Arizona Corporation Commission
                                                             DOCKETED
                                                           DEC 26 1996
                                                          DOCKETED BY CM



                    BEFORE THE ARIZONA CORPORATION COMMISSION

RENZ D. JENNINGS
         Chairman
MARCIA WEEKS
         Commissioner
CARL J. KUNASEK
         Commissioner


IN THE MATTER OF THE COMPETITION    )        DOCKET NO. U-0000-94-165
IN THE PROVISION OF ELECTRIC        )
SERVICES THROUGHOUT THE STATE       )
OF ARIZONA.                         )        DECISION NO. 59943
                                    )
                                    )
____________________________________)        OPINION AND ORDER
                                             -----------------

DATES OF HEARING:                December 2, 3 and 4, 1996
PLACES OF PUBLIC                 Phoenix, Tucson, Yuma, Flagstaff, and
COMMENT:                         Kingman, Arizona

PRESIDING OFFICERS:              Jerry L. Rudibaugh, Jane Rodda, Scott
                                 Wakefield

IN ATTENDANCE:                   Renz D. Jennings, Chairman
                                 Marcia Weeks, Commissioner
                                 Carl J. Kunasek, Commissioner

APPEARANCES:                     Mr. Bradford A. Borman, and Mr. Peter
                                 Breen, Staff Attorneys, Legal Division, on
                                 behalf of the Utilities Division of the Arizona
                                 Corporation Commission.


BY THE COMMISSION:

         On October 1, 1996,  the  Utilities  Division  Staff  ("Staff")  of the
Arizona  Corporation  Commission  ("Commission")  forwarded  to  the  Commission
proposed new rules  A.A.C.  R14-2-1601  through  A.A.C.  R14-2-1616  ("Rules" or
"Electric  Competition  Rules")  regarding  competitive  electric  services.  By
Decision  No. 59870  (October 10,  1996),  the  Commission  directed the Hearing
Division to schedule  Public  Comment  regarding the proposed  Rules in Phoenix,
Tucson, Yuma, Flagstaff,  and Kingman,  Arizona. Our October 11, 1996 Procedural
Order  scheduled  public comment  proceedings on the  above-captioned  matter on
December 2 in Phoenix, December 3 in Tucson and Yuma, and December
<PAGE>
4 in Flagstaff  and Kingman.  Decision No. 59870 also ordered Staff to forward a
Notice of Proposed Rulemaking ("Notice") to the Office of the Secretary of State
for publication. The Notice was published in the Arizona Administrative Register
on November 1, 1996.

                                   DISCUSSION
                                   ----------

         The proposed  Competitive  Electric Rules set forth a framework for the
inevitable  transition from a non-competitive to a competitive  environment.  It
has been a process  that has evolved  since May 1994 as Staff has held  numerous
workshops  prior to bringing  forth the proposed  Rules.  Based on the amount of
comments  filed and the  attendance  at each of the public  comment  proceedings
held,  the interest in the proposed  Rules is as great as it has been for as any
rules the Commission has promulgated.

         Based on the overall comments, we must conclude that all of the parties
have expressed a desire for a more competitive electric market in Arizona.  Some
parties,  including  Arizona  Public  Service  ("APS"),  Tucson  Electric  Power
("TEP"), Citizens Utilities Company ("Citizens"), Salt River Project ("SRP") and
the  cooperatives  were not as receptive to the proposed Rules as other parties.
That is certainly  understandable  since, under the proposed Rules, their status
as monopoly providers of electric service will change.

         The parties were generally in agreement that  competition  will provide
the benefit of reduced costs, at least for some consumers.  However,  there were
concerns raised  regarding the quality of service,  as well as concerns that not
all customers,  particularly residential customers, will receive the benefits of
competition as quickly as some large industrial  customers.  And of course,  the
incumbent  utilities  were greatly  concerned  regarding the  recoverability  of
stranded costs.

         While there was general  agreement as to the need and  inevitability of
competition  in the  electric  field,  there were major  disagreements  over the
implementation of these Rules. The parties  identified  complex problems such as
the   recoverability  of  stranded   investment,   intra-state  and  inter-state
reciprocity,  the status of the new  Certificates  of Convenience  and Necessity
("CC&Ns"),  and other  issues,  for which the parties  assert the Rules  provide
insufficient  guidance.  Several  parties  have  suggested  holding  evidentiary
hearings on these  issues in order to resolve  them before  going  forward  with
these Rules.  Other  parties,  including  Staff,  have warned  against  delay in
promulgating
<PAGE>
these  rules,  indicating  that  the  competitive  electric  market  is  rapidly
approaching  whether these Rules are  promulgated or not. We conclude that these
gaps,  to the extent  that they  exist,  can be filled in later with  workshops,
working  groups,   subsequent   evidentiary  hearings,  and  perhaps  subsequent
rulemaking proceedings; while competition is approaching rapidly, the transition
to  competition  will allow time to address  these  issues and resolve them in a
timely fashion.

                               *  *  *  *  *  *  *  *  *  *

         Having  considered  the entire record herein and being fully advised in
the premises, the Commission finds, concludes, and orders that:

                                FINDINGS OF FACT
                                ----------------

         1. On  October  1,  1996,  Staff  filed the  proposed  Rules  regarding
competitive electric services.

         2. On October 10, 1996, the Commission  issued Decision No. 59870 which
directed  the Hearing  Division to schedule  hearings on the  proposed  Rules in
Phoenix, Tucson, Yuma, Flagstaff, and Kingman, Arizona.

         3. The purpose of the proposed Rules is to provide the Commission  with
a framework to open the retail electric market to competition, and to streamline
the regulatory process for setting rates for competitive electric services.

         4. The  proposed  amendments  to the Rules are set forth in Appendix A,
attached hereto and incorporated by reference.

         5. In accordance with A.R.S.  Section  41-1027,  a Concise  Explanatory
Statement for the proposed Rules is set forth in Appendix B, attached hereto and
incorporated by reference.

         6. The economic  impact of the proposed  Rules is set forth in Appendix
C, attached hereto and incorporated by reference.

         7. The Notice of  Rulemaking  was filed with the Secretary of State and
was published in the Arizona Administrative Register on November 1, 1996.

         8. Public  Comment  sessions were held on December 2, 1996, in Phoenix,
December  3, 1996 in Tucson and Yuma,  and  December  4, 1996 in  Flagstaff  and
Kingman, Arizona.
<PAGE>
                               CONCLUSIONS OF LAW
                               ------------------
 
         1. The  Commission has authority for the proposed Rules pursuant to the
Arizona  Constitution,  Article XV, under A.R.S.  Sections  40-202,  -203, -250,
-321,  -322,  -331,  -332,  -336, 361, -365, -367, and under the Arizona Revised
Statutes, Title 40, generally.

         2. Notice of the proceeding has been given in the manner  prescribed by
law.

         3. Adoption of the proposed Rules is in the public interest.

         4. The Concise Explanatory  Statement set forth in Appendix B should be
adopted.

                                      ORDER

         IT IS  THEREFORE  ORDERED that the  proposed  Rules A.A.C.  R14-2-1601,
R14-2-1602,   R14-2-1603,   R14-2-1604,   R14-2-1605,   R14-2-1606,  R14-2-1607,
R14-2-1608,   R14-2-1609,   R14-2-1610,   R14-2-1611,   R14-2-1612,  R14-2-1613,
R14-2-1614,  R14-2-1615,  and  R14-2-1616,  as set forth in  Appendix A, and the
Concise Explanatory Statement, as set forth in Appendix B, are hereby adopted.

         IT IS FURTHER ORDERED that the  Commission=s  Utilities  Division shall
immediately  forward the new Rules A.A.C.  R14-2-1601,  R14-2-1602,  R14-2-1603,
R14-2-1604,   R14-2-1605,   R14-2-1606,   R14-2-1607,   R14-2-1608,  R14-2-1609,
R14-2-1610,  R14-2-1611,  R14-2-1612,  R14-2-1613,  R14-2-1614,  R14-2-1615, and
R14-2-1616, to the Secretary of State.

         IT IS  FURTHER  ORDERED  that  this  Decision  shall  become  effective
immediately.
<PAGE>
                 BY ORDER OF THE ARIZONA CORPORATION COMMISSION


Renz D. Jennings                 Marcia Weeks                    Carl J. Kunasek
--------------------------------------------------------------------------------
CHAIRMAN                         COMMISSIONER                      COMMISSIONER


                                 IN  WITNESS   WHEREOF,   I,   JAMES   MATTHEWS,
                                 Executive  Secretary of the Arizona Corporation
                                 Commission,  have  hereunto,  set my  hand  and
                                 caused the official seal of this  Commission to
                                 be  affixed  at the  Capitol,  in the  City  of
                                 Phoenix, this 26th day of December , 1996.


                                 Phillip R. Moulton, Deputy
                                 ---------------------------------------
                             for JAMES MATTHEWS
                                 Executive Secretary

DISSENT __________________

GY:DB:KEC: RTW:BAB:mmc
<PAGE>
             TITLE 14. PUBLIC SERVICE CORPORATIONS; CORPORATIONS AND
                      ASSOCIATIONS; SECURITIES REGULATIONS

               CHAPTER 2. CORPORATION COMMISSION - FIXED UTILITIES

                     ARTICLE 16. RETAIL ELECTRIC COMPETITION


Section

R14-2-1601.                Definitions

R14-2-1602.                Filing of Tariffs by Affected Utilities

R14-2-1603.                Certificates of Convenience and Necessity

R14-2-1604.                Competitive Phases

R14-2-1605.                Competitive Services

R14-2-1606.                Services Required To Be Made Available by Affected
                           Utilities

R14-2-1607.                Recovery of Stranded Cost of Affected Utilities

R14-2-1608.                System Benefits Charges

R14-2-1609.                Solar Portfolio Standard

R14-2-1610.                Spot Markets and Independent System Operation

R14-2-1611.                In-State Reciprocity

R14-2-1612.                Rates

R14-2-1613.                Service Quality, Consumer Protection, Safety, and
                           Billing Requirements

R14-2-1614.                Reporting Requirements

R14-2-1615.                Administrative Requirements

R14-2-1616.                Legal Issues
<PAGE>
                     ARTICLE 16. RETAIL ELECTRIC COMPETITION

R14-2-1601.                Definitions
In this Article, unless the context otherwise requires:
1.   "Affected  Utilities"  means  the  following  public  service  corporations
     providing electric service:
         Tucson Electric Power Company, Arizona Public Service Company, Citizens
         Utilities Company,  Arizona Electric Power Cooperative,  Trico Electric
         Cooperative, Duncan Valley Electric Cooperative, Graham County Electric
         Cooperative,  Mohave  Electric  Cooperative,   Sulphur  Springs  Valley
         Electric Cooperative,  Navopache Electric Cooperative,  Ajo Improvement
         Company, and Morenci Water and Electric Company.
     #In the event that  modifications are made to existing law that would allow
     the  application  of this  Article to the Salt River  Project  Agricultural
     Improvement and Power District  ("SRP") then Affected  Utilities shall also
     include SRP.#
2.   "Bundled  Service"  means  electric  service  provided  as a package to the
     consumer including all generation,  transmission,  distribution,  ancillary
     and other services  necessary to deliver and measure useful electric energy
     and power to consumers.
3.   "Buy-through" refers to a purchase of electricity by an Affected Utility at
     wholesale for a particular  retail consumer or aggregate of consumers or at
     the direction of a particular retail consumer or aggregate of consumers.
4.   "Distribution  Service"  means  the  delivery  of  electricity  to a retail
     consumer  through  wires,  transformers,  and  other  devices  that are not
     classified as  transmission  services  subject to the  jurisdiction  of the
     Federal Energy Regulatory Commission; Distribution Service excludes meters
     and meter reading.
5.   "Electric  Service  Provider"  means a  company  supplying,  marketing,  or
     brokering  at  retail  any of  the  services  described  in  R14-2-1605  or
     R14-2-1606.
6.   "Eligible  Demand"  means the total  consumer  kilowatts of demand which an
     Affected  Utility must make available to competitive  generation  under the
     terms  of  this  Article  or the  consumer  kilowatts  of  demand  provided
     competitively in an Affected Utility's distribution territory, whichever is
     greater.
7.   "Standard  Offer"  means  Bundled  Service  offered to all  consumers  in a
     designated area at regulated rates.
8.   "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,  purchased
         power contracts,  fuel contracts,  and regulatory assets),  acquired or
         entered into prior to the adoption of this Article,  under  traditional
         regulation of Affected Utilities; and
         b.  The  market  value  of  those  assets  and   obligations   directly
         attributable to the introduction of competition under this Article.
9.   "System Benefits" means Commission-approved utility low income, demand side
     management,   environmental,    renewables,   and   nuclear   power   plant
     decommissioning programs.
10.  "Unbundled  Service" means electric  service  elements  provided and priced
     separately,  including,  but not  limited  to,  such  service  elements  as
     generation,  transmission,  distribution, and ancillary services. Unbundled
     Service may be sold to consumers or to other Electric Service Providers.

Text between # indicates strikethrough
<PAGE>
R14-2-1602. Filing of Tariffs by Affected Utilities
     Each Affected  Utility shall file tariffs  consistent  with this Article by
December 31, 1997.

R14-2-1603. Certificates of Convenience and Necessity
A.   Any Electric  Service  Provider  intending to supply services  described in
     R14-  2-1605  or  R-14-2-1606,  other  than  services  subject  to  federal
     jurisdiction,  shall obtain a Certificate of Convenience and Necessity from
     the  Commission  pursuant to this Article;  however,  a Certificate  is not
     required to offer information  services or billing and collection services.
     An Affected Utility does not need to apply for a Certificate of Convenience
     and Necessity  for any service  provided as of the date of adoption of this
     Article within its distribution service territory.
B.   Any company  desiring such a Certificate of Convenience and Necessity shall
     file with the Docket  Control  Center the  required  number of copies of an
     application.  Such Certificates  shall be restricted to geographical  areas
     served by the Affected Utilities as of the date this Article is adopted and
     to service areas added under the  provisions of  R14-2-1611.  In support of
     the request for a Certificate of Convenience  and Necessity,  the following
     information must be provided:
     1.  A description of the electric  services which the applicant  intends to
         offer;
     2.  The proper name and correct  address of the applicant,  and 
         a. The full name of the  owner if a sole  proprietorship,  
         b. The full name of each partner if a partnership, 
         c. A full list of officers and directors if a corporation, or 
         d. A full list of the  members  if a limited  liability corporation;
     3.  A tariff for each  service to be provided  that states the maximum rate
         and  terms  and  conditions  that will  apply to the  provision  of the
         service;
     4.  A  description  of the  applicant's  technical  ability  to obtain  and
         deliver electricity and provide any other proposed services;
     5.  Documentation  of the financial  capability of the applicant to provide
         the proposed  services,  including the most recent income statement and
         balance sheet, the most recent projected  income  statement,  and other
         pertinent financial information.  Audited information shall be provided
         if available;
     6.  A   description   of  the  form  of   ownership   (e.g.,   partnership,
         corporation);
     7.  Such other information as the Commission or the Staff may request.
C.   At the time of filing for a Certificate of Convenience and Necessity,  each
     applicant shall notify the Affected Utilities in whose service  territories
     it wishes to offer service of the application by serving a complete copy of
     the application on the Affected Utilities.
D.   The Commission may deny certification to any applicant who:
     1.  Does not provide the information required by this Article;
     2.  Does not  possess  adequate  technical  or  financial  capabilities  to
         provide the proposed services;
     3.  Fails to provide a performance bond, if required.
E.   Every Electric Service Provider  obtaining a Certificate of Convenience and
     Necessity  under this  Article  shall obtain  certification  subject to the
     following conditions:
     1.  The Electric Service  Provider shall comply with all Commission  rules,
         orders,
<PAGE>
         and other  requirements  relevant to the provision of electric  service
         and relevant to resource planning;
     2.  The Electric  Service  Provider shall maintain  accounts and records as
         required by the Commission;
     3.  The  Electric  Service  Provider  shall file with the  Director  of the
         Utilities  Division all financial and other reports that the Commission
         may  require  and in a form  and at such  times as the  Commission  may
         designate;
     4.  The  Electric   Service  Provider  shall  maintain  on  file  with  the
         Commission  all  current  tariffs and any  service  standards  that the
         Commission shall require;
     5.  The Electric  Service  Provider  shall  cooperate  with any  Commission
         investigation of customer complaints;
     6.  The Electric  Service  Provider shall obtain all necessary  permits and
         licenses;
     7.  Failure  to  comply  with any of the  above  conditions  may  result in
         recision of the Electric Service Provider's  Certificate of Convenience
         and Necessity.
F.   In appropriate circumstances, the Commission may require, as a precondition
     to certification, the procurement of a performance bond sufficient to cover
     any advances or deposits the applicant may collect from its  customers,  or
     order that such advances or deposits be held in escrow or trust.

