event-details

Remarks of Don Brandt at the Pinnacle West Capital Corporation Annual Meeting

May 20, 2009 Time: 08:00 AM

Thank you for attending our company’s Annual Shareholders Meeting.

I see our audience includes many shareholders and a large number of employees, both retired and current. We appreciate your continued support.

Since our last Annual Meeting, the world’s financial structure and overall stability have changed markedly. Several prominent financial institutions, as well as famed industrial companies, have run aground in the unsettled economic waters. For some of these companies, poor decision-making, over-extension and lack of internal controls caused tremendous loss of shareholder wealth. We read about the consequences on an almost-daily basis.

In light of these sobering events, the owners of this company – our shareholders – and our employees have the right and, perhaps, even the obligation, to ask about the economic health and operating stability of Pinnacle West.

As your new Chairman and CEO, I can tell you that your company is well-positioned to weather the current economic storm and build upon our long, successful legacy in Arizona. We will do so in the following ways:

Pinnacle West Will Continue to Prepare for Arizona’s Future.

With a track record of more than 123 years, our company has deep roots in Arizona. Yet, longevity alone will not ensure success without a well-conceived strategy and the tools with which to implement it.

We provide an essential service for a region of the country that has grown and evolved dramatically over the decades, and we’ve done so while continually delivering outstanding reliability and value. Our success does not come by chance. It flows from core business fundamentals: consistent innovation, long-term planning, corporate responsibility and old-fashioned hard work.

Pinnacle West Will Aggressively Manage Costs.

Early last year, we saw signs of the pending economic slowdown and began taking decisive action to reduce costs.We have cut back planned capital spending by more than $700 million over the next three years, reduced operations and maintenance costs by $80 million, and phased out more than 550 positions. Our actions included a freeze on both officer and management salaries and company-wide hiring, as well as a host of other reductions throughout the company.

Our cost management culture not only helps us navigate today’s tough business climate, but positions us well for the inevitable return of strong economic growth in Arizona.

Pinnacle West Will Continue to Deliver Outstanding Operational Performance.

We have a consistent and continuing legacy as outstanding operators of generating units, as well as transmission and distribution systems.

Our coal plants – despite being 40 to 50-years old – perform better than ever. Four Corners and Cholla both achieved capacity factors in the top quartile of U.S. coal-fired stations, and their environmental performance exceeds regulatory requirements.

John Denman, our Senior Vice President of Fossil Operations, deserves much of the credit for our fossil generation excellence. After an APS career spanning parts of five decades, John is retiring at the end of this year. While we will miss John’s experience, leadership and expertise, he has assembled a team ready to continue our history of success.

At the Palo Verde Nuclear Generating Station, we have seen remarkable and gratifying progress in our efforts to return the plant to excellence. In March of this year, the Nuclear Regulatory Commission removed Palo Verde from its intensive watch list and returned the plant to routine regulatory oversight.

Led by the steady hand of Chief Nuclear Officer Randy Edington, Palo Verde came off that list faster than any other plant previously – a noteworthy achievement. Management and the Palo Verde team will continue the drive to excellence in all aspects of operations.

Our company has greatly improved the reliability of our transmission and distribution systems. We owe this high level of service to our customers who depend on a steady, uninterrupted flow of electricity 24/7. Since the beginning of this decade, we have reduced the annual number of customer outages by 51 percent, and in 2008 the average APS customer experienced less than one outage.

Put another way, last year we kept the power flowing for customers 99.97 percent of the time, a performance that again placed us solidly in the top quartile of our industry.

Pinnacle West Will Remain at the Forefront of Innovation.

APS customers continue to benefit from our investment in new “smart” electric meters. Smart meters provide our customers unprecedented ability to manage and control their energy use, and in time, will allow APS to pinpoint outages instantly.

We continue to seek ways to extract more value from every megawatt. To this end, we will spend $26 million in 2009 on programs and products to help our customers use energy more efficiently and save money. One such effort – the APS Energy Star Homes program – recently earned APS’s third consecutive Energy Star Partner of the Year award from the United States Department of Energy and the United States Environmental Protection Agency.

Following our announcement early last year of the Solana Generating Station, the world’s largest solar power plant, we have continued to develop power from alternative, renewable sources. Over the last 12 months, we have begun receiving power from a new biomass plant, and have partnered with Arizona State University and the Phoenix Suns on large solar installations.

Just last week, we announced an innovative pilot program for Flagstaff customers to participate with us in expanding renewable energy while locking in long-term savings on their electricity bills. APS will install photovoltaic solar panels on 300 customer homes along a single distribution line in Flagstaff. These solar panels will form a distributed generation system and will interconnect to our “smart grid.”

And on Monday of this week, APS unveiled a new solar facility at Grand Canyon National Park, bringing clean, renewable energy to this natural wonder.

We have created a new group of sustainability superheroes – The Renewables. As you entered the theater lobby today, you had a chance to see the large, inflatable versions of this “Green Dream Team.” The Renewables are a fun, educational way to engage young people and families in the discussion of renewable energy. These colorful characters will promote renewable energy on the Web, in educational materials for children and at community events throughout the state.

Our renewable energy momentum will continue. You can expect another significant energy announcement from APS in the next few days.

The projects I’ve mentioned, and those to come, underscore our efforts to secure a place in the sun for the benefit of our shareholders, our customers and the state of Arizona.

Pinnacle West Will Pursue Long-Term Solutions to Our Business Challenges.

And let me be clear, we face some significant challenges.

