WHY THE FUTURE IS DEJA VU: 2004 TO 2008

Looking ahead, we’re focused on ensuring that our company can build on its stellar performance of the last decade. To re-create our past successes – to make the long-term investment in infrastructure we will need in Arizona – requires a clear and consistent regulatory path. With that clarity in place, we will continue to:

Manage the future with agility and adaptability. Agility will always be fundamental. We will retain a sensitivity and responsiveness to the market and to regulatory uncertainty, which can be managed but never completely eliminated. And we’ll remain focused on customer needs and Arizona’s growth potential.

Utilize our risk management skills. We clearly know our way around western energy markets. Over the next five years, the skills we used to navigate the market storms of 2000 and 2001 will repeatedly prove their value. We will use every tool we possess to sidestep the ill effects of any future boom-bust cycle and protect our customers from market spikes.

Keep the lights on for our customers. We see no slowdown in customer growth, and likely a modest acceleration. To serve customers reliably, we must take action now, just as we made decisions in 1999 that gave us the power we needed. Our forecast shows we’ll need about 1,800 more 2003_PNW 05 megawatts of generating capacity by 2008, and a total of more than 3,000 by 2012. Those figures are in addition to the Pinnacle West Energy units we are asking to include in APS. That’s why we issued a request for proposal late last year seeking additional capacity by 2007.

Our preference is to buy an existing station or build one ourselves. As long as power markets are rudimentary, illiquid and volatile, increasing reliance on the wholesale market presents unacceptable risk to customers and investors. But at present, we have no assurance that we would be allowed to recover the cost of a prudently planned and constructed plant.

Provide ongoing value for our customers. Providing value to our customers is the driving force of the people of our company. Through their dedication, creativity and commitment we will continue to achieve an enviable combination of price and service.

On the horizon, there are many exciting developments in technology, such as the "self-healing" grid, advances in metering and customer information, distributed generation, solar and other renewable energy sources. These new technologies, combined with the spirit of our people, will continue to produce excellent customer value.

Create shareholder value. For you, the owners of our company, we will continue to produce solid shareholder returns by capitalizing on our region’s growth, concentrating on our core business and focusing on our future. We will continue to emphasize dividends, while striving to achieve a regulatory structure that recognizes the importance of aligning investment expectations with potential returns.

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