R14-2-1604. Competitive Phases
A.   Each Affected  Utility shall make available at least 20 percent of its 1995
     system retail peak demand for competitive generation supply to all customer
     classes  (including  residential and small commercial  consumers) not later
     than January 1, 1999. If data permit,  coincident  annual peak demand shall
     be used;  otherwise  noncoincident  peak data may be used.  
     1.  No more than 1/2 of the Eligible  Demand may be procured by  consumers,
         each of whose total competitive contract demand is greater than 3 MW.
     2.  At least 15% of the Eligible  Demand shall be reserved for  residential
         consumers.
     3.  Aggregation of loads of multiple consumers shall be permitted.
B.   Each Affected  Utility shall make available at least 50% of its 1995
     system retail peak demand for competitive generation supply to all customer
     classes  (including  residential and small commercial  consumers) not later
     than January 1, 2001. If data permit,  coincident  peak annual demand shall
     be used;  otherwise  noncoincident  peak data may be used.  
     1.  No more than 1/2 of the Eligible  Demand may be procured by  consumers,
         each of whose total competitive contract demand is greater than 3 MW.
     2.  At least 30 % of the Eligible  Demand shall be reserved for residential
         consumers.
     3.  Aggregation of loads of multiple consumers shall be permitted.
C.   Prior to 2001,  no  single  consumer  shall  receive  more  than 20% of the
     Eligible Demand in a given year in an Affected Utility's service territory.
D.   Each  Affected  Utility  shall make  available all of its retail demand for
     competitive generation supply not later than January 1, 2003.
<PAGE>
E.   By the date indicated in R14-2-1602,  Affected  Utilities shall propose for
     Commission   review  and  approval  how  customers  will  be  selected  for
     participation in the competitive market prior to 2003.
     1.  Possible  selection  methods  are  first-come,   first-served;   random
         selection via a lottery among volunteering consumers; or designation of
         geographic areas.
     2.  The method for selecting  customers to participate  in the  competitive
         market must fairly allow  participation  by a wide variety of customers
         of all sizes of loads.
     3.  All  customers  who produce or  purchase  at least 10% of their  annual
         electricity  consumption from  photovoltaic or solar thermal  resources
         installed  in  Arizona  after  January 1, 1997  shall be  selected  for
         participation  in the  competitive  market if those customers apply for
         participation in the competitive market. Such participants count toward
         the minimum requirements in R14-2- 1604(A) and R14-2-1604(B).
     4.  The Commission  Staff shall commence a series of workshops on selection
         issues  within 45 days of the  adoption of this Article and Staff shall
         submit  a  report  to the  Commission  discussing  the  activities  and
         recommendations  of participants in the workshops.  The report shall be
         due not later than 90 days prior to the date indicated in R14-2-1602.
F.   Retail   consumers   served  under  existing   contracts  are  eligible  to
     participate in the  competitive  market prior to expiration of the existing
     contract  only if the  Affected  Utility  and the  consumer  agree that the
     retail consumer may participate in the competitive market.
G.   An  Affected  Utility  may  engage  in  Buy-throughs   with  individual  or
     aggregated consumers. Any contract for a Buy-through effective prior to the
     date indicated in R14-2-1604(A) must be approved by the Commission.
H.   Schedule Modifications for Cooperatives
     1.  An electric  cooperative  may request  that the  Commission  modify the
         schedule  described in  R14-2-1604(A)  through  R14-2-1604(D)  so as to
         preserve the tax exempt status of the  cooperative  or to allow time to
         modify  contractual   arrangements  pertaining  to  delivery  of  power
         supplies and associated loans.
     2.  As part of the  request,  the  cooperative  shall  propose  methods  to
         enhance consumer choice among generation resources.
     3.  The  Commission  shall  consider  whether the benefits of modifying the
         schedule exceed the costs of modifying the schedule.

R14-2-1605.  Competitive Services
A properly certificated Electric Service Provider may offer any of the following
services under bilateral or multilateral contracts with retail consumers:
A.   Generation of electricity  from generators at any location whether owned by
     the  Electric  Service  Provider or  purchased  from  another  generator or
     wholesaler of electric generation.
B.   Any service described in R14-2-1606, except Distribution Service and except
     services  required  by  the  Federal  Energy  Regulatory  Commission  to be
     monopoly services. Billing and collection services and information services
     do not require a
<PAGE>
         Certificate of Convenience and Necessity.

R14-2-1606.  Services Required To Be Made Available by Affected Utilities

A.   Until the Commission  determines that  competition  has been  substantially
     implemented for a particular class of consumers  (residential,  commercial,
     industrial)  so that all  consumers  in that class have an  opportunity  to
     participate  in the  competitive  market,  and  until  all  Stranded  Costs
     pertaining to that class of customers  have been  recovered,  each Affected
     Utility shall make  available to all consumers in that class in its service
     area,  as defined  on the date  indicated  in  R14-2-1602,  Standard  Offer
     bundled  generation,  transmission,   ancillary,  distribution,  and  other
     necessary services at regulated rates.
     1. An Affected Utility may request that the Commission determine that
         competition has been substantially implemented to allow discontinuation
         of Standard Offer service and shall provide sufficient documentation to
         support its request.
     2.  The Commission may, on its own motion,  investigate whether competition
         has been  substantially  implemented and whether Standard Offer service
         may be discontinued.
B.   Standard Offer Tariffs
     1.  By the date  indicated in  R14-2-1602,  each Affected  Utility may file
         proposed  tariffs to provide  Standard  Offer Bundled  Service and such
         rates shall not become  effective until approved by the Commission.  If
         no such  tariffs are filed,  rates and  services in existence as of the
         date in  R14-2-1602  shall  constitute  the Standard  Offer.  
     2.  Affected Utilities may file proposed revisions to such rates. It is the
         expectation  of the  Commission  that  the  rates  for  Standard  Offer
         service will not increase,  relative to existing  rates, as a result of
         allowing competition. Any rate increase proposed by an Affected Utility
         for Standard Offer service must be fully justified  through a rate case
         proceeding.
     3.  Such rates shall reflect the costs of providing the service. 
     4.  Consumers receiving Standard Offer service are eligible for future rate
         reductions authorized by the Commission,  such as reductions authorized
         in Decision No. 59601.
C.   By the date  indicated in  R14-2-1602,  each  Affected  Utility  shall file
     Unbundled  Service  tariffs to provide  the  services  listed  below to all
     eligible purchasers on a nondiscriminatory basis:
     1.  Distribution Service;
     2.  Metering and meter reading services;
     3.  Billing and collection services;
     4.  Open access  transmission  service (as  approved by the Federal  Energy
         Regulatory Commission, if applicable);
     5.  Ancillary   services  in  accordance  with  Federal  Energy  Regulatory
         Commission  Order  888  (III  FERC  Stats.  & Regs.  P.  31,036,  1996)
         incorporated herein by reference;
     6.  Information services such as provision of customer information to other
         Electric Service Providers;
     7.  Other  ancillary  services  necessary  for  safe  and  reliable  system
         operation.
D.   To manage its risks, an Affected Utility may include in its tariffs deposit
     requirements and advance payment requirements for Unbundled Services.
E.   The Affected  Utilities must provide  transmission  and ancillary  services
     according to the following guidelines:
     1.  Services must be provided consistent with applicable tariffs filed with
         the Federal Energy Regulatory Commission.
     2.  Unless otherwise  required by federal  regulation,  Affected  Utilities
         must accept power and energy delivered to their transmission systems by
         others  and offer  transmission  and  related  services  comparable  to
         services they provide to
<PAGE>
         themselves.
F.   Customer Data
     1.  Upon authorization by the customer,  an Electric Service Provider shall
         release in a timely and useful manner that customer's demand and energy
         data  for the  most  recent  12 month  period  to a  customer-specified
         Electric Service Provider.
     2.  The Electric  Service  Provider  requesting  such  customer  data shall
         provide an accurate account number for the customer.
     3.  The form of data shall be mutually  agreed upon by the parties and such
         data shall not be unreasonably withheld.
G.   Rates for Unbundled Services
     1.  The  Commission  shall review and approve rates for services  listed in
         R14-2-1606(C) and requirements  listed in  R14-2-1606(D),  where it has
         jurisdiction, before such services can be offered.
     2.  Such rates shall reflect the costs of providing the services.
     3.  Such rates may be downwardly flexible if approved by the Commission.
H.   Electric Service  Providers  offering  services under this R14-2-1606 shall
     provide adequate  supporting  documentation for their proposed rates. Where
     rates are  approved by another  jurisdiction,  such as the  Federal  Energy
     Regulatory Commission, those rates shall be provided to this Commission.
I.   Within 90 days of the adoption of this Article,  the Commission Staff shall
     commence  a series of  workshops  to  explore  issues in the  provision  of
     Unbundled Service and Standard Offer service.
     1.  Parties to be invited to  participate  in the  workshops  shall include
         utilities,  consumers,  organizations promoting energy efficiency,  and
         other Electric Service Providers.
     2.  Among  the  issues  to be  reviewed  in  the  workshops  are:  metering
         requirements;  metering  protocols;  designation  of  appropriate  test
         years;  the nature of  adjustments to test year data;  de-averaging  of
         rates;  service   characteristics  such  as  voltage  levels;   revenue
         uncertainty;  line  extension  policies;  and the need for  performance
         bonds.
     3.  A report  shall be  submitted  to the  Commission  by the  Staff on the
         activities and recommendations of the participants in the workshops not
         later  than 60 days  prior to the date  indicated  in  R14-2-1602.  The
         Commission  shall  consider  any  recommendations  regarding  Unbundled
         Service and Standard Offer service tariffs.

R14-2-1607. Recovery of Stranded Cost of Affected Utilities
A.   The Affected Utilities shall take every feasible, cost-effective measure to
     mitigate or offset  Stranded  Cost by means such as expanding  wholesale or
     retail  markets,  or offering a wider scope of services  for profit,  among
     others.
B.   The  Commission  shall  allow  recovery  of  unmitigated  Stranded  Cost by
     Affected Utilities.
C.   A working group to develop reccomendations for the analysis and recovery of
     Stranded Cost shall be established.
     1.  The working group shall commence  activities within 15 days of the date
         of adoption of this Article.
     2.  Members of the working  group shall include  representatives  of Staff,
         the Residential  Utility Consumer  Office,  consumers,  utilities,  and
         other  Electric  Service  Providers.  In addition,  the  Executive  and
         Legislative  Branches  shall be invited to send  representatives  to be
         members of the working group.
     3.  The working group shall be coordinated by the Director of the Utilities
         Division of the Commission or by his or her designee.
D.   In developing  its  recommendations,  the working  group shall  consider at
     least the following factors:
     1.  The  impact  of  Stranded  Cost  recovery  on  the   effectiveness   of
         competition;
     2.  The impact of Stranded  Cost  recovery  on  customers  of the  Affected
         Utility who do not participate in the competitive market;
     3.  The impact,  if any,  on the  Affected  Utility's  ability to meet debt
         obligations;
     4.  The impact of Stranded  Cost  recovery on prices paid by consumers  who
         participate in the competitive market;
     5.  The  degree to which  the  Affected  Utility  has  mitigated  or offset
         Stranded Cost;
     6.  The degree to which  some  assets  have  values in excess of their book
         values;
     7.  Appropriate treatment of negative Stranded Cost;
     8.  The time period over which such Stranded Cost charges may be recovered.
         The  Commission  shall  limit  the  application  of such  changes  to a
         specified time period;
     9.  The ease of determining the amount of Stranded Cost;
     10. The applicability of Stranded Cost to interruptible customers;
     11. The amount of electricity  generated by renewable  generating resources
         owned by the Affected Utility.
E.   The working group shall submit to the Commission a report on the activities
     and recommendations of the working group no later than 90 days prior to the
     date indicated in R14-2-1602.
F.   The Commision shall consider the  recommendations  and decide what actions,
     if any, to take based on the recommendations.
G.   The Affected  Utilities shall file estimates of unmitigated  Stranded Cost.
     Such  estimates  shall be fully  supported  by  analyses  and by records of
     market transactions undertaken by willing buyers and willing sellers.
<PAGE>
H.   An Affected  Utility  shall  request  Commission  approval of  distribution
     charges  or other  means  of  recovering  unmitigated  Stranded  Cost  from
     customers  who reduce or terminate  service from the Affected  Utility as a
     direct result of competition  governed by this Article, or who obtain lower
     rates  from the  Affected  Utility  as a direct  result of the  competition
     governed by this Article.
I.   The  Commission  shall,  after  hearing and  consideration  of analyses and
     recommendations   presented  by  the   Affected   Utilities,   Staff,   and
     intervenors,  determine for each Affected Utility the magnitude of Stranded
     Cost, and  appropriate  Stranded Cost recovery  mechanisms and charges.  In
     making its  determination  of mechanisms and charges,  the Commission shall
     consider at least the  following  factors:  
     1.  The  impact  of  Stranded  Cost  recovery  on  the   effectiveness   of
         competition;
     2.  The impact of Stranded  Cost  recovery  on  customers  of the  Affected
         Utility who do not participate in the competitive market;
     3.  The impact,  if any,  on the  Affected  Utility's  ability to meet debt
         obligations;
     4.  The impact of Stranded  Cost  recovery on prices paid by consumers  who
         participate in the competitive market;
     5.  The  degree to which  the  Affected  Utility  has  mitigated  or offset
         Stranded Cost;
     6.  The degree to which  some  assets  have  values in excess of their book
         values;
     7.  Appropriate treatment of negative Stranded Cost;
     8.  The time period over which such Stranded Cost charges may be recovered.
         The  Commission  shall  limit  the  application  of such  charges  to a
         specified time period;
     9.  The ease of determining the amount of Stranded Cost;
     10. The applicability of Stranded Cost to interruptible customers;
     11. The amount of electricity  generated by renewable  generating resources
         owned by the Affected Utility.
J.   Stranded  Cost may only be recovered  from customer  purchases  made in the
     competitive  market using the provisions of this Article.  Any reduction in
     electricity   purchases   from   an   Affected   Utility   resulting   from
     self-generation,   demand  side  management,   or  other  demand  reduction
     attributable  to any cause other than the retail access  provisions of this
     Article  shall not be used to calculate or recover any Stranded Cost from a
     consumer.
K.   The Commission may order an Affected  Utility to file estimates of Stranded
     Cost and mechanisms to recover or, if negative, to refund Stranded Cost.
L.   The Commission may order regular revisions to estimates of the magnitude of
     Stranded Cost.

