-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DW5yegFWLiAcl8RRINwhQHQKXnt1s9Ar+QDMvrfPPtnHyg+1PwwfUw75Xa3Uwt2T SXXtIglLTQDYw/EfAkRjWQ== 0000950147-98-000493.txt : 19980629 0000950147-98-000493.hdr.sgml : 19980629 ACCESSION NUMBER: 0000950147-98-000493 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980519 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980626 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARIZONA PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000007286 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 860011170 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-04473 FILM NUMBER: 98654529 BUSINESS ADDRESS: STREET 1: 400 N FIFTH ST STREET 2: P O BOX 53999 CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022501000 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 19, 1998 ARIZONA PUBLIC SERVICE COMPANY ------------------------------ (Exact name of registrant as specified in its charter) Arizona 1-4473 86-0011170 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification Number) 400 North Fifth Street, P.O. Box 53999, Phoenix, Arizona 85004 -------------------------------------------------------- ----- (Address of principal executive offices) (Zip code) (602) 250-1000 --------------------------------------- (Registrant's telephone number, including area code) NONE --------------------------------------- (Former name or former address, if changed since last report) Item 5. Other Events - ----------------------- Competition Stranded Cost Hearing. As previously reported, in February 1998 the Arizona Corporation Commission (the "ACC") completed a generic hearing on stranded cost determination and recovery. See Note 5 of Notes to Condensed Financial Statements in the Company's Report on Form 10-Q for the fiscal quarter ended March 31, 1998 (the "March 10-Q Report"). On June 22, 1998, the ACC issued an order in that matter. The order allows an "Affected Utility," such as the Company, to choose between two options for the recovery of its stranded costs. Under the first option, an Affected Utility that chooses to divest its generating assets must file a divestiture plan for ACC approval no later than October 1, 1998, and divestiture must be completed by January 1, 2001, after which the Affected Utility would be permitted to collect 100 percent of its stranded costs, including a return on the unamortized balance, over a ten-year period. Under the second option (referred to by the ACC as the "Transition Revenues Methodology"), an Affected Utility would be provided sufficient revenues necessary to maintain financial integrity for a period of ten years or the ACC would "otherwise provide an allocation of stranded cost responsibilities and risks between ratepayers and shareholders as is determined to be in the public interest." The order also states an intent that the various recovery options "will provide the Affected Utilities sufficient revenues to enable them to recover appropriate regulatory assets." The order requires each Affected Utility to file with the ACC, within 60 days of the date of the order, its choice of options for stranded cost recovery as well as an implementation plan relating to its chosen option, including its estimated stranded costs separated out into regulatory assets and other generation related assets. The Company does not intend to divest its generating assets and will continue to work with the ACC to reach workable resolutions on stranded cost recovery. The Company cannot accurately predict the outcome of this matter. Statement of Position. On May 29, 1998, the Staff of the ACC's Utilities Division (the "ACC Staff") issued a Statement of Position and asked for comments on a number of issues related to the implementation of retail electric competition in Arizona. The Statement of Position, a copy of which has been filed as an exhibit to this Report on Form 8-K, recommends, among other things: the divestiture of Affected Utility assets; aggregation of customer loads for purposes of competition phase-in; acceleration of the date to January 1, 2001 by which all customers would have competitive access; and, rate reductions for non-eligible customers. Certain of the recommendations in the Statement of Position are designed to amend the positions set forth in the framework rules regarding retail electric competition previously adopted by the ACC. At the request of the ACC Staff, on May 22, 1998, the Company filed a response to a draft of the Statement of Position. In the Company's response, the Company stated that the proposals in the draft Statement of Position (many of which are included in the final Statement of Position) were deficient or unlawful in many material respects, met none of the stated objectives of the draft Statement of Position, were punitive to Affected Utilities, and continued to lack the level of detail and specificity required to implement competition in the next seven months. On June 4, 1998, the ACC held a special open meeting at which the Statement of Position was discussed, but no action was taken. The Company cannot accurately predict what action, if any, the ACC will take with respect to the Statement of Position. Agreement with Salt River Project. As previously reported, the Antitrust Unit of the Arizona Attorney General's Office (the "Antitrust Unit"), which has been involved in the ongoing regulatory and legislative proceedings regarding the restructuring of the