5 205.144 less-Acumulated depresiation 15.9%1 3 340 356 342 201 504 Conertxtion work in prygren 22 8,Nrj J42.317 Nix lear fuel. at amortaed c ost 3ti 415 37.412 Net utility plant b l ?.5e,6 581 533

~

Special funde Insntmenti 2J2 229 274.565 Internt rn ciuble If53 2.2rw Cash 5% 198 J24.5J0 J 7 7.03 l Accounts recchable  ; M9 5 419 Costs recuserable from future hillings to participants Jn oei9 7.340 '

Deferred costs l'namortard debt eqrnws. leu as cumubted annr1aanon of $13 6% and 56.949 in 1%7 and 19s6 21 x.54 Ll 115.9t3 Othet deferrt,.i tost $ 1.542 1972 JJo o45 120 935

$ 1 tral.e59 $99J JSA 1.1 Afill.fI1L%

Inng term debt 11O N 135 10/i(61 '

Corrent liabilitlea

_!Mfil 8'Mlanon notn 75mi NfM N_#'"II9 'If I l 3I 454 II'9 d 1 M oums im aNe Armi as t rtmi eu ensn 14 270 9 215 51.724 I J h.19 %

Commitmente and contingenclea

$ l.tril uki $ w).J %

The a sunpanpr g rues are an mtwra: pan sd tw t.naro.1 watements 20

Southern California Public Pmwr Authority Palo Verde Project Supplemental Statement of Operations (ln thousands) N'ar endedJune 30.

1987 1986 Operallng rnenues Sales of electric encrev $ $1.919 $ 10.042 Operating espenses Nuclear fuel expense i 7.09 5 2.022 Other operation 10.162 3.395 Montenance 3,192 1,440 Apreciahon 11641 3.3 60 Expenw chareed to proiccts during u.norutton (370) (1.05fi)

'64al operating expenws 31Mei 9,141 Ikht etpenses Interer on det4. net 78,290 84.294 Nhm ai re for twirrowni funds used dunns construction ( 40. 43 *) (76 051)

Net debt expenw 37.b2 m 241 70 t>7m 17.3x2 Costs reemerable f rom f uture hillings to participants i18.729) (7.340)

Total expenws $ 51349 $ 10.012 Southern California Public Pmwr Authority Palo Verde Project Supplemental Statement of Changes in Financial Position (in thouunds) h ar rndedlune 39, ini iM funds prmlQhyjused for) -

Operanons Ro rnac$ ~ ~

$ 51.919 $ 10 042-Ehnws (EIU4 (i? 3iJ')

Charges rot ins oh ing fundo

[irprniaton and arnortaatton 19o'M 3 3f,2 L M her, net 9 723 7.933 lutn2 5.955 Enanuns Sate (J retundm[tonds _

b79 434 331.312 DrieA%nce of rt%ende bonds (N R703) (239.320)

Redxtion of longterrn debt (75 Oin))

Ibnd mue costs (0620) (57 M3) t.4 4 42 t wt.ril )

L tmts plant (55 1311 tmI 4t65) tahrt. net 11372i l 19.s.li h l 7214 3)

Increase (Decrease)in funds insea rnents S t31336) 6 (94 031)

Intrrnt twm ANe (515) (12 3m)

Cash 340 (5ti)

Amunts rn eh aNe 12.%1) 4 741 Band anrqution notes 75458) (75 (nu A crued internt]mNe 4 529 6325 Aumnts pauNe and accrutd ntene 15 0 % (2 214)

$114H h 171143) 21

Southern California Public Power Authority Palo Verde Project Supplemental Schedule of Receipts and Disbursements in Funds Required by the Bond Indenturo Year Ended June 30,1987 (In thouunds) Construction FundInitial Dcht Bond Resert e & General Facshttes Sen ice Annoraion Ret enue Operanon Contmeency Resene Account fund Note Fund Fund Fund Nnte fund Fund 7bral Balance at June 30.1946 553.346 5201.277 16.041 5 2.719 5 4963 56.456 5 342 5275.184 Additions Bond and note proceeds 75 312 75.312 Bond and note interest received 4,561 [55I ins estment earnings 3.694 18 753 225 292 405 $30 13 24.212 Sales-pow er 1.350 59 Ci64 GM 61.020 Other income 142 161 302