R14-2-1608. System Benefits Charges
A.   By the date indicated in R14-2-1602, each Affected Utility shall file for
<PAGE>
     Commission review non-bypassable rates or related mechanisms to recover the
     applicable  pro-rata costs of System Benefits from all consumers located in
     the Affected  Utility's  service area who  participate  in the  competitive
     market.  In  addition,  the  Affected  Utility may file for a change in the
     System Benefits charge at any time. The amount  collected  annually through
     the  System  Benefits  charge  shall be  sufficient  to fund  the  Affected
     Utilities' present  Commission-approved low income, demand side management,
     environmental,   renewables,   and  nuclear  power  plant   decommissioning
     programs.
B.   Each Affected Utility shall provide adequate  supporting  documentation for
     its proposed rates for System Benefits.
C.   An Affected  Utility shall  recover the costs of System  Benefits only upon
     hearing  and  approval  by  the  Commission  of  the  recovery  charge  and
     mechanism. The Commission may combine its review of System Benefits charges
     with its review of filings pursuant to R14-2-1606.
D.   Methods of  calculating  System  Benefits  charges shall be included in the
     workshops described in R14-2-1606(I).

R14-2-1609. Solar Portfolio Standard
A.   Starting  on  January  1,  1999,  any  Electric  Service  Provider  selling
     electricity  under the  provisions of this Article must derive at least 1/2
     of 1% of  the  total  retail  energy  sold  competitively  from  new  solar
     resources,  whether  that solar  energy is  purchased  or  generated by the
     seller.  Solar resources include  photovoltaic  resources and solar thermal
     resources  that  generate  electricity.   New  solar  resources  are  those
     installed on or after January 1, 1997.
B.   Solar portfolio standard after December 31, 2001:
     1.  Starting on January 1, 2002,  any  Electric  Service  Provider  selling
         electricity  under the  provisions of this Article must derive at least
         1% of the  total  retail  energy  sold  competitively  from  new  solar
         resources,  whether  that solar energy is purchased or generated by the
         seller.  Solar  resources  include  photovoltaic  resources  and  solar
         thermal  resources that generate  electricity.  New solar resources are
         those installed on or after January 1, 1997.
     2.  The Commission  may change the solar  portfolio  percentage  applicable
         after December 31, 2001, taking into account,  among other factors, the
         costs of producing  solar  electricity and the costs of fossil fuel for
         conventional power plants.
C.   Any Electric  Service  Provider  certificated  under the provisions of this
     Article  shall be able to credit 2 times the electric  energy it generated,
     or caused to be  generated  under  contract,  before  January 1, 1999 using
     photovoltaics or solar thermal  resources  installed on or after January 1,
     1997 in Arizona to the electric  energy  requirements of  R14-2-1609(A)  or
     R14-2-1609(B).
D.   Electric Service Providers selling electricity under the provisions of this
     Article shall provide  reports on sales and solar power as required in this
     Article,   clearly  demonstrating  the  output  of  solar  resources,   the
     installation  date of solar resources,  and the transmission of energy from
     those solar  resources to Arizona  consumers.  The  Commission  may conduct
     necessary monitoring to ensure the accuracy of these data.
E.   If an Electric Service Provider selling electricity under the provisions of
     this  Article  fails  to  meet  the   requirement   in   R14-2-1609(A)   or
     R14-2-1609(B)  in any year,  the  Commission  may  impose a penalty on that
     Electric Service Provider up to
<PAGE>
     $0.30  per kWh for  deficiencies  in the  provision  of  solar  energy.  In
     addition, if the provision of solar energy is consistently  deficient,  the
     Commission may void an Electric  Service  Provider's  contracts  negotiated
     under this Article.
F.   Photovoltaic or solar thermal  resources that are located on the consumer's
     premises shall count toward the solar portfolio standard  applicable to the
     current Electric Service Provider serving that consumer.
G.   The solar  portfolio  standard  described in this section is in addition to
     renewable resource goals for Affected Utilities established in Decision No.
     58643.

R14-2-1610. Spot Markets and Independent System Operation
A.   The Commission  shall conduct an inquiry into spot market  development  and
     independent system operation for the transmission system.
B.   The  Commission  may support  development  of a spot market or  independent
     system operator(s) for the transmission system.
C.   The  Commission may work with other entities to help establish spot markets
     and independent system operators.

R14-2-1611.  In-State Reciprocity
A.   The  service  territories  of  Arizona  electric  utilities  which  are not
     Affected Utilities shall not be open to competition under the provisions of
     this Article,  nor shall Arizona electric  utilities which are not Affected
     Utilities  be able to compete for sales in the service  territories  of the
     Affected Utilities.
B.   An Arizona electric utility, subject to the jurisdiction of the Commission,
     which is not an Affected  Utility  may  voluntarily  participate  under the
     provisions of this Article if it makes its service territory  available for
     competing sellers, if it agrees to all of the requirements of this Article,
     and if it obtains an appropriate Certificate of Convenience and Necessity.
#C.  The Commission shall pursue,  on its own or in cooperation  whith the Joint
     Legislative Study Committe on Electric Industry Competition  established by
     House  Bill  2504  (1996),  legislation  to  address  the role of  electric
     utilities of Arizona political  subdivisions or municipal corporations in a
     competitive  market.  The  Commission  shall  further  make  available,  as
     appropriate,  Staff  assistance  to  the  Legislature  if  the  Legislature
     requests such  assistance for the purpose of determining the proper role of
     electric   utilities  of  Arizona   political   subdivisions  or  municipal
     corporations in a competitive market.
D.   An  Arizona  electic  utility,  not  subject  to  the  jurisdiction  of the
     Commission,  which is not an Affected Utility, may voluntarily  participate
     under the  provisions  of this Article  if it makes its  service  territory
     available for competing sellers, if it agrees to all of the requirements of
     this  Article  other  than  any  requirement  to  obtain a  Certificate  of
     Convenience  and  Necessity,  if  adequate  enforcement  mechanisms  can be
     established, and if all other Affected Utilities consent in writing.#
C.   An  Arizona  electric  utility,  not  subject  to the  jurisdiction  of the
     ---------------------------------------------------------------------------
     Commission,  may submit a statement to the  Commission  that it voluntarily
     ---------------------------------------------------------------------------
     opens its service  territory for competing  sellers in a manner  similar to
     ---------------------------------------------------------------------------
     the provisions of this Article.  Such statement shall be accompanied by the
     ---------------------------------------------------------------------------
     electric utility's nondiscriminatory Standard Offer Tariff, electric supply
     ---------------------------------------------------------------------------
     tariffs,  Unbundled Services rates, Stranded Cost charges,  System Benefits
     ---------------------------------------------------------------------------
     charges, Distribution Services charges and any other applicable tariffs and
     ---------------------------------------------------------------------------
     policies for services  the  electric  utility  offers for which these Rules
     ---------------------------------------------------------------------------
     otherwise  require  compliance  by Affected  Utilities or Electric  Service
     ---------------------------------------------------------------------------
     Providers.  Such filings  shall serve as  authorization  for such  electric
     ---------------------------------------------------------------------------
     utility to utilize the  Commission's  Rules of Practice and  Procedure  and
     ---------------------------------------------------------------------------
     other applicable Rules concerning any complaint that an Affected Utility or
     ---------------------------------------------------------------------------

#Text between # indicates strikethrough

     Electric Service Provider is violating any provision  of this Article or is
     ---------------------------------------------------------------------------
     otherwise  discriminating against the filing electric utility or failing to
     ---------------------------------------------------------------------------
     provide just and reasonable rates in tariffs filed under this Article.
     ---------------------------------------------------------------------------
D.   If an electric  utility is an Arizona  political  subdivision  or municipal
     ---------------------------------------------------------------------------
     corporation,  then the existing service  territory of such electric utility
     ---------------------------------------------------------------------------
     shall  be  deemed  open to  competition  if the  political  subdivision  or
     ---------------------------------------------------------------------------
     municipality  has  entered  into an  intergovernmental  agreement  with the
     ---------------------------------------------------------------------------
     Commission  that  establishes  nondiscriminatory  terms and  conditions for
     ---------------------------------------------------------------------------
     Distribution  Services and other Unbundled  Services,  provides a procedure
     ---------------------------------------------------------------------------
     for  complaints  arising  therefrom,  and  provides  for  reciprocity  with
     ---------------------------------------------------------------------------
     Affected Utilities.  The Commission shall conduct a hearing to consider any
     ---------------------------------------------------------------------------
     such intergovernmental agreement.


R14-2-1612. Rates

A.   Market determined rates for  competitively  provided services as defined in
     R14-2-1605 shall be deemed to be just and reasonable.
B.   Each Electric  Service  Provider  selling services under this Article shall
     have on file with the  Commission  tariffs  describing  such  services  and
     maximum  rates for those  services,  but the  services  may not be provided
     until the Commission has approved the tariffs.
C.   Prior to the date  indicated  in  R14-2-1604(D),  competitively  negotiated
     contracts governed by this Article customized to individual customers which
     comply with approved  tariffs do not require further  Commission  approval.
     However, all such
<PAGE>
     contracts  whose  term is one year or more and for  service of 1 MW or more
     must be filed  with  the  Director  of the  Utilities  Division  as soon as
     practicable.  If a contract  does not comply  with the  provisions  of this
     Article it shall not become effective without a Commission order.
D.   Contracts  entered  into on or after the date  indicated  in  R14-2-1604(D)
     which comply with  approved  tariffs need not be filed with the Director of
     the Utilities  Division.  If a contract does not comply with the provisions
     of this Article it shall not become effective without a Commission order.
E.   An Electric Service Provider holding a Certificate pursuant to this Article
     may price its competitive services,  as defined in R14-2-1605,  at or below
     the maximum rates specified in its filed tariff, provided that the price is
     not less than the marginal cost of providing the service.
F.   Requests for changes in maximum rates or changes in terms and conditions of
     previously  approved  tariffs may be filed.  Such changes become  effective
     only upon Commission approval.

R14-2-1613.  Service Quality, Consumer Protection, Safety, and Billing
             Requirements
A.   Except as indicated elsewhere in this Article, R14-2-201 through R14-2-212,
     inclusive,  are adopted in this Article by  reference.  However,  where the
     term "utility" is used in R14-2-201 through  R14-2-212,  the term "utility"
     shall  pertain  to  Electric  Service  Providers   providing  the  services
     described in each paragraph of R14-2-201 through R14-2-212. R14-2-212(G)(2)
     shall pertain only to Affected Utilities.  R14-2-212(G)(4) shall apply only
     to Affected Utilities.  R14-2-212(H) shall pertain only to Electric Service
     Providers who provide distribution service.
B.   The following shall not apply to this Article:
     1.  R14-2-202 in its entirety,
     2.  R14-2-212(F)(1),
     3.  R14-2-213.
C.   No  consumer  shall be  deemed to have  changed  suppliers  of any  service
     authorized in this Article  (including  changes from supply by the Affected
     Utility to another supplier) without written  authorization by the consumer
     for service from the new supplier. If a consumer is switched to a different
     ("new") supplier without such written authorization, the new supplier shall
     cause  service by the previous  supplier to be resumed and the new supplier
     shall bear all costs  associated  with  switching  the consumer back to the
     previous supplier.
D.   Each Electric Service Provider  providing  service governed by this Article
     shall be responsible for meeting applicable reliability standards and shall
     work cooperatively with other companies with whom it has  interconnections,
     directly or indirectly, to ensure safe, reliable electric service.
E.   Each Electric Service Provider shall provide at least 30 days notice to all
     of  its  affected  consumers  if  it  is no  longer  obtaining  generation,
     transmission,  distribution,  or ancillary services  necessitating that the
     consumer obtain service from another supplier of generation,  transmission,
     distribution, or ancillary services.
<PAGE>
F.   All Electric Service  Providers  rendering service under this Article shall
     submit accident reports as required in R14-2-101.
G.   An Electric  Service  Provider  providing firm electric service governed by
     this Article shall make  reasonable  efforts to reestablish  service within
     the shortest possible time when service  interruptions occur and shall work
     cooperatively  with other companies to ensure timely restoration of service
     where facilities are not under the control of the Electric Service Provider
H.   Each  Electric  Service  Provider  shall ensure that bills  rendered on its
     behalf include the toll free telephone  numbers for billing,  service,  and
     safety inquiries and the telephone number of the Consumer  Services Section
     of the Arizona Corporation  Commission  Utilities  Division.  Each Electric
     Service Provider shall ensure that billing and collection services rendered
     on its behalf comply with R14-2-1613(A) and R14-2- 1613(B).
I.   Additional Provisions for Metering and Meter Reading Services
     1.  An Electric  Service  Provider who provides  metering or meter  reading
         services  pertaining to a particular  consumer  shall provide access to
         meter readings to other Electric  Service  Providers  serving that same
         consumer.
     2.  A  consumer  or  an  Electric  Service  Provider  relying  on  metering
         information provided by another Electric Service Provider may request a
         meter  test  according  to the  tariff  on  file  and  approved  by the
         Commission.  However, if the meter is found to be in error by more than
         3%, no meter testing fee will be charged.
     3.  Protocols for metering  shall be developed  subsequent to the workshops
         described in R14-2-1606(I).
J.   Working Group on System Reliability and Safety:
     1.  If it has not  already  done so, the  Commission  shall  establish,  by
         separate   order,   a  working  group  to  monitor  and  review  system
         reliability and safety.
         a.   The  working  group may  establish  technical  advisory  panels to
              assist it.
         b.   The working group shall commence  activities within 15 days of the
              date of adoption of this Article.
         c.   Members of the working  group  shall  include  representatives  of
              Staff,   consumers,   the  Residential  Utility  Comsumer  Office,
              utilities,  other  Electric  Service  Providers and  organizations
              promoting  energy  efficiency.  In  addition,  the  Executive  and
              Legislative  Branches  shall be invited to send representatives to
              be members of the working group.
         d.   The working  group  shall be  coordinated  by the  Director of the
              Utilities Division of the Commission or by his or her designee.
     2.  All Electric Service Providers governed by this Article shall cooperate
         and  participate in any  investigation  conducted by the working group,
         including provision of data reasonably related to system reliability or
         safety.
     3.  The working group shall report to the Commission on system  reliability
         and safety regularly,  and shall make recommendations to the Commission
         regarding improvements to reliability or safety.
K.   Electric  Service  Providers  shall  comply  with  applicable   reliability
     standards and practices  established  by the Western  Systems  Coordinating
     Council and the North American  Electric  Reliability  Council or successor
     organizations.
L.   Electric Service  Providers shall provide  notification  and  informational
     materials to
<PAGE>
     consumers about  competition and consumer  choices,  such as a standardized
     description of services, as ordered by the Commission.

