Pinnacle West Reports Improved Third-Quarter Results

http://www.businesswire.com/news/home/20091029006049/en

* Quarterly on-going earnings improve
* Company remains focused on regulatory settlement for benefit of customers and
other stakeholders

PHOENIX--(Business Wire)--
Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income
attributable to common shareholders of $186.7 million, or $1.84 per diluted
share of common stock, for the quarter ended September 30, 2009. This result
compares with $151.6 million, or $1.50 per diluted share, for the same period in
2008.

The Company`s on-going consolidated earnings in the 2009 third quarter were
$199.1 million, or $1.96 per share, compared with $161.1 million, or $1.59 per
share, in the comparable 2008 quarter. On-going earnings for both quarters
exclude results for the Company`s real estate segment, which is being
restructured through the sale of a substantial majority of its properties. A
reconciliation of our reported earnings to on-going earnings is provided at the
end of this release.

The 2009 third-quarter on-going results were positively impacted by the
following factors:

• Improved mark-to-market valuations of fuel contracts as a result of favorable changes in commodity market prices contributed $0.22 per share to the quarterly earnings comparison.

• Higher revenues resulting from retail rate increases implemented in 2009 improved earnings by $0.17 per share. Of this amount, $0.13 is related to interim retail rates implemented in January. The balance is attributable to a retail transmission rate increase implemented in early August.

• Operations and maintenance expenses were lower by $0.08 per share, primarily due to cost savings and efficiency efforts.

• Warmer weather - which included the hottest month ever recorded in Arizona - improved the Company`s earnings by $0.05 per share. The average temperature for July was 98.4 degrees, which includes the morning lows and afternoon highs. The previous record was 97.6 degrees, set in July 2003. Further, in the 2009 third quarter, there were 2,721 cooling degree-days (a proxy for the effects of weather) - 5.2 percent more than normal and 7.4 percent more than the year-ago quarter.

These positive factors were offset in part by the following items:

• Costs related to various infrastructure additions and upgrades to APS` distribution and transmission facilities, as well as existing fossil and nuclear generating plants,
decreased earnings by $0.14 a share. The cost increases included interest expense, net of capitalized financing costs, of $0.09 per share; property taxes of $0.03 a
share; and depreciation and amortization expenses of $0.02 per share.

• A net decrease in kilowatt-hour sales, excluding the effects of weather, reduced earnings by $0.04 per share. The decrease was primarily related to reduced consumption by
commercial and industrial customers as a result of the current economic slowdown and the Company`s energy efficiency programs. Total retail electricity sales, on a
weather-normalized basis, decreased 1.3 percent in the third quarter of 2009 compared to the 2008 period. Excluding the effects of weather, the average APS business
customer used 2.5 percent less electricity during the period than the same period a year ago, while the average residential customer consumed about 1.4 percent less.

The net decrease in kilowatt-hour sales, however, was offset partially by customer growth in both the residential and business customer sectors. The average number of
residential and business electric customers increased by 0.5 percent and 0.8 percent, respectively, in the 2009 third quarter compared with the year-earlier quarter.

Looking forward, the Company expects customer growth to average about 1 percent
annually through 2011. Additionally, weather-normalized sales are expected to
remain relatively flat through 2011 on a year-over-year comparison, due to the
effects of APS` energy efficiency programs, and cyclical business conditions
related to Arizona`s housing market and the national economy.

"I am pleased with the third-quarter results from an operational perspective,"
said Pinnacle West Chairman Don Brandt. "In these challenging economic times, we
remain keenly focused on controlling costs to help keep customer rates as low as
possible, while providing clean, reliable and cost-effective electricity to
power the State`s energy needs.

"Additionally, we and our customers benefited from strong performance at the
Palo Verde Nuclear Generating Station, which operated at full capacity
throughout the quarter and generated its highest-ever summer production of about
11.5 million megawatt-hours of electricity."

Brandt added that Arizona Public Service Co. (APS) continues to develop programs
that ensure clean energy sources and help customers use electricity more
efficiently. "The ability to carry these programs forward and pay for them
depends on positive outcomes in our proposed retail regulatory settlement," he
said. "If approved as proposed, the settlement will increase our electricity
prices by less than 1 percent over current rates for an average residential
customer, and will provide significant benefits to customers, shareholders and
other stakeholders, alike." The net price increase would reflect an early reset
under the power supply adjustment mechanism, decreasing rates for fuel and
purchased power.

For the third quarter of 2009, APS reported net income of $197.1 million,
compared with net income of $159.8 million for the same period a year ago.

