SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 6, 2003
PINNACLE WEST CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Arizona 1-8962 86-0512431
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
400 North Fifth Street, P.O. Box 53999, Phoenix, Arizona 85072-3999
(Address of principal executive offices) (Zip Code)
(602) 250-1000
(Registrant's telephone number, including area code)
NONE
(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS
TRACK B ORDER
On March 14, 2003, the ACC issued the Track B order (the "Track B Order"),
which requires Arizona Public Service Company ("APS") to solicit bids for
certain estimated capacity and energy requirements for periods beginning July 1,
2003. See "Electric Industry Restructuring - Track B Order" in Note 3 of Notes
to Consolidated Financial Statements in the Pinnacle West Capital Corporation
(the "Company") Annual Report on Form 10-K for the fiscal year ended December
31, 2002. APS issued requests for proposals in March 2003. By May 6, 2003, APS
entered into contracts to meet all or a portion of its requirements for the
years 2003 through 2006 as follows.
(1) Pinnacle West Energy Corporation agreed to provide 1,700 megawatts
("MW") in July through September of 2003 and in June through September
of 2004, 2005 and 2006, by means of a unit contingent contract.
(2) PPL EnergyPlus, LLC agreed to provide 112 MW in July through September
of 2003 and 150 MW in June through September of 2004 and 2005, by
means of a unit contingent contract.
(3) Panda Gila River LP agreed to provide 450 MW in October of 2003 and
2004 and May of 2004 and 2005, and 225 MW from November 2003 through
April 2004 and from November 2004 through April 2005, by means of firm
call options.
ASSET RETIREMENT OBLIGATIONS
On January 1, 2003, we adopted Statement of Financial Accounting Standards
("SFAS") No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143
provides accounting requirements for the recognition and measurement of
liabilities associated with the retirement of tangible long-lived assets. The
standard requires that these liabilities be recognized at fair value as incurred
and capitalized as part of the related tangible long-lived assets. Accretion of
the liability due to the passage of time is an operating expense and the
capitalized cost is depreciated over the useful life of the long-lived asset.
Prior to January 1, 2003 we accrued asset retirement obligations over the life
of the related asset through depreciation expense.
APS has asset retirement obligations for its Palo Verde Nuclear Generating
Station ("Palo Verde") nuclear facilities and certain other generation,
transmission and distribution assets. The Palo Verde asset retirement obligation
primarily relates to final plant decommissioning. This obligation is based on
the Nuclear Regulatory Commission ("NRC") requirements for disposal of radiated
property or plant and agreements APS reached with the Arizona Corporation
Commission (the "ACC") for final decommissioning of the plant. The non-nuclear
generation asset retirement obligations primarily relate to requirements for
removing portions of those plants at the end of the plant life or lease term.
Some of our transmission and distribution assets have asset retirement
obligations because they are subject to right of way and easement agreements
that require final removal. These agreements have a history of uninterrupted
renewal that we expect will continue for the foreseeable future. As a result,
APS cannot reasonably estimate the fair value of the asset retirement obligation
related to such distribution and transmission assets. The asset retirement
obligations associated with our non-regulated assets are immaterial.
2
On January 1, 2003, APS recorded a liability of $219 million for its asset
retirement obligations, including the accretion impacts; a $67 million increase
in the carrying amount of the associated assets; and a net reduction of $192
million in accumulated depreciation related primarily to the reversal of
previously recorded accumulated decommissioning and other removal costs related
to these obligations. Additionally, APS recorded a net regulatory liability of
$40 million for the asset retirement obligations related to its regulated
assets. This regulatory liability represents the difference between the amount
currently being recovered in regulated rates and the amount calculated under
SFAS No. 143. APS believes it can recover in regulated rates the transition
costs and ongoing current period costs calculated in accordance with SFAS No.
143. The adoption of SFAS No. 143 did not have a material impact on our net
income for the quarter ended March 31, 2003.
In accordance with SFAS No. 71, APS will continue to accrue for removal
costs for its regulated assets, even if there is no legal obligation for
removal. At March 31, 2003, accumulated depreciation shown on our Condensed
Consolidated Balance Sheets included approximately $360 million of estimated
future removal costs that are not considered legal obligations.
The following schedule shows the change in our asset retirement obligations
during the three-month period ended March 31, 2003 (dollars in millions):
Balance at January 1, 2003 $ 219
Changes attributable to:
Liabilities incurred --
Liabilities settled --
Accretion expense 4
Estimated cash flow revisions --
------
Balance at March 31, 2003 $ 223
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The following schedule shows the change in our pro forma liability for the
periods ended December 31, 2002 and 2001, as if we had recorded an asset
retirement obligation based on the guidance in SFAS No. 143 (dollars in
millions):
2002 2001
------ ------
Balance at beginning of year $ 204 $ 190
Accretion expense 15 14
------ ------
Balance at end of year $ 219 $ 204
====== ======
The pro forma effects on net income for 2002 and 2001 are immaterial.
3
To fund the costs APS expects to incur to decommission the plant, APS
established external decommissioning trusts in accordance with NRC regulations.
APS invests the trust funds primarily in fixed income securities and domestic
stock and classify them as available for sale. The following table shows the
cost and fair value of our nuclear decommissioning trust fund assets which are
reported in investments and other assets on the Condensed Consolidated Balance
Sheets at March 31, 2003 and December 31, 2002 (dollars in millions):
March 31, December 31,
2003 2002
------ ------
Trust fund assets - at cost
Fixed income securities $ 115 $ 113
Domestic stock 70 68
------ ------
Total $ 185 $ 181
====== ======
Trust fund assets - at fair value
Fixed income securities $ 124 $ 117
Domestic stock 81 77
------ ------
Total $ 205 $ 194
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PINNACLE WEST CAPITAL CORPORATION
(Registrant)
Dated: May 7, 2003 By: Barbara M. Gomez
------------------------------------
Barbara M. Gomez
Treasurer
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