APS awards electricity contract to its sister company

Arizona Republic
May 8, 2003
Max Jarman

Arizona Public Service Co., under a mandate to buy electricity from outside sources, has awarded its biggest contract to a sister company.

Pinnacle West Energy won the contract to provide 1,700 megawatts through 2006. Pinnacle West Energy and APS are owned by the same company, Pinnacle West Capital Corp.

Pinnacle West Capital declined to comment.

Jim Tramuto, a spokesman for unsuccessful bidder PG&E Generating, expressed concern about the deal.

"I'm really surprised that so much of the most expensive power will be coming from Pinnacle West Energy," he said.

PG&E's $800 million Harquahala plant west of Phoenix is nearing completion and is in default on its construction loans.

The company was counting on a winning bid to give it some financial stability in an oversupplied power market.

The contract, one of three awarded, was the result of a competitive bidding process ordered by the state Corporation Commission. Other successful bidders received far smaller contracts: Panda Gila River LP, 450 megawatts, and PPL EnergyPlus, 150 megawatts. The total energy in the contracts amounts to about 20 percent of APS' peak summer demand.

None of the bidders would disclose terms of the contracts. An independent monitor will report on the deals to the commission.

Pinnacle West Energy recently had to borrow $500 million from APS to pay off construction loans on the plants that the Corporation Commission wouldn't pass on to ratepayers.

Under Arizona's deregulation rules, APS was to have transferred its existing power plants to Pinnacle West Energy and purchase from outside sources all of the electricity it needs to serve its 902,000 customers.

The commission last year stopped the plant divestiture but insisted the utility take competitive bids for the portion of its peak demand that can't be met by its own power plants.