Arizona Public Service Notes Rated `BBB+` By Fitch.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 2, 2000

Fitch has rated Arizona Public Service's (APS) $300 million unsecured note issue `BBB+`. The notes are pari passu with APS' other senior unsecured debt, and are scheduled to mature in 2005. The notes are to be issued under APS' $525 million shelf registration, and are expected to refinance other existing debt.

Fitch also rates APS' first mortgage bonds `A-'; its PVNGS Funding Corp. SLOBs and MIDS/Preferred stock `BBB'; and commercial paper `F2.' The Rating Outlook is Stable.

EBITDA/Interest expense is expected to remain at its healthy levels of the upper 6.0x range. The operating profit margin pressures of an environment opening to competition are offset by strong residential and commercial growth in APS' Phoenix-based service territory. The company has successfully executed its strategy of increasing generation, improving thermal performance, lowering production costs and reducing the forced outage rate.

Leverage is expected to weaken modestly due to two factors. First, this year is the first that APS will no longer receive its mandated $50 million equity infusion from PNW. As part of a settlement agreement, APS had received this amount annually for the past four years. Second, funds upstreamed to PNW are expected to increase. While a large, extraordinary dividend to its parent is not planned, APS is expected to dividend most of its future earnings to the parent, well above the 63 percent payout ratio to PNW exhibited in 1999. When adjusted for the Palo Verde sale/leaseback obligation, debt was approximately 57 percent of capital at December 31, 1999.

APS owns 3,987 mw of generation in Arizona and New Mexico. Its fuel mix is approximately 30 percent coal-fired, 22 percent nuclear (from the Palo Verde units), 4 percent gas-fired, and 44 percent was purchased power in 1999.

The nuclear units are well managed. In 1999, the Palo Verde site achieved its record 93 percent average net capacity factor, despite refueling outages at two of the three units. The coal units averaged a 79 percent net capacity factor in 1999.

APS has adequate liquidity, with $250 million in committed bank facilities, of which $50 million is currently available.

APS is a wholly owned subsidiary of Pinnacle West Capital Corporation (PNW). Through an unregulated generation subsidiary, PNW has announced plans to develop more than 2,500 mw of generation in a partnership with Reliant Energy. PNW also plans to acquire 1,300 mw of generation in the Palo Verde and Four Corners units (a share of which APS already owns) from other owners. PNW has consolidated assets exceeding $6.6 billion, and annual revenues of $2.4 billion. In addition to its electricity-related businesses in the southwestern United States, PNW also develops residential, commercial and industrial real estate projects.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Corporates, Structured Finance, Insurance, Sovereigns and Public Finance Markets worldwide.