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Home My WebLink About20210527Kobliha Exhibit 4.pdfCase No. PAC-E-21-07 ExhibitNo.4 Witress: Nikki L. Kobliha BEFORE THE TDAHO PUBLIC UTILITIES COMMISSION ROCKY MOUNTATN POWER Exhibit Accompanying Direct Testimony of Nikki L. Kobliha Arizona Public Service Co Letter to Commission May 2O2l Rocky Mountain Power Exhibit No. 4 Page 'l of '11 Case No. PAC-E-2'!-O7 Witness: Nikki L. Kobliha OR\GINALV- RECEIVED ?000 OCI 11 P 3'28 *jll##fr BB [E,' BU$l i8'f * r ilt tfl ilfl til ill lil ffi il] lll lll ffi llil0000089812+qfrl Prxr.{c r.E lVe s'r LAW DEPARTMENT October 17,2008 Dircct Linc Commissioner Kristin K. Mayes Arizorta Corporation Commission 1200 West Washington Phoenix, Arizona 85007 Ariz^na I ,:llrrissicn L -, i ,iE l-E;) t..;'-ti,,., [ -:l$'nlRe: DocketNo. E-01345A-08-0172 (Interim Rate Motion) Dear Commissioner Mayes On October 8, 2008, you filed a letter in which you requested Arizona Public Service Company (*APS" or "Company") to respond to five specific issues covering a range of subjects. Because several of these issues are germane to the Company's pending Motion for Interim Rates, the Company has chosen to submit its response in the above docket. For the convenience of the panies to this proceeding, I have attached i copy of your October 86 letter as Appendix A. APS Access to Commercial Paper Market and OfherCredit-Relafed fssues APS first began experiencing trouble accessing the commercial paper market in August of 2007 when the sub-prime credit issues began to impact the capital markets. Access has continued to be sporadic throughout 2008, with the amount of commercial paper APS can issue often being limited even when access to the market was possible. Beginning September 17, 2008, the commercial paper market has been completely closed to APS. As discussed during the hearing, APS had total lines of credit of $900 million. The first line of $400 million expires at the end of 2010, with a second for $500 million expiring at the end of 201I. The purpose of these lines of credit is to provide the Company with liquidity and working capital when commercial paper cannot be utilized - not fund capital expenditures.' lndeed, Decision No. 69947 (October 30, 2007) specifically limited the use of the $500 million line of credit to fueUpurchased power requirements and thus cannot be r:sed to fund the Company's capital requirements. As of September 30, 2008, approximately $270 million had to be drawn down due to the problems in the commercial paper market described above. Also, $34 million of the Company's credit line was with bankrupt Lehman Brothers and thus no longer I Borrowing on bank lines of credit is normally 25 to 50 basis points more expensive than commercial paper APS o APS Energy Services o SunCor o El Dorado o Law Dapartmont,400 Nofth Fiflh StrE€t, Mail Station 8695, Phoenh, AZ 85004-3992 Phone: (602) 2fi-2052 -Facsimile (602) 250-3393 E-mail: Thomas.Mumaw@pinnaclowestcom Rocky Mountain Power Exhibit No. 4 Page 2 ol 11 Case No. PAC-E-2'|-07 Witness: Nikki L. Kobliha Kristin K. Mayes, Commissioner October 17,2008 Page2 exists. Another $36 million was with Wachovia, which is in the process of being acquired by Wells Fargo. Whether the new owner of Wachovia will assume the $36 million commitment is uncertain, to say the least. Accordingly, APS's previots $900 million lines of credit are now no more than $866 million, and may be as low as $830 million. Finally, as a result of recent write- downs of bank assets, there is $2 trillion less credit capacity in the U.S. banking system than there was before this global financial crisis began. As a result, APS will likely encounter diffrculty in maintaining its remaining lines of credit in the future, and there is no doubt that these lines of credit would, in any case, be insuffrcient to meet APS's capital expenditue needs over the next few years. Liquidity is absolutely vital to the financial integrity of an electric utility. APS itself was contacted