ACC approves APS rate settlement

PHOENIX, March 29, 2005 (BUSINESS WIRE) — On Monday, the Arizona Corporation Commission (ACC) adopted new rates for Arizona Public Service Company (APS) that will help enhance both reliability for customers and financial integrity for the Company. The decision is based largely upon an agreement between APS and 21 other parties that settled issues involved in the Company’s general rate case filed in June of 2003.

The ACC agreed to immediately increase overall rates to APS customers by 4.21 percent. In addition, the agreement provides for a Power Supply Adjuster (PSA), which captures changes in costs of fuel (primarily natural gas) and purchased power beyond the base level included in the new rates. Adjustment to the PSA, first expected to take effect in April 2006, is capped at four-tenths of a cent per kilowatt-hour, or approximately 5 percent in addition to the increase in base rates. Also, APS is required to file with the ACC for a surcharge if unrecovered costs reach $50 million.

If fuel and purchased power prices were to decline below preset levels, the PSA would be revised downward.

“We commend the Commissioners for resolving issues important to all of Arizona and are pleased they recognized the hard work by all parties involved in reaching this settlement agreement,” said Jack Davis, APS President and Chief Executive Officer. “The order provides a measure of financial stability to the Company while appropriately addressing the concerns of our customers.”

This is the first price increase for APS customers since 1991. Since then, APS had decreased rates about 16 percent. Under this order, an average monthly residential bill will increase $3.13 (from $72.09 to $75.22) in the next billing cycle. If the PSA reaches the four-tenths of a cent cap as expected, bills will increase another $2.95 in April 2006 for a total increase of nearly 9 percent. These increases could be further impacted should the ACC approve additional surcharges.

Other major provisions of the order include:

* The transfer to APS of power plants in Arizona currently owned by Pinnacle West Energy and placed in service between 2001 and 2003. These reliability plants have been serving the needs of APS customers since they began operating. The Company intends to seek the approval of the Federal Energy Regulatory Commission for the transfer.

* A disallowance of $148 million related to these same Pinnacle West Energy generating assets, thus allowing APS customers to further benefit from these plants.

* Requirements for energy efficiency initiatives and a significant increase in APS’ commitment to renewable energy.

* A competitive procurement process to promote wholesale competition and which precludes APS from building or acquiring new power plants before 2015 unless expressly authorized by the ACC or found necessary to maintain reliable service to APS customers.

* Measures to address service improvements to Native American communities in Arizona, particularly in remote areas.

About APS

APS, Arizona’s largest and longest-serving electric utility, serves more than 966,300 customers in 11 of the state’s 15 counties. APS, with headquarters in Phoenix, is the largest subsidiary of Pinnacle West Capital Corporation.

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