R14-2-1614.  Reporting Requirements

A.   Reports  covering the following items shall be submitted to the Director of
     the  Utilities  Division by Affected  Utilities  and all  Electric  Service
     Providers  granted a Certificate of Convenience  and Necessity  pursuant to
     this  Article.  These  reports  shall  include  the  following  information
     pertaining  to  competitive  service  offerings,  Unbundled  Services,  and
     Standard Offer services in Arizona:
     1.  Type of services offered;
     2.  kW and kWh sales to consumers,  disaggregated  by customer class (e.g.,
         residential, commercial, industrial);
     3.  Solar  energy  sales  (kWh)  and  sources  for  grid  connected   solar
         resources; kW capacity for off-grid solar resources;
     4.  Revenues from sales by customer class (e.g.,  residential,  commercial,
         industrial);
     5.  Number of  retail  customers  disaggregated  as  follows:  aggregators,
         residential,  commercial  under 100 kW,  commercial  100 kW to 2999 kW,
         commercial 3000 kW or more,  industrial  less than 3000 kW,  industrial
         3000 kW or more,  agricultural  (if not  included in  commercial),  and
         other;
     6.  Retail kWh sales and  revenues  disaggregated  by term of the  contract
         (less than 1 year, 1 to 4 years,  longer than 4 years),  and by type of
         service (for example, firm, interruptible, other);
     7.  Amount of and revenues  from each service  provided  under R14-2- 1605,
         and, if applicable, R14-2-1606;
     8.  Value of all Arizona specific assets and accumulated depreciation;
     9.  Tabulation of Arizona electric  generation plants owned by the Electric
         Service Provider broken down by generation  technology,  fuel type, and
         generation capacity;
     10. Other data requested by Staff or the Commission;
     11. In addition,  prior to the date  indicated in  R14-2-1604(D),  Affected
         Utilities  shall  provide  data   demonstrating   compliance  with  the
         requirements of R14-2-1604;
B.   Reporting Schedule
     1.  For the period through December 31, 2003,  semi-annual reports shall be
         due on April 15 (covering the previous period of July through December)
         and October 15 (covering the previous  period of January through June).
         The first such report shall cover the period January 1 through June 30,
         1999.
     2.  For the period after December 31, 2003,  annual reports shall be due on
         April 15 (covering the previous  period of January  through  December).
         The first such report shall cover the period January 1 through December
         31, 2004.
C.   The  information  listed  above may be  provided on a  confidential  basis.
     However,   Staff  or  the  Commission  may  issue  reports  with  aggregate
     statistics  based on  confidential  information  that do not disclose  data
     pertaining to a particular seller or purchases by a particular buyer.
<PAGE>
D.   Any Electric Service Provider  governed by this Article which fails to file
     the above data in a timely  manner  may be subject to a penalty  imposed by
     the Commission or may have its Certificate rescinded by the Commission.
E.   Any  Electric  Service  Provider  holding a  Certificate  pursuant  to this
     Article  shall  report  to the  Director  of  the  Utilities  Division  the
     discontinuation  of any competitive tariff as soon as practicable after the
     decision to discontinue offering service is made.
F.   In addition to the above reporting requirements, Electric Service Providers
     governed by this Article shall participate in Commission workshops or other
     forums whose purpose is to evaluate competition or assess market issues.
G.   Reports  filed under the  provisions  of this section shall be submitted in
     written format and in electronic  format.  Electric Service Providers shall
     coordinate with the Commission Staff on formats.

R14-2-1615.  Administrative Requirements

A.   Any Electric Service Provider  certificated  under this Article may propose
     additional  electric  services at any time by filing a proposed tariff with
     the Commission describing the service, maximum rates, terms and conditions.
     The  proposed  new  electrical  service  may  not  be  provided  until  the
     Commission has approved the tariff.
B.   Contracts  filed  pursuant  to this  Article  shall  not be open to  public
     inspection  or made  public  except on order of the  Commission,  or by the
     Commission or a Commissioner in the course of a hearing or proceeding.
C.   The  Commission  may consider  variations or  exemptions  from the terms or
     requirements of any of the rules in this Article upon the application of an
     affected party.  The application  must set forth the reasons why the public
     interest will be served by the variation or exemption  from the  Commission
     rules and regulations.  Any variation or exemption granted shall require an
     order of the Commission. Where a conflict exists between these rules and an
     approved tariff or order of the Commission,  the provisions of the approved
     tariff or order of the Commission shall apply.
D.   The Commission  may develop  procedures  for resolving  disputes  regarding
     implementation of retail electric competition.

R14-2-1616. Legal Issues
A.   A working  group to identify,  analyze and provide  recommendations  to the
     Commission on legal issues relevant to this Article shall be established.
     1.  The working group shall commence  activities within 15 days of the date
         of adoption of this Article.
     2.  Members of the working  group shall include  representatives  of Staff,
         the Residential  Utility Consumer  Office,  consumers,  utilities,  and
         other  Electric  Service  Providers.  In addition,  the  Executive  and
         Legislative  Branches and the Attorney General shall be invited to send
         representatives to be members of the working group.
     3.  The working  group shall be  coordinated  by the  Director of the Legal
         Division of the Commission or by his or her designee.
B.   The working group shall submit to the Commission a report on the activities
     and recommendations of the working group no later than 90 days prior to the
     date indicated in R14-2-1602.
C.   The Commission shall consider the  recommendations and decide what actions,
     if any, to take based on the recommendations.
<PAGE>
                                   APPENDIX B
                                   ----------

                          CONCISE EXPLANATORY STATEMENT
                          -----------------------------

         This  explanatory  statement is provided to comply with A.R.S.  Section
41-1036.

I.       REASONS FOR ADOPTING THE PROPOSED AMENDMENTS.
         The Arizona  Corporation  Commission has promulgated  proposed Rules to
govern the provision of competitive electric services in the State of Arizona.

R14-2-1601.  Definitions.
         This section  contains all the  definitions  necessary to interpret and
follow the provisions set forth in the proposed Rules.

R14-2-1602.  Filing of Tariffs by Affected Utilities.
         This section requires all Affected Utilities (defined in R14-2-1601) to
file tariffs required by this Article by December 31, 1997.

R14-2-1603.  Certificates of Convenience and Necessity.
         This  section  requires  all Electric  Services  Providers  (defined in
R14-2-1601) intending to supply electric services under this Article to obtain a
Certificate of Convenience and Necessity from the Commission. Affected Utilities
already have  Certificates  for their  existing  service area, and thus need not
obtain a  Certificate  in order to continue  to provide  service  therein.  This
section sets up the process for obtaining such Certificates,  as well as grounds
for denial and conditions under which they may be granted.

R14-2-1604.  Competitive Phases.
         This  section   outlines  the  time  frames  for  the  introduction  of
competition in Arizona. In the first phase, to begin in 1999, Affected Utilities
are  required  to open up 20  percent  of their  base year  (1995)  markets  (as
measured by kW demand) to  competition.  In the second phase,  to begin in 2001,
this is enlarged to at least 50 percent of the  incumbent  utilities'  base year
markets.  Full competition for generation,  the third phase,  begins in 2003. At
least 15  percent  of the  eligible  demand  must be  reserved  for  residential
consumers in the  competitive  marketplace  in the first phase,  and at least 30
percent of the eligible demand must be reserved for residential consumers in the
competitive  marketplace  in the second  phase.  In addition,  prior to 2001, no
single consumer may receive more 
<PAGE>
than 20 percent of the total service  available in the competitive  market in an
Affected Utility's service territory.
         The Affected  Utilities must propose how customers will be selected for
participation  in the competitive  market.  Consumers who use  photovoltaics  or
solar thermal  resources  (built after January 1, 1997 and installed in Arizona)
for  at  least  10  percent  of  their  annual   electricity   consumption   are
automatically  included in the list of eligible  customers for  participation in
the competitive market if they wish to participate in the competitive market. To
assist the Affected  Utilities  and the  Commission in  understanding  selection
issues,  a workshop will be conducted on selection issues prior to the date when
selection filings are due.
         Customers  served under existing  contracts are eligible to participate
in the competitive  market prior to expiration of the existing  contract only if
the  affected  utility and  customer  agree to early  revision of the  contract.
Buy-throughs are permitted on a voluntary basis. These mechanisms,  which enable
the incumbent  utility to purchase  specific  sources of energy at wholesale for
the use of a specific consumer,  may enable some consumers to obtain some of the
benefits of competition  prior to the start of the first  competitive  phase, if
the Commission approves.
         Electric  cooperatives may request a modification to the schedule.  Any
such  requests  must  include  proposals  on  enhancing  consumer  choice  among
generation  resources.  The  Commission  will  have to  consider  the  costs and
benefits of  modifying  the schedule in making a  determination  on the proposed
modifications.

R14-2-1605.  Competitive Services.
         This section  describes  services which can be provided  competitively.
These include generation at any location (including distributed generation) plus
other services except  distribution  service and except services required by the
federal  government  to be provided on a monopoly  basis.  

R14-2-1606.  Services Required To Be Made Available by Affected Utilities.
         This section deals with  utilities'  obligations  to provide  unbundled
services and standard offer services.  Incumbent  utilities must offer "Standard
Offer" service in their service territories until the Commission determines that
competition has been substantially implemented.  Standard offer service consists
of  bundled  service  at  regulated  rates  for  consumers  who do not or cannot
participate  in the  
<PAGE>
competitive  market. In addition,  by December 31, 1997, Affected Utilities will
have to file  unbundled  tariffs  to  provide to all  eligible  purchasers  on a
nondiscriminatory basis the following services:  Distribution service,  metering
and meter reading, billing and collection, open access transmission service, and
ancillary  services.  Such  transmission  and ancillary  service tariffs must be
consistent  with  applicable  tariffs filed with the Federal  Energy  Regulatory
Commission ("FERC").
         This  section  also  sets  up   guidelines   and   practices   for  the
authorization  and release of customer demand and energy data, sets up a process
for the  review  of rates  for  unbundled  services,  and  sets up a  series  of
workshops  to explore  various  issues  involved in the  provision  of unbundled
services and Standard Offer services.

R14-2-1607.  Recovery of Stranded Cost of Affected Utilities.
         This section discusses the process by which Affected Utilities may seek
to recover their unmitigated Stranded Costs (defined in R14-2-1601). The section
sets up a working group to develop recommendations for the analysis and recovery
of such  Stranded  Costs,  and sets forth  several  factors to be  considered in
allowing this  recovery.  Stranded Costs can only be recovered from customers in
the  competitive  marketplace,  and estimates of Stranded  Costs must be updated
periodically to allow the Commission to monitor the magnitude of such costs, and
to grant refunds  where such  estimates may be  overstated.  

R14-2-1608.  System Benefits Charges.
         This section  recognizes the  availability  of the recovery of costs of
Commission-approved  utility low income, demand side management,  environmental,
renewables, and nuclear power plant decommissioning programs. Affected Utilities
are to propose the  necessary  charges on  competitive  consumers  (to  continue
existing  programs)  for  Commission  review  and  approval.  

R14-2-1609.  Solar Portfolio Standard.
         This section requires any Electric Service Provider selling electricity
under  the  provisions  of the  Rules to  derive at least 1/2 of 1% of the total
retail  energy sold  competitively  from new solar  resources.  As of January 1,
2001, this standard  becomes 1%, unless the Commission  decides  otherwise.  New
solar  resources  are those  installed  on or after  January 1,  1997.  Electric
Service Providers selling  electricity derived from new solar resources prior to
January 1, 1999 are allowed
<PAGE>
to claim  credit  toward the Solar  Portfolio  Standard  for twice the  electric
energy generated by such solar resources prior to 1999. Periodic reports of such
sales of solar energy are required; Electric Services Providers who fail to meet
the standard in the Rules may be subject to penalties imposed by the Commission.

R14-2-1610. Spot Markets and Independent System Operators.
         This section  requires the  Commission  to conduct an inquiry into spot
market development and independent system operation for the transmission system;
the Commission is authorized to support the development of either,  and may work
with other entities to help establish them. 

R14-2-1611. In-State Reciprocity.
         This section  recognizes that electric  utilities which are not subject
to  the  Commission's  jurisdiction  are  not  allowed  to  participate  in  the
competitive  electric  market unless  certain  legislative  changes are made, or
these  electric   utilities  either   voluntarily  submit  to  the  Commission=s
jurisdiction for purposes of such participation, or they enter into some form of
agreement  with the Commission to allow for their  participation  under mutually
agreeable terms. 

R14-2-1612. Rates.
         This  section  sets  forth the  Commission's  determination  that rates
determined by the competitive  market are just and reasonable.  Electric Service
Providers  selling  services  under  these  Rules are  required to file with the
Commission  tariffs  describing  such  services  along with the maximum rates of
those services, subject to Commission approval. Pricing for competitive services
may be at or below the maximum rates specified in the tariff, provided the price
is not less than the marginal  cost of the service.  Changes in maximum rates or
in terms and  conditions of previously  approved  tariffs may be filed,  and are
effective  upon  Commission  approval.  

R14-2-1613.  Service Quality, Consumer Protection, Safety, and Billing
             Requirements.
         This section explicitly recognizes that the Commission's existing rules
for  electric  service  apply  in the  competitive  arena,  except  in  specific
instances. "Slamming" by suppliers of electric service is explicitly prohibited.
Electric Service  Providers  supplying service under these Rules are responsible
for meeting applicable reliability  standards,  are required to provide customer
notice if it is unable to continue providing  customers with any service,  shall
submit accident reports, shall 
<PAGE>
make reasonable efforts to reestablish  service in the shortest possible time in
the event of service  interruptions,  and shall  ensure  that bills  rendered on
their behalf  include toll free  telephone  numbers for customer  inquiries.  In
addition,  Electric  Service  Providers  supplying  metering  or  meter  reading
services  shall  provide  access to meter  readings  to other  Electric  Service
Providers serving the same customer.  Meter tests may be requested by a consumer
or an Electric Service Provider relying on meter information provided by another
Electric Service Provider; such test shall be without charge if an error of more
than 3% is found. A working group on System  Reliability and Safety is set up to
monitor and review such issues and make  regular  reports to the  Commission  on
these  issues.  All  Electric  Service  Providers  are  required  to comply with
applicable  reliability standards and practices set forth by the Western Systems
Coordinating  Council and the North  American  Electric  Reliability  Council or
successor organizations.

R14-2-1614.  Reporting Requirements.
         This section  requires regular  reporting of market  information so the
Commission is able to monitor developments in competitive markets.

R14-2-1615.  Administrative Requirements.
         This section  indicates  that  Electric  Service  Providers may file to
offer new  services  and that  contracts  are not public  documents.  It further
states the Commission may grant  variation s or exemptions  from portions of the
Rules. The Commission may also adopt procedures to resolve disputes. 

R14-2-1616.  Legal Issues.
         This section sets up a working  group to identify,  analyze and provide
recommendations  to the Commission on legal issues relative to these Rules.  The
Commission shall consider the recommendations and decide the appropriate actions
to take thereon.

II.      CHANGES IN THE TEXT OF THE PROPOSED  AMENDMENT FROM  THAT  CONTAINED IN
         THE NOTICE OF RULEMAKING FILED WITH THE SECRETARY OF STATE.

         A.A.C. R14-2-1601 Definitions
         The last  sentence  has been  deleted  from  R14-2-1601.1.  The deleted
language stated that "In the event that  modifications are made to exisiting law
that would  allow the  application  of this  Article  to the Salt River  Project
Agricultural  Improvement and Power District  ("SRP"),  then Affected  Utilities
shall also include SRP."
         A.A.C. R14-2-1603 Certificates of Convenience and Necessity
         The second sentence of  R14-2-1603(B)  has been amended to read:  "Such
Certificates  shall be restricted to  geographical  areas served by the Affected
Utilities  as of the date this  Article is adopted  and to service  areas  added
under the provisions of R14-2-1611."
         A.A.C. R14-2-1611 In-State Reciprocity
         R14-2-1611(C)  has been deleted.  The remaining  subsections  have been
renumbered and relettered accordingly.
         R14-2-1611D (now C) has been amended to read:
         C.       An Arizona electric  utility,  not subject to the jurisdiction
                  of the  Commission,  may submit a statement to the  Commission
                  that it voluntarily  opens its service territory for competing
                  sellers in a manner similar to the provisions of this Article.
                  Such statement shall be accompanied by the electric  utility's
                  nondiscriminatory   Standard  Offer  tariff,  electric  supply
                  tariffs,  Unbundled  Services  rates,  Stranded  Cost charges,
                  System Benefits charges, Distribution Services charges and any
                  other  applicable   tariffs  and  policies  for  services  the
                  electric  utility  offers,  for which  these  Rules  otherwise
                  require  compliance by Affected  Utilities or Electric Service
                  Providers.  Such filings shall serve as authorization for such
                  electric utility to utilize the Commission's Rules of Practice
                  and  Procedure  and  other  applicable  Rules  concerning  any
                  complaint  that  an  Affected   Utility  or  Electric  Service
                  Provider is  violating  any  provision  of this  Article or is
                  otherwise  discriminating  against the filing electric utility
                  or  failing to provide  just and  reasonable  rates in tariffs
                  filed under this Article.