by each of the three rating agencies after the Lehman Brothers bankruptcy and asked about the Company's exposure to Lehman, Morgan Stanley, Menill Lynch and Goldman Sachs, as well as its ability to count on its lines of credit given the chaos in the short-term credit markets. A recent example of the critical importance of liquidity is Constellation Energy, tle parcnt of Baltimore Gas & Electric Company, which began 2008 with a stock price of over $100 per share. After facing a liquidity crisis driven by threatened credit rating downgrades and the resultant cash collateral calls that nearly drove Constellation to the brink of bankruptcy, it was forced to sell itself to MidAmerican Energy (the same entity that bought out PacifiCorp) for $26.50 per share. And the damage has not been limited to the short-term debt market. Despite massive efforts by our Federal government and governments in Europe and Asia to pump liquidity into the national and international credit markets, access to the corporate debt market is extremely strained, with only the most highly-rated corporations being successful in raising long.temt debt capital. At present, APS likely could not successfully issue long-term debt. Whether this financial market environment will improve by the spring of next year, when APS likely will need to issue debt, is un-known. GeoSmarl Solar Financing Program On Thursday, September 25,2A08 GE Money announced that it will no longer offer unsecured installment consumer financing for its energy effrciency and renewable energy prograns after October 23, 2008 because of the cunent turmoil in the credit markets. The action specifically affected the Electric & Gas Industries Association's ("EGIA") GEOSmart Financing Program offered by APS because GE Money provided the financial support for the program. Although APS had no prior warning of GE Money's actions, APS remains committed to its partnership with EGIA. EGIA, as a non-profit entity implementing similar financing programs for utilities around the country, is situated to identify other suitable financial institutions to back the GeoSmarl program. Il recent conversations, EGIA informed APS that a number of financial institutions have been identified that may be able to provide flrnding for GEOSzart. APS remains hopeful but cannot offer any assurance that EGIA will secure other financial backing in the future. Rocky Mountain Power Exhibit No. 4 Page 3 of 11 Case No. PAC-E-21-07 Witness: Nikki L. Kobliha Kristin IC Mayes, Commissioner October 17,2008 Page 3 Transactions with Investment Banks or Similar f inancial Institutions Attached as Appendix B is a list of the banks with which APS has existing lines of credit. As noted before, Lehman Brothers and Wachovia are in that group. APS has also submitted a $1.1 million claim against Lehman Brothers in bankruptcy over a hedging transaction. APS has conducted rumerous transactions with Morgan Stanley and Goldman Sachs, who together are major players in the U.S energy markets. Although it would seriously reduce the overall liquidity of these energy markets should Morgan Stanley and/or Goldman Sachs bow out of the energy market, APS itself had controls in place well before all these problems began that limited its exposure to any single tading partner, including those discussed above. However, with chaotic and unprecedented market events such as we axe presently experiencing, no arnount of internal controls can provide complete protection against potential losses.' Finally, AIG is a carrier for APS property and casualty insurance. APS believes that these insurance policies will continue to be honored. Auction Rate Securities APS does not have any funds invested in auction rate securities ("ARS''). APS is an issuer of ARS, with $343 million outstanding and with maturities in2029 and2034. The average rate of interest paid on these securities has been 3.2Vo, thus providing very attractive financing for APS and its customers. Palo Verde Palo Verde Unit 3 experienced