APS Responds to Arizona Corporation Commission Vote On Electric Competition.

Business Editors

PHOENIX--(BUSINESS WIRE)--Aug. 28, 2002

The Arizona Corporation Commission (ACC) today (Tuesday, Aug. 27) reversed its long-standing requirement that Arizona utilities divest their generating assets as part of an overall plan developed by the ACC in 1999 to move the state toward electric competition.

Arizona Public Service (APS) officials expressed disappointment over the decision because it substantially modified the 1999 settlement agreement between the Company, the Commission and various customer groups without sufficient consideration of the economic impact of such action or recognition of plants built since 1999 to serve the needs of APS retail customers. As a result, the Company intends to file within the next 20 days a motion for reconsideration of the decision.

"Unfortunately, the Commission's decision did not recognize that these plants provided value to our customers in enabling the Company to meet the record demand that occurred during the last two summers," said Jack Davis, president of APS.

According to the Company, the ACC eliminated the requirement for regulated utilities to divest their generating assets because of the consensus that retail competition in Arizona will not occur in the foreseeable future.

Although the ACC provided for a future process to consider the financing impact of generating assets built or under construction between 1999 and 2003, today's decision makes recovery of the construction costs of these plants dependent on a future competitive bidding process for new loads that will be defined in a pending second track of the ACC review of electric restructuring in Arizona.

These plants (Redhawk 1 and 2, West Phoenix 4 and 5 and a combustion turbine at Saguaro) were built by Pinnacle West Energy because the earlier rules prohibited APS from building new generation, and they were needed to serve the energy needs of Arizona retail customers and to guarantee reliability of electricity supplies for these customers

"While we understand the complexity of issues facing the ACC, we are hopeful that when all factors are considered, the Commissioners will reassess their decision and consider the negative impact it will have on the treatment of these assets," said Bill Post, the Company's chairman.

APS, Arizona's largest and longest-serving electricity utility, serves more than 874,000 customers in 11 of the state's 15 counties. With headquarters in Phoenix, APS is the largest subsidiary of Pinnacle West Capital Corp. (NYSE:PNW).