         R14-2-1611D has been added to read:
         D.       If an electric utility is an Arizona political  subdivision or
                  municipal corporation,  then the existing service territory of
                  such electric  utility shall be deemed open to  competition if
                  the political  subdivision or municipality has entered into an
                  intergovernmental   agreement   with   the   Commission   that
                  establishes
<PAGE>
                  nondiscriminatory   terms  and  conditions  for   Distribution
                  Services and other  Unbundled  Services,  provides a procedure
                  for complaints arising therefrom, and provides for reciprocity
                  with  Affected  Utilities.  The  Commission  shall  conduct  a
                  hearing to consider any such intergovernmental agreement.

III.     EVALUATION OF THE ARGUMENTS FOR AND AGAINST THE PROPOSED AMENDMENTS.

         A.     General Legal Arguments Against The Rules.

                1. The Commission Has the Legal Right to Promulgate These Rules.
         One  primary  overriding  comment  made  by the  parties  is  that  the
Commission  has no legal  right to adopt  these  Rules.  This  argument  follows
several lines of  reasoning,  the three primary ones being that the rules modify
or abrogate the  regulatory  compact;  the rules are in violation of the Arizona
Administrative  Procedures  Act;  and  that  the  Commission  does  not have the
authority to issue,  modify or delete a Certificate of Convenience and Necessity
without some legislative change.
                Issue: The Rules  Are an Unlawful  Modification or Abrogation of
                       the Regulatory Compact.
         The basic argument made by the parties regarding the regulatory compact
is that there is some sort of  "contract"  between  the state and the  incumbent
monopoly  electric   utility,   wherein  the  utility  is  obligated  to  supply
electricity to all customers who require it at a reasonable cost, and in return,
the state  agrees to provide the utility with the  exclusive  right to serve all
customers within a defined territory.  The argument goes on to assert that since
the Proposed Rules would change the exclusive  nature of electric  service,  the
rules  unilaterally  abrogate  or at least  modify this  contract,  and thus the
Proposed Rules cannot be passed.
         Staff argues that no such contract has been formed.  Generally, a party
asserting  the  formation of a contract by statute must  overcome a  presumption
against  such  formation,  and courts will be  cautious  both in  identifying  a
contract  within the  language of a  regulatory  statute,  and in  defining  the
outlines of any contractual obligation.  Nat'l R.R. Passenger Corp. v. Atchison,
Topeka,  and Santa Fe Ry. Co., 470 U.S. 451, 466, 105 S.Ct.  1441,  1452 (1985).
"[A]bsent some clear  indication  that the  legislature  intends to  bind itself
contractually,  the presumption is that 'a law is not intended
<PAGE>
to create private  contractual or vested rights but merely  declares a policy to
be pursued until the legislature  shall ordain  otherwise.'" Id. at 465-66,  105
S.Ct. at 1451 (quoting  Dodge v. Bd. Educ. of City of Chicago,  302 U.S. 74, 79,
58 S.Ct. 98, 100 (1937)).  In promulgating  these Proposed Rules, the Commission
is exercising the  legislative  discretion  flowing from its plenary  ratemaking
authority.  See Simms v. Round Valley Light & Power,  80 Ariz. 145, 294 P.2d 378
(1956). The question as to whether particular  legislation creates a contractual
right begins with an examination of the statute itself.  Nat'l R.R.  Corp.,  470
U.S. at 465-66, 105 S.Ct. at 1451. However, a search of the Arizona Constitution
reveals  no such  intent on the part of the State to bind  itself.  Indeed,  the
Constitution  expressly  disfavors  monopolies:  "[m]onopolies  and trusts shall
never be allowed in this State . . . ." Ariz. Const. Art. XIV, section 15.
         Staff further notes that,  while the parties cite  Application of Trico
Electric  Co-operative,  Inc.,  92  Ariz.  373,  377  P.2d  309  (1962)  for the
proposition that "the state in effect contracts" with a monopoly  utility,  that
language in Trico is clearly dicta. Additionally, other cases refer to regulated
monopoly as public  policy  rather than a  contractual  relationship.  See Ariz.
Corp.  Comm'n v. Super.  Ct., 105 Ariz.  56, 59, 459 P.2d 489 (1969)  (regulated
monopoly held to be public policy of Arizona); Winslow Gas Co. v. Southern Union
Gas Co., 76 Ariz.  373,  385,  265 P.2d 442, 443  (1954)(referring  to Arizona=s
public policy of controlled  monopoly);  James P. Paul Water Co. v. Ariz.  Corp.
Comm'n, 137 Ariz 426, 429, 671 P.2d 404, 407 (1983)("It is well established that
Arizona's public policy respecting  public service  corporations . . . is one of
regulated monopoly over freewheeling competition.").
         In  addition,  Staff  points out that it is well  established  that any
alleged  contract is subject to  modifications  in the law.  The parties seem to
find the source of the regulatory  compact in both the Arizona  Constitution and
the statutes concerning public service  corporations.  The Constitution  clearly
provides for changes in the law  concerning  public  service  corporations;  see
Ariz. Const  Art. XV, section 3. Further, any statutes concerning public service
corporations  may be changed at any time as well. If indeed the Constitution and
the  statutes  have  created a contract  such as the  parties  claim,  then this
possibility for changes in the law must also be a part of that contract.
         Analysis:  We are not convinced that the regulatory policy of the state
has formed any 
<PAGE>
sort of  contract  with the  Affected  Utilities.  It  appears  that the  former
"policy" of regulated  monopoly was just that- a policy,  made with no intent to
bind  the  state  or the  Commission.  Finally,  we  recognize,  as  should  the
utilities,  that such  regulatory  policies are always  subject to change as the
economics and technologies of the time also change.
         Resolution:  There is no  reason  to delay  the  promulgation  of these
Rules.
         Issue:   The Rules Violate the Administrative Procedures Act.
         The  next  argument  made by the  parties  is that  the  Commission  in
adopting   the  Proposed   Rules  in  this  manner  is  violating   the  Arizona
Administrative  Procedures Act ("APA"), A.R.S. section 41-1001 et seq. There are
two  prongs to this  argument,  one being  that the rules  will  clearly  not be
certified by the Attorney General's office, and the other being that because the
Economic Impact  Statement  ("EIS")  accompanying the Proposed Rules are somehow
inadequate,  interested persons are not given an adequate opportunity for notice
and comment as required in the APA. Both prongs are without merit.
         Staff  believes  that the rules are not  subject  to  Attorney  General
certification,  as they are quite plainly a  manifestation  of the  Commission's
ratemaking  authority.  Clearly, the adoption of the Proposed Rules will have an
impact on rates, something even all the commentators seem to recognize.  Such an
impact on rates has been recognized as grounds for the Commission's authority to
exercise its plenary  ratemaking  authority through the adoption of rules. Ariz.
Corp.  Comm'n v. State ex rel.  Woods,  171 Ariz.  286,  295,  830 P.2d 807, 816
(1992).  Where  rules,  such  as  these,  are an  exercise  of  that  ratemaking
authority, the Attorney General does not have the authority to review and reject
them. State ex rel. Corbin v. Ariz. Corp.  Comm'n,  174 Ariz. 216, 219, 848 P.2d
301 (Ct.App. 1992).
         Further, Staff notes that the Commission is expressly exempted pursuant
to A.R.S. section 41-1057 from the requirement of submitting an EIS as set forth
in section 41-1055.  Under section 41-1057, the Commission is merely required to
adopt substantially  similar review procedures for its rules. This is what Staff
has done in this case in preparing  the EIS  forwarded to the Secretary of State
as part of the  rulemaking  package.  Staff thus believes its EIS thus meets the
requirements of the APA.
         Analysis:  We have previously litigated the issue of whether Commission
rules  
<PAGE>
involving  ratemaking  are subject to review and  certification  by the Attorney
general=s  office.  The Courts  have been clear in  deciding  that they are not.
Further,  we are  satisfied  that the EIS prepared by Staff meets the  statutory
requirements set forth in A.R.S. section 41-1057.
         Resolution:  There is no  reason  to delay  the  promulgation  of these
Rules.
         Issue:   The Adoption of These Rules Modifies Existing CC&Ns.
         Another  argument  raised by various parties in this proceeding is that
the Commission has no authority to enact the Rules because the  legislature  has
not afforded the  Commission  the  authority  to issue  competitive  CC&Ns as is
contemplated  by the Rules.  According to this  argument,  the Commission has no
authority to promulgate the Rules until the legislature grants to the Commission
the authority to grant competitive CC&Ns.
         Staff  urges  that the  adoption  of these  Rules does not grant to any
potential  competitor  the right to provide  electric  service.  Pursuant to the
Rules,  CC&Ns may be granted to applicants  after going  through an  application
process which includes public notice of the application and an opportunity for a
hearing. See A.A.C. R14-2-1603. No CC&N is granted merely by the adoption of the
Rules,  and any CC&N  granted  under these Rules is expressly  conditional  upon
numerous  factors set forth in the rules.  Therefore no  additional  legislative
authority is required for the Commission to promulgate the Rules.
         Furthermore,  Staff  points out that  courts have  recognized  that the
Commission  does have the  authority to  determine  when  competition  is in the
public  interest and to issue  competitive  CC&Ns.  Arizona v. People's  Freight
Line, 41 Ariz. 158, 166-67, 16 P.2d 420, 423 (1932); Winslow Gas Co. v. Southern
Union Gas Co., 76 Ariz.  383, 385, 265 P.2d 442, 443 (1954).  Thus,  while Staff
welcomes a role for the legislature in clarifying this authority, Staff believes
such authority already exists.
         Analysis:   The  Rules  as  drafted  set  forth  a  framework  for  the
introduction of competition  into the electric  services  market in Arizona.  As
they are merely a framework,  the Rules do not grant,  modify, or delete any new
or existing CC&N. The Rules do set up a process that must be followed before any
such event occurs.  All of the objecting parties are anticipated and expected to
participate in such process.  We are also persuaded by Staff's  argument that we
already have the authority to 
<PAGE>
grant competitive  CC&Ns, when the public interest demands it. However,  that is
an issue  that we expect to  address  again  before  any  competitive  CC&Ns are
issued.
         Resolution:  There is no  reason  to delay  the  promulgation  of these
Rules.
         2.     The Adoption of the Proposed Rules Does Not Violate Due Process.
         Issue:  Several  parties  in  their  comments  have  observed  that the
Proposed  Rules as written  violate due process  because they are  impermissibly
vague.  They argue that the Proposed Rules defer  resolution of too many issues,
such as stranded  cost and the nature of CC&Ns under the rules,  and do not give
the affected parties fair warning as to how these and other aspects of the rules
will be determined by the Commission.
         Staff  acknowledges  that a statute or rule is  impermissibly  vague in
violation  of  due  process  if a)  it  fails  to  give  a  person  of  ordinary
intelligence  a reasonable  opportunity to know what the law is in order to plan
accordingly,  or b) it allows arbitrary or discriminatory enforcement by failing
to provide an  objective  standard.  Bird v. State,  184 Ariz.  198, 908 P.2d 12
(Ct.App. 1995). However, Staff believes the Rules as written do not violate this
standard. First, in regard to stranded cost recovery, the Rules set up a process
for utilities claiming to have incurred stranded costs to seek recovery of those
costs.  The Rules set forth  several  factors for the  Commission to consider in
determining  a utility's  stranded  cost,  and allow the  requesting  utility to
recover the appropriate  amount.  The Rules thus give the utility an opportunity
to know  what  the law is so it can plan  ahead,  and  sets  forth an  objective
standard which the Commission must follow in doing so. As for CC&Ns,  once again
it is clear to a person of ordinary  intelligence  that under the Rules, all new
CC&Ns  will be  competitive  CC&Ns,  and that  under the rules  there is a clear
standard for granting such CC&Ns.
         Analysis:  The  Rules as  written  give  the  parties  a great  deal of
guidance  in  terms  of what is  expected  in the new  competitive  environment.
Precise specificity is of course impossible;  neither we nor anyone else has the
prescience to know exactly what will happen in the future. However, the Rules do
set   adequate   standards   and   processes   for  dealing  with  these  future
uncertainties.  We thus do not agree that the Rules are  impermissibly  vague in
violation of due process.
         Resolution:  There is no  reason  to delay  the  promulgation  of these
Rules.
         3.       The Proposed Rules Do Not Violate Equal Protection.
<PAGE>
         Issue:  Some parties  argue that the rules as proposed do not allow for
equal  treatment  of all  members of a  recognized  class,  that class being all
entities  that provide  electric  services.  The claim is made that the Proposed
Rules treat incumbent monopoly public service corporations differently than they
treat  such  potential   competitors  as  the  Salt  River  Project,   municipal
corporations,  tribal authorities and non-utility generators. According to these
comments,  these other entities are not subject to any of the obligations of the
Proposed  Rules,  but are still allowed to reap the benefits of the rules.  Such
unequal treatment, it is claimed, violates equal protection.
         Staff notes that there are serious  differences  between the  incumbent
monopoly providers and other potential  entrants.  Equal protection is satisfied
if all persons in a class are treated alike. Baseball Liquors v. Circle K Corp.,
129 Ariz.  215, 630 P.2d 38 (Ct.App.  1981),  cert den. 454 U.S.  969, 102 S.Ct.
515.  Legislation  which applies to members of a class, but not to nonmembers of
that class,  will be upheld under equal protection if the  classification is not
arbitrary and there is a substantial  difference  between those within the class
and those without.  Farmer v. Killingsworth,  102 Ariz. 44, 424 P.2d 172 (1967).
In this instance,  there is one clear difference  between the incumbent monopoly
providers, and all others: the incumbents' monopoly status. To treat all parties
identically  under the rules would fail to recognize the incumbents'  ability to
use their current  monopoly  status to inhibit the  competition  these rules are
designed to encourage.  These Proposed Rules recognize that electric competition
is not a race that begins with all  entrants  beginning  at the  starting  gate;
rather,  the incumbents have a significant  head start and a full head of steam.
The Proposed Rules treat the incumbents  differently because they ARE different.
This does not violate equal protection.
         Analysis: As pointed out by Staff, there are clear reasons why Affected
Utilities are treated differently than other entities under these Rules. Indeed,
it would  make no sense to make  their  treatment  identical,  because  of their
differing  circumstances.  The Rules  identify those  differences  and treat the
classes fairly based on those differences.
         Resolution:  There is no  reason  to delay  the  promulgation  of these
Rules.
         4.   Passage   of  the   Proposed   Rules   Does  Not   Constitute   an
Unconstitutional Taking.
         Issue:  Another  argument  put  forth by  several  parties  is that the
property rights of regulated
<PAGE>
utilities enjoy constitutional protection, and therefore the Rules constitute an
unconstitutional  taking of this property. The primary focus of these comments s
that because under the Rules the Commission possibly may not allow recovery of a
utility's entire stranded cost claim,  this  constitutes a regulatory  taking of
the utility's property without compensation.  Another argument is that the rules
confiscate the exclusive rights inherent in existing CC&Ns without compensation
         Staff  believes  such claims are  premature at this time.  The Rules as
written  do not take  anything;  they do not deny any  utility  recovery  of any
stranded cost, nor do they grant any new CC&N.  What the rules do is set forth a
framework  wherein a regulated  entity  claiming to have stranded costs may come
before the Commission and seek recovery of those costs. The rules also establish
a process wherein  potential new entrants may apply for and receive a CC&N. Mere
adoption of the Rules will not result in any property being taken.
         Furthermore,   Staff   argues   that  in  order  for  a  taking  to  be
unconstitutional,  it must be done without compensation. The law is well-settled
that  takings   claims  are  not  ripe  until  the  plaintiff  has  been  denied
compensation.  Pub.  Serv.  Comm'n of New  Mexico v.  City of  Albuquerque,  755
F.Supp. 1494, 1498 (D.N.M.  1991). If a state provides an adequate procedure for
seeking just compensation,  the property owner cannot claim a violation until it
has used the  procedure  and  been  denied  just  compensation.  Williamson  Co.
Regional  Planning  Comm'n v. Hamilton Bank, 473 U.S. 172, 195, 105 S.Ct.  3108,
3121 (1985).
         Any property  that a utility  believes has been taken once  competition
has been  implemented  under the Rules is essentially a stranded cost. The Rules
allow for stranded cost recovery,  and set forth a process wherein utilities can
seek recovery of these costs.
         Analysis:  Mere  adoption of these Rules does not  constitute a taking.
Thus claims by parties that the Rules  constitute an unlawful taking are clearly
premature.  Losses in value of utility assets as a result of  competition  would
appear to be stranded  costs;  as the Rules set forth a process to allow for the
recovery of stranded  costs,  it seems clear that the Rules do not constitute an
unconstitutional taking of any utility property.
         Resolution:  There is no  reason  to delay  the  promulgation  of these
Rules.
         B.       A.A.C. R14-2-1601:  Definitions
<PAGE>
         Issue:  Trico proposes that cooperatives be deleted from the definition
of affected utilities (R14-2-1601(1)).
         Staff  disagrees.  The  consumers  located in the service  areas of the
cooperatives should be able to benefit from competition.
         Analysis:  The Commission  agrees that all customers  should be able to
benefit  from  competition,  including  those  located in the  service  areas of
cooperatives.
         Resolution:       No amendment to R14-2-1601(1) is necessary.
         Issue:  APS wants to  delete  the word  "net"  and to  delete  the term
"value" and substitute  "recorded costs of the assets and obligations"  from the
definition of stranded costs in R14-2-1601(8).  Further, APS wants to substitute
"used and useful" for "necessary," pertaining to furnishing electricity.  APS is
also concerned that stranded costs refers only to assets and obligations created
prior to the adoption of the article.
         TEP is concerned  that the proposed  definition  of stranded cost would
result in  reconsideration  of the prudence of past  investment  decisions.  TEP
states that it is unclear what specific  assets and  obligations are included in
stranded cost and whether the  definition is limited to balance sheet  accounts.
TEP  states  that  stranded  cost is not  limited to  generation  assets and may
include regulatory assets and operating expenses.
         In  response  to  Arizona  Public  Service  Company's  concerns,  Staff
believes  that the word "net" is  essential  -- it  reflects  the fact that some
assets will have  market  values  greater  than  regulated  values and that some
assets  will have  market  values  less than  regulated  value.  Further,  Staff
believes the rule should be general so as to permit  stranded cost  calculations
reflecting the individual circumstances of a given utility.
         Staff expects that,  in general,  reconsideration  such as concerns TEP
would not be undertaken,  but cannot rule out reconsideration of the prudence of
past  investments  in  every  circumstance.  Further,  Staff  believes  that the
definition is clear on these points:  the  calculation of stranded cost will not
consider only generation  assets,  and can include  purchased  power  contracts,
regulatory assets, fuel contracts, etc.
         Evaluation:  The Commission  should not just allow a utility to recover
stranded  costs  only  
<PAGE>
for those  assets  whose  value has  decreased  without  offsetting  that  gross
stranded  cost  with  increases  in the  value  of  other  assets.  Substituting
"recorded  costs of the assets and  obligations"  for "value" is not  necessary.
APS' point can be dealt with in the stranded  cost working group to obtain input
from other parties; this may be an issue on which consensus can be reached.
         Resolution:       No amendment to R14-2-1601(8) is necessary.
         C.       R14-2-1604:       Competitive Phases
         Issue: Several cooperatives (Arizona Electric Power Cooperative, Duncan
Valley Electric Cooperative, Inc., Graham County Electric Cooperative, Inc., and
Sulphur   Springs   Valley   Electric   Cooperative),   would   substitute   for
R14-2-1604(H), which allows for modifications of the implementation schedule for
cooperatives,  a requirement that the cooperatives  file a report describing the
status of the efforts to address and resolve tax exemption and  contractual  and
federal  financing issues.  Phelps Dodge Morenci,  Inc. (Phelps Dodge) disagrees
with the contention that cooperatives should be exempted from competition. To do
so, Phelps Dodge says,  would mean that rural  customers  will be prevented from
receiving the lowest possible price of electricity.
         Staff  disagrees with the  cooperatives,  and agrees with Phelps Dodge,
because this proposal will exclude  consumers  served by  cooperatives  from the
benefits of competition and dilute  incentives for the cooperatives to introduce
competition.
         The  cooperatives  propose that a new definition be added for available
transmission  capability ("the meaning accorded it by Federal Energy  Regulatory
Commission  Order  888 ...).  The  phrase  "subject  to  Available  Transmission
Capability" would then be added to the beginning of R14-2-1604(A), (B), and (D).
FERC Order 888  requires  transmission  providers  to describe  their method for
determining  available  transmission   capability  posted  on  the  transmission
provider's  OASIS (Open Access Same time  Information  Systems).  If  sufficient
transmission  capability  may not exist to  accommodate a service  request,  the
transmission  provider will respond by performing a system impact study (Section
15.2 of the pro-forma tariff). System impact studies are described in Section 32
of the pro-forma tariff. If transmission upgrades are needed to supply a service
request,  the  customer  must  reimburse  the  transmission   provider  for  the
facilities study and, if the customer wants the facilities,  he or she will have
to pay for them.  Staff  believes that the  cooperative's  proposal
<PAGE>
incorrectly gives the impression that the transmission provider is not obligated
to conduct system impact studies or facilities  studies as required by the FERC.
Therefore, Staff recommends that the wording of the proposed rule not be changed
as suggested by the cooperatives.
         The cooperatives also propose to add language to R14-2-1604 that states
that "Any consumer which elects to participate in the  competitive  market shall
pay all costs attributable to such election including but not limited to special
metering costs and any costs required to relieve  transmission  or  distribution
constraints."  Staff argues that these costs should be covered by rates  charged
for unbundled services; no change in the rule is needed.