Arizona electric industry, requested clarification of certain provisions of a Memorandum of Agreement between the Company and the Salt River Project Agricultural Improvement and Power District ("Salt River Project"). See Note 5 of Notes to Condensed Financial Statements in the March 10-Q Report. Pursuant to an Addendum to Memorandum of Agreement, dated as of May 19, 1998 (the "Addendum"), the Company and Salt River Project amended and clarified certain provisions of the Memorandum of Agreement in response to certain issues raised by the Antitrust Unit. By letter dated May 19, 1998, the Antitrust Unit advised the Company and Salt River Project that, upon their execution of the Addendum, it would take no action regarding the language of the Memorandum of Agreement, although it reserved the right to take action in the future if new information justified doing so. The ACC Hearing Division has set a hearing for August 6, 1998 so that the ACC may review certain provisions of the Memorandum of Agreement, as amended. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits - --------------------------------------------------------------------------- (c) Exhibits. Exhibit No. Description ----------- ----------- 10.1 Statement of Position of the ACC Staff dated May 29, 1998 10.2 Addendum to Memorandum of Agreement dated as of May 19, 1998 2 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ARIZONA PUBLIC SERVICE COMPANY (Registrant) Dated: June 25, 1998 By: Michael V. Palmeri ----------------------------------- Michael V. Palmeri Treasurer 3 EX-10.1 2 STATEMENT OF POSITION OF THE ACC STAFF 5/29/98 ARIZONA CORPORATION COMMISSION May 29, 1998 RE: RE-00000C-94-0165 Dear Stakeholder in Retail Electric Competition: This document is a revision of the draft position paper dated May 19, 1998, which was distributed to interested parties. Attached is Staff's Statement of Position on several of the significant issues related to retail electric competition. By this filing, Staff requests that the Commission consider these issues at an open meeting, scheduled for 10:00 a.m. on June 3, 1998, and provide guidance as to any subsequent action that may be necessary. The attached positions were initially developed by a team of Commission staff members based upon review and consideration of the entire Retail Electric Competition record which has been developed over the last four years. Staff's proposal has also been influenced by input from various stakeholders. Staff has made every effort to meet with and solicit written comments from all interested stakeholders. Staff has held numerous meetings with groups of stakeholders and has received written comments from many of the interested parties. Perhaps because of the open nature of this process, some parties have expressed concerns regarding the ex parte rule and its relationship to the development of Staff's proposal. Specifically, some parties apparently believe that Staff may have discussed stranded cost recovery issues with individual commissioners. Let me assure you that Staff has been sensitive to the requirements of the ex parte rule throughout this process. Staff has not discussed the stranded cost issues with any commissioner during the process of developing this proposal. Staff does not view this current proposal as a final package. Staff has attempted to address the issues involved with implementing the transition to competition in order to give the Commission and the public a starting point for the development of subsequent rules. We believe it is appropriate for the Commissioners to now consider all of these issues together in a public forum. Ray T. Williamson Ray T. Williamson Acting Director Utilities Division ACC Staff Statement of Position on Retail Electric Competition The following represents Staff's position on several significant issues related to retail electric competition. Implementation of most of these positions will require revisions to the current rules. A. Stranded Cost The goals of the Arizona Corporation Commission are: * To avoid vertical and horizontal market power; * To provide Affected Utilities an opportunity for full recovery of stranded cost; * To accurately assess the value of stranded cost; * To ensure fair and reasonable treatment of all consumers; and, * To ensure the financial viability of all Affected Utilities. In order to accomplish these objectives, it is the policy of the Arizona Corporation Commission to encourage full divestiture of generation assets. Generation assets include, but are not limited to, generating plants, power purchase contracts, and fuel contracts. Affected Utilities that voluntarily divest all generation assets shall have the opportunity to recover 100% of unmitigated stranded cost. However, Affected Utilities are not required to divest generation assets. "Stranded Cost" means the verifiable net difference between: a. The value of all the prudent jurisdictional assets and obligations necessary to furnish electricity (such as generating plants, purchase power contracts, fuel contracts, and regulatory assets), acquired or entered into ... under traditional regulation of Affected Utilities; and b. The market value of those assets and obligations directly attributed to the introduction of competition. Unmitigated stranded cost shall include reasonable costs necessarily incurred to effectuate divestiture. In addition, unmitigated stranded cost shall include reasonable employee severance