Sell, APS, Sell!

Experts say Arizona would be lucky if an outsider bought its largest utility company

You'd have thought Keith Turley was defending the town's virgins from cowboys hungry after a long stint on the range.

How dare these rustlers from Oregon come to Arizona and try to despoil our biggest company. He blustered what an "insult" this was; how these interlopers were just "opportunistic." From his jut-jawed reaction, you'd have thought he had a jewel worth protecting.

That scene started playing out last fall when PacifiCorp, one of the largest and most successful utility companies in the country, said it wanted to buy Arizona Public Service--the cornerstone of Turley's crumbling empire, Pinnacle West Capital Corporation.

By the time PacifiCorp came to town, Turley and his board of directors had taken their profitable utility company and sucked it into a series of disastrous diversifications--banking, development, uranium mining--that left PinWest on the verge of bankruptcy. By then, Turley had been subjected to a year of public humiliation; he'd been called a "bozo" and ordered to resign before he "ruined the economy of the entire state."

But did Turley welcome a suitor? No sir. He didn't even take the phone call. He and his board of directors smugly reminded Arizona that no outsider could protect its interests like they could. Even after public outrage over the PinWest disaster forced Turley's "retirement," successor Richard Snell pledged to carry on the fight against a takeover. The daily media lapped it up, and the public was left with the impression that Turley and Snell were saving the state from exploitation by a voracious foreign plunderer.

An entirely different picture emerges when you get beyond their press releases. In fact, their obstinance is hurting almost every household in the state as they shove Arizona closer to having the most expensive electricity in the country. To keep PinWest alive, they've forfeited shareholder dividends for years into the future and mortgaged APS.

A growing number of people concludes that the PinWest directors--who continued to feather their own nests even as the company fortunes nose-dived--are the only people certain to come out ahead from fighting the PacifiCorp takeover. This is the board, after all, that awarded itself cut-rate mortgages so Turley could retire to a 7,800-square-foot home overlooking the Paradise Valley Country Club golf course. And handed millions to PinWest director Karl Eller's son so he could have his own company to make high-risk investments. Experts outside the state conclude Arizona would be lucky if PinWest sold out to PacifiCorp. Because unlike APS--popularly known as "Another Public Screwing"--PacifiCorp is respected by regulators, environmentalists and financial analysts. It's been called one of the country's "smartest investor-owned utilities." And there's considerable amazement around the country that such a company would be treated so shabbily. Especially by an outfit with a national reputation for inept and self-serving management; a company that last year drained $20 million more out of APS than the utility earned in profits.

Most significant, PacifiCorp is a financially healthy company, while PinWest remains in deep financial water, despite its recent ballyhooed salvation. Much of PinWest's survival depends on boosting residential electric rates 26 percent--the largest single increase in state history. In contrast, PacifiCorp has pledged to limit rate hikes to no more than 8 percent over the next four years.

Against such a backdrop, state utility regulators, far from worrying that Arizona residents would be hurt if PacifiCorp took over, are openly receptive. "PacifiCorp understands APS ratepayers can't stand a big rate increase, and they are willing to eat some of the utility's debt as a good-will gesture," says Marcia Weeks, Arizona Corporation Commission chair. "APS doesn't seem to want to solve their problem except on the backs of the ratepayers. They have no social conscience; no recognition of the state of Arizona's economy."

Nor is Weeks impressed with PinWest plans for financial recovery. "I don't see shareholders getting much out of what you have accomplished at this point, and I only see the ratepayers getting hurt," she has told them. Weeks is but one of a growing chorus saying what PinWest directors never thought they'd hear: What's good for them is no longer good for Arizona.

PACIFICORP PRESIDENT A.M. Gleason waited and waited for a response to his $1.7 billion offer to purchase APS last November. But Turley never called. "We've never run into people like these before," marvels one PacifiCorp insider. "They don't seem to feel they owe anyone an explanation for anything. They don't even answer their mail, for God's sake." Even after PacifiCorp upped the ante with a new $1.87 billion offer to buy everything PinWest owned except Merabank, there was no response.

Until recently, when Snell finally met with Gleason as part of an inaugural good-will tour, PinWest's insolence was so obvious it even attracted the notice of state utility regulators. "Since coming to this state the PacifiCorp people have behaved as real gentlemen . . . but they've not been treated as such by [PinWest officials]," Weeks says.

Snell is ready, even anxious, to dispel any impression that his elevation to CEO means business as usual at PinWest, the latest Arizona corporate giant to spin from swan dive to belly flop. "The first thing is to establish the confidence of the lenders and company employees, as well," Snell says of his strategy for PinWest.

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