two relatively brief unplanned outages recently. The first was from September 16 to September 20 when a failed transmitter in the control circuitry for one of the two power supplies to the reactor control rods required the unit to be shut down. That was safely accomplished, and after the electronic card that included the failed component was replaced, the unit was retumed to full power without incident. The second was from September 27 to 30 when high sulfate levels were detected in the secondary steam system (the system that connects the steam generators with the steam turbine). After operators had shut down the unit, the secondary system chemistry was returned to normd, the unit again retumed to service without incident and has been operating at full power since then. APS estimates that the amormt of additional fuel and purchased power costs deferred for recovery through the PSA to be approximately $3 million.' Neither outage involved what could be characterized as an unusual event for a nuclear power plant and is the sort of occurrence anticipated in the budgeted effective forced outage rate ("EFOR") for Palo Verde. PaIo Verde, like all generators, including all APS generators, has an 2 Although such transactions are not directly with APS, the APS decommissioning trusts and the Pinnacle West retirement funds have relatively sniall investments in some of the toubled entities identified in your letter, as likely do most if not all large investment funds in this country. 3 As the Commission is aware, APS absorbs l0% of higher fuel costs, and a portion of outage costs are embedded in the base fuel cosl In addition, a small amount is allocated to wholesale customers. Thus, the total cost of the outages was $4.4 million. Rocky Mountain Power Exhibit No. 4 Page 4 ol'11 Case No. PAC-E-21{7 Wilness: Nikki L. Kobliha Kristin K. Mayes, Commissioner October 17,2008 Page 4 anticipated EFOR based primarily on past operations. This is merely an acknowledgement that all machines, no matter how well designed, constructed, operated, and maintained, will sometimes fail. Electic generators are no exception to that rule. To date this year, the overall Palo Verde capacrty factor has been 98% (excluding refueling outages). This past surlmer, Palo Verde set an all-time record for generation. Throughout both outage events, Palo Verde staff demonsfiated their safety-first focus by using effective problem identification and resolution behaviors, took proper action during troubleshooting (including developing contingency plans) and work planning. They executed all needed repairs with a focus on human performance, The NRC was kept fully infonned throughout these outages and monitored Palo Verde's decision-making process and the actions taken. APS does not believe these outages have had any negative impact on APS's substantial progress in resolving the NRC's Confirmatory Action Letter. Sincerely,f/*/*' Thomas L. Mr(rraw #msr"Hffi,f"aPubric Attachments Mike Gleason, Chairman WilliamA. Mundell JeffHatch-Miller Gary Pierce Brian McNeil Emest Johnson Lyn A. Farmer Janet Wagner Rebecca Wilder Janice Alward Parties of Record Docket Control cc: Rocky Mountain Power Exhibit No. 4 Page 5 of 11 Case No. PAC-E-21-07 Witness: Nikki L. Kobliha Copies of the foregoing emailed or mailed This lTth day of October 2008 to: Emest G. Johnson Director, Utilities Division Arizona Corporation Commissi on 1200 West Washington Street Phoenix, AZ 85007 ej ohnson@cc.state.az.us Maureen Scott Legal Division Arizona Corporation Commission 1200 West Washington Street Phoenix, AZ 85007 mscott@azcc.gov Janet Wagner Legal Division Arizona Corporation Commission 1200 West Washiugton Street Phoenix, AZ 85007 iwagner@azcc.gov Teni Ford Utilities Division Arizona Corporation Commission 1200 West Washington SEeet Phoenix, AZ 85007 tford@azcc.gov Barbara Keene Utilities Division Arizona Corporation Commission 1200 West Washington Street Phoe,nix, AJ, 85007 bKeene @.c c. state. az.us Daniel Pozefskv Chief