and retraining costs necessitated by electric competition, where not otherwise provided. Unmitigated stranded cost shall include reasonable costs associated with sale of generation assets. Each Affected Utility choosing divestiture must, no later than October 1, 1998, file a divestiture plan for Commission approval. Divestiture must be completed no later than January 1, 2001. No Affected Utility or its affiliate may purchase assets at any divestiture auction of any Affected Utility. However, an Affected Utility's affiliate may purchase the assets of another Affected Utility if the purchasing Affected Utility's affiliate establishes that it is the highest value bidder and that the purchase will not create 1 or exacerbate significant market power problems. In a divestiture situation, in no event shall an Affected Utility or its affiliates be allowed to purchase the Affected Utility's own generating assets. An Affected Utility shall be permitted to collect 100 percent of its stranded cost, including a return on its unamortized balance, over a ten-year period. The Commission will work with the Affected Utility to provide sufficient assurances in order to avoid triggering write-offs. If the stranded cost amount is determined to be negative, ratepayers shall be entitled to receive 100 percent through a refund, negative surcharge, or other mechanism as approved by the Commission. All Affected Utilities' customers shall pay their appropriate share of stranded cost either through a CTC or a standard offer rate. Stranded cost or other transition revenues authorized by the Commission shall be collected over no longer than ten years. If an Affected Utility chooses not to divest, the Affected Utility will transfer its generation assets to a separate corporate affiliate at a value determined by the Commission to be fair and reasonable. The terms of such transfer shall be approved by the Commission and completed prior to January 1, 2001. Each Affected Utility not choosing divestiture shall, no later than October 1, 1998, file an asset transfer proposal for Commission approval. If an Affected Utility does not choose divestiture, the Commission may provide sufficient revenues to an Affected Utility to maintain financial integrity, such as avoiding default under currently existing financial instruments, or to otherwise provide an allocation of stranded cost responsibilities and risks between ratepayers and shareholders, as the Commission determines to be in the public interest for a given Affected Utility. Regulatory assets shall be fully recoverable. 100 percent of stranded benefits associated with generation assets shall be refunded to customers in a manner consistent with the collection of regulatory assets. If an Affected Utility can demonstrate that divestiture of any particular Generation Asset is not practical and not in the public interest, the Commission in its discretion may provide the Affected Utility transition revenues, if necessary, to preserve its financial integrity, but only if such transition revenues are determined by the Commission to be in the public interest. B. Affiliate Rules The goals of the Arizona Corporation Commission are: * To prevent cost sharing and cross-subsidization between competitive and monopoly activities; * To facilitate ease of regulatory oversight; * To reduce the regulatory burden on the competitive market; and, * To prevent anti-competitive behavior by any utility which interferes with the competitive market. 2 In order to accomplish these objectives, it is the policy of the Arizona Corporation Commission that the Affected Utilities create separate corporate affiliates for competitive activities. Any board member or corporate officer of a holding company may also serve in the same capacity with its utility or affiliate, but not both. The Affected Utilities will transfer competitive assets to a separate corporate affiliate at a value determined by the Commission to be fair and reasonable, subject to hearing. Costs associated with restructuring the Affected Utility into separate corporate affiliates shall be borne by the company. The Affected Utility must offer the same terms and conditions of service to all competitors and their customers as it offers to any of its affiliates and their customers. An Affected Utility shall neither provide, nor represent that it will provide, preferential treatment to its affiliates or its customers as compared to nonaffiliated companies or their customers. Any activity that creates a potential sharing of costs or confidential information between the Affected Utility and its affiliate is strictly forbidden unless approved by the Commission. Such activities may include, but are not limited to, sharing of plant, capital, equipment, employees, information, and joint purchases. Joint marketing programs between Affected Utilities and their affiliates are forbidden unless approved by the Commission. No trade, promotion or advertising of an affiliate's connection with the parent utility is allowed unless the affiliate discloses that the affiliate is separate from the Affected Utility. The Commission shall develop specific affiliate rules. Affected utilities shall file respective compliance plans demonstrating the procedures and mechanisms implemented to ensure activities prohibited by these rules will not take place. C. Implementation of Competition The goals of the Arizona Corporation Commission are: * To ensure just and reasonable rates in a competitive market; * To provide the benefits of competition to all ratepayers in a timely manner; * To ensure a smooth transition from monopoly to competition; * To ensure that the implementation of competitive services is technically feasible; and, * To reduce unnecessary burden caused by the transition. In order to accomplish these objectives, it is the policy of the Arizona Corporation Commission to implement direct access where technically feasible, offer benefits in lieu of competition to customers without direct access, reduce the length of the transition period, and create a Residential Phase-In Program to enable Electric Service Providers (ESP) and residential customers to gain experience in the retail electric power market. 