Real Estate Segment

Pinnacle West`s real estate segment reported a net loss of $12.4 million for the
third quarter of 2009, compared with a net loss of $6.0 million in the
prior-year period. The loss was related to additional real estate impairment
charges totaling $22.6 million in the 2009 period, partially offset by the sale
of certain real estate assets. The Company`s real estate subsidiary, SunCor
Development Co., continues to pursue the sale of its remaining assets.

2009 and 2010 On-going Earnings Outlooks Unchanged

The Company continues to estimate its on-going consolidated earnings for 2009
will be within a reasonable range around $2.30 per share, excluding the results
of its real estate segment.

For 2010, the Company continues to estimate its on-going consolidated earnings
will be within a reasonable range around $3.00 per share, excluding the impacts
of its real estate segment.

The Company`s earnings forecasts are subject to numerous risks, including those
described under "Forward-Looking Statements" below and under "Risk Factors" in
Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.

Conference Call and Web Cast

Pinnacle West invites interested parties to listen to the live web cast of
management`s conference call to discuss the Company`s 2009 third-quarter
earnings and recent developments at 12 noon (ET) today, October 29. The web cast
can be accessed at www.pinnaclewest.com/presentations and will be available for
replay on the web site for 30 days. To access the live conference call by
telephone, dial (877) 356-3961 and enter Conference ID 16246283. A replay of the
call also will be available until 11:55 p.m. (ET), Friday, November 6, 2009, by
calling (800) 642-1687 in the U.S. and Canada or (706) 645-9291 internationally
and entering the same Conference ID number as above.

General Information

Pinnacle West is a Phoenix-based company with consolidated assets of about $11.8
billion. Through its subsidiaries, the Company generates, sells and delivers
electricity and sells energy-related products and services to retail and
wholesale customers in the western United States.

Dollar amounts in this news release are after income taxes. Earnings per share
amounts are based on average diluted common shares outstanding. For more
information on Pinnacle West`s operating statistics and earnings, please visit
www.pinnaclewest.com/investors.

PINNACLE WEST CAPITAL CORPORATION
ARIZONA PUBLIC SERVICE COMPANY

NON-GAAP FINANCIAL MEASURE RECONCILIATION
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
(GAAP MEASURE) TO ON-GOING EARNINGS (NON-GAAP FINANCIAL MEASURE)

Three Months Ended Three Months Ended
September 30, 2009 September 30, 2008
$ in Diluted $ in Diluted
Millions EPS Millions EPS
PINNACLE WEST CAPITAL CORPORATION
Net Income attributable to common shareholders $ 186.7 $ 1.84 $ 151.6 $ 1.50
Adjustments:
Real estate segment 12.4 0.12 6.0 0.06
Severance costs -- -- 3.5 0.03
On-going Earnings $ 199.1 $ 1.96 $ 161.1 $ 1.59

ARIZONA PUBLIC SERVICE COMPANY
Net Income $ 197.1 $ 159.8
Adjustment:
Severance costs -- 3.5
On-going Earnings $ 197.1 $ 163.3

NON-GAAP FINANCIAL INFORMATION

In this press release, we refer to "on-going earnings." On-going earnings is a
"non-GAAP financial measure," as defined in accordance with SEC rules. We
believe on-going earnings provide investors with a useful indicator of our
results that is comparable among periods because it excludes the effects of
unusual items that may occur on an irregular basis. Investors should note that
these non-GAAP financial measures involve judgments by management, including
whether an item is classified as an unusual item. We use on-going earnings, or
similar concepts, to measure our performance internally in reports for
management.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements regarding our 2009 and
2010 earnings outlook, and neither Pinnacle West nor APS assumes any obligation
to update these statements, even if our internal estimates change, unless
otherwise required by applicable securities laws. These forward-looking
statements are often identified by words such as "estimate," "predict," "may,"
"believe," "plan," "expect," "require," "intend," "assume" and similar words.
Because actual results may differ materially from expectations, we caution
readers not to place undue reliance on these statements. A number of factors
could cause future results to differ materially from historical results, or from
outcomes currently expected or sought by Pinnacle West or APS. In addition to
the Risk Factors described in Item 1A of the Pinnacle West/APS Annual Report on
Form 10-K for the fiscal year ended December 31, 2008, these factors include,
but are not limited to:

