Good morning. Since last we met -- a year ago -- we've accomplished many things. And I'm very happy to report on them to you this morning. But first I want to thank you for taking time to be here to talk about our company.

Because of all the opportunities we have throughout the year to talk about Pinnacle West none are, as far as I'm concerned, more important than the one I have today; and that is, the opportunity to speak face-to-face with you, the owners of our company.

While all of our stockholders cannot be with us today, one of the benefits of living in the Information Age is that shareholders around the globe can read my comments today on Pinnacle West's Internet site.

We want to communicate with as many shareholders as possible. Because we recognize that not only are you the owners of our company, in many cases, you are our customers and our neighbors, too.

And so, in addition to thanking you for your investment in our company, I also thank you for showing your interest by being here this morning.

Because we share a common interest: the financial success of our company. Financial success means making money for you through financial results.

A year ago, I outlined our plans for achieving financial success in 1999. And today, I'm absolutely delighted to tell you that we not only met those goals, we exceeded them; and as a result, our company is especially well positioned for the future.

At Pinnacle West, we know that ultimately, the value of a business rests on its ability to produce earnings and dividends for investors.

That's how we create value for you - by growing earnings and dividends faster than our peer companies. We're focused on continuing to build a business that outperforms not just our peer group but one that looks attractive to all investors.

Along with our emphasis on earnings and dividends, we are also very fond of cash. We prefer to finance our growth with cash generated from our ongoing business. We expect to finance three-fourths of our capital expenditures over the next five years with internally generated funds.

Our historical cash flow ranks in the top 10 percent of electric utility companies. That gives us the flexibility to fund growth, reduce prices and increase dividends.

Last year, our income from continuing operations grew by 11 percent to $270 million, the highest in the company's history.

Our non-utility operations earned $18 million, 50 percent more than in ‘98. That's also the highest amount ever.

Our dividend grew by 8 percent. That alone sets us apart in an industry where dividend cuts are more common than increases.

We eliminated all of our preferred stock and lowered our long-term debt by $50 million, pushing our equity ratio to 49 percent, an all-time high.

Our earnings growth during the past five years has been outstanding. When we eliminate out of period accruals and one-time expenses, as analysts often do to better capture an underlying trend, we find that our earnings grew at an average annual rate of 10 percent compared with an industry average of 1 percent. Yes, 10 times the industry.

I think you'd agree that if I characterized these financial results as very good, I'd be understating it. The fact is that 1999, taken in total, was one of the best financial years in our history.

And yet, like you, we were dissatisfied with our stock performance last year. But we remain confident that over the long term, the stock market will recognize and reward superior performance and growth potential. We've seen some of that so far this year.

For example, our stock price, as of market close yesterday, is up 22 percent so far this year.

And we're outperforming the S&P 500, and the electric utility index, which was up 9 percent for the same period.

Make no mistake, we're not just passively waiting and hoping for the stock price to go up.

We are executing an aggressive strategy to succeed in the business we know best, in an area of the country that we call home, with the men and women who have a proven track record for producing results.

We unlocked the door to our future success when we achieved a regulatory agreement that enables transition from regulation to competition.

It took two years to complete, working with diverse and disparate parties requiring a company team effort that was nothing short of spectacular. The Arizona Corporation Commission approved the compact in early October.

It resolved the timing for bringing competition to Arizona, and put to rest transition cost and stranded cost issues. It also offers customers a series of price reductions and allows us to move our generation assets to an unregulated subsidiary by 2002 or sooner.

It gave us something more, something unique: the ability to operate both our generation and deliver energy in the same region of the country.

That means we have the ability to match our generation with our electric sales, which is how we've sized our expansion plan, with new units to match future loads. And now, with that agreement in place, our eyes are fixed on the future.

We see ourselves working in tomorrow's core business today.

By that I mean we anticipate markets, exceed service expectations, push our assets to maximum performance, focus on results, and build competitive advantage through technology.

All of this is with one goal in mind, making money for you, our owners.

How will we do that? I hope you've had a chance to read our annual report. It explains our competitive strategy in some detail.

We intend to stay in our core business in our geographical area. The west. We're not interested in diversification into natural gas or broadband. And we have no interest in investing abroad.