3 1. Timing and Customer Selection Customers with load of 1 MW and above will have access to competitive electric power services on 1/1/99. Customers with load greater than or equal to 40 kW can be aggregated to achieve the 1 MW threshold starting on 1/1/99. All customers will have access to competitive electric services on 1/1/01. 2. Targeted Rate Decreases Standard offer rates shall be reduced for retail customers who are unable to choose competitive electric generation during the transition period. These rate reductions are to be determined separately for each Affected Utility and are targeted to be in the range of at least 3%-5%. 3. Residential Phase-In Program An Affected Utility will offer residential customers an opportunity to participate in a Residential Phase-In Program. 1/2 of 1% of residential customers will have access to competition on 7/1/99. The number of customers will be increased by 1/2 of 1% every quarter through the transition period. Access to the program will be on a first-come first-serve basis. An Affected Utility will file a Residential Phase-In Program Proposal to the Commission for approval by March 31, 1999. D. Metering and Billing The goals of the Arizona Corporation Commission are: * To ensure vigorous competition in the electric power market; * To promote efficient consumption of electric power; * To spur technological innovation; * To ease the transactional burden of competitive access; and, * To ensure reliability of the system. In order to accomplish these objectives, competitive metering and billing services will be offered to customers with access to competitive electric power services. 1. Metering Competitive metering shall be offered to customers having access to competitive electric power services as of 1/1/99. These services can be provided by the Affected Utility, the Electric Service Provider (ESP), or their Agents. Customers can own meters provided they are purchased from a ESP or the Affected Utility and control of the meter remains a responsibility of the customer's ESP or Affected Utility. 4 The Affected Utility may provide metering service within its territory under a tariffed rate. A Universal Node Identifier shall be assigned for each service delivery point by the Affected Utility whose distribution system serves the customer. All competitive metering data shall be translated into a consistent, statewide format that can be used by Affected Utilities and the Electric Service Providers. Data translation does not have to occur at the meter. The transmittal of billing data among suppliers will be via electronic data interface (EDI) data file format. Competitive customers with an hourly load less than 20 kW will be permitted to use load profiling after the transition period. 2. Billing Customers having access to competitive electric power services can choose whether bills will be provided by the Affected Utility or the ESP or both. Functionally, disconnects and connects should be coordinated by the Affected Utility. Only the Affected Utility may order connects, disconnects and reconnects. Customer specific billing data will only be released to parties to whom customers have given authorization. All delinquent bills shall be subject to the provisions of the Affected Utility's termination procedures. E. Local Distribution Company Services The goals of the Arizona Corporation Commission are: * To create a safe haven for customers not choosing competitive electric power services; * To ensure access to electric power for all customers; and, * To ensure the continued regulation of these services. In order to accomplish these objectives, an Affected Utility acting as a Local Distribution Company shall continue to offer bundled electric power service, or standard offer, to all customers. This service shall continue to be regulated. In addition, the Affected Utilities shall continue to finance programs through a system benefits charge. 1. Standard Offer The Affected Utility will provide Standard Offer Service. During the transition period, customers can change suppliers every two billing cycles. After the transition period, customers can change suppliers at the end of their existing electric service provider's billing cycle. There shall be no additional constraints for a consumer switching to or from the Standard Offer Service. 5 Subsequent to the transition period, power purchased to serve standard offer customers will be acquired through competitive bid. These contracts shall contain provisions allowing the Affected Utility to ratchet down its power purchases. If the cost of such a ratchet provision is unreasonable, the Affected Utility may file for an exemption from this rule. The Affected Utility, acting as the local distribution company, shall be the Provider of Last Resort. Reasonable costs incurred in fulfilling this duty may be recovered through a distribution system-wide tariff approved by the Commission. 