* regulatory and judicial decisions, developments and proceedings, including the
outcome and timing of APS` pending retail rate case;
* our ability to achieve timely and adequate rate recovery of our costs;
* our ability to reduce capital expenditures and other costs while maintaining
reliability and customer service levels;
* variations in demand for electricity, including those due to weather, the
general economy, customer and sales growth (or decline), and the effects of
energy conservation measures;
* power plant performance and outages;
* volatile fuel and purchased power costs;
* fuel and water supply availability;
* new federal legislation or regulation relating to greenhouse gas emissions,
renewable energy mandates and energy efficiency standards;
* our ability to meet renewable energy requirements and recover related costs;
* risks inherent in the operation of nuclear facilities, including spent fuel
disposal uncertainty;
* competition in retail and wholesale power markets;
* the duration and severity of the economic decline in Arizona and current
credit, financial and real estate market conditions;
* the cost of debt and equity capital and the ability to access capital markets
when required;
* restrictions on dividends or other burdensome provisions in our credit
agreements and ACC orders;
* our ability, or the ability of our subsidiaries, to meet debt service
obligations;
* changes to our credit ratings;
* the investment performance of the assets of our nuclear decommissioning trust,
pension, and other postretirement benefit plans and the resulting impact on
future funding requirements;
* liquidity of wholesale power markets and the use of derivative contracts in
our business;
* potential shortfalls in insurance coverage;
* new accounting requirements or new interpretations of existing requirements;
* transmission and distribution system conditions and operating costs;
* the ability to meet the anticipated future need for additional baseload
generation and associated transmission facilities in our region;
* the ability of our counterparties and power plant participants to meet
contractual or other obligations;
* technological developments in the electric industry; and
* economic and other conditions affecting the real estate and credit markets in
SunCor Development Company`s market areas, which include Arizona, Idaho, New
Mexico and Utah.

PINNACLE WEST CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars and shares in thousands, except per share amounts)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2009 2008 2009 2008
Operating Revenues
Regulated electricity segment $ 1,083,750 $ 1,040,348 $ 2,498,838 $ 2,492,627
Real estate segment 48,474 16,152 80,333 62,165
Marketing and trading - 4,663 - 57,623
Other revenues 10,853 8,925 30,084 26,824
Total 1,143,077 1,070,088 2,609,255 2,639,239

Operating Expenses
Regulated electricity segment fuel and purchased power 381,543 419,979 920,630 1,016,918
Real estate segment operations 26,863 26,129 76,893 83,822
Real estate impairment charge 36,993 - 247,509 -
Marketing and trading fuel and purchased power - 1,456 - 44,129
Operations and maintenance 208,769 211,332 642,545 598,055
Depreciation and amortization 102,273 98,556 302,255 291,915
Taxes other than income taxes 34,111 28,423 101,126 94,826
Other expenses 8,014 8,321 22,214 21,081
Total 798,566 794,196 2,313,172 2,150,746

Operating Income 344,511 275,892 296,083 488,493

Other
Allowance for equity funds used during construction 2,197 4,673 11,919 16,211
Other income 4,488 1,786 4,452 9,489
Other expense (1,934 ) (7,102 ) (8,887 ) (22,053 )
Total 4,751 (643 ) 7,484 3,647

Interest Expense
Interest charges 60,244 51,165 174,985 157,371
Capitalized interest (1,423 ) (3,976 ) (8,568 ) (14,593 )
Total 58,821 47,189 166,417 142,778

Income From Continuing Operations Before Income Taxes 290,441 228,060 137,150 349,362

Income Taxes 103,061 76,592 45,307 91,154

Income From Continuing Operations 187,380 151,468 91,843 258,208

Income (Loss) From Discontinued Operations
Net of Income Taxes (1,310 ) 118 (8,298 ) 22,767

Net Income 186,070 151,586 83,545 280,975

Less: Net loss attributable to noncontrolling interests (582 ) - (14,944 ) -

Net Income Attributable To Common Shareholders $ 186,652 $ 151,586 $ 98,489 $ 280,975

Weighted-Average Common Shares Outstanding - Basic 101,223 100,750 101,107 100,642

Weighted-Average Common Shares Outstanding - Diluted 101,385 101,018 101,184 100,911

Earnings Per Weighted-Average Common Share Outstanding
Income from continuing operations attributable to common shareholders - basic $ 1.86 $ 1.50 $ 1.06 $ 2.57
Net Income attributable to common shareholders - basic $ 1.84 $ 1.50 $ 0.97 $ 2.79
Income from continuing operations attributable to common shareholders - diluted $ 1.85 $ 1.50 $ 1.06 $ 2.56
Net Income attributable to common shareholders - diluted $ 1.84 $ 1.50 $ 0.97 $ 2.78

Amounts Attributable To Common Shareholders
Income from continuing operations, net of tax $ 187,962 $ 151,468 $ 106,787 $ 258,208
Discontinued operations, net of tax (1,310 ) 118 (8,298 ) 22,767
Net income attributable to common shareholders $ 186,652 $ 151,586 $ 98,489 $ 280,975

Pinnacle West Capital Corporation
Media Contact:
Alan Bunnell, 602-250-3376
Analyst Contact:
Rebecca Hickman, 602-250-5668
Web site: www.pinnaclewest.com

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