Counsel' RUCO I110 West Washington, Suite 220 Phoenix, AZ 85007 dpozefsky@aznrco.com William A. Rigsby RUCO I I l0 West Washington, Suite 220 Phoenix, AZ 85007 brigsby@azruco.eov Tina Gamble RUCOl1l0 West Washington, Suite 220 Phoenix, AZ 85007 esamble@szruco.gov C. Webb Crockett Fennemore Craig 3003 North Cenrral, Suite 2600 Phoenix, AZ 85012-2913 wcrocket@fclaw.com Kevin Higgins Energy Strategies, LLC 215 South State Street, Suite 200 Salt Lake City, [-rf 841I I khiggins@ener gyshat.com Michael L. Kurtz Boehm, Kurt & Lowry 36 East Seventh Street, Suite 2l l0 Cincinnati, OH 45202 mlrurtz@BKLlawf irm. com Kurt J. Boehm Boehm, Kurt & Lowry 36 East Seventh Street, Suite 2l l0 Cincinnati, OH 45202 kboehm@RKllawfirm.com The Kroger Company Dennis George AtEr: Corporate Energy Manager (G09) 1014 Vine Street Cincinnati, OH 45202. deeorge@krceer.com Stephen J. Baron J. Kennedy & Associates 570 Colonial Park Drive suite 305 Roswell, GA 30075 sbaron@jkenn.com Theodore Roberts Sempra Energy Law Department 101 Ash Street, H Q t3D San Diego, CA 92101-3017 TRoberts@.sempra.com Lawrence V. Robertson, Jr. 2247 E. Frontage Road Tubac, AZ 85646 tubaclawyer@aol.com Rocky Mountain Power Exhibit No. 4 Page 6 of 1'l Case No. PAC-E-2'!-07 Witness: Nikki L. Kobliha Michael A. Curtis 501 East Thomas Road Phoenix, AZ 85012 mcurtis40l@aol.com William P. Sullivan 501 East Thomas Road Phoenix, AZ 85012 wsullivan@cssuslaw.com Larry K. Udall 501 East Thomas Road Phoenix, AZ 85012 ludall@cssuslaw.com Michael Grant Gallaeher & Kennedv. P.A. 257 5 East Came lback Road Phoenix, AZ 85016 MMG@eknet.com Gary Yaquinto Arizona Investment Council 2100 North Cental, Suite 210 Phoenix, AZ 85004 eyaquinto @arizonaic. or g David Berrv Westem Rdsource Advocates P.O. Box 1064 Scottsdale, AZ 85252-1064 azbluhill@.aol.com Tim Hosan ArizoniCenter for Law in the Public Interest 202EastMcDowell Road Suite 153 Phoenix, AZ 85004 thogan@aclpi.org Jeff Schlegel S WEEP Arizona Representative I167 W. Sarnalayuca Dr. Tucson, AZ 85704-3224 schlegelj@aol.com Jay I. Moyes MOYES, SELLERS, & SIMS 1850 Norttr Central Avenue, Suite 1100 Phoenix, AZ 85004 iimoves(Olawms.com Karen Nally MOYES, SELLERS, & SIMS 1850 North Central Avenue, Suite 1100 Phoenix, AZ 85004 kenalllr@lawms.com Jeffrev J. Woner K.R. Safine & Assoc., PLC 160 N. Pasadena, Suite 101 Mesa, AZ 8520L ijw@krsaline.com Scott Canty General Counsel the Hopi Tribe P.O. Box 123 Kykotsmovi, AZ 86039 Scantv0856@aol.com Cynthia Zwick 1940E. Luke Ave Phoenix, AZ 85016 cntick@azcaa.org Nicholas J. Enoch 349 North 4h Ave Phoenix, AZ 85003 nick@ lubinandenoch.com Rod<y Mountain Power Exhibit No.4 PaoB 7 of 11 Case No. PAC€-21-{!7 Wihess: Nikki L Kobliha Appendix A Rocky Mountain Power Exhibit No. 4 Page 8 of 1'l Case No. PAC-E-2'!-07 Witness: Nikki L. Kobliha APPEilDIXA ?ega 1 ol 2 KRISNN K. MAYES Cornmlsslonsr COi,IUISSIONERS MIKE GLEASON . ChaiMun WILIJAII A I/U.INDELL JEFF HATGH.MILLEN KFUSN'{K XAYEI; GARYPIERCE ARTZONA CORPORATION COMMISSION Direc-l Unr: (G02) 5424rf3Fu: (6021 142.0765 E+rr{l: ktnryec@ezcagov October 8,2008 Mr. Don Brandt Prcside,nt and CEO Arizona Public Service 400 No. Fifth Street M.S.9042 Phoenix, }Z85004 Re: Imprct of recent linancial crisis on APS' aecess to eommercial peper markets and abillty to finance crpital projects; forced cancellation of GeoSmart Solar Loan Program; transactions with investment banks; exposure to auctiou rate securities; statrs of outrges at Palo Verde Nuclear Generating Station's Unit 3. Dear Mr. Brandt: As you know, the recent upheaval in AmErica's financial markets has had an unsettling effect on our national and local economies. It has also had serious consequences for individuals and companies who need to access financing, as credit tightens and capital markets become less fluid. In recogrrition of the current environment, I write to request that you provide Ore Commission with information regarding whether thc unfolding ev€nts on lVall Shcet have had an impact on Arizona Public Service Company ('APS'), with