2. System Benefits The Affected Utility shall continue to offer programs, such as low-income assistance, demand-side management, and nuclear decommissioning, financed through a system benefits charge. F. Transmission and Dispatch The goals of the Arizona Corporation Commission are: * To ensure fair and non-discriminatory retail access to the transmission and distribution system; * To promote the development of a competitive market for retail generation; and, * To ensure continued system reliability. Affected Utilities shall provide non-discriminatory open access to transmission and distribution facilities to serve all customers. No preference shall be given to any distribution customer based upon whether the customer is purchasing power under the Affected Utility's standard offer or in the competitive market. Affected Utilities must join an independent system operator whose activities include, but are not limited to, the following: 1. Short-run reliability; 2. Administration of grid-wide tariff; 3. Managing congestion and establishing congestion pricing; 4. Planning transmission expansion for reliability and commercial needs; 5. Emergency operations; 6. Provision and pricing of ancillary services; 7. Facilitate Alternative Dispute Resolution (ADR) process; 8. Operate the Open Access Same-time Information System (OASIS); 6 9. Resolve "seams" issues; and, 10. Either develop its own reliability standards or follow WSCC/NERC (NAERO) standards. Until an independent system operator is created, the Affected Utilities must participate in an independent scheduling administrator whose duties include, but are not limited to, the following: 1. Participate in the determination of Total Transmission Capacity (TTC); 2. Define, review and exercise oversight of committed use; 3. Responsible for Available Transmission Capacity (ATC) calculation; 4. Operate overarching OASIS; 5. Receive copy of transmission schedule; 6. Receive and post curtailment information; and, 7. Provide dispute resolution process for transmission use denials and curtailment orders. Costs associated with the establishment and operation of the independent scheduling administrator shall be recovered through a distribution charge assessed to competitive customers. Costs associated with the establishment and operation of the independent system operator shall be recovered from customers using the transmission system, including the transmission owner's customers, through FERC-regulated prices, which are set on a non-discriminatory basis. The Commission shall determine which generation units are must-run units for distribution reliability and mitigation of market power, and will regulate the price of power from such units. The terms of the must-run contracts will be finalized prior to the divestiture of the must-run units. 7 EX-10.2 3 ADDENDUM TO MEMORANDUM OF AGREEMENT Addendum to Memorandum of Agrement This Addendum is to the Memorandum of Agreement effective, April 25, 1998 (hereafter "Memorandum"), between Arizona Public Service Company and Salt River Project Agricultural Improvement and Power District (hereinafter "the parties"). By signing this Addendum to Memorandum of Agreement (hereafter "Addendum") the parties intend to change certain provisions in the Memorandum and to bind themselves to certain additional obligations in the event their respective governing boards approve the Memorandum. By signing this Addendum the parties intend to clarify a number of provisions in the original Memorandum for the express purpose of eliminating any interpretation of the Memorandum that could be construed as permittimg anticompetitive or unlawful conduct, or as being inconsistent with the policy of the Arizona State Legislature and Arizona Corporation Commission, that there be competition in certain aspects of the electric utility business as provided by law. RECITALS These facts form the basis of this Addendum: 1. The parties entered into the Memorandum effective April 25, 1998; 2. At the time the Memorandum was executed the Arizona Corporation Commission, within the scope of its jurisdiction, had declared that it is the policy of this State that there be competition in certain aspects of the electric utility business(1), and the Arizona State Legislature was considering a bill to declare a similar statewide policy; 3. The Arizona Attorney General has raised certain issues involving potential anticompetitive effects from possible interpretations of certain language in the Memorandum; 4. The parties do not intend the Memorandum to limit competition in any aspect of the electric utility business in which the parties are authorized by law to compete, or in which they choose to compete; 5. The parties do not intend by the incorporation of any part of the 1955 Territorial Agreement, or the Power Coordination Agreement, to continue the allocation of geographic territories or customer classes with respect to any aspect of the electric utility business subject to competition; - ------------------------- (1) The terms "electric utility business" and "electric services" are used interchangeably in this Addendum, and are intended to mean all aspects of the business of the parties. 