Simply put, we know our business. We do it better than anyone else.

These results speak for themselves:

• We attained a 93 percent capacity factor at Palo Verde nuclear station. For the fifth year in a row this station produced more electric power than any other. Number two is Grand Couleeنdam.
• We added more than 30,000 new customers, the second highest growth in our history.
• We doubled our productivity; the number of customers served per employee increased 100 percent during the '90s.
• Our fossil plants are performing far above the industry average. Last year's fossil capacity factor was the second highest in our history.
• Production costs at Palo Verde are among the lowest of all nuclear facilities. Our combined nuclear and coal production costs are below regional averages and below the production costs of new combined cycle plants.

And we're going to keep doing what we do best.

The growth potential in generation is promising. We're not just in a growth state.

We're in a fast-growing region. And we're claiming our stake in the growing western competitive wholesale markets.

We unfurled our generation growth plan last May by announcing expansion of our West Phoenixنplant. We took another big step in October by unveiling plans to build the four-unit Redhawk plant near Palo Verde.

In March, we forged an agreement with Houston-based Reliant Energy to exchange part of Redhawk for an interest in plants in Nevada, which is growing even faster than Arizona.

All of these facilities will be fueled with clean-burning natural gas. They will be efficient combined cycle units that squeeze more energy out of every molecule of fuel. And they will be built with turnkey, fixed price contracts utilizing experienced contractors.

Just three weeks ago, we put in place one more piece of our generation growth picture. We announced the purchase of more of our own top-performing power stations, Palo Verde and Four Corners, from Southern California Edison. This 1300-megawatt purchase balances our increased commitment to natural gas-fired generation with our own proven coal and nuclear units.

The combination of new and added capacity will ultimately provide a fuel mix of about 36 percent natural gas, 27 percent nuclear and 37 percent coal. It is a combination that will help protect us and our customers from market fluctuations due to individual fuel prices. We understand the inherent volatility of electric power markets. We've operated without a fuel adjustment clause for eleven years. Even so, we've enhanced this knowledge with new risk management tools, a highly experienced risk management team and a focus on power marketing tied to our own generating assets.

In less than a year, we've started a major expansion of our generation business, and we are solidifying our position among the largest and best-performing power producers in the West.

We've improved our competitive edge in other corners of our company as well, in areas that matter most to our customers, and they're benefiting from our performance today.

We've lowered our price by about 9 percent since 1994, and by 2004, our price reductions will mean an overall savings of up to 16 percent for our customers. With inflation that means residential bills will be about 40 percent lower than they were ten years before.

Our commitment to the highest standards of financial and operations performance enabled us to achieve these significant price reductions.

And we did it while adding 230,000 new customers during the past decade. That's a 40 percent increase in our customer base while our employee level has dropped 30 percent. I think that says quite a lot about our ability to efficiently and effectively manage growth.

We've fully embraced advanced technology, replacing every major computer system during the past four years. Although I acknowledge the process was not without some degree of pain.

We've replaced 1500 miles of underground cable and improved our vegetation management in an ongoing effort to improve reliability to our 835,000 customers.

We continue to improve on customer satisfaction, although we are still short of our goals.

As for SunCor, the cash and earnings from our real estate development company are an important part of the value story at Pinnacle West.

For evidence, look no farther than out your car windows as you leave the Wigwam. You'll travel past the impressive PalmنValleyنmaster-planned community; it's one of the reasons the West Valley's star is rising. SunCor also is positioned well in other growth areas in Arizona, New Mexico and Utah.

To what do I ultimately attribute all of this success: The men and women at Pinnacle West.

Our company is blessed with a team that performs. Its future is in the hands of a work force -- 6,162 -- that, in my view, is second to none.

We don't just work in communities spanning every corner of our great state; we live here, too. Yes, our employees work hard at making a living. They also work hard at making a life.

Last year alone, our employees volunteered 65,000 hours working to help others. Working with 400 agencies, our employees also contributed $ 2.5 million, improving the quality of life for all of us.

We are part of a company that has enjoyed longevity. We're proud of our history, and to this day, we celebrate it. We've been a part of Arizonaنsince before it was a state. And we care about where we live. You'll find APS and our employees engaged in a broad range of community, civic and social activities.