a particular focus on several areas. First, pleasc tell the Commission whether APS has experienced difficulty gaining access to short or long terrn debt markets. In particular, have you soen a decline in the Company's ability to issue commercial paper, a practice that has become cornmon among large utilities seeking io make payments for short tcrm capital expenditures and operating expduies. If so, please describe the ways in which you have rcsponded to this deficisncy in order to meet the Company's capital needs. Have you experienced additional expenses associated with accessing these markets? What is the short-term and long+erm impact to APS'planned capital projects? Second, APS recently reportcd to my officc that it was forced to scuttle its GeoSmart Solar FinancingPrograrr - the program by which APS was offering loans to customers wishing to install solar panets who could not afford to do so solely using rebates - because General Electric pulled its funding due to the credit crisis. Please detail the circumstances surrounding this program suspension and whether you believe APS will be able to re-start the prograur in the future. Please also inform the Commission whether any othes renewable energy or other capital expenditrue prograrns have been threatened or come under pressure as a result ofthe tightened credit markets, and the Company's stategy for addressing these pressures. r2dwEirw ffiO&IHOEIL&laout3oOr.ilr&WlSlSxsRBaSrBgfr'tue*ttlr(lola5tat.tta, ffi.eatt.g Rocky Mountain Power Exhibit No.4 Page 9 of 11 Case No. PAC-E-21-07 Witness: Nikki L. Kobliha APPEI{DIX A .Page2d2 Page 2 Thir( please tell the Commission whether APS engaged in any significant financial fiansactions with Lchman Brothers, American laternational Group, Bear Steams, or any other investment firm that has been the subjcct ofrecent burkruptcics or Bovcrrunentd takeovcrs. If so, please detail those transactions, and to what extsil they have impacted tlre Company. Fourth, it is my understanding that APS has had some exposure to auction rate securities. As you know, the auction rate securities markct recartly collapscd. Plcase de.scribe thc Company's auction rato securities holdings, what worth those securities now havg and whar the Company intends to do with those secuities in order ts minimizg any losses assooiated with them. Finally, as you know, PaIo Vcrde Nuclcar Gemerating Statiou's ('?V!.IGS") Unit Three was down from Septembcr 27h to October l'r*making for a second outage in less than a month. Please tell the Commission how these Unit Thrce outages will impact the Company's efforts to resolve PVI{GS' Category Four status with thc Nuclear Regulatory Commission, as well as the estimated replacement costs that have bcen passed fiuough the Company's Purchased Power and Fuel Adjustnent Clarrse as a result of these outages. Thank you for your aftontion to these questions. Sincerely, Kris Mayes Commissioner Cc Chairman Mike Gleason Commissioner William A. Mundell Commissioner Jeff Hatch-Millcr Comtnissioner Gary Pierce Emest Johnson Janice Alwsd Brian McNeil Rcbecca Wilder Rodty Mumtain Porcr Exhibtt No.4 Page l0 of 11 Case No. PAC€-21-07 Wiheae: Niklri L KoHiha Appendix B Rocky Mountain Power Exhibit No. 4 Page 11 of 11 Case No. PAC-E-21-07 __U!tness; N'kE 1.Ig!!iha APPENDD(B Page I of I Bank APS Revolving Lines of Credit ($t<1 Amount olo ol Totalt Bank of Americaz Bank of NewYork Mellonr Citigroup 4 JPMorgans Keybank6 CSFBz Barclays Bank a Wells Fargoe UBS Warburg 10 Union Bank 1't Sun Trust 12 Mizuho 13 KBC Bank 14 Dresdner 1s US Bank 16 Chang Hwa Commercial Bk 17 BOTM 18 Northern Trust 19 Bank Hapoalim $92,857 80,000 76,572 76,572 68,571 60,857 52,857 52,857 52,857 38,571 36,000 28,571 24,000 24,000 17,143 15,000 11,429 11,429 10,000 10.3o/o 8.9o/o 8.5% 8.5% 7.60/o 6.7o/o 5.9o/o 5.970 5.9o/o 4.30/o 4.0o/o 3.2o/o 2-7o/o 2.7o/o 1.9o/o 1.60/o 13% 1.3o/o 1.1o/o 20 Subtotal 21 Wachovia 22 Lehman Brothers 23 Total $830,143 92.3o/o 36,000 33,857 4-0o/o 3.7o/o $900,000 100.00/o