PHOENIX- Pinnacle West Capital Corporation (NYSE: PNW) today reported consolidated income before accounting change for the calendar year 2001 of $327.4 million or $3.85 per diluted share of common stock, compared with $302.3 million or $3.56 per share for the prior year.

The reported income before accounting change for 2001 includes charges totaling $21 million before income taxes ($13 million after tax, or $0.15 per share). This amount is comprised of a previously announced $15 million reserve for the Company’s net exposure to Enron and its affiliates, and additional expenses of $6 million primarily related to 2002 power contracts that were cancelled with Enron.

Chief Executive Officer Bill Post said that 2001 was one of Pinnacle West’s best financial years ever, and that employees throughout the Company performed superbly.

"In a year that proved to be extremely challenging, we passed the test of exceptionally high customer demand, reduced prices to our retail customers, managed volatile wholesale market prices and again increased dividends for our shareholders," Post said.

The year-to-year comparison benefited from strong power marketing results including significant benefits in the 2001 third quarter from structured trading activities, and retail customer growth. These factors were partially offset by higher fuel and purchased power costs, due in part to increased power plant maintenance; generation reliability measures; continuing retail electricity price decreases; and the charge related to Enron and its affiliates.

Post added that the Company’s commitment to providing secure electricity supplies significantly impacted earnings at Arizona Public Service (APS). "Making sure our retail customers have electricity when they need it is a role we take seriously. But, this summer it came at a cost," he said. "We invested in temporary generating units and purchased power from other providers to meet the high demand."

Post said the Company’s agility and disciplined approach to power marketing and risk management helped ensure reliability and positioned the organization to prosper in a time of unprecedented price volatility.

"Our performance last year was outstanding," Post said, "and it will be a real challenge this year to repeat 2001’s financial results." Among the challenges, Post cited the weaker national economy, lower western wholesale power markets, weather effects and the need to achieve regulatory approval of a plan designed to continue providing customers with a secure supply of electricity.

The Company’s plan seeks a variance in the State’s competitive bidding rules and approval of a long-term purchase power agreement between APS and Pinnacle West that will help strengthen the wholesale market -- without risking energy dependability and price stability. The plan was filed with the Arizona Corporation Commission in October 2001.

Post said that achieving a workable regulatory outcome is extremely important to customers and the Company, and will provide benefits for consumers and Arizona’s economy.

Among last year’s highlights, Post included:

• APS lowered its retail prices for the seventh time in eight years, with a 1.5 percent price decrease which became effective July 1, 2001. This reduction is part of APS’ commitment to reduce residential customer prices a total of 16 percent from 1994 to 2004.

• The Company met the challenge of the highest customer demand in APS history. These efforts cost approximately $140 million before income taxes (about $1.00 per share) in 2001, which is not expected to be repeated in 2002.

• APS’ retail service territory continued to experience strong customer growth of 3.7 percent, about three times the national average. Electricity sales to retail customers increased 3.8 percent to 23.4 million megawatt-hours (MWh) in 2001, and wholesale power sales decreased about 8.6 percent to 19.7 million MWh.

• For the eighth year in a row, Pinnacle West increased its annual dividend by 10 cents per share of common stock. The Company’s five-year annualized growth rate is 7.8 percent compared with a negative growth rate for the industry.

• The Company’s ongoing generation expansion plans included the commercial operation of a 120-megawatt unit and the start of construction on four plants totaling 1,670 megawatts. The plants are being built to meet the energy requirements of the Company’s Arizona customers.

Income before accounting change for APS for the year was $280.7 million, compared with $306.6 million in 2000.

SunCor Development Co., the Company's real estate subsidiary, and El Dorado Investment Co., its investment subsidiary, recorded combined net income of $3.5 million compared with $13.5 million for the prior year. The difference is due primarily to the timing of large parcel sales, prior-year gains on an El Dorado investment that was sold in 2001 and other factors.

Consolidated net income for 2001 was $312.2 million, or $3.68 per diluted share. This amount included a $15.2 million after-tax loss due to the cumulative effect of adopting a new accounting change.

Earnings for the fourth quarter were $35.8 million, or $0.42 per share, compared with $42.3 million, or $0.50 per share, in the comparable 2000 period. The quarter-to-quarter decrease reflects the $13 million, or $0.15 per share, after-tax charge related to Enron and its affiliates; lower market prices and lower volumes for wholesale generation sales; and a retail electricity price decrease. The sum of these items more than offset the effects of increased electricity trading; lower replacement power costs for plant outages, the absence of investment losses at El Dorado, and a credit reserve in the prior-year fourth quarter related to the California energy situation.

Pinnacle West is a Phoenix-based company with consolidated assets of approximately $8 billion. Through its subsidiaries, the Company generates, sells and delivers electricity and sells electricity and energy-related products and services to retail and wholesale customers in the western United States. It also develops residential, commercial, and industrial real estate projects.

For more information on Pinnacle West’s operating statistics and earnings, visit www.pinnaclewest.com/investor/default_opstats.asp.

Conference Call

Pinnacle West invites interested parties to listen to the live webcast of management’s conference call to discuss the Company’s 2001 earnings at 11 a.m. (ET) on Monday, January 28, 2002. The conference call also will be available live on Pinnacle West’s website at http://www.pinnaclewest.com/investors/presentations/default.html and will be available for replay on the website through February 28, 2002. To access the live conference call, dial (212) 896-6105.

Consolidated Income Statements

Contacts

Media:
Paul Reynolds, (602) 250-5656
Alan Bunnell, (602) 250-3376

Analyst:
Rebecca Hickman, (602) 250-5668
Lisa Malagon, (602) 250-5671

This press release contains forward-looking statements based on current expectations and the Company assumes no obligation to update these statements. Because actual results may differ materially from expectations, the Company cautions readers not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from results or outcomes currently expected or sought by the Company. These factors include the ongoing restructuring of the electric industry; the outcome of regulatory and legislative proceedings relating to the restructuring; state and federal regulatory and legislative decisions and actions, including the price mitigation plan adopted by FERC in June 2001; regional economic and market conditions, including the California energy situation which could affect customer growth and the cost of power supplies; the cost of debt and equity capital; weather variations affecting local and regional customer energy usage; conservation programs; power plant performance; the successful completion of the Company’s generation expansion program; regulatory issues associated with generation expansion, such as permitting and licensing; our ability to compete successfully outside traditional regulated markets (including the wholesale market); technological developments in the electric industry; and the real estate market in SunCor’s market areas, which include Arizona, New Mexico and Utah.