Business Context and Reporting Period
This Form 8-K is a combined current report filed by Pinnacle West Capital Corporation and Arizona Public Service Company (APS) on April 17, 2006. The filing addresses regulatory actions by the Federal Energy Regulatory Commission (FERC) and the establishment of a new short-term credit facility to maintain liquidity while seeking regulatory approval for long-term debt.
Key Financial Metrics and Agreements
- Short-Term Credit Facility: Entered into on April 21, 2006, with Union Bank of California, N.A. for up to $50 million.
- Facility Terms: Unsecured revolving credit available until October 21, 2006, or until FERC authorization is obtained for the existing Credit Agreement. Up to $15 million is available for letters of credit.
- Debt Issuance Limits: Under the Federal Power Act, Pinnacle West may issue approximately $200 million of short-term debt without FERC approval.
- Refund Obligations: The FERC Order requires refunds of over-collected rates in the APS control area effective from February 27, 2005. Specific refund amounts are not provided in this filing.
Material Changes and Regulatory Events
On April 17, 2006, the FERC issued an order revoking the Pinnacle West Companies' market-based rate authority in the APS control area due to a failure to provide necessary data regarding generation market power screens. Consequently, the companies must charge cost-based rates retroactively to February 27, 2005. Additionally, the FERC revoked a previous order allowing Pinnacle West to incur long-term debt without approval. The companies were granted temporary permission to issue securities only until May 3, 2006.
Outlook, Management Commentary, and Risks
- Management Assessment: Pinnacle West and APS do not believe the FERC Order will have a material adverse effect on their financial position, results of operations, or cash flows based on preliminary calculations.
- Next Steps: The companies plan to seek a rehearing of the FERC Order by May 17, 2006. An application for approval of the Credit Agreement and other securities was filed on April 20, 2006, with a request for a decision by May 3, 2006.
- Risks: The primary risk involves the inability to incur long-term debt without FERC approval, necessitating reliance on the new $50 million short-term facility and existing short-term debt limits.
Investor Verification Checklist
- Verify the outcome of the FERC rehearing request due by May 17, 2006.
- Monitor the status of the FERC application for the Credit Agreement and debt/equity securities filed on April 20, 2006.
- Review future filings for the final calculation of rate refunds owed for the period starting February 27, 2005.
- Confirm whether the $50 million short-term credit facility is drawn upon or if alternative financing is secured before the May 3, 2006 deadline.