_Tronster- tend closing (7.h93) (22.841) (30 734)

Transfer-note payment (73.719) (73.719) ,

Transfer-interest pay ment 67.803 (3.000) 64 803

_ Transfer-ins euments 3.fal (195) 1.460 (1 265) 3.600 Transfer-ins estment earnings 13,313 (21.865) (237) 9.661 (361) (45')

3 (51) 1 Tronsfer-power sa!cs recepts 44 Os7 (61.374) 14.613 1.51s 1.156 0 Transfer-c4her 622 304 110 1671 6 17s 132 3.943 1.052 Total 16.421 ta3.802 (3.0121 (2.7 l'4) 23 oril 2.021 3 M6 130.410 Deductions Conuruction cyienditures 19.933 19 933 Operatmg expenditures 424 11.064 11.f3 Fuel cous 6.1A3 6.183 Interest paid 54 133.65 A 3.000 61 136.773

_ Property tu paid I .fA6 1,124 2.815 Financing cous 2.346 2,346 ,

Internt paid on inmtment l

purchaws 774 515 1.29 Premium paid on insesment purchaws 167 167 Total 31.573 134.173 3 tm o 12 443 o o 181.195

$35234 5157. i 29 o $15 575 Balon(e at June 30. Iss?..___...._..____._...._._.______..__.......__._'sm_ _ _ _ _ . . _ _ _ . . _ _ _ . . . . _ _ _ _ . . .5 _417% _ _ . _ . _ 1224

_ . _373 5 Sw 477 Tho ss teve summarises the twciras and daarwmen>s in funds requ. red urdet the t..nd indenture and has tan s reparc3 frem te true vrements The ba'ases in the fur.ds wns.st (4 cash and msestments at orgna! cost Thew t.a:ames do nie maude accrued in'erest en en aNe cd $ 1,753 and 82 2'A at June M 19%? aM IW. net do thn uviade Mal awwtired tw1 ms nmient gonnums cd(116.32) and il421) at Jee M 197 and l'e6 l

1 l

l l l l

l l

i 22

Southern California Public Pmwr Authority Southern Transinission Project Supplemental Balance Sheet (In thouunds)

June 30 JW l'n6 A%%I.IS (tility plant Trammisuon 5 ri3pg4 (bneral 1M W.A t>5 l . I U; tres- Ac cumulated depreciahon Im os3 edi old Conuruction work in prr eress 5 6.16 Tori Net utitty plint r M 013 edr,706

.% pedal funda ins estments _

156.446 219.586 Ads arxt to interrnounta;n ibwer Act'ncy 20 9%)

2 9r,% 2 27%

Interest ns en able 1 %o A 6 JJi s24 Accounts recelsable 2 r.r.2 13 Costa recogerable from future billings to participante 5% 241

!)eferrets costa t namortized debt egenses ins au umulated arnortizahon of il't.999 and 57121 in PM7 and 19sti 167.ost 197 122 11 nel36 5105'i t.r.5 LIAR!!111FS long term debt $ 9% W 5 1043M

{urrent [ labilities _ _ _ _ __

i Acc rued inter 9 3% 611 49117 Annunto nas aNe and aa rued ruenws 322% 7N3 41 % U 57 Jso Commitment s and contin gencies S I 0 41..td Sl 055 tM 23

Southern California Public Power Authority Southern Transmission Project SupplementalStatement of Operations (In thoimnds) ) Par enJed June 30. l'u ?

