PHOENIX- Driven by strong performance in all of its operations, Pinnacle West Capital Corporation (NYSE: PNW) today reported consolidated net income for the quarter ended June 30, 2002, of $75.4 million or $0.89 per diluted share of common stock. The result compares with net income of $66.9 million or $0.79 per share for the same quarter a year ago, an increase of 13 percent.

The increase was primarily due to lower replacement power costs and lower summer reliability expenses, offset by reduced power marketing margins and milder weather. Power marketing margins are down 81 percent from the second quarter of 2001 due to lower wholesale prices and fewer market participants.

"Achieving an acceptable market structure through the regulatory process and maintaining an intense focus on customer service and cost management are high on the Company’s agenda," said Chairman Bill Post. "We are proud that our customers have seen eight price decreases in the last nine years totaling 14.5 percent."

The Company today also announced cost-containment measures that include a voluntary workforce reduction of 500-600 positions. These reductions will be implemented in the second half of this year and are expected to produce annual operating expense savings of $30-35 million beginning in 2003, and a comparable one-time charge to earnings later in 2002.

"We have indicated since last October that matching 2001 earnings this year would be a real challenge based on an assumed 50 percent reduction in power marketing margins," said Post. "It now appears that we will not be able to repeat last year’s earnings because the contribution from power marketing is expected to be down 75 percent from the record levels of 2001."

For that year, the Company reported net income of $172 million or $2.03 per diluted share from its marketing and trading activities.

Many factors have contributed to the decrease in liquidity in the western wholesale power market as the year has progressed, Post said, citing fewer participants and fewer credit-worthy counterparties. "Reductions in the number of market participants results in reduced transaction opportunities and volumes," he said.

Performance for the year, excluding power marketing, has been strong. The Company’s nuclear and fossil-fired plants are performing at record levels, and with the completion of the Redhawk and Saguaro units, the Company is confident that it will meet the peak summer energy requirements of its customers.

Since 1994, APS has reduced retail prices more than $800 million – the largest cumulative price decrease among investor-owned utilities in the nation. These decreases total 14.5 percent, including a 1.5 percent decrease which took effect July 1, 2002.

Second quarter wholesale power sales were 4.8 billion kilowatt-hours (kWh), down about 2.9 percent from the comparable period in 2001. APS’ retail service territory continued to experience strong customer growth of 3.2 percent, about three times the national average. Retail energy sales were about the same as the comparable year-ago period as the increase in customer growth was offset by the effects of milder weather.

The Company’s competitive retail energy service affiliate, APS Energy Services, earned $11.2 million in the second quarter compared with income of $0.4 million in the same period last year due to higher customer revenues in California and increased energy efficiency services. SunCor Development Co., the Company’s real estate subsidiary, and El Dorado Investment Co., Pinnacle West’s investment subsidiary, reported combined income of $4.9 million, compared with a loss of $0.2 million in 2001’s second quarter.

For the six-month period ended June 30, 2002, Pinnacle West’s income before accounting change of $129.1 million, or $1.52 per diluted share of common stock, was the same as last year’s corresponding period. The Company’s electricity operations earned $116.8 million for the current six-month period compared with $136.6 million for the comparable period. For the six months, APS Energy Services income was $13.4 million compared with a loss of $7.7 million in the 2001 period, and SunCor and El Dorado reported combined net income of $7.0 million, compared with earnings of $0.8 million in the 2001 period.

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 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 and financial statistics, please visit www.pinnaclewest.com/investor/default_opstats.asp.

Webcast and Conference Call

The Company will hold a conference call and live webcast at 12:00 noon (ET) today, Tuesday, July 23 to discuss its earnings and recent developments. The webcast will be at www.pinnaclewest.com/investor/presentations and will be available for replay on the website for 30 days. To access the conference call by telephone, dial (212) 346-6430 and enter reservation number 20728853. A replay of the call will be available until Tuesday, August 6, 2002, by calling (800) 633-8284 and entering the same reservation number.

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 the regulatory proceedings relating to the restructuring; regional economic and market conditions, which could affect customer growth; and the cost of power supplies and wholesale market prices; the cost of debt and equity capital; weather variations affecting customer usage; the successful completion of a generation expansion program; regulatory issues associated with generation expansion, such as permitting and licensing; our ability to compete successfully outside traditional regulated markets; technological developments in the electric industry; and the strength of the real estate market.