         Analysis:  As with Trico's objection to  R14-2-1601(1),  the Commission
agrees that all customers should be able to benefit from competition,  including
those located in the service areas of cooperatives.  Further,  it appears to the
Commission  that the  cooperatives'  proposed  language  regarding  transmission
service gives the  misleading  impression  that  transmission  providers have no
obligation  regarding  the  stated  studies.   Finally,  the  proposed  language
regarding competitive customers paying special metering costs and other costs is
not necessary.
         Resolution:       No amendment to R14-2-1604  is necessary.
         Issue:   Timing of the introduction to competition.
         TEP proposes  that  unbundling  of  distribution  services be postponed
until 2002 to allow operational issues with generation  competition to be sorted
out first and to allow time to prepare  for  "complete  competitive  product and
service unbundling."
         Nordic  Power of  Southpoint  I,  Limited  Partnership  (Nordic  Power)
"supports market-based rates with customer choice in the most expeditious manner
reasonably  feasible."  Nordic Power  proposes that the phase-in  begin no later
than  January  1,  1998.  Enron  Capital & Trade  Resources  (ECT)  agrees  that
competition should begin in 1998, rather than in 1999.
         Staff  believes  that two  years  offers a  practical,  but  aggressive
schedule,  in which to address all of the  unanswered  questions that need to be
resolved.  Two  years  will  allow  for  evidentiary  hearings,   working  group
deliberations,  and time to review  successful  programs  as well as problems in
other state restructuring efforts.
<PAGE>
         Analysis:  The time line in the Rule as written for the introduction of
competition  in these services is both  reasonable and feasible.  It allows time
for the  Commission,  Staff and other parties to come up to speed on competition
quickly,  yet is not so hasty as to ignore  lessons that can be learned  through
the procedures in the rules and the experiences of other states.
         Resolution:       No amendment to R14-2-1604 is necessary.