1 6. The parties do not intend by the words "operational opportunities" of mutual benefit to mean the pursuit of any opportunity that would be anticompetitive or unlawful in any aspect of the electric utility business that is subject to competition, as of the date of the Memorandum and thereafter; 7. The parties understand that their electric utility business activities that are not actively regulated are subject to state and federal antitrust law. ADDENDUM AGREEMENT Now, therefore, the parties agree as follows. 1. Amendment of Territorial Agreement(2). The parties hereby repudiate any aspect, language or interpretation of the 1955 Territorial Agreement that would permit any of the following: a. The allocation or division of customers or geographic territories as between the parties regarding non-distribution electric services that are subject to competion; b. Any collaborative decision to fix, maintain or stabilize the price of electric services subject to competition; 2. Amendment of the Power Coordination Agreement a. The parties agree that the Power Coordination Agreement shall not be interpreted or performed by the parties in any manner inconsistent with paragraph 1; b. The parties agree that nothing in the Power Coordination Agreement shall permit either to discriminate in access to transmission or distribution systems against any competitive provider of electric services, in a manner prohibited by applicable federal and state statute or regulatory requirements. 3. Identification of future savings. a. The parties agree that paragraph 3 of the Memorandum shall not permit them to jointly - ------------------------- (2) Paragraph references in this Addendum refer to the same numbered paragraphs in the Memorandum, except that the sub-parts of paragraph 1., 2. and 3. are added by this Addendum. 2 make any determination that would fix, maintain or stabilize any price of electric services subject to competition; b. The parties agree that paragraph 3 of the Memorandum shall not be interpreted or performed by the parties in a manner inconsistent with paragraphs 1. and 2. of this Addendum; c. The parties further agree that their senior executives shall not, in any meetings to discuss joint business issues, enter into discussions concerning the price or allocation of territories or customers of any electric service subject to competition. 5. State Political Issues a.- i. The parties agree that nothing contained in paragraphs a. - i. will be construed by them to prevent each from advertising, marketing, and promoting itself by comparison to the other in terms of price or efficiency in connection with any aspect of the electric utility business subject to competition; d. The parties agree that nothing contained in paragraph 5.d. shall require that APS disclose any stranded cost or regulatory asset numbers which are not otherwise publicly available. The parties further agree that paragraph 5.d. shall not require any conformation of bills or billing format, other than the general obligation that APS disclose the fact that regulatory assets are recovered as part of its distribution bill; f. The parties agree that each party will determine independently which stranded cost calculation and recovery methodology to present to their respective governing authorities. Such calculation and recovery methodology shall be determined according to the procedures established by State law or Arizona Corporation Commission Rule, whichever applies, and shall be in accordance with federal and state antitrust law, notwithstanding any provision in the Memorandum to the contrary. 6. Federal Political Issues a.-g. The parties agree that nothing contained in paragraphs a.-g. will be construed by them to prevent each from advertising, marketing and promoting itself by comparison to the other in connection with any aspect of the electric utility businesss that is subject to competition. d. The parties agree that by paragraph 6.d. they do not intend to set up any discriminatory auditing system, entity or mechanism to resolve transmission system constraints that is not in compliance with applicable federal and state regulatory or statutory requirements. 7. Transmission and Distribution Prices and Terms The parties agree that paragraph 7 obligates them to allow access to their respective 3 electric power transmission and distribution facilities to all bona fide competitors, including, but not limited to each other, under rates and terms and conditions of service that are nondiscriminatory, cost-based, just and reasonable and comparable to those charged by themselves for their own use in accordance with applicable regulatory or statutory "open access" rules. 10. Miscellaneous Provisions d. No provision of the Memorandum, the 1955 Territorial Agreement or the 1955 Power Coordination Agreement, shall be binding on any party, successor, assign, subsidiary or affiliate if a court of competent jurisdiction determines in a preliminary order or final judgment that the provision violates any antitrust law. AGREED TO AS OF May 19, 1998 APS ARIZONA PUBLIC SERVICE COMPANY By William J. Post ---------------------------- William J. Post Chief Executive Officer Date 5/19/98 --------------------------- SRP SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT By Richard H. Silverman ----------------------------- Richard H. Silverman General Manager Date 5/19/98 ---------------------------- 4 -----END PRIVACY-ENHANCED MESSAGE-----