When a spate of screw-ups caused Arizona Public Service to switch off the Palo Verde nuclear plant last week, it was just another dizzy swirl in the giant utility's tailspin.
Bluntly put, APS is in a world of hurt. Its earnings in 1988 fell to only five cents a share of common stock, a huge plunge from the year before, when one share of stock earned an investor $3.40. Some local brokerage firms are advising people not to buy stock in Pinnacle West, the giant holding company that APS created to make possible its foray into such bold investments as Phoenix real estate and Texas thrifts. Angry shareholders are filing suits against the company, claiming that it fraudulently concealed information about its financial condition.
It's enough to make one ask: Where have you gone, Keith Turley?
Corporation Commission chairman Renz Jennings thinks the long-time local powerbroker and Pinnacle West chief took his company on a joy ride when he started sinking APS money into uranium mining and banking. "They've really bet the store on this one," says Jennings. "It's one big promotional deal after another. What we're concerned about is ratepayers underwriting these speculative dice-rolling operations."
Every one of Pinnacle West's subsidiaries lost money in 1988--except APS. MeraBank especially took it in the shorts, dropping $209 million. SunCor Development Company, Turley's real-estate plaything, lost $81 million, while Malapai Resources, the company's uranium-mining arm, dropped $38 million. Even little El Dorado Investment Company, which owns a $4 million chunk of the Phoenix Suns, lost $3 million.
If APS hadn't diversified, its stock price would be higher now than Pinnacle West's, guesses Dan Rudakas, a utility analyst for Chicago's Duff & Phelps brokerage house. Pinnacle West swears it won't drain the profitable utility's resources to shore up its faltering subsidiaries, but Jennings remains skeptical.
He's worried the company might change its tune about emergency transfusions of APS blood if one of its branch companies is faced with an imminent collapse. "The concern is that circumstances would force them to try to find a way to do it," he says. That's why the commission has retained a Colorado consulting firm to analyze Pinnacle West's cash flow. That report should be ready in a couple of months, says Jennings.
Pinnacle West spokesman Steve Carr says Jennings is making much ado about nothing. "It's just not happening," he says of Jennings' cash-funneling scenario. "APS will never be called on to bail out the other subsidiaries, nor would it benefit from profits of the subsidiaries."
Some Valley financial mavens, though, are hesitant to take Pinnacle West's promises at face value. Nicholas Meris, first vice president of Prudential-Bache Securities in Phoenix, remembers that Turley also promised shareholders last May that his company's quarterly dividends would remain stable through 1988. Turley then chopped the dividends by seventy cents a share in October. "There's been a credibility gap for all this time," says Meris, who now advises clients not to buy Pinnacle West stock. "They told stockholders face to face they were not cutting the dividend and they went ahead and did it. . . . There's always a concern about taking the healthy part of a business and draining it to take care of the unhealthy parts. That's normally what companies do."
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In the end, ratepayers' best ally may be the financial markets. Investment analysts would call for Turley's head if he went back on his word and started bleeding APS, predicts Dan Rudakas. Combined with the Corporation Commission's probe into Pinnacle West's finances, that pressure could keep Turley and the money boys in line. But nobody's making any promises about a corporate resurgence for the Valley's utility conglom.
"I'd say the best you can look for in MeraBank is a long, slow recovery," says Rudakas. Meris says his firm looks at what little dividend is left in Pinnacle West stock as "somewhat insecure." "A lot of people have sold it and are certainly grateful they have," he notes.
Jennings contends that there's "a lot of anger and bitterness" among Pinnacle West shareholders. But it's mostly retired investors. "They don't have the stamina to launch a fight over control," says Jennings. " . . . If someone had an agenda and wanted to do something, they could put together a hellacious fight."
Meris says many investors are still holding Pinnacle West stock because "it's like mom and apple pie"--an investment nobody ever thought would turn sour.