         D.  R14-2-1606:  Services  Required  To Be Made  Available  by Affected
Utilities
         Issue:   Obligation to provide service.
         APS wants  clarification  that an Affected Utility has an obligation to
provide service and plan for generation resources during the phase-in period for
those  customers  not  eligible  for  access.  Staff  notes  that  R14-2-1606(A)
indicates that Affected  Utilities have an obligation to provide  standard offer
service until the Commission determines otherwise.
         Analysis:  R14-2-1606(A) is clear on this subject:  an Affected Utility
has an obligation to provide  Standard Offer service until otherwise  ordered by
this Commission.
         Resolution:       No amendment to R14-2-1606 is necessary.
         E. R14-2-1607: Recovery of Stranded Cost of Affected Utilities
         Issue:   R14-2-1607(A)   requires  Affected  Utilities  to  take  every
feasible, cost-effective measure to mitigate Stranded Costs.
         APS wants to replace in  R14-2-1607(A),"every  feasible, cost effective
[mitigation] measure" with "reasonable [mitigation]  measures..." Staff believes
this proposed change may be more workable than the initial wording and would not
object to such a change if it were clear that the  Commission  is serious  about
having  utilities  actively work to offset  stranded  costs  through  mitigation
measures.  APS further proposes deletion of the examples of types of mitigation.
Staff believes that the examples provide additional clarity to the intent.
         TEP states that it is unclear  whether  mitigation  of  stranded  costs
includes only energy  related  activities or is  all-encompassing,  covering any
business  activity the utility and its affiliates may pursue.  TEP believes that
profits from  activities  that are unrelated to the provision of  electricity in
Arizona  and that do not  require  use of  assets  acquired  to  serve  electric
customers  in  Arizona,  and  that are  potentially  strandable,  should  not be
considered as a source of funds to offset stranded cost. 
<PAGE>
Further,  TEP fears that costs of mitigation  activities  could become stranded.
Staff   interprets   the   rule   as   including   all   activities,   including
non-energy-related  activities,  as part of  mitigation.  An Affected  Utility's
losses due to stranded  cost are to be offset by that  company's  gains in other
activities.  Further,  there cannot be any recoverable stranded costs associated
with mitigation since those costs would not be necessary to furnish  electricity
to consumers in the utility's  service  territory  and be incurred  prior to the
adoption of the Article.
         RUCO wants greater emphasis on mitigation of stranded costs.
         Analysis:  This Commission is serious about having  utilities  actively
pursue mitigation measure to offset stranded costs.  Because of that, we believe
it is important to retain the current language  requiring  Affected Utilities to
take "every  feasible,  cost-effective  measure to  mitigate or offset  Stranded
Cost." We further  agree with Staff that the inclusion of examples of mitigation
or offset are helpful to parties in understanding what we are expecting.
         We  interpret  the  rule  in a  manner  similar  to  Staff,  in that it
envisions Affected Utilities  utilizing a wide variety of methods to mitigate or
offset Stranded Cost, including methods unrelated to energy activities.  We also
agree with Staff that there are no recoverable  Stranded Costs  associated  with
mitigation, since those costs cannot be both necessary to furnish electricity to
consumers  in its service  territory,  and be incurred  prior to the adoption of
these Rules.
         So far as RUCO's comments are concerned, we believe the Rule as written
adequately  emphasizes  the  importance  of  mitigation.   Further,  RUCO  never
indicates how this additional emphasis is to be provided.
         Resolution:       No amendment to R14-2-1607(A) is necessary.
         Issue:            Guarantee of recovery of Stranded Costs.
         RUCO wants the rule to indicate  that there is no guarantee of recovery
of stranded costs and that the Commission should make a determination  regarding
the amount of stranded  costs that should be  recoverable  by each utility.  The
rule allows recovery of unmitigated  stranded cost  (R14-2-1607(B))  and for the
determination of the magnitude of stranded cost (R14-2-1607(I)).
         Destec is concerned  that the Commission has determined the efficacy of
stranded cost recovery before considering the issue.
<PAGE>
         Staff expects that the Commission will ultimately consider a wide range
of estimates of the  magnitude of stranded  cost offered by Affected  Utilities,
Staff, RUCO,  consumer groups,  and other intervenors.  The Commission must also
consider  several  factors  regarding  mechanisms  and charges  for  recovery of
stranded  costs  (R14-2-1607(I)).  Staff  believes that no change in the rule is
needed on this matter.
         Analysis:  The Rule does  guarantee  recovery of  unmitigated  Stranded
Cost,  but also  provides a process for  determining  the  magnitude of Stranded
Cost, and recovery mechanisms and charges. Input from various parties as to that
magnitude is provided and encouraged.
         Resolution:       No amendment to the Rule is necessary.
         Issue:  R14-2-1607(I)  lists  various  factors to be  considered by the
Commission in determining the mechanisms for the recovery of Stranded Cost.
         APS wants the rule to indicate that the factors listed in R14-2-1607(I)
pertain only to recovery  mechanisms and not to the  recoverability  of stranded
costs. APS wants to remove R14-2-1607(I)(8)  pertaining to the period over which
stranded cost charges may be recovered.  Further,  APS desires  prompt review of
Stranded Cost recovery proposals.
         TEP states that a specific  time period over which  stranded  costs are
computed  should not be ordered.  The proposed  rule does not specify a standard
time period, but leaves this to be determined on a case by base basis.
         AEPCO and other  cooperatives  propose  deleting some of the factors in
R14-2-1607(I)  because they believe that  stranded  cost recovery is required by
law. Trico also  indicates that some of these should not be considered  because,
in Trico's view, all stranded costs are recoverable.
         Staff  believes  that  changes  proposed  by APS to  R14-2-1607(I)  are
unnecessary. As written,  R14-2-1607(I) states that the list of factors is to be
considered by the Commission in determining  mechanisms and charges for recovery
of stranded cost, but not the magnitude of stranded cost. The Commission  cannot
consider  stranded cost recovery  mechanisms and charges in a vacuum as proposed
by APS. Staff further believes that the Commission will give prompt attention to
requests  for stranded  cost  recovery.  However,  not knowing the nature of the
utilities'  filings or the nature of other parties'  analyses,  no specific time
limit should be imposed now. The inclusion of  R14-2-
<PAGE>
1607(I)(8) is necessary to indicate that a stranded cost recovery  charge is for
a fixed time period to be determined  by the  Commission  after having  reviewed
data  provided by utilities  and other  parties.  Stranded  cost recovery for an
indefinite time period is precluded.
         Staff  disagrees  with the  cooperatives  and  Trico;  the  effects  of
stranded cost recovery on competition and on consumers are important  factors in
stranded cost recovery  mechanisms and should not be ignored by the  Commission.
Staff believes that the Commission must consider all the factors listed so as to
take into account impacts of stranded cost recovery  mechanisms on consumers and
on the market in general.
         Analysis:  We  believe  that the  Rule is  clear in that  R14-2-1607(I)
identifies  factors to be considered in setting the  mechanisms  and charges for
Stranded Cost  recovery,  not for the issue of the  magnitude of Stranded  Cost.
Further, as regards R14-2-1607(I)(8), utilities will be free to propose specific
methods for stranded cost recovery that are compatible with their circumstances.
Further,  the  factors  identified  in the Rule are  necessary  in order for the
Commission to determine the appropriate mechanisms for Stranded Cost recovery.
         Resolution:       No amendment to R14-2-1607(I) is necessary.
         Issue:  R14-2-1607(J)  allows  Stranded  Cost  recovery only from those
customers participating in the competitive market.
         RUCO  indicates  that  stranded  costs  should  be  recovered  from all
customers.  TEP argues that consumers who self generate  should pay for stranded
costs.
         Staff notes that costs are only stranded when competitive market prices
are below  traditionally  regulated rates.  Consumers served in  non-competitive
markets will pay for all prudently  incurred costs in their  regulated rates and
so, in that case,  there is no stranded cost. Thus,  RUCO's proposed  objectives
are  already  incorporated  in the  rule.  As  for  TEP's  recommendation,  self
generation  has been  available  to  consumers  for years and no  stranded  cost
recovery has been imposed on such customers.
         Analysis:  The  Commission  agrees  that  consumers  who  will  not  be
participating  in the  competitive  market  will be paying  for  Stranded  Costs
through  the  regulated  Standard  Offer  rates.  We also agree that there is no
compelling reason to impose Stranded Cost responsibility on self
<PAGE>
generators under these Rules, when none has been imposed in the past.
         Resolution:       No amendment to R14-2-1607(J) is necessary.
         F.       R14-2-1609:       Solar Portfolio Standard
         Issue:  The Solar Portfolio  Standard may not result in increased solar
capacity in Arizona.
         APS suggests that the solar portfolio  standard might not result in any
increased  solar  capacity in Arizona.  Staff agrees that there is a possibility
that no new solar capacity will be built in Arizona,  but notes that the purpose
of the  standard  is to  promote  solar  power  regardless  of the  location  of
generation facilities. Staff believes that economics favor Arizona locations for
new solar  facilities  serving Arizona  consumers.  Because  out-of-state  solar
resources  would  need  to  acquire   transmission   rights  to  transmit  solar
electricity  into Arizona for use by the competitive  customers in the phased-in
competition program, out-of-state resources would probably be more expensive. In
addition,  since Arizona has the most plentiful supply of sunshine  resources in
the nation,  it is unlikely that an Electricity  Service  Provider would want to
build a solar  plant  elsewhere.  The double  credit  provision  for early solar
electricity  generation is designed to encourage the  installation  of the solar
facilities in Arizona.
         Analysis:  While the Rule does not specifically require the building of
solar  resource in Arizona,  we believe that the  prevailing  environmental  and
economic  conditions will result in much of the solar  requirement  being met by
Arizona resources.
         Resolution: No amendment to R14-2-1609 is necessary.
         Issue:  The Rules may not require that solar resources be used to serve
Arizona customers.
         APS  suggests  that the  proposed  rules do not require  that the solar
resources  "even  be  used  to  serve  Arizona   consumers."  Staff  notes  that
R14-2-1609(A) defines the solar portfolio standard as a percentage "of the total
retail energy sold  competitively..."  The obvious  reference is for electricity
sold  competitively  in Arizona to Arizona  consumers  as part of the  phased-in
competition program. However, if there is a need for clarification,  Staff would
not object to the addition of the phrase "to Arizona consumers" after the phrase
"sold competitively."
         Analysis:  These rules pertain to the provision of electric services in
the State of Arizona.
<PAGE>
While Staff's proposed language may be useful, it is not necessary,  in that all
electricity sold competitively under these Rules is sold in Arizona.
         Resolution:       No amendment to R14-2-1609(A) is necessary.
         Issue:   APS' alternative solar proposal.
         APS made an  alternative  proposal in its  September  12, 1996 comments
that it claims would be far less costly,  guarantee  between 25 and 50 MW of new
solar generation, and not serve as a market barrier. The proposal would have the
Commission  levy a fixed  fee on all  kWh  delivered  to  customers  in  Arizona
starting in June 1997. The money would be placed in an interest  bearing account
and,  starting  in 1998,  the money  would be used to "buy down" the  uneconomic
portion of the cost of newly installed solar systems in Arizona. The money would
be disbursed on a competitive-bid basis.
         Staff does not believe  that APS'  proposal  will  accomplish  what APS
claims  it  will.  The  proposal   appears  to  contemplate  the  need  for  the
establishment of a new bureaucracy to collect fees,  determine  winning bidders,
oversee  solar plant  construction  and  start-up.  At a time where  competition
should be  encouraging  the  reduction of  bureaucracies  in the  regulation  of
electric  service and the provision of those services,  this proposal would seem
to offer just the opposite.
         Analysis:  The APS  proposal,  contrary to APS'  assertions,  would not
guarantee that any solar  facilities are built.  It would offer an  opportunity,
certain  incentives,  and  a  favorable  environment  for  solar  projects,  but
certainly no guarantees.  The Staff proposal, in contrast,  offers a good chance
that solar projects will be built because of the potentially  high penalties for
not meeting the standard.  Further, we are not convinced that APS' proposal will
be less  costly.  The costs of buying and  installing  solar should be about the
same.  In fact,  there is a  distinct  possibility,  under the  solar  portfolio
standard,  that utilities or other large electricity suppliers,  by buying solar
equipment in large volume  purchases,  will be able to obtain  significant price
reductions from solar manufacturers anxious for increased market share.
         Resolution:       No amendment to R14-2-1609 is necessary.
         Issue: The Solar Portfolio  Standard is too expensive  compared to wind
power.
         RUCO is concerned about the cost of the solar portfolio standard.  RUCO
states that wind
<PAGE>
power would be cheaper than solar power.
         Staff notes that the purpose of the solar portfolio standard,  however,
is to  promote a specific  type of  renewable  resource  and not  renewables  in
general,  some  of  which  are  already  cost  effective  in  a  wide  range  of
applications.  Further,  Arizona has mostly Class 3 wind regions,  which are not
currently cost effective  resources,  and Arizona wind resources are best in the
winter when their value is less than it would be during peak summer demand.
         Analysis:  The Solar  Portfolio  Standard  as written  serves  properly
serves its intended  purpose of encouraging the development of solar  resources.
Solar  resources  more  accurately  match the  electric  demand needs of Arizona
consumers than do wind resources, improving their cost effectiveness.
         Resolution:       No amendment to R14-2-1609 is necessary.
         Issue: R14-2-1609 should be deleted to make the Rules fuel and resource
neutral.
         The Center for Energy and Economic  Development  (CEED)  believes  that
restructuring  should  be  fuel  and  resource  neutral.  Staff  disagrees  that
restructuring should be resource and fuel neutral. The Commission, over the last
few years has  encouraged  the utilities it regulates to diversify  their energy
portfolios to include renewable energy resources
         Analysis:  Diversification of resource  portfolios benefits Arizona. We
believe it  particularly  appropriate to encourage  solar because of its natural
advantages in the state.
         Resolution:       No amendment to R14-2-1609 is necessary.
         Issue:   The Solar Portfolio Standard is too modest.
         The   Environmental   Group  is  concerned  that  the  solar  portfolio
standard's  percentage rate is too low. The group quotes two National  Renewable
Energy  Laboratory  ("NREL") reports that claim that solar thermal  technologies
produce  electricity  today  at 10.5  cents/kWh  and that  the  current  cost of
photovoltaic  generated  electricity is 21.8  cents/kWh.  This is in contrast to
Staff's  estimates of 30 cents/kWh.  The group  therefore  suggests that section
R14-2-1609(B)(2)  be  modified  to show  that  only  an  increase  in the  solar
portfolio be allowed when the standard is re-evaluated in 2001.
         Staff  disagrees  with the  proposal  to  change  the  solar  portfolio
standard.  There is insufficient  information at this time to set future policy,
and  R14-2-1609(B)  should not be altered  in the  absence 
<PAGE>
of this  information.  Staff agrees that NREL's estimated solar electricity cost
numbers are probably appropriate for large solar installations.  However,  since
the early solar portfolio  projects will be modest in size,  Staff feels that it
is important to be  conservative  in estimates.  This has resulted in the modest
and conservative 1/2 of 1 percent initial solar portfolio standard. Staff agrees
with the  Environmental  Group and NREL that solar costs in the  1999-2003  time
frame will be  significantly  lower than current  costs.  If this cost reduction
occurs as  projected,  there will be a natural  tendency to  increase  the solar
standard in 2001. If not, it may be appropriate to freeze the standard at 1/2 of
1 percent for a few years.
         Analysis:  While the Environmental  Group may be right in regard to the
information  it has  provided  from  NREL,  we believe  it is too  premature  to
increase the standard beyond the levels set forth in the Rule.
         Resolution:       No amendment to R14-2-1609(B) is necessary.
         Issue:  Several  commentators at the Public Comment session  encouraged
the  Commission  to expand the Solar  Portfolio  Standard to include solar water
heaters and other solar demand reduction  technologies.  It was argued that many
of these  technologies  are cost  effective  and reliable  methods to reduce the
demand for electricity from the grid.
         Analysis:  While the suggestions of these  commentators has some merit,
we do not believe it appropriate to modify the Solar Portfolio  Standard at this
time.  As noted  earlier,  the  purpose of the Solar  Portfolio  Standard  is to
promote a specific type of renewable resource.
         Resolution:       No amendment to R14-2-1609 is necessary.
         G.       R14-2-1611:       In-State Reciprocity
         Issue:    R14-2-1611   precludes   Salt   River   Project   and   other
quasi-governmental   entities  and  municipalities  from  participating  in  the
competitive marketplace.
         SRP states that the Rules do not give all Arizona  customers  the right
to choose their Electric  Service  Provider.  SRP further states that the Rules=
proposed  regulation of political  subdivisions  and municipal  corporations  is
unconstitutional.  SRP expressed concern about having to obtain consent from the
Affected Utilities.  A concern is that some utilities will bar SRP's entrance by
refusing to agree to allow SRP to  participate.  Consequently,  SRP proposed the
use of  
<PAGE>
intergovernmental  agreements to allow it to participate  in  competition  under
this Article.
         The Irrigation and Electrical Districts'  Association of Arizona (IEDA)
suggests  current  wording in the Rules may  embroil  jurisdictional  fights and
proposed   rewording   R14-2-1611   subsection  D.  The  rewording  would  allow
non-jurisdictional  utilities to  voluntarily  file unbundled and standard offer
service  tariffs and to  voluntarily  open its service  territory  to  competing
sellers.  These filings would serve as authorization  for such service providers
to  utilize  the  Commission's  rules  concerning  complaints  related  to their
participation in the competitive market.
         Staff  believes that the rules as proposed do not make  provisions  for
competition  in the  service  territories  of  utilities  not  regulated  by the
Commission. The rules do provide a framework for implementing competition in the
service  territories of utilities  regulated by the Commission and several means
by which nonjurisdictional  utilities may participate.  Staff further notes that
the Rules do not propose  regulation  of  nonjurisdictional  utilities  in their
service  territories.  They  apply to  affected  utilities  and  energy  service
providers  authorized to do business in currently  regulated  service areas. The
rules also explicitly state that SRP would not be considered an Affected Utility
unless existing law changes (R14-2-1601(1)).
         Nordic  Power  is  concerned  that  the   intergovernmental   agreement
recommended by SRP may allow major utilities to carve out service territories if
customers and competitive power service providers are left out of the process.
         Staff believes SRP's proposed use of  intergovernmental  agreements has
merit   and  may  be  a  means   of   establishing   adequate   enforcement   of
nondiscriminatory  rates.  The concerns of other  utilities  over level  playing
field issues must be  considered in any  resolution  of SRP's  status.  Further,
there must be an objective party who can resolve  disputes over whether electric
service  providers  have fair,  nondiscriminatory  access to SRP's  distribution
system.  If the Commission does not have this  authority,  some other party must
take on this  responsibility;  other electric service providers may also want to
be involved in the creation of this independent party.
         Staff  agrees  with  Nordic  Power that other  parties  should have the
opportunity to provide input into intergovernmental  agreements and expects that
if such an agreement is being entertained, the Commission will seek that input.
<PAGE>
         Analysis:  SRP's status as the second largest electric  provider in the
state, coupled with its status as a political  subdivision of Arizona, has vexed
the  Commission  in the  formation  of Rules  designed to allow  competition  to
benefit all electric  consumers in the state.  SRP's and IEDA's  proposals  have
merit.
         Resolution: R14-2-1611 should be amended as follows:

         Initially,  based on SRP's  arguments and the analysis set forth above,
it is clear that R14-2-1611(C) is simply unnecessary.  Therefore,  R14-2-1611(C)
as  previously  proposed  is  deleted.  The  remaining   subsections  have  been
relettered to conform.
         Therefore. R14-2-1611D has been relettered as (C) and amended to read:
         C.       An Arizona electric  utility,  not subject to the jurisdiction
                  of the  Commission,  may submit a statement to the  Commission
                  that it voluntarily  opens its service territory for competing
                  sellers in a manner similar to the provisions of this Article.
                  Such statement shall be accompanied by the electric  utility's
                  nondiscriminatory   Standard  Offer  tariff,  electric  supply
                  tariffs,  Unbundled  Services  rates,  Stranded  Cost charges,
                  System Benefits charges, Distribution Services charges and any
                  other  applicable   tariffs  and  policies  for  services  the
                  electric  utility  offers,  for which  these  Rules  otherwise
                  require  compliance by Affected  Utilities or Electric Service
                  Providers.  Such filings shall serve as authorization for such
                  electric utility to utilize the Commission's Rules of Practice
                  and  Procedure  and  other  applicable  Rules  concerning  any
                  complaint  that  an  Affected   Utility  or  Electric  Service
                  Provider is  violating  any  provision  of this  Article or is
                  otherwise  discriminating  against the filing electric utility
                  or  failing to provide  just and  reasonable  rates in tariffs
                  filed under this Article.
         R14-2-1611D has been added to read:
         E.       If an electric utility is an Arizona political  subdivision or
                  municipal corporation,  then the existing service territory of
                  such electric  utility shall be deemed open to  competition if
                  the political  subdivision or municipality has entered into an
                  intergovernmental   agreement   with   the   Commission   that
                  establishes   nondiscriminatory   terms  and   conditions  for
                  Distribution Services and other Unbundled Services, provides a
                  procedure for complaints arising  therefrom,  and provides for
                  reciprocity  with Affected  Utilities.  The  Commission  shall
                  conduct  a  hearing  to  consider  any such  intergovernmental
                  agreement.
         In addition,  several other  conforming  changes are necessary.  First,
because the adopted changes to the rules make it redundant, the last sentence of
R14-2-1601.1  should be deleted.  The deleted sentence stated that "In the event
that  modifications are made to existing law that would allow the application of
this  Article  to the Salt  River  Project  Agricultural  Improvement  and Power
District  ("SRP"),  then Affected  Utilities  shall also include SRP." Also, the
second sentence of R14-2-1603(B)  should be amended to read: "Such  Certificates
shall be restricted to geographical areas served by the Affected Utilities as of
the date this Article is adopted and to service areas added under the provisions
of R14-2-1611."
<PAGE>
                                   APPENDIX C
                                   ----------

                            ECONOMIC IMPACT STATEMENT
                   PROPOSED RULE --RETAIL ELECTRIC COMPETITION
                               R14-2-1601 et seq.

