Arizona Public Service and Salt River Project Sign Agreement to Advance Electric Competition


PHOENIX, Ariz. - To advance electric competition in Arizona and in response to state government officials' requests to resolve outstanding issues, Arizona Public Service and Salt River Project today announced that they have reached an agreement on a wide range of issues. Officials of both companies characterized the agreement as a significant step forward in creating an open marketplace for Arizona consumers.

Major components of the agreement include:

  • Facilitating customer choice
  • Amending the 1955 agreements between the two utilities
  • Pursuing joint opportunities to reduce costs
  • Cooperating on state and federal regulatory and legislative issues

The agreement is timely, as the ACC and Arizona Legislature are currently working to restructure Arizona's electric utility industry.

Speaker of the House Jeff Groscost, who with Senator John Wettaw co-sponsored House Bill 2663, the electric power competition bill, hailed the agreement. "Today's historic agreement is a critical step toward electric power competition for Arizona," said Groscost. "For years, I have fought for competition because it will bring lower prices and greater choice for consumers. I believe my legislation pending in the Senate, coupled with this agreement, will make electric power competition a reality."

"The move toward competition in the electric utility industry initiated by the Commission almost four years ago is a cooperative process among many parties," said Arizona Corporation Commission Chairman Jim Irvin. "Resolving these important issues will help move the state forward to a competitive market with lower prices and better service for consumers."

The APS-SRP agreement removes a restriction on opening each company's exclusive service territories to energy generated by others. To achieve this, the 1955 territorial agreement between the two utilities would be amended. Current distribution systems would remain subject to the agreement.

The agreement settles an issue between APS and SRP as to whether a 1955 wholesale power contract will continue after competition begins. The settlement brings the price APS is paying SRP for a supply of electricity generated on the SRP system, but used on the APS system, to a level closer to anticipated market prices. APS officials estimate this would reduce their purchased power costs by approximately $17 million in 1999 and by lesser amounts annually through 2006. SRP will realize significant benefits over the term of the contract, escalating in later years.

In addition, the two utilities agreed to pursue joint operating opportunities that will result in net cost savings for both companies.

The utilities also agreed to work cooperatively at the state level to support efforts to establish the terms and conditions of competition in Arizona.

APS and SRP have agreed to support positions on a number of federal issues, including tax exempt financing for public power entities. They agree that, while acceptable for existing facilities, such financing should not be available for new generating facilities except for pollution control, and that tax exempt financing should not be available under certain circumstances for refinancing debt for such facilities.

"We feel very good about this agreement in that it complements the framework provided by the Arizona Corporation Commission," said APS/Pinnacle West Chairman Richard Snell. "It underscores our commitment to a competitive marketplace and preserves consistent and reliable service for our customers. It is a step among many that will be required to meet the January 1, 1999 target for beginning competition in the state of Arizona."

"The agreement adds a degree of certainty at a time when the rules affecting the electric utility industry are about to change. That's good news for our customers," said SRP General Manager Richard Silverman. "The outcome is significant in that it not only reaffirms a reliable, low-cost supply of electricity, but enhances a reliable, low-cost water supply for the Valley into the next century."

The amendments to the 1955 agreements are subject to approval by the utilities' boards of directors. Certain actions contemplated in the memorandum of agreement are subject to consideration by the ACC or the Salt River Project board of directors.

APS is a principal subsidiary of Pinnacle West Capital Corporation (NYSE:PNW), a Phoenix-based holding company.

Phoenix based SRP is the third largest public power utility in the nation and the largest provider of water in the greater Phoenix metropolitan area.


This press release contains forward-looking statements that involve risks and uncertainties, which include, but are not limited to, the ongoing restructuring of the electric industry; the outcome of the regulatory proceedings relating to the restructuring; regional economic and market conditions, which could affect customer growth and the cost of power supplies; the cost of debt and equity capital; weather variations affecting customer usage; and the strength of the real estate market. These factors and the other matters discussed above may cause future results to differ materially from historical results, or from results or outcomes currently expected or sought by the Company.

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