Pinnacle West’s corporate culture has always embraced cost management. However, cost controls alone, cannot provide the financial health we will need to power Arizona’s future.

Even with the relative decline in Arizona’s growth rate, our customer base continues to expand. We connect new customers on a daily basis, and we continue to build vital infrastructure. Despite the large reductions in our capital budget, we will invest $2.5 billion in Arizona’s energy future over the next three years. Arizona’s need for new energy infrastructure will grow even more as the economy recovers.

We recently submitted a comprehensive resource plan to our regulators. The plan addresses our customers’ growing energy demand through 2025. We prepared the plan after gathering public input from 120 meetings throughout the state, with more than 1,300 community leaders. The resource plan charts a balanced path to Arizona’s energy future, with primary reliance on more renewable generation and greater energy efficiency.

APS will add another 600,000 customers by 2025, which amounts to 55 percent growth. Consequently, we must reach satisfactory agreement with our regulators and customers on ways to pay for the costs of serving that growth.

Two weeks ago, we took a significant step toward such an agreement. APS, the staff of the Arizona Corporation Commission and other key parties reached a settlement of our current rate case. Commission approval of this settlement would likely create a stable regulatory framework that will ultimately benefit all stakeholders and enhance the investment community’s evaluation of our creditworthiness.

Certainly, we understand the difficulty posed by rate increases, especially in times like these. However, customers and investors alike will benefit from a financially strong APS. To provide our investors with a competitive return on their investment and supply our customers with reliable, reasonably priced electricity, we cannot continuously teeter on the precipice of the high-yield, junk debt markets.

Moreover, the equity capital markets look to companies like ours for a secure dividend and a reasonable outlook for stock price appreciation. We believe approval of the proposed settlement will further these goals for the benefit of both customers and shareholders.

Pinnacle West will Build upon a Legacy of Success

As your Chairman and CEO, you have my utmost commitment to building and improving this superb company, while helping Arizona prosper and remain a beacon for new businesses and residents. The top goals on my personal agenda include the following:

  • Build investor value: We will achieve a stock price and bond credit rating that reflect the excellence of our operations, growth prospects and capital needs. My objectives include a stronger investment-grade credit rating, a total return to shareholders comparable to our industry peers and a securedividend.
  • Demand safety as a top priority: We will drive a culture of constant attention to the safety of each of us, our co-workers, our customers and Arizona’s communities. Only through this diligence will we reach our company goal of zero accidents.
  • Maintain operational excellence: We will maintain operational performance – including power plant performance, customer satisfaction and electric reliability – that ranks within the top quartile of U.S. electric utilities. This includes re-establishing Palo Verde among the safest and best operating nuclear plants in the United States.
  • Build a sustainable energy future: We will build the infrastructure necessary to meet Arizona’s growing energy needs while responsibly considering the short- and long-term impacts on Arizona’s communities, economy and environment. In doing so, we will lead the way in making Arizona the “solar capital of the world.”
  • Build and leverage our high-performing workforce: We will maintain a workforce focused on results and accountability. Our employees will have the tools, resources and training needed to build Arizona’s energy future.
  • Promote a culture of respect, integrity, and trust: Throughout our organization, we require the highest standards of character, which will allow us to maintain strong relationships with our customers, investors, regulators, employees and the communities we serve.

These are my fundamental priorities. I take responsibility for our performance in these areas, and will regularly revisit our progress as we move forward.

Finally, Pinnacle West Will Continue to Succeed Behind the Best Team in the Energy Business.

A team made up of industry pioneers like Don Lamontagne. Don and his team conceived of and developed APS’s TOAN system, a state-of-the-art system for monitoring the health of major electric transformers. Don’s ingenuity earned APS the Edison Electric Institute’s coveted Edison Award – our industry’s highest honor. Don’s TOAN system is saving APS customers millions of dollars.

Pinnacle West is proud to employ power plant machinists like Ralph Escalante. At our company, nothing takes a backseat to safety, and Ralph and all his colleagues at the Ocotillo Power Plant are working on their 27thconsecutive year without a lost-time accident. Imagine, a 27-year record! Ocotillo’s record stands as a testament to incredible dedication, pride and attention to detail.

Pinnacle West boasts customer service professionals like Kimarie Aycock. Kimarie, a senior analyst in our Customer Information and Programs department, has made valuable contributions both inside the office and out in the community. Each year, she devotes countless hours of her own time to help educate and comfort parents of autistic children. Pinnacle West takes pride in people like Kimarie, who believe the task of making Arizona a better place does not end when they leave work.

Pinnacle West has craftsmen like Todd Braun. Todd, along with hundreds of other APS employees, stepped up this past Labor Day weekend after a once-in-a-generation storm felled 150 power poles and knocked out power for 80,000 customers. With seamless teamwork, Todd and his co-workers restored power to virtually all affected homes within 48 hours. I can only call this an amazing effort that saved a holiday for thousands of customers and made this CEO tremendously proud.

Don, Ralph, Kimarie and Todd, please stand for a moment and be recognized for your efforts.

Finally, Pinnacle West has outstanding leaders like Bill Post. Most of us know Bill as a man with great vision and determination who guided our company through the most turbulent challenges in our industry’s history. However, those of us who worked closely with him also know him as a man of great integrity, creativity, humor and humility. All of these attributes make him an outstanding leader – not to mention a tough act to follow. I have no doubt that Bill will continue to have a positive impact on his home state of Arizona.

I trust I have described the Pinnacle West that all of you have come to know over years passed, and want to know for the years to come.

Thank you for your time, your support and your investment.

 

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