APS Files Plan with ACC To Ensure Reliability, Price Stability.

Business Editors/Energy & Utility Writers

PHOENIX--(BUSINESS WIRE)--Oct. 18, 2001

APS today filed a plan with the Arizona Corporation Commission (ACC) that is designed to provide its Arizona customers with reliable electricity supplies and price stability well into the future and to help develop a sustainable competitive wholesale electricity market in the Southwest.

The plan requires Pinnacle West Capital Corporation to meet the electricity needs for APS customers through 2015 from a diversified portfolio of resources that includes dedicated Arizona assets and competitively bid generation.

APS said in the filing that it remains strongly supportive of the current ability of APS customers to choose alternative suppliers of electricity and will continue the commitment made in the 1999 regulatory agreement that guarantees additional price decreases through 2003. That agreement and a previous agreement will provide APS customers with price decreases totaling 16 percent over a 10-year period ending in 2004.

"We believe the continued availability of reliable and reasonably priced service is an important component of customer choice, especially for residential and small commercial customers," company President Jack Davis said.

In addition, APS is asking the commission to modify a rule requiring that APS acquire all electricity needs for its customers in the competitive market, with at least 50 percent of that coming from a competitive bidding process. The market today simply cannot supply that level of generation. The company's plan actually strengthens the wholesale market through a disciplined transition that will utilize the competitive bidding process for a sustainable 25 percent of customer needs.

Taken together, APS believes the provisions of the request will protect customers from instability in the generation markets, shortages and wild swings in electricity prices, and remedy a situation where compliance with the existing rules would create uncertain prices and generation supplies. The plan also takes advantage of the fuel diversity of the company's generating system, which is balanced between natural gas, coal and nuclear resources. This is an important component of reliability as well as price stability.

The company emphasized in the filing that an examination of the volatile wholesale power market has led to the inescapable conclusion that strict adherence to the ACC's Electric Competition Rules will not produce the intended result of reliable retail service at reasonable rates. This plan, the company said, builds on the positive changes made in the transition to competition to date and avoids steps that place at risk energy reliability and price stability.

"The existing rules did not anticipate current reality," said Davis. "Our job is to keep the lights on at a competitive cost, and we have concerns about that happening under present requirements."

Davis added that, under the agreement, Pinnacle West would be obligated to act as the wholesale provider of last resort to APS. In that role, Pinnacle West would be required to supply power to APS, ensuring complete reliability of generation service to APS even during unstable market conditions or in the event of unplanned losses of generating units in Arizona. The plan also protects customers against any potential default of purchased power agreements.

Among the provisions of the proposed long-term purchased power agreement:

-- Pinnacle West assumes contractual responsibility for reliability and will
supplement any potential shortfall even after full utilization of Pinnacle West
Energy's dedicated generating resources.

-- Pinnacle West would supply all APS needs through a competitive bidding
process and through dedicated assets. These include all existing plants as well
as new plants including Redhawk 1 and 2, West Phoenix 4 and 5 and Saguaro 3.

-- The bidding process would begin in 2003 when Pinnacle West will acquire 270
megawatts (MW) through a competitive bidding process. This competitive bid
obligation would increase 270 MW each year through the balance of 2008 and
ultimately total 1,620 MW of APS customer needs - or nearly 25 percent - a
level the market can supply.

According to the request, the power agreement offers APS a flexible package of term, price, price stability, resource diversity and reliability features that are simply unobtainable from today's wholesale market. Reliability also would be strengthened by the diversity of the sources of power, which would include plants dedicated to the needs of APS customers, the competitive bidding process, power supply contracts and market sources.

APS, Arizona's largest and longest-serving electric utility, serves more than 857,000 customers in 11 of the state's 15 counties. With headquarters in Phoenix, APS is the largest subsidiary of Pinnacle West Capital Corporation (NYSE: PNW).