To help you appreciate the depth of our roots in Arizona, I'll take this opportunity to recognize long time APS board member BenنF.نWilliams Jr. Ben was mayor of Douglas for many years, following in the footsteps of his father, Ben Sr., also a former Douglas mayor.

Along with his knowledge and experience as a businessman, attorney and Arizonan, Benنbrought to our board an expertise for which we are very grateful. And I want to thank him for his 30 yearsنof dedicated board service.

Our company is proud, too, of its leadership role in environmental stewardship. From solar energy to air quality to protecting Arizona's large birds of prey, our commitment to the environment is impressive.

Late last year, in fact, we announced we would decommission our 90-year-old Childs-Irving hydroelectric power plants and reclaim the unique riparian resource surrounding Fossil Creek, up by CampنVerdeنand Strawberry.

But no one has to take just our word on that. Consider instead the analysis of a third party.

In March, Innovest, a firm that prepares an annual study for the financial community on environmental performance, gave Pinnacle West a triple A ranking. And they ranked Pinnacle West third out of 30 electric companies for our environmental performance. The study said, in part, that, “Since 1990, a strong environmental commitment has been integrated into APS' overall business strategy.”

By the way, Innovest's annual report is based on the belief that there is a striking correlation between environmental performance and stock price performance.

We'd be happy to share a synopsis of Innovest's report or the report on our environmental performance from CERES (pronounced: SERIES), which is the Coalition for Environmentally Responsible Economies.

That non-profit, public interest advocacy organization holds us to a very high environmental standard. And we were the first utility in the nation to adopt their 10 standards of performance.

Not only have we demonstrated our dedication to financial success, to environmental quality and to quality of life in Arizona, we did it under some very challenging circumstances.

And we'll continue to do it.

We're restructuring our company: Pinnacle West and its family of companies.

It is a natural progression toward creating a company structure that can respond to the needs of the emerging marketplace. Our company intends to be successful in tomorrow's market, which will not be a simple extension of yesterday's market.

To accomplish this, our company structure must be a reflection of the competitive changes occurring externally.

I'll try to paint a picture. Think of Pinnacle West as an umbrella. Underneath the Pinnacle West umbrella, we have several lines of business: Pinnacle West Energy, our unregulated generation subsidiary; APS, our delivery company; APS Energy Services, our retail electricity sales company; SunCor and El Dorado.

We will be moving our generation assets from APS to Pinnacle West Energy in order to be able to participate in western markets in addition to serving our delivery business.

APS will continue delivering energy to three-quarters of the state.

And it will remain the company that's visible to all our customers. As a regulated business, APS will continue to serve Arizonans while offering lower prices, even better service and a strong commitment to improving the quality of life in our communities.

APS Energy Services will expand our presence in Arizona, California and we'll move into Nevada, New Mexico and other areas as they open to competition. Agility will be key as we monitor customer preferences, regulatory changes and wholesale market development for new opportunities. SunCor and El Dorado will continue to perform in their markets.

Even as our restructuring into many lines of business continues, we know it's critically important that we operate as one total company. This is the way we can create the best value for you. Creating value means that we have to operate our delivery company, our generation business, our energy services company and our non-utility business in a way that will benefit the whole: Pinnacle West. That's what you will watch, our performance as a whole.

Our employees understand our "one company; many lines of business" approach to the competitive marketplace.

But for some, the restructuring still seems new. And sometimes, getting your arms around all of this unprecedented change can be a challenge. But we've done it before.

During the past 114 years, we've changed our name and we've changed our logos, but one thing has remained constant: We are guided by certain principles.

Our commitment to these principles has never wavered; they thread through our company's history.

We believe they are the principles that will hold our lines of business together as one company in the future:

• We create value for shareholders.
• We provide superior service to customer.
• We work to strengthen our communities and to protect our environment.
• We embrace technology to leverage our effectiveness.
• We view employees as our most valuable asset. We encourage innovation, and we strive to earn their commitment.

I'm proud of our accomplishments and I'm excited and confident about where we're going. And as CEO of your company, I know you'll accept nothing less.