We may not need a blinking light to tell you how fast we’re growing, but it does make the point, doesn’t it?

Now that I’ve got your attention, I’ll admit the Arizona growth story is not news. But our re-accelerating growth is. Customer growth re-accelerated last year to 3.7 percent, back to our five-year average after a slight dip in 2002 and 2003. And our five-year average growth of 3.7 percent is three times the industry average.

That re-acceleration is news because growth will continue and even accelerate more this year. That story – and why growth is good for shareholders and customers – is the focus of this year’s report to our owners.

Managing Growth in 2004
Reaching agreement on our rate case with customer groups and other stakeholders marked a high point in 2004, but it was only one among many. It was a demanding year for employees, who managed record growth, worked safer than ever, added another to a string of “top producing power station” years at the Palo Verde Nuclear Generating Station and calmly and professionally resolved a once-in-a-career transmission event.

Palo Verde’s 10-year average capacity factor of 89.5 percent exceeded the 10-year national average by more than five percentage points. That means, just looking at APS’ 29-percent share of Palo Verde, we averaged over 500,000 more megawatt-hours of production per year than we would have achieved with merely average performance. And Palo Verde’s three-year-average production cost of 1.35 cents per kilowatt-hour was 27 percent below the national average for nuclear units. Higher capacity factors and lower costs add up to considerable savings for customers and a sizable contribution to earnings.

For our shareholders, the results in 2004 were strong. We set ourselves apart with our eleventh consecutive annual dividend increase. Shareholders received a total return (stock price increase plus dividends) of 16 percent. Our stock performance, even in the face of re-regulation, nearly matched the strong utility industry.

Our customers continued to enjoy high reliability, exceptional service and lower prices. From 1996 through 2004, APS invested about $3.6 billion to expand generation and upgrade transmission and distribution systems. Over this same period, the number of customer outages dropped by a third and the average interruption decreased in duration by 44 percent.

Those numbers illustrate our ability to manage growth and improve service. In a testament to the dedication to service shared throughout our company, our customer satisfaction ratings remained outstanding. APS ranked in the top 10 percent nationally – and first among investor-owned utilities in the West – in overall customer satisfaction in both the latest J.D. Power and Associates residential and business customer surveys.

In 2004, our customers experienced a full year of prices that were lower than 20 years ago, and 44 percent lower on an inflation-adjusted basis. After a decade of price decreases which ended in 2003, nominal prices are 16 percent lower than they were in 1993. To produce these kinds of numbers, we’ve been innovative in finding ways to cut costs and increase efficiencies. Year after year, with a series of price decreases over the last decade, we improved performance while keeping our regulatory commitments.

Growth means constant attention to resource planning. We grew into – and now we’re outgrowing – the chunks of base-load generation and transmission capacity we’ve added over the years. The good news hidden in those engineering realities is that, with cooperation from our regulators, we can accommodate growth with upgraded facilities and a faster pace of technological innovation.