OUR BUSINESS STRATEGY IS SOLID
Pinnacle West and APS occupy a solid niche in the business landscape. We’ll continue to concentrate primarily on our core business in an area our employees know well – Arizona and the western U.S. power markets – with a combination of customer focus, exceptional operational performance and financial strength.
We have worked hard to shape this landscape. We avoided price increases by keeping control of our power plants. We didn’t sell our generation. We brought in temporary generating resources and built new permanent plants to protect our customers. When prices reached hundreds of dollars per megawatt-hour in 2000 and 2001, we had "hedged" our market position – with financial instruments as well as short-term power contracts – to insulate customers from price volatility, ensure reliability and protect our shareholders’ returns.
This risk management expertise has served us well. We learned to manage purchased power and fuel price risks, then market risk. Even in today’s battered wholesale market, our Power Marketing group has produced positive results, and we expect they will continue to do so in the future.
By July of 2003, we will have decreased our electricity prices 16 percent over the last decade while significantly improving customer satisfaction. That’s customer value. Our employees – the "we" I’ve referred to throughout this letter – will continue our tenacious focus on efficiency and operational excellence.
As we work through the implications of our change in course – the 1999 regulatory write-off, the expense of creating a generation subsidiary, the rate treatment of plants built to serve APS customers and the many issues that affect a traditional rate case – we will not accept inferior outcomes. We acted responsibly in protecting our customers during the power market debacle. We avoided the blackouts, price spikes and bankruptcies that afflicted other states. We honored the terms of our 1999 settlement agreement and the ACC’s competition rules. We expect to achieve a regulatory solution that is fair to our customers and shareholders.
Despite major regulatory shifts, our business strategy has seen little fundamental change. Our core strategic objectives still lock together, allowing us to occupy a rewarding business niche, positioning us well to provide solid shareholder returns.
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