A.       Summary of economic, small business and consumer impacts.
         1.       Identification of the proposed rulemaking.
         The proposed  rule (Article 16) provides  procedures  and schedules for
introducing competition into the provision of electric service.
         2. Brief summary of the economic,  small  business and consumer  impact
statement.
         Increased  competition in the electric  industry is expected to produce
several benefits:
                  (1) Consumer choice among energy suppliers.
                  (2) Greater  customization of energy services,  especially for
                  larger consumers,  regarding time of use rates,  interruptible
                  service,   contract  duration,   pricing  arrangements,   risk
                  management, and so on.
                  (3) Greater innovation in technology and greater  applications
                  of  technological   innovations,   especially  in  distributed
                  generation,  as a  result  of  incentives  in the  competitive
                  marketplace.
                  (4)  Greater  application  of energy  efficiency  measures  as
                  energy service  companies  offer packages of electric  energy,
                  demand side management  measures,  and possibly other services
                  such as building maintenance services.
                  (5) Lower prices for electricity due to competitive  pressures
                  and   to   technological,    marketing,   and   organizational
                  innovations  that would not occur as rapidly,  if at all, in a
                  regulated monopoly environment.
         The costs of  participating in a competitive  market generally  involve
risk management and information.  Examples of possible costs include:  the costs
of searching out and  evaluating  alternatives;  additional  record  keeping and
billing  costs   associated  with  deliveries  of  electricity  from 
<PAGE>
suppliers;  additional costs of executing,  monitoring, and enforcing contracts;
and  additional  costs  of  maintaining   power  quality  and  transmission  and
generation system reliability.
         A  competitive  market in  electricity  will benefit  small  businesses
because  it  increases  their  choices  and tends to lower  prices  of  electric
service.  However,  small  businesses must be informed about their choices.  The
rule indicates that the Commission may undertake educational activities to lower
the costs of participating in the competitive market.
         Probable  costs to the  Commission  include costs  associated  with new
tasks,   such  as  reviewing   applications  for  competitive   Certificates  of
Convenience  and Necessity,  and engaging in  evidentiary  hearings for stranded
investment and unbundled tariff filings.  However,  Commission  review of tariff
filings  should be reduced  eventually and costly rate cases will be avoided for
competitive services.
         Employment  opportunities  could  be  enhanced  as new  energy  related
companies move into the area or as a result of new business start-ups.  However,
employees at public  utilities could lose their  positions  through cost cutting
measures as the utilities strive to become more cost competitive.
         Implementation of the proposed rule should result in no increased costs
to political subdivisions. As an end user of competitive electricity services, a
political  subdivision  may benefit from greater  choices of service options and
affordable rates.  Those political  subdivisions  which have their own municipal
electric utilities may feel pressure to allow competitive electric service.
         The   restructuring   policy  proposed  is  preferred  to  alternatives
considered  because it: minimizes  administrative  complexity;  requires minimal
information and planning needs a priori;  is relatively  flexible so that policy
could be adjusted in mid-course;  uses existing institutions;  minimizes utility
organizational disruption; allows buyers and sellers to enter the market freely;
limits market power of incumbent utilities; and minimizes public confusion.
         3. The name and address of agency  employees to contact  regarding this
statement.   
         Gary Yaquinto or Bradford Borman at the Arizona Corporation Commission,
1200 West Washington Street, Phoenix, Arizona 85007.
<PAGE>
B.       Economic, small business and consumer impact statement.
         1. Identification of the proposed rulemaking.
         The proposed  rule (Article 16) provides  procedures  and schedules for
introducing competition into the provision of electric service.
         2.  Persons  who will be  directly  affected  by, bear the costs of, or
directly benefit from the proposed rulemaking.

         a.       The  public  at  large  who  are   consumers  of   electricity
                  throughout the State of Arizona.
         b.       Furnishers of  electricity  (serving  Arizona and  elsewhere),
                  including    Investor   Owned   Utilities,    consumer   owned
                  utilities/power authorities,  self generators, and Independent
                  Power Producers.
         c.       Power aggregators/marketers.
         d.       Industry organizations (e.g., Regional Transmission Groups).
         e.       Transmission utilities.
         f.       Employees of furnishers of electricity.
         g.       Suppliers to furnishers of electricity.
         h.       Investors in Investor Owned  Utilities and  Independent  Power
                  Producers and holders of bonds of consumer owned utilities and
                  cooperatives.
         i.       Financial Organizations.
         j.       Government   agencies   such   as  the   Arizona   Corporation
                  Commission,  siting  authorities,  Federal agencies (including
                  the  Federal  Energy  Regulatory  Commission),   and  consumer
                  advocates   such   as  the   Residential   Utility   Consumers
                  Organization.
         3.       Cost-benefit analysis.
         a.       Probable  costs and  benefits to the  implementing  agency and
                  other agencies  directly  affected by the  implementation  and
                  enforcement of the proposed rulemaking.
         Probable  costs to the  Commission  include costs  associated  with new
tasks,   such  as  reviewing   applications  for  competitive   Certificates  of
Convenience  and Necessity,  and engaging in  evidentiary  hearings for stranded
costs, standard offer service, and unbundled tariff filings.
<PAGE>
         The  proposed  rule allows  competitive  power and energy  suppliers to
change rates by applying for streamlined rate treatment. Filing requirements for
rate increases may be reduced.  Thus, Commission review of tariff filings should
be reduced  eventually  and costly  rate cases will be avoided  for  competitive
services.
         b. Probable costs and benefits to a political subdivision of this state
directly  affected  by  the  implementation  and  enforcement  of  the  proposed
rulemaking.
         Implementation  of the  proposed  rules  should  result in no increased
costs to political  subdivisions  relative to cost  changes  that may  otherwise
occur.  As  an  end  user  of  competitive  electricity  services,  a  political
subdivision  may benefit from greater  choices of service options and affordable
rates.  Those  political  subdivisions  which have their own municipal  electric
utilities may feel pressure to allow competitive electric service.
         c.       Probable costs and benefits to businesses directly affected by
                  the proposed  rulemaking,  including any anticipated effect on
                  the  revenues  or payroll  expenditure  of  employers  who are
                  subject to the proposed rulemaking.
         Greater  efficiency  under  competition  should  arise  from lower cost
electricity generation, efficient operation and maintenance,  development of low
cost new  resources,  and greater  stimuli to innovation in electric  generation
technology.  These benefits are  achievable  while  limiting  adverse  financial
impacts of  competition on incumbent  utilities;  maintaining  transmission  and
generation  system  reliability;  countering  the  market  power  of  vertically
integrated utilities; and promoting solar resources.
         Possible  costs  include:  additional  record keeping and billing costs
associated with deliveries of electricity;  transmission  access costs; costs of
interconnection  arrangements  such as  disconnection  switches  to ensure  that
interruptible   consumers  are  properly   interrupted;   additional   costs  of
maintaining  power quality and transmission and generation  system  reliability;
additional costs of scheduling  power deliveries to meet contract  requirements;
additional costs of executing, monitoring, and enforcing contracts; and costs of
complying with legal requirements.
<PAGE>
         4.       Probable impacts on private and public employment in business,
                  agencies and  political  subdivisions  of this state  directly
                  affected by the proposed rulemaking.
         Employment  opportunities  could  be  enhanced  as new  energy  related
companies move into the area or as a result of new business start-ups.  However,
employees at public  utilities could lose their  positions  through cost cutting
measures as the utilities strive to become more cost competitive.
         5.       Probable impact of the proposed rulemaking on small business.
         a.       Identification of the small businesses subject to the proposed
                  rulemaking.  Businesses subject to the proposed rulemaking are
                  furnishers of  electricity  (serving  Arizona and  elsewhere),
                  including    Investor   Owned   Utilities,    consumer   owned
                  utilities/power  authorities,  self  generators,   Independent
                  Power  Producers,  and  power  aggregators/marketers.  Some of
                  these  businesses are small, but some are also large regional,
                  national, or international firms.
         b.       Administrative  and other costs required for  compliance  with
                  the proposed rulemaking.
         Administrative  costs  to  providers  of  competitive  retail  electric
service would include costs  associated with filing requests with the Commission
for approval of Competitive  Certificates of Convenience  and Necessity;  filing
unbundled  tariffs  for  approval;  filing  semi-annual  reports  to inform  the
Commission  about the progress of  competition  during the  phase-in  period and
annual reports when competition is fully established;  and requests for stranded
cost recovery. Sellers may be required to provide notification and informational
materials to consumers about competition and their choices.
         c.       A description of the methods that the agency may use to reduce
                  the impact on small businesses.
         A  competitive  market in  electricity  will benefit  small  businesses
because  it  increases  their  choices  and tends to lower  prices  of  electric
service.  However,  small  businesses must be informed about their choices.  The
rule indicates that the Commission may undertake educational activities to lower
the costs of participating in the competitive market.
<PAGE>
         A possible  alternative to reduce the impact on small  businesses is to
reduce the frequency of filings  during the phase-in  period.  As a consequence,
however, the Commission may not become aware of implementation  problems quickly
enough to offer timely solutions.
         Another  alternative would be to allow competitive service providers to
engage  in  market  competition  by  simply  registering  the  company  with the
Commission  rather  than  requiring  the company to apply for a  Certificate  of
Convenience  and  Necessity.  However,  the outcome of this  alternative  may be
undesirable  if an electric  service  provider  does not have the  technical  or
financial capability of providing reliable energy services,  and if the industry
becomes more prone to companies that engage in fraudulent activities.
         A third  alternative is to dispense with tariff filings.  However,  the
Commission could not fulfill its Constitutional  responsibilities  and consumers
would have less information about businesses who supply electric service.
         d.       The probable cost and benefit to private persons and consumers
                  who are directly affected by the proposed rulemaking.
         Costs of participating in the market generally involve  information and
risk  management.  Possible  costs  include:  the  costs  of  searching  out and
evaluating  alternatives;  the cost of  interruptions,  whether  the  power  was
intended to be interruptible  or firm;  costs of backup and maintenance  service
provided by a utility or another party to deal with forced or scheduled  outages
at the supplier's  generation plant or transmission  lines; and additional costs
of  executing,   monitoring,   and  enforcing  contracts.   Also,  consumers  of
competitive  energy  services may be assessed a stranded  investment  charge for
sunk costs incurred by the utility from which they previously received service.
         The proposed rule will benefit Arizona  consumers by creating  consumer
choice among energy  suppliers;  customizing  energy services to consumer needs;
stimulating  innovation  in  technology;   encouraging  energy  efficiency;  and
lowering prices relative to regulated rates. Important public programs,  such as
low income  programs,  will be protected and consumers who do not participate in
competition  will be shielded from adverse  effects  during the early phases via
Commission-approved standard offer service from incumbent utilities.
<PAGE>
         6.       A statement of the probable effect on state revenues.
         The  proposed  rule could reduce state  revenues  received  from public
utilities as rates and, therefore, utility revenues are reduced. However, to the
degree that  consumers  respond to lower prices by  increasing  their demand for
electricity,  the  reduction in utility  revenues  would be offset by additional
revenues from increased electricity demand.
         7.       A description of any less intrusive or less costly alternative
                  methods of achieving the purpose of the proposed rulemaking.
         A Working Group on Retail  Electric  Competition met in 1995 to discuss
restructuring options, including retail wheeling and maintaining the status quo.
The Working Group was comprised of individuals from utilities, alternative power
providers,  consumer groups, and other interested parties. Several restructuring
options were considered:  (1) maintaining the status quo, (2) introducing retail
competition and requiring  divestiture of utility assets, (3) introducing retail
competition  and  requiring  an exclusive  poolco,  and (4)  introducing  retail
competition and allowing bilateral  contracts for power supplies (similar to the
proposed rule).
         The  first  alternative  is  to  maintain  the  status  quo,  utilizing
traditional cost-plus  rate-making,  incentive rate-making (e.g.,  bench-marking
prices,  quality  and  reliability  standards),  and  flexible  pricing.  No new
institutions  would be required and disruptions in utility  operations  would be
minimized.  However,  the  effectiveness  of  incentives  (if any) and  flexible
pricing are unknown.  Also, the circumstances  which once warranted  classifying
utilities as "natural  monopolies"  are no longer  applicable.  The economies of
scale of large central station generation plants are not nearly as large as they
once were. Further,  regulated  monopolies cannot produce prices that are as low
as would occur in a competitive market and regulated monopolies cannot stimulate
technological,  marketing,  and  organizational  innovations as would occur in a
competitive market.
         A  second  alternative  is to  establish  retail  competition  with  an
"exclusive  poolco," which is an independent  system  operator that controls all
power transactions. All generators would sell to the neutral system operator and
all purchasers would buy from the system operator. With an exclusive poolco, all
consumers or their agents would know the market price at each hour. In addition,
power would be  dispatched  in a least cost order,  subject to  restrictions  on
transmission.
<PAGE>
         A major  disadvantage  of an  exclusive  poolco is that it  forces  all
transactions  to be spot market  transactions,  thereby  increasing  the risk to
investors of investing in new power plant  capacity  without long term contracts
to  purchase  the  output  from new  plants.  Further,  with  only  spot  market
transactions,  it becomes  more  difficult  to  customize  contracts to suit the
circumstances of a wide variety of buyers and sellers.
         Another  disadvantage of retail competition with an exclusive poolco is
the unknown  cost to implement  the poolco.  Also bidders in the poolco may game
their bids,  especially if some have an advantage  because of their  location or
large size relative to the market.
         A third option is to introduce retail competition and require utilities
to divest their  generation  and possibly  transmission  facilities.  The market
would become segmented by function and generation companies would be expected to
operate in a competitive environment. A principal reason for divestiture is that
any incentive for  utilities to impede access to their  transmission  systems to
inhibit competition in generation could be eliminated.  In addition,  incentives
for  efficiency  gains  could be  created by  unbundling  services  into  profit
centers.  However, the Commission's regulatory authority to require divesture of
utility  assets may be  questioned  and result in a  protracted  legal  dispute.
Further, utilities, utility shareholders,  and utility debt holders may strongly
resist   divesture.   Divestiture   could  be  costly  due  to  expensive   debt
re-financing.  In  addition,  inefficiencies  could  result  from  the  loss  of
traditional coordination of generation, transmission, and distribution services.
         The  restructuring  policy  proposed is preferred  to the  alternatives
described  above  because  it:  minimizes  administrative  complexity;  requires
minimal  information and planning needs a priori; is relatively flexible so that
policy could be adjusted in mid-course;  uses existing  institutions;  minimizes
utility organizational disruption; allows buyers and sellers to enter the market
freely;  limits  market  power of  incumbent  utilities;  and  minimizes  public
confusion.
         The  proposed  rule  was  synthesized   from  comments   received  from
interested parties on electric industry restructuring and it represents a middle
ground  of  proposals   submitted  by  utilities,   potential   energy   service
competitors, consumer groups, and others. 
C. If for any reason  adequate data are not reasonably  available to comply with
the  requirements of subsection B of this section,  the agency shall explain the
limitations  of the data 
<PAGE>
and the methods  that were  employed in the attempt to obtain the data and shall
characterize the probable impacts in qualitative terms.
         The  Commission  conducted  a series of  workshops  and task  forces to
obtain useful  information to assess the costs and benefits of electric industry
competition. It is not possible to quantify future market prices,  technological
innovations,  organization changes, and the like.  Therefore,  we have described
impacts in qualitative terms.
         Among the information gathering activities were:
         *        An  introductory  workshop  held  on  September  7, 1994.  One
                  hundred  eighteen  representatives  from  utilities,  consumer
                  organizations,  other power suppliers, and others attended the
                  workshop.  The workshop was summarized in a Staff Report dated
                  October 1994.
         *        A series of nine working  group and task force  meetings  held
                  in 1995 which addressed restructuring options,  implementation
                  of  the  options,  and  advantages  and  disadvantages  of the
                  options.  Fifty-one  groups  were  represented  on task forces
                  which focused on systems and markets,  regulatory  issues, and
                  energy  efficiency and  environmental  issues.  Members of the
                  task forces included representatives from utilities,  consumer
                  organizations,  other power suppliers,  and others.  This work
                  was  summarized  in a "Report of the  Working  Group on Retail
                  Electric  Competition,"  dated  October  5,  1995.  The report
                  contains  an  extensive   bibliography  on  electric  industry
                  restructuring.
         *        A request for  comments  on  electric  industry  restructuring
                  issued in February 1996.  Comments were filed by 31 parties on
                  June 28, 1996.  Commenters  included consumer groups,  Arizona
                  utilities,  other suppliers, and other parties. Staff prepared
                  a summary of the comments in July 1996.
         *        A  workshop  held  on August 12,  1996 to  explore  and obtain
                  feedback on a small number of options for  introducing  retail
                  electric competition. One hundred thirty workshop participants
                  included    representatives    from    utilities,     consumer
                  organizations,   other  power  suppliers,  and  others.  Staff
                  summarized the workshop in
<PAGE>
                  a report dated August 19, 1996.
         *        Requests  for  comments  on  a draft rule to  phase-in  retail
                  electric competition. The requests were sent out on August 28,
                  1996 and comments were due  September 12, 1996.  Comments were
                  provided by a total of 30 utilities,  consumer  organizations,
                  other power suppliers, and others.
         *        A workshop to discuss a revised  draft rule  held on September
                  18, 1996. Ninety individuals attended the workshop,  including
                  representatives from utilities, consumer organizations,  other
                  power suppliers, and others.
         In addition,  to better  understand  possible impacts of restructuring,
the Commission Staff reviewed activities in other jurisdictions,  including: New
Hampshire, Massachusetts, Illinois, Rhode Island, Texas, Alberta, and New York.