Operating resenues M!rs (4 transrnnsion wr; n'es $ 40 617 grepngys[wnses Othe r operaton 7.036 l

\t a.n$enant e 3,032 l lieprect.twm 18.0s9 l bral operatingesynws  ; s 207 Debt espenses interest nn debt nri 70 651 to 85M Coste recmerable from future hlllings to participante (5m 241)

Lt al ex:= nses 140 t;li i

i Southern California Public Pour Authority l Southern Tansmission Project S 'pplemental Stntement of Changes in Financial Position (In thmunds) j

%vr endedJune 34 l l'ai Iwi I I

[und prmided by(u.ca rnr)_ _

Upe w e:,s - ~~

\

Revenues 5 40 617  !

~ ~'

l bynn _

(% v>y

- - - ' ~ ~ ~ -

C1 aren nd insoh ma tons' - -

rvpreuat on IMi l t Wr. n t 5 o.',2 ,

IiJ Ituti '

h narn ;ng M'c (4 refurect ng torkh 510)o.213 ,

( A fe nanic of t.>nd anta parr -n tw drs, (Ji u l t u k i) i

[htaun(e i4 tes enue terxk p1] tug K M mue' rwis (174 617) i (2t wi n U) l ti!.rs pant I l 4 .Vo ilu2 $ W l 09n net Jt.157 ta tt Si;.t 3 N l 4to; t.40) ,

1 Increase (Decrease)in runda .

in.s ent'nent s $gtil lte t) $ (142,12$) l AJ3 4 m e ta l:ift -mkwJnts.n lWt r Acern3 20 5Al Intetts!rt w sin e the t (9 t'412 3 Awannrtu';We 2 613 gi tal) [

ki ruts 31Trfnt i 1,1III (172}

buys p.n st/c and n ra,si eurne 43R Ni 5 46

$i;13 N $ ( L7.n40) 24

Southern California Public Power Authority Southern Transmission Project Suppicmental Scheduto of Receipts and Disbursements in Funds Required by the Bond indenture Year Ended June 30,1987 (In thousands) Ountruction Fund Initial iktA General Foahties Scn ice Res enue Otwrating Rnen e kcr >unt Fund furn! Fund Flind %tal Baltnce at June 30.19% $ 93 (a36 $ 124.314 5 0 $ 0 5 0 $218.150 Additione Investment earnines 3.905 11.0M 90 230 5Al 15 96 Sales 42.071 42,071

_Trander of interest paynwnt 85 A 41

_ 85J41 Trtnsfer of funds (38 534) 4(224 (9.7511 6fo ($ 939) 0 Trtnder-transmission sales rweqrt 14 556 (34.201) 12.954 10.fA7 0 (ther rncipes i17 117 btal 134 tc291 159301 15 tJ 4) 19 lm SJJu 143 915 L4dustlana

_ijyments in aid of construction and adminieratne coes paid ._ 19 255 19.255 Adunce tointernx>untain f%cr Acerxv 20.9% ) 20,951

(

_3erating espend.tures 12.72% 12.72s internt paid 142 151369 _

151.511 Internt paid on ins ntment purt haws 139 375 267 781 F'inanang covi pa,d 539 539 Trander of inveument earnings (434) 5.407 (5.674) 223 478 0 Other 105 105 T, d al 40327 157,151 ti.tJ 4) 12.951 745 Jobao Kilanc e at June 30. I'.as? $ IM 4v. $ 12t. Ae,4 $ o i t 217 6 45*4 515ti. t r,5 This w hedu!e summaraes the retegn and d diurwmentiin funds requret undet the t nd indenture and has tan prearnt tn,m thein si statements The tWarm in the hAis censest of ( Ash and im estments at orynal o at Thew ba'ances du rw4 irwtude C rved anfetest rn en atJe of 52 >A and $2.279 at Jure M 1997 and 19% nor do they in(late tidal amortard nrt im estrner.t d.suunis and premiums ul 52$1 and $13% at Jure Fl, lbs7 arwi 1%f.

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