ARIZONA PUBLIC SERVICE CO - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission file number 1-4473

Arizona Public Service Company

(Exact name of registrant as specified in its charter)


Arizona		86-0011170
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

400 North Fifth Street, P.O. Box 53999, Phoenix, Arizona (Address of principal executive offices)		85072-3999 (Zip Code)

Registrant’s telephone number, including area code:

(602) 250-1000

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Number of shares of common stock, $2.50 par value, outstanding as of November 14, 2003: 71,264,947, all of which are held beneficially and of record by Pinnacle West Capital Corporation.

The Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

TABLE OF CONTENTS


Glossary
PART I -- FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED STATEMENTS OF INCOME
		CONDENSED STATEMENTS OF INCOME
		CONDENSED STATEMENTS OF INCOME
		CONDENSED BALANCE SHEETS
		CONDENSED BALANCE SHEETS
		CONDENSED STATEMENTS OF CASH FLOWS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 3. Market Risks
	Item 4. Controls and Procedures
PART II -- OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
EX-12.1
Ex-31.1
Ex-31.2
Ex-32.1
EX-32.2
EX-99.1

Glossary

ACC — Arizona Corporation Commission

ACC Staff — Staff of the Arizona Corporation Commission

AFUDC — allowance for funds used during construction

ALJ — administrative law judge

APS — Arizona Public Service Company, the Company

APS Energy Services — APS Energy Services Company, Inc., a subsidiary of Pinnacle West

CAISO — California Independent System Operator

CC&N — Certificate of Convenience and Necessity

Citizens — Citizens Communications Company

Company — Arizona Public Service Company

EITF — the FASB’s Emerging Issues Task Force

ERMC — Energy Risk Management Committee

FASB — Financial Accounting Standards Board

FERC — United States Federal Energy Regulatory Commission

FIN — FASB Interpretation

Financing Order — ACC order issued on April 4, 2003 relating to our request to provide up to $500 million of financing or credit support to Pinnacle West Energy or Pinnacle West

GAAP — accounting principles generally accepted in the United States of America

Interim Financing Order — ACC order issued on November 22, 2002 relating to our request to provide up to $125 million of financing or credit support to Pinnacle West

IRS — United States Internal Revenue Service

June 2003 10-Q — Arizona Public Service Company Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2003

March 2003 10-Q — Arizona Public Service Company Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003

Moody’s — Moody’s Investors Service

MW — megawatt, one million watts

MWh — megawatt-hours, one million watts per hour

Native Load — retail and wholesale sales supplied under traditional cost-based rate regulation

1999 Settlement Agreement — comprehensive settlement agreement approved by the ACC related to the implementation of retail electric competition

NRC — United States Nuclear Regulatory Commission

OCI — other comprehensive income

Palo Verde — Palo Verde Nuclear Generating Station

PG&E — PG&E Corp.

Pinnacle West — Pinnacle West Capital Corporation, parent company of the Company

Pinnacle West Energy — Pinnacle West Energy Corporation, a subsidiary of Pinnacle West

PWEC Dedicated Assets — the following Pinnacle West Energy power plants, each of which is dedicated to serving our customers: Redhawk Units 1 and 2, West Phoenix Units 4 and 5, and Saguaro Unit 3

PX — California Power Exchange

Rules — ACC retail electric competition rules

SCE — Southern California Edison Company

SEC — United States Securities and Exchange Commission

SFAS — Statement of Financial Accounting Standards

SNWA — Southern Nevada Water Authority

SPE — special-purpose entity

Standard & Poor’s — Standard & Poor’s Corporation

SunCor — SunCor Development Company, a subsidiary of Pinnacle West

T&D — transmission and distribution

Track A Order — ACC order dated September 10, 2002 regarding generation asset transfers and related issues

Track B Order — ACC order dated March 14, 2003 regarding competitive solicitation requirements for power purchases by Arizona’s investor-owned electric utilities

Trading — energy-related activities entered into with the objective of generating profits on changes in market prices

2002 10-K — the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002

UniSource — UniSource Energy Corporation

VIE — variable interest entity

PART I — FINANCIAL INFORMATION


Item 1.	*Financial Statements*

ARIZONA PUBLIC SERVICE COMPANY

CONDENSED STATEMENTS OF INCOME



			Three Months Ended
			September 30,

			2003			2002


			(Dollars in thousands)

			(Unaudited)
ELECTRIC OPERATING REVENUES:
	Regulated electricity segment		$	702,854		$	744,463
	Marketing and trading segment			119,332			9,126

		Total		822,186			753,589

PURCHASED POWER AND FUEL COSTS:
	Regulated electricity segment			279,218			306,244
	Marketing and trading segment			124,736			8,345

		Total		403,954			314,589

OPERATING REVENUES LESS PURCHASED POWER AND FUEL COSTS				418,232			439,000

OTHER OPERATING EXPENSES:
	Operations and maintenance excluding purchased power and fuel costs			121,158			132,787
	Depreciation and amortization			97,643			100,603
	Income taxes			51,102			58,407
	Other taxes			27,914			26,751

		Total		297,817			318,548

OPERATING INCOME				120,415			120,452

OTHER INCOME (DEDUCTIONS):
	Income taxes			5,048			1,806
	Allowance for equity funds used during construction (Note 19)			11,194			—
	Other income (Note 16)			9,282			1,962
	Other expense (Note 16)			(3,395	)		(6,073	)

		Total		22,129			(2,305	)

INTEREST DEDUCTIONS:
	Interest on long-term debt			37,578			31,900
	Interest on short-term borrowings			1,062			2,609
	Debt discount, premium and expense			754			789
	Capitalized interest (Note 19)			2,794			(3,721	)

		Total		42,188			31,577

NET INCOME			$	100,356		$	86,570

See Notes to Condensed Financial Statements.

ARIZONA PUBLIC SERVICE COMPANY

CONDENSED STATEMENTS OF INCOME



			Nine Months Ended
			September 30,

			2003			2002


			(Dollars in thousands)

			(Unaudited)
ELECTRIC OPERATING REVENUES:
	Regulated electricity segment		$	1,602,483		$	1,635,915
	Marketing and trading segment			318,882			22,188

		Total		1,921,365			1,658,103

PURCHASED POWER AND FUEL COSTS:
	Regulated electricity segment			524,945			490,887
	Marketing and trading segment			314,369			20,712

		Total		839,314			511,599

OPERATING REVENUES LESS PURCHASED POWER AND FUEL COSTS				1,082,051			1,146,504

OTHER OPERATING EXPENSES:
	Operations and maintenance excluding purchased power and fuel costs			373,538			365,053
	Depreciation and amortization			289,757			297,415
	Income taxes			91,261			123,681
	Other taxes			83,992			81,127

		Total		838,548			867,276

OPERATING INCOME				243,503			279,228

OTHER INCOME (DEDUCTIONS):
	Income taxes			5,846			4,176
	Allowance for equity funds used during construction (Note 19)			11,194			—
	Other income (Note 16)			14,107			4,510
	Other expense (Note 16)			(9,654	)		(13,981	)

		Total		21,493			(5,295	)

INTEREST DEDUCTIONS:
	Interest on long-term debt			105,712			95,938
	Interest on short-term borrowings			3,784			4,908
	Debt discount, premium and expense			2,303			2,129
	Capitalized interest (Note 19)			(6,267	)		(11,814	)

		Total		105,532			91,161

NET INCOME			$	159,464		$	182,772

See Notes to Condensed Financial Statements.

ARIZONA PUBLIC SERVICE COMPANY

CONDENSED STATEMENTS OF INCOME



			Twelve Months Ended
			September 30,

			2003			2002


			(Dollars in thousands)
			(Unaudited)
ELECTRIC OPERATING REVENUES:
	Regulated electricity segment		$	2,025,907		$	2,072,481
	Marketing and trading segment			330,748			28,383

		Total		2,356,655			2,100,864

PURCHASED POWER AND FUEL COSTS:
	Regulated electricity segment			629,426			597,150
	Marketing and trading segment			326,319			21,433

		Total		955,745			618,583

OPERATING REVENUES LESS PURCHASED POWER AND FUEL COSTS				1,400,910			1,482,281

OTHER OPERATING EXPENSES:
	Operations and maintenance excluding purchased power and fuel costs			504,330			474,259
	Depreciation and amortization			391,982			404,198
	Income taxes			100,533			150,896
	Other taxes			110,790			102,133

		Total		1,107,635			1,131,486

OPERATING INCOME				293,275			350,795

OTHER INCOME (DEDUCTIONS):
	Income taxes			7,818			4,713
	Allowance for equity funds used during construction (Note 19)			11,194			—
	Other income (Note 16)			13,615			10,018
	Other expense (Note 16)			(13,880	)		(21,987	)

		Total		18,747			(7,256	)

INTEREST DEDUCTIONS:
	Interest on long-term debt			138,236			129,025
	Interest on short-term borrowings			4,292			5,508
	Debt discount, premium and expense			3,062			2,778
	Capitalized interest (Note 19)			(9,603	)		(15,431	)

		Total		135,987			121,880

NET INCOME			$	176,035		$	221,659

See Notes to Condensed Financial Statements.

ARIZONA PUBLIC SERVICE COMPANY

CONDENSED BALANCE SHEETS


		September 30,			December 31,
		2003			2002


		(Dollars in thousands)
		(Unaudited)
ASSETS
UTILITY PLANT:
Electric plant in service and held for future use		$	8,641,225		$	8,299,131
Less accumulated depreciation and amortization			3,408,559			3,442,571

	Total		5,232,666			4,856,560
Construction work in progress			273,373			329,089
Intangible assets, net of accumulated amortization (Note 14)			106,546			93,259
Nuclear fuel, net of accumulated amortization			15,139			7,466

	Utility plant — net		5,627,724			5,286,374

INVESTMENTS AND OTHER ASSETS:
Notes receivable from associated companies (Notes 5 and 18)			497,708			—
Decommissioning trust accounts (Note 13)			226,709			194,440
Assets from risk management and trading activities — long-term (Note 10)			20,903			31,622
Other assets			15,564			19,964

	Total investments and other assets		760,884			246,026

CURRENT ASSETS:
Cash and cash equivalents			161,156			42,549
Accounts receivable:
Service customers			258,127			136,945
Other			61,886			202,597
Allowance for doubtful accounts			(1,574	)		(1,341	)
Accrued utility revenues			106,861			72,915
Materials and supplies, at average cost			78,689			79,985
Fossil fuel, at average cost			29,517			28,185
Deferred income taxes			4,094			4,094
Assets from risk management and trading activities (Note 10)			37,683			39,616
Other			54,215			45,361

	Total current assets		790,654			650,906

DEFERRED DEBITS:
Regulatory assets			186,479			241,045
Unamortized debt issue costs			19,150			16,696
Other			83,683			80,760

	Total deferred debits		289,312			338,501

	TOTAL ASSETS	$	7,468,574		$	6,521,807

See Notes to Condensed Financial Statements.

ARIZONA PUBLIC SERVICE COMPANY

CONDENSED BALANCE SHEETS


	September 30,		December 31,
	2003		2002


	(Dollars in thousands)
	(Unaudited